The Antitrust Attorney Blog

New York Is Not Okay with Non-Competes

January 1, 2024 | Bona Law PC

Update: In December 2023, New York Governor Kathy Hochul vetoed the legislature’s proposed prohibition against employee non-competes. The Governor indicated that her “top priority was to protect middle-class and low-wage earners, while allowing New York’s businesses to retain highly compensated talent.” Carve-outs to the bill for highly-compensated employees and executives were discussed, but no agreement as to an income cut-off could be reached. Senator Sean Ryan has said that he expects the legislation to be reintroduced in 2024.

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Five Key Takeaways from Fifth Circuit’s Illumina Merger Review Opinion

December 26, 2023 | Bona Law PC

Author: Steven Cernak

On December 15, 2023, the Fifth Circuit remanded to the FTC its order requiring Illumina to divest its re-acquired subsidiary, Grail. Despite the remand, the opinion is a big win for the FTC. Below, we offer five takeaways for future merging parties and their counsel.

[Disclosure: Bona Law filed an amicus brief for 34 Members of Congress arguing that the FTC’s action violated the “major questions” doctrine and misinterpreted Clayton Act Section 7 in several ways.]

Here is a quick summary of the twists and turns of this case from our earlier writings. Illumina is a dominant provider of a certain type of DNA sequencing. Grail is one of several companies developing a multi-cancer early detection (MCED) test. An MCED promises to be able to detect biomarkers associated with up to fifty types of cancer by extracting the DNA from a simple blood sample. To work, the MCED needs DNA sequencing supply. According to the complaint, the type of DNA sequencing that works best — and with which Grail and all other MCED developers have been working — is the type supplied by Illumina.

The parties announced Illumina’s proposed acquisition of Grail in September 2020 and said that it would speed global adoption of Grail’s MCED and enhance patient access to the tool. In late March 2021, the FTC challenged this transaction by filing an administrative complaint before its own administrative law judge (ALJ). Shortly thereafter, the European Commission announced that it too would investigate the transaction, even though the transaction did not meet its usual thresholds.

During these investigations, the parties closed the transaction. The European Commission decided to block the transaction and the parties appealed. Just before the European decision, the FTC ALJ dismissed the complaint in an unexpected decision ruling for the first time against the FTC in a merger case. In a nutshell, the ALJ concluded that the FTC failed to prove that Illumina’s post-acquisition ability and incentive to advantage Grail to the disadvantage of Grail’s alleged rivals would likely result in a substantial lessening of competition in the relevant market for the research, development, and commercialization of MCED tests. FTC Complaint Counsel appealed the ALJ decision. The four Commissioners unanimously agreed to overturn it. Now, the Fifth Circuit has largely upheld that decision of the Commission, though with a remand for reconsideration of one aspect of the decision, as described below.

Takeaway 1: This Development is Largely an FTC Win

Some of the initial tweets and headlines, perhaps after reading only the opinion’s opening paragraph vacating the FTC’s order and remanding for further consideration, seemed to characterize the Fifth Circuit opinion as another loss for the FTC. But make no mistake, this development is a big win for the FTC for several reasons. First, the FTC challenged this transaction to block, then later, unwind, the acquisition of Grail. About a day after the opinion was filed, Illumina announced it would divest Grail. Mission accomplished.

Second, the court found “substantial evidence” for the Commission’s conclusions, despite arguments by the parties (and amici) to the contrary. As detailed below, the court did not question the Commission’s use of older cases and theories to review mergers.

Third, even the court’s rationale for the remand was not that strong a rebuke of the FTC. During the investigation, Illumina made an Open Offer to other customers of its sequencing, promising to treat them as well as Grail. The ALJ found this a useful additional fact in concluding that Illumina did not have the incentive to harm Grail competitors. The FTC majority opinion disagreed with the ALJ and only considered the Open Offer in the remedy phase of the merger review. Commissioner Wilson also disagreed with the ALJ but considered the Open Offer in Illumina’s rebuttal portion of the liability phase of the review. The parties argued that the Open Offer should be addressed by the FTC Complaint Counsel in its prima facie case for liability. The Fifth Circuit agreed with Commissioner Wilson. It seems certain that the other three Commissioners would have reached the same ultimate conclusion on remand when considering the Open Offer earlier in the process.

Takeaway 2: The Court Quickly Punted Constitutional Concerns

As with several other recent challenges to the FTC and other administrative agencies, the parties raised serious, difficult constitutional questions about the structure and processes of the FTC and its review of mergers. The court wrestled with none of them. Instead, the court took only two pages to explain that the four questions were answered by precedent, either from the Fifth Circuit or the Supreme Court, and saw no reason to explore whether any court should change. While this opinion is not the final word on these and similar issues, the FTC at least avoided a number of thorny issues for now.

