The Court of Justice of the European Union (CJEU) handed down two judgments providing guidance on the protection against double jeopardy (the principle ne bis in idem) in competition law cases. Article 50 of the Charter of Fundamental Rights of the European Union (Charter) provides that “no one shall be liable to be tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union in accordance with the law“. However, cases C-117/20 Bpost and C-151/20 Nordzucker underlined that undertakings may be liable more than once upon the same material facts in so far as authorities act under a different legal basis and in a complementary manner. The judgments bear practical implications beyond the field of EU competition law.

The Bpost case relates to a discount tariff scheme for postal services deemed to be discriminatory toward some of Bpost’s customers; which was in place between January 2010 and July 2011. Based on the same material facts, Bpost was fined € 2,3 million euros by the sectoral authority, the Postal Regulatory Authority, in 2011 (subsequently annulled by the Brussels Court of Appeal), and € 37,4 million euros by the Belgian Competition Authority in 2012 for an abuse of dominant position. In the Nordzucker case, two German sugar producers were prosecuted by the Austrian Competition Authority for a breach of EU and Austrian competition law by engaging in a cartel based on illegal information exchange about the sugar market in Austria. The German authority had previously found the breach of EU and German competition law based on the same facts and imposed a fine of 195,5 million euros on one company.

Prohibiting double jeopardy emerges as a supra-conventional standard of procedure and such protection is envisaged. Examples include Article 50 of the Charter, Article 4§1 of the additional protocol N°7 of the European Convention on Human Rights, Article 14-7 of the United Nations Pact on Civil and Political Liberties, as well as Article 54 of the application Convention of the Schengen Treaty. However, the material content of this principle has been applied inconsistently under European law (see, e.g. , cases C-373/14P Toshiba and C-524/15 Menci). The Bpost and Nordzuker judgments have confirmed a wider application of the principle of no double jeopardy. As per Article 52(1) of the Charter, the ne bis in idem principle may be overridden, exceptionally, only if the decisions in question (i) respect the essential legal principles; (ii) are strictly necessary; and (iii) respond to objectives of general interest.

The CJEU has held that a company may also be punished for an infringement of competition law where, on the same facts, it has already been the subject of a final decision for failure to comply with sectoral rules. However, such double punishment is subject to the following cumulative conditions:

  1. There are clear and precise rules that make it possible to predict which acts or omissions are liable to be subject to such duplication;
  2. There is coordination between the two competent authorities;
  3. The two sets of proceedings are conducted in a sufficiently coordinated manner within a proximate timeframe; and
  4. The overall penalties imposed must correspond to the gravity of the infringements.

Similarly, the CJEU did not oppose to the possible establishment of a competition law infringement in one Member State where the conduct occurred, even when the same conduct has already resulted in a final decision in another Member State. The duplication of proceedings based on the territorial scope can only be pursued where the same facts have anticompetitive objects or effects in the relevant Member States. In other words, the second Member State cannot base its infringement decision on anticompetitive object or effect in the first Member State. The companies that have participated in a national leniency program and have consequently not been fined in the first Member State can still benefit from the protection against double jeopardy – as it is not a prerequisite for the protection that they have been subject to a fine.

Should the authorities not adhere to the above conditions, they risk infringing the prohibition against double jeopardy.

It will ultimately be for the national courts to decide whether, in the Bpost and Nordzuker cases, the authorities did not infringe the ne bis in idem principle and the companies can rely on it as defence. The CJEU guidance imposes some limits on unlimited prosecutions by the authorities based on the same facts. At the same time, the protection against double jeopardy is not a blanket defence that the companies can rely on.

The European Commission is currently running a public consultation on the draft Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (“draft Horizontal Guidelines”) and the draft revised horizontal block exemption regulations until 26 April 2022. The long-awaited draft Horizontal Guidelines have introduced a new chapter (Chapter 9) on sustainability agreements. Against the background of various green initiatives by the EU, including its ambitious Green Deal and Chemicals Strategy for Sustainability (see our analysis here), the industry has been advocating for further guidance on collaboration among competitors to meet different sustainability goals. Any guidance is further welcomed as it is proposed by the draft Directive on Corporate Sustainability Due Diligence that undertakings should collaborate to increase their ability to bring the adverse environmental or human rights impacts to an end (see our analysis here).

