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Scott D. Hammond, Acting Assistant Attorney General, moderating the Cartel Working Group panel at the International Competition Network Conference in Kyoto, Japan in April 2008.
CRIMINAL ENFORCEMENT: ANOTHER BUSY YEAR
The Division's Criminal Enforcement Program maintained a vigorous docket over the last year. In fiscal year 2008, the Division filed 54 cases against 59 individuals and 25 companies, the highest year-end case total since 2000. The Division prosecuted price fixing, bid rigging, market and customer allocations, and other fraudulent, anticompetitive schemes in a multitude of industries affecting the daily lives of consumers and taxpayers. Affected products and industries include household and personal electronics, air transportation, the oil industry, communications technology in disadvantaged schools and libraries, supplies and services for military troops in Iraq and Afghanistan, hurricane remedial work, and power generation. At the close of fiscal year 2008, the Division had 137 pending grand jury investigations, the greatest number of pending grand jury investigations since 1992. The Division obtained more than $700 million in fines in fiscal year 2008, then the second highest amount of fines obtained by the Division in a single year. However, the Division surpassed that record in just the fourth month of fiscal year 2009, and its fine total for fiscal year 2009 already exceeds $745 million. The Division maintained a high average prison sentence of 25 months for fiscal year 2008 and achieved a record average jail sentence for foreign nationals of 18 months. In November 2008, the Division issued revised model leniency letters and the policy paper Frequently Asked Questions (FAQs) Regarding the Antitrust Divisions Leniency Program and Model Leniency Letters and created a leniency page on its website, containing the FAQs, other leniency policy speeches, the corporate and individual leniency polices, model leniency letters, and leniency application information.
Source: DOJ Antitrust Division
Source: DOJ Antitrust Division
Liquid Crystal Display Panels
The LCD case team from the San Francisco Field Office. (L-R):
Alexandra J. Shepard, David J. Ward, Niall E. Lynch,
Michael L. Scott, Heather S. Tewksbury
The Divisions ongoing investigation into price fixing of thin film transistor-liquid crystal display (TFT-LCD) panels has resulted in charges against four foreign manufacturers, one U.S. subsidiary of one of the manufacturers, and seven foreign executives to date. These price-fixing conspiracies harmed the countless American consumers who use computers, cell phones, and other household electronics containing TFT-LCD panels every day. The conspiracies are among the largest and most far-reaching the Antitrust Division has ever detected—the worldwide market for TFT-LCD panels in 2006 was approximately $70 billion.
In December 2008, LG Display Co. Ltd. (LG) of South Korea and its California subsidiary LG Display America Inc. pleaded guilty to fixing prices of TFT-LCD panels and were sentenced to pay a $400 million criminal fine—the second largest fine in Antitrust Division history. In January 2009, Taiwanese manufacturer Chunghwa Picture Tubes Ltd. (Chunghwa) pleaded guilty to participating in the same conspiracy and was sentenced to pay a $65 million fine. In December 2008, Japanese manufacturer Sharp Corp. pleaded guilty to participating in three separate conspiracies to fix prices of TFT-LCD panels sold to Dell Inc., Apple Computer Inc., and Motorola Inc., and it was sentenced to pay a $120 million fine. In March 2009, the Division charged Japanese manufacturer Hitachi Displays Ltd. with fixing prices of TFT-LCD panels sold to Dell for use in desktop monitors and notebook computers. Hitachi has agreed to plead guilty and pay a $31 million fine. In January 2009, the former Chairman and CEO of Chunghwa, two other Chunghwa executives, and an LG executive were charged with fixing prices of TFT-LCD panels. In February 2009, the executives entered guilty pleas and were sentenced to serve between six and nine months in prison and pay fines ranging from $20,000 to $50,000. Also in February 2009, two former Chunghwa executives and one former LG executive were indicted for fixing prices of TFT-LCD panels from 2001 until December 2006.
