The Antitrust Division of the Department of Justice  and the Federal Trade Commission recently issued a revised model second request clarifying that companies under investigation have an obligation to preserve communications on messaging platforms including those on so-called ephemeral applications.  These applications, such as Slack, Microsoft Teams, Signal, and Google Chat, can be configured to delete messages automatically, posing a problem when a litigation hold is implemented.  A federal judge sanctioned Google in March of 2023 for telling the court that it was preserving messages on Google Chat while not turning off the setting that allowed for 24-hour default deletion.  In their statement, the agencies noted that many companies have not properly been retaining documents from these ephemeral messaging systems in response to preservation requirements in second requests, voluntary access letters, and compulsory legal process such as grand jury subpoenas. 

This failure to preserve is unacceptable to the agencies.  Although they believe that the requirement to preserve ephemeral messages was obvious before, the revised language “makes crystal clear that both ephemeral and non-ephemeral communications through messaging applications are documents” that must be preserved.  The relevant language in the revised second request model now states that “‘Messaging Application’ includes platforms, whether for ephemeral or non-ephemeral messaging, for email, chats, instant messages, text messages, and other methods of group and individual communication (e.g., Microsoft Teams, Slack).”   Also, the model second request states that employee-owned electronic devices used to store or transmit documents responsive to the request are considered to be “in control of the company”.

Companies should review the use of any messaging applications capable of automatically deleting messages to determine what the default settings are and if users have overridden them to delete messages.  In the event of a government investigation and a need to issue a litigation hold notice, the notice should explicitly state that all employees subject to the hold must turn off all auto-deletion functions on all messaging applications on all electronic devices on which they conduct company business. The agencies have signaled this is a priority issue for them and that they may bring obstruction of justice charges or seek civil sanctions if companies fail to preserve ephemeral messages. 

The Federal Trade Commission (“FTC”) has announced updated size-of-transaction thresholds for premerger notification (Hart-Scott-Rodino or “HSR”) filings, as well as updates to the HSR filing fees and transaction value categories.  Separately, the FTC has also updated the de minimis thresholds for interlocking officer and director prohibitions under Section 8 of the Clayton Act.

The HSR filing thresholds, which are revised annually based on the change in gross national product, trigger a premerger notification filing requirement with both the FTC and the Department of Justice’s (“DOJ”) Antitrust Division.  For proposed mergers and acquisitions, the 2024 threshold will increase from $111.4 million to $119.5 million.

Continue Reading The FTC Updates Size of Transaction Thresholds and Filing Fees for Premerger Notification Filings for 2024

On December 18, 2023, the DOJ and FTC jointly released the final 2023 Merger Guidelines that describe how the agencies will evaluate proposed merger and acquisition transactions.  Despite significant editing, and calls from industry to moderate the guidelines, the agencies essentially doubled down on their vision, which we have previously described, promising a more aggressive review of future transactions while providing limited concrete guidance for merging companies.

Changes From Draft Guidelines

We summarize some of the changes made between the draft guidelines and the final version.  None of these, though, are major revisions.  Beyond what is highlighted here, most of the revisions are wordsmithing and the addition of more contemporary case citations, perhaps in response to criticism that the case law cited was all very old.

  • Multimarket Contact Theory.  The agencies have inserted into Guideline 3 an additional example of a situation that may give rise to an anticompetitive alignment of incentives that can be a secondary factor to support a finding of coordinated effects.  Guideline 3 now states that if a merger results in a situation in which the merged firm competes with another firm in multiple markets (“multi-market contact”), firms might have an incentive to compete less aggressively in some markets in anticipation of reciprocity by rivals in other markets.
  • Weakened Threshold for Foreclosure in Vertical Mergers.  Draft Guidelines 5 and 6 have been combined into new Guideline 5, which focuses on vertical merger issues. The agencies removed the bright-line presumption of illegality where one merging party has a 50% share of a “related market” into which the merging counterparty sells or buys.  Instead, the text states that the presumption may be found if the merged firm is approaching or has monopoly power over the related product, and the related products is competitively sensitive.  And the 50% share figure resurfaces in footnote 30, albeit with slightly weaker language stating that the agencies “will generally infer” a violation if the 50% threshold is crossed.
Continue Reading DOJ and FTC Finalize Merger Guidelines

The Federal Trade Commission (FTC) recently submitted comments to the US Copyright Office as part of the Office’s notice of inquiry examining copyright issues related to artificial intelligence.

