Competition Matters

Many of the steps that public purchasers can take to deter vendor collusion, such as making sure bidders submit all required documentation with their bids, can also increase their chances of recovering compensation if bidder collusion does occur and a lawsuit results.

Antitrust litigation against conspiring vendors is often challenging because of the difficulties of proving cleverly concealed acts. But when the antitrust violation is committed by a supplier of the vendor rather than by the vendor itself, the challenge becomes even greater. A simple contractual provision — an assignment clause — may help meet that challenge.
 
Consider this example. The City of Anytown has new playground equipment installed at its parks by Contractor A. Anytown later finds out that Contractor A’s supplier, Supplier X, conspired with its competitor, Supplier Y, to fix and inflate the price of the equipment. Although Contractor A did not engage in any illegal activity, it passed the overcharge on to Anytown when it submitted its bill for the playground equipment. Can Anytown sue the wrongdoers, X and Y, to recover the overcharge? No, not in Ohio.
 
In 1977, the U.S. Supreme Court ruled in Illinois Brick Co. v. Illinois that purchasers cannot sue violators of federal antitrust laws unless they bought the product or service directly from the violator. While more than half of the states have expressly rejected Illinois Brick through legislation or court decisions, Ohio has not done so. So, are Ohio public purchasers simply out of luck when they are victims of bid-rigging conspiracies involving companies they did not buy from directly? Not necessarily.
 
An Ohio public purchaser’s best chance of recovering compensation when it did not do business directly with the wrongdoer is to step into the shoes of the middleman who has the right to sue. Although not foolproof, one of the purchaser’s best tools for obtaining the middleman’s right to sue for damages in such situations is the use of assignment clauses in its contracts. Assignment clauses transfer to the purchaser any rights the vendor may have to pursue an antitrust case against the vendor’s supplier.
 
Assignment clauses do not need to be lengthy or complex. For example, one might read: “Contractor assigns to Purchaser any and all of Contractor’s state and federal antitrust claims and causes of action that relate to all goods and services provided for in this Agreement.”
 
Vendors are often not as reluctant to give up the right to sue their suppliers as one might expect. Vendors usually value their good relationships with suppliers, and therefore may be just as happy to allow the public purchaser to bring an antitrust lawsuit against the supplier if one is necessary.
 
The bottom line is that not every vendor will agree to add an assignment clause to its contracts. But making that request as a part of every contract negotiation is a sound contracting practice that can yield substantial benefits for a public purchaser if an antitrust lawsuit becomes necessary in the future.
 
Jennifer L. Pratt, Chief
Ohio Attorney General’s Antitrust Section