Cartel Capers

A blog about cartels, competition and compliance

100 Blawg Honoree

ANTITRUST GUIDANCE IN BRAZIL

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Today we have an update from Brazil by Mauro Grinberg, a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

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A Resolution issued by Conselho Administrativo de Defesa Econômica (CADE), dated March 11, 2015, made a comeback of the procedure for antitrust guidance to be requested to CADE. This request for guidance can be used in all competition cases, including cartels.

The first article of such Resolution says that any interested party can forward a request for guidance to CADE, related to specific situations, which may be real or potential. Interested parties can also be trade associations which have, as their goals, representation of the involved sector and can demonstrate that at least one of the represented companies is legitimately interested in such guidance.

There are some requirements for such request for guidance and, although it is pointless, for the purpose of this note, to go through all of them, it is interesting to mention that the party must declare all CADE´s precedents related to the object. So, no request for guidance can be asked before a thorough research through CADE´s jurisprudence. However, any research may have its problems and it is not clear what will happen if a certain research does not present a decision that CADE may understand as fundamental.

Another point that must be reported says that the request for guidance cannot refer to a purely hypothetical issue. This may be a somewhat tricky question because CADE may understand that a question that is not under practice is hypothetical (which, in a way, it may be). It is not clear what can happen if, e.g., a party asks whether it is legitimate to have certain contacts with competitors and, if the conduct is approved by CADE and the party does not perform it due to a further strategic and/or commercial decision, could the party can be punished for having submitted a request for guidance that CADE may consider hypothetical?.

The answer to the request for guidance is binding for CADE and the parties for five years, although the Resolution states that CADE can reconsider its decision, if based on new facts. So, in practice, the Resolution is really binding only for the parties submitting the request for guidance.

A last problematic article states that, if CADE understands that an already existing conduct, which is the object of the request for guidance, has the possibility of being illegal, an administrative file will be opened in order to prosecute the interested party. If the conduct is a possible cartel, a criminal file may also be opened. So, it is fundamental that, in case a party wants to make such request related to a conduct that is under way, it is advisable to stop such conduct before requesting the guidance.

Consequently, a request for guidance, in order to be in the safe side, must be related to conducts that are not being performed but are to be performed and depend on the guidance, with the additional task of demonstrating to the authorities that the request for guidance is not hypothetical.

Mauro Grinberg is a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

Global Glimpses of Cartel Capers

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There have been a number of developments around the globe relating to cartel enforcement that I think might be of interest:

Australia

I wrote about this in an earlier post, but a billionaire businessman in Australia invited an investigation, which has now been dropped, with his comments at a business dinner griping about low prices in the market.  He got himself in hot water, which never reached a boiling point, by stating he was ready to reduce output of iron ore if his competitors would do likewise. (here)

Cambodia

People are people and as Adam Smith noted, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

In Cambodia, the Ministry of Agriculture and Forestry said that they were investigating a possible secret agreement between middlemen or traders in the supply chain to manipulate the price of agriculture commodities, leaving farmers with no option but to sell their products at a lower price. A spokesperson at the Ministry said traders had divided regions into zones, giving farmers no choice but to sell to that trader and at the trader’s asking price. In this case, if true, the conspiracy was to reduce the prices paid to farmers.  (full story here)

Canada

On April 27th, after a seven-month trial and six days of deliberation, a jury in Ottawa found nine defendants not guilty on all 60 charges of bid rigging and conspiracy to rig bids. “Six years earlier federal prosecutors had charged 14 individuals and seven computer services firms with rigging bids in connection with more than $60 million worth of contracts at three federal departments. Now in the courtroom were six individuals and three of their firms — they had elected to be tried by a jury, the first time anyone had done so in the 39-year history of the Competition Act.” (full story here)

Also in Canada here is a helpful article on the shift in on corporate criminal liability. Corporate criminal liability can now be based on the conduct not only of senior corporate officers such as board members, but also middle managers in some circumstances.

EU Grapples with Extraterritoriality of Competition Law

Like the United States, the EU is working to define the scope of the extraterritorial application if its competition laws. The Advocate General of the European Court of Justice, Melchior Wathelet, urged the court to rescind the Court’s decision that based part of a fine against Innolux based on LCD panels sold by the manufacturers to other companies and eventually shipped to the EU as components in other devices. Wathelet wrote in an opinion that: “It seems to me that, unless further evidence can be furnished that the cartel creates qualified effects in the [European Economic Area], the commission goes too far if it fines cartels relating to products manufactured and sold outside the EEA for the sole reason that those products are subsequently ‘transformed’ or incorporated into other products which (either wholly or in part) arrive in the EEA.”  The opinion agreed that EU law could be applied extraterritorially to component price-fixing if the Commission had met a “qualified effects” test. Innolux’s fine stand to be cut almost in half if the Court reduces its fine in accord with the Advocate General’s opinion.

United States

  • Civil Settlement News

Civil settlements have now exceeded $270 million in federal litigation stemming from the ongoing U.S. criminal antitrust investigation into automotive supplier price-fixing (here). These settlements, however pale in comparison to the civil settlements reached in the follow-on civil suits to the air cargo price-fixing cartel. These settlements now top $1 billion (here).  In fairness, the auto parts civil litigation is far from over.  These figures relate only to civil settlements in the U.S.  Civil damage actions, including class action suits (collective redress), are quickly spreading thoughout the globe.

