Two recent FTC actions have confirmed once again that companies should not enter agreements to refrain from hiring each other’s employees.
In 1992, Tecnica and Volkl began collaborating in the marketing and distribution of complementary ski equipment: Volkl skis and Tecnica ski boots. The companies initially were not competitive. Tecnica at that time didn’t sell skis and Volkl didn’t sell ski boots. Both companies marketed their products by securing endorsements from ski athletes, like World Cup and Olympics skiers. These endorsement agreements typically are short and subject to renewal. The ski athlete authorizes the company to use his name and likeness in promotions and advertisements, agrees to use and promote the company’s equpment on an exclusive basis and agrees to display the equipment when he receives media exposure (e.g. on on the medal stand). In exchange, the company pays the ski athlete, supports him at competitions, and gives him free or discounted equipment. Ski companies compete with one another to secure the endorsements of Olympians or World Cup skiers. The skiers derive much of their income from endorsements.
In In re Tecnica and In re Marker Volkl, the Federal Trade Commission alleged that in 2004 Tecnica and Volkl agreed not to compete with one another to to secure the endorsement of athletes. Several years later, the two companies supposedly reaffirmed that the companies would not compete withone another for the endorsement deals. They also supposedly agreed not to compete for the services of each other’s employees. The FTC alleged that these agreements violated Section 5 of the Federal Trade Commission Act.
Both companies have now entered into Consent Orders with the FTC. Under the Consent Orders, the companies will be barred from entering into any agreement under which they wouild forbear from soliciting, cold calling or recruiting any ski athlete for endorsements. Similarly, they would be barred from entering any agreement under which they would refrain from soliciting each other’s employees, or any other company’s employees.
These consent orders should not come as a surprise. They follow the highly publicized enforcement actions in Silicon Valley that were pursued by the Department of Justice. In all of these cases, the allegation has been that companies seek to suppress the wages paid to employees by agreeing not to solicit or hire each other’s employees.
We can only speculate whethere these FTC enforcement actions will prompt civil suits by the affected employees or “endorsers”. After the DOJ pursued its enforcement action in Silicon Valley case, civil suits were promptly filed, which resulted in an agreement to pay the affected class of affected employees over $300 million. That settlement did not come, however, without a fight. According to one commentator, the Silicon Valley settlement was prefaced by extensive fact discovery, including 107 depositions, the review of millions of pages of documents and analysis of over 50 gigabytes of data consisting of approximately 80,000 different files. The litigation had two rounds of class certification briefing and argument including the exchange of eight expert reports by four economists. It’s hard to say whether the FTC settlements will prompt that kind of effort.