Takeaway 3: Vertical Might be the New Horizontal

We hear sometimes that a proposed transaction should sail through the Hart-Scott-Rodino merger review process because “the parties don’t compete.” While that focus on current horizontal competition might have been a sufficient screen for antitrust issues a few years ago, it no longer is. Whether the Trump Administration’s challenge of the AT&T/TimeWarner transaction or the Biden Administration’s challenge of this transaction, Microsoft/Activision, or others, vertical (and potential competition) mergers have been ripe for challenge for a few years. Illumina’s abandonment of this vertical deal after this ruling will only encourage further challenges by federal and state antitrust enforcement agencies.

Takeaway 4: Courts Sometimes Agree with New/Renewed Antitrust Theories

As the Biden Administration DOJ and FTC have issued new merger guidelines or unilaterally taken other actions, one popular response from parts of the antitrust commentariat has been “but just wait until the courts consider them.” It is true that a long-lasting change in antitrust interpretation (like, say, the Chicago School) can only start with law review articles and enforcer speeches but eventually will require supportive court opinions; however, the “wait for the courts” sentiment seems built on two faulty premises.

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Does the NBA have an antitrust problem? A rival basketball league may think so.

November 13, 2023 | Bona Law PC

Authors: Luke Hasskamp & Molly Donovan

NBA action is FAN-TASTIC! Unless, of course, the action is one brought by the Department of Justice in a different kind of court. But that may be exactly where the NBA finds itself: the DOJ is reportedly investigating the professional basketball association for alleged antitrust violations. The NBA’s alleged anticompetitive conduct targeted Big3, a competitive basketball league founded by Ice Cube and entertainment executive Jeff Kwatinetz (with Clyde Drexler serving as commissioner!). That conduct included allegedly pressuring team owners, current NBA players, and advertisers and partner television networks not to do business with Big3.

Big3 is an aptly named 12-team, 3-on-3 league mostly comprised of retired NBA players. Teams play an eight-week season, followed by a two-week, four-team playoff, all during the NBA’s off-season. In 2023, the Big3’s regular season was held once a week in Chicago, Dallas, Brooklyn, Memphis, Miami, Boston, Charlotte, and Detroit, and the finals were held in London, England.

We’ve previously written about antitrust laws in the sports arena, including the infamous antitrust exemption in professional baseball. But baseball is an anomaly in that regard, as all other professional sports in the United States are subject to federal antitrust laws. (Professional football, baseball, basketball, and hockey are statutorily exempted from antitrust laws for negotiating television broadcast rights. See 15 U.S.C. § 1291.) Thus, antitrust liability is fair game for the NBA.

And, as this story broke, another recent antitrust case jumped to mind: that involving the PGA Tour and LIV Golf, when the PGA Tour faced antitrust scrutiny for its decision to suspend players who played for a would-be competitor league. The NBA dispute has many parallels to the PGA Tour case, though with some notable differences too, even though most details are not public.

To consider the legal nuts and bolts a bit, let’s look at what a Section 1 and Section 2 claim against the NBA might look like.

Section 1 of the Sherman Act – Unlawful Agreements

Federal antitrust laws (Section 1 of the Sherman Act) make it unlawful for two or more actors to enter agreements (conspiracies) to restrain trade or competition in the market. Classic examples include price fixing and group boycotts.

Here, the leading legal theory may be the group boycott. Under that theory, the NBA would have entered into one or more agreements with other entities to thwart Big3’s emergence and growth in the market.

One of the improper agreements reported here is between the NBA and the owners of each of its 30 teams, with the NBA allegedly instructing owners to not invest in the fledgling competitor. (An agreement between a sports league and its individual teams can implicate Section 1 of the Sherman Act, as was the theory in the recently-settled litigation against MLB involving the contraction of minor league teams.) The reports also suggest that the NBA may have persuaded sponsors and other business partners to agree to avoid doing business with Big3.

Section 2 of the Sherman Act – Monopolization

Federal antitrust laws also make it illegal for a monopolist to preserve its dominant market position through anticompetitive conduct. And this section of the Sherman Act does not require collusion with another party—a single actor can incur liability.

Here, the NBA sure looks like a monopoly (or monopsony). It’s the dominant actor in the professional basketball market in the United States, with revenues exceeding $10 billion per year. (While we generally assume that the relevant geographic market is the United States, even if we were to consider the entire world, the NBA may still be a monopolist.) In professional basketball, there is no rival to the NBA. If you are an elite basketball player in the United States, the NBA is pretty much the only place to play (even if you include the Big3).

