Criminal Antitrust Update - July 2012

    16 July 2012


    Health Care: Civil allegations that Blue Cross/Blue Shield of Michigan used restrictive contracts to limit competition from other insurers have survived a motion to dismiss. Aetna Inc. accused Blue Cross of using contracts to prevent hospitals from providing more favorable rates to competing insurance companies. Parallel proceedings initiated against Blue Cross/Blue Shield by the U.S. Justice Department’s Antitrust Division (the Division) continue to progress toward a trial in 2013.

    Air Cargo: Japan Airlines settled with the New Zealand Commerce Commission (NZCC) by agreeing to pay nearly $2 million in fines for its role in fixing the price of air cargo fuel and security surcharges. Three other airlines (British Airways, Cargolux and Quantas) already settled with the New Zealand authorities. Several other airlines that the NZCC sued in 2008, most of them based in Asia, have not yet resolved the investigation. All of the airlines that have settled with the NZCC were already convicted of felony antitrust violations and paid substantial fines in the United States.

    Charcoal: In yet another example of the Division’s willingness to pursue local conspiracies, the owner of Chef’s Choice Mesquite Charcoal agreed to plead guilty and cooperate with an investigation of alleged price fixing among companies that sell mesquite charcoal in California. Three competitors allegedly agreed to not compete with each other for certain customers and to use ‘courtesy’ bids to steer customers toward certain suppliers during competitive bidding. The owner of Chef’s Choice is reportedly cooperating with the ongoing investigation.

    Banking/Financial: Barclays bank has agreed to pay massive fines related to its role in fixing the price of the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate. In the United States, the Commodities Futures Trading Commission (CFTC) imposed $200 million in fines on Barclays, and the U.S. Justice Department’s Fraud Section will be paid $160 million to settle similar allegations. Meanwhile, the U.K. Financial Services Authority (FSA) fined Barclays nearly $100 million. Barclays will also have to improve its internal processes and controls as part of the settlement. Several other large international banks remain under investigation. The settlement by Barclays will almost certainly influence other banks to consider settlement.

    In a separate investigation, TD Ameritrade settled with multiple attorneys general regarding allegations that it colluded with companies that facilitate trading activity. Investigators suspect that investors may have been charged artificially high transaction costs as a result of the alleged antitrust violations. TD Ameritrade will cooperate with ongoing investigations and establish an antitrust compliance policy and training program but does not appear to have been fined, at least at this stage of the investigation.

    Technology: Microsoft failed to overturn a billion-dollar 2008 penalty imposed by European regulators. European antitrust authorities determined that Microsoft failed to make data available to software developers on fair financial terms. By so doing, Microsoft allegedly suppressed competition from developers interested in designing products that would work with Microsoft computer operating systems. The General Court of the European Union only reduced the fine by approximately $40 million.

    Publishing: Apple Inc. has obtained a June 2013 trial date in the Division’s e-book price-fixing and market manipulation case. The Division accused Apple and several publishers of conspiring to inflate the price of e-books. Apple is also defending similar allegations brought by several state attorneys general. The court is said to be evaluating whether the Division’s claims could be tried at the same time as private civil and attorney general claims against Apple for the same alleged conduct.

    Automotive: Japan’s Fair Trade Commission lodged criminal charges against a group of manufacturers that make ball bearings for the automotive industry and for industrial machines. The trio of manufacturers allegedly conducted meetings and agreed on price increases. The investigation began with public raids on the companies in July 2011. The enforcement activity has fueled a class action in the United States District Court for the Eastern District of Michigan by a group of auto dealers claiming they were harmed by a long-standing conspiracy to artificially inflate ball bearing prices.

    LCD Screens: A former Hitachi-LG Data Storage employee obtained a significant reduction in his sentence following his cooperation with the Division’s investigation of price-fixing in the optical disk drive business. The plea agreement anticipated a sentence of 30-37 months prison based on the United States Sentencing Guidelines and included the option to apply for a downward departure. The judge in the United State District Court, Northern District of California reduced that sentence to 210 days. Hitachi paid in excess of twenty-one million dollars in fines for its role in the price-fixing, and a number of other employees had also pleaded guilty.


