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New AAI Analysis Finds Changes Are Needed to Criminal Antitrust Plea Bargains

In a new paper, AAI finds that changes are necessary to harmonize the Department of Justice’s Model Corporate Plea Agreement with its Corporate Leniency Policy and to respond to recent case law developments.

In its criminal plea agreements, the Department of Justice (DOJ) routinely relies on private civil damages as a substitute for criminal restitution. However, DOJ plea agreements typically waive restitution based upon the mere filing of the civil action, without regard to whether it actually leads to the recovery of private damages. While the doctrine of collateral estoppel prevents guilty criminal defendants from contesting liability in overlapping civil damages actions, most such actions must be pursued as class actions to be economically viable. And nothing in the plea agreement places any prudential limitations on guilty defendants’ challenges to class certification.

AAI finds that the DOJ’s current policy of waiving restitution prior to class certification in plea agreements creates inefficient incentives for guilty criminal defendants to devote exorbitant amounts of time and resources trying to prevent antitrust class actions from being certified. Such defendants often do so by raising technicalities of class certification law that may be significant in so-called “statutory damages” class actions, but that do not vindicate any legitimate interests in procedural fairness or judicial efficiency in the context of antitrust class actions. When the strategy succeeds, these defendants often keep enormous ill-gotten gains from confessed crimes, undermine plea agreements and the broader criminal enforcement mission, and undermine the antitrust class action mechanism. Moreover, the strategy is in danger of becoming far more prevalent and effective because of recent developments in class action law.

In a detailed letter sent to the DOJ, AAI recommends three changes to the Model Corporate Plea Agreement that would help discourage inappropriate class certification challenges and align the restitution provisions in the DOJ’s criminal plea bargains with the restitution provisions in its Corporate Leniency Policy. The latter requires cooperating defendants to make restitution unless doing so is “impossible,” and it requires that such defendants provide “reasonably achievable” plans for making restitution and encourages them to do so through settlements that streamline damages determinations and make victims whole as swiftly as possible.

AAI makes the following recommendations:

  1. When a guilty criminal defendant chooses to rely on civil damages as a substitute for victim restitution in a corporate plea agreement, the Department should clarify that only the actual payment of damages, and not merely the filing of civil suits that “potentially provide for a recovery,” fulfills the defendant’s restitution obligation.
  2. When a guilty criminal defendant chooses to rely on a civil class action as a substitute for victim restitution in a corporate plea agreement, the Department should condition the waiver of restitution on class certification being granted.
  3. If the guilty criminal defendant wishes to contest class certification despite relying on the class action as a substitute for victim restitution, the Department should require the defendant to provide a “reasonably achievable” alternative plan for making restitution if class certification is denied.

The letter was written by AAI President Randy Stutz.

Read the Letter to DOJ.

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AAI Clarifies Aftermarket Monopolization Standards in the D.C. Circuit (PhantomALERT v. Apple)

AAI has joined with Professor Eric A. Posner, the Kirkland & Ellis Distinguished Service Professor of Law and Arthur and Esther Kane Research Chair at the University of Chicago Law School, in filing an amicus brief urging the D.C. Circuit Court of Appeals to credit economically distinct theories of liability for aftermarket monopolization under Section 2 of the Sherman Act.

In PhantomALERT, Inc. v. Apple, Inc., the plaintiff is an app developer who, during the pandemic, developed an app allowing smartphone users to report Covid-19 symptoms and hot spots by location. After Apple launched a similar app and excluded PhantomALERT’s app from the App Store, PhantomALERT brought a Section 2 case asserting that Apple tied the iPhone to the App Store and to Apple’s Covid-19-related tracing app and monopolized the aftermarket for Covid-19-related tracing apps. Apple then moved to dismiss the complaint.

The district court granted Apple’s motion, agreeing with Apple that PhantomALERT’s claim failed because it did not adequately define a “Kodak-style aftermarket.” Among other things, the district court found that the plaintiff failed to adequately allege lock-in, which it held “is the crux of any Kodak-style theory.”

