Cartel Capers

A blog about cartels, competition and compliance

100 Blawg Honoree

Congratulations to Nezida Davis on Her Retirement

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Congratulations to Nezida S. Davis who retired from the Antitrust Division last week. Nezida was the former Chief of the Atlanta office until it got whacked in early 2013 (along with Cleveland, Dallas and Philadelphia). Nezida had a long and distinguished career in public service with the Division. She joined the Division in 1984 as a trial attorney after serving a clerkship with U.S. District Court Judge Horace T. Ward. Nezida, a graduate of Columbia Law School, was named Assistant Chief of the Atlanta office in 1995 and Chief in 2002.

Nezida, like myself followed an iconic Chief of the office. Nezida followed John Orr while I followed John Hughes in Philadelphia. All we really had to do was not screw things up, and Nezida far exceeded that bar. Nezida managed litigation teams that successfully conducted 13 federal jury trials, ranking the Atlanta Field Office as No. 1 among the 8 criminal enforcement offices in terms of most trial wins (FY 2002 to FY 2011). The Atlanta office had a particularly noteworthy streak where she successfully managed litigation teams that conducted 5 lengthy complex federal jury trials over a nine-month period in 2006-2007. The prosecutions resulted in the conviction of 21 defendants on bribery/public corruption and fraud charges. Courts imposed 16,375 jail days, more than $45.7 million in criminal fines, and more than $2.3 million in restitution to a county governmental entity in Alabama.

More recently, Nezida led the Atlanta office’s successful real estate foreclosure auctions investigations, which began before the office shut down. She continued to supervise the matter from a makeshift office in Atlanta until the recent transfer of the investigation to a new section in DC. To date 10 individuals and two corporations have pleaded guilty in the Alabama real estate foreclosure auction investigation into bid rigging and fraud. There have been four guilty pleas in the Georgia real estate foreclosure investigation and two guilty pleas in the North Carolina real estate foreclosure auction investigation.

I worked often with Nezida on management issues, but I really got to know her well when we were trying to persuade the Division not to close the four field offices. She is a very principled person, strong leader, a tough fighter and she will be missed in the Division.

Nezida is going to take some time off before deciding what to do next.  Congratulations Nezida and enjoy!

It’s Time to Reform the Federal Sentencing Guidelines for Antitrust Violations

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I have written in several venues advocating for reform of the antitrust sentencing guidelines.  Last week I posted an article on the ABA Section of Antitrust Law’s website–Antitrust Connect.  I signed on to Antitrust Connect when it was first rolled out, but frankly had not been taking advantage of it.  A friend suggested that I check it out and post from time to time.  I explored the site and realized it had a great deal of useful information about a full range of antitrust issues. I recommend it to others if you are a member of the ABA Antitrust Section.  But, in case you did not see it on Antitrust Connect and are interested, below is a repost (with minor edits):

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I have written before to express my opinion that the federal sentencing guidelines for antitrust violations do not fairly measure culpability.  These guidelines should be revised.  Several news items I’ve read recently have refocused me on this issue.

First, on November 10, 2014, the American Bar Association Criminal Justice Task Force on the Reform of Federal Sentencing for Economic Crimes released its final report on The Reform of Federal Sentencing for Economic Crimes.  The proposed reforms shift sentencing away from a mere mechanical calculation of loss and incorporate more relevant views of culpability.  The heart of the reform is to place less emphasis on the amount of the loss by reducing the number of loss brackets and reducing the amount the offense level would be increased in each bracket. The proposed guideline would add important new features such as:

  • A “Culpability” table ranging from lowest to highest which could decrease or increase the offense level from “-10” to “+10.”
  • A “Victim Impact” table of “Minimal to None” to “High” which could result in a range of “no increase” to “+6.”
  • An offense level cap of 10 for non-serious offenses by first offenders.

For those really interested in the subject, you can read the recently released “Fraud, Bribery and Money Laundering Offences-Definitive Guidelines” issued by the Sentencing Council for England and Wales.  These guidelines were issued in May and perhaps influenced the ABA Task Force guidelines because they also focus on “culpability” and “harm.”

