Criminal Antitrust Issues

September 19, 2023

Bid Rigging in the Construction Industry: The California Department of Transportation and Michigan Asphalt Paving Cases

What is Bid-rigging?

The DOJ describes bid rigging as an agreement among competitors as to who will submit the most competitive bid and who won’t, i.e., who should win and who should lose, in a competitive bidding situation. Typically, bid rigging occurs when a purchaser solicits bids to purchase goods or services, and the bidders agree in advance who will bid what. The desired result is that the purchaser pays a supracompetitive price.

Bid rigging is considered––together with price fixing and market allocation–– a “per se” violation of the Sherman Act. Restraints analyzed under the “per se” rule are considered so inherently anticompetitive that they warrant condemnation without a robust market analysis or the existence of a competitive justification.

Below, we briefly discuss two of the most recent bid-rigging cases from the long list at the DOJ Procurement Collusion Strike Force website.

Bid-Rigging is a Per Se Violation of the Antitrust Laws

Bid rigging can take at least 5 different forms:

Bid Suppression: One or more competitors agree not to bid, or to withdraw a previously submitted bid, so that a designated bidder will win;
Complementary Bidding: Co-conspirators submit token bids that are intentionally high or that intentionally fail to meet the bid requirements. “Comp bids” are designed to give the appearance of competition;
Bid Rotation: All co-conspirators submit bids, but by agreement, take turns being the low bidder on a series of contracts;
Customer or Market Allocation: Co-conspirators agree to divide up customers or geographic areas. The result is that the coconspirators will not bid or will submit only “comp” bids when a solicitation for bids is made by a customer or in an area not assigned to them.
Subcontracting: Subcontracting arrangements are often part of a bid-rigging scheme. Competitors who agree not to bid or to submit only a losing bid frequently receive subcontracts or supply contracts in exchange from the successful low bidder.

The DOJ has provided a list of patterns and suspicious indicators of a potential bid-rigging scheme. These include:

the same company always wins a particular procurement;
companies seem to take a turn being the successful bidder;
some bids are much higher than published price lists, previous bids by the same firms, or engineering cost estimates;
fewer than the normal number of competitors submit bids;
one company appears to be bidding substantially higher on some bids than others with no apparent cost differences to account for the disparity;
bid prices drop whenever a new or infrequent bidder submits a bid.

Additionally, the DOJ looks out for some sort of compensation by the winning company to a losing company, such as:

a successful bidder subcontracts work to competitors that submitted unsuccessful bids on the same project;
a direct payoff in the form of goods, cash, or check, normally disguised as a legitimate payment.

Government Procurement for Construction and Infrastructure

Because bid-rigging has been an historical problem in bids for government contracts, in November 2019, the DOJ created the Procurement Collusion Strike Force (“PCSK”) to combat antitrust crimes that affect government procurement and for victims to report suspected anticompetitive conduct related to construction or infrastructure. And they’ve been extremely busy. As the Director of the PCSK mentioned recently during the Seventh Annual White-Collar Criminal Forum at the University of Richmond Law School “more than 100 investigations opened, more than 45 guilty pleas and trial convictions, over 60 companies and individuals prosecuted and more than $60 million in criminal fines and restitution, all relating to over $375 million worth of government contracts.”

The Caltrans and Michigan Asphalt Paving Recent Cases

The California Department of Transportation (Caltrans) Case

According to a DOJ’s information dated March 2022, a former Caltrans contract manager, a contractor, and two construction companies engaged in a conspiracy from early 2015 through late 2019, to rig bids. Caltrans is a California state agency that manages California’s highway and freeway lanes, provides inter-city rail services and permits public-use airports.

Choon Foo “Keith” Yong––a former Caltrans contract manager––was sentenced to 49 months imprisonment and ordered to pay $984,699.53 in restitution. According to a plea agreement filed on April 11, 2022, Young was part of a scheme to thwart the competitive bidding process for Caltrans contracts to ensure that companies controlled by Yong’s co-conspirators submitted the winning bids and would be awarded the at-issue contract. According to the DOJ’s information, Yong also accepted bribes in the form of cash payments, wine, furniture and remodeling services on his home. The total value of the payments and benefits Yong received exceeded $800,000.

