I received the above titled email from the ABA Journal and I am honored to be able to post the banner below to Cartel Capers home page (as soon as I can figure out how to do that.)

I am very honored to join this distinguished group of legal blogs.  This is how the ABA Journal Blawg 100 described Cartel Capers:

Trust this antitrust blog: Robert Connolly, a Justice Department veteran now in private practice, reads cartel prosecution documents and discusses the cases from the Antitrust Division’s point of view—although not necessarily without criticism for the approach the DOJ takes in a given case. He also compares and contrasts different countries’ approaches to competition law.

I have been so fortunate to have had a career in antitrust law, mostly with the Department of Justice and now in private practice.  When I first started the blog, I was surprised that anyone read it. It was mostly a way for me to express the appreciation I have for antitrust laws and the important role that sound public policy plays in promoting free, open and competitive markets.  But along the way, I have been quoted by Judge Richard Posner in Motorola Mobility v. AU Optronics, 775 F.3d 816, 826-27 (7th Cir. 2015).  I have also developed friendships with attorneys from around the world who occasionally contribute their insights.  The blog has been a very enjoyable way to share the wonderful training, insights and broad experiences I had while working in the Antitrust Division USDOJ.

For a complete list of the ABA Journal Top 100 Blawgs and other information, please visit here.

Thanks for reading.  (I still get a kick out of it when I meet someone and they tell me they read the blog!).

Below is a post by Brad Geyer, my partner at GeyerGorey LLP.  As you can tell from the title of the post, it is not the typical Cartel Capers fare, but you might find it interesting.

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By Bradford L. Geyer [1]

When I concluded by summer of 2015 that our next President would be Donald Trump, my closest friends and associates were skeptical. Having grown up in the New York media market and reading the “Art of the Deal” after college, I studied Donald Trump because he was interesting. You are free to see it differently, but I see in President-Elect Trump as a strategic and tactical thinker who comes off as being spontaneous and off the cuff, but is actually in the third decade of his strategic plan. To read his books and to watch old videos shows a consistency in public policy views that is startling.

Few took President-Elect Trump seriously over the years in his statements about Antitrust, but like the protagonists in a movie, the best ones like to tell the antagonists that it’s coming.   Any mystery about President-Elect Trump’s Antitrust enforcement priorities should have been eliminated when in his “Gettysburg address” outlining his plans for his first 100 days, he blasted the media and turned his ire toward the Comcast / NBC Universal merger stating that the merged company is “trying to poison the mind of the American voter,” and said that the deal should never have been approved in the first place, and that it’s bad for democracy (here). He took his complaints further, promising action to prevent AT&T from buying Time Warner, the parent company of CNN, which he argued would concentrate too much power in one company (here). “We’ll look at breaking that deal up and other deals like it,” he vowed. “They’re trying to poison the mind of the American voter.”

President-Elect Trump has already been equally clear in expressing his thoughts about Amazon [2]:

Amazon has “a huge antitrust problem,” and (Jeff) Bezos (owner of the Washington Post and founder of Amazon.com) “thinks I would go after him for antitrust.”

– from the Twitter account of @realDonaldTrump (May 14, 2016)(here)

President-Elect Trump may have the most sophisticated view of Antitrust Law of any U.S. President in history. That experience was recently referenced by Emre N. Ilter in the National Law Review:

Mr. Trump was involved in three significant antitrust proceedings in the late 1980s and early 1990s. First, in 1988, Mr. Trump paid a $750,000 civil penalty to settle charges brought by the US Department of Justice (DOJ) and Federal Trade Commission (FTC) that he had violated the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) by acquiring stock in two companies without making timely HSR filings. Around the same time, Mr. Trump, as one of the owners of the New Jersey Generals US Football League team, was involved in a private antitrust suit against the National Football League (NFL)—a case that resulted in a jury verdict that the NFL had willfully acquired or maintained monopoly power in a market consisting of major league professional football in the United States, in violation of Section 2 of the Sherman Act. Damages of $1, trebled to $3, were awarded. US Football League v. Nat’l Football League, 842 F.2d 1335 (2d Cir. 1988). Finally, Mr. Trump, in connection with his Atlantic City casinos, was sued by Boardwalk Properties, Inc. on numerous grounds including allegations that he had attempted to monopolize casino gambling and had conspired to suppress competition. After a lengthy legal battle, Mr. Trump prevailed. (here).

