CCC’s: UK’s Competition and Market Authority: [Real] Estate Agents Cartel Case Study

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I thought this might be of interest to readers and/or to pass on to clients.  The UK’s Competition and Markets Authority (CMA) just published a case study of their investigation of a real estate against cartel in the UK (here).   Below are the lessons learned section of the study:

What are the lessons?

  • Be careful when talking business with your competitors – make sure you don’t agree not to compete with each other.

  • Be especially wary of any conversations about pricing, or about a shared approach to pricing. Each business must set and decide its prices independently.

  • Competition law applies to small businesses as well as large ones. The estate agents in this case were small local or regional businesses.

  • The consequences of breaking competition law can be severe; fines can be as much as 10% of a business’ global turnover and a director can be banned from being a director of a company, or being involved in the promotion, formation or management of one, for up to 15 years. In the most serious cases, individuals can go to prison for up to 5 years. [In the United States the maximum prison sentence is 10 years.]

  • Competition law applies to all industries and the CMA will take action against those breaking the law.

  • The Somerset estate agents’ cartel is the second recent enforcement case the CMA has taken in the property sector. The CMA remains committed to tackling illegal anti-competitive conduct in the sector.

You can subscribe to the CMS for email updates (here).

Thanks for reading.

CCC’s: A Shout Out From John Hughes

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Yesterday I had the pleasure of having lunch with my old boss, John Hughes.  Also with us were former office mates in the Philadelphia Field Office, Brad GeyerRich Rosenberg, and Wendy Norman.  I thought I’d post the picture because John is one of the most respected and beloved figures in the antitrust world and people often ask me, “How is John doing?”  John  is doing great!

John began his career in the Department of Justice, Antitrust Division, Philadelphia Field Office and immediately began to work on what would become the Great Electrical Conspiracy cases–a watershed event in antitrust history.  He later became Chief of the Philadelphia Field Office where I worked for 34 years.  Everyone that worked for John agreed–he was the greatest boss, mentor and friend that anyone could ever ask for.  When John retired in 1994, he became a trial advisor on a number of Antitrust Division cases so he got to know and help staffs throughout the Division.   It is pretty common for a trial staff not to want someone looking over their shoulder as an “advisor,” but everyone asked for John.  He is equally respected by the defense and plaintiff bar and the judiciary.

So, I just want to let everyone know John and his wife Helen are doing great.  They keep busy with a very large family of children, grandchildren and great grandchildren.  John gives his best to everyone who helped make his career in antitrust so fondly memorable.

CCC’s: Antitrust and Artificial Intelligence, Empirical Analysis in Class Certification: A Research Update (Guest Post)

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By: Ai Deng, PhD,  Principal, Bates White Economic Consulting

Hope everyone had a wonderful Labor Day weekend. During my time off CartelCapers, I have been working on several research projects. In this post, I’d like to give the interested readers an update on two of them.

When Machines Learn to Collude: Lessons from a Recent Research Study on Artificial Intelligence

From Professors Maurice Stucke and Ariel Ezrachi’s Virtual Competition published a year ago, to speeches by the Federal Trade Commission Commissioner Terrell McSweeny and Acting Chair Maureen K. Ohlhausen, to an entire issue of a recent CPI Antitrust Chronicles, and a conference hosted by Organisation for Economic Co-operation and Development (OECD) in June this year, there has been an active and ongoing discussion in the antitrust community about computer algorithms. In a short commentary (downloadable here), I briefly summarize the current views and concerns in the antitrust and artificial intelligence (AAI) literature pertaining to algorithmic collusion and then discuss the insights and lessons we could learn from a recent AI research study. As I argue in this article, not all assumptions in the current antitrust scholarship on this topic have empirical support at this point.

Sub-regressions, F test, and Class Certification

Did the anticompetitive conduct impact all or nearly all class members? This question is central to a court’s class certification decision. And to answer the question, a methodology—known as sub-regressions (also labelled less informatively as simply the “F test” in the recent Drywall litigation)—is being increasingly employed, particularly by defendants’ expert witnesses. A key step of a sub-regression type analysis is to partition the data into various sub-groups and then to examine data poolability.[1]

Forthcoming in the Journal of Competition Law & Economics, my article titled “To Pool or Not to Pool: A Closer Look at the Use of Sub-Regressions in Antitrust Class Certification” focuses on three areas of interest pertaining to sub-regressions:

  • The related law and economics literature related to this methodology
  • Courts’ recent class certification decisions in cases where parties introduced sub-regression analysis
  • Several methodological challenges, many of which have not been previously acknowledged, as well as potential ways to address them. Specifically, what test should one use? How does one choose the subsets or partitions of data to test? Are individual estimates of damages always the most reliable approach when we believe the impact varies across customers or across some other dimensions?

