FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones

 

Company’s sales and licensing practices hamper Qualcomm’s competitors and threaten innovation in mobile communications, according to FTC

The Federal Trade Commission filed a complaint in federal district court charging Qualcomm Inc. with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products.

Qualcomm is the world’s dominant supplier of baseband processors – devices that manage cellular communications in mobile products. The FTC alleges that Qualcomm has used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.

Qualcomm also holds patents that it has declared essential to industry standards that enable cellular connectivity. These standards were adopted by standard-setting organizations for the telecommunications industry, which include Qualcomm and many of its competitors. In exchange for having their patented technologies included in the standards, participants typically commit to license their patents on what are known as fair, reasonable, and non-discriminatory, or “FRAND,” terms.

When a patent holder that has made a FRAND commitment negotiates a license, ordinarily it is constrained by the fact that if the parties are unable to reach agreement, the patent holder may have to establish reasonable royalties in court.

According to the complaint, by threatening to disrupt cell phone manufacturers’ supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject. These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers, the complaint alleges.

By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits, including those that foster the increased interconnectivity of consumer products, vehicles, buildings, and other items commonly referred to as the Internet of Things.

The FTC has charged Qualcomm with violating the FTC Act. The complaint alleges that Qualcomm:

  • Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
  • Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
  • Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.

The FTC is seeking a court order to undo and prevent Qualcomm’s unfair methods of competition in violation of the FTC Act. The FTC has asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions.

The Commission vote to file the complaint was 2-1. Commissioner Maureen K. Ohlhausen dissented and issued a statement. Both a public and sealed version of the complaint were filed in the U.S. District Court for the Northern District of California on January 17, 2017.

 

The 3C’s: Will President Trump Revive Section 2 of the Sherman Act?

Below is a post by Brad Geyer, my partner at GeyerGorey LLP.  As you can tell from the title of the post, it is not the typical Cartel Capers fare, but you might find it interesting.

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By Bradford L. Geyer [1]

When I concluded by summer of 2015 that our next President would be Donald Trump, my closest friends and associates were skeptical. Having grown up in the New York media market and reading the “Art of the Deal” after college, I studied Donald Trump because he was interesting. You are free to see it differently, but I see in President-Elect Trump as a strategic and tactical thinker who comes off as being spontaneous and off the cuff, but is actually in the third decade of his strategic plan. To read his books and to watch old videos shows a consistency in public policy views that is startling.

Few took President-Elect Trump seriously over the years in his statements about Antitrust, but like the protagonists in a movie, the best ones like to tell the antagonists that it’s coming.   Any mystery about President-Elect Trump’s Antitrust enforcement priorities should have been eliminated when in his “Gettysburg address” outlining his plans for his first 100 days, he blasted the media and turned his ire toward the Comcast / NBC Universal merger stating that the merged company is “trying to poison the mind of the American voter,” and said that the deal should never have been approved in the first place, and that it’s bad for democracy (here). He took his complaints further, promising action to prevent AT&T from buying Time Warner, the parent company of CNN, which he argued would concentrate too much power in one company (here). “We’ll look at breaking that deal up and other deals like it,” he vowed. “They’re trying to poison the mind of the American voter.”

President-Elect Trump has already been equally clear in expressing his thoughts about Amazon [2]:

Amazon has “a huge antitrust problem,” and (Jeff) Bezos (owner of the Washington Post and founder of Amazon.com) “thinks I would go after him for antitrust.”

– from the Twitter account of @realDonaldTrump (May 14, 2016)(here)

President-Elect Trump may have the most sophisticated view of Antitrust Law of any U.S. President in history. That experience was recently referenced by Emre N. Ilter in the National Law Review:

Mr. Trump was involved in three significant antitrust proceedings in the late 1980s and early 1990s. First, in 1988, Mr. Trump paid a $750,000 civil penalty to settle charges brought by the US Department of Justice (DOJ) and Federal Trade Commission (FTC) that he had violated the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) by acquiring stock in two companies without making timely HSR filings. Around the same time, Mr. Trump, as one of the owners of the New Jersey Generals US Football League team, was involved in a private antitrust suit against the National Football League (NFL)—a case that resulted in a jury verdict that the NFL had willfully acquired or maintained monopoly power in a market consisting of major league professional football in the United States, in violation of Section 2 of the Sherman Act. Damages of $1, trebled to $3, were awarded. US Football League v. Nat’l Football League, 842 F.2d 1335 (2d Cir. 1988). Finally, Mr. Trump, in connection with his Atlantic City casinos, was sued by Boardwalk Properties, Inc. on numerous grounds including allegations that he had attempted to monopolize casino gambling and had conspired to suppress competition. After a lengthy legal battle, Mr. Trump prevailed. (here).

