On September 9, 2014, Brent Snyder, Deputy Assistant Attorney General of the U.S. Department of Justice Antitrust Division, provided prepared remarks on the subject of “Compliance is a Culture, Not Just a Policy,” before the International Chamber of Commerce/United States Council of International Business Joint Antitrust Compliance Workshop in New York City. Snyder explained that an effective corporate compliance program is an important part of a company’s effort to prevent antitrust violations.
According to Snyder, compliance programs make good business and common sense. He noted that compliance programs help prevent companies from committing crimes. And, that even if a compliance program is not entirely successful, a partially successful compliance program may help a company qualify for leniency. Snyder believes there is no one-size-fits-all compliance program. Instead, an effective compliance program should be designed to account for the markets a company operates in and the nature of a company’s business. He also reviewed five things the Antitrust Division looks at when evaluating a company’s compliance program.
First, a company’s board of directors and senior executives must engage in and be fully supportive of the company’s compliance efforts. This means that senior management must be fully knowledgeable about the company’s compliance efforts, including providing the necessary resources and having the appropriate personnel oversee the program. Second, the entire company needs to be committed to executing the policy. Companies show this by training all executives and managers, and most employees, especially the employees with pricing and sales responsibilities. Third, the compliance policy should be proactive. To do so, companies should monitor and audit “risk activities.” Fourth, a company should have an approach to individuals that break the antitrust laws, including being willing to discipline employees for any violations. Finally, a company that uncovers criminal antitrust conduct should be equipped to prevent the conduct from happening again, which can mean making changes to its compliance program and being prepared to accept responsibility for that conduct.
Snyder also mentioned that having a compliance program may still benefit a company planning to plead guilty to an antitrust crime. The examples he provided were companies with compliance policies possibly being able to avoid additional oversight by the court and the Division. The Sentencing Guidelines require an effective compliance program. If a company does not have one or can’t show it is updating its existing one, a company will most likely be on probation. However, if a company can show that they adopted or strengthened an existing compliance program it may be able to avoid probation. The Division is also considering possible ways to credit a company that proactively strengthens or adopts a compliance program after the commencement of an investigation.
In the end, however, Snyder was clear that the purpose of “having an effective compliance program is not so that the Division will cut you a break if your company commits a crime.” Instead, the purpose of an effective compliance program, as described by Snyder, is to be a “good and responsible corporate citizen.”
In an announcement made on 10 September 2014, the President-elect of the next European Commission, Jean-Claude Juncker from Luxemburg, unveiled his team and announced that Magrethe Vestager from Denmark will replace Joaquin Almunia as the EU Commissioner for Competition. Ms Vestager is to take office in November, subject to confirmation by the European Parliament.
The new Commissioner and her agenda will have a significant impact on business in the European Union in the upcoming years. The EU Commissioner for Competition is one of the most powerful figures in Europe because this role has the ability to review deals, impose fines for cartel behaviour or abuse of dominance (monopolisation) and order the recovery of illegal subsidies.
Read the full article.
On 4 September 2014, the Court of Justice of the European Union (CJEU) confirmed that the maximum fine of 10 per cent of turnover imposed on the infringing subsidiary of a non-infringing parent company should be calculated on the basis of the turnover of that subsidiary, and not the parent company, if and to the extent that the infringement occurred during the period prior to the acquisition of the subsidiary by the parent company.
In 2007, the European Commission issued a decision fining the participants in a cartel operating on the market for zips and other fasteners.
Stocko Fasteners participated in the cartel as an independent company from 1991 until 1997, when it was acquired by the YKK Group and renamed YKK Stocko Fasteners. It continued to participate in the cartel until 2001. YKK Stocko Fasteners was fined €19.25 million for its participation in the cartel from 1991 to 1997, calculated on the basis of the YKK Group’s turnover. The YKK Group companies (including YKK Stocko Fasteners) were fined €49 million jointly and severally for the period 1997 to 2001.
These fines were upheld by the EU General Court and the YKK Group appealed to the CJEU, inter alia, against the fine imposed on YKK Stocko Fasteners. The YKK Group argued that the limit on fines of 10 per cent of total turnover prescribed by Article 23(2) of Regulation (EC) No 1/2003 should have been applied only to YKK Stocko Fasteners’ turnover and not to the turnover of the whole YKK Group. The fine of €19.25 million imposed on YKK Stocko Fasteners amounted to significantly more than 10 per cent of that company’s total turnover in 2006, the business year preceding the imposition of the fine.
