Here’s a quick post by James Musgrove and Joshua Chad about an interesting case in Canada.

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Bid Rigging Prosecution Hits Another Setback

The trial judge in a high profile bid rigging case with respect to federal government procurement has directed that a verdict of not guilty be entered for one of the individual accused, ruling that there was no reasonable possibility of a conviction. The trial continues against a number of other accused. This is not the first setback for the Crown in the case. In a pre-trial motion the same judge, Judge Warkentin, ruled that the Competition Act’s provisions allowing the admission of documentary evidence to prove the truth of the matters set out in the documents was unconstitutional in a criminal case. Please see the full news report here.

Today’s guest post by Avinash Amarnath reports on several actions by the Competition Commission  of India

India update 2015 Vol 3

Its been quite a busy fortnight for the Competition Commission of India (CCI) especially on the cartel front. The CCI has issued three substantive decisions (two infringement decisions and one decision finding no infringement after a detailed investigation) last week which I have analysed below.

Another chemist and druggist association penalised

In its ninth decision against various chemist and druggist trade associations in India, the Competition Commission of India (CCI) fined the Himachal Pradesh (a state in India) Chemist and Druggist Association 10% of its average turnover for imposing rules requiring:

• a no-objection certificate from it before a pharmaceutical company could appoint a stockist in the state of Himachal Pradesh; and

• requiring compulsory payment of ‘product information service’ charges by the pharmaceutical company before launching a drug in the state.

The CCI found that these rules cumulatively resulted in limiting supply in the market and restricted pharmaceutical companies’ ability to launch new drugs onto the market. The president of the trade association was fined 8% of his average income for his liability as an individual.

An interesting takeaway from this decision is the CCI’s analysis of whether pharmaceutical companies can also be found liable for forming an agreement with the trade association to deny stockistship and limit supplies for the want of a no-objection certificate from the trade association. The CCI found that agreements between pharmaceutical companies and the trade association would not qualify as horizontal agreements (falling under Section 3(3) of the Competition Act) or as vertical agreements (falling under Section 3(4) of the Competition Act) as they are neither engaged in identical or similar trade of goods or provision of services  nor operating at different stages or levels of the production chain. However, relying on a previous decision (Ramakant Kini v. Hirandandani Hospital and Ors, a discussion on which appeared in my first post on Cartel Capers), the CCI observed that such agreements could nonetheless be examined under the general prohibition on anti-competitive agreements (Section 3(1) of the Competition Act) and would be subject to a rule of reason analysis. However, in the instant case, the pharmaceutical companies were not found liable as there was no evidence to indicate an agreement between them and the trade association.

The full order of the CCI can be accessed here.

CCI finds no evidence of a cartel amongst builders but still passes strong observations against exploitative and unfair practices adopted by these builders

 The CCI recently closed its investigation into an alleged cartel among builders in India finding insufficient evidence of a cartel agreement amongst them. The allegation was that the builders had used the Confederation of Real Estate Developers’ Association of India (“CREDAI”), a trade association as a platform to fix the contractual terms to be entered into with their customers. The only evidence found by the CCI was that of commonality of clauses in the contracts, which it held was insufficient to establish collusion. While no penalty was imposed on the parties, the CCI did heavily criticise the contractual terms of the builders and observed that they were unfair and exploitative. The CCI recommended that the parties take appropriate voluntary measures to address these concerns and also emphasized the need for a sectoral regulator in the real estate sector.

An interesting takeaway from this decision is the CCI’s observation on the issue of cross-examination. Under the implementing regulations, the CCI or the Director General (DG) can direct a party to submit evidence through oral or written submission. One of the parties in this case sought cross-examination of the informant. The CCI observed that an opportunity of cross-examination may be granted to the parties only if: a) evidence is led by way of oral submission; and b) the CCI or the DG consider it necessary or expedient; the necessity or expediency depending on the factual matrix of each case. The CCI stated that as a general rule, when information supplied by a party is based on ‘personal knowledge’, the other party should be granted the right to cross-examine the party giving evidence. On the other hand, when the information provided by a party is documentary, the other party need not be granted the right to cross-examine the party giving evidence. This seems to be in contrast to the provisions of the Indian Evidence Act, 1872 (which governs the rules of evidence in regular court proceedings) where a party may be cross-examined in relation to previous statements made by him in writing and relevant to the matter in question.

