Criminal Market Allocation or Pro-Competitive Agreement: The Debate over DOJ’s “No Poach” Prosecutions

Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group Teleforum calls, become a Federalist Society member today at fedsoc.org.

 

 

Guy DeSanctis:  Welcome to The Federalist Society’s webinar call. Today, April 21, we discuss “Criminal Market Allocation or Pro-Competitive Agreement: The Debate over the DOJ’s ‘No Poach’ Prosecutions.” My name is Guy DeSanctis, and I am Assistant Director of Practice Groups at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today’s call. Today, we are fortunate to have with us our Moderator, Pepper Crutcher, partner at Balch & Bingham and chairman of the Labor & Employment Law Practice Group at The Federalist Society. Throughout the panel, if you have any questions, please submit them through the Q&A feature so that our speakers will have access to them for when we get to that portion of the webinar. With that, thank you for being with us today. Pepper, the floor is yours.

 

Pepper Crutcher:  Thank you, Guy, and welcome, everyone. I have the honor to introduce three panelists. The one you’ll hear from first is Barry Nigro, who is chair of Fried Frank’s Global Antitrust and Competition Department. Barry recently served as the Principal Deputy Assistant Attorney General in the DOJ’s Antitrust Division, where he was responsible for civil and criminal enforcement, and, prior to that, as Deputy Assistant Attorney General. He's also served as Deputy Director of the Federal Trade Commission’s Bureau of Competition.

 

You’ll also hear from Lindsey Vaala, who’s in private antitrust practice at Vinson & Elkins, where she’s been a partner for 13 years. She’s a member of the firm’s Global Cartel Defense and Coordination Team with special emphasis on cartel and its criminal antitrust matters in related class actions. Lindsey works with corporate leaders to design bespoke compliance programs and policies. A favorite part of her practice is training executives and lawyers, regarding antitrust issues. She’s twice been appointed to serve as co-chair of the ABA Antitrust Section’s Cartel and Criminal Practice Committee, a position she currently holds. Before she joined V&E, Lindsey clerked in the Alexandria Division of the Eastern District of Virginia and, like Zach, graduated from William & Mary Law School. Lindsey’s undergraduate degree is from Davidson College, and she has a master’s from NYU.

 

Zach Terwilliger, our third panelist, is also a V&E partner, been with DOJ before that for 14 years, most recently is US Attorney for Eastern District of Virginia. Zach also served as an Associate Deputy Attorney General at the main DOJ Headquarters and as an AS -- AUSA in the Eastern District of Virginia. Prior to DOJ, Zach was a law clerk to the Honorable Michael K. Moore of the United States District Court for the Southern District of Florida. He graduated with highest honors from William & Mary and obtained his undergraduate degree at the University of Virginia. Wahoowa.

 

I, as a moderator, am cast in the role of a semi-ignorant onlooker, of which I am so well suited by my chairmanship of the Labor & Employment Practice Group, which gives me only the most tangential relationship to crimes, prosecutors, and other things that go bump in the night. I’ll be asking Barry to explain to us, to start, how in the world employer hiring and compensation decisions work their way onto the DOJ criminal antitrust enforcement docket. Barry, take it away.

 

 Barry Nigro:  Thank you, Pepper, and thank you to The Federalist Society for hosting this program. It’s coincidentally very timing, given the outcomes in two of the Antitrust Division’s first prosecutions in this area. To understand how we got here, you need to go back and look at where we started. And you can go all the way back a good ten years or more. There’s nothing remarkable to those who practice antitrust law to the notion that naked agreements not to compete are per say illegal and are, in some cases, prosecuted criminally. That’s been blackletter law for many years.

 

What is new is the application of those principles in the labor contexts, and that started back really before -- in the Obama administration and all the way back with the prosecutions of some non-solicit agreements among a bunch of tech companies: eBay, Intuit, Lucasfilm, Pixar, Adobe, Apple, Google, Intel, and so on. Those were subsequently followed in October of 2016, just before the election, with a policy that came out for human resource professionals, a joint policy from the Antitrust Division and the FTC. Unlike -- it’s called a guidance document, but, unlike some of the other guidance documents that have been published by the agencies, such as the Merger Guidelines, which have gone through, I noticed, a comment process. I don’t believe this one did. It just appeared in October of 2016, and it walks through in the way you might expect from a law firm memo some of the dos and don’ts with respect to HR activities and talks about -- right at the beginning, it talks about how the agreements among competing employers, it says, may violate the antitrust laws.

 

So that’s how it starts, and as you work into the document and eventually get to page four, you get to the part that we’re going to focus on today, where the agencies announce that, going forward, the DOJ intends to proceed criminally against naked wage fixing or no poaching agreements. And they, then, later in the paragraph, talk about no poach as an agreement among employers with respect that employee compensation or not to solicit or hire each other employees. So that’s the first time that the agencies have said in a clear way that they intend to go after these sorts of things criminally. It’s not been done before. That was, as I said, October 2016. The Trump administration came in in January.

