Bob Connolly [email protected]

On Tuesday, September 14, 2021, the Antitrust Division issued a press release announcing a joint statement with the Federal Trade Commission warning contractors and vendors not to take advantage of the situation created by Hurricane Ida and collude on prices.  See, Justice Department and Federal Trade Commission Issue Joint Statement to Preserve Competition in Post-Hurricane Relief Efforts.

While noting that the antitrust laws allow procompetitive collaboration between competitors, the DOJ press release warned: “The Antitrust Division and its law enforcement partners will not tolerate businesses and individuals who prey upon hurricane victims or seek to corrupt relief efforts… In the aftermath of Hurricane Ida, the division’s Procurement Collusion Strike Force will leverage every tool in its arsenal to root out collusion, corruption and fraud targeting disaster relief.”

The Statement of the Department of Justice Antitrust Division and Federal Trade Commission on Preserving Competition in the Wake of Hurricane Ida is similar to joint statements issued by the agencies during the COVID pandemic and also following Hurricanes Katrina and Rita in 2005 and following Hurricanes Harvey and Irma in 2017.

This effort is laudable and an excellent use of prosecutorial resources.  As the press release says, “When a disaster like Hurricane Ida strikes, it’s unconscionable for any company to exploit the tragedy for their own financial gain….”  This initiative, however, would be vastly improved if Congress created an incentive for witnesses to come forward, such as the criminal antitrust whistleblower statute proposed by Senator Amy Klobuchar, see https://cartelcapers.com/blog/senator-klobuchar-unveils-wide-ranging-antitrust-enforcement-legislation/.

The Hurricane Ida DOJ/FTC joint statement encourages persons with knowledge of price fixing and/or bid rigging to come forward:

“Anyone with information on price-fixing, bid-rigging, market-allocation agreements, or other anticompetitive conduct involving disaster recovery should call the Antitrust Division’s Citizen Complaint Center at 1-888-647-3258, or visit http://www.justice.gov/atr/report-violations.“

The SEC asks for whistleblower help in their enforcement efforts. They have a much better “pitch:”

The SEC has awarded approximately $1 billion to 207 individuals since issuing its first award in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10-30% of the money collected when the monetary sanctions exceed $1 million. SEC Surpasses $1 Billion in Awards to Whistleblowers with Two Awards Totaling $114 Million, September 15, 2021.

I’m no Madison Avenue advertising guru (yikes, that is a dated reference) but if I was a potential whistleblower, the SEC press release is more of an attention grabber. (And if I was a potential price fixing, I’d think twice about fixing prices if the people in my company that I involved could be financially compensated for blowing the whistle.).

Currently, the Antitrust Division cannot promote whistleblowing as the SEC does because there is no whistleblower statute for criminal antitrust violations. But hurricane and other natural disaster relief efforts almost always involve massive federal (and state) funds.  There is a way for whistleblowers to potentially receive a financial incentive for whistleblowing for collusion on government contracts.  A whistleblower can file a False Claims Act suit where the federal government has been defrauded of money. The Antitrust Division could explain/advertise that fact in relevant press releases.  It would also be helpful if the Antitrust Division established an Office of the Whistleblower (or Special Counsel for Whistleblowing–a bureaucratically easier step), to promote criminal antitrust whistleblowing where federal funds are concerned. A small step to be sure but a step in the right direction.

Thanks for reading.

Yesterday Law 360 reported that “The U.S. Department of Justice’s Antitrust Division has embarked on a round of heavy hiring to beef up the ranks of trial attorneys who will help litigate pending enforcement actions against the biggest players in the technology industry.” (here–subscription required).

I looked online at www.usajobs.com and pulled up this posting[1]:

The United States Department of Justice, Antitrust Division, is seeking highly qualified attorneys to serve as Trial Attorneys in its seven civil enforcement sections in Washington, DC or in its San Francisco, CA office.

The attorneys hired can expect to be given significant responsibility and have immediate involvement with matters of national importance.

