case analysis united states v. microsoft corporations

Case 24-7 United States v. Microsoft Corporation

United States Court of Appeals for the District of Columbia Circuit 253 F.3d 34 (2001) The authors recommend a close reading of the facts of United States v. Microsoft set out earlier in this chapter.

Section 2 of the Sherman Act makes it unlawful for a firm to “monopolize.” The offense of monopolization has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

The district court found that Microsoft possessed monopoly power in the market for Intel-compatible PC operating systems. Focusing primarily on Microsoft’s efforts to suppress Netscape Navigator’s threat to its operating systems monopoly, the court also found that Microsoft maintained its power not through competition on the merits, but through unlawful means. Microsoft challenged both conclusions on appeal.

Per Curiam (by the Whole Court of Appeals) We begin by considering whether Microsoft possesses monopoly power and finding that it does, we turn to the question [of] whether it maintained this power through anticompetitive means. Agreeing with the District Court that the company behaved anticompetitively and that these actions contributed to the maintenance of its monopoly power, we affirm the court’s finding of liability for monopolization.

Monopoly Power

While merely possessing monopoly power is not itself an antitrust violation, it is a necessary element of a monopolization charge. The Supreme Court has defined monopoly power as the power to control prices or exclude competition. More precisely, a firm is a monopolist if it can profitably raise prices substantially above the competitive level[;] where [there is] evidence that a firm has in fact probably done so, the existence of monopoly power is clear. Because such direct proof is only rarely available, courts more typically examine market structure in search of circumstantial evidence of monopoly power. Under this structural approach monopoly power may be inferred from a firm’s possession of a dominant share of a relevant market that is protected by entry barriers.

“Entry barriers” are factors (such as certain regulatory requirements) that prevent new rivals from timely responding to an increase in price above the competitive level.

The District Court considered these structural factors and concluded that Microsoft possesses monopoly power in a relevant market. Defining the market as Intel-compatible PC operating systems, the District Court found that Microsoft has a greater than 95 percent share. It also found the company’s market position protected by a substantial entry barrier.

Microsoft argues that the District Court incorrectly defined the relevant market. It also claims that there is no barrier to entry in that market. Alternatively, Microsoft argues that because the software industry is uniquely dynamic, direct proof, rather than circumstantial evidence, more appropriately indicates whether it possesses monopoly power. Rejecting each argument, we uphold the District Court’s finding of monopoly power in its entirety.

Microsoft’s pattern of exclusionary conduct could only be rational if the firm knew that it possessed monopoly power. It is to that conduct that we now turn.

Provisions in Microsoft’s agreements licensing Windows to [computer makers] reduce usage share of Netscape’s browser and, hence, protect Microsoft’s operating system monopoly.

Therefore, Microsoft’s efforts to gain market share in one market (browsers) served to meet the threat to Microsoft’s monopoly in another market (operating systems) by keeping rival browsers from gaining the critical mass of users necessary to attract developer attention away from Windows as the platform for software development.

We conclude that Microsoft’s commingling of browser and nonbrowser code has an anticompetitive effect; the commingling deters computer makers from pre-installing rival browsers, thereby reducing the rivals’ usage share and, hence, developers’ interest in rivals.

By ensuring that the majority of all [ISP] subscribers are offered [Internet Explorer] either as the default browser or as the only browser, Microsoft’s deals with the [ISP] clearly have a significant effect in preserving its monopoly.

Microsoft’s exclusive deals with the [Internet software vendors] had a substantial effect in further foreclosing rival browsers from the market.*

Judgment in favor of the United States (Plaintiff) affirming the U.S. District Court decision that Microsoft did possess and maintain monopoly power in the market for Intel-compatible operating systems. An appellate court reversed other holdings of the district court and remanded these matters for further proceedings.

Comment: The European Court of First Instance upheld a $600 million fine against Microsoft in September 2007. The fine had been levied by the European Commission (see Chapter 8 for the European Union court structure). A spokesperson for the U.S. Justice Department expressed regret at the European court’s opinion and indicated that such a decision might limit innovation on the part of other multinational companies such as Microsoft. In April 2015, Google made the same threat involving innovation with the European Union’s antitrust action hanging over its head. Is it real or imagined?

