The U.S. Department of Justice Antitrust Division's top antitrust enforcer, Jonathan Kanter, has made clear that he intends to reinvigorate enforcement of Section 2 of the Sherman Act.
But he has yet to put forth a specific plan, leading many to wonder what such a program would look like.
We now have some clues. In the latest sign of the Biden administration's aggressive expansion of antitrust enforcement, the DOJ's top criminal antitrust enforcer recently signaled that the DOJ may begin bringing criminal monopolization cases under Section 2 of the Sherman Act. Section 2 prohibits single-firm conduct to create or maintain a monopoly.
In a March speech before the American Bar Association 37th National Institute on White Collar Crime, Richard Powers, the deputy assistant attorney general for criminal enforcement, surprised the room by stating, in response to a question, that the DOJ is prepared to bring criminal charges under Section 2 "if the facts and the law lead us to the conclusion that a criminal charge based on a Section 2 violation is warranted."
The Antitrust Division's Principal Deputy Assistant Attorney General Doha Mekki seconded Powers' comments later at the conference.
And at the Spring Enforcers Summit on April 4, Kanter stated that the Antitrust Division will not hesitate to enforce the law if a criminal Section 2 charge is warranted. Kanter noted that "[s]ince the 1970s, Section 2 has been a felony just like Section 1," and that "[i]n 2004, Congress increased Section 2's criminal penalties in lockstep with the increased penalties for Section 1 crimes."
These comments from senior DOJ antitrust leadership have alarmed veteran observers of antitrust enforcement, as the DOJ has not pursued a criminal monopolization case in nearly 50 years. Whether or not the DOJ follows through on its suggestion, companies and individuals should not take lightly the possibility that such charges may be coming down the pike.
Section 2 Enforcement: Typically Civil, Not Criminal
Section 2 of the Sherman Act states:
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.
The consequences for a company or individual facing an indictment under Section 2 are severe. Criminal violations of the Sherman Act are punishable by up to $100 million in fines for companies and $1 million in fines for individuals, or twice the gross gain or loss from the offense, whichever is greater. Individuals can be sentenced to up to 10 years of imprisonment.
Despite the statute's explicit criminal language and significant consequences, the government's enforcement of Section 2 in the modern era has consisted solely of civil cases. By contrast, criminal enforcement of Sherman Act Section 1, which prohibits agreements in restraint of trade, is more common.
The DOJ justice manual, which provides guidance to the department's prosecutors, makes this explicit, stating that:
While a violation of [the Sherman Act] may be prosecuted as a felony, in general the Department reserves criminal prosecution for "per se" unlawful restraints of trade among competitors, e.g., price fixing, bid rigging, and market allocation agreements.
While Powers' statement may seem to come out of the blue, it comes amid the backdrop of the DOJ's 2016 policy change to begin bringing criminal prosecutions in no-poach cases and its subsequent prosecution of such cases, as well as political efforts in recent years to invigorate antitrust enforcement across the board.
It also follows many statements from Kanter about the need for more Section 2 enforcement.
Kanter Bemoans Lack of Section 2 Enforcement
Before he was named assistant attorney general for the Antitrust Division, Kanter was openly critical of the government's failure to use Section 2.
In a January 2016 speech at an event hosted by New America, he asked, "When was the last time you can remember a major antitrust agency bringing a monopolization case? The reason you can't remember it is because they haven't done it."
At a panel discussion sponsored by Yelp Inc. in 2018, he commented that the DOJ's monopolization case against Microsoft Inc. in the 1990s was the only big Section 2 case brought in several decades, stating that Section 2 cases are:
[T]he antitrust equivalent of jaywalking. You just don't see them, people don't care about them, and the consequences of being investigated are seen as so remote, low risk and unlikely to impact a company that adhering to the law is a greater cost than the behavior you're engaging in.
