The defendants in the aerospace’s labor market allocation case, US v. Patel, No.3-21-cr-220 (D. Conn. Dec. 2, 2022) (VAB), filed a motion to dismiss the indictment on various grounds related to the application of the per se rule in a criminal trial. These grounds include: 1) the conduct charged does not fall within the per se rule; 2) the conduct charged was ancillary to a procompetitive agreement and therefore not subject to per se treatment; 3)  the alleged agreement was vertical in nature; 4) the charge violates the notice provisions of the Due Process Clause; and 5) the prosecution of this conduct as a per se violation would unconstitutionally usurp the jury’s role to determine all of the facts necessary to establish each element in violation of the Fifth and Sixth Amendment.

            The first three arguments are fact specific and the Court in each instance found that he per se rule did apply. [I’ll return to that later]. The Due Process argument raises constitutional questions outside the scope of what I’ve researched/written about. The Court, following controlling precedent in the Second Circuit, held that the per se rule did not unconstitutionally take away from the jury finding an element of the offense

            The Cartel Capers research and cite checking staff has time off for the holidays, so I am simply going to post some “thinking out loud” reactions I had to the opinion. The Court’s well-reasoned opinion (based on controlling precedent) demonstrates why the per se rule will ultimately be found to be unconstitutional in criminal cases—and why– even in this case, the Court will likely not apply the per se rule at trial.

  • Court as a Factfinder

This quote is from the Court’s opinion:

“At the outset, and to clarify an issue inherent to the parties briefing but not explicitly stated, the Indictment properly alleges a per se agreement only if the Court either finds that the alleged conduct falls within the well-established categories that historically have required per se treatment, such as price fixing, bid rigging, or market allocation; or if the Court finds that the alleged conduct is the type of restraint that should be considered a new category of restraint that is always subject to per se treatment.” Patel  at  15. (emphasis added).

The Court also found that the defendants’ arguments that the alleged agreement was outside the established per se rule, ancillary to a legitimate agreement and/or vertical in nature was not supported by the language of the indictment.

            Importantly, however, the Court stated: “To the extent Defendants wish to contest these allegations with facts not included in the Indictment, such arguments are better suited for a later stage of the proceedings.” citing United States v. Sampson, 898 F.3d 270, 279 (2d Cir. 2018). (“[W]hen such a defense raises dispositive ‘evidentiary questions,’ a district court must defer resolving those questions until trial.”).”  Patel at 29 (emphasis added).  This statement suggests this case could play out much like the labor market allocation trial in US v. DaVita. There, the trial court also found the challenge to the indictment survived a motion to dismiss because the indictment sufficiently alleged the per se standard.  But at trial the Court allowed evidence not traditionally admissible in a per se case and ultimately charged the jury that to convict, the government would have to prove beyond a reasonable doubt that the defendants intended to allocate the market for employees.  This is the per se rule in name only–a compromise between following precedent and giving the jury its proper role [and the defendants’ constitutional rights] in a criminal trial.

  • “Always or Almost Always”

             Here is another passage from Patel that now strikes me as “Hmm…that doesn’t sound right”:

“The per se rule is applied only if ‘courts have had considerable experience with the type of restraint at issue’ and ‘can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason.’  Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886-87 (2007) (internal citations omitted); see also United States v. Apple, Inc., 791 F.3d 290, 321 (2d Cir. 2015) (stating that the per se rule “reflect[s] a longstanding judgment that case-by-case analysis is unnecessary for certain practices that, by their nature[,] have a substantial potential to unreasonably restrain competition” (internal citations and quotation marks omitted)).” Patel at 15.

            If I put aside everything I have been taught about the Sherman Act and just focus on what I [think I] know about criminal law, isn’t this unconstitutional?  “Mr. Defendant—the Court has a lot of experience with agreements like the one you are charged with. Asking the jury to determine whether your agreement actually restrained trade would take a lot of time. Since you would always or almost always be found guilty if we let the jury decide, let’s just say the agreement you are charged with restrained trade and get on with the rest of the trial….”  Can this square with the modern Supreme Court jurisprudence quoted by the Court?: “[T]hese provisions [Fifth and Sixth amendments of the Constitution] require criminal convictions to rest upon a jury determination that the defendant is guilty of every element of the crime with which he is charged, beyond a reasonable doubt.” United States v. Gaudin, 515 U.S. 5060, 510 (1995).” Patel at 41.

       I was struck by a description of the per se rule in a recent Third Circuit (civil) price fixing case: In a per se case “[a] jury is not asked to consider the reasonability of the restraint because the unreasonableness of it is so plain.”  In re Processed Egg Products, 962 F. 3d 719,730 (3d Cir. 2020).  The statement is unremarkable in that it is a black letter law description of the per se rule; it is remarkable when viewed in light of a defendant’s constitutional right to a jury trial—in a criminal case.

  • Per Se Rule or Rule of Reason?

            The Supreme Court has held that these three words “restraint of trade” have “created two substantive rules of law—the rule of reason or the per se rule.” Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988).  But, in Facebook v. Duguid, et al., 141 S.Ct. 1163, 1169 (2021), Justice Sotomayor writing for a unanimous Court explained, “We begin with the text.” Starting [and ending] with the text, the same three words should not have different meanings and create two distinct rules. Like Schrödinger’s cat, you don’t know what these words mean until you open the pleading.[1] Regardless of the Plaintiff or the allegation, restraint of trade means to limit or hold back competition—in other words an anticompetitive agreement.  Especially where the case is a criminal one invoking constitutional rights, it should be the jury who decides whether the defendant restrained trade.

