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THE LATEST: Another E-Commerce Retailer Pleads Guilty in DOJ Investigation of Online Promotional Products Industry

On August 14, 2017, we reported on an online retailer’s guilty plea for conspiring to fix the prices of “customized promotional products” such as silicone wristbands and lanyards, and the ongoing US Department of Justice (DOJ) investigation into the online promotional products industry. On August 22, 2017, DOJ announced two more guilty pleas in the investigation, announcing that e-commerce company Custom Wristbands Inc. and its owner and CEO Christopher Angeles had pled guilty to violating the Sherman Act, 15 USC § 1.

  • According to an Information filed in the US District Court for the Southern District of Texas by DOJ and the US Attorney’s Office for the Southern District of Texas, Defendant Angeles and his co-conspirators engaged in a conspiracy from at least as early as June 2014 through at least June 2016 to “suppress and eliminate competition by fixing and maintaining prices of customized promotional products, including wristbands, sold in the United States and elsewhere.”
  • DOJ alleges that Defendants and co-conspirators attended meetings and communicated via text and online messaging platforms regarding pricing for the online sale of customized promotional products.
  • Defendant Custom Wristbands Inc. (d/b/a Kulayful Silicone Bracelets, Kulayful.com, Speedywristbands.com, Promotionalbands.com, Wristbandcreations.com, and 1inchbracelets.com) has agreed to pay a criminal fine in the amount of $409,342. Defendant Angeles faces up to 10 years in prison and up to a $1 million fine.
  • DOJ has announced that both defendants have agreed to cooperate with the Antitrust Division’s ongoing investigation.
  • The DOJ Antitrust Division continues to investigate the “online promotional products industry” and we anticipate that additional defendants will be charged over the course of the investigation. 
  • DOJ continues to hold individual executives accountable in price fixing cases, even where their corporations plead guilty and agree to cooperate with ongoing investigations.

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THE LATEST: DOJ Price-Fixing Probe Demonstrates That Deal Risk Is Not the Only Antitrust Concern Merging Parties Should Keep in Mind

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.”
  • 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 [...]

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Former Toyoda Gosei Executive Pleads Guilty to Price-Fixing, Bid-Rigging

On January 6, 2015, Makoto Horie of Toyoda Gosei North America pled guilty to the United States Department of Justice (DOJ) for conspiring to fix the prices of automotive hoses sold to U.S. companies.  Mr. Horie was sales general manager for Toyoda Gosei in Japan.  He will serve one year and one day in a U.S. prison and pay a $20,000 criminal fine for participating in the conspiracy between March 2007 and September 2010.

Toyoda Gosei pled guilty in September 2014 to price-fixing and bid-rigging for automotive hoses, airbags and steering wheels.  Unlike Toyoda Gosei’s plea agreement, Mr. Horie’s Information did not allege any wrongdoing related to automotive airbags or steering wheels.  Including Mr. Horie and his former employer, 29 individuals and 32 companies have now admitted guilt to the DOJ.  These individuals and entities have agreed to pay over $2.4 billion in fines.

Mr. Horie’s plea agreement is subject to approval by the United States District Court for the Northern District of Ohio.

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Summary Judgment Affirmed by Sixth Circuit in Broker Commission Price-Fixing Litigation

On November 13, 2014, the Sixth Circuit Court of Appeals upheld the dismissal of price-fixing claims against two home brokerage service firms in Kentucky, McMahon Co. and HomeService of America, Inc.  Hyland, et al. v. HomeServices of America Inc., et al., case number 12-5947.  The plaintiffs, a class of Kentucky brokers, alleged that the defendants conspired to raise the price of broker commission fees in violation of Section 1 of the Sherman Act.  The plaintiffs supported their claims by alleging that public comments made by McMahon Co. regarding not cutting fees in the face of competition from internet brokers showed a unity of purpose amongst the defendants.  They also pointed to the fact that defendant companies typically set their listing commission fee at six percent.  The defendants, on the other hand, argued that the fee was not set through agreement between brokers and that commission fees could be negotiated for specific transactions.  The Western District of Kentucky granted summary judgment for the defendants, and the plaintiffs appealed.

