United States v AU Optronics et al
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The US tests its cartel powers in court
Most trial lawyers would probably agree: a unique mental, emotional and even physical state sets in as you watch the jury solemnly file back into the courtroom to deliver its verdict after a lengthy, hard-fought trial. A combination of apprehension, anticipation, anxiety and lingering exhaustion stirs butterflies in the stomach. In US v AU Optronics (AUO) et al, that feeling came at eleven o’clock in the morning on 13 March 2012 in a San Francisco federal courtroom. About a half an hour earlier, the jury had sent a note to Judge Susan Illston: “We have reached a unanimous decision on seven of eight counts. We are deadlocked on one count and have been deliberating on it for three days.” Technically, they were only considering one count – price fixing in violation of the Sherman Act – but there were eight questions on the special verdict form, one for each of the seven defendants (two corporations and five individuals), and a two-part question concerning the illegal windfall profits the companies earned due to the conspiracy.
The stakes were high for everyone. The trial had lasted eight weeks. The two corporate defendants faced potential $1 billion fines and onerous probation terms. The five AUO executives faced potential 10-year jail sentences and $1 million fines. For the government, which later described the case as “the most serious price-fixing cartel ever prosecuted by the United States”, securing convictions was important not only to punish those involved and deter others from fixing prices, but also because the trial tested the two lynchpins of the Department of Justice’s programme to break up international price-fixing cartels: the ability, in appropriate cases, to secure fines above the $100 million maximum set in the Sherman Act based on the high illicit profits of the conspiracy; and the ability to apply the Sherman Act to foreign commerce.
After getting the jury’s note, Judge Illston assembled the lawyers and parties, and briefly discussed whether it made any sense to ask the jury to keep trying to reach a decision on the deadlocked question. She decided to call the jury in to hear their verdicts. I sat at counsel table with my colleagues from the Antitrust Division – Michael Scott, Heather Tewksbury, Kate Patchen and Jon Jacobs – as the jury of five women and seven men walked in and took their seats in the jury box. The forewoman handed the special verdict form to courtroom deputy Tracy Kasamoto, who passed it up to Judge Illston. The judge read the form to herself, then handed it back to Kasamoto to read aloud:
We the jury in the above-entitled case, unanimously find the answers to the following questions:
Do you find that defendant AUO violated the Sherman Act as charged? Yes. Guilty.
Do you find that defendant AUO Corporation America violated the Sherman Act as charged? Yes. Guilty.
Do you find that defendant Hsuan Bin Chen, also known as HB Chen, violated the Sherman Act, as charged? Yes. Guilty.
Do you find that defendant Hui Hsiung, also known as Kuma, violated the Sherman Act, as charged? Yes. Guilty.
Do you find that defendant Lai-Juh Chen, also known as LJ Chen, violated the Sherman Act, as charged? No. Not guilty.
Do you find that defendant Tsannrong Lee, also known as Tsan-Jung Lee and Hubert Lee, violated the Sherman Act, as charged? No. Not guilty.
Did the participants in the conspiracy derive gains from the conspiracy? Yes.
Was the amount of combined gross gains derived from the conspiracy . . . US$500 million or more? Yes.
The jury left the question regarding defendant Steven Leung blank. Judge Illston went down the line, confirming the verdict with each individual juror. She then stated that the verdicts would stand as read and declared a mistrial as to Leung (he was later retried and convicted). It was a pivotal moment in the liquid crystal display (LCD) price-fixing saga, which by that time had been running for years and would continue for many more.
* * *
A natural starting point to the story was a meeting that took place more than 10 years earlier on 14 September 2001 at the Sherwood hotel in Taipei, Taiwan. Gathered there were executives of several of the top Taiwanese manufacturers in the then young LCD industry. While the benefits of flat-screen technology over bulky cathode-ray televisions and computer screens were unmistakable, market conditions had turned sour. Taiwanese and Korean manufacturers had flooded the market with large investments in fabrication facilities, leading to a glut of LCD products. At AUO, prices fell 40% between 2000 and 2001.