  • Senate Committee Launches Investigation of Dish and affiliates

The Senate Committee on Commerce, Science and Transportation has begun an investigation of possible bid rigging between Dish and several of its smaller affiliates on a recent $3 billion spectrum auction. The investigation follows a complaint filed by Verizon with the Federal Communication Commission alleging that Dish colluded with its affiliates to violate the bidding rules as well as antitrust laws. (full story here)

Thanks for reading.

PS.  Guest posts, especially about cartel/compliance related developments outside of the United States, are most welcome.

 

 

 

CEO’s Say the Darndest Things (and salespeople too)  

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Since I spent over 30 years with the Antitrust Division, US Department of Justice, people sometimes ask me how investigations get started. This blog post addresses one way: “loose lips sink ships” or put another way “CEO’s Say the Darndest Thing (and salespeople too).”

This is a story from down under. The Chairman of Australia’s Fortescue Metals, Andrew Forrest, was at a business dinner on March 24th when he expressed his frustration that his main rivals, BHP Billiton and Rio Tinto were driving down the prices of iron ore with excess production. Mr. Forrest declared:

“I’m absolutely happy to cap my production right now. All of us should cap our production now and we’ll find the iron ore price will go straight back up to $70, $80, $90 and the tax revenues which that will generate will build more schools, more hospitals, more roads, more of everything which Australia needs — universities etc. I’m happy to put that challenge out there: let’s cap our production right here and start acting like grown-ups.”(full story here)

OOPS. The Australian Competition & Consumer Commission (which has the great shorthand name: A-Triple C) started an investigation. The ACCC just announced it would no take action against Mr. Forrest because of the “context and circumstances” of his remarks.  The ACCC Chairman Rod Sims warned: “However, it is important that the business community understands that public statements calling for competitors to agree to limit production or to raise prices may constitute a serious cartel ­offence.”  (full statement here).

In the United States an offer to fix prices, even if not accepted, can and has been, prosecuted by the Antitrust Division as mail and/or wire fraud.  And the Federal Trade Commission has charged price-fixing/bid rigging solicitations as violations of Section 5 of the FTC Act. That is not to say that either agency would have charged Mr. Forrest for the remarks he made, but with different circumstances, prosecutions have been brought for what are called “invitations to collude.” (A Sherman Act prosecution requires an actual agreement between the competitors, so unless an offer to collude is accepted, it can be prosecuted, but not under the Sherman Act.)  Mr. Forrest’s statement was also problematic because if competitors did raise prices, even if they had already been planning to do so, suspicion of collusion would be high.  And civil law suits may well have followed.

I am going to be making a presentation on this very subject with my friend Barbara Sicalides at the Society of Corporate Compliance and Ethics (SCCE’s) annual Compliance & Ethics Institute (October 4-7th) in Las Vegas. This is the SCCE’s primary education and networking event for professionals working in the Compliance and Ethics profession across all industries around the world. Sessions at the 2015 conference will offer the latest compliance information on hot topics and current events.   Our session is titled:  CEO’s (and salespeople too) Say The Darndest Things: How an Ill-Advised Statement or Email Can Start an Antitrust Investigation or Lawsuit – Robert E. Connolly, Partner, GeyerGorey LLP; Barbara T. Sicalides, Partner, Pepper Hamilton LLP.  We will have numerous examples, sometimes funny, sometimes not so funny and very expensive, of how companies and individuals have found themselves under investigation and/or charged with antitrust violations for things that simply never should have been said/written.  It should be a good session on how to counsel the unsuspecting of the potential perils of off the cuff remarks.

Hope to see you there.

Thanks for reading.

 

Per Se “Plus:” A Proposal to Revise the Per Se Rule In Criminal Antitrust Cases  

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Recently I wrote an article that was published in ANTITRUST magazine titled: Per Se “Plus:” A Proposal to Revise the Per Se Rule in Criminal Antitrust Cases.”  The theme of the article is that the penalties for a criminal violation of the Sherman Act have escalated so dramatically that the per se rule is no longer a fair standard of culpability. When the per se rule was first articulated in United States v. Socony Vacuum, the most severe penalty imposed on any of the individual defendants was a fine of $1,000. The Sherman Act was a misdemeanor (up to 6 months) but until modern times, jail was merely a theoretical possibility. Today, individual defendants are subject to up to ten years in prison (and the Antitrust Division has strongly argued for this sentence in several cases.) Also, indicted foreign defendants are placed on Red Notices and subject to arrest, detention and possible extradition anywhere in the world. There are also severe immigration consequences that limit an international business executives’ ability to remain employed. Despite the severe sanctions, juries are still charged that “good intentions” and even “good results” are irrelevant if the jury finds an agreement to fix prices was reached. Further, ignorance of the law is no defense. In the article I argue that the per se rule should be modified in a criminal case so that the government must prove beyond a reasonable doubt that the defendants in some way deceived or misled customers into believing there was competition when in fact there was an agreement to fix prices. This deception proves a “bad” intent. What makes price-fixing an unreasonable restraint of trade is not the price level, but an agreement that deceives customers (or sellers) into believing market forces set prices, when in fact, secret collusion was at work. Price is the “central nervous system” of the economy, and when buyers do not know that the price was set by collusion, the free market is restrained.  (Where buyers know of the restraint, i.e. an open joint venture, the agreement may restrain competition, but the agreement is judged under a rule of reason standard.)