Combine experience, competition sophistication and seething intensity [3] and recognize that in the early 1980’s there were 50 media companies in the United States. Now that number is 6[4]. I suspect he believes there is a significant conscious parallelism among these six companies and there seems to be tight coordination and collaboration –a common gestalt — among these organizations on a host of issues. Call it a “thought cartel”. I would suggest that recent Wikileaks disclosures are likely to have reinforced this view among him and his team of advisors who may suspect that media companies are inducing lax regulation through maximizing the benefits of close relationships of its media figures with the political apparatus.[5]  Further, is President-Elect Trump viewing AT&T, Time Warner, Amazon, Comcast and even Google [6] individually as “media and information trusts”, as he finalizes his enforcement initiatives? My hunch is that he is and that each of these companies is at risk of enhanced enforcement attention.

It is clear that President Elect-Trump understands the power of the bully pulpit and he knows that if he can get AT&T and Time Warner to abort merger discussions before “the sheriff even rides into town” that means: 1) less work for him; 2) emboldened career civil service enforcers who were gearing up to make the case for blocking it; and 3) an enhanced perception of the Antitrust Division’s power. This, before he takes the oath of office in January, means enhanced leverage on day one.

I believe that it is possible he will pick a high visibility company, possibly on the crest of the wave of an aborted AT&T deal, to break up. So what potential “trust” will it be? Amazon has attracted criticism and controversy for years. Many of the criticisms are tied to allegations of anti-competitive or monopolistic behavior.  Does President-Elect Trump agree with Paul Krugman who recently penned, “Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.”[7]  Could the Department of Justice under the leadership of an Attorney General appointed by President-Elect Trump quite credibly take the view that Amazon is the Standard Oil Company or the AT&T or the Microsoft of its day [8] and bring an action to break it up?

I am certain that President-Elect Trump will announce that enforcement of the nation’s Antitrust Laws needs to be reinvigorated and that allegations of predatory pricing and attempts to monopolize certain sectors of the economy will not be tolerated. Some might expect that a Republican administration would line up alongside lax Section 2 enforcement. It is clear, however, that whatever else might be expected in a Trump administration, based on his statements throughout the campaign, consistency with Republican orthodoxy is not that thing and affected companies would be well served to increase their outside counsel budget.

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1. Mr. Geyer is a partner in the Washington and Philadelphia-based law firm of GeyerGorey LLP. Prior to entering private practice he was a prosecutor in the Antitrust Division of the Department of Justice for 21 years. From 2007 through 2012 he served as the Antitrust Division’s Special Counsel to the Criminal Division involving “war zone” cases and investigations involving procurement fraud and grand fraud.

2.  President-Elect Trump on Hannity May 12, 2016 at 15:59 through 17:20. “[Jeff Bezos is] using the Washington Post . . . he’s using that for political purposes to save Amazon in terms of taxes and in terms of antitrust.

3.  Any member of the Antitrust defense bar who would like to get a flavor of what I suspect will be reinvigorated Antitrust Enforcement under a Trump administration would be well served to watch this video which shows Seth Rogan and President Obama roasting President Elect Trump in 2011. If you are like me, when you watch this video you see a ferocious Kodiak bear in a cage that is being poked with sticks. The Bear is not reacting, but you can tell he is going to bust out of the cage and tear the pokers to shreds … after he constructs an ingenious plan. There is something about his reaction that makes you feel uncomfortable from the first Rogan joke. You want to plead with the men with the sticks to “please just stop.”   You actually look in your hand to make sure you aren’t holding a stick and try to drop it anyway. That is called power and intensity and control. He has it and he knows how to use it.

