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Criminal Antitrust Update ~ August 2012


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Criminal Antitrust Update ~ August 2012

  1. 1. Criminal Antitrust UpdatePATTON BOGGS LLP | August 2012 Powered by Patton Boggs Criminal Antitrust TeamIN THIS ISSUE: INDUSTRY SCORECARDIndustry Scorecard LCD Screens: The U.S. Justice Department’s Antitrust Division (the Division) asked for a six-month jail sentence for Woo Jin Yang, a formerWhy Does the Division Hitachi-LG Data Storage employee who pleaded guilty to Sherman ActHate No-Contest Pleas? violations in April. We previously reported that another former employee of the Hitachi/LG joint venture was sentenced to seven months in jail for his role in fixing prices of LCD screens, despite the Division’s request for a significantly longer sentence. Both individuals were at risk of serving two orIf you have any questions or if three years in federal prison according to the United States Sentencingyou require additional Guidelines, but both employees cooperated with the Division’sinformation, please contact: investigation. Because Mr. Yang was the first joint venture employee to cooperate with the investigation, and because the Division already failed toAndrew M. Friedman obtain a longer sentence for another co-conspirator, we were not surprised202-457-5267 (Direct) at the Division’s more lenient approach to Mr. Yang’s sentencing202-457-6315 (Fax) recommendation. Automotive: A Yazaki executive will plead guilty to Sherman Act violations and will serve 14 months in prison, subject to court approval. Yazaki is an auto parts supplier that previously pleaded guilty and paid nearly $500RELATED WEB SITES: million in the Division’s vast auto parts antitrust investigation. Several other Yazaki executives already agreed to comparable sentences. Many autoPatton Boggs LLP parts companies have already admitted to fixing the price of various auto parts and have paid fines that collectively amount to nearly $800 million.Patton Boggs AntitrustPractice Group Real Estate Auctions: An Alabama real estate investor joined the growing number of individuals around the country that have admitted to bid-rigging conspiracies related to real estate auctions. David Bradley admitted to participating in bid-rigging and fraud for entering into agreements to not bid against competitors. Consequently, other co-conspirators were able to purchase foreclosed properties at artificially depressed prices. In a scheme already observed in other parts of the country, the co-conspirators then held non-public, private auctions where the properties sold for higher prices. Bradley could serve as many as 26 months in prison and agreed that he cannot argue for less than 18 months in prison. Bradley is the seventh individual to plea guilty in the investigation; one corporation also entered a guilty plea. A California investor became the twenty-fifth individual to plead guilty for participating in bid-rigging and mail fraud in connection with real estate foreclosure auctions. The California-based conspiracy employed private secondary auctions to re-sell properties obtained at artificially low prices due to no-bid agreements among competitors.
  2. 2. Patton Boggs LLP Criminal Antitrust Update | August 2012Pharmaceuticals: Several companies agreed to pay the State of Louisiana roughly $38 million to resolveallegations that they artificially increased drug prices for the state’s Medicaid program. A number of otherpharmaceutical companies had previously settled with Louisiana for approximately $25 million. The stateattorney general had complained that several pharmaceutical companies overcharged Louisiana’sMedicaid program by at least 30 percent, and up to six thousand percent in some cases, for wholesaledrug sales.Pharmaceutical middleman McKesson agreed to pay more than $150 million to settle claims by 29 stateattorneys general, and the District of Columbia, that the wholesaler engaged in a pattern of inflating drugprices for purposes of obtaining artificially high Medicaid reimbursements. The wide-ranging allegationsaccused the company of illegally obtaining elevated Medicaid payments for more than 1,400 differentproducts. The company paid nearly $200 million earlier this year to settle related federal false claimsallegations.Banking/Financial: Visa, MasterCard, and several banks agreed to settle allegations that they colluded toartificially raise interchange fees for both credit and debit card transactions. The settlement consists of amassive $6 billion payment and more than $1 billion in interchange fee reductions – one of the largestantitrust penalties ever imposed, assuming that the settlements receive court and party approval.Significant retailers such as Walmart and Target have already asserted that the settlement does notsufficiently ensure going-forward competition in the credit card processing and payment market, aninitiative that could force the parties to reconsider or renegotiate the settlement.Three former UBS executives are on trial for allegedly conspiring to manipulate municipal bond investmentcontract options. The defendants include the former leader of the municipal derivatives group at UBS. UBSallegedly conspired with other bidders for municipal bond investment contracts in agreements to notcompete with each other, conduct that allegedly suppressed competition for the contracts. Multiple formerUBS employees who cooperated with the government and already face substantial terms in prison havetestified against the trio, as well as a former employee from Bank of America who admitted to receivingbribes from UBS in exchange for municipal bond investment business. The defendants also face recordedtelephone calls, evidence that has proved difficult to overcome in other municipal bond bid-riggingconspiracies. The court recently denied a mid-trial motion for mistrial based on the government’sintroduction of improper testimony. Though it denied the mistrial, the court did strike some of the witnesstestimony.Technology: Google’s antitrust woes continued as the Competition Commission of India launched aninvestigation of Google’s practices related to search result placement for its industry-leading internetsearch engine. An interest group in India claimed that Google discriminates and has retaliated againstbusinesses based on levels of advertising payment. The allegations are similar in some respects toconduct that European and North American regulators are already investigating. European investigatorshave focused on the way in which Google searches tie into Google-owned products at the expense ofcompetitors, as well as contractual provisions with computer software developers that might damagecompetitors’ ability to compete with Google for advertising revenue.Microsoft is at risk of consequences in Europe regarding its EC settlement agreement related to tyingclaims surrounding its operating system and Internet Explorer web browser. The 2009 settlement requiresMicrosoft to present a number of alternative web browsing options to consumers as part of its operatingsystem. Initial statements from Microsoft appear to concede that some Windows users indeed did notreceive the “browser choice” screen contemplated by the settlement, though Microsoft appeared toattribute the problem to a “technical error.” The EU settlement emerged after the well-known U.S. federaland state attorney general actions against Microsoft related to its anti-competitive behavior against acompeting web browser, Netscape.Page 2 of 4