The September 2001 meeting of executives was the first in what became known as the “Crystal Meetings”. The notes of that first meeting set out the goal:
Through this exchange session, all makers are hoping that an orderly pricing can be maintained for the short term, and production capacity and demand balance can be achieved for the mid- and long term, thus prices can be stabilized in order to ensure profitability in the thin-film-transistor (TFT) industry.
Readers familiar with antitrust history will note the similarities between the Crystal Meetings and the “Gary dinners” that took place almost a century earlier during the formative years of US antitrust law. Beginning in 1907, Judge Elbert Gary, the chairman of US Steel, hosted a series of dinners at the Waldorf Astoria for the leaders of the nation’s steel companies in order to stabilise falling steel prices (the government sued under the Sherman Act in 1911).
Monthly Crystal Meetings between the Taiwanese and Korean LCD makers went on for more than five years with participants sharing information and setting prices for key LCD panel sizes. Notes were taken of each meeting. The division was eventually tipped off to the Crystal Meetings and it accepted one of the manufacturers into its corporate leniency programme, which provides full immunity from prosecution in return for full cooperation in the investigation.
The investigation burst into public view in December 2006 when the FBI descended on the Texas headquarters of AUO’s American subsidiary, AUOA. At the same time, across the Pacific, authorities in Korea and Japan raided other manufacturers. Within days, civil class action complaints were filed – at first just a trickle, then a flood. The Judicial Panel on Multidistrict Litigation ultimately transferred all the civil cases to Judge Illston for pretrial purposes. All the criminal cases went to her as well. Little did she know at the time, much of the next six-plus years of her judicial career would be consumed by the LCD cartel. While there was enormous judicial efficiency in having a single judge handle all the criminal and civil cases (especially since she had been an antitrust litigator prior to taking the bench), the burden that it put on Judge Illston and her court staff cannot be overstated. Between the civil and criminal cases, there were over 10,000 docket entries. Forests were sacrificed in support of the brief writing. Over 1,000 attorneys entered appearances. By the time the dust settled, Judge Illston had presided over five jury trials, hundreds of hearings and had decided scores of thorny legal issues.
After the LCD investigation became public, the dominoes began to fall. Seven LCD manufacturers and 10 of their executives pled guilty, each pledging to cooperate with the government (others were indicted but chose not to come to the US to face charges). More and more documents came in, including stacks of Crystal Meeting minutes. Division investigators interviewed more and more witnesses from inside the cartel. Most of the guilty pleas had already happened by the time I joined the division from private practice in 2009. Niall Lynch had been leading the investigation, but announced his intention to leave the division to return to private practice.
While the other LCD manufacturers pled guilty, AUO and its executives, including its president, executive vice president and the president of the US subsidiary, decided to fight. They noted that it is not illegal to meet with your competitors and claimed that the government could not establish the crucial element in a Sherman Act price-fixing case: the intent to enter into an illegal agreement.
It is a rare Sherman Act conspiracy case where the agreement element is not hotly disputed. Sometimes antitrust plaintiffs’ lawyers are lucky enough to find the word “agree” in a document or to get a witness to admit to an agreement, but there is usually a question over what it means. Does it reflect simply a shared view, which is benign, or a sinister “conscious commitment to a common scheme designed to achieve an illegal objective”,1 as the Supreme Court has required for a Sherman Act violation?2 Adding a layer of complexity in the AUO case, most of the Crystal Meeting reports we relied on were originally written in Chinese or Korean. Each language has several different words for the concept of “agreement”, each with slightly different connotations. Countless hours were spent working with expert translators (who were willing to take the stand if necessary) and seeking stipulations on translated exhibits with defence counsel.
Cultural issues added another layer of potential complexity. The defendants placed experts on their witness list ready to testify that what might look like evidence of an agreement in the United States should not be considered such in East Asian business culture, which avoids objection or disagreement in order to avoid conflict. The experts were also going to testify to legitimate reasons why businessmen in Taiwan might meet with their competitors. In the defendants’ telling, they met to gather information or, possibly, spread misinformation. They met not to squelch competition, but to compete harder or to level the playing field with their powerful customers.
