The Antitrust Division of the U.S. Department of Justice (DOJ) suggested at the beginning of the year that it would consider criminally prosecuting monopolization conduct—a departure from antitrust enforcement of the past several decades.1 The DOJ has now done so. On October 31, 2022, Nathan Zito, president of Z&Z Asphalt (Z&Z), a paving and asphalt contractor, pleaded guilty to violating Section 2 of the Sherman Act by attempting to monopolize the markets for highway crack-sealing services in Montana and Wyoming.2
The plea marks the first successful criminal monopolization case in over 40 years. After suggesting the DOJ would consider bringing criminal charges for monopolization, the DOJ stated more explicitly in April 2022 that “if the facts and the law, and a careful analysis of Department policies guiding our use of prosecutorial discretion, warrant a criminal Section 2 charge, the Division will not hesitate to enforce the law.”3 The DOJ has now followed through on its promise with this plea.
Historical Perspective
The DOJ has long been able to bring criminal charges under both Sherman Act Sections 1 (collusion) and 2 (monopolization).4 But the DOJ has not brought a Section 2 criminal prosecution in over 40 years. And, further, when the DOJ has brought criminal charges under Section 2, the underlying conduct often could have been charged under Section 1. For instance, the last case brought under a criminal monopolization theory was in the 1970s in the airline industry. In that case, competitors Braniff Airlines and Texas International Airlines were charged with violating Sections 1 and 2 of the Sherman Act for allegedly conspiring to monopolize the Texas air travel market.5 The last charge to be brought solely under Section 2 involved territorial allocations of book wholesalers in the Gulf Coast, also in the 1970s.6
Attempted Monopolization
The facts in this case allowed the DOJ to charge a Section 2 criminal attempted monopoly case but would not have supported a Section 1 charge. In particular, the markets for highway crack-sealing contracts in Montana and neighboring states were highly concentrated and dominated by Z&Z and another unnamed company. In many instances, they were the only two companies that submitted bids for publicly-funded highway crack-sealing projects in those states.7
In January 2020, Zito began calling the other company’s owner and proposing a “strategic partnership” whereby Z&Z and its competitor would stop competing against each other by dividing the markets in Montana, Wyoming, South Dakota, and Nebraska.8 Zito proposed that Z&Z would stop bidding for publicly-funded highway crack-sealing contracts in South Dakota and Nebraska.9 In return, the unnamed company would stop bidding for projects in Montana and Wyoming.10 Under the proposed arrangement, Z&Z would pay the unidentified company $100,000 as additional compensation for lost business in Montana and Wyoming.11 Zito also proposed that the two companies enter into a sham contract to disguise their market-allocation agreement.12 Rather than agree to Zito’s proposal, the president of the other company reported the information to federal authorities.13
Insight on Plea Deal
This case stands out because the DOJ used Section 2 to bring a criminal charge based on attempted collusion, which cannot be charged under Section 1. Section 1 prohibits only anticompetitive agreements, not mere attempts to reach such agreements. Because Zito never reached an actual market allocation agreement with his competitor, the DOJ could not have pursued the conduct as a criminal Section 1 violation. Because the attempted collusion involved bidding conduct, the DOJ could also have prosecuted the case under the federal wire fraud statute,14 which would have carried a heavier potential sentence.15 Accordingly, the decision to charge the case as a criminal Section 2 violation rather than a fraud violation seems to have been a matter of discretion rather than necessity, with a sentencing trade-off.
Given the DOJ’s recent rhetoric about reviving enforcement of Section 2’s criminal penalties, and its success in obtaining a plea in this case, the DOJ will likely continue to seek ways to use Section 2 of the Sherman Act to criminally prosecute antitrust offenses where the facts allow. While criminal antitrust cases typically require proof of an agreement not to compete, this case demonstrates how just an invitation to collude can result in potential criminal liability for a company and its executives. In this way, the DOJ was able to use Section 2 to lower the bar on what was essentially a Section 1 prosecution (although a Section 2 case has its own unique challenges). Additionally, the DOJ will likely charge both Section 1 and Section 2 in appropriate cases. Factual scenarios involving allocation agreements in concentrated markets will likely be most susceptible to tandem charges.
