An extract from The Public Competition Enforcement Review, 12th Edition
Cartels
i Significant casesE-commerce
The DOJ carried forward its prosecution of price-fixing conduct in e-commerce, particularly the customised promotional products industry. In January 2019, a federal grand jury in Houston indicted Taiwan-based G Nova corporation and its CEO for participating in a conspiracy to fix prices of insulated beverage containers, and the DOJ announced that it had filed criminal charges against Netbrands Media Corporation and two executives for their roles in a separate conspiracy to fix prices of wristbands, lanyards, temporary tattoos, and buttons sold in the United States. Netbrands and the executives all agreed to plead guilty or entered guilty pleas.
In April 2019, the owner and president of Gennex Media became the fifth individual to plead guilty in the DOJ’s ongoing promotional products investigation. According to the felony charges, the co-conspirators used social media platforms and encrypted messaging applications to reach and implement their agreement to fix the prices of customised promotional products sold online from as early as May 2014 until at least June 2016. In June 2019, Gennex was sentenced to pay a US$752,717 criminal fine, and its president was sentenced to eight months in custody, a US$20,000 criminal fine, and three years of supervised release. According to the DOJ, to date, ’11 defendants have been charged in the investigation into the online customized promotional products industry. Of those defendants, five individuals and four companies have pleaded guilty’.
Generic drugs
As part of its ongoing investigation into anticompetitive conduct in the generic pharmaceutical industry, the DOJ charged Heritage Pharmaceuticals Inc in May 2019 with ‘conspiring with its competitors to fix prices, rig bids, and allocate customers’ for glyburide, a medicine used to treat diabetes. The one-count felony charge was filed in the US District Court for the Eastern District of Pennsylvania. The Antitrust Division entered into a deferred prosecution agreement with the company. Under the terms of the agreement, Heritage admitted that ‘it conspired to fix prices, rig bids, and allocate customers for glyburide’, and agreed to pay a US$225,000 criminal penalty and to cooperate with the ongoing criminal investigation. In return, the DOJ agreed to defer prosecuting Heritage for three years to ‘allow the company to comply with the agreement’s terms’. The agreement is subject to the court’s approval. According to the Antitrust Division, the deferred prosecution agreement was based on the individual facts and circumstances of the case, including ‘the company’s substantial and ongoing cooperation with the investigation’ such as ‘its disclosure of information regarding criminal antitrust violations involving drugs other than those identified in the criminal charge and the agreement’. In a separate civil resolution, Heritage ‘agreed to pay [US]$7.1 million to resolve allegations under the False Claims Act related to the price-fixing conspiracy’, including that ‘between 2012 and 2015, Heritage paid and received remuneration through arrangements on price, supply, and allocation of customers with other pharmaceutical manufacturers for certain generic drugs’.
In December 2019, the DOJ also charged Rising Pharmaceuticals Inc, a generic pharmaceutical company, for conspiring with a competitor for generic drugs and its executives to fix prices and allocate customers for Benazepril HCTZ, a treatment for hypertension. The Antitrust Division also entered into a deferred prosecution agreement with Rising, which admitted to price fixing and customer allocation, agreed that US$1,543,207 was ‘the appropriate amount of restitution’ owed ‘to victims of the charged conduct’ and ‘agreed to cooperate fully with the Antitrust Division’s ongoing criminal investigation’. According to the DOJ, ‘[t]he agreement also requires Rising to pay a [US]$1.5 million penalty, reduced from . . . [US]$3.6 million under the US Sentencing Guidelines due to Rising’s financial condition and liquidation’. In a separate civil resolution, Rising agreed to pay US$1.1 million in civil damages for its anticompetitive conduct, which reduced the criminal restitution to US$438,066. The deferred prosecution agreement requires approval by the bankruptcy court before it is filed in district court. The United States agreed to ‘defer prosecuting Rising for three years, or until its ongoing bankruptcy proceedings become final, whichever comes first’.
Ocean shipping
The DOJ carried forward its investigation into the international roll-on, roll-off ocean shipping industry, which ships wheeled cargo, such as cars, that can be driven on and off a ship. In June 2019, a federal grand jury indictment from February 2018 was unsealed. The indictment charges two shipping executives at Höegh Autoliners AS with ‘participating in a long-running conspiracy to allocate certain customers and routes, rig bids, and fix prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States’. The indictment alleges that at least between 2006 and 2012, the two executives ‘conspired with their competitors to allocate certain customers and routes for the shipment of cars and trucks’. They also ‘agreed with competitors to fix, stabilize, and maintain rates charged to customers of international ocean shipping services’. Including the unsealed charges, the DOJ stated that ’13 executives ha[d] been charged in the investigation to date[:] [f]our have pleaded guilty and been sentenced to serve prison terms[,] [while] [o]thers remain international fugitives’. Höegh itself has pleaded guilty and has been sentenced to pay a US$21 million fine. Four other ‘companies have also pleaded guilty for their [involvement], resulting in total collective criminal fines of over US$255 million’.
