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

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Plus factors-based counseling tests

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

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

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

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

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

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

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

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

b.   Firm-specific production information?

c.   Transactions between you and other competitors?

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

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

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

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

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

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

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

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

Thanks for reading.

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

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

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

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

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

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

On April 27, 2016 Hitachi Chemical Co., Ltd. was charged by the Antitrust Division in a one-count Information alleging that the company (through predecessor companies) engaged in a conspiracy to fix prices and rig bids of certain electrolytic capacitors in the United States and elsewhere beginning at least as early as August 2002 and continuing until at least as late as March 2010. On May 13, 2016, the government filed a “Sentencing Memorandum, Motion for Departure and Request for Expedited Sentencing.” The plea agreement with Hitachi Chemical was filed as an attachment. There are several interesting features of the Information and the plea agreement. The plea agreement calls for a fine of $3.8 million, which was based on a downward departure for substantial assistance. Hitachi’s guidelines range fine was between $3.96 million and $7.92 based on a volume of commerce $16.5 million. Without the downward departure for substantial assistance, the parties agreed that Hitachi’s fine should have been $5.1 million. [Read more…]

I wanted to pass on some information about another great ABA Antitrust Section program “Antitrust In Asia.”  The program is in Hong Kong, China on June 2-3, 2016, but early registration savings end on May 12.  The faculty includes enforcers from China, Competition Commission of Hong Kong, Competition Commission of India, Japan Fair Trade Commission, Korea Fair Trade Commission, Competition Commission of Singapore, and the U.S. DOJ & FTC.  [Read more…]

On April 5, 2016 the Department of Justice held a press conference to announce a “new” program involving enforcement of the Foreign Corrupt Practices Act (FCPA)(press release here). The program, generally referred to as the Pilot Program, is outlined in a document released by the Fraud Section of the Criminal Division of DOJ entitled: “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance. The Guidance memo more fully lays out the specifics of this Pilot Program and provides more background and information for the defense/compliance community. The Pilot Program follows on the heels of the requirements detailed in the Deputy Attorney General’s Individual Accountability memorandum issued last September, popularly known as the Yates memo.  [Read more…]