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... F. Meeting Competition G. State Action Immunity H. Petitioning the Government I. Regulated Industry J. Foreign Commerce--Effects, Comity, and Foreign Sovereign Compulsion IV. ENFORCEMENT A. Federal Enforcement B. State Enforcement C. International Enforcement V. PENALTIES VI. RECENT DEVELOPMENTS: INTERNATIONAL COOPERATION
I. INTRODUCTION
Section of the Sherman Act ("Act") (1) aims to promote and protect free-market competition (2) by declaring "[e]very contract, combination ... or conspiracy" in restraint of interstate or foreign commerce to be illegal. (3) Despite the expansive language of the Act, courts have held consistently that Congress intended Section 1 to prohibit only "unreasonable" restraints of trade. (4) The Act, which is the primary federal antitrust provision, applies to both civil and criminal offenses without distinction between the two. (5) Congress intentionally left that task to the judiciary. (6) The broad and imprecise language of the Act has spawned the development of extensive federal common law in both the criminal and civil realms. (7) Indeed, the Supreme Court has characterized the Act as a "charter of freedom" with a "generality and adaptability comparable to that found desirable in constitutional provisions." (8)
This Article focuses on the criminal aspects of antitrust enforcement. (9) Section II outlines the four elements of a criminal antitrust violation under Section 1. 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 criminal violations. Finally, Section VI discusses recent developments in international enforcement.
II. ELEMENTS OF THE OFFENSE
A civil plaintiff must establish three elements to prove a violation of Section 1: (i) an agreement to concerted action, such as a combination or conspiracy formed by two or more entities; (10) (ii) that the agreement unreasonably restrained trade or commerce; (11) and (iii) that the restrained trade or commerce is interstate or international in nature. (12) In a criminal antitrust prosecution, the government must also prove that the defendant intended to restrain commerce. (13) Parts A through D of this section discuss each of these elements sequentially.
A. Conspiracy
Under Section 1 of the Act, a conspiracy "must comprise 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 offense; accordingly, neither completion of the conspiracy nor any overt acts furthering the conspiracy must be pleaded or proven. (15) The venture's contractual form and ultimate success are also immaterial, so long as the parties have formed an illegal agreement. (16)
B. Restraint of Trade
The agreement or conspiracy must "unreasonably" restrain trade. (17) The Supreme Court has referred to the phrase "restraint of trade" as "a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances." (18) Typically, a restraint of trade, or a decrease in competition, occurs as a result of the creation of a monopoly, artificial maintenance of prices, restriction of output, refusal to deal, or other 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. The approach chosen in any particular instance is typically determined by a court's preliminary conclusion concerning the nature of the offense alleged. Significantly, however, there is no "categorical line" that dictates when a particular method of analysis should be used. (20) Rather, the methods are "best viewed as a continuum, on which the 'amount and range of information needed' to evaluate a[n alleged] restraint varies depending on how 'highly suspicious' and how 'unique' the [alleged] restraint is." (21)
The first method a court may apply is the "per se" rule announced in United States v. Socony-Vacuum Oil Co. (22) Under this approach, courts are to presume the illegality of activities that inherently restrain trade and lack any redeeming purpose. (23) Per se treatment applies "once experience with a particular kind of restraint enables the Court to predict with confidence" that a more comprehensive analysis will condemn it as illegal. (24) Under the per se standard, the government need only prove the existence of an unlawful agreement; no showing of anticompetitive effects is needed for the government to prevail. (25) The purpose of the per se rule is to avoid time-consuming and costly investigation into the economics of agreements that are almost always anticompetitive, and almost never have countervailing benefits. (26) Examples of agreements which implicate the per se rule include horizontal price-fixing arrangements, (27) market allocation, (28) group boycotts, (29) and some tying arrangements. (30) "Virtually all" criminal prosecutions brought under the Act involve offenses governed by the per se rule, although per se violations represent only a small portion of all antitrust cases. (31)
Courts apply the second analytical approach, the "rule of reason" (32) standard, to conduct which cannot be assumed to be without procompetitive justifications. (33) However, the line between activities falling under the rule of reason approach and those subjected to per se analysis is often unclear. (34) Under the rule of reason analysis, courts look at the full context of an agreement to determine whether the anticompetitive effects pose an "unreasonable" restraint on free trade. (35) If the pro-competitive benefits flowing from the agreement outweigh the harm to competition there is no violation of the Act. (36) Rule of reason often applies to activities such as information exchanges (37) and vertical maximum price fixing. (38)
