Transcript www.troutmansanders.com

Antitrust Update
for the ABA Corporate Counseling
Committee
June Ann Sauntry
[email protected]
Tel.: 404.885.3210
Nathan Muyskens
[email protected]
Tel.: 202.274.2900
Charles P. Greenman
[email protected]
Tel.: 212.704.6233
Part I
Mergers and Acquisitions Update
Merger & Acquisition Update
Merger Enforcement Is Alive and Well at the
Department of Justice
David L. Meyer, Deputy Assistant Attorney General for
Civil Enforcement, November 15, 2007
www.usdoj.gov/atr/public/speeches/227713.htm
FTC Performance and Accountability ReportFiscal Year 2007 (“PAR 2007”)
www.ftc.gov/opp/gpra/2007parreport.pdf
Meyer’s Remarks*
• Since June 2006, Antitrust Division has challenged or
caused restructuring of 18 transactions and filed 15
complaints.
• “Counting up the number of merger challenges- litigated
or otherwise - that the Division has recently undertaken
as compared to past years cannot provide a reliable
indication of the vigor of our merger enforcement.”
*Pages 3 and 6
Meyer’s Remarks*
Reasons for fewer challenges:
• Antitrust Division and FTC have educated
business community, and few blatantly
anticompetitive mergers are proposed.
• Mix of transactions have evolved to pose fewer
competition concerns.
* Pages 6 and 7
Meyer’s Remarks*
Review Process
“The effectiveness and efficiency of our review processes is not
always completely transparent to the outside world. Because the
outcome of our merger review does not hinge on HHI calculations or
any other objective or readily observable benchmark, the time and
effort we will need to conduct an investigation is not perfectly
predictable when a transaction is proposed.”
* Pages 7 and 8
Meyer’s Remarks*
Role of Concentration
With respect to the Whirlpool/Maytag transaction:
“There never was any question that the transaction would increase
concentration in a concentrated market, but I should not have to remind
anyone that merger analysis has come quite far from the days when
concentration figures alone were a good predictor of anticompetitive harm.
No sensible proponent of antitrust enforcement could seriously favor a return
to the days when merger analysis stopped there, and mergers were routinely
blocked just because they would increase concentration in a highly
concentrated market.”
* Page 8
Meyer’s Remarks*
Key Factors
• Are the merging firms the first and second
choice for any distinct group of customers?
• Will entry or repositioning by other competitors
preclude sustained price increase by merged
firm?
*Page 10
Recent DOJ Merger Activity
Vulcan Materials Acquisition of Florida Rock
Industries
• Complaint and consent decree filed November 13,
2007.
• Market impacted - sale of coarse aggregate in parts
of metro Atlanta, Columbus, Georgia, Chattanooga,
Tennessee, and South Hampton Roads, Virginia.
• Relief - divest 8 quarries that produce coarse
aggregate in Georgia, Tennessee and Virginia.
Other DOJ Merger Activity
Comscope’s Acquisition of Andrew Corp.
• Complaint and consent decree filed December 6,
2007.
• Market impacted - development, manufacture and
sale of drop cable (coaxial cable that connects cable
television transmission systems to customer’s
premises).
• Relief - divest Andrew’s 30% interest in Andes
Industries, Inc. one of only 3 other companies that
provide drop cable to cable television companies in
the U.S.
Other DOJ Merger Enforcement
Civil Contempt Against Cal Dive International,
Inc. (November 26, 2007)
• Violation of 2005 consent decree requiring sale of
saturation diving assets
• Delay in divestiture of saturation diving vessels and
failure to divest in same condition as when acquired
• $2 million for disgorgement of profits and payment of
costs of investigation
Other DOJ Merger Enforcement
Civil Contempt Against ALLTEL Corporation
(December 3, 2007)
• Violation of 2007 consent decree and related court
order to divest mobile wireless telecommunications
businesses in 4 rural areas in southern Minnesota
• Failed to adhere to plans for capital improvements,
upgrades, maintenance, failed to provide information
to management trustee, and provided misleading
reports on progress of improvement projects
• $1.325 million payment, $745,000 of which goes to
State of Minnesota
FTC 2007 Statistics*
In Matters In Which HSR Second Requests
Were Issued
• “Positive outcome” in 31 of 31
• 12 consent orders
• Raising anticompetitive concerns caused
parties to withdraw 5 transactions.