After the Grand Jury issued indictments, we began to think in earnest about how best to persuade a jury. There is a growing body of research and literature on jury persuasion and jury decision-making. Psychologists, sociologists, neuroscientists and consultants have addressed it from every angle: how jurors take in and process information, cognitive biases, cultural differences, group dynamics and so on. While those subjects are all important, to my mind they are merely additions to a paradigm established over 2,300 years ago. Back then, Aristotle identified three modes of persuasion:
- ethos – an appeal to the authority or credibility of the speaker as perceived by the listener (capitalising on their shared ethical values);
- pathos – an appeal to emotion; and
- logos – an appeal to logic.
Fair or not, government prosecutors have an inherent advantage on the ethos front. The government lawyer comes to court cloaked in the flag and the shared values it represents. Many jurors are predisposed to believing that the government lawyer’s role is to seek justice (they work for the Department of Justice, after all). Trust in institutions may be on the wane, but federal prosecutors are not seen as corrupt by most people.
Defence counsel Brian Getz (who represented an acquitted defendant, LJ Chen) sought to level the playing field early in the trial. During his opening statement, he held up a copy of the indictment. “This indictment,” he boomed to the jury, his voice dripping with disdain, “this indictment is not evidence.” He ripped the indictment in half and slammed it into a trashcan. It was a dramatic moment on the first day of trial, telegraphing to the jury that the prosecution team should enjoy no automatic advantage.
To the extent prosecutors enjoy a credibility edge, it does not translate to the witnesses they put on the stand (and the law rightly forbids prosecutors from lending their credibility to witnesses by explicitly vouching for them). Bolstering and attacking witness credibility is the constant tug-of-war that comprises the guts of a trial. The eye witnesses we relied on in the AUO trial – executives from other LCD manufacturers involved in the conspiracy – had vulnerabilities. For one thing, several had pled guilty and agreed to cooperate with the government. Accordingly, they received reduced sentences. Like it or not, that is the way the US criminal justice system works. But it exposes them to the time-honoured “snitch” line of attack, and the battalion of veteran criminal defence counsel that AUO lead lawyer Chris Nedeau had assembled were merciless in employing it. Again, Brian Getz, this time from his closing argument:
[I]magine a justice system . . . where one side can buy witnesses. We’re going to go to court, and we’re going to put on two $50 witnesses, a $100 witness and a $300 witness. And the witnesses get paid, and they testify for the money that they get. The other side, they can come to court and cross-examine, but they can’t pay for any witnesses. They can’t buy witnesses like that. No, they can’t do that.
Would you have faith in that justice system? Would that be, in your mind, justice’s finest hour? Would you feel secure being a juror in a case like that?
Well, what have we in this case? You have one side, the government, that buys witnesses. Not with money; they buy with time, far more precious than money.
They get these guys . . . facing 10 years in prison, the same amount of time that these men face. And they say to them, “You testify, you cooperate, you do our bidding, and you’ll get months in prison,” “seven months in prison”, “six months in prison”, whatever it is, five or 10% of what the real penalty is, “and you testify for us.”
Bought and paid-for witnesses. Bought with freedom, more precious than gold.
There are, of course, counterarguments. To get any of the benefits of a plea deal, the individual has to promise to tell the truth and not falsely implicate others. But it is, nevertheless, a time-tested and effective line of attack.
The cooperating witnesses had another vulnerability. Their employers were tied up in civil litigation that had been advancing along a parallel track with the criminal matter. Having pled guilty, these companies could not contest in the civil cases that they participated in the conspiracy, but they did contest the amount of damages they were liable for. One way they did that was by trying to deny that agreements were reached at specific Crystal Meetings. This was reflected in the civil depositions of their executives, several of whom were witnesses in the criminal trial. The criminal defence lawyers were armed with our witnesses’ prior statements from their civil deposition transcripts, and used them to impeach the witnesses’ criminal testimony.
We knew that our cooperating witnesses faced these dual lines of attack and were likely to get roughed up. But the Crystal Meeting reports were powerful. This led us to one of our key trial themes: the documents don’t lie. I introduced the theme to the jury in our opening statement:
Now, some of the witnesses that you see in this case – they may appear somewhat reluctant. Others will admit this agreement freely. Some may have a little difficulty admitting what went on. They may try to minimize things. Some of the witnesses have testified in civil depositions. Their companies are being sued for millions of dollars. And they testified in those civil depositions. And you may see some of their testimony.