This is a suggested proposed per se “plus” charge: “The conspiracy as charged in the indictment is illegal if the agreement was actively concealed or misrepresentations were made that the prices/bids were determined independently, without collusion with competitors.” I don’t believe this change would dramatically alter the prosecution of criminal cartels. Deception is a necessary element of every cartel. But, requiring that the prosecution prove this element would help match the crime with the severe punishment that comes with a cartel conviction today.

While I was thrilled to publish in ANTITRUST, I had some misgivings about the article. I believe in strong criminal antitrust enforcement of price-fixing and bid rigging. And, from my 33 years in the Antitrust Division, where I prosecuted many criminal antitrust cases, I am aware that these cases can already be difficult to prove. But, the dramatically escalating criminal penalties for convicted individuals warrants an increase in the proof required to impose the severe loss of liberty an individual defendant faces if convicted (or even indicted). Also, as antitrust enforcement is now global, I tend to filter my thought through a lens “How would a the US feel if another jurisdiction operated like this?” So, with respect to the per se rule in criminal cases, I wondered how it would seem to a US business person if he could face up to ten years in jail for an agreement where “good intentions” and even “good results” were irrelevant. Deception adds a universally accepted element of intent/wrongdoing that makes criminal sanctions warranted.

My proposal would only change the proof in a criminal case. The Antitrust Division could avoid the per se “plus” in a civil case where disgorgement, as opposed to a criminal fine, would be available. Likewise, an individual could face a civil case for disgorgement and other remedies. And private treble damage cases would be unaffected.  But, where the prosecutors bring a case seeking up to 10 years in jail for an individual, a higher standard should apply. And, I believe if this proof is required and a conviction obtained, jail sentences and deterrence may actually increase.  And the “dual criminality” element of extradition would be easier to meet.

The above is a very brief overview of the article. If you don’t subscribe to ANTITRUST and would like a copy of the article, please email me at Robert.connolly@geyergorey.com, or give me a call at (215) 219-4418. This is an area of continued interest to me and I would greatly appreciate any feedback or other comments.

Thanks for reading.

Guest Post: Cartels and Leniency Applications in the ASEAN Countries

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Today’s guest blog post is from Kelly-Ann Semper who recently attended the ASEAN ANTITRUST: THE FUTURE OF COMPETITION LAW & POLICY IN ASEAN COUNTRIES, sponsored by ESSEC+Sorbonne-Assas International Law School and Concurrences Journal. The conference was held in Singapore on Thursday, April 23, 2015. Ms. Semper’s helpful report is on the panel: “CARTELS AND LENIENCY APPLICATIONS IN THE ASEAN COUNTRIES.”  The report also contains many useful links.

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The panellists on the “Cartels and Leniency Applications in the ASEAN Countries were:

LEE Jwee Nguan – Director, Legal, Competition Commission of Singapore

Dhaniah AHMAD – Head of Legal, Malaysia Competition Commission, Kuala Lumpur

John DAVIES – Head, Competition Committee, OECD, Paris

Börries AHRENS – Partner, White & Case, Hamburg

Laurence IDOT – Professor, University Paris II Panthéon-Assas and Member of the Competition Authority, Paris

Chair: Dominique LOMBARDI – Lecturer, University Sorbonne-Assas, Singapore

By far the liveliest presentation of the day, due in no small part to the subject matter and the eloquence of the speakers (including the chair), this section of the conference did not (as the title indicates) limit its coverage to the ASEAN region. Anyone hoping for a detailed discussion of cartels and leniency programs in the ASEAN region may have been disappointed, with the main contributions coming only from the CCS in Singapore (more information about the CCS can be found here) and the MyCC in Malaysia (more information about the MyCC can be found here). Other contributions came from practitioners and experts on the US, the EU, France, Germany and Mauritius.

The main topics of discussion were: (1) What exactly is a cartel? (2) Leniency programs – what are they, what should they be, and are they effective? and (3) Co-operation between competition agencies – is there enough of it?

Cartels

Although reference was made to the definitions set out in the 1998 recommendations by the OECD (further information on this can be found here) some participants noted that ‘modern-day’ cartels are less sophisticated in some ways than their 1990s’ counterparts, resulting in current enforcement against behaviour at the outer limits of what could be considered cartel behaviour, such as information sharing. Participants noted that cartel definitions in competition legislation tended to be inclusionary, i.e. not limited to the behaviours listed, leaving room for flexibility when competition agencies are faced with new or more subtle forms of cartel behaviour. The special case of Malaysia was noted: illustrations of cartel behaviour set out in the Malaysian Competition Act (the text of which can be found here)  are limited to hard-core type cartels only. Participants agreed that a more open and flexible definition of cartels is the best approach, pointing to one particular downside of a rigid focus on hard-core cartels – a tendency on the part of leniency applicants to ‘exaggerate’ their evidence to ensure that they fall within the leniency program – which is not beneficial to anyone, not even the applicant.

Leniency

A fairly recent tool in the arsenal of competition enforcement, leniency was by and large considered to be an essential and important instrument. The participants pointed to evidence suggesting that in the more mature jurisdictions (the US and the EU), leniency applications now account for the huge majority of cartels brought to the authorities’ attention (up to 90%), and have brought down the length of investigations by 1 ½ years. Despite this, there remains the chicken and egg conundrum of whether leniency itself was the cause of these cartels being brought to light, or whether such cartels were fundamentally unstable and would have been discovered in any event. One participant suggested that although there is very clear and strong evidence that the introduction of leniency has led to an increase in cartel deviation, cartels (and their life-spans) continue to be based mainly on economic considerations (i.e. whether or not it is profitable for the members to continue). The pertinent question is therefore whether leniency programs are only responsible for catching weaker cartels, or cartels that were on their way out anyway. If this is indeed the case, then there is the worrying spectre of the strongest and most profitable cartels continuing undetected, with business as usual, despite the massive injection of resources by agencies, which have placed cartel enforcement at the top of their agendas.

