Conspiracy

Describes motivation process for creativity with emphasis on intrinsic motivation by Corey K Katir

By James L. McGinnis

In a widely followed eight-week trial before the Honorable Susan Illston in the Northern District of California, the Antitrust Division of the United States Department of Justice succeeded in obtaining price-fixing convictions against AU Optronics, a Taiwanese company; AUOA, its US subsidiary; and two senior executives. Two more junior executives were acquitted, and the jury hung as to a third executive. The jury also found that the gain from the conspiracy was at least $500 million, thereby triggering the Alternative Fine statute, 18 U.S.C. § 3571(d), and upping the companies’ potential exposure to $1 billion. DOJ has trumpeted the convictions and finding of guilt as vindicating its cartel enforcement program.

The Antitrust Division had alleged that the companies and individuals participated in a five-year-long conspiracy to fix the prices of LCD panels over the course of more than 60 meetings, including monthly meetings of LCD suppliers that the participants termed “Crystal Meetings”.

This may have been the most important trial ever conducted in connection with the Antitrust Division’s crown jewel, the international cartel enforcement and amnesty program. Its investigation was sparked by an amnesty applicant and lead to numerous pleas and multi-hundred million dollar fines before the AUO trial.

AUO argued that it was too new and too small to enter into agreements with larger, more established companies. Also, it used information from competitors to undercut them, according to its defense, and increase its market share. DOJ countered these defenses with scores of minutes from the meetings, internal AUO emails strongly suggestive of agreements, and the testimony of cooperating witnesses, several of whom had served prison time for their role in the alleged offenses. None of the defendants elected to testify.

Testimony from economists also took center stage. AUO’s economist testified that AUO’s prices consistently were lower than those discussed at Crystal Meetings. DOJ’s economist testified that this was the wrong question. The right question, according to DOJ, was whether AUO’s prices were higher than they otherwise would have been because of the conspiracy. To this question, DOJ’s economist emphatically testified “yes”, and supplied further testimony that the gain from the conspiracy far exceeded $500 million.

The jury deliberated for seven days, with their split verdicts arguably indicating they gave careful individual consideration to the evidence against each defendant.

Sentencing likely will take place in mid-June, 2012. This will be the first time a judge has sentenced a corporation after a price-fixing verdict where the Alternate Fine Statute has been triggered. United States District Judge Susan Illston’s decision will be closely watched, to say the least.

AUO has vowed appeals, which could include several very important legal issues in addition to more typical trial evidentiary issues:

• What sales “count” as commerce that DOJ can reach in its indictments consistent with the Foreign Trade Antitrust Improvement Act (“FTAIA”)?
• What commerce counts for purposes of an alternative fine calculation?
• What, if any, purely foreign conduct can form the basis of a price-fixing charge?

These questions already are critically important, and their significance will continue to grow as DOJ increases cartel enforcement pressure on international companies and foreign conduct.

By Eric O’Connor

In In re Currency Conversion Fee Antitrust Litig., 2012 WL 401113 (S.D.N.Y. Feb. 8, 2012), Judge William H. Pauley III denied a motion for summary judgment by Defendants Discover and Citigroup after finding that a handful of meetings over four years by Defendants’ in-house counsel related to drafting and implementing arbitration clauses was probative of an antitrust conspiracy. This was despite Plaintiffs’ admitted paucity of evidence, overall weak circumstantial evidence, the absence of discussions of pricing terms, and the lack of knowledge about such meetings by Defendants’ decision-makers.

Background Claims and Facts

Plaintiffs, holders of credit or charge cards, alleged that the issuing bank Defendants violated Section 1 of the Sherman Act by conspiring to include mandatory arbitration clauses in cardholder agreements and participating in a group boycott by refusing to issue cards to individuals who did not agree to arbitration.

From 1999 through 2003, in-house counsel from Defendants allegedly met several times and discussed arbitration clauses. Moving Defendants Citigroup and Discover allegedly only attended 3-5 meetings, possibly adopted their arbitration clauses prior to such meetings, and their executives with decision-making authority to implement the arbitration clauses had “no knowledge” of such meetings. In re Currency Conversion Fee Antitrust Litig., 2012 WL 401113, at *1-3. These two remaining Defendants moved for summary judgment, but the Court denied the motion because there were genuine issues of fact to be resolved at trial.

Legal Standards

The Court summarized the familiar antitrust summary judgment standards stated in Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986) (“antitrust law limits the range of permissible inferences from ambiguous evidence in a § 1 case. … [Thus, t]o survive a motion for summary judgment … a plaintiff [alleging] a violation of § 1 must present evidence that tends to exclude the possibility that the alleged conspirators acted independently.”) and Monsanto Co. v. Spray–Rite Serv. Corp., 465 U.S. 752, 764 (1984) (to survive summary judgment, Plaintiffs must proffer “direct or circumstantial evidence that reasonably tends to prove the [defendants] had a conscious commitment to a common scheme designed to achieve an unlawful objective.”).

Defendants’ adoption of arbitration clauses was sufficiently “parallel” conduct to be probative of an antitrust conspiracy.

The Court noted that Plaintiffs “identify no direct evidence that Defendants participated in a conspiracy” and “acknowledged that there is an ‘extreme paucity of documents’ supporting their theory of the case.” In re Currency Conversion Fee Antitrust Litig., 2012 WL 401113, at *5, 8. Nevertheless, the Court found that the Defendants’ implementation and modification of their arbitration clauses over a five year time period “roughly coincided” with so-called “Arbitration Coalition” meetings attended by Defendants’ in-house counsel. Id. at *2-3, 5. This was sufficient parallel conduct to consider additional “plus factors” that could support an inference of a conspiracy.

