I. The Department of Justice is Strengthening Cartel Enforcement

For the past twenty years, the Department of Justice ("DoJ") has ramped up its enforcement of cartels. From large international cartels to bid rigging on local contracts, the Antitrust Division is aggressively prosecuting companies and individuals involved in cartel conduct. A prime example of this is the DoJ's recent prosecution of AU Optronics, Taiwan's second-largest maker of liquid-crystal displays. A jury in San Francisco found AU Optronics and two of its employees guilty of fixing prices. In September 2012, the government argued that AU Optronics should be sentenced to a $1 billion criminal fine and that two of its executives should serve ten-year prison sentences.2 The court eventually handed down a $500 million dollar fine and sentenced the two executives to three years in prison.

Statistics demonstrate that the United States government is becoming increasingly aggressive in its prosecution of cartels. In 2011, the DoJ's Antitrust Division filed 90 criminal cases, up from 60 in 2010 and 72 in 2009.3 Total annual criminal antitrust fines have been on the rise since 2000, reaching a height of $1 billion in 2009.4 What's more, the periods of incarceration for executives found guilty of Sherman Act violations are also increasing. Between 1990 and 1999, the average prison term for antitrust violations was eight months; in 2010-2011, that average was two years.5

Beyond the serious criminal penalties, companies face crippling liability from the civil litigation that inevitably follows criminal actions. Customers, indirect customers and states can seek civil damages for harm caused by cartels. On many occasions, the follow-on civil cases can be more costly than the underlying criminal case.

These trends show no sign of stopping. Thus, businesses must have strong compliance programs to prevent and identify problems with competitor contacts. And they must be prepared to act if the company is subject to a government raid. This article provides some practical advice for companies in light of this environment.

II. Steps Companies Can Take to Avoid Problems

Given the penalties, companies need a strong compliance program – something more than a yearly antitrust compliance presentation, a policy statement, or an online course. A much more proactive approach can include internal audits, "fake" dawn raids where company lawyers pose as regulators and simulate a raid, or computer search tools that detect problematic emails. Such compliance programs can detect issues of concern before they become much more serious.

Furthermore, knowing about a cartel through an audit before a government investigation starts can save a company millions of dollars. Under the DoJ's amnesty program, a company that selfreports an antitrust crime will receive complete immunity from prosecution for the company and its employees. Foreign jurisdictions, including most notably the European Commission, have similar policies.

III. Areas of Particular Concern

A. Competitor Communications

In conducting an investigation, the government will seek information regarding a company's contacts with its competitors. Such evidence might include e-mails, expense reports, and diaries.

It is, therefore, important for businesses to avoid improper or even borderline communications with competitors. Absent a compelling reason (such as merger discussions), a company should never share the following information with its competitors:

  • Pricing information or price lists
  • Technology roadmaps
  • Sales or production forecasts
  • Cost information
  • Research and Development plans
  • Other competitively sensitive information

As a lawyer, if a competitor contacts your client, you need to ask whether a legitimate reason exists for the discussion. If the answer is no, then the client should end the conversation immediately. In no event should competitors discuss prices or customers absent a compelling and legitimate reason. It is especially important to avoid contacts between personnel responsible for pricing.

B. Identifying Legitimate Sources of Information

There are, of course, legitimate sources for market information. These sources include:

  • Customers
  • Distributors
  • Publicly-available trade publications and data
  • Consultants

To avoid problems in the future, make sure your clients identify the sources of competitive information contained in internal documents. They should avoid ambiguous references to "sources," "contacts," and "friends." Employees need to understand that any reference to a competitor's price in a document must come from a legitimate source that is identifiable in that document. So instead of writing "according to my sources, Competitor A's price is X", it is much better if the document reads: "Customer Z has informed us that Competitor A's price is X". In the second formulation, it is clear that the competitive information about a competitor's price was from a customer.

C. Pricing Decisions and Announcements

Pricing decisions must be independent and based on legitimate information – and not based on communications with competitors. Whenever a company makes a decision to increase prices, it is very important to document the reasons for the price increase. Thus, if raw materials prices are increasing and this is the reason for the price increase, it is important that internal documents and external communications highlight the legitimate reason for the price increase.

Companies should also take care when announcing future price increases as these announcements have been an area of antitrust scrutiny. On one hand, regulators understand that companies, in some circumstances, need to give their customers advanced notice of price increases so that they are prepared for them. On the other hand, antitrust regulators grow concerned when companies appear to be signaling competitors through future price announcements. If a client feels it is necessary to announce a price increase in advance, the best advice is to do so in a manner that is narrowly targeted to reach the intended audience – the customers. Thus, a series of customer calls to let them know about an upcoming price increase is less risky from an antitrust perspective than a widely distributed press release. Also, a company should give as little advance notice as possible of a price increase. So if customers only need two weeks' notice of a price increase in order to make necessary preparations, a client should not be announcing the price increase two months before it takes effect.

IV. What to Do When the Government Comes Knocking

The government commonly kicks off an antitrust investigation by sending FBI agents to serve a search warrant. If federal agents show up at your client's offices, you should be prepared to take the following steps.

A. Counsel Should Be Present Immediately

Experienced counsel should be involved immediately. Counsel can assert an attorney-client relationship with respect to a company's employees. There is less chance for obtaining incorrect, incomplete, or out-of-context statements from frightened and unprepared witnesses.

B. Prevent the Destruction of Documents

Steps to preserve documents also should be taken immediately. All employees should be instructed not to delete documents, shred documents, destroy or remove emails, or otherwise hide potential evidence. You may believe that your client would never shred documents or delete their hard drives. Yet in many cases, one or more people delete or destroy documents in some fashion, frequently under the guise of following a company's document retention policies.

