Business Review Process for the Designated Suppliers Program

To:WRC Affiliate Universities and Colleges
From:Scott Nova, Executive Director; Ben Hensler, General Counsel
Date:December 16, 2011
Re:Business Review Process for the Designated Suppliers Program

As you know, the WRC has been seeking for a number of years to obtain a Business Review Letter from the US Department of Justice (DOJ) for the proposed Designated Suppliers Program (DSP). A Business Review Letter is a statement that the DOJ’s Antitrust Division would not take any enforcement action against the proposed initiative, because the DSP is consistent with United States antitrust law. DOJ issues relatively few such letters and looks with intense scrutiny at any program for which such a letter is sought.

I am pleased to report that this very long effort, which has spanned two presidential administrations, has now come to fruition. Today, the Acting US Assistant Attorney General for Antitrust, Sharis Pozen, issued a favorable Business Review Letter for the DSP, stating that the Antitrust Division would not take any action if the DSP initiative is implemented – confirming that the proposed program is consistent with US antitrust law. You will find the DOJ Business Review Letter here and the WRC’s letter to DOJ, requesting Business Review clearance, here.

There are several important points that we would like to note:

1) A great deal of time has passed since the DSP was first developed and debated, and there have been important developments in university labor rights efforts in the intervening years – including the agreements between worker representatives and licensees in both the Russell and Nike cases in Honduras and the advent of the Alta Gracia factory in the Dominican Republic. We recognize that these initiatives, which are viewed favorably by many universities, represent possible models for achieving labor rights progress under university codes of conduct – models that did not exist at the time the DSP proposal originally was conceived. Mindful of the promise of these initiatives, and not knowing which directions universities may choose to take in the future in their approach to enhancing code of conduct enforcement, we wanted to ensure that a range of potential additions or modifications to the original DSP model (such as an emphasis on direct engagement between licensees and worker representatives) were reviewed by the DOJ for their compliance with federal antitrust laws. We therefore incorporated these options, in broad strokes, in our revised request letter – so that, should universities choose to pursue such options, it will not be necessary to undertake another lengthy Business Review process.

2) Some other modifications were made to the request letter in response to input from the DOJ. Most importantly, the letter places a strong emphasis on the independence of each university’s decision-making process vis-à-vis other universities. This independence of action was, as you know, envisioned from the outset, consistent with longstanding university practice in apparel licensing, and the WRC’s request letter now places additional emphasis on this point. Going forward, the WRC and schools that participate in such initiatives must take care to distinguish between activities that are appropriate for collective action and areas that require independent decision-making. While the issuance of the DOJ’s letter makes clear that universities may work together, and through the WRC, to develop the standards of an enhanced labor code of conduct program, decisions about how to apply these standards to a university’s licensing contracts must be made individually by each institution. Any action to enforce a licensee’s contractual obligations must likewise be undertaken by a school independently of other schools. Other changes include the removal of the “grandfather clause,” which granted DSP status, a priori, to certain named factories; a determination not to include a pre-set implementation schedule for the program; and the removal of the explicit mandate that a majority of a DSP factory’s production be for the collegiate market. It also should be noted that the DOJ’s letter makes clear that some form of identification of DSP garments to consumers at the point-of-sale is a key factor in ensuring that the program is antitrust compliant.   

The core standards and requirements of the original program remain – fair prices for suppliers, the living wage requirement, mandatory long-term contracts between licensees and factories, affirmative proof of compliance as a precondition for factories to gain DSP status, robust protections for associational rights – and have been approved by the DOJ.

3) Much has happened in the years since universities began actively considering the DSP and making decisions whether to participate. And, as you know, there were divergent views among universities about the program: nearly fifty universities and colleges signed on to the program in principle (in some cases identifying issues still to be resolved); four institutions announced decisions not to sign on; many others had not made a final determination by the time antitrust concerns delayed their consideration of the program. In view of this, the next step for us at the WRC is a period of analysis and reflection. This will be needed before we can provide affiliates with further recommendations. No one is expecting any university to respond to the DOJ’s decision by moving immediately to implement the DSP. We look forward to discussing the issues at the WRC, in consultation with affiliate universities and all stakeholders, and will devote significant time to this topic during the coming year. 

We continue to believe that the higher labor standards and fundamental supply chain reforms embodied in the DSP are critical to achieving universities’ labor rights goals and we are heartened by the DOJ’s determination, as reflected in the favorable Business Review Letter, that the DSP is consistent with US antitrust law. A Business Review Letter from the Department of Justice is a powerful statement: no private plaintiff has ever won an antitrust lawsuit challenging an initiative for which the DOJ has provided Business Review clearance. Whatever ultimate course universities choose, it is reassuring to know that any university that decides to adopt the DSP, or an equivalent program, can do so without fear of antitrust liability.

We welcome any thoughts or questions you have about the DOJ’s decision. Please contact us at your convenience.

Scott Nova 
Worker Rights Consortium 
5 Thomas Circle NW 
Washington DC 20005 
ph 202 387 4884 
fax 202 387 3292 
[email protected]