[Federal Register Volume 76, Number 82 (Thursday, April 28, 2011)]
[Notices]
[Pages 23839-23844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-10121]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Lucasfilm Ltd.; Public Comments and Response on
Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes below the comments
received on the proposed Final Judgment in United States v. Lucasfilm
Ltd., Civil Action No. 1:10-CV-02220, which was filed in the United
States District Court for the District of Columbia on April 15, 2011,
together with the response of the United States to the comments.
Copies of the comments and the response are available for
inspection at the Department of Justice Antitrust Division, 450 Fifth
Street, NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-
2481), on the Department of Justice's Web site at http://www.usdoj.gov/atr, and at the Office of the Clerk of the United States District Court
for the District of Columbia, 333 Constitution Avenue, NW., Washington,
DC 20001. Copies of any of these materials may be obtained upon request
and payment of a copying fee.
Patricia A. Brink,
Director of Civil Enforcement.
United States District Court for the District of Columbia
United States of America, Plaintiff,
v.
Lucasfilm Ltd., Defendant.
Response of Plaintiff United States to Public Comments on the Proposed
Final Judgment
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the
United States hereby responds to the public comments received
regarding the proposed Final Judgment in this case. After careful
consideration of the comments, the United States continues to
believe that the proposed Final Judgment will provide an effective
and appropriate remedy for the antitrust violations alleged in the
Complaint. The United States will move the Court for entry of the
proposed Final Judgment after the public comments and this response
have been published in the Federal Register, pursuant to 15 U.S.C.
16(d).
The United States filed a civil antitrust complaint against
Lucasfilm on December 21, 2010, seeking injunctive and other relief
to remedy the likely anticompetitive effects of a three-part
agreement between Lucasfilm and Pixar to forbid cold-calling and to
restrict certain other employee recruiting practices. The agreement
reduced competition for highly-skilled digital animators and other
employees, diminished potential employment opportunities for those
[[Page 23840]]
employees, and interfered with the proper functioning of the price-
setting mechanism that would otherwise have prevailed.
Simultaneously with the filing of the Complaint, the United
States filed a proposed Final Judgment and Stipulation signed by the
plaintiff and Lucasfilm, consenting to the entry of the proposed
Final Judgment after compliance with the requirements of the Tunney
Act, 15 U.S.C. 16.\1\ Pursuant to those requirements, the United
States filed its Competitive Impact Statement (``CIS'') with the
Court also on December 21, 2010; published the proposed Final
Judgment and CIS in the Federal Register on December 28, 2010, see
United States, et al. v. Lucasfilm Ltd., 75 FR 81651; and caused to
be published in The Washington Post summaries of the terms of the
proposed Final Judgment and CIS, together with directions for the
submission of written comments relating to the proposed Final
Judgment, for seven days beginning on December 25, 2010, and ending
on December 31, 2010. The 60-day period for public comments ended on
March 1, 2011; three comments were received as described below and
attached hereto.
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\1\ Pixar was not named as a defendant because Pixar is
currently bound by a similar Final Judgment entered in United States
v. Adobe Systems, Inc., No. 1:10-cv-01629 (D.D.C. entered March 17,
2011).
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I. The Investigation and Proposed Final Judgment
The proposed Final Judgment is the culmination of an
investigation of agreements between Lucasfilm and Pixar to restrain
employee recruiting and cold-calling practices. As part of its
investigation, the Justice Department issued Civil Investigative
Demands to Pixar and Lucasfilm. The Department reviewed the
documents and other materials from them, and interviewed witnesses
to the activity. The investigative staff carefully analyzed the
information obtained and thoroughly considered all of the issues
presented.
Lucasfilm and Pixar are rival employers of digital animators.
Beginning no later than January 2005, Lucasfilm and Pixar agreed to
a three-part protocol that restricted recruiting of each other's
employees. First, Lucasfilm and Pixar agreed they would not cold
call each other's employees.\2\ Second, they agreed to notify each
other before making an offer to an employee of the other firm.
