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.
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.
- 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.”
- Bumble Bee Foods and its two senior vice presidents have pled guilty to these charges, agreed to pay significant criminal fines, and are cooperating with the DOJ in its ongoing investigation.
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.
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.
- 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.
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.
- The government has a strong interest in preserving the confidentiality and integrity of their investigation without interference from civil plaintiffs. Continue Reading THE LATEST: Limiting Early Discovery in Parallel Criminal and Civil Cases
For publicly traded companies, earnings calls are routine business events, as are press releases, speeches, investor conferences and trade association meetings. However, in the world of antitrust law, words uttered in these situations can provide fodder for plaintiffs to claim that instead of providing information for investors and the public, the communication’s purpose was to invite competitors to unlawfully collude. In the past several years, allegations that competitors used public statements to carry out a price-fixing agreement have been a common thread in antitrust class actions and multidistrict litigations.
Recently, a federal district court granted summary judgment in an antitrust case based on earnings calls in the airline industry. While the defendants ultimately prevailed, the case stands as a reminder to publicly traded companies to be mindful of antitrust considerations in earnings calls and other public communications.
Originally published in Law360.com, April 11, 2017.
The US Department of Justice (DOJ) Antitrust Division (the Division) offers leniency to the first company to contact the Division and acknowledge participation in an antitrust conspiracy such as price-fixing, bid-rigging or market allocation. The Division’s leniency program requires the applicant to fully cooperate with the government’s investigation and to candidly acknowledge its wrongdoing, among other requirements. In return, the successful applicant receives a pass from corporate criminal exposure and also receives immunity for its officers, directors and executives.
The leniency program is the crown jewel of the Division’s enforcement regime because of its demonstrated success generating new cases. The program’s ability to attract applicants is based on its transparency and predictability. The level of trust required for companies to air their criminal wrongdoing to prosecuting authorities is not automatic. It has been earned over the years by a program that keeps its promises and works as designed. Therefore, changes to the program are closely watched by the defense bar for any perceived lessening of immunity coverage. Continue Reading THE LATEST: Acting AAG Clarifies Scope of Amnesty for Executives
European Commissioner of Competition Margrethe Vestager made news when she announced that the European Commission had launched a new IT system enabling individuals to anonymously report cartel activity. In parallel, several EU Member States have–in recent weeks–highlighted the role of individual informants in their own enforcement efforts. Taken together, these developments show that the stakes of effective and meaningful antitrust compliance continue to rise, as individuals have more avenues to report anticompetitive conduct.
Speaking in Berlin on March 16, 2017, Commissioner Vestager stated, “We’ve discovered a lot of cartels thanks to leniency programs […] But we don’t just rely on leniency. We pay attention to other methods as well. And that includes encouraging individuals to come forward, when their conscience is troubled by the information that they have about a cartel. That’s why we recently launched a new IT system to help people tell us anonymously about cartels. The system means that we can communicate both ways with them without risking their anonymity while we gather information.”
Commissioner Vestager noted that the European Commission’s new system is modelled on a system implemented by the German Federal Cartel Office (FCO) in 2012. Notably, the FCO itself published a brochure in late February 2017 titled “Effective Cartel Enforcement” highlighting, among other things, the success of its whistleblowing program. The FCO noted that its system is accessible from its website and “guarantees the anonymity of informers while still allowing for continual reciprocal communication with the investigative staff [at the FCO] via a secure electronic mailbox.” Between June 2012 and December 2016, the FCO reports receiving 1,420 tips, “some of which” have led to proceedings resulting in fines.
The Department of Justice (DOJ) reinforces the perils of competitor information exchanges by challenging alleged communications between DirecTV and other video programmers related to broadcast rights for Los Angeles (LA) Dodgers baseball.
- In November 2016, the DOJ filed an antitrust complaint against DirecTV. DOJ alleged:
- The LA Dodgers sought to sell broadcast rights to their baseball games to cable and satellite TV companies.
- DirecTV was a potential bidder for Dodgers’ rights, as were other cable companies operating in the LA area.
- DirectTV entered into agreements with competing cable companies to exchange information relating to their negotiations with the LA Dodgers.
- As a result of the information learned through these information exchanges, the various potential bidders did not compete aggressively for Dodgers broadcast rights because they gained information about their rivals’ negotiating positions.
- The negotiations dragged on, and since no programmer had broadcast rights, people in LA could not watch Dodgers games on television.
- Notably, DOJ did not allege that the broadcasters reached any price fixing or market allocation agreement.
- In late March, DirecTV settled with the DOJ and entered into a consent order that precludes it from providing non-public, competitively sensitive information to a competitor or seeking such information from competitors.
- There are exceptions to allow exchanges in connection with legitimate due diligence, collaborative ventures or commercial vendor/vendee arrangements.
WHAT THIS MEANS:
- While not surprising, this case reinforces that information exchanges between competitors creates substantial antitrust risk.
- Exchanges can create antitrust exposure even if there is no agreement between the competitors on pricing or other competitive decisions, and compliance programs should reinforce this principle.
- Agreements or coordination among buyers raise the same types of competitive issues as agreements among sellers.
- In this case, the Dodgers were the sellers and DirecTV and programmers were the buyers.
- Another recent example is the FTC/DOJ guidance issued last fall on anticompetitive agreements among employers, such as “no poach” or “no solicit” agreements, which DOJ stated it may prosecute criminally if they are “naked” agreements, unrelated to a legitimate activity such as a joint venture.
- The antitrust laws protect the competitive process rather than low prices.
- A competitive market for the sale of products often leads to lower priced goods and services.
- In this case, DOJ alleged that DirecTV and the other providers exchanged information to prevent the Dodgers from raising the price for Dodgers’ broadcasts, but that did not legitimize the conduct.
The case follows on from the Commission’s Animal Feed Phosphates cartel decision pursuant to which fines totalling €176 million were imposed on a number of producers of animal feed for price fixing and market sharing throughout the EEA.
During the investigation into the infringement, all the companies involved engaged in settlement discussions with the Commission with a view to obtaining a 10 percent reduction in the fine that would otherwise have been imposed had they not settled with the Commission. However, during the settlement process Timab, a subsidiary of the Roullier Group, decided to withdraw from the settlement procedure. The Commission therefore followed the standard administrative infringement procedure against Timab – despite the fact that it had entered into settlements with the other companies involved in the cartel. This was the first time, therefore, that the Commission rendered a decision in a so-called ‘hybrid’ case i.e. where some parties settle but others do not.
During the initial settlement discussions, several meetings were held between the Commission and Timab, during which evidence of the infringement was discussed. On the basis of the evidence available, the Commission informed Timab that a fine in the range of €41 to €44 million would be imposed on it. However, in its final decision of 20 July 2010, the Commission levied a fine of nearly €60 million on Timab.
Timab challenged the Commission’s decision before the General Court of the European Union (GCEU) in case T-456/10, claiming that the Commission had infringed its legitimate expectations regarding the amount of the fine, on the one hand, and its right not to incriminate itself, on the other. Such challenge was unsuccessful, however.