COVID-19 and the DPA: First Criminal Complaint Filed by the Justice Department in New York

On Friday, April 24, 2020, the Justice Department announced the filing of a criminal complaint against a New York man, Amardeep “Bobby” Singh, for the hoarding and subsequent price gouging of personal protective equipment (PPE) under the Defense Production Act (DPA) – the first of its kind since the beginning of the COVID-19 outbreak in the United States. Singh faces up to one year in prison or a fine of up to $10,000 if convicted of violating the DPA. In addition to the Eastern District of New York and the United States Postal Inspection Service, this case is being handled with assistance from the Department of Justice’s nationwide COVID-19 Hoarding and Price Gouging Task Force.

According to the complaint, Singh operates a retail store selling apparel and shoes. However, beginning in mid-March, Singh began to accumulate merchandise he called “COVID-19 Essentials,” including but not limited to N-95 filtering face piece respirators, PPE face shields, PPE gloves, and clinical-grade sanitizing and disinfecting products. According to the charges, this merchandise was sold at inflated prices to the public. For example, according to the complaint, Singh purchased three-ply disposable face masks for a per-unit price of $0.07. He resold those same masks at a per-unit price of $1.00 – a markup of approximately 1,328%. Among the entities allegedly price gouged were particularly vulnerable organizations, such as the Association to Benefit Children, the New York Foundation for Senior Citizens and Rewarding Environments for Adult Living Inc. Overall, investigators seized a total of more than 100,000 face masks, 10,000 surgical gowns, nearly 2,500 full-body isolation suits and more than 500,000 pairs of disposable gloves. Continue Reading

Fuel Supply Bid-Rigging Prosecution Highlights Interplay of Whistleblower Statute and Antitrust Division’s Leniency Program

On April 8, the Department of Justice (DOJ) Antitrust Division (Division), the DOJ Civil Division and the U.S. Attorney’s Office for the Southern District of Ohio (collectively, the Government) announced a civil antitrust and False Claims Act (FCA) complaint and concurrent settlement regarding a bid-rigging conspiracy that targeted fuel supply contracts for U.S. military installations in South Korea.[1] A continuation of the larger line of cases involving South Korean fuel contract bid-rigging,[2] this final settlement with Jier Shin Korea Co. Ltd (Jier Shin) and its president, Sang Joo Lee (Lee) (together, the Defendants), demonstrates the DOJ’s commitment to using Section 4A of the Clayton Act[3] and the FCA to regulate anticompetitive conduct in which the U.S. is the victim.

Case Background and Defendants’ Conduct

Jier Shin is a small Korean logistics company privately held by Lee and his family as majority owners. As mentioned above, the DOJ alleged that Jier Shin agreed with five Korean transportation and oil refinery companies to fix prices and rig bids for U.S. military fuel supply contracts. Interestingly, this case arose out of a FCA qui tam whistleblower claim alleging the Defendants made false claims regarding their involvement in the conspiracy. This indicates that someone either inside the company or with significant knowledge of the company’s operations possessed the evidence necessary to convince the Government to initiate an enforcement action. Continue Reading

COVID-19 Update: Pricing During COVID-19 Without Gouging or Fixing

As antitrust counsel, we have done our best to keep up to date with the latest news coming from the federal and state governments on price gouging and efforts to combat shortages and hoarding of PPE. Today, we write to provide a few more details on price gouging and how you can set prices in these difficult times while avoiding exposure for price gouging, price fixing or other antitrust violations.

On March 23, 2020, President Trump signed Executive Order 13910 aimed at preventing price gouging and hoarding of crucial medical and health supplies needed to fight COVID-19.[1] The Executive Order invokes the Defense Production Act and for certain items designated by the U.S. Department of Health and Human Services, such as personal protective equipment (PPE) and ventilators, makes it a misdemeanor for individuals and companies to accumulate these items either (1) in excess of reasonable needs or (2) for the purpose of selling them in excess of prevailing market prices.[2] U.S. Attorney General William Barr has said that the government’s crackdown was aimed at “people hoarding these goods and materials on an industrial scale for the purpose of manipulating the market and ultimately driving windfall profits. If you have a big supply of toilet paper in your house, this is not something you have to worry about. But if you are sitting on a warehouse with masks, surgical masks, you will be hearing a knock on your door.”[3] It remains to be seen what “in excess of prevailing market prices” means in this context. Continue Reading

