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Deterring Vendor Schemes Through Antitrust Enforcement

The Ohio Attorney General’s Office works hard to detect bid-rigging, price-fixing, and other anticompetitive acts by vendors.  Equally important are our efforts to recover the overcharges that public entities have incurred because of those misdeeds.  But there is a third, vitally important motivation behind our enforcement efforts – to discourage vendors from engaging in these illegal acts in the first place.

But how effective is antitrust enforcement at deterring collusive schemes?  In the world of academia, “deterrence theory” says that a person’s decision to obey or violate the law will be influenced by his or her perception of punishment. Specifically, how severe it will be; how certain it is to happen; and how soon the punishment will come. Criminal justice experts say the system needs to balance all three factors. Put in simple terms: the severity of punishment should match the nature of the crime, the punishment must take place every time a criminal act is committed, and should occur quickly.   

Unfortunately, the very nature of antitrust violations and enforcement makes it difficult to balance these factors. The public often struggles to view antitrust violations as serious violations of the law. Further, antitrust violations are inherently difficult to detect, and thus there are no guarantees that every violator will be punished. More often than not, violators have been engaging in this behavior for extended periods of time before they get caught (assuming they ever get caught).  Lastly, antitrust violations require tremendous amounts of resources and time to litigate and often end up in multi-year court battles before they are adjudicated.

Nevertheless, recent trends suggest that countries around the world are taking a stricter approach in addressing antitrust violations. Many have in recent years increased the level of fines imposed on companies engaging in antitrust violations. While the U.S. is often seen as the leader in the movement to criminalize antitrust behaviors, it was not until 1974 that Congress upgraded cartel activity to a felony level and increased prison sentences. In its original enactment, cartel activity under the Sherman Act was considered a misdemeanor offense.  Additionally, more jurisdictions are criminalizing cartel behavior at the individual level. When faced with the real threat of prison and personal fines, potential perpetrators might think twice before engaging in criminal behavior.

Ohio recently took steps to increase the effectiveness of antitrust enforcement at deterring vendor collusion.  Before April 6, 2017, antitrust violations had been treated as first degree misdemeanors under Ohio’s antitrust law, the Valentine Act.  But on that date, an amendment became effective that broadened the scope of the Act and made its penalties more severe.  ORC 1331.99 now classifies a violation of the Act as a fifth degree felony. The penalty is further enhanced to a fourth-degree felony if: (1) the amount of the contract, or sale of goods or services, is $7,500 or more, (2) the conspiracy relates to the sale of goods or services to or from a local, state, or federal governmental entity, or (3) the contract or sale of goods or services involves funding to or from a local, state, or federal governmental entity.  A fifth degree felony is punishable by a fine of up to $2,500 and incarceration for a maximum of twelve months.  A fourth degree felony is punishable by a fine of up to $5,000 and incarceration for a maximum of eighteen months.

Hopefully, these revisions will deter anticompetitive behavior that harms Ohio’s consumers, especially in taxpayer-funded purchases. And for those vendors that are not deterred, the Attorney General stands ready to pursue the wrongdoers and to return public funds to their rightful place.