The CJEU’s Ruling
The CJEU observed that Article 23(2) of Regulation (EC) No 1/2003 provides that “For each undertaking… participating in the infringement, the fine shall not exceed 10 per cent of its total turnover in the preceding business year” (authors’ emphasis). Stocko Fasteners was a separate undertaking until its acquisition by the YKK Group in 1997, so the CJEU found the Commission was wrong to treat YKK Stocko Fasteners and the rest of the YKK Group as a single undertaking for the purposes of the 10 per cent limit. In fact, if YKK Stocko Fasteners did not pay the €19.25 million fine, the Commission could not enforce payment by the rest of the YKK Group.
The CJEU consequently decided to set aside the General Court’s judgment and annul the Commission’s decision, and reduced the fine imposed on YKK Stocko Fasteners to €2.79 million. This figure corresponded with 10 per cent of its turnover as a YKK subsidiary in 2006, the year preceding the imposition of the fine, less an allowance for leniency.
Over recent years, the way fines against cartels are calculated and attributed has become ever more hotly debated. In most cases, the central issue has been the attribution of the fine to parent companies for infringements by their subsidiaries, or to shareholding partners for infringements committed by their joint ventures before or after the acquisition of a stake in the venture.
The YKK case is valuable in this context in that it provides clear and unequivocal guidance on the application of the 10 per cent cap to fines imposed on companies that have changed ownership at some point during the period a cartel existed. This ruling is, therefore, an important development that should be welcomed, noted and borne in mind in any future cases where successive ownership and responsibilities are at stake.
North Carolina’s State Board of Dental Examiners has urged the U.S. Supreme Court to reject the Federal Trade Commission’s (FTC’s) “radical departure” from decades of established precedent that offers state actors immunity from antitrust scrutiny, arguing that the FTC’s approach contradicts the federalist principles that originally gave rise to the state action immunity doctrine.
Earlier this year, the Court agreed to consider whether the Fourth Circuit erred in upholding the FTC’s ruling against the Board. The Board presented its arguments in a brief submitted in advance of oral arguments, which are scheduled for October 2014.
The Board’s brief is but the latest salvo in a long-running battle with the FTC that dates back to 2010. The North Carolina state agency—which includes practicing dentists among its members—licenses dentists in the state and can take disciplinary measures against licensees. Approximately a decade ago, following complaints from dentists practicing in the state, the Board launched investigations into teeth-whitening services provided by non-dentists and ultimately issued dozens of cease-and-desist letters to such service providers. The FTC issued an administrative complaint in 2010 charging that the Board violated the FTC Act by acting to exclude non-dentist teeth whiteners from the market in North Carolina. Relying on its status as a state entity, the Board has maintained that it is immune from scrutiny under the antitrust laws. The FTC has argued that the presence of market participants on the board means the board is more akin to a private actor, which must be subject to active state supervision in order to benefit from immunity. The FTC maintains that such supervision is lacking here. The Fourth Circuit sided with the FTC in 2013, and the Supreme Court agreed to review that decision.
In its brief, the Board contends that the FTC’s position runs contrary to long-established precedent. The Board especially challenges the FTC’s arguments that state action immunity is available only where decisions are made by “disinterested public officials.” According to the Board, the FTC seeks to apply to public officials the test that is applicable to private actors seeking the benefit of state action immunity. The Board contends this is erroneous and that the federalist principles that justified prior state action immunity decisions render the self-interest of individual public officials irrelevant.
The Supreme Court’s resolution of this conflict could have significant repercussions for state regulatory bodies, many of which rely upon participation of professionals and other market participants. 23 states have filed an amici brief that similarly urges the Supreme Court to reverse the Fourth Circuit’s decision.
On August 18, 2014, following a Department of Justice (DOJ) investigation and criminal indictment, Paul Robson became the second former Rabobank employee to plead guilty for his participation in a scheme to manipulate the Japanese Yen London InterBank Offered Rate (LIBOR). This latest success for the agency “demonstrates the Department of Justice’s continued resolve to hold individuals and institutions accountable for their involvement in fraud in the financial markets,” said Assistant Attorney General Leslie Caldwell of the DOJ’s Criminal Division.