Heir-location services firms
In July 2019, a Salt Lake City-based heir-location services provider pleaded guilty to allocating customers with another heir-location services firm, following an indictment filed in August 2016 in the US District Court for the District of Utah. A central issue in the case was whether the per se rule or the rule of reason would apply in assessing the alleged anticompetitive conduct. Under the per se rule, certain types of restraints of trade are presumed categorically illegal. The Antitrust Division’s policy is, in general, to criminally investigate and prosecute cases involving only per se illegal conduct rather than conduct falling under the rule of reason, which requires more extensive analysis. In June 2017, the court ruled that the customer allocation alleged in the indictment would be tried under the rule of reason standard. After the Antitrust Division appealed, the Tenth Circuit held that it did not have jurisdiction to address the lower court’s order regarding the application of the rule of reason, but urged the district court to re-examine the issue. Upon the United States’ Motion to Reconsider, the district court found that the per se rule applied to the customer allocation agreement alleged in the indictment. Since it is DOJ policy to bring criminal antitrust cases only when the alleged conduct is per se illegal, had the court not reversed itself, it is unlikely that the DOJ would have continued to pursue a criminal conviction. The company and its president were sentenced on 23 January 2020 to fines of $1.5 million and $77,596.
Suspension assemblies in hard disk drives
In July 2019, NHK Spring Co Ltd, a Japanese manufacturer of suspension assemblies used in computer hard disk drives, agreed to plead guilty for its role in a global conspiracy to fix prices. Specifically, the felony charge alleged that NHK Spring agreed with co-conspirators to refrain from price competition, to allocate their respective market shares for the suspension assemblies and to exchange pricing information. Subject to court approval, NHK Spring agreed to pay a US$28.5 million criminal fine and to cooperate in the ongoing investigation. According to the DOJ, the investigation is ongoing.
Freight forwarding services
As part of its ongoing investigation into the international freight forwarding industry, the DOJ filed its first felony charge against a Louisiana-based freight forwarder in September 2019 in the US District Court for the Southern District of Florida. According to the DOJ, ‘Freight forwarders arrange for and manage the shipment of goods’. According to court documents, the freight forwarder and its co-conspirators met to discuss and agree to fix prices ‘from September 2010 until at least March 2015’. The freight forwarder agreed to plead guilty and to pay a $488,250 criminal fine, subject to court approval. Two of the freight forwarder’s executives were sentenced in June 2019 to 18-month and 15-month terms of imprisonment for their involvement. In October 2019, the DOJ filed its third individual felony charge against the owner of a different freight forwarding company based in Houston, for her role in the ‘nationwide conspiracy to fix prices for international freight forwarding services’.
Foreign exchange markets
The DOJ carried forward its long-running investigation into alleged collusion with respect to foreign currency exchange (FX). In November 2019, after a three-week trial, a jury convicted the former executive director at a major multinational bank of ‘conspiring to fix prices and rig bids in Central and Eastern European, Middle Eastern and African (CEEMEA) currencies, which were generally traded against the US dollar and the euro from at least October 2010 through at least January 2013’.
Packaged seafood
As part of the DOJ’s ongoing investigation into the market for packaged seafood, the former president and CEO of a packaged seafood company was convicted in December 2019 for his participation in fixing the prices of canned tuna, following a four-week trial in the US District for the Northern District of California. The company itself pleaded guilty and was sentenced to pay a criminal fine of at least US$25 million. In September 2019, another packaged seafood company was sentenced to pay a US$100 million criminal fine for its role in the conspiracy. So far, ‘four individuals . . . have been charged in the investigation’, and ‘[t]he other three individuals pled guilty and testified [at the defendant’s] trial’.
