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Chipping Away at Per Se: Is Brewbaker a Harbinger or Aberration?

Ann O'Brien and Emme Tyler

Chipping Away at Per Se: Is Brewbaker a Harbinger or Aberration?
Vasiliki Varvaki via Getty Images

The Fourth Circuit Court of Appeals recently reversed the bid-rigging conviction of a manufacturing executive, holding that an agreement between competitor companies that also have a vertical relationship as manufacturer and distributor, is not per se unlawful conduct. There is much buzz in antitrust cartel land about whether Brewbaker is a wrongly decided aberration, as DOJ Antitrust Division leadership contends it is, or if it is a harbinger of the narrowing of the per se standard. Other circuits and district courts have similarly grappled with ancillary restraints and intent requirements in recent criminal antitrust no-poach cases and produced opinions that show fissures in the bedrock application of the per se standard in criminal antitrust cases.


Brewbaker – Classic Bid-Rigging?

In October 2020, the DOJ charged former Contech Engineered Solutions LLC and its former executive Brett Brewbaker in connection with an alleged scheme to fix bids for North Carolina Department of Transportation (NCDOT) contracts. The indictment contained one count for a per se violation of Section 1 of the Sherman Act and five counts for alleged federal mail and wire fraud violations (based on the false certifications allegedly made in connection with the bids that they were submitted competitively and without collusion), in which Brewbaker allegedly coordinated bids with Pomona Pipe Products for North Carolina Department of Transportation contracts. To support the Sherman Act count, the speaking indictment alleged that:

  • Contech “ma[de] products such as ... aluminum pipe and fittings,”;
  • Pomona was “an aluminum structure design and installation company” that also “served as a dealer for”;
  • Contech “regularly sold aluminum pieces” to Pomona which Pomona
    “used . . . to complete work on behalf of NCDOT, including for aluminum structure projects,”;
  • Contech and Pomona (among others) submitted bids for NCDOT aluminum structure projects; and
  • Under an agreement between Contech and Pomona, Contech and Brewbaker obtained Pomona’s bid price and added a nominal amount to create Contech's own, intentionally losing bid.

Contech and Brewbaker moved the district court “to apply the rule of reason[,]” arguing that the indictment merely alleged that Contech “submitted an additional direct bid that would not undercut its dealer's price” and that this arrangement was a vertical restraint, subject to rule of reason. Contech also offered an expert affidavit, which explained that the relationship was an example of a dual distribution arrangement, in which both a manufacturer and distributor offer prices for the manufacturer’s products, and that the alleged bid rigging would not “always or almost always” hurt competition. The court treated the motion as one to dismiss the indictment, and declined to consult the expert affidavit as impermissible extrinsic evidence. It denied the motion, finding that the indictment alleged a horizontal bid-rigging restraint between competitors subject to the per se rule. Thereafter, Contech pleaded guilty, but Brewbaker proceeded to trial and was convicted on all counts.

On appeal, the Fourth Circuit reversed the conviction on the Section 1 count (but did not reverse the fraud convictions), finding that (1) because the indictment alleged a price-fixing restraint with both horizontal and vertical aspects (i.e., that Pomona and Contech both submitted bids for NCDOT aluminum projects, making them horizontal competitors, but also that Pomona served as a dealer for Contech, with Contech supplying Pomona with aluminum use to compete in NCDOT projects, creating a vertical relationship); and (2) because caselaw and economic analysis shows that category of restraint may have procompetitive effects. The court rejected the government’s urging to ignore the vertical aspect of the companies’ relationship and construe the restraint as straightforward horizontal bid-rigging, stating that it could not disregard the parties’ broader relationships when classifying a restraint. It explained that the government’s approach would force the court to engage in arbitrary and likely impossible line-drawing, artificially splitting a business entity into pieces in order to conclude that only one part of the entity—the part acting as the other party’s competitor—was the actual party to the agreement. Contech was acting as both manufacturer and co-distributor in its arrangement with Pomona, but the government asked the court to parse the form of the agreement to see which part of Contech was affected. “Antitrust law does not turn on such artificial gymnastics.” The court also rejected the government’s reliance on Supreme Court precedent holding bid-rigging to be a per se unlawful agreement, again noting that the indictment did not allege only a horizontal restraint, of the type that the Supreme Court has declared per se unlawful.

The court also considered the propriety of the district court’s refusal to consider the expert affidavit. It found that the district court properly treated the motion as a motion to dismiss the indictment and was therefore prohibited from considering any extrinsic factual evidence. However, because the applicable standard (per se or rule of reason) is a question of law, it explained that the Supreme court has instructed that “courts must consult economic evidence to determine whether the category of restraint has plausible procompetitive effects.” To do so, “courts may look to economic analysis by economists.” The court therefore held that the district court should not have categorically excluded the proffered economic affidavit.

