Category: Business Law
Having described some typical collusive practices, the second installment of this series will detail the cost of antitrust law violation.
PART TWO: THE IMPLICATIONS OF CRIMINAL AND CIVIL ANTITRUST PROCEEDINGS
In the first installment of this three-part series, I described collusive practices such as price fixing, market allocation and bid rigging. Today, I talk about what happens if you run afoul of the antitrust laws.
CRIMINAL PROCEEDINGS AND IMPLICATIONS
Under federal law, an employee or company representative who participates in a conspiracy can be found guilty of a felony and receive a sentence of up to 10 years in prison and/or be fined as much as $1 million. Corporations also can be prosecuted and convicted of antitrust violations and face criminal fines as high as $100 million. Corporate fines may exceed $100 million if a prosecutor seeks a fine equal to twice-the-loss or twice-the-gain of the conspiracy. There is, however, a way to make a "deal" with the government for amnesty.
In 1993, the federal government instituted the Corporate Leniency Policy. Under the policy, the first company to report involvement in collusive activity and cooperate with the government receives complete amnesty from criminal prosecution. Congress and government agencies have been so enamoured with this program that legislation extending the program through June 22, 2020 was signed into law on June 9, 2010.
To qualify as the first reporting company under the amnesty program, parties must meet specific conditions, including corporate restitution to injured parties and corporate belief that the confession is truly a corporate act as opposed to isolated confessions of executives or officials.
In addition to amnesty for the company, all officers, directors and employees of the reporting company who cooperate also typically receive amnesty. Although the first company to confess still faces civil liability, that company and its cooperating representatives are typically only liable to civil plaintiffs for single damages, rather than treble damages as ordinarily required by federal law. The government also may provide a break to subsequent confessors. While there is no formal policy, it is not uncommon for the federal government to negotiate or argue for a reduction in criminal fines that is reflective of the order of conspirator confessions.
CIVIL PROCEEDINGS AND IMPLICATIONS
Corporations and individuals who are the subject of government investigations of collusive practices are almost certain, at some point, to be on the defense end of a civil antitrust lawsuit alleging facts and violations similar to those investigated by the government¯even if the government closes its investigation without bringing charges.
Damages awarded in civil antitrust actions can be staggering. Federal law provides that plaintiffs who have suffered losses due to an antitrust violation "shall recover threefold the damages" sustained. For example, if customer A proves that it paid supracompetitive prices for a product it purchased from company B and suffered a $10 million loss because companies B and C colluded to fix prices, customer A is entitled to three times its total loss, or $30 million, plus attorneys' fees.
Companies face joint and several liability with respect to civil damages. That means customer A above may sue either B or C, or both, even though A only purchased the relevant product from B. And A can recover the full $30 million from B or C, despite the fact that C did not even sell any product to A. Absent a judgment sharing or other contractual agreement, there is no right of recovery or contribution as between B and C. So, if A opts to sue only C, C can't bring a third-party claim against B in an effort to limit its potential liability to A. Yes, the antitrust laws and penalties that flow from them are among the harshest in the civil claims world.
Even if an antitrust defendant ultimately proves it did not violate the antitrust laws as alleged by plaintiffs, the defense costs alone are often quite high because such matters typically (a) involve the production and review of a lot of data and documents from multiple parties and non-parties, (b) require the services and testimony of economists and industry experts, (c) are pled as class actions and involve long-drawn class certification procedures, and (d) are not conducive to resolutions via summary judgment proceedings.
Stay tuned for the final installment of the series where I will describe industry factors that increase the risk of antitrust violations and some ways to reduce your risk.
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