REINVIGORATING CRIMINAL ANTITRUST?

• Author: Sokol, D. Daniel
• Position: Special Issue on Antitrust Law

TABLE OF CONTENTS INTRODUCTION 1548 I. ANTITRUST AND DETERRENCE 1549 II. CRIMINAL ANTITRUST THEN AND NOW 1554 A. Early Criminal Antitrust 1554 B. The Rise of Modern Criminal Enforcement 1555 C. The Judicial Structure of Antitrust Law and Its Implications on Criminal Enforcement 1557 III. ANTITRUST AND GOALS 1558 IV. DESUETUDE 1564 A. Desuetude and Its Meaning 1564 B. Desuetude in Antitrust 1569 1. Sherman Act Criminal Enforcement Outside of Explicit Collusion 1570 2. Enforcement of Robinson-Patman 1573 a. DO J Enforcement of Robinson-Patman 1573 b. FTC Enforcement of Robinson-Patman 1574 3. The Overall View of Robinson-Patman 1575 V. VOID FOR VAGUENESS 1576 A. Background on the Void for Vagueness Doctrine 1577 B. Antitrust and Void for Vagueness 1579 1. The Void for Vagueness Sherman Act Cases 1580 2. Changing Antitrust Thinking and Its Implications on Void for Vagueness Arguments 1583 a. Rule of Reason 1583 b. Court as Regulator 1588 3. Intent 1590 4. Severity of Punishment and Void for Vagueness 1593 5. Void for Vagueness for Robinson-Patman Criminal Violations 1594 CONCLUSION 1597 INTRODUCTION

Antitrust is under populist attack by politicians, media, academics, and think tanks. Even the current antitrust discussion in the mainstream press has taken on a populist tone. For example, the Wall Street Journal, Economist, and Financial Times--which more instinctively tend to take a laissez faire economic approach--have pushed for more aggressive antitrust enforcement. (1) The critics of the current antitrust approach that has lasted for forty-plus years (2) make antitrust the causal factor for such things as a loss of democracy, (3) deteriorating healthcare, (4) income inequality, (5) and labor force issues, (6) among others. Some Democrats in Congress have called for a fundamental rethinking of antitrust, called "A Better Deal: Cracking Down on Corporate Monopolies and the Abuse of Economic and Political Power." (7) A series of policy-oriented books also sound the alarm of bigness. (8)

Such populists actively hearken back to the Brandeisian concern regarding "bigness." (9) Indeed, Carl Shapiro notes, "[n]ot since 1912, when Teddy Roosevelt ran for President emphasizing the need to control corporate power, have antitrust issues had such political salience." (10) For some critics, the growing concentration of American power is nothing less than a threat to American democracy. (11) However, the populist resurgence in antitrust, taken to its logical conclusion, would be to "reinvigorate" antitrust law with criminal prosecutions for conduct via statutory antitrust law that is already available and which technically still remains good law. (12)

1. ANTITRUST AND DETERRENCE

   The basis of antitrust enforcement derives from models of optimal deterrence. (13) Under an optimal deterrence antitrust framework, a firm or individual will be deterred in situations where the expected costs of illegal activity exceed the expected benefits of such activity due to a calculation of the probability and magnitude of the penalties. (14)

   Criminalization in antitrust has been based on the idea that criminalization leads policy closer to optimal deterrence because it increases the severity of penalties. (15) Criminalization has been pushed globally in the area of cartels, (16) where detection has proven difficult and where civil fines against firms may underdeter. (17) However, unlike collusion, which is done in secret because such agreements are illegal, (18) other forms of antitrust conduct covered by the Sherman Act are not done in secret, such as traditional pricing-related practices including exclusive dealing, tying, and bundling. (19)

   Antitrust law contains a mix of criminal and civil penalties to deter cartel formation and cartel activity at both the organizational and individual levels under [section] 1 of the Sherman Act. (20) The basis for holding both individuals and firms accountable is that, by doing so, antitrust is better able to address what may be different organizational and individual incentives and motivations. (21) Thus, incentives for both organizational and individual compliance potentially bring antitrust closer to optimal deterrence. (22) That is, criminalization creates potential risks for firms in terms of stock market return-based penalties, reputational penalties, debarment, and government fines. (23) These potential criminal sanctions and repercussions from criminal sanctions create incentives for firms to monitor their agents to ensure some level of antitrust compliance. (24) However, because of agency cost problems, the firm and its agents' incentives may be different. (25) Hence, criminal penalties for individuals may be appropriate in such settings. (26)

