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DOJ Faces Setbacks in Labor Market Prosecutions but Remains Determined

WHAT HAPPENED

  • On back-to-back days this month, defendants charged and prosecuted by the US Department of Justice’s Antitrust Division (the DOJ) were acquitted on all Sherman Act charges in first-of-their-kind criminal antitrust trials involving labor markets.
  • On April 14, 2022, in United States v. Jindal, a federal jury in the US District Court for the Eastern District of Texas found two defendants not guilty of violating the Sherman Act by agreeing with competitors on wages they would pay their employees. The jury found one of the defendants guilty of obstructing a Federal Trade Commission (FTC) investigation by making false and misleading statements to the FTC and concealing information.
  • The following day, in United States v. DaVita, Inc., a Colorado federal jury acquitted DaVita, Inc. and its former chief executive on all counts of violating the antitrust laws by entering into non-solicit agreements with other employers.
  • The Jindal case was the DOJ’s first attempt to criminally prosecute so-called alleged “wage-fixing” agreements. Similarly, the DaVita case was DOJ’s first criminal trial targeting alleged no-poach or non-solicit agreements between employers.
  • Historically, the DOJ pursued enforcement of alleged anticompetitive labor market practices in the civil context rather than criminally. But in 2016, the DOJ did an about-face and warned employers in its 2016 Antitrust Guidance for Human Resource Professionals that it intended to proceed criminally against “naked wage-fixing or no-poach agreements” between horizontal competitors in labor markets. The DOJ’s efforts to investigate and criminally prosecute such agreements under this new policy started ramping up publicly in late 2020.
  • The DOJ filed an indictment against Jindal in December 2020 and a superseding indictment against Jindal and another defendant in April 2021. The DOJ alleged that the defendants participated in a conspiracy to lower the rates paid to physical therapists and physical therapist assistants in north Texas. A few months later, in July 2021, the DOJ filed an indictment against DaVita and its former CEO, alleging that they conspired with competitors in the healthcare industry not to solicit each other’s employees. The DOJ returned a superseding indictment in November 2021.
  • In both cases, the district courts denied the defendants’ motions to dismiss. The Jindal court held—for the first time ever—that an alleged wage-fixing conspiracy could constitute a per se criminal violation of the Sherman Act. Similarly, the DaVita court held that no-poach and non-solicit agreements could constitute per se violations—but only if the alleged naked agreements allocate the employment market. The DaVita court refused to announce a blanket rule that all no-poach or non-solicit agreements are subject to per se
  • Despite these rulings, the juries in both cases ultimately acquitted the defendants of all antitrust charges brought by the DOJ.

WHAT’S NEXT

  • The DOJ remains committed to investigating and criminally prosecuting wage-fixing and no-poach agreements despite these early setbacks. Since the Jindal indictment in December 2020, the DOJ has [...]

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Views and Lessons from the Trenches of the First Criminal No-Poach Trial

In a landmark case of first impression, the US Department of Justice’s (DOJ) Antitrust Division (Division) indicted and brought to trial a federal criminal prosecution alleging agreements between DaVita, Inc., its former CEO Kent Thiry and other companies not to solicit each other’s employees. The case was the first criminal trial of its kind in the Division’s recent efforts to expand Sherman Act liability under Section 1 to include so-called no-poach and non-solicit agreements. Following an eight-day jury trial and two days of deliberation, a Denver jury acquitted Thiry and DaVita on all counts of the unprecedented “no-poach” conspiracy. As the district judge himself succinctly put it to the jury: this case was “a unique case in the field of antitrust law.”

This criminal prosecution in the labor markets reflects a novel and aggressive stance on expanding Sherman Act criminal liability. In pursuit of this policy shift, the Division is trying to jam a square peg into a round hole by characterizing non-solicit and no-poach agreements as per se market allocation agreements. The per se rule creates a judicial shortcut of sorts that makes it easier for the government to prosecute classic cartel conduct such as price-fixing and bid rigging. This case, and related cases, are the first time the per se shortcut has been used in a so-called labor market allocation case. This unprecedented litigation created a watershed moment for the Division’s views that non-solicit and no-poach agreements are per se illegal. The complete acquittal of both defendants and the rulings of the district judge before trial cast doubt on whether the per se standard is appropriate for “no-poach” agreements and whether such agreements should be prosecuted criminally at all.

