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DOJ Prosecutes Attempted Collusion among Business Competitors for First Time in Decades

by Justin P. Murphy, Andrew Lee and Paul M. Thompson | Nov 1, 2022 | DOJ Developments, Monopolization/Abuse of Dominance

On October 31, 2022, the US Department of Justice’s (DOJ) Antitrust Division (Division) made good on its intention earlier this year to revitalize efforts surrounding criminal enforcement of Section 2 of the Sherman Act when the president of a paving and asphalt contractor in Montana pleaded guilty to one count of attempting to monopolize the market for certain construction services in Montana and Wyoming. This is the Division’s first criminal prosecution of a Section 2 case in approximately 50 years. While criminal enforcement of antitrust laws has traditionally focused on per se anticompetitive agreements between two or more horizontal competitors, Section 2 primarily focuses on conduct by one firm or company with significant market power. This announcement—and subsequent criminal resolution—marks a significant departure from long-standing DOJ antitrust enforcement of monopolization claims and is a landmark result for the Division’s continued expansion of its criminal enforcement efforts.

Most notably, seemingly unilateral conduct that “attempts” to collude is now subject to criminal prosecution under Section 2, even if such an attempt did not result in any agreement. In contrast, there is no “attempt” component of a Sherman Act Section 1 charge, where the Division has traditionally investigated and prosecuted per se criminal price fixing, bid rigging and market allocation conduct requiring an agreement or “meeting of the minds” between horizontal competitors.

According to court documents, the DOJ alleged that Nathan Nephi Zito attempted to monopolize the markets for highway crack sealing services administered by Montana and Wyoming by proposing that his company and its competitor allocate regional markets. Zito approached a competitor about a “strategic partnership” and proposed that his company would stop competing for projects administered by South Dakota and Nebraska and the competitor would stop competing for projects administered by Montana and Wyoming. Zito allegedly offered a $100,000 payment as additional compensation for lost business in Montana and Wyoming and proposed that they enter into a transaction to “disguise their collusion.” The competitor company then approached the government and cooperated in its investigation, including by recording phone calls with Zito.

This case, the first Section 2 criminal resolution in decades, was prosecuted in coordination with the Procurement Collusion Strike Force (PCSF), which remains a top priority for the DOJ. The PCSF has been quite active in recent months, obtaining several convictions and bringing new indictments.

Although Section 2 is regularly associated with unilateral monopolist conduct, it also makes it a crime to attempt to monopolize or to conspire to monopolize. The “attempt” provision is what the Division relied on to obtain a conviction in this case, which is essentially an attempted but unconsummated Section 1 market allocation case where one of the potential conspirators cooperated with the government rather than entering into a potentially collusive agreement.

Key takeaways from this case include the following:

Now companies need to consider potentially collusive agreements with competitors—or attempts to do the same—that may exclude other competitors from a market in their antitrust risk evaluations. In practice, this could significantly broaden the scope of any compliance [...]

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Why Courts Are Rejecting Agencies’ Merger Challenges

by Jon B. Dubrow, Joel R. Grosberg and Matt Evola | Oct 24, 2022 | DOJ Developments, FTC Developments, Mergers & Acquisitions

The US Department of Justice’s and the Federal Trade Commission’s losses in three merger challenges in September and a fourth in October demonstrate that merging parties can close difficult transactions if willing to fight the agencies in court. In this Law360 article, McDermott’s Jon B. Dubrow, Joel R. Grosberg and Matt Evola discuss these four cases and what they mean for merging parties.

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Seven Corporate Directors Resign: DOJ Ramps Enforcement Against Board Members Serving on Competitors’ Boards

by Glenna Siegel, Gregory E. Heltzer and Jon B. Dubrow | Oct 21, 2022 | DOJ Developments

WHAT HAPPENED

Seven directors resigned from corporate boards following promises of enforcement of Clayton Act Section 8 (15 U.S.C. § 19) by the US Department of Justice (DOJ), Antitrust Division (the Division), the Division announced Wednesday.
The directors served on the boards of corporations that the DOJ asserted competed in a variety of sectors, including information technology, software, and manufacturing.

