Criminal competition law investigations and prosecutions were once more at the forefront of Canada's Competition Bureau and global antitrust regulators in 2010. While there were fewer large-scale global investigations launched, 2010 marked an uptick in domestic price fixing and bid-rigging investigations and a pattern of escalating fines, and in the U.S., increasing imprisonment terms.
This report gathers together the various developments in Canadian and foreign criminal competition law, and we trust it will be useful to you in your businesses and practices.
Our review begins with an examination of concluded Bureau cases.
BUREAU CASE RESOLUTIONS
In the past year, the Bureau concluded a number of bid-rigging and price fixing cases as well as deceptive marketing practices investigations.
- Tassimco Technologies Canada Inc. pleaded guilty on January 26 to a charge of bid-rigging in relation to the supply of traffic signals to the City of Québec and paid a fine of $50,000 together with a prohibition order for ten years; no individuals from the Company pleaded guilty in this case;
- Solvay Chemicals Inc. pleaded guilty on May 12 to price fixing under Section 45(1) of the Act in relation to hydrogen peroxide and was fined a total of $2.5 million; this followed the earlier resolution of the Bureau's case against Akzo Nobel Chemicals International B.V. on the same investigation, resulting in a guilty plea in November, 2008 and a fine of $3.15 million; no individuals were charged in this investigation;
- The Bureau's continuing inquiry into price fixing in certain retail gasoline markets in Québec netted an additional 25 price fixing charges against individuals and three companies; a number of corporations and individuals have to date entered pleas of guilty in this matter and a chart of the respective dispositions of these cases (as of March 23, 2010) is available on the Bureau's website; at this writing, no date has yet been set for preliminary inquiries or trials on the charges in the various markets;
- Embraco North America Inc. pleaded guilty on October 27 and was fined $1.5 million on a single count of price fixing under Section 45(1) of the Act; the products were sold to a household refrigerator and freezer manufacturer in Canada; no individuals from the Company were charged;
- Cargolux Airlines International S.A. pleaded
guilty on October 28 to a single count of price fixing under
Section 45(1) of the Act relating to hermetic
refrigeration compressors; air cargo fuel surcharges for
international air cargo transportation services outbound from
Canada and was fined $2.5 million; the Bureau obtained a number of
prior pleas from other carriers in 2009 and links to those
dispositions may be found below; no individuals from any carrier
have so far been charged in this investigation;
Air Carriers Plead Guilty to Price-Fixing Conspiracy
Fourth Guilty Plea in Air Cargo Price-Fixing Conspiracy
British Airways Pleads Guilty in Air Cargo Price-fixing Conspiracy
- Panasonic Corporation pleaded guilty on November 3 to a single count of price fixing relative to hermetic refrigeration compressors sold to a refrigerator and freezer manufacturer in Canada and was fined $1.5 million; the Bureau's press release and associated documents indicated that Panasonic was a leniency applicant; no individuals were charged and the Bureau's press release stated that the Panasonic plea marked the end of the Bureau's investigation into the matter; no individuals were charged.
Deceptive Marketing Practices and Related Cases
- An individual, Olufemi Olutunde, pleaded guilty to the offence of fraud over $5,000 under the Criminal Code in a scheme involving fraudulent offers of employment and processing of payments for a fictitious company located abroad; on February 26, Olutunde was sentenced to a term of 12 months in jail and ordered to pay restitution in the amount of $23,000 to 14 victims of the scheme;
- On April 12, the Bureau laid deceptive telemarketing charges in Québec against three individuals and six companies allegedly involved in fraudulent business directory schemes; at this writing, there is no information on the trial dates or potential resolution of these cases;
- On May 31, an individual pleaded guilty in a U.S. court to selling counterfeit cancer drugs over the internet; Hazim Gaber was sentenced on August 25 to a term of 33 months in prison, a fine of $75,000 (U.S.) and ordered to pay $50,724 (U.S.) in restitution, along with a three-year probationary term following his release;
- On July 30 an individual pleaded guilty to a single count of misleading representations and was convicted also of counts of fraud and theft exceeding $5,000 under the Criminal Code; Bradley O'Neil misled tourists seeking GST refunds when, instead, he stole their deposits; on September 30 he was sentenced to a term of five years for the counts of fraud and theft exceeding $5,000 and three years on the Competition Act count; the sentences were ordered to be served concurrently.
There were a number of charges that were either resolved in favour of defendants, or that remain for determination by the courts.
