Cartel Capers

A blog about cartels, competition and compliance

100 Blawg Honoree

Whistling in the Wind…For a Whistleblower Statute To Help Hypothetical Bill

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For many reasons, international cartels cases have all but disappeared. The increased collateral effects of seeking Leniency is a major reason. There are many potential whistleblowers in the cartel pond, yet rarely does an insider come forward (The DOJ has an Individual Leniency Policy that has rarely been used). To illustrate why an individual whistleblower is highly unlikely to come forward without any financial incentive, in a prior Cartel Capers post I’ve written a story about Hypothetical Whistleblower Bill. For years, I’ve advocated for a new cartel-busting tool—a criminal antitrust whistleblower statute. Given that we have new leadership at the Antitrust Division, I’m reposting the piece hoping to get a nibble of interest.

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Hypothetical Bill is the US sales rep for a Widget Company, a foreign manufacturer. There are five main players in the industry. As a sales rep, Bill had heard whispers of price fixing meetings. When Bill was promoted to VP of US sales he was directed to attend meetings with his competitors to discuss prices and output. Price targets were set by the senior “top” guys in each competing company, but the working group had the more detailed task of implementing the prices by region, accounting for exchange rates, maintaining relative allocations, and host of other issues that can derail a cartel. Bill understood that it was none too smart for him to be going to these meetings—especially as an American who will likely go to prison if caught. After attending a few such meetings where it was emphasized not to use emails, and to leave no trace of the meetings and discussions, Bill became very anxious. He confided in a lawyer friend who knows about criminal law but not antitrust specifically. The lawyer told Bill he can hire an attorney and go to the government and he will likely be able to negotiate an Individual Leniency immunity/cooperation agreement (but no guarantees). But a competent, experienced antitrust lawyer will be expensive [and an incompetent lawyer even more expensive]. Bill meets with a criminal antitrust defense lawyer for a consultation and learns that negotiations with the DOJ will take time and likely require multiple trips by Bill and his lawyer to visit the prosecutors for interviews–all at Bill’s expense. Widget Company will not be paying for Bill’s travel, lawyer fees and travel, etc. If Bill can secure a non-prosecution/cooperation agreement, it will last for the duration of the investigation and any possible trials; in other words, his cooperation obligation will be slightly shorter than the Hundred Years War. The Antitrust Division will ask Bill for documents to corroborate his story—travel records, emails, etc. The government may even ask him to stay on with the company and record cartel meetings. Bill may eventually be called upon by foreign competition commissions to appear for interviews. Besides the time and expense of cooperation, Bill understands he will likely be fired by his company (if he hasn’t already left) when they learn of his cooperation. After all, he is a confessed criminal and they are shocked that Bill was talking to competitors. Under new DOJ policy, Bill’s company may even get a fine reduction if they sue him and claw back his salary. The consultation was honest and sobering: “Bill, going to the government will likely keep you out of jail, but it will also be likely to bankrupt you, make you forever non-employable in your industry and drag you and your family through hell for many years. What would you like to do?”

Unless Bill is nuts (not a good quality in a witness), Bill will almost certainly not expose the cartel. He will remain quiet. He could go to the company’s compliance counsel but since the CEO is involved in the illegal activity he’s fearful that he, not the CEO, will regret his internal reporting. At best, Bill will leave his job, get out the situation and keep quiet. But maybe Bill will think of how he needs the job and the money the new promotion brought (kids/college etc.), and stay in the job and keep quiet. After all, even if the cartel gets exposed, isn’t there a chance he could get immunity then? Whatever Bill decides, it is unlikely he will choose to go to the DOJ and expose the cartel.

Now, imagine this scenario with a criminal antitrust whistleblower statute. In his consultation Bill learns that he has the option of being a whistleblower. Being a whistleblower also has significant challenges, but they are tempered by the potential of escaping prosecution, and of not having to pay his lawyer who will work on a contingency fee basis. Bill may also possibly recover a substantial “bounty” if Bill cooperates in successful prosecutions that result in corporate fines. Bill’s first step is to authorize an attorney proffer to see if the government will grant Bill non-prosectution protection in return for his full cooperation. If these negotiations bear fruit, the DOJ will start a cartel investigation with an insider, and Bill will have a non-prosecution/ cooperation agreement, no attorney fees and a possible whistleblower settlement down the road.

