Last week, China’s National Development and Reform Commission (NDRC) imposed its first fines in the worldwide auto parts investigation. Eight Japanese auto parts companies and four Japanese bearing makers were fined a cumulative total of just over $200 million. In a related development, Batman and Robin announced that they have directed Alfred to determine whether the Batmobile contains any of the price-rigged parts.
OK, maybe that is a little far-fetched, but the point is that cartel enforcement has clearly become a worldwide event. With China pulling up a seat at the table, the risks have never been higher for would be cartelists. “This sends a warning to companies engaging in global price-fixing that they should beware of China,” said Chen Danzhou, a lecturer specializing in anti-monopoly law at the University of International Business and Economics in Beijing. “The government is getting more aggressive as it tries to make a structural adjustment to the market.” (Bloomberg) China had also recently fined 6 companies from South Korea and Taiwan $56 million for participation in the LCD panel cartel.
The Antitrust Division coordinated the auto parts investigation with the Japanese Fair Trade Commission, the European Commission, Canadian Competition Bureau, Korean Fair Trade Commission, Mexican Federal Economic Competition Commission and Australian Competition and Consumer Commission. What this usually means, at a minimum, is that the agencies coordinate timing of search warrants, dawn raids, inspections or wherever term is used to pay an unscheduled visit on businesses (and in some cases executives’ homes) to seize paper and electronic documents. The coordination minimizes the ability of subjects to clean house before the guests arrive. China did not participate it the auto parts coordination kickoff, but followed on as other nations brought cases. But, China is thought to have cooperated with the DOJ, European Union Japanese, Korean and Taiwan Fair Trade Commission, (JFTC, KFTC, TFTC, respectively) in launching the recent investigation of the global capacitors industry.
The United States started the ball bearing rolling in the auto parts investigation. This mature, but far from over, investigation has netted the DOJ a total of $2.4 billion in fines against 28 companies. 26 executives have pleaded guilty or agreed to plead guilty and accept prison sentences. (here) The EU has imposed auto parts fines in the range of $2 billion. Fines have also been imposed in at least Japan, Korea, and Australia (Australian Competition and Consumer Commission “ACCC”) and Canada. This list is likely not complete, and in any event is growing.
Kudos to the United States for Leadership In the Fight Against Cartels
The development of cartel enforcement on a worldwide basis owes much to the leadership of the Antitrust Division of the U.S. Department of Justice. The last three Deputy Assistant Attorney Generals that I worked under (Gary Spratling, Jim Griffin and Scott Hammond) were tireless, enthusiastic and effective in preaching the gospel of “cartels are the supreme evil of antitrust.” The Division also tirelessly exported the idea that leniency programs were the single greatest weapon in fighting cartels. Today, leniency programs modeled after the DOJ’s corporate leniency policy are prominent in the enforcement arsenal of every major enforcement agencies’ toolbox. The Division has also promoted the idea that criminal sanctions are a necessary component of any cartel deterrence program. This idea has met with some, but substantially less success. But, countries that once had blocking statutes to protect their home industries from investigation now have robust enforcement agencies. [For an author to have any credibility in writing about antitrust, the word “robust” must be used at least once.] Cooperation among enforcement agencies in cartel prosecution (as well as other competition areas) is at an all time high.
Success is Not Without Challenges/Problems
Perhaps with the firepower of many international enforcement agencies focused on cartels, they will be hunted to extinction. 100% deterrence would be a good thing—though somewhat troublesome for those of us with related careers. But, given human nature, as Adam Smith explained, cartels are likely to persist to some degree. What may be a concern is whether the cost of cooperation can become too high for any company to bite. Even leniency (or 100% immunity as it is called in many jurisdictions) can have high costs. At one time, a leniency applicant would likely rush into the United States and once a marker was secured, turn to the EU and/or perhaps Canada. But today, a company involved in an international cartel has a much more complicated calculus to work through to determine the necessity for and likelihood of obtaining immunity in innumerable jurisdictions around the world. Even if “Cartels R US” obtained amnesty in every affected jurisdiction in the world, collateral consequences can still be severe. Plaintiffs’ class actions or similar forms of consumer redress are also being exported from the U.S. in some fashion (usually without the treble damages) around he world. And, only one company qualifies for complete leniency. For companies that miss out on leniency the decision of whether, when and where to plead guilty becomes even more complex with dire consequences.
Other challenges will arise. For example, earlier this year in Motorola Mobility LLC v. AU Optronics Corp., et al., No. 14-8003, 7th Cir., a follow-on class action of liquid display panel purchasers, the governments of Taiwan and South Korea urged the court to limit the Sherman Act’s reach to cases where U.S. customers were direct purchasers. Both the TFTC and KFTC submitted amicus briefs taking the position that allowing U.S. law to reach products such as LCD screens sold abroad and then integrated into goods later sold into the U.S. would interfere with their own enforcement regimes. They argued in effect that they have their own “robust” competition laws: “Thanks, but we don’t need the U.S. to be the world’s cartel cop.” Judge Posner, in an opinion since vacated, was sympathetic, writing:
The Supreme Court has warned that rampant extraterritorial application of U.S. law “creates a serious risk of interference with a foreign nation’s ability independently to regulate its own commercial affairs.” The Foreign Trade Antitrust Improvements Act was intended to prevent such “unreasonable interference with the sovereign authority of other nations.” The position for which Motorola contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and “resent [ment at] the apparent effort of the United States to act as the world’s competition police officer,” a primary concern motivating the foreign trade act.
There may be other areas whether friction between countries and their respective enforcement agencies arises. For example, while the condemnation of cartels may be universal, the procedures for investigating and prosecuting them vary widely. There are differences in reality and in perception of due process. For example, in China, auto parts executives were called into the NDRC to answer questions about pricing, negotiations, and related matters. In India, the Competition Commission of India (“CCI”), investigates possible cartel infringements (through its Director General arm) and also decides whether an infringement has taken place. [Sanctions can be appealed to the courts starting with Competition Appellate Tribunal]. There are also different sanctions around the world for cartel conduct. The U.S. is one of the few jurisdictions where jail sentences are imposed on convicted executives and is the only jurisdiction where jail sentences are common. These sentences are getting longer. And, with its current focus on international cartels, the DOJ is primarily prosecuting foreign companies and sending foreign executives to prison. Concerns about whether favoritism is shown to domestic enterprises are likely to arise and may complicate cooperation. Will the wheels come off international cooperation over issues such as these and others yet unforeseen? Or, are they minor bumps that can be ridden out with seat belts secure. Time will tell.
This is a very interesting time in the area of cartel enforcement. Fortunate are we who practice in this important area of law. If you have any questions or thoughts, pick up the Batphone and give me a call.
Thanks for reading.