Presentation - Cartel Investigation, MRTP, CCI

8/14/2019 Presentation - Cartel Investigation, MRTP, CCI

1/24

A Primer

The American Antitrust InstituteStratis G. Camatsos, Research Fellow, AAI

Albert A. Foer, President, AAI


2/24

IndexIntroductionSherman ActInvestigation Procedures

Identifying cartelsLeniency programCases 1-3

The Indian Context The Competition Commision Act


3/24

CARTEL IS AN ARRANGEMENT TOORGANIZE AND CONTROL DISTRIBUTION

TO SET PRICES TO REDUCE COMPETITION TO SHARE TECHNICHAL EXPERTISE TO LOWER TOTAL PRODUCTION TO RAISE LIST PRICES


4/24

SHERMAN ACT 1890SECTION 1: CONSPIRACY IN RESTRAINT OF

TRADE IS ILLEGAL

SECTION 2: CONDEMNS EVERY PERSONWHO SHALL COMBINE OR CONSPIREWITH ANOTHER PERSON/ PERSONS, TOMONOPOLIZE


5/24

Investigation procedureCIVIL ACTIONCRIMINAL PROCEDUREENFORCEMENT TOOLS AND PENALTIES


6/24

Investigation procedure - CIVILACTION

Civil Investigation Demand (CID)CID is analogous to Federal Rules of CivilProcedure

A CID enforcement suit must be brought inthe federal district courtCID allows DOJ to obtain informationneeded to pursue possible antitrust

violationsEnforcement action generally focus onrestraining anticompetitive conduct orbehaviour


7/24

Investigation procedure - CRIMINALPROCEDURE

If DOJ find any case which appears to involve price-fixingor bid-rigging then it recommend a federal grand juryinvestigation

The grand jury is a group of 16-23 individuals who

listen to the hearing of the case

the government will start the process of oral testimonyand call witnesses before the grand jury

draft indictment and a detailed fact memorandum thatwill be sent to the Assistant Attorney General forAntitrust

It may further moves to U.S. supreme court, but rarely

happens


8/24

Investigation procedure - ENFORCEMENT TOOLS &PENALTIES

The European Commissions dawn raidsUnlike a subpoena, a search warranttypically does not provide the recipient withadvance noticeseveral administrative agencies have thepower to inspect the records of governmentcontractors or participants in governmentprogramsuse of informants, consensualmonitoring/wiretap authority, and hiddenmicrophones and video cameras

Division INTERPOL red notice (Adopted in


9/24

Identifying cartelsA private complaintA revelation in the mediaBy an informant seeking protection under the leniencyprogram.Red flags :-

sharp price increases (particularly after low prices)

stable prices in a slumping industryparallel prices

concentrated sellers (10 or less)an industry associationhigh barriers to entry

joint sales agencies or inter-company sales (information sharing)

homogenous products/commoditiesrelatively sophisticated intermediate goods and services(chemicals, pharmaceuticals, plastics)relatively predictable and stable market (moderate growth) andmarket participantssocial or cultural cohesiveness.


10/24

Leniency programConditional Leniency Policy was originally adopted in1978

Revised in the year 1993

100% fine discounts and immunize for the first qualifyingleniency applicantsSecond applicants could receive substantial discounts of 70% to 80%DOJ will not to prosecute those individuals who come

forward before an investigation: conditions No prior information in alleged activityReports completely, honestly and cooperate with theDOJIndividual did not coerce another party to participatein the illegal activity

Amnesty Plus : cartel in more than one line


11/24

Case 1The Amino Acid Lysine Antitrust Litigation

5 companies : Archer-Daniels-Midland (ADM), Ajinomoto,Kyowa Hakko Kogyo, Sewon and Cheil Jedang

conspiracy manufactured or imported lysine

can be produced as a by-product of bacterial fermentation

agreement would generate $200 million in joint profits in aglobal market for lysine

ADM earned just about $200 million in profits from thecartel over three years with its one-third share of sales inthe worldwide lysine market

Where as the total cost was not exceed $1m


12/24

Investigation evidencea high ADM official became an inside source of information for the FBI at the end of1992Archer Daniels Midland was working withcompetitors to rig the markets for a number of

the commodities it sold The FBI served subpoenas authorized by afederal grand jury sitting in Chicago, and theagents collected documents related to ADMs

lysine, citric acid, and corn-sweetenersbusinessesvideo and audio tapes secretly recorded by theFBI clearly showing the conspirators in the act

of fixing prices and carving up the worldmarkets for lysine


13/24

OutcomeIn 1992, the DOJ sought and obtained convictionsfor criminal price-fixing by the five corporate lysinesellers

the DOJ prosecuted four lysine executives in a

highly publicized jury trial held in Chicago in the1998

three of the four were found to be guilty andheavily sentenced

Amino Acid Lysine Antitrust Litigation was assigned to a judge in the U.S. District Court in NorthernIllinois

three largest defendants offered the class $45million to settle the damages allegedly caused bytheir rice fixin and later that ear


14/24

CASE 2Vitamins Antitrust Litigation (1990-1999)

3 MAJOR VITAMIN MANUFACTURER (HoffmanLa Roche, Rhone-Poulenc S.A, and BASF AG )

COMPLAINT :the case was filed in Alabama statecourt in 1997on behalf of a class of indirectpurchasers

purchased vitamin products for use inhis farming operationsthe defendants were fixing prices,


15/24

In 1997, a client of David Boies III, a son of a highprofile attorney specializing in antitrust class actionlitigation, told him about what appeared to besecret price-fixing meetings in the vitaminsindustry.

