Reversal of Sherman Act Criminal Bid-Rigging Conviction Involving “Hybrid” Vertical and Horizontal Components

In a significant ruling, the Fourth Circuit reversed a Sherman Act criminal bid-rigging conviction involving “a hybrid relationship with both vertical and horizontal components.” See United States v. Brewbaker, 87 F.4th 563 (4th Cir. 2023).

An executive was convicted by a jury of conspiracy to rig bids under Section 1 of the Sherman Act and five counts of mail and wire fraud concerning “more than 300 aluminum structure projects” involving the North Carolina Department of Transportation (NCDOT) between 2009 and 2018. He was sentenced to 18 months and ordered to pay a $111,000 criminal fine. His company pled guilty to one count of bid rigging and one count of conspiracy to commit mail and wire fraud and agreed to a criminal fine of $7 million and restitution or more than $1.5 million.

The Fourth Circuit held that the district court should have granted a motion to dismiss the Sherman Act count, as “caselaw and economics show that the indictment failed to state a per se antitrust offense as it purported to do.” Id. at 569. On the horizontal level, two companies were competitors in submitting bids in the aluminum-project market. On the vertical level, one company supplied the other with aluminum that was “used to compete against ‘others’ in NCDOT aluminum-structure projects.” Id. at 576. This structure created the “hybrid” relationship.

The Fourth Circuit noted that lower courts “have adjudged hybrid restraints with vertical and horizontal aspects under the rule of reason” and not the per se rule. While the Sherman Act conviction was reversed, the fraud convictions were affirmed on appeal.

The ruling may narrow the application of the per se rule under Section 1 involving similar vertical and horizontal relationships in other cases. This case is another example of the courts reconsidering the scope of the per se rule in criminal antitrust cases.

The Antitrust Division strongly opposed the appellate opinion and filed a petition for rehearing and rehearing en banc. On February 15, 2024, the Fourth Circuit denied the petition. Whether the Solicitor General will seek a petition for certiorari review in the Supreme Court remains to be seen.

(This article originally appeared in the March 2024 Cartel Enforcement Trends and Developments newsletter.)