Tag Archives: cartel capers

CCC’s: Guest Post by Ai Deng of BatesWhite

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Below is a guest post by Ai Deng, PhD of BatesWhite Economic Consulting on empirical screens to detect cartel activity.  Ai is an expert in this area and I think it will be one of growing importance.  In 2015 the Antitrust Division, for the first time, gave credit in plea agreements for what they call a “forward looking” robust compliance program.  The context was companies that were caught in collusive activities but as part of their internal investigation and cooperation with the Division, they made substantial upgrades in their compliance program to change the company culture.  Granting any credit for a compliance program was a big step for the Antitrust Division and one welcomed by the compliance community.  But, it is logically inconsistent to reward a company for upgrading their compliance program when the get caught in a violation, but not crediting a firm which already had a strong compliance and ethics program, despite the fact that there may have been a violation.  Perhaps 2016 will see further movement by the Division in crediting compliance programs.

But regardless of the Division’s developing position on compliance/ethics programs, empirical screens to detect collusion can enable a company to put a stop to any collusion detected, and perhaps approach the Antitrust Division and/or other jurisdictions for leniency.  Here is Mr. Deng’s post:

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Several readers expressed interest in my recent Law360 article on the use of analytics in antitrust compliance (here). Some also asked about the longer working paper which is the basis of the Law360 article. I am very happy to report that the working paper version of the article titled “Cartel Detection and Monitoring: A Look Forward” can now be downloaded here. In this article, I address several topics summarized in the abstract as follows:

“There is a growing literature in industrial organization on the use of empirical screens to detect cartels. I discuss several methodological issues that have emerged from this literature, and explain why addressing these issues is important for gaining a better understanding of the power and limitations of empirical screens and for extending the retrospective application of empirical screens to dynamic, real-time monitoring of the market. I then compare the treatment of empirical screens in the IO literature with the treatment of related techniques in the literatures of macroeconomics, financial market manipulation, and statistical fraud detection. I highlight the intersections and discuss lessons and experiences that are helpful to the design and use of empirical screens for both screening and monitoring. Future research topics are also suggested.”

Any comments/thoughts/suggestions are welcome.

Ai Deng, PhD

Principal

direct: 2022161802 | fax: 2024087838

1300 Eye Street NW, Suite 600, Washington, DC 20005

View my profile on LinkedIn

[email protected]

BATESWHITE.COM

CCC’s: Ninth Circuit’s Oral Argument on FTAIA Related Appeal

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If an FTAIA related case is ever taken by the Supreme Court I believe it will be a private civil price fixing damage case like Best Buy Co., Inc. v. Hannstar Display Corporation. The Antitrust Division’s international cartel prosecutions have all involved import commerce; providing a jurisdictional basis without reaching possible FTAIA related commerce. [And if I could decide a case without reaching FTAIA issues, I sure would.]  The recent Antitrust Division case filing in capacitors follows this pattern. The Information alleged that both import commerce and FTAIA related commerce were subject to the agreement to fix prices.

There was a very interesting oral argument before the Ninth Circuit on December 11, 2015 dealing with a civil price fixing damage case related to the TFT-LCD price fixing cartel: Best Buy Co., Inc. v. Hannstar Display Corporation.  The case raises a number of interesting FTAIA related issues, some of which I’ll discuss below.   But if you are interested in viewing the oral argument, the Ninth Circuit makes video available and the Best Buy Co., Inc. v. Hannstar Display Corporation argument can be viewed here.

A couple of key factual notes about the case:

  • HannStar, which pled guilty in the criminal TFT-LCD, case only sold panels to foreign entities.  It shipped no price fixed panels into the US, nor finished goods because it did not make those.  But, some HannStar price fixed panels were assembled into finished products, including desktop and laptop computers and televisions, that were imported into the US.  Some of Hannstar’s co-conspirators did sell finished products in the US that contained price fixed screens that were purchased by Best Buy.
  • The panel noted that the lack of Hannstar import commerce distinguished this case from the case the United States brought against the cartel, some of whose members imported panels directly into the Unites States so jurisdiction was not based on the FTAIA. United States v. Hsiung,
    758 F.3d 1074 (9th Cir. 2014).
  • Also, Best Buy in the US purchased finished products with the price fixed screens, distinguishing the case from Motorola Mobility where Motorola’s foreign subsidiary purchased the panels. Motorola Mobility v. AU Optronics, 775 F.3d 816, 826-27 (7th Cir. 2015).
  • Best Buy was an opt out plaintiff.  As such, it had to prove that it suffered injury as the result of the defendants’ anticompetitive conduct.  It could not piggyback on the “class” it had opted out of.

