Today’s post is the first in 2015 from my friend in India, Avinash Amarath.

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I wish all readers of Cartel Capers a very happy and prosperous new year. There are two items to report for the first India post of the New Year.

Film Distributor Trade Association fined for price fixing and collective boycott

In its last reported decisions of 2014, the Competition Commission of India (CCI), in two separate cases, fined the Film Distributors Association of Kerala (a state in India) 5% of its turnover (in each case) for indulging in price fixing and collective boycott respectively. The business chain for films in India broadly comprises producers, distributors and exhibitors (i.e. cinema halls and multiplexes).

In one case based on a complaint from a film exhibitor, the CCI found that the association had imposed a revenue sharing pattern on all its members thereby not allowing film exhibitors to negotiate independently with the individual distributors of the association. The association had enforced its decision by stopping screening of all movies in cinema halls that did not accept its terms and by imposing fines on members who did not implement its terms.

In the other case based on a complaint from a member of the association itself, the CCI found that the association had issued a circular calling for collective boycott of two film producers. Again, the association had enforced its decision by imposing monetary penalties and suspending members who violated its decision.

Apart from the fine on the association, the CCI also decided to impose fines on the individual office bearers of the association at the time of the anti-competitive conduct. Separately, the CCI has also decided to initiate proceedings against these office bearers for non-cooperation in the investigation process of the Director General (DG).

An interesting takeaway from these decisions is that the CCI, while deciding on the fine to be imposed on the association, took into account the association’s new office bearers’ cooperation and compliance with the DG’s investigation as a mitigating factor.

The full decisions of the CCI can be found at the following links:

http://www.cci.gov.in/May2011/OrderOfCommission/27/622012.pdf

http://www.cci.gov.in/May2011/OrderOfCommission/27/322013.pdf

Banks found to have not colluded[1]

Bob had already covered this item very well last week. So I am going to just add a few more thoughts to what Bob has already covered. The basic principle that parallel behavior by itself cannot constitute evidence of an agreement has now become a well established principle of Indian competition law with both the CCI and the Competition Appellate Tribunal (COMPAT) adopting this baseline principle in several cases. In fact in the Tyres decision, the CCI observed that in oligopolistic markets, a distinction had to be made between parallelism stemming from an anti-competitive cartel agreement and rational conscious parallelism stemming from the interdependence of firms’ actions.

The Tyres decision is available here: http://www.cci.gov.in/May2011/OrderOfCommission/202008.pdf

Avinash can be reached at  [email protected]

[1]  To be more precise, the Order of the CCI stated “There is nothing on record to even prima facie persuade the Commission that the alleged agreement has been arrived at by the Opposite Parties in concert.”   http://www.cci.gov.in/May2011/OrderOfCommission/262/812014.pdf

Motorola Mobility’s Petition for En Banc Review

This news is a bit dated, but on December 17, 2014 Motorola Mobility petitioned the Seventh Circuit for an en banc hearing of its price-fixing damages case against AU Optronics and other liquid-crystal-display panel makers. On November 26, 2014 a three-judge panel affirmed, on different grounds, its vacated opinion dismissing Motorola Mobility’s suit. In an opinion written by Judge Posner, the panel held that purchases by made overseas by Motorola’s foreign subsidiaries of panels that were incorporated into products subsequently shipped into the United States did not meet the second prong of the FTAIA requirements, that the effect of anticompetitive conduct give rise to an antitrust cause of action. 15 U.S.C. Section 6(a)(2). “Whether or not Motorola was harmed indirectly, the immediate victims of the price-fixing were its foreign subsidiaries.” Motorola Mobility LLC v. AU Optronics Corp., 2014 WL 6678622 (7th Cir. 2014). In its petition for rehearing en banc, Motorola claims:

“This case presents the following two questions of exceptional importance:

A. Is a cartel that fixes the price of component parts to be included in U.S.-bound products immune from all civil damages claims under U.S. antitrust law so long as it first delivers those component parts abroad?

B. Was the panel’s decision to consider this case without a random assignment consistent with the Federal and Local Rules of Appellate Procedure and this Court’s Operating Procedures?”