The agency’s comments largely focused on two areas: potential threats to competition from AI, and copyright.

Competition: The FTC cautioned that “the rapid development and deployment of AI also poses potential risks to competition” for several reasons:

  • “The rising importance of AI to the economy may further lock in the market dominance of large incumbent technology firms. These powerful, vertically integrated incumbents control many of the inputs necessary for the effective development and deployment of AI tools, including cloud-based or local computing power and access to large stores of training data. These dominant technology companies may have the incentive to use their control over these inputs to unlawfully entrench their market positions in AI and related markets, including digital content markets.”
  • “AI tools can be used to facilitate collusive behavior that unfairly inflates prices, precisely target price discrimination, or otherwise manipulate outputs.”
  • “Many large technology firms possess vast financial resources that enable them to indemnify the users of their generative AI tools or obtain exclusive licenses to copyrighted (or otherwise proprietary) training data, potentially further entrenching the market power of these dominant firms.”
Continue Reading The Federal Trade Commission Weighs In on AI and Copyright

A recent Seventh Circuit opinion by Judge Easterbrook held that no-poach agreements, absent valid ancillary restraints, can be per se illegal. Per se violations of the antitrust laws are inherently illegal—meaning no defenses or justifications are available. They have traditionally included conduct like horizontal price fixing, bid rigging, and market allocation. 

This is the first appellate opinion to reach the conclusion that no-poach agreements can be per se violations. As the Department of Justice Antitrust Division (DOJ) has spent the past seven years arguing that no-poach agreements are criminal violations of the antitrust laws, the opinion could empower the DOJ to bring more no-poach cases, given that it must establish an antitrust violation is a per se violation for criminal cases. This opinion also fires a warning shot at companies that use no-poach clauses in franchise agreements. Under the principles described in the opinion, many no-poach clauses in that type of agreement may be per se illegal.

Continue Reading Seventh Circuit: No-Poach Agreements May Be Per Se Illegal

On July 4, 2023, the highest EU court issued a landmark judgment in Case C-252/21, where the German court referred several questions for a preliminary ruling related to (i) the interplay between data protection concerns and competition law breaches; and (ii) interpretation of the EU General Data Protection Regulation (GDPR). This judgment has far-reaching implications for online operators whose business model is based on personalized content and advertisement.

We highlight some of the main takeaways from the judgment below, namely:

  1. Relevance of data protection determinations in competition laws cases.
  2. Large interpretation of the notion of sensitive data and restrictive application of the “manifestly made public by the data subject” derogation within the meaning of Article 9 GDPR.
  3. High threshold regarding the legal basis available under Article 6 GDPR for personalized content and advertisement.
  4. Charging a fee for processing activities not necessary for the provision of the services may be an alternative to consent.
  5. Dominant market position does not affect per se the validity of consent.

1. Relevance of data protection determinations in competition law cases

The Court of Justice of European Union (CJEU) confirmed that national competition authorities (which usually do not have a monitoring or enforcement role under the GDPR) can review whether a data processing operation complies with the GDPR as part of the examination of an abuse of a dominant position by that undertaking. However, the national competition authorities should engage in sincere cooperation with the data protection authorities responsible for enforcing compliance with the GDPR.

