On February 6, 2025, Senator Amy Klobuchar (D-MN) introduced the Preventing Algorithmic Collusion Act (S. 232),[2] which aims to prevent companies from using software algorithms to collusively raise prices, building on similar federal legislation that Congress failed to pass in 2024.  The legislative effort reflects the evolving landscape of consumer protection in the new age of artificial intelligence software. The bill would make it presumptively unlawful for competitors to share their non-public information through a pricing algorithm to raise prices. It would prohibit the use of non-public, competitively sensitive information from a competitor to train an artificial intelligence algorithm.  And it would require companies that use algorithms to set prices to disclose that fact and allow antitrust enforcers to audit the pricing algorithm to address concerns regarding harm to consumers.

California is contemplating similar legislation. The California Preventing Algorithmic Collusion Act of 2025 (SB 295)[3] was introduced by Senator Melissa Hurtado (D-Bakersfield) in the California State Senate on February 6, 2025 (and is similar to legislation the senator introduced in 2024).  The Act would prohibit the use or distribution of pricing algorithms that incorporate undefined “competitor data.” It also mandates that entities with $5 million or more in annual revenue provide the California Attorney General with reports on pricing algorithms and disclose to customers when prices are set by such algorithms. Violations could lead to civil actions by the California Attorney General or district attorneys, with penalties including civil fines, forfeiture of corporate rights, and dissolution of the offending entity.

Although neither the federal nor California proposed legislation targets a specific industry, they respond in part to a contentious debate between landlords and tenants of residential rental apartments that has risen to prominence in the past few years. Owners of large multifamily residential buildings increasingly employ revenue management software to optimize rental pricing. Such software employs artificial intelligence to analyze nonpublic competitor data such as rents, occupancy rates and lease terms. The software vendor typically obtains the nonpublic data from its customer base of building owners who license the software. Landlords and the vendors of this software contend that these tools enhance price discovery and operational efficiency. However, various legislative and regulatory bodies have expressed concern that such tools may facilitate price-fixing, leading to inflated rents and reduced competition, particularly in tight housing markets. This has prompted legislative and regulatory responses at local, state, and federal levels, with a focus on protecting renters from unfair practices.

San Francisco and Philadelphia have taken the lead, enacting ordinances specifically targeting revenue management software used to set rents for residential rental apartments. A similar ordinance is under consideration in San Jose, California.

In July 2024, the San Francisco Board of Supervisors passed Ordinance No. 224-24,[4] prohibiting the sale or use of revenue management software for rental housing. It is the first such prohibition enacted in the United States. The ordinance defines the targeted software as algorithmic devices that set, recommend, or advise on rents or occupancy levels using nonpublic competitor data. Remedies may be sought by the city or tenants and include civil penalties up to $1,000 per unit per month, plus damages, restitution, and attorneys’ fees.

In October 2024, the Philadelphia City Council passed Bill No. 240823[5] prohibiting the use of algorithm-driven revenue management tools that use nonpublic competitor data to recommend residential rental prices, fees, terms or occupancy levels. The ordinance allows the city to sue on behalf of residents and establishes private rights of action.  Remedies include treble damages and statutory damages up to $2,000 per unit per day.

In San Jose, city councilmembers proposed an ordinance in September 2024 that would ban the sale or use of revenue management software for rental housing, following San Francisco’s model. Penalties for violations would include the “return of illegal profits” and up to $1,000 per violation. The ordinance was considered and deferred in an October 2024 meeting of the council. In San Diego, the city council has directed the City Attorney to draft a proposed ordinance banning the use of algorithmic price fixing software.

Finally, the New Jersey State Legislature is also considering banning the use of algorithmic price fixing software in residential rental property markets. Assembly Bill A.4872,[6] introduced in September 2024, is currently pending before the Appropriations Committee. The bill would prohibit the use of software algorithms that employ non-public data to recommend rental prices, lease renewal terms, or occupancy levels to building owners. Doing so would violate the New Jersey Antitrust Act, under which enforcement actions could be taken and remedies sought.

The legislative efforts to regulate algorithmic price-fixing reflect a growing concern with the perceived risks posed by AI-driven pricing tools, particularly in markets where affordability is already a pressing concern. While laws in cities such as San Francisco and Philadelphia aim to shield consumers from inflated prices, the broader debate highlights the need for a nuanced approach that balances consumer protection with the advantages of technological innovation. As artificial intelligence continues to advance, regulatory frameworks must evolve in tandem, remaining flexible enough to tackle new challenges without undermining the efficiency gains these tools can provide. Collaboration among policymakers, industry leaders, and consumer advocates will be essential to develop policies that promote the legitimate interests of the many stakeholders involved in an increasingly digital economy.

[1] In 2024, proposed legislation failed to pass in California, Colorado, Connecticut, Illinois, New Hampshire, New York, Oklahoma and Rhode Island.

[2] https://www.congress.gov/bill/119th-congress/senate-bill/232/text/is?format= xml&overview=closed

[3] https://legiscan.com/CA/text/SB295/id/3107394#:~:text= The%20bill%20would%20prohibit%20a,is%20to%20that%20extent%20void

[4] https://www.sf.gov/information–sec-3710c-use-and-sale-algorithmic-devices-prohibited

[5] https://phila.legistar.com/View.ashx?M=F&ID=13548432&GUID=DAEBB175-3E16-4BFD-A7BF-4B1DCF3CB850

[6] https://legiscan.com/NJ/drafts/A4872/2024.  Senate Bill S.3699 is the assembly bill’s companion legislation.

The post A Roundup of the Current Legislative Response to the Prospect of Algorithmic Price Fixing appeared first on AntitrustConnect Blog.

When I was the Chief of the Philadelphia Field Office, however, we did successfully extradite a British executive—not for the Sherman Act offense he was charged with, but for related obstruction of justice charges. He was convicted and sentenced to prison. My office also indicted an Israeli national under seal and he was arrested at the Canadian border as he entered the U.S. He was tried and convicted as well. See Cartel Capers, Compliments to the Procurement Collusion Strike Force and a Trip Down Memory Lane, December 2, 2024. There have since been other successful extraditions and apprehensions by the U.S. and Interpol.

The Antitrust Division maintains a “Fugitive” web page. Among the items on the page is a YouTube video of a former fugitive who, in 2024, resolved his criminal charges by entering into a plea agreement with the Antitrust Division. The agreement was negotiated approximately five years after indictment. “Jim” Chu of Taiwan and the United States entered a “C”[1] plea agreement that included a fine of $300,000 for Chu (the equivalent of what might have been the corporate fine but Chu’s company had been dissolved) but most importantly, the plea agreement explicitly recommended no sentence of imprisonment. In return, Chu agreed to provide assistance to the U.S. Department of Justice, Antitrust Division in connection with antitrust compliance and other public education efforts. See United States v. Yeh Fei Chu aka Jim Chu and G Nova Corporation, 4:19-cr-00070 ECF 34 (2/22/2014)(plea agreement). The YouTube video appears to be the product of that assistance.

Mr. Chu advises Sherman Act fugitives to consider reaching out to the Antitrust Division, accept responsibility and try to resolve the outstanding charges. Mr. Chu is certainly correct when he speaks of the real consequence of being a fugitive—especially not being able to travel outside of the home country without risking arrest. This may severely limit business travel/opportunities. It also can cut off connections with relatives living in other countries. Being picked up on a Red Notice is no joke: In 2014, Romano Pisciotti, an Italian citizen, was indicted under seal for violating Section One of the Sherman Act, seized by Interpol while changing planes in Germany and eventually extradited to the United States.[2] Even before conviction,

Romano Pisciotti spent 669 days in custody. This included two hours in a police station in Lugano, Switzerland; 10 months in a jail in Frankfurt, Germany fighting extradition [on a Sherman Act indictment]; and eight months in a US federal prison in Folkston, Georgia, in a room with around 40 mainly Mexican inmates and a single corner toilet.” [3]

The consequences of being a fugitive are real and serious. But other fugitives reaching out to the Antitrust Division are unlikely to get the kind of deal Mr. Chu received. Chu was involved in price fixing for “koozies,” also known as can coolers: a foam or rubber sleeve that thermally insulates beverage containers such as cans or bottles. The volume of commerce was small: $2,665,695.60. Most importantly, no other defendant had been sentenced to prison. In my experience, once a single defendant agrees to a prison term, a non-prison deal is off the table for subsequent defendants.

The Fugitive Disentitlement Doctrine

The subject of foreign fugitives reminded me of a series of Cartel Capers blog posts I wrote on the subject jointly with a distinguished lawyer from Japan, Masayuki Atsumi. See Cartel Capers, Defending the Foreign “Fugitive” Against the Fugitive Disentitlement Doctrine[4] The fugitive disentitlement doctrine is an equitable doctrine under which a court has the discretion to decline to consider a petition of a defendant if that defendant does not submit the jurisdiction of the court. The “paradigmatic object of the doctrine is the convicted criminal who flees while his appeals is pending….” (Gao v. Gonzales, 481 F.3d 173,175 (2d Cir. 2007). Today, however, the fugitive disentitlement doctrine has been applied to bar a foreign citizen indicted by an Antitrust Division grand jury from raising any matters with the court unless he first appears personally before the court. It may be surprising to learn that a person who has never set foot in the United States may be considered a “fugitive.” For example, if a grand jury in Detroit indicts a Japanese executive while he is having breakfast in Tokyo, he has become a “fugitive” if he does not surrender in the United States.

The cliff notes version of our article is that the fugitive disentitlement doctrine can be overbroad when applied to foreign defendants. The doctrine is fair (i.e. equitable) in prohibiting a foreign fugitive from litigating his case from abroad (e.g. by getting discovery and then deciding whether to submit to the jurisdiction of the court). But, we argue, a foreign fugitive should be able to attack the facial validity of an indictment, for example on statute of limitations or jurisdictional grounds. To have to appear before the court to raise these challenges would require the fugitive to come to the United States, get arrested, and likely spend time in jail, or at a minimum, a very long time in the United States awaiting trial since his passport would be revoked. Allowing a foreign fugitive to attack the facially validity of an indictment would provide prudent restraint on prosecutors because, without that possibility, there is no realistic way to contest what might be prosecutorial overreach on its face. And as Mr. Chu attests in his video, and Roman Pisciotti can strongly second, there are dire consequences for a foreign business person that flow from simply being indicted. The equitable position would be to at least allow the foreign fugitive an opportunity to facially challenge to indictment. To be sure, this is not a situation that will be common but it is not out of the realm of possibility. The issue is of further prevalence because it can also arise in the context of other criminal prosecutions such as FCPA or securities criminal prosecutions.

The recent published list of criminal antitrust fugitives is unlikely to spur any new plea deals but it is a useful reminder and deterrent to executives that an indictment does not go away with time. Being indicted for an antitrust crime is a serious handicap to a successful (and less stressful) career in international business.

I’d like to thank Erin Lyman, JD Candidate University of Wisconsin Law School (2025), for her help in producing this blog post.

Thanks for reading.

Bob Connolly bob@reconnollylaw.com

This post originally was published in the CartelCapers blog.

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[1] “Pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C), the Defendant may withdraw from this agreement or the guilty plea if the Courtrejects the parities’ sentencing recommendations and imposes a sentence of imprisonment at the sentencing hearing.”

[2] Lewis Crofts and Leah Nylen, December 9, 2015, Mlex Interview with Romano Pisciotti, available at https://mlexmarketinsight.com/insights-center/reports/interview-with-Romano-Pisciotti,

[3] Id. See also Plea Agreement with Roman Pisciotti, https://www.justice.gov/atr/case-document/file/507541/download, which was discussed by Renata Hess in her remarks. See Remarks of Renata Hess, https://www.justice.gov/opa/speech/acting-assistant-attorney-general-renata-hesse-antitrust-division-delivers-remarks. Pisciotti was not the only foreign citizen extradited and sent to prison, In her remarks Hesse added:

And earlier this year, John Bennett, former CEO of a Canadian hazardous waste company, was convicted in a New Jersey court and sentenced to more than five years in prison for his role in a Superfund cleanup kickback scheme following his extradition from Canada in November 2014.

Id.

[4] See Cartel Capers, Defending the Foreign “Fugitive” Against the Fugitive Disentitlement Doctrine Part 1, Part 2.

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It is probably time for me to find a new hobby besides writing on my view of the unconstitutionality of the per se rule. But first, there are a couple of questions to explore: 1) would the lack of a per se rule seriously crimp criminal antitrust enforcement? and 2) if the jury charge did not receive a per se rule charge (i.e. if the court did not instruct the jury that the agreement alleged is an unreasonable restraint of trade) what would the judge charge the jury concerning finding whether the agreement unreasonably restrained trade? The latter question is for later blog post. Below, I share some thoughts on the potential effects of removing the per se rule from criminal antitrust enforcement.

• Would Criminal Antitrust Enforcement be Materially, Negatively Impacted Without the Per Se Rule?

No. Let’s start with Brewbaker. It was, in most antitrust observers’ opinion, a classic bid rig. One bidder (Pomona) gave its final bid price to another bidder with the understanding that the second bidder (Contech/Brent Brewbaker) would submit an intentionally higher price. In addition to bid rigging, Brewbaker was charged with and convicted on fraud counts which alleged that he falsely and fraudulently certified that the bids his company submitted were competitive and not subject to collusion. This finding makes it highly likely that the jury would also have found Brewbaker guilty of the Sherman Act count if they were the fact finder on whether the alleged agreement was an unreasonable restraint of trade. Of course an acquittal on bid rigging was possible; the ingenuity of defense lawyers should not be underestimated, but neither should the ability of jurors to reach rational decisions.

One justification for the per se rule is that it “avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable….” Northern Pac. Ry. v. United States, 356 U.S. 1, 5 (1958). Constitutionally speaking, that hardly seems like a justification for having the court decide an element of the offense, and the most crucial one at that—did the agreement restrain trade? But, if there were no per se rule, would the trial really necessarily involve a “complicated and prolonged investigation into the entire history of the industry involved?” Id. Not necessarily. Going back to Brewbaker, what about the proffered defense that dual distribution agreements can be procompetitive? The trial court excluded this defense because of the per se rule. However, even without a per se rule, the trial court may have also excluded this defense on relevance ground. The rules of evidence apply to a criminal trial. Was the proffered expert testimony relevant describing the procompetitive benefits of dual distribution relationships? Not without a foundation. Who for the defense was going to establish that the bidders were in a dual distribution arrangement? What documents would they have to support this? I suspect none. Voir dire of Brewbaker’s proffered expert may well have resulted in the expert’s testimony being excluded under Fed. R. Evid 702 and/or 403.

It is also revealing that the Fourth Circuit acknowledged that Brewbaker went to some lengths to deceive the consumer and keep the complementary bidding scheme secret: “Also during this time [of submitting complementary bids] Brewbaker tried to cover his tracks. He deleted conversations between Pomona and Contech employees, otherwise opted for phone calls over digital paper trails, and made sure that the percent he added to Pomona’s bid varied to avoid raising ‘red flag[s]’ to NCDOT.” United States v. Brewbaker, 87 F. 4th at 569. The Contech/Pomona agreement was kept secret to conceal the collusion from NCDOT. Would the jury have bought a procompetitive argument, if the court had even allowed it? Highly doubtful. Of course, instructing the jury on the per se rule removes all doubt, and as such it is a great tool for the prosecution. But, if the Constitution requires that the jury, not the court, made the finding of whether the agreement was an unreasonable restraint of trade, it is highly likely that the jury would have done so.

Brewbaker is just one case but it is representative of typical government procurement collusion cases. The bidders arrange in advance who the winning bidder will be. Other bidders submit intentionally high (complementary) bids in return for some form of future payoff. The collusion allows the winner to inflate the bid. The winning bidder shares or pays off the loser(s) often with future reciprocated complementary bids. The payoff, however, could also be money. The payoff also is often a subcontract from the winning bidder or an agreement to buy an input(s) from the winning bidder, also at an inflated price to share the spoils of the collusion. The great irony of the Fourth Circuit’s Brewbaker ruling is that this form of payoff would establish a vertical relationship and take the collusion out of the reach of the per se rule. Given the fraudulent nature of bid rigging, the division of the spoils among the colluders and the secrecy necessary to deceive the buyer, it is highly unlikely a defendant would admit the agreement to collude but successfully argue it was not an unreasonable restraint of trade.

The other class of agreements prosecuted by the Antitrust Division as criminal cases are price fixing cases. In cartels cases, the issue at trial has been whether there was an agreement or whether the particular defendant(s) on trial were members of the cartel. Given the secretive nature of the cartels and other ample evidence of consciousness of guilt and deception of customers, it would be unlikely a defendant would admit that he was a member of the cartel but then defend on the ground that it was not an unreasonable restraint of trade. In any case I ever tried, I would gladly have traded for an admission from the defendant that he was a member of the charged conspiracy in return for the defendant’s’ right to argue that the agreement was not an unreasonable restraint of trade.

Every head of the Antitrust Division in recent memory has made statements such as, “price fixing, market allocation and bid rigging steal from, and commit fraud upon American business and customers.”[1] The Antitrust Division has taken the position that “the [criminal] cases that we are charging and prosecuting are unmistakable fraud.”[2] It is true that having the jury, not the court, decide whether an agreement was an unreasonable restraint of trade adds an element of uncertainty that may make conviction more difficult by some unmeasurable degree, depending on the circumstances of the case. But as long as the DOJ sticks closely to this fraud standard (which is entirely appropriate for a crime that carries a maximum jail sentence of 10 years) it is likely that the jury would find the alleged agreement constituted an unreasonable restraint of trade.