In this hypothetical, Bill gives the Antitrust Division all they need to obtain search warrants. The prosecutors will have many options. One option is to reach out, search warrant in hand, to Widget Company’s US counsel. Government lawyers explain that Widget Company has 48 hours to get a Leniency Marker before the investigation goes public and search warrants (and perhaps dawn raids in other parts of the world) are executed. Widget Company folds and starts the leniency process. With the ball rolling, in all likelihood there will never be a trial as cartel members plead out. Even if a holdout goes to trial, however, Bill will likely not be a witness if other cartel members have cooperated. A cartel that may never have been exposed, now falls like dominos (or auto parts, LCDS, graphite electrodes, vitamins and any number of successful cartel cases that have seemed to have disappeared).

In most cartels there are many low culpability fish in the whistleblower pond. Details would have to be worked out in the new legislation for a number of issues including preventing high culpability individuals from cashing in. If a criminal whistleblower statute is passed but produces no whistleblowers, nothing is lost. But I believe a whistleblower statute could reinvigorate criminal antitrust enforcement the way the 1993 revised Corporate Leniency Policy did.

Note: Where the government is a victim of bid-rigging/price fixing, a whistleblower can currently bring a suit under the False Claims Act, but whistleblower legislation will cover private sector cartels and also make being a whistleblower more attractive when the government is the victim.

Thanks for reading.    Bob Connolly     [email protected]

 

Per Se Rules Notches Another Labor Market Pretrial Win, But…

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     The defendants in the aerospace’s labor market allocation case, US v. Patel, No.3-21-cr-220 (D. Conn. Dec. 2, 2022) (VAB), filed a motion to dismiss the indictment on various grounds related to the application of the per se rule in a criminal trial. These grounds include: 1) the conduct charged does not fall within the per se rule; 2) the conduct charged was ancillary to a procompetitive agreement and therefore not subject to per se treatment; 3)  the alleged agreement was vertical in nature; 4) the charge violates the notice provisions of the Due Process Clause; and 5) the prosecution of this conduct as a per se violation would unconstitutionally usurp the jury’s role to determine all of the facts necessary to establish each element in violation of the Fifth and Sixth Amendment.

            The first three arguments are fact specific and the Court in each instance found that he per se rule did apply. [I’ll return to that later]. The Due Process argument raises constitutional questions outside the scope of what I’ve researched/written about. The Court, following controlling precedent in the Second Circuit, held that the per se rule did not unconstitutionally take away from the jury finding an element of the offense

            The Cartel Capers research and cite checking staff has time off for the holidays, so I am simply going to post some “thinking out loud” reactions I had to the opinion. The Court’s well-reasoned opinion (based on controlling precedent) demonstrates why the per se rule will ultimately be found to be unconstitutional in criminal cases—and why– even in this case, the Court will likely not apply the per se rule at trial.

  • Court as a Factfinder

This quote is from the Court’s opinion:

“At the outset, and to clarify an issue inherent to the parties briefing but not explicitly stated, the Indictment properly alleges a per se agreement only if the Court either finds that the alleged conduct falls within the well-established categories that historically have required per se treatment, such as price fixing, bid rigging, or market allocation; or if the Court finds that the alleged conduct is the type of restraint that should be considered a new category of restraint that is always subject to per se treatment.” Patel  at  15. (emphasis added).

The Court also found that the defendants’ arguments that the alleged agreement was outside the established per se rule, ancillary to a legitimate agreement and/or vertical in nature was not supported by the language of the indictment.

            Importantly, however, the Court stated: “To the extent Defendants wish to contest these allegations with facts not included in the Indictment, such arguments are better suited for a later stage of the proceedings.” citing United States v. Sampson, 898 F.3d 270, 279 (2d Cir. 2018). (“[W]hen such a defense raises dispositive ‘evidentiary questions,’ a district court must defer resolving those questions until trial.”).”  Patel at 29 (emphasis added).  This statement suggests this case could play out much like the labor market allocation trial in US v. DaVita. There, the trial court also found the challenge to the indictment survived a motion to dismiss because the indictment sufficiently alleged the per se standard.  But at trial the Court allowed evidence not traditionally admissible in a per se case and ultimately charged the jury that to convict, the government would have to prove beyond a reasonable doubt that the defendants intended to allocate the market for employees.  This is the per se rule in name only–a compromise between following precedent and giving the jury its proper role [and the defendants’ constitutional rights] in a criminal trial.

