Case 4:24-cv-04722-YGR

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DOHA MEKKI

Acting Assistant Attorney General

JOHN W. ELIAS

Deputy Assistant Attorneys General

DAVID B. LAWRENCE

Policy Director

RYAN DANKS

Director of Civil Enforcement

MIRIAM R. VISHIO

Deputy Director of Civil Enforcement

BENJAMIN L. RUDOFSKY (NY Bar No. 5321005, DC Bar No. 1029844)

ALICE A. WANG

Counsel to the Assistant Attorney General

ERIC D. DUNN (CSBN 312513)

Assistant Chief, Competition Policy and Advocacy Section

U.S. Department of Justice, Antitrust Division

950 Pennsylvania Ave, N.W.

Washington, DC 20530

Telephone: (202) 808-4260

benjamin.rudofsky@usdoj.gov

Attorneys for the United States

ANISHA DASGUPTA

General Counsel

HENRY LIU

Director, Bureau of Competition

HANNAH GARDEN-MONHEIT

Director of the Office of Policy Planning

SHAOUL SUSSMAN

Associate Director for Litigation, Bureau of Competition

KATHERINE VAN DYCK

Attorney-Advisor, Office of Policy Planning

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

Attorneys for the Federal Trade Commission

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

OAKLAND DIVISION

ELON MUSK, et al.

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Plaintiffs,

Hon. Yvonne Gonzalez Rogers

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THE UNITED STATES AND

FEDERAL TRADE COMMISSION

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SAMUEL ALTMAN, et al.,

Defendants.

Date: January 14, 2025

Time: 2:00 p.m.

Place: Courtroom 1 (4th Floor)

1301 Clay St.

Oakland, CA 94612

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .......................................................................................................... II

INTRODUCTION .......................................................................................................................... 1

FACTUAL BACKGROUND ......................................................................................................... 2

ARGUMENT .................................................................................................................................. 3

Section 8’s Bar on Interlocking Directorates .......................................................... 3

Statutory Background ................................................................................. 3

Section 8 Claims Are Not Mooted by Simply Unwinding an Interlock ..... 4

Section 8 Bars Relationships that Create an Interlock Regardless of Form 6

II.

Interlocking Directorates are an Unfair Method of Competition............................ 7

III.

Group Boycotts Under Section 1 .......................................................................... 10

CONCLUSION ............................................................................................................................. 12

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TABLE OF AUTHORITIES

Cases

Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183 (2010) ................................................. 10

Am. Tobacco v. United States, 328 U.S. 781 (1946) .................................................................... 11

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 553 (2007) .......................................................... 11

Blau v. Lehman, 368 U.S. 403 (1962)............................................................................................. 7

California v. Fed. Power Comm’n, 369 U.S. 482 (1962) ............................................................... 7

Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163 (1999) ............. 1, 8, 9

Cty. of Los Angeles v. Davis, 440 U.S. 625 (1979)......................................................................... 5

E.I. du Pont de Nemours & Co. v. FTC (Ethyl), 729 F.2d 128 (2d Cir. 1984) ........................... 1, 8

Epic Games v. Apple, 67 F.4th 946 (9th Cir. 2023) .................................................................. 8, 10

Fed. Trade Comm’n v. Amazon.com, Inc., No. 2:23-CV-01495-JHC, 2024 WL 4448815

(W.D. Wash. Sept. 30, 2024) ..................................................................................................... 8

Fed. Trade Comm’n v. Motion Picture Advertising Service Co., 344 U.S. 392 (1953) ................. 8

Fed. Trade Comm’n v. Sperry & Hutchinson Co., 405 U.S. 233 (1972)........................................ 8

Fed. Trade Comm’n v. Texaco, Inc., 393 U.S. 223 (1968) ............................................................. 8

Grand Union Co. v. FTC, 300 F.2d 92 (2d Cir. 1962) ................................................................... 9

Honey Bum, LLC v. Fashion Nova, Inc., 63 F.4th 813 (9th Cir. 2023) .................................. 10, 11

Klor’s Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959) ................................................. 11

NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998) ..................................................................... 11

Ohio v. Am. Express Co., 585 U.S. 529 (2018) ............................................................................ 10

PLS.com v. Nat’l Ass’n of Realtors, 32 F.4th 824 (9th Cir. 2022) ............................................... 11

Protectoseal Co. v. Barancik, 484 F.2d 585 (7th Cir. 1973) ...................................................... 4, 5

