Criminal Antitrust Update - August 2011

    6 August 2011

    INDUSTRY SCORECARD

    Global Distribution Systems: In April 2011, US Airways Group Inc. filed an antitrust action against Sabre Holdings Corp., alleging that the global distribution system (GDS) company engaged in anticompetitive behavior in order to secure monopoly power in the GDS market. Sabre is the largest global distribution system in the U.S. According to US Airways, tickets booked through Sabre account for thirty-five percent of the airline’s revenue. US Airways claims that Sabre engaged in predatory behavior in order to secure this monopolistic position. According to the complaint, Sabre forces travel agents to rely on a single GDS to purchase tickets, imposing penalties if agents use a different system.

    Sabre filed a motion to dismiss in July 2011, arguing that US Airways is merely attempting to renegotiate its contract with the GDS company. Sabre’s filing also contends that the airline based its monopolization complaint on an incorrect market definition. This lawsuit comes on the heels of an earlier antitrust lawsuit by American Airlines against Travelport Inc., Orbitz Worldwide LLC and Sabre alleging that the three GDS companies are engaging in anticompetitive behavior to exclude American Airlines from entering and competing in the GDS market. The United States Justice Department (DOJ) has also initiated an investigation of possible anticompetitive behavior by the GDS companies.

    Banking Industry: In July 2011, JP Morgan Chase & Co. entered into a non-prosecution agreement with DOJ related to its municipal bond investment division. In the agreement, JP Morgan Chase acknowledged that employees in its municipal bond investment division intentionally rigged bids on municipal bond investments from 2001 through 2006. The company agreed to pay $228 million in restitution, penalties and disgorgement to settle allegations by multiple agencies, including the DOJ, the Securities Exchange Commission (SEC), the Internal Revenue Service and various state attorneys general offices.

    According to DOJ, JP Morgan Chase directed business to favored bidders by providing the bidders with a “last look” at competitors’ bids and setting up intentionally noncompetitive bids. The government’s decision to decline prosecution was heavily influenced by JP Morgan Chase’s cooperation with regulators. This is the third settlement arising out of the municipal bond bid-rigging investigation. UBS AG agreed to pay federal regulators $160 million last May, and Bank of America Corp. agreed to pay $137.3 million last year. DOJ has also brought criminal charges against 18 former bank executives arising out of its investigation of the municipal bond derivatives industry. Nine of those executives have entered guilty pleas.

    Real Estate: In June 2011, DOJ secured plea agreements from eight California real estate investors accused of collaborating with one another in two separate conspiracies to rig bids at public foreclosure auctions in Northern California. According to DOJ, the individuals met in advance of public foreclosure auctions and agreed on which bidder would purchase a particular property. The remaining investors agreed not to bid against the chosen bidder to keep the final price artificially low. The investors would then hold a second, private auction where the participants submitted higher bids. The profit from the private sale was then split among the bid-rigging participants. Bid-rigging is a violation of Section 1 of the Sherman Act, and each individual faces a maximum of 10 years in prison, as well as a $1 million fine.


    COMPLIANCE TIP: GLOBAL COOPERATION AMONG ANTITRUST REGULATORS

    The Federal Trade Commission (FTC) and DOJ recently announced an agreement with China’s three antitrust enforcement agencies regarding cooperative efforts to enforce competition laws. This agreement continues a pattern of increased DOJ coordination with foreign antitrust enforcement regulators and furthers DOJ’s public policy goal of consistent, international enforcement of antitrust laws. Because global investigations and coordination among regulators have become increasingly common, corporations need to understand the implications of coordinated international investigations. Significant multi-national companies are usually subject to investigations by a number of different national enforcement authorities, some of which likely have overlapping jurisdiction.

    Thus far, DOJ has entered into similar cooperation agreements with the European Union (EU), Japan, Israel, Australia, Brazil, Canada, Mexico, Russia and Chile. The DOJ is currently working on an agreement with India. These agreements encourage foreign antitrust agencies to coordinate and cooperate with the DOJ regarding antitrust enforcement. Cooperation may include sharing information, including confidential information, or providing early notice of investigations that may implicate commercial activity under foreign regulators’ jurisdiction.

    The US-China agreement is significant due to China’s large presence in the global marketplace and its relatively new antitrust enforcement regime. It will likely fuel a rise in antitrust enforcement in China, which would almost certainly spur more investigations among China’s business partners. Increased coordination between DOJ and EU antitrust regulators has influenced a number of large investigations in the past several years.

    The recent agreement serves as a reminder that corporations involved in international commerce need global antitrust compliance programs – that the conduct of business executives in Asia or any other continent may be evaluated for adherence to US or other nations’ competition laws. Parallel investigations by a number of different countries also increase the risk of multiple sanctions for the same conduct. At the same time, the increased globalization of antitrust enforcement presents an opportunity for corporations to improve antitrust compliance on an international scale. The up-front costs of beefing up international compliance far outweigh the significant financial burdens associated with defending antitrust-related investigations or paying onerous fines.


    COMMENT: REGULATORS TAKE A CLOSE LOOK AT GOOGLE, INC.

    Google Inc. has come under increasing scrutiny by the DOJ and FTC as well as foreign regulators for alleged anticompetitive conduct in its search and advertising practices. In June 2011, Google received a subpoena from the Federal Trade Commission (FTC) arising from a civil investigation into Google’s dominance in the search industry. The chief concern appears to be whether Google directs users to its own non-search services instead of similar services offered by Google competitors. The European Commission has already opened a similar investigation. As we previously noted, Google set aside $500 million in May in connection with a DOJ investigation of the use of Google ads by “certain advertisers.”

    Congress has decided to weigh in as well. Eric Schmidt, Google’s chairman, has agreed to testify before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights. The subcommittee is investigating competition issues in the Internet search market.

    Presently, the FTC and DOJ investigations are in their early stages and the exact scope of the inquiries is still vague. The myriad claims by Google critics include allegations of intentional manipulation of search results to favor Google-affiliated companies or services; displaying search results in ways that unfairly favor Google’s own services; and misappropriation of other companies’ content. Despite this variety of complaints, none have been established or proved.

    Given Google’s size and dominance as well as the high number of competitors/critics, government scrutiny should come as no surprise. Google generates a significant share of its revenue from online advertising that appears alongside search engine results, revenue that could exceed $35 billion this year. Over two-thirds of all Internet searches in the U.S. are reportedly conducted via the Google search engine.

    News of DOJ and FTC investigations proves nothing and falls well short of civil complaints or criminal charges. Historically, though, dominant technology-oriented U.S. corporations are a favored target of the Antitrust Division.