Articles Posted in Per Se Antitrust Violation

Dividing Markets and Customers: Are Market Allocation Agreements Per Se Antitrust Violations?

September 21, 2024 | Bona Law PC

Have you ever considered the idea that your business would be much more profitable if you didn’t have to compete so hard with that pesky competitor or group of competitors?

Unless you lack competition—which is great for profits, read Peter Thiel’s book—this notion has probably crossed your mind. And that’s okay—the government doesn’t indict and prosecute the antitrust laws for what is solely in your mind, at least not yet.

But, except in limited instances, you should definitely not divide markets or customers with your competitors. Indeed, you shouldn’t even discuss the idea with your competitors, or, really, anyone (many antitrust cases are made on inconveniently worded internal emails and texts).

The reason that you shouldn’t discuss it is that market-allocation agreements are one of the few types of conduct that the antitrust laws consider so bad, courts label them “per se antitrust violations.” The other per se antitrust offenses are price-fixing, bid-rigging, maybe tying, and sometimes group boycotts.

What is a Market-Allocation Agreement?

When competitors divide a market in which they can compete into sections in which one or more competitors decline to compete in favor of others, they have entered into a market-allocation agreement.

The antitrust problem with a market-allocation agreement is that a group of customers experience a reduction in the number of suppliers that serve them. The companies dividing the markets benefit, of course, because they have less competition for at least some of the market, which means that it is easier to raise prices or reduce quality.

It doesn’t matter, from an antitrust perspective, how the competitors divide the markets or even whether they both end up competing for that product or service after the agreement.

For an obvious example, ponder a small town with two large real-estate brokerage businesses—Northern Real Estate Brokers and Southern Real Estate Brokers. A river flows through the town, roughly dividing it into northern and southern regions. The Northern Real Estate Brokers mostly attract clients north of the river and the Southern Real Estate Brokers usually service clients south of the river. But the river is passable; there is a bridge and it isn’t that big of a river anyway. So sometimes agents of each brokerage will participate in transactions on the other side of the river from their normal client base.

Late one evening, in the middle of the bridge, the leaders of the two companies meet and agree that from that point on, each company would only represent sellers for properties on their side of the river.

This is a market-allocation agreement and the leaders could find themselves in antitrust litigation, or even jail (the Department of Justice will often prosecute per se antitrust violations as criminal law violations).

While the geographic boundary created an obvious method for the two companies to divide markets, they also could have agreed not to steal each other’s existing customers (market allocation based upon incumbency, which is common). So if a real estate agent from the northern brokerage firm won a customer, no agent from the southern brokerage firm would compete for that customer’s business in the future.

This customer allocation agreement is also a per se antitrust violation. To see how this type of antitrust offense can develop in a seemingly innocent way, read our article on the anatomy of a per se antitrust violation.

In this way, the antitrust laws actually encourage stealing customers.

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The FTC has Algorithmic Price-Fixing in its Antitrust Crosshairs

May 20, 2024 | Bona Law PC

Author: Luis Blanquez

Are you delegating your pricing decisions to a common algorithm software platform? If so, you might violate the antitrust laws. It may not even matter whether you actually communicated with your competitors. All it might take is for the antitrust agencies—The Department of Justice or the Federal Trade Commission—to allege illegal collusion is the use by your company of an algorithm-software tool trained using competitively sensitive data, with knowledge that some of your competitors are doing the same thing. Even deviation from the algorithm’s recommended pricing might not save you from antitrust liability.

The FTC’s Blog Post: Price Fixing by Algorithm is Still Price Fixing

On March 1, 2024, the Federal Trade Commission (FTC) published a blog post explaining how relying on a common algorithm to determine your pricing decisions might violate Section 1 of the Sherman Act.

In the blog post, the FTC includes a previous Statement of Interest (“SOI”) filed in the Duffy v. Yardi Systems, Inc. case to explain the legal principles applicable to claims of algorithmic price fixing. First, price fixing through an algorithm is still price fixing. Second: (1) you can’t use an algorithm to evade the law banning price-fixing agreements, and (2) an agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.

