United States: Criminal Charges Will Be Brought For Section 2 Violations, The DOJ Warns

The U.S. Department of Justice (DOJ) has signaled its readiness to criminally prosecute individual executives whose conduct violates Section 2 of the Sherman Act. This section makes it unlawful for any person to "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"—in other words, targeting those actions taken to attain or preserve monopoly power. 

Deputy Assistant Attorney General for Criminal Enforcement Richard Powers answered emphatically in the affirmative when asked, during a panel discussion at a conference on white collar crime, whether the Antitrust Division is prepared to bring criminal charges in monopolization cases.

POWERS' RECENT REMARKS

While Powers indicated that he was "not making any announcement" then and there, he reminded his audience that "Congress made violations of the Sherman Act, both Section 1 and Section 2, a crime." Powers further emphasized that "market concentration and consolidation is not only a civil antitrust issue," so criminal prosecutions for Section 2 violations are justified if the facts and law allow.

DEATH OF CRIMINAL SECTION 2 ENFORCEMENT

This update does not reflect any change to the Sherman Act itself. Nevertheless, this signal of the DOJ's priorities and position may impress upon many as news in light of previous messaging and enforcement patterns.

The DOJ is empowered by the Sherman Act to criminally pursue both corporations and individuals for violations of Section 1 and Section 2. For individuals, a criminal conviction can result in prison sentences and sizable monetary fines.

However, criminal enforcement of the antitrust laws has been largely reserved for "hardcore" offenses, such as "naked conspiracies" between and among competitors to fix prices, rig bids, or allocate markets or customers. Such violations have been more unanimously condemned as especially harmful to consumer welfare and lacking procompetitive benefit that may justify those harms.

In contrast, other violations—including unilateral and joint business conduct—have historically not been the subject of frequent prosecution by the DOJ, as a more intensive factual inquiry is required in assessing the benefits and costs of such conduct to consumers. In fact, the last time the DOJ secured a criminal conviction in a Section 2 case, against either an individual or a corporation, was in 1979. Only 11 total criminal monopoly cases were even filed by the DOJ throughout the 1970s.

One commonly cited example of the final days of the DOJ's criminal antitrust enforcement of monopolization is United States v. Empire Gas Corp.¹ In 1976, the defendant, Empire, prevailed in a civil suit that made its way to the Eighth Circuit Court of Appeals, but before the case reached this stage, the government had unsuccessfully prosecuted Empire under Section 2 for attempted monopolization (of the retail sale of liquified petroleum) through destruction of competitors' assets, including a gas bulk delivery truck. Empire was acquitted in a criminal trial, and the government dismissed the count of the criminal indictment that alleged a Section 2 violation.²

The DOJ's pattern of not criminally enforcing Section 2 violations was supported by a 2007 report by the Antitrust Modernization Commission, which advised: "While no change to existing law is recommended, the Antitrust Division of the Department of Justice should continue to limit its criminal enforcement activity to 'naked' price-fixing, bid-rigging, and market or customer allocation agreements among competitors . . . ." The Commission endorsed this exercise of discretion as allowing the DOJ to "focus its prosecutorial resources on that conduct about which there is general agreement that it harms consumers" and expressed apprehension that imposing criminal penalties beyond those clearly unlawful behaviors ran the risk of penalizing procompetitive, pro-consumer conduct.

TAKEAWAY 

It remains to be seen whether or on what basis the DOJ will bring charges for monopolization cases. Prosecutorial resource constraints may continue to funnel the DOJ's efforts largely toward those "hardcore" offenses that have historically been the subject of most criminal enforcement. Nevertheless, executives should interpret Powers' statements as a word of warning that the status quo of scarce criminal enforcement of Section 2 may be interrupted at any time the facts and law of a particular case warrant criminal charges. Those who wish to avoid criminal scrutiny should seek counsel as to how they can avoid not only those practices that have been consistently found to inevitably harm consumers—which may, consequently, be the premier focus in existing antitrust compliance efforts—but also the monopolization conduct prohibited by Section 2. Executives should further ensure that the benefits of their conduct, to competition and consumer welfare, are well documented.

Winston & Strawn Law Clerk Garrett Heller also contributed to this blog post.

Footnotes

1. United States v. Empire Gas Co., 537 F.2d 296 (8th Cir. 1976).

2. See United States v. Empire Gas Corp., 393 F. Supp. 903, 912 (W.D. Mo. 1975).

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