Cartel Capers

A blog about cartels, competition and compliance

100 Blawg Honoree

UK’s Competition and Market Authority: [Real] Estate Agents Cartel Case Study

by

I thought this might be of interest to readers and/or to pass on to clients.  The UK’s Competition and Markets Authority (CMA) just published a case study of their investigation of a real estate against cartel in the UK (here).   Below are the lessons learned section of the study:

What are the lessons?

  • Be careful when talking business with your competitors – make sure you don’t agree not to compete with each other.

  • Be especially wary of any conversations about pricing, or about a shared approach to pricing. Each business must set and decide its prices independently.

  • Competition law applies to small businesses as well as large ones. The estate agents in this case were small local or regional businesses.

  • The consequences of breaking competition law can be severe; fines can be as much as 10% of a business’ global turnover and a director can be banned from being a director of a company, or being involved in the promotion, formation or management of one, for up to 15 years. In the most serious cases, individuals can go to prison for up to 5 years. [In the United States the maximum prison sentence is 10 years.]

  • Competition law applies to all industries and the CMA will take action against those breaking the law.

  • The Somerset estate agents’ cartel is the second recent enforcement case the CMA has taken in the property sector. The CMA remains committed to tackling illegal anti-competitive conduct in the sector.

You can subscribe to the CMS for email updates (here).

Thanks for reading.

Audio of Seventh Circuit Motorola Mobility Oral Argument is Available Online

by

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

by

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

*****************                       

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

by

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

by

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.  

*******************

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!

by

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

********

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

by

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

by

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.

***********************************

[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.