Senior counsel Karen Sharp and partner Brent Snyder share thoughts on criminal antitrust investigations.
Wilson Sonsini's “Antitrust Conversations” video series features attorneys in the firm's antitrust and competition practice discussing topics of interest to clients, including preparing for litigation and the complexities of antitrust class actions, avoiding criminal violations, and Fundamentals of Antitrust Law. The series will include one-on-one discussions, Q&A with the members of the practice, and more.
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Transcript
Karen Sharp:
Hello. I'm Karen Sharp, and I'm a senior counsel with Wilson Sonsini's Antitrust Group. I'm here today with my friend and colleague Brent Snyder, who's a partner in the Antitrust Group. Brent brings a wealth of criminal antitrust experience to our firm, having served as the deputy assistant attorney general for criminal enforcement for the U.S. Department of Justice Antitrust Division for nearly 4 years. In that role, Brent oversaw all antitrust prosecutions and investigations, and most recently, Brent served as the chief executive officer of the Hong Kong Competition Commission.
Brent, it's really great to see you here today. I'm really glad you were able to join me.
Brent Snyder:
It's great to get to be here and share thoughts on criminal antitrust investigations with a former DOJ colleague, and you bring as much to the table in this discussion as I do, having served more than 20 years with the Department of Justice Antitrust Division prosecuting criminal antitrust cases.
Karen:
Thanks, Brent.
Brent:
Maybe we should start by talking about what conduct is treated as a crime under the U.S. antitrust laws.
Karen:
Sure. That's a good idea. Well, in the U.S., there are 3 types of criminal antitrust violations. The first is price fixing, which is fixing or coordinating prices or limiting output. The second is bid rigging, deciding who will submit a bid and win an RFQ, and the third is market or customer allocation, dividing up customers or territories.
These agreements are considered so anticompetitive that the government does not even have to prove an effect or that it had any harm. It's the agreement that is the crime.
Brent:
And it's important to emphasize that the meaning of agreement is very broad under the antitrust laws. An agreement can be oral, it can be informal like a gentlemen's agreement, or it can even be based on a wink and a nod, and even some conduct like exchanging sensitive information such as pricing
information may not arise to the level of an agreement, but it would be enough to allow the government to open a criminal antitrust investigation so should be avoided.
Karen:
Right.
Brent, how severe are the penalties for a criminal antitrust violation?
Brent:
Very severe. A company can be fined up to $100 million or twice the gain or the loss from the conduct. I seem to recall that you prosecuted a company that ended up having to pay a $500 million criminal fine, and other companies have been sentenced to pay fines that are even higher than that.
Karen:
Right, and don't forget about individual penalties. Individuals can be sentenced up to 10 years in prison, and didn't you have a case where an individual was sentenced to 5 years in prison for an antitrust offense?
Brent:
Yes. A company president who was involved in rigging bids, fixing prices, and allocating customers in the coastal water freight services industry was sentenced to serve 5 years in prison, and in addition to criminal fines and jail terms, companies and individuals also have to worry about civil liability because they can be sued in class actions by the victims of the cartel. Karen, in your experience representing companies in these investigations, how do they uncover or detect criminal antitrust violations?
Karen:
Well, I guess the best-case scenario is if the company uncovers potential antitrust conduct through its own compliance training or audits at the company or if an employee reports the conduct to the company, or maybe a customer might even report conduct to the company. In that case, hopefully the company would take the appropriate steps to address the conduct right away. The worst-case scenario is if the FBI shows up at the company and wants to conduct a search or if they drop in on employees at their homes and want to interview them.
Brent:
I would add as another worst-case scenario having the conduct uncovered during the course of a merger review by either the Department of Justice or Federal Trade Commission. That is actually something that happens quite a lot more than you might think.
Karen:
Right, and there was a recent example of that in the tuna industry, where there were two tuna companies who were planning to merge, and just during a routine merger review, the DOJ uncovered a conspiracy in the tuna industry to fix the price of canned tuna, which of course led to a criminal investigation and ultimately a plea agreement, a trial, and a conviction of a company CEO.
Brent:
Yeah. That case is a great illustration of how a company can get itself in trouble if it goes forward with a transaction, not being aware that it has a criminal antitrust issue. For that reason, making sure to do thorough due diligence during the deal negotiation is very important.
What are the options that a company has if it uncovers a criminal antitrust violation?
Karen:
Well, one option is for the company to self-report the conduct to the Department of Justice and apply for leniency. As you know, the department has a long-standing leniency program whereby a company who comes in and self-reports the conduct can apply for leniency and, if it's granted, can be given immunity.
Brent:
Leniency can be a great option. In addition to giving the company immunity, it can also allow the employees of the company to avoid criminal prosecution, as well. Leniency may also allow a company to have its potential civil liability reduced from treble damages and joint and several liability -to single damages. But the thing to remember about leniency is that it's only available to the first company to self-report the conduct, so time is of the essence, and there are examples of companies that have missed out on getting leniency by not even days but actually just a few hours or even minutes.
Karen:
Mm-hmm. That's true, so it sounds like if a company hesitates they might risk another company or a competitor coming in before them and reporting the conduct and getting the leniency.
Brent:
That’s right.
Karen:
Well, if a company decides not to self-report the conduct, is another option just to wait and see if the Department of Justice opens a criminal investigation while at the same time putting an end to the conduct?
Brent:
Yes, that's absolutely an option. Leniency might not be for every company, and it might not be the right course of action in every context. There might be cases where we would advise a company that rather than going for leniency they should actually defend the conduct. There can also be downsides to seeking leniency, as well, so that issue is really one of the critical ones that a company has to make in connection with a criminal antitrust investigation, and it really should consult experienced counsel on making that decision.
Karen:
OK. So what happens if the Department of Justice opens a criminal antitrust investigation?
Brent:
The company is either going to have to explain the conduct to the Antitrust Division or potentially have to defend the conduct. If the Antitrust Division develops sufficient information to indict a criminal case, the company is going to have to make a choice as to whether it will negotiate a plea agreement and potentially pay a criminal fine or go to trial and litigate the conduct. Similarly, the company's executives will also have to make similar decisions about whether to negotiate a plea agreement or to go to trial and contest the conduct.
Karen:
I guess a good example of that is the recent tuna case, where Bumblebee decided to plead guilty and pay a criminal fine, but the CEO of the company decided to go to trial, and he was convicted and sentenced to 40 months in prison.
Brent:
Yes. Again, that investigation is a great example, and it shows that the decision to either negotiate a plea agreement or to move forward and contest a case is one of the key decisions that a company has to make, and it's going to benefit by having experienced antitrust counsel, who can help them make that decision.
Karen:
Brent, before we finish, do you have any final parting words for a company that might uncover antitrust conduct?
Brent:
Yes. Criminal antitrust investigations are long, and they're costly, and the potential consequences to a company and its executives are very, very significant. Wilson Sonsini has a very deep group of former U.S. DOJ antitrust lawyers that are in our Antitrust Practice Group and are very experienced at representing clients in these issues.
Karen:
Well, thank you so much, Brent, for joining me here today. This was a lot of fun…
Brent:
It was great.
Karen:
I enjoyed seeing you here.
Thank you, and thank you all for joining us for another one of our antitrust conversations.