In Kodak, the Supreme Court held that a defendant who lacks monopoly power in a foremarket nonetheless may monopolize an aftermarket under a lock-in theory, provided that a set of enumerated conditions are met. As explained in Epic v. Apple in the Ninth Circuit, the factors required for a Kodak-style lock-in theory are: (1) consumers in the foremarket must not generally be aware of the aftermarket restrictions; (2) consumers cannot price the aftermarket restrictions accurately because of significant information costs; (3) the cost of switching to a different brand in the foremarket is high; and (4) the aftermarket is itself a well-defined market. Here, however, the plaintiff alleged that Apple had market power in the foremarket.

AAI and Professor Posner explain that Kodak applies to claims of aftermarket monopolization only where the defendant lacks market power in the foremarket, not where, as in this case, the defendant possesses market power in the foremarket. A plaintiff can make out a prima facie case by showing that the defendant has market power over the foremarket and uses that market power to exclude competitors from the aftermarket. That theory of aftermarket monopolization follows from a straightforward application of traditional antitrust principles and not from the holding in Kodak. Among other things, the brief explains that a defendant with market power in the foremarket can exercise that power in the aftermarket regardless of whether its customers are aware of the defendant’s aftermarket behavior or can engage in lifecycle pricing. Proof of lock-in is not required in this scenario because the defendant’s power comes directly from its market power in the foremarket and not from its customers’ ignorance or confusion.

AAI thanks Garwin Gerstein & Fisher LLP (GGF), and GGF Partner and AAI Advisory Board member Deborah Elman, for serving as counsel to amici curiae. The brief was written by Professor Posner, with assistance from Ms. Elman and from AAI staff.

Read the full brief here.

 

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AAI Asks Solicitor General’s Office to Reject Misapplication of the “Monopoly Broth” Label in Section 2 Cases Challenging an Anticompetitive Course of Conduct (Duke Energy v. NTE Carolinas)

In an eight-page letter submitted on July 11, AAI has urged the Solicitor General’s Office to oppose certiorari in Duke Energy v. NTE Carolinas and to credit the difference between monopolization claims that challenge an anticompetitive course of conduct and monopolization claims that rely on a “monopoly broth” theory of liability.

In Duke Energy, NTE Carolinas alleged that Duke Energy violated Section 2 of the Sherman Act by engaging in an anticompetitive course of conduct designed to exclude NTE Carolinas as a new, highly efficient competitor in energy generation. The district court granted summary judgment to Duke Energy, but AAI believed NTE’s claims presented genuine issues for trial and filed an amicus brief urging reversal. The Fourth Circuit agreed, holding that NTE Carolinas raised genuine trial issues with respect to predatory pricing, exclusionary bundling, refusal to deal, and the challenged course of conduct as a whole. Duke Energy petitioned for certiorari in February, and last month the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States.

In its letter to the Solicitor General, AAI explained why certiorari is unwarranted. First, the petition does not present the question on which review was sought. Duke Energy seeks review of whether a monopolization claim can be won by aggregating multiple distinct, independently lawful acts into an unlawful whole. But here the court found that each individual element of the challenged course of conduct independently raised genuine trial issues. Although the court credited the cumulative effect of the alleged course of conduct as a whole, it separately applied conduct-specific monopolization tests to each element of the conduct and found that material factual disputes precluded summary judgment under the applicable tests. The summary judgement record therefore does not present a vehicle for reaching the viability of the monopoly broth theory, under which a series of independently lawful acts are added up and alleged to give rise to liability through their combined, synergistic effect.