Reading Int’l, Inc. v. Oaktree Cap. Mgmt. LLC, 317 F. Supp. 2d 301 (S.D.N.Y. 2003) ....... 3, 4, 7

Square D Co. v. Schneider S.A., 760 F. Supp. 362 (S.D.N.Y. 1991) ..................................... 4, 5, 7

Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)........................................... 10

Toys “R” Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000) ............................................................. 11

TRW, Inc. v. FTC, 647 F.2d 942 (9th Cir. 1981) ................................................................... passim

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United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015) ............................................................ 11

United States v. Cleveland Tr. Co., 392 F. Supp. 699 (N.D. Ohio 1974), aff’d, 513 F.2d 633

(6th Cir. 1975) ............................................................................................................................ 7

United States v. Concentrated Phosphate Export Ass’n, 393 U.S. 199 (1968) .......................... 5, 6

United States v. Paramount Pictures, 334 U.S. 131 (1948) ........................................................... 5

United States v. Sears, Roebuck & Co, 111 F. Supp. 614 (S.D.N.Y. 1953) ................................... 4

United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940) ..................................... 6

United States v. W. T. Grant Co., 345 U.S. 629 (1953) .............................................................. 4, 5

White v. R.M. Packer Co., 635 F.3d 571 (1st Cir. 2011) .............................................................. 11

Statutes

15 U.S.C § 45 .................................................................................................................................. 1

15 U.S.C. § 1 ......................................................................................................................... 1, 4, 10

15 U.S.C. § 19 ............................................................................................................................. 1, 3

15 U.S.C. § 2 ................................................................................................................................... 4

28 U.S.C. § 517 ............................................................................................................................... 1

Cal. Bus. & Prof. Code § 17200 ..................................................................................................... 1

Administrative Decisions

In re Kraftco Corp., 89 F.T.C. 46, 1977 WL 188540 (Jan. 11, 1977) ............................................ 9

In re Perpetual Fed. Sav & Loan Assoc., 90 F.T.C. 608 (1977), rem’d on other grounds, No.

78-1134 (4th Cir. 1978), order withdrawn, 94 F.T.C. 401 (1979) ............................................ 9

United Auto Workers Advisory Opinion, 97 F.T.C. 933 (May 1, 1981) ......................................... 6

Other Authorities

In re EQT Corp., File No. 221-0212, Stmt. of Chair Lina M. Khan Joined by Comm’r

Rebecca Kelly Slaughter and Comm’r Alvaro Bedoya (F.T.C. Aug. 16, 2023) ....................... 9

Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5

of the Federal Trade Commission Act, File No. P221202 (F.T.C. Nov. 10, 2022) ................... 8

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INTRODUCTION

The United States, through the U.S. Department of Justice, joined by the Federal Trade

Commission (“FTC”), respectfully submits this Statement of Interest pursuant to 28 U.S.C. §

517. The Antitrust Division of the U.S. Department of Justice and the FTC (collectively, the

“Agencies”) enforce the federal antitrust laws, including the prohibition against interlocking

directorates in Section 8 of the Clayton Act, 15 U.S.C. § 19,1 and the prohibition against

contracts, combinations, and conspiracies in restraint of trade in Section 1 of the Sherman Act,

15 U.S.C. § 1. The Agencies therefore have a strong interest in their correct application.

The FTC is further charged by Congress with preventing unfair methods of competition

under Section 5 of the FTC Act, 15 U.S.C § 45. Such unfair methods include “incipient

violations of [the Clayton Act], and conduct which, although not a violation of the letter of the

antitrust laws, is close to a violation or is contrary to their spirit.” E.I. du Pont de Nemours &

Co. v. FTC (Ethyl), 729 F.2d 128, 136–37 (2d Cir. 1984). California similarly prohibits unfair

competition, Cal. Bus. & Prof. Code § 17200, and federal and state courts look to Section 5 of

the FTC Act to interpret that statute’s meaning. See Cel-Tech Commc’ns, Inc. v. Los Angeles

Cellular Tel. Co., 20 Cal. 4th 163, 185–86 (1999) (“As the issue before us in this case arises out

of a claim of unfair competition . . . the relevant jurisprudence would be that arising under

section 5’s prohibition against ‘unfair methods of competition.’”). The FTC therefore has an

interest in the correct interpretation of California’s Unfair Competition Law (“UCL”), Cal. Bus.

& Prof. Code § 17200.

