#58 | Re:co Podcast – Jeff Glassie on Prices and Antitrust Law: Where’s the Line? (S1, Ep. 3)

Today, we’re very happy to present the third episode of “Macroeconomic Dysfunction in the Coffee Trade,” a session recorded at Re:co Symposium this past April. This session convened experts to understand the functions and challenges of the coffee system responsible for the volatile shifts in the coffee market. If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode. 

There is a lot of discussion about coffee markets these days, and a desire to discuss both the micro- and macro-economic implications. However, antitrust laws impose significant liability for impermissible agreements on prices, boycotts, or allocations of markets. Today’s speaker, Jeff Glassie, is an attorney for trade and professional membership associations, which have to regularly deal with the antitrust laws. In today’s episode, he addresses legal concepts to help guide actions and conversations that are important for the industry with the goal of avoiding illegal conduct and ensuring pro-competitive action.

Special Thanks to Toddy 

This talk from Re:co Boston is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at http://www.toddycafe.com.

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Table of Contents

0:00 Introduction
2:20 The US has antitrust laws to protect the free market system.
8:30 Groups of businesses can potentially violate antitrust laws in three main ways: price fixing, boycotting other businesses and allocating markets between themselves.
12:20 How do you define an antitrust violating agreement from a legal perspective?
17:15 Ways the specialty coffee industry can handle the conversation around prices without violating antitrust laws
21:00 Outro

Full Episode Transcript

0:00 Introduction

Peter Giuliano: Hello everybody, I’m Peter Giuliano, SCA’s Chief Research Officer. You’re listening to an episode of the Re:co Podcast, a series of the SCA Podcast. The Re:co podcast is dedicated to new thinking, discussion, and leadership in Specialty Coffee, featuring talks, discussions, and interviews from Re:co Symposium, the SCA’s premier event dedicated to amplifying the voices of those who are driving specialty coffee forward. Check out the show notes for links to our YouTube channel where you can find videos of these talks.

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates that are ready to serve and enjoy. Learn more about Toddy at toddycafe.com. Toddy: Cold brewed, simply better.

Re:co Symposium and the Specialty Coffee Expo are coming to Portland in April 2020. Don’t miss the forthcoming early-bird ticket release – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements.

Today, we’re very happy to present the third episode of “Macroeconomic Dysfunction in the Coffee Trade,” a session recorded at Re:co Symposium this past April. This session convened experts to understand the functions and challenges of the coffee system responsible for the volatile shifts in the coffee market. If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode.

There is a lot of discussion about coffee markets these days, and a desire to discuss both the micro- and macro-economic implications. However, antitrust laws impose significant liability for impermissible agreements on prices, boycotts, or allocations of markets. Today’s speaker, Jeff Glassie, is an attorney for trade and professional membership associations, which have to regularly deal with these antitrust laws. In today’s episode, he addresses legal concepts to help guide actions and conversations that are important for the industry with the goal of avoiding illegal conduct and ensuring pro-competitive action.

 

2:20 The US has antitrust laws to protect the free market system.

Jeff Glassie: So, 11 weeks ago today, January 23rd I was walking down the steps in my house and I got down to the last step and I thought well I’m down there right and I got distracted and I wasn’t down there. Snap! I thought it was a bone, I fell on the floor. I thought this can’t be good. I tore my quadriceps tendon, which turns out to be a really important part of your leg. It takes a long time to heal. I was in a lock straight brace for six weeks. I just got to drive a couple days ago. So, it’s coming along and there’s a lesson there for everybody. I’ve been telling everybody this. Don’t get distracted on the steps. No checking Instagram or Facebook, your email or something on the steps. I just saw the guy the other day standing on one of the steps looking at his phone. I thought, please be careful. But then I was thinking about this issue that you all are having, and I thought, well, you know, maybe there’s some sort of lessons that way too but the economics and the situation that we find ourselves in and if you watch my walk, it’s like not exactly, you know, harmonious. It’s a little bit out of sync, you know, it’s kind of not that effective. It’s not that efficient and so economies can get to be that way too and from what Ric says and what I understand I’m not an expert in coffee.

There are issues that you have to deal with but there’s also limits in the law in the ways that we can talk about things such as prices and competition and so you can kind of get out of sync with that, too, to maybe make a music analogy. You know you can be out of harmony with the conversation you’re supposed to be having or not supposed to be having. You can get out of sync with the antitrust laws and I try to think of things as simply as I can. So, let me give you a few concepts. In many ways, the antitrust laws are our friends, it’s the friends of our free market system. So, the government, the federal government, of the United States got involved in adopting these antitrust laws back in the 1880s/1890s. There are a number of conglomerates, the coal, the steel, the sugar, the salt conglomerates, monopolist groups of companies that got together and did things that kind of skewed the free market system and they were called trusts and Teddy Roosevelt came in in the early 1900s.