            The creation of two rules from the same term, “restraint of trade,” also fails on the ground that it constitutes judicial legislation.  Courts have not been shy about admitting the per se rule was judicially created: “In Koppers, the Second Circuit expressly held that ‘[s]ince the Sherman Act does not make ‘unreasonableness’ part of the offense, it cannot be said that the judicially-created per se mechanism relieves the government of its duty of proving each element of a criminal offense under the Act.”’ 652 F.2d 290, 294 (2d Cir. 1981).  Patel at 42. (emphasis added.)

  • An Interpretation to Consider

            “Given its generality, our enforcement of the Sherman Act has required the Court to provide much of its substantive content.” Arizona v. Maricopa County Medical Society, 457 U.S. 332, 354 (1982).  The Court has certainly taken this approach with the per se rule.  The Supreme Court has created and then retired numerous per se rules.  See e.g. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911) (1911 birth of the vertical price fixing per se rule) and Leegin (2007 death of vertical per se price fixing rule).  But the Supreme Court has never examined the per se rule in a criminal case through the lens of a defendant’s constitutional rights.  When they do, I believe the rule of lenity will apply and the per se rule will not be found in the text of Section 1 of the Sherman Act.

            If/when the Supreme Court does consider the constitutionality of the per se rule in criminal cases (it has recently denied cert in two cases but defendants will keep pushing this issue), I hope the Court will consider this: The Sherman Act means exactly what it says and the government in a criminal case must prove beyond a reasonable doubt that the agreement alleged was one to restrain trade.  To restrain is “to limit”; “to hold back.”[2]  If an agreement is procompetitive or neutral, it does not restrain trade.  The “trade” the Sherman Act criminalized was clearly not the trade, for example, of a vendor (Standard Oil) and a customer. That contract restrains two parties, not the oil trade.  Adam Smith wrote “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.“  He was using the term trade the way we use “market.”  To believe every contract restrains “trade” requires the belief that Senator Sherman and Congress intended to make criminals of themselves—since surely they all had contracts of some sort. It is a rule of statutory construction not to give words an implausible interpretation. See Advocate Health Care Network, et al v. Stapleton, 131 S. Ct. 1652, 1660 (2011) (“Congress, we feel sure, would not have intended all National Guardsmen to get a benefit that is otherwise reserved for disabled veterans.”).  Congress, like Adam Smith, used the term “trade” in the way current antitrust cases use the term “market.”  There is no indication in the legislative history, or common sense, that the Sherman Act intended to literally outlaw every commercial contract.  Most are neutral or perhaps even procompetitive.  So, no—not every contract restrains trade in the meaning of the Sherman Act.

            If I could use the “way back” machine I’d erase the thought that, “The Sherman Act could not possibly mean what it says.” It means just what it says.  The rule of reason requires a plaintiff or the government to “demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive.” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006).  Anticompetitive defines a “restraint of trade” and this same element should be required to be demonstrated in a criminal case.  In both civil and criminal Sherman Act cases jury must decide “Did the defendant restrain trade?”  A criminal prosecution, including a Sherman Act prosecution, also requires, as the Supreme Court has held in US v. Gypsum, 438 U.S. 422 (1978), that the defendant intended to restrain trade.  Thus, a civil case is an after-the- fact determination of whether an agreement restrained trade but in a criminal case, the jury must consider defendant’s intent/purpose state of mind when entering into the agreement.  In most criminal antitrust prosecutions (i.e. price fixing/bid rigging) showing the defendant’s intent will not be difficult.  As the Antitrust Division has said on many occasions in various forms, “the [criminal] cases that we are charging and prosecuting are unmistakable fraud.”[3]  In garden variety, hard core price fixing cases, therefore, proving an intent to restrain trade is not a burden.  In the vast majority of criminal antitrust cases the defense will be “I did not agree;” not, “Yes, we met at the Frankfurt airport and agreed on prices but I did not intend to restrain trade.

             Case selection for criminal cases is important as it should be with penalties of up to 10 year in prison for individuals.  If the Division does not believe it can convince a jury of the fraudulent purpose of the agreement, there are other tools to use besides a criminal statute with a 10-year prison sentence.

  • PS–The Proper Role of a Per Se Rule

            I believe the per se rule will ultimately be found unconstitutional and the court will no longer determine whether the agreement restrained trade.  But the per se rule will not be completely forgotten. It will survive as an evidentiary rule so that “reasonable of prices,” “preventing ruinous competition,” “we didn’t control the market” or other “excuses” for defendants’ illegal agreement would still be inadmissible at trial.  (And as noted above, in a criminal price fixing/bid rigging trial it will be rare for a defendant to admit to the agreement and defend on the grounds that it was not a restraint of trade.) “The agreement is the crime” and if the jury finds that there was an agreement, and it was the intent of the defendant to restrain trade, then evidence of mitigating factors can be saved for sentencing.  Moreover, the per serule will still live in civil litigation where no constitutional bar exists.  In civil litigation the Court does make factual findings in form of summary judgment and directed verdicts.

   Thanks for reading.  I am always interested in feedback/comments whether you think I’ve gone daft or might be on to something.

Bob Connolly   bob@reconnollylaw.com

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[1]  This may be a bad analogy.  I only know about Schrödinger’s cat from Sheldon on The Big Bang Theory.

[2]   Merriam Webster Dictionary: 1a: an act of restraining the state of being restrained

b(1): a means of restraining a restraining force or influence

(2): a device that restricts movement.  Available at https://www.merriam-webster.com/dictionary/restraint.

 

[3]   Scott D. Hammond, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Transcript of Testimony Before the United States Sentencing Commission Concerning Proposed 2005 Amendments to Section 2R1.1 at 3 (Apr. 12, 2005), available at http://www.justice.gov/atr/public/ testimony/209071.pdf.

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