Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel - Q1 2022
Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel - Q1 2022
Since the last edition of the QCC, there has been a series of dramatic developments in the criminal antitrust enforcement space in the U.S. from the Department of Justice’s Antitrust Division (Division). An already active first quarter of cartel enforcement and grand jury indictments ended with major policy announcements and shifts, precedent-setting trial outcomes, and the setting of several potentially ominous new priorities.
In the U.S., Jonathan Kanter, the recently confirmed Assistant Attorney General (AAG) for the Division, hit the ground running by announcing the most notable substantive changes to the Division’s leniency policy since its inception in 1993 and foreshadowing the possible criminal enforcement of monopolization charges—an approach the Division has not taken in over 50 years. AAG Kanter also oversaw the first conviction by the Procurement Collusion Strike Force and the first labor-market cartel indictment outside of the healthcare industry.
But AAG Kanter soon encountered significant obstacles in the courtroom. A second jury was unable to reach a verdict in the Division’s prosecution of 10 broiler-chicken industry executives, which prompted the judge to demand that AAG Kanter appear in court and explain why trying the case for a third time would be an “appropriate thing to do.” In addition, juries in the Division’s first wage-fixing and no-poach trials acquitted all of the defendants of any antitrust violations. Undeterred, AAG Kanter declared that he was not a member of “the chickenshit club” and tripled down, but defense counsel for the broiler-chickens executives quickly pounced and claimed that AAG Kanter’s statements were prejudicial and entitled them to additional leeway during jury selection. The number of significant developments over such a short period of time is unprecedented.
Internationally, cartel enforcement has seemed quiet for some time, but now those suspicions have been confirmed. The Organization for Economic Cooperation and Development reported that international cartel enforcement has waned since 2015. But international competition authorities are not sitting by idly. For example, the European Union competition authority’s deputy for cartel enforcement announced that it is considering immunizing leniency applications from civil liability to encourage more self-reporting of violations. And even though total numbers may be down, international authorities continue to conduct dawn raids and levy fines in key industries.
We will bring you up to speed on these developments and more in this edition of the Quarterly Cartel Catch-Up.
Key Point: The Division has made significant revisions to its Corporate Leniency Program and related FAQs, including the addition of a requirement to promptly report wrongdoing.
On April 4, 2022, the Division announced significant updates to its Corporate Leniency Program, as well as the frequently asked questions (FAQs) that explain the program. According to the Division, the changes are intended to reaffirm its “commitment to transparency, predictability, and accessibility in antitrust enforcement.” Largely unchanged since its inception in 1993, the Leniency Program allows the first company or individual that self-reports involvement in a criminal antitrust violation to avoid criminal fines and imprisonment so long as that company or individual fully cooperates with the Division’s investigation and satisfies all other program requirements.
These latest modifications to the written policy and FAQs reflect changes in practice that applicants have observed in recent years, but have the potential to make it more challenging for a company that applies for leniency to meet the criteria. Although the general contours of the program did not change, there are several key updates, including requiring leniency applicants to promptly report wrongdoing and requiring parties to use their “best efforts to make restitution to injured parties.” There also is an increased focus on making the program more approachable for individual applicants, which the Division is using to emphasize the “race” mentality that underpins the program.
For more on the changes to the Leniency Program, see our recent client alert.
Key Point: Remarks by Richard Powers, Deputy Assistant Attorney General (DAAG) for Criminal Enforcement, suggest Division might criminally prosecute monopolization, which would represent a significant departure from modern Division criminal antitrust enforcement and practice.
On March 2, 2022, while speaking on a panel at the ABA White Collar Crime Conference in San Francisco, DAAG Powers remarked that the Division is prepared to bring criminal charges for violations of Section 2 of the Sherman Act. Section 2 prohibits single-firm conduct that creates or maintains monopoly power. In response to questions about how vigorously the DOJ will use its criminal enforcement authority, Powers surprised the crowd by explaining that the Division would bring criminal monopolization charges “if the facts and the law lead us to the conclusion that a criminal charge based on a Section 2 violation is warranted.” On April 4, 2022, AAG Kanter confirmed this approach when, after noting that “Section 2 has been a felony, just like Section 1,” he said that “the Division will not hesitate” to file a criminal Section 2 charge where appropriate.
