United States: cartels

In summary

This article summarises recent trends and priorities of the US Department of Justice (DOJ) Antitrust Division in investigating and pursuing criminal cartel enforcement actions. The article also discusses the Division’s latest guidance on its leniency programme and provides an update on the DOJ’s expanding use of the Procurement Collusion Strike Force. Finally, the article summarises recent case developments in US criminal cartel enforcement cases.

Discussion points

• Enforcement trends declined in the past year, despite the DOJ’s aggressive approach
• DOJ faced a tough year at trial while exploring less traditional legal theories
• DOJ’s ‘clarifications’ to the FAQs may have businesses questioning the benefits of the amnesty programme
• Criminal prosecutions for Section 2 violations of the Sherman Act may be the next battle
• DOJ Procurement Collusion Strike Force continues to be a highlight for the DOJ
• Policy developments
• Recent case developments

Referenced in this article

• Leniency Program
• Procurement Collusion Strike Force

Introduction

In the United States, the change in administrations and the appointment of Jonathan Kanter as Assistant Attorney General (AAG) to head the Department of Justice Antitrust Division (the Division or DOJ) has resulted in more aggressive antitrust enforcement. Despite forceful rhetoric and a clear attempt by the DOJ to push the boundaries of criminal enforcement, the Division has achieved, at best, mixed results, and total fines collected are at historic lows.

The change in administrations has brought new priorities and policies and a Division that is willing to take aggressive and often unprecedented positions, apparently without concern about losing at trial, to expand the scope of government enforcement. Gone are the days of a slow and steady, traditional approach. The Division is now litigating cases under less traditional antitrust theories. In response, defendants are also taking more aggressive postures, and appear to be more willing to take their chances in front of a jury.

Nevertheless, the number of criminal antitrust enforcement actions remained on par with the low levels of the preceding four years, and the total amount of corporate fines collected declined to the lowest level in five years. Part of the explanation for this decline may stem from the Division’s evolving approach to the amnesty programme. During the past year, the Division issued revisions to its frequently asked questions (FAQs). Its position is that the new FAQs are intended to provide greater transparency. But the reaction from the defence bar has been concern across the board that the leniency programme now provides far less certainty that an applicant will in fact receive amnesty from prosecution. Among other things, the Division now reserves the right not to grant amnesty if it discovers that the individual or company self-reporting did not do so ‘promptly’; reports only after the Division has begun an investigation; or fails to present a restitution plan. Moreover, the Division now maintains greater discretion not to provide amnesty to former employees.

The Division has also struggled to win cases at trial. During the past year, we saw the DOJ lose its first wage-fixing and no-poach criminal trials. It also suffered repeated setbacks in the broiler chicken price-fixing cases. After two hung juries, the DOJ hoped the third time would be the charm. Instead, the third jury found all five defendants not guilty. On the other hand, the Division continues to report an increase in activity and successful prosecutions through its Procurement Collusion Strike Force (PCSF), which focuses on bid rigging and other collusive conduct related to government contracts.

Enforcement trends

Cartel enforcement levels remain low relative to years prior to 2017, while the total number of corporations and individuals charged did see a spike, increasing by roughly 27 per cent and 32 per cent, respectively, over the previous year.^[1] Total criminal penalties collected saw a dramatic drop from US$529 million in 2020 to only US$151 million in 2021.^[2] This represents a reversal of the recent upward trend of criminal penalties collected, and is the lowest amount collected since 2017, when only US$67 million were imposed on criminal antitrust defendants.^[3] In fiscal year 2021, the number of criminal cases filed stood at 25, which represents a 25 per cent increase over 2020, but is generally in line with the rolling five-year average of 22.6 cases per year.^[4] While the number of cases brought by the Division increased, the average prison sentence has been declining relative to the prior decade – with a decrease from an average sentence of 18 months in 2010–2019, to 15 months in 2020–2021.^[5]

