Thank you for reading this month’s edition of E-briefs, News and Notes by the Antitrust and Unfair Competition Law Section of the California Lawyers Association. You will notice that we have added “News and Notes” to the title and included several new features. We hope the new information is helpful. We welcome any feedback on how to make the publication more useful.
Kjersti Flaa v. Hollywood Foreign Press Association, et al., 2:29-cv-06974-SB (November 20. 2020 C.D. Cal.)
Failing to define a facially sustainable market costs one’s antitrust claim at the outset: a journalist’s antitrust suit against the Hollywood Foreign Press Association is dismissed.
Spoiler alert! On November 20th, 2020, Judge Stanley Blumenfeld, Jr. dismissed Norwegian journalist Kjersti Flaa’s claims against the Hollywood Foreign Press Association (HFPA), which included her antitrust allegations brought under Section 1 and 2 of the Sherman Act and the Cartwright Act, Kjersti Flaa v. Hollywood Foreign Press Association, et al., 2:29-cv-06974-SB.
Specialized in entertainment reporting, Flaa has since 2003 compiled a considerable professional record in Norway, the United States, and internationally. Founder and creative director of her own production company in California since 2015, Flaa has received awards, professional recognition and has even been recognized as a Hollywood expert. However, such success is not sufficient to join the HFPA.
In 2018, 2019, and 2020, Flaa has attempted to join the HFPA, a 501(c)(6) trade association. The HFPA “promotes interest in the study of the arts” and “the development of the motion picture art form.” It also “establishes favorable relations and cultural ties between foreign countries and the USA through the exhibition of motion picture photoplays.” The general public mostly knows the HFPA for conferring every year the Golden Globe® awards. Being a member of the HFPA provides benefits such as access to major motion picture events.
Admission to the HFPA requires applicants to gather a list of objective elements—such as sponsorship letters, press clippings—and approval by a majority vote of the members. While Plaintiff can present all objective elements, she has never been able to pass the majority vote, which she alleges is due to a handful of members conspiring to deny her membership. Id. at 3.
Considering that not being able to join the HFPA “greatly impairs” her career, Plaintiff filed a lawsuit against the HFPA and several organization members. Flaa alleges that the HFPA’s decision to reject her membership violates her right of fair procedure because it deprived her of the ability to practice her profession. Id. at 5.
She also contends that the decision violates Section 1 and 2 of the Sherman Act and the Cartwright Act. She considers that Defendants have entered into an agreement constituting an unlawful restraint of trade in violation of the antitrust laws, and that their actions constitute a course of conduct calculated to monopolize the market for foreign reporting of entertainment news emanating from Southern California. Id. at 9.
Defendants moved to dismiss both claims. Because Plaintiff failed to establish that the HFPA is a “quasi-public entity” and that the decision deprives her of her ability to practice a trade or profession, the Court granted Defendants’ motion to dismiss the fair procedure claim and declaratory relief claim without leave to amend. Id. at 9.
Our camera is focused here on the antitrust claims, also dismissed by the Court with fourteen days’ leave to amend. The Court reminded the Plaintiff that an antitrust claim may be dismissed when “the complaint’s ‘relevant market’ definition is facially unsustainable.” Newcal Indus., 513 F.3d at 1045. Here, Plaintiff failed to define both a sustainable relevant geographic market and product market. Therefore, the Court held that the claims “fail at the outset.” Kjersti Flaa at 12.
The location of market participants does not define a sustainable geographic market.
The Court reminded that defining the relevant market is a “threshold step in any antitrust case,” FTC v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020). A Plaintiff must accurately define both a geographic and product relevant market, which must be “facially sustainable.” Kjersti Flaa at 10. Failing to do so can cost one’s whole antitrust case, as it happened to Kjersti Flaa’s here.
Quoting Vesta Corp., the Court reminded that a market definition is “facially unsustainable” when it fails to be defined “with reference to the rule of reasonable interchangeability and cross-elasticity of demand, [or] clearly does not encompass all interchangeable substitute products even when all factual inferences are granted in plaintiff’s favor.” Vesta Corp., 129 F. Supp. 3d at 1023.
The Tanaka case inspired Judge Stanley Blumenfeld, Jr. to reject Plaintiff’s geographic market definition, Tanaka v. Univ. of S. California, 252 F.3d 1059 (9th Cir. 2001). The Court found that limiting the relevant geographic market for “foreign entertainment reporters” in “Southern California, and the Los Angeles area in particular” was inconsistent with Plaintiff’s own success allegations outside Southern California. Kjersti Flaa at 11. Flaa cannot allege that the geographic market is limited to this area when her “own experience strongly suggests that the relevant geographic market is national in scope.” Id. at 11 (Quoting Tanaka, 252 F.3d at 1063).
