In case you’ve forgotten, on June 8, 2017 the Senate Judiciary Committee voted overwhelmingly in favor of the nomination of Makan Delrahim, President Donald Trump’s pick to be the Assistant Attorney General in charge of the Antitrust Division of the USDOJ. The committee approved Mr. Delrahim’s nomination by a vote of 19-1. Once approved by the committee, the nomination should go before the full Senate. But, Mr. Delrahim still has not been brought up for a confirmation vote in the Senate. Sad.
This is a very unfortunate situation for the nations’ top competition law enforcement body. The work of the Division goes on as staffs continue investigations and time sensitive decisions are still made. But, it is an added stress and drain on morale to lack leadership; especially when the leadership will likely be enthusiastically received by at least most staff members. And, not just Mr. Delrahim awaits getting on board; the new Assistant Attorney General will bring in his team to fill out the “front office.”
The delay in confirming Mr. Delrahim has been lamented in two recent articles. In a June 25, 2017 opinion article in The Hill, DC attorney David Balto wrote:
Delrahim is not controversial and is regarded by both Republicans and Democrats to be perfect for the job. He has a strong reputation as a pragmatist with real world experience to guide the tough enforcement decisions the division faces. Time to get Trump’s new Antitrust Cop on the Beat
Another article referred to the fact that until Mr. Delrahim is appointed and able to fill out his staff, the direction and priorities of the Antitrust Division under Trump are not known. In a June 30, 2017 BNA Law article Liz Crampton notes:
The long-term agenda of the Justice Department remains unknown as Makan Delrahim, nominee to lead the division, is still awaiting Senate confirmation three months after President Donald Trump named him. Justice Dept. Antitrust Division Treads Lightly Absent Leader
Mr. Delrahim can provide the kind of guidance the business community counts on, but is currently lacking.
Here’s hoping something as non-controversial but important as Mr. Delrahim’s confirmation vote can dodge through the dysfunction in DC and get taken care of very soon.
If you get lost, sometimes you must go back and start again from the beginning. I’ve been a bit lost on whether the Sherman Act is unconstitutional as a criminal statute. It is well accepted that per se violations of the Sherman Act can be prosecuted criminally. An individual can be sentenced to up to ten years in prison. But, is the accepted learning on this issue wrong? I think I’ve found my way to the Sherman Act being unconstitutional as a criminal statute.[1]
Forget everything you know about Supreme Court jurisprudence involving the criminal application of the Sherman Act (that was easy for me). Take a look at the statute:
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.
Can you advise your client what exactly is declared to be illegal? And watch his face show even more alarm when you explain that whatever it is that he can’t do, if he does do it, the penalty is up to 10 years in prison.[2] The Sherman Act is void for vagueness. Justice Sutherland explained the void for vagueness doctrine in Connally v. General Construction Co, 269 U.S. 385, 391 (1926):
The terms of a penal statute…must be sufficiently explicit to inform those who are subject to it what conduct on their part will render them liable to its penalties….and a statue which either forbids or requires the doing of an act so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process of law.
The Sherman Act does not sufficiently inform business people (including foreigners) what conduct can land them in jail or on a Red Notice. This must be true because even the Supreme Court has said the Sherman Act cannot possibly mean what it says because every contract is in restraint of trade, and every contract cannot be illegal. Thus, the first Supreme Court triage on the Sherman Act was that only “unreasonable restraints” of trade were prohibited.[3] But, that doesn’t clear things up too much—What is an unreasonable restraint of trade? Under the Rule of Reason, a restraint is unlawful only, if after an inquiry to balance the pro-competitive benefits of the agreement versus its anticompetitive effects, the agreement is found to unreasonably restrain trade. But can you find someone guilty of a crime after weighing the pro-competitive and anticompetitive effects of the agreement? That doesn’t seem like the notice required by due process either. Further Supreme Court surgery on the Sherman Act separated out per se violations–restraints of trade that are so highly unlikely to have any redeeming competitive benefits, that the restraints (price-fixing, bid rigging and customer/market allocation) are per se illegal. As a result, juries are charged in a criminal antitrust case that they do not need to find that the restraint was unreasonable, but simply that the defendant(s) entered into an agreement to fix prices, which, by judicial fiat, is per se unreasonable.