Second, the letter argues that certiorari would create confusion in the lower courts by fostering a mistaken conflation of course-of-conduct analysis, which is a common mode of factual analysis found not only in many Section 2 cases but throughout the law, with the monopoly broth theory of liability, which is less common and has been a subject of some debate. Doing so would imperil several pending government actions that properly rely on allegations that an anticompetitive course of conduct, considered as a whole, supports well established theories of antitrust liability. The government’s major, pending actions in, for example, United States v. Google, United States v. Apple, United States v. Live Nation Entertainment, and FTC v. Amazon, all rely on a proper application of course-of-conduct analysis. Several cite directly to the Fourth Circuit’s opinion in this case.

The letter was written by AAI Senior Counsel David O. Fisher and AAI President Randy Stutz, with assistance from AAI Vice President and Director of Legal Advocacy Kathleen Bradish.

Read the full letter here.

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Applying Computer Science Principles to Police Modern Cartels: A Conversation with Giovanna Massarotto

On this episode of Ruled by Reason, AAI Senior Counsel David O. Fisher talks with legal scholar Giovanna Massarotto about what antitrust law can learn from computer science, and particularly how understanding agreement algorithms can help courts and enforcers police algorithmic price-fixing and other illegal agreements under Section 1 of the Sherman Act.

The conversation centers on Massarotto’s recent paper, Detecting Algorithmic Collusion, which examines the characteristics of agreement algorithms and how they can inform the “plus factor” analysis courts use to determine the likelihood of an illegal agreement. It begins with an introduction to the concept of a “distributed system,” which is any network of computers that works together to perform a common task, the Bitcoin blockchain being one notable example (5:25). It then examines the Byzantine Generals Problem, a classic story illustrating how the nodes in a distributed network can reach an agreement despite the existence of one or more unreliable nodes, which has parallels to the formation of stable cartel agreements (9:09).

Massarotto explains how agreement algorithms create stability, and what they can teach courts and enforcers about how algorithmic cartels function. Specifically, she describes how agreement algorithms use digital signatures, cryptography, broadcasting, leader election, and private channels to allow stable decision-making in distributed systems (21:50). Massarotto concludes that, while broadcasting and leader election are accounted for in the existing plus-factor analysis, courts and enforcers should add the use of digital signatures, cryptography, and private channels to the list of plus factors which may indicate the existence of an illegal agreement (30:40).

GUEST

Giovanna Massarotto is an international expert on antitrust, economic regulation, and IP law in the digital economy. She received her PhD in law from Bocconi University and is currently an Academic Fellow at the Center for Technology, Innovation & Competition (CTIC) at the University of Pennsylvania Carey Law School and an affiliate of the University College London Centre for Blockchain Technologies.

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Experts, Daubert, and Judicial Gatekeeping: A Conversation with Edoardo Peruzzi and Christine Bartholomew

On this episode of Ruled by Reason, AAI Senior Counsel David O. Fisher chats with economist Edoardo Peruzzi and antitrust scholar Christine Bartholomew about the role of Daubert challenges in antitrust suits, focusing on the increasing role of Daubert as a gatekeeping device that may be hindering private antitrust enforcement.

The conversation begins with an examination of Peruzzi’s recent working paper, which finds that Daubert challenges have become more frequent in antitrust cases and that, although plaintiffs’ experts are challenged more frequently, defendants’ experts are more often excluded (6:30). Bartholomew places Peruzzi’s findings within a context of increased procedural gatekeeping in antitrust cases, including the conflation of Daubert issues with the requirements of class certification, which she argues has wrongly turned Daubert into an outcome-determinative mechanism that is hindering private antitrust enforcement (22:20).

The group then discusses potential solutions to this problem—including a different admissibility standard for economic testimony, increasing the use of court-appointed experts, and delaying the consideration of admissibility until the eve of trial—but finds none of them to be feasible. (30:15). Instead, they conclude that the solution lies in a return to the language of the Daubert trilogy and its goal of liberalizing the admissibility of expert testimony, which means keeping Daubert questions separate from the standards of class certification and rejecting efforts to treat the “fit” inquiry into a strict requirement of admissibility (40:05).

