Essay: The High Tech cases: Reimagining Criminal Enforcement for Wage Fixing & No-Poaching

The High Tech cases: Reimagining Criminal Enforcement for Wage Fixing & No-Poaching
A case study for criminal antitrust enforcement Policy
TABLE OF CONTENTS
I. INTRODUCTION 1
II. HISTORICAL EXAMINATION OF ANTITRUST § 1 SHERMAN ACT “RESTRAINTS OF TRADE” 2
III. THE 2010 HIGH TECH CASES 2
IV. SURVEY OF STATE ENFORCEMENT ACTION & PRIVATE CLASS ACTIONS 3
A. Private Class Action Litigation 3
B. State Enforcement Action 3
V. DOJ SHIFT TO CRIMINAL ENFORCEMENT 4
A. Civil Prosecution of No Poach Agreements 4
B. Prosecutorial Discretion 5
VI. REIMAGINE 2010 HIGH TECH CASES UNDER CRIMINAL ENFORCEMENT FRAMEWORK 6
A. Standard of Review (distinction from civil analysis) 6
B. Criminal Liability 6
C. Possible Defenses 6
D. Court’s Posture 6
VII. OUTLOOK FOR FEDERAL CRIMINAL ENFORCEMENT POLICY 6
A. Judicial Concern about False Positives 6
B. Impact on Competition 6
C. International Antitrust Framework 6
D. Policy Alternatives 6
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* J.D. Candidate, The George Washington University Law School, May 2020. Editorial Staff, Federal Communications Law Journal.
I. INTRODUCTION
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” – Adam Smith
The economic effects that no-poach agreements have on labor markets are undoubtedly analogous to the recognized effects that price-fixing and market allocation agreements have on economic markets–which has supported the per se condemnation for centuries. The presumption of per se illegality means that the DOJ may prosecute these agreements without considering their justifications or competitive effects.
The Antitrust Division of the Department of Justice and the Federal Trade Commission (FTC) have regularly investigated and prosecuted companies for participating in no-poaching and wage-fixing agreements; however, historically these agreements have been treated as civil, rather than criminal, antitrust violations.
In 2010, for example, the Antitrust Division brought a series of civil lawsuits against several technology companies for entering into no-poach agreements with their competitors. These cases resulted in settlements enjoining the companies from participating in these types of agreements and requiring them to institute appropriate training and compliance programs. These companies also had to collectively pay nearly $1 billion in order to settle several follow-on private lawsuits.
In 2016, the DOJ announced its intent to pursue no-poach agreements criminally.  This article considers whether criminal enforcement is an effective tool, by imagining what defenses would be raised and whether they would be regarded as legitimate.
Part II of this Article will provide a historical explanation of antitrust development in labor markets. Part III will review federal enforcement action on no-poach agreements, examining the High Tech cases. Thereafter, Part IV will then discuss state enforcement action and private class actions on anti-poaching. Part V will consider recent DOJ criminal enforcement. Part VI will imagine potential defenses and consider whether they would be regarded as legitimate. Finally, Part VII will consider the competitive implications of criminal enforcement and recommend policy alternatives.
II. HISTORICAL EXAMINATION OF ANTITRUST § 1 SHERMAN ACT “RESTRAINTS OF TRADE”
“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.”   On its face, the statutory language, is concerning given the myriad of procompetitive ways that companies cooperate and share information. In 1911, consistent with the legislative history of the Sherman Act, which revealed that Congress purposefully drew the phrase “restraint of trade” from the common law, the Supreme Court held that “[t]he statute . . . evidenced the intent. . . to protect [] commerce from . . . an undue restraint.”   Further, the Court presumed Congressional intent to apply the rule of reason, a common law standard, under which only an “unreasonable” “contract, combination . . . or conspiracy” can violate § 1 of the Sherman Act.
The rule of reason requires the plaintiff to present evidence of a restraint’s anticompetitive effects and permits the defendant to present procompetitive justifications. Ultimately, the fact-finder weighs all the circumstances to determine whether the restraint is one that suppresses competition or promotes it.
