U.S. ANTITRUST LAW & GLOBAL ENFORCEMENT

KURT STITCHER LEVENFELD PEARLSTEIN, LLC MAY 21, 2008

OVERVIEW

• • • •

“The Clean-Up Hitter” Focus on the Individual

–

Threats to the Person

–

Key Privilege Issues

–

Individual Leniency Parallel Civil Proceedings Issues in the European Union

FOCUS ON THE INDIVIDUAL

THREATS TO THE INDIVIDUAL

•

DOJ’s Emphasis on Individual Accountability

– –

Companies Can’t Go To Prison, But People Can Hard Time Is The Best Deterrent

•

A/T Criminal Penalty Enhancement and Reform Act of 2004

– –

Maximum 10 Years In Prison Fines Up To $1 Million

•

Recent Developments

– – –

FY 2007: 87% of Individuals Charged Get Prison Time Sentences Are On The Rise Courts Will Not Depart In The Absence of “Substantial Assistance”

DOJ’s TOOLS OF THE TRADE

• •

Investigative Tools

– – – – –

Informants/Cooperators Covert Taping Search Warrants (See Program Materials) Foreign Assistance Requests Court-Authorized Wiretaps Jurisdictional Tools

– – – –

INTERPOL Red Notices Border Watches Foreign Assistance & Coordination Extradition

DOJ’s TOOLS OF THE TRADE

• •

Prosecutorial Tools

–

Collateral Enforcement

• •

Mail, Wire, Procurement Fraud Anti-Kickback Statutes

–

Obstruction, False Statements, Etc.

“Persuasive” Tools

– –

Elimination of “No Jail” Deals “Carve Outs”

•

Culpable Employees

• •

Non-Cooperators Targets of Investigation

AND DOJ IS NOT ALONE . . . .

•

Foreign Enforcement Agencies Begin To Focus On Individuals, As Well

•

Criminal Prosecution Rare, But Trending Up

•

E.G., UK Law Effective June 2003

– – –

For “Hard Core” Cartel Activity Up To 5 Years’ Imprisonment Unlimited Fines

THE END RESULT

•

Individuals Are In The Cross-Hairs

•

Company’s Interests May Quickly Diverge From Those Of Individual

•

Significant Implications For Legal Representation and Privilege

– –

Attorney-Client Fifth Amendment

POTENTIAL CONFLICTS IN JOINT REPRESENTATION

•

Temporality Of “Aligned Interests”

–

Disparity in Punishment

• •

Company: Fine Only Individual: Prison

–

Individual Conduct to Detriment of Company

• • •

Within Scope of Employment For Benefit of Company Imputed Corporate Criminal Liability

POTENTIAL CONFLICTS IN JOINT REPRESENTATION

• • •

Fifth Amendment Rights of Individuals

– –

Company “Shield” in Criminal Case Plaintiff’s “Sword” in Civil Case Constitutional Constraints

– –

6 th Amendment Right to Conflict-Free Counsel Actual Conflict Violates 6 th Amendment Consequences for Company

–

“Censoring” of Disclosures to Government

–

Disqualification of Counsel

PRACTICAL PROBLEMS IN COMMON INTEREST COLLABORATION

• •

McNulty & The ATD’s Practice

– –

No Waiver Required For “Cooperation” But See Corporate Leniency Policy (and Reality) The Individual’s Quandary

–

5 th Amendment Privilege

• •

Waiver => Leniency Refusal => No Leniency; Adverse Inference (Civil)

–

Attorney-Client Privilege

• •

Cooperation => Company Waiver (a la Reyes) Refusal => Employment Implications

LENIENCY: THE WAY OUT?

•

Corporate Leniency

– –

Get In With The Company Avoid The “Carve-Out,” If Possible

•

Individual Leniency

– – –

Pre-Investigation (No Other Information) Full/Complete/Continuing Cooperation & Candor Cannot Be Leader or “Coercer”

PARALLEL CIVIL PROCEEDINGS

GOVERNMENT PROCEEDINGS

•

The Problem For The Individual

– – –

Unlike Company, Has 5 th Amendment Rights If Not Exercised => Waived If Exercised => Adverse Inference

•

Example: U.S. v. Stringer, 2008 WL 901563 (9 th Cir. Apr. 4, 2008)

–

SEC Uses Civil Fraud Proceeding To Collect Evidence For Criminal Prosecution

–

Defendants Take Consent Judgment => USAO Indicts Them For Fraud => 9 th Circuit OKs It