 

There was a hold put on AAG Makan Delrahim, so he actually didn’t start until the end of September of 2017. And one of the first things that the administration had to do was figure out what to do with this policy document and -- whether to go forward with it and how to implement it. And a lot of time and thought was given to that, and the decision was made that -- to go forward but to try to provide some clarity as to -- and answer some of the questions that key people were asking in the wake of it, such as “What’s per say? What’s rule of reason? What’s criminal? What’s civil? How do you define the relevant market?” A lot of people get confused on the relevant market question because they all think in terms of downstream competition and agreements not to compete with respect to hiring employees among downstream competitors, but that’s not how the agencies are thinking about it. The agencies are thinking about -- let’s say, tech firms. If there’re two tech firms that are competing to hire software engineers, whether they’re competing downstream is not really relevant or to the analysis of any agreement with respect to hiring.

 

And then there’s the monopsony to this angle. Most of the criminal cases that the DOJ has brought have focused on the sale of products or services, and, so, people intuitively understand what it means when there’s an agreement not to compete or to fix prices with respect to customers downstream. I think when you flip that upside down and you ask people to apply that same principle to the purchase of labor services, it has the potential to get confusing. And you’ll see this in a civil context potentially with the pending merger trial involving the booksellers, which is a monopsony case. It’s challenging Penguin and Random House under a monopsony theory. And in some respects, it’s just the mirror image of monopoly.

 

But in other respects, it raises interesting questions because sometimes the coordination can result in lower costs, lower prices to get passed onto consumers. And I think there’s a tendency sometimes to get confused by that. And when we talk about the DaVita case and the Jindal case and the acquittals there, I think, when we get into the facts, you’ll see that may be, in part, an explanation for why the Division wasn’t able to get convictions. And then, there’s a whole set of agreements that people typically refer to as noncompetes that are vertical or maybe imposed by a franchise or among the franchisees. And how should you think about those? And what’s the difference between unilateral conduct and joint conduct? So there’s all these questions that this policy statement raises and are now going to be -- in different ways, show up in the litigation and the defense of these cases.

 

So, from 2017 — really late ’17, ’18, and ’19 — most of the Division’s efforts were focused on trying to bring some clarity through the filing of amicus briefs and enforcement actions. There was the case in 2018. It was a civil case brought against some Grail equipment suppliers, and that was pursued civilly, in large part, because it -- the agreement terminated before the 2016 policy statement. There was a sense that it wouldn’t be appropriate to prosecute that criminally since the policy statement had not been made at that time. And, so, in the exercise of prosecutorial discretion, the decision was made to prosecute those civilly. During that time, there were, I would say, probably over two dozen investigations of various sorts, some of them preliminary, some of them much more expansive, involving, I’ll just say, no poach, to use the broad -- but in a broad sense, no poach situations. And frankly, I was surprised when I got there how often this issue came up, especially in merger reviews.

 

And, so, the Department, the Division went about its work in investigating those. And one of the challenges — and this is another reason that the Department may have had some trouble on these first couple of cases — was COVID. Grand juries weren’t meeting, gathering facts. The FBI wasn’t available to go knock on people’s doors and collect facts as they have in most criminal cases. And, so, COVID was definitely a challenge, a headwind. And that’s -- while for many of us, we’re back in the office, and it’s going away. The Department, I think, is coming back two days a week or starting in May. I think it’s going to continue to be a challenge to undertake these investigations when you’ve got the COVID overhang.

 

There’s also a head count challenge with the Division. They’re way behind on FTEs. They’ve got over 146 pending grand juries, I think I heard from Richard Powers, which is -- has to be near or possibly an all-time high. As I said, the head count’s down 25 percent from 10 years ago. There are a number of cases teed up on the criminal side for trial. There’s, I think, six -- a half a dozen on the civil side, merger cases, which is unprecedented. And, so, I -- at some point, you have to ask, “Is there a limit on the capacity of the Division to litigate all these things?”

 

And then, on top of that, I think a big issue — and I’m sure we’ll get into this some more — is the novelty that flows from an agreement not to purchase a good or service, the monopsony question. And I think you saw in DaVita the judge and his decision and the decision with respect to the jury instructions actually reference the novelty of the case and decided to depart from the instructions that are typically given in customer-allocation cases. So there’s a number of challenges that the Division is going to have to overcome in order to get convictions here and -- but, if you ask me, given these two outcomes, what’s the probability that the Division will back off on bringing these cases, I would say it’s -- the probability’s probably zero percent. There’s no way they’re backing off. They really believe in this. It’s important.

 

It’s a centerpiece of the administration’s policy when it comes to labor. And, so, I’m expecting that we’ll see more cases, and there’ll be more resources put into it and more thought put into how to try these cases so that the juries understand what -- why the Division is prosecuting them and why they should be treated criminally. So I’ll stop there, but I think that -- that’s the background that got us here.

 

Pepper Crutcher:  Well, Zach, Lindsey, Barry has explained how we got here. Tell us in any order you prefer what it means to be a defense lawyer now that we’re here in these kind of cases.

 

Lindsey Vaala:  Yeah. Zach, do you want me to start, or you want to go?