• 3 authorizations to file for preliminary injunctions
• Closed 11 investigations without subsequent events indicating
the transactions injured competition.
*PAR 2007 at 54
FTC 2007 Statistics*
“Given the agency’s scarce resources and given that the
FTC and DOJ jointly enforce the antitrust laws, the FTC
directs much of its attention and resources to certain
segments of the economy that are particularly important to
consumers and in which it has particular expertise. These
include energy, health care, pharmaceuticals, real estate,
and technology”
In FY2007, FTC challenged:
– 3 mergers in the energy industry
– 8 mergers in the health care products and services
and medical devices industries
*PAR 2007 at 52, 57
Recent FTC Merger Activity
Schering-Plough’s Acquisition of Organon
BioSciences N.V.:
• Complaint and consent order November 16, 2007
• Market impacted – manufacture and development of 3
poultry vaccines
• Relief- divest rights and assets to develop, manufacture,
and market each vaccine to Wyeth and provide supply and
transitional support services
Recent FTC Merger Activity
A & P’s Acquisition of Pathmark Stores
• Complaint and consent order November 27 2007.
• Market impacted – supermarkets in Staten Island and
Shirley, Long island, New York
• Relief – sell 4 stores in Staten Island and 1 in Shirley by
January 10, 2008
Favorite Quote
“When it comes to intervening in markets,
increased output is not always optimal.”
Maintaining our Focus at the FTC: Recent Developments
and Future Challenges in Protecting Consumers and
Competition, FTC Chairman Deborah Platt Majoras,
November 15, 2007.
Other Merger Issues
Acquisition of Midwest Air Group, Inc. by private
equity group TPG Capital LP
• DOJ needed more time to review after expiration of
extended waiting period.
• Timing agreement – parties won’t close transaction
until January 31, 2008, without DOJ consent.
• Northwest Airlines is a passive minority investor in
acquiring entity.
Other Merger Issues
Google’s Acquisition of DoubleClick:
• Public interest groups ask that FTC
Chairwoman Deborah Platt Majoras recuse
herself because her husband’s firm is
representing DoubleClick in the transaction,
although not before the FTC.
• Issue came to light based on announcement
on firm’s web site.
Other Merger Issues
“Gun Jumping”
•
On Tuesday and Wednesday, December 11 and 12, EU and UK,
Office of Fair Trading raided offices to determine if Hydro
Polymers and INEOS Enterprises, Ltd. had already “closed” deal
that had not been cleared by regulators and could give INEOS
Too Dominant a position in the plastics industry.
•
Provision in United Health/PacifiCare Merger agreement,
prohibiting PacifiCare from entering contract incurring greater than
$3 million liability without United Health’s consent, led to price
fixing claim that withstands motion to dismiss. Omnicare, Inc. v.
United Health Group, Inc., 2007 U.S. Dist. LEXIS 74983 (N.D. Ill.
Sept. 28, 2007).
Developments in FTC Actions Against
Real Estate Groups
• December 12, 2007 - FTC announces settlement with
Milwaukee-based MLS, under which MLS is prohibited
from adopting and enforcing rules or policies that limit
participants ability to enter into non-standard listing
agreements.
• FTC had previously obtained similar consent orders from
realtor groups in Colorado, New Hampshire, Virginia,
Northeast Wisconsin, and New Jersey.
