Newsletter – Page 31 – Northern California Recycling Association

An Abbreviated Guide To Antitrust Law

MOORE’S MUSINGS
A semi-monthly feature, exclusive to NCRA News, from NCRA general counsel and board member John Moore, concerning recent legal decisions relating in some manner to Zero Waste.

AN ABBREVIATED GUIDE TO ANTITRUST LAW
By John D. Moore, NCRA Vice President and Legal Counsel, Henn, Etzel & Moore, Inc.

At the April meeting of the NCRA Board, member Gary Liss reported via phone about the G7 Alliance On Resource Efficiency Workshop he attended in Washington DC in March, partially through aid from NCRA. Mr. Liss reported that representatives of competing Japanese auto parts manufacturers expressed concern about being accused of violating antitrust laws if they worked together towards Zero Waste goals like standardization of the design, measurement, and packaging of auto parts. At the conclusion of his report, several NCRA members including some Board members expressed surprise and concern that US antitrust law could be an impediment to US Zero Waste goals. This article is meant to explain the antitrust law concerns.

I have defended businesses accused of violating antitrust law. I do not pretend to be an expert but I know the general parameters of antitrust law. One thing I know for certain is that it is expensive to defend an antitrust law claim. Besides proving that the claimed conduct violates antitrust law, the plaintiff must prove its effect on the market and that it has suffered “antitrust injury” under laws that protect competition but not competitors. The litigated fight often is about the scope of the market of the product involved and the defendants’ conduct to suppress competition in that market. The defendant wants the court to define the market broadly to dilute any claimed impact on that market. The plaintiff has the opposite vantage. One antitrust specialist advised me that the fees of the expert economist hired to answer questions about the market and impact on that market often run “into seven figures.” That is a big pill for many businesses to swallow.

The primary antitrust law is the federal Sherman Antitrust Act, named for Senator John Sherman (brother of Gen. William T. Sherman) who is said to have never read the law that bears his name. When the law was passed in 1890, business cartels were referred to and organized as “trusts”. The basic command of the Sherman Act is that any combination or conspiracy (agreement) that restrains trade violates the law. The Sherman Act also prohibits monopolies. The application of this prohibition to the many anti-competitive actions a business may take has spawned additional federal statutes such as the Clayton Act and Robinson-Patman Act, and California’s Cartwright Act and Unfair Practices Act, and scores of federal and state case law precedents. The Supreme Court held that “The purpose of the Sherman Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.”

The result of all this shaping of antitrust law starting with the Sherman Act is a pretty clear and seldom changing way to examine anti-competition claims. First, there are a species of claimed violation called “per se” violations. Per se violations are anticompetitive actions that are so evil that they can never be justified consistently with fair competition. A plaintiff need only prove that the per se conduct occurred to prove its case. The traditional per se violations are monopolization, price fixing, horizontal (all conspirators in the same channel such as wholesale, retail etc) agreements to divide customers or to boycott certain customers, and tying agreements (conditioning the purchase of one product upon the purchase of a different product or service). But even within each of these categories, Courts have carved out exceptions. For 98 years agreements to maintain resale pricing were judged on the per se rule. In 2007 the US Supreme Court changed that rule. Courts have held states to be immune from antitrust liability and courts have extended this protection to local governments that are carrying out a “clearly articulated” state policy. This is the source of antitrust immunity enjoyed by exclusive franchise agreements.

The second category of antitrust law violations is a residual category. Any anticompetitive practice that is not a per se violation is judged by how reasonable and/or pro-competitive it is for the business to use the practice. This is called a “rule of reason.” So antitrust laws fall into either the per se or rule of reason categories. A good example in applying the rule of reason is a vertical (parties in different channels) restraint for a manufacturer to set wholesale prices and conditions on a different basis between internet vendors and brick and mortar retailers. The manufacturer usually relies on the retailer to promote the products and educate customers in the target market about the product. This promotion has a cost to the retailer. Internet sellers, in contrast, do little for product promotion and instead compete on price. A person buying a television might browse and get product advice from a brick and mortar store or chain and then order the desired product from an online seller that undercuts the brick and mortar store on price. The vertical price restraint favoring brick and mortar sellers is judged by this so-called rule of reason. The manufacturer will argue that since it reaches its market through brick and mortar stores and the more that is known about a product the more competition there is for customers, applying the rule of reason to discriminatory pricing to internet vendors, results in a finding of no antitrust liability. The rule of reason also requires the plaintiff to prove that the anticompetitive conduct affect a significant percentage of the defined market. But all this happens after the defendant business pays millions of dollars to defend itself, the cost of which is, of course, passed on to product buyers via increased pricing.

One truism of antitrust law is there is seldom direct evidence of a conspiracy. It is rare to have evidence of two or more people agreeing to anticompetitive conduct. The discussion in a restaurant between co-conspirators that results in an action that violates antitrust law is not usually heard except by the co-conspirators themselves and there is unlikely to be a later confirming written record of the conversation that took place. So, unless one of the conspirators snitches on the others, courts rely upon circumstantial evidence (actions from which the existence of a fact may be inferred) to prove antitrust law violation. (Thoreau observed that “Some circumstantial evidence is very strong, as when you find a trout in the milk.”)In antitrust law courts are willing to allow circumstantial evidence that parties “acted” like there was an illegal agreement even though there was no other evidence of an agreement to violate antitrust law. This is called “conscious parallelism”.