Remember he was called the trust buster and he didn’t not believe in capitalism but he did believe that trusts could do harm to society and so the government got involved. The Sherman Antitrust Act came into play, was adopted in 1890 and there’s the later years the Federal Trade Commission Act, the Robinson Patman Act, the Clayton Act and all this stuff gets very complicated because it’s sort of analyzing the law in light of economic factors. So, it could get very complex and monopolies or trusts can really skew the economic, the financial system but so can impermissible agreements on price. So can agreements to boycott or refuse to do business with competitors. So can agreements to allocate markets and what we’re really trying to do with antitrust laws is protect our free market system and there’s a lot of discussion. Ric has been talking about that you’re all talking about prices and everything a lot, but you know how it goes. The quantity and the price. If there’s a lot of quantity, price goes down, etc. So, in many ways that the antitrust laws are really just meant to protect the free market system and associations in particular can get in trouble because of groups of competitors and they can talk about things that get outside of permissible conversations that might tend to go to other areas. But clearly, businesses can talk about things I mean legally it goes away back to 1925. It was called the Maple Flooring Case. The Supreme Court said yes, businesses can exchange information. There’s kind of a self-policing aspect to this. Businesses are not going to give all their secrets away to the competitors. You know they’re not going to say things that they don’t want others to hear particularly their competitors, but sometimes the push to talk about things can lead into areas that adversely affect the free market system. But associations, in particular, can do a lot of talking and doing about things that are exchanging information, education, training. Here’s how you do this. Here’s how you developed that. Standard setting, certification, guidelines, lobbying together. So, groups of competitors, groups of people who kind of are competing can still do a lot of good things together. That’s all fine.

 

8:30 Groups of businesses can potentially violate antitrust laws in three main ways: price fixing, boycotting other businesses and allocating markets between themselves.

Jeff Glassie: But let’s talk about a couple of ways that, three ways in particular, other than being a monopolist. If you are a monopolist then you’ve got issues and you don’t need an agreement. There doesn’t have to be an agreement to have impermissible monopolistic behavior. So, let’s talk about a couple things. Price fixing, concerted refusals to deal or boycotts and allocation of markets. So, when it gets to price fixing, there needs to be an agreement of two or more persons or companies on prices or costs or salaries or any other price related aspects and it doesn’t have to be just for a maximum price or a minimum price. It can be either. If there’s any kind of agreement on prices, that’s what they call per se illegal under the antitrust laws. Per se. Per se means the government doesn’t have to show, the plaintiffs don’t have to show that there was any particular damage that was caused. They just have to show that there was an agreement on prices. It’s also the case that encouraging high prices. There have been cases with associations and leaders of associations and other you know, we need a higher price for this, we need a higher price for that in a way that has been viewed as anti-competitive and encouraging, impermissible agreements on price.

The second area, concerted refusals is to deal also referred to as boycotts when two or more companies, two or more individuals but companies probably get together and say, let’s not do business with that guy. We can drive him out of business. That competitor or even that supplier. Those are also per se violations of the antitrust laws. So, if you have an agreement not to do business for any competitive persons reasons then that can be a violation of the antitrust laws. I mean, you can always decide yourself, your own company, and that’s the way the system is really set up. You can always make whatever decisions you want. You don’t have to do business with everybody in the world. You don’t have to do business with that guy or that company but if you have an agreement again, it kind of skews the system. It puts the song using that music analogy again, puts that song kind of out of tune. It doesn’t quite go right.

The third area of potential per se violations of the antitrust laws are allocation of markets. You can’t just get together with a group of competitors and say okay, you take that state, I’ll take this side of the river, you take that side of the river and decide how you’re going to allocate it. That is again skewing the market. So, allocation of markets can be per se. violations of the antitrust laws. We’re mainly concerned, I think, with the price conversation. but I wanted to just sort of give you the fundamental principles of some of these antitrust violations and you can see again that they are meant to be protective and enhance the free market system by encouraging people to do what they need to do but not really allowing behavior where individuals and companies are coming together to skew the marketplace.

 

12:20 How do you define an antitrust violating agreement from a legal perspective?

Jeff Glassie: But we’ve talked a lot about agreements. So, what’s an agreement? And this is why the lawyers can get a little bit excited and sensitive about this is because do you think that there would ever be a written agreement that would say, “in consideration of mutual promises and blah, blah, blah, blah, blah we hereby agree all of us companies listed below to set prices signed…” No, there’s never going to be that agreement.

So how do you know if there’s an agreement? Well, it could be an oral agreement, could be evidence of an oral agreement. Implied agreement. How about a nod and a wink. That can be an agreement. So, you don’t even have to, I mean there’s never going to be actual. There may be today with emails. So, that’s one thing that can happen but there’s usually not going to be absolute evidence of an agreement on setting prices or boycott behavior. But there can be evidence of implied agreements. Also, you can be found liable and there could be a liability for, and antitrust violation based on what’s called parallel conduct. So, a group of folks get together and it could be a phone call, it could be a meeting, it could be they were seen together. what have you. No evidence of an agreement but they all go out and they do the same thing.