William D. Opp.––a former construction contractor––also pleaded guilty in the scheme. He was sentenced to 45 months’ imprisonment and ordered to pay $797,940.23 in restitution. According to a plea agreement filed on Oct. 3, 2022, he submitted sham bids on Caltrans contracts and provided nearly $800,000 in cash bribes and other benefits to Yong.

Last, in April 2023, former construction company owner Bill R. Miller was also sentenced: 78 months imprisonment and nearly $1 million in restitution. According to his guilty plea, Miller engaged in the same conspiracy and recruited others to submit sham bids on Caltrans contracts. In addition to pleading guilty to bid rigging, Miller also pleaded guilty to paying bribes to Yong.

Michigan Asphalt Paving: The United States v. F. Allied Construction Company, Inc., No: 2:23-cr-20381 (E.D. Michigan)

On August 17, 2023, a senior executive of Estimating for Clarkston-based F. Allied Construction Company Inc (“Allied”) ––a Michigan asphalt paving company––pleaded guilty in the U.S. District Court in Detroit for his role in two separate conspiracies to rig bids for asphalt paving services contracts in the State of Michigan. The services included asphalt paving projects such as large driveways, parking lots, private roadways, and public streets.

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August 24, 2023

How to Deal with U.S. Government Enforcers in Antitrust Investigations

by Bona Law PC

Authors: Jon Cieslak & Molly Donovan

Having recently defended an investigation brought by the U.S. Department of Justice Antitrust Division—which was closed without prosecution of our client—we had the opportunity to reflect on ways that lawyers can navigate the high-stakes interactions with government enforcers who are investigating antitrust or other white-collar violations. Those interactions involve a number of fine lines that require real-time judgment calls specific to each situation. That said, we think these “rules of thumb” are generally applicable and will help lawyers and their clients navigate the process as smoothly and favorably as possible.

(Although this article is not focused on subpoena compliance, you can listen to our podcast on subpoena compliance here.)

Always be truthful. This should go without saying, but your credibility is everything. Once an enforcer suspects that a client or the lawyers have not been forthcoming, problems get worse. If you realize you’ve provided incorrect information to the government inadvertently, correct it at the first opportunity.
Be transparent about process. In many cases, particularly if you want to limit the scope of a subpoena through negotiations with the enforcer, it is helpful to share information about your investigative process. Disclosing how you’ve searched for documents, what you have (and have not) produced, and what employees you have talked to can help you build credibility and persuade the enforcer not to require additional information. Plus, enforcers don’t like being surprised down the road about what has/has not been provided.
Focus on the facts. Ultimately, the enforcer will decide whether or not to pursue charges based on the facts of the case. It’s important to make sure that you provide the enforcer with all the facts that help your client, particularly those that provide defensible context for otherwise incriminating facts, even if the subpoena does not specifically ask for them.
While you should provide information promptly, you do not need to please. Even if your client takes a defensive posture, and is not formally cooperating, it is often prudent to provide government enforcers with information they’re requesting—probably in writing or in the form of an attorney proffer. It is also wise to cooperate in a timely fashion and to be responsive. But there are limits: you’re not required to satisfy every request and you can negotiate timelines. You should also exercise caution, in particular, when the government asks to speak or meet with your client directly. (See the next pro tip).
Don’t lose what control you have. Being interviewed by the government is very stressful—even for a client who feels they’ve done nothing wrong or has nothing to hide. People sometimes say things they don’t mean because they’re trying to please the interviewer. People like to try to help or protect colleagues and being asked questions about what friends and associates have/have not done can put clients in very uncomfortable situations. Sometimes the lawyer thinks she understands all the details, but a client says something new and unexpected during an interview. It may not be “bad,” but surprises are almost always harrowing. What does all this mean? If you’re not required to put your client in the hot seat, don’t. Consider alternative ways to get the government the information being requested—like an attorney proffer.
If there is an interview, remember these 5 things:

1. Always be truthful (see pro tip #1).
2. Tell your client it is okay to stop the interview to speak privately as necessary. In any event, take regular breaks to check in with your client and discuss any surprises.
3. This is not a deposition, so the best advice to clients is usually to provide all responsive information they can remember when answering each question.
4. “I don’t know” is better than making something up. Don’t make something up—this doesn’t help the enforcer or you.
5. In advance of the interview, be sure your client has not destroyed or tried to hide any materials or potentially relevant documents. Be sure your client has not discussed the investigation with anybody besides lawyers. Coordinating “stories” with friends/colleagues is not okay.

