US: Supreme Court denies review for fourth time

in short

This alert was originally published on December 21, 2023, and has been updated to reflect the Supreme Court’s denial of the Department of Justice’s petition for writ of certiorari on November 12, 2024.

The U.S. Supreme Court rejected appeals filed by both parties since the Dec. 1, 2023 U.S. Court of Appeals for the Fourth Circuit ruling overturned the Justice Department’s criminal conviction of a former executive of an aluminum products manufacturer for failing to Convicted for stating facts. itself Antitrust offenses under the Sherman Act. The Fourth Circuit held that the trial court applied itself The rules failed to take into account that the alleged scheme occurred in the context of a “double allocation” relationship between competing bidders who also maintained supplier relationships. 4th Circuit rejects DOJ request on the bench rehearse. The Justice Department then sought Supreme Court review of the Fourth Circuit’s ruling. The defendants also filed a conditional cross-petition in the Supreme Court seeking a review of the constitutionality of the Act. itself Asking the Supreme Court to rule it completely unconstitutional. The Supreme Court rejected the requests.¹ Therefore, the Fourth Circuit’s ruling remains in effect and will limit the Department’s future practices in cases involving dual allocations.

• The decision will complicate criminal antitrust litigation in the Fourth Circuit, and possibly other circuits, involving agreements between competitors with “dual distribution” relationships (ie, Competitors who contract with each other to distribute or purchase products or services). In this case, the Fourth Circuit concluded: itself The rule did not apply to the alleged collusive bidding agreement because the arrangement also involved a vertical supply relationship between the parties. Specifically, in future Fourth Circuit indictments, the Justice Department may avoid alleging collusions involving “mixed” vertical and horizontal relationships among the defendants, similar to the supplier-distributor underpinnings of the bid-rigging charges in this case. relation.
• The Justice Department made clear in its brief to the Fourth Circuit and its petition for Supreme Court review that it believed the Fourth Circuit’s opinion departed from precedent by the Supreme Court and other courts, which found itself Antitrust laws were violated despite the existence of a vertical supply relationship among the conspirators.
• Whether other courts will follow the Fourth Circuit’s ruling remains an open question. In bid-rigging cases, courts generally do not consider economic analysis because it is a itself crime. However, the Fourth Circuit’s approach requires the trial court to consider the overall economic relationship between the parties. Now that the Supreme Court has declined to review this approach, defendants will cite that decision to support a narrower application itself rule. This could lead to further disagreement among circuit courts over the extent to which a defendant’s financial ties should be considered.
• According to the Fourth Circuit, the trial court erred by flatly ignoring the Department of Justice’s academic analysis of the economic impacts associated with the restrictions asserted in the indictment. The opinion therefore supports defendants’ argument that a trial court should first consider the parties’ relationship, commercial realities, and economic evidence demonstrating the absence of anticompetitive effects before applying anticompetitive laws. itself.
• The Justice Department is expected to continue prosecuting the issue and criminally prosecuting bid rigging where vertical relationships exist. However, if the alleged co-conspirators have “mixed” vertical and horizontal relationships, the Department of Justice may rely on the fraud liability theory. This approach would enable the Department of Justice to address anticompetitive conduct without having to rely on itself rule.

In October 2020, a grand jury indicted aluminum manufacturers (“Contech”) and his former sales executive were charged with one count of conspiring to restrain trade under the Sherman Act and five counts of mail and wire fraud.

The indictment alleges that Contech and another manufacturer (“Pomona tube“) conspired to rig bids for North Carolina Department of Transportation (NCDOT) contracts. The U.S. Department of Justice alleges that the two aluminum manufacturers frequently bid on the same NCDOT contracts. If Contech wins the bid, it will use Pomona Pipe to provide services; if Pomona Pipe won, and it will source the aluminum from Contech. The DOJ claimed that situation changed in 2009, when authorities began coordinating bids to ensure that Pomona Pipe always submitted lower bids.

Before trial, the defendants filed a joint motion arguing that the court should not apply itself Rules, which consider certain limited categories of “horizontal” agreements between competitors (For example. , Price fixing, bid rigging and market allocation) are considered unlawful restraints of trade without regard to the actual competitive effects or commercial rationale associated with the arrangement.² The trial court denied defendant’s motion and the case went to trial, where the administrator was convicted on all counts.

