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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].

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.

CCC’s: Guest Post by Ai Deng of BatesWhite

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

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

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

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

Any comments/thoughts/suggestions are welcome.

Ai Deng, PhD

Principal

direct: 2022161802 | fax: 2024087838

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

View my profile on LinkedIn

[email protected]

BATESWHITE.COM

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

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

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

A couple of key factual notes about the case:

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

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

Here are the relevant questions in the Special Verdict form:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thanks for reading.

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

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

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

The full Manawatu Standard article can be found here.

Guest Post from Ai Deng, Bates White

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

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Hope everyone had a wonderful Thanksgiving holiday.

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

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

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

To give the readers a quick, high level overview,

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

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

Ai Deng, PhD

Principal

direct: 2022161802 | fax: 2024087838

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

[email protected]

BATESWHITE.COM

“Bring Back Antitrust ” by David Dayen

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I thought readers might be interested in this article “Bring Back Antitrust” by David Dayen in the Fall issue of The American Prospect. The headline paragraph of the article is:

“Despite low inflation and some bargain prices, economic concentration and novel abuses of market power are pervasive in today’s economy—harming consumers, workers, and innovators. We need a new antitrust for a new predatory era.”

The article’s focus is market concentration resulting from mergers and alleged anticompetitive practices.  The article has a decidedly progressive tilt, arguing that the current state of concentration in most industries is harmful for consumers. For example, some may cringe at this statement: “Since the Reagan Justice Department neutered antitrust enforcement, a posture substantially ratified by increasingly conservative courts….”   But the article also cites scholarly studies:

            John Kwoka, an economics professor at Northeastern University, collected retrospective data on 46 closely studied mergers, and found that 38 of them resulted in higher prices, with an overall average increase of 7.29 percent. In cases where the Justice Department imposed some sort of condition for accepting a merger, like divestiture of some product lines or bans on retaliation against rivals, the price increases were even higher, ranging from 7.68 percent to 16.01 percent. By this analysis, consumers don’t benefit at all from merger activity, as market power overwhelms whatever efficiency gains.

Two former colleagues of mine, Allen Grunes and Maurice Stucke were quoted in the article. Despite the merger/concentration focus of the article, I was interviewed by Mr. Dayen about cartel enforcement. I was quoted in the article relating to the Antitrust Division’s closing of four field offices in January 2013, including the Philadelphia Field Office where I was Chief. (They could have just asked me to leave—they didn’t have to close the whole office :-).  “The shuttering of over half of the field offices damaged agency morale. The remaining offices can’t cover the territory,” says Robert Connolly, chief of the field office in Philadelphia when it was closed. “I think there’s a sense that the Antitrust Division is not that interested in local and regional cases.” To me, the bigger picture was also that the regional offices were also incredibly successful in fighting international cartels. For example, the prosecution of international cartels was jumped started with the successful prosecution of the ADM lysine cartel by the [still open] Chicago field office.  The now closed Dallas office prosecuted the vitamins cartel and my office prosecuted the graphite electrodes and related cartels. All of the Division’s criminal enforcement sections, whether in DC or in the field, have had great success prosecuting international cartels. What mattered was not the address of the staff handling the case, but their talent/experience, interest in antitrust enforcement and pride in being a public servant. The Division lost a lot of that “stuff.” But while the field office closings was a setback, obviously the Division marches on with great success.

“Bring Back Antitrust” is full of the history of antitrust enforcement, discussion of important cases, both famous and not so much, and offers a point of view that may get some attention in the upcoming presidential election.

Thanks for reading.

PS.  There is also an opinion piece in the Washington Post (here) that discusses “Bring Back Antitrust.”

SCCE Compliance and Ethics Conference–Las Vegas

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Emtrain

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

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

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

CCC’s: Some After Thoughts From An FTAIA Conference

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

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

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

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

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

Comity

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thanks for reading.

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

CCC’s: If Everyone Else Jumped Off A Bridge, Would You Do That Too?

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The “Everybody Was Doing It” defense didn’t work when I was a kid and it didn’t work for Tom Hayes as his defense in the first Libor rate rigging trial.  But, the most I got upon conviction (summary–without trial) was 14 days grounded.  Mr. Hayes got 14 years in prison.  Ouch!

