© Sheppard Mullin Richter & Hampton LLP 2014 U.S. Criminal Antitrust Enforcement: What Every...

© Sheppard Mullin Richter & Hampton LLP 2014

U.S. Criminal Antitrust Enforcement: What Every Japanese Company and

Sales Executive Should Know

ABA Asia Forum – March 2-3, 2015

Jennifer M. DriscollSheppard Mullin Richter & Hampton LLP2099 Pennsylvania Ave. NW, Suite 100Washington, DC 20006202-747-1920 (office)/202-450-9210 (mobile)[email protected]

For native Japanese speaker, please contactMisa Sitterly202-747-3266 (office)/703-851-7372 (mobile)[email protected]

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Topics for Today’s Seminar

Why U.S. Criminal Enforcement Is So Focused on Japan and the Rest of East Asia

What Constitutes a Criminal Antitrust Violation: The Case Studies

What Constitutes a Criminal Antitrust Violation: Dangerous Words in Your E-Mails

What to Do When the Criminal Antitrust Enforcers Investigate

What to Expect in Civil Damages Actions How to Keep the Company and Its Executives Safe

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Why US Criminal Enforcement Is So Focused on Japan and the Rest of East Asia

U.S. Statutory Basis – Section 1 of the Sherman Act – “Every contract, combination in

the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

Corporate Penalties– The maximum statutory corporate fine is $100 million.– Alternatively, fines in excess of the statutory maximum are twice

the gain derived by or twice the loss caused by the cartel rather than the defendant.

Individual Penalties– The maximum individual fine is $1 million.– The maximum jail term is 10 years.

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Targeting Asian Companies and Executives

– The auto parts investigation involves at least 64 parts and each part is under separate investigation.

– Enforcers developed many investigations because companies under investigation sought leniency for additional products by turning others in.

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Asian Companies and Executives are BeingProsecuted Disproportionately

– 33 companies have pleaded guilty to antitrust misconduct. • Auto parts fines have ranged from 1m to $425m, with

more than $2.4b collected as of February 2015.

– Of top twenty fines in enforcement history:• 16 imposed on Asian Companies• 10 imposed on Japanese Companies

– Bridgestone’s $425m fine was due to repeat misconduct.

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Many Individuals Have Agreed to Serve Jail Sentences – 51 Japanese executives have been charged.

– Sentences have ranged from a year and a day to two years.

– The exact number of Japanese executives facing jail time is unknown. A recent Antitrust Division policy change established that executives who are not within the protection of the corporate plea agreement will be charged criminally.

– With many investigations still in progress, other Japanese executives may be prosecuted.

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How Corporate Criminal Fines are Calculated

– Fines are calculated based on the volume of affected U.S. commerce during the conspiracy.

• Direct sales with the U.S.

• Direct sales to OEMs

• Indirect sales

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High-Risk Industries Are Targeted– Commodity products and markets – Most recently, automotive parts and computer parts– Similar cost structure

• E.g., transportation (airlines, freight forwarders), computer components

Depressed Industries Are Targeted– E.g., graphite electrodes, marine hose, automotive

parts

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Advice for Large Enterprises

– Leniency is available to large companies operating in different markets.

– Compliance training should occur annually; senior executives must receive special attention.

– If misconduct is detected in one market, conduct an audit of other product lines and sales departments.

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Advice for SMEs

– Act quickly because you may be competing with a dominant market player for leniency.

– SMEs need compliance training as much, if not more, than large enterprises.

– Be aware that even the highest-ranking executives at an SME may face jail time.

– In the event of an investigation, “ability to pay” arguments resonate with the Antitrust Division.

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What Constitutes a Criminal Antitrust Violation: Case Studies

Don’t Talk to Competitors If You Can Help It. If You Must, Be Very Careful:

– NEVER agree on price, customers or market share– NEVER do anything suggesting agreement

• NEVER nod your head• NEVER implement any price change or submit any bid suggested

by a competitor– ALWAYS leave the room and make certain everyone knows why

you are leaving– ALWAYS make a clear statement that you do not agree with the

discussion– ALWAYS inform your management or counsel of the competitor

communication immediately

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Case Study 1

Mr. Yamada meets up with a competitor who is complaining incessantly about the erosion of pricing because of discounts. He asks Mr. Yamada if he has “the guts” to stop this. Mr. Yamada responds “How?” “Watch what I do and learn” was the response. The competitor effectively stopped granting discounts and a larger number of customers came to Mr. Yamada. Mr. Yamada decides that he does not need to discount either because he has more business than he can handle at full rates.

