United States: Quarterly Cartel Catch-Up: Recent Developments In Criminal Antitrust For Busy Corporate Counsel ‒ 2nd Quarter 2023

At this mid-point of 2023, and now several months on from the ABA's Spring Antitrust conference, there have been several notable developments concerning cartel enforcement, as new leadership settles in at the U.S. Department of Justice Antitrust Division's (Division) criminal enforcement program and international enforcers begin to implement new enforcement policies.

Criminal labor market cases-a strong focus of the Division in recent years-continue to face significant challenges at trial. Although the Division indicted a new wage-fixing case involving home healthcare providers this quarter, it also lost two such cases at trial.

U.S. and global authorities increasingly seem to be focusing investigative resources on bid-rigging in public procurement. And the Division's Procurement Collusion Strike Force (PCSF) remains active and notched several victories in bid-rigging cases. Despite these successes, the PCSF also suffered its first loss at trial, which underscores the inherent risk of taking any criminal antitrust case to trial.

There are also hints of a rise in international cartel enforcement, perhaps signaling a return to what was a major component of global cartel enforcement until a few years ago. First, international authorities continue to expand their enforcement efforts regarding collusion in labor markets. In June 2023, Canada officially criminalized collusion in the labor market through legislation, a change that has been pending for nearly a year. Meanwhile, signaling a shift from policy statements to enforcement, authorities in France and the Netherlands have hinted that their labor-market investigations may soon bear more fruit.

Outside of labor markets, Japanese authorities have decided to bring rare criminal antitrust charges against companies for bid-rigging related to the 2021 Olympics.

And international enforcers conducted dawn raids in the fragrance and energy drink industries, and the raids related to the fragrance investigation appear to have been coordinated with other enforcers. Although those investigations continue to be at the early stages, they suggest that an uptick in international cartel enforcement may not be far away. They also emphasize the importance of multinational companies maintaining their cartel compliance programs despite the recent lull in blockbuster international cartel prosecutions.

These updates and more in this latest edition of the Quarterly Cartel Catch-Up.

Judge Acquits Aerospace Engineering Defendants of No-Poach Charges During Trial

Key Point: A federal judge has thrown out the Division's latest no-poach case before it reached the jury, thereby dealing another blow to the government's efforts to crack down criminally on agreements involving hiring limitations.

On April 28, 2023, at the conclusion of the government's case-in-chief, U.S. District of Connecticut Judge Victor A. Bolden granted the defendants' Rule 29 motion for acquittal as a matter of law. The court found that the government failed to offer sufficient evidence that the defendants entered into a meaningful agreement to allocate the labor market for engineers working on Pratt & Whitney projects. The acquittal is a rare, mid-trial victory for the defendants, wherein the judge felt there was not enough evidence to even allow the case to go to the jury for decision.

The case involved six aerospace and staffing company executives who were accused of conspiring to prevent their employees from switching jobs. The judge ruled that the government had not presented sufficient evidence of an illegal market allocation for labor because workers were still able to move among companies. The judge also highlighted that there were numerous exceptions to the purported agreement, and that many workers were hired by alleged co-conspirators. Notably, the court concluded that these exceptions meant that the conduct did not merit per se treatment and therefore could not be prosecuted criminally.

The ruling is another setback for the Division, which has yet to win a labor market case at trial, and already sparked additional briefing in another pending criminal case. It remains to be seen what effect, if any, this loss will have on the Division's continued pursuit of these types of labor market prosecutions. Assistant Attorney General Jonathan Kanter described these prosecutions as "righteous," and after acknowledging that there were "definitely some lessons to be learned," the recently installed Deputy Assistant Attorney General for the criminal program, Manish Kumar, described these cases as "extremely important" and promised not to shy away from the "tough" ones.

The Division Brings Additional Wage-Fixing Charges against Home Healthcare Workers, but a Jury Acquits Defendants of Similar Charges a Week Later

Key Point: Despite another loss at trial, the Division continues its focus on labor markets by bringing wage fixing charges against a home health care executive.

