DOJ Announces More Scrutiny on Interlocking Directorates

What Happened: The Department of Justice (DOJ) announced it is “ramping up” efforts to enforce Section 8 of the Clayton Act which prohibits a person from simultaneously serving as a director or officer of two companies that are viewed as competitors (so-called “interlocking directorates”).

The Bottom Line: Companies should be aware of the DOJ’s enforcement priority with respect to their current boards or when selecting new members who serve on other boards. The definition of “competitors” for Clayton Section 8 purposes has been interpreted broadly. Potential disruption and expense resulting from an investigation or enforcement action means careful vetting of candidates is critical.

The Full Story: Clayton Section 8 provides a bright-line prohibition against interlocking directorates provided that “the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.” Violations of Section 8 are per se unlawful, meaning proof of actual or likely harm to competition is not required. Both the DOJ and Federal Trade Commission (FTC) have authority to enforce Section 8. The relief sought by the agencies is to eliminate the offending interlock, which is typically achieved by voluntary resignation, but could be subject to an injunction in litigation. 

Litigation is rare as companies have typically resolved agency concerns through voluntary resignation. In 2009, the FTC closed an investigation into interlocks involving Google, Inc. and Apple, Inc. after a common member resigned from Google’s board and Google’s CEO resigned from Apple’s board. In 2016, an executive of Google resigned from Uber Technologies, Inc.’s board when Uber announced it was pursing self-driving vehicles. And in 2021, the DOJ announced that two executives from Endeavor Group Holdings, Inc. resigned their positions on the Live Nation Entertainment, Inc. board after the DOJ expressed concern.

There are certain exemptions to Clayton Section 8. First, Section 8 only applies to companies with capital, surplus and undivided profits aggregating more than $41 million, which threshold is adjusted annually. Second, there are several de minimis exemptions related to the “competitive sales” of the two companies. Competitive sales means the annual gross revenues for all products and services sold by one company in competition with the other. Section 8 does not prohibit interlocking directorates where competitive sales are (a) less than $4.1 million (adjusted annually); (b) less than 2% of either company’s total sales; or (c) less than 4% of each company’s total sales.

The DOJ’s announcement puts companies on notice that it will affirmatively seek to identify and remedy violations of Clayton Section 8 outside of merger investigations. Assistant Attorney General Jonathan Kanter of the Antitrust Division emphasized the DOJ’s view that increased enforcement of Section 8 will help prevent illegal collusion between competitors, which is prohibited by Section 1 of the Sherman Act, before it can occur. Companies would do well to review their current officers and directors and identify any potential issues.