• December 13, 2007 – Release of ALJ December 10,
dismissal of October 12, 2006 complaint against
southeast Michigan realtors’ group
Chief Administrative Law Judge McGuire’s Decision
In the Matter of Realcomp II Ltd., Docket No. 9320
(www.ftc.gov/os/adjpro/d9320/071213decision.pdf)
• FTC’s economic evidence was “unreliable due to
deficiencies in methodology and/or flaws in analytic
interpretation.”
• FTC made prime facie showing of “anticompetitive
nature of the alleged restraints” but failed to show actual
“anticompetitive effects or actionable consumer harm.”
• No reliable demonstration that the challenged website
policy (1) limited consumer choice, (2) excluded discount
listings on websites, (3) impeded ability of discount
brokers to compete, or (4) forced discount brokers to exit
market or deterred entry.
Part II
Criminal Enforcement Update
This month’s topic: Stolt-Nielsen
Stolt-Nielsen
• What is amnesty? An overview of the DOJ’s amnesty policy.
• What happened in the Stolt-Nielsen case?
• What lessons can be learned from the case?
– The DOJ’s amnesty program is not likely to change.
– The company’s initial response to alleged misconduct is critical in
determining the final outcome
– Having an effective compliance program can save the company from
potential criminal liability no matter when it is enacted and implemented.
Corporate Leniency
• A major component of the DOJ’s Antitrust Division (the “Division”) is
its Leniency Policy, which was instituted in 1978 and revised in
1993.
• Under the Leniency Policy, a corporation or individual will not be
criminally charged for the antitrust law violations reported, provided
the corporation or individual complies with the terms of the policy.
• The Leniency Policy also provides relief from civil penalties -The
Antitrust Criminal Penalty Enhancement and Reform Act of 2004
(“ACPERA”) limited civil damages for qualifying leniency applicants
to “actual damages sustained” – a de-trebling of damages – This
protection is set to expire on June 23, 2009 (unless renewed by
Congress).
• In the period between 1997 and 2004, more than 90 percent of the
total fines paid by defendants were associated with investigations
assisted by leniency applicants
Corporate Leniency Requirements
•
•
•
•
•
•
Type A (Before an investigation has begun)
DOJ will grant leniency if a corporation comes forward before the
Division has initiated an investigation and:
1) The Division has not received any information from another
source about the illegal activity at the time the corporation comes
forward
2) Upon discovery, the corporation takes prompt and effective action
to end its involvement
3) The corporation reports the activity completely and with candor
and provides full, continuing, and complete cooperation during the
investigation
4) The admission is a corporate act, rather than isolated confessions
of individual employees
5) The corporation makes restitution, where possible
6) The corporation was not the leader or originator of the activity and
did not coerce another party to participate in the illegal activity
Corporate Leniency Requirements (cont.)
•
•
•
•
•
•
•
Type B (After an investigation has begun)
DOJ, in certain circumstances will grant leniency to a corporation, even if an
investigation has already begun, if:
1) The corporation is the first to come forward and to qualify for leniency
2) At the time the corporation comes forward, the Division does not have
evidence against the company likely to result in a sustainable conviction
3) Upon discovery, the corporation took prompt and effective action to end
its involvement
4) The corporation reports the wrongdoing completely and with candor and
provides full, continuing, and complete cooperation that advances the
investigation
5) The admission is a corporate act, rather than isolated confessions of
individual employees
6) The corporation makes restitution where possible
7) The Division decides that it would not be unfair to others to grant the
corporation leniency, consider the nature of the illegal activity, the
confessing corporation’s role, and when it came forward
Stolt-Nielsen
Background
•
In 1998, SN, a world-wide shipping company, entered into a customer allocation
conspiracy with two primary competitors – As part of the agreement, the coconspirators would refrain from bidding on deep-sea trade routes allocated to the
other parties
•
In early 2002, Stolt-Nielsen’s learns that the company may have been participating in
an illegal antitrust conspiracy
•
Upon learning that there may be a problem, Stolt-Nielsen immediately puts in place
an effective compliance program
•
In November of 2002, Stolt-Nielsen retains outside counsel to conduct an internal
review and counsel on amnesty issues
•
In December 2002, the Division informally accepts Stolt-Nielsen’s application and the
internal investigation commences
•
After providing a proffer to DOJ, Stolt-Nielsen receives Conditional Leniency in
January 2003 and begins its cooperation
Stolt-Nielsen (cont.)
