Antitrust Lawyer Blog Commentary on Current Developments

DOJ SEEKS DISGORGEMENT OF PROFITS IN SETTLEMENT WITH KEYSPAN REGARDING ANTICOMPETITIVE AGREEMENT

On February 22, 2010, the DOJ entered into a settlement with KeySpan Corporation that requires KeySpan to pay $12 million for violating the antitrust laws by entering into an agreement restraining competition in the New York City electricity capacity market. The DOJ alleged that the financial derivative agreement likely resulted in a price increase for retail electricity suppliers and, in turn, an increase in electricity prices for consumers.

The Antitrust Division filed a civil antitrust complaint along with a proposed consent decree in U.S. District Court for the Southern District of New York, that if approved by the court, would resolve the lawsuit. The settlement provides for disgorgement of profits for a violation of the antitrust laws and requires KeySpan to pay $12 million to the United States.

According to the complaint, KeySpan and a financial services company entered into an allegedly anticompetitive agreement in January 2006 that gave KeySpan a financial interest in the electricity capacity sales of its largest competitor, Astoria. At the time of the agreement, KeySpan was the largest seller of electricity capacity in the New York City market. By providing KeySpan revenues from its competitor’s capacity sales, as well as its own, the agreement with the financial services company had the anticompetitive effect of eliminating KeySpan’s incentive to sell its electricity capacity at lower prices. As a result, retail electricity prices in New York City were likely higher than they would have been without this anticompetitive agreement. The anticompetitive effects of the agreement lasted until March 2008, when regulatory conditions eliminated KeySpan’s ability to affect the market price of electricity capacity.

The settlement is noteworthy because this is the first time in history that the Antitrust Division sought disgorgement of profits as a remedy for a civil antitrust violation of the Sherman Act. The Antitrust Division has traditionally sought only injunctive relief in the civil cases that it has brought. Normally, the Division seeks to rescind the anticompetitive arrangement or enjoin the anticompetitive conduct. The injured parties usually must recover damages through private, civil actions. In its Competitive Impact Statement, the Division 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. That being said, the Sherman Act expressly authorizes the DOJ only to “prevent and restrain” violations of the Sherman Act, in addition to bringing criminal prosecutions. 15 U.S.C. §§ 1, 4. The Division’s approach in the KeySpan case reflects a shift in the DOJ’s policy with the aggressive interpretation of the DOJ’s civil enforcement authority. Interestingly, the Division’s Competitive Impact Statement relies principally on U.S. district courts’ general equitable powers and not the Sherman Act as the basis for disgorgement as an equitable remedy.

While the use of the disgorgement remedy in this case was probably driven by its unique circumstances that made a private damages case unlikely, it is noteworthy that this is the first time the Division has ever sought disgorgement and it raises important questions as to whether the Division might seek it in other circumstances.


Andre Barlow

(202) 589-1834
abarlow@dbmlawgroup.com