This paper is currently being processed at the Journal. If you would like a copy, please feel free to reach out to me.

As always, I appreciate your thoughts and comments. You can reach me at ai.deng@bateswhite.com or connect with me on LinkedIn [here].

Thanks for reading.

Ai Deng, PhD
Principal, Bates White Economic Consulting
Lecturer, Advanced Academic Program, Johns Hopkins University
direct: 2022161802 | fax: 2024087838
1300 Eye Street NW, Suite 600, Washington, DC 20005
ai.deng@bateswhite.com
BATESWHITE.COM

[1] I first provided an update on this project on CartelCapers here.

CCC’s: Court Dismisses Heir Locator Indictment

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Kemp & Associates, Inc. and its vice-president and part owner Daniel J. Mannix, were indicted on August 17, 2016 in the District of Utah on a single-count conspiracy to violate the Sherman Act, 15 U.S.C. § 1, by engaging in a customer allocation agreement.  The agreement at issue was a set of guidelines which governed the joint activity between defendants and co-conspirators.  On March 31, 2017, the defendants filed a Motion for Order that the case be Subject to the Rule of Reason and to Dismiss the Indictment as time barred on Statute of Limitations grounds.  On August 29, 2017, the district court affirmed an earlier ruling that the indictment would be tried under the Rule of Reason, but then made that ruling moot by dismissing the case on statute of limitations grounds.  The court ruled that the conspiracy ended three years outside the statute of limitations.  In a nutshell, the court found the conspiracy ended when the last customer was allocated, while the government argued, unsuccessfully, that the conspiracy continued while the defendants reaped the supra competitive profits from allocating the customers.  The government’s “payment theory” usually prevails, but not in this case.

When I have time, I’d like to comment on the court’s ruling but for now I simply provide the ruling (US v. Kemp & Associates, Inc and Daniel J. Mannix) for your perusal.

Thanks for reading.

P.S.  Want to write a guest post?  The pay stinks but contributors welcome.

CCC’s: The Sherman Act is An Unconstitutional Criminal Statute (Part II)

July 19, 2017 by Robert Connolly 2 Comments

In Part 1 of this article (here), I argued that the Sherman Act was unconstitutional as a criminal statute because it is void for vagueness.  A statute that criminalizes all restraints of trade cannot be saved by the Supreme Court explaining what Congress really must have really meant. What passed constitutional muster when the Sherman Act was a misdemeanor[1] merits another look now that the statute carries a maximum jail time of 10 years in prison.

In Part II I discuss how I think the criminal element of the Sherman Act should be fixed.

 The Heir Locators Criminal Indictment May Make This Issue Topical

I want to explain why this topic has come to mind. The Antitrust Division’s heir locators investigation/prosecution garners little attention in the world of massive international cartel investigations, but an indictment in this investigation could have major implications for criminal antitrust prosecutions.[2]  In a recent development, the trial judge ruled that the criminal case should be tried under the Rule of Reason. It is possible this development will set off a chain of events that leads to the Supreme Court revisiting what is necessary for a criminal conviction under the Sherman Act.

Heir locator firms locate potential heirs to an estate from public records and agree to help with their claim in return for a contingency fee.  The amount of the contingency fee depends on factors such as the complexity of the claim, potential recovery etc.  Since the potential heirs are located from public records, they may be contacted by more than one heir locator firm.  According to the indictment, the defendants agreed to allocate customers on a “first to contact basis.”  The firm to which the customers were allocated would pay the firm that “backed off” a percentage of the contingency recovered.  The Division has obtained two guilty pleas in the investigation but defendants Kemp & Associates and its co-owner Daniel J. Mannix were indicted in August 2016 and have pled not guilty.

