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Enforcement Edge
May 5, 2023

Not With a Bang But a Whimper: Court Rejects DOJ’s Latest No-Poach Case

Enforcement Edge: Shining Light on Government Enforcement

In a major setback to the DOJ Antitrust Division’s labor market enforcement agenda, a U.S. district court in Connecticut recently granted a motion for judgment of acquittal in favor of the six defendants indicted in United States v. Patel. As previously discussed, the DOJ began the case by filing a criminal complaint alleging that an aerospace executive, along with the managers and executives of several engineering services suppliers, conspired to allocate employees by agreeing to restrict the hiring and recruiting of engineers and other skilled-labor employees. The DOJ soon followed up with an indictment against the same executive along with five other individuals.

The district court denied a motion to dismiss the indictment, holding that the alleged conduct was properly pled as a market allocation and subject to per se treatment. The court cautioned, however, that “not all no poach agreements are market allocations subject to per se treatment and therefore, determining whether a no poach agreement is a market allocation is highly fact specific.” The court deferred until trial its decision on the defendants’ ancillary-restraints defense, which argued that the alleged hiring restrictions were part of legitimate collaborations between the companies involved in the alleged conspiracy — engineering suppliers providing services to a common customer.

Shortly before trial, the district court ruled that (1) the government bears the burden of proof on ancillary restraints, meaning the government was required to prove that the alleged hiring restraints were not ancillary to a legitimate collaboration and (2) the defendants may introduce evidence of procompetitive benefits of the alleged agreement to dispute whether the conspiracy existed as alleged, to challenge whether the defendants had the requisite intent, and to support their ancillary-restraints defense.

At the conclusion of the government’s case-in-chief, the defendants moved for a judgment of acquittal, arguing that the evidence admitted was insufficient to let the case go to the jury. The DOJ opposed the motion, arguing that the government is not required to prove anticompetitive effects and a relevant market and that the defendants bear the burden of producing evidence to support their ancillary-restraints argument, which the government argued they had not met.

The court ruled that as a matter of law the government failed to present sufficient evidence of a market allocation under the per se rule. Relying on the Second Circuit’s decision in Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999), the court reasoned that the alleged agreement among the defendants “d[id] not allocate the [relevant labor] market … to any meaningful extent.” The court noted that, even where the evidence suggested a blanket agreement not to hire, there were well-known and regularly-used exceptions to that agreement. Additionally, the evidence indicated that the hiring restrictions constantly shifted during the alleged conspiracy period and hiring among the companies was in fact commonplace. The court further opined that, even if there was a market allocation agreement, no juror could find an absence of meaningful competition in that market.

The ruling offers three key takeaways:

  1. In previous cases, other courts have ruled that alleged labor-market antitrust conspiracies constitute per se violations of the Sherman Act and denied motions to dismiss on that ground. Those cases ended in jury acquittals and one guilty plea. The court’s ruling in Patel signals that a finding of a per se violation at the motion to dismiss stage, which is based solely on the allegations in the indictment, does not guarantee that the court will reach the same conclusion once the full factual record is before it. However, the court’s ruling may be limited to the unique facts in this case, which involved alleged non-solicitation agreements between suppliers and a common customer and thus may be distinguishable from naked no-hire and wage-fixing cases.
  2. Although the court did not reach the issue of ancillary restraints, evidence of procompetitive benefits likely colored the court’s view of the case and its decision to grant the motion for judgment of acquittal. As a result of the court’s pretrial evidentiary ruling, the defendants presented evidence that any hiring restrictions were part of their legitimate collaborations, where they served a common customer in a vertical relationship. The case demonstrates the potential value of introducing economic evidence in criminal antitrust trials, which may tend to disprove the charged conspiracy because the charged conduct did not have the anticompetitive effect that typically is presumed from a per se antitrust offense.
  3. In cases where the alleged conduct appears to be a common and accepted industry practice, a court may require more evidence from the government to show that the defendants committed a criminal antitrust violation. In the DaVita no-poach case, which the Patel court relied upon, the court required the government to prove that the defendants intended to allocate the market (rather than merely intending to enter into a non-solicitation agreement with other employers). And in this case, the court required the government to present evidence that the alleged no-poach conspiracy had a meaningful effect on competition. As the Antitrust Division pursues a more aggressive approach that applies criminal enforcement to new types of conduct, courts are demonstrating their skepticism in strictly applying the per se rule at trial.

We will continue to monitor the Antitrust Division’s labor-market enforcement efforts. If you have questions, please reach out to the authors or any of the attorneys in Arnold & Porter’s Antitrust/Competition or White Collar Defense & Investigations groups.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post 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.