Without reliance on a per se rule, prosecutors may be restrained from bringing criminal cases that are not clear-cut fraud. This would be a beneficial restraint. The kinds of cases that come to my mind where lack of a per se rule would seriously impact the government’s prospects might be the labor market cases and Heir Locators (where Judge Sam initially ruled the case was a rule of reason case but changed course after the government’s successful appeal to the Tenth Circuit).  See Cartel Capers, Heir Locators Is Now A Per Se Production, February 25, 2019. However, a criminal indictment is not the only option to punish and deter antitrust violations.  Many jurisdictions, such as the EU, have vigorous anti-cartel programs relying only on civil prosecutions.  The threat of jail is the most significant form of deterrent and hard core bid rigging and price fixing prosecutions would continue without a per se rule.  But in some circumstances,  much can be accomplished, and perhaps sometimes more efficiently, by bringing certain cases as civil prosecutions.

Thanks for reading. I understand that the topics raised here warrant much more consideration than a blog post, unless they warrant no consideration at all, but it’s a start.

Bob Connolly  bob@reconnollylaw.com

I’d like to thank Erin Lyman, JD Candidate University of Wisconsin Law School, for her help in producing this blog post.

This post originally was published on the CartelCapers blog.

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1. 1. Anne K. Bingaman, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, The Clinton Administration: Trends in Criminal Antitrust Enforcement, Remarks Before the Corporate Counsel Inst. (Nov. 30, 1995), available at http://www.justice.gov/atr/public/speeches/0471.htm.
   2. Scott D. Hammond, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Transcript of Testimony Before the United States Sentencing Commission Concerning Proposed 2005 Amendments to Section 2R1.1 at 3 (Apr. 12, 2005), available at http://www.justice.gov/atr/public/testimony/209071.pdf.

The post What If There Was No Per Se Rule in Criminal Cases? appeared first on AntitrustConnect Blog.

The Fourth Circuit’s novel view of the scope of the per ser rule set up a battle of petitions for certiorari in the Supreme Court.  The DOJ’s Antitrust Division sought to preserve the Sherman Act conviction and filed a Petition for a Writ of Certiorari,  No. 23-1365, June 28, 2024 with the question presented as: “Whether the existence of a vertical relationship between the competing bidders precluded the application of the established per se rule against horizontal bid rigging to [Brewbaker’s] conduct.”  Brewbaker fired back with a cross cert petition, arguing that if the Fourth Circuit improperly overturned his conviction on per se rule grounds, his conviction should remain overturned on constitutional grounds.  Brewbaker presented this question: “Does the criminal provision of Section 1 of the Sherman Act violate Article 1 of, and the Fifth and Sixth Amendments to, the United States Constitution?” Brewbaker v. United States, Conditional Cross-Petition for Writ of Certiorari, No. 23-1365, filed August 5, 2024.

On October 23, 2024 the United States filed the final brief in the matter:  Reply Brief for the Petitioner which opens with “Since the enactment of Section 1 of the Sherman Act, 15 U.S.C. 1, courts have understood that ‘an agreement between intending bidders at a public auction or a public letting not to bid against each other, and thus to prevent competition, is per se unlawful.” United States v. Addyston Pipe & Steel Co., 85 F. 271, 293 (6th Cir. 1898)(Taft, J.), aff ’d as modified, 175 U.S. 211 (1899).

1. Was the Scheme in Brewbaker a Per Se Violation?

            The government is correct that a vertical relationship between bidders does not by itself take the agreement outside the per se rule.  The government cited U.S. v Socony Vacuum, 310 U.S. 150 (1940) to highlight that some vertical relationship between conspiring bidders is not at all unusual. In a classic bid rigging scheme, the company agreeing to bid high and lose is often “paid off” via a vertical relationship–a subcontract or by selling an input to the winning bidder.  The creation of a vertical relationship is a way to share the illegal profit generated by the collusion. Why would a losing bidder (i.e. Brewbaker’s company] even submit a bid?—to restrain trade by creating the appearance of competition when there is none. See Cartel Capers, December 13, 2023 you are A Competitor If You Say So—My Disagreement with the Fourth Circuits Brewbaker Opinion.

The Fourth Circuit bought the red herring argument that because Pomona was a distributor for Contech, their bidding agreement potentially had the pro-competitive benefits of a dual distribution arrangement. Whether the conspirators had a dual distribution relationship [they did not], however, is irrelevant to the nature of the horizontal agreement to collude on their bid.  Contech and Pomona were not bidding to simply sell aluminum structures o NCDOT.   The Brewbaker indictment reads:

“From at least as early as 2009 and continuing through at least June 2018, Defendant BRENT BREWBAKER and Defendant … obtained bid prices from [Pomona] and submitted bids to NCDOT for aluminum structure projects that were intentionally higher than [Pomona’s] bids.” (emphasis added).

Pomona was not a distributor for completing government aluminum structure projects–it was a competitor.   The Fourth Circuit, however, thought the bid rigging scheme could have pro-competitive benefits by strengthening the relationship between Contech and Pomona.  I’m sure it did—until they got caught. But pro-competitiveness is measured by impact on the consumer.  The lengths that the Brewbaker and his conspirators went to hide the scheme from the consumer is a sure tip off that “consumer welfare” was not enhanced by the secret agreement.

1. Is the Section 1 of the Sherman Act Unconstitutional?

            Should Brewbaker’s conviction stand under the per se rule?  No.  I side with Brewbaker on this point, though my position is more narrow.  The per se rule when applied in criminal cases is unconstitutional, but not Section One of the Sherman Act itself. For further discussion see Brewbaker Strikes Back: The DOJ’s Per Se “Death Star” Attacked,Cartel Capers, August 13, 2024.

The government’s Reply Brief states:  “He [Brewbaker] never disputes that the type of agreement alleged in the indictment would have been per se unlawful at common law. He instead contends, in his cross-petition for a writ of certiorari, that the common law is “irrelevant.” 24-124 Pet. 6 n.2 (citation omitted).” Reply Brief for Petitioner at 2.  It is disputable whether the type of agreement alleged in the indictment would have been per se unlawful at common law.[1] But whatever the common law, Brewbaker is correct that it is irrelevant.  The common law was developed with courts, not juries, being the fact-finder of what is lawful. Brent Brewbaker was charged with a criminal violation of the Sherman Act for an agreement in restraint of trade. Where the critical element of a criminal offense is whether the defendant restrained trade, it seems inescapable that the defendant must be found, by a jury, to have restrained trade.

In Addyston Pipe, Judge Taft explained the fact-finding the court undertakes in deciding whether a restraint is unlawful or a pro-competitive ancillary restraint.[2]  The government expands on this in its reply brief:

“Under that approach [ancillary restraints doctrine], a court first decides whether the challenged restraint is ancillary to a legitimate collaboration and then (if the court answers that question in the affirmative) determines whether the overall arrangement is procompetitive under the rule of reason.”  Reply Brief of United States at 4. (emphasis added).

But “a court first decides….” is inconsistent with constitutional law which requires that a jury find every element of the offense in a criminal case.

Per se rules were developed largely in the context of civil cases but even in a criminal case like Socony-Vacuum no analysis was given to a defendant’s constitutional right to have a jury decide every element of the offense.  This constitutional issue is now before the Supreme Court and it’s a critical question because: “[T]he per se rule is the trump card of antitrust law. When an antitrust [party] successfully plays it, he need only tally his score.” Med. Ctr. At Elizabeth Place, LLC v. Atrium Health Sys., 922 F.3d 713, 718 (6th Cir. 2019) (quoting United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1362–63 (5th Cir. 1980).

There is another section of the government’s brief that sheds light on the constitutional breach in applying the per se rule in criminal felony cases.  In its brief the government quotes Arizona v. Maricopa County Medical Society, 457 U.S. 332, 351 (1982):

“The anticompetitive potential inherent in all [such] agreements justifies their facial invalidation even if procompetitive justifications are offered for some.”  Respondent therefore cannot avoid per se liability by asserting (Br. in Opp. 5-6) procompetitive justifications.” Reply Brief for Petitioner at 3-4.

That explanation of the per se rule in essence states: “Respondent cannot avoid liability for restraining trade by asserting that he did not restrain trade.”  The constitution says otherwise.  The rest of the quote from Maricopa County Medical Society further highlights why the per se rule has no place in a criminal prosecution:  “Those claims of enhanced competition are so unlikely to prove significant in any particular case that we adhere to the rule of law that is justified in is general application.” Id. The defendant might respond: “My defense may be unlikely to succeed your Honor but I’d like to give it a go anyway.” [By the way, had Brewbaker had been permitted to present evidence to the jury regarding why the scheme was not a restraint of trade, I have no doubt the jury would have still found him guilty of the Sherman Act offense, as evidenced by the fact Brewbaker was found guilty of submitting false non-collusion certifications.]

The briefing is concluded and the Supreme Court Docket No. 23-1365, of October 23 2024 reads: DISTRIBUTED for Conference of 11/8/2024.  While this could be the most important criminal antitrust decision since Socony Vacuum there is also good chance cert will be denied to both parties.

[1] See Morris, Arval (1958) Is Price-Fixing Per Se Reasonable? A Discussion, Kentucky Law Journal: Volume 47: Issue1, Article 5 at 71 (with numerous citations).

[2] United States v. Addyston Pipe & Steel Co., 85 F. 271, 282 (6th Cir. 1898), aff’d as modified, 175 U.S. 211, 20 S. Ct. 96, 44 L. Ed. 136 (1899).

This post originally appeared in the CartelCapers blog.

The post Supreme Court Set To Make Cert Decision On Per Se Battle appeared first on AntitrustConnect Blog.

Although the RMS cases filed so far address different markets—including hotel rooms, extended-stay apartments, multifamily and student rental housing, and medical services—the allegations fit a general pattern. For example, in one of the hotel room cases, Gibson v. Cendyn Group, No. 2:23-cv-00140 (D. Nev. Jan. 25, 2023), plaintiffs allege that six competitors, operators of hotels on the Las Vegas Strip, used Cendyn’s RMS to inflate room rates artificially. Plaintiffs allege the conspirators formed a “hub-and-spoke” structure in which the software vendor was the hub and the users were the spokes. A software license connected each user to the vendor, forming vertical supply relationships. The software allegedly coordinated an information exchange among its users on a give-to-get basis—it gathered confidential transaction-level data from the hotels in real time, including pricing (namely room rates) and volumes (in the form of occupancy levels), and provided each hotel with daily room rate recommendations for each type of room. In its marketing, Cendyn allegedly emphasized that its RMS would increase users’ revenues and profitability. See First Amended Class Action Complaint, ECF No. 144. Each of the other RMS cases allege a similar set of core facts.

The key question in all of the RMS cases is whether the competitors around the “rim” were connected by an unlawful horizontal agreement to share confidential information and/or fix prices. The complaints in these cases offer scant direct evidence of a horizontal agreement along the rim, such as emails discussing the alleged scheme. Rather, plaintiffs rely on circumstantial evidence of agreement such as parallel conduct and “plus factors,” including actions that would not serve an individual competitor’s interests unless taken by the competitors collectively.

Plaintiffs cast their claim as one of a “per se” conspiracy. Under the per se standard, an agreement among competitors is presumed to violate the antitrust laws without considering whether it harmed competition by actually raising prices or reducing output. To meet this standard, plaintiffs must allege more than just that many competitors were using the same RMS at the same time. One federal court, the Middle District of Tennessee, dismissed such a claim in In re: RealPage, Inc. Rental Software Antitrust Litigation, No. 3:23-md-03071 (M.D. Tenn. April 12, 2023), involving multifamily rental housing, i.e. large apartment buildings. As in the hotel cases, the RealPage RMS allegedly gathered confidential transaction-level data from apartment building management companies and provided each one with daily rent recommendations for each type of apartment. See Second Amended Consolidated Class Action Complaint, ECF No. 530. In the court’s view, plaintiffs’ allegations of a per se conspiracy were insufficient because they did not specify the dates each defendant joined the alleged conspiracy and admitted that some defendants began using the RealPage RMS years prior to the start of the alleged conspiracy. Plaintiffs also failed to allege that the conspirators ejected building management companies who did not follow the RMS’s price recommendations or inflicted some other form of punishment on cheating coconspirators. These were the leading reasons the court dismissed plaintiffs’ claim that the alleged conduct was per se unlawful. See Memorandum Opinion, ECF No. 690.

Instead, the court allowed plaintiffs to proceed only under the more onerous Rule of Reason standard, which not only requires proof of competitive harm but also weighs that harm against the procompetitive benefits of the software. In other words, the court or jury can take into account the actual effects, or lack thereof, of the RMS on the marketplace. And defendants can make the case that the RMS enhances competition by providing critical insight into the state of a market and its ongoing dynamics, and does so more efficiently and effectively than obsolete, unautomated methods of benchmarking.

Even under the Rule of Reason standard, plaintiffs still have to plead more than just concurrent use of an RMS. In the RealPage case, the court allowed plaintiffs to proceed with their Rule of Reason claim in large part because they alleged that the defendants did two other things suggestive of price fixing. First, all of the defendants allegedly switched collectively to an anticompetitive pricing strategy once a critical mass of building management companies had adopted the RMS. Second, each participant allegedly aided its competitors by contributing its confidential data to the RMS knowing its competitors were returning the favor, which the court concluded would otherwise not have been in the participant’s interest. In substance, plaintiffs had to allege that the defendants not only used the same RMS, but took steps to implement a larger scheme to fix prices.

The recent civil case filed by the Justice Department against RealPage in the Middle District of North Carolina asserts only violations under the Rule of Reason standard. See U.S. v. RealPage, Inc., 1:24-cv-00710 (M.D.N.C Aug. 23, 2024). The government may have chosen not to allege any per se violations given that the Middle District of Tennessee had dismissed per se claims against RealPage in the class action case despite a statement of interest filed by the Justice Department advocating that the court apply the per se standard. See Memorandum of Law in Support of the Statement of Interest of the United States, ECF No. 628.

Another obstacle to the attack on RMS is that RMS users have no obligation to follow the software’s price recommendations. Plaintiffs struggle to reconcile that fact with their claim that users have surrendered their pricing independence to the software’s pricing dictates. In fact, three courts have already dismissed claims because of this shortcoming. The District of Nevada dismissed with prejudice the case against Cendyn on this basis in the Las Vegas Strip hotel litigation, which is now on appeal. See Order, ECF No. 183. The issue was a factor in the Middle District of Tennessee’s dismissal of plaintiffs’ per se claim in the RealPage multidistrict litigation, as discussed above. And in a parallel action regarding the RealPage RMS brought by the attorney general of the District of Columbia, the D.C. Superior Court dismissed the case against one user, AvalonBay Community, Inc. See Memorandum Opinion, District of Columbia v. RealPage, Inc., et al., No. 2023 CAB 6762 (D.C. Super. Ct. Nov. 1, 2023), filed July 2, 2024.

Plaintiffs in the RMS cases fail to assert a related aspect typical of price fixing conspiracies: a means of enforcing the scheme against cheaters, particularly through tit-for-tat price decreases or eviction from the conspiracy. Plaintiffs in the RMS cases have yet to allege that any RMS has been designed to start a price war against a user who rejects price recommendations. Nor have any plaintiffs alleged that an RMS vendor has retaliated by refusing to renew an RMS license, or even threatened to do so.

Plaintiffs in RMS cases are also vulnerable when an RMS does not base a user’s price recommendations on the confidential information of the user’s competitors. For example, the court in Gibson v. Cendyn Group dismissed the complaint because it failed to allege the RMS used competitors’ confidential data to generate price recommendations, a fatal flaw in the court’s view. Rather, plaintiffs alleged only that the RMS relied on competitors’ published, publicly-available hotel room rates. See Order, ECF No. 183. This shortcoming was also an important factor in the dismissal of AvalonBay from District of Columbia v. RealPage. AvalonBay asserted that RealPage provided rent recommendations to it based only on its own confidential data and public data sources, not on its competitors’ confidential data. Moreover, AvalonBay asserted that RealPage likewise agreed not to use AvalonBay’s confidential data in generating rent recommendations for other users. These restrictions precluded competitors’ mutual dependence on one another’s confidential data that is at the heart of plaintiffs’ claims in the RMS cases. (The district court in the related multidistrict litigation also dismissed Avalon Bay, on plaintiffs’ motion.)

Further pre-trial orders are likely to provide additional insight into the circumstances that reduce the antitrust risks posed by revenue management software. Motions to dismiss are pending in three cases. See Karen Cornish-Adebiyi v. Caesars Entertainment, Inc., No. 1:23-cv-02536 (D. N.J. May 9, 2023) (Atlantic City hotels); Jeanette Portillo v. Costar Group, Inc., No. 2:24-cv-00229 (W.D. Wash. Feb. 20, 2024) (hotels in various U.S. cities); and McKenna Duffy v. Yardi Systems, Inc., No. 2:23-cv-01391 (W.D. Wash. Sept. 8, 2023) (multifamily rental housing). Motions to dismiss are likely to be filed in three others. See Steven Shattuck v. SAS Institute Inc., No. 3:24-cv-03424 (N.D. Cal. June 7, 2024) (extended stay apartments); State of Arizona v. RealPage, No. CV2024-003889 (Super. Ct. Ariz. Maricopa Cnty. Feb. 28, 2024) (multifamily rental housing); and In re: MultiPlan Health Insurance Provider Litigation, 1:24-cv-06795 (N.D. Ill. Aug. 1, 2024) (reimbursement rates paid by health insurers to out-of-network service providers).

The post The Reasons Some Courts Have Dismissed Antitrust Claims in the Latest Revenue Management Software Litigation appeared first on AntitrustConnect Blog.

