For the first time, the U.S. Department of Justice (DOJ) has successfully litigated an extradition of a foreign national on an antitrust charge. This extradition shows that the DOJ is still pursuing individuals it charged several years ago with criminal price-fixing conduct and is a watershed moment in DOJ criminal enforcement of the antitrust laws.
by Andrea Hamilton, David Henry, Aiste Slezeviciute
The Enterprise and Regulatory Reform Act 2013 took effect on 1 April 2014. Increased efficiencies and deterrence are the main drivers of this reform.
As of 1 April 2014, the Enterprise and Regulatory Reform Act 2013 (ERRA) brings about significant substantive and structural change to the United Kingdom’s competition regime. As part of a more general overhaul of this regime, the recently created Competition and Markets Authority (CMA) becomes fully operational, a revised criminal cartel offence enters into force, and the merger control regime becomes more robust. These changes bring in their wake a swathe of new investigatory and enforcement powers and penalties for failure to comply. Businesses are therefore urged to take note of these new changes and to be alert to compliance risk. This On the Subject summarizes some of the key aspects of the reforms.
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On December 6, 2013, Frank Peake, former president of Sea Star Line LLC, was sentenced to five years in prison and ordered to pay a $25,000 fine for his role in fixing prices for rates and surcharges for freight transportation in coastal waters between the United States and Puerto Rico. The alleged conduct began around late 2005 and continued until at least April 2008. Earlier this year, Peake was convicted of violating Sherman Act Section 1 following a two-week trial in the United States District Court for the District of Puerto Rico. Although Peake’s five-year sentence is shorter than the seven-year sentence sought by the Department of Justice, five years is the longest prison sentence ever handed down to an individual for a single antitrust charge. Previously, Peter Baci, another executive at Sea Star Line LLC, tied the record for longest prison sentence for a single antitrust charge with a four-year sentence.
Peake’s sentence reinforces the Department of Justice’s (DOJ) commitment to prosecuting executives involved in conspiracies to fix prices in violation of the antitrust laws. Bill Baer, Assistant Attorney General of the DOJ Antitrust Division stated, “The Antitrust Division will continue to vigorously prosecute executives who collude to fix prices at the expense of consumers.”
The DOJ reported that Peake and other executives convicted in the price-fixing scheme conspired through meetings and other communications to fix, maintain and stabilize freight services rates in the coastal waters between the United States and Puerto Rico, to allocate customers in the freight services market, and to rig bids. By selling Puerto Rican freight services at collusive, non-competitive rates, the “coastal shipping price-fixing conspiracy affected the price of nearly every product that was shipped to and from Puerto Rico during the conspiracy,” said Baer.
In all, six executives and three companies have either pled guilty or were sentenced at trial in the coastal freight waters cartel investigation. The corporations were fined $14.2-$17 million for price-fixing. Four executives were fined $20,000 and received prison sentences ranging from 20-48 months. Another executive was sentenced to seven months for obstruction of justice.
This latest conviction illustrates the DOJ’s objective of prosecuting company executives as a means of deterring and punishing cartel activity. In the past few years, cartel investigations have resulted in more executives sentenced to longer period of jail time. For example, the percentage of executives sentenced to prison has increased to 71 percent from 2010-2012, up from 62 percent from 2000-2009 and 37 percent from 1990-1999. Similarly, the average prison sentence increased to 25 months in 2010-2012 from 20 months from 2000-2009 and just eight months from 1990-1999.
On November 14, 2013, members of the Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights heard arguments regarding the effectiveness of current cartel prosecution and punishment strategies in deterring cartel conduct. In her opening remarks, Senator Amy Klobuchar, chair of the Subcommittee on Antitrust, called price-fixing the most egregious form of antitrust violations. “Cartels have no other purpose than to rob consumers,” Klobuchar stated.
