Another Gem from the Silicon Valley (By William Markham, San Diego Attorney) - LAW OFFICES OF WILLIAM MARKHAM, P.C.


I have heard through the grapevine that a group of venture capitalists in the Silicon Valley plan to fund a company that will collect data about what various high-tech companies pay in salary and benefits to their various classes of employees. This company will then organize, analyze and sell this information to paying customers, most or all of which will be high-tech companies and other firms that wish to hire such employees. This plan begs two questions: Have they learned nothing from the no-poaching case? Or is it that they have they drawn the wrong lessons from it?

At all events, this idea is a bad one in boldface and block lettering. Here is why.

In theory, one company (a “data-gathering company”) can gather information from other companies (“data-providing companies”) to learn what each data-provider pays in salary and benefits to its employees, but only if the data-providers can properly share this information without breaching their employment agreements or internal operating procedures. The data-gathering company, having acquired the information, can organize, manipulate and display it however it wants and then sell it to others, including the data-providers themselves and other firms, but only if these transactions do not breach the agreements between the data-gathering company and the data-providers. Even so, the entire practice seems contrary to what companies ordinarily do with such information – keep it private. Most firms consider this kind of information to be highly confidential, highly sensitive and even entitled to protection under state laws on commercial trade-secrets. It seems peculiar that firms would wish to share this information for any conceivable legitimate purpose.

In particular, the practice gives rise to serious antitrust concerns. If the firms that purchase and use the information compete against one another to hire the same kinds of employees, the entire venture might be properly regarded as a “facilitator” of unlawful collusion committed by direct competitors in violation of Section 1 of the Sherman Act and California’s Cartwright Act (California Business & Professions Code Sections 16720 et seq.). More specifically, two or more direct competitors can be found liable under these laws for unlawful horizontal price-fixing if they use the data-gatherer’s facility in order to exchange the information and thereby reach a tacit understanding as to how much each will pay (or what ranges of pay each will provide) for specified positions or categories of employment. Similarly, two or more direct competitors can be found liable for unlawful bid-rigging if they use this facility in order to predetermine how much (or what range) each will offer to prospective employees for specified positions or categories of employment. In addition, two or more direct competitors can be found liable for enforcing an unlawful group boycott if they use the information in order to refrain from hiring any employee that demands pay (or ranges of pay) that exceeds what all of them have tacitly agreed to pay for specified positions or categories of employment.

Each of these offenses – horizontal price-fixing, bid-rigging, and group boycotts – typically constitute per se violations of both (1) Section 1 of the Sherman Act and (2) California’s Cartwright Act. The data-provider might itself be found liable for coordinating an unlawful antitrust conspiracy under a well-established doctrine called a “hub-and-spoke conspiracy,” by which one firm (in this case the data-gatherer) organizes the illicit, anticompetitive collusion of direct competitors. The practice could be condemned upon a review of the data-gatherer’s operations, the actual use of its data, and telltale incriminating circumstances, such as avowals from a disgruntled employee or compromising e-mail exchanges placed in proper context. As well it should.

We live in a third Gilded Age. Every day we see more open indications of its emergence. Each Gilded Age has been very prosperous for the lucky few but bad overall for society. Lax antitrust enforcement has been both a consequence and a further cause of the Gilded Way, as I choose to call it. Oligarchs and monopolists call the shots not only in the markets that they dominate but also increasingly in politics as well, thanks in no small part to the disastrous United Citizens decision. It is in such an era that a group of highly sophisticated venture capitalists, after receiving best-in-class antitrust counsel from their lawyers, have deemed it prudent to set up such a data-gathering firm so shortly after the no-poaching case. Every excess has its reaction, however, and it is only a matter of time before the antitrust pendulum swings back to its proper place.