United States District Judge Phyllis J. Hamilton has ruled that the FBI did not conduct an illegal search by placing electronic eavesdropping devices outside two courthouses in the San Francisco area to capture conversations of bidders at real estate foreclosure auctions. In the long running northern California real estate auction investigation, the FBI bugged areas around the courthouse entrances without obtaining a search warrant. The recording devices were placed to capture conversations of real estate buyers who might huddle together and collude among themselves to suppress the foreclosed property’s sales price. The FBI placed recording devices in vehicles around the courthouses, in lights boxes near the entrances, in a backpack and other public but hidden places. The FBI was also working with cooperators (i.e. people who had agreed to plead guilty and were cooperating in the investigation) who were wearing wires and “consensually monitoring” conversations with other auction bidders. But, the addition of these audio recordings (and some video) devices was a more aggressive, additional step to gather evidence. [Read more…]

Dear Friends:

The ABA Journal publishes a list of the 100 Best Legal Blogs every year.  The list is based on reader feedback.  If you’d like to see Cartel Capers on the list and you have a moment, please consider nominating the blog for the “Top 100” list.  I would very much appreciate your help.

This is from the announcement:

We’re working on our 10th annual list of the 100 best legal blogs, and we’d like your advice on which blogs you think we should include.

Use the form below to tell us about a blog—not your own—that you read regularly and think other lawyers should know about. (Please note that law blogs in the Blawg 100 Hall of Fame are not eligible for this year’s list.) If there is more than one blog you want to support, feel free to send us additional amici through the form. We may include some of the best comments in our Blawg 100 coverage. But keep your remarks pithy—you have a 500-character limit.

The announcement and link to submit nominations is at: http://www.abajournal.com/blawgs/blawg100_submit/

The deadline for nominations is August 7.  If you nominate the blog, you will be asked for the URL which is www.CartelCapers.com.

As always, thank you for reading.  I appreciate the support and feedback I receive.

Bob Connolly

One of the aspirations of many antitrust/competition lawyers worldwide is to achieve as much convergence as possible among competition authorities in enforcing competition law. Counseling companies and individuals who do business on a worldwide basis on the many differences in competition law can be inefficient, costly and result in less than optimal competition and deterrence of anticompetitive acts.  A series of recent global cartel enforcement actions highlights how individuals responsible for cartel behavior around the world are treated in vastly different way.

The European Commission just announced record cartel fines of $3.2 billion against truck manufacturers. A New York Times article is here and the EC official statement is here.  Despite the clear-cut hard-core cartel activity (and many would say fraud) it appears that no individuals will be held accountable. While there is some collateral penalty in terms of their careers, and the possibility of criminal prosecution by a member state, the brunt of any penalty is clearly borne by the stockholders of the company.  Recently Australia announced its first criminal prosecution for a cartel offense (here).  No individuals were charged in this cartel, but it is a beginning. Only time will tell individuals will eventually be held responsible in Australia, and if so, whether the penalty will include any jail sentence. [Read more…]

On, July 14, 2016 the Second Circuit ruled in a much-anticipated case pitting Microsoft against the Department of Justice. The government sought to compel Microsoft to retrieve a client’s emails located on a server in Dublin, Ireland and produce them in the United States. The emails were sought in connection with a drug trafficking investigation.  The nationality of the individual owner of the email account was not part of the record.  The production was pursuant to the Stored Communication Act (“SCA”), which was passed in 1986 as part of the Electronic Communications Privacy Act to give additional protection to new fangled thing called an email.   The Second Circuit held that, “§ 2703 of the Stored Communications Act does not authorize courts to issue and enforce against U.S.‐based service providers warrants for the seizure of customer e‐mail content that is stored exclusively on foreign servers.” The matter began in late 2013, when the DOJ served Microsoft with a demand under the SCA, seeking all content associated with a specific email account held by Microsoft. Microsoft produced some limited information about the email account that was on a server in the United States but refused to produce records located on a server in Dublin. Microsoft allowed itself to be held in contempt so the Second Circuit would have jurisdiction to consider the matter. The Second Circuit agreed with Microsoft, reversed the lower court and ruled that the company did not have to produce customer emails located on a server outside of the United States. The full opinion can be found here.