Aggression is unnecessary. Communications among the lawyers should remain cordial. We’ve never seen aggression or hostility go well. In particular, insulting the government’s investigation is not a good idea. The enforcer believes she is investigating for a good reason.
Give your client consistent reminders. Remind your client what she needs to do to maintain the attorney/client privilege and not to do anything that might make her situation worse (destroying evidence/coordinating her story with others). For example, after a government interview, remind your client that everything that was asked and said should be kept confidential.

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February 23, 2023

DOJ Announces New Voluntary Self-Disclosure Program Applicable to All Corporate Crimes

by Bona Law PC

Authors: Jon Cieslak and Molly Donovan

For the first time, there is a nationwide Voluntary Self-Disclosure Program applicable to any corporate misconduct prosecutable by a US Attorney. As detailed below, companies that make a qualifying Voluntary Self-Disclosure (VSD) are eligible for “resolutions under more favorable terms than if the government had learned of the misconduct through other means” – in other words, a criminal guilty plea could be avoided in exchange for a VSD.

To qualify as a VSD, the disclosure must be:

Voluntary. There must not be a pre-existing obligation to disclose pursuant to regulation, contract or prior DOJ resolution (e.g., a non-prosecution agreement).

Prompt. The disclosure must be prior to an “imminent threat” of disclosure or investigation; prior to the misconduct being public or otherwise known to the government; within a “reasonably prompt time” after the company becomes aware of the misconduct.

Substantive. The disclosure must include “all relevant facts” known to the company at the time of the disclosure, even if the internal investigation is in a preliminary stage. As new facts become known, they should be reported as the investigation unfolds.

In exchange for a VSD, the Department will not seek a guilty plea so long as:

The company “fully cooperated” with the DOJ. The terms of cooperation, including how long and to what degree cooperation is required, are not specified.

The company “timely and appropriately remediated” the conduct. Remediation includes the payment of “all restitution” to victims.

There are no aggravating factors, i.e., the conduct did not present a grave threat to national health or safety; the conduct was not “deeply pervasive” throughout the company and did not involve “current executive management.” Whether the knowledge of a corporate executive constitutes their “involvement” is not specified.

In the event of an aggravating factor, a guilty plea is not required automatically, but the DOJ will “assess the relevant facts” to determine an “appropriate resolution” on a case-by-case basis.

In the end, where the VSD is deemed satisfactory, the criminal resolution “could include a declination, non-prosecution agreement, or deferred prosecution” in lieu of a guilty plea. In the event the Department does choose to impose a criminal penalty, it “will not impose a criminal penalty that is greater than 50% below the low end of the U.S. Sentencing Guidelines fine range.”

Finally, if, by the time of the resolution, the company has implemented an “effective compliance program,” the Department will not require the imposition of a monitor. These decisions are to be made on a case-by-case basis in the USAO’s sole discretion.

As a concept and seemingly in practice, the Program shares many similarities with the DOJ Antitrust Division Leniency Policy and Procedures, under which antitrust lawyers have been operating for years, perfecting the art of timely self-disclosure and appropriate cooperation with the Department for companies that choose to self-disclose antitrust felonies. As a result, we as antitrust practitioners could bring unique experience to companies weighing the costs and benefits of participating in the new VSD Program for non-antitrust crimes and, if companies do self-disclose, how to participate and advocate within the Program effectively.

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February 16, 2023

Domestic Companies and Their Execs Plead Guilty to Criminal Price-Fixing

by Bona Law PC

Authors: Jon Cieslak & Molly Donovan

Two individuals and four of their corporate entities pleaded guilty to an antitrust conspiracy to fix the prices of DVDs and Blu-Rays sold on Amazon’s platform during the 2016-2019 time period.

