The Department of Justice announced about a year ago that three South Korean energy companies were to plead guilty in a price-fixing scheme that involved supplying energy to US military bases. ((Three South Korean Companies Agree to Plead Guilty, Justice News (Nov. 14, 2018), https://www.justice.gov/opa/pr/three-south-korean-companies-agree-plead-guilty-and-enter-civil-settlements-rigging-bids.)) In that announcement, the Department of Justice renewed its willingness to use Section 4A of the Clayton Act to recover treble damages from companies that engage in anticompetitive behavior against the U.S. government. ((Id.)) A few months afterwards, two more South Korean energy companies pled guilty to the same bid-rigging scheme and were once again charged treble damages. ((More Charges Announced in Ongoing Investigation into Bid Rigging, Justice News (Mar. 20, 2019), https://www.justice.gov/opa/pr/more-charges-announced-ongoing-investigation-bid-rigging-and-fraud-targeting-defense.)) In total, the criminal fines and civil damages come up to $362 million. ((Kaitlyn Burton & Bryan Koenig, S. Korean Oil Cos. To Pay $126M For Bid-Rigging Scheme (Mar. 20, 2019, 8:55 PM), https://www.law360.com/articles/1140962/s-korean-oil-cos-to-pay-126m-for-bid-rigging-scheme.)) Since Section 4A of the Clayton Act was amended to change the word “original” damages to “three-fold” the damages, ((Antitrust Amendments Act of 1990, Pub. L. No. 101-588 (current version at 15 U.S.C. § 15a). )) the section has only been used three times. ((Assistant Attorney General Makan Delrahim Remarks, Justice News (Nov. 15, 2018), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-remarks-american-bar-association-antitrust.)) However, Assistant Attorney General Makan Delrahim confirmed the Department of Justice’s aim to revive Section 4A. ((Id.)) But after nearly a year since the first announcement of the threefold damages without any new uses of the Section 4A, does it seem likely that the South Korean energy bid-rigging case was just a shot across the bow and not a paradigm shift? ((Very recently, the Department of Justice announced the formation of a new Procurement Collusion Strike Force that “focus[es] on deterring, detecting, investigating and prosecuting antitrust crimes… which undermine competition in government procurement, grant and program funding.” Justice Department Announces Procurement Collusion Strike Force, Justice News (Nov. 5, 2019), https://www.justice.gov/opa/pr/justice-department-announces-procurement-collusion-strike-force-coordinated-national-response. The creation of this group leaves little doubt that the Department of Justice will be more aggressively prosecuting antitrust crimes against the government. In spite of this recent announcement, this blog post may provide value to the reader because 1) the recent announcement never touched on the topic of treble damages, which is the centerpiece of this post, and 2) the historical analysis in regards to the DoJ’s usage of Section 4A of the Clayton Act may provide some insight into the Department of Justice’s next steps.))
While the Department of Justice has not yet applied Section 4A of the Clayton Act after the South Korean bid-rigging cases, this is due to a lack of opportunity. The Department has released news this year of antitrust cases in which the government was the victim, but in those cases, the government charged the individuals under Section 1 of the Sherman Antitrust Act and not under the Clayton Act. ((Texas Bidder Pleads Guilty To Rigging Bids, Justice News (Apr. 10, 2019), https://www.justice.gov/opa/pr/texas-bidder-pleads-guilty-rigging-bids-online-auctions-surplus-government-equipment; Online Bidder Pleads Guilty to Antitrust Charge, Justice News (Sept. 24, 2019), https://www.justice.gov/opa/pr/online-bidder-pleads-guilty-antitrust-charge-rigging-bids-government-auctions.))
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The strong language the Department of Justice deployed in the announcements indicate that the threat of Section 4A treble damages should be taken seriously. Delrahim clearly spoke that “[t]he American Taxpayer deserves to see a revitalization of the government’s Section 4A authority. This week’s settlements are only the first in that direction.” ((Delrahim, supra note 7.)) While strong language alone in a press release may not be enough to convince some, it should be noted that this type of strong language had not been used before by the Department of Justice in regards to damage calculation under Section 4A. ((See Justice Department Settlement Requires Gunnison Energy and SG Interests to Pay the United States, Justice News (Feb. 15, 2012), https://www.justice.gov/opa/pr/justice-department-settlement-requires-gunnison-energy-and-sg-interests-pay-united-states; Justice Department Files Suit, Department of Justice Press Releases (Jan. 19, 1994), https://www.justice.gov/archive/atr/public/press_releases/1994/211718.htm.))
The Department of Justice’s sporadic usage of Section 4A in the past ((See Delrahim, supra note 7.)) may lead some to wonder if the Department of Justice is making noise with no intention to follow through. However, there is strong reason to believe this time is different. The first two times the Department of Justice invoked Section 4A were shortly after the section was amended. ((Id.)) It seems likely that the Department of Justice made a conscious decision to not use the section following the cases, since it was such a sharp break in the pattern. But if that were the case, why did the Department of Justice invoke Section 4A in 2012? ((Id.))It is difficult to determine the exact reason, but a likely candidate is the attitude that the defendant in the 2012 case, Gunnison Energy, had when handling the antitrust case and proposed settlement. Senior District Judge Richard P. Matsch presided over the case. ((U.S. v. SG Interests I, Ltd., United States District Court, D. Colorado, 2012 WL 6196131, Dec. 12, 2012.)) In regards to Gunnison Energy’s public statement in regards to the case, Judge Matsch wrote that “the unrepentant arrogance of this defendant is so self-evident that a copy of the statement is attached… [i]t is not in the public interest to approve a final judgment that permits a defendant to leave its civil action in such a smirking, self-righteous attitude.” ((Id.))The Department of Justice could easily have felt that treble damages with a defendant like this were justified. But unlike the 2012 case, these most recent declarations of treble damages seem to indicate the Department of Justice has made the conscious design to implement a policy shift.