We explore here below the proposed approach by the Commission on the sustainability agreements – horizontal cooperation agreements that genuinely pursue one or more sustainability objectives. The draft Horizontal Guidelines and the proposed approach may be further revised based on the input from different stakeholders gathered during the public consultation.

Continue Reading Client Alert: Sustainability Corporation Among Competitors and Competition Rules – Do We Have Clear Guidance from the European Commission?

On March 8, 2022, the Competition and Markets Authority (CMA) published its decision to accept commitments offered by Gridserve (the owner of The Electric Company Limited) and three motorway service area (MSA) operators: Roadchef, MOTO and Extra.  This article considers the background and implications of the CMA’s enforcement action against the parties.

Continue Reading The CMA Investigation into EV Chargepoint Operators and Net Zero

Since launching its review programme in September 2019, the Commission has been working to update its Horizontal Guidelines and two sets of block exemptions, R&D and Specialisation, both of which are due to expire on December 31, 2022. The Commission consulted widely (to which we contributed) and has just published proposed drafts of each in a final round of consultations, which will expire on April 26, 2022. Alongside this programme, the Commission is also updating the Verticals Block Exemption and the Market Definition Guidelines, for which further drafts are expected in the coming months.

Continue Reading Commission Moves Closer to Finalizing New Horizontal Guidelines and R&D and Specialization Block Exemptions

On January 18, 2022, Lina Khan, the Chair of the Federal Trade Commission (FTC), and Jonathan Kanter, the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice (DOJ), held a joint press conference to announce that the agencies would be requesting comments on considerations for new horizontal and vertical merger guidelines. The comments will help inform the agencies in drafting new guidelines for vertical and horizontal mergers. Once the new guidelines are drafted, the agencies plan to hold another comment period, with the goal of finalizing the guidelines by the end of 2022.

The agencies last revised the Horizontal Merger Guidelines in 2010. The Vertical Merger Guidelines were more recently updated in 2020. After the change in administration following the 2020 election, President Biden emphasized antitrust enforcement as a way to increase competition in the American economy. In particular, he issued an Executive Order on Competition, which, among other actions, requested that the DOJ and the FTC re-examine the vertical and horizontal merger guidelines. (For more coverage of the Executive Order on Competition, visit Steptoe’s Executive Order Tracker.) The FTC acted swiftly, voting along party lines to withdraw its approval of the Vertical Merger Guidelines due to concerns about placing too much emphasis on potential procompetitive benefits of vertical mergers. On the same day that the FTC withdrew its approval of the Vertical Merger Guidelines, the DOJ announced that it would be carefully reviewing the analytical methodology of the Vertical Merger Guidelines and would seek further comment at a later date.

That date finally arrived on January 18. Statements from both Chair Khan and Assistant Attorney General Kanter emphasized that the point of the proceeding was to modernize the guidelines to reflect new economic understanding and lessons from past mergers. They noted that while traditional merger enforcement had focused on the first prong of the Clayton Act’s prohibition of mergers that “may substantially lessen competition,” it would be important in revising the guidelines to ensure that the second prong, barring mergers that “tend to create a monopoly,” is also respected. And, in so doing, they invited comments from a wide range of interested parties, particularly those who are beyond the traditional antitrust community, such as consumers and farmers.

The agencies’ request for information (RFI) raises questions and issues that may represent a substantial shift in antitrust enforcement. Many of the questions indicate a clear skepticism for the conventional antitrust enforcement tools of analysis. For instance, the comments on efficiencies bluntly question whether the guidelines’ approach is consistent with congressional directives and case law. The questions suggest a potential shift toward expressly stating a goal of preserving small businesses, favoring non-efficiency-related social and environmental causes, and perhaps eschewing a goal of maximizing economic efficiency in favor of adopting a total welfare standard. This would be a sharp departure from the economics-based approach that has characterized the guidelines since the adoption of the horizontal guidelines of 1982.

