Cartels: Confusing Covert and Ancillary

Howard Morse, Dec 17, 2013

The leadership at the U.S. Department of Justice—during Democratic and Republican Administrations alike—has actively encouraged competition law enforcers around the world to prosecute cartels, and to increase the penalties imposed on cartels, while encouraging leniency for cartel members that report cartels to officials.

Over the last 20 years, antitrust enforcement efforts have brought down global cartels in industries from air cargo to vitamins and auto parts to memory chips.

Department officials have not, however, always made clear what constitutes a “cartel” and that has left room for mischief. Department rhetoric may be encouraging overly vigorous enforcement against activities that would be reviewed civilly under the rule of reason, not criminally, and not under the per se rule, in the United States. Foreign enforcers, sometimes at the instigation of competitors, have brought cases challenging vertical restraints and restraints ancillary to pro-competitive collaborations, characterizing such cases as cases against cartels.

When U.S. officials call on foreign enforcers to prosecute cartels, they ought to first define a cartel: a “naked” price-fixing or market division agreement, which is usually covert. It is not an agreement ancillary to a potentially efficiency-enhancing collaboration.

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