Before getting to the new cases, it is worth mentioning some developments from the last year in earlier-filed criminal actions. In a major win for the Department of Justice Antitrust Division, in July 2024, a jury in the federal district court in Savannah convicted two individuals for conspiring to fix prices, rig bids, and allocate markets for sales of ready-mix concrete in Georgia and South Carolina. They are awaiting sentencing and have moved for a new trial. The two convicted defendants were indicted in September 2020, along with a concrete company and two others who pleaded guilty and did not go to trial. The company and the two defendants who pleaded guilty were sentenced on August 29. Of the defendants who pleaded guilty, one of the individuals was sentenced to serve prison time and to pay a $150,000 fine, and the other individual was sentenced to probation and community service. The concrete company was ordered to pay a fine of more than $2.7 million.

Separately, a trial is currently scheduled for October in a case against a health care staffing executive for conspiring to fix the wages of Las Vegas nurses. That closely-watched case, filed in March 2023, appears to be the last case standing in a series of wage fixing and no poach criminal actions brought by the Antitrust Division (at least for now). That effort was met with a number of setbacks and losses. For instance, in March 2023, four owners and/or operators of Maine home health care agencies were found not guilty by a jury in the Maine federal district court for allegedly conspiring to fix wage rates. Later, in November 2023, the Antitrust Division moved to voluntarily dismiss a criminal indictment charging outpatient medical care facility owner/operator Surgical Care Affiliates, LLC with conspiring with rivals not to solicit senior-level employees.

A U.S. Supreme Court petition filed by the Justice Department in June 2024 is also making news. The Justice Department asked the Court to consider whether the per se rule against horizontal bid rigging applies where there is a vertical relationship between competing bidders. The U.S. Court of Appeals in Richmond, Virginia, reversed an antitrust conviction of a sales manager in charge of bids for aluminum-structure contracts at Contech Engineered Solutions LLC in a bid rigging case involving aluminum-structure projects sponsored by the North Carolina Department of Transit. The defendant whose conviction was reversed submitted to the Supreme Court a conditional cross-petition for certiorari.

Roundup of Criminal Enforcement Filings over Last 12 Months

Commercial roofing. Among the most recent criminal antitrust case filings by the Justice Department are actions targeting purported bid rigging involving commercial roofing contracts in Florida. Commercial roofing company Service Works of Ft. Lauderdale, LLC, and a roofing company manager were charged on August 12, 2024, with conspiring to rig bids for commercial roofing contracts in Florida. The challenged conduct took place between April 2017 and August 2021. These are the first charges involving commercial roofing bid rigging to be filed. The documents allege involvement by an unnamed competing company and executive, pointing to the potential for additional charges.

Steel rebar. Two executives at competing Puerto Rico steel distributors have pleaded guilty to conspiring to fix prices for sales of reinforcing bar, or rebar. The Justice Department contends that three competitors control approximately 70 percent of the wholesale rebar market in the territory. Competitors allegedly exchanged WhatsApp chat messages, agreeing on specific rebar prices, including price increases in Puerto Rico. The first individual pleaded guilty on August 7, and the second individual pleaded guilty on August 30, the government announced. Sentencing is set for later this year in both cases.

Erosion control products. An antitrust investigation related to contracts for erosion control products has yielded guilty pleas from four individuals involved in the industry since September 2023. In addition, in August 2024, a federal grand jury in Oklahoma City returned an indictment charging Sioux Erosion Control, Inc. and the company’s vice president, as well as another employee, with fixing prices for erosion control products used to control runoff of soil or rock on highway construction and repair. The government alleges a conspiracy to divide up contracts across different areas of Oklahoma and rigged bids for particular projects. The challenged conduct began as early as May 2017 and continued into 2023 for some defendants. The individuals who have pleaded guilty—including a former Sioux employee—are still awaiting sentencing in the federal district court in Oklahoma City, the government reports. Sentencing dates have not yet been set.

Asphalt paving. Three asphalt paving companies and six individuals have been named in a bid rigging probe of the Michigan asphalt paving services industry. The challenged conduct dates back to 2013. The first charge was filed over a year ago on June 30, 2023, against F. Allied Construction Company Inc., the company’s president, and its vice-president. All pleaded guilty in August 2023 and are awaiting sentencing either later this year or in early 2025 in the federal district court in Detroit.

Within the last year, bid rigging charges also have been filed against two other companies—Asphalt Specialists LLC and Al’s Asphalt Paving Company—and their executives and former executives. All have either pleaded guilty or agreed to plead guilty.

Asphalt Specialists was sentenced on August 15, 2024, to pay a $6.5 million criminal fine for its role in the conspiracy. The company’s former president and part owner and a former company vice-president are awaiting sentencing later this year or early in 2025. A company vice-president/co-owner was charged on July 30, 2024. However, a formal plea agreement has not yet been entered.

Al’s Asphalt also has been sentenced. On July 31, 2024, the company was ordered to pay a nearly $800,000 fine for its role in the conspiracy. The company’s president/co-owner was sentenced on June 10, 2024, and ordered to serve probation for a term of two years.

Sports equipment. In May 2024, the Justice Department announced a charge in “an ongoing federal antitrust investigation into bid rigging and other anticompetitive conduct in the school sports equipment industry.” An employee of a sports equipment supplier pleaded guilty for his role in three separate conspiracies related to bid rigging for the sale of sports equipment, such as football helmets, sold to at least 100 schools. Two of the charges described separate bid rigging conspiracies, and the third charge alleged a conspiracy to commit wire fraud. According to the government, co-conspirators agreed to submit complementary bids to schools located in Mississippi and elsewhere in order to obtain procurements for school sports equipment and related services. However, no other cases have been filed as a result of this investigation.  The challenged conduct took place between May 2016 to July 2023. The defendant is awaiting sentencing. No other related charges have been made public as part of this probe.

U.S. Forestry contracts. Two Idaho business owners were indicted in the federal district court in Boise, Idaho, in December 2023 for allegedly conspiring to rig bids and allocate territories as to U.S. Forest Service contracts (among other counts). The U.S. Forest Service runs a bidding process to award fire-fighting related contacts to small businesses. Those services include fuel trucks and water trucks. Both defendants essentially provided fuel trucks. In May 2024, the Justice Department announced that one of the two defendants had agreed to plead guilty. A superseding information was filed as to that defendant. It contained two counts: (1) a bid rigging/territorial allocation conspiracy count under Section 1 of the Sherman Act and (2) a conspiracy to monopolize count under Section 2. In this new charge, the government alleged a conspiracy to monopolize the market for wildlife fuel truck services. Sentencing for that individual is set for March 2025. The case is moving forward against the second defendant, and a pretrial conference is currently scheduled for early next year. No other charges have been filed in connection with the investigation.

A criminal charge for a Section 2 violation is unusual. In 2022, the Justice Department brought its first criminal Section 2 case in more than 40 years. In that case, a Montana paving and asphalt contractor pleaded guilty to attempting to monopolize the market for highway crack-sealing services in Montana and Wyoming.

Army installation flooring contracts. In January 2024, a project manager at a government contractor was charged with receiving kickbacks from artificially inflated construction proposals, among other counts. He has been sentenced to serve prison time and ordered to pay restitution. That individual admitted to conspiring with the owner of a commercial flooring company, who was charged in 2022 and was sentenced in March 2024 to prison time. The purported scheme was related to government contracts for construction and flooring services at Fort Wainwright, a U.S. Army installation in Fairbanks, Alaska. Although the Antitrust Division investigated the cases, no antitrust counts were alleged in either of the multi-count criminal informations.

False statements. Lastly, two of the new criminal cases filed in the last year alleged false statements. In March and April 2024, charges were filed in the federal district court in Greenbelt, Maryland, against two separate individuals for making a false statement to a government agency in violation of 18 U.S.C. §1001(a)(3). Both individuals pleaded guilty and were sentenced to probation. According to the filings, around May 2020, the defendants made false statements to the Department of Defense related to a  company NASA contract requiring Top Secret clearance. No additional cases have been disclosed by the Justice Department in relation to the investigation.

The list of cases suggests that the Antitrust Division for the last 12 months has been focused primarily on localized bid rigging and price fixing schemes, many of which involve government procurement. Whether that track record holds is uncertain.

The post What’s New in U.S. Criminal Antitrust Enforcement? Cases Against Cartels in Local Markets appeared first on AntitrustConnect Blog.

The Whistleblower Pilot program is a particularly hopeful development for criminal cartel enforcement. The Antitrust Division already has an Individual Voluntary Discovery Program.

Individual Leniency–Voluntary Self Disclosure for Individuals

The Antitrust Division has long had a program similar to the Criminal Division Pilot Program on Voluntary Self Disclosure. It is so rarely used it is easy to forget it exists. The Individual Leniency Program was announced in 1993 at the same time as the well-known, successful revised Corporate Leniency Program.

DOJ Manual- 7-3.330 – Individual Leniency

“Leniency will be granted to an individual reporting their participation in illegal activity.
before the Antitrust Division has begun an investigation.”

Like the pilot DOJ disclosure policy, a key condition of the program is: “At the time the individual reports the illegal activity, the Antitrust Division has not received information about the illegal activity from any other source.” I believe the main reason that individual leniency has been unused is financial—an individual can’t afford the expense or risk, without the support of a corporate backer, that it takes to engage in the leniency process with the Antitrust Division. Negotiating leniency, including individual leniency, is dance and often a “dance marathon.” Both sides, the Antitrust Division and the individual making a proffer, will proceed cautiously. A [sane] individual, not knowing what information the Antitrust Division may already have, will not come forward without experienced (i.e. costly) antitrust counsel. This can be a very expensive proposition. The negotiation with DOJ will likely require numerous interviews and travel for the witness and her attorney. If conditional leniency is granted, the cooperating individual is at the Division’s beck and call for many years come. This is an expensive and uncertain undertaking for a lone individual to take without the benefit of an employer [or former employer] paying for the individual’s attorney fees. An individual who successfully obtains conditional Individual Leniency will likely be saddled with significant attorney fees at a time when she is likely a former employee and now unemployable in whatever industry she has reported illegal conduct. I’m sure there are other reasons why the Individual Leniency Policy is rarely pursued, but the expense of doing so seems to be an effective roadblock to its use. This hurdle in the Individual Leniency Policy is instructive for the Pilot Whistleblower Program because a potential whistleblower may well be deterred by the same prospect of significant legal fees for doing the right thing.

Pilot Whistleblower Program

At one time I was hopeful that comprehensive SEC-like criminal antitrust whistleblower legislation would be passed. Senator Amy Klobuchar introduced sweeping antitrust legislative reform that included, among many items, a whistleblower program that would “establish a bounty system to reward criminal whistleblowers for providing evidence in antitrust cases resulting in the collection of a criminal fines.” See, Senator Klobuchar Unveils Wide Ranging Antitrust Enforcement Legislation, Cartel Capers, February 4, 2021. The proposed legislation covered many aspects of antitrust reform, too many it turns out, and as a package, could not muster sufficient support. Someday, perhaps, the whistleblower provisions will be taken up on their own. After all, the Biden Administration has introduced numerous antitrust initiatives, and s program for uncovering and prosecuting cartels that inflate prices would seemingly fit this agenda.

Nonetheless, there has been some incremental progress on the antitrust whistleblower program. On Dec. 23, 2020, the Criminal Antitrust Anti-Retaliation Act, sponsored by Senator Charles Grassley, was signed into law. The Act prohibits employers from retaliating against certain individuals who report criminal antitrust violations. While a step forward, the potential aid of the Department of Labor is not likely to give much comfort to a potential whistleblower worried about being wrongfully sacked and blackballed.

Will the Pilot Whistleblower Program be of any help in criminal antitrust enforcement? Too early to tell, but again, any step forward is appreciated. The most significant roadblock which must be removed to enable willing whistleblowers to come forward is the burden of substantial attorney fees. Like a potential cooperating witness, a whistleblower must expect to sit for multiple interviews with the DOJ. A great deal of attorney preparation would take place before the first encounter with the DOJ. Whistleblowers, in my experience, are not in it to get rich; but they also are not looking to burden themselves and their families with significant debt, especially at a time when their career prospects are likely to take sharp downward turn. One of the most attractive elements to the SEC-style whistleblower regime as well as the qui tam statutory regime is the ability, if successful, to receive a monetary award. The certainty of the monetary award, and a track record of fairly administering the program, enables a legitimate whistleblower to come forward with an attorney on a contingent fee basis. A contingency fee set up also has the salutary effect of having the whistleblower bar act as a screening mechanism for the DOJ. While certainly no guarantee that the whistleblower has credible, material evidence of a crime, the fact that an attorney has taken on the case adds some weight to the whistleblower. The whistleblower attorney is motivated to assist the DOJ and avoids the DOJ having to engage directly with an unrepresented person. To be effective, the Pilot Whistleblower Program will need a transparent and predictable basis for obtaining a financial award. This may not be true in all potential whistleblower situations, but is likely so for more complex matters such as criminal cartel enforcement.

A Modest Proposal—Antitrust Division Special Counsel for Whistleblower

As the whistleblower landscape develops, a low/no cost tool would be for the Antitrust Division to appoint a Special Counsel for Whistleblowers. [An Office of Whistleblowers would be better but my recollection is that step would require Congressional approval.] There could be many benefits:

• Visibility, Visibility Visibility When the revised Corporate Leniency program was launched it was the subject of intense promotion by the Antitrust Division and Gary Spratling. The Division/Spratling wanted to defense bar to know the Division was open for Leniency business and wanted to create a win/win environment for the leniency applicant and the Division. By any measure it was a smashing success.
At this point in time, the Antitrust Division may not have much to offer a potential whistleblower, but a “point person” is at least a signal that the Division will help where it can.

• The Special Counsel for Whistleblowers would be a central and visible place for potential whistleblowers to begin an interaction. They will have questions. Perhaps they would not have a path to a monetary award for price fixing in the public market, but is there a qui tam (i.e. government purchasing angle) to be explored.?

While I have focused on the expense as a deterrent to a whistleblower coming forward, it is possible that in certain situations a whistleblower could aid the Antitrust Division with a fairly discreet piece of information. The Antitrust Division would help by being sensitive to the cost associated with numerous interviews. And even if it is not clear that someone can qualify as a whistleblower for a monetary award, that person may decide to simply provide information that can start an investigation. There have been numerous major cartel investigations that have begun by an industry person providing the Antitrust Division with information.

Another issue that could come up: there is a fine line between being a whistleblower and a co-conspirator. Does the individual contemplating coming forward have criminal liability? Conspiracy law is sweeping. Knowledge of the agreement and even one act to carry it out can make someone a co-conspirator. This would have to be worked out in most cases before a potential whistleblower could/should come forward.

• A Special Counsel can keep abreast of all developments. Hopefully, the Antitrust Division has already has a seat at the table to give input for the DOJ Pilot Whistleblower Program. The Special Counsel for Whistleblowers could interact with foreign counterparts who are experimenting/implementing various whistleblower ideas. There are many interesting developments in foreign competition agencies regarding whistleblowers. The EU for example has an encrypted message system where a whistleblower can communicate with enforcers anonymously. See EU Sanctions Whistleblower Tool.

• A Special Counsel for Whistleblower could interact with members of Congress who may be interested in pushing a more comprehensive criminal antitrust whistleblower package.

• It’s possible a Special Counsel for Whistleblower won’t have much to do [it doesn’t have to be their only responsibility]. Or that person may have duties that evolve to a greater extent than brainstormed here [with just one brain]. It’s a cost free additional tool to help potential whistleblower and uncover criminal antitrust cartels.

A Final Thought

The revised 1993 Leniency Policy came at the right time. International cartels were plentiful. Foreign executives/conspirators, who had no idea they could be subject to US jurisdiction and the nightmare that awaited them, were plentiful as well. A compilation of the “greatest hits” hot document of the era would fill a file cabinet or its gig equivalent. Now, however, after many successful criminal prosecutions with foreign executives indicted, placed on red notices, and occasionally captured and brought to the US and jailed, executives have taken notice. Certainly many have learned “Don’t engage in cartels” but others have learned “Don’t write incriminating emails or other documents.” No paper or electronic trail cartels are the order of the day. Ephemeral messages were now part of Cartel 101 code of conduct. None of this is news to cartel practioneers.

Corporate Leniency is still a great enforcement tool but today there is a real need for a tool that attracts a cooperator while the cartel is still operating. Well-hidden, document-free cartels make it harder for a willing applicants to obtain a leniency marker even if they are considering it. When a corporate leniency applicant had a collection of hot documents such as “pricing notes from a working group meeting,” the applicant could be more certain that conditional leniency would be granted. Today, the proffer will likely rely more on testimony. Prosecutors may be skeptical of a testimony heavy/document lean application. There is concern that as soon as the ink is dry on the leniency agreement, memories will fade as the cooperator’s company faces an avalanche of civil suits. Lack of hot docs make it riskier for the leniency applicant to come forward, and risky for the govt to issue a conditional leniency, which makes it riskier to come forward…..

A whistleblower can expose a cartel—while it is still in progress. This opens up significant avenues of covert investigation–consensual monitoring, wire taps, etc. In addition, or instead, a whistleblower can help start the investigation with search warrants, perhaps coordinated with dawn raids. The destabilizing potential of an effective whistleblower program can be a catalyst to a corporate leniency applicant racing in. There are limited situations where the Antitrust Division can accomplish these things with a Type A leniency applicant, but a robust whistleblower monetary award program could discourage, destabilize and detect criminal antitrust cartels with the same success the Corporate Leniency Program once enjoyed. See A Practical Look at Why A Criminal Antitrust Program is Needed, Cartel Capers March 28, 2023.

Corporate Leniency once transformed criminal cartel prosecution and ushered in a n era of record breaking prosecutions fines and jail sentences. The next step in the evolution of criminal price fixing prosecutions is a whistleblower program to incentivize someone to come forward who can assist the investigation while the cartel is still ongoing. A Special Counsel or whistleblowers is a modest step, but modest steps seems to be the only way to advance the ball of developing whistleblower tools in criminal antitrust investigations.

This is a rambling post but use a quote attributed to Mark Twain {among others]: “I didn’t have time to write a short letter [post], so I wrote a long one instead.”

