The Department of Justice (DOJ) and six broadcast television companies reached settlements last week after the DOJ claimed that the companies shared competitively sensitive information that allowed the parties to alter the way prices were set in the television spot advertising market. Assistant Attorney General Makan Delrahim explained in a speech at the ABA Antitrust Section Fall Forum on November 15 that the government’s investigation was triggered by information produced in the merger investigation of two of the defendants, Sinclair and Tribune, which was abandoned earlier this year. The case has important implications for companies and serves as a cautionary tale related to information sharing.

WHAT HAPPENED:

  • The investigation reportedly began from DOJ’s review of the $3.9 billion proposed acquisition of Tribune by Sinclair earlier this year. The parties abandoned the merger this past summer after the Federal Communications Commission (FCC) referred the matter to an administrative law judge and delayed approval.
  • On November 13, DOJ filed a complaint and competitive impact statement against six television broadcast station companies, each of whom sells spot advertising to advertisers in the US or owns and operates broadcast television stations. With the complaint, DOJ simultaneously filed six proposed settlements with defendants.
  • The complaint alleges that the defendants and other broadcasters reciprocally exchanged revenue pacing information and other forms of competitively sensitive sales information in specific designated marketing areas in real time for each individual competitor. Pacing information shows a station’s remaining advertising inventory and that station’s performance compared to the market.
  • DOJ claimed that the information sharing occurred both directly between parties and through Sales Reps Firms, who represent broadcast stations in negotiations with advertisers or advertisers’ agents over spot advertising. This indirect sharing occurred despite the existence of firewalls to prevent coordination and information sharing between sales teams at the Sales Reps Firms representing competing stations. DOJ claimed that the exchanges occurred with defendants’ knowledge and frequently at defendants’ instruction.
  • As a result of the information sharing, DOJ argued that the stations were able to understand the availability of spot advertisement inventory on competitors’ stations in real time. DOJ also argued that the stations used the information to anticipate whether other companies would raise, maintain, or lower prices for spot advertising. The information exchanges therefore “distorted the normal price-setting mechanism in the spot advertising market and harmed the competitive process” and were unreasonable restraints of interstate trade and commerce.
  • The settlements that are proposed by DOJ prohibit defendants from sharing competitively sensitive information directly or indirectly. The settlements require defendants to institute antitrust compliance officers, and compliance and reporting programs, and to fully cooperate in the DOJ’s ongoing investigation. The final judgments are set to expire seven years from the date of entry, but give DOJ the ability to terminate after five years.
  • The proposed settlements indicate that DOJ recognizes certain allowable exchanges of information. DOJ explains that aggregated competitively sensitive information may be communicated if it is handled by a fully independent third party, so long as the information is historical total revenue or other geographic or characteristic information, and is sufficiently aggregated so it does not allow recipients to identify the specifics.

WHAT THIS MEANS:

  • This case is an example of DOJ strictly enforcing the rules on information sharing between competitors. The proposed settlements clarify that high-level, aggregated, historical information may be shared, but not real-time information about individual competitors.
  • DOJ is not retracting its position on exchanges of price and cost information that fall in the “antitrust safety zone” described in the 1996 Statement of DOJ and Federal Trade Commission (FTC) Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information. In that statement, DOJ and FTC together outlined that surveys managed by third parties, that contain information greater than 3 months old, and that have at least five providers reporting, with no individual representing more than 25 percent of the data, can be shared without challenge though the surveys include prices for services, wages, salaries, or other sensitive information. These guidelines were not followed in the case at hand, which illustrates the importance of staying in the “safety zone.”
  • The matter also demonstrates how a merger investigation can lead to a collateral investigation and significant consequences for the parties.
  • Companies, especially those in consolidated industries such as the television broadcasting business here, are best served by confirming that all parties understand the guidelines regarding information sharing, and instituting antitrust compliance programs to ensure that guidelines are followed.

The European Court of Justice (ECJ) recently ruled that a jurisdiction clause does not need to refer expressly to disputes arising from a breach of competition law where damages are claimed based on Art. 102 TFEU (i.e., for abuse of a dominant position). This contrasts with the ECJ’s position in follow-on cartel damages claims (under Art. 101 TFEU), where a jurisdiction clause must specifically refer to disputes concerning an infringement of competition law.

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Overview of Current Cartel Investigations

Although the third quarter of 2018 saw guilty pleas and new indictments in several current Department of Justice (DOJ) investigations, 2018 continues a downward trend in antitrust enforcement. At its current pace, DOJ’s annual 2018 fines will end around $300 million—well short of the billion-dollar plus highs in 2014 and 2015, during the height of the auto parts and foreign exchange investigations. The same downward trends exists in the EU, where the European Commission did not render any cartel decisions in the third quarter of 2018. Nonetheless, in a sign of things to come, the Commission took significant procedural steps in the ethanol benchmarks and car emissions cases.