Attempt to Monopolize

Section 2 of the Sherman Act forbids not only monopolization but also attempts to monopolize, because the drafters of the section were concerned about the damage that efforts to attain a monopoly could inflict on an industry even if such efforts failed. So great was their concern, in fact, that the penalties are the same for both monopolization and attempts to monopolize. Case law indicates that after determining the relevant geographic and product markets, the courts look for one or some combination of three factors when a firm is charged with an attempt to monopolize: specific intent, predatory conduct, and a dangerous probability of success. We will discuss the first two; the third is self-explanatory.

Specific intent is shown by bringing forth evidence that a firm has engaged in predatory or anticompetitive conduct aimed at a stated or potential competitor.

Predatory conduct includes (1) stealing trade secrets, (2) interfering unlawfully in requirement contracts that third parties have with other competitors, and (3) attempting to destroy the reputation of a competitor through defamatory actions. Recently, the courts have added predatory pricing—pricing below average variable cost (or, in some cases, below average total cost)—to this list, on the grounds that when a company is pricing below average variable cost, it is not seeking to maximize profits but is intending to drive a competitor out of business.

predatory pricing Pricing below the average variable cost to drive out competition. See Matsushita Electric Industrial Co. v. Zenith Radio Corp.,14 in which the U.S. Supreme Court accepted the argument that predatory pricing (predation) at some point is an irrational strategy. Debate exists as to whether predatory pricing may exist at below average variable cost, below average total cost, above average total cost, or a quantitative rule that forbids increasing output by a monopolist when a new entrant comes into the market. 14 475 U.S. 574 (1986).

