2010 Mid-year Criminal Antitrust Update

July 7, 2010

As has been the case for the last several years, the first half of 2010 has been a busy one for criminal antitrust enforcement around the globe.  In past years, we have reported on the consistently and dramatically increased numbers of pleas, fines, and prison sentences in cartel cases resulting from increased and coordinated global enforcement of antitrust laws.  Although 2010 continues to provide numerous success stories for global competition enforcers, it also saw a few notable setbacks and was marked by a relative lull in large fines and prison sentences imposed by the U.S. Department of Justice’s Antitrust Division, typically a leader in criminal antitrust enforcement.  Unlike past years, most of the significant action in the first half of 2010 occurred in other countries.

Notable Developments in Europe

Collapse of OFT’s Trial Against British Airways Executives

Perhaps the most dramatic development in criminal antitrust law around the globe this year was the startling collapse in May of the U.K.’s Office of Fair Trading’s first contested prosecution for price-fixing.  The OFT brought criminal charges of price-fixing against four British Airways executives in connection with a global investigation and prosecution of airline overcharges for fuel surcharges.  (See related Air Cargo section below.)  British prosecutors were forced during trial to withdraw these charges against the executives when tens of thousands of previously undisclosed emails from Virgin–British Airway’s alleged co-conspirator that is cooperating with the government under protection of immunity–were uncovered.  Some of these previously undiscovered emails suggested that Virgin raised fuel surcharges without British Airways’ participation.  Echoing statements by U.S. judges in several recent high-profile (non-antitrust) criminal cases–including the widely publicized trial of Senator Ted Stevens on corruption charges–the OFT’s failure to disclose this exculpatory evidence prompted the court to question "whether the manifest failures on the part of the prosecution are such as to render a fair trial impossible."  In the face of this skepticism from the court, the OFT withdrew its case and the court entered an acquittal for the defendants.

Price-fixing has been a criminal offense in the U.K. since 2002, and this was the first criminal case brought to trial by the OFT.  Many commentators have stated that this failure calls into question the OFT’s ability to successfully prosecute price-fixing crimes.  These critics note that this case had only two conspirators, one of whom was cooperating with amnesty, and the OFT enjoyed significant cooperation from other international enforcers, including the U.S. Department of Justice.  Some have even suggested that this high-profile failure to obtain a conviction spells the end of the criminal antitrust statute in the U.K. altogether, although no such action has been formally considered by the government.  We do not agree with this prediction.  Instead, it is more likely that the OFT will learn from this experience and successfully bring new criminal cases in the years to come. 

The impact of this failure, however, extends beyond the U.K.  The double jeopardy provisions of the U.K.’s Extradition Act make it all but certain that these executives will not face criminal antitrust charges elsewhere, including the U.S., despite the guilty plea of the executives’ employer, British Airways.

OFT Imposes the Largest Fines Ever on Two Tobacco Companies

Offsetting the OFT’s defeat in the British Airways trial was its imposition of the largest fines ever under the Competition Act for a total of $347 million.  Two tobacco companies–Imperial Tobacco Group PLC and Gallaher Group Ltd.–along with ten retailers were accused of linking the price of their tobacco with the prices of a competing brand since 2001.  The OFT’s investigation had been ongoing since 2003, when one of the retailers, Sainsbury’s, reported the conduct to the OFT and received immunity in exchange for cooperation.  This investigation reflects the effective application of immunity policies to detect and prosecute cartel cases around the world.

Questions Over EU’s Policy on Reductions in Fines on Financially Strained Companies

In the EU, the new Competition Commissioner, Joaquin Almunia, announced in May that the Commission would further consider the circumstances in which it takes into account the financial hardship of a defendant in assessing cartel fines, in light of the increase in parties raising an "inability to pay" argument.  However, commentators and practitioners have voiced skepticism at the Commission’s implementation of this policy.  Critics note that only a day after Mr. Almunia raised "inability to pay," the Commission announced high fines against 17 bathroom fixture companies amounting to $806.7 million.  Although five of these companies received modest reductions of their fines on the basis of their financial difficulties, the others that did not otherwise qualify for hardship or leniency credit were hit with the maximum penalty of 10% of annual EU turnover, which is atypical.  The limited availability of "inability to pay"–as well as the narrow considerations the Commission will take in assessing a discount on this basis–was also very recently demonstrated in the fines levied on the prestressing steel cartel (see next section).  This development demonstrates the delicate balance that the EU appears to be trying to strike to continue its trend of increasingly higher fines for price-fixing while recognizing that certain firms will be unable to pay such fines and remain viable.

