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price fixing

Section 1 Claims Dismissed in LIBOR, TIBOR Class Action

by McDermott Will & Emery | Apr 15, 2014 | Private Litigation

On March 28, 2014, Judge Daniels of the Southern District of New York dismissed antitrust and unjust enrichment claims against over 20 banks accused of manipulating prices in the Euroyen interbank lending market by submitting false rate quotes to Yen-LIBOR and Euroyen TIBOR rate-setting organizations. Laydon v. Mizuho Bank, Ltd., No. 12-cv-3419 (S.D.N.Y. Mar. 28, 2014). The plaintiff, a short purchaser of Euroyen TIBOR futures contracts, also brought claims under the Commodities Exchange Act, which the court allowed to go forward.

The court based its dismissal of the price-fixing claim on lack of antitrust standing and failure to allege a restraint of trade. The plaintiff lacked antitrust standing for two reasons: (1) failure to plead antitrust injury and (2) the indirect, remote and speculative nature of his alleged injury—while the alleged misconduct involved manipulating present-day interbank lending rates, the alleged injury was suffered in the futures market. Although the plaintiff alleged that prices were distorted, he failed to allege that the distortion resulted from a reduction in competition. The ruling was partially based on the unique nature of the rate-setting process, which is neither supposed to be competitive nor collaborative. Instead, “each bank was supposed to independently contribute its submission to be evaluated collectively with other bank submissions.”

In holding that the plaintiff failed to allege a restraint of trade, the court noted, “Plaintiff merely alleges that prices may have been different. Plaintiff does not, however, allege that trades in Euroyen TIBOR futures contracts were in any way restrained by the alleged misconduct.” The court analyzed the alleged misconduct under the rule of reason and found that the plaintiff had failed to plead any anticompetitive effects. “There are no allegations that banks competed less, or were forced out of any of these markets. Nor is there any allegation that output of Euroyen futures contracts was eliminated or diminished. Absent any such allegations, Plaintiffs’ claim does not sufficiently plead a violation of the Sherman Act.”

FTAIA and Foreign Sales: Seventh Circuit Limits Extraterritorial Reach of U.S. Antitrust Law in Motorola Mobility v. AU Optronics

by McDermott Will & Emery | Apr 8, 2014 | Private Litigation

On March 27, 2014, in Motorola Mobility LLC v. AU Optronics Corp., the Seventh Circuit set precedent in the growing body of law interpreting the Foreign Trade Antitrust Improvements Act (FTAIA). Judge Posner held that the FTAIA bars antitrust suits over restraints in foreign markets for parts (inputs) used abroad to manufacture products later imported into the United States. The court held that such price fixing fails the FTAIA’s “direct effects” test, as well as the FTAIA requirement that the effect of the defendant’s conduct “gives rise to” an antitrust claim in the United States.

Read the full article.

First Successful Extradition of Foreign National for Price-Fixing Violation

by McDermott Will & Emery | Apr 7, 2014 | Cartel Enforcement, DOJ Developments, German Developments

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.

Read the full article.

Cathay Pacific Airlines Settles Freight Shipping Price-Fixing Class Action

by Emily Townsend | Feb 14, 2014 | Private Litigation

On February 12, 2014, Cathay Pacific Airlines Ltd. settled a freight shipping price-fixing multidistrict class action litigation in the Eastern District of New York. In re Air Cargo Shipping Services Air Cargo Antitrust Litigation, case number 1:06-md-01775. The Hong Kong-based airline agreed to pay consumers of air-freight shipping services $65 million in the settlement. After the U.S. Department of Justice and European Commission initiated investigations of the air freight industry, purchasers of shipping services brought price-fixing actions against air cargo companies from two dozen countries in 2006. The Department of Justice claimed that these air cargo companies conspired to set the rate at which they charged for certain routes. These airlines then held subsequent meetings to ensure that these rates were enforced. To date, 20 defendant groups have paid $758 million in settlements with eight defendant groups still remaining in the class action. Cathay Pacific previously paid $1.44 million to the Canadian Competition Bureau and $60 million to the Department of Justice for pleading guilty to violations of Canadian and United States competition and antitrust laws, respectively.

