Antitrust Compliance Programs Are Key as Cartel Investigations and Fines Increase | Practical Law

Antitrust Compliance Programs Are Key as Cartel Investigations and Fines Increase | Practical Law

This update focuses on the importance of antitrust compliance programs in light of the US Department of Justice's robust enforcement of criminal antitrust cartels. The threat of an investigation and severe fines is not limited to the US anymore and has become a global concern for multinational companies.

Antitrust Compliance Programs Are Key as Cartel Investigations and Fines Increase

Practical Law Legal Update 3-548-5806 (Approx. 7 pages)

Antitrust Compliance Programs Are Key as Cartel Investigations and Fines Increase

by Practical Law Antitrust
Published on 12 Nov 2013USA (National/Federal)
This update focuses on the importance of antitrust compliance programs in light of the US Department of Justice's robust enforcement of criminal antitrust cartels. The threat of an investigation and severe fines is not limited to the US anymore and has become a global concern for multinational companies.
Corporate antitrust compliance programs are growing in importance in light of the US Department of Justice's (DOJ's) active enforcement of criminal antitrust cartels. The threat of an investigation and severe fines is not limited to the US anymore and has become a global concern for multinational companies.
Criminal cartel enforcement is robust as ever, as the DOJ continues to investigate and prosecute companies and individuals (including foreign nationals) for their participation in price-fixing and bid-rigging schemes. With over $1 billion in cartel fines obtained by the DOJ in 2012 and the largest cartel investigation to date in auto parts ongoing in 2013, there are no signs of letting up. In September 2013 alone, the DOJ secured guilty pleas related to the auto parts cartel from nine companies and two executives, who agreed to pay almost $745 million in fines (see Practice Note, Criminal Antitrust Enforcement in the US).
In addition to considerable fines, companies must also worry about lost personnel time and distractions to ongoing business activities when involved in a cartel investigation or related litigation. Culpable executives may also be fined and jailed, with jail terms increasing in length in recent years. Practical Law Antitrust has compiled several resources detailing the fines and penalties obtained by the DOJ in these ongoing cartel investigations:
Price fixing behavior can also be litigated on a civil basis. For example, private suits (typically class actions) follow after a criminal enforcement action has occurred. These private suits (called follow-on actions) can force a company to spend even more time and money defending their actions and away from revenue-producing activities.
The DOJ may also bring civil cases against price-fixing behavior as it did recently against Apple for entering into agreements with various e-book publishers to set the retail prices of e-books (see Practice Note, Most Favored Nation Clauses: United States v. Apple, Inc., E-book Litigation). The facts set out in the DOJ's civil price-fixing case against Apple are laden with basic antitrust compliance taboos the likes of which Apple and its fellow conspirators should have known not to engage in, including several meetings and telephone conversations between competitors about prices.
No company is immune from a cartel investigation. Price-fixing and bid-rigging agreements between competitors are per se offenses, meaning that if competitors agree to fix prices, that conduct automatically violates Section 1 of the Sherman Act regardless of:
  • The product or geographic markets involved.
  • The participants' market shares.
  • The participants' positions in the market.
  • Any business justifications for the conduct.
Given the harsh penalties associated with cartels, along with time away from revenue-producing activities, injury to reputation and exorbitant legal fees, companies should consider either putting an antitrust compliance program into place or reinvigorating their current program. An effective compliance program includes:
Taking these steps may help a company:
  • Detect potential antitrust violations.
  • Stop problematic behavior before it leads to a serious antitrust violation.
Early detection may allow a company to limit its involvement in a cartel as well as take advantage of the DOJ's leniency program which:
  • Is only open to the first company to come forward to the DOJ regarding its participation in a particular cartel.
  • Offers full immunity for the corporation and employees who cooperate with the DOJ.
  • Offers a reduction in damages resulting from private follow-on suits.
For more on the DOJ's Corporate Leniency Program, see Practice Note, Leniency Program for Antitrust Violations: The Corporate Leniency Program. For information on foreign jurisdictions' leniency programs, access Practical Law's Cartel Leniency Country Q&A Tool and search by leniency topic and jurisdiction.
The Federal Sentencing Guidelines also provide for a significant reduction in a corporate fine if the company in question had an effective compliance program in place at the time of the offense. While the DOJ's stance is that a compliance program is not effective if the company engaged in price-fixing or bid-rigging behavior, federal courts generally take the Sentencing Guidelines into account during the sentencing phase (see Practice Note, Antitrust Compliance Programs: Mitigation).
For more on what makes a compliance program effective under the Sentencing Guidelines, see Practice Note, Antitrust Compliance Programs: Essential Features of a Compliance Program. For more generally on antitrust compliance, see Antitrust Compliance Toolkit.