The indictment appears to be a straight forward customer allocation scheme—a per seviolation.  The defendants:

  • agreed, during those conversations and other communications, that when both co-conspirator companies contacted the same unsigned heir to an estate, the co-conspirator company that first contacted that heir would be allocated certain remaining heirs to that estate who had yet to sign a contract with an Heir Location Services provider;

  • agreed that the co-conspirator company to which heirs were allocated would pay to the other co-conspirator company a portion of the contingency fees ultimately collected from those allocated heirs;

If anything is a per se violation, customer allocation should earn the title.  It eliminates price competition and it can be an easier agreement to monitor/enforce than price fixing.  If you lose a customer you were supposed to get, you know it.  But, the defendants moved that the case should be tried under the rule of reason.  The briefs in the case were filed under seal so it is impossible at this point to understand the defendants’ argument and the government’s response.  Nonetheless, on June 21, 2017 U.S. District Judge David Sam heard oral argument and then granted the defendants’ motion that the case is subject to the rule of reason. He reserved judgment on the motion to dismiss “for further disposition pending the government’s further evaluation of the case.”

I predict that the Antitrust Division will not try a criminal case under the Rule of Reason.  The government will either seek an interlocutory appeal to reverse the district court’s ruling, or drop the case.  The Division is in a tough position because three defendants have already pled guilty.[3]  The Division will not lightly walk away from a prosecution where others have already taken a plea.  On the other hand, the Antitrust Division will not want a precedent that allows the defendant to raise the reasonableness of the conduct.  Defendants have argued in previous criminal cases that the restraint should be judged under a rule of reason, but the Division has had ample authority to beat that argument back.  But, what if the defendants go for the whole enchilada, and seek not just a rule of reason trial, but a complete dismissal of the charges?   It certainly would be helpful to the defendants to have a criminal case tried under the rule of reason, but it would be a home run, or antitrust Hall of Fame material to get the indictment dismissed in its entirety as unconstitutionally void for vagueness.

A Rule of Reason Criminal Case?

One reason the defendants may have moved for a rule of reason trial is that the Supreme Court has already said that this would be permissible.  In United States v. U.S. Gypsum,[4]the Supreme Court held that in a criminal prosecution under the Sherman Act that was subject to rule of reason analysis, “action undertaken with knowledge of its probable consequences and having the requisite anticompetitive effects can be a sufficient predicate for a finding of criminal liability under the antitrust laws.”[5]  That would seem to settle the question, but the Supreme Court has been rightly flexible with stare decisis in overruling numerous other “conventional wisdom” tenets in the antitrust area.  Think vertical restraints, maximum resale price maintenance and resale price maintenance as examples.[6]  Would the Supreme Court decide that a rule of reason criminal case (or a per se case) is unconstitutional.  Would an after-the-fact rule of reason determination (after a quick look?) (or full blown inquiry?) meet the “notice” standard required for a criminal statute?  But, what about the Gypsum required showing of intent of anticompetitive conduct?  Does that save the statute?  But what does that even mean?  Anticompetitive under the “consumer welfare model?”  Measured by the Chicago School?  Post Chicago School?  School of Rock?

I have a proposal to amend the elements of a Sherman Act criminal conviction that eliminates these questions/issues and is warranted in light of the 10-year maximum jail sentence.  (And not to forget, a corporation has paid a $500 million criminal fine.)

If the Restraint is Fraudulent—It’s Criminal

Every head of the Antitrust Division in recent memory has made statements such as, “price fixing, market allocation and bid rigging steal from, and commit fraud upon, American business and customers.”[7] Similarly, an Antitrust Division official has testified, “the [criminal] cases that we are charging and prosecuting are unmistakable fraud.”[8]  Simply put, the litmus test for criminality should be whether the restraint of trade also involves fraud (i.e. a per se violation).  The substantial hammer of justice –lengthy prison sentences, Red Notices, extradition, should be reserved for when a jury finds the defendant engaged in a restraint of trade that involved fraud.

Today, criminal antitrust indictments contain an element of fraud, because of [wise] prosecutorial discretion, not because of the dictates of the statute.  But, antitrust jurisprudence could have taken the path down a fraud requirement instead of veering off to a per se rule (a conclusive presumption that takes the issue of reasonableness out of the juries’ hand), and found that the criminality in the Sherman Act is confined to those agreements that have an element of fraud. Early cases interpreting what was an unreasonable restraint of trade were heading in that direction.