The blog concludes with two important remarks:

“Agreeing to use an algorithm is an agreement. In algorithmic collusion, a pricing algorithm combines competitor data and spits out the suggested “maximized” rent for a unit given local conditions. Such software can allow landlords to collude on pricing by using an algorithm—something the law doesn’t allow IRL. When you replace once-independent pricing decisions with a shared algorithm, expect trouble. Competitors using a shared human agent to fix prices? Illegal. Doing the same thing but with an agreed upon, shared algorithm? Still illegal. It’s also irrelevant that the algorithm maker isn’t a direct competitor if you and your competitors each agree to use their product knowing the others are doing the same in concert.
Price deviations don’t immunize conspirators. Some things in life might require perfection, but price-fixing arrangements aren’t one of them. Just because a software recommends rather than determines a price doesn’t mean it’s legal. Setting initial starting prices or recommending initial starting prices can be illegal, even if conspirators deviate from recommended prices. And even if some of the conspirators cheat by starting with lower prices than those the algorithm recommended, that doesn’t necessarily change things. Being bad at breaking the law isn’t a defense.”

This is a bold statement from the FTC. Algorithmic collusion is not only on the agency’s radar now, but it is also one of its priorities.

Final Conclusions

Algorithm collusion is on the crosshairs of the FTC and DOJ, so expect more cases soon. And not only in the real-estate industry, as highlighted from existing investigations on the online retailing and meat processing industries. Indeed, it is becoming common practice for more industries and businesses to implement and rely on algorithms to set their pricing strategies.

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Antitrust for Kids—Anatomy of a Chocolate Cartel (an Antitrust Review of the movie Wonka)

March 15, 2024 | Bona Law PC

Author: Aaron Gott

There are a lot of lessons you can learn from Wonka. It’s a story about how ingenuity, determination, selflessness, and teamwork can overcome the oppressive adversity of a system that serves entrenched interests.

But it’s also a story about a chocolate cartel. And that offers its own lessons, too. Just ask my four kids, who now understand what I do all day (though I may have overplayed the chocolate-related aspect).

In fact, the whole plot of Wonka revolves around the machinations of this market-dominating chocolate cartel. It’s almost as if the folks over at Warner Bros. Pictures took inspiration from our Antitrust for Kids series and (surely inadvertently) left us out of the credits.

For those who haven’t seen it: Wonka is essentially the origin story of the Willy Wonka from 1971’s Willy Wonka & the Chocolate Factory. Wonka, played by Timothée Chalamet, comes to town with the intent to realize his dream of owning a chocolate shop in a ritzy plaza called the Galeries Gourmet. With little money to his name—twelve silver sovereigns that are all spent by the end of the first tune—he sets out to sell his chocolate on the street the following day. A crowd gathers, and the owners of three preeminent chocolate shops, led by Paterson Joseph’s Slugworth, at the Galeries Gourmet notice.

Spoiler Alert!: in this post, I’m talking about Wonka and there may be some spoilers. So if you haven’t seen it, go watch it, and then come back and read this post.

We learn that these three chocolatiers are, despite identifying themselves as three “fierce rivals,” in fact, the members of a chocolate cartel that has the entire market locked down. And just as soon as upstart Wonka begins trying to sell his chocolate, the cartel goes to work to prevent this competitive threat from upending its lucrative arrangement. Or as the cartel puts it, “If we don’t / get on top of this / we’ll go bust / chocopocalypse! / we’ll cease to exist.”

What follows in Wonka is not only a lot of catchy numbers, but also a step-by-step guide into the workings of a successful price-fixing cartel.

Control Price by Controlling Supply

Soon after the members of the chocolate cartel are introduced, we learn the strategy to which they owe their cushy, profitable position: while ostensibly fierce rivals to the outside world, each with their own shops, the chocolatiers actually pool their chocolate in a secret underground vault and strictly control the output so as to artificially depress supply, which ultimately raises prices in a market with pent-up demand.

This is a classic mechanism for a cartel to increase prices without explicitly fixing prices. Rather than attempt to set and discipline cartel members’ prices directly, which can be difficult to administer and is more easily detected by authorities, controlling supply (or production) lets the market do the work of raising prices through the hydraulic action of supply and demand. Output restrictions and price fixing are two sides of the same coin.

A classic example of output controls is the open-and-notorious oil conspiracy known as OPEC.