4.  See, The Media Monopoly, 6th Edition, March 24, 2000, by Ben H. Bagdikian.

5.  For example, in an April 15, 2014 email released by WikiLeaks, Eric Schmidt, CEO of Google, proposed that a $1.5 billion Clinton Campaign vehicle be formed that, among other things, to convert each voter to a single record that aggregates all that is known about them. Are enforcers entitled to wonder if voters across the country want to be converted into a record and whether this market share in this endeavor is aided by power in Google’s core businesses? Would Google’s relationship with the Clinton campaign team regenerate an interest in their potential antitrust issues as Europe has? (When enforcers read this email does it bring the movie, “the Clockwork Orange” to mind like it did for me?).

6.  See, http://www.nytimes.com/2016/10/31/technology/google-europe-antitrust.html

7.   See, http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html?_r=0

8.   Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911); United States v. American Tel. and Tel. Co. , 552 F.Supp. 131 (D.D.C. 1982); United States v. Microsoft Corp. , 56 F.3d 1448 (D.C.Cir . 1995).

Two Executives Charged for Conspiring to Eliminate Competition to Supply Water Treatment Chemicals

Two water treatment chemicals executives were indicted in Newark, New Jersey, for their roles in a conspiracy to eliminate competition among suppliers of liquid aluminum sulfate to municipalities and pulp and paper companies in the United States, the Department of Justice announced today.

Vincent J. Opalewski, former president, vice president and general manager of a water treatment chemicals manufacturer headquartered in Parsippany, New Jersey, and Brian C. Steppig, director of sales and marketing of a water treatment chemicals manufacturer headquartered in Lafayette, Indiana, are the second and third executives charged in connection with the conspiracy, which sought to eliminate competition for contracts to supply liquid aluminum sulfate.  Liquid aluminum sulfate is a coagulant used by municipalities to treat drinking and waste water and by pulp and paper companies in their manufacturing processes.

“Municipalities and pulp and paper companies deserve competitive prices for water treatment chemicals,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “These charges reflect our ongoing efforts to hold accountable those who conspire to cheat their customers responsible for their crimes.”

“These charges send a message that anyone intent on corrupting the free market will be identified and brought to justice,” said Acting Special Agent in Charge Andrew Campi of the FBI’s Newark Division.  “Our mission is to protect victims who don’t see these crimes occurring, but who always end up paying the price.”

The indictment, returned by a grand jury in the U.S. District Court for the District of New Jersey, alleges that Opalewski, from 2005 to 2011, and Steppig, from 1998 until 2011, and their co-conspirators participated in the conspiracy by meeting to discuss each other’s liquid aluminum sulfate business, agreeing to stay away from each other’s historical customers, submitting intentionally losing bids to favor the intended winner of the business, withdrawing inadvertently winning bids and discussing with each other prices to be quoted to municipalities and pulp and paper companies.

The charges contained in the indictment are allegations and not evidence of guilt.  The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The investigation into collusion in the liquid aluminum sulfate industry is being conducted by the New York Office of the Antitrust Division and the FBI’s Newark Division.  Anyone with information regarding price fixing, bid rigging or customer allocation in the sale and marketing of liquid aluminum sulfate should contact the Antitrust Division’s New York Office at 212-335-8000, call the Antitrust Division’s Citizen Complaint Center at 1-888-647-3258, or visit www.justice.gov/atr/contact/newcase.htm.

CCC’s: I Know this Looks Bad, But…..

When I was a kid, there were times when it looked like I was in big trouble, but was able to talk my way out of it.  “Mom, I know this looks bad, but ….”  (Probably I did do it, but it was good practice for being a lawyer.)  There are times when even the most ethical companies can “look” like they may have violated the antitrust laws.  And it may not be as simple as explaining to Mom why things aren’t the way they look.  That “splaining” may take years of costly litigation, even for a defendant that hasn’t done anything wrong.  That is why antitrust/competition law compliance training is important, even for companies that have the highest ethical standards.  Not only is it important to not violate the law, but it is import to know how to communicate the pro-competitive merits of actions in the marketplace and to document why decisions were made.