EU Announces Heavy Fines in Steel Cartel

On June 30, the Commission fined 17 producers of prestressing steel (metal wires and strands used in concrete construction) approximately $646.4 million for engaging in a price-fixing conspiracy that transpired over at least 18 years and 550 meetings.

Some of the individual fines were notable cautionary tales.  The fines of ArcelorMittal Fontaine and ArcelorMittal Wire France were increased by 60% as a penalty for recidivism (both had participated in two prior cartels).  Two companies, Redaelli and SLM, did not fulfill their duty to cooperate as leniency applicants and hence did not receive any reduction.  Due to the long duration of the cartel, some fines had to be capped at the maximum legal fine of 10% of worldwide turnover for 2009.

Thirteen companies made applications for "inability to pay" discounts, but the Commission granted only three, which led to reductions of 25%, 50% and 75%.  In each case, the Commission found that the companies would have gone bankrupt without the reduction.  In its determination, the Commission took the following factors into account:  their latest annual accounts, economic forecast, financial power, rate of return, ability to pay, and the financial relationship to external financial partners and shareholders.  In accordance with its fining guidelines, the Commission also considered "soft" factors as the social and economic environment of the respective companies in order to assess whether their assets would lose significant value if the enterprises were to file for bankruptcy.

EU Concludes First Settlement in Price-fixing Case with DRAM Makers

Another notable development in Europe is the long-expected conclusion of the EU’s first settlement in a cartel case.  The Commission introduced a settlement procedure for cartel cases in June 2008.  The procedure was designed to allow the Commission to handle cartel cases more quickly, thereby freeing up resources to launch new investigations.  In cases where the Commission has conducted an initial investigation and is ready to adopt, but has not yet adopted, a Statement of Objections, the procedure allows the parties under investigation to review the evidence in the Commission’s file and to decide whether to acknowledge their involvement in the cartel and liability under EU competition rules.  If so, they receive an automatic 10% reduction of the fine ultimately imposed.

Nearly two years passed without its use until the announcement of the DRAM settlement on May 19.  The Commission entered into settlement with 10 DRAM makers for total fines of $404.4 million, after taking into account the 10% reduction granted to each party.  (Several parties also received leniency for cooperating with the Commission’s investigation, including one maker that received complete immunity.) 

This settlement was a long time in the making.  The Commission’s investigation into price-fixing in the DRAM industry began in 2002 following a leniency application by one of the parties.  Settlement talks did not begin until 2009.  The Commission hoped that future settlements would mean that cases would be disposed of in less than six months, although the DRAM decision took fifteen months from the commencement of settlement talks to be adopted.

There is reason to be skeptical of the attractiveness of the settlement procedure given its high cost in terms of what the parties have to give up (acknowledgement of liability and a curtailed procedure) in exchange for a relatively low return (10% reduction in any fines).  This case, however, demonstrates that the procedure can work, and a first precedent may make it more likely that other parties will use this procedure more often. 

First Successful Extradition for Antitrust-Related Offense

In a development that made news on both sides of the Atlantic, after many years of challenges in both the U.K. courts and the House of Lords, the U.S. Department of Justice successfully extradited its first foreign defendant on antitrust-related charges.  Ian Norris, a U.K. citizen, had been indicted in the U.S. in 2003 for participating in a price-fixing conspiracy for power train components and for obstruction of justice.  The DOJ’s first attempt to extradite Mr. Norris was a failure.  The House of Lords blocked the extradition by finding that British law did not permit the extradition of a U.K. resident for an offense in a foreign country that was not also a crime in the U.K.  (Mr. Norris’ alleged acts pre-dated the criminalization of price-fixing in the U.K. in 2002.)  The DOJ made another attempt, this time focusing on the obstruction of justice charge.  On February 24, 2010, the newly formed U.K. Supreme Court ruled that Mr. Norris could be extradited to face obstruction of justice charges in the U.S.  Mr. Norris is now in custody in a federal penitentiary in Pennsylvania awaiting trial.  Now that price-fixing is a crime in the U.K.–and an increasing number of countries are seeking to criminalize price-fixing–it will be harder for foreign nationals to avoid facing charges in U.S. courts.