  • “Always or Almost Always”

             Here is another passage from Patel that now strikes me as “Hmm…that doesn’t sound right”:

“The per se rule is applied only if ‘courts have had considerable experience with the type of restraint at issue’ and ‘can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason.’  Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886-87 (2007) (internal citations omitted); see also United States v. Apple, Inc., 791 F.3d 290, 321 (2d Cir. 2015) (stating that the per se rule “reflect[s] a longstanding judgment that case-by-case analysis is unnecessary for certain practices that, by their nature[,] have a substantial potential to unreasonably restrain competition” (internal citations and quotation marks omitted)).” Patel at 15.

            If I put aside everything I have been taught about the Sherman Act and just focus on what I [think I] know about criminal law, isn’t this unconstitutional?  “Mr. Defendant—the Court has a lot of experience with agreements like the one you are charged with. Asking the jury to determine whether your agreement actually restrained trade would take a lot of time. Since you would always or almost always be found guilty if we let the jury decide, let’s just say the agreement you are charged with restrained trade and get on with the rest of the trial….”  Can this square with the modern Supreme Court jurisprudence quoted by the Court?: “[T]hese provisions [Fifth and Sixth amendments of the Constitution] require criminal convictions to rest upon a jury determination that the defendant is guilty of every element of the crime with which he is charged, beyond a reasonable doubt.” United States v. Gaudin, 515 U.S. 5060, 510 (1995).” Patel at 41.

       I was struck by a description of the per se rule in a recent Third Circuit (civil) price fixing case: In a per se case “[a] jury is not asked to consider the reasonability of the restraint because the unreasonableness of it is so plain.”  In re Processed Egg Products, 962 F. 3d 719,730 (3d Cir. 2020).  The statement is unremarkable in that it is a black letter law description of the per se rule; it is remarkable when viewed in light of a defendant’s constitutional right to a jury trial—in a criminal case.

  • Per Se Rule or Rule of Reason?

            The Supreme Court has held that these three words “restraint of trade” have “created two substantive rules of law—the rule of reason or the per se rule.” Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988).  But, in Facebook v. Duguid, et al., 141 S.Ct. 1163, 1169 (2021), Justice Sotomayor writing for a unanimous Court explained, “We begin with the text.” Starting [and ending] with the text, the same three words should not have different meanings and create two distinct rules. Like Schrödinger’s cat, you don’t know what these words mean until you open the pleading.[1] Regardless of the Plaintiff or the allegation, restraint of trade means to limit or hold back competition—in other words an anticompetitive agreement.  Especially where the case is a criminal one invoking constitutional rights, it should be the jury who decides whether the defendant restrained trade.

            The creation of two rules from the same term, “restraint of trade,” also fails on the ground that it constitutes judicial legislation.  Courts have not been shy about admitting the per se rule was judicially created: “In Koppers, the Second Circuit expressly held that ‘[s]ince the Sherman Act does not make ‘unreasonableness’ part of the offense, it cannot be said that the judicially-created per se mechanism relieves the government of its duty of proving each element of a criminal offense under the Act.”’ 652 F.2d 290, 294 (2d Cir. 1981).  Patel at 42. (emphasis added.)

  • An Interpretation to Consider

            “Given its generality, our enforcement of the Sherman Act has required the Court to provide much of its substantive content.” Arizona v. Maricopa County Medical Society, 457 U.S. 332, 354 (1982).  The Court has certainly taken this approach with the per se rule.  The Supreme Court has created and then retired numerous per se rules.  See e.g. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911) (1911 birth of the vertical price fixing per se rule) and Leegin (2007 death of vertical per se price fixing rule).  But the Supreme Court has never examined the per se rule in a criminal case through the lens of a defendant’s constitutional rights.  When they do, I believe the rule of lenity will apply and the per se rule will not be found in the text of Section 1 of the Sherman Act.

