Bob Connolly, [email protected]

In an October 16, 2016 FTC/DOJ press release: FTC and DOJ Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation the Antitrust Division first announced: “Going forward, the Justice Department intends to criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers.” The Antitrust Division has since made good on that promise with several criminal cases, some involving individuals as defendants, currently in the courts.  See, United States v. Jindal, No. 4:20-cr-00358 (E.D. Tex. Dec. 9, 2020); United States v. Surgical Care Affiliates, LLC, No: 3-21-CR0011-L (N.D. Tex. Jan. 5, 2021); United States v. Hee et al., No. 2:21-cr-00098-RFB-BNW (D. Nev. Mar. 30, 2021); United States v. DaVita, Inc., No. 21-cr-00229-RBJ (D. Colo. July 14, 2021).

The focus on labor market collusion is not a passing interest of the Antitrust Division.  On October 1, 2021, Acting Assistant Attorney General Richard A. Powers of the Antitrust Division spoke about the history of and commitment to enforcing the antitrust laws, including criminal enforcement, in labor markets:

If it was important for enforcers to protect competition in labor markets decades ago — and I believe it was — it is essential now.”  [Powers added:] “Importantly, criminal prosecution of labor market conspiracies is the tip of the spear; the Division’s focus on labor markets extends beyond its cartel program. The Division is also committed to using its civil authority to detect, investigate, and challenge anticompetitive non-compete agreements, mergers that create or enhance monopsony power in labor markets, the unilateral exercise of monopsony power, and information sharing by employers.

The speech can be found (here). The FTC and States have also been active in bringing civil cases challenging “no-poach” labor agreements.  Finally, enforcers around the globe have also been making labor market collusion investigations a top priority.  Recently EU Competition Commissioner Margrethe Vestager emphasized the EU focus on competition in labor markets due to “no-poach” deals.  Vestager said individuals are negatively effected “when companies collude to fix the wages they pay or when they use so-called ‘no-poach’ agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best.”  See EU’s Vestager warns of more anti-cartel raids, criticises ‘no-poach’ deals,  Reuters, By Foo Yun Chee, October 22, 2021.  A list of various foreign enforcers’ cases involving labor market collusion can be found in Mr. Powers’ speech.

Education on Labor Market Collusion Should be a Top Priority for Compliance Training

In the criminal labor market collusion cases the Antitrust Division has recently filed, the parties are “duking it out” as to whether the labor market agreements fall within the per se rule or should be judged by the rule of reason.  There are skilled lawyers on both sides of the issue and it will be fascinating to see how the cases turn out.  My own view is that, while I think applying the per se rule in criminal antitrust cases is unconstitutional, see Cartel Capers, Supreme Court Review Sought for Per Se Rule in Criminal Cases, as long as there is a per se rule, [and there is], the same rules should apply to labor/wages.  But, whether a case is per se criminal case or a rule of reason civil case seeking damages, there are good reasons to educate executives involved in the hiring/personnel decisions to try to avoid any litigation.

Benefits of Compliance Training for Labor Market Collusion

•  AVOIDING LITIGATION

The number of actions brought by enforcers at every level indicates that there has been a serious deficiency in compliance training.  It has only been since late 2016 that the Antitrust Division has stated that it would treat naked price fixing and “no-poach agreements as criminal violations.  It would be possible, therefore, that this “side of the house” may have been neglected or underrepresented in whatever compliance training may have been provided.  It appears labor market agreements among competitors developed and some at least are seemingly ongoing.

• COMPLIANCE CREDIT

The Department of Justice and the Antitrust Division give credit for compliance programs that meet certain criteria  See U.S. DEP’T JUSTICE, CRIMINAL DIV., EVALUATION OF CORPORATE COMPLIANCE PROGRAMS, updated June 2020, Antitrust Division Announces New Policy to Incentivize Corporate Compliance, July 11, 2019; Antitrust Division, USDOJ, Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations, July 11, 2019.  In a recent speech, Deputy Attorney General Lisa O. Monaco highlighted the incentives for a company to have a compliance program before the government not so gently indicates that one is needed:

“A company can fulfill its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness. In fact, companies serve their shareholders when they proactively put in place compliance functions and spend resources anticipating problems. They do so both by avoiding regulatory actions in the first place and receiving credit from the government. Conversely, we will ensure the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations.”