Conceal Your Meetings and Communications

The chocolatiers’ secret underground vault isn’t just where they store their chocolate reserves; it’s also where they meet to discuss their nefarious business. The lair is underneath a Catholic church run by a frocked, chocoholic Mr. Bean on the take, and to get there, they simply go to a confessional booth, which has a secret elevator to the vault below.

Conspirators often take measures to conceal their communications and meetings, and while real-life cases do not usually involve such ostentatious means, they can still be elaborate. Some use code names and secret email addresses, while others might enlist a supplier to collect and distribute draft pricing announcements while she makes her sales rounds. Conspirators might even have a seemingly coincidental meeting at a charity golf tournament.

And while this cartel was meeting directly in its secret lair, it could have accomplished a similar scheme by integrating Father Bean as the hub of a hub-and-spoke conspiracy. Some notable recent cases have featured accusations of conspiracies facilitated through third-party data aggregators and technology service providers. That kind of conspiracy, though, isn’t quite as conducive to show-tune choreography.

Keep Your Numbers Small

Another reason the chocolate cartel was so successful: it comprises only three competitors who dominate a market. It’s easier to form a cartel in a concentrated, oligopic market. And it’s easier to sustain one, too, for a few different reasons.

The more people who are in on a secret, the more likely that secret is going to get out. It’s important your cartel stays a secret, given that it’s a felony punishable by prison and often means civil liability far beyond what was made from the scheme. This is especially true because the U.S. Department of Justice Leniency Program provides incentives for cartel members to tell on their co-conspirators and cooperate with its investigations. So even if you trust your co-conspirators now, wait until one of them is acquired by a larger company with a strong antitrust compliance program or one of their employees decides to become a whistleblower if for no other reason than to protect their job.

Keeping your numbers small also means that it is less work to detect and punish “cheating” by cartel members, which is inevitable—if they’re willing to cheat the market, you can be sure they’ll cheat each other at every opportunity.

Use the Law to Stop Upstart Competitors

In Wonka, local law forbids the sale of chocolate without a chocolate shop. As one of Wonka’s friends puts it, “You can’t get a shop without selling chocolate, and you can’t sell chocolate without a shop.”

This catch-22 is surely by design. The cartel instinctively calls the police on Wonka the very moment it recognizes him as a competitive threat. The cartel members even make friends with the chief of police—played by Keegan Michael Key—and bribe him with chocolate (and the promise of more) so that he dedicates himself to enforcing the law against Wonka.

Cartels often try to create and use legal barriers to prevent new competitors from gaining a foothold. In the United States, it’s a tale as old as interest group politics: lobby to create barriers to entry through either complex regulatory regimes or licensing schemes that make it harder for others to enter the market and compete against you. And then put your friends in government to enforce those laws with enthusiasm.

Something like this is what happened in North Carolina State Board of Dental Examiners v. FTC: as teeth whitening technology took off, dentists found it extraordinarily profitable. And when non-dentists started offering teeth whitening, the dentists used the state board (conveniently controlled by dentists) to reinterpret the dental scope of practice under state law and start going after non-dentists for the unlicensed practice of dentistry, even though teeth whitening is not actually dentistry.

Scare Consumers Away From Non-Conspirator Rivals

The chocolate cartel also attempts to turn the market against Wonka. First, in front of a crowd comprising Wonka’s intrigued prospective customers, Slugworth declares his expert opinion: “Mr. Wonka, I have been in this business a very long time, and I can safely say, that of all the chocolate I have ever tasted, this is without doubt, the absolute 100% worst.”

Consumers still went wild for Wonka’s “hover chocolates” when Slugworth and his confederates started to float. But that victory was short-lived because of the already-in-motion cartel strategy of using the law against Wonka, which goes to show a successful cartel doesn’t usually rely on just one type of anticompetitive act to achieve its goals.

Later, after a montage of Wonka and his troupe turning to a pop-up retail strategy that allows him to both compete and successfully evade the police, Wonka finally has the financial resources to open a shop. And when he does, the chocolate cartel sabotages him by surreptitiously poisoning his confections with Yeti Sweat, which leads to rapid and uncontrollable vividly colored hair growth. With this, the cartel successfully turned the market against Wonka, and Wonka’s shop was literally destroyed.