The Court also restated the Ninth Circuit’s law that a market is not defined by the area where market participants compete. Id. at 11. Using Plaintiff’s own allegations again, Judge Blumenfeld rejected the argument that it is “‘blindingly obvious’ that Southern California is the proper market” based on Defendants’ activities. Plaintiff cannot assert that it is the only market where all entertainment news occurs because her professional success outside Southern California is evidence that entertainment news also occurs outside of this area. Id. at 11.
A sustainable product market must encompass all interchangeable substitute products.
Plaintiff’s definition of the relevant product market was “ambiguous” and failed to be facially sustainable. Id. at 11. The Court noted that limiting the relevant product market to “entertainment news” is insufficient. In addition to failing to identify the “relevant type, source or medium of entertainment news,” Plaintiff did not demonstrate that it is “not reasonabl[y] interchangeable with other forms of entertainment news.” Id. at 11.
As a result, Kjersti Flaa’s product market was “legally insufficient.” She did not propose a relevant market “with reference to the rule of reasonable interchangeability and cross-elasticity of demand,” nor did she proposed a market that “encompass[es] all interchangeable substitute products even when all factual inferences are granted in [her] favor.” Id. at 11 (Quoting UGG Holdings, Inc. v. Severn, No. CV 04-1137-JFW (FMOx), 2004 WL 5458426, at *3)
Consequently, Judge Blumenfeld, Jr. granted Defendants’ motion to dismiss the antitrust claims because absent a “facially sustainable market definition, her antitrust claims failed at the outset.” Id. at 12.
Following this order, Kjersti Flaa’s counsel announced Plaintiff will pursue her declaratory relief claim in a different court. Plaintiff also took advantage of the fourteen days’ leave to amend her antitrust claims and filed on December 4th an amendment of her complaint. Long story short, Creative Director Kjersti Flaa did not put a final clap on this dispute….
Clear Connection Corp. v. Comcast, No. 2:12-cv-02910-TLN-DB (E.D. Cal. Nov. 16, 2020)
Sarah Koslov Ms. Koslov is a graduate of Georgetown Law School and can be reached at Sarah.Koslov@georgetown.edu.
This decision adjudicates a motion for summary judgment, finding in favor of the Defendant, Comcast Cable Communication Management, LLC (“Comcast). Plaintiff, Clear Connection Corporation (“Clear Connection”) is a low-voltage wiring contractor that provided residential cable installation services to Comcast. Clear Connection’s complaint alleged that Comcast violated California antitrust laws through its business practices in connection with the firm’s Preferred Vendor Agreement (PVA) with contractors and the terms of its realignment plan that reduced the number of contractors Comcast used, designated geographic regions of its PVA contractors, and implemented a price cut in the amount paid to contractors for their cable installation services. Comcast implemented this plan believing it would improve quality and reduce costs for itself and the contractors it engaged.
The case’s procedural history played an important role in the court’s adjudication of applicable law in this matter. Clear Connection filed its original complaint in August 2012 in the California court system, but it was removed to federal district court on the basis of diversity jurisdiction. Comcast then filed a motion for judgment on the pleadings requesting dismissal of all claims, which the United States District Court for the Eastern District of California granted and dismissed Clear Connection’s claims with leave to amend. Shortly after, Clear Connection filed its First Amended Complaint (FAC). Comcast moved for a new motion for judgment on the pleadings, which the court granted the in part and denied it in part. The court granted Clear Connection leave to amend, but they did not file a second amended complaint—leaving the FAC as the operative complaint underlying this action. In the court’s most recent decision, Judge Nunely granted Comcast’s motion for summary judgment, dismissing Clear Connection’s remaining claims, alleging 1) violation of the Cartwright Act, 2) Civil Conspiracy, and 3) violation of the Cal. Buis. & Prof. Code §17200 (“UCL Claim”).
I. Cartwright Act Claim
The crux of this decision turned on whether rule or reason or per se analysis applied in adjudicating Comcast’s conduct. Clear Connection challenged Comcast’s realignment plan as an illegal restraint on trade under the Cartwright Act in violation of the antitrust law. Comcast put forth five arguments to support their motion for summary judgment, through the rule of reason framework argued that no violation occurred because: 1) Comcast unilaterally adopted the realignment plan; 2) the firm did not impose any anticompetitive restraints; 3) Comcast lacked market power in the relevant market; 4) the realignment plan did not result in the foreclosure of competition; and 5) the realignment plan generated procompetitive effects. Clear Connection did not seek to rebut Comcast’s arguments by showing issues of material fact remained in dispute; rather, they contended that Comcast’s realignment plan qualified as a per se illegal restraint, not subject to rule of reason analysis. The court found that rule of reason applied and granted summary judgment in Comcast’s favor.