WHERE DID THIS COME FROM?

Historically, the Division pursued enforcement of alleged anticompetitive labor market practices in the civil context, meaning fines for companies and individuals. In fact, that was the approach the Division took with no-poach and no cold call agreements entered into by major technology and railway companies. The Division engaged in a volte-face and declared it would criminally prosecute such labor market agreements for the first time in October 2016. Without an intervening act of Congress, executive order or ruling by any court, the Division warned that going forward it intended to proceed criminally against “naked wage-fixing or no-poach agreements” between horizontal competitors in the labor market. The Division declared that investigating alleged “naked wage-fixing or no-poach agreements” was a top priority. Ignoring concerns related to the separation of powers, the Division unilaterally cited its discretion and put the full weight of the government into labor market no-poach agreements. That momentum accelerated in December 2020 and continued throughout 2021, with the Division bringing 12 criminal cases against nine individuals and three companies. In short, aggressive and expansive antitrust enforcement from the DOJ is now the new normal.

DOJ SEEKS TO CREATE A NEW CATEGORY OF PER SE LIABILITY AND USES DAVITA AND THIRY AS A TEST CASE

The Division returned a superseding indictment against DaVita, Inc. and Kent Thiry on November 4, [...]

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Heard on Day Two and Three of 2022 Antitrust Law Spring Meeting

On April 7 and 8, 2022, the American Bar Association’s Antitrust Law Section wrapped up its annual Spring Meeting. The event featured updates and remarks from several antitrust enforcers, including FTC Chair Lina Khan and US Assistant Attorney General for the Antitrust Division Jonathan Kanter. In this post, we share key takeaways from the final two days of the Spring Meeting.

FTC and DOJ Will Stay Focused on Litigation: Top officials at both US antitrust agencies highlighted the agencies’ full dockets and noted that litigation to enforce the antitrust laws will remain a top priority.

  • Three Directors from the Federal Trade Commission (FTC)—Holly Vedova, the Director of the Bureau of Competition; Samuel A.A. Levine, Director of Bureau of Consumer Protection; and Elizabeth Wilkins, Director of Office of Policy Planning—all emphasized that the FTC will work as one team and will not hesitate to initiate litigation.
  • Vedova noted the FTC’s recent success in several transactions being abandoned after the FTC initiated litigation. She expressed that the Bureau of Competition’s main focus will be litigation, where she believes her bureau will be most effective. Khan echoed these sentiments while speaking on a separate panel, emphasizing that two recently abandoned transactions were in the context of challenges to vertical transactions and that such challenges will continue to be a priority at the FTC.
  • Likewise, Kanter noted that the Department of Justice (DOJ) is not afraid to take on big cases or big companies and will not be afraid to litigate. He said the DOJ is just getting started and reiterated that the DOJ has more active cases than it has had in recent years.

Agencies Will Closely Scrutinize Potential Remedies in M&A: Both FTC and DOJ officials emphasized they will continue to examine the effectiveness of remedies and will only pursue strong remedies.

  • Kanter said that divestiture remedies will be the rare exception and will no longer be the norm. He further cautioned merging parties to avoid engaging in “regulatory arbitrage” and trying to leverage investigation outcomes in one jurisdiction against another because global cooperation among antitrust enforcers is high.
  • Vedova also indicated that the Bureau of Competition has no appetite for weak or uncertain settlements, especially those involving behavioral remedies, which have proven ineffective. The FTC will require meaningful structural relief to resolve competition concerns regarding a transaction.
  • Parties should also not expect the FTC to engage in long settlement discussions due to the unprecedented volume of merger reviews. Vedova noted that staff’s time is valuable and is much better spent preparing for litigation rather than negotiating remedies. She further indicated that the FTC will not engage in remedy discussions unless the Hart-Scott-Rodino (HSR) clock is stopped and timing agreements are tolled.
  • State attorneys general will similarly evaluate remedies and, if necessary, pursue additional remedies than those sought by federal antitrust enforcers. For example, in a recent dialysis acquisition, the state of Utah sought divestiture of a fourth clinic above the three divestitures required to [...]