According to the plea agreements, the defendants “engaged in discussions, transmitted across state lines both orally and electronically, with representatives of other sellers of DVDs and Blu-Ray Discs on the Amazon Marketplace. During these discussions, the defendant[s] reached agreements to suppress and eliminate competition for the sale of DVDs and Blue-Ray Discs . . . by fixing prices” paid by consumers throughout the United States. Further details about the operation of the conspiracy are not public.

The total affected commerce done by the six guilty-plea defendants is $2.875 million. The agreed-to fines imposed against the corporate defendants range from $68,000 to $234,000, some payable in installments. Sentencing for the individuals is forthcoming with the plea agreements specifying that the Department of Justice is free to argue for a period of incarceration to be served by each of the individuals at issue.

The action is pending in the District Court for the Eastern District of Tennessee. It serves as a reminder that the DOJ’s Antitrust Division will not excuse price-fixing by relatively small companies, even if the volume of affected commerce is also relatively small.

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December 23, 2022

Bid-Rigging is a Per Se Violation of the Antitrust Laws

by Bona Law PC

Author: Jarod Bona

You can buy and sell products or services in many different ways in a particular market.

For example, if you want to purchase some whey protein powder, you can walk into a store, go to the protein or smoothie-ingredient section, examine the prices of the different brands, and if one of them is acceptable to you, carry that protein powder to the register and pay the listed price.

Similarly, if you want to purchase a drone from New Bee Drone, you find the manufacturer’s product in a store or online and pay the listed price. Oftentimes products like this, from a specific manufacturer, are the same price wherever you look because of resale price maintenance or a Colgate policy (to be clear, I am not aware of whether New Bee Drone has any such program or policy). But these vertical price arrangements are not the subject of this article.

Another approach—and the true subject of this article—is to accept bids to purchase a product or service. Governments often send out what are called Requests for Proposals (RFPs) to fulfill the joint goals of obtaining the best combination of price and service/product and to minimize favoritism (which doesn’t always work).

But private companies and individuals might also request bids through RFPs. Have you ever renovated your house and sought multiple bids from contractors? If so, that is what we are talking about.

What is Bid-Rigging?

Let’s say you are a bidder and you know that two other companies are also bidding to supply tablets and related services to a business that provides its employees with tablets. The bids are blind, which means you don’t know what the other companies will bid.

You will likely calculate your own costs, add some profit margin, try to guess what the other companies will bid, then bid the best combination of price, product, and services that you can so the buyer picks your company.

This approach puts the buyer in a good position because each of the bidders doesn’t know what the others will bid, so each potential seller is motivated to put together the best offer they can. The buyer can then pick which one it likes best.

But instead of bidding blind, what if you met ahead of time with the other two bidding companies and talked about what you were going to bid? You could, in fact, decide among the three of you which one of you will win this bid, agreeing to allow the others to win bids with other buying companies. In doing this, you will save both money and hassle.

The reason is that you don’t have to put forth your best offer—you just have to bid something that the buyer will take if it is the best of the three bids. You can arrange among the three bidders for the other two bidders to either not bid (which may arouse suspicion) or you could arrange for them to bid a much worse package, so your package looks the best. The three bidders can then rotate this arrangement for other requests for proposals. Or you offer each other subcontracts from the “winner.”

If you did this, you’d save a lot of money, in the short run.

Of course, in the medium and long run, you might learn more about criminal antitrust law and end up in jail. You could also find yourself on the wrong side of civil antitrust litigation.

This is what is called bid-rigging. It is one of the most severe antitrust violations—so much so that the courts have designated it a per se antitrust violation.

Bid rigging is also a criminal antitrust violation that can lead to jail time. And it often leads to civil antitrust litigation too. Many years ago, when I was still with DLA Piper, I spent a lot of time on a case that included bid-rigging allegations in the insurance and insurance brokerage industries called In re Insurance Brokerage Antitrust Litigation.