Let me give one example.  In a commodity market with few sellers, it is natural that prices are going to be similar, if not identical.  If a company’s pricing is above the market in a commodity, their sales will suffer.  But, there is a thin line between “conscious parallelism” and price fixing.  A communication to customers such as this may be the hook to suggest sellers have crossed the line:  “The X industry has not been profitable and as of March 1 our prices will increase 5%.  This is in line with the increases of the other producers in the industry who are also going up.”  The company may be trying to communicate that they are only doing what others are doing to “stay competitive.”  But, referring to “industry pricing” gives the hint of collusion–enough of a hint to possibly draw an antitrust suit.  Much better to simply write:  “We have experienced increases in the cost of several major inputs.  Regrettably, we find it necessary to increase our prices 5% as of March 1.”  And there should be a document in the file explaining the need for the price increase.

To be clear, the first email does not establish that price fixing has occurred.  But, it may be enough,along with other evidence,  to give potential plaintiffs enough to file a case and result in a settlement to avoid costly litigation.  And, while no policies can guarantee a company will never be sued, an educated sales force will greatly lessen that likelihood.

The above is just one example. On January 19, 2016 from 1:00 to 2:15 pm I will be giving a presentation for Clear Law Institute on “Avoiding the Creation of “Hot” Antitrust Documents.”  I will talk about risk assessment for antitrust lawsuits and how to avoid creating the appearance of anticompetitive conduct, while documenting the pro-competitive reasons for activity in the market place.  The announcement/registration for the program is here.   There is a 35% off discount code you can use if you’d like to register: connolly35

Please check it out and see if it might be useful to your organization.   There will be slides that you may want to later  distribute as part of an antitrust compliance program.

Thanks for reading.

Thomas Farmer Acquitted Puerto Rico Shipping Price Fixing Trial

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After a three-week trial, Thomas Farmer, a former Crowley Liner Services Vice-President was acquitted of price-fixing and bid rigging charges by a jury in Puerto Rico. The trial was before Federal District Court Judge Daniel Dominguez. The jury was composed of six men and six women. They deliberated for three hours before returning their verdict. Framer had been indicted on March 21, 2013 on a charge of conspiracy to fix and rig Puerto Rico freight surcharges with counterparts from Horizon Lines and Sea Star Line in the U.S. mainland-Puerto Rico trade.

The acquittal marks the end of the Antitrust Division’s otherwise successful investigation into price-fixing on ocean shipping route between Puerto Rico and the United States. Farmer was the second executive to go to trial. Frank Peake, the former President of Sea Star, was convicted in 2013 on a similar charge (here). Peake’s case was noteworthy in that he was sentenced to five years in prison, a record sentence for a Sherman Act conviction (here). The Peake trial came after subordinates of his and co-conspirators from other companies had pled guilty and cooperated with the government. Peak’s direct subordinate at Sea Star, Peter Baci, was sentenced to 48 months in prison and fined $20,000. Peake’s counterpart at Horizon, Gabriel Serra, was sentenced to 34 months in prison. Other executives at Sea Star and Horizon had pled guilty, and received prison terms ranging from seven months to 29 months. Three companies have paid more than $46 million in fines for their involvement in a conspiracy that included setting rates, bid rigging and other practices.

Farmer faced a maximum sentence of ten years in prison. Farmer was represented by Joseph C. Laws, Melanie Matos Gilroy Cardona and Terrance Reed.  Farmer was facing a maximum of ten years in prison if convicted and his legal team deserves great credit for the best outcome Farmer could have hoped for.  But, there are great difficulties that the Antitrust Division faces in a “last man standing trial.”  I am not familiar with the specifics of the Farmer trial but some of these inherent difficulties are:

  • Staleness:  Farmer was indicted in March 2013.  The indictment charged a conspiracy: “From at least as early as mid-2005, to in or about April 2008.”  So, Farmer was indicted just before the five-year statute of limitations expired.  His trial did not begin until more than two years after indictment.  Farmer was tried in 2015 for conduct that ended in early 2008.  Antitrust violations do not “shock the conscience” the way a crime of violence might, and the long delay between conduct and trial can diminish whatever “jury appeal” a price-fixing case might have had.
  • Witness Fatigue:  When a witness signs a cooperation agreement with the Antitrust Division, he usually doesn’t realize that his cooperation may last longer than many marriages.  It can be difficult to work with a witness who has long since (hoped) he had put this chapter of his life behind him.  Witness prep so many years after the alleged conduct occured can involve an increasing frequency of “I’m not sure.  That was a really long time ago.”  And, in this case it was.
  • Prior Statements:  As I said, I have not read the record in the Farmer case so I do not know who the witnesses were.  But, there is a good chance some of the witnesses previously testified in the Peake trial.  So besides witness fatigue and faded recollections, defense attorneys have prior statements to work with on cross-examination.
  • The Weak Cases Are The Ones That Go To Trial:  It used to be fair to say that the Antitrust Division got plea agreements from those who they had the strongest cases against, but often found itself trying weaker cases, sometimes against senior managers that had insulated themselves from most of the illegal conduct.  But, my opinion is that today cases go to trial because the sentencing guidelines are so severe (based on volume of commerce) that the “last man standing,” who can’t get a 5K cooperation agreement/downward departure, has little to lose by going to trial.  Mr. Farmer went to trial because he declared he was innocent and a jury did in fact acquit him.  But, even a guilty party might go to trial because: (a) he has at least a chance at acquittal; (b) even if convicted at trial, he will likely be sentenced to less time than he could have negotiated with the Antitrust Division pursuant to a recommended guidelines plea agreement; and (c) in any event he can appeal and hope to get a conviction reversed on appeal.  In essence, the trial is an extended sentencing hearing, with a chance of acquittal, and even if convicted, a hope the conviction can be overturned.  I co-authored an article “A Peek Behind the Record Peake Sentence” (here) that explored some of these ideas.

Congratulations to Farmer’s defense team and also to the Antitrust Division for an otherwise very successful investigation.

Thanks for reading.

ANTITRUST GUIDANCE IN BRAZIL

ANTITRUST GUIDANCE IN BRAZIL

Today we have an update from Brazil by Mauro Grinberg, a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

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A Resolution issued by Conselho Administrativo de Defesa Econômica (CADE), dated March 11, 2015, made a comeback of the procedure for antitrust guidance to be requested to CADE. This request for guidance can be used in all competition cases, including cartels.

The first article of such Resolution says that any interested party can forward a request for guidance to CADE, related to specific situations, which may be real or potential. Interested parties can also be trade associations which have, as their goals, representation of the involved sector and can demonstrate that at least one of the represented companies is legitimately interested in such guidance.

There are some requirements for such request for guidance and, although it is pointless, for the purpose of this note, to go through all of them, it is interesting to mention that the party must declare all CADE´s precedents related to the object. So, no request for guidance can be asked before a thorough research through CADE´s jurisprudence. However, any research may have its problems and it is not clear what will happen if a certain research does not present a decision that CADE may understand as fundamental.

Another point that must be reported says that the request for guidance cannot refer to a purely hypothetical issue. This may be a somewhat tricky question because CADE may understand that a question that is not under practice is hypothetical (which, in a way, it may be). It is not clear what can happen if, e.g., a party asks whether it is legitimate to have certain contacts with competitors and, if the conduct is approved by CADE and the party does not perform it due to a further strategic and/or commercial decision, could the party can be punished for having submitted a request for guidance that CADE may consider hypothetical?.

The answer to the request for guidance is binding for CADE and the parties for five years, although the Resolution states that CADE can reconsider its decision, if based on new facts. So, in practice, the Resolution is really binding only for the parties submitting the request for guidance.

A last problematic article states that, if CADE understands that an already existing conduct, which is the object of the request for guidance, has the possibility of being illegal, an administrative file will be opened in order to prosecute the interested party. If the conduct is a possible cartel, a criminal file may also be opened. So, it is fundamental that, in case a party wants to make such request related to a conduct that is under way, it is advisable to stop such conduct before requesting the guidance.

Consequently, a request for guidance, in order to be in the safe side, must be related to conducts that are not being performed but are to be performed and depend on the guidance, with the additional task of demonstrating to the authorities that the request for guidance is not hypothetical.

