The FTC recently approved two final orders settling charges that ski equipment manufacturers Marker Völkl (International) GmbH and Tecnica Group S.p.A. (collectively, the "Ski Companies") for many years illegally agreed not to compete for one another’s ski endorsers or employees. The decision underscores the fact that, while limited non-compete agreements may be legitimate in certain limited instances, such as in joint ventures and IP licensing agreements, non-compete agreements must have competitive and efficiency benefits to justify anticompetitive harm.
The FTC's Complaint alleged, as set forth in a May 2014 press release, that the most effective and costly tool for marketing ski equipment is securing endorsement agreements from well-known skiers. Typically, ski equipment companies compete to secure the endorsement of prominent skiers. When an agreement expires, the companies may try to induce the skier to switch from one company to another, for example, by offering more money in exchange for an endorsement. The FTC alleges that starting in 2004 the Ski Companies agreed not to compete with each other to secure endorsements by professional skiers, in violation of Section 1 of the Sherman Act. Specifically, the FTC charges that Marker Völkl agreed not to solicit, recruit, or contact any skier who previously endorsed Tecnica skis, and Tecnica agreed to a similar arrangement with respect to Marker Völkl’s endorsers. In addition, the complaint states that in 2007, the companies expanded the scope of their non-compete agreement to cover all of their employees. The purpose of these anticompetitive agreements, according to the FTC, was to avoid bidding up the cost of securing endorsements from skiers, as well as the salaries of their employees. The FTC Complaint also recognized that while limited non-compete agreements may be legitimate in some cases, the agreements between Marker Völkl and Tecnica had no efficiency benefits to justify their anticompetitive harm.
The final agreement reads that the Ski Companies shall not enter into or attempt to enter into any agreement, express or implied, to "forbear from soliciting, cold calling, recruiting, hiring, contracting with, or otherwise competing for any U.S. Skier to be a party to an Endorsement Agreement." The order does, however, provide for an exception in certain limited instances. Specifically, the Ski Companies may "be a party to an Endorsement Agreement that (1) is reasonably related to a lawful joint venture agreement, or lawful merger, acquisition or sale agreement; and (2) is reasonably necessary to achieve such agreement’s procompetitive benefits." Additionally, until July 3, 2034, the FTC orders contain a sweeping provision that the FTC can review the Ski Companies' books and interview officers, directors, and employees with little limitation to ensure they are not violating antitrust laws.
The take-away here? As one legal commentator, Jarod Bona, noted: "Almost everyone knows that price-fixing is a problem under the antitrust laws. It isn’t hard to counsel someone not to fix prices. That’s easy. It doesn’t mean it doesn’t happen. But it rarely happens accidentally. Market allocation, by contrast, can and does happen innocently.' But that doesn’t mean it isn’t a per se antitrust violation, which is serious, and can carry criminal penalties." As always, antitrust issues often turn on fact-specific analysis. This case underscores that experienced antitrust counsel should be consulted prior to taking actions that - although at first glance may appear to be innocent - could result in harm to the business in the form of fines, bad public relations, or the ability of the government to obtain almost unfettered access to a company's books, records and employees for years to come.