GOVERNMENT PROCEEDINGS

• •

Preserving The Individual’s 5 th Amendment Rights: Stay Civil Proceedings Pending Resolution Of Criminal Proceedings Key Discretionary Factors:

– – – – –

Interests of, and Prejudice to, Plaintiff Burden on Defendant Burden on Courts and Judicial Efficiency Interests of Third Parties Interests of Public

GOVERNMENT PROCEEDINGS

•

Requests for Stay: Problem #1

– –

No Right to One (Constitutional or Otherwise) Pre-Indictment, Request is Disfavored

•

Request for Stay: Problem #2

– –

Courts Split on Protective Order for Testimony Most Circuits Disapprove of the Practice

PRIVATE ACTIONS: STAYS

•

Same Discretionary Factors, But In This Case, The Government Is The Movant

•

Government Wants To Prevent Defendants From Obtaining Discovery To Defend Themselves In The Criminal Matter

–

In re Graphite Electrodes Antitrust Litigation (E.D. Pa. 2000) (Government intervenes for stay)

–

In re TFT-LCD (Flat Panel) Antitrust Litigation

(N.D. Cal. 2007) (Same)

PRIVATE ACTIONS: LIMITS

•

Hoffmann-LaRoche v. Empagran (Sup. Ct. 2004)

–

Foreign Plaintiffs Sue in U.S. Court for Injury They Received Outside U.S., on Grounds That International Cartel Activity Also Caused Price Effects in the U.S.

– –

Held: Foreign Trade Antitrust Improvements Act of 1982 Does Not Give Foreign Nationals Standing To Sue Where Price Effects Abroad are Independent of Those in U.S.

USG Did Not Support Foreign Plaintiffs’ Position

•

Bell Atlantic v. Twombly (Sup. Ct. 2007)

–

Plaintiffs Claim Violation of Sherman Act §1 for “Parallel Conduct” by Local Phone and Internet Providers

–

Supreme Court Rejects Lax Pleading Standard and Requires Facts Suggesting “Plausibility” of a Conspiracy

PRIVATE ACTIONS: INEVITABILITY

•

Despite The Foregoing, Civil Litigation Follows Criminal Investigation As Surely As Day Follows Night

•

Example: Reddy Ice Holdings, Inc.

–

March 5, 2008, Raid on HQ of Top 3 Packaged Ice Distributor, Followed by Grand Jury Subpoenas

–

Within Two Months: 70 Lawsuits in Multiple Jurisdictions (Antitrust and Securities)

PRIVATE ACTIONS: MITIGATION?

•

ACPERA of 1982: Leniency Participants Benefit in Follow-On Civil Litigation

–

“De-Trebling” of Damages

– – – –

Elimination of Joint & Several Liability Mitigates Effects of Privilege Waivers Requires Restitution to Injured Parties Requires Assistance to Private Plaintiffs Against Other Cartel Members

EUROPEAN UNION ANTITRUST ISSUES

GOVERNMENT ENFORCEMENT

•

Treaty Establishing the EU

– –

Article 81: Counterpart to Sherman Act §1 Article 82: Counterpart to Sherman Act §2

•

Enforcement Structure

– –

European Commission is Chief Enforcer, But Cartel Enforcement is Decentralized

GOVERNMENT ENFORCEMENT

• •

Antitrust Enforcement Policy

– – –

Comparable Leniency Policy (2002) Investigative Tools Growing Stronger (2003)

• •

Searches of Employee’s Premises Compulsory Statements to Authorities Fines Up to 10% of Prior Year’s Global Sales Criminal Enforcement Still Lags

– – –

Matter of Member State Prerogative Historically Minimal Focus on Individuals Leniency May Vary by Jurisdiction

PRIVATE ENFORCEMENT

•

Historically Weak in the EU

– – – – –

No Discovery No Class Actions No Contingency Fees No Treble Damages Loser Pays Fees and Costs

PRIVATE ENFORCEMENT

• – – – –

EU Damages White Paper (4/3/08)

– –

Expands Discovery, With Court Supervision Permits Class Actions

• •

Led by “Representative Bodies” (State Entities; Trade Organizations; Consumer Groups) All Classes are “Opt-In” Allows Suits by Indirect Purchasers Authorizes Pre-Judgment Interest Suggests Abandonment of “Loser Pays” Imposes Collateral Estoppel (“Presumption of Infringement”) Based on Criminal Conviction

CONCLUSION

•

The World Is Becoming A More Hostile Place For International Cartels

•

The Implications For Business Are Financially Significant

• •

The Implications For Individuals Are “Residentially” Significant Both Are Well-Advised Not To Walk Through This Minefield Alone