Today’s post is from Mauro Grinberg, former Commissioner of CADE in Brazil and currently a partner with Grinberg e Cordovil.

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INDIVIDUALIZATION OF CONDUCT IN BRAZIL: WHAT THE COURT TELLS CADE

A very recent landmark decision by the Federal Appeal Court in Brasília (Tribunal Regional Federal da 1ª Região) brings a lot of food for thought for both antitrust practitioners and mainly the antitrust authorities. In fact, the Court told Conselho Administrativo de Defesa Econômica (CADE), the antitrust agency, that, in order to successfully convict participants in a cartel, the authority has to individualize the conduct of every participant of the conspiracy, what CADE had been leaving aside.

A message must be brought here: in Brazil, any administrative decision (including CADE´s convictions) can be taken to Court, which may confirm or overrule it.

It is important to recollect the main facts of the case: (i) in 1999, some managers and other employees of some pharmaceutical companies held a meeting which was called to review some general matters (all of them legal) and later were accused of having, during the meeting, attempted to boycott distributors who also distributed generic drugs; (ii) in 2005 CADE convicted the companies, under the understanding that this meeting was a cartel; (iii) as all parties went to Court, in 2012 the first grade Judge issued a decision annulling CADE´s imposed fine; (iv) in 2015 the second grade Court confirmed the first grade decision.

There were many arguments (some of them related to evidence), all of them accepted by the Courts; but this article aims to discuss one single argument because it will have consequences on many other developments, both in Court (over CADE’s other decisions) and in CADE; although there is a possibility of another appeal, CADE must reflect about it. The argument is related to individualization of conduct.

In fact, CADE has in the recent past understood that, if anyone is present at a meeting, no matter he or she stays silent, does not approve anything and/or does not argue over anything, this person is considered a participant in a cartel (which may have been created in that meeting or may be ongoing without the knowledge of this person). The Court´s message was clear: the conduct of each and every participant of a cartel must be individualized, so that CADE must say what this person specifically did in order to be participant in the cartel.

The explanation is related to a concept which is very familiar to civil law countries: there are two kinds of responsibility, objective and subjective; the objective responsibility is somewhat similar to the American per se rule, while the subjective responsibility is somewhat similar to the rule of reason. In a nutshell, the message from the Court to CADE was that there is no per se rule in Brazil.

We are hoping future developments (including CADE´s reaction to this decision) soon.

Mauro Grinberg is a former Commissionar of CADE and a former Attorney of the National Treasury. He is now a partner of Grinberg e Cordovil, an antitrust and trade law boutique.

Two FTAIA related certiorari petitions have been filed recently; one by AU Optronics and two of its convicted executives, and the other by Motorola Mobility. I have no specific expertise in Supreme Court prognostication, but since I’ve seen experts opine “Who knows?” I’ll hazard my opinion that certiorari will not be granted.

The AU Optronics cert petition is challenging corporate and individual criminal convictions for participation in the Liquid Crystal Display panels (“TFT-LCD”) international cartel. Motorola Mobility is appealing the dismissal of its damage suit based on its foreign subsidiaries’ overseas purchase of LCD panels from AU Optronics. Both cert petitions were filed on the same day (coincidence or collusion?) to highlight the alleged contradiction: In the AU Optronics Ninth Circuit case, (778 F. 3d 738 (Jan. 30, 2015), the FTAIA was found not to bar AU Optronics criminal conviction, but in the Motorola Mobility Seventh Circuit case (775 F. 3d 816 (Jan. 12, 2015)  the FTAIA was found to bar Motorola Mobility’s attempt to obtain damages from the same cartel. I don’t see either case as being wrongly decided or at odds with each other. Therefore, I’ll boldly predict that certiorari will not be granted.

No Conflict Between AU Optronics and Motorola Mobility

Any conflict between the holding in AU Optronics and Motorola Mobility is superficial and evaporates upon examination of the relevant facts of each case.  Judge Posner emphasized in Motorola Mobility that the FTAIA has two requirements: “There must be a direct, substantial, and reasonably foreseeable effect on U.S. domestic commerce—the domestic American economy, in other words—and the effect must give rise to a federal antitrust claim. The first requirement, if proved, establishes that there is an antitrust violation; the second determines who may bring a suit based on it.” In AU Optronics, the Ninth Circuit found that the LCD cartel had a direct substantial and reasonably foreseeable effect on U.S. commerce. In Motorola Mobility the Seventh Circuit “assume[d] that the requirement of a direct, substantial and reasonably foreseeable effect on domestic commerce has been satisfied” but found that Motorola Mobility claim did not “arise from” this conduct. There is no inherent contradiction in finding that a foreign cartel is prosecutable by the Antitrust Division because the cartel had a “direct, substantial and reasonably foreseeable effect” on domestic commerce, but also find that a particular plaintiff’s quest for damages may be barred by the FTAIA if its claim “did not arise from this conduct….”

Neither Case Presents FTAIA Error For the Supreme Court to Review

Both the Motorola Mobility and AU Optronics cert petitions raised other issues besides the application of the FTAIA. Motorola Mobility, for example, urged the Supreme Court to review the procedure in the Seventh Circuit for assigning appellate cases. And, in AU Optronics, the defendants alleged error regarding, among other things, venue and application of the per se rule. Perhaps one of these issues will grab the Supreme Court’s attention, but I doubt it. I also don’t think there is any substantial FTAIA related issue for the Supreme Court to address.

