Quarterly Cartel Catch-Up: Year-End Edition 2022
Quarterly Cartel Catch-Up: Year-End Edition 2022
In 2022, antitrust authorities around the world were pursuing more investigations, bringing new types of cases, and making policy changes to spark even more enforcement actions.
In the United States, the Department of Justice’s Antitrust Division (Division) continued to pursue wage-fixing and no-poach agreements in labor markets and is scheduled to take at least two more cases to trial in 2023. The Division-led Procurement Collusion Strike Force (PCSF) brought nearly a dozen cases, and it appears that many more could be on the horizon as the PCSF adds new agency partners and polices the recent substantial increase in government spending. The Division also filed the first criminal monopolization charges in more than four decades and then quickly followed with a second case that included a criminal monopolization charge along with money laundering charges.
Leadership changes within the Division’s criminal program may influence enforcement activity in 2023. In September, Deputy Assistant Attorney General (DAAG) for Criminal Enforcement Richard Powers announced his departure from the Division. During his tenure, Powers stated that he believed that “[t]he criminal program ha[d] set the tone for the aggressive antitrust enforcement required to meet the economic realities of our time.” Assistant Attorney General (AAG) Jonathan Kanter must name a successor not only to lead the criminal program at the Division, but also to lead two of its five criminal offices. His choices may influence enforcement priorities and how individual investigations are handled.
International developments mirrored those in the United States. European competition authorities are conducting more dawn raids and seeking to sharpen or expand their antitrust authorities. The European Commission published detailed guidance on its leniency program, and Canada enacted a law that will criminalize antitrust violations in labor markets. Enforcers in all jurisdictions have talked about relying less on companies’ self-reporting and using more technologically sophisticated tools to detect cartels without a leniency applicant. Thus, regardless of your spot in the world, antitrust enforcers can be expected to be very active in 2023.
Key Point: Investigation that led to more than a dozen indictments ends in acquittals and dismissals.
In 2020, the Division made waves by indicting ten individual executives and three corporations for allegedly price-fixing and bid-rigging in the broiler chicken industry. Despite cooperation from a leniency applicant and a flurry of criminal charges, the Division’s litigation efforts faltered. As previously reported (Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel – Q4 2021and Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel - Q1 2022), two trials against 10 defendants each resulted in mistrials, and, after dismissing the charges against five executives, the remaining five defendants were acquitted after a third trial in July 2022.
In the aftermath of this trial defeat, the Division voluntarily dismissed charges against the two remaining corporate defendants and two of the four remaining executives. But, in October 2022, the judge presiding over the case against the two remaining executives issued a pretrial evidentiary ruling that the Division was not able to show it was more likely than not that any conspiracy occurred at all—a fact that the Division would need to prove to a jury beyond a reasonable doubt. Two days later, the Division dismissed all remaining charges.
Although the Division’s investigation of the broiler chicken industry started with a “shock the world” approach, the Division’s deviation from its usual practice of securing guilty pleas from corporate defendants before charging individuals may have come at the expense of building a sound and sustainable case.
Key Point: The Division followed through on its suggestion in public speeches that it would pursue criminal enforcement on the Section 2 monopolization provisions of the Sherman Act.
In March 2022, then-DAAG Powers announced that the Division was 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 April, AAG Kanter confirmed that “Section 2 has been a felony” and that “the Division will not hesitate” to file a criminal Section 2 charge when appropriate. Before these statements, the Division had not brought an indictment based solely on a violation of Section 2 since 1972.
On October 31, 2022, the Division followed through with these statements and announced a guilty plea by the president of a Montana paving and asphalt contractor for attempted monopolization. The charges alleged that Nathan Nephi Zito attempted to monopolize the market for highway crack-sealing services in Montana and Wyoming by proposing that his company and a competitor allocate regional markets. Although the Division charged the case as attempted monopolization, the allegations are similar to typical market-allocation cases that the Division regularly charges as Section 1 violations.