Combine experience, competition sophistication and seething intensity [3] and recognize that in the early 1980’s there were 50 media companies in the United States. Now that number is 6[4]. I suspect he believes there is a significant conscious parallelism among these six companies and there seems to be tight coordination and collaboration –a common gestalt — among these organizations on a host of issues. Call it a “thought cartel”. I would suggest that recent Wikileaks disclosures are likely to have reinforced this view among him and his team of advisors who may suspect that media companies are inducing lax regulation through maximizing the benefits of close relationships of its media figures with the political apparatus.[5]  Further, is President-Elect Trump viewing AT&T, Time Warner, Amazon, Comcast and even Google [6] individually as “media and information trusts”, as he finalizes his enforcement initiatives? My hunch is that he is and that each of these companies is at risk of enhanced enforcement attention.

It is clear that President Elect-Trump understands the power of the bully pulpit and he knows that if he can get AT&T and Time Warner to abort merger discussions before “the sheriff even rides into town” that means: 1) less work for him; 2) emboldened career civil service enforcers who were gearing up to make the case for blocking it; and 3) an enhanced perception of the Antitrust Division’s power. This, before he takes the oath of office in January, means enhanced leverage on day one.

I believe that it is possible he will pick a high visibility company, possibly on the crest of the wave of an aborted AT&T deal, to break up. So what potential “trust” will it be? Amazon has attracted criticism and controversy for years. Many of the criticisms are tied to allegations of anti-competitive or monopolistic behavior.  Does President-Elect Trump agree with Paul Krugman who recently penned, “Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.”[7]  Could the Department of Justice under the leadership of an Attorney General appointed by President-Elect Trump quite credibly take the view that Amazon is the Standard Oil Company or the AT&T or the Microsoft of its day [8] and bring an action to break it up?

I am certain that President-Elect Trump will announce that enforcement of the nation’s Antitrust Laws needs to be reinvigorated and that allegations of predatory pricing and attempts to monopolize certain sectors of the economy will not be tolerated. Some might expect that a Republican administration would line up alongside lax Section 2 enforcement. It is clear, however, that whatever else might be expected in a Trump administration, based on his statements throughout the campaign, consistency with Republican orthodoxy is not that thing and affected companies would be well served to increase their outside counsel budget.

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1. Mr. Geyer is a partner in the Washington and Philadelphia-based law firm of GeyerGorey LLP. Prior to entering private practice he was a prosecutor in the Antitrust Division of the Department of Justice for 21 years. From 2007 through 2012 he served as the Antitrust Division’s Special Counsel to the Criminal Division involving “war zone” cases and investigations involving procurement fraud and grand fraud.

2.  President-Elect Trump on Hannity May 12, 2016 at 15:59 through 17:20. “[Jeff Bezos is] using the Washington Post . . . he’s using that for political purposes to save Amazon in terms of taxes and in terms of antitrust.

3.  Any member of the Antitrust defense bar who would like to get a flavor of what I suspect will be reinvigorated Antitrust Enforcement under a Trump administration would be well served to watch this video which shows Seth Rogan and President Obama roasting President Elect Trump in 2011. If you are like me, when you watch this video you see a ferocious Kodiak bear in a cage that is being poked with sticks. The Bear is not reacting, but you can tell he is going to bust out of the cage and tear the pokers to shreds … after he constructs an ingenious plan. There is something about his reaction that makes you feel uncomfortable from the first Rogan joke. You want to plead with the men with the sticks to “please just stop.”   You actually look in your hand to make sure you aren’t holding a stick and try to drop it anyway. That is called power and intensity and control. He has it and he knows how to use it.