The RFI is another indication that the Biden administration plans to take a more aggressive approach to antitrust enforcement that is a departure from the trend over the past 40 years. Several days after the RFI was issued, Assistant Attorney General Kanter explained that when the Antitrust Division “concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction. It is the surest way to preserve competition.” He continued: “We must give full weight to the benefits of preserving competition that already exists in a market, rather than predicting whether a divestiture will actually serve to keep a market competitive. That will often mean that we cannot accept anything less than an injunction blocking the merger – full stop.” Assistant Attorney General Kanter stated that while it is easier for courts to “carry forward a test, even when that test was developed at a time when markets functioned in radically different ways,” that “it’s our job as enforcers to ensure that courts engage with markets as they actually exist.” This tough talk raises expectations that new guidelines will be paired with aggressive action, including more litigated challenges to deals.

So, what does the RFI request? In a relatively short document, the agency seeks public input on 15 categories of issues. The RFI begins by asking if the current guidelines accurately reflect the text of the second prong of Section 7 of the Clayton Act, which prohibits mergers that “may … tend to create a monopoly.” In this regard, the RFI asks for input on how rollups and tendencies toward concentration in an industry should be evaluated. The RFI asks what kinds of evidence should be considered and whether the guidelines have focused too much on certain types of evidence while placing insufficient reliance on evidence such as head-to-head competition between the merging parties. The RFI also questions whether predictive quantification has been overemphasized. The RFI suggests that evidence of the harms of past mergers may help to identify characteristics that could be used going forward to anticipate adverse outcomes from transactions.

With regard to coordinated and unilateral effects, the RFI specifically requests information about developments in research and practice, reflecting a potential interest in research that breaks from traditional antitrust analysis. The RFI also asks whether the current guidelines adequately identify mergers that are presumptively unlawful or if revisions are necessary to help identify the characteristics of mergers that may be anticompetitive. In what would be a substantial departure from the approach adopted first in the 1982 merger guidelines, the RFI also asks whether there are alternatives or replacements for HHI-based metrics.

In line with some current economic thinking, the RFI asks whether markets need to be precisely defined. The RFI appears skeptical of many of the traditional tools for market definition, even asking if the exercise of defining a market masks the potential for dynamic competition to be lost. The RFI also seeks comment on whether the guidelines should move away from a quantitative-based approach to market definition in favor of considering more qualitative evidence.

With regard to potential and nascent competition, the RFI asks for comments on how the agencies can assess whether a nascent competitor could grow into a plausible competitor and what degree of probability should be sufficient to condemn a proposed acquisition. In connection with remedies, the RFI seeks comment on whether the remedies process should be formalized and deadlines erected for remedy proposals, which would likely strengthen the agencies’ hands when negotiating remedies with merging parties.

Finally, the RFI asks for comments on several additional issues, including monopsony power and labor markets, innovation and IP, digital markets, and special characteristics markets. The RFI ends with a series of fundamental questions about barriers to firm entry, efficiencies, and failing and flailing firms claim.

Comments are due on or before March 21, 2022.

A federal district court in Colorado last week handed the Department of Justice (DOJ) its second victory in its fight to criminally prosecute allegedly unlawful labor agreements, holding that alleged non-solicitation (or “no poach”) agreements among the defendants and their competitors constituted per se violations of Section 1 of the Sherman Act.

The ruling is the DOJ’s second major win in this space in two months. We wrote in December about United States v. Jindal, in which the DOJ prevailed in the face of a motion to dismiss its first-ever Sherman Act wage-fixing prosecution. Now, in United States v. DaVita,1 the DOJ has again enhanced its ability to tamp down on anticompetitive behavior in labor markets, although based on a slightly different analysis.

The Alleged Conspiracies

The DaVita indictment centers on the conduct of dialysis provider DaVita Inc. and former DaVita CEO Kent Thiry. As alleged, DaVita and Thiry carried out three conspiracies, each in violation of Section 1 of the Sherman Act. First, they conspired to “allocate senior-level employees,” agreeing with competitor Surgical Care Affiliates — itself under indictment on similar charges2 — that the two companies would “not solicit[] each other’s senior level employees across the United States.” The conspiracy centered around a meeting at which the terms of the no-poach agreement were discussed; instructions to certain executives and employees that they refrain from soliciting senior employees from co-conspirator companies; compliance monitoring, which required that senior employees notify their employer before seeking employment with a co-conspirator company; efforts to remedy violations of the no-poach agreement; and generally abiding by the no-poach agreement.

