ANALYSIS: DOJ Gets a No-Poach Win, But Convictions Are Difficult

The Justice Department’s work criminally prosecuting “no-poach” agreements—pacts between competitors to stay away from each other’s employees—provides ample evidence of the challenges involved in prosecuting antitrust violations as crimes.

The government now has a court win upholding an indictment in the no-poach cases—which is critical in its push to hold companies criminally liable for these labor practices. But that ruling points to the difficulties in enforcing sections 1 and 2 of the Sherman Act, regardless of the fact that both sections declare that violations are felonies punishable by up to 10 years in prison.

In fact, upholding an indictment is a long way from successful conviction, and antitrust claims of all types are getting harder to win.

New Wine, Old Bottles?

The no-poach cases involve a new application of existing §1 law. They allege that the defendants entered “horizontal market allocation agreements” with competitors, agreeing not to solicit or hire each other’s employees, which is a per se violation of the Sherman Act.

The defendants have contended that such agreements not to solicit employees don’t count as horizontal market allocation agreements: They aren’t like an absolute refusal to sell to specific customers, but are instead like a promise not to go knocking on doors, the defendants argue.

In the DOJ’s no-poach case against dialysis giant DaVita Inc., Judge R. Brooke Jackson denied the company’s motion to dismiss, determining that the DOJ adequately alleged that no-poach agreements can be horizontal market allocation agreements.

Although the context of allocating the market for employees is novel, “that is the nature of Section 1 of the Sherman Act,” Jackson said. "[A]s violators use new methods to suppress competition by allocating the market or fixing prices these new methods will have to be prosecuted for a first time.”

The Per Se Tightrope

The analysis the court undertook in holding that the DOJ’s no-poach indictment is sufficient demonstrates the difficulty in proving antitrust crimes.

Jackson laid out several steps for determining whether conduct is subject to a per se analysis, and therefore subject to criminal sanction. Regardless of whether conduct falls into a traditional per se category, Jackson said, the court must consider whether the practice constituted a naked restraint or was “ancillary to a legitimate procompetitive business purpose.”

If we’re analyzing whether or not there’s a legitimate procompetitive purpose for conduct, however, we aren’t doing a per se analysis: Per se conduct is presumed to be anticompetitive—without an inquiry into possible redeeming characteristics—because it’s “lacking any redeeming virtue,” as the court noted. In other words, if there’s an argument that an act doesn’t fall within a narrow band of well-established criminal conduct, the government will essentially need to prove that the conduct lacks any redeeming virtue.

DaVita didn’t contend that point in its motion to dismiss the indictment, preferring to hold in reserve its argument about any potential benefits of refusing to hire competitors’ employees.

Given the harsh penalties in the Sherman Act, it makes sense that the government should be held to a high standard when arguing that business practices cross the line into crimes. Perhaps all of the circumstances should matter in determining whether a crime has been committed. But these realities also mean that a narrow range of conduct that’s actively harming markets can be meaningfully addressed, whether criminally or civilly.

That’s because the range of recognized “per se” conduct has steadily shrunk over the years, and along with it the practical option to criminally indict under the antitrust laws. To find an analogous case holding that anti-solicitation agreements can be per se illegal under the Sherman Act, Judge Jackson had to cite a case from 1988.

At the same time, what’s required to prove a “rule of reason” case—the acknowledged default analysis for antitrust violations—has become steadily more onerous. A rough cut of federal court opinions in the Bloomberg Law database shows at least an even split between “rule of reason” antitrust cases that were dismissed for failure to state a claim versus those cases that survived that early test and proceeded to discovery.

Tough Path Ahead

The Justice Department recently stated that it will, under the right circumstances, criminally enforce §2 of the Sherman Act, which prohibits monopolization, attempted monopolization, and conspiracy to monopolize. As noted, the statute contains the same criminal penalty provisions as §1, which is actively criminally enforced, but the DOJ hasn’t brought a criminal monopolization claim in at least 40 years.

That will likely involve a lot of turmoil, because existing case law on monopolization is old, markets and our understanding of them have shifted, and the stakes are high. And all monopolization offenses currently involve a “rule of reason” analysis.

As far as the DOJ’s remaining no-poach cases are concerned, the DOJ has filed Judge Jackson’s opinion in each case to assist those courts in deciding motions to dismiss the indictment brought by those defendants. Decisions are still pending.

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