Why does antitrust matter to me? Your role in helping prevent anticompetitive behavior--and the unwanted scrutiny it invites.

Without question, your trade association or professional society plays a vital role in the modern economy. Notwithstanding your organization's importance, your conduct is subject to legal scrutiny, particularly in the area of antitrust and anticompetitive activities. As a board member, you need to understand what triggers this scrutiny and what it means for the organization, the well-being of which you are charged with protecting and advancing.

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This subject is especially pertinent right now. Recently the United States Department of Justice expanded the attention given to this important issue by releasing An Antitrust Primer for Federal Law Enforcement Personnel, which helps officials to better understand, detect, and report antitrust violations. No board members want to find that their board has come under a law enforcement microscope because policies that should have been put in place were tabled. To help ensure that this won't happen to you, here are three questions and answers about why antitrust matters and what to do about it.

1. Why is antitrust an issue? It's due to certain characteristics inherent in trade associations and professional societies:

* They have members who are competitors, who meet, and who may take concerted action on matters of common interest. Usually members act jointly to accomplish some legitimate business activity. But competitors might also act openly or (more commonly) in secret to fix prices or take some other prohibited action under the cover of a legitimate association meetings or functions.

* They have been misused in the past to carry out or facilitate anticompetitive purposes.

As a result, both federal and state agencies, as well as consumers and other competitors, examine the conduct of these organizations to ensure that the principles of fair and free competition are preserved in the marketplace. Antitrust laws provide a means for government and private parties to enforce these principles.

These four federal laws provide the basics: the Sherman Act, Clayton Act, Robinson-Patman Act, and Federal Trade Commission Act. Although all of these are generally aimed at preserving open competition, each is used to prevent and rectify a different abuse of the economic system. In addition, all states have some form of antitrust law, generally patterned after the federal laws, to regulate unfair methods of competition.

2. What do antitrust laws mean for your association? These laws allow your members to engage in a wide variety of group activities as long as the purpose or intended effect is to promote your industry or profession--not to gain a competitive advantage over non-members. Thus, your association may, among other things:

* engage in public relations and promote the industry or profession and its products and services;

* engage in lobbying and otherwise attempt to improve government relations and affect decisions that have an impact on your industry's interests;

* exchange information on best practices;

* conduct educational programs;

* adopt voluntary standards and best-practices programs;

* engage in joint research programs; and lastly

* develop codes of conduct designed to protect consumers and enhance competition.

Nonetheless, under the Sherman Act--which prohibits unreasonable restraint of trade--certain conduct is so patently unreasonable that it is deemed illegal on its face. The prime example, and the one posing the greatest threat to fair competition, is the Sherman Act's per se prohibition against price-fixing. The term price-fixing covers a multitude of activities beyond the mere increase of a product's price by competitors. Simply stated, any conduct by competitors that has the purpose or effect of raising, depressing, fixing, pegging, or stabilizing the price of a product or service is unlawful. For your association, that means you must not collect or discuss information with an intent to restrict competition. For example, doctors', lawyers', and engineers' groups have been sanctioned for setting maximum or minimum fees for their members' services or for prohibiting competitive bids. Remember, the antitrust laws are designed to protect competition, not competitors.

Certain other conduct that limits competition is deemed unlawful under the Sherman Act. Concerted action that may have an effect on prices is also prohibited, including matters relating to production; terms, and conditions of sale; distribution of products; and division of markets. In practice, that means your association should not encourage any activities that could inhibit free and fair trade. To name a few, these activities might include using standards activities to exclude competitors' products, boycotting certain buyers through misuse of a credit reporting system, or joint refusals to deal with nonmembers.

Here is a partial list of matters that competitors should not discuss or make the subject of any type of agreement, whether formal or informal, express or implied:

* prices to be charged to customers or by suppliers;

* coordination of bids or requests for bids;

* the basis upon which prices are determined;

* terms and conditions of sales, including credit or discount terms;

* profit levels;

* division or allocation of markets or customers;

* boycott of or a refusal to deal with a customer or supplier;

* compilation of "approved lists" of customers or suppliers;

* dissemination of information relating to sales policies of specific customers or manufacturers; and

* production of products or the level of production.

3. What should a board do to prevent antitrust violations? Obviously, your board's first step is to understand these issues and how they apply to your particular organization. Then you must establish an antitrust policy and provide in-service programs for board and committee members to educate them about the dangers. Many associations develop a standard antitrust statement of do's and don'ts to remind members of the antitrust requirements, to protect the members as well as the association, and to establish a paper trail indicating the association is serious about antitrust. It is not burdensome to include such a statement as a standard document with board and member meeting agendas.

Most important, whether antitrust authorities allege any violation at your association or not, your board must realize that the process of being investigated can be costly. In addition to legal fees and the major disruption of personnel and ongoing activities that any government investigation or litigation can cause, criminal antitrust violations are punishable by fines and/or up to three years' imprisonment for individuals. Violations can be subject to fines of twice the gross financial loss or gain; private parties may recover as much as three times the damages they suffer.

The key is for your board to know the limits of what your association may and may not do. The presence of knowledgeable legal counsel at board meetings can help to avoid such problems and--in the worst cases--jail sentences.

Jonathan T. Howe is president and founding partner of the law firm of Howe & Hutton, Ltd., with offices in Chicago, Washington, D.C., and St. Louis. E-mail: [e-mail].