Motorola Mobility’s Petition for En Banc Review

This news is a bit dated, but on December 17, 2014 Motorola Mobility petitioned the Seventh Circuit for an en banc hearing of its price-fixing damages case against AU Optronics and other liquid-crystal-display panel makers. On November 26, 2014 a three-judge panel affirmed, on different grounds, its vacated opinion dismissing Motorola Mobility’s suit. In an opinion written by Judge Posner, the panel held that purchases by made overseas by Motorola’s foreign subsidiaries of panels that were incorporated into products subsequently shipped into the United States did not meet the second prong of the FTAIA requirements, that the effect of anticompetitive conduct give rise to an antitrust cause of action. 15 U.S.C. Section 6(a)(2). “Whether or not Motorola was harmed indirectly, the immediate victims of the price-fixing were its foreign subsidiaries.” Motorola Mobility LLC v. AU Optronics Corp., 2014 WL 6678622 (7th Cir. 2014). In its petition for rehearing en banc, Motorola claims:

“This case presents the following two questions of exceptional importance:

A. Is a cartel that fixes the price of component parts to be included in U.S.-bound products immune from all civil damages claims under U.S. antitrust law so long as it first delivers those component parts abroad?

B. Was the panel’s decision to consider this case without a random assignment consistent with the Federal and Local Rules of Appellate Procedure and this Court’s Operating Procedures?”

Supporting Amicus Briefs

Two amicus briefs were filed in support of Motorola Mobility’s request. First, certain legal and economic academics filed a brief essentially arguing that international cartels are already under deterred with inadequate fines and civil penalties and the Seventh Circuit’s opinion will only increase the incentive to cartelize by providing a loophole for foreign cartelists to escape damages. In the brief the professors write: ‘”The panel’s decision asks, ‘are we to presume the inadequacy of the antitrust laws of our foreign allies?’ No presumption is necessary: antitrust penalties toward international cartels are collectively inadequate to deter international cartels.”‘

The American Antitrust Institute also filed an amicus brief in support of Motorola Mobility’s petition. The AIA writes: “Indeed, any international price-fixing cartel that concededly has a direct, substantial and reasonably foreseeable effect on American consumers would be able to avoid Sherman Act damages for products intended for the U.S. market as long as the cartel sells its price-fixed products abroad before the products are imported into the United States.” The brief argues that, if left to stand, the decision would “seriously undermine already inadequate levels of deterrence of international cartels that harm American consumers.”

No Word Yet

There has been no reaction yet from the Seventh Circuit on Motorola Mobility’s petition, but if the petition is denied, it seems certain that Motorola Mobility will seek Supreme Court review.
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Today’s guest blog post is by Masayuki Atsumi of the Japanese law firm Mori Hamada & Matsumoto.  Mr. Atsumi was an attorney with the JFTC before private practice.

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Japan is one of the most important jurisdictions in Asia in relation to cartel enforcement, but not many written materials articulate the details of Japanese cartel regulation.  As my first contribution to this blog, I would like to briefly provide an overview of Japanese cartel regulation, with a focus mainly on procedural and practical aspects.

1. Prohibition on cartel activities

The Japanese Anti-Monopoly Act (“AMA”) prohibits, among other things, “unreasonable restraint of trade” which includes collusive activities such as cartels or bid-rigging. A cartel violation is not per se illegal in Japan because the AMA requires that the Japan Fair Trade Commission (“JFTC”), the Japanese antitrust enforcement body, must prove a “substantive restraint on competition in the relevant market” in order to find a violation.

Under the AMA, cartel activities can be both criminal and administrative violations. Regarding administrative violations, the JFTC itself investigates the case and imposes an administrative sanction. If the JFTC decides to pursue criminal sanctions after its own investigation, it would file a criminal accusation to the Public Prosecutor General.  The Prosecutor’s Office is in charge of bringing a criminal indictment. The JFTC has sole discretion on whether it files a criminal accusation to the Public Prosecutor General, which cannot prosecute an antitrust violation without the JFTC’s accusation.  While most cartel cases in Japan have ended up as an administrative violation, the JFTC expressed its willingness in its policy statement to pursue criminal sanction if the JFTC finds that (i) the cartel conduct at issue is vicious and a serious violation which has widespread impact on people’s life, or (ii) participant(s) in the cartel is recidivist and administrative sanction would not work as proper deterrence of future violation.

      2.     Sanctions on cartels

A.     Cease-and-desist order

When the JFTC finds that cartel conduct violates the AMA, the JFTC will issue a cease-and-desist order to each participant of the cartel. This order typically includes, among others, an obligation that a recipient must establish or improve its compliance system to prevent future antitrust violation.

