For much of the last decade, virtually all antitrust policy development arising out of Washington has come from the enforcement agencies. The other traditional Washington actors responsible for key shifts in antitrust policy and enforcement—Congress and the Supreme Court—have been largely missing in action. No significant antitrust legislation has been enacted since the early 1990s. During the same period, the Supreme Court, consistent with the overall decline in its docket, passed up numerous opportunities to address substantive antitrust issues (the refusal to grant certiorari in the Microsoft case is one example that comes readily to mind), instead confining its antitrust efforts to only a handful of opinions, the majority of which deal with narrower questions such as the scope of state action immunity.
But in recent months, these institutions have rediscovered antitrust. The Supreme Court’s antitrust docket this term was a memorable one, with the Court issuing significant decisions like Trinko, which curtailed lower court efforts to expand refusal to deal and monopolization claims, and Empagran, which (at least) severely limited the ability of non-U.S. parties to invoke the jurisdiction of U.S. courts for antitrust claims. (An assessment of this term’s key Supreme Court antitrust decisions is the subject of a separate Jones Day Commentaries.)
Of equal importance is the passage of antitrust legislation that, in one way or another, is likely to affect not only U.S. businesses, but global businesses as well. On June 22, 2004, President Bush signed into law H.R. 1086, a collection of miscellaneous amendments to existing antitrust statutes with the potential to alter significantly future antitrust enforcement and compliance efforts. H.R. 1086 produced four significant changes to the U.S. antitrust laws:
Increase in Criminal Fines and Penalties.
The maximum corporate fine for each criminal antitrust violation was increased from $10 million to $100 million. For individuals, the maximum fine was increased to $1 million and the maximum jail sentence to 10 years.Enhancements to DOJ Leniency Program.
In addition to obtaining immunity from government prosecution, an amnesty applicant that also "cooperates" with private plaintiffs now will be exempt from treble damage liability in subsequent private antitrust litigation and will be liable only for actual damages.Protection for Standards Development Organizations ("SDOs")
. The protections of the National Cooperative Research and Protection Act ("NCRPA")—including rule of reason analysis, limitation to actual damages, and recovery of attorneys’ fees by the successful party—are extended expressly to SDOs.Tunney Act Reform
. The procedures to be used by district courts in approving DOJ consent decrees are amended to require the district judge to consider specific factors and to make affirmative findings about the public interest aspects of the proposed decree.As might be obvious from this somewhat motley (and unrelated) collection of amendments, H.R. 1086 had a variety of proponents advocating passage. The DOJ Antitrust Division had made the increase in criminal fines and enhancements to the leniency program one of its key policy initiatives. Standards-setting organizations, particularly those involved in high-tech industries, similarly had long sought explicit coverage for their activities under the NCRPA (notwithstanding the views of many that legitimate standards-setting activities were already covered).
In contrast, the Tunney Act provisions originated with those constituencies dissatisfied with recent judicial reviews of DOJ consent agreements, most notably the Microsoft consent decree. Cynics might view the inclusion of the Tunney Act amendments as part of the political cover for passage of the overall legislation. Indeed, these provisions do not merit their own Title in the bill, and their impact on how district court judges review and adopt DOJ consent decrees is likely to be small.
Rather, it is the "Antitrust Criminal Penalty Enhancement and Reform Act of 2004" and the "Standards Development Organization Advancement Act of 2004" that are likely to have a more immediate and enduring impact. Despite their significance to antitrust enforcement, neither the Senate nor the House held hearings on these bills, which were adopted with little debate. As much as anything, this likely reflects the generally bipartisan approach to antitrust enforcement that has developed in the Congress in recent years.
Criminal Penalties and Leniency Amendments
Besides requiring an update to every corporate antitrust guide and compliance program in America to reflect the new fines and penalties, the carrot and stick contained in the "Antitrust Criminal Penalty Enforcement and Reform Act of 2004" is likely to, as the DOJ hopes, raise the stakes and complicate the decisionmaking for corporations considering seeking amnesty for antitrust violations.
