Teddy Roosevelt, the original trust buster, "spoke softly and carried a big stick." Modern day trust busters wield two big sticks: public and private enforcement of the antitrust laws. Both government authorities and an organized, well-funded antitrust bar aggressively enforce these laws. This article describes the interplay between public and private antitrust enforcement and shows how these two "sticks" work in tandem to keep American industry on its toes.
The two principal antitrust statutes are the Sherman Act and the Clayton Act. The Sherman Act, which outlaws anticompetitive agreements like price fixing and market division agreements and monopolization, carries criminal as well as civil penalties. The Clayton Act proscribes, among other things, merger agreements that result in a substantial lessening of competition. These statutes are enforced by the two federal enforcement agencies, the Antitrust Division of the Department of Justice (which has exclusive jurisdiction over criminal antitrust investigations) and the Federal Trade Commission, as well as state attorneys general.
Federal antitrust laws and many state antitrust laws allow private plaintiffs to obtain treble damages and attorney fees. As the Supreme Court stated in the 1972 decision Hawaii v. Standard Oil Co. of California, "[b]y offering potential litigants the prospect of a recovery in three times the amount of their damages, Congress encouraged these persons to serve as 'private attorneys general.'" Thus, even a company acquitted of criminal conduct may still be made to pay large sums in damages for the same conduct.
For antitrust plaintiffs contemplating a lawsuit, the presence of an ongoing government enforcement action presents the question of whether to file a lawsuit right away or wait until the government investigation is completed before filing suit. Lawsuits that follow a government action are called "follow-on" suits.
There may be reasons why an antitrust plaintiff would want to wait out the government investigation before filing. Section 5 of the Clayton Act, for instance, provides that a conviction or a guilty plea in a criminal antitrust case constitutes prima facie evidence, for the purposes of a private civil suit, that the defendant has violated the antitrust laws. Another provision of Section 5 provides that the statute of limitations for a private antitrust action is tolled during the pendency of, and for a full year following, any governmental enforcement action based on the same underlying facts. This allows plaintiffs attorneys to await the outcome of the government enforcement action without having to worry about their own clients' claims becoming time-barred.
In addition, by allowing the government investigation to run its course, plaintiffs get the benefit of the investigative work conducted by the government before filing the lawsuit. In fact, private plaintiffs can and often do rely heavily on the government's complaint and findings when making their allegations. Thus, private plaintiffs who follow a successful government action have a portion of their work done for them before they even file suit. This scenario also allows the government the freedom to conduct its investigation without having to deal with collateral issues that arise from a parallel private action.
But in some cases the private suit must be filed quickly. This is particularly so where the government is investigating a defendant whose conduct has opened the door to a class or classes of private plaintiffs, resulting in multiple lawsuits. The Judicial Panel on Multidistrict Litigation will consolidate the cases in one judicial district, and the transferee court is charged with appointing lead counsel for the various classes. What then follows is a mad scramble among plaintiffs attorneys to be appointed as lead counsel. As a result, where a class action is foreseeable, plaintiffs attorneys often will file suit while the government investigation is ongoing.
This happened to the big four chocolate manufacturers — Hershey, Mars, Nestle and Cadbury — when chocolate purchasers in various states filed price-fixing actions against the four. The actions were consolidated in April by the Judicial Panel in the Middle District of Pennsylvania in Harrisburg. The complaints followed enforcement actions by German and Canadian antitrust authorities, where the manufacturers' corporate offices in those countries were raided, and the apparent opening of an investigation by our own Antitrust Division. (The authors of this article represent a party in that action.)
As a policy matter, the dual enforcement of antitrust laws by public authorities and private plaintiffs strengthens the free-enterprise system by providing an extra layer of deterrence to those contemplating a price-fixing or market division agreement with their competitors. Potential violators are on notice that they could face not one, but two, adverse verdicts, the second carrying treble damages. In addition, they could face private suits not only from direct purchasers of their products, but also from indirect purchasers — those who buy from a distributor in the distribution chain rather than directly from the defendant company — who may sue under state antitrust laws. For those states, like Pennsylvania, that do not have an antitrust law, state consumer protection laws may be used in some cases.
Past efforts to eliminate or discourage the practice of follow-on suits have proven unsuccessful, both in Congress and in the courts. The Antitrust Modernization Commission, which was charged with making recommendations concerning updates to the nation's antitrust laws, heard testimony in 2005 and 2006 from the foremost antitrust practitioners, judges and scholars in the country. None questioned the continued use of follow-on suits. Thus, businesses and individuals contemplating antitrust law violations will continue to be subject to dual enforcement to keep them honest.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.