Combating COVID-19 Through Competitor Collaboration

Join members of the BakerHostetler Antitrust and Competition Team on Monday, April 13, 2020 for a webinar where they will examine criminal and civil antitrust risks and the best practices businesses should follow to protect themselves, including an exploration of the immunities offered by the Defense Production Act, the Pandemic and All-Hazards Preparedness Act and the state action immunity doctrine. The DOJ/FTC expedited review process will also be discussed. Click here to register.

COVID-19 continues to spread exponentially, leading to shortages in medical supplies – from personal protective equipment such as facemasks and respirators to ordinarily ubiquitous cleansers and sanitizers. As attempts to “flatten the curve” (slow the infection rate) show mixed results, and import disruptions contribute to the growing shortage of medical supplies, manufacturers and suppliers are asking: “How can we collaborate with industry stakeholders to expedite production, streamline distribution and get equipment to the neediest healthcare providers?”

Attorney General William Barr warned in March that the federal antitrust laws will be enforced even during national emergencies. There is a risk that seemingly harmless agreements to resolve equipment shortages and supply chain disruptions could be viewed as per se violations of the Sherman Act and result in criminal prosecution. For example, the following collaborations could be risky, depending on companies’ competitive relationships: coordinating sales and distribution of products to the neediest customers and regions, collectively purchasing vital inputs, setting price caps to prevent price gouging, exchanging sales and production figures, and coordinating supply chains. Still, antitrust enforcers have not been tone-deaf to the exigencies created by the pandemic. Nor is the federal government powerless to adjust the application of the antitrust laws should they hinder a robust response. Continue Reading

COVID-19 Antitrust Agency Announcements and Procedural Changes

Over the past several weeks, the U.S. antitrust enforcement agencies – the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) – have made several public announcements regarding changes to antitrust investigations and regulatory processes in response to the COVID-19 pandemic. In addition to changes to filing and meeting processes, the main takeaway from these announcements is that while agency staff continue to work remotely, parties should expect delays of investigations and litigations. This post summarizes the announcements that have been made by the FTC and the DOJ related to COVID-19 and what individuals and businesses should expect going forward:

  • The DOJ warns it will use resources to enforce violations of antitrust laws with respect to public health products. On March 9, the DOJ announced that it would ensure resources were available to enforce antitrust laws against “bad actors” that might take advantage of the current emergency situation.[1] In particular, the announcement warned that individuals engaging in price fixing, bid rigging or market allocation with respect to personal health protection equipment such as face masks, gloves and respirators could face criminal prosecution.[2]
  • The DOJ and the FTC have instituted expedited review procedures for COVID-19-related business collaborations. On March 24, the DOJ and the FTC announced expedited review procedures and provided guidance for collaborations of businesses working to protect the health and safety of Americans during the COVID-19 pandemic.[3] The agencies are aiming to resolve requests to evaluate proposed conduct addressing public health and safety within seven calendar days of receiving all necessary information.[4]
  • The DOJ and the FTC seek additional time for investigations. For current and future investigations, the DOJ is seeking timing agreements from parties that give the DOJ 30 additional days to complete its investigation after compliance with second requests.[5] These 30 days would be in addition to the statutory time period of 30 days or whatever time period the DOJ and the parties had previously agreed to (which is 60 days under the DOJ’s Model Timing Agreement).

Continue Reading

Executive Order Addresses DOJ’s Fight Against Hoarding Activity

On the afternoon of March 23, 2020, United States Attorney General William Barr participated in the Coronavirus Task Force press briefing. Attorney General Barr revealed that, on March 23, President Trump issued an executive order allowing prosecution of hoarding that threatens the supply of necessary medical and health resources.[1] Once specific materials are designated as scarce by the Secretary of Health and Human Services (HHS), individuals are prohibited from accumulating these items in excess of reasonable personal or business needs or for the purpose of selling these items in excess of prevailing market prices. As a result of this executive order, it is a crime to engage in this prohibited activity.