WHAT’S THE LEGAL CONCERN

Section 8 prohibits “interlocking directorates” (per se violation), which occur when the same individual serves simultaneously as an officer or director of two competing companies (direct interlocks) or when different individuals on boards of competing companies act on behalf of and at the direction of a single firm (indirect interlocks through deputization). In its press release, the DOJ noted that some of the interlocks arose because a private equity firm appointed different personnel to the boards of competing companies.
The goal of Section 8 and the DOJ action is to decrease potential opportunities for the exchange of sensitive information between competitors and the risk of anticompetitive conduct more generally.
Exemptions might apply. There are de minimis exemptions if a) the competing sales are less than $4.1 million (threshold updated annually); b) the competing sales of either corporation represent less than 2% of its total sales; or c) the competing sales of each corporation are less than 4% of its total sales. A careful analysis (similar to that done in merger analysis) is necessary to determine whether an exemption might apply.
Not just corporations? While the plain language of Section 8 refers to interlocks involving “corporations,” the DOJ has stated its view that Section 8 also covers interlocks between non-corporate entities, such as LLCs (this is an open area of law).
Not just the same person? While the plain language of Section 8 states that it applies when the same “person” sits on the board or acts as an officer of two competitors, the DOJ interprets Section 8 broadly to mean that two different individuals appointed by a common entity cannot serve on boards of competitors because the entity is a “person” and is serving on the boards through its designees.

WHAT ARE THE RISKS

Interlocks can create significant antitrust risk. While the DOJ’s concerns with interlocks seem to be assuaged with the quick removal of the Corporate Director identified, interlocks have served as the factual underpinning for antitrust conspiracy claims. Therefore, companies should be proactive in eliminating problematic interlocks, as the interlock combined with parallel action by competitors in an industry could serve as the factual basis for long and costly conspiracy investigations or litigation and could support complaint allegations to defeat a Twombly-based motion to dismiss.

ANTICIPATE CONTINUED ENFORCEMENT

While the resignations are not novel, they represent a major amplification of corporate responses to what Assistant Attorney General Jonathan Kanter has described as “an extensive review of interlocking directorates across the entire economy” and [...]

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Antitrust M&A Snapshot | Q2 2022

by Claire Danberg, Karolien Van der Putten, Jon B. Dubrow, Joel R. Grosberg, Lisa P. Rumin and Hendrik Viaene | Sep 26, 2022 | Consumer Protection/Privacy, DOJ Developments, EC Developments, EU Developments, FTC Developments, Healthcare Antitrust, Mergers & Acquisitions, Monopolization/Abuse of Dominance

In the United States, parties continue to be cautious in litigating challenged transactions. Since January 2021, the US Federal Trade Commission (FTC) and Department of Justice (DOJ) filed lawsuits (or threatened to sue) to block 16 transactions. Of those transactions, 12 were abandoned and six are in various stages of litigation. The data suggest that the FTC’s and DOJ’s aggressive merger enforcement policy is raising the stakes for parties to potential mergers and acquisitions, including an increased willingness by the agencies to litigate potentially problematic transactions.

Between May 6 and June 3, 2022, the European Commission (Commission) held a public consultation to seek views on the draft revised Merger Implementing Regulation (Implementing Regulation) and the Notice on Simplified Procedure. This consultation was launched in the context of the Commission’s review process of the procedural and jurisdictional aspects of EU merger control.

On April 20, 2022, the UK government proposed new measures to boost consumer protection rights and competition rules. In particular, the UK government’s reforms aim to strengthen the Competition & Markets Authority’s (CMA) powers and alleviate burdens on smaller companies.

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DOJ Revamps Corporate Criminal Enforcement Policies with Continued Emphasis on Compliance

by Justin P. Murphy, Edward Diskant, Sarah Walters, Julian Andre, Paul M. Thompson, Ben Curtis and Caitlyn Campbell | Sep 19, 2022 | DOJ Developments

At a September 15, 2022, speech at New York University School of Law, US Deputy Attorney General (Deputy AG) Lisa Monaco announced several new policies intended to further the aggressive stance the US Department of Justice (DOJ) has taken under the Biden administration to corporate criminal enforcement.

The DOJ’s landmark new policies are focused on encouraging and enticing companies to self-report criminal violations and cooperate in DOJ investigations. They include:

First, for the first time, every DOJ component that prosecutes corporate crime will have to develop a formal program to incentivize voluntary self-disclosure. Importantly, the DOJ will not seek a guilty plea when a company has voluntarily self-disclosed, cooperated in the DOJ’s investigation and remediated misconduct.
Second, companies seeking cooperation credit need to come forward and disclose important evidence to the DOJ quickly. Companies—and prosecutors evaluating those companies—will now be “on the clock.” Undue or intentional delay in providing information and documents will result in a reduction or outright denial of cooperation credit.
Third, the DOJ will now formally encourage companies to hold in escrow or claw back compensation from executives and employees responsible for wrongdoing.

Deputy AG Monaco provided additional guidance with respect to significant changes announced in October 2021, including on how prior criminal, civil and regulatory misconduct by companies will be evaluated when deciding an appropriate resolution, and how and when monitors should be imposed.

