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Client Alert

March 30, 2006

German Federal Cartel Office Announces New Leniency Program

A few days ago, the German Federal Cartel Office ("FCO") published on its website an informal notice in which it detailed its willingness and ability to accept anonymous whistleblower information under its new Leniency Program. This notice provides a "manual" for anonymous whistleblowers, primarily setting out the minimum requirements for anonymous information. The notice comes shortly after the FCO published its new Leniency Program which replaces the previous regulation from 2000. Since 2000, the FCO has operated a Leniency Program which was first applied to a cartel in the paper industry in 2002. While the old regime lagged somewhat behind the EC Commission's Leniency Program (e.g., full immunity for the first whistleblower was at the FCO's discretion), the German legislator expressly authorized the FCO last year to issue a new program with which Germany will be catching up with European standards. The new Leniency Program contains the following novel features:The first whistleblower to come forward and cooperate with the FCO - enabling the FCO to obtain a search warrant on the other cartel members - can automatically rely on obtaining immunity from fines (this is assured to him in writing);Even after a dawn raid has been conducted, a cartel member can still obtain full immunity from fines, provided he is the first to cooperate with the FCO and he submits evidence to prove an offence;The other cartel members who have lost the race for the first place (i.e., the second or third whistleblowers) can have their fines reduced by up to 50 percent (again, the time of the announcement of intent to cooperate is decisive for the level of reduction of the fines); As a new rule in the race for first place, the FCO will apply a so-called "marker system"; whoever would like to cooperate with the FCO can place a "marker" (even verbally) by providing a necessary minimum of information about the cartel. The marker assures the applicant his status as first applicant if he provides necessary additional information within a maximum period of eight weeks. The launch of the new Leniency Program is only the latest step in a range of innovations in the FCO's vigorously intensified fight against cartels. After having formed a special unit for the combat against cartels (especially equipped for rapid dawn raids, e.g., with IT specialists, etc.), a drastic increase of the maximum fines for cartel participants (up to 10 percent of the worldwide annual turnover) and the facilitation of private antitrust enforcement, the brand-new Leniency Program and the newly introduced possibility of anonymous hints is expected to uncover a large number of hitherto "safe" cartels. Taken together, these innovations will have dramatic effects on antitrust enforcement and private antitrust litigation in Germany and throughout Europe. Consequently, the FCO President Dr Böge stated: “In the last few years, the Leniency Program has become an important instrument in the fight against illegal agreements between competitors about prices, sales quotas and market sharing. With the new version, we intend to build on the experience we have gained in the last few years and make the Leniency Program even more effective.”English language copies of the FCO's Notice on the new Leniency Program can be downloaded from the FCO's website at http://www.bundeskartellamt.de/wEnglisch/download/pdf/06_Bonusregelung_e.pdf. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, orMichael Walther, Partner - +49-89-18933-180; mwalther@gibsondunn.comUlrich Baumgartner, Associate - +49-89-18933-180;  ubaumgartner@gibsondunn.com© 2006 Gibson, Dunn & Crutcher LLPThe enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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March 22, 2006

Lawyers Can Reap Results With Judge’s Method

Gibson Dunn partner Daniel Kolkey is the author of "Lawyers Can Reap Results With Judge’s Method," [PDF] published by the Los Angeles Daily Journal.Reprinted with Permission, © The Daily Journal Corporation. All rights reserved.
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March 17, 2006

Recent OFAC Activity of Interest to Companies Participating in International Exports

