AU Optronics: Stories from the GCR Archives
New indictment in LCD cartel case
Originally published 11 June 2010
A federal grand jury in San Francisco has indicted Taiwan’s largest liquid crystal display panel producer for price fixing.
The jury yesterday returned an indictment against AU Optronics (AUO), the company’s subsidiary in Houston and six of its executives, all of whom are from Taiwan. They are accused of conspiring to fix prices on LCDs – used in devices such as computers and mobile phones – between 2001 and 2006.
The US Department of Justice launched its investigation in 2006. At least one company has won immunity from prosecution for its cooperation with the investigation, but it has yet to be named.
According to the DOJ, by the end of the cartel period the market for LCD panels was valued at $70 billion. The authority says that, as a result of the cartel, multinational television and computer manufacturers such as Apple, Dell and Hewlett-Packard had to pay inflated prices for the screens.
The six executives include AUO’s president, Hsuan Bin Chen, and its vice president, Hui Hsiung. All are current employees or members of the company’s board of directors. The DOJ says they conspired with other producers to fix prices for LCD panels in meetings and issued price quotations in accordance with the agreed prices.
To date, companies charged with participating in the cartel, which include LG and Chungwa Picture Tubes, have been fined more than $860 million. A total of 17 executives have been charged.
AUO faces fines of up to $100 million. The executives could be fined a maximum of $1 million each and imprisoned for up to 10 years. The maximum fines may be increased to twice the gain derived from the cartel, or twice the loss to victims, if either of those figures is greater than the maximum.
Several of the LCD producers also face lawsuits on behalf of consumers and companies who say they were harmed by the alleged cartel. In March, a US federal judge agreed to certify a class of direct purchasers of the screens, including computer and smart phone producers, from companies including Samsung, LG Display, Chungwa Picture Tubes and Sharp.
Judge Susan Illston, in San Francisco federal court, also certified a class of indirect purchasers who purchased electronic products that contain the screens. The group will include consumers from nearly two dozen states.
Jury convicts AUO and two executives of price fixing
By Ron Knox
Originally published 14 March 2012
A federal jury has convicted AU Optronics (AUO) and two of its executives of colluding with its rivals to fix the price of LCD monitors, securing a significant victory for the DOJ’s Antitrust Division and leaving the company facing a potential $1 billion fine.
The jury at the District Court for Northern California returned the guilty verdicts yesterday morning after an eight-week trial and more than a week of deliberations. The company, its US subsidiary and two of its top executives – former president Hsuan Bin Chen and former executive vice president Hui Hsiung – were convicted of violating the Sherman Act.
The Taiwanese company was the only LCD screen manufacturer to challenge the DOJ’s price-fixing charges and take its case to trial. Seven other companies pleaded guilty in the investigation and have been sentenced to pay more than $890 million in criminal fines.
The investigation has also resulted in charges against 17 individuals, 10 of which have pleaded guilty and have been sentenced to a total of more than six years in prison.
The jury also found that the company profited from the conspiracy, and that the total illegal gains among the cartelists exceeded $500 million. The trial marked the first time the issue of overcharges has ever been litigated before a federal jury in a criminal antitrust case.
Under US law, AUO now faces a fine of up to $1 billion, or twice the total overcharge from the conspiracy.
“The jury finding $500 million in ill-gotten gains by members of the cartel demonstrates the harmful effect of this price-fixing conspiracy on American businesses and consumers,” says Sharis Pozen, acting head of the Antitrust Division. “The jury’s decision to hold not only the companies but also their top executives accountable for their anticompetitive actions should send a strong deterrent message to board rooms around the world.”
The jury also acquitted two other executives – Lai-Juh Chen, the company’s former chief executive, and former senior manager Tsannrong Lee. Chen remains with the company.
According to a transcript of yesterday’s verdict, the jury was deadlocked on whether to convict fellow executive Shiu Lung Leung, deciding after three days’ deliberation that it could not reach a decision. The 12-person jury was deadlocked in favour of convicting Leung 8-4, according to a Reuters report.
The judge declared a mistrial in Leung’s case.
Shortly after the jury returned the verdicts, counsel for AUO moved for a new trial in the matter. The defendants will face sentencing after those motions are heard, according to the transcript.