Deputy AG Monaco also announced that the DOJ would seek an additional $250 million in targeted resources for corporate criminal enforcement and other corporate crime initiatives.

IN DEPTH

While Deputy AG Monaco continued to emphasize—as she did in speeches in October 2021 and March 2022—that the DOJ’s No. 1 priority remains individual “accountability” and prosecutions, the recent announcement is the latest in a series of ambitious steps taken by the DOJ under the Biden administration to further the Department’s ongoing and increasing emphasis on misconduct at the corporate level. Taken collectively, the mixture of carrots, sticks and potential additional resources demonstrates the DOJ’s continued focus on pursuing corporate wrongdoing and the need for companies to proactively assess their compliance programs and ensure they are well-positioned to respond to the DOJ’s boundary-shifting approaches.

NEW DOJ-WIDE VOLUNTARY SELF-DISCLOSURE PROGRAM

Among the more significant changes, every DOJ component that prosecutes corporate crime will, for the first time, be required to have a documented policy that incentivizes voluntary self-disclosure. Deputy AG Monaco highlighted the success of a handful of self-disclosure programs that several DOJ components have already developed, such as the long-standing Antitrust Division Leniency Program and the Foreign Corrupt Practices Act (FCPA) unit’s self-reporting program. She also stated that if a DOJ component does not have such a formal, documented policy, they must draft one. In support of this policy, she noted that the DOJ’s “goal is simple: to reward those companies whose historical investments in compliance enable voluntary self-disclosure and to incentivize other companies to make the same investments going forward.”

Deputy AG Monaco also announced several [...]

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Cartel Corner | August 2022

by Justin P. Murphy, Paul M. Thompson, Han Cui, Alexandra Lewis and Reese Poncia | Aug 31, 2022 | Agriculture, Cartel Enforcement, Consumer Protection/Privacy, DOJ Developments, FTC Developments, Monopolization/Abuse of Dominance

Without question, 2022 has been a remarkably busy time for the US Department of Justice’s (DOJ’s) Antitrust Division (Division). Over just a few months, the Division rolled out meaningful revisions to its leniency policy aimed at encouraging prompt reporting of criminal violations, announced that it will (for the first time in nearly 50 years) bring criminal monopolization cases under Section 2 of the Sherman Act, continued to increase enforcement resources, and brought a number of new cases and obtained multiple guilty pleas.

However, activity does not always mean success. If there is any theme that defines the Division’s efforts over the last quarter, it is this: If at first you don’t succeed, try, try again. That is exactly what the Division has done. It tried two labor markets cases, ultimately losing both on a new and untested legal theory. And, over strong objections from a district court, the Division pursued an unprecedented third trial against those in the broiler chicken industry, resulting in a full acquittal for all defendants. None of this, however, has deterred the Division from continuing to pursue new investigations and bring new cases under novel legal theories.

In this installment of Cartel Corner, we examine recent and significant developments in antitrust criminal enforcement and profile what the Division has highlighted as its key enforcement priorities. If the past is prologue, we are bound to see more aggressive antitrust enforcement in the months to come, testing the boundaries of current antitrust law. Whether the Division can ultimately shift those boundaries, however, remains to be seen.

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Antitrust M&A Snapshot | Q1 2022

by Anthony S. Ferrara, Hannelore Wiame, Jon B. Dubrow, Joel R. Grosberg and Lisa P. Rumin | May 6, 2022 | DOJ Developments, EC Developments, EU Developments, French Developments, FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

In the United States, antitrust agencies continue with their aggressive merger enforcement posture. The agencies challenged four transactions this quarter, including multiple vertical mergers. The agencies are increasingly skeptical of merger remedies, including behavioral remedies and divestitures. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are working together to update the current Horizontal Merger Guidelines. The updated guidelines will likely signal a more aggressive enforcement posture.

The European Commission (Commission) blocked one transaction in Phase II and cleared two transactions. Three transactions were abandoned after the Commission initiated a Phase II investigation. The Commission made use of partial referrals to member state national competition authorities in two cases. It also ordered Hungary to withdraw its decision to prohibit Vienna Insurance Group’s (VIG) acquisition of AEGON Group’s Hungarian subsidiaries on foreign direct investment grounds, holding that Hungary’s prohibition decision infringed Article 21 of the EU Merger Regulation.

