A recent criminal sentencing concludes the first prosecution by the US Department of Justice Antitrust Division involving a computer-algorithm-based pricing conspiracy. Two corporate executives and a corporation were prosecuted in the investigation. The case also highlights some of the international tools the DOJ uses in its ongoing cartel enforcement efforts to hold foreign executives accountable for their extraterritorial conduct.
On January 17, 2019, the US District Court for the Northern District of California sentenced Daniel William Aston, an owner and director of Trod Ltd. d/b/a BUY 4 LESS, in connection with a collusive price-fixing scheme in the sale of wall posters on an online marketplace.[1] The court imposed a sentence of six months with about five months’ credit for time served during custody in Spain pending extradition proceedings. The prosecution began nearly four years ago.
In the online marketplace, retailers offering the lowest prices typically appear at or near the top of search results.[2] According to court records, Mr. Aston and BUY 4 LESS colluded with other online sellers in 2013 and 2014 through the coordinated use of a computer-based pricing algorithm.[3] The algorithm would collect the price data of noncolluding sellers, identify the lowest price offered, and then set all of the colluding sellers’ prices slightly below that price, thereby slowing further price reductions by eliminating price competition between the colluding sellers.
In April 2015, the US Department of Justice (DOJ) highlighted the algorithm case as its “first criminal prosecution against a conspiracy specifically targeting e-commerce.”[4] The first individual, David Topkins, was convicted and sentenced to pay a fine of $20,000.[5] In August 2015, Mr. Aston and BUY 4 LESS were charged in a sealed indictment that was unsealed in December 2015 as part of the ongoing investigation.[6] BUY 4 LESS was convicted in August 2016 and agreed to pay a $50,000 criminal fine as part of a separate plea agreement to resolve the charges against it.[7] The conviction and sentencing of Mr. Aston conclude this algorithm price-fixing prosecution.
The sentences were not particularly steep compared with other recent antitrust prosecutions and the maximum statutory penalties. Under the Sherman Act, the maximum sentence for an individual is 10 years in prison and a fine of $1 million.[8] The maximum criminal fine for a corporation is $100 million. The DOJ has exceeded these fine amounts in the past under the Alternative Fines Act, basing a fine on “the greater of twice the gross gain or twice the gross loss” resulting from the offense.[9] However, the sentences in this prosecution were largely a function of the relatively low volume of commerce at issue (stipulated by the parties in court filings to be $175,000 for Mr. Aston and BUY 4 LESS, and $575,000 for Mr. Topkins), which is a significant sentencing factor considered by courts under the Sentencing Guidelines.
The DOJ has previously noted that the rising use of computer-based algorithms to analyze and set prices can promote competition by allowing firms to adjust their prices to respond quickly to competitors’ price movements.[10] However, the DOJ has also cautioned that when algorithmic pricing decisions are coordinated among firms, rather than made unilaterally, the use of these algorithms violates the antitrust laws.[11] Thus, the DOJ has explained that firms coincidentally using the same price-setting algorithm and independently arriving at similar prices would not violate antitrust laws, but algorithm use or price setting as a result of an express or implied agreement among competitors would constitute an illegal restraint of trade.[12] As data-driven pricing practices become more ubiquitous in retail, this will be a continuing area of interest for the DOJ moving forward.[13]
While there are procompetitive benefits from using algorithms, this case shows that enforcers will consider whether a conspiracy is reached in violation of antitrust laws. The issue is fact specific. Given enforcer focus, those using pricing algorithms should carefully consider any antitrust implications to ensure that appropriate safeguards are in place to avoid enforcement or litigation risk.
This case is also noteworthy because it demonstrates some of the international steps taken and tools used by the DOJ to hold foreign executives accountable in price-fixing cases in US courts.
Mr. Aston and BUY 4 LESS are both residents of the United Kingdom.[14] Mr. Aston had no connection to the United States besides the sale of posters to American consumers.[15] During the investigation, the DOJ obtained a Mutual Legal Assistance Treaty (MLAT) request for searches on Mr. Aston’s home and the BUY 4 LESS corporate offices in Birmingham, England.[16]
DOJ also obtained an Interpol warrant and sought to extradite Mr. Aston.[17] The Antitrust Division has successfully extradited five foreign corporate executives who have been convicted of criminal violations of US antitrust law.[18]
In May 2018, authorities arrested Mr. Aston while he was on his honeymoon in Spain. He remained in custody until October 2018 pending extradition proceedings. A Spanish court ultimately denied the DOJ’s extradition request.[19] He was not allowed to return to the United Kingdom until November 2018.[20] Mr. Aston subsequently participated in a parole process that permitted him to enter the United States to attend the criminal proceedings in California.[21]
It is not uncommon for an antitrust enforcement action commenced in one jurisdiction to be opened as a separate investigation or proceeding in other jurisdictions. Here, a separate enforcement action was also pursued in the United Kingdom. The UK Competition and Markets Authority disqualified Mr. Aston from serving as a director of any UK company for five years, and BUY 4 LESS accepted a fine of 163,371 pounds ($211,637).[22]
This case has followed a pattern seen in prior DOJ international cases, i.e., a request to obtain evidence in another country through an MLAT, an arrest and detention based on an Interpol arrest warrant following travel abroad, and an extradition proceeding.[23] The DOJ aggressively prosecuted the case over the last few years, including enforcement efforts in the United Kingdom and Spain, until the plea resolution was entered. This case provides a recent example of the DOJ’s persistence in prosecuting Sherman Act violations, including involving ecommerce, by those residing and engaging in such conduct outside the United States.