•
On April 8, 2003, the DOJ informs Stolt-Nielsen that it had obtained evidence that the
company did not cease all illegal activities in early 2002 and the illegal conduct
continued into late 2002
•
At this time, the Division, for the first and only time, voided a corporate leniency
agreement
–
•
•
•
The Division voided their agreement with Stolt-Nielsen (“SN”) because it alleged that SN did
not take “prompt and effective action to terminate its part in the anticompetitive activity being
reported’
A condition of the Agreement was that SN must not continue to participate in the anticompetitive behavior
Through the Agreement, SN complied with the Division’s investigation and supplied a
number of incriminating documents, which resulted in the conviction of the other two
companies in the customer allocation conspiracy (without such assistance from SN,
those convictions would not have occurred)
However, the Division claimed that SN did continue its behavior and revoked the
Agreement and sought and indictment against both the company and its officers
Stolt-Nielsen (cont.)
•
SN sought an injunction in federal court against the indictment in February
2004 and in January, 2005, the US District Court for the Eastern District of
Pennsylvania issued the injunction
•
The Third Circuit then takes up the matter and reverses the trial court’s
earlier decision instructing the trial court to consider the agreement as a
defense post-indictment and to determine whether SN had lived up to its
side of the agreement
•
On September 6, 2006 Stolt-Nielsen is indicted in the Eastern District of
Pennsylvania along with 2 employees.
•
SN files a motion to dismiss the indictment asserting the Agreement as a
defense. In compliance with the Circuit’s directive, the trial court hold an
evidentiary hearing to determine whether SN had promptly terminated illegal
activity
•
On November 29, 2007, the District Court dismissed the indictment against
SN and its officers, stating that SN did not breach the Agreement
The Trial Court
The Trial Court’s Ruling in Dismissing the Indictment
•
U.S. District Judge Bruce Kauffman of the Eastern District of Philadelphia agreed with the
defendants and concluded that there was no proof that they had continued to participate in the
antitrust conspiracy. In the opinion, the Judge discredited the testimony of executives from the
other participating companies that were part of the cartel who maintained that Stolt-Nielsen
continued with the bid-rigging scheme. The Judge stated:
The [Antitrust] Division has failed to produce any credible evidence that Stolt-Nielsen’s participation in the
customer allocation conspiracy continued past March 2002. Nor has the Division proposed a conceivable
personal motive for the misconduct it alleges, as there is no indication that either Cooperman or Wingfield
stood to profit in any way from continued anticompetitive activity. Indeed, it would defy logic for executives
such as [individual defendants] Wingfield and Cooperman to risk their careers to continue a criminal
conspiracy that had been exposed publicly and repudiated by their company’s revised Antitrust Compliance
Policy. With the exception of Jansen, who the Division ultimately attempted to treat as a hostile witness, the
only testimony adduced in favor of the Division’s version of the events of March-November 2002 was the
testimony of a Jo Tankers employee and a number of Odfjell employees whose accounts were fraught with
contradiction and uncorroborated by documentary evidence. Each Odfjell and Jo Tankers witness testified in
return for individual or corporate cooperation agreements that promised immunity or a reduced sentence in
exchange for testimony against Defendants. Each witness thus had a strong motive to seek leniency from
the Division and to retaliate against a competitor that had implicated him in a criminal conspiracy. [Italics
added]
What does Stolt-Nielsen mean for the
government?
•
When the Third Circuit initially sent the case back to the trial court to revisit, many
commentators pointed to this case as the death-knell of the Amnesty program. This
does not appear to have been the case.
