Okay with Your Officer Serving on Another Company’s Board? The FTC May Not Be.
Have you heard of the antitrust prohibition against “interlocking”? The terminology may be confusing, but the concept is simple: No person who serves as an officer or director of one corporation may simultaneously serve as an officer or director of a competing corporation.
As an example, the same person cannot simultaneously serve as the Chief Marketing Officer of two competing corporations (“Competitor A” and “Competitor B”). Nor can the same person simultaneously serve on the boards of Competitor A and Competitor B. Nor can the same person simultaneously serve as, say, the Chief Information Officer of Competitor A and a board member of Competitor B. All of these situations are called “interlocking,” meaning that they entangle two competitors in a way that can harm competition. At the level of “officers” and “directors,” interlocking between competitors is broadly forbidden.
Historically, interlocking has not been a major focus of antitrust enforcement activity. But this is changing. The FTC has recently put out blog posts about interlocking, and over the past year, both the Federal Trade Commission and the DOJ Antitrust Division have mentioned interlocking as a priority area of enforcement going forward. What’s more, the government has taken the (very debatable) position that the prohibition against interlocking can apply indirectly. For example, if Competitor A has the right to appoint a director to the board of Competitor B, the government has argued that this can constitute an impermissible “interlock” regardless of whether the appointee is also simultaneously serving as an officer or director of Competitor A.
There are exceptions to the law against interlocking. The law does not apply to banks, nor does it apply to corporations that have less than $41,034,000 in capital (a number that adjusts every year). Nor does it apply if either corporation’s competitive sales are less than $4,103,400, or less than 2% of its overall total sales. There are other exceptions as well. But suffice to say that the law and exceptions on interlocking are complex and fact-dependent, and they often require the judgment of experienced antitrust counsel.
