Presentation - Cartel Investigation, MRTP, CCI

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    A Primer

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

    Albert A. Foer, President, AAI

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    IndexIntroductionSherman ActInvestigation Procedures

    Identifying cartelsLeniency programCases 1-3

    The Indian Context The Competition Commision Act

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    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

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    SHERMAN ACT 1890SECTION 1: CONSPIRACY IN RESTRAINT OF

    TRADE IS ILLEGAL

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

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    Investigation procedureCIVIL ACTIONCRIMINAL PROCEDUREENFORCEMENT TOOLS AND PENALTIES

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    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

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    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

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    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

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    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.

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    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

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    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

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    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

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    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

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    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,

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    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

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    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

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    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

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    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

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    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

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    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)

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    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

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    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)

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    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

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    Thank You !