MESSAGE FROM THE AAG
There is no greater privilege as an antitrust professional than to serve with the dedicated men and women of the Antitrust Division. Their achievements overthelastyear demonstrate that there are no better advocates for consumers and effective antitrust enforcement. They have achieved record incarceration levels for cartel participants, effective and efficient merger enforcement, unprecedented levels of cooperation with foreign competition agencies, and outstanding competition advocacy in the Supreme Court and elsewhere.
By all measures, the Division's cartel enforcement program had a banner year that broke new ground. Total prison sentences—the single most effective deterrent — more than doubledthe previous record. The average sentence imposed on Division defendants reached a new record of 31 months. Fines were the second highest in Division history, and new case generation remains strong with more than 135 pending grand jury investigations.
This success reflects the hard work and outstanding efforts of the prosecutors, investigative agents, and support staff. With determination and creativity, they have brought to justice domestic and international cartels in industries ranging from airlines to electronics to government procurement.
The Division's cartel enforcement also benefits from increased enforcement by other competition agencies. Coordinated execution of searches across multiple continents is now a regular occurrence. We also are cooperating more in the resolution of cartel cases. For example, in the marine hose investigation, the Division entered into unprecedented plea agreements in which the defendants pleaded guilty to fixing prices in the U.S. and were escorted to London to face charges for fixing prices in the United Kingdom.
The world continues to become a riskier place for cartels: The risk of detection is increasing, safe havens from prosecution are diminishing, and penalties imposed are rising.
The Division staff also excel in their review of and challenges to mergers and othertransactions. Where our investigators discover evidence of an anticompetitive transaction, they pursue the relief necessary to protect consumer welfare, asthey did in 28 transactions during the last two fiscal years and 10 during the first half of this fiscal year. As an example, in the Monsanto/Delta and Pine Land transaction, the Division identified competitive concerns arising not only from the horizontal overlap in cotton seeds, but also from the lack of timely vertical access by genetic trait developers to suitable cotton germplasm. The legal and economic staff worked through a complex web of intellectual property and other issues to obtain a robust remedy that protects con-sumerwelfare while permitting consumers to benefit from the efficiencies relating to the remainder of the transaction. Where necessary, the Division will pursue contested litigation to obtain relief — such as the Division's current challenge to a consummated merger of two newspapers in Charleston, West Virginia.
Merger review is now global, not only because of the international character of transactions, but also because ofthe multiple competition authorities reviewing them. Division staff routinely communicate with foreign counterparts. The Division, for example, recently obtained relief through a consent decree in the Thomson/Reuters transaction that was negotiated in coordination with the European and Canadian agencies.
The Division recognizes that protecting consumer welfare sometimes requires not challenging transactions where, despite initial impressions, the evidence does not demonstrate harm to competition. The Division has closed such investigations without taking action where warranted by the evidence collected in a comprehensive investigation.
The need for engagement with the rest of the world on competition issues has never been greater. The ICN now boasts 102 member agencies from 91 countries. China and India are moving to implement their competition laws. In addition to its growing number of bilateral relationships,the Division (along with the FTC) provides leadership in multilateral organizations such as the ICN and OECD and encourage competition agencies to apply sound economic analysis that focuses on protecting competition, not individual competitors. In this regard, Division staff has played a key role in the latest initiatives ofthe ICN to promote convergence on unilateral conduct and merger analysis.
The U.S. Supreme Court has continued to update the antitrust laws, and the Division has been an active participant. In Twombly, the Court issued a decision consistent with the position taken in an amicus brief joined by the Division. The Court held that an antitrust plaintiff pursuing a Section 1 claim must allege facts that, if true, indicate not just the possibility of a claim but instead a "plausible entitlementto relief." Mere parallel action or inaction, without more, does not entitle a plaintiff to invoke the powers — or inflict the costs — of discovery.
Consistent with the views expressed in another amicus brief joined by the Division, the Court in Leegineliminated the per se prohibition on minimum resale price maintenance. This decision reversed a prohibition dating back to 1911 and reflects modern economic analysis demonstrating that such vertical restrictions are not always harmful to consumer welfare.
Such periodic recalibrations of the antitrust laws are critical to ensuring thatthe laws best serve the interests of consumer welfare.
Determining the appropriate antitrust rules for unilateral conduct remains one of the biggest challenges in antitrust today. The Division and the FTC have spent extensive time digesting the rich record from the Section 2 hearings. Some answers are clear: We need standards based on objective criteria that will both enable companies to know how to comply with the law when they are making decisions and empower enforcers to challenge conduct successfully when the line has been crossed. Translating these general principles into operational rules remains a challenge.
The Division continues to excel in competition advocacy efforts, drawing upon its world-class economic and legal experts. For example, the Division launched a real estate website with educational materials on impediments to competition, such as rebate bans. During the past year, the Division also provided comments on issues such as network neutrality and airport congestion.
There are no more dedicated or qualified advocates for consumers and the competitive process than the staff of the Antitrust Division. I take great pride in being associated with them and their accomplishments.
