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.

WHAT HAPPENED

The Department of Justice Antitrust Division (DOJ) implemented new provisions in merger consent decrees that:

  • Make it easier for DOJ to prove violations of a consent decree and hold parties in contempt;
  • Allow DOJ to apply for an extension of the decree’s term if the court finds a violation; and
  • Shift DOJ’s attorneys’ fees and costs for successful enforcement onto the parties.

DOJ has implemented these provisions in four decrees to date1, and has communicated that it will require the same in future decrees.

WHAT THIS MEANS

For merger decrees, by reducing its burden of proof for decree violations, DOJ is shifting additional risk to parties for divestitures that do not go as planned. Willfulness is not a required element of civil contempt2, so the change to the burden of proof is significant. Parties will need to be sure to commit to realistic divestiture timelines and asset packages that will not present undue implementation challenges.

For non-merger decrees, settling parties will need to remain vigilant against decree violations or even the appearance of them, as the DOJ has ratcheted up its ability to obtain large settlements and civil penalties for violations.

THE CHANGES

The DOJ states that its changes are driven by the principle that antitrust enforcement is law enforcement, not regulation3. Nonetheless, the main impact of the changes is to increase the risk and potential cost on merging parties.

Preponderance Is Now Enough: Reversing the “clear and convincing evidence” standard that has been in place for civil contempt cases since at least the 1960s4, DOJ is now requiring settling parties to agree that a preponderance of the evidence will be enough for a showing of civil contempt and for an appropriate remedy. DOJ states that under the old standard, the DOJ frequently had to engage in extensive discovery when faced with a violation, giving the parties an incentive to hold out from a resolution and “exacerbate the situation.”5 Under a preponderance of the evidence standard, it will be easier for the DOJ to bring an enforcement action without conducting a full CID investigation.

Fee-Shifting Now the Norm: The DOJ now requires the shifting of fees and costs to the parties in the event a violation is proven. DOJ states that fee-shifting provisions are standard fare in many private contracts. Their use by DOJ is designed to discourage violations of consent decrees and speed resolution of disputes.

DOJ Can Request Extension of Decrees: Settling parties must now agree that in the event a court finds a violation, DOJ can request a one-time extension of the decree’s term. The extension that DOJ can request is not time-limited, and the new language does not set forth a standard for when the court should grant DOJ’s request. For decrees that involve costly monitoring and affirmative compliance, this open-ended provision may greatly raise the cost of disputing an alleged violation.

CONCLUSION

The DOJ’s new provisions shift risk and cost to settling parties in the event of a dispute over alleged violations of a decree. Merging parties may disagree about whether these changes further the administration’s deregulatory agenda. Nonetheless, the changes are here to stay, and parties are advised to proceed with appropriate caution in (1) agreeing to realistic divestiture timelines and asset packages and (2) implementing comprehensive decree compliance programs to avoid investigation for an actual or perceived violation.


  1. See Competitive Impact Statement, U.S. v Vulcan Materials Company (Dec. 22, 2017); Competitive Impact Statement, U.S. v TransDigm Group Incorporated (Dec. 21, 2017); Competitive Impact Statement, U.S. v Parker-Hannifin Corporation (Dec. 18, 2017); Plaintiff United States’ and Defendant ABI’s Joint Motion and Memorandum for Entry of Modified Proposed Final Judgment, U.S. v. Anheuser-Busch InBev SA/NV, 1:16-cv-01483 (Mar. 15, 2018).
  2. See McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949).
  3. Principal Deputy Assistant Attorney General Andrew C. Finch, Remarks to New York State Bar Association Antitrust Section, Jan. 25, 2018, available at https://www.justice.gov/opa/speech/file/1028896/download
  4. See, e.g., Schauffler ex rel. NLRB v. Local 1291, International Longshoremen’s Assoc., 292 F.2d 182 (3rd Cir. 1961).
  5. Supra note ii.