Cathode Ray Tubes
The Division recently brought its first charges in its ongoing investigation of collusion in the cathode ray tube industry. On Feb. 10, 2009, a federal grand jury in San Francisco returned a twocount indictment against the former Chairman and Chief Executive Officer of Chunghwa Picture Tubes Ltd. for his participation in global conspiracies to fix prices of two types of cathode ray tubes— color display tubes used in computer monitors and other specialized applications and also color picture tubes used in television sets. The worldwide market for cathode ray tubes, including color display tubes and color picture tubes, in 1997, at the start of the conspiracies, has been estimated as approximately $26 billion.
The Division continues its prosecution of price-fixing conspiracies in the air transportation industries. A total of 12 companies and three individuals have now pleaded guilty to participating in these conspiracies. To date, criminal fines of more than $1 billion have been imposed in the investigation, and three executives have been sentenced to serve jail time. Since March 2008, Japan Airlines International Co. Ltd.; Martinair Holland N.V.; Cathay Pacific Airways Limited; SAS Cargo Group A/S; Société Air France; KLM Royal Dutch Airlines; LAN Cargo S.A.; Aerolinhas Brasileiras S.A.; El Al Israel Airlines Ltd.; and three executives of Qantas Airways Limited, SAS, and British Airways have pleaded guilty to fixing air transportation rates. American businesses and consumers rely on the air transportation industry to provide the products they buy, sell, and use every day. Price fixing in the air transportation industry affected billions of dollars of goods shipped by air transportation, including produce, clothing, electronics, and medicine.
Source: DOJ Antitrust Division
In 2008, the Division charged four shipping executives with allocating customers, rigging bids, and fixing prices for coastal shipping services between the United States and Puerto Rico. All have pleaded guilty to the charges. Sales of freight services in the United States to Puerto Rico shipping lane total hundreds of millions of dollars every year, as ocean shipping is a primary way for people in Puerto Rico to receive essential goods. The defendants employers shipped a variety of goods, including heavy equipment, medicine, food, and consumer goods, between the United States and Puerto Rico.
In January 2009, one of the four, Peter Baci, was sentenced to serve 48 months in prison, which is the longest jail sentence ever imposed for a single antitrust count. The other defendants are awaiting sentencing. The Baci case represents the first time that an individual has been sentenced to more than three years for a single antitrust charge since Congress raised the maximum sentence for antitrust crimes from three years imprisonment to 10 years imprisonment in June 2004. A fifth executive has been charged with, and has pleaded guilty to, obstruction of justice in the investigation.
Source: DOJ Antitrust Division
The Divisions investigation of collusion in the marine hose industry continues. Marine hose is used to transfer oil between tankers and storage facilities and is purchased by Shell, Exxon, Chevron, and other companies that are involved in the offshore extraction and transportation of petroleum products. It is also purchased and used by the Department of Defense. During the conspiracy, the conspirators sold hundreds of millions of dollars worth of marine hose and related products in the United States and elsewhere. To date, the Division has charged 12 individuals and two companies with fixing prices, rigging bids, and allocating market shares for sales of marine hose. The companies charged, Dunlop Oil & Marine Ltd. and Manuli Rubber Industries SpA, have been sentenced to pay fines totaling $6.54 million. Nine individuals have pleaded guilty and been sentenced to serve a total of 12.5 years in prison in this investigation, two were acquitted at trial in November 2008, and one individual is awaiting trial. One of the individuals, Misao Hioki, was charged with the Sherman Act conspiracy and also with conspiring to make corrupt payments to foreign officials to secure business for Hiokis employer and its U.S. subsidiary in violation of the Foreign Corrupt Practices Act. Hioki pleaded guilty to the charges and was sentenced to serve two years in prison and to pay an $80,000 fine.
Three of the individual defendants charged by the Division, Peter Whittle, David Brammar, and Bryan Allison, were also charged by the U.K. Office of Fair Trading (OFT) under the U.K. Enterprise Act for committing a cartel offense. These charges were the first cartel charges brought by the OFT under the Enterprise Act. In June 2008, the Southwark Crown Court in the United Kingdom sentenced Whittle, Brammar, and Allison to terms of imprisonment of 36, 30, and 36 months, respectively. In November 2008, the U.K. Court of Appeal reduced the sentences to the terms recommended in the plea agreements the defendants had entered with the Antitrust Division, 30 months for Whittle, 20 months for Brammar, and 24 months for Allison.
