I applaud the National Institute for the Defense of Competition and the Protection of Intellectual Property of Peru (Indecopi), (the Peruvian Competition Agency) for the publication of guidelines for an Antitrust Reward Program.  The Guidelines are the result of a continuous effort of the Peruvian Competition Agency to detect anticompetitive conducts and promote a free competition culture in the market.

The guidelines promote an effective award (i.e. whistleblower) program.  They apply to:

• Price fixing or agreements on other commercial conditions.
• Output or sales restrictions, in particular, by establishing production quotas.
• Allocating costumers, providers or geographical areas.
• Bid rigging and other coordinations in public tenders and other public procurement processes.

As the guidelines note, these activities are not only the most harmful to consumers, they are also carried out in secret.  Inducing a cartel member (individuals—leniency is for corporations) to come forward is an effective policy to prevent cartel formation, destabilizing existing cartels and expose and prosecute those that are in existence.  A whistleblower has a heavy burden of possible retribution, legal fees and other adverse consequences from cooperating with authorities. A “reward” helps counterbalance the risks of coming forward.

The guidelines also draw a nice balance between excluding what might be called “ringleaders” of the cartel from a reward, but allowing lower level employees recruited into cartel activity to come forward and be eligible for a reward.

“However, there is a special scenario [for eligibility] where employees participated exclusively in the execution of an anticompetitive conduct but without playing any role of decision or control. These are employees who have been entrusted orders to execute and monitor cartel agreements (for example, orders of setting the prices agreed with the cartel members or informing the prices of the cartel members to ensure compliance), but who do not influence or participate in the planning or implementation of the agreement.”

This balance recognizes that cartels are usually mutli-level enterprises with what are often called Masters and Sherpas or Top Guys and working level guys.

A copy of the Rewards program can be viewed here: 4._the_antitrust_rewards_program.

The Antitrust Rewards Program discusses the many cartel whistleblower programs in effect around the world. It is an interesting development that the United States led the world’s competition agencies to adopt Leniency Programs but in the area of Rewards or Whistleblower legislation, other competition agencies are leading the way.  This is unfortunate given the sharp drop off in cartel prosecutions, particularly international cartels, contrasted against the massive success whistleblower programs have been for the United States Securities and Exchange Commission and other federal agencies.  I have written extensively in Cartel Capers about the need for criminal antitrust whistleblower legislation in the United States and how it would complement and reenergize, not undermine, the Corporate Leniency Program:

Benefits of a Criminal Antitrust Whistleblower Statute–Part 1

A Whistleblower Story (Hypothetical)

Some SEC Whistleblower News

The Indecopi Antitrust Reward Program came to my attention because their guidelines are up for a Concurrence Writing Award.  Voting for the Concurrences Awards is open in the following link: https://awards.concurrences.com/en/awards/2020/soft-law/the-antitrust-rewards-program.  Please consider voting for this program.

You can check out the many other fine articles up for award by Concurrences.  The Concurrences 2020 Antitrust Writing Awards contribute to competition scholarship by selecting the best antitrust writings published in 2019. The  Awards consist of:

• “Best Articles”: best academic, business, and student articles written by one or few individual authors.
• “Best Soft Law”: best non-enforcement tools written by competition agencies.
• “Best Newsletters”: ranking of best law firm antitrust newsletters.

The Jury is composed of leading antitrust enforcers, academics and counsel.

Thanks for reading and voting if you choose to.

Bob Connolly  bob@reconnollylaw.com

I am continuing my research and writing a paper for the Antitrust, Unfair Competition and Privacy Section of the California Bar Association.  Below is an excerpt on an issue I am trying to think through.

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Section 1 of the Sherman Act states, “[e]very contract, combination . . . , or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.”[1]  The Supreme Court has said: “the problem presented by the language of Section 1 of the Sherman Act is that it cannot mean what it says.”^[2] I submit the Sherman Act can mean exactly what it says because a pro-competitive (or neutral) agreement does not restrain trade. To restrain is “to limit”; “to hold back.”[5]  If an agreement is procompetitive, it does not restrain trade in the most natural meaning of the word.  The “trade” the Sherman Act was concerned with was clearly not the trade such as a contract between Standard Oil Company and a customer buying a barrel of oil.  That contract restrains trade only when given a very literal meaning; that the customer is not free to buy that barrel from another vendor.  Today we would say that such contracts generally are pro-competitive, or at worst neutral—-i.e. they allow and expand trade.  There is no indication in the legislative history, or common sense, that the Sherman Act intended to literally outlaw every commercial contract.  So, no—not every contract restrains trade in the meaning of the Sherman Act.  Congress was concerned with the agreements/trusts that made Standard Oil the only oil company.   The great trusts of the day: the Sugar Trust, Oil Trust, Banking Trust[6] restrained trade.  It is clear that Congress used the term “trade” in the way current antitrust case use “market.”