GUESTS

Edoardo Peruzzi is a postdoctoral researcher at Leibniz University Hannover. He studied philosophy and economics at the Scuola Normale Superiore, the University of Pisa, and the University of Siena. He was a visiting scholar at the TINT Centre for Philosophy of Social Science at the University of Helsinki and the Center for the History of Political Economy at Duke University. During his doctoral research, Edoardo studied the application of economic theory in legal proceedings, employing tools from philosophy of economics, philosophy of science, and empirical analysis.

Christine Bartholomew is the Vice Dean for Academic Affairs, a professor of law at University at Buffalo School of Law, and an associate editor for the ABA Antitrust Law Journal. Her academic publications have appeared in many leading academic journals and have been cited by state and federal courts and major news outlets. She is also the co-editor of the ABA’s forthcoming Antitrust Daubert Handbook. Prior to joining academia, she served in executive and lead counsel positions for numerous national, multi-million-dollar antitrust cases.

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AAI Asks Supreme Court to Mind the Nuances of Antitrust Class Actions (Labcorp v. Davis)

AAI has filed an amicus brief in Labcorp v. Davis, urging the U.S. Supreme Court to avoid unwittingly upending antitrust class actions in a case challenging statutory damages under the Americans with Disabilities Act (ADA).

In Labcorp, the defendant is a diagnostic testing company that provides medical blood and urine screenings. The plaintiffs are a putative class of blind patients who could not use Labcorp’s self-service kiosks to register and check-in at Labcorp locations, because the kiosks allegedly failed to comply with the ADA and California state law. The plaintiffs sued to recover statutory damages. A district court certified the class, and the Ninth Circuit affirmed.

Labcorp petitioned the Supreme Court for certiorari, arguing that the class should not have been certified because it allegedly contains uninjured members. Such classes, Labcorp argues, violate Article III and fail to satisfy Rule 23(b)(3), which requires that common issues predominate over individual issues in class litigation. The Supreme Court granted certiorari on the question of “Whether a federal court may certify a class action pursuant to Federal Rule of Civil Procedure 23(b)(3) when some members of the proposed class lack any Article III Injury.”

AAI’s amicus brief urges the Court to avoid painting with a broad brush. It explains that Labcorp’s arguments rest upon several false assumptions and threaten harmful unintended consequences because they fail to account for important distinguishing features of antitrust class actions.

The brief explains, first, that Article III injury can be a common question that supports a finding of predominance in antitrust class actions; it does not invariably give rise to any individual issues at all or necessarily imply that individual issues would predominate.

Second, Labcorp’s proposed rule, which would prohibit certification of classes containing uninjured members, would unnecessarily prevent settlements designed to avoid the cost of litigating the issue of whether there is a classwide Article III injury.

Third, Labcorp’s proposed rule elides important differences in the standards for establishing Article III injury and for establishing antitrust injury on the merits. The Supreme Court has held that (1) the former changes according to the stage of the litigation, and (2) the latter is subject to unique standards because the vagaries of the marketplace usually deny us sure knowledge of the precise amount of antitrust damages.

Fourth, Labcorp misses that in antitrust cases, unlike in certain statutory damages cases, the presence of uninjured class members usually does not alter the amount of claimed damages. Antitrust plaintiffs usually must rely on classwide econometric techniques to calculate damages because the competitive baseline in a but-for world, absent the antitrust violation, is unknown (owing to the illegal conduct).

Fifth, Labcorp’s policy arguments suggesting that class certification should be discouraged because it is often a death knell for litigation are not true in antitrust litigation.

The brief was submitted by AAI President Randy Stutz, with input and assistance from several leading antitrust class action experts.

Read the full brief here: AAI Amicus Brief in Labcorp v. Davis

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Working Paper No. 25-01: Mergers & Cooptive Acquisitions

A new wave of emerging companies developing foundation models has unleashed fierce competition in generative artificial intelligence. These emergents have significant innovation capabilities threatening incumbent tech companies. To protect themselves, incumbents have responded by partnering with leading product developers and subsuming smaller startups through quasi-mergers.

