Price Fixing and Cartels

DOJ Changes Course and Announces That It Will Favorably Consider “Robust” Antitrust Compliance Programs at Both the Charging and Sentencing Stages in Criminal Cases

Benjamin Franklin once observed that “an ounce of prevention is worth a pound of cure.” In the antitrust context, this means that most, if not all, companies will want as a matter of course to adopt and maintain an antitrust compliance program, because doing so will help avoid antitrust problems before they occur.

Until recently, however, the U.S. DOJ Antitrust Division gave no weight to corporate antitrust compliance programs at the charging stage of criminal cases, and provided little public guidance as to how they would be considered at the sentencing stage of such proceedings. As former Deputy Assistant Attorney General Brent Snyder noted in 2014, there were once two hard truths about compliance programs. The first was that the “existence of a compliance program almost never allows the company to avoid criminal antitrust charges.” [1] The second was that “the Division, like the Department of Justice as a whole, almost never recommends that companies receive credit at sentencing for a preexisting compliance program.” [2] That changed late last week with an important announcement by Assistant Attorney General Makan Delrahim. Delrahim described the changes to the Division’s treatment of antitrust compliance programs and also announced the publication of a Division guidance document that Division lawyers will use to apply the policy.

Prior to the policy change, a corporate compliance policy would itself garner no credit at the criminal charging stage; instead, the Division took an “all-or-nothing” approach, rewarding the first company in a cartel to come forward with leniency, and possibly advocating for criminal penalty reductions for other companies that fully cooperate in the investigation.

No longer. Going forward, a company with a “robust” compliance program (even if it is not the first to seek leniency) may be eligible for a deferred prosecution agreement (“DPA”). As Delrahim stated in his recent speech, “a company with a robust compliance program actually can prevent crime or detect it early, thus reducing the need for enforcement activity; minimizing the harm to consumers earlier and saving precious taxpayer resources” even if the compliance program is not 100% effective.

In evaluating whether a compliance program is robust, pursuant to its guidance document, the Division will ask three fundamental questions at the charging stage: (1) Is the corporation’s compliance well designed? (2) Is the program being applied earnestly and in good faith? and (3) Does the corporation’s compliance program work?

In asking and answering these three fundamental questions, the Division will consider nine factors, which the guidance document stresses are not a checklist or formula. The first factor looks to the program’s design and comprehensiveness, and considers whether the program is merely a “paper” program or whether it was designed, implemented, reviewed and revised as appropriate in an effective manner. The second factor looks to the culture of compliance, and asks whether management has clearly articulated —and conducted themselves in accordance with— the company’s commitment to good corporate citizenship. And the third factor looks to whether those with operational responsibility for the program have sufficient autonomy, authority and seniority, as well as adequate resources to implement the program. Other factors include whether the program: is tailored to the best practices of the industry and to the unique circumstances of the company; provides training and communication that is clear and empowers employees to act with confidence of the rules; requires periodic review, monitoring, and auditing; establishes reporting mechanisms to allow for anonymous or confidential reports without fear of retaliation; creates a system of incentives and discipline to ensure the program is well-integrated into the company’s operations and workforce; and implements mechanisms for self-policing, remedying issues and improving the program to prevent future issues. Although many of the factors are fairly straightforward and some reflect prior statements by agency officials, the guidance constitutes the first time in the Division’s criminal program history that it has issued formal guidance regarding how it evaluates antitrust compliance programs.

Perhaps not surprisingly, merely having a robust compliance program will not guarantee a DPA. Instead, the Division will also consider whether the company self-reported the misconduct, whether it cooperated with government investigations, and whether it took remedial action.

The new guidance document also clarifies how the Division will consider compliance programs at the sentencing stage. A company may receive a three-point reduction in its “culpability score” under the U.S. Sentencing Guidelines if it has an “effective” compliance program. However, there is no reduction if there has been an unreasonable delay in reporting illegal conduct to the government, and there is a rebuttable presumption that a compliance program is not effective when certain “high-level personnel” or “substantial authority personnel” participated in, condoned or were willfully ignorant of the offense. An effective guidance program may also avoid the need for the DOJ to recommend corporate probation. Finally, the Division’s guidance provides that a dedicated effort by the company’s senior management to change company culture after an antitrust violation and corporate actions to prevent the recurrence of an antitrust violation are relevant to whether the DOJ should recommend a criminal fine reduction.

In sum, for most companies, it has always made good sense to have, and to periodically update and review, an antitrust compliance policy. Of course, no one ever wants or expects to be involved in a criminal antitrust investigation, but in light of the Antitrust Division’s recent announcement about and guidance concerning how it will take such policies favorably into account in such investigations, it likely makes sense for many companies to dust off their programs to ensure that they are adequately robust in the eyes of the Division.

