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.

When I was a boy, I was always puzzled but fearful of labels that I saw on pillows that read in bold print “Do Not Remove—Under Penalty of Law.” I was pretty sure that the cops wouldn’t know if I removed a label, but what if my parents ratted me out? And, as a Catholic School lad, I had to worry about the sin implications. If it was against the law, was it also a sin? A venial sin? (six to twelve months in purgatory). Or, a mortal sin? (eternal damnation—which seemed a little harsh just for removing a label). In any event, being fairly cautious, I never did remove a pillow label, though I may have committed a few more serious offenses in my youth.

These thoughts crossed my mind the other day I when I read about an ongoing case in the Second Circuit, In the Matter of a Warrant to Search a Certain Email Account Controlled and Maintained by Microsoft Corp., Case number 14-2985. Microsoft is challenging a district court order that it produce documents located overseas that were sought by a validly executed search warrant. Microsoft claims the documents are out of the reach of the government while settled law seems to be that, at least as it relates to subpoenas, the documents are producible. The magistrate and district court judge ordered that the documents be produced and Microsoft is currently pressing its appeal in the Second Circuit.

I’ll follow up when a decision is reached, but I thought I would comment on why you should never destroy foreign located documents in an Antitrust Division investigation. An Antitrust Division issued grand jury subpoena duces tecum will typically call for documents “wherever located.” While a company needs a presence in the United States to be validly served with a grand jury subpoena, once it is served, the company is on notice that responsive documents must be preserved. It may seem that a company with an office in the United States but headquarters overseas, might have little to lose by destroying overseas documents. But, this is clearly not the case.

Overseas Conduct:  US Consequences

Let’s assume an international company headquartered in Taiwan is served with a subpoena issued by an antitrust grand jury for documents. The subpoena will likely call for relevant documents (pricing memos; communications with competitors and many more demands). The subpoena may call for the production of documents “wherever located.” In my experience, the Antitrust Division will defer production of documents located overseas. Is this a good time to get rid of the incriminating evidence. No! Here’s couple of reasons why:

Antitrust Division’s Position on Destruction Of Foreign-Based Documents

Policy: The Division considers the destruction of foreign-based documents, like the destruction of domestic documents, for the purpose of impeding an investigation to be a criminal offense. It will use every available means to prosecute and punish individuals and corporations who engage in such activity.

Rationale: An executive who destroys foreign-based documents for the purpose of covering up his company’s participation in a conspiracy may subject himself and his employer to serious sentencing consequences. The executive and the company may be charged with a violation of the “omnibus clause” of 18 U.S.C. § 1503, which carries a potential 10-year sentence against the individual and a $500,000 fine against the company. Moreover, if the company is convicted of the antitrust offense, it may face substantially greater fines, even if it is not formally charged with obstruction as a separate offense in an indictment or information.”

This excerpt is from a Division publication: “Negotiating the Waters of International Cartel Prosecution.”

Here are some of the practical implications of the Division’s policy:

•             Amnesty—A company that destroys overseas evidence is not going to have the “goods” to quality for leniency. It is hard to offer “full and complete cooperation” if key evidence has been destroyed. In one situation I know of, the document destruction was limited to one individual. The company was still able to obtain leniency but that individual was charged with obstruction.

•             Plea Agreements—Even a company that doesn’t qualify for leniency is likely to seek to negotiate a plea agreement if the Division obtains indictable evidence through another source (i.e. the company that won the race for leniency). If a company has destroyed documents after learning of the investigation, it is going to pay a heavier price in terms of a fine for the cartel conduct. It’s cooperation will be less valuable without the destroyed evidence, and the Antitrust Division takes obstruction very seriously. The quickest way to get on the bad side of the Division is to tamper with the integrity of its investigations. The Division is going to “send a message” when it encounters obstruction—and the message is communicated in $$.

•             Separate Charges—In some cases, to make sure the message is loud and clear, the Division may even insist on that a company that pleads to the cartel charge also a plead to a separate charge of obstruction.

Corporations Don’t Destroy Documents—People Do

A corporation is responsible for the actions of an employee who destroys documents in many cases. And as indicated above, an employee’s actions can have serious negative consequences for the company. But, the consequences can be even worse for the individual, if the Division has substantial evidence that a person destroyed evidence—or ordered that evidence be destroyed. Some of the consequences are:

•             Carve Outs—In most corporate plea agreements, the Division offers non-prosecution protection for cooperating individuals, but preserves for prosecution those it deems to be most culpable. These individuals are referred to as “carve-outs”—individuals not protected by the plea agreement. Like Santa Claus, the Division has a “naughty” list. The number of carve-outs can vary, but an individual whom the Division believes destroyed evidence (or otherwise obstructed an investigation) is almost certainly going to be on the naughty list and carved out.