CRIMINAL ENFORCEMENT — A RECORD YEAR
The Division's Criminal Enforcement Program experienced a record year. The Division reached new heights in its efforts to deter cartel activity through individual accountability, setting highwater marks in terms of total jail days, average sentence and percentage of defendants sentenced to jail. The Division also delivered on its promise to seek longer jail sentences for foreign nationals who violate U.S. antitrust laws, setting and then eclipsing the record for the longest sentence imposed on a foreign defendant in an international cartel case. The Division prosecuted defendants participating in global price-fixing conspiracies in the air transportation and marine hose industries, as well as a number of high-profile domestic prosecutions involving the federal E-Rate program and sewer rehabilitation industry. The Division also played an active role in the Department's National Procurement Fraud Task Force and Hurricane Katrina Fraud Task Force, charging individuals engaged in fraud and bribery aimed at subverting the Department of Defense's competitive bidding process and bribery related to post-Hurricane Katrina levee reconstruction. International cooperation also reached a new pinnacle this year in the context of the marine hose investigation with coordinated searches and unprecedented plea agreements. The Division's criminal enforcement record this year bears witness to the fact that the detection, prosecution and deterrence of cartel offenses remain the highest priority of the Antitrust Division.
RECORD ACCOMPLISHMENTS THIS YEAR IN CRIMINAL ENFORCEMENT:
Record Number of Jail Days Imposed:
In FY 2007, defendants prosecuted by the Antitrust Division were sentenced to serve 31,391 jail days. This is the highest total number of jail days imposed in any given year, more than doubling the previous high.
Record Number of Division Defendants Sentenced to Jail:
In FY 2007, 87 percent of defendants charged by the Divisionwere sentenced to jail time, a 135 percent increase over the 1990s average of 37 percent. Since FY2000, more than 150 individuals have served, or are currently serving, prison sentences in cases prosecuted by the Antitrust Division.
Record Average Jail Sentence:
Not only are more defendants prosecuted by the Division going to jail, but those sentenced to jail are, on average, serving increasingly longer sentences. During FY 2007, the average prison sentence for incarcerated defendants charged by the Division reached an all-time high of 31 months. The average jail sentence in the 1990s was eight months.
Record Jail Sentences Agreed to by Foreign Nationals:
Since May 2007, the record for the longest jail sentence agreed to by a foreign defendant in an international cartel case has been set, matched, and again eclipsed several times. In May 2007, a Korean executive was sentenced to serve 14 months in prison for his participation in the DRAM (Dynamic Random Access Memory) price-fixing cartel. That mark was matched in November 2007, when two French nationals agreed to plead guilty and serve 14 month jail sentences for their participation in the international marine hose cartel. Then, in December 2007, the bar was raised again when the Division filed plea agreements with three British participants in the marine hose cartel calling for agreed-upon 30,24 and 20-month prison sentences. During FY 2007, the average sentence imposed on foreign defendants in international cartel cases reached an all time high of 12 months, almost double the previous high of 6.9 months set the year before.
Second Highest Total Annual Fines:
Most Grand Jury Investigations in 15 years:
At the close of FY 2007, the Division had 135 pending grand jury investigations, including more than 50 investigations of suspected international cartel activity — the highest number of pending grand jury investigations since 1992 — and the Division's docket has never before involved so many matters of national and international scope affecting such massive volumes of commerce.
Air Transportation Prosecutions
On August 1, 2007, the Division charged British Airways with conspiring to fix international air cargo rates and international passenger fuel surcharges, and also charged Korean Air Lines with conspiring to fix international air cargo rates as well passenger fares for flights from the United States to Korea. Both companies pleaded guilty and were each sentenced to pay a fine of $300 million. On the same day the Division's cases were filed, the United Kingdom's (UK) Office of Fair Trading (OFT) announced that it would fine British Airways £121.5 million (approximately $250 million) for collusion on the price of passenger fuel surcharges, marking the first time thatthe Division and the OFT have brought parallel prosecutions. The British Airways and Korean Air fines tie the $300 million fine imposed against Samsung in connection with the DRAM investigation as the second largest criminal antitrust fine ever imposed. On November 27, 2007, Qantas Airways Limited also agreed to plead guilty and pay a $61 million criminal fine for its role in a conspiracy to fix international air cargo rates. Due to worldwide reliance on air transportation, these are among the largestand most far-reaching antitrust conspiracies ever prosecuted by the Division.
Procurement Fraud Prosecutions
The Division plays an active role on the Department's National Procurement Fraud Task Force and Hurricane Katrina Fraud Task Force. This year, the Division prosecuted a number of defendants involved in subverting competition on Department of Defense contracts for goods and services in, or destined for, military personnel in, the Middle East, as well as a bribery case in connection with post-Hurricane Katrina rebuilding efforts in New Orleans.
Agents assisting the Division arrested U.S. Army Major John Cockerham, along with his wife and his sister in July 2007. Major Cockerham, a former contracting officer responsible for awarding contracts for the Department of Defense (DOD) in support of operations in the Middle East, was charged with bribery in connection with the award of at least $100 million of bottled water contracts. As charged in the indictment, Major Cockerham agreed to accept at least $9.6 million in return for various contracting actions. Major Cockerham, his wife and sister were also charged with conspiring to defraud the United States, conspiring to commit money laundering, and conspiring to obstruct justice.
In January 2008, the Division indicted a DOD contractor and one of its former managers for conspiring to bribe a military contracting officer in Iraq. The Division also brought various charges in December 2007 and January 2008 against three individuals and two companies for participating in a scheme to subvert DOD's competitive bidding procedures for contracts to supply aviation fuel at locations worldwide, including Bagram, Afghanistan.
In August 2007, Raul Miranda, a former contract employee of the U.S. Army Corps of Engineers, agreed to plead guilty to bribery charges brought by the Division in connection with a $16 million project to reconstruct a levee as part of Hurricane Katrina rebuilding efforts.
These cases evidence the Division's commitment to prosecute those who subvert the government's competitive bidding process and deprive taxpayers of the benefits of competition.