            If/when the Supreme Court does consider the constitutionality of the per se rule in criminal cases (it has recently denied cert in two cases but defendants will keep pushing this issue), I hope the Court will consider this: The Sherman Act means exactly what it says and the government in a criminal case must prove beyond a reasonable doubt that the agreement alleged was one to restrain trade.  To restrain is “to limit”; “to hold back.”[2]  If an agreement is procompetitive or neutral, it does not restrain trade.  The “trade” the Sherman Act criminalized was clearly not the trade, for example, of a vendor (Standard Oil) and a customer. That contract restrains two parties, not the oil trade.  Adam Smith wrote “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.“  He was using the term trade the way we use “market.”  To believe every contract restrains “trade” requires the belief that Senator Sherman and Congress intended to make criminals of themselves—since surely they all had contracts of some sort. It is a rule of statutory construction not to give words an implausible interpretation. See Advocate Health Care Network, et al v. Stapleton, 131 S. Ct. 1652, 1660 (2011) (“Congress, we feel sure, would not have intended all National Guardsmen to get a benefit that is otherwise reserved for disabled veterans.”).  Congress, like Adam Smith, used the term “trade” in the way current antitrust cases use the term “market.”  There is no indication in the legislative history, or common sense, that the Sherman Act intended to literally outlaw every commercial contract.  Most are neutral or perhaps even procompetitive.  So, no—not every contract restrains trade in the meaning of the Sherman Act.

            If I could use the “way back” machine I’d erase the thought that, “The Sherman Act could not possibly mean what it says.” It means just what it says.  The rule of reason requires a plaintiff or the government to “demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive.” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006).  Anticompetitive defines a “restraint of trade” and this same element should be required to be demonstrated in a criminal case.  In both civil and criminal Sherman Act cases jury must decide “Did the defendant restrain trade?”  A criminal prosecution, including a Sherman Act prosecution, also requires, as the Supreme Court has held in US v. Gypsum, 438 U.S. 422 (1978), that the defendant intended to restrain trade.  Thus, a civil case is an after-the- fact determination of whether an agreement restrained trade but in a criminal case, the jury must consider defendant’s intent/purpose state of mind when entering into the agreement.  In most criminal antitrust prosecutions (i.e. price fixing/bid rigging) showing the defendant’s intent will not be difficult.  As the Antitrust Division has said on many occasions in various forms, “the [criminal] cases that we are charging and prosecuting are unmistakable fraud.”[3]  In garden variety, hard core price fixing cases, therefore, proving an intent to restrain trade is not a burden.  In the vast majority of criminal antitrust cases the defense will be “I did not agree;” not, “Yes, we met at the Frankfurt airport and agreed on prices but I did not intend to restrain trade.

             Case selection for criminal cases is important as it should be with penalties of up to 10 year in prison for individuals.  If the Division does not believe it can convince a jury of the fraudulent purpose of the agreement, there are other tools to use besides a criminal statute with a 10-year prison sentence.

  • PS–The Proper Role of a Per Se Rule

            I believe the per se rule will ultimately be found unconstitutional and the court will no longer determine whether the agreement restrained trade.  But the per se rule will not be completely forgotten. It will survive as an evidentiary rule so that “reasonable of prices,” “preventing ruinous competition,” “we didn’t control the market” or other “excuses” for defendants’ illegal agreement would still be inadmissible at trial.  (And as noted above, in a criminal price fixing/bid rigging trial it will be rare for a defendant to admit to the agreement and defend on the grounds that it was not a restraint of trade.) “The agreement is the crime” and if the jury finds that there was an agreement, and it was the intent of the defendant to restrain trade, then evidence of mitigating factors can be saved for sentencing.  Moreover, the per serule will still live in civil litigation where no constitutional bar exists.  In civil litigation the Court does make factual findings in form of summary judgment and directed verdicts.

   Thanks for reading.  I am always interested in feedback/comments whether you think I’ve gone daft or might be on to something.

Bob Connolly   [email protected]

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[1]  This may be a bad analogy.  I only know about Schrödinger’s cat from Sheldon on The Big Bang Theory.

[2]   Merriam Webster Dictionary: 1a: an act of restraining : the state of being restrained

b(1): a means of restraining : a restraining force or influence

(2): a device that restricts movement.  Available at https://www.merriam-webster.com/dictionary/restraint.

 

[3]   Scott D. Hammond, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Transcript of Testimony Before the United States Sentencing Commission Concerning Proposed 2005 Amendments to Section 2R1.1 at 3 (Apr. 12, 2005), available at http://www.justice.gov/atr/public/ testimony/209071.pdf.

Two Japan Cartel Related Items of Interest

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There were two items of interest last week related to cartels and Japan that I wanted to pass on.

A.    Japanese Executives Sentenced to Prison (suspended) In Japan

The quote below is from a report posted last week by Yoshiya Usami of Lane Powell PC on ABA Antitrust Connect.  Mr. Usami reported:

On February 4, the Tokyo District Court convicted NTN Corporation, a Japanese bearing manufacturer, and two of its former executives for violations of Japan’s Antimonopoly Act in connection with its participation in an alleged cartel to fix prices for the sales of bearings, according to Nikkei Shinbun.