The case involved a special jury verdict form that is at the heart of the appellate argument.  The jury found that Best Buy’s injury arose from a conspiracy involving import commerce despite the fact that it was undisputed that Best Buy purchased no LCD screens that were the subject of the cartel agreement.  Best But bought only the finished products (laptops, etc) that contained the price-fixed screens.   Import commerce comes within in the scope of the Sherman Act without application of the FTAIA. But at the same time, the jury found that the conspiracy did not have a “direct, substantial and reasonably foreseeable effect on trade or commerce.” In other words, jurisdiction could not be based on the FTAIA.

Here are the relevant questions in the Special Verdict form:

Question 1: Did Best Buy prove, by a preponderance of the evidence and in accordance with the instructions given to you, that Toshiba knowingly participated in a conspiracy to fix, raise, maintain or stabilize the prices of TFT-LCD panels?  No.

Question 2: Did Best Buy prove, by a preponderance of the evidence in accordance with the instructions given to you, that HannStar knowing participated in a conspiracy to fix, raise, maintain or stability the prices of TFT-LCD panels?   Yes.

Question 3: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that the conspiracy involved TFT-LCD panels and/or finished products (e.g., notebook computers, computer monitors, televisions, camcorders, cell phones and digital cameras containing TFT-LCD panels) imported into the United States?  Yes.

Question 4: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that the conspiracy involving these imported TFT-LCD panels and/or finished products produced substantial intended effects in the United States?  Yes.

Question 5: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that the conspiracy involved conduct that had a direct, substantial and reasonably foreseeable effect on trade or commerce in the United States?  No. 

Question 8: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that it was injured as a result of the conspiracy in which one or both of the defendants knowingly participated?  Yes.

Question 9: For Best Buy’s direct purchases only, what is the amount of damages Best Buy proved, by preponderance of the evidence and in accordance with the Court’s instructions, that it suffered as a result of the conspiracy?  $ 7,471,943

The FTAIA issues in the case are particularly confusing because Question 3 in the Special Verdict form was in the alternative “did the conspiracy involve panels and/or finished productsimported into the United States?” HannStar argued that the jury was wrong in finding that the conspiracy involved import commerce because HannStar never sold panels in the US and Best Buy bought only finished products. “The conduct at issue was the agreement to fix the price of panels—wholly foreign conduct. [The conspiracy was] not to import finished products containing those panels to the US” HannStar attorney Belinda Lee, Latham & Watkins, argued.  Lee noted that HannStar engaged in price-fixing on liquid crystal display panels, not finished goods. HannStar then argued that since the jury did not find an FTAIA basis for jurisdiction [that the conspiracy produced a direct substantial and reasonably foreseeable effect in the United States], there is no jurisdiction. “The jury was asked and they said no; they found no domestic effect,” Lee told the panel. Best Buy, therefore failed to prove that its claims arose from conduct covered by FTAIA.

Because the jury found import commerce, an issue in the case became whether the sale of the finished product (i.e. a laptop with affixed price LCD screen) could as a matter of law constitute import commerce. This invoked the “targeting” theory, i.e. that a cartel could be found to be covered by the Sherman Act even if there was no imports into the US if the cartel “targeted” the US.  Judge Kim Wardlaw said that the jury had found there was substantial intent on the part of the defendants to create price effects in the US market. Was this enough to make the good import commerce (which jury found) or as a matter of law does this evidence only go to the domestic effects test? (and, confusingly, the jury found no domestic effects).

Judge Susan Graber expressed concern that finding import commerce jurisdiction based on a component part price fix could expand Sherman Act jurisdiction over foreign commerce beyond what Congress intended. She gave an example of a $10 foreign-based price fixed gas cap on a $50,000 car that is then imported into the United States. Is that import commerce? What about where the part is little in a big product?  And the harm is quite small? The Court clearly was concerned with drawing the line [but in the instant case, the TFT-LCD screens were a fairly large cost import of the finished product.]