The “Plus Factors”

Conduct Contrary to Defendants’ Self-interest

While the Court acknowledged that it was in Defendants’ self-interest to resolve disputes through arbitration and bar class arbitration, evidence that one defendant provided competitors with certain sensitive business information could be a “tacit invitation to collude” and supported an inference that Defendants used the meetings to coordinate their decision-making on arbitration. Id. at *6.

Motive

This factor was more difficult because “there [wa]s little evidence indicating that adoption of an arbitration clause threatened any Defendant’s competitive posture.” Id. The evidence also was mixed. For instance, while “Plaintiffs’ own expert [] opined that the presence or absence of arbitration clauses does not impact consumer choice”, the Court found that Defendants could not establish that there was no rationale motive to conspire because “what consumers view as ‘salient’ may change over time.” Id. at *7.

Standardization

While the Court recognized that the binary decision to implement an arbitration clause or not is unusual for this factor, the Court found that each Defendant’s decision to adopt an arbitration clause that roughly mirrored those used by its competitors was probative of a conspiracy. Id. at *7-8.

Inter–Firm Communications

While there were frequent meetings allegedly attended by some of the Defendants’ in-house counsel, plaintiffs still needed to provide evidence that “tends to exclude the possibility that the alleged conspirators acted independently.” Id. at *8 (citing Matsushita, 475 U.S. at 588). Here, it was undisputed that the Defendants’ executives with ultimate decision-making authority for the arbitration clauses had “no knowledge of the meetings.” In re Currency Conversion Fee Antitrust Litig., 2012 WL 401113, at *8. However, the Court found a triable issue of fact because in-house counsel who attended were not “low level employees” engaged in mere “shop talk.” Id.

By Don T. Hibner, Jr.

On December 2, 2011, the district court denied a motion to dismiss antitrust conspiracy claims against potato grower cooperatives in several states. In re Fresh and Process Potatoes Antitrust Litigation, United States District Court for the District of Idaho, Case No. 4:10-MD-2186-BLW. The plaintiffs alleged that the defendant cooperatives agreed among themselves, through their cooperative structure, to restrict the output of their members by limiting potato planting acreages, paying farmers to destroy existing stocks, and refraining from bringing additional potatoes to market. The alleged purpose of the output-restricting conspiracy was to augment demand among direct purchasers of potatoes, thus driving up prices. The defendant cooperatives moved to dismiss on the ground that the allegations of antitrust conspiracy were immune, pursuant to the federal Capper-Volstead Act of 1922, 7 U.S.C. § 291-292.

In the years following enactment of the Capper-Volstead Act, the United States Supreme Court has held that the Act only provides limited immunity, within its statutory terms. Thus, Capper-Volstead protection extends only to associations of “persons engaged in the production of agricultural products”. If a cooperative agreement includes persons other than “producers” – such as “processors” – immunity is forfeited. However, the inquiry may become fact-specific as to the status of producer members who are vertically integrated into various levels within the distributive stream. When does a “producer” mutate into a non-exempt “processor”?

The law also has been relatively straightforward that agricultural immunity is forfeited where the cooperative, or its members, engages in “predatory” acts directed at third-parties. ”Predatory” acts include, without limitation, (a) the securing of shipping space in order to deny it to a competitor; (b) boycotting, picketing, or otherwise intimidating the customers of rival processors; (c) forcibly excluding non-members from packing facilities; (d) intimidating or boycotting dealers who paid less than prices charged by the cooperative; and (e) inducing suppliers and carriers to refuse to deal with rivals. See, e.g., Areeda and Hovenkamp, Antitrust § 249 (2011).

An issue of significance in In re Fresh and Process Potatoes, however, is whether Capper-Volstead immunity extends beyond the setting of sales prices through “collectively processing, preparing for market, handling, and marketing” to efforts to augment the sales price of the commodity through agreements to restrict output. Surprisingly, in the 90 years of the Act’s existence, this issue has remained unresolved. 

The issue is clearly presented in In re Fresh and Process Potatoes, and is also in the forefront of additional pending class actions, including, without limitation, Edwards v. National Milk Producers Federation, et al., U.S. District Court, N.D. Cal., Case No. 4:2011cv-04766 (Sept. 26, 2011), and In re Processed Egg Products Antitrust Litigation, United States District Court, E.D. Pa., Case No. MDL No. 2002 (Nov. 26, 2011). As this piece was being written, a “new arrival” is Kraft Foods Global, Inc., et. al. v. United Egg Producers, Inc., U.S. District Court, N.D. Ill. (Dec. 12, 2011). Presumably, it will be MDL’d to the E.D. Pa. 

In Edwards, plaintiffs allege that the National Milk Producers Federation, and other dairy companies conspired to limit the production of milk by paying farmers to reduce the size of their milk herds, in order to increase the prices of milk to consumers. The practice was commonly referred to as “herd retirement” within the industry. The complaint alleges that the conspiracy involved 70% of the nation’s milk supply.

In In re Processed Egg Products Antitrust Litigation, plaintiffs allege that United Egg Producers and other cooperatives conspired to induce their members to restrict egg output by restricting members’ flock sizes, through the pretext of reducing cage space densities for hens for animal welfare reasons. In addition, it is alleged that members were encouraged to export eggs at a loss, thus reducing the domestic egg supply available to consumers. In each of these actions, motions to dismiss have been denied, pending further discovery.

While the issue of the immunity of an agreement reducing members’ output has been alluded to by commentators, it has remained fallow, and has not been ripe for adjudication until recently. Why is this so? Hypothetical answers at least present themselves. In re Fresh and Process Potatoes has now joined the flock.

