The U.S. Department of Justice announced this week an unprecedented remedy in a civil Sherman Act case brought by the Department. Under the proposed settlement in U.S. v. KeySpan Corp.,1 defendant KeySpan would be required to disgorge $12 million in profits derived from an allegedly anticompetitive derivatives contract. While the Department has occasionally pursued disgorgement or restitution in criminal cases (in addition to corporate fines and prison terms for culpable individuals), this is the first time in its history that the Antitrust Division has sought disgorgement for a civil violation of the Sherman Act. See U.S. v. KeySpan Competitive Impact Statement at 8.
The Department alleges in its complaint that KeySpan, the largest seller of electrical generating capacity for New York City, entered a derivative "swap" contract with an unnamed financial services company that gave KeySpan an economic interest in a competitor's capacity sales. The nature of the agreement, the Department contended, allowed KeySpan to maintain a high price for its electrical generating capacity at a time when new capacity was entering the electricity generation market. This eliminated any incentive KeySpan would have had to meet the new competition by lowering its prices during the period the agreement was in effect. The Department alleges that "the likely effect of the KeySpan Swap was to increase capacity prices for the retail electricity suppliers ... and, in turn, to increase the prices consumers pay for electricity."
The Federal Trade Commission has on rare occasions obtained disgorgement under provisions of the Federal Trade Commission Act,2see e.g. FTC v. Mylan Labs., 62 F.Supp. 2d 25, 36-37 (D.D.C. 1999), as can some state attorneys general under the laws of their states. However, the Department has traditionally sought only injunctive relief in the civil Sherman Act cases that it has brought. In the typical case, the Department seeks to rescind the anticompetitive arrangement or enjoin the anticompetitive conduct. The Department traditionally leaves it to the injured parties to recover through private, civil actions any damages that the defendants' conduct may have caused them.
In its Competitive Impact Statement, the Department indicated that it sought disgorgement in this case in part because it believed the filed rate doctrine, which can bar private plaintiffs' recovery of antitrust damages over supracompetitive prices filed with a regulatory authority, would have made private suits over KeySpan's conduct unlikely. Yet the Sherman Act expressly authorizes the Department only to "prevent and restrain" violations of the Sherman Act, in addition to bringing criminal prosecutions. 15 U.S.C. §§ 1, 4. The Department's approach in the KeySpan case therefore reflects both a shift in Department policy as well as a newly aggressive reading of the Department's civil enforcement authority under the Sherman Act. Notably, the Department's Competitive Impact Statement relies principally on U.S. district courts' general equitable powers—not the Sherman Act—as the basis for disgorgement as an equitable remedy.
The Department's complaint and proposed consent decree are now before the U.S. District Court for the Southern District of New York. After a comment period, the court will decide whether to enter the proposed consent decree. While the use of the disgorgement remedy in this case was probably driven by its unique circumstances that made a private damages remedy likely unavailable, it remains notable that this is the first time the Department has ever sought it and raises important questions as to whether the Department might seek it in other circumstances.
1 No. 10-cv-1415, (S.D.N.Y. filed Feb. 22, 2010).
2 15 U.S.C. §41, et. seq.