The Division continues to prosecute bid rigging, bribery, and fraud in the federal E-Rate program. Congress created the E-Rate program to help economically disadvantaged schools and libraries obtain computer and telecommunications services. The Division has helped to uncover massive fraud in this program, and as a result of this investigation, a total of seven companies and 17 individuals have pleaded guilty or have been convicted or entered civil settlements and have paid, agreed to pay, or been sentenced to pay fines and restitution totaling more than $43 million. More than 35 years of prison time have been imposed on defendants in this investigation, including a seven and one-half year sentence against Judy N. Green, a former California education consultant, who was convicted after trial in September 2007; a five year sentence against R. Clay Harris, the former president and majority owner of an Atlanta communications vendor, who was convicted after trial in July 2008; a two year sentence against Cynthia K. Ayer, a former South Carolina school technology director; and a one and a half year sentence against George Marchelos, a former school consultant and a sales representative for a New Hampshire communications company.
The Division continues to play an active role on the Departments National Procurement Fraud Task Force. To date, the Division has charged a total of 21 individuals and six companies in its War Zone investigations. In 2008 and early 2009, the Division obtained guilty pleas from several army officers charged with various anticompetitive, bribery related schemes involving the award of contracts in support of the Iraq war. In January 2009, retired U.S. Army Major Christopher H. Murray pleaded guilty to bribery and making a false statement related to his work as a contracting officer at Camp Arifjan, Kuwait. In December 2008, U.S. Army Reserve Major Theresa Jeanne Baker pleaded guilty to conspiracy and bribery charges related to her contracting work at Camp Victory, Iraq. In August 2008, U.S. Army Major James Momon Jr. pleaded guilty to bribery and conspiracy in connection with his contracting work at Camp Arifjan. In June 2008, retired U.S. Army Colonel Levonda J. Selph pleaded guilty to bribery and conspiracy relating to her contracting work at Camp Victory. Defense contractor Raman International Inc. also pleaded guilty in June 2008 to conspiracy to commit bribery related to Camp Victory contracts. Also, in June 2008, the Division unsealed a plea agreement with U.S. Army Major John Cockerham, a former contracting officer at Camp Arifjan, under which Cockerham had pleaded guilty to bribery, conspiring to launder money, and conspiring to defraud the United States and to commit bribery. Cockerhams wife also pleaded guilty to conspiring to launder money.
In April 2008, the Division unsealed an indictment against a Canadian night vision goggles manufacturing firm and two of its executives for a scheme to defraud the U.S. Army in the supply of equipment for the Iraqi Army. The indictment charged each defendant with wire fraud and conspiracy to commit wire fraud and charged the firm and one of the executives with money laundering. Regional police in Canada arrested the two executives in April 2008. According to the indictment, the defendants agreed to pay, and made an initial payment to, a competitor to withdraw from supplying a U.S. Army unit with night vision goggles so that the defendants could supply the goggles at a substantially inflated price. The Army unit was responsible for training and equipping the Iraqi Army. The alleged scheme could have resulted in an overcharge to the U.S. military of approximately $11 million.
In August 2008, the Division indicted two U.S. military personnel on charges of bribery and conspiracy relating to the award of construction contracts in Afghanistan. U.S. Army Major Christopher West, the former head of base operations at Bagram Airfield, and Air Force Tech. Sgt. Patrick Boyd, a contracting officer at the base, were indicted for receiving tens of thousands of dollars for the award of more than $1 million in construction contracts to two Afghanistan companies. Four DOD contractors and the two Afghanistan contracting companies were also named in the indictment.
In 2008 and early 2009, the Division charged five individuals and three corporations with participating in fraudulent schemes at two New Jersey Superfund sites, the Federal Creosote site, located in Manville, and the Diamond Alkali site, located in Newark. The defendants were charged with rigging bids and defrauding the Environmental Protection Agency by inflating invoices to cover kickbacks totaling more than $1.5 million relating to at least $27 million worth of sub-contracts for supplies and services at the sites. Some defendants were also charged with tax offenses related to the kickback scheme. All charged defendants have pleaded guilty and have been, or are currently waiting to be, sentenced.