Beginning in 2010, then Assistant Attorney General in charge of the Antitrust Division, Christine Varney announced that a new antitrust task force of investigators from the Justice Department had joined with investigators from the United States Department of Agriculture, to spearhead new enforcement oversight into the agricultural sector. See Christine A. Varney, The Capper-Volstead Act, Agricultural, Cooperatives, and Antitrust Immunity, The Antitrust Source (December 2010).  This oversight has been augmented by state attorneys general and a series of private treble damage class actions in the agricultural sector. Ms. Varney also announced that, in addition to the ongoing task force investigation with USDA, proposed extensive new regulations for the meat industry were also forthcoming.

Enforcement officials’ statements announcing increased scrutiny into limiting Capper-Volstead immunity are not new. In fact, they have been periodically reappearing since the 1938 Technical National Economic Committee, the 1955 Attorney General’s National Committee To Study The Antitrust Laws, the 1979 National Commission For The Review Of Antitrust Law And Procedures, and the 2007 Antitrust Modernization Commission Report and Recommendations. 

Nevertheless, the legality of output restriction agreements among agricultural cooperatives and their members seems to be an issue who’s time has finally come. In In re Fresh and Process Potatoes, the court concluded, in denying the cooperatives’ motion to dismiss, that it could not determine whether the Capper-Volstead exemption applied without a fact-intensive inquiry into two issues. The first was whether vertically-integrated members of the cooperatives included “non-producers”, such that Capper-Volstead immunity would be forfeited. Second, was whether the Capper-Volstead Act included, within the concept of “marketing”, agreements to collectively implement production controls, in order to raise prices. See Slip Opinion at 8 n.5.

In what it termed an “advisory opinion”, it is now the court’s tentative conclusion that Capper-Volstead immunity does not protect agreements to limit output. The court was of the tentative view that the language of Section 1 of the Capper-Volstead Act only applied to

… acts done to an agricultural product after it has been planted and harvested. Thus, under the plain language of the statute, coordinating and reducing acreage for planting is not allowed.

Id. at 14. The court noted by footnote that the federal enforcement agencies have from time to time come to the same conclusion, namely that production limitations are not permitted.

The defendants argue that because Capper-Volstead cooperatives are allowed to fix prices, they must also be allowed to restrict production. Economics and logic suggest that output and price are at least complementary functions, if not simply two separate vantage points for viewing an single integrated economic concept. This is suggested by economic literature of supply-demand equilibria from Smith and Ricardo, through Marshall, Keynes, and Samuelson. In fact, it is at least inferred by Messrs. Areeda and Hovenkamp that a cartel’s ability to maintain a uniform pricing regime requires that it also be able to reduce its market output. See Antitrust Section 249d. See also, Holly Sugar Corp. v. Goshen County Coop. Beet Growers Association, 725 F.2d 564 (10^th Cir. 1984). Holly Sugar holds that it is permissible under Capper-Volstead for a cartel to require agreement from its producer members that they not make sales outside the cartel. In addition, marketing orders made pursuant to the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. § 671, and various state legislation to the same purpose and effect, pursuant to a marketing agreement may lawfully limit the amount of produce allowed to be marketed under the order. Further, it is generally conceded by commentators that a Capper-Volstead cooperative association may limit the amount of produce that it will agree to purchase from its members.

Thus, there may be a good argument that the term “marketing” within the meaning of Section 1 of the Capper-Volstead Act implies that a cooperative’s members can utilize an efficient means of price uniformity to enhance and augment the “price-taker” historic position in which they had been cast, and which was the impetus for the enactment of Section 6 of the Clayton Act, and Capper-Volstead itself.

The case law and commentary on Capper-Volstead supports the proposition that one of the purposes of its enactment was to allow farmers to raise the price of their output. Capper-Volstead was thus intended to facilitate the transfer of rents from consumers to producers. As is generally understood in antitrust economics, even a modest reduction in the output of a homogeneous, inelastic product may significantly augment sales prices.  Such is the case with many agricultural commodities. Capper-Volstead was designed to allow the farmers and other producers of agricultural products to join together in cooperatives and raise the price of their products to consumers. By the same token, producers were not allowed to engage in predatory conduct to facilitate the joint raising of prices, or to combine with non-producer elements to facilitate price increases. One could argue that Congress must have intended to allow agricultural producer cooperatives’ to meter their output by limiting their members’ production. Otherwise, “cheating” on cooperatives’ enhanced prices to consumers may defeat the ability of the producers to transfer consumer rents to themselves.

Yet, the In re Fresh and Process Potatoes court reasons to the contrary. It states that while an agricultural cooperative can fix the prices at which its goods are sold, it is the individual freedom of its members to augment production that prevents consumers from being overcharged. As stated by the court:

Individual freedom to produce more in times of high prices is a quintessential safeguard against Capper-Volstead abuse, which Congress recognized in enacting the statute. Id. at 17.

Perhaps a rejoinder would be that Congress intended that agricultural prices would rise as a result of agricultural cooperative price fixing, and it was Section 2 of the Act that would prevent “abuse”. Section 2 empowers the Secretary of Agriculture to administratively prevent cooperatives from using their market power to such an extent that the price of any agricultural product “is unduly enhanced”. See, 7 U.S.C. § 292. An argument could be made that this, and not the individual right to “cheat” on the cartel, is the quintessential safeguard against Capper-Volstead abuse.

But the court also relies upon dicta of the Federal Trade Commission in In re Matter of Central California Lettuce Producers Cooperatives, 90 F.T.C. 18, at 32 n. 20 (1977). There, the Commission opined

[T]here are strong indications that Congress did not intend to allow farmers to use cooperatives as a vehicle by which they could effectively agree to limit production.