Open & closing dates               07/26/2021 to 08/27/2021

Service                                    Excepted

Pay scale & grade                   GS 14 – 15

Salary                                      $122,530 to $172,500 per year

Appointment type                  Permanent

Work schedule                        Full-time

For more info or to apply, visit https://www.usajobs.gov/GetJob/ViewDetails/608822200.

There has never been a more interesting time to be an antitrust lawyer (but it is always an interesting time to be an antitrust lawyer).  And there is no better place to get great experience than the US Department of Justice, Antitrust Division.  Of course, the Federal Trade Commission is also going to be an interesting and active agency in the coming years.  Here is a link to “Careers: Join the Federal Trade Commission Team.”

The Antitrust Division also hires entry level attorneys through the Attorney General Honors Program. I was fortunate enough to be hired by the Antitrust Division (a very long time ago) through the Honors Program for third year law students and those currently serving clerkships.  The Antitrust Division is anticipating hiring 15 entry level attorneys through the Honors Program.  Applications for the Honors Program are due in early September.  See here for more details.  I still clearly remember the phone call I got offering me a position with the Division.  It is still the luckiest thing that has happened to me in my career (“Its smarter to be lucky than it’s lucky to be smart.”  Pippin, The Musical).

There are often periods when, for budget reasons, there are very few openings in the Antitrust Division.  After many lean years, it appears the government is seeking reinforcements so if public service interests you, either as a career or a stop on your journey, this is an ideal time to explore your options.  Even with relatively robust hiring, however, the competition will be keen for these positions.  Good luck if you do apply.

Bob Connolly  [email protected]

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

[1] Job postings for the DOJ, FTC and other federal agencies can be found on www.usajobs.com.  State AG offices are also a place to check out for antitrust/competition related positions.

Bob Connolly  [email protected]

Acting Assistant Attorney General Richard Powers recently delivered (virtually) prepared remarks (here) covering several criminal enforcement topics including: Compliance; Deferred Prosecution Agreements and Engagement with Targets on Charging Decisions.[1]

In his remarks about “Engagement With Targets on Charging Decisions” Mr. Powers explains that an individual about to be indicted may not receive notice via a target letter if the Division staff believes defense counsel has not been “interested in meaningful good-faith interactions.”  While there have always been exceptions to sending a target letter based on the need for secrecy, it has, to my knowledge, never been the Antitrust Division’s policy to not issue a target letter based on what staff attorneys believe to be uncooperative conduct by defense counsel. This is too subjective a standard, improperly punishes an individual about to be indicted, and is inconsistent with the Antitrust Division’s well-earned reputation for civility and fair play.

The Target Letter

A “target letter” typically informs the subject of a grand jury investigation that he has graduated from being a subject (falling within the scope of the conduct of the grand jury investigation) to “target“ status.  Target status means that the Antitrust Division believes the investigation has produced indictable evidence linking an individual to a price-fixing/bid rigging scheme. The target letter also typically notifies the target that he may appear before the grand jury provided: he waives his Fifth Amendment privilege, consents to a full examination under oath and understands that anything the target says before the grand jury may be used against him.

While under no obligation to notify a target prior to indictment, the government typically does so, only refraining in the rare case where, “notification…might jeopardize the investigation because of the likelihood of flight, destruction or fabrication of evidence, endangerment of other witnesses, undue delay or otherwise would be inconsistent with the end of justice.”  JM 9-11.153-Notifcation of Targets [2].  In his speech, Mr. Powers laid out another basis upon which the Antitrust Division may decline to issue a target letter:

“Occasionally, we cannot delay our investigation for targets to be notified, and sometime situations arise where notification creates other risks we cannot bear.  Otherwise, the Antitrust Division typically takes a generous approach, particularly when a subject and counsel have engaged productively and affirmatively with staff throughout the investigation.[3]  But this process is a two-way street.  When a subject and counsel make clear they are not interested in meaningful, good-faith interactions—the kind that enhance the Division’s ability to reach a just result rather than serving as a distraction—the Division’s prosecutors are under no obligation to notify a target of its status. (emphasis added).