But the NBA’s status as a monopoly is not unlawful on its own. It’s fine for a business to emerge as a dominant market player through lawful means, such as through “a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 57071 (1966).

Instead, to implicate Section 2 of the Sherman Act, the NBA must have engaged in some “exclusionary” or “anticompetitive” conduct to protect its monopoly and harm competition—that is something other than superior product, business acumen, or historic accident. Examples of exclusionary conduct include tying, exclusive dealing, predatory pricing, defrauding regulators or consumers, or engaging in coercive conduct, such as threatening customers with retaliation if they choose to do business with the would-be competitor in order to stifle the competitor’s growth in the market.

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$1.8 Billion Antitrust Verdict Against Realtor Groups Provides Lessons for Brokerages, Realtor Associations, and Multiple Listing Services Nationwide

November 7, 2023 | Bona Law PC

Authors: Molly Donovan & Aaron Gott

A Missouri jury awarded a class of home sellers $1.8 billion dollars in finding that the National Association of Realtors (“NAR”) and some of the nation’s largest real estate brokerages “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”

At the center of the case was NAR’s rule requiring sellers to pay a non-negotiable commission awarded to the buyer’s broker at a transaction’s closing (“Mandatory Payment Rule”). The brokerages then compelled their agents to belong to the NAR and adhere to the NAR’s rules. The resulting lack of competition for buy-side commissions caused inflated prices that were forced upon home sellers. Every brokerage in the industry understood that every other brokerage was behaving in this same way.

In addition to inflated buy-side rates, the scheme was reinforced by other anticompetitive practices, including “steering”—where buyer brokers “steer” their clients toward homes attached to a non-negotiable buy-side commission—as opposed to homes for-sale-by owner where an automatic buy-side commission may not be offered.

Another resulting problem is that small brokerages looking to attract buyers have a tough time competing. Most importantly, there’s no opportunity to compete on price because the local NAR groups have locked prices in with the following of the major brokerages. Because of that rule—and other NAR rules—innovations with respect to process or pricing have been very difficult to achieve.

So, why has the scheme worked if it’s so bad for consumers and innovators? Because the NAR has near-exclusive control over the MLS or multiple-listing service.

The MLS is an essential database for listing homes because most homes sold in the United States are found there. If a broker does not belong to NAR and/or does not follow the NAR’s rules, it cannot access the MLS and, therefore, cannot effectively compete for selling or buying clients.

This is of antitrust concern in its own right. And certainly, the Mandatory Payment Rule is not the only rule in the industry that has—or could—draw antitrust scrutiny. Rules against buying/selling homes that are “coming soon,” for example, are also restraints of trade that could be a problem. So are rules that fix any of the terms or conditions of selling or buying a home.

Many predict the entire industry will change as a result of the Missouri verdict, the ongoing competition-law litigations and investigations, and the reality that today, home buyers can do their own legwork to find homes without needing a broker’s access or market knowledge. A buyer broker’s role can sometimes be relegated to accessing lock boxes, providing fill-and-sign access to standard forms, and collecting the check.

So what can a brokerage do now to anticipate the changes and guard against future antitrust concerns? Here is some high-level guidance that brokerages ought to consider:

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Antitrust for Kids: Watch Out for Predatory Halloween…Pricing!!

October 19, 2023 | Bona Law PC

Author: Molly Donovan

At Argo Elementary, a group of kids gathers daily at lunch to buy and sell candy. The trading activity is a longtime tradition at Argo and it’s taken very seriously—more like a competitive sport than a pastime.

Candy trading doesn’t end once a 5^th grader graduates from Argo. It continues across town at Chicago Middle School—but instead of lunch, candy trading happens there at the close of each school day. (The middle school had banned lunchtime trading due to several disputes that grew out of hand.)

Now here’s where it gets complicated, and nobody knows why it works this way, but the average lunchtime price at Argo determines the starting price for trades later in the day at Chicago.

For example: the average selling price for a candy bar on Monday, lunch at Argo is $2.50. Monday after-school prices at Chicago also will start at $2.50.

There are rules about what kind of candy can be traded—so that one trade can be easily compared to another (candied apples-to-candied apples) for purposes of determining who’s “winning.”

And sometimes kids—particularly the older ones at Chicago—place bets on what will happen on a particular trading day in the future, e.g., I bet prices will reach $3 or I bet no more than 50 candy bars will get sold this Friday.

That’s it by way of background. Here’s our story.