The Agencies file this Statement of Interest in response to Plaintiffs’ Motion for a

Preliminary Injunction, ECF No. 46, to address the proper standards for analyzing whether (1) a

The United States has successfully unwound or prevented interlocks involving at least two

dozen companies in the last few years. See, e.g., Dep’t of Justice, Tencent Removes Two

Directors from Epic Games and Relinquishes Its Right to Unilaterally Appoint Directors or

Observers in Response to Justice Department Scrutiny (Dec. 18, 2024), https://www.justice.gov/

opa/pr/tencent-removes-two-directors-epic-games-and-relinquishes-its-right-unilaterally-appoint;

FTC, FTC Acts to Prevent Interlocking Directorate Arrangement, Anticompetitive Information

Exchange in EQT, Quantum Energy Deal (Aug. 16, 2022), https://www

ftc.gov/newsevents/news/press-releases/2023/08/ftc-acts-prevent-interlocking-directoratearrangement-anticompetitiveinformation-exchange-eqt.

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claim under Section 8 is moot and (2) a company violates Section 8 by appointing a natural

person to serve on the board of a competing company. This statement also explains how

interlocking board member arrangements can undermine fair competition and therefore violate

the FTC Act and, by extension, California’s UCL. Finally, this statement discusses the legal

standard for when group boycotts can run afoul of Section 1.

The Agencies take no position on any other issue in this case, including the facts alleged

by Plaintiffs.

FACTUAL BACKGROUND

The First Amended Complaint, ECF No. 32, alleges that “Artificial General

Intelligence,” i.e., “a machine having intelligence for a wide variety of tasks like a human,”

poses certain risks. Am. Compl. ¶¶ 4, 74-75. To address these risks, Plaintiff Musk helped

establish OpenAI in 2015. Am. Compl. ¶ 88. That same year, OpenAI incorporated as a

“nonprofit corporation” committed to the “research, development and distribution of technology

related to artificial intelligence.” Am. Compl. ¶ 89.

The First Amended Complaint further alleges that (1) defendant Reid Hoffman

simultaneously served on OpenAI’s and Microsoft’s boards of directors from March 2017 to

March 2023, and (2) defendant Deannah Templeton simultaneously served as Vice President of

Partnerships and Operations in the Technology & Research division at Microsoft and as a non-

voting member of OpenAI’s board of directors from November 2023 until July 2024. Am.

Compl. ¶¶ 163, 371; see also id. ¶¶ 168, 331(m), 374.

Based on these allegations, and others, Plaintiffs bring 26 separate claims including

breach of contract, fraud, false advertising, breach of fiduciary duty, and claims under the

Racketeer Influenced and Corrupt Organizations Act. Plaintiffs also allege Defendants violated

the Sherman and Clayton Acts based in part on conduct affecting the market for “generative AI

models and platforms.” Am. Compl. ¶ 204.

On November 29, 2024, Plaintiffs filed a Motion for a Preliminary Injunction seeking to

enjoin Defendants from, among other things, “directly or indirectly undertaking any action for

the purpose of or tending to have the effect of, interlocking directorates or benefitting from

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wrongfully obtained competitively sensitive information or coordination via the Microsoft-

OpenAI board interlocks.” ECF No. 46 at i-ii. Defendants oppose the motion. See ECF Nos.

64, 65.

ARGUMENT

The Agencies offer their views on the proper application of Section 8 of the Clayton Act,

Section 1 of the Sherman Act, and the UCL to the specific issues discussed below. The

Agencies take no position on the ultimate disposition of the motion.

Section 8’s Bar on Interlocking Directorates

Section 8 of the Clayton Act provides that “[n]o person shall, at the same time, serve as a

director or officer in any two corporations . . . that are . . . competitors such that the elimination

of competition by agreement between them would constitute a violation of any of the antitrust

laws.” 15 U.S.C. § 19. Section 8 makes interlocking directorates, i.e., overlapping directors or

officers among competing companies, per se unlawful. TRW, Inc. v. FTC, 647 F.2d 942, 948

(9th Cir. 1981). At the same time, this broad prohibition is subject to certain limitations and

exceptions. See, e.g., 15 U.S.C. § 19(a)(2), (b). For example, the companies must be engaged in

interstate commerce and have “capital, surplus, and undivided profits aggregating more than”

$48,559,000. Id. Section 8 also does not apply if competitive sales: (A) of either corporation are

less than $4,855,900; (B) of either corporation are less than two percent of the corporation’s total

sales; or (C) of each corporation are less than four percent of the corporation’s total sales. Id. at

§ 8(a)(2). Finally, Section 19(b) grants a one-year grace period to individuals who were eligible

to serve at the time of election but a change in circumstances later created an illegal interlock.