The appellate court affirmed, determining that there was no direct evidence of an agreement and insufficient circumstantial evidence for the plaintiffs’ claims to defeat summary judgment.  Citing the Supreme Court’s precedent in Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) and the Sixth Circuit decision in Re/Max, Int’l, Inc. v. Realty One, Inc., 173 F.3d 995 (6th Cir. 1999), the Sixth Circuit explained that circumstantial evidence cannot support an inference of a conspiracy when the evidence is equally consistent with independent conduct as conspiratorial behavior.  To survive summary judgment, circumstantial evidence must tend to exclude the possibility of independent conduct.  Upon review of the record, the panel agreed with the district court that evidence, such as the fact that the defendants would deviate from the six percent commission rates through negotiations and the fact that there appeared to be no impact on the defendants’ pricing as a result of comments made at public hearings, did not exclude the possibility of independent conduct.  Because the plaintiffs’ circumstantial evidence of conspiracy was equally consistent with permissible behavior on the part of the defendants, the plaintiffs failed to support an inference of conspiracy.

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Auction Rigger Enters Guilty Plea

A thirty-seventh individual pleaded guilty to participating in a conspiracy to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California.  The guilty plea, entered on Monday, November 4, is yet another victory for the Department of Justice (DOJ) Antitrust Division in its ongoing investigations into a bid rigging and mail fraud conspiracy that took place from 2007 to 2011.

According to the DOJ, the conspirators arranged winning bidders for specific public real estate foreclosure auctions in several California counties.  After acquiring the properties at sub-competitive prices, the conspirators then conducted a second, private auction only open to members of the bid rigging ring.  The difference in the private auction price and public auction price could then be used for payoffs to the conspiracy members.  Had the public auctions been competitive and free from bid rigging, however, that same money taken by the conspiracy would have been used to pay off the mortgage, the debt holders of, and sometimes even the owners of the properties being foreclosed.

This investigation highlights the government’s increased focus on rooting out financial crimes as part of its larger economic recovery plan.  In particular, the interagency Financial Fraud Enforcement Task Force, established by President Obama in 2009, has used the “broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud” in financial markets and those hit hardest by the recession.

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NCAA Argues For Dismissal of Athletes’ Latest Antitrust Complaint

by Megan Morley

Last week, the NCAA asked the Northern District of California to throw out a suit initiated in 2009 on behalf of former and current NCAA athletes.  NCAA Student-Athlete Names & Likeness Licensing Litigation, case number 4:09-cv-01967.  The athletes claim that the NCAA, its member schools, video game creator Electronic Arts (“EA”), and the Collegiate Licensing Company (“CLC”) conspired not to compensate athletes for the use of their names, images, and likenesses in video games and television broadcasts.  Specifically, the third amended complaint alleges that the NCAA and its member schools agreed not to offer athletes licensing revenues and that EA and CLC agreed to follow the NCAA’s no compensation rule so as not to undermine the scheme.  As a result of this conspiracy, the athletes were deprived of compensation for defendants’ use of their names and likenesses and were excluded from entering the market for the licensing, use, and sale of their names and images.

In response, the NCAA moved to dismiss the action.  It told the court that in light of the Supreme Court’s opinion in NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984), the athletes cannot allege any facts that can allow the action to survive.  In that case, the Supreme Court upheld the prohibition on paying student-athletes as procompetitive because the ban preserved amateurism in collegiate sports.  Id. at 117.  In addition, the NCAA argued that its rules did not deny any rights the athletes had to license their names and likenesses in broadcast games because the law does not recognize these rights in sporting events.  The NCAA further pointed out that it did not provide any licenses to EA for use in EA’s video games.  Lastly, the NCAA disputed the former athletes’ claims that the compensation ban prevented these individual’s ability to license their names and likenesses because the amateurism rules only apply to current student-athletes.

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