What we now call per se offenses were originally called fraud.  This was recognized as early as 1875 in Craft v. McConoughy,[9] a case involving a secret scheme to fix prices among four Illinois warehouses. The court stated, “To the public the four houses were held out as competing firms for business. Secretly they had conspired together.”[10]  The scheme enabled the parties “by secret and fraudulent means, to control the price of grain.”[11]  In the seminal antitrust case of United States v. Addyston Pipe,[12] the court found secret agreements to refrain from bidding to be a form of fraud: “It is well settled that an agreement between intending bidders at a public auction or a public letting not to bid against each other, and thus prevent competition, is a fraud.”[13] In McMullen v. Hoffman,[14] the Court refused to enforce a contract when one conspirator sued for his portion of the profits from a successful collusive bidding scheme. The Court explained that the agreement “tend[ed] to induce the belief that there really is competition . . . although the truth is that there is no such competition.”[15] The Court held that “the illegal character of the agreement is founded not alone upon the fact that it tends to lessen competition, but also upon the fact of the commission of a fraud by the parties in combining their interests and concealing the same.”[16] The Court distinguished a secret agreement from a known joint venture, where “[t]he public may obtain at least the benefit of the joint responsibility. . . . The public agents know then all that there is in the transaction, and can more justly estimate the motives of the bidders, and weigh the merits of the bid.”[17]  Over a century later, in response to a question as to whether antitrust crimes are crimes of moral turpitude, Antitrust Division Assistant Attorney General Bill Baer responded that “price-fixing, bid-rigging and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefit of competition.”[18]

Drawing on the wisdom of early Supreme Court decisions and the recent pronouncements of the Antitrust Division, the demarcation between a restraint of trade that can subject the violator to civil penalties and one that subjects the violator to criminal penalties is whether there was an element of fraud.  The Sherman Act should reflect this, either by amendment in Congress, or by Supreme Court further interpretation of what the government is required to prove to subject the defendant to criminal penalties.   In a criminal case the government’s burden should include proving that the agreement was a restraint of trade where the agreement was actively concealed or where the defendant held him/itself out to the public as a competitor when in fact an agreement not to compete or limit competition had been reached without the knowledge of the customer.  In a previous article, I have labeled this standard Per Se Plus.[19]

How would the heir locators indictment fare under such a standard? It is hard to know for sure but the indictment suggests that customers shopped around or there would have been no need for an agreement at all.  And when customers got quotes from more than one company, the customer would reasonably assume there was competition.  And the fraud would be, as the Supreme Court said long ago, “in [the defendants] combining their interests and concealing the same.”

Conclusion

Would requiring the government to prove an element of fraud to obtain a criminal conviction make obtaining convictions more difficult?  The answer must be yes, but as a former Antitrust Division prosecutor, to convince a jury to convict you must argue that the crime wasn’t an “unreasonable restraint of trade” whatever the heck that is—but it was fraud by the lying cheating defendants.  There are benefits to the Antitrust Division that would flow from having to prove fraud, but that’s for another post. Here, I’ll end with this.  The crime should fit the punishment; and with punishment of up to ten years in prison for an individual and hundreds of millions of dollars for a corporation, the Sherman Act needs to be amended to include an element of fraud for a criminal conviction because it is currently unconstitutional.

Thanks for reading.

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[1] When the per se rule was announced in United States v. Socony-Vacuum Oil Co., 310 U.S 150 (1940). a jail sentence was virtually a non-existent possibility. The maximum sentence imposed on any of the convicted individual defendants in Socony Vacuum was a fine of $1000. See Daniel A. Crane, The Story of United States v. Socony Vacuum: Hot Oil and Antitrust in the Two New Deals, in ANTITRUST STORIES 107 (Eleanor M. Fox & Daniel A. Crane eds., 2007).

[2]  U.S. v. Kemp & Associates, Inc. and Daniel J. Mannix, Case: 2:16-cr-00403, (D. Utah 2016) (DS), available at  https://www.justice.gov/atr/file/887761/download.

[3]  Richard Blake agreed to plead guilty in January 2016 as part of a proposed plea agreement between the Antitrust Division and Blake.  His company was not charged, most likely because it had received leniency. California-based Brandenburger & Davis and its president Bradley Davis agreed to plead guilty in December 2015.

[4]  438 U.S. 422 (1978).

[5]  Gypsum, 438 U.S. at 444. fn 21.