Mr. Yamada never spoke to his competitor after that

conversation.

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Case Study 2

Representatives from several competitors were meeting sociallybecause Mr. Taro, the “elder” of the business, was retiring. It was a great party and a wonderful sendoff. The retiree's successor at company C stood up, offered a toast to Taro and concluded “as a tribute to our friend and mentor, I will follow his tradition of raising prices every November 1. I’m not asking any of you what you are doing – and I don't care – but I'm up 7% on November 1. All the best!”

No one responded, except to look at the floor. Between September 20 and November 1, every competitor represented at the event had raised prices more or less by 7%.

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Case Study 3Mr. Yamada is berated by his competitor, Mr. Yamawake, for not getting with the program and increasing price and eliminating discounts. Mr. Yamada responds that he does not discuss prices in any way with competitors and he is leaving.

Mr. Yamawake becomes conciliatory – he says he didn't mean to pick on him. He understood Mr. Yamada’s high ethical standards and would not think of proposing that they agree to raise price.

As he leaves, Mr. Yamawake turns to Mr. Yamada and says: “Don't worry about it. I will let you know when we are going up.” Mr. Yamada says, “Ok, thank you.”

Mr. Yamawake sends his announcement (before he sends it to his customers), Mr. Yamada sees it, assumes it is a public announcement and decides to meet the increase.

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Case Study 4

For three years, market shares have fluctuated wildly as price wars broke out in the U.S. market. Mr. Yamada became involved in a conversation with two competitors, complaining about the poor return they are receiving and the additional work and dislocation resulting from the major customers changing suppliers each year.

Mr. Yamawake says there is no justification for raising prices but he hopes the competitors could earn a “just” price.

“How is that possible” says Mr. Yamada.

“Easy,” Yamawake responds. “We all know which one of us is primary supplier to each customer. Respect each others’ customers. Harmony will come to the market and no one can accuse us of fixing prices.”

All three competitors acknowledge that that “sounds sensible.”

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Case Study 5

Mr. Yamada is advised by a customer that his biggest competitor is increasing prices by 8% on June 1. The customer asks what Mr. Yamada is planning to do. Mr. Yamada responds that he is considering an increase because raw materials are in short supply.

Mr. Yamada raises prices by 8% a week later.

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What Constitutes a Criminal Antitrust Violation: Dangerous Words in Your E-Mails

Strategic Alliance

Follow

Support

Politic

al

Share Belong to

Rationalize

Fixed

Price

Organize

Coordinate

Control the Market

Discipline

Cooperate

Harmonize

Justi

ficatio

n

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Where Do These Words Appear

Internal price increase memos

Price increase announcements

Marketing reports

Meeting minutes of communications with competitors

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Internal Price Increase Memos and Other Documents

RESIST predicting your competitors’ actions without stating the basis for your belief.

ATTRIBUTE the information to the source: publications, customers.

Avoid words that imply coordination. Do not describe customers as “shared,” or

speak of “respecting” a competitor’s territory. Focus your language on the real reason

customers are served by different suppliers:– Customer preference (service, technology)– Competitive situations in the past (unique product)

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Communications with Competitors

Do not prepare minutes for competitor meetings, no matter how appropriate the meetings are.

Do not talk about market problems or difficult customers.

Do not discuss price, market share, or customer ownership – EVER.

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A Word About Email

Read them out loud and think twice before hitting “send”

– Informality of email makes you more likely to say something ambiguous, unguarded or unfiltered.

– Email stays in mailboxes; they are never completely deleted – someone will keep them.

– Email is the darling of prosecutors and plaintiffs lawyers.

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What to Do When Criminal Enforcers Investigate

How a Criminal Investigation Begins– DOJ detects a potential violation through “cartel

profiling” or– DOJ grants leniency to a company that self-reports

illegal conduct.

If You Hear There May Be an Investigation Or Discover Anti-Competitive Conduct, Contact Antitrust Counsel

– If an investigation hasn’t been announced, leniency may be available.