B.     Administrative surcharge

In addition to a cease-and-desist order, the JFTC shall impose administrative surcharge (monetary fine) payment order on companies that involved in cartel activity. The percentage of surcharge depends on a type of business that the defendant conducts (manufacturer: 10%, retailer: 3%, wholesaler: 2%.).  A reduced percentage would be applied to small-or-medium size corporations. The percentage of surcharge also varies based on various aggregating and mitigating factors. For example, a ringleader of cartel as well as a recidivist (defined as a company which committed cartel or certain type of antitrust violation within the past 10 years) will receive a 50% addition on the surcharge while a company that ceased a wrongdoing one month before the initiation of investigation will receive 50% reduction. The amount of surcharge is calculated as [applicable percentage] * [sales amount of products or services affected by cartel activity for three years from the termination of the cartel conduct].

It is important to note that the JFTC does not have discretion on the calculation of the surcharge. All the percentages of the surcharge as well as addition and reduction of the percentages above are fixed by the statute. There has been a policy discussion as to whether or not the JFTC should have discretion on the computation of surcharge.

C.      Criminal sanctions

The AMA also provides for criminal sanctions to individuals who committed cartel activities as well as companies. Companies that commit a cartel violation are subject to a criminal fine of no more than 500 million JPY (approx. 5 million USD.). Individuals who committed cartel activities would be subject to imprisonment of up to 5 years and a criminal fine of up to 5 million JPY (approx. 50,000 USD.).

3. Investigative method

In almost all cartel cases, the JFTC starts its investigation by dawn raid.  While the initial information could be from many sources including a whistleblower, it is safe to say that a large portion of the cases are initiated by leniency application. In addition to the dawn raid, the JFTC typically conducts interviews of relevant employees and issues mandatory information requests to relevant companies in order to obtain necessary information to establish the violation of the AMA.

It is very important for foreign companies to be aware that attorney-client privilege is not recognized under the Japanese law, and therefore, documents showing communication between client and its attorney are subject to the submission to the JFTC if the content is relevant to the subject matter.  Also, the JFTC does not allow an attorney to be present in its interview of employees. The lack of these two important procedural rights before the JFTC has been criticized. In response to the criticism the Japanese Government is now reviewing the appropriateness of the JFTC’s investigative procedures. I may revisit this issue in future blog post as the discussion is ongoing.

4. Leniency program

Since its introduction in 2006, the Japanese leniency program has been a huge success and attracted a number of applications from both international and domestic cartels. The most recent data shows that the JFTC accepted 50 leniency applications in fiscal year 2013, amounting to the total of 775 leniency applications since its introduction.

The Japanese AMA provides detailed rules on leniency in order to provide predictability to potential leniency applicants. The first leniency applicant before initiation of investigation by the JFTC receives full immunity from any administrative surcharge as well as criminal prosecution. The first applicant’s employees who cooperated with the employer’s internal investigation to file leniency also receive immunity from personal criminal liability. Under Japanese leniency program, subsequent applicants would also benefit from leniency application.  The second applicant before investigation receives 50% reduction of administrative surcharge, and the third to fifth applicant receives 30% reduction respectively, on condition that the fourth and fifth applicant must provide additional information that the JFTC does not know at the time of application.  Moreover, leniency applicants after the initiation of investigation, up to three applicants (but not more than five applicants including those before the initiation of investigation), would receive 30% reduction if the applicant provides additional information that the JFTC does not know at the time of application. All of the reduction rates are fixed by the statute and JFTC does not have any discretion on the reduction rate. Except for the first applicant, there is no guarantee of immunity from criminal prosecution. In fact, in the bearing cartel case, the second and third leniency applicants and their employees were criminally indicted.

Very importantly, the JFTC apparently has not prosecuted all of the cases in which leniency was applied. The JFTC has selected cases which are to be formally investigated based on a number of factors such as affected market volume, the quality of evidence and information presented by leniency applicants.

5. Recent trend in enforcement

The amount of surcharge that cartelists have paid to the JFTC has been dramatically increasing recently. In fiscal year 2013 (2013.4 – 2014.3), the total amount of the surcharge reached approx. JPY 30 billion (approx. USD 300 million.).

More importantly for readers of this blog, the JFTC has increasingly focused on enforcement against international cartels and imposed very high surcharges on them. For example, the JFTC has imposed surcharge payment orders on a number of auto-parts cartel members, as well as marine hose cartel (2008.2), air-cargo cartel (2009.3), CRT cartel (2009.10) and international shipping cartel (2014.3). In the international shipping cartel, the JFTC imposed record-high JPY 13 billion (approx. USD 130 million) surcharge on one of the participants of the cartel. It has also been reported that the JFTC has initiated an investigation against an alleged capacitor cartel.

