Quarterly Cartel Catch-Up: What to Watch in 2024

The year 2023 ended with a bang in the cartel space, with a federal court of appeals upending what was long believed to be the scope of conduct that should be considered per se under the Sherman Act. The new year, 2024, starts with a clear indication from plaintiffs’ counsel and enforcers that this will be the year when artificial intelligence (AI) and pricing algorithms move front and center as the new focus of cartel hunters. As one official from the Antitrust Division (Division) of the U.S. Department of Justice said at a recent American Bar Association presentation, “Watch this space,” referring to third-party information-sharing platforms, for the next frontier of price-fixing cases.

The December 2023 court of appeals decision reversed a guilty verdict against an executive who was alleged to have rigged bids for road construction projects. However, the decision was more than just a loss in a single case because the court’s reasoning—which called into question whether criminal enforcement is appropriate against companies that have both a horizontal (competitor) and vertical (supplier-distributor) relationship—risks upending a fundamental premise of the Division’s criminal enforcement program. The clock is ticking on the Division’s deadline to appeal.

This unexpected decision aside, the Division spent the last few months highlighting its priorities for the new year. In addition to the new focus on pricing tools and AI, the Division—along with its law enforcement colleagues in the Procurement Collusion Strike Force (PCSF)—continues to bring new cases and secure additional plea agreements, including a new case based in part on wiretaps/recorded phone calls. At a recent conference, the PCSF director highlighted the Force’s work with state officials, underscoring that its enforcement efforts will not be limited to cases with a federal law enforcement nexus.

Additionally, we may not have seen the end of the Division’s criminal enforcement efforts in labor markets despite several setbacks. Although the Division decided to dismiss all charges in the last pending labor market case, two officials subsequently reaffirmed its commitment to pursuing this conduct and identified ways in which it would be looking to make these cases stronger, especially as interest in labor market-focused cases has been spreading around the globe.

International enforcers remained active this quarter. Antitrust authorities in the EU, UK, and Turkey, in consultation with the Division, conducted a coordinated series of dawn raids targeting construction chemical companies. Viewed alongside similar multijurisdictional raids in the fragrance industry earlier this year, raids in the construction chemical industries may signal the long-promised end of a lull in internal cartel enforcement efforts.

These recent domestic and international developments are likely to set the stage for what to expect in the new year, including areas in which cartel enforcers are likely to focus, as well as some challenges they may have to address along the way. All this and more in the newest edition of the Quarterly Cartel Catch-Up.

Federal Appellate Court Reverses Conviction of Executive for Bid-Rigging after Rejecting Per Se Standard for Dual-Distribution Relationships, Which May Imperil the Division’s Criminal Enforcement Program

Key Point: A three-judge panel holds that agreements between horizontal competitors who also have a vertical relationship, such as a supplier-distributor, may not be subject to per se liability; if it stands, the decision could effectively immunize competitors in this position from criminal antitrust liability.

On December 1, 2023, the Fourth Circuit Court of Appeals reversed the bid-rigging conviction of a manufacturing executive after holding that an agreement between competitor companies that also had a vertical relationship as manufacturer and distributor was not conduct that is per se (always) unlawful. Because only per se conduct can be a criminal antitrust violation, the decision may significantly limit the Division’s ability to prosecute collusive activity between companies acting as horizontal competitors if there is any semblance of a vertical business relationship.

In October 2020, a federal grand jury indicted Brent Brewbaker, an executive at Contech Engineered Solutions LLC, for antitrust and fraud violations related to the submission of bids to supply and service aluminum structure projects for the North Carolina Department of Transportation (NCDOT). Contech’s competitors for these bids were Pomona Pipe Products and Lane Enterprises. However, in addition to competing on bids to NCDOT, Contech and Pomona also had a vertical relationship in two ways. First, Contech used Pomona as its exclusive distributor in North Carolina. Second, Contech’s and Pomona’s bids were interdependent; Pomona supplied the labor when Contech won, and Contech supplied the aluminum when Pomona won. So, in order for either company to submit a bid to NCDOT, they needed to exchange some information to determine their total pricing.

But, in 2009, Brewbaker began asking for Pomona’s total bid price so that he could make sure that Contech’s bid was higher and that Pomona was more likely to win (because Lane was almost always the most expensive of the three). According to Brewbaker, he did this to please Pomona, ensure that Contech was positioned as a back-up if Pomona lost for a technical reason, and keep Contech on the NCDOT’s list of emergency suppliers. Following a week-long trial in February 2022, a North Carolina jury convicted Brewbaker for bid-rigging and five counts of fraud.

