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.

Read the full report here.

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.

On July 19, 2017, the Second Circuit vacated the convictions and dismissed the indictments of two individuals accused of playing a role in the manipulation of the London Interbank Offered Rate (LIBOR). United States v. Allen, No. 16-898-cr, Slip Op. at 3 (2d Cir. July 19, 2017). The ruling was based on the Fifth Amendment to the US Constitution, which provides that “[n]o person . . . shall be compelled in any criminal case to be a witness against himself.” US Const. amend. V. The Second Circuit’s decision clarifies that this protection against self-incrimination is an “absolute” “trial right” that applies to all criminal defendants in US courts (including non-citizens) and to all compelled testimony (including testimony given during a foreign government’s investigation). United States v. Allen, No. 16-898-cr, Slip Op. at 55. The court’s clarification of the Fifth Amendment’s scope has important implications for US antitrust enforcers prosecuting international cartels and for individuals ensnared in cross-border criminal investigations alike.

Continue Reading Second Circuit Clarifies Fifth Amendment Law, with Implications for US Prosecution of International Cartels

Bumble Bee Foods, and two of its senior vice presidents, have recently pled guilty to US Department of Justice (DOJ) charges that they engaged in a conspiracy to fix prices of shelf-stable tuna fish sold in the United States from 2011 to 2013. Bumble Bee agreed to pay a $25 million criminal fine that can increase to $81.5 million under certain conditions, and the company’s two senior vice presidents pled guilty and agreed to pay criminal fines as well. The investigation appears to have been prompted by information that the DOJ uncovered during its investigation of Thai Union Group’s (owner of Chicken of the Sea) proposed acquisition of Bumble Bee, which was abandoned after DOJ concerns.

WHAT HAPPENED:

  • On December 19, 2014, Thai Union Group, the largest global producer of shelf-stable tuna, announced that it had agreed to acquire Bumble Bee Foods for $1.5 billion. A year later, on December 3, 2015, the DOJ announced that the parties had abandoned the transaction after the DOJ expressed concerns that the acquisition would harm competition. The DOJ stated that “Thai Union’s proposed acquisition of Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States in a market long dominated by three major brands, as well as combined the first and second largest domestic sellers of other shelf-stable seafood products.”
  • Beyond its comments about the potential for competitive harm from the transaction, however, the DOJ further noted that “[o]ur investigation convinced us – and the parties knew or should have known from the get go – that the market is not functioning competitively today, and further consolidation would only make things worse.”
  • It appears that the DOJ’s concerns that the market for packaged seafood was not functioning competitively spurred the government to proceed with an investigation into potential collusion among the suppliers of packaged seafood. After its investigation, the DOJ concluded that Bumble Bee Foods, two of its senior vice presidents, and other co-conspirators “discussed the prices of packaged seafood sold in the United States[,] agreed to fix the prices of those products [and] negotiated prices and issued price announcements for packaged seafood in accordance with the agreements they reached.”

WHAT THIS MEANS:

  • In the Mergers & Acquisitions context, the merging parties are most often concerned with the potential risk that antitrust concerns may pose to the deal and the ability to obtain DOJ or Federal Trade Commission (FTC) clearance for the transaction. This criminal investigation by the DOJ demonstrates that the parties need to be aware of their conduct in the market, whether they have engaged in conduct that may be found to be collusive, and the potential consequences of such conduct not only on the proposed transaction but on the companies themselves and their employees.
  • It is critical for companies to regularly monitor the conduct of their employees and provide antitrust training and compliance courses. In a merger between horizontal competitors, before proceeding, each company should do some internal diligence to understand whether a merger investigation may turn up inappropriate communications or agreements with competitors.

A number of amendments to the German competition law (Amendment) entered into force on 9 June 2017. The key changes are:

  • Merger control: Introduction of a new “size of transaction”-threshold
  • Sanctions for antitrust law infringements: Rules of liability aligned to EU concept, in particular with respect to “parental liability”
  • Private enforcement: Implementation of EU Cartel Damage Claims Directive.

Continue Reading Reform of German Competition Law

To date, the US Department of Justice Antitrust Division (DOJ) has obtained six corporate guilty pleas, three individual indictments and one individual guilty plea in its long-running investigation into price fixing of capacitors by primarily Japanese manufacturers. Capacitors are small electronic components that are found in nearly every device that is plugged in or powered by a battery.

WHAT HAPPENED

  • In a May 24 sentencing hearing, the DOJ took sharp criticism from Judge James Donato (NDCA) for what he called a “sweetheart deal” by DOJ in its plea agreement with Matsuo Electric Co. The plea called for payment of a $4.17 million fine to be paid over five years.
  • The deal, reached at the same time as an individual plea of Matsuo’s former sales manager Satoshi Okubo, was one that DOJ had touted, arguing that “[t]he simultaneous acceptance of responsibility by a company and the executive who supervised its involvement in the cartel demonstrates in a concrete way their future commitment to lawful conduct and an improved business culture.”
  • Judge Donato saw it another way, arguing that he “didn’t like the idea of corporations holding individuals out to dry in return for leniency.” This comment came in reference to the assertion that Okubo had been asked to serve a one-year prison term so the company would get a lesser sentence.
  • The court did not throw out Matsuo’s sentence altogether, but requested further details about the company’s financial resources so that it could decide whether to accept the corporate plea agreement, in particular the extended payment term. Okubo was sentenced in February.
  • In previous sentencings, Judge Donato had imposed terms of probation on the corporations exceeding those requested by DOJ.

Continue Reading Individual Accountability Likely to Continue for Cartel Enforcement

Companies are increasingly facing parallel proceedings involving government investigations and follow-on private litigation. These complex cases often involve competing interests between the parties that can influence a judge’s determination on discovery timing and process.

  • Private plaintiffs are incentivized to obtain as much information about the case as early as possible to support their allegations and avoid having the case dismissed on summary judgment.
  • Defendants hope to delay, or save altogether, the expenditure of potentially millions in discovery costs.