At the hearing, William Baer, assistant attorney general for the Department of Justice (DOJ) Antitrust Division, highlighted the Division’s efforts to prosecute cartels over the last decade. Under the Antitrust Division’s recent aggressive enforcement efforts, the DOJ obtained record fines and jail time against corporations and individual corporate officers for cartels conduct. In 2013, the DOJ obtained $1.02 billion in fines and filed 50 cases against cartels, including charges against 21 corporations and 34 individuals and the imposition of 28 prison terms averaging two years. This presents a marked increase in the eight-month average jail term imposed against Antitrust Division defendants in the 1990s.
Over the past five years, the DOJ has, on average, obtained over $850 million in fines from cartels. Baer noted the success of the DOJ’s leniency program, as well as cooperation with state and federal agencies like the Federal Bureau of Investigation (FBI) in investigating cartels. The leniency program has increased the rate of self-disclosure by providing both corporations and individuals with incentives for investigating and reporting antitrust violations. The DOJ has also amped up efforts to collaborate with competition authorities in foreign countries worldwide to better coordinate cartel policies, detection efforts and investigations. As a result, the DOJ has obtained more sentences against foreign nationals, currently an average of 11 per year, as opposed to three per year in the 1990s. The DOJ recently obtained record criminal fines and jail time in prosecuting large, complex cartels involving price-fixing conspiracies in the liquid crystal television displays, air cargo and freight, and automobile parts markets.
Others testifying in front of the Subcommittee pressed the Senate to adopt stricter cartel punishments in light of the “steady stream of cartels” that they view as a persistent problem despite the DOJ’s leniency program. The panelists questioned the effectiveness of monetary penalties as a deterrent, noting that fear of jail time is only effective if individuals and corporations involved in cartels believe they are likely to be caught. They testified that steep fines and punishments may actually discourage individuals from self-disclosing violations, so a better deterrent may be imposing bans on corporations and individuals convicted of cartel violations, which would prevent them from conducting business in certain markets or preclude them from serving on boards or in other corporate functions.
As the DOJ, in conjunction with other federal agencies, continues to vigilantly investigate and prosecute cartels, individuals and corporations should evaluate policies and internal compliance measures in consideration of federal and state antitrust laws.
On September 24, 2013, the Northern District of California certified a class of indirect purchasers in In re Cathode Ray Tube Antitrust Litig., No. 3:07-cv-5944 SC, 2013 WL 5391159 (N.D. Cal. September 24, 2013). The case was brought by indirect purchasers of products containing cathode ray tubes (CRTs) against CRT manufacturers alleging a global conspiracy to fix prices. In support of their motion for class certification (and specifically with respect to the predominance requirement of Rule 23(b)), the plaintiffs offered a damages model and expert testimony that “it is more probable than not that the cartel’s price increase impacted all, or nearly all, direct purchasers in a common way.” The defendants countered that running the model resulted in calculations of no impact for certain members of the class and therefore the model was unable to show impact to each individual class member. The Court relied on recent Supreme Court decisions on class certification for the proposition that “proving predominance does not require plaintiffs to prove that every element of a claim is subject to classwide proof: they need only show that common questions predominate over questions affecting only individual members.” The Court further held that “[w]hen an expert’s testimony relates to damages calculations in a class certification case, the district court must undertake a rigorous analysis of the expert’s opinions in the class certification context, such as whether the opinions are consistent with the liability case and whether they demonstrate that case’s proposed damages are measurable on a classwide basis.”
The Court found that the plaintiffs’ expert made a sufficient showing to meet the predominance requirement and that class certification was appropriate. Specifically, the Court found that the plaintiffs’ expert could establish that damages were measurable on a classwide basis, consistent with recent Supreme Court decisions, and that the plaintiffs’ expert demonstrated that “common influences on the price structure could be estimated using a formula, and by the same type of regression analysis, a very high percentage of sales prices could be determined by common variables. Therefore, [the expert’s] declaration show[ed] that proof of harm to direct purchasers could be proved without individual inquiry.” The Court also found that the expert was able to show that the pass-through rate to indirect purchasers was 100 percent.