Food tampering aside, this is classic group boycott behavior: a concerted effort by firms to persuade customers, suppliers, and other parties in the market not to do business with a rival firm whose competition imposes downward price pressure in the market.

Reach an Illegal Noncompete Agreement

The chocolate cartel at one point convinces Wonka to agree not to compete in exchange for buying his and his friends’ freedom from their indentured servitude to Mrs. Scrubbit.

Paying competitors not to compete is illegal, but the important thing to note here is that it is illegal even if it is just one competitor paying off another. In fact, there is a whole class of “pay-for-delay” antitrust cases, which typically allege brand-name pharmaceutical companies suing generic makers for patent infringement, with the purpose of inducing a settlement whereby the generic makers agree not to introduce their competing products to the market for some period of time.

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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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McDonald’s & Monopsony: The Seventh Circuit Vacates District Court’s Dismissal of a Per Se No-Poach Theory

September 14, 2023 | Bona Law PC

Author: Molly Donovan

In an opinion written by Judge Easterbrook, and a major win for per se no-poach claims, the Seventh Circuit has vacated a district court’s dismissal of a Sherman Act, Section 1 no-poach claim against McDonald’s. The case involves clauses that McDonald’s formerly included, as standard language, in its franchise agreements that “barred one franchise from soliciting another’s employee.” The plaintiff claims that she was unreasonably restrained from switching franchises to take a higher-paid job because of the anticompetitive provisions.

The at-issue contract language was broad, covering solicitation and hiring and not ending until six-months after employment ended: “During the term of this Franchise, Franchisee shall not employ or seek to employ any person who is at the time employed by McDonald’s, any of its subsidiaries, or by any person who is at the time operating a McDonald’s restaurant or otherwise induce, directly or indirectly, such person to leave such employment. This paragraph [] shall not be violated if such person has left the employ of any of the foregoing parties for a period in excess of six (6) months.”

The restraint had teeth: an initial violation gave McDonald’s the right not to consent to a transfer of the franchise. Additional breaches gave McDonald’s the right to terminate the franchise.

And plaintiffs also alleged that the restraint “promote[d] collusion among franchisees, because each knew the other had signed an agreement with the same provision” – so long as everybody at least tacitly cooperated by not poaching, franchisees could keep wages below-market.

Plaintiff alleged only per se and quick look theories of liability—not rule of reason.

In the district court, the defendants argued that, because the restraint originated with McDonald’s corporate (the parent company), the restraint was merely vertical—and thus, not per se illegal. The district court disagreed: the provisions restrain competition for employees among horizontal competitors notwithstanding that the company at the top of the chain originated the agreement.

But the district court dismissed the per se theory because it found that the alleged restraint was ancillary to the franchise agreements. The analysis was curious because, although the court said that a restraint is ancillary only if it promotes enterprise and productivity, the court found it sufficient that the franchise agreements, taken as a whole, promoted enterprise because each franchise agreement increased output (more customers served). The district court did not examine whether the restraint itself promoted competition.

The Seventh Circuit held that was an error. While an “agreement among competitors is not naked if it is ancillary to the success of a cooperative venture,” increased output does not “justif[y] detriments to workers.” The antitrust laws are concerned with monopsonies (in this case, the cartelized cost of labor).

And simply because a franchise agreement increases output, the no-poach agreement itself may not promote output or any another pro-competitive goal. The question is: “what was the no-poach clause doing?” To be deemed ancillary, the no-poach itself must serve a procompetitive objective (such as preventing freeriding on a franchisee’s investment in worker training). The court suggested that an agreement’s duration and scope also may be relevant to resolving that question.

In any event, the Seventh Circuit ruled the answer to that inquiry could not be resolved on the pleadings because economic analysis is required. And “[m]ore than that: the classification of a restraint as ancillary is a defense, and the complaint need not anticipate and plead around defenses.”

In the end, the Seventh Circuit vacated the district court’s decision and remanded for its further consideration in light of the appellate review.

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Ten Ways to Tell Whether You Have an Antitrust Claim

June 3, 2023 | Bona Law PC

Author: Jarod Bona

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see, e.g., Leegin and resale price maintenance).