The third 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. (39) Courts apply the "quick look" analysis for agreements that are "naked restrictions" but which might have pro-competitive justifications. (40) Once the court finds a restraint, the burden is shifted to the defendant to show pro-competitive justifications for the restraint. (41) If the defendant successfully rebuts the presumption of anti-competitive effects, the court then applies a full "rule of reason" analysis--balancing the costs of the restraint of trade against its benefits. (42)
Unfortunately, as the Court has noted, there is no bright line between restraints which "intuitively [have] obvious anticompetitive effects [which can never be justified under the per se analysis] and those that call for more detailed treatment." (43) The Court in California Dental Ass'n v. FTC explained that quick look, like per se analysis, relies on the court's experience with the market and the actions under scrutiny to permit the court to make confident conclusions concerning whether a particular restraint is "nakedly anti-competitive." (44) It has been argued that the Court's ruling in California Dental Ass'n v. FTC may narrow the application of the quick look approach in future cases. (45)
C. Interstate Nexus
Congress' authority to regulate anticompetitive restraints on trade derives from its constitutional powers under the Commerce Clause. (46) Accordingly, to establish an offense under the Act, the government must prove that a defendant's illegal activities had a substantial effect on interstate commerce. (47) In determining whether a particular restraint on trade meets this requirement, courts have generally taken a permissive approach. (48)
The Act's requirement of a nexus between the scrutinized agreements and the effects on interstate commerce may be satisfied by meeting either of two standards: the "in commerce" test or the broader "effect on interstate commerce" test. (49)
Although infrequently used and harder to satisfy than the second standard, the first "in commerce" test for determining an interstate nexus requires the government to establish that the challenged activity directly interferes with the flow of goods in interstate commerce. (50) To meet this requirement, an activity must (i) involve a "substantial volume of interstate activity" and (ii) be "an essential part of the transaction ... inseparable from its interstate aspects." (51)
The second, "effect on commerce" standard requires proof only that the challenged activity as a matter of "practical economics ... [does not have an] 'insubstantial effect' on interstate commerce." (52) Therefore, seemingly local trade practices have an "effect on commerce" unless they are both not in the flow of interstate commerce and have no significant impact on that flow. (53)
The "effect on commerce test" was articulated by the Supreme Court in McLain v. Real Estate Board of New Orleans, (54) and commentators have argued that its broad scope has generated substantial confusion. (55) Furthermore, "[divergent] language in McLain itself concerning the precise parameters" (56) of the new test has compounded [this] confusion (57) and led to a circuit split as lower courts struggle to define the outer limits of the test. (58) Some circuits hold that, for an exercise of jurisdiction under the Act to be proper, the nature of the defendant's general business activities must have an effect on interstate commerce; (59) others, by contrast, have concluded that only the connection between the defendant's alleged illegal activity and interstate commerce should be considered. (60)
In Summit Health, Ltd. v. Pinhas, (61) the Supreme Court again addressed the interstate commerce requirement but failed to resolve the split between the circuits by clearly endorsing one interpretation of McLain over the other. (62) Instead, the Summit Health majority referred to both the hospital's general connection to interstate commerce as well as the effect of the alleged conspiracy on interstate commerce as possible grounds for establishing an interstate nexus. (63) Despite the differences between the circuits and "[n]otwithstanding lengthy talk and occasional confusion," the Court explained, "the required nexus between the challenged activity and interstate commerce is readily satisfied in most cases." (64)
D. Intent
To establish an antitrust violation under the Act, the government must also prove intent. (65) In United States v. United States Gypsum Co., (66) the Supreme Court held that proof of the defendant's state of mind or intent is an essential element of a criminal antitrust offense. (67) Gypsum arose in the context of a criminal prosecution for information exchange; (68) applying rule of reason analysis, (69) the Court held that intent may not be presumed as a matter of law in rule of reason cases, but that "action undertaken with knowledge of its probable consequences and having the requisite anticompetitive effects can be a sufficient predicate for a finding of criminal liability under the antitrust laws." (70) However, a mere "presumption of wrongful intent from proof of an effect on prices" will not suffice. (71)