In addition to administrative sanctions, the JFTC has aggressively pursued criminal accusations on cartel conduct that has widespread impact on Japanese economy. The most recent example is bearing cartel where three participants and their employees were criminally indicted and most of them were found guilty, while others are still pending. All of the convicted individuals in the bearing cartel have been given suspended sentences.  In fact, in Japan, no individual has gone to jail because of an antitrust offence yet.

Masayuki Atsumi

[email protected].  

On December 15th, Apple and the United States continued their heavyweight battle with a round of oral argument in the Court of Appeals for the Second Circuit. It’s been a while since this feud started so I’ll briefly recap the claims of the combatants.  The DOJ wrote in its Second Circuit brief, “In late 2009 and early 2010, Apple orchestrated and participated in a conspiracy with five major book publishers to take control of retail pricing for electronic books (e-books) and to raise prices to agreed-upon levels. The conspiracy was successful: retail e-book prices for the vast majority of the Publisher-Defendants’ new releases and bestsellers rose from $9.99 to $12.99 or $14.99. Consumers paid almost 20% more, on average, for all of the Publisher-Defendants’ e-books.”  Apple offered a “no good deed goes unpunished” defense, contending that it did not join any conspiracy and, in fact, offered a pro-competitive, innovative alternate to the monopolistic stranglehold that Amazon.com had on the e-book market.

The DOJ prevailed in the trial court with Judge Denise Cote finding that Apple had helped orchestrate a horizontal, per se Sherman Act price-fixing violation by book publishers to raise prices. The district court found that “with Apple’s active encouragement and assistance, the Publisher Defendants agreed to work together to eliminate retail price competition and raise e-book prices, and again with Apple’s knowing and active participation, they brought their scheme to fruition.”

A very good summary of the battle on appeal can be found in a Publisher’s Weekly article here.

One of the issues on appeal was the sufficiency of the evidence: Did the district court make erroneous findings in concluding that Apple helped orchestrate a price-fixing cartel? I’m not going to predict the Court of Appeals’ answer to that question. It is, however, fairly difficult to overturn a district court’s findings of fact, especially when Judge Cote found the evidence “overwhelming,” and many of Apple’s key witnesses “unbelievable.” But I do want to comment on one aspect of the case that has puzzled me.

The DOJ charged Apple as a member of the e-book price-fixing cartel even though Apple was not an e-book publisher. Apple had a vertical relationship with the e-book publishers. Thus, the briefs and arguments in the case are sprinkled with references to the Toys “R” Us, Inc., v. FTC, 221 F.3d 928, 936 (7th Cir. 2000) decision and “hub and spoke” conspiracies. I’ve always wondered whether it was a mistake to charge Apple with being a member of a horizontal price-fixing cartel. If charges were merited at all, I would have charged Apple with aiding and abetting a price-fixing cartel. I base this on an experience I had when prosecuting a significant cartel case while I was with the Antitrust Division.

I led the prosecution of the international graphite electrodes cartel. It was an extremely effective cartel, raising prices over 70% in a five-year period.   Graphite electrode manufacturers had tried before (like the e-book publishers) to reach a price-fixing agreement but could not—principally because the CEO of the U.S. company had a prescient fear of going to jail. But after Mitsubishi bought a 50% interest in the U.S. company, Mitsubishi employees helped organize the cartel through various means, including their connections with the Japanese graphite electrode producers. While Mitsubishi did not manufacture graphite electrodes, it did profit from the collusive price increases. While all other cartel members pleaded guilty, Mitsubishi went to trial.

We did not charge Mitsubishi with a Sherman Act violation because it did not manufacture graphite electrodes. In our view the simplest and most accurate way to explain to a jury why Mitsubishi was liable was to charge Mitsubishi assisted the cartel. We did not want to explain, even though it may have been relatively easy to do, why a company that did not make graphite electrodes was charged with fixing the price of graphite electrodes. Mitsubishi attended no price-fixing meetings and had no input into fixing the price of graphite electrodes. So, we charged Mitsubishi only with aiding and abetting. In legal theory, this is no different that being charged with a substantive offense. But in telling the story to a jury about why a non-manufacturer could be guilty of conspiring to fix prices of a product it did not make, we thought aiding and abetting was the more understandable and persuasive story. The indictment read, in part: [Read more…]

My parter, Joan Marshall, and I wrote an article just published by Law 360 titled:  “In 2014 Plaintiffs Gained Some Ground Lost After Twombly.”  The article reviewed some key antitrust cases at the motion to dismiss stage and examined how the courts applied the “plausible” pleading standards announced in Twombly to various elements of the alleged offense.   (It is important to note that while Twombly involved and antitrust complaint, the Supreme Court announced a pleading standard that applied to all complaints.  The vast majority of post-Twombly cases do not involve antitrust pleadings).