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[1] Snyder, supra note 1, at 9.

[2] Brent Snyder, Compliance is a Culture, Not Just a Policy, at 8 (Sept. 9, 2014), https://www.justice.gov/atr/file/517796/download.

Chinese Company’s Use of Foreign Sovereign Immunity Defense Linked to FTAIA Standard for “Direct” Impact on U.S. Commerce

On February 1, 2018, the Northern District of California court handling the sprawling In re Cathode Ray Tube (CRT) Antitrust Litigation[1] (“CRT”) declined to enter a default judgment against related Chinese defendants, finding the companies had made a sufficient showing of immunity under the Foreign Sovereign Immunities Act[2] (“FSIA”) for the issue to be addressed on the merits more fully.  The decision by Judge Tigar turned on the court’s interpretation of the “commercial activity” exception to the FSIA’s general preclusion of jurisdiction against foreign sovereigns and their agencies and instrumentalities, an exception that requires conduct having a “direct effect” in the United States.  That statutory construction in turn was drawn from the alternative test for Sherman Act claims under the Foreign Trade Antitrust Improvements Act[3] (“FTAIA”) that requires foreign conduct have a “direct, substantial, and reasonably foreseeable” effect on U.S. commerce.  In looking to the FTAIA to interpret the FSIA, the court made a pair of assumptions that are not thought to be correct in all circuits:  That the similar (but different) FTAIA and FSIA “direct effect” provisions have the same meaning, and that the correct meaning is one in which a “direct” effect must follow ‘immediately” from the defendant’s predicate act.  The court’s decision may have implications for the construction of both the FTAIA and the FSIA, certainly in antitrust cases and, while this remains to be seen, perhaps more broadly. READ MORE

First Person Extradited From Europe to the United States for Criminal Antitrust Charges—Continued

Can Germany extradite an EU national to the United States for criminal prosecution when Germany’s own nationals are protected from extradition? This question has been put to the European Court of Justice, and the court’s advisor, Advocate General Yves Bot, has said “yes”. READ MORE

Second Circuit Holds that Uber’s Arbitration Agreement with Its Users Is Enforceable Under California Law

 

Antitrust partner David Goldstein recently wrote an article for the Antitrust, UCL and Privacy section of the State Bar of California regarding the Second Circuit’s decision holding that Uber can enforce its internet-based arbitration agreement with its drivers.  The decision, rendered in the context of a motion to compel arbitration of price-fixing claims, provides both general and specific guidance for web screen interfaces that may suffice for enforceable arbitration agreements.

The article can be accessed here.

German Competition Authority Still One of the Most Active Regulators in Europe

Bundeskartellamt Haus German Competition Authority Still One of the Most Active Regulators in Europe

Germany’s Federal Cartel Office (FCO) has published two documents summarizing its activities for the public: a more detailed “Activities Report” for the years 2015 and 2016 and the high-level “Annual Report 2016.” These documents confirm that the FCO continues to be a highly active operator in the area of competition law enforcement in Europe.

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FTC Sues Louisiana Appraisers for Price Fixing

Close-up Of Person Hand Filling Real Estate Appraisal Form With House Model At Desk FTC Sues Louisiana Appraisers for Price Fixing

On May 31, 2017, the FTC filed an administrative complaint alleging that the Louisiana Real Estate Appraisers Board (“Board”), a state agency controlled by real estate appraisers, violated Section 5 of the FTC Act by fixing real estate appraisal fees paid by appraisal management companies (“AMCs”). AMCs act as agents for lenders in arranging real estate appraisals and are licensed and regulated by the Board.  The FTC alleges that the Board required AMCs to pay appraisal fees that are equal to or exceed the median fees identified in survey reports commissioned and published by the Board.  This action represents the FTC’s first enforcement action against a state agency since its victory in North Carolina State Board of Dental Examiners v. FTC, 135 S.Ct. 1101 (2015).  An administrative trial is scheduled to begin on January 30, 2018.

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New Anonymous Whistle-Blower Tool Launched By The European Commission

Businessman in black suit hiding face behind sign whistle blower New Anonymous Whistle-Blower Tool Launched By The European Commission

On March 16, 2017, the European Commission (“EC”) introduced a new tool to make it easier for individuals to alert the EC about competition law violations, mainly secret cartels, while maintaining the anonymity of the whistle-blowers.

The EC presented the objectives of the new tool (I) and how it works (II); this tool, which is not new in Europe, leaves several questions unanswered (III).