But throughout all that, I ask you to keep your eye on the evidence that doesn’t change, that doesn’t bend, that’s not influenced by things like government investigations or civil lawsuits. That evidence is the written evidence: the reports that were done at the Crystal Meetings at the time; the reports that nobody thought would see the light of day. The documents don’t lie.
I showed several of the Crystal Meeting reports to the jury during the opening statement. During trial, we laboriously went through many of them with the witnesses. My colleague, Michael Scott, returned to the theme again in our closing argument:
You have seen the reports of these secret meetings that recorded what happened at the meetings. These reports have perfect memories. They don’t age. And they say “agreement” over and over in the reports, loud and clear.
. . .
You’ve seen and you’ve heard all of the evidence in this case. And what the defence is asking you to do now is to not believe your own eyes. They hope that you will ignore what’s contained in the foot-high pile of Crystal Meeting reports that you’re going to have with you in the jury room.
Defence counsel, in their closing arguments, picked at the witnesses’ vulnerabilities and so I hit “the documents don’t lie” theme one last time in our rebuttal argument, using a demonstrative chart that showed excerpts from multiple Crystal Meeting reports:
Over the last two days, you’ve heard the defence counsel unfairly attack the credibility of the executives who admitted to what happened at these meetings when they accepted responsibility for their actions, but you don’t have to rely on their testimony to find these defendants guilty. You could rest your verdict on AUO’s documents alone. Reaching a consensus with your competitors on pricing is an agreement. That’s what “consensus” means: a mutual understanding or agreement. Consensus, consensus, consensus, consensus, consensus, all the way down the line (indicating). They can’t run and hide from this. This is in their own documents, in black and white, over and over . . . . The defence can argue until they’re blue in the face that no agreements were reached at Crystal Meetings. You can see with your own eyes that’s not true.
So, in the pursuit of ethos, we not only sought to preserve our own credibility as advocates, but to give voice to the Crystal Meeting reports and elevate the credibility of those documents.
So, what about pathos – the appeal to emotion? A leading trial advocacy text teaches that “most people are primarily affective decision makers,” and that “they are usually emotional and creative . . . they see trials as human dramas.”3 That broad statement glosses over a lot of nuance found in persuasion research, but it is undoubtedly true that, as an advocate, you’re in an infinitely better position if the jury wants to decide the case for your side and wants to decide against your opponents. Emotional appeals help you get there.
The emotional balance sheet often does not favour white-collar prosecutors. Compared to most criminal defendants, white-collar defendants are often more sympathetic. That was certainly the case here. The AUO defendants were polite, mild-mannered, educated and accomplished businessmen and scientists. They didn’t have prior criminal records. Even the most senior of them were not obscenely wealthy. They had been excellent students. They had served honorably in their country’s military. They had good marriages and had raised successful children. Defence counsel pointed it out at every opportunity.
And what does the government have to work with on its side of the emotion ledger? At first glance, not much. For most people, a violation of the Sherman Act will not ignite a fuse of moral outrage or evoke a visceral response as would a street crime or a bank robbery. While the prices of televisions, laptops and computer monitors were marginally higher than they otherwise should have been, prices were generally falling in spite of the LCD conspiracy. None of the victims of the conspiracy were pushed into bankruptcy or went hungry due to the cartel. Moreover, many jurors need a tutorial as to what antitrust law even is and why violations should be illegal, let alone criminal. However, what does not require a tutorial is the concept of trying to hide wrongdoing. People understand that intuitively. What former Senate majority leader Howard Baker said many years ago has become cliché: “It’s almost always the coverup rather than the event that causes trouble.” It was the basis of a second broad theme: the guilty conscience.
While “consciousness of guilt” evidence does not directly prove any element of a Sherman Act violation, it can be very incriminating. It bespeaks dishonesty. It can tarnish even the most sterling of reputations. In the LCD cartel, there was a mountain of such evidence:
- the conspirators never met in their offices, always in hotels, karaoke bars or tea houses;
- they often kept the location of the meetings secret until it was confirmed by phone a day before to minimise the threat of leakage;
- they never met at the same hotel twice in a row, spreading them out to different hotels to reduce the chances of detection;
- they came and left the meetings separately to avoid being seen together;
- they limited written communications to avoid leaving traces;
- they used code words to describe the meetings;
- the meeting minutes bore warnings such as “Extremely confidential. Must not distribute. Please do not copy and distribute to anyone”; and “Do not disclose this meeting to outsiders. Not even to colleagues. Keep a low profile”; and
- upon learning that the FBI was searching AUOA, two employees who were offsite considered erasing competitor contact information from phones, and emails from laptops.