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December 7, 2022

Antitrust for Kids: A Grinch-Inspired Account of Competition at Christmas

by Bona Law PC

Author: Molly Donovan

Every Pricer in Priceville liked Christmas a lot.

But the Government, eastward in DC, did NOT!

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November 26, 2022

If I Were You…I’d Listen to this Podcast about Government Investigative Subpoenas

by Bona Law PC

Author: Molly Donovan

A new episode of the “If I Were You” podcast is here! You can listen to it here. Featuring Bona Law partner Jon Cieslak.

This Episode Is About: Investigative Subpoenas

Why: In-house lawyers need to know what to do upon receiving an investigative subpoena in an antitrust or white-collar matter.

The Five Bullets: In-house lawyers, if I were you, I would know the following about subpoenas…

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November 14, 2022

Antitrust for Kids: Attempted Monopolization and Meatballs

by Bona Law PC

Author: Molly Donovan

Nathan is nine. His grandmother makes excellent meatballs using an age-old family recipe. Together, Nathan and grandma decide to can the meatballs and sell them to their neighbors on the north side of town—just in time for the holidays as a turkey side dish.

Things went great until Nathan’s friend from school, Nicole, also started selling meatballs with help from her grandma. What are the chances? Fortunately, Nicole targeted sales on her side of town (the south side), so that the two meatball-preneurs didn’t directly butt heads.

Wanting to keep things that way, Nathan asked Nicole to make the arrangement official by forming a “strategic partnership”—the gist of it being that Nicole keep her meatballs out of the north side and Nathan keep his out of the south. Nathan even offered to compensate Nicole for any lost business she suffered from the arrangement, and to keep up appearances, Nathan would arrange a few sham transactions to make it look as though each meatball maker had a few sales in the other’s territory.

The glitch, unforeseeable to Nathan, was that Nicole’s dad works for the DOJ’s Antitrust Division. Well versed on the Division’s leniency program since birth, Nicole naturally reported the conduct to the government promptly—before agreeing to Nathan’s proposed deal.

And that was all it took. Although there was no meeting of the minds, so that Nathan couldn’t get nabbed for a Sherman Act Section 1 violation (criminal conspiracy), he did get tagged for a Section 2 violation—attempted monopolization. Poor Nathan was the youngest defendant ever to plead guilty to an antitrust felony. His sentence remains pending.

Moral of the Story: This is based on a true story! Nathan Zito, president of a paving and asphalt business pled guilty in October to attempted monopolization of the highway crack-sealing services in Montana and Wyoming based on his proposal to a competitor that they allocate markets by geography. Although the competitor was already cooperating with the DOJ, precluding a prosecution for Section 1, Nathan did plead guilty to attempted monopolization and will be subject to fines and imprisonment at his sentencing in February.

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June 3, 2022

Antitrust for Kids: Friendship and the Foreign Trade Antitrust Improvements Act (FTAIA)

by Bona Law PC

Author: Molly Donovan

Amelia is 9. She makes friendship bracelets that are quite good because she uses high-sheen thread sourced directly from Brazil. Amelia sells the bracelets at school, from anywhere between $5 and $10, depending on how much thread and labor is required to make a particular bracelet.

One day Amelia gets an email from her thread manufacturer stating: “Amelia, Bad news. The cost of embroidery thread has skyrocketed in Brazil—increases of 20% across all manufacturers. Do you want to continue with your regular procurement schedule?”

Amelia has no choice—the Brazilian floss is what makes her friendship bracelets so premium. “Yes,” she replies, “continue with the usual schedule.”

Naturally, due to her rising material costs, Amelia increases the price of her finished bracelets by 20%. Although not happy, the school friends buy them anyway because the bracelets are trending.

One day Amelia learns online that the Brazilian thread manufacturers had raised their prices illegally—in collusion with each other as part of a global thread cartel. As a result, each of the manufacturers is being prosecuted by the DOJ (save the amnesty applicant).

Wait. How could that be when all of the troublesome activity took place in Brazil? Who do the U.S. antitrust enforcers think they are? Well, little did the thread manufacturers know, there is a U.S. statute called the Foreign Trade Antitrust Improvements Act (FTAIA) under which activities taking place beyond U.S. borders *might* be within reach of U.S. antitrust laws.

