In Short

What Happened: The U.S. Department of Justice recently announced that an e-commerce company and its president have agreed to plead guilty to participating in a price-fixing conspiracy. The conspirators attempted to use encrypted communications to conceal their collusive activities.

Why It's Important: The case illuminates a continuing trend of the DOJ enforcing criminal antitrust laws in online commerce.

Background

Texas-based e-commerce company Zaappaaz, Inc.—doing business as WB Promotions, Inc., Wrist-Band.com, and Customlanyard.net—and its president both agreed to plead guilty to conspiring to fix prices for customized promotional products sold online in the United States, including wristbands and lanyards. The U.S. Department of Justice ("DOJ") alleges that conspirators fixed prices through in-person meetings and communications using social media platforms and encrypted messaging applications, such as Facebook, Skype, and WhatsApp.

Significance

The charges reflect that the DOJ is focused on detecting and prosecuting collusive activity in e-commerce. In a statement, DOJ Antitrust Division Acting Assistant Attorney General Andrew Finch asserted that these "charges are a clear sign of the Division's commitment to uncovering and prosecuting collusion that affects internet sales." The DOJ's ability to uncover the alleged conspiracy despite the alleged conspirators using encrypted messages further suggests that the DOJ is keeping apace of developments in communications technologies. According to Finch: "Criminals cannot evade detection by conspiring online and using encrypted messaging."

The Sherman Act imposes criminal penalties for price fixing of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison. The fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the amount lost by the victims of the crime if either of those amounts exceeds the maximum fine.

Insight

The case demonstrates a continuing trend of the DOJ Antitrust Division bringing charges against e-commerce price-fixing conspiracies. The Antitrust Division's first e-commerce case in 2015 was against a former executive of an e-commerce seller on Amazon Marketplace for conspiring to fix the prices of wall décor sold online. In that case, the government charged the defendant and his co-conspirators with agreeing to adopt a pricing algorithm to determine the pricing for online wall décor sales, with the intent of coordinating and unifying their prices. The algorithm automatically monitored competitors' online prices, reflecting that the transparency of e-commerce pricing can facilitate price-fixing conspirators' ability to police and enforce compliance with the conspiracy. Since then, the government has charged additional co-conspirators in that investigation.

Former DOJ Antitrust Division Assistant Attorney General Bill Baer testified before Congress about the wall décor investigation, stating that the "use of technology to manipulate the prices for products and services is a growing concern for [the DOJ]." Likewise, former DOJ Antitrust Division Acting Assistant Attorney General Renata Hesse announced the Division's commitment to protecting e-commerce competition "by investigating and prosecuting schemes that harm online shoppers." In the present case, Finch reiterated the DOJ's commitment to maintaining an online "marketplace free of unlawful collusion."

The DOJ information on the company and its president are available on DOJ's website.

Three Key Takeaways

  1. Companies should expect ongoing DOJ scrutiny of pricing coordination among e-commerce competitors.
  2. Companies should ensure that business interactions and communications among competitors do not amount to efforts to set prices, reduce discounts, allocate sales, or otherwise invite antitrust scrutiny.
  3. Companies should not expect encrypted messaging applications to conceal collusive activities from antitrust authorities.