Scott Hammond, the deputy assistant attorney general at the time, was instrumental in helping to shape our themes, focus our case and craft our arguments. He made sure that we hammered this theme. It was the main thrust of my opening statement and Michael Scott drove it home in our closing argument:
You see the evidence on how they tried to keep these meetings secret. The defendants in this case acted with a guilty mind, like you would expect from anyone who’s trying to cover up their tracks because they’re doing something wrong.
And, what’s the best evidence of the defendants’ intent in this case? Well, I would submit it’s their consciousness of guilt. And I think all of you here know what I’m talking about. It’s the guilty mind. The guilty action that really gives someone away. The concealment. The coverup.
These are all evidence of intent. All evidence of intent by every single one of these individual defendants sitting in this courtroom today. Efforts to keep these meetings a secret, to take them further underground. All of this shows consciousness of guilt.
In response to the defence argument that the Crystal Meetings involved nothing more than legitimate information exchanges, I returned to the theme again in our rebuttal closing argument:
The defendants have claimed that they’re acting within the law, but the evidence and their guilty minds show otherwise. You don’t cover up something that’s perfectly legal. You don’t rotate secret meeting sites, or stagger your exits from meetings to avoid being detected if you’re operating legally.
The Crystal Meetings were not innocent meetings of competitors just exchanging information. They were part of a conspiracy that stabilised and fixed prices.
What about logos – an appeal to logic? We did not really appeal to formal syllogistic logic, but rather to logic’s more casual cousin, common sense. For example, the defendants argued that they did not attend Crystal Meetings to reach illegal price-fixing agreements with competitors, but rather to gather valuable market information, or to bluff so that the competitors would raise their prices, allowing AUO to undercut them. They said the meetings had no effect on LCD prices. We argued that these explanations defied common sense. I planted the seed in our opening:
People do things for a reason. And the evidence will show that the CEOs, and other executives and employees of these companies, met for a reason. These companies were in business to make money, and they weren’t just wasting their time when they got together, month after month, year after year. They weren’t getting together just to be polite or to chit-chat. They weren’t getting together to try and fool each other or manipulate each other; that wouldn’t make any sense.
In our rebuttal I returned to the logical inconsistency of the defendants’ arguments:
So, on the one hand, the defence would have you believe that the reason they went to these Crystal Meetings was because it was a valid source of valuable market intelligence. It was an important “piece of the puzzle”. On the other hand, they say no one would be foolish enough to give correct prices at these meetings; everyone was bluffing; everyone was lying, playing mind games.
. . .
Well, which is it: valuable market intelligence or garbage? You can’t have it both ways.
. . .
[T]his . . . idea, that they’re playing mind games for five years with their competitors – that just defies common sense. These are sophisticated business executives. And, we heard it during the trial, time is money. They met month after month, year after year, and the reason was to make money. They didn’t take the risk of getting caught and being dragged into this courtroom for nothing.
These themes – “the documents don’t lie”, “guilty conscience”, “common sense” – were not unique; they have been used in other trials. But they were effective because they fit the facts, dovetailed with Aristotle’s rhetorical categories and helped defang defence arguments. Ultimately, they allowed the division to get several convictions and a jury finding necessary to support the fine the government sought.
While our themes may not have been unique, one thing that was relatively unique for a criminal antitrust trial was the need to prove an overcharge. In most criminal antitrust cases, the question of whether the conspiracy actually made money is irrelevant. A defendant can be criminally convicted of a Sherman Act crime even if the conspiracy was never carried out. Unlike a civil damages case, there is no requirement to prove that the violation caused harm. Simply entering into an illegal agreement constitutes the crime. But the AUO trial was different. For the reasons set forth below, we had to put on economic testimony about the effect of the conspiracy.
