Antitrust violations.

• Author: Brown, Nell I.
• Position: Annual white collar crime survey

1. INTRODUCTION

   The Sherman Act(1) ("Act"), the primary federal antitrust provision, aims to promote and protect competition(2) by subjecting to criminal sanctions any person "who shall make any contract or engage in any combination or conspiracy" in unreasonable restraint of interstate commerce.(3) Although the Act does not distinguish between criminal and civil offenses,(4) the Supreme Court has held that mens rea must be proved in criminal prosecutions.(5) The Act, void of clear legislative directives, has spawned the development of federal common law in both the criminal and civil realms.(6)

   This Article focuses on the criminal aspects of the Act. Criminal enforcement by the Department of Justice Antitrust Division (the "Division") in recent years has followed a policy of bringing fewer but more significant prosecutions.(7) These prosecutions involve bigger firms, larger industries and higher volumes of commerce, and target both national and international violations of the Act.(8) Recently, the Division has expanded its challenge to international violations under the "effects doctrine," which provides that foreign conduct intended to produce "a substantial effect" in the United States is subject to federal antitrust laws.(9)

   This Article outlines the substance of an antitrust violation under [sections] 1 of the Act. Section II discusses the four elements of a criminal offense under the Act. 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 a criminal violation. Finally, Section VI discusses recent developments in international enforcement.

2. ELEMENTS OF THE OFFENSE

   To prove a criminal violation of [sections] 1 of the Act, the government must establish four elements: (1) an agreement to concerted action, such as a combination or conspiracy foamed by two or more entities;(10) (2) that the agreement unreasonably restrained trade or commerce;(11) (3) the interstate nature of the restrained trade or commerce;(12) and (4) general intent.(13) Parts A through D of this Section discuss each of these elements sequentially.

   1. Agreement

      Under [sections] 1 of the Act, a conspiracy requires "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 requisite actus reus; 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.(15) The venture's contractual foam and ultimate success are immaterial as long as the parties form an illegal agreement.(16)

   2. Restraint of Trade

      The agreement or conspiracy must "unreasonably" restrain trade.(17) The Supreme Court has noted that the phrase "restraint of trade ... refers ... to a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances."(18) Such consequences generally include the elimination of competition. Typically, competition is diminished as a result of the creation of a monopoly, artificial maintenance of prices, restriction of output, refusal to deal or any 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. First, the "per se" rule, announced by the Supreme Court in United States v. Socony-Vacuum Oil Co.,(20) presumes the illegality of activities that have no legitimate justification and lack any redeeming competitive purpose.(21) Per se treatment applies "once experience with a particular type of restraint enables the Court to predict with confidence that the rule of reason analysis will condemn it."(22) Examples of agreements reflecting judicial condemnation under the rule of reason include certain price-fixing arrangements,(23) allocation of markets,(24) group boycotts,(25) and some tying arrangements.(26) The purpose of the per se unreasonableness test is to avoid time-consuming and costly investigation into the economics of agreements that are almost always anticompetitive, and have no procompetitive benefits.(27) Under the per se standard, therefore, the government need only prove the existence of an unlawful agreement.(28) "Virtually all" criminal prosecutions brought under the Act by U.S. Attorneys involve offenses governed by the per se rule although per se violations represent only a small portion of all antitrust cases.(29)

      Second, "rule of reason" scrutiny applies to activities that have not been labeled egregiously anticompetitive under the Act,(30) such as information exchanges(31) and vertical maximum price fixing.(32) Under the "rule of reason" analysis, courts look at the full context of the agreement to determine whether its anticompetitive effects pose an "unreasonable" restraint on free trade.(33) Courts may also take into account the possibility that some arguably anti-competitive practices could actually increase economic efficiency and competitiveness, and therefore, not constitute a violation of the Act.(34)

      Third, the newest 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.(35) Courts use the "quick look" for agreements that are not inherently competitive. It allows the court to consider pro-competitive justifications put forth by the defendant.(36) If the defendant successfully presents such evidence, the court may then do a complete examination as required under the "rule of reason."(37) There is no bright line between restraints where "intuitively [there are] obvious anticompetitive effects and those that call for more detailed treatment."(38) The Court in California Dental Association v. FTC explained that quick look, like per se analysis, relies on experience with the market to permit the court to make confident conclusions about the principle tendency of a restraint.(39)

   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.(40) As a result, the scope of the Act has expanded concomitantly with the broadened interpretation of "substantial impact" under the Commerce Clause.(41) To demonstrate jurisdiction under the Act, a prosecutor must show 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."(42) "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.(43)

      The Act's requirement of a nexus to interstate commerce may be satisfied by meeting either of two standards: the "in commerce" test or the broader "effect on interstate commerce" test.(44) First, the "in commerce" test requires the government to prove that the challenged activity directly interferes with the flow of goods in interstate commerce.(45) To survive this test, the activity must (1) involve a "substantial volume of interstate activity" and (2) be "an essential part of the transaction ... inseparable from its interstate aspects."(46)

      Second, the "effect on commerce" test is applicable to conduct that is "wholly local in nature" but falls within the ambit of the Act as a matter of "practical economics" because it has a significant impact on interstate commerce.(47) This 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."(48)

      The two standards constitute the broad test(49) first articulated in McLain v. Real Estate Board of New Orleans.(50) The breadth of the test creates confusion by covering so much activity that "it seem[s] mainly to complicate, confuse, and lengthen antitrust litigation without affecting the outcome."(51) "Differing language in McLain concerning the precise parameters"(52) of evidence required to demonstrate a nexus to interstate commerce compounds the confusion.(53) This difficulty has led to a split in the circuits with some circuits holding that the nature of the defendant's general activities controls,(54) while others hold that the impact of the defendant's challenged activity should be considered.(55)

      In Summit Health, Ltd. v. Pinhas,(56) the Supreme Court again addressed the satisfaction of the interstate commerce requirement under the Act. However, the Court failed to resolve the split between the circuits by declining to clearly endorse one interpretation over the other.(57) Instead, the Summit Health majority referred to both the hospital's general connection to interstate commerce and the alleged conspiracy's effect on interstate commerce as possible grounds for establishing jurisdiction.(58) Despite the differences between the circuits and "[n]otwithstanding lengthy talk and occasional confusion, the required nexus between the challenged activity and interstate commerce is readily satisfied in most cases."(59)

   4. Intent

      In United States v. United States Gypsum Co.,(60) the Supreme Court considered proof of the defendant's state of mind or intent an essential element of a criminal antitrust offense.(61) Proof of criminal intent "must be established by evidence and inferences drawn therefrom."(62) The intent requirement may be satisfied by proof that conduct was undertaken either with knowledge of its probable anticompetitive effect or for the purpose of producing anticompetitive effects.(63) A mere "presumption of wrongful intent from proof of an effect on prices" will not suffice.(64)

      United States...