Mauro Grinberg is a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

3C’s: Global Glimpses of Cartel Capers

Global Glimpses of Cartel Capers

There have been a number of developments around the globe relating to cartel enforcement that I think might be of interest:

Australia

I wrote about this in an earlier post, but a billionaire businessman in Australia invited an investigation, which has now been dropped, with his comments at a business dinner griping about low prices in the market.  He got himself in hot water, which never reached a boiling point, by stating he was ready to reduce output of iron ore if his competitors would do likewise. (here)

Cambodia

People are people and as Adam Smith noted, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

In Cambodia, the Ministry of Agriculture and Forestry said that they were investigating a possible secret agreement between middlemen or traders in the supply chain to manipulate the price of agriculture commodities, leaving farmers with no option but to sell their products at a lower price. A spokesperson at the Ministry said traders had divided regions into zones, giving farmers no choice but to sell to that trader and at the trader’s asking price. In this case, if true, the conspiracy was to reduce the prices paid to farmers.  (full story here)

Canada

On April 27th, after a seven-month trial and six days of deliberation, a jury in Ottawa found nine defendants not guilty on all 60 charges of bid rigging and conspiracy to rig bids. “Six years earlier federal prosecutors had charged 14 individuals and seven computer services firms with rigging bids in connection with more than $60 million worth of contracts at three federal departments. Now in the courtroom were six individuals and three of their firms — they had elected to be tried by a jury, the first time anyone had done so in the 39-year history of the Competition Act.” (full story here)

Also in Canada here is a helpful article on the shift in on corporate criminal liability. Corporate criminal liability can now be based on the conduct not only of senior corporate officers such as board members, but also middle managers in some circumstances.

EU Grapples with Extraterritoriality of Competition Law

Like the United States, the EU is working to define the scope of the extraterritorial application if its competition laws. The Advocate General of the European Court of Justice, Melchior Wathelet, urged the court to rescind the Court’s decision that based part of a fine against Innolux based on LCD panels sold by the manufacturers to other companies and eventually shipped to the EU as components in other devices. Wathelet wrote in an opinion that: “It seems to me that, unless further evidence can be furnished that the cartel creates qualified effects in the [European Economic Area], the commission goes too far if it fines cartels relating to products manufactured and sold outside the EEA for the sole reason that those products are subsequently ‘transformed’ or incorporated into other products which (either wholly or in part) arrive in the EEA.”  The opinion agreed that EU law could be applied extraterritorially to component price-fixing if the Commission had met a “qualified effects” test. Innolux’s fine stand to be cut almost in half if the Court reduces its fine in accord with the Advocate General’s opinion.

United States

  • Civil Settlement News

Civil settlements have now exceeded $270 million in federal litigation stemming from the ongoing U.S. criminal antitrust investigation into automotive supplier price-fixing (here). These settlements, however pale in comparison to the civil settlements reached in the follow-on civil suits to the air cargo price-fixing cartel. These settlements now top $1 billion (here).  In fairness, the auto parts civil litigation is far from over.  These figures relate only to civil settlements in the U.S.  Civil damage actions, including class action suits (collective redress), are quickly spreading thoughout the globe.

  • Senate Committee Launches Investigation of Dish and affiliates

The Senate Committee on Commerce, Science and Transportation has begun an investigation of possible bid rigging between Dish and several of its smaller affiliates on a recent $3 billion spectrum auction. The investigation follows a complaint filed by Verizon with the Federal Communication Commission alleging that Dish colluded with its affiliates to violate the bidding rules as well as antitrust laws. (full story here)

Thanks for reading.

PS.  Guest posts, especially about cartel/compliance related developments outside of the United States, are most welcome.

CEO’s Say the Darndest Things (and salespeople too)

CEO’s Say the Darndest Things (and salespeople too)  

Since I spent over 30 years with the Antitrust Division, US Department of Justice, people sometimes ask me how investigations get started. This blog post addresses one way: “loose lips sink ships” or put another way “CEO’s Say the Darndest Thing (and salespeople too).”

This is a story from down under. The Chairman of Australia’s Fortescue Metals, Andrew Forrest, was at a business dinner on March 24th when he expressed his frustration that his main rivals, BHP Billiton and Rio Tinto were driving down the prices of iron ore with excess production. Mr. Forrest declared:

“I’m absolutely happy to cap my production right now. All of us should cap our production now and we’ll find the iron ore price will go straight back up to $70, $80, $90 and the tax revenues which that will generate will build more schools, more hospitals, more roads, more of everything which Australia needs — universities etc. I’m happy to put that challenge out there: let’s cap our production right here and start acting like grown-ups.”(full story here)

OOPS. The Australian Competition & Consumer Commission (which has the great shorthand name: A-Triple C) started an investigation. The ACCC just announced it would no take action against Mr. Forrest because of the “context and circumstances” of his remarks.  The ACCC Chairman Rod Sims warned: “However, it is important that the business community understands that public statements calling for competitors to agree to limit production or to raise prices may constitute a serious cartel ­offence.”  (full statement here).

