Section 8 of the Clayton Act is having a resurgence, and life sciences companies should take notice.

On February 13, 2023, Illinois Senator Dick Durbin, who currently serves as Chair of the Judiciary Committee and Majority Whip, sent a letter to AAG Jonathan Kanter at the Department of Justice Antitrust Division (DOJ) and Chair Lina Kahn at the Federal Trade Commission (FTC), urging the agencies to investigate anticompetitive interlocking directorates in the life sciences industry.1

Section 8 of the Clayton Act prohibits directors and officers of a company from serving on the board of directors of a competitor, subject to certain exceptions.2  

Senator Durbin praised the agencies for their efforts to "crack down on interlocking directorates" and quoted Louis Brandeis, then serving as an advisor to President Woodrow Wilson, who referred to interlocking directorates as "the root of many evils." 

According to a 2022 Stanford University study3 on which Senator Durbin relies, 20 percent of all public life sciences companies had interlocking boards in 2020 and more than 50 percent of high revenue firms had interlocks. Senator Durbin notes that the number of interlocking directors per company more than tripled between 2000 and 2020. 

Senator Durbin's letter coincides with a significant rise in the agencies' enforcement of Section 8 over the last year.  During a March 2, 2023 speech at the Keystone Conference on Antitrust in Brussels, AAG Kanter referred to the threat of interlocks as "pervasive," and stated that DOJ is currently running 17 active Section 8 investigations.4 Most recently, on March 9, 2023, DOJ announced the latest outcomes from its renewed commitment to enforce Section 8 of the Clayton Act.5 DOJ touts five board member resignations and one non-appointment across an array of industries, including cloud security, insurance and air freight support services. The March announcement followed on the heels of an October 2022 press release publicizing similar outcomes.6 The most recent wave of enforcement should not come as a surprise – the DOJ and FTC have reiterated their "efforts to reinvigorate enforcement" of Section 8 for months, beginning with AAG Jonathan Kanter's speech last April at the Spring Enforcers Summit, where he stated the agency "will not hesitate" to break up interlocking directorates using Section 8.7

DOJ's recent enforcement is significant beyond the numerical increase in resignations. Importantly, it illustrates the agencies' commitment to a broad interpretation of Section 8. DOJ has not limited enforcement to the most obvious interlocks, such as where a director serves simultaneously on competitor boards or a company nominates its own officer to a competitor's board. DOJ secured a resignation under Section 8 against an interlocked director who was nominated to both boards by an investment firm8 and also secured resignations of two directors where the alleged interlocks were only "affiliated" with the competitor (i.e. not officers or directors).9

Although enforcement of Section 8 is mostly limited to resignation of board members or abstention from exercising appointment rights, interlocking directors are relatively low-hanging fruit that can serve as the launch pad for a broader antitrust investigation. Alongside the uptick in enforcement and the agencies' renewed commitment a to broad interpretation of Section 8, Senator Durbin's letter serves as a reminder for companies in the life sciences industry: a compliance program to actively monitor board membership and appointments is a crucial precautionary step to avoid Section 8 liability.

 

2 15 U.S.C. § 19.

8 See FN 5, Oct. 19, 2022 Press Release.

9 See FN 4, Mar. 9, 2023 Press Release.



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