Hannstar attorney Lee argued (correctly I believe) that the issue of whether a component part price fix can provide Sherman Act jurisdiction relates only to whether the FTAIA’s “direct, substantial, and reasonably foreseeable” effect on commerce test is met. And on that question the jury answered “No.” Import commerce is defined as a purchase by a US consumer of the price fixed product.  There is, however, some support for the proposition that in certain circumstances the import commerce exception requires only that the defendants’ anticompetitive conduct “target import goods or services,”  Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 470 (3d Cir. 2011); Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 855 (7th Cir. 2012) (en band).  I don’t think, however, the targeting analysis applies to whether components priced fixed in foreign commerce but imported into the US in a finished product constitutes import commerce.  Such a reading would essentially render moot the FTAIA jurisdictional basis of “direct, substantial and reasonably foreseeable effect” on US commerce.

There were a couple of other interesting features of the case:

  • Opt Out: There can be advantages to being an opt out plaintiff, but there may also be some downsides. Plaintiffs in class action just have to prove some import commerce, but since Best Buy was an opt out, it had to demonstrate their own purchases trace back to import commerce or the FTAIA domestic effect.
  • Which Best Buy?  Again as an opt out Best Buy had to trace its purchases to one of the conspirator companies and because Best Buy also has foreign subsidiaries it had to establish that the US company made the purchases (To avoid a Motorola Mobility situation). It seemed Best Buy overcame this hurdle, but it is something plaintiffs need to watch out for. B failed to trace the purchases from BB entities in US to HannStar. If foreign entities you have Motorola.

A final note: The jury in Best Buy’s trial ordered HannStar to pay almost $7.5 million in damages. The Court then trebled the award to more than $22 million. But because Best Buy had settled with so many of HannStar’s co-conspirators, the court reduced the award to zero. Ouch!

Best Buy was represented by Katherine Wiik of Robins Kaplan LLP.

Thanks for reading.

CCC’s: New Zealand Decides Against Criminal Sanctions for Price Fixing

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A news article from the Manawatu Standard in New Zealand reports that “Price-fixing executives will not be subject to jail terms after Government u-turn.”  Paul Goldsmith, the Minister of Commerce and Consumer Affairs said he was stripping criminal sanctions for cartel behavior currently contained in the Commerce (Cartels and Other Matters) Amendment Bill.  He said that after a year of consideration he had made an “on balance decision” that the costs of introducing criminal penalties outweighed the benefits.

The Minister said “If we keep providing new ways for directors to go to prison if the judgements are wrong then overall there’s a potential chilling effect on innovation.”  New Zealand’s decision is counter to the trend toward criminalization of cartel behavior, although in many countries criminal penalties, while available, are rarely imposed.  Countries that do impose criminal penalties, such as the United States, reserve criminal prosecution for “hard-core” cartel conduct (price-fixing; bidding rigging) where there is an element of fraud: i.e. buyers (or sellers) believe there is competition when in fact competition has been reduced or eliminated by a secret agreement among the bidders/vendors.  These types of secret cartel arrangements are deemed to have no pro-competitive benefit as opposed to joint ventures where entities share risk, resources and the buyer can independently weigh the merits of contracting with the joint entity.

The full Manawatu Standard article can be found here.

CCC’s: Guest Post by Avinash Amarnath On CCI (India) Price-Fixing Decision

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The Competition Commission of India is struggling to find consistency around whether parallel conduct can form the basis for finding an agreement.  This helpful post by attorney Avinash Amarnath of Vinod Dhall and TT&A explains the latest CCI decision.  I imagine the Competition Appellate Tribunal and Supreme Court of India will eventually weigh in and Mr. Amarnath will keep us posted when they do.  Here is Mr. Amarnath’s latest post:

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CCI imposes penalty of USD 38.6 million on airlines for fixing fuel surcharge

Just when one almost thought that the year 2015 would go by without a major cartel fine, the Competition Commission of India (CCI) published a decision on 17 November 2015 imposing penalties of USD 38.6 million (approx.) in total on three airlines, Jet Airways, InterGlobe Aviation (which operates under the brand ‘Indigo’) and Spice Jet. The CCI found the three airlines guilty of fixing the rates of fuel surcharge (FSC) charged on the carriage of cargo. The FSC is a component of the cargo freight charge whose primary purpose is to cover fluctuations in global crude oil prices.