Nationwide E-Rate Prosecutions
During the lastyear, the Division continued to vigorously prosecute collusion and other fraud in connection with the federal E-Rate program. The E-Rate program was created by Congress to help economically disadvantaged schools and libraries obtain computer and telecommunications services. The Division has helped to uncover massive fraud in this industry and has thus far charged 12 corporations and 17 individuals with collusion and fraud affecting dozens of schools. A total of six companies and 10 individuals have pleaded guilty or entered civil settlements and have paid or agreed to pay criminal fines and restitution totaling approximately $40 million. The Division tried and won two E-Rate cases this year, obtaining a conviction of the owner of a computer vendor in February 2007 on seven counts of wire fraud involving a scheme to defraud the E-Rate program in a school district in Texas and, in September 2007, obtaining a conviction against a former sales representative in California on all 22 charged counts of bid rigging, wire fraud, and conspiracy to commit mail and wire fraud in connection with E-Rate projects at schools in seven states. Trials are currently pending in three additional E-Rate cases and one defendant remains an international fugitive.
RETURN OF INTERNATIONAL FUGITIVES
The Division also made great strides this year in its continued efforts to bring to justice international fugitives attempting to evade U.S. jurisdiction. In March 2007, the Division obtained the return of defendant Michael Domecq, the former president and co-owner of Domecq Importers, who had been a fugitive from the United States for more than six years. After being arrested in the U.K. in 2006 on false identification charges, Domecq ultimately consented to extradition to the United States. Domecq pleaded guilty to tax and mail fraud conspiracy charges contained in his 2000 indictment, and in December 2007, Domecq was sentenced to serve 10 years in prison.
During the year, our cooperation with foreign antitrust authorities reached an all-time high. The Division, along with the Federal Bureau of Investigation (FBI), cooperated with authorities on five continents in order to coordinate the executions of search warrants in the investigation of the air transportation industry.
The Division's recent coordination with the U.K.'s OFT and the European Commission in its investigation of cartel conduct in the marine hose industry is a model of international coordination and the results it can achieve. On May 2, 2007 the Division and the FBI arrested eight foreign executives from the United Kingdom, France, Italy and Japan in Houston and San Francisco for their roles in the marine hose conspiracy and conducted multiple searches in the United States. On the same day, U.K. and European antitrust authorities searched locations in Europe. The Japan Fair Trade Commission later searched locations in Japan in its investigation in this industry.
The cooperation in the marine hose investigation, however, went well beyond coordinating searches and resulted in a new milestone when the Division filed plea agreements with three British nationals on December 12, 2007. Not only were the 30, 24, and 20-month sentences the defendants agreed to serve the three longest sentences ever agreed to by foreign nationals for antitrust offenses, but for the first time, the plea agreements anticipate and address the criminal prosecution of, and imposition of a jail sentence upon, the defendants for a cartel offense in another jurisdiction. The plea agreements also allow for the possibility of concurrent prison sentences, in effect, in the United States and the United Kingdom. After the three British nationals entered their guilty pleas in U.S. district court, in keeping with the terms of the plea agreements, the district court deferred the U.S. sentencing and the defendants were escorted in custody to the United Kingdom. On December 18,2007, the OFT charged the three executives with violating the Enterprise Act.
The cooperation in the marine hose investigation and the resulting charges and pleas are milestones in international cartel enforcement in a number of ways: the U.S. plea agreements for the first time contemplate criminal prosecution and the imposition of jail time against individual cartel participants in multiple jurisdictions; the agreed-upon jail sentences called for by the U.S. plea agreements were record jail sentences for foreign nationals pleading guilty to an antitrust offense in the United States; and the charges in the United Kingdom against these defendants are the first criminal cartel offenses charged under the U.K.'s Enterprise Act since it came into force in 2003.
Increased cooperation among international cartel enforcers in the last year has raised the stakes and provides a strong deterrent message forwould-be cartel participants who seek to victimize consumers in multiple jurisdictions.
DIVISION REMAINS FOCUSED ON INTERNATIONAL COOPERATION
The Division remains focused on strengthening international cooperation and promoting antitrust policy convergence. With a global economy and competition regimes in more than 100 countries, and major economies such as China and India starting to enforce their new antitrust laws in the next year, global engagement is a necessity. The Division pursued its international goals by continuing to work closely with multilateral organizations and strengthening bilateral ties with its antitrust counterparts in other jurisdictions.
The International Competition Network (ICN) and the Organization for Economic Cooperation and Development (OECD) continue to do important work toward achieving consensus on antitrust issues, and the Division is a key member of both organizations. In April, ICN members will gather for ICN's 7th annual conference in Kyoto, Japan. In seven short years, ICN has become known for its ability to achieve consensus on practical antitrust enforcement issues. Its landmark achievement thus far has been the Recommended Practices for Merger Notification and Review Procedures, which were developed in the Merger Working Group, which is co-chaired by the Division. Nearly half of ICN's members with merger review laws have made changes that bring their systems into greater conformity with the Recommended Practices, and they have been particularly useful for agencies establishing new merger regimes.