[“They should have called me,” says the antitrust lawyer, “I would have told them that.”]

Amelia is incensed. She wonders whether the FTAIA gives her a cause of action even though she’s a U.S. purchaser and the relevant cartel activity took place in Brazil. She’s super savvy. She calls her antitrust lawyer.

Here’s what the lawyer said:

The FTAIA says that there are two main ways in which foreign conduct becomes subject to private claims in the U.S.: there’s import commerce or direct effects. The language of the statute itself is super confusing—even to grown-up lawyers—so, here’s a relatively simple way to break it down:

Import Commerce. Amelia’s is the definitive example of import commerce, i.e., a transaction between an overseas conspirator and a purchaser in the United States. The conspirator invoiced Amelia in the United States and shipped the product directly to her. Pretty clear cut—that’s import commerce and it’s actionable in the United States.

But say that the thread makers first sold the thread to distributors in Brazil and it was the distributors who imported the thread to the United States with no involvement from the manufacturers. That may “count” against the manufacturers as import commerce even though the manufacturers imported nothing to the United States themselves. Depending on the jurisdiction, some U.S. courts say that so long as conspirators targeted a U.S. import market, you have import commerce for purposes of the FTAIA. As a practical matter, targeting could simply mean that the conspirators discussed the fact that thread gets distributed worldwide, including in the United States, so potentially, this is a rather loose test.

Direct Effects. For foreign cartel conduct to meet the direct effects test, the conduct must have a direct, substantial and reasonably foreseeable effect on U.S. commerce and the U.S. effect must give rise to the plaintiff’s claim. What? Let’s unpack it:
Direct: if the U.S. effect comes immediately after the foreign price-fix, with no intervening steps, it’s direct.

Some courts have adopted an even looser standard—even if the U.S. effect is not immediate, so long as the product enters the U.S. reasonably close in time and steps to the initial sale of the price-fixed product, it’s direct.

For Amelia, there are no steps between the foreign fix and her U.S. purchase, so she’s good here.

Substantial: this has come up mainly in component-part cases—where one part of a finished product was subject to the foreign price-fix and the question is whether the component part is too small in size and cost relative to the finished good for the effect of the price-fix to be considered “substantial.”

While it’s not an issue for Amelia, it would be an issue for Amelia’s school friends who did not buy the thread itself, but did buy the finished bracelets. Since thread is the major material component and makes up the entire cost of a bracelet, excluding labor and overhead, it’s safe to say that the U.S. effect on the price of the thread could be “substantial” to a bracelet buyer, particularly if lots of thread came into the United States.

Reasonably Foreseeable: this prong hasn’t been litigated a whole lot either, but an objective test seems to be in order, e., there’s reasonable foreseeability if a reasonable person would expect the price-fixed product to wind up in the United States—even if the defendants themselves didn’t have that understanding or didn’t think about it.
Gives Rise To: the private plaintiffs who have faced challenges here purchased the relevant products outside the United States and argued that prices increased globally, so that there is some U.S. effect in play. In those cases, the effect in the U.S. may not “give rise to” a claim based on non-U.S. purchases. Amelia doesn’t have an issue here.

Bottom line: the FTAIA is not a serious hurdle for Amelia’s claim against the Brazilian thread makers—she can sue all of them on a theory of joint and several liability for trebled damages.

Morals of the Story:

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May 13, 2022

If I Were You…I’d Listen to this Antitrust Podcast

by Bona Law PC

Author: Molly Donovan

If I Were You is a new Bona Law podcast that gives in-house lawyers the essential 5 bullets they need to explain real-world antitrust and competition risks to their business teams. This podcast is a quick 10 minutes or less, easily digestible during a commute or errand, and we hope it becomes a practical resource for in-house lawyers.

I’ll be the regular host of the podcast, which was inspired by one of my favorite in-house friends who said, “A good way to talk to the business side is to say something like, ‘I’m not saying don’t do it, but if I were you, I would do x, y, and z to mitigate the risk.’” And—tah dah—this podcast was born.

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