Our Lips Are Sealed: Understand Antitrust - BodyShop Business

Our Lips Are Sealed: Understand Antitrust

And You'll Realize That You Can Talk With Your Competitor (Even About Pricing).

If you belong to an autobody trade association, chances are many of your meetings start with a reading of the so-called “antitrust guidelines” – which include something about not discussing prices or claims practices of insurers.

You’ve probably heard the words many times, but you probably haven’t listened very carefully. And even if you have, you still may have no idea what the words actually mean.

Even if you haven’t heard the actual guidelines, you’ve likely heard some warning, somewhere about not doing things that would be considered “price fixing” or otherwise violating antitrust laws.

In my law practice, antitrust issues arise much more frequently with regard to autobody shops than with the other businesses I represent. Why more buzz about potential antitrust activity in the autobody industry? It appears to me that there are two main factors:

First, there’s a perception among shop owners that large, omnipotent, economically powerful insurers control prices and methods of repair, and many people in the industry believe that the only way to fight this is to engage in a joint effort against the insurers. Unfortunately, this could lead to improper actions by overly zealous shop owners.

Second, the insurance industry itself has a huge stake in what they pay for auto damage claims, and members of that industry have no qualms about making complaints to governmental agencies concerning alleged price fixing or boycotting conspiracies by body shops. In other words, insurers make bigger profits if they can keep claims costs down, and they believe that they can help to accomplish this by keeping body shops from sharing ideas on how to increase their profits.

However – and despite what you’ve been lead to believe – you can legally discuss almost any aspect of the business, including pricing.

What Are Antitrust Laws?
Back in the 1800s, various businesses combined to monopolize certain industries. Notoriously, oil company ownership was concentrated in a few large, powerful corporations that controlled prices and all aspects of the oil business. In response, initially, some states passed laws to try to prevent this from happening. Then, in 1890, Congress passed the Sherman Antitrust Act, which made it illegal to enter into any contract, combination or conspiracy “in restraint of trade” or to combine or conspire to “monopolize” trade or commerce. Subsequent antitrust statutes have essentially just refined the Sherman Act.

Because of the size of most autobody businesses, “the monopoly” portions of the antitrust laws rarely, if ever, have application. Various aspects of the “restraint of trade” laws do, however, affect body shops. Most notably, the price fixing prohibitions of the statute are often seen as a potential problem within the body shop industry. There also may be problems with perceived agreements between shops to boycott certain businesses, to not compete for certain work, to not use a certain product or perhaps to divide customers between them.

Why Can’t Shops Talk About Pricing?
They can. There’s a huge misconception within the industry that body shops cannot talk about prices. There is nothing per se illegal about competitors discussing the prices that they charge. After all, how do you know if your charges are competitive if you don’t know what your competition is charging? It’s only illegal if two or more competitors agree to charge a particular price. Shops can legally discuss almost any aspect of the business, including prices, as long as no two shops agree that goods and services should be sold at a particular price and as long as each shop makes its own independent decisions.

The problem is that any agreement, no matter how innocent the intent, by as few as two shops as to prices they’ll charge (or parts they’ll use) is automatically illegal. And the agreement doesn’t have to be explicit; it can be implied.

When two body shop owners are discussing their pricing, the issue becomes why they are having that discussion. Are they talking about it so that each can look at his own business and independently decide whether the price that he charges is competitive? Or is there a hidden agenda? Are they talking about it to make sure that neither one will be undercutting the other? Any agreement to fix prices is automatically illegal, but there still must be an actual agreement, even if only implied.

So if you’re having a discussion about price with another shop owner, how can you protect yourself from a determination that what you’re doing is an “agreement” to set prices? The answer isn’t always clear, but if in doubt, ask: What would a jury think, looking at all of the facts? Would they think that I and the other guy were trying to fix prices? Why are we having this discussion, and what’s the result of it? Did I and the other shop owner discuss prices just so that I could independently determine my labor rate?

The next week, are you both charging a new – and identical – labor rate? Do you two adopt the same new labor rate every three months? What’s your course of conduct?

