Developments in U.S. Antitrust Criminal Enforcement — 2023 Year in Review

Introduction

Courts resolved several significant criminal enforcement actions over the last year, with the U.S. Department of Justice (DOJ) sustaining losses, particularly in labor market cases. Nonetheless, the DOJ Antitrust Division (the Division) reaffirmed its commitment to aggressive enforcement, with continued scrutiny of labor markets, government procurement, and Section 2 matters, and renewed focus on international cartel investigations. This Advisory details major developments in U.S. criminal antitrust enforcement for 2023 and offers insights into what to expect in 2024.

Significant Cases of 2023

Over the course of 2023, there were substantial developments in several significant antitrust criminal cases:

United States v. Brewbaker. In October 2020, an engineering firm (Contech Engineered Solutions LLC (Contech)) and its former executive, Brent Brewbaker, were indicted for conspiring to rig bids and for wire fraud involving aluminum structure transportation projects for a North Carolina state agency. While Contech pleaded guilty in June 2021,¹ Brewbaker proceeded to trial and was found guilty of antitrust and fraud charges in February 2022; he was sentenced to 18 months’ imprisonment.² On December 1, 2023, the Fourth Circuit affirmed Brewbaker’s mail and wire fraud convictions but overturned his antitrust conviction, reasoning that the allegation of a “hybrid” restraint involving two companies in a vertical as well as horizontal relationship failed to constitute a per se antitrust offense as charged in the indictment.³ The government filed a petition for rehearing, arguing that the Fourth Circuit’s “purely horizontal” test departs from Supreme Court and circuit court precedent that subjects horizontal agreements to per se treatment when they govern the way in which the parties will compete, even if the parties also have a vertical relationship.⁴ Brewbaker opposed the petition.⁵ The Fourth Circuit’s decision on rehearing was pending at the time of publication. The Brewbaker decision, assuming it stands, may perhaps be best understood as an example of courts’ caution about applying per se liability, and thus potential criminal penalties, to conduct that does not clearly appear to be a naked horizontal restraint on competition.

As discussed further on Arnold & Porter’s Enforcement Edge blog,⁶ companies that compete against their own suppliers or distributors should remain mindful of antitrust best practices to mitigate both civil and criminal enforcement risk. The Brewbaker case also underscores that, although certain coordination in government bidding might not constitute criminal antitrust violations, the same conduct may still give rise to criminal liability if bids were submitted with false or misleading certifications of independent pricing. Despite the Fourth Circuit’s decision, we expect the aggressive efforts of the Procurement Collusion Strike Force (PCSF) to identify and prosecute procurement fraud and collusion in the government contracting space to continue, and companies active in public procurement should review and update their compliance programs to mitigate antitrust risks.

United States v. Patel. DOJ alleged that an aerospace company executive, along with several suppliers of engineering services, had engaged in an eight-year antitrust conspiracy to restrict hiring and recruiting of engineers and other skilled workers.⁷ The district court declined to dismiss the case in December 2022. It held that no-poach conspiracies may be subject to per se treatment as a form of market allocation of employees, but whether per se treatment is appropriate in a given case is a fact-specific inquiry.⁸ The court emphasized that, although there may have been vertical relationships, the alleged restraint was purely horizontal. The court found that, according to the indictment, the common customer simply served as a hub in a horizontal hub-and-spoke conspiracy.⁹ After the government had presented its evidence and rested its case, the court acquitted all defendants, ruling that the government had failed to present sufficient evidence of market allocation under the per se rule.¹⁰ The court reasoned that the alleged agreement “d[id] not allocate the [relevant labor] market … to any meaningful extent” as there were “so many exceptions,” the hiring restrictions constantly shifted during the alleged conspiracy period and hiring among the companies was in fact commonplace.¹¹

