Today’s post is by Joan Marshall, my partner at GeyerGorey.  Joan and I both worked in the Antitrust Division, DOJ but in different offices.  Joan prosecuted many major price fixing and bid rigging cases, including the vitamins cartel.

The Antitrust Division has now publicly recognized that there is a grand jury in the Northern District of California investigating possible price fixing, bid rigging, and market allocation among manufacturers of capacitors. Numerous class action price fixing suits have been filed. The Division has filed a motion seeking a stay of proceedings in the civil private class action litigation. Capacitors are electrical components used to store energy and have applications in data processing equipment, personal computers, communication systems, cellular phones, consumer electronics, automotive systems, defense and aerospace systems, power management systems, and many other electronic devices. There are several types of capacitors and they are found in nearly every electronic product. A typical smartphone contains up to five hundred capacitors. The global market for capacitors is estimated to be nearly $18 billion in 2014.

The Antitrust Division will typically seek a stay of the civil proceedings until it has largely finished the work of its criminal investigation. Stays usually have two components. The first is a stay on the discovery of documents. This stay is more limited with the Division usually not opposing discovery of documents that it has already obtained so that the civil litigants can at least proceed with that aspect of their discovery. The Division typically, however, seeks much longer stays of witness depositions in order to prevent its witnesses or prospective witnesses from making multiple statements. In the capacitors motion the Division seeks a stay on merits discovery until April 2015, with a further stay on merits depositions until November 2015. (Witnesses such as IT personnel or document custodians are not considered merits witnesses.). The Division has also proposed an indefinite stay of discovery of any party’s or witness’s communications with the government or the grand jury relating to capacitors, except by order of the Court for good cause.

It is well established that the government may intervene for the purpose of limiting discovery when there is a parallel criminal proceeding, although the scope and length of the stay is sometimes contested. In this case the government’s motion to intervene is unopposed. There is a status conference in the civil case scheduled for October 29^th before Judge James Donato and the government seeks to be heard at that conference.

An interesting fact in this investigation is that the Antitrust Division has proceeded by the use of subpoenas. The Division prefers to initiate an investigation with search warrants wherever possible. This approach preserves evidence from possible destruction and creates momentum for the government and uncertainty on the defense side. Executing search warrants also signals to the subjects that the government had probable cause necessary to secure the warrants. This can indicate that there is an amnesty applicant already and the company and its executives are cooperating with the Division. Does the lack of search warrants in the capacitor investigation indicate there is no leniency applicant? Probably not. This is a worldwide investigation. There are parallel capacitor investigations in at least China, Japan, Korea and the EU. If there is a leniency applicant anywhere in the world, it would be foolhardy not to rush in to seek leniency in the United States. A possible scenario is that there are not relevant documents in the United States. A search warrant requires probable cause to believe a crime has been committed as well as probable cause to believe that documents that evidence the crime are at a particular location. The relevant documents may simply all be overseas.

It is also possible that the grand jury investigation will conclude that the conspiracy in other parts of the world [if there is one] will not meet the FTAIA requirements for a prosecution of “direct, substantial and reasonable foreseeable effects” on commerce in the United States. For example, cartel members may discuss and fix prices, rig bids, or allocate markets in Asia and/or Europe but refrain from collusion in the United States. Antitrust Division officials have commented in speeches that they aware of numerous international cartels that deliberately refrained from extending their anticompetitive activities into the United States[1], presumably because of the jail penalties that the Antitrust Division seeks to impose.[2]

Of course this is all speculation. The grand jury proceedings are secret and the Antitrust Division does whatever it legally can to protect the fact of and identify of leniency applicants and cooperators. In time, leniency applications and cooperating witnesses may become public either because they self-disclose or because in the course of a later criminal trial, the government is required by law to make disclosure of cooperation agreements. As this investigation unfolds, more will be revealed.

[1] See, e.g., Organisation for Economic Co-operation and Development, ROUNDTABLE ON PROMOTING COMPLIANCE WITH COMPETITION LAW — Note by the Delegation of the United States, June 2011. http://www.justice.gov/atr/public/international/273461.pdf, paragraph 17.

[2]   Id., paragraph 16, citing Donald I. Baker, The Use of Criminal Law Remedies to Deter and Punish Cartels and Bid-Rigging, 69 Geo. Wash. L. Rev. 693, 705 (Oct./Dec. 2001). “The Division has long advocated that the most effective deterrent for hard-core cartel activity, such as price fixing, bid rigging, and market allocation agreements, is significant prison sentences. Prison sentences are important in anti-cartel enforcement because companies necessarily commit cartel offenses through individual employees, and because prison is a penalty — in contrast to fines — that cannot be reimbursed by the corporate employer. As a corporate executive once told a former Assistant Attorney General: ‘[A]s long as you are only talking about money, the company can at the end of the day take care of me . . . but once you begin talking about taking away my liberty, there is nothing that the company can do for me.; Executives often offer to pay higher fines in exchange for a reduction in their jail time, but they never offer to spend more time in prison in order to get a discount on their fine”.