He began his own investigation and learned thatvitamins manufacturers sell most of their output indry powder form, eventually to be used for humanand animal nutritional purposes in a wide variety of products

Boies began talking to these independent blendersand found out that these companies also suspectedsome collusion was occurring with the vitaminsmanufacturersU.S. investigations first got wind of the vitamins

cartel and Roches role in it in late 1996 fromsources at ADM who were then cooperating with

Investigation evidence


16/24

Outcomethe jury decided that the cartel had overchargedpurchasers because the defendants conspired to fix theprice of choline chloride.the Justice Department announced guilty pleaagreements from two Swiss nationals and two Germannationals, three of whom were high officers in BASFs

Fine Chemicals Division and one of whom was in asimilar position at Roche.two more German pharmaceutical manufacturers wereadded to the list, Merck and Degussa-Huels Ag, alongwith two U.S. firms, Nepera, Inc., and Reilly Industries

These guilty pleas involved the vitamin C and vitamin

B3. Fourteen chemical companies were convicted by theU.S. for price-fixing in the vitamins market. U.S. fines forthese fourteen companies and fifteen of the officerswere $915 Mln

Two firms received amnesties from the DOJ under theleniency program. Additionally, sixteen senior executivesof the vitamins manufacturers were criminally indicted,of which fifteen received personal sentences


17/24

CASE 3NASDAQ Market-Makers Antitrust Litigation

The plaintiffs in this private class actionagainst a cartel are a class of over 1 millionindividual and institutional investors whopurchased or sold shares of certain

securities on the NASDAQ through one ormore Defendants or their commonly ownedaffiliates.

The defendants were 37 market-makers of the National Association of SecuritiesDealers Automated Quotation Systemexchange.

The complaint alleged violations of theSherman Act arising out of price-fixing of spreads and stocks traded on the NASDAQ


18/24

private counsel conferred with economistsand witnesses.Private counsel also obtained a documentpreservation order that prevented theordinary periodic erasure and recycling of audiotapes

Throughout late 1994, 1995 and into 1996,the private plaintiffs and economistscontinued to encourage and assist thegovernment investigation

The plaintiffs economists developed

extensive additional economic evidence,which the shared with the DOJs

Investigation evidence


19/24

Outcomethe industry having agreed to a settlementwith the government, the DOJ (in the usualprocess of settlement)

The settlements in the aggregate totaledapproximately $1.027 billion


20/24

ConclusionOverview of the U.S. mechanisms

The statutory framework The key procedures The inducements to blow the whistle on a cartel & The criminal penalties and other remedies that are

availableIn three case studies, we have also shown that there isan intricate relationship between public and privateenforcement in the U.S. In a very general way, thegovernment uses its resources to ferret out evidence of illegality and the private bar, motivated by the prospectof treble damages and attorneys fees and fundedthrough contingent fee arrangements dependent uponsuccess, provides a mechanism for obtaining substantialdamage awards (often in cases that are settled ratherthan tried) for harmed private parties. The combinationof criminal sanctions (jail and fines)


21/24

Indian ContextMRTP now The Competition Commission of IndiaMRTP Act: neither definition nor even amention of certain offending trade

practices. Some illustrations of these are:Abuse of DominanceCartels, Collusion and Price FixingBid Rigging

Boycotts and Refusal to DealPredatory pricingNo Penalty only cease and desistPublic interest


22/24

Competition Commission Act

In the new Competition Act, four types of practicesare presumed to be anti-competitive:

Agreements regarding prices (directly or indirectly,

purchase or sale)Agreements regarding quantities (limiting orcontrolling production, supply, markets, technicaldevelopment, investment or provision of services)Agreements regarding bidsAgreements regarding market sharing (sharing of

markets or sources of production or provision of services by way of allocation of geographical areaof market or type of goods or services or number of customers in the market or any other similar way)


23/24

Competition Act and MRTPAct

Based on liberalized regime

Competition concepts expresslydefined major role for economic analysis

Provides for regulation of combinations

Advocacy role

Power to impose penalty deterrencefactor

Statutory authority can seek CCIsopinion

Government Departments within ambit

Based on command and control regime

Competition concepts not expresslydefined

No regulation of combinations

No advocacy role

No power to impose penalty

No provision for statutory authority toseek CCI opinion

Government Departments outsideambit


24/24

Thank You !

Documents

Presentation - Cartel Investigation, MRTP, CCI