Arthur D. Midland (“ADM”) is 9. He is the link between Argo and Chicago. Each day, ADM leaves Argo Elementary when school lets out, walks to Chicago Middle, announces the “start-of-trade” Chicago price based on the lunchtime Argo price, and Chicago trading begins. (ADM’s mother allows this because ADM’s older brother (Midas) also trades at Chicago—so the two boys can watch each other.)

At the start of the school year, ADM contrived a very clever scheme. He bet Midas that, on Halloween, Chicago prices would be very low—as low as $1. Midas said, “No way! September prices are already at $2.50. If anything, prices will increase as kids go candy crazy in October. I’ll take that bet.”

So, for every candy bar sold at Chicago on Halloween for $1 or less, Midas would owe ADM $1. And for every candy bar sold at Chicago for more than $1, ADM would owe Midas $1.

With that bet front of mind, ADM became the primary candy seller at Argo, and as Halloween neared, he flooded Argo with candy and sold it intentionally at very low prices—50 cents for a Snickers! (ADM had the requisite inventory because he was an avid trick-or-treater and had saved all his Halloween candy from years past.)

Due to ADM’s scheme, Argo prices got so low that some kids packed up their candy and went home—refusing to trade there at all.

Well, Halloween finally came and, as you can imagine, ADM made a killing on the bet—100 candy bars were sold at Chicago on Halloween at less than $1, forcing Midas to pay ADM his entire savings. This more than compensated ADM for whatever losses he incurred for under-selling at Argo.

Once Midas realized ADM’s trick, he was furious. Didn’t ADM cheat? Midas assumed—as did all candy traders—that bets derived from candy sales would be based on real—not artificial—market forces.

Did ADM get away with it?

So far, no.

My Muse: For now, plaintiff Midwest Renewable Energy has survived a motion to dismiss its Section 2 monopolization claim against Archer Daniels Midland.

The claim is based on allegations of predatory pricing—basically that the defendant’s prices were below an appropriate measure of its costs and that the low prices drove competitors from the market allowing the defendant to recoup its losses. (For more on predatory pricing, read here.)

In the ADM case, Midwest alleges that ADM manipulated ethanol-trading prices at the Argo Terminal in Illinois to create “substantial gains” on short positions ADM held on ethanol futures and options contracts traded on the Chicago Mercantile Exchange. Because the Argo prices determined the value of the derivatives contracts, by flooding Argo with ethanol that ADM sold at too-low prices, ADM allegedly was able to win big on the derivatives exchange—recouping whatever losses it incurred on the underlying asset.

On its motion to dismiss, ADM argued that Midwest had not sufficiently alleged that ethanol producers had exited the market due to ADM’s low prices or that ADM subsequently recouped its losses in the ethanol market. (ADM classed these arguments as going to antitrust injury.)

The Court agreed that Midwest was required to allege both that rivals exited the market and that recoupment was ongoing or imminent, but the court ruled Midwest’s allegations sufficient to do so.

Specifically, Midwest had alleged that 12 ethanol producers had either stopped or decreased ethanol production—which is enough at the motion to dismiss phase. The court said whether that alleged “handful” of plant closures had a discernible effect on consumers is a fact-intensive analysis not susceptible to resolution on the pleadings.

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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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MMA & Monopsony: MMA Fighters Win Class Certification Bout in Employment Monopolization Case

September 27, 2023 | Bona Law PC

Authors: Luke Hasskamp & Molly Donovan

In yet another important labor-monopsony case, a federal court in Nevada has declared a win for MMA athletes fighting against their promoter’s alleged misuse of monopsony power in the market for acquiring fighters’ services. Class certification has been granted to MMA fighters accusing their promoter of locking them into exclusive contracts that deterred fighters’ mobility and suppressed their wages for fighting bouts. Cung Le v. Zuffa, LLC, No. 2:15-cv-01045-RFB-BNW, 2023 WL 5085064, 2023 U.S. Dist. LEXIS 138702 (D. Nev. Aug. 9, 2023).

The Facts. MMA is a combat sport—a mix of boxing, wrestling, karate and other forms of martial arts. A bout is a competition between MMA fighters in a timed round where a fighter can win by acquiring the most points or by a knockout or submission (the other fighter gives up due to “extreme pain”).

During the at-issue period (2010-2017), Zuffa (defendant) promoted MMA bouts—under the trade name Ultimate Fighting Championship.

During that time, Zuffa treated fighters as independent contractors and compensated them on a bout-by-bout basis: one payment to “show” (participate in a bout) and then another payment (typically in the same amount) to win. This method of compensation was common across all MMA fighters promoted by Zuffa except for a “very small” number of the best fighters who also may have received additional payments at times (e.g., a percentage of the revenues generated by a particular event). Fighters bore their own expenses for training and skills maintenance.