Where there is a decision from a data protection authority or a court on the conduct or similar conduct under the GDPR, the national competition authority cannot depart from that decision. It can, however, reach its own conclusions from the point of view of the application of competition law. Where there is no decision or the scope of that decision is unclear, and the data protection authority refuses to cooperate (for example, it does not respond within a reasonable time to the request to cooperate) or does not object the investigation by the national competition authority, the national competition authority can conduct its own assessment.

The judgment of the CJEU highlights the possibility that companies could face enforcement actions for the same conduct under two regimes, both of which could result in substantial fines. Further, while the judgment focuses on the abuse of dominance, similar interplay could arise between the GDPR considerations and other aspects of EU competition rules. We have already seen this in merger cases.

2. Large interpretation of the notion of sensitive data and restrictive application of the “manifestly made public by the data subject” derogation within the meaning of Article 9 GDPR

The CJEU clarified that the processing by an operator consisting in the collection – by means of integrated interfaces, cookies or similar storage technologies – of data from visits of websites or apps relating to sensitive data and of the information entered by the users, the linking of all those data with the operator’s user accounts and the use of those data by the operator must be regarded as processing of sensitive data if sensitive data can be revealed. Further, where the processing entails the collection en bloc of both non-sensitive data and sensitive data without it being possible to separate the data items from each other at the time of collection, such processing activity must be regarded as processing of sensitive data if the data set contains only one sensitive data item. Such processing activities are in principle prohibited unless one of the derogations provided under Article 9(1) GDPR applies.

Regarding specifically the derogation of special categories of personal data manifestly made public by the data subject provided under Article 9 (1) (e) GDPR, the Court further ruled that this derogation may only apply to the processing above described if the user has explicitly made the choice – through individual settings – to make publicly accessible to an unlimited number of persons his interactions with these websites or apps.

3. High threshold regarding the legal basis available under Article 6 GDPR for personalized content and advertisement

  • Performance of a Contract

The CJEU ruled that this legal basis can only be used where the processing is objectively indispensable for a purpose that is integral to the contractual obligations intended for the data subject. In practice, this means that the controller must be able to demonstrate that the processing is essential for the proper performance of the contract and that the contract cannot be achieved if the processing does not occur. The fact that the processing is referenced in the contract or merely useful for its performance is irrelevant. The Court considered that the personalization of content by social media platforms may be useful to users; however, such personalization is not necessary to offer the to users of social media platforms as such services can be provided without personalization.

  • Legitimate Interest

The CJEU recalled that the controller must consider – when conducting its balancing test to assess whether its legitimate interest is not overridden by the data subject’s interests, rights and freedoms – the reasonable expectations of the data subject as well as the scale of the processing at issue and its impact on data subjects. The CJEU acknowledged that personalized advertising may be regarded as a legitimate interest of the controller; however, it concluded the users’ interests, rights and freedoms prevail in the context of the processing at issue. Indeed, the CJEU noted that the processing at issue is particularly extensive since it relates to potentially unlimited data, and users may feel that their private life is being continuously monitored. According to the CJEU, users can, therefore, not reasonably expect that such extensive processing activity for the purpose of personalized advertisement is being conducted without their consent. Consequently, legitimate interest cannot be used as a legal basis for personalised advertisement in the context of the processing at issue.

4. Charging a fee for processing activities not necessary for the provision of the services may be an alternative to consent

The CJEU recalled that under the GDPR, consent is not freely given where the data subject has no genuine or free choice or is unable to refuse or withdraw consent without detriment. In practice, this means that separate consent must be sought for each data processing operations. Users must, thus, be free to refuse to give their consent to particular data processing operations not necessary for the performance of the contract (such as personalized advertisement) without being obliged to refrain entirely from using the service offered by the online operator. According to the CJEU, users not wishing to provide consent to processing operations that are not necessary for the performance of the contract could be charged a fee.

5. Dominant market position does not affect per se the validity of consent

The CJEU noted that the dominant market position of the online operator does not, per se, preclude users from being able to validly consent to the processing of their personal data by that operator. However, since that position is liable to affect the freedom of choice of those users and to create a clear imbalance between them and the online operator, it is an important factor in determining whether the consent was, in fact, validly and, in particular, freely given, which it is for that operator to prove.