Observers say the result is a boon for the division as it continues to push for more aggressive fines and jail terms for those companies and executives taking part in illegal price fixing.
“As a general matter, anytime the DOJ goes to trial on a criminal matter and wins, it sends a message to the community that there can be serious consequences for violating the antitrust laws,” says Saul Morgenstern, at Kaye Scholer in New York. “And when there are verdicts against individuals, that message is enhanced.”
Morgenstern says that the jury’s conviction of the individuals is significant. The division had suffered recent losses in jury trials against individuals, including in the DRAM investigation. Now, lawyers say the result could turn the tide for the DOJ’s trial record – and defendants’ willingness to let a jury decide their fates in criminal matters.
“The Antitrust Division is delighted with the result,” says Roxann E Henry at Dewey & LeBoeuf in Washington, DC. “It will definitely spur an even more aggressive attitude and dampens enthusiasm for going to trial.”
The result may have ramifications for the division’s ongoing auto parts cartel investigation, observers say. The case is already the largest antitrust investigation in history, and it has spurred sizeable fines and record jail terms, primarily against those companies who agreed to plead guilty and cooperate with the division early in the investigation.
But much will hinge on the result of the eventual appeal, observers say. Dennis Riordan, partner at Riordan & Horgan in San Francisco, told Reuters that the jury was not asked to decide the most pressing question: whether US antitrust laws could apply to foreign companies selling goods outside of the US.
Judge Susan Illston, who presided over the trial and will sentence the defendants in the matter, had earlier rejected a motion to dismiss the case because the alleged cartel activity happened outside of the US.
“This is a huge case,” Riordan told a Reuters reporter. “It’s really the appeal that is going to determine what this means.”
The legal reach of the Sherman Act has been the subject of several recent antitrust cases in which defendants have challenged price-fixing claims because the defendants both manufacture and sell the product in question exclusively outside the US.
Much of that debate has hinged on the proper interpretation of the Foreign Trade Antitrust Improvements Act (FTAIA), which was enacted to limit the reach of US antitrust laws to commerce that had a direct effect on the US economy.
The law has been used as a defence against price-fixing allegations on several occasions, including in the SRAM investigation. In that case lawyers for the defendants convinced the same California court to dismiss claims for damages brought by indirect purchasers of DRAM because the sales only could only have affected foreign commerce.
The DOJ and the Federal Trade Commission earlier this year submitted a brief in another, similar case – the Potash antitrust litigation before the Seventh Circuit Court of Appeals – in which the agencies asked for a broader interpretation of the FTAIA.
In the Potash case, the lower district court dismissed claims against international potash manufacturers, ruling that the plaintiffs failed to allege a “direct, substantial and reasonably foreseeable” link between the foreign activity and the US potash market.
The Ninth Circuit has yet to decide that case. Lawyers say that a decision in the potential AUO appeal may go some way towards answering what has been a pressing question in international price-fixing cases for some time.
Half billion-dollar fine for AUO in LCD cartel sentence
By Faaez Samadi
Originally published 21 September 2012
After seeking a record-breaking $1 billion penalty against AUO for criminal cartel activity, the DOJ’s Antitrust Division yesterday announced the company has been fined $500 million, the equal-highest fine in US antitrust history.
Two former AUO executives, Hsuan Bin Chen and Hui Hsiung, were both sentenced to three years in prison and must each pay a $200,000 criminal fine.
In March, the company, its American subsidiary and the executives were found guilty of fixing the price of LCD panels sold in the US between September 2001 and December 2006.
On top of the fine, both AUO and AUO America have been placed on probation for three years. They must adopt a compliance programme and appoint an independent compliance monitor. In a somewhat unusual step, the court also ordered the companies to print advertisements in three trade publications in the US and Taiwan outlining its convictions, punishments and the steps being taken to remedy the violations.
The sentences were issued yesterday by Judge Susan Illston at the US District Court in Northern California.
“This long-running price-fixing conspiracy resulted in every family, school, business, charity and government agency who bought notebook computers, computer monitors and LCD televisions during the conspiracy to pay more for these products,” says Scott Hammond, deputy assistant attorney general for the division’s criminal enforcement programme. “The antitrust division will continue to pursue vigorously international cartels that target American consumers and rob them of their hard-earned money.”
