Antitrust violations.

• Author: Edwards-Ford, Meghan
• Position: Twenty-Second Annual Survey of White Collar Crime

1. INTRODUCTION II. ELEMENTS OF THE OFFENSE A. Conspiracy B. Restraint of Trade C. Interstate Nexus D. Intent III. DEFENSES A. Withdrawal from Conspiracy B. Statute of Limitations C. Double Jeopardy D. Single Entity E. Respondeat Superior F. Meeting Competition G. State Action Immunity H. Petitioning the Government I. Regulated Industry J. Foreign Commerce--Effects, Comity, and Foreign Sovereign Compulsion IV. ENFORCEMENT A. Federal Enforcement B. State Enforcement C. International Enforcement V. PENALTIES VI. RECENT DEVELOPMENTS: INTERNATIONAL COOPERATION I. INTRODUCTION

   Section 1 of the Sherman Act ("Act") (1) aims to promote and protect free-market competition (2) by declaring "[e]very contract, combination ... or conspiracy" in restraint of interstate or foreign commerce to be illegal. (3) Despite the expansive language of the Act, courts have held consistently that Congress intended Section 1 to prohibit only "unreasonable" restraints of trade. (4) The Act, which is the primary federal antitrust provision, applies to both civil and criminal offenses without distinction between the two. (5) Congress intentionally left that task to the judiciary. (6) The broad and imprecise language of the Act has spawned the development of extensive federal common law in both the criminal and civil realms. (7) Indeed, the Supreme Court has characterized the Act as a "charter of freedom" with a "generality and adaptability comparable to that found desirable in constitutional provisions." (8)

   This Article focuses on the criminal aspects of antitrust enforcement. (9) Section II outlines the four elements of a criminal antitrust violation under Section 1. Section III presents the defenses to an allegation of an antitrust violation. Section IV distinguishes between federal, state and international enforcement, and Section V explains the penalties for criminal violations. Finally, Section VI discusses recent developments in international enforcement.

2. ELEMENTS OF THE OFFENSE

   A civil plaintiff must establish three elements to prove a violation of Section 1: (i) an agreement to concerted action, such as a combination or conspiracy formed by two or more entities; (10) (ii) that the agreement unreasonably restrained trade or commerce; (11) and (iii) that the restrained trade or commerce is interstate or international in nature. (12) In a criminal antitrust prosecution, the government must also prove that the defendant intended to restrain commerce. (13) Parts A through D of this section discuss each of these elements sequentially.

   1. Conspiracy

      Under Section 1 of the Act, a conspiracy "must comprise an agreement, understanding or meeting of the minds between at least two competitors, for the purpose of, or with the effect of, unreasonably restraining trade." (14) The illegal agreement itself constitutes the offense; accordingly, neither completion of the conspiracy nor any overt acts furthering the conspiracy must be pleaded or proven. (15) The venture's contractual form and ultimate success are also immaterial, so long as the parties have formed an illegal agreement. (16)

   2. Restraint of Trade

      The agreement or conspiracy must "unreasonably" restrain trade. (17) The Supreme Court has referred to the phrase "restraint of trade" as "a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances." (18) Typically, a restraint of trade, or a decrease in competition, occurs as a result of the creation of a monopoly, artificial maintenance of prices, restriction of output, refusal to deal, or other interference with the free play of market forces. (19)

      To determine whether a given activity constitutes an unreasonable restraint of trade, courts have employed three analytical approaches. The approach chosen in any particular instance is typically determined by a court's preliminary conclusion concerning the nature of the offense alleged. Significantly, however, there is no "categorical line" that dictates when a particular method of analysis should be used. (20) Rather, the methods are "best viewed as a continuum, on which the 'amount and range of information needed' to evaluate a[n alleged] restraint varies depending on how 'highly suspicious' and how 'unique' the [alleged] restraint is." (21)

