Cartels Laws And Regulations 2023

• Jurisdiction: United States,Federal
• Law Firm: Winston & Strawn LLP
• Subject Matter: Antitrust/Competition Law, Antitrust, EU Competition , Cartels, Monopolies
• Author: Jeffrey J. Amato and Sofia Arguello
• Published date: 25 May 2023

1. Overview of the law and enforcement regime relating to cartels

In the United States, there are two major federal antitrust laws relating to cartels:

• Section 1 of the Sherman Antitrust Act (15 U.S.C. ' 1) which prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations;" and
• Section 5(a) of the Federal Trade Commission Act ("FTC Act") (15 U.S.C. ' 41-58), which prohibits "unfair methods of competition" and "unfair or deceptive acts or practices."

The Sherman Act can be enforced criminally or civilly by the Antitrust Division ("Division") of the U.S. Department of Justice ("DOJ"). Criminal antitrust enforcement is reserved for "hard core" violations of Section 1: price-fixing; bid-rigging; and market allocation schemes among horizontal competitors. The DOJ can also pursue less egregious cases civilly. Section 4 of the Clayton Act provides for a private right of action to enforce Section 1 of the Sherman Act. Private plaintiffs may recover treble damages and litigation costs and may also seek injunctive relief.

While Section 1 of the Sherman Act on its face prohibits all restraints of trade, the Supreme Court has interpreted it to prohibit only "unreasonable" restraints. SeeStandard Oil Co. v. United States, 221 U.S. 1, 60-68 (1911). Naked horizontal agreements with competitors to fix prices (or any component of pricing), restrict output, rig bids, or allocate customers or geographic markets, i.e., the hard core violations discussed above, are considered "per se" illegal.¹

Other types of agreements are assessed under the rule-of-reason standard, which weighs the anticompetitive harms caused by the restraint against its procompetitive benefits to determine whether competition has been harmed in the relevant antitrust market. This approach distinguishes restraints that have an anticompetitive effect and harm the consumer from restraints that promote competition and are in the consumer's best interest. Cont'l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 26, 49 (1977). In analyzing a case under the rule of reason, courts consider several factors, such as the intent of the conduct and restriction, the position of the defendant in the market, market conditions, barriers to entry, objective justification, and procompetitive justifications.

A central element in all Section 1 cartel cases is proof of an illegal agreement. Illegal agreements do not have to be in writing; they may be reached verbally, through emails, or even with a wink or nod - i.e., a "conscious commitment to a common scheme" is sufficient. Direct or circumstantial evidence may be used to establish the existence of an agreement, but the U.S. Supreme Court has held that "there must be evidence that tends to exclude the possibility of independent action" and establishes that the defendants "had a conscious commitment to a common scheme." Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984). Proof that the defendants engaged in parallel conduct is insufficient, standing alone, to show such a "conscious commitment." Plaintiffs must also allege certain "plus factors" to give rise to an inference of an agreement. Plus factors are proxies for direct evidence of an agreement because they tend to ensure that courts punish concerted actions as opposed to unilateral, independent competitive conduct.

Although the Federal Trade Commission ("FTC") does not technically enforce the Sherman Act, it can bring civil cases under Section 5(a) of the FTC Act. The Supreme Court has said that all violations of the Sherman Act also violate the FTC Act, thus allowing the FTC to challenge the same kind of conduct that would violate the Sherman Act through the FTC Act. The FTC Act also reaches other practices that do not meet all elements of a Sherman Act violation, such as invitations to collude that do not lead to actual collusion.

State attorneys general can also seek to enforce these federal antitrust laws on behalf of the state's residents or the state. They often work on a multistate basis with each other and coordinate with the DOJ and the FTC.

In addition to these federal statutes, all 50 states (and the District of Columbia and Puerto Rico) have some type of antitrust or unfair trade practice statute, most of which are based on and/or interpreted consistently with federal antitrust laws. State attorneys general are responsible for the public enforcement of these laws, and nearly all states permit private civil damages actions, most for treble damages, although some states limit recovery to actual or double damages. State attorneys general may also pursue criminal antitrust violations of state law, where applicable. These types of enforcement actions tend to focus on local bid-rigging schemes.

The antitrust laws in the United States also provide for exemptions in certain circumstances, such as: (i) a state action exemption, which exempts certain conduct that is undertaken under state or local government policy; (ii) conduct to influence the government (Noerr-Pennington doctrine); (iii) collective bargaining under the labor exemption; (iv) the filed-rate doctrine, which bars antitrust suits based on tariffs filed with a federal or state regulatory agency; and (v) the limited implied exemption from laws regulating sales of securities.

2. Overview of investigative powers in the United States

Leniency cooperation and dawn raids

The leniency program (discussed further below) and dawn raids are the DOJ's most important investigative tools. Dawn raids are unannounced searches of offices or residences by officers and agents of the DOJ and the Federal Bureau of Investigation or other law enforcement agencies to seize documents, equipment, records, and data. In the United States, a court will only issue a search warrant to authorize a dawn raid if agency officials have probable cause to support the allegations underlying the warrant.

Electronic surveillance

The Omnibus Crime Control and Safe Streets Act of 1968 curtails the government's ability to intercept wire, oral, and electronic communications. Thus, in the antitrust context, the government may only intercept said communications pursuant to criminal cartel investigations and with a search warrant authorized by a court.

Issuance of subpoenas

A grand jury investigation is generally opened if the DOJ's investigation yields evidence confirming the alleged anticompetitive conduct and prosecution is expected to proceed. A grand jury must approve the issuance of subpoenas to produce documents and compel testimony. Subpoena recipients who fail to provide requested information or refuse to testify can be held in contempt. The scope of a subpoena is usually limited to evidence and documents located within the United States because of jurisdictional limitations on the DOJ. However, targets may voluntarily provide documents located overseas to the government.

Civil investigative demands

Civil investigations by federal or state enforcement agencies do not involve a grand jury. Instead, the federal or state enforcement agencies can directly issue civil investigative demands ("CIDs") or civil subpoenas to obtain documents or sworn written or oral testimony from targets of a civil investigation or relevant third parties. A CID is usually issued before the government files a complaint. CIDs may seek...