Even Minority Interest in a Competitor Could Violate Antitrust Laws

Companies and shareholders contemplating mergers or acquisitions must consider all potential anticompetitive implications of a deal, including the competitive effects of minority shareholder interests. The Federal Trade Commission (FTC) made this clear late last month when it announced approval of the $1.4 billion acquisition of Bankrate, Inc. (Bankrate) by Red Ventures Holdco, LP (Red Ventures)– competing marketing firms offering internet content and customer referrals. The FTC’s approval was contingent upon divestment of one of Bankrate’s subsidiaries that competed with an unaffiliated company wholly owned by two of Red Venture’s minority shareholders. Although those shareholders had only minority interests, they exercised significant power over the Red Venture board, and they could have used that power to stifle competition between their wholly owned company and the Bankrate subsidiary. The merger remedy imposed by the FTC is a reminder that even minority shareholder interests can invite scrutiny from the federal antitrust agencies.

Partial ownership can create the potential for antitrust violations under both Section 1 and Section 2 of the Sherman Act. Section 1 prohibits anticompetitive collaboration among competing companies – including price-fixing, bid rigging, market allocation, or group boycotts, to name a few examples. Section 2 prohibits anticompetitive exercise of market power, also known as monopolization or attempted monopolization.

Competitors that engage in collusion or other anticompetitive activity cannot avoid a Section 1 violation merely because one of them has a minority interest in the other, or their relative market shares are small. Only “single entities” are deemed incapable of collaborating with themselves to violate the antitrust laws. In Copperweld Corporation v. Independence Tube Corporporation, 467 U.S. 752, 771 (1984), the Supreme Court held that a parent corporation and its wholly-owned subsidiary are incapable of conspiring with one another for purposes of Section 1 of the Sherman Act because they are considered a “single entity.” Since Copperweld was decided, numerous courts have extended its rationale and held that a parent and its majority owned subsidiary are also incapable of conspiring for purposes of Section 1.

But if the parent corporation owns and controls less than 51 percent of the subsidiary, courts uniformly have held that the parent and subsidiary are still capable of conspiring under Section 1 and do not qualify for protection under Copperweld. And in a minority of jurisdictions, courts have held that corporations with an ownership interest exceeding 51 percent still may not qualify for single entity protection if they lack total control or unity of purpose. Generally speaking, if the entities involved are “separate economic actors pursuing separate economic interests,” then they are not considered a “single entity” under Copperwe...