Antitrust Law Daily Wrap Up, TOP STORY: Antitrust chief testifies on cartel enforcement efforts, (Nov 14, 2013)

By Jeffrey May, J.D.

During the last fiscal year, the Department of Justice Antitrust Division filed 50 criminal cartel cases against 21 companies and 34 individuals and obtained just over $1 billion in criminal fines, William Baer, Assistant Attorney General in charge of the Antitrust Division, told members of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights this afternoon.

“The dominoes are falling,” said Baer, at the hearing, entitled “Cartel Prosecution: Stopping Price Fixers and Protecting Consumers.”

Also testifying at the hearing was Ronald T. Hosko, Assistant Director for the Federal Bureau of Investigation Criminal Investigative Division, who, together with Baer, offered a prepared statement. Hosko added that the FBI is committed to investigating domestic antitrust conspiracies.

“Spotlighting cartel conduct is the right focus for the subcommittee,” Baer noted as he pointed to the fines levied as a result of a number of recent cartel investigations. Prosecution of cartels involving air transportation resulted in more than $1.8 billion in criminal fines. The probe of cartels in the liquid crystal displays industry netted more than $1.39 billion in criminal fines. To date, the Justice Department’s investigation into the auto parts industry—the government’s latest and largest cartel investigation—has resulted in approximately $1.6 billion in fines.

“Fines don’t tell the whole story,” Baer added. The threat of jail time for individual cartel participants is a real deterrent, with prison sentences currently averaging 25 months.

In addition to discussing the international cartels in the auto parts, electronics, and financial services industries, among others, Baer noted that the Antitrust Division continues to look for price fixing conspiracies in local markets. Working with the FBI and the Department of Housing and Urban Development (HUD), the Antitrust Division is investigating bid rigging and fraud in local real estate markets in Alabama, California, Georgia, and North Carolina. The Antitrust Division also has uncovered schemes involving public tax lien auctions in New Jersey.

Baer told the subcommittee members that he did not believe that the Antitrust Division needed additional authority to sufficiently deter cartel activity. He also attempted to ease concerns that U.S. companies were facing duplicative fines from multiple antitrust agencies involved in cartel investigations by noting that the Antitrust Division was working with foreign counterparts to ensure that cartel offenses were “properly penalized.”

Senator Bill Blumenthal (D., Connecticut), expressed concern that most of the cases that were being brought by the Antitrust Division were the result of amnesty applications and involved global cartels. He worried that the success of the leniency program, combined with budget constraints, might give the Antitrust Division an incentive to go after only the “low-hanging fruit” and perhaps forego challenging smaller, domestic cartels where no one comes forward.

Baer said that the Antitrust Division was paying attention to these local markets. He noted that not all case leads come from leniency applications. In addition, he pointed to outreach efforts to inform state and local officials about detecting anticompetitive activity and following up with the FBI.

Although slightly off topic, both the subcommittee’s chair and ranking member—Senators Amy Klobuchar (D, Minnesota) and Mike Lee (R, Utah)—questioned Baer on the recently announced settlement of the agency’s challenge to the American Airlines/US Airways merger. Both senators expressed concerns about the bidding process for slots and assets that would be divested under the settlement.

Baer assured the senators that the Antitrust Division was willing to talk to the legacy carriers and not just the low-cost carriers, such as Southwest Airlines and Jet Blue. He cautioned, however, that the bidding airlines would need to convince the Antitrust Division that they were willing to compete.

The hearing also included a second panel of antitrust practitioners. These witnesses offered some suggestions to improve cartel enforcement.

Up first was Hollis Salzman, a partner at Robins, Kaplan, Miller & Ciresi, L.L.P. Salzman recommended, among other things, that Congress should take action to clarify the type of timely cooperation that is needed by cartel defendants to qualify for corporate leniency under the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA). Salzman contended that amnesty applicants have taken advantage of ACPERA’s vague language to delay cooperating with plaintiffs in follow-on civil litigation.

Testifying on behalf of the Section of Antitrust Law of the American Bar Association, Christopher Hockett, a partner at Davis Polk & Wardwell LLP, expressed concern about the adequacy of government resources to support the cartel enforcement program. “The Antitrust Section encourages the Government to carefully evaluate and consider increased funding and staffing for the Division’s cartel enforcement efforts.” Hockett also noted that it was critical that the Antitrust Division ensure “that foreign corporations and foreign nationals prosecuted in the U.S. receive full due process and fair treatment.”

Mark Rosman, a partner at Wilson Sonsini Goodrich & Rosati P.C. and a former prosecutor at the Antitrust Division, suggested rethinking some of the current sentencing practices in cartel enforcement. He also called for the Antitrust Division to refocus enforcement efforts to detect and prosecute domestic (regional and national) cartels.

University of Michigan Professor Margaret C. Levenstein told subcommittee members that the discovery of a “steady stream of cartels … suggests that existing penalties are not yet sufficient to deter collusion.” She called for “smarter” penalties and a closer look at conduct, including mergers and acquisitions, in industries and companies involved in cartel offenses.

Attorneys: Hollis Salzman (Robins, Kaplan, Miller & Ciresi, LLP). Christopher B. Hockett (Davis Polk & Wardwell, LLP). Mark Rosman (Wilson Sonsini Goodrich & Rosati).

Companies: American Airlines; US Airways Group, Inc.

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