This year, ICN's notable achievements include work on substantive convergence in the merger and single-firm conduct areas. Within the Merger Working Group, the Division is leading a project on recommendations for merger analysis. This project is aimed at highlighting that effective merger analysis, is based on sound economic principles and a comprehensive evaluation of competitive conditions in a properly defined relevant market, rather than on the mechanical application of rigid presumptions or structural criteria. During the past year, the Unilateral Conduct Working Group (UCWG), of which the Division is a key participant and the FTC is co-chair, produced reports on the objectives of unilateral conduct laws and the assessment of dominance/substantial market power. Members universally identified the concept of ensuring a competitive process as the foundation fortheir unilateral conduct rules, with promoting consumer welfare and maximizing efficiency as the most frequently cited ideals encompassed within that overarching goal. On dominance/substantial market power, members identified the factors that go into its assessment, beginning with a consensus that unilateral conduct laws do not prohibit the possession of dominance/substantial market power alone. The UCWG is continuing its work on dominance and has begun to study specific practices by comparing approaches on predatory pricing and exclusive dealing.
The OECD continues to be an important forum for encouraging convergence among like-minded jurisdictions. The OECD's Competition Committee brings together senior antitrust officials from the OECD's 30 members and 10 observers three times a year. In February 2008, the Committee celebrated its 100th meeting by reviewing past accomplishments and future challenges in an event featuring Assistant Attorney General Thomas O. Barnett and European Union Competition Commissioner Neelie Kroes as key speakers, along with three former Assistant Attorneys General. This past year, the Committee held roundtables discussing dynamic efficiencies, ex post evaluation of agency actions, facilitating practices, and refusals to deal. In the Working Party on Enforcement and Cooperation, which is chaired by AAG Barnett, roundtable discussions covered techniques for analyzing complex mergers, providing guidance to the business community on unilateral conduct issues, public procurement issues, trade associations, minority shareholdings and interlocking directorates, and presenting complex economic theory and evidence to judges.
The Division remains committed to strengthening its working relationships with its foreign antitrust counterparts. International cartel cooperation is at an all time high. The Division worked closely this past year with the United Kingdom and the European Commission (EC) in our investigation of cartel conduct in the marine hose industry. On the same day, the Division and Federal Bureau of Investigation arrested eight foreign executives for their roles in the marine hose conspiracy and conducted multiple searches in the United States, the United Kingdom and European antitrust authorities searched locations in Europe. Cooperation remained strong in the civil enforcement area as well. To highlight just one example, the Division closely coordinated and reached compatible outcomes with the EC and Canada on its Thomson/Reuters merger review. The Division continued to consult closely with its counterparts on policy matters, including working with the Japan Fair Trade Commission on its intellectual property licensing and merger guidelines.
Engaging with China as it establishes an antitrust enforcement regime has been — and remains — a high priority for the Division. The Division and the FTC began working extensively with the government of China in 2003, while it was in the process of drafting a comprehensive antitrust law. In addition to frequent meetings with the Chinese government agencies and National People's Congress committees involved in drafting the legislation, the Division provided written comments on the draft law and participated in several conferences organized by the Chinese government. Now that the Anti-monopoly Law is scheduled to come into force in August 2008, the Division plans to continue assisting China to help ensure that the law is implemented in a manner that is based on sound economic analysis and focused on maximizing consumer welfare and economic efficiency. In fact, the Division started that process in July 2007 by conducting an intensive four-day merger workshop in Changchun, China, for officials from agencies already involved in merger review. Chinese government officials have expressed interest in receiving our advice on additional implementation issues, and the Division hopes to conduct other training workshops once enforcement responsibilities have been clarified.
The Division has added a new feature to our international outreach efforts. The Division has long had a robust training program for our own employees. Last year for the first time, we invited 10 agencies from eight different countries across the globe to participate in a part of that program — an intensive training program on antitrust economics. Some agencies sent multiple representatives. Over the course of three days, the training session addressed a variety of topics including unilateral effects, bundling, predatory pricing, and remedies. The training event was such a success for the Division and foreign participants alike thatwe have made it a permanent and annual feature of our official training program, with the next workshop to take place in May 2008.
ANTITRUST TECHNICAL ASSISTANCE
Since 1991, the Antitrust Division and the Federal Trade Commission (FTC) have completed more than 400 missions providing technical assistance to our antitrust enforcement counterparts in more than 50 developing and transitional economies around the world. For example, the Division has advised new antitrust agencies on such matters as privatization in Poland, mergers in South Africa and India, and cartels in Brazil, Russia and Egypt. Technical assistance to China, which enacted its Antimonopoly Law in August 2007 remains a high priority for the Division. The Division has provided advice on the drafting of antitrust laws and enforcement guidelines. It has worked with new antitrust agencies to advise them in introducing sound economics and consumer welfare goals into their systems, and in developing practical techniques to enhance their ability to achieve these goals. The Division has provided training for antitrust personnel in substantive legal principles, economic theory, procedures, and investigative techniques needed for a successful competition law enforcement regime. Regardless of form, the focus of the Division's technical assistance is on the development of sound competition policy principles and institutions.
In addition to serving as an important tool in fostering international convergence in antitrust enforcement, the Division's technical assistance missions promote international understanding and build cooperative relationships. The development of strong antitrust institutions is essential to a properly functioning market economy and sound and lasting economic development. It is in the Division's interest, and the interest of nations around the world, to lay the foundations for such institutions. Thus, the Division believes that it is particularly important to assistnew competition agencies, provide advice on process and organizational issues, and consult on purely local cases. The Division's programs emphasize the pragmatic considerations over the theoretical, and focus on transferring institutional skills and experience in investigating, analyzing and remedying anticompetitive behavior.
On February, 6, 2008, the Division, in conjunction with the FTC, held a public workshop on technical assistance. The workshop brought together an impressive array of panelists, including officials from the competition authorities of Hungary, Italy and Peru, leading academics in the antitrust field, and private practitioners, to discuss the Antitrust Division and the FTC's technical assistance programs. The workshop was a great success. The agencies received positive feedback on their efforts so far, as well as many valuable suggestions for maximizing the effectiveness of their programs for the future.