The Division last brought a criminal indictment solely based on Section 2 in 1972, so any such charge would be a significant departure from the Division’s longstanding criminal antitrust enforcement policy and practice. It remains to be seen whether the Division will choose to exercise its discretion to bring a criminal case based solely on Section 2 allegations.
For more on the impact of these statements, see our recent client alert.
Key Point: A second jury was unable to reach a verdict and, although the DOJ vowed to try the case again, a skeptical judge required AAG Kanter to appear and explain why a third trial was likely to end any differently.
On March 29, 2022, after a five-week retrial, a second jury was unable to reach a unanimous verdict for any of the 10 executives, which prompted Judge Philip Brimmer to declare another mistrial. The Division indicted the defendants—executives from Tysons, Pilgrim’s Pride, Koch Foods, and Claxton Poultry—in June 2020 and October 2020 for their alleged roles in a conspiracy from 2012 through 2019 to fix prices and rig bids for the sale of broiler chickens to grocers and restaurants. The first trial, which lasted seven weeks, concluded in December 2021 with a mistrial because the jury was unable to agree on a verdict.
Although the Division immediately vowed to try the case for a third time, Judge Brimmer ordered AAG Kanter to appear in order to explain why a third trial was likely to end differently. Before AAG Kanter appeared, the Division voluntarily dismissed the charges against five executives but vowed to retry the remaining five defendants. Although Judge Brimmer acknowledged that he could not force the Division to stand down, he urged them to consider carefully whether a third trial was consistent with the DOJ’s policies and mission. A little over one week later, the Division confirmed that it would proceed with a third trial against the remaining five defendants.
Not less than three days later, the defendants filed a motion for additional authority to question and strike jurors based on recent public comments by AAG Kanter that the Division is “not part of the chickenshit club” despite its recent trial losses. The defendants allege these comments “attempt[ed] to vilify [them] and garner public support for DOJ’s misguided decision to proceed with a third trial after failing to obtain a single conviction in the first two,” but the Division responded that AAG Kanter’s comments were not about their case. In another recent filing, the Division suggested that the June 2022 trial may need to be rescheduled, which elicited an emphatic response from the defendants that the retrial must commence as soon as possible. These filings suggest that the defendants will be seeking to capitalize on Judge Brimmer’s frustrations with the Division whenever possible.
Key Point: The Division’s first two labor market cartel prosecutions ended in acquittal, but AAG Kanter focuses on silver linings and vows to continue bringing similar cases.
On April 4, 2022, the Division began its first trials for wage-fixing (U.S. v. Jindal et al., Eastern District of Texas) and no-poach (U.S. v. DaVita et al., District of Colorado) violations of the Sherman Act. By the end of the next week, juries acquitted all of the defendants on those charges. Although some viewed these losses as a monumental setback worthy of some soul-searching, AAG Kanter vowed that the Division would not relent in its effort to investigate and charge this conduct criminally. He highlighted the silver lining that both courts rejected motions to dismiss and agreed with the Division’s position that the conduct alleged was a criminal violation of the Sherman Act, and added that the Division would “strengthen [its] resolve and bring cases that are righteous.” So although the first two juries found that the conduct did not amount to a criminal violation, there is every indication that the Division will continue to investigate and charge this type of conduct. In fact, a trial for related no-poach conduct against Surgical Care Affiliates, LLC remains scheduled to start in January 2023.
Key Point: The Division’s Procurement Collusion Strike Force (PCSF) secured its first conviction—an executive charged with rigging bids to the North Carolina Department of Transportation—and announced the indictment of a Minnesota-based concrete contractor and its CEO for participating in a bid-rigging conspiracy. Expect more enforcement in the Government Contracting space!