As a result of the verdict, the Court imposed a criminal fine of 400 million yen (approximately 3.4 million USD) on the company. The two former executives, one a former director, were sentenced to 18 months and 12 months respectively. However, both sentences were suspended pending completion of a three-year probationary period.

The Japan Fair Trade Commission raided NTN, as well as other Japanese bearing manufacturers, in July 2011. In June 2012, NTN and the two executives were indicted with their alleged conduct in connection with the cartel.

The company immediately filed an appeal to the Tokyo High Court, according to its press release.

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The case is noteworthy to me because unlike most cartel cases in Japan, it was not handled administratively by the JFTC. The JFTC cannot bring criminal charges, but can make a referral to the Tokyo prosecutor’s office, which they did in this case. While the prison sentences were suspended for the individual executives, it is a positive development for cartel enforcement that the indivuduals (and the company) were criminally charged.  (Prison sentences were very rare for nearly a century under the Sherman Act).

Also, the Chinese National Development and Reform Commission had previously fined NTN, after providing leniency to one cooperating company.  Cartels can be extremely profitable, and it is still probably the case that most cartels go undetected. But, with the cartel-disruptive force of leniency, and the ever-increasing penalties, the cost-benefit calculus should be changing more often in favor of “I think I’ll pass on that meeting in the smoke-filled back room of the .…”

B.   Two Former Japanese Auto Parts Executives Indicted on Sherman Act     and Obstruction Counts

Another item of note is that on February 5, 2015, a grand jury returned a two-count indictment against Hiroyuki Komiya and Hirofumi Nakayama, former executives of Mitsuba Corporation.  One count charges price-fixing, the other obstruction of justice. In one way the indictment is unremarkable. The auto parts investigation has entered the “cleanup” phase during which the Antitrust Division will bring cases against individuals the Division deemed culpable enough to charge and who were not willing to enter into plea agreements acceptable to the Division. What is, or may be, noteworthy is the fact that the former executives were indicted for obstruction of justice in addition to price-fixing.

The reason this caught my eye was the possibility of extradition. There are many Japanese fugitives in various global cartel investigations dating back to at least the late 1990’s. The Antitrust Division has never succeeded in having a Japanese national extradited from Japan to face a Sherman Act (15 U.S.C. Section 1) charge, and I don’t believe it likely that the Japanese government will anytime soon agree to extradite one of its citizens for price-fixing. But might it do so for obstruction? I don’t know; but I note that the Division did succeed in having British national extradited for obstruction of justice in 2010 (after a seven-year extradition battle).

The defendant there, Ian Norris, was charged in a four-count indictment: one count of price-fixing and three counts of obstruction. The U.K. extradited the defendant to face the obstruction charges, but not the price-fixing charge. Price fixing was not a crime in the U.K. (at the time) so the price-fixing charge did not meet the “dual criminality” requirement for extradition under the U.S.-U.K. Mutual Legal Assistance Treaty. (All MLATs contain a similar provision.) But if Japan has the equivalent of the U.S. crime of obstruction of justice in its criminal code, which seems likely, it ought to accede to an extradition request, if one is made.  Whether it actually will do so or whether it will find some basis on which to deny the request, of course, remains to be seen.   But, as the saying goes, “The cover up is worse than the crime,” so a government may be persuaded to agree to extradition for obstruction, even if the defendant will not be extradited to face the price-fixing charge.

In the case of the British executive who was extradited to face obstruction charges, the indictment spelled out in great detail (in three counts) the extent and degree of the obstruction. In the current case against the Japanese executives, the indictment charges obstruction in fairly generic language.   Perhaps this means the obstruction indictment is not a prelude to seeking extradition of the defendants from Japan.  The obstruction charge, however, will make international travel even more perilous for the indicted defendants as the grounds for extradition on obstruction is more universally recognized.

For further background, below are some excerpts from the recent Antitrust Division press release describing the charges.

 On February 5, 2015, two former executives of Mitsuba Corp. were indicted for their participation in a conspiracy to fix prices and rig bids of automotive parts and for obstruction of justice for ordering the destruction of evidence related to the conspiracy. The indictment charged Hiroyuki Komiya and Hirofumi Nakayama with conspiring to fix the prices of various automotive parts, including windshield wiper systems and components, sold in the United States and elsewhere. The defendants were also charged with knowingly and corruptly persuading, and attempting to persuade, employees of Mitsuba to destroy documents and delete electronic data that may contain evidence of antitrust crimes in the United States and elsewhere.

