Articles Posted in Department of Justice

Understanding Antitrust Scrutiny: Lessons from United States v. American Airlines and JetBlue

December 16, 2024 | Bona Law PC

In a landmark decision, the U.S. Court of Appeals for the First Circuit upheld a district court ruling to permanently enjoin the Northeast Alliance (NEA) between American Airlines and JetBlue Airways. This case offers key insights into the relationship between joint ventures and antitrust and the standards of review for evaluating competitive harm.

Airline Case Summary

Defendants presented NEA as a collaborative effort between American Airlines and JetBlue to streamline services, enhance route options, and compete more effectively in the Northeast region of the U.S. Specifically, the arrangement allowed the two carriers to coordinate schedules, pool revenue, and integrate operations in select markets. The airlines argued that the NEA would create efficiencies that would benefit consumers through improved services and better connectivity. But the Department of Justice (DOJ) and several state attorneys general challenged the agreement, asserting that it undermined competition, raised ticket prices, and reduced consumer choice.

The district court’s findings supported the DOJ and the States, concluding that the NEA’s anticompetitive effects far outweighed any claimed benefits. The court held that the alliance reduced output in critical markets and failed to generate meaningful procompetitive benefits that could not be achieved through less restrictive means. On appeal, American Airlines argued that the NEA deserved lenient antitrust scrutiny because it is a joint venture. The First Circuit, however, rejected that defense, emphasizing that the legality of such arrangements hinge on their substance and actual effects rather than their label.

Antitrust Issues and Decision

This case serves as a critical examination of the standards applied to joint ventures under antitrust law. Joint ventures, when properly structured, can foster innovation, enhance efficiencies, and deliver consumer benefits by pooling resources and expertise. But these benefits do not exempt joint ventures from antitrust scrutiny. The First Circuit’s ruling focused on three key principles:

First, the court emphasized the importance of substance over form. It rejected American Airlines’ argument that the NEA’s classification as a joint venture warranted less rigorous analysis. As the court noted, “One could describe price fixing as a joint venture,” highlighting that the label itself does not insulate an arrangement from scrutiny. The court’s inquiry focused instead on the practical implications of the NEA, particularly its impact on competition and consumer welfare.

Second, the court applied the rule-of-reason framework to evaluate the NEA’s competitive effects. This standard requires a detailed analysis of the agreement’s purpose, its potential procompetitive justifications, and its actual anticompetitive effects. Here, the NEA failed to demonstrate sufficient procompetitive benefits to offset its negative impact on competition. The court agreed with the district court’s finding that the alliance reduced output and increased prices in key markets, with no evidence of justifying efficiencies.

Finally, the decision reinforced longstanding antitrust principles requiring genuine economic integration in joint ventures. The court found that the NEA lacked the necessary integration of resources and operations to qualify as a legitimate joint venture. Instead, it functioned as a mechanism to coordinate behavior between two major competitors, effectively reducing competition without delivering substantial consumer benefits.

The Broader Implications of the Ruling

The First Circuit’s decision has significant implications for businesses and legal practitioners navigating antitrust issues. For companies considering joint ventures or similar collaborations, the ruling serves as a reminder that such arrangements must be carefully structured to withstand legal scrutiny. A legitimate joint venture should integrate resources and create new or improved products or services that enhance market competition. Agreements that merely coordinate behavior between or among competitors without achieving these objectives are unlikely to survive antitrust challenges.

Additionally, the case underscores that businesses should proactively address potential antitrust risks during the joint venture’s planning and formation. This includes consulting with antitrust counsel, conducting thorough market analyses, and ensuring that any restrictions are ancillary to the venture’s objectives and proportional to achieving its goals. Companies should also document the procompetitive benefits of their agreements, providing clear evidence to support their claims if challenged.

Insights for Practitioners

The NEA case highlights why antitrust attorneys tailor legal advice to the specific facts and context of each arrangement. Joint ventures remain a common strategic tool for businesses seeking to innovate or expand their market presence. But, as this case illustrates, not all joint ventures are created equal. To withstand antitrust scrutiny, an arrangement must demonstrate genuine economic integration and clear consumer benefits.

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Mergers & Acquisitions, AI and Antitrust: The New Creative Ways for Big Tech to Enter the AI Market and Avoid HSR Rules

July 21, 2024 | Bona Law PC

Author: Luis Blanquez

Two of the main pillars from the Biden Administration Antitrust Policy in 2023 have been an aggressive merger enforcement agenda and its crusade against Big Tech and vertical integration.

On the merger side, the Department of Justice (DOJ) and Federal Trade Commission (FTC) have published new Merger Guidelines (see also here) and proposed new changes to Hart-Scott-Rodino Act (HSR) notification requirements (see also here.) In addition, both antitrust agencies have challenged more mergers in 2022 and 2023 than ever before. In a letter from November 2023 responding to questions from Rep. Tom Tiffany, R-Wis., FTC Chair Lina Khan stressed the fact that:

“a complete assessment of the FTC’s success in stopping harmful mergers reveals that of the 38 mergers challenged during my tenure as Chair, 19 were abandoned, another 14 were settled with divestitures, and two are pending a final outcome.”

