Back then, Department of Justice (DOJ) prosecutors turned a bit creative and charged a crime in two cases where there was a clear attempt to fix prices but where no “contract, combination or conspiracy” was reached. In those cases, the Antitrust Division charged wire fraud, not the Sherman Act, as the basis for the prosecution. The cases netted two guilty pleas by corporate defendants. But one individual executive charged with the same wire fraud for attempting to fix prices took the case to a jury. He was acquitted for lack of adequate proof of “specific intent” to defraud, which is an element of wire fraud.
Over the last three decades, the issue of criminal liability for attempting to violate antitrust laws seems to have faded away.
Last week, however, on facts that appear to be a prosecutor’s dream for a test case, the Antitrust Division and the U.S. Attorney in Montana announced a criminal information, charging an individual executive and business owner with a felony for attempting to arrange with a competitor to allocate between themselves state by state markets for highway crack-sealing services: U.S. v. Zito. Had Mr. Zito’s alleged attempt succeeded, the facts would have supported an indictment under Section 1, charging a per se illegal market allocation agreement. The attempt did not succeed because Mr. Zito’s competitor immediately contacted prosecutors about Zito’s suggestion. Prosecutors then recorded Zito’s calls with the cooperating competitor.
Not having proof of the meeting of the minds required to indict under Section 1 of the Sherman Act, the government this time around eschewed reliance on the crime of wire fraud and instead charged a criminal violation of Section 2 of the Sherman Act.
This use of Section 2 is new, and it’s a surprise. But is it an important development? Some might think Zito is a one-off flash in the pan, perhaps even a PR stunt to claim progress under the Biden administration’s ballyhooed policy of toughening antitrust enforcement and, more specifically, to show progress by the DOJ’s Procurement Collusion Task Force. Other observers (like our team) acknowledge the unique facts and political context but want to understand any new risks presented by criminal enforcement of Section 2.
As a sanity and gut check, it is useful to read the actual text of Section 2 of the Sherman Act:
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.
Before 1974, the crime was a misdemeanor, not a felony. But the bottom line is that attempted monopolization was criminalized 132 years ago and has been a felony for 48 years! Has the DOJ been asleep at the switch? Or is there a deep-seated substantive reason that until now, Section 2 has not been seen as creating a criminal risk?
There are multiple open questions that occur to us on first impression:
- One element of proof of attempted monopolization under Section 2 is specific intent to monopolize, an element akin to the basis on which the Antitrust Division lost that trial for attempted price fixing as wire fraud 31 years ago. So, what is the benefit of a Section 2 charge over a wire fraud charge?
- In its plea agreement with Mr. Zito, the Division seems to admit there are multiple other imposing elements of proof of the crime of attempted monopolization. Why is charging this crime superior to charging wire fraud?
- For the future, will the DOJ contemplate filing a criminal case under Section 2 for conduct that would not, if completed, be a per se violation of Section 1 of the Sherman Act?
At a minimum, in any event, this is a development with implications for:
- Corporate compliance programs
- The application of per se liability under antitrust law, rules that have always only been applied to multiple-actor conduct under Section 1
- The scope of relevant evidence at criminal antitrust trials or for grand juries
Led by Dan Booker, Daniel Ahn, and Wardah Bari, the Reed Smith Antitrust and Competition team, along with other members of our Global Regulatory Enforcement Group, will brainstorm all of this (and, in a lightning round discussion, a few other recent enforcement initiatives) during a one-hour for-credit CLE program on Wednesday, November 30 at noon EST. We hope you can and will join us.
Client Alert 2022-369