The sentences do not meet the DOJ’s recommendations, which last week called for a $1 billion fine on the companies and 10-year jail terms for Chen and Hsiung. The DOJ’s court filing said that it has “correctly and conservatively” calculated a corporate fine between $936 million and $1.87 billion, and prison sentences of between 121 and 151 months.
The DOJ also said that AUO had refused to cooperate with the investigation, and was the only cartelist to challenge the charges. Seven other companies pleaded guilty and, including this charge, more than $1.3 billion in total fines has been issued, with 22 executives being sentenced to prison.
Bernard A Nigro Jr, at Fried, Frank, Harris, Shriver & Jacobson in Washington, DC, says the sentences underline the importance of an effective and active compliance programme “rather than a passive compliance policy”.
“The DOJ requested record-smashing penalties,” adds Nigro. “Although the judge did not agree with the DOJ’s request, the DOJ has communicated that it will continue to promote incentives to cooperate and, where cooperation is absent, seek substantial penalties in litigated cases.”
J Bruce McDonald, at Jones Day in DC, says: “Whether you think the DOJ hits harder the companies that defend themselves or just gives big credits to companies that confess and cooperate, the outcome in the AUO case is a win for the DOJ, just not as much of a win as it wanted after a hard-fought trial.”
McDonald adds that businesses will still be aware of the risk “that the DOJ may seek crushing penalties”, which itself will deter violations and encourage cooperation, but the DOJ remains open to the argument made by AUO that the DOJ “should not overreach”.
“As for the AUO defendants, after a guilty verdict, it can only be grateful for this Solomonic decision,” he says.
Brady Dugan, at Akin Gump Strauss Hauer & Feld in Washington, DC, says the ruling is “an historic result”.
“It is also quite significant that Judge Illston required the company to institute an antitrust compliance programme,” he says. “Compliance programmes are not often sought by the DOJ when reaching a plea agreement with a corporation. It will be interesting to see if this case prompts the DOJ to rethink its approach with future corporate defendants.”
Counsel to AUO did not respond to a request for comment by press time.
The fine issued to AUO matches the record penalty issued to F Hoffman-La Roche for its participation in the vitamin cartel in 1999.
AUO asks Ninth Circuit to overturn price-fixing conviction
By Ron Knox
Originally published 6 February 2013
LCD maker AUO says the US court in which it and two of its executives were convicted of price fixing should have forced government prosecutors to prove its conduct harmed competition and the American economy.
In a brief to the Ninth Circuit Court of Appeals, lawyers for the company say its conviction should be reversed because the district court that oversaw its trial ignored or disregarded several legal standards that require prosecutors to present evidence beyond the mere existence of a conspiracy.
Specifically, the company says the lower court ignored Ninth Circuit case law by allowing DOJ prosecutors to prove its case on a per se basis, rather than applying the rule-of-reason standard the court has said should apply to foreign antitrust conspiracies.
The brief may give the circuit court an opportunity to revisit its opinion in the 1996 case Metro Industries v Sammi Corp, which held that “application of the per se rule is not appropriate where the conduct in question occurred in another country.”
While that case involved issues the court called “novel”, it found that, generally, price-fixing agreements that occur overseas should be held to the less stringent rule-of-reason standard, which requires evidence of economic harm to prove liability.
“This court’s ruling in Metro Industries created a bright-line rule that foreign antitrust cases must be analyzed under the rule of reason, yet in this case, the government neither pleaded nor proved the elements of a rule-of-reason case,” lawyers for AUO told the Ninth Circuit.
What’s more, the company argues that under other US standards, including those set out by the FTAIA, the federal antitrust laws should not have been allowed to reach AUO’s alleged conduct.
A federal jury in March found the company and two of its executives guilty of conspiring to fix the price of the displays, which are used in televisions, computer monitors and mobile devices.
In September, Judge Susan Illston sentenced the company to pay a $500 million criminal fine, and sentenced both executives to three-year prison terms.
During pretrial proceedings, Judge Illston rejected the company’s arguments about Metro Industries, saying that as a naked, price-fixing agreement, the government was only required to prove that the price-fixing conspiracy existed to show a violation of the antitrust laws.
Now, the company argues, the court should revisit the standard set in Metro Industries under which a foreign conspiracy to fix prices, such as the LCD conspiracy in which AUO allegedly participated, should be tried under a rule of reason, rather than a per se, standard.