Unfortunately, the Supreme Court took a wrong turn and dealt with the perceived drafting problem by amending the Sherman Act and adding “unreasonable.”  In the the famous Standard Oil^[3] case of 1911, the Supreme Court introduced the “rule of reason,” declaring that only unreasonable restraints of trade are illegal.  In a dissent, Justice Harlan objected that the Court, rather than Congress, amended the legislation. Justice Harlan wrote that the Court “has now done what it then said it could not constitutionally do. It has, by mere interpretation, modified the act of Congress.”^[4]

Adding “unreasonable” to the Sherman Act was, however, “harmless error” since the modification was redundant. The real mischief was the Supreme Courts’s precedent of rewriting the Section One of the Sherman Act because a literal interpretation was non-sensical.  The rule of reason was soon followed by the per se rule.  Over its history, the Supreme Court has created per se rules for vertical price fixing, maximum resale price maintenance, vertical non-price restraints, boycotts and tying.  The point is, there was no need, nor basis, for the Supreme Court to create and dissolve per se rules.  The text of the statute has not changed.  The inquiry under the Sherman Act Section 1 must always be whether an agreement (if one is proved) constitutes a restraint of trade because that is what the statute prohibits.

The article I am writing will argue: 1) from a textualist point of view, there is no basis for reading a per se rule into Section One of the Sherman Act; and 2) using a per se rule in a criminal case takes the question away from the jury of whether the agreement was a restraint of trade and as such, is a violation of the defendants’ Fifth and Sixth Amendment rights.

Bob Connolly. bob@reconnollylaw.com

PS.  The comments tab on my blog is not working.  I do, however, really appreciate any comments and other perspectives.

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[1]  15 U.S.C Section 1.

[2] National Soc’y of Prof. Engineers v. United States, 435 U.S. 679, 687 (1978).

[3]  Standard Oil v. United States, 221 U.S. 1 (1911).

[4]  Id. at 99.  (Justice Harlan dissenting). For more detail and color, see, William Kolaksy, Chief Justice Edward Douglass White And the Birth of the Rule of Reason, Antitrust, Vol. 24, No. 3, p. 77, (On the bench, Harlan was even harsher. Those present in the courtroom reported that Harlan “[h]aving refreshed himself with whiskey . . . denounced his colleagues from the bench in impro- vised language that is said to have made them blush.”)

[5]   Merriam Webster Dictionary: 1a: an act of restraining : the state of being restrained

b(1): a means of restraining : a restraining force or influence (2): a device that restricts movement., available at https://www.merriam-webster.com/dictionary/restraint.

[6]   “Technically, a trust is a legal device used to coordinate multiple property owners through a unified management structure. Business owners combine their interests into a single legal entity—the trust. The various owners appoint a trustee (or multiple trustees) to act in the interest of the collective owners, and the individual owners retain dividend shares in the trust. A trust can be established within a single firm—a form known as a voting trust—to unite majority shareholders for the purpose of controlling management decisions. Alternatively, a trust can be set up to coordinate multiple, separately owned firms, operating like a combination or cartel. In 1882 S. C. T. Dodd, an attorney for John Rockefeller’s Standard Oil Co., created a trust to facilitate a tight combination of oil refiners that could dictate price and supply while also avoiding state-level taxes and corporate regulations. The use of trusts for industrial consolidation multiplied throughout the 1880s, and in response, several states and the federal government passed antitrust laws to regulate business competition, focusing on coordination among firms and business tactics used to monopolize industries.” Laura Phillips Sawyer, US Antitrust Law and Policy in Historical Perspective, Harvard Business School Working Paper, 19-110 )2019) available at   https://www.hbs.edu/faculty/Publication%20Files/19-110_e21447ad-d98a-451f-8ef0-ba42209018e6.pdf.

I explained in an earlier blog post that a criminal antitrust case had reached the Supreme Court where defendants convicted of bid rigging at public real estate foreclosure auctions had challenged the constitutionality of the per se rule.  On Monday, the Supreme Court declined to review the criminal antitrust convictions, leaving in place the per se rule in criminal antitrust cases.

As usual, the Supreme Court offered no explanation for denying cert in this case.  There is a Law 360 article on the case by Anne Cullen, January 13, 2020, Justices Skip Case Over ‘Per Se’ Rule In Antitrust Convictions, (behind paywall).

The defendants were joined in seeking Supreme Court review by amicus briefs filed by the National Association of Criminal Defense Lawyers and the Due Process Institute.  All of the briefs, including the brief of the United States, can be found in this earlier post:  Cartel Capers: Supreme Court Review Sought For Per Se Rule in Criminal Cases, October 30, 2019.

My short argument for why the per se rule is unconstitutional in a criminal case is:

There are three elements to a Section 1 Sherman Act offense: 1) an agreement; 2) in restraint of trade, 3) that affects interstate or foreign trade or commerce.  In a rule of reason civil antitrust case the jury decides all three elements, including whether the agreement was in restraint of trade (i.e. procompetitive or anticompetitive).  In a criminal case, however, the jury is instructed by the court that the agreement [if proven] is a restraint of trade and their job is only to find whether the defendant knowingly joined the charged agreement.  The language of Section 1 of the Sherman Act, however, is the same for a civil or criminal violation; so it is odd, in an oddly unconstitutional way, that in a criminal Sherman Act case the jury does not decide the fundamental element of whether the agreement was “in restraint of trade.”

While the per se rule has been long established, the defendants, in their brief to the Supreme Court, make clear there is another constitutional rule that takes precedence: the jury must find the defendants guilty beyond a reasonable doubt on every element of the crime. As entrenched as the per se rule may be, it must give way to this constitutional requirement.