Through its various missions, not only does the Division have an opportunity to share its experience and expertise with other jurisdictions, but the Division itself also gains a greater understanding about the antitrust policies and practices of other agencies, as well as the local law, economy, culture, and conditions that may impact those policies and practices. The process of exchanging ideas, sharing the benefits of our enforcement experience, and identifying areas of common ground and convergence provides a foundation for long-lasting, mutually beneficial relationships. The Division has found that the relationships that develop over time are particularly strong between fellow law enforcers. The Division welcomes the opportunity for such ongoing engagement with its counterparts in other agencies.
MEET MARK PLETCHER TRIAL ATTORNEY
The Division's National Criminal Enforcement Section (NCES) is comprised of a dedicated group of attorneys, paralegals and administrative staff. Mark Pletcher,trial attorney, is an outstanding member of the NCES team. He came to NCES in 2002 through the Department's Honors Program. As a member of the prosecution team of the Department's Procurement Fraud Task Force, Pletcher has worked to bring about successful conclusions on more than a half dozen war zone procurement cases. In addition to his war zone work, as co-lead counsel, Pletcher is preparing for a trial involving the corruption of a D.C. public official in connection with major traffic administration contracts. In the coming months, he also will serve as lead attorney in the prosecution of two executives and two firms recently charged with fraud and corruption of the bidding process for sales of fuel to U.S. government refueling stations around the world.
Despite his busy workload, Pletcherfinds time to give public outreach presentations and to mentor new attorneys, interns and paralegals. Pletcher received the Attorney General's Outstanding new Attorney Award this year, as well as a D.C. pro bono Lawyer of the Year Award.
COMPETITION POLICY AND INTELLECTUAL PROPERTY LAWS WORK IN TANDEM TO PROMOTE GROWTH AND INNOVATION
Innovation is a key component of the U.S. economy. A significant driver of innovation is competition: firms striving to be the first to deliver new products to consumers that could allow them to be the first to capture a market by dint of their innovative efforts. A complementary driver of innovation are U.S. intellectual property (IP) laws, laws that encourage inventors and artists to participate in the marketplace by protecting their creative and inventive efforts. When enforcing the antitrust laws, the Division seeks to maintain a competitive American marketplace, one that improves consumer welfare by encouraging innovative efforts and providing an environment in which these efforts may flourish. Maintaining this competitive marketplace means curtailing activities involving intellectual property rights that foster illegal collusive or exclusionary conduct. In most cases involving intellectual property rights, the appropriate approach to making this determination is to analyze activities involving intellectual property rights under the rule of reason, taking into account both the efficiencies of a particular activity as well as any anticompetitive effects.
The Division has devoted much time and effort to analyzing issues involving intellectual property and antitrust. Its efforts have included, but are not limited to, business review letters, international working groups, bilateral discussions with important trading partners, interagency discussions, amicus briefs and speeches. The Division has focused on two particularly important areas in recent business review letters: patent pooling and standard setting.
The Division analyzes patent pooling agreements under the rule of reason because combining complementary patents within a pool can be an efficient and pro-competitive way to disseminate those rights to would-be users of the technology or standard. Including substitute patents in a pool, however, does not make the pool presumptively anticompetitive. Rather, the Division considers the inclusion of substitutes as one of many factors when evaluating the competitive impact of pooling agreements.
The Division's recent business review letter to the standard-setting organization (SSO) known as VITA (VMEbus Inter-national Trade Association) also applied a rule of reason analysiswhen evaluating VITA's proposed patent policy. That policy will require licensors of patents necessary to implement VITA standards to provide standard setters with more information about potential patent licensing costs than a simple commitment to license on reasonable and nondiscriminatory terms before they decide which technologies to include in the standard. The Division concluded that this proposed policy was a "sensible effort" by VITA" to avoid unreasonable patent licensing terms that might threaten the success of the future standards and to avoid disputes over licensing terms that can delay adoption and implementation after standards are set." It should, therefore, "preserve, not restrict, competition among patent holders."
The Department issued a favorable business review letter to another SSO, IEEE. IEEE's proposed policy permits, but does not mandate, patent holders to publicly state their most restrictive licensing terms. It also permits discussion of the relative costs of proposed technological alternatives during the standard-setting process, while prohibiting discussion of specific licensing terms. The Department concluded that IEEE's policy, like VITA's, could generate procompetitive benefits. Patent holders could compete on licensing terms to increase the likelihood of being selected forthe standard. The basis forthe decision-making of the working group could be expanded and development, implementation, and adoption of IEEE standards could take place faster. The policy might also decrease patent litigation after the standard is set. To be sure, not all SSOs need implement the same, or even any, patent licensing policy. Different SSOs will reach different conclusions regarding the potential benefits and costs of such policies and the marketplace will indicate which SSOs have made the best choices.
MERGER ENFORCEMENT — THE YEAR IN REVIEW
Merger and acquisition activity increased significantly in 2007. The number of Hart-Scott-Rodino (HSR) transactions rose from 1,768 in FY 2006 to 2,201 in FY 2007. Filings have remained stable in 2008. The increase in filings has been matched by increased merger challenges. Since the last American Bar Association (ABA) Spring meeting, the Division has filed 16 merger enforcement actions and parties have restructured four additional transactions in response to a Division investigation. This represents the highest level of merger enforcement activity since the end of the merger wave in 2001.
