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Federal Courts Reject Criminal Defendants’ Attempts to Avoid Per Se Standard in Antitrust Prosecutions

Posted  March 12, 2019
By Harrison J. McAvoy

Antitrust enforcers have recently notched a pair of significant victories, convincing federal courts in two separate cases to reaffirm the use of the per se standard in criminal antitrust cases.

Federal courts have long applied the rule that certain restrictive business practices among competitors, such as horizontal price-fixing, bid rigging, and market allocation—are per se illegal, regardless of any purported benefit and without considering the effect on competition. The per se standard is an important weapon for the U.S. Department of Justice (“DOJ”), which typically only prosecutes criminal antitrust cases where the per se standard applies.

The DOJ has now turned back two challenges to the application of the per se standard in the Ninth and Tenth Circuits.  Together, these decisions indicate that the per se standard retains its vitality in both criminal and civil antitrust cases that target classic horizontal restraints of trade.

In United States v. Sanchez, the Ninth Circuit rejected the argument that the per se standard conflicts with a criminal defendant’s Fifth and Sixth Amendment rights to due process and trial by jury.  The defendants, ultimately convicted of rigging bids for public auction of foreclosed properties in violation of Section 1 of the Sherman Act, asserted in pre-trial motions that application of the per se standard would violate their right to have a jury consider each element of the offense charged, arguing that the reasonableness of their alleged conduct was an essential element of the Section 1 charges against them.  United States v. Sanchez, No. 17-10519, 2019 WL 325151, at *1 (9th Cir. Jan. 25, 2019); United States v. Marr, No. 14-cr-580, 2017 WL 1540815, at *1 (N.D. Cal. Apr. 28, 2017) (denying defendants’ motion in limine).  The Ninth Circuit rejected the defendants’ argument and affirmed the district court, holding that “applying the per se rule in a criminal antitrust case did not violate the defendant’s constitutional rights.”  Id. (citing United States v. Mfrs.’ Ass’n of Relocatable Bldg. Indus., 462 F.2d 49, 52 (9th Cir. 1972)).

The Ninth Circuit’s decision reaffirms the substantive nature of the per se standard.  Defendants’ primary argument in Sanchez was that the per se standard is a legal presumption forbidden in criminal cases.  See Appellants’ Joint Opening Br. 26-41, United States v. Sanchez, No. 17-10519, ECF No. 25.  To the contrary, as the Ninth Circuit recognized, “the per se rule is not an evidentiary presumption at all.”  Sanchez, 2019 WL 325151, at *1.  The court agreed with the DOJ, which argued that the per se rule is a substantive rule.  Answering Br. for the United States at 23 (citing F.T.C. v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 432-33 (1990) (“The per se rules are . . . the product of judicial interpretations of the Sherman Act, . . . [with] the same force and effect as any other statutory commands.”)).  In other words, the Ninth Circuit agreed that because the per se standard is not a presumption, but rather an interpretation of the substantive requirements of a claim, its application does not offend a defendant’s Fifth and Sixth Amendment rights.

In United States v. Kemp & Associates, Inc., the U. S. District Court for the District of Utah followed the guidance of the Tenth Circuit Court of Appeals and eventually rejected a request to exempt a case involving a horizontal agreement to allocate customers from per se treatment.

Although the Utah district court initially agreed with defendants that the rule of reason should apply, because the conduct affected only a small number of new customers and occurred in a unique industry, it reversed course after an appeal to the Tenth Circuit on a separate issue resulted in a decision with contrary guidance on the applicable standard.  United States v. Kemp & Associates, Inc., No. 16-cr-403, 2019 WL 763796, at *1 (D. Utah Feb. 21, 2019) (holding per se standard applicable on remand); United States v. Kemp & Associates, Inc., 907 F.3d 1264 (10th Cir. 2018) (reversing district court decision on statute of limitations), rev’g United States v. Kemp & Associates, Inc., No. No. 16-cr-403, 2017 WL 3720695 (D. Utah Aug. 28, 2017).  The district court ultimately held that the nature of the conduct in question, a horizontal agreement to allocate the market, warranted per se treatment.  2019 WL 763796, at *4.

The Tenth Circuit’s decision demonstrates a strong judicial resistance to criminal defendants’ attempts to evade per se treatment.  Although the Kemp case did not involve an existential challenge to the per se standard like the one made in Sanchez (the Kemp defendants merely asserted that the per se standard did not apply to them), the Tenth Circuit’s decision is notable for the efforts taken to guide the lower court.  The court of appeals held first, in no uncertain terms, that it lacked jurisdiction to decide the per-se-versus-rule-of-reason question, yet it offered substantial guidance that the decision below was likely erroneous.  Kemp, 907 F.3d at 1276 (holding that “the district court’s rule of reason order does not fall within [the court’s] interlocutory appellate jurisdiction to review,” but that “were the merits of the rule of reason order before [the court] [it] might very well reach a different conclusion”).

The question of whether the per se standard has continued applicability in criminal and civil antitrust cases is of paramount importance to both market participants and antitrust enforcers.  Companies benefit from certainty in the application of antitrust laws, which the per se categorization of certain conduct provides.  For the DOJ, which has adopted a longstanding policy of prosecuting only per se violations under the criminal provisions of the Sherman Act, the elimination of per se standards would imperil its mission of policing the most extreme instances of anticompetitive conduct as criminal violations.

Based on the decisions in Sanchez and Kemp, the per se standard does not appear to be going away.


Edited by Gary J. Malone