“The holding of Metro Industries is plain,” lawyers for the company say in the brief. “It has never been disavowed by this court.”
The company also says the ruling has been echoed by the Fourth Circuit, and even when Ninth Circuit judges have expressed discomfort with the Metro Industries ruling, they have nevertheless backed it as binding law.
The next briefs in the case are due on 6 May.
AUO lawyers say Lotes decision should hurt, not help, DOJ
By Ron Knox
Originally published 13 June 2014
Calling the decision “puzzling”, lawyers for LCD maker AUO and its convicted executives have told a federal appeals court that the US government has chosen to rely on a recent decision of another court that instead helps make a case to overturn their convictions.
In a letter to the US Court of Appeals for the Ninth Circuit, AUO lawyers say the government’s reliance on a recent decision from the Second Circuit makes no sense. Under that guidance, it is clear the government has failed to make the claims needed to uphold their clients’ convictions, the lawyers say.
The government’s citation of the Second Circuit decision – and the defendants’ quick rebuke of those claims – adds to a list of conflicting issues the Ninth Circuit must weigh before making a ruling that will likely have a lasting effect on the ability for antitrust enforcers and claimants to go after price fixing carried out by foreign companies outside of the US.
The Ninth Circuit is currently contemplating whether to uphold the convictions of AUO and the company’s former bosses, Hsuan Bin Chen and Hui Hsiung, after a jury in a lower court found them guilty of fixing the price of LCD panels used in televisions, smartphones and computers.
Attorneys for the company say the convictions should be overturned because the price-fixing plot happened exclusively overseas and should be exempted from US antitrust enforcement under the FTAIA.
The act says that foreign price-fixing plots are exempt from US enforcement unless they have a “direct, substantial and reasonably foreseeable effect” on the US economy or import commerce, and the conduct gives rise to an
Circuit courts in the US have been split on how to interpret the FTAIA. The Ninth Circuit has so far taken a more stringent approach to the language of the law, saying that the foreign conduct must have an immediate effect on prices in the US, while the Third and Seventh Circuits have allowed more conduct to be subject to enforcement under the Sherman Act.
The courts have also split on whether the FTAIA should be viewed as simply another pleading standard of an antitrust claim, or a jurisdictional issue that would bar US courts from hearing claims over foreign conduct shielded under the act.
Last week, the Second Circuit ruled on an appeal from Taiwanese electronics company Lotes, who saw its case against two Chinese companies dismissed from a lower court. Lotes had claimed that the two companies had used a standard-setting process to shut it out of the market for USB devices that were manufactured, sold and installed in computers outside of the US.
The lower court found that the conduct had no immediate effect on US commerce and ruled the lawsuit was barred by the FTAIA. But while the Second Circuit declined to revive the lawsuit for other reasons, it sided with the Third and Seventh Circuits, finding that to require the domestic effect of a foreign price-fixing plot to be immediate would strip the FTAIA of its meaning.
The Second Circuit also undid its own prior case law in siding with the Third and Seventh circuits on the question of jurisdiction. The court found that FTAIA questions should be a pleading standard rather than a jurisdictional issue, leaving the Ninth Cirucit’s case law standing alone on that issue.
In papers filed this week, prosecutors from the DOJ pointed the Ninth Circuit to the Lotes decision, saying that the district court that convicted AUO avoided the mistake of the lower court in Lotes by recognising that an international supply chain does not shield US consumers from the effects of a foreign cartel, and that the FTAIA should not shield such behaviour.
But in their response, lawyers for the company and the executives say the Lotes decision – and specifically its take on the question of jurisdiction – torpedoes the government’s case.
“While the government has variously argued that the FTAIA exceptions are mere jurisdictional facts or affirmative defences, Lotes forecloses that view: the FTAIA plainly uses ‘the language of elements, not jurisdiction’,” the lawyers write.
“Because the elements of a criminal offence must be pleaded in the indictment and the government failed to plead the FTAIA elements here, defendants’ convictions must be reversed,” they say.
Otherwise, the Second Circuit’s decision runs counter to Ninth Circuit precedent that embraces immediacy as a requirement of the FTAIA’s domestic effect exemption. While that was a decision for the Second Circuit to make, the lawyers say, the Ninth Circuit must follow its own precedent, and find the wholly foreign LCD scheme to be outside of the reach of the Sherman Act.