Komiya participated in the conspiracy as Mitsuba Director of Automotive Sales. In 2007, he was promoted to Executive Managing Officer and Vice President of Sales. Nakayama was the Office Manager of Mitsuba’s Nagoya sales office. In 2005, he was promoted to Sales Operating Officer.

Mitsuba had previously been charged with price-fixing and obstruction in the auto parts investigation. On November 6, 2014, Mitsuba pleaded guilty and agreed to pay a $135 million criminal fine for its role in the conspiracy as well as obstruction of justice. The Mitsuba information alleged that “[a]fter becoming aware of the FBI search of Defendant’s co-conspirator’s U.S. offices, Executive A informed certain of his subordinates employed at the U.S. subsidiary of Defendant about the FBI search, and instructed such subordinates, as well as other employees of Defendant, to locate, conceal and destroy documents and electronic files that were likely to contain evidence of antitrust crimes in the United States and elsewhere.” Executive A also destroyed and concealed documents in his possession, custody and control in the Eastern District of Michigan that were likely to contain evidence of antitrust crimes in the United States and elsewhere.

I’d be interesting in comments from others about how/whether cartel enforcement is ramping up in Asia.

Thanks for reading.

 

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.

Canadian Cartel News – Volume 4 – the Walls Have Ears – Lots of Them!

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Ed Note:   James Musgrove and Joshua Chad of McMillan continue to keep us well informed of developments in Canada.

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Supreme Court of Canada (“SCC”) jurisprudence in the cartel space is rare – and therefore valuable. While not always good news, it provides definitive guidance.

On October 17, the Supreme Court of Canada, ruled that plaintiffs involved in class action proceedings against multiple gas station operators would be granted access to the Canadian Competition Bureau’s (the “CCB’s”) wiretap evidence collected during the course of its criminal investigation into the conduct. The majority decision of the SCC held that neither the Competition Act nor the Criminal Code prevented a civil court from ordering the disclosure, by the CCB, of wiretap evidence obtained in connection with a criminal investigation.

Between 2004 and 2006, the CCB conducted an investigation, known as operation “Octane”, looking into alleged price fixing of retail gasoline prices in several smaller cities in the province of Québec. The investigation led to criminal charges being laid against 54 corporations and individuals. During the course of the investigation the CCB successfully intercepted and recorded more than 220,000 private communications pursuant to seven judicial authorizations.

When the criminal investigation became known, a class action proceeding was commenced against some of the criminally accused parties, as well as additional defendants who were not charged criminally. During the course of these civil proceedings, counsel for the plaintiffs sought to obtain the transcripts and recordings of the conversations that the CCB had intercepted pursuant to wiretaps.

In July 2012, the Superior Court of Québec accepted class counsel’s request and ordered that the CCB and the Director of Public Prosecutions provide the requested recordings to the lawyers and their experts participating in the class proceedings, with the requirement that these recordings be screened to protect the privacy of third parties not connected to the proceedings. The Québec Court of Appeal declined to review the Superior Court’s decision, and the matter was then brought before the SCC.

In reaching its decision to deny the appeal and permit the disclosure of the wiretapped conversations, the SCC drew a distinction between the justification required to permit the interception of private communications and the justification required to permit the disclosure of already intercepted communications. The SCC held that, in terms of authorizing the interception of private communications, the Criminal Code provides a mechanism to protect private communications that is necessarily balanced against the right of the state to intrude on privacy to further the suppression of crime. As a result, electronic surveillance can only be authorized in limited circumstances relating to the investigation of serious crimes and the investigation of threats to Canada’s national security. However, the SCC found that once private conversations have already been intercepted, the focus of the inquiry turns to civil discovery and disclosure principles. Thus, the SCC reviewed the applicable discovery rules related to the rights of discovery in civil lawsuits, requiring the disclosure of documents relevant to an issue in the proceedings in the possession of a third party. Based on these rules of civil procedure, the SCC approved the disclosure of recorded wiretapped conversations gathered as part of a criminal investigation, subject to the restrictions imposed by the Superior Court judge.