On February 1, 2022, a jury convicted Brent Brewbaker, a former executive of Contech Engineered Solutions LLC, for participating in a conspiracy to rig bids and submit false certifications of non-collusion for more than 300 projects funded by the North Carolina Department of Transportation (NCDOT). During the week-long trial, the Division presented evidence showing that Brewbaker instructed a co-conspirator to submit non-competitive bids to NCDOT, which he sought to obscure by varying the inflated bid amounts and deleting text messages related to the conspiracy. This is the first trial conviction credited to the PCSF, which the Division created in November 2019 to combat antitrust crimes and fraudulent schemes that impact procurement, grant, and program funding at all levels of government.
Not resting on its laurels, on March 9, 2022, the PCSF obtained a federal grand jury indictment of Kamida, Inc., a Minnesota-based concrete contractor, and its CEO, Steven Dornsbach, for allegedly participating in a decade-long conspiracy to rig bids for public concrete repair and construction contracts submitted to cities and school districts in Minnesota. According to the indictment, the Defendants asked their competitor and co-conspirator, Clarence Olson, to submit intentionally unsuccessful bids to ensure that Kamida would win the contracts. Olson pleaded guilty to his involvement in the conspiracy last year.
This trial victory and additional indictment indicate that bid-rigging and procurement collusion will continue to be active areas of enforcement for the Biden administration. As AAG Kanter noted when announcing Brewbaker’s conviction, “[w]ith massive investments in infrastructure projects beginning soon, companies that manage those projects must know that the Justice Department and its Procurement Collusion Strike Force partners will have their eyes out for cheaters and schemers.”
Key Point: Wage-fixing and no-poach charges against four executives in the home healthcare market demonstrate the overlap between the Division’s focus on the healthcare industry and the misuse of government funds.
The Division continues to investigate and charge alleged labor market cartels in the healthcare industry (and have made clear they will continue to do so, despite recent trial losses in two healthcare cases). On January 28, 2022, the Division announced wage-fixing and labor market allocation charges against four managers of home healthcare agencies. The one-count indictment stemmed from an alleged conspiracy to suppress wages and restrict workforce mobility for essential workers during the COVID-19 pandemic. According to the indictment, which was filed in federal court in Maine, the four co-conspirators agreed to fix wages paid to Personal Support Specialist (PSS) workers and to refrain from hiring each other’s employees. During the pandemic, Maine and many other states made available additional financial resources—which, for Maine, came from a jointly funded state and federal Medicaid program—to ensure that homebound, disabled, or ill individuals would continue to receive appropriate care. This included increased reimbursement rates for PSSs, which allegedly were a focus of the co-conspirators. In an April 9, 2020 exchange, one defendant allegedly wrote that “everyone has agreed that the rate is from 15-16 [dollars per hour],” and another defendant responded, “we have agreed on 15 and 16 and I started announcing it.” The defendants here seemed to have triggered two of the Division’s tripwires: its investigation of labor markets in the healthcare industry, and its ongoing efforts to root out waste, fraud, and abuse involving government spending.
Key Point: The Division’s plea agreement with an executive charged in 2015 as part of the auto-parts investigation underscores its commitment to pursuing fugitives who attempt to evade justice, no matter how long it may take.
On March 3, 2022, the Division announced a plea agreement with Volker Hohensee, a German national and former Canadian resident who was president of parking heater manufacturing company Espar, Inc., for his participation in a price-fixing conspiracy from 2007 to 2012. Hohensee fled Canada after his indictment, but Spanish authorities arrested him in December 2020.
A grand jury indicted Hohensee and two other executives—Frank Haeusler and Harald Sailer, both executives at Espar’s German affiliate, Eberspaecher—in December 2015 in the Eastern District of Michigan. According to the indictment, Hohensee, Haeusler, and Sailer artificially set aftermarket prices for parking heaters, which heat the interior compartment of motor vehicles without operation of the engine. The indictment alleged that the individuals agreed to set a price floor for parking heater kits and coordinate the timing and amount of future price increases.