The second and third conspiracies were similar, but were not limited to senior employees and involved other unnamed competitors. These conspiracies again consisted of an initial meeting, an agreement, the implementation of a compliance mechanism, and a general practice of not poaching competitors’ employees in conformance with the agreement.

The Court’s Finding of an Alleged Per Se Offense

At the center of the defendants’ motion to dismiss was the question of whether the parties’ alleged agreement not to solicit each other’s employees was a per se offense under the Sherman Act, or a violation that required a “rule of reason” analysis, which requires the court to weigh the restraint’s competitive harms against its competitive benefits, examining a variety of factors including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint’s history, nature, and effect.3

In determining whether per se treatment was appropriate, the DaVita court applied its own three-step test, drawn in part from United States v. eBay, Inc.4 The first step requires the court to determine whether the conduct fits into a category that has been found to warrant per se treatment, such as price fixing, bid rigging, or horizontal market allocation. If not, step two requires the court to consider whether to create a new category of per se unreasonableness. If the conduct neither fits an existing category nor warrants the creation of a new one, the rule of reason applies. But if per se treatment is appropriate under either step, the court must then consider, under the third step, whether the conduct was a naked restraint on trade (that is, its only purpose was to stifle competition) or ancillary to a procompetitive purpose.5

The court held that the alleged conspiracies constituted per se violations under the first step — that is, the conduct fit into an existing category of per se unreasonableness. It began its analysis by noting that horizontal market allocation agreements — agreements between competitors at the same level of the market structure to allocate a market to minimize competition — “are traditionally subject to per se treatment under Section 1 of the Sherman Act.”6 Moreover, agreements “allocating or dividing an employment market” are horizontal market allocation agreements.7 Accordingly, as long as the alleged no-poach agreements were agreements allocating or dividing an employment market, they would constitute per se violations of the Sherman Act. The court did not reach step three (whether the conduct was naked or ancillary) because the defendants did not raise the issue in their motion to dismiss.

The defendants resisted the court’s conclusion on several grounds, which the court serially rejected.

First, the defendants argued that the allegations amounted to a non-solicitation agreement, not a horizontal market allocation agreement. The court flatly rejected this argument, noting that the two were not mutually exclusive.8

Second, the defendants argued that the indictment lacked sufficient facts to support the allegation that they allocated the market. Citing the factual allegations summarized above, the court held that the indictment adequately pleaded an agreement to allocate the market.9

Third, the defendants argued that there is no precedent supporting the argument that non-solicitation agreements are subject to per se treatment. Like the court in Jindal, the DaVita court rejected this argument, stating that given the broad sweep of Section 1 of the Sherman Act, “as violators use new methods to suppress competition by allocating the market or fixing prices these new methods will have to be prosecuted for a first time.”10 The DaVita court also relied heavily on an analogous but 35-year old out-of-circuit decision, United States v. Cooperative Theatres of Ohio, Inc., in which the Sixth Circuit held that horizontal allocation of the market for customers, in the form of a non-solicitation agreement among competitors, constituted a per se violation of Section 1 of the Sherman Act.11

Fourth, the defendants argued that there is no precedent that would warrant a finding that non-solicitation agreements should be made into a new category subject to per se treatment. The court held that this argument was ultimately academic; the agreements at issue, as horizontal market allocation agreements, fit into an existing category of per se unreasonableness.12

Fifth, the defendants argued that because non-solicitation agreements have not conclusively been found subject to per se treatment, per se treatment is not warranted here. In response, the court noted that while non-solicitation agreements are not inherently problematic, “agreements that nakedly allocate the market are per se unreasonable because they would almost always be an unreasonable restraint on trade.”13 In other words, because the conduct at issue here was a horizontal market allocation agreement, it was subject to per se treatment.