Does the per se rule solve the void for vagueness problem? The conventional wisdom is that it has. But changed circumstances sometimes compel a “fresh look” at accepted wisdom. It is time for that fresh look. The changed circumstance that comes to mind is that the Sherman Act is no longer a misdemeanor. It is not a “gentlemen’s crime” meriting a slap on the wrist with a mild scolding from the judge.[4] The Sherman Act, as a criminal statute, provides for an individual to be sentenced to up to 10 years in jail. And the ten years is not just theoretical; the Antitrust Division sought a 10-year prison sentence for the CEO of AU Optronics after his conviction. While the ten-year sentence was not achieved, the record prison sentence for a criminal antitrust violation is now 5 years. [5]
I am not a constitutional scholar, but I do have a blog so I’ll opine what I think is wrong with the Sherman Act as a criminal statute.[6] First, the Supreme Court cannot save a criminal statute by grafting on elements such as condemning only “unreasonable” restraints of trade, and further holding that only certain types of agreements are per se unreasonable. But even if the Supreme Court could address the void for vagueness doctrine by holding that only certain restraints are per se illegal, this violates another constitutional tenet; the Supreme Court takes away the issue from the jury with an unrebuttable presumption. Charles D. Heller has written on this subject and argued that the current practice of instructing the jury that price-fixing is per se illegal, i.e., presumptively unreasonable, is unconstitutional. The jury should be the fact-finder of whether a restraint is unreasonable.[7] Finally, the definition of a per se offense is that the restraint (price-fixing for e.g.) is so highly likely to be anticompetitive that there is no inquiry as to whether the actual restraint the defendant is charged with was anticompetitive. This may be fine for a civil case, but in a criminal case the defendant must be allowed to argue that the charged restraint was the exception to the rule. Instead, in a criminal case the jury may be charged:
It is not a defense that the parties may have acted with good motives, or may have thought that what they were doing was legal, or that the conspiracy may have had some good results.
This seems like a very odd jury instruction for a crime that carries a ten-year maximum prison sentence, especially when one considers that many of the defendants in criminal antitrust indictments are foreigners.[8]
In short, the Sherman Act is void for vagueness. But, if the Act does pass the void for vagueness hurdle by grafting on the per se rule, juries should decide whether the restraint in question is unreasonable, and that inquiry should not be contained by a presumption the restraint was per se unreasonable if it was price-fixing, bid rigging or market allocation. If these standards were applied, however, the Sherman Act would be unworkable. If juries decided, in an after the fact deliberation, whether a restraint was unreasonable, the void for vagueness doctrine would trump a conviction. Sad. Very sad.
My solution to the problem, if there really is a problem, will come as soon as I figure it out—but no later than next week– in Part II.
Thanks for reading. Comments would be much appreciated, but maybe hold your fire until after Part II?
[1] I am not the first to reach this conclusion. The work of several other authors who find likewise is mentioned in the post.
[2] Maybe this language that is in Sherman Act indictments will clear things up: “For the purpose of forming and carrying out the charged combination and conspiracy, the defendant and his co-conspirators did those things that they combined and conspired to do.” To be fair, the indictments then “bullet point” a list of acts the defendant(s) engaged in to carry out the conspiracy.
[3] Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).
[4] I was a brand new Antitrust Division attorney in one trial where we obtained convictions not too long after Sherman Act had been made a felony. At sentencing, the first convicted defendant got a wicked tongue lashing, but the judge said that, due to his youth and relative inexperience, he would not be sentenced to prison. The next defendant—ditto on the tongue lashing—but the judge found he should not be sentenced to prison because he was elderly and now retired.
“[C]ircuit courts are mired in an abiding difference of opinion concerning the appropriate interpretation of the summary judgment paradigm in cases brought under Section 1 of the Sherman Act as applied to circumstantial evidence.”
The professors are going to bat for plaintiff Evergreen, which had its group boycott claimed dismissed on summary judgment. The amicus brief argues that the First Circuit incorrectly applied the Matsushita standard that requires the plaintiff to produce evidence that “tends to exclude the possibility of independent conduct.” The brief goes on to argue say this strict standard should only be applied where the defendants’ conduct is arguably pro-competitive (like the price cutting in Matsushita). In this case, the brief argues, the correct standard, is found in Eastman Kodak Industry Co. v. Image Technical Services Inc.,: whether the plaintiff has produced evidence that the defendants’ conduct is unreasonable.
