DOJ Continues “Vibrant Section 8 Enforcement” to Purge Companies of Potentially Anticompetitive Interlocking Directorates

In March 2023, the Department of Justice’s Antitrust Division (DOJ) announced that five additional directors have resigned from four corporate boards in response to the DOJ’s efforts to enforce prohibitions against so-called interlocking directorates. In addition, the DOJ’s efforts led to one company declining to exercise its board appointment rights to seat a would-be offending director. The announcement brings the total number of interlocks unwound or prevented as a result of the DOJ’s recent efforts to thirteen directors from ten separate boards in the entertainment, software, education, transportation, space and insurance industries.

This most recent announcement marks the third time in less than a year that the DOJ has publicized its successful efforts to ensure that competing businesses do not share the same directors and officers. While Section 8’s prohibition on interlocking directorates has been the law since 1914, the federal antitrust agencies had not made enforcement a priority since the 1980s. That has changed in large part due to the Biden administration’s renewed focus on antitrust as a means to break concentration and anticompetitive conduct in the marketplace, including a July 2021 executive order that mandates a “whole-of-government” effort to enforce the antitrust laws.

Prohibition on Director Interlocks

As described in our prior alerts, Section 8 of the federal Clayton Act, 15 U.S.C. § 19, generally prohibits individuals from simultaneously serving as directors or officers of two large companies that are “by virtue of their business and location of operation, competitors.” The statute includes carveouts for smaller businesses and businesses whose competitive lines do not make up a substantial portion of their respective sales. But where the relevant jurisdictional thresholds are met, such interlocks are per se unlawful (meaning the interlock is unlawful regardless of any potential procompetitive justifications). The statute provides for actions to be brought either privately or by the federal antitrust authorities against individuals or corporations, and the typical remedy for Section 8 interlocks has been to enjoin the interlock and require the offending director or officer to resign one of their appointments.

Recent Enforcement Efforts and Resignations

The resignations offer important compliance insights for companies as they identify and recruit board members with relevant industry expertise. For example, in one instance, the DOJ secured the resignations of two directors from the board of an aviation company after the directors’ employer, an asset management company, entered into an agreement to acquire the aviation company’s competitor. And in another case, directors employed by a third-party investment firm resigned their appointments on two of three boards for competing businesses. The DOJ also looked to a board designee’s parent company in determining that a board appointment would create an unlawful interlock, even though the subsidiary itself did not have any competing lines of business.

During remarks given at the 2023 American Bar Association Antitrust Spring Meeting in March, the DOJ’s antitrust chief, Assistant Attorney General Jonathan Kanter, opined that Section 8 enforcement is “in many respects . . . probably the most effective way of deconcentrating the United States economy today.” He went on to say that the DOJ “now [has] a vibrant Section 8 enforcement” and that the DOJ currently has nearly 20 open investigations with “many additional opportunities out there for investigation and enforcement.” The Federal Trade Commission (FTC) also has said that it is looking at interlocking directorates, though it has not yet announced any major enforcement actions. Importantly, even interlocks that avoid the jurisdictional requirements of Section 8 can be prosecuted under Section 5 of the FTC Act, which more generically prohibits “unfair or deceptive acts or practices,” regardless of the amount of commerce in play. Companies and their representatives therefore should anticipate increased oversight by the federal antitrust authorities of board appointment decisions, particularly in industries, such as technology and health care, which have a history of antitrust scrutiny and enforcement.

For More Information

The law surrounding interlocking directorates is nuanced and complex and involves a fact-intensive inquiry into the size and scope of the potentially competing business segments of the relevant parties. Businesses with questions or concerns relating to the antitrust implications of directors’ board service should consult with antitrust counsel.