In the United States an offer to fix prices, even if not accepted, can and has been, prosecuted by the Antitrust Division as mail and/or wire fraud.  And the Federal Trade Commission has charged price-fixing/bid rigging solicitations as violations of Section 5 of the FTC Act. That is not to say that either agency would have charged Mr. Forrest for the remarks he made, but with different circumstances, prosecutions have been brought for what are called “invitations to collude.” (A Sherman Act prosecution requires an actual agreement between the competitors, so unless an offer to collude is accepted, it can be prosecuted, but not under the Sherman Act.)  Mr. Forrest’s statement was also problematic because if competitors did raise prices, even if they had already been planning to do so, suspicion of collusion would be high.  And civil law suits may well have followed.

I am going to be making a presentation on this very subject with my friend Barbara Sicalides at the Society of Corporate Compliance and Ethics (SCCE’s) annual Compliance & Ethics Institute (October 4-7th) in Las Vegas. This is the SCCE’s primary education and networking event for professionals working in the Compliance and Ethics profession across all industries around the world. Sessions at the 2015 conference will offer the latest compliance information on hot topics and current events.   Our session is titled:  CEO’s (and salespeople too) Say The Darndest Things: How an Ill-Advised Statement or Email Can Start an Antitrust Investigation or Lawsuit – Robert E. Connolly, Partner, GeyerGorey LLP; Barbara T. Sicalides, Partner, Pepper Hamilton LLP.  We will have numerous examples, sometimes funny, sometimes not so funny and very expensive, of how companies and individuals have found themselves under investigation and/or charged with antitrust violations for things that simply never should have been said/written.  It should be a good session on how to counsel the unsuspecting of the potential perils of off the cuff remarks.

Hope to see you there.

Thanks for reading.

Third Ocean Shipping Executive Pleads Guilty to Price Fixing on Ocean Shipping Services for Cars and Trucks

An employee of Japan-based Nippon Yusen Kabushiki Kaisha (NYK) pleaded guilty today and was sentenced to 15 months in a U.S. prison for his involvement in a conspiracy to fix prices, allocate customers and rig bids of international ocean shipping services for roll-on, roll-off cargo, such as cars and trucks, to and from the United States and elsewhere, the Department of Justice announced today.

According to the one-count felony charge filed in U.S. District Court for the District of Maryland in Baltimore on Jan. 16, 2015, Susumu Tanaka, who was a manager, deputy general manager and general manager in NYK’s car carrier division, conspired to allocate customers and routes, rig bids and fix prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States and elsewhere, including the Port of Baltimore.  Tanaka participated in the conspiracy from at least as early as April 2004 until at least September 2012.

Roll-on, roll-off cargo is non-containerized cargo that can be both rolled onto and off of an ocean-going vessel.  Examples of this cargo include new and used cars and trucks and construction and agricultural equipment.

“Today’s sentence is another step toward bringing to justice the perpetrators of this long-running cartel and restoring competition to the ocean shipping industry,” said Bill Baer, Assistant Attorney General for the Antitrust Division.  “But this investigation is far from over.  We are continuing our efforts to hold accountable the companies and executives who seek to maximize profits through illegal, anticompetitive means.”

Pursuant to the plea agreement, which the court accepted today, Tanaka was sentenced to serve a 15-month prison term and pay a $20,000 criminal fine for his participation in the conspiracy.  In addition, Tanaka has agreed to assist the department in its ongoing investigation into the ocean shipping industry.

Tanaka was charged with a violation of the Sherman Act, which carries a maximum sentence of 10 years in prison and a $1 million criminal fine for an individual.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s sentence is the third against an individual in the division’s ocean shipping investigation, and the first against an individual from NYK.  Three corporations have agreed to plead guilty and to pay criminal fines totaling more than $136 million, including NYK, which has agreed to pay a criminal fine of $59.4 million, pending court approval.