Thanks for reading [if you got this far].

Bob Connolly bob@reconnollylaw.com

This post originally appeared in the CartelCapers blog.

The post A Modest Proposal—Antitrust Division Special Counsel for Whistleblower appeared first on AntitrustConnect Blog.

Why:  A settlement has been reached between the National Association of Realtors (or NAR) and the class action plaintiffs that would resolve the $1.8 billion verdict out of Missouri finding illegal collusion in the residential real estate industry. But the settlement raises its own antitrust concerns and this podcast provides actionable guidance for avoiding them. You can listen to this podcast here.

Some Background: The Missouri case focused on the NAR’s mandatory commission rule requiring the home seller to pay a non-negotiable commission to the broker representing the buyer. Plaintiffs alleged this resulted in a complete lack of competition for buy-side rates—which were artificially inflated. Before this lawsuit and copycat suits, virtually all brokerages in the industry operated under the rule and were aware that everybody else was operating in the same way.

But under the settlement, the NAR has agreed to implement a new rule prohibiting offers of buy-side compensation to be posted on the MLS (or multiple listing service, where most homes are listed for sale). Individual brokers can pursue buy-side commissions, but only off the MLS through negotiations. Assuming the settlement is approved, this change will go into effect in mid-July 2024.

Here’s what brokerages and local real estate associations need to know:

Bullet #1: Collusion often takes place after major industry disruptions like this one. Competitors panic and seek comfort in knowing how others in the industry plan to cope – we could call them “crisis cartels.” In this case, brokerages who are supposed to be competing should not discuss with one another how they plan to react to the eradication of the mandatory commission rule. Each brokerage should determine by itself how it will compete, what commissions it will seek, and from whom.

Bullet #2: Brokerages need to ensure that there isn’t a reversion back to a de facto mandatory commission rule. While some commentary suggests that disclosing to sellers and buyers that commissions are negotiable may be enough, we think that, in addition to disclosures, there must be an accessible process that prompts and facilitates bona fide arms-length negotiations over commissions. Commission negotiations should not be discouraged in any way. Disclosures to home sellers and buyers that commissions are negotiable should be understandable, easy to find and accompanied by an explanation of the actual process for negotiating.

Bullet #3: Buy-side commissions should be commensurate with the “value add” brought by the buy-side broker. This may require detaching the buy-side commission from the sale price of the home and documenting the rationale behind the final rate chosen. This shows that the rate is competitive and not an “industry-standard” or “fixed” commission.

Bullet #4: No steering. Buy-side brokers should present to clients, equally and fairly, all homes that fall within their specifications. And conversely, sale-side brokers should treat all offers equally notwithstanding commissions. Brokerages must be careful not to steer clients towards dealing with other brokerages that are known to “cooperate” with respect to commission sharing, and must not steer clients away from dealing with brokerages that are “uncooperative,” i.e., taking a unique approach to competition for clients.

Bullet #5:  Brokerages should disconnect from local NAR groups that require adherence to anticompetitive rules in exchange for access to the MLS, or brokerages should negotiate new membership terms with their local NAR group. Like all trade associations, the benefits of involvement in the NAR and local realtor associations can be overshadowed by antitrust risk.

Ultimately, whether in a trade association or not, brokerages should approach antitrust compliance independently rather than follow the NAR’s rules automatically.

This post originally appeared on The Antitrust Attorney Blog.

The post If I Were You…I’d Listen to this Podcast about Residential Real Estate & Antitrust appeared first on AntitrustConnect Blog.

The Brewbaker indictment alleged:

From at least as early as 2009 and continuing through at least June 2018, Defendant BRENT BREWBAKER and Defendant … obtained bid prices from [Pomona] and submitted bids to NCDOT for aluminum structure projects that were intentionally higher than [Pomona’s] bids.

Despite this clear “per se” allegation, the indictment went on to state that Contech (which pleaded guilty to the indictment) supplied aluminum to its co-conspirator, putting the two competitors also in a vertical relationship.  The Fourth Circuit held that because there was also a vertical relationship between the bidders (i.e. horizontal competitors), the “rule of reason” applied.   Thus, “the factual allegations in the indictment did not state a per se violation of the Sherman Act.

The Fourth Circuit is wrong because the agreement alleged to be illegal here was the agreement to submit rigged complementary bids.  That agreement was between two formerly competing horizontal competitors. They were competitors because they said so—they each submitted bids to the NC Department of Transportation. But  pursuant to a secret agreement between themselves to rig those bids. This agreement falls squarely within the definition of bid rigging the Fourth Circuit actually cited in its opinion.  The Brewbaker court acknowledged that it is settled law that “per se unlawful bid rigging [is defined] as an agreement between competitors,” adding “that is precisely how the Supreme Court defines a horizontal restraint.”  This is blackletter law and there is no basis in law and/or economics to find a bid rigging agreement between competitors is not subject to the per se rule if the bidders also have a vertical relationship.

The Fourth Circuit accurately stated: “For if the restraint is horizonal, then  the per se rule will generally apply. And if the restraint is vertical, then the rule of reason will apply.”  The restraint the government alleged was illegal was horizontal: Contech [Brewbaker} got bid prices from another bidder and agreed to submit intentionally higher bids. The indictment did not allege that the agreement between Contech and Pomona (the vertical relationship) was illegal. That relationship existed when Contech and Pomona were actually competing.  It made bid rigging convenient—not procompetitive.  As it had no relation to the horizontal agreement alleged as illegal, it should also have been irrelevant to the per se nature of the agreement.

There is an irony flowing from the Fourth Circuit’s deviation from the per se rule applying to competitive bidders if they also have some vertical relationship.  One of the ways conspirators sometimes share the spoils of collusion is for the winning bidder to subcontract to the losing bidder.   See e.g.,  “After the bid is awarded, the winning bidder may pay off the co-conspirators through cash payments or subcontracts.”  FEDERAL ANTITRUST CRIME: A PRIMER FOR LAW ENFORCEMENT PERSONNEL p3.  How odd it would be, and inviting to would-be colluders, if by establishing a vertical relationship, they took themselves out of the per se rule.  In fact, it is not unusual for competing bidders to have some vertical relationship between them. In the olden days when I was bringing public procurement bid rigging cases on behalf of the Division, when the evidence showed competitors communicating with each other (particularly right before a bid) the excuses often had a flavor of vertical relationship: I wanted to rent some equipment; I wanted to sub out part of the contract; I wanted to purchase material.” These relationships are not of themselves illegal and the indictment, but they also would they take an agreement out of the per se rule.

The agreement between Contech and Pomona to submit complementary bids restrained trade just as an agreement between two bidders with no vertical relationship.  By holding themselves as a competitors (as they once were):

• The agreement was designed to and did satisfy the “three bid rule.” In public procurement there is often, as ther was here a three bid requirement before making the award.  Without three bids, the buyer often switches to a “Cost plus” negotiation to insure it is getting a competitive price.  Avoiding this is often the motivation for collusion and complementary bids in public procurement.
• Even more than the three bid rule, competition is restrained because, had the buyer known there was no competition for the projects, it could have changed the specs, sought new bidders, or otherwise taken steps to create a competitive environment.
• Similarly, because there were three bidders other potential bidders may have been discouraged from devoting the resources to bid.
• Two companies which had been submitting competitive bids reached a secret agreement to submit complementary bids, eliminating competition and allowing the “winning” bidder to inflate its bid–the exact reason cartels are condemned as “the supreme evil of antitrust.”

In short, the complementary bidder agreement between Pomona and Contech created the same anticompetitive effects that courts have universally found worthy of per se treatment.

It is also revealing that the court acknowledged that Brewbaker went to some lengths to keep the complementary bidding scheme hidden. “Also during this time (of submitting complementary bids) Brewbaker tried to cover his tracks.” [by deleting conversations and making phone calls instead of emails].  Procompetitive agreements are measured by their potential benefits to the consumer and they not kept secret from those the agreement is supposedly intended to benefit.[1]  The Contech/Pomona agreement was kept secret because it had no procompetitive effects for the consumer.  Sure, the bid rigging agreement made Pomona and Contech happy and perhaps strengthened their relationship—splitting inflated spoils can do that.[2]  The consciousness of guilt evidence shows the defendant knew he was engaged in a “restraint of trade” not an agreement reached for the benefit of the consumer who was kept in the dark.

The Brewbaker opinion opens a new defense to defeat the per se rule—the existence of a vertical relationship between bidders.  The opinion could be defended on the basis that a supplier-distributor relationship is a significant vertical relationship but how extensive does that vertical relationship have to be in order for a defendant to escape the per se rule?  Who knows?   But just conducting the inquiry would further embed the court as a fact-finder on an element of a Sherman Act criminal offense (because if the agreement is found by the court to be per se, it is no longer an issue for the jury.)[3]

Brewbaker Convicted on Five Fraud Counts

 In addition to the Sherman Act count, Brewbaker was convicted on five fraud counts.  I am probably missing something because I am puzzled that the Fourth Circuit upheld these convictions.  The indictment alleged mail fraud violations in that Contech and Brewbaker misled NCDOT by submitting intentionally losing bids and by falsely certifying that the bids were submitted competitively and without collusion.  But the district court’s per se ruling prevented Brewbaker from introducing evidence that his bids were “submitted competitively.”  [“They [jury] didn’t hear evidence, however, as to the procompetitive intent or effects of Contech and Pomona’s particular setup.”].  The Fourth Circuit reversed the district court’s per se holding because it thought the vertical relationship between the bidders may have been procompetitive—or at least Brewbaker should have been able to argue that.  Fraud crimes are specific intent crimes, and while it is sometimes attractive to prosecutors to add fraud counts to a bid rigging indictment to highlight the fraudulent nature of the Sherman Act violation, the down side is that it is a specific intent crime and opens the door to justifications (or so I thought when I was doing this).  Bottom line, if the Fourth Circuit thought the Sherman Act count should have been “rule of reason,” with the defense allowed to advance procompetitive justifications, I think the fraud counts also should have opened the door to a procompetitive (i.e. not fraudulent) explanation.

When it comes to public procurement, I think the rule should be “When bidders say they are competing, believe them” or “When someone shows you who they are, believe them the first time.” Maya Angelou.  I expect the DOJ will seek further review of the Brewbaker opinion so I’ll be curious to see if any of my musing “hold water.”

 Thanks for reading.

Bob Connolly   bob@reconnollylaw.com

[1] In McMullen v. Hoffman, 174 U.S. 639 (1899)  the Court refused to enforce a contract when one conspirator sued for his portion of the profits from a successful collusive bidding scheme. The Court distinguished a secret agreement from a known joint venture, where “[t]he public may obtain at least the benefit of the joint responsibility. . . . The public agents know then all that there is in the transaction, and can more justly estimate the motives of the bidders, and weigh the merits of the bid.” Id. at 652.

[2] I worked on one cartel case where the collusion was so successful, all the “competitors” hosted a retirement dinner for the most active conspirator.  I’m not sure if there was an MVP plaque was also awarded.

[3] And this is why I think the per se rule is unconstitutional.

This post originally appeared in the CartelCapers blog.

The post You Are A Competitor If You Say So–My Disagreement with Fourth Circuit’s Brewbaker Opinion appeared first on AntitrustConnect Blog.

― Carl Sagan, The Demon-Haunted World: Science as a Candle in the Dark

I have long been a devotee of the Chicago School (at least on the limited level at which I understand it), but the FTC and Antitrust Division’s recent aggressive civil enforcement actions have me questioning whether I’ve been bamboozled.  The FTC’s latest action, FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition, FTC Press Release, January 5, 2023, is a case in point.  While I question whether the FTC has the authority to enforce the proposed rule, I think I like it, despite the procompetitive arguments that can be made in favor of non-competes.

Two days ago I had a conversation with a friend about this proposed rule.  We discussed a real life, current situation where a young salesperson is being asked to sign a non-compete clause.  He was concerned.  To refuse to sign might mean losing his at-will position.  To sign might mean that if he was later laid off, he’d have a hard time getting another job in the field due to the scope of the non-compete clause he was being asked to sign.  The relative bargaining power of the employer/employee was lopsided to say the least.  And this was a young man who was alert enough to realize the implications of what he was being asked to sign.  I’m sure many people sign such contracts simply because the boss said so without understanding the rights they have signed away.

I’m pretty familiar with the arguments in favor of non-compete clauses.  Employers will be reluctant to invest in training employees if they can then jump ship and go to a competitor. Former Labor Secretary Gene Scalia is quoted as saying “It [the proposed non-compete rule] would also, by the FTC’s own account, reduce capital investment, worker training and possibly job growth….” , Gus Hurwitz, Truth on the Market, January 13, 2023 (quoting a Wall Street Journal article.)  And that makes some sense to me.  But given the way the vast majority of non-competes are used in the real world, is that really what will happen if the FTC rule is adopted?  The FTC statement further says,  “Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages—even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, Director of the Office of Policy Planning. The FTC “estimates the rule could increase workers’ earnings by nearly $300 billion per year.”  What do you think?  The FTC has an open comment period for the new rule until Mach 20, 2023.

So, have I been bamboozled by Chicago School into thinking non-competes are pro-competitive? (and efficiency savings in mergers are passed on to consumers?, etc.)  I don’t claim to be an expert or have studied the issue in great detail but this is where I come down: there are situations where a non-compete can be pro-competitive, but those situations can be dealt with by less restrictive means; perhaps a longer post training employment contract to keep the employee from “free riding” on training. Non-disclosure clauses are another way to protect intellectual property where employees truly have access to sensitive proprietary information.  According to the FTC press release: “The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements.” The instances where the non-compete is pro-competitive seems (to me) to be dwarfed by the ubiquitous use of non-competes against workers for the purpose primarily of suppressing worker mobility in pursuit of better/higher paying jobs.  Given the imbalance in negotiating power and the less restrictive means for employers to recoup training costs, I come out in favor of the FTC’s proposed non-compete clauses.

Was I bamboozled by the Chicago school?  Am I being bamboozled by the FTC now?  I’m not 100% sure but I love the word bamboozle so I decided to write this blog post.  In William Shakespeare’s Hamlet, Polonius said: “Neither a bamboozler nor a bamboozlee be.”  (Well, no he didn’t.)  Maybe there is no bamboozle here.  Just honest differences of opinion.  That’s what makes antitrust such an interesting and important field.

PS:     I remember the first time I was bamboozled. By the Pope no less!  As a young lad in an Irish Catholic household I studied to be altar boy on what was hoped to be my first step to sainthood–or at least the priesthood.  I had to learn to serve Mass in Latin—no easy feat for a kid that just wanted to play stickball.  And no sooner had I “graduated” altar boy school, the Pope changed the Mass to English, which was not much easier for me to learn than Latin.

Thanks for reading.

Bob Connolly   bob@reconnollylaw.com

This post originally appeared on the CartelCapers blog.

The post Bamboozled? appeared first on AntitrustConnect Blog.

Allow Defense Counsel a Preindictment Meeting

The Antitrust Division’s failures in the chicken parts criminal price fixing investigation was a thorough rout. Recently the Antitrust Division dropped the indictment against the last two remaining individual defendants. Price-Fixing Charges Against Chicken-Industry Executives Are Dismissed, Wall Street Journal, Dave Michaels, October 17, 2022. The investigation is now concluded with a scorecard of a total of 14 people charged with participating in the scheme without a single conviction. The Division obtained just one guilty plea from the companies it accused of being involved.

I believe the case(s) got off on the wrong foot when the Antitrust Division secured indictments against the individuals without first advising them that they were targets of the investigation. “No-notice indictments,” as these have come to be called, preclude the opportunity for defense counsel to request a preindictment meeting with the prosecting staff. It is my understanding that the chicken parts case was not the only case where no-notice indictments were returned. Even in some of the no-poach criminal indictments, where the Division was brining first-of-their-kind case, defense counsel were not given the opportunity to argue to the Division why their case was not a viable prosecution. Preindictment meetings are critically important to give a prospective defendant an opportunity to present facts or law that may change the prosecutors’ mind. Preindictment meetings can also be critically important to the prosecutors to get a preview of what the defense perceives as flaws in the case. I’ve written more about this in a previous blog post:

Don’t Be Chicken to Meet:  The Case For Preindictment Meetings,  Cartel Capers, July 12, 2022.

There are, of course, times when a preindictment meeting would not be appropriate: “While under no obligation to notify a target prior to indictment, the government typically does so, only refraining in the rare case where, “notification…might jeopardize the investigation because of the likelihood of flight, destruction or fabrication of evidence, endangerment of other witnesses, undue delay or otherwise would be inconsistent with the end of justice.”  JM 9-11.153-Notifcation of Targets. But thinking that you have nothing to learn by listening to defense counsel is not a good reason to shun a preindictment discussion.

Prosecutors don’t get to the point of seeking an indictment without believing in their case. But prosecutors should do best to avoid this trap: “Most people do not listen with the intent to understand; they listen with the intent to reply.” Stephen R. Covey. Listening to defense counsel’s pitch, should they choose to make one, with an open mind may prompt some thoughts among staff along the lines of, “Perhaps we’ve overlooked something,” “Or fell overly in love with our witnesses [documents]”, “Or we need another witness.” To be clear, listening to why you shouldn’t indict is not seeking permission. As Hubert Humphrey said, “The right to be heard does not automatically include the right to be taken seriously.”

Listening has its limits. During my years as Chief of the Antitrust Division’s Philadelphia Field Office, I never refused (as best as I can recall) a meeting with defense counsel. But that didn’t mean defense counsel automatically got a second meeting going up the chain with the front office in DC. I can only recall one instance where defense counsel persuaded us not to seek a criminal indictment (the case had a troublesome vertical aspect) but I can recall many instances where a meeting with defense counsel caused us to tighten up a loose end, call another grand jury witness or otherwise sharpen our focus at trial. I also recall preindictment meetings where the government spoke, defense counsel listened and a preindictment plea agreement resulted.

