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Cartel Enforcement

Recent Judgments Illustrate How the European Commission Can Correct Its Errors Post-Annulment

by McDermott Will & Emery | Feb 22, 2016 | Cartel Enforcement, EC Developments, Mergers & Acquisitions

As a general proposition, when the validity of a European Commission antitrust decision is challenged before the General Court of the European Union (GCEU), the procedure is one of judicial review, not a retrial on the merits (although the GCEU does have special jurisdiction to increase or reduce the amount of any fine). Thus there are only three possible outcomes: annulment of the Commission’s decision; variation in the amount of any fine, upwards or downwards; or rejection of the challenge altogether.

In the case of annulment, Article 266 of the Treaty on the Functioning of the European Union requires that the Commission “take the necessary measures to comply with the judgment” of the GCEU. Provided that the limitation period has not expired, the Commission may take a new decision on the case, taking care to avoid the illegalities identified by the GCEU in respect of the first decision. The new decision can be different from the first decision, as illustrated by the recent judgments in Mitsubishi Electric and Toshiba, but it can also be substantially the same, as illustrated by the recent judgment in Éditions Odile Jacob.

The Mitsubishi Electric and Toshiba cases arose out of the gas insulated switchgear cartel. Mitsubishi Electric and Toshiba were fined for their participation in the cartel. The companies challenged the Commission’s decision imposing the fines, and the GCEU annulled the fines imposed individually on Mitsubishi Electric and Toshiba on the ground that the Commission had infringed the principle of equal treatment by choosing, when calculating the fine, a reference year for Mitsubishi Electric and Toshiba which was different from that chosen for the European participants in the infringement.

Following the annulment, the Commission addressed a letter of facts to Mitsubishi Electric and Toshiba informing them of its intention to adopt a new decision remedying the unequal treatment criticised by the GCEU. Mitsubishi Electric and Toshiba submitted comments on the Commission’s letter of facts and had meetings with the Commission team responsible for the case. Subsequently the Commission adopted a new decision imposing lower individual fines on Mitsubishi Electric and Toshiba than in the first decision.

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EU Court of Justice Reduces Cartel Fine: General Court of the EU Exceeded its Jurisdiction

by Antoine De Rohan Chabot | Feb 15, 2016 | Cartel Enforcement, EC Developments

The Court of Justice of the European Union (Court),the EU’s highest court, recently issued a judgment in case C-603/13 P, Galp Energía España SA and others v Commission, reducing the fine imposed on certain companies that were found to have engaged in cartel behaviour. This decision overturned a decision of the General Court of the European Union (GCEU), and is notable because the Court found that the GCEU had exceeded its jurisdiction in the case by considering facts that had not been previously introduced. .

By way of background, in October 2007, the European Commission (Commission) fined several companies for their participation in the bitumen cartel, including Energía España, SA, Petróleos de Portugal (Petrogal), SA and Galp Energia, SGPS, SA (Appellants). Among the infringing conduct, the Commission identified a monitoring system of the cartel and its compensation mechanism. When determining the fines, the Commission reduced the fine imposed on Appellants by 10% in light of their limited involvement in the infringement.

In response, Appellants challenged the Commission’s decision before the GCEU. The GCEU annulled the Commission’s decision as it applied to Appellants, because the Commission failed to establish that Appellants participated in both the monitoring system and the compensation mechanism. However, and critically, based on grounds and evidence that had not been included in the contested decision or on the appeal, the GCEU concluded on its own initiative that Appellants were aware of both the monitoring system and compensation mechanism. Consequently, even though the Commission failed to prove Appellants’ actual involvement in this conduct, the GCEU nevertheless held that the appellant companies could still be held liable because of their alleged awareness. Based on these findings, the GCEU decided to reduce the fine imposed on Appellants by an additional 4%.

Appellants challenged the GCEU’s ruling before the Court. Appellants claimed, among other things, that the GCEU exceeded its jurisdiction because it considered evidence, and substituted grounds for the decision, that had not been introduced in the Commission’s underlying proceedings. The Court agreed, finding that the GCEU exceeded its jurisdiction. The Court found that GCEU concluded that the Commission failed to establish that Appellants participated in the monitoring system and compensation mechanism of the cartel. Yet, the GCEU, based on arguments and facts not considered in the Commission’s proceedings or addressed in the GCEU appeal, continued to find that Appellants were aware of the infringing conduct and could still be held liable for the infringement. Therefore, the Court concluded that the GCEU exceeded its authority by ruling on its own initiative, based on arguments and evidence not before it, that Appellants were liable based on different grounds than those used by the Commission in the contested decision or on the appeal.

