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SCCE Regional Compliance & Ethics Conference

Antitrust – June 25, 2010

Charles H. Samel

Overview

• Government Antitrust Enforcement Priorities

• Risk Assessment: Best Practices

• Risk Management: Controls and Employee Education


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Brief Review of Compliance Risks

• Price-Fixing

• Market Allocation/Output Restrictions

• Resale Price Maintenance

• Price Discrimination

• Monopolization/Abuse of Dominance

• Exclusive Dealing/Bundled Discounts

• Merger and Joint Ventures

• Standard Setting Organizations/Trade Associations

Consequences for Compliance Failures


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Many Serious Antitrust Penalties

Defending against even baseless charges can be

expensive – avoid inappropriate appearances

Criminal Penalties

• Prison

• Heavy fines

Civil Penalties

• Treble damages

• Attorneys’ fees

• Injunctions

• Limits business flexibility

International Regulation

Criminal Penalties for Individuals and the Company

• Jail time: up to 10 years

• Maximum fine (ind.): $1,000,000

• Maximum fine (corp.): Greater of $100,000,000 of twice the actual gain derived or loss suffered

• 2009 – Grand Jury Investigations

• Initiated: 38

• Pending: 144


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U.S. Prosecution of Individuals

• From 2000 to 2009:

� 208individuals sentenced to incarceration

� December 2007: three individuals in marine hose cartel sentenced to 30, 24, and 20 months

• 2009: 44 individuals sentenced to incarceration

• 2009: 65 individuals charged with criminal violations

“Surest and best way to deter cartel activity.”Sources: Department of Justice, Philip H. Warren, “U.S. Department of Justice International Cartel Enforcement” (October 21, 2004); Department of Justice, Scott D. Hammond, “An Update of the Antitrust Division’s Criminal Enforcement Program” (November 16, 2005); Press Release, “Antitrust Division Ends the Year with Second-Highest Level of Criminal Fines, More Merger Challenges,” dated December 21, 2006; U.S. Department of Justice, Antitrust Division, Workload Statistics FY 2000 – 2009; Department of Justice, Scott D. Hammond, “Recent Developments, Trends, and Milestones in the Antitrust Division’s Criminal Enforcement Program” (March 26, 2008).

Total Criminal Fines Since 2002

Source: Press Release, “Antitrust Division Ends the Year with Second-Highest Level of Criminal Fines, More Merger Challenges,” dated December 21, 2006.

• 2007: $630M

• 2008: $696M

• 2009: $974M


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Criminal Antitrust Enforcement TrendsTop Ten Corporate Fines

1. F. Hoffman LaRoche (1999) $500 million

2. LG Display Co. (2009) $400 million

3. Air France (2008) $350 million

4. Korean Air Lines (2007) $300 million

5. British Airways (2007) $300 million

6. Samsung Electronics (2006) $300 million

7. BASF AG (1999) $225 million

8. CHI MEI Optoelectronics (2010) $220 million

9. Hynix Semiconductor (2005) $185 million

10. Infineon (2004) $160 million

Small Companies Are Also Targeted for Criminal Price-Fixing Prosecution

• Home City Ice Co.a packaged ice manufacturer in Ohio

• Kwik-Chek Food Storesa gas station and convenience store operator in Oklahoma

• El Paso Steel Doors & Framesa door and hardware supplier in Texas

• SK Foods – a tomato processor in California

• Peck & Halea New York supplier of straps to the U.S. Navy

• JMJ Environmental a wastewater treatment supply company in New Jersey


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Criminal Enforcement Trends

• $974 million in fines

• 16 corporations

• 27 individuals

• $696 million in fines

• 12 corporations

• 23 individuals

Source: U.S. Department of Justice, Antitrust Division, Workload Statistics FY 2000 – 2009.

LG: $400 million (2009)

FY2008 FY2009

Financial Impact from Private Litigation

• Exposure: state and federal class actions, or suits by competitors, customers or suppliers.

• Distraction from operating the business.

• Litigation costs.

• Private treble damage awards and settlements have reached into the billions of dollars.


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There’s A New Sheriff In Town ….

“vigorous antitrust enforcement

must play a significant role in the

government’s response to

economic crises to ensure that

markets remain competitive ….”

Christine A. VarneyAssistant Attorney General

for Antitrust

U.S. Department of Justice“passive monitoring of market participants is not an option”

• Record-Setting Pace of Enforcement Will Continue

• Record Number of Jail Days Imposed

• Record Jail Sentences

• Highest Total Annual Fines

• Most Grand Jury Investigations in 15 years

DOJ Criminal Antitrust Enforcement:What DOJ is Saying To Expect …

DOJ: “Continued vigorous anti-cartel enforcement by the Division and its partners abroad can be expected in the

coming year, and it is likely that there will be new milestones to top those of the last year.”