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Changes to the UK’s Regime for Antitrust Damages Actions to Implement the EU Damages Directive

EU and UK Flags with gavelChanges to the UK’s Regime for Antitrust Damages Actions

Regulations implementing EU Directive 2014/104 (the “Damages Directive”) have come into force in the UK. The Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017 (SI 2017/385) (the “Regulations”) entered into force on 9 March 2017 and were published on 14 March 2017. The Regulations amend the UK Competition Act 1998 by adding a new section 47F and new Schedule 8A.

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Can a Foreign Defendant’s Conduct Satisfy the FTAIA But Not the Due Process Clause?

Global Trade, word cloud concept on white background Can a Foreign Defendant’s Conduct Satisfy the FTAIA But Not the Due Process Clause

In Sullivan v. Barclays PLC,[1] Judge P. Kevin Castel, of the Southern District of New York, raised an interesting point regarding the relationship between the viability of antitrust claims subject to the Foreign Trade Antitrust Improvement Act (FTAIA) and constitutional requirements for personal jurisdiction: The FTAIA “arguably may apply a less-exacting standard than the due process threshold to exercise personal jurisdiction over a foreign defendant.”[2]  In other words, even though the standard for the FTAIA might be met to allow an antitrust claim to proceed against a foreign defendant, the court nonetheless might not be able to assert personal jurisdiction.  The question whether the FTAIA should be read more strictly than has been the case to conform to due process requirements, or that foreign defendants should be more diligent in challenging personal jurisdiction, are interesting ones that warrant further analysis.

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Fine in Phosphates Cartel Case Confirms Need to Carefully Evaluate European Commission Settlement Proposals

Businessman's hands exchanging euro on blue background, closeup shot Fine in Phosphates Cartel Case Confirms Need to Carefully Evaluate European Commission Settlement Proposals

On January 12, 2017, the Court of Justice of the European Union (“CJEU”) dismissed Roullier group’s appeal and thereby confirmed a fine of €59,850,000 imposed by the European Commission (“EC”) in the phosphates cartel case.[1] This blog post summarizes the decision and discusses the CJEU’s reasoning, which provides valuable guidance to a firm in a cartel investigation that is evaluating a settlement proposal from the EC. In particular, the firm must weigh the fact that, pursuant to the CJEU’s decision, the EC may ultimately impose fines greater than those it proposed in a rejected settlement offer, even if it determines that the firm’s cartel participation was significantly less than it thought at the time of settlement discussions.

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DOJ and FTC Stand Their Ground on Comity Policy Despite Second Circuit’s Decision in Vitamin C Case

International Flags on poles DOJ and FTC Stand Their Ground on Comity Policy Despite 2d Circuit’s Decision in Vitamin C Case

Last September, we discussed the U.S. Court of Appeals for the Second Circuit’s opinion in In re Vitamin C Antitrust Litigation vacating a $147 million judgment against Chinese vitamin C manufacturers based on the doctrine of international comity.  That case stemmed from allegations that the defendants illegally fixed the price and output levels of vitamin C that they exported to the United States.  In reversing the district court’s decision to deny the defendants’ motion to dismiss, the Second Circuit held that the district court should have deferred to the Chinese government’s explanation that Chinese law compelled the defendants to coordinate the price and output of vitamin C.

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District Court Tosses Last Remaining Plaintiffs in Aluminum Warehousing Antitrust Litigation

District Court Tosses Last Remaining Plaintiffs in Aluminum Warehousing Antitrust Litigation Aluminum Picure of Industrial Warehouse with Aluminum Sheets

Judge Katherine Forrest of the Southern District of New York recently dismissed another set of complaints in what she described as “the next chapter in the saga” of the In re Aluminum Warehousing Antitrust Litigation cases, No. 13-md-024710-KBF (S.D.N.Y. Nov. 30, 2016).  Referring to her previous October 5, 2016 ruling, which dismissed claims asserted by certain first-level purchasers of aluminum products, Judge Forrest found (in a ruling dated November 30, 2016) that the remaining complaints by additional first-level purchasers were equally defective because they too failed to establish antitrust injury. The October 5, 2016 ruling, in turn, substantially relied on the Second Circuit’s August 9, 2016 opinion, which affirmed dismissal of claims brought by indirect purchasers of aluminum or aluminum products.  Broadly, the various complaints alleged that aluminum futures traders, banks, and others conspired to manipulate the warehouse storage costs of aluminum, resulting in higher prices in the market for physical aluminum.