DAG Monaca’s remarks can be read (here), watched on video (here), and the DAG’s related memo can be read (here). 

• DUTY TO EMPLOYEES

DAG Monaco’s remarks emphasize a company’s fiduciary duty to shareholders.  I’d like to also emphasize a corporation’s duty to its employees.  When I was with the Antitrust Division it was personally disturbing to investigate and sometimes prosecute executives who found themselves involved in a criminal investigation and had never had any antitrust training.  To be sure, I think most executives have a “gut feeling” that price fixing and bid rigging are not ethical business practices, but many executives had a serious underappreciation of the length and stress of a criminal antitrust investigation and the fact they could face 10 years in jail.  Even if an executive obtains immunity and becomes a government witness, a criminal antitrust investigation is one of the most stressful things an executive–and his or her family–may ever deal with.  Even civil cases are a serious problem for employees as well as their company. Employees may “groan” or “roll their eyeballs” if they are scheduled for more compliance training (I may have done that occasionally with all the training we received at DOJ) but the threat of criminal prosecution and a jail sentences should perk up an audience quickly.

Some Suggestions For Compliance Training

I’ll offer some suggested compliance guidance regarding labor market collusion for human resource employees and others involved in the hiring process. Disclaimer:  This is by no means a complete compliance guidance outline–but it would be a start.

One document to highlight would be the speech on October 1, 2021 by Antitrust Division Acting Assistant Attorney General Richard Powers (noted above), which emphasizes that the DOJ has made good on its promise to prioritize labor market collusion cases–including bringing criminal charges against individuals allegedly involved in the collusion. Relevant employees should also have a copy, and a presentation explaining, the Department of Justice and FTC’s Antitrust Guidance for Human Resource Professionals, Department of Justice, Antitrust Division/Federal Trade Commission, October  2016:  “The agencies’ joint guidance include[ing] a Q&A section that explains how antitrust law applies to various scenarios that HR professionals might encounter in their daily work lives.”  It would also be important to have a hotline for employees to call with questions about the Antitrust Guidance and how it might apply to particular situations.

I don’t think labor market collusion is as difficult to avoid–and detect–as it may seem to some. Labor is an input for making any product. Businesses can’t collude with competitors about the price they will pay for inputs to make a product or to allocate suppliers.  Think about a company that produces widgets.  This widget requires copper wire, glass products, machinery and labor.  It seems obvious (hopefully) that an executive in one company cannot call a competitor and say, “Let’s agree to not pay any more than X for the copper?”  Or “If you don’t solicit quotes from my supplier, I won’t from yours.”  Labor is also an input.  Why would it be OK to call a competitor and say “Let’s agree not to pay any more than X per hour” for the input of labor?

As with any input, however, not every agreement between competitors is per se illegal or “naked” price fixing violation.  When companies integrate resources, as in a buying group or joint venture, the agreement will be judged under the rule of reason: Do the procompetitive benefits outweigh the anticompetitive harm?  The FTC/DOJ guidance explains a basic difference between a “naked” agreement and an agreement “ancillary” to a procompetitive collaboration:

“That means that if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects. Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.”  Antitrust Guidance for Human Resource Professionals, Department of Justice, Antitrust Division/Federal Trade Commission, October  2016, at 3.

As mentioned, employees should have guidance as to who to call within the company if they have questions about the propriety of an agreement with a competitor regarding labor.

Thinking of labor as any other input, I’d add this to my presentation:

1. An agreement does not have to be in writing. It can be inferred from other circumstances – such as evidence of discussions and parallel behavior.
2. The DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements. The penalties can be severe, including jail time for individuals.
3. Like any other cartel, agreements to reduce competition can be prosecuted even if they don’t eliminate all competition or are unsuccessful.
4. An added bonus is that if senior executives who have both pricing and hiring authority get this training, it is a refresher about the dire consequences of price fixing, bid rigging and market allocation either as a seller or a buyer.

CONCLUSION

In October 2016 when the DOJ FTC Antitrust Guidance for Human Resource Professionals was issued it led to a blizzard of “client alerts” warning of this emphasis of the FTC/DOJ.  Now would be a good time to see if there was a follow up to client alerts within organizations–including law firms.  Did the right people get the Antitrust Guidance?  Was there follow up training?  Is there a process in place for employees to ask questions?

