Justice Department Goes on the Offensive Against Board Interlocks

This week, the Antitrust Division announced the resignation of seven directors from their corporate board positions in response to concerns their service may have violated Section 8 of the Clayton Act, a rarely-enforced statute that prohibits individuals from simultaneously serving on the board of directors of two or more competing corporations, also known as “interlocking directorates.” The announcement comes after recent remarks by both Antitrust Division and Federal Trade Commission leadership warning of forthcoming enforcement and reports that several public companies had received formal warning letters regarding potential Section 8 violations.

This latest action makes good on the agencies’ promises to reinvigorate Section 8 enforcement, and are likely to be just the first in a series of actions to bring increased focus and increased enforcement to this area of antitrust law, which has rarely been at the forefront of antitrust enforcement. Companies should be on notice that the agencies are actively combing through public disclosures and filings looking for potentially problematic interlocks, and should take steps to ensure that compliance policies are in place to detect and prevent Section 8 violations.

Section 8 of the Clayton Act bans interlocking directorates due to the potential risk of anticompetitive coordination or the exchange of competitively sensitive information that may result from individuals serving on the board of two competing companies. As Jonathan Kanter, Assistant Attorney General of the Antitrust Division, noted, "[c]ompetitors sharing officers or directors further concentrates power and creates the opportunity to exchange competitively sensitive information and facilitate coordination – all to the detriment of the economy and the American public." While the focus in this instance is on directors simultaneously serving on the boards of competing corporations, Section 8 also covers corporate officers as well. It is notable, however, that non-corporate entities such as limited liability companies and partnerships do not fall within the purview of the statute, and there are exemptions for those instances in which the competitive sales of the two entities are de minimis.

The resignations came from a wide range of mostly mid-cap companies, some which are backed by private equity funds, indicating yet again that private equity remains a target for DOJ and FTC investigations. Specifically, the Division announced that directors have stepped down from interlocking positions at Definitive Healthcare Corp. and ZoomInfo Technologies, Inc., Mazar Technologies Inc. and Redwire Corp., Littlefuse Inc. and CTS Corp., Skillsoft Corp. and Udemy Inc., and finally Solarwinds Corp. and Dynatrace, Inc.

This action is likely a harbinger of things of come, as we can expect further Section 8 actions from both the DOJ and FTC. The DOJ press release re-emphasized the Antitrust Division’s intent to proactively investigate interlocking directors, noting that “[c]ompanies, officers, and board members should expect that enforcement of Section 8 will continue to be a priority for the Antitrust Division.” The DOJ action also follows a September 2021 bipartisan vote by the Federal Trade Commission to enable FTC staff to investigate common directors, officers and ownership as one of its several “core priority areas over the next ten years.” The FTC highlighted that this resolution would “facilitate investigations of both ownership stakes in competing companies that may be anticompetitive as well as interlocking directorates that may violate Section 8 of the Clayton Act, 15 U.S.C. § 19. Interlocking directorates and common ownership continue to raise significant competitive concerns.”

This renewed interest and enforcement of potential Section 8 violation may warrant more intentional compliance efforts, including annual reviews of board membership, as well as assessing whether potential interlocks meet any of the de minimis or other statutory exemptions.