This plea agreement is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the international roll-on, roll-off ocean shipping industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s Baltimore Field Office, along with assistance from the U.S. Customs and Border Protection Office of Internal Affairs, Washington Field Office/Special Investigations Unit.  Anyone with information in connection with this investigation is urged to call the Antitrust Division’s Washington Criminal I Section at 202-307-6694, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Baltimore Field Office at 410-265-8080.

U.S. DISTRICT COURT RULES THAT AMERICAN EXPRESS

WASHINGTON — Attorney General Eric Holder today praised the decision by a judge in the United States District Court in the Eastern District of New York who found in favor of the Justice Department’s lawsuit claiming that American Express’ rules for merchants violate antitrust laws.

“Today’s decision is a triumph for fair competition and for American consumers,” said Attorney General Holder.  “By recognizing that American Express’s rules harm competition, the court vindicates the promise of robust marketplaces that is enshrined in our antitrust laws.  I salute the hardworking men and women who led the lengthy investigation and trial with uncommon skill and unwavering dedication.  With this achievement, we are sending an unambiguous message that the Department of Justice is prepared to litigate any case, no matter how complex, in its pursuit of justice and protection for the American people.”

The United States Department of Justice and 17 state attorneys general sued American Express, Visa Inc. and MasterCard International Inc., in 2010 to eliminate restrictions that the three credit card networks imposed on merchants.  Over the course of a seven week trial during the summer of 2014, the department argued that these restrictions obstruct merchants from using competition to try to keep credit card fees from increasing.  The civil case, brought under Section 1 of the Sherman Antitrust Act, sought to end the violation and to restore competition.

The trial focused on credit card “swipe fees” which generate over $50 billion annually for credit card networks.  Millions of merchants of all sizes and in scores of industries pay those fees.  Despite these large fee revenues, the Justice Department argued that price competition over merchant swipe fees has been almost non-existent and for decades the credit card networks have not competed on price.  Today’s decision was rendered by Judge Nicholas G. Garaufis.

“Merchants pay over $50 billion in credit card swipe fees each year.  The department and the attorneys general of 17 states brought this case because competition over those fees was being suppressed,” said Deputy Assistant Attorney General for the Antitrust Division Leslie C. Overton.  “The Court’s ruling establishes that the American Express anti-steering rules block merchants from using competition to keep credit card swipe fees down, which means higher costs to those merchants’ customers.  I am proud of the outstanding work done by the investigative and trial teams.  As today’s decision reaffirms, the Antitrust Division remains committed to ensuring that competition is not restricted in this important sector of the economy.”

Settlements with Visa and MasterCard were filed at the same time the case against American Express was begun; the settlements prohibit the two networks from continuing their rules and practices that had obstructed competition.  The court approved the settlements on July 20, 2011, and they applied immediately to Visa and MasterCard.  American Express was not a party to the settlements, and the litigation against American Express continued.

The department argued that the principal reason for an absence of price competition among credit card companies has been rules imposed by each of the networks that limit merchants’ ability to take advantage of a basic tool to keep prices competitive.  That tool – commonly used elsewhere in the economy – is merchants’ freedom to “steer” transactions to a network willing to lower its price.  Each network has long prohibited such steering to lower-cost cards.  Now that Visa and MasterCard have reformed their anti-steering rules, American Express rules stood as the last barrier to competition.

At trial, an array of merchants came forward to explain both the substantial costs they incur when their customers pay with credit cards and their inability to ignite competition among the networks to reduce those costs.  In fact, the rules not only prevent merchants from offering their customers lower prices or other incentives for choosing a less costly card, they even block merchants from providing consumers with truthful price information about the cost of swipe fees of different credit cards.

Examples, used as trial exhibits, of what the Amex rule prohibits can be found at http://www.justice.gov/atr/cases/amex/amex-te.html.

Closing arguments in the trial took place on Oct. 9, 2014.  Craig Conrath was the lead trial attorney for the United States.  The 17 plaintiff states were Arizona, Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Missouri, Montana, Nebraska, New Hampshire, Ohio, Rhode Island, Tennessee, Texas, Utah and Vermont.  The court also entered a scheduling order instructing the parties to submit, within 30 days, a joint proposed remedial order.