United States: July – December 2017 Update

Although delays in antitrust appointments continued throughout the second half of 2017, the Federal Trade Commission (FTC) and Department of Justice (DOJ) continued to actively investigate and challenge mergers and acquisitions. Notably, the DOJ challenged the vertical AT&T/Time Warner transaction, the first vertical merger the DOJ has tried since the 1970s. The end of 2017 showed a trend where the FTC and DOJ are focusing on structural remedies rather than behavioral remedies. Additionally, at the end of 2017, the FTC and DOJ challenged several consummated transactions, as well as transactions that were not reportable under the Hart-Scott-Rodino Antitrust Improvements Act.

European Union: July – December 2017 Update

After two concentrations within the agrochemicals sector in the second quarter of 2017 — Dow/DuPont and ChemChina/Syngenta — the European Commission continued to see megamergers notifications in the agrochemical sector in the second half of 2017. The fourth quarter of 2017 saw the second Commission merger decision challenged successfully this year and the fourth case of annulment of a clearance decision since the implementation of the EU Merger Regulation.

Snapshot of Events (Legislation/Agency Remarks/Speeches/News, etc.)

United States

  • Seats at the FTC Remain Unfilled Despite Continued Progress in the Appointment of New Antitrust Leadership

After a long wait, on September 27, the Senate confirmed Makan Delrahim, President Trump’s nominee to head DOJ’s antitrust division. The DOJ has also named several deputies to serve under Delrahim: Andrew Finch, Bernard Nigro, Luke Froeb, Donald Kempf and Roger Alford. These positions are not subject to Senate confirmation.

President Trump nominated four Commissioners for the FTC, including Joseph Simons to lead the FTC as Chairman. Joe Simons is an experienced antitrust attorney who was previously Director of the FTC’s Bureau of Competition. He has mainstream Republican views. Until the new Commissioners are confirmed, there must presently be unanimity between the two Commissioners for the FTC to take action.

  • FTC Warns That It May Challenge Vertical Mergers

Acting Bureau of Competition Director, Bruce Hoffman, gave remarks at the Global Antitrust Enforcement Symposium on September 13, 2017. He said that the FTC would be ready to challenge vertical mergers if there were competition issues to resolve. He added that the FTC may impose structural remedies in vertical mergers where it views the remedy as necessary to prevent competitive harm.

  • Senator Amy Klobuchar (D-Minn) Introduces New Legislation to Curtail Market Concentration and Enhance Antitrust Scrutiny of Mergers and Acquisitions

On September 14, 2017, two bills were introduced by Senator Amy Klobuchar to the Senate: the Consolidation Prevention and Competition PromotionAct (CPCPA) and the Merger Enforcement Improvement Act (MEIA). Both bills are part of the Senate Democrats’ “A Better Deal” antitrust agenda. The CPCPA would impose extra scrutiny on so-called “mega deals” by shifting the burden of proof from antitrust enforcers to the companies. It would also update the Clayton Act to refer to “monopsonies” in addition to “monopolies.” The MEIA would increase the resources allocated to antitrust enforcers, both in terms of substantive information and financial terms.

  • DOJ To Focus on Structural Remedies

Assistant Attorney General Makan Delrahim gave remarks at the American Bar Association Section of Antitrust Law’s Fall Forum on November 16, 2017. He announced that DOJ would seek to reduce the number of long-term consent decrees and focus on structural remedies instead of behavioral remedies.

  • Senator Elizabeth Warren (D-Mass) Criticizes Recent Antitrust Enforcement

In a speech at the Open Markets Institute on December 6, 2017, Senator Elizabeth Warren advocated steps to improve antitrust enforcement. On mergers, she stated that increased enforcement is needed not just for horizontal mergers between direct competitors, but also for vertical mergers.

European Union

  • Application of EU Merger Control Clarified: Non-Full Function Existing Joint Ventures Fall outside the Scope of EU Merger Control

On September 7, 2017, the European Court of Justice decided that, where joint control is acquired over a new or existing undertaking (or parts of an undertaking), that transaction can only fall within the scope of the EU Merger Regulation where the resulting entity will be ‘full-function.’

  • Marine Harvest Gun Jumping Fine Upheld by the General Court

On October 26, the General Court confirmed the €20 million fine imposed by the Commission on Norwegian salmon farmer Marine Harvest in 2014 for allegedly implementing its acquisition of salmon producer Morpol ASA before notifying and receiving clearance from the Commission.

