Criminal Antitrust Update ~ April 2013


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Criminal Antitrust Update ~ April 2013

  1. 1. NEWSLETTERCRIMINALANTITRUSTUPDATEApril 2013Presented by: Andrew M. Friedman
  3. 3. Criminal Antitrust Update, April 2013 | 1INDUSTRYSCORECARDE-books: Macmillan has become the latest and final major e-book publisher to resolve price-fixingallegations by the DOJ Antitrust Division (the “Division”). Also known as Holtzbrinck Publishers,the settlement will likely result in lower retail prices for e-book purchasers, just as prior settlementshave lowered prices for customers purchasing e-books published by Hachette, HarperCollins, andSimon & Schuster. Macmillan also settled parallel claims brought by more than 30 state attorneysgeneral, agreeing to pay $20 million. As a result of the publisher settlements, Apple Inc. is the onlymajor defendant that remains in the case. Not surprisingly, the court approved a number of theprevious e-book publisher settlements. It remains to be seen whether Apple will continue to contestthe Division’s charges. Though Penguin’s settlement with the Division is pending court approval, themost recent reports suggest that Penguin may contest the state antitrust allegations.Food Products: Frederick Salyer, the former CEO of SK Foods, received a harsh six-year prisonsentence following his convictions for price-fixing and racketeering. Salyer was also ordered to paynearly $3.5 million in fines. Salyer and SK Foods were accused of making cash payments in exchangefor receiving contract awards, primarily for tomato products. The payments also caused purchasingagents to supply secret bid information of SK Foods’ competitors. Companies that claim to havebeen victimized by Salyer and SK Foods continue to squabble over court-ordered restitution.Freight Forwarding/CargoCarriage: Two additional Japanese freight forwarders will pay roughly $19million and plead guilty to their role in price-fixing in the air cargo industry. Yusen Logistics will pay$15.4 million, and K Line Logistics will pay $3.5 million. The pleas are part of the Division’s long-running criminal antitrust investigation of the international freight-forwarding and logistics industry.The Division was prepared to pursue charges that the forwarders fixed the price of fuel and securitysurcharges for cargo moving from the United States to Japan.A former ocean cargo executive faces charges he participated in a conspiracy to fix rates andsurcharges for cargo moving from the United States to Puerto Rico. The investigation previouslyresulted in guilty pleas and fines from Seas Star Line, Crowley Liner Services, and Horizon Lines, aswell as a number of individual guilty pleas. More recently, one former ocean cargo executive wasconvicted of conspiring to fix prices following a jury trial in Puerto Rico.Automotive: The Division announced that the largest antitrust investigation in its history will likely
  4. 4. Criminal Antitrust Update, April 2013 | 2expand even more in 2013. Scott Hammond advised that the investigation will impact moreexecutives, more companies, and a wider array of auto parts. To date, nine corporate defendants haveagreed to pay over $800 million in fines in the investigation, and 12 executives have pleaded guilty.Chemicals: Dow Chemical Co. has asked to overturn a $400 million fine imposed as a result of a juryverdict that Dow fixed prices of component chemicals used to make urethane foam. The class actionlawsuit had already yielded settlements with every other defendant accused of conspiring with Dowto fix prices. Dow’s defense focused on class-related issues, and its motion to vacate the judgmentclaims that the evidence simply did not support the verdict. The Division previously declined toprosecute criminal antitrust violations in the urethane foam industry.Technology: In the appeal by AU Optronics Corp. (“AUO”) and some of its executives to the NinthCircuit Court of Appeals, a defense legal expert contended via an amicus brief that the price-fixingacts that led to the convictions occurred outside the United States and should therefore not besubject to punishment under the U.S. statutory enforcement regime under the Sherman Act. AUOhas contended from the outset that the acts alleged in the indictment could not be prosecuted underthe Foreign Trade Antitrust Improvements Act (“FTAIA.”). Notably, the Division dismissed itscross-appeal of the $500 million fine the court imposed following the price-fixing trial.Microsoft received a massive $730 million fine from European Commission cartel regulators inconnection with its 2009 agreement to allow a variety of internet browsers that compete withMicrosoft’s Internet Explorer. The EC contends that Microsoft’s proposed solution was not actuallymade available to millions of Windows 7 operating system users. Microsoft will not contest the fineand indicated the failure to address a software issue resulted in the violation underlying the fine,pledging to resolve the issue with its Windows 8 OS.Pharma/Health Care: Chinese manufacturers of vitamin C lost a civil price-fixing trial in a federalcourt in New York and were ordered to pay more than $160 million in fines. The jury found that theChina-based companies influenced pricing by withholding product and artificially increasing demand.The jury also awarded damages of $54 million and trebled that amount, consistent with the ShermanAct. The manufacturers claimed that their government had endorsed and supported price-fixingamong Chinese manufacturers.The Division moved to dismiss its lawsuit against Blue Cross Blue Shield of Michigan over mostfavored nations provisions in its agreements with hospitals. Those agreements, which were allegedly
