Mark Pestronk
Mark Pestronk
Q: Our agency sells a lot of cruises, but we regularly lose sales to rebaters; i.e., agencies that share part of their commission with the client. I know that some cruise lines have anti-rebating policies, but the policies are not widely enforced in practice. Would it be legal for CLIA to adopt such a policy and expel agencies that rebate? Would it also be illegal for the cruise lines to agree not to take bookings from agencies that have been expelled from CLIA? If those activities are illegal, would it at least be legal for the association to adopt a general policy against rebating?

A: An agreement among competitors or an association of competitors to stamp out rebating is an agreement to fix prices, and price fixing is illegal, as you know. An agreement among competitors to stop doing business with another company is a group boycott, which is also illegal.

The specific law that would be violated is Section 1 of the Sherman Act of 1890, which states that all agreements in restraint of trade are illegal. The Supreme Court has applied the law to various business combinations over the years, including price fixing and group boycotts.

Violation of the Sherman Act is a felony punishable by a fine of up to $100 million for corporations and a fine of up to $1 million or 10 years imprisonment (or both) for individuals. In addition, collusion among competitors may constitute violations of the mail or wire fraud statute, the false statements statute or other federal felony statutes.

Agencies that help instigate or enforce such a policy would be co-conspirators and could potentially face prosecution, as well.  Any disgruntled rebater could complain to the Justice Department's Antitrust Division, triggering an investigation that could take years and cost enormous legal fees.

General policies or recommended practices are not agreements, but associations avoid them anyway, lest the government assume that where there is smoke there is fire. Even if no violation is found, an investigation is so costly and burdensome that the best practice is to have nothing to do with pricing policies.

CLIA appears to recognize that it can do nothing about rebaters. In its terms and conditions for CLIA agencies, CLIA states: "As part of the democratic process as it may relate to restraint of trade, we both [CLIA and the CLIA-appointed agency] agree that we cannot debar Travel Sellers which choose not to subscribe to these conditions and Members and Associate Members from doing business with one another on any terms to which they may agree."

CLIA's terminology is weird, to say the least. There is no "democratic process" in business, the word "debar" doesn't fit, and "these terms and conditions" do not even cover pricing. Nevertheless, I believe that what CLIA is trying to say is that it cannot stop rebating, and it cannot stop cruise lines from continuing to deal with rebaters.

Although CLIA cannot take action to stop rebating, each individual cruise line may do so if it unilaterally adopts its own policies and enforces them. In addition, each of the major parent companies of cruise lines could adopt them for all of their subsidiaries, as an agreement among a parent and its wholly owned subsidiaries is not illegal.

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