Antitrust offenses are economic crimes.  The antitrust sentencing guidelines are equally in need of reform to reduce the over weighted impact of volume of commerce (the proxy for loss).  Antitrust guideline reform should also add offense characteristics that measure culpability and impact.  And, I agree wholeheartedly with the Task Force report: “First, we feel more strongly about the structure of the proposal than we do the specific offense levels we have assigned.”   I have made proposals to the Sentencing Commission to reform the antitrust guidelines.  I have no doubt the proposals I made can be improved with input from the Antitrust Division, defense bar, judiciary and Sentencing Commission.  My suggestions focus on three primary areas for reform:

  • The 10-year Sherman Act maximum should be reserved for the most egregious situations such as recidivism or economic coercion.  It is unjust that a low-level executive in an international cartel can reach the 10 year maximum based on the large volume of commerce.
  • Volume of commerce should continue to be a relevant characteristic, but with a reduced impact.  It should not be the overriding measure of culpability that it currently is.
  • Presently, a CEO and Sales Manager are tagged with the same level of commerce (assuming similar time period in the conspiracy.)  The volume of commerce adjustment should be applied only to defendants who had the authority to commit their company to the cartel.

[Read more…]

Guest Post From India: “Of Price Bulletins and Dawn Raids”

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This post below is from guest contributor Avinash Amarnath.   Avinash practices in New Delhi, India and advises clients across various sectors such as automobiles, financial services, pharmaceuticals, steel, private equity, petrochemicals and electronic lab equipment on Indian competition law.

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Hello to all readers! Trade associations seem to be the flavor of the day for the CCI these days. Less than 4 days after passing an order fining the Chemists and Druggists Association, Goa, the Competition Commission of India (the “CCI”) has imposed penalties on the Indian Jute Mills Association (“IJMA”), the Gunny Trade Association (“GTA”) and the individuals responsible for their running for indulging in:

a) price fixing of jute packaging material through circulation of daily price bulletins amongst themselves; and

b) limiting and controlling the supply of jute packaging material.

The complaint was brought by the Indian Sugar Mills Association (“ISMA”) against IJMA, GTA and the textiles ministry of the Government of India. In order to encourage the use of jute and support the jute industry in India, the Government of India enacted a statute in 1987 mandating that certain commodities such as sugar must be mandatorily packed using jute materials. ISMA alleged that as a result of this statutory restriction, they were entirely dependent on jute material suppliers for packaging material and that the jute suppliers were fixing prices and exploiting them. The CCI found that the GTA (which was an association of wholesalers) published and circulated daily price bulletins, which were admittedly followed by the members of the IJMA in setting prices for the sale of jute packaging material. The fact that the bulletin prices were followed by the members of the IJMA was evidenced by correspondence between the GTA and the members of the IJMA where the members complained that the price levels set by the GTA were unsatisfactory. The CCI found that these bulletins were decided by mutual consent and were not based on any market factors such as prices prevalent on the previous day. Further, on an assessment of demand and supply conditions, the CCI found that the production of jute packaging material had consistently declined despite there being sufficient capacity available and demand and prices having gone up over the past few years. From this and other circumstantial evidence, the CCI inferred that the IJMA and GTA had deliberately limited the production of jute packaging material. While the CCI exonerated the concerned government ministry as it did not qualify as an ‘enterprise’, the CCI did note that statutory restrictions imposed by the government on sugar producers to use only jute packaging material were against the principles of competition and observed that the Government of India could consider re-examining the current market situation to remove the market distortions arising out of the above policy. The full order of the CCI can be accessed here.

A few observations. First, it is quite strange that while the infringements identified by the CCI seem to have been committed in equal measure (if not more) by the individual jute mills and wholesalers themselves (as members of the respective trade associations), only the trade associations have been penalized. Second, while there was sufficient evidence in this case to establish that the price bulletins were in fact followed by the members of the IJMA, the question arises as to whether mere information exchange in the form of price discussions and the publication of such price bulletins would have also amounted to an infringement of the (Indian) Competition Act. The CCI is yet to deal with a case of pure information exchange and it would be interesting to see what approach the CCI adopts in such cases. Finally, the CCI seems to be increasingly using its powers to fine individuals who are in-charge of running the infringing enterprises. In fact, this seems to be becoming the norm rather than the exception.

In other news (although this is quite old and not exactly cartel related), the Director General’s (DG) office (investigative wing of the CCI) conducted its first ‘dawn raid’ at the offices of British machinery maker, JCB in relation to on an ongoing investigation on abuse of dominance. At present in India, the CCI or the DG requires a warrant from a court magistrate for conducting a dawn raid. However, a proposed amendment to the Competition Act seeks to vest the power of approving a dawn raid with the Chairperson of the CCI.

Article by Hans Greimel: “Confessions of a Price Fixer”

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I am posting and recommending an excellent article by Hans Greimel, Asia Editor, Automotive News titled: Confessions of a Price Fixer.