The defendants’ main argument against plaintiffs’ proposed model was that it predicted no injury to individuals included in the class definition. The Court disagreed, however, and held that its concern was to determine whether the indirect purchasers “showed that there is a reasonable method for determining, on a classwide basis, the antitrust impact’s effects on the class members,” which the Court found to be “a question of methodology, not merit.” The Court cited other Supreme Court cases for the notion that none of the earlier cases changed the standard for class certification and none required a full merits analysis at the class certification stage. Thus, according to the Court, the indirect purchasers “need not prove, at the class certification stage, that every single class member was [...]
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On September 25, 2013, Assistant Attorney General Bill Baer gave his first formal remarks since becoming head of the Antitrust Division at the United States Department of Justice (DOJ) in January. Speaking at Georgetown Law’s Seventh Annual Global Antitrust Enforcement Symposium, Baer’s address was entitled “Remedies Matter: The Importance of Achieving Effective Antitrust Outcomes.”
Baer emphasized that achieving a remedy that preserves or restores competition is more important than the government winning a particular lawsuit. He then addressed remedies in four contexts: merger remedies, civil non-merger remedies, civil disgorgement and criminal remedies.
Regarding mergers, Baer said that the DOJ “should only consider remedies that effectively resolve the competitive concerns and protect the competitive process.” He indicated that some deals are nearly unfixable and noting that litigation is not DOJ’s preferred option, Baer warned that reaching a consent decree takes time and cautioned parties against waiting until late in an investigation to engage the DOJ in negotiations. The proposed acquisition of Grupo Modelo by Anheuser-Busch InBev initially included a component addressing antitrust concerns, but the DOJ wanted more. Baer used the consent decree in that matter to highlight important provisions in “an effective merger remedy:” structural relief, a fully-vetted up-front buyer, a monitoring trustee and a conveyance of intellectual property and know-how.
For civil non-merger remedies, Baer pointed to the e-books litigation involving Apple and five of the six largest publishers in the United States. In prosecuting Apple for its role in the civil price-fixing conspiracy, DOJ was seeking a remedy “that would stamp out any lingering effects of the conspiracy,” prevent similar conduct in the future, and ensure Apple’s compliance, with “success … measured not by [DOJ’s] ability to prove the violation, but rather by the effectiveness of the remedies … obtained.” Baer believes the final judgment accomplishes this through antitrust compliance requirements, including an external compliance monitor.
Baer said that civil disgorgement is appropriate where an offending party would have otherwise “retained the monetary benefits of its anticompetitive conduct.” He also indicated that it would be a remedy considered in both merger and conduct cases. Pointing to the “broader legal landscape” and what some observers see as hurdles in private antitrust cases, Baer said that the DOJ would take into account the likelihood of success in private actions when it fashions its public remedies.
For criminal remedies, Baer discussed DOJ’s prosecution of AU Optronics Corporation, its U.S. subsidiary and two top executives for a criminal price-fixing conspiracy. The remedy included a $500 million fine, probation and an independent monitor to oversee an antitrust compliance program.
Baer appears open to developing creative remedies to achieve outcomes the agency finds most effective in “remedy[ing] anticompetitive conduct and guard[ing] against any recurrence.” Throughout the speech he emphasized the use of external monitors (the costs of which are borne by the offending parties) and difficult remedies to “fix” past offenses, including disgorgement and unwinding consummated mergers.
On October 11, 2013, the plaintiffs in the Detroit nurses litigation who have accused Detroit-area hospitals of conspiring to suppress their wages opposed VHS of Michigan, D/B/A Detroit Medical Center’s (DMC) petition to the Sixth Circuit for leave to appeal the district court’s decision granting class certification.
DMC had asked the Sixth Circuit to do an interlocutory appeal of a September ruling certifying a class of more than 20,000 registered nurses seeking more than $1.7 billion in damages based on a purported antitrust conspiracy among Detroit-area hospitals to reduce nurse wages.