The per se rule snuck under the radar if you will because it was established at a time when there was no real chance of anyone going to jail for an antitrust crime and long predates the more recent Supreme Court recognition of the constitutional requirement that juries find every element of a crime beyond a reasonable doubt.  Times have changed, as evidenced by the Antitrust Division, DOJ January 13, 2020 press release:  Former Air Cargo Executive Extradited From Italy for Price-Fixing.

There is another issue in antitrust law that comes to my mind.  In the no-poach cases the litigants try to win the heart of the Judge as to whether the case will be tried as a per se case (plaintiffs win), or the rule of reason (defendants win).  If the question is “Did the agreement restrain trade?” (and that is the question in an antitrust case), it seems the jury should decide the question.  In a criminal antitrust case, the constitution demands it.

I don’t think this issue will go away.  My friend James Backstrom sent me this quote from the esteemed (to those of us of a certain generation) Soupy Sales: “The path to change rarely is a straight line.”

More fodder for the blog.  I am also working on a longer article on this issue for the Antitrust, UCL and Privacy section of the California Lawyers Association, journal “Competition.”

Thanks for reading.

Bob Connolly             bob@reconnollylaw.com

My former DOJ colleague and whistleblowing writing partner, Kimberly Justice and I published an article in Competition, the official publication of the Antitrust, UCL and Privacy Section of the California Lawyers Association (CLA). CLA members can read the article online (here).  The article has information about handling False Claim Act cases and calls for the Antitrust Division to more actively encourage whistleblowers and stronger criminal antitrust whistleblower legislation. The article opens:

“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.”

Sam E. Antar, Former Crazy Eddie CFO, former CPA, and a convicted felon[1]

[1]   Henry Cutter,  SEC Seeks Right to Cut Whistleblower Bounties, Wall Street Journal, June 29, 2019, (comment by Sam E. Antar, Former Crazy Eddie CFO, former CPA, and a convicted felon).

PS.  If you’d like to join the CLA here is some information: “The membership year runs from January to December. Dues are not pro-rated. Non-California lawyers and law students can join as Affiliate Members.  For more information visit Join Us.”  If you like some information about why I think it’s a great organization for Antitrust and Privacy lawyers, give me call.

Thanks for reading

Bob Connolly.   bob@reconnollylaw.com. (215) 219-4418

As noted in earlier blog posts, three defendants convicted of bid rigging at public real estate foreclosure auctions have filed a cert petition in the Supreme Court challenging the per se rule in criminal cases.  The essence of the argument is that by instructing the jury that bid rigging/price fixing is a per se violation of the Sherman Act, the court unconstitutionally removes from the jury the question of whether the agreement was a restraint of trade.  The defendants filed a cert petition in August 2019.  The United States filed its brief in opposition on November 25th.

I’d summarize the per se rule is unconstitutional argument like this.  If the government charges a defendant with vertical price fixing, then the Court instructs the jury that it must decide whether the agreement was a restraint trade, i.e do the pro-competitive benefits outweigh the anticompetitive harms.  [This is a recent development.  Courts used to instruct juries that vertical price fixing was also a per se violation.]  But, in an indictment for horizontal price fixing (or bid rigging) the government determines the conduct is a per se violation, and if the Court agrees, this element of the offense is taken away from the jury. The jury is instructed that the charged agreement is a per se violation.  For the very same statute, very same language, in one case (the vertical price fixing case as an example) the jury decides whether the agreement (if one is established) is a restraint of trade.  In the criminal case, however, the Court, not the jury decides that element of the offense.  This, the argument goes, is inconsistent with the constitutional requirement that the government prove every element of a charged crime beyond a reasonable doubt.

In its opposition brief, the United States urges the Supreme Court not to take cert arguing that “the per se rule is an interpretation of the Sherman Act, not an evidentiary presumption, and that it can be constitutionally applied in a criminal antirust protection.”  The government’s brief recounts the history of major Supreme Court per se rule cases and concludes:

1. Defendants’ Cert Petition (here) (filed August 30, 2019)
2. Brief in Support of the Cert Petition filed by the Due Process Institute (here) (filed October 24, 2019)
3. Brief in Support of the Cert Petition filed by the National Association of Criminal Denese Lawyers (here)(filed October 24, 2019)
4. Brief in Opposition Filed by the United States (here) (filed November 25, 2019)

I have written a longer draft article, “The End is Near For the Per Se Rule in Criminal Cases” explaining my view that the per se rule is unconstitutional in criminal cases.  I’m going to review that in light of these excellent briefs.

It seems unlikely the Supreme Court will grant cert since there is no split in the circuits, but from defendants’ point of view it raises a serious constitutional question–one the Supreme Court has tackled in a number of different contexts recently–is the defendant denied the right to have the jury decide each element of the offense?–in this case, whether the agreement was a restraint of trade.

Bob Connolly

bob@reconnollylaw.com

Bob Connolly

 The Antitrust Division, in conjunction with US Attorneys’ Offices, the FBI, and various government agencies’ Inspector General’s Offices, announces that they have launched a strike force to help uncover bidding collusion on government contracts.

The quote below is from the press release Justice Department Announces Procurement Collusion Strike Force: a Coordinated National Response to Combat Antitrust Crimes and Related Schemes in Government Procurement, Grant and Program Funding:.