The article discusses some of the “facts of life” known to cartel practitioners, but rarely discussed in print.  The Antitrust Division will give often huge discounts from corporate fines totaling millions of dollars in return for a corporate plea and “complete, continuing cooperation.” That cooperation comes largely in the form of the company’s executives, some of whom are required to plead guilty and serve prison time in the US.  Some highlights from the article:

  • But Mr. X’s guilty plea and his time in a U.S. prison came with a special offer from the company for which he fixed prices. The story goes like this: ‘I understand you can always say no, but if you accept the request to go to jail, we’ll support you 100 percent,'” he said. “If I fight and lose, I lose everything. But if I don’t fight the company, the company … will support me for the rest of my life.”
  • Today, Mr. X has done his time and is back at work with his company. But Mr. X’s rehabilitation is hardly rare. As one after another Japanese auto supplier gets snagged, it is the unwritten rule, say insiders and lawyers, that middle managers sometimes take the fall for superiors and get rewarded for not airing the company’s dirty laundry in public court.
  • A review of the cases by Automotive News finds some of the execs are still in Japan, gainfully employed by the suppliers for which they are charged with rigging bids.  Indicted individuals from other suppliers, …. apparently left the companies but have not yet answered the DOJ’s charges. Still others such as Mr. X did their time, insiders and lawyers say, then returned to work as tacit compensation for taking the blame.

To be clear, no one is saying that Mr. X was innocent and was a fall guy. He admits his culpability.  When meeting to fix prices on auto parts, Mr. X, a Japanese supplier executive, and his fellow conspirators chose out-of-the-way spots, such as a Big Boy restaurant in a neighboring state:

  • “It had to be a restaurant where other carmaker people never come,” said Mr. X, who asked not to be named. “Because if they found out I was meeting with the other sales guy, they would know what we are doing.”

When I was with the Antitrust Division and prosecuted international cartel cases, I never had any doubt that those who agreed to plead guilty were in fact guilty.  I did, however, sometimes have doubts whether we had been able to go up the corporate ladder to the most culpable individuals.

This outstanding article gives a rare inside look at one individual’s decision to plead guilty and the incentives involved in making such a life changing decision.  I want to thank Maurice Stucke of the Konkurrenzgroup for bringing the article to my attention.

Mr. Greimel can be reached at hgreimel@crain.com
 and twitter: @hansgreimel.

 

 

 

 

Is the Antitrust Division Starting a Broad Investigation of Price Fixing in the Generic Pharmaceuticals Market?

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Ed. Note:  This post is by Joan Marshall, a partner at GeyerGorey and a former Antitrust Division prosecutor who worked on the global vitamin cartel prosecutions.

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Last month, Elijah E. Cummings, the [then] ranking member of the House Committee on Oversight and Government Reform, and Senator Bernard Sanders, [then] chairman of the Senate Subcommittee on Primary Health and Aging, asked 14 generic drug makers to provide data concerning escalating prices charged for generic pharmaceuticals. (here)  Several recent articles, and filings with the SEC, report that the Antitrust Division is also taking a hard look at the generic pharmaceutical industry (here);(here);(here).

A recent analysis found that half of all generic drugs sold through retailers became more expensive over the past 12 months and the prices paid by pharmacies more than doubled for one out of 11 generics (here)(here). The FDA reports that nearly 8 in 10 prescriptions are filled with generic pharmaceuticals. Americans spent about $325.8 billion on prescription medicines in 2012 (here).  Generics now account for 28 percent of pharmaceutical spending (here).

Two generic pharmaceutical companies have reported receiving antitrust related subpoenas, Lannet Company, Inc. and Impax Laboratories . Lannett is headquartered in Philadelphia and was founded in 1942. It develops, manufactures and distributes generic prescription pharmaceutical products in tablet, capsule and oral liquid forms to customers throughout the United States. Lannett markets its products primarily to drug wholesalers, retail drug chains, distributors, and government agencies and its catalog lists 79 generic products. Impax Laboratories is a generic pharmaceutical company headquartered in Hayward, CA. Impax markets at least 133 generic pharmaceutical products. Neither company is among the top five corporations dispersing generic medicines.[1]  [Read more…]

Guest Contributor, Masayuki Atsumi: Japan

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I am pleased to announce that Masayuki Atsumi will be contributing posts on Cartel Capers about cartel related developments in Japan. Mr. Atsumi is with the Japanese law firm of Mori Hamada & Matsumoto, which has been ranked in the top-tier of recommended law firms in Japan for several areas of practice.   Mr. Atsumi has a strong background in antitrust/competition law. He served in the Japan Fair Trade Commission from 2006 to 2008. He is a graduate of Kobe University, Graduate School of Law in 2006.