•             Indictment—Not all carve outs are eventually indicted but an executive who has been carved out of a corporate plea agreement because the Division believes he has engaged in obstruction is likely to be indicted for the cartel offense. And, if the evidence of obstruction is sufficiently strong, the Division will include counts in the indictment setting forth the obstruction.

•             Extradition—A foreign executive who is indicted by the Division constantly has to be concerned about international travel. The Division will seek an Interpol “Red Notice” so that such individuals may be detained anywhere in the world. But, an individual will only be extradited if the conduct is also a crime in the country where the individual is being detained. There is a material difference in international norms regarding the condemnation of price-fixing compared to obstruction. While this is a very general statement, relatively few countries consider price-fixing a criminal offense (and even fewer actually incarcerate individuals convicted of price-fixing). But, obstruction of justice is universally considered a crime. An individual who the Division has placed on a Red Notice is in a much more precarious position if the indictment contains charges of obstruction of justice.

Your Ace in the Hole

It may seem obvious that electronic evidence should not be destroyed because multiple copies probably exist and you’ll get caught. (Although in the “fog of war” at the beginning an investigation, “obvious” mistakes are made in a panic). Suppose, however, that Mr. Cartel has handwritten notes of every cartel meeting listing every member that attended, what was agreed to, etc. If these documents met an untimely demise at the shredder, surely that would be a good thing? No!   These documents may be your “get out of jail free” card. The “hotter” the document (and uniqueness can make a document very hot), the more valuable it is to the Division.   A plea negotiation is based in part on: how culpable is the defendant?; how strong is the government’s case? and how badly does the government want your cooperation? A hot document can be very valuable, particularly in a price-fixing case.

Conclusion

Individuals should not destroy documents, even if they are “certain” they can get away with it. But, and this is a subject for another post, this has to be emphasized to employees as part of a robust compliance program. (Phew–I almost got to the end without using “robust”).  A “preservation letter” at the beginning of an investigation is likely to be too little too late. And, it is not too helpful to simply say “Do Not Remove Under Penalty of Law” without explaining why.

Thanks for reading.

One of the ongoing debates among cartel practitioners and scholars is whether penalties are sufficient to deter cartel behavior. This question has come up in the context of possible reforms to the Sentencing Guidelines with some advocating that both jail and corporate fines need to be increased. It is also an issue being debated regarding the FTAIA and the Motorola Mobility decision—if there is deference by the US to foreign enforcement regimes, will cartels be undeterred?

In this context, I noticed three items of interest this week. They certainty don’t settle the question of whether there is a sufficient amount of deterrence, but they clearly demonstrate that deterrence is ever-increasing.

1.  Conference:  “The Future of Competition Law and Policy in the ASEAN Countries: Issues and Challenges”

The first item is a conference on Competition Law in ASEAN countries. The conference was inspired by the recommendation of ASEAN Regional Guidelines on Competition Policy that all ASEAN countries introduce nation-wide competition policy and law by 2015. Also, the conference is being held just before International Competition Network (ICN) annual meeting, which will take place in Sydney from April 28 to May 1st, 2015.

Panelists at the conference include:

• Aubeck Kam, Chairman, Competition Commission, Singapore
• Siti N. Yaakob, Chairman, Competition Commission, Malaysia
• Geronimo L. Sy, Former Chair, ASEAN Experts Group on Competition
• Muhammad N. Messi, President, Indonesian Commission for the Supervision of Business Competition, Jakarta
• Frédéric Jenny, Chairman, OECD Competition Committee, Paris
• Laurence Idot, Member, Competition Authority, Paris
• William E. Kovacic, Professor, George Washington University, Washington, D.C.

The conference is sponsored by Concurrences Journal, in partnership with ESSEC Singapore and Sorbonne-Assas International Law School. If you’re in the neighborhood and interested in the program you can find more details here. Also, if you do attend the program and would like to write a post about the conference as its relates to the panel on “Cartels and Leniency in Asean Countries,”  please let me know. I would be interested in publishing that summary.

 2. Antitrust in Colombia

The government of Colombia is wrapping up an eight-year investigation of the local cement and sugar industries. “The evidence phase has concluded, and we are entering the final decision phase now,” said Pablo Felipe Robledo del Castillo, head of the Superintendency of Industry and Commerce (SIC) on Monday, March 9.  The investigation findings should be announced this summer. The subjects of the cement investigation were Cemex and Holcim, two companies that have been investigated by countless competition authorities around the world.

In 2014, the Colombian competition agency filed price-fixing charges against toilet paper and disposable diaper companies. The country is also considering increasing its sanctions by changing from a maximum fine of around $25 million to a fine based on a percentage of the companies’ revenues or equity.