- On March 19, the Bureau's appeal of a sentence of an absolute discharge on Daniel Drouin, who had pleaded guilty as a participant in the retail gasoline price fixing scheme in Victoriaville, Québec, was dismissed, the Court determining that no error in principle had been made by the sentencing case;
- On May 25, the Québec Superior Court acquitted Électromega Limitée on bid-rigging charges relating to the supply of traffic signals to the City of Québec, the Court determining that proof of the necessary agreement had not been established;
- On February 17, 2009, bid-rigging charges were laid against a number of IT service providers to the Canadian Border Services Agency, Public Works and Government Services Canada, and Transport Canada. Two individuals have since pleaded guilty to bid-rigging offences and sentences of a $25,000 fine (with a prohibition order) and an absolute discharge (with accompanying donation of $5000 to charity and a prohibition order), respectively, were imposed. The preliminary hearing for the remaining defendants on the charges began on December 6;
- Toshiba of Canada Inc. continued its interlocutory proceedings against the Commissioner of Competition after having lost its preliminary application for disclosure of Bureau documents and cross-examination of a Bureau affiant, all preliminary to its main motion challenging the Commissioner's ability to obtain foreign-sourced documents pursuant to Subsection 11(2) of the Competition Act. At this writing, Toshiba's application for leave to appeal the decision of the Ontario Superior Court remains on reserve before Ontario's Divisional Court;
- A number of companies and individuals unsuccessfully sought to quash a Bureau search warrant issued by a Justice of the Peace; the Québec Superior Court determined there was no Charter or other breach in obtaining the warrant; the companies and individuals have sought to appeal the decision to the Québec Court of Appeal;
- Three construction companies and their respective presidents have been charged with bid-rigging in Québec, and the trial on those charges has been set for June 13 to 22, 2011 before the Québec Court at Chicoutimi;
- The Bureau laid a further set of Québec bid-rigging charges on December 21 against eight companies and five individuals accused of rigging bids for private-sector ventilation contracts for residential high rise buildings in the Montréal area; as of this writing, no trial dates have yet been set;
- Various charges of misleading representations under Section 52 of the Act remain before the courts, including R. v. Michael Reynolds, involving alleged cancer curing therapies, R. v. J.D. Marvel Products, CND Mail Exchange and John Dragan, involving representations of mail-order products to both Canadian and U.S. victims, and three groups of telemarketing charges pursuant to Section 52.1 involving Gordon Frank (et al), Garther Cheung (et al), and Cory Kornelson (et al) in alleged schemes for business directories.
As is now well known, the amendments to Section 45 of the Act were proclaimed in force on March 12, 2010, thus ushering in a new era for antitrust criminal prosecutions in Canada wherein proof of market effects is no longer a component of the government's case. At the time of enactment of the legislation, the Bureau issued Competitor Collaboration Guidelines which provide guidance to businesses and practitioners on the Bureau's enforcement approach in applying the amended Section 45 together with its related civil provision, Section 90.1.
To date, the Bureau has not yet laid any charges under Canada's new per se conspiracy law. Time will tell whether the proclamation of the revised and easier prosecution test will lead to more aggressive enforcement and quicker investigations by the Bureau's Criminal Branch. In this regard, it should be noted that the Commissioner has signalled a more aggressive approach, with a willingness to bring cases in order to test the law and resolve ambiguities as factual circumstances may dictate; see, for example, remarks by the Commissioner to the Canadian Bar Association's (CBA) Fall Competition Law Conference.
The other significant amendments to criminal enforcement provisions were:
- increasing maximum penalties under the conspiracy provision to 14 years' imprisonment for individuals and fines of $25 million;
- repealing all criminal price-maintenance provisions of the Act, and the replacement thereof with a civil tribunal procedure whereby the Commissioner or person granted leave is required to establish that the indicated practice had an "adverse effect on competition in a market;"
- adding an agreement to withdraw a bid to the prohibited conduct under the bid-rigging definitions of section 47 of the Act (in order to counter the 2004 decision of the Ontario Court [General Division] in the case of R. v. Rowe);
- increasing penalties for failing to comply with an order under section 11 of the Act, as well as for acts of obstruction.
