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March 9, 2022

The Return of Criminal Sanctions for Violating Section 2 of the Sherman Act

Advisory

Soon after taking the helm at the Antitrust Division of the US Department of Justice (DOJ), Assistant Attorney General (AAG) Jonathan Kanter indicated that enforcement of Section 2 of the Sherman Act, which prohibits monopolistic conduct, would be a top priority. During a speech in January 2022, Kanter bemoaned the dearth of Section 2 enforcement actions in recent decades, emphasizing the need for “litigation that sets out the boundaries of the law as applied to current markets . . . .”1

AAG Kanter’s deputy for criminal enforcement, Richard Powers, elaborated on AAG Kanter’s position in March 2022. Powers stated that “market concentration and consolidation is not only a civil antitrust issue.”2 According to Powers, “[i]f 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.”3

This Advisory provides historical background for the DOJ’s recent statements on Section 2 enforcement, and provides guidance on how the DOJ is likely to focus its attention moving forward.

Past Section 2 Enforcement

Like Section 1 of the Sherman Act, Section 2 provides for criminal penalties:

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 and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.4

Following passage of the Sherman Act in 1890, DOJ brought a number of criminal Section 2 cases in the first half of the past century. In a landmark ruling in 1946, American Tobacco Co. v. United States5 the Supreme Court upheld criminal enforcement of Section 2. In affirming the convictions of several tobacco companies for jointly monopolizing, attempting to monopolize, and conspiring to monopolize the market, the Court set forth the following standard:

A correct interpretation of the statute and of the authorities makes it the crime of monopolizing, under s 2 of the Sherman Act, for parties, as in these cases, to combine or conspire to acquire or maintain the power to exclude competitors from any part of the trade or commerce among the several states or with foreign nations, provided they also have such a power that they are able, as a group, to exclude actual or potential competition from the field and provided that they have the intent and purpose to exercise that power.6

The Supreme Court made clear, however, that “[n]either proof of exertion of the power to exclude nor proof of actual exclusion of existing or potential competitors” was necessary for a violation.7

In the three decades following this decision, DOJ continued to bring criminal Section 2 cases, but ceased the practice without fanfare after 1977.8 In its final case, DOJ charged two airlines with criminal violations of Section 1 and Section 2 for conspiring to exclude a competing airline.9 In denying the defendants’ motion to dismiss the indictment, the court did not question the government’s legal theory, describing the indictment as “charg[ing] defendants with engaging in a classic antitrust conspiracy.”10 Soon thereafter, one defendant entered a nolo contendere plea and the other pleaded guilty.11

Despite this favorable outcome, criminal enforcement under Section 2 fell off a precipice after this case.12 AAG Kanter appears ready to reverse this decades-long trend and his future plans likely will draw inspiration from the not-so-recent past.

What Would a Future Criminal Section 2 Case Look Like?

In enforcing Section 2, DOJ must carefully navigate the distinctions between criminal violations, civil violations, and no violations at all. In American Tobacco, for example, the Supreme Court distinguished the charges it upheld from “cases where the parties, for example, merely have made a new discovery or an original entry into a new field and unexpectedly or unavoidably have found themselves enjoying a monopoly coupled with power and intent to maintain it.”13 Consequently, courts in recent decades have drawn limits around civil enforcement of Section 2.14 And due to the severe nature of criminal prosecutions, courts may draw stricter limits to the types of conduct that DOJ may criminally prosecute.15

As a result, DOJ likely will look for Section 2 cases displaying some or all of the following characteristics:

Conspiracy to Monopolize

DOJ’s experience investigating Section 1 conspiracies can easily be applied to Section 2 cases involving conspiracies to monopolize. For example, DOJ regularly develops evidence of conspiratorial communications, such as text and phone records between parties, to support charges.16 DOJ also has substantial experience developing cooperators to provide testimony against other companies and their employees.17 Accordingly, DOJ’s current investigative methods and techniques may be better suited to bringing Section 2 conspiracy cases rather than single-firm cases.

Additionally, a conspiracy charge under Section 2 may allow DOJ to avoid having to prove that a defendant actually had the power to effectuate a monopoly. 18 Unlike monopolization cases involving single-firm conduct, a defendant may be convicted of a conspiracy to monopolize “without ever having acquired the power to carry out the object of the conspiracy, i.e., to exclude actual and potential competitors . . . .”19 This approach is closer to DOJ’s current Section 1 prosecutions under the per se rule, which obviates the need to prove any anti-competitive effects from the conduct.20 However, unlike Section 1 cases under the per se rule, where DOJ need not prove the intent to restrain trade, under Section 2, DOJ would still need to prove an intent to monopolize.21 Moreover, DOJ still may be required to prove a relevant market,22 which is not necessary in Section 1 cases under the per se rule and which DOJ strenuously opposes in those cases.23