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Heard on Day One of 2022 Antitrust Law Spring Meeting

This week, the American Bar Association’s Antitrust Law Section kicked off its annual Spring Meeting in Washington, DC, which features updates from the antitrust enforcers and substantive discussions on today’s most pressing antitrust issues. In this post, we share key takeaways from the first day of the Spring Meeting.

Agencies Continue to Be Hostile to M&A: Republican Federal Trade Commission (FTC) Commissioners Noah Phillips and Christine Wilson emphasized that the prevailing view under Democratic leadership at the antitrust agencies is that mergers provide no value and only carry costs.

  • Progressive leadership wants to “throw sand in the gears” to prevent deals from being proposed altogether. Recent policy changes are aimed at creating uncertainty, heightening risk and raising the transaction costs of doing deals to slow the pace of M&A activity.
  • Despite this, there was a precipitous drop in the number of FTC merger enforcement actions in the final year of the Trump administration (31) compared to the first year of the Biden administration (12).
  • There is no indication that early termination for Hart-Scott-Rodino (HSR) pre-merger notification filings will be reinstated.
  • “Close At Your Peril” letters are another tactic the agencies are using to heighten deal risk and deter parties from pursuing or consummating transactions, even though the antitrust agencies have always had the authority to investigate and challenge consummated transactions.
  • Many panelists commented on the lack of transparency between agency staff and merging parties on recent transactions. If the lack of transparency persists, it may create due process issues and problems for timing agreements that merging parties typically negotiate with staff.
  • The antitrust agencies are increasingly skeptical of the efficacy of structural and behavioral remedies to resolve competition concerns regarding a transaction. The Department of Justice (DOJ) Antitrust Division’s Principal Deputy Assistant Attorney General Doha Mekki said merging parties should expect the DOJ to reject “risky settlements” more often and instead seek to block transactions outright. Mekki said literature has shown that many merger settlements failed to protect competition.

Increased Antitrust Litigation Is on the Horizon: DOJ officials said companies should expect an increase in antitrust litigation on both civil and criminal matters.

  • The DOJ Antitrust Division has more cases in active litigation than it has had at any time in recent history. It currently has six active litigations involving civil matters and 21 ongoing litigations involving criminal matters.
  • The Antitrust Division is not considering cost as a gating factor for bringing new cases. Instead, it is bringing cases where it deems necessary to uphold the law and preserve competition. The DOJ is hiring more attorneys and using shared DOJ resources to support the increased rate of litigation.
  • The DOJ is also seeking faster access to the courts. Mekki indicated that in cases where potential anticompetitive harm resulting from a transaction is clear, the agency may file suit while an investigation remains pending and before merging parties have certified substantial compliance.

Updated Merger Guidelines Are Coming: Officials from both the FTC and [...]

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Cartel Corner | March 2022

The US Department of Justice’s (DOJ) Antitrust Division (Division) has continued to actively investigate and pursue alleged criminal violations of antitrust laws and collusive activity in government procurement. US Attorney General Merrick Garland noted in a March 2022 speech at the ABA Institute on White Collar Crime that the Division ended last fiscal year “with 146 open grand jury investigations—the most in 30 years.” As we near the end of the first quarter of 2022, the Division has a record number of criminal cases either in trial or awaiting trial.

In this installment of Cartel Corner, we examine and review recent and significant developments in antitrust criminal enforcement and profile what the Division has highlighted as its key priorities for enforcement. For 2022 and beyond, those priorities are—and likely will remain—identifying and aggressively pursuing alleged violations involving the labor markets, consumer products, government procurement, and the generic pharmaceutical industry.

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Recent Treasury Department Report Emphasizes Fostering Competition in Labor Markets

Continuing the recent string of actions across the Biden administration in response to the July 2021 Executive Order on “Promoting Competition in the American Economy,” on March 7, 2022, the US Treasury Department (Treasury) released a report titled “The State of Labor Market Competition,” and on March 10, 2022, the US Departments of Justice (DOJ) and Labor (DOL) announced a Memorandum of Understanding (MOU) to strengthen and coordinate enforcement efforts in labor markets. These developments highlight the administration’s continuing focus on anticompetitive conduct in the labor markets at both the local and national levels and warrant careful attention by employers of all sizes and in all industries.