There were no changes to the Bureau's immunity policy in 2010. Public remarks by the Senior Deputy Commissioner, Criminal Matters at the CBA's Annual Fall Competition Law Conference in late September indicated that the number of immunity applications had declined somewhat from previous years (ten applications as of the date of that conference), and with most applications occurring in relation to bid-rigging cases, suggesting a more domestic focus. Again, it is likely too early to tell whether the proclamation of the new legislation will lead to a surge in immunity applications, although the numbers of applications for advisory opinions under transitional Section 440 of the Act were few. There were reportedly six such applications, and this may or may not be reflective of the anxiety felt by Canadian businesses as to their potential exposure under the amended provisions. Notwithstanding what the statistics may reveal, the Bureau's immunity program remains the prime generator of criminal cartel and bid-rigging enforcement actions.
After a couple of rounds of consultation, the Bureau published its final Leniency Program Bulletin on September 29, together with an FAQ document providing specific information on particular questions arising under the program (links to the documents may be found below).
In brief, the program is similar to the characteristics of other leniency (i.e. non-immunity) regulatory regimes which offer discounting of fines and the ability to protect co-operating individuals for the first party to make application after the immunity applicant, and thereafter incentives on a descending scale depending upon the relative time of arrival of the leniency applicant. The initial applicant is entitled to receive a discount of 50% of the fine that would ordinarily have been imposed pursuant to the Bureau's usual application of a proxy calculation of 20% of the participant's Canadian volume of commerce in the product over the time period of the illegal cartel. That applicant is also entitled to protect all co-operating individuals from prosecution. Thereafter, subsequent applicants receive lesser discounts on fines and individuals involved in the criminal behaviour may be subject to prosecution on a case-by-case basis.
In substance, the policy is similar to the one employed by the Antitrust Division of the U.S. Department of Justice (DOJ) but lacks the associated imprimatur of a sentencing commission to give weight to its precepts. It is also similar in terms to several leniency policies in force by other regulatory regimes such as Japan and Korea, where discounts of 50% of administrative fines are imposed for second-in applicants that conform with certain conditions.
Although there have been many settled cartel cases in which the ranges of judicially-imposed fines have fallen within the Bureau's 20% proxy calculation, there has never been any judicial test of the Bureau's proxy fine calculation process in a contested case. Many commentators have expressed the view that the proxy calculation (which incorporates a standard overcharge of 10% upon a cartelized product) is subject to a number of uncertainties; however, it is likely that non-immunized parties will continue to seek to resolve their cases in Canada through negotiated plea agreements on the basis of the principles outlined in the leniency policy.
PPSC – BUREAU MOU
On May 14, a Memorandum of Understanding (MOU) between the Bureau and the Public Prosecution Service of Canada (PPSC) - an independent federal prosecution agency - was released (a link to the document may be found here). The document provides a description of the functional and operational responsibilities of each agency and contains certain tenets as to the necessary independence of decision-making on the part of PPSC, although allowing for a high degree of consultation and communication between the Bureau and the PPSC. It is expected that this document will provide a degree of guidance and clarity to parties facing potential indictment by referral of a matter to the former Attorney General, now Director of Public Prosecutions (DPP) under the provisions of Subsection 23(1) of the Act.
CASE DEVELOPMENTS BEFORE CANADIAN COURTS
There were a number of judicial decisions having potential impacts on Bureau criminal cases, including, most notably:
- Commissioner of Competition v. Toshiba of Canada Ltd.  ONSC 659, wherein a preliminary proceeding in support of a substantive challenge to a Bureau production order was dismissed by the Ontario Superior Court (as at this writing, a decision on Toshiba's application for leave to appeal this decision is currently pending before the Ontario Divisional Court);
- R. v. Bruce Power Inc. et al  98 O.R. (3rd) 272, a decision of the Court of Appeal for Ontario involving the scope of solicitor-client privilege and appropriate remedies where governmental authorities breach that privilege;
- R. v. Briscoe 2010 SCC 13, a decision clarifying the mens rea or intention requirements for party liability cases under Section 21 of the Criminal Code; and
- R. v. Vittorio (Vic) de Zen et al (2010) ONSC 974, a decision of the Ontario Superior Court examining the discretionary use by the DPP of his power under Section 568 of the Criminal Code to require a jury trial; in examining this use of discretion by the DPP, the Ontario Superior Court determined that a decision to seek trial pursuant to judge and jury had been based on partisan considerations relating to tactics.
U.S. ANTITRUST DIVISION
The Antitrust Division remained very active in its pursuit of antitrust criminal matters in 2010. An overall summary (for the Division's fiscal period ending September 30) shows that the Division filed sixty criminal cases and obtained fines slightly in excess of $550 million. Eighty-four corporate and individuals were charged, and the average sentence imposed upon all individuals was thirty months imprisonment, with foreign nationals averaging some ten months incarceration.