The Fourth Circuit reversed Brewbaker’s bid-rigging conviction because it held that the indictment’s allegations of an unlawful agreement between Contech and Pomona did not amount to a per se offense under the Sherman Act in light of their dual-distribution relationship. The court reasoned that the Contech-Pomona bidding conduct did not fit the per se rule, which applies only to restraints that have been conclusively determined to lack any procompetitive benefit, because the conduct also involved a vertical relationship, which must be examined under the rule of reason. The court of appeals explained that restraints in these hybrid relationships have not previously been subject to the per se rule, and the economic evidence that such restraints always or almost always have anticompetitive effects was mixed. Rejecting the Division’s argument that the horizontal bidding agreement should be evaluated in isolation, the court held that it “cannot disregard the parties’ broader relationship when classifying a restraint.”

Noting that the decision “addresse[d] issues of exceptional importance to the criminal enforcement of the antitrust laws,” the Division requested and received an extension of time to January 16, 2024 to determine whether it would ask the full court of appeals to rehear the matter. [Update: On January 16, 2024, the Division filed a petition asking either the panel or the full court of appeals for a rehearing.] However, if the decision stands, it likely will serve as a significant hinderance on the investigation and prosecution of companies that sell both directly to consumers and through distributors.

The Algorithm Is Going to Get You: A Division Official and Private Practitioners Grapple with How the Sherman Act Applies to Pricing Algorithms that Companies Create or Purchase from Third Parties.

Key Point: A Division official advises that companies need to know how their confidential pricing, cost, and inventory information is being stored and used, even if third-party providers are involved, which may affect the types of information sought in investigations.

On November 9, 2023, at the annual Fall Forum hosted by the American Bar Association’s Antitrust Law Section, the newly minted chief of one of the Division’s criminal sections and several private practitioners debated if and when a pricing algorithm might cross the line into collusion. During a discussion about “Agreements and Parallel Conduct (Robots Did It: Collusion, Coordination, or Neither),” the panelists focused on pricing algorithms developed by companies and pricing algorithms marketed by third parties. In both instances, the panelists noted that an analysis under the Sherman Act will turn on the confidential information provided and what the users knew or should have known about how the algorithm operates, which will be critical to determining whether competitors knowingly reached a collusive agreement. The panelists also discussed the implications of this analysis, including the new types of information that would be relevant to an investigation/litigation and the extent to which a user could claim ignorance. Less than a week later, the issue became more concrete for the Division: on November 15, 2023, it filed a statement of interest in an antitrust class action case that centers around the use of a third-party pricing algorithm. The panel discussion and the Division’s filing are likely just the start of the increased scrutiny and discussion that pricing algorithms will endure in the new year and beyond.

The Procurement Collusion Strike Force Continues to Bring Cases and Secure Victories as It Searches for New Areas of Enforcement.

Key Point: As the Division’s Procurement Collusion Strike Force (PCSF) continues to bring and win cases, it revealed the use of federal wiretapping authority to record phone calls and hosted a summit with local law enforcement and procurement officials to identify new areas for enforcement.

The PCSF continues to bring and win cases against companies and individuals for government procurement fraud. On October 30, 2023, the former president of an asphalt paving company in Michigan, Daniel Israel, pleaded guilty to conspiring with another asphalt paving company to rig bids from March 2013 until November 2018. Israel is the third executive to plead guilty in the ongoing investigation of the asphalt paving services industry. Separately, in the PCSF’s investigation of bid-rigging for military contracts, a federal judge in the Northern District of Georgia sentenced three executives who were found guilty for their role in a multi-year procurement fraud scheme. The sentences, which the judge issued in separate hearings between October and December 2023, ranged from 12 months home confinement to six months in prison and included fines between $50,000 to $250,000.

On December 15, 2023, the PCSF announced the indictment of two executives of competing forest-firefighting companies in Idaho for conspiring to rig bids to the U.S. Forest Service. Notably, the PCSF revealed that this investigation involved the use of wiretaps, which allowed federal authorities to intercept and record phone calls between the alleged co-conspirators that were then quoted in the indictment.