This includes key acquisitions such as the Nvidia/Arm Ltd or Meta/Within, among many others. And the FTC is showing no signs of slowing down this aggressive approach. Another recent example of a merger challenge by the DOJ is the Live Nation/Ticketmaster’s complaint.

But despite the FTC’s Chair confidence and the recent new challenge by the DOJ, this hasn’t been an easy path for the antitrust enforcers. Courts in the US have pushed back several of the agencies’ extreme challenges and new theories, such as in the Microsoft/Activision, (see also here, here, and here.)

On the Big Tech front things do not look much better. Both agencies have filed major illegal monopolization cases, sometimes together with State AGs, against Apple (Smartphones), Google (Google Search and Google Ad Technology), Amazon (Online Retail), and Meta (Instagram/WhatsApp––see also here––, and Within acquisitions.)

In other words, if you work in Big Tech, forget about acquiring an AI startup, unless you want to go through a long and hostile review process. This is having a serious impact on the most disruptive and growing industry we’ve seen in years.

The “Magnificent Seven” Tech Companies

The ascendency of Apple, Microsoft, Nvidia, Tesla, Meta, Alphabet and Amazon, the so-called “Magnificent Seven” tech stocks––is indicative of “a fundamental shift”, primarily propelled by advancements in AI. Currently, the top seven tech stocks have not only accounted for about half of the gains in the entire S&P 500, but also contributed to over a quarter of the index’s total market capitalization. These companies are not merely riding the wave of current technologies but actively shaping the future of AI. They collectively gather most of the market cap in the industry.

But until we see a shift on the current enforcers’ antitrust policy against acquisitions involving Big Tech, it doesn’t matter how well these companies perform. Why? Because as a startup in the tech industry (and really in any industry), your main goal is to either try to eventually go public through an IPO––if you become big enough––, or rather look for one of the Big Tech companies to acquire you. But with the antitrust agencies’ current appetite to block such transactions, Venture Capital companies and investors in the AI industry are thinking twice before risking their money on a startup, unless they specifically know that company is going public. Otherwise, the risk that VCs and investors see to get the deal blocked by either the FTC or DOJ is just too high, regardless of the potential these startups might have. And let’s be honest, the number of companies that make it to that level is already extremely low.

First, this is clear evidence of how such an aggressive and disproportionate approach to acquisitions involving Big Tech is currently hindering innovation in the most relevant and disruptive industry we’ve seen in years. But this is a topic for another article.

Second, what I want to discuss in this article is how because of such an extreme approach from the Biden Administration, Big Tech are starting to develop new and creative strategies to get involved in the AI industry, without having to acquire any startups and face the antitrust agencies. At least not until now, because this has already raised some eyebrows at both the DOJ and FTC.

Microsoft/Inflection

The first of these deals involves Microsoft and Inflection.

Backed by Microsoft, Nvidia and billionaires Reid Hoffman, Bill Gates and Eric Schmidt; ex-DeepMind leader Mustafa Suleyman––now Google’s main AI lab, and Reid Hoffman, who co-founded LinkedIn, started Inflection in 2022, claiming to have the world’s best AI hardware setup.

Inflection thesis was based on AI systems that can engage in open-ended dialogue, answer questions and assist with a variety of tasks. Named Pi for “personal intelligence,” Inflection’s first release helped users talk through questions or problems over back-and-forth dialog it then remembers, seemingly getting to know its user over time. While it can give fact-based answers, it’s more personal and “human” than any other chatbot.

In March of this year, Microsoft announced the payment of $650 million to inflection. $620 million for non-exclusive licensing fees for the technology (meaning Inflection is free to license it elsewhere) and $30 million for Inflection to agree not to sue over Microsoft’s poaching, which includes co-founders Mustafa Suleyman and Karén Simonyan. Suleyman will run Microsoft’s newly formed consumer AI unit, called Microsoft AI–– a new division at Microsoft that will bring together their consumer AI efforts, as well as Copilot, Bing and Edge––, whereas Simonyan is joining the company as a chief scientist in the same new group. Inflection will host Inflection-2.5 on Microsoft Azure. It will be also pivoting away from building the personalized AI chatbot Pi to become an AI studio helping other companies work with large language model AI.

So here is where it gets interesting. Microsoft didn’t formally need to make an offer to acquire Inflection. In other words, technically Inflection remains an independent company. But the antitrust agencies seem to disagree and have started asking themselves the following questions.

First, if the key people, money and technology have all left the company to go to Microsoft, what’s really left in Inflection to still be considered as a competitor in the market?