 

Zach Terwilliger:  Pepper, if it’s all right with you, I think what -- let me just add in a couple pieces of context, in case we have a couple folks who are less versed than Barry and Lindsey and others on this. I’ll take about 30 seconds to just give you a little bit more of the 40,000-foot view. So, for those of you who are not antitrust specialists or are hearing about this because it’s incredibly timely right now, one thing to just keep in mind, we’re taking about Section 1 of the Sherman Antitrust Act. And what we’re basically saying is there were these three established categories of hard-core criminal conduct, which involved bid rigging, price fixing, and market allocation. And this whole discussion is really about how that’s -- those three categories have been expanded. And basically, what we’re going to get into in the no poach, nonsolicit, no-hire spaces, market allocation for employees, and in the Jindal case, what we’re going to talk about is how price fixing and, at least according to a judge, and a charging theory relates to wage fixing.

 

So that’s really where we are, and what we’re going to focus on. And let me take it over the Lindsey who’s been watching all of this and, frankly, been a thought leader on it in private practice while these different machinations were going on at government.

 

Lindsey Vaala:  Yeah. Thanks, Zach. I think I’m the only one on the panel who’s only been on the defense side the whole time through this, and, Barry, it was really interesting your summary of how the Division was thinking about this because, during that same time frame, we were wrestling with, “How do we advise clients?” We saw the high-tech cases. They were civil enforcement action facing unique technology companies on the West Coast. Obviously, there was a class certification.

 

I think 64,000 people in a class before Judge Koh in California, settlements to the tune of $400 million but, again, all on the civil side. And then, fast forward to 2016, we get this guidance that, from the defense side, came out of nowhere and was unique, like you pointed out. There was really no comment period. No kind of indication, at least from my perceptive, that this was coming. And then, what do you tell a client? I started writing about this pretty quickly, and people, even within my own firm, were like, “This isn’t going to be a thing.” Right?

 

And we watched Washington State start to prosecute noncompetes and the fast food space. We saw the Division file amicus briefs and statements of interest and civil cases. We saw the Rails of Fire case, which was civil, 18 months after this guidance, saying, “It’s all going to be criminal -- or it’s going to be criminal.” And, so, it was this interesting dance of how to advise clients that we do think this is coming. We can’t tell you when, and we can’t tell you necessarily what it’s going to look like, but this is the time to look at your compliance programs, talk to your HR people who are probably not the class of employees that you’re largely giving your antitrust training to, and bring them into the fold. And one of the lessons from the high-tech cases was how easy these agreements are to reach.

 

They’re often reached at the very highest levels of the company: CEOs, senior executives, who make the agreement and then tell their HR people, their external recruiters, what the agreement is, the rules of the road, and then ask those folks to carry it out. And I think that’s why the 2016 guidance was really targeting human resource professionals as the people who could really raise the red flag and say, “This -- we can’t be doing this.” So we got the 2016 guidance. We wait. We wait. We wait.

 

And then, finally, in December of 2020, we get the first indictment, which is a wage-fixing case, and then, I think, within a matter of weeks, we get the first actual no poach indictment, which was Surgical Care in the Northern District of Texas. So, against the background, Pepper, with your clients and your practice, you’ve got interesting labor issues. How do you advise clients about their noncompetes and their restrictive covenants, and how does that -- how do those types of agreements come into this? And, so, it’s been a really interesting dance to advise clients about how to avoid criminal prosecution but also how to think about their labor and employment agreements and other joint ventures and other types of agreements that raise some of these same issues.

 

Barry Nigro:  On a noncompete front, and I would — and people may have missed this — but the Department filed recently a amicus brief, and, I believe, it’s a state-court case against Pickert Medical Group. And, if you look at how they talk about the noncompete and the way they frame the argument and the logic of it, even in a case challenging noncompete agreements that we might instinctively think of as vertical because it’s between a medical group and its doctors, what the Division said recently is that, “These are agreements, therefore, they’re concerted action, and” -- and then they say, “Because the doctors actually are competing in the market themselves,” that it should be viewed -- while it might have vertical dimensions, it should be viewed horizontally. And then, because it’s horizontal and an agreement, the burden shifts to the defendants to explain why it’s a reasonably necessary restraint in furtherance of a pro-competitive venture, which is this standard joint venture analysis. And, so, it tilts in favor of the plaintiffs in the way it presents the argument. And that, I think, is a reflection of how the Division’s going to be thinking about these issues going forward during the Biden administration. They’re -- they view -- they’re going to view them skeptically, and they’re going to look at -- look to defendants to explain why isn’t this per say and why isn’t it criminal and explain to us what the rationale is for this restraint, why it’s reasonable, why there’s no less restrictive alternative, and so on.

 

Zach Terwilliger:  Yeah. And picking up on that a little bit, one of the things that really struck me, coming into private practice from a long period in government service, you’re always looking at these -- when you’re talking about criminal justice reform and mens rea, what you’re really talking about -- and this gets into the DaVita case, as Barry mentioned. We just -- there was just a trial that the Division had out in Colorado, where there was acquittals across the board in this no poach case called DaVita, including its CEO, Kent Thiry. And basically, there -- and the facts of the case were you had one company that was allegedly agreeing with two other companies not to solicit and not to hire each other employees. And in certain instances, it was just a one-way, non-solicit we agree as Company B not to solicit employees of DaVita. And the only way they can actually interview is if they tell us first and those sorts of things.

