Antitrust violations.

• Author: Choi, Chung-In
• Position: Twelfth Survey of White Collar Crime

1. INTRODUCTION II. ELEMENTS OF THE OFFENSE

   1. Conspiracy

   2. Restraint of Trade

   3. Interstate Nexus

   4. Intent III. DEFENSES

   1. Withdrawal from Conspiracy

   2. Statute of Limitations

   3. Double Jeopardy

   4. Single Entity

   5. Respondeat Superior

   6. Meeting Competition

   7. State Action Immunity

   8. Petitioning the Government

1. Regulated Industry

   10. Foreign Commerce--Effects, Comity, and Foreign Sovereign

       Compulsion IV. ENFORCEMENT

   1. Federal Enforcement

   2. State Enforcement V. PENALTIES VI. RECENT DEVELOPMENTS

   1. Record-Breaking Criminal Fines Agreements

   2. Recent Developments in International Enforcement

1. INTRODUCTION

   Under [sections] 1 of the Sherman Act(1) ("Act"), the primary federal antitrust provision, any person "who shall make any contract or engage in any combination or conspiracy" in restraint of interstate commerce is subject to criminal sanctions.(2) Despite the scope of its literal meaning, courts have consistently held that [sections] 1 is "intended to prohibit only unreasonable restraints of trade."(3) Although the Act applies to both criminal and civil offenses, it does not distinguish between the two.(4) This article, however, will concentrate on the criminal aspects of the Act.

   Although Congress intentionally left the task of distinguishing between civil and criminal offenses to the judiciary,(5) the Act includes a number of common law terms to assist the courts in their task.(6) The lack of a clear legislative pronouncement of their meaning, however, has resulted in the development of a federal common law.(7) As such, the Supreme Court has characterized the Sherman Act as a "charter of freedom [with a] generality and adaptability comparable to that found to be desirable in constitutional provisions."(8)

2. ELEMENTS OF THE OFFENSE

   To prove a criminal violation of [sections] 1, the government must establish four elements: (1) two or more entities formed a combination or conspiracy; (2) the combination or conspiracy produces, or potentially produces,(9) an unreasonable restraint of trade or commerce; (3) the restrained trade or commerce is interstate in nature;(10) and (4) general intent.(11)

   1. Conspiracy

      Under [sections] 1 of the Sherman 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."(12) The illegal agreement itself constitutes the offense, and overt acts furthering the conspiracy need not be pleaded or proven in a Sherman Act case.(13) The contractual form and the ultimate success of the venture are immaterial as long as the illegal agreement is formed.(14)

   2. Restraint of Trade

      The Supreme Court has noted that the term "restraint of trade . . . refers not to a particular list of agreements, but to a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances."(15) Such consequences include elimination of competition, creation of a monopoly, artificial maintenance of prices, or interference with the free play of market forces.(16)

      In determining whether a given activity constitutes an unreasonable restraint of trade, courts have employed two distinct analytical approaches. The "per se" rule, announced by the Supreme Court in United States v. Socony-Vacuum Oil Co.,(17) is limited to activities which have no legitimate justification and lack any redeeming competitive purpose.(18) Examples of such agreements include price-fixing arrangements,(19) allocation of markets,(20) and group boycotts.(21) The policy underlying the per se unreasonableness test is to avoid the complicated and lengthy investigation into the economics of the industry which is required under the rule of reason test, as explained below.(22) The government, therefore, need only prove the existence of an unlawful agreement.(23) "Virtually all" Sherman Act criminal prosecutions brought by U.S. attorneys are likely to be of offenses governed by the per se rule.(24)

      The second approach, the rule-of-reason standard, applies to activities which have not been labeled "clearly anti-competitive" under the Sherman Act.(25) In applying the rule-of-reason standard, courts analyze the anti-competitive effects of the agreement to determine if the activity poses an "unreasonable" restraint on free trade.(26) Courts may also take into account the possibility that some arguably anti-competitive practices may actually increase economic efficiency and competitiveness, and, therefore, not constitute a violation.(27)