Prosecutors from the Antitrust Division and the participating U.S. Attorneys’ Offices, along with agents from the FBI and partner Offices of Inspector General, will work together to conduct outreach and training for procurement officials and government contractors on antitrust risks in the procurement process.  In addition, the partnered prosecutors and investigators will jointly investigate and prosecute cases that result from their targeted outreach efforts.

This quote is from Deputy Attorney General Jeffrey A. Rosen Delivers Remarks at the Procurement Collusion Strike Force Press Conference:

I am therefore pleased to be here today to support the establishment of a Procurement Collusion Strike Force. This Strike Force will target bid-rigging and other antitrust crimes that can cost American taxpayers billions of dollars each year by undermining the federal government’s processes for purchasing goods and services and for money granted to states and municipalities to undertake large, high-dollar-figure public improvement projects.

This initiative is an excellent use of Division resources.  Outreach, also called a “Procurement Fraud Initiative” has been a basic investigative tool for the Antitrust Division forever.  Some of the Division’s most prominent cases, (road construction; utility construction, graphite electrodes) were the product of outreach efforts.  Many Antitrust Division veterans could add to the list of successful outreach efforts.  Of course, outreach takes substantial resources which is why it ebbs and flows as an Antitrust Division priority.  On November 5, 2019 the Financial Times reported: “US price-fixing prosecutions at historic low for third straight year” so it is a good time to focus efforts on uncovering government procurement fraud.

What exactly is “Outreach?”  I can speak to what it was during my years with the Antitrust Division and it is no doubt very similar today.  Division lawyers focus on meetings with US Attorneys, FBI and other IG agents, and government procurement officials (buyers).  AUSA’s and investigative agents occasionally come across evidence of bidder collusion in the course of investigating other types of procurement fraud (i.e. bribery/kickbacks).  Sharing evidence about competitor contacts or other suspicious bidding activity may be enough for the Antitrust Division to recognize that further investigation of the bidders is warranted.  Often, there are Title 18 and Title 15 violations wrapped up in the same course of conduct.  Having an actual contact at the Antitrust Division makes a free flow of information more likely and insure that the full extent of the fraud, and damages to the government, are prosecuted.

The real gold, in my experience, is contact with procurement officials.  They have day to day experience with the bidding process and can see patterns over time and/or products that may merit further inquiry.  They may have seen white-outs/withdrawn bids/common pricing or other tell-tale signs of collusion but are hesitant to bring this to anyone’s attention because, after all, it is simply a sign of possible collusion—not proof of collusion.  But when educated about how the Antitrust Division works, and seeing that someone cares, procurement officials sometimes produce gems of intelligence.  I’ll give just one example, though there are many.  Back in the day, my office used to do occasional training with Defense Department buyers in our territory.  One buyer had a credible suspicion about a product allocation scheme among several bidders.  After one bid submission, she called the vendor, who we suspected was supposed to lose the contract, and told him that his company was the low bidder.  This was unexpected and unwelcome news and a series of a calls followed that clearly indicated the bidders were talking to each other and trying to straighten things out.  This tip eventually led to a significant case, and like many antitrust investigations, the initial investigation spawned other successful investigations.

Of course, this is how outreach works at its best.  On other occasions, I could read minds and tell the audience is thinking: “Really, don’t I have enough to do without getting involved in some investigation?”  [Sometimes mind-reading wasn’t necessary].  My last PowerPoint slide was “Frequently Asked Questions” under which I had “Are You Almost Done?”  It brought laughter and a definite sigh of relief when I said “Yes.”

As part of outreach we used to distribute this Antitrust Division publication: Price Fixing, Bid Rigging and Market Allocation Schemes.  It’s a public document and private corporations may want to distribute to their buyers as well.  (Note:  On occasion we did outreach to private corporations but resource constraints limited this effort.) Outreach can be frustrating because it mostly leads to dry holes, but the occasional gusher strike makes it worthwhile—when resources permit.

One disappointment I have with the Antitrust Division’s Strike Force announcement is the lack of mention that individuals who blow the whistle on government procurement bid rigging can receive an award as a whistleblower.  Government procurement officials cannot be whistleblowers—it is their job and duty to report suspected fraud.  But, an estimator, disgruntled former employee, or competitor can file a False Claim Act suit as recently happened with the Korean Fuel Supply bid rigging cases which are still ongoing but have already been quite successful.  I hope this potential to be a whistleblower message is being publicized.

In a June 2018 Cartel Cappers post, I wrote something that I’d like to reprint:  Criminal Antitrust Whistleblower Statute:  The Bid Rigging Whistleblower

Should the Antitrust Division Have a Whistleblower Czar?

Well, no.  Without legislation to create a criminal antitrust whistleblower statute, the Czar might have little to do.  But the Antitrust Division should make some effort, short of Czardom, to encourage bid rigging whistleblowers.  As I noted in Part I (here), there is already a mechanism for a whistleblower to claim a reward for prosecuting collusion among contractors/vendors on government contracts.  The bid rigging whistleblower can file a False Claims Act (qui tam) case on behalf of the government alleging that the government was ripped off by illegal collusion among the bidders.  If the government recovers damages, the person who brought the suit (the Relator) can receive a percentage (10-25%) of the recovery.