Treasury Report In Depth

  • Treasury’s report sets out to “summarize the prevalence and impact of uncompetitive firm behavior in labor markets.”
  • It focuses on both inter-employer conduct—such as the sharing of wage information, entering into no-poach agreements and outright conspiracies to fix wages—and employer-employee conduct—like forcing workers to sign non-compete agreements, mandatory arbitration agreements and class action waivers, misclassification of employees as independent contractors and opacity surrounding employees’ compensation rates—as being potentially anticompetitive and contributing to the imbalance of power between employers and employees in labor markets.
  • The structures of various labor markets, including overall low rates of unionization, “fissuring” of workplaces as a wide variety of job functions (e.g., janitorial or food services) are outsourced from in-house employees to external contractors, and occupational licensing requirements imposed by federal, state, and/or local governments, are highlighted as having overall negative effects on the competitiveness of various labor markets.
  • The report estimates that employers’ market power is responsible for approximately 20% lower wages compared to a fully competitive labor market, and notes that the harms that flow from a lack of labor market competition disproportionately impact lower-income occupations, women and people of color.
  • The report concludes by emphasizing that adverse effects on workers as a result of limited competition in labor markets have broader effects on the labor markets, the firms that participate in them and the economy as a whole.
  • Finally, the report specifically examines the labor markets in the healthcare, agricultural and minor-league baseball industries, and it outlines the Biden administration’s efforts to increase competition and deter and punish anticompetitive conduct in labor markets across the country.

The Memorandum of Understanding (MOU)

  • The DOJ and DOL’s MOU likewise emphasizes the shared “interest in protecting workers who have been harmed or may be at risk of being harmed as a result of anticompetitive conduct,” as Assistant Attorney General Jonathan Kanter noted in the joint press release announcing the MOU, “[p]rotecting the right of workers to earn a fair wage is core to the work of both our agencies, and it will continue to receive extraordinary vigilance from the Antitrust Division.”
  • The MOU states the DOJ’s and DOL’s intent to “share enforcement information, collaborate on new policies, and ensure that workers are protected from collusion and unlawful employer behavior.”
  • [...]

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Kanter Signals DOJ to Follow FTC Lockstep, Calls for Substantial Change to Competition Enforcement Approach

In remarks delivered on January 18, 2022, and January 24, 2022, Jonathan Kanter, the Assistant Attorney General (AAG) for the US Department of Justice (DOJ) Antitrust Division, laid out the areas where he perceives shortcomings in antitrust enforcement. These speeches signaled that the Division, under Kanter’s direction, will take a more aggressive stance toward perceived anticompetitive conduct, echoing the changes in enforcement priorities at the Federal Trade Commission (FTC).

Overview of AAG Kanter’s Remarks

  • Kanter intends to shape the regulatory landscape to better reflect dynamic markets. Both speeches featured a cohesive overarching message: Kanter believes that the regulatory and jurisprudential antitrust regime does not reflect and cannot address the market realities that exist today. Kanter believes that the Supreme Court of the United States’ 1992 opinion in Eastman Kodak v. Image Technology Services supports a change in approach because “[l]egal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law.”[1] To address widespread increases in market concentration as well as “the economic and transformational technological changes” that define today’s economy, Kanter intends to revise the Division’s approach for analyzing mergers and conduct.[2]
  • Kanter seeks to revive dormant areas of antitrust enforcement, in particular monopolization cases with a focus on tech “platform” companies. Kanter stated that the Division has failed to adequately address certain areas of antitrust enforcement. He noted that it has been almost 20 years since the Division’s last major monopolization case.[3] Dominant tech platforms have “extracted private data” and “have few, if any, realistic alternatives,” he said.[4] Shortly after Kanter’s comments about prioritizing monopolization cases, Richard Powers, the deputy for criminal enforcement, stated that the Division will now evaluate Section 2 conduct for criminal charges.[5] Powers’s comments signal a dramatic change in enforcement, reversing decades of policy in which Section 2 charges were only brought in the civil context. These statements from Division leadership mirror those of FTC Chair Lina Khan, who has repeatedly called for more robust antitrust enforcement, and indicate that Kanter intends to reshape the Division, both in terms of resource allocation and approach to anticompetitive conduct, from a civil and criminal perspective.
  • Kanter laid out the Division’s overarching priorities clearly in his remarks. The Division intends to take a more aggressive stance on vertical merger enforcement, reformulate the Horizontal and Vertical Merger Guidelines to better reflect market realities (in the government’s view), enter into fewer consent decrees and instead litigate cases to generate judicial opinions and advance the relevant case law, and bring more civil and criminal conduct cases.