At this point, the pending litigation, described above presents more questions than answers. But perhaps a quote from Galatians 6:7 is appropriate for the season:

Be not deceived; God is not mocked: for whatever a man soweth, that shall he also reap.

By Thomas D. Nevins

Eatoni’s final liability theory was that RIM’s proprietary Blackberry platform was an essential facility for plaintiff’s keyboard technology. The court did not address whether the essential facility doctrine survived Trinko, 540 U.S. 398. Instead, it rejected plaintiff’s theory on two grounds: the antitrust laws did not require RIM to share its intellectual property (Op. at 9, citing SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1204 (2d Cir. 1982)); and RIM’s platform was not essential to plaintiff, there being a number of companies that manufactured smart phones, such as Samsung, Motorola and Nokia. Id.

Creation of duopolistic interdependence by misapplication of a state statute mandating preferential treatment for local producers is an implausible “slippery slope.” Erie County v. Morton Salt, Inc., N.D. Ohio, No. 3:11-cv-00364-JGC, 9/19/11.
 

Fifty-four northern Ohio counties filed a state court class action for violations of the Ohio Valentine Act, Ohio’s counterpart to the Sherman Act. The counties alleged that the only indigenous miners of rock salt in the state of Ohio, Morton Salt, Inc. and Cargill, engaged in a conspiracy to artificially inflate the prices of road salt between 2001 and 2008. Claims also included alleged violations of the Ohio Deceptive Practices Act and fraud. Defendants removed the action to the United States District Court, Northern District of Ohio, on diversity of citizenship grounds.

By Don T. Hibner, Jr.

The District of Delaware recently denied a motion to dismiss an antitrust counterclaim in a patent infringement action in the wake of defendant Mylan, Inc. (“Mylan”) having filed an Abbreviated New Drug Application (“ANDA”) with the Federal Drug Administration (“FDA”). Shionogi Pharma, Inc. v. Mylan, Inc., United States District Court, District of Delaware, Civil Action No. 10-1077, August 31, 2011. The decision raises a host of interesting and provocative issues relating to the “sham” exception for petitioning activity immunity under the Noerr doctrine. See Eastern R.R. Presidents Conference v. Noerr Motor Freight, 365 U.S. 127 (1961) (“Noerr”) and Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49 (1993) (“PRE”). In essence, the court held that plaintiff and counter-defendant Shionogi Pharma, Inc. (“Shionogi”) could not maintain that Mylan lacked standing to prosecute an antitrust counterclaim by virtue of Shionogi’s filing of the underlying patent infringement action, which automatically triggered an ANDA automatic 30-month stay of FDA approval of Mylan’s submission.
 

Shionogi is the owner and/or owner of exclusive licensing rights to U.S. Patent No. 6,740,341 BI. (“’341 patent”), entitled “Taste Masking Rapid Release Coating System.” The ’341 patent relates to the tablet design for masking a pharmaceutical’s ill taste. Shionogi holds and is listed in the FDA “Orange Book” as the owner of a new drug application for Orapred ODT®, an orally disintegrating tablet.

By Don T. Hibner, Jr.

On June 20, 2011, the United States Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, No. 10-277, holding that 1.5 million female Wal-Mart employees around the nation could not bring discrimination claims under Title VII of the Civil Rights Act of 1964 against Wal-Mart on a classwide basis, because the requirements of Federal Rules of Civil Procedure 23(a) and 23(b)(2) were not satisfied. The decision is yet another major decision from the Court this term relating to class actions. (See, e.g., AT&T Mobility LLC v. Concepcion, No. 09-893 (U.S. Apr. 27, 2011)). The Supreme Court’s decision in Wal-Mart clarifies the “rigorous analysis” that courts must conduct under Rule 23, and reaffirms that the Rules Enabling Act, 28 U.S.C. section 2072(b), cannot be applied in a way that changes substantive rights. Wal-Mart gives antitrust defendants additional potential ammunition to defeat class certification, but it remains to be seen how courts will apply Wal-Mart to a Rule 23(b)(3) antitrust class action instead of a Rule 23(b)(2) Title VII discrimination class action.
 

The Wal-Mart Decision

By David R. Garcia & Leo Caseria

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Antitrust claims against “Beatport”—an online marketplace that catered to consumers and producers of “Electronic Dance Music”—and a related “Beta” nightclub were adequately alleged, the federal district court in Denver has ruled. Thus, a motion to dismiss claims brought by a group of commonly-owned night clubs comprising Denver’s South of Colfax Nightlife district (SOCO) was denied. The claims of the owner of the complaining clubs were, however, dismissed because the owner lacked standing to pursue the claims individually.

Two of the SOCO night clubs were nationally recognized in the Electronic Dance Music scene. They emphasized Electronic Dance Music and live performance by DJs. The clubs alleged that the defendants engaged in anticompetitve conduct to coerce DJs to boycott the SOCO venues and only perform at Beta.

The court refused to dismiss the SOCO clubs’ claim that Beatport and Beta coerced DJs into performing only at Beta by threatening to remove artists on a DJ’s label from Beatport if they performed at the SOCO clubs. Because access and promotion on Beatport were critical to both a DJ’s and a label’s success, many DJs and agents were allegedly compelled to agree to the defendants’ demands. The complaining clubs alleged that the defendants had sufficient market power in the market for Electronic Dance Music downloads to adversely effect competition for live performances of “A-list” DJs.

Standing

The complaining clubs asserted that they possessed standing to bring antitrust claims by virtue of their status as competitors who were foreclosed from the market for live performance of A-list DJs. The two SOCO clubs that emphasized Electronic Dance Music and live DJ performance alleged antitrust injuries of lost past and future profits, decreased ability to compete, and decreased value of real property.

