ParfumGigi@aol.com

25 janvier, 2008 16:51

David T. Blonder

Special to Law.com

January 25, 2008

A former president of a Fortune 100 company once said, "Our competitors are our friends. Our customers are the enemy Those statements, along with the conduct of his company's executives, ultimately led to blatant violations of U.S. antitrust law, a guilty plea and a staggering criminal fine against the company, as well as other criminal convictions.

When competitors collude and make secret agreements among themselves to engage in cartel activity to fix prices, allocate markets and restrict production output, these are the most egregious violations of competition law, often called "per se" or "hard-core" violations of antitrust law. The U.S. Supreme Court, in its recent Trinko decision, described this type of collusive behavior as "the supreme evil of antitrust." Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S. 398, 408 (2004).

Global competition authorities are vigilant in prosecuting cartels, routinely cooperating and coordinating enforcement efforts across borders. In nearly every jurisdiction that has enacted general competition legislation, a specific anti-cartel law is usually present, providing for enhanced civil penalties and, increasingly, added criminal liability for corporate executives who violate the law.

Most criminal antitrust prosecutions that arise out of regulatory investigations involve collusive price fixing, bid rigging or market division or allocation schemes. Section 1 of the Sherman Act covers these offenses in the United States. In the European Union, Article 81 of the EC Treaty applies, and in many other countries, national competition laws specifically prohibit similar anti-competitive conduct.

Price fixing. Price fixing can take many forms. Examples include:

Establishing and adhering to price discounts;

Maintaining prices;

Adopting and adhering to standard pricing formulas to compute prices charged to customers; and

Maintaining price differentials between different types or quantities of products.

It is natural for competitors to discuss common concerns including price. However, while a mere discussion of price alone may not be an antitrust violation, an agreement reached to increase, depress or stabilize prices will violate the antitrust laws.

Bid rigging. Bid rigging is often the mechanism antitrust conspirators use to raise prices, where purchasers, often government purchasers, acquire goods or services through the solicitation of competitive bids.

Bid rigging can take many forms. For instance, competitors often will agree in advance on which conspirator will submit the winning bid, refrain from bidding or withdraw a bid to a competitive bid, submit a complementary or "cover" bid to give the appearance of a genuine competitive bid or rotate or take turns to become the low bidder. All of these schemes constitute an agreement among some or all of the bidding participants to predetermine the winning bidder and to restrict or even eliminate competitive bidding alternatives for the customer.

Market division and allocation. Market division and allocation schemes are agreements in which competitors agree to divide markets among themselves. Competitors can allocate specific types of customers, products or geographic territories or any combination thereof. An example of this is when one competitor will be allowed to sell to certain customers or participate in specific bidding opportunities in a particular geographic area or customer segment. In return, he or she will agree not to sell to other customers or will forego certain bidding opportunities, allowing the other conspirator to compete for the business.

What is important to know is that these agreements "not to compete" can be formal written or oral agreements, "gentlemen's agreements" or tacit understandings. All, however, are violations.

When antitrust violations are discovered and prosecuted, the consequences can be severe. In the United States, violation of the Sherman Act can result in fines of up to $100 million for each criminal offense by a corporation and of up to $1 million for each individual convicted of an antitrust offense. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

But that's not all. State antitrust authorities also seek to prosecute violations and have exacted substantial additional fines, and private antitrust litigation almost always follows.

In the European Union, fines of up to 10 percent of a company's worldwide annual sales may be imposed. More than 100 countries now have antitrust laws, and most of them provide for significant fines for antitrust violations.

Aside from financial penalties, legal costs and the potential for trebled damages, other costs exist, some of which cannot be quantified in financial terms. In the United States, the maximum Sherman Act jail sentence is 10 years. Many other countries have already introduced or are now starting to introduce criminal penalties for serious cartel conduct.

From the company's perspective, a violation of antitrust laws means a lot more than harsh civil penalties. Defense costs can be quite expensive. Antitrust violations also generate adverse publicity for the company with its customers and negatively impact other relationships, such as those with investors or lenders.

A sampling of U.S. and EU anti-cartel cases and settlements from 2007 illustrates that regulatory anti-cartel investigations are alive and well. Prosecuting cartel offenses and deterring their formation continues to be a high priority among competition enforcement agencies. As the economy is predicted to worsen, the number of prosecutions is likely to be on the upswing.

Dunlop Oil & Marine Ltd., (Dec. 3. 2007). In December 2007, three U.K. nationals, an independent consultant and two executives of Dunlop (a manufacturer of marine hose in the United Kingdom) were charged with participating in a conspiracy to rig bids, fix prices and allocate market shares of marine hose sold in the United States. Marine hose is used to transfer oil between tankers and storage facilities. During the conspiracy (1999 to 2007), hundreds of millions of dollars worth of marine hose and related products were affected by the cartel.