On March 16, 2023, the Division announced the indictment of Eduardo Lopez, an executive who held positions at three different home healthcare agencies in Nevada, on charges of conspiring to fix the wages paid to home care nurses. This is the second wage-fixing case filed by the Division in Nevada as part of its ongoing efforts to police labor markets. The indictment alleges that Lopez agreed with his competitors at each agency to fix the wages of nurses.

However, on March 22, 2023, a jury in a separate home health worker matter in Maine, acquitted four operators of home healthcare agencies that the Division had criminally charged with conspiring to fix the wages for caregivers employed by the agencies. The Division charged the four defendants with agreeing to set wages for caretakers during March and April 2020, which coincided with a state effort to increase wages in order to retain staff during the COVID-19 pandemic. Defense counsel argued that the defendants never reached an agreement because the proposed written contract was never signed. Despite having a cooperating witness from inside the alleged conspiracy, the Division did not persuade the jury that the defendants had formed an agreement for the brief period of time alleged in the indictment.

Procurement Collusion Strike Force Announces New Charges and Sentencings in Texas, Connecticut, and New York, but Loses a Trial in Minnesota

Key Point: The Division's PCSF continues its pursuit of bid-riggers and price-fixers across the country and at all levels of government.

The PCSF remains busy. On January 12, 2023, the DOJ announced Aaron Stephens pleaded guilty to rigging bids on six military contracts between May 2013 and January 2018, including work done for the Red River Army Depot in Texarkana, Texas. The conspiracy affected more than $17.2 million in payments and involved John "Mark" Leveritt, who pleaded guilty to bid rigging in July 2022.

On January 18, 2023, after being found guilty of conspiracy and wire fraud charges in a federal court in Texas, a judge sentenced Michael Angelo Padron to 27 months in prison and to pay a $1.75 million fine. To qualify for set-aside government contracts for Service-Disabled Veteran-Owned Businesses, Padron and his business partners installed a service-disabled veteran as the apparent owner of a general construction company, which they then used to secure over $240 million in government contracts. Notably, although it was brought by the Division, the case did not include an antitrust charge.

On February 14, 2023, the Division announced the resolution of a bid-rigging scheme when a court sentenced Michael Flynn to 15 months in prison and to pay over $1 million in restitution for his role in a conspiracy among insulation contractors to rig bids and engage in fraud in construction contracts. Flynn's victims included the University of Connecticut, the city of Hartford, PepsiCo. Inc., Stamford Hospital, and Yale University.

On February 15, 2023, the DOJ announced that a former salesman, Dwayne Johnson, had pleaded guilty to a bid-rigging scheme involving the sale of digital whiteboards to the New York City Department of Education (NYCDOE). Johnson submitted "comp" bids and targeted every phase of the contracting process: he sold whiteboards to his co-conspirator that won the bid, the winning co-conspirator sold the whiteboards to the NYCDOE, and the losing co-conspirator was paid to install the whiteboards in the classrooms.

However, on May 11, 2023, a jury acquitted Kamida Inc., a Minnesota-based concrete repair and construction corporation, and its CEO, Steven Dornsbach. According to the indictment, the Division alleged that the defendants and another company conspired to rig bids on concrete repair and construction contracts submitted to at least four municipalities in Minnesota between September 2012 and July 2017. But the jury returned a verdict of not-guilty even though Clarence Olson, a co-conspirator who pleaded guilty in October 2021, testified against Kamida and Dornsbach at trial.

Each of these cases makes clear that the PCSF will continue to actively police public procurement.

FTC's New Criminal Liaison Unit to Focus on Disappearing Messages, Witness Interference

Key Point: The Federal Trade Commission's new Criminal Liaison Unit within the Bureau of Competition will prioritize detection and referral to DOJ of criminal activity that threatens the integrity of the agency's antitrust investigations.

Late last year, the Federal Trade Commission launched a Criminal Liaison Unit (CLU) within its Bureau of Competition, as part of an initiative to expand its existing criminal referral program. Although the FTC has only civil enforcement authority, the Commission has discretion to refer suspected criminal conduct uncovered by its investigations to the DOJ or other prosecutorial offices. Since its formation in late 2022, the CLU has referred over a dozen matters to DOJ prosecutors. In addition to substantive criminal antitrust cases, the CLU is focused on deterring companies and their executives from obstructing FTC investigations.