FTC Opinion Finds Domestic Pipe Fitter Unlawfully Maintained Its Monopoly

by Lisa A. Peterson | Feb 7, 2014 | FTC Developments, Monopolization/Abuse of Dominance

On February 6, 2014, the Federal Trade Commission (FTC) released its opinion and final order against McWane Inc., finding the company unlawfully maintained its monopoly by excluding competitors. McWane Inc. is the largest domestic supplier of ductile iron pipe fittings, which are used in municipal and regional water distribution systems to change water flow or allow connectivity for hydrants, valves and water meters.

The administrative complaint alleged that McWane conspired with two of its competitors that altogether supply the majority of domestic fittings, to raise and stabilize prices. Additionally, McWane was alleged to have excluded its competitors from the domestic pipe fittings market in order to unlawfully maintain its monopoly in violation of antitrust laws.

The Commission found McWane liable for unlawfully maintaining its monopoly in domestic pipe fittings, which constitute a separate market because many local, state and federal regulations required special fittings. Consequently, imported products were not substitutable and domestic distributors required access to special fittings to supply all the project needs of their customers. While one of McWane’s competitors sold the commonly used fitting sizes and configures that could be used in nearly 80 percent of projects, as a new entrant, it did not sell more specialized fittings. Knowing that the competitor did not supply a full line of pipe fittings, McWane established an unlawful exclusive dealing program. Under McWane’s “Full Support Program,” it threatened that distributors purchasing domestic fittings from Star would be prohibited from purchasing domestic fittings from McWane. Thus, McWane was able to unlawfully maintain its monopoly by “foreclose[ing] [its competitor] and other potential entrants from accessing a substantial share of distributors.” The Commission further found that McWane “created a strong economic incentive for distributors to reject Star’s products, artificially diminishing Star’s competitive prospects in the domestic fittings market.”

While the Commission’s opinion found McWane liable for unlawfully maintaining its monopoly, the remaining counts in the administrative complaint were dismissed for a variety of reasons. Although the two commissioners found McWane engaged in price-fixing behavior, the counts were dismissed in the public interest due to a lack of majority position. The Commission’s final order precludes McWane from requiring exclusivity from its distributors, but still permits McWane to lure customers through discounts, rebates and other price and non-price incentives.

Price-Fixing Executive Dealt Tough Sentence for Role in Cartel

by Lisa A. Peterson | Dec 13, 2013 | Cartel Enforcement, DOJ Developments

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.

U.S. Senators Debate Toughening Cartel Penalties

by Lisa A. Peterson | Nov 19, 2013 | Cartel Enforcement, DOJ Developments

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.

Assistant Attorney General Addresses Antitrust Remedies in First Formal Remarks

by Emily Townsend | Oct 16, 2013 | Cartel Enforcement, DOJ Developments, Mergers & Acquisitions

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.

Takata Corp. Agrees to Pay $71.3 Million Fine for Its Role in Alleged Price-Fixing and Bid-Rigging in the Automotive Parts Industry

by Nicole Castle | Oct 14, 2013 | Cartel Enforcement, DOJ Developments

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.

Dow Chemical Co. Secures Stay, Will Challenge Calculation of Treble Damages on Appeal

by Emily Townsend | Oct 8, 2013 | Monopolization/Abuse of Dominance, Private Litigation

by Lincoln Mayer

The U.S. District Court for the District of Kansas granted Dow Chemical’s request to stay a $1.06 billion verdict in an antitrust class action suit pending appeal. The jury’s original $400 million verdict, for allegedly fixing prices of chemical inputs for urethane foam, was trebled to $1.2 billion before the court reduced the award to account for damages paid by other defendants. Dow said that, among other arguments it will maintain on appeal, it plans to contend that each plaintiff—not the class as a whole—was entitled to trebling of damages.

This may be a novel argument and the district court declined to adopt it because it said it had been provided with no case law on point. But if the argument, which relies on a very literal reading of the statute, were to gain more traction on appeal, it could give defendants in antitrust class actions a useful tool: the ability to stretch out payments over a longer period of time by forcing each specific plaintiff to prove its damages before receiving the treble portion of the award. Defendants alternatively could use that ability as leverage to negotiate a reduced overall award.

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