The complaint was filed by the Express Industry Council of India, an industry body representing cargo companies such as DHL and FedEx. The CCI had found prima facie merit in the complaint and directed the Director General (the DG, the investigative arm of the CCI) to conduct a detailed investigation into the matter. On investigation, the DG found that although the behaviour of the airlines was not in accordance with market conditions, no evidence was found of collusion between the airlines. However, the CCI disagreed with the DG’s conclusions and found that a pattern of parallelism existed in the FSC increases by the three airlines. In particular, the CCI found that during certain periods, the three airlines had increased the FSC even when global crude oil prices had been falling. The CCI observed that no rational explanation had been offered by the parties for this parallel behaviour. Further, the CCI found that data about intended price increases may have been exchanged among airlines through common agents and other sources which reduced uncertainty about their commercial conduct. The CCI also found that although the airlines claimed that internal meetings had taken place to discuss and decide on FSC increases, no data on costs or any documentary proof was placed on record by any of the airlines to prove that such meetings had taken place. Based on the above factors, the CCI concluded that the only possible explanation for such parallel movement was that a cartel existed between the three airlines.

The most significant takeaway from the CCI’s decision seems to be a change in the evidentiary standard in cartel cases involving price parallelism and circumstantial evidence. In previous cases, the CCI has observed that mere price parallelism would constitute insufficient evidence to establish a cartel and that certain ‘plus factors’ would be needed to corroborate the price parallelism. However, in this case, the CCI seems to suggest that price parallelism alone can constitute sufficient evidence of a cartel if there is no other possible explanation for such parallelism other than a cartel This seems to be in line with the evidentiary standard established by the European Court of Justice for a ‘concerted practice’ in Woodpulp II. Although the Indian legislation does not contain a separate concept of a ‘concerted practice’ as applied in the European Union, the definition of agreement under the legislation covers any ‘arrangement or understanding or action in concert’ and it appears that the CCI’s intention is to interpret the term ‘agreement’ broadly enough to include ‘concerted practices’. It is difficult to comment on whether the test was correctly applied in this case, i.e. whether there was in fact a pattern of parallelism and no other possible explanation for such parallelism without knowledge of the complete facts of the case. The parties did argue that the parallelism was a result of oligopolistic market conditions. While the CCI notes that parallel behaviour of competitors can be a result of intelligent market adaptation in an oligopolistic market, the CCI rejected this argument in the present case by simply making a general conclusion that the only possible explanation for parallel conduct in this case was collusion without assigning any specific reasons as to why this parallelism was not the result of oligopolistic market conditions.

Whilst the principles enunciated by the CCI in this case seem to be sound, the CCI must be cautious in evaluating parallel conduct and possible explanations for the same in future cases to avoid the risk of false positives.

The full decision of the CCI is available here.

Mr. Amarnath can be reached [email protected].

Guest Post from Ai Deng, Bates White

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Below is a guest post from economist Ai Deng, Phd. of Bates White Economic Consulting:

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Hope everyone had a wonderful Thanksgiving holiday.

I thought the readers may be interested in knowing about the recent Global Forum on Competition hosted by OECD.

The event, taking place just a month ago, had a session on cartels titled “Serial offenders: Why do some industries seem prone to endemic collusion?” The panelists included Professor Joseph Harrington (The Wharton School, University of Pennsylvania), Professor Robert Marshall (Department of Economics, Penn State University and Bates White), Professor Valerie Suslow (Carey Business School, Johns Hopkins University), and Mr. Robert Wilson (Webber Wentzel). I did not attend the program in person, but the program materials including the panelists’ presentations are available for download here.

The panelists Professors Harrington, Marshall, and Suslow have all done influential academic research on cartel-related topics. Their work was cited in my own recent research on cartel detection and monitoring. Mr. Wilson, a partner in the Competition Practice at Webber Wentzel, specializes in competition law and international trade.

To give the readers a quick, high level overview,

Professor Harrington’s presentation provides his thoughts on when firms collude. He then describes a 3-step inductive approach to cartel screening and uses the cement market as an example to demonstrate how to apply such an approach in practice.
Using a dataset of cartel participants based on the European Commission (EC) decisions in cartel cases, Professor Marshall specifically notes the role of association management companies (AMC) in cartels. He argues that “it would be valuable to understand the role of AMCs…” and if AMCs compete “with one another to provide this [cartel] services to firms in a product/industry/market, then antitrust policy should be directed toward deterring the role of AMCs with regard to such anticompetitive activities.”
Mr. Wilson’s presentation overviews South Africa’s Competition Act and then specifically focuses on South African construction industry. He identifies possible reasons for the extensive collusion in that industry and makes policy recommendations.
Professor Suslow’s presentation is titled “Serial Collusion in Context: Repeated offenses by firm or by industry?” In addition to address the question raised in the title, she also discusses seven policy tools and emphasized the importance of understanding what leads to collusion in the first place to select appropriate policy tool.