As a newcomer to the scene of competition enforcement, Malaysia is a somewhat different case. So far, due mainly to lack of awareness in the business community, cartel behaviour has not been outed by the establishment of a leniency program. Rather, cartels themselves have unwittingly committed flagrant breaches of the rules – one example given was the publication by one cartel of its own anti-competitive agreement.

Of course, a major risk of leniency programs is the potential for complacency on the part of the agency – why bother to spend limited resources on investigations etc. when leniency applicants present all the required evidence to you on a silver platter? Limited resources also present another risk in that increasing numbers of leniency applications make it that much harder for agencies to focus energy and time on ex officio investigations. Again, this leads to the danger of the strongest, most stable, cartels continuing to escape detection. The novel approach of the CCS in Singapore was highlighted: (i) the establishment of a reward scheme, whereby complainants may receive a monetary reward (up to SG$120,000) and their identities remain confidential (more information on this can be found here; and (ii) the engagement of a consultant to identify specific sectors of the economy which may be more prone than others to cartel behaviour, potentially followed by a wholesale market review or simple monitoring of behaviour by the CCS in such sectors.

Despite the acknowledged importance of leniency as a tool in cartel detection and enforcement, participants agreed that there are other useful tools, including ex officio investigations, monitoring of particular economic sectors, and hotlines for complaints. Indeed, it was pointed out that the majority of leniency applications in the US and the EU were only made after investigations by the relevant antitrust agency had already commenced, although this could be partially explained by such systems allowing multiple leniency applicants.

The perspective of businesses, often neglected, was addressed – leniency provides more commercial certainty for them as it complements their compliance programs (assuming of course that such programs actually work in practice!), and the resulting decrease in fines are welcomed. However, the downside to this, as experienced in Germany, is the tendency of leniency applicants to exaggerate their evidence (and the anti-competitive nature of their conduct) in order to ensure a successful application. One member of the audience challenged the magnitude of this risk in practice in the context of follow-on litigation, but conceded that short-term, more tangible objectives (obtaining immunity or a reduction in fines) often outweigh long-term objectives (avoiding costs from potential follow-on damages actions).

Participants also touched on the mechanics of dawn raids and the protection of confidential information (most agreed that there were a variety of options for keeping leniency application information confidential, but these usually do not extend to protecting identity).

Co-operation

The participants discussed the current mechanisms in place for inter-agency co-operation, such as the sharing of information once waivers are obtained from leniency applicants (in cases where applications have simultaneously been made in multiple jurisdictions). Participants foresee the eventual convergence of leniency systems globally over time (given that such systems are still relatively young).

In the ASEAN context, there is already a degree of co-operation taking place, in the form of regional conferences, annual meetings of an informal network of enforcement heads, and information sharing on an ongoing basis. Participants also mentioned that the ASEAN experts group on competition (further information about this group can be found here) is used as a platform to exchange information and share ideas.

Joint investigations and enforcement action are still on the agenda, but with so many member states only at a nascent stage of enacting or implementing competition legislation, it is unlikely that this will come to fruition very soon.

The participants briefly discussed the OECD recommendations to reduce inconsistencies in leniency systems (for the text of this, please see here), and proposals for introducing a global marker system. Suggestions falling shy of a global marker system and complete alignment in leniency systems included international and/or regional co-operation, alignment of the period between submitting and perfecting a marker, and alignment of the methods used to protect confidential information.

Impressions from the panel discussion

Despite the sometimes debative nature of the panel discussion, it seems the panelists were mostly agreed on the current state of cartel enforcement and leniency programs around the world: leniency is undoubtedly an essential tool in cartel enforcement, but it should not be the be-all-and-end-all of enforcement tools or lead to complacency on the part of agencies. Two major concerns highlighted by the group are (i) the likelihood that stronger and more stable cartels are evading detection, and (ii) the urgent need for more inter-agency co-operation and alignment of processes, in order to reduce inconsistencies around the globe.

Unfortunately, perhaps due to the relatively embryonic stage at which many ASEAN nations find themselves in the antitrust sphere, there was little discussion surrounding ASEAN-specific issues. However, do watch this space as member states gear up to fulfil their commitment to introduce competition policy and law by the year-end.

Kelly-Ann Semper

Some Highlights from the ABA Antitrust Spring Meeting

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The ABA Antitrust Spring Meeting wrapped up last Friday in Washington, D.C. The program was extensive, covering all aspects of competition law as well as some consumer protection issues.   I try to attend some of the non-cartel programs because I don’t get a chance to follow those issues as closely in my regular practice. A particularly interesting program—Hot Topics—covered many cutting edge issues in health care such as “pay to play,” product hopping and health care related mergers. And, of course, much of the time at the Spring meeting is catching up with old friends from around the world and meeting new ones.

Even just on the cartel front, the breadth of topics was deep and I did not attend every cartel related program. But, I did want to pass on a few items that I found interesting and thought others might as well.

  • Attorney General Eric Holder spoke at the Spring Meeting.

