In the United States, criminal fines for price-fixing may be based on 20 percent of the defendant's Volume of Commerce (VOC), potentially exceeding the statutory maximum set by the Sherman Act.
In the United States, the Department of Justice's Antitrust Division and the Federal Trade Commission are the government agencies responsible for enforcing the antitrust laws. Both the Antitrust Division and the Federal Trade Commission may handle civil antitrust cases. However, the Antitrust Division (headed by a U.S. Assistant Attorney General and five Deputy Assistant Attorneys General) is also empowered to prosecute criminal violations of the antitrust laws. This article focuses on criminal fines for price-fixing. The U.S. antitrust laws most relevant to price-fixing and to criminal fines for price-fixing are covered below.
Section 1 of the Sherman Act, 15 United States Code 1, provides that contracts, combinations, and conspiracies "in restraint of trade or commerce among the several States or with foreign nations" are prohibited. 15 U.S.C. 6a provides that the Sherman Act only applies to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations if "such conduct has a direct, substantial, and reasonably foreseeable effect (A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or (B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States". The Sherman Act thus only reaches anticompetitive conduct having a sufficient link with U.S. commerce. Under the Sherman Act, corporate defendants may be punished with a maximum fine of USD100,000,000. This statutory maximum is not absolute. Rather, it is merely the maximum provided under the Sherman Act.
Not surprisingly, the Antitrust Division may choose to enforce an alternative fine based on gain derived from gain or loss caused by the antitrust violation. 18 U.S.C. 3571, which covers criminal procedure, provides that "[i]f any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process". This alternative fine often exceeds the USD100,000,000 statutory maximum of the Sherman Act. Thus a company having business in or affecting the U.S. market would do well to have an understanding of how this alternative fine is calculated.
The first step in the calculation of the criminal fine imposed for price-fixing is determining the Volume of Commerce (VOC). The United States Sentencing Commission Guidelines Manual, the sentencing guidelines used by U.S. federal courts, states that "[for] the purpose of this guideline, the volume attributable to an individual participant in a conspiracy is the volume of commerce done by him or his principal in goods or services that were affected by the violation". However, the fine for price-fixing is not VOC itself. Rather, the fine is based on gain or loss, which is only a fraction of VOC. Section 2R1.1 of the Guidelines Manual provides that in the case of a violating organization, 20% of VOC may be used as the base fine, which is the fine before the Antitrust Division's application of aggravating factors and/or cooperation discounts. The Guidelines Manual explains the rationale behind 20% thusly:
"It is estimated that the average gain from price-fixing is 10 percent of the selling price. The loss from price-fixing exceeds the gain because, among other things, injury is inflicted upon consumers who are unable or for other reasons do not buy the product at the higher prices. [Because loss exceeds gain, 20% of VOC is to be used in lieu of the actual pecuniary loss.] The purpose for specifying a percent . . . is to avoid the time and expense that would be required for the court to determine the actual gain or loss."
Upon close inspection, one notices that the definition of VOC consists of several essential elements. The Guidelines Manual provides that "the volume of commerce attributable to an individual participant in a conspiracy is the volume of commerce done by him or his principal in goods or services that were affected by the violation". Furthermore, while U.S. commerce falls within the Sherman Act's reach, the Sherman Act applies only to foreign commerce that satisfies certain criteria. If the Antitrust division prosecutes a defendant for participating in a price-fixing conspiracy, the Antitrust Division will seek to identify which portion of defendant's total global sales may be included in VOC for calculating the company's base fine. Thus the Antitrust Division will seek to identify the portion of defendant's total sales that (1) was affected by price-fixing and that (2) has a sufficiently close relationship with U.S. commerce. Sales that do not meet these two criteria will generally be excluded from the defendant's VOC. Therefore, VOC may be viewed as the defendant's "affected" sales within the Sherman Act's jurisdiction. It is the large starting figure from which the punitive fine is carved.
There is however more complexity to matters than is apparent at first glance. U.S. courts disagree over the definition of "affected by the violation". Several cases highlight the different views held by different circuit courts. United States v. Hayter Oil Co., 51 F.3d 1265 (6th Cir. 1995) was a case reviewed by the Sixth Circuit, which has jurisdiction in Kentucky, Michigan, Ohio, and Tennessee. The Sixth Circuit supported the proposition that commerce affected by the price-fixing violation was total sales "during the period of the conspiracy, without regard to whether individual sales were made at the target price". Evidently, this reasoning is highly unfavorable to the defendant because all sales during the conspiracy period could potentially be included in VOC rather than just the portion of sales made at the conspiracy's target price. Under the Sixth Circuit's definition of VOC, if a defendant participates in a price-fixing conspiracy for one year and makes 70% of its sales at competitive prices and the remaining 30% at fixed prices, the Antitrust Division could include all of defendant's sales for that one-year period in the defendant's VOC.