This working paper by AAI Research Fellow Alexandros Kazimirov explores whether certain quasi-mergers by large technology incumbents are “cooptive” acquisitions. As Mark Lemley and Matthew Wansley have described, cooption is a strategy whereby technology incumbents identify potentially disruptive technologies, gain influence over startups developing the technologies, and strategically influence the startups’ access to resources and regulatory controls affecting their ability to grow.

Using the Google-Character, Microsoft-Inflection and Amazon-Adept transactions as case studies, the working paper makes contextual comparisons of circumstantial evidence like exclusive licensing agreements, price premiums, market product proximity, and product discontinuation to assess the relative risk of harm to innovation caused by quasi-mergers. It finds that, even if there is high probability of harm, the structure of a quasi-merger can shield incumbents from government intervention because enforcement agencies cannot use injunctive relief to restrict employee mobility. It explores potential policy solutions involving startups, their founders, their employees, and the antitrust enforcement agencies to address threatened competitive harms without unduly limiting the exit options of startups.

Access the AAI Working Paper on Mergers & Cooptive Acquisitions.

AAI Working Papers are works in progress that may be revised and published elsewhere. The views expressed are solely the author’s and do not purport to reflect the views of the American Antitrust Institute.

*This paper has been accepted for publication by the Stanford University Codex Center’s Computational Antitrust Project. 

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Commentary by Fisher: Cleaning and Sharpening Our Antitrust Tools for the Age of AI

AAI Senior Counsel David O. Fisher has published a commentary drawing insights from an analysis of recent Section 1 cases involving allegations of algorithmic collusion.

Fisher argues that courts in algorithmic collusion cases can rely on existing antitrust tools to protect the competitive process by ensuring that AI is not used in ways that deprive the marketplace of independent centers of economic decisionmaking. Recent cases involving allegations of algorithmic price fixing show us that protecting competition in the era of AI means revisiting traditional assumptions about what tacit agreements look like and how tacit collusion may be addressed. Courts evaluating allegations of algorithmic collusion should focus functionally on whether the challenged conduct interferes with individual firms’ pursuit of their own independent self-interests. The threat posed by algorithimic collusion should prompt us to revisit our assumptions about the difficulty of crafting legal remedies to combat oligopoly pricing. AI-powered oligopoly pricing should be treated as a tacit price-fixing agreement when it has collusive effects and is capable of being enjoined.

Read the commentary: AAI Commentary on Algorithmic Pricing

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AAI’s Randy Stutz and Kathleen Bradish Discuss Multi-Market Balancing, Epic v. Google, and Key Antitrust Cases on Rethinking Antitrust

AAI’s Randy Stutz, President, and Kathleen Bradish, Vice President and Director of Legal Advocacy, sit down with Bilal Sayyed of Rethinking Antitrust to discuss key developments in antitrust law. Stutz shares insights from his recent Pro-Market blog post, Multi-Market Balancing in a New Antitrust Paradigm. Bradish discusses AAI’s recent amicus brief in Epic v. Google, arguing that the 9th Circuit reject balancing out-of-market benefits against in-market harms. They also explore other recent AAI amicus briefs, including two in the algorithmic price-fixing cases, one arguing against Noerr-Pennington protection for fraudulent claims, another arguing against a carve-out of the scope of the Foreign Trade Antitrust Improvements Act in private litigation.

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AAI Issues 2024 Impact Report

The American Antitrust Institute (AAI) has issued its 2024 Impact Report, highlighting its achievements and leadership in protecting and promoting competition for the benefit of American markets. In 2024, AAI’s work delivered tangible benefits for consumers, workers, and businesses through research, education, and advocacy that generated significant improvements in antitrust enforcement and policy outcomes. It is committed to expanding its resources, growing its capabilities, and strengthening its impact in 2025.

View the Impact Report