On the policy front, director Daniel Glad delivered remarks to the National Association of State Procurement Officials’ 10th Annual Law Institute on November 9, 2023 reflecting on the PCSF’s accomplishments and growth. During that speech, he underscored the importance of assistance from state procurement officials to continue to identify and detect anticompetitive behavior in the procurement space. Just one week later, on November 16, 2023, the PCSF hosted its first summit with law enforcement partners from across the country to discuss emerging threats and key strategies. Attendees included the Division’s Assistant Attorney General for Antitrust Jonathan Kanter; Deputy Assistant Attorney General for Criminal Enforcement Manish Kumar; and numerous federal and state officials. The participants focused on the potential areas of procurement collusion resulting from recent spending legislation.

The PCSF’s summit and string of recent successes, and its persistent work with federal, state, and local procurement officials, indicate that the Division’s work on government procurement fraud will not be slowing down any time soon.

EU, UK, and Turkish Regulators Join Forces to Conduct Dawn Raids in the Construction Chemicals Sector.

Key Point: EU, UK, and Turkish authorities—while in contact with U.S. antitrust authorities—conducted dawn raids of several chemical additives and admixture producers for cement, concrete, and mortar, which signals the launch of a new cross-border antitrust probe into the industry.

On October 17, the European Commission announced it had raided several companies in the construction chemicals sector across the EU amid concerns that the companies may have violated EU antitrust rules that prohibit cartels and other restrictive business practices. The construction chemicals targeted during the raids are additives for cement and chemical admixtures for concrete and mortar, which are used to improve the quality of these products. In its press release, the European Commission noted that the raids were coordinated with UK and Turkish authorities and added that it also had “been in contact” with the Division.

Following that statement, the UK Competition and Markets Authority announced that it had launched an investigation in relation to the supply of chemicals for use in the construction industry due to having “reason to suspect anti-competitive behavior has taken place involving a number of suppliers of these chemicals and some industry bodies.” The Turkish Competition Authority also confirmed the launch of a preliminary investigation and dawn raids on 14 companies and two industry associations.

The searches come five months after chemical admixture supplier Sika completed the EUR 5.3 billion acquisition of Master Builder Construction Chemicals Group (MBCC), which led to the divestment of MBCC’s concrete admixtures business (Master Business Solutions) to the international private equity investor Cinven. Last year, Saint-Gobain also closed its acquisition of GCP Applied Technologies, another competitor in the constructions chemicals sector. Sika, Saint-Gobain, and Masters Business Solutions confirmed they are involved in the probe. It is not uncommon for parties to uncover potentially problematic conduct during diligence or review of mergers, which is reflected in the Department of Justice’s recently-announced safe harbor policy for merging parties. Although the companies and agencies are unlikely to comment on whether the merger investigations triggered cartel concerns, it is possible that facts learned by the parties or enforcers sparked heightened antitrust scrutiny.

Another Broiler Chicken Defendant Prevails at Trial, This Time Against Private Antitrust Plaintiffs, as the Division Shifts Its Focus to Other Agricultural Markets

Key Point: As the broiler chickens civil litigation winds down, the Division and other federal agencies promise continued scrutiny of agribusinesses.

On October 25, 2023, after a seven-week civil trial and one day of deliberations, a federal jury found that Sanderson Farms did not conspire to fix the price of broiler chickens. Sanderson, the third-largest poultry producer in the country, was the last defendant standing after a series of settlements with other defendants totaling over $284 million, as well as a summary judgment decision in favor of seven other defendants earlier this year. The verdict is another victory for a corporate defendant and comes almost a year after the Antitrust Division concluded its criminal investigation into the industry with only a single plea agreement and several losses at trial. There are three remaining civil cases scheduled for trial to resolve claims by classes of plaintiffs representing chicken buyers, direct purchasers, and grocers.

As the broiler chicken antitrust cases wind down, on November 9, 2023, Deputy Assistant Attorney General Michael Kades addressed the 2023 Food & Agribusiness National Conference and declared that the country is in an “antitrust moment.” Kades conveyed that the Division continues to view the rising concentration in agricultural markets as a strain on farmers and rural communities that have already been devastated by the opioid crisis. Although he did not reference the broiler chicken litigation, Kades credited the Division with five enforcement actions that covered all levels of the distribution chain, including actions to protect chicken growers (which supply the broiler chicken processors, like Sanderson Farms) and the filing of a statement of interest in a class action case against John Deere concerning the right to repair equipment. The speech echoed many of the concerns Kades shared in his keynote address at the ABA Antitrust Fall Forum last November, particularly the “whole-of-government” approach to antitrust enforcement.