4.  See, The Media Monopoly, 6th Edition, March 24, 2000, by Ben H. Bagdikian.

5.  For example, in an April 15, 2014 email released by WikiLeaks, Eric Schmidt, CEO of Google, proposed that a $1.5 billion Clinton Campaign vehicle be formed that, among other things, to convert each voter to a single record that aggregates all that is known about them. Are enforcers entitled to wonder if voters across the country want to be converted into a record and whether this market share in this endeavor is aided by power in Google’s core businesses? Would Google’s relationship with the Clinton campaign team regenerate an interest in their potential antitrust issues as Europe has? (When enforcers read this email does it bring the movie, “the Clockwork Orange” to mind like it did for me?).

6.  See, http://www.nytimes.com/2016/10/31/technology/google-europe-antitrust.html

7.   See, http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html?_r=0

8.   Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911); United States v. American Tel. and Tel. Co. , 552 F.Supp. 131 (D.D.C. 1982); United States v. Microsoft Corp. , 56 F.3d 1448 (D.C.Cir . 1995).

 

[My apologies for an earlier post on this subject where I hit “Publish” by accident. Hopefully, readers could tell the difference between that post and my usual offerings. Below is the revised final version.].

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The four largest U.S. airlines were sued in class action civil litigation in 2015 for price fixing after several airline executives made public comments about the need for “capacity restraint” and “discipline”in the industry. After making these comments at a trade association event and other forums, over 100 different price fixing suits were filed.  They were consolidated before US District Court Judge Colleen Kollar-Kotelly for the District of Columbia. In the consolidated suits, plaintiffs allege that the airlines colluded to limit capacity on their respective airlines in a conspiracy to fix, raise, maintain, and/or stabilize prices for air passenger transportation services within the United States.  The crux of plaintiffs’ claim is that in 2009, after the economy improved and jet fuel prices declined, defendants made a conscious, joint decision not to return to the previous industry practice of adding airline capacity and decreasing fares. Judge Kollar-Kotelly denied the defendants’ motion to dismiss the complaint for failure to sufficiently allege evidence of an agreement. The full opinion can be found here. The Judge noted, among other things, that:

                        [T]hese statements upon which Plaintiffs rely demonstrate two points that support the plausibility of their claim and, more specifically, the inference that Defendants’ conduct was the result of an agreement. First, Defendants made public statements about their own commitment to capacity discipline as well as the importance of maintaining the capacity discipline within the industry. Defendants’ discussion of the need for capacity discipline within the industry as a whole is notable because it involves more than a mere announcement of Defendant’s own planned course of conduct. (citation omitted).  Second, Defendants’ statements concerning the focus on exercising capacity discipline commenced in 2009 and were a deviation from past business practices.

I first wrote about the airline cases in “They Said What? Some Compliance Thoughts on the Airline Collusion Investigation, Cartel Capers, July 13, 2015.  The post noted that this case would mark an expensive “teachable moment” for the airline industry and a competition compliance talking point for the rest of the world.  Standing alone the public comments were ill-advised, but here the airline industry already had several factors making it conducive to possible collusion (and the subject of a price fixing class action): there had been a great deal of industry consolidation resulting in an oligopoly, the airlines had a prior history of increasing capacity when the economy rebounded but did not do so here, and prices were increasing at a time when it was widely known fuel prices were declining. In any environment “discipline” and “restraint” are antitrust buzzwords that can connote possible collusion. While a company may announce its unilateral intention to exercise discipline or capacity restraint, voicing the need for industry wide discipline or capacity restraint could be seen as an invitation to other airlines; an invitation that plaintiffs allege was accepted. (And it should be noted that in some cases, even inviting other industry participants to take joint pricing action could be an “invitation to collude.” See Cartel Capers, Invitations to Collude Invite Big Trouble, March 3, 2015.

American Airlines spokesman Matt Miller called the plaintiff’s claims “plainly deficient” and said the carrier is confident they will be found meritless.  That may be so, or it may not. But, the litigation has already proved very expensive for the airlines. And, after surviving a Motion to Dismiss, the case will now head into discovery. In discovery, the plaintiffs may uncover direct evidence of a conspiracy, or further circumstantial evidence. Or the evidence already in hand may cause some or all defendants to settle to avoid the cost of further litigation or the possibility of treble damages in the case were to go to trial. Or, the plaintiffs’ case may be tossed at the summary judgment stage or rejected by a jury. But, one thing is for certain, the best type of restraint or discipline is often of one’s tongue (or text/email/etc.).