The Division also has an active role in prosecuting procurement fraud through the Hurricane Katrina Fraud Task Force. In May 2008, a former contract employee of the U.S. Army Corps of Engineers and a dirt, sand, and gravel subcontractor were indicted on charges of bribery and conspiracy to commit bribery in connection with a $16 million hurricane protection project for the reconstruction of the Lake Cataouatche Levee, south of New Orleans. Trial is scheduled for early spring.
New York Power Authority
In August 2008, Edward P. Goldblatt, a former purchasing assistant at the New York Power Authority (NYPA), pleaded guilty to conspiring to defraud the authority in a bribery scheme in which he accepted kickback payments from a vendor and caused the authority to pay overcharges that included a portion of the value of the kickbacks. Goldblatt also pleaded guilty to tax evasion for not reporting the kickback payments. He was sentenced to 37 months in jail and ordered to pay, with another individual, $253,836 in restitution. The NYPA is a non-profit energy corporation that provides low-cost power to government agencies, municipalities, and private entities.
SIGNIFICANT EVENTS 2008-2009
MEET WILLIAM D. DILLON & DEANA L. TIMBERLAKE - WILEY, ATTORNEY GENERAL AWARD RECIPIENTS
Trial attorneys William D. Dillon and
Deana L. Timberlake-Wiley from the
Atlanta Field Office.
William D. Dillon and Deana L. Timberlake-Wiley, trial attorneys, are two members of the outstanding and dedicated group of attorneys, paralegals, and administrative staff in the Divisions Atlanta Field Office. Dillon joined the Division in 1988 through the Departments Honors Program. Timberlake-Wiley joined the Division in 1997 as a lateral attorney from private practice. Since joining the Division, both Dillon and Timberlake-Wiley have worked on numerous high profile criminal investigations with outstanding results. In particular, Dillon led the investigation and prosecution of corporations and their executives for bid rigging on U.S. AID-funded contracts to construct wastewater treatment plants in Cairo, Egypt. The investigation resulted in the government obtaining criminal fines of more than $141 million and restitution of more than $13.7 million. Timberlake-Wiley led the investigation and prosecution of numerous individuals for rigging bids at real estate foreclosure auctions in Northern Virginia and the surrounding area, which resulted in significant criminal penalties.
The most recent highlight of their careers as criminal litigators involved their role in the investigation and prosecutions in the Divisions Alabama Sewer Rehabilitation investigation, in which Dillon served as the lead attorney. This dynamic team joined forces in the fall of 2005, returning a 127-count indictment to prosecute public officials and contractors in a very complex and significant public corruption case in the Northern District of Alabama involving the Jefferson County, Alabama Environmental Services Department (JCESD) and its award of sewer rehabilitation contracts for the county. Specifically, Dillon and Timberlake-Wiley helped uncover evidence that sewer rehabilitation contractors and engineering firms sought to subvert the competitive bid process by making more than $1 million in bribes to corrupt Jefferson County officials responsible for oversight of the countys $3 billion sewer rehabilitation project in the form of cash, gifts, or services to obtain contracts. The bribery scheme involved improprieties by Jewel Chris McNair, the Jefferson County Commissioner who had oversight of JCESD; Jack W. Swan, Director for JCESD; Clarence R. Barber, Sewer Construction and Maintenance Supervisor for JCESD; and their associates. The bribery scheme cost the taxpayers of Jefferson County tens of millions of dollars in losses due to fraud, overcharges, and misappropriated resources.
The team was responsible for the successful prosecution and conviction of 21 defendants —seven Jefferson County, Alabama officials, nine individual contractors, and five firms. Defendants were charged with multiple counts of conspiracy to commit bribery, bribery, honest services mail fraud, and obstruction of justice.
Dillon and Timberlake-Wiley resolved cases against seven of the 21 defendants by plea agreement, and obtained convictions against the other 14 defendants in five separate trials over a nine-month period. The sentencings of the 21 defendants resulted in more than $45.7 million in criminal fines, a total of 16,375 jail days, and more than $2.3 million in restitution to Jefferson County.
