2014 marked another year of vigorous criminal antitrust enforcement in the United States, and there are no signs that this will change in the near future. The Antitrust Division of the Department of Justice (DOJ) continued to investigate and prosecute cartel activities across a wide array of high profile industries and with international reach. Notable milestones included the first ever successful extradition of an individual on antitrust charges, DOJ's win on appeal affirming the conviction of a liquid crystal display (LCD) manufacturer and two high level executives, and new judicial interpretations of the scope of the Foreign Trade Antitrust Improvements Act (FTAIA) that will allow continued enforcement by DOJ against foreign cartel participants.
I. Enforcement Against Companies
The past year saw fourteen companies fined in excess of $10 million, all in automotive parts cases.1 The Antitrust Division also has been active in investigations against companies involved in the manipulation of the London InterBank Offered Rate (LIBOR) and sister benchmark interest rates (e.g., EURIBOR). Corporate fines in the U.S. are expected to continue in this area in 2015.
Heightened Fines for Alleged Lack of Cooperation. In the auto parts investigation, the fine imposed on Bridgestone ($425 million) is significant, not only because it is the largest of 2014, but also because it reflects a heightened penalty due to Bridgestone's apparent lack of full disclosure in an earlier antitrust plea deal. In October 2011, Bridgestone pled guilty to price-fixing and other criminal charges for conduct in the marine hose industry. As part of the plea agreement, Bridgestone paid a $28 million fine. At the time, however, Bridgestone did not disclose its participation in a conspiracy to fix the prices of anti-vibration rubber parts used in automobiles. DOJ took a "hard line" against Bridgestone, considering it to be a "repeat offender" when seeking penalties for the auto parts conspiracy. The $425 million fine Bridgestone agreed to in a plea was the third highest antitrust fine ever against a corporation. A three year term of probation was also part of Bridgestone's plea deal.2
DOJ's aggressive position against Bridgestone is consistent with other recent positions in circumstances where companies allegedly fail to fully cooperate or take responsibility for criminal antitrust violations. For example, DOJ sought a record penalty against AU Optronics in 2012 following its win at trial-a $1 billion fine and 5 year probation period-in part because it said the company had refused to cooperate with the Antitrust Division's investigation and never had taken responsibility for its illegal conduct.3Ultimately, the trial court entered a fine of $500 million, which tied the largest fine ever imposed, and imposed three years of probation. This sentence was later affirmed on appeal.4
Role of Compliance Programs in Leniency. Antitrust Division officials made some notable public comments in 2014 regarding corporate enforcement policy. In September 2014, Brent Snyder, the Deputy Assistant Attorney General for Criminal Enforcement, spoke in detail about the importance of antitrust law compliance programs.5 The U.S. Sentencing Guidelines allow an effective antitrust compliance program to be a mitigating factor in determining corporate fines, but Snyder reaffirmed that the Antitrust Division "almost never recommends that companies receive credit at sentencing for a preexisting compliance program." Instead, the Division views the benefit of a robust compliance program as prevention and early detection of cartel activity, which a company can use to self-report through the Division's leniency program. Factors DOJ views as important to an effective compliance program include (i) active support from senior management; (ii) training for all executives and managers and most employees (especially those with sales and pricing responsibilities); (iii) providing a mechanism for employees to report potential or actual violations anonymously and without fear of retaliation; (iv) proactive monitoring of at-risk activities; and (v) regular auditing of the compliance program for improvements.
In a speech the following day, Bill Baer, Assistant Attorney General for the Antitrust Division, echoed many of the points Snyder made.6 Baer similarly downplayed the role that a compliance program will have in reducing a company's sentence once a violation has occurred. "The fact that the company participated in a cartel, and did not detect it until after the investigation began, makes it difficult for the company to establish that its compliance program was effective." Baer also added that a leniency applicant under the Antitrust Division's program is not immune from non-antitrust charges, but emphasized that "a leniency applicant, even if facing exposure for crimes outside the scope of the leniency policy, still benefits materially from reporting and cooperating with respect to both its antitrust and non-antitrust crimes." However, Baer cautioned that "[c]ompanies unwilling or unable to make the investments necessary [to perfect their leniency application]. . . or think they can do so on a time table of their own choosing, will lose their opportunity to qualify for leniency." Such "investments" by a leniency applicant include "conducting a thorough internal investigation, providing detailed proffers of the reported conducts, producing foreign-located documents, preparing translations, and making witnesses available for interviews."
Dealing with Culpable Employees. Baer and Snyder also made statements that the Division will not involve itself in a company's employment actions with respect to employees involved in cartel activity, but cautioned that retention of culpable employees in positions where they can repeat offenses "raises serious questions" or "doubts" about the company's commitment to effective antitrust compliance. Thus, while DOJ will not necessarily ask for termination of culpable employees, it clearly views that as an appropriate outcome.
Where it perceives a risk of recidivism, the Division will seek probation and/or the appointment of a compliance monitor. Indeed, in the case against AU Optronics, the company was required to hire a monitor to oversee implementation of a compliance program and make reports to the U.S. Probation Office. Imposition of a monitor can be a particularly burdensome penalty. It requires providing ongoing access to documents and personnel and can be highly disruptive to business operations, whereas probation involves far less invasive oversight. If culpable persons are reassigned, a company is more likely to avoid post-conviction supervision recommendations.
II. Enforcement Against Individuals
2014 also included significant developments in the prosecution and sentencing of individuals for criminal antitrust activities.