From the brief:
The Second, Third, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits “have narrowed the application of Matsushita’s “tends to exclude the possibility of independent conduct” test to situations where the plaintiff ’s theory: (1) is implausible; and (2) challenges pro-competitive conduct….The First, Fourth, Eighth, and Eleventh Circuits, however, do not interpret Kodak as a limitation on Matsushita’s “tends to exclude” test. These courts universally apply the test to all motions seeking entry of summary judgment on a conspiracy claim under Section 1, regardless of whether plaintiff’s theory makes economic sense or there is little or no risk of chilling pro-competitive behavior.”
The brief notes that Judge Posner has been critical of the Matsushita “tends to exclude the possibility of independent conduct” standard for requiring the plaintiffs to disprove the defendants’ case with a “sweeping negative.” Richard Posner, Antitrust Law, 100 (2d ed. 2001). The brief also quotes a Judge Posner opinion:
“That would imply that the plaintiff in an antitrust case must prove a violation of the antitrust laws not by a preponderance of the evidence, not even by proof beyond a reasonable doubt (as indeed is required in criminal antitrust cases), but to a 100 percent certainty, since any lesser degree of certitude would leave a possibility that the defendant was innocent.”
In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 787 (7th Cir. 1999) (Posner, C.J.).
The brief concludes:
“In sum, the decision below illustrates and intensifies confusion among the lower courts about the Matsushita standard for Section 1 antitrust claims at summary judgment. The question is critical; private enforcement is essential to maintaining the correct balance between under and over deterrence to foster healthy competition. But when it comes to Matsushita, inconsistency in its application is now the rule, rather than the exception. For these reasons, the Court should clarify the standard, resolve the circuit split, and emphasize that the correct interplay between Matsushita and Kodak properly limits the “tends to exclude” summary judgment standard to cases where the alleged conspiracy is economically irrational and the conduct is pro-competitive.”
Whichever side of the “v.” you are on [plaintiff or defendant] the brief is a useful read for the discussion of the differences among the circuits on the proper standard for summary judgment.
Evergreen is represented by Richard Wolfram who earlier had filed a petition for certiorari with Supreme Court. A copy of the petition can be found here.
I have written often about the need to reform the Sentencing Guideline for antitrust violations. U.S.S.G. 2R1.1. (here)(here)(here). My major beef is that the antitrust guideline measures culpability primarily by the volume of commerce subject to the agreement, to the exclusion of many other very relevant factors. The cartel boss who engages the firm in the illegal conduct is tagged with the same volume of commerce as the employee who is assigned the task of going to cartel meetings to work out the details.
Sally Q. Yates served in the Justice Department from 1989 to 2017 as an assistant U.S. attorney, U.S. attorney, deputy attorney general and, briefly this year, as acting attorney general. Ms. Yates described the problem with overweighting a quantifiable factor better than I ever have, though in a slightly different context:
“But there’s a big difference between a cartel boss and a low-level courier. As the Sentencing Commission found, part of the problem with harsh mandatory-minimum laws passed a generation ago is that they use the weight of the drugs involved in the offense as a proxy for seriousness of the crime — to the exclusion of virtually all other considerations, including the dangerousness of the offender.”
For the record, the issue of mandatory minimums is a far more serious issue than the problem of sentencing individual criminal antitrust offenders. While I hope for antitrust sentencing reform, it is not really a “need.” The antitrust sentencing guidelines are so divorced from actual culpability that virtually no individual–even a cartel boss–is sentenced to a guideline range term of imprisonment.
Brent Snyder, the Antitrust Division’s Deputy Assistant Attorney General for Criminal Enforcement, made extended remarks today at the Yale Global Antitrust Enforcement Conference (here). Mr. Snyder emphasized that the Division has long believed, and acted on this belief, that holding individuals accountable for antitrust crimes was both appropriate and the best means of deterrence:
This emphasis on individual accountability is fundamental to Antitrust Division prosecutors. The division has long touted prison time for individuals as the single most effective deterrent to the “temptation to cheat the system and profit from collusion.” My predecessors ensured that this message was often repeated. To quote just one of them, Scott Hammond said that “[i]t is indisputable that the most effective deterrent to cartel offenses is to impose jail sentences on the individuals who commit them.”