Additional evidence and facts would be needed to prove harm to the other SOCO nightclubs as the case proceeded, the court noted. However, there were sufficient facts to support the clubs’ antitrust standing for purposes of a motion to dismiss. The owner of the SOCO clubs failed to support a claim that he suffered an injury separate from the injury sustained by the SOCO clubs based on an injury to his reputation or devaluation of real property of the clubs, the court ruled.

Attempted Monopolization

The clubs adequately alleged an attempted monopolization claim against Beta, which controlled more than half the market for live performance by A-list DJs in the Denver metropolitan area. There was a dangerous probability that Beta could achieve monopoly power in the market for A-list DJ performances.

The complaining clubs pled a specific intent to monopolize by stating that Beta and its owner engaged in predatory and anticompetitive conduct, including illegal tying, exclusive dealing, reciprocal dealing, monopoly leveraging, market allocation, group boycott and the concerted combination of these actions.

Conspiracy

Conspiracy claims were not dismissed, despite the defendants’ assertions that, as related entities, they were incapable of conspiring. Although some common ownership existed between Beta and Beatport, it was not sufficient to warrant dismissal under Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 1984-2 Trade Cases ¶66,065, which held that wholly owned subsidiaries were incapable of conspiring. Further, a defending part-owner of Beta had an “independent personal stake” in restraint of trade of the club’s competitors.

The March 14 opinion is Christou v. Beatport, LLC, 2012-1 Trade Cases ¶77,829.

By James L. McGinnis

In a widely followed eight-week trial before the Honorable Susan Illston in the Northern District of California, the Antitrust Division of the United States Department of Justice succeeded in obtaining price-fixing convictions against AU Optronics, a Taiwanese company; AUOA, its US subsidiary; and two senior executives. Two more junior executives were acquitted, and the jury hung as to a third executive. The jury also found that the gain from the conspiracy was at least $500 million, thereby triggering the Alternative Fine statute, 18 U.S.C. § 3571(d), and upping the companies’ potential exposure to $1 billion. DOJ has trumpeted the convictions and finding of guilt as vindicating its cartel enforcement program.

The Antitrust Division had alleged that the companies and individuals participated in a five-year-long conspiracy to fix the prices of LCD panels over the course of more than 60 meetings, including monthly meetings of LCD suppliers that the participants termed “Crystal Meetings”.

This may have been the most important trial ever conducted in connection with the Antitrust Division’s crown jewel, the international cartel enforcement and amnesty program. Its investigation was sparked by an amnesty applicant and lead to numerous pleas and multi-hundred million dollar fines before the AUO trial.

AUO argued that it was too new and too small to enter into agreements with larger, more established companies. Also, it used information from competitors to undercut them, according to its defense, and increase its market share. DOJ countered these defenses with scores of minutes from the meetings, internal AUO emails strongly suggestive of agreements, and the testimony of cooperating witnesses, several of whom had served prison time for their role in the alleged offenses. None of the defendants elected to testify.

Testimony from economists also took center stage. AUO’s economist testified that AUO’s prices consistently were lower than those discussed at Crystal Meetings. DOJ’s economist testified that this was the wrong question. The right question, according to DOJ, was whether AUO’s prices were higher than they otherwise would have been because of the conspiracy. To this question, DOJ’s economist emphatically testified “yes”, and supplied further testimony that the gain from the conspiracy far exceeded $500 million.

The jury deliberated for seven days, with their split verdicts arguably indicating they gave careful individual consideration to the evidence against each defendant.

Sentencing likely will take place in mid-June, 2012. This will be the first time a judge has sentenced a corporation after a price-fixing verdict where the Alternate Fine Statute has been triggered. United States District Judge Susan Illston’s decision will be closely watched, to say the least.

AUO has vowed appeals, which could include several very important legal issues in addition to more typical trial evidentiary issues:

• What sales “count” as commerce that DOJ can reach in its indictments consistent with the Foreign Trade Antitrust Improvement Act (“FTAIA”)?
• What commerce counts for purposes of an alternative fine calculation?
• What, if any, purely foreign conduct can form the basis of a price-fixing charge?

These questions already are critically important, and their significance will continue to grow as DOJ increases cartel enforcement pressure on international companies and foreign conduct.

Sultana L. Bennett -

The Federal Court of Appeal, in a recent decision under the Competition Act, (the Act), has confirmed that the effects of a conspiracy do not have the effect of extending the limitation period under the Act, but also declined to close the door against the extension of the limitation period by the application of the discoverability principle in future cases.

In August 2008, Garford Pty Ltd. (Garford) sued Dwyidag Systems International, Canada, Ltd. (DSI) and others for patent infringement and alleged breaches of the Act. Garford claimed that DSI, having entered into three purchase agreements to acquire the assets of certain entities in the cablebolt market, breached subsection 45(1) of the Act, which prior to its amendment in 2010 prohibited conspiracies, agreements and arrangements that unduly lessened competition.

DSI defended the suit on the ground that pursuant to the two year limitation period under subsection 36(4) of the Act, which provides that an action must be brought within two years of the date of the conduct complained of, had expired several months before Garford had commenced its claim. The Federal Court agreed and in 2010 granted summary judgment to DSI, rejecting Garford’s argument that the limitation for private actions under the Act was subject to the discoverability rule, effectively delaying the running of a limitation period under until a plaintiff discovers the cause of action.1 That court also rejected Garford’s “continuous offence” argument, holding that ongoing effects of an alleged conspiracy do not extend the limitation period.