  3. 3. Patton Boggs LLP Criminal Antitrust Update | August 2012Swiss regulators opened an investigation of alleged anticompetitive practices by Cisco Systems. Theinvestigation is believed to be linked to prior civil claims against Cisco in the U.S. Courts and efforts toinstigate an investigation by EU regulators. In substance, the claims suggest that Cisco has exploited itsdominant position as the supplier of the infrastructure supporting the internet to force customers to bundlemaintenance and software updates in a manner that excludes competitors. The fact that prior litigation waslargely unsuccessful, and that EU regulators previously declined to review the matter, suggests that Ciscomay have strong defenses to the allegations.WHY DOES THE DIVISION HATE NO-CONTEST PLEAS?A plea bargain by Florida West International Airways regarding its role in fixing the price of jet fuel hassparked an interesting and controversial reaction by the Division regarding the role of no-contest pleas inantitrust prosecutions. Florida West may be permitted to plea nolo contendere (also known as “no-contest”)to criminal antitrust allegations, effectively allowing the airline to acknowledge wrongdoing without admittingthat it violated the Sherman Act. Generally, the Division refuses to negotiate or accept such pleas, whichcan have significant future impact on parallel civil antitrust litigation.Rule 11 of the Federal Rules of Criminal Procedure permits a no-contest plea so long as the courtapproves, and provided that the court considers both the views of both parties and the “public interest inthe effective administration of justice.” Fed. R. Crim. P. 11(a)(3). In court filings, the Division has repeatedlyclaimed that accepting no-contest pleas could damage the effectiveness of the Division’s corporateleniency policy. That policy encourages corporations to self-disclose violations of antitrust laws as soon asthey are discovered. Corporations that make early disclosures and establish that they are “first in the door”regarding antitrust violations in their specific industry are afforded full amnesty from criminal prosecution –a protection that can help corporations avoid hundreds of millions of dollars in fines. Corporations thatobtain amnesty under the Division’s leniency policy must still admit wrongdoing and independently resolverelated civil liability. Other corporations that cooperate with investigations as “second in the door” leniencyapplicants cannot avoid criminal liability but can, depending on the circumstances, benefit from significantreductions in criminal penalties.Reasonable minds can debate whether permitting no-contest pleas would actually impair the efficacy of theleniency policy, which has been a highly effective means of fueling large antitrust investigations andsettlements. The Division undoubtedly wants to avoid any development that could conceivably weaken thepolicy. Pleas that could help a corporation limit the consequences associated with resolving a criminalinvestigation could theoretically reduce the incentive for corporations that detect antitrust violations fromearly self-reporting. However, the Division’s position is probably based more on an unsupported fear ofchange than on a realistic effect on antitrust investigations.One problem with the Division’s position is that no-contest pleas do not affect corporate criminal antitrustpenalties. Both types of pleas justify a felony conviction and a full financial penalty. Furthermore, becauseno-contest pleas still yield a felony conviction, corporate criminal offenders cannot likely use such pleas toavoid significant collateral consequences like civil debarment. For many federal and international agencies,the fact of a felony conviction can support debarment regardless of whether the corporation fully admitsliability.Civil litigants would feel the primary impact of no-contest pleas because the lack of a full admission ofresponsibility could incentivize corporations to more strongly contest parallel civil antitrust lawsuits.Consequently, civil plaintiffs might have to spend more time and money pursuing antitrust claims that mightotherwise settle on a more expedited track. Generally, the Division does not directly get involved in civilPage 3 of 4
  4. 4. Patton Boggs LLP Criminal Antitrust Update | August 2012class action suits or in seeking significant restitution from criminal defendants in lieu of allowing civillitigants to pursue damages.Unsurprisingly, the Division is making efforts to limit the impact of the Florida West no-contest plea byasking the presiding judge to make findings that could help limit the plea to the specific and unusual factsof the case. That should not be particularly difficult in that one of the key co-conspirators associated withFlorida West, former vice-president Rodrigo Hidalgo, was deemed to have been immunized by the pleaagreement entered into by co-conspirator and former employer LAN Cargo. Hidalgo’s unique dual status asa LAN Cargo executive and an employee of competitor Florida West could serve as a highly significantfactor to distinguish the facts of the case from future prosecutions.This information is not intended to constitute, and is not a substitute for, legal or other advice. You should consult appropriatecounsel or other advisers, taking into account your relevant circumstances and issues. While not intended, this update may in partbe construed as an advertisement under developing laws and rules. You may receive this industry update from other people, whichoften occurs. To SUBSCRIBE or change your address, e-mail 4 of 4