Criminal Antitrust Update - November 2011

    14 November 2011


    Automotive Parts: Magna International Inc., a leading Canadian auto parts maker, revealed last month that the Department of Justice (DOJ) has issued a subpoena for documents in connection with its investigation of the automobile tooling industry. The focus appears to be competitive bidding for contracts. In addition, Japan-based Furukawa Electric Co., Ltd. recently agreed to plead guilty and pay a $200 million fine for its role in a decade-long conspiracy to rig bids and fix prices in the market for automotive wire harnesses. Two Furukawa executives also entered guilty pleas to Sherman Act violations for their role in the conspiracy, and a third executive has agreed to plead guilty to a similar charge.

    Airlines: DOJ is currently investigating a proposal between Delta Air Lines Inc. and US Airways Inc. to swap takeoff and landing slots at New York’s LaGuardia Airport (LGA) and Ronald Reagan National Airport (DCA). Delta agreed to swap 42 of its slots at DCA in exchange for 132 of US Airways’ slots at LGA. Each carrier also agreed to give up a small number of slots to be auctioned off to other airlines. DOJ is concerned that the proposal may give US Airways a significantly higher market presence at DCA, which is considered a “slot-constrained airport” where “passengers pay among the highest fares in the country.” The Department of Transportation has already approved the deal.

    British regulators are investigating a proposed joint venture between the in-flight catering subsidiaries of Deutsche Lufthansa AG and Emirates Group. The UK Office of Fair Trading (OFT) is concerned that the joint venture will control a large share of in-flight catering throughout the UK, which could cause price increases for consumers.

    Banking Industry: The European Commission (EC) opened an investigation into several large European banks, including Barclays PLC and Deutsche Bank AG, regarding the standardization of e-payment systems. The EC is investigating efforts by the banks to create uniform online payment procedures and whether those measures could effectively bar new entrants into the market. The EC also has concerns that existing payment providers not affiliated with one of the banks could suffer competitive harm.

    Accounting Firms: The OFT has asked the UK Competition Commission to investigate the market for corporate auditing services. OFT has expressed concern that the market is too highly concentrated and lacks sufficient competition. According to the OFT, the top four accounting firms (PricewaterhouseCoopers LLP, KPMG LLP, Deloitte LLP and Ernst & Young LLP) currently hold 99 percent of the UK market for auditing services.

    Energy: In late September, the EC raided numerous natural gas companies in 10 different countries. The raids were designed to crack down on suspected collusion in the upstream supply of natural gas in Central and Eastern Europe. The EC apparently suspects that competitors agreed with each other to allocate customers or geographic areas or otherwise hinder competition.


    In September 2011, the U.S. District Court for the Eastern District of New York denied a motion for summary judgment brought by a group of Chinese vitamin manufacturers who argued that their claims should be dismissed under the doctrine of “foreign sovereign compulsion.” The doctrine precludes antitrust liability when a foreign government compels a company to engage in anticompetitive activity. Despite the intervention of the Chinese government, which claimed the defendants were compelled by the government to fix prices for export sales of vitamin C, the Court took a very narrow view of the doctrine and let the suit against the manufacturers stand. This ruling should assist plaintiffs in antitrust actions against foreign defendants.

    In In re Vitamin C Antitrust Litigation, No. 06-MD-1738 (E.D.N.Y. Sept. 6, 2011), the plaintiffs sued four Chinese vitamin manufacturers, alleging they conspired to fix the prices of vitamin C in violation of Section 1 of the Sherman Act and Sections 4 and 16 of the Clayton Act. Although defendants, who account for approximately 80 percent of the worldwide vitamin C market, conceded their pricing practices violated U.S. antitrust laws, they argued that the Chinese government compelled their pricing practices by establishing a statutory export scheme. The export pricing regime was to be administered by the Chamber of Commerce of Medicines and Health Products Importers and Exporters (Chamber of Commerce), an entity that the Chinese government had earlier established to serve as both a regulatory body and a private trade association. The defendants were members of the Chamber of Commerce and its subcommittee for importers and exporters of vitamin C. The subcommittee enacted a mandatory “industry-wide price agreement” for the export of vitamin C. Accordingly, defendants sought dismissal of the lawsuit under the foreign sovereign compulsion doctrine.

    Foreign sovereign compulsion is a narrow defense under U.S. law and practice. It is generally available where a defendant’s compliance with a foreign sovereign’s laws would result in a violation of U.S. law. In order for this defense to apply, the anticompetitive conduct must be actually compelled by the foreign sovereign (as opposed to facilitated, encouraged or sanctioned) and a refusal to comply must result in “the imposition of penal or other severe sanctions.”1

    In denying the defendants’ motion for summary judgment, U.S. District Judge Brian M. Cogan stated that “[t]he Chinese law relied upon by the defendants did not compel their illegal conduct. Although the defendants and the Chinese government argue to the contrary, the provisions of Chinese law before me do not support their position, which is also belied by the factual record . . . I decline to defer to the Chinese government’s statements to the court regarding Chinese law.” In making this determination, the Court stated that nothing in the Chinese regulations suggests that there was a mandatory order to set prices. In fact, the Court found that many of the statements made by the Chinese Ministry of Commerce in its amicus brief were contradicted by statements made by the Chinese government when it promulgated its export regime.