The Clayton Act of 1914

The Clayton Act was enacted in 1914 after a major debate in the presidential campaign of 1912. The Supreme Court had ruled in 1911 that only restraints that were unreasonable by their nature or in their effect could be declared unlawful under the Sherman Act. This ruling left much room for interpretation by federal judges as well as by Justice Department prosecutors. Democratic candidate Woodrow Wilson argued during the presidential campaign that the Supreme Court was hostile to the antitrust laws and that businesspeople needed guidance as to what specific practices were illegal. He urged the creation of an agency to investigate trade practices and to advise businesspeople about what actions were and were not lawful. Upon election, Wilson proposed a bill that, after strenuous debate and a good deal of compromise in Congress, was enacted into law as the Clayton Act of 1914. It declared the following acts to be illegal under certain circumstances: Clayton Act Prohibits price discrimination, tying, exclusive-dealing arrangements, and corporate mergers that substantially lessen competition or tend to create a monopoly in interstate commerce. Price discrimination (Section 2) Tying arrangements and exclusive-dealing contracts (Section 3) Corporate mergers and acquisitions that tend to lessen competition or to create a monopoly (Section 7) Interlocking directorates (Section 8) At the same time, Congress passed the FTCA of 1914, setting up the FTC and giving it authority to police these and other “unfair or deceptive acts or practices affecting interstate commerce.” Section 2: Price Discrimination Section 2 of the Clayton Act (as amended in 1936 by the Robinson–Patman Act) prohibits each of the business activities set out in Table 24-6. As you read the following paragraphs, pay attention to the italicized words, because they have been the source of litigation and acceptable defenses to the charges raised in that litigation. Table 24-6 Summary of Provisions of the Clayton Act as Amended by the Robinson–Patman Act Section Action(s) Prohibited Defense 2(a) Discrimination in price by seller between two purchasers of a commodity of like grade and quality where effect may be to substantially lessen competition or tend to create a monopoly. Cost justification or a good-faith attempt to meet equally low prices of competitors. 2(c) Fictitious brokerage payments (or discounts where services not rendered). None. 2(d) Payments for promotions or allowances for promotional services by seller unless made available to all buyers on proportionately equal terms. Meeting competition. 2(e) Promotional services by seller unless provided to all buyers on proportionately equal terms. Meeting competition for seller. 2(f) Inducing to discriminate in price or knowingly receiving the benefits of such discrimination. Cost justification. Section 2(a) of the Clayton Act prohibits discrimination in price by seller between two purchasers of a commodity of like grade and quality, in interstate commerce, and resulting in injury to competition. Each of these elements must be proved by a plaintiff in any action brought under Section 2(a). The following discussion dissects these elements one by one. Price. Section 2(a) forbids direct or indirect discrimination in price. Price discrimination is deemed by most courts and scholars to be a price differential that is below the average variable cost for the seller and, thus, is “predatory” and illegal. An example of indirect price discrimination is a seller giving a preferred buyer a 60-day option to purchase a product at the present price, while giving another purchaser only a 30-day option. The courts have ruled that this situation constitutes price discrimination under Section 2(a). price discrimination A price differential that is below the average variable cost for the seller; considered predatory, and therefore illegal, under the Clayton Act. Sales. There must be two actual sales (not leases or consignments) by a single seller that are close in time. Assume that seller A offers to sell to B a widget for $1.00 and then sells the widget to C for $0.95. If B charges price discrimination, that claim will not be upheld because there was no sale between A and B, but merely an offer to sell. A sale exists only when there is an enforceable contract. Commodities. Commodities are movable or tangible properties (e.g., milk or bicycle tires). Services and other intangibles are not covered by Section 2(a). Like Grade and Quality. The commodities must be of similar grade and quality; they need not be exactly the same. For example, price differences in milk cartons that are slightly different in size do fall under Section 2(a) jurisdiction. However, differences in price between car tires and bicycle tires are differences in prices of commodities of different grade and quality, so they do not fall under Section 2(a) jurisdiction. Interstate Commerce. The sales must occur in interstate commerce. If the two sales by a single seller to two purchasers take place in intrastate commerce, the Clayton Act, being a federal statute, does not apply. Competitive Injury. Finally, the plaintiff must show that the price discrimination caused competitive injury, which under the Clayton Act is price discrimination that substantially lessens competition, tends to create a monopoly, or injures, destroys, or prevents competition with the person or firm that knowingly receives the benefits of discrimination. Injury to competition includes the following: Primary-line injury (at the seller level) occurs when a seller cuts prices in one geographic area to drive out a local competitor. primary-line injury A form of price discrimination in which a seller attempts to put a local competitive firm out of business by lowering its prices only in the region where the local firm sells its products. Secondary-line injury (at the buyer level) occurs when competitors of one of the buyers are injured because the seller sold to that one buyer at a lower price than it sold to the others. The buyer that received the lower wholesale price can then undersell the other buyers, which may substantially lessen competition. secondary-line injury A form of price discrimination in which a seller offers