The Federal Court of Appeal on February 13, 2012, affirmed the Federal Court’s holding that the effects of a price fixing conspiracy do not form part of the conspiracy offence under section 45, because at the relevant time, “the offence was complete upon the finalization of an agreement that, if carried into effect, would unduly limit competition.” However, the Court did not go so far as to hold that the discoverability principle is not applicable to the section 36 limitation period, but rather decided that the issue of discoverability simply did not arise on the facts of the case. The Court’s ruling, stating that the Federal Court judge’s findings of fact preclude any argument based on discoverability, “assuming without deciding, it is legally available” suggests that future plaintiffs are not necessarily precluded from claiming that the principle could apply.

¹Garford Pty Ltd. v. Dywidag Systems International, Canada, Ltd., 2010 FC 996.

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A computer software company, Adobe Systems Inc., could have unlawfully monopolized the market for professional graphic illustration software by acquiring a popular software program (FreeHand), effectively removing it from the market by refusing to update it, significantly raising the price of a rival program it owned (Illustrator), and withholding FreeHand’s source code from the open source community, the federal district court in San Jose, California, has ruled. The alleged conduct would not have violated the California Cartwright Act, however.

Therefore, the company’s motion to dismiss putative class action claims asserted by a non-profit group of graphic design professionals and one of its members was granted in part and denied in part.

While each of the alleged manners of anticompetitive conduct may have been lawful on its own, taken together and in context they supported a monopolization claim when read in the light most favorable to the complaining group and its members. Adobe undisputedly possessed monopoly power in the relevant market, the court noted. The company’s ability to maintain its high market share—despite raising prices and ceasing development of FreeHand—undermined its claim that its decision to discontinue the product was “rational and normal business conduct” that increased competition, the court reasoned.

Professional designers allegedly had no choice other than Illustrator if they wanted to buy professional vector design software that was interoperable with the latest operating systems. Moreover, it was reasonable to infer that Adobe’s discontinuation of FreeHand and channeling of that program’s users to Illustrator made it more difficult for potential competitors who did not have a full array of graphics software to enter the market.

The plaintiffs’ allegations that the conduct allowed Adobe to charge supracompetitive prices for Illustrator, decreased innovation in the relevant market, and rendered the artwork they created on FreeHand obsolete were sufficient to assert antitrust injury, the court added.

California Cartwright Act Claim

The non-profit group and individual member could not maintain a California Cartwright Act claim based on the alleged conduct, the court also ruled. The plaintiffs alleged no agreement, conspiracy, or combination between two or more entities, and the Cartwright Act did not address unilateral conduct.

The law did not contain a provision parallel to the Sherman Act’s prohibition against monopolization. The plaintiffs’ contention that a valid Cartwright Act claim could exist despite unilateral conduct “if a single trader pressure[d] customers or dealers into pricing arrangements” was immaterial because no such coercion was alleged, the court said.

Statute of Limitations

An argument by Adobe that the plaintiffs’ Sherman and Clayton Act claims were time-barred was rejected by the court. The causes of action were tolled under the continuing violation doctrine and the “new use” exception, respectively. Though the plaintiffs’ Sherman Act monopolization claim initially accrued upon the date of the acquisition, more than four years prior to the filing of the suit, their allegations supported a reasonable inference that Adobe perpetuated its monopoly power and caused them new injury after the merger through new and independent acts inside of the limitations period, including the aforementioned cessation of FreeHand’s development, the channeling of existing FreeHand customers to Illustrator, and the bundling of Illustrator with other programs it offered.

These acts were not “mere reaffirmations of the merger such as holding or using assets in the same manner as at the time of acquisition” or “continuing indefinitely to receive some benefit as a result of an illegal act performed in the distant past,” in the court’s view. Rather, they were more like an online auction provider’s changes to its electronic payment policy after acquiring an online payment service provider, which had been found to constitute overt acts inflicting new and accumulating harm.

In addition, the plaintiffs’ allegations that Adobe’s conduct with respect to the acquired FreeHand and its Illustrator amounted to a use of FreeHand in a different manner from the way it was used at the time of the merger, and that this new use injured them, were sufficient to allow them to avail themselves of the “new use” exception to the Clayton Act’s statute of limitations, the court concluded.

The decision is Free FreeHand Corp. v. Adobe Systems, Inc., 2012-1 Trade Cases ¶77,811.

Former presidential candidate John Edwards was recently indicted by a federal grand jury for conspiracy, allegedly accepting campaign contributions to cover-up the extramarital affair with his former aide, Rielle Hunter. Did John Edwards violate federal election law? Or is this a campaign ethics violation? Attorneys and co-host J. Craig Williams welcome Peter J. Henning, Professor at Wayne State University Law School and Professor Richard L. Hasen, a nationally-recognized expert in election law and campaign finance regulation from the University of California, Irvine School of Law, to discuss the charges and how the prosecution and defense will handle this controversial legal case.

In the US vs. Pineda-Moreno decision, the US Court of Appeals for the Ninth Circuit ruled that Law enforcement agents can legally place a GPS device on an individualas car without their knowledge and without a warrant from a judge. Attorneys and co-hosts Bob Ambrogi and J. Craig Williams, welcome Orin S. Kerr, contributing blogger to the Volokh Conspiracy and Professor of Law at the George Washington University Law School, to discuss the legality of GPS tracking in light of the Fourth Amendment, privacy rights, the role of technology and the possibility that this case and others like it will reach the Supreme Court.