The Office of Foreign Assets Control ("OFAC") has recently taken four actions of potential interest to companies participating in international exports:First, OFAC recently codified the Syrian sanctions regulations that had been imposed by a 2004 Executive Order.Second, President Bush has just issued an Executive Order imposing sanctions against the Cote d'Ivoire.Third, the Federal Register has published OFAC's new Economic Sanctions Enforcement Procedures for Banking Institutions.Fourth, the U.S. parent of ABN AMRO has been assessed stiff penalties for its overseas branches' lack of adequate export compliance and maintenance programs.OFAC Codifies Syrian Sanctions Regulations in the CFROFAC recently adopted a new Code of Federal Regulations part that implements the Syrian sanctions regulations, which were previously codified only in Executive Order 13338.  New Part 542 blocks the property of all individuals who have been directing or significantly contributing to the Syrian Government's (1) provision of safe haven to or support for any person whose property or interests in property are blocked under U.S. law for terrorism-related reasons, (2) military or security presence in Lebanon, (3) chemical, biological or nuclear weapon production and development and (4) steps taken to undermine U.S. and international efforts toward stabilization and reconstruction of Iraq.  It also blocks the property of those who are controlled by or directly or indirectly acting for any individual whose property or property interests have been blocked.  Once the property or property interest is blocked, it may not be transferred, paid, exported, withdrawn or otherwise dealt in.Blocking of property and interests in property includes, but is not limited to, the prohibition of (1) contributing any funds, goods or services to or for the benefit of any person whose property has been blocked pursuant to these sections, (2) receiving funds, goods or services from such person and (3) dealing in any security that is in the control of a U.S. person but inscribed or held for the benefit of any such persons, unless otherwise authorized by these sections or by special license.  Any transfer that violates this part will be deemed null and void unless the transfer was made before the part's effective date and the person who holds or maintains the property had written notice of or by written evidence had recognized the transfer.These prohibitions on transactions involving blocked property apply to transactions by any U.S. person in a location outside the U.S. with respect to property that the U.S. person knows, or has reason to know, is held in the name of a person whose interests in the property are blocked. The prohibition on dealing in blocked property also prohibits U.S. financial institutions from performing under any existing credit agreements, including, but not limited to, charge cards, debits cards, or other credit facilities issued by a U.S. financial institution to a person whose property or property interest are blocked.  Likewise, a setoff against blocked property, whether by a U.S. bank or person, is a prohibited transfer. President Bush Imposes Sanctions Against the Cote d'IvoireOn February 7, 2006, the President imposed sanctions against the Cote d'Ivoire in response to the United Nations Security Council's determination that the situation in Cote d'Ivoire poses a threat to international peace and security in the region.  These sanctions prohibit U.S. persons, wherever located, or anyone in the United States from engaging in any transaction with any person or entity found to:constitute a threat to the peace and reconciliation process in Cote d'Ivoire,be in serious violation of International law in Cote d'Ivoire,have directly or indirectly supplied, sold or transferred to Cote d'Ivoire arms or assistance, advice or training related to military activities,to have publicly incited violence and hatred contributing to conflict orto have provided material, financial or technical assistance to those qualified above or to any persons designated pursuant to this order.Any property or interest in property of these persons that is in the United States or comes into the possession of a U.S. person, including an overseas branch, must be blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.In addition, the following persons fitting the above description were added to the OFAC Specially Designated Nationals list: Eugene Ngoran Kouadio DJUE (Leader of Union for the Total Liberation of Cote d'Ivoire, born December 20, 1969); Martin Kouakou FOFIE ("New Forces" Zone Commander in Korhogo, born January 1, 1968) and Charles BLE GOUDE (Head of "Young Patriots," born January 1, 1972).The Federal Register Publishes OFAC's New Economic Sanctions Enforcement Procedures for Banking InstitutionsBecause of their unique role in the implementation of OFAC sanctions programs and the nature of banking institutions' transactions, OFAC is publishing enforcement procedures for banking institutions effective February 6, 2006.  Banking institutions under this rule are depository institutions supervised or regulated by the Board of Governors, the Federal Reserve System, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency or the Office of Thrift Supervision.Pursuant to these new rules, OFAC will be reviewing banking institutions with economic sanction violations or suspected violations on a periodic basis.  