And outside of a law-school hypothetical, it usually isn’t that difficult to apply the law to the facts. Of course, what makes antitrust law interesting is that it evolves over time and its application to different circumstances often challenges your thinking. Sometimes, you may even want to ask your favorite economist for some help.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve to become an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to Bitcoin or deadlifting.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is fun, however, to play antitrust from the offensive side of the ball. That is, you can utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.

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Domestic Companies and Their Execs Plead Guilty to Criminal Price-Fixing

February 16, 2023 | Bona Law PC

Authors: Jon Cieslak & Molly Donovan

Two individuals and four of their corporate entities pleaded guilty to an antitrust conspiracy to fix the prices of DVDs and Blu-Rays sold on Amazon’s platform during the 2016-2019 time period.

According to the plea agreements, the defendants “engaged in discussions, transmitted across state lines both orally and electronically, with representatives of other sellers of DVDs and Blu-Ray Discs on the Amazon Marketplace. During these discussions, the defendant[s] reached agreements to suppress and eliminate competition for the sale of DVDs and Blue-Ray Discs . . . by fixing prices” paid by consumers throughout the United States. Further details about the operation of the conspiracy are not public.

The total affected commerce done by the six guilty-plea defendants is $2.875 million. The agreed-to fines imposed against the corporate defendants range from $68,000 to $234,000, some payable in installments. Sentencing for the individuals is forthcoming with the plea agreements specifying that the Department of Justice is free to argue for a period of incarceration to be served by each of the individuals at issue.

The action is pending in the District Court for the Eastern District of Tennessee. It serves as a reminder that the DOJ’s Antitrust Division will not excuse price-fixing by relatively small companies, even if the volume of affected commerce is also relatively small.

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Antitrust Group Boycotts: My Competitors are Conspiring Against Me

January 14, 2023 | Bona Law PC

Author: Jarod Bona

Do you feel paranoid? Maybe everyone really is conspiring against you? If they are competitors with each other—that is, if they have a horizontal relationship—they may even be committing a per se antitrust violation.

A group boycott occurs when two or more persons or entities conspire to restrict the ability of someone to compete. This is sometimes called a concerted refusal to deal, which unlike a standard refusal to deal requires, not surprisingly, two or more people or entities. This antitrust claim fits into Section 1 of the Sherman Act, which requires a meeting of the minds, i.e an agreement or conspiracy.

A group boycott can create per se antitrust liability. But the per se rule is applied to group boycotts like it is applied to tying claims, which means only sometimes. By contrast, horizontal price-fixing, market allocation, and bid-rigging claims are almost always per se antitrust violations.

We receive a lot of questions about potential group boycott actions. This is probably the most frustrating type of antitrust conduct to experience as a victim. Companies often feel blocked from competing in their market. They might be the victim of marketplace bullying.

You can also read our Bona Law article on five questions you should ask about possible group boycotts.

Many antitrust violations, like price-fixing, tend to hurt a lot of people a little bit. A price-fixing scheme may increase prices ten percent, for example. Price-fixing victims feel the pain, but it is diffused pain among many. Typically either the government antitrust authorities or plaintiff class-action attorneys have the biggest incentive to pursue these claims.

Perpetrators of group-boycott activity, by contrast, usually direct their action toward one or very few victims. The harm is not diffused; it is concentrated. And it is often against a competitor that is just trying to establish itself in the market. The victim is often a company that seeks to disrupt the market, creating a threat to the established players. This is common. Of course, excluding or limiting competitors from a market may also create diffused harm among customers or sellers for those excluded competitors.

The defendants may act like bullies to try to keep that upstart competitor from gaining traction in the market. Sometimes trade associations lead the anticompetitive charge.

Group boycott activity often occurs when someone new enters a market with a different or better idea or way of doing business. The current competitors—who like things just the way they are—band together to use their joint power to keep the enterprising competitor from succeeding, i.e. stealing their customers and market share.

Sometimes group-boycott claims are further complicated when the established competitors—the bullies—use their relationships with government power to further suppress competition. Indeed, sometimes the competitors actually exercise governmental power.

This is what occurred in the NC Dental v. FTC case (discussed here, and here; our amicus brief is here): A group of dentists on the North Carolina State Board of Dental Examiners engaged in joint conduct, using their government power, to thwart teeth-whitening competition from non-dentists.