After noting the Division’s impressive statistics during his tenure, the AG remarked: “I expect there will be more significant news on the criminal side in the next few weeks.” Bill Baer, Assistant Attorney General for the Antitrust Division, remarked: “I want to assure you that right after this meeting ends I’m going to go back to the office and call him to find out what he thinks is coming.”   I’ll hazard a guess in one area: there could be criminal indictments against companies and individuals in the Forex investigation. I base this on the fact that it would be a notable achievement for Holder who has sometimes been criticized for settling cases for big $$ against the financial institutions, but not holding individuals accountable. Also, the conversations in Forex related chat rooms using names like the “cartel club” and “the bandits club” would certainly invite individual prosecutions. Finally, some of the Forex conduct under investigation took place after the Libor prosecutions had begun, another fact that could prompt ratcheting up the level of prosecutions against both individuals and recidivist corporations.

  • The FTAIA Commands Attention

The FTAIA was the specific focus of one program led by Mark Rosman:  “Through the Looking Glass: When ‘Direct’ Means ‘Indirect'” but the FTAIA was spoken about in several panels. There were some interesting statistics provided about the extent of international cartel prosecutions: from 1997 to 2012 the Antitrust Division imposed 123 fines of over $10 million, and of these, 107 were imposed on foreign companies. Similarly, of the $7.8 billion in fines imposed during that period foreign companies paid 97% of the fines. But, the Antitrust Division noted two facts that put these numbers in context. First, 75% of multi-national companies are non-US based and volume of commerce is main driver so its logical that largest fines come in international cartel cases. Also, Division officials emphasized that almost all of these fines involved direct commerce.  The price-fixed product was shipped directly into the United States. When I was with the Division, every international cartel investigation I worked on involved direct commerce. Because of this, the FTAIA to date has had little effect on the Division’s international cartel enforcement program.  Still, the Division has an intense interest in the development of case law concerning the FTAIA because it wants to preserve the option to bring a “components” based case in the right circumstances.  The Division’s Appellate Section was involved in three recent FTAIA related cases. One, of course was AU Optronics, which was an Antitrust Division prosecution that involved both direct import and component (i.e. FTAIA) commerce. The Division also filed amicus briefs in Lotes in the Second Circuit and Motorola Mobility in the Seventh Circuit.

  • Double Counting.

Brent Snyder, the Deputy Assistant Attorney General for Criminal Enforcement addressed the concern about double counting, a concern of defendants that they are being punished in a fast growing number of jurisdictions for the same conduct. While Snyder acknowledged “if another jurisdiction imposes a fine, we are not obliged to take that into account,” he added “the vast majority of the cases that we bring, our fines are calculated using direct U.S. imports.” Jon Pecman, Canada’s Commissioner of Competition, noted that while enforcement agencies have a high-level of “pick up the phone” cooperation on the front end of investigations; there could be better communication at the back end in determining a fine.  If early jurisdiction, usually the US, impose a fine without taking into account what a corporate defendant may have to pay later, there may be a problem of not enough money to go around (or from the defendant’s point  of view, too many hands seeking too much money.)

  • Compliance Monitor

Brent Synder also commented on the Division’s discretion to seek a compliance monitor as a part of a corporate defendants’ sentence.  Snyder has previously addressed the subject in speeches and noted that the Division may seek a monitor if circumstances indicate there is an increased risk of recidivism. These factors can include whether the company has refused to accept responsibility; whether the company has taken steps to implement an effective compliance and ethics program;  and whether the company continues to employ high level executives who the Division believes were involved in a cartel but have not accepted responsibility.  Any one factor, or a combination of factors may lead the Division to seek a compliance monitor.

  • AU Optronics Probation Hearing

AU Optronics was convicted of participating in the LCD price-fixing cartel. As part of the company’s sentence, it was placed on probation and ordered to implement an effective compliance and ethics program.   (Oh yeah, and fined $500 million too.) This was the first time the Division sought a compliance monitor for a corporate defendant.  The probation officer in the case petitioned the court to hold a probation violation hearing stating “We have probable cause to believe that AUO has violated its probation.”  The petition stated that as of March 19th the company had only hired part-time compliance officer.   There is hearing before Judge Illston on May 1, 2015. If the company is found to have violated probation, the court could increase the length of its time on probation and increase the fine from $500 million up to a maximum of $1 billion.

  • Credit for Compliance Programs

When it comes to cartels, when Brent Snyder speaks, people listen.  So, I’ll also pass on his comments on whether the Division will ever give credit to a company for having an effective compliance program. Snyder has covered this topic in previous speeches.  He again noted that at sentencing the Division has never moved for a 3-point culpability reduction under the Sentencing Guidelines because the reduction is not available when high-level personnel are involved in the crime. Snyder noted that price-fixing conspiracies usually involve not only high-level executives, but multiple layers of executives in the company. The DOJ is simply following the guidelines, as it must.  The other way the Division could take an effective compliance program into account is at the charging stage. And, Snyder did note that perhaps the door is “open a crack” to a case where a low-level rogue employee is the sole person in a company involved in price-fixing. But Snyder noted, “the lone rogue employee is something like Big Foot—often talked about but never actually seen.”

  • Navigating Tricky Waters—India

I also attended a breakfast program hosted by Amarchand Mangaldas, a leading law firm in India. The program covered all aspects of the development competition law in India; abuse of dominance, merger control and restrictive agreements/cartels. Naval Chopra spoke on cartels. He noted that at the present time, the Competition Commission of India (CCI) has been focusing on trade associations, believing, that while they serve legitimate pro-competitive purposes, they also provide a forum for competitors to cooperate on anticompetitive agreements. Mr. Chopra also noted that the CCI has brought actions against individuals who can receive substantial fines. Also, Mr. Chopra noted that the Competition Appellate Tribunal (COMPAT) and the Supreme Court of India have begun to issue opinions that are giving shape to, and in some cases limiting, the power of the CCI.