The decision has implications for all relevant parties. There are general privacy concerns, which were addressed as discussed above. There are also considerations for the CCB. The costs of the CCB in managing the production – and deletions – ordered may be considerable. The CCB may also find that it will get less information from parties on a voluntary basis – since it is not obvious that the decision will be restricted to information gathered by wiretaps. Plaintiffs, while immediate beneficiaries, may find that they obtain more materials than they can reasonably, or economically, manage.

The biggest impact, however, will be on defendants – the subject of investigations. All other things being equal, additional information in the hands of plaintiffs is unlikely to be beneficial to them. There may also be changes in tactical considerations, including what they are willing to proffer to government investigators. As well, in the past, defendants would often seek not to come into possession of certain CCB materials, so that they need not be produced on discovery. This approach may no longer be relevant.

However much any party may be happy – or unhappy – with the decision, it is now – and for the foreseeable future will likely be – the law. Plaintiffs will have access to a wider, in some cases much wider, suite of information in cartel follow-on class actions. This may not be a whole new world, but it is a notable shift.

Until next time,

James Musgrove & Joshua Chad
McMillan LLP

DOJ Seeks to Freeze Capacitor Civil Litigation

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Today’s post is by Joan Marshall, my partner at GeyerGorey.  Joan and I both worked in the Antitrust Division, DOJ but in different offices.  Joan prosecuted many major price fixing and bid rigging cases, including the vitamins cartel.

The Antitrust Division has now publicly recognized that there is a grand jury in the Northern District of California investigating possible price fixing, bid rigging, and market allocation among manufacturers of capacitors. Numerous class action price fixing suits have been filed. The Division has filed a motion seeking a stay of proceedings in the civil private class action litigation. Capacitors are electrical components used to store energy and have applications in data processing equipment, personal computers, communication systems, cellular phones, consumer electronics, automotive systems, defense and aerospace systems, power management systems, and many other electronic devices. There are several types of capacitors and they are found in nearly every electronic product. A typical smartphone contains up to five hundred capacitors. The global market for capacitors is estimated to be nearly $18 billion in 2014.

The Antitrust Division will typically seek a stay of the civil proceedings until it has largely finished the work of its criminal investigation. Stays usually have two components. The first is a stay on the discovery of documents. This stay is more limited with the Division usually not opposing discovery of documents that it has already obtained so that the civil litigants can at least proceed with that aspect of their discovery. The Division typically, however, seeks much longer stays of witness depositions in order to prevent its witnesses or prospective witnesses from making multiple statements. In the capacitors motion the Division seeks a stay on merits discovery until April 2015, with a further stay on merits depositions until November 2015. (Witnesses such as IT personnel or document custodians are not considered merits witnesses.). The Division has also proposed an indefinite stay of discovery of any party’s or witness’s communications with the government or the grand jury relating to capacitors, except by order of the Court for good cause.

It is well established that the government may intervene for the purpose of limiting discovery when there is a parallel criminal proceeding, although the scope and length of the stay is sometimes contested. In this case the government’s motion to intervene is unopposed. There is a status conference in the civil case scheduled for October 29th before Judge James Donato and the government seeks to be heard at that conference.

An interesting fact in this investigation is that the Antitrust Division has proceeded by the use of subpoenas. The Division prefers to initiate an investigation with search warrants wherever possible. This approach preserves evidence from possible destruction and creates momentum for the government and uncertainty on the defense side. Executing search warrants also signals to the subjects that the government had probable cause necessary to secure the warrants. This can indicate that there is an amnesty applicant already and the company and its executives are cooperating with the Division. Does the lack of search warrants in the capacitor investigation indicate there is no leniency applicant? Probably not. This is a worldwide investigation. There are parallel capacitor investigations in at least China, Japan, Korea and the EU. If there is a leniency applicant anywhere in the world, it would be foolhardy not to rush in to seek leniency in the United States. A possible scenario is that there are not relevant documents in the United States. A search warrant requires probable cause to believe a crime has been committed as well as probable cause to believe that documents that evidence the crime are at a particular location. The relevant documents may simply all be overseas.

It is also possible that the grand jury investigation will conclude that the conspiracy in other parts of the world [if there is one] will not meet the FTAIA requirements for a prosecution of “direct, substantial and reasonable foreseeable effects” on commerce in the United States. For example, cartel members may discuss and fix prices, rig bids, or allocate markets in Asia and/or Europe but refrain from collusion in the United States. Antitrust Division officials have commented in speeches that they aware of numerous international cartels that deliberately refrained from extending their anticompetitive activities into the United States[1], presumably because of the jail penalties that the Antitrust Division seeks to impose.[2]

Of course this is all speculation. The grand jury proceedings are secret and the Antitrust Division does whatever it legally can to protect the fact of and identify of leniency applicants and cooperators. In time, leniency applications and cooperating witnesses may become public either because they self-disclose or because in the course of a later criminal trial, the government is required by law to make disclosure of cooperation agreements. As this investigation unfolds, more will be revealed.

