Bill Baer assumed his post as leader of the U.S. Department of Justice (DOJ) Antitrust Division in January of this year and is starting to make his mark. In April, he announced a major policy shift on employee carve-outs from corporate plea agreements and released the division’s annual update, each of which we discuss below.
One important theme of Baer’s annual update is budget constraints. The update’s release coincided with the DOJ budget request to Congress for 2014, which plans for 29 fewer full-time employees at the division in 2014 than were at work in 2012 (and which eliminates 50 other nominal positions long held vacant due to a lack of funding). It is not at all clear that a division with four fewer field offices in 2013, sequestration now in effect, and dozens fewer employees will continue the record-breaking enforcement numbers of the last few years. Even now, some of the eye-catching numbers in the division’s enforcement record arise from just a few circumstances, and reflect a focus on the deterrence of others through well-publicized individual sentences or corporate fines that are increasingly severe.
Reform Regarding Corporate Plea Agreement Carve-Outs
After years of complaints from the defense bar, Baer announced on April 12 that the Antitrust Division would change its practices in carving out individual employees from corporate plea agreements. The two-pronged policy change now aligns the Antitrust Division with the rest of the DOJ, and will reduce unfounded repercussions for employees:
First, the Antitrust Division will no longer carve out employees for reasons "unrelated to culpability." Previously, employees with potentially relevant information who could not be located or who refused to cooperate, for whatever reason, were routinely carved out. Baer’s statement announcing the policy change noted that in the past "employees against whom the division was still developing evidence" were also often carved out. Only experience under the new policy on individual carve-outs will reveal whether that category truly disappears, or whether those individuals will simply be swept into the category of carve outs related to the division’s beliefs about culpability. To the extent that the division truly attempts to abolish the category of those employees "against whom the division [is] still developing evidence," that may delay the finalization of corporate pleas and carve-outs.
Second, and even more importantly, the Antitrust Division will not include the names of carved-out employees in the corporate plea agreement itself. Those names will be listed in a separate appendix that the division will ask the relevant court to file under seal. This will end the prior, oft-criticized practice of publicly identifying uncharged individuals. For targeted individuals, the division will need to take further steps, with all attendant procedural protections, before any names are publicly revealed. This positive development for individuals, however, also removes an information source commonly used in the past by companies other than the corporation taking the plea to divine the nature of the division’s investigation and its theories in a particular industry.
The end of public identification of carved-out individuals, and the reduced scope of carve-outs, also removes a tool in the division’s arsenal to pressure individuals to cooperate. Baer concluded his statement on the carve-out policy changes with a warning that the division nonetheless "will continue to demand the full cooperation of anyone who seeks to benefit from the non-prosecution protection of a corporate plea agreement, and will revoke that protection for anyone who does not fully and truthfully cooperate with division investigations."
2012 Enforcement Trends
Baer’s annual update and the DOJ’s recent budget submission to Congress together provide a good portrait of the Antitrust Division’s enforcement trends. The division is touting high criminal fines and sentences at the same time as the absolute number of investigations and indictments ticks downward.
Fiscal year 2012 stands out most, for example, for the Antitrust Division’s record-breaking $1.14 billion criminal fine total. Baer repeatedly highlights this number in his update. Looking behind that number, however, one sees that the record is largely attributable to two huge fines: in January 2012, Yazaki Corp. paid a $470 million fine for auto parts price fixing, and in September 2012, AU Optronics Corp. paid a $500 million fine for price fixing in the liquid crystal display panel industry. The $500 million fine matches the largest ever imposed on a company for violating the U.S. antitrust laws, and the $470 million fine is the third-largest ever.
Moreover, just 16 corporations were criminally charged by the division for antitrust violations in 2012, compared with 35 corporations that were sentenced in that same year. Similarly, there were only 87 active grand juries in 2012, versus over 140 active grand juries each year for the six years prior to that. The division’s target for 2013 and 2014 is just 75 active grand juries each year.
On the individual defendant side, the number of individuals charged has remained relatively steady over the last few years. But division prosecutions have sent a higher percentage of individual defendants to prison and the average prison sentence has also increased. During fiscal year 2012, 78 percent of the individuals sentenced in division cases went to prison, for an average sentence of almost 25 months. In the 1990s, those numbers were just 37 percent and 8 months. For 2000-2009, the numbers were 62 percent and 20 months.
Individuals’ convictions, with lengthy incarceration, remain a high priority because the division believes that "[h]olding culpable individuals accountable is the most effective way to deter and punish cartel activity." The 2013 update also emphasizes – just as the 2012 update did – that "[t]he division remains committed to ensuring that culpable foreign nationals, just like U.S. co-conspirators, serve prison sentences for violating the U.S. antitrust laws." The 2013 update makes special mention of two Taiwanese defendants sentenced to 36 months and two Japanese defendants sentenced to 24 months in price-fixing matters.
In the budget requests sent to Congress, the division’s civil enforcement side also claims an eye-popping number for 2012: an estimated $8.965 billion in savings to consumers. For each of the prior six years, the estimate of consumer savings had been under $2 billion. That estimate comes with numerous caveats, however, regarding its imprecision and its relation to the size of the industries that happen to have been targeted in any particular year.
If one looks at the number of active civil investigations in 2012 instead, the division’s tally is down slightly. There were 46 active civil non-merger investigations in 2012, compared with 50-73 in each of the six prior years. The division opened preliminary inquiries in 74 merger matters in 2012, down from 90 the prior year. The fewer preliminary inquiries occurred despite the fact that in 2012 and 2011 the number of Hart-Scott-Rodino premerger notifications remained virtually the same. The division has continued to litigate a handful of civil cases each year, and at one point in 2012 had an unprecedented seven in active litigation at once.
How Will Federal Budget Limits Affect Future Enforcement?
In the division’s budget requests, it highlights various challenges that continue to stretch its abilities: expanding globalization, increasing economic concentration across industries, rapid technological change, and the substantial involvement of governments in business enterprises. These forces lead to "increasingly complex, large, and international" matters at the division, and also create great pressure on the division’s information technology, litigation support, and communication resources.
In addition, the division notes that merger volume and Hart-Scott-Rodino premerger notifications are increasing in 2013 and also are expected to exceed 2012 levels again in 2014. This expanding number of notifications will come to a civil staff within the division that is bearing the brunt of the full-time employee cuts.
Thus, budget constraints plus developing enforcement trends all predict increasingly concentrated enforcement, with the division focusing on a narrowing range of corporations or proposed mergers. Domestic and foreign individuals remain in its cross-hairs, as the division uses serious individual punishment to attempt to deter other decision-makers from anti-competition actions. Thanks to the new division policy, though, the names of individual enforcement targets now will not become public unless and until they are formally charged.