As the Justice Manual further provides, “[i]n investigations handled by the Antitrust Division, a target’s counsel is usually afforded an opportunity to meet with staff and the office or section chief regarding the recommendation being considered.”[4]  But that is far from absolute.  If the target and counsel have declined to engage throughout the investigation, or made apparent to staff that further engagement will not be productive, then the Division will not continue to spend its valuable time and resources on pointless meetings—and if we have decided not to notify the target of its status, of course there will not be an opportunity for a meeting.”(emphasis added).

The Justice Manual does not list “productive and affirmative” engagement by defense counsel with the staff as a criteria for issuing a target letter. This subjective standard could be interpreted as an attempt to chill vigorous representation by a defense attorney of her client.  Below are a few additional thoughts on why I believe target letters should be sent unless doing so would threaten the integrity of the investigation.

Issuing A Target Letter And Affording A Staff Meeting Is The Right Thing To Do

1)         Sending a target letter and granting a meeting are two different things. A target letter gives to request a meeting, but even if the request is denied the target has been informed that indictment may be imminent. The target letter gives the individuals’ counsel an opportunity to prepare the “target” for the negative publicity that is about to come his way. Getting indicted is a traumatic event for any person.  It is important to remember that it is not the defense counsel who will be indicted–it is an individual, who at this point, is presumed to be innocent. That individual most likely will have a family who will also be severely impacted by the publicity of the indictment.  Prior notice of indictment is an act of civility; warranted even if thought to be unearned.

To my knowledge,⁴ it has been the Antitrust Division’s long-standing practice that a target letter will be sent, unless there is a threat to the integrity of the investigation as noted above.  I have never seen public remarks by the Antitrust Division’s leadership indicating that a target letter may not be sent based on staff’s perception of the defense counsel’s conduct. It has long served the Antitrust Division’s best interest to take the high road of fairness, decency and civility, even if that level of professionalism is not being reciprocated.  In that sense, it is not “a two-way street.”  Prosecutors are public servants and sometimes you have to take some, um, stuff, and still do the right thing.

2)         There are good reasons for staff to grant a meeting with defense counsel if one is requested.[5] Previously stated defense arguments may sound different at this stage of the investigation. A new argument/position may be advanced. It is to the prosecutors’ advantage to learn what they can in these meetings, even with all due caution that defense counsel will not be putting all their cards on the table. The Division staff lawyers may sit stone silent in this meeting, or choose to provide some feedback which possibly may encourage a pre-indictment plea.  Indicting without notice “poisons the well” and, to state the obvious, removes the possibility of a pre-indictment plea.

3)         Humility also compels a prosecutor to sit through a “don’t indict my client” pitch meeting, even if it seems likely to be a waste of time and perhaps not a very cordial event. Indicting an individual is a tremendous responsibility and while every Antitrust Division prosecutor I have ever known has tried their best to make the right decision, no one is infallible. A boring or even contentious pitch meeting is the price to pay to take every measure to ensure that the momentous decision to indict is the correct one and is in the interests of justice.

Conclusion

            There is no dispute that target letters are not a matter of right. The perceived conduct of defense counsel, however, should not be the basis for decling to give notice of indictment.  Granting a pre-indictment meeting is a separate question, but one that should also be answered in the affirmative.  It is not only in the interest of the particular case in question, but in the long-term interest of the Antitrust Division as an institution to maintain its reputation of conducting itself with the highest level of fairness, decency and civility.

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

[1] Criminal Antitrust Enforcement: Individualized Justice in Theory and Practice, July  21, 2021, Acting Assistant Attorney General Richard A. Powers Delivers Remarks at the Symposium on Corporate Enforcement and Individual Accountability Hosted by the University of Southern California Gould School of Law.

