Antitrust violations.

• Author: Brown, Christopher M.
• Position: Thirteenth Survey of White Collar Crime

1. INTRODUCTION

   Section 1 of the Sherman Act(1) ("Act"), the primary federal antitrust provision, subjects to criminal sanctions any person "who shall make any contract or engage in any combination or conspiracy" in restraint of interstate commerce.(2) Despite the scope of its literal meaning, courts have held consistently that Congress intended [sections] 1 of the Act "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, concentrates 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 the differences in civil and criminal offenses, however, has resulted in the development of federal common law.(7) As such, the Supreme Court has characterized the Act as a "charter of freedom [with a] generality and adaptability comparable to that found to be desirable in constitutional provisions."(8)

   This Article outlines the elements of antitrust violations under [sections] 1 of the Act. Section II discusses the general elements of the offense. Section III presents the defenses to an accusation of an antitrust violation. Section IV distinguishes between federal and state enforcement, and Section V presents the penalties. Finally, Section VI discusses recent developments in the criminal antitrust arena.

2. ELEMENTS OF THE OFFENSE

   To prove a criminal violation of [sections] 1 of the Act, the government must establish four elements: (1) a combination or conspiracy formed by two or more entities; (12) an unreasonable restraint of trade or commerce by the combination or conspiracy;(9) (3) the interstate nature of the restrained trade or commerce;(10) and (4) general intent.(11) Parts A through D of this Section discuss sequentially each of these elements.

   1. Conspiracy

      Under [sections] 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."(12) The illegal agreement itself constitutes the offense; thus, neither completion of the conspiracy nor any overt acts furthering the conspiracy need be pleaded or proven in a case brought under the Act.(13) The venture's contractual form and ultimate success am immaterial as long as the parties form an illegal agreement.(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) applies only to activities which have no legitimate justification and lack any redeeming competitive purpose.(18) Examples of such agreements include certain price-fixing arrangements,(19) allocation of markets,(20) and group boycotts.(21) The policy underlying the per se unreasonableness test focuses on the efficiency of avoiding complicated and lengthy investigation into the economics of industries, an investigation required under the rule of reason test,(22) as explained below. Under the per se standard, the government, therefore, need only prove the existence of an unlawful agreement.(23) "Virtually all" criminal prosecutions brought under the Act by U.S. Attorneys involve offenses governed by the per se rule.(24)

      The second approach, the rule-of-reason standard, applies to activities which have not been labeled "egregiously anticompetitive"(25) under the Act,(26) such as information exchanges(27) and vertical maximum price fixing.(28) 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.(29) Courts may also take into account the possibility that some arguably anticompetitive practices may actually increase economic efficiency and competitiveness, and, therefore, not constitute a violation of the Act.(30)

   3. Interstate Nexus

      To establish jurisdiction under the Act, the government must allege and prove that a defendant's illegal activities had a substantial impact on interstate commerce.(31) The historical expansion of congressional power under the Commerce Clause has also resulted in an expanded reach of the Act.(32) A prosecutor establishes jurisdiction under the Act 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."(33) "Purely local" trade practices, therefore, are exempt from the Act only if they are not in the flow of interstate commerce and have no significant impact on that flow.(34) Temporary pauses in the flow of interstate commerce do not necessarily terminate the interstate nexus for purposes of the interstate commerce requirement.(35)

      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.(36)

      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."(37) 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.(38)

      The "effect on commerce" test requires the government to prove "(1) a substantial amount of interstate commerce was involved and (2) the challenged activity [does not have an] `insubstantial effect' on interstate commerce."(39) 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."(40)

      The Supreme Court articulated the effect on commerce test in McLain v. Real Estate Bd. of New Orleans.(41) However, "[d]iffering language in McLain concerning the precise parameters"(42) of evidence required to demonstrate a nexus to interstate commerce has led to a split in the circuits. While some circuits hold that the nature of the defendant's general activities controls,(43) others hold that the impact of the defendant's challenged activity should be considered.(44) In Summit Health, Ltd. v. Pinhas,(45) 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 not resolve the confusion.(46) 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.(47)

      Differences between the circuits as to which test should be employed 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."(48)

   4. Intent

      In United States v. United States Gypsum Co.,(49) the Supreme Court considered proof of the defendant's state of mind or intent an essential element of a criminal antitrust offense.(50) Proof of criminal intent "must be established by evidence and inferences drawn therefrom."(51) A mere "presumption of wrongful intent from proof of an effect on prices" will not suffice.(52)

      United States Gypsum Co. involved an exchange of price information that the Court found illustrative of the "gray zone of socially acceptable and economically justifiable business conduct."(53) The Court acknowledged the difficulty in distinguishing an activity such as the exchange of price information, which is not invariably anticompetitive, from that proscribed as illegal per se by the Act because of its unquestionably anticompetitive effect.(54) The Court held that intent may not be presumed as a matter of law in rule of reason cases and 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."(55) 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 Co. knowledge standard for proving intent.(56)

      In criminal cases involving per se violations, however, the government need only prove that defendants in fact made the alleged per se agreement and that the), "knowingly and intentionally joined that agreement."(57) The government need not prove that the defendants knew that the agreement, combination, or conspiracy violated the law.(58) Because most criminal prosecutions brought under the Sherman Act involve per se offenses,(59) the latter standard will most often govern the question of intent in a criminal antitrust case.

3. DEFENSES

   Where...