The full order of the CCI can be accessed here.

CCI finds truckers’ society guilty of cartel and abuse of dominance

The CCI fined the Kiratpur Sahib Truck Operators Co-operative Transport Society Limited, a cooperative society of truck operators in the area of Kiratpur, Punjab and its individual office bearers 10% of the average turnover and 5% of the average incomes respectively for collectively fixing prices for trucking services and limiting supply of trucking services by not allowing non-member truckers to operate in the area.  Interestingly, the CCI found these acts to be in violation of the Competition Act both as a cartel of the individual truckers who were members of the society and as an abuse of dominance by the society. However, the individual members of the society were not fined as they were not investigated or examined by the DG in their individual capacity.

The CCI found that the society itself constituted an ‘enterprise’ (the Indian equivalent of the concept of an ‘undertaking’ under EU competition law) as it was actively engaged in activities relating to provision of freight transport services. The CCI, while noting that trade associations usually do not qualify as ‘enteprises’ as they do not carry on any economic activity themselves, observed that this could only be determined by examining the functional aspects of the activities of the association in each case. In the present case, the CCI found that the society entered into freight transport contracts in its own name and got such contracts executed through its members according to its own internal procedure/ management and the customer had no dealing with the various members directly. The customer made payment for the services to the society who then passed on the payment to the concerned member after retaining a commission/ its own administrative charges. The society was then found to be dominant in the relevant market for provision of services of goods transportation by trucks in and around Kiratpur area in Punjab as there was no other enterprise providing such services in this area. The CCI found that the society had abused its dominance by imposing excessive prices on customers and taking various actions including threats and violence to prevent any other truckers from operating in the area.

The same acts were also found to be amounting to a cartel amongst the individual members of the society who were supposed to operate independently but had instead collectively fixed prices and ensured that no other truckers operated in the area.

It appears odd that the CCI felt the need to penalise the society under both cartel and abuse of dominance provisions especially given the fact that the CCI held upfront that the individual members of the society could not be proceeded against. In my view, what the CCI seems to be getting at is that while the society itself being a dominant enterprise had abused its dominant position in its capacity as an enterprise, the individual members who also constituted enterprises had formed a cartel under the aegis of the society. The logical follow on to this finding, of course, would have been to fine the individual members of the society under the cartel provisions, which was however not done due to due process issues.

The full order of the CCI can be accessed here.

Avinash Amarnath can be reached at Avinash.Amarnath@tta.in.

Today’s guest post is from Avinash Amarnath.

India Update 2015 Vol. 2

Trade associations continue to be the flavor of the day in the cartel space in India.

On 21 January 2015, the Competition Commission of India (CCI) imposed a penalty on the Dumper Owner’s Association (DOA), a trade association of dumper and hywa [unloading] machinery providers for intra-port transportation of cargo at Paradip Port and its individual officers for controlling the supply of dumpers and hywas at Paradip Port and fixing supply prices. The trade association was fined 8% of its average turnover (for the last 3 years) while the individual officers were fined 5% of their average income (for the last 3 years).

The complaint was brought by Swastik Stevedores Private Limited (the Informant), a company engaged in the business of stevedoring and intra-port transportation of cargo alleging that the DOA, in connivance with the Paradip Port Trust (PPT), the government authority managing Paradip Port had been refusing to provide dumpers and hywas to it.

In particular, the CCI found that:

1. The DOA had been entrusted with the authority to issue gate passes for dumpers and hywas at Paradip Port by the PPT which gave it a unique advantage in controlling supply at the port as no machinery could enter the port without a gate pass. Further, the members of the DOA owned a substantial number of the dumpers used at Paradip Port. The DOA used this control over the supply of dumpers and hywas to refuse supply to the Informant thereby limiting output through collective action in violation of the Competition Act, 2002 (Competition Act); and
2. The DOA collectively fixed the rates to be charged for provision of dumpers and hywas. The members       were forced to abide by such rates and were not allowed to individually negotiate rates. This resulted in determination of sale prices through collective action in violation of the Competition Act.

The PPT was exonerated, as there was no evidence of any collusive agreement between DOA and PPT.