One reason why treble damages are implemented is to signal to potential anti-competitive actors that the risk of getting caught is not worth any potential extra profit. ((Detrebling Antitrust Damages: An Idea Whose Time has Come? 61 TLNR 777, Edward D. Cavanaugh, Tulane Law Review, 786-87.)) If a central purpose of the treble damages is signaling, then one may argue that only a few bad actors would need to be punished with treble damages every once in a while for other potential bad actors to get the message. Therefore, these most recent announcements could just be another intermittent warning shot. But if that were the case, why was Section 4A only used three times in almost 30 years? ((Delrahim, supra note 7. )) Moreover, why was there an 18-year gap between the 1994 case and the 2012 case? ((Id.)) For there to have been signaling, there should have at least been a few warning shots during that period of time. Moreover, the cases that the Department of Justice did apply for treble damages were not widely cited. Nor did the Department of Justice use strong language in its statements on those cases to let the signal be heard loud and clear by other potential bad actors. It seems more likely that this most recent set of cases was not just another shot across the bow but instead the first of many future cases in which the Department of Justice implements Section 4A.
Furthermore, the political backdrop of this particular antitrust bid-rigging scheme makes the Department of Justice’s invocation of Section 4A all the more significant. The United States has been pivoting to Asia, ((J. Michael Cole, The True ‘Pivot to Asia’ Is Here, Nat’l Int., Oct. 23, 2018, https://nationalinterest.org/feature/true-pivot-asia-here-34172; Seth Robson, ‘Pivot’ to Asia will Remain a Priority for US Military, Experts Say, Stars & Stripes, June 22, 2017, https://www.stripes.com/news/pivot-to-asia-will-remain-a-priority-for-us-military-experts-say-1.474950.)) and the White House considers South Korea to be a key ally. ((The White House, Facebook (Sept. 24, 2018), https://www.facebook.com/WhiteHouse/posts/south-korea-is-a-key-ally-and-trading-partner-of-the-united-states-our-two-count/1874967135924344/ (“South Korea is a key ally and trading partner of the United States.”).)) South Korean politics are dominated by large family-run corporations called chaebols, ((Eleanor Albert, South Korea’s Chaebol Challenge, Council Foreign Rel., May 4, 2018, https://www.cfr.org/backgrounder/south-koreas-chaebol-challenge.)) and the energy companies that were found guilty in these latest cases were some of the most powerful in South Korea. ((Carlos Tejada, Money, Power, Family: Inside South Korea’s Chaebol, N.Y. Times, Feb. 17, 2017, https://www.nytimes.com/2017/02/17/business/south-korea-chaebol-samsung.html.)) For the U.S. Department of Justice to reintroduce Section 4A in a case of this magnitude, it sends a clear message that the Department of Justice is taking this matter seriously enough to potentially harm relations.
Finally, an observant reader of Assistant Attorney General Makan Delrahim’s statement could have noticed that there is a pattern of the government pursuing Section 4A treble damages in antitrust cases where the military is the victim and the impact on national security is at issue. ((Delrahim, supra note 7.)) Of the three Section 4A cases filed since the 1990 amendment, one was in regards to bid-rigging sales by the Department of Defense of its surplus smokeless gunpowder, ((Complaint, United States v. Olin Corp., No.: 91-2034-H-A (W.D. Tenn. Jan. 8, 1991), https://www.justice.gov/atr/case-document/file/1025566/download.)) and another was in regards to anticompetitive behavior in the sale of cluster bombs to the Air Force. ((Justice Department Files Suit, Department of Justice Press Releases (Jan. 19, 1994), https://www.justice.gov/archive/atr/public/press_releases/1994/211718.htm.)) As a matter of fact, Assistant Attorney General Delrahim highlighted the importance of “ensur[ing] the U.S. military receives goods and services at the best possible prices” when discussing the use of Section 4A in the statement for his recent hearing before the US Senate Committee on the Judiciary. ((Oversight of the Enforcement of the Antitrust Laws Before the Subcommittee on Antitrust, Competition Policy & Consumer Rights, 116th Cong. 2 (2019) (statement of Assistant Attorney General Makan Delrahim), https://www.judiciary.senate.gov/imo/media/doc/Delrahim%20Testimony.pdf.)) While the US government may be more willing to pursue Section 4A treble damages in a case where the military is a victim, it is unlikely to be exclusively those cases. After all, the 2012 case was a natural gas case that was not connected to the US military. ((Gunnison Energy, supra note 11.))
Of course, all corporations doing business with the U.S. government should make absolutely sure, regardless of the damages, that they are not engaging in anticompetitive behavior. But any corporation that was considering rolling the dice, be warned. All signs point to the United States taking these criminal activities much more seriously.