US Anti-Cartel Enforcement
This is an Insight article, written by a selected partner as part of GCR's co-published content. Read more on Insight
Cartel Enforcement: Aggressive Enforcement Continues as the New Administration Settles In
In last year's article, we observed that criminal antitrust enforcement is marked by relative continuity across administrations, but noted that the then-still recent power shift in Washington, DC, coupled with global economic turmoil, could leave a noticeable impact on cartel enforcement. While US enforcement policy remains basically unchanged, and the Antitrust Division continues its amazing record of cartel detection and punishment, the new administration's policies and programmes may have a lasting impact on criminal antitrust enforcement. Most notably, the recent explosive growth of government spending has created myriad new opportunities for collusion by government contractors, and the Antitrust Division's new initiative to detect and punish bid rigging may lead to a new wave of activity in this area. Congress also extended by another 10 years the statute that enables successful leniency applicants to avoid treble damages and joint and several liability in civil cases, but only after including amendments advocated by the plaintiffs bar. It remains to be seen whether and how these amendments will affect the investigative process and, in particular, the incentives of cartel participants to seek amnesty. Below we review these and other developments, as well as the Division's enforcement record over the past 12 months.
Antitrust Division aggressive enforcement efforts continue
In important ways, the last year has seen anti-cartel enforcement in the United States reach a high water mark. During its most recent complete fiscal year (2009), the Antitrust Division filed 72 criminal cases, representing actions against 65 individuals and 22 companies. This was the highest number of cases filed in a single year since 1993. At the end of the year, the Division had 144 pending grand jury investigations, which is the highest number since 1992. 1
Similarly, the Division obtained over $1 billion in criminal fines, the second highest amount obtained by the Division in a single fiscal year. The bulk of the fines continue to be generated from international conspiracies, most notably the LCD and air cargo cartels. Since the publication of last year's article, Chi Mei Optoelectronics entered into a plea agreement with the Division under which it agreed to pay a $220 million fine, 2 and HannStar Display, another Taiwanese manufacturer, paid a $30 million fine. 3 The Division has been responsible for more than $860 million in total fines collected as part of the LCD investigation. 4 The Division's record in the air cargo litigation is even more impressive, with over $1.6 billion in total fines collected, 5 including most recently from Northwest Airlines LLC - the only US airline implicated to date. 6
The Division's enforcement against individuals also continued at an aggressive pace. The average jail sentence for individuals prosecuted by the Division was 24 months, representing the second highest total in Division history. Moreover, the Division has continued to insist that the majority of individuals it prosecutes serve some jail time. In the most recent fiscal year, 80 per cent of individual defendants prosecuted by the Division were given prison sentences. In the 1990s, the average was 37 per cent. 7
The Division has similarly continued to ratchet upward the sentences of foreign executives. In the early days of Division prosecution of foreign nationals, defendants from other countries routinely secured no-jail deals. There followed a period characterised by short prison terms, for example three months in minimum security prison camps. While minimum security prison camps continue to be the usual destination for pleading foreign executives, the prison terms have been steadily marching toward parity with those imposed on cooperating US nationals. For example, the president of Chi Mei Optoelectronics recently agreed to serve a 14-month sentence as part of his plea agreement with the Division. 8 Three other executives from the company each agreed to serve nine-month sentences. 9
A major trial on the horizon?
In recent years, most companies implicated in large multinational cartels investigated by the Division have entered into plea agreements with the government. Trials in these cases have been rare. This pattern may be broken, however, if the Division's criminal case against AU Optronics, the largest Taiwanese TFT-LCD manufacturer, continues on its current path.
AUO and several of its executives were indicted on 6 July 2010. 10 Among other things, the indictment has provided further detail on the TFT-LCD conspiracy. It alleges that AUO joined a conspiracy with its Taiwanese competitors in September 2001, which was promptly joined by Korean companies following a suggestion by AUO that the '[m]eeting should include the two major Korean TFT-LCD manufacturers to ensure the success of the conspiracy to fix the price of TFT-LCD.' According to the indictment, the companies conspired through so-called 'crystal meetings', held at various hotel venues. The meetings were allegedly attended by the companies' senior executives until May 2005, when the alleged participants began to fear that their collusion would be discovered. Thereafter, the companies allegedly continued to conspire through meetings by lower-level marketing employees, who met at restaurants and cafes in Taipei. The indictment also includes obstruction of justice allegations, stating that that AUO 'took steps to destroy evidence showing contacts with TFT-LCD competitors when they became aware of the United States Department of Justice's investigation into price-fixing in the TFT-LCD industry.'