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CMA Obtains Director Disqualification for Breach of Competition Law

The Competition and Markets Authority (“CMA”) has today announced that it has secured the first disqualification of a director of a company which has infringed competition law. Under the Company Directors Disqualification Act 1986 (as amended by the Enterprise Act 2002), the CMA can apply to the court for a disqualification order to be made against a director in cases where a company has breached competition law and the director’s conduct makes him or her “unfit to be concerned in the management of a company[1]. This is the first time that the CMA has utilised this power.

In this case, poster supplier Trod breached competition law by agreeing with a competitor that they would not undercut each other’s prices for posters and frames sold online, with the agreement between the competitors being implemented using automated re-pricing software. The company received a fine of £163,371 for this behaviour.

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District Court Follows Motorola Mobility to Apply FTAIA and Indirect Purchaser Doctrine to Dismiss U.S. Parent’s Price-Fixing Claims Based on Its Foreign Subsidiary’s Purchases

District Court Follows Motorola Mobility to Apply FTAIA and Indirect Purchaser Doctrine to Dismiss U.S. Parent’s Price-Fixing Claims Based on Its Foreign Subsidiary’s Purchases In re Refrigerant Compressors Antitrust Litigation Image of Abstract hand a young man is opening a refrigerator door

The Seventh Circuit’s decision in Motorola Mobility v. AU Optronics[1]–which blocked a U.S. parent’s Sherman Act claim based on its foreign subsidiary’s purchases of a price-fixed product–continues to reverberate throughout federal district courts.  A district court in the Sixth Circuit recently followed Motorola Mobility to dismiss a U.S. company’s price-fixing claims based on its foreign subsidiary’s purchases of allegedly price-fixed components that were incorporated abroad into finished goods that the subsidiary then shipped to the United States. In re Refrigerant Compressors Antitrust Litigation, No. 2:09-md-02042, 2016 WL 6138600 (E.D. Mich. Oct. 21, 2016). The district court’s decision demonstrates that, post-Motorola Mobility, defendants have strong arguments in some circuits under the Foreign Trade Antitrust Improvements Act (“FTAIA”)[2] and Illinois Brick[3] to defeat a U.S. parent’s price-fixing claims based on purchases by its overseas subsidiary, especially where that subsidiary is not wholly-owned.

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DOJ and FTC Set Possible Criminal Liability Trap for HR Professionals

DOJ FTC October 20, 2016 release Antitrust Guidance for Human Resource Professionals application of antitrust laws to employee hiring and compensation criminal liabilty trap for HR professionals

In an October surprise, the DOJ and FTC (collectively, the “Agencies”) released guidance for HR professionals on the application of the antitrust laws to employee hiring and compensation.  The Agencies’ October 20, 2016 release, Antitrust Guidance for Human Resource Professionals, announced that “naked” agreements among employers not to poach each other’s employees and to fix wages and other terms of employment are per se illegal.  Critically, for the first time, the Agencies warn that such agreements could result in criminal prosecution against individual HR professionals, other company executives, as well as the company.  This Guidance, coupled with repeated requests to approach the Agencies to report such agreements, signals a significant shift in enforcement focus for the Agencies, including a further move to individual prosecutions, particularly when taken together with last year’s DOJ Yates Memorandum calling for more emphasis on individual executive liability.

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Purported “Direct Purchaser” Claims Dismissed for Lack of Antitrust Injury in Aluminum Warehousing Antitrust Litigation

Second Circuit Dismissal of Claims Indirect Purchasers In re Aluminum Warehousing Antitrust Litigation

On August 9, 2016, the Second Circuit affirmed a district court’s dismissal of claims asserted by two groups of self-proclaimed “indirect purchasers” of aluminum products who alleged that three aluminum futures traders, which had acquired operators of warehouses for aluminum, manipulated a price component for aluminum (warehouse storage costs).  The Second Circuit concluded that these “indirect purchasers” did not suffer antitrust injury because they were not participants in the aluminum warehousing market.  In re Aluminum Warehousing Antitrust Litig., Nos. 14-3574, 14-3581(2d Cir. Aug. 9, 2016).  In the district court, Judge Katherine Forrest recently applied the Second Circuit’s analysis to dismiss similar claims brought by the purported “direct purchasers” of the aluminum because they, too, were not participants in the aluminum warehousing market.  In re Aluminum Warehousing Antitrust Litig., No. 13-2481 (S.D.N.Y. Oct. 5, 2016). These two decisions (assuming the district court’s decision is affirmed) should help defendants attack plaintiffs’ efforts to establish antitrust standing in other cases by trying to thread the “inextricably intertwined” needle for market participants that the Supreme Court established in Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982).

