On October 31, 2022, the U.S. Department of Justice (“DOJ”) secured a guilty plea in its first criminal case under Section 2 of the Sherman Act in over four decades. The enforcement action advanced Assistant Attorney General (“AAG”) Jonathan Kanter’s stated priority of reviving criminal enforcement of Section 2, which prohibits monopolization and attempted monopolization, as opposed to Section 1, which prohibits agreements to restrain competition. In United States v. Zito, defendant Nathan Zito, a paving and asphalt contractor, pled guilty to attempted monopolization of the market for highway crack-sealing services in Montana and Wyoming. The facts of his offense resemble a classic antitrust crime, suggesting that, at least at this stage, while the DOJ has raised the profile of Section 2, antitrust compliance programs likely already address the conduct that would give rise to a Section 2 criminal prosecution. Nevertheless, robust antitrust compliance programs remain important, especially in the enhanced enforcement environment in the US today.
Zito’s facts present a classic case of attempted market allocation. In early 2020, Zito called his biggest competitor to propose a “strategic partnership” whereby the two companies would cease competing against each other for publicly funded highway projects, with each restricting themselves to different territories. Zito’s company would bid to provide services in only Montana and Wyoming, while his competitor would do the same in only South Dakota and Nebraska. Zito also proposed entering a sham agreement that mentioned a potential acquisition and overpriced equipment—a cover for the $100,000 that Zito offered as compensation for any lost business in “his” territory. However, his competitor refused to enter into the sham agreement and immediately contacted the Federal Highway Administration after the first call. After that, the competitor acted as an informant to the U.S. Department of Transportation, recording phone calls with Zito for months.
The DOJ typically treats market allocation as a criminal or civil violation of Sherman Act Section 1. But because Zito’s would-be conspirator never actually agreed to the scheme, there was no “agreement” or “conspiracy” to form the basis of a Section 1 claim—which requires a “contract, combination . . . or conspiracy, in restraint of trade.” For this reason, Zito’s actions are better described as an invitation to collude. In the past, the antitrust agencies have pursued enforcement actions for this type of conduct in a number of other ways. In the criminal context, the DOJ has prosecuted it as wire fraud. In the civil context, the DOJ has relied on Section 2. Additionally, the Federal Trade Commission (“FTC”) pursues invitations to collude pursuant to its civil authority under Section 5 of the FTC Act, which prohibits “unfair methods of competition.”
Earlier this year, AAG Kanter roused the interest of businesses and the antitrust bar alike, stating that Congress has historically treated Section 2 violations as criminal offenses and has raised the associated punishments over time. “So 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.” Zito delivers on that promise. Still, the case is unlikely to provide meaningful precedent due to the egregious facts at play. Zito and his competitor were usually the only two competitors for bids in the highly consolidated market of crack-sealing services within their states, and eliminating his only competitor would allow him to monopolize the market. Additionally, Zito was caught red-handed, with evidence of his intent recorded in months of phone calls.
That said, this guilty plea should not be viewed as an outlier in the broader criminal antitrust enforcement context. The DOJ is crediting this enforcement action to the ongoing efforts of the Procurement Collusion Strike Force (“PCSF”)—a coordinated effort among the DOJ, FBI, and other federal, state, and local government agencies to detect and combat antitrust crimes and related fraud that impacts government procurement, grant, and program funding. The PCSF has been very active in seeking out and putting an end to this type of conduct, having “prosecuted over 30 companies and individuals involving over $350 million worth of government contracts” over its three-year existence.
Thus, although the Zito guilty plea may not have introduced any novel theories of harm or forms of criminal conduct to keep watch for, a strong antitrust compliance program remains critical.