 
Vertical Merger Enforcement to Become a Focal Point for Regulators

  • Kanter stated that agency enforcement of vertical mergers has been lacking. Kanter believes that the Division has placed too much value on the potential efficiencies of vertical mergers without identifying the relevant theories of harm presented by such transactions.
  • The Division intends to [...]

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Mitigating Antitrust Risk in Defense Deals Amid Scrutiny

As the Biden administration calls for tougher antitrust enforcement, the aerospace and defense (A&D) industry faces increased antitrust scrutiny. In this Law360 article, McDermott’s Jon Dubrow, Lisa Rumin and Anthony Ferrara explain how policy changes by the Federal Trade Commission, the Antitrust Division of the US Department of Justice and the US Department of Defense may affect A&D industry participants in various aspects of their businesses, including mergers and acquisitions, teaming agreements and labor practices. The authors also offer suggestions to help these companies mitigate antitrust risk arising from heightened antitrust scrutiny of the industry.

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Expect More Criminal Enforcement & What You Can Do to Minimize Your Risk

OVERVIEW

Antitrust cartel and related collusive scheme enforcement is poised to increase. Several factors support this: (1) the Antitrust Division (the Division) has a 10% budget increase for Fiscal Year (FY) 2021; (2) proposed legislation that would increase its budget by $300 million; (3) Democratic administrations have traditionally been more aggressive in enforcing antitrust laws; (4) according to the US Department of Justice (DOJ), last year the Division opened the most grand jury investigations in almost 20 years and by the end of 2020 had the most open grand jury investigations in a decade; (5) increased coordination with international law enforcement agencies, including the Division recently signing a number of cross-border agreements, maintaining active memberships in multilateral organizations dedicated to cross-border antitrust enforcement cooperation and a DOJ official recently noting they have been working at strengthening their relationships with international law enforcement agencies during the pandemic and they expect this to benefit international coordination on investigations and (6) as pandemic limitations on in-person investigative tactics subside (including search warrants and knock and talk interviews, among others), expect a return to overt tactics related to open grand jury investigations.

Historically, cartel enforcement has increased following economic downturns and substantial federal stimulus packages. For example, after the 2008 financial crisis and the 2009 Recovery Act, the DOJ filed 60% more criminal cases than in prior years. We expect this trend to continue in the wake of the unprecedented government stimulus packages passed in 2020 and 2021 and additional potential government spending on infrastructure. In addition to the increased resources, the Division has stepped up its criminal enforcement program with the creation and recent expansion of the Procurement Collusion Strike Force (PCSF), the expansion of criminal investigations and prosecutions into labor markets, higher expectations for corporate cooperators and new potential benefits for corporate entities with compliance programs addressing antitrust violations.

Below we discuss the sectors most likely to be implicated by increased criminal antitrust enforcement, the PCSF and what steps can be taken to prepare and minimize risk in this environment.

EXPECTED INDUSTRY FOCUS

Based on the trends described above and our recent experience at the DOJ, we expect antitrust criminal enforcement to focus in at least the following industries:

  • Healthcare – The DOJ remains active in this sector with its ongoing generics investigations and prosecutions and other cases relating to market allocation and labor markets. In fact, all of the charged labor market cases thus far have been in the healthcare industry. The DOJ has stated that investigations and prosecutions for violations in the healthcare sector remain its top focus and stimulus spending will likely serve to increase the DOJ’s attention to healthcare markets. Although healthcare compliance policies have often focused on other fraud and abuse issues, such as the Anti-Kickback Statute and Stark Law, compliance with antitrust laws – including for human resources – is now more critical than ever. In addition, the recently signed Competitive Health Insurance Reform Act significantly narrows the exemption [...]

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Government Amicus Efforts Show Antitrust Policy Via Advocacy

Under the administration of President Donald Trump, the US Department of Justice’s Antitrust Division has significantly ramped up its private litigation amicus program.

The Antitrust Division has filed an increasing number of amicus briefs and statements of interest at the appellate and district court levels in an effort to influence the development of antitrust law. In this articles, featured in Law 360, our authors explore how analysis of this advocacy may give us the shape of antitrust policy.

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