Obviously, a direct agreement between two or more body shops to set a particular price is automatically a violation of law. But it’s not necessary that the agreement be to set an exact price. It could be to agree to charge within a range of prices or to set a particular price for one or more of the operations that you perform. An agreement to set a specific labor rate would be illegal. An agreement to set a particular frame rate or a paint and materials charge also would be illegal.

You cannot set a minimum price. You cannot set a maximum price. And it doesn’t matter whether the effect of your agreement is to reduce prices, rather than to raise prices. Any agreement between competitors regarding prices to be charged is illegal.

Quite frankly, it’s extremely rare that two small businesses will be prosecuted for price fixing, unless their conduct is outlandish and well-publicized. The chances of being prosecuted increase exponentially with the number of businesses involved and the nature of the apparent agreement. There’s much more of a problem if every body shop in the county raises its labor rate to a particular dollar amount within a short time period than if just two or three shops do it.

It’s not uncommon for one or two shops in a particular area to raise their rate to a particular dollar amount and then to see a ripple effect where shops in surrounding areas also do so within a short time. This “conscious parallelism,” however, is not in itself illegal. Again, the question is, did everybody raise their prices because they independently made a decision that it was a good idea, or did they do it because there was an implied agreement to do so? While “conscious parallelism” in raising prices is not illegal, be aware that it can be used as one piece of evidence to establish that an agreement existed.

Can Body Shops Conduct Price Surveys?
There’s absolutely nothing illegal about body shops conducting price surveys within their industry and publishing the results of those surveys. The exchange or dissemination of price information is not, in and of itself, a violation of the antitrust laws. In fact, in some industries, analysts get paid a lot of money to do just this.

Again, however, you have to look at why this information is being collected and distributed. Is it just to develop information so that independent businessmen can make their individual decisions as to prices they’re going to charge? Or, is it really just a ruse to effectuate a scheme, where the participants are going to fix particular prices or set prices within a particular range? Again, the answers aren’t always easy. And, again, you must look at the whole picture and what everyone does with the information in order to make a determination.

Is It Just Price Fixing That Body Shops Have to Be Concerned With?
Although, within this particular industry, price fixing seems to be the big issue, there are other potential antitrust issues that have to be looked at. One such issue is “boycotts.”

While a body shop may decide not to do business with a particular supplier or a particular customer for any reason, or even for no reason whatsoever, it’s illegal for two or more competitors to agree to a “group boycott” of that supplier or customer.

As an example, in the body shop industry over the years, it has become common knowledge that many believe aftermarket crash parts are inferior to OEM parts. An individual shop owner may make the personal decision to never use A/M parts or to not use A/M parts from a particular supplier. But, no matter how noble their cause and no matter how valid their reasons, two or more body shops cannot agree among themselves to boycott the use of A/M parts or to boycott a particular supplier of A/M parts.

By the same token, an individual body shop owner can decide that he doesn’t want to do business with customers insured by a specific insurer. And, in most states, there’s nothing wrong with this. But, two or more body shop owners cannot agree among themselves to engage in such activity.

Another type of prohibited conduct is to agree to divide markets. Although uncommon in the body shop industry, two body shops cannot agree that each will fix cars for people who live in only certain, separate areas. Nor can they agree that they’ll divide customers according to the particular insurer covering each of those customers.

It’s also illegal for shops to agree to not compete for certain work. For instance, it probably would be illegal for two or more shop owners to agree not to become referral shops or direct-repair shops for a particular insurer. It would also be illegal to agree not to file competitive bids for repair of vehicles for a particular town or fleet owner. Each shop could make its own business decision not to go after that work, but two or more shops cannot agree among themselves to take that action.

Can’t I Do What the Officers or Membership of My Trade Association Have Decided Is Right?
Well, maybe. Trade associations can certainly serve a useful purpose, and there’s no violation of law by just belonging to a trade association. The association can conduct member surveys as to pricing, procedures used and experience with particular insurers. And the association can disseminate that information to its membership. The association can also conduct seminars that give you advice as to how to profitably conduct your business, including suggestions as to how you might want to consider setting your prices. They also can analyze various parts and circulate the information that they collect about those parts.