Concurrent Section 1 Allegation

DOJ is likely to combine Section 2 conspiracy charges with a Section 1 conspiracy charge. In fact, most of the past criminal Section 2 cases have included concurrent Section 1 charges.24 The tactic may provide certain advantages, especially during the early days of Section 2 criminal enforcement. For example, including a Section 1 charge allows DOJ to hedge the risk of an unsuccessful Section 2 charge, and a split verdict on these charges will not result in reversal.25 Additionally, evidence supporting the Section 1 charge can bolster the Section 2 charge, and there is no double-jeopardy issue with obtaining convictions for both Section 1 and Section 2 violations.26

A Section 2 charge may be more likely to appear with a Section 1 case that alleges market allocation, because DOJ can allege that competitors divided the market to monopolize their parts of the market. As demonstrated by its “no poach” cases, DOJ is aggressive in charging market-allocation cases. In another example, DOJ charged a cancer-treatment center with entering into a conspiracy to allocate the market for cancer care in southeastern Florida.27 In a future case with similar facts, DOJ may charge this type of conduct not merely as a conspiracy to allocate the market, but as a conspiracy to obtain a monopoly in the defendant’s products or services.28 Nevertheless, concurrent Section 1 and Section 2 charges are not limited to the market-allocation context.29

Other Crimes or Wrongful Acts

Because criminal defendants have the right to be tried in front of a jury, DOJ not only will be concerned about the strength of its legal theory, but also the jury appeal of its case. As a result, as it does in Section 1 cases,30 DOJ likely will favor Section 2 cases with evidence of other crimes or wrongful acts to effectuate the underlying offense. Past criminal Section 2 cases are replete with these allegations.

For example, DOJ charged three pharmaceutical companies with Section 1 and Section 2 violations, alleging that defendants effectuated the conspiracy in part by defrauding the US Patent Office.31 DOJ emphasized its patent-fraud allegations at trial. But after the defendants were found guilty, the Second Circuit reversed the convictions, ruling that the trial evidence and jury instructions were improperly focused on the patent fraud and high profits rather than the charged conspiracies.

In developing a Section 2 case, DOJ also will look for evidence of attempts to conceal the conduct.32 Evidence of concealment will assist DOJ in proving the specific intent required to obtain a Section 2 conviction. Indeed, such evidence often is used by DOJ to demonstrate a guilty conscience,33 which can be persuasive to a layperson jury.

Takeaways

It remains to be seen how DOJ will exercise its rediscovered criminal authority under Section 2—whether it will reserve criminal sanctions only for clear violations of the law, much like the “hard core” cartel conduct it prosecutes under Section 1; whether Section 2 conspiracies will qualify for the leniency program; and whether DOJ will issue guidance like the one it issued for labor markets in 2016.34  

But even without additional DOJ guidance, our analysis of Section 2 precedent suggests the following practical lessons:

  1. Companies should not assume they have insufficient market power to draw DOJ’s attention, because criminal enforcement of Section 2 is likely to begin with conspiracy (i.e., joint conduct) cases.
  2. Companies involved in private antitrust litigation, DOJ investigations under Section 1, or DOJ/FTC merger reviews, should be aware that DOJ is actively looking for Section 2 leads in court dockets and documents produced in other investigations.
  3. Companies should implement a holistic approach to legal compliance that includes cartel conduct and monopolization, as well as other potential misconduct that may further antitrust offenses.

Companies and their executives should not wait to address this potential risk. As demonstrated by the DOJ’s recent labor-market prosecutions under Section 1—which began more than four years after the policy guidance was issued—new DOJ enforcement policies may appear dormant for years, before a wave of criminal cases begins.  

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. Jonathan Kanter, Assistant Att’y Gen., U.S. Dep’t of Just., Assistant Attorney General Jonathan Kanter of the Antitrust Division Delivers Remarks to the New York State Bar Association Antitrust Section (Jan. 24, 2022).

  2. Michael Acton, US DOJ stands to bring criminal charges in Section 2 monopolization cases, Powers says, MLex (Mar. 2, 2022).

  3. Id.

  4. 15 U.S.C. § 2.

  5. 328 U.S. 781 (1946).

  6. Id. at 809.

  7. Id. at 810.

  8. Just six years after that indictment, DOJ brought an attempted monopolization case against another airline, but as a civil case. United States v. American Airlines, Inc., 570 F. Supp. 654 (N.D. Tex. 1983).