Thanks for reading.  While I tried to capture the essence of the remarks at the meeting, this post is very brief compared to the depth of the programs.  Also, any errors or mistakes are mine.

 

 

 

ABA Antitrust Spring Meeting Begins

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The 63rd Antitrust Law Spring Meeting begins today (April 15th) in Washington, DC.  I have been coming to this program for many years and it is wonderful how it has grown.  This year there are nearly 3,000 people expected including 600 government enforcers and practitioners from 60 countries outside the United States.  Besides the large growth of the event, the two things that strike me most about how the Spring Meeting has changed in the 20 plus years I have been coming are: 1) the international flavor of the event reflecting the globalization of competition law; and 2) economic consulting firms have proliferated and sponsor many of the best receptions.

Blogs are something that wasn’t around until fairly recently.  There are also a number of antitrust practitioners who publish blogs.  Steve Cernak is one of us and he has kindly organized an informal blog gathering on Wednesday at 4:30 pm in front of the Section bookstore at the JW Marriott, the host hotel.   Please stop by if you’re interested in blogging or would like to meet someone who publishes a blog you like.

Guest Bloggers

One of the features I’m told people like about Cartel Capers are the guest blog posts.  I would love to talk to anyone interested in sending in guest posts for Cartel Capers.  The general guidelines I follow are to stick to cartel matters, but this includes government enforcement, private suits, policies, case developments and compliance matters  Competition law in general is simply too broad a topic for the blog to cover.  Also, I don’t write on any matters unless they are public and not related to a specific client.  If you read the blog, you can see that some posts are fairly short, some more in-depth, but the writing is informal without extensive footnotes/quotes/citations.  If you wold like to take to me about guest posts, stop by on Wednesday if you can, or email me at robert.connolly@geyergorey.com.

If you are in DC, I hope to see you.

Thanks for reading.

An Important Case in Brazil on Individual Participation In A Cartel

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Today’s post is from Mauro Grinberg, former Commissioner of CADE in Brazil and currently a partner with Grinberg e Cordovil.

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INDIVIDUALIZATION OF CONDUCT IN BRAZIL: WHAT THE COURT TELLS CADE

A very recent landmark decision by the Federal Appeal Court in Brasília (Tribunal Regional Federal da 1ª Região) brings a lot of food for thought for both antitrust practitioners and mainly the antitrust authorities. In fact, the Court told Conselho Administrativo de Defesa Econômica (CADE), the antitrust agency, that, in order to successfully convict participants in a cartel, the authority has to individualize the conduct of every participant of the conspiracy, what CADE had been leaving aside.

A message must be brought here: in Brazil, any administrative decision (including CADE´s convictions) can be taken to Court, which may confirm or overrule it.

It is important to recollect the main facts of the case: (i) in 1999, some managers and other employees of some pharmaceutical companies held a meeting which was called to review some general matters (all of them legal) and later were accused of having, during the meeting, attempted to boycott distributors who also distributed generic drugs; (ii) in 2005 CADE convicted the companies, under the understanding that this meeting was a cartel; (iii) as all parties went to Court, in 2012 the first grade Judge issued a decision annulling CADE´s imposed fine; (iv) in 2015 the second grade Court confirmed the first grade decision.

There were many arguments (some of them related to evidence), all of them accepted by the Courts; but this article aims to discuss one single argument because it will have consequences on many other developments, both in Court (over CADE’s other decisions) and in CADE; although there is a possibility of another appeal, CADE must reflect about it. The argument is related to individualization of conduct.

In fact, CADE has in the recent past understood that, if anyone is present at a meeting, no matter he or she stays silent, does not approve anything and/or does not argue over anything, this person is considered a participant in a cartel (which may have been created in that meeting or may be ongoing without the knowledge of this person). The Court´s message was clear: the conduct of each and every participant of a cartel must be individualized, so that CADE must say what this person specifically did in order to be participant in the cartel.

The explanation is related to a concept which is very familiar to civil law countries: there are two kinds of responsibility, objective and subjective; the objective responsibility is somewhat similar to the American per se rule, while the subjective responsibility is somewhat similar to the rule of reason. In a nutshell, the message from the Court to CADE was that there is no per se rule in Brazil.

We are hoping future developments (including CADE´s reaction to this decision) soon.

Mauro Grinberg is a former Commissionar of CADE and a former Attorney of the National Treasury. He is now a partner of Grinberg e Cordovil, an antitrust and trade law boutique.

My Two Cents on the Motorola Mobility/AU Optronics Cert Petitions

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Two FTAIA related certiorari petitions have been filed recently; one by AU Optronics and two of its convicted executives, and the other by Motorola Mobility. I have no specific expertise in Supreme Court prognostication, but since I’ve seen experts opine “Who knows?” I’ll hazard my opinion that certiorari will not be granted.