Clear Connection argued that Comcast’s realignment plan constituted a per se restraint either as a hybrid or horizontal restraint, rather than conduct subject to the rule of reason. However, the court found that rule of reason applied on two independent grounds. First, the court held that rule of reason applied based on law of the case doctrine. Here, the procedural history of the case played a significant role in this outcome: Clear Connection did not amend its FAC after the court issued a ruling partially granting and partially denying Comcast’s previous motion for judgment on the pleadings. Thus, the allegations adjudicated here were found to be “the same as those underlying the previous motion,” since they were the remaining three complaints at issue from the previous ruling. As such, the court found that the rule of reason was the law of the case because a prior court order already found that the rule of reason applied to this matter.
Second, Judge Nunley noted that rule or reason would apply to the Cartwright Act claim even without law of the case doctrine. Clear Connection argued that per se analysis was appropriate because Comcast’s realignment plan reflected either a hybrid or horizontal restraint in violation of antitrust laws. The court rejected Clear Connection’s contention, finding that Comcast’s plan implicated an alleged vertical restraint subject to rule of reason analysis. Clear Connection posited that Comcast’s plan could be construed as a hybrid restraint because Comcast operates both as a buyer of low voltage installation services and employs its own in-house installers. The court rejected this argument, finding insufficient evidence to support that Comcast was acting in its horizontal capacity in executing its realignment plan and its conduct should be analyzed under stated, “to the extent [Comcast’s] conduct can be labeled a hybrid restraint, such restraints are still subject to the rule of reason.” Alternately, Clear Connection argued that Comcast’s relationship with contractors could be understood as a hub-and-spoke conspiracy or as price fixing. Judge Nunley rejected both of these theories and held that there was not find sufficient evidence to conclude the existence of a horizontal agreement among contractors.
Applying the rule of reason, the court found that there were no unreasonable restraints on competition. Clear Connection’s arguments against summary judgment turned only on the per se analysis and thus the plaintiffs were not able to carry their evidentiary burden to overcome summary judgment under a rule of reason analytical framework. On the facts and evidence provided, the court ruled in favor of Comcast’s motion for summary judgment with regard to Clear Communication’s Cartwright Act claim.
II. Civil Conspiracy Claim
Clear Connection’s civil conspiracy claim stemmed from the same conduct alleged in their Cartwright Act claims. Clear Connection argued that Comcast facilitated a horizontal conspiracy and was thus a part of the conspiracy, whereas Comcast asserted that it acted unilaterally and there was no evidence of underlying illegal activity. The court again found no evidence of an antitrust violation and granted summary judgment to the defendants, Comcast.
III. Cal. Bus & Prof. Code § 17200 (“UCL Claim”)
The violation alleged under Clear Connection’s UCL Claim is derivative of the Cartwright claim, treating unlawful practices that violate other laws as independently actionable under UCL. Here, because the Court granted summary judgment to Comcast on the Cartwright act claim, Clear Connection’s UCL claim also failed.
Ultimately, the court granted summary judgment in favor of Comcast and dismissed all three of Clear Connection’s remaining claims in this suit.
In re Capacitors Antitrust Litigation, Case No. 14-cv-3264-JD (N.D. Cal. Nov.3, 2020)
NORTHERN DISTRICT OF CALIFORNIA REJECTS IPP REQUEST FOR CLASS CERTIFICATION IN LONG-RUNNING CAPACITORS CASE
By Anjalee Behti
Nearly seven years after the case was first filed, the Indirect Purchaser Plaintiff (“IPP”) class was denied certification in In re Capacitors Antitrust Litigation, Case No. 14-cv-3264-JD, a class action in which plaintiffs allege several defendant corporations engaged in a global price-fixing conspiracy in the capacitor industry. In a November 3, 2020 decision, Judge Donato of the Northern District of California denied in all respects IPPs’ Rule 23 Class Certification Motion, finding it wanting in both form and substance.
Prior to its move for certification, IPPs had settled with all defendants except Shinyei Technology Co., Ltd. and Shinyei Capacitor Co., Ltd. (together, “Shinyei”) and Taitsu Corporation (“Taitsu”), which manufacture film capacitors. As to these two remaining defendants, IPPs proposed three avenues for class certification:
(1) a nationwide Film Injunctive Class under the Sherman Act and Rule 23(b)(2);
(2) a Film Damages Class under California law and Rule 23(b)(3) that “include[s] purchasers from the thirty-one states that permit recovery by indirect purchaser plaintiffs in price-fixing cases”; and
(3) if the Court declines to certify a multi-state class under California law, an alternative certification of six separate state classes, namely a California Film Class, Florida Film Class, Michigan Film Class, Minnesota Film Class, Nebraska Film Class, and New York Film Class.