Mr. Snyder also made the first remarks (I believe) on how the September 9, 2015 Yatesmemorandum (here) has affected Antitrust Division practices:
Our record with respect to individual accountability speaks for itself. But we are embracing the Deputy Attorney General’s directive to do even better. We have adopted new internal procedures to ensure that each of our criminal offices systematically identifies all potentially culpable individuals as early in the investigative process as feasible and that we bring cases against individuals as quickly as evidentiary sufficiency permits to minimize the risk that cases will be time-barred or that evidence will become stale from the passage of time. We are also undertaking a more comprehensive review of the organizational structure of culpable companies to ensure that we are identifying and investigating all senior executives who potentially condoned, directed, or participated in the criminal conduct.
It will be interesting to see how/if the Yates memo affects Division prosecution decisions in regard to how far down the cartel bench in a given company the Division may go to hold individuals accountable. After all, many cartels, particularly international cartels, can involve many employees (and former employees) of a firm.
It will also be interesting to see if the new policy memo has any effect on the Division’s Corporate Leniency Program. It can be argued that granting leniency to all culpable current employees of the leniency applicant is inconsistent with the Yates memo if the necessary cooperation could be gained at a lower cost. That may be a topic covered in an upcoming ABA program: The DOJ Amnesty Program After The Yates Memo(here).
I am pleased to announce that GeyerGorey LLP will be hosting the Bi-Monthly Criminal Cartel Update this Thursday, February 18th at 12:30 EST. The program is a little different this month. Usually the Update is hosted by one firm with international offices. GeyerGorey does not have international offices–but we do have friends who do.
The program will be moderated by Hays Gorey, Jr. my partner at GeyerGorey. I will be reporting on developments in the United States. My bio is here. Dorothy Hansberry Bieguńska of Hansberry Tomkiel, Warsaw, Poland will be covering matters in Europe. Hays and I both know Dorothy from the years she worked at the Antitrust Division of the DOJ. Dorothy has gone on to have a very interesting international career and is a founder of Hansberry Tomkiel, a leading Polish competition law firm. Masayuki Atsumi, a lawyer at Mori Hamada & Matsumoto, Tokyo, Japan will be covering developments in Asia. I first got to know Masayuki when he contributed posts to Cartel Capers. Masayuki is now seconded to Covington & Burling and is stationed in Covington’s DC office.
I hope we can bring you an interesting program and match the usual high quality of these ongoing updates. You can register here. The official ABA announcement is below.
We hope you will join us on February 18th from 12:30 to 1:30 EDT for the Bi-Monthly Criminal Cartel Update. You can register for the Bi-Monthly Criminal Cartel Update here:
CRIMINAL ANTITRUST UPDATE
February 18th 2016
12:30 p.m. – 1:30 p.m. Eastern Time
This continuing program series offers an excellent opportunity to learn about recent developments in criminal antitrust law that may impact your clients, company or litigation strategy. Our presenters will report on recent Antitrust Division enforcement actions and related litigation, policy updates, international coordination, and other important developments in criminal antitrust law. The presentation will last about one hour, including an opportunity at the end for participants to ask questions.
This program will be moderated by Hays Gorey, Jr., at GeyerGorey LLP, and includes an excellent panel of speakers:
Robert E. Connolly – GeyerGorey LLP, Philadelphia, Pa.
Since I attended the International Cartel Workshop program in Tokyo on February 3-5, I’ve been thinking a lot about the Antitrust Division’s policies on a) leniency and b) not awarding credit for preexisting compliance programs. The two policies were demonstrated very clearly in a well constructed hypothetical dramatization at the Cartel Workshop, complete with mock negotiations between companies and the USDOJ. In the first instance, Company A, arguably the most culpable member of the hypothetical cartel, received leniency. Meanwhile, the second-in company sought credit for its compliance program, but that plea fell on deaf ears. A senior executive at the Vice-President level of the company (and a subordinate) were involved in the cartel and the Antitrust Division does not give credit for failed compliance programs.