More Pleas and Indictments in TFT-LCD Investigation in U.S.

Significant fallout from the investigation into price fixing in the TFT-LCD industry that began in late 2006 continued into 2010.  To date, a total of seven companies have entered guilty pleas and collectively paid $890 million in fines.  The most recent of these pleas was just announced at the end of June.  Taiwanese panel maker HannStar Display Corp. pleaded guilty to a single count of price-fixing for its participation in a conspiracy to inflate the prices of TFT-LCD panels from September 14, 2001 through January 31, 2006.  HannStar agreed to pay a fine of $30 million and cooperate in the DOJ’s on-going investigation.

The biggest development in 2010 in this investigation, however, was the indictment of a major Taiwanese LCD panel maker, AUO Optronics Corp. (and its American subsidiary, AUO Optronics Corp. America), on June 10, along with six of its executives.  This was the first indictment of a corporate defendant in the DOJ’s investigation into TFT-LCD panels.  Among the AUO executives indicted was the company’s president, Hsuan Bin Chen, a Taiwanese national.

Several foreign executives have also been indicted or pled guilty in the United States and were sentenced to jail time as a result of the TFT-LCD investigation.  Including the six AUO executives, 17 individuals have been charged with price-fixing as a result of the DOJ’s investigation.  Among the 17 were Jau-Yang Ho and Chu-Hsing Yang, executives of another major Taiwanese LCD panel maker, Chi Mei Optoelectronics Corp., who each entered guilty pleas in 2010.  Mr. Ho agreed to serve a 14-month sentence and pay a $50,000 fine.  Mr. Yang was sentenced to 9 months in prison and ordered to pay a $25,000 fine.

The DOJ has stated that its investigation is ongoing and that additional pleas and indictments may be forthcoming in the year.

Third Executive Indicted in Cathode Ray Tube Investigation

In the related investigation into the CRT industry that began in November 2007, this year brought the third indictment of an executive in the United States.  Alex Yeh, a Taiwanese executive from an unnamed company, was indicted for a single count of participating in a conspiracy to fix the prices of color display tubes, a type of cathode ray tube used for computer monitors.  Cheng Yuan Lin, the former chairman of Taiwanese tube maker Chunghwa Picture Tubes Ltd., and Wen Jun Cheng, also a former Chunghwa executive, were indicted in 2009 for their alleged participation in CRT conspiracies.  (Mr. Lin was alleged to have also participated in a conspiracy involving color picture tubes, a type of CRT used in TVs.)  The DOJ has yet to issue any indictments of any companies and has not announced any guilty pleas, despite the fact that its investigation has been overt for two-and-a-half years, making this case among the most watched by practitioners.

Korea Fines 19 Airlines in Latest Development in Global Air Cargo Investigation

As we have previously reported, numerous jurisdictions around the world have aggressively pursued investigations of price-fixing of fuel surcharges in the international air cargo industry.  In the U.S., the total fines from the DOJ’s air cargo investigation have amounted to more than $1.6 billion, the largest total for a single criminal antitrust investigation in the United States.  In addition, fifteen airlines have now pled guilty to criminal violations of U.S. antitrust laws.  Outside the United States, the Japanese Fair Trade Commission ("JFTC") ordered 11 companies to pay a total of $92.4 million for cartel activity in the air cargo market.  Further, the Australian Competition and Consumer Commission ("ACCC") imposed fines on Martinair ($5 million), Cargolux ($5 million), and Air France-KLM ($6 million).  In Canada, Martinair, Air France, and KLM pled guilty and were fined a total of $10 million.