  9. United States v. Braniff Airways, Inc., 453 F. Supp. 724 (W.D. Tex. 1978).

  10. Id. at 726.

  11. Braniff Fined in Antitrust Case, N.Y. Times, Dec. 28, 1978, at D4.

  12. See, e.g.,Antitrust Division Workload Statistics FY 1970 - 1979, U.S. Dep’t of Just. (last visited Mar. 4, 2022); Antitrust Division Workload Statistics FY 1980 - 1989, U.S. Dep’t of Just. (last visited Mar. 4, 2022).

  13. Am. Tobacco, 328 U.S. at 786; see also United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945).

  14. See, e.g., Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993).

  15. See, e.g., United States v. Lanier, 520 U.S. 259, 266 (1997) (In a non-antitrust, criminal case, the court explained that “the canon of strict construction of criminal statutes, or rule of lenity, ensures fair warning by so resolving ambiguity in a criminal statute as to apply it only to conduct clearly covered”).

  16. Indictment, United States v. Jayson Jeffrey Penn, et al., No. 1:20-cr-00152-PAB (D. Co. Jun. 2, 2020); Indictment, United States v. Neeraj Jindal, et al., No. 4:20-cr-00358-ALM-KPJ (E.D. Tex., Dec. 9, 2020).

  17. See, e.g., United States v. Aiyer, 470 F. Supp. 3d 383, 393 (S.D.N.Y. 2020) (“{C}oconspirators . . . were cooperating with the Government pursuant to their plea agreements {.}”).

  18. Spectrum Sports, Inc., 506 U.S. at 459 (“{Section} 2 makes the conduct of a single firm unlawful only when it actually monopolizes or dangerously threatens to do so.” (citation omitted)).

  19. Am. Tobacco, 328 U.S. at 789.

  20.  United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); see also In re Cardizem CD Antitrust Litig., 332 F.3d 896, 909 (6th Cir. 2003) (“{T}he virtue/vice of the per se rule is that it allows courts to presume that certain behaviors as a class are anticompetitive without expending judicial resources to evaluate the actual anticompetitive effects . . . .”).

  21. See United States v. Consol. Laundries Corp, 291 F.2d 563, 573 (2d Cir 1961) (“{W}here the charge is conspiracy to monopolize, the essential element is not the power {in a relevant market}, but the specific intent, to monopolize.”).

  22. See Lantec, Inc. v. Novell, Inc., 306 F.3d 1003, 1024 n.10 (10th Cir. 2002) (noting “split among the circuits as to whether proof of the relevant market is required to prove a conspiracy to monopolize claim” and collecting cases).

  23. See generally Opposition to Defendant’s Motion in Limine, United States v. William N. Harwin, No. 2:20-cr-00115-JLB-MRM (M.D. Fla. Feb, 11 2022) (opposing introduction of evidence related to whether “oncology services” are a product market and whether southwest Florida is a geographic market as irrelevant in a per se Section 1 case).

  24. See, e.g., United States v. Braniff Airways, Inc., 453 F. Supp. 724 (W.D. Tex. 1978); United States v. Bitz, 179 F. Supp. 80, 82 (S.D.N.Y. 1959), rev'd, 282 F.2d 465 (2d Cir. 1960); United States v. Consol. Laundries Corp, 291 F.2d 563 (2d Cir 1961); United States v. Chas. Pfizer & Co., 426 F.2d 32 (2d Cir. 1970).

  25. See United States v. Nat'l City Lines, 186 F.2d 562 (7th Cir. 1951).

  26. United States v. Metrop. Leather & Findings Asso., 82 F. Supp. 449 (S.D.N.Y. 1949).

  27.  Press Release, U.S. Dep’t of Just., Leading Cancer Treatment Center Admits to Antitrust Crime and Agrees to Pay $100 Million Criminal Penalty (Apr. 30, 2020).

  28. Cf. United States v. Consol. Laundries Corp, 291 F.2d 563 (2d Cir 1961) (charging customer-allocation conspiracy under Section 1 and conspiracy to monopolize under Section 2).

  29. In American Tobacco, DOJ alleged that the defendants had conspired to fix prices under Section 1 and to monopolize the market under Section 2. 328 U.S. 781.

  30. See, e.g., Indictment, United States v. Brewbaker, 5:20-cr-481-1FL(2) (E.D.N.C. Oct. 21, 2020).

  31. United States v. Chas. Pfizer & Co., 426 F.2d 32, 41 (2d Cir. 1970).

  32. See United States v. N.Y. Great Atl. & Pac. Tea Co., 173 F.2d 79 (7th Cir. 1949).

  33. See, e.g., Indictment at ¶10(h), United States v. Christopher Lischewski, No. 3:18-cr-00203-RS (N.D. Cal. May 16, 2018).

  34. See Fed. Trade Comm'n & U.S. Dep't of Just., Antitrust Div., Antitrust Guidance for Human Resources Professionals (Oct. 2016) (hereinafter "HR Guidance").