On December 6, 2022, the Division announced an 11-count indictment charging 12 individuals under Section 2 for their roles in a conspiracy to monopolize the transmigrante forwarding industry along the U.S.-Mexico border in Texas through threats of violence against competitors. The indictment also charged a violation of Section 1 for conspiring to fix prices and allocate the same market for transmigrante services, as well as charges for extortion, money laundering, and violent acts. This case is currently scheduled to go to trial on January 23, 2023.
Although the Division has resurrected the use of criminal monopolization charges, the limits of this new tool—particularly in cases that do not involve other crimes (antitrust or otherwise)—remain unclear.
Key Point: In 2022, the Division’s PCSF brought more than a dozen cases, recorded several trial victories and plea agreements, and is showing no signs of slowing down.
The Division-led joint law enforcement initiative notched its first conviction in February after a jury found that a former engineering executive participated in a conspiracy to rig bids for projects funded by the North Carolina Department of Transportation. The executive was later sentenced to an 18-month term of imprisonment. The PCSF obtained a second conviction in June, when a federal jury in San Antonio, Texas, found that the owner of several construction companies fraudulently secured more than $240 million in contracts intended for service‑disabled, veteran-owned businesses.
In addition to these trial victories, the PCSF obtained several guilty pleas in construction and government contracting cases across the country, including Alaska, California, Connecticut, Montana, Minnesota, Florida, and Texas. The PCSF’s charges also extended well beyond bid rigging to include attempted monopolization, bribery, and kickbacks. The breadth of these cases makes clear that the PCSF partner agencies are willing to hold companies and individuals responsible for any and all conduct that harms the government.
Far from slowing down, the PCSF seems to be gaining momentum. On November 15, 2022, the DOJ announced that the Offices of the Inspector General for the U.S. Department of Energy, the Department of the Interior, the Department of Transportation, and the Environmental Protection Agency had all joined the PCSF. These offices are collectively responsible for overseeing hundreds of billions of dollars made available through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the CHIPS Act, making more investigations likely in the coming year.
Key Point: The Division made its first significant revisions to its 1993 Leniency Policy, making clear that violations must be reported promptly in order to qualify for immunity.
In April 2022, the Division announced significant updates to its Corporate Leniency Policy and the accompanying Frequently Asked Questions (FAQs) explaining how the policy works. According to the Division, the changes are intended to reaffirm its “commitment to transparency, predictability, and accessibility in antitrust enforcement.” The Program allows the first company or individual that self-reports involvement in a criminal antitrust violation to avoid criminal fines and imprisonment as long as that company or individual fully cooperates with the Division’s investigation and satisfies all other program requirements.
The changes to the written policies and the FAQs are consistent with recent shifts in the Division’s approach to leniency that applicants have observed in recent years. However, this effort to align the written policy with how it is applied has the potential to make it more challenging for a corporate leniency applicant to satisfy all of the criteria. Notable updates include requirements that leniency applicants promptly report wrongdoing and that they use their “best efforts to make restitution to injured parties.” By attempting to make the leniency program more accessible to individuals, the Division is sharpening the risk-reward calculation inherent in leniency and further encouraging the “race” to report violations.
For more detailed coverage of the changes and their potential effect, see our client alert.
Key Point: Recent interest by the Division and the FTC in enforcement of the ban on interlocking directorates, a law intended to minimize opportunities for collusion, reinforces the Biden administration’s efforts to target anticompetitive conduct with all available tools.
In October 2022, the Division presented the first fruits of its efforts to “reinvigorate” enforcement of Section 8 of the Clayton Act, namely, the resignation of seven directors from corporate boards that the Division identified as constituting unlawful interlocks. Section 8 of the Clayton Act generally prohibits an individual or a corporate entity from serving as an officer or on the boards of directors of competing corporations. To enforce the statute, either the Division or the FTC can compel the unwinding of an unlawful interlock.