Yesterday (July 19, 2023), the DOJ Antitrust Division and the FTC released the long-anticipated proposed Merger Guidelines. As has also been long-anticipated, the proposed Guidelines reflect a much-stiffened enforcement philosophy. Throughout the text, the proposed Guidelines provide citations to Supreme Court cases from the 1960s and 1970s (and some even older) that will send many antitrust lawyers back to the library to re-read opinions that have not been part of mainstream antitrust thinking for decades, as the Agencies and courts have relied far more heavily on economic principles than Brown Shoe factors in assessing the likely competitive impact of a proposed transaction.

A full analysis of what these Guidelines may mean for merger enforcement will require some time – as well as the possible revision of the draft following the 60-day notice and comment period – but here are a few important observations based on a day-one review of the text:

  • Structural Presumption Standards. Guideline 1 rejects the structural presumption thresholds that were loosened in the 2010 Horizontal Merger Guidelines and reverts to the post-merger HHI threshold of 1800 and an HHI increase of 100 as sufficient to rise a rebuttable presumption of an unlawful merger. Guideline 1 also adds a new structural presumption that mergers are unlawful if the merged firm’s market share is greater than 30% and the change in the HHI is greater than 100. This means that an acquisition by a firm with a 28% market share of a firm with only a 2% market share would be presumptively unlawful.

    Guideline 1 would also mean the death knell for claims by broadcasters of a safe harbor for radio and television broadcast station mergers where the merged firm market share was below 40%. These claims were based on a misreading of a 1997 speech by then AAG Joel Klein, but broadcasters have always argued for it anyway. With Guideline 1’s 30% market share threshold for a structural presumption, this argument is fully and totally dead.
  • Potential Entry Standards. Guideline 4 deals with the acquisition of “actual potential” and “perceived potential” entrants. Under the proposed guideline, it is no longer the case that there had to be a reasonable probability of the potential entrant actually entering the market. Instead, if a market participant could “reasonably consider one of the merging firms to be a potential entrant,” then that could be a basis for blocking the merger, even if that firm could not actually enter the market. There is a lot of room here for market participants opposed to the merger to create havoc, by claiming to have “objective evidence” that they believe one of the merging firms could have entered the market independently but for the proposed acquisition. 

    And with regard to proof of actual potential entry, the Guidelines state that subjective evidence that the company considered organic entry absent the merger can indicate a reasonable probability that the company would have entered – but what if the company considered it and rejected the idea? Why does that suggest that entry would be “reasonably probable” absent the merger? 

    Furthermore, the guidelines state that the “Agencies will usually presume” that such entry by one of the merging parties would have been competitively significant. This is a vastly different treatment of potential entry than the guidelines adopt in Article IV, which seems to reiterate the current standards of timeliness, likelihood, and sufficiency of potential entry in situations in which the parties seek to argue that potential entrants will keep the market competitive in the future. The only thing that’s consistent is that the Guidelines place the burden of persuasion on the merging parties.
  • Labor Markets. As expected, the Guidelines (Guideline 11) focus on labor markets: “The Agencies will consider whether workers face a risk that the merger may substantially lessen competition for labor.” Notable in this section is the adoption of worker “attributes” as market-defining characteristics beyond education/skills. There is also repeated discussion of individual worker issues – “the individual needs of workers may limit geographical and work scope of the jobs that are competitive substitutes;” “workers may seek not only a paycheck but also work that they value in a workplace that matches their preferences.” How can individual workers’ interests and needs, which vary as much as the human experience, be accounted for in a unified market definition? The guidelines don’t say.
  • Entrenchment and Extension. Guideline 7 reaches back to some of the older cases that condemned mergers that may “entrench” or extend a dominant position. Interestingly, the guidelines equate a 30% market share with evidence of a dominant position – a figure well below current monopoly standards and more in line with a European concept of dominance.

