On April 28, 2023, the Department of Justice Antitrust Division suffered another setback to its expanded criminal prosecution of no-poach agreements. The trial court in United States v. Patel, et al., granted a motion to acquit and rejected — as a matter of law — the Antitrust Division’s theory that the alleged agreements in that case were per se violations of the antitrust laws.
The Division’s Track Record on No-Poach
Following the Antitrust Division’s 2016 announcement that it intended to pursue no-poach agreements criminally, it brought a series of criminal no-poach indictments — but juries have acquitted the defendants in all criminal no-poach cases that have gone to trial.
The Antitrust Division has secured some legal victories, however. Trial courts in United States v. Jindal, et al., and United States v. Manahe, et al., for example, denied motions to dismiss on the grounds that no-poach agreements may be horizontal agreements to allocate labor markets and, as such, potential per se violations of the antitrust laws. The Antitrust Division also secured one guilty plea in a no-poach case, which charged a per se horizontal agreement.
These rulings that treated no-poach agreements as per se illegal horizontal agreements to allocate labor markets were critical because the Antitrust Division only brings criminal cases against per se violations.
Patel Trial Court Rejects the Division’s No-Poach Legal Theory
Most recently, the legal theory underlying the Antitrust Division’s no-poach criminal prosecutions suffered a serious defeat on April 28, 2023. The district court in United States v. Patel, et al., granted a motion to acquit, holding that “[a]s a matter of law,” the no-poach agreements in that case did not amount to “market allocation under the per se rule.”
In Patel, the Antitrust Division indicted individuals who allegedly had entered into a conspiracy to allocate employees in the aerospace industry. The defendants had challenged the Antitrust Division’s decision to prosecute the alleged no-poach agreement criminally with a motion to dismiss, but the court denied that motion based on the facts that the Antitrust Division had alleged. But the court had forecasted that “not all no poach agreements are market allocations subject to per se treatment and therefore, determining whether a no poach agreement is a market allocation is highly fact specific.” After the Antitrust Division rested its case-in-chief, the defendants renewed their legal arguments against the Antitrust Division’s theory and filed a motion for acquittal. The court granted that motion on April 28, 2023, highlighting the differences between the facts alleged in the indictment and the case the Antitrust Division was able to prove at trial.
Several holdings in the court’s order will be consequential for no-poach litigation going forward. The court held, consistent with “binding Second Circuit law,” “that not all no-poach agreements operate as market allocations,” so not all no-poach agreements are necessarily subject to the per se rule and criminal enforcement.
The court then held that “[a]s a matter of law, this case does not involve a market allocation under the per se rule.” The court arrived at this conclusion by applying a decision by the U.S. Court of Appeals for the Second Circuit in Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999), to hold that no-poach agreements are not per se violations if they “do[] not allocate the [relevant labor] market … to any meaningful extent” or lead to a “cessation of ‘meaningful competition’ in the allocated market.” The court held that there was no such effect in this case because “the alleged agreement … had so many exceptions that it could not be said to meaningfully allocate the labor market of engineers from the supplier companies working on” the relevant projects. The court further noted that “[h]iring among the relevant companies was commonplace, throughout the alleged agreement.”
The court acquitted because, under these circumstances, no reasonable jury could find that the Antitrust Division had proved a per se violation beyond a reasonable doubt. In doing so, the court lightly rebuked the division for “tr[ying] to expand the common and accepted definition of market allocation in a way not clearly used before.”
What’s Next?
Despite this recent setback, the Antitrust Division has expressed its continued interest in pursuing no-poach cases criminally and undoubtedly will continue its efforts to prosecute no-poach agreements throughout the country. Other courts will have to decide whether to follow the Patel court’s analysis. Future rulings on whether no-poach agreements amount to a per se violation of the antitrust laws will continue to percolate through federal and state courts.
McGuireWoods’ antitrust attorneys have extensive experience with these issues and will continue to monitor these developments and advise clients on these evolving legal issues.