Supporting Amicus Briefs

Two amicus briefs were filed in support of Motorola Mobility’s request. First, certain legal and economic academics filed a brief essentially arguing that international cartels are already under deterred with inadequate fines and civil penalties and the Seventh Circuit’s opinion will only increase the incentive to cartelize by providing a loophole for foreign cartelists to escape damages. In the brief the professors write: ‘”The panel’s decision asks, ‘are we to presume the inadequacy of the antitrust laws of our foreign allies?’ No presumption is necessary: antitrust penalties toward international cartels are collectively inadequate to deter international cartels.”‘

The American Antitrust Institute also filed an amicus brief in support of Motorola Mobility’s petition. The AIA writes: “Indeed, any international price-fixing cartel that concededly has a direct, substantial and reasonably foreseeable effect on American consumers would be able to avoid Sherman Act damages for products intended for the U.S. market as long as the cartel sells its price-fixed products abroad before the products are imported into the United States.” The brief argues that, if left to stand, the decision would “seriously undermine already inadequate levels of deterrence of international cartels that harm American consumers.”

No Word Yet

There has been no reaction yet from the Seventh Circuit on Motorola Mobility’s petition, but if the petition is denied, it seems certain that Motorola Mobility will seek Supreme Court review.
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Today’s guest blog post is by Masayuki Atsumi of the Japanese law firm Mori Hamada & Matsumoto.  Mr. Atsumi was an attorney with the JFTC before private practice.

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Japan is one of the most important jurisdictions in Asia in relation to cartel enforcement, but not many written materials articulate the details of Japanese cartel regulation.  As my first contribution to this blog, I would like to briefly provide an overview of Japanese cartel regulation, with a focus mainly on procedural and practical aspects.

1. Prohibition on cartel activities

The Japanese Anti-Monopoly Act (“AMA”) prohibits, among other things, “unreasonable restraint of trade” which includes collusive activities such as cartels or bid-rigging. A cartel violation is not per se illegal in Japan because the AMA requires that the Japan Fair Trade Commission (“JFTC”), the Japanese antitrust enforcement body, must prove a “substantive restraint on competition in the relevant market” in order to find a violation.

Under the AMA, cartel activities can be both criminal and administrative violations. Regarding administrative violations, the JFTC itself investigates the case and imposes an administrative sanction. If the JFTC decides to pursue criminal sanctions after its own investigation, it would file a criminal accusation to the Public Prosecutor General.  The Prosecutor’s Office is in charge of bringing a criminal indictment. The JFTC has sole discretion on whether it files a criminal accusation to the Public Prosecutor General, which cannot prosecute an antitrust violation without the JFTC’s accusation.  While most cartel cases in Japan have ended up as an administrative violation, the JFTC expressed its willingness in its policy statement to pursue criminal sanction if the JFTC finds that (i) the cartel conduct at issue is vicious and a serious violation which has widespread impact on people’s life, or (ii) participant(s) in the cartel is recidivist and administrative sanction would not work as proper deterrence of future violation.

      2.     Sanctions on cartels

A.     Cease-and-desist order

When the JFTC finds that cartel conduct violates the AMA, the JFTC will issue a cease-and-desist order to each participant of the cartel. This order typically includes, among others, an obligation that a recipient must establish or improve its compliance system to prevent future antitrust violation.

B.     Administrative surcharge

In addition to a cease-and-desist order, the JFTC shall impose administrative surcharge (monetary fine) payment order on companies that involved in cartel activity. The percentage of surcharge depends on a type of business that the defendant conducts (manufacturer: 10%, retailer: 3%, wholesaler: 2%.).  A reduced percentage would be applied to small-or-medium size corporations. The percentage of surcharge also varies based on various aggregating and mitigating factors. For example, a ringleader of cartel as well as a recidivist (defined as a company which committed cartel or certain type of antitrust violation within the past 10 years) will receive a 50% addition on the surcharge while a company that ceased a wrongdoing one month before the initiation of investigation will receive 50% reduction. The amount of surcharge is calculated as [applicable percentage] * [sales amount of products or services affected by cartel activity for three years from the termination of the cartel conduct].

It is important to note that the JFTC does not have discretion on the calculation of the surcharge. All the percentages of the surcharge as well as addition and reduction of the percentages above are fixed by the statute. There has been a policy discussion as to whether or not the JFTC should have discretion on the computation of surcharge.

C.      Criminal sanctions

The AMA also provides for criminal sanctions to individuals who committed cartel activities as well as companies. Companies that commit a cartel violation are subject to a criminal fine of no more than 500 million JPY (approx. 5 million USD.). Individuals who committed cartel activities would be subject to imprisonment of up to 5 years and a criminal fine of up to 5 million JPY (approx. 50,000 USD.).