While Marine Harvest had been in contact with the Commission since December 2012, it only formally notified the acquisition of Morpol ASA on 9 August 2013. The Commission held, and the General Court agreed, that the company’s merger filing obligation was triggered several months earlier, when Marine Harvest acquired a 48.5 percent controlling shareholding in Morpol ASA in December 2012.

  • EC Is Ramping Up Enforcement: Conditional Merger Clearances Doubled during Margrethe Vestager’s First Three Years

Since the start of Vestager’s tenure on November 1, 2014, the Commission cleared a total of 70 deals subject to commitments, whereas between February 2010 and February 2013 — Joaquin Almunia’s first three years in the Commission — 34 deals were approved conditionally. Vestager sought remedies in 6.8 percent of cases, while Almunia only required them in 3.9 percent.

In 2014–2017, 55 conditional clearances were granted in Phase I, while 15 were Phase II cases. Between 2010 and 2013 there were 25 Phase I conditional clearances and 9 Phase II, according to data from the EC’s merger database.

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?

At the one year anniversary of the Trump administration, antitrust merger enforcement remains similar to the Obama administration, but it is still early to judge given the delays in antitrust appointments and given the DOJ’s lawsuit against the vertical AT&T/Time Warner transaction, the first vertical merger litigation in decades.  Below are some of the recent developments that have impacted merger enforcement by the Federal Trade Commission (FTC) and Antitrust Division of the US Department of Justice (DOJ), as well as European regulators.

Continue Reading.

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.

WHAT HAPPENED:

  • On Thursday, November 16, 2017, newly confirmed Assistant Attorney General for Antitrust Makan Delrahim, speaking at the American Bar Association Section of Antitrust Law’s Fall Forum, explained where antitrust enforcement fits in the broader Trump administration effort to reduce federal regulations.
  • Delrahim remarked that “antitrust is law enforcement, it’s not regulation.” Antitrust enforcement “supports reducing regulation, by encouraging competitive markets that, as a result, require less government intervention.” Delrahim explained that “[v]igorous antitrust enforcement plays an important role in building a less regulated economy in which innovation and business can thrive, and ultimately the American consumer can benefit.” As a result, the government can minimize regulation related to price, quality, and investment.
  • Delrahim announced that the Antitrust Division of the US Department of Justice (DOJ) would seek to reduce the number of long-term consent decrees and “return to the preferred focus on structural relief to remedy mergers that violate the law,” thereby limiting the use of behavioral remedies in consent decrees particularly in vertical transactions, where such remedies have historically been common. According to Delrahim, “a behavioral remedy supplants competition with regulation; it replaces disaggregated decision making with central planning.” Delrahim also expressed concern that behavioral remedies simply delay the exercise of otherwise anticompetitive market power.
  • Mentioning by name several consent decrees in vertical transactions containing behavioral provisions in merger cases brought by the Obama administration, Delrahim expressed concern that these remedies “entangle the [Antitrust] Division and the courts in the operation of a market on an on-going basis.” Delrahim cautioned that the lack of enforceability and reliability of behavioral remedies diminish the effectiveness of antitrust enforcement, a risk that consumers should not have to bear.

WHAT THIS MEANS:

  • Delrahim’s stance on behavioral remedies starkly contrasts with previous DOJ policies, followed under both Democratic and Republican administrations. Prior administrations strongly preferred structural remedies, but recognized that behavioral remedies could be appropriate particularly for vertical transactions that presented pro-competitive benefits. The DOJ’s most recent policy paper on remedies (issued by the Obama administration) exemplifies this view, stating: “conduct remedies often can effectively address anticompetitive issues raised by vertical mergers.”
  • Despite the new administration’s disfavored view of behavioral remedies for a vertical merger, such remedies are not off the table. To secure a DOJ consent decree with behavioral remedies for a vertical merger, parties will likely have to show that the transaction “generates significant efficiencies that cannot be achieved without the merger or through a structural remedy.” Delrahim unambiguously stated that this is “a high standard to meet.”
  • Delrahim’s speech appeared aimed at several high profile vertical transactions that are currently under review by the DOJ, likely seeking to explain why the DOJ will insist on structural remedies in transactions where most outside observers thought a behavioral remedy may suffice.
  • It is possible that Joe Simons, President Trump’s unconfirmed appointee for Chairman of the Federal Trade Commission, may take a differing stance on behavioral remedies, following prior policy statements. This could result in a slight difference in policies between the Federal Trade Commission and the DOJ in merger enforcement.