Since 2004, the maximum criminal fine for corporations under the Sherman Act has been $100 million. But the Alternative Fines Act3 allows prosecutors to side-step such statutory limits and fine the defendants up to “twice the gross gain or twice the gross loss” from the offence. This provision gives prosecutors powerful leverage, in certain cases involving large markets, to extract large fines in plea bargains. The Antitrust Division has not been shy about exercising that leverage. At the time of the AUO trial, the division had exceeded the $100 million maximum 14 times, including fines of $120 million, $220 million and $400 million from other LCD manufacturers. For the sake of proportionality and based on AUO’s sales, the government had to seek well above $100 million from AUO. Thus, the indictment alleged that the gain or loss from the conspiracy was at least $500 million, allowing for a potential fine of $1 billion.
Until AUO came along, no company had ever forced the government to prove gain or loss beyond a reasonable doubt.3 The fines above the Sherman Act’s $100 million maximum had always been in the plea bargain context, based on an agreed upon set of facts. This time we had to prove it, and that created challenges. First, the criminal burden of proof is “beyond a reasonable doubt”. The lower “preponderance of the evidence” standard that is applied to economic testimony in civil cases is rooted in probability (more probable than not), a concept that economists can easily embrace. “Beyond a reasonable doubt”, on the other hand, is not in economists’ normal lexicon. The thought of having to meet the highest burden of proof in the context of duelling expert witnesses
As a second challenge, we risked inundating the jury with dense economics if the question of gain from the conspiracy was raised during the main trial. The principle that the agreement itself is the crime, and that a defendant can be convicted even if the conspiracy never happened, is a key benefit to prosecutors. It was in danger of being lost on the jury if, in order to get a high fine later during sentencing, we had to prove that the conspirators gained more than $500 million from the crime. As a matter of law, all the defendants could still be convicted regardless of the overcharge issue, but we were worried that if the overcharge issue didn’t go well, it could spill over and infect the main criminal liability case. We sought to deal with this problem by asking the court to split the trial into a guilt/innocence phase and a separate penalty phase. We also asked that the penalty phase be decided by the court rather than a jury. Judge Illston denied both of these requests. We would have to prove overcharge as part of the overall case to the jury.
We hired Dr Keith Leffler as an expert witness and enlisted Jon Jacobs, a division trial attorney from Washington, DC, to work with him. Leffler reviewed the Crystal Meeting reports and analysed sales data from all the Crystal Meeting companies. As a witness, one of Leffler’s main attributes is an ability to make complex subjects understandable. This quality paired well with Jacobs’ low-key, straightforward style and proved very effective at trial. Jacobs methodically walked Leffler through his analysis with a series of charts and graphs. Following his direct testimony, Leffler was vigorously cross-examined, but held his own.
It is worth noting that Leffler’s assignment was not to come up with a precise overcharge estimate, as it would have been in a civil damages case. He merely had to back up his opinion that the combined gain to all the conspirators was at least $500 million, the figure the government had put in the indictment. This was a big structural advantage because Leffler didn’t have to defend a specific number; anything between $500 million and infinity would work. Given the massive size of the LCD market during the conspiracy period, the $500 million figure proved a fairly low bar.
The defence ended up putting on only one witness: Bruce Deal, an expert who sought to refute Leffler’s testimony and who opined that AUO’s actual prices were inconsistent with its participation in a conspiracy. Jacobs effectively cross-examined Deal and then put Leffler back on the stand as a rebuttal witness. When the dust settled, the record allowed us to return to our “common sense” theme in closing argument:
I told you earlier that you are the experts in this case. You have one thing that really qualifies you to be the expert, to judge this case. And that’s common sense. I repeated it over and over again. Think about it. A $500 million overcharge in this market would amount to, on average, a 2% overcharge of these products during the conspiracy period. That would be only making an extra 2% because of all these meetings, these 60 meetings, over five years.
Think about this. Would these competitors have met month after month, year after year, knowing what they were doing is illegal, trying to cover their tracks, concerned, just for a 2% return?
They could have gotten a better return on an investment over time in other perfectly legal ways. You know, they could have invested it in a CD in a local bank and done better than 2%.
People do things for a reason, we all know that. And these executives met more than 60 times to make money here.