In re Capacitors Antitrust Litig., No. 17-MD-02801-JD, 2020 WL 6462393, at *2 (N.D. Cal. Nov. 3, 2020) (citing Dkt. No. 1681, Notice of Motion and Motion at 1-3.).
In addition to the four general requirements of Rule 23(a) (sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation), a party seeking class certification must also satisfy one of the provisions of Rule 23(b). Rule 23(b)(2) authorizes certification when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Rule 23(b)(3) allows for certification if the court finds that “questions of law or fact common to class members predominate over any questions affecting only individual members,” and a class action is “superior to other available methods for fairly and efficiently adjudicating the controversy.” The Court examined IPPs’ class certification arguments under both Rules 23(b)(2) and 23(b)(3), ultimately finding both requests problematic and lacking in support.
IPPs’ First Attempt at Class Cert: A Thirty-One-State Class Under California Law and Rule 23(b)(3)
IPPs made an apparent attempt to revive a nationwide class under California law in their motion for certification, surprising the Court given the pleading history to date. In previous rounds of pleadings, the Court had struck IPPs’ nationwide class allegations under California law; IPPs then dropped their nationwide class allegations and attempted to allege sub-classes under the antitrust and consumer protection laws of California and thirty-one other states; and the Court determined that IPPs lacked Article III standing for all non-California state law claims. Capacitors, 2020 WL 6462393, at *3–4. These events led to the operative Fifth Consolidated Complaint, in which IPPs asserted each state law claim on behalf of the corresponding state damages class only. Despite all this, IPPs proceeded to seek certification of a single Rule 23(b)(3) class under California law for indirect purchasers in thirty-one states, contending that they sought application of California law to “only those purchasers from states that permit indirect purchaser lawsuits.” Id. at *4. The Court expressed dismay at “this sharp departure from the Fifth Consolidated Complaint,” remarking, “[I]t sounds awfully like an end-run around the Court’s ruling striking the IPPs’ allegations on behalf of a nationwide class under California law.” Id.
In analyzing the propriety of IPPs’ proposal, the Court identified three main concerns with their request to apply California law to a thirty-one-state class. The first involved due process issues; the second, California’s choice-of-law rules; and the third, the extraterritorial reach of the Cartwright Act and UCL.
Due Process Issues
Addressing the first concern regarding due process, the Court cited AT&T Mobility, stating “[t]o the extent a defendant’s conspiratorial conduct is sufficiently connected to California, and is not ‘slight and casual,’ the application of California law to that conduct is ‘neither arbitrary nor fundamentally unfair,’ and the application of California law does not violate that defendant’s rights under the Due Process Clause.” AT&T Mobility LLC v. AU Optronics Corp., 707 F.3d 1106, 1107 (9th Cir. 2013) (citation omitted). Due process requirements must be satisfied with respect to each defendant. Id. at 1113 n.15. Further, under California’s choice-of-law rules, the party seeking certification bears the burden to show that application of California law is constitutional. Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581, 589-90 (9th Cir. 2012).
The Court found no indication that IPPs met this burden with respect to Shinyei and Taitsu. This was undermined by the lack of allegations of any contacts with California, and that all the Shinyei and Taitsu entities are Japanese corporations with their principal places of business in Japan (setting aside both remaining defendants’ U.S. subsidiaries, which were not named as defendants). Capacitors, 2020 WL 6462393, at *3. Additionally, IPPs made due process arguments only as to the electrolytic capacitor conspiracy, of which Shinyei and Taitsu are not a part. The Court also discussed the de minimis bar set forth in AT&T Mobility, which would allow application of California law “when more than a de minimis amount of that defendant’s alleged conspiratorial activity leading to the sale of price-fixed goods to plaintiffs took place in California.” AT&T Mobility, 707 F.3d at 1113. Yet, the Court found that IPPs alleged too little factual support to push their argument over that bar. In alleviating any due process concerns, IPPs’ arguments fell short.
California Choice-of-Law Rules
The Court pointed to California’s choice-of-law rules as another barrier to IPPs’ class certification request. The Court cited Mazza to set forth whether California law could be applied on a classwide basis – “if the interests of other states are not found to outweigh California’s interest in having its law applied.” Mazza, 666 F.3d at 590. Courts analyze a three step governmental interest test: 1) whether the relevant laws are the same or different; 2) if different, whether a true conflict exists after examining each jurisdiction’s interest in applying its own law; and 3) if a true conflict exists, analysis of the nature and strength of each jurisdiction’s interest, and ultimately applying the law of the jurisdiction whose interest would be more impaired if its law were not applied. Id.