Successful Extraditions to U.S. One of the most notable developments in this area was the first ever extradition based on U.S. antitrust charges. On April 4, 2014, authorities arrested Italian national Roman Pisciotti in Germany and extradited him to face U.S. criminal charges stemming from his alleged participation in a price fixing and bid rigging conspiracy in the marine hose industry.7 Pisciotti, a former executive with the Italian company Parker ITR Srl, pled guilty on April 24 and was sentenced to two years in prison.8 The Antitrust Division had previously secured the extradition of a British citizen in 2010; however, that extradition grant was based on obstruction rather than antitrust charges, because at the time the United Kingdom did not have a criminal antitrust penalty for individuals.9
Significant Sentences for Individuals. The average prison sentence increased to approximately 29 months and individuals across several industries entered into plea agreements that involve significant jail time. In the ongoing auto parts investigation, eight executives pled guilty to price fixing and bid rigging.10 Sentences ranged from one year and one day, to 18 months.11 In another significant investigation into bid rigging and fraud at public foreclosure auctions, DOJ secured more than ten individual pleas in 2014, as well as two convictions by jury.12 In the spring, the Antitrust Division created a second criminal enforcement section, Washington Criminal II, which will initially focus on real estate auction bid rigging.13
Additional individual plea agreements were reached in the investigation of big rigging and fraud at municipal tax lien auctions in New York.14 In addition, two Rabobank employees dealing with the Japanese Yen LIBOR pled guilty for conspiring to commit wire and bank fraud to rig markets and ensure profitable trades.15
III. Developments in Treatment of Foreign Sales Under FTAIA
The Foreign Trade Antitrust Improvements Act of 1982 precludes the application of U.S. antitrust laws to anticompetitive activities outside the U.S. unless (1) the foreign conduct has a "direct, substantial, and reasonably foreseeable" effect on U.S. domestic commerce or import trade, and (2) this U.S. effect "give[s] rise" to a Sherman Act claim.16 The application of this statute to "component" sales has been an increasingly disputed area as more cartel prosecutions concern products in a supply chain involving numerous entities and countries. In situations where component parts "price fixed" outside the U.S. are sold to customers outside the U.S., the issue is whether U.S. sales of finished products incorporating such components can give rise to Sherman Act liability under the FTAIA's test. In 2014, several courts addressed this issue.
Seventh Circuit: Motorola Mobility v. AU Optronics.17 In November, the Seventh Circuit took the unusual step of revisiting and altering an earlier FTAIA decision following an amicus brief from the government. In this private damages case concerning alleged cartel conduct in the LCD panel industry, Motorola Mobility sought damages not only for direct imports into the U.S., but also for panels sold to Motorola's foreign subsidiaries and incorporated into mobile phones by the foreign subsidiary before being sold in the U.S. In March, Judge Posner writing for the panel stated "what is missing from Motorola's case is a 'direct' effect. The effect is indirect-or 'remote' . . . . The effect of component price fixing on the price of the product of which it is a component is indirect." Thus, the decision appeared to find that no price-fixed component sales outside the U.S. could ever have a direct effect under the FTAIA.
However, shortly after the March decision, the DOJ and Federal Trade Commission filed a joint brief asamici curiae urging reconsideration based on the decision's potential to undermine criminal prosecutions of foreign cartels. The government argued that "[a] price fixing conspiracy can involve import commerce even if the price-fixed product is physically imported by a third party."18 Thus, when the price-fixed LCD components increased the price of finished cell phones, there was a direct effect on U.S. commerce under the FTAIA. The government explained that any "contrary holding risks constraining the government's ability to prosecute offshore component price fixing that threatens massive harm to U.S. commerce and consumers."19
In November, the court responded by vacating the March decision in its entirety. While the panel's new decision arrived at the same ultimate conclusion-that the foreign component sales did not support an antitrust damages claim because they did not fall within the FTAIA exception-it did so on the basis of the FTAIA exception's second prong: that the plaintiffs' antitrust claims did not arise from the same domestic injury that created the direct impact under the first prong. "Motorola's foreign subsidiaries were injured in foreign commerce-in dealings with other foreign companies-and to give Motorola rights to take the place of its foreign companies and sue on their behalf under U.S. antitrust law would be an unjustified interference with the right of foreign nations to regulate their own economies."20 The court also agreed with the government that DOJ would be free to seek criminal or injunctive remedies even if there was no antitrust damages remedy available for private plaintiffs like Motorola.21 Motorola's petition for rehearing en banc was denied on January 12, 2015, though a representative of the company indicated it would seek further review of the Seventh Circuit's decision.
Ninth Circuit: Unites States v. Hui Hsiung.22 In July, the Ninth Circuit upheld the criminal conviction of AU Optronics and imposition of the substantial $500 million fine. In reaching that determination, the court considered a challenge to whether the government met its burden of proving direct domestic effect for a foreign conspiracy to fix LCD panels sold abroad and incorporated into consumer products ultimately sold in the U.S. such as monitors and laptops. The Ninth Circuit interpreted "direct" under the FTAIA to mean "follow[ing] as an immediate consequence of the defendants' activity."23 However, the court did not need to reach the "direct" effect issue, because it upheld the conviction based on the direct import sales of LCD panels into the U.S.
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While there are a number of factors involved in ultimately determining what sales are sufficiently "direct" to support antitrust liability under the FTAIA, what several cases from 2014 make clear is that courts are open to the possibility that component parts sales made abroad may meet the FTAIA's standard for direct effects such that they support liability under U.S. antitrust law, even if they do not always find that the standard is met. Furthermore, the Seventh Circuit's reaction to DOJ's arguments suggests that courts may be more favorable to finding a direct nexus to U.S. commerce in criminal prosecution cases. Companies engaged in criminal antitrust plea negotiations may continue to have an uphill battle convincing DOJ to exclude certain foreign component sales from its fine calculations in the wake of these decisions.