After a nine-week trial in London and seven days of deliberations, Hayes, a 35-year-old former UBS and Citigroup trader, was found guilty on eight counts of conspiracy to defraud. He was immediately sentenced to 14 years in prison.  Hayes was the first Libor rate rigging individual to face trial (here).

Hayes was charged in the UK with being the “ringleader” of the Libor rate rigging scheme.  Hayes claimed that the rate rigging was industry wide. He also claimed he was “confused about everything,” including what rules may have been broken. He added: “As far as I was concerned, any rules I’d broke were retrospectively being applied. And I wasn’t sure … Libor wasn’t a regulated product. We had no compliance training. No rules were outlined to us.” Hayes didn’t deny he knew he was engaging in “dodgy” activity but pleaded “I knew I was operating in a grey area.  I knew that I probably shouldn’t do it but like I said I was participating in an industry wide practice at UBS that pre-dated my arrival and post-dated my departure.  A full story is here in The Telegraph.

Hayes initially agreed to plead guilty and cooperate in return for a lighter sentence. He gave a full confession to Britain’s Serious Fraud Office.  During 82 hours of interviews with SFO investigators in the months following his arrest in December 2012, Hayes admitted the conduct he was charged with. But he told the court he had only confessed because he was desperate to be charged in Britain to avoid extradition to the United States, where he also faces fraud-related charges. [Hayes was charged in the United States on December 12, 2012 with fraud and antitrust counts (here)].  Hayes subsequently withdrew from a cooperation agreement with the SFO and pleaded not guilty in December 2013.

At trial, Hayes appealed to the jury arguing that: a) he was being singled out for an industry wide practice; and b) he had no training on the rules.

“The practice was tried and tested, it was so endemic within the bank (UBS), I just thought … this can’t be a big issue because everybody knows about it … (it was) such an open secret.”  “Senior management were keen to use Libor to effectively lie about their cost of borrowing by 50 to 100 [basis] points and portray a sense of strength,” Mr Hayes told investigators after his arrest in 2012. (here).

Going to trial was the last in a string of poor decisions made by Mr. Hayes–the jury convicted him on 8 counts of fraud and the 14 year sentence immediately followed.

I have to confess, I feel sorry for Mr. Hayes.  A sentence of 14 years seems excessive–although to many I’m sure it seems appropriate for such a widespread financial scandal.  The sentencing poses a dilemma for a Judge and I am glad I am not one.  From my perspective, it seems unfair for one guy to be punished so harshly for an industry wide practice.   Maybe five years would have been sufficient.  I don’t think anyone disputed Hayes characterization that the Libor rigging practice preceded his participation and continued after he left.  But, Hayes wrote everything down  [“(I was) either the stupidest fraudster ever because I wrote everything down, or there was an element of me that genuinely didn’t think about it,” Hayes has said in documents shown to the court.].  And there were tapes–lots of tapes.

There have been other Libor defendants charged so Hayes likely will not be the only individual convicted.  But, it is unlikely any superiors who were aware of the practice will ever be charged.  I don’t have any inside knowledge of this case, but as a general rule there is often little evidence other than the testimony of a subordinate that superiors knew of and approved of the conduct.  But, a subordinate testifying against a superior is subject to legitimate attack on credibility grounds that the defendant would implicate anyone to try to save their own skin.  Those that actively engage in the illegal conduct, like Hayes, often leave a paper (or electronic) trail of evidence.  An assertion that a boss knew of the illegal conduct is generally a one on one credibility test, and a compromised witness is rarely enough to provide proof beyond a reasonable doubt.

A judge, of course can only sentence the individual defendant that has been convicted.  In some ways, the fact that so few involved in the crime may eventually be convicted argues for a higher sentence–like that imposed by the Court here.  If the chance of conviction is small, for sufficient deterrence, the penalty must be high.

Even as a prosecutor, I was saddened by how much an otherwise industrious and law-abiding person could screw up their lives–and adversely affect their families–by not thinking through the consequences of what they were doing.  There are many “bottom-line” reasons why companies ought to have serious ethics and compliance programs, but to me there is no more compelling reason than it is something every company owes their employees.  Yes, work hard and make money for the shareholders–but don’t sacrifice yourself and family in the process.   It ain’t worth it and you’re not going to get a medal if you get caught.  You may get 14 years.

Thanks for reading.