 

And typically, under the per say standard — and one of the reasons why you have those three categories of criminal offense — under the per say standard, they’re established. There’s judicial precedent. People are on notice. You cannot rig bids. You cannot fix prices. We cannot allocate markets. And, so, in a lot of the pretrial briefing that you saw in both the DaVita case as well as Surgical Care — which were done by foremost appellate experts, Paul Clement in Surgical Care and Seth Waxman in DaVita — really set that up and were a bunch of arguments made.

 

This should not be a per say case because there isn’t judicial experience. This really should be ruled [inaudible 22:52], therefore, civil. It is not just a different type of market allocation. This is a new offense that you’re creating. And there’s due process concerns because, as we saw in the DaVita case and has been present in other cases, there’s a pretty clear understanding that these individuals, these CEOs of various companies, had no concept of what they were doing was wrong. And, so, you saw a lot of the briefing talking about, “Well, I wasn’t on notice that this was wrong. And my own messages and back and forth clearly show that I didn’t know this was wrong.” And, so, when you get down to it, one of the things that you’ve heard the Division, the Antitrust Division, talk about, in light of these cases, are these are actually wins.

 

Well, how can you have a win if everyone got acquitted? Well, as you look at the progression, let’s take DaVita first. If you look at the progression of the DaVita case, it survived a motion to dismiss, and basically, you had a judge there saying, “Yes. You can have a non-solicitation agreement be an example of market allocation but not all non-solicit agreements.” And it left an opening there. But, basically, you had a judge saying, “No. I think this is the per say standard, and the per say standard should apply.” One thing that Barry and Lindsey certainly can expound more upon is that, under the per say standard, typically, it’s just all the government has to show is an agreement.

 

Pepper and I just agreed that I’m not going to hire his best and brightest associates, and he’s not going to do the same for me. That’s all that needs to be showed. Typically, you don’t have to show that we understand that that’s wrong or that we’re intending to allocate the market for labor and employment in criminal antitrust associates. But, when you go to the DaVita case and you look at the jury instruction that was given, the judge in that case specifically said, “You need to find that they entered this agreement with a purpose of allocating the market.” And assuming that jury instruction is used and it holds up and that catches on, that really, to me, is a shift in the burden of proof on the part of the prosecution because, I think, oftentimes, on any conspiracy case, you can establish an agreement was made. But then, if you have to show that agreement included a specific intention to allocate a market as opposed to, as we saw in the DaVita defense, just not upset someone else in the business.

 

People allegedly were intimidated by the CEO, and the reason they didn’t want to hire from him was they didn’t want to make an enemy out of him. So I think that’s pretty interesting. But let me kick it over to Barry.

 

Barry Nigro:  Yeah. I think that’s a good insight because I believe that the jury struggled with those issues. They -- the judge let them ask questions, and some of the questions were practical questions, like “How do we decide whether the effect was of any consequence, or that this was significant?” And those types of things are obvious when you have a price-fixing case. Right? You fix prices. The executives are getting paid tons of money. Juries understand that they’re profiting directly off of the price fixing, and that’s all intuitive, and it has a clear feeling of fraud. Right?

 

And juries understand that. I think when you turn it upside down and you’re talking about these labor cases and monopsony and some of the dynamics that you describe, Zach, with not wanting to upset their friend or play nice or whatever, it’s also not clear, even though there may be an aspect that is saving the company money so that they -- by not having to compete, and therefore, their profits go up. I don’t think the juries have the same intuition that they do with price fixing. I think that one of the challenges that the Division’s going to have is to try to translate that into a -- something that the jury’s going to understand and that will resonate with them and whether it will feel like these guys are engaged in something that feels very criminal in nature. And I got the sense from reading the reports on the DaVita trial — I wasn’t there, so I don’t have the benefit of first-hand knowledge — that some of the jurors struggled with that.

 

Lindsey Vaala:  Yeah, and I think that, too, these labor cases are kind of coming on the heels of what, Barry, a decade or more of Asian-based global cartel investigations, where the conduct was pretty obvious, and it mostly resulted in settlements. So we didn’t have really very many criminal trials coming out of those. We had ASHRAM and DRAM and auto parts and billions and billions of dollars’ worth of fines coming into the Division but no trials. But the evidence there was just so different than what we’re seeing here. And I also wasn’t at the DaVita trial, but I have also been following along and reading the -- about the evidence, and I -- it strikes me that with the Asian cases, the auto parts, you had emails that said, “Destroy after reading,” and “Do not forward,” and “For very limited distribution,” that really suggested that folks who were writing those emails knew that there was something not right about them. And you just don’t have that yet, at least -- yeah, in this labor cases.

 

People just don’t know that what they’re doing is considered illegal by the Division. So I think that has been a -- and juries probably do struggle with that. And that’s been a really interesting piece for me to think about as I transition from the decade or more of very obvious cartel-type investigations to this really novel space.

 

Pepper Crutcher:  Let me remind our participants watching this to enter your questions in the chat box, please, so that we can see them and answer them probably, roughly, in the order in which they’re received. I have a couple of questions preceding, as I said in the beginning, from my ignorance, that I plan to ask. Panelists, do you have any questions of each other you’d like to ask first?