AUO responded to the indictment with a show of confidence, suggesting that it will face the Division's charges at trial. It issued a press release stating that it was 'disappointed' with the government's decision to seek an indictment. 11 The press release further stated that, while others may respond to such allegations by blaming their managers or employees, AUO chooses a different approach, which apparently entails fighting the government in court.
While it is not clear whether AUO's response is plea negotiation posturing, the company and DoJ are steadily marching towards trial. Since the indictment, AUO executives have appeared in court to enter not guilty pleas, with many of them travelling voluntarily from Taiwan to do so - a move that is quite unusual in such cases. Following standard practice, the Division asked the court to take the defendants' passports. The Division clearly feared that the defendants would enter their pleas, return to Taiwan and never come back to the US for trial. The magistrate judge initially agreed to return the passports if the defendants could post sufficient bond. The defendants cobbled together the required bond amounts through various sources - including assets in Taiwan and property owned or occupied by relatives in the US, such as two homes of one defendant which were being used by his wife and daughter as primary residences and the Indiana home of another defendant's sister-in-law. 12
Despite the defendants' creativity, the district court judge reversed the magistrate's decision, requiring most of the defendants, including the company's CEO and two directors, to surrender their passports. While they will likely appeal this decision, the AUO executives will face an uphill battle, as well as a slow Ninth Circuit docket. In the meantime, they are stuck in the United States indefinitely, while their families and jobs wait in Taiwan.
The Division recovery initiative and enforcement against government contractors
Last year we reported on the Division's nascent Recovery Initiative, which was launched in the face of massive increases in federal spending to detect and prosecute collusion on government contracts. In the intervening 12 months, additional details about the Initiative have emerged which draw attention to the heightened and unique antitrust risks facing government contractors, and signal a potentially unprecedented level of enforcement against bid rigging.
Under the Initiative, the Division has devoted substantial resources to bolster its own investigation and prosecution of antitrust and related offences by government contractors and to train federal, state and local procurement personnel to detect such conduct. According to the Division, it has trained about 20,000 procurement and grant officials and nearly 4,000 agents and auditors as part of the Initiative.
These heightened enforcement efforts, combined with the unprecedented levels of federal spending under the Obama administration, present unique risks for government contractors, who are particularly susceptible to antitrust risk because they are often competitors, customers (as prime contractor), suppliers (as subcontractor) or joint venture partners of one another. 13 As a result, they often communicate directly with each other about prices - when they are in a prime contractor/subcontractor or joint venture relationship - even though they may be competing for related contracts.
Government contractors also face the prospect of being debarred or suspended from federal government contacts, potentially losing what may be their only or primary customer. A company may be debarred for a conviction or civil judgment for violations of federal or state antitrust statutes relating to the submission of bids. A company may also be suspended while an investigation of its conduct is under way if there is adequate evidence of an antitrust violation. Debarment and suspension are also available for conduct that is often uncovered in antitrust investigations, including fraud and obstruction conduct. A company may similarly be debarred based on a preponderance of the evidence that its principal knowingly failed to disclose 'significant overpayments' on a contract or violations of various federal statutes.
The possibility of debarment and suspension of course raises difficult strategic questions for companies considering whether to apply for amnesty. The Division's amnesty program provides immunity from prosecution by the Division, but does not confer immunity from debarment or suspension from federal contracts. Moreover, any agency has the authority to debar and suspend a company if the requirements summarised above are satisfied and such a decision is generally effective throughout the executive branch.