    Of note in addition to the somewhat vague notion of entrenchment, is that a merger may be condemned for extending a dominant position into new markets – relying on the 1972 decision in Ford Motor. While the Agencies don’t typically permit firms to claim an out-of-market benefit as helping a company’s deal, the Guideline now state that an out-of-market impact can hurt a deal.

    Also of interest is the acceptance of “potential tying” as a harm, i.e., that the merger might lead the merged firm to leverage its position by tying or bundling, and therefore lessening competition in the related market. While there is some old judicial acceptance of this theory, the idea behind Section 7 is to address mergers in their incipiency, not potential violations of the Sherman Act’s prohibition on tying. The inclusion of potential tying and bundling as reasons to block a deal evidences the breadth of the bases for blocking deals that the proposed Guidelines embrace.
  • Trend Toward Concentration. In a short, but potentially important section, Guideline 8 would condemn mergers that will “further [a] trend toward concentration.” It’s difficult to see why “furthering a trend toward concentration” is tantamount to “may substantially lessen competition or tend to create a monopoly.” Doesn’t a merger itself have to cross the line of illegality – rather than just setting up the possibility that the next deal may cross it?   

    And Guideline 8 lacks clarity. The trend toward concentration can be established, it tells us, “as a steadily increasing HHI exceeds 1,000 and rises toward 1,800.” Over what period of time? With what speed? How steady is “steadily”? And with somewhat circular logic, the guideline tells us that the fact that a merger would increase the pace of the trend toward concentration “may be established by other facts showing the merger would increase the pace of concentration.” 

Time will tell if these proposed Guidelines are changed after the comment period and the extent to which they receive judicial acceptance. The reason that the enforcement agencies and the courts moved on from the concepts central to many of the 1960s and 1970s merger decisions relied on by these guidelines was the recognition that economic principles and concern for consumer welfare were more reliable and principled bases for sound antitrust enforcement than subjective judgments about possible future conduct or suitably benign market structures. The current Administration justifies increased litigation on the grounds that even losing cases advances antitrust doctrine by defining the edges of permissible conduct. These proposed Guidelines presage more of this approach. 

On 1 July 2023 the revised Research & Development Block Exemption Regulation and Specialization Block Exemption Regulation, alongside the revised Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to cooperation agreements between competitors (Horizontal Guidelines) enter into force. The new rules introduce some significant changes (including in comparison to the earlier drafts published by the European Commission), some of which we set out below.

R&D and Specialisation Block Exemption Regulations

The European Commission has introduced a more flexible approach for the calculation of market shares under both Block Exemption Regulations. The market shares are usually calculated on the basis of market sale value or volumes but where such information is not available, other reliable information could be used. For example, in the R&D cases, expenditure on R&D or R&D capabilities could be used as a basis for market share calculation.

The European Commission has also clarified the rules on the grace period applicable after the market share thresholds are exceeded – 2 consecutive calendar years following the year in which the relevant market share threshold was first exceeded (25% for R&D agreements and 20% for specialization agreements).

The new revised Block Exemption Regulations now expressly contain the general power of the European Commission and national competent authorities to withdraw the benefit of exemption in individual cases.

In respect of R&D agreements, the proposal to exclude from the benefit of the R&D Block Exemption Regulation where there are less than three competing R&D efforts in addition to and comparable with those of the parties to the R&D agreement, has not been included in the final text.

In respect of specialization agreements, the scope has been extended to cover more types of production arrangements concluded by more than two competitors.

The other terms on exemption criteria, including hardcore restrictions are the same or very similar to those that have been in force since 2010.

Horizontal Guidelines

The revised Horizontal Guidelines contain some new chapters and sections, for example, new sections on mobile telecommunications infrastructure agreements and bidding consortia and a  new chapter on sustainability agreements among competitors. We have previously commented on the new chapter on sustainability agreements (see Here).