 

Zach Terwilliger:  Sure. One of the things that I think is interesting is this started under — and I promise there’s a question here, just a little preamble — this started in 2016, then, as Barry gave us a great insight into what was happening during the Trump years when you saw a very aggressive Antitrust Division in terms of creation of the Procurement Collusion Strike Force and a focus on procurement fraud. And then, you see these indictments come, and they came during the lame duck period after the election. In fact, one came on January 5^th, and, so, the country was certainly focused elsewhere on January 6^th. And, so, it did come out of nowhere. We’ve heard a lot of what I would call saber-rattling and aggressive enforcement.

 

There’s been other talk about these monopolization cases and the FTC, so I guess a question, first for Lindsey and then maybe for Barry, is this -- the aggressive no poach seems to be, maybe a long-standing, but one example of just increased, aggressive enforcement from the Antitrust Division, so I guess, Lindsey, from your perspective, does that seem accurate? And, Barry, as someone who lived through that, through those four years, is it fair to say that the Antitrust Division is being more aggressive now than it was during the Trump years, or is there more nuance there? Lindsey?

 

Lindsey Vaala:  Yeah, I -- definitely more aggressive right now. I think it’s exacerbated by comparing it to the last decade -- right? -- where you had -- the Division was very busy on investigations and cartel investigations, again, focused on -- largely conducted in Asia, but it was relying on the Leniency Program a lot to have -- to bring cases in, and we should probably talk about the Leniency Program. So this seems new and more aggressive. They’re definitely going to trial more often, but, again, they have cases that are closer to the line, that people aren’t agreeing to plead to, so I think it also seems more aggressive than maybe it is. But there is a lot of saber-rattling going on. They do have a very heavy trial load, as Barry already said, and they’re not backing down.

 

So we have -- it’s not a labor case -- but we have the chicken case where they indicted ten individuals. They’ve now been to trial twice in Colorado and had hung juries both times and, now, are planning to retry for a third time five of the ten executives. And Jonathan Kanter, who’s the head of the Antitrust Division, was asked to go out and speak to the judge about why their trial is appropriate. And a third trial is just kind of mind-boggling, in some ways, and, I think, really highlights the -- how serious the Division is about taking all of these cases to trial — query whether that’s the best strategy — but to really taking the tough cases and being willing to lose.

 

Zach Terwilliger:  Yeah, just, Barry, to key that up a little bit, one of the things when you and I were in government, we had to make decisions about a finite amount of resources. Everything can be a priority, or nothing’s a priority. And sometimes, you look for, if you’re going to break new ground, you look for cases that have really strong facts because, as we know, bad facts make bad laws. So just curious on whether you think this is a stepped-up aggressive Antitrust Division, or this is really most -- just one of the fruits of many years of investigation?

 

Barry Nigro:  I think it’s hard to say that the Antitrust Division’s not being more aggressive right now. That’s certainly the desire, and Jonathan has now been there a few months. He still doesn’t have his full complement of deputies so -- which surprises me, frankly, that this deep into the administration, he’s still waiting on some folks. But, if you look back, President Biden, of all things, tweeted that, “It’s simple: companies should have to compete for workers just like they compete for customers. And we need to get rid of non-compete clauses and no poaching agreements that do nothing but suppress wages.” So that’s the -- reflects the sentiment of the Biden administration.

 

There’ve been three -- at least three new indictments since, and my expectation is that the outcomes in DaVita and Jindal will cause the Division to take a little more time and think about how they’re going to try these other cases and learn from past experience. I don’t see them backing down. If anything, I see them looking for more opportunities and maybe cases with better facts. And maybe they’ll make some changes in trial strategy and those sorts of things, but I do think they have to deal with these headwinds. Trying to try a case with people out of the office and just the notion of preparing for a major trial on a criminal matter with people out of the office is -- it’s -- I don’t know how you can do that. And, so, I think that is a drag on the ability of the Division to get the job done.

 

The FTE constraint is another real issue that -- it was an issue when we were there. I know Makan was very aggressive about trying to get more money from the Hill, and that continues to be a need. And then the novelty, of course, as I said before, is a challenge. So I think it -- the administration intends to stick to their guns and continue to be aggressive in this area. At the same time, I -- there’s a lot that can be done without concern about being prosecuted criminally. I think that there -- if you go back to the 2016 document, it -- when it talks about what’s criminal, it’s pretty narrow.

 

It’s just a naked wage fixing or no poach agreements. It does go into detail about a lot of other things that you can do that may still be -- whether they’re legal or illegal, depends on the facts, but they’re not necessarily criminal or -- and won’t be prosecuted criminally. And, so, I don’t think people should assume that any sort of a noncompete or nonsolicit arrangement is automatically a problem and might land you in jail. I think it just needs to be done in a proper way and has to be related to some other pro-competitive purpose and so on. So it -- but I do think with the prosecutions and the press this is getting, which is part of the desired effect, some people might be chilled from engaging in conduct that otherwise is perfectly fine.

 

Pepper Crutcher:  Well, your quote of the president tees up my first question, which arose when I took Doug Leslie’s labor antitrust class at UVA in 1981. So Congress passed the antitrust laws pursuant to the authority of regulated interstate commerce. And the first sentence of 15 U.S.C. Section 17, the premise for what comes later, says, and I quote, “The labor of a human being is not a commodity or article of commerce.” Why are we here? Why isn’t -- why doesn’t that doom all these prosecutions?