“Any combination which tampers with price structures is engaged in an unlawful activity.”
Wages as dimension of competition. “Wage-fixing restraints which affect the labor market are considered price-fixing restraints subject to the antitrust laws. Section 6, 15 U.S.C.S. § 17, of the Clayton Act does not exempt such restraints from antitrust liability.
While most challenges brought under § 1 are analyzed under the “rule of reason” of Standard Oil, the Court has also held that certain classes of conduct are so obviously a detrimental restraint on trade that they are automatically presumed unreasonable and are thus per se illegal. Horizontal price fixing, horizontal market allocations, and some concerted actions have historically been treated as per se illegal.
Rule of reason as a continuum.
III. THE 2010 HIGH TECH CASES
A 2009 Federal Trade Commission investigation into the relationship between the boards of Apple and Google led to reports of an alleged “gentleman’s agreement” between the two companies not to hire away each other’s workers. In 2010, the DOJ investigated alleged no-poach agreements between Adobe, Apple, Google, Intel, Intuit, and Pixar. These investigations collectively became known as the High Tech cases. In the High Tech cases, the DOJ determined that the companies reached “facially anticompetitive” or “naked” agreements that eliminated a significant form of competition that harmed employees who lost access to information about salary levels and better job opportunities. The DOJ renounced the conduct as “blatant and egregious” noting that the agreement served “no purpose but to limit competition between the two firms for employees….”
That case was settled quietly, and the companies involved did not admit any wrongdoing but agreed not to enter into such agreements in the future.
In a separate, federal class-action antitrust suit, the companies reportedly made pacts not to have recruiters “cold call” each other’s employees. The suit alleges that the firms agreed to notify each other when making an offer to another company’s employee without the employee’s consent or knowledge. Another alleged agreement between the companies set a cap on pay packages offered to prospective employees.
The employees argued that in the market for skilled labor, where cold calling to lure employees away from competitors played an important role in determining salaries and labor mobility, their employers’ conspiracy to restrain trade was a per se violation of the Sherman Act and a violation of Clayton Act. The complaint asserted that that the labor market for skilled high-tech labor was national, and that employers had succeeded in lowering the compensation and mobility of their employees below what would have prevailed in a lawful and properly functioning labor market.
IV. SURVEY OF STATE ENFORCEMENT ACTION & PRIVATE CLASS ACTIONS
A. Private Class Action Litigation
B. State Enforcement Action
State AGs Probe fast food chains. Jurisdictions in the probe include California, District of Columbia, Illinois, Massachusetts, Maryland, Minnesota, New Jersey, New York, Oregon, Pennsylvania and Rhode Island.
Currently, 11 attorneys generals are investigating the use of anti-poaching provisions by franchisors.  Four other plaintiffs have sued U.S. franchisors for anti-poaching violations, seeking class action certification.
V. DOJ SHIFT TO CRIMINAL ENFORCEMENT
In October 2016, the Antitrust Division and FTC announced that going forward no-poach and wage-fixing agreements will generally be treated as criminal antitrust offenses in its release of “Antitrust Guidance for Human Resource Professionals.”
In January 2018, head of the Antitrust Division, Assistant Attorney General Makan Delrahim, publicly stated that the Division has several ongoing no-poach investigations and would soon be bringing enforcement actions in these investigations: “In the coming couple of months, you will see some announcements, and to be honest with you, I’ve been shocked about how many of these [no-poach agreements] there are, but they’re real.” This warning followed public remarks by the Antitrust Division’s second-in-command—Principal Deputy Assistant Attorney General Andrew Finch—late last year indicating that companies and their executives “should be on notice” that they could be criminally prosecuted for participating in no-poach or wage-fixing agreements regardless of whether they compete to sell the same products or services.
Delhrahim stated that: “A nearly ubiquitous element of corporate conduct, thought to be legal and competitively harmless, now faces the prospect of criminal prosecution by the U.S. Department of Justice, Antitrust Division.”