In light of the Supreme Court's silence regarding intent in "per se" analysis cases, lower courts have generally held that criminal intent can be automatically assumed once per se analysis is deemed appropriate. (72) Accordingly, if and when a court concludes that the alleged activity is a per se violation of the Act, the government need only prove (i) the existence of an agreement and (ii) that the defendant knowingly entered into the alleged conspiracy. (73)
III. DEFENSES
A number of defenses may be raised after the government establishes an illegal conspiracy. Parts A, B, and C of this section examine the withdrawal from conspiracy, statute of limitations, and double jeopardy defenses, all of which recognize that a successful prosecution often depends on the length and scope of a charged conspiracy. Parts D, E, and F address the single entity, respondeat superior, and meeting competition defenses, all of which focus on the importance of the identities of the concerned actors and relevant markets. Finally, parts G, H, I, and J examine state action immunity, petitioning government, regulated industry, and foreign commerce defenses. These defenses acknowledge that, in some instances, a "conflict between different bodies of law will require that the antitrust laws [] be displaced." (74)
A. Withdrawal from Conspiracy
An antitrust conspiracy ends at the time of its abandonment or success. (75) Accordingly, the claim that a defendant has withdrawn from a conspiracy constitutes an affirmative defense. (76) A defendant may establish withdrawal from a conspiracy either by showing that it took affirmative action to end its participation in the conspiracy or by disclosing the conspiracy to proper authorities. (77) A withdrawing co-conspirator's affirmative acts must be "inconsistent with the object of the conspiracy and communicated in a manner reasonably calculated to reach co-conspirators." (78) Generally, evidence of withdrawal must be unambiguous and all ties with the conspiracy must be severed. (79)
B. Statute of Limitations
A criminal prosecution for a violation of the Act must be brought within five years after commission of the offense. (80) For statute of limitations purposes, a conspiracy under the Act continues until the time it succeeds or is abandoned. (81) To determine success, courts assess the objectives of the conspiracy based on the agreement itself. (82) Evidence indicating a continuing conspiracy must relate to the original conspiratorial plan. (83)
C. Double Jeopardy
A defendant indicted and acquitted of conspiracy in one case under the Act may raise a double jeopardy defense if it is subsequently indicted for the same conspiracy. (84) Once a defendant advances a non-frivolous and prima facie showing of a single conspiracy, the burden shifts to the government to show separate conspiracies by a preponderance of the evidence. (85) In determining whether a single conspiracy actually exists, courts apply a "totality of the circumstances" test, rather than the more limited "same evidence" test usually applied to double jeopardy reviews of substantive offenses. (86)
D. Single Entity
The Supreme Court created the single entity defense, or "Copperweld rule," in Copperweld Corp. v. Independence Tube Corp. (87) The Copperweld rule recognizes that a single entity cannot conspire under the Act, (88) because a conspiracy under the Act requires a plurality of actors. (89) Specifically, the Court held in Copperweld that an entity is legally incapable of conspiring with its wholly owned subsidiary. (90) Significantly, however the Court declined to reach the question whether a corporation may conspire with a less-than-wholly-owned subsidiary. (91) The Copperweld decision has received diverse treatment in lower courts. (92)
When applying the Copperweld analysis, courts first determine whether the defendants acted as a single entity. (93) To make this determination, courts examine the degree to which the economic interests of the defendants converge. (94) Along these lines, the Eighth Circuit has decided that the Copperweld rule requires that "economic reality, not corporate form, should control the decision of whether related entities can conspire." (95) This functional approach has led some courts to conclude that separate corporations with common ownership constitute a single entity for antitrust purposes. (96) In contrast, the Fifth Circuit has concluded that there is no relevant distinction between a corporation wholly owned by another corporation, two corporations wholly owned by a third corporation, or two corporations wholly owned by three persons who work together to manage all of the affairs of the two entities. (97) In addition, most circuits have held that the Copperweld rule extends to conspiracies between "sister" corporations, or two wholly owned subsidiaries of the same parent corporation. (98)
E. Respondeat Superior
Under the common law doctrine of respondeat superior, an employer is only generally liable for the actions of an employee acting within the scope of her employment or acting with apparent authority. (99) Accordingly, a corporate defendant may attempt to avoid respondeat superior liability where agents who have not been granted authority to take such actions commit antitrust violations. The courts, however, have construed the "scope of employment" and "apparent authority" requirements very broadly: (100) so long as the agent acts within the scope of her employment or apparent authority, the corporation cannot absolve itself of liability, even if the actions of the agent were contrary to general corporate policy, (101) against express instructions, (102) or primarily for personal benefit. (103)