[2]  When a target is not called to testify pursuant to JM 9-11.150, and does not request to testify on his or her own motion (see JM 9-11.152), the prosecutor, in appropriate cases, is encouraged to notify such person a reasonable time before seeking an indictment in order to afford him or her an opportunity to testify before the grand jury, subject to the conditions set forth in JM 9-11.152. Notification would not be appropriate in routine clear cases or when such action might jeopardize the investigation or prosecution because of the likelihood of flight, destruction or fabrication of evidence, endangerment of other witnesses, undue delay or otherwise would be inconsistent with the ends of justice.

[3] U.S. Dep’t of Justice, Antitrust Div., Antitrust Division Manual, Ch. 3 § G.2.c (updated July 2019) (“Staff ordinarily will inform defense counsel that it is seriously considering recommending indictment.”).

[4] Justice Manual § 7-3.400.

[5]   I am not advocating that further requests by defense counsel for meetings with the front office be routinely granted.  The Deputy Assistant Attorney General for Criminal Enforcement rightly relies on staffs’ recommendations.

On December 3, 2019, after a four-week trial, Christopher Lischewski was found guilty by a jury of conspiring to fix prices in the canned tuna market in violation of 15 U.S.C. Section 1.  Throughout the trial proceedings below, Lischewski preserved his challenge to the constitutionality of the per se rule in his criminal Sherman Act prosecution. On appeal, Lischewski argued to the Ninth Circuit that his conviction should be overturned on several grounds, including his objection to the per se rule jury instruction. The Ninth Circuit noted that “Lischewski acknowledges that we are bound by precedent upholding the per se rule and raises this issue only to preserve it for further review.”  In a July 7, 2021 NOT FOR PUBLICATION opinion, US v. Lischewski, No. 20-10211 (9th Cir. July 7, 2021) the Ninth Circuit held that “the [per se] instruction and the government’s statements correctly reflected the substantive law, and Lischewski has not explained why reversal would be warranted.”

On January 13, 2020 the Supreme Court denied cert on earlier appeal from the Ninth Circuit in a bid rigging Sherman Act case where defendants had challenged the per se rule. Sanchez et al. v. United States, No. 19-288, ___ U.S. ___ , 2020 WL 129558 (Jan. 13, 2020) (denying cert. petition).  Will the Supreme Court will accept cert in this case if, as expected, it is sought?  Weighing against cert: there is no split in the circuits; Lischewski was convicted of horizontal price fixing–the quintessential per se violation; and the Ninth Circuit characterized the evidence of guilt as overwhelming.  On the other hand, Lischewski raises a constitutional argument–and he is not alone.  Many defendants in ongoing Sherman Act criminal price fixing cases have attacked the constitutionality of the per se rule.  Lower courts, bound by precedent, are not addressing these new constitutional attacks.  It would be very helpful and interesting if the Supreme Court did.

Thanks for reading

Bob Connolly     [email protected]

Bob Connolly    [email protected]

July 4^th has come and gone and still there the Antitrust Division, US Department of Justice has no permanent leader. Reluctantly,  I declare myself a new entrant into the market for the job.

From press reports it seems many qualified potential leaders are knocked out because of they have previous articulated positions–pro or con–related to high technology companies and high-tech. I can assure everyone that I can articulate no portions on these matters.  I have to ask for help to simply reboot my laptop.  Or is it router? Or modem?  Are these different things?  Look at Cartel Capers.  Eight years in and I have no video, no ads, just the minimum basics WordPress can help anyone set up.

I do have an Amazon account but only to watch some of the cartoons they have on Amazon Prime Video. They have the Rocky and Bullwinkle Show (the remake, not the superior original).  I no longer use Facebook after I only got one “Like” on my last really witty post (and I had to “Like” my own post).  I do use Google and I own an Apple phone.  I often curse both but I would never hold that against those companies because I know anything that goes wrong is user error 99% of the time.

From my prior time with the Division I have experience prosecuting cartels.  I have won some and lost some.  I promise to keep that record alive if appointed.

I really don’t understand much of what the economists say but I am smart enough to know that they are smarter than me, so I’ll let them decide. Unless that would make the lawyers mad because, well, there’s a lot more of them.