The main question facing the Court was not whether California law could be applied on a “classwide” basis, but rather, whether the California Damages Class could be expanded from California-residents-only to a thirty-one-state class. Capacitors, 2020 WL 6462393, at *6. In IPPs’ case, the Court found too many material differences among the relevant state laws that prevented application of California law. IPPs failed to dispute several distinctions: first, that the standing factors in Associated General Contractors of California v. California State Council of Carpenters, 459 U.S. 519 (1983), do not apply to Cartwright Act claims but do apply under the antitrust laws of Nebraska, New Mexico, and Washington, D.C.; second, the difference between the statutes of limitations among the various jurisdictions; and third, that some jurisdictions, but not others, require a showing that a portion of the alleged overcharge was “passed on” to indirect purchasers from direct purchasers. Capacitors, 2020 WL 6462393, at *6.
Pulling from the Mazza and AT&T Mobility decisions, the Court found the second and third prongs of the governmental interest test also weighed in Defendants’ favor. The Court considered each state’s interest in applying its own laws, for if California law was applied to the whole class, “foreign states would be impaired in their ability to calibrate liability to foster commerce.” Mazza, 666 F.3d at 593. Additionally, California law recognizes “the place of wrong” as “the state where the last event necessary to make the actor liable occurred” – thus pointing plaintiffs back to the consumer protection and antitrust laws of the place of purchase and payment of overcharges. Id. at 594.
Extraterritorial Application of the Cartwright Act and UCL
IPPs attempted to justify the propriety of their proposed multi-state class under AT&T Mobility’s proposition that application of the Cartwright Act is not limited to California residents. Capacitors, 2020 WL 6462393, at *7. But, the Court recited that case’s clear proposition that the “question of whether the Cartwright Act provides a cause of action based exclusively on out-of-state purchases is distinct from the inquiry of whether such application would violate the Due Process Clause . . . .” AT&T Mobility, 707 F.3d at 1110 n.8. The Court found that IPPs fell short once again by failing to justify the application of the Cartwright Act and the UCL outside of California. Capacitors, 2020 WL 6462393, at *7. The Court declined to grant IPPs’ request due to their failure to justify that California law could or should be applied to their proposed thirty-one-state class. Id.
IPPs’ Second Attempt at Class Cert: Certification of Six State Classes Under Rule 23(b)(3)
IPPs took a second shot at class certification under Rule 23(b)(3), proposing certification of six separate state Film classes in California, Florida, Michigan, Minnesota, Nebraska, and New York. The Court’s denial was simple: IPPs offered “virtually no argument” in support of this proposal and provided no substantive discourse of the state laws they relied upon for the state classes. Id.
Another Missed Mark: Rule 23(a)
Having rejected IPPs’ Rule 23(b)(3) arguments in full, the Court refrained from a detailed analysis of Rule 23(a); but, “for the sake of completeness,” noted that IPPs’ Rule 23(a) analysis was also deficient due to their failure to substantively address the numerosity requirement with respect to the six proposed state law classes, as well as the commonality requirement, which raised concerns for the same reasons that the Court deemed a Rule 23(b)(3) class not certifiable. Id.
IPPs’ Final Attempt at Class Cert: Nationwide Film Injunctive Class Under Rule 23(b)(2)
Though IPPs’ motion for the proposed Film Injunctive Class cited to Rule 23(b)(2), the Court found that their papers offered little to no support in favor of certification under this prong. Seeing as IPPs’ primary relief sought is monetary damages, the Court was without reason as to why an injunctive relief class might be warranted, thus denying IPPs’ request for certification of a Rule 23(b)(2) class. Id. at *8.
Conclusion and Takeaway
The Court denied IPPs’ class certification requests in all respects. Despite attempts to give IPPs the benefit of the doubt by, for example, analyzing the de minimis bar from AT&T Mobility and discussing the Rule 23(b)(2) request notwithstanding IPPs’ absence of argument on the issue, the motion, all in all, proved incomplete and unconvincing.
While plaintiffs’ lawyers should remain encouraged to offer creative theories at the class certification stage, Judge Donato’s order serves as a somber reminder to do so with tactful, thorough analysis. Importantly, the Court’s decision reminds lawyers to maintain a “big picture” perspective when they are delving into the oftentimes complex choice-of-law rules – “[i]n this complex and murky area, it is indeed easy to lose one’s bearings and to slip from a focus on the constitutional limitations on choice of law to the choice of law rules themselves.” AT&T Mobility, 707 F.3d at 1113 n.12.