There is a wealth of information in their presentations and supplemental materials. In addition to the panelists’ presentations, also available for download are a “background note by secretariat” and contributions from a number of jurisdictions.

Ai Deng, PhD

Principal

direct: 2022161802 | fax: 2024087838

1300 Eye Street NW, Suite 600, Washington, DC 20005

[email protected]

BATESWHITE.COM

CCC’s: Welcome Ai Deng, Phd. (Bates White)–Guest Post

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I am pleased to welcome Ai Deng, Phd., to Cartel Capers as a guest poster.  Ai is an economist with Bates White Economic Consulting.  I met Ai at some of the antitrust conferences that Bates White sponsors and I’ve always enjoyed his economist’s insight on various cartel related issues.  Ai’s first post is below.

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Competition authorities and regulatory bodies are resolute in encouraging companies to beef up their corporate compliance programs. As an example, in the LIBOR investigation, the DOJ required Barclay’s and other banks to “maintain or develop monitoring systems or electronic exception reporting systems that identify possible improper or unsubstantiated submissions.” [1]Similar agreements were reached between various banks and the CFTC. Good compliance effort by the corporation apparently also pays—in the recent FOREX investigation, the DOJ took notice of Barclay’s efforts and stated in its plea agreement: “The parties further agree that the Recommended Sentence is sufficient, . . . , in considering, among other factors, the substantial improvements to the defendant’s compliance and remediation program to prevent recurrence of the charged offense.”

To better detect various forms of market manipulation, corporate compliance officials can employ a data analytic technique called an “empirical screen.” This technique has already been used by antitrust authorities all over the world, and it is getting increased attention in recent academic literature. An empirical screen is a metric that is based on data and a pre-specified formulation. The value of the metric changes as the likelihood of market manipulation increases or decreases. When the value crosses a certain threshold, a “red flag” for suspicious activity goes up. When this occurs, additional investigation of the causes may be warranted.

“Detection” techniques similar to empirical screens are widely used in the credit card and telecommunications industries for fraud detection purposes. AT&T Labs’ researchers Becker, Volinsky, and Wilks (2010) noted that AT&T implemented its fraud detection system (the Global Fraud Management System) nearly 20 years ago, in 1998.[2] AT&T’s team of data experts continuously analyzes data and devises new techniques to detect fraud. Credit card companies also invest significantly in fraud detection efforts. Organizations that are contemplating establishing or strengthening their compliance programs can also benefit from adopting screening and detection analytics. In the recent Law360 article “What Compliance Officials Must Know About Market Screening” available here, I focus on two important practical issues that have not yet been adequately addressed but which are crucial for a successful deployment of empirical screen techniques.  If you don’t have access to Law 360 and would like a copy of my article, please contact me at [email protected].

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1.      Deferred Prosecution Agreement at § vi (“Monitoring and Auditing”), United States v. Royal Bank of Scotland (D. Conn. Feb. 5, 2013), available athttp://www.justice.gov/iso/opa/resources/28201326133127414481.pdf.

2.    Richard A. Becker, ChrisVolinsky, and Allan R. Wilks, “Fraud Detection in Telecommunications: History and Lessons Learned,” Technometrics 52, no. 1 (2010): 20–33.

SCCE Compliance and Ethics Conference–Las Vegas

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Emtrain

I had a great time at the SCCE Compliance and Ethics Conference in Las Vegas.  I am an Antitrust Expert for Emtrain, a leading producer of online compliance and ethics training material.  Emtrain had a booth in the vendor Exhibit Hall and I was able to spend some time with Janine Yancey and the rest of the Emtrain staff.

I also co-presented a panel with Barbara Sicalides, a partner at Pepper Hamilton.  Barbara and I have known each other for many years.  I was the Chief of the Antitrust Division field office in Philadelphia so I have had a great deal of experience as an antitrust prosecutor.  Ms. Sicalides is leading attorney in defending antitrust cases, providing antitrust counseling and compliance and ethics training to corporations.  Our presentation was titled:  “CEO’s (and salespeople too) Say The Darndest Things: How an Ill- Advised Statement or Email Can Start an Antitrust Investigation or Lawsuit”  The program was a caution that while every CEO and salesperson would like to “crush the competition” and “dominate the market,” it is not always wise to say this publicly or in an email.  We both had numerous examples about how poorly worded statements and emails caused a mountain of litigation.  We also discussed how training can sensitize employees to how certain statements (antitrust buzz words) can be misconstrued.  Barbara and I have an article coming out soon in the SCCE magazine that is basically a recap of the program. The  PowerPoint is also available on the SCCE website, or let me know and I can send you a copy.