Although historically neither the Division nor the FTC has prioritized enforcement of Section 8 of the Clayton Act, AAG Kanter announced in April that the DOJ was “ramping up” its efforts to identify and prosecute Section 8 violations. The October 2022 resolutions were described as only “the first in a broader review of potentially unlawful interlocking directorates.” Indeed, at a conference in San Francisco, AAG Kanter stated that the DOJ has the most active Section 8 enforcement program in history. Enforcers expressed concern that sharing board members could lead to, among other things, the sharing of competitively sensitive information.
Notably, the DOJ is not only looking to bring more Section 8 cases, but also articulating a broader interpretation of the law. These recent enforcement actions targeted both “direct” overlaps—where an individual served on boards for multiple competitors—and “indirect” overlaps—where a corporate entity influenced multiple competitors through its employees or agents. Although this broader reading of Section 8 is not entirely novel, it has been challenged in the courts.
The FTC has also said that it could use its authority to pursue interlocks that might not squarely violate Section 8. Specifically, on November 10, 2022, the FTC issued a Policy Statement regarding the scope of Section 5 of the FTC Act, which prohibits unfair competition, stating “interlocking directors and officers of competing firms not covered by the literal language of the Clayton Act” nonetheless constitute “conduct that violates the spirit of the antitrust laws” and may be actionable.
Key Point: State and Congressional authorities signal their willingness to use antitrust laws to investigate ESG initiatives.
Throughout 2022, Republican state and congressional authorities have shown a willingness to use antitrust laws to investigate climate-focused Environmental, Social, and Governance (ESG) initiatives between competitors. In August 2022, 19 state attorneys general (AGs) sent a letter to BlackRock strongly suggesting that its ESG engagement and advocacy strategies involving certain companies in which it owns shares may violate antitrust laws. In November 2022, five Republican Senators, including the top Republican on the Senate’s antitrust subcommittee, sent letters to more than 50 law firms about their representation of companies that purse ESG initiatives. And on December 6, 2022, the incoming leadership of the House Judiciary Committee announced an antitrust investigation into ESG policies focused on climate change and sent a letter requesting documents from Climate Action 100+, an investor-led initiative on climate issues, regarding its coordination efforts.
Despite this newfound attention, ESG proponents are not receiving any safe harbor from the Biden administration. At a September 2022 hearing of the Senate Judiciary Committee, both Lina Khan, chair of the FTC, and AAG Kanter made clear that there is no ESG exception to the antitrust laws. So, as state AGs and Congress increasingly set their sights on ESG initiatives, there is an increasing risk that the scope of these investigations may expand to include additional types of ESG-related conduct and other participants involved in ESG-related initiatives.
Key Point: Although the Division lost the two criminal labor market cases that went to jury trial this year, it received its first plea agreement, filed additional cases, and is scheduled to have three more trials in 2023.
In 2016, the Division and the FTC released joint guidance in which the Division stated that it would investigate and prosecute anticompetitive conduct in labor markets, including agreements that impact wages or compensation and agreements that limit employees from moving between companies (so-called “no-poach” agreements). After filing its first case in December 2020, the Division has brought eight criminal cases in this area. However, the first two labor market cases that the Division took to trial—a wage-fixing case, United States v. Jindal (E.D. Tex.) and a no‑poach case, United States v. DaVita, Inc. (D. Colo.)—both resulted in jury acquittals for criminal Sherman Act charges.
The Division recently obtained its first victory in a labor market case with a corporate plea agreement. On October 27, 2022, healthcare staffing company VDA OC, LLC pleaded guilty to conspiring with a competitor to allocate employee nurses and fix their wages. VDA agreed to pay a criminal fine of $62,000 and restitution of $72,000 to the affected nurses. Notably, the Division explained in its sentencing memorandum that VDA’s restitution payment may obviate the need for nurses to bring parallel civil suits to recover damages.