US Developments

  • We learned of two new DOJ investigations in the third quarter. First, two executives were arrested on charges of fixing prices of freight forwarding services of containerized goods destined for international shipping. This investigation appears to be distinct from the DOJ’s investigation of roll-on/roll-off international shipping services for vehicles. Second, a foam maker stated in its July 2018 complaint against several chemical companies that the DOJ is investigating the polyurethane industry. The DOJ has not announced an investigation in the polyurethane industry, but one defendant in the foam maker’s case confirmed the existence of the investigation.
  • The DOJ secured two more guilty pleas in its ongoing investigation into bid rigging of public real estate foreclosure auctions, one in Mississippi and one in Florida. Unlike the typical case involving auctions on the courthouse steps, the Florida case involved a real estate investor rigging bids in online public foreclosure auctions.
  • Eleven state attorneys general have initiated investigations into the use of “no-poach” clauses in employment contracts. The Washington State Attorney General is most active, obtaining agreements from 30 nationwide franchise chains to eliminate the practice of including no-poach clauses in their franchise contracts. While the Washington AG’s investigation first focused on fast-food chains, its investigation has since expanded into other industries.

EU Developments

  • The Commission sent a Statement of Objections to two companies in the biofuels sector for conduct concerning ethanol benchmarks. A third company is in settlement talks with the Commission.
  • In July 2018, the General Court of the EU confirmed a fine that the Commission had imposed on an investment bank for the conduct of its subsidiary in the power cables cartel on the basis of the parental liability presumption. This is noteworthy because the investment bank held less than 91% of the subsidiary’s shares.
  • In September 2018, the Commission opened an in-depth investigation into possible collusion between German car manufacturers on emissions control systems.
  • Also in September, the Commission sent a Statement of Objections to a rail company for obstructing its investigation during a dawn raid. The company provided incorrect information and deleted data from a computer. The dawn raid was part of an investigation in the rail passenger transport sector.

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The second quarter of 2018 proved to be an active one with a number of US Department of Justice (DOJ) investigations resulting in criminal charges against individual executives. However, the DOJ’s total criminal fines still fall below the highs reached in 2014 and 2015. In this period, the European Commission made one notable cartel decision, imposing fines on eight Japanese manufacturers of capacitors.

McDermott’s Cartel Snapshot presents the latest information about active antitrust investigations to inform defense representatives, in-house counsel and agency regulators of the latest compliance risks and private actions. Our highly rated team of competition lawyers has selected the most relevant US and EU cartel matters to support risk management assessments for international cartel defense and to provide insights for legal and business planning.

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Alert: The Supreme Court clarified the principles of international comity this week in a ruling pertaining to the long-running vitamin C antitrust class action litigation. International comity is the recognition a nation shows to the legislative, executive or judicial acts of another nation. Principles of comity state that US courts should defer to the laws of other nations when actions are taken pursuant to those laws. In this week’s ruling, Justice Ginsberg wrote that federal courts should accord respectful consideration to foreign government submissions when analyzing comity issues, but are not bound by them. This ruling vacates the Second Circuit’s decision in the case overturning the jury verdict for the class, and is a win for the class of US purchasers of vitamin C. Continue Reading Supreme Court Clarifies Principles of International Comity in Vitamin C Ruling

Overview of Current Cartel Investigations

Antitrust enforcement remained active in 2017, with the US Department of Justice (DOJ) pursuing both new and long-developed investigations. However, total fines obtained by the DOJ declined sharply from recent years as the automotive parts and foreign exchange investigations wound down. At the end of 2017, and the start of 2018, the European Commission handed down decisions in a number of significant antitrust cartel investigations related to air freight, trucks, maritime carriers and several automotive parts.