Policy developments

The past year has seen several new policy announcements and a preview of what to expect going forward from the Division. AAG Kanter has made public statements – most recently in June 2022 – indicating that the Division will continue to push hard. Discussing the Division’s more aggressive posture, Kanter noted that the DOJ is ‘going to take risks’ with its enforcement strategy and is ‘not going to be afraid to lose’.^[6] Kanter also emphasised that the DOJ will pursue ‘righteous’ cases and will ‘play to win’ and extolled the benefits of an ‘active litigation program’.^[7] These remarks echo statements he made earlier in the year. In remarks on 24 January 2022, Kanter stated that ‘antitrust law enforcement has not succeeded in keeping pace with these massive changes in our economy’.^[8] He also stated that the ‘American people deserve real antitrust enforcement’ and characterised current antitrust law as ‘fighting the last generation’s war’.^[9]

The Division also updated its leniency policy FAQs, explaining that the updates ‘reaffirm the Division’s commitment to transparency, predictability and accessibility in criminal enforcement’.^[10] At a high level, the purpose of the leniency programme is to encourage individuals or companies to self-report cartel conduct, and in return, avoid prosecution. The programme has historically been wildly successful and is the Division’s primary source of new investigations and cases.

The new guidance in the FAQs has come under fire. For example, while previously the key factors to qualify for amnesty were being first and cooperating, the new FAQs add a new component of timeliness.^[11] If an applicant does not ‘promptly’ report the alleged illegal activity, it may no longer be eligible for amnesty.^[12] ‘Promptly’ is not clarified in the FAQs, other than to suggest that it is at some point between discovery of the illegal conduct and learning that the Division has opened an investigation.^[13] The FAQs also note that failure ‘to appreciate that its conduct could be criminal is not absolved of the prompt self-reporting requirement’.^[14] In addition, to receive a conditional leniency letter, an applicant must present a restitution plan.^[15] The new FAQs also ‘clarify’ that ‘[f]ormer directors, officers, and employees are presumptively excluded from any grant of corporate leniency’.^[16]

The Division suggests these changes are minor but necessary. According to AAG Kanter, ‘While these core incentives have not changed, the updates to the leniency policy will further promote accountability.’^[17] But the programme and newly issued FAQs have been criticised by practitioners over the past year. An emerging consensus among practitioners is that the risk and uncertainty in seeking leniency have increased drastically, despite attempted assurances to the contrary by Division leadership. At the same time, leniency applicants continue to face civil liability (even if more limited under the Antitrust Criminal Penalty Enhancement and Reform Act).^[18] The result has been a more difficult choice for companies considering whether to seek leniency.

The Division’s policy change has had real-world implications for businesses considering whether to self-report and the practitioners who advise them. For example, ‘promptly’ is a vague term. Is two weeks prompt? Two months? More? Relatedly, the in-house legal department or CEO may learn about certain conduct that is of potential concern and leads to a corporate decision to self-report. Later facts may reveal that someone in the compliance department had heard about the conduct previously but may not have thought it was actionable, or simply did not do their job. After the Division learns of this misstep, it could deny the company protection – despite its best efforts to report ‘promptly’. Given these variables, companies may be less inclined to report potentially criminal conduct, which will likely result in a further decline of traditional cartel prosecutions.

Another notable policy development is the Division’s apparent willingness to bring criminal enforcement actions against monopolisation conduct that it believes violates Section 2 of the Sherman Act. Criminal antitrust enforcement has previously been reserved for price-fixing, bid rigging and related conspiracies between competitors that violate Section 1 (ie, cartels). Earlier in 2022, AAG Kanter signalled that the Division would pursue criminal Section 2 cases:

Since the 1970s, Section 2 has been a felony, just like Section 1. In 2004, Congress increased Section 2’s criminal penalties in lockstep with the increased penalties for Section 1 crimes. So if the facts and the law, and a careful analysis of Department policies guiding our use of prosecutorial discretion, warrant a criminal Section 2 charge, the Division will not hesitate to enforce the law.^[19]

The DOJ has not pursued a Section 2 criminal case in more than 40 years.

Procurement Collusion Strike Force

One of the government’s most successful programmes in the past few years has been the PCSF. The Division, with its agency partners, has prosecuted numerous individuals and companies accused of antitrust violations for government contracts.

