Too Much, Too Soon: The High-Tech Cases Reveal Criminal Antitrust Enforcement Inappropriate for No-Poach and Wage Fixing.

AuthorLee, Tawanna

TABLE OF CONTENTS I. INTRODUCTION 199 II. THE COURT-FORMULATED ANALYTICAL SHORTCUT TO SECTION 1 SHERMAN ACT CLAIMS 201 A. The Court Limits the Use of Per Se Condemnation for "Pernicious" and "Unredeemable" Conduct 202 B. The Supreme Court Has Been Unsurprisingly Reluctant to Extend the Per Se Rule to New Areas 203 III. FEDERAL ENFORCEMENT OF NO-POACH CASES 204 A. The 2010 High-Tech Cases Illustrate the Immaturity of this Area of Law 204 B. Criminal Enforcement of No-Poach Agreements Departs from Antitrust Jurisprudence 208 C. Prosecutorial Discretion Signals DOJ's Uncertainty with Enforcement Strategy 211 IV. THE DOJ'S PROSECUTORIAL DISCRETION DOES NOT EXTEND TO REDEFINING OFFENSES ALTOGETHER 212 A. Federal Antitrust Agency Eschews Nearly a Century of Antitrust Jurisprudence 215 B. Courts, Not Agencies, Have the Authority to Classify Offenses 216 C. It Is Not Immediately Obvious that No-Poach and Wage-Fixing Agreements Always or Almost Always Pose Undue Restraint in the Technology Sector 217 V. LEGISLATIVE & POLICY ALTERNATIVES TO ADDRESS MOBILITY OF TECH LABOR 218 A. Policy Alternatives 219 VI. CONCLUSION 220 I. INTRODUCTION

The use of agreements that restrict employee mobility has come under increasing scrutiny as economists, policy analysts, and legislators explore how these trends connect to rising income inequality. (1) In 2016, the Obama Administration turned its attention to non-compete and wage-fixing agreements as disruptors to the competitive nature of the labor market. (2) Both the White House and the Treasury Department issued reports asserting that these agreements may restrain employee movement and advancement, resulting in reduced job mobility and bargaining power, lower wages, and greater earnings inequality. (3) The Administration asserted that these agreements also likely stifle innovation by limiting the exchange of ideas and stymying employees' ability to launch new companies. (4) Though the 2016 reports did not focus on America's tech giants, disruption in how industries use non-compete and wage-fixing agreements would have a unique effect on big technology companies. Silicon Valley, arguably the seat of innovation in the digital economy, may prove instructive in a case against criminal enforcement.

In conjunction with the research findings outlined in the reports, President Obama directed executive agencies to use their authority, where applicable, to promote competition. (5) Against this political backdrop, in 2016, the Antitrust Division of the United States Department of Justice (DOJ) and the Federal Trade Commission (FTC), in a dramatic departure from antitrust jurisprudence, branded "naked" no-poach and wage-fixing agreements per se illegal under antitrust laws and announced its intent to pursue such agreements criminally. (6)

No-poach agreements, also referred to as "anti-solicitation," "no-hire," "no-switching," or "no cold call" agreements, are arrangements whereby companies agree not to compete for each other's employees by not soliciting or hiring them. (7) Similarly, wage-fixing agreements are arrangements whereby companies agree to constrain "employees' salary or other terms of compensation, either at a specific level or within a range." (8) Historically, the DOJ and FTC (9) have investigated and prosecuted companies for engaging in "naked" (10) no-poach and wage-fixing agreements as civil antitrust violations where violators have been met with consent decrees. (11)

