Criminal Antitrust Update - May 2011

    4 May 2011


    Banking Industry: The Antitrust Division of the Department of Justice (Division), along with the Securities Exchange Commission, the Commodities Exchange Commission and foreign regulators, has initiated investigations of several large banks including UBS AG, Bank of America, Citigroup and Barclays Capital, Inc. The federal regulators are investigating whether the banks attempted to manipulate interbank interest rates, specifically the London Interbank Offered Rate (LIBOR), which serves as a benchmark for global short-term interest rates. LIBOR rates are determined by the British Bankers' Association (BBA) which receives recommendations from a panel that includes these large banks. Federal subpoenas were issued In March 2011 after the Division informally requested documents from all members of the BBA's panel, indicating that the Division has narrowed the focus of its investigation to specific banks.

    Color Display Tube (CDT) Industry: In a new development in the ongoing CDT international price-fixing investigation, a federal judge in the United States District Court for the Northern District of California refused to approve a $32 million fine to be paid by Samsung SDI Co., Ltd. for its role in the conspiracy, citing the court's dissatisfaction with the expedited plea agreement and the need for a full pre-sentence hearing. Samsung has been accused of entering into agreements with competitors to set prices and price levels of CDTs, to create capacity restrictions and to allocate customers among competitors, all in violation of Section 1 of the Sherman Act. Samsung and its competitors were alleged by authorities to have met at various times and locations in Asia from 1996-2007 to forge anticompetitive agreements related to CDTs. To date, six individuals from various CDT manufacturers have been indicted in the United States in connection with the CDT price-fixing investigation. South Korea regulators have already fined Samsung and Taiwanese based Chunghwa Picture Tubes Ltd. for participating in the same cartel.

    Health Care Industry: As expected, the Division has expanded its investigation of whether Blue Cross Blue Shield Michigan (BCBSM) forced hospitals to sign agreements that preclude the hospitals from doing business with BCBS rivals. In the last several months, the Division and state attorneys general have issued subpoenas to Blue Cross Blue Shield divisions in Kansas, Missouri, North Carolina, South Carolina and the District of Columbia. These subpoenas appear to be related to the October 2010 suit the Division filed against BCBSM alleging violations of federal antitrust laws arising from similar contracts with local hospitals. According to the Division, these contracts prevent fair competition by smaller insurers.


    Under the Patient Protection and Affordable Care Act (PPACA), Congress sought to promote integrated health care delivery through, among other things, accountable care organizations (ACOs). ACOs are groups of un-integrated physicians, hospitals and other health care providers that share responsibility for providing health care to Medicare and other patients while also sharing financial incentives and risks. ACOs will receive financial rewards for lowering health care costs through the Medicare Shared Savings Program.

    The use of ACOs to lower health care costs and provide better health care for patients has raised antitrust concerns among health care providers interested in forming such a group. Collaboration among individual physicians, health care insurers, hospitals and other health care providers through ACOs could potentially run afoul of federal antitrust laws.

    In an effort to lessen the confusion surrounding ACOs and antitrust laws, the Division and the FTC have recently issued a proposed Joint Statement on Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (proposed Joint Statement) and are currently soliciting comments. Under the proposed Joint Statement, certain ACOs would be granted immunity under an antitrust "safety zone," while others would be subject to an expedited antitrust review. ACOs with greater than 50 percent of the market share of a common service in a primary service area[1] would be subject to an automatic antitrust review by the Division or the FTC, while those ACOs having a 30-50 percent market share would be allowed to proceed absent a review, although the Division would reserve the right to conduct an antitrust analysis of these ACOs as well. ACOs with less than a 30 percent market share in a common service would fall under the antitrust safety zone and would not be subject to an antitrust review. In order to qualify for the safety zone, hospitals and larger providers within the ACO must also be non-exclusive to the ACO.

