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The Value of ACPERA

The Value Of ACPERA

Law360, New York (June 02, 2009) -- Without reference to empirical data or any individual precedent, the authors of the article The End of ‘De-Trebling?’ claim that corporate violators of the antitrust laws seek amnesty “today for the same reasons they did before [the Antitrust Criminal Penalty Enhancement and Reform Act].”

Reality demonstrates otherwise. Under the provisions of the 1993 Act, the government could waive its right to criminal fines, but the amnesty defendant still faced joint and several treble damages in civil litigation.[1] This threat to the applicant was a major impediment to corporate confessions to the U.S. Department of Justice.[2]

As one antitrust defense counsel explained: “Part of the calculus of determining to seek amnesty [pre-ACPERA] has traditionally been that while doing so eliminates the risk of criminal sanctions, amnesty leaves the recipient exposed to federal and state private lawsuits seeking treble damages.”[3]

In other words, before voluntarily disclosing its criminal conduct, a potential amnesty applicant [had to] weigh the potential ruinous consequences of subjecting itself to liability for three times the damages that the entire conspiracy caused.”[4]

Since an amnesty application is, in essence, the functional equivalent of an acknowledgement of the existence of an illegal cartel, the acknowledgement, by itself, establishes a strong foundation for future civil exposure to often large amounts.

One of the prime motivations for ACPERA was the congressional desire to remove this risk from the amnesty applicant and provide an incentive both to report the violation, receive amnesty for criminal penalties, reduce its restitutionary obligations and limit civil damage exposure.[5] While not immediately apparent, there are several reasons that make de-trebling of damages a factor in entering an amnesty agreement.

First, it codifies the first mover advantage for the amnesty applicant. The authors of the "De-Trebling" article note that it has always been a practice of civil plaintiffs to limit the damage exposure of the first settler.

A first settler advantage is pragmatically conferred because it provides an immediate, fair and reasonable settlement amount to the plaintiffs as well as access to information, materials and witnesses confirming the existence of the illegal conduct.

The benefit to the civil plaintiffs is the combination of compensation and cooperation. Amnesty applicants, however, do not automatically receive that advantage. Without ACPERA, an amnesty applicant does not have the guarantee of being the first settler.

If parties can first reach agreement with a non-amnesty applicant conspirator defendant, then the value of the cooperation that could have been provided by the amnesty applicant is diminished and may be virtually eliminated.

In such a situation, it is unclear whether the amnesty applicant, if offered to cooperate in return for a single damage limitation, plaintiffs could then refuse on the grounds that its cooperation is of little to no value. The applicant might then be in a position of jeopardizing its ability to request that the court confer a detrebling benefit.

Second, the authors claim that companies seek amnesty to “avoid jail for high-level executives.” Yet other countries’ amnesty programs, which are equally effective in inducing companies to seek leniency, have no such jail-saving provisions.[6]

Most other competition statutes do not criminalize infringement conduct. There is no statistically significant distinction in the number of leniency applications in those countries as compared to the United States. Thus, this “jail-saving” determination may not weigh as heavily in such a decision upon closer examination.
Third, the authors claim that companies seek amnesty “to escape significant criminal fines.” To cartelists, criminal fines are often rationalized as an economic business cost just like civil joint and several treble damages.

Fines and restitution affect corporate amnesty applicants similarly — they involve payment of cash and reduction of profitability. Public companies need to avoid and/or minimize the effect of both.
ACPERA’s de-trebling provision does just that and thus must function, in part, as an incentive to report conspiracies as ACPERA’s congressional drafters intended.

Lastly, treble damages have been cited outside the United States as one of the principal reasons why other countries have not adopted a similar mechanism to remedy infringements of their competition laws.[7] They are, in essence, viewed as a civil fine increasing the level of restitutionary accountability.

If avoiding significant fines motivates corporations to seek amnesty, the same monetary consideration motivates corporations to avoid paying treble damage fines.

