Automotive: The past three months have seen major movement in the U.S. Department of Justice (“DOJ”) Antitrust Division’s (the “Division”) auto parts antitrust investigation. The most significant news was the decision by nine additional auto parts companies to plead guilty to participating in a price-fixing conspiracy. Two related executives also agreed to plead guilty. Hitachi Automotive Systems will pay a fine of $195 million, Mitsubishi Electric Corporation will pay a fine of $190 million, and Mitsuba Corporation will pay a fine of $135 million. Mitsubishi Heavy Industries Ltd., NSK Limited, T RAD Company, Limited, Valeo Japan Company, Limited, and Yamashita Rubber Company Limited also agreed to plead guilty. The collective fines will push the total collected by the Division for the auto parts antitrust investigation to over $1.6 billion.
A Panasonic executive was indicted for his alleged role in fixing the price of steering-related parts sold to Toyota. The individual indictment followed a July 2013 agreement by Panasonic and Sanyo Electric, a unit of Panasonic, to plead guilty to price-fixing and pay fines of $56.5 million.
A former executive of G.S. Electech, Inc., a manufacturer of anti-lock brake systems, was indicted for conspiring to fix prices of auto parts sold to major manufacturers. G.S. Electech pleaded guilty to antitrust violations in 2012 and paid a $2.75 million fine for its role in the conspiracy to fix the price of auto parts. Those parts included wires and speed sensors sold to Toyota Motor Corporation. The former executive was reportedly the 16th individual indicted in the Division’s ever-widening probe of price-fixing in the auto parts industry.
Commodities: Goldman Sachs has been accused in a class action lawsuit of artificially inflating the costs associated with storing raw aluminum. The suit accused Goldman and competitors of collusion to increase the price for warehousing and storing aluminum, then colluding to expand the amount of time aluminum was being warehoused to benefit from artificially long warehousing, which allegedly enhanced the damage caused by inflated fees. JPMorgan Chase & Co., whose subsidiary owns dozens of such warehouses, was accused of similar conduct in a suit that was recently filed. The lawsuits claim billions of dollars in damages.
E-books: Apple Inc. will go to trial in May 2014 to defend price-fixing claims brought by state attorneys general and consumers. Apple was found liable by a federal judge in July 2013 in a civil price-fixing case brought by the Division. Notably, all of the publishers implicated in e-book price-fixing had admitted responsibility and settled with the government prior to the federal claims against Apple went to trial.
The court has not yet awarded damages in the Apple federal case. However, the court issued an injunction that requires Apple to renegotiate distribution arrangements with publishers. The court has also ordered Apple to hire an internal compliance officer for antitrust issues; that compliance officer will report to an external corporate monitor. These moves were not unexpected, as the court has previously said Apple was engaged in “blatant” ongoing price-fixing, and the Division strongly advocated a monitor. However, the court appointed the monitor for two years, rather than the 10-year term sought by the government. Apple will undoubtedly resist both the injunctive measures and the independent corporate monitor; furthermore, Apple has said it plans to appeal the federal case. Apple is also preparing to contest the consumer and state attorney general claims. Hundreds of millions of dollars are at stake.
Electronics/Technology: One of the AU Optronics (“AUO”) executives who was convicted of price-fixing in the flat screen industry was denied bail pending his appeal. Stephen Leung was found guilty and sentenced to two years in prison for his role in the conspiracy after he was re-tried; during the original AUO LCD screen price-fixing trial, the jury could not unanimously agree on the charges against Leung. Previously, the counts against Leung had mistried because a jury could not reach a unanimous verdict. Meanwhile, AUO executive Richard Bai is currently on trial for his role in fixing the price of LCD screens. Bai was not included in the original AUO LCD screen price-fixing trial because he had not been located and brought to court in the United States at the time.
Google continues to negotiate with European antitrust authorities to settle allegations that the Google search engine is biased in favor of other Google products. Competitors had complained that the Google search engine demonstrated a preference toward Google-owned products, and that Google limited the ability of some competitors to purchase advertising for products that compete with Google-owned products. Antitrust authorities in Europe had rejected an initial proposal by Google to clarify search results without changing the algorithm underlying the search engine.
A price-fixing conspiracy in the market for rechargeable batteries yielded two guilty pleas recently. Divisions of LG and Sanyo have agreed to felony convictions for agreeing to set prices on lithium-ion batteries used in laptop personal computers. LG agreed to pay a fine of approximately $1 million, and Sanyo will pay a $10.7 million fine. The plea agreements may parallel a pending civil battery price-fixing class action lawsuit, so we anticipate other companies will eventually plead guilty as well.
Energy: In 2000 and 2001, California suffered from a severe shortage of electricity that led to wide-ranging blackouts and substantial damage to California’s economy. The shortages were ultimately connected to illegal actions by Enron and others that affected the market for electric power. The fallout from that market manipulation continued in August when Canadian company Powerex Corporation agreed to pay $750 million to settle claims that it abused its market power in California’s energy markets at the time. Powerex was accused of purchasing electric power, shifting it to Canada, then selling it to California at highly inflated rates during the crisis. Although Powerex has not admitted liability, the settlement was structured as a combined cash payout of over $250 million and nearly $500 million in forgiveness for funds owed. The California Attorney General’s office pursued the case, which has yielded settlements with dozens of companies in the business of buying and selling electric power.