Thanks for reading.

PS.  The Antitrust Division has also opened a civil investigation but there has been no public developments in that investigation.

In a press release issued on October 20, 2016, the Antitrust Division and the FTC issued antitrust guidance for human resource (HR) professionals and others who are involved in hiring and compensation decisions.   While the guidance is helpful, the big news in the press release is:

Going forward, the Justice Department intends to criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers. (emphasis added).  These types of agreements eliminate competition in the same irredeemable way as agreements to fix the prices of goods or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct. Agreements that do not constitute criminal violations may still lead to civil liability under statutes enforced by both agencies.

The press release announced the agencies’ joint guidance and includes a Q&A section that explains how antitrust law applies to various scenarios that HR professionals might encounter in their daily work lives.  The press release also contained links to the Antitrust Division’s Citizen Complaint Center and the FTC’s Report an Antitrust Violation page.

I am happy to see the Division give a warning that future naked restraints on employee hiring and/or wage agreements will be criminally investigated/prosecuted.   As noted in the guidance, “[I]n the past few years, the DOJ brought three civil enforcement actions against technology companies (eBay and Intuit, Lucasfilm and Pixar, and Adobe, Apple, Google, Intel, Intuit, and Pixar) that entered into “no poach” agreements with competitors.”  I thought these cases could have been brought criminally.  It really isn’t that complicated.  Buyer cartels are illegal whether an enterprise is buying computers, software or the employees who create/operate them.  Labor is an input and wage fixing agreements are illegal.  Of course, as in purchasing other inputs, there may be legitimate pro-competitive joint ventures efforts with an ancillary agreement on labor.  But, the cases the DOJ was bringing, were by the express terms of the Complaints, per se violations.

Aggressive criminal enforcement of naked wage/hiring agreements is highly warranted.  There are some cartels, the auto part cartels for example, that can cumulatively cause a lot of economic damage, but the collusive price increase may be dispersed over so many consumers that the collusion does not have a material effect on any one purchaser.  But, a “no poach” or wage setting agreement, has a direct and targeted effect on specific individuals.  The damage inflicted can be significant, not just monetarily, but on an individual’s ability to chart her own career path.

[If I seem a little bitter about employee related agreements, it is because I am sure I should have been playing in the Major Leagues if not for an agreement to boycott me.  In fairness, others have noted that it was likely because I peaked in Little League and after that I stunk].

Not to nitpick, because the joint guidance from the agencies is very helpful and the shot across the bow about possible criminal consequences, is refreshing.  But, the guidance is titled “Guidance for Human Resources Professionals.”  To me, this makes it sound like the HR folks were the problem.  As best as I recall, the knuckleheads who were engaged in forming the no-poach and wage fixing agreements were the most senior people at some of America’s most prominent technology company; not a cabal of HR managers.  It reminds me of when I was in grade school and me and my friends engaged in some prank, and the whole school would be called into assembly for a refresher from the Monsignor on just how hot it was in hell.  Still, the guidance to HR personnel may give them the thought to speak up internally or even file a complaint with the government if they believe/suspect they are being asked to carry out an illegal hiring agreement.

Thanks for reading.

Below is a guest post by Tân Bùi Thọ Minh.  Mr. Bui is a Vietnamese attorney who has just completed his L.L.M at George Mason University. He is currently working with Former Feds, a compliance/investigative organization that works with foreign vendors seeking to do business in the United States to help bring them into compliance with US law. tan.bui@formerfedsgroup.com

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Vietnam has become an increasingly important trading partner with the United States as shown by the US Census Bureau’s figures in “Trade in Goods with Vietnam.”  According to the United States Trade Representative, Vietnam is currently the 27th largest goods trading partner of the United States with $29.7 billion in total (two ways) goods trade during 2013.  Goods exports totaled $5.0 billion; Goods imports totaled $24.6 billion. The U.S. goods trade deficit with Vietnam was $19.6 billion in 2013.   Increasing trade means increasing focus on compliance efforts both for American companies importing goods into Vietnam and especially for Vietnamese companies seeking to build export relationships with U.S. partners.

