After much hype, and in line with repeated pledges to “use all tools in its toolbox”, the US Department of Justice’s Antitrust Division has delivered on its promise to revive criminal enforcement of monopolization offenses under Section 2 of the Sherman Act.

Criminal enforcement of Section 2 was dormant for nearly 50 years until the DOJ recently secured a criminal felony guilty plea. Announced on Halloween (October 31), the standalone criminal plea dressed up an offer to enter into a bid rigging and market allocation scheme as attempted monopolization. Notably, the conduct could not be prosecuted under Section 1 because there was never an agreement between the parties.

The case suggests a significant expansion of criminal exposure for invitations to collude on traditional cartel conduct, but leaves open key issues of proof in future cases. While a signal of the DOJ’s growing enforcement, the case falls short of expanding liability for more traditional monopolization offenses.

How standalone charges were made out

In Zito, the owner and president of a Montana paving and asphalt contractor pled guilty to charges that he attempted to monopolize the market for highway cracksealing services in Montana and Wyoming, offering not to compete in South Dakota and Nebraska, and to pay the competitor $100,000 to make up for the differential in business. Unfortunately for Mr. Zito, however, rather than agreeing to this proposal, the competitor called the government and began recording their conversations for the next several months.

Zito and his main competitor were often the only two bidders for publicly funded highway projects in the region, leading the DOJ to allege that the attempt created a “dangerous probability” that Zito’s company would have gained monopoly power in the affected state markets had his competitor agreed to the scheme.

While the Court can impose a fine of up to $1 million on individuals, under the plea agreement the parties agreed to recommend a fine of $27,000 based on a stipulated $2.7 million of affected commerce. The parties did not agree on a recommended range of incarceration (if any) and left that decision up to the judge.

Pushing the bounds of attempted monopolization

Criminal enforcement of antitrust offenses in the US has, for the past five decades, focused on hardcore cartel conduct involving bid-rigging, price-fixing, and allocation agreements among horizontal competitors. Such agreements are considered per se unlawful because they always have an anticompetitive effect. Monopolization offenses, however, generally involve a complex analysis of the overall effect on competition, recognizing that unilateral conduct, even by a monopolist, often has procompetitive benefits, including incentives for innovation.

When the DOJ initially announced that it would be seeking to revive criminal enforcement under Section 2, critics wondered how violations could be sufficiently clear to give defendants notice that their conduct would be criminal. In the past, some of the criminal conduct involved effective extortion or parallel cartel agreements. This case represents a significant expansion of historic enforcement trends to capture invitations to collude that do not involve an alleged conspiracy or agreement. To succeed in an attempted monopolization claim, the DOJ must prove: (i) anticompetitive conduct; (ii) specific intent to monopolize; and (iii) a dangerous probability of achieving monopoly power in a relevant market.

This case is narrowly focused on conduct that would have been criminal under Section 1 had the agreement been fulfilled, and it begs the question of how likely it is for cases with analogous facts to arise with any amount of regularity. Specifically, it raises the question of whether the “dangerous probability” prong will be satisfied where there are more than two players in the market, making it less clear that an agreement would lead to a monopoly. With the DOJ’s push to litigate more cases and improve precedent, it will be interesting to see if the DOJ attempts to expand these theories to oligopolistic markets.

Expanding liability for invitations to collude

The Federal Trade Commission (FTC) has adopted similar enforcement priorities and targets invitations to collude as unfair methods of competition under Section 5 of the FTC Act. Although the FTC cannot seek criminal convictions, invitations to collude can violate Section 5 even if there is no agreement and consequent harm to competition because Section 5 is intended to capture anticompetitive conduct in its incipiency. Traditionally, the FTC would refer the case to the DOJ for criminal prosecution under Section 1 if/when the invitation proceeds to an agreement.

With the expansion of criminal enforcement to conduct under Section 2, the FTC could start referring cases for criminal prosecution at earlier stages, perhaps with cases with less egregious facts/less clear probability of monopolizing the market remaining at the FTC for civil enforcement.