ACPERA survives, but in a revised form
The past year also saw vigorous debate over the future of the statutory language limiting the civil liability of successful applicants to the Division's amnesty programme. Specifically, the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA), 14 which significantly increased the penalties for criminal antitrust violations, also limited the civil liability of successful amnesty applicants to the actual damages caused by their conduct. ACPERA eliminated both treble damages and joint and several liability against the amnesty applicant, if the applicant provided 'satisfactory cooperation' to civil claimants. This provision of ACPERA was set to expire in June 2010.
ACPERA's civil liability provisions were generally viewed as a success by the Antitrust Division and the defence bar because joint and several liability and treble damages were seen as a significant disincentive to a decision to seek amnesty. 15 Before ACPERA, an amnesty applicant could very well determine that it was better off keeping its conduct secret and hoping that its co-conspirators do the same to avoid treble damages and joint and several liability then risk exposure to such potentially staggering civil penalties.
While the Division and the defence bar advocated extending ACPERA in its existing form, the plaintiffs bar saw ACPERA's expiration as an opportunity to enhance the amnesty applicant's obligations to cooperate with civil plaintiffs. Specifically, various members of the plaintiffs bar argued that they receive little or no value from ACPERA because the statute placed insufficient requirements for timely cooperation by the amnesty applicant. As a result, they argued, cooperation from the amnesty applicant would come too late in the game, often after plaintiffs expand significant resources on discovery or briefing dispositive motions. The plaintiffs bar therefore advocated changes to ACPERA that would require the amnesty applicant to provide full cooperation at an early stage while plaintiffs are preparing their case.
While facially reasonable, these proposals created significant risks of destabilising the Division's amnesty programme and prosecution of cartelists, which inevitably feed the civil actions pursued by the plaintiffs bar. In particular, the Division's success is driven in part by its ability to initially conduct investigations in secrecy without disclosing the identities of its targets while it gathers and evaluates evidence, including through the amnesty applicant. Premature disclosure to civil plaintiffs could clearly interfere with this ability, while simultaneously putting the amnesty applicant in a position where it may be called on by civil plaintiffs to make disclosures that may be characterised as inconsistent with the Division's ultimate positions against its co-conspirators.
Various elements of the plaintiffs bar also urged Congress to enact legislation that would reward individual whistle-blowers who report cartel conduct by either giving them a percentage of resulting fines imposed through DoJ enforcement or by creating a right to qui tam suits. While such rewards to whistle-blowers could lead to a marginal increase in the reporting of cartel activity, they would create obvious problems. Foremost among these would be reports of false positives and the pursuits of frivolous suits by qui tam plaintiffs. Moreover, witnesses who report cartel activity for a 'fee' would be highly susceptible to credibility challenges, thereby undermining what otherwise may be legitimate enforcement actions by the Antitrust Division.
Probably in response to concerns voiced by the Division, Congress ultimately gave some accommodation to the plaintiffs bar without adopting their proposals in their entirety. 16 The criterion for evaluating the amnesty applicant's cooperation in the original statute was tied to the timeliness of 'initial' cooperation with civil claimants. The word 'initial' has been deleted in the revised statute, raising the possibility that plaintiffs will challenge the timeliness of cooperation at multiple stages of their action, arguing for example that while the amnesty applicant provided initial documents in a timely fashion it was not timely in making its employees available for interviews. As amended, ACPERA also adds a new requirement that the amnesty applicant cooperate with civil claimants 'without unreasonable delay' after a court lifts a discovery stay or protective order obtained by DoJ, adding further pressure on the amnesty applicant and further complicating DoJ's ability to conduct investigations without interference from civil proceedings. Discovery stays are often lifted while the Division's investigation is still pending, before all criminal trials are concluded. The full implications of the ACPERA amendment remain to be seen. There is little doubt, however, that civil plaintiffs will use the amendments to seek earlier cooperation, which will likely be met with resistance by both amnesty applicants and the Antitrust Division.
Again probably in response to strong opposition from the Antitrust Division, Congress delayed action on the whistle-blower proposals, but kept them alive for consideration at a later date. As amended, ACPERA requires the Comptroller General to prepare a study on '(1) the appropriateness of the addition of qui tam proceedings to the antitrust leniency programme; and (2) the appropriateness of creating anti-retaliatory protection for employees who report illegal anti-competitive conduct.' The Comptroller General's report is due in one year, and we expect that its issuance will spur new calls for the creation of antitrust qui tam proceedings or other rewards for cartel whistle-blowers. We similarly expect fierce opposition from both the defence bar and the Antitrust Division.