According to the Division, the pace of work is robust. In spring 2022, the Division noted that it had more than 60 open probes into bid rigging and government contracts.^[20] This is a marked increase in investigations. In September 2020, the Division reported that more than two dozen criminal investigations were open – that figure has more than doubled in the following 18 months.^[21] Senior officials have suggested that these investigations are coming from all directions, and while some of the investigations are admittedly small, others are described as ‘nine-figure investigations’.^[22]

A continued focus on labour markets

This past year not only brought the Division’s first no-poach/wage-fixing cases to verdict, but was also a time for an expanding commitment to labour from the Division and the Department of Labor (DOL).^[23] Earlier in 2022, the DOJ and the DOL announced a new commitment through a memorandum of understanding (MOU) to work together to eliminate collusion in labour markets and to promote the competitive labour markets by ensuring working mobility.^[24]

According to the MOU, the agreement is intended to ensure greater communications across agencies, more information sharing and training.^[25] It will be interesting to see whether the new MOU will result in more enforcement actions against employers in the coming years.

Recent case developments

DOJ broiler chicken price-fixing and bid-rigging investigation

The DOJ brought several prosecutions in the investigation that it opened in 2019 into alleged price-fixing and bid rigging between large producers of broiler chickens (chickens raised for human consumption that are sold to grocers and restaurants). Indictments were originally brought against a number of large companies in the industry, including affiliates of Pilgrim’s Pride Corporation and Perdue Farms LLC, and 14 individuals. Pilgrim’s Pride pled guilty in February 2021 to a conspiracy to ‘suppress and eliminate competition’ for the sales of broiler chicken products from 2012 to 2017 and agreed to pay a US$107 million fine.^[26] Tyson Foods applied for leniency and has been cooperating with prosecutors.^[27]

The DOJ went to trial against 10 company executives, including former Pilgrim’s Pride CEOs Jayson Penn and William Lovette. Two trials resulted in mistrials after deadlocked juries on both occasions failed to reach consensus on any of the 10 defendants. Following the declaration of the second mistrial in February 2022, US District Judge Philip A Brimmer summoned AAG Jonathan Kanter and pressed him to explain why the Division was proceeding with a third trial. While Kanter pointed out that deadlocked juries do not ‘create a basis for reasonable doubt’, Judge Brimmer pointed to the Department’s Justice Manual, which requires enforcers to only bring cases when they believe they ‘will probably be able to convict’. The Judge was sceptical that a third trial was consistent with this policy. The DOJ ultimately decided to press ahead after dismissing half of the defendants and bringing in prosecutors with success in previous trials, such as the Bumble Bee tuna price-fixing case. The third trial began in early June 2022. One month later, all five executives were found not guilty by the jury.

A related trial in the case against four remaining executives from Pilgrim’s Pride is still scheduled for a 15-day trial beginning in late-October 2022. Despite speculation that the Division would drop the charges against these remaining defendants, the DOJ filed a superseding indictment on 13 July 2022, signalling its intention to press ahead.^[28] The superseding indictment not only leaves in place the existing antitrust charges against the four defendants, but adds additional counts against former Pilgrim’s Pride general manager Timothy Stiller for alleged witness tampering and obstruction of justice, alleging that he intimidated a witness known to the DOJ, telling the witness to ‘get their story straight’. According to the superseding indictment, Mr Stiller also allegedly destroyed at least one mobile phone with the intent to impede the investigation.^[29] Meanwhile, the trial for Koch Foods and Claxton Poultry was originally set for October 2022, but was pushed back to April 2023, pending outcomes in the other two cases.^[30]

The Division’s first no-poach criminal cases go to trial

In 2022, the DOJ significantly increased its criminal enforcement activity in the labour and employment space, bringing more indictments alleging no-poach or wage-fixing agreements against companies and individuals. These began in the same vein as previous indictments in the healthcare sector, often against smaller businesses, such as local healthcare staffing agencies. However, in December 2021, the DOJ expanded its enforcement into the aerospace industry, bringing indictments against aerospace executives and managers for alleged wage-fixing and no-poach practices. The alleged conduct apparently arose in the context of teaming agreements, which, like joint ventures, are traditionally examined by courts under the ‘rule of reason’. The DOJ, however, is attempting to bring these cases under a per se theory that opens the door to criminal prosecution. This represents a significant departure from enforcement precedent since ‘ancillary agreements’ have never been criminally prosecuted.