This was my second SCCE Compliance and Ethics conference and like the first, it was exciting to meet new people and attend a few programs. It also is a very visual reminder of the enormous resources that companies are putting into their compliance and ethics programs.  Barbara and I both hope to see you in Chicago next year.

CCC’s: Some After Thoughts From An FTAIA Conference

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I went to a very interesting conference on the FTAIA a few weeks ago.  I’ve been a bit busy so haven’t had a chance to post.  But, FTAIA issues aren’t going to be settled anytime soon, so here goes.

On September 27 I was fortunate to be able to attend the conference Extraterritoriality of Antitrust Law in the US and Abroad: A Hot Issue. The conference was sponsored by George Washington Law School and Concurrences.  Application of the Foreign Trade Antitrust Improvement Act (FTAIA) is indeed a hot issue. And with the capacitors investigation being the next big thing in international cartel enforcement, I boldly predict the FTAIA is going to continue to be a hot issue.

There was a number of interesting panels and insightful discussions at the conference.  Judge Dianne P. Wood, Chief Judge of the US Seventh Circuit Court of Appeals was a terrific choice as the keynote speaker. Before the joining the Court of Appeals, Judge Wood was instrumental in many difference roles in promoting competition law internationally and fostering cooperation among the world’s competition law community. I was in the Antitrust Division when Judge Wood was a Deputy Assistant Attorney General overseeing all international matters.  Judge Wood traced the history of international cartel enforcement and cooperation from when the US had a monopoly, then the US and EU had a duopoly, and now there is at least an oligopoly of cartel enforcement with more nations joining as time passes.

Judge Wood also discussed the fact that the FTAIA is not a subject-matter jurisdiction limitation on the power of the federal courts but a component of the merits of a Sherman Act claim involving nonimport trade or commerce with foreign nations.  The first significant difference is that if application of the FTAIA were a jurisdictional issue it could be raised at any time. If brought to the court’s attention that the court does not have jurisdiction to hear a case, the case must be dismissed.  And the court is the fact-finder.  But as a substantive element of a Sherman Act offense, whether complaint satisfies the FTAIA is decided on a Motion to Dismiss with all inferences drawn in favor of the plaintiff.

Judge Wood also noted that the Seventh and Ninth Circuit have different standards for measuring whether anticompetitive conduct abroad has a direct, substantial and reasonably foreseeable effect on commerce in the United States.  The Ninth Circuit has interpreted the FTAIA requirement of “direct” to mean that the effect on U.S. commerce follow as an “immediate consequence” of the defendant’s conduct. U.S. v. Hui Hsuing, 778 F. 3d 738, 758 (9th Cir. 2014). The Seventh and Second Circuits, on the other hand, have construed the term “direct” in the FTAIA to denote a “reasonably proximate causal nexus.” Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 819 (7th Cir. Nov. 26, 2014), as amended (Jan. 12, 2015); Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 410 (2d Cir. 2014).  In most cases there may not be a difference in the outcome depending upon what standard is used.  In fact, the Supreme Court declined to take cert. in the Motorola and AU Optronics cases (see prior post here).  But Judge Wood noted that a Supreme Court decision on FTAIA issue would be welcome.  

Comity

Comity was a major theme of the conference.  Judge Wood noted that comity is fundamentally an Executive Branch consideration.  If a case is properly before a court, (i.e. the court has jurisdiction), it is generally not the court’s job to dismiss the case on comity grounds.

There was another observation on comity that I found insightful.  Daniel Bitton was a panelist and he offered this caution regarding how the US treats foreign nationals.  Imagine, he said, if other countries had sought to extradite Apple executives for the e-book conspiracy?  The point being the US is not the only jurisdiction with anti-cartel laws, and the US needs to be mindful that how we foreign executives are treated under US law may become the way that US executives are treated by foreign jurisdictions.

