Quarterly Cartel Catch-Up: Recent Developments In Criminal Antitrust For Busy Corporate Counsel - 2nd Quarter 2020

Morrison & Foerster LLP

Throughout the first half of 2020, much of the world has grappled with the reality of the coronavirus (COVID-19) pandemic, as the outbreak spread rapidly across entire countries and shut down large segments of the global economy. Like so many other facets of life disrupted by the pandemic, antitrust enforcers around the globe have been forced to adjust and respond to the crisis.  Entire agencies moved to remote working environments, attending meetings, interviews, depositions, and even court hearings by video.  Enforcers issued guidance and implemented review procedures intended to facilitate legitimate cooperation among competitors aimed at combating the outbreak. At the same time, the U.S. Department of Justice (DOJ), the Competition Bureau of Canada, and other enforcers have repeatedly warned that they are on the lookout for anticompetitive conduct relating to the pandemic. We anticipate future investigations stemming from anticompetitive conduct during the pandemic.

In the meantime, enforcers have been (virtually) active in a number of industries in recent months. Below, we summarize significant cartel enforcement and policy developments in the United States and around the globe, including the permanent reauthorization of Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA) – a key incentive for leniency applicants, the first charges in the DOJ Antitrust Division’s investigation into the broiler chicken industry, further developments from the sprawling generics investigation, a recent resolution from the Division’s probe into cancer treatment centers, a lengthy sentence for the former CEO of Bumble Bee Tuna following his conviction for price fixing, and updates from the Competition and Markets Authority’s investigation of collusion in the British construction industry. These updates and more are in this latest edition of the Quarterly Cartel Catch-Up.

ACPERA on the Path Toward Permanent Reauthorization

Key Point: Statutory benefits for leniency applicants in private litigation move toward permanence, but uncertainty about ACPERA’s cooperation obligations remain

On June 25, 2020, the House and Senate passed identical bills to permanently reauthorize ACPERA. The law, which lapsed on June 22, incentivizes companies to apply for leniency by affording them the opportunity to limit their liability in follow-on private litigation.

Under the Division’s leniency program, applicants can avoid criminal prosecution by self‑reporting and cooperating with the Division’s investigation. Enacted in 2004, ACPERA creates incentives for leniency applicants in private litigation. It limits an applicant’s liability to the actual damages attributed to the applicant’s own collusive conduct (i.e., no treble damages and no joint and several liability). To qualify for these benefits, an applicant must provide “satisfactory cooperation”[1] to the plaintiffs. AAG Makan Delrahim lauded Congress for its “recognition of ACPERA’s importance in the fight to safeguard our free markets and protect American consumers from collusion.” Once signed into law, the reauthorization will preserve what many view as a key tool to incentivize self-disclosure, which is particularly important in light of waning criminal enforcement in recent years

However, the reauthorization leaves open the perceived shortcomings of the statute, many of which were raised at a roundtable on ACPERA hosted by the Division last year. For example, ACPERA provides no guidance on the timing and level of cooperation required to receive benefits. In addition, a company does not learn until after a judgment has been entered whether it will receive ACPERA benefits, which allows for lingering uncertainty while the litigation plays out. Until future legislation is passed, companies will need to continue to weigh ACPERA’s benefits and burdens in determining whether to apply for leniency.

First Executives Indicted for Price-Fixing in Division’s Ongoing Investigation into Broiler Chickens

Key Point: The Division’s investigation into the broiler chicken industry produces its first criminal charges.

On June 3, 2020, the Division announced that a federal grand jury in Denver had returned an indictment charging four executives in the poultry-processing industry for their role in a conspiracy to fix prices and rig bids for broiler chickens. The indictment accuses senior executives of Colorado-based Pilgrim’s Pride and Georgia-based Claxton Poultry Farms with coordinating to fix the wholesale prices of chicken sold to distribution centers and fast-food restaurants from 2012 through at least 2015 by submitting bids at elevated prices. To date, neither company has been charged. 

The indictment is the first from the Division’s ongoing investigation into anticompetitive conduct in the poultry industry.  The investigation was preceded by a class action suit, still pending in the Northern District of Illinois. The Division revealed its investigation in June of 2019 when it moved to intervene in the class action and sought a partial discovery stay. 

The Division’s investigation is just the latest probe focusing on food industries – dating back to the Division’s packaged seafood investigation – and comes at a time when consumers are facing potential food shortages in the wake of the coronavirus pandemic. Indeed, just weeks after an April 2020 executive order deemed the meat and poultry processing industries critical during the pandemic, the Division launched investigations into the beef and pork industries for potential anticompetitive practices. As the country continues to reel from the pandemic, expect enforcers to continue to police critical industries for collusive behavior.

Additional Pharmaceutical Companies Charged with Price Fixing in Division’s Ongoing Generic Drug Investigation

Key Point: Recent developments show the Division’s investigation into generic drugs is coming to a head.

The second quarter of 2020 included several new charges in the Division’s long-running investigation into the generics industry. On May 7, 2020, the Division announced a one‑count felony charge against generic drug company Apotex Corp., accusing Apotex of reaching agreements with competitors to increase and maintain the price of the cholesterol medication pravastatin. The Division simultaneously announced it had entered into a deferred prosecution agreement (DPA) to resolve the charge. According to the Information, between 2013 through 2015, Apotex communicated with other generic drug companies about price increases for pravastatin and refrained from submitting competitive bids to other competitors’ customers. Under the terms of the DPA, Apotex has agreed to pay a $24.1 million criminal penalty and cooperate with the Division’s ongoing investigation.

More recently, on June 30, 2020, the Division announced that it was charging Glenmark Pharmaceuticals Inc., USA with conspiring with Apotex and Teva Pharmaceuticals to increase and maintain the prices of pravastatin and other generic drugs. According to the Information, the loss to consumers and/or the gain to the conspirators was at least $200 million.  Glenmark has denied the charges. Teva was not included in the Information and has not been charged to date, despite reports that the company ended settlement discussions with the Division in May 2020.

These latest developments highlight that the Division is making significant headway in its investigation. Apotex is the third company to enter into a DPA related to the investigation this year alone, and Glenmark is the fifth company charged in the investigation. And it does not appear that the probe is ending anytime soon. To the contrary, in recent press releases, officials have attempted to amplify the significance of the Division’s ongoing investigation in light of the current pandemic, noting that it is more important than ever for pharmaceutical companies to prioritize consumer well‑being.

Division Enters into Deferred Prosecution Agreement with Florida Cancer Center over Customer Allocation in Oncology Industry

Key Point: The resolution highlights the Division’s commitment to investigating collusion in the healthcare industry while recognizing the potential collateral impact of enforcement efforts.

On April 30, 2020, the Division entered into a DPA with Florida Cancer Specialists & Research Institute, LLC (FCS). FCS, one of the largest oncology and hematology medical practices in the United States, admitted to participating in a conspiracy to allocate chemotherapy and radiation treatments in Southwest Florida for almost two decades. As part of the conspiracy, FCS agreed not to compete for radiation treatments in Southwest Florida, while its co-conspirator agreed not to compete for chemotherapy treatments.

Under the DPA, FCS agreed to pay the statutory maximum criminal penalty of $100 million and cooperate with the Division in its ongoing investigation into anticompetitive practices in the oncology industry. The Division also required FCS to pay over $20 million in disgorgement of profits and implement an antitrust compliance program. In addition, the DPA provides for a waiver of any non-compete provisions with FCS employees, including oncologists, in order to foster additional oncology treatment competition in Southwest Florida. Under new leadership, FCS must abide by the agreement through 2023 to avoid prosecution.

The Division’s use of a DPA to settle antitrust violations in this case and in the generics investigation are part of a recent trend that breaks from the Division’s historical aversion to this type of resolution. In announcing the DPA, the Division explained that its use was motivated by the significant effect a criminal conviction would have on medical research and cancer patients, given the potential five‑year healthcare program ban by the Department of Health & Human Sciences.  Thus, while the Division’s efforts send a clear message about ongoing cartel enforcement in the healthcare industry, they also reflect an increasing willingness to consider the potential negative side effects of resolving criminal violations. We will see whether this trend extends to other industries.

Former Bumble Bee CEO Sentenced in Canned Tuna Price Fixing Investigation as State Attorney General Files Civil Suit

Key Point: Executive’s sentence is nearly double the average length of imprisonment for antitrust violations.

On June 16, 2020, Judge Edward Chen of the Northern District of California sentenced Christopher Lischewski, the former President and Chief Executive Officer of Bumble Bee Foods, LLC, to 40 months’ imprisonment and imposed a $100,000 fine for Lischewski’s lead role in fixing the prices of canned tuna sold in the United States. The sentencing follows multiple failed efforts by Lischewski to overturn his conviction after his four-week trial ended in December 2019.  Jurors took only a few hours to deliberate before returning a guilty verdict. Lischewski has since filed a notice of appeal. 

Judge Chen declined to impose the Division’s recommendation of an eight- to 10‑year sentence (the statutory maximum), despite finding that the Division had demonstrated that the conspiracy impacted more than $1 billion worth of commerce, due to Lischewski’s past lack of criminal history and the nature of the crime. However, Judge Chen also rejected Lischewski’s request for a sentence of one-year home confinement, which Lischewski claimed was necessary because of the coronavirus outbreak. In imposing Lischewski’s sentence, Judge Chen explained that, “[w]hen it comes to food – especially a low-cost staple – the impact on those who can least afford it is something that contributes to the circumstances of this offence and the need for just punishment.”

Enforcement efforts stemming from the tuna conspiracy are ongoing.  On June 2, 2020, Washington’s Attorney General filed a civil lawsuit against StarKist and Lischewski for their participation in a price-fixing conspiracy from 2004 to 2015, which purportedly cost Washington residents at least $6 million. In announcing the civil lawsuit, Ferguson said, “Washingtonians lost millions as a result of this corporate greed. I intend to get that back for them.”

Division Continues Increased Focus on Procurement Collusion, Presents Strike Force to International Enforcers

Key Point: The Division has heightened scrutiny of anticompetitive conduct in the public procurement space in the first half of 2020.

On April 8, 2020, the Division announced that South Korea-based fuel supply company Jier Shin Korea Co. Ltd., and its president, Sang Joo Lee, agreed to pay $2 million to resolve civil antitrust and False Claims Act violations for their involvement in a bid‑rigging conspiracy that targeted contracts to supply fuel to U.S. military bases in South Korea. This resolution marks the conclusion of the Division’s investigation, in conjunction with the Civil Division, which previously resulted in settlements with six additional fuel suppliers.  The settlements have totaled over $205 million in civil penalties and an additional $150 million in criminal fines. In each case, the Division relied on Section 4A of the Clayton Act, which permits the government to recover treble civil damages when it is the victim of a violation of the antitrust laws.

The Division’s increased reliance on Section 4A is part of a broader focus on collusion in government contracting, which led to the creation of a Procurement Collusion Strike Force (PCSF) in November of 2019. On June 16, 2020, AAG Makan Delrahim presented on the PCSF at a meeting of the Organization for Economic Cooperation and Development’s (OECD’s) Competition Committee, which brought together enforcers from over 38 countries and seeks to promote cooperation and best practices on competition issues. Delrahim explained that the PCSF serves as an important tool in facilitating cooperation across multiple federal and state law enforcement agencies and has already shown signs of success, including several open grand jury investigations. Delrahim also expressed hope that the PCSF could serve as a model to other competition authorities seeking to fight more effectively bid rigging and other anticompetitive conduct in government contracting. We will continue to monitor developments from the PCSF and any future international counterparts, including efforts related to anticompetitive conduct resulting from the COVID-19 pandemic.

Roofing Material Suppliers Agree to Fines Totaling Over £11 Million for Collusion in British Construction Industry

Key Point: The United Kingdom’s two largest rolled lead suppliers admit to participating in a series of anticompetitive arrangements while the country’s antitrust enforcer continues to probe domestic construction industry.

On June 12, 2020, the Competition and Markets Authority (CMA) announced that the two largest players in the market for rolled lead – a material used primarily for roofing – admitted to engaging in anticompetitive practices following an investigation that began in 2017. In March 2019, the CMA had provisionally found that Associated Lead Mills Ltd. (“Associated”), H.J. Enthoven Ltd. (trading as “BLM British”), and Calder Industrial Materials Ltd. (“Calder”) colluded to share the market. Together, they account for 90% of rolled lead supplies in the United Kingdom.  

Associated and BLM British admitted liability soon after the CMA issued a supplementary statement of objections alleging four separate arrangements that violated competition law, including (i) market sharing and customer allocation, (ii) price collusion, (iii) exchange of commercially sensitive price information, and (iv) refusal to supply a new business that threatened to disrupt existing arrangements and customer relationships.  The allegations against Calder, which has not admitted liability, are limited to the concerted refusal to supply. 

Associated and BLM British have agreed to pay fines of over £11 million for their roles in the conspiracy, although the exact amount will be determined after the CMA considers the parties’ representations, following a formal and final decision. The CMA will provide a further update by the end of October 2020. Since 2016, the CMA has launched a series of investigations into the country’s construction industry, including ongoing probes into the provision of construction services and groundworks products.

Japan’s Revamped Whistleblower Protection Act to Provide Greater Protections to Potential Whistleblowers

Key Point: Companies operating in Japan should take a close look at their antitrust compliance programs to ensure conformity with the new whistleblower protection law.

On June 8, 2020, Japan’s Parliament passed an important amendment to the Whistleblower Protection Act (the “Act”).  The Act applies to reports of corporate misconduct, including competition law violations, but has long been criticized as “toothless” and insufficient to protect whistleblowers adequately.

For example, under the pre-amendment version of the Act:

  • Companies were not required to establish an internal reporting system;
  • Whistleblowers could be held liable for damages caused by reporting;
  • Only reporting relating to criminal conduct was protected;
  • Only current (i.e., not former) employees were protected;
  • The onus was on whistleblowers to provide reasonable grounds for their belief that corporate misconduct had occurred or was about to occur; and
  • There were no measures to punish companies that retaliated against whistleblowers.

Given these shortcomings, and in light of mounting pressure from the OECD, in 2018 Japan’s Consumer Affairs Agency tasked an expert panel with recommending potential reforms.  Based on these recommendations, the new amendments seek to address many of the criticisms leveled at the earlier version of the Act.  Now, for example:

  • All businesses, with some exceptions for small enterprises, are now required to introduce an internal reporting mechanism;
  • Whistleblowers are exempt from civil liability for damages caused by their reporting;
  • Reports of conduct subject to administrative – not just criminal – punishment are covered;
  • Executives, auditors, and former employees are protected for up to a year after leaving a company;
  • Whistleblowers need only provide their name and a description of the alleged misconduct; and
  • Companies face stiffer penalties for engaging in retaliation, including fines of up to JPY 300,000 (USD $2,800) for failing to keep whistleblowers’ identities confidential and other administrative penalties.

The amended Act provides greater protections to whistleblowers across the board, makes it easier for whistleblowers to report to administrative agencies and news organizations, and imposes obligations on companies to establish a reporting mechanism. In light of these new requirements, as well as recent amendments to Japan’s antitrust leniency program and the introduction of a quasi-attorney-client privilege, companies operating in Japan should consider updating their antitrust compliance program.

*Morrison & Foerster associates Eric Olson and Robin Smith assisted in the preparation of this edition

[1] Under ACPERA, cooperation includes providing a full account to the claimant of all relevant facts, furnishing all information in the applicant’s control, and providing interviews, testimony, or depositions in the case of a cooperating individual. See Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, § 213(b), 118 Stat. 661 (2004).

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Morrison & Foerster LLP

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