This, in my opinion, is the most disgusting of antitrust violations: a group of bullies engaging government power to knock out innovation and competition. And we, at least in the past, have watched the Federal Trade Commission take a pro-active role against such anticompetitive thuggery.

Group Boycotts and ESG

An increasingly prominent example of a group boycott that you should watch for are companies that coordinate their ESG policies such that they exclude competitors that decline to accept these rigid restrictions. You can see how this could develop: A group of companies in an industry decide that they want to win some PR points by announcing ESG policies, but quickly realize that this decision increases their own costs such that they can’t offer products or services that are of competitive quality and price with those in their industry that focus on the consumer. So they coordinate together and try to stop suppliers from dealing with this consumer-friendly company, or engage in other collective tactics to exclude this lower-priced competition. There is a good chance that these actions create antitrust liability for the coordinating ESG companies. And as the FTC recently reiterated, ESG does not create antitrust immunity.

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

December 23, 2022 | Bona Law PC

Author: Jarod Bona

You can buy and sell products or services in many different ways in a particular market.

For example, if you want to purchase some whey protein powder, you can walk into a store, go to the protein or smoothie-ingredient section, examine the prices of the different brands, and if one of them is acceptable to you, carry that protein powder to the register and pay the listed price.

Similarly, if you want to purchase a drone from New Bee Drone, you find the manufacturer’s product in a store or online and pay the listed price. Oftentimes products like this, from a specific manufacturer, are the same price wherever you look because of resale price maintenance or a Colgate policy (to be clear, I am not aware of whether New Bee Drone has any such program or policy). But these vertical price arrangements are not the subject of this article.

Another approach—and the true subject of this article—is to accept bids to purchase a product or service. Governments often send out what are called Requests for Proposals (RFPs) to fulfill the joint goals of obtaining the best combination of price and service/product and to minimize favoritism (which doesn’t always work).

But private companies and individuals might also request bids through RFPs. Have you ever renovated your house and sought multiple bids from contractors? If so, that is what we are talking about.

What is Bid-Rigging?

Let’s say you are a bidder and you know that two other companies are also bidding to supply tablets and related services to a business that provides its employees with tablets. The bids are blind, which means you don’t know what the other companies will bid.

You will likely calculate your own costs, add some profit margin, try to guess what the other companies will bid, then bid the best combination of price, product, and services that you can so the buyer picks your company.

This approach puts the buyer in a good position because each of the bidders doesn’t know what the others will bid, so each potential seller is motivated to put together the best offer they can. The buyer can then pick which one it likes best.

But instead of bidding blind, what if you met ahead of time with the other two bidding companies and talked about what you were going to bid? You could, in fact, decide among the three of you which one of you will win this bid, agreeing to allow the others to win bids with other buying companies. In doing this, you will save both money and hassle.

The reason is that you don’t have to put forth your best offer—you just have to bid something that the buyer will take if it is the best of the three bids. You can arrange among the three bidders for the other two bidders to either not bid (which may arouse suspicion) or you could arrange for them to bid a much worse package, so your package looks the best. The three bidders can then rotate this arrangement for other requests for proposals. Or you offer each other subcontracts from the “winner.”

If you did this, you’d save a lot of money, in the short run.

Of course, in the medium and long run, you might learn more about criminal antitrust law and end up in jail. You could also find yourself on the wrong side of civil antitrust litigation.

This is what is called bid-rigging. It is one of the most severe antitrust violations—so much so that the courts have designated it a per se antitrust violation.

Bid rigging is also a criminal antitrust violation that can lead to jail time. And it often leads to civil antitrust litigation too. Many years ago, when I was still with DLA Piper, I spent a lot of time on a case that included bid-rigging allegations in the insurance and insurance brokerage industries called In re Insurance Brokerage Antitrust Litigation.

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FTC Antitrust Challenge of Altria/JUUL Gets Curiouser and Curiouser

November 14, 2022 | Bona Law PC

Author: Steven J. Cernak

The FTC’s challenge of Altria’s investment into its e-cigarette competitor JUUL Labs, Inc. (JLI) already raised interesting antitrust and administrative law issues: Did the parties’ discussions of FTC compliance during merger negotiations create an unreasonable agreement? Are the structure and procedures of the FTC constitutional?