With this speech, the Division made clear that it will continue to pursue enforcement actions in the agricultural industry, both at the federal level with the USDA and in collaboration with other antitrust authorities like state attorneys general. The continued focus suggests that all levels of agribusiness should remain mindful of their antitrust obligations in this heightened enforcement environment.

Dawn Raid Developments: Swiss Authorities Conduct Dawn Raids in the Steel and Construction Sectors, While UK Court Orders the Disclosure of a Decision Concerning Four Dawn Raid Applications—One of Which Was Denied—over the Objection of UK Authorities

Key Point: As European antitrust enforcers continue to utilize their dawn raid authorities, including the execution of two sets of raids by Swiss authorities, a UK court ordered the disclosure of a decision about four recent dawn raid applications over the objection of enforcers.

In November 2023, Swiss authorities revealed that they had conducted dawn raids at the premises of several companies in the steel and construction sectors. In the steel sector, Swiss authorities are investigating suspicions of a tying cartel agreement in which the companies allegedly agreed to link the sale of reinforced steel to the purchase of other tools. Although tying cartels are rare, Switzerland’s Competition Agency confirmed this is not the first time the agency has investigated this type of conduct. Additionally, in that same month, Swiss authorities also disclosed dawn raids of several companies in the construction industry for allegedly bid-rigging for several public and private projects over several years. This is not the first investigation of the construction sector, which has been a focus for Swiss competition authorities.

However, the UK’s Competition and Markets Authority (CMA) suffered a potential setback regarding its dawn raid authorities. On November 6, 2023, the UK’s competition court, the Competition Appeal Tribunal (CAT), ordered that a decision concerning four dawn raid applications—three of which were granted, one of which was denied—from the CMA be made public. The CAT’s decision on the applications concerned companies and the homes of individual executives, although the specific industry was not identified. The CAT ruled that “exercise of these powers must, in all cases, be closely justified” and individual raids constitute “considerable intrusions into private life.” Noting the importance of “open justice,” the CAT subsequently rejected the CMA’s request to keep the ruling confidential. The CMA is considering an appeal of the decision on the basis that publishing the decision would make it more difficult to obtain dawn raid warrants for domestic premises in the future.

Despite Recent Dismissal of Last Pending No-Poach Case, the Division Claims to Be Full Steam Ahead on Criminal Investigations in Labor Markets

Key Point: Notwithstanding several adverse decisions and the dismissal of the last pending no-poach case, Division officials say they are committed to pursuing no-poach investigations.

In November 2023, the Division quietly moved to dismiss the last remaining no-poach criminal case pending in federal court, against UnitedHealth’s Surgical Care Affiliates (SCA), which had not been rescheduled for trial since the January 2023 trial date was vacated. The Division indicted SCA in January 2021 for allegedly conspiring with other healthcare companies not to solicit or “poach” each other’s senior-level employees. The SCA indictment was the second labor market case brought by the Division after the October 2016 announcement that it would charge this type of conduct criminally. The dismissal marks an end to this initial batch of enforcement actions brought by the Division, which were met with skepticism by both judges and juries.

Despite this unsuccessful track record, the Division is not backing down from enforcement in labor markets. In a December 2023 speech hosted by the Women’s White Collar Defense Association, Deputy Assistant Attorney General Doha Mekki made clear that the Division intends to charge more no-poach cases, which she believes will be stronger because of updates to the leniency program and the Division’s efforts to collect evidence covertly, such as through wiretaps. A week later, Eric Dunn, a counsel to Assistant Attorney General for Antitrust Jonathan Kanter, discussed the need for companies to train their HR personnel in antitrust matters. He stated that “if you aren’t engaging human resources professionals in antitrust trainings and you aren’t engaging antitrust counsel when you’re making decisions affecting workers, I think that raises a genuine issue about whether your compliance strategy is actually well defined and likely to be effective at preventing harms and potential antitrust violations.”

Although the Division appears dedicated to enforcement in labor markets, it remains to be seen whether this focus and the changes Mekki discussed will translate into tangible results.