Some notable highlights from the Division's criminal enforcement activity in the 2010 calendar year were:
- Parker ITR S.r.l., a marine hose manufacturer in Italy was ordered to pay a $2.29 million fine on its plea of guilty on conspiracy charges to rig bids, fix prices and allocate market shares of marine hose sold in the U.S. and elsewhere;
- There were several developments in the Division's investigation into collusion among manufacturers of TFT-LCD panels, including the following:
- Three former or present executives with Chi Mei Optoelectronics Corporation pleaded guilty for their roles in participating in the global conspiracy and received jail sentences ranging from 9 months to fourteen months;
- A former executive of Chi Mei Optoelectronics Corporation was indicted on charges of participating in the global conspiracy;
- AU Optronics Corporation of Taiwan was indicted upon charges of participating in the global conspiracy;
- HannStar Display Corporation, based in Taipei, Taiwan paid a fine of $30 million on its plea of guilty for its role in participating in the global conspiracy;
- A former executive from HannStar Display Corporation agreed to serve seven months' incarceration and to pay a fine of $20,000 on his plea of guilty for participating in the global conspiracy.
- A former executive of a Taiwan-based display manufacturer was indicted upon charges of participating in a global conspiracy to fix prices of colour display tubes; three former executives of two manufacturers were indicted upon charges that they participated in the global conspiracy;
- Ian P. Norris, a former CEO of The Morgan Crucible Company plc was convicted of the offence of conspiracy to obstruct justice by a Philadelphia jury following his extradition from the U.K. upon the charges relating to the Division's investigation of the carbon brush and related industries; on December 10, he was sentenced to a term of 18 months imprisonment by the U.S. District Court in Philadelphia; the case marks a substantial milestone for the Division, being the first defendant successfully extradited to the U.S. upon antitrust-related charges;
- Panasonic Corporation and a Whirlpool Corporation subsidiary, Embraco North America Inc., pleaded guilty and paid a total of $140.9 million in fines for their roles in an international conspiracy to fix prices of refrigerant compressors used in refrigerators and freezers;
- Six international freight forwarding companies agreed to plead guilty and to pay fines totalling $50.27 million for their roles in several conspiracies to fix a variety of fees and charges relating to the provisions of freight forwarding services for international air cargo shipments;
- Several carriers, including Northwest Airlines LLC, Polar Air Cargo LLC, China Airlines Ltd., All Nippon Airways Co. Ltd., Singapore Airlines Cargo Pte. Ltd., agreed to plead guilty and pay monetary penalties arising from their participation in a conspiracy to fix prices in relation to cargo rates and surcharges for customers in the U.S. over varying durations;
- Several executives and former executives of certain international carriers were indicted for their participation in the same conspiracy;
- Florida West International Airways Inc. and three of its executives were indicted in relation to a conspiracy to fix rates and components of air cargo shipment prices from Columbia to Miami;
- Four former airline executives of competing air cargo carriers were indicted for participating in a conspiracy to fix surcharges on air cargo shipments from the U.S. to south and central America following Hurricanes Katrina and Rita;
- Two former executives of Asiana Airlines, Inc., were indicted for their participation in a conspiracy to fix economy class airfares paid by passengers who travelled from the U.S. to Korea.
The Commission concluded several investigations in 2010, and the Commission's escalating fines in some cases exceeded those imposed by the U.S. DOJ. We summarize:
- Nine DRAM producers of memory chips used in computers and servers were fined a total of €351 million at the conclusion of the Commission's investigation on May 19; the case was also notable for imposition of its first settlement procedure decision based on Articles 7 and 23 or Regulation 1/2003 of the Commission's procedures; The cartel operated between July 1/98 and June 15/02; Micron received full immunity as the first-in to the Commission's leniency program; a link to the Commission's chart of fines may be found here.
- Seventeen bathroom equipment manufacturers were fined a total of €622 million on June 23 in a long-duration price-fixing cartel occurring between 1992 and 2004; prices for bathroom fixtures and fittings were co-ordinated in Germany, Austria, Italy, Belgium, France and the Netherlands; MASCO, a U.S. company, received full immunity under the Commission' leniency program; a link to the Commission's charter fines may be found here.