After accepting the guilty plea, the court sentenced Hohensee, who was incarcerated in a Spanish facility for the past 15 months, to time served. AAG Kanter described this resolution as “a prime example of the Antitrust Division’s commitment to bring fugitives to justice.” Both Haeusler and Sailer remain at large. This plea builds on the Division’s other recent successes in bringing fugitives to justice, namely, the January 2020 extradition of and plea agreement with an executive charged in the air cargo investigation, and the March 2020 extradition of and plea agreement with another executive from the auto-parts investigation.
Key Point:This new initiative bolsters the Biden administration’s commitment to scrutinizing particular industries and looking for enforcement opportunities to protect global supply chains.
On February 17, 2022, the DOJ announced a new initiative to investigate and prosecute companies that exploit supply chain disruptions to engage in anticompetitive conduct. As part of this initiative, the Division is forming a working group with competition authorities in Australia, Canada, New Zealand, and the United Kingdom.
Domestically, the Division is joining forces with the Federal Bureau of Investigation to prioritize the investigation of companies and individuals that appear to be taking advantage of supply chain disruptions. They also plan to investigate proactively in industries where they believe supply disruptions are prevalent, such as agriculture, meatpacking, and global shipping.
As part of this initiative, the DOJ is also strengthening its relationship with other federal agencies. In January, the White House announced an “Action Plan for a Fairer, More Competitive, and More Resilient Meat and Poultry Supply Chain” to counter consolidation among meatpackers. On February 3, 2022, the DOJ and the U.S. Department of Agriculture launched an online tool for farmers and ranchers to report anonymously unfair and anticompetitive practices in the livestock and poultry industries. The DOJ also announced a new partnership with the Federal Maritime Commission, the independent agency overseeing international ocean freight, which would increase information exchanges to facilitate investigations and enforcement efforts at both agencies. At least one such investigation is already underway; Danish shipping giant Maersk disclosed they received a subpoena from the DOJ in March.
This supply chain initiative is another example of the Biden administration’s whole-of-government approach to antitrust enforcement set forth in the July 2021 executive order. As the administration sets its sights on firms with key roles in the supply chain, companies should prepared for increased investigative activity and aggressive enforcement.
Key Point: Data collected by the OECD confirms a drop in international cartel enforcement actions, and international competition authorities like the EU are considering options for reversing that trend.
In February 2022, the Organization for Economic Cooperation and Development (OECD) issued its 2022 Competition Trends report, which found that “[t]he average number of cartel decisions per competition authority declined in most regions during the period 2015 to 2020.” Leniency applications, which the OECD described as “a key tool to detect cartels for many jurisdictions,” also declined during this time. Additionally, although fines had been increasing for several years, they declined in both 2019 and 2020. Although at least part of the blame for the recent downturn in cartel enforcement lies with the COVID-19 pandemic, the report highlighted the increased risk of private enforcement, which may impose “substantial additional costs,” as possibly having “a considerable impact on a cartelist’s decision to file for leniency.”
In April 2022, the European Union competition authority’s deputy for cartel enforcement announced at a conference that the competition authority was “throwing around” the idea of immunizing leniency applicants from civil damages as a possible response to the recent drop in leniency applications. In the United States, where the law allows for private civil plaintiffs to recover triple damages in antitrust lawsuits, the law also makes a leniency applicant eligible for the de-trebling of damages. But if the EU’s competition authority were to immunize leniency from civil damages entirely, such a policy not only may spark an increase in leniency applications, but also may force other competition authorities to reconsider how they treat leniency applicants.
Key Point: Canada will consider criminalizing wage-fixing violations as part of a review of its competition law, which would bring it line with the U.S.’s approach to such agreements.
On February 7, 2022, Canada’s Minister of Innovation, Science, and Economic Development announced plans for a review of the Canadian Competition Act. The next day, Canada’s Competition Bureau (Bureau) proposed several changes to the law, one of which would make wage-fixing a criminal offense. In a submission responding to the government’s call for comment on the Canadian Competition Act, the Bureau proposed 34 policy changes concerning criminal enforcement, merger policy, deceptive marketing, abuse of dominance provisions, international collaboration, and competitor collaborations, in an effort to keep up with other international competition enforcement authorities.