a discriminatory price to one buyer but not to another buyer. Tertiary-line injury (at the retailer level) occurs when a discriminatory price is passed along from a secondary-line buyer to a retailer. Retailers that get the benefit of a seller’s lower price to a buyer will be able to undersell their competitors. tertiary-line injury A form of price discrimination in which a discriminatory price is passed along from a secondary-line party to a favored party at the next level of distribution. The Meeting-the-Competition Defense Section 2(b) of the Clayton Act allows a seller to discriminate in price if that seller is able to show that the lower price “was made in good faith to meet an equally low price of a competitor.” The seller can discriminate to meet the competition but not to “bury” or “beat” the competition. The breadth of the meeting-the-competition defense has long been debated. Section 3: Tying Arrangements and Exclusive-Dealing Contracts Section 3 of the Clayton Act reads: . . . [I]t shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, whether patented or unpatented for use, consumption or resale within the United States or any territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, or fix a price charged therefore, or discount from or rebate upon, such price, on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.* This is the section of the act on which courts have generally relied in cases concerning tying arrangements and exclusive-dealing contracts. Tying arrangements and exclusive-dealing contracts may not be per se illegal in a particular instance, despite past treatment of them as per se illegal in other instances by the courts. Section 7: Mergers and Acquisitions Section 7 of the Clayton Act reads: [N]o corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.† The purpose of Section 7 of the Clayton Act, as amended in 1950, is to prohibit anticompetitive mergers and acquisitions that tend to lessen competition at their incipiency—that is, in the words of Justice Brennan, “to arrest apprehended consequences of intercorporate relationships before those relationships [can] work their evil, which may be at or any time after the acquisition.”15 15 United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586 (1957). https://supreme.justia.com /cases/federal/us/353/586/case.html. The language of the statute has led to controversy and considerable litigation, especially because the business world went on a merger binge in the early 1980s. There were more than 2,000 mergers each year from 1983 through 1986, and some of this country’s largest corporations were involved in the deal- making. For example, in 1984, Chevron purchased Gulf Oil for $13.2 billion, and Texaco bought Getty for $10.1 billion. The emphasis in 1983 and 1984 was on large oil company acquisitions, but 1985 and 1986 saw acquisitions by companies in the manufacturing, technology, and service areas of the economy as well. Although the 1980s is the decade associated with big deal-making, the merger frenzy continued into the 1990s and finally decreased in 2001. In 2014, more mergers and acquisitions took place than had occurred in years. The tally sent the M&A volume over the $3 trillion mark for the year. Stocks were soaring and debt was cheap for the acquiring companies. merger One company’s acquisition of another company’s assets or stock in such a way that the second company is absorbed by the first. Reasons for the Increase in Mergers Mergers are a method of external growth as opposed to internal corporate expansion. They may take place for one or any combination of the following reasons: Undervalued assets. It is cheaper for a company such as GM to buy Electronic Data Systems (EDS) and Hughes Aircraft to obtain computer capabilities, a computer transmission network, and telecommunications capabilities than to borrow money and expand internally in those areas. In the opinion of GM and its investment banking advisers, both EDS and Hughes Aircraft were undervalued stocks in the marketplace and, therefore, a “good buy.” Diversification. During a recession (e.g., 1981–1983 and 2008–2010), when stocks are generally underpriced, companies may seek to diversify—that is, to reduce their risks in one industry’s business cycle by investing in another industry. U.S. Steel’s acquisition of Marathon Oil Company was an attempt at diversification by a steel company hit hard by recession and foreign imports. Tax credits for research and development. Between the middle of 1981 and the end of 1985, the Internal Revenue Code allowed a 25 percent tax credit for increases in research capabilities acquired through mergers. Economies of scale. A merger often brings about greater efficiency and lower unit costs, particularly in research and development and in manufacturing. The philosophy that “bigness” is not “bad.” This flexible approach to mergers was embodied in the Justice Department’s Merger Guidelines in the period 2001–2008.16 16 D. Mattioli and D. Cimilluca, “Stock Surge Fuels Deal Boom,” Wall Street Journal, November 18, 2014, A-1, B-1; D. Gelles, “Mega-Mergers Popular Again on Wall Street,” New York Times, November 18, 2014, A-1, B-4. Criteria for Determining the Legality of Mergers under Section 7 The U.S. Supreme Court, the lower federal courts, the Justice Department, and the FTC use the following criteria, or steps, to decide on the legality of a merger: Relevant product and geographic markets Probable impact of the merger on competition in the relevant product and geographic markets Relevant Product and Geographic Markets The earlier discussion of monopolies said that how courts determine the boundaries of the product and geographic markets helps them decide what market share a company has and, hence, its market power. The same holds true when the courts are ruling on mergers: The market share of the new, combined company will have a strong bearing on the court’s decision as to the legality of the merger. The primary criterion the courts use in determining the relevant product market is, again, substitutability or cross-elasticity of demand for a product. Other factors used are (1) public recognition of the product market, (2) distinct customer prices, (3) the product’s sensitivity to