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China’s and Japan’s Antitrust Enforcement Agencies Warm Up To Each Other

Chinese and Japanese crossed flags increased communication, cooperation and coordination among Chinese and Japanese antitrust enforcement agencies

Although China and Japan have very different histories regarding their antitrust laws, antitrust enforcement officials from the two countries have recently taken steps to open a formal dialogue. This is a welcome development for Chinese and Japanese companies, as well as for foreign companies that do business in China and Japan, and it continues the trend of increased communication, cooperation and coordination among national enforcement agencies. There remains an open question, however, as to how convergence among Asian antitrust enforcement agencies will affect possible convergence with agencies in the United States, the European Union and the rest of the world.

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Second Circuit Squeezes the Juice Out of Vitamin C Jury Verdict

Orange Fruit Slices Vitamin C Antitrust Litigation

On September 20, 2016, the U.S. Court of Appeals for the Second Circuit issued an opinion in In re Vitamin C Antitrust Litigation, reversing the district court’s eight year-old decision not to grant a motion to dismiss the case, based on international comity.  The Second Circuit vacated the $147 million judgment against the two defendants that took the case to trial in 2013, and remanded with instructions to dismiss the complaint with prejudice.  The court did not opine on the defendants’ other grounds for dismissal – the foreign sovereign compulsion, act of state, and political question doctrines.  In re Vitamin C Antitrust Litig., No. 13-4791 (2d Cir. Sept. 20, 2016).

In 2005, the plaintiffs brought several class action complaints against the major Chinese vitamin C manufacturers, alleging that the manufacturers illegally fixed the price and output levels of vitamin C that they exported to the United States. The cases, which were consolidated in the Eastern District of New York, marked the first time that Chinese companies had been sued in a U.S. court for violation of the Sherman Act.

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Third Circuit Rules that Antitrust Standing Is Properly Challenged Under Rule 12(b)(6) for Failure to State a Claim, Not Under Rule 12(b)(1) for Lack of Subject Matter Jurisdiction

On September 7, 2016, the Third Circuit ruled that a district court erred in granting a Fed. R. Civ. P. 12(b)(1) motion to dismiss federal antitrust claims for lack of subject matter jurisdiction, because the court conflated the analyses for Article III standing and antitrust standing. Hartig Drug Co. Inc. v. Senju Pharmaceutical Co. Ltd., No. 15-3289 (3d Cir. Sept. 7, 2016).

Hartig Drug Company Inc. (“Hartig”), an Iowa-based drug store chain, sued pharmaceutical manufacturers alleging that they suppressed competition for medicated eyedrops through a variety of means, which resulted in higher prices for the eyedrops. Hartig purchased the eyedrops from a distributor, AmerisourceBergen Drug Corporation (“Amerisource”), which purchased the eyedrops from the manufacturers. Hartig’s claim as an indirect purchaser from the defendant manufacturers was barred by Illinois Brick v. Illinois, 431 U.S. 720 (1977), so it alleged that Amerisource had assigned its claim to Hartwig, which enable Hartwig to sue as a direct purchaser.

The manufacturers filed a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, and also a Rule 12(b)(6) motion to dismiss for failure to state a claim. For the Rule 12(b)(1) motion, defendants submitted Amerisource’s Distribution Services Agreement (“DSA”) with one of the manufacturers—which was not mentioned in Hartwig’s complaint—to argue that an anti-assignment clause in the DSA prohibited Amerisource from assigning its claim without the defendant’s consent. The District Court accepted that argument and granted the Rule 12(b)(1) motion on the ground that Hartig was actually suing as an indirect purchaser and not as a direct purchaser because the assignment was invalid.

On appeal, several retailers filed an amicus brief arguing that defendant’s anti-assignment argument reached only the issue of antitrust standing, which is different from Article III standing, and the district court erred in ruling that it did not have subject matter jurisdiction. The Third Circuit agreed.

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Sun Sets on Solar Panel Manufacturer’s Predatory Pricing Claim as Sixth Circuit Affirms Dismissal

Proving once again that antitrust law protects competition, not competitors, on August 18, 2016 the Sixth Circuit affirmed a decision from the Eastern District of Michigan dismissing a plaintiff’s Sherman Act § 1 predatory pricing complaint for failure to state a claim.  The case, Energy Conversion Devices Liquidated Trust et al. v. Trina Solar Ltd. et al., involved allegations by a US-based solar panel manufacturer that its Chinese competitors had conspired to lower their prices in the US to below cost in order to drive the plaintiff out of business.

Energy Conversion conceded that a predatory pricing claim under § 2 of the Sherman Act requires the plaintiff to plead and prove both that the defendant charged below-cost prices, and that the defendant had a reasonable prospect of recouping its investment.  But it maintained that for a claim brought under § 1, the second element—recoupment—was not required.

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