   Many antitrust scholars propose that increased amounts of fines and jail time bring antitrust closer to optimal deterrence for cartel-related behavior. (27) Criminal sanctions reduce cartel formation and encourage firms and individuals to defect from existing cartels. (28) This defection (via a leniency program) is important for purposes of gathering information about the cartel for prosecution of other cartel members. (29) Without leniency and the threat of criminal sanctions, it would be difficult to gather information about what are secret and illegal contracts. (30) Gary Becker and Richard Posner take a different view with regard to cartels, in which they believe that fines alone would be better than incarceration for what is an economic act. (31)

   In areas of traditional antitrust civil enforcement (for example, bundling, exclusive dealing, tying, resale price maintenance (RPM), nonprice restraints, et cetera), the case for incarceration is weaker because these are not hidden agreements and the behavior is well known by others in the marketplace. (32) Thus, detection is not as much of a concern. Further, in the case of behavior that might have some offsetting procompetitive justifications generally, but not in that particular case, monetary fines do not create significant costs to society and serve to compensate victims. (33) A large-enough fine would therefore serve to deter future illegal behavior. (34) In contrast, locking up individuals for antitrust violations that are based on exclusion or predation would lead to incarceration of individuals who otherwise would be productive to society. (35)

   Criminalization of traditional business behavior creates additional problems. In noncollusion cases, criminalization might deter the very sort of risk taking that should be rewarded in a market economy. (36) As the Supreme Court explained in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP:

   The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices--at least for a short period--is what attracts "business acumen" in the first place; it induces risk taking that produces innovation and economic growth. (37) Without the ability to undertake business practices that may increase consumer welfare but which may be legally risky, firms do not have a sufficient incentive to undertake investments in new product or service offerings because of the fear of jail time. (38)

   Coming from a different intellectual tradition, professors of jurisprudence have also thought about the optimal criminal system. (39) Professors of jurisprudence lament that there has been a tendency toward overcriminalization, especially for types of conduct that should not be considered criminal. (40) This concern of overcriminalization has been pronounced in the works of important criminal law theorists such as R. A. Duff, (41) Sanford Kadish, (42) Andrew Ashworth, (43) and Douglas Husak. (44) Overall, one concern is that criminalization should be reserved for only the most serious crimes. (45) From the standpoint of antitrust, the most serious crime is the one that is not at all ambiguous in terms of the harm--collusion. (46) For this reason, the Supreme Court refers to collusion as "the supreme evil of antitrust." (47) The clear harm that collusion creates has meant that for thousands of years collusion has been viewed as a serious moral concern, from the Babylonian Talmud (48) and Christian Scriptures (49) to Adam Smith. (50)

   The discussion about optimal deterrence and antitrust provides a framework for understanding the development of the criminal antitrust regime from its origins to the present. The next Part explores this antitrust history, which provides the necessary background to understand how criminal antitrust enforcement of collusion is different from criminal antitrust enforcement of other types of behavior, all of which have fallen out of use in the modern era.

2. CRIMINAL ANTITRUST THEN AND NOW

   1. Early Criminal Antitrust

      Originally, under the Sherman Act as enacted in 1890, all antitrust criminal offenses were misdemeanors rather than felonies. (51) The classification of a misdemeanor meant that unlawful conduct could result in criminal penalties of incarceration for a period of time for one year or under for a violation of the Sherman Act. (52) In early antitrust history, jail time was not a preferred penalty. (53) Even for cartels, criminal enforcement of antitrust was quite rare. (54) Members of cartels were incarcerated once in 1921, (55) but not again until 1959. (56) Criminal offenses by companies also were not significant in antitrust law relative to civil cases. (57) There was some criminal enforcement of non "hard core" collusion prior to World War II (WWII), with infrequent jail time, mostly dealing with organized labor. (58) When there was significant criminal enforcement for non-cartel matters, particularly during the largest period of antitrust criminal enforcement during the tenure of Thurman Arnold as head of the DOJ Antitrust Division, the criminal penalties were fines rather than jail...