Recently, the case took another unusual turn. In early November 2022 — after the Commission voted out the complaint; FTC Complaint Counsel tried the case; the in-house administrative law judge issued a decision favoring the parties; and the Commissioners heard oral argument on an appeal — the Commissioners sought additional briefing on the possibility of applying different theories that would make it easier for the FTC to win. The Commissioners’ request seems to be allowable under the FTC’s procedures but might not help it in responding to potential constitutional challenges to those procedures, whether in this case or another one before the Supreme Court.

Facts and Prior History

We covered the case’s facts and procedural history in detail for this Washington Legal Foundation Legal Backgrounder. Here is a short recap.

Altria was the largest and one of the oldest cigarette companies in the country but struggled mightily with e-cigarettes. JLI was a new, smaller company successfully focusing on e-cigarettes. In early 2018, the two parties began nearly year-long negotiations towards a large Altria investment in JLI. Throughout the rocky negotiations, the parties and their respective antitrust counsel discussed and exchanged documents about the likely need to take some action regarding Altria’s competitive e-cigarette assets during the expected FTC antitrust review.

After some FDA communications and during a break in the negotiations, Altria announced that it would pull some of its e-cigarette products. Negotiations resumed and shortly before reaching an agreement with JLI (which included a formal non-compete agreement), Altria announced that it would cease all e-cigarette sales.

The FTC investigated and the then-Commissioners, including current Commissioners Slaughter and Wilson, issued a complaint challenging the entire transaction. The complaint, inter alia, alleged an unreasonable agreement by which Altria agreed not to compete with JLI in the e-cigarette market “now or in the future” in exchange for an ownership interest in JLI. Specifically, that agreement took the form of the non-compete provisions of the written agreement as well as an implicit agreement to exit the market reached during negotiations as a “condition for any deal.”

Per the FTC’s procedures, the challenge was heard by the FTC’s internal administrative law judge. After extensive pre- and post-trial briefing, 20 witnesses, 2400 exhibits, and 13 days of hearing, in February 2022 the ALJ issued a 250-page opinion finding that the FTC’s Complaint Counsel did not prove that the parties reached an agreement for Altria to exit the e-cigarette market and that the non-compete provision of the investment agreement was not unreasonable. FTC Complaint Counsel immediately appealed to the Commissioners.

Throughout the challenge, the parties challenged the constitutionality of the FTC and its procedure on separation of powers and due process grounds. The parties’ briefing made much of the FTC’s enviable 25-year winning streak of the Commissioners never ruling against a challenge that they voted out. A different company whose actions are being challenged by the FTC, Axon Enterprise, recently argued to the Supreme Court that it should be allowed to raise similar constitutional issues before going through the same FTC’s procedures as Altria/JLI did.

Latest Request from Commissioners

In the WLF piece just before the oral arguments to the Commissioners, I suggested that the most interesting antitrust issue would be whether discussions among parties about actions they might take to address expected FTC antitrust concerns could ever add up to an agreement. I also wondered whether the Commissioners might, for the first time in 25 years, rule against a complaint they had issued to avoid any constitutional challenges in this case and, perhaps, to assist in any constitutional challenge in the Axon case.

I expected that by early November, the four remaining Commissioners would be well on their way to deciding the case and issuing an opinion; instead, on November 3, the Commissioners issued an Order requiring the parties and Complaint Counsel to brief two new issues. Specifically, assuming they overturn the ALJ’s opinion that the parties did not reach an unwritten agreement for Altria to exit the e-cigarette market, the Commissioners sought briefing on whether such an agreement should be analyzed as either per se illegal or inherently suspect. The Commissioners also ask if the history of this matter poses any impediments to considering these different standards and, if so, what steps would be necessary to overcome those impediments.

Applying the per se standard would make automatically illegal any such agreement that the Commissioners find the parties to have reached. Applying the inherently suspect standard would drastically lower the standard that the FTC must clear to find unreasonable any unwritten agreement reached by the parties. The inherently suspect standard, and an appellate court’s criticism of it the last time it was used in a high-profile case, are summarized in this recent post.

Conclusion

The briefing by the parties and Complaint Counsel will end just before Christmas. A ruling by the Commission would then be required by around the end of March, unless the Commission again further delays its responsibilities unilaterally. Here are three take-aways.

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