The purpose of Section 8’s prohibition on interlocking directorates is “to nip in the bud

Statutory Background

incipient antitrust violations by removing the opportunity or temptation for such violations.”

TRW, 647 F.2d at, 946–47. Put another way, Section 8 “prevent[s] restraints on competition

before they materialize[] by outlawing a particular practice thought to facilitate such restraints.”

Id. at 948; see also Reading Int’l, Inc. v. Oaktree Cap. Mgmt. LLC, 317 F. Supp. 2d 301, 330

(S.D.N.Y. 2003). For example, preventing interlocking directorates helps “avoid the opportunity

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for the coordination of business decisions by competitors and . . . the exchange of commercially

sensitive information by competitors.” Square D Co. v. Schneider S.A., 760 F. Supp. 362, 366

(S.D.N.Y. 1991). Such conduct can facilitate unreasonable restraints of trade in violation of

Section 1 of the Sherman Act (15 U.S.C. § 1) or help a monopolist maintain and entrench its

power in violation of Section 2 of the Sherman Act (15 U.S.C. § 2). In this way, Section 8

supports and reinforces the federal antitrust laws more generally. See United States v. Sears,

Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953) (“Section 8 was but one of a series of

measures which finally emerged as the Clayton Act, all intended to strengthen the Sherman

Act.”).

Courts have consistently interpreted Section 8 in view of these “prophylactic and

remedial purposes.” Square D Co. v. Schneider S.A., 760 F. Supp. 362, 366 (S.D.N.Y. 1991).

For example, the Ninth Circuit has held that establishing a Section 8 violation does not require

“proof that the interlock has an actual anticompetitive effect.” TRW, 647 F.2d at 946–47 (citing

Protectoseal Co. v. Barancik, 484 F.2d 585, 589 (7th Cir. 1973) (Stevens, J.)). “On the contrary,

the statute reflects a public interest in preventing directors from serving in positions which

involve either a potential conflict of interest or a potential frustration of competition.”

Protectoseal, 484 F.2d at 589. Likewise, courts have refused to read the statute so rigidly that a

company can evade Section 8 liability through tactics that elevate form over substance, e.g., “by

calling its agents on the competitors’ board something other than either officers or directors.”

Square, 760 F. Supp. at 366; Reading, 317 F. Supp. 2d at 327–28 (rejecting reading of Section 8

that would “elevate form over substance” and render the statue “a formalism”).

Section 8 Claims Are Not Mooted by Simply Unwinding an Interlock

Defendants argue “there is no live ‘case or controversy’” here because “neither Hoffman

nor Templeton is currently affiliated with OpenAI’s board in any capacity.” ECF No. 64 at 13.

But ending an interlocking directorate, e.g., by having a person resign from a corporate board, is

not sufficient, on its own, to moot a claim under Section 8 of the Clayton Act. See United States

v. W. T. Grant Co., 345 U.S. 629, 632 (1953); TRW, 647 F.2d at 953. In resolving this matter,

the Court should avoid holding otherwise.

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“[A]s a general rule, ‘voluntary cessation of allegedly illegal conduct does not deprive the

tribunal of power to hear and determine the case, i.e., does not make the case moot.’” Cty. of Los

Angeles v. Davis, 440 U.S. 625, 631 (1979). Otherwise “[a] defendant [would be] free to return

to his old ways,” and that, “together with a public interest in having the legality of the [disputed]

practices settled, militates against a mootness conclusion.” United States v. W. T. Grant Co., 345

U.S. 629, 632 (1953). Thus, where a defendant voluntarily ceases illegal conduct, it still bears a

“heavy burden” to demonstrate it is “absolutely clear that the allegedly wrongful behavior could

not reasonably be expected to recur.” TRW, 647 F.2d at 953 (quoting United States v.

Concentrated Phosphate Export Ass’n, 393 U.S. 199, 203 (1968)). Additionally, the relevant

“concern is with repeated violations of the same law, and not merely with repetition of the same

offensive conduct.” Id.