EU Leniency Applications Are Up, but First-In Self Reporting Is Down, Suggesting a Shift in International Cartel Enforcement

Key Point: A survey of EU-based competition practitioners offers some reassurance about the health of the leniency regime, but also some concern as companies and individuals seem less likely to self-report violations in the first instance.

In October 2023, a survey canvassing the views of practitioners, in-house counsel, and enforcers was published that revealed that leniency applications are not declining in the EU. Responses to the survey indicated that 60% of practitioners had not seen a drop in leniency applications in the past five years, and 74% of enforcers denied that there had been a decline. In fact, Maria Jaspers, the EU’s head of cartel enforcement, explained that the survey results were consistent with a recent “big jump” in leniency applications (i.e., reduced fines for cooperation), which she said has resulted in the agency receiving “twice as many applications in 2022 as [it] did in 2021 and three times as many [as it did] in 2020.” Although leniency applications may be up, immunity applications—that is, first-in reports of cartel conduct—appear to be down according to 57% of respondents, who claim to have witnessed a decline in this type of application over the past five years. According to respondents, the primary driver of this decrease was the threat of civil damages.  In other words, although companies and individuals appear more willing than in the past to cooperate once an investigation is underway, the number of subjects reporting conduct in the first instances has slowed. This suggests that investigations will be more focused on areas where enforcers are already operating, and less likely to spring up based on companies self-reporting violations. For this reason, expect competition enforcers to continue to search for ways to make their leniency programs more attractive.

International Enforcers Across the Globe Continue to Target Cartels in a Variety of Industries

Key Point: International competition authorities are investigating companies large (pharmaceuticals, airlines) and small (dry ice, public infrastructure), and focusing on both traditional cartel conduct like price-fixing and bid-rigging, and more novel conduct like no-poach agreements and the use of pricing algorithms.

International cartel enforcers continue to be active around the globe. Over the last quarter, enforcers have been active in North America, Asia, and Europe, and they have targeted a variety of industries. Highlights of these efforts include:

• On November 30, 2023, Turkey’s Competition Authority (TCA) announced a sprawling probe of 19 pharmaceutical companies for potential labor market violations. The TCA revealed that it received a complaint from a whistleblower, and that it conducted dawn raids against all 19 companies in September. The TCA alleges that the companies agreed not to hire each other’s employees and also alleges that the companies shared commercially sensitive information to make it more difficult for competitors to enter the market. These efforts build on the TCA’s most expansive labor market investigation to date, regarding no-poach agreements in the telecom industry, which concluded in August 2023 and resulted in several fines and settlements.

• On November 17, 2023, Korea’s Fair Trade Commission (KFTC) revealed that it had fined six companies 4.86 billion won (3.5 million Euro) for forming a cartel in the dry ice market. The companies, which controlled 100% of the relevant market, agreed to raise the unit price of dry ice and allocate the market among themselves. The collusion started in 2007 in reaction to the 2005 entry of a sixth competitor (all six companies were implicated). The price-fixing lasted until 2019, while the market allocation lasted until 2015.

• On November 16, 2023, Italy’s Competition Authority (ICA) announced that it was scrutinizing airline ticket pricing algorithms. This investigation also marks the first time the ICA will be able to use the new authority it received from the Italian Parliament on October 10th to impose market-wide remedies, both behavioral and structural, in the air passenger sector. The Parliament chose to give the ICA these powers instead of capping prices for some domestic flights. The ICA’s review of ticket pricing algorithms builds on an ongoing investigation about whether any airline used its market power to shut out competition in flight, hotel, and car rental booking services. However, the ICA recently closed a separate investigation about whether the airlines used algorithms to collude to raise prices during the 2022 holiday season.

• On November 14, 2023, Canada’s Competition Bureau (CCB) announced that it has charged two individuals for allegedly rigging bids on public infrastructure contracts in Quebec City. The conduct under review occurred between September 2006 and November 2010, so the timing of these charges—more than a decade later—suggests that the CCB will not ignore violations of the competition law, even if they are dated.

The aggressive posture of international enforcers not only presents challenges for companies with international operations in the sectors under investigation, but also for companies in adjacent sectors that may become ensnared in a follow-on investigation as cooperating companies provide information about potential cartel violations in other sectors in exchange for leniency.

Associate Ben Campbell and Law Clerks Talia Plofsky and Jose Urteaga contributed to the writing of this post.