United States v. SKW Metals & Alloys, Inc., 195 F.3d 83 (2d Cir. 1999) was reviewed by the Second Circuit, which has jurisdiction in Connecticut, New York, and Vermont. The Second Circuit disagreed with the Sixth Circuit's government-friendly stance and held that only sales made at prices fixed above market level could legitimately be included in VOC. Under U.S. law, a court may find a conspiracy regardless of whether the conspiracy was fully executed. Some U.S. laws require some action to have been taken in furtherance of the conspiracy, but such actions do not have to result in the completion of the conspiracy's goal. The Second Circuit thus reasoned that some price-fixing conspiracies may have been abandoned prior to actual price-fixing. Furthermore, in some price-fixing cases, "if during the course of the conspiracy there [are] intervals when the illegal [price-fixing] agreement [is] ineffectual and [has] no effect or influence on prices, then sales in those intervals are not 'affected by' the illegal [price-fixing] agreement and should be excluded from the volume of commerce". The Second Circuit therefore backs the view that sales "affected by the violation" means sales made a prices actually affected by the price-fixing scheme (i.e. prices raised above a competitive level by the scheme). This approach is of course much more favorable to the defendant than the approach of the Sixth Circuit.
The Seventh Circuit, with jurisdiction in Illinois, Indiana, and Wisconsin, reviewed the case United States v. Andreas, 216 F.3d 645 (7th Cir. 2000). The Seventh Circuit's holding was much more in accord with the Second Circuit's view than it was with the Sixth's broad (some would say excessively broad) interpretation of "affected by". The court held that sales made at prices not affected by the price-fixing scheme should not be included in VOC because including such sales would result in punishment not proportional to the magnitude of the defendant's misconduct. The reasoning is that if a defendant only makes a certain portion of its sales at the conspiracy's target prices, inclusion of sales made at unaffected, competitive prices would be unfair to the defendant. However, the Seventh Circuit allowed a rebuttable presumption that defendant's sales made during the conspiracy period have been influenced by the price-fixing conspiracy. Therefore, once the defendant presents sufficient evidence to the contrary, the burden of proof falls on the Division to show the conspiracy's influence on prices.
The process to determine a defendant's VOC does not, however, end with establishing which sales have been "affected by" the price-fixing conspiracy. The Court in a trial or the parties in plea bargaining must also determine which sales of the defendant are within the territorial or extraterritorial jurisdiction of U.S. antitrust laws. 15 USC 6a of the U.S.C. provides that not all conduct involving trade or commerce with foreign nations is beyond the reach of the Sherman Act. Many of the companies involved in large price-fixing cases operate both inside and outside the United States. As direct sales to the U.S. market are generally within the Sherman's Act's jurisdiction, the crucial question is often whether a company's sales entirely outside the United States may be included in VOC.
F. Hoffman-LaRoche Ltd. V. Empagran S.A., 542 U.S. 155 (2004) was a United States Supreme Court case in which sales were made to foreign buyers. The foreign buyers brought claims arising from foreign injury. The Supreme Court found that the sales had not resulted in any detrimental effect on U.S. commerce and thus the claims were deemed to be outside the Sherman Act's reach. The Court cited the comity principle to support its decision. Comity is the principle by which one jurisdiction respects another jurisdiction's laws with the expectation that the other jurisdiction extends the same courtesy. Thus the Court reasoned that United States law should not intrude into the jurisdiction of foreign laws protecting foreign buyers from anticompetitive behavior perpetrated largely by foreign companies.
It should be noted that the Empagran case was a civil one and did not directly address whether the United States may fine foreign companies for anticompetitive practices causing foreign injury to foreign buyers with minimal effect on U.S. commerce. However, if the Empagran case stands for the principle that the Sherman Act does not reach conduct with insubstantial effect on U.S. commerce and that applying the Act to such conduct would interfere with the antitrust enforcement of foreign nations, this principle would be equally true in the criminal context. U.S. criminal enforcement against foreign conduct with minimal effect on U.S. commerce would certainly be a discourtesy and interference from the perspective of other nations with far greater interests in punishing the conduct.
In United Phosphorus, Ltd. v. Angus Chemical Co., 131 F. Supp. 2d 1003 (N.D. Ill. 2001) and In re Intel Corp. Microprocessor Antitrust Litigation, 452 F. Supp. 2d 555 (D. Del. 2006), the district courts held that 16 U.S.C. 6a prohibits claims based on injury arising from U.S. purchase of downstream products containing components sold abroad with prices fixed outside the U.S. In the Intel case, the components were microprocessors and the products containing them were computers. The microprocessors were not sold in the U.S. but the computers were sold to U.S. consumers. For foreign commerce to be within the Sherman Act's reach, it must have "a direct, substantial, and reasonably foreseeable effect" on U.S. commerce. According to the district courts, the Sherman Act does not apply to anticompetitive conduct outside the U.S. affecting components sold outside the U.S. because such conduct does not have a sufficiently direct effect on U.S. commerce.
Determining a price-fixing defendant's VOC is the first step in the multi-step calculation of the defendant's final fine. Discounts for cooperation and upward adjustments for aggravating factors, such as serious damage to U.S. commerce or highly culpable misconduct by the defendant, are applied to 20% of VOC (the base fine). Before the application of discounts and upward adjustments, two fundamental restrictions on what sales may be included in VOC must be considered. These restrictions are represented in the language "affected by the violation" and "direct, substantial, and reasonably foreseeable effect" on U.S. commerce. When dealing with the Antitrust Division in plea bargaining or litigation, it would behoove a defendant to keep in mind these two basic limits on VOC when attempting to minimize the defendant's VOC.