Third, they agreed that, when offering a position to the other
company's employee, neither would counteroffer above the initial
offer. The protocol covered all digital animators and other
employees of both firms and was not limited by geography, job
function, product group, or time period.
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\2\ Cold calling involves communicating directly in any manner
(including orally, in writing, telephonically, or electronically)
with another firm's employee who has not otherwise applied for a job
opening.
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Lucasfilm's and Pixar's agreed-upon protocol disrupted the
competitive market forces for employee talent. It eliminated a
significant form of competition to attract digital animation
employees and other employees covered by the agreement. Overall, it
substantially diminished competition to the detriment of the
affected employees who likely were deprived of information and
access to better job opportunities.
After reviewing the investigative materials, the Department
determined that the agreement between the two firms was a naked
restraint of trade that was per se unlawful under Section 1 of the
Sherman Act, 15 U.S.C. 1, as alleged in the Complaint.
The proposed Final Judgment is designed to restore competition
for digital animators and other employees. Section IV of the
proposed Final Judgment prohibits Lucasfilm, and others in concert
with it who have notice of the proposed Final Judgment, from
agreeing, or attempting to agree, with another person to refrain
from cold calling, soliciting, recruiting, or otherwise competing
for employees of the other person. Lucasfilm is also prohibited from
requesting or pressuring another person to refrain from cold
calling, soliciting, recruiting, or otherwise competing for
employees of the other person. These provisions prohibit agreements
not to make counteroffers and agreements to notify each other when
making an offer to each other's employee. In Section V, the proposed
Final Judgment states that it does not prohibit ``no direct
solicitation provisions'' when they are reasonably necessary for,
and thus ancillary to, legitimate procompetitive collaborations.
Such ancillary restraints remain subject to scrutiny under the rule
of reason, in accord with antitrust precedents. See CIS at 6-8. In
this manner, the proposed Final Judgment prohibits anticompetitive
conduct while preserving procompetitive collaborations.
II. Standard of Judicial Review
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a 60-day comment
period, after which the court shall determine whether entry of the
proposed Final Judgment ``is in the public interest.'' 15 U.S.C.
16(e)(1). In making that determination in accordance with the
statute, the court is required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A)-(B). In considering these statutory
factors, the court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States
v. Microsoft Corp., 56 F.3d 1448, 1461 (DC Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public interest standard under the Tunney Act); United
States v. InBev NV./S.A., 2009-2 Trade Cas. (CCH) ]76,736, No. 08-
1965 (JR), 2009 U.S. Dist. LEXIS 84787, at *3 (D.D.C. Aug. 11, 2009)
(noting that the court's review of a consent judgment is limited and
only inquires ``into whether the government's determination that the
proposed remedies will cure the antitrust violations alleged in the
complaint was reasonable, and whether the mechanisms to enforce the
Final Judgment are clear and manageable'').
As the United States Court of Appeals for the District of
Columbia Circuit has held, under the APPA, a court considers, among
other things, the relationship between the remedy secured and the
specific allegations set forth in the government's complaint,
whether the decree is sufficiently clear, whether enforcement
mechanisms are sufficient, and whether the decree may positively
harm third parties. See Microsoft, 56 F.3d at 1458-62. With respect
to the adequacy of the relief secured by the decree, a court may not
``engage in an unrestricted evaluation of what relief would best
serve the public.'' United States v. BNS, Inc., 858 F.2d 456, 462
(9th Cir. 1988) (citing United States v. Bechtel Corp., 648 F.2d
660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62;
United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001);
InBev, 2009 U.S. Dist. LEXIS 84787, at *3 Courts have held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations
omitted).\3\ In determining whether a proposed settlement is in the
public interest, the court ``must accord deference to the
government's predictions about the efficacy of its remedies, and may
not require that the remedies perfectly match the alleged
violations.'' SBC Commc'ns, 489 F. Supp. 2d at 17; see also
Microsoft, 56 F.3d at 1461
[[Page 23841]]
(noting the need for courts to be ``deferential to the government's
predictions as to the effect of the proposed remedies''); United
States v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C.
2003) (noting that the court should grant due respect to the United
States' prediction as to the effect of proposed remedies, its
perception of the market structure, and its views of the nature of
the case).