3.  Yogurt Too? (Sigh)

Just today, France fined yogurt makers over $203 million for price-fixing (here). The conspirators struck deals in hotels rooms and used special phone lines created to avoid detection. But, leniency, (the great cartel buster), prompted Yoplait (owned by General Mills) to blow the whistle. The cartels operated from 2006 to 2012.

These news reports certainly don’t answer the question of whether there is sufficient deterrence. They do show that cartel enforcement is world-wide endeavor, not just of interest in the US/EU. But, enforcement actions also show that cartels continue to be formed—even when the participants, as in the French yogurt cartel, know the conduct is illegal and take great pains to (unsuccessfully) keep the cartel secret.

Thanks for reading.

I am delighted to be a speaker with two very distinguished co-panelists for an ABA Section of Antitrust Law, Joint Conduct and International Committees teleconference:  The FTAIA and International Comity — Deference to Foreign Enforcement.  The program will be held on Monday March 9, 2015 from 12:00 to 1:30 pm EST.

The panel will consider how, or whether, the FTAIA should be applied to accommodate competition enforcement policies of countries in which cartel members reside. They will compare extraterritorial application of the Sherman Act to extraterritorial application of competition laws by other countries and will weigh foreign interest in restraints on Sherman Act reach, taking into account amicus brief filings by foreign competition agencies in U.S. appellate court.

Moderator:

*Thomas J. Collin, Thompson Hine LLP, Cleveland, Ohio

Speakers:
*Robert E. Connolly, GeyerGorey LLP, Washington, D.C.
*Eleanor Fox, NYU School of Law, New York, NY
*Jacques Steenbergen, Belgian Competition Authority

To register for the program, click here.

On Thursday February 26^th I enjoyed a day long Symposium on Section 5 of the Federal Trade Commission Act hosted by BakerHostetler and organized and moderated by my friend and former colleague Carl Hittinger. The conference focused on the history of Section 5, its current scope and where it may be headed. There was particular discussion about whether the FTC should have guidelines to explain and limit the application of Section 5.

While I found the entire conference interesting, of particular interest to me was the discussion of “invitation to collude” cases, which is a way of saying to a competitor “Would you like to form a cartel with me?” Section 5 broadly prohibits “[un]fair methods of competition” and “unfair or deceptive acts or practices.” One way Section 5 has been used by the FTC has been to charge invitations to collude cases.

An invitation to collude case can arise when one competitor (or a group of competitors) reaches out to another competitor to invite the competitor to agree to fix prices.  An invitation to collude investigation/case arises usually when there is some specificity in the offer—much like contract analysis. General grousing about prices in an industry, while extremely foolish and may draw an investigation, is not likely to result in a formal charge. And, in US v. Foley, 598 F. 2d 1343 (4^th Cir. 1979)  a realtor hosted a dinner for seven other realtors and announced he didn’t care what others did, he was raising his commission. Some discussion ensued from which a jury concluded that an agreement has been reached.  The realtors were indicted and convicted.

One example of the type of “invitation to collude” case that the FTC has brought was against two barcode resellers where the principals of two companies invited a third competitor to collude. The FTC complaints charged that on August 4, 2013, an executive of Instant reached out to a competitor, Nationwide, and proposed that the two companies, along with a third barcode seller, “Competitor A,” together raise their prices.   The Instant executive then allegedly then sent a similar email invitation to Competitor A.  The next day, Nationwide forwarded Instant’s message to Competitor A, asking for its thoughts on the proposal. Without agreement from Competitor A, Nationwide and Instant did not take action to raise prices, but allegedly continued to discuss by email a possible price-fixing scheme for barcodes, conditioned on the participation of Competitor A. Competitor A never responded to any email nor did it agree to participate in the proposed scheme.

In a public statement the FTC said: “The Commission charged Instant and Nationwide with inviting an agreement to raise prices in violation of Section 5 of the FTC Act. The FTC has not alleged, however, that the invitations to collude resulted in an agreement on price or other terms of competition. Because under some circumstances, an agreement on price or other terms or an invitation to collude could potentially constitute criminal conduct, the FTC routinely refers such cases to the Department of Justice to investigate.”

In fact, the Department of Justice has prosecuted “invitations to collude” criminally as attempted wire frauds.  United States v. Ames Sintering, 927 F. 2d 232 (6^th Cir. 1990)(bid rigging attempt); United States v. Critical Industries, Crim. No. 90-00318 (D. N.J. July 24, 1990), 6 Trade Reg. Rep. (CCH) ¶45,090 (Case 3722A) (price-fixing attempt). In these cases, the person seeking to fix prices/rig bids reached out to a competitor who then recorded conversations for the FBI.   Criminal fraud charges followed.