Mr. Bitton’s example struck home to me because while the Antitrust Division prosecuted the e-books case civilly, the Division always declared Apple’s conduct to be hard-core price-fixing organized at the highest levels of the company.  The Division’s opening brief reads:

 “Apple conspired with five of the six largest U.S. trade book publishers to raise the prices at which consumers purchase electronic books (“e-books”) and eliminate retail price competition…..Stripped of the glitz surrounding e-books and Apple, this is an unremarkable and obvious price-fixing case appropriate for per se condemnation.”

Based on the DOJ’s charging language, the Apple case could have been brought as a criminal case (see a prior post here).

The executive branch does need to be (and generally is) mindful of “Cartel Karma.”  In an earlier post (here), I quoted Forbes columnist Tim Worstall writing about the US reach in the FCPA arena:

It’s most certainly not good economics that one court jurisdiction gets to fine companies from all over the world on fairly tenuous grounds. Who would really like it if Russia’s legal system extended all the way around the world? Or North Korea’s? And I’m pretty sure that the non-reciprocity isn’t good public policy either. Eventually it’s going to start getting up peoples’ noses and they’ll be looking for ways to punish American companies in their own jurisdictions under their own laws. And there won’t be all that much that the U.S. can honestly do to complain about, given their previous actions.

The degree of comity (or respect) competition agencies show (or don’t show) each other will be increasingly important.  For example, I think it was a good thing that the court rejected the Antitrust Division’s request for ten-year prison sentences for certain AU Optronics individuals who were convicted in the TFT-LCD cartel.  I think even seeking the maximum jail sentence request may chill foreign cooperation (including the willingness to extradite to the US).

Another good tip from one of the panelists.  (Ian Simmons I believe, but pardon me if I’ve got this, or anything else wrong in this post).  Mr. Simmons said anytime he is dealing with a confusing, ambiguous statute [and the FTAIA makes anyone’s top ten list], he likes to refresh himself by re-reading the statute.  So here it is (and with the capacitors investigation heating up, many of us will be re-reading the statute often):

§ 6a. Conduct involving trade or commerce with foreign nations

This Act [15 U.S.C. §§ 1 et seq.] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—

(1) such conduct has a direct, substantial, and reasonably foreseeable effect—

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or

(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and

(2) such effect gives rise to a claim under the provisions of this Act, other than this section.

Thanks for reading.

PS.  For those who might be interested,  New York University School of Law and Concurrences Review will host the 2nd Edition of the Conference “Antitrust in Emerging and Developing Economies” at NYU School of Law in New York City on Friday, October 23, 2015. The conference will feature the law, practice and policy in several of the most antitrust-prominent developing nations, including China, India, Brazil, Mexico, and Africa.  More information here.

Antitrust Division Provides Guidance for an Effective Compliance Program

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On Sept 16, 2015, The Antitrust Division announced that Kayaba Industry Co. Ltd., dba KYB Corporation (KYB) had agreed to plead guilty and to pay a $62 million criminal fine for its role in a conspiracy to fix the price of shock absorbers installed in cars and motorcycles sold to U.S. consumers.  The plea agreement indicated that KYB would receive credit for instituting an effective compliance program going forward.  The Division had only recently announced that it was possible for a company to get credit for a forward-looking compliance program that change the culture of the company.  This was a big and new step for the Division so there was a great deal of curiosity as to what the company did that the Division considered credit worthy.  Yesterday, the Division filed its sentencing memorandum which gives an outline of the compliance steps that KYB took.

The first thing to note is that the government praised KYB’s cooperation, noting that it cooperated early, the CEO ordered a complete and timely internal investigation, and the company has made employees and documents available that were outside the US.  I would say that early and complete cooperation is probably the most important factor in convincing the government that there has been a change in culture.   But, in the past, that alone would not earn a company any credit for a compliance program.  In its sentencing memorandum, the Division said this about KYB’s compliance efforts:

“KYB’s compliance policy has the hallmarks of an effective compliance policy including direction from top management at the company, training, anonymous reporting, proactive monitoring and auditing, and provided for discipline of employees who violated the policy.” Case: 1:15-cr-00098-MRB Doc #: 21 Filed: 10/05/15.

These steps closely follow the US Sentencing Guidelines outline for an effective compliance and ethics program:  US Sentencing Guidelines, §8B2.1. Effective Compliance and Ethics Program.