Competition law will become an increasing focus of an overall compliance program that includes other topics such as FCPA, and customs and export regulations. Companies trading goods into Vietnam should be familiar that the Vietnam Competition Law applies to all “foreign organizations operating in Vietnam.”  The Vietnam Competition Authority website publishes an overview of Vietnam competition law.

The monetary penalties for a violation of the Competition Law include fines of up to 10% of the enterprise’s total revenue. There are other possible penalties, however, such as revocation of business licenses, sub-licenses and/or professional practicing certificate and/or confiscation of materials and facilities used to commit a breach of the Competition Law.

Vietnam is also one of the most recent countries to take up criminalizing serious (hard-core) cartel conduct. Vietnam has had a competition regime that provides administrative sanctions against anticompetitive behavior since the Competition Law was enacted in 2005.  Soon, however, cartel participation will be subject to criminal prosecution under Article 217 of Vietnams’ penal code. Criminal sanctions can apply to both individuals and organizations.

The new Criminal Code, which was supposed to take effect on July 1^st, 2016, was delayed. On June 29^th, 2016, the National Assembly legislated that the new Criminal Code will take effect at the time the “Law of amending and supplementing some articles of the Penal Code No. 100/2015 / QH13” takes effect. Vietnam is a Civil Law System countries, known as Statutory Law Country. Precedent is not available in Vietnam and everything is regulated by the Law. However, the Law contains general conduct such as listing illegal conduct without any details about how to determine whether certain conduct is illegal. Because the Court does not have the right to create new law, everything that the Court applies must be consistent with the Law. When a new Law releases, it always comes with a new Decree which explains detail about most of complex provisions in the new Law.  At the moment, cartel conduct has not been criminalized but it will be in a near future when the Decree is issued.

Article 8 of the Competition Law prohibits the following:

Article 8 competition restriction agreements:

1. Agreements on directly or indirectly fixing goods or service prices;
2. Agreements on distributing outlets, sources of supply of goods, provision of services;
3. Agreements on restricting or controlling produced, purchased or sold quantities or volumes of goods or services;
4. Agreements on restricting technical and technological development, restricting investments;
5. Agreement on imposing on other enterprises conditions on signing of goods or services purchase or sale contracts or forcing other enterprises to accept obligations which have no direct connection with the subject of such contracts;
6. Agreements on preventing, restraining, disallowing other enterprises to enter the market or develop business;
7. Agreements on abolishing from the market enterprises other than the parties of the agreements;
8. Conniving to enable one or all of the parties of the agreement to win bids for supply of goods or provision of services.

According to Competition Law, it is per se illegal if someone engages in conduct prohibited by sections 6,7,8 Article 8.  All conduct from section 1 to 5 Article 8 is considered illegal if executed by entities with a combined market share of 30% or above. The same requirements are applied into new Criminal Code 2015, “Any person who participates in or commits any of the following violations against regulations on competition and earns an illegal profit of from VND 500,000,000 to under VND 3,000,000,000 or causes damage of from VND 1,000,000,000 to under VND 5,000,000,000 shall be liable to a fine of from VND 200,000,000 to VND 1000,000,000 or face a penalty of up to 02 years’ community sentence or 03 – 24 months’ imprisonment.” (Article 217 Section 1 Criminal Code 2015). There are a few differences between convicting a crime and proving a violation in Competition.  To be more specific, in Competition Law, Section 6,7,8 Article 8 are per se illegal but in Criminal Law, only Section 6,7 are considered as a crime. Secondly, it is not required to prove the existence of the result of the violation in order to determine someone has convicted Cartel conduct. However, it is required to prove that there are profits earned or damages caused by the crime. Specifically, the profits earned by violation must be from US $22,500 to $135,000  or the damages caused by violation must be from $45,000 to $225,000. (As of the day I wrote, 1USD=22,222VND).