A. Civil Prosecution of No Poach Agreements
On April 3, 2018, the DOJ Antitrust Division announced its first challenge to a “no-poaching” agreement.  The government filed a civil antitrust complaint alleging that Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation entered into unlawful agreements not to poach each other’s employees in violation of Section 1 of the Sherman Act.
In United States v. Knorr-Bremse, two rail equipment manufacturers, who competed with one another to attract, hire and retain skilled employees had entered into a series of no-poach agreements between 2009 and 2016. According to the complaint, the companies agreed not to solicit, recruit, hire without prior approval, or otherwise compete for employees, collectively referred to as No-Poach Agreements.
Noting the “high demand for and limited supply of skilled employees who have rail industry experience”, the DOJ asserted that the agreements restrained competition to attract workers and “denied employees access to better job opportunities, restricted their mobility, and deprived them of competitively significant information that they could have used to negotiate for better terms of employment”.  The DOJ asserted that No-Poach Agreements unlawfully allocated employees between the companies and are per se unlawful restraints of trade that violate Section 1 of the Sherman Act, 15 U.S.C. § 1.
B. Prosecutorial Discretion
The Division opted to treat the companies’ no-poaching agreement as a civil antitrust violation despite indications from senior leadership and HR guidelines that such agreements would be treated as criminal violations.
In announcing its recent United States v. Knorr-Bremse AG and Westinghouse Air Brakes Technologies no-poach settlement, the Antitrust Division explained that it exercised its prosecutorial discretion to treat the no-poach agreements as civil, rather than criminal, violations because the settling companies “formed and terminated [these agreements] before” the Antitrust Division and FTC issued their Antitrust Guidance for Human Resource Professionals. The DOJ stressed, however: “The department has made clear that it intends to bring criminal, felony charges against culpable companies and individuals who enter into naked no-poach agreements…where the underlying no-poach agreements began or continued after October 2016.”  Thus, no-poach agreements that either were entered into or continued after the agency guidance are likely to be prosecuted as criminal antitrust offenses, which significantly increases the risks for companies and executives involved in such agreements.
VI. REIMAGINE 2010 HIGH TECH CASES UNDER CRIMINAL ENFORCEMENT FRAMEWORK
A. Standard of Review (distinction from civil analysis)
B. Criminal Liability
Corporations found guilty of participating in a criminal no-poaching or wage-fixing agreement could be required to pay up to $100 million in fines while individuals could be required to pay up $1 million in fines. Alternatively, prosecutors could seek a fine up to twice the gross financial loss or gain resulting from the violation. Moreover, individuals criminally prosecuted for participating in a no-poach or wage-fixing agreement could face up to 10 years in prison. In recent years, prison sentences for criminal antitrust violations have averaged approximately two years.
C. Possible Defenses
D. Court’s Posture
VII. OUTLOOK FOR FEDERAL CRIMINAL ENFORCEMENT POLICY
A. Judicial Concern about False Positives
Courts have long been concerned about false positives in antitrust enforcement.  Heightened pleading standard, Twombly, treble damages.
B. Impact on Competition
Moreover, criminal prosecution, jail time, reputational damage would hamper the position of US firms in the global market.
C. International Antitrust Framework
D. Policy Alternatives
Policy alternatives
Negative externalities
Persuasive arguments – is so effective
Case study comparing Silicon Valley versus MA tech corridor.  See Vox article.
balance on one hand. Provide incentive for employers to invest in employees. Capital investment, full certainty that the machine is going to stay.
Fear that employees to use training to boost their earning potential elsewhere.
justify in very-specific circumstances: high level access to proprietary trade secrets)
Policy agreement in lieu of NC agreement – tax deductions for training (can deduct business investment) however he rules around worker training (can only deduct $5K, and only for current training (not development of new skills).
Knowledge diffusion (Google driverless car technology and the spill over that spurs innovation with other companies.  Google