During my time as Chief of the Philadelphia Office I honed my management style along the lines of the great New York Yankees former manager,  Casey Stengel:  “The secret to managing is to keep the half of the team that hates you away from the half of the team that’s undecided.”  Yogi Berra asked, “What about the other half?”

My last qualification: Since I have been spectacularly unsuccessful in attracting clients during my time in private practice I will rarely, if ever, have to recuse myself from any matters.  Um, wait, that might be a bad thing.

The career staff at the Division have been doing a great job in the absence of a permanent leader but they are probably anxious find out who the new boss will be.  I caution, however, ”Be careful what you ask for!”  I was looking forward to a new boss when the Obama Administration took over.  I got a new boss–and then my office and three other field office were shut down.  Ouch!

….Upon reflection, I am not going to throw my hat in the ring.  Working  in the Department of Justice is a dream job for any lawyer. But when you start, you only get two weeks’ vacation, and that is accrued over time. I have a vacation scheduled in August.  And September.  And October.  Good luck to all potential candidates.  If the job is still open after my October vacation I may reconsider.

Thanks for reading.

Bob Connolly    [email protected].

The Supreme Court’s decision in Nat’l Collegiate Athletic Ass’n v. Alston, Nos. 20-512 and 20-520, 2021 WL 2519036, (U.S. June 21, 2021) is a boost for the Antitrust Division’s commitment to prosecute what it calls naked “wage fixing” and “no poach” agreements.  In the prosecutions it has brought to date (still in the early stages) defendants have argued that the rule of reason, not the per se rule, should apply, because the courts do not have sufficient experience with wage fixing and/or no poach to put them in the class of per se violations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thanks for reading.

Bob Connolly   [email protected]

In a prior post I listed a number of ideas I thought it would be useful for the Biden Administration’s Antitrust Division to consider when the new leadership is in place.  The first item I wrote on was “A Call to Reopen the Atlanta and Dallas Field Offices.”  Below is a short note on another initiative I hope the DOJ Antitrust Division will consider:

• Support Senator Klobuchar’s Proposed Legislation to Establish Criminal Antitrust Whistleblower Incentives

Senator Klobuchar has included in her sweeping antitrust reform proposal provisions to provide financial incentives to criminal antitrust whistleblowers. The Senator’s proposal is based on the very successful SEC whistleblower legislation which has become one of the SEC’s primary enforcement tools.  See Senator Klobuchar Unveils Wide Ranging Antitrust Enforcement Legislation. Cartel Capers, Feb. 4, 2021.

I’ve written a great deal about the tremendous boost for cartel enforcement that would come from a criminal antitrust whistleblower incentive program like that of the SEC’s. see e.g., Cartel Capers, April 9, 2018, It’s A Crime There Isn’t a Criminal Antitrust Whistleblower Statute.  I initially became interested in this subject because it seemed odd (and wrong) that there was a financial incentive for a whistleblower to expose a cartel against the government via a False Claims Act case but there were no financial incentives available for a whistleblower who wanted to expose a cartel that victimized private individuals. But the Klobuchar proposal would not only provide a financial incentive for whistleblowing on cartels generally, but it would also greatly enhance whistleblowing on bid rigging to the government for two reasons:

FCA filing v. Providing Information of Collusion to the Government

1. Amount of Information Needed

A whistleblower can, and some have, filed False Claims Act cases alleging the government was the victim of a bid rigging scheme.  The Korean Fuel Oil case is the latest example, of whistleblowers being well rewarded for coming forward, filing a case and exposing a bid rigging scheme.  See Cartel Capers, https://cartelcapers.com/blog/south-korea-bid-rigging-whistleblower-case-and-related-antitrust-division-criminal-cases/. But it takes far more information to file a False Claims Act case than it does to provide a “tip” to law enforcement about collusion.  It is likely there are many times the number of potential whistleblowers who could provide law enforcement with information about collusion than could file a False Claims case.  Whistleblower attorneys know it is far easier to present information to the DOJ than to actually file an FCA Complaint.  The information provided via a tip may or may not be acted on; the FCA filing requires a long and extensive and expensive commitment (as well as requiring far more actual facts supporting the allegation.)