  5. 5. Criminal Antitrust Update, April 2013 | 3anticompetitive, are now barred by a new Michigan state law that forbids most favored nationsarrangements.Real Estate: More real estate investors have pleaded guilty to participating in bid-rigging in publicforeclosure auctions in California. The investors agreed with other foreclosure investors to not bidagainst each other, but to yield to pre-chosen parties to win particular auctions. The investors thenparticipated in non-public auctions among each other to determine who would obtain the property,pocketing the difference between the artificially low public auction prices and the private auctionsthey engaged in as part of the illegal scheme. The investigation has netted nearly 30 guilty pleas bydefendants involved in the bid-rigging scheme. Regulators are investigating whether similar conductinfected foreclosure auctions in neighboring counties in California.Energy: An investigation of the energy markets by the Federal Energy Regulatory Commission(“FERC”) turned into a public battle as Barclays sought to avoid producing documents subpoenaedby FERC. FERC requested communications by Barclays traders in the energy markets, as well asdocuments related to Barclays energy market strategies. FERC staff previously recommended finesand disgorgement of nearly $500 million arising from an alleged price-fixing conspiracy by Barclaystraders focusing on the market in the western United States.DEVELOPMENTSREGARDINGTHECRIMINALANTITRUSTANTI-RETALIATIONACTProtections from civil retaliation against antitrust whistleblowers may be on the horizon. Currently,individuals who self-report antitrust violations benefit from a variety of protections but have noformal or specific remedy if they are subjected to retaliation.On August 10, 1993, the Department of Justice’s (DOJ) Antitrust Division announced its formalizedcorporate leniency policy governing the provision of leniency to the first corporation reporting itsillegal antitrust activity to the Division. A year to the day later, on August 10, 1994, the DOJ’sAntitrust Division announced its leniency policy for individuals. Taken together, these policieseffectively establish that the first company or individual to self-report cartel activity may avoid
  6. 6. Criminal Antitrust Update, April 2013 | 4criminal prosecution and penalties.In 2004, Congress passed and President Bush signed into law the “Antitrust Criminal PenaltyEnhancement and Reform Act” (ACPERA) to further self-reporting of antitrust violations. Amongother things, ACPERA (1) increased the maximum fine for antitrust violations from $10M to $100Mfor corporations and from $350K to $1M for individuals, (2) increased the maximum term ofincarceration from three years to 10 years, and (3) eliminated the prospect of treble damages andjoint and several liability for successful leniency applicants who cooperate with civil claimants.ACPERA was reauthorized in 2010. The reauthorization included a report provision requiring theGovernment Accountability Office (“GAO”) to evaluate ACPERA’s overall effect and to makerecommendations regarding the appropriateness of (1) adding informant rewards (e.g. qui tam orbounty provisions), and (2) anti-retaliation protection for whistleblowers. The GAO surveyedstakeholders with respect to both questions. As a result, the GAO found that as to bounties, nine “of21 key stakeholders stated that adding a whistleblower reward in the form of a bounty could result ingreater cartel detection and deterrence, but 11 of 21 noted that such rewards could hinder DOJ’senforcement program.” Consequently, the GAO did not recommend that Congress create bountyprovisions for antitrust whistleblowers.The July 2011 GAO report did, however, note that even in the wake of ACPERA, whistleblowerswho report criminal antitrust violations lack a civil remedy if they are retaliated against (e.g. fired,demoted, suspended, involuntarily transferred or otherwise harmed in the terms and conditions oftheir employment). Moreover, retaliation against innocent third-party antitrust whistleblowersappeared to have occurred in some cases. Finally, “all key stakeholders who had a position on theissue (16 of 21)” of anti-retaliation protection “generally supported the addition of a civilwhistleblower protection provision for those who report criminal antitrust violations[.]” SeniorAntitrust Division personnel were reportedly agnostic about creating a statutory anti-retaliationremedy for such whistleblowers. Nevertheless, noting that “[a]dding a civil remedy for those who areretaliated against for reporting criminal antitrust violations could help mitigate such retaliation andincrease reporting of antitrust evaluations,” the GAO suggested that “Congress may wish to consideran amendment [to ACPERA] to add a civil remedy for those who are retaliated against for reportingcriminal antitrust violations.”Three Senate Judiciary Committee members heeded the call. On July 31, 2012, Senators Leahy (D-VT), Grassley (R-IA), and then-Senator Kohl (D-WI) introduced the “Criminal Antitrust Anti-Retaliation Act.” That bill was referred to the Judiciary Committee for consideration, but nothing
  7. 7. Criminal Antitrust Update, April 2013 | 5further transpired on the measure prior to the end of the 112th Congress. On January 22, 2013,Senators Leahy and Grassley (the chairman and ranking member of the Senate Judiciary Committee,respectively) reintroduced the Criminal Antitrust Anti-Retaliation Act. The legislation amendsACPERA by creating a new section captioned, “Anti-Retaliation Protection for Whistleblowers.”Under the proposed language, “No person, or any officer, employee, contractor, subcontractor oragent of such person, may discharge, demote, suspend, threaten, harass, or in any other mannerdiscriminate against a whistleblower in the terms and conditions of employment” because thewhistleblower provided to the person or the Federal Government information relating to violationsof the antitrust laws (Sec. 216(a)). Whistleblowers who planned or initiated the antitrust violation (orattempted violation) are excluded from coverage (Sec. 216(a)(2)). Whistleblowers who allege theywere discharged or discriminated against by any person in violation of the provision may seek reliefby filing a complaint with the Secretary of Labor (Sec. 216(b)(A)), or, if the Secretary of Labor hasnot issued a final decision within 180 days, by bringing an action in an appropriate U.S. district court(Sec. 216(b)(B)). The legislation provides that successful plaintiffs are “entitled to all relief necessaryto make the whistleblower whole” which can include reinstatement, back pay (with interest), andcompensatory damages to include “litigation costs, expert witness fees, and reasonable attorney’sfees.” (Sec. 216(c)).We expect Chairman Leahy will hold a hearing on the legislation this Congress and, given thebipartisan support of Ranking Member Grassley, the bill is likely to be voted out of committee. It istoo early to say whether the legislation has sufficient bipartisan support to overcome a potentialfilibuster on the narrowly divided Senate floor.Hannibal Kemerer contributed this article.