Navigating DOJ’s Fresh Focus on Criminal Monopoly Charges

In April 2022, Assistant Attorney General Jonathan Kanter announced that the U.S. Department of Justice would once again be pursuing criminal charges under Section 2 of the Sherman Act.[1]

Kanter said that “if the facts and the law … warrant a criminal Section 2 charge, the [Department of Justice’s Antitrust Division] will not hesitate to enforce the law.”[2]

Section 2 states that “[e]very 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.”[3]

The current maximum penalties for violating Section 2 are a $100 million fine and/or 10 years in prison. Traditionally, most Section 2 cases that carried a criminal penalty involved coordinated conduct among competitors, although some criminal Section 2 cases involved unilateral conduct.

After nearly 45 years of Section 2 criminal enforcement hiatus, the DOJ recently brought criminal charges for Section 2 violations in two very different cases.

In the first case, United States v. Zito, the president of a paving and asphalt company pled guilty to an attempted monopolization charge in which he offered to allocate markets for highway crack-sealing services in the western U.S.

The second case, United States v. Martinez, had a much different fact pattern than Zito. The indictment in Martinez, which was unsealed on Dec. 6, 2022, accuses the defendants of conspiring to monopolize by use of force, threats and acts of violence, and extortion. The two cases could not be more different.

Zito involved what many practitioners would consider a classic attempt-to-monopolize claim. According to the single-count charge,[4] to which Zito pled guilty, Zito contacted a competitor to propose a “strategic partnership” between his company and the competitor. The competitor immediately called the U.S. Department of Transportation, which then recorded subsequent phone calls between Zito and the competitor.

Zito, according to the charges, over the course of several calls, proposed that his company and the competitor stop competing and designate certain states in which each would bid. Under this proposed market allocation plan, Zito would not bid for business in South Dakota and Nebraska, and the competitor would not bid for business in Montana and Wyoming.Zito also offered to pay the competitor $100,000 for lost business in Montana and Wyoming. This type of market allocation scheme is not uncommon for Sherman Act Section 1 violations, or for past Section 2 criminal cases.

In this instance, the DOJ could not charge a Section 1 violation because there was no actual agreement, as the competitor never agreed to the market allocation proposal. Zito was therefore the unusual case where the DOJ’s only path for prosecuting an attempted hard-core antitrust violation was an attempt-to-monopolize charge under Section 2.

Martinez, by comparison, shows the DOJ’s willingness to flex its Section 2 criminal enforcement muscles. The 11-count indictment[5] names 12 defendants who were all transmigrants or individuals who transport goods — typically used vehicles — from the U.S. through Mexico to sell in Central America.

The indictment alleges the defendants were all involved in a conspiracy to fix, maintain, stabilize, raise and lower prices for transmigrant services in the Los Indios, Texas, area. The member agencies supposedly pooled together revenue and divided the revenue based on agreements made among the agencies.

According to counts one and two of the indictment, the transmigrant agencies allegedly agreed to fix prices and allocate the market for transmigrant services, in violation of Sections 1 and 2 of the Sherman Act. But in addition to the Sherman Act claims, the indictment also alleges that the defendants maintained their monopoly through extortion and threats and acts of violence.

The indictment alleges that the defendants would charge rival transmigrants $40-$80 per vehicle for safe passage through Mexico in an attempt to extort noncartel transmigrants. When some of these transmigrants refused to pay the extortion fee, the defendants allegedly ordered the kidnapping, shooting and, in some cases, killing of the rival transmigrants or their family members.

The indictment also charges the defendants with several different counts of money laundering relating to the extortion fee payments. The criminal trial for all defendants is currently scheduled for late August. Martinez shows the breadth of the DOJ’s criminal Section 2 enforcement priorities.

Although Zito and Martinez are the first Section 2 criminal cases in nearly 45 years, their fact patterns mirror cases that the DOJ has charged in the past. Until the late 1970s, the DOJ charged coordinated conduct cases criminally under Section 2. Some of these cases involved a company, a subsidiary of that company, and their officers or directors.

These types of cases would now be considered unilateral conduct under Section 2 under the intracompany doctrine of Copperweld v. Independence Tube.[6] The DOJ brought over 100 coordinated conduct Section 2 criminal cases prior to 1978, with mixed success. The conduct at issue in these cases was often price-fixing[7] or market allocation, and the DOJ often charged Section 1 of the Sherman Act alongside Section 2.[8]

Daniel A. Crane of the University of Michigan Law School estimates the DOJ only prosecuted 20 unilateral cases criminally under Section 2 of the Sherman Act before 1980 and obtained guilty verdicts in 12 such cases.[9]

Two of the criminal prosecutions of Section 2 that involved unilateral conduct were based on allegations of alleged monopolization through intimidation, threats and violence similar to the recent charges in Martinez.[10] Both of the earlier cases resulted in jail time and fines for the guilty parties. The remaining cases involved tying, predatory pricing and output restrictions.[11]

As Zito and Martinez demonstrate, the DOJ has renewed its willingness to charge individuals criminally for violations of Section 2 of the Sherman Act, as it did over 40 years ago. Attempts at price-fixing or other coordination will not only continue to be a criminal enforcement priority under Section 1, but also under Section 2. Individuals and companies should continue not to engage in any conduct that could be seen as coordination among competitors.

Companies should also consider how their compliance programs address potential collusive arrangements or attempts to do the same. This includes training employees on how to spot potential anti-competitive behavior, particularly conduct that falls short of an agreement, and providing guidance to employees on how to respond if approached by a competitor about entering a collusive arrangement.

[1]See Jonathan Kanter, Assistant Att’y Gen. Dep’t. of Just., Opening Remarks at 2022 Spring Enforcement Summit (April 4, 2022), available at https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-2022-spring-enforcers.

[2]Id.

[3]15 U.S.C. § 2.

[4]Information, United States v. Zito, Crim. No. 1:22-cr-00113 (D. Mont. Oct. 31. 2022), available at https://www.justice.gov/opa/press-release/file/1543701/download.

[5]Indictment, United States v. Martinez, Crim. No. 4:22-cr-00560 (S.D. Tex. Nov. 9, 2022), ECF. No. 1 (Indictment).

[6]See Copperweld v. Independence Tube, 467 U.S. 752 (1984) (holding in part that a business and its wholly-owned subsidiaries cannot collude with one another. This doctrine arguably includes officers and directors as well).

[7]See e.g. United States v. New York Great Atl. & Pac. Tea Co., 67 F. Supp. 626 (E.D. Ill. 1946),aff’d,173 F.2d 79 (7th Cir. 1949).

[8]See e.g. United States v. Johns-Manville Corp. et.al., 213 F. Supp. 65 (E.D. Pa. 1962); and United States v. Swift & Co., 46 F. Supp. 848 (D. Colo. 1942).

[9]Daniel A. Crane, Criminal Enforcement of Section 2 of the Sherman Act: An Empirical Assessment (Jun. 14. 2022), available at https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1340&context=law_econ_current.

[10]Id. See Bars Mayor’s Edict in Artichoke Trial; Court Instructs Jury to Ignore Embargo Proclamation in the Case Against Five Men, N.Y.Times, Jan. 22, 1936; and U.S. v. Barrett Company, et al., Cr. 106-13 (S.D.N.Y. 1939).

[11]Id.