The Leniency Policy Updates

            Another area where there is a frosty relationship between the defense bar and the Antitrust Division is the recent updates to the Corporate Leniency Policy. As mentioned, Donald Klawiter,[1] one of the most experienced and respected names in the antitrust bar, and someone who had several positions including management within the Antitrust Division during his career has written an outstanding article, A Really New Leniency Program: A Positive, Cooperative, and Enthusiastic Partnership for Effective Antitrust Enforcement, Antitrust, Vol. 36, No. 3, Summer 2022. Mr. Klawiter reports that, “There was an immediate outpouring of criticism from the Antitrust Criminal Defense Bar [to the April 4, 2022, “updates”], arguing that the Antitrust Division’s updated statements regarding promptness and restitution, as well as the rewritten FAQs, further complicated the leniency application and did not provide any sense of partnership or offer of collaboration.” Id. at 52. One of Klawiter’s recommendations going forward is for the Antitrust Division to consult with a diverse group of experienced members of the antitrust and white collar bar.

In all of the Antitrust Division’s explanations and commentary about the leniency “updates,” there is no reference to any consultation with the Antitrust Criminal Defense Bar, formally or informally. By contrast, there are several references to consultation with the Merger Defense Bar regarding revisions of the Merger Guidelines. This is a fundamental departure from the long history of cooperation and candid discussion between the Antitrust Division and the Antitrust Criminal Defense Bar. It is also a serious oversight, or snub, that is not at all helpful to future relationships between the Bar and the Antitrust Division.

There is a long and productive tradition of consultation between the Antitrust Division leadership and the leadership of the Antitrust Criminal Defense Bar. Unlike many other areas of practice, there has been an openness and trust between prosecutors and defense counsel that has developed over many, many years. This process is even more productive because a large percentage of today’s Antitrust Criminal Defense Bar either began their careers or spent several years as lawyers in the Antitrust Division. Id. at 56.

A Hope for the New DAAG (and anyone listening)

As the Antitrust Division selects a new Deputy Assistant Attorney General for Criminal Enforcement, my hope is that she/he will be an active listener and seek out a wide range of perspectives. Listening is an essential skill of an effective leader: “I remind myself every morning: Nothing I say this day will teach me anything. So if I’m going to learn, I must do it by listening.” Larry King. The wealth of experience in the antitrust bar is well worth listening to. Antitrust lawyers (at least all that I know) believe in the antitrust laws—particularly criminal enforcement against cartels. The cartel bar wants the Antitrust Division to be successful—just not against their client!

So, if you’re listening, I echo Mr. Klawiter’s call for more engagement with defense counsel. Assistant Attorney General Jonathan Kanter has stated numerous times that enforcers will not shy away from difficult cases. That attitude is to be applauded but does not preclude first listening to defense counsel tell you why your case (or policy) actually stinks. Consider what you’ve heard and then make the call– as you see fit.

******************

[1] Donald C. Klawiter is a partner at Sterlington, PLLC and has practiced antitrust criminal law for 47 years. He began his career at the Antitrust Division of the U.S. Department of Justice where he served in several trial and leadership positions. In 2005-2006, Mr. Klawiter had the honor to serve as Chair of the American Bar Association (ABA) Section of Antitrust Law. Prior to that, he served as Co-Chair of the Section’s Department of Justice (DOJ)/ABA Criminal Working Group, Co-Chair of the Section’s International Cartel Task Force, as well as organizer, co-chair, and speaker at the Section’s International Cartel Workshops from 1997 to 2018.

Thanks for reading.  If you have any feedback, I’m listening.

This post originally was published on the CartelCapers blog.

The post Listen…. appeared first on AntitrustConnect Blog.

At issue before the Supreme Court is a decision of the U.S. Court of Appeals in San Francisco, holding that a federal district court lacked jurisdiction to hear a constitutional challenge to the FTC Act while the administrative process over the consummated combination of Axon Enterprise, Inc., a manufacturer of tasers and body-worn cameras for law enforcement, and rival Vievu LLC, was pending. Simply put, Axon argues it should be permitted to pursue a federal court action against the agency without waiting for the administrative process to run its course, and the government takes the position that Axon should not.

What is at Stake?

If the Court were to rule against the FTC, the agency would be faced with collateral constitutional challenges to investigations and administrative processes in federal district court. Currently, these issues first must be addressed by an FTC administrative law judge, with an appeal to the five-member Commission, followed by federal appeals court review.

Opening the courthouse doors at the federal district court level to FTC respondents would have a major impact on both the competition and consumer protection missions at the FTC. With an opportunity to raise constitutional challenges in court up-front, targets might be less likely to settle FTC actions. Settlement often seems like the best option for respondents when they fear years of administrative litigation. Correspondingly, the FTC would face delays in pursuing its enforcement efforts and might be more reluctant to pursue Part 3 litigation.

Recent Supreme Court Setback for FTC

If the Supreme Court were to allow district court jurisdiction over constitutional claims by respondents in FTC actions, it would be the second major setback for the agency delivered by the Court in recent years. And that earlier case serves as an example of how a quick legislative “fix” for a Supreme Court decision curtailing enforcement authority is not guaranteed.

The Court’s decision to hear the Axon case follows an April 2021 decision restricting FTC enforcement powers. In AMG Capital Management, LLC v. FTC, the Court rejected the agency’s argument that it was authorized to obtain monetary relief directly from courts under Section 13(b) of the FTC Act. That case involved consumer protection claims; however, it has had an impact on the FTC’s competition mission as well.

Legislation, known as the proposed Consumer Protection Remedies Act of 2022 (H.R. 2668; S. 4145), is the intended fix to restore the FTC’s authority to go directly to federal courts to seek injunctions to obtain monetary compensation and other relief for consumers. Like the bulk of proposed antitrust legislation pending in Congress this term, the bill is stalled. The House version has passed that chamber; however, the Senate version remains pending. Senator Maria Cantwell (D., Wash.), chair of the Senate Committee on Commerce, Science, and Transportation, which oversees the FTC, continues to work to pass the measure. In the meantime, the FTC’s efforts to obtain disgorgement or restitution pursuant to Section 13(b) have been hobbled. Thus, a legislative fix to address collateral constitutional challenges against the FTC in federal district court is far from guaranteed.

Not Just the FTC—Related Supreme Court Case Involving Administrative Law

In addition to considering the administrative law issues raised in Axon in the context of the FTC, the High Court is taking up a similar question with respect to federal district court jurisdiction to consider Securities and Exchange Commission proceedings in Securities and Exchange Commission v. Cochran, Dkt. 21-1239. In that case, the Fifth Circuit, sitting en banc, held that the Securities Exchange Act of 1934 did not strip federal district courts of subject-matter jurisdiction to hear a constitutional challenge to SEC ALJ removal protections. The Fifth Circuit decision in Cochran v. SEC creates a circuit conflict with the Ninth Circuit decision in the Axon case. The government filed a petition for review in the Cochran case.

The question presented is whether a federal district court has jurisdiction to hear a suit in which the respondent in an ongoing SEC administrative proceeding seeks to enjoin that proceeding, based on an alleged constitutional defect in the statutory provisions that govern the removal of the administrative law judge (ALJ) who will conduct the proceeding.

The Court granted the petition in May 2022. In light of the overlapping issues with the Axon case, briefing was consolidated in both cases. There will be separate arguments, however. Arguments in both cases will be heard on November 7, 2022.

The Dispute Before the Court in the Axon Case

In January 2022, the Supreme Court agreed to take up the issue of whether federal district courts have jurisdiction over suits challenging the constitutionality of the FTC’s procedures and structure while an administrative action is pending. The underlying action was brought by taser/body-worn camera maker Axon. The company filed a federal district court action, seeking to block an FTC administrative action over the company’s acquisition of Vievu, described by Axon as “an essentially insolvent competitor.” Shortly after the company brought the federal district court action, the FTC announced an administrative complaint challenging the consummated acquisition. The district court dismissed Axon’s complaint for lack of subject matter jurisdiction, ruling that the FTC’s statutory scheme required Axon to raise its constitutional challenge first in the administrative proceeding. A divided Ninth Circuit panel affirmed, concluding that, although the FTC Act is silent on the subject, Congress impliedly stripped the district courts of jurisdiction to hear such cases and required parties to move forward first in the agency proceeding. Because Axon could raise its constitutional claims to the federal court of appeals if necessary, it would have meaningful judicial review of its claims under the Supreme Court’s decision in Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994), according to the Ninth Circuit. A dissent, on the other hand, took the position that “challenges to an agency’s structure, procedures, or existence, rather than to an agency’s adjudication of the merits on an individual case, may be heard by a district court.” A petition for rehearing en banc was denied.

Petition for review by the Supreme Court. In its petition for review, Axon raised two questions to the Supreme Court: (1) whether Congress impliedly stripped federal district courts of jurisdiction over constitutional challenges to the FTC’s structure, procedures, and existence by granting the courts of appeals jurisdiction to “affirm, enforce, modify, or set aside” the Commission’s cease-and-desist orders; and (2) whether the structure of the FTC, including the dual-layer for-cause removal protections afforded its ALJs is consistent with the Constitution.

Axon received support for its petition from friends-of-the-court, including the U.S. Chamber of Commerce, the Americans for Prosperity Foundation (AFPF), and the Washington Legal Foundation. According to the Chamber of Commerce, the “Petitioner is the tip of the iceberg of private litigants facing the prospect of having to endure unconstitutional FTC adjudicatory proceedings now just to obtain judicial review later.”

The appellate court departed from the plain text of the FTC Act, which provides for direct appellate court review for “an order of the Commission to cease and desist from using any method of competition or act or practice,” the AFPF contended. In addition, the advocacy group said the Ninth Circuit made the “all-too-common” mistake of “overreading” Thunder Basin.

The Washington Legal Foundation took the position that: “the Ninth Circuit’s decision … bars meaningful judicial review of Axon’s meritorious constitutional claims. It allows a non-Article III tribunal—the FTC—to decide this issue. That violates Article III’s clear command.”

Petition granted as to jurisdictional issue. The justices agreed to take up the first question only. With respect to the jurisdictional issue, Axon argues that it should be allowed to raise the question in federal court prior to the end of the administrative process because the FTC Act did not specifically exclude federal oversight of questions of the agency’s constitutionality. “When there is an ongoing, glaring violation of the Constitution of the kind Axon is enduring, only the clearest of textual prohibitions on judicial review could potentially preclude judicial review. Nothing in the FTC Act comes close,” the company argued.

In its brief, Axon contends that it faces the prospect of years of proceedings before “an unaccountable and unconstitutionally structured agency,” and that the primary adjudicator, the ALJ, is accountable to “neither the Federal Trade Commission (FTC) nor the President.” The company said that its transaction was subject to a “black-box system” in which some cases are reviewed pursuant to an FTC administrative process and some by the Department of Justice and federal courts. It suggests that the criteria for the sorting are unarticulated.

Additionally, Axon argues that Congress did not “consign [it] to suffer through an administrative proceeding overseen by unconstitutional actors” before it could challenge the FTC’s “structure, procedures, or existence.” Rather, Congress vested federal district courts with jurisdiction to resolve “unconstitutional actions before the damage is irreparably done.”

Axon points out that the FTC Act does not say anything about “divesting district courts of jurisdiction over constitutional challenges,” and that such a challenge to an agency existence is “not a challenge to a cease-and desist order.” These collateral claims are arguably not the type intended to be reviewed under the current statutory structure. According to Axon, “[s]tructural constitutional claims are the bread and butter of Article III courts, not Article II agencies.” Moreover, the FTC Act does not equip federal appellate courts with “the tools to address constitutional challenges to an agency’s structure, procedures, and existence.”

Government consolidated response. According to the consolidated response brief of the federal parties filed in August 2022 (filed pursuant to the decision to have consolidated briefing in the two cases), both the FTC Act and Securities Exchange Act set out detailed schemes for judicial review of orders issued by the commissions during administrative adjudications and neither Axon nor Cochran may “short-circuit the review schemes established by Congress” and evade those limits by suing the commissions in district court before agency proceedings conclude.

The government contends that this view is supported by both the express terms of the Administrative Procedure Act and by precedent. “Until the Fifth Circuit’s decision in Cochran, the courts of appeals had uniformly agreed that the FTC Act and Exchange Act preclude district-court review of ongoing FTC and SEC administrative proceedings,” it was argued. The government takes the position that the parties to the proceedings must seek judicial review in the courts of appeals following the conclusion of agency proceedings. One rationale for this is that allowing judicial intervention each time the Commission or an ALJ takes one of the “myriad preliminary steps on the way to a final order” would interfere with the orderly and efficient conduct of the proceeding. The government also rejects the petitioners’ arguments that their claims lie outside the Acts’ review schemes because they are challenging the lawfulness of the Commission proceedings themselves, which impose significant burdens on them that reviewing courts cannot undo once the proceedings conclude.

Axon reply. “Allowing unconstitutionally unaccountable agencies to exercise virtually unfettered power with little prospect of judicial review is a recipe for separation-of-powers disaster,” Axon contends in its reply brief. Axon notes the Commission’s winning record in administration litigation and says that the “decks are … heavily stacked in the FTC’s favor.” It points to resulting “lopsided settlements disconnected from the merits” in the face of FTC administrative litigation. The company adds that in negotiations with the FTC, the agency even rejected the company’s offer to walk away altogether from the supposedly offending transaction.

Axon goes on to say that “there is nothing to fear in allowing challenges like Axon’s to proceed in district court beyond a reaffirmation of the Framers’ vision.”

“If the current structures conform to the Framers’ design, then the courts will confirm as much, and the scope for further structural challenges will be minimal and manageable,” according to Axon. “But if the current structures are, in fact, unconstitutional, the governed deserve to know as much before they are forced to endure constitutional injuries before unconstitutional and unaccountable government officials.”

A friend-of-the-court brief offered by the American Antitrust Institute (AAI) questions Axon’s “zeal to impugn the agency with self-serving misrepresentations that further their strategic litigation objectives.” AAI seems to turn Axon’s argument back on the company. Axon argues that the current process allows the FTC to “draw out investigations and inflict mounting costs.” AAI takes the position that parties to a consummated merger like Axon would initiate district court proceedings if allowed in order to “delay enforcement proceedings and perpetuate what is an ongoing injury to the public but an ongoing profit center for the firms.”

Cochran reply in related SEC case. Michelle Cochran, petitioner in the related SEC action, took issue with the government’s justifications for denying district court jurisdiction. In that case, Cochran—a certified public accountant—was fined for violating the Exchange Act for failing to comply with auditing standards issued by the Public Company Accounting Oversight Board. Ultimately, the Fifth Circuit decided that a federal district court had jurisdiction to hear a constitutional challenge to SEC ALJ removal protections. In her reply brief, Cochran makes the simple argument that district courts have jurisdiction over all civil actions arising under the Constitution pursuant to 28 U.S.C. §1331, and the Exchange Act’s grant of jurisdiction to courts of appeals over final SEC orders does not strip district courts of the jurisdiction granted by Section 1331 over structural constitutional claims that are not tied to any final SEC order. Cochran goes on to say that the Supreme Court’s 2010 decision in Free Enterprise Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477—another implied preclusion case—“rejected the government’s argument that Section 78y [of the Securities Exchange Act] explicitly or implicitly ousts district courts of their jurisdiction over the kind of claims at issue here.” Cochran urges the Court to apply its reasoning in Free Enterprise Fund v. PCAOB to allow federal district courts to rule on the constitutionality question without first forcing the accused party to undergo the lengthy and expensive administrative process.

The Court is scheduled to hear arguments in both cases on November 7. A decision is anticipated to come some time in 2023 before the end of the Court’s current term.

Other Pending Supreme Court Petitions in Antitrust Cases

As the Court starts its new term, Axon v FTC is the only antitrust case currently scheduled to be heard. However, there are a handful of other petitions on the docket of interest to antitrust practitioners.

Standing to challenge National Football League team relocation. The City of Oakland asked the U.S. Supreme Court to consider a  decision of the U.S. Court of Appeals in San Francisco rejecting its antitrust claims against the Oakland Raiders football team on antitrust standing grounds. Oakland sued the Raiders, the National Football League, and the other 31 NFL teams for violating federal antitrust law in connection with the Raiders’ decision to move to Las Vegas and the NFL’s approval. Oakland alleged that the defendants created artificial scarcity in their product of NFL teams, and then used that scarcity to demand supracompetitive prices from host cities. When Oakland could not pay, defendants punished it by allowing the Raiders to move to Las Vegas. Oakland alleged that the defendants’ conduct was an unlawful horizontal price fixing scheme. The Ninth Circuit held that the city established Article III standing, but its price fixing claim failed for lack of antitrust standing.  Oakland’s injuries were less direct than those of actual purchasers, such as the cities of Las Vegas and Los Angeles, each of which recently acquired NFL teams, presumably by agreeing to supracompetitive prices, according to the appellate court. Further, the city’s contention that, in the absence of the defendants’ challenged practices, it would have retained the Raiders was deemed too speculative to establish antitrust standing. The question presented in the city’s petition for review is whether a court may deny a plaintiff with an antitrust injury proximately caused by a defendant’s antitrust violation a Clayton Act cause of action based on a multifactor, prudential balancing test of “antitrust standing.” The petition is City of Oakland v. Oakland Raiders, Dkt. 21-1243.