It was a case, a famous case involving real estate agents who met together at Congressional Country Club not too far from where I live in Washington DC and they’re all like we got to get that rate up from 6 to 7% on residential sales okay. It wasn’t evidence of an actual agreement, but they all went out and people started raising their rate separately and people did go to jail for that one. So, the lawyers clearly are going to be concerned and rightfully so about antitrust issues in talking about prices, because there is this sort of slippery slope. If everyone is allowed to talk about prices, well, where’s the line and when are they going to not, how do you prove that they didn’t talk about setting a price and plaintiffs’ attorneys will try to find that inference that there’s been some sort of an agreement. That’s why associations like SCA generally do have, it’s very common, it’s the best practice, it’s advisable to have antitrust compliance policies and what do they say? They say we agree with the antitrust laws. No violating the antitrust laws, no price fixing, no allocation of markets, no boycotts. but they also very often say no discussion about prices or cost or salaries because it’s a slippery slope again and you can get down to where you shouldn’t be very quickly.

So, it’s sort of a prophylactic step by associations to not be liable for any trust problems because the litigation, any trust litigation believe me is brutal. You’ve got the Department of Justice, the Federal Trade Commission, the State Attorney Generals who can bring action. You’ve got private claims that can be brought by competitors or others who were harmed. Damages are tripled. They’re called treble damages in an antitrust case. So the stakes are very, very high when it comes to anti antitrust issues and I think it’s important to just sort of understand the aspects of the antitrust laws that are meant to protect us and the parts that are problematic and then you can kind of go from there because it is the case that you need to be able to talk about problems. Associations are the perfect places to do that. They’re set up to have conversations about problems facing the industry and they can be dealt with education and training and standards and lobbying and lots of other things like that where you are working together where in many, many ways most of the things you do are not going to be antitrust problems.

Certainly, one thing to mention is that there’s an exception to the antitrust laws for lobbying because the courts have said free speech trumps the antitrust laws but that’s got to be lobbying. You’re going to the Legislature, you’re trying to propose a bill, that sort of thing. That’s permissible.

 

17:15 Ways the specialty coffee industry can handle the conversation around prices without violating antitrust laws

Jeff Glassie: But there are things that you can do to have permissible conversation, and I’m just going to list a couple of them because I don’t know the whole industry and I don’t know all about everything that people want to talk about, but you can certainly talk about markets. Ric sent me a couple of articles, very detailed discussion about prices in different countries and all the factors that are involved, and he was up here talking about markets and just overall markets to get information so that you can do your business better. You can have discussions about how to understand and analyze prices and pricing. For example, we have a client. It’s an actuarial society. Now what do actuaries do? They set premiums for insurance companies. Well, how do you do that? I don’t know, but they have to learn how to do that.

So, whenever one of our clients had a course called rate making, which, if you told a lawyer about that, they might say, Oh, my God, that’s a price fixing. Well, no, that’s learning how to set premiums. There’s a lot that goes into it. You need to be educated. You can, of course, act independently for your business and try to learn how to set prices. How does just like you said costs and salaries, how do you determine salaries? You’d have to look into this. You need people who know how to run the budget and figure that out. The kind of educational courses about things like pricing so you can learn about how things affect one another. The last bullet is about surveys and this is a little bit in the weeds, but it shows you how seriously the enforcement authorities take this. The Department of Justice and the Federal Trade Commission have a series of safety zones started out for health care about how you can conduct price related surveys. Surveys that are not related to price, that’s fine but surveys related to price, if you meet these conditions then it’s okay, it’s presumed okay. The surveys managed by a third party, for example, an association. The information is old enough. Three months old is not that old. It’s past data and then number three. There at least five providers reporting data no individuals data is more than 25% and the information is aggregated to prevent knowing where the information came from.

So, I mean, what I’m really trying to say is you can make independent business decisions for yourself, and that’s really the golden rule of competition in light of the antitrust laws. Be aware of the problems that can come from impermissible conversations. Read the association’s antitrust compliance policy. Talk with counsel. You don’t want to end up in a serious problem because people do go to jail for violation of the antitrust laws but what I’m saying is associations are really a good forum for taking proactive steps that are legal but just watch where those lines are, and you can solve the problems in your industry, or at least you can try to, just like I’m trying to solve this thing with my leg and trying to get back in tune and get back into a harmonious situation.

So, thanks very much. That’s what I have to say. Thank you.

 

21:00 Outro

Peter Giuliano: That was Jeff Glassie at Re:co Symposium this past April.

Remember to check out our show notes to find a link to the YouTube video of this talk, a full episode transcript, and a link to speaker bios on the Re:co website.

Re:co Symposium and the Specialty Coffee Expo are coming to Portland in April 2020. Don’t miss the forthcoming early-bird ticket release – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements.

This has been an episode of the Re:co Podcast, brought to you by the members of the Specialty Coffee Association, and supported by Toddy.

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