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Like politics, Supreme Court advocacy makes for strange bedfellows. In F. Hoffmann-La Roche Ltd. v. Empagran S.A., price-fixers in the vitamin industry and their former prosecutors at the Department of Justice’s Antitrust Division joined forces to convince the Court that the Sherman Act does not provide a remedy to private foreign plaintiffs for foreign injury caused by largely foreign conduct. But make no mistake, the DOJ has not had a change of heart about criminal enforcement. In fact, the DOJ’s advocacy in Empagran is part of its larger strategy to increase criminal penalties while, at the same time, sweetening the deal for criminal antitrust offenders that choose to cooperate under the Antitrust Division’s Corporate Leniency Policy — the so-called amnesty program. To that end, the DOJ recently persuaded Congress both to increase the statutory maximum criminal penalties for antitrust violations and to restrict private plaintiffs to single, proportional civil damages against defendants that receive amnesty. These developments create major incentives for companies with antitrust exposure to seek amnesty. They also give the DOJ enormous power to drive settlements. It remains to be seen whether the department will wield this power wisely. SUPREME COURT DECIDES The Empagran suit was brought by private foreign purchasers of vitamins against major manufacturers and distributors who had already pleaded criminally to fixing prices. Hoffmann-La Roche has paid the largest antitrust fine to date, $500 million, to settle federal criminal charges. On June 14, the Supreme Court held that the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) restricts the Sherman Act from reaching foreign injury claims where they arise from largely foreign price-fixing conduct. Even if the conspiracy also increased prices in the United States, said the Court, the Sherman Act does not provide a remedy if the foreign plaintiffs’ injury arises “independently” of the conspiracy’s domestic effects. The FTAIA generally excludes from the Sherman Act’s reach all non-import conduct involving foreign commerce unless it (1) has a “direct, substantial, and reasonably foreseeable effect” on domestic commerce, and (2) “gives rise to a claim” under the Sherman Act. The U.S. Courts of Appeal for the D.C. Circuit (in Empagran) and the 2nd Circuit (in Kruman v. Christie’s International) had split with the 5th Circuit (in Den Norske Stats Oljeselskap As v. HeereMac) and held that the FTAIA allowed foreign-plaintiff suits where a worldwide price-fixing scheme gives rise to “a claim” by U.S. purchasers even if the domestic injury is not the basis for the foreign plaintiffs’ claim. The lower courts decided that, in order to protect U.S. consumers, the FTAIA should be interpreted to allow foreign purchasers to sue for injury arising from the foreign effects of a conspiracy so long as the conspiracy also harmed U.S. consumers. The Supreme Court rejected this interpretation in Empagran. The Court held that in order to avoid “unreasonable interference” with the laws of foreign nations, the FTAIA should be interpreted to require that the plaintiffs’ claim arise out of domestic injury. The sole question left unresolved was whether the plaintiffs could still show that there would have been no foreign injury “but for” a conspiracy to increase prices in the United States. (The lower court has not yet evaluated the plaintiffs’ argument that higher prices could not have been sustained in the vitamin market worldwide without keeping prices higher in the United States.) In any event, Empagran will clearly limit the exposure of international cartel members to lawsuits in U.S. courts. LEAVE IT TO THE DOJ The opinion in Empagran highlights the argument presented by the DOJ and various foreign enforcement authorities that allowing foreign-purchaser suits would undermine criminal enforcement by creating a disincentive for companies to cooperate with enforcement authorities. In its amicus brief, the DOJ explained that companies weigh their civil exposure in deciding whether to come forward to report and seek amnesty for criminal violations. The lower court decision would undermine the amnesty program, argued the DOJ, by creating a risk for amnesty seekers that is not easily quantifiable — namely, joint and several liability for worldwide price-fixing, including treble damages in the United States. Under that view, companies that might otherwise seek amnesty will be deterred for fear of suits in U.S. courts by injured customers all over the world. The DOJ also touted the amnesty program as being superior to foreign-plaintiff suits in providing effective deterrence against global cartels. The lower court concluded that U.S. consumers would benefit because such suits provide additional deterrence. But the DOJ argued that private suits have historically depended upon initial exposure of the cartel by government agencies. The DOJ therefore contended that deterrence is best served by increasing the risk that a cartel will be exposed by maximizing conspirators’ incentive to cooperate. The DOJ’s position in Empagran is hardly surprising: It has long pursued a strategy of minimizing the civil liability of companies that receive amnesty and increasing their incentive to cooperate in the form of higher penalties. The Antitrust Criminal Penalty Enhancement and Reform Act, signed into law last month, represents another success for that strategy. The reform act increases the statutory maximum fine for corporations, from $10 million to $100 million, and for individuals, from $350,000 to $1 million. It also raises the statutory maximum sentence from three to 10 years. Finally, it helps amnesty recipients by limiting private claims against such