[6] The Supreme Court stated in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 899 (2007).   “Stare decisis is not as significant in this case, however, because the issue before us is the scope of the Sherman Act,” which the Court has treated as a common-law statute.  The Court has been receptive to reviewing the per se rule in light of “new circumstances and new wisdom.”  The severe loss of personal liberty and other consequences now at stake in a Sherman Act criminal case is a new circumstance that warrants an evolution in the application of the per se rule to criminal antitrust cases so that the test for liability will better match the evolution of the law on consequences

[7] Anne K. Bingaman, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, The Clinton Administration: Trends in Criminal Antitrust Enforcement, Remarks Before the Corporate Counsel Inst. (Nov. 30, 1995), available at http://www.justice.gov/atr/public/speeches/0471.htm.

[8] Scott D. Hammond, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Transcript of Testimony Before the United States Sentencing Commission Concerning Proposed 2005 Amendments to Section 2R1.1 at 3 (Apr. 12, 2005), available at http://www.justice.gov/atr/public testimony/209071.pdf.

[9] 79 Ill. 346 (1875).

[10] Id. at 348.

[11] Id. at 349.

[12] 85 F. 271 (6th Cir. 1898).

[13] Id. at 293 (emphasis added) (citations omitted).

[14] 174 U.S. 639 (1899)

[15] Id. at 646.

[16] Id. at 649.

[17] Id. at 652 (citations omitted).

[18] Letter from Peter J. Kadzik, Principal Deputy Assistant Att’y Gen., U.S. Dep’t of Justice, to Senator Patrick Leahy Attaching Responses of William Baer, Assistant Att’y Gen. Antitrust Div., U.S. Dep’t of Justice to Questions for the Record Arising from the Nov. 14, 2013 Hearing of the Senate Comm. of the Judiciary Regarding Cartel Prosecution: Stopping Price Fixers and Protecting Consumers at 3 (Jan. 24, 2014) (emphasis added), available at http://www.judiciary.senate.gov/imo/media/doc/111413QFRs-Baer.pdf.

[19]  Robert E. Connolly, Per Se “Plus:” A Proposal to Revise the Per se Rule in Criminal Antitrust Cases, Antitrust, Vol. 29, No. 2, Spring 2015, p. 105.

CCC’s: For What It’s Worth…..

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Wondering what’s taking Makan so long?  Mr. Delrahim was nominated almost six months ago to head the Antitrust Division of the US Dept. of Justice.  Today, I sent the following email to Senators McConnell and Schumer:

I was sorry to hear of Senator McCain’s health problem but the lull in the health care debate provides an opportunity to hold the vote to get Makan Delrahim confirmed to head the Antitrust Division, US Dept. of Justice. I served 34 years in the Antitrust Division and I know how important Mr. Delrahim’s confirmation is to get matters in the Division moving full speed and to give guidance to the business community. The delay in Mr. Delrahim’s confirmation has generated a lot of concern that has been reported in the press. I have a widely read blog on antitrust matters [OK–that may be puffery] and I have covered also this issue (here).  Mr. Delrahim has strong bipartisan support. It would be great to show the business community that Congress can get some things done. And the dedicated career staff in the Antitrust Division would also greatly appreciate the appointment of a leader of Mr. Delrahim’s qualifications.  Thank you for your consideration.

Robert Connolly

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If you would also like to contact the Senators, they would love to hear from you!

Senator Mitch McConnell

ph: (202) 224-2541

fax: (202) 224-2499

Contact Form here

Senator Chuck Schumer 

Phone: (202) 224-6542
Fax:  (202) 228-3027

Contact Form here

CCC’s: Where’s Makan?

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In case you’ve forgotten, on June 8, 2017  the Senate Judiciary Committee voted overwhelmingly in favor of the nomination of Makan Delrahim, President Donald Trump’s pick to be the Assistant Attorney General in charge of the Antitrust Division of the USDOJ.   The committee approved Mr. Delrahim’s nomination by a vote of 19-1. Once approved by the committee, the nomination should go before the full Senate.  But, Mr. Delrahim still has not been brought up for a confirmation vote in the Senate.  Sad.

This is a very unfortunate situation for the nations’ top competition law enforcement body.   The work of the Division goes on as staffs continue investigations and time sensitive decisions are still made. But, it is an added stress and drain on morale to lack leadership; especially when the leadership will likely be enthusiastically received by at least most staff members.  And, not just Mr. Delrahim awaits getting on board; the new Assistant Attorney General will bring in his team to fill out the “front office.”