•
The Amnesty program still works and has resulted in new investigations into
numerous industries (i.e., air cargo)
•
However, we should expect to see an increased review of the evidence provided by
companies in initial proffer sessions when the DOJ is determining whether to grant
Amnesty. They will likely be very interested in the company’s actions following the
discovery of the misconduct.
•
Hopefully, this case will cause the DOJ to look harder at the incentives of other
cooperating witnesses when evaluating credibility.
•
Overall, the Amnesty program remains a useful tool in reducing your company’s
liability while remaining the Antitrust Division’s best tool for stopping illegal cartel
behavior. Reports of the Amnesty Program’s demise have been greatly exaggerated.
More importantly, what does Stolt-Nielsen
mean for in-house counsel?
There are two very important lessons to take
away from this case for in-house counsel
1. Deal with potential misconduct quickly
and effectively.
2. Effective compliance is necessary to
protect the company.
Dealing with Allegations of Illegal Behavior
The main issue in this case was whether and when SN effectively stopped its illegal conduct.
In the SN case, the government did not believe that SN had effectively stopped the illegal
behavior. However, SN had taken corrective measures to stop the behavior and had created a
strong record that it had acted properly. The trial court relied on this record in dismissing the case.
When a company becomes aware of potential illegal activity, the actions it initially takes can often
play a defining role in the eventual outcome. You need to immediately come up with a plan on
how to stop the illegal behavior and minimize risk for the company in the future.
- Ascertain the relevant facts as quickly as possible.
- Determine whether outside counsel is needed to launch an internal investigation
- Evaluate whether employees alleged to have violated the law may continue their employment
- Eliminate the risk of document destruction or other types of obstruction
- Determine what Sarbanes-Oxley obligations are created
Even if you are not stopping potentially illegal behavior with amnesty in mind, there are many
other reason to do so.
- SOX reasons
- Private actions
AGAIN, what the company does immediately after discovering alleged misconduct is
critical to the final outcome.
The Importance of Effective Compliance
Programs
In the trial court’s decision dismissing the case, the court looked at SN’s
compliance program as proof that it had effectively stopped the illegal behavior.
The court found that the company’s compliance program did what it was supposed
to do; it put an end to competitor contacts and brought vigorous competition back
to the market.
While it would have been better for SN to have an effective compliance program
from the outset, SN’s compliance program played an important role in saving them
from criminal liability.
The SN compliance program was effective because it was thorough and focused
on areas that were particularly problematic. Effective compliance program focus
extra attention on areas where the greatest danger exists. The SN compliance
program reflected the definition of effective compliance found in Chapter 8 of the
US Sentencing Guidelines (the government’s definition of effective compliance).
At the end of the day, SN’s compliance program provided a clear benefit to the
company even though it was not started until after the bad behavior had taken
place. The lesson here is clear: it is never to late to start an effective compliance
program.
FTC Recent Activity
1. Do Not Call Violations
A) Settlements Announced in November 2007
Craftmatic - $4.4 million
ADT - $2 million (two of ADT’s authorized dealers also paid penalties of
$20,000 and $25,000)
Ameriquest - $1 million
Guardian Communications - $150,000 but $7.8 million civil penalty
suspended due to inability to pay
B) Settlements in recent years
DirecTV - $5.3 million in December 2005 (largest ever)
Bookspan - $680,000 in February 2006
Flagship Resort Development - $526,000 in February 2005
Cutting Edge Marketing - $345,000 in September 2005
Columbia House - $300,000 in July 2005
FTC Recent Activity (cont.)
C) 145 million numbers on the DNC Registry
D) Safe Harbor under Telemarketing Sales Rule
Established Business Relationship – (a) Purchase within prior 18 months, or (b)
inquiry within prior 3 months.
E) Exemptions
Surveys, political groups, and charities.
F) Auto-Dialers and Abandoned Calls
Call is considered abandoned if sales representative does not pick up within 2
seconds of answering.
No violation if telemarketer can assure that 3% or less of calls are abandoned. Some
states (e.g. Florida) have no such safe harbor. The FTC is aware of this dichotomy.