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Corporate Leniency Programs

• Source of criminal investigations

• No criminal charges if report first

• Must cooperate in investigation

• Pay restitution to victims

• Similar programs in U.S. and EU

DOJ Antitrust Division – Priorities

• Transparency and Predictability

• New Horizontal Merger Guidelines

• Merger Enforcement – Core Priority

• Expeditious Closing When No Threat to Consumers

• 2009 – Many Cases Settled or Abandoned

• Agriculture, Transportation, Telecom, Energy, Healthcare

• Actively Engaging With The Global Antitrust Community

• “Culture of Compliance” Will Be Taken Into AccountSource: Statement of Christine A. Varney, Assistant Attorney General, Antitrust Division, before the United States Senate, Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights (June 9, 2010)


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Federal Trade Commission – Priorities

• Increased Transparency

• End Pay-for-Delay Pharmaceutical Agreements

• Block or Modify Anticompetitive Mergers

• New Horizontal Merger Guidelines

• Policy Guidance for Changes in News Media Markets

• Considering Using Section 5 to “Enhance Enforcement”

• Promoting Competition in the Energy Sector

Source: Prepared Statement of the Federal Trade Commission, before the United States Senate, Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights (June 9, 2010)

State Attorneys General – Priorities

• Vertical Price Fixing and Market Allocation

• Arrangements That Result In Higher Consumer Prices

• Bid Rigging In Government Contracts

• Mergers Among Firms That Sell To State Governments

• Greater Coordination With DOJ Investigations

• Bid Rigging Complaints Have Increased

• Increased Exclusive Dealing Among Vendors To States


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European Commission – Priorities

• Constant Review of Guidelines

• Recent Block Exemption for Vertical Agreements (30%)

• Plan to Review Horizontal Agreement Guidelines

• Cartel Enforcement is “Bread and Butter”

• Increased Predictability and Transparency

• Increased Fines to Provide Sufficient Deterrent

Other International – Developments

• Canada: Substantial Revision of Competition Laws

• New Merger Review Process

• Cartel Activity Per Se Illegal

• Competitor Collaboration Guidelines

• Increased Global Cooperation of Enforcers

• Criminalization of Cartel Conduct

• Australia, Chile, Czech Republic, Greece, Mexico, the Netherlands, New Zealand, Russia, and South Africa

• Criminal Prosecution of Cartels Increasing

• UK, Brazil, Denmark, Ireland, Israel, Japan, and Korea


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Compliance Programs and Early Detection

“Even when compliance programs fail to

prevent antitrust offenses from occurring,

they have proven to be very effective in terms

of identifying violations. Many of the

Division’s recent amnesty applications were

initiated as a result of early detection by the

firm’s antitrust compliance program.”

Early Detection Permits Amnesty

Source: Department of Justice, Gary R. Spratling, “Making Companies An Offer They Shouldn’t Refuse: The Antitrust Division’s Corporate Leniency Policy – An Update” (February 16, 1999).


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© 2006 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialPresentation_ID 23

Elaine Foreman

Senior Director, Legal Services

May 2010

Antitrust Compliance Programs


“A sound antitrust compliance program should have two principal objectives: prevention and detection.”

William J. Kolasky

Deputy Assistant Attorney General

Antitrust Division

U.S. Department of Justice


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DOJ Guidance on Compliance Programs

� DOJ speech in 2002

Have one!

� Guidance is less clear on what it should look like


Goals of a Compliance Program

� Prevention

A compliance program doesn’t stop prosecution/liability

� Detection

Race for amnesty

Stop the activity before it gets worse

� Sentence mitigation (maybe)

As long as high-level personnel were not involved

� Avoid suspension and debarment


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How to qualify for sentence mitigation

� Clearly established compliance standards

� Compliance responsibility belongs to high-level execs

� Don’t delegate to those with a “propensity to engage in illegal conduct”

� Reasonable steps to communicate standards and procedures effectively to all employees

Clear language

Practical do’s and don’ts

Understandable


How to qualify for sentence mitigation, cont.

� Consistent enforcement of standards

Appropriate discipline – perpetrators and those who fail to report

� Reasonable steps to respond and prevent

Investigate

Report to the government

Examine compliance program


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“As important these steps are, nothing is more important than senior management commitment and leadership. A culture of competition must begin at the very top of the company. Respect for the law is a necessary, but not sufficient, condition. Senior management must value competition and must be vocal in making that commitment known to employees. In the cases we prosecute, we find almost invariably that in companies that violate the antitrust laws, the tone of disrespect for the law and for competition permeated the entire company, usually starting at the very top.”

William J. Kolasky

Deputy Assistant Attorney General

Antitrust Division

U.S. Department of Justice


Red Flags

� Trade association activity

� Sales transactions between your company and its competitors, particularly around the end of the year.

� Data on market shares.

Look at your company's market shares to see if they are more stable than you would expect in a competitive market.

� Executives receiving calls at home or from callers giving fictitious names or refusing to identify themselves.

� Sudden, unexplained price increases and copies of competitor price announcements in your company's files.


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What has case law shown?

� Pre-2002:

Bleznak: consent decree requires antitrust compliance program, designation of an antitrust compliance officer

� Post-2002:

Assumed that companies already have an antitrust compliance program

Decrees mandate the appointment of an antitrust compliance officer

� Enforcement tends to be stricter with large companies


What about Europe?

An effective compliance program should have the following elements:

� Involvement from senior management

� Appropriate policies and procedures

� Training and awareness campaign

� Project engagement (legal/compliance review)

� Regular evaluation

Audits

Incident reporting

� Customization


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Q and A


SCCE Regional Compliance & Ethics Conference › Portals › 1 › PDF › ...Compliance Programs...

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