As I mentioned in Part I, the Antitrust Division has brought both criminal and civil suits as a result of filed whistleblower cases. This is a pretty well-kept secret because as far as I know, the Division has never encouraged anyone to come forward as a bid rigging whistleblower or done anything to publicize the fact that whistleblowers of collusion on government contracts can and have recovered a portion of the government’s damages.  The government should make some effort to attract bid rigging whistleblowers.  Doing so would benefit the Antitrust Division in obvious and non-obvious ways.  Below are a few ideas I think are worth discussing.

1. Welcoming Bid Rigging False Claims Act cases

• Special Counsel for False Claims Act Cases

Over the years there has been a proliferation of counselors to the Assistant Attorney General for the Antitrust Division.  One counsel, with a criminal and civil background, could be designated as the Special Counsel for False Claims Act cases.  This would at least be a message to the bar that the Antitrust Division does have an interest in promoting whistleblowing on collusion on federal government contracts.  This special counsel could also oversee whatever efforts the Antitrust Division does take to encourage bid rigging whistleblowing.

• Create a False Claims Act web page

The Antitrust Division has a page on its website for the Leniency Program.  The Antitrust Division promotes the heck out of leniency.  This page is an excellent source of information about everything one would need to know about the Corporate and Individual Leniency Programs.   There is also a Report Violations page on the Antitrust Division’s website. A False Claims Act page would signal the Division’s interest in possible False Claims cases as well as provide information a potential whistleblower might need to begin.

• Better Coordination with Civil Division and United States Attorney’s Offices

 When a False Claim Act case is filed, notice of the case and the evidence supporting it must be filed with the Attorney General of the United States.  From there, the case will be assigned according to the subject matter of the alleged fraud: (i.e. health care, defense, antitrust).  Perhaps this is already being done, but the Antitrust Division might be more aggressive in claiming its seat at the table for bid rigging on government contracts.  A whistleblower will not file a Sherman Act case if she has information about collusion on a government contract—because there is no provision for antitrust whistleblowers.  The case will be filed as a Conspiracy to Defraud the United States with the bid rigging constituting the fraud.  A review of cases False Claims Act Cases on the Department of Justice website indicates that there have been a variety of False Claims Act matters that involved bid rigging yet were handled by local United States Attorney’s offices and the Civil Division of the Department of Justice, instead of the Antitrust Division.[1]

It would be good public policy to have all potential government bid rigging cases be referred to the Antitrust Division. Pardon the institutional pride (I worked there for 34 years), but nobody can spot, investigate and prosecute a viable criminal antitrust violation (i.e. bid rigging) better than an experienced Antitrust Division Attorney.  What may look like a bid rig too small for government intervention, may be spotted as the tip of the iceberg by an Antitrust Division prosecutor.  Likewise, a case that may appear weak to someone else, may look quite viable to a Division prosecutor that has experience investigating cartels—and tools like the leniency program.  A special counselor for False Claims Act cases would raise the profile within the Antitrust Division, the Department of Justice (and the outside bar) and may spur additional viable False Claim Act cases being referred to the Antitrust Division for a decision on whether the government should intervene and take over the prosecution.

2.      The Benefits to the Antitrust Division of a Higher Profile for False Claims Act Cases

The Antitrust Division could benefit in both obvious and non-obvious ways from a higher profile on False Claim Act cases.

• The Obvious

Filing a False Claims Act case is a risky proposition for any potential whistleblower.  The blowback from being a whistleblower will likely be severe and the chances for success, especially if the government does not intervene, are far from certain.  Modest changes like these suggestions are not going to lead to an avalanche of new cases.  (Thus, the need for an SEC like criminal antitrust whistleblower statute as I argue in this article (here)).  It is certainly worth a try.  Nothing suggested above, and others may have additional/better suggestions, costs the government a nickel and the return on the investment may be substantial, even if just one additional cartel is uncovered.  Also, while a different subject, many believe that the value of leniency has been decreasing and the number of viable leniency applications is down. While this may be coincidence, not causation, the Antitrust Division’s statistics for cases and jail sentences and fines are way down.  It may be an opportune time to launch a new, if modest, initiative.

• Good Cases

One benefit of publicizing the potential benefits of being a bid rigging whistleblower is that even if only one new case emerges, these are great cases for staff to work on.  Here I speak from personal experience and my views may not be universally held, but I’m pretty sure they are held by most trial attorneys in the Antitrust Division. Government bid rigging cases are great cases to work on.  They are much lower profile than say a Forex or Libor or other international cartel matters.  These “big” cases have their own allure, but the front office, the Criminal Division, SEC, CFTC, foreign agencies, Batman and Robin and others all have a hand in these investigations.  While it is exhilarating to work on a matter that makes the front page of the Wall Street Journal, a staff member is a small cog in the big wheel. On a government contract matter, generally speaking, the staff has more responsibility and more ownership of the matter, including possible trial experience on manageable cases. It’s a great way to learn how to investigate, take chances and take ownership.  These cases also involve working with agents across the federal spectrum.  These relationships can last a career and produce results over a long period of time.