It is correct that before the advent of ACPERA, the antitrust division of the Justice Department granted amnesty to dozens of corporations and uncovered numerous international cartels, collecting billions of dollars in fines.
However, since the advent of ACPERA and the amendment to limit civil liability, amnesty applications, as well as successful investigations and collection of fines, have markedly increased.[8]

Exposure to treble damages poses a real and significant corporate business risk. De-trebling those damages, at least in material part, provides a valuable practical benefit which should not end.

--By Michael D. Hausfeld, Hausfeld LLP
Michael Hausfeld is a litigator and chairman of Hausfeld LLP, with offices in Washington, D.C., New York, Philadelphia, San Francisco and London.

The opinions expressed are those of the author and do not necessarily reflect the views of Portfolio Media, publisher of Law360.

[1] See 15 U.S.C. §15. As Neelie Kroes of the EC said in a November 2007 speech: "[g]iven the costs of bringing a damages action in the competition field and the uncertainty in the outcome, the balance of risk and reward is often unfavourable to consumers. So consumers rarely if ever go to court .. Out-of-court settlements can only really work if they are coupled with a realistic chance of effective court action. And when court action can only be taken by each consumer individually, no consumer will ever make it to the court room: collective redress mechanisms are therefore an absolute must." (Nov. 9, 2007) (transcript available at europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/07/698&format=HTML&aged=0&language=EN&guiLanguage=en).
[2] See Cong. Rec. at S3614 (Apr. 2, 2004)
[3] See Antitrust Update, New Federal Antitrust Legislation Alters Risk Assessments (August 2004) at www.weil.com. (last visited March 24, 2008)
[4] See Cong. Rec. at S3614 (Apr. 2, 2004)
[5] See Cong. Rec. at H3660 (June 2, 2004)
[6] See, e.g., Section 188 of the Enterprise Act 2002 (criminalizing individual participation in certain types of “hardcore” cartels and subjecting individuals to up to five years imprisonment in the UK)
[7] See, e.g., www.europa-eu-un.org/articles/es/article_8177_es.htm
[8] See Thomas O. Barnett, Assistant Attorney General, Antitrust Division, U.S. Department of Justice, Criminal Enforcement Of Antitrust Laws: The U.S. Model (September 14, 2006) at 1 (transcript available at www.usdoj.gov/atr/public/speeches/218336.htm)
 

The above piece was written in response to the material below.

The End Of 'De-Trebling?'
Law360, New York (May 22, 2009) -- Nearly five years ago, President Bush signed into law the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA)[1] to enhance criminal sanctions for antitrust violations and create a mechanism for Corporate Amnesty applicants to limit their private civil exposure to single damages without joint and several liability.

The U.S. Department of Justice Antitrust Division proclaimed at the time that “de-trebling” would remove a “major disincentive for submitting amnesty applications.”[2] Today, the five-year sunset provision is about to expire. Absent congressional intervention, de-trebling will cease to exist by the end of June 2009.

The past five years have failed to provide any evidence that de-trebling has incentivized companies to seek amnesty. Companies seek amnesty today for the same reasons they did before ACPERA — to avoid jail for high-level executives, escape significant criminal fines, and win the “prisoner’s dilemma” race to obtain amnesty.

One recent case, in fact, affirmatively demonstrates that de-trebling is not a significant consideration. In In re: TFT-LCD (Flat Panel) Antitrust Litigation, class plaintiffs sought to compel the unidentified amnesty applicant to provide the cooperation that ACPERA makes the quid-pro-quo for de-trebling.