The stick is obvious in the substantial increase in both corporate and individual fines and jail terms, although it is the latter that is probably the more important. The DOJ has already been able to take advantage of the alternative fine calculations available under the U.S. Sentencing Guidelines for Organizations (twice the gain or loss occasioned by the unlawful conduct) to negotiate fines far exceeding the statutory maximums for some time now, with the record fine to date the $500 million paid by F. Hoffmann-La Roche in the Vitamins Cartel case. Because of this, many viewed the DOJ’s efforts to increase the statutory maximums as something of a non-event. But one of the last decisions issued by the Supreme Court this term has given these new statutory maximums much more significance.
In a non-antitrust criminal case decided on June 24, 2004, Blakely v. Washington, the Court called into question the continuing availability of the Sentencing Guidelines to enhance fines or sentences. In Blakely, the Court held that "the ‘statutory maximum’ . . . is the maximum sentence a judge may impose solely on the basis of the facts reflected in the jury verdict or admitted by the defendant." This suggests that, rather than relying on the Sentencing Guidelines presumption of 20 percent of gross sales as a proxy for "double the loss" in antitrust prosecutions, the DOJ must now plead or prove the gain or loss beyond a reasonable doubt. The increase in statutory maximum to $100 million has eliminated the issue for many price-fixing prosecutions, but the future status of the Sentencing Guidelines will determine the upper range of fines for the largest cartels.
While it is not clear whether the change in maximum corporate penalties will have much effect, the change in maximum individual penalties seems much more likely to have an impact. Just the theoretical possibility of a 10-year jail sentence—and in today’s business scandal climate, it may be more than theoretical—is likely to worry even the toughest business executive. There is no doubt that the prospect of personal amnesty, especially when very senior executives are exposed, is a powerful incentive for corporate cooperation. Still, it will take some time before we can judge how important these sticks will really be, or whether they are mostly symbolic.
The carrot approach is more controversial and clearly viewed as something of an experiment, since the legislation provides that its provisions sunset after five years. DOJ’s amnesty program has been highly successful, and all of the major cartel prosecutions in recent years (e.g., vitamins, lysine, graphite electrodes) have been aided by participants receiving amnesty or leniency. Historically, however, a significant deterrent to a corporation seeking amnesty was the certainty that even the first hint of a DOJ criminal investigation, much less an indictment or a plea, would trigger a rash of private treble damages antitrust lawsuits (generally class actions) seeking to piggyback on the DOJ’s efforts. The potential treble damage judgments associated with such litigation generally exceed likely criminal fines by a substantial margin. More recently, with the global expansion of criminal antitrust regimes around the world and a dramatic growth in the number of global cartels, a second related consideration became the implications of voluntary U.S. disclosure on potential criminal prosecution outside the U.S. and the uncertainty whether the potential amnesty candidate could win the race to the national prosecutor’s office in every relevant jurisdiction.
The second problem remains, but can be addressed with proper planning—and must be, since the level of cooperation between national enforcers is steadily increasing. The amendments attempt to address the first problem by sweetening the pot for amnesty applicants—holding out the potential for eliminating the treble damage penalty and promising a limit of actual damages in private actions brought against amnesty applicants who cooperate with private plaintiffs. But like all good ideas, this one proves more complex in the execution than it must have appeared in the conception. The complication: What exactly does "cooperate" mean?
The statute offers some definition to this rather ambiguous word. According to the statute, cooperation requires that the amnesty candidate (which can be an individual or a corporation) provide to the private claimant:
- A "full account" of all facts known that are potentially relevant to the civil action;
- All documents or other items in the possession, custody, or control of the applicant "wherever located";
- In the case of individuals, "complete and truthful" testimony in interviews, depositions, or trials and, in the case of corporations, "best efforts to secure such testimony."
