Following the lead of the Ninth Circuit in United States v. Sanchez, the U.S. District Court for the District of Utah reconsidered its prior position and concluded that the per se standard should apply in United States v. Kemp.

As previewed in Duane Morris’ February 4, 2019, antitrust Alert, “Ninth Circuit Reinforces Applicability of Per Se Standard in Criminal Antitrust Cases,” the U.S. District Court for the District of Utah further reinforced use of the per se standard on February 20, 2019, in United States v. Kemp.

In Kemp, the United States charged the defendants with restraining competition by agreeing to allocate customers of heir location services sold in the United States. (Heir location services match unclaimed estates with missing heirs.) Initially, the district court decided that the rule of reason standard—not the per se standard—should apply. The district court cited three reasons for its decision to apply the rule of reason: (i) the arrangement impacted only new customers; (ii) it affected only a small number of customers; and (iii) it involved an obscure industry with atypical operations.

The United States appealed to the Tenth Circuit Court of Appeals, which, in its October 31, 2018, decision, encouraged the district court to reconsider its decision to apply the rule of reason. On December 14, 2018, the United States filed a motion with the district court also asking that it reconsider its prior decision to apply the rule of reason to the alleged horizontal restraint on competition.

Following the lead of the Ninth Circuit in United States v. Sanchez, the U.S. District Court for the District of Utah reconsidered its prior position and concluded that the per se standard should apply in United States v. Kemp. The district court’s rationale was twofold. First, it found that the alleged agreement was a horizontal customer allocation arrangement because the parties to the alleged agreement were competing heir location firms that performed virtually the exact same functions and because the arrangement involved dividing new customers according to certain territories. Second, the court determined that no special circumstances negate the application of the per se standard in this case because the arrangement was not part of a joint venture and the arrangement was not a necessary predicate to the viability of the heir location services industry. Moreover, the district court concluded that none of the three bases that it had originally relied upon in choosing to apply the rule of reason was sufficient justification to limit the application of the per se rule in this case.

Conclusion

The question of whether a business agreement, if later challenged by the government or a private plaintiff, will be evaluated under the per se or rule of reason standard depends on the facts and circumstances in each case. The outcome of that question can have significant consequences for the parties to the agreement. Application of the per se standard prevents a company or individual from arguing to a court that the agreement was justified under the conditions prevalent in the relevant market. Before entering an agreement that might invite antitrust scrutiny, companies should seek experienced antitrust counsel to advise them on the standard that a court is likely to apply.