The past year has seen a continuation of vigorous and successful anti-cartel enforcement by DoJ, as well as some new developments with interesting implications for the future.
- . See generally DoJ, Antitrust Division, Division Update Spring 2010, www.justice.gov/atr/public/update/2010/criminal-program.html.
- . DoJ press release, Taiwan LCD Producer Agrees to Plead Guilty and Pay $220 Million Fine for Participating in LCD Price-Fixing Conspiracy (9 December 2009), www.justice.gov/opa/pr/2009/December/09-at-1321.html.
- . DoJ press release, Taiwan LCD Producer Agrees to Plead Guilty and Pay $30 Million Fine for Participating in LCD Price-Fixing Conspiracy (29 June 2010), www.justice.gov/opa/pr/2010/June/10-at-756.html.
- . DoJ press release, Largest Taiwanese LCD Producer, Houston-Based Subsidiary and Six Executives Indicted for Participating in LCD Price-Fixing Conspiracy (10 June 2010), www.justice.gov/opa/pr/2010/June/10-at-681.html.
- . DoJ, Antitrust Division, Division Update Spring 2010.
- . DoJ press release, Northwest Airlines LLC Agrees to Pleas Guilty for fixing Prices on Air Cargo Shipments (30 July 2010), www.justice.gov/opa/pr/2010/July/10-at-882.html.
- . DoJ, Antitrust Division, Division Update Spring 2010.
- . DoJ press release, Chi Mei executive Agrees to Plead Guilty and Serve Jail Time for Participating in Global LCD Price-Fixing Conspiracy (30 April 2010), www.justice.gov/atr/public/press_releases/2010/258356.htm.
- . Id.; DoJ press release, Third Chi Mei executive Agrees to Plead Guilty and Serve Jail Time for Participating in Global LCD Price-Fixing Conspiracy (28 July 2010), http://www.justice.gov/opa/pr/2010/July/10-at-863.html; DoJ press release, Fourth Chi Mei executive Agrees to Plead Guilty and Serve Jail Time for Participating in Global LCD Price-Fixing Conspiracy (4 August 2010), www.justice.gov/opa/pr/2010/August/10-at-895.html.
- . USA v AU Optronics Corp. et al, Case No. 3:09-cr-00110-SI (MEJ) (N.D.Cal. filed 10 June 2010).
- . AU Optronics press release, AU Optronics Confident Justice Will Prevail (11 June 2010), http://auo.com/auoDEV/pressroom.php?sec=newsReleases&intTempId=1&intNewsId=805&ls=en.
- . Transcript of Proceedings before US Magistrate Judge Maria-Elena James, USA v Lin et al, Case No. 3:09-cr-00110-SI (MEJ) (ND Cal. 26 July 2010); Transcript of Proceedings before US Magistrate Judge Maria-Elena James, USA v Lin et al, Case No. 3:09-cr-00110-SI (MEJ) (ND Cal. 6 August 2010). Minute Entry for Proceedings Held Before Judge Hon. Susan Illston, USA v Lin et al, Case No. 3:09-cr-00100 SI (MEJ) (ND Cal. 20 August 2010); Shannon Henson, AUO Execs Can't Leave US Amid Antitrust Case: Judge, Law 360 The Newswire for Business Lawyers (20 August 2010) , available at http://competition.law360.com/articles/188568.
- . A more extensive discussion of these issues appears in Ray Hartwell and Djordje Petkoski, New Justice Department Initiative Raises Risk of Prosecution for Government Contractors, BNA, Inc. - White Collar Crime Report, Vol. 5, No. 14 (2 July 2010).
- . Pub. L. No. 108-237, 118 Stat. 665 (2004).
- . See, eg, Scott D. Hammond, Recent Developments, Trends, and Milestones in the Antitrust Division's Criminal Enforcement Program, address before the ABA Section of Antitrust Law (26 March 2008).
- . Pub. L. No. 111-30, 123 Stat. 1175 (2009).