This article was originally published in Venable's All About Advertising Law blog on June 2, 2014.
For those that have adjusted to the fact that the FTC and the Antitrust Division of the Department of Justice really do care if you agree with your competitors to not recruit each other’s employees (for which, see this recent reminder from DOJ involving E-Bay’s alleged involvement in the scheme among high-tech companies to avoid “poaching” each other’s employees), the FTC just settled an investigation of two ski manufacturers that allegedly agreed not to solicit each other’s endorsers along with an agreement not to solicit each other’s employees.
On May 19th the FTC settled charges against two companies, Marker Völkl, which makes Völkl skis, and Tecnica, which makes Blizzard skis, alleging that, despite being direct competitors, they operated for many years with an agreement not to poach each other’s endorsers and employees. The FTC alleged that this conduct was anticompetitive, and the companies settled by agreeing to consent orders that prohibit them from re-engaging in any such conduct in the future.
The agreement between the companies began with agreements not to poach each other’s endorsers. In terms of marketing, one of the most important things a ski manufacturer can do is sign a prominent skier to an endorsement deal. These deals, however, are usually for a short term. When they expire, skiers become free agents and can negotiate better deals with other manufacturers. If a skier’s prominence has increased during the term of a deal (e.g., perhaps due to a good finish during the winter Olympics) his or her value goes up. A bidding war can ensue.
According to the FTC, the two companies solved this problem by agreeing not to solicit any skier who previously had an endorsement deal with the other company. Apparently, this agreement between the competitors eventually was extended to employees, too. Because of these agreements, employees – just like top skiers – would find fewer opportunities to leave Völkl for more money at Tecnica, and vice-versa.
Both companies communicated this to their personnel with responsibility for recruiting prominent skiers and employees. The news got to the FTC, and the agency investigated, ultimately finding that each company’s conduct “had the purpose, capacity, tendency, and likely effect of (1) restraining competition unreasonably, (2) harming the economic interests of ski athletes, and (3) harming the economic interests of the affected employees of Tecnica and Marker Völkl.”
It appears from the public record that the companies tried to argue that they had been in a collaborative and non-competitive relationship where one of them made ski boots that were to be marketed along with the other’s skis, and that this relationship involving complementary roles justified their “non-solicitation” agreement. In antitrust language, the companies were arguing that they had a procompetitive joint venture and that the non-solicitation restraints were “ancillary” to that joint venture. However, the FTC disagreed, finding that the restraints on competition to which they had agreed “were not reasonably necessary for the operation of the collaboration between the companies” and that their ski businesses “were at all times outside of and apart from the collaboration.” As a result, the agency said, “the restraints did not align the disparate incentives of the companies in a manner that promoted the cognizable efficiency goals of the collaboration.”
You can stare at that last sentence for a while if you want, but the upshot is that, while it is possible for competitors to enter into procompetitive joint ventures, and even for them to have provisions in those joint ventures that might be anticompetitive in the absence of the procompetitive joint venture, it is a complicated thing to do. Anyone considering a joint venture with a competitor should consult with an antitrust attorney to ensure that the overall venture is sufficiently procompetitive itself to be allowed under the antitrust laws and that any restraints like the non-solicitation provisions here are reasonably necessary for the operation of that joint venture.