Criminal antitrust in 2022: two cases likely to frame the new agenda

With the appointment of the new head of the Antitrust Division of the U.S. Department of Justice now in place, companies and practitioners alike are eagerly awaiting a mission statement from the agency with respect to U.S. criminal antitrust enforcement. By any measure, the three-decade-long wave of criminal antitrust enforcement waned during the prior administration. See, e.g., Todd S. Fishman and David C. Esseks, Criminal Antitrust Enforcement (Chapter 1) at §1.02[4], White Collar Crime: Business and Regulatory Offenses, Law Journal Press (2019 rev. ed.). In addition, President Biden’s July 2021 executive order on promoting competition in concentrated U.S. markets made only passing reference to cartel activity. So the question remains whether the agency’s present focus on single-enterprise market dominance in a number of domestic markets, including the information technology, agriculture and health care sectors, will displace the past emphasis on multi-firm cartel conduct.

As the answers begin to emerge in the new year, two active criminal prosecutions by the Antitrust Division are likely to frame any renewed priority on criminal enforcement. One case involves the first trial in a set of criminal indictments in the District of Colorado charging fourteen executives with participating in a scheme among some of the country’s largest poultry producers to fix the price of broiler chicken products. There, the trial court declared a mistrial after the federal jury remained deadlocked and failed to return a verdict as to all ten defendants. The second case involves the labor markets and the Antitrust Division’s first criminal wage-fixing case. If anything, these cases augur for the aggressive use of criminal enforcement to expand the categories of business conduct subject to per se condemnation under the antitrust laws.

First principles

The Sherman Act, and in particular a per se violation of the Sherman Act, often functions as a blunt prosecutorial instrument. The Sherman Act tends to limit the per se rule of illegality to those restraints among horizontal competitors, with which courts have had considerable experience and where the restraints are deemed facially anticompetitive and lack any plausible business justification. But such condemnation is not static. The principles animating antitrust law have evolved with the century-old Sherman Act, dynamically moving from the formalistic approach towards horizontal price-fixing agreements applied in United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940), to the recognition that not all price-fixing arrangements unreasonably eliminate competition in Broadcast Music v. Columbia Broadcasting System, 441 U.S. 1, 23 (1979), to more complex notions that emphasize economic realities of business relationships as set forth in Business Electronics v. Sharp Electronics, 485 U.S. 717, 726 (1988).

The DOJ’s policy on prosecuting antitrust crimes focuses, as a matter of institutional discretion, on per se unlawful conduct. The current version of the U.S. Attorneys’ Antitrust Manual provides that “current Division policy is to proceed by criminal investigation and prosecution in cases involving horizontal, per se unlawful agreements such as price fixing, bid rigging, and customer and territorial allocations.” U.S. Dep’t of Justice, Antitrust Division, Manual at III-12 (5th ed. 2021). The Antitrust Manual however states that “[t]here are a number of situations where, although the conduct may appear to be a per se violation of law, criminal investigation or prosecution may not be appropriate.” According to the Manual, those “situations may include cases in which (1) the case law is unsettled or uncertain; or (2) there are truly novel issues of law or fact presented.” Notably, previous versions of the Manual cited two other mitigating circumstances—where “confusion reasonably may have been caused by past prosecutorial decisions” or where “there is clear evidence that the subjects of the investigation were not aware of, or did not appreciate, the consequences of their action”—but those appear to have been removed from the current version. See Todd S. Fishman, The Rule of Reason as a Bar to Criminal Antitrust Enforcement, New York Law Journal (Dec. 12, 2018).

The DOJ’s policy descends from the Supreme Court’s century-long experience with the Sherman Act, and its classification of federal antitrust violations. Under the Sherman Act, two distinct standards govern the legality of agreements that restrain trade: the rule of reason and per se unlawfulness.

Antitrust law’s rule of reason was born of technical necessity. By its terms, §1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade.” 15 U.S.C. §1. Despite the expansive language of the statutory prohibition, the Supreme Court has held that Section 1 prohibits only agreements that unreasonably restrain trade. Board of Trade of Chicago v. United States, 246 U.S. 231, 238 (1918); Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 58-60 (1911). With the rule of reason, antitrust courts assumed a prudential role in administering the scope of antitrust violations, applying a factual inquiry balancing legitimate justifications for a restraint against any anticompetitive effects. Under the rule of reason, “the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.” Continental T.V. v. GTE Sylvania, 433 U.S. 36, 49 (1977).