 

Barry Nigro:  It’s an interesting point. I never heard anybody raise that while I was at the Antitrust Division. I don’t know whether it’s been thought through or anyone’s tried to advance that on the defense side, but that is a very interesting point. I think the language you’re referring to comes up in the context of -- goes on and talks about how labor unions are okay and those sorts of things. So it -- I think it was a predicate for what labor can do as a group as opposed to what the employers can and can’t do. But I’ve not had occasion to look into that in any depth or research it or heard anybody push the argument, so I haven’t been able to think through, but it -- that’s interesting.

 

Pepper Crutcher:  Lindsey, Zach, you have any thoughts about that?

 

Lindsey Vaala:  I think Barry’s right. I haven’t seen it raised either. Maybe we need to tell the surgical care team to think about that. I think their motion to dismiss is still pending. But, going back to high-tech cases, at the time, I think, the settlement in those high-tech cases was, again, civil. It was one of the most impactful labor-related antitrust cases ever. And, so, just labor as an antitrust issue is somewhat new.

 

Zach Terwilliger:  Looks like a couple people popped in with questions, so I know we’ll want to get to those in a minute. But, I guess, one of the things that comes out to me is, as we’re looking at this, where -- the fairness argument, whether it’s one of notice, whether it’s one of actual harm. This -- some of the enforcement in this area strikes me as similar to that case where a father and a son were snowmobiling, and it was white-out conditions and wound up on federally protected land. Is this -- this, in some ways, is almost being treated like a strict liability offense because there’s no intent here with some of these individuals. The intent was to enter in an agreement, but the intent was not necessarily to allocate the market. So, getting back to a point we were earlier talking about was with these jury instructions.

 

Are we -- is there now a, I’m going to say, willfulness piece to this, whereas, for the longest time, per say has just been you got to know you’re entering in a agreement knowingly, not that you have to know that there’s any wrongfulness about it. So I think that’s one piece that’s sticks out. The other part — maybe before we get to these questions — Lindsey brought this up a minute ago. But, in terms of the leniency process, as a former prosecutor and someone who was constantly working with cooperators and having to make tough decisions on do you ever grant someone immunity and how does it work and how’s that going to look at trial when you’ve got someone who got a free pass. I think one of the things we don’t talk about all that much or maybe it’s just in cabin circles amongst the antitrust crowd is how unique the leniency provision is. And, so, for those who aren’t aware, in its most basic form, it’s a race to get in.

 

And, if you uncover something, unlike perhaps in the FCPA context—Foreign Corrupt Practices Act context—or other context where you’re looking to get cooperation credit from DOJ, you go in hat in hand, and there’s -- everyone can try to read tea leaves and look over the Filip Factors and try to understand, “Can I get a declination, or can I get a deferred prosecution agreement?” But under the antitrust leniency policy, you come in, under -- at a certain time, before you’ve been made aware of an investigation. There’s Type A and Type B leniency. You can come in and put a marker down, and then, you can come back and request leniency. And, if things go as planned, you basically get complete exoneration of both the company and the individuals. And one of the reasons for that is, as Lindsey and Barry know, then you basically cooperate against others who are part of that conspiracy with you.

 

And it seems to me that’s how the Division has been extremely successful in making a lot of cases because they’re getting an inside person who’s coming in early and cooperating completely. Well, just recently, the Division changed some of its leniency requirements, and, so, in the no poach area, I’m curious how -- two things. One, if you don’t know what you’re doing is wrong, it’s hard to run in and request leniency, although maybe now through things like this and these two trials, there’ll be greater awareness. But, two, one of the changes in the leniency policy is now that under Type B leniency where the government’s already started an investigation, you’re not necessarily carving in all employees. There maybe some employees who have to be jettisoned or have to be fired. That obviously puts counsel representing individuals in a tough position because, if you’re trying to cooperate and the company wants everyone to cooperate and wants to get leniency, at the same time, the Division’s saying, “We want to prosecute individuals, and we can’t tell you whether your person’s carved in or not.”

 

It may kill those companies that may be coming in for leniency, so, Lindsey, Barry, I don’t know if you have thoughts on how the Leniency Program changes are likely to affect criminal antitrust leniency petitions in general and, specific, with no poach.

 

Lindsey Vaala:  Barry, I’d love to hear your thoughts.

 

Barry Nigro:  Yeah. A lot of changes were made. I remember when I first got there. I think somebody changed a couple words and a footnote, and the defense bar got really excited. So, when I saw that the 50 FAQs, I chuckled. I just did because I thought, “Wow. That’s amazing.”

 

So it -- I don’t know that’s going to have a -- the changes will have a big impact. I think one of the things with these no poach situations is a lot of times it’s -- they’re bilateral, so it’s really just two entities or individuals that are involved. And, as I said, I was surprised at how often we came across documents in merger reviews that referenced no poach, and we chase them down. And some of them went nowhere, and some are real. But the ones that went nowhere were -- highlighted the difficulty with these cases because, unlike price fixing where you -- the CEO can say, “Nope. This is the price,” and it’s done. And the prices are changed across the board.

 

Hiring tends to be more decentralized and much more of a complex animal, so to speak. And, so, you even saw in some of these cases arguments being made that, well, notwithstanding whatever agreement or understanding or statements that were made in text messages and so on, these companies were hiring people against each other, from each other. How could there have been any sort of an agreement? And, if there was, it wasn’t very effective. And I think that, as a practical matter, becomes one of the challenges with these cases because it begins to raise questions about whether the agreement was effective and real. And I think that lingers in the back of the mind of the jurors.