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\3\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be
approved even if it falls short of the remedy the court would impose
on its own, as long as it falls within the range of acceptability or
is ``within the reaches of public interest.'' United States v. Am.
Tel. & TeL Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations
omitted) (quoting United States v. Gillette Co., 406 F. Supp. 713,
716 (D. Mass. 1975)), aff d sub nom. Maryland v. United States, 460
U.S. 1001 (1983); see also United States v. Alcan Aluminum Ltd., 605
F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even
though the court would have imposed a greater remedy). Therefore,
the United States ``need only provide a factual basis for concluding
that the settlements are reasonably adequate remedies for the
alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
In its 2004 amendments to the Tunney Act,\4\ Congress made clear
its intent to preserve the practical benefits of utilizing consent
decrees in antitrust enforcement, stating ``[n]othing in this
section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2). The language wrote into the statute
what Congress intended when it enacted the Tunney Act in 1974, as
Senator Tunney explained: ``[t]he court is nowhere compelled to go
to trial or to engage in extended proceedings which might have the
effect of vitiating the benefits of prompt and less costly
settlement through the consent decree process.'' 119 Cong. Rec.
24,598 (1973) (statement of Senator Tunney). Rather, the procedure
for the public-interest determination is left to the discretion of
the court, with the recognition that the court's ``scope of review
remains sharply proscribed by precedent and the nature of Tunney Act
proceedings.'' SBC Commc'ns, 489 F. Supp. 2d at 11.\5\
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\4\ The 2004 amendments substituted the word ``shall'' for
``may'' when directing the courts to consider the enumerated factors
and amended the list of factors to focus on competitive
considerations and address potentially ambiguous judgment terms.
Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see
also SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004
amendments ``effected minimal changes'' to Tunney Act review).
\5\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH)
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should. * * * carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
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III. Summary of Public Comments and the United States' Response
During the 60-day comment period, the United States received
three comments, which are attached hereto in the Appendix to this
Response. The United States has carefully reviewed the comments and
has determined that the proposed Final Judgment remains in the
public interest. We address first the one from Mr. Kent Martin and
then together, the two from The Association of Executive Search
Consultants (``AESC'').
A. Kent Martin
Mr. Martin is an employee in the digital film industry. He wrote
that he believed the proposed Final Judgment would be unenforceable
and that the firms would alter their practices and conspire in other
ways to achieve the same result. Mr. Martin also asked that
financial penalties be imposed, and in particular, that the
penalties be distributed to workers in the industry. He felt this
was necessary for the settlement to have an effective impact and to
compensate employees industry-wide. Finally, he expressed the view
that attempts to control wages are not limited to the Lucasfilm-
Pixar recruiting agreement but could involve other studios.
After carefully considering Mr. Martin's comments, the United
States believes that the proposed changes are inappropriate and
entry of the judgment in its current form is in the public interest.
First, the proposed Final Judgment is enforceable. As with any court
order, the Final Judgment would be enforceable through civil and
criminal contempt proceedings. The proposed Final Judgment gives the
Antitrust Division the ability to investigate any possible
violations of its terms. If the Antitrust Division learns of any
violations, it can pursue a contempt action. In addition, Lucasfilm
must disclose to the Antitrust Division any actual or potential
violations of the Judgment. Lucasfilm officials must certify that
they have read the Final Judgment and understand that violations can
result in a civil or criminal contempt action.
Second, the proposed Final Judgment is designed to prevent
Lucasfilm from entering into other agreements that limit competition
for employees. Although the complaint alleges only that Lucasfilm
and Pixar entered into agreements to refrain from cold-calling and
counter offering, and to notify each other before making job offers,
Section IV of the proposed Final Judgment more broadly enjoins
agreements regarding solicitation, cold calling, recruitment, or
other methods of competing for employees to provide prophylactic
protection against other activities that could interfere with
competition for employees. Third, Mr. Martin's request for financial
penalties is not appropriate.