As a result of their outstanding work on this investigation, Dillon and Timberlake- Wiley received the Assistant Attorney Generals Award in 2007 and the Attorney Generals Award for Distinguished Service in 2008. In 2008, Dillon also received the Divisions Hugh Morrison Award in recognition of his long-term achievement as an outstanding antitrust litigator.
Hart-Scott-Rodino (HSR) filings were steady in the first six months of 2008 but declined substantially during the second half of 2008 and the first quarter of 2009. Since March 2008, the Division has filed nine merger enforcement actions and the parties restructured two additional transactions in response to Division investigations. Currently, the Division has two merger cases in active litigation.
The cases the Division brought illustrate the range of the Divisions enforcement decisions and their effect on important areas of the United States economy.
JBS Proposed Acquisition of National Beef Packing Co.
The JBS/National Beef Packing Co. case team.
On Oct. 20, 2008, the United States filed a case alleging that JBS S.A.s proposed acquisition of National Beef Packing Company would likely lessen competition in the purchase of fed cattle and in the sale of USDA-graded boxed beef to retailers. Seventeen states joined the challenge to the transaction. The acquisition would have created the largest U.S. beef packer, with an ability to slaughter more than 40,000 head of cattle per day (or more than onethird of U.S. fed cattle packing capacity) and annual beef sales of more than $14 billion. Four months after the action was filed, the parties announced the abandonment of the transaction.
In its complaint, the United States alleged that JBS’s acquisition of National would have substantially restructured the beef packing industry, eliminating a competitively significant packer, and placing more than 80 percent of domestic fed cattle packing capacity in the hands of three firms: JBS, Tyson Foods Inc., and Cargill Inc. The transaction also would have eliminated head-to-head competition between JBS and National and made interdependent or coordinated conduct among JBS and the other two significant packers more likely. The United States also alleged that the proposed merger likely would have resulted in lower prices paid to cattle suppliers and higher beef prices for consumers.
On Dec. 18, 2008, the Division filed a civil antitrust lawsuit against Microsemi Corp. alleging that its acquisition of Semicoa Inc. eliminated or reduced competition in the development, manufacture and sale of certain types of semiconductor devices used in military and space programs essential to the security of the United States. The transaction was not HSR-reportable.
In its complaint, the United States alleges that the acquisition eliminated competition and created a monopoly for small signal transistors that meet stringent standards of the Department of Defense (DOD). The United States also alleges that the acquisition reduced from three to two the number of likely competitors for ultrafast recovery rectifier diodes that meet DOD standards.
Shortly after filing suit, the Division sought preliminary relief to preserve the Semicoa assets pending a trial of the Division’s claims. On Dec. 24, 2008, Judge Anthony Trenga in the U.S. District Court in Alexandria, Virginia, entered an order requiring Microsemi to preserve and maintain the Semicoa assets pending the outcome of the litigation.
Charleston Newspaper Litigation Update
On May 22, 2007, the United States filed a complaint challenging the completed acquisition of two newspapers in Charleston, West Virginia. In its complaint, the United States alleges that the owner of the Charleston Gazette purchased the Daily Mail, which had been owned by its partner in a joint operating agreement (JOA), with the purpose and intent to shut the Daily Mail down and only suspended its plan when the Division opened an investigation into the acquisition.
In July 2007, defendants moved to dismiss the complaint, arguing that the Department’s claim failed to demonstrate a plausible right to relief because, among other things, the JOA had created an economically integrated joint venture in which competition between the newspapers had ceased to exist and the Newspaper Preservation Act immunized the acquisition from antitrust challenge. The court denied the motion in June 2008. In denying the motion, the court stated that genuine questions of fact existed as to whether all competition between the newspapers had ceased under the JOA and whether Newspaper Preservation Act immunity extended to the acquisition.
PNC and National City
On Dec. 11, 2008, the Division announced that PNC Financial Services and National City Corp. had agreed to sell 61 of National City’s branch banking offices in western Pennsylvania, with deