E-books: Macmillan has become the latest and final major e-book publisher to resolve price-fixing allegations by the DOJ Antitrust Division (the “Division”). Also known as Holtzbrinck Publishers, the settlement will likely result in lower retail prices for e-book purchasers, just as prior settlements have lowered prices for customers purchasing e-books published by Hachette, HarperCollins, and Simon & Schuster. Macmillan also settled parallel claims brought by more than 30 state attorneys general, agreeing to pay $20 million. As a result of the publisher settlements, Apple Inc. is the only major defendant that remains in the case. Not surprisingly, the court approved a number of the previous e-book publisher settlements. It remains to be seen whether Apple will continue to contest the Division’s charges. Though Penguin’s settlement with the Division is pending court approval, the most recent reports suggest that Penguin may contest the state antitrust allegations.
Food Products: Frederick Salyer, the former CEO of SK Foods, received a harsh six-year prison sentence following his convictions for price-fixing and racketeering. Salyer was also ordered to pay nearly $3.5 million in fines. Salyer and SK Foods were accused of making cash payments in exchange for receiving contract awards, primarily for tomato products. The payments also caused purchasing agents to supply secret bid information of SK Foods’ competitors. Companies that claim to have been victimized by Salyer and SK Foods continue to squabble over court-ordered restitution.
Freight Forwarding/CargoCarriage: Two additional Japanese freight forwarders will pay roughly $19 million and plead guilty to their role in price-fixing in the air cargo industry. Yusen Logistics will pay $15.4 million, and K Line Logistics will pay $3.5 million. The pleas are part of the Division’s long-running criminal antitrust investigation of the international freight-forwarding and logistics industry. The Division was prepared to pursue charges that the forwarders fixed the price of fuel and security surcharges for cargo moving from the United States to Japan.
A former ocean cargo executive faces charges he participated in a conspiracy to fix rates and surcharges for cargo moving from the United States to Puerto Rico. The investigation previously resulted in guilty pleas and fines from Seas Star Line, Crowley Liner Services, and Horizon Lines, as well as a number of individual guilty pleas. More recently, one former ocean cargo executive was convicted of conspiring to fix prices following a jury trial in Puerto Rico.
Automotive: The Division announced that the largest antitrust investigation in its history will likely expand even more in 2013. Scott Hammond advised that the investigation will impact more executives, more companies, and a wider array of auto parts. To date, nine corporate defendants have agreed to pay over $800 million in fines in the investigation, and 12 executives have pleaded guilty.
Chemicals: Dow Chemical Co. has asked to overturn a $400 million fine imposed as a result of a jury verdict that Dow fixed prices of component chemicals used to make urethane foam. The class action lawsuit had already yielded settlements with every other defendant accused of conspiring with Dow to fix prices. Dow’s defense focused on class-related issues, and its motion to vacate the judgment claims that the evidence simply did not support the verdict. The Division previously declined to prosecute criminal antitrust violations in the urethane foam industry.
Technology: In the appeal by AU Optronics Corp. (“AUO”) and some of its executives to the Ninth Circuit Court of Appeals, a defense legal expert contended via an amicus brief that the price-fixing acts that led to the convictions occurred outside the United States and should therefore not be subject to punishment under the U.S. statutory enforcement regime under the Sherman Act. AUO has contended from the outset that the acts alleged in the indictment could not be prosecuted under the Foreign Trade Antitrust Improvements Act (“FTAIA.”). Notably, the Division dismissed its cross-appeal of the $500 million fine the court imposed following the price-fixing trial.
Microsoft received a massive $730 million fine from European Commission cartel regulators in connection with its 2009 agreement to allow a variety of internet browsers that compete with Microsoft’s Internet Explorer. The EC contends that Microsoft’s proposed solution was not actually made available to millions of Windows 7 operating system users. Microsoft will not contest the fine and indicated the failure to address a software issue resulted in the violation underlying the fine, pledging to resolve the issue with its Windows 8 OS.
Pharma/Health Care: Chinese manufacturers of vitamin C lost a civil price-fixing trial in a federal court in New York and were ordered to pay more than $160 million in fines. The jury found that the China-based companies influenced pricing by withholding product and artificially increasing demand. The jury also awarded damages of $54 million and trebled that amount, consistent with the Sherman Act. The manufacturers claimed that their government had endorsed and supported price-fixing among Chinese manufacturers.
The Division moved to dismiss its lawsuit against Blue Cross Blue Shield of Michigan over most favored nations provisions in its agreements with hospitals. Those agreements, which were allegedly anticompetitive, are now barred by a new Michigan state law that forbids most favored nations arrangements.
Real Estate: More real estate investors have pleaded guilty to participating in bid-rigging in public foreclosure auctions in California. The investors agreed with other foreclosure investors to not bid against each other, but to yield to pre-chosen parties to win particular auctions. The investors then participated in non-public auctions among each other to determine who would obtain the property, pocketing the difference between the artificially low public auction prices and the private auctions they engaged in as part of the illegal scheme. The investigation has netted nearly 30 guilty pleas by defendants involved in the bid-rigging scheme. Regulators are investigating whether similar conduct infected foreclosure auctions in neighboring counties in California.
Energy: An investigation of the energy markets by the Federal Energy Regulatory Commission (“FERC”) turned into a public battle as Barclays sought to avoid producing documents subpoenaed by FERC. FERC requested communications by Barclays traders in the energy markets, as well as documents related to Barclays energy market strategies. FERC staff previously recommended fines and disgorgement of nearly $500 million arising from an alleged price-fixing conspiracy by Barclays traders focusing on the market in the western United States.
DEVELOPMENTS REGARDING THE CRIMINAL ANTITRUST ANTI-RETALIATION ACT
Protections from civil retaliation against antitrust whistleblowers may be on the horizon. Currently, individuals who self-report antitrust violations benefit from a variety of protections but have no formal or specific remedy if they are subjected to retaliation.
On August 10, 1993, the Department of Justice’s (DOJ) Antitrust Division announced its formalized corporate leniency policy governing the provision of leniency to the first corporation reporting its illegal antitrust activity to the Division. A year to the day later, on August 10, 1994, the DOJ’s Antitrust Division announced its leniency policy for individuals. Taken together, these policies effectively establish that the first company or individual to self-report cartel activity may avoid criminal prosecution and penalties.
In 2004, Congress passed and President Bush signed into law the “Antitrust Criminal Penalty Enhancement and Reform Act” (ACPERA) to further self-reporting of antitrust violations. Among other things, ACPERA (1) increased the maximum fine for antitrust violations from $10M to $100M for corporations and from $350K to $1M for individuals, (2) increased the maximum term of incarceration from three years to 10 years, and (3) eliminated the prospect of treble damages and joint and several liability for successful leniency applicants who cooperate with civil claimants.
ACPERA was reauthorized in 2010. The reauthorization included a report provision requiring the Government Accountability Office (“GAO”) to evaluate ACPERA’s overall effect and to make recommendations regarding the appropriateness of (1) adding informant rewards (e.g. qui tam or bounty provisions), and (2) anti-retaliation protection for whistleblowers. The GAO surveyed stakeholders with respect to both questions. As a result, the GAO found that as to bounties, nine “of 21 key stakeholders stated that adding a whistleblower reward in the form of a bounty could result in greater cartel detection and deterrence, but 11 of 21 noted that such rewards could hinder DOJ’s enforcement program.” Consequently, the GAO did not recommend that Congress create bounty provisions for antitrust whistleblowers.
The July 2011 GAO report did, however, note that even in the wake of ACPERA, whistleblowers who report criminal antitrust violations lack a civil remedy if they are retaliated against (e.g. fired, demoted, suspended, involuntarily transferred or otherwise harmed in the terms and conditions of their employment). Moreover, retaliation against innocent third-party antitrust whistleblowers appeared to have occurred in some cases. Finally, “all key stakeholders who had a position on the issue (16 of 21)” of anti-retaliation protection “generally supported the addition of a civil whistleblower protection provision for those who report criminal antitrust violations[.]” Senior Antitrust Division personnel were reportedly agnostic about creating a statutory anti-retaliation remedy for such whistleblowers. Nevertheless, noting that “[a]dding a civil remedy for those who are retaliated against for reporting criminal antitrust violations could help mitigate such retaliation and increase reporting of antitrust evaluations,” the GAO suggested that “Congress may wish to consider an amendment [to ACPERA] to add a civil remedy for those who are retaliated against for reporting criminal antitrust violations.”
Three Senate Judiciary Committee members heeded the call. On July 31, 2012, Senators Leahy (D-VT), Grassley (R-IA), and then-Senator Kohl (D-WI) introduced the “Criminal Antitrust Anti-Retaliation Act.” That bill was referred to the Judiciary Committee for consideration, but nothing further transpired on the measure prior to the end of the 112th Congress. On January 22, 2013, Senators Leahy and Grassley (the chairman and ranking member of the Senate Judiciary Committee, respectively) reintroduced the Criminal Antitrust Anti-Retaliation Act. The legislation amends ACPERA by creating a new section captioned, “Anti-Retaliation Protection for Whistleblowers.” Under the proposed language, “No person, or any officer, employee, contractor, subcontractor or agent of such person, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against a whistleblower in the terms and conditions of employment” because the whistleblower provided to the person or the Federal Government information relating to violations of the antitrust laws (Sec. 216(a)). Whistleblowers who planned or initiated the antitrust violation (or attempted violation) are excluded from coverage (Sec. 216(a)(2)). Whistleblowers who allege they were discharged or discriminated against by any person in violation of the provision may seek relief by filing a complaint with the Secretary of Labor (Sec. 216(b)(A)), or, if the Secretary of Labor has not issued a final decision within 180 days, by bringing an action in an appropriate U.S. district court (Sec. 216(b)(B)). The legislation provides that successful plaintiffs are “entitled to all relief necessary to make the whistleblower whole” which can include reinstatement, back pay (with interest), and compensatory damages to include “litigation costs, expert witness fees, and reasonable attorney’s fees.” (Sec. 216(c)).
We expect Chairman Leahy will hold a hearing on the legislation this Congress and, given the bipartisan support of Ranking Member Grassley, the bill is likely to be voted out of committee. It is too early to say whether the legislation has sufficient bipartisan support to overcome a potential filibuster on the narrowly divided Senate floor.
Hannibal Kemerer contributed this article.