The proposed Final Judgment may not be rejected or modified
simply because a different remedy might better serve an individual's
interests, including individual employees. The United States
represents the public interest. Unless the ``decree will result in
positive injury to third parties,'' a district court ``should not
reject an otherwise adequate remedy simply because a third party
claims it could be better treated.'' Microsoft, 56 F.3d at 1461 n.9.
Here, the proposed Final Judgment clearly remedies the conduct
alleged by the United States and does not result in positive injury
to Mr. Martin or other employees in the digital animation industry.
Finally, while Mr. Martin is of the view that others may be
involved in similar or related conduct, this case was filed against
Lucasfilm for conspiring with Pixar as alleged in the Complaint.
Accordingly, the Final Judgment can only reach Lucasfilm and that
conduct. As stated above, Pixar is already subject to a similar
Final Judgment.\6\
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\6\ Pixar and four other defendants are subject to the Final
Judgment entered in United States v. Adobe Systems, Inc., No. 1:10-
cv-01629 (D.D.C. entered March 17, 2011).
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B. AESC
AESC is a worldwide professional association of executive search
consulting firms. Its members identify and recruit senior executive
talent for organizations in many industries. AESC submitted two
comments about the proposed Final Judgment dated February 25, 2011,
and March 15, 2011. Both comments focused on Section V.A.3. which
allows Lucasfilm to enter no-direct solicitation agreements that are
``reasonably necessary for contracts with. * * * recruiting
agencies.''
AESC's first comment asked that the term ``reasonably
necessary'' be defined in the judgment, including enumerating
factors, such as the duration and geographic scope of the no-direct
solicitation restraint, that a court would consider in determining
whether the restraint was reasonably necessary to the recruiting
engagement. AESC is concerned that without a more precise
definition, executive search firms will not know whether their no
direct solicitation provisions in agreements with clients violate
the law or the proposed Final Judgment. The second comment expanded
upon the first. AESC noted that executive search firms may gain
exposure to proprietary details about a client's business, and it
may be reasonably necessary for the client and executive search firm
to agree on a narrowly-tailored no direct solicitation covenant. For
example, they may enter a limited-duration agreement restricting the
executive search firm from soliciting employees who work in the
relevant office or division of the client corporation. By contrast,
some clients may request multi-year prohibitions that cover the
entire company. AESC expressed the concern that overly broad
restrictions could have the effect of placing significant numbers of
individuals off limits to recruiters and thus narrow the pool of
accessible talent from which to draw when conducting executive
searches. AESC feared that the proposed Final Judgment could
encourage the use of overly broad
[[Page 23842]]
agreements. Accordingly, AESC asked that the Judgment be modified to
state:
All no direct solicitation provisions that relate to agreements
with recruiting agencies described in Section 5.A.3 shall be
narrowly tailored such that the scope of the no direct solicitation
provision bears a reasonable relationship to the scope of the
recruiting engagement, including with respect to geographic reach,
duration, and the number of personnel and business units affected.
After carefully considering AESC's comments, the United States
has determined that the proposed modification is inappropriate, and
entry of the proposed Final Judgment in its current form is in the
public interest.
As explained in the CIS, naked agreements among horizontal
competitors to restrain cold calling and recruiting of employees are
per se unlawful. But agreements, even among horizontal competitors,
that are ancillary to a legitimate procompetitive venture may be
lawful. Such agreements are evaluated under the rule of reason,
which balances a restraint's procompetitive benefits against its
anticompetitive effects.
A determination of whether a restraint is ancillary to a
legitimate collaboration depends on whether it is ``reasonably
necessary'' to achieve the procompetitive benefits of the
collaboration. The ``reasonably necessary'' standard is well
understood in the antitrust case law.\7\ The cases demonstrate that
the determination of whether the conduct at issue meets the standard
is made based on the facts of each individual case. It is not
possible to identify every factor a court may choose to consider in
every situation in every industry. Rather, the standard is flexible
and allows the court discretion to protect legitimate restraints on
competition while prohibiting those that are unlawful. The courts
must consider each situation's individual facts and determine
whether the agreement is ``reasonably necessary'' for the
collaboration.\8\
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\7\ See generally Department of Justice, Antitrust Division, and
Federal Trade Commission, Antitrust Guidelines for Collaborations
among Competitors Sec. 1.2 (2000) (``Collaboration Guidelines'').