As mentioned above, all conduct from section 1 to 5 Article 8 is considered illegal if executed by entities with a combined market share of 30% or above. The 30% market share is calculated as the total market share of all competitors in the Cartel. For example, if there are 10 firms agreeing to fix prices of their products in the market and each firm has 5% market share, the  total market share of the cartel is 50%. If the prosecutor proves that the total profits earned from the violation is higher than [approximately] US $22,500 or the total damages of other firms who are not in the Cartel is higher than $45,000, then there are enough evidences to convict all competitors in the Cartel. The 30%-combined-market share is applied for all the market with no exception.

Bid rigging has special treatment under Vietnam law. It is a prohibited agreement in article 8.8 of the Competition Law but it is also treated criminally under Article 222 of the new penal code.

In the new Criminal Code, Article 222 regulates about Bid rigging:

Article 222. Offences against regulations of law on bidding that lead to serious consequences

1. A person who commits any of the following acts and causes damage of from VND 100,000,000($45,000) to under VND 300,000,000($135,000), or causes damage of under VND 100,000,000($45,000) but was disciplined for the same offence, shall face a penalty of up to 03 years’ community sentence or 01 – 05 years’ imprisonment:

2. b) Colluding with other bidders in bidding;

According to the law, damage is required in order to convict someone for offense this crime. This is different from the Antitrust Law that Bid Rigging is per se illegal.

This blog post is an abbreviated version of a more complete paper I wrote on Competition Law in Vietnam. I would be happy to provide you with a copy if you like.

Tân Bùi Thọ Minh     tan.bui@formerfedsgroup.com

Thank you for reading.

Thanks to my friend Jarod Bona at Bona Law PC, for alerting me to the September 30, 2016 Order of Judge James Donato regarding FTAIA issues in In Re Capacitors Antitrust Litigation, Master File no. 14-cv-03264 (N.D. Cal.). It was obvious from the start of the DOJ criminal capacitors investigation that FTAIA issues were going to play a major role in the possible settlement of civil class action cases. See Robert Connolly, Current Capacitor Investigation May be Tip of a Very Large Iceberg, Law 360, October 1, 2015.  Judge Donato addressed the FTAIA issues (relatively) early to narrow the scope of the costly litigation. The Court’s 14-page opinion can be found here. Below are highlights of the opinion (in italics) with some of my thoughts added.

The Court started with the same observation as many courts grappling with FTAIA issues: “As is often noted, the FTAIA is an “inelegantly phrased” statute. Animal Science Products, Inc. v. China Minmetals Corp., 654 F.3d 462, 465 (3d Cir. 2011); see also United States v. Hsiung, 778 F.3d 738, 751 (9th Cir. 2015) (“a web of words”).”  The Court then noted:

“Congress’s goal was to assure American companies that they would not be liable under the Sherman Act for conduct that typically would be considered anticompetitive so long as that conduct adversely affected foreign markets only. F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 161 (2004) (“Empagran I”).

            [As an aside– What an odd statute the FTAIA is. Fix prices if you must, but for heaven’s sake, do it overseas!   The immunity for price fixing overseas stands in stark contrast to the expansive application of the Foreign Corrupt Practices Act (FCPA).   If you wish to procure a contract in Vietnam for example, it is illegal under US law to bribe the purchasing officer, but rigging the bid is OK.   If ever the FTAIA is amended, I hope this oversight is addressed. See Robert Connolly, Repeal the FTAIA, Competition Policy International, Sept 14, 2015; Cartel Capers, Motorola Mobility and the FTAIA, September 30, 2014. [Read more…]

Below is a repost with permission of an article written by attorneys at Wilson Sonsini Goodrich & Rosati.  The team persuaded the Second Circuit to overturn the $150 million judgment against Chinese Vitamin C manufacturers who had been found liable for price fixing by a jury.  The article explains the Second Circuit’s application of international comity to the facts of the case.