The executive appealed his conviction on multiple grounds, including that the trial court erred in denying his pretrial motion to dismiss the antitrust charges for failure to state the antitrust charges. itself Violation of antitrust laws. On appeal, the Fourth Circuit held itself The rule does not apply to agreements between the alleged conspirators in this case because they maintained an active supply relationship in the course of successfully performing the tender contracts. In the context of the “double allocation” relationship between the parties, the court determined that the bidding scheme was a “hybrid” constraint with horizontal and vertical components. The Fourth Circuit also noted that the presumption of the rule of reason is supported in cases where the allegation is per se unlawful when the parties maintain a vertical relationship. This presumption can only be overcome if “clear economic effects” show that the agreement must harm competition.³

Based on this view, the court held that the trial court erred in denying defendants’ motion to dismiss the antitrust claims without first considering academic experts’ analysis of the economic impact of the alleged restrictions. The Fourth Circuit then explained that the economic evidence presented by the defendants showed that the alleged scheme would not necessarily have anticompetitive effects. Instead, the court concluded that even if Contech intentionally lost the bid in favor of Pomona Pipe, thereby eliminating competition among manufacturers and suppliers, the alleged scheme would have had a detrimental effect on the remaining aluminum bids. Inter-brand competition produces potentially beneficial competitive effects. manufacturer. The Court therefore considered that these potential pro-competitive effects demonstrated that the alleged restraint of trade did not necessarily result in anti-competitive harm, and itself Rules don’t apply.

The Ministry of Justice requested a reexamination of the matter on the benchwas rejected. The Department of Justice subsequently filed a petition for writ of certiorari, which the Supreme Court denied on November 12, 2024.

DOJ’s future bid-rigging prosecutions

4th Circuit denies retrial on the bench Because the Supreme Court declined to review the case, the Fourth Circuit’s opinion is now binding within that circuit. This means that the Department of Justice cannot rely on any of the charges itself In a future indictment filed in the Fourth Circuit, parties with “hybrid” dual distribution relationships violated the Sherman Act.

Based on the position set forth in the brief in this case, the Department of Justice will not prevent prosecution of bid-rigging violations. DOJ lawyers may simply restate their theory of liability in any case filed in the Fourth Circuit or, if feasible, prosecute in a venue other than the Fourth Circuit. The Justice Department may even pursue opportunities to bring Sherman Act prosecutions against dual allocation parties outside the Fourth Circuit, hoping to achieve a different outcome and create a disagreement with the Fourth Circuit, which would require a resolution from the Supreme Court.

It remains to be seen whether the Justice Department will continue to prosecute currently pending cases in the Fourth Circuit involving so-called “hybrid” vertical and horizontal supply relationships. In future prosecutions involving collusive bidding agreements among coconspirators who maintained vertical supply or dual distribution agreements, the Department of Justice may bring charges against such schemes under the federal mail and wire fraud statutes, rather than the Sherman Act. By charging bid-rigging under the federal fraud statute, the Department of Justice can avoid financial considerations altogether, regardless of itself Rules apply. Instead, the Department of Justice can rely on evidence of defendants’ consent and their intent to deceive or defraud third parties (for example, by providing false certifications during a bidding process) to secure a conviction. In fact, the Department of Justice has charged itself The prosecution has alleged antitrust violations related to mail and wire fraud in many of its Procurement Conspiracy Strike Force cases, including the one that resulted in a Fourth Circuit opinion affirming the fraud convictions of all defendants. The Justice Department may utilize this charging tactic rather than specifically charging bid rigging under the Sherman Act.

We will continue to monitor the latest developments in this field.

1 U.S. v. Brewbaker, No. 23-1365 (U.S. Nov. 12, 2024); U.S. v. Brewbaker, No. 22-4544 (4th Cir. Dec. 1, 2023).

2 The Department of Justice retains criminal antitrust enforcement of illegal activities within its prosecutorial discretion, subject to itself rule.

3 Under the rule of reason, the court, in determining whether an agreement unlawfully “restrains” trade, will consider the market power of the parties, the overall competitive effect associated with the restriction and any pro-competitive commercial justification provided by the defendant.