The delay in confirming Mr. Delrahim has been lamented in two recent articles.  In a June 25, 2017 opinion article in The Hill, DC attorney David Balto wrote:

Delrahim is not controversial and is regarded by both Republicans and Democrats to be perfect for the job. He has a strong reputation as a pragmatist with real world experience to guide the tough enforcement decisions the division faces. Time to get Trump’s new Antitrust Cop on the Beat

Another article referred to the fact that until Mr. Delrahim is appointed and able to fill out his staff, the direction and priorities of the Antitrust Division under Trump are not known.  In a June 30, 2017 BNA Law article Liz Crampton notes:

The long-term agenda of the Justice Department remains unknown as Makan Delrahim, nominee to lead the division, is still awaiting Senate confirmation three months after President Donald Trump named him.   Justice Dept. Antitrust Division Treads Lightly Absent Leader  

Mr. Delrahim can provide the kind of guidance the business community counts on, but is currently lacking.

Here’s hoping something as non-controversial but important as Mr. Delrahim’s confirmation vote can dodge through the dysfunction in DC and get taken care of very soon.

Thanks for reading.

CCC’s: The Sherman Act is Unconstitutional as a Criminal Statute: (Part 1)

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If you get lost, sometimes you must go back and start again from the beginning. I’ve been a bit lost on whether the Sherman Act is unconstitutional as a criminal statute. It is well accepted that per se violations of the Sherman Act can be prosecuted criminally.  An individual can be sentenced to up to ten years in prison.  But, is the accepted learning on this issue wrong?  I think I’ve found my way to the Sherman Act being unconstitutional as a criminal statute.[1]

Forget everything you know about Supreme Court jurisprudence involving the criminal application of the Sherman Act (that was easy for me).  Take a look at the statute:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

Can you advise your client what exactly is declared to be illegal?  And watch his face show even more alarm when you explain that whatever it is that he can’t do, if he does do it, the penalty is up to 10 years in prison.[2]   The Sherman Act is void for vagueness.  Justice Sutherland explained the void for vagueness doctrine in Connally v. General Construction Co, 269 U.S. 385, 391 (1926):

The terms of a penal statute…must be sufficiently explicit to inform those who are subject to it what conduct on their part will render them liable to its penalties….and a statue which either forbids or requires the doing of an act so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process of law.

The Sherman Act does not sufficiently inform business people (including foreigners) what conduct can land them in jail or on a Red Notice.  This must be true because even the Supreme Court has said the Sherman Act cannot possibly mean what it says because every contract is in restraint of trade, and every contract cannot be illegal.  Thus, the first Supreme Court triage on the Sherman Act was that only “unreasonable restraints” of trade were prohibited.[3]  But, that doesn’t clear things up too much—What is an unreasonable restraint of trade?  Under the Rule of Reason, a restraint is unlawful only, if after an inquiry to balance the pro-competitive benefits of the agreement versus its anticompetitive effects, the agreement is found to unreasonably restrain trade.  But can you find someone guilty of a crime after weighing the pro-competitive and anticompetitive effects of the agreement?  That doesn’t seem like the notice required by due process either.  Further Supreme Court surgery on the Sherman Act separated out per se violations–restraints of trade that are so highly unlikely to have any redeeming competitive benefits, that the restraints (price-fixing, bid rigging and customer/market allocation) are per se illegal.  As a result, juries are charged in a criminal antitrust case that they do not need to find that the restraint was unreasonable, but simply that the defendant(s) entered into an agreement to fix prices, which, by judicial fiat, is per se unreasonable.

Does the per se rule solve the void for vagueness problem?  The conventional wisdom is that it has.  But changed circumstances sometimes compel a “fresh look” at accepted wisdom.  It is time for that fresh look.  The changed circumstance that comes to mind is that the Sherman Act is no longer a misdemeanor.  It is not a “gentlemen’s crime” meriting a slap on the wrist with a mild scolding from the judge.[4]  The Sherman Act, as a criminal statute, provides for an individual to be sentenced to up to 10 years in jail.  And the ten years is not just theoretical; the Antitrust Division sought a 10-year prison sentence for the CEO of AU Optronics after his conviction.  While the ten-year sentence was not achieved, the record prison sentence for a criminal antitrust violation is now 5 years. [5]

