The Obama administration began its second term with a new leader, William J. Baer, heading up the Antitrust Division of the U.S. Department of Justice. At the recent ABA Antitrust Law Spring Meeting in Washington, D.C., Baer, along with other government prosecutors and private defense attorneys, reviewed developments over the last year and offered a look ahead. One development that may affect Pennsylvania in particular is the closing on January 30 of the division’s Philadelphia field office after 65 years of service.
Division Personnel Changes and Realignment
Baer has practiced antitrust law in both the government and private sector. His solid reputation will help steady the division at a time when the organization faces daunting personnel and budget challenges. For instance, on January 30, the division also closed its regional field offices in Atlanta, Cleveland and Dallas. The sequestration is further squeezing the division’s budget. At the ABA spring meeting, Baer said the division’s budget situation was dire: "Our effort has got to be on behavior that causes the most significant consumer injuries. We are looking hard at where the problems are the biggest: that’s where we are going to divert our scarce resources."
On the criminal side, this means a continued focus on international cases, with regional and local bid-rigging cases receiving lower priority. The closure of the Philadelphia field office will eliminate a regional presence, but as explained below, that gap may be filled by other prosecuting offices or the division’s remaining offices. Another effect of the government’s money woes is that when companies do agree to cooperate in investigations, they may find themselves doing a great deal of the investigatory work previously done by the division.
In an April 12 press release coinciding with the ABA spring meeting, Baer announced a significant policy change and revised the division’s practice of publicly identifying individuals who are carved out of corporate plea agreements. Previously, when the division entered into a corporate plea agreement, it provided nonprosecution protection for the company’s employees, except certain executives who were preserved for prosecution. The division identified those individuals carved out in the public plea agreement.
The defense bar argued that publicly naming carved-out individuals unfairly inferred that they were involved in criminal conduct, but left them with no way to clear their name. Baer agreed to change the policy: "The division will continue to carve out individuals who we have reason to believe were involved in criminal wrongdoing and who are potential targets of our investigations. However, we will no longer carve out employees for reasons unrelated to culpability."
And, for those carved out, "the division will not include the names of carved-out employees in the plea agreement itself. Those names will be listed in an appendix, and we will ask the court for leave to file the appendix under seal."
This move may be significant beyond the carve-out policy. Baer comes to the job of division head with extensive white-collar defense experience. Rather than simply deferring to career prosecutors, Baer will draw on his own experience and may have his own ideas in other areas as well.
Fines and Jail Sentences in Cartel Cases
In 2012, the division filed 67 criminal cases, including cases against individuals and corporations. The defendants were both domestic and foreign. The division collected more than $1.35 billion in fines and restitution. The trend toward incarceration for convicted executives continued, with ever-increasing jail sentences being imposed. Forty-five executives were sentenced to prison in 2012, almost double the number from the year before. The average prison sentence was just over two years.
Two other less noticeable but important trends are also emerging. First, the division is holding more executives per company accountable. The division is insisting on guilty pleas from more executives from the same company, especially if the company has not come in early to cooperate.
Secondly, the division is trying to equalize the punishment between foreign-based individual defendants and their U.S. counterparts. Extradition, border watches and Interpol red notices all make international travel perilous for an indicted foreign defendant. Many fugitives ultimately choose to come to the United States and serve their sentences. In 2012, a foreign executive agreed to come to the United States and serve a two-year sentence — the longest to date for a foreign defendant.
As a result of increased international cooperation, global cartels are now paying fines in more jurisdictions. For example, Scott Hammond, the division’s deputy attorney general for criminal enforcement, noted at the ABA spring meeting that "both China and India are making great strides on that [cartel] front."
Hammond said the $56 million fine China recently imposed on six liquid-crystal manufacturers for price fixing and the $1.1 billion fine the Competition Commission of India imposed on a cement manufacturers’ cartel demonstrate robust cartel enforcement and "got the attention of many folks in this [conference] room." Also, the European Commission recently imposed the largest fine in EU history ($1.94 billion) against seven companies for collusion involving cathode-ray tubes.
Corporate Leniency Program
Cooperation pursuant to the division’s Corporate Leniency [Amnesty] Program is the primary driver of cartel investigations. Under leniency, the first company to cooperate in an investigation and meet certain other conditions will not be prosecuted. Also, any executive from that company who agrees to cooperate will not be prosecuted.
Leniency applicants approach the division for a variety of reasons. Companies may learn of an existing cartel problem through a compliance presentation or through a compliance program’s internal whistleblower hotline. Companies also learn of potential problems when conducting due diligence, whether for a proposed acquisition, an internal investigation in another area, an employee dismissal or in a host of other ways.
Often, by the time a criminal antitrust investigation becomes public, the division already has the cooperation of a leniency applicant. But this is not always the case, and leniency is still available even if an investigation is public — if the one leniency per investigation has not already been claimed.
At the ABA spring meeting, various panels emphasized that even when leniency is not available, it can still be advantageous to cooperate early. The division rewards early cooperation with significant discounts in corporate fines. Early cooperation also benefits a company’s executives by limiting the number of executives the division will seek to charge and by reducing the amount of jail time sought from those the division will prosecute.
The division is usually willing to give as many as four companies a significant discount for early cooperation. "The so-called second-in cooperator — a company that is too late for leniency but still offers to cooperate early — can receive a discount of as much as 25 to 30 percent off of its fine," according to a division official on a panel about negotiating with the division.
Important Test Case
Though the maximum corporate fine under the Sherman Antitrust Act is $100 million, under the alternative fine provisions of 18 USC Section 3571(d), a defendant can be fined up to "twice the gross gain or twice the gross loss" from the conspiracy. Over the last decade, the division has routinely negotiated criminal fines in excess of $100 million because corporations have agreed in plea agreements to pay these amounts. In one recent case, for the first time, the division had to prove beyond a reasonable doubt the amount of gain/loss from an alleged price-fixing cartel. The indictment charged, and the jury found, that the loss to the victims of the cartel was more than $500 million. Based on the jury’s finding, a fine of up to $1 billion could have been imposed, but the court thought that figure was excessive. The court imposed a fine of $500 million, still significantly above the $100 million Sherman Antitrust Act maximum.
Focus on Pennsylvania
During its 65 years, the Philadelphia field office brought both local bid-rigging cases and international cartel cases. The division will continue its focus on international cartel cases, but policing local and regional bid-rigging conspiracies might prove more difficult. The closing is by no means a free pass, however, for local or regional companies to fix prices or rig bids.
For one thing, bid rigging or price fixing on government contracts, or contracts funded by the government, can be and have been criminally prosecuted by local U.S. attorney’s offices as a conspiracy to defraud the government and related statues. Also, Pennsylvania has a bid-rigging statue that makes it a violation to rig bids for "a contract for the purchase of equipment, goods, services, materials or for construction or repair let or to be let by a government agency."
Finally, the Antitrust Division itself still has a regional office in New York and its main office in Washington, D.C. The division has pledged to maintain its presence as an antitrust watchdog through these offices.
Criminal antitrust enforcement has developed into very serious business with jail, fines and civil litigation as possible fallout. Antitrust compliance is not only good for the economy, it can keep a company and its executives on the right side of a very serious law.  •
Carl W. Hittinger is the chairman of DLA Piper’s litigation group in Philadelphia, where he concentrates his practice in complex commercial trial and appellate litigation with a particular emphasis on antitrust and unfair competition matters.
Robert E. Connolly is of counsel at the firm’s Philadelphia office, focusing on antitrust and unfair competition matters. He was previously with the DOJ’s Antitrust Division, including 20 years as the chief of the division’s Middle Atlantic Office.