While the chapter has not significantly changed since the first draft published by the European Commission, we highlight the following three changes.

First, the European Commission has acknowledged that it will provide additional guidance in relation to novel and unresolved questions regarding sustainability agreements through its Informal Guidance Notice on a case-by-case basis.

Second, the safe harbor criteria for sustainability standardisation agreements have been slightly revised and can be summarized as follows:

  • The procedure for developing the sustainability standard must be transparent and all interested competitors can participate in the process leading to the selection of the standard.
  • The sustainability standard must not impose on undertakings that do not wish to participate in the standard, an obligation – either directly or indirectly – to comply with it.
  • Participating undertakings remain free to adopt for themselves a higher sustainability standard than the one agreed with the other parties to the agreement.
  • The parties to the sustainability standard must not exchange commercially sensitive information that is not necessary for the development, adoption or modification of the standard as such.
  • Effective and non-discriminatory access to the outcome of the standardisation procedure is ensured, including effective and non-discriminatory access to the requirements and the conditions for obtaining the agreed label or for the adoption of the standard at a later stage by undertakings that have not participated in the standard development process.
  • And at least one of the following conditions is met:
    • The sustainability standard does not lead to a significant increase in price or to a significant reduction in the choice of products available on the market; and/or
    • The combined market share of the participating undertakings does not exceed 20%.

The cumulative criteria for the safe harbor no longer require to have a mechanism or a monitoring system to be put in place. However, the European Commission notes that having such mechanism or system in place could be an indication that the sustainability standardisation agreement aims to promote the attainment of a sustainability objective.

Third, the European Commission has identified an additional type of agreement that is unlikely to raise competition concerns: namely, agreements that aim solely to ensure compliance with sufficiently precise requirements or prohibitions in legally binding international treaties, agreements or conventions, whether or not they have been implemented in national law and which are not fully implemented or enforced by a member state. In order to benefit from this exclusion, the participating companies, their suppliers and/or their distributors are required to comply with such requirements or prohibitions under those international rules. The European Commission notes such agreements may be an appropriate measure to enable undertakings to implement their sustainability due diligence obligations under national or EU law.

Further analysis of other chapters of the revised Horizontal Guidelines will follow. We will pay particular attention to the chapter on information exchange, which introduces clarification on commercially sensitive information, data pools, unilateral disclosure and indirect information exchanges.

In a yet another setback for the U.S. Department of Justice’s (DOJ) ongoing effort to prosecute labor-side violations of the Sherman Act, District of Connecticut Judge Victor A. Bolden granted a motion for a judgment of acquittal on April 28, 2023 in United States v. Patel. The order, which was entered before the jury was given an opportunity to deliberate, is not appealable and therefore brings an end to DOJ’s efforts to prosecute an alleged “no-poach” market allocation agreement. But more significantly, the order sets a high bar for proving a per se unlawful market allocation agreement in criminal no-poach cases, which could hinder DOJ’s ability to use the criminal justice system to police such cases.

The Alleged Conspiracy

The indictment alleged that the defendants — a manager at Raytheon subsidiary Pratt & Whitney, and executives at each of five outsourced engineering service providers used by Pratt & Whitney — typically “competed against one another to recruit and hire engineers and other skilled workers,” but participated, between 2011 and 2019, in an agreement “to suppress competition by allocating employees in the aerospace industry working on projects for” Pratt & Whitney.1 Specifically, as alleged, the agreement was a no-poach agreement that prohibited the defendants from contacting, interviewing, recruiting, or hiring each other’s employees.2

The defendants filed an unsuccessful motion to dismiss the indictment last year. We examined the district court’s opinion in a December 19, 2022 blog post. In short, the court held that (1) the no-poach agreement alleged by the indictment would, if proven at trial, amount to market allocation, which is an existing category warranting per se treatment under the Sherman Act,3 and (2) the no-poach agreement was not “ancillary to a legitimate business collaboration” and therefore did not qualify under the “ancillary restraints” exception to the per se rule.4 The case then moved to trial, with jury selection beginning in April 2023.

