Federal antitrust attorneys drop the ball in the courts

It has been a bad month for federal antitrust prosecutors. On April 14, a federal jury in Texas delivered a notguilty verdict in a case that alleged two companies providing medical therapist services had agreed not to hire their competitors’ workers. On April 15, a federal jury in Colorado exonerated kidney dialysis providers of having agreed not to hire any employees away from each other.

Under a policy spanning the administrations of presidents Obama, Trump and Biden, the federal antitrust enforcement agencies had brought civil actions to void such no-poaching agreements.

In 2015, agreements were reached with many of hightech’s leading companies to stop that practice. Apple, Adobe, Google, Intel, Intuit, Lucasfilm, ebay and Pixar, among others, agreed to stop this kind of behavior. The two cases just decided were the first to ramp up antitrust enforcement efforts from seeking court decrees in civil cases to invoking criminal sanctions. The US Department of Justice believed it could prove that the individual CEO’S had intentionally broken the law and should be subjected not only to sizable fines but actual imprisonment. The two juries said no.

Had the Justice Department been content with civil enforcement, it is likely both companies and their CEOS would have accepted a decree promising not to continue anti-poaching agreements. Indeed, the Federal Trade Commission, which lacks the ability to bring a criminal case, had reached just such a consent decree with the company and CEO involved in the Texas case. On the heels of the tech giants’ earlier agreements, the conclusion would then have been reinforced that just as two companies can’t eliminate competition between the goods they produce, they also can’t depress competition to get the best quality of inputs. Instead, the Justice Department overreached. Juries did not believe that CEOS who had reached “gentlemen’s agreements” (as they were called in one of the cases) not to lure away a competitor’s employees deserved to go to jail.

Classic antitrust law condemns agreements between companies not to compete. In 1982, American Airlines’ CEO told Braniff Airlines’ CEO, in a tape-recorded conversation. “Raise your [expletive] fares 20%. I’ll raise mine the next morning . . . You’ll make more money and I will too.” The Braniff president, who was taping the conversation, objected, “We can’t talk about pricing,” to which the American Airlines’ CEO responded, “Oh [expletive]. We can talk about any [expletive] thing we want to talk about.” The difference between that infamous case and the anti-poaching agreement cases was that American Airlines, and its CEO, were made the subject of a civil enforcement action, which need only be proved to the standard of more likely than not. To prove a criminal case, the government had to prove beyond a reasonable doubt that the CEOS had agreed to depress the wages paid to technicians and executives in the kidney dialysis industry by prohibiting inter-company raids. The case in Texas involved actual discussions of what wage the employers thought was too high to pay therapists, but the jury still balked at a criminal conviction.

The resulting danger is that the opposite lesson from what the Justice Department intended will now be learned: namely, that anti-poaching agreements are permissible, even desirable. They are neither.

California courts have ruled that an employment contract prohibiting an employee from going to a competitor in unenforceable. This judicial policy has fostered a robust market for intellectual talent in Silicon Valley and Hollywood. The nopoaching agreement undercuts that benefit, keeping innovative employees from receiving offers to go where their skills are more prized. That hurts the employee, and, as a result, the ultimate consumer, since fewer innovations will result.

The genius of the free-market system is that it improves quality through competition. Nopoaching agreements inhibit that competition just as assuredly as agreements to raise airline ticket prices. A more deliberate enforcement approach by the Justice Department could have reinforced that conclusion.

Tom Campbell is a professor of law and of economics, teaching antitrust law at Chapman University. He was the director of the Bureau of Competition, the antitrust arm of the Federal Trade Commission, and a member of the governing body of the American Bar Association’s antitrust law section. A five-term congressman, he was one of the authors of the 1990 Antitrust Production Joint Ventures Act.

LM OTERO — ASSOCIATED PRESS In a famous anti-trust case from the 1980s, a president of American Airlines was tape-recorded telling a competitor to raise prices so that he could do the same the next day.