Author Archives: Brad Geyer

CCC’s: Hong Kong Shipping Association Seeks Liner Exemption

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The Hong Kong Liner Shipping Association has submitted to the Hong Kong Competition Commission for consideration a block exemption for liner shipping agreements.  The HK Commission gave interested parties until March 24 to comment on the Association’s request. Hong Kong’s new Competition Ordinance, which bans cartel and other anticompetitive agreements, took effect just last month (see blog post Hong Kong Competition Ordinance Takes Effect), and without an exemption would presumably prohibit the types of agreements proposed under the exception request.

In the summary of its application (here), the Hong Kong Shipping Association says it seeks immunity for two types of agreements: (i) voluntary discussion agreements (“VDAs”); and (ii) vessel sharing agreements (“VSAs”). VDAs are commercial agreements between carriers whereby parties exchange and review market data and trade flows, supply/demand forecasts and business trends to better inform business decisions.  They may discuss, develop and agree to recommend voluntary guidelines for rates, charges, service contract or tariff terms and other similar commercial issues. Contracts with shippers are then negotiated and agreed by individual carriers (not the VDA), who may or may not follow the VDA’s guidelines. VDAs bring about: rate stability; service stability; and rate and surcharge transparency, all of which represent efficiencies that benefit customers (and ultimately the wider Hong Kong economy) by enabling better planning and budgeting of long-term shipping costs. VSAs, by contrast, are operational and similar to airline code-sharing agreements, with carriers discussing and agreeing on “technical and operational arrangements relating to the provision of liner shipping services, including the coordination or joint operation of vessel services, and the exchange or charter of vessel space.

The HK Competition Commission is calling for interested parties to submit their views in relation to the application (here). In particular, the Commission said it is seeking comment on experiences with using the two types of agreements in Hong Kong business operations, specific concerns related to either agreement, economic efficiencies related to either and broad market conditions in the industry, “including the state of competition.”  The decision could be critical to the continuation of Hong Kong’s shipping industry, as discussed in this Journal of Commerce article (here).

Liner agreements are common in the shipping industry because cooperation can have pro-competitive efficiency enhancing effects that can benefit customers through increased service and lower prices. The Hong Kong Shipping Association has documented the benefits of, and widespread acceptance of, shipping agreements in the international community (here).  But, even if the liner agreement exemptions are approved, it is critical for the industry to understand that the exemptions are limited to the specific terms of the immunity. Carriers that confer with one another on legal exemptions have to be particularly aware of the limitations of the immunity and the consequences of reaching broader or non-reported agreements.  Over the years, there have been enforcement actions brought against carriers in industries where the agreements reached extended beyond the limited scope of any immunity.  I myself led a prosecution of a worldwide ocean parcel tanker price fixing/customer allocation agreement that ran from at least 1998 into 2002.

More recently, the Antitrust Division of the United States Department of Justice has brought criminal actions against shippers and individuals in the auto roll off carrier industry for industry wide-price fixing. United States prosecutes cartels, include shipping cartels, as crimes, punishable by huge fines and jail sentences for individuals.  An employee of Japan-based NYK pled guilty 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.  This was the third case against an individual in the Antitrust 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.  See the DOJ press release here.   The investigation by the US DOJ has spurred enforcement actions by several other jurisdictions including the EU, China, South Africa and others, though the US is usually alone in seeking jail for individuals.  Here is a blog post I did on the huge fines recently imposed in China–China Fines 7 Shipping Companies $65 Million.

Briefly put, immunity for two carriers to discuss and agree on code sharing for a specific route is not a license for an industry wide agreement to fix prices. Or, on non-legal terms as my Mom used to say, “I said you could borrow the car; I didn’t say you could drive to Las Vegas.” [She said that to my brother; I was an angel.]

On a related note, I will be giving a talk before the American Chamber of Commerce in Hong Kong as part of a trade policy panel on February 1, 2016 (here). The topic will include how the US goes about prosecuting international cartels and how Hong Kong’s new Competition Commission begin its enforcement efforts.

Thanks for reading.

