On April 27, 2016 Hitachi Chemical was charged by the Antitrust Division in a one count Information alleging that the company (through predecessor companies) engaged in a conspiracy to fix prices and rig bids of certain electrolytic capacitors in the United States and elsewhere. On May 13, 2016, the government filed a “Sentencing Memorandum, Motion for Departure and Request for Expedited Sentencing.” The plea agreement was attached to the filing. There are several interesting features of the Information and the plea agreement. The plea agreement calls for a fine of $3.8 million, which was based on a downward departure for substantial assistance. Hitachi’s guidelines range was between $3.96 million and $7.92 based on a volume of commerce $16.5 million. My first post on this plea agreement (here) discussed the most noteworthy provision of the agreement; the agreement that Hitachi Chemical and the government will jointly recommend that the Court sentence Hitachi Chemical to a three-year term of probation. There are a couple of other provisions of the plea agreement that are worth noting and discussed below.
Electrolytic capacitors can be subdivided into tantalum and aluminum electrolytic capacitors. Major electronics companies such as Apple, Dell, Intel, Sony, Canon, Foxconn, Nintendo, and Philips purchase them and incorporate them into electronics products to conduct electricity. Hitachi will plead guilty to participating in a conspiracy, “from at least as early as August 2002 to at least as late as March 2010, to suppress and eliminate competition by fixing prices and rigging bids of certain electrolytic capacitors in the United States and elsewhere.” The word “certain” has great significance. There are many kinds of electrolytic capacitors, but under the plea agreement, Hitachi only fixed the price on “certain” of these capacitors. The government’s sentencing memorandum states, “The volume of commerce calculation excludes certain sales which, based on the evidence, were not subject to the conspiracy.” Hitachi’s guilty plea is prima facie evidence that the company participated in the cartel. This gives the plaintiffs in the civil litigation a strong position. But Hitachi was able to negotiate some wiggle room with the Antitrust Division by inserting the word “certain.” The plaintiffs will still bear a burden of proving what types/dollar value of capacitors were subject to the agreement, a critical component of damage calculations.
The plea agreement has another interesting feature. Hitachi Chemical’s participation in the cartel is described as being “from as early as August 2002 to at least as late as March 2010.” That means Hitachi’s participation in the offense ended outside the five-year Sherman Act statute of limitations. Hitachi Chemical must have agreed to a statute of limitation waiver in order for the Antitrust Division to bring this charge, but that would be in Hitachi’s interest to either: a) allow time for negotiations or b) convince the government to use March 2010 as an ending date of the company’s participation, or c) both. Also, the Information charges that the capacitor cartel began “at least as early as September 1997 and continu[ed] until in or about January 2014.” So Hitachi Chemical was charged with joining the cartel well after it began and withdrawing before it ended. While the guilty plea hurts, Hitachi Chemical has at least limited the time period of its participation in the conspiracy.
The last item of note is that the Information contains language that the FTAIA applied to commerce in this cartel. The Information states: “During the time period identified in 9 paragraph 2, the charged combination and conspiracy had a substantial and intended effect in the United States, including on trade or commerce within the United States and U.S. import trade or commerce in electrolytic capacitors and products containing electrolytic capacitors.”
The government’s sentencing memorandum reflects the inclusion of FTAIA component commerce:
The first upward adjustment accounts for the value of electrolytic capacitors sold outside the United States, but incorporated into personal desktop and laptop computers sold in the United States under major U.S. brands. By taking into account sales of capacitors made overseas, but incorporated into a major category of finished goods sold by U.S. companies, this adjustment further reflects the seriousness of the offense and its harm in the United States. U.S.S.G. §8C2.8(a)(1).
This is interesting because, as I understand it, capacitors while ubiquitous in electronic products, are very cheap, generally less than a penny each. So while there may be many capacitors in an electronics product assembled overseas and shipped into the United States, it seems like the percentage cost of the capacitors relative to the finished product will be extremely small. This stands in contrast to the TFT-LCD case where items like cell phone screens and computer screens were significant costs in the end product. Since this is a plea, the issues of whether the FTAIA covers a component as inexpensive as a capacitor will not be contested, but it will be an interesting issue to watch as the civil litigation proceeds.
Under the plea agreement Hitachi Chemical executives, except those “carved out “in the attachment filed under seal, will receive non-prosecution protection as long as they cooperate in the investigation. The plea agreement also continues Antitrust Division practice (started under Bill Baer), of naming carved out executives in an attachment filed under seal instead of in the plea agreement itself.
Overall, the plea agreement looks like both sides achieved some objectives, which is how agreements are reached. The Antitrust Division got its second corporate plea in the capacitors investigation. And while the fine is quite small, the government does get the cooperation of non-carved out Hitachi Chemical executives. And Hitachi Chemical may have made the best of a bad situation by insertion of the word “certain” into the charging language and limiting the relevant period to one much shorter than the length of the overall conspiracy.
The case is US v. Hitachi Chemical Co., Ltd., Case 4:16-cr-00180-JD (N.D. Cal.)(sentencing memorandum filed 5/13/16). The capacitor investigation is being handled the San Francisco office of the Antitrust Division. Mark Rosman, of Wilson Sonsini Goodrich & Rosati represents Hitachi Chemical. Sentencing is schedule for June 8, 2016 before Judge Donato.
Thanks for reading.