Ending an investigation launched more than a year ago, on September 24, 2010, the Antitrust Division of the Department of Justice entered into an agreement with Google Inc., Apple Inc., Intel Corp., Adobe Systems Inc., Intuit Inc. and Pixar Animation settling charges that the companies' bilateral agreements prohibiting cold-calling of their employees violated Section 1 of the Sherman Act. In a complaint also filed on September 24th, the Division alleges that the companies compete for highly skilled technical employees and that their concerted behavior "reduced their ability to compete for employees and disrupted normal price-setting mechanisms that apply in the labor setting." U.S. v. Adobe Systems, Inc., Complaint, online. The Division contends the agreements are facially anticompetitive because "they eliminated a significant form of competition to attract high tech employees" and "substantially diminished competition to the detriment of high tech employees who were likely deprived of important information and access to better job opportunities."
In its complaint, the Division states that the no-cold call
prohibitions included direct communications in the form of e-mail
and other writings. Even though the companies receive a high number
of applications from high tech employees, they still use cold
calling to fill certain positions. The Division describes the
companies as direct competitors for employees and contends the
employment restraints are per se illegal under Section 1. The
effect of the no-solicitation agreements, the Division alleges, was
to reduce competition for high tech employees, diminish potential
employment opportunities for these employees and "interfere
with the proper functioning of the price-setting mechanism that
would have otherwise prevailed." U.S. v. Adobe Systems,
Inc., Competitive Impact Statement, online.
To back-up this contention, the Division refers to
"analogous" cases. One of these cases is a 1996 judgment
of a federal district court approving an agreement between the
Division and a physicians practice association that settled the
Division's charges that agreements among members of a
physicians association not to directly solicit medical students was
designed to curb competition between residency programs and was per
se illegal. United States v. Ass'n of Family Practice
Residency Doctors, No. 96-575-CV-W-2, Complaint at 6 (W.D. Mo.
May 28, 1996). The Division refers also to a Sixth Circuit decision
holding that an agreement between two competitors not to actively
solicit each other's customers was a customer allocation scheme
and a per se violation of Section 1. U.S. v. Cooperative
Theaters of Ohio, Inc., 845 F.2d 1367 (6th Cir 1988). The
Division relies as well on a Ninth Circuit decision holding that an
agreement between two competing companies to refrain from bidding
on each other's former billboard leases was per se illegal.
United States v. Brown, 936 F.2d 1042 (9th Cir.
1991).
The Division maintains that the agreements at issue in this
instance are per se illegal because antitrust analysis of
downstream, customer-related restraints is, the Division contends,
"equally applicable to upstream monopsony restraints on
employment opportunities." The Division further asserts that
"[a]nticompetitive agreements in both input and output markets
create allocation efficiencies. Hence naked restraints on cold
calling customers, suppliers, or employees are similarly
unlawful." Competitive Impact Statement, online.
The Division also notes that the alleged per se agreements were not
justified as properly ancillary to any legitimate collaboration.
Although the companies at times engaged in legitimate collaborative
projects, the no-solicitation agreements were not tied to any such
collaboration, nor were they narrowly tailored to the scope of any
specific collaboration.
Several of the would-be defendants publicly expressed their
disagreement with the Division's position that they violated
the antitrust laws. Google's Associate General Counsel for
Employment stated in an online post that Google believes its
"no cold call" policies neither hindered hiring nor
affected wages. See J. Tessler, Silicon Valley Companies
Settle DOJ Hiring Inquiry, online (Sept. 27, 2010). Spokespersons
for Intuit and Intel similarly stated that they do not believe
their companies violated the law. An Adobe spokesperson indicated
that Adobe may agree with this position. The spokesperson noted
that Adobe settled with the Division to avoid the costs and
distraction of litigation. Id.
By reaching a settlement immediately, there will be no judicial
determination as to which side is correct. In addition, the terms
of the settlement agreement go further than what the government
alleged in its complaint. Although the government alleged that the
defendants agreed to ban cold calling of employees, the settlement
more broadly enjoins agreements regarding solicitation, recruitment
and other methods of competing for employees. Companies in all
sectors should therefore understand that agreements with
competitors concerning inputs, just like those concerning outputs,
may pose considerable antitrust risk.
This article was originally posted on Sheppard Mullin's
Antitrust Law blog, which can be found at www.antitrustlawblog.com.
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