I’ll give one example based loosely on an actual case I prosecuted when I was with the Division. An estimator observed that the boss had an after-hours meeting with competitors at his office.  The next week, the estimator was told to raise by 10% a bid that he had prepared on a government contract.  Surprisingly, his company won the bid even with the higher price and the competitors who were at the meeting were the losing bidders.  The estimator could potentially seek an attorney to file a whistleblower FCA case based on these facts, but is thin and there may be no takers.  Alternatively, if the  estimator could have been a whistleblower by providing this information to the DOJ, the DOJ could review bids patterns, perhaps do a few drop in interviews, and conduct what the Antitrust Division calls a “preliminary investigation.”  Further signs of collusion may prompt a grand jury investigation and if guilty pleas and fines eventually result, the whistleblower would  get a reward.  Bottom line, it is far more likely a potential whistleblower will file a tip with the DOJ than an actual FCA case because it requires less evidence and less of a long-term commitment. [The estimator in this case did not become a whistleblower–the facts were established without his cooperation].

2.  Level of Anonymity Protection

There is another big advantage to filing a tip (as in the SEC whistleblower regime) than an FCA complaint.  A whistleblower has a far greater chance of remaining anonymous by submitting a tip than if he actually filed an FCA case.  An FCA complaint remains under seal while the government investigates but ultimately the identity of the whistleblower becomes revealed.  Retribution is, quite reasonably, the biggest fear that holds potential whistleblowers back. Even if the whistleblower just filed a tip, anonymity can not be completely guaranteed because if there is a criminal  trial, discovery obligations will require revealing the identity of the whistleblower.  Like SEC whistleblower cases, however, it will be a rare circumstance where the whistleblower provides information that leads to an indictment–and the case goes to trial instead of pleading out.

To summarize, I believe a Klobuchar style criminal antitrust whistleblower incentive will not only provide for incentives for the first time for a whistleblower who provides information on collusion in the private sector, it will also greatly enhance to government’s ability to detect and prosecute collusion/bid rigging on government contracts.  Whistleblowers would energize the government’s Procurement Fraud Strike Force.  Whistleblower incentive legislation will also support President Biden’s emphasis on fighting corruption.  See,

Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest.

Thanks for reading.

[In the near future there will be new leadership at the Antitrust Division.  But “near future” is a relative term so before I forget what I was thinking about, I offer this post. Bob Connolly, [email protected]]

When there is a new Assistant Attorney General for Antitrust she/he will no doubt have many new ideas for running the Division.  Attorney General Merrick Garland has a strong interest and background in antitrust and undoubtedly has also thought about the direction in antitrust enforcement he wants to see the Antitrust Division take.  Much of the discussion these days revolves around concerns about hi-tech, market concentration and a revisit of the Chicago School’s influence on civil antitrust enforcement.   The debate is important and fascinating but my experience is much more in the realm of cartels. I have some ideas that might be worth thinking about relating to the criminal antitrust enforcement program.

While I did have a long career in the Antitrust Division, I have also been out for a while now so these suggestions are modestly offered as simply some ideas I think are worthy of serious consideration.

1)         Reopen the Atlanta and Dallas Field Offices

2)        Support Legislation to Amend  the Sherman Act to Explicitly Make Price Fixing  and  Bid Rigging a Criminal Violation

3)         Support Senator Klobuchar’s Proposal to Provide a reward from Criminal  Antitrust Whistleblowers

4)         Establish an  Antitrust Division Office of  Whistleblower or Special Counsel for  Whistleblowers

5)         Clarify the Standards for Deferred Prosecution Agreements.

            Starting with the first recommendation–reopening two field offices–I will briefly explain why I think it is an idea worthy of serious consideration.