WHAT HAPPENED

  • On December 1, 2016 Parker-Hannifin agreed to acquire Clarcor for $4.3 billion.
  • The merger agreement included a $200 million divestiture cap – that is, Parker-Hannifin was required, if necessary, to divest assets representing up to $200 million in net sales to obtain antitrust clearance.
  • The initial antitrust waiting period under the Hart-Scott-Rodino Act (HSR Act) expired on January 17, 2017.
  • Parker-Hannifin completed the acquisition on February 28, 2017.
  • Nearly seven months later on September 26, 2017, the DOJ filed suit in US District Court for the District of Delaware seeking to require Parker-Hannifin to divest either its or Clarcor’s aviation fuel filtration assets.
  • The DOJ did not include in its complaint an allegation or statement that the parties increased prices.
  • The DOJ press release indicates that the parties “failed to provide significant document or data productions in response to the department’s requests.” We believe that this refers to the DOJ’s post-closing investigation.
  • The DOJ did not suggest in its complaint or the press release that the parties failed to provide required documentation under the HSR Act (e.g., Item 4 documents). During the initial 30-day HSR waiting period, the parties are under no obligation to submit documentation or data to DOJ or FTC requests – all responses are voluntary.

WHAT THIS MEANS

  • Challenges to transactions after the HSR waiting period expired are rare and typically involve a situation where the parties failed to supply required documentation under the HSR Act.
  • Challenges post-HSR clearance are even rarer when the parties complied with their obligations under the HSR Act and supplied all required documentation (e.g., Item 4 documents).
  • The DOJ’s post-HSR clearance action demonstrates that the DOJ may still challenge a transaction post-closing if it later discovers a niche problematic overlap that it did not discover during the initial HSR waiting period.
  • While this challenge may be an aberration, it raises additional considerations when drafting risk allocation provisions in merger agreements for HSR reportable transactions because merger agreements do not typically account for a post-HSR clearance challenge from the DOJ or FTC.
  • DOJ action in this matter suggests the Trump administration is unlikely to be lax in its merger enforcement and will continue to analyze competition in narrow markets.

On September 14, 2017, Senator Amy Klobuchar (D-MN), introduced new legislation to curtail market concentration and enhance antitrust scrutiny of mergers and acquisitions. As the Ranking Member of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights, Klobuchar is the leading Senate Democrat for antitrust issues.

Two bills were submitted to the Senate: the Consolidation Prevention and Competition Promotion Act (CPCPA) and the Merger Enforcement Improvement Act (MEIA). The CPCPA is co-sponsored by Senators Kirsten Gillibrand (D-NY), Richard Blumenthal (D-CT) and Ed Markey (D-MA). The MEIA is co-sponsored by Senators Blumenthal, Markey and Gillibrand, along with Senators Patrick Leahy (D-VT), Al Franken (D-MN), Cory Booker (D-NJ), Dick Durbin (D-IL), Mazie Hirono (D-HI) and Tammy Baldwin (D-WI). Both bills propose amendments to the Clayton Act. Earlier this year, Senate democrats announced these legislative proposals as part of their “A Better Deal” antitrust agenda.

WHAT DO THE BILLS PROPOSE:

  • Notably, the CPCPA proposes to revise the Clayton Act so that in challenging an acquisition, the Federal Trade Commission (FTC) and Department of Justice (DOJ) would only have to show that the proposed transaction materially lessens competition rather than significantly lessens competition, which is the current standard. The legislation defines “materially lessens competition” to mean “more than a de minimis amount.” This change would reduce the burden of proof for the government in challenging an acquisition.

Continue Reading Senate Democrats Push for Tougher Merger Enforcement

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.