US Developments

  • In November 2017, an Ohio jury acquitted two Japanese firms, Tokai Kogyo Co. Ltd. and Green Tokai Co. Ltd., of price fixing and bid rigging charges in the market for automotive body seals. This was the DOJ’s first auto parts case to go to trial and a potential bellwether for the attitude that US juries might take toward foreign defendants. The defense focused on evidence of intense price competition for the allegedly rigged components during the conspiracy period.
  • In the capacitors investigation, US District Court Judge James Donato of the Northern District of California caught the attention of the industry when he refused to accept the guilty pleas of three companies to horizontal price-fixing. According to the court, these negotiated corporate pleas were not sufficient to penalize the companies and prevent future price fixing agreements. The court called one agreement a “sweetheart deal” and stated that another negotiated plea was merely a “drop in the bucket.” Although the court later accepted open-ended “B” pleas in those cases, the court’s rejection of the traditional fixed-sentence “C” plea agreements may signal less deference to agencies with respect to negotiated plea agreements with companies.
  • Over the past few years, the DOJ has exercised greater leniency in sentencing defendants who claim an inability to pay a large fine, hewing to the principle that punishment and deterrence should not put companies out of business. For example, in the packaged seafood investigation, DOJ gave Bumble Bee Foods a $111 million reduction in penalty for inability to pay and cooperation credit. It is likely that the DOJ will continue to evaluate fines in light of companies’ ability to pay them, including companies in smaller industries such as the promotional products cases. However, companies should be aware that judges may not always accept inability-to-pay defenses. Notably, one reason for Judge Donato’s rejection of the capacitor guilty pleas related to his skepticism about one company’s assertion that it was unable to pay a higher fine.

EU Developments

  • The European Commission continues its investigation into anticompetitive behavior in the automotive parts sector. Most recently, the Commission imposed fines on manufacturers of occupant safety systems, spark plugs and braking systems, totaling €185 million. In each case, the companies agreed to settle with the Commission, which means that they received a fine reduction in exchange for admitting to the Commission’s objections.
  • The Commission imposed a record fine on a truck manufacturer which had decided not to settle with the Commission, contrary to the other participants in the cartel.
  • The Commission re-adopted its previous decision to impose fines on air cargo carriers, after its decision had been annulled by the General Court of the EU.
  • The European Commission confirmed in July 2017 that German car makers Volkswagen, Audi, Porsche, BMW and Daimler are “undergoing examination by the Commission.” The companies are believed to have cooperated on how to meet emissions standards for diesel vehicles. Volkswagen and Daimler are believed to have been among the first companies to cooperate with the European Commission. In October 2017, the Commission confirmed that it had carried out inspections at the premises of car manufacturers in Germany.

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In the course of one week, two top level DOJ Antitrust officials in the Trump Administration separately spoke at panels and suggested the possibility of a sea change in federal antitrust law with respect to indirect purchaser lawsuits. The comments further reinforce the Administration’s active focus on antitrust issues.

WHAT HAPPENED:

  • Makan Delrahim, DOJ’s Assistant Attorney General in charge of the Antitrust Division (the Division), spoke at a conference organized by the Antitrust Research Foundation on January 19, 2018, and is reported to have stated that the Division was looking into the possibility of pursuing civil damages on behalf of taxpayers in antitrust price-fixing suits.
  • A few days later, on January 23, 2018, Andrew Finch, DOJ’s Principal Deputy Assistant Attorney General for Antitrust, spoke at a Heritage Foundation conference and reportedly stated that the Division was “looking at whether or not it might be worthwhile to revisit those rules and suggest the same to the Supreme Court,” referencing the landmark decision Illinois Brick Co. v. Illinois, which prohibits indirect purchasers from recovering antitrust damages under federal antitrust law.

Continue Reading THE LATEST: Trump DOJ’s Next Target: the Illinois Brick Indirect Purchaser Rule?

On November 29, 2017, a Japanese auto parts manufacturer and its US subsidiary defeated the US Department of Justice’s claims that the companies conspired with others to fix prices and rig bids for automotive body sealing products. The case involved a rare trial involving criminal antitrust charges. After 13 days of trial, a jury returned a not-guilty verdict for Tokai Kogyo Co. Ltd. and its subsidiary, Green Tokai Co. Ltd. Continue Reading.

On October 19, 2017, the French Competition Authority (the “FCA”) imposed a EUR 302 million fine on the three leading companies in the PVC and linoleum floor coverings sector; Forbo, Gerflor and Tarkett, as well as the industry’s trade association, SFEC (Syndicat Français des Enducteurs Calandreurs et Fabricants de Revêtements de Sols et Murs), for price-fixing, sharing commercially sensitive information, and signing a non-compete agreement relating to environmental performance advertising.

The FCA said the significant fine reflected the gravity of the offence and the long duration of the anticompetitive behavior, which for one company lasted 23 years.

WHAT HAPPENED

The proceedings were originally initiated by unannounced inspections carried out in the floor coverings industry in 2013 by the FCA, acting on information submitted by the DGCCRF (Directorate General for Competition Policy, Consumer Affairs and Fraud Control), which resulted in the discovery of three distinct anticompetitive practices.

