United States: Increased Criminal Penalties For Antitrust Violations And De-Trebling Give New Teeth to Enforcers; Minor Tunney Act Changes

A tough bipartisan antitrust reform act, the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (H.R. 1086), was passed by the Senate on April 2, 2004 and approved by the House of Representatives on June 2, 2004. Introduced jointly by Republican Senator DeWine and Democratic Senator Kohl on October 29, 2003, the legislation was just signed by the President.

In the wake of the corporate scandals of the past few years, the proposal seeks to do for antitrust violations such as price fixing, bid rigging and market allocation what the Sarbanes-Oxley Act of 2002 did for the securities industry.

The Act imposes significantly higher criminal antitrust penalties for businesses and individuals that commit violations under Section 1 or 3 of the Sherman Act or a violation of any similar state law:

• the maximum corporate fine is raised to $100 million from $10 million;

• the maximum individual fine is raised to $1 million from $350,000; and

• the maximum prison sentence is increased to 10 years from 3 years.

Before this legislation, the government could exceed the $10 million maximum by using the alternative fine provision of 18 U.S.C. § 3571(d), which provides for a fine of twice the gain or loss resulting from the illegal conduct. Under the Sentencing Guidelines, to begin this calculation a court is directed to "use 20 percent of the volume of affected commerce," which is then multiplied by minimum and maximum multipliers, which in turn are affected by the organization’s culpability score. The rationale for the 20% presumption, as set forth in Section 2(R)1.1 of the Sentencing Guidelines, is "to avoid the time and expense that would be required for the Court to determine the actual gain or loss." In practice, because of the large volume of commerce involved in recent cartel cases, criminal sentences have frequently exceeded the statutory maximum imposed on corporations. Consequently, the Justice Department has been able to obtain agreed-upon fines of up to $500 million in antitrust cases. Where defendants do not agree to sentences, however, the government’s standards of proof are high. In Apprendi v. New Jersey, 530 U.S. 466, (2000) the Supreme Court held that "any fact that increases the penalty for a crime beyond the statutory maximum must be … proved beyond a reasonable doubt." Thus, there is a risk that corporations view the cost of crime as a cost of doing business and that the government may not achieve fines large enough to deter crimes.

With the new legislation, the Department of Justice will benefit from the higher statutory thresholds. While it will be still able to use the alternate fine provision, a $100 million fine can be imposed regardless of the volume of commerce affected. It is likely that the average amount of fines imposed by the Division will increase accordingly, and that the deterrence effort will be greater.

Since the Justice Department restructured its Corporate Leniency Policy in 1993, individual or corporate members of the first cartel member that cooperates with the DOJ’s investigation are granted amnesty from criminal prosecution so long as they live up to their agreements with the government and cooperate. Others who follow do not obtain amnesty but may obtain reductions in sentences. Thus, by creating an incentive to confess and cooperate, the leniency policy undermines the essence of coordinated anticompetitive behavior, trust, and goes to the heart of antitrust conspiracies.

Cartel members, however, could still be deterred from participating in the Leniency Program because they remained liable for treble damages in civil litigation by private parties. The new legislation limits the private litigation exposure of cooperating companies and individuals to "actual" or "single" damages. An appropriate level of cooperation, defined by the Act, involves:

• providing a full account of all facts relevant to the civil action;

• furnishing all documents relevant to the civil action; and

• making oneself available for interviews, depositions and testimonies in connection with the civil action.

This de-trebling provision has a five-year sunset, which evidences the government’s desire (i) to test the effectiveness of this policy and (ii) to provide the requisite incentives to dismantle quickly a large number of cartels.

Of course, the efficiency of this provision will depend on the individual parameters of each cartel, including (i) comparative cost and benefits of leniency versus the profits derived from the cartel and (ii) the likelihood that the cartel will be discovered.

The Antitrust Procedures and Penalties Act of 1974, referred to as the Tunney Act, is also being amended by the legislation. The Tunney Act requires courts to review consent decrees to determine whether they are within "the reaches of the public interest." As this statute has been interpreted, it resulted in courts affording what some viewed as excessive deference to the Division with respect to its consent decrees.

To ensure that courts appropriately scrutinize settlements in the Justice Department’s civil antitrust cases, the legislation now requires ("shall"), rather than merely authorizes ("may"), as was previously the case, courts to consider the following identified factors when reviewing a consent decree:

• the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and

• the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.

In fact, only two of these factors are new: (i) whether the terms of the decree are ambiguous and (ii) the impact of the decree on competition in the relevant market(s).

Another Tunney Act amendment allows the court to permit the government to disseminate publicly through methods other than the Federal Register where using the Federal Register would be prohibitively expensive. This change results from the Microsoft case, where the DOJ sought the court’s permission to approximately $4 million to publish them in the Federal Register. Judge Kollar-Kotelly felt that she could not statutorily allow this alternative procedure for publication.

These amendments are relatively minor ones. Responsible judges have always scrutinized settlements, even requiring changes where decrees were ambiguous. Importantly, the adopted legislation rejected proposals to give third parties an enhanced role.

The additional "sticks and carrots" defined by the new legislation will certainly help the government identify and prosecute criminal conduct as corporations and their employees have increased incentives to come forward to be the first to cooperate in investigations. International developments may also increase the effect of the legislation. As more and more countries adopt leniency policies, the incentive to cooperate increases and helps to undermine international cartels more effectively. Additionally, the higher jail terms and fines up the ante so help to deter antitrust crimes.

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