– If an investigation is under way, the second-in slot may be available.

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Seek Leniency, If Available

– A corporation can avoid criminal conviction and fines.

– Individual executives can avoid criminal conviction, prison terms and fines.

– Possible mitigation of civil damages through compliance with ACPERA.

– Corporation must meet DOJ requirements (admit wrongdoing, make restitution, cooperate fully).

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Seek “Second-In” Status– Since leniency is available only to one party, “second-

in” corporations will be prosecuted, but will receive a very substantial discount on the corporate fine.

– Executives from the “second-in” corporation will be subject to prosecution but the number of executives and duration of sentences will be limited.

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Contesting the Charges

– The corporation and executives charged with wrongdoing have a right to trial by jury.

– If the corporation and executives prevail at trial, there are no penalties.

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Contesting The Charges– If the corporation and executives are convicted at

trial, DOJ will seek severe penalties.

• The recent AUO trial resulted in corporate and executive convictions – and the Antitrust Division represented a fine of $1b and multiple-year prison sentences for individuals.

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The DOJ’s Investigative Tools– Federal grand jury subpoena for documents and

individuals– Search warrants– Surprise “drop-by” interviews– Monitoring/wire-tapping through informants and

hidden cameras– Treaties and cooperation to obtain evidence from

other countries

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If the Enforcers Execute A Search Warrant

– Notify counsel immediately.

– Comply with the agents’ instructions.

– You need not volunteer substantive information.

– Carefully watch where they search and what they take.

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If an Enforcement Agent Serves You with a Subpoena

– Take it and read it.

– Do not argue with the agent.

– You need not respond to questions without counsel present.

– Notify counsel immediately.

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If An Enforcement Agent Visits Your Home or Office (or You Are Stopped by an Agent at the Border)

– You need not answer any substantive questions without counsel being present.

– Regardless of how the agent puts it, he is trying to get you to discuss your business and the investigation.

– You need not submit to an interview without being fully prepared and having counsel present.

– If the enforcement authority thinks you lied or did not tell the whole truth during this initial meeting, it can prosecute you for making a false statement or obstructing justice (up to 20 years in jail).

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After An Investigation Has Started, Do Not Destroy Or Alter Any Document – Ever

– The corporation should implement document retention policies immediately when an investigation begins• Do not destroy any documents that you are instructed to

save• Do not make your own decisions about documents: ask

counsel• Do not write on, alter, cross out or change a document in any

way – even handwritten notes. This is not the time or place to “clarify” or “expand upon” what you wrote

• Obstruction of justice is punishable by up to 20 years in jail• The Department of Justice is vigorously prosecuting

obstruction cases

Civil Damages Actions

After the corporate plea agreement is entered, direct and indirect purchasers will file lawsuits to recover treble damages.– Just as the first company to receive leniency gets the best deal,

the first company to cooperate with plaintiffs receives the best deal.

– All documents produced to DOJ must also be produced to the plaintiffs, although it is possible to negotiate turning over fewer documents.

– Plaintiffs may ask to take depositions of company witnesses.– Economic experts must be retained to determine potential

damages.

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Civil Damages Actions

– Litigating these claims in court—especially when liability is not at issue—can be very expensive; negotiating out of court saves time and money for all parties

• "It's cheaper and more effective for the parties to negotiate and settle out of court," said Jennifer Driscoll-Chippendale, a Sheppard Mullin Richter & Hampton LLP lawyer who has represented defendants in the auto-parts probe. Auto makers and their suppliers "have every incentive to preserve their relationships," she said. Wall Street Journal, Brett Kendall, “U.S. to Fine Auto-Parts Makers $740 Million for Price Fixing” September 26, 2013.

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Discovery Obligations

Federal Rules of Civil Procedure Amendments

- Amended on December 1, 2006 to explicitly deal with litigants obligations concerning the preservation of electronically stored information (“ESI”)

- Parties must discuss "disclosure or discovery of electronically stored information" at the initial case conferences, including (1) sources for discovery, (2) sources "not reasonably accessible because of undue burden or cost," (3) form of production, including metadata, and (4) whether they can reach "any agreements for asserting claims of privilege."

- You and your attorneys must know your computer systems to understand whether data is not "reasonably accessible."