Still, trade associations are looked at with particular scrutiny. They’re assumed to have a certain degree of control over their memberships. And, particularly if they have a large membership, they’re seen as having significant potential to influence prices and procedures within an industry. If a trade association conducts a survey, what’s the true purpose of that survey? Is it really just to collect information and disseminate it to its membership, or is it to try to influence the prices that its membership will charge? It’s not necessary that all members act the same way when they receive the information. All that’s needed is that there’s an intent to influence the membership and, usually, then concerted reaction by at least some portion of the membership.

Further, trade associations may be held liable for the actions of their officers and directors when that action is taken with apparent authority. So, for instance, whether or not the membership has authorized it, if the director of your association attempts to get two or more of you to set a particular price or consistently insists on the use of a particular procedure, then the association itself may be in trouble.

As a result, lawyers for trade associations often advise them to err on the side of caution – which is one of the reasons that the typical antitrust guidelines read at meetings are usually overly broad. They figure it’s better to tell the membership that they cannot discuss prices at their meetings than to take the chance that a few of them will have that discussion and then act together to set a particular rate in their shops.

Why Can Insurance Companies Get Away With It?
It’s another misconception that insurance companies have immunity from prosecution for violation of antitrust laws. It’s true that there’s a limited exemption in the antitrust laws for insurance companies, but it’s only to the extent that the insurers are regulated by the states. This allows states to set premiums that insurers can charge, allows states to set rules as to how insurers may divide territories or customers and allows states to set standards for setting up assigned risk pools for problem insureds. The exemption applies to regulation of activities only within the “business of insurance,” attempting to allow states to regulate insurance costs for the benefit of the state’s inhabitants.

But, insurers are not exempt from the antitrust laws in other respects. Most notably, insurers cannot legally agree on reimbursement rates that they’ll pay for repairs, on procedures that they’ll pay for or on other aspects of how they’ll pay for the repair process. In many states, it may seem that insurers “set” the labor rate for body shops, but this is not the case. It only happens because body shops allow it to happen.

It’s true that a particular insurer can decide that a particular rate is “reasonable” and that this is all that it will reimburse its insureds for repairs. But that insurer cannot agree with another insurer on this. And, there’s nothing preventing independent body shops from still charging whatever they believe is appropriate as a labor rate. (Of course, if a shop’s rate is too high, then it may lose a particular insurer’s insureds as customers because those people won’t want to pay the difference in labor rate charge.) But this isn’t a price fixing issue; it’s a contractual issue between the customer and his insurer. The insurer may be in violation of a state’s consumer protection or insurance laws, but it’s not in violation of the antitrust laws.

So What Can Body Shops Really Get Away With?
Well, you can’t “get away with” anything illegal. (Although, it’s probably true that, on occasion, two or more small competitors in any industry may violate the antitrust laws and never get caught.)

What you can do, however, is advocate and lobby for laws and regulations that effectively do what you cannot privately conspire to do. What may be horrendously illegal if engaged in by private businesses is often perfectly fine if mandated or allowed by a statute passed by a state legislature or by a regulation adopted by a governmental agency. Typically, for instance, states often set towing and storage rates for towing companies. And, it would probably be legal for a state agency to set a body shop labor rate or to mandate that certain procedures be performed in the repair of vehicles. Many states legally set appraisal guidelines.

There are many things that you can’t legally agree to do with competitors, if it were a matter of private contract, but those same things may be perfectly legal if mandated by your state. And, it may actually be illegal not to do those things if they’re required by statute.

There’s nothing that prevents individual body shops or trade associations from lobbying for whatever statutes or regulations they believe are beneficial, whether or not the results of those statutes or regulations would have been legal if no law covered them.

Making Sense of Antitrust
The anti-trust laws are complicated, and violation of them can mean significant civil or criminal penalties. It’s important to know what constitutes violations of those laws and to avoid activities that could get you in trouble.

On the other hand, it’s also important to know what you can legally do and to engage in those activities for your benefit and the benefit of the industry. Know what you can and cannot do and act accordingly. You’ll find that your shop and the body shop industry in your state ends up much better off.

James A. Castleman is a partner in the law firm Paster, Rice & Castleman in Quincy, Mass. He’s represented various autobody trade associations and individual body shops for more than 25 years.

Comments? Fax them to (330) 670-0874 or e-mail them to BSB Editor Georgina K. Carson at [email protected].

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