Other cases continue to percolate. In January 2022, the Division indicted executives from home healthcare agencies for allegedly fixing wages for their employees. In December 2022, in the Division’s case against several aerospace engineer executives in Connecticut, the Court denied Defendants’ Motion to Dismiss charges related to a purported no-poach agreement.
In 2023, the Division will take three cases to trial, giving it more opportunities to present its theory to a jury. The Division’s ability to succeed at trial, as opposed to plea agreement, will be an important indicator about the future viability of these types of cases.
Key Point: In an apparent effort to bolster its leniency program, the European Commission (EC) created a set of frequently asked questions that provide additional guidance that may encourage more leniency applicants.
On October 25, 2022, the EC published its first Frequently Asked Questions (FAQs) document about its leniency program. The EC described the FAQs as a “guidance” document “to facilitate leniency applications in a more complex leniency landscape” by “providing further transparency, predictability, and accessibility to potential leniency applications.” Among other issues, the EC’s FAQs:
The EC’s decision to create and publish the FAQs comes after a February 2022 Competition Trends report by the Organization for Economic Cooperation and Development (OECD), 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.
For more insight into the new guidance, see our client alert.
Key Point: Canada amends its competition laws to explicitly make labor market agreements subject to criminal prosecution.
On June 23, 2022, the Government of Canada amended its Competition Act to prohibit wage‑fixing and no-poach agreements between employers. This amendment, which goes into effect on June 23, 2023, will make it a criminal offense for employers to agree to fix, maintain, decrease, or control wages or other terms of employment; or to refrain from hiring or trying to hire one another’s employees. The penalty for entering into such agreements includes imprisonment for up to 14 years, a fine to be set at the discretion of the court, or both.
The amendments follow a February 2022 submission by Canada’s Competition Bureau (Bureau) addressing the need for this legislation. In that report, the Bureau explained that wage-fixing agreements were not subject to conspiracy provisions of Canada’s Competition Act, and, as such, the Bureau was limited “from maintaining and encouraging competition in Canada.” In supporting its proposal that this conduct should be criminalized, the Bureau highlighted the United States’ recent focus on prosecuting this conduct and observed that “these developments put Canada out of step with our largest trading partner, as the Act currently does not contemplate criminal sanctions for buy-side conspiracies.”
These legislative changes ensure that Canada’s treatment of these types of agreements is consistent with the United States and further illustrate the extent to which labor markets are becoming an enforcement priority across jurisdictions.
Key Point: Following a slow-down of inspections during the COVID-19 pandemic, European enforcers conduct more frequent unannounced inspections.
In 2022, the European Commission (EC) and other European enforcers increased the use of unannounced inspections—otherwise known as “dawn raids”—to investigate suspected violations of competition law. Dawn raids are an aggressive tactic that can multiply the risks for a company because they often take place in multiple locations at the same time, and (unprepared) employees can be asked questions by enforcers. Although the pandemic limited the number of dawn raids, as one European official noted, it did not mean the end of anticompetitive conduct.
In 2022, national competition authorities conducted dawn raids in Spain (oil producers), Portugal (healthcare), France (leather goods), Italy (tollway operators), Greece (household appliances), the Netherlands (street furniture), and joint raids in Spain and Portugal (woodchips), among others. The EC was active as well. In addition to dawn raids of companies, like those it announced regarding German companies in the natural gas industry, it also confirmed that, “for the first time in many years,” it raided the home of an individual employee.
At the same time, European enforcers also are seeking additional powers related to dawn raids. In May 2022, the EC launched an open call for tender to evaluate its antitrust procedures and regulations. Among other things, the study will evaluate the inspection power in light of the increased trend toward telework following the pandemic. In April 2022, the United Kingdom’s Competition and Markets Authority (CMA) announced its intent to expand its “seize-and-sift” power, which allows it to remove materials during inspections and review them off-site.
As European competition authorities get back on track with dawn raids and seek additional authorities for how they are used, the investigative landscape—and the steps that companies and counsel must take to prepare for them—will continue to shift in 2023.