There’s much more to be said about compliance and labor market collusion, and no doubt better and more detailed ways to say it. There are many published articles detailing more complete elements of an effective corporate compliance program and culture.  The point of this humble blog post is that if labor market collusion is a priority for enforcement agencies, compliance training should be a priority for companies. And, if you take the approach that labor is an input, subject to the same antitrust rules as any other input, you have provided more than just training on labor market collusion.

Thanks for reading   [email protected]

by Bob Connolly  [email protected]

             For your weekend reading and viewing pleasure you might want to set aside a bit of time to digest the Department of Justice’s latest guidance on how they intend to treat corporate crime. [Read DAG’s LISA O. Monaco’s remarks (here)(and watch the same on video (here) and review the DAG’s related memo (here). ]  There are three main takeaways: an increasingly high bar for a company to receive “cooperation credit;” more expansive evaluation of a company’s past conduct in making settlement/plea negotiation demands; and a likely increase on insistence of compliance monitors.

1. Cooperation Credit

            DAG Monaco opened by stating: “Attorney General Garland has made clear it is unambiguously this department’s first priority in corporate criminal matters to prosecute the individuals who commit and profit from corporate malfeasance.”  I don’t think there is anything new here for the Antitrust Division which has long made individual accountability a cornerstone of its enforcement efforts.  DAG Monaco’s remarks reflected what I believe to already be the Antitrust Division approach:  “I am directing the department to restore prior guidance making clear that to be eligible for any cooperation credit, companies must provide the department with all non-privileged information about individuals involved in or responsible for the misconduct at issue. To be clear, a company must identify all individuals involved in the misconduct, regardless of their position, status or seniority.”

DAG Monaco set forth the standard in evaluating individual prosecutions:

“As set forth in the Justice Manual, a prosecutor should commence a case if he or she believes that a putative defendant’s conduct constitutes a federal offense, and that the admissible evidence will probably be sufficient to obtain and sustain a conviction. So long as those principles are followed, we will urge prosecutors to be bold in holding accountable those who commit criminal conduct.”

The Antitrust Division’s need for cooperating witnesses and limited resources means that not every culpable individual will be prosecuted.  The “Big fish–little fish” theory of prosecution will live on–as will disagreements about who is a “little fish” when it comes to individual prosecutions.  It is still best not to be a fish at all swimming in cartel waters.

2. Expansive View of Prior Misconduct

 “The second change I am announcing today deals with the issue of a company’s prior misconduct and how that affects our decisions about the appropriate corporate resolution.”  DAG Monaco explained:  “Foremost, the department will now consider all a company’s prior misconduct when considering how to settle a current case — civil, criminal, and regulatory actions; whether or not that prior misconduct is similar to whatever issue put your company on the frying pan today.”

DAG Monaco gave this example:

“A prosecutor in the FCPA unit needs to take a department-wide view of misconduct: Has this company run afoul of the Tax Division, the Environment and Natural Resources Division, the money laundering sections, the U.S. Attorney’s Offices, and so on? He or she also needs to weigh what has happened outside the department — whether this company was prosecuted by another country or state, or whether this company has a history of running afoul of regulators. Some prior instances of misconduct may ultimately prove to have less significance, but prosecutors need to start by assuming all prior misconduct is potentially relevant.”

This change could well impact Antitrust Division’s settlements; especially in larger national/international conspiracies.  Companies at that level often have many divisions, lines of business and may well have had regulatory/criminal issues unrelated to cartel activity (or a line of business/subsidiary, etc. that was involved in cartel activity).  This “history” must now be considered by Division prosecutors in negotiating a settlement.

     3.     More Extensive Use of Corporate Monitors

 “The final change I am announcing today deals with the use of corporate monitors.”  DAG Monaco expressly rescinded prior guidance from 2018 that seemingly disfavored  the use of external compliance monitors:

“To the extent that prior Justice Department guidance suggested that monitorships are disfavored or are the exception, I am rescinding that guidance. Instead, I am making clear that the department is free to require the imposition of independent monitors whenever it is appropriate to do so in order to satisfy our prosecutors that a company is living up to its compliance and disclosure obligations under the DPA or NPA.”

On the plus side, DAG Monaco highlighted the incentives for a company to have a compliance program before the government not so gently indicates that one is needed:

“A company can fulfill its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness. In fact, companies serve their shareholders when they proactively put in place compliance functions and spend resources anticipating problems. They do so both by avoiding regulatory actions in the first place and receiving credit from the government. Conversely, we will ensure the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations.”