In a continuation of this trend, in May 2010, the Korea Fair Trade Commission ("KFTC") announced that it had imposed record-breaking fines against 19 airlines in its own investigation.  The total fines amounted to approximately $98.6 million, the most the KFTC has ever fined an alleged single international cartel.  Among those hit with fines were Korean Air, Asiana Airlines, Japan Airlines, Nippon Cargo, British Airways, Air France, Lufthansa, Qantas, Singapore Airlines, and Cathay Pacific.

Car Parts Makers Raided

The EU, DOJ, and JFTC all conducted simultaneous raids of auto parts makers in February 2010.  These enforcement authorities suspect the component makers of engaging in a conspiracy to fix the price of electrical car parts, particularly wiring harnesses, which are often described as the central nervous system of an automobile.  Companies that were raided in this investigation include Yakazi, Tokai Rika, and Denso International.  The investigation is in its early stages and it remains to be seen if it will produce any guilty pleas or indictments.

U.S., Australia Levy Fines in Marine Hose Investigation

The ongoing investigation into cartel activity in the marine hose industry produced one additional plea in the U.S. and fines for four companies in Australia. 

In the U.S., marine hose maker Parker ITR entered a guilty plea and agreed to pay $2.29 million for its participation in a conspiracy to fix prices of marine hoses sold in the U.S.  This guilty plea brings the total for the investigation to nine individuals and four corporations.

Further, in August 2009, the ACCC began its own investigation into cartel activity in the marine hose industry.  In April 2010, the federal court in Melbourne ordered four companies to pay a combined $8.24 million in fines.  The companies were Dunlop Oil & Marine, Ltd. ($2.68 million), Bridgestone Corp. ($1.68 million), Trelleborg Industrie SAS ($3.2 million), and Parker ITR SRL ($675,000).

These fines are on top of those imposed by the European Commission last year.  These four companies, plus Manuli Rubber Industries SPA, were fined a total of $173 million.  In addition, the KFTC also issued fines last year against the same four companies penalized in Australia of just under $1 million, the first penalty ever issued by the KFTC for an international bid-rigging cartel. 

U.S. Congress Extends Civil Leniency Under ACPERA

On June 4, President Obama signed a bill extending the civil leniency provisions of the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 ("ACPERA") for another ten years.  Without this extension, ACPERA’s civil leniency provisions would have expired on June 22, 2010.

ACPERA protects individuals and companies that self-report criminal violations of the Sherman Act to the DOJ from treble damages and joint-and-several liability in private lawsuits.  Normally, trebling and joint-and-several liability are automatic enhancements to damages awarded to civil antitrust plaintiffs.  In exchange for cooperation with plaintiffs, ACPERA limits the civil liability of DOJ leniency applicants to single damages attributable to the leniency applicant’s own sales to plaintiffs.  Other co-conspirators, however, remain jointly and severally liable for all damages, including treble damages. 

When originally enacted in 2004, ACPERA contained a five-year sunset provision.  Last year, Congress extended the sunset date to June 22, 2010.  With broad support from the legal community, both houses of Congress supported the further extension nearly unanimously.  The statute will postpone ACPERA’s sunset until June 22, 2020. 

The statute also clarifies the timing of a leniency applicant’s cooperation with civil plaintiffs in order to fulfill its civil cooperation obligations under ACPERA, which entail an accounting of relevant facts and providing reasonable access to documents and witnesses.  The legislation directs courts to consider the timeliness of an applicant’s cooperation with civil plaintiffs in all cases and will require applicants to begin certain cooperation with civil plaintiffs (specifically, the disclosure of relevant facts and documents) "without unreasonable delay" after the court lifts a discovery stay or protective order obtained by the DOJ.


2010 has so far been marked by a lull in the dramatic enforcement activity in the U.S. that has been the trend over the last several years.  Simultaneously, this year has found increased activity and aggressiveness–sometimes with mixed results–in non-U.S. jurisdictions.  As competition laws in other jurisdictions continue to mature, and more countries adopt criminal antitrust statutes, companies and their executives can expect increasing criminal antitrust exposure from jurisdictions other than the U.S.  This is not meant to diminish the exposure potential price-fixers face in the U.S., which remains considerable and greater than any other jurisdiction, but to underscore the growing complexity of international criminal antitrust cases.

Gibson, Dunn & Crutcher LLP 

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