The court is expected to make a decision soon.
In Ninth Circuit AUO decision, a government victory with lurking questions
By Ron Knox
Originally published 10 July 2014
The appeals court weighing the criminal convictions of LCD screen maker AUO and its executives has found the company’s conduct did indeed fall under the jurisdiction of US antitrust law and that their convictions and punishments were appropriate.
But under the court’s ruling, the question remains whether all foreign price-fixing plots would face the same fate.
A panel from the Court of Appeals for the Ninth Circuit on Thursday said government prosecutors who had brought LCD price-fixing allegations against AUO proved in the indictment and at trial that the Taiwanese screen maker had sold price-fixed screens into the US, bringing its illegal conduct into the reach of the Sherman Act and the punishment it delivers.
The punishment for the company will remain severe. The panel upheld the $500 million criminal fine handed down by the jury in 2012, saying company arguments that the fine should be spread among its co-conspirators fell flat.
Bill Baer, head of the DOJ’s Antitrust Division, says he is happy with the court’s decision to uphold the convictions of AUO and its two executives, as well as the half-billion dollar fine.
“Today’s decision demonstrates that price-fixing cartels that involve US imports and cause massive harm to US consumers cannot escape the reach of US antitrust enforcement by operating outside our borders,” Baer said in a statement. “The decision also sends a strong message that companies and executives who violate the antitrust laws will be held accountable for their crimes.”
For federal and private prosecutors of cartel crimes, the long-awaited Ninth Circuit decision appears to still have the potential to handcuff future enforcement of price-fixing plots that take place overseas. The question hinges on its interpretation of the FTAIA, the antitrust law amendment that seeks to limit what kinds of foreign wrongdoing can be punished under the Sherman Act.
Other federal appeals courts have taken a more lenient approach to the law since the Supreme Court’s decision in Empagran, ruling that a complex global supply chain could not protect lawbreakers from prosecution in the US if their conduct ultimately harmed companies and shoppers here.
The Ninth Circuit has taken a more conservative approach to interpreting the law, ruling that only conduct with an immediate effect on US commerce could be punished under the antitrust laws, and DOJ attorneys and outside observers wrung their hands over how the circuit would interpret the facts of the AUO case.
A federal jury in a San Francisco district court found AUO and two of its executives, Hsuan Bin Chen and Hui Hsiung, guilty of conspiring with other LCD makers to fix the price of the screens sold to electronic companies. The screens typically make up the bulk of the price of a computer or smartphone, and government prosecutors told the jury the sales of those price-fixed screens had cost US companies and consumers hundreds of millions of dollars.
The government asked for a $1 billion penalty, which the jury cut in half.
Immediately after the verdict came down, AUO protested the decision. While defence counsel before trial had relied on the Supreme Court’s guidance in Hartford Fire – the seminal case on the antitrust laws’ application to foreign conduct – they told the circuit court the prosecution should have failed under the FTAIA’s guidance, extraterritoriality claims and other defences.
In yesterday’s ruling, the circuit panel shot those arguments down one by one. Throughout the opinion, the judges refer to clear proof that the LCD plot targeted manufacturers and consumers within US borders. In one passage, for example, the panel refers to the “voluminous evidence here [that] documents substantial effects on the United States”.
“The evidence that the defendants engaged in import trade was overwhelming and demonstrated that the defendants sold hundreds of millions of dollars of price-fixed panels directly into the United States,” the panel wrote.
Speaking specifically about the FTAIA – perhaps the most pressing issue for the future of US antitrust enforcement against foreign-based cartels – the panel called the law a “web of words”, but said its ultimate intention was clear. If the price-fixed products at issue were clearly imported into the US market for sale to consumers, the Sherman Act applied.
That is precisely what the court found. According to the ruling, $600 million in price-fixed panels that AUO sold into the US market were subject to Sherman Act enforcement, and the defendants’ arguments to the contrary failed in the face of the evidence.
That ruling rendered the other exemptions in the FTAIA a non-issue. But in a footnote, the circuit panel reiterated that it disagrees with the more lenient standard upheld in other courts, including the Second Circuit’s most recent ruling in the Lotes case, and said that according to its own case law, conduct is only exempted from the FTAIA shield if US commerce is affected “as an immediate consequence of the defendant’s activity”.