Twombly motions and decisions are of course fact specific so its a bit of a stretch to say there is a trend.  The party who tells the best story consistent with Twombly and the underlying policy considerations will win.  But, after several appeals courts reminded lower courts that the standard at the motion to dismiss stage was “plausbility,” it seems plaintiffs chances have improved.   Reminders such as this certainly have helped plaintiffs:

First, at the pleading stage, the plaintiff is not required to allege facts showing that an unlawful agreement is more likely than lawful parallel conduct. * * *Second, in order to state a Section One claim, a plaintiff need not allege a fact pattern that “tends to exclude the possibility” of lawful, independent conduct.  Erie County, Ohio v. Morton Salt, 702 F.3d 860, 868-69 (6th Cir. 2012).

Law 360 is a subscription based service. If you don’t have access to Law 360 and would like to read our full article, please send me a note and I’d be happy to send it along.  [email protected]

Thanks for reading.

 

 

 

 

The post below is from James Musgrove and Joshua Chad of McMillan who keep us up to date on cartel developments in Canada.

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Section 69(2) of the Competition Act provides that, by possessing documents, persons and firms are deemed to know their contents and to have done what the documents say was done. Particularly in the era of terabytes of stored data, this is a nice little provision in the Crown’s arsenal in cartel prosecutions. On July 15, 2014, Justice Warkentin of the Ontario Superior Court of Justice, in the case of R v Durward, determined that section 69(2) is not all it seems to be. Specifically, she ruled that section 69(2) of the Canadian Competition Act was not constitutional in the criminal context.

The Durward case arose in the context of seven individuals and four companies being charged with bid-rigging under the Competition Act and conspiracy to bid-rig under the Canadian Criminal Code. Two of these defendants filed an application for a determination that section 69(2) of the Competition Act violates the Canadian Charter of Rights and Freedoms. In particular, they argued that the use of this provision would violate the presumption of innocence under sections 11(d) and 7 of the Charter.

Section 69(2) of the Competition Act establishes presumptions that:

• anything done, said or agreed on by an agent of a participant shall, in the absence of evidence to the contrary, be deemed to have been done, said or agreed on, as the case may be, with the authority of that participant;
• a record written or received by an agent of a participant shall, in the absence of evidence to the contrary, be deemed to have been written or received, as the case may be, with the authority of that participant; and
• a record proved to have been in the possession of a participant or on premises used or occupied by a participant or in the possession of an agent of a participant shall be admitted in evidence without further proof thereof and is prima facie proof (i) that the participant had knowledge of the record and its contents; (ii) that anything recorded in or by the record as having been done, said or agreed on by any participant or by an agent of a participant was done, said or agreed on as recorded and, where anything is recorded in or by the record as having been done, said or agreed on by an agent of a participant, that it was done, said or agreed on with the authority of that participant; and (iii) that the record, where it appears to have been written by any participant or by an agent of a participant, was so written and, where it appears to have been written by an agent of a participant, that it was written with the authority of that participant.

Justice Warkentin noted that the primary concern with these presumptions is that they presume knowledge on the part of the accused of any materials found on every computer on the premises of the accused, regardless of who the primary user of the computer was. She was also persuaded by the defendants’ arguments that, given how we all suffer from “email overload”, it cannot be presumed that individuals in an organization read everything in their own inboxes, let alone the contents of other employees’ inboxes and computers.

As a result, in the criminal context, Justice Warkentin found section 69(2) of the Act to be unconstitutional. She found that the provision creates evidentiary and legal presumptions leading to a reverse onus on the accused with respect to a material component of an offence. In certain crimes, such as criminal conspiracy, the accused’s knowledge will be an essential element of the offence, and the accused should not be required to rebut a presumption that attributes it with knowledge based solely on it having had documents in its possession.

This is a meaningful practical decision. It will make prosecution more difficult – as direct evidence will be required. It is important to note, however, that Justice Warkentin explicitly stated that her decision does not extend to the non-criminal context. In fact, she emphasized that “nothing in these reasons prevents the use of section 69(2) in a Competition Tribunal proceeding” and “s. 69 may be useful as a regulatory statute in Competition Act proceedings in the tribunal setting where there are no serious criminal consequences”.

The Canadian Public Prosecution Service of Canada has indicated its intention to appeal Justice Warkentin’s decision.

Until next time,

James Musgrove & Joshua Chad
McMillan LLP

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!