It was not that long ago that the Antitrust Division had a very black and white position on compliance programs. They were important to keep a company from violating the Sherman Act.  And, if a company was involved in a cartel, the Corporate Leniency Program could be used to reward a company, if through its compliance program, it was the first company to detect and report the violation and cooperate in the investigation. But, after that, regardless of the circumstances: “No credit for you!”  The door was opened a crack in a speech given by Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement in a September 9, 2014 speech “Compliance Is A Culture, Not Just A Policy” when Snyder indicated the Division was open to rewarding a company for a compliance program and was looking for the proper situation.

The Division recently found that opportunity in its May 20, 2015 plea agreement with Barclay’s, a bank fined in the Forex investigation.  In the Barclay’s plea agreement (here), the company agreed to pay a fine of $650 million for its illegal conduct in the Forex market. But, the plea agreement also called for a $60 million penalty for the company’s rate rigging activity in Libor. In 2012, Barclay’s entered into a non-prosecution agreement with the Criminal Division in relation to the Libor rate rigging.  Barclay’s Forex conduct was ongoing during the time the two-year term Libor non-prosecution agreement prohibited the defendant from committing any other violations.  As a result, Barclays’ was dinged for an additional $60 million in the Forex plea agreement. The Barclay’s plea agreement was notable, however, in that for the first time, the Division publicly gave credit to a corporation for implementing and/or improving a compliance program. Paragraph 13 of the Barclay’s plea agreement said only: “The parties further agree that Recommended Sentence is sufficient, but not greater than necessary to comply with the purposes set forth in 18 U.S.C. §§ 3553(a), 3572(a), in considering, among other factors, the substantial improvements to the defendant’s compliance and remediation program to prevent recurrence of the charged offense.”

Yesterday, Brent Snyder made public remarks at a conference in Chicago about “credit for compliance.” As reported in Law 360, Snyder said:

“Credit will require action and results, not just mere promises of future action…. It’s senior executives who lead by example and hold themselves accountable … that bring about culture change. It’s senior executives who create a zero-tolerance compliance environment that bring about culture change. And it’s companies that make responsible decisions about the roles of … culpable employees that do not accept responsibility that bring about culture change. That is what we will be looking for.”

The basis for the compliance credit was quite different from a company seeking credit for an effective compliance program that was violated by a “rogue employee.” Snyder has previously stated that: “The ‘lone rogue cartel offender’ is a little like Big Foot, often talked about, rarely seen.” In fact, arguing that a lone rouge employee committed a cartel offense can work against a company because it may seem like the company is looking for a scapegoat instead of admitting broader employee conduct in the cartel. I will say from my own experience, it is rare that a company can get involved in a cartel offense with a single employee. In cases where it has happened, it is usually a small company and the President is the “rogue employee.” Larger conspiracies generally involve multiple layers of company employees to carry out. In my experience, the best way to argue for a reduced sentence with the Antitrust Division is by providing extraordinary cooperation (which can cost a great deal of time and money) and now, a real commitment to changing the corporate culture through a serious upgrade in an effective corporate ethics and compliance program.

A couple of other notes about the Antitrust Division’s position on credit for corporate compliance. Barclays received this credit in the very same plea agreement where they had to pay an additional $60 million for Forex price fixing while still under an NPA for Libor rate rigging. It is extraordinary that in the same plea agreement where Barclays was penalized for recidivism, Barclays received credit for beefing up its compliance program.  The two are not mutually exclusive and it demonstrates the Division is really open to fact based arguments.  (Unfortunately, there is no guidance on what specifically Barclays did to earn this credit.) Also, besides the credit for compliance carrot, the Division has recently wielded a very heavy stick—seeking and getting external corporate monitors in situations (AU Optronics and Apple) where the Division felt the company did not take compliance efforts seriously, even after being found to have violated the law.

This is an important change in the Antitrust Division’s policy towards compliance programs. Credit goes to the Division to being open to this change, and also to commentators such as Joe Murphy and defense attorneys who have long argued that the Division should be open to such a change. It remains to be seen how this change plays out in future cases.

Stay tuned. Thanks for reading.

Canada’s Corporate Compliance Program

The Canadian Competition Commission has become a leading voice on the importance of competition compliance programs.  Canada had previously acknowledged that in certain circumstances, companies could get credit for having a compliance program, even if a breach in the program has led to a violation (here). Last week Canada updated its Corporate Compliance Bulletin with this announcement giving guidance in establishing an effective compliance program. The announcement states:

This bulletin seeks to help businesses of all sizes in the development of a credible and effective compliance program, but the updated bulletin pays special attention to small and medium‑sized businesses. It is designed to help businesses get the solid information they need to reduce their risk of contravening the law.

