Cartels and Other Alleged Illegal Agreements: White & Case's expert view

Legal Trends 

  • Criminal and civil cases can be brought for a violation of Section 1 of the Sherman Act (15 U.S.C. §1), the principal statute governing cartel activity under US law. Cartel activity includes agreements between competitors on price, output, market or customer allocation and bid-rigging. The US Department of Justice, Antitrust Division (the DOJ) is charged with criminal enforcement. Private parties can bring civil actions for monetary damages and injunctive relief for alleged Sherman Act violations.
  • The DOJ has intensified its investigations into alleged cartel activity in recent years with a focus on international cartels. This is an important development for global businesses because companies found liable for cartel activity are exposed to large criminal penalties, and company executives may face prosecution. 
  • Recent DOJ cartel investigations into the automotive parts, financial services, optical disk drive and air cargo industries, among others, have resulted in billions of dollars in fines and substantial jail time for numerous executives.  For fiscal year 2015, DOJ criminal prosecution of companies and individuals engaged in cartel behavior resulted in US$3.6 billion in criminal penalties. Also in 2015, 66 individual defendants were charged for cartel-related activity, with an average sentence of 25 months for those who received prison terms.
  • There also has been an increase in recent years in foreign regulatory agencies investigating cartel activity, which has led to a rise in cooperation between competition enforcement agencies around the world, including the United States, the European Union, Japan, Korea, Canada and many others.  Although this cooperation allows the international agencies to coordinate the gathering of evidence and general theories of the case, as the trend continues, questions of overlapping jurisdiction and the ability to order overlapping sanctions have become issues of increasing importance. 
  • Given the global nature of many recently uncovered cartels, a key issue in US cartel enforcement is the extraterritorial reach of the Sherman Act. The Foreign Trade Antitrust Improvements Act (FTAIA) (15 U.S.C. §6a) limits the extraterritorial reach of the Sherman Act.  FTAIA applies to both criminal and civil enforcement.  Under FTAIA, the Sherman Act applies to antitrust conduct occurring outside the United States only if that conduct is import commerce or has a direct, substantial and reasonably foreseeable effect on domestic commerce, and such effect proximately caused a plaintiff’s foreign injury. The Seventh Circuit recently issued an opinion that indicates that the application of FTAIA will be different in criminal and civil cases. Motorola Mobility, LLC v. AU Optronics, 775 F.3d 816 (7th Cir. 2015), cert. denied, 135 S.Ct. 2837 (2015).
  • Once the DOJ begins an investigation into a particular industry, civil actions typically follow in the form of class actions and direct actions. Civil actions are often broader in scope than criminal investigations, and the absence of criminal liability does not ensure protection from civil liability. Damages in private actions typically are measured by the “overcharge” resulting from the cartel, with actual damages being automatically trebled if liability is proven.  Civil damages can be substantial in cartel cases. 
  • Purchasers at different levels of the distribution chain may have standing to bring causes of action for the same alleged cartel behavior. Problems with multiple recoveries arise when purchasers at different levels of the distribution chain bring actions and both purchasers claim they suffered injury from the same overcharge. Direct purchasers will argue that they absorbed any overcharge that resulted from the cartel, while indirect purchasers will argue that the direct purchasers passed on any overcharges. Given the potential for duplicative recoveries, treble damages, and joint and several liability, the mere filing of a class action creates settlement leverage regardless of the merits of a claim.
  • Recently the pharmaceutical industry has seen an onslaught of antitrust cases that include Section 1 claims that defendants conspired to restrain trade. In the recent “product hopping” case, Mylan Pharmaceuticals Inc. v. Warner Chilcott PLC et al., 2015 WL 1736957 (April 16, 2015), plaintiffs claimed that the brand manufacturer and its licensee conspired to extend the brand’s monopoly by deploying a scheme to develop subsequent versions of the same drug, and discontinuing older versions, thereby extending its patent. The court granted summary judgment for the defendants and found that product hopping almost never constitutes exclusionary conduct. In so-called “reverse payment” or “pay for delay” cases, plaintiffs challenge patent infringement settlements between a brand name drug manufacturer and a generic competitor that include terms that plaintiffs allege will provide for payments from the brand manufacturer to delay generic competition. Many of these cases include claims that the settlement agreements were an unlawful conspiracy to restrain trade.

What an Up-and-Coming Lawyer in This Area Can Expect 

  • Representing and counseling clients in connection with a variety of complex and often headline-grabbing investigations and litigations
  • Advocating for clients at meetings with the DOJ and foreign regulatory agencies during investigations
  • Advising clients on the development of comprehensive compliance programs and policies
  • Preparing and representing witnesses in providing testimony in grand jury investigations, civil depositions, and civil and criminal trials
  • Drafting motions to dismiss, motions for summary judgment and various substantive nondispositive motions
  • Working with economic experts in determining the viability of overcharge claims and examining a cartel’s effect on prices

White & Case LLP’s Antitrust Practice 

White & Case has experience in all aspects of global cartel investigations and litigation, including parallel civil Sherman Act class actions, EU proceedings, extradition and extraterritorial discovery.  With more than 180 antitrust lawyers in 23 offices on four continents, White & Case’s Antitrust practice offers our clients an integrated worldwide team with deep competition law capabilities, providing a coordinated approach to the increasingly global competitive issues facing our clients. White & Case is recognized by Global Competition Review, the leading international authority on competition law and practice, as one of the world’s elite competition practices. White & Case also was named “Competition Group of the Year” by Law360 in 2011, 2012, 2013, 2014 and 2015, making it the only firm to win the award five years in a row.