I am not a constitutional scholar, but I do have a blog so I’ll opine what I think is wrong with the Sherman Act as a criminal statute.[6]  First, the Supreme Court cannot save a criminal statute by grafting on elements such as condemning only “unreasonable” restraints of trade, and further holding that only certain types of agreements are per se unreasonable.  But even if the Supreme Court could address the void for vagueness doctrine by holding that only certain restraints are per se illegal, this violates another constitutional tenet; the Supreme Court takes away the issue from the jury with an unrebuttable presumption.  Charles D. Heller has written on this subject and argued that the current practice of instructing the jury that price-fixing is per se illegal, i.e., presumptively unreasonable, is unconstitutional.  The jury should be the fact-finder of whether a restraint is unreasonable.[7]  Finally, the definition of a per se offense is that the restraint (price-fixing for e.g.) is so highly likely to be anticompetitive that there is no inquiry as to whether the actual restraint the defendant is charged with was anticompetitive.  This may be fine for a civil case, but in a criminal case the defendant must be allowed to argue that the charged restraint was the exception to the rule.  Instead, in a criminal case the jury may be charged:

It is not a defense that the parties may have acted with good motives, or may have thought that what they were doing was legal, or that the conspiracy may have had some good results.

This seems like a very odd jury instruction for a crime that carries a ten-year maximum prison sentence, especially when one considers that many of the defendants in criminal antitrust indictments are foreigners.[8]

In short, the Sherman Act is void for vagueness.  But, if the Act does pass the void for vagueness hurdle by grafting on the per se rule, juries should decide whether the restraint in question is unreasonable, and that inquiry should not be contained by a presumption the restraint was per se unreasonable if it was price-fixing, bid rigging or market allocation.  If these standards were applied, however, the Sherman Act would be unworkable.  If juries decided, in an after the fact deliberation, whether a restraint was unreasonable, the void for vagueness doctrine would trump a conviction.  Sad.  Very sad.

My solution to the problem, if there really is a problem, will come as soon as I figure it out—but no later than next week– in Part II.

Thanks for reading.  Comments would be much appreciated, but maybe hold your fire until after Part II?

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[1]  I am not the first to reach this conclusion.  The work of several other authors who find likewise is mentioned in the post.

[2]   Maybe this language that is in Sherman Act indictments will clear things up: “For the purpose of forming and carrying out the charged combination and conspiracy, the defendant and his co-conspirators did those things that they combined and conspired to do.”  To be fair, the indictments then “bullet point” a list of acts the defendant(s) engaged in to carry out the conspiracy.

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

[4]   I was a brand new Antitrust Division attorney in one trial where we obtained convictions not too long after Sherman Act had been made a felony.  At sentencing, the first convicted defendant got a wicked tongue lashing, but the judge said that, due to his youth and relative inexperience, he would not be sentenced to prison.  The next defendant—ditto on the tongue lashing—but the judge found he should not be sentenced to prison because he was elderly and now retired.

[5]  Frank Peake was sentenced to 5 years in prison for his participation in a conspiracy to fix the prices on cargo shipped by water between the United States and Puerto Rico.  See,  https://www.justice.gov/opa/pr/former-sea-star-line-president-sentenced-serve-five-years-prison-role-price-fixing-conspiracy.  Foreign executives are frequent defendants in criminal antitrust cases and may be put on a Red Notice with dire consequences simply by being indicted.

[6]   For a more scholarly article that takes a look at the void for vagueness doctrine and its implications for the Sherman Act, see Sherman Act and Avoiding Void-for Vagueness, Matthew G. Sipe, posted May 16, 2017, available at, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2968933&download=yes.

[7]  See Charles D. Weller, The End of Criminal Antitrust Per se Conclusive Presumptions, 58 ANTITRUST BULL. 665 (2013).

[8]   Some strict liability crimes (i.e., statutory rape) can have no intent element but the Sherman Act is not a strict liability crime.

3C’s Recommended Amicus Brief on Section One Summary Judgment Standard

by Leave a Comment

Here is a link to a brief filed by a number of professors asking the Supreme Court to clarify the standard to be applied by districts courts to a defendant’s motion for summary judgment in a Section One antitrust case,  evergreen – petition for certiorari – amicus brief – filed copy – 4.21.17 – evergreen partnering group v. pactiv corp.  The petition notes:

“[C]ircuit courts are mired in an abiding difference of opinion concerning the appropriate interpretation of the summary judgment paradigm in cases brought under Section 1 of the Sherman Act as applied to circumstantial evidence.”