- To the extent that these measures were taken during document preservation for the DOJ subpoena, you do not need to do them again.

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Defensive Measures

Seek a stay of discovery—or press the government to seek a stay.

Convince opposing counsel and the court that all will benefit from producing the most relevant material as quickly as possible, instead of producing all possibly responsive documents.

For example, appease your adversary with transactional data.

Obtain an agreement on search terms before you conduct a search.

Early, detailed negotiations are absolutely necessary.

At class certification stage, narrow the class definition or defeat the motion entirely.

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Risk Management and Compliance

Compliance Training Is Critical – The traditional compliance lecture or computer training is not

effective for senior executives – the stakes are too high. – Senior executives require sophisticated training on meetings

and relationships with the competition.– Compliance education on proper use of language will limit

incriminating or suspicious documents.– Compliance education on what to do if an investigation occurs

will keep executives from making it worse.

Compliance Policies Should Be Communicated To All– Incentives to report improper conduct need to be linked to

employment and compensation.• Employment contract provisions• Written policy statement• Clear statement of consequences

– Reporting procedures need to be established.

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Risk Management and Compliance

Compliance Should Be Verified – Screening and profiling audits are valuable

techniques that destabilize cartels.• Simplify audit investigation • Use electronic discovery technology

Compliance Benefits the Corporation In The Eyes Of The Enforcers

– Compliance training is looked at favorably by enforcement authorities, including the JFTC.

Compliance Avoids Investigations and Saves Money

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APPENDIX

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Why US Criminal Enforcement Is So Focused on Japan and the Rest of East AsiaCorporate Fines Have Increased Dramatically

$169Million

$152 Million

$280Million

$75Million

$107Million

$350Million

$338Million

$473Million

$630Million

$701Million

$1 Billion

$555Million

$550Million

$1Billion + (est)

1990's avg. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Criminal Antitrust Fines

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“The $100 Million Club”

Company (Date) Product Fine Amount Headquarters

F. Hoffmann-La Roche, Ltd. (1999) Vitamins $500 million Switzerland

Yazaki Corp. (2012) Auto Parts $470 million Japan

Bridgestone Corporation (2014) Auto Parts (Penalty Plus) $425 million Japan

LG Display Co., Ltd.LG Display America (2009)

Liquid Crystal Display(LCD) Panels

$400 million Korea

Société Air France andKoninkijke Luchtvaart Maatschappij, N.V. (2008)

Air Transportation(Cargo)

$350 million France/Netherlands

Korean Air Lines Co., Ltd.(2007)

Air Transportation(Cargo & Passenger)

$300 million Korea

British Airways PLC (2007) Air Transportation $300 million UK

Samsung Electronics Company, Ltd; Samsung Semiconductor, Inc. (2006)

DRAM $300 million Korea

BASF AG (1999) Vitamins $225 million Germany

Chi Mei Optoelectronics Corporation (2010) Liquid Crystal Display (LCD) Panels

$220 million Taiwan

Furukawa Auto Parts (2011) Auto Parts $200 Million Japan

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“The $100 Million Club”

Company (Date) Product Fine Amount Headquarters

Hynix Semiconductor, Inc. (2005) DRAM $185 million Korea

Infineon Technologies AG (2004) DRAM $160 million Germany

SGL Carbon AG (1999) Graphite Electrodes $135 million Germany

Mitsubishi Corp. (2001) Graphite Electrodes $134 million Japan

Sharp Corporation (2009) Liquid Crystal Displays(LCD) Panels

$120 million Japan

Cargolux Airlines International S.A. (2009) Air Transportation (Cargo) $119 million Luxembourg

Japan Airlines International Co. LTD (2008) Air Transportation (Cargo) $110 million Japan

UCAR International, Inc. (1998) Graphite Electrodes $110 million US

LAN CARGO S.A. and AEROLINHAS BRASILEIRAS S.A. (2009)

Air Transportation (Cargo) $109 million Chile/ Brazil

Archer Daniel Midland (1996) Lysine and Citric Acid $100 million US

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810

1518

21

12

24

9

31

2424

30

0

5

10

15

20

25

30

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1990'savrg.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Fiscal Year

INCARCERATION TREND - Average Months

Avera

ge J

ail T

ime

(in

mo

nth

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