The cases that the Division brought, and those it did not bring because the transactions were not anticompetitive, illustrate the importance of detailed fact-finding and the Merger Guidelines to enforcement decisions.
Monsanto/Delta & Pine Land
One of the most interesting cases this past year involved the acquisition of Delta and Pine Land (DPL) by Monsanto, which raised serious horizontal and vertical concerns. DPL is the largest US producer of cottonseed. It introduced Monsanto's herbicide and insecticide genetic traits into seeds and, more recently, began working with other trait developers to develop and commercialize traits to compete with Monsanto. Monsanto was vertically integrated. It was both a significant seed producer as well as the dominant developer of genetic traits for cotton. The Division's complaintalleged that, absent a remedy, the merger would have eliminated DPL as a partner for trait developers other than Monsanto and thus would have delayed or even prevented competitive products from reaching the market.
The appropriate remedy went well beyond divesting Monsanto's seed business. To remedy vertical concerns, Monsanto was required also to divest significant additional DPL and Monsanto assets, to license Monsanto traits on terms as favorable as DPL had pre-merger, and to include in the licenses the ability to stack non-Monsanto traits with Monsanto traits. Monsanto also was required to divest to Syngenta "almost ready to market" seed lines carrying Syngenta traits that had been developed by DPL. The principal divestiture package was sold to a major trait developer for $310 million shortly after the complaint was filed.
Charleston Newspapers Challenge
The Division challenged the completed acquisition of two newspapers in Charleston, WV. The complaint alleges that the owner of the Charleston Gazette purchased the Daily Mail, its partner in a joint operating agreement, with the purpose and intent to shut it down, and only suspended its plan when the Division opened an investigation. Based on the factual record, the Division concluded that a newspaper monopolist in Charleston could raise price profitably to subscribers and advertisers. The Division therefore alleged a newspaper product market. The suit also alleges that, although the joint operating arrangement partners combined many aspects of their businesses under the Newspaper Preservation Act, economic competition still existed pre-merger and closing one newspaper would therefore result in cognizable economic harm. Finally, the Division determined thatthe Daily Mail was not a failing paper or exiting assetwithin the meaning of the Guidelines.
Abitibi/Bowater and Graphic Packaging/Altivity
In the past year, the Division has brought two separate challenges of mergers in the paper industry, both predicated on Section 2.2 of the Guidelines — "Where products are relatively undifferentiated and capacity primarily distinguishes firms and shapes the nature of their competition the merged firm may find it profitable unilaterally to raise price and suppress output."
Abitibi/Bowater involved the proposed merger of the two largest newsprint producers in North America. The combined firm would have had about a 41 percent share of industry capacity, roughly three times the size of the next largest producer. The investigation showed that newsprint mill costs differed substantially from mill to mill and that the combined firm had a number of very profitable low cost mills as well as high cost marginal mills. Premerger, neither company had the ability to profit from closing plants strategically. The combined firm, however, had sufficient size to profitably increase the price of newsprint by reducing its own output by closing, idling, or converting newsprint capacity. The consent decree, which required the sale of the highly profitable Snowflake, Arizona mill, eliminated the ability of the combined firm to close capacity profitably.
The Division had a similar concern in the recently filed complaint against Graphic Packaging Corp. (GPC) and Altivity, the first and third largest producers of a type of paperboard used to make cereal boxes. In this case, the combined firm would have accounted for about 42 percent of industry capacity. Much as in Abitibi/Bowater, the combined firm would have had an incentive to close high-cost low-margin mills and reap the benefits of higher prices at the remaining plants. The filed consent decree was guided by sophisticated merger modeling indicating that two plants would have to be divested to remove the incentive to raise price.
In both cases, the Division's investigation focused on product market (whether demand substitution would discipline prices) and whether supply responses from other competitors, foreign or domestic, would discipline any unilateral attempt to restrict output and raise prices.
Thomson/Reuters— Cooperation with Foreign Enforcement Authorities
In several of its recent investigations the Division cooperated closely with foreign enforcement agencies. Among these was the merger of Thomson Corporation and Reuters Group PLC, two of the world's leading distributors of financial data to investment managers, investment bankers, traders, and other institutional customers. The Division cooperated extensively with the European Commission (EC) and the Canadian Competition Bureau (CCB) to evaluate the transaction's competitive effects, and quickly focused attention on three products for which the transaction likely would harm competition: fundamentals data, earnings estimates data, and aftermarket research reports. For each, the merging parties were among a very small number of competing suppliers, and they controlled databases of historical information thatwere important to users and could not readily be duplicated by potential new entrants.
Because of the importance of remedying these competitive concerns in a manner that wasconsistentacrossjurisdictions,the Division cooperated closely with the EC and the CCB to design a single remedy. Division staffwas in frequent contact with staff at the EC and the CCB and shared information with the permission of the parties who provided it; participated in joint negotiations regarding potential remedies; and incorporated provisions into the Division's decree that expressly call for consultation with the EC at various stages of the remedial process. The result was an efficient resolution for all concerned: the competitive problems were resolved, administrative costs were minimized, and the rest of the transaction was allowed to proceed without undue delay. (The EC concluded that relief was needed in an additional product market in Europe as to which the Division found no competitive concerns based on market conditions in the U.S.)
NATIONAL CRIMINAL ENFORCEMENT SECTION'S BANNER YEAR
The Division's National Criminal Enforcement Section (NCES), headed by Lisa Phelan, is the only Division section based in Washington, D.C. that investigates and prosecutes criminal violations of the Sherman Act. This year NCES brought prosecutions against some of the largest and longest-running international cartels in Division history, including among major international air cargo and passenger airlines, and among marine products manufacturers and suppliers. NCES brought prosecutions in nine different industries, charging more than 20 defendants lastyear. All but one case resulted in conviction.