    In Southern Union v. United States (No. 11-94, decided June 21, 2012), the United States Supreme Court issued an opinion regarding financial damages that may have great influence on future antitrust matters. Southern Union was convicted of violating the Resource Conservation and Recovery Act of 1976 for storing mercury without appropriate permits. As a result of the conviction, a court sentenced Southern Union to pay a large fine and to shoulder other obligations that would ultimately result in penalties between $18 million and $38 million. Southern Union argued that the penalties should have been decided by a jury, not a judge.

    The Supreme Court agreed. The Court applied the logic of Apprendi v. New Jersey, 530 U.S. 466 (2000) and the Sixth Amendment in holding that most facts that prosecutors present to support enhanced financial penalties must be proved beyond a reasonable doubt and decided by a jury, not a judge. Apprendi was a highly significant decision that held judges could not exceed statutory maximum thresholds in criminal sentencing unless the facts supporting the enhanced penalty had been presented to a jury and proved beyond a reasonable doubt.

    Southern Union may have far-reaching consequences for antitrust enforcement matters. Antitrust damages can be difficult to prove and generally require sophisticated testimony by economists. In particular, antitrust damages rely heavily on the volume of commerce allegedly affected by anticompetitive activity, and the highly technical nature of such testimony may be hard to follow for many juries. Forcing the government to present such testimony to a jury at trial, rather than a judge in a post-trial sentencing hearing, should significantly increase uncertainty and trial risk for the government. Economic analysis already serves as a powerful tool in negotiating settlements in antitrust enforcement cases. Southern Union promises to increase the importance of such analysis and to emphasize the need, on the part of defendants and prosecutors, to obtain detailed, high-quality economic analyses as early as possible in the life of an enforcement case.


    Parties continue to dispute the extra-territorial reach of U.S. antitrust laws under the Foreign Trade Antitrust Improvements Act (FTAIA). The most recent judicial pronouncement on the FTAIA came from the U.S. Court of Appeals for the Seventh Circuit in a series of long-running antitrust class action lawsuits that allege a global conspiracy to inflate the price of potash, which is a key ingredient in fertilizer (In Re Potash Antitrust Litigation). Most potash originates in Canada, Russia and Belarus. The class actions claim that the major potash producers agreed to restrict output from their mines and fix potash prices in Brazil, China and India, which allegedly affected the price of potash in the United States.

    The FTAIA extends the reach of the Sherman Act to import trade or commerce under applicable circumstances – such as when the conduct has a “direct, substantial, and reasonably foreseeable effect” on import trade or commerce. When a panel of the Seventh Circuit considered this matter last year, it took a somewhat narrow view of the FTAIA’s jurisdictional reach. The panel found that the complaint did not contain sufficiently specific claims that foreign defendants responsible for fixing the price of potash overseas were targeting U.S. market for potash. Minn-Chem, Inc. v. Agrium Inc., 657 F.3d 650 (7th Cir. 2011).

    On June 27, the full Seventh Circuit, sitting en banc, reversed the decision of the panel and its own 2003 opinion, holding that the complaint contained enough detail to survive a motion to dismiss. Minn-Chem, Inc. v. Agrium, Inc., No 10-1712, Slip Op. at 16 (7th Cir. June 27, 2012)(en banc). The court concluded that the FTAIA establishes an element of an antitrust claim involving foreign conduct – not a jurisdictional limitation, as some judicial opinions have suggested. The Seventh Circuit adopted a Division argument that “direct” impact need only constitute ‘a reasonably proximate causal nexus.’ The ruling echoes a relatively recent decision by the Third Circuit, Animal Science Prods., Inc. v. China Minmetals Corp., 654 F.3d 462 (3d Cir. 2011). The Seventh Circuit’s en banc decision may signal a trend toward a broad interpretation of the FTAIA that could limit foreign companies’ defenses to antitrust enforcement activity and civil claims in the United States.