United States v. Harwin. In September 2020, DOJ indicted Dr. William Harwin, former head of oncology group Florida Cancer Specialists & Research Institute LLC (FCS), for alleged horizontal market allocation of oncology services in several Florida counties.¹² FCS entered into a deferred prosecution agreement (DPA) for the same conduct almost six months before Dr. Harwin’s indictment, agreeing to pay US$100 million in penalties.¹³ After Hurricane Ian interrupted jury deliberations and resulted in a mistrial in September 2022, Dr. Harwin pleaded guilty ahead of his re-trial in September 2023.¹⁴ Dr. Harwin was sentenced to three years of probation, a $50,000 fine, and 250 hours of community service.¹⁵ Dr. Harwin’s plea was notable in that both parties agreed to recommend probation, and Dr. Harwin could have withdrawn the plea if the judge had rejected the recommendation.¹⁶ DOJ’s agreement to recommend no jail time in a case of this magnitude is unusual and perhaps reflects DOJ’s assessment of litigation risk in trying the case a second time.

Generics Investigation. Since at least 2015, DOJ has been investigating alleged price fixing, bid rigging, and customer allocation in the generic pharmaceuticals industry. Four executives have been charged in the investigation; three have entered guilty pleas and DOJ dismissed the charges against one this November.¹⁷ DOJ has charged seven companies, and all seven corporate cases have been resolved by DPAs.¹⁸ The most recent companies to resolve the charges against them in this investigation are Teva and Glenmark, which entered into DPAs in August 2023.¹⁹ Glenmark agreed to pay a US$30 million criminal penalty. Teva agreed to pay a US$225 million criminal penalty, the largest to date for a domestic antitrust cartel charge, and to make a donation of medical products worth US$50 million to charitable organizations.²⁰ The DPAs also included divestiture of the companies’ respective drug lines for pravastatin, a widely used cholesterol medicine. This is the first time DOJ has required divestitures as part of a criminal antitrust resolution.

Labor Markets

Litigation Setbacks

Aside from Patel, DOJ’s enforcement efforts in labor markets focused on the health care industry. But as in Patel, DOJ had notable losses in these cases.

United States v. Manahe. In January 2022, DOJ indicted managers of home health care agencies in Maine, alleging a wage-fixing and no-poach conspiracy affecting health care workers during the pandemic.²¹ At trial, the prosecution claimed that the defendants reached agreements over WhatsApp and Zoom and played excerpts of recorded meetings at trial. The defense argued that no agreement was ever finalized or signed and provided evidence that wages did not change following the alleged agreement.²² In March 2023, a jury acquitted the four defendants of conspiring to fix wages after a roughly two-week trial.²³

United States v. Surgical Care Affiliates LLC. DOJ’s first no-poach indictment in January 2021 alleged non-solicitation agreements among competing health care companies in Texas and Colorado.²⁴ DOJ alleged that Surgical Care Affiliates LLC (SCA) joined two conspiracies in which it agreed with competitors that the companies would not solicit each other’s senior-level employees in the outpatient medical care sector. DaVita Inc. also was indicted for participation in the same conspiracy.²⁵ DaVita and former executive Kent Thiry were acquitted by a jury in April 2022.²⁶

In May 2023, SCA cited the Patel ruling, arguing that prosecutors cannot make a per se violation if a no-poach deal “merely constrains or restricts employee movement.”²⁷ DOJ responded by contending that the Patel findings went against Supreme Court and Fifth Circuit precedent.²⁸ But in November 2023, DOJ moved to dismiss the case without explanation.²⁹ DOJ may have reassessed the case in light of the result in DaVita, which involved some of the same companies, witnesses, and facts. And DOJ may not have wanted to risk adoption of the intent requirement articulated by the court in DaVita in another jurisdiction.

Reaffirmed Commitment to Labor Cases

The Division maintains that it has not been deterred by these losses. In September 2023, at the Georgetown Antitrust Law Symposium, Assistant Attorney General Jonathan Kanter reaffirmed in broad terms that the Division is “committed to protecting workers from the harms that result when they face too little competition for their labor.” He referenced emerging literature documenting how “workers lose out from too little labor market competition” and highlighted the “revitaliz[ation]” of the DOJ’s “labor market efforts.”³⁰ In December 2023, Principal Deputy Assistant Attorney General Doha Mekki also gave remarks specifically affirming DOJ’s commitment to bringing criminal no-poach and wage-fixing cases.³¹ DOJ continues to pursue labor market enforcement, as exemplified by United States v. Lopez.