This is the second executive order addressing the allocation of health and medical resources. On March 18, 2020, President Trump signed an executive order under the Defense Production Act (the Act) of 1950, as amended (50 U.S.C. 4501 et seq.), and section 301 of title 3, United States Code permitting the Secretary of Health and Human Services to use the authority under section 101 of the Act, in consultation with the Secretary of Commerce and other executive department and agency leaders, to control the distribution of materials needed to respond to the pandemic – including personal protective equipment and ventilators. Continue Reading

Protection of Consumers and the Public in Response to the COVID-19 Pandemic

Federal and state authorities are working to protect consumers and the public during the current COVID-19 pandemic. The Department of Justice (DOJ) issued a cautionary press release announcing its “intention to hold accountable anyone who violates the antitrust laws of the United States in connection with the manufacturing, distribution, or sale of public health products such as face masks, respirators, and diagnostics.”[1] On March 17, the DOJ announced civil process changes including merger investigation processes, electronic filing and virtual meetings under a mass telework directive.[2]

While the federal government has no official law on the books that prohibits price gouging, in times of emergency such as these, the DOJ along with the individual states will help fill in the gaps in order to avoid untoward behavior by bad actors. Recent disaster declarations by President Donald Trump and numerous states can trigger laws related to collusive pricing practices.[3] Because states are usually the first movers when it comes to stopping price gouging during times of crisis, it is imperative to understand individual state laws related to consumer protection and price gouging. Continue Reading

The Need for Special Masters in Complex Antitrust Cases

The ABA resolution advises the bench and bar that utilization of special masters has evolved over the last 50 years from the rare exception to a commonplace tool to manage complex litigation, including antitrust cases.

In 2019, the American Bar Association issued a resolution “urging” state and federal courts “to make greater and more systematic use of special masters to assist in civil litigation” “to aid in the just, speedy and inexpensive determination” of cases, as mandated by the federal rules of civil procedure. The ABA resolution advises the bench and bar that utilization of special masters has evolved over the last 50 years from the rare exception to a commonplace tool to manage complex litigation, including antitrust cases.

Still, courts and parties are occasionally reticent to use masters, perhaps due to inexperience with the concept, misconceptions about the benefits or unfounded concerns about the costs. This article intends to discuss the law governing special masters, detail the various ways special masters can benefit the courts and litigants, and provide some best practices concerning their engagement.

What Rules Govern Special Masters Engagements?

In 1957, the U.S. Supreme Court in La Buy v. Howes Leather, an antitrust case, held that the appointment of a special master by a district judge was not justified by docket congestion, issue
complexity and the substantial time commitment demanded by the case; rather, “exceptional circumstances” were necessary. By 2003, however, the law had shifted as Federal Rule of Civil Procedure 53 was amended due to swelling federal dockets to expressly authorize appointment of special masters where pretrial or post-trial matters “cannot be effectively and timely addressed by an available district judge or magistrate judge of the district.” The advisory committee notes recognize: “The appointment of masters to participate in pretrial proceedings has developed extensively over the last two decades as some district courts have felt the need for additional help in managing complex litigation.”

Recognizing this shifting legal landscape, the U.S. Court of Appeals for the Third Circuit in Glover v. Wells Fargo Home Mortgage, a 2015 consumer protection case involving mortgage foreclosures, affirmed the appointment of a special master, over the objection of the plaintiff, to assist the district judge and the assigned magistrate judge with escalating discovery disputes. Judge Patty Shwartz of the U.S. Court of Appeals for the Third Circuit, writing for the court, explained: “While the 1957 La Buy court viewed docket congestion, issue complexity, and the time-consuming nature of a case as not justifying the appointment of a special master, the 2003 version of Rule 53 reflects the changing practices in using special masters. As the advisory committee specifically recognized, the appointment of masters to participate in pretrial proceedings has developed extensively over the last two decades to aid district courts in managing complex litigation.” Continue Reading