WSGR Persuades Second Circuit to Overturn $150 Million Judgment Against Chinese Vitamin C Manufacturers  9/23/2016

by Stuart Chemtob, Jonathan Jacobson, Scott Sher | Wilson Sonsini Goodrich & Rosati

On September 20, 2016, the U.S. Court of Appeals for the Second Circuit issued its decision in a closely watched dispute over the question of whether foreign companies may be held liable under U.S. antitrust law for price fixing where the companies’ home government claims that it compelled the conduct at issue. In the process of resolving the case, the Second Circuit provided important guidance on the scope of deference U.S. courts should give to foreign authorities’ interpretations of their own laws and the applicability of the international comity doctrine to U.S. private litigation.

In In re Vitamin C Antitrust Litigation, two plaintiff classes, one a direct purchaser class seeking damages and the other a class seeking injunctive relief, filed suit in the U.S. District Court for the Eastern District of New York. The two classes alleged that two Chinese companies, vitamin C manufacturer Hebei Welcome Pharmaceutical Co. and North China Pharmaceutical Group (NCPG), Hebei Welcome’s parent company, along with several alleged co-conspirators, had engaged in price fixing in violation of U.S. antitrust laws in connection with vitamin C exported from China. At the motion to dismiss stage, the Ministry of Commerce of the People’s Republic of China (MOFCOM) made the unprecedented move of formally appearing in the trial court litigation as an amicus participant to advise the court that Chinese law and regulations promulgated by MOFCOM compelled the alleged price-fixing conduct.

The district court held at the motion to dismiss stage that it needed more evidence on whether the MOFCOM regulations were really compulsory, and at the summary judgment stage the district court declined to defer to MOFCOM’s interpretation and instead found that gaps it saw in the text of the regulations and in their enforcement meant that the Chinese government did not compel the conduct. Finding that the defendants could have complied with both Chinese law and American law, the court required the defendants to stand trial. Most of the defendants settled. In 2013, however, a jury found Hebei Welcome and NCPG guilty of price fixing and awarded the plaintiffs $150 million in treble damages.

Wilson Sonsini Goodrich & Rosati was retained for the appeal before the Second Circuit, and the Chinese government supported the appeal through an amicus brief from MOFCOM and a formal diplomatic note from the Chinese Embassy to the U.S. State Department protesting the judgment. A panel of the Second Circuit comprised of Circuit Judges Peter Hall, Richard Wesley, and José Cabranes unanimously vacated the district court’s judgment and reversed the denial of the original motion to dismiss.

In an opinion by Judge Hall, the Second Circuit found that the district court erred in failing to defer to the Chinese government’s interpretation of its own laws. It held that “when a foreign government . . . directly participates in U.S. court proceedings by providing a sworn evidentiary proffer regarding the construction and effect of its laws and regulations, which is reasonable under the circumstances presented, a U.S. court is bound to defer to those statements.” This means that “a U.S. court [may] not embark on a challenge to a foreign government’s official representation to the court regarding its laws or regulations, even if that representation is inconsistent with how those laws might be interpreted under the principles of our legal system.” Applying this standard, the court held that MOFCOM’s interpretation of its regulations was sufficiently cogent and detailed that the district court should have deferred to it, and that deference required a finding that the requirements of Chinese law applicable to the vitamin C manufacturers conflicted with the requirements of U.S. antitrust law.

In addition to clarifying the standard of deference owed to a foreign government’s interpretation of its own laws, the court clarified the test for applying the doctrine of international comity abstention, which requires a federal court to decline to hear a case even if it has jurisdiction where deciding the case would excessively entangle the court in international affairs. The court reconciled statements in a 1993 Supreme Court case suggesting that the only consideration for international comity abstention is whether or not a “true conflict” exists between U.S. law and foreign law with statements in earlier appellate cases holding that the courts should consider a variety of factors in addition to conflicting legal standards. These factors include:

“(1) Degree of conflict with foreign law or policy;
(2) Nationality of the parties, locations, or principal places of business of corporations;
(3) Relative importance of the alleged violation of conduct here as compared with conduct abroad;
(4) The extent to which enforcement by either state can be expected to achieve compliance, the availability of a remedy abroad, and the pendency of litigation there;
(5) Existence of intent to harm or affect American commerce and its foreseeability;
(6) Possible effect upon foreign relations if the court exercises jurisdiction and grants relief;
(7) If relief is granted, whether a party will be placed in the position of being forced to perform an act illegal in either country or be under conflicting requirements by both countries;
(8) Whether the court can make its order effective;
(9) Whether an order for relief would be acceptable in this country if made by the foreign nation under similar circumstances; and
(10) Whether a treaty with the affected nations has addressed the issue.”