Mr. Atsumi is also an accomplished writer. He has been a contributing author for a number of books and articles, including:

  • “Commentary: Japanese Anti-trust Law” (only in Japanese)“International Agency, Distribution and Licensing Agreement (Sixth Edition)” Japan Chapter
  • “Combatting Bribery by Foreign Public Officials and Practical Responses – Global Compliance for Companies Expanding Overseas” (only in Japanese)

Mr. Atsumi is a member of the Japan Competition Law Forum (2010- present).   He can be reached at masayuki.atsumi@mhmjapan.com

 

Audio of Seventh Circuit Motorola Mobility Oral Argument is Available Online

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The Seventh Circuit heard oral arguments in Motorola Mobility v. AU Optronics, on Wednesday, November 12, 2014. The panel was U.S. Circuit Judges Richard A. Posner, Ilana Diamond Rovner and Michael S. Kanne.  There is such a strong interest in this case, and the Foreign Trade Antitrust Improvements Act (“FTAIA”) generally, that I thought I’d share the link to the publicly available audio recording before adding a few quick thoughts of my own. The argument can be heard here.

Before you Listen

I have read many FTAIA cases and articles (and written a few) and I’m not ashamed to admit that I always go back and re-read this confusing statute before re-engaging with the FTAIA. In 1982 Congress sought to limit and define the extraterritorial application of the Sherman Act. The FTAIA says:

 “Sections 1 to 7 of this title [the Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless —

“(1) such conduct has a direct, substantial, and reasonably foreseeable effect —

“(A) on trade or commerce which is not trade or commerce with foreign nations [i. e., domestic trade or commerce], or on import trade or import commerce with foreign nations; or

“(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States [i. e., on an American export competitor]; and

“(2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

“If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.” 15 U. S. C. § 6a.

The Supreme Court has explained: “This technical language initially lays down a general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach. It then brings such conduct back within the Sherman Act’s reach provided that the conduct both (1) sufficiently affects American commerce, i. e., it has a “direct, substantial, and reasonably foreseeable effect” on American domestic, import, or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i. e., the “effect” must “giv[e] rise to a [Sherman Act] claim.” §§ 6a(1), (2). F. Hoffmann-La Roche Ltd v. Empagran SA, 542 US 155 (2004).

Empagran involved the worldwide vitamin cartel. The cartel injured (i.e. overcharged) consumers in many countries. The vitamin cartel led to higher vitamin prices in the United States and independently also to higher vitamin prices in other countries. The Court concluded that, in this scenario, a purchaser in the United States could bring a Sherman Act claim under the FTAIA based on domestic injury, but a purchaser in Ecuador could not bring a Sherman Act claim based on foreign harm.

If you are interested in further background, I have had several prior posts on Motorola Mobility (here)(here)

But, on to ….

The Argument (Recap): [Read more…]

The Associative Contract Conundrum In Brazil

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Today’s guest post is from Mauro Grinberg, a former Cade Commissioner in Brazil.  Mr Grinberg heads the law firm Grinberg e Cordovil Advogados.

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Do you know what an associative contract is? Can you find a good definition for it? No? Do not worry, in Brazil a lot of people are trying to do it, and we still have more questions than answers. In the meantime we have to deal with a law in force that requests merger control for such kind of agreements.

Going a little back, the well-known Brazilian antitrust law, enacted in 1994, created two conditions for a transaction to have to be notified: (i) one of the parties should have revenues, in the year before the signing of the transaction, of R$ 400 million and (ii) the transaction would result in a market share of 20%. It goes without saying that free competition and/or market dominance should be verified but, strangely enough, this condition did not mean much for most of the time.

A new law, enacted in 2011 and which came into force in 2012, when establishing the requirements for merger control, left the market share criterion aside; it was celebrated with a lot of relief because we know that we can use this definition in different ways. So, the big requirement was for (i) one of the parties to have revenues, in the year before the signing of the contract, of R$ 750 million and (ii) another party to have revenues, also in the same year, of R$ 75 million.   [Read more…]

Getting the Judge to Budge on the Nudge From Conceivable to Plausible under Twombly

