Cartel and Criminal Practice Committee Update. April 25, 2014 Peter C. Alfano III, J. Brady Dugan Oliver Geiss, Diarmuid Ryan

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1 Cartel and Criminal Practice Committee Update April 25, 2014 Peter C. Alfano III, J. Brady Dugan Oliver Geiss, Diarmuid Ryan

2 Agenda 1. U.S. Cartel Enforcement 2. U.S. Private Litigation 3. EU Cartel Enforcement 4. EU Damages: new legislation 5. UK Competition Law Reform 6. CA98 Investigations

3 U.S. Cartel Enforcement Peter C. Alfano III

4 DOJ Enforcers at the Spring Meeting DOJ emphasized the importance of self-reporting Lisa Phelan, Chief of the National Criminal Enforcement Section of the Justice Department's Antitrust Division in Washington, D.C. Brent Snyder, deputy assistant attorney general for criminal enforcement with the Antitrust Division Bridgestone

5 Marine Hose Extradition First Extradition on an Antitrust Charge On April 3, 2014, Romano Pisciotti, an Italian national and former executive with Parker ITR Srl, a marine hose manufacturer headquartered in Veniano, Italy, was extradited from Germany for his alleged involvement in the marine hose antitrust conspiracy. This first of its kind extradition on an antitrust charge allows the department to bring an alleged price fixer to the United States to face charges of participating in a worldwide conspiracy. Bill Baer DOJ may be considering extraditing suspects in its ongoing investigation into the wide-reaching price-fixing conspiracies involving Japanese auto parts makers.

6 New DOJ Investigation Ocean Shipping February 27, 2014, Compañía Sud Americana de Vapores S.A. (CSAV), a Chilean corporation, was the first company charged in the investigation into sale of international ocean shipping services for roll-on, roll-off cargo

7 On-going DOJ Investigations (cont.) Auto Parts $425 million fine against Bridgestone Corporation for anti-vibration rubber parts. The Antitrust Division will take a hard line when repeat offenders fail to disclose additional anticompetitive behavior, said Brent Snyder, Deputy Assistant Attorney General for the Antitrust Division s criminal enforcement program. Three Bridgestone executives indicted and one pleads guilty To date, the investigation has resulted in charges against 26 companies and 33 individuals and more than $2.29 billion in criminal fines. Municipal Bonds February 10, 2014, the former managing director of Bank of America s municipal derivatives products pleaded guilty for his role in a conspiracy involving municipal bonds proceeds

8 On-going DOJ Investigation (cont.) Superfund Kickbacks Prosecution 14 year sentence imposed on Gordon D. McDonald, a former project manager for a prime contractor, for role in bid rigging and kickbacks at two Environmental Protection Agency Superfund sites in New Jersey. McDonald was found guilty following a jury trial on March 3, More than $6 million in criminal fines and restitution have been imposed and six individuals have been sentenced to serve prison sentences ranging from five to 168 months. Real Estate Foreclosure Auctions On March 11, 2014, Andrew B. Katakis and Donald M. Parker were found guilty following a four-week trial in the U.S. District Court for the E.D. of California. Also on March 11, two real estate investors pleaded guilty in the U.S. District Court for the N.D. of California. A total of 46 individuals have pleaded guilty or agreed to plead guilty in the N. District. New criminal office in Washington, D.C., focused on real estate foreclosure auction bid rigging

9 U.S. Private Litigation J. Brady Dugan

10 Sherman Act Jurisdiction FTAIA FTAIA limits extraterritorial reach of Sherman Act Has been a recent subject of litigation in both civil and criminal antitrust cases Three cases in the courts of appeal addressing this issue 7 th Circuit: Motorola Mobility v. AU Optronics (March 27, 2014) 9 th Circuit: United States v. AU Optronics 2d Circuit: Lotes Co. v. Hon Hai Precision Industry

11 Sherman Act Jurisdiction FTAIA 15 U.S.C. 6a [The Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless (1) such conduct has a direct, substantial, and reasonably foreseeable effect (A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or (B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and (2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

12 Sherman Act Jurisdiction FTAIA Motorola Mobility 7 th Circuit Restricts Sherman Act Reach LCD components purchased abroad by foreign subsidiaries and then sold into the U.S. as final products lack direct effect AND did not give rise to the Sherman Act claim The position for which Motorola contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries Motorola is expected to request a rehearing en banc at the Seventh Circuit.

13 FTAIA Pending Actions Lotes Co., Ltd. v. Hon Hai Precision Industry Co., (2d Cir.) Challenging the District Court's dismissal due to lack of direct, substantial and reasonably foreseeable effect on US commerce. Lotes alleges defendants misled US SSO by filing patent infringement suit in China. Amicus brief by DOJ and FTC arguing effect on commerce did not give rise to a Sherman Act claim. United States v. AU Optronics Corporation, (9th Cir.) Defendant foreign Corporation and two foreign executives appeal conviction alleging FTAIA does not reach their foreign conduct in alleged price fixing conspiracy for LCD flat panel displays.