Financial: Guilty pleas associated with international banks’ manipulation of the Libor interest rate benchmark continued. UBS Securities Japan will pay $100 million for its role in the conspiracy to provide misleading information in submissions used to calculate the Libor, which in turn made the banks appear more financially strong than they actually were during the 2008 global financial crisis. The parent company, UBS AG, negotiated a non-prosecution agreement with the government and has cooperated with the Libor investigation. UBS has paid more than $1.5 billion in fines, regulatory penalties, and disgorgement for its role in the conspiracy to manipulate the Libor rate.
In a more local investigation of bid-rigging at municipal tax lien auctions in New Jersey that we have been following since 2012, 11 individuals and three companies have now pleaded guilty. Local/municipal governments that have tax liens associated with unpaid property taxes can sell the liens at auction. At tax lien auctions, investors bid on the particular interest rate that must be paid to retire the lien. Competitive bidding is supposed to drive those interest rates down, so by agreeing not to bid against each other, tax lien investors were able to obtain higher-than-competitive interest rates. Accordingly, property owners had to pay more to pay off the liens and avoid foreclosure on their property.
Food: In the wake of the criminal conviction of former SK Foods CEO Scott Salyer, Frito-Lay wants over $3 million in restitution. Salyer obtained business from several large companies by paying bribes to purchasing agents; after pleading guilty, he was sentenced to six years in prison and ordered to forfeit millions of dollars. Frito-Lay’s claim consists of legal fees associated with cooperating with the Salyer criminal investigation, in addition to artificially high prices it paid for SK Foods’ products. It is not clear whether Salyer has recoverable assets to satisfy the request.
Real Estate: The investigation of bid-rigging in real estate foreclosure auctions in multiple counties in California netted another guilty participant. The real estate investor is reportedly the thirty-sixth individual who has admitted being involved in widespread rigging of bids in public real estate foreclosure auctions. In addition to admitting his participation in a bid-rigging conspiracy, Daniel Rosenbledt will plead guilty to mail fraud charges. The investigation has focused on San Francisco, Alameda, Contra Costa, and San Mateo Counties.
As we have previously noted, Federal prosecutors have investigated similar schemes in a number of other jurisdictions as well. In Alabama, a real estate foreclosure auction investor pleaded guilty to making false statements to federal investigators when he was interviewed about potential bid-rigging in foreclosure auctions in Southern Alabama. The investor will pay roughly $15,000 in fines and restitution and faces up to five years in prison. Like foreclosure bid-rigging conspiracies in other parts of the country, the Alabama conspiracy featured agreements among investors to not bid against one another at auction, followed by “shadow” secondary auctions in which investors re-auctioned properties at lower prices, and engaged in a system of payments to ensure future rigged bidding. Two companies and nine individuals have reportedly pleaded guilty in the Alabama foreclosure investigation.
Transportation/Shipping: The long-running civil class action related to the Division’s freight-forwarding investigation led to court approval of a number of settlements. A federal judge in New York authorized 10 freight forwarders to settle and establish a ‘victim fund’ with in excess of $100 million. In doing so, the court rejected a claim by plaintiffs’ counsel for an attorney fee award of approximately $35 million. The court felt that plaintiffs’ counsel should not receive nearly one-third of the overall settlement as fees, calling the request ‘unreasonable.’
Antitrust regulators in Brazil fined American Airlines and three other air carriers for fixing the price of fuel for air cargo shipments. The Brazilian investigation commenced when Lufthansa AG and Swiss Airlines approached the government and entered into leniency agreements designed to assist the government in investigating price-fixing in the air cargo industry. American received the largest fine of the group, the equivalent of $125 million.
Is There Any End in Sight for the Auto Parts Antitrust Investigation?
How many separate parts go into the average automobile? In all seriousness, the largest criminal antitrust investigation in the history of the United States continues to expand and shows few signs of ending in the near future. As we discuss above, the Division announced several new guilty pleas and severe fines as nine companies agreed to plead guilty in the investigation.
The investigation has brought guilty pleas for price-fixing and bid-rigging in connection with a dizzying array of auto parts. At least one company has already pleaded guilty to fixing prices or rigging bids for the following laundry list of parts: sensors and electronic parts of various kinds, seat belts, radiators, windshield wipers, air-conditioning systems, instrument panels, air bags, steering wheels, headlamps, turn-signal switches, wire harnesses (electrical cables that shuttle power to multiple locations in cars and trucks), ball bearings, ignition coils, steering angle sensors, and rubber anti-vibration products.
The average car has between 10,000 and 30,000 parts, many of which have not yet been mentioned in the investigation. The world’s motor vehicle manufacturers produced approximately 84 million vehicles in 2012 alone. Accordingly, the number of auto parts for which prices may have been fixed and that have not yet been implicated in the investigation is very large, and the volume of commerce involved remains massive. These facts suggest that auto parts companies will continue to be under scrutiny in 2014 and beyond. Perhaps more importantly, the recently-announced fines represent well over half the total that the Division has announced to date in 2013. Given the unprecedented scope and vitality of this investigation, as well as the amounts of money at stake in the global market for automobiles, we expect it to be a major priority of the Division going forward.