Commission Pecman, Canadian Commissioner of Competition, issued this statement:

“The updated Corporate Compliance Programs bulletin provides Canadian businesses with the guidance needed to play by the rules and avoid the pitfalls of anti‑competitive behaviour. Fair competition makes for a strong economy. Canadian businesses and consumers reap the benefits of a competitive and innovative marketplace.”

I’d add that compliance programs add value in other ways: increased investor confidence; ability to attract ethical employees and positive “branding” with the consuming public.  The Canadian Corporate Compliance Program bulletin has many links and is an important source of information for those interested in antitrust/competition compliance programs.

My Own Thoughts On Compliance Credit

As mentioned, Canada leads the way in providing an incentive for companies to implement an effective ethics and compliance program by allowing the possibility for credit, even if some employees didn’t take the message to heart and a violation occurred. Leading commentators have urged the United States and EU to take a similar approach. I’ve added a slightly different approach—adding a stick to the carrot. In a letter I’ve written to the United State Sentencing Commission, I advocated that there be an upward adjustment in an individual’s sentence if he had the authority to institute an effective antitrust compliance program (as defined in the Sentencing Guidelines) and failed to do so. Many antitrust defendants are sufficiently high in the corporation (the c-suite) that they have some responsibility for training. And many of these individuals, if they commit the company to a price-fixing/bid rigging scheme, direct subordinates to implement the scheme.  If an individual is an antitrust defendant it is obvious he didn’t adhere to an ethics and compliance program. But, to me, it is an aggravating factor if that individual was high enough in the company to have instituted a compliance program and didn’t to do so. Such an executive failed their employees by not providing subordinates the training needed to perhaps resist involvement in the criminal activity.  And, no compliance program means subordinates don’t have access to “whistle-blower” mechanisms to report illegal activity they may be directed to engage in.  In many cases I prosecuted, subordinates usually had a notion that price-fixing was wrong–but maybe had no idea it carried a ten-year jail sentence.  When the boss said “Go to this meeting; they went.”  And if they had misgivings, there was no compliance program mechanism in the company through which they could voice their concerns.  I always felt the senior executives who failed to give subordinates proper training deserved an extra measure of culpability.

This proposal of course has limitations. A defendant cannot have a sentence “enhanced” unless he has been convicted personally of an antitrust violation. This “stick” does not apply to senior executives or Board of Directors who did not violate the law. The stick, however, could also be an enhancement for corporate defendants who are convicted of antitrust violations, but had no compliance program.

One Last Note

The Antitrust Division did take a step forward on the compliance issue by publicly giving credit to a corporate defendant, Barclays, for beefing up a compliance program during an investigation (here).  The Division has not spoken publicly about this recent development. My partner, Hays Gorey Jr., is a panelist at the Sixth Annual Chicago Forum on International Antitrust Issues conference in Chicago this week where Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement is also a speaker.  There is a good chance Mr. Snyder will address the issue at the conference.

Stay tuned.

Thanks for reading.

On May 15th, the Department of Justice filed a brief (here) in the United States Supreme Court opposing the AU Optronics defendants’ request for the Court to grant cert. The DOJ argued that the Ninth Circuit decision upholding the conviction of AU Optronics and two of its executives was without error and that the decision was in harmony with the Seventh Circuit decision in Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816 (2015), petition for cert. pending, No. 14-1122 (filed Mar. 16, 2015) (Motorola).

Summary of DOJ Brief

AU Optronics raised three points in seeking Supreme Court review. The defendants’ contended their convictions could not be sustained because: (1) the LCD price-fixing conspiracy did not involve U.S. import commerce; (2) the cartel did not directly affect U.S. commerce within the meaning of the FTAIA; and (3) any agreement should have been judged under a rule of reason standard, not the per se rule, because the agreement involved foreign conduct.

Import Commerce–Price-fixed TFT-LCD panels reached the United States as imports shipped from the conspiring manufacturers to purchasing companies in the United States.  There was evidence in the case that AU Optronics directly imported TFT-LCD panels into the United States. AU Optronics disputed that evidence. But the DOJ replied that the evidence was overwhelming that some conspirators directly imported panels into the U.S.  “At trial, the government’s expert economist testified that 2.6 million of the conspirators’ price-fixed raw panels—priced at more than $638 million—were shipped into the United States between 2001 and 2006.”  The DOJ noted that AU Optronics was responsible for the acts of all of its co-conspirators.