14 Follow-on Civil Actions Auto Parts Manufacturers In Re: Automotive Parts Antitrust Litigation; 12-md-02311; U.S. District Court for E.D. of Michigan Air Cargo Settlements Continue Feb. 11, 2014, Cathay Pacific agrees to settlement payment of $65 million Singapore Airlines settled for over $92 million in December 2013

15 Follow-on Civil Actions Non-purchaser permitted to bring action against conspiring auto parts company in the E.D. of Michigan On March 5, 2014, District Judge Battani permitted Ford to bring an action against Fujikura for fixing the price of wire harnesses even though it did not purchase from Fujikura, although it did purchase from several other conspiring companies. Judge Battani stated that Given the nature of the conspiracy alleged by Ford, it is not necessary for Fujikura Defendants to have supplied Ford directly.

16 EU Cartel Enforcement Oliver Geiss

17 EU: Investigations/Raids JP Morgan, HSBC, Credit Agricole to face EU charges in coming months, Almunia says (28 March 2014) LIBOR/EURIBOR cartels Record sanctions hit Royal Bank of Scotland, Deutsche Bank and Citigroup Those that remained outside the settlement can expect a statement of objections shortly European Commission raids exhaust makers in new car parts probe (25 March 2014) Companies in several Member States, names of which not disclosed at this stage Suspected anticompetitive practices in breach of Articles 101 and 102

18 EU: Commission Decisions European Commission fines power exchanges EPEX and NPS EUR 6 million in cartel settlement (5 March 2014) Two leading European spot power exchanges Non-compete arrangement in the EEA Seven month infringement committed on their own initiative and at their own risk Unannounced inspections at the companies premises revealed anticompetitive practices in the form of meetings, telephone and video calls and s European Commission fines ball-bearing cartel EUR 953 million (19 March 2014) Price-fixing and exchange of information from April 2004 to July 2011 Involvement from two European companies (SKF and Schaeffler) and four Japanese companies (JTEKT, NSK, NFC and NTN) JTEKT not fined as it received immunity under the Leniency Notice

19 EU: Commission Decisions cont. European Commission fines producers of steel abrasives EUR 30.7 million in cartel settlement (2/04/2014) 6 year coordination of prices and non-compete arrangements Ervin received full immunity under the Leniency Notice Total fines were as follows: Winoa (approx. EUR 27 million), Metalltechnik (approx. EUR 3 million) and Eisenwurk (approx. EUR 1 million) European Commission fines producers of high voltage power cables EUR 302 million for operating a cartel (2/04/2014) 11 producers of underground and submarine high voltage power cables 10 years of sharing markets, customer allocation and bid-rigging on a worldwide scale Almunia they acted cautiously and with great secrecy

20 EU: Court Decisions ECJ reduces Ballast Nedam s fine for Dutch bitumen cartel (27 March 2014) Price-fixing cartel in the Dutch construction sector received EUR million in fines in 2006 Presumption of parental influence over offending subsidiaries Ballast appealed against a fine imposed on the basis of joint and several liability it submitted that the Commission should have expressly informed the company of its risk of liability in light of its subsidiaries offences EU s first-instance court issues judgment reducing antitrust fines on Saint- Gobain group in car-glass cartel (27 March 2014) Various concerted practices including the sharing of deliveries Previous infringements in 1984 and 1988 Repeated infringement penalty could not be applied at 60% as previous infringements were committed by different subsidiaries Smaller penalty of 30% applied - EUR 880 million reduced to EUR 715 million

21 EU: German extradition case Romano Pisciotti the first individual to be extradited to the U.S. on the basis of cartel involvement. Former executive at Parker ITR (a company fined EUR 25.6 million in 2009 for its engagement in the marine-hose cartel). Travelling to Italy from Nigeria, Pisciotti was arrested in a German airport in June He is charged with breaching antitrust laws and could face 10 years in prison and $1 million in fines. The charges included bid-rigging. As this is a criminal offence under German law, extradition was possible. Before extradition, Pisciotti commenced proceedings at the European Court of Human Rights in Strasbourg. His application for an interim order to stop the extradition was rejected. The Commission has already confirmed that the extradition did not breach EU law in the field of free movement of business services, as Pisciotti was in transit and not providing a service in Germany.

22 EU Damages: new legislation

23 EU Damages: new legislation 12 June 2013 European Commission submits proposal to introduce new legislation (a Directive) to optimize damages actions arising from the infringement of antitrust rules. A Directive is a legal instrument of the European Union which prescribes a particular result that it wishes Member States to achieve without dictating the means of achieving that result. Key provisions include: Disclosure of evidence Decisions of competition authorities Limitation periods Joint and several liability Passing-on of overcharges

24 EU Damages: new legislation cont. The Directive also covers issues on the quantification of harm and dispute resolution. Status Vote in plenary took place on 17 April 2014 and the Directive was approved. The Directive must be implemented by Member States within two years after the date on which it enters into force.