United States v. Lopez. In March 2023, Eduardo Lopez was indicted on claims that he participated in a conspiracy to fix nurse compensation at home health agencies between March 2016 and May 2019.³² In September 2023, a grand jury returned a superseding indictment against Lopez, adding wire fraud charges based on his December 2021 sale of his health care staffing company with allegedly false representations to the buyer regarding federal investigations.³³ Trial is scheduled for October 2024.³⁴

Non-Criminal Antitrust Developments in Labor Markets

Employee Non-Competes. In January 2023, the U.S. Federal Trade Commission (FTC or Commission) announced a Notice of Proposed Rulemaking that would prohibit employers from imposing non-competes on workers (including independent contracts and unpaid workers). The ban would extend to all contract provisions that create “de facto” non-compete clauses. This rule would apply retroactively.³⁵ According to reports, the Commission is expected to vote on the proposal in April 2024.³⁶ Although employee non-competes are primarily an FTC issue, DOJ has taken the position in the past that employee non-competes in the professional services space — where employees can directly compete with their employers — might possibly give rise to market allocation concerns, similar to the allegations in Harwin.

Deslandes v. McDonald’s. Former McDonald’s workers filed suit alleging a violation of the Sherman Act based on a company policy prohibiting franchisees from poaching workers from one another or from corporate-owned stores.³⁷ In June 2022, the district court dismissed the worker’s claims. The court first held that the agreement must be analyzed under the rule of reason because the no-poach provisions were ancillary to pro-competitive franchise agreements. Next, the court ruled that the case should be dismissed because plaintiffs failed to allege — as required in a rule of reason case — that McDonald’s and its franchisees had market power in the market for their employees’ labor.³⁸ Plaintiffs appealed the decision. DOJ and FTC filed an amicus brief arguing that the per se rule applies to no-poach agreements unless the employer can successfully meet the legal requirements governing ancillary restraints as an affirmative defense.³⁹ This position — if accepted — would have implications across no-poach cases, particularly criminal no-poach cases where the government carries the burden to prove every element beyond a reasonable doubt.

In August 2023, the Seventh Circuit reversed the district court decision, holding that the district court had not sufficiently analyzed whether or not the per se rule should apply and that the allegations in this case did not warrant a finding that the clauses at issue were ancillary to a procompetitive arrangement based on the pleadings alone.⁴⁰ McDonald’s plans to appeal the case to the Supreme Court.⁴¹ No-hire and non-solicitation clauses continue to be subject to significant litigation — both civil and criminal. If a no-hire or non-solicitation clause is to be included in a contract, it is important to obtain legal counsel to ensure it is properly drafted to relate to the procompetitive purpose of the underlying agreement and is not overbroad. Companies should also evaluate any employee non-competes from an antitrust perspective, given the growing FTC and DOJ interest in this area.

Enforcement in Government Procurement

The PCSF is an interagency partnership that the Division leads to detect, investigate, and prosecute antitrust and related fraud offenses in government procurement. In November 2023, the PCSF held its first summit to convene law enforcement partners and discuss emerging threats and strategies to confront them.⁴² Summit participants discussed the heightened areas of procurement collusion risk resulting from the Infrastructure Investment and Jobs Act, the Inflation Reduction Act of 2022, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022, as well as supplemental funding in response to the invasion of Ukraine.

Since its inception in November 2019, the PCSF has opened more than 100 criminal investigations and trained more than 31,000 government personnel. In that time, the PCSF has investigated and prosecuted over 65 companies and individuals involving over US$500 million worth of government contracts.⁴³ In the past year, the PCSF was active in continuing to bring cases.

