Category Archives: Cartel Capers by Robert E. Connolly

ANTITRUST GUIDANCE IN BRAZIL

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ANTITRUST GUIDANCE IN BRAZIL

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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

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Global Glimpses of Cartel Capers

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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)

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

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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.

3C’s: Anti-Cartel Day in Canada

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Anti-Cartel Day in Canada

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The Canadian Competition Bureau is celebrating “Anti-cartel Day: Helping businesses detect and prevent price-fixing and bid-rigging.” The press release is available here.

Below are some experts where the Commission provides many useful links:

 “The Bureau has developed resources to assist businesses and trade associations in recognizing and preventing cartel activity. The videos were made available on the Bureau’s Facebook page, YouTube channel and its website earlier this week, and include:

 

The press release has this quote from John Pecman, Commissioner of Competition:  “Cartels are corrosive to a healthy marketplace. Anti-cartel Day is a way for us to raise awareness as to the devastating effects of anti-competitive conduct but also to highlight the benefits of compliance for companies and the individuals managing them.”

The following helpful links are also in the press release:

Kudos to Commissioner Pecman and the Canadian Competition Bureau for their efforts in publicizing broadly the benefits of competition/compliance and providing resources to support the effort.

Happy Anti-Cartel Day!

3C’s: Recommended Article on the Auto Parts Cartel

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Recommended Article on the Auto Parts Cartel

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I am passing on this feature article by Dan Gearino of the Columbus Dispatch published on Sunday, March 22, 2015: Massive Price-Fixing Among Auto-Parts Manufacturers Hurt U.S. Car Buyers.  The article goes beyond the numbers of the record-breaking prosecutions and looks at some of the reasons the cartel flourished for so long and what the executives were (or weren’t) thinking.  First some familiar stats cited in the article:

  • So far, 33 companies have pleaded guilty and agreed to pay $2.4 billion in fines, and the investigation is ongoing.
  • In addition to company sanctions, 28 executives pleaded guilty to individual charges and most of them went to federal prison.  An additional 26 executives have been indicted but have not surrendered to authorities.

The following quotes are all excerpts from the article:

  • The prison sentences were a surprise, he said, because many executives considered this conduct to be merely an “administrative offense.”
  • “Some of the people who (received leniency) were some of the evil, evil people in this thing,” said a midlevel manager for one of the companies that pleaded guilty, a U.S. citizen, speaking on condition of anonymity because he was not authorized to comment.
  • He described a culture in which decisions were made by Japanese executives, often working with Japanese executives at other companies, and in which competitors were used to working together.
  • Meanwhile, the many American employees of the companies, even high-level employees, felt shut out from big decisions. In the price-fixing cases, this turned out to be a good thing. All but one of the 54 people charged are Japanese.
  • “Certainly one of the options we will consider will be extraditing them [indicted foreign defendants] from the country where they are located,” said [Marvin] Price, criminal director of the department’s antitrust division.

There are many lessons to be learned from the auto parts cartel capers.  I’ll be writing on some of my thoughts in the future, as I’m sure many others will.

3C’s: Recommended Article on the Auto Parts Cartel

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Recommended Article on the Auto Parts Cartel

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I am passing on this feature article by Dan Gearino of the Columbus Dispatch published on Sunday, March 22, 2015: Massive Price-Fixing Among Auto-Parts Manufacturers Hurt U.S. Car Buyers.  The article goes beyond the numbers of the record-breaking prosecutions and looks at some of the reasons the cartel flourished for so long and what the executives were (or weren’t) thinking.  First some familiar stats cited in the article:

  • So far, 33 companies have pleaded guilty and agreed to pay $2.4 billion in fines, and the investigation is ongoing.
  • In addition to company sanctions, 28 executives pleaded guilty to individual charges and most of them went to federal prison.  An additional 26 executives have been indicted but have not surrendered to authorities.

The following quotes are all excerpts from the article:

  • The prison sentences were a surprise, he said, because many executives considered this conduct to be merely an “administrative offense.”
  • “Some of the people who (received leniency) were some of the evil, evil people in this thing,” said a midlevel manager for one of the companies that pleaded guilty, a U.S. citizen, speaking on condition of anonymity because he was not authorized to comment.
  • He described a culture in which decisions were made by Japanese executives, often working with Japanese executives at other companies, and in which competitors were used to working together.
  • Meanwhile, the many American employees of the companies, even high-level employees, felt shut out from big decisions. In the price-fixing cases, this turned out to be a good thing. All but one of the 54 people charged are Japanese.
  • “Certainly one of the options we will consider will be extraditing them [indicted foreign defendants] from the country where they are located,” said [Marvin] Price, criminal director of the department’s antitrust division.

There are many lessons to be learned from the auto parts cartel capers.  I’ll be writing on some of my thoughts in the future, as I’m sure many others will.

Thanks for reading.

3C’s: Do Not Remove—Under Penalty of Law!