   3. Interstate Nexus

      To establish jurisdiction under the Sherman Act, the government must allege and prove that a defendant's illegal activities had a substantial impact on interstate commerce.(28) The historical expansion of congressional power under the Commerce Clause has also resulted in an expanded reach of the Sherman Act.(29) Sherman Act jurisdiction is established upon a showing that the defendant's "activity is itself in interstate commerce or, if it is local in nature, that it has an effect on some other appreciable activity demonstrably in interstate commerce."(30) "Purely local" trade practices, therefore, are exempt from the Sherman Act only if they are not in the flow of interstate commerce and have no significant impact on that flow.(31) Temporary pauses in the flow of interstate commerce do not necessarily terminate the interstate nexus for purposes of the interstate commerce requirement.(32)

      The Act's requirement of a nexus to interstate commerce may be satisfied by meeting either of two standards: the "in the flow of interstate commerce" test or the broader "effect on interstate commerce" test.(33)

      Under the "in the flow of commerce" test, the government must prove that the challenged activity: (1) involves a "substantial volume of interstate activity" and (2) is "an essential part of the transaction and inseparable from its interstate aspects."(34) The Eleventh Circuit, however, has held that jurisdiction under the "in the flow of commerce" theory is not established where the activities of the defendant's customer were in the flow of interstate commerce, but the defendant's activities were not.(35)

      The "effect on commerce" test requires the government to prove that "(1) a substantial amount of interstate commerce was involved and (2) the challenged activity [does not have an] 'insubstantial effect' on interstate commerce."(36) According to some commentators, this "practical effects" test comes "so close to covering virtually every restraint that the judicial formulae covering proof of jurisdiction seem mainly to complicate, confuse, and lengthen antitrust litigation without affecting the outcome."(37)

      The Supreme Court articulated the effect on commerce test in McLain v. Real Estate Board of New Orleans.(38) However, "[d]iffering language in McLain concerning the precise parameters"(39) of what was required to demonstrate a nexus to interstate commerce has led to a split in the circuits, with some holding that it is the nature of the defendant's general activities that matters,(40) and others holding that it is the impact of the defendant's challenged activity that should be considered.(41) In Summit Health, Ltd. v. Pinhas,(42) the Supreme Court again addressed the question of what satisfied the Act's interstate commerce requirement. However, as it did not clearly endorse one interpretation over the other, it did little to resolve the confusion.(43) Instead, the Summit Health majority seemed to refer to both the hospital's connection to interstate commerce and the alleged conspiracy's effect on interstate commerce as possible grounds for establishing jurisdiction.(44)

      Differences between circuits as to which test should be employed, however, should not obscure the fact that, "[n]otwithstanding lengthy talk and occasional confusion, the required nexus between the challenged activity and interstate commerce is readily satisfied in most cases."(45)

   4. Intent

      In United States v. United States Gypsum Co.,(46) the Supreme Court held that an essential element of a criminal antitrust offense is proof of the defendant's state of mind or intent.(47) Proof of criminal intent "must be established by evidence and inferences drawn therefrom."(48) A mere "presumption of wrongful intent from proof of an effect on prices" is insufficient.(49)

      United States Gypsum involved an exchange of price information that the Court found illustrative of the "gray zone of socially acceptable and economically justifiable business conduct."(50) The Court acknowledged the difficulty in distinguishing an activity such as the exchange of price information, which is not invariably anticompetitive, from that which is proscribed as illegal per se by the Sherman Act because of its unquestionably anticompetitive effect.(51) The Court held that the existence of intent in rule of reason cases may not be presumed as a matter of law, but rather that "action undertaken with knowledge of its probable consequences and having the requisite anticompetitive effects can be a sufficient predicate for a finding of criminal liability under the antitrust laws."(52) Therefore, in cases where the per se nature of the alleged conduct is uncertain, the government should first present evidence of anticompetitive effects and then ask for jury instructions that explain the United States Gypsum knowledge standard for proving intent.(53)

      In criminal cases involving per se violations, however, the government needs only to prove that the alleged per se agreement was in fact made and that the defendants "knowingly and intentionally joined that agreement."(54) It is unnecessary for the government to prove that the defendants knew that the agreement, combination or conspiracy was a violation of the law.(55) Because most criminal prosecutions brought under the Sherman Act involve per se offenses,(56) the latter standard will most often govern the question of intent in a criminal...