It is not clear why the FTC has brought some invitation to collude case criminally while the Antitrust Division has brought such cases criminally.  There are relatively few invitation to collude cases brought so it is not possible to draw conclusions. But, the strength/weakness of the evidence is a significant factor.  The amount of commerce involved also is a factor in the decision.  And if a competitor makes a collusive proposal in person, there may be no mail or wire use to support a criminal fraud charge.

The “Why is this case civil?’ question can also come up where an invitation to collude is accepted; i.e. there is an actual agreement to fix prices.  An FTC case I found curious was the case against Blue Rhino and AmeriGas. The FTC alleged that the companies secretly agreed and illegally coordinated on reducing the amount of propane in their tanks sold to a key customer. In 2008, Blue Rhino and AmeriGas planned to implement a price increase by reducing the amount of propane in their exchange tanks from 17 pounds to 15 pounds, without a corresponding reduction in the wholesale price.  This was not an invitation to collude case.  The invitation was accepted and the agreement led to a 13% price increase.  The conspiracy was carried out at the highest level of the two companies over a period of months.  

The FTC’s administrative complaint alleged, among other things:

The key to implementing the price increase was forcing Walmart, the largest customer, to accept it. The FTC’s administrative complaint states that:

• Faced with resistance from Walmart, Blue Rhino and AmeriGas colluded by secretly agreeing that neither would deviate from their proposal to reduce the fill level to Walmart. They worked together to take the steps necessary to push Walmart to promptly accept the fill reduction.
• On or about July 10, 2008, and continuing for three months thereafter, sales executives from the two Respondents communicated repeatedly by telephone and email to apprise each other of the status of their discussions with Walmart and to encourage each other to hold firm to convince Walmart to accept the reduction in fill.
• This concerted action had the purpose and effect of raising the effective wholesale prices at which Blue Rhino and AmeriGas sold propane exchange tanks to Walmart, as well as to other customers in the United States.
• This reduction in fill level was in effect a 13% increase in the price of the propane.

PS.  The FTC investigates a wide variety of consumer fraud.  In any FTC investigation, a civil investigation may be referred to an appropriate criminal prosecution office whenever the facts warrant.

In this India Update 2015 Volume 4, Avinash Amarnath reports on a recent decision of the CCI and the thin evidence that still led to imposition of a maximum fine.

CCI fines All India Motor Transport Congress for calling for price hike

The Competition Commission of India (CCI) imposed the maximum penalty of 10% of the average turnover on the All India Motor Transport Congress (AIMTC) the apex trade association for road transport service providers (both cargo and passenger) in India.

The CCI found that AIMTC had called for a hike of 15% in freight charges following an announcement of increase in diesel prices by state run oil marketing companies. AIMTC tried to argue that there was no evidence such as written circulars, directions or minutes of such a decision except for news reports which could not be considered as credible evidence without other corroborative evidence. Further, AIMTC argued that in any event, the members had, in fact not acted upon such a call.

The CCI, while observing that evidence was generally bound to be sparse in cartel investigations and an agreement could be inferred even in the absence of written circulars or directions found that:

1. AIMTC had already been penalized for similar conduct in the past under the old Monopolies and Restrictive Trade Practices (MRTP) law.
2. Two newspaper reports of two different officials of AIMTC located at two different places being quoted on exactly the same decision can only show that there was a collective decision on behalf of AIMTC to call for a price hike.
3. The evidence on record showed that members of AIMTC had in fact hiked prices following such a call.
4. One member had expressly admitted that it always followed the decisions of AIMTC.
5. In the past, AIMTC, describing itself as the mother body for the road transport fraternity had given similar collective calls for a strike.

The CCI imposed the maximum percentage of penalty permissible under the statute taking into account the fact that AIMTC was a repeat offender having already been penalized under the old MRTP law. The CCI has also decided to proceed against the members of the AIMTC and noted that since these members had not filed their replies to the Director General’s investigation report, orders would be passed against such members separately.

A burning issue that this case brings to the fore is that of sufficiency of evidence in cartel investigations and the need to encourage leniency applications. The CCI cannot simply use the fact that evidence is bound to be scarce in cartel investigations and penalize parties with minimal evidence. Decisions of the CCI have serious penal consequences for parties and due process dictates that decisions need to be robust enough to withstand judicial scrutiny. The CCI needs to take serious steps towards encouraging leniency applications. This would ensure that the CCI is able to unearth sufficient evidence in cartel investigations. It is not surprising that in mature jurisdictions like the EU and the US, almost all cartel decisions nowadays arise from leniency applications.

The full decision of the CCI is available here.