Over the next year, the CLU will be focused on (1) the improper use of ephemeral messaging and (2) efforts to discourage or influence witnesses' cooperation. Failure to properly retain ephemeral messages can impact the resolutions available to companies under government investigation. And, if the FTC suspects that company employees are using such messaging to avoid the agency detecting competitive concerns, the conduct could be treated as criminal. The CLU also has promised to be on the lookout for attempts to influence the testimony of witnesses, especially of third parties like customers or suppliers, which may have an ongoing relationship with a subject of an FTC investigation.

Overall, this means that many more FTC investigators eyes will be on the lookout for possible collusive conduct by companies and executives, which increases the chance of detection of conduct that could generate criminal antitrust or obstruction investigations.

Canada Criminalizes No-Poach and Wage-Fixing Agreements While Labor Market Enforcement Efforts Take Root in Europe

Key Point: Canada's Competition Bureau gains criminal authority over no-poach and wage-fixing agreements, while labor market enforcement efforts pick up in France, Portugal, and the Netherlands.

On June 23, 2023, the Canadian legislature made it a crime for employers to "agree to fix, maintain, decrease, or control wages or other terms of employment, or to not solicit or hire each other's employees." As of this date, employers who enter into these types of agreements will be subject to significant criminal penalties, including imprisonment of up to 14 years, a fine, or both. These changes have been in the works since June 2022, when the Canadian government adopted changes to its Competition Act that would prohibit stand-alone no-poach, wage-fixing, and no-hire agreements between employers. On January 18, 2023, the Canadian Competition Bureau issued a notice seeking feedback on its proposed rules prohibiting wage-fixing and no-poach agreements, which was the last step before finalizing these changes.

Although the new prohibition is broad, there are defenses available to businesses and their decision-makers. For example, when agreements to restrain employment are ancillary and reasonably related to a broader agreement that pertains to both parties, a party may claim the "Ancillary Restraints Defence."

Meanwhile, labor market enforcement efforts are starting to pick up steam in Europe. In early 2023, competition officials in France and Portugal reported they are investigating companies that have agreed not to hire each other's employees. The French watchdog said that its regulators are looking into a "couple" of no-poach agreements, and Portugal-which published a 2021 study on no-poach agreements and brought a landmark case against 31 sports companies-referenced its "interesting" pipeline of cases.

The chief of the Dutch competition authority also expressed interest in halting no-poach agreements and drafted guidelines on horizontal cooperation that include provisions about labor markets. The regulator said the Netherlands plans to slowly implement these guidelines in merger control before bringing large enforcement actions.

These efforts parallel work by U.S. enforcers over the past several years and reflect a growing interest in protecting labor markets from collusion. However, it remains to be seen when and how aggressively these types of cases will be pursued, especially if, like in the United States, these investigations encounter challenges along the way.

European Enforcers Conduct Raids in Fragrance Industry and Confirm Ongoing Investigation

Key Point: Raids by European regulators result in the confirmation of an ongoing, multijurisdictional investigation into the fragrance industry.

On March 7, 2023, European antitrust regulators conducted raids on several fragrance companies based on concerns of potential collusion in the supply of fragrances and fragrance ingredients. The European Commission (EC) confirmed the raids and stated that they were conducted in consultation with the Division, the UK Competition and Markets Authority, and the Swiss Competition Commission (COMCO). COMCO also carried out raids of its own and identified four companies as targets: Firmenich International SA, Givaudan SA, International Flavors & Fragrances Inc., and Symrise AG. Although none of the enforcers spelled out the specific grounds for the investigation, the prominence of the raids, their scope, and their international nature suggest a large and potentially growing investigation. Companies in related industries would do well to focus on compliance, as international cartel investigations often spread to adjacent industries.

Canadian Bread Maker Receives Country's Largest Ever Price-Fixing Fine

Key Point: A bread maker was fined the largest amount ever by a Canadian court for its role in a conspiracy to raise prices of wholesale fresh bread.

On June 21, 2023, Canada Bread Company, Limited was fined $50 million by the Ontario Superior Court after pleading guilty for its role in a conspiracy to fix the price of wholesale fresh commercial bread. It was the largest fine ever imposed by a Canadian court, and represents the maximum allowed under Canada's Competition Act, less a discount for Canada Bread's cooperation and guilty plea.