At a recent conference, Brent Snyder indicated that more pleas with credit for compliance programs are in the works and will provide a roadmap for what the Division considers an effective compliance programs.  I wrote about that in  a recent blog post (here). [Note:  There was one other plea agreement in the Forex investigation that indicated credit for a compliance program, but that sentencing memorandum has not yet been filed.  Blog post here.]

The credit for a compliance program is a welcome development. But, the current policy raises one question in my mind.  The Division has indicated that it still will not credit “backward looking compliance programs,” that is, compliance programs that have failed.  But, what if KYB had had this compliance program in place all along, yet certain managers violated it?  In that case, the company would not have received credit for the same program?  It will be interesting to see how the Division’s approach to compliance programs evolves.

Thanks for reading.

CCC’s: A Note on Some Upcoming Cartel Related Events

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There are three upcoming programs that I want to pass along with a brief mention of why I think each is timely and important.   First, on September 22 the Section of Antitrust Law, Cartel and Criminal Practice Committee is hosting a teleconference on extradition.  On September 28, Concurrences is sponsoring a live program on the FTAIA.  Last up, the Georgetown Global Antitrust Symposium is on September 29, 2015.

The first program is an ABA teleconference: Antitrust and Extradition:  Where Are We Now on September 22 from noon to 1:00 pm ET.  The panel line-up is:

Moderator:  Kathryn Hellings – Hogan Lovells

Speakers:

Stuart Chemtob – Wilson, Sonsini Goodrich & Rosati LLP

Greg DelBigio – Thorsteinssons LLP

Mark Krotoski – Morgan, Lewis & Bockius LLP

I know Katie Hellings, Stu Chemtob and Mark Krotoski as colleagues from my days with the Antitrust Division.  They all have a great deal of experience in international cartel matters and have as good a sense as anyone, not only of where we are now, but where we might be going on extradition.  (As an added bonus, Stu Chemtob knows everyone in the world).  Aside from the real estate auction matters, the vast majority of Antitrust Division defendants are foreign fugitives.  Extradition is a hot, and key topic, in the development of cartel enforcement.

Next up is a program sponsored by Concurrences Review & The George Washington University Law School:  EXTRATERRITORIALITY OF ANTITRUST LAW IN THE US AND ABROAD: A HOT ISSUE.  The program in on Monday, September 28, 2015 from 2:30 PM to 6:30 PM (EDT) in Washington, DC.  You can click on the link for the full details, but here are a couple of highlights:

Opening Keynote Speech
Diane P. WOOD | Chief Judge, US Court of Appeals for the Seventh Circuit, Chicago

Panelists:

Douglas H. GINSBURG, Judge, US Court of Appeals for the District of Columbia

James FREDRICKS | Assistant Chief, Department of Justice, Antitrust Appellate Section

After the Supreme Court denied cert. in AU Optronics and Motorola Mobility (here), the FTAIA dropped off the radar–for about 5 minutes.  But, on September 2, 2015 the Antitrust Division announced its first criminal case and plea agreement in capacitors.  The Information alleged both direct import commerce and commerce that fell within the Sherman Act because it had a “direct, substantial, and reasonably foreseeable effect” on US commerce.  If you think application of the FTAIA was complicated when applied to TFT-LCD screens, (I did), then you ain’t seen noting yet.  LCD screens were a significant component cost of the device they were assembled into.  Capacitors, however, typically cost less than a penny and there can be a couple of hundred of them in a device like a cell phone.   Direct?  Substantial?There will certainly be substantial litigation over these issues, and other FTAIA related head scratchers.  Besides capacitors, FTAIA application is being litigated in other civil cases in lower courts.  I am really looking forward to attending this conference.  I’ll try to take notes and pass them along.

Last, but not least, is the Georgetown Global Antitrust Enforcement Symposium on Tuesday, September 29, 2015. Bates White is one of the sponsors.  The Global Antitrust Enforcement Symposium is a leading forum for lawyers, policymakers, corporate executives, economists, and academics to address current issues in competition law and policy. The faculty includes current and former enforcement officials from the United States, European Commission, Germany, France, Brazil and Mexico.  This forum is often the place to hear about significant policy developments.  I recall last year it was in this forum that Bill Baer first hinted at a change in the Antitrust Division’s policy with regard to compliance programs (here).  Then, in the FOREX investigation, the Division for the first time, gave  company credit in a plea agreement for a compliance efforts (here).  Maybe there will be interesting news this time, if not from the Antitrust Division, perhaps from enforcers from other major jurisdictions.

Thanks for reading.