• Deterrent Effect

Finally, one of the most important reasons for robust antitrust prosecutions is deterrence. If the Antitrust Division starts whistleblowers and prosecuting bid rigging cases, it should have a deterrent effect on all the bid riggers out there that are not currently being detected. Whistleblower awards on bid rigging matters should be well-publicized. There is great satisfaction in seeing taxpayer money restored (with appropriate penalties) if a successful case is brought.  In a cartel case like capacitors the price of an input is raised but the impact on the final cost to consumers is small.  The cumulative harm is great (and should be prosecuted), but it is very diffused.  With bid rigging on government contracts the harm is focused and the recovery can be significant with both criminal and civil penalties.  Also, many government bid rigging investigations can lead to finding more bid rigging and what often looks like a small matter can proliferate into a major investigation.  Road construction, school milk, Defense Department contracts are just a few of the government contract cases that led to uncovering “way of life” collusion in certain industries.

A petition for review is before the Supreme Court filed by three California real estate investors who were convicted after trial under Section 1 of the Sherman Act for bid rigging at real estate foreclosure auctions.  The defendants preserved their objection that the application of the per se rule was unconstitutional because it took an element of the offense [was the agreement in restraint of trade?] away from the jury once the court decided the per se rule applied.

The cert petition was filed on behalf of defendants Javier Sanchez, Gregory Casoro and Michael Marr by the law firm of Keker, Van Nest & Peters, LLP.  In the last week, two amicus briefs were filed in support of the Supreme Court taking the case; one by National Association of Criminal Defense Lawyers NACDLSanchezAmicus, and another by the Due Process Institute Sanchez v. US — DPI Amicus Brief.  Law 360 published an article on October 25, 2019 discussing the cert petition and amicus briefs (here—but behind a paywall).  I was quoted in the article for agreeing that the per se rule in criminal cases unconstitutionally deprives the defendant of his/her right to have the jury decide every element of the offense.  Because the jury does not decide whether the agreement was a restraint of trade, the defense is barred from proffering procompetitive evidence.  While much could be written (and has) the argument is simple:

There are three elements to a Section 1 Sherman Act offense:  1) an agreement; 2) in restraint of trade, 3) that affects interstate or foreign trade or commerce.  In civil cases the jury decides all three elements, including whether the agreement was in restraint of trade (i.e. procompetitive or anticompetitive).  In a criminal case, however,  the jury is instructed by the court that the agreement [if proven] is a restraint of trade and their job is to find whether the defendant knowingly joined the charged agreement.  The language of Section 1 of the Sherman Act, however, is the same for a civil or criminal violation; so it is odd, and unconstitutional, that in a criminal Sherman Act case, the jury does not decide whether the agreement was “in restraint of trade.”

Another way to look at this is that in the most recent Supreme Court case to deal with the Sherman Act, Ohio v. American Express Co., 138 S. Ct. 2274 (2018) the Court explained the basis for the per se rule : “A small group of restraints are unreasonable per se because they always or almost always tend to restrict competition and decrease output.” Id. at 2283-84 (emphasis added). But in a criminal case, the government doesn’t get to prove the defendants are almost always guilty; the prosecution needs to prove that this defendant’s agreement was in restraint of trade.

I am in no way advocating that price fixing and bid rigging should not be charged criminally.  In fact I have advocated as loudly as I can for stronger cartel enforcement with the passage of a criminal cartel whistleblower statute (here and here). Holding culpable individuals accountable for corporate crime is the surest and most effective deterrence.  When I started looking into the per se issue, I did not expect to reach the conclusion that I have.  I can relate to something Justice Gorsuch wrote when he was on the Tenth Circuit Court of Appeals: “Indeed, a judge [researcher] who likes every result he reaches is very likely a bad judge [researcher], reaching for results he prefers rather than those the law compels.”  A.M. ex rel. FM v. Holmes, 830 F.3d 1123, 1170 (10th Cir. 2016).  If the Sherman Act needs fixing, again Justice Gorsuch has the solution.  He wrote in his dissent in Perry v. Merit Systems Protection Board,  137 S. Ct 1975 (2017), “If a statute needs repair, there’s a constitutionally prescribed way to do it. It’s called legislation.” Id. at 1990.

Will the Supreme Court take Cert? 

            I don’t have any insight into this question except to note that the Supreme Court agrees to hear relatively few cases.  Further, in this case there is no split among the circuits.  The cert petition, however, does raise a constitutional question, and one that is of seeming importance to “progressive” Supreme Court Justice Sonia Sotomayor and “textualist” Justice Neil Gorsuch.  To quote one commentator, in an article titled Sotomayor and Gorsuch Resume Their Fight for the Future of the Sixth Amendment, “they are on a mission to restore criminal defendants’ constitutional rights:” Mark Joseph Stern, Slate, January 7, 2019; see also Mark Joseph Stern, “Neil Gorsuch and Sonia Sotomayor Team Up to Protect Criminal Defendants,” Slate November 19, 2018.

For longer versions of what I have written on the constitutionality of the per se rule, see

The End is Near For the Per Se Rule in Criminal Sherman Act Cases, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3356731 and

How Per Se Rule Will Die In Criminal Antitrust Cases, Law 360, March 20, 2019, at https://www.law360.com/articles/1141024?copied=1.

Stay tuned. Thanks for reading.