companies to single damages that result from the recipient’s share of the affected commerce. In short, with increased federal penalties and reduced exposure to civil damages, the incentive to cooperate in government investigations has never been higher. FALLOUT FOR AMNESTY At the same time, the amnesty program is already a great success. It has led to record-setting criminal fines, the highest of which have been paid, ironically, by two Empagran defendants. As noted, Hoffmann-La Roche has paid the highest criminal fine to date of $500 million. Co-conspirator BASF is No. 2 at $225 million. Since 1997, the program has brought in a total of more than $2 billion in criminal fines. The amnesty program grants full antitrust amnesty to companies that are the first to report criminal violations before the Antitrust Division has begun an investigation, including amnesty for cooperating officers, directors, and employees. After the Antitrust Division has begun an investigation, the first company to cooperate will still usually receive amnesty. Even a company that reports too late, or is otherwise unable to qualify for amnesty for the conspiracy in question, may receive amnesty for other conspiracies that it reports, plus a reduced sentence for the initial conspiracy. Consequently, once a company decides to seek amnesty, it will often use the opportunity to tell the DOJ everything it knows about any possible anti-competitive wrongdoing. These tell-all situations often lead to grand jury investigations in a variety of markets. Given the increased antitrust penalties and the new limitations on civil actions, it is not difficult to imagine that corporations will be prone to report possible wrongdoing even where the evidence may be far from conclusive. This is not good news. Grand jury investigations of antitrust matters often continue for many years, at great cost, causing internal disruption and expense for the corporate targets. Employees often undergo several rounds of interviews, and companies often spend millions of dollars complying with document and witness subpoenas and defending their workers. Even when no indictments are rendered, the investigation itself has a deleterious effect on companies’ financial well-being and employee morale. Much rests on the discretionary decisions of prosecutors. Claims by amnesty applicants should be scrutinized and substantiated, to the extent possible, before convening a grand jury. When prosecutors decide to convene grand juries based on limited evidence, the scope of the investigation should be tailored to the facts and the investigation should be expeditious. RAISING STAKES AT SETTLEMENT The new penalties also provide a huge club for the government to force settlements. Antitrust cases are complex, the evidence is often inconclusive, prosecutors have a great deal of latitude in framing the issues, and juries need only infer an agreement to convict. The result is that antitrust cases are notoriously fertile ground for sentencing manipulation. For example, the volume of commerce affected by the conspiracy is a key determinate for both the length of imprisonment and the level of corporate fines. Prosecutors can offer lower sentences during plea negotiations by using lower volume-of-commerce estimates to calculate the sentence and by recommending downward departures to the judge. However, if forced to go to trial, prosecutors can take a different view of the conspiracy and the relevant volume of commerce. Under the previous three-year maximum imprisonment, an executive might have been willing to forgo a plea offer of a low sentence and test the government’s case at trial. But now that the risk of going to trial is 10 years in prison, the executive may be much more willing to simply plead to a lower sentence. The increased statutory maximum for corporate fines gives the government additional leverage in extracting settlements by lowering the government’s burden of proving actual damages in many cases. Criminal fines below the statutory maximum are calculated based upon 20 percent of the total volume of commerce affected by the conspiracy that is attributable to the defendant. Fines may only be increased above the maximum through the use of an alternative sentencing provision, 18 U.S.C. §3571(d), under which the fine can rise to double the actual gain to the defendant or double the actual loss to the victims. But the down side of using §3571(d) for the government is that the actual damages from the conspiracy are a good deal more complicated to calculate and prove than the total sales merely affected by the conspiracy. By increasing the maximum corporate fine to $100 million, Congress has reduced the number of cases in which the prosecution will need to turn to §3571(d) to obtain higher fines. Before the Empagran decision and the reform legislation, DOJ officials made clear in their policy speeches that they supported increases in criminal penalties and were considering proposals to limit civil recovery against amnesty recipients. They have succeeded on both fronts, thereby creating more incentives for corporations to seek amnesty and giving prosecutors more power to secure guilty pleas without risking a trial. As fans of Spider-Man well know, with great power comes great responsibility. Let’s hope our government fares as well as the superhero. Anthony V. Nanni is of counsel in the D.C. office of Fried, Frank, Harris, Shriver & Jacobson. From 1985 to 2002, he served as chief of what is now the National Criminal Enforcement Section of the Justice Department’s Antitrust Division. Franklin M. Rubinstein is an associate in the antitrust department of Fried, Frank. They can be reached at [email protected] and [email protected], respectively.

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