      The first method a court may apply is the "per se" rule announced in United States v. Socony-Vacuum Oil Co. (22) Under this approach, courts are to presume the illegality of activities that inherently restrain trade and lack any redeeming purpose. (23) Per se treatment applies "once experience with a particular kind of restraint enables the Court to predict with confidence" that a more comprehensive analysis will condemn it as illegal. (24) Under the per se standard, the government need only prove the existence of an unlawful agreement; no showing of anticompetitive effects is needed for the government to prevail. (25) The purpose of the per se rule is to avoid time-consuming and costly investigation into the economics of agreements that are almost always anticompetitive, and almost never have countervailing benefits. (26) Examples of agreements which implicate the per se rule include horizontal price-fixing arrangements, (27) market allocation, (28) group boycotts, (29) and some tying arrangements. (30) "Virtually all" criminal prosecutions brought under the Act involve offenses governed by the per se rule, although per se violations represent only a small portion of all antitrust cases. (31)

      Courts apply the second analytical approach, the "rule of reason" (32) standard, to conduct which cannot be assumed to be without procompetitive justifications. (33) However, the line between activities falling under the rule of reason approach and those subjected to per se analysis is often unclear. (34) Under the rule of reason analysis, courts look at the full context of an agreement to determine whether the anticompetitive effects pose an "unreasonable" restraint on free trade. (35) If the pro-competitive benefits flowing from the agreement outweigh the harm to competition there is no violation of the Act. (36) Rule of reason often applies to activities such as information exchanges (37) and vertical maximum price fixing. (38)

      The third approach, the intermediate "quick look" or abbreviated rule of reason standard, combines the efficiency of the per se approach with the probing inquiry of the rule of reason standard. (39) Courts apply the "quick look" analysis for agreements that are "naked restrictions" but which might have pro-competitive justifications. (40) Once the court finds a restraint, the burden is shifted to the defendant to show pro-competitive justifications for the restraint. (41) If the defendant successfully rebuts the presumption of anti-competitive effects, the court then applies a full "rule of reason" analysis--balancing the costs of the restraint of trade against its benefits. (42)

      Unfortunately, as the Court has noted, there is no bright line between restraints which "intuitively [have] obvious anticompetitive effects [which can never be justified under the per se analysis] and those that call for more detailed treatment." (43) The Court in California Dental Ass'n v. FTC explained that quick look, like per se analysis, relies on the court's experience with the market and the actions under scrutiny to permit the court to make confident conclusions concerning whether a particular restraint is "nakedly anti-competitive." (44) It has been argued that the Court's ruling in California Dental Ass'n v. FTC may narrow the application of the quick look approach in future cases. (45)

   3. Interstate Nexus

      Congress' authority to regulate anticompetitive restraints on trade derives from its constitutional powers under the Commerce Clause. (46) Accordingly, to establish an offense under the Act, the government must prove that a defendant's illegal activities had a substantial effect on interstate commerce. (47) In determining whether a particular restraint on trade meets this requirement, courts have generally taken a permissive approach. (48)

      The Act's requirement of a nexus between the scrutinized agreements and the effects on interstate commerce may be satisfied by meeting either of two standards: the "in commerce" test or the broader "effect on interstate commerce" test. (49)

      Although infrequently used and harder to satisfy than the second standard, the first "in commerce" test for determining an interstate nexus requires the government to establish that the challenged activity directly interferes with the flow of goods in interstate commerce. (50) To meet this requirement, an activity must (i) involve a "substantial volume of interstate activity" and (ii) be "an essential part of the transaction ... inseparable from its interstate aspects." (51)

      The second, "effect on commerce" standard requires proof only that the challenged activity as a matter of "practical economics ... [does not have an] 'insubstantial effect' on interstate commerce." (52) Therefore, seemingly local trade practices have an "effect on commerce" unless they are both not in the flow of interstate commerce and have no significant impact on that flow. (53)

      The "effect on commerce test" was articulated by the Supreme Court in McLain v. Real Estate Board of New Orleans, (54) and commentators have argued that its broad scope has generated substantial confusion. (55) Furthermore, "[divergent] language in McLain itself concerning the precise parameters" (56) of the new test has compounded [this] confusion (57) and led to a circuit split as lower courts struggle to define the outer limits of the test. (58) Some circuits hold that, for an exercise of jurisdiction under the Act to be proper, the nature of the defendant's general business activities must have an effect on interstate commerce; (59) others, by contrast, have concluded that only the connection between the defendant's alleged illegal activity and...