The SCA covers electronic documents and gives them a higher degree of protection than ordinary records such as bank records, for example.   If the government’s request under the SCA was considered a subpoena, the documents would have to be produced, because the court can compel the production of documents under the custodians’ control, regardless of where they are held. But, if the SCA was considered a warrant, then the court had to decide whether the SCA had extraterritorial application.

As to the first question, the court found that production under the SCA is akin to a search warrant, not a subpoena. First, a little background from the Court’s opinion:

            “Adopting the government’s view, the magistrate judge denied Microsoft’s motion to quash, resting on the legal conclusion that an SCA warrant is more akin to a subpoena than a warrant, and that a properly served subpoena would compel production of any material, including customer content, so long as it is stored at premises “owned, maintained, controlled, or operated by Microsoft Corporation.” In re Warrant, 15 F. Supp. 3d at 468 (quoting Warrant). The fact that those premises were located abroad was, in the magistrate judge’s view, of no moment. Id. at 472.

Microsoft offers a different conception of the reach of an SCA warrant. It understands such a warrant as more closely resembling a traditional warrant than a subpoena. In its view, a warrant issued under the Act cannot be given effect as to materials stored beyond United States borders, regardless of what may be retrieved electronically from the United States and where the data would be reviewed. To enforce the Warrant as the government proposes would effect an unlawful extraterritorial application of the SCA, it asserts, and would work an unlawful intrusion on the privacy of Microsoft’s customer.”

The Court found that Microsoft had the better of the argument: “The SCA’s legislative history related to its post enactment amendments supports our conclusion that Congress intended to invoke the term “warrant” with all of its traditional, domestic connotations.”

The Second Circuit then decided that the SCA did not have extraterritorial application. “The application of the Act that the government proposes ― interpreting “warrant” to require a service provider to retrieve material from beyond the borders of the United States ―would require us to disregard the presumption against extraterritoriality that the Supreme Court re‐stated and emphasized in Morrison v. National Australian Bank Ltd., 561 U.S. 247 (2010) and, just recently, in RJR Nabisco, Inc. v. European Cmty., 579 U.S. __, 2016 WL 3369423 (June 20, 2016). We are not at liberty to do so.”

Microsoft had also argued that the government had access to the information under the Mutual Legal Assistance Treaty (MLAT), adopted by the United States and Ireland in 2001. While obtaining evidence pursuant to an MLAT can be a slow process, it likely would not have taken as long as it did to litigate this case. According the Guardian, “Indeed, the Irish government had said it would have gladly helped the US Department of Justice obtain the records in question, related to a drug trafficking investigation, but they were not consulted.”

The government may appeal the decision to the Supreme Court. Or perhaps the government will seek a legislative fix. The SCA was passed in the very infancy of email and before even the birth of the World Wide Web. Congress clearly did not have the current IT environment in mind when it passed the SCA.  There are competing interests of: 1) the government not being thwarted in investigations by individuals storing relevant electronic records on foreign servers;  versus 2) the privacy interests of users and the sovereignty of foreign governments who want the right to control access to information within their own jurisdiction. Judge Gerard Lynch wrote in a concurring opinion that he agreed with the interpretation of the statute, but was concerned that by storing data overseas, criminals could keep electronic records outside the reach authorities. He said that a new law must be created that provides balance between law enforcement and the privacy of users.

Thanks for reading.

On June 10, 2016 Judge William Orrick III refused to accept a guilty plea from Trod Ltd, a British company d/b/a Buy 4 Less.  The company did not have a representative at the change of plea hearing but had authorized the company attorney to enter the plea of guilty.  Judge Orrick rescheduled  the hearing for July 7th.  Trod had previously pleaded not guilty but the company had agreed to plead at this hearing to fixing prices for online sales of posters in Amazon’s Marketplace.

This reminded me of a change of plea I was involved in many years ago.  Some judges will accept the plea if the corporate attorney has the proper authorization from the company’s Board of Directors.  But, the  judge in our case, a plea from a Japanese company, required that the company send a representative.  The judge was notorious for having hearings faster than the speed of light, especially something as routine as a corporate change of plea.  But, when the hearing started, the judge had this “Oh No” look on his face when he realized that a translator was going to translate everything the judge said for the corporate representative from Japan.  As  it became clear that the proceeding was going to move along at a snail’s pace, the judge began to say to the translator “You don’t have to translate that.”  “He doesn’t need to know that….”  I imagined myself  being that corporate representative from Japan and not knowing what was going on and perhaps wondering if something had gone awry and I was going to jail.  Fortunately, everything went according to plan.  The plea was accepted, the fine was imposed, and the corporate representative had an uneventful, though bewildering,  glimpse of the US legal system.