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It is not exactly “breaking news” that in Bell Atlantic v. Twombly, 550 U.S. 544, 577 (2007) the Supreme Court held that a complaint may be dismissed if it does not allege “enough facts to state a claim to relief that is plausible on its face.” In the aftermath of Twombly it became more difficult for plaintiffs to sustain pleadings that relied on reasonable inferences of collusion from parallel conduct. Lower courts took to heart the policy concern expressed in Twombly that the enormous cost of private antitrust litigation could cause defendants to settle non-meritorious suits simply to avoid the expense of litigation. [Also, the threat of frivolous suits that are simply too costly to defend would put a chill on pro-competitive conduct]. But, Twombly has not been the death knell of private antitrust actions. The Supreme Court has also recognized that Congress drafted the antitrust laws with the express purpose of encouraging private enforcement. See Reiter v. Sonone Corp., 442 U.S. 330, 344 (1979). And as the Sixth Circuit has noted, “Rational people, after all, do not conspire in the open, and a plaintiff is very unlikely to have factual information that would exclude the possibility of non-conspiratorial explanation before discovery.” Erie County, Ohio v. Morton Salt, 702 F. 3d 860, 869 (2012) (emphasis in original). These policy interests compete as courts weigh on a case-by-case basis whether plaintiffs have “nudged their claims across the line from conceivable to plausible.” But, it seems it may be easier to budge the judge on the nudge as time has passed from the Twombly decision. [Read more…]

Competition Commission of India fines chemists trade association for continuing violation of its order

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Ed. Note: The post below is from guest contributor Avinash Amarnarth.  Avisnash is an attorney with the law firm ‘Vinod Dhall and TT&A’ in New Delhi, India.  

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Hello from India to all readers! It has been quite a while since my introductory post. There has been a relative lull of activity on the cartel front in India.

However, on 27 October 2014, the Competition Commission of India (CCI) following a complaint filed by M/s Xcel Healthcare, a stockist for pharmaceuticals in the state of Goa, found that the Chemists and Druggists Association, Goa (CDAG) had continued to violate an earlier order of the CCI against it. The CCI found that CDAG had continued to control the supply of pharmaceuticals in Goa through a stipulation that all stockists in Goa must obtain a no-objection certificate (NOC) from it and pressuring pharmaceutical companies into not supplying to those stockists who did not obtain an NOC. The CCI had, in its earlier order, found that such actions amount to a collective boycott/refusal to deal leading to limitation and control of supply in violation of the Competition Act. In the present case, the CDAG had pressurised Glenmark Company and Wockhardt Limited, two pharmaceutical companies, into not supplying to the informant, who had not obtained an NOC from CDAG.

The CCI found that Glenmark and Wockhardt could not be found to be in violation of the Competition Act as the individual agreements between them and CDAG did not qualify either as a horizontal agreement or as a vertical agreement under the Competition Act. The CCI found that there was no evidence of any horizontal agreement between Wockhardt and Glenmark to suspend supplies to the informant. Further, the CCI observed that the mere decision by Wockhardt and Glenmark to suspend supplies to the informant cannot be said to amount to a vertical agreement between these companies and their existing stockists.

Apart from passing a cease and desist order, the CCI imposed a penalty at the rate of 10% (the maximum percentage that can be imposed under the Competition Act) of the average receipts of the CDAG for the last 3 years (amounting to roughly USD 172,888) and decided to initiate proceedings against the individual office bearers of the CDAG.

A few observations on the decision itself. First, this is the first decision of the CCI where a party’s recidivism was considered as an aggravating factor in imposing penalties resulting in the maximum permissible percentage of penalty being imposed on CDAG.  Second, the decision creates some confusion about the CCI’s approach to anti-competitive agreements under Section 3 of the Competition Act. As I had highlighted in my previous post, the CCI in an earlier order in Ramakant Kini v. Hiranandani Hospital had held that agreements, which are neither horizontal agreements nor vertical agreements, could still be assessed under the general prohibition on anti-competitive agreements under Section 3. However, the present decision finds that the agreement between the pharmaceutical companies and CDAG qualified neither as a horizontal agreement nor as a vertical agreement and therefore could not be examined under Section 3; thereby suggesting that agreements that are neither horizontal nor vertical cannot be examined under Section 3. It remains to be seen whether this dichotomy in approach will be litigated at the appellate stage.

At a broader level, this decision is the latest in a spate of decisions of the CCI against chemist and druggist trade associations for adopting collective actions aimed at restricting the commercial freedom of individual stockists such as requiring NOCs from the association for operation and fixing their trade margins. In fact, this is the 8th decision of the CCI against chemist and druggist associations in the last 2 years. The CCI has even issued a public notice warning chemist and druggist associations against adopting such actions (here).  Other trade associations that have been regularly penalised are film distributors’ associations and travel agents’ associations. It appears that the problem with certain industries in India is a lack of competition culture more than anything else. In fact, in the present case, the minutes of the meetings of the association revealed that the association was trying to use “political clout” to evade the CCI’s order. Apart from enforcement actions, advocacy and training initiatives for such industries are also crucial to spread awareness about competition law and competition rules. The CCI has undertaken such initiatives to some extent but perhaps more focus is needed on those industries where these issues seem to recur.

The full order can be accessed at this link.