Among the biggest matters in the section is the global investigation of price fixing by major international airlines for fixing rates for passenger transportation, as well as transportation of all types of cargo - including food, medicine and consumer electronics.
Assistant Chief Mark Rosman heads up a team of prosecutors and Federal Bureau of Investigation (FBI) agents that have spent much of the past year obtaining evidence, interviewing domestic and foreign witnesses, and coordinating with foreign antitrust officials in nearly a dozen other countries that are conducting parallel investigations of these cartels. To date the investigation has brought in more than $660 million in criminal fines, with convictions that include: U.S. v British Airways, U.S. v Korean Air lines, and U.S. v. Qantas Airways. The investigation is ongoing.
The section made headlines around the globe in May 2007, when agents acting on the Division's behalf arrested eight foreign nationals from Europe and Asia in the marine hose industry. The foreign nationals had entered the United States to attend an industry trade show. As was detailed in criminal complaints filed in U.S. District Court in Houston, many of them had also entered the United States to attend a price fixing meeting with their competitors. Five of the eight executives have now pleaded guilty to participating in this long-running cartel. The NCES team, led by Brady Dugan, worked closely with the Defense Criminal Investigative Service to break this cartel, which had raised prices to oil companies, the U.S. Department of Defense, and other foreign government purchasers. The use of secret code names and private e-mail accounts made clear that these conspira-torswerewell aware of the illegal nature of their conduct.
In addition to prosecution of Sherman Actviolations, the Section has been active in pursuing procurement fraud violations that corrupt the competitive bidding process for government procurement, including for the U.S. Department of Defense. NCES has been particularly successful bringing cases under the auspices of the National Procurement Fraud Task Force, including multiple cases charging military officers and military contractors in schemes to defraud the Defense Department in Iraq, Kuwait, and other war zone locations. One significant case involves Army Major John Cockerham, who is charged with accepting more than $9.6 million in bribes to steer at least $100 million of bottled water contracts to supply U.S. soldiers in Iraq with safe drinking water.
Recently, NCES charged two executives and two corporations that supply fuel to the Department of Defense at fueling stations throughout the world with schemes to rig bids and defraud the government. The two executives who were indicted were arrested in New York City in January 2008, while on a trip from their homes in the Czech Republic.
The air transportation, marine hose, and DOD contracting investigations all are examples of NCES's focus on utilization of all criminal investigative tools available to maximize evidence gathering and expedite the investigation process. In the past year, NCES, working closely with its law enforcement agency partners, executed more than 70 search warrants, and arrested more than 15 defendants. Many of these actions were the result of extensive covert investigations, involving consensual monitoring, wiretapping, e-mail monitoring, and the use of informants. Amnesty applicants have provided important under-cover cooperation, and in many cases brought documents from around the world to the U.S. for support of search and arrest warrants. They have provided NCES investigation teams with important information on the habits, travel patterns, and contact points for conspirators.
By using more efficient and effective tools to crack into cartels, NCES has been able to bring price fixers to justice much more quickly than in the past. The section then moves on to investigate other conspiracies that are often revealed by coop-eratorswho participated in orwere aware of more than one cartel over the course of their careers. While NCES is confident the significant prosecutions and penalties they have obtained recently will have a deterrent effect, it is clear that at this time, its work is notdone. For now, NCES is continuing to find more and better ways to detect and bring to justice cartelists that harm U.S. consumers.
CONSENT DECREE VIOLATIONS BRING ENFORCEMENT, FINES
In 2007 the Division obtained a total of $3.45 million in fines and reimbursements resulting from alleged violations of consent decrees and related court orders entered in connection with three separate merger challenges. As Assistant Attorney General Thomas O. Barnett has said, "Consent decrees entered into with the Antitrust Division are court orders that must be respected.....The Antitrust Division will actively enforce its settlements and ensure that defendants carry out the agreed-upon remedies as required."
These types of enforcement actions demonstrate that firms entering into consent decrees with the Division must comply with all of their legal obligations and that the failure to comply will result in financial penalties.
Once the Division and merging parties agree to settle an enforcement action through a consent decree, a proposed final judgment is drawn up reflecting the divestitures and/or other relief obtained. Ordinarily, the parties also enter into other, related agreements, including a hold separate stipulation and order, which is an agreement with the Division as to how divestiture assets will be managed prior to the actual divestiture. These agreements are usually entered by the U.S. District Court in connection with its Tunney Act review of the proposed merger settlement, and in most cases merging parties obey these orders. When it appears the parties have not have done so, however, the Division will investigate and seek the court's assistance in enforcing these orders.
Cal Dive International Inc.
In November 2007, Cal Dive and its parent company, Helix Energy Solutions Group, agreed to pay $2 million for alleged violations of the October 2005 consent decree settling the Division's challenge to Cal Dive's acquisition of assets from Stolt Offshore Inc. and S&H Diving LLC. The assets to be divested included two saturation diving vessels and a separate saturation diving system. Divers working on undersea construction projects such as pipelines live in saturation diving systems - air-tight chambers aboard diving vessels in which the air pressure is equivalent to the pressure at the undersea work site - in order to allow them to work for longer periods and at deeper depths than surface divers. The Division alleged that Cal Dive violated the consent decree by delaying the sale of one of the vessels, enabling it to continue to profit from using the vessel during the period of high demand for saturation diving services due to clean-up from Hurricanes Katrina and Rita. The Division also alleged that, after the court appointed a trustee to sell the vessel, Cal Dive failed to divest the vessel in the same condition in which Cal Dive acquired the vessel.