Thanks for reading.

Today’s guest post is by Ai Deng of Bates White Economic Consulting.  Dr. Deng picked up on a theme in a recent Cartel Capers post, (A “Quick Look” for Per Se Illegal Conduct), and has added some helpful thoughts on the types of economic decisions a firm can make that may later be viewed as a “plus factor” to sustain an antitrust claim.

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Plus factors-based counseling tests

In one of his recent posts, Bob discussed per se illegal conduct and proposed a list of “quick look” counseling tests (see here). In the absence of explicit evidence of collusion that can be learned from the answers to Bob’s questions, courts have also looked into what are known as “plus” factors. Plus factors can be thought of as an inference tool for explicit collusion (think wet street and the inference that it has rained). More formally, plus factors are defined as “economic actions and outcomes, above and beyond parallel conduct by oligopolistic firms, that are largely inconsistent with unilateral conduct but largely consistent with explicitly coordinated action.” (see Kovacic, Marshall, Leslie, and White (2011) available for download here)

After reading Bob’s post, it occurred to me that some of the plus factors can be turned into additional counseling tests to complement his list. Example questions based on the proposal by Kovacic, Marshall, Leslie, and White (2011) include:

· Did you (decide to) restrict supply/production when the demand was strong, the prices and your profit were high?

· Do you think the products made by you and your competitors are largely homogeneous? If so, did you instruct your sales team to “price before volume” when it used to be “volume before price”?

· When prices were relatively high or rising and you had excess capacity, did you do anything to make sure the market shares were stable and no customers switched suppliers?

· Did you redistribute gains and losses? For example, did you buy (homogeneous) products from your competitors when you could have produced them yourself (e.g. when you have excess capacity)?

· Did you exchange any of the following information with your competitors?

a.   Who purchased from competitors and the price and quantity of each transaction with each customer?

b.   Firm-specific production information?

c.   Transactions between you and other competitors?

If the answer to each of them is yes, then the probability of an explicit collusion would be high.[1][2] Note that while only the conspirators have the answers to some of the questions in Bob’s list, most, if not all, of these plus factor-based questions can be answered by examining market information and transaction data.[3] In other words, the response “I don’t remember” or “I don’t know” would generally not prevent one from finding out the answers. This is what makes plus factors interesting and powerful.

In addition to case law and Kovacic et al’s article mentioned above, other helpful readings on plus factors include Proof of Conspiracy Under Federal Antitrust Laws by American Bar Association’s section of antitrust law and a recent review article by FTC economist Dr. Malcolm B. Coate titled “Plus Factors in Price Fixing: Insightful or Anachronistic?”

____________________________

[1] I am simplifying here. Precisely how plus factors can be and have been used to infer explicit collusion and their rationale are discussed carefully in Kovacic et al (2011) as well as the other references.
[2] Admittedly, some of these question are not as “quick” as those in Bob’s list.
[3] Such information can come from public domain or through discovery.

I am very excited to be a participant at the upcoming 2016 Antitrust Sentencing Symposium at George Mason University School of Law on June 21, 2016 from 8;30 am to 5:00 pm.  Below are just a few of the topics that will be covered by the nation’s leading practitioners and professionals (and me), as well as antitrust enforcers from around the world, to brainstorm the best approaches to drive deterrence with the punishment of antitrust offenses at the first ever ABA Antitrust Sentencing Symposium.

• Isn’t there a better way to reach the goal of deterrence?
• Have we reached a tipping point with the size of the fines imposed on corporate antitrust defendants?
• Are there options to increasingly longer jail sentences for individual antitrust offenders to reach optimal deterrence?
• Does it continue to make sense to provide for treble damages in follow-on private damage actions where prima facie liability is established?

I am on a panel, Are There Alternatives to Increasingly Longer Jail Sentences for Antitrust Offenders That Would Lead to More Optimal Deterrence? moderated by Kathryn Hellings, partner at Hogan Lovells LLP, and includes Judge Douglas H. Ginsburg of the DC Circuit Court of Appeals and Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement, Antitrust Division, USDOJ. The full roster of faculty can be found here.