[1] See, e.g., Organisation for Economic Co-operation and Development, ROUNDTABLE ON PROMOTING COMPLIANCE WITH COMPETITION LAW — Note by the Delegation of the United States, June 2011. http://www.justice.gov/atr/public/international/273461.pdf, paragraph 17.

[2]   Id., paragraph 16, citing Donald I. Baker, The Use of Criminal Law Remedies to Deter and Punish Cartels and Bid-Rigging, 69 Geo. Wash. L. Rev. 693, 705 (Oct./Dec. 2001). “The Division has long advocated that the most effective deterrent for hard-core cartel activity, such as price fixing, bid rigging, and market allocation agreements, is significant prison sentences. Prison sentences are important in anti-cartel enforcement because companies necessarily commit cartel offenses through individual employees, and because prison is a penalty — in contrast to fines — that cannot be reimbursed by the corporate employer. As a corporate executive once told a former Assistant Attorney General: ‘[A]s long as you are only talking about money, the company can at the end of the day take care of me . . . but once you begin talking about taking away my liberty, there is nothing that the company can do for me.; Executives often offer to pay higher fines in exchange for a reduction in their jail time, but they never offer to spend more time in prison in order to get a discount on their fine”.

DOJ Recognizes Auto Parts Team

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On October 15, 2014 the Department of Justice recognized the historic achievements of the auto parts cartel investigation team, which was led by the Antitrust Division and the FBI. While the investigation is still ongoing, that may be the case for years as things wrap up or trials take place so it’s fitting for DOJ to recognize the extraordinary work done to date.  Some of the award recipients have already left the DOJ.

Worldwide, the auto parts investigation is just getting started in some places. South Africa recently announced that it was investigating 82 automotive component manufacturers for collusion on 121 automotive components.[1] By the time all global auto parts litigation is finally over, including civil suits, the matter may rival the Hundred Years War in length.

The Department’s announcement includes this:

 The first Distinguished Service Award is presented to members of the investigative and litigation team responsible for exemplary performance in the prosecution of conspiracies in the automobile parts industry.  This team, honored for its leadership, dedication and tireless investigation of global anticompetitive cartels, is responsible for the historic prosecution of over a dozen price-fixing, bid-rigging and market-allocation conspiracies in the automobile parts industry.  This four-year investigation was unprecedented in both its scope and the volume of commerce affected by the illegal conduct.  Due to the team’s efforts, 26 companies have agreed to pay fines totaling $2.3 billion and 20 individuals have been sentenced to serve jail sentences.  The conspiracies uncovered by the investigation affected more than 25 million cars purchased by American consumers and over $5 billion in automotive parts sold to U.S. car manufacturers and automobile plants in 14 states.  As a result of the extraordinary efforts of the team, competition was restored to the auto parts industry, and the companies and individuals responsible were held accountable for their illegal conduct.

Award recipients include, from the Antitrust Division, Chief Lisa M. Phelan; Assistant Chief Kathryn M. Hellings; Trial Attorneys Shane Cralle, Paul Gallagher, Kenneth W. Gaul, Mark C. Grundvig, Jason Jones and Eric Meiring; Washington Criminal I Section Secretary Priscilla Scruggs; Paralegal Unit Paralegal Specialist Meghan Ballard; and Office of Operations Trial Attorney Portia Brown; from the FBI’s Washington Field Office, Special Agents Kristina Honeycutt and Faustine M. Smith-Neil; and from the FBI’s Detroit Field Office, Special Agent Douglas R. Wood Jr.

Congratulations to all.

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[1]   The 121 automotive components allegedly affected by the collusion include, but not limited to, Inverters, Electric Power Steering ECU, Electric Power Steering and Motors, Glow Plugs, Electric Power Steering systems, Rear Sunshades, Pressure Regulator, Pulsation Damper, Purge Control Valves, Accelerator Pedal Modules, Power Management Controller, Evaporative Fuel Canister systems, Knock Sensors, Spark Plugs and Clearance Sonar systems.