International Cartel Workshop–Tokyo, February 3-5

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International Cartel Workshop–Tokyo, February 3-5

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I will be attending the International Cartel Worksop in Tokyo from February 3-5.  The workshop centers around a hypothetical international cartel investigation with enactments of the many behind the scenes interactions such as discussions among various enforcement agencies plan simultaneous dawn raids, the decision of in-house and outside counsel about whether to seek amnesty/leniency and the tough choices that counsel for individual defendants/targets face in deciding whether to cooperate.  The roles on the panels are played by actual enforcers and counsel experienced in this area.  I will be portraying a target of the investigation discussing options with my counsel.  There will also be mock courtroom proceedings. (Hopefully one where my innocence is established!)

I’ve reposted a message below from Roxann Henry, Chair of the ABA Antitrust Section with a link to the program in case you are interested;

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It’s not too late to register for the International Cartel Workshop to be held in Tokyo on February 3-5, 2016. With over 300 already registered, the participation of top enforcers from jurisdictions around the globe — including the US, EC, Canada, Brazil, and Japan — and mock courtroom proceedings in both civil and criminal cases before a US federal judge, Tokyo will abound with new insights and fantastic networking. A special, one-time only 50% discount for in-house legal departments has driven attendance from the corporate world in Japan and brought new members to the ABA and the Section. (The least expensive way for in-house legal department members from outside the US to register is to join the ABA at the international rate and the Section, then take advantage of the Section rate.) If your practice involves cartels, don’t miss this event!

As the Section year nears its halfway mark, I once again want to thank everyone for their work on behalf of the Section.

Roxann Henry, Chair

Big Brothers Big Sisters of America to Pay $1.6 Million to Resolve Allegations of False Claims For Federal Grants

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– Big Brothers Big Sisters of America Corporation (Big Brothers) has agreed to pay the United States $1.6 million to resolve allegations of false claims for funds under Department of Justice grants awarded to help children at risk, announced United States Attorney Zane David Memeger and Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. Big Brothers is a not-for-profit organization that provides mentoring services to boys and girls throughout the United States. The organization, originally based in Philadelphia, Pennsylvania, now is headquartered in Tampa, Florida.
Big Brothers is a national organization that acts through approximately 300 independent affiliate agencies across the United States. Since 2004, Big Brothers has received millions of dollars in grants from the Justice Department to support initiatives on behalf of children at risk. As a condition of those grants, Big Brothers was required to maintain sound accounting and financial management systems in accordance with federal regulations and guidelines designed to ensure that grant funds would be properly accounted for and used only for appropriate purposes.
The United States alleges that Big Brothers violated these regulations and guidelines with respect to three grants awarded by the Justice Department from 2009 to 2011, by commingling the grant funds with general operating funds, failing to segregate expenditures to ensure that the funds for each grant were used as intended, and failing to maintain internal financial controls to safeguard the proper use of grant funds. These allegations were documented in a 2013 audit of the three grants performed by the Department of Justice Office of the Inspector General. Since 2013, Big Brothers has replaced its management team and begun implementing policies aimed at correcting deficiencies in its management and accounting of federal grant funds.
“The US Attorney’s office is committed to protecting federal grants and ensuring that the funds are appropriately spent,” said Memeger. “Federal grant recipients must administer these grants with transparency and diligence, and the compliance measures implemented pursuant to this settlement agreement will help to achieve those goals.”

“Organizations such as Big Brothers have an obligation to the populations they serve as well as to the taxpayer to ensure that government grant funds are used for their intended purpose,” said Mizer. “The settlement announced today exemplifies the Department’s commitment to hold those who mishandle such funds accountable.”
“We appreciate the support of the U.S. Attorney for the Eastern District of Pennsylvania and the Civil Division in working with us on these kinds of cases,” said Department of Justice Inspector General Michael E. Horowitz. “The OIG’s auditors and investigators will continue to work with each other closely to uncover misuses of grant funds, and with our law enforcement partners to ensure that justice is served.”
In addition to paying the United States $1.6 million, Big Brothers has agreed to institute a strict compliance program that requires the organization to engage in regular audits, both internally and by independent auditors; establish a compliance team, an employee code of conduct, whistleblower policies, and a disciplinary policy for employees who engage in or fail to disclose abuses of federal grant funds; provide regular employee training on these policies; and employ risk assessment tools to detect abuses that might otherwise go undetected.