Two cases have gone to trial in 2022. Both cases survived motions to dismiss but juries ultimately found the defendants not guilty. In United States v DaVita,^[31] the judge initially denied the defendants’ motion to dismiss, holding that no-poach and non-solicitation agreements ‘that nakedly allocate the market for employees are per se unreasonable because they almost always are an unreasonable restraint on trade’. The effect of this ruling was to require the government to prove the allocation of a market, not simply an agreement not to poach one another’s employees. This opened the door for the defence to argue that the alleged conduct did not rise to market allocation of the entire labour market. At trial, the defence acknowledged that DaVita and three other companies had agreements to avoid soliciting people from one another, but argued that that still did not constitute illegal market allocation, pointing out that ‘[i]f you wanted to allocate the market, you want to involve more than three companies in the market’, and ‘DaVita, as big as it is, and [its alleged co-conspirators] are just a fraction of the market for employees’.

In United States v Jindal,^[32] the judge similarly initially denied the defendants’ motion to dismiss, reasoning that the wage-fixing alleged was a form of price-fixing, which justified a per se designation and that the defendants had adequate notice that they could be held criminally liable for their conduct. The defendants in this case were also ultimately acquitted of antitrust charges by the jury. The DOJ nevertheless cast the trial as a victory by emphasising that Jindal was convicted of obstructing the investigation by the DOJ’s sister agency, the Federal Trade Commission. DOJ chief Jonathan Kanter noted that the DOJ will not be deterred by these losses at trial:

[b]oth of those cases – which were extremely important cases establishing that harm to workers is an antitrust harm – survived motions to dismiss . . . The courts said, ‘These are legally sound cases.’ We want those decisions.

Generic pharmaceuticals

In 2020, the DOJ filed indictments against pharmaceutical companies Glenmark Pharmaceuticals Inc USA and Teva Pharmaceuticals Inc, alleging that they engaged in a conspiracy to fix prices for a number of drugs from around May 2013 to December 2015. The defendants are scheduled to have a joint trial after their motion to sever was recently denied.^[33] No trial date has been set as counsel for Glenmark and Teva argued that January 2022, the date originally proposed by the DOJ, would not give them enough time to review the record. On 13 January 2022, the same judge denied a motion from Glenmark and Teva seeking protection from ‘compulsory interviews’ through the Division’s foreign partners in India and Israel, which the defendants argued breached ethics rules by not going through counsel. The judge held that the issue was moot after the DOJ gave assurances that it would only seek voluntary interviews.^[34]

The DOJ has already obtained multiple settlements during the course of its investigations into the generic drugs industry, collecting more than US$1 billion in fines in both criminal and civil False Claims Act settlements.^[35]

Parking heaters

Volker Hohensee, former president of Espar, Inc, a subsidiary of German automotive supplier Eberspaecher, pled guilty in March 2022 to leading a price-fixing conspiracy, from 2007 to 2012, in the parking heaters manufacturing business. The former executive was charged with conspiring with two others, Frank Haeusler and Harald Sailer, to fix the prices of parking heaters used in commercial vehicles and sold in the aftermarket in the United States and Canada. Parking heaters are devices that heat the interior compartment of a motor vehicle while the engine is turned off.^[36] Espar pled guilty in 2015 and paid a US$14.9 million criminal fine.^[37] Hohensee had been a fugitive for five years before being arrested while trying to enter the Canary Islands. He was detained in Spanish prison for about 15 months awaiting extradition. While detained in Spain, Hohensee negotiated a plea agreement with the Division, agreeing to a time-served sentence for the period he spent in Spanish custody. The two other alleged co-conspirators remain on the run. According to the indictment, Hohensee and his alleged co-conspirators met to discuss parking heater prices, agreed to set a price floor and coordinated the timing and amount of price increases.^[38]