Antitrust Compliance Manual

To be most effective, an antitrust compliance manual should start with a statement from the company's leadership on the importance of and the company's commitment to antitrust compliance and ethical behavior. Counsel should also include a brief and understandable overview of the antitrust laws. The best explanations are those that a non-antitrust expert can understand clearly.
The manual should also list practices that employees must avoid and report when encountered and those more complex practices (gray areas) about which the employee should seek legal counsel before undertaking. A way for the employee to quickly (and anonymously, if the employee chooses) report any potential violations should also be included, such as a compliance officer's contact information, a hotline or other easily accessible way to report a potential violation. For an example of an antitrust compliance manual, see Standard Document: Antitrust Compliance Manual.
A company's compliance manual should be customized in a way that takes into account the company's:
  • Antitrust history, focusing on areas in which the company may have had prior antitrust violations.
  • Industry, particularly where there has been an antitrust investigation in the industry and, even where no prior enforcement has occurred, focusing on those antitrust laws and potential violations most relevant to the company's industry.
  • Areas of market power, in which the company might be more susceptible to a Section 1 or Section 2 of the Sherman Act antitrust claim (see Practice Notes, Analyzing Restraints of Trade under the Rule of Reason and Section 2 of the Sherman Act: Overview).
  • Geographic markets, also taking into account the antitrust laws of non-US jurisdictions in which the company does business.
Companies should also consider including a list of per se antitrust violations (those an employee must avoid and report) and hotline information in an easy-to-carry format. Because most employees do not walk around with their corporate antitrust compliance manuals, ensuring that they have a card small enough to fit in their wallets with key dos and don'ts and a hotline number can be a valuable way to promote diligent detection and reporting of potential antitrust violations.

Compliance Training

Handing out a compliance manual to an employee when that person first starts at the company will not likely be enough to ensure that the employee is diligent in recognizing and reporting potential antitrust violations. Companies should instead also implement employee training. The training should focus on employees who:
  • Are more likely to encounter potential antitrust violations, including sales and marketing employees.
  • Deal directly with competitors, including employees who represent the company at trade association meetings.
Executives should also attend antitrust training, as they are often found to be the most culpable in cartel investigations or who put the company at antitrust risk (see, for example, the individuals listed in the DOJ Auto Parts Cartel Investigation Chart and the DOJ's case against Apple (United States v. Apple, Inc., No. 12-02826, (S.D.N.Y. July 10, 2013) (which sets out the risky behavior undertaken by Apple and the e-book publishers' executives)).
Training can take a variety of forms including on-line training in which the employee reviews simulations and answers a series of questions at the employee's computer or more traditional in-person training. While on-line training appears to be more efficient for a company with numerous locations around and outside of the US, some counsel favor in-person training sessions because of the ability to:
  • Better engage the employees and executives.
  • Obtain the audience's full attention.
  • Answer questions on a real-time basis.
Training materials can include role-playing scenarios or a Power Point presentation with a series of hypotheticals customized to the company's day-to-day business activities, including likely communications with competitors. Antitrust counsel should spend time talking with company leaders to understand the business and the most likely interactions the company's employees have with their competitor counterparts, as cartels bring the most severe antitrust penalties. For example, if a company often sells its services or products to a competitor, antitrust counsel should include a hypothetical dealing with that situation.
The more a presentation is customized to the company's industry and day-to-day activities, the more meaningful it is to the attending employees and executives. For examples of hypotheticals to use in antitrust compliance training, see Standard Document, Antitrust Hypotheticals for Compliance Training: Dealings with Competitors.

Audit System

An effective compliance program should also include an antitrust audit to ensure that the compliance program is working. An audit is typically unannounced and conducted by counsel in a way that preserves the attorney-client privilege. Counsel reviews e-mails and documents and interviews employees as part of the audit to determine whether:
  • Any antitrust red flags exist that should be investigated further.
  • Employees sufficiently understand the application of the antitrust laws to their day-to-day responsibilities.
The audit may uncover practices that should be investigated further or changed completely and may pinpoint areas of the compliance manual and training that need to be revisited and augmented.
For more information on antitrust audits, see Antitrust Audit Checklist.

Compliance Enforcement

While compliance programs should be overseen by a company's board of directors, the overall responsibility should be held by a compliance officer. This typically should include one or more high-level executives, such as a director or an executive officer. Where possible, the compliance officer should have a team charged with the day-to-day oversight of the program.
Smaller companies may have to make due with more limited compliance resources. However, no one with a history of illegal or unethical behavior should be tasked with responsibility for the compliance program. For more information on compliance responsibilities, see Practice Note, Antitrust Compliance Programs: Assignments of Responsibility and Consideration of Size.
Enforcement of the compliance program should also be consistent and the compliance team should follow up on reported offenses. Compliance programs should also be reassessed from time to time to ensure their effectiveness.