The COVID-19 pandemic disrupted DPPs’ March 2020 trial, resulting in a mistrial. DPPs are set for a new trial in January 2021.
In Re Google Play Developer Antitrust Litigation, Case No. 3:20-cv-05792-JD (Order Appointing Interim Class Counsel)
Judge Donato noted and complemented the selected class counsel for their attention to diversity on the class counsel application. (“The attention to the Court’s concerns about making lead counsel opportunities available to a diverse slate of law firms and attorneys was another positive aspect of the proposal,” citing, In re Robinhood Outage Litigation, No. 3:20-cv-01626-JD (N.D. Cal. Jul. 14, 2020) (unpublished)). In re Robinhood Outage Litigation was a securities class action wherein Judge Donato discussed more fully his view (and that of other Judges) that lead class counsel should reflect the diversity of the class. In re Robinhood Outage Litigation was discussed in a recent e-brief. https://calawyers.org/antitrust-unfair-competition-law/diversity-can-tilt-the-scales-in-complex-class-leadership-appointments/.
A Deeper Dive: USDOJ Brings First Criminal Wage-Fixing Case
With the pandemic grinding on, I have had to dig deeper for entertainment. I’ve become enamored of YouTube videos titled, “Whatever happened to [Wally Cleaver, Alfalfa, etc.]. It made we wonder, “Whatever happened to the criminal antitrust no-poach/wage fixing cases the Antitrust Division was warning about for the last several years?” On December 10, 2020, there was a partial answer. The DOJ announced in a Press Release, “A federal grand jury returned an indictment charging Neeraj Jindal, the former owner of a therapist staffing company, for participating in a conspiracy to fix prices by lowering the rates paid to physical therapists and physical therapist assistants in north Texas, including the Dallas-Fort Worth metropolitan area. The indictment also charges Jindal with obstruction of the Federal Trade Commission’s separate investigation into this conduct.” We now have our first wage-fixing indictment. However, the Antitrust Division still has not brought a criminal no-poach case. The wage-fixing case, while very small in commerce, speaks loudly of the Antitrust Division’s prosecutorial intent in this area. A little bit of the history of the Antitrust Division’s prosecutorial intent with respect to no-poach cases follows.
In 2010, Adobe, Apple Google, Intuit and Pixar entered into settlement agreements with the Department of Justice. The Antitrust Division reached settlements with six high technology companies – Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar – that prevented them from entering into no solicitation agreements for employees. According to the civil complaint, the six companies entered into agreements that restrained competition between them for highly skilled employees. The agreements between Apple and Google, Apple and Adobe, Apple and Pixar and Google and Intel prevented the companies from directly soliciting each other’s employees. An agreement between Google and Intuit prevented Google from directly soliciting Intuit employees. The investigation uncovered evidence such as an email exchange wherein Steve Jobs asked Eric Schmidt to stop Google from trying to hire one of Apple’s engineers: “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote to Schmidt on March 7, 2007. Schmidt then sent the request to his HR department, saying “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can.” Civil class action cases followed the government’s case (as they usually do). The companies later settled the class action damage civil lawsuit for $415 million. CNET, September 3, 2015, Lance Whitney, Apple, Google, others settle antipoaching lawsuit for $415 million.
Fast forward to 2016, when the United States’ Department of Justice’s Antitrust Division and Federal Trade Commission issued guidance regarding the application of U.S. antitrust laws to no‑poaching and wage-fixing agreements between employers. This joint guidance indicated that “Going forward, the Justice Department intends to criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers.” DOJ/FTC Press Release, October 20, 2016 Justice Department and Federal Trade Commission Release Guidelines for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation. In a speech in January 2018, Principal Deputy Assistant Attorney General Andrew Finch stated that “the Division expects to pursue criminal charges” for agreements that began after October 2016, as well as for agreements that began before but continued after that date. On April 3, 2018, the Antitrust Division filed a civil antitrust lawsuit against Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp. (“Wabtec”), and with it simultaneously filed a civil settlement. The complaint alleges that these companies and a third company, Faiveley, reached naked no-poach agreements beginning as early as 2009 and continuing until at least 2015, in violation of Section 1 of the Sherman Act. Because the conduct ended before the Division’s guidance of 2016, the case was pursued civilly.