Second, could this qualify as a change in control according to 16 C.F.R. §801.1(b)? What about a file-able acquisition of just “assets”––a term currently undefined by the HSR statute and regulations?

And third, does this move create a “reverse acqui-hire” transaction, a practice which is becoming very popular in the AI industry? The so-called “acqui-hires,” are transactions in which one company acquires another with the main purpose to absorb key talent. But what’s going on in the AI industry is not quite the same. Big Tech are acquiring key employees––such as Suleyman and Simonyan with their core teams in this case––, while licensing technology, leaving the targeted company still functioning independently––so no HSR filing requirement is apparently triggered. This is not the first time we’ve seen this scenario in the AI industry. Last month, Amazon poached Adept’s CEO and key employees, while getting a license to Adept’s AI systems and datasets.

But the antitrust enforcers have started to ask themselves whether Inflection and Adept are still real competitors in the AI market. The FTC has already sent subpoenas to both parties in the Microsoft/Inflection transaction, asking for information about a potential gun-jumping scenario: whether the $650 million deal may qualify as an informal acquisition requiring previous government approval. In the case of Amazon/Adept, the FTC has also decided to start an investigation and asked for more information.

OpenAI, Nvidia and Microsoft

The FTC and DOJ are finalizing an agreement to split duties to investigate potential antitrust violations of Microsoft, OpenAI, and Nvidia.

According to Politico, the DOJ will lead the Nvidia investigation, and its leading position in supplying the high-end semiconductors underpinning AI computing, while the FTC is set to probe whether Microsoft, and its partner OpenAI, have unfair advantages with the rapidly evolving technology, particularly around the technology used for large language models. At issue is the so-called AI stack, which includes high-performance semiconductors, massive cloud computing resources, data for training large language models, the software needed to integrate those components and consumer-facing applications like ChatGPT.

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New Antitrust Cases and Statements of Interests About Algorithmic Collusion

June 9, 2024 | Bona Law PC

Author: Luis Blanquez

We recently wrote about the Federal Trade Commission’s blog post explaining how relying on a common algorithm to determine your pricing decisions might violate Section 1 of the Sherman Act.

The FTC has Algorithmic Price-Fixing in its Antitrust Crosshairs

It was just a matter of time until the first cases would hit the courts. That’s why during the last couple of years, we’ve seen four main federal antitrust cases alleging that algorithmic pricing might violate the antitrust laws. In three of them, the antitrust agencies also filed Statements of Interest (SOI), outlining the agencies’ opinion about what the legal principles applicable to claims of algorithmic price fixing should be.

Realpage, Inc. Software Antitrust Litigation

This multidistrict litigation in the Middle District of Tennessee involves unlawful price-fixing schemes against multifamily housing developers and managers, and student housing developers and managers, both organized by RealPage––a software algorithm company. RealPage developed software to collect property owners’ and managers’ data, used for pricing and inventory strategies, that later shared with its clients.

In January 2024, the Court: (i) denied the motion to dismiss the multifamily housing cases––the renters plausibly alleged an antitrust violation, but (ii) rejected claims alleging a horizontal price-fixing conspiracy among landlords, which would have been per se illegal. The Court, however, concluded that those same landlords vertically conspired with RealPage. The Court also dismissed the student housing plaintiffs’ complaint.

In parallel, the DOJ opened an investigation and filed a SOI. Among other things, the DOJ highlighted:

The fact that today software algorithms process more information more rapidly than humans and can be employed to fix prices. The technical capabilities of software can enhance competitors’ ability to optimize cartel gains, monitor real-time deviations, and minimize incentives to cheat.
Section 1 prohibits competitors from fixing prices by knowingly sharing their competitive information with, and then relying on pricing decisions from, a common human pricing agent who competitors know analyzes information from multiple competitors. The same prohibition applies where the common pricing agent is a common software algorithm.
Factual allegations in both complaints point to evidence of an invitation to act in concert followed by acceptance—evidence that is sufficient to plead concerted action. Among other things, RealPage required each user to submit real-time pricing and supply data to it, and RealPage’s marketing materials allegedly “touted” its use of “non-public data from other RealPage clients,” enabling them to “raise rents in concert”; as well as the algorithms’ ability to “facilitate collaboration among operations” and “track your competition’s rent with precision.”
The complaints then allege that the landlords “gave their adherence to the scheme and participated in it.” In particular, the landlords allegedly sent RealPage the non-public and competitively sensitive data (as RealPage proposed), and overwhelmingly priced their units in line with RealPage’s suggested prices (80-90%). Indeed, the complaints also contain ample allegations on how RealPage directly constrained the “deviations” from its suggested prices, including by enforcing and monitoring compliance with those prices, so the landlords effectively delegated aspects of their pricing decisions.
Relatedly, the multifamily plaintiffs allege that the landlords jointly delegated aspects of decision making on prices to RealPage. They allege that, by using RealPage’s pricing algorithms, each client defendant “agreed” to a common plan that involved “delegat[ing] their rental price and supply decisions to a common decision maker, RealPage.” Indeed, RealPage allegedly touted this feature—stating in a press release that it gives clients “the ability to ‘outsource daily pricing and ongoing revenue oversight,’” such that RealPage could “set prices” as though it “own[ed]” the clients’ properties “ourselves.’”
Jointly delegating any part of the decision-making process reflects concerted action. That the delegation is to a software algorithm, rather than a human, makes no difference to the legal analysis. Just as “surrender[ing] freedom of action. . . and agree[ing] to abide by the will of the association” can be enough for concerted action, so can be relying on a joint algorithm that generates prices based on shared competitively sensitive data.
The “per se” rule prohibiting price fixing applies to price fixing using algorithms. And the analysis is no different simply because a software algorithm is involved. The alleged scheme meets the legal criteria for “per se” unlawful price fixing. Although not every use of an algorithm to set price qualifies as a per se violation of Section 1 of the Sherman Act, it is per se unlawful when, as alleged here, competitors knowingly combine their sensitive, nonpublic pricing and supply information in an algorithm that they rely upon in making pricing decisions, with the knowledge and expectation that other competitors will do the same.