United States v. O’Brien. In April 2022, DOJ indicted Lawrence O’Brien, Bruce LaRoche, and Thomas Dailey on charges of rigged bids for customized promotional products sold to the U.S. Army over a five-year period starting in 2014.⁴⁴ In September 2023, all three defendants were acquitted of the charges.⁴⁵

United States v. Evans Concrete LLC. In September 2020, Evans Concrete LLC and four individuals, James Clayton Pedrick, Gregory Hall Melton, John “David” Melton, and Timothy “Bo” Strickland, were indicted on charges of participating in a conspiracy to fix prices, rig bids, and allocate markets for ready-mix concrete from 2010 to 2016 in the Savannah, Georgia area.⁴⁶ In August 2023, James Pedrick entered a plea agreement, which included a recommendation for probation on the condition that Pedrick provides “full, complete, candid, and truthful cooperation” in the case against his fellow defendants.⁴⁷

United States v. Tomlinson. In December 2023, Ike Tomlinson and Kris Bird were indicted over alleged antitrust violations, as well as wire fraud, involving sales to the U.S. Forest Service.⁴⁸ Notably, this PCSF investigation included a court-authorized wiretap. During calls and in text messages quoted in the indictment, Tomlinson and Bird allegedly agreed to rig bids, allocate territories, and target competitors.⁴⁹ This case is a good reminder of the range of investigative tools available to the government in antitrust cases. Not only may the government obtain the authority to wiretap phones and other means of communication, in the past the government has also used cooperators and undercover agents to participate in suspected cartels in order to collect evidence.

International Cartel Investigations

In the past few years, large international cartel investigations have been less common, with most large investigations concluding more than five years ago. However, in the last year, there have been a few new international cartel investigations launched that may signal the return of large-scale, multi-jurisdictional cartel investigations.

Fragrance Industry Investigations. In March 2023, competition authorities in the European Union, Switzerland, and the United Kingdom (UK CMA) conducted coordinated raids of multiple leading fragrance manufacturers’ facilities across Europe, as well as a fragrance industry trade association.⁵⁰ The UK CMA announced that it “has been in contact with the Antitrust Division of the U.S. Department of Justice,” and “this investigation has been launched in consultation with them.”⁵¹ More recently, the UK CMA indicated that it was expanding its probe to look at the companies’ activities in the labor markets as well, highlighting how existing antitrust investigations may develop in new and unpredictable directions.⁵²

Concrete Chemicals Industry Investigations. In October 2023, the European Commission carried out unannounced antitrust inspections in coordination with the UK CMA and the competition authority in the Republic of Turkey at the premises of companies active in the supply of chemicals for use in the construction industry, such as admixtures and additives for use in concrete, cement, mortars, and related construction products. In connection with these inspections, the European Commission announced that it “has also been in contact with” the Division, which presumably is also looking into the matter.⁵³

In January 2024, senior officials at the DOJ and the European Commission issued a joint video message urging informants to come forward and pledging collaboration if any investigations ensue. The officials said the agencies had “recently intensified” cooperation outside of the usual formal avenues that see companies apply for immunity in return for revealing a cartel.⁵⁴ Relatedly, in the same month, the head of the Cartel Directorate at the European Commission, Maria Jaspers, announced at a conference that the number of leniency applications seeking immunity from the European Union had increased for the third year in a row, reversing a downward trend from the last decade.⁵⁵ While historically the U.S. led the charge on leniency, there has been a reversal of the dynamic in recent years, with the European Commission taking more of a leadership role in leniency-driven cases that nevertheless may result in increased cartel enforcement in the United States.

Section 2 Enforcement

Beginning in 2021, DOJ signaled its intention to renew long-dormant criminal enforcement of Section 2 of the Sherman Act, which prohibits monopolization, attempted monopolization, and conspiracies to monopolize. DOJ brought two Section 2 criminal cases in 2022, and these cases continued into 2023 and 2024.

United States v. Martinez. In November 2022, 12 individuals were indicted for, among other things, a Section 1 violation for conspiring to fix prices and allocate markets for transmigrante forwarding services and a Section 2 violation for conspiring to monopolize transmigrante forwarding services.⁵⁶ Transmigrante forwarding services are provided to individuals who transport used vehicles and other goods from the United States through Mexico for resale in Central America. These services include completing customs paperwork to transport those goods.⁵⁷ Trial is scheduled for August 12, 2024. If the case proceeds to trial, this will be the first criminal Section 2 trial since the 1970s.