See also Major League Baseball v. Salvino, 542 F.3d 290, 339 (2d
Cir. 2008) (Sotomayor, J., concurring) (``a per se or quick look
approach may apply * * * where a particular restraint is not
reasonably necessary to achieve any of the efficiency-enhancing
benefits of a joint venture and serves only as a naked restraint
against competition.''); Dagher v. Saudi Refining, Inc., 369 F.3d
1108, 1121 (9th Cir. 2004), rev 'd on other grounds sub nom. Texaco
v. Dagher, 547 U.S. 1, 8 (2006); Rothery Storage & Van Co. v. Atlas
Van Lines, Inc., 792 F.2d 210, 227 (DC Cir. 1986); In re Polygram
Holdings., Inc., 2003 WL 21770765 (F.T.C. 2003) (parties must prove
that the restraint was ``reasonably necessary'' to permit them to
achieve particular alleged efficiency), aff'd, Polygram Holdings,
Inc. v. F.T.C., 416 F.3d 29 (DC Cir. 2005).
\8\ See, e.g., Freeman v. San Diego Ass'n of Realtors, 322 F.3d
1133 (9th Cir. 2003) (agreeing on a fixed fee was not reasonably
necessary for a shared multi-state listing database because it was
not a ``necessary consequence'' of the MLS' activities;
organizations had shared databases in past without fixing fees);
Salvino, 542 F.3d at 337 (Sotomayor, J., concurring) (Major League
Baseball teams created a formal joint venture to exclusively
license, and share profits for, team trademarks, resulting in
``decreased transaction costs, lower enforcement and monitoring
costs, and the ability to one-stop shop. * * * '' Such benefits
``could not exist without the * * * agreements.''); Blackburn v.
Sweeney, 53 F.3d 825 (7th Cir. 1995) (Agreement between former law
partners to ban advertising in certain areas was an illegal
horizontal market allocation and not an ancillary restraint. It was
not reasonably necessary to partnership dissolution agreement, as
the agreement was of unlimited duration and the firms had split
before the agreement was written); Rothery, Storage & Van Co., 792
F.2d at 227 (court determined that national moving network in which
the participants shared physical resources, scheduling, training,
and advertising resources, could forbid contractors from free riding
by using its equipment, uniforms, and trucks for business they were
conducting on their own); Addamax v. Open Software Found., 152 F.3d
48 (1st Cir. 1998) (computer manufacturers formed nonprofit joint
research and development venture to develop operating system;
agreement on price to be paid for security software that was used by
joint venture was ancillary to effort to develop a new system).
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In the CIS, the United States identified several facts that
caused it to conclude that the Lucasfilm-Pixar agreement was not
properly ancillary to any legitimate procompetitive collaboration
between them. Indeed, the agreement was not tied to any specific
collaboration. In addition, the agreement extended to all employees
at the firms and was not limited by geography, job function, product
group, or time period. See CIS at 7-8.
The factors identified by AESC certainly appear to be relevant
to assessing the reasonable necessity of a non-solicitation. They
are similar to the factors identified in the United States' CIS.
However, to enumerate a list of factors courts must consider in
determining reasonable necessity is both impractical and
unnecessary. Moreover, the agreements AESC is concerned about-
agreements between clients and executive search firms-are vertical
in nature. They are not horizontal agreements between competitors,
like the Lucasfilm-Pixar agreement. Vertical agreements are judged
under the rule of reason where the court weighs the potential
anticompetitive effects of the activity and its alleged
procompetitive virtues.
For these reasons, the United States believes that the
modification proposed by AESC is inappropriate. The public interest
is well served by entering the Final Judgment as proposed.
IV. Conclusion
After carefully reviewing the public comments, the United States
has determined that the proposed Final Judgment, as drafted,
provides an effective and appropriate remedy for the antitrust
violations alleged in the Complaint, and is therefore in the public
interest. The United States will move this Court to enter the
proposed Final Judgment after the comments and this response are
published in the Federal Register.