In December 2007, Alltel agreed to pay a total of $1.325 million to the United States and the state of Minnesota for alleged violations of its obligations under the September 2006 consent decree settling the Division's and Minnesota's challenge to Alltel's $1 billion acquisition of Midwest Wireless. In the consent decree, Alltel agreed to divest its mobile wireless business in four Minnesota rural service areas. Under a preservation of assets order, similar to a hold separate order, the court appointed a management trustee who would manage the divestiture assets until they were sold. The Division and Minnesota alleged that Alltel violated both the consent decree and the preservation of assets order by: failing to adhere to its existing plans for capital improvements, upgrades, and maintenance schedules; failing to provide relevant information about Alltel's capital improvement plans to the management trustee; and providing the management trustee with misleading reports about the progress of scheduled capital improvement projects.
Allied Waste Industries
In May 2007, Allied agreed to pay $125,000 to resolve allegations that it had violated a July 1999 consent decree entered in connection with its $9.4 billion acquisition of Browning-Ferris Industries. Allied had agreed to sell waste collection and disposal operations in 13 states in order to proceed with the merger. The consent decree also required Allied to seek the Division's approval before acquiring waste collection and disposal assets in any of the relevant geographic areas covered under the decree, provided certain minimum dollar threshold amounts were met. The Division alleged that Allied violated this provision by acquiring a set of waste collection assets in the Chicago area in January 2004 from Homewood Disposal Services, without first obtaining Department approval.
The payments obtained by the Division in these enforcement proceedings represent only part of the cost to the companies involved. In addition to these payments, companies in this situation also incur their own legal fees and see their management and employees distracted by further government investigation. Parties are well advised to avoid all these costs by obeying their consent decrees and all related court orders. If a party to a decree believes that some or all of its provisions are no longer justified, the proper course for the party is to seek modification or termination of the decree.
BERNIE HOLLANDER, LONGEST SERVING DEPARTMENT OF JUSTICE EMPLOYEE
In this 118th year of the Sherman Act, Bernie Hollander's 59th year of working in the Antitrust Division is exactly half of the Act's life. Hollander's antitrust career spans 11 Presidents (Truman-Bush), 18 Attorneys General (McGrath-Mukasey), and 23 Assistant Attorneys General (Bergson-Barnett). After growing up in Baltimore, Hollander attended Haverford College in Pennsylvania and graduated in 1937. He received his MBA at the University of Chicago in 1938. Presaging his work at the Division on media industry antitrust issues, Hollander worked at CBS for several years before and after his four-year U.S. Navy war service that began in 1941. Hollander has written a history of his war experiences.
His more recent oral history, entitled 58 Years in the Antitrust Division, to be published in June 2008 by the American Antitrust Institute, chronicles a remarkable Antitrust Division career. Fresh from graduating Harvard Law School in 1949, where he earned his degree on the GI Bill in only 28 months, Hollander started in the Division earning an annual salary of $3,727. Hollander first worked on two U.S. Supreme Court antitrust cases: U.S. v. National Assoc. of Real Estate Boardsand Lorain Journal Co. v. U.S.
Hollander was later counsel of record in several important cases that reached the U.S. Supreme Court under the Expediting Act:
From 1954-58, Hollanderworked on the monopolization challenge to RCA's patent licensing of 10,000 radio-TV patents. The challenge was resolved by a consent decree requiring a royalty-free patent licensing pool, relief that undoubtedly spurred development of color television. While Chief of the Judgment Enforcement Section (1971-82), Hollander continued as lead counsel in cases alleging the three networks monopolized and restrained trade in prime time network entertainment programming. Until 1993, the consent decree required parallel enforcement with the FCC of financial interest and syndication rule restrictions. More recently, Hollander has worked primarily on judgment enforcement matters and newspaper joint operating agreements.
Hollander has received numerous awards including the John Marshall Award (1970), the Attorney General's Award for Career Achievement (1992), and recognition from the Secretary of Interior and two Governors of American Samoa for his handling of Trans Pacific route questions and SOCal.
ANTITRUST DIVISION SECTION CONTACTS
OFFICE OF OPERATIONS
Director: Robert Kramer;
The Office of Operations coordinates investigations
and litigation policies and procedures affecting
the Division's operations.
Executive Officer: Thomas King;
Litigation I Section
Litigation II Section
Litigation III Section
Networks and Technology Section
Telecommunications and Media Section
Transportation, Energy, and Agriculture Section
Foreign Commerce Section
Legal Policy Section
Competition Policy Section
Economic Litigation Section
Economic Regulatory Section
Each of the Division's field offices handles criminal matters within its respective area and serves as the Division's liaison with U.S. Attorneys, state attorneys general, and other regional law enforcement agencies. The field offices also handle national and international matters that arise within their territories.
National Criminal Enforcement Section
U.S. Department of Justice,
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The following links may be used to obtain Division documents online:
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Business Review Letters:
Copies of Division press releases (from 1992 to the
present) can be found online at:
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Law firms and the general public should contact the Antitrust Documents Group to obtain other documents.
ASSISTANT ATTORNEY GENERAL AND DIVISION STAFF
For contact information for the Office of the Assistant
Attorney General and the Division’s sections and
field offices, see http://www.usdoj.gov/atr/offices2.htm.
Use the following link to obtain phone numbers for
Report Possible Antitrust Violations