F. Meeting Competition
The "meeting competition" defense to a charge of price discrimination under the Robinson-Patman Act allows a defendant to rebut a prima facie case of price discrimination by showing that its discriminatory actions were taken in good faith to counter actions of a competitor. (104) A defendant-seller appropriately invokes the defense where he attempts "to retain a customer by realistically meeting in good faith the price offered to that customer [by a competitor], without necessarily changing the ... price to its other customers." (105)
Defendants have attempted to argue that the exchange of price lists between competitors is simply an attempt to perfect the meeting competition defense under the Robinson-Patman Act. In United States v. United States Gypsum Co., (106) however, the Supreme Court rejected this argument, (107) emphasizing that the inter-seller communication still violated the Sherman Act, which it found to be broader than the Robinson-Patman Act. (108) The Court concluded that, in an oligopolistic market, price list exchanges were too likely to result in price-fixing agreements, (109) and that companies could verify competitors' prices through methods short of direct communication with those competitors. (110) In practice, the Supreme Court has declined to use a rigid test to determine the applicability of this defense. (111)
Following the Gypsum Court's lead, lower courts evaluate the meeting competition defense under greater scrutiny in oligopolistic markets, where industries are particularly susceptible to price fixing arrangements when price list exchanges occur. (112) Nonetheless, the "meeting competition" defense, although most often raised by defendants in civil proceedings, may still be a viable option for criminal defendants accused of actions other than price list exchanges, particularly in non-oligopolistic markets. (113)
G. State Action Immunity
The doctrine of state action immunity, enunciated in Parker v. Brown, (114) exempts some state policies, legislation, and regulatory programs from federal antitrust liability on federalism and state sovereignty grounds. (115) Accordingly, a participant in a state-authorized anticompetitive regime may raise an immunity defense. (116) The test for state authorization is objective and requires looking at the language of the statute and, if necessary, the legislative history or state judicial decisions, to assess whether the conduct in question supports some "clearly articulated" state policy. (117)
Although the Parker doctrine was originally intended only to protect state legislatures and supreme courts, it has been extended to protect the actions of state-level executive branches, (118) individuals, (119) and municipalities (120) if such actions survive a more "rigorous" test. (121) In California Retail Liquor Dealers Assoc. v. Midcal Aluminum, Inc., (122) the Supreme Court articulated a two-prong test to determine when the state action doctrine may be used as an affirmative defense. (123) First, the "challenged restraint must be one clearly articulated and affirmatively expressed as state policy." (124) Second, the state itself must "actively supervise" the policy. (125) Significantly, the presence of a state monitoring system alone will not suffice. (126) Along these lines, the circuit courts have cautioned states against giving private parties unchecked anticompetitive opportunities, and state officials must "have and exercise power to review particular anticompetitive acts of private parties, and to disapprove of those that fail to accord with state policy." (127)
In Town of Hallie v. City of Eau Claire, (128) the Supreme Court concluded that a municipality is less likely than an individual to be involved in self-interested price fixing; accordingly, it announced a new, modified Midcal test applicable to municipalities. (129) Under the Hallie test, a state must initially give the municipality a general grant of power to perform the action in question. (130) Where such authorization is present, the question then becomes whether the "suppression of competition is the 'foreseeable result' of what the [state's] statute authorizes." (131) Under Hallie, once authority has been granted, states do not have to actively supervise municipal action; the court will assume that the authority to implement the policy has been delegated to the municipality as well. (132)
In City of Columbia v. Omni Outdoor Advertising, (133) the Court broadened the state action defense by declining to find a conspiracy exception to the Parker doctrine. (134) Accordingly, a corrupt purpose to restrain competition in a state regulatory program--or in a state-authorized municipal regulatory program--will not defeat immunity. (135) However, the Court did recognize a possible exception where the state itself acts as a market participant, (136) and reaffirmed the principle that states have no power to exempt private action from the prohibitions of the Act. (137)
H. Petitioning the Government