This plea also demonstrates the DOJ’s continued commitment to prosecuting antitrust violations that affect the government procurement process. In November 2019, the DOJ established the Procurement Collusion Strike Force (PCSF) to deter antitrust crimes on the front end of the procurement process through outreach and training while also identifying and prosecuting antitrust violations when they occur.16 The PCSF was instrumental in bringing this case as well as other recent DOJ prosecutions of bid-rigging, bribery, and procurement fraud involving government contracts.17
EU Perspective
Invitations to collude can also be problematic under EU antitrust rules, particularly if they involve disclosing non-public information about the inviting company's future commercial strategy, pricing, capacity, and other future-oriented commercially sensitive information. Unless the company that receives such an invitation responds with a clear statement that it does not wish to receive such information or reports it to the competition authorities, it will be deemed to have considered the information.18 Both companies can then be held liable for engaging in a concerted practice prohibited by Article 101 TFEU.19 The European Commission can qualify such conduct as a secret cartel, resulting in substantial corporate fines.
Conclusion
Because of the DOJ’s commitment to enforcing criminal antitrust laws broadly, as evidenced by this Section 2 criminal prosecution, companies should ensure their business practices effectively prevent and detect anticompetitive behavior. In particular, companies should ensure employees know what to do when a competitor solicits them to engage in anticompetitive conduct. Companies should also ensure they know and understand the DOJ’s antitrust leniency program if they discover an antitrust violation.
[1]Remarks of Assistant Att’y Gen. Jonathan Kanter at 2022 Spring Enforcers Summit (April 4, 2022), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-2022-spring-enforcers (signaling that the DOJ intended to bring more criminal antitrust charges using “all of the tools at [its] disposal,” specifically highlighting Section 2 of the Sherman Act (monopolization)).
[2]Press Release, U.S. Dep’t of Just., “Executive Pleads Guilty to Criminal Attempted Monopolization” (Oct. 31, 2022), https://www.justice.gov/opa/pr/executive-pleads-guilty-criminal-attempted-monopolization.
[3]Remarks of Assistant Att’y Gen. Jonathan Kanter at 2022 Spring Enforcers Summit (April 4, 2022), supra.
More recently, former Deputy Assistant Attorney General Richard Powers reiterated the DOJ’s position. Remarks of Deputy Assistant Att’y Gen. Richard Powers at University of Southern California Global Competition Thought Leadership Conference (June 3, 2022), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-richard-powers-delivers-keynote-university-southern (declaring that the Antitrust Division “will no longer ignore Section 2”).
[4]Joseph Matelis and Daniel Richardson, Criminal Enforcement of Section 2 of the Sherman Act, 36 Antitrust 61, 61 (2022). Criminal conduct under Sections 1 and 2 of the Sherman Act became a felony in 1974. Antitrust Procedures and Penalties Act, Pub. L. No. 93-528, § 3, 88 Stat. 1706, 1708 (1974) (codified as amended at 15 U.S.C. § 16 (2012)).
[5] United States v. Braniff Airways, Inc., 453 F. Supp. 724 (W.D. Tex. 1978) (denying the defendant’s motion to dismiss).
[6] United States v. Molasky, 5 Trade Reg. Rep. 45,073 (case no. 2345) (D. La., filed 1973) (summary of indictment).
[7] Information at 3, United States v. Zito, No. 1:22-cr-00113-SPW (D. Mont. Sept. 19, 2022).
[8]Id. at 4-5.
[9]Id.
[10] Id.
[11]Id.
[12] Id.
[13] Id.
[14] 18 U.S.C. § 1343; see United States v. Ames Sintering Co., 927 F.2d 232 (6th Cir. 1990) (defendants charged with wire fraud for attempted bid rigging).
[15] A wire fraud charge under 18 U.S.C. § 1343 would carry a maximum sentence of 20 years’ imprisonment and a fine of $250,000, while the maximum sentence for an individual charged with a criminal Section 2 violation is ten years’ imprisonment and a fine of $1 million. 15 U.S.C. § 2.
[16]Remarks of Procurement Collusion Strike Force Director Daniel Glad at ABA Section of Public Contract Contract Law’s Public Procurement Symposium (Oct 13, 2021), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-2022-spring-enforcers.
[17]See, e.g., Press Release, U.S. Dep’t of Just., “Former Contractor Pleads Guilty to Bid Rigging and Bribery” (Oct. 3, 2022), https://www.justice.gov/opa/pr/former-contractor-pleads-guilty-bid-rigging-and-bribery; Press Release, U.S. Dep’t of Just., “Military Contractors Indicted for $7 Million Procurement Fraud Scheme” (June 23, 2022), https://www.justice.gov/opa/pr/military-contractors-indicted-7-million-procurement-fraud-scheme.
[18] Commission Communication Guidelines on the Applicability of Article 101 on the Functioning of the European Union to Horizontal Co‐Operation Agreements, SEC (2010) 528/2 (draft) at ¶¶432-33.
[19] Case C‑74/14, Eturas UAB v. Lietuvos, ECLI:EU:C:2016:42 ¶¶64-65 (Jul. 16, 2015).
