ANALYSIS: What’s a Little Bid-Rigging Among Friends?

The incredible shrinking “per se” rule in antitrust—the legal determination that some conduct is always damaging to competition—was dealt another blow at the end of last year in the US Court of Appeals for the Fourth Circuit.

In December 2023, the Court overturned a sales manager/executive’s jury conviction on bid-rigging charges because the two colluding companies were not in a purely horizontal relationship: Though they were bidding against each other for North Carolina’s business, they were also in a supplier-retailer role behind the scenes.

According to the Court, that meant there could be pro-competitive impacts of the arrangement, and any conduct should have been analyzed under the full “rule of reason” balancing test. The indictment only alleged a per se charge, so the court struck down that charge. The court refused to rehear the case in February.

It’s the latest in a long string of decisions that chip away at what counts as “per se” conduct, which forms the basis of antitrust crimes and also faces a simpler evidentiary burden in civil cases brought by the government or private plaintiffs. This diminishing of the “per se” rule has the effect of making antitrust cases harder to win for plaintiffs and prosecutors. But it also signals a lack of belief that some conduct simply isn’t beneficial, and that vertical arrangements can be deeply anticompetitive.

The court’s not alone in that skepticism. But do we really no longer believe that bid-rigging is a bad thing, even among friendly suppliers?

Bid-Rigging Proven

In Oct. 2020, the DOJ indicted Brent Brewbaker as the key figure in a conspiracy to rig bids to the North Carolina Department of Transportation on aluminum structures for infrastructure projects. The alleged conspiracy lasted almost a decade, and involved Brewbaker’s employer, Contech Engineered Solutions LLC, agreeing to submit higher bids for work to NCDOT in agreement with its competitor Pomona Pipe Products—a company that also served as a dealer for Contech’s products, and used them to complete projects.

Despite signing a “competitive bid” statement on each bid, Brewbaker decided Contech didn’t need to win NCDOT bids to make money, because Pomona Pipe would purchase the materials in its bid from Contech. So instead of merely conferring to decide on the prices to be charged for components in Pomona’s bid, and install in Contech’s bid, Brewbaker started asking Pomona’s final bid price and setting Contech’s knowingly above it.

Brewbaker saw this as a “win-win” for the companies, because Pomona got the job and Contech made sales. And if NCDOT disqualified Pomona’s bid for any reason, Contech’s was sitting right behind it as a back up for them both. A third bidder generally submitted to NCDOT, but always at a higher cost than Contech and Pomona—neither was worried about competition from that company. Brewbaker took pains to vary the amount by which his bid exceeded Pomona’s, and they took other steps to cover their tracks.

Following a five-day trial, a jury convicted Brewbaker of bid-rigging and five additional counts of fraud. Judge Louise Wood Flanagan sentenced Brewbaker to 18 months in jail, a $111,000 fine, a $600 assessment, and a period of supervised release.

Appeals Court Reversal

A unanimous Fourth Circuit panel reversed Brewbaker’s antitrust conviction and remanded him for new sentencing on the fraud convictions alone. According to the court, because Contech was in a vertical relationship with Pomona, and it was precisely because of that relationship that Brewbaker agreed to stop bidding against Pomona, the bid-rigging shouldn’t have been charged as a “per se” offense.

The court said that strengthening the distributor relationship with Pomona could ultimately be beneficial to “interbrand” competition. “By increasing Pomona’s sales of Contech’s aluminum, the restraint could lead to greater competition between Contech and other aluminum manufacturers,” the court said.

In other words, because Brewbaker purportedly rigged bids to keep Pomona a happy distributor, the court and jury were obligated to look at the benefits of having a happy distributor.

In a motion for reconsideration, the DOJ contended that horizontal agreements form the basis for a per se approach when that’s the nexus of the conduct: If Pomona and Contech were submitting competing bids, that’s a horizontal relationship. At most, DOJ argued, the court should have applied the “ancillary restraint” doctrine to figure out if the vertical relationship is primary in the Pomona/Contech scheme. Instead, the court permitted the vertical relationship to simply inoculate the conduct, the government said.

In a one-page order, the court declined to rehear the case. Brewbaker’s resentencing is currently scheduled for early May.

Murkier and Murkier

The Fourth Circuit’s holding is problematic for a host of reasons, as the DOJ pointed out in its brief. First and foremost, most all bid-rigging involves kickbacks, and a frequent way they’re papered is with a supply or subcontractor relationship among the conspirators. Is that enough to make those relationships potentially beneficial to competition? Given how many companies in our concentrated, interwoven economy are vertically integrated, are those companies simply immune from per se bid-rigging charges?

Per se treatment used to apply to a fair number of behaviors, including some vertical restraints like resale price maintenance and even non-price restraints like resale restrictions. Now “per se” applies to a very narrow range of conduct—basically just horizontal price fixing, bid-rigging, or market allocation.

Some argue that per se treatment is wrong or outdated, and that we now can and should review the economics of all conduct to be sure that we’re only condemning arrangements that hurt competition—even when those arrangements fix prices or allocate markets. The Fourth Circuit’s decision could be a step in that direction.

It certainly furthers the irrelevance of antitrust in bid-rigging cases. Fraud is pretty straightforwardly charged and proven. If the DOJ needs to prove how many aluminum pipes would otherwise have been sold in North Carolina to convict somebody of bid-rigging, why include the charge at all? It’s a question more prosecutors will need to ask.

Bloomberg Law subscribers can find related content on our White Collar and Criminal Law page.

If you’re reading this on the Bloomberg Terminal, please run BLAW OUT <GO> in order to access the hyperlinked content, or click here to view the web version of this article.