Defence fuel supply contracts
In March 2019, two South Korean-based companies – Hyundai Oilbank Co Ltd and S-Oil Corporation – pleaded guilty to criminal charges, and agreed collectively to pay US$75 million in criminal fines, for their involvement in ‘a bid-rigging conspiracy that targeted contracts to supply fuel to the United States Army, Navy, Marine Corps, and Air Force bases in South Korea’. The superseding indictment charges the two South Korean-based companies and seven individual defendants – ‘associates, managers, and executives of [the] companies’ – with efforts ‘to suppress and eliminate competition during the bidding process for . . . fuel supply contracts’ with the US Defense Department to supply fuel to US military bases throughout South Korea. The DOJ noted that the companies’ guilty pleas were the fourth and fifth resulting from ‘ongoing federal investigation into bid rigging, price fixing, and other anticompetitive conduct targeting US Defense Department fuel supply contracts in South Korea’. The Antitrust Division also filed a civil antitrust complaint against the same two companies, and at the same time filed proposed settlements amounting to a total of US$52 million. The litigation resulted from a whistle-blower action.
Commercial flooring contractors
In April 2019, the DOJ announced its first charge in its ‘ongoing investigation into bid rigging and price fixing by commercial flooring contractors’. According to the one-count felony charge, the former vice president of an unnamed Chicago-based contractor agreed with others to submit ‘complementary’ bids so that a designated company would win the bidding. The contractor allegedly engaged in this anticompetitive behaviour from ‘at least as early as 2009 until as late as June 22, 2017’. In August 2019, the DOJ announced its first charge brought against a corporation as part of its investigations into the conspiracy. The company agreed to pay a US$150,000 criminal fine and to cooperate in the Antitrust Division’s ongoing investigation.
Insulation installation contracts
The DOJ achieved its first convictions in its ongoing investigation into bid rigging by insulation installation contractors in 2019. According to court documents, the contractors conspired to rig bids on insulation installation contracts in Connecticut, New York and Massachusetts. Assistant Attorney General Delrahim stated that the conspiracy was a ‘$45 million scheme’ to fix prices on insulation contracts, where the conspirators attempted to hide their conduct using ‘high-tech encryption apps [and] burner phones’.
Online auctions for surplus government equipment
In April 2019, the DOJ filed its first criminal charge in its ongoing investigation into bid rigging at ‘online public auctions of surplus government equipment’ conducted by the US General Services Administration (GSA). The ‘owner of a Texas company that purchases computers to resell and recycle’ pleaded guilty to a one-count felony charge. According to the charge, the company and its co-conspirators obtained the surplus government equipment by ‘agreeing which co-conspirators would submit bids for particular lots . . . and which co-conspirator would be designated to win a particular lot offered’ for auction by the GSA. A second individual located in Pennsylvania pleaded guilty for his involvement in the conspiracy in September 2019.
Financial instruments
Banca IMI Securities Corp and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), two New York broker-dealers, pleaded guilty in May and June 2019 respectively as part of the DOJ’s ongoing investigation into bid-rigging in the market for pre-release American Depository Receipts (ADRs). ADRs are created by US depository banks and represent foreign ordinary shares that can be traded in the United States. ADRs permit US investors to ‘gain exposure to . . . companies whose common stock is listed only on foreign stock exchanges’. At an ‘auction-style process’ for ‘pre-release ADRs’ of a US depository bank, the conspiring broker-dealers coordinated their bids for rates to borrow ADRs, resulting in ‘artificially suppressed rates’. Banca IMI and ICBCFS were sentenced to pay criminal fines in excess of US$2 million and US$3 million respectively for their involvement. The former head of the securities lending desk at Banca IMI and a former vice president at ICBCFS also pleaded guilty for their involvement.
ii Trends, developments and strategies
At the close of fiscal year 2019 (ending September 30), the Antitrust Division had 102 pending grand jury investigations, which Assistant Attorney General Delrahim stated was ‘the highest total since 2010’. We will watch to see how these investigations progress in the coming year.
iii Outlook
Among other active investigations, the DOJ is set to continue its investigation and prosecution of companies and individuals involved in government procurement. Along with the FBI, the Defense Department, the US Postal Service, and the General Services Administration, the DOJ formed a new government Procurement Collusion Strike Force in November 2019. According to Assistant Attorney General Delrahim’s announcement regarding the strike force, ‘more than one third of the Antitrust Division’s 100-plus open investigations relate to public procurement or otherwise involve the government being victimized by criminal conduct’.
While summarizing the Antitrust Division’s criminal enforcement for 2019 to the US Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, Assistant Attorney General Delrahim noted several additional areas in which there would be ongoing investigation, including e-commerce, financial services, generic pharmaceuticals, and real estate foreclosure auctions. The DOJ also affirmed its interest in the labour market, stating that ‘criminal prosecution of naked no-poach and wage-fixing agreements remains a high priority for the Antitrust Division’. To date, there have been no charges announced in this area.