Dated: April 15, 2011.
Respectfully submitted,
Adam T. Severt,
Ryan S. Struve (DC Bar 495406),
Jessica N. Butler-Arkow (DC Bar 430022),
H. Joseph Pinto III,
Anthony D. Scicchitano,
Trial Attorneys.
U.S. Department of Justice, Antitrust Division, Networks and
Technology Section, 450 Fifth Street, NW., Suite 7100, Washington,
DC 20530. Telephone: (202) 307-6200. Facsimile: (202) 616-8544.
[email protected].
From: Kent Martin,
Sent: Wednesday, February 16, 2011 9:22 pm,
To: ATR-Antitrust--Internet; Severt, Adam T,
Subject: United States of America vs. LucasFilm LTD.
Greetings Department of Justice,
As a member of the digital film community some of my co-workers
made me aware of the case being brought against LucasFilm and the
proposed settlement. After reading the proposed settlement I was
rather disappointed. If I may oversimplify the proposal, simply
giving a directive to stop the practice or practices being
questioned is unenforceable. The Human Resources and Recruiting
staffs will continue to operate as they have for many years.
Attempts to control wages is not limited to the agreement uncovered
between Pixar and LucasFilm. The major players in the LA area,
including The Walt Disney Company, DreamWorks Animation, and Sony
Pictures Imageworks all engage, in one form or another, in practices
intended to limit wages as employees move between studios. And
moving between studios is becoming ever more common as many studios
are executing layoffs to minimize their full time staff and will
rely on what effectively become temporary staff to complete the
work.
Lowering or controlling wages is all about saving money. Any
settlement to this case that does not involve financial penalties
will fall short of having any effective impact. But how would
financial penalties, if any be disbursed? To union pension plans?
Not all studios are union. Payments to only those employees
affected? In some way the entire industry has been affected, except
for the few that seem to have secured lifetime positions at some
outrageous hourly rate. Some form of payment to employees of the
companies involved during the time period the practices were
determined to have been in effect? Maybe. That would be a start.
A very good mess indeed. So a slap on the wrist will be
administered, and I will watch my hourly rate continue to plummet as
wage control techniques continue on.
Thought I would submit a few comments on this matter, even
though it is shortly before the deadline. I am hoping that many more
of my colleagues have taken the time to submit even a short comment
on the matter.
Thank You for your time.
Kent Martin,
Digital Film employee for over 15 years.
The Association of Executive Search Consultants' Comments on the
Proposed Final Judgment Between the Department of Justice and Lucasfilm
The Association of Executive Search Consultants (``AESC'')
respectfully submits these comments to the Proposed Final
[[Page 23843]]
Judgment between the Department of Justice (``DOJ'') and Lucasfilm.
In summary, the AESC is supportive of the Proposed Final Judgment
with one exception: Section V.A. of the Proposed Final Judgment
lacks sufficient clarity with respect to the circumstances under
which ``no direct solicitation'' provisions are permitted in the
context of ``contracts with * * * recruiting agencies,'' and
specifically what factors should be considered in determining
whether such provisions are ``reasonably necessary.'' AESC therefore
respectfully requests that DOJ, prior to entry of the Proposed Final
Judgment, supplement the language of the judgment to communicate
clearer guidance both to recruiting agencies and to the firms that
engage such agencies to perform employee and executive search
functions.
The AESC is the worldwide professional association for retained
executive search consulting firms. An offshoot of management
consulting, retained. executive search consulting has played a major
role in the identification and recruitment of senior executive
talent for organizations in a wide variety of industries and
countries. The success of executive search consulting is such that
the profession has grown to become a global industry with revenues
in excess of $10 billion. Today, the AESC is widely recognized as
the standard bearer for the executive search industry and represents
member firms in seventy (70) countries around the world, employing
more than 6,000 search professionals. It is estimated that AESC
member firms are retained by clients to conduct approximately 50,000
senior executive searches every year.