The contracts between Zuffa and fighters contained “exclusion clauses” that required athletes to fight only for Zuffa. These contracts also imposed additional clauses that gave Zuffa significant control over fighters, including (i) the exclusive ability to extend certain contracts automatically; (ii) the exclusive right to cut fighters; and (iii) the right to match a competing promoter’s offer at the expiration of a contract, essentially requiring the fighter to remain with Zuffa whenever Zuffa matched the competing offer.

The Proposed Bout Class. All persons who competed in live UFC-promoted MMA bouts in the United States from 2010 to 2017.

Predominance. Predominance has become the “main event” in antitrust class certification inquiries—the round where a plaintiff can win it or lose it all. To establish predominance, plaintiffs must show (i) conduct that violates the antitrust laws; (ii) that the conduct was commonly applied to the class; (iii) it led to common injury in the class; and (iv) measurable damages provable with evidence common to the class.

Illegal conduct. The class alleges a violation of Section 2 of the Sherman Act, i.e., that Zuffa sought to maintain its monopsony power in the relevant market through exclusionary conduct. In a lengthy analysis, the court held that plaintiffs showed that Zuffa enjoyed monopsony power in a relevant antitrust market—the market for elite professional MMA fighter services. An expert testified that, during the relevant time, Zuffa’s share was between 70 and 90% in the labor-input market. And this market also had significant barriers to entry, including Zuffa’s own “coercive” contracts that “artificially restricted” competitors’ access to fighter talent. As for exclusionary conduct, the court ruled that the required exclusivity and other oppressive contractual provisions (along with related “coercive” conduct by Zuffa) “locked up” fighters, restricting their mobility and suppressing their wages. The court also pointed to Zuffa’s history of horizontal acquisitions as further evidence of a willful intent to maintain market dominance.
Common application to the class. The court found that the relevant contractual provisions applied to all class members, as did Zuffa’s coercive conduct used “consistently” “to induce fighters into re-signing contracts or risk punishment.”
Common injury. Plaintiffs’ expert submitted a regression analysis to show that class members’ wages were artificially suppressed by Zuffa’s conduct. The court ruled that analysis was sufficiently reliable at the class certification stage to establish common injury—rejecting defendant’s “small” criticisms of specific variables and particular data decisions.
Finally, the court held that plaintiff’s expert presented a “coherent methodology for establishing class-wide damages that predominates over any individual damages analysis.”

Total Knockout? No. While the court certified that “bout class,” it declined to certify a separate “identity class” consisting of every fighter whose identity was “expropriated or exploited by the UFC” from 2010 to 2017. The court held that, unlike the bout class, plaintiffs had not presented sufficient expert analysis supporting a connection between the relevant exploitative conduct and suppressed compensation. The court also found it important that the merchandising rights were voluntary and non-exclusive and that fighters in the class varied in notoriety—a difference difficult to capture in an objectively-defined variable. Finally, the court said there was no evidence of an “internal pay structure” for identity rights that was consistently applied across the proposed class.

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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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California Gets Even Tougher on Non-Competes

September 18, 2023 | Bona Law PC

Author: Molly Donovan & Luis Blanquez

California continues to lead the trend away from non-competes with a new law that packs yet another punch against employers’ use of these very common contractual restrictions on employee mobility.

Non-competes—also called restrictive covenants—typically prohibit an employee from taking employment with a rival firm once their current employment has ended. Their enforceability largely depends on their scope and the applicable state law.

In California, existing law already provides that, with few exceptions, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” And, existing law also prohibits employers from trying to skirt the ban by trying to using forum-selection and choice-of-law provisions against California residents who work in California.

The new law goes even further. It states that non-competes are void regardless of where and when they were signed. It prohibits employers from attempting to enforce unlawful non-competes even if the employment occurred outside California. And finally, the law makes it a civil violation for an employer to enter into a prohibited non-compete. Employees can bring private actions against employers who violate the laws against non-competes, and prevailing employees are entitled to attorney’s fees.

The law was drafted by Orly Lobel, Warren Distinguished Professor of Law and Director of the Center for Employment and Labor Policy at the University of San Diego. Her research reveals that California employers still require employees to sign non-competes even when they are unenforceable under California law. Professor Lobel also found that non-competes continue to “stifle economic development, limit firms’ ability to hire,” “depress innovation and growth,” and are “associated with suppressed wages and exacerbated racial and gender pay gaps, as well as reduced entrepreneurship, job growth, firm entry, and innovation.”

Bona Law has extensive experience counseling companies and former employees about non-competes—an area that is increasingly dangerous under many states’ laws and can also draw scrutiny under federal antitrust law.

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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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