That’s why they met.
And even Mr Deal, when he was asked: “Does common sense tell you that AUO went to these meetings to make money?” His answer was: “I think everything that AUO is doing is to make money.”
That’s the one thing that Mr Deal got right in this case. That’s it.
Common sense makes this easy for you. So does Dr Leffler’s correct empirical tests here. The overcharge for all the conspirators who attended these meetings over this five-year period was at least $500 million.
As noted above, the jury agreed. While we sought a $1 billion fine against AUO (twice the overcharge under the Alternative Fines Act), Judge Illston chose to fine the company $500 million. She also ordered it to hire an antitrust compliance monitor.
The global reach of the Sherman Act
AUO was a Taiwanese corporation. The parent companies of all the other companies that attended the Crystal Meetings were either Taiwanese or Korean. The individual AUO defendants all lived and worked in Taiwan. The Crystal Meetings all took place in Taiwan. Most of the initial sales of LCD panels took place abroad. These facts raised the question: how far does the Sherman Act reach? While the question was legitimate, unfortunately, the law does not supply simple answers. The statute that governs the international scope of the Sherman Act – the Foreign Trade Antitrust Improvements Act (FTAIA) – is notoriously convoluted. Since it was passed in 1982 it has created a tangle of confusing and sometimes conflicting case law. To make matters more difficult, the Supreme Court in Hartford Fire Insurance Co v California4 weighed in on the extraterritorial application of the Sherman Act, but the badly splintered opinion only made a glancing reference to the FTAIA. In short, the law on this subject is a mess.
Against this backdrop, Judge Illston had to decide how to instruct the jury. Drawing from both Hartford Fire and the FTAIA, she instructed that:
The Sherman Act applies to conspiracies that occur, at least in part, in the United States. The Sherman Act also applies to conspiracies that occur entirely outside the United States if they have a substantial and intended effect in the United States.
. . .
The government must prove beyond a reasonable doubt:
. . . that members of the conspiracy engaged in one or both of the following activities:
fixing the price of TFT-LCD panels targeted by the participants to be sold in the United States or for delivery to the United States; or
fixing the price of TFT-LCD panels that were incorporated into finished products such that this conduct had a direct, substantial and reasonably foreseeable effect on trade or commerce in those finished products sold in the United States or for delivery to the United States.
In subsection (A) of the instruction, the clause “targeted by the participants to be” was the subject of intense disagreement during the charging conference. Lidia Maher, who expertly argued the jury instructions for the government (supported by Phil Warren, then San Francisco office chief, and Kristin Limarzi and James Fredricks, chief and assistant chief, respectively, of the division’s appellate section in Washington), argued that the instruction should have excluded those words, and should have simply required “fixing the price of TFT-LCD panels sold in the United States or for delivery to the United States.” The additional “targeted” clause, she argued, presented an extra burden not merited by the law. Dennis Riordan, an appellate specialist that AUO had at trial, vigorously disagreed. Maher won the first round. She had convinced Judge Illston to leave the clause out. But the judge slept on it and changed her mind the following court day. Maher made a valiant effort to get Judge Illston to return to her original position, citing, among other things, the lack of precedent for the clause, but to no avail. Judge Illston addressed both Maher and Riordan:
You know, both of you have said, a lot, “no court has ever . . . .” Well, we are in what appears to me to be pretty uncharted waters here. So, I’m doing my very best to figure out how the FTAIA applies to this case, and how we ought to tell the jury about it.
You know, if you think back to voir dire, some of those potential jurors were saying: “Why is the United States even here? Why are we doing this, if this was some kind of a foreign cartel among foreign manufacturers?” And there are good answers to that. I’m trying to make sure that we anchor this prosecution to the answers to that question, which is that the United States of America was a big part of what they did. I think this targeting helps to do that.
I don’t think it’s a very big hurdle for you to address in the facts of this case; but I do think that it anchors the alleged crimes . . . to this country in a way that is probably the right thing to do.
So, I disagree with you. And I’m going to leave that in.