In the United Kingdom, the first quarter of 2022 also saw a number of Phase II investigations. Specifically, the Competition and Markets Authority (CMA) cleared one transaction in Phase II and blocked two other transactions in Phase II. One transaction was abandoned after the CMA initiated a Phase II investigation. The CMA blocked the merger of Cargotec and Konecranes just one month after the EC cleared the transaction subject to commitments in Phase II. The parties abandoned the transaction following the CMA’s decision.

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DOJ Faces Setbacks in Labor Market Prosecutions but Remains Determined

by Anthony S. Ferrara | Apr 26, 2022 | Cartel Enforcement, DOJ Developments, FTC Developments, Healthcare Antitrust

WHAT HAPPENED

On back-to-back days this month, defendants charged and prosecuted by the US Department of Justice’s Antitrust Division (the DOJ) were acquitted on all Sherman Act charges in first-of-their-kind criminal antitrust trials involving labor markets.
On April 14, 2022, in United States v. Jindal, a federal jury in the US District Court for the Eastern District of Texas found two defendants not guilty of violating the Sherman Act by agreeing with competitors on wages they would pay their employees. The jury found one of the defendants guilty of obstructing a Federal Trade Commission (FTC) investigation by making false and misleading statements to the FTC and concealing information.
The following day, in United States v. DaVita, Inc., a Colorado federal jury acquitted DaVita, Inc. and its former chief executive on all counts of violating the antitrust laws by entering into non-solicit agreements with other employers.
The Jindal case was the DOJ’s first attempt to criminally prosecute so-called alleged “wage-fixing” agreements. Similarly, the DaVita case was DOJ’s first criminal trial targeting alleged no-poach or non-solicit agreements between employers.
Historically, the DOJ pursued enforcement of alleged anticompetitive labor market practices in the civil context rather than criminally. But in 2016, the DOJ did an about-face and warned employers in its 2016 Antitrust Guidance for Human Resource Professionals that it intended to proceed criminally against “naked wage-fixing or no-poach agreements” between horizontal competitors in labor markets. The DOJ’s efforts to investigate and criminally prosecute such agreements under this new policy started ramping up publicly in late 2020.
The DOJ filed an indictment against Jindal in December 2020 and a superseding indictment against Jindal and another defendant in April 2021. The DOJ alleged that the defendants participated in a conspiracy to lower the rates paid to physical therapists and physical therapist assistants in north Texas. A few months later, in July 2021, the DOJ filed an indictment against DaVita and its former CEO, alleging that they conspired with competitors in the healthcare industry not to solicit each other’s employees. The DOJ returned a superseding indictment in November 2021.
In both cases, the district courts denied the defendants’ motions to dismiss. The Jindal court held—for the first time ever—that an alleged wage-fixing conspiracy could constitute a per se criminal violation of the Sherman Act. Similarly, the DaVita court held that no-poach and non-solicit agreements could constitute per se violations—but only if the alleged naked agreements allocate the employment market. The DaVita court refused to announce a blanket rule that all no-poach or non-solicit agreements are subject to per se
Despite these rulings, the juries in both cases ultimately acquitted the defendants of all antitrust charges brought by the DOJ.

WHAT’S NEXT

The DOJ remains committed to investigating and criminally prosecuting wage-fixing and no-poach agreements despite these early setbacks. Since the Jindal indictment in December 2020, the DOJ has [...]

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Views and Lessons from the Trenches of the First Criminal No-Poach Trial

by Jeffrey Stone, Justin P. Murphy and Daniel R. Campbell | Apr 22, 2022 | DOJ Developments

In a landmark case of first impression, the US Department of Justice’s (DOJ) Antitrust Division (Division) indicted and brought to trial a federal criminal prosecution alleging agreements between DaVita, Inc., its former CEO Kent Thiry and other companies not to solicit each other’s employees. The case was the first criminal trial of its kind in the Division’s recent efforts to expand Sherman Act liability under Section 1 to include so-called no-poach and non-solicit agreements. Following an eight-day jury trial and two days of deliberation, a Denver jury acquitted Thiry and DaVita on all counts of the unprecedented “no-poach” conspiracy. As the district judge himself succinctly put it to the jury: this case was “a unique case in the field of antitrust law.”

This criminal prosecution in the labor markets reflects a novel and aggressive stance on expanding Sherman Act criminal liability. In pursuit of this policy shift, the Division is trying to jam a square peg into a round hole by characterizing non-solicit and no-poach agreements as per se market allocation agreements. The per se rule creates a judicial shortcut of sorts that makes it easier for the government to prosecute classic cartel conduct such as price-fixing and bid rigging. This case, and related cases, are the first time the per se shortcut has been used in a so-called labor market allocation case. This unprecedented litigation created a watershed moment for the Division’s views that non-solicit and no-poach agreements are per se illegal. The complete acquittal of both defendants and the rulings of the district judge before trial cast doubt on whether the per se standard is appropriate for “no-poach” agreements and whether such agreements should be prosecuted criminally at all.