Procurement Collusion Strike Force

In April 2022, the DOJ obtained a guilty plea in an ongoing investigation conducted together with the PCSF into alleged bid rigging and bribery at the California Department of Transportation (Caltrans). According to the government, between 2015 and 2019, Choon Foo ‘Keith’ Yong and co-conspirators engaged in a conspiracy to ensure that companies controlled by Yong’s co-conspirators submitted the winning bid for Caltrans’ improvement and repair contracts and would be awarded the contract. Yong was also charged with accepting bribes in the form of cash payments, wine, furniture and remodelling services on his home in an amount totalling more than US$800,000 while working at Caltrans. Yong agreed to pay restitution and is cooperating with the ongoing investigation.

Also in April 2022, the DOJ announced a grand jury indictment^[39] against three contractors – Lawrence O’Brien, Bruce LaRoche and Thomas Dailey – each charged with rigging bids for promotional products to the United States Army, and charged two of them with conspiring to defraud the United States. The products included backpacks, water bottles, hats and knives that displayed logos or insignias of military units. According to the government, the three men exchanged bid templates and submitted bids to military customers on each other’s behalf. The government also alleges that LaRoche and O’Brien conspired to defraud the United States by respectively creating sets of shell companies, which they or Dailey would use to submit sham bids, listing alternative names and contact details to give the impression that the companies competed with one another.

In another case in the military procurement space,^[40] a grand jury indicted two South Korean nationals, Hyun Ki Shin and Hyuk Jin Kwon, for allegedly conspiring to rig bids and fix prices for subcontract construction work on US military installations in South Korea. According to the indictment, defendants and their alleged co-conspirators ‘exchanged pricing and bid proposals with each other for the purpose of submitting complementary and rigged bid proposals and of fixing prices for subcontract work to contractors servicing agencies of the US Department of Defense and the Defense Logistics Agency’. The government’s investigation is ongoing.

The DOJ’s investigation into big rigging, price-fixing and market allocation in the context of security services contracts in Belgium also continues.^[41] G4S Secure Solutions NV (G4S NV) reached a plea agreement with the DOJ in July 2021, in which it agreed to pay a US$15 million criminal fine, and is cooperating with the ongoing investigation into the alleged conspiracy, which the DOJ says impacted contracts with the Department of Defense, as well as with the NATO Communications and Information Agency, which is funded in part by the United States. Two former employees of G4S NV pled guilty to criminal antitrust charges stemming from that investigation in October 2021.^[42] A grand jury also indicted another company, Seris Security NV, and several other former executives for their alleged involvement.^[43] The plea deal reached with G4S NV was the first international resolution obtained by the DOJ’s PCSF.^[44]

A second indictment was brought in a case involving concrete companies in Minnesota alleged to have rigged bids in public contracts.^[45] According to the government, between 2012 and July 2017, the defendants conspired to rig bids on concrete repair and construction contracts submitted to municipalities in Minnesota, including to local governments and school districts. Another contractor in the alleged scheme, Clarence Olson, pled guilty in late 2021.

Conclusion

2022 has seen the DOJ aggressively pushing the envelope on criminal enforcement. Among other things, the Division has sought to expand the per se rule in labour cases, has pursued prosecution of defendants in the broiler cases despite two hung juries, and has signalled its intent to expand criminal antitrust enforcement to monopolisation conduct. This approach is consistent with AAG Kanter’s statement that the Division would ‘take risks’ and ‘not . . . be afraid to lose’. However, it remains to be seen whether this strategy will be a net positive for the criminal enforcement programme as the Division has lost multiple high-profile trials, and the leniency programme fails to produce the major investigations that defined the last era of the criminal enforcement programme.

^* The authors would like to thank Memmi Rasmussen, Shearman & Sterling LLP antitrust associate, for her helpful research in preparing this article.

Notes