The AESC is concerned that ambiguity in the Proposed Final
Judgment creates uncertainty regarding the extent to which ``no
direct solicitation'' provisions are permitted in executive search
contracts. Section V.A. of the Proposed Final Judgment expressly
permits ``no direct solicitation'' provisions that are ``reasonably
necessary for contracts with * * * recruiting agencies.'' However,
the judgment fails to define the term ``reasonably necessary.'' Nor
does the government's Competitive Impact Statement identify the
factors that are relevant to determining whether a ``no direct
solicitation'' covenant in an agreement with a recruiting or
executive search agency would comply with Federal antitrust law.
This ambiguity will make it difficult for executive search firms to
ensure that they are complying with the terms of the judgment in any
future contracts with Lucasfilm. More broadly, to the extent the
judgment reflects Dal's current legal positions and antitrust
enforcement policies, the lack of clarity on this issue could
complicate the ability of executive search firms to ensure that
their contractual practices comply with Federal antitrust law.
Accordingly, the AESC respectfully requests that DOJ modify the
Proposed Final Judgment to provide further guidance regarding the
circumstances under which ``no direct solicitation'' provisions in
client engagement agreements may be deemed ``reasonably necessary.''
For example, in the context of a recruiting engagement involving a
single position in a discrete geographic area, would a ``no direct
solicitation'' provision that is unlimited in geographic scope or
duration be considered ``reasonably necessary''? If not, because of
the breadth of the restriction in relation to the limited nature of
the search, what factors should be considered in narrowing the scope
of the ``no direct solicitation'' provision? Likewise, would a ``no
direct solicitation'' provision that broadly prohibits an executive
search firm from contacting any employee at a large, diversified
company be considered ``reasonably necessary'' where the firm was
engaged only to fill positions in a single division or product
group? Again, to the extent that such a provision would deemed
overly broad and thus not ``reasonably necessary,'' what principles
should be considered in developing a more narrowly tailored
restriction?
Questions such as these underscore the practical challenge that
executive search firms will face in conforming their contractual
practices to the terms of the Proposed Final Judgment, absent
further guidance. The AESC therefore urges DOJ to give attention to
this issue, and, in order to assure that ``the decree is
sufficiently clear'' to be ``in the public interest,'' Competitive
Impact Statement Sec. VIII, make appropriate revisions to the
language of the judgment to ensure that it better equips the
executive search industry with information needed for continued
legal compliance in this area.
Respectfully,
Peter M. Felix, CBE,
President, Association of Executive Search Consultants.
March 15, 2011.
James J. Tierney, Esq.,
Chief, Networks & Technology Enforcement Section, Antitrust
Division, United States Department of Justice, 450 Fifth Street, NW,
Suite 7100, Washington, D.C. 20530.
Re: Proposed Final Judgment in US. v. Lucasfilm
Dear Mr. Tierney:
The Association of Executive Search Consultants (``AESC'')
recently filed public comments concerning DOJ's proposed consent
decree in the Lucasfilm matter. In its public comments, the AESC
outlined practical scenarios in which a broad no direct solicitation
provision in an executive search contract might not be ``reasonably
necessary.'' The AESC urged DOJ to consider adding language to the
proposed Final Judgment identifying guideposts for tailoring overly
broad non-solicitation provisions to more appropriately track the
scope of a recruiting or executive search engagement. As the AESC
noted, absent further clarification it may be difficult for
executive search firms to ensure compliance with the standards of
conduct outlined by the proposed Lucasfilm consent decree. In
addition, the AESC believes there are policy issues that should be
of some concern to DOJ, issues that could effectively be addressed
through relatively minor revisions to the language of the proposed
Final Judgment.
When a corporation engages an outside consultant to perform an
executive search, the consultant may learn a great deal about the
office or business in question, including its internal structure,
personnel, reporting relationships, and compensation practices. Such
knowledge can be very useful to the outside consultant and can aid
the process of identifying and recruiting talented, well-placed
executives, leading to better and more rapid results for the client.