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When I was a boy, I was always puzzled but fearful of labels that I saw on pillows that read in bold print “Do Not Remove—Under Penalty of Law.” I was pretty sure that the cops wouldn’t know if I removed a label, but what if my parents ratted me out? And, as a Catholic School lad, I had to worry about the sin implications. If it was against the law, was it also a sin? A venial sin? (six to twelve months in purgatory). Or, a mortal sin? (eternal damnation—which seemed a little harsh just for removing a label). In any event, being fairly cautious, I never did remove a pillow label, though I may have committed a few more serious offenses in my youth.

These thoughts crossed my mind the other day I when I read about an ongoing case in the Second Circuit, In the Matter of a Warrant to Search a Certain Email Account Controlled and Maintained by Microsoft Corp., Case number 14-2985. Microsoft is challenging a district court order that it produce documents located overseas that were sought by a validly executed search warrant. Microsoft claims the documents are out of the reach of the government while settled law seems to be that, at least as it relates to subpoenas, the documents are producible. The magistrate and district court judge ordered that the documents be produced and Microsoft is currently pressing its appeal in the Second Circuit.

* * * * * Click Here for the Rest of the Story * * * * *

3C’s: Invitations to Collude Invite Big Trouble

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On Thursday February 26th I enjoyed a day long Symposium on Section 5 of the Federal Trade Commission Act hosted by BakerHostetler and organized and moderated by my friend and former colleague Carl Hittinger. The conference focused on the history of Section 5, its current scope and where it may be headed. There was particular discussion about whether the FTC should have guidelines to explain and limit the application of Section 5.

While I found the entire conference interesting, of particular interest to me was the discussion of “invitation to collude” cases, which is a way of saying to a competitor “Would you like to form a cartel with me?” Section 5 broadly prohibits “[un]fair methods of competition” and “unfair or deceptive acts or practices.” One way Section 5 has been used by the FTC has been to charge invitations to collude cases.

An invitation to collude case can arise when one competitor (or a group of competitors) reaches out to another competitor to invite the competitor to agree to fix prices.  An invitation to collude investigation/case arises usually when there is some specificity in the offer—much like contract analysis. General grousing about prices in an industry, while extremely foolish and may draw an investigation, is not likely to result in a formal charge. And, in US v. Foley, 598 F. 2d 1343 (4th Cir. 1979)  a realtor hosted a dinner for seven other realtors and announced he didn’t care what others did, he was raising his commission. Some discussion ensued from which a jury concluded that an agreement has been reached.  The realtors were indicted and convicted.

* * * * * Click Here for the Rest of the Story * * * * *

3C’s: India–CCI Imposes Maximum Penalty on Trade Association

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In this India Update 2015 Volume 4, Avinash Amarnath reports on a recent decision of the CCI and the thin evidence that still led to imposition of a maximum fine.

CCI fines All India Motor Transport Congress for calling for price hike

The Competition Commission of India (CCI) imposed the maximum penalty of 10% of the average turnover on the All India Motor Transport Congress (AIMTC) the apex trade association for road transport service providers (both cargo and passenger) in India.

The CCI found that AIMTC had called for a hike of 15% in freight charges following an announcement of increase in diesel prices by state run oil marketing companies. AIMTC tried to argue that there was no evidence such as written circulars, directions or minutes of such a decision except for news reports which could not be considered as credible evidence without other corroborative evidence. Further, AIMTC argued that in any event, the members had, in fact not acted upon such a call.

The CCI, while observing that evidence was generally bound to be sparse in cartel investigations and an agreement could be inferred even in the absence of written circulars or directions found that:

* * * * * Click Here for the Rest of the Story * * * * * 

3C’s: Concurrences Antitrust Writing Awards–Please Vote

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[Robert Connolly writes:] [s]everal months ago wrote a Cartel Capers blog entry (here) discussing a suggested approach for the Seventh Circuit to follow in deciding Motorola Mobility when the Court reheard the case.  I also wrote a longer article (here) published in the Competition Policy International’s FTAIA issue. To my surprise and delight, Judge Posner in Motorola Mobility v. AU Optronics, 775 F. 3d 816 (7th Cir. 2015), cited both Cartel Capers and the CPI article. The article was quoted at length in the opinion.  This article has now been nominated for a Concurrences writing award.

The aim of the Concurrences Antitrust Writing Awards is to promote competition scholarship and to contribute to competition advocacy. The 2015 Antitrust Writing Awards Jury contributes to this achievement by selecting the best writings published in 2014. The articles are selected by the Jury and by Readers. The Jury consists of a Board, an Academic and a Business Steering Committees composed of the leading academics and counsels. Readers of Concurrences Journal and its sister publication e-Competitions contribute to the selection process by voting for articles. Click here to see the Jury.  You can check out all of the nominated articles on various subjects here.

Unlike many elections where one reluctantly votes for the lesser of two evils, every article nominated is terrific. I am honored to be included in this group. I would appreciate it if you would click on this link and vote for my article.

Thanks for reading…. and voting.