 

Lindsey Vaala:  I would just add that I think the leniency updates -- we’ll see how they actually play out in practice. As a written, I think they could complicate leniency or global cartel, the calculation. In the no-poach space specifically, I think that the Type -- the change for Type B, carving for individuals, could complicate the Division’s mission. It would be helpful for a trial for the Division to be able to put someone on the stand that says, “I did this, and I knew it was wrong,” because it suggests everybody else that’s on trial should have known it was wrong as well. And, if now, you’re not giving leniency to those people as easily, who are your witnesses going to be? So I think there’s some tension there that we’ll just have to see how it plays out. But it was an interesting timing, I thought, to release the update to the leniency policy since 1993, just as we’re in the middle of all this other [inaudible 44:39]. So it was a good question, Zach.

 

Pepper Crutcher:  I have a second question, again, from the point of view of an employment lawyer. There are probably employment lawyers watching this right now who are trying to help their clients end a war that started because one client decided that the cheapest way to steal a trade secret is to hire somebody away from a competitor — a senior salesperson, a senior engineer, an executive — who carries around those trade secret in his or her head. And then there was a retaliation. And then there was sir retaliation. And then there was sir, sir retaliation. And now, we want to end the war because only the lawyers are winning. Can they have a peace treaty, or will they be prosecuted if they reach a peace treaty?

 

Zach Terwilliger:  From my standpoint, I think one of the things that the DaVita judge in his order denying the motion to dismiss, which, again, I think that’s -- everyone focuses on the acquittals because that’s the outcome, but I think the Division is certainly focusing on the order of denying a motion to dismiss — so you lose the skirmish but maybe win the battle or the war — that they can move forward. It talks about this concept of ancillary, and, if you’re well-versed in antitrust -- criminal antitrust law, then you know what I’m talking about. But, in its most basic form, is the agreement that you’re making ancillary to something else, or is it naked? And the ancillary doctrine appears to be is there some bona fide reason for doing this. Is it limited in nature? Are there things that make this -- yes, while it’s restricting competition, is it part of some other agreement? We’re here in the DC area.

 

There’s a lot of government contractors who engage in joint ventures or teaming agreements, other things, where there’s going to be very sensitive bid data that goes back and forth or very sensitive IP. It just -- and, if you’re going to team up with someone else, you want to know that they’re not going to immediately hire your best and brightest employees. So my thought would be, not being a labor and employment lawyer, but, if I were -- if someone were drawing up some type of resolution or agreement, I certainly would want it to be something that includes a great amount of ancillarity to why are we doing this, the justification, narrowly tailored, and is not simply something that -- and maybe even reference within there this is not a no-hire agreement. This is a nonsolicitation for a period of x months because that’s the cooling off period that we need, and we are also using every other remedy that we can in terms of nondisclosure agreements, etc. But I do think you do run the risk of, if you decide, “All right. We’re going to settle the case,” and CEO A and CEO B get together and shake hands and say, “All right. Well, handshake deal. We’re not going to hire each other’s employees for a couple years.” I think you do have a problem.

 

Barry Nigro:  And this came up in the 1-800 Contacts case that the FTC prosecuted, which they only have civil jurisdiction, not criminal, but they were a series of settlements, involving the use of the 1-800’s trademark. And the FTC prosecuted the parties for the -- claiming the settlement agreements were anticompetitive because they reached some sort of détente. And, so, when you -- when something like that’s embodied in a settlement agreement, and especially, if the judge and the court signs off on it, I think it would be hard to imagine how that would get prosecuted criminally. And you need to think through the points that Zach made on ancillarity. So it -- that situation is very different from one where you have an agreement between two companies’ CEO or HR, VPs, or whoever, where -- that’s naked. That’s not connected to anything whatsoever.

 

It’s a separate agreement. There’s no plausible agreement that’s ancillary to anything, and, if you’re in that box, you’re clearly in some trouble. And, so, all these things, I think, turn very heavily on the particular facts of the situation. Just like in the Pickert case that I mentioned, that the DOJ weighed in on, that’s in state - in Nevada court, and there -- it’s interesting that the -- one of the things that the Division picked up on is that this particular restraint affected about two-thirds of the anesthesiologists in that market. So I think that makes a difference, if it’s ten percent versus two-thirds. And how long is the restraint? How broad is it? What is the reason for it?

 

All those things need to be taken into account. And, so, there isn’t a simple, bright-line answer to the first question about how to advise medical groups that frequently have noncompetes and nonsolicits. You need to go through the analysis that Zach described, and the one that the Division outlined in this Pickert case -- that’s how you need to think about it and tee it up.

 

Pepper Crutcher:  We’re within our last ten minutes of our hour, so let me turn to the Q&A. The first question, I think, is one we touched on. How should one advise medical groups that frequently have noncompetes and nonsolicits? Barry, if you take the president’s tweet in its broadest meaning, I would suggest that all such agreements are per say antitrust violations, but that can’t be the Department’s position. Right?