The Antitrust Division, however, continued to warn about potential criminal actions in this area. The Antitrust Division Spring Update 2018 stated, “Market participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.” At a January 19, 2018 Antitrust Research Foundation Conference, Assistant Attorney General Makan Delrahim, announced that the DOJ would bring its first criminal cases involving alleged “no poaching” agreements in violation of the Sherman Act in the coming months. In particular, AAG Delrahim warned that if such activity “has not been stopped and continued from the time when the DOJ’s [new antipoaching] policy was made” in October 2016, “we’ll treat that [conduct] as criminal.” He added, “I’ve been shocked about how many of these [agreements] there are, but they’re real.”
While the Antitrust Division has not filed any criminal no-poach cases, it did intervene in a private no-poach cases in November 2019. A November 8, 2019 DOJ Press Release recounted that a on Sept. 25, 2019, a federal district court in North Carolina entered a unique final judgment in a private no-poach class action that approves the parties’ settlement agreement and allows the United States to enforce the injunctive relief and compliance provisions of the settlement agreement. The settlement followed the Justice Department’s successful intervention in the case, which challenged alleged agreements between Duke University (Duke) and the University of North Carolina (UNC) not to compete for each other’s medical faculty. The case is Seaman v. Duke University and Duke University Health System, Case No. 1:15-cv-000462-CCE-JLW (M.D.N.C.). On June 9, 2015, Dr. Danielle Seaman, an assistant professor at Duke University School of Medicine, filed a class action alleging that Duke and UNC agreed not to permit lateral hiring of faculty between the universities. Her complaint further alleged that the universities’ agreement violates Section 1 of the Sherman Act by eliminating competition for faculty, restricting their mobility, and suppressing their compensation. In 2018, the court certified a class comprised of faculty members with an academic appointment at the Duke or UNC Schools of Medicine.
In the Division Update Spring 2019, the Division noted that it had filed statements of interest in civil cases. Many private litigants brought no-poach cases after the Division had brought the issue to light. In its statement of interest, the Division argued that a franchisor and franchisee are not automatically deemed to be a single entity and can be separate entities capable of conspiring within the meaning of Section 1. The United States also argued that naked, horizontal no-poach agreements between rival employers within a franchise system are subject to the per se rule. A restriction in a franchise agreement that forbids franchisees from poaching each other’s employees, however, is subject to the rule of reason in the absence of agreement among the franchisees because it is a vertical restraint. If there is alleged agreement among the franchisees, the restraint is subject to the rule of reason so long as it is ancillary; that is, separate from, and reasonably necessary to, the legitimate franchise collaboration. Moreover, the Division argued that the “quick-look” form of rule of reason analysis is inapplicable because the court should weigh the anticompetitive effects against the procompetitive benefits of franchise no-poach agreements that qualify as either vertical or ancillary restraints.
Many State AG’s also began investigating no-poach agreements, particularly in the fast-food industry. In a March 12, 2019 press release, California Attorney General Xavier Becerra announced that the State of California, as part of a multistate effort, had entered into agreements with four major fast food companies that prohibit those franchise corporations from continuing to employ “no-poach” policies. Many of these anticompetitive no-poach provisions required franchise operators to contractually agree to not hire or solicit the employees of another franchise operator. As a consequence, employees, many of whom are low-wage workers, may have been unable to seek better pay and benefits by going to work for a competing franchise. Workers are often unaware of these provisions in the contracts. As a result of the settlements, Arby’s, Dunkin’, Five Guys, and Little Caesars will no longer include no-poach provisions in any of their franchise agreements in the United States.
While there still had not been any criminal antitrust no poach indictments, as late as October 29, 2019, an Antitrust Division official testified before Congress that, “The Division has a number of active criminal investigations into naked no-poach and wage-fixing agreements. While we cannot comment on the status or the timing of these investigations, I want to reaffirm that criminal prosecution of naked no-poach and wage-fixing agreements remains a high priority for the Antitrust Division.”
As of this date, December 2020 the Antitrust Division still has not brought a criminal prosecution of a no-poach agreement. There has been no public announcement as to why the promised cases have not materialized. It’s possible that there are no-poach agreements still being considered for possible criminal prosecution. It is my guess, and it is only a guess, that upon final examination, and with the threat of a vigorous defense challenge in court, the Division decided not to risk any assault on the per se rule by bringing a no-poach case that a defense team might successfully characterize as pro-competitive. A naked wage-fixing indictment such as the case the Division has just announced pretty clearly falls in to the per se box. There is no arguable pro-competitive effects from an agreement simply to fix/reduce employees’ wages. No-poach agreements, however, may contain some arguable pro-competitive benefits such as inducing a franchise owner to train employees, secure in the knowledge that they won’t be “poached” away with the employer losing the benefit of the training. The Antitrust Division will no doubt be very careful to indict only clearly per se cases. The per rule is under enough attack in traditional price fixing/bid rigging cases without pressing the issue with arguably ambiguous or novel cases. See, Robert E. Connolly, Competition, Spring 2020, Volume 30, No 1, at 177, In the Clash Between the Venerable Per Se Rule and the Constitution, The Constitution Shall Prevail (In Time)
1. If you want to make yourself a test case establishing a prosecutorial principle, do what this defendant allegedly did. Leave a text/email trail memorializing the agreement to lower employees wages. Then, while representing yourself during the investigation, make false statements to the FTC denying the agreement. If the defendant had an attorney, cooperated with the FTC and admitted his conduct, it is quite possible this matter may have been resolved as a civil case.