The supervising judge is supposed to be the arbiter of any disputes regarding the extent and adequacy of the mandated cooperation. How willing judges will be to add this responsibility to their already full plates remains unclear, and how extensively courts will inject themselves into any disputes will have a major impact on how these terms ultimately are interpreted. Nor is it clear how the limitation to single damages for one defendant will square with the concept of joint and several liability among all defendants; presumably the remaining defendants are still liable for the full amount of trebled damages minus the damages paid by the "cooperating" defendant, but that issue will undoubtedly be litigated. And there are many other questions to be answered: Do companies really have to produce all documents, wherever located, or will standard civil rules protections apply? What does "best efforts" mean in terms of soliciting individual testimony (particularly in the case of former employees)? Does the "full accounting" required incorporate standard exclusionary provisions, such as attorney-client privilege? Again, it will take a while to sort all this out, but the potential for detrebling of damages is almost certain to increase the incentive seriously to consider amnesty as a strategy—which is, of course, the basic purpose of the statute. The overall effectiveness of these provisions will depend in large part on how these and other questions are answered in actual cases. Because of this, we expect the DOJ to take a more active than usual amicus role in the courts as these issues are sorted out.
Standards Development Organizations
The NCRPA is by and large a stealth statute—rarely litigated, operating largely out of the public eye, but offering sufficient value to the business community that it twice has been amended to expand its scope from its initial focus (research joint ventures) to production ventures in 1993 and SDOs this year. At its essence, the NCRPA provides a corporate insurance policy that, by mitigating the antitrust concerns associated with certain joint conduct, makes possible much useful cooperation by competitors. The insurance is relatively cheap; by making a notification that describes the scope of the cooperative activity to the DOJ and FTC (which subsequently publish a summary in the Federal Register), the notified activity will be subject to rule of reason treatment in any subsequent antitrust challenge, actual rather than treble damages will be awarded for any violation, and the prevailing party in any litigation will be able to claim attorneys’ fees. The only downside—and it could be significant in some settings—is that the notification is, of course, public.
The "Standards Development Organization Advancement Act of 2004" expressly includes SDOs within the NCRPA’s coverage. The key operating provisions remain the same:
- The Act provides that rule of reason treatment will apply to SDOs while they are engaged in properly notified standards development activities;
- SDOs will be subject only to actual damages, not treble damages, if any antitrust liability is found; and
- The prevailing party is entitled to attorneys’ fees in any antitrust action challenging standards development activity.
Like the NCRPA itself, the amendment specifically excludes from its coverage actions that are likely to have anticompetitive effects: information exchanges "not reasonably required for the purpose of developing or promulgating voluntary consensus standards" and agreements or conduct that would allocate markets or set prices for any good or service. One interesting feature is the narrowness of the amendment. SDOs are defined as "a domestic or international organization that plans, develops, establishes, or coordinates voluntary consensus standards using procedures that incorporate the attributes of openness, balance of interests, due process, and an appeals process consistent with the Office of Management and Budget Circular Number A-119, as revised February 10, 1998." Perhaps even more important, the statutory definition expressly excludes "the parties participating in the standards development organization." Besides suggesting that SDOs have protected their interests at the expense of their members, this formulation raises obvious questions about the overall effectiveness of making a notification under the NCRPA: Does this exclusion of the participants in the SDO create the possibility that the conduct of the organization will be examined under the rule of reason while the individual members’ actions will remain subject to potential per se treatment?
The FTC and DOJ were prompt in issuing implementing regulations for the Act. The liability-limiting notifications must be filed not later than 90 days after June 22, 2004 or 90 days after commencing standards development activity. This notification, which must be filed with both the DOJ and FTC, must disclose the SDO and its principal place of business, and provide documents showing the nature and scope of the standards development activity. After receiving a proper notification, the DOJ or FTC will publish a notice in the Federal Register that identifies the SDO and describes its standards development activities in general terms.
Conclusion
H.R. 1086 will never have the impact of legislation like the Hart-Scott-Rodino Act; that statute fundamentally changed the way antitrust law is practiced. It does raise the stakes for companies facing issues of the potential criminal liability and may contribute to eliminating antitrust concerns that may have impeded desirable standards-development activities. Its passage also provides a useful reminder, as if any were needed, that Congress and the courts remain players in the antitrust arena. And to add an exclamation point to this, the Antitrust Modernization Commission, established by Congress this year to "examine whether the need exists to modernize U.S. federal antitrust laws and . . . [to submit] recommendations for legislative or administrative action," has now been fully constituted and held its first official meeting on July 15. There are no limits in its charter as to what the Modernization Commission could recommend at the end of its three-year life, so all with an interest in antitrust should be paying close attention as it goes about its business.
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