25 UK Competition Law Reform Diarmuid Ryan

26 ERRA 2013 Fundamental and comprehensive reform of UK competition regime Presented as necessary contribution to economic growth Merger of OFT and Competition Commission new unitary Competition and Markets Authority (CMA) Reforms came into effect on 1 April 2014 including important changes to: Cartel offence Competition Act 1998 (CA98) investigations

27 The Cartel Offence

28 Old Cartel Offence Stand-alone crime no requirement that Article 101 TFEU prohibition of anticompetitive agreements be infringed An individual is guilty of an offence if he dishonestly agrees with one or more other persons to make or implement or cause to be made or implemented, arrangements relating to at least two (competing) undertakings (A + B) which would: (a) fix prices for the supply by A and by B in the UK of a product/service (b) limit/prevent supply by A and by B in the UK of a product/service (c) limit/prevent production by A and by B in the UK of a product (d) divide between A and B the supply in the UK of a product/service to a customer(s) (e) divide between A and B customers for the supply in the UK of a product/service (f) be bid-rigging arrangements (unless person requesting bids informed in advance) Must be implemented in the UK and must be an agreement

29 Cartel Offence - Currently Sanction: prison for up to 5 years and/or unlimited fine Only 3 prosecutions have been brought; no successful prosecutions since 2008 and no case law: Marine Hose (2008): 3 individuals pled guilty; sentences reduced on appeal to 20 months 2.5 years; director disqualification for 5 7 years; 2 ordered to pay 366K/ 649K under confiscation orders Virgin/BA (2010): OFT withdrew criminal proceedings against 4 current/former BA execs due to OFT disclosure failure Steel tanks ( ): 1 individual charged with cartel offence dishonestly agreeing to divide customers, fix prices and rig bids

30 Cartel Offence Post- 1 April 2014 Removal of dishonesty element New exclusions Notification: customers given relevant information before purchasing Publication: before implementation, of relevant information, in London, Edinburgh or Belfast Gazette Compliance with legal requirement Three new defences No intention to conceal the nature of the arrangements from customers No intention to conceal the nature of the arrangements from CMA Pre-agreement, reasonable steps taken to ensure that its nature would be disclosed to professional legal advisers for the purpose of obtaining advice

31 Cartel Offence Post- 1 April 2014 Scope of new cartel offence unclear CMA prosecutorial guidance: /CMA9 Cartel_Offence_Prosecution_Guidance.pdf Illustrative example: vendor non-compete obligation on sale of business not generally caught by Article 101 if appropriately limited CMA draft prosecution guidance: not within cartel offence because unilateral/non-reciprocal (para.4.9).

32 CA98 Investigations

33 Compulsory Interviewing Powers New CMA power to require an individual with connection to undertaking being investigated to answer questions with respect to any matter relevant to the investigation connection : owners; managers; employees; otherwise working for (advisers; consultants; volunteers; officers of controlling shareholders) current or former connection Advance written notice but interview can start immediately Right to have legal adviser present - whose lawyer? how long will CMA wait for a lawyer ( a reasonable time ) Recorded (transcript)/contemporaneous note Failure to comply without reasonable excuse fines up to 30K (fixed) and/or 15K per day Knowingly/recklessly providing false/misleading information is a criminal offence

34 Compulsory Interviewing Powers OFT and European Commission currently only have power (in civil investigations) to require individuals to provide an explanation of documents (c.f. OFT criminal investigations) Right against self-incrimination still applies: describe the purpose of the meeting, the decisions adopted and the type of documents received before and after the meeting? breach of rights of defence (Mannesmannröhren-Werke 2001) Whose right the firm s, the individual s or both?

35 Interim Measures Interim measures: while investigation on-going, binding directions on a party under investigation not to undertake specific conduct and/or to take positive measures/steps, e.g. Resumption of supplies Reverse price increase Grant of IP license Current test: preventing serious and irreparable damage Irreparable element is highest hurdle Same test as EU and broadly same as test applied by High Court on an interim injunction application

36 Interim Measures New test: preventing significant damage Temporary or permanent Financial loss Restriction on ability to obtain supplies or access to customers Damage to goodwill/reputation Pro-complainant, mostly of relevance to abuse of dominance issues CMA prioritisation principles hurdle remains!

37 Thanks very much! Diarmuid Ryan Partner, London Competition/Antitrust Tel: (44) Peter C. Alfano III Associate, Washington D.C. Competition/Antitrust Tel: (202) J. Brady Dugan Partner, Washington D.C. Competition/Antitrust Tel: (202) Oliver Geiss Partner, Brussels Competition/Antitrust Tel: (32) oliver.geiss@squiresanders.com