Spoliation can be very damaging to individuals and to the company – and it can become far worse than the troubling documents that are deleted or destroyed. First, destroying documents in anticipation of a federal investigation can be prosecuted as obstruction of justice, which may be easier for the government to prove than the antitrust violations under investigation. Second, the destruction of documents gives the government powerful evidence of an individual's consciousness and awareness of guilt. Finally, since it is difficult to truly destroy documents, the prejudicial evidence is frequently recovered anyway, and the government's case is that much stronger. It is thus crucial to implement a document hold early in an investigation.

C. Do Not Obstruct the Search

Advise your client not to interfere with the search. Forcible resistance or interference could be illegal. The agents are just doing their jobs, so there is no benefit to expressing frustration or anger, or in protesting the company's innocence to the agents. Indeed, no substantive statements – including expressions of innocence – should be made at all.

Frequently, the agents will want to make copies of computer systems and individual hard drives. This can cause great disruption. The company should not interfere with the agents, but work with them to minimize the disruption. Further, without disturbing the search, counsel and client should observe what the agents do and how they conduct themselves. Make detailed notes about what and where they search.

D. Do Not Make Any Statements

It is common practice for the agents to attempt to interview employees during the search and before counsel is present. In almost every instance, the people who are interviewed in this setting say things that are later unhelpful to themselves and to the company.

Many people believe they are required to talk to the government agents or that they can persuade the agents that they did not do anything wrong. First, advise your client that no one is required to submit to an interview. Second, as mentioned above, it is useless for people to try to convince the agents that they did not do anything wrong, as decisions of this nature will be made by prosecutors and only after thorough consideration. In short, individuals can only hurt themselves and the company by submitting to interviews during a search. They cannot help.

However, it is improper for the company to instruct an employee to decline an interview request. Thus, it is essential to provide employees with legal counsel. The lawyer can tell the government that counsel is representing the individual employees. Restrictions on government agents may limit or prohibit them from talking to represented individuals without their counsel present. In addition, the lawyer can advise the employees appropriately about the risks of speaking with the agent without preparation or adequate protection.

E. Instruct Employees Not to Talk to Each Other About the Case

Employees should further be instructed to not discuss the case with other employees, and certainly not with anyone outside the company (other than the company's counsel). Again, the temptation will be great for employees to discuss the matter and possibly to "get their stories straight." This is counter-productive. When employees speak to one another about the substantive matters under investigation, they leave themselves and the company open to charges of obstruction of justice.

F. Obtain a Copy of the Warrant and a List of the Materials Seized

The company should ask the agents for a copy of the search warrant, as well as an itemized list of materials seized and/or copied.

G. Make Clear that You are Not Assenting to the Search

The warrant entitles the agents to conduct the search. However, the agents may also ask whether the company agrees or assents to the search. The answer is no. The search may contain a legal error, such as false assertions about the case in the affidavit provided to the Magistrate Judge, or seizure of items outside the scope of the subpoena. If the company assents to the search, counsel will not be able to suppress evidence obtained from search, even if the warrant is flawed.

H. Prepare Overseas Affiliates for Similar Raids

The DoJ now commonly works in tandem with foreign prosecutorial agents, particularly in the European Union, Japan, Korea, Canada, and Brazil. In large cases, these governments will attempt to execute simultaneous raids in the United States and overseas. You should alert your client's affiliates about this possibility. Of course, this does not mean that your client or its overseas affiliates should delete or destroy documents – this can be a crime, even overseas.

I. Get Ready for Press Inquiries and Consider Public Disclosure Obligations

The company should be prepared for press inquiries and consider how to handle the public relations aspect of a governmental investigation. This concern is particularly acute for public companies, which may also have disclosure obligations to shareholders. Public relations aspects need to be handled in consultation with counsel so that statements are not counter-productive to the overall strategy.

J. Prepare for the Next Steps

The execution of a search warrant usually means the government has undertaken an investigation of what it believes is evidence of the commission of a crime. Frequently, this is based on biased information provided by some other company, including competitors. In a criminal prosecution, the company faces substantial risks to its reputation, along with monetary fines, executives exposed to criminal prosecution, restrictions on travel for foreign executives, and possible debarment from government contracts. At the beginning of any case, the government will have much more information than the company. Information is power, so it will be essential for counsel representing the company to learn as quickly as possible everything it can about the exposure of the company.

V. Conclusion

Antitrust troubles – from the initial criminal investigation to the civil lawsuits that follow – can seriously harm a company and its employees. In the current enforcement environment, a proactive compliance program that educates employees and monitors a company's business practices is essential.

Footnotes

* This article is taken from a series of topics presented at "What Companies Don't Know Can Hurt Them: A Primer on Key Antitrust Issues," a seminar held at Vinson & Elkins' Houston office on September 19, 2012. "What Companies Don't Know Can Hurt Them: A Primer on Key Antitrust Issues" provided a practical approach to dealing with emerging legal developments and key issues in antitrust law.

2 Pamela McLean and Karen Gullo, AU Optronics Fined $500 Million in U.S. for Price-Fixing, BLOOMBERG, Sept. 21, 2012, available at http://www.bloomberg.com/news/2012-09-20/au-optronics-fined-500-million-in-u-s-forprice- fixing.html .

3 Department of Justice, Antitrust Division, Criminal Enforcement: Fine and Jail Charts 2000-2011, http://www.justice.gov/atr/public/criminal/264101.html . DoJ's authority to prosecute cartels is grounded in § 1 of the Sherman Act, which prohibits certain agreements and conspiracies that restrict competition.

4 Id.

5 Id.

First published in the State Bar of Texas Corporate Counsel Section Newsletter, Winter 2013

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.