In November 2024, after the U.S. Supreme Court declined to review a decision throwing out an executive's conviction for bid-rigging, companies in dual-distribution relationships in the Fourth Circuit now have an anomalous carve-out from criminal prosecution under Section 1 of the Sherman Act.
In United States v. Brewbaker, the Fourth Circuit became the first federal appellate court to rule that agreements between horizontal competitors to rig bids are not per se violations of Section 1, as long as the parties also have a vertical relationship as manufacturer and supplier.1 Instead, the court held that the bid rigging should be assessed under the rule of reason.
As a matter of longstanding policy, however, the Antitrust Division of the U.S. Department of Justice "reserves criminal prosecution under Section 1 for 'per se' unlawful restraints of trade among competitors."2 In other words, the Department of Justice (DOJ) does not criminally prosecute agreements under the rule of reason; rather, it prosecutes only those agreements that prior case law has already established as per se unlawful restraints on trade.
Now allowed to stand, the Brewbaker decision upends decades of criminal antitrust enforcement against bid rigging, price fixing and market division. Brewbaker may herald the beginning of the end of over a century of antitrust precedent, or a split may form when another circuit determines that bid rigging by competitors who are also dual-distribution partners still constitutes a per se antitrust violation, creating a reason for the Supreme Court to review the Brewbaker anomaly.
Prosecution Background
An effort by the Procurement Collusion Strike Force, a multi-agency task force led by the Antitrust Division which fights antitrust crimes and related schemes targeting projects funded by federal taxpayers, DOJ's prosecution unfolded in October 2020 with the announcement of the indictment of Contech Engineered Solutions and a former executive on charges of bid-rigging, fraud, wire fraud and mail fraud.3
DOJ accused Contech, a manufacturer of aluminum structures, of conspiring to rig bids for aluminum structure projects funded by the U.S. Department of Transportation and the North Carolina Department of Transportation (NCDOT).4 Contech's conspirator was Pomona Pipe Products, its distributor and exclusive dealer in North Carolina.5 Contech provided Pomona with products, yet competed with Pomona for the same projects.
For many years, Contech and Pomona worked together to be the two lowest bidders to ensure one of them would win the bid for the project. If Pomona won, Contech provided the aluminum to Pomona for the project[6] and, if Contech won, Pomona provided services to Contech for the project. So as long as one of them won, they both made money.
In 2009, Mr. Brewbaker, a Contech executive, instituted a new system that ensured Pomona outbid Contech every time, whereby Contech would still benefit from providing the aluminum for the project. Brewbaker did this by obtaining Pomona's bid price and adding a small (but varying) markup to set Contech's bid price.7 Consequently, Pomona's consistently lower bids won NCDOT's contracts but were supplied with aluminum by Contech. Both Contech and Pomona certified that their bids were "submitted competitively and without collusion."8
Before trial, Contech, joined by Brewbaker, moved to apply the rule of reason to the agreement between Contech and Pomona, which would have resulted in dismissal of the Sherman Act claim.[9] The trial court denied the motion, finding the horizontal bid-rigging between competitors for the same project would be assessed under the per se standard (which requires only proof of an unlawful agreement, not an assessment of its competitive effects).10
Contech ultimately pled guilty to one count of violating the Sherman Act and one count of conspiracy to commit fraud and agreed to pay $8.5 million in fines and restitution.11 Brewbaker took his chances at trial and was found guilty on all counts.12
Appellate Reversal
On appeal, the Fourth Circuit reversed the antitrust conviction but affirmed the fraud convictions. The court held that the trial court erred in applying per se treatment to the dual distribution relationship between Contech and Pomona. Rather, the Court ruled that the hybrid-bidding arrangement had both horizontal and vertical aspects, with Contech as both a supplier and competitor to Pomona. Therefore, the per se standard should not automatically apply because consideration of the economic effect of the vertical supply relationship was appropriate.
Relying on the Supreme Court's...