Interestingly, the Director General (DG), the investigative wing of the CCI, during its investigation had found that the DOA had collectively fixed rates after negotiations with the Paradip Port Stevedores Association (PPSA), an association of stevedores and had concluded that both bodies were liable for price-fixing despite PPSA not being a party to the original complaint. PPSA had raised a preliminary argument that the DG had no jurisdiction to investigate it as it was not a party to the original complaint and accordingly, no investigation had been ordered against it by the CCI. The CCI dismissed this argument by observing that the DG was well within its right to examine the conduct of any entity that is related to the alleged anti-competitive conduct. However, the CCI absolved the PPSA of liability on the ground that the members of the PPSA were consumers of the DOA and such negotiations between consumers and suppliers cannot be construed to be price-fixing.

Another interesting trend to note is the increasing propensity of the CCI to impose penalties on the individual officers of the company/trade association in cartel matters. This is the 8^th cartel case in the last year or so where individual officers have been penalized. 

The full decision of the CCI can be accessed here.

Avinash Amarnath can be reached at avinash.aba@gmail.com.  

On January 29, 2015 I attended a program hosted by the Heritage Foundation: Obama Administration Antitrust Policy: A Report Card. The program was free and held in the Allison Auditorium. The program had three panels that focused on 1) the FTC; 2) the DOJ, and 3) Antitrust Abroad.   The panels were outstanding and included speakers who were either current or former senior members of the FTC or the Antitrust Division.

The consensus of the speakers was that it is too early to give an overall Antitrust grade to the Obama administration. It can take years to conduct a proper retrospective of how decisions and priorities have played out. Overall, however, there were a number of “high marks” or “good job” given by each of the panels. The DOJ, however was given one failing grade for (my words) “Plays Well With Others.”  Typically when a new administration takes over, new management speaks well of their predecessors, even though they may have a different approach in some areas. This happened with the Bush to Obama transition at the FTC. It did not at the DOJ. Several panelists noted Obama administration DOJ officials were uncharacteristically critical of their immediate predecessors with remarks such as the “antitrust is open for business”[1] and comments made when, in May 2009, the new administration withdrew the September 2008 Section 2 report on monopolization.

The DOJ panel was of particular interest to me.  In my 33 years at the Antitrust Division I worked for both Democratic and Republican Administrations. The panel was moderated by Hill Wellford and the speakers were: The Honorable Douglas Ginsburg, James Rill, J. Mark Gidley, and Thomas Barnett. I had worked under all of them when each was either Assistant Attorney General or Acting Assistant Attorney General at the Division.

The program will be available both in video and audio but these are some of my impressions of the remarks relating to cartel enforcement. Overall, there was a consensus that there had been a high degree of continuity in the criminal cartel program characterized by ever-increasing fines and jail sentences fueled by a focus on international cartels.  Regardless of administration, the focus on criminal antitrust enforcement has been high. For example the panel praised the Division’s Corporate Leniency program, which was revised in 1993 under Anne Bingaman.   Under Hew Pate the Antitrust Criminal Penalty Enhancement and Reform Act (“ACPERA”), expanded leniency to private damage suits and also increased the maximum Sherman Act fine to $100 million and the top jail sentence to 10 years. The panel also noted that the increased level of cooperation with foreign competition authorities has been a bipartisan effort across all recent administrations. This has led to the very successful export of leniency programs and the global view that “cartels are the supreme evil of antitrust.”

The panel had a caution on leniency programs; while hugely important it is equally important that enforcers be vigilant to grant leniency only to hard-core cartel conduct. It was noted that a leniency applicant may have incentive to take a grey area such as information exchange and puff it up to a price-fixing conspiracy. It is possible for a company to use “leniency” as a weapon; get a free pass for itself an its employees, while its competitors get hammered. It was noted, however, that the Division has rejected leniency applications when the applicant hasn’t “confessed a crime.”  There have also been occasions where the Division granted leniency, but did not follow-up with any prosecutions because the evidence was weak. I would add my observation that even the Antitrust Division leniency applicant isn’t quite a free pass.

The DOJ panel covered topics other than cartels, as did the FTC and Antitrust Abroad panels.  The keynote speech by William Kovacic was informative and entertaining.  The program should be online shortly.