The issue of mootness in the context of Section 8 was addressed squarely by the Ninth

Circuit in TRW. 647 F.2d at 953. There, the interlocking director (i) resigned his position at the

competing company, (ii) “decided not to stand for reelection,” (iii) and “provided sworn

assurances that [he] would avoid offensive directorships in the future.” Id. The Ninth Circuit

still held the case was not moot. Id. As the Ninth Circuit explained, mootness depends on the

risk that a defendant may violate Section 8 in the future, not simply whether it might resume the

specific interlock at issue. Id. That risk may remain even after an interlock is unwound despite

“good faith . . . assurances of future compliance.” Id.

Moreover, “a potential conflict of interest or a potential frustration of competition,”

Protectoseal, 484 F.2d at 589, may remain even after an interlock is resolved and even if one is

unlikely to recur. For example, if companies use interlocking directors to exchange

competitively sensitive information, see Square, 760 F. Supp. at 367, they may frustrate

competition so long as the information remains sensitive and in their possession. Thus, holding

that a company moots a potential claim under Section 8 by simply ending an interlock would be

contrary to the purpose of the statute and would significantly undermine enforcement of the

Clayton Act. Cf. United States v. Paramount Pictures, 334 U.S. 131, 171–72 (1948) (“[T]he

requirement that the defendants restore what they unlawfully obtained [through an unlawful

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antitrust conspiracy] is no more punishment than the familiar remedy of restitution.”); United

Auto Workers Advisory Opinion, 97 F.T.C. 933 (May 1, 1981) (“The basic purposes of Section 8

are to avoid the opportunity for coordination of business decisions by competitors and to prevent

the exchange of commercially sensitive information among competitors.”) (emphasis added).

Unwound interlocks are subject to the same mootness analysis as other abandoned per se conduct

such as market allocation or price fixing. W. T. Grant Co., 345 U.S. at 632 (voluntary cessation

of Section 8 interlock does not deprive the tribunal of power to hear and determine the case);

United States v. Concentrated Phosphate Exp. Ass’n, 393 U.S. 199, 203 (1968) (“mere voluntary

cessation of allegedly illegal conduct does not moot a case” involving price-fixing under Section

1); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940) (“It is the ‘contract,

combination . . . or conspiracy, in restraint of trade or commerce’ which § 1 of the Act strikes

down, whether the concerted activity be wholly nascent or abortive on the one hand, or

successful on the other.”) (citation omitted).

Accordingly, if a plaintiff properly pleads a likelihood of recurrence or an ongoing harm

through the wrongful retention of competitively sensitive information obtained through the

alleged interlocks, Section 8 claims are not moot. See TRW, 647 F.2d at 953. Even in the face of

good faith assurances of future compliance with Section 8, a court may find that “the heavy

burden of proof regarding mootness has not been satisfied.” Id.

Section 8 Bars Relationships that Create an Interlock Regardless of Form

It is well-established that an individual or a company can violate Section 8 when it

“serve[s] as a director or officer” directly or indirectly, e.g., through an agent, deputy, or

representative. For example, in TRW, the Ninth Circuit held that “section 8 prohibits

corporations from choosing, and natural persons from serving as, directors in violation of section

8’s substantive requirements.” Id. at 949. Consistent with TRW, if a company chooses a natural

person to serve on a competitor’s board as its agent, the company and the natural person violate

Section 8 unless an exception or safe harbor applies.2 Id. “To hold otherwise would be to allow

Whether a person serves as the agent, deputy, or representative of another entity is a casespecific inquiry. See, e.g., United States v. Cleveland Tr. Co., 392 F. Supp. 699, 711–12 (N.D.

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corporations (and individuals) to evade antitrust liability simply by designating agents to serve

their bidding on the boards of competing businesses.” Reading, 317 F. Supp. 2d at 331; see also

California v. Fed. Power Comm’n, 369 U.S. 482, 485 (1962) (“Immunity from the antitrust laws

is not lightly implied.”). Consequently, an individual cannot evade liability by serving as an

“observer” on a competitor’s board. Similarly, companies cannot evade liability by relying on an

agent to serve on a competitor’s board. In resolving this matter, the Court should avoid holding

otherwise.

A board “observer” may be a “director” under 15 U.S.C. § 19 in certain circumstances.

Specifically, a company or individual cannot use an indirect means to a prohibited end, such as

by asking another person to serve as a board observer to obtain entry to a meeting that is

otherwise off limits due to Section 8’s ban on interlocks. Such misdirection would undermine

Section 8’s intent to impose a clear ban on direct involvement in the management of a

competitor. Accordingly, the Court should determine whether Defendants violated Section 8

based on case-specific allegations without “exalt[ing] form over substance,” Square, 760 F.