From judicial experience with certain business arrangements and trade restraints emerged the rule of “per se” illegality. Under the per se approach, the Supreme Court divined that there are “certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” Northern Pacific R. Co. v. United States, 356 U.S. 1, 5 (1958). The per se rule thereby is confined to those categories of restraints that “facially appear [ ] to be one that would always or almost always tend to restrict competition and decrease output.” NCAA v. Board of Regents, 468 U.S. 85, 100 (1984). “Per se liability is reserved for only those agreements that are ‘so plainly anticompetitive that no elaborate study of the industry is needed to establish illegality.’” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (quoting National Soc. Of Prof. Eng’rs v. United States, 435 U.S. 679, 692 (1978)). Such per se prohibited practices include horizontal price fixing and output limitations, horizontal market allocation, and group boycotts. Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982); United States v. Topco Assocs., 405 U.S. 596 (1972); Klor’s v. Broadway-Hale Stores, 359 U.S. 207 (1959).

The poultry producers price-fixing trial

The first case of interest involves the alleged scheme among some of the country’s largest poultry producers to fix the price of broiler chicken products sold in restaurants, grocery stores and other outlets.

In June 2020, the Antitrust Division announced that a federal grand jury in Denver, Colorado had returned an indictment charging four executives in the poultry-processing industry for their role in a Sherman Act conspiracy to fix prices and rig bids for broiler chickens. The indictment accused senior executives of Colorado-based Pilgrim’s Pride and Georgia-based Claxton Poultry Farms with coordinating to fix the wholesale prices of chicken sold to distribution centers and fast-food restaurants from 2012 through at least 2015 by submitting bids at elevated prices. In October 2020, the Division broadened the indictment by charging six more poultry-industry executives from producers including Koch Foods, Tyson and Pilgrim’s Pride. In May 2021, a federal grand jury in Denver returned an indictment charging four more executives for their roles in the same conspiracy.

In late October 2021, trial commenced for the first 10 charged executives and proceedings ran through December 2021. The Division’s affirmative case lasted nearly four weeks, with nine fact witnesses and more than 500 exhibits. The theory of collusion is largely predicated on a series of information exchanges among poultry producer executives which, according the indictment, establishes an unlawful agreement to fix prices and rig bids under Sherman Act. Following the presentation of the government’s case, the defendants sought to dismiss the charges against them, arguing that such conduct is properly adjudged by the rule of reason and thereby does not constitute a per se unlawful offense under established Supreme Court law. In its response, the Division maintained that “a rational jury could easily conclude that the defendants in fact shared prices in furtherance of a common unlawful goal to raise prices, stabilize prices, or prevent price decreases,” emphasizing that the main cooperating witness “detailed instances in which competing suppliers succeeded in using Pilgrim’s pricing information (which Pilgrim’s shared) in order to increase or stabilize prices.”

The Supreme Court consistently has held that “the dissemination of price information is not itself a per se violation of the Sherman Act.” United States v. Citizens & Southern National Bank, 422 U.S. 86, 113 (1975). “The exchange of price data and other information among competitors does not invariably have anticompetitive effects; indeed such practices can in certain circumstances increase economic efficiency and render markets more, rather than less, competitive.” United States v. United States Gypsum Co., 438 U.S. 422, 441 n.16 (1978). In addition, the exchange of price information is not a category of conduct usually considered for criminal prosecution. Still, the risk of competing firms sharing price-related information is high and such conduct may constitute per se illegal activity if such sharing is “part of the sum of the acts which are relied upon to effectuate the conspiracy.” Am. Tobacco Co. v. United States, 328 U.S. 781, 809-10 (1946).

On Dec. 16, 2021, after more than four days of deliberations, the federal jury remained deadlocked and failed to return a verdict as to all ten defendants. Though it might be difficult to draw any broad conclusions, the Antitrust Division’s failure to secure a guilty verdict for any of the trial defendants is a clear setback and tends to reinforce the intrinsic problems in seeking per se condemnation for business conduct that might be explained, or rendered unobjectionable, by market realities.

The agency’s first wage-fixing indictment

The second case of interest involves the Antitrust Division’s first ever criminal wage-fixing case.