WHERE DID THIS COME FROM?

Historically, the Division pursued enforcement of alleged anticompetitive labor market practices in the civil context, meaning fines for companies and individuals. In fact, that was the approach the Division took with no-poach and no cold call agreements entered into by major technology and railway companies. The Division engaged in a volte-face and declared it would criminally prosecute such labor market agreements for the first time in October 2016. Without an intervening act of Congress, executive order or ruling by any court, the Division warned that going forward it intended to proceed criminally against “naked wage-fixing or no-poach agreements” between horizontal competitors in the labor market. The Division declared that investigating alleged “naked wage-fixing or no-poach agreements” was a top priority. Ignoring concerns related to the separation of powers, the Division unilaterally cited its discretion and put the full weight of the government into labor market no-poach agreements. That momentum accelerated in December 2020 and continued throughout 2021, with the Division bringing 12 criminal cases against nine individuals and three companies. In short, aggressive and expansive antitrust enforcement from the DOJ is now the new normal.

DOJ SEEKS TO CREATE A NEW CATEGORY OF PER SE LIABILITY AND USES DAVITA AND THIRY AS A TEST CASE

The Division returned a superseding indictment against DaVita, Inc. and Kent Thiry on November 4, [...]

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Heard on Day Two and Three of 2022 Antitrust Law Spring Meeting

by Lisa P. Rumin, Han Cui, Claire Danberg, Anthony S. Ferrara, Graham Hyman and Zachary Sproull | Apr 12, 2022 | Cartel Enforcement, Consumer Protection/Privacy, DOJ Developments, FTC Developments, Healthcare Antitrust, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions, Monopolization/Abuse of Dominance

On April 7 and 8, 2022, the American Bar Association’s Antitrust Law Section wrapped up its annual Spring Meeting. The event featured updates and remarks from several antitrust enforcers, including FTC Chair Lina Khan and US Assistant Attorney General for the Antitrust Division Jonathan Kanter. In this post, we share key takeaways from the final two days of the Spring Meeting.

FTC and DOJ Will Stay Focused on Litigation: Top officials at both US antitrust agencies highlighted the agencies’ full dockets and noted that litigation to enforce the antitrust laws will remain a top priority.

Three Directors from the Federal Trade Commission (FTC)—Holly Vedova, the Director of the Bureau of Competition; Samuel A.A. Levine, Director of Bureau of Consumer Protection; and Elizabeth Wilkins, Director of Office of Policy Planning—all emphasized that the FTC will work as one team and will not hesitate to initiate litigation.
Vedova noted the FTC’s recent success in several transactions being abandoned after the FTC initiated litigation. She expressed that the Bureau of Competition’s main focus will be litigation, where she believes her bureau will be most effective. Khan echoed these sentiments while speaking on a separate panel, emphasizing that two recently abandoned transactions were in the context of challenges to vertical transactions and that such challenges will continue to be a priority at the FTC.
Likewise, Kanter noted that the Department of Justice (DOJ) is not afraid to take on big cases or big companies and will not be afraid to litigate. He said the DOJ is just getting started and reiterated that the DOJ has more active cases than it has had in recent years.

Agencies Will Closely Scrutinize Potential Remedies in M&A: Both FTC and DOJ officials emphasized they will continue to examine the effectiveness of remedies and will only pursue strong remedies.

Kanter said that divestiture remedies will be the rare exception and will no longer be the norm. He further cautioned merging parties to avoid engaging in “regulatory arbitrage” and trying to leverage investigation outcomes in one jurisdiction against another because global cooperation among antitrust enforcers is high.
Vedova also indicated that the Bureau of Competition has no appetite for weak or uncertain settlements, especially those involving behavioral remedies, which have proven ineffective. The FTC will require meaningful structural relief to resolve competition concerns regarding a transaction.
Parties should also not expect the FTC to engage in long settlement discussions due to the unprecedented volume of merger reviews. Vedova noted that staff’s time is valuable and is much better spent preparing for litigation rather than negotiating remedies. She further indicated that the FTC will not engage in remedy discussions unless the Hart-Scott-Rodino (HSR) clock is stopped and timing agreements are tolled.
State attorneys general will similarly evaluate remedies and, if necessary, pursue additional remedies than those sought by federal antitrust enforcers. For example, in a recent dialysis acquisition, the state of Utah sought divestiture of a fourth clinic above the three divestitures required to [...]

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