- Seventeen producers of pre-stressing steel were fined a total of €458 million on October 6 for an 18-year price fixing and market-sharing cartel ending in 2002; the cartel involved Pan-European cartel meetings under the monikers "Club Zurich," "Club Europe," and regional branches, "Club Italia" and "Club Espańa"; a link to the Commission's chart of fines may be found here.
- Five producer groups of animal feed phosphates were fined a total of €176 million on July 20 for a price fixing cartel involving animal feed phosphates; Kamira/Yara received immunity as the first-in under the Commission's leniency program; the case was also notable because it was resolved through a partial-settlement process which permitted four of the producer groups to receive an additional discount under the streamlined settlement procedure, while one producer group received a "standard" decision with no fine reductions; a link to the Commission's chart of fines may be found here.
- Eleven air-cargo carriers were find a total of €799 million on November 9 in relation to the operation of a global cartel affecting cargo services within the European economic area; the carriers co-ordinated action on surcharges for fuel and security without discounting over a six-year period; Lufthansa and its subsidiary, Swissair received immunity as the first-in under the Commission's leniency program; a link to the Commission's chart of fines may be found here.
- Six LCD panel producers were fined a total of €649 million on December 8 in relation to the operation of a price fixing and information-exchange cartel operating between October 2001 and February 2006; Samsung Electronics received immunity as the first-in under the Commission's leniency program and was not penalized; a link to the Commission's chart of fines may be found here.
JAPAN FAIR TRADE COMMISSION (JFTC)
The JFTC was increasingly active in its pursuit of price-fixing and bid-rigging cases in 2010, reflecting the effectiveness of its immunity program, in force from January 2006. For the year ending March 31 2010, the JFTC reported that it had received 85 applications for leniency. Among several price-fixing and bid-rigging matters (which were largely domestic in origin) were the following notable cases where cease-and-desist orders and surcharge payments were ordered under the provisions of the Antimonopoly Act:
- On March 29, the JFTC announced the imposition of cease-and-desist orders and large surcharge payments against several entities involved in a price-fixing cartel for CRT television tubes; a link to an English-language translation of the announcement may be found here.
- On November 18, the JFTC announced the imposition of cease-and-desist orders and large surcharge payments against four entities involved in a price-fixing cartel relating to electric wire and cable distribution; a link to an English-language translation of the announcement may be found here.
KOREA FAIR TRADE COMMISSION (KFTC)
The KFTC remained one of the more active global regulators in criminal enforcement in 2010, with its penalization of 21 air carriers involved in conspiracies to introduce fuel surcharges and raise surcharge rates for cargo to and from Korea on four principal routes in and out of Korea being its most notable case in the year. Substantial surcharges were imposed on 19 of the 21 carriers; a link to the KFTC's announcement and a chart of penalties may be found here.
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION (ACCC)
The ACCC remained very vigorous in criminal enforcement in 2010, with a large number of domestic and international cases either resolved or placed before the Federal Courts for determination. Among the more notable developments were:
- The institution of proceedings against additional air cargo
carriers (Korean Air Lines, Air New Zealand, and Japan Air Lines)
upon allegations of fixing prices in relation to fuel and security
surcharges applied to air cargo shipments; links to those
announcements may be found below:
Korean Air Lines
Air New Zealand
Japan Air Lines
- Those proceedings bring to 15 the number of air cargo carriers against which the ACCC has brought proceedings arising from their investigation into the matter;
- The imposition of penalties exceeding $8.24 million (Australian $) upon four foreign-based suppliers of marine hose arising from their participation in a price-fixing cartel relating to supply of marine hose in the Australian market; the investigation was co-ordinated with the US DOJ and the UK OFT; a link to the ACCC's announcement may be found here.
- The imposition of penalties totalling $4 million (Australian $) against two paper companies for engaging in a price fixing cartel relating to the pricing of copy paper and uncoated wood-free folio paper in the Australian market; a link to the ACCC's announcement may be found here.
The Bureau has advised that it is developing an MOU with the Department of Public Works and Government Services Canada relating to issues of debarment in bid-rigging cases and certain related matters. The Bureau has also advised that it is working on an internal study on the relationship between civil class action proceedings and criminal investigations. It is not known whether there will be any public release or statement relating to this internal study.
The year 2010 was a busy year for Bureau and global antitrust regulators. While there was a greater focus on resolving continuing global investigations (as opposed to launching new probes), the pattern of escalating fines and, in the U.S., increasing imprisonment terms, demonstrates the dedication of global regulators in pursuing antitrust violations and seeking appropriate deterrent penalties. 2011 will likely provide more milestones in this area.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.