3. Investigative method

In almost all cartel cases, the JFTC starts its investigation by dawn raid.  While the initial information could be from many sources including a whistleblower, it is safe to say that a large portion of the cases are initiated by leniency application. In addition to the dawn raid, the JFTC typically conducts interviews of relevant employees and issues mandatory information requests to relevant companies in order to obtain necessary information to establish the violation of the AMA.

It is very important for foreign companies to be aware that attorney-client privilege is not recognized under the Japanese law, and therefore, documents showing communication between client and its attorney are subject to the submission to the JFTC if the content is relevant to the subject matter.  Also, the JFTC does not allow an attorney to be present in its interview of employees. The lack of these two important procedural rights before the JFTC has been criticized. In response to the criticism the Japanese Government is now reviewing the appropriateness of the JFTC’s investigative procedures. I may revisit this issue in future blog post as the discussion is ongoing.

4. Leniency program

Since its introduction in 2006, the Japanese leniency program has been a huge success and attracted a number of applications from both international and domestic cartels. The most recent data shows that the JFTC accepted 50 leniency applications in fiscal year 2013, amounting to the total of 775 leniency applications since its introduction.

The Japanese AMA provides detailed rules on leniency in order to provide predictability to potential leniency applicants. The first leniency applicant before initiation of investigation by the JFTC receives full immunity from any administrative surcharge as well as criminal prosecution. The first applicant’s employees who cooperated with the employer’s internal investigation to file leniency also receive immunity from personal criminal liability. Under Japanese leniency program, subsequent applicants would also benefit from leniency application.  The second applicant before investigation receives 50% reduction of administrative surcharge, and the third to fifth applicant receives 30% reduction respectively, on condition that the fourth and fifth applicant must provide additional information that the JFTC does not know at the time of application.  Moreover, leniency applicants after the initiation of investigation, up to three applicants (but not more than five applicants including those before the initiation of investigation), would receive 30% reduction if the applicant provides additional information that the JFTC does not know at the time of application. All of the reduction rates are fixed by the statute and JFTC does not have any discretion on the reduction rate. Except for the first applicant, there is no guarantee of immunity from criminal prosecution. In fact, in the bearing cartel case, the second and third leniency applicants and their employees were criminally indicted.

Very importantly, the JFTC apparently has not prosecuted all of the cases in which leniency was applied. The JFTC has selected cases which are to be formally investigated based on a number of factors such as affected market volume, the quality of evidence and information presented by leniency applicants.

5. Recent trend in enforcement

The amount of surcharge that cartelists have paid to the JFTC has been dramatically increasing recently. In fiscal year 2013 (2013.4 – 2014.3), the total amount of the surcharge reached approx. JPY 30 billion (approx. USD 300 million.).

More importantly for readers of this blog, the JFTC has increasingly focused on enforcement against international cartels and imposed very high surcharges on them. For example, the JFTC has imposed surcharge payment orders on a number of auto-parts cartel members, as well as marine hose cartel (2008.2), air-cargo cartel (2009.3), CRT cartel (2009.10) and international shipping cartel (2014.3). In the international shipping cartel, the JFTC imposed record-high JPY 13 billion (approx. USD 130 million) surcharge on one of the participants of the cartel. It has also been reported that the JFTC has initiated an investigation against an alleged capacitor cartel.

In addition to administrative sanctions, the JFTC has aggressively pursued criminal accusations on cartel conduct that has widespread impact on Japanese economy. The most recent example is bearing cartel where three participants and their employees were criminally indicted and most of them were found guilty, while others are still pending. All of the convicted individuals in the bearing cartel have been given suspended sentences.  In fact, in Japan, no individual has gone to jail because of an antitrust offence yet.

Masayuki Atsumi

[email protected].  

On December 15th, Apple and the United States continued their heavyweight battle with a round of oral argument in the Court of Appeals for the Second Circuit. It’s been a while since this feud started so I’ll briefly recap the claims of the combatants.  The DOJ wrote in its Second Circuit brief, “In late 2009 and early 2010, Apple orchestrated and participated in a conspiracy with five major book publishers to take control of retail pricing for electronic books (e-books) and to raise prices to agreed-upon levels. The conspiracy was successful: retail e-book prices for the vast majority of the Publisher-Defendants’ new releases and bestsellers rose from $9.99 to $12.99 or $14.99. Consumers paid almost 20% more, on average, for all of the Publisher-Defendants’ e-books.”  Apple offered a “no good deed goes unpunished” defense, contending that it did not join any conspiracy and, in fact, offered a pro-competitive, innovative alternate to the monopolistic stranglehold that Amazon.com had on the e-book market.