Currently, Canadian law does not criminalize “buy-side” agreements such as wage-fixing or no-poach agreements between competitors, although such agreements are subject to civil enforcement. The Bureau explained in its submission, however, that the Competition Act does not adequately protect workers from no-poaching and wage-fixing agreements, especially compared to other jurisdictions. The Bureau recommended that no-poaching and wage-fixing agreements be subject to the criminal enforcement under the Competition Act so Canada could strengthen its protection for workers and align itself with competition authorities in the U.S. and EU. Such a change to Canadian law would provide additional momentum for the criminal enforcement of labor market cartels, and would present companies that operate internationally another cross-jurisdictional issue to navigate.
Key Point: Romania opens investigation into no-poach practices among automotive companies.
On January 31, 2022, Romania’s Competition Council (RCC) announced that it had opened its first investigation into possible anticompetitive behavior in the skilled and specialized labor market in Romania’s automotive industry. The RCC opened an investigation of the seven automotive and technology providers for alleged no-poach and wage-fixing agreements after receiving “clues” of potential coordination between the companies to share the market of laborers and impose a minimum level of wages. The seven companies under investigation are Renault Technologie Roumanie, Alten Si-Techno Romania, Akka Romserv, Bertrandt Engineering Technologies Romania, Expleo Romania, Fev Ece Automotive, and Segula Technologies Romania.
According to the RCC, no-poach and wage-fixing agreements “eliminate real competition” by limiting job mobility, creating artificial barriers, and suppressing salary levels for specialized employees in the automotive industry. The RCC confirmed that it had conducted “unannounced inspections” at each of the companies’ headquarters and fined one of the companies under investigation, Segula Technologies Romania, 88,000 Euro for refusing to allow it to access emails during the inspection.
Key Point: The Belgian Competition Authority pursues collusion in the health industry.
On February 18, 2022, the Prosecution Service of the Belgian Competition Authority (BCA) announced a settlement in an investigation into collusion among pharmaceutical wholesalers distributing flu vaccines. The BCA fined Pharma Belgium-Belmedis 29.8 million Euro for its role, but competitor Febelco received immunity for having reported the conduct. The companies allegedly agreed not to give pharmacists discounts, not to accept returns of unused vaccines, and to limit direct sales to pharmacists to increase the margins on product distribution. The BCA has alleged that agreements have been in place for 13 years, but it only recently uncovered them with Febelco’s cooperation. These charges are another example of a focus by competition authorities on the healthcare industry, which has only increased during the COVID-19 pandemic. As increased scrutiny continues to bring more anticompetitive conduct to light, it is likely that cooperating parties will provide competition authorities with evidence of additional violations.
Key Point: The Korea Fair Trade Commission fined five confectionary companies for price-fixing and bid-rigging, its second enforcement action in this sector.
On February 17, 2022, the Korea Fair Trade Commission (KFTC) fined five ice cream manufacturers and three local distributors for colluding to fix prices and rig bids. The KFTC fined Binggrae, Lotte Holdings, Lotte Confectionary, Lotte Food, and Haitai Confectionery & Foods 135 billion won ($112.8 million) for allegedly agreeing to increase the price of ice cream rice, set limits on discounts to retailers, and rig bids to supply Hyundai Motor. In addition to the fine, the KFTC referred two of the companies—Binggrae and Lotte Food—to prosecutors for potential criminal sanctions.
This is the second time the KFTC sanctioned these manufacturers. It previously fined the same group in 2007 for fixing the price of ice cream cone products, which the KFTC cited to justify the size of its fine. This repeat enforcement action shows that the KFTC will continue to monitor markets actively, even if they have been the subject of previous enforcement actions.
 United States v. Jindal et al., No. 4:20-cr-00358-ALM-KPJ (E.D. Tex.).
 United States v. DaVita et al., No. 1:21-cr-00229-RBJ (D. Colo.).
 United States v. Surgical Care Affiliates, LLC, No. 3:21-cr-011 (N.D. Tex.).