Leniency has been touted by the DOJ as the greatest cartel-busting tool in the enforcers’ arsenal. And leniency has become a bedrock of anti-cartel efforts of competition agencies around the world. While there are some differences among leniency programs, leniency has been a great American export. And it works. Leniency undoubtedly prevents cartels from forming because the risk of detection is too high. And, leniency destabilizes cartels that do form because of the likelihood that someone is going to break the ranks of secrecy and inform on the cartel. But, leniency works in part because the incentives to grab the leniency are very high. A company and its executives who were engaged in illegal activity get a complete pass from prosecution. There is no requirement that the leniency company disgorge the illegal profits (though it is assumed that those profits will evaporate through private class action litigation). The leniency company is not put on probation or subject to a compliance monitor. There is no requirement that culpable executives be fired or at least removed from their current position. There is not even a requirement that the leniency company engage in any remedial measures to enhance its compliance program. Many of these ideas to impose some remedial measures on the leniency “winner” have been suggested to the Antitrust Division, but the Division is not in a mood to add any requirements that might give a leniency company even slightly less incentive to come forward. Leniency works, and the government does not want to mess with success.
Fair enough, but now compare the treatment of the leniency winner with the second-in that seeks some credit for their compliance program, which admittedly has failed. The second-in may be, and often is, less culpable than the leniency company. And, as the Antitrust Division often notes, the second-in may have missed the leniency marker by minutes. The Division’s response to a plea for credit for a compliance program is “The Sentencing Guidelines don’t give any credit for a failed compliance program [with the participation of high-level executives]. Why should we?” I think there are two answers to the “Why should we give credit for a failed compliance program?” The first answer is that like leniency, compliance programs help prevent cartels from forming and destabilizes existing cartels. Bona fide compliance programs certainly reduce the formation of cartels. Just as you can’t quantify the number of cartels that do not form because of leniency, it would be impossible to quantify the number of cartels that would not form if senior executives had a glimpse of the parade of horribles that await them for involvement in a cartel. But, no one disputes that a robust competition compliance program and training will result in fewer cartels.
Compliance programs that have mechanism for detection of and reporting of violations will also destabilize cartels that still might form. A cartel generally involves many individuals in a company at different levels of authority. A subordinate who has antitrust compliance training, a hotline and a grudge (for any reason), is a weak link in the cartel code of silence. Just as leniency breeds distrust among cartel members, a compliance hotline might give senior executives a second thought about delegating execution of the cartel to subordinates. The more concerned a senior executive is about lower-level employees “blowing the whistle,” the fewer whistles will be given out. The smaller the circle of people within a company who are available to help carry out a cartel, the less likely it will be effective or that someone will inform on the cartel.
Preventing the formation of cartels and destabilizing them are rational reasons for the Antitrust Division to give credit for existing compliance programs. The Division has now given credit for a “forward looking” compliance program (i.e. a program instituted once the company is caught in a violation and begins to immediately cooperate.) The Antitrust Division has explained the components of a reward-worthy program in the sentencing memorandum in United States v. Kayaba Corp., S.D. Ohio, No. 15-cr-00098, Dkt. 21, (Oct. 5, 2015). It is not logical to give no credit for such a compliance program if it is in place before the violation occurred, but to allow a company with no compliance program to get credit if it takes these measures after getting caught.
The second reason the Antitrust Division should adopt a policy of giving credit for compliance programs that meet the Kayaba standard is because it is the right thing to do. The Division has done a great job of increasing the deterrence side of cartel enforcement with ever-increasing penalties. Jail sentences are measured in years, not months, the Division seeks extradition whenever it can; foreign executives (the vast majority of defendants in international cartel cases) have their lives seriously negatively impacted just by being indicted and put on Red Notices. As the “stick” gets heavier, however, the fair thing to do is to dangle a carrot to encourage companies to educate their employees about competition law and the serious consequences that await executives caught in a price-fixing cartel. This is an excerpt from my Law 360 article:
One of the parts of the job [when I was a prosecutor with the Antitrust Division] where my white hat seemed a little off-color was when prosecuting a lower-level employee who had had no competition law compliance training, and who was ordered by the boss to engage in the illegal activity. This was a particularly difficult situation with mid-to lower-level foreign executives — the vast majority of international cartel defendants. To be sure, the employee had an idea that what he was doing was not legal, but perhaps little appreciation of the consequences: up to 10 years in jail, red notices, extradition, etc. The subordinate also may have had no way to report the conduct anonymously, or otherwise.