The Noerr-Pennington (138) doctrine is a corollary to the Parker doctrine (139) that exempts any legitimate use of the political process from antitrust liability. (140) The doctrine is premised on the idea that the antitrust laws may not impinge upon established right of citizens under the First Amendment to petition their government. (141) Accordingly, Noerr-Pennington immunity covers efforts to influence the legislative, executive, (142) and judicial (143) branches of national, state, and local governments, (144) whether through lobbying or litigation. Noerr-Pennington immunity applies where anticompetitive conduct is the consequence of legislation or other government action, but not where it is the means for obtaining such action. (145) Immunity is conferred even in cases where the private party urging the government action did so with anticompetitive intent or through wrongful conduct. (146)
The "sham" exception to the Noerr-Pennington doctrine withholds immunity where allegedly anticompetitive litigation is not genuinely aimed at procuring favorable government action. (147) This exception is grounded in the recognition, acknowledged by the Court in Noerr, that conduct purportedly directed towards securing government action may be "a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor [to which] application of the Sherman Act would be justified." (148)
In Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (149) the Court established a two-part test to determine whether the "sham" exception is applicable. First, the suit must be objectively baseless in that no reasonable litigant could expect success on the merits. (150) Second, the litigant must be using the governmental process itself, as opposed to the outcome of that process, to interfere directly with a competitor's business relationships. (151)
I. Regulated Industry
In addition to state action immunity, federal statutes grant limited immunity to certain regulated industries. (152) The terms of the applicable statute govern the boundaries of the immunity. (153) Defendants in regulated industries have been held criminally liable for actions outside the scope of statutory protection. (154) Despite these statutory limits, courts have exempted actors possessing anticompetitive intent from antitrust liability where the actor can establish conformance to regulatory law. (155)
Furthermore, immunity may be inferred where a court finds a "plain repugnancy between the antitrust and regulatory provisions." (156) For immunity to attach, defendants must show clear conflicts between the antitrust laws and the relevant regulatory scheme. (157) In United States v. National Ass' n of Securities Dealers, (158) for example, the Supreme Court held certain vertical restraints immune from liability under the Act, avoiding a conflict with the expressed position of the Securities and Exchange Commission. (159)
J. Foreign Commerce--Effects, Comity, and Foreign Sovereign Compulsion (160)
Foreign trade activities, with the exception of import trade or commerce, are not subject to antitrust liability unless they have a "direct, substantial and reasonably foreseeable effect" on the United States economy. (161) Activities in import trade or commerce, on the other hand, remain subject to the antitrust laws, so long as they are intended to affect United States imports and actually have some effect, even if insubstantial. (162)
Even where there is a demonstrated effect on American foreign commerce, considerations of comity (163) and foreign sovereign compulsion (164) may still preclude judicial review with respect to foreign trade activities. Along these lines, the Second Circuit has suggested that a stringent standard must be satisfied in order to successfully establish immunity based on comity. (165) Under this standard, immunity is available where "compliance with the regulatory laws of both countries would be impossible." (166) In addition, the Ninth Circuit set forth several comity factors to consider in Timberlane Lumber Co. v. Bank of America. (167) The Fifth Circuit has considered similar factors. (168) The Supreme Court, however, has yet to address these questions. (169)
IV. ENFORCEMENT
Traditionally, criminal prosecution of antitrust violations has been primarily the subject of federal and state enforcement. Along these lines, the Department of Justice ("DOJ") Antitrust Division ("Antitrust Division") has extended the scope of its enforcement authority by actively pursuing prosecution of international antitrust violations. Part A of this Section analyzes federal prosecution of antitrust violations, and outlines important government initiatives. Part B discusses aspects of state enforcement of antitrust violations. Finally, Part C discusses recent trends in international antitrust enforcement, including the trend towards enhanced criminal penalties.
A. Federal Enforcement
The Antitrust Division and the Federal Trade Commission ("FTC") share the responsibility of enforcing the federal antitrust laws. (170) Only the Antitrust Division, however, may institute criminal proceedings. (171) Although courts have extended the scope and reach of the Act in civil actions, application of the Act has been limited in criminal actions. (172) As a general rule, the Antitrust Division will only seek criminal indictments for clearly intentional violations, such as price-fixing or bid rigging. (173) Notwithstanding this general rule, criminal sanctions for antitrust violations have increased substantially in the past decade, due in large part to the Antitrust Division's aggressive prosecution of international cartels. (174)
The increase in criminal sanctions has been greatly facilitated by the Antitrust Division's Corporate Leniency Program, (175) which provides incentives for corporations to report antitrust...
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