The DOJ prevailed in the trial court with Judge Denise Cote finding that Apple had helped orchestrate a horizontal, per se Sherman Act price-fixing violation by book publishers to raise prices. The district court found that “with Apple’s active encouragement and assistance, the Publisher Defendants agreed to work together to eliminate retail price competition and raise e-book prices, and again with Apple’s knowing and active participation, they brought their scheme to fruition.”

A very good summary of the battle on appeal can be found in a Publisher’s Weekly article here.

One of the issues on appeal was the sufficiency of the evidence: Did the district court make erroneous findings in concluding that Apple helped orchestrate a price-fixing cartel? I’m not going to predict the Court of Appeals’ answer to that question. It is, however, fairly difficult to overturn a district court’s findings of fact, especially when Judge Cote found the evidence “overwhelming,” and many of Apple’s key witnesses “unbelievable.” But I do want to comment on one aspect of the case that has puzzled me.

The DOJ charged Apple as a member of the e-book price-fixing cartel even though Apple was not an e-book publisher. Apple had a vertical relationship with the e-book publishers. Thus, the briefs and arguments in the case are sprinkled with references to the Toys “R” Us, Inc., v. FTC, 221 F.3d 928, 936 (7th Cir. 2000) decision and “hub and spoke” conspiracies. I’ve always wondered whether it was a mistake to charge Apple with being a member of a horizontal price-fixing cartel. If charges were merited at all, I would have charged Apple with aiding and abetting a price-fixing cartel. I base this on an experience I had when prosecuting a significant cartel case while I was with the Antitrust Division.

I led the prosecution of the international graphite electrodes cartel. It was an extremely effective cartel, raising prices over 70% in a five-year period.   Graphite electrode manufacturers had tried before (like the e-book publishers) to reach a price-fixing agreement but could not—principally because the CEO of the U.S. company had a prescient fear of going to jail. But after Mitsubishi bought a 50% interest in the U.S. company, Mitsubishi employees helped organize the cartel through various means, including their connections with the Japanese graphite electrode producers. While Mitsubishi did not manufacture graphite electrodes, it did profit from the collusive price increases. While all other cartel members pleaded guilty, Mitsubishi went to trial.

We did not charge Mitsubishi with a Sherman Act violation because it did not manufacture graphite electrodes. In our view the simplest and most accurate way to explain to a jury why Mitsubishi was liable was to charge Mitsubishi assisted the cartel. We did not want to explain, even though it may have been relatively easy to do, why a company that did not make graphite electrodes was charged with fixing the price of graphite electrodes. Mitsubishi attended no price-fixing meetings and had no input into fixing the price of graphite electrodes. So, we charged Mitsubishi only with aiding and abetting. In legal theory, this is no different that being charged with a substantive offense. But in telling the story to a jury about why a non-manufacturer could be guilty of conspiring to fix prices of a product it did not make, we thought aiding and abetting was the more understandable and persuasive story. The indictment read, in part: [Read more…]

My parter, Joan Marshall, and I wrote an article just published by Law 360 titled:  “In 2014 Plaintiffs Gained Some Ground Lost After Twombly.”  The article reviewed some key antitrust cases at the motion to dismiss stage and examined how the courts applied the “plausible” pleading standards announced in Twombly to various elements of the alleged offense.   (It is important to note that while Twombly involved and antitrust complaint, the Supreme Court announced a pleading standard that applied to all complaints.  The vast majority of post-Twombly cases do not involve antitrust pleadings).

Twombly motions and decisions are of course fact specific so its a bit of a stretch to say there is a trend.  The party who tells the best story consistent with Twombly and the underlying policy considerations will win.  But, after several appeals courts reminded lower courts that the standard at the motion to dismiss stage was “plausbility,” it seems plaintiffs chances have improved.   Reminders such as this certainly have helped plaintiffs:

First, at the pleading stage, the plaintiff is not required to allege facts showing that an unlawful agreement is more likely than lawful parallel conduct. * * *Second, in order to state a Section One claim, a plaintiff need not allege a fact pattern that “tends to exclude the possibility” of lawful, independent conduct.  Erie County, Ohio v. Morton Salt, 702 F.3d 860, 868-69 (6th Cir. 2012).

Law 360 is a subscription based service. If you don’t have access to Law 360 and would like to read our full article, please send me a note and I’d be happy to send it along.  [email protected]

Thanks for reading.