Conclusion

             It is well worth the time to read DAG’s remarks (here) and watch the same on video (here) and review the DAG’s related memo (here).  DAG Monaco concluded with this helpful summary:

 “I’m sure many of you in the audience are going to get calls from clients over the next few days with questions about what this all means. So, let me conclude by giving you the answers — with these five points:

• Companies need to actively review their compliance programs to ensure they adequately monitor for and remediate misconduct — or else it’s going to cost them down the line.

• For clients facing investigations, as of today, the department will review their whole criminal, civil and regulatory record — not just a sliver of that record.

• For clients cooperating with the government, they need to identify all individuals involved in the misconduct — not just those substantially involved — and produce all non-privileged information about those individuals’ involvement.

• For clients negotiating resolutions, there is no default presumption against corporate monitors. That decision about a monitor will be made by the facts and circumstances of each case.

• Looking to the future, this is a start — and not the end — of this administration’s actions to better combat corporate crime.

Thanks for reading.  Bob Connolly  [email protected]

At an October 1, 2021 in-person conference (Fordham’s 48th Annual Conference on International Antitrust Law and Policy) Acting Assistant Attorney General Richard A. Powers of the Antitrust Division spoke about the history of and Antitrust Division’s commitment to enforcing the antitrust laws, including criminal enforcement, in labor markets:  “If it was important for enforcers to protect competition in labor markets decades ago — and I believe it was — it is essential now.”

I suggest reading the speech in its entirety (here) but I’ll quote a few of the remarks:

• “Between 2010 and 2012, the Division filed civil enforcement actions against Adobe, Apple, eBay, Google, Intel, Intuit, Lucasfilm, and Pixar for entering into unlawful agreements not to compete for each other’s workers through various means. These enforcement actions were important for a few reasons. First, they made clear that companies that do not compete to make or sell the same products or services nonetheless compete vigorously in labor markets. That is why they have incentives to collude in a labor market in the first instance. Second, the investigation reaffirmed that agreements to allocate labor markets are no different than agreements to allocate markets by territory or customer. [Well, they were treated a little differently as these likely would have been criminal cases given the explicit evidence of agreement but civil cases were brought first as a sort of “warning shot.].
• Beginning in October 2016, the Division made a series of public statements that, going forward, it intends to criminally prosecute naked labor market allocation and wage-fixing conspiracies.
• Since that time, labor market investigations have comprised a growing portion of our docket. Thus far, we have charged four criminal cases for alleged collusion in labor markets.
• At bottom, the Division is committed to prosecuting naked conspiracies in labor markets because they rob workers of competitive wages, benefits, and other terms of employment. While this work is principally criminal enforcement, we are not blind to the social impact of this work. Free market competition for workers can mean the difference between saving for a home, sending kids to college, and leaving a toxic workplace, or not. Work is also fundamental to our dignity. As enforcers, we know firsthand what it means to ascribe dignity and values to work.
• Importantly, criminal prosecution of labor market conspiracies is the tip of the spear; the Division’s focus on labor markets extends beyond its cartel program. The Division is also committed to using its civil authority to detect, investigate, and challenge anticompetitive non-compete agreements, mergers that create or enhance monopsony power in labor markets, the unilateral exercise of monopsony power, and information sharing by employers.
• While competition policy is not conducive to a one-size-fits-all approach, I note that many international enforcers have used their enforcement authority to root out labor-market conspiracies with admirable results….”

There is much more in Mr. Powers’ remarks including a discussion of continued cooperation among international enforcers. There are also footnotes with citations to many of the cases/facts mentioned in the speech.

If there was ever a “hot topic” in antitrust compliance counseling it would be to advise clients that not just the DOJ, but the FTC, State AG’s and international enforcers are focusing on agreements between competitors to reduce or eliminate competition for an input commonly known as employees.  It is key to understand, that like any other cartel, buyer or seller, agreements to reduce competition can  be prosecuted even if they don’t eliminate all competition or are unsuccessful. While a bit simplified: It is just as unlawful to fix the price at which you pay employees as it is to fix the price of the widgets those employees make.

Thanks for reading.

Bob Connolly             [email protected]

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.

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[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.