A special edition of Lawyer2Lawyer, marking our 3rd anniversary and our 150th show! We have covered a lot of legal stories over the course of three years and Law.com bloggers and co-hosts, J. Craig Williams and Bob Ambrogi will talk to returning guests and play clips from some stand out shows with guests who have inspired, educated and even made us laugh. Bob & Craig welcome back Professor Eugene Volokh, professor at the UCLA School of Law and blogger for the Volokh Conspiracy and Attorney/musician Larry Savell of Chadbourne & Parke to discuss his new album, “The Lawtunes: Live At Blackacre” and introduce a new theme song made especially for Lawyer2Lawyer! And extra thanks to YOU, our audience, for making Lawyer2Lawyer one of the top legal podcasts in the legal community!

Law professorsa blogs are getting a lot of attention on college campuses across the country. We all know the blog is a powerful tool. And postings reach people around the world in seconds. Tech savvy law professors have already joined the blogging craze. But the question has been raised – should those blogs be part of their “academic pursuit?a Join co-hosts and Law.com bloggers, Craig Williams and Bob Ambrogi as they turn to our experts to get their insight on the credibility of the blog and look into the debate of law professor blogs vs. law professor articles. Craig and Bob welcome, Professor Susan Crawford, law professor at the Cardozo Law School, Professor Eugene Volokh, professor at UCLA Law School and founder of the blog, The Volokh Conspiracy and Professor Miriam Cherry, visiting professor at Hofstra and blogger for ContractsProf and Concurring Opinions.

Coast to Coast with Robert Ambrogi and J. Craig Williams sparks a rapid-fire discussion about the new law that shields gunmakers from crime victim lawsuits, called The Protection of Lawful Commerce in Arms. Our special guests are Josh Horowitz, Exec. Dir., the Coalition to Stop Gun Violence, David Kopel, Research Dir., Independence Institute and editor-in-chief, Journal on Firearms & Public Policy and Professor Eugene Volokh from the UCLA School of Law whose blog is The Volokh Conspiracy.

The Grand Jury of the Special Narcotics Courts voted an indictment against the accused men charging them with criminal possession of a weapon and conspiracy in violation of the Penal Law. In summary, a New York Criminal Lawyer the court alleges that a confidential informant contacted one of the accused, offering him an opportunity to rob drug dealers of a valuable supply of narcotics and cash. The accused allegedly accepted the informant’s offer and engaged the three accused men to be part of the robbery gang. The case detectives instructed the informant to tell the accused men the robbery location. It is alleged that the informant and the four accused men loaded two vehicles with a number of weapons and went to that Bronx location with the intention to commit a burglary and a robbery.

The accused men filed omnibus discovery motions, to which the court responded. The State also supplied the grand jury minutes to the court for in camera examination. After examining the grand jury minutes, the court ordered the parties to submit additional memoranda of law on two jurisdictional questions. To enable the parties to fully brief the issue, the court found that release of certain portions of the grand jury minutes to the parties was necessary to assist the court in making the determination on the motion.

The Crime Investigator testified in the grand jury. In summary, the informant testified that he had continuous conversations with one of the accused; however, his testimony is devoid of any references to where he or his co-accused was located when they had the telephone conversations. Furthermore, it is apparent from the grand jury minutes that none of the face-to-face meetings between the informant and the accused men occurred in Manhattan. The sole reference to Manhattan in the informant’s testimony is contained in the informant’s recitation of why he was at a certain place at a certain time.

The parties submitted legal memoranda to the court on the jurisdiction question. For the reasons which follow, the court finds that the evidence before the grand jury was insufficient to establish jurisdiction under any theory, and therefore the indictment is dismissed with leave to re-present.

The general rule in New York is that, for the State to have criminal jurisdiction, either the alleged conduct or some consequence of it must have occurred within the state. A Manhattan Criminal Lawyer said that because the State only has power to enact and enforce criminal laws within its territorial borders, there can be no criminal law offense unless it has territorial jurisdiction. Mere thoughts or plans do not meet the conduct requirement of Criminal Procedure Law.

Territorial jurisdiction refers to the power of the court to hear and determine the case, and is distinguished from venue, which pertains to the proper county or place of trial thus territorial jurisdiction goes to the very essence of the State’s power to prosecute and may never be waived. The prosecution must prove territorial jurisdiction beyond a reasonable doubt.
An accused has the right under the New York State Constitution to be prosecuted in the county where the alleged criminal conduct was committed, unless the Legislature vests jurisdiction in some other county. The right to trial by jury incorporates the common law as it stood at the time of independence, and includes the right to be tried by a jury of the vicinage, the county where the alleged criminal conduct was committed.

Because of the importance of such right, New York courts have given the jurisdictional exceptions in Criminal Procedure Law called a restrictive interpretation and operation. Trial may be held outside the vicinage only if the Legislature has authorized it in clear and unmistakable terms. Such exceptions to the normal jurisdictional rules are to be applied only in accordance with necessity.

Upon the application of the assistant district attorney in charge of the special narcotics parts appointed pursuant to the plan, one or more grand juries may be drawn and impaneled for a special narcotics part upon the order of the justice assigned to such part, which grand jury may exercise all the powers of a grand jury in the county in which it is impaneled and may in addition exercise its powers with respect to the alleged commission of an offense in any county wholly contained in a city having a population of one million or more involving the sale or crack possession and any other offense that could be properly joined therewith in an indictment.

In other words, a Special Narcotics Grand Jury in New York County may exercise all the powers of a regular New York County Grand Jury. It means that the Special Narcotics Grand Jury, as any grand jury impaneled in New York County, must have geographic jurisdiction over the acts which they are seeking to indict. The Special Narcotics Grand Jury enjoys its expanded citywide jurisdiction only as to those offenses involving the sale or possession of a narcotic drug and any other offense that could be properly joined therewith in an indictment.
The Stateas sole theory of geographic jurisdiction was explicitly presented to the grand jury. The entire substance of the Crime Investigatoras testimony before the grand jury on the issue of jurisdiction has previously been set forth. The State concedes that there is no other testimony on the point, although they argue extensively about the reasonable inferences they believe can be drawn from the sparse comments relating to jurisdiction.

