August 23, 2014
DOJ rules on association joint purchasing plans

This ruling confirms that the enforcement agencies are unlikely to challenge an association joint purchasing program, the general rule that, absent extraordinary circumstances

By Andrew E. Bigart, Esq, Lisa Jose Fales, Esq., Jeffrey S. Tenenbaum, Esq., of Venable LLP | 03/27/2014

Association TRENDS

In a recent DOJ Business Review Letter to STARS Alliance LLC, the DOJ reviewed a joint purchasing arrangement proposed by an association of several nuclear utility operators. As a starting point, the DOJ noted that the proposal likely qualified for the safety zone for collaborations that account for less than 20 percent of the relevant market. Nevertheless, the DOJ went on to conduct a rule of reason analysis to determine whether the anticompetitive effects outweighed the procompetitive benefits.

 

Starting with potential anticompetitive effects, the DOJ found that it was unlikely the arrangement would “restrict competition in either the upstream markets for goods and services or the downstream markets for electricity” because the STARS members were generally located in different geographic areas and did not compete against each other. At the same time, DOJ found that the arrangement had the potential for procompetitive benefits through increased efficiencies and lower costs.

Further, DOJ noted that STARS had implemented numerous safeguards to limit the potential for anticompetitive coordination among its members, including that the joint purchasing activities would be voluntary for members, that members would not discuss prices for procuring goods and services, and that STARS would require antitrust compliance training for its members.

This ruling confirms the general rule that, absent extraordinary circumstances, the enforcement agencies are unlikely to challenge an association joint purchasing program where members are not required to purchase a particular product or service, each member makes its own independent decision to participate, and there is significant competition in the relevant market.

Associations looking to implement a joint purchasing program should implement safeguards, as appropriate, to prevent members from sharing competitively sensitive information, such as downstream sale prices, the timing of price increases or purchase orders, and margins. Suggested precautionary measures include:

• Check your association’s governing documents and evaluate its tax-exempt status to confirm that a joint purchasing program is a permissible association activity.

• Consult with antitrust counsel before establishing a joint purchasing program and periodically throughout the process to ensure compliance with antitrust laws.

• Monitor the buying group’s market share in the input and output markets to stay within the safeguards set forth in the enforcement agencies’ Antitrust Guidelines for Collaborations Among Competitors (e.g., 35 percent share for total purchases in the relevant input market and 20 percent share in the relevant output market).

• The association or an independent agent should handle joint buying activity and negotiate with suppliers on behalf of the purchasing group, or require each member to contract individually with the supplier offering a group discount.

• The program should not impose minimum purchasing requirements on members.

• Participation in the joint purchasing arrangement should be available to all association members and should not be limited by the size, type or location of a member.

• Joint purchasing should not be used to raise, lower or stabilize prices, or to boycott suppliers.

• Members should not share competitively sensitive information or enter into any agreement or understanding on prices or other competitive conduct in the downstream output market.

• Any meetings of a joint purchasing group should have an agenda and minutes. All discussions should be limited to the purposes of the joint purchasing group.

• Antitrust counsel should be present at all meetings where competitively sensitive information is discussed.

Read the full article here. This article is part of the TRENDS 2014 Annual Legal Review, sponsored by Venable.


Association TRENDS