2. This is a very small case in terms of commerce for the Antitrust Division. But the indictment has put the business community on notice that naked wage-fixing agreement may be prosecuted as criminal matters. The Antitrust Division will commit resources, even in relatively small markets, to protect workers when the facts show a naked restraint.
3. The COVID pandemic has focused the government’s attention on protecting labor markets from unlawful restraints. On April 13, 2020 the FTC and DOJ Issued a Joint Statement announcing that they are on the alert for Collusion in the US Labor Markets. According to a press release, challenges to anticompetitive conduct in labor markets by the DOJ and FTC agencies will include:
- Unlawful wage-fixing and “no-poach” agreements
- Anticompetitive non-compete agreements
- Unlawful exchange of competitively sensitive employee information
- Inviting other individuals and companies to collude
- Actions and conduct that harms competition
“The Division will use its enforcement authority to ensure that companies and individuals who distort the free market for labor are held to account,” said Assistant Attorney General Makan Delrahim of the DOJ’s Antitrust Division. The Agencies made it clear that “COVID-19 does not provide a reason to tolerate anticompetitive conduct that harms workers, including doctors, nurses, first responders, and those who work in grocery stores, pharmacies, and warehouses, among other essential service providers on the front lines of addressing the crisis.
In conclusion, no one should assume that because no criminal antitrust case has been brought based on a no-poach agreement that one will never be. And even if a criminal per se case is not brought, no-poach agreements may be challenged as civil antitrust violations. And now, a wage-fixing case has been brought criminally. The DOJ and FTC will be on the look-out for any anticompetitive agreements that victimize front line Covid-19 workers. A criminal case, where one is justified, would certainly be a strong deterrent because penalties for individuals for a criminal conviction include a jail sentence of up to 10 years and a criminal fine oof $100,000. Corporations can be fined up to $100 million, and in certain situations, possibly even more.
PS. If you are interested in an article recounting the history of no-poach agreement as antitrust violations, see, “No-Poach Agreements as Sherman Act Violations: How We Got Here and Where We’re Going, Jamie Chen, Competition: Fall 2018, Vo. 28, No.1.
- Assistant Attorney General Delrahim Delivers Remarks at the Antitrust Division’s Seventh Annual Diversity Celebration, December 9, 2020 (here)
- DOJ Press Release, November 19, 2010, Justice Department Files Antitrust Case and Simultaneous Settlement Requiring National Association of Realtors® To Repeal and Modify Certain Anticompetitive Rules.
- DOJ Press Release, November 12, 2020, Justice Department Issues Guidance On The Use Of Arbitration And Launches Small Business Help Center.
- Speech, November 12, 2020, Makan Delrahim AAG Antitrust Division, The Future of Antitrust.
Federal Trade Commission
- FTC Sues to Block Proctor and Gamble’s Acquisition of Billie, Inc., December 8, 2020 (Merger would eliminate innovative nascent competitor for wet shave razors).
- FTC Staff Issues FY 2017 Report on Branded Drug Firms’ Patent Settlements with Generic Competitors, December 3, 2020 (The number of reverse-payment agreements remains low; for the first time since FY 2004, no agreement contains a no-AG commitment.
- FTC Issues Agency Financial Report for Fiscal Year 2020, (The report highlights the FTC’s accomplishments in furtherance of its missions to protect consumers and promote competition, and reaffirms the agency’s commitment to responsible stewardship of resources and sound financial operations.)
California Department of Justice
- Attorney General Becerra Calls on Supreme Court to Allow Federal Trade Commission to Continue Protecting Consumers (In an amicus brief in AMG Capital Management v. FTC, the attorneys general argue that the FTC’s ability to recover victims’ money from the defendant is essential to deterring illegal conduct and to supplement the states’ efforts in protecting consumers.)
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 E.D. Cal. Nov. 16, 2020, No. 2:12-cv-02910-TLN-DB at *14.
 Id. at *19.