The District of Columbia Attorney General has also filed a similar action in the Superior Court of D.C., alleging violations of the D.C. Antitrust Act.

Duffy v. Yardi Systems, Inc.

In this case from the US District Court for the Western District of Washington, plaintiffs allege that competing landlords violated Section 1 of the Sherman Act, by unlawfully agreeing “to use Yardi’s pricing algorithms to artificially inflate” multifamily rental prices.

The Agencies also filed a SOI to explain the two legal principles applicable to claims of algorithmic price fixing. First, a competitors’ agreement to use an algorithm software with knowledge that other competitors are doing the same thing constitutes evidence of a contract, combination or conspiracy that may violate Section 1. Second, the fact that defendants deviate from the pricing algorithm’s recommendations––for instance, by just setting initial starting prices or by starting with prices lower than the ones the algorithm recommends—is not enough to get them “off the hook” for illegal price fixing (even if no information is directly shared between the parties).

The Agencies SOI’s focus was on the second point: Defendants retaining pricing discretion. The Agencies stress in the SOI that it is “per se” illegal for competing landlords to jointly delegate key aspects of their pricing to a common algorithm, even if the landlords retain some authority to deviate from the algorithm’s recommendations. Although full adherence to a price-fixing scheme may render it more effective, the effectiveness of the scheme is not a requirement for “per se” illegality. Consistent with black letter conspiracy law, the violation is the agreement, and unsuccessful price-fixing agreements are also per se illegal.

Casino-Hotel Operators Cases

Two new algorithmic pricing antitrust cases are also ongoing against casino hotel operators in Las Vegas and Atlantic City.

In Cornish-Adebiyi v. Caesar’s Entertainment, Inc., a case pending in the U.S. District Court for the District of New Jersey, plaintiffs allege a conspiracy against eight Atlantic City casino-hotel operators, and the Cendyn Group LLC, which is a provider of the algorithmic software platform, called “Rainmaker,” used to fix, raise, and stabilize the prices of casino-hotel guest rooms in Atlantic City. Rainmaker allegedly gathers real-time pricing and occupancy data to generate “optimal” room rates for each participating casino hotel, which the software then recommends to each casino hotel.

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The Apple Store is in the Crosshairs of US and EU Antitrust and Competition Enforcers

April 9, 2024 | Bona Law PC

Author: Luis Blanquez

Apple is currently feeling the heat from antitrust authorities all over the world. Probably more than ever. Below is an article we recently published in the Daily Journal discussing in some detail the last developments in the Epic Games saga, both in the EU and the US.

Epic Games Has Returned to the Apple Store. Will Apple Throw a Hail Mary?

If you are a developer in the Web3 space trying to access the Apple Store, you should also review this article:

Antitrust, Web3 and Blockchain Technology: A Quick Look into the Refusal to Deal Theory as Exclusionary Conduct

So, what’s on Apple’s plate in the antitrust world on both sides of the pond?

In the European Union, the European Commission has fined Apple over €1.8 billion for abusing its dominant position on the market for the distribution of music streaming apps to iPhone and iPad users (‘iOS users’) through its App Store. The Commission found that Apple applied restrictions on app developers preventing them from informing iOS users about alternative and cheaper music subscription services available outside of the app. Such anti-steering provisions ban app developers from the following:

Informing iOS users within their apps about the prices of subscription offers available on the internet outside of the app.
Informing iOS users within their apps about the price differences between in-app subscriptions sold through Apple’s in-app purchase mechanism and those available elsewhere.
Including links in their apps leading iOS users to the app developer’s website on which alternative subscriptions can be bought. App developers were also prevented from contacting their own newly acquired users, for instance by email, to inform them about alternative pricing options after they set up an account.