The court went on to uphold the fraud convictions. Brewbaker did not argue that there was insufficient evidence to convict on the fraud counts but rather that the improper Sherman Act count infected the jury’s consideration of the fraud counts. Based on the evidence that the government presented that Brewbaker obtained Pomona’s bid prices and used them to submit Contech’s higher bids, the court concluded that “the jury had good reason—independent of any Sherman Act instruction or violation—to believe the certifications were materially false.” The court added that it would “be hard to say a bid was submitted ‘competitively’ when Contech’s bid was intentionally higher, or ‘without collusion’ when it was previously agreed-upon.”

The government filed a petition for rehearing en banc. On February 16, 2024, the Fourth Circuit denied the petition in a single-page order. The government had 90 days to seek a petition from certiorari from the Supreme Court, but was granted an extension and now must file by June 14, 2024. At the time of this writing, no such petition has been filed, and the government has not indicated whether it intends to file. If the government declines to petition and/or the Supreme Court denies such a petition, the Fourth Circuit’s ruling will stand. Brewbaker makes clear that the rule of reason is the default and further limits the application of the per se rule, even in contexts, such as bid-rigging, where the offense has long been recognized as hard-core cartel conduct and a per se violation.

The Evolving Intent Requirement in Per Se Criminal Antitrust Cases

Cartels and collusion have been touted as the “supreme evil of antitrust.” Agreements to fix prices, rig bids, or allocate markets have been considered for decades to be so harmful to competition that they are deemed presumptively unreasonable and require no further economic inquiry, as harm is presumed. Even unimplemented agreements to fix prices, rig bids or allocate markets have been considered a technical violation of Section 1 of the Sherman Act because the agreement is the crime.

The DOJ’s Antitrust Division has long benefitted from the per se shortcut in criminal antitrust cases. Unlike other federal prosecutors, Antitrust Division prosecutors have not previously had to show specific intent beyond the intent to agree in criminal antitrust cases. Courts have accepted this principle as a matter of black letter law, and it is even enshrined in the ABA Antitrust Section of Law Model Jury Instructions in Criminal Antitrust Cases: “It is the agreement to act together that constitutes the crime. Whether the agreement actually is carried out or whether it succeeds or fails does not matter.” However, courts increasingly have been pushing back on this presumption. For example, in the first criminal antitrust no-poach to proceed to trial, United States v. DaVita, Inc., Thiry, the court denied the government’s request to include the instruction that the agreement constitutes the crime, despite vigorous government protestations that this was black letter law. The Court refused:

[T]he government has to prove that the . . . defendants entered into the agreement to allocate -- into an agreement or understanding to allocate the market and that they intended to do so. The language that you want to put in, to my mind, conflates what is an illegal agreement with what was the defendants’ intent. . . . And if I put your language in the way you’ve drafted it, to my mind, once again, you’re trying to read the intent element out of this case, and I won’t do that.

It was adamant that something more than simple entry into the agreement must be proven and added an additional intent requirement, instructing the jury that it had to find that “the defendant knowingly entered into the conspiracy with the purpose of allocating the market with respect to that conspiracy.” The jury acquitted both the corporate and individual defendant.

While Antitrust Division prosecutors and leadership have insisted in other cases that Judge Jackson was wrong, this additional intent requirement imposed in the Davita/Thiry case certainly provides a basis to argue in future criminal antitrust cases that an intent simply beyond the intent to agree may be required.

What’s Next: Criminal Rule of Reason?

Unlike their civil counterparts operating under a rule of reason analysis, criminal antitrust prosecutors in the past have not had to delve into the economic effects or procompetitive benefits of the alleged conduct. Many motions to exclude evidence of reasonableness filed by Antitrust Division prosecutors have been granted in criminal antitrust cases and juries didn’t hear about collaborations or from economists about economic justifications for the alleged conduct.

However, more courts are listening to defense arguments in criminal antitrust cases that the government should bear a greater burden in criminal antitrust cases where the charges are based on a per se violation, including that the per se rule applies in the first instance. As the Brewbaker court said, “[t]he rule of reason is the default.” Courts in criminal antitrust cases seem to be grappling with the per se rule and recently requiring the government show more than showing there was a mere agreement. Courts are more receptive to an argument that the government should have to prove the challenged conduct falls within a category of restraints already recognized as per se unlawful, and that the challenged restraints are not ancillary to a separate permissible collaboration (and thus not per se unlawful). Courts also appear to be more receptive to defendants presenting evidence of procompetitive effects or efficiencies—not necessarily as an affirmative defense (because a per se violation cannot be justified through such evidence) but rather to disprove intent.

Despite recent losses in criminal no poach cases, the Antitrust Division remains committed to bringing criminal cases to promote competition in labor markets. The Antitrust Division is also actively pursuing criminal monopolization cases under Section 2 of the Sherman Act, where there is even less criminal precedent. Based on recent rulings, and a seemingly pro-defendant shift, the DOJ may be more limited in the types of criminal antitrust cases they will be able to bring and win, assuming they adhere to their policy of only bringing per se criminal cases. Of course, the DOJ might abandon this policy, leading courts into a new frontier where they will have to decide the standards and burdens to be applied in a criminal rule of reason case.