During the conspiracy, the DOJ asserted that the defendants:

Discussed the sale of marine hose at meetings, by telephone, by fax and through e-mails;

Agreed during meetings and discussions to allocate market shares among conspirators and to a price list in order to implement and monitor the conspiracy;

Agreed not to compete for one another's customers by not submitting prices for bids and submitted bids in accordance with the agreements reached;

Provided customer information to an independent consultant who served as a clearinghouse for information to be shared among conspirators;

Sold marine hose at collusive and noncompetitive prices;

Authorized subordinate employees to participate in the conspiracy; and

Concealed the conspiracy by using code names and private e-mail accounts.

The DOJ charged them with a violation of the Sherman Act with a maximum sentence of 10 years imprisonment and a fine of $1 million for the individuals involved.

Air Cargo Investigation: Qantas Airways. In November 2007, Qantas Airways, an Australian-based airline, agreed to plead guilty and pay a $61 million criminal fine for its role in a conspiracy to fix rates for international air cargo shipments. Qantas engaged in a conspiracy to eliminate competition by fixing the rates for shipments to and from the United States from 2000 to 2006. During this time, Qantas was the largest carrier of air cargo shipments between the United States and Australia. According to the plea agreement, Qantas raked in at least $244.4 million in sales of air cargo services from the United States.

Qantas pleaded guilty to:

Participating in meetings and conversations in the United States and elsewhere to discuss the cargo rates to be charged;

Agreeing on cargo rates in those meetings and levying cargo rates in accordance with the agreements reached; and

Engaging in meetings to monitor and enforce the agreed-upon rates.

Earlier in August 2007, British Airways and Korean Airlines pleaded guilty, and each was sentenced to pay $300 million in criminal fines to the United States for their roles in conspiracies to fix the prices of fuel surcharges for cargo flights. Other competition authorities continue to investigate.

Asahi et al., (Oct. 15, 2007). The year 2007 was busy for the EU as well. The European Commission imposed a total fine of 486.9 million euros on Asahi (Japan), Guardian (U.S.), Pilkington (U.K.) and Saint-Gobain (France) for coordinating price increases for deliveries of flat glass within Europe. They organized several rounds of price increases, fixed minimum prices and monitored the implementation of the price increase agreements. The evidence disclosed, in detail, several meetings in restaurants and hotels in different European countries.

This enforcement action was just one of many, including those where the European Commission fined:

Sony Corp., Fuji and Maxell more than 74 million euros ($110 million) for allegedly fixing prices on professional videotapes sold in Europe;

Bitumen suppliers 183 million euros for market sharing and price coordination in Spain;

Producers of chloroprene rubber 243.2 million euros for market sharing and price fixing in the EEA;

Members of a beer cartel in the Netherlands over 273 million euros; and

Members of a lift and escalator cartel over 990 million euros.

These cases signify that competition authorities have stayed vigilant in their efforts to protect and promote free and open competition in the global marketplace. This is likely to continue.

Complying with antitrust regulations means not only abiding by the law itself but also taking prophylactic measures to reduce exposure to civil and criminal liabilities.

In this context, it is not surprising that so many companies have already adopted or are in the process of establishing antitrust compliance programs as part of a total enterprise risk management plan.

In designing an effective antitrust compliance program to prevent, detect and rectify potential antitrust violations, there are certain key steps and overarching principles that a company should keep in mind to successfully establish and monitor compliance. These include:

Identifying the key antitrust compliance risks to the enterprise and establishing a clear and easy standard for managing them;

Establishing a "top-down" policy and clear statement for compliance by having senior-level management support a culture of compliance and assigning them employee oversight responsibility;

Actively training employees from day one regarding the importance of antitrust compliance and making information and resources readily available to them;

Establishing internal disciplinary measures and enforcing them in a consistent manner, including regular auditing and carefully monitoring employees with the propensity to violate the law; and

Encouraging reporting of possible misconduct and having systems in place to facilitate the reporting of possible wrongdoing.

These are merely guiding principles. The details of a compliance program should be tailored to the specific needs of the organization.

If violations occur, the company should be committed to undertaking a prompt and thorough investigation to immediately stop the illegal activity. In addition, it should take disciplinary action against those employees who have committed the wrongful acts and take actions to remedy against any future violations.

In certain circumstances, it may be appropriate to contact antitrust authorities. However, this decision can raise a host of other issues, and antitrust counsel should be consulted with regard to this important decision. Given the zealous prosecution of cartel activity, now is the time to make sure that your company's senior management understand and commit to a culture of compliance so that your company doesn't become the next target.

David T. Blonder is an attorney in the antitrust practice in the Washington, D.C., office of Chadbourne & Parke. He is reachable at (202) 974-5731 or dblonder@chadbourne.com.