Supp. at 366, or disturbing longstanding precedent holding that a company may violate Section 8

when it appoints an agent, deputy, or representative to serve on the board of a competitor, see

TRW, 647 F.2d at 949; see also Square, 760 F. Supp. at 367 (“[A] cause of action under § 8 is

stated where a company attempts to place on the Board of a competitor individuals who are

agents of, and have an employment or business relationship with, such company.”); Reading,

317 F. Supp. 2d at 331-32 (similar).

II.

Interlocking Directorates Are an Unfair Method of Competition

Interlocking directorates are an unfair method of competition under federal antitrust law,

including the FTC Act. Courts have looked to Section 5 of the FTC Act and its prohibition

Ohio 1974), aff’d, 513 F.2d 633 (6th Cir. 1975). In each case, however, the key question is

whether “it can legitimately be said that it is [the defendant] as an entity . . . which ‘serve[s] as a

director’ of [the competing company].” Reading, 317 F. Supp. 2d at 331–32; see also Blau v.

Lehman, 368 U.S. 403, 410 (1962) (“Lehman Brothers would be a ‘director’ of Tide Water [for

purposes of the Securities Exchange Act of 1934], if . . . Lehman actually functioned as a

director through Thomas, who had been deputized by Lehman to perform a director’s duties not

for himself but for Lehman.”).

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against unfair methods of competition for guidance on how to interpret California’s UCL. See,

e.g., Cel-Tech Commc’ns, 20 Cal. 4th at 185 (citations omitted) (“‘In view of the similarity of

language and obvious identity of purpose of the two statutes, decisions of the federal court on the

subject are more than ordinarily persuasive.’”); Epic Games v. Apple, 67 F.4th 946, 1000–1002

(9th Cir. 2023) (discussing the relationship between state unfair competition claims and federal

antitrust claims). “The standard of ‘unfairness’ under the FTC Act is, by necessity, an elusive

one, encompassing not only practices that violate the Sherman Act and the other antitrust laws,

but also practices that the Commission determines are against public policy for other reasons.”

Fed. Trade Comm’n v. Amazon.com, Inc., No. 2:23-cv-01495-JHC, 2024 WL 4448815, at *13

(W.D. Wash. Sept. 30, 2024) (quoting Fed. Trade Comm’n v. Indiana Fed’n of Dentists, 476

U.S. 447, 454 (1986)). See also Policy Statement Regarding the Scope of Unfair Methods of

Competition Under Section 5 of the Federal Trade Commission Act, File No. P221202, at 1

(F.T.C. Nov. 10, 2022) (“Section 5 reaches beyond the Sherman and Clayton Acts to encompass

various types of unfair conduct that tend to negatively affect competitive conditions.”)

(collecting cases).

The Supreme Court has stated that the FTC Act’s prohibition on unfair methods of

competition was “designed to supplement and bolster the Sherman Act and the Clayton Act . . .

to stop in their incipiency acts and practices which, when full blown, would violate [the Sherman

Act and the Clayton Act] . . . .” Fed. Trade Comm’n v. Motion Picture Advertising Service Co.,

344 U.S. 392, 394–95 (1953) (internal citations omitted); see also Ethyl, 729 F.2d at 136–37 (the

FTC Act empowers the FTC “to bar incipient violations of those statutes, and conduct which,

although not a violation of the letter of the antitrust laws, is close to a violation or is contrary to

their spirit”) (cleaned up); Fed. Trade Comm’n v. Texaco, Inc., 393 U.S. 223, 225 (1968) (same).

The Supreme Court has likewise long recognized that the FTC “has broad powers to

declare trade practices unfair.” Fed. Trade Comm’n v. Sperry & Hutchinson Co., 405 U.S. 233,

242 (1972) (quoting Fed. Trade Comm’n v. Brown Shoe Co., 384 U.S. 316, 320–321 (1966)). In

1977, the FTC concluded that certain interlocks cannot “escape liability through the allegedly

porous wording of Section 8.” In re Kraftco Corp., 89 F.T.C. 46, 1977 WL 188540, at *13 (Jan.

