News
June 28, 2021

DOJ Requires Directors to Resign from Board to Mitigate Interlock Concerns

Advisory

The Department of Justice announced on June 21 that two executives at Endeavor Group Holdings Inc. had resigned their positions as directors of Live Nation Entertainment Inc. to mitigate antitrust concerns. 1 DOJ alleged that the two individuals’ simultaneous service as Live Nation directors and Endeavor executives violated Clayton Act Section 8, which prohibits, subject to certain exceptions, a person from serving “as a director or officer in any two corporations . . . that are . . . competitors. . . .” 2 

This action underscores the potential Section 8 risks in choosing directors and the need to maintain an effective antitrust compliance program that takes into account issues that might arise from interlocking board service.

Clayton Act Section 8

Simultaneous service as an officer or director at two different competing companies may create antitrust risks through the improper disclosure of competitively sensitive information and by enabling coordination between the two competitors. Section 8 of the Clayton Act is a prophylactic statute designed to prevent opportunities for such anticompetitive conduct by imposing “bright line prohibitions” 3 on such dual service, subject to certain exceptions, regardless of whether the interlock actually causes any anti-competitive conduct.

For Section 8 to apply, the following jurisdictional thresholds must be met:

  • The combined “capital, surplus and undivided profits” (i.e., net worth) of each of the corporations exceeds $37,382,000 (indexed annually) 4 ; and
  • Each corporation is engaged in whole or in part in interstate commerce; and
  • The corporations are competitors “by virtue of their business and location of operations . . . such that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws." 5 

However, because certain interlocks are viewed to pose little risk of significant antitrust harm, Section 8 exempts interlocks for which:

  • The competitive sales 6 of either corporation are less than $3,738,200 (indexed annually) 7 ; or
  • the competitive sales of either corporation are less than two percent of that corporation’s total sales; or
  • the competitive sales of each corporation are less than four percent of that corporation’s total sales.

While the language of Section 8 refers to service as an officer or director of a corporation and thus does not reach interlocks involving noncorporate entities such as LLCs, partnerships and sole proprietorships, the Federal Trade Commission (FTC) has used Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce,” to enforce the “spirit and policy” of Section 8, even where the challenged interlock was not explicitly prohibited by Section 8. 8 

Importantly, even if an interlock is exempt under Section 8, companies and individuals can still be liable for anti-competitive conduct that might arise as a result of the interlock, such as Sherman Act Section 1 violations.

Live Nation/Endeavor Interlock

Live Nation is an entertainment company that produces live events and manages entertainment ticketing sales. 9 Endeavor is an entertainment, sports and content company. 10 In January 2020, Endeavor acquired On Location Events LLC, a hospitality, ticketing and live event production company. 11 DOJ alleged that the two companies “compete closely” to provide “tickets and VIP packages that include tickets, lodging and travel accommodations to live music, sporting and other entertainment events.” 12 

To address DOJ’s concerns, the two directors agreed to step down from the Live Nation board of directors. One director resigned June 3, 2021 13 and the second director resigned June 18, 2021. 14 Acting Assistant Attorney General Richard A. Powers noted that “[t]hese resignations ensure that Endeavor and Live Nation will compete independently.” 15 

Implications

DOJ’s recent focus on Section 8 underscores the importance of recognizing potential antitrust risks associated with these types of interlocks. Section 8 risks can arise at the election of a new director who simultaneously holds a director or officer position at a competitor company, in the M&A context 16 or if a company’s innovation or sales growth causes an existing interlock to no longer qualify for an exemption. Section 8 can be enforced by the DOJ and FTC and by private plaintiffs. While damages are theoretically available to a private party enforcing Section 8 if injury could be shown, no case has yet resulted in damages. 17 

This settlement serves as a reminder of the importance of including Section 8 considerations as part of any effective antitrust compliance program. Section 8 risks should be evaluated before an individual joins a board of directors and at least annually thereafter to ensure that no new Section 8 issues have arisen as a business changes that result in the loss of statutory exemptions.

 

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. Department of Justice, Endeavor Executives Resign from Live Nation Board of Directors after Justice Department Expresses Antitrust Concerns (June 21, 2021).

  2. 15 USC § 19 (“No person shall, at the same time, serve as a director or officer in any two corporations (other than banks, banking associations, and trust companies) that are . . . by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.”). In Bankamerica Corp. v. United States, 462 US 122, 129 (1983), the Supreme Court clarified that the exclusion for “two corporations (other than banks . . .)” means “two or more corporations none of which is a bank.” However, the Depository Institutions Management Interlocks Act, 12 USC §§ 3201–08, prohibits one person from serving as a “management official” of two depository institutions or depository holding companies, subject to certain exceptions.

  3. Department of Justice, Endeavor Executives Resign from Live Nation Board of Directors after Justice Department Expresses Antitrust Concerns (June 21, 2021).

  4. FTC Announces Annual Update of Size of Transaction Thresholds for Premerger Notification Filings and Interlocking Directorates (Feb. 5, 2021).

  5. 15 USC § 19.

  6. The term “competitive sales” is defined as “the gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation’s last completed fiscal year.” Id.

  7. FTC Announces Annual Update of Size of Transaction Thresholds for Premerger Notification Filings and Interlocking Directorates (Feb. 5, 2021).

  8. Kraftco Corp., 89 FTC 46 (1977). In addition, while the Second Circuit rejected application of Section 8 to an unincorporated sports league, it has suggested in dicta that the statute could apply to other “entities with directors.” North American Soccer League v. NFL, 670 F.2d 1249 (2d Cir. 1982).

  9. Live Nation Entertainment Inc., Form 10-K (Mar. 1, 2021).

  10. Endeavor Group Holdings Inc., Form 10-Q (June 2, 2021).

  11. Id.

  12. Department of Justice, Endeavor Executives Resign from Live Nation Board of Directors after Justice Department Expresses Antitrust Concerns (June 21, 2021).

  13. Live Nation Entertainment Inc., Form 8-K (June 3, 2021).

  14. Live Nation Entertainment Inc., Form 8-K (June 18, 2021).

  15. Department of Justice, Endeavor Executives Resign from Live Nation Board of Directors after Justice Department Expresses Antitrust Concerns (June 21, 2021).

  16. DOJ Requires Transaction to Be Restructured to Avoid Director Interlock.

  17. See Jicarilla Apache Tribe v. Supron Energy Corp., 728 F.2d 1555, 1573 (10th Cir. 1984) (dismissing damage claim where no proof of injury).

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Francesca Pisano
Francesca M. Pisano
Senior Associate
Washington, DC
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