The charges against Robson came in the wake of Rabobank’s October 2013 admission of guilt for its involvement in the global scheme. The bank agreed to pay a $325 million penalty as part of a deferred prosecution agreement with the DOJ. Three months later, the agency charged Robson along with two Rabobank derivatives traders with submitting fraudulent LIBOR figures in order to benefit their own trading positions. LIBOR is a benchmark interest rate used by lenders worldwide as a basis for calculating interest rates on short-term and various other loans. A London-based trade association calculates LIBOR for 10 different currencies based on rates submitted by the world’s leading banks, which are supposed to reflect each bank’s estimation of the rate it would be charged for a short-term loan. Robson played his role in the scheme as the primary submitter of Yen LIBOR for Rabobank, one of 16 banks that contributed to the published Yen LIBOR.
Earlier this year, Rabson was indicted on 15 different counts, each of which carried up to a 30-year prison sentence. Rabson pled guilty to one count of conspiracy to commit wire and bank fraud. His sentencing is scheduled for June 2017.
On August 26, 2014, the Eastern District of Michigan denied a motion by a Japanese manufacturer and its U.S.-based subsidiary (NTN Corporation and NTN USA Corporation) to dismiss the direct and indirect purchaser complaints in In re Bearings, 2:12-cv-00500-MOB-MKM (E.D. Mich. Aug. 26, 2014), one of the cases in the In re Automotive Parts Antitrust Litigation MDL, No. 12-md-02311. Following an investigation by the Japan Fair Trade Commission in 2013, NTN admitted to participating in a conspiracy to fix prices for bearings, which the complaints describe as “friction-reducing devices that allow one moving part to glide past another moving part.”
According to NTN, the plaintiffs were trying to use NTN’s participation in a price-fixing conspiracy in Japan to “link NTN to a different conspiracy in the United States” simply because NTN had “knowledge that some of its bearings sold in foreign markets would enter the United States market.” This “theory of global United States antitrust jurisdiction,” NTN contended, is prohibited by the Foreign Trade Antitrust Improvements Act (FTAIA).
The court was unpersuaded. The plaintiffs’ allegations depicting foreign investigations were not merely attempts to recover for conduct that occurred in other countries; rather, the existence of foreign investigations and guilty pleas was what “render[ed] Plaintiffs’ claims of a conspiracy directed at the United States plausible.” According to the court, the FTAIA arguments did not apply to NTN USA, which was alleged to have manufactured and sold bearings in the United States. And “[w]ith respect to NTN, Plaintiffs allege[d] that NTN USA manufactured and sold price-fixed bearings directly into the United States market at the direction of NTN.” The court concluded that “[t]he conduct at issue in this case is not the type of conduct Congress sought to exclude from the Sherman Act’s reach.”
Today, New York health regulators proposed revised rules that would allow health care providers to merge or cooperate with one another without being subject to federal or state antitrust scrutiny.
The state’s Department of Health proposed regulations establishing a process for entities to obtain a Certificate of Public Advantage (COPA) pursuant to Public Health Law Article 29-F. Article 29-F sets forth the State’s policy of encouraging appropriate collaborative arrangements among health care providers who might otherwise be competitors, if the benefits of such arrangements outweigh any disadvantages likely to result from a reduction of competition. The statute requires the Department to establish a regulatory structure allowing it to engage in active state supervision as necessary to promote state action immunity under state and federal antitrust laws.
The proposed regulations were initially published in the State Register on September 18, 2013, and have been revised in light of public comments received. The revised regulations will be open for public comment for 30 days and will take effect upon publication of a notice of adoption. A Notice of Revised Rulemaking appears in the today’s State Register, and a copy of the full text of the regulatory proposal is available on the Department’s website.
On Thursday, August 14, 2014, several physicians wrote a letter to Commissioner Hamburg of the U.S. Food and Drug Administration (FDA) expressing their concerns regarding the naming of biosimilar products in light of the implementation of the Biologics Price Competition and Innovation Act (BPCIA).
Unlike traditional small-molecule prescription drugs, most biologics are complex and are typically made from human or animal materials. The BPCIA provides an abbreviated licensure pathway for biologics that are demonstrated to be “biosimilar” to or “interchangeable” with an FDA-licensed biologic. A biologic may be demonstrated to be “biosimilar” if data show that, among other things, the product is “highly similar” to an already-approved biologic. Unlike “generic” versions of small-molecule prescription drugs, biosimilars are not bioequivalent to their reference biologics. To date, the FDA has not approved any biosimilar products.