So, circling back to the auto parts makers: If you attend a trade group meeting attended by competitors, it is common for the moderator to remind the audience that “we are not here to fix prices or violate antitrust laws.” Regardless of the caution given, any discussion between competitors could be viewed in hindsight as an agreement to restrain trade if there is later market impact. So no matter how “progressive toward a Zero Waste goal” if two competing businesses reach consensus that has a market impact they might find themselves defending an antitrust lawsuit. So I did not find it unreasonable for the competitors attending the Zero Waste Business Council to be reluctant to cooperate towards Zero Waste goals.

The opinions expressed are only of the author. This article contains general information about legal matters. The information is not advice, and should not be treated as such.

Zero Waste At G7 Workshop

EPA Hosts International G7 Alliance On Resource Efficiency Workshop on Sustainable Supply Chain Management
By Gary Liss, Gary Liss & Associates, 04/14/16
With support from The Northern California Recycling Association, U.S. Zero Waste Business Council and Zero Waste USA, I attended the first G7 Alliance on Resource Efficiency workshop held in the United States. The Alliance, founded at the June 2015 G7 Summit, is a forum to share knowledge, create information networks across G7 countries, and encourage collaboration with businesses – large and small, and relevant stakeholders to advance resource efficiency, promote voluntary best practices and foster innovation. The G7 countries are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States; the European Union is also represented.

Hosted by the USEPA, the workshop was held in the Washington, DC area on March 22-23, 2016. Over 150 dignitaries, corporate and government leaders and non-governmental organizations were invited to participate by Mathy Stanislaus, Assistant Administrator for Land and Emergency Response, the highest ranking person in the USEPA responsible for solid waste and recycling. The meeting focus was the use of life cycle concepts in supply chain management to achieve resource efficiency. The automotive industry was showcased as an example where resource efficiency efforts have been pursued.

Speakers from the U.S. included Mr. Stanislaus, Agency Administrator Gina McCarthy and representatives from General Motors, Toyota North America, Ford, 3M, General Electric, Mars Corporation, U.S. Department of Defense, U.S. Department of Energy, Johnson Controls, University of Tennessee UN Environmental Program, US Business Council on Sustainable Development, Sustainable Purchasing Leadership Council and the Materials Marketplace, Stuffstr, Novelis Aluminum, Suppliers Partnership for the Environment. Bob Gedert, Austin Resource Recovery, and I were the key Zero Waste advocates there – in addition to leading Zero Waste businesses GM and Toyota. Bob was also there as President of the National Recycling Coalition.

The first day focused on upstream issues, and how to address resource efficiency in product design. It was one of the most exhaustive discussions I’ve ever heard on these issues. In addition to original equipment manufacturers (OEMs) like GM and Toyota, they had several auto parts recycling speakers. The latter provided some great ideas like asking the OEMs to label parts and participate in a database that would facilitate the use of salvaged and remanufactured parts. The remanufactured parts speaker suggested OEMs help promote these parts as “good as new”, as they are of the same quality and functionality and carry the same warranty as new. A presenter from Japan highlighted that remanufactured auto parts are used significantly more in the U.S. than in Japan, and they are trying to figure out why. One factor is that U.S. insurance companies allow remanufactured parts to replace broken ones. The discussion also highlighted how insurance companies could be a key partner in fostering reuse, and how that industry is championing addressing climate change – due in part to the potential catastrophic losses they may have to cover.

In the smaller group discussions, many ideas were presented and discussed how life cycle analyses (LCAs) and the more general life cycle management approach (LCM) could help with designing for resource efficiency. One of the best models was how 3M uses LCAs and LCM in evaluating new products. Traditional LCAs are very costly and time consuming, and not needed for all products. For 3M, they developed LCMs as a less rigorous tool that’s more of a checklist then the detailed analysis that would be done as part of a LCA.

I asked if a LCA yielded a result that recommended an approach inconsistent with Zero Waste, could they go beyond the LCA outcome? I highlighted the classic case shared by David Allaway of the Oregon Department of Environmental Quality, of a flexible, non-recyclable pouch being the better container for coffee than a steel can after a LCA was conducted. I suggested that manufactures could go beyond accepting a non-recyclable product and work on designing one that was reusable, recyclable or compostable. (For example, OSC² of Piedmont, CA is working to develop a backyard compostable pouch for organic food products.) 3M responded that LCAs are only one of many tools used in evaluating new products and they could certainly go beyond LCA conclusions. 3M also noted that there has been an effort globally to develop a consistent framework for conducting LCAs that is due to be completed this year. That effort is also working to develop a simpler, more accessible LCM approach.

The second day, the focus was more on how to improve resource efficiency at product end of use and end of life. Stuffstr.com was an intriguing example of how new software/social media may assist consumers in tracking the value of their stuff, and where to recover the highest value when ready to discard it – whether selling as is, as repurposed, or recycled, depending on its condition.

In a small group discussion on Zero Waste and maximizing the value of discarded materials, after insightful presentations by GM and Toyota, we had a great brainstorm about what could be done, why it wasn’t being done, and what could be done to enhance Zero Waste and resource efficiency. Some of the ideas discussed are listed below in G7 Zero Waste Small Group Brainstorm.

A full USEPA report from the Workshop is due out in June. Mathy Stanislaus will be keynoting the 5th National Zero Waste Business Conference in Austin on June 3 where he will highlight the most significant outcomes from this Workshop.

I’d like to thank NCRA for their support of my participation in this important event. One of the most valuable things we can get from these impressive efforts to promote the circular economy, resource efficiency and Sustainable Materials Management (SMM), is a seat at the table so we can directly encourage businesses to consider Zero Waste in the design of products, packaging and services. If anyone is interested in working more in this area, let me know. I am co-chair of the SMM Committee of the National Recycling Coalition and would like to connect you with others working in this arena. I can be reached at gary@garyliss.com.