In its guilty plea, Canada Bread admitted that it agreed with its competitor, Weston Foods (Canada), to increase prices for various bagged and sliced bread products, including sandwich bread, hot dog buns, and rolls. The conspiracy resulted in price increases in 2007 and 2011. The Canadian Competition Bureau confirmed its investigation of potential price-fixing in the grocery industry remains ongoing.

This fine is a significant milestone in Canadian antitrust enforcement and illustrates that international enforcers continue to investigate and impose serious consequences for cartel conduct.

Japan Accuses Six Companies and Seven Individuals of Criminal Bid-Rigging for 2021 Tokyo Olympics

Key Point: Bid-rigging charges against two of Japan's largest advertising firms show that Japanese prosecutors continue to be focused on wide-scale corruption surrounding 2021 Tokyo Olympics.

Japan's top two advertising agencies, Dentsu Group and Hakuhodo, along with four other companies, six executives, and an Olympic official are facing criminal charges over their alleged conspiracy to undermine bids related to the 2021 Tokyo Olympic games.

The complaint, filed by the Japan Fair Trade Commission (JFTC) on February 28, 2023, is part of a broader investigation into corruption surrounding the 2021 Olympics. It comes after joint raids by Tokyo Prosecutors and the JFTC of suspected companies on November 29, 2022, and after individual executives were arrested by Japanese prosecutors on February 8, 2023. According to the JFTC, Dentsu's Koji Henmi and six other company executives met with Olympic organizing-committee official Yasuo Mori between February 2018 and July 2018 to arrange bid winners for events leading up to and during the games.

This is the first time that the JFTC has filed a criminal complaint against advertising agencies; and the first antitrust case since it accused pharmaceutical wholesalers of bid-rigging in December 2020.

According to the JFTC, the market harmed by the alleged collusion is worth about 43.7 billion yen ($320 million). In a press briefing, Tsuyoshi Okumura, director of the JFTC's Special Investigation Division II, told reporters, "[g]iven its major social impact, as well as the vicious, serious nature of the conduct, we've decided it should be criminally pursued."

The maximum penalty for a company convicted of bid-rigging is a fine of up to 500 million yen ($3.7 million). An individual, if found guilty, faces up to five years in prison and a fine of up to 5 million yen ($37,000).

Energy Drink Maker Raided by EU Competition Commission

Key Point: Red Bull is under investigation by European antitrust authorities for abusing its dominance in the energy drink market.

On March 20, 2023, the Commission conducted a dawn raid at the offices of Austrian energy drink giant Red Bull. The Commission is investigating allegations that Red Bull abused its dominance in the energy drink market by seeking advantageous treatment of its own drinks to the detriment of rivals' products. Red Bull could face fines of up to 10% of its global turnover if found guilty. Red Bull confirmed the unannounced inspection and said it will cooperate with the regulator with any matters that may concern it. Monster Energy, a competing drink maker, welcomed the investigation and stated that it believes it has been a victim of the alleged conduct.

This is the latest in a series of competition-related troubles for Red Bull. In December 2022, the Turkish Competition Authority fined the drinks manufacturer 26.6 million lira after an investigation into a hub-and-spoke conspiracy among several large food and drink manufacturers. The Turkish enforcer said the cartel looked to "establish and maintain coordination" between several supermarket chains to determine sales prices. They allegedly maintained this conspiracy by exchanging competitively sensitive information, including retailers' future prices and the dates of price increases.

UK Increases Rewards for Cartel Whistleblowers

Key Point: The United Kingdom has increased the reward available to cartel whistleblowers from £100,000 to £250,000.

On June 6, 2023, the United Kingdom's Competition and Markets Authority (CMA) announced it was increasing the maximum reward available to whistleblowers who report possible cartel conduct they have witnessed from £100,000 to £250,000. The change is part of the CMA's "Cheating or Competing" campaign, which is designed to encourage individuals and businesses to report anticompetitive conduct. The CMA whistleblower program promises to protect the anonymity of those reporting any alleged conduct. This program is distinct from the CMA's leniency program, which offers participants in cartel activity immunity in exchange for reporting the conduct.