Finally, the court rejected the defendants’ argument, also raised in Jindal, that finding a “per se rule to agreements like those alleged here for the first time would violate defendants’ right to ‘fair warning’ under the Due Process Clause.”14 In doing so, it pointed out that there was nothing novel about treating horizontal market allocation agreements as per se illegal; and “[t]he fact that defendants allegedly allocated the market in a novel way — by using a non-solicitation agreement — does not matter.”15

But…A Warning to the Government

Although the motion was decided in the government’s favor, the court went out of its way to address DOJ’s “apparent assertion” that non-solicitation agreements are always horizontal market allocation agreements and, therefore, per se unreasonable.[16] As the court noted, there are precedents involving no-hire agreements that were not subjected to per se treatment because they did not allocate the market,[17] and the same reasoning could apply to non-solicitation agreements. As a result, it will not suffice for the government to allege merely that a defendant entered into a non-solicitation or no-hire agreement; any such agreement must be market-allocating to qualify as a per se violation.

By contrast, in Jindal, the court held that “fixing the price of labor, or wage fixing, is a form of price fixing and thus illegal per se,”18 leaving little or no room for defendants facing wage-fixing charges to argue that certain wage-fixing agreements should not be subjected to per se treatment.

DOJ Is Likely to Continue Using Antitrust Prosecutions to Police Labor Markets

As we noted in December, the DOJ is aggressively pursuing wage-fixing and no-poach prosecutions. Beyond the rulings in Jindal and DaVita, motions to dismiss making similar arguments are pending in United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC and United States v. Hee (a wage-fixing and no-poach case). Moreover, two new indictments — one against executives and managers of Pratt & Whitney and various suppliers alleging a no-poach conspiracy in United States v. Patel,19 and the other against four managers of home health care agencies alleging a wage-fixing and no-poach conspiracy in United States v. Manahe20 — are beginning to make their way toward trial. We should expect to see similar motions filed in those cases, given that these issues remain ones of first impression in those courts. Although the motions in those cases are likely to yield similar outcomes, as the DaVita decision’s warning to DOJ on proof of market allocation makes clear, the analytical paths these courts take toward their rulings may differ, and could offer nuanced differences that help guide the defendants’ trial defenses.

Finally, the slowly forming consensus among courts that no-poach and wage-fixing agreements are per se offenses subject to criminal prosecution further underscores the importance of companies having effective compliance that involves legal, human resources, and executives at the highest level, promptly and thoroughly investigating allegations of no-poach/wage-fixing agreements when they arise, and considering availment of the Antitrust Division’s Leniency Program, where appropriate.

We will continue to monitor developments in these cases and in no-poach/wage-fixing enforcement efforts more broadly.

 

Endnotes

1 1:21-cr-00229, 2022 WL 266759 (D. Colo. Jan. 28, 2022).

2 Indictment, United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC, No. 3:21-cr-00011 (N.D. Tex. Jan. 5, 2021).

3 DaVita, 2022 WL 266759, at *2.

4 968 F. Supp. 2d 1030 (N.D. Cal. 2013).

5 DaVita, 2022 WL 266759, at *4.

6 Id. at *3.

7 Id.

8 Id. at *4.

9 Id. at *5.

10 Id.

11 845 F.2d 1367 (6th Cir. 1988).

12 DaVita, 2022 WL 266759, at *7.

13 Id. at *15.

14 Id. at *8.

15 Id. at *9.

16 Id. at *8.

17 See, e.g., Bogan v. Hodgkins, 166 F.3d 509, 515 (2d. Cir. 1999) (holding that a no-hire agreement, as alleged, was not a per se violation because there was no geographic or market allocation).

18 Jindal, 2021 WL 5578687, at *5 (cleaned up).

19 3:21-mj-01189 (D. Conn., filed Dec. 7, 2021).

20 2:22-cr-00013 (D. Me., filed Jan. 27, 2022).

‘State aid’ is the term we would hear or read on a daily basis during the Brexit negotiations. The media described it as one of the ‘make or break’ issues which neither party, the UK or the EU, was willing to find the middle ground to land on. Now a year later since the end of the transition period, the term ‘subsidy’ has replaced ‘State aid’ in the context of public authorities awarding financial assistance.