As part of its investigation, OFAC will require the subjected institutions to identify what actions led to the violation and what actions the institution has taken to overcome the deficiencies in its system that enabled these actions.  Such an investigation may lead to one or more of the following: an administrative subpoena, an order to cease and desist, a blocking order, an evaluative letter summarizing concerns, a civil penalty proceeding or the suspension and possible revocation of an OFAC license.When making its decision as to administrative action OFAC will consider, among others, the following factors:the institution's history of sanctions violations,the size of the institution and the ratio of OFAC-related transactions handled correctly to OFAC-related transactions handled incorrectly,the quality and effectiveness of the institution's overall OFAC compliance program,if violations are the result of systemic failures or are atypical andactions taken by the institution to correct the problems that led to the apparent violation or violations.In conjunction with this interim final rule, OFAC published a notice of partial withdrawal of the 2003 proposed Economic Sanctions Enforcement Guidelines.  The proposed rule (68 FR 4422-4429, January 29, 2003) is withdrawn with respect to "banking institutions" as defined in the interim final rule.OFAC will be taking comments on the new procedures any time before March 13, 2006.ABN AMRO Bank Assessed Civil Money Penalties for Unsafe and Unsound PracticesOn December 19, 2005, the Board of Governors, OFAC, the State of Illinois Department of Financial and Professional Regulations ("IDFPR") and the New York State Banking Department ("NYSBD") assessed civil money penalties for unsafe and unsound practices against ABN AMRO Bank.One of ABN AMRO's overseas branches developed special procedures concerning funds transfers, check clearing and letter of credit transactions that circumvented the branch's U.S. law compliance systems.  These special procedures allowed the overseas branch to engage in transactions related to Iran, dealings in services of Iranian origin, the facilitation of exportation of services to Iran, and transactions in which the Government of Libya had an interest.ABN AMRO failed to adequately review these special procedures to determine if they were consistent with U.S. law.  ABN AMRO also failed to adequately document, report, and follow up on negative findings from certain internal audits; failed to produce negative internal audit findings in a timely manner to U.S. supervisors; failed to follow up on inquiries referred to the New York branch from overseas offices regarding compliance with U.S. law; overstated the extent of its due diligence efforts and failed to escalate the special procedures for review outside of the trade processing business or reporting line.  In short, ABN AMRO lacked effective systems of governance, audit and internal control to oversee the activities of its branches with respect to legal, compliance and reputational risk; justifying the imposition of strong penalties on the U.S. parent.The Board of Governor's assessed a $40 million penalty against ABN AMRO, and FinCEN assessed a $30 million penalty, which will be satisfied with a single payment of $40 million by ABN AMRO. In addition, ABN AMRO will pay the NYSBD $20 million and the IDFPR $15 million.  ABN AMRO will also make a voluntary endowment to the Illinois Bank Examiners' Education Foundation in the amount of $5 million.OFAC further ordered that a qualified independent third party review ABN AMRO’s transactionsin its Chennai, India operations from January 1, 2003, to August 31, 2004, to determine whether any of its transactions subject to the ITR or the LSR were processed through, or on behalf of any U.S. individual or entity.in its Dubai, U.A.E. branch and its Chennai, India operation from August 1, 2002, through August 31, 2004, to determine whether any transactions subject to any OFAC regulation, other than the ITR and LSR regulations, were processed through, or on behalf of, any U.S. individual or entity.in its Dubai, U.A.E. branch and Chennai, India operations, on an annual basis for a three year period beginning September 1, 2004, to determine whether any transaction subject to OFAC regulation was processed through, or on behalf of, any U.S. individual or entity.These recent cases suggest that OFAC has become increasingly active in monitoring export compliance and that sanctions can be severe.  Gibson, Dunn & Crutcher LLP helps many of its clients develop and maintain their export compliance programs.  If you have questions or concerns about the effectiveness of your compliance procedures, the lawyers in our International Trade practice are available to assist you.For further information, please contact Judith A. Lee (202- 887-3591) or Scott Dodson (202-887-3772) in Gibson, Dunn & Crutcher's Washington, D.C. office or Paytre R. Topp (213-229-7966) in the firm's Los Angeles office.©2006 Gibson, Dunn & Crutcher LLPThe enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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March 17, 2006

