On Nov. 12, 2024, the U.S. Supreme Court declined to review a court of appeals decision that has important implications for the Department of Justice’s criminal antitrust enforcement program. In United States v. Brewbaker, the U.S. Court of Appeals for the Fourth Circuit held that a manufacturer and distributer who allegedly coordinated their bidding strategy did not engage in a per se illegal price-fixing conspiracy. The Court of Appeals held that the “hybrid” nature of the alleged conspirators’ relationship — in which they contracted with each other for the supplies and services that were used to fulfill the bids at issue — required a more involved economic analysis.
As the federal government acknowledged, this case “makes it substantially more difficult” for the government to prosecute criminal cases when the alleged conspirators have vertical aspects to their relationships with each other. In light of the Supreme Court’s denial, Brewbaker remains the law in the Fourth Circuit.
Trial Court Proceedings
According to the government’s allegations, Brent Brewbaker was the manager of an aluminum pipe and structure manufacturer that sold its pipe through an exclusive distributor that offered installation services. Both companies bid on North Carolina Department of Transportation projects using the manufacturer’s pipe and distributor’s installation services. If the manufacturer won the bid, it would use the distributor to perform the installation. If the distributor won, it would buy its pipe from the manufacturer.
The government alleged that over time the manufacturer stopped competing with its distributor on bids and instead would ask the distributor for its total bid price, add a small percentage, and submit its own sure-to-lose bids. Under this arrangement, the manufacturer would not compete with its distributor on bid price but would still supply the pipe (through the distributor) if the distributor’s bid was successful.
A grand jury indicted both the manufacturer and Brewbaker on a per se violation of Section 1 of the Sherman Act, along with several mail- and wire-fraud counts. The distributor was not indicted. The trial court rejected the manufacturer’s and Brewbaker’s arguments that their supply arrangement meant that they should not be criminally prosecuted. The manufacturer pleaded guilty before trial. After a jury trial, Brewbaker was convicted on all counts.
Fourth Circuit Overturns Conviction
On appeal, the Fourth Circuit overturned Brewbaker’s conviction. It held that the manufacturer and distributor had a hybrid relationship with both horizontal and vertical aspects. On the one hand, the distributor bought aluminum from the manufacturer to use in the projects it won — a vertical relationship. On the other hand, both companies submitted bids for the same projects — a horizontal relationship.
The Fourth Circuit concluded that the Supreme Court had not yet spoken on whether these sorts of arrangements are per se violations of the antitrust laws, such that they would be prosecuted by the government. It further reasoned that, as a matter of economics, these dual distribution agreements could increase competition by allowing additional sales reach for a brand through additional sales channels. In other words, the manufacturer’s policy of always bidding above its distributor’s price could lead to greater competition between the manufacturer and other aluminum pipe manufacturers. The Fourth Circuit concluded that this potential interbrand procompetitive effect mandated looking at the arrangement with more rigorous economic analysis before declaring it illegal.
Because the government has a policy of only criminally prosecuting violations that are per se illegal (i.e., violations that courts have recognized as almost always reducing competition), and the indictment only alleged a per se violation, the Fourth Circuit reversed the Sherman Act convictions.
Supreme Court Denies Government’s Request for Further Review
The government sought further review of the Fourth Circuit’s opinion by the U.S. Supreme Court. It argued that the Fourth Circuit’s opinion was wrong and created a conflict with other courts of appeals on an issue of public importance. The government noted hybrid relationships such as the one at issue in Brewbaker are “ubiquitous in today’s economy,” and that “[c]ourts routinely encounter antitrust cases involving firms with both horizontal and vertical relationships.” In asking for review, the government claimed that the Brewbaker opinion is “a shield that helps [antitrust] violators escape criminal liability” and that the opinion “makes it substantially more difficult” to prosecute bid-rigging.
The Supreme Court denied the government’s petition and did not specify the basis for its denial or comment on the merits of the Fourth Circuit’s opinion. The denial leaves Brewbaker as the law of the Fourth Circuit and calls into question whether the government will be able to pursue criminal charges in cases with significant vertical aspects.
This is an evolving area of law that leaves open important questions in criminal antitrust enforcement. McGuireWoods’ team of antitrust attorneys have extensive experience with these issues and are ready to advise clients in antitrust investigations, litigation and counseling.