At the same time, the European Commission has just opened a non-compliance investigation under the new Digital Markets Act about Apple’s rules on (i) steering in the App Store; (ii) its new fee structure for alternative app stores; and (iii) Apple’s compliance with user choice obligations––to easily uninstall any software applications on iOS, change default settings on iOS and prompt users with choice screens which must effectively and easily allow them to select an alternative default service.

Meanwhile, antitrust enforcement is also heating up for the Cupertino company in the United States.

Besides several private litigation actions, Epic Games recently filed a motion accusing Apple of violating an order issued last year under California law barring anti-steering rules in the App Store.

And just few days ago, the Justice Department, joined by 16 other state and district attorneys general, filed a civil antitrust lawsuit against Apple for monopolization or attempted monopolization of smartphone markets in violation of Section 2 of the Sherman Act. According to the complaint, Apple has monopoly power in the smartphone and performance smartphones markets, and it uses its control over the iPhone to engage in a broad, sustained, and illegal course of conduct. The complaint alleges that Apple’s anticompetitive course of conduct has taken several forms, many of which continue to evolve today, including:

Blocking Innovative Super Apps.Apple has disrupted the growth of apps with broad functionality that would make it easier for consumers to switch between competing smartphone platforms.
Suppressing Mobile Cloud Streaming Services. Apple has blocked the development of cloud-streaming apps and services that would allow consumers to enjoy high-quality video games and other cloud-based applications without having to pay for expensive smartphone hardware.
Excluding Cross-Platform Messaging Apps. Apple has made the quality of cross-platform messaging worse, less innovative, and less secure for users so that its customers have to keep buying iPhones.
Diminishing the Functionality of Non-Apple Smartwatches. Apple has limited the functionality of third-party smartwatches so that users who purchase the Apple Watch face substantial out-of-pocket costs if they do not keep buying iPhones.
Limiting Third Party Digital Wallets. Apple has prevented third-party apps from offering tap-to-pay functionality, inhibiting the creation of cross-platform third-party digital wallets.

The complaint also alleges that Apple’s conduct extends beyond these examples, affecting web browsers, video communication, news subscriptions, entertainment, automotive services, advertising, location services, and more.

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Bona Law Members Help Lead the 2024 ABA Antitrust Law Section Spring Meeting

March 29, 2024 | Bona Law PC

Authors: Steve Cernak, Kristen Harris, Pat Pascarella, Ruth Glaeser, Luis Blanquez

The American Bar Association Antitrust Law Section’s annual Spring Meeting in Washington DC is April 10-12 this year. Each year, the Spring Meeting has dozens of panels and events and generates numerous receptions — formal and informal — as about 4000 antitrust practitioners and enforcers flock to Washington. It is the place to be for antitrust and consumer protection lawyers and economists — so, of course, Bona Law professionals will play a leading role.

Steve Cernak will be moderating a panel of the Deputy Assistant Attorneys General of the US Department of Justice Antitrust Division on Wednesday morning. As Chair-Elect of the Section, Cernak has helped organize this Spring Meeting and is already hard at work on all the Section’s programming for the Section year starting in August.

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Did You Receive an FTC or DOJ Subpoena? Be Sure To Preserve Everything Ephemeral

February 2, 2024 | Bona Law PC

Authors: Steven Cernak & Molly Donovan

The Federal Trade Commission and the Department of Justice are reminding companies that, in responding to grand jury subpoenas and second requests, there is an obligation to preserve data and communications created using “new methods of collaboration and information sharing tools, even including tools that allow for messages to disappear via ephemeral messaging capabilities.” The government has specifically called out Slack, Microsoft Teams and Signal as being some of the applications of concern “designed to hide evidence.”

The government says that while there has always been an obligation to produce information from ephemeral messaging applications in investigations and litigations, the purpose of the reminder is to ensure that counsel and clients do not “feign ignorance” when choosing to use ephemeral messaging to do business. Thus, the FTC and DOJ will include new, explicit language in subpoenas and other requests specifically stating that data from ephemeral messaging applications must be preserved. A failure to meet that obligation could result in obstruction of justice charges.

More generally, once a company has been served with a subpoena, a document hold should be prepared and circulated right away. A document hold is a written notification to relevant employees not to delete, destroy or alter any electronic or paper materials potentially relevant to the subpoena. The notice must unpack what that language means in plain English and should be conservative in describing what “potentially relevant” means—(remember that just because something is being preserved does not necessarily mean it will have to be produced.)

The document hold should apply to all types of messaging (text, IM, DMs, ephemeral) to ensure that all existing and going-forward materials will not be deleted. The relevant persons with IT expertise should certify internally that preservation is occurring effectively, that all auto-delete functions have been turned off, and that back-up tapes are not being purged automatically.