The Grant of Defendants’ Motion for Judgment of Acquittal

After the government presented its case-in-chief, the defendants jointly moved for a judgment of acquittal under Federal Rule of Criminal Procedure 29.5 Nearly a week later, the court granted the motion on the grounds that, as a matter of law, the conduct proven by the government at trial did not amount to a per se violation of the Sherman Act.6

In arriving at this conclusion, the court first reiterated its view that a horizontal market-allocation agreement, including an agreement “allocating or dividing an employment market,” is “traditionally subject to per se treatment” under the Sherman Act.7 But it then ruled that, as a matter of law, the instant case did not involve per se market allocation, largely based on its analysis of a Second Circuit case, Bogan v. Nw. Mut. Life Ins. Co.8 That case, which was civil rather than criminal, involved an agreement among “general agents” of Northwestern Mutual Life Insurance Company, who were responsible for hiring district and sales agents to sell Northwestern Mutual life insurance, not to compete for services of existing district and sales agents by restricting their transfer.9 The Second Circuit affirmed the district court’s grant of the Bogan defendants’ motion for summary judgment, holding that the per se rule was not applicable.10 The court reasoned that the agreement had too many exceptions to constitute an allocation; it “permitted transfers, and experienced NML agents do not comprise the entire set of supplies for their services” because the general agents were free to compete for new Northwestern Mutual agents. Therefore, while the agreement “may constrain General Agents to some degree, it does not allocate the market for agents to any meaningful extent.”11

Focusing on the evidence presented by the government at trial, the Patel court held that this case was on all fours with Bogan.12 Even assuming the government had adequately proven that there was an agreement between defendants to restrict hiring of engineers or other skilled labor employees among the five contractors working on projects for Pratt & Whitney, there were simply too many holes in the bucket — i.e., too many exceptions to the agreement — for it to hold water as a per se market allocation agreement. The court noted that “hiring among the relevant companies was commonplace, throughout the alleged agreement,” even citing numerous examples of poaching set forth in pages of string cites to the trial transcript and relevant exhibits that showed that even those who had sent emails that appeared to refer to a bright-line rule against poaching engaged in the practice.13 “Under these circumstances,” the court concluded, “the alleged agreement itself had so many exceptions that it could not be said to meaningfully allocate the labor market of engineers from the supplier companies working on Pratt and Whitney projects.”14 Like the agreement in Bogan, the agreement here “constrained” the workers “to some degree” but did not allocate the market “to any meaningful extent.”15

The court was careful to note that its holding was based on a careful analysis of the extent of enforcement of the agreement; the outcome would not have been the same had the proof allowed only for the “theoretical possibility” of switching employers, or that transfers “occurred in a few exceptional cases.”16

The Court’s Opinion Increases DOJ’s Burden in No-Poach Cases

The court’s ruling ends DOJ’s case against Patel and his co-defendants; the Double Jeopardy Clause of the Fifth Amendment does not allow the government to appeal the grant of a Rule 29 motion for judgment of acquittal where, as here, the jury has not already delivered a guilty verdict and a successful appeal would therefore require a retrial.17 

Although DOJ has established that “no-poach” agreements can be treated as per se violations of Section 1 of the Sherman Act that may be criminally prosecuted, DOJ has yet to secure a conviction. And the Patel court’s opinion could make it more difficult for DOJ to continue to bring criminal no-poach cases as market allocation agreements.18 Under the Patel court’s ruling, in cases involving no-poach agreements, the court must “assess whether the agreement meaningfully allocates the market such that this no hire agreement is one that operates as a market allocation agreement and justifies per se treatment.”19 In other words, even with evidence of an agreement among defendants to restrict hiring, the court must find that the agreement has the effect of “meaningfully” allocating the market in order to prove a per se unlawful market allocation agreement.