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11, 1977); see also In re Perpetual Fed. Sav & Loan Assoc., 90 F.T.C. 608, 653 (1977),

remanded on other grounds, No. 78-1134 (4th Cir. 1978), order withdrawn, 94 F.T.C. 401

(1979) (“Congress enacted the Clayton Act and the Federal Trade Commission Act in response

to the perceived shortcomings of the Sherman Act, as interpreted by the courts, in abating what

were seen as unhealthy concentrations of economic and political power. One of the practices

which was singled out for particular concern was the interlocking directorate. This concern was

highlighted in Congressional reports.”). It pointed out that the statute’s legislative history

suggests that “Congress specifically contemplated the application of Section 5 to interlocking

directorates.”3 Id.4

In light of the foregoing, the Court may consider under the proscriptions of California’s

UCL whether the alleged conduct is contrary to Section 5 of the FTC Act, e.g., by facilitating the

exchange of confidential, competitively significantly information between rivals. See Cel-Tech

Commc’ns, 20 Cal. 4th at 185–86 (looking to Section 5 jurisprudence to determine that “the

word “unfair” in [the California UCL] means conduct that threatens an incipient violation of an

antitrust law, or violates the policy or spirit of one of those laws . . . .”); Grand Union Co. v.

FTC, 300 F.2d 92 (2d Cir. 1962) (allowing an expansion of the Clayton Act from certain

“technical confines” to realize a “basic policy” underlying the Act). Epic Games, 67 F.4th at

Indeed, the Senate Interstate Commerce Committee reported that it “was of the opinion that it

would be better to put in a general provision condemning unfair competition than to attempt to

define the numerous unfair practices, such as . . . interlocking directorates and holding

companies intended to restrain substantial competition.” In re Kraftco Corp., 1977 WL 188540,

at *13 (cleaned up); see also Perpetual Fed. Sav & Loan Assoc., 90 F.T.C. at 655 (discussing

legislative history and finding it “clear that Congress contemplated interlocks among the

practices comprehended by Section 5 of the FTC Act”).

More recently, the Commission observed, as part of a consent decree settling charges of

interlocking directorates violating Section 8, that the appointment of a board observer or

designee in a rival firm raises concerns that the two competing firms will “have access to one

another’s competitively significant, non-public information and could participate in, or have

influence over, competitive decisionmaking at each firm.” In re EQT Corp., File No. 221-0212,

Stmt. of Chair Lina M. Khan Joined by Comm’r Rebecca Kelly Slaughter and Comm’r Alvaro

Bedoya (F.T.C. Aug. 16, 2023).

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1000 (“a business practice may be ‘unfair,’ and therefore illegal under the UCL, ‘even if not

specifically proscribed by some other law’”) (quoting Cel-Tec Commc’ns, 20 Cal. 4th at 180).

III.

Group Boycotts Under Section 1

Plaintiffs seek to enjoin an alleged “fund-no-competitors” edict, which they unify under a

group boycott theory of antitrust, in violation of Section 1 of the Sherman Act. The Agencies

take no position on the alleged facts but file this statement in order to clarify the proper legal

analysis for group boycotts.5 Section 1 of the Sherman Act forbids “[e]very contract,

combination in the form of trust or otherwise, or conspiracy, in restraint of trade.” 15 U.S.C. § 1.

A claim under Section 1 therefore requires two key elements: (1) “a contract, combination, or

conspiracy”—i.e., “concerted action”— (2) that “unreasonably restrains trade.” Am. Needle, Inc.

v. Nat’l Football League, 560 U.S. 183, 186 (2010). Concerted action can be unreasonable in

one of two ways. Ohio v. Am. Express Co., 585 U.S. 529, 540 (2018). First, it may be

unreasonable per se, without any further inquiry into its competitive effects or justifications,

because of its inherently anticompetitive “nature and character.” Standard Oil Co. of New Jersey

v. United States, 221 U.S. 1, 64 (1911). Typically, only horizontal restraints, i.e., concerted

action between actual or potential competitors, are per se unlawful. Am. Express, 585 U.S. at

541. Second, a restraint may be unreasonable under the “rule of reason,” a “fact-specific

assessment” of challenged conduct’s “effect on competition.” Id. (internal quotation marks

omitted). Group boycotts involving competing firms can properly be analyzed under the per se

rule. See Honey Bum, LLC v. Fashion Nova, Inc., 63 F.4th 813, 820–21 (9th Cir. 2023).

The litigants disagree about whether the alleged fund-no-competitors edict is horizontal

or vertical.6 This distinction does not preclude application of Section 1. Without commenting

The operative complaint and preliminary injunction motion raise questions about the

relationship between OpenAI and Microsoft, namely whether it constitutes a form of prohibited

coordinated conduct under the Sherman Act or, alternatively, may be characterized as “an

unregulated merger.” The characterization of the relationship between the entities for antitrust

purposes is a factual inquiry on which the Agencies take no position at this time.