The Second Circuit determined that while the Supreme Court’s decision emphasized the importance of the conflict factor, it did not eliminate the relevance of the other factors. The court did not address the question of whether or not international comity abstention could ever be appropriate in the absence of a conflict between U.S. and foreign law, but it did hold that the balancing of the other factors was still required even in cases of true conflict of laws.

Applying the remaining factors, the court found that they “decidedly” favored abstention. The court noted that the companies at issue were all Chinese companies with principal places of business and manufacturing facilities in China, that the conduct occurred entirely in China and there was no evidence that the conduct specifically targeted the U.S. for harm, and that the case had already adversely impacted U.S.-China relations. Throughout, the court emphasized the fact that the U.S. would expect deference to its policy choices if the roles were reversed. The court also noted that the U.S. and China are both World Trade Organization members and signatories to a variety of multi-lateral and bi-lateral agreements relevant to the issue of export price fixing, and that the plaintiffs could have “recourse to the executive branch, which is best suited to deal with foreign policy, sanctions, treaties, and bi-lateral negotiations.” The court therefore vacated the district court’s judgment, reversed the district court’s denial of the defendants’ motion to dismiss on international comity grounds, and remanded the case with instructions to dismiss the plaintiffs’ complaint with prejudice.

In reversing the district court’s decision, the Second Circuit reestablished that when a foreign government submits an official statement and evidentiary proffer providing a reasonable interpretation of its own law, it is inappropriate for U.S. courts to disregard that statement and instead apply its own interpretation. Moreover, the Second Circuit’s decision avoids a scenario where a foreign company can face liability in U.S. courts based on conduct that is required by their own laws, at least where the other comity factors support abstention. As the first major appellate decision on the application of international comity to private antitrust litigation in several decades, the decision provides important guidance to district courts going forward.

Daniel Weick and Justin Cohen contributed to the preparation of this WSGR Alert.

Renata Hesse gave her first major address as Acting Assistant Attorney General of the Antitrust Division at the Georgetown 2016 Global Antitrust Enforcement Symposium.   While her topic did not touch specifically on cartel enforcement, it was an interesting speech that did address the proper role of antitrust enforcement at a time when the public and Congress seem to be interested in a more vigorous approach to antitrust enforcement.

Here is one paragraph from Ms. Hesse remarks:

In my view, the tools of economics simply provide enforcers with a better means of detecting situations where companies and individuals have subverted – or threaten to subvert – the competitive process. It is our job as public servants to explain to the public why we do what we do; for example, when we use economics tools with obscure names like “Herfindahl-Hirschman Index” or “Gross Upward Pricing Pressure Index,” we are simply measuring intuitive phenomena like the concentration of economic power or the tendency of mergers to reduce competitive pressures that keep prices down. At times, we have left these concepts largely unexplained and allowed expert practice to remain isolated from popular relevance. But I believe strongly that in the last decade we have been reducing the gap between expert and popular antitrust as we have been litigating more and more cases, forcing us to explain our claims of harmed competition to lay judges and juries who must determine the rightness of our causes. Antitrust is too important to be left solely in the hands of antitrust experts. I’ll return to that trend at the end of this speech.

The full speech can be found here.

There will be a new administration in January 2017 that will continue to address the balance between economic efficiencies versus the more populist view that industries should not be dominated by one or few competitors.  On the cartel front, it has been a constant theme through both Republic and Democrat administrations that cartel enforcement is the number one priority, though there can be differences on budgeting, focus of efforts and execution of the policy.