Where an executive search firm, in the course of its work, gains
exposure to proprietary details about an aspect of a client's
business, it is understandable that the client would desire to
ensure that such knowledge is not used for the benefit of the search
firm's other clients. Thus, to facilitate executive search
engagements, it may be ``reasonably necessary'' for the client and
search firm to agree upon a narrowly tailored non-solicitation
covenant. An example would be a covenant of limited duration
restricting the search firm from contacting, for recruiting
purposes, individuals who work within the relevant office or
division of the client corporation.
But as noted in the examples highlighted by our public comments,
executive search clients can demand much broader non-solicitation
terms. For instance, a large multinational corporate client could
demand a multi-year contractual ban on solicitations extending
across the client's entire global enterprise, even where the search
that is the subject of the retention agreement is limited to a
single position or a discrete business unit.
Where a client negotiates for and receives an overly broad non-
solicitation covenant in a contract with an executive search firm,
this alone likely would not raise antitrust concerns. Indeed, absent
collusion, even pervasive use of overly broad non-solicitation terms
in retention agreements with leading executive search firms likely
would not rise to the level of an antitrust violation. Yet
agreements containing such terms, if widespread within a given
industry, do pose an arguable threat to competition, inasmuch as
they tend to place significant numbers of talented individuals off
limits from employment opportunities. If a corporation can broadly
place its personnel off limits to top executive search firms, this
serves to insulate the corporation from normal marketplace
pressures, which in the words of the Lucasfilm Competitive Impact
Statement could interfere with ``the proper functioning of the
price-setting mechanism.''
Although inclusion of overbroad non-solicitation provisions in
vertical retention agreements between executive search consultants
and their corporate clients is not a matter of acute antitrust
sensitivity, given the potential competition-reducing effect of such
provisions presumably DOJ would not wish to encourage the use of
such provisions. Yet as currently worded the proposed Final Judgment
may do just that. The proposed Final Judgment addresses this subject
under the heading of ``Conduct Not Prohibited.'' This, combined with
the fact that the term ``reasonably related'' is nowhere defined or
clarified, could be interpreted to suggest that no direct
solicitation provisions, no matter how broadly defined, are unlikely
to pose legal concerns as long as they bear some relation to the
recruiting or consulting engagement.
[[Page 23844]]
With relatively minor language revisions, DOJ could send a more
constructive message, counseling in favor of some restraint in this
area. What is missing from the proposed Final Judgment is simply
some indication of the factors that would be relevant to consider in
assessing the ``reasonable necessity'' of a non-solicitation
restraint--factors such as:
the nature and scope of the recruiting engagement;
the extent to which the search consultant is given
access to proprietary details about the client's business;
the breadth of the proposed non-solicitation restraint
in relation to the scope of the recruiting engagement and any
proprietary information conveyed by the client in the course of
facilitating the engagement; and
the duration and geographic scope of the proposed non-
solicitation restraint in relation to the scope of the recruiting
engagement.
The AESC would therefore propose that DOJ consider adding this
language as a new Section V.B. to the proposed Final Judgment, with
the current Section V.B. being re-designated as Section V.C., etc.:
B. All no direct solicitation provisions that relate to
agreements with recruiting agencies described in Section 5.A.3 shall
be narrowly tailored such that the scope of the no direct
solicitation provision bears a reasonable relationship to the scope
of the recruiting engagement, including with respect to geographic
reach, duration, and the number of personnel and business units
affected.
Inclusion of additional language as simple and straightforward
as this would establish a useful reference for executive search
consultants and their clients when entering into non-solicitation
terms. This would help to ensure against overly broad contractual
restrictions that have the effect of placing significant numbers of
individuals off limits to recruiters, thus expanding the pool of
accessible talent from which to draw when conducting executive
searches. The chief beneficiary of such a trend would be individual
corporate executives and employees whose range of opportunities
would be enhanced. This outcome is entirely in keeping with the
policies that motivated the DOJ's action in the Lucasfilm matter,
and we hope that you will give serious consideration to revising the
proposed Final Judgment accordingly.
Sincerely,
Peter M. Felix,
President, Association of Executive Search Consultants.
[FR Doc. 2011-10121 Filed 4-27-11; 8:45 am]
BILLING CODE 4410-11-M