It’s also a good idea to instruct employees not to talk to each other about the subpoena or the underlying subject matter. When employees talk to each other, it can create the appearance of collusion—i.e., employees are coordinating with each other about what to say or not say to the lawyers or to the government. This can raise obstruction suspicions that may only grow if the discussions occur over ephemeral messaging applications that employees think will not leave a paper trail behind.

If employees believe that they or others have violated, or behaved inconsistently with, company policies or relevant laws, employees should discuss that only with in-house or outside counsel—not with each other.

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Tell Me You’ve Never Run An Antitrust Compliance Program Without Telling Me You’ve Never Run An Antitrust Compliance Program

October 2, 2023 | Bona Law PC

Author: Steven Cernak

The Department of Justice’s challenge of certain Google actions raises interesting antitrust questions. But during the first week of the trial, the biggest issue seemed to be one aspect of Google’s antitrust compliance program. Some commentators were shocked to discover that Google’s lawyers advised the employees to avoid certain hot-button antitrust terms like “leverage” or “dominance.” Those of us who have implemented antitrust compliance programs for decades were shocked that anyone could be shocked by these ordinary compliance tactics. Below, I explain how such tactics can help meet the two goals of compliance programs.

Goal 1: Follow the Law

The first goal of compliance programs, obviously, is to help companies comply with the law. Everything else being equal, companies would prefer to avoid the real and reputational costs of being known as a law breaker. But complying with a law is not always easy. Sometimes the law is not clear — for example, Sherman Act Section 2 is very short but the actions that constitute monopolization are unclear at best. Sometimes the law, or its interpretation, changes — again, Section 2 is a good example as its interpretation has changed from 1960 to 2000 to today. Finally, the businesspeople who receive the training might be experts in business but definitely are not experts in all the laws that affect them. So, their lawyers must accurately, succinctly, and memorably tell them how to comply with the laws and then let them get back to their day jobs.

A list of words to avoid can be accurate, succinct, and memorable. The sales chief might not understand or remember all the intricacies of tying law but she might remember to ask for advice before using it in a memo or requiring the purchase of a second product before allowing sales of a wildly popular product.

Goal 2: Be Seen as Following the Law

Even if the compliance program does not work perfectly and the government or a private plaintiff accuses the company of violations, the compliance program can still help. For example, DOJ has started to give a company credit for a good, but not perfect, compliance program in its investigations and sentencing decisions.

More generally, a good program, perhaps even including a list of phrases to avoid, can also help the company explain to investigators, judges, or juries why its actions did not violate the law. During any investigation or trial, the lawyers will need to explain both those actions and the words used to describe them. Usually, the fewer explanations needed the better. So having the businesspeople avoid certain hot-button phrases, while still honestly getting their jobs done, will reduce the number of explanations necessary and ease the defense burden. The lawyers will still be forced to explain why a requirement to buy product B to get defendant’s wildly popular product A is not anticompetitive. But their burden will be eased if they do not also need to explain what some low-level marketing specialist meant two years ago in an email that suggested the company “leverage our dominance.”

As a result, the standard compliance advice is to be clear and honest in what you write. Will you remember six months or three years from now why you used that phrase? How will that phrase look on the front page of the [New York Times/Wall Street Journal/Automotive News/government’s brief]? To make that advice even clearer and more memorable for the businesspeople, sometimes the compliance program will give examples, even long lists, of words and phrases that will be difficult to explain and so should be avoided.

Why Such Advice Can Be Necessary

Now, that list of “forbidden words” cannot be the entire compliance program. As compliance specialists have known for a long time — and as the DOJ has made clear — multiple elements of a program must work together to create a “culture of compliance.” Merely avoiding certain words is unlikely to help if, say, the CEO mocks the need for such compliance programs or they are otherwise seen as merely “check the box” exercises foisted on busy workers by a busybody legal department.

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Bid Rigging in the Construction Industry: The California Department of Transportation and Michigan Asphalt Paving Cases

September 19, 2023 | Bona Law PC

Author: Luis Blanquez

What is Bid-rigging?

The DOJ describes bid rigging as an agreement among competitors as to who will submit the most competitive bid and who won’t, i.e., who should win and who should lose, in a competitive bidding situation. Typically, bid rigging occurs when a purchaser solicits bids to purchase goods or services, and the bidders agree in advance who will bid what. The desired result is that the purchaser pays a supracompetitive price.

Bid rigging is considered––together with price fixing and market allocation–– a “per se” violation of the Sherman Act. Restraints analyzed under the “per se” rule are considered so inherently anticompetitive that they warrant condemnation without a robust market analysis or the existence of a competitive justification.

Below, we briefly discuss two of the most recent bid-rigging cases from the long list at the DOJ Procurement Collusion Strike Force website.