The term no-poach agreement perhaps first made its way into the American consciousness when several Silicon Valley technology companies came under fire for their use. (12) In 2010, the DOJ brought a series of lawsuits against six of the most prominent technology companies--Adobe Systems, Inc., Apple, Inc., Google, Inc., Intel Corp., Intuit Inc., and Pixar--challenging their use of no-poach and wage-fixing agreements. (13) These cases have been collectively referred to as the High-Tech cases. Although the DOJ pursued civil enforcement in each of these cases, it asserted that the agreements were per se unlawful under Section 1 of the Sherman Act, and thus gave rise to potential criminal liability. (14) In the High-Tech cases, the tech companies entered into consent decrees whereby they were enjoined from participating in these types of agreements in the future (15) and were required to institute training and compliance programs. (16) In the private lawsuits that followed against Apple, Google, Intel, and Adobe, 64,000 employees sought $3 billion in damages, (17) which would have trebled under antitrust law. (18) Nonetheless, the tech companies, which had initially proposed a settlement of $324.5 million--a number which the court rejected for "fall[ing] below the range of reasonableness" (19)--collectively paid $415 million in settlements. (20) The DOJ's shift in enforcement policy is significant as it implicates the economic and liberty interests of the actors and may have unintended ripple effects not only on the technology sector, but on the national economy.

This Note considers the implications of the DOJ's newly announced criminal enforcement priorities. Section I will provide a historical exploration of per se illegality under Section 1 of the Sherman Act. Section II will then review federal enforcement action on no-poach agreements, which have primarily targeted the technology sector through an examination of the High-Tech cases. Thereafter, Section III will consider the DOJ's criminal enforcement agenda in view of antitrust jurisprudence. Finally, Section IV will examine the competitive implications of criminal enforcement and recommend legislative policy alternatives.

  1. THE COURT-FORMULATED ANALYTICAL SHORTCUT TO SECTION 1 SHERMAN ACT CLAIMS

    Section 1 of the Sherman Act, which declares "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce" to be illegal, (21) reflects Congress' judgment that "competition is the best method of allocating resources in a free market." (22) On its face, the statutory language raises a threshold question of whether Congress intended that the term "every" be read literally. If so, Section 1 would raise tremendous concerns, given the myriad of procompetitive ways that companies cooperate and share information. In 1911, the Supreme Court in Standard Oil of N.J. v. United States examined the legislative history of the Sherman Act, which revealed that "[t]he statute... evidenced the intent... to protect [] commerce from... undue restraint." (23) In so doing, the Court presumed Congressional intent to apply a common law standard, which has come to be known as the Rule of Reason, under which only an "unreasonable" "contract, combination... or conspiracy" can violate Section 1. (24)

    1. The Court Limits the Use of Per Se Condemnation for "Pernicious" and "Unredeemable" Conduct

      As a judicial construct, the Rule of Reason framework provides a continuum upon which alleged conduct is evaluated to determine liability. (25) At its outer bound sits per se condemnation as an analytical shortcut, wherein conduct is so obviously a detrimental restraint that it is conclusively presumed unreasonable. (26) If a court applies the per se standard, only the action or restraint must be proven--foreclosing the opportunity to present any justifications or defenses. (27) In the development of antitrust law over the last 120 years, it has always been the case that the courts are the only actor to determine presumably unreasonable conduct. (28) Historically, the courts have treated horizontal price fixing, horizontal market allocations, and some concerted actions as per se unlawful conduct. (29)

      The Supreme Court provides the rationale for having a per se rule to shortcut the Rule of Reason determination as follows:

      [T]here are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable--an inquiry so often wholly fruitless when undertaken. (30) Thus, in the interest of judicial economy, the Court has exclusively reserved per se condemnation for conduct where consumer harm is inevitable.

    2. The Supreme Court Has Been Unsurprisingly Reluctant to Extend the

      Per Se Rule to New Areas

      By contrast, restraints that are not per se illegal "can only be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed." (31) Under the Rule of Reason standard, each party has the opportunity to present evidence. (32) The plaintiff offers evidence of a "restraint's anticompetitive effects, and the defendant submits procompetitive justifications." (33) Thus "the fact-finder weighs all the circumstances to determine whether the restraint is one that suppresses competition or promotes it." (34)

      Courts have been reluctant to condemn no-poach agreements as per se violations (35) notwithstanding the likely analogous economic effects, in some scenarios, on economic markets as market allocations and price fixing. (36) Thus, in shifting its enforcement priority to prosecute no-poach agreements as per se violations, (37) the DOJ has eschewed the historical antitrust analysis of no-poach agreements under the Rule of Reason. (38) The presumption of per se illegality would permit the DOJ to prosecute these agreements without considering their...

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