The Future of Parallel Criminal-Civil Investigations: Business as Usual or Increased Judicial Oversight?

New York Partner Lee Dunst is the author of "The Future of Parallel Criminal-Civil Investigations: Business as Usual or Increased Judicial Oversight?" [PDF], published in the March 17, 2006 issue of White Collar Crime Report.
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March 2, 2006

U.S. Supreme Court Issues Landmark Ruling Abrogating Its Decades-Old Presumption that Antitrust Market Power Arises From the Mere Ownership of IP Righ

In a landmark decision handed down by the U.S. Supreme Court on March 1, 2006, the Court unanimously abrogated its decades-old presumption, articulated most prominently in United States v. Loew’s, Inc., 371 U.S. 38 (1962), that market power arises from the mere ownership of intellectual property rights.  See also International Salt Co. v. United States, 332 U.S. 392 (1947).  In an opinion authored by Justice Stevens, a unanimous Court broadly held that “in all [antitrust] cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product,” Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. __ (Mar. 1, 2006), No. 04-1329, slip op. at 16.The Court reasoned that the market power presumption announced in Loew’s and International Salt finds no support in modern economic theory or antitrust enforcement policy, does not accord with the Court’s modern tying jurisprudence, and lacks support in the Court’s earlier patent cases.  Beginning by noting that “this Court’s strong disapproval of tying arrangements has substantially diminished” “[o]ver the years,” the Court specifically noted that “[t]he assumption that ‘[t]ying arrangements serve hardly any purpose beyond the suppression of competition,’” “has not been endorsed in any opinion” of the Court since it was “rejected in” United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610 (1977) (Fortner II).  Slip op. at 5-6.  The Court then quoted approvingly from Justice O’Connor’s concurrence in the judgment in Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2 (1984), in which Justice O’Connor and three other Justices questioned the continued viability, as a matter of antitrust law, of the Loew’s presumption, which had originated in the Court’s early patent-misuse cases.After analyzing the historical underpinnings of the Loew’s/International Salt presumption in the Court’s earlier precedents, the Court cited Congress’s 1988 amendment of the Patent Code, which eliminated “the patent-equals-market-power presumption” “in the patent misuse context,” as a reason to reexamine the continued viability of the Loew’s/International Salt presumption as a matter of antitrust law.  Slip op. at 12.  Relying on its more recent, post-Fortner II tying cases, “the vast majority of academic literature on the subject,” and modern economic theory and antitrust enforcement policy, the Court abrogated the Loew’s/International Salt presumption, and “conclude[d] that tying arrangements involving patented products should be evaluated under the standards applied in cases like Fortner II and Jefferson Parish rather than under the per se rule applied in Morton Salt [Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942)] and Loew’s.”  Slip op. at 13-16 (citing, inter alia, William J. Baumol & Daniel G. Swanson, The New Economy and Ubiquitous Competitive Price Discrimination: Identifying Defensible Criteria of Market Power, 70 Antitrust L.J. 661, 666 (2003)).  Under such standards, any conclusion that a tying arrangement is unlawful “must be supported by proof of power in the relevant market rather than by a mere presumption thereof.”  Slip op. at 13.The Court’s holding should be read to extend to copyrights as well - an extension that Gibson Dunn had urged in an amicus brief it filed on behalf of the Motion Picture Association of America, the Association of American Publishers, the Business Software Alliance, the Entertainment Software Association, the Independent Film & Television Alliance, the National Football League, and the Recording Industry Association of America.  