Conspiracy Theory? (Part 1)

Distinguished law professor sheds light on the legality/ethics of practices alleged in a recent antitrust complaint filed against a major lighting manufacturer and their rep agency.

In a recent legal complaint filed in federal district court in Illinois in late 2019, Chicagoland lighting rep agency Force Partners, LLC (“Agency A”) alleged that KSA Lighting & Controls, Inc. (“Agency B”), a competing rep agency with significant market share, colluded with major North American lighting and controls manufacturer Acuity Brands, Inc. (for which Agency B is the exclusive representative in that market) “in a conspiracy to force distributors of lighting and control products in the Chicago metropolitan area to boycott [Agency A] and force them and the brands they represent out of the relevant greater Chicagoland market.”

According to the complaint, a large number of local electrical distributors reported “a series of lies, threats, and coercions that led to the reluctant conclusion that these distributors must agree with the demands of [Agency B] or risk losing access to the brands controlled by Agency B and the major lighting manufacturer.”

In the complaint, Agency A, the plaintiff, goes on to allege that Agency B’s aim is clear – “to foreclose competition and raise barriers to entry into the lighting and control products market,” actions which it claims will serve to reduce consumer choice and raise prices and margins on the manufacturer’s products and the other brands Agency B represents.

The landmark case raises issues concerning the potential violation of antitrust laws, or federal statutes enacted by the U.S. government over a century ago to protect consumers from monopolies, price-fixing, boycotts, and other predatory business practices to ensure that fair and pro-consumer competition exists in an open-market economy.  Based on the significance of the case to the electrical products industry, lightED reached out to Michael Carrier, an antitrust expert and Distinguished Professor at Rutgers Law School in Camden, NJ, to help shed light on the often-complex matters involved in this and similar scenarios.

lightED:  Please share a brief synopsis of this case as you see it.

Professor Carrier:  The issue here is whether an alleged boycott of the plaintiff, Agency A, violates the antitrust laws.  Boycotts are often called “per se” (automatic) violations of the antitrust laws, but the courts tend to analyze the procompetitive and anticompetitive effects of the arrangements.

lightED:  From your perspective and experience, is it legal/ethical to team up with a supply chain partner and “demand” that they do business only with you or else there will be repercussions?  What specific anti-trust law(s) does this ‘violate,’ if any?

Professor Carrier:  In this case, the alleged anticompetitive effects are that Agency A is boycotted.  Agency B is alleged to have market power, which means that distributors may be forced to accede to its demands.  In addition, there doesn’t seem to be any procompetitive justifications for Agency B’s actions.  So is the boycott beneficial for reasons other than harming Agency A?  That’s not clear from the complaint, but is something Agency B would need to show.  Another cause of action alleged in the complaint is focused on “exclusive dealing” – that distributors are forced to deal only with Agency B.  The key here is how much of the market is foreclosed (or blocked) by the arrangement.  It’s possible that more than 30% is blocked with, again, no procompetitive justification.

lightED:  What might be the penalties if this action is deemed illegal?

Professor Carrier:  If the conduct is found to violate the antitrust laws, the defendant could be liable for “treble damages” (three times the amount of damages suffered).

lightED:  What advice you can offer manufacturers, manufacturers’ reps, and/or electrical distributors when it comes to best legal/ethical practices surrounding their alignments/partnerships?  What should they do (or not do) to ensure that they’re on the right side of the law?

Professor Carrier:  This isn’t legal advice, but companies should make sure that they have reasons for changes in business arrangements that make sense other than for the purpose of harming competitors.

Tune in for Part 2 of lightED’s “Conspiracy Theory?” series on January 13, when distributors comment on competitive pressures in the industry and how they combat unethical behavior.