Bid-Rigging is a Per Se Violation of the Antitrust Laws

Bid rigging can take at least 5 different forms:

Bid Suppression: One or more competitors agree not to bid, or to withdraw a previously submitted bid, so that a designated bidder will win;
Complementary Bidding: Co-conspirators submit token bids that are intentionally high or that intentionally fail to meet the bid requirements. “Comp bids” are designed to give the appearance of competition;
Bid Rotation: All co-conspirators submit bids, but by agreement, take turns being the low bidder on a series of contracts;
Customer or Market Allocation: Co-conspirators agree to divide up customers or geographic areas. The result is that the coconspirators will not bid or will submit only “comp” bids when a solicitation for bids is made by a customer or in an area not assigned to them.
Subcontracting: Subcontracting arrangements are often part of a bid-rigging scheme. Competitors who agree not to bid or to submit only a losing bid frequently receive subcontracts or supply contracts in exchange from the successful low bidder.

The DOJ has provided a list of patterns and suspicious indicators of a potential bid-rigging scheme. These include:

the same company always wins a particular procurement;
companies seem to take a turn being the successful bidder;
some bids are much higher than published price lists, previous bids by the same firms, or engineering cost estimates;
fewer than the normal number of competitors submit bids;
one company appears to be bidding substantially higher on some bids than others with no apparent cost differences to account for the disparity;
bid prices drop whenever a new or infrequent bidder submits a bid.

Additionally, the DOJ looks out for some sort of compensation by the winning company to a losing company, such as:

a successful bidder subcontracts work to competitors that submitted unsuccessful bids on the same project;
a direct payoff in the form of goods, cash, or check, normally disguised as a legitimate payment.

Government Procurement for Construction and Infrastructure

Because bid-rigging has been an historical problem in bids for government contracts, in November 2019, the DOJ created the Procurement Collusion Strike Force (“PCSK”) to combat antitrust crimes that affect government procurement and for victims to report suspected anticompetitive conduct related to construction or infrastructure. And they’ve been extremely busy. As the Director of the PCSK mentioned recently during the Seventh Annual White-Collar Criminal Forum at the University of Richmond Law School “more than 100 investigations opened, more than 45 guilty pleas and trial convictions, over 60 companies and individuals prosecuted and more than $60 million in criminal fines and restitution, all relating to over $375 million worth of government contracts.”

The Caltrans and Michigan Asphalt Paving Recent Cases

The California Department of Transportation (Caltrans) Case

According to a DOJ’s information dated March 2022, a former Caltrans contract manager, a contractor, and two construction companies engaged in a conspiracy from early 2015 through late 2019, to rig bids. Caltrans is a California state agency that manages California’s highway and freeway lanes, provides inter-city rail services and permits public-use airports.

Choon Foo “Keith” Yong––a former Caltrans contract manager––was sentenced to 49 months imprisonment and ordered to pay $984,699.53 in restitution. According to a plea agreement filed on April 11, 2022, Young was part of a scheme to thwart the competitive bidding process for Caltrans contracts to ensure that companies controlled by Yong’s co-conspirators submitted the winning bids and would be awarded the at-issue contract. According to the DOJ’s information, Yong also accepted bribes in the form of cash payments, wine, furniture and remodeling services on his home. The total value of the payments and benefits Yong received exceeded $800,000.

William D. Opp.––a former construction contractor––also pleaded guilty in the scheme. He was sentenced to 45 months’ imprisonment and ordered to pay $797,940.23 in restitution. According to a plea agreement filed on Oct. 3, 2022, he submitted sham bids on Caltrans contracts and provided nearly $800,000 in cash bribes and other benefits to Yong.

Last, in April 2023, former construction company owner Bill R. Miller was also sentenced: 78 months imprisonment and nearly $1 million in restitution. According to his guilty plea, Miller engaged in the same conspiracy and recruited others to submit sham bids on Caltrans contracts. In addition to pleading guilty to bid rigging, Miller also pleaded guilty to paying bribes to Yong.

Michigan Asphalt Paving: The United States v. F. Allied Construction Company, Inc., No: 2:23-cr-20381 (E.D. Michigan)

On August 17, 2023, a senior executive of Estimating for Clarkston-based F. Allied Construction Company Inc (“Allied”) ––a Michigan asphalt paving company––pleaded guilty in the U.S. District Court in Detroit for his role in two separate conspiracies to rig bids for asphalt paving services contracts in the State of Michigan. The services included asphalt paving projects such as large driveways, parking lots, private roadways, and public streets.

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Antitrust for Kids: Back to School with Tough New Rules—The Draft Merger Guidelines

September 5, 2023 | Bona Law PC

Author: Molly Donovan

You may remember Gordon—in many ways, he was dominant in the 5^th grade, and though his behavior was questionable at times, he was very popular.

I’m writing this story because Gordon is starting a new school year and has ascended to MIDDLE SCHOOL. Very cool, but very intimidating—even for Gordon. For one thing, there is an entirely new set of rules about how students are supposed to behave.

In elementary school, there are rules, of course, but they’re intuitive (no pushing, no yelling, please share) and all kids are encouraged to form friendships with all other kids. You can walk to lunch with any other kid you choose to. You can play at recess with any group of kids you want to. This made things easy for Gordon who was a natural at buddying-up with classmates and forming new relationships with ease.