This note considers what has been happening to the UK’s subsidy control post-Brexit and further provides an overview of the UK’s proposed new subsidy control regime.

Continue Reading The UK’s Proposed New Subsidy Control Regime: Will it Work?

The US Department of Justice announced last month that it is requesting public comment on an updated draft policy statement on standards-essential patents (SEP). The December 6, 2021 draft statement was issued pursuant to the Executive Order on Promoting Competition in the American Economy on July 9, 2021. The draft statement seeks to modify a policy statement issued in December 2019, which modified a previous policy statement issued in January 2013.  Each policy statement provides guidance on when and how SEP holders who have voluntarily committed to make available a license for a patent on fair, reasonable, and non-discriminatory (FRAND) terms should be entitled to relief for violations.

The December 2021 draft statement steps back from the 2019 statement, which favored SEP holders and suggests a return toward the more neutral position of the 2013 guidance. It also outlines a framework to guide parties in their negotiation of FRAND terms.

  • On injunctive relief: the 2019 statement stated that “[a]ll remedies available under national law, including injunctive relief and adequate damages, should be available for infringement of standards-essential patents subject to a F/RAND commitment.” However, the 2021 draft statement shifts away from injunctive relief and states that “monetary remedies will usually be adequate to fully compensate a SEP holder for infringement.” Similarly, the 2021 draft statement declares: “[w]here a SEP holder has made a voluntary F/RAND commitment, the eBay factors, including the irreparable harm analysis, balance of harms, and the public interest generally militate against an injunction.”
  • On good-faith negotiation: the 2019 statement stated that SEP holders and potential licensees were “encouraged” to engage in good-faith negotiation to agree on FRAND terms. However, the 2021 draft statement is more emphatic and states that parties “should” engage in good-faith negotiation.
  • On guidance to conduct good-faith negotiation: the 2021 draft statement goes further and provides guidance on points for the parties to consider in pursuit of good-faith negotiation, including:
  • An SEP holder engaged in good-faith negotiation should alert a potential licensee of the specific SEPs it believes will be or are being infringed and make a good-faith FRAND offer.
  • A potential licensee should consider the offer and respond within a commercially reasonable amount of time in a manner that advances the negotiation by: (1) accepting the offer; (2) making a good-faith FRAND counteroffer; (3) raising specific concerns about the offer’s terms, including with respect to validity and infringement of the patents; (4) proposing that issues be resolved by a neutral party; or (5) requesting that the SEP holder provide more specific information on the offer.
  • In response, an SEP holder should respond to the potential licensee within a commercially reasonable amount of time in a manner that advances the negotiation by: (1) accepting the counteroffer; (2) addressing concerns about the original offer and making a new good-faith FRAND offer; (3) responding to a request for information; or (4) proposing that issues be resolved by a neutral party.

The DOJ is seeking comments before February 4, 2022. Comments can be submitted here: https://www.regulations.gov/document/ATR-2021-0001-0001

Gun-jumping can occur when parties fail to fulfil the two obligations laid down by the European Merger Regulation No 139/2004 (EUMR). Article 4(1) of the EUMR sets out the obligation to notify the European Commission (Commission) of a concentration with an EU dimension before implementation. Article 7(1) sets out the obligation to stand still until the Commission declares such a concentration compatible with the internal market.

But would it be possible for parties to breach both obligations concurrently regarding the same transaction and thus to be fined doubly? The General Court answered in the affirmative in one of the most anticipated anti-gun-jumping cases.

Continue Reading Gun Jumping: The General Court’s Ruling

One year after the first criminal indictment for wage-fixing, a Texas federal district court has ruled that an agreement to fix wages is a per se violation of Section 1 of the Sherman Act.

While over the last century the Supreme Court and lower federal courts have developed a robust body of case law interpreting the Sherman Act’s somewhat enigmatic prohibition on “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States,”1 wage-fixing and so-called “no-poach” agreements have received little attention. The spotlight on wage-fixing has shifted slowly—beginning in 2016 with the joint Department of Justice (DOJ) and Federal Trade Commission (FTC) warning (and related HR guidance) that no-poach and wage-fixing agreements would be prosecuted criminally, a flurry of recent civil litigation, the first criminal indictments, and the Biden administration’s July 2021 executive order pledging to target antitrust enforcement efforts on labor markets.