The Court’s ruling further clarifies that the GCEU had unlimited jurisdiction in this case to review the matter brought before it i.e. the fine imposed by the Commission. But, this did not give the GCEU the authority to alter the basis for the contested decision. In other words, the Court [...]

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General Court of the EU Upholds Cartel Fines of €131 Million Imposed on Toshiba and Mitsubishi Electric, Dismisses Arguments Based on Principle of Equal Treatment

by Louise Aberg | Jan 27, 2016 | Cartel Enforcement, EC Developments, EU Developments

By two judgments of January 19, 2015 (Case T-404/12 Toshiba v. Commission and Case T-409/12 Mitsubishi Electric v. Commission), the General Court of the European Union (GCEU) upheld the fines of €131 million imposed by the European Commission (EC) on Toshiba and Mitsubishi for their participation in a cartel on the market for gas insulated switchgear (GIS), dismissing a line of reasoning essentially based on the principle of equal treatment.

The cartel, involving 20 European and Japanese undertakings, consisted in an agreement between competitors with the objective of coordinating the commercial activity worldwide of the members. The cartel members developed a quota system aimed at determining the market shares to allocate between them. In parallel, the cartelists reached an unwritten understanding, according to which GIS projects in the European market and Japanese market were reserved to European members and Japanese members of the cartel, respectively.

In its 2007 decision, the EC found a single and continuous infringement of competition law on the GIS product market between 1988 and 2004 and imposed fines on Toshiba and Mitsubishi, inter alios, of €86.25 million and €113.92 million, respectively. It also found the two Japanese undertakings jointly and severally liable for up to €4.65 million. Both companies challenged the EC decision, which led to two judgments of the GCEU (Case T-113/07 Toshiba v. Commission and Case T-133/07 Mitsubishi Electric v. Commission), subsequently upheld by the Court of Justice of the European Union (CJEU) (Case C-498/11 P Toshiba v. Commission and Case C-489/11 P Mitsubishi Electric v. Commission). The GCEU annulled the fines imposed on the two Japanese undertakings, finding that the Commission had infringed the principle of equal treatment in calculating their fines. The reference year used to calculate the fines for the applicants was indeed different from that chosen for the European participants in the infringement.

Having been asked to reexamine its decision, the EC recalculated the fines imposed on Toshiba and Mitsubishi and fixed them at €56.79 million and €74.82 million, respectively, without changing the amount of the fine for which they were held jointly and severally liable. The two Japanese undertakings then lodged a new appeal before the GCEU seeking the annulment of the revised fines. In support of their action, the applicants alleged, inter alia, an infringement of the principle of equal treatment as regards the determination of their level of culpability as compared to the European participants in the infringement and the starting amount of the fine.

First, Toshiba and Mitsubishi argued that they were less culpable than their European counterparts because their participation had been limited to agreeing not to enter the European Economic Area (EEA) market, whereas the European undertakings had distributed the GIS projects on that same market through active collusion. In other words, they contended that their participation only consisted in a failure to act and that, consequently, they could not be held as liable as the European undertakings for the implementation of the cartel.

The GCEU reiterated its settled case-law, according to which the [...]

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A New Concept in Cartel Fining: “Direct EEA Sales Through Transformed Products”

by McDermott Will & Emery | Jul 11, 2015 | Cartel Enforcement, EU Developments

On 9 July 2015, the Court of Justice of the European Union (CJEU) issued its judgment in InnoLux Corp. v Commission C-231/14P, confirming the existence of a new concept in cartel fining: “direct European Economic Area [EEA] sales through transformed products”. This new concept can be used by the European Commission to calculate fines of an amount higher than a restrictive reading of its Fining Guidelines might suggest.

Background

The judgment arose out of the liquid crystal display (LCD) cartel case, which involved several LCD producers in Asia. The European Commission determined that the cartel participants had three channels of sale into the EEA:

Direct EEA sales, i.e., LCD panels for IT or television applications directly sold to another undertaking in the EEA.

Direct EEA sales through transformed products, i.e., LCD panels incorporated intra-group into a final IT or television product and subsequently sold to another undertaking in the EEA.
Indirect Sales, i.e., LCD panels sold by one of the cartel participants to another undertaking outside the EEA, which would then incorporate the panels into final IT or television products and sell them in the EEA.

The Commission took the view that inclusion of the third channel was not necessary for the purposes of imposing a fine to achieve a sufficient level of deterrence, but did take account of the first two channels. InnoLux challenged the inclusion of the second channel, and the General Court of the European Union rejected the challenge.