The professors are going to bat for plaintiff Evergreen, which had its group boycott claimed dismissed on summary judgment. The amicus brief argues that the First Circuit incorrectly applied the Matsushita standard that requires the plaintiff to produce evidence that “tends to exclude the possibility of independent conduct.” The brief goes on to argue say this strict standard should only be applied where the defendants’ conduct is arguably pro-competitive (like the price cutting in Matsushita). In this case, the brief argues, the correct standard, is found in Eastman Kodak Industry Co. v. Image Technical Services Inc.,: whether the plaintiff has produced evidence that the defendants’ conduct is unreasonable.

From the brief:

The Second, Third, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits “have narrowed the application of Matsushita’s “tends to exclude the possibility of independent conduct” test to situations where the plaintiff ’s theory: (1) is implausible; and (2) challenges pro-competitive conduct….The First, Fourth, Eighth, and Eleventh Circuits, however, do not interpret Kodak as a limitation on Matsushita’s “tends to exclude” test. These courts universally apply the test to all motions seeking entry of summary judgment on a conspiracy claim under Section 1, regardless of whether plaintiff’s theory makes economic sense or there is little or no risk of chilling pro-competitive behavior.”

The brief notes that Judge Posner has been critical of the Matsushita “tends to exclude the possibility of independent conduct” standard for requiring the plaintiffs to disprove the defendants’ case with a “sweeping negative.” Richard Posner, Antitrust Law, 100 (2d ed. 2001).  The brief also quotes a Judge Posner opinion:

“That would imply that the plaintiff in an antitrust case must prove a violation of the antitrust laws not by a preponderance of the evidence, not even by proof beyond a reasonable doubt (as indeed is required in criminal antitrust cases), but to a 100 percent certainty, since any lesser degree of certitude would leave a possibility that the defendant was innocent.”

In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 787 (7th Cir. 1999) (Posner, C.J.).

The brief concludes:

“In sum, the decision below illustrates and intensifies confusion among the lower courts about the Matsushita standard for Section 1 antitrust claims at summary judgment. The question is critical; private enforcement is essential to maintaining the correct balance between under and over deterrence to foster healthy competition. But when it comes to Matsushita, inconsistency in its application is now the rule, rather than the exception. For these reasons, the Court should clarify the standard, resolve the circuit split, and emphasize that the correct interplay between Matsushita and Kodak properly limits the “tends to exclude” summary judgment standard to cases where the alleged conspiracy is economically irrational and the conduct is pro-competitive.”

Whichever side of the “v.” you are on [plaintiff or defendant] the brief is a useful read for the discussion of the differences among the circuits on the proper standard for summary judgment.

Evergreen is represented by Richard Wolfram  who earlier had filed a petition for certiorari with Supreme Court. A copy of the petition can be found here.

Thanks for reading.

CCC’s: What She [Sally Q. Yates] Said….

June 26, 2017 by Robert Connolly

I have written often about the need to reform the Sentencing Guideline for antitrust violations.  U.S.S.G. 2R1.1. (here)(here)(here).  My major beef is that the antitrust guideline measures culpability primarily by the volume of commerce subject to the agreement, to the exclusion of many other very relevant factors.  The cartel boss who engages the firm in the illegal conduct is tagged with the same volume of commerce as the employee who is assigned the task of going to cartel meetings to work out the details.

Sally Q. Yates served in the Justice Department from 1989 to 2017 as an assistant U.S. attorney, U.S. attorney, deputy attorney general and, briefly this year, as acting attorney general.  Ms. Yates described the problem with overweighting a quantifiable factor better than I ever have, though in a slightly different context:

“But there’s a big difference between a cartel boss and a low-level courier. As the Sentencing Commission found, part of the problem with harsh mandatory-minimum laws passed a generation ago is that they use the weight of the drugs involved in the offense as a proxy for seriousness of the crime — to the exclusion of virtually all other considerations, including the dangerousness of the offender.”

Sally Yates, Making America Scared Won’t Make us Safer.  Washington Post, June 23, 2017

For the record, the issue of mandatory minimums is a far more serious issue than the problem of sentencing individual criminal antitrust offenders.  While I hope for antitrust sentencing reform, it is not really a “need.” The antitrust sentencing guidelines are so divorced from actual culpability that virtually no individual–even a cartel boss–is sentenced to a guideline range term of imprisonment.

Thanks for reading.