In other words, as the Antitrust Division increases the pound of flesh it seeks for a cartel violation, it should do what it can to encourage compliance programs and training–complete with a way for subordinates to report illegal conduct anonymously. Encouraging compliance programs and training is not going to have the effect on destabilizing cartels that leniency has. But, encouraging compliance programs can come at relatively little cost. The Antitrust Division can still require a guilty plea from the company–and an executive who has had compliance training and crossed the line anyway, might merit even more serious jail time. The cost of rewarding bona fide compliance programs would be modest and worth the price of encouraging compliance with the law–before a violation occurs.
In the interest of full disclosure, I should note that I was not always a fan of “credit for compliance programs.” My view was that compliance programs should be incentivized by adding an upward adjustment for a company that did not have a rigorous antitrust compliance program and training. I also thought an executive who directed subordinates to engage in cartel activity, who was high up enough in the company to institute compliance training and chose not to, should get an upward adjustment. It is especially foul play to order a subordinate to break the law in an organization that has no compliance program or training. I submitted comments to the Sentencing Commission along these lines (here). But, I have come around to the idea that the Antitrust Division should also offer the incentive of a reward for a robust compliance program, even if some knucklehead(s) violate the program. One thing I did not fully appreciate when I was with the Antitrust Division is that companies have limited compliance budgets and it is difficult to get resources allocated to competition compliance programs when the Antitrust Division does not give credit for compliance programs and the Criminal Division does.
This is a subject that deserves more attention than a blog post, and I hope to continue to learn and write in this area. If you have any thoughts, or real life experiences from the trenches that are relevant, I’d love to hear from you.
I am at the ABA/IBA International Cartel Worksop in Tokyo. It is the 11th biennial international cartel workshop–and each workshop is becoming more international. There are attorneys from 26 countries and enforcers from 12 different countries at this event. Donald Klawiter and D. Jarrett Arp are the conference co-chairs. The conference is unique (in my experience) in that most of the panels are interactive demonstrations modeling realistic discussions. The demonstrations cover a wide range of scenes from: a) a company board of directors being advised of possible options including leniency when cartel conduct is discovered; b) [actual] regulators from seven jurisdictions coordinating their dawn raids/search warrants; c) subsequent discussions among defense counsel about various strategies in seven jurisdictions; and many more.
The glue of the program is a hypothetical cartel that is discovered during a compliance training session and the action, starting with the rush for leniency/amnesty, flows from there. The hypothetical is very realistic, rich in complexity and factual detail. There was an actual dramatization video of the February 2013 meeting among competitors where the alleged agreement for the hypothetical was reached.
The realistic hypothetical brought to life the pluses and minuses of the leniency program, which, with minor modifications, has been adopted around the world. In the hypothetical, when a company (Acme) conducted competition compliance training at a very recently acquired company, (B-Wheels), counsel learned that B-Wheels was involved in a world-wide bicycle wheel price-fixing/market allocation cartel. The cartel agreement was reached at a private dinner at a trade association event in February 2013. [the key meeting the program created a video tape for]. The President of B-Wheels was the main speaker and strong advocate for the agreement. One competitor, Chelun Ltd, clearly accepted B-Wheels offer to collude. A third competitor, Jit-Ho, a recent disruptive entrant into the market, was noncommittal. Post-meeting prices increased in the market and market shares seemingly aligned with the price/market allocation discussion. There was other evidence of competitor contact after the initial cartel meeting, but it related to B-Wheel and Chelun.
From the demonstrations, you could see why the leniency program is so effective. After the discovery of the B-Wheels cartel at a compliance training session, there really was no other choice for Acme but to seek immunity. Trying to end the cartel and keep quiet was not an option because one of the other companies, or an individual, would likely approach the government when the cartel ended. Waiting was too great a risk to take. The benefits of seeking amnesty/leniency were overwhelming.