[1]   While not cited at the program, this speech may be one example that panelists alluded to. See Sharis Pozen, Acting Assistant Attorney General, Antitrust Division, USDOJ, Remarks Before the Brookings Institute, April 23, 2012. http://www.justice.gov/atr/public/speeches/282515.pdf

I came across a very informative post by Richard Wolfram, Esq. about antitrust standing the LIBOR civil damages litigation.  I thought it would be of interest to Cartel Capers readers, in case you haven’t seen it elsewhere.  Mr. Wolfram kindly agreed to let me repost this.

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In re LIBOR: ‘More Light, Please!’—Questions and Observations As the Decision Dismissing Antitrust Claims for Lack of Antitrust Injury Now Faces Appellate Review
Posted: 28 Jan 2015 10:01 AM PST
by Richard Wolfram, Esq.

(An in-depth article on In re LIBOR and antitrust injury is available here under this title. The following is a preview of my article).

(N.B.: In a coincidence of timing, on Jan. 28, 2015, the date of this posting and publication of the linked article, Judge Lorna Schofield of the federal district court for the Southern District of New York, in a case alleging a conspiracy to manipulate the benchmark rates in the $5.3 trillion/day foreign exchange market, denied the defendants’ motions to dismiss and expressly rejected the test used by the court in In re LIBOR for determining antitrust injury, discussed below. In re Foreign Exchange Benchmark Rates Antitrust Litigation (S.D.N.Y. 1/28/15).)

A key ruling by a New York federal district court almost two years ago, in In re LIBOR-Based Financial Instruments Antitrust Litigation, can now finally proceed on appeal, and the implications are significant both in the law and for a number of financial markets dependent on benchmark mechanisms.

The district court ruled in March 2013 that alleged collusion by the defendant banks in setting a global interest rate benchmark—the London Interbank Offered Rate, or LIBOR—may have violated antitrust law but did not cause antitrust injury; it therefore dismissed antitrust claims filed by various investors, who claimed injury from the alleged concerted suppression of LIBOR, on the grounds that they lacked standing.

On January 21, 2015, in a lightning-fast decision issued barely six weeks after oral argument, the Supreme Court removed procedural roadblocks delaying prompt appeal. The district court’s decision, so long on the vine (before appeal) that it appeared to be taken as accepted wisdom in some quarters, will now be put to the test and is already attracting heightened, critical attention.

The article examines the district court’s antitrust ruling with a view to the upcoming appeal. Specifically, it explains the U.S. doctrine of private antitrust injury—“injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful”—an elusive and notoriously difficult principle to pinpoint and correctly apply (Part II); sets forth the facts of the case (III) and the court’s rationale (IV); and dissects the court’s reasoning (V).

The district court’s rationale rests on two main findings: first, that the LIBOR-setting process is collaborative, not competitive, so any collusion by the banks in setting the rate did not displace competition, and any resulting harm therefore cannot result from a suppression of competition—hence, there was no antitrust injury; and second, that the injury alleged by the plaintiffs could have occurred even in the absence of the alleged collusion, that is, in normal competitive conditions—hence, the plaintiffs may have been injured but it was not antitrust injury.

The analysis of the first leg of the rationale focuses on the upstream interbank lending market, where each bank was expected to submit its daily estimated interbank borrowing costs, independently, to the British Banking Association (BBA), which then averaged them for the daily LIBOR fix; and on the downstream markets for the sale by the defendant banks of various financial instruments indexed to LIBOR. The court’s conclusion that the banks did not compete in LIBOR rate-setting in the interbank lending market, as a predicate for its conclusion that any injury resulting from the alleged collusion was not antitrust injury, invites scrutiny on at least three fronts:

• First—the plaintiffs alleged incentives on the part of the banks to compete in the interbank lending market, even if the LIBOR-setting process itself is collaborative; there was not simply a unilateral incentive on the part of each bank to understate its borrowing costs, to reflect a picture of stronger financial health, as noted by the court, but also an interplay of this incentive with the desire on the part of each bank not to substantially overstate or understate its estimated borrowing costs vis à vis those of the other banks contributing their data to the LIBOR fix, thereby prompting their alleged collusion;
• Second—the required independent submission by the banks to the BBA of their daily estimated interbank lending costs, on which they instead allegedly colluded, resembles the ‘messenger model’ in antitrust, and the similar structural safeguards in each of these two mechanisms against improper information exchange reflects the competitive interrelationship of the participants; and
• Third—LIBOR-setting resembles standard setting in that both are collaborative information-gathering processes, but with competitive effects; as the law recognizes the antitrust implications of abuse of standard setting, so it should recognize that LIBOR-setting, conducted by banks which compete with each other at least in the downstream markets, if not also in the upstream interbank lending market, may also have competitive effects and cause antitrust injury.