In summary, it is uncontested that the sole references to Manhattan in the grand jury minutes, and the asserted basis of the grand jury’s New York County jurisdiction, are the numerous phone calls from Manhattan made to the targets and that the targets understood that the drug location they are potentially going to rob was in Manhattan originally. The Crime Investigator’s testimony is bereft of any references to any phone calls being made from Manhattan, but he does make a cursory reference to the plan which originally consisted of going to an apartment in Manhattan or in the Bronx with firearms, with guns, and it was to rob sixty kilos of cocaine. The threshold question, therefore, is whether this evidence met the minimal standard required to establish geographic jurisdiction in any New York County Grand Jury, irrespective of whether it happens to be designated a Special Narcotics Grand Jury.

When an accused challenges geographic jurisdiction before trial, the jurisdiction of the county seeking to prosecute must have been established before the grand jury. The indictment does not contain a single count charging sale or crack possession; therefore, the expanded jurisdictional rule of Judiciary Law does not apply. The court therefore begins with the sole basis of jurisdiction asserted in the grand jury, the alleged numerous phone calls from Manhattan which purportedly confer jurisdiction on New York County.

As to the conspiracy counts, special jurisdictional rules apply: geographic jurisdiction as to the conspiracy count is established in the county in which the accused entered into the conspiracy and in any county in which one or more of the overt acts in furtherance of the conspiracy were committed by the defendant or one of the coconspirators. The Criminal Procedure Law provides that an oral or written statement made by a person in one jurisdiction to a person in another jurisdiction by means of a telecommunication is deemed to be made in each jurisdiction.

However, before the court can reach the question of whether Criminal Procedure Law properly apply in the case, it must first determine whether there is competent evidence of phone calls actually made in New York County, and if made, whether those phone calls were made in furtherance of the conspiracy. The analysis is guided by the familiar rules governing the motion to dismiss an indictment for legal insufficiency.

In determining a motion to dismiss an indictment for legal insufficiency, the reviewing court must consider whether the evidence, viewed most favorably to the State, if unexplained and un-contradicted would be sufficient to warrant conviction by a trial jury. Legally sufficient evidence is defined as competent evidence which, if accepted as true, would establish every element of an offense charged. Hearsay evidence does not constitute competent evidence. Pursuant to the Criminal Procedure Law, the same rules which govern admission of evidence at criminal law violation trials apply to grand jury proceedings, unless covered by an exception listed in the Criminal Procedure Law. While geographical jurisdiction is a question of fact and can be reasonably inferred from all the facts and circumstances, the evidence which is presented to the grand jury on geographical jurisdiction must be competent evidence; if the evidence is not competent, no inferences, however reasonable, can rescue the presentation.

The court finds that the scant evidence adduced before the grand jury was insufficient to establish geographic jurisdiction in any New York County Grand Jury. The Special Agentas testimony regarding the numerous phone calls made to the targets was unacceptable hearsay evidence. The testimony, which the State generously characterized as of a general nature, was utterly devoid of any non-hearsay facts establishing that either party to any conversation was actually present in Manhattan, or that the subject matter of the phone calls was in furtherance of a criminal conspiracy, both essential requirements of the Criminal Procedure Law. There was no testimony that the agent was a party to the conversation or that he was listening to the conversations on another line or on a wiretap, or even that he was with the Crime Investigator or one of the targets at the time they were having the conversation so that he could overhear some of the content. Therefore, his testimony about the phone calls, to the extent that it is credible and in the light viewed most favorably to the State, perforce was based upon someone else’s explanation to him of what took place. It is therefore unacceptable hearsay.

Clearly, none of the charges, which relate to burglary, robbery, and weapons possession, involve the sale or possession of a narcotic drug. The State argue extensively that the statute must be read expansively, and urge the court to find that because the accused menas intended to rob narcotics dealers, their conduct falls within the ambit of the statute. The court, however, cannot endorse such theory. The occupation of the intended victim cannot confer jurisdiction where it does not otherwise exist.
The legislation which led to the creation of the Special Narcotics Courts, and the special jurisdictional rules governing those courts, was motivated by the 1970s crisis in narcotics cases and the way that the numbers of those cases were overwhelming the criminal justice system. Narcotics dealers, like banks, are assumed to have large sums of cash. Robbers victimize sources of large amounts of cash. Jurisdiction cannot rest on such peripheral facts as the occupation of the victim. The indictment is dismissed with leave to re-present to a New York County Grand Jury, to the extent that the State can establish jurisdiction, or, alternatively, for re-presentation before a Bronx County Grand Jury.

The Law is continuously being scrutinized to make sure that justice is being served fairly. If you believe that you are a victim of the criminal lawas unfair judgment, or have been charged with robbery, sex crimes, or drug possession, consult a Bronx County Criminal Lawyer. For your drug-related lawsuits, feel free to contact a Bronx County Drug Attorney at Stephen Bilkis and Associates.

(Reuters) – Electronic Arts Inc lost its bid to be dismissed from a lawsuit accusing the video game company of involvement in an NCAA conspiracy to prevent college athletes from being paid. Plaintiffs led by former UCLA basketball star Ed O’Bannon had accused the National Collegiate Athletic Association and its marketing company of violating U.S. antitrust law by conspiring to force students to sign away their ability to profit commercially from playing college sports. …

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