The lawsuit was first filed in December 2006 and accuses the Detroit area hospitals of conspiring with one another to keep registered nurses’ wages low. In particular, the lawsuit alleges that the hospitals agreed to exchange compensation information to reduce wages and competition to hire and retain Detroit nurses. DMC is the only remaining defendant in the case. The other seven defendants previously settled the litigation.
In September, a district court judge granted plaintiffs’ motion for class certification. The hospital asked the Sixth Circuit to review that ruling a few weeks later. In support of that request, DMC argued that the district court’s decision conflicts with the approach followed by other federal courts and raises important questions about the proper interpretation of the Supreme Court’s recent decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (Comcast).
In particular, DMC argued that plaintiffs should not have been able to establish predominance through a damages model that calculated damages based in part on a theory of liability (wage fixing claim) that had already been dismissed on a motion for summary judgment. In addition, DMC argued that the district court failed to take a “close look” at the damages model before certifying the class.
Plaintiffs argued that DMC attempted to make a strained analogy to Comcast and also criticized DMC for raising arguments on appeal that were not raised with the district court. Plaintiffs argued that this case does not present the sort of “novel or unsettled question” of “class litigation in general” that is worthy of the Sixth Circuit’s discretionary review.
The full case name is In re: VHS of Michigan, Inc., No. 13-113 (6th Cir. filed Sep. 27, 2013).
On October 10, 2013, Takata Corp. (Takata), a Japanese auto parts maker, agreed to pay a $71.3 million as part of a plea agreement for its role in an alleged conspiracy to fix prices on seat belts sold to car manufacturers. In addition, Takata agreed that the Chairman-CEO, Shigehisa Takada, will take a 30 percent cut in his compensation and the other directors will take a 15 percent cut.
According to the criminal charges filed in Detroit last week, Takata is accused of conspiring with other companies between January 2003 and February 2011 to suppress and eliminate competition in the automotive parts industry by agreeing to rig bids for, and to fix, stabilize and maintain the prices of certain seatbelts.
The alleged price-fixing affected products sold to multiple U.S. and international automobile manufacturers. Takata is also a supplier of automotive air bags, interior components and steering wheel systems, which have previously been a focus of investigation in the Department of Justice’s (DOJ) auto parts price-fixing investigations.
The DOJ’s ongoing auto parts investigation has yielded charges against companies who manufacture a wide number of automotive parts including seatbelts, airbags, steering wheels, antilock brake systems, instrument panel clusters and wire harnesses.
The DOJ has already brought criminal charges against 21 companies and 21 executives and has imposed nearly $1.7 billion in total fines as part of its automotive parts investigation.
by Philipp Werner and Robert Bäuerle
On 8 October 2013, the European Commission issued updated guidance for companies making oral statements in leniency applications. The Commission requests that the oral statement is clear, factual and to the point and is only accepted during working hours.
On September 3, 2013, a California federal jury unanimously found HannStar Display Corp. liable for conspiring to fix prices on liquid crystal display (LCD) panels. However, the jury found co-defendant Toshiba Corporation not liable. The jury awarded plaintiff Best Buy Company $7.47 million in direct damages. The case is In re: TFT-LCD (Flat Panel) Antitrust Litigation (3:07-md-01827) located in the U.S. District Court for the Northern District of California.
Best Buy accused Toshiba and HannStar of conspiring with other firms to fix prices for LCD panels. Prior to and during trial, HannStar admitted participating in meetings where major electronics makers agreed to fix panel prices. The lawsuit stemmed from an investigation by the U.S. Department of Justice which resulted in guilty plea agreements for HannStar and other Japanese, Taiwanese and Korean firms, not including Toshiba.
Plaintiff’s experts argued that the defendants owed Best Buy up to $770 million. Defense experts calculated damages significantly lower and the jury agreed with those estimates. However, even though the jury awarded damages, Best Buy may not be able to collect based on the jury’s decision that HannStar’s conduct did not have a direct, substantial and reasonably foreseeable effect on trade or commerce in the United States as required by the Foreign Trade Antitrust Improvements Act.
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