Acme/B-wheels considered which major jurisdictions to approach for a leniency marker. Each jurisdiction in the hypo (US, Canada, Mexico, Brazil, EU, Japan, Korea, and South Africa) had a similar leniency/amnesty program: no fine for the illegal activity; not even restitution for the illegal profits made. More, or equally important, the culpable executives would face certain jail time in the United States unless they obtained amnesty. And, while the United States is certain to seek jail for culpable executives, jail is at least a possibility in many other jurisdictions.
Leniency only covers the governmental action and the Acme discussed the private redress/class action cases that would follow around the world. But, even here, there were benefits to getting leniency such as single damages in the United States if the amnesty applicant cooperated with the plaintiffs. I’m not an economist, but it is conceivable that with sufficiently broad leniency coverage, the cartel may turn out to have been profitable for B-Wheels, even with civil damages. Moreover, in the United States, the Antitrust Division will not require any compliance program or other remedial monitoring action be taken by the leniency company. Nonetheless, in my experience, anyone or any company that goes through the leniency process would never consider it to be a “bargain.” Still, leniency does allow a conspirator, even the most culpable (but not the “ringleader”), to escape the brunt of the possible negatives consequences, while “unleashing hell” on its competitors. All in all, the interactive panel demonstrations showed how the incentives for creating a “Race to the Courthouse” is very effective around the world.
All the “carrots” of leniency do not come without a cost, however. As the hypothetical was structured, the leniency company, B-Wheels, clearly seems to be the most culpable actor. But, its role in organizing the cartel would not be enough to be disqualified for leniency. The Antitrust Division’s leniency disqualification standard is: “The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.” B-Wheels did not coerce any participation in the cartel and since the others, or at least Chelun, voluntarily agreed, B-Wheel was not considered the leader. (Besides, who goes in for leniency and describes themselves as having coerced others to go along?). But, having played at least a/the driving role in forming the cartel, B-Wheel will not pay a fine in any jurisdiction in which it obtains leniency while its competitors will. B-Wheel will likely do better in civil damage cases because it does not have guilty plea. And, while the most senior executive in B-Wheels will get personal immunity under the leniency agreement, the government(s) will focus on seeking jail time against its competitors. And, under the Yates memo, the Antitrust Division may seek to indict even more individuals than they had been doing previously.
The way the hypothetical was set up, the ambiguous role of Jit-Ho highlights another potential danger–but one that is common to all prosecutions. In negotiating “full cooperation” in return for leniency, government’s will press hard to get evidence against all culpable actors. There will be some skepticism if B-Wheels story is that Jit-Ho executives were non-committal at the dinner, particularly in light of subsequent market activities where prices have increased and market shares appear to be in line with the agreement B-Wheels proposed.
In the hypothetical, Chelun will also likely “race to the courthouse” to get the substantial reward of being second-in (greatly reduced fines and more favorable plea deals for fewer executives). In order to have substantial cooperation to offer in return for this favorable treatment (a departure from the guidelines range), the pressure will be enormous to say that the Jit-Ho executives at the seminal meeting agreed to go along. In real life there will be no tape of the event, and recollections can be influenced by the need to offer someone to the prosecution in order to “cooperate.” The program illustrated what an incredibly powerful weapon leniency/amnesty is [as are other very favorable deals]. “With great power, comes great responsibility” and while there are certainly differences of opinion in particular cases, on the whole, there is a great deal of respect for the way in which the agencies exercise their power.
The program is just mid-way. As the program continues, it will be interesting to learn the fate of Jit-Ho, both in how the prosecutors view the company/individuals, and what strategy defense lawyers use to defend.
There are many “teachable moments” that have been demonstrated in the hypothetical. Two came to mind right away. The cartel was discovered during competition compliance training after Acme bought B-Wheel. Compliance programs give companies a head’s up even when there is a violation because executives are more likely to know about the leniency program and take action when it seems the cartel may collapse. Also, if Jit-Ho had had some antitrust training the executives would have known how dangerous it is to attend a private dinner with competitors–even if they did not agree. Regardless of what the Jit-Ho executives said, or didn’t say at that dinner meeting, just being there looks bad and is powerful circumstantial evidence that they agreed to collude.
There much more going on at the program, but this is what struck me at the first about the first day.
And, please forgive if there are more typos/run on sentences than normal. The jet lag is still with me.
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.
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;
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.