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[1] See Sentencing Minute Order, United States v. Aston et al., No. 15-419 (N.D. Cal. Jan. 17, 2019) [ECF No. 73].
[2] See OECD, Algorithms and Collusion: Note by the United States at 5 (May 26, 2017).
[3] See Indictment, United States v. Aston et al., No. 15-419 (N.D. Cal. filed Aug. 27, 2015) [ECF No. 1]; Plea Agreement, United States v. Aston et al., No. 15-419 (N.D. Cal. Aug. 11, 2016) [ECF No. 41].
[4] Press Release, US Dep’t of Justice, Former E-Commerce Executive Charged with Price Fixing in the Antitrust Division's First Online Marketplace Prosecution (Apr. 6, 2015).
[5] See Plea Agreement, United States v. Topkins, No. 15-201 (N.D. Cal. Apr. 30, 2015) [ECF No. 7].
[6] See Indictment, supra note 3; see also Press Release, US Dep’t of Justice, E-Commerce Exec and Online Retailer Charged with Price Fixing Wall Posters (Dec. 4, 2015).
[7] See Plea Agreement, supra note 3; see also Press Release, US Dep’t of Justice, Online Retailer Pleads Guilty for Fixing Prices of Wall Posters (Aug. 11, 2016).
[8] 15 U.S.C. § 1 (listing maximum penalties).
[9] 18 U.S.C. § 3571(d) (“If any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process.”).
[10] See OECD, Algorithms and Collusion, supra note 2, at 2-3.
[11] Id. at 4.
[12] Id.
[13] See, e.g., Press Release, supra note 7 (“E-commerce is among the fastest growing segments of our economy . . . . We will continue to ensure [vigorous competition] by investigating and prosecuting schemes that harm online shoppers.”).
[14] See Indictment, supra note 3.
[15] See Defendant’s Sentencing Memorandum, United States v. Aston et al., No. 15-419 (N.D. Cal. Jan. 10, 2019) [ECF No. 69].
[16] See Press Release, supra note 6 (“U.K. law enforcement and the FBI successfully conducted searches of Trod Ltd.’s headquarters and Aston’s residence in West Midlands, U.K.”); see also OECD, Algorithms and Collusion, supra note 2, at 5 n.17 (“As part of its investigation, the DOJ received MLAT assistance from the United Kingdom’s enforcement authorities, in coordination with the Competition & Markets Authority.”).
[17] See Defendant’s Sentencing Memorandum, supra note 13, at 2.
[18] See LawFlash, DOJ’s Antitrust Division Convicts Fifth Extradited Foreign Executive (Mar. 16, 2017); Mark L. Krotoski, Extradition Lessons Learned, MLex (Nov. 28, 2016); Mark L. Krotoski, Extradition in International Antitrust Enforcement Cases, The Antitrust Source (Apr. 2015).
[19] See Defendant’s Sentencing Memorandum, supra note 13, at 5.
[20] See Government’s Sentencing Memorandum, United States v. Aston et al., No. 15-419 (N.D. Cal. Jan. 10, 2019) [ECF No. 68].
[21] See Defendant’s Sentencing Memorandum, supra note 13, at 5.
[22] See Press Release, UK Competition & Markets Auth., CMA Secures Director Disqualification for Competition Law Breach (Dec. 1, 2016); Press Release, UK Competition & Markets Auth., CMA Issues Final Decision in Online Cartel Case (Aug. 12, 2016); Press Release, UK Competition & Markets Auth., Online Seller Admits Breaking Competition Law (July 21, 2016); see also Form of Disqualification Undertaking, In re Trod Ltd. (Nov. 30, 2016). For a history of the case before the CMA, see UK Competition & Markets Auth., Online Sales of Posters and Frames (last updated Sept. 30, 2016).
[23] See generally Mark L. Krotoski, Key International Tools Used to Investigate Cartels and Enforce the Sherman Act Abroad, Int’l Antitrust Bull., at 18-21 (Mar. 2015).