It was disappointing at the time, but in retrospect Judge Illston had done the government a favour. When the convicted defendants appealed to the Ninth Circuit, the issue of the extraterritorial reach of the Sherman Act was front and centre. AUO argued that the court’s Hartford Fire instruction was improper because “the jury could have convicted without finding that the charged conduct of the defendants on foreign soil had any substantial effect on United
States commerce, or that it was intended to have any such effect.” The appellate court first echoed Judge Illston’s “uncharted waters” comment, noting that the “appeal raises complicated issues of first impression regarding the reach of the Sherman Act in a globalized economy.” The court went on to specifically use the “targeting” language Judge Illston had inserted to reject the defendants’ argument:
The effect of foreign conduct in the United States was a central point of controversy throughout the trial. Nonetheless, the conduct always was linked, as in the above instruction, to targeting for sale or delivery in the United States. Part A of the instruction required the jury to find that the defendants fixed the prices of TFT-LCDs “targeted” for sale or delivery in the United States. This “targeting” language subsumed intentionality. See Oxford English Dictionary 642 (2d ed. 1989) (defining “targeted” as “[d]esignated or chosen as a target”). There is no way that the defendants could have unintentionally designated or chosen the United States market as a target of the conspiracy.5
The Ninth Circuit affirmed the convictions and the Supreme Court denied the petitions for certiorari.
While two individuals were acquitted at trial, the AUO trial was mostly successful for the government. The Antitrust Division secured convictions of both of the corporations and the two most senior executives, the ability to retry a third executive and a record-tying fine (albeit significantly lower than it could have been). Many will say, “of course you were successful, there was a mountain of bad evidence against the defendants and all of their co-conspirators had confessed and turned on them.” That is true. (I am reminded of the quote originally attributed to football coach Barry Switzer: “Some people are born on third base and go through life thinking they hit a triple.”) Yet we did face significant built-in challenges as described above, including a requirement to prove at least $500 million in gains beyond a reasonable doubt, while the meeting participants were doing their best in the parallel civil cases to create a record that there had been no gains. A large, unified, tenacious and deeply experienced
criminal defence team turned every speed bump into a significant barricade. But our team was unified as well,6 and was able to clear almost all of the hurdles. Time will tell if another corporation facing a large potential fine will put the government to its proof. If they do, the US v AUO et al trial will prove an informative case study.
* Peter Huston is an antitrust and white-collar partner at Sidley Austin. Prior to joining Sidley he was the assistant chief of the Antitrust Division’s San Francisco office and lead counsel in the US v AU Optronics et al trial.
- Monsanto Co. v. Spray-Rite Service Corp., 465 US 574 (1984).
- Thomas Mauet, Trial Techniques 13 (7th ed., 2007).
- 18 USC § 3571.
- Under the Supreme Court’s decision in Apprendi v. New Jersey, 530 US 466 (2000), it was clear that we had to prove gain or loss beyond a reasonable doubt.
- 509 US 764 (1993).
- United States v. Hsiung et al., 778 F.3d 738, 748 (2015).
- Heather Tewksbury and Michael Scott had been on the case from the very beginning but never lost their drive. Kate Patchen and Jon Jacobs joined the team later and threw all their energy into the case taking on very challenging assignments. The San Francisco Office Chief at the time, Phil Warren, provided not only overall leadership and guidance, but roll-up-your-sleeves, hands-on support backed up by decades of Antitrust Division experience, as did Deputy Assistant Attorney General Scott Hammond. Trial Attorney (and later Hammond’s successor) Brent Snyder assisted with all aspects of the trial and later went on to retry AUO executive Steven Leung and try another AUO executive, Richard Bai, with Heather and Trial Attorney Micah Rubbo. Trial Attorney Lidia Maher worked on jury instructions, evidentiary issues (including translations) and potential appellate issues. Trial Attorneys Chris Ries and Micah Rubbo assisted with witness preparation and many other tasks. Trial Attorney (then paralegal) Paradi Javandel was instrumental in building the documentary case. Paralegals Alicia Berenyi, Justin Brooke, Divya Musinipally, Michael Chang and Nicole Beach and legal assistant Liliana Vallejo were invaluable in a million ways. Kristin Limarzi and James Fredricks, Chief and Assistant Chief, respectively, of the Antitrust Division’s Appellate Section not only handled the appeals, but also provided invaluable strategic and legal guidance in the lead up to trial and at trial.