• Reopen the Atlanta and Dallas Field Offices

In late 2013, the Division closed down four regional field offices: Atlanta, Cleveland, Dallas, and Philadelphia.  The Division did not just lose regional coverage, but it lost a significant  number of experienced cartel prosecutors.  The regional offices that were closed were all in low(er) costs cities where dedicated cartel attorneys could stay with the DOJ as a career and still raise families.  Continuity and institutional memory suffered a big blow when a sledgehammer was taken to the Division’s structure.   While no one factor is responsible for the major decline in criminal antitrust prosecutions after the close of the field offices, this very bad decision certainly contributed.

There are two reasons why now is the right time to consider reopening the Atlanta and Dallas field office.  First, while the money is not in the bank yet, there seems to be bi-partisan support for a major increase in the Antitrust Division’s budget.  Secondly, field offices are well suited to support the Division’s focus on the Procurement Collusion Strike Force.  Establishing more local connections with the FBI and other federal agents and the various United  States Attorney’s offices was a prime strength of the regional field offices. Much of what the Procurement Collusion Strike Force is set up to do is what field offices did on an ongoing basis.  Long term relationships are very important.

Diversity in the Division is a worthwhile goal and regional diversity is also important.  Resurrecting two regional offices would give the Division the opportunity to create a more diverse workforce.  The South and Southwest are two very important areas in our nation’s economy and having offices in these regions can provide very important intelligence on economic trends important in the region, the judicial landscape, defense attorneys, local customs, and on. The previously closed field offices had all also brought major international cartel cases before they were closed.  The Dallas Field Office for example brought one of the earliest and largest international cartel cases:  Vitamins. (“The vitamin cartel is the most pervasive and harmful criminal antitrust conspiracy ever uncovered by the Division.”  https://www.justice.gov/atr/selected-criminal-cases-antitrust-division.  [This was written in 1999; before the auto parts cartel prosecution).

Thurman Arnold was perhaps one of the greatest, if not greatest, leader of the Antitrust Division.  Under Arnold, “Regional Offices were established throughout the country to uncover, investigate, and prosecute antitrust violations with an eye and ear to what was going on both locally and nationally.” Spencer Weber Waller, The Antitrust Legacy of Thurman Arnold, Loyola University Chicago, School of Law, (2004), available here https://lawecommons.luc.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1494&context=facpubs.  Closing four field offices was a very bad legacy.  Be like Thurman Arnold.   Build back better.  Rebuild the strong legacy of regional field offices.

***********

PS.     While the Cleveland and Philadelphia field offices were highly productive and did not merit being closed, they added minimal geographic diversity since a glance at the map shows their area is fairly covered by existing offices/sections.A more modest proposal for re-opening offices in Atlanta and Dallas has a better chance of catching on.

 

Thanks  for reading.

This Wednesday I will be among the speakers at a virtual event discussing whistleblowers and antitrust enforcement.  The Federal Bar Association Qui Tam Section is hosting a free Zoom roundtable on Wednesday, April 28^th at 12:00 noon Eastern on the False Claims Act and Antitrust Enforcement.  For more information and to register click here.

This is a timely program.  The Department of Justice has recently concluded an investigation/prosecution of bid rigging on Defense Department fuel contracts.  Several of the program speakers participated in this very successful matter.  In November 2018 the Antitrust Division and Civil Division announced that three South Korean oil refiners had agreed to plead guilty and to enter into civil settlements for rigging bids on United States Department of Defense Fuel Supply Contracts (here).  The investigation was started by a whistleblower filing a False Claims Act case.  The DOJ press release noted, “The United States’ False Claims Act civil investigation resulted from a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act.  Those provisions allow for private parties to sue on behalf of the United States and to share in any recovery.” Claims submitted for payment are “false” if the underlying contract has been fraudulently obtained by rigged. The government has entered into civil settlements of $205 million.  DOJ  Press  Release April 8, 2020 DOJ Agrees to Civil Settlement with Additional Firm Involved in Bid Rigging and Fraud Targeting Defense Department Fuel Supply Contracts for U.S. Military Bases in South Korea.  While the amount awarded to the whistleblower[s] who initiated the investigation is not known, at 15-25% of the total recovery, there was ample reward for coming forward and exposing the scheme.