Bob Connolly  bob@reconnollylaw.com

I moved to California a few years ago and I have loved living here.  I also became active in the California Lawyers Association and particularly, the Antitrust, Unfair Competition Law (UCL) and Privacy section.  It’s a great group of people and very diverse along practice areas, levels of experience and interests.  The Section puts out some great work product including an event I’d like to recommend.

The Antitrust, UCL and Privacy Section is hosting the 29^th Golden State Institute and Reception on November 13-14, 2019.  The event kicks off with an after-work  networking reception on November 13 from 6:00-8:00 pm. The reception is hosted by Morrison Foerster at their offices at 425 Market Street, San Francisco.  More information about this event, sponsored by the Analysis Group, can be found here.

The following day is the Institute Program and Lawyer of the Year Reception and Dinner.  The complete program brochure is here.  Some highlights of the program I took note of are:

     1.   Managing Antitrust and Complex Business Trials

A discussion about complex case management and best trial practices with three experienced judges from the Northern District of California:

Hon. Vince Chhabria, US District Court Judge

Hon. Haywood Gilliam, US District Court Judge

Hon. Jacqueline Corley, US Magistrate Judge

     2.   Guest Speaker– Richard Powers

U.S. DOJ Antitrust Division Deputy Assistant Attorney General Richard Powers will address the Antitrust Division’s criminal antitrust enforcement priorities and policy initiatives including compliance.

     3.   Fireside Chat: Aaron Hoag

U.S. DOJ Antitrust Division Chief of the Technology & Financial Services Section Aaron Hoag speaks with Karen Silverman, Partner at Latham & Watkins, about the Antitrust Division’s approach to technology markets.

The Program package includes 6.50 Hours of MCLE credit, program materials on a USB drive, continental breakfast, lunch, and attendance to the welcome and closing reception.  Following the Institute, Penelope A. Preovolos will be honored as the 2019 Antitrust Lawyer of the Year.  Online registration and additional information is here.

PS.       California is a leading jurisdiction on Privacy and Big Data issues and the Antitrust, UCL and Privacy Section has some leading attorneys in this space in the section. California Attorney General Xavier Becerra recently released to the public (press release here) proposed regulations under the California Consumer Privacy Act (CCPA).  If you are in the privacy space the Antitrust, UCL and Privacy Section may be a good place to be.

 

Thanks for reading.

 

Bob Connolly  bob@reconnollylaw.com

On September 17, 2019 Assistant Attorney General Makan Delrahim testified before the U.S. Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.  Mr. Delrahim’s prepared statement is here.  During his testimony there was an interesting exchange between Senator Grassley and Mr. Delrahim relating to whistleblowing and antitrust violations.   Senator Grassley asked Mr. Delrahim if he supports Senator Grassley’s proposed Criminal Antitrust Anti-Retaliation Act .  Mr. Delrahim said he did.  I may have missed it, but that is the first time to my knowledge Mr. Delrahim has expressed support for the legislation.

A little background:  On July 24, 2019 Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vt.), reintroduced legislation to extend whistleblower protection for employees who provide information to the Department of Justice related to criminal antitrust violations.  The Senators’ bill would protect whistleblowers in criminal antitrust cases by prohibiting employers from retaliating against an employee who provides information to the Department of Justice regarding conduct that violates the criminal antitrust laws.  Senator Grassley noted: “Just as whistleblower protections for government employees help root out waste, fraud and abuse, they can also help prevent misconduct in the private sector.”   The Senate unanimously passed a similar version of the legislation in 2013, 2015 and 2017  but the bill was never even taken up by the House of Representatives.  Makan Delrahim expressed his support for the bill while testifying before a United States Senate antitrust oversight hearing.  He was asked by Senator Grassley:

Senator Grassley:   Do you believe it [the proposed anti-retaliation legislation] would be helpful in going after antitrust violators?

Makan Delrahim:    I think it would be helpful.  I believe we have expressed support for the bill.  I will check on that and get back to you. But I think it is sound policy that would complement and further enhance our cartel enforcement activities.

Testimony of Makan Delrahim, Assistant Attorney General Antitrust Division, U.S. Dep’t of Justice, at the Senate Judiciary Subcommittee on Antitrust, Antitrust Enforcement Oversight Hearing, September 18, 2019, available at C-Span, https://www.c-span.org/video/?464378-1/antitrust-enforcement-oversight-hearing. (47:08-47:42).

Passage of the Grassley-Leahy legislation would be a great, but modest step forward.  Successful whistleblower legislation requires a second component: A potential financial award when the whistleblowers’ information results in a successful prosecution of violations of the law.  I’ve posted on this topic frequently on this blog and co-authored with Kimberly Justice two short articles on the subject: It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute, Antitrust Law Daily, April 5, 2019, http://business.cch.com/ald/ALD_Criminal-Antitrust-Whistleblower-Statute_04-05-2018_final_locked.pdf; and The Political Stars Align for a Criminal Antitrust Whistleblower Statute, Antitrust Law Daily, February 2019, http://business.cch.com/ald/ALD_Criminal-Antitrust-Whistleblower-Statute_20190208.pdf.

Thanks for reading.

