Business Owner Pleads Guilty to Attempted Monopolization Violating Section 2 of the Sherman Act // Cooley // Global Law Firm

On October 31, the U.S. Department of Justice (DOJ) Antitrust Division delivered on its promise to pursue criminal enforcement of Section 2 of the Sherman Act when it secured a guilty plea from a paving contractor. d’autoroutes which had proposed to its main competitor to enter into an agreement a system of market sharing with the aim of monopolizing the markets for the repairing of cracks on motorways.

The plea marks the first criminal enforcement under the Sherman Act monopolization law in more than 40 years, and represents another step in the DOJ and Federal Trade Commission’s (FTC) efforts to dust off theories, laws and case law to pursue an aggressive approach to antitrust enforcement.1 The prosecution comes after an assistant deputy attorney general claimed the DOJ had “effectively ignored Section 2 criminal law enforcement” since the 1970s.

DOJ criminal law enforcement has traditionally focused on conspiracy fact patterns involving in itself illegal agreements between competitors, such as those aimed at fixing prices or dividing up markets. In this context, remarks by DOJ leaders anticipating an interest in criminal enforcement of monopolization law raised questions about how the DOJ would identify monopolization violations egregious enough to be criminally prosecuted, given that There’s no in itself or the bright line rule in the context of Article 2 which distinguishes between lawful and unlawful exclusionary conduct. In fact, many courts struggle to tell the difference between the two, even when assessing alleged civil violations of monopolization law.

This recent action provides some guidance, but perhaps only in a limited context. The conduct of the contractor, Nathan Zito, involved an invitation to conspire divide markets and avoid competition. It is therefore akin to an “attempted” criminal conspiracy, and more like a traditional criminal antitrust enforcement case than a civil monopolization case. In that sense, while the case is certainly noteworthy and demonstrates the DOJ’s commitment to pursuing such invitations to conspiracy criminally under Section 2 – as opposed to civilly, as it has done at least once in the past – its importance should not be overestimated.

United States vs. Zito: An invitation to agree to divide the markets

According to the charging document, in January 2020, Zito invited its main competitor to award contracts for highway crack-patching projects. Instead of accepting Zito’s proposal, however, the competitor reported the incident to the DOJ, providing the government with evidence of Zito’s proposal and anticompetitive intent through recorded phone calls. Specifically, Zito proposed that it would withdraw from bidding on crack sealing projects in Nebraska and South Dakota if its competitor withdrew from competing for such projects in Montana and Wyoming. Zito also offered to pay his competitor for lost business in Montana and Wyoming, and he offered that they commemorate the market-sharing agreement.

The facts underlying the DOJ lawsuit closely resemble a textbook market split scheme, but for one important fact: there was no deal. Like price-fixing, market-sharing agreements are generally criminally prosecuted by the DOJ under Section 1 of the Sherman Act, which requires proof of an anti-competitive agreement between competitors for liability. be established. In this case, however, there was no agreement because Zito’s competitor did not accept his invitation to settle.

Had Zito’s competitor accepted the proposal, the DOJ almost certainly would have prosecuted the scheme under Section 1. Instead, the DOJ charged the behavior with criminal attempt to monopolize under Section 2, alleging that Zito and its competitor were often “the only two companies that bid on crack sealing projects” in the area. Thus, according to the DOJ, a successful market-sharing scheme would have effectively allowed each to obtain a monopoly in the states assigned to it. Consistent with this premise, Zito pleaded guilty to knowingly proposing the Market Sharing Arrangement “with a specific intent to obtain monopoly power in the markets for highway crack patching services in Montana or Wyoming.” .

Prior execution of invitations to collusion

In the past, the DOJ and FTC have filed civil lawsuits challenging invitations to collusion.

Over the past 30 years, the FTC has reviewed invitations to collusion in various industries, ranging from healthcare-related distribution to truck rental under Section 5 of the FTC Act – a civil statute that prohibits “unfair or deceptive acts or practices in or affecting trade”. (15 USC § 45). For example, the FTC alleged that a coupon book publisher unlawfully invited its sole competitor to collude through the Chairman and CEO’s public statement made during an earnings call. Another example involves the civil actions against Nationwide Barcode and InstantUPCCodes.com, in which the FTC alleged that a director of an entity urged his competitor by e-mail to raise the prices of barcodes sold on the Internet.

The DOJ also criminally prosecuted invitations to collusion as mail fraud and wire fraud, where communications took place by telephone, fax or email. It is expected that these types of criminal actions will continue. Moreover, in 1983, in United States v American Airlines, Inc., the DOJ filed a civil lawsuit for attempted monopolization against American Airlines and its chairman for unsuccessfully inviting American’s main competitor, Braniff Airlines, to fix prices on certain city routes from Dallas International Airport /Fort Worth. Braniff – like Zito’s competitor – did not accept the proposal but instead cooperated with the DOJ. In the absence of an agreement on which to base a Section 1 fee, the DOJ sued for attempted monopolization on the theory that the pricing system, if it had been agreed, would have enabled these competitors to jointly monopolize the commercial air transport market on the routes.

The “shared monopoly” theory has been criticized over the years, where the attempt was to jointly set prices in a single market, but this criticism seems less applicable to an effort to divide markets, as in the Zito case. .

Along the same lines, the agencies also indicated that they intend to pursue signaling cases in which a competitor publicly signals their company’s interest in committing to price increases or reductions. of coordinated capacity, forcing competitors to raise prices or cut production. For example, FTC Chair Lina Khan warned of the antitrust implications companies could face in the current inflationary environment for “signaling to each other that they are seeking to engage in price increases coordinates” through public statements.

Important Considerations for Businesses

The DOJ criminally prosecutes invitations to collusion when the conduct resembles a failed attempt to form a cartel and the agreement, if executed, would allow the companies involved to monopolize markets. Penalties can be severe and may involve jail time, with violations of the Sherman Act carrying a maximum penalty of 10 years in prison and a maximum fine of $1 million.

Civil enforcement of certain invitations to collusion is likely to continue. In particular, the FTC and DOJ focus on invitations to collusion and point to patterns of facts based on public statements that appear to be aimed at facilitating coordinated price increases or capacity reductions. Companies should consider consulting an attorney before publicly commenting (for example, in earnings calls or industry conferences) on a strategy regarding future pricing, capacity, production, or customers.

As the DOJ and FTC take a more aggressive approach to antitrust enforcement, it is important that companies invest in an antitrust compliance program and train staff regularly to reduce the risk of criminal and civil liability. The DOJ has made it clear that in evaluating charging decisions in criminal antitrust investigations, it will assess the effectiveness and robustness of a company’s pre-existing antitrust compliance program, suggesting that an effective antitrust compliance program can s prove essential in the face of criminal charges under Section 2 .

To note:

  1. Other notable efforts include the DOJ’s recent wave of enforcement aimed at untying certain “interlocking directions,” which are prohibited under Section 8 of the Clayton Act; the FTC’s efforts to reinvigorate Section 3 of the Clayton Act, which prohibits certain exclusionary distribution practices; and the DOJ’s ongoing efforts to prosecute criminals in itself processing wage-fixing and non-poaching agreements.

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