My contribution to the symposium will be a paper arguing that the ABA Antitrust Section should form a task force to study guideline reform, mirrored along the lines of the Criminal Justice Section Task Force on the Reform of Federal Sentencing for Economic Crimes.  I believe the current antitrust sentencing guidelines for individuals, departed from at a rate approaching 100%, are an impediment to optimal deterrence.  I hope the discussions at the Symposium will generate follow-up study to reform the United States Sentencing Guidelines for Antitrust Offenses. U.S.S.G 2R1.1.

You can register for the event here.  The program is quite a bargain.  It is free for ABA Antitrust Section members and includes 6.25 CLE credits.  This is the first ever ABA Antitrust Sentencing Symposium and your participation and input would be greatly appreciated.

Thanks for reading.

Just as I had predicted, yesterday Judge Donato sentenced Hitachi Chemical to pay a fine of $3.8 million for its role in the capacitor cartel.  OK, not much of a prediction as the $3.8 million fine was what the parties jointly agreed to recommend to the Court and it was an agreement pursuant to Fed. R. Crim. P. 11(c)(1)(C), [“C” agreement for short] meaning Hitachi Chemical could withdraw its guilty plea if the Court did not impose that fine.

The Court did extend the term of Hitachi’s probation from 3 years jointly recommended in the plea agreement to 5 years.  That change did not give Hitachi Chemical the opportunity to void the plea agreement because “parties also agree[d] that the term and conditions of probation imposed by the Court will not void the plea agreement even if they are different from the recommended term and conditions.”  As part of its probation, Hitachi Chemical must develop and implement an effective antitrust compliance program as outlined in the United States Sentencing Guidelines.

In a previous capacitor corporate sentencing, Judge Donato expressed displeasure that the sentence did not include the imposition of a compliance monitor.   There was some speculation that he might insist on one for Hitachi Chemical but that did not materialize.  For earlier posts on this sentencing see Hitachi Plea Agreement Part 1 and Hitachi Plea Agreement: Part 2.

On April 27, 2016 Hitachi Chemical was charged by the Antitrust Division in a one count Information alleging that the company (through predecessor companies) engaged in a conspiracy to fix prices and rig bids of certain electrolytic capacitors in the United States and elsewhere. On May 13, 2016, the government filed a “Sentencing Memorandum, Motion for Departure and Request for Expedited Sentencing.” The plea agreement was attached to the filing. There are several interesting features of the Information and the plea agreement. The plea agreement calls for a fine of $3.8 million, which was based on a downward departure for substantial assistance. Hitachi’s guidelines range was between $3.96 million and $7.92 based on a volume of commerce $16.5 million. My first post on this plea agreement (here) discussed the most noteworthy provision of the agreement; the agreement that Hitachi Chemical and the government will jointly recommend that the Court sentence Hitachi Chemical to a three-year term of probation.   There are a couple of other provisions of the plea agreement that are worth noting and discussed below. [Read more…]

There were two items of interest in the auction collusion world last week.  First, the Antitrust Division concluded its long running  (it’s really not necessary to modify “antitrust investigation” with “long running”–just habit) tax lien auction collusion investigation last week with the sentencing of Robert E. Rothman.  Mr. Rothman was an early cooperator in the investigation. He entered into a plea agreement in March 2012.  Rothman was sentenced to probation and a $20,000 fine by U.S. District Judge Susan D. Wigenton of the District of New Jersey.

On March 29, 2016 James Jeffers Jr., a former bidder for a Pennsylvania tax liens investment company was sentenced by Judge Wigenton to serve a prison term of 12 months and one day and pay a $25,000 criminal fine. Jeffers was convicted by a jury on Oct. 2, 2015 on auction collusion charges after a multi-week criminal trial. I believe, but am not sure, that Jeffers was the only individual in the tax lien auction collusion case to be sentenced to jail. In its press release regarding Jeffers sentencing, the Division said: “Including Jeffers, a total of thirteen individuals and three companies have been convicted or have pleaded guilty as part of the investigation.”  The press release doesn’t mention any previous sentences that included incarceration, but if anyone knows that there was, please comment. [Read more…]