To the extent Defendants dispute the existence of concerted action, i.e., a group boycott against

OpenAI’s rivals, the Court would err if it required Plaintiffs to establish the existence of a

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on the facts as alleged, a group boycott can have a vertical aspect; and per se liability under

Section 1 can attach so long as there is also a horizontal element to the alleged conspiracy. See

NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 136 (1998) (surveying precedent and distinguishing

purely vertical agreement between supplier and customer from cases also involving a horizontal

agreement among competitors). Indeed, “[t]he horizontal agreement can exist either among the

initiators of the boycott (as in Fashion Originators) or those pressured into joining (as in

Klor’s).” Honey Bum, 63 F.4th at 821. Thus, a conspiracy among competing firms can be per se

unlawful even if it is organized by one of their customers, as is the case with some hub-and-

spoke conspiracies. E.g., Klor’s Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 211 (1959);

Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 936–38 (7th Cir. 2000); United States v. Apple, Inc.,

791 F.3d 290, 323 (2d Cir. 2015). For example, in Apple, a price fixing conspiracy was

condemned as per se unlawful even though it was organized by a distributor (Apple) that did not

compete with the other co-conspirators (book publishers). 791 F.3d at 323 (2d Cir. 2015)

(anticompetitive “threat is just as significant when a vertical market participant organizes the

conspiracy”).

Moreover, group boycotts are “not to be tolerated merely because the victim is just one

merchant whose business is so small that his destruction makes little difference to the economy.”

Klor’s, 359 U.S. at 213 (“Monopoly can as surely thrive by the elimination of such small

businessmen, one at a time, as it can by driving them out in large groups”). And the fact that

alternative resources may be secured by the boycotted firm beyond those supplied by the

boycotting group cannot serve as a defense. See PLS.com, 32 F.4th at 835 (“[A] group of

competitors coercing a competitor’s suppliers . . . constitutes a group boycott even if the

competitors do not completely cut off the competitor’s access to inputs it needs.”); Klor’s, 359

“formal agreement” between members of the alleged boycott. Am. Tobacco v. United States, 328

U.S. 781, 809 (1946). A “tacit” agreement can also qualify. Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 553 (2007); see White v. R.M. Packer Co., 635 F.3d 571, 576 (1st Cir. 2011) (A tacit

agreement is “one in which only the conspirators’ actions . . . indicate [its] existence.”). For

example, concerted action may be inferred if one firm invites others to participate in a boycott

and then those firms engage in conduct showing acceptance. PLS.com v. Nat’l Ass’n of Realtors,

32 F.4th 824, 843 (9th Cir. 2022) (citing Interstate Cir. v. United States, 306 U.S. 208, 227

(1939)).

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U.S. at 210 (rejecting the argument that there is no violation of Section 1 “unless the

opportunities for customers to buy in a competitive market are reduced” because then “a group

of powerful businessmen may act in concert to deprive a single merchant . . . of the goods he

needs to compete effectively”).

CONCLUSION

For the foregoing reasons, the court should decide Plaintiffs’ Motion for a Preliminary

Injunction, ECF No. 46, consistent with the legal principles above regarding Section 8,

California’s Unfair Competition Law, and group boycotts under Section 1.

Respectfully submitted,

ANISHA DASGUPTA

General Counsel

DOHA MEKKI

Acting Assistant Attorney General

HANNAH GARDEN-MONHEIT

Director, Office of Policy Planning

JOHN W. ELIAS

Deputy Assistant Attorney General

HENRY LIU

Director, Bureau of Competition

DAVID B. LAWRENCE

Policy Director

SHAOUL SUSSMAN

Associate Director, Bureau of Competition

RYAN DANKS

Director of Civil Enforcement

KATHERINE VAN DYCK

Attorney-Advisor, Office of Policy Planning

MIRIAM R. VISHIO

Deputy Director of Civil

Enforcement

Attorneys for the Federal Trade Commission

BENJAMIN L. RUDOFSKY

ALICE A. WANG

Counsels to the Assistant Attorney

General

ERIC D. DUNN (CSBN 312513)

Assistant Chief, Competition Policy

and Advocacy Section

Dated: January 10, 2025

/s/ Benjamin L. Rudofsky

Attorneys for the United States

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.