The CJEU’s Judgment

The CJEU upheld the decisions of the EU General Court and the Commission, notwithstanding the opinion of the Advocate-General to the contrary.

The CJEU referred first to the established case law, according to which the amount of the fine imposed on an undertaking must reflect “the economic significance of the infringement and the relative size of the undertakings’ contribution to it”.

Next, the CJEU observed that, applying this principle, the existing case law (Guardian Industries C-580/12P 12 November 2014) concludes that sales of the product concerned to a related party in the EEA should be taken into account in the same way as sales direct to unrelated parties.

The CJEU then took an innovative step. It extended the approach in Guardian Industries as follows. When sales of a cartelised product are made to a related party outside the EEA, and the product is incorporated into a downstream product that is sold to independent third parties inside the EEA, the sales of the downstream product into the EEA can be taken into account in determining the amount of the fine. The value to be taken into account is not the full value of the downstream product, but the proportion of that value that corresponds to the value of the cartelised product that was incorporated into the downstream product.

The CJEU emphasised that this case was not about whether or not the Commission had jurisdiction. The Commission’s jurisdiction was not in dispute because the cartel participants, including Innolux, made some sales of LCDs direct to independent [...]

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ICN Adopts New Guidance Focusing on Investigative Process and International Cooperation in Mergers

by Louise Aberg | Jun 22, 2015 | Cartel Enforcement, Mergers & Acquisitions, Monopolization/Abuse of Dominance

From April 28 through May 1, the International Competition Network (ICN) held its 2015 annual conference. The ICN is a network that unites 132 competition watchdogs from 119 jurisdictions, including the Antitrust Division of the U.S. Department of Justice (DOJ), the Federal Trade Commission (FTC), the European Commission (EC) and the Japan Fair Trade Commission (JFTC). Its role is to act as a forum for the global antitrust community and to facilitate dialogue and build consensus on competition policy and practices. Members participate in working groups and produce recommendations once they have reached consensus. Each year, during the annual conference, recommendations are adopted by the members and become best practices or guidance tools that may be implemented by competition authorities across the world.

This year, the ICN adopted several recommended practices including, most notably, “ICN Guidance on Investigative Process” and an “ICN Practical Guide to International Enforcement Cooperation in Mergers.”

Guidance on Investigative Process

The “ICN Guidance on Investigative Process” is the result of discussions held within the Agency Effectiveness Working Group over several years as part of the ICN’s Investigative Process Project co-led by the FTC and the EC. This is the first time the ICN has addressed investigative processes used by competition agencies across all competition enforcement areas. The discussions focused on two prongs: (i) enforcement tools available to competition agencies to obtain relevant information in the course of their investigations, and (ii) the procedures they follow when conducting such investigations. The adopted work product contains a list of key principles and practices which the participants deemed important in order to guarantee an effective and fair investigative process:

Investigative tools. Competition authorities should be able to make use of investigative tools, such as requests for information, inspections and interviews. They should have the possibility to obtain information by compulsion if necessary. Such investigative tools should be used in accordance with a legal framework setting out clear criteria, and be subject to both internal checks and balances and external review.
Transparency concerning policies and standards. Competition authorities should lay out legal standards and agency policies in formal or informal documents, such as manuals, staff working papers, best practices or guidelines. There is one limit: transparency should not undermine the effectiveness of investigations.
Transparency during an investigation. Competition agencies should let parties know as soon as feasible that an investigation has been opened; the legal basis for the investigation; the competitive concerns and the applicable theories of harm; the progress and timing of the investigation; and, once formal allegations are made, the evidence relied upon. The level of transparency may be different depending on the type of investigation.
Engagement during an investigation. Competition agencies should provide parties with the possibility to defend themselves against the allegations raised. In doing so, parties should be able to submit factual, legal, and economic evidence in due course. Interested third parties should also be able to submit their views.
Confidentiality protection and legal privileges. Parties and third parties should be able to ask [...]

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Shipping Executive Acquitted of Antitrust Charge

by Gregory E. Heltzer | May 18, 2015 | Cartel Enforcement, DOJ Developments

On May 8, 2015, a jury in Puerto Rico acquitted Thomas Farmer (Farmer), the former vice president of price and yield management for Crowley Liner Services, Inc., of conspiring to suppress and eliminate competition in violation of Sherman Act, Section 1. The case is United States v. Thomas Farmer (3:13-cr-00162) in the United States District Court for the District of Puerto Rico.