 

Barry Nigro:  I don’t -- that’s not how I would think about it. I think there’s a lot that can be done. It just needs to be ancillary to some pro-competitive endeavor. And a lot of times, if the doctors are actually developing relationships through the practice group or the hospital with the patients and that’s being done, they’re benefiting from the introductions that the hospital or the practice group provides. In my view, it’s perfectly reasonable to say, “You can’t, then, go and take all of the patients I introduced to you and then walk out the door and start your own practice overnight,” that there needs to be some cooling-off period because, otherwise, it creates a disincentive to provide that kind of access. And the key is whether the restraint is reasonable.

 

Lindsey Vaala:  I would -- I agree with all that, obviously. I would just add that bad documents can really sink you. I think everybody should be expecting more scrutiny in this area, even if it’s things like Barry just talked about that might not be criminally prosecuted. You might get questions about it. And, so, bad documents can really sink an analysis when the government starts to ask questions. So be careful and thoughtful about your conversations as you enter into these types of agreements or draft them. And also, consider putting pro-competitive justifications, either in the document itself or have an ancillary document that you create at the same time that says, “These are why -- these are the reasons why this particular restriction is appropriate.”

 

Pepper Crutcher:  I’m going to skip a few questions to get to one we haven’t touched on, which I -- frankly, interests me. And the question is, “Does the prosecution impermissibly shift the burden of proof to the defense when the prosecution’s theory basically requires the defense to explain why the agreement is noncriminal under the Sherman Act?”

 

Barry Nigro:  Sounds like it does, but I thought that the -- I always thought the prosecution had the burden of proving beyond a reasonable doubt.

 

Zach Terwilliger:  Yeah. I would say, having been -- living with that burden and trying to establish each element of defense beyond a reasonable doubt. I think Barry’s right that, in the end, the prosecution has to prove their case, and, unlike the rule of reason, where there is this burden shifting and, hence, civil. The way I look at it is what seems like the defense did in the DaVita case is they’re really -- they’re certainly, through cross- examination, poking holes in the Government’s arguments. They’re establishing through expert testimony. They decided to put on a case, although they’re certainly under no constitutional requirement, too, in terms of showing that there’s no harm. And, so, I guess I would say I don’t think there’s a -- an actual burden shift because it’s still on the Government to prove each and every element, but with a new, novel -- and as Barry’s made the point multiple times, where you’re dealing with the purchase side.

 

I think everyone would understand if the four of us allocated the four geographic regions of the market for, say, beef sales, and we decide we’re each going to get a corner, and we’re not going to have to compete against each other, and therefore, we can keep prices high. That’s one thing. But, if we say, “We’re going to allocate the market for mid-level associates,” it gets a little more difficult. So I do think that, in the spirit of the question, there’s one that, if you just sit there in silence and don’t have both effective cross-examinations and an effective defense or rebuttal, you may be leaving something on the table. I think it’s more of a trial strategy than anything else. But, as we saw from the DaVita case -- and it’s interesting. WilmerHale actually wrote up their own article on, “Hey, this is the view from the litigation standpoint.”

 

One of the things I thought was interesting was they said, “Look. We all agreed there were agreements here. Or we admitted that there were these agreements. There was proof. That really wasn’t at issue. It’s what those agreements were about.” And, so, I think that’s a very insightful question because it does seem as though that almost meant that the trial strategy was, “We’re not simply going to sit back and put the Government to their burden. We’re going to explain to this jury that, yes, there were agreements, but they weren’t agreements that were illegal.”

 

Pepper Crutcher:  Lindsey, I’m going to spin one of these questions your way because the spin version of this interests me more. If a jury were to have convicted the defendants in one of these cases that were recently resolved, which one would you want to have been convicted with the purpose of making good law and appeal, and why?

 

Lindsey Vaala:  Of the two that have -- we’ve had convictions, probably DaVita. That’s the -- so Jindal was the other one where it ended in acquittals, and that’s a wage-fixing case. I think that’s -- I think no poach is more novel, frankly. So DaVita would be the case that I’d want to see go up on appeal, and I think the facts were muddy there. And I think you could raise as the question or identify due process arguments. I do think we will see appeals when there is a conviction. It’ll be interesting to see when that happens and what court it’s in. But I think due process is what they’re raising at the motion to dismiss, and I think that we’re going to see that theme continue. I don’t know if Barry or Zach have thoughts of additional argument.

 

Barry Nigro:  I can’t -- so Jindal was in the pipeline when I was there, so I can’t say too much. It got filed after, but I’ll just say that — and it’s totally public — that case was prosecuted first by the FTC.

 

Lindsey Vaala:  Yeah.

 

Barry Nigro:  Which only has civil jurisdiction, and then DOJ picked it up. So that’s all I’ll say.

 

Pepper Crutcher:  Guy, we just have time left for you to get in your closing remarks. Thank you, panelists. You’ve done a wonderful job. I’ve really enjoyed the discussion.

 

Guy DeSanctis:  Yes. Thank you, all. On behalf of The Federalist Society, I want to thank our experts for the benefit of their valuable time and expertise today. And I want to thank our audience for joining and participating. We also welcome listener feedback by email at [email protected]. As always, keep an eye on our website and your emails for announcements about upcoming virtual events. Thank you all for joining us today. We are adjourned.

 

[Music]

 

Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.