    The Court found, for example, that there was no evidence, either in the Chinese regulations or otherwise, that the defendants faced penalties if they failed to abide by the Chinese law. The imposition of a penalty is a necessary requirement for a foreign sovereign compulsion defense. Moreover, the Court held that nothing in the Chinese regulations demonstrates that the defendants were forced to fix prices above the market price. Even assuming there was a government mandate to coordinate prices, that mandate would have related to setting minimum prices. Finally, the court noted that “a compulsory regime is unlikely to be present where the defendants’ economic interest is in accordance with the allegedly compelled conduct.”

    This decision severely limits the application of the foreign sovereign compulsion defense to antitrust cases where a foreign government has explicitly ordered companies to fix prices or engage in other anticompetitive behavior. Moreover, it indicates a general skepticism towards a foreign sovereign’s interpretation of its own statutes and regulations allowing courts to give little or no weight to a foreign sovereign. This case will undoubtedly have serious ramifications for other Chinese exporters under similar regulatory regimes. There are currently two similar price-fixing actions against Chinese defendants in the magnesite and bauxite industries. Defendants in other industries may be adversely affected as well. For example, many of the airline cartel defendants have argued that they are precluded from liability because any fuel surcharge imposed as a result of alleged price-fixing was mandated by foreign governments.

    It is incumbent on all foreign companies to use extreme caution and seek advice from U.S. counsel when exporting to the U.S., particularly if the company is a member of a trade association or group that may be regulated by, or otherwise affiliated with, a foreign sovereign.

    1 - See U.S. Dep’t of Justice & Fed. Trade Comm’n Antitrust Enforcement Guidelines for International Operations §3.32 (April 1995), available at


    In October, the European Commission (EC) issued its final version of its Notice of Best Practices Antitrust Guidelines (notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU) (Guidelines). The Notice will serve as the most up-to-date guide to antitrust proceedings before the EC. The EC describes the new procedures as “increasing interaction with parties in antitrust proceedings and strengthening the mechanisms for safeguarding parties’ procedural rights.” We summarize the major changes to EC antitrust policy below.

    The new Guidelines attempt to give the defendants more information on developments during each stage of the investigation process. This includes initiating formal proceedings earlier, engaging in meetings with defendants during key points of the proceedings including in cartel cases, publicly announcing the opening and closure of a procedure, and the issuance of a Statement of Objections2. In addition, the EC has agreed to inform parties in the Statement of Objections of the most significant parameters regarding the possible imposition of fines and to make “key submissions” such as economic studies available prior to the Statement of Objections. “Key submissions” have been defined to include “significant submissions of the complainant or interested third parties, but not, for example, replies to requests for information.” The EC has also agreed to publish all decisions not to prosecute instead of just those it deems to be of interest.

    Most notably, the Guidelines establish a more expanded role for the EC’s hearing officer. The hearing officer is independent from the case handling services and plays a crucial role as guardian of procedural rights in competition procedures in the EC. The new guidelines give the hearing officer the authority to intervene during the investigatory phase of antitrust and certain merger proceedings; this might occur, for example, to assist a party with disputes with the EC regarding discovery and deadlines. The hearing officer also now has the authority to resolve issues regarding the confidentiality of communications between companies and their lawyers.

    The new Guidelines have addressed issues of certainty and transparency that have been criticized by defendants in the past. These new developments touch on most aspects of EC antitrust proceedings, from the initial assessment of a case to the publication of a decision, including the opening of proceedings, information requests, state-of-play meetings, confidentiality, legal privilege, statements of objections and the role of the hearing officer. A number of observers view the revisions as positive developments for companies under investigation by the EC. These changes come at the same time the European Union (EU) and U.S. have agreed to increase their cooperation on merger and cartel investigations. In October 2011, the Department of Justice, the EU and FTC issued revised “best practices” relating to dual merger reviews, which serve to encourage more inter-agency cooperation.

    These revised Guidelines should also be a reminder to companies that criminal antitrust investigations are more often than not international investigations. The U.S. and EU often conduct parallel investigations, and the fines associated with violations of EU competition law, as well as U.S. law, can be severe. Moreover, the UK has recently sought to raise the starting point for its antitrust penalties in an effort to deter anticompetitive conduct.

    2 - The Statement of Objections sets forth the EC’s preliminary conclusions as to whether a company has violated EU competition law. A defendant then has the opportunity to rebut these conclusions after which the EC conducts a hearing.