The AU Optronics cert petition is challenging corporate and individual criminal convictions for participation in the Liquid Crystal Display panels (“TFT-LCD”) international cartel. Motorola Mobility is appealing the dismissal of its damage suit based on its foreign subsidiaries’ overseas purchase of LCD panels from AU Optronics. Both cert petitions were filed on the same day (coincidence or collusion?) to highlight the alleged contradiction: In the AU Optronics Ninth Circuit case, (778 F. 3d 738 (Jan. 30, 2015), the FTAIA was found not to bar AU Optronics criminal conviction, but in the Motorola Mobility Seventh Circuit case (775 F. 3d 816 (Jan. 12, 2015)  the FTAIA was found to bar Motorola Mobility’s attempt to obtain damages from the same cartel. I don’t see either case as being wrongly decided or at odds with each other. Therefore, I’ll boldly predict that certiorari will not be granted.

No Conflict Between AU Optronics and Motorola Mobility

Any conflict between the holding in AU Optronics and Motorola Mobility is superficial and evaporates upon examination of the relevant facts of each case.  Judge Posner emphasized in Motorola Mobility that the FTAIA has two requirements: “There must be a direct, substantial, and reasonably foreseeable effect on U.S. domestic commerce—the domestic American economy, in other words—and the effect must give rise to a federal antitrust claim. The first requirement, if proved, establishes that there is an antitrust violation; the second determines who may bring a suit based on it.” In AU Optronics, the Ninth Circuit found that the LCD cartel had a direct substantial and reasonably foreseeable effect on U.S. commerce. In Motorola Mobility the Seventh Circuit “assume[d] that the requirement of a direct, substantial and reasonably foreseeable effect on domestic commerce has been satisfied” but found that Motorola Mobility claim did not “arise from” this conduct. There is no inherent contradiction in finding that a foreign cartel is prosecutable by the Antitrust Division because the cartel had a “direct, substantial and reasonably foreseeable effect” on domestic commerce, but also find that a particular plaintiff’s quest for damages may be barred by the FTAIA if its claim “did not arise from this conduct….”

Neither Case Presents FTAIA Error For the Supreme Court to Review

Both the Motorola Mobility and AU Optronics cert petitions raised other issues besides the application of the FTAIA. Motorola Mobility, for example, urged the Supreme Court to review the procedure in the Seventh Circuit for assigning appellate cases. And, in AU Optronics, the defendants alleged error regarding, among other things, venue and application of the per se rule. Perhaps one of these issues will grab the Supreme Court’s attention, but I doubt it. I also don’t think there is any substantial FTAIA related issue for the Supreme Court to address.

AU Optronics

One reason AU Optronics is not ripe for Supreme Court review is that the defendants’ convictions can stand on other grounds; namely that substantial price fixed LCD panels were shipped directly into the United States. The FTAIA has no application to this commerce. The LCD “cartel ended when the FBI raided AU Optronics America office in Houston, Texas.” This is a pretty big hole to start digging out of when arguing that the cartel is not subject to prosecution under the Sherman Act. Trial testimony established that AU Optronics imported over one million price-fixed panels per month into the United States. The Crystal Meeting participants earned over $600 million from the importation of TFT-LCDs into the United States. The Ninth Circuit wrote: “In light of the substantial volume of goods sold to customers in the United States, the verdict may be sustained as import commerce falling within the Sherman Act.”

As to the commerce to which the FTAIA applied, the Court noted: “the parties acknowledge that the conduct was both substantial and had a reasonably foreseeable impact on United States commerce.” The defendants, however, contend that the overseas conduct was not sufficiently “direct” under the FTAIA. But, the Court found that:

“The testimony underscored the integrated, close and direct connection between the purchase of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported to the United States. The direct connection was neither speculative nor insulated by multiple disconnected layers of transactions.”

The conspirators held Crystal meetings to fix the price of LCD screens, some of which were shipped directly into the United States and some of which would first be assembled into a product and then shipped into the United States. The evidence showed the price-fixing had a direct effect on U.S. commerce either way; especially since the screens represented a large part of the cost of the finished product.   This seems pretty clearly the type of cartel directed at US commerce that Congress meant for FTAIA to include under the Sherman Act.

[Note:It is true that the Ninth Circuit applied a different definition of direct than that adopted in the Second and Seventh Circuit, but the AU Optronics defendants could be convicted under either definition. This is why the Ninth Circuit did not review its definition of direct and in all likelihood, neither will the Supreme Court.]

Motorola Mobility

Motorola Mobility has a very limited, and I believe correct holding; simply that as a plaintiff, Motorola Mobility did not meet the second FTAIA requirement “that the conduct gave rise to Motorola’s Mobility’s claim. [Full disclosure: This blog and an article I wrote were cited by Judge Posner in the Motorola Mobility opinion.] As noted, the Seventh Circuit assumed that the cartel had a direct, substantial and reasonably forseeable effect on US commerce. The key fact in the case was this:

“Motorola says that it “purchased over $5 billion worth of LCD panels from cartel members [i.e., the defendants] for use in its mobile devices.” That’s a critical misstatement. All but 1 percent of the purchases were made by Motorola’s foreign subsidiaries.” [Motorola Mobility can still seek damages for the one percent of purchases that were direct imports].

Motorola Mobility made a conscious decision to make purchases through a foreign subsidiary and many benefits, including tax, flowed from being subject to the jurisdiction of a foreign country. But, when the opportunity to seek damages from a cartel presented itself, Motorola Mobility, quite understandably, preferred to bring the defendant into the treble damage regime in the United States. It was this kind of forum shopping [seeking damages suffered by an overseas subsidiary], that the Seventh Circuit found was barred by the FTAIA.

