Seeking divestitures in a criminal case sets precedent for DOJ and is consistent with the Administration's mantra of "every tool in the kit" approach to aggressive antitrust enforcement.

The U.S. Department of Justice Antitrust Division ("DOJ") recently resolved a criminal case with Teva Pharmaceuticals and Glenmark Pharmaceuticals via deferred prosecution agreements ("DPAs"), which include a novel remedy for a criminal antitrust case: divestiture. The "usual" penalty for a corporation for a criminal antitrust violation is a fine and possibly probation.

DOJ indicted Glenmark in June 2020, and Teva in August 2020, for their participation in alleged conspiracies to allocate customers and rig bids for, and fix prices of, generic drugs sold in the United States. By entering the DPAs, Teva and Glenmark avoided debarment from participating in U.S. federal health care programs.

Teva admitted to rigging bids by refraining from submitting competitive bids for three generic drugs: pravastatin, clotrimazole, and tobramycin. In addition to divesting a cholesterol drug pravastatin, Teva agreed to pay a $225 million penalty and donate $50 million worth of clotrimazole and tobramycin to humanitarian organizations. Glenmark acknowledged it conspired with Teva and Apotex to fix the price of pravastatin and agreed to pay a $30 million penalty and divest its interest in pravastatin.

Section 1 of the Sherman Act authorizes DOJ to seek divestitures as a remedy when appropriate. DOJ routinely seeks divestitures as a civil remedy in merger cases, and although infrequent, has sought divestitures in civil monopolization cases. However, case law and commentators have cautioned against using divestiture except in the most egregious cases, and only as a last resort.

There are inherent challenges to demanding divestitures in criminal cases. DOJ's primary role is enforcement, not regulation, and its historical criminal investigatory practices are not designed to help it make informed decisions about the competitive impact of divestitures. For example, criminal investigations typically do not call for the type of evidence necessary to determine the competitive effect of a divestiture, and DOJ's criminal enforcement sections have little experience with divestiture analysis. Moreover, in some markets, it may be difficult to find a buyer with requisite industry experience (suitable to DOJ) if the cartel involved all or most industry participants. This case, which involves carveout divestitures, also appears to be at odds with DOJ's divestiture policies in merger review, which state a preference for divestitures involving standalone businesses.

Should DOJ pursue divestitures in future criminal cases, it is reasonable to assume that criminal antitrust investigations will take longer and have additional consequences that could potentially harm, rather than preserve competition. Also, to the extent DOJ seeks substantial divestitures to core business operations in future criminal prosecutions, companies may be less willing to settle, leading to more criminal antitrust litigation.

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