But there was no need to consider separately the import sales by individual conspirators, or to parse out the percentage of sales undertaken by petitioners. The Sherman Act applies to “conduct involving * * * import trade or import commerce.” 15 U.S.C. 6a. The term “conduct” refers to activity that might violate the Sherman Act—in this case, a single antitrust conspiracy among AUO and other manufacturers to fix the price of TFT-LCD panels. Accordingly, whether the charged conspiracy involved import commerce turns not on the acts of any particular defendant, but on whether the price-fixing agreement and acts of any conspirator furthering that agreement involved import commerce.

The DOJ also noted uphold AU Optronics condition on the basis of import commerce was consistent with dicta in Motorola: “[h]ad the defendants conspired to sell LCD panels to Motorola in the United States at inflated prices, they would be subject to the Sherman Act because of the exception in the [FTAIA] for importing.”  [Sometimes lost in the discussion of Motorola is that the Seventh Circuit let stand Motorola’s damage action based on LCD screens actually bought by Motorola in the U.S. (i.e., imports outside the scope of the FTAIA.)

FTAIA–Price-fixed panels also were incorporated abroad into finished products—such as notebook computers and desktop monitors—that were later imported into the United States.  The FTAIA provides that conduct involving non-import foreign commerce is subject to the Sherman Act if it has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce.   The Ninth Circuit found that the FTAIA standard was satisfied. Some of the relevant facts cited by the DOJ and relied on by the Ninth Circuit:

• “TFT-LCD panels are the single largest cost component of those finished products….”
• “Witnesses from Dell and HP testified that increased panel prices led to increased prices for monitors and notebook computers sold in import commerce. As one conspirator put it: “[I]f the panel price goes up, then it will directly impact the monitor set price.”
• “The conspiracy was very successful. The conspirators increased their margins an average of $53 per panel—on an average panel price of $205—through the group Crystal Meetings.
• “The economist also testified that price-fixed panels, sold for $23.5 billion, entered the United States as components in notebook computers and desktop monitors.’

Again the DOJ brief noted the Ninth Circuit was in accord with the Seventh Circuit, which “assume[d] that the requirement of a direct, substantial, and reasonably foreseeable effect on domestic commerce has been satisfied.”

Application of the Per Se Rule

 The AU Optronics defendants argued that the rule of reason, not per se rule, should apply because of a prior Ninth Circuit case that held that the per se rule did not apply to foreign conduct. Putting aside that there was a great deal of conspiratorial conduct in the United States, the DOJ wrote:

Moreover, the Ninth Circuit here construed its prior decision in Metro Industries, Inc. v. Sammi Corp., 82 F.3d 839, cert. denied, 519 U.S. 868 (1996), in a manner contrary to petitioners’ reading, making clear that Metro Industries “was not a price-fixing case” and that the rule-of-reason analysis it applied does not extend to “a horizontal price-fixing scheme * * * where both part of the conduct and the effects of that conduct occurred in the United States.

AU Optronics Consistent with Motorola

The AU Optronics defendants (and others) have tried to paint the Ninth Circuit and Seventh Circuit as being in conflict with each other because in AU Optronics the defendants were convicted of fixing the price of LCD panels but in Motorola, certain civil damage claims against the LCD defendants were dismissed.  But, any conflict between the Ninth and Seventh Circuit is superficial. The DOJ brief explained the difference between a government enforcement action (AU Optronics) and a private damage action (Motorola).

The Motorola court’s analysis casts no doubt on the validity of petitioners’ criminal convictions. Unlike a private antitrust suit, which arises only when the private plaintiff is “injured in his business or property by reason of” the Sherman Act violation, 15 U.S.C. 15, government enforcement actions—whether a criminal prosecution or “proceedings in equity to prevent and restrain [Sherman Act] violations,” 15 U.S.C. 4—do not require any private injury. Instead, the government sues in its sovereign capacity to redress a violation of its laws. See Empagran, 542 U.S. at 170. The enforcement provision that can be invoked by the United States even when no plaintiff has suffered an injury.”), cert. dismissed, 539 U.S. 978 (2003), abrogated on other grounds, 542 U.S. 155 (2004). As the Motorola court itself explained, “[i]f price-fixing by the component manufacturers had the requisite statutory effect on cellphone prices in the United States, the Act would not block the Department of Justice from seeking criminal or injunctive remedies.