In March 2013, the United States Department of Justice (DOJ) indicted Farmer. The DOJ accused him of conspiring with competing shipping companies, from mid-2005 through April 2008, to fix rates and surcharges for freight transported between the United States and Puerto Rico. The DOJ alleged that Farmer and competing shipping executives participated in meetings, conversations, and communications where they agreed to allocate customers; fix and inflate prices; and rig bids submitted to government and commercial customers. The type of freight in the alleged conspiracy included heavy equipment, medicines, food, beverages and consumer goods.

While the jury acquitted Farmer, other shipping executives have either pled or been found guilty of similar charges. In January 2013, a Puerto Rican jury convicted, Frank Peake (Peake), the former president of Sea Star Line LLC. Peake was sentenced in December 2013 to five years in prison, which at the time was the longest prison sentence for a Sherman Act violation. In addition, five other shipping executives have pled guilty and been sentenced to prison terms ranging from seven months to four years.

Antitrust Enforcers Discuss Recent Highlights, Ongoing Cases, Enforcement Priorities and General Trends at the 2015 ABA Section of Antitrust Law Spring Meeting

by Louise Aberg | Apr 29, 2015 | Cartel Enforcement, DOJ Developments, EC Developments, FTC Developments

The American Bar Association (ABA) Section of Antitrust Law Spring Meeting concluded earlier this month with the traditional “Enforcers’ Roundtable,” an interview with leading competition authorities about recent highlights, ongoing cases, enforcement priorities and general trends.

This year’s participants were Bill Baer, U.S. Assistant Attorney General for Antitrust; Edith Ramirez, Federal Trade Commission (FTC) Chairwoman; Kathleen Foote, Chair of the Multistate Antitrust Task Force of the National Association of Attorneys General; Margrethe Vestager, E.U. Commissioner for Competition; and Lord David Currie, Chairman of the one-year old UK Competition and Markets Authority (CMA). Below is a summary of certain highlights from the discussion.

Recent Domestic Achievements and Enforcement Priorities

Ramirez touted the FTC’s recent U.S. Supreme Court victory in North Carolina Board of Dental Examiners[1], in which the court held that a state licensing board was not entitled to state action immunity because active market participants controlled the board, and the board was not subject to active supervision by the state. Foote noted that states are currently taking steps to ensure compliance with this ruling.

Ramirez also highlighted the FTC’s current efforts to challenge the merger between the nation’s two largest food distributors, Sysco and US Foods. Foote noted that the Sysco/US Foods[2] case is a multistate effort, with 11 state attorneys general collaborating with the FTC.

Enforcement in the pharmaceutical industry, especially pertaining to reverse payment settlements, is a priority, panelists stated. Ramirez discussed the FTC’s ongoing litigation in three reverse payment settlement cases. She noted that in the aftermath of the Supreme Court’s ruling in Actavis[3], the FTC posits that non-monetary payments, such as supply agreements, could constitute reverse payments and thus be subject to antitrust scrutiny.

Foote remarked that reverse payment settlements are also a major state focus, pointing to the recent settlement between the New York Attorney General and two generic pharmaceutical companies, Ranbaxy Pharmaceuticals Inc. and Teva Pharmaceuticals USA Inc.

Global Cartel Enforcement: a Record-Breaking Year

Baer and Vestager highlighted the increasing number and severity of fines imposed on companies engaged in price-fixing, as well as prison sentences imposed on executives in the U.S. In recent years, enforcers have scrutinized conduct in a range of industries, including financial services, agriculture, ocean shipping, consumer goods and the auto parts industry.

Baer indicated that cartel enforcement accounts for more than 40 percent of the Antitrust Division’s work. Vestager noted that the European Commission (EC) rendered 10 decisions related to cartel activity in 2014, including eight settlements. She noted that settlements are part of the EC’s “toolbox,” but the EC would continue rendering infringement decisions to develop case law.

In contrast to the U.S. Department of Justice (DOJ) and the EC, Currie said that the CMA’s 2014 cartel record was not as strong as he would have liked and that the CMA received a recent budget increase in part to enhance enforcement efforts.

International Enforcement Cooperation

Each of the panelists praised the quality of international cooperation among antitrust agencies. Vestager said that 60 [...]

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Seventh Circuit Upholds Dismissal of Text Messaging Price-Fixing Claims

by Emily Townsend | Apr 16, 2015 | Cartel Enforcement, Private Litigation

On Thursday, April 9, 2015, the Seventh Circuit affirmed the district court’s grant of summary judgment for AT&T Mobility LLC, Verizon Wireless LLC, T-Mobile USA Inc. and Sprint Corp., in a text messaging price-fixing litigation. In re Text Messaging Antitrust Litigation, case number 14-2301. Plaintiffs alleged that these wireless telephone providers and a trade association to which those companies belong, The Wireless Association, conspired to raise the price of “price per use” text messages from 2005 to 2008 in violation of Section 1 of the Sherman Act. In May 2014, the district granted defendants’ motion for summary judgment, and the plaintiffs appealed. On appeal, the plaintiffs argued that the lower court’s ruling should be reversed because 1) they uncovered “smoking gun” emails showing a defendant employee admitting to collusive behavior, 2) the risk of losing customers made it irrational for the providers to raise the price unless they agreed to all implement increases and 3) The Wireless Association orchestrated the exchange of information between defendants. The Seventh Circuit found these arguments unpersuasive.