    The Division and the FTC would review an ACO under the rule of reason, which balances the pro-competitive justifications for the collaboration against any anti-competitive effects. Moreover, the proposed Joint Statement sets forth five types of conduct that an ACO should avoid in order to reduce the risks of antitrust liability. They include:

    1. Preventing commercial payers from directing patients to choose providers outside of the ACO
    2. Tying sales of the ACO's services to the commercial payer's purchase of other services from providers outside of the ACO
    3. Requiring providers within the ACO to provide services exclusively to the ACO. Primary care physicians would be excluded from this requirement
    4. Restricting a commercial payer's ability to make available to its health plan enrollees cost, quality, efficiency and performance information to aid enrollees in evaluating and seeking providers in the health plan
    5. Sharing among ACO providers pricing information for services provided outside of the ACO

    When forming an ACO, health care providers should use this proposed Joint Statement as guidance, although it may change slightly after comments are received. Moreover, while the Division has proposed to establish a safety zone for certain ACOs, this would not protect these groups from private civil suits. As such, all health care providers - hospitals and doctors - along with insurers seeking to create an ACO, must be mindful of antitrust concerns. Participants must avoid any type of exclusivity provisions, i.e., requiring patients to exclusively see doctors within their ACO or preventing physicians from seeing patients outside of the ACO. These types of exclusivity provisions have been challenged by the Division as anticompetitive. The providers should also examine market share in common services and ensure that safeguards are in place so that providers do not share pricing information relating to services outside of the ACO.

    [1] A primary service area is defined as "the lowest number of contiguous postal zip codes from which the ACO participant draws at least 75% of its patients for that service."


    On February 2, 2011, the United States District Court for the Southern District of New York approved the first Consent Decree providing for disgorgement of profits for a Sherman Act violation. U.S. v. KeySpan represents the first time the Division has sought disgorgement from a defendant for a Sherman Act violation and signals the Division's intent to aggressively pursue anticompetitive conduct using all available remedies.

    The KeySpan case concerned allegations that an electric power generation company manipulated New York City electrical prices. KeySpan entered into a swap agreement with a financial institution that gave it an indirect financial interest in a competitor's electricity sales. Consequently, KeySpan limited its need and motivation to enter competitive bids for its own generating capacity. KeySpan's anticompetitive bidding led to increased electricity prices for consumers.

    The Division asked the court to approve disgorgement because traditional antitrust remedies were not available. First, an injunction would have been ineffective because the anticompetitive conduct had ceased upon the natural expiration of the swap agreement. Second, federal laws governing utilities barred recovery in a private class action suit and prohibited restitution. Third, KeySpan was sold prior to the Division's suit, so there were no assets to be divested.

    Although the Sherman Act does not explicitly provide for disgorgement, the Court invoked its inherent equitable powers in approving this novel remedy. The Court reasoned that the Sherman Act's broad jurisdiction to prevent and restrain antitrust violations did not deprive the Court of its inherent power to order the equitable remedy of disgorgement. Additionally, the Court found disgorgement consistent with established principles underlying antitrust law, namely the goals of stopping illegal conduct and depriving wrongdoers of the benefits of their illegal conduct.

    The Court found that $12 million was an adequate amount of disgorgement, despite KeySpan's net revenues of over $48 million and increased consumer electricity prices. This is because disgorgement's primary purpose is to take ill-gotten benefits from a wrongdoer, not make antitrust victims whole. This is an important limitation on the disgorgement remedy. Since KeySpan could have increased its electricity producing volume to increase revenue, the Court found that it did not necessarily earn additional revenue through the swap agreement.

    In the wake of KeySpan, businesses should take note of the factors favoring disgorgement and of the potential implications of alternative remedies in antitrust cases. Companies in industries where rates are regulated need to be particularly aware of this development given the Division's active pursuit of antitrust violations even where restitution to customers is impossible. Alternative remedies may also create liability where none would traditionally exist due to lack of standing, inadequate sources of damages or some other factor that might be viewed as denying relief for alleged victims of price-fixing. On the other hand, alternative sanctions might, in specific cases, be a more palatable option than traditional antitrust damages, which are based on a percentage of commerce affected by the conspiracy and, in most cases, are trebled.

    Kate Woodall contributed this article.