Bob Connolly  bob@reconnollylaw.com

Below is a guest post by Dr. Ai Deng, PhD who writes often about issues related to price fixing cartels.  Dr. Deng is at NERA Economic Consultants, and can be reached at ai.deng@nera.com or connect with him on LinkedIn (https://www.linkedin.com/in/aideng/)

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In a recent post, Bob shared his thoughts on the latest DOJ policy that could give credit to companies for their effective antitrust compliance programs.  In this post, I want to discuss how data analytics and artificial intelligence could help build a robust compliance program.

Empirical screen

Empirical screen is a topic that I have previously covered in other posts on cartelcapers.  And this data analytic technique is a promising starting point to consider.  It has already been used by antitrust authorities all over the world, and is getting increasing attention in the recent academic literature. One notable application of empirical screens was Christie and Schultz’s (1994) research on the market maker’s collusion on NASDAQ.  In 2011, Competition Policy International’s Antitrust Chronicles devoted an entire issue to the subject of empirical screens. In that issue, Mexican and Brazilian competition authority officials shared their experiences in applying the screens to detect potentially collusive conduct.  Laitenberger and Hüschelrath (2011) described the European experience in applying empirical screens.

To put simply, an empirical screen is a metric that is based on data and a prespecified formulation. The value of the metric changes as the likelihood of market manipulation increases or decreases. When the value crosses a certain threshold, a “red flag” for suspicious activity goes up. When this occurs, additional investigation of the causes may be warranted.  For example, changes in price variability and market shares have been proposed in the literature as collusion screens.

This is not a new idea. “Detection” techniques similar to empirical screens are widely used in the credit card and telecommunications industries for fraud detection purposes. AT&T Labs’ researchers Becker, Volinsky, and Wilks (2010) noted that AT&T implemented its fraud detection system (the Global Fraud Management System) nearly 20 years ago, in 1998.  AT&T’s team of data experts continuously analyzes data and devises new techniques to detect fraud.  Credit card companies also invest significantly in fraud detection efforts. All this is to say that antitrust compliance programs can also benefit from similar analytical approaches.  Readers interested in learning more about this approach, including some of the pitfalls, can check out my short Law360 article (https://www.law360.com/articles/708083/what-compliance-officials-must-know-about-market-screening) or a longer and more detailed paper published in the Journal of Antitrust Enforcement.  (https://academic.oup.com/antitrust/article-abstract/5/3/488/2884289?redirectedFrom=fulltext)

Algorithmic Compliance

Autonomously colluding algorithms have generated a great deal of concerns recently.  But if pricing algorithms could autonomously collude, can they be made automatic antitrust compliant as well? EU Competition Commissioner Margrethe Vestager certainly believes so, as she stated in a recent speech that “(w)hat businesses can – and must – do is to ensure antitrust compliance by design. That means pricing algorithms need to be built in a way that doesn’t allow them to collude.”

There are several potential pathways to algorithmic compliance. One of the most promising ideas is based on the recent advances in explainable AI, also known as XAI.  As the name suggests, explainable AI aims to make algorithmic decision-making understandable to a human.  Notably, the Defense Advanced Research Projects Agency (DARPA) sponsors a program named XAI.  The organization FATML (Fairness, Accountability, and Transparency in Machine Learning) also aims to promote the explainable AI effort.

Some of the commercial interest in explainable AI comes from the lending industry because of the regulation and the need to explain lending decisions to a consumer especially when the decision is made by machine learning models.  It should not come as a surprise that the same need for explainability goes well beyond the lending industry.  For example, interpretability of algorithms can be equally important in the medical and healthcare domain.  And it can also be an important part of antitrust compliance by design.

Suppose that your pricing algorithm is setting a price that you think might be too high.  Imagine that your algorithm can explain its decision making.  For example, you may want to ask your algorithm “what if we lower the price?” or “would we generate higher immediate profit for doing that?”  The answer that your algorithm provides might be “based on the demand forecasts and our customers’ price elasticity, this is the optimal price we should set” or “we have no reason to lower our price because we know that the competitor’s algorithm is not going to lower theirs, and we know that because we have figured out that this is the best course of action that benefits both of us in the long term,” or even “we should not because the last time we lowered our price, the competitor started a price war.”  Whether or not the last two responses suggest problematic algorithmic conduct, having this knowledge can be extremely helpful.

But how would one go about tackling the algorithmic explainability such as this?  An AI study published in 2018 titled “Contrastive Explanations for Reinforcement Learning in terms of Expected Consequences” is an important step toward achieving the type of explainability discussed above.  In the framework of the standard reinforcement learning (RL), the researchers of this study developed a method that enables a RL agent to answer precisely the what-if questions similar to those we posed above. Suppose that we are curious about why the autonomous RL agent takes the action A, instead of another action B, in a situation.  Their RL agent will answer this why question by contrasting the expected outcomes or consequences of the two actions. This type of contrasting is exactly what underlies our conjectured answers above.  Interested readers can find a much more in-depth discussion in a recent article of mine, titled “From the Dark Side to the Bright Side:  Exploring Algorithmic Antitrust Compliance” available for download here https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3334164.

As always, I welcome your thoughts and comments.  I can be reached at my new email address ai.deng@nera.com.  You may also connect with me on LinkedIn (https://www.linkedin.com/in/aideng/) 

Ai Deng, PhD
Associate Director

NERA
ECONOMIC CONSULTING
Tel: +1 (202) 4669210

Fax: +1 (202) 4669252
www.nera.com