The investigation was conducted by the Department of Justice Office of the Inspector General. The settlement was handled by Assistant U.S. Attorneys Joel M. Sweet and Scott W. Reid in coordination with Trial Attorney David W. Tyler of the Justice Department’s Civil Division, Commercial Litigation Branch. The claims resolved by this settlement are allegations only; there has been no determination of liability.

Nation’s Largest Nursing Home Therapy Provider, Kindred/Rehabcare, to Pay $125 Million to Resolve False Claims Act Allegations

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Four Nursing Homes Using Kindred/RehabCare to Pay an Additional $8.225 Million

Contract therapy providers RehabCare Group Inc., RehabCare Group East Inc. and their parent, Kindred Healthcare Inc., have agreed to pay $125 million to resolve a government lawsuit alleging that they violated the False Claims Act by knowingly causing skilled nursing facilities (SNFs) to submit false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary and skilled, or that never occurred, the Department of Justice announced today.

RehabCare Group Inc. and RehabCare Group East Inc. were purchased by the Louisville, Kentucky-based Kindred Healthcare Inc. in 2011 and they now operate under the name RehabCare as a division of Kindred.  RehabCare is the largest provider of therapy in the nation, contracting with more than 1,000 SNFs in 44 states to provide rehabilitation therapy to their patients.

“Medicare beneficiaries are entitled to receive care that is dictated by their clinical needs rather than the fiscal interests of healthcare providers,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “All providers, whether contractors or direct billers of taxpayer-funded federal healthcare programs, will be held accountable when their actions cause false claims for unnecessary services.”

The government’s complaint alleged that RehabCare’s policies and practices, including setting unrealistic financial goals and scheduling therapy to achieve the highest reimbursement level regardless of the clinical needs of its patients, resulted in Rehabcare providing unreasonable and unnecessary services to Medicare patients and led its SNF customers to submit artificially and improperly inflated bills to Medicare that included those services.  Specifically, the government’s complaint alleged that RehabCare’s schemes included the following:

  • Presumptively placing patients in the highest therapy reimbursement level, rather than relying on individualized evaluations to determine the level of care most suitable for each patient’s clinical needs;
  • During the period prior to Oct. 1, 2011, boosting the amount of reported therapy during “assessment reference periods,” thereby causing and enabling SNFs to bill for the care of their Medicare patients at the highest therapy reimbursement level, while providing materially less therapy to those same patients outside the assessment reference periods, when the SNFs were not required to report to Medicare the amount of therapy RehabCare was providing to their patients (a practice known as “ramping”);
  • Scheduling and reporting the provision of therapy to patients even after the patients’ treating therapists had recommended that they be discharged from therapy;
  • Arbitrarily shifting the number of minutes of planned therapy among different therapy disciplines (i.e., physical, occupational and speech therapy) to ensure targeted therapy reimbursement levels were achieved, regardless of the clinical need for the therapy;
  • Especially after Oct. 1, 2011 and continuing through Sept. 30, 2013, providing significantly higher amounts of therapy at the very end of a therapy measurement period not due to medical necessity but rather to reach the minimum time threshold for the highest therapy reimbursement level, to enable SNFs to bill for the care of their Medicare patients accordingly, even though the patients were receiving materially less therapy on preceding days;
  • Inflating initial reimbursement levels by reporting time spent on initial evaluations as therapy time rather than evaluation time;
  • Reporting that skilled therapy had been provided to patients when in fact the patients were asleep or otherwise unable to undergo or benefit from skilled therapy (e.g., when a patient had been transitioned to palliative end-of-life care); and
  • Reporting estimated or rounded minutes instead of reporting the actual minutes of therapy provided.