International comity considerations in the context of an alleged vitamin price fixing conspiracy. Vitamin C purchasers have asked the Supreme Court to review a decision of a divided U.S. Court of Appeals in New York City, rejecting an antitrust case against Chinese vitamin C manufacturers on international comity grounds. The vitamin C purchasers argue that the appeals court’s approach violated both Supreme Court precedent and the Court’s direct instructions. The appellate court concluded that the Chinese government required its manufacturers to collude on the export prices and quantities of Vitamin C, making it impossible for the manufacturers to comply with both Chinese regulations and U.S. antitrust law. In their petition for review, the purchasers have asked the Supreme Court to determine whether courts may reinterpret the same text of the Sherman Act case by case using a discretionary ten-factor balancing test under the doctrine of prescriptive comity, and whether a court interpreting the meaning of foreign law under Federal Rule of Civil Procedure 44.1 is limited to the “face” of written legal materials or may also consider evidence as to how foreign law is implemented and enforced that would be relevant to the interpretive inquiry in the foreign legal system.

The petitioners have the support of the U.S. Chamber of Commerce. According to the Chamber’s friend-of the-court brief, the Second Circuit erred in “subordinating the plain meaning of U.S. law to a policy-laden substantive canon largely of its own creation.” The Chamber of Commerce argues that the Second Circuit’s test was a departure from prior holdings on comity and would materially restrict the scope of substantive review that U.S. courts typically exercise when applying the doctrine. Therefore, the ruling threatens to upend many vital areas of law that call on courts to balance foreign and domestic interests under the rubric of international comity.

The petition is Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., Dkt. 21-1283.

The fate of these two petitions could come as early as the first Monday in October or shortly thereafter. Both petitions are set to be considered by the justices on September 28.

Challenge to multiple listing service rules. Word from the Court on whether it will take up an antitrust petition filed on September 27, 2022, by the National Association of Realtors (NAR) will come later in the term. The NAR, a trade association for real estate professionals, which establishes rules for multiple listing services (MLSs), seeks review of a decision of the U.S. Court of Appeals in San Francisco reviving an action brought by The PLS.Com, LLC. PLS challenges an NAR policy that required members of an NAR-affiliated MLS, who chose to list properties on the PLS real estate database, also to list those properties on an MLS. PLS, whose business model utilizes “pocket listings” in the home buying process and is purportedly harmed by the MLS rule, alleges that the policy effectuates a group boycott and thereby prevents PLS from entering the market for online real estate listings.

The NAR contends that the Ninth Circuit failed to follow the Supreme Court’s landmark decisions in Ohio v. American Express Co., 138 S. Ct. 2274 (2018) (“Amex”), and Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) (“Illinois Brick”), “sowing confusion and inviting future courts to ignore or misapply fundamental principles of antitrust law.” The petition asks: (1) whether courts, in defining the relevant antitrust market for a two-sided platform with indirect network effects, may simply elect not to analyze both sides of the market, notwithstanding this Court’s command that they “must” do so in Amex; and (2) whether a competitor can establish standing based on harm to alleged members of a conspiracy where Illinois Brick established the “indirect purchaser” rule such that the first party outside the conspiracy has standing to sue. The petition is National Assn. of Realtors v. The PLS.com, LLC, Dkt. 22-289.

Court watchers waiting for a decision in the Axon case can expect more antitrust questions to be raised to the Court over the course of its October 2022 term.

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There are likely numerous reasons that international cartel cases have seemingly disappeared from the scene. First, let’s give credit to good old fashion deterrence. By now, would-be cartelists must know that the odds of getting caught have increased (thanks to international cooperation). Most importantly for executives, the odds of going to jail have increased and, if you’re a foreign executive, the odds of having a very unpleasant extradition experience have also increased. Word gets around (“Hey, did you hear who is going to jail?”). Many hopefully, have taken that wise antitrust counsel: KNOCK IT OFF!

But it is unlikely international cartels have been completely eliminated. Effective law enforcement results in another option besides ceasing cartel conduct; being much more careful about it. Gone are the days [mostly] of explicit emails setting up cartel meetings, detailed score sheets of everyone’s volume and prices and other explicit “delete after reading” emails that are not deleted. This has made detection of cartels more difficult, both for the Antitrust Division and company counsel who may have reason to suspect collusion but perhaps today don’t have the “hot documents” binder to deliver to the Antitrust Division. Without solid documentary evidence supporting witness testimony regarding a cartel, the dance between defense counsel and the Antitrust Division for leniency becomes more difficult, very lengthy, possibly contentious and ultimately, in some counsel’s view, a risk not worth taking. There’s much more that can be said about why leniencies in international cartel cases, and overall, have diminished, but that’s not the topic of this article. The plea here is that it is time, and it has been time, to add another powerful weapon to the DOJ’s arsenal for deterring, detecting and prosecuting criminal antitrust violations—a criminal antitrust whistleblower statute.

I’ve written quite a bit about the benefit of a criminal antitrust whistleblower statute.  See e.g., Another Post About Whistleblowers and Criminal Antitrust Enforcement, Cartel Capers, February 18, 2021; Benefits of A Criminal Antitrust Whistleblower Statute, Cartel Capers, June 20, 2018; It’s A Crime There Isn’t A Criminal Antitrust Whistleblower Statute, Robert Connolly and Kimberly Justice, April 5, 2018. I won’t restate my arguments except to repeat my favorite quote from Not Crazy Anymore–Crazy Eddie:

In the two decades I was deeply involved in the Crazy Eddie fraud, the only threat made us lose sleep at night was the possibility of a whistleblower blowing the lid on our crimes. Consistent studies by the Association of Certified Fraud Examiners have shown that most frauds are exposed by whistleblowers, far ahead of frauds exposed by any other source. The SEC will be handing a gift to white-collar criminals if it reduces whistleblower bounties. —-  Sam E. Antar, Former Crazy Eddie CFO, former CPA, and a convicted felon.

https://www.wsj.com/articles/sec-proposes-whistleblower-awards-for-smaller-cases-1530212390

Of course, one whistleblower is not going to make a cartel case. But a cartel-insider whistleblower may provide the basis for consensual monitoring, search warrants and other aggressive investigatory tactics that often induce others to come forward. Search warrants/dawn raids are often the catalyst for the old-fashion rush to be first in line for corporate leniency.

The Antitrust Division is a bit of an outlier in trying to detect and prosecute secret fraudulent agreements without the benefit of a whistleblower statute. The SEC, IRS and CFTC all have whistleblower rewards programs which have become hugely successful. Each of these programs is open to and have benefitted from non-US citizen whistleblowers. International cartels typically have many “potential” whistleblowers, from the most senior executives down to regional managers. Or, to use the language of some cartels “top guys” and “working level” conspirators. Perhaps there could be a whistleblower in this large pool?

Senator Amy Klobuchar has already proposed criminal antitrust whistleblower legislation.  (here)

(b) Whistleblower Reward.—The Antitrust Criminal Penalty Enhancement and Reform Act of 2004 is amended by inserting after section 216 the following:

“SEC. 217.CRIMINAL ANTITRUST WHISTLEBLOWER INCENTIVES.

This proposed legislation is a part of a much more expansive package entitled S.225 – Competition and Antitrust Law Enforcement Reform Act of 2021 which deals with many contentious issues such as merger reform, burdens of proof, market definition, etc. The criminal whistleblower piece of the legislation will never see the light of day unless it is broken out and pushed as a stand-alone bill. As such, it may receive strong bipartisan support. Criminal antitrust enforcement has generally had bipartisan backing and the international cartel lobby is non-existent.

The Senate is currently considering the American Innovation and Choice Online Act that “would bar the companies [Big Tech] from prioritizing their own services over those of their rivals.”  See, N.Y. Times, Clock Running Out on Antitrust Bill Targeting Big Tech–A sweeping bill that would enact the strongest restrictions on Big Tech companies in the United States has been stalled in the Senate, by David McCabe and Stephanie Lai, August 5, 2022. Whatever the fate of this controversial bill, perhaps the criminal antitrust whistleblower statute could be low hanging fruit that all parties can get behind to add another important cartel busting tool to the Antitrust Division’s arsenal. The revised leniency program revolutionized criminal antitrust enforcement in 1993. Could a criminal antitrust whistleblower statute do the same? Let’s find out, please.

Bob Connolly  bob@reconnollylaw.com

This post originally appeared on the CartelCapers blog.

The post It’s Time For A Criminal Antitrust Whistleblower Statute (It Was Time Last Year And The Year Before Too) appeared first on AntitrustConnect Blog.

In one per se challenge before the Ninth Circuit a panel member was sympathetic to defendants’ position and noted: “I think if it’s going to get straightened out [whether the per se rule is constitutional] it’s going to have to require an en banc panel of this court or more likely the Supreme Court itself.” Joshua Sisco, Mlex, January 16, 2019 “In foreclosure auction appeal, court questions applicability of per se standard, (behind pay firewall)].  The Ninth Circuit turned back the per se challenge in that appeal and Supreme Court denied certiorari. Sanchez et al. v. United States,140 S. Ct. 2655 (2020)(cert petition denied, January 13, 2020).  Just recently the Supreme Court had another chance to review the constitutionality of the per se rule in a criminal antitrust case.  Christopher Lischewski was convicted at trial of conspiring to fix the price of canned tuna.  Lischewski preserved his objection to the per se rule in his trial; his appeal was denied by the Ninth Circuit and he filed a petition for cert with the Supreme Court. The Supreme Court again denied a cert petition challenging the constitutionality of the per se rule in a criminal trial.  Lischewski v. United States, No. 21-852 (May 2, 2022).  The per se rule lives!

More challenges lie ahead, however, for the per se rule.  On May 2, 2022 the Second Circuit released an opinion rejecting yet another challenge to the per se rule. U.S. v Aiyer, Case No. 20-3594 (2d Cir. May 02, 2022). Aiyer was convicted after trial for his participation in a conspiracy to fix prices and rig bids in connection with his trading activity in the foreign currency exchange market. The Second Circuit rejected various challenges Aiyer raised to the use of the per se rule in his criminal trial. As other defendants have, Aiyer argued that when the judge instructs the jury that the alleged agreement, if found, is a per se violation of the Sherman Act, the court takes away from the jury an element of the offense, namely whether the alleged agreement restrained trade.  Aiyer also argued that the trial court, citing the per se rule, impermissibly prohibited him from offering evidence of the procompetitive effects of the alleged agreement.

It seems likely defendant Aiyer will file a cert petition with the Supreme Court.  What are the odds the Court will review the per se rule in Aiyer’s case?  Not good I would imagine with the Court having recently rejected two similar cert petitions.  The best chance Aiyer may have for a grant of cert is that, without going into details, the FOREX market is more complicated than the real estate auction bid rigging conviction that was the subject of the cert petition in Sanchez or the garden variety price fixing agreement that was the subject of the Lischewski cert petition.

A defendant never wants to be in a position of seeking a cert petition with the Supreme Court because, first you have to get convicted in the trial court and then lose your appeal.  Many people think that labor market collusion cases may be the most likely vehicle for Supreme Court to revisit the per se rule, but so far the Antitrust Division is 0 for 2 in labor market collusion trials.  But there are more labor market collusion cases on the way so perhaps the United States will score a conviction and a case will make its way to the Supreme Court.

While losing at trial, the Antitrust Division has won judicial rulings upholding the per se rule in their first wage-fixing and labor allocation cases.  In those cases the challenges to the per se rule was focused more on an argument that the conduct in question was not the type with which the courts had sufficient experience and, thus, the per se rule should not apply.  The courts rejected those arguments, in essence holding that while they may not have had experience with labor market collusion cases, the types of agreements alleged in the indictments were agreements the court had sufficient experience with to treat them as per se violation.  Curiously enough, this line of reasoning highlights what I consider to be the constitutional flaw with the per se rule in criminal cases.  The courts are making fact-finding decisions in determining whether they have enough experience with a given type of agreement to label it as per se violation i.e. “always or almost always an unreasonable restraint of trade.”  In some opinions, we see the court deferring a ruling on whether the per se rule applies until there is further factual development in the case.  Courts are clearly making factual determinations about whether the per se rules applies-i.e., whether the alleged agreement violates the Sherman Act as a matter of law.  In 30 plus years of prosecuting criminal antitrust cases I never questioned the per se rule.  But now I find myself asking, “Shouldn’t the jury always be making the decision of whether the agreement in question is a restraint of trade?”  It shouldn’t matter how much experience a court has with a particular type of restraint and/or how comfortable the court is that the charged agreement is a per se violation in a criminal case the jury, and only the jury, should decide whether the agreement in question (if proven) is a restraint of trade. (After all, the Supreme Court has changed its mind many times regarding what constitutes a per se Sherman Act violation. See e.g. Dr. Miles, etc.)

In opposing cert petitions challenging the per se rule, The Department of Justice effectively cites decades of per se rule precedent at every level of the federal courts. The DOJ cert opposition can be summarized: “Nothing to see here; nothing has changed.”  But things have changed.  The per se rule was created by the Supreme Court at a time when the Sherman Act was a misdemeanor and before the Supreme Court began to focus on requiring prosecutors to prove every element of the offense.  In the 1940 case of United States v. Socony Vacuum Oil Co.,[1] the individual defendants were fined $1,000.[2] As was customary for this then misdemeanor, no jail sentences were imposed.  Compare Socony Vacuum to Sherman Act as a felony: In 2014, Romano Pisciotti, an Italian citizen, was indicted under seal for violating Section One of the Sherman Act,[3] seized by Interpol while changing planes in Germany
[4] and eventually extradited to the United States.[5] Even before conviction:

Romano Pisciotti spent 669 days in custody. This included two hours in a police station in Lugano, Switzerland; 10 months in a jail in Frankfurt, Germany fighting extradition [on a Sherman Act indictment]; and eight months in a US federal prison in Folkston, Georgia, in a room with around 40 mainly Mexican inmates and a single corner toilet.” [6]

Times have changed.[7] Fines have taken off as well. The largest corporate fine in Socony Vacuum was $5,000.  The largest corporate fine today stands at $925 million![8] The per se rule remains undefeated in taking on all challenges and perhaps will remain so.  But the challenges will keep coming.  criminal antitrust cases, however, has remained in place against all challenges.

Thanks for reading.   Bob Connolly  bob@reconnollylaw.com

PS.   If I am wrong, (it happens), and the per se rule is never found to be unconstitutional, this is a good issue to be wrong about.  After all, cartels are “the supreme evil of antitrust.”  It says so on my blog mast head and the Supreme Court has said so too.  Verizon Communications v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004). I don’t think juries would have any difficulty finding hard core cartels are a restraint of trade, but nonetheless, the per se rule is a prosecutor’s best friend.

This post originally appeared on the CartelCapers blog.
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[1] United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940).

[2] See Daniel A. Crane, The Story of United States v. Socony-Vacuum: Hot Oil and Antitrust in the Two New Deals, in ANTITRUST STORIES 107 (Eleanor M. Fox & Daniel A. Crane eds., 2007).

[3] https://www.justice.gov/atr/case-document/file/507556/download  On March 28, 2011 Pisciotti was indicted under seal for violating Section One of the Sherman Act.

[4] Lewis Crofts and Leah Nylen, December 9, 2015, Mlex Interview with Romano Pisciotti, available at https://mlexmarketinsight.com/insights-center/reports/interview-with-Romano-Pisciotti,  see also, Gianni De Stefano, Meet the First Extradited Businessman on Cartel Charges, 8 J.E.C.L. & Pract. 5 (2017), available at https://academic.oup.com/jeclap/article/8/5/281/3074470.

[5] Lewis Crofts and Leah Nylen, December 9, 2015, Mlex Interview with Romano Pisciotti, available at https://mlexmarketinsight.com/insights-center/reports/interview-with-Romano-Pisciotti,

[6] Id.  See also See Plea Agreement with Roman Pisciotti, https://www.justice.gov/atr/case-document/file/507541/download, which was discussed by Renata Hess in her remarks. See also Remarks of Renata Hess,  https://www.justice.gov/opa/speech/acting-assistant-attorney-general-renata-hesse-antitrust-division-delivers-remarks.

[7] The increases took place in the context of the Sherman Act being elevated from a misdemeanor to a felony in 1974.  In 1994 there was an even more significant enhancement to criminal penalties, including a maximum jail sentence of 10 years.

[8] See SHERMAN ACT VIOLATIONS RESULTING IN CRIMINAL FINES & PENALTIES OF $10 MILLION OR MORE, available at https://www.justice.gov/atr/sherman-act-violations-yielding-corporate-fine-10-million-or-more.

The post Per Se Rule: “I’m Still Standing (Yeah yeah yeah!)” appeared first on AntitrustConnect Blog.

First, there have been a number of Supreme Court cases where the constitutional rights of criminal defendants have been strengthened/upheld. In Hemphill v. New York, No. 20-637 (January 20, 2022) the Supreme Court upheld a criminal defendant’s right to cross-examine a prosecution witness, overturning the conviction of a man who was found guilty of killing a 2-year-old boy. The defendant, Hemphill, had claimed that another man was the gunman in the stray bullet shooting. Prosecutors read to the jury the transcript testimony of this man, an unavailable witness, over the hearsay objection of the defendant. The testimony was portions of the plea allocution of the unavailable witness to possession of a gun different than the murder weapon. The Supreme Court ruled that this evidence was improperly admitted as a hearsay exception and reversed the conviction.

Another recent case is Van Buren v. United States, 141 S. Ct. 1648 (2021). In Van Buren the Court adopted a narrow reading of the Computer Fraud and Abuse Act statute and concluded that it was not violated when the defendant had legitimate access to a police database but improperly accessed it for personal purposes. The Court relied primarily on the text of the statute, particularly the definition of “exceeds authorized access.” The majority found that Van Buren was authorized to access the material he obtained and in the manner that he obtained it. He did access the information for an improper purpose but his conduct did not fall within the prohibition of the text of the statute.