Under ACPERA, companies accepted into the leniency program may limit their civil damage exposure if they meet the conditions for amnesty and provide a “full account” of the facts and furnish documents, and access to witnesses.”[3]

Defendants in the LCD case argued that ACPERA created “an option, not an obligation” to provide cooperation; the court becomes involved only when imposing judgment if the amnesty applicant seeks to invoke ACPERA to limit its damages.[4] The DOJ also argued that forcing an applicant to disclose its identity would undermine the amnesty program which relies on confidentiality.[5]

The implication of these seemingly conflicting arguments is that corporations do not place great weight on de-trebling at the time they are faced with the crucial decision of whether to seek amnesty or not.[6]

In LCD, there was no indication that the amnesty applicant had decided whether to seek de-trebling even after two years into that litigation. Yet the amnesty program has worked exactly as it was intended in that case, with several guilty pleas, corporate fines and prison sentences for key executives.

Before the advent of ACPERA, the Antitrust Division granted amnesty to dozens of corporations and, in the process, uncovered international cartels and collected billions of dollars in fines.

De-trebling does not appear to add anything to the calculus. The real determining factors for seeking corporate amnesty are the same: (1) high-level executives can avoid jail. Freedom is by far the most important incentive for seeking amnesty;[7] (2) minimizing exposure on a global scale; and (3) winning the race to the courthouse to obtain amnesty.

As a practical matter, corporations rarely control their fate and cannot avoid prosecution simply by choosing to stay silent. By the time a corporation’s in-house counsel learns of the violation, the horse is already out of the barn, or at least well on its way.

As one career DOJ official stated before ACPERA: “It is already too late to contain the leakage of information to the government. The boat is already sinking, and the only question is whether you are going to grab the life preserver.”[8]

Absent Congressional intervention, de-trebling will continue to exist only for those applicants who came forward prior to June 23, 2009.

If, as some argue, de-trebling plays a significant role in the decision to seek amnesty, the United States will see a disproportionate number of amnesty applications being made in the next few weeks. Given what we have learned over the past five years, however, that seems unlikely.

--By Richard J. Leveridge (pictured) and James R. Martin, Dickstein Shapiro LLP
Richard Leveridge is the managing partner of Dickstein Shapiro's Washington, D.C., office. James Martin is a partner with the firm in the Washington office.

The views expressed in this article are solely those of the authors and do not necessarily reflect the views of Dickstein Shapiro, its clients, or Portfolio Media, publisher of Law360.

[1] Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, 118 Stat. 661, 666-67 (2004).
[2] R. Hewitt Pate, Deputy Assistant Attorney General Antitrust Division, Issues Statement on Enactment of Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (June 23, 2004), www.usdoj.gov/atr/public/press_releases/2004/204319.htm.
[3] § 213(b)(1)-(2).
[4] Samsung Defendants Memorandum of Points and Authorities in Opposition to Direct Purchaser Plaintiffs’ Motion to Compel the Amnesty Applicant Defendant to Comply with ACPERA or Forfeit Any Right it May Have to Claim Reduced Civil Liability.
[5] United States’ Opposition to Direct Purchaser Plaintiffs’ Motion to Compel the Amnesty Applicant Defendant to Comply with ACPERA or Forfeit Any Right it May Have to Claim Reduced Civil Liability at 14. United States District Judge Susan Illston denied plaintiffs’ motion, noting that plaintiffs persuasively argued that the value of cooperation diminishes with time and that she would take that into account if and when a defendant sought to invoke ACPERA.
[6] As a practical matter, cooperation gives value only if provided relatively early on and only for the first defendant to provide it. Cooperation allows plaintiffs to target discovery and cut through costly and time-consuming procedural hurdles. It is difficult to believe that a company that makes the decision to seek amnesty would turn around and choose to play hardball in civil litigation — although it has been known to happen. In many ways, though, de-trebling only codified the practical reality that amnesty applicants traditionally settle civil cases early in exchange for small dollars and cooperation.
[7] See Scott Hammond, Deputy Assistant Attorney General Antitrust Division, When Calculating the Costs and Benefits of Applying for Corporate Amnesty, How Do You Put a Price Tag on an Individual’s Freedom? (March 8, 2001), www.usdoj.gov/atr/public/speeches/7647.htm.
[8] Id.
 

Practice Areas: Antitrust / Competition