Mark Rosman, partner at Wilson Sonsini Goodrich & Rosati, says there is “no question that the DOJ views this as a big win for their international cartel programme and for consumers”, but notes that the remaining immediacy standard may create trouble in future cases.
“The DOJ still faces a split in the circuits on that key issue,” Rosman says. “It’s still a big win, but still an overall issue for them.”
The ruling also appears to pull the Ninth Circuit in line with other federal appeals courts across the country on what had been a circuit court quagmire surrounding the FTAIA.
Before deciding whether AUO’s conduct satisfied exemptions from the FTAIA, the panel firmly sided with other appeals courts in finding that the FTAIA is one of several factors in deciding whether an antitrust claim should stand, and not a question of the court’s jurisdiction.
Although the FTAIA had been viewed as a jurisdictional issue in the past, circuit courts that have ruled on the issue have now uniformly backed away from that stance, and say the FTAIA is just part of a larger set of facts in deciding antitrust standing.
Dennis Riordan, counsel to AUO during the appeal, says he has not had an opportunity to read the opinion in full and declined to comment. The defendants are expected to request a rehearing from the circuit court.
Ninth Circuit revises AUO opinion
By Pallavi Guniganti
Originally published 3 February 2015
An appellate court has denied a request for rehearing and upheld the criminal conviction of AUO and its employees, but the amended decision issued last week alters its legal bases for doing so.
In the new version, the Court of Appeals for the Ninth Circuit now specifies that a panel of its judges disagrees with the DOJ’s claim that the FTAIA must be pleaded as an affirmative defence to a Sherman Act charge. The FTAIA generally shields foreign trade from US antitrust law, except where that trade affects domestic commerce.
However, an opinion that once avoided ruling on AUO’s challenge to the government’s invocation of the domestic effects exception as lacking sufficient evidence, now explicitly rejects the defendant’s argument.
The original ruling last July said the government had proven at trial that Taiwanese LCD maker AUO had sold price-fixed screens into the US, taking it out from under the FTAIA’s protection. The panel of judges, Sidney R Thomas, M Margaret McKeown and Virginia M Kendall, upheld the $500 million criminal fine handed down by the jury in 2012.
The Ninth Circuit’s approval of the verdict at that time was based on this import commerce falling within the Sherman Act, but the court now says it “may also be sustained under the FTAIA’s domestic effects provision because the conduct had a ‘direct, substantial, and reasonably foreseeable effect on United States commerce’.”
Richard Brunell, vice president and general counsel at the American Antitrust Institute, says the panel’s amendment finding a direct effect when price-fixed panels are incorporated into finished products sold in the US is significant.
“This development effectively brings the Ninth Circuit into line with the Second and Seventh Circuits on this issue,” he says.
However, the finding that the import trade exclusion is also applicable to AUO remains “in tension with the recent Motorola decision in the Seventh Circuit, which suggested – erroneously in my view – that the import trade exclusion is not applicable unless the defendant itself does the importing”, Brunell says.
Motorola as a direct purchaser of LCD screens sued manufacturers for damages caused by the cartel, but the Seventh Circuit decided and reaffirmed last year that the FTAIA blocked the company’s claims.
Morrison & Foerster partner Roxann E Henry says the most important addition to the opinion may be footnote six: “In light of our holding and Supreme Court precedent, we cannot embrace the defendants’ argument that adopting a per se standard violates the fair notice principle of the due process clause.”
However, Henry says the meaning of this single sentence is not entirely clear. She notes that AUO never presented arguments related to more recent rulings since the Supreme Court has addressed the issue of per se illegality in a criminal context, “including particularly the argument that a criminal conviction requires proof beyond a reasonable doubt on every facet of the offence and that the per se standard offends that rule.”
Henry adds that the Constitution mandates balancing the penalty – which for a Sherman Act criminal violation has increased dramatically since last considered by the Supreme Court – against how well the defendant is put on notice for a felony.
The Ninth Circuit denied AUO’s petition for rehearing by either a panel or the full court, leaving the US Supreme Court as the company’s remaining hope for overturning the jury’s verdict.