AU Optronics

One reason AU Optronics is not ripe for Supreme Court review is that the defendants’ convictions can stand on other grounds; namely that substantial price fixed LCD panels were shipped directly into the United States. The FTAIA has no application to this commerce. The LCD “cartel ended when the FBI raided AU Optronics America office in Houston, Texas.” This is a pretty big hole to start digging out of when arguing that the cartel is not subject to prosecution under the Sherman Act. Trial testimony established that AU Optronics imported over one million price-fixed panels per month into the United States. The Crystal Meeting participants earned over $600 million from the importation of TFT-LCDs into the United States. The Ninth Circuit wrote: “In light of the substantial volume of goods sold to customers in the United States, the verdict may be sustained as import commerce falling within the Sherman Act.”

As to the commerce to which the FTAIA applied, the Court noted: “the parties acknowledge that the conduct was both substantial and had a reasonably foreseeable impact on United States commerce.” The defendants, however, contend that the overseas conduct was not sufficiently “direct” under the FTAIA. But, the Court found that:

“The testimony underscored the integrated, close and direct connection between the purchase of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported to the United States. The direct connection was neither speculative nor insulated by multiple disconnected layers of transactions.”

The conspirators held Crystal meetings to fix the price of LCD screens, some of which were shipped directly into the United States and some of which would first be assembled into a product and then shipped into the United States. The evidence showed the price-fixing had a direct effect on U.S. commerce either way; especially since the screens represented a large part of the cost of the finished product.   This seems pretty clearly the type of cartel directed at US commerce that Congress meant for FTAIA to include under the Sherman Act.

[Note:It is true that the Ninth Circuit applied a different definition of direct than that adopted in the Second and Seventh Circuit, but the AU Optronics defendants could be convicted under either definition. This is why the Ninth Circuit did not review its definition of direct and in all likelihood, neither will the Supreme Court.]

Motorola Mobility

Motorola Mobility has a very limited, and I believe correct holding; simply that as a plaintiff, Motorola Mobility did not meet the second FTAIA requirement “that the conduct gave rise to Motorola’s Mobility’s claim. [Full disclosure: This blog and an article I wrote were cited by Judge Posner in the Motorola Mobility opinion.] As noted, the Seventh Circuit assumed that the cartel had a direct, substantial and reasonably forseeable effect on US commerce. The key fact in the case was this:

“Motorola says that it “purchased over $5 billion worth of LCD panels from cartel members [i.e., the defendants] for use in its mobile devices.” That’s a critical misstatement. All but 1 percent of the purchases were made by Motorola’s foreign subsidiaries.” [Motorola Mobility can still seek damages for the one percent of purchases that were direct imports].

Motorola Mobility made a conscious decision to make purchases through a foreign subsidiary and many benefits, including tax, flowed from being subject to the jurisdiction of a foreign country. But, when the opportunity to seek damages from a cartel presented itself, Motorola Mobility, quite understandably, preferred to bring the defendant into the treble damage regime in the United States. It was this kind of forum shopping [seeking damages suffered by an overseas subsidiary], that the Seventh Circuit found was barred by the FTAIA.

The Seventh Circuit was concerned with Motorola Mobility’s perceived forum shopping, as were the numerous countries that filed amicus briefs asking the Seventh Circuit to respect their sovereignty. Motorola Mobility quoted the Supreme Court, which has warned that rampant extraterritorial application of U.S. law “creates a serious risk of interference with a foreign nation’s ability independently to regulate its own commercial affairs.” (citing, F. Hoffmann‐La Roche Ltd. v. Empagran S.A.). Judge Posner wrote:

“The position for which Motorola contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the worlds competition police officer’ a primary concern motivating the foreign trade act.”

There is another factor in the case that, while not legally dispositive, tends to make Motorola Mobility an unsympathetic plaintiff. Judge Posner noted this fact during oral argument and wrote in the opinion: “According to Motorola’s damages expert, B. Douglas Bernheim, the company raised the price of its cellphones in the Unites States by more than the increased price charged to it by its foreign subsidiaries.” Perhaps legally it did not matter if Motorola Mobility may have profited from the cartel, but this fact along with the perceived forum shopping, did not help its chances.

For the above reasons, I don’t think the Supreme Court will grant certiorari in either AU Optronics or Motorola Mobility.

The Interesting Case of Indirect Purchasers

Eventually the Supreme Court will wade into to [hopefully] bring some clarity to the application of the FTAIA. I have been wondering if this may occur in a case involving indirect purchasers. There could be litigation where there is no question that a foreign cartel had a “direct, substantial and reasonably foreseeable effect” on US commerce. But suppose the plaintiffs are indirect purchasers?  Illinois Brick would not bar the suit, but would it run afoul of the “give rise to” requirement of the FTAIA. The comity concerns of foreign governments will still be present and this federal interest should supersede state Illinois Brick repealer statutes. There is an excellent article on this issue by Dylan Ballard, Sheppard Mullin, “When Illinois Brick Goes Abroad.” (subscription required).  On the other hand, indirect purchasers, the consumers who actually may have paid inflated prices for the price fixed product, are not forum shopping. They have no other forum in which to seek redress.  An indirect purchasers case may present an interesting flash of policy issues.

However things turn out in AU Optronics, Motorola Mobility or some future case, it seems the FTAIA will continue to provide interesting topics to write about and occasionally even make some predictions.

Thanks for reading.

 

 

 

 

 

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.