The court’s opinion denying defendants’ motion to dismiss in United States v. Jindal2—the Justice Department’s first-ever Sherman Act wage-fixing prosecution (discussed here)—opens up a new frontier for federal antitrust enforcement, which has traditionally focused more on sellers of goods and services than on buyers of labor.

The Alleged Conspiracy

The government’s case targets two individuals, Neeraj Jindal and John Rodgers, for allegedly conspiring with competitors to suppress wages. Jindal owned a physical therapist and physical therapist assistant staffing company; Rodgers was both a clinical director at the company and a physical therapist who contracted with the company. The company’s business model involved matching patients with physical therapists (PTs) or physical therapist assistants (PTAs) in response to referrals from home health agencies. The company handled the PTs’ and PTAs’ billing, and it profited by charging more for the PTs’ and PTAs’ services than it paid the PTs and PTAs.

The alleged wage-fixing conspiracy, which was simple and straightforward, makes for an ideal test case: Jindal and Rodgers, acting on behalf of the company, proposed to the owners of several competing staffing companies that they simultaneously lower the PTs’ and PTAs’ pay rates. One competitor agreed, and Jindal and Rodgers’ company thereafter lowered its pay rates.

Background

The Sherman Act – Section 1

Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.”3 But under governing Supreme Court precedent, only unreasonable restraints on trade are outlawed.

There are two standards for determining whether a restraint of trade is unreasonable: per se and “rule of reason.” The first approach brands certain restraints as unlawful per se—that is, as “so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality.”4 The “rule of reason” standard balances the restraint’s anticompetitive and procompetitive effects through a resource-intensive and context-specific inquiry designed to “distinguish[ ] between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.”5 Although it is not an express limitation in the Sherman Act or its jurisprudence, DOJ has a longstanding policy of only bringing criminal antitrust prosecutions based on per se violations of the act.

The Jindal Decision

The question before the court in Jindal was which of these standards should apply to agreements not to compete for workers. In bringing these criminal charges against Mr. Jindal and his co-defendant, the government pursued the per se approach, and that decision formed the defendants’ primary ground for moving to dismiss. Specifically, the defendants maintained that wage-fixing does not constitute a per se violation, and because the indictment does not allege any facts supporting the rule of reason, it should be dismissed. In support of this position, the defendants set forth a number of arguments. The court rejected each of these.

First, the defendants argued that although it is well established that price-fixing constitutes a violation of the Sherman Act, wage-fixing is not the same as price-fixing and therefore does not constitute a per se violation. In rejecting this argument, the court noted that other courts have previously held that (i) a price-fixing conspiracy can pertain to services, not just goods—after all, a “wage” is simply the price of labor, which is a service—and (ii) the Sherman Act prohibits price-fixing conspiracies among buyers, not just sellers. In fact, the Supreme Court recognized more than a century ago that the Sherman Act applies to labor markets, holding that an effort by shipowners to fix the wages of seamen violated the Sherman Act.6

Second, the defendants argued that the indictment was insufficient because it failed to allege that the defendants had agreed to fix prices paid by consumers. The court dispatched this argument quickly, observing that it is well established that the Sherman Act “does not confine its protection to consumers.”7

Third, the defendants argued that even if wage-fixing is a violation of the Sherman Act, it is not a valid basis for a per se violation, and the government therefore must meet its burden under the more burdensome rule of reason. In pressing this argument, the defendants relied on a quirk of the Supreme Court’s Sherman Act case law: “the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue”,8 in order to determine whether it has the requisite “manifestly anticompetitive effect.”9 In essence, the defendants argued that courts lacked sufficient experience with wage-fixing to justify classifying it as a per se violation. In response, the court noted that many lower courts had recognized that wage-fixing conspiracies are per se illegal, albeit in civil cases.10 The fact that the government had never charged a wage-fixing conspiracy before did not, the Court observed, make it any less illegal; it just made the defendants “unlucky.”11 In any event, wage-fixing is just a subspecies of price-fixing—and price-fixing is the quintessential per se violation of the Sherman Act.12

Finally, the defendants also raised a number of constitutional arguments, which the court rejected. These arguments primarily related to the defendants’ purported lack of notice that their conduct was criminal, given that this is the first prosecution of its type. Defendants in similar future actions will, of course, have an even harder time asserting these defenses.

