ANALYSIS: Felony Monopoly Charges Are New Points on a Long Line

On March 29, Nathan Zito, the former owner of a paving and asphalt company in Billings, Montana, stood before a federal judge to be sentenced for the crime of attempting to monopolize a market. It was the first sentencing carried out under 15 U.S.C. § 2 in almost 50 years and apparently one of only a dozen or so in history.

Since the Justice Department announced in Spring 2022 that it would be reviving criminal prosecution for monopolization offenses, practitioners have been watching for clues about what kind of cases the DOJ would bring and how they would fare in court. One year later, we know only a little more: The division has brought two cases since then, and Zito’s is now completed. The other case, US v. Martinez, is scheduled for trial during the summer—which will give us potential insight into how a jury will view criminal monopolization charges.

Zito’s case, rare as it is, suggests that we can still look to history as a good guide for how these cases will progress, and what elevates a monopolization attempt from a civil offense to a crime. The biggest common element in DOJ monopoly charges has been the presence of cartel conduct, as opposed to solely unilateral conduct. Both of the DOJ’s current cases fit that mold. The defendants’ use of violence and intimidation is the other factor that seems to motivate criminal charges in the monopoly context.

I’ll Take Wyoming

In January 2020, Zito called his main competitor in South Dakota and proposed a “strategic partnership” on highway crack sealing jobs. The competitor immediately relayed this overture to federal authorities, who recorded more than a dozen subsequent calls from Zito seeking to rig bids and divide up territory for highway jobs in Wyoming and surrounding states.

Because Zito’s competitor never agreed to form a cartel, no crime was completed under Sherman Act Section 1, which covers bid rigging, price fixing, and market allocation. Section 1 only criminalizes completed agreements to violate the law. Section 2, however, does criminalize attempt to monopolize. And if Zito had been successful in his scheme, the government reckoned, he would have been the only contractor bidding on any crack sealing jobs in Montana and Wyoming, leaving him free to charge the public more for his services.

Faced with the recordings, Zito pleaded guilty to a one-count criminal information alleging attempted monopolization in September 2022.

No Prison Time

The Justice Department had asked the US District Court for the District of Montana to sentence Zito to one year in prison and a $27,000 fine on an estimated $2.7 million in “affected commerce” (potential sealing jobs) under the US Sentencing Guidelines. The court instead sentenced him to three years of probation and a $27,000 fine. While Zito’s probation includes six months of home confinement, he will serve no jail time.

Sherman Act offenders face a maximum sentence for individuals of 10 years in prison and a $1 million fine. In criminal cases brought under Sherman Act Section 1, defendants are routinely sentenced to between one and two years in prison. Scores of criminal charges that the DOJ recently brought in the automotive parts cartel demonstrate that range of sentencing.

But under Section 2, there isn’t a robust history of jailing offenders. In a review of past criminal monopolization cases published last July, law professor Daniel A. Crane found only one non-violent monopolization offense that resulted in jail time out of 175 criminal monopolization cases brought in the life of the 130 year-old statute. That person served a month in jail in 1973, Crane found. Two additional cases involved defendants sentenced to six months in prison during the 1930s, but those defendants had been involved in violent intimidation and threats to monopolize the artichoke market in New York City. In all, only 12 cases saw convictions for unilateral anticompetitive conduct between 1903 and 2022, and all remaining defendants just paid a fine.

Viewed through that lens, Zito’s probation and fine seems to fit the historical pattern. Furthermore, his case supports the observation that monopoly crimes aren’t considered as invidious as cartel offenses when courts drop the gavel.

Violent Schemes

The threat of violence provides another consistent thread from historical monopolization cases to the DOJ’s new push to charge monopolization crimes.

The DOJ’s other pending monopolization case, US v. Martinez, involves a scheme to threaten, intimidate, and extort rivals in an attempt to monopolize the business of servicing “transmigrantes” who transfer used cars from the US through Mexico into Central America.

Charges in this case in the U.S. District Court for the Southern District of Texas include price fixing and market allocation under Sherman Act Section 1, conspiracy to monopolize under Sherman Act Section 2, extortion, money laundering, and related conspiracy counts.

Again, Crane found that only 20 cases out of 175 charged under Section 2 involved unilateral conduct; the vast majority were, like the Martinez case, cases where multiple parties conspired to corner a market and also allegedly committed cartel offenses. And, like the artichoke cases in the 1930s, the Martinez case also involves intimidating and threatening rivals to stay out of the market. In other words, collusion is almost always involved in criminal monopoly charges, and the use of threats and intimidation in controlling a market also distinguish the kind of monopolizing conduct the DOJ charges criminally.

Something Extra?

So while there may be little official guidance about Section 2 enforcement, there have been just two cases in US history where nonviolent, unilateral conduct drew a criminal charge. Both those cases involve admitted guilt. Zito’s case is a rare bird indeed.

And otherwise, both of DOJ’s current monopolization cases are broadly consistent with (distant) past enforcement of Section 2. So while we can’t say with certainty what that “something extra” is that makes a garden-variety civil monopolization attempt into a crime, it looks like companies and individuals that refrain from violating the bid-rigging, market-allocation, and price-fixing prohibitions of Sherman Act Section 1 would also have little to fear from Section 2. It also helps not to threaten your competitors with violence. Lawyers and compliance professionals should already have excellent advice for clients on those scores—and with the growing value of top-notch compliance programs in the criminal arena, it pays to redouble those efforts.

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