DOJ’s failure to prove that the Patel defendants actually allocated the market may portend questions about future criminal enforcement of alleged “no-poach” agreements. Proving the existence of naked “no-poach” agreements in court has been more challenging than DOJ likely anticipated.

Currently, DOJ has another criminal no-poach case, United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC,20 heading toward trial. If nothing else, that case, which concerns an alleged agreement not to solicit senior-level employees in the outpatient medical facilities business, will be an opportunity for DOJ to prove an unlawful agreement and finally secure a victory.

Endnotes

1 Indictment ¶¶ 4, 10-16, 19, United States v. Patel, 3:21-cr-00220 (D. Conn. Dec. 15, 2021), ECF No. 20.

2 Id. ¶¶ 20-21.

3 United States v. Patel, No. 3:21-CR-220, 2022 WL 17404509, at *7 (D. Conn. Dec. 2, 2022).

4 Id. at *11.

5 Order Granting Motion for Acquittal at 3, United States v. Patel, 3:21-cr-00220 (D. Conn. Apr. 28, 2023), ECF No. 599.

6 Id. at 11.

7 Id. at 9.

8 166 F.3d 509 (2d Cir. 1999)

9 Id. at 511–12.

10 Id. at 513–16.

11 Id. at 515–16. The court also noted that, consistent with Bogan, the jury instructions in United States v. DaVita Inc. stated that “a horizontal market allocation requires cessation of ‘meaningful competition’ in the allocated market.” No. 1:21-cr-00229-RBJ, 2022 WL 1288585, at *3 (D. Colo. Mar. 25, 2022).

12 Order Granting Motion for Acquittal at 12, United States v. Patel, 3:21-cr-00220 (D. Conn. Apr. 28, 2023), ECF No. 599.

13 Id. at 18.

14 Id. at 17.

15 Id. (citing Bogan, 166 F.3d at 515). In his December 2022 motion to dismiss ruling, Judge Bolden distinguished Bogan from the facts alleged in the Patel indictment on the grounds that (1) the Northwestern Mutual agents were all paid on a uniform rate schedule, so a no-poach agreement could not negatively affect their wages and (2) the agreement in Bogan did not “allocate the market . . . to any meaningful extent,” and “permitted transfers.” Patel, 2022 WL 17404509, at *10 & n.2.

16 Id. at 18.

17 See United States v. Martin Linen Supply Co., 430 U.S. 564 (1977).

18 See US Dep’t of Justice, Justice Manual at 7-2.200 (April 2022), available at https://www.justice.gov/jm/jm-7-2000-prior-approvals#7-2.200 (“While a violation of the Sherman Act may be prosecuted as a felony, in general, the Department reserves criminal prosecution under Section 1 for ‘per se‘ unlawful restraints of trade among competitors, e.g., price fixing, bid rigging, and market allocation agreements.”).

19 Order Granting Motion for Acquittal at 12-13 n.3, United States v. Patel, 3:21-cr-00220 (D. Conn. Apr. 28, 2023), ECF No. 599 (emphasis added).

20 No. 3:21-cr-00011 (N.D. Tex.).

On January 23, 2023, a federal district court approved a pretrial diversion agreement between the Department of Justice (DOJ) and Ryan Hee, a former regional manager for a healthcare staffing company. The deal, which will likely result in Hee walking away without a conviction, is yet another lackluster result for DOJ’s thus-far largely unsuccessful effort to criminally prosecute alleged anticompetitive conduct in the labor markets.

Indeed, despite a spate of victories at the motion to dismiss stage (covered in our previous posts here, here, and here), DOJ has yet to secure a labor-side Sherman Act conviction at trial. Years after its initiation, DOJ’s effort has yielded only two convictions.[1] The pretrial diversion agreement with Hee does little to change this.

Continue Reading With Pretrial Diversion Agreement, DOJ’s Antitrust Division Achieves Another “Meh” Victory In Its Continued Effort to Police Labor Markets