Criminal Antitrust Update ~ January 2013

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  • 1. Patton Boggs Sovereign Representation | 1
  • 2. INDUSTRY SCORECARDTechnology: An executive of AU Optronics Corp. (“AUO”) was convicted of price-fixing in theLCD flat screen markets in a re-trial. Steven Leung was involved in the sale of LCD screens tolarge U.S.-based companies like Dell Inc. and Hewlett-Packard (“HP”). During the previous trial, ajury convicted AUO’s president and a vice-president, could not reach a decision regarding Mr.Leung, and acquitted two other AUO executives, one of whom is the company’s current CEO.The executives who were convicted last year received three-year prison sentences, which they haveappealed. In Asia, Chinese competition authorities imposed more than $56 million in fines forLCD price-fixing in the Chinese market, in a case that mirrored earlier plea bargains in the U.S.Google Inc. weathered a significant storm as it emerged largely unscathed by the Federal TradeCommission’s (FTC) investigation of allegations that Google used search engine results in ananticompetitive manner. One FTC commissioner characterized the settlement as “promising anelephant” but instead going public with “a couple of mice.” Competitors have accused Google ofpromoting its own services at the expense of competitors in the way it displayed search engineresults. Google maintained that it reconfigured search results to improve its product rather than tostamp out competition. The Commission agreed, relying in part on observations about the wayother search engines display results that might also be considered self-referrals. Google has agreedto change some elements of its advertising policies to address concerns that Google hinderedcustumers’ ability to advertise with rival search engines. European regulators have not yet resolvedsimilar investigations and could, due to Europe’s broader constraints against market-dominantplayers, still cause significant problems for Google.Samsung Electronics Co. Ltd. may face antitrust enforcement in Europe arising from its patentlitigation with Apple. Regulators may view efforts to enjoin Apple as anticompetitive underapplicable antitrust standards in Europe. The patent litigation concerns features of Samsung’swireless patents that may be considered industry standards, and may therefore give Samsung ahighly dominant position in the way data is transferred wirelessly. The patents have been thesubject of extensive civil litigation in the U.S. and several other jurisdictions in Apple andSamsung’s ongoing and epic struggle for dominance in mobile telecommunications. Patton Boggs Criminal Antitrust Update | 1
  • 3. E-books: Penguin Group USA followed the lead of several other e-book industry players,announcing a settlement with the DOJ of claims that publishers conspired with Apple to fix theprice of electronic books. Similar to prior e-book settlements, Penguin will extinguish its existingagreements with Apple and be barred from certain types of agreement terms (among the terms isa constraint against entering into agreements that limit the ability to discount e-books) for the nexttwo years. Penguin’s rumored merger/joint venture with Random House, which was not a party tothe e-book lawsuit, likely created compelling business reasons that favored settlement. Penguinrepresentatives noted that the “proposed Penguin Random House Company should begin life witha clean sheet of paper.”Freight Forwarding: In follow-on resolutions to the DOJ’s lengthy investigation of the freightforwarding and logistics industry, four forwarders were fined by Switzerland’s competitionauthorities in late December, with fines collectively totaling slightly less than seven million dollars.Swiss authorities revealed that a fifth forwarder escaped liability by obtaining full immunity. Likethe freight forwarding allegations that led to earlier resolutions with the DOJ, the case concernedprice-fixing of fees and surcharges common to many freight forwarders.A Japanese freight forwarder pleaded guilty to antitrust charges in the U.S. Kintetsu WorldExpress Inc. will pay more than $10 million to resolve allegations that it fixed fuel surcharges andsecurity fees on cargo shipped to the United States.Financial: A municipal bond broker was sentenced to 18 months in prison following his convictionfor bid-rigging and fraud in connection with municipal bond investment auctions. Brokers in themunicipal bond auction business allegedly divvied up the market and shared information prior tobidding, or submitting intentionally low bids designed to drive up prices for competitors – inexchange for similar behavior on other contracts. Virtually all of the individuals charged in themunicipal bond bid-rigging case based in New York have pleaded guilty or were found guilty attrial. Patton Boggs Criminal Antitrust Update | 2
  • 4. THE LONG ARM OF THE JUSTICE DEPARTMENT IN 2012 – BUT WHATABOUT 2013?In late December, the DOJ announced that criminal antitrust fines levied during the year exceededone billion dollars, a record amount. These fines reflect a few “big hits” that do not necessarilyhelp project where the DOJ may turn in 2013.Virtually all of the fine amounts imposed came from three corporate prosecutions. Auto partsmanufacturer Yazaki Corporation agreed to a $470 million fine early in the year and co-defendantDenso Corporation agreed to a $78 million fine. In addition to the auto parts antitrustinvestigation, which may well yield significant criminal fines in the future, AU Optronics Inc.(“AUO”) received a $500 million fine following a jury verdict. Most of AUO’s co-defendantsentered guilty pleas and received fines prior to 2012, and the verdict is currently on appeal. Theauto parts antitrust investigation has already shown signs of extending into multiple types of partsand markets in Asia; that investigation could yield significant penalties in 2013 and will probably bea very active investigation for a number of years. Several corporate executives agreed to pleabargains and jail time for their role in auto parts price fixing, and the trend of seeking increasing jailtime for an increasing number of individuals in antitrust prosecutions will likely continue, as it hasfor the past few years.The LIBOR rate-rigging investigation could be very active in 2013. Some banks have alreadyagreed to massive fines arising from rigging interbank rates in ways that may have inflated thebanks’ apparent financial strength during the 2008 economic crisis and beyond. Royal Bank ofScotland recently announced that is has reserved more than $800 million to address fines andpenalties associated with the LIBOR matter. Last year, UBS AG paid roughly $1.5 billion to settleallegations it conspired to rig lending rates, and Barclays paid $450 million in fines. The breadth ofthe LIBOR investigation and the recent news from RBS suggest that the investigation is far fromover, and that this investigation will also yield significant prosecutions of individuals – UBSreportedly terminated nearly 20 employees in the wake of resolving its criminal LIBOR issues.Due to the mix of government regulators involved in the LIBOR problems, including the U.S.Commodity Futures Trading Commission (CFTC), the majority of the fines imposed from thatinvestigation will not be attributed solely to the efforts of the Antitrust Division of the DOJ. Patton Boggs Criminal Antitrust Update | 3
  • 5. LIBOR-related problems may also spread to other jurisdictions, as Hong Kong’s MonetaryAuthority has apparently been investigating whether participants in the LIBOR rate-fixing mattermay have engaged in similar conduct for the HIBOR, the Hong Kong Interbank Offered Rate.Paradoxically, though, the DOJ filed meaningfully less new criminal antitrust actions in 2012 thanit did in 2011. It is too early to call this a trend, and the number of indictments should increase asmore (and smaller) companies become entities of interest in the large pending investigations.f bankruptcy as a result of a large criminal fine, as bankruptcy can certainly enhance the perceptionthat a company could fail if the Division refuses to consider compromise regarding criminal fines.Outside expertise can also help the Division understand how a company’s financial situation couldlead to other highlydamaging consequences like efforts by lenders to limit their own exposure to a potentially failingcompany.In late December, the DOJ announced that criminal antitrust fines levied during the year exceededone billion dollars, a record amount. These fines reflect a few “big hits” that do not necessarilyhelp protect where the DOJ may turn in 2013. Patton Boggs Criminal Antitrust Update | 4