price changes, (4) whether unique facilities are necessary for production, and (5) peculiar product characteristics. When identifying the geographic market, what the courts are interested in is where the merging companies compete. The courts may decide that this geographic market includes all cities with a population of more than 10,000, or they may judge this market to be regional, national, or international. Probable Impact on Competition The courts have traditionally gauged a merger’s impact on competition by examining factors such as: Market foreclosure, resulting from the merger of a customer and its supplier, so that competing customers may be foreclosed from the market if the supplier’s goods are in demand and that demand exceeds supply. Potential elimination of competition from a market if two competing firms merge. Entrenchment of a smaller firm in a market if a large firm with “deep pockets” acquires it and supplies the capital the small firm needs to eliminate competitors. Trends in the market revealing a high rate of concentration, as measured by percentage of the market that the leading four to six competitors in an industry have. Postmerger evidence revealing anticompetitive effects on a market. Types of Mergers The courts have distinguished between horizontal, vertical, and conglomerate mergers because each type has a potentially different impact on competition. Horizontal mergers involve the acquisition of one firm by another that is at the same competitive level in the distribution system. This type of merger usually leads to the elimination of a competitor. For example, in 1984, Chevron’s purchase of the Gulf Oil Corporation eliminated one oil company at Chevron’s level in the industry. horizontal merger A merger between two or more companies producing the same or a similar product and competing for sales in the same geographic market. Vertical mergers involve the acquisition of one firm by another that is at a different level in the distribution system. For example, if a shoe manufacturer acquires a company that has many retail shoe outlets, the merger is termed vertical because one company is at the manufacturing level and the other is at the retailing level of the distribution system. vertical merger A merger that integrates two firms that have a supplier–customer relationship. Conglomerate mergers involve the acquisition by one firm of another that produces products or services that are not directly related to those of the acquiring firm. For example, the acquisition by GM (an automobile company) of EDS (a technology company) merged two companies that did not produce directly related products and services. conglomerate merger A merger in which the businesses of the acquiring and the acquired firm are totally unrelated. Horizontal Mergers  In the 1960s and early 1970s, whenever a merger would result in what was labeled undue concentration in a particular market, there was a presumption of illegality. In a landmark case,17 the Supreme Court termed a postacquisition market share of 30 percent or more prima facie illegal. In another equally important case involving the merger of two retail grocery store chains,18 the Court, perceiving a trend toward fewer competitors in the retail-store market, held a postacquisition share of 8.9 percent presumptively illegal. In both cases, the Court’s initial determination of the relevant product and geographic markets and the percentage of market shares the merged company would have become determinative of the result. 17 United States v. Philadelphia National Bank, 374 U.S. 321 (1963). 18 United States v. Vons Grocery, 384 U.S. 270 (1966). Vertical Mergers  Vertical mergers are termed backward when a retailer attempts to acquire a supplier and forward when a supplier attempts to acquire a retailer. In vertical merger cases, unlike horizontal merger cases, the courts have tended not to put great emphasis on market share percentage. Instead, they have generally examined the potential for foreclosing competition in the relevant market. For example, if a retailer acquires a supplier of widgets, will other widget suppliers be foreclosed from selling to the retailer? What impact will that foreclosure have on the widget market? The courts also look at the trend in the supplier’s market toward concentration, barriers to entry, and the financial health of the acquired firm. Conglomerate Mergers  As with horizontal and vertical mergers, the courts, using a case-by-case approach, have developed criteria they use in conglomerate merger situations to determine whether Section 7 of the Clayton Act has been violated. Because conglomerate mergers result in the combining of firms in different fields that are not competing with each other, the courts have found for the plaintiffs when it can be shown that the acquiring firm was already planning to move into the field and did not move into it only because it had “acquired” its way in; in effect, the conglomerate merger had prevented a company that was a potential entrant from entering and increasing the number of competitors. Applying the Law to the Facts . . . TK Electrics was a powerful battery company with locations in almost every state in America. It heard of a smaller battery company that had a couple locations and no website. TK Electrics decided to take over the smaller company. What type of merger is this? Why? Defenses to Section 7 Complaints In cases brought under Section 7 of the Clayton Act, defendants have met complaints by private plaintiffs, as well as those filed by the Justice Department and the FTC, by asserting the following defenses: The merger does not have a substantial effect on interstate commerce. For the Clayton Act to be applicable, the merger must be shown to have a substantial effect on interstate commerce, for the federal government may act—and a federal statute may be applied—only if interstate activity, as opposed to intrastate activity, is involved. As noted in Chapter 5, however, activities involving interstate commerce have been broadly interpreted under the Commerce Clause of the Constitution by the federal courts. The merger does not have the probability of substantially lessening competition or tending to create a monopoly. Since the 1980s, firms have argued that mergers are procompetitive and beneficial to the economy and the nation because they improve economic efficiency and enable U.S.