Petition for Certiorari of Christopher Lischewski Challenging the Per Se Rule

Hemphill, Van Buren and other cases[1] addressing defendants’ constitutional rights have nothing to do with the per se rule. There is, however, a petition for cert before the Supreme Court challenging the per se rule application in a criminal antitrust case. On December 6, 2021, Christopher Lischewski filed a petition for a writ of certiorari. Lischewski v. United States, __U.S.__ , case no. 20-10211(December 8, 2021). Lischewski was convicted of orchestrating and participating in a conspiracy to fix the price of tuna. The jury had been given a typical per se charge:

Conspiracies to fix prices are deemed to be unreasonable restraints of trade and therefore illegal, without consideration of the precise harm they have caused or any business justification for their use.

Therefore, if you find that the government has met its burden with respect to each of the elements of the charged offense, you need not be concerned with whether the agreement was reasonable or unreasonable, the justifications for the agreement, or the harm, if any, done by it. It is not a defense that the parties may have acted with good motives, or may have thought that what they were doing was legal, or that the conspiracy may have had some good results. If there was, in fact, a conspiracy to fix the prices for canned tuna as alleged, it was illegal.[2]

The “Question Presented” in Lischewski’s petition is: “…whether the operation of the per se rule in criminal antitrust cases violates the constitutional principle that every element of an offense must be submitted to a jury and proven beyond a reasonable doubt.”

On December 17, 2021, the Government filed a notice stating, “The Government hereby waives its right to file a response to the petition in this case, unless requested to do so by the Court.”  The Court replied on December 29, 2021: “Response requested.” The government’s response is due February 28, 2022. It seems interesting that the Court requested a response from the government. Does that mean that the Court may give serious consideration to granting the petition? Or that the petition caught the eye of one or more Justice? Seems so, but I don’t know. If anyone who has some expertise in this area would care to comment that would be much appreciated. 

The Supreme Court has recently denied cert in a previous appeal from the Ninth Circuit regarding the per se rule. Sanchez v. United States, case 19-288, (January 13, 2020)(cert. denied). Sanchez involved a conviction for bid rigging at public auctions. Nonetheless, defendants have continued to raise and preserve constitutional objections to the per se rule in virtually (and perhaps every) current criminal price-fixing/bid rigging/market allocation case being prosecuted by the Antitrust Division. It is time for the Supreme Court to weigh in on this issue. As one Ninth Circuit judge said: I think if it’s going to get straightened out [whether the per se rule is constitutional in a criminal case] it’s going to have to require either an en banc panel of this court or more likely the Supreme Court itself.”[3]

What if the Per Se Rule Is Struck Down?

 Cartels are the supreme evil of antitrust. It says so on my blog masthead–and Justice Scalia said it first in Verizon v. Trinko, 540 U.S. 398, 408 (2004). But a robust criminal enforcement program is not as reliant on a per se rule as many think. When the government charges cartel behavior such as price fixing or bid rigging the case almost always involves secrecy, code names, covert meetings, document destruction and other fraudulent activity. The Lischewski indictment, for example, alleged the conspirators:

employed measures to conceal their conduct, including, but not limited to, using code when referring to coconspirators, meeting at offsite locations to avoid detection, limiting distribution and discouraging retention of documents reflecting conspiratorial contacts, and providing misleading justifications for prices.

US v. Lischewski, Indictment, Paragraph 10 H, Case 3:18-cr-00203-RS, filed 05/16/18 (N.D. Cal). To raise a defense that an agreement was “pro-competitive” a defendant would first have to admit that there was an agreement that he/she knew about and participated in. As a prosecutor, if you get that admission you are already rounding third base and on your way to home.  Also, eliminating the per se rule does not eliminate the Federal Rules of Evidence.  The evidence relevant to a price fixing trial need not be as expansive as the evidence relevant in a monopolization case.

There may be some cases where, without a per se rule, the government may have great difficulty proving an unreasonable restraint beyond a reasonable doubt. Perhaps those cases should not be brought as criminal cases. The per se rule was created by the Supreme Court when price fixing was a misdemeanor and there was no realistic threat of an individual going to jail. Today, the Sherman Act has a maximum penalty for an individual of 10 years in prison, which the Antitrust Division has actually sought. When lobbying Congress to pass a 10-year maximum prison sentence, the DOJ leadership stated: “the [criminal] cases that we are charging, and prosecuting are unmistakable fraud.”[4]  As long as the Antitrust Division remains faithful to that pledge, the lack of a per se rule should not deter the prosecution of hard-core cartels.

Thanks for reading.  Bob Connolly   bob@reconnollylaw.com

This post originally appeared on the CartelCapers blog.

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[1] See generally, Joseph Mark Stern, Sotomayor and Gorsuch Resume Their Fight for the Future of the Sixth Amendment, Slate, January 7, 2019, available at. https://slate.com/news-and-politics/2019/01/sotomayor-gorsuch-supreme-court-dissent-criminal-restitution.html;  see also Mark Joseph Stern, “Neil Gorsuch and Sonia Sotomayor Team Up to Protect Criminal Defendants,” Slate November 19, 2018.  available at https://slate.com/news-and-politics/2018/11/neil-gorsuch-sonia-sotomayor-sixth-amendment-dissent.html.

[2]  As an aside, doesn’t it seem a bit odd that for a felony that carries a maximum penally of 10 years in jail, the jury is instructed that good motives and even good results are irrelevant?

[3]  Mlex, Joshua Sisco, January 16, 2019 “In foreclosure auction appeal, court questions applicability of per se standard, (protected by firewall).

[4]   Scott D. Hammond, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Transcript of Testimony Before the United States Sentencing Commission Concerning Proposed 2005 Amendments to Section 2R1.1 at 3 (Apr. 12, 2005), available at http://www.justice.gov/atr/public/ testimony/209071.pdf.

The post Will the Supreme Court Grant Certiorari and Review the Per Se Rule? appeared first on AntitrustConnect Blog.

While calls for antitrust reform and tougher antitrust enforcement have been heard for years in Washington, D.C., these pleas grew ever louder in 2021. With the new Biden Administration picks to head the Department of Justice Antitrust Division and Federal Trade Commission settling in, policy changes are being made and new priorities are being identified at the federal antitrust agencies. The White House even issued an executive order on promoting competition. But on Capitol Hill, Democratic lawmakers, in some cases joined by their colleagues across the aisle, are moving to make more lasting, structural changes to antitrust law. With the Democrats—for the most part—leading the charge in control of both houses of Congress and the White House, 2022 may see passage of a legislative package that has a lasting impact on the future of antitrust law.

Concerns about the accumulation of monopoly power and allegations of anticompetitive conduct by the tech giants have fueled the movement. Many of the concerns are memorialized in a 2020 staff report of the House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law, titled Investigation of Competition in Digital Markets. The report detailed the findings of a 16-month-long investigation and called for strengthening antitrust enforcement. A number of the legislative proposals are outgrowths of this study.

Both Democratic and Republican lawmakers have couched their calls for reform in terms of addressing the tech sector abuses. It is not necessarily a Democratic or Republican issue. Notably, the high-profile antitrust cases brought by the Antitrust Division against Google and the FTC against Facebook were filed during the Trump Administration. However, there remains opposition from some lawmakers who continue to argue that the current antitrust laws adequately address anticompetitive conduct and acquisitions by powerful companies. Republican lawmakers have expressed concern that the FTC in particular, under new Chair Lina Khan, is moving too quickly and in a partisan fashion to “advance the White House’s partisan progressive agenda.” In response, legislation has been introduced in an effort to avoid radical changes to antitrust law and agency procedure.

As with most legislation, there are proponents and opponents. Many bills have already been reported favorably by the House Judiciary Committee. The Senate has been slower to advance these measures, and it is likely where these proposals could be stymied.

The bills impacting antitrust run the gamut from encouraging enforcement through increased funding measures to making technical changes to the Clayton Act, Sherman Act, and FTC Act to address conduct by large tech platforms.

Click here to read the full article, including a chart a chart listing the legislation by status.

The post Will 2022 be the year in which antitrust reforms become law? appeared first on AntitrustConnect Blog.

The indictment charges Neeraj Jindal, the former owner of a physical therapist staffing company, and John Rodgers an ex-director of the company, with a per se Sherman Act violation by agreeing to fix the wages paid to physical therapists and therapist assistants in the Dallas-Fort Worth area.

Judge Mazzant wrote a thoroughly researched and well-reasoned opinion finding that the per se rule applied to an agreement to fix wages. The opinion dealt with number of issues raised but in this blog post I discuss two important aspects of the Court’s ruling. The full opinion is well worth reading (here).

The Per Se Rule Applies to Buyers as Well as Sellers

Judge Mazzant recognized that the facts of the case were unusual.  This was the first ever criminal wage fixing case brought by the Antitrust Division. Price-fixing cases nearly always involve the sale of good with the restraint resulting in increased prices for consumers.  A successful wage-fixing conspiracy could arguably reduce the price paid by consumers–if the savings in suppressed wages was passed on. Nonetheless, the Court found that “[J]ust because the typical price-fixing conspiracy involves certain hallmarks does not mean that other less prevalent forms of price-fixing agreements are not likewise unlawful.”  The Court noted that price-fixing agreements among buyers have been condemned as per se violations citing Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 235 (1948)(“It is clear that the agreement is the sort of combination condemned by the Act, even though the price-fixing was by purchasers, and the persons specially injured . . . are sellers, not customers or consumers.”) and Nat’l Macaroni Mfrs. Ass’n v. Fed. Trade Comm’n., 345 F.2d 421, 426–27 (7th Cir. 1995)(finding a price-fixing agreement among manufacturers to standardize the composition of their product in an effort to depress the price of an essential raw material to be illegal per se).

The Per Se Rule Covers All Price Fixing Schemes Even If it Is The First Time an Industry Has Been Targeted.

The defendants also argued that the per se rule applies only after the courts have had enough experience with a particular restraint to find that it always or almost always would restrain trade and since this was the first ever wage-fixing case, that threshold was not met here.  “Defendants contend that agreements are deemed unlawful per se “only after courts have had considerable experience with the type of restraint at issue” (Dkt. #36 at p. 10)(quoting Leegin, 551 U.S. at 886).”  The Court wrote that judicial experience is needed to create a new per se rule, “Judicial experience informs the decision to recognize a “new per se rule.”  But price-fixing is not a new per se rule and judicial experience is not needed in every industry before applying the established per se rule against price-fixing to a new form. (“As courts have recognized, price-fixing agreements come in many forms.”).  After surveying many cases Judge Mazzant wrote:

“the definition of horizontal price-fixing agreements cuts broadly. As such, any naked agreement among competitors—whether by sellers or buyers—that fixes components that affect price meets the definition of a horizontal price-fixing agreement. See Socony-Vacuum, 310 U.S. at 221.”

The Court concluded, “The indictment thus alleges a naked price-fixing conspiracy among buyers in the labor market to fix the pay rates” and “As such, the indictment describes a price-fixing conspiracy that is per se unlawful.”

Judge Mazzant also quoted higher authority, Justice Kavanaugh, who wrote in his concurrence in National Collegiate Athletic Ass’n v. Alston, 141 S. Ct. 2141 (2021): “Price-fixing labor is price-fixing labor. And price-fixing labor is ordinarily a textbook antitrust problem because it extinguishes the free market in which individuals can otherwise obtain fair compensation for their work.” Id. at 2167–68 (Kavanaugh, J., concurring) (citations omitted).

I wholeheartedly agree with Justice Kavanaugh and Judge Mazzant.  In an earlier blog post I wrote:

“Labor is an input for making any product. Businesses can’t collude with competitors about the price they will pay for inputs to make a product or to allocate suppliers.  Think about a company that produces widgets.  This widget requires copper wire, glass products, machinery and labor.  It seems obvious (hopefully) that an executive in one company cannot call a competitor and say, “Let’s agree to not pay any more than X for the copper?”  Or “If you don’t solicit quotes from my supplier, I won’t from yours.”  Labor is also an input.  Why would it be OK to call a competitor and say, “Let’s agree not to pay any more than X per hour” for the input of labor?”  http://cartelcapers.com/blog/prosecutors-focus-on-labor-market-collusion-sharpens-the-need-for-compliance-training/,  November 15, 2021.

Will There Problems With the Per Se Rule Down the Road? (Or In the Supreme Court?)

While I agree that the per se rule applies to labor markets with the same force (and exceptions for ancillary agreements) as it does to other markets, there are two points of blackletter law relied on in Judge Mazzant’s opinion that I believe may eventually be overturned by the Supreme Court and lead to the ultimate demise of the per se rule in any criminal antitrust cases.

The Court As Fact Finder On An Element Of the Offense

Judge Mazzant correctly noted that, “Whether the allegations in an Indictment constitute a per se violation is a legal question for the court.”  But under the per se rule the court is the finder of fact on an element of the offense: whether the agreement constituted a “restraint of trade” beyond a reasonable doubt.  I doubt, under current Supreme Court jurisprudence, whether the court can do that.  It reminds me of a case when I was Chief of the Antitrust Division’s Philadelphia Field Office.  We prosecuted and convicted a defendant for making a false statement.  The trial court, as every court before it had done, found that the “materiality” element of the statement/offense was an issue for the court to decide.  The  conviction was overturned as a companion case to United States v. Gaudin, 115 S.Ct. 2310 (1995), where the Supreme Court reversed long standing precedent and held that materiality is an issue to be determined by the jury. The Supreme Court explained that if materiality is an element of the offense, that element must be submitted to the jury, and the jury must find materiality beyond a reasonable doubt to convict.  Whether an agreement constitutes a “restraint of trade” is an element of the Sherman Act (indeed the very conduct Section One condemns) so it follows that a jury must make that finding.  Reading Judge Mazzant’s correct statement, that whether the per se rule applies is a matter of law, gives me a flashback to how surprised we were (but ultimately agreed) when the Supreme Court ruled in Gaudin.  Is the antitrust bar in for a big surprise if the per se rule challenges ever reach the Supreme Court?

Did the Sherman Act or the Supreme Court Create the Per Se Rule?

Judge Mazzant also correctly notes that under current jurisprudence the Supreme Court has created two substantive rule for analyzing restraints of trade: the per se rule and the rule of reason. (“In determining whether a restraint is unreasonable, and thus unlawful, courts use one of two rules of decision [per se and rule of reason].”). This is another passage I’ve read hundreds of times as a prosecutor and never had pause–it is, after all, blackletter law. But can the Supreme Court do that?  Well, they did.  But will the current Supreme Court have a different view?

One problem with having a per se rule and rule of reason may be that a textualist Supreme Court may fail to see those words in the text of Section One of the Sherman Act. Do these three words “restraint of trade” set forth a per se rule and/or a rule of reason? That’s a curious and expansive way to read “restraint of trade” and not one to be found in any dictionary.  Could it be that in a criminal antitrust case, the proper interpretation of the Sherman Act Section One would be to put it to the jury whether the restraint alleged existed and whether it was a restraint of trade?[1]  And if the Supreme Court created the two substantive rules, (per se and rule of reason), is that not judicial legislation?  Justice Gorsuch Justice wrote in one of his last opinions while on the 10th Circuit Court of Appeals, explaining  the court’s job: “[I]t is (or should be) emphatically to apply, not rewrite, the law enacted by the people’s representatives.”  A.M. ex rel. FM v. Holmes, 830 F.3d 1123, 1170 (10th Cir. 2016).  How then might a court apply the Sherman Act as written.  I believe that in every Sherman Act Section One indictment, the question should be put to the jury “Is the agreement [if you find one] a restraint of trade?”  This does not mean every criminal trial will be a wide open for requiring evidence of product market, market power, etc.  Instead the concepts of per se, quick look and rule of reason are not substantive rules, but are guideposts under the Federal Rule of Evidence 401 and 403 of what is relevant evidence given the particular charge in the case.

Congress, of course, could amend the Sherman Act to actually say, “Price fixing, bid rigging and market allocation are per se illegal.”  Condemning price-fixing is still among a shrinking number of policies that have bipartisan support.

Challenges to the per se rule have appeared in various forms in almost every recent criminal antitrust case.  Lower courts will almost certainly continue to bat down these challenges with ample precedent, including, of course, Supreme Court precedent establishing the per se rule.  At oral argument in the Ninth Circuit on a per se challenge one panelist commented, “I think if it’s going to get straightened out [whether the per se rule is constitutional] it’s going to have to require an en banc panel of this court or more likely the Supreme Court itself.”  I have written before about what I perceive to be fatal flaws in the use of the per se rule in criminal antitrust cases, see e.g., The End is Near For the Per Se Rule in Criminal Sherman Act Cases, April 2019, and since then, in numerous blog posts.  I am hoping to revise my writing on this issue with some new thoughts and discussion of recent cases.

I would be most grateful if anyone cares to give feedback from “Connolly, you’re an idiot” to “Have you thought about…”  Please contact me if you’d like to discuss.  bob@reconnollylaw.com (215) 219-4418.

Thanks for reading. 

This post originally appeared on the CartelCapers blog.

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[1]   From watching television shows  about UFO’s and aliens, I’ve learned a good way to hedge your bets is with statements like “Could it be…?” “Some people say….” ”Is it possible?,” etc.

The post District Court Finds Antitrust Division’s First Wage Fixing Indictment Alleges a Per Se Violation appeared first on AntitrustConnect Blog.

The focus on labor market collusion is not a passing interest of the Antitrust Division.  On October 1, 2021, Acting Assistant Attorney General Richard A. Powers of the Antitrust Division spoke about the history of and commitment to enforcing the antitrust laws, including criminal enforcement, in labor markets:

If it was important for enforcers to protect competition in labor markets decades ago — and I believe it was — it is essential now.”  [Powers added:] “Importantly, criminal prosecution of labor market conspiracies is the tip of the spear; the Division’s focus on labor markets extends beyond its cartel program. The Division is also committed to using its civil authority to detect, investigate, and challenge anticompetitive non-compete agreements, mergers that create or enhance monopsony power in labor markets, the unilateral exercise of monopsony power, and information sharing by employers.