Price-fixing

The FCA found that the three main manufacturers of floor coverings in France met secretly at so-called “1, 2, 3” meetings, from October 2001 to September 2011, at hotels, on the margins of official meetings of the SFEC or through dedicated telephone lines, in order to discuss minimum prices and price increases for their products. The manufacturers also entered into agreements covering a great deal of other sensitive information, such as the strategies to adopt with regard to specific customers or competitors, organization of sales activities and sampling of new products.

Confidential information exchange via the trade association

The FCA found that from 1990 until the start of the FCA’s investigations in 2013, Forbo, Gerflor and Tarkett also exchanged, in the context of official meetings of the SFEC, very precise information relating to their trading volumes, revenues per product category and business forecasts. In its decision, the FCA also raised the active role played by the SFEC, supporting companies in their conduct.

Non-compete agreement relating to environmental performance advertising

The three main manufacturers of floor coverings in France, together with the trade association, also signed a ‘non-compete’ agreement which prevented each company from advertising the individual environmental performance of its products. The FCA considered that this agreement may have acted as a disincentive for manufacturers to innovate and offer new products, earmarked by better environmental performance, compared to the products offered by their competitors.

Neither the manufacturers nor the trade association disputed the facts and all of them sought a settlement procedure. In addition, Forbo and Tarkett, leniency applicants, benefited from fine reductions corresponding to the respective dates they approached the FCA (the sooner, the higher the fine reduction), the quality of the evidence they provided and their cooperation during the investigation.

WHAT THIS MEANS

The FCA’s decision in the floor coverings cartel case has significant impact due to the total amount of the fines imposed which is (i) higher than the aggregate amount of sanctions imposed by the FCA in 2016 (i.e., EUR 202,873,000), and (ii) until now the highest fine imposed by the FCA in 2017, the FCA having imposed a EUR 100 million fine on Engie for abusing its dominant position in the gas market (Decision No. 17-D-06 of 21 March 2017) and a EUR 40 million fine on Altice and SFR for non-compliance with an agreement made during the acquisition of SFR by the Altice group (Decision No. 17-D-04 of 8 March 2017).

This decision is the first application of the new settlement procedure introduced by the Macron Law of 6 August 2015. This new procedure replaced the previous “no challenge” procedure (“non-contestation des griefs”) pursuant to which companies could only negotiate a percentage reduction without knowing the original amount of the fine. Under the new procedure, the companies’ discussion with the FCA will focus directly on the minimum and maximum amount of the fine and will no longer be limited to a reduction rate applicable to a hypothetical amount of the fine.

This is also the first decision in France where the new settlement procedure and the leniency procedure have been cumulated.

Finally, the FCA raised the very serious nature of the infringement, which lasted for a long time and involved the majority of the market players (between 65% and 85% of the market from 2001 until 2012). This decision sends once again a clear message to companies that cartels and exchanges of competitively sensitive information remain one of FCA’s main priorities. Therefore, discussions in the context of trade association meetings should be approached carefully and in accordance with prior legal advice.

On Monday, September 11, Tri-Union Seafoods LLC, the US subsidiary of Thai Union Group, announced it blew the whistle on competitors in the US Department of Justice’s (DOJ) investigation of the packaged seafood industry. The “Chicken of the Sea” canned tuna manufacturer also said it received conditional leniency from DOJ in exchange for its cooperation.

WHAT HAPPENED:

  • In 2015, DOJ began investigating the packaged seafood industry for anticompetitive conduct, including price fixing. DOJ’s investigation followed a failed merger between Thai Union and Bumble Bee Foods LLC.
  • In June 2017, a former StarKist Co. sales executive pleaded guilty to price fixing.
  • Private plaintiffs filed class action complaints in October 2016 alleging antitrust violations in the packaged seafood industry. The private plaintiffs represent grocery retailers who sold packaged tuna to US consumers.

WHAT THIS MEANS:

  • Despite the significant costs of participating in DOJ’s Corporate Leniency Program, leniency recipients continue to receive significant value for their cooperation. Conditional leniency recipients like Tri-Union and their employees will not face criminal fines, jail time or prosecution.
  • Full cooperation with DOJ’s program will place heavy demands on leniency applicants, including gathering and translating foreign documents, bringing foreign witnesses to the United States for interviews and testimony, and providing several attorney proffers.
  • It is critical to have a robust compliance program in place to detect any potential or actual violations of antitrust law. Such a program will allow a company to investigate any potential misconduct and, if necessary, report it to DOJ. Time is of the essence when seeking leniency with DOJ’s Corporate Leniency Program.
  • Companies contemplating acquisitions should consider whether any problematic antitrust conduct could arise during the merger review and result in a subsequent criminal investigation.