-based companies to compete with state-subsidized and state-owned foreign multinationals. One of the companies to the merger is failing. This defense must meet three criteria: (a) The failing company had little hope of survival without the merger; (b) the acquiring company is the only one interested in purchasing the failing company, or if there are several interested purchasers, it is the least threat to competition in the relevant market; and (c) all possible methods of saving the failing company have been tried and have been unsuccessful. The merger is solely for investment purposes. Section 7 does not apply to a corporation’s purchase of stock in another company “solely for investment purposes,” so long as the acquiring corporation does not use its stock purchase for “voting or otherwise to bring about, or attempting to bring about, the substantial lessening of competition.” The courts look on this defense skeptically, especially when purchases of a company’s stock by another company exceed 5 percent of the shares outstanding. The Stichting Defense (Teva v. Mylan)a aSee Steven Solomon, “Maneuvers and Dutch Defenses That May Complicate Mylan-Teva Takeover War,” New York Times, June 23, 2015, 135. “Stichting” is a hostile takeover defense under Dutch law that is applied by firms seeking to ward off a merger. It allows a firm to place its shares in a trust and gives trustees the right to act if there is a need to block a takeover. In the case of Teva Pharmaceuticals’ attempt to take over Mylan, Teva needed to own 4.6 percent of Mylan’s shares to bring suit under Dutch law in the Enterprise Chamber of the Amsterdam Court of Appeals. This court has handled this type of litigation for many years. Enforcement The Justice Department, the FTC, and private individuals and corporations can all enforce Section 7. The Justice Department divides authority with the FTC on the basis of areas of historical interest as well as according to the expertise of the staff of each agency. When the Clayton Act was enacted, it provided no criminal punishment for violators, but merely allowed the Justice Department to obtain injunctions to prevent further violations. Recall that Sections 1 and 2 of the Sherman Act do establish criminal sanctions and that Section 4 of the Clayton Act (see section titled “Private Enforcement”) allows individuals to sue on their own behalf and to obtain triple damages, court costs, and attorney’s fees if they can show injury based on violations of either the Sherman Act or the Clayton Act. The Clayton Act also allows individuals to obtain injunctions. Furthermore, if a business is found guilty of violating the Sherman Act in a suit brought by the Justice Department, this finding is prima facie evidence of a violation when a private party sues for treble damages under the Clayton Act. That is, the private party need not prove a violation of the antitrust statutes all over again, but merely introduces into evidence a copy of the court order that found the defendant guilty of a Sherman Act violation. Premerger Notification The Hart–Scott–Rodino Act of 1976, which amended Section 7 of the Clayton Act, introduced a premerger notification requirement into the area of mergers. If the acquiring company has sales of $100 million or more, if the acquired firm has sales of $10 million or more, and if either affects interstate commerce, both firms must file notice of the pending merger with the Justice Department and the FTC 30 days before the merger is finalized. This notice enables the department and the FTC to assess the probable competitive impact of the merger before it takes place. premerger notification requirement The legislatively mandated requirement that certain types of firms notify the FTC and the Justice Department 30 days before finalizing a merger so that these agencies can investigate and challenge any mergers they find anticompetitive. Remedies When parties decide to go ahead with a merger despite being advised that an enforcement action will be brought, the Justice Department and the FTC have three basic civil remedies available: civil injunctions, cease-and-desist orders, and divestiture. The Antitrust Division of the Justice Department, however, tries to avoid using these remedies. Instead, it seeks compromise. Thus, at times, it has succeeded in getting the acquiring firm to agree to a divestiture of some subsidiaries of the postmerger firm. At other times, it has prevailed on the acquiring firm to agree that the postmerger firm will refrain from some form of business conduct—for example, that it will not compete in certain geographic areas for a period of years. Individuals and corporations may also bring private civil actions for triple damages against a firm that violates Section 7 of the Clayton Act. These private actions, which far outnumber government antitrust cases, are important for preserving a competitive business environment. Section 8: Interlocking Directorates Section 8 prohibits an individual from becoming a director in two or more corporations if any of them has capital, surplus, and individual profits aggregating more than $21,327,000 or competitive sales of $2,132,000 (in 2005; the amount is to be adjusted each year by the FTC) when engaged in interstate commerce, if any of them were or are competitors, or where agreements to eliminate competition between such corporations would be a violation of the antitrust law. With the growing number of conglomerates and the rise of the “professional” director who sits on many companies’ boards for a fee, this long-dormant section of the Clayton Act has been the basis of some private civil litigation in recent years. The trend toward diversification by many large firms has resulted in overlapping areas of competition in many corporations, so there are potential violations of Section 8 for outside directors of these firms. It should be noted that Section 8 excludes from its coverage banks, banking associations, and trust companies. Directors of corporations in these industries, therefore, do not have to be concerned about a potential Section 8 violation.