The speech can be found (here). The FTC and States have also been active in bringing civil cases challenging “no-poach” labor agreements.  Finally, enforcers around the globe have also been making labor market collusion investigations a top priority.  Recently EU Competition Commissioner Margrethe Vestager emphasized the EU focus on competition in labor markets due to “no-poach” deals.  Vestager said individuals are negatively effected “when companies collude to fix the wages they pay or when they use so-called ‘no-poach’ agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best.”  See EU’s Vestager warns of more anti-cartel raids, criticises ‘no-poach’ deals,  Reuters, By Foo Yun Chee, October 22, 2021.  A list of various foreign enforcers’ cases involving labor market collusion can be found in Mr. Powers’ speech.

Education on Labor Market Collusion Should be a Top Priority for Compliance Training

In the criminal labor market collusion cases the Antitrust Division has recently filed, the parties are “duking it out” as to whether the labor market agreements fall within the per se rule or should be judged by the rule of reason.  There are skilled lawyers on both sides of the issue and it will be fascinating to see how the cases turn out.  My own view is that, while I think applying the per se rule in criminal antitrust cases is unconstitutional, see Cartel Capers, Supreme Court Review Sought for Per Se Rule in Criminal Cases, as long as there is a per se rule, [and there is], the same rules should apply to labor/wages.  But, whether a case is per se criminal case or a rule of reason civil case seeking damages, there are good reasons to educate executives involved in the hiring/personnel decisions to try to avoid any litigation.

Benefits of Compliance Training for Labor Market Collusion

•  AVOIDING LITIGATION

The number of actions brought by enforcers at every level indicates that there has been a serious deficiency in compliance training.  It has only been since late 2016 that the Antitrust Division has stated that it would treat naked price fixing and “no-poach agreements as criminal violations.  It would be possible, therefore, that this “side of the house” may have been neglected or underrepresented in whatever compliance training may have been provided.  It appears labor market agreements among competitors developed and some at least are seemingly ongoing.

• COMPLIANCE CREDIT

The Department of Justice and the Antitrust Division give credit for compliance programs that meet certain criteria  See U.S. DEP’T JUSTICE, CRIMINAL DIV., EVALUATION OF CORPORATE COMPLIANCE PROGRAMS, updated June 2020, Antitrust Division Announces New Policy to Incentivize Corporate Compliance, July 11, 2019; Antitrust Division, USDOJ, Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations, July 11, 2019.  In a recent speech, Deputy Attorney General Lisa O. Monaco highlighted the incentives for a company to have a compliance program before the government not so gently indicates that one is needed:

“A company can fulfill its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness. In fact, companies serve their shareholders when they proactively put in place compliance functions and spend resources anticipating problems. They do so both by avoiding regulatory actions in the first place and receiving credit from the government. Conversely, we will ensure the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations.”

DAG Monaca’s remarks can be read (here), watched on video (here), and the DAG’s related memo can be read (here). 

• DUTY TO EMPLOYEES

DAG Monaco’s remarks emphasize a company’s fiduciary duty to shareholders.  I’d like to also emphasize a corporation’s duty to its employees.  When I was with the Antitrust Division it was personally disturbing to investigate and sometimes prosecute executives who found themselves involved in a criminal investigation and had never had any antitrust training.  To be sure, I think most executives have a “gut feeling” that price fixing and bid rigging are not ethical business practices, but many executives had a serious underappreciation of the length and stress of a criminal antitrust investigation and the fact they could face 10 years in jail.  Even if an executive obtains immunity and becomes a government witness, a criminal antitrust investigation is one of the most stressful things an executive–and his or her family–may ever deal with.  Even civil cases are a serious problem for employees as well as their company. Employees may “groan” or “roll their eyeballs” if they are scheduled for more compliance training (I may have done that occasionally with all the training we received at DOJ) but the threat of criminal prosecution and a jail sentences should perk up an audience quickly.

Some Suggestions For Compliance Training

I’ll offer some suggested compliance guidance regarding labor market collusion for human resource employees and others involved in the hiring process. Disclaimer:  This is by no means a complete compliance guidance outline–but it would be a start.

One document to highlight would be the speech on October 1, 2021 by Antitrust Division Acting Assistant Attorney General Richard Powers (noted above), which emphasizes that the DOJ has made good on its promise to prioritize labor market collusion cases–including bringing criminal charges against individuals allegedly involved in the collusion. Relevant employees should also have a copy, and a presentation explaining, the Department of Justice and FTC’s Antitrust Guidance for Human Resource Professionals, Department of Justice, Antitrust Division/Federal Trade Commission, October  2016:  “The agencies’ joint guidance include[ing] a Q&A section that explains how antitrust law applies to various scenarios that HR professionals might encounter in their daily work lives.”  It would also be important to have a hotline for employees to call with questions about the Antitrust Guidance and how it might apply to particular situations.

I don’t think labor market collusion is as difficult to avoid–and detect–as it may seem to some. Labor is an input for making any product. Businesses can’t collude with competitors about the price they will pay for inputs to make a product or to allocate suppliers.  Think about a company that produces widgets.  This widget requires copper wire, glass products, machinery and labor.  It seems obvious (hopefully) that an executive in one company cannot call a competitor and say, “Let’s agree to not pay any more than X for the copper?”  Or “If you don’t solicit quotes from my supplier, I won’t from yours.”  Labor is also an input.  Why would it be OK to call a competitor and say “Let’s agree not to pay any more than X per hour” for the input of labor?

As with any input, however, not every agreement between competitors is per se illegal or “naked” price fixing violation.  When companies integrate resources, as in a buying group or joint venture, the agreement will be judged under the rule of reason: Do the procompetitive benefits outweigh the anticompetitive harm?  The FTC/DOJ guidance explains a basic difference between a “naked” agreement and an agreement “ancillary” to a procompetitive collaboration:

“That means that if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects. Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.”  Antitrust Guidance for Human Resource Professionals, Department of Justice, Antitrust Division/Federal Trade Commission, October  2016, at 3.

As mentioned, employees should have guidance as to who to call within the company if they have questions about the propriety of an agreement with a competitor regarding labor.

Thinking of labor as any other input, I’d add this to my presentation:

1. An agreement does not have to be in writing. It can be inferred from other circumstances – such as evidence of discussions and parallel behavior.
2. The DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements. The penalties can be severe, including jail time for individuals.
3. Like any other cartel, agreements to reduce competition can be prosecuted even if they don’t eliminate all competition or are unsuccessful.
4. An added bonus is that if senior executives who have both pricing and hiring authority get this training, it is a refresher about the dire consequences of price fixing, bid rigging and market allocation either as a seller or a buyer.

CONCLUSION

In October 2016 when the DOJ FTC Antitrust Guidance for Human Resource Professionals was issued it led to a blizzard of “client alerts” warning of this emphasis of the FTC/DOJ.  Now would be a good time to see if there was a follow up to client alerts within organizations–including law firms.  Did the right people get the Antitrust Guidance?  Was there follow up training?  Is there a process in place for employees to ask questions?

There’s much more to be said about compliance and labor market collusion, and no doubt better and more detailed ways to say it. There are many published articles detailing more complete elements of an effective corporate compliance program and culture.  The point of this humble blog post is that if labor market collusion is a priority for enforcement agencies, compliance training should be a priority for companies. And, if you take the approach that labor is an input, subject to the same antitrust rules as any other input, you have provided more than just training on labor market collusion.

Thanks for reading   bob@reconnollylaw.com

This post originally appeared on the CartelCapers blog.

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I suggest reading the speech in its entirety (here) but I’ll quote a few of the remarks:

• “Between 2010 and 2012, the Division filed civil enforcement actions against Adobe, Apple, eBay, Google, Intel, Intuit, Lucasfilm, and Pixar for entering into unlawful agreements not to compete for each other’s workers through various means. These enforcement actions were important for a few reasons. First, they made clear that companies that do not compete to make or sell the same products or services nonetheless compete vigorously in labor markets. That is why they have incentives to collude in a labor market in the first instance. Second, the investigation reaffirmed that agreements to allocate labor markets are no different than agreements to allocate markets by territory or customer. [Well, they were treated a little differently as these likely would have been criminal cases given the explicit evidence of agreement but civil cases were brought first as a sort of “warning shot.].
• Beginning in October 2016, the Division made a series of public statements that, going forward, it intends to criminally prosecute naked labor market allocation and wage-fixing conspiracies.
• Since that time, labor market investigations have comprised a growing portion of our docket. Thus far, we have charged four criminal cases for alleged collusion in labor markets.
• At bottom, the Division is committed to prosecuting naked conspiracies in labor markets because they rob workers of competitive wages, benefits, and other terms of employment. While this work is principally criminal enforcement, we are not blind to the social impact of this work. Free market competition for workers can mean the difference between saving for a home, sending kids to college, and leaving a toxic workplace, or not. Work is also fundamental to our dignity. As enforcers, we know firsthand what it means to ascribe dignity and values to work.
• Importantly, criminal prosecution of labor market conspiracies is the tip of the spear; the Division’s focus on labor markets extends beyond its cartel program. The Division is also committed to using its civil authority to detect, investigate, and challenge anticompetitive non-compete agreements, mergers that create or enhance monopsony power in labor markets, the unilateral exercise of monopsony power, and information sharing by employers.
• While competition policy is not conducive to a one-size-fits-all approach, I note that many international enforcers have used their enforcement authority to root out labor-market conspiracies with admirable results….”

There is much more in Mr. Powers’ remarks including a discussion of continued cooperation among international enforcers. There are also footnotes with citations to many of the cases/facts mentioned in the speech.

If there was ever a “hot topic” in antitrust compliance counseling it would be to advise clients that not just the DOJ, but the FTC, State AG’s and international enforcers are focusing on agreements between competitors to reduce or eliminate competition for an input commonly known as employees.  It is key to understand, that like any other cartel, buyer or seller, agreements to reduce competition can  be prosecuted even if they don’t eliminate all competition or are unsuccessful. While a bit simplified: It is just as unlawful to fix the price at which you pay employees as it is to fix the price of the widgets those employees make.

Thanks for reading.

This post originally appeared on the CartelCapers Blog.

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One of the cases being litigated is United States v. Jindal, Case 4:20-cr-00358 (E.D. Tx).

In a recent brief opposing the defendant’s motion to dismiss the indictment, the government recounts the per se conduct outlined in the indictment:

From in or around March 2017 to in or around August 2017, Jindal, Rodgers, and their coconspirators knowingly entered into and engaged in a conspiracy to suppress competition by agreeing to fix prices by lowering the pay rates to PTs and PTAs (Dkt. #21). On March 10, 2017, beginning at approximately 1:36 p.m. CST, Rodgers, acting on behalf of Jindal and Company A, texted with Individual 2, the owner of competitor Company B, regarding the rates that Company A and Company B paid their PTs and PTAs (Dkt. #21¶ 12(a)). Rodgers texted Individual 2, stating “[h]ave you considered lowering PTA reimbursement” and “I think we’re going to lower PTA rates to $45” (Dkt. #21 ¶ 12(a)). Individual 2 responded, texting “[y]es I agree” and “I’ll do it with u” (Dkt. #21 ¶ 12(a)).

United States’ Response in Opposition to Defendant Jindal’s Motion to Dismiss, filed June 22, 2021) p.2 The government argues that “the per se rule applies categorially to price fixing in all industries and markets,” citing, among other cases, Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 351 (1982). “[T]he argument that the per se rule must be rejustified for every industry that has not been subject to significant antitrust litigation ignores the rationale for per se rules … .” The government’s [correct] position received a boost in the NCAA case, particularly in Justice Kavanaugh’s concurring opinion:

Conspiring to fix the price for which labor is purchased or sold is price fixing. See Nat’l Collegiate Athletic Ass’n v. Alston, Nos. 20-512 and 20-520, 2021 WL 2519036, at *21 (U.S. June 21, 2021) (Kavanaugh, J., concurring) (“Price-fixing labor is price-fixing labor.”). US Jindal response at p. 8.

While the per se rule applies to labor markets as it would to any other market, when I read cases like NCAA, I conclude that the per se rule should not be applied at all in criminal cases.  When condemning “wage-fixing” and “no-poach agreements, the government adds the modifier “naked” because some such agreements may be ancillary to procompetitive agreements.  But who decides whether the agreement is “naked” or ancillary to some other procompetitive agreement?  Under the per se rule, the government or the court, not a jury, make this call on a key element of the offense.  Once the government alleges a per se wage-fixing or per se no-poach agreement, the jury no longer decides the main element of the offense: did the agreement restrain trade? Defense counsel can pitch the Antitrust Division on why a certain agreement should not be considered anticompetitive, but if counsel loses the pitch, and a per se criminal indictment is returned, those arguments cannot be made to the jury.  That is unconstitutional, or so it seems to me, see Cartel Capers, The End is Near for  the Per Se Rule in Criminal Antitrust Prosecutions, (March 21, 2019), and others, see, Roxann E. Henry, Per Se Antitrust Presumptions in Criminal Cases, Columbia Business Law Review, (June 14, 2021).

Consider the NCAA case itself.  If price fixing labor is price fixing and price fixing is a per se offense, why were the NCAA agreements judged under the rule of reason and not as a per se violation?  In the NCAA case, the Supreme Court explains:

Board of Regents (Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ of Okla 468 U.S.85, 101 (1984) explained that the league’s television rules amounted to “[h]orizontal price fixing and output limitation[s]” of the sort that are “ordinarily condemned” as “‘illegal per se.’” Id., at 100. The Court declined to declare the NCAA’s restraints per se unlawful only because they arose in “an industry” in which some “horizontal restraints on competition are essential if the product is to be available at all.” Id., at 101–102. NCAA  at 19.

The government notes in its Jindal opposition brief, however, that “Alston provides no basis for rule of reason review in an ordinary “textbook” case such as this one, involving the per se illegal price fixing of healthcare workers’ labor.”  United States’ Response in Opposition to Defendant Jindal’s Motion to Dismiss, filed June 22, 2021)  p.2, fn. 4. The agreement in the Jindal case (if there was an agreement) is conclusively a restraint of trade because the government alleged it as a per se violation.  The jury does not get to decided that element of the offense.

If the per se rule is unconstitutional, then what to do? Almost everyone agrees “cartels are the supreme evil of antitrust.”  One option is to strike the per se rule and try criminal antitrust cases using the Federal Rules of Evidence to determine what evidence is relevant and thus admissible. There is no need for a per se rule. Instead of being a substantive rule of law, (nowhere mentioned in the Sherman Act but created by the Supreme Court), terms like per se,rule of reason and quick look would be merely general descriptions of the type of relevant evidence admissible in criminal antitrust cases. Under Federal Rule of Evidence 403 even relevant evidence can be excluded” if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”

In Northern Pac. Ry. V. United States, 356 U.S.1,5 (1958) the Court wrote:

“This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable — an inquiry so often wholly fruitless when undertaken.”

There are two problems with this statement:  Why, in a price fixing case, would there be a “necessity for an incredibly complicated and prolonged investigation in to the entire history of the industry involved, as well as related industries…?”  The Federal Rules of Evidence apply to criminal antitrust trials and a judge may rule much of this type of evidence not admissible under Rules 401 and 403.  In NCAA, the Court started: “Always, ‘[t]he goal is to distinguish between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.”’ Ibid. (brackets and internal quotation marks omitted). * The Court goes on to say this can be done under the per se rule, rule of reason or quick look. In National Collegiate Athletic Ass’n v. Board of Regents of University of Oklahoma, 468 U.S. 85 (1984), the Supreme Court noted that this quick look can sometimes be applied in “the twinkling of an eye.” These are general descriptions of the evidence that is relevant under the Federal Rules.  The Court must engage “in an enquiry meet for the case looking to the circumstances, details and logic of the restraint.” California Dental Ass’n v. FTC., 526 U.S. 756, 781 (1999).  For example, in a price fixing case, thee reasonableness of the fixed prices is not relevant to a decision about whether trade was restrained, but evidence of a joint venture might be. Applying the rules of evidence to limit the evidence admissible in a price fixing case would not be unconstitutional.  Taking deciding an element of the offense away from the jury is. This change would not be as revolutionary as it may sound.  Few defendants in a cartel are going to admit they held secret meetings, used code names, destroyed documents, but argue “Members of the jury: the cartel was procompetitive!”

The above statement in Northern Pacific justifies the per se rule because a wider inquiry would be “an inquiry so often wholly fruitless when undertaken.” This is also problematic. Fruitless or not, in a criminal case a defendant is entitled to contest every element of the offense, including in a Sherman Act restraint of trade case, that the defendant did not restrain trade.

The constitutional defect in the per se rule in criminal antitrust cases could be cured by allowing the jury to decide whether the defendants’ agreement, if proved, restrained trade, but using the Federal Rules of Evidence to properly narrow the evidence put before the jury. My own preference for addressing the unconstitutionality of the per se rule would be to amend the Sherman Act.  What is it that makes some agreements subject to criminal prosecutions and others not?  In my experience it is the covert, fraudulent nature of the agreement.  A joint venture between two bidders, made known to the letting authority, is not a criminal violation.  A secret agreement between the same bidders to divide the work would be prosecuted as a criminal violation.  A Sherman Act amendment should reflect that fraudulent conduct is the true bases for what restraints of trade are prosecuted criminally.  See, Robert Connolly, Per Se “Plus:” A Proposal to Revise the Per Se Rule in Criminal Antitrust Cases, 29 Antitrust 105 (2104-2015).

What might be wholly fruitless is me trying to collect my thoughts about these complex issues in a blog post. Well, everybody is entitled to a mulligan (a do-over for a bad tee shot in golf), so I think I’ll hit post and take my mulligan in a longer article. If anyone is inclined to talk about these issues, I’d love to hear your take.  Please email or call.  bob@reconnollylaw.com (215) 219-4418.

Thanks for reading.

This post originally appeared on the CartelCapers blog.

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