As for the downstream markets for the sale of LIBOR-indexed financial instruments to the plaintiff investors, in which the defendants clearly competed, the Supreme Court’s teaching in Brunswick v. Pueblo Bowl-O-Mat on antitrust injury instructs that the “injury should reflect the anticompetitive effect either of the violation or of the anticompetitive acts made possible by the violation.” If the “violation” is the alleged collusion on LIBOR-setting by the banks, then the “anticompetitive acts made possible by the violation” are the defendants’ pricing of the financial instruments where the plaintiffs allegedly paid more or received less than they would have in a market free from the alleged collusion. Even assuming, for the sake of argument, and per the court, that the LIBOR-setting process was entirely collaborative, so that any collusion among the banks could not displace competition among them at that stage, it is not clear how the suppression of downstream competition does not constitute antitrust injury (as the anticompetitive acts made possible by violation).

The second leg of the rationale—that whatever harm the plaintiffs may have suffered is not antitrust injury because it could have occurred even in the absence of the alleged collusion, that is, in normal competitive conditions—similarly invites scrutiny. Although the district court appears to ground this reasoning on well-known Supreme Court precedent on antitrust injury, it appears to have misconstrued or at least misapplied it to the facts in LIBOR. Instead, as the article explains, the court appears to have fallen into the ‘Trap of the Irrelevant Hypothetical’—a term coined by one commentator to describe “the fallacious proposition that any time one can construct a counterfactual hypothetical in which (a) the facts are changed such that there is no antitrust violation, yet (b) the plaintiff still suffers damage similar to the injury it actually suffered as a result of the violation, there is no antitrust injury.” With respect to LIBOR, this translates to saying that if the alleged collusion is assumed away, the conduct that would be left—the independent submission of each bank’s daily estimated interbank borrowing costs possibly resulting in the same kind of harm to plaintiffs—would not cause antitrust injury; indeed, it would not even violate the antitrust laws. Accordingly, the ‘irrelevant hypothetical’, taken to its logical extension, would eviscerate private antitrust litigation and the court’s test therefore does not work: by proving too much, it proves nothing.

Although the doctrine of antitrust injury is somewhat ‘plastic’ and does not lend itself to easy or simple formulation, the proper question here, as the Supreme Court has instructed, is instead whether the conduct of which the plaintiffs complain enhances or reduces competition and whether, applied to the facts in LIBOR, a different result obtains. In sum, it does not appear that the district court correctly applied Supreme Court precedent on antitrust injury or that the second leg of its rationale supports its conclusion that the banks’ alleged collusion could not cause antitrust injury. But the district court is not alone: a number of other courts have also stumbled over the doctrine, with some employing the exact same reasoning as the district court in LIBOR. Here, the article spotlights judicial confusion of antitrust injury with either antitrust causation or harm to competition, with illustrations from other decisions.

Ultimately, the issues under discussion resolve to whether the district court in LIBOR correctly dismissed the antitrust claims for failure by the plaintiffs to plausibly allege antitrust injury. The dismissal, which appears to assume facts in question going to the issue of antitrust injury, of course precludes the plaintiffs even from obtaining discovery on this very question, let alone other substantive elements of their claims, yet the plaintiffs appear to have crossed the ‘plausibility’ pleading threshold of Bell Atlantic Corp. v. Twombly. The article suggests that the court’s dismissal of the antitrust claims calls for a critical re-examination of the two principal legs of the rationale and, ultimately, reversal by the Second Circuit.

About Richard Wolfram

Richard Wolfram is an independent lawyer based in New York City who focuses on antitrust counseling and litigation on behalf of corporations, professional organizations and public advocacy entities.

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