For now, the district court’s order means that the prosecution will proceed. But that ruling is not likely to be the final word on this issue; the Fifth Circuit and the Supreme Court may have opportunities to weigh in. And in the absence of appellate precedent, other district courts hearing other cases may very well come to a different conclusion.

Implications: More Wage-Fixing Prosecutions Likely

The Jindal indictment in December 2020 was the DOJ’s first criminal prosecution targeting the labor markets, but it was quickly followed by other cases this year. Following the Jindal indictment, the DOJ challenged alleged no-poach agreements, as well as another wage-fixing agreement. In United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC,13 the DOJ alleged that Surgical Care Affiliates, an operator of outpatient medical care centers, had agreed with two competitors not to solicit each other’s senior-level employees. Similarly, in United States v. Hee,14 the DOJ has alleged that a healthcare staffing agency and its former regional manager conspired with competitors to allocate nurses and fix the nurses’ wages.

The Jindal ruling is an important decision in the DOJ’s ongoing efforts to increase enforcement against alleged antitrust violations in labor markets. We will likely learn soon whether the court’s holding has staying power. Indeed, in Hee, the DOJ has also relied on the theory that wage-fixing constitutes a per se violation of Section 1 of the Sherman Act. The court has not yet ruled on the defendants’ motion to dismiss.

More cases like Jindal and Hee will surely follow, especially if the government’s legal theory is upheld by the Hee court as well. Indeed, earlier this week, the DOJ and the FTC jointly hosted a virtual workshop on labor market competition. During his introductory remarks, the new Assistant Attorney General in charge of the DOJ Antitrust Division, Jonathan Kanter, laid out his view that many of the economic problems faced by workers have their “roots in collusion and unfair practices in the labor markets” and in concentration, and anticipated that the Antitrust Division will be working closely with the FTC on issues relating to competition in the labor market.15

Whether the government will see success in Hee and other labor market cases and investigations, and what view the appellate courts will take on the government’s per se legal theory, remain to be seen. In particular, it is unclear whether the Jindal court’s reasoning and holding that wage-fixing is a per se violation of the Sherman Act will apply to alleged no-poach or non-solicitation agreements. Arguably, those types of agreements are less clearly comparable to price-fixing. For now, if nothing else, the decision signals that courts are open to employing the per se approach in wage-fixing cases, and it should serve as a reminder to employers that a wage is a price, and those who conspire with competitors to fix wages now risk criminal liability under the Sherman Act.

 

Endnotes

1 15 U.S.C. § 1.

2 No. 4:20-CR-00358, 2021 WL 5578687 (E.D. Tex. Nov. 29, 2021).

3 15 U.S.C. § 1.

4 Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (quoting Nat’l Soc’y of Prof’l Engineers v. United States, 435 U.S. 679, 692 (1978)).

5 Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018) (alteration in original) (quoting Leegin Creative Leather Prods, Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007)).

6 Jindal, 2021 WL 5578687, at *5 (citing Anderson v. Shipowners’ Ass’n of Pac. Coast, 272 U.S. 359, 361–65 (1926)).

7 Id. at *6.

8 Id. at *7.

9 Id. at *2 (quoting Leegin, 551 U.S. at 886).

10 Id. at *7.

11 Id. at *10.

12 Id. at *9–10.

13 No. 3:21-cr-00011-L (N.D. Tex. filed Jan. 5, 2021).

14 No. 2:21-cr-00098 (D. Nev. filed Mar. 26, 2021).

15 Matthew Perlman, DOJ Antitrust Chief Says Expect More Collaboration with FTC, Law360 (Dec. 6, 2021), https://www.law360.com/employment-authority/articles/1446059/doj-antitrust-chief-says-expect-more-collaboration-with-ftc.