Although Illinois Tool Works on its facts dealt only with patents, the Court broadly “h[e]ld that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product.”  Slip op. at 16 (emphasis added).  This holding flows directly from the fact that the validity of the presumption in copyright tying cases rests on the validity of the presumption in patent tying cases.  See United States v. Loew’s, Inc., 371 U.S. 38, 46 (1962) (noting in copyright tying case that the presumption of market power “grew out of a long line of patent cases”).  As counsel for the United States acknowledged during oral argument in Illinois Tool Works, “a holding that there is no [market power] presumption in the patent context would eviscerate the underlying rationale for Loew’s,” “which was a copyright case.”  Oral Argt Tr. at 22. Aside from its broad holding that the plaintiff must prove that the defendant has market power in “all cases,” the Court cited with approval the statement by the Department of Justice and the Federal Trade Commission in their antitrust enforcement guidelines that the agencies “’will not presume that a patent, copyright, or trade secret necessarily confers market power upon its owner.’”  Slip op. at 16 (emphasis added) (quoting U.S. Dept. of Justice and FTC, Antitrust Guidelines for the Licensing of Intellectual Property § 2.2 (Apr. 6, 1995)).  Further, in stating that the “conclusion” that a tying arrangement is unlawful “must be supported by proof of power in the relevant market rather than by a mere presumption thereof,” the Court placed great reliance on the “vast majority of academic literature on the subject,” including literature recognizing the absence of any economic basis for inferring market power from mere copyright ownership.  Slip op. at 13-14, n.4.The Court’s unanimous decision in Illinois Tool Works has enormous significance for successful individual and corporate holders of copyrights, patents, and other intellectual property rights, who are now less likely to be confronted with antitrust suits as a result of their use of package marketing arrangements that make economic sense and are procompetitive.Gibson, Dunn & Crutcher’s lawyers are available to discuss questions regarding these issues.  For further information, please contact the attorney with whom you work or:Daniel G. Swanson, (213-229-7430; dswanson@gibsondunn.com), orJulian W. Poon (213-229-7758; jpoon@gibsondunn.com).Gibson, Dunn & Crutcher is also uniquely positioned to bring to bear its considerable appellate expertise and its expertise in antitrust and intellectual property law, in representing corporations, other entities, and individuals confronted with these and other related issues.  For further information, please contact: Antitrust and Trade Regulation co-chairs,Robert Cooper, (213-229-7179, rcooper@gibsondunn.com),Michael Denger, (202-955-8526, mdenger@gibsondunn.com),M. Sean Royall, (214-698-3256, sroyall@gibsondunn.com),Gary Spratling, (415-393-8222, gspratling@gibsondunn.com ),Peter Sullivan, (213-229-7165, psullivan@gibsondunn.com), orDaniel G. Swanson, (213-229-7430;dswanson@gibsondunn.com);Appellate and Constitutional Law co-chairs,Theodore Boutrous, (213) 229-7804, tboutrous@gibsondunn.com),Miguel Estrada, (202-955-8257, mestrada@gibsondunn.com),Daniel Kolkey, (415-393-8240, dkolkey@gibsondunn.com), orTheodore Olson, (202-955-8668, tolson@gibsondunn.com); orIntellectual Property co-chairs,Wayne Barsky, (310-557-8183, wbarsky@gibsondunn.com),Glenn Beaton, (303-298-5773, gbeaton@gibsondunn.com),Josh Krevitt, (212-351-2490, jkrevitt@gibsondunn.com), orDenis Salmon, (650-849-5301, dsalmon@gibsondunn.com).© 2006 Gibson, Dunn & Crutcher LLPThe enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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February 28, 2006

“Principles-Based” Accounting Standards – An Accident Waiting to Happen?

Jonathan C. Dickey and Michael J. Scanlon are authors of "'Principles-Based' Accounting Standards - An Accident Waiting to Happen?" published by Insights in February 2006.Reprinted with permission, copyright 2006, Insights
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