United States v. Zito. In September 2022, DOJ charged Nathan Nephi Zito, owner of a paving and asphalt company, with a standalone violation of Section 2 for attempting “to monopolize the markets for highway crack-sealing services in Montana and Wyoming by proposing that his company and its competitor stop competing and allocate regional markets.”⁵⁸ Section 1 does not outlaw mere “attempts” to reach an unlawful agreement, which made Section 2 an advantageous alternative for DOJ to charge in this case. Zito pleaded guilty and was sentenced in March 2023 to three years of probation, with six months of home detention, and fined $27,000.⁵⁹

New Policy Initiatives

Antitrust enforcement agencies also announced several new policy initiatives in 2023.

DOJ Safe Harbor Policy. In October 2023, Deputy Attorney General Lisa Monaco announced a new safe harbor policy for voluntary self-disclosures made in connection with mergers and acquisitions (Safe Harbor Policy), placing an “enhanced premium on timely compliance-related due diligence and integration.”⁶⁰ “Going forward, acquiring companies that promptly and voluntarily disclose criminal misconduct within the Safe Harbor period, and that cooperate with the ensuing investigation, and engage in requisite, timely, and appropriate remediation, restitution, and disgorgement — they will receive the presumption of a declination,” Monaco said.⁶¹ Conversely, acquirers that do not perform effective due diligence, self-disclose misconduct at an acquired entity, and remediate the misconduct may be subject to full successor liability. The Safe Harbor Policy does not replace the Division’s leniency policy, so we expect further clarification on how the Safe Harbor Policy interacts with the leniency program.

FTC Criminal Liaison Unit. In March 2023, the FTC announced a new Criminal Liaison Unit (CLU), led by two former Division prosecutors, which trains and coordinates with FTC staff to identify potential criminal conduct uncovered in the course of FTC investigations and litigations.⁶²  Potentially offending conduct will be referred to federal, state, or local prosecutors such as DOJ. The FTC noted that the CLU is “particularly focused on deterring companies and their executives from obstructing FTC investigations and enforcement actions and referring those companies for criminal enforcement.”⁶³

As discussed further on Arnold & Porter’s Enforcement Edge blog,⁶⁴ the CLU increases the risk of criminal referrals stemming from documents and testimony provided in non-criminal matters. Document retention policies and practices will be closely scrutinized. Proactive identification and explanation of materials, and perhaps even a leniency application to the Division, may be appropriate depending on the particular circumstances of a given matter. Further, companies must be careful about outreach to potential witnesses in FTC merger reviews and investigations. While customer and market-participant outreach touting the benefits of a transaction is valid and legitimate, companies should take care not to cross the line into attempts to inappropriately influence market participants’ interactions with the FTC. As referrals can concern matters unrelated to the initial FTC matter, those reviewing materials for production to the FTC need to think beyond relevance to the existing investigation. These principles also apply to civil investigations and merger reviews conducted by the Division’s civil units.

What to Expect in 2024

As discussed above, international competition authorities are expected to increase their cooperation on criminal antitrust matters. As a further example, DOJ announced a joint initiative in September 2023 with Mexico’s Federal Economic Competition Commission (COFECE) and Canada’s Competition Bureau to “deter, detect, and prosecute collusive schemes related to the provision of goods and services in connection with the 2026 FIFA World Cup,” which will be hosted by all three nations.⁶⁵

In addition, DOJ is expected to increasingly rely on affirmative investigation techniques and data mining, as suggested by reports that the Division has hired in-house investigators and data scientists to do more proactive investigations, including a focus on messaging apps, personal devices, and cloud-based data. DOJ may use these resources to increase their focus on allegations of “algorithmic collusion,” which may leave a digital trail for investigators to follow.

In closing, despite setbacks, DOJ is expected to continue its commitment to aggressive enforcement of the antitrust laws, with a focus on labor markets, government procurement, and new (or renewed) legal theories such as monopolization and algorithmic collusion.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.