FTC Recent Activity (cont.)
2.
Credit – Offers of credit to sub-prime market, apart from mortgages.
FTC looking into relationships between banks and appraisers, and
sub-prime credit card fees and disclosures.
3.
Spurious open-ended credit (key, reasonable expectation of repeated
sales.)
4.
Buying Clubs
5.
Privacy Breaches
Choice Point
FTC examining under unfairness theory rather than deception theory.
6.
Affiliate Marketing Rule
7.
Testimonials
About Troutman Sanders LLP
• Troutman Sanders LLP is an international law firm with over 650
attorneys and 12 offices in North America, Europe and Asia.
• Troutman Sanders’ attorneys provide counsel and advice with
virtually every aspect of civil and commercial law. With over 40
areas of legal practice, the firm is defined by its considerable
knowledge base and proactive approach of addressing business
and legal challenges.
• In 2006 and 2007, BTI Consulting Group, an independent market
research and management company, ranked Troutman Sanders as
a “Go-To Law Firm,” “National Power Player,” and “Fortune 1000
Primary and Recommended Law Firm” based on individual
interviews with corporate counsel of privately held companies and
Fortune 1000 corporations.
June Ann Sauntry
Tel.: 404.885.3210/202.274.2941
E-mail: [email protected]
June Ann has acted as litigation counsel and has provided antitrust counseling
and compliance programs for companies representing a broad range of
businesses including entertainment, utilities, transportation, communications,
healthcare, mining, agriculture, construction, and manufacturing and has
served as antitrust counsel to trade and professional groups. On behalf of
numerous clients, she has dealt with the Antitrust Division of the U.S.
Department of Justice, the Federal Trade Commission, and state attorneys
general in connection with merger/acquisition investigations, civil antitrust
investigations, and criminal antitrust grand jury investigations. She has served
as Chairman of the Antitrust Section of the Georgia Bar Association and
Programs and Publications Chairman of The Antitrust Section of the Federal
Bar Association. June Ann maintains offices in both Atlanta and Washington,
D.C.
Nathan J. Muyskens
Tel.: 202.274.2900
E-mail: [email protected]
Nate represents corporations, financial institutions, investment firms and individuals in all
aspects of criminal investigations and litigation, both pre- and post-indictment, as well as
in complex civil litigation, including class, shareholders and whistleblower actions in
federal and state courts. Nate represents clients before the Department of Justice, the
Securities & Exchange Commission, the Federal Trade Commission, the National
Association of Securities Dealers, the Department of Defense, the United States
Congress, and other federal and state regulators. He has also conducted
numerous internal investigations, advised with respect to corporate governance issues,
and been involved in the implementation of compliance codes.
Nate has particular expertise in counseling and defending clients involved in criminal
antitrust investigations in a variety of industries, such as defense, pharmaceuticals,
energy, chemicals, home products and technology. He also represents clients in all
types of civil antitrust litigation on both the federal and state levels. Nate also dedicates a
portion of his practice to providing antitrust compliance training and advice.
Charles P. Greenman
Tel.:(212) 704-6233
E-mail: [email protected]
Charles' practice is concentrated on trade regulation and commercial
litigation. He has represented numerous manufacturers, distributors, retailers, financial
institutions and service providers in investigations by federal, state and municipal
regulatory agencies. He has represented clients in proceedings brought by State
Attorneys General in more than twenty states as well as by the FTC. He is also an
experienced commercial litigator. He routinely appears in both state and federal courts. He
has defended numerous class actions relating to a wide variety of consumer and
securities issues
Charles was the Assistant Commissioner of the Department of Consumer Affairs for the
City of New York. He also served as the Consumer Advocate for the City. Mr. Greenman
has served as Chairman of the Robinson-Patman Act Subcommittee of the New York
State Bar Association and Chairman of the Committee on Consumer
Affairs of the New York County Lawyers’ Association.