The licensure pathway contemplated by the BPCIA is meant to reduce the time and cost of bringing competing biosimilar products to consumers. As the FDA begins evaluating the first U.S. applications for the licensing of biosimilars, concerns have arisen as to how approved biosimilars will be named. In their letter to Commissioner Hamburg, the physicians argued that biosimilars “must have distinguishable nonproprietary names” from their reference biologics. The physicians wrote that distinct names are needed to avoid confusion: if a biologic and its biosimilars share a common name, physicians may incorrectly assume that the products are approved for all of the same indications, even if the FDA disagrees. The physicians also argued that unique names for biosimilars will help doctors track adverse events by allowing them to correctly identify what product caused the event.
However, not everyone agrees with the physicians’ position. On July 1, 2014, a group of pharmacies, insurers and unions wrote a letter to Commission Hamburg asking the FDA to require that biologics and biosimilars share the same name. This group argued, among other things, that requiring distinct names for biosimilars may slow the uptake of biosimilar products as substitutes for brand-name biologics, thereby limiting significant potential cost savings.
On Friday, August 15, 2014, Judge Gerald McHugh of the Eastern District of Pennsylvania let stand several counterclaims that IMS Health Inc. (IMS) made against Symphony Health Solutions Corp. (Symphony) in connection with related to allegations that Symphony had poached IMS employees to steal trade secrets.
In July 2013, Symphony brought a complaint against IMS, the largest pharmaceutical data and analytics company in the world, alleging that IMS unlawfully abused its monopoly power in pharmaceutical data markets and violated the antitrust laws through various types of horizontal and vertical exclusionary conduct, including entering into exclusive long-term agreements with data suppliers, requiring data suppliers to sign most-favored-nation clauses, acquiring rivals to eliminate competition, and bundling its products. In response to the complaint, IMS filed multiple counterclaims alleging that Symphony poached IMS employees to steal IMS’s trade secrets. Symphony then filed a motion to dismiss IMS’s counterclaims.
After reviewing Symphony’s motion to dismiss, Judge McHugh dismissed IMS’s trade secret misappropriation claims as to two former IMS employees as barred by res judicata. Specifically, a prior consent order already addressed concerns that Symphony gained access to IMS’s trade secrets through the two former IMS employees. Judge McHugh also dismissed IMS’s claim of tortious interference regarding a vendor because IMS’s “prediction” of future harm could not sustain its claim.
However, Judge McHugh let IMS’s poaching claims go forward and refused to dismiss IMS’s claims of improper procurement of confidential information and unfair competition. As to improper procurement, Judge McHugh highlighted IMS’s allegation that its former employee hired by Symphony made a public presentation with IMS materials. With respect to unfair competition, Judge McHugh ruled that IMS had stated facts sufficient to support its claim when it alleged that “Symphony targeted for hire groups of employees who worked in parts of IMS’s business that Symphony wished to duplicate, with the purpose of appropriating IMS’s trade secrets.”
On Friday, August 8, 2014, the Southern District of New York denied motions for summary judgment filed by the National Hockey League, Major League Baseball, Comcast Corp. and DirecTV LLC in suits alleging that these organizations and television providers conspired to hinder competition in television and internet sports broadcasting. In two class action suits brought by consumers of broadcast sports, plaintiffs claimed that the leagues and television providers agreed to “black out” games so that regional sports networks faced limited competition to broadcast live events. This purportedly anti-competitive agreement forced plaintiffs to buy “out of market” packages offered by defendants, such as MLB Extra Innings, to watch live games on television or the internet if they did not live within the regional provider’s viewing territory. Laumann, et al. v. National Hockey League, et al., case number 1:12-cv-01817; Lerner v. Office of the Commissioner of Baseball, et al., case number 1:12-cv-03704. District Judge Shira Scheindlin determined that the questions of whether plaintiffs have provided evidence of collusion among the leagues and providers and evidence of a tacit agreement between the providers should be decided at trial by a fact finder. In addition, Judge Scheindlin refused to apply the rule established in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, 259 U.S. 200, 208 (1922), that exempted Major League Baseball from the antitrust laws. She explained that Major League Baseball’s exemption did not extend to the league’s contracts for television broadcast services. A trial date has not been set.