Should Antitrust Laws Tackle Privacy Issues? DOJ and State AGs Continue Google Investigations in Response to Privacy Concerns

Months have passed since it was first revealed in July 2019 that the Department of Justice (DOJ), in response to various stakeholders’ concerns, was conducting a review into certain “market-leading online platforms” and whether they engaged in antitrust violations.[1] U.S. Attorney General William Barr reiterated that the government was “taking a closer look at the leading online platforms and the competitiveness of digital markets.”[2] He emphasized the bipartisan effort to review the practices of both Google and Facebook, noting that a similar coalition was formed approximately 20 years ago. Notably absent from the Google inquiry is antitrust chief Assistant Attorney General Makan Delrahim, who recused himself because he had represented the company while he was in private practice.

Almost all state attorneys general are also conducting a parallel investigation into Google. Led by Ken Paxton of Texas, the attorneys general are looking at “Google’s overarching control of online advertising markets and search traffic that may have led into anticompetitive behavior that harms consumers.”[3] Reaching beyond antitrust concerns, the state AGs have also raised other issues, most notably whether the FTC should be investigating Big Tech’s possession of consumer data and whether that raises privacy concerns.[4]

Earlier this month, officials from the DOJ met with various state AGs to discuss their respective findings from their investigations. At this time it is unclear whether the dual inquiries will ever merge into one cohesive effort; however, it is clear that the probes are very much active. Recently, the state AGs reached an agreement with Google regarding consultants retained to assist with their probe as the investigation proceeds.[5] The focus of the inquiry is to determine whether Google “undermined consumer choice, stifled innovation, violated users’ privacy, and put Google in control of the flow and dissemination of online information.”[6] Continue Reading

Can ‘Hijacking’ a Single Cryptocurrency Network Violate Antitrust Laws?

On Jan. 28, a federal judge in Florida dismissed without prejudice the nation’s first antitrust suit involving cryptocurrency. The plaintiff, United American Corporation Inc., (UAC), alleged that five entities and six individuals conspired to hijack and centralize the Bitcoin Cash network by combining their efforts during a crucial software upgrade vote, causing the diminution in value of UAC’s cryptocurrency mining operation. The court’s decision to permit UAC to amend its complaint leaves open the potential applicability of antitrust laws in this already legally opaque industry.

Bitcoin Cash and Blockchain

Bitcoin Cash is a form of cryptocurrency. Cryptocurrencies are peer-to-peer versions of electronic cash. Since there is no central financial intermediary, a decentralized “blockchain” network of ledgers verifies and records the currency’s transactions. Blockchain networks depend upon cryptocurrency “miners” to verify and record new transactions. Miners compete by solving complex mathematical equations and are compensated for their efforts with newly minted currency. UAC and the defendants are participants in the community of software developers, miners and exchanges that supports Bitcoin Cash.

Background of the Case

In 2018, Bitcoin Cash was preparing for a software upgrade, which led to what is known in the industry as a “fork.” Forks allow individual miners to “vote” on the proposed changes in the rules governing aspects of the operation of the blockchain. Miners vote by implementing the relevant upgrade of their choice and then using that upgrade to “mine” the currency – voting by doing, as it were. Disagreements among miners can lead to “hard forks,” where a single currency and corresponding blockchain split into new currencies and new corresponding blockchains governed by their own respective rules.

According to UAC, there were two competing potential upgrades, known as Bitcoin ABC and Bitcoin SV. UAC was a proponent of the Bitcoin SV upgrade. Apparently, some of the defendants were proponents of the Bitcoin ABC upgrade and allegedly rallied others to their cause, similar to how a shareholder might wage a proxy war to install a new director.

In the end, the Bitcoin ABC upgrade won the vote. However, although Bitcoin ABC received more votes than Bitcoin SV, both systems survived the fork and now compete in the market for users and miners. After the vote and subsequent split, some of the defendants associated with Bitcoin ABC installed checkpoints in the software to prevent miners from reversing the software upgrade, in essence locking in the upgrade and irreversibly splitting the two systems. Continue Reading