Comments

I’ve written earlier (here) that I did not think the Supreme Court would grant cert. in AU Optronics (or Motorola).   The LCD “cartel ended when the FBI raided AU Optronics America office in Houston, Texas.” This does not sound like a good fact from which to launch an argument that the cartel was outside the scope of the Sherman Act.

There will, however, be future, more difficult cases for the courts, and eventually the Supreme Court, to consider.   Both AU Optronics and Motorola recognize that, depending on the facts, fixing the price of goods sold abroad but used as components in products bound for the United States can have a “direct, substantial and reasonably foreseeable” effect on U.S. commerce within the meaning of FTAIA.  But, those facts will not always be as simple as here where the LCD screens represented the largest component cost of finished product. And, $23.5 billion in component commerce passes any test of “substantial.” Also, the supply chain here was reasonably “direct.” A price fixed LCD screen went into the component that was then shipped into the finished product.

But, what if the price-fixed product was a raw material used to make the screen?  And sold by a manufacture to distributors?  Then, fabricators chemically treated the raw material and other fabricators added some other value enhancing process[es] before the raw material became a TFT-LCD screen?  A myriad of fact patterns will test the courts ability to set the contours of what constitutes a “direct, substantial and reasonably foreseeable” effect on US commerce.  In these “closer calls” the view of government enforcement agencies and private plaintiffs will sometimes (often?) diverge. International comity plays a role in defining the reach of the Sherman Act. As I have written about before (here) and (here), (and cited by Judge Posner in Motorola), enforcement agencies have “skin in the game” of respecting international comity and developing cooperation with foreign competition enforcement agencies. Private plaintiffs, on the other hand, are charged with advocating for the interest of their clients who may have a claim under the Sherman Act for price-fixing.   Foreign governments who have filed amicus briefs asking courts to respect foreign comity interests in deciding the extraterritorial scope of the Sherman Act are principally concerned with having  foreign companies hauled into U.S. courts and be subjected to the U.S. treble damage class action regime. This is going to a continuing area of judicial development.  Eventually the reach of the Sherman Act in component price-fixing cases will have to be addressed by the Supreme Court. I just don’t believe that either AU Optronics or Motorola will be that case.

Thanks for reading.

During the ABA Antitrust Spring Meeting, I had the good fortune to be interviewed by David Blotner, Senior Editor of the Capitol Forum. The Capitol Forum is an in-depth news and analysis service dedicated to informing policymakers, investors, and industry stakeholders on how policy affects market competition. The Capitol Forum provides in-depth coverage of major antitrust matters such as the now abandoned Comcast-Time Warner merger. I was delighted to be asked to speak about cartel issues. David and I have known each other for years. He also was a career Antitrust Division prosecutor. And while I’m no Nostradamus, we did discuss the Forex investigation which just had big news yesterday. If you have a few minutes (around 27) here is a link to the video. And check out the Capitol Forum website, as well as their blog, for the complete coverage they offer.

Thanks for reading (or watching if you have the time).

I want to give a plug to the Sixth Annual Chicago Forum on International Antitrust Issues being held Monday, June 8-Tuesday, June 9, 2015 at the Northwestern School of Law. I have been to this program in the past and it is excellent. And, this year my partner, Hays Gorey, Jr, is a speaker on one of the panels.

The featured speaker is Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement, Department of Justice, Antitrust Division. His topic is: “The Proliferation of Leniency Programs: Is Leniency Still an Offer Companies Should Not Refuse or Too Much of a Good Thing?”

There are many panels covering a range of international antitrust issues.  Mr. Gorey will be on this panel:

Cascading Cartel Investigations — How to Recognize and Minimize the Risk

Recognizing and minimizing the risk may require proactive techniques to detect antitrust violations and to obtain leniency from the Department of Justice and other antitrust enforcement agencies.

• Darrell Prescott, Partner, Baker & McKenzie LLP (moderator)
• Hays Gorey, Jr., Partner, GeyerGorey LLP
• Kurt Haegeman, Partner, Baker & McKenzie LLP, Brussels
• Britt M. Miller, Partner, Mayer Brown LLP
• Dr. John Scalf, Senior Consultant, NERA Economic Consulting

The program covers the latest developments in competition regulation around the globe providing practitioners and regulators with up-to-date and practical information. The full agenda can be found here.

Thanks for reading.