This roundtable will examine the intersection of FCA and antitrust enforcement, including a discussion of DOJ coordination between the Antitrust and Civil Frauds divisions. What do antitrust cases look like, and how are they prosecuted and defended?  Our speakers represent all perspectives, with strong experience in both areas of law. The second half of the program will discuss the recently passed Criminal Antitrust Anti-Retaliation Act that provides protection for whistleblowers.  The panel will also discuss possible legislation that will expand the breadth of antitrust whistleblower options by providing a “bounty” for information that leads to criminal antitrust convictions and fines–much like the SEC whistleblower program.

This event is organized by the Qui Tam Section of the Federal Bar Association.

** OPENING REMARKS **

R. Scott Oswald
Managing Principal, The Employment Law Group, P.C.
Chair, FBA Qui Tam Section

** MODERATOR **

Rachel V. Rose
Principal, Rachel V. Rose – Attorney at Law, PLLC

** SPEAKERS **

Zachary Arbitman
Senior Associate, Youman & Caputo, LLC

Robert E. Connolly
Law Office of Robert E. Connolly

Kimberly A. Justice
Partner, Freed Kanner London & Millen, LLC

Bernard (Barry) A. Nigro Jr.
Partner, Fried, Frank, Harris, Shriver & Jacobson LLP

Andrew Steinberg
Senior Trial Counsel, U.S. Department of Justice

 

Sorry for the late notice posting about this event.  I hope you can Zoom in. For more information and to register click here.

Bob Connolly

 

I am sorry to report the passing of John J. Hughes.  John was the longtime Chief of the Philadelphia Office of the Antitrust Division, United States Department of Justice.  I  had the good fortune of working under John for many years until his retirement in 1994.  John was loved by all who worked for him as a great boss, priceless mentor, and dear friend.  We all owe him a great debt.

https://www.legacy.com/obituaries/inquirer/obituary.aspx?n=john-j-hughes&pid=198435951

After John “retired” he really spread his knowledge throughout the Antitrust Division, acting as a trial advisor for many staffs.  Over the next two decades I think John worked with staffs from every field office.  Trial is the most stressful event for a Division attorney and John was always a wise, calm, and supportive counselor.  John left a trail of friendships throughout the Division.  John was also well like and respected by defense counsel, Judges–anyone he came across.  I would not normally post an obit but John was a very special person and I know many people will be sad to read this but glad to remember John.

John had many successes as a lawyer.  Too many to mention.  In any event, people remember John not for the great work he did, but how he made people feel; appreciated and respected whether you were with the government or on the other side.  I will, however, honor John with mention of one matter he was the lead on– the legendary:

The Great Electrical Equipment Conspiracy

https://reason.com/1972/03/01/the-great-electrical-equipment/

D. ARMENTANO| FROM THE MARCH 1972 ISSUE

Undoubtedly the most celebrated price fixing antitrust case of modern times is the electrical equipment manufacturers price conspiracy, decided in 1961 (1). Involved were some of the nation’s largest and most prestigious firms, such as General Electric, Westinghouse, Allis-Chalmers, Federal Pacific, I-T-E Circuit Breaker, Carrier, and many others. The charges: that various employees of said firms had, between 1956 and 1959, combined and conspired to “raise, fix, and maintain” the prices of insulators, transformers, power switchgear, condensers, circuit breakers, and various other electrical equipment and apparatus involving an estimated $1.7 billion worth of business annually. (2)

A series of Philadelphia grand jury indictments was returned during 1960. After much discussion between the defendants and the Department of Justice, the firms were allowed to plead guilty to some of the more serious charges, and nolo contendere to the rest. On 6 February, 1961, Judge Ganey sent seven executives off to jail, gave 23 others suspended jail sentences, and fined the firms involved nearly $2 million. Subsequent triple damage suits brought against the equipment manufacturers by the TVA and private firms that had been “overcharged”, increased the financial penalty manyfold. And so ended the most publicized price conspiracy in all business history.

Farewell and thanks dear friend.