The Seventh Circuit was concerned with Motorola Mobility’s perceived forum shopping, as were the numerous countries that filed amicus briefs asking the Seventh Circuit to respect their sovereignty. Motorola Mobility quoted the Supreme Court, which 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.” (citing, F. Hoffmann‐La Roche Ltd. v. Empagran S.A.). Judge Posner wrote:

“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 worlds competition police officer’ a primary concern motivating the foreign trade act.”

There is another factor in the case that, while not legally dispositive, tends to make Motorola Mobility an unsympathetic plaintiff. Judge Posner noted this fact during oral argument and wrote in the opinion: “According to Motorola’s damages expert, B. Douglas Bernheim, the company raised the price of its cellphones in the Unites States by more than the increased price charged to it by its foreign subsidiaries.” Perhaps legally it did not matter if Motorola Mobility may have profited from the cartel, but this fact along with the perceived forum shopping, did not help its chances.

For the above reasons, I don’t think the Supreme Court will grant certiorari in either AU Optronics or Motorola Mobility.

The Interesting Case of Indirect Purchasers

Eventually the Supreme Court will wade into to [hopefully] bring some clarity to the application of the FTAIA. I have been wondering if this may occur in a case involving indirect purchasers. There could be litigation where there is no question that a foreign cartel had a “direct, substantial and reasonably foreseeable effect” on US commerce. But suppose the plaintiffs are indirect purchasers?  Illinois Brick would not bar the suit, but would it run afoul of the “give rise to” requirement of the FTAIA. The comity concerns of foreign governments will still be present and this federal interest should supersede state Illinois Brick repealer statutes. There is an excellent article on this issue by Dylan Ballard, Sheppard Mullin, “When Illinois Brick Goes Abroad.” (subscription required).  On the other hand, indirect purchasers, the consumers who actually may have paid inflated prices for the price fixed product, are not forum shopping. They have no other forum in which to seek redress.  An indirect purchasers case may present an interesting flash of policy issues.

However things turn out in AU Optronics, Motorola Mobility or some future case, it seems the FTAIA will continue to provide interesting topics to write about and occasionally even make some predictions.

Thanks for reading.

 

 

 

 

 

Antitrust Division Files First E-Commerce Case

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David Topkins, a former executive at the E-Commerce Merchants Trade Association, an e-commerce seller of posters, prints and framed art, has agreed to plead guilty for conspiring to fix the prices of posters sold online.  The one-count felony charge was filed on April 6th in the U.S. District Court of the Northern District of California in San Francisco. According to the charge, Topkins and his co-conspirators fixed the prices of certain posters sold online through Amazon Marketplace from as early as September 2013 until in or about January 2014. Topkins also has agreed to pay a $20,000 criminal fine and cooperate with the department’s ongoing investigation. The plea agreement is subject to court approval.

Assistant Attorney General Bill Baer of the Department of Justice’s Antitrust Division stated that the case represents the division’s first criminal prosecution against a conspiracy specifically targeting e-commerce. Baer added: “We will not tolerate anticompetitive conduct, whether it occurs in a smoke-filled room or over the Internet using complex pricing algorithms. American consumers have the right to a free and fair marketplace online, as well as in brick and mortar businesses.”

To implement their agreements, the defendant and his co-conspirators adopted specific pricing algorithms for the sale of certain posters with the goal of coordinating changes to their respective prices and wrote computer code that instructed algorithm-based software to set prices in conformity with this agreement. The full DOJ press release can be found here. There is a link in the press release to the Information, which charges:

II.     MEANS AND METHODS

For the purpose of forming and carrying out the charged combination and conspiracy, the defendant and his co-conspirators did those things that they combined and conspired to do, including, among other things:

a.  TOPKINS and his co-conspirators participated in conversations and communications with representatives of other poster-selling firms to discuss the prices of the agreed-upon posters.

b.  During those conversations and communications, TOPKINS and his co-conspirators agreed to fix, increase, maintain, and stabilize prices of the agreed-upon posters.

c.  In order to implement this agreement, TOPKINS and his co-conspirators agreed to adopt specific pricing algorithms for the agreed-upon posters with the goal of coordinating changes to their respective prices.

d.  In furtherance of the conspiracy, TOPKINS wrote computer code that instructed Company A’s algorithm-based software to set prices of the agreed-upon posters in conformity with this agreement.

e.  For the purpose of reaching agreements on prices, enforcing adherence to the agreements reached, and monitoring the effectiveness of the pricing algorithms, TOPKINS and his co-conspirators collected, exchanged, monitored, and discussed information on the prices and sales of the agreed-upon posters.

f.  In accordance with the agreements reached, TOPKINS and his co-conspirators sold, distributed, and accepted payment for the agreed-upon posters at collusive, non-competitive prices on Amazon Marketplace.

The Antitrust Division highlighted that the case was its first e-commerce prosecution. But there are other features that make the case interesting and raise questions that will be answered as the matter develops.

  • The conspiracy period is very short. Individuals and companies can usually negotiate to narrow the duration of the conspiracy in return for a plea and cooperation, but the conspiracy period in this charge is extremely short: September 2013 to January 2014.
  • Perhaps related to the point above, the press release says that the defendant will pay a fine of $20,000. There is no mention of a jail term or even the possibility of a jail term. This is likely related to the point above—the short duration of the conspiracy.   The Antitrust Division however is extremely reluctant to grant “no jail” deals, so the case is exceptional in this respect. [The plea agreement had not been released so it is possible that the while the defendant has not agreed to jail time, he could face the possibility of jail.]

Some of the questions raised by the case filing and press release may be answered in further developments.