In writing the opinion for the Seventh Circuit, Judge Richard Posner explained that “follow-the-leader” pricing, also known as “conscious parallelism” or “tacit collusion,” does not violate the Sherman Act. Instead, to survive summary judgment, plaintiffs must present sufficient evidence of “express collusion.” The plaintiffs failed to do so. First, Posner addressed the plaintiffs’ purported “smoking gun” e-mails from a T-Mobile employee. In one of these e-mails, the employee called a T-Mobile price increase “collusive [sic] and opportunistic.” Upon a review of the language in the smoking gun e-mails as well as other missives from this employee, Posner determined that nothing in the e-mails suggested that the employee was accusing T-Mobile of express collusion; the e-mails were discussing legal, follow-the-leader pricing. In fact, Posner even admonished the plaintiffs for wasting so much of the space in their briefs on these e-mails. Second, Posner explained the weaknesses in the plaintiffs’ argument that, but for an agreement with its competitors, a provider would not risk losing customers to raise the price. Mainly, this argument ignored the fact that a seller cares about total revenues, not the number of customers. Even if a seller loses a third of its customers by doubling its price, then the seller is still earning greater revenues. Third, Posner found the plaintiffs’ argument that defendants colluded at trade association meetings unconvincing. Because the plaintiffs offered no evidence regarding the content of the information exchanged at these meetings, the court had no basis to infer that the gatherings were used for collusive purposes. Overall, the plaintiffs’ evidence was equally consistent with independent behavior as it was with conspiracy and, therefore, insufficient to overturn the lower court’s summary judgment ruling.

Third Circuit Remands Class Certification Ruling in Blood Reagents Price-Fixing Case

by Emily Townsend | Apr 15, 2015 | Cartel Enforcement, Private Litigation

On Wednesday, April 8, 2015, the Third Circuit Court of Appeals vacated a district court’s order certifying a class of direct purchasers of blood reagents in a price-fixing suit against Ortho-Clinical Diagnostics Inc. In re Blood Reagents, case number 12-4067. Plaintiffs allege that Ortho-Clinical Diagnostic Inc. (Ortho) and a producer of blood reagents, violated Section 1 of the Sherman Act by conspiring with the only other U.S. producer of reagents, Immucor Inc., to raise prices of blood reagents on numerous occasions throughout the 2000s. Immucor settled with plaintiffs in 2012. In September 2011, the plaintiffs moved to certify a class of direct purchasers, and the district court held a hearing in July 2012. To support their arguments for class certification, the plaintiffs relied on expert testimony to create their damages model and antitrust impact analysis. Although Ortho challenged the reliability of the expert testimony, the district court certified the class and held that the testimony “could evolve to become admissible” at trial. In re Blood Agents, 283 F.R.D. 222, 243-245 (E.D. Pa. 2012). Ortho’s arguments went to the merits and were not persuasive at the class certification stage. Id. at 240-41. In making this ruling, the court relied on the Third Circuit decision of Behrand v. Comcast Corp., 655 F.3d 182 (3d. Cir. 2011). Ortho appealed.

The Third Circuit vacated this class certification decision and remanded the case back to the lower court. Since the district court’s ruling, the Supreme Court overturned Behrand and the “could evolve” standard relied on by the lower court in this case. Comcast v. Behrand, 133 S.Ct. 1426 (2013). Instead, the Supreme Court emphasized that the class certification analysis must be rigorous. Id. at 1432. Therefore, the Third Circuit determined that this “rigorous analysis” applied to expert testimony critical to proving class certification. It held that if challenged expert testimony is critical to class certification, then plaintiffs cannot rely on this challenged testimony to show conformity with the class certification requirements unless they also establish, and the trial court finds, that the testimony satisfies the standard for expert testimony set forth in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). According to the Third Circuit’s order, on remand, the district court must first determine which, if any, of Ortho’s attacks on the expert’s reliability challenge the aspects of the expert testimony offered by the plaintiffs to satisfy class certification requirements. Then, if necessary, the lower court must perform a Daubert analysis on this testimony before deciding whether to certify the class.

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