A December 2020 indictment charged the former owner of a therapist staffing company for participating in a Sherman Act conspiracy to fix prices by lowering the rates paid to physical therapists and physical therapist assistants. According to the indictment, Neeraj Jindal contacted owners of rival therapist staffing companies by text message, proposing that all of the companies “collectively” lower rates paid to therapists to specific levels. After reaching out to his competitors about specific pay rates and securing confirmation, Jindal’s company allegedly began offering the lower rates. The indictment also charged Jindal with obstruction of proceedings before the Federal Trade Commission (FTC) for withholding information and making false and misleading statements to the FTC while it investigated Jindal’s company and others for the same underlying conduct. The indictment was later superseded to include a second defendant, John Rodgers, a physical therapist who contracted with Jindal’s company.

In November 2021, the U.S. district court declined the defendants’ motion to dismiss the indictment, finding that the alleged scheme is properly considered per se price fixing under the Sherman Act. See United States v. Jindal et ano., No. 4:20-CR-00358, slip op. (E.D. Texas Nov. 29, 2021). The motion to dismiss posited two main arguments, that (i) the indictment failed to state an offense because it did not identify a per se Sherman Action violation and (ii) the indictment violated Fifth and Sixth Amendment due process norms because they did not receive “fair warning” the conduct was criminal. After reviewing of principles governing federal antitrust law, parsing the taxonomy between per se and rule of reason antitrust restraints and noting that the Antitrust Division “has a long standing policy of only bringing criminal antitrust prosecutions based on per se violations of the [Sherman] Act,” the district court held that the indictment alleged a “price-fixing agreement” that is per se illegal.

As part of its ruling, the district court rejected the defendants’ argument that the narrow per se category of antitrust offenses does not cover “an agreement to fix wages.” The district court found that even though “the facts of this case do not present those typical of a price-fixing agreement,” the definition of horizontal price-fixing agreements nevertheless “cuts broadly.” The district court reasoned that “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,” relying on the Supreme Court ruling in United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), and its notion that “[a]ny combination which tampers with price structures is engaged in an unlawful activity.” Using this analysis, the district court determined that the Sherman Act’s prohibition against price fixing applies to buyers of services (employers) in the labor market and rates paid to physical therapists and therapist assistants.

The district court rejected the defendants’ due process and fair warning arguments on similar grounds. The court stated that “[j]ust because this is the first time the government has prosecuted for this type of offense does not mean that the conduct at issue has not been illegal until now.” Despite recognizing that “the issue is not as clear-cut as the Government suggests,” the court further observed that “decades of precedent” made it reasonably clear that the conduct was unlawful, even though those rulings did not occur in the criminal context.

With trial in this matter slated for April 2022, the Antitrust Division moved quickly to use the Jindal ruling to advance other criminal prosecutions involving the labor markets. In a Dec. 6, 2021 filing, the Division informed the U.S. district court in Nevada that Jindal affirms similar charges that a health care staffing company acted unlawfully to suppress wages for Las Vegas school nurses. There, the Division sought to shore up the per se designation in that case: “Much like that of the Jindal defendants, defendants’ motion ignores decades of precedent, including more recent civil non-solicitation and no-hire cases [], that upheld the application of the per se rule to price-fixing and market-allocation agreements including those affecting the labor market.” Notice of Supplemental Authority at 2, United States v. Hee et ano., No. 2:21-cr-0098 (D. Nev. Dec. 6, 2021).

Shortly thereafter, the Antitrust Division and prosecutors in the District of Connecticut took action in the labor market against the aerospace industry. On Dec. 15, 2021, a federal grand jury charged six aerospace outsourcing executives and managers for participating in an eight-year antitrust conspiracy in which they agreed not to poach each other’s workers. See United States v. Patel, 3:21-cr-220 (VAB) (D. Conn.). According to the indictment, the defendants recognized among other things that “the mutual financial benefits of the agreement” “helped prevent wages and labor costs from rising.” The Antitrust Division’s press release indicated that “[t]his indictment is the first in an ongoing investigation into labor market allocation in the aerospace engineering services industry.”

A reversion to more traditional U.S. antitrust policy?

Actions taken by the Antitrust Division in the coming months will reveal the role of criminal enforcement in the Biden’s administration promise to combat “the monopolization of the American economy.” The Division’s actions in the agricultural and labor markets provide a clue that the agency is preparing to take a systematic approach to investigating and prosecuting cartel conduct. Still, the hung jury in the poultry producers case will be an important reflection point. The key question is whether efforts to curb excesses through the expansion of the limited categories of conduct deemed per se illegal, especially in highly regulated and specialized markets, will yield sustainable results.

Todd Fishman is a litigation partner with the New York office of Allen & Overy.

_{Reprinted with permission from the “January 11, 2022 edition of the “New York Law Journal”© 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.}