In middle school, things aren’t the same—there’s actually a rule against the buddy system that feels contrary to everything Gordon previously knew. Basically, the rule is: you cannot run around in friendship packs—or duos even—unless they are teacher approved. Why? The principal says the school is trying to eliminate friend groups that are probably going to cause trouble—by, for example, ganging up against the weaker kids who aren’t popular and don’t like gym, or getting too powerful on the playground and pestering the younger kids. The rule is not against combinations that will cause trouble, only that probably will.

You’re likely wondering how it will be determined whether a particular friend group meets that standard. Good question. Apparently, the test is not whether the parents and students —experts on who’s who in the ever-changing social dynamics of middle schools—believe a certain combination spells trouble. The principal and teachers will decide based on dusty old textbooks with opinions written years and years ago (we’re talking 1970s) about tween society.

Query whether that’s the best way. But that’s the way the teachers want to do things.

Did it work out? The school year just started, so it’s too soon to tell and the rules are in purgatory—they’re being publicly tested but are not official yet.

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How to Deal with U.S. Government Enforcers in Antitrust Investigations

August 24, 2023 | Bona Law PC

Authors: Jon Cieslak & Molly Donovan

Having recently defended an investigation brought by the U.S. Department of Justice Antitrust Division—which was closed without prosecution of our client—we had the opportunity to reflect on ways that lawyers can navigate the high-stakes interactions with government enforcers who are investigating antitrust or other white-collar violations. Those interactions involve a number of fine lines that require real-time judgment calls specific to each situation. That said, we think these “rules of thumb” are generally applicable and will help lawyers and their clients navigate the process as smoothly and favorably as possible.

(Although this article is not focused on subpoena compliance, you can listen to our podcast on subpoena compliance here.)

Always be truthful. This should go without saying, but your credibility is everything. Once an enforcer suspects that a client or the lawyers have not been forthcoming, problems get worse. If you realize you’ve provided incorrect information to the government inadvertently, correct it at the first opportunity.
Be transparent about process. In many cases, particularly if you want to limit the scope of a subpoena through negotiations with the enforcer, it is helpful to share information about your investigative process. Disclosing how you’ve searched for documents, what you have (and have not) produced, and what employees you have talked to can help you build credibility and persuade the enforcer not to require additional information. Plus, enforcers don’t like being surprised down the road about what has/has not been provided.
Focus on the facts. Ultimately, the enforcer will decide whether or not to pursue charges based on the facts of the case. It’s important to make sure that you provide the enforcer with all the facts that help your client, particularly those that provide defensible context for otherwise incriminating facts, even if the subpoena does not specifically ask for them.
While you should provide information promptly, you do not need to please. Even if your client takes a defensive posture, and is not formally cooperating, it is often prudent to provide government enforcers with information they’re requesting—probably in writing or in the form of an attorney proffer. It is also wise to cooperate in a timely fashion and to be responsive. But there are limits: you’re not required to satisfy every request and you can negotiate timelines. You should also exercise caution, in particular, when the government asks to speak or meet with your client directly. (See the next pro tip).
Don’t lose what control you have. Being interviewed by the government is very stressful—even for a client who feels they’ve done nothing wrong or has nothing to hide. People sometimes say things they don’t mean because they’re trying to please the interviewer. People like to try to help or protect colleagues and being asked questions about what friends and associates have/have not done can put clients in very uncomfortable situations. Sometimes the lawyer thinks she understands all the details, but a client says something new and unexpected during an interview. It may not be “bad,” but surprises are almost always harrowing. What does all this mean? If you’re not required to put your client in the hot seat, don’t. Consider alternative ways to get the government the information being requested—like an attorney proffer.
If there is an interview, remember these 5 things:

1. Always be truthful (see pro tip #1).
2. Tell your client it is okay to stop the interview to speak privately as necessary. In any event, take regular breaks to check in with your client and discuss any surprises.
3. This is not a deposition, so the best advice to clients is usually to provide all responsive information they can remember when answering each question.
4. “I don’t know” is better than making something up. Don’t make something up—this doesn’t help the enforcer or you.
5. In advance of the interview, be sure your client has not destroyed or tried to hide any materials or potentially relevant documents. Be sure your client has not discussed the investigation with anybody besides lawyers. Coordinating “stories” with friends/colleagues is not okay.

Aggression is unnecessary. Communications among the lawyers should remain cordial. We’ve never seen aggression or hostility go well. In particular, insulting the government’s investigation is not a good idea. The enforcer believes she is investigating for a good reason.
Give your client consistent reminders. Remind your client what she needs to do to maintain the attorney/client privilege and not to do anything that might make her situation worse (destroying evidence/coordinating her story with others). For example, after a government interview, remind your client that everything that was asked and said should be kept confidential.

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