Conducting An Antitrust Audit: A Primer

It can sometimes be difficult to determine when an antitrust audit may be appropriate for your company. Perhaps your industry is susceptible to collusive conduct (e.g., an industry with few sellers, homogenous products, short-term contracts and/or intermingling among competitors). Or perhaps you have seen indications of anti-competitive conduct occurring within your company, but you’re not sure.

The following can be telltale signs of anti-competitive conduct, indicating that it’s time to consider an antitrust audit of your company:

• The company frequently wins specific bids based on the customer, geography, etc.
• The company and other companies submit and win bids in turn
• The company wins bids that are higher than published price lists, previous bids or cost estimates
• The company wins bids that are substantially higher to one customer or group of customers than for other customers, with no apparent justification for the difference
• The company wins bids and then subcontracts to unsuccessful bidders on the same project
• The company and its competitors shift prices in tandem
• The company and its competitors offer identical prices for long periods of time
• The company and/or its competitors increase prices not supported by increased costs
• The company and/or its competitors charge higher prices to local customers than to distant customers.

When you suspect anti-competitive conduct is occurring within your company, you should conduct an antitrust audit to determine whether your suspicions are correct. The antitrust audit is one of the most underrated – and underutilized – tools in the antitrust compliance toolbox. Too many companies fail to employ this useful device because they fear that conducting an audit is costly, time-consuming and disruptive. But none of those fears are necessarily the case, and the costs and time spent on an audit may mitigate other risks to the company, such as antitrust litigation risks.

An antitrust audit can occur in five steps, each of which can be tailored to control the scope, cost and resources involved: (1) identify the individuals to be searched, (2) construct a list of search terms, (3) conduct the search, (4) evaluate the results of the search and (5) conduct follow-up as appropriate.

Identify the Individuals.  Identifying the individuals in your company to search can be a straightforward exercise. You should start with executives in the sales and marketing functions of the company. Some companies limit the individuals audited to the company’s highest-ranking executives, but often anti-competitive conduct occurs within the lower levels of a company among individuals making day-to-day business decisions, engaging with customers and competitors or attending trade meetings. To limit the time and expense of an audit, you may consider auditing different business lines separately and on a rolling basis (e.g., one business line per quarter).

Construct the Search Term List.  The most important decision in determining the time, cost and effectiveness of an antitrust audit is the proper search terms to use. Search term identification can also be the most difficult aspect of conducting an antitrust audit.  Anti-competitive conduct, especially bid rigging and price fixing, can be difficult to detect, and agreements among competitors are often reached in secret. Using too many terms or terms that are too broad can result in false positives, adding time and resources to the review process.  On the flip side, using too few terms or terms that are too specific can reduce the effectiveness of the audit, as problematic emails may slip through the cracks.

Your search term list should contain terms (and variants thereof) used in most antitrust audits, including the following:

antitrust, monopoly, antimonopoly, cartel, illegal, wrong, unlawful, criminal, dawn raid, Department of Justice (and DOJ), Federal Trade Commission (and FTC), anti-competitive, abusive, secret, collude, handoff, gentleman’s agreement, handshake, off the record, dominant, drive out, marginalize, below cost, discriminate, tie-in, bundle, barrier to entry, leverage, leveraging, fix price, reduce output, collective tender, boycott, signal, non-compete, refuse to compete, allocate [customers or territories], retrospective rebate/discount, minimum price, maximum price, penalty, fine, jail

In addition, your company should consider search terms specific to the antitrust audit at issue, including industry- and company-specific terms, the names of any of your company’s competitors and trade associations to which your company belongs. The careful consideration of search terms in light of the specific antitrust audit at issue can save the company significant time and resources.

Search terms need not be the sole filter of electronic data; you can also implement an array of sophisticated e-discovery tools. For example, the company might consider (1) clustering, a method by which an algorithm is created to locate documents similar to responsive documents that have already been identified; (2) statistical sampling, a document management tool that creates a statistically random sample of documents for human review and (3) predictive coding (also known as technology-assisted review, or TAR), a method by which an algorithm locates and ranks potentially relevant documents based on a core set of documents assembled by human review of a statistically random sampling of documents or by identifying a predetermined set of responsive documents.

Conduct the Search. With the proliferation of e-discovery, conducting an antitrust audit has become fairly straightforward. Most companies own software that is capable of searching company email accounts to identify documents that meet certain search criteria. Importantly, this software may be run without interrupting the business, and in some cases, without users even knowing the search is occurring.

More sophisticated software systems allow for grouping of related documents and de‑duplication, both of which can significantly reduce the time and expense involved in an antitrust audit. If your company does not have the tools necessary to conduct these types of activities in‑house, there are numerous third-party technology vendors that frequently work with companies and law firms to assist with forensic auditing.

Evaluate the Results. Once the search is conducted, an internal or external team should review the results. The review process usually can be completed in less than two weeks. The composition of the review team often depends on the volume of the results and whether you have reason to believe an antitrust violation is occurring or has occurred.  If you believe a violation is occurring or has occurred, a team of individuals external to the company should conduct the review to ensure impartiality and to lend credibility to the process.

Regardless of the composition of the team, the key to an efficient evaluation is properly educating those individuals reviewing the documents. This process of educating reviewers often involves providing the reviewers with information necessary to understand the relevant marketplace, how the company competes within that market, the competition dynamics within the market, the company’s competitors, the existence of any trade groups and their roles and the responsibilities of the individuals whose documents are being reviewed.

Conduct Follow-Up. If, after conducting the review, you determine that anti-competitive conduct is occurring or may have occurred, interview the individuals with knowledge of the relevant facts. Make sure to provide Upjohn warnings to individuals you interview, advising then that counsel represents only the corporation and not that individual, and accurately document the interviews for future reference. Where practical, interviews should occur with the assistance of outside counsel.

Once you have completed the necessary follow-up, you must assess the antitrust risk and determine the next course of action (e.g., preserving evidence, terminating the individuals involved, applying for leniency, etc.) — a topic for another day….