Since being confirmed and sworn into office, Kanter has continued this theme. Speaking to the New York State Bar Association at an event in January, he bemoaned the lack of Section 2 enforcement, stating that "Section 2 doctrine that is responsive to market realities, not outdated models, is a necessary step to build a competitive economy."
Although many commentators thought Kanter's pledge of vigorous enforcement of Section 2 referred to more civil cases, it was that pledge that led to Powers' statement.
At the March ABA event, Powers was asked whether Kanter's Section 2 statements meant that the DOJ is prepared to bring criminal Section 2 cases. Powers replied, "The short answer is yes, absolutely." Although denying that he was making "any announcement here today," he clearly was ready for the question, stating:
Congress made violations of the Sherman Act, both Section 1 and Section 2, a crime … and Section 2 is a felony just like Section 1, and that's been true since the 1970s. Historically the [Antitrust] Division did not shy away from bringing criminal monopolization charges, and frequently alongside Section 1 charges, when companies and executives committed flagrant offenses intended to monopolize markets.
Powers went on to say that Kanter's commitment to using "all available tools" in antitrust enforcement "informs all aspects of our work," and that the DOJ is embracing the full powers of the Sherman Act:
So what does that mean? If the facts and the law lead us to the conclusion that a criminal charge based on a Section 2 violation is warranted, then that's what we'll do, we'll charge it.
Powers did not elaborate on the criminal Section 2 cases that the Antitrust Division has brought in the past, but they have been exceedingly rare, and outdated.
Historical Section 2 Criminal Enforcement
While the DOJ brought a number of criminal Section 2 cases in the first half of the 20th century — the Sherman Act was passed in 1890 — it stopped bringing such cases in the 1970s.
The last Section 2 prosecution was the 1977 U.S. v. Braniff Airways Inc. case, in which the DOJ prosecuted two airlines under Sections 1 and 2, under a theory that the airlines conspired to create a monopoly and keep out competitors.
The April 2007 report of the Antitrust Modernization Commission noted that although the DOJ has the statutory authority to prosecute all violation of Sections 1 and 2 of the Sherman Act criminally, the DOJ has over time focused its criminal prosecutions on hardcore offenses such as price-fixing, bid-rigging and market allocation.
Such offenses are considered per se antitrust violations, where the conduct is so clearly anti-competitive that the government — or a private plaintiff — need not prove that it harmed competition. Monopolization, on the other hand, is typically judged under the rule of reason, requiring proof of anti-competitive effects in a properly defined antitrust market.
Because the DOJ only brings criminal charges in cases that are per se violations, Powers' comments suggest that the DOJ may now consider monopolization ― under certain circumstances ― to be in the per se category. This would be a radical shift.
And while Powers is correct that the DOJ has in the past brought criminal Section 2 cases, the cases are so old that any such prosecutions by the DOJ would be a dramatic expansion of its enforcement practice for the past several decades.
Whether the DOJ begins criminally prosecuting Section 2 cases remains to be seen. The change of no-poach enforcement from civil to criminal came after the DOJ announced the policy change in a 2016 guidance document to human resources professionals. No similar formal guidance has been issued for Section 2 cases.
Top DOJ antitrust enforcers, including Kanter, Mekki and Powers, are all expected to speak on the latest trends in antitrust enforcement at next week's ABA Antitrust Law Spring Meeting, and keen attention will be paid to whether criminal Section 2 enforcement is mentioned.
Nonetheless, because such cases take years to build ― the first no-poach indictment came more than four years after the announcement ― we are unlikely to see any Section 2 indictments in the near future, although such investigations may commence soon.
The signals coming from Washington are clear — Section 2 enforcement is heating up, and companies with significant market share need to be on the alert.
Christopher H. Casey is a partner at Duane Morris LLP. He previously served as deputy associate attorney general at the DOJ, as a litigator at the Federal Trade Commission, and as an assistant U.S. attorney.
Brian H. Pandya is a partner at the firm. He previously served at the DOJ as deputy associate attorney general.
Reprinted with permission of Law360.