September 2013 Edition

Vertical mergers; revised telemarketing rules; employee interviews to evaluate supervisors

As featured within Practical Law The Journal

Vertical mergers

Vertically merging parties should be aware that the federal antitrust agencies have been increasingly using flexible behavioral provisions to remedy vertical mergers, including licensing arrangements or other contractual provisions that would preclude foreclosure. For example, the Federal Trade Commission's recent settlement of General Electric Company's (GE's) proposed acquisition of supplier Avio S.p.A. included certain behavioral remedies.

Vertically merging parties should:

• Analyze whether the merger might result in competitive harm in any relevant market.
• Consider behavioral remedies to settle any resulting federal antitrust investigation.

Vertical theories of competitive harm generally relate to foreclosing rivals from an upstream or downstream market and raising rivals' costs. For example, GE, through its 50% ownership in a joint venture, is one of only two manufacturers of engines for a particular aircraft. Avio has the sole design responsibility for accessory gearboxes (a necessary engine input) for Pratt & Whitney's (P&W's) engine, GE's only competitor. Post-acquisition, GE would be incentivized to:

• Foreclose P&W from Avio's gearboxes.
• Delay the design and certification process of Avio's gearbox for P&W.

Either action would likely cause P&W's potential customers to switch to GE's engine. With no competition, GE would be free to raise prices or reduce the quality of its engines or related services (like delivery).

However, parties should be cautious about proposing behavioral remedies early in the merger process. Although proposing fixes upfront may speed up settlement negotiations with the investigating antitrust agency, there are risks in doing so. For example, in a previous complaint, the Department of Justice used the remedy proposed by Anheuser-Busch InBev and Grupo Modelo as evidence that the transacting parties recognized that their merger was anticompetitive as originally structured.

Revised telemarketing rules

Telemarketers and companies employing third-party telemarketers should ensure they:

• Obtain written consent to comply with the Federal Communications Commission's (FCC's) revisions to the Telephone Consumer Protection Act (TCPA) rules, which become effective on October 16, 2013.
• Are mindful of FCC guidance regarding vicarious liability.

The revised rules require telemarketers to obtain the consumer's prior express written consent for calls made and messages (including texts) sent to:

• Wireless numbers, using an automatic dialing system or a prerecorded voice message.
• Residential numbers, using a prerecorded voice message.

A consumer's prior express written consent must be signed and clearly and conspicuously disclose to the consumer that the telemarketer is authorized to deliver calls to the designated telephone number. Consent may also be provided electronically if obtained in compliance with the E-SIGN Act.

In disputes, the telemarketer has the burden of proving the consumer provided prior express written consent. The revised rules do not apply to non-telemarketing telephone calls, such as calls made by tax-exempt organizations or calls made with a noncommercial purpose.

For more information on direct marketing and telemarketing, see Practice Note, Direct Marketing.

For more information on vicarious liability under the TCPA, see Legal Update, FCC Rules Companies May Be Vicariously Liable for Telemarketer TCPA Violations.

Employee interviews to evaluate supervisors

The National Labor Relations Board (NLRB) continues to find that routine human resources (HR) procedures, such as asking employees to evaluate morale and supervisory leadership skills, infringe on employees' National Labor Relations Act (NLRA) rights. Employers that conduct these interviews can reduce the risk of infringing employees' rights by avoiding policies and practices that the NLRB found to be unlawfully coercive in the Grand Canyon Education, Inc. decision.

In Grand Canyon Education, Inc., an evaluative interview was found to be unlawfully coercive in part because HR did not identify the interview's purpose, inquired about other employees' sentiments and requested confidentiality. The NLRB discounted evidence that the interviewee found the interview non-coercive. Instead, it focused on how an employee could find the interview coercive.

In light of this decision, employers should:

• Review employment policies, procedures and forms to ensure they do not appear to be coercive or to interfere with employees' rights under Section 7 of the NLRA.
• Create a non-coercive environment by inviting employees to share their thoughts in an evaluation meeting and letting the employee select the time and a quiet location for the interview before considering requiring attendance.
• At the start of an interview:
  • state its purpose; and
  • consider assuring an employee that he can speak to a designated person outside of the chain of command if he has concerns about the interview process or questions.
• Maintain scripts for, or discussion notes from, interviews in case questions arise about the interview.
• Avoid inquiring about other employees' sentiments.
• Comply with the factors set out in the NLRB's Banner Health decision before giving any confidentiality instructions.

For more information on the Grand Canyon Education, Inc. decision, see Legal Update, HR Representative Violated NLRA While Interviewing Employees To Evaluate Their Supervisor: NLRB.

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