“This False Claim Act settlement addresses allegations that RehabCare and its nursing facility customers engaged in a systematic and broad-ranging scheme to increase profits by delivering, or purporting to deliver, therapy in a manner that was focused on increasing Medicare reimbursement rather than on the clinical needs of patients,” said U.S. Attorney Carmen M. Ortiz for the District of Massachusetts.  “The complaint outlines the extent and sophistication of this fraud, and the government’s continuing work to ensure that the provision of care in skilled nursing facilities is based on patients’ clinical needs.”

“Health providers seeking to increase Medicare profits, rather than providing suitable, high-quality care, will be investigated and prosecuted,” said Inspector General Daniel R. Levinson for the U.S. Department of Health and Human Services (HHS).  “Under our robust compliance agreement, an outside review organization will scrutinize a random sample of medical records annually to assess the medical necessity and reasonableness of therapy services provided by RehabCare.”

In addition to RehabCare, the Department of Justice also announced settlements today with four SNFs for their role in submitting claims to Medicare that were false because they were based in part on therapy provided by RehabCare that was not reasonable, necessary and skilled, or that did not occur.  These settlements include:  A $3.9 million settlement with Wingate Healthcare Inc. and 16 of its facilities in Massachusetts and New York; A $2.2 million settlement with THI of Pennsylvania at Broomall LLC and THI of Texas at Fort Worth LLC; A $1.375 million settlement with Essex Group Management and two of its Massachusetts facilities, Brandon Woods of Dartmouth and Blaire House of Milford and a $750,000 settlement with Frederick County, Maryland, which formerly operated the Citizens Care skilled nursing facility.  The department had previously reached settlements with a number of other SNFs for similar conduct.  See http://www.justice.gov/opa/pr/two-companies-pay-375-million-allegedly-causing-submission-claims-unreasonable-or-unnecessary; http://www.justice.gov/opa/pr/episcopal-ministries-aging-inc-pay-13-million-allegedly-causing-submission-claims; http://www.justice.gov/usao-ma/pr/new-york-catholic-nursing-chain-pay-35-million-resolve-allegations-concerning-claims; http://www.justice.gov/usao-ma/pr/maine-nursing-home-pay-12-million-resolve-allegations-concerning-rehabilitation-therapy.

The settlement with RehabCare resolves allegations originally brought in a lawsuit filed under the qui tam, or whistleblower, provisions of the False Claims Act by Janet Halpin, a physical therapist and former rehabilitation manager for RehabCare and Shawn Fahey, an occupational therapist who worked for RehabCare.  The act permits private parties to sue on behalf of the government for false claims for government funds and to receive a share of any recovery.  The government may intervene and file its own complaint in such a lawsuit, as it has done in this case.  The whistleblowers will receive nearly $24 million as their share of the recovery from RehabCare.

The settlements announced today illustrate the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $27.1 billion through False Claims Act cases, with more than $17.1 billion of that amount recovered in cases involving fraud against federal health care programs.  Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, including the conduct described in the United States’ complaint, can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

This matter was handled by the Civil Division’s Commercial Litigation Branch; the U.S. Attorney’s Office for the District of Massachusetts; HHS Office of Inspector General and the FBI.

The case is captioned United States ex rel. Halpin and Fahey v. Kindred Healthcare, Inc., et al., Case No. 1:11cv12139-RGS (D. Mass.).

The claims settled are allegations only, and there has been no determination of liability.

Former Idaho Construction Company President Sentenced to Prison for Fraud Scheme

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The former president and majority stockholder of a construction company was sentenced to five years in prison today following her plea of guilty to filing a false tax return and her conviction by a jury of conspiracy to defraud the United States, wire fraud, mail fraud, false statements, interstate transportation of property taken by fraud, conspiracy to obstruct justice and obstruction of justice, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Wendy J. Olson for the District of Idaho.

Elaine Martin, 69, of Meridian, Idaho, was the president of MarCon Inc., a construction company based in Meridian.  In September 2013, after a 26-day jury trial, Martin was convicted of tax and fraud charges and sentenced to 84 months in prison.  In August 2015, the U.S. Court of Appeals for the Ninth Circuit vacated Martin’s sentence and her tax conviction and remanded for resentencing and further proceedings on the tax charge.  Today, Martin pleaded guilty to filing a false tax return and U.S. District Judge B. Lynn Winmill of the District of Idaho sentenced her to 60 months in prison on both the tax and fraud charges.  In addition to the prison term, Judge Winmill ordered Martin to pay restitution to the Internal Revenue Service (IRS) and Idaho Department of Transportation in the amount of $131,400.48, costs of prosecution in the amount of $22,859.60 and a forfeiture money judgment of $3,084,038.05, amounts Martin previously paid.

In the plea agreement, Martin admitted that she willfully signed false and fraudulent corporate income tax returns for Marcon Inc. for tax years 2005 and 2006.  Martin also admitted that she caused these tax returns to be false and fraudulent by keeping the unreported income off of the books and that she falsely told an IRS revenue agent, who was conducting a civil audit of Marcon, that all of Marcon’s gross receipts were deposited into its Wells Fargo operating account, when in fact, Martin was diverting and depositing gross receipts into Marcon’s Bank of Cascades account.  Martin withheld the records for Marcon’s Bank of Cascades from the individual who prepared her and Marcon’s tax returns for tax years 2005 and 2006.  Martin admitted that the total tax loss was $73,678.

Martin also admitted to conspiring to defraud the SBA 8(a) Program and the U.S. Department of Transportation, Disadvantaged Business Enterprise (DBE) Program, by submitting fraudulent tax returns and making false statements concerning her finances that caused Marcon to qualify and/or remain eligible for these programs.  Martin further admitted that her behavior affected the award of contracts pursuant to the 8(a) Program and DBE Programs.  For example, Marcon’s status as an Idaho DBE affected how and what DBE goals were set for particular construction projects and helped Marcon maintain a virtual monopoly in its geographic region between 2000 and 2006.  Marcon participated in the SBA 8(a) Program pursuant to direct negotiations with the awarding agency, rather than through fair and open competition.  Martin admitted that during the relevant time period, she would not have been awarded the 33 contracts at issue in the case but for the fraud.

As part of the plea agreement that Martin entered into today, she waived her right to further appeal.

Assistant Attorney General Ciraolo and U.S. Attorney Olson thanked special agents of IRS-Criminal Investigation, the FBI, the Office of Inspector General for the U.S. Small Business Administration and the Office of Inspector General for the U.S. Department of Transportation, who investigated the case and Trial Attorney Gregory Bernstein and former Trial Attorney Katherine Wong of the Tax Division and Assistant U.S. Attorney Raymond Patrico of the District of Idaho, who prosecuted the case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.  For more information on the task force, visit www.stopfraud.gov.

CCC’s: Avinash Amarnath Provides India Update

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Below is a comprehensive post by Avinash Amarnath, attorney with Vinod Dhall & TT&A, New Delhi, India.  Mr. Amarnath covers several subjects including the new Chair of the Competition Commission of India.

India Update 2016 – Vol I

Hello and a happy new year to all readers. There were a few significant cartel developments towards the end of 2015 in India which I will be covering in this post along with some recent administrative developments.

 New Chairman of CCI appointed

Mr. D. K. Sikri, a former officer of the Indian Administrative Service (IAS) has been appointed by the Government of India as the new Chairman of the Competition Commission of India (CCI). Mr. Sikri succeeds Mr. Ashok Chawla, whose tenure ended on 7 January 2016.

COMPAT sets aside cartel fines against cement companies

The most significant cartel development of 2015 happened to come right at the end. On 11 December 2015, the Competition Appellate Tribunal (COMPAT) set aside an order of the CCI imposing fines amounting to approx. USD 945.4 million on 11 cement companies and their trade association for operating a cartel. The order was set aside on due process grounds and the matter was remitted back to the CCI for a fresh hearing and decision. The cement companies, amongst others, argued before the COMPAT that the CCI’s order violated the rules of natural justice and in particular, the rule that he who hears must decide as the Chairperson of the CCI who did not attend the oral hearings of the parties had participated in the decision making process by signing the order. The CCI’s position was that it only performs administrative functions and therefore, the rules of natural justice should not be applied to it in a strict manner. Further, the CCI argued that no real prejudice had been caused to the parties as a result of this alleged violation of the rules of natural justice.

The COMPAT observed that the basic question to be determined was whether the CCI is merely an administrative body or whether the CCI performs quasi-judicial functions and is therefore, bound by the rules of natural justice. After an extensive review and discussion on the powers of the CCI under the Indian Competition Act, 2002 (Competition Act), the procedure for dealing with a case and several case law of the Supreme Court of India on whether the rules of natural justice apply to administrative and quasi-judicial actions, the COMPAT concluded that it was evident that the CCI performed quasi-judicial functions while hearing and disposing off antitrust cases. Accordingly, the CCI was bound by the rules of natural justice including the rule that he who hears must decide. The COMPAT also rejected the argument of the CCI that no prejudice was caused to the parties as a result of this lapse by distinguishing the facts of this case from other precedents relied on by the CCI. Further, the COMPAT found that actual prejudice had been caused by this lapse as the Chairperson had lent his signature to the final order without having heard the various substantive arguments raised by the parties during oral hearing. In any event, it would be very difficult to judge whether prejudice had been caused as it would be impossible to determine the outcome of the case had the Chairperson not participated in the decision making process. Finally, the COMPAT urged the CCI to evolve a comprehensive protocol and lay down guidelines for investigating and hearing a case in consonance with rules of natural justice.

There can be no doubt that the CCI performs quasi-judicial functions and must follow the rules of natural justice while investigating and hearing a case. Whilst the CCI does not possess powers to impose criminal sanctions, it does possess significant fining powers and can impose penalties of up to 10% of the global turnover or 3 times the profit of an enterprise in a cartel case. There is an argument in the European Union that similar powers vested with the European Commission should be characterized as criminal or quasi-criminal in nature. One could argue that the lapse in the present case i.e. the Chairperson signing the final order despite not attending the oral hearings was not significant enough to warrant setting aside the entire order as proceedings before the CCI tend to be mostly written and a hearing before the CCI cannot be equated to a hearing before a court. However, the counter-argument to that would be that whist it is not mandatory to grant an oral hearing in proceedings before the CCI, once granted, such an oral hearing must conform to the rules of natural justice. Further, the age old adage that justice must not only be done but must also be seen to be done should be respected in such cases. The rules of natural justice assume special significance in the Indian system where the CCI dons the role of both prosecutor and adjudicator. At the same time, it is important to avoid a situation where rules of natural justice are elevated to such a level that it becomes disproportionately difficult for the CCI to enforce the law. In the words of Whish, ‘a balance has to be struck between the private interest of undertakings not to be found guilty of behaviour of which they are innocent and the public interest of punishing serious infringement of the law’.

The COMPAT’s order can be accessed here.

Trade association and pharma company fined for insisting on no objection certificate

Similar to a long line of previous cases against such a practice, on 1 December 2015, the CCI imposed the maximum permissible fine of 10% of turnover (amounting to approx. USD 6500) on the chemist and druggist trade association in the state of Kerala for insisting that pharmaceutical companies should obtain a no objection certificate from the association before appointing a new chemist or druggist in the state. The distinguishing factor in this case is that this is the first case where a pharmaceutical company has also been fined for agreeing with the association to implement this practice. As discussed in my previous post (http://cartelcapers.com/blog/flurry-activity-cci-india-update/), the CCI had found in the Himachal Pradesh Chemist and Druggist Association case that agreements between pharmaceutical companies and trade associations would not qualify as horizontal agreements (falling under Section 3(3) of the Competition Act) or as vertical agreements (falling under Section 3(4) of the Competition Act); nonetheless such agreements could be analysed under the general prohibition on anti-competitive agreements (Section 3(1) of the Competition Act) and would be subject to a rule of reason analysis. In this case, based on a very cursory analysis, the CCI found that Alkem, a pharmaceutical company had an understanding with the trade association and that such an understanding had an appreciable adverse effect on competition in India. Alkem was fined 3% of its turnover (approx. USD 11.16 million).

The CCI’s order can be accessed here.

Mr. Amarnath can be reached [email protected].

URS E & C Holdings, Inc. Agrees to Pay $9 Million to Resolve False Claims Act Allegations

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URS E & C Holdings Inc., a successor in interest to the global design and construction company Washington Group International Inc. (WGI), has agreed to pay $9 million to settle allegations that WGI submitted false claims in connection with United States Agency for International Development (USAID) contracts, the Justice Department announced today.

“Contractors who misrepresent their eligibility for government contracts undermine the government procurement process,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Justice Department will take action to protect that process and to ensure that taxpayer funds are not misused.”

“Government contractors must be honest and forthright,” said U.S. Attorney Wendy J. Olson for the District of Idaho.  “This settlement protects the integrity of the federal procurement process.  Whether a situation involves procurement fraud, as in this case, or healthcare fraud or any other type of fraud and dishonesty, the U.S. Attorney’s Office for the District of Idaho seeks to hold those obtaining public funds accountable.”

The settlement concerns USAID-funded contracts for the construction of water and wastewater infrastructure projects in the Arab Republic of Egypt in the 1990s.  The contracts were awarded to a joint venture partnership between WGI, Contrack International Inc. (Contrack) and Misr Sons Development S.A.E. (HAS), an Egyptian company.  The United States filed suit under the False Claims Act and the Foreign Assistance Act, alleging that prior to the award of those contracts, the joint venture partners concealed from USAID that Contrack and HAS were partners in the venture, thus preventing USAID from evaluating their qualifications and eligibility, which was a precondition to contract award.  As a result, WGI and its partners allegedly received USAID-funded contracts for which they were ineligible.  The settlement resolves only WGI’s liability.  The United States previously settled with Contrack and is continuing to pursue its claims against HAS.

This settlement was the result of a coordinated effort by the Department of Justice, Civil Division, Commercial Litigation Branch; the U.S. Attorney’s Office for the District of Idaho; and the USAID Office of Inspector General.

The case is United States v. Washington Group International Inc. f/k/a/ Morrison Knudsen, Corporation, Contrack International, Inc.; and Misr Sons Development S.A.E. a/k/a Hassan Allam Sons, No. 04-555 (D. Idaho).  The claims resolved by this settlement are allegations only and there has been no determination of liability.

CCC’s: I Know this Looks Bad, But…..

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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.

First Charges Brought in Investigation of Collusion Among Heir Location Services Firms

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President and Company to Plead Guilty for Agreeing Not to Compete

The president and CEO of a California-based heir location services provider and his firm have agreed to plead guilty to allocating customers with another heir location firm, announced Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.

Bradley N. Davis, president of Brandenburger & Davis, and his firm will plead guilty to conspiring between 2003 and 2012 to eliminate competition in the heir location services industry.  Heir location services firms identify people who may be entitled to an inheritance from the estate of a relative who died without a will.  The heir location services firms then help heirs secure their inheritances in exchange for a contingency fee paid out of the inheritances they are due to receive.

“The defendants conspired for nearly a decade to enrich themselves at the expense of beneficiaries,” said Assistant Attorney General Baer.  “Heirs of relatives who died without a will deserve better.  Working with the FBI and our other law enforcement partners, the Antitrust Division will continue to hold the leaders of companies that corrupt the competitive process accountable for their crimes.”

Brandenburger & Davis has agreed to pay an $890,000 criminal fine for its role in the conspiracy.  In a separate plea agreement, Davis and the Antitrust Division have jointly agreed to allow the court to determine an appropriate criminal sentence.  In addition, both the company and Davis have agreed to assist the government in its investigation.  The charge was filed today in the U.S. District Court of the Northern District of Illinois.  The terms of the plea agreements are subject to approval of the court.

Today’s charge is the first to result from an ongoing federal antitrust investigation into customer allocation, price fixing, bid rigging and other anticompetitive conduct in the heir location services industry, being conducted by the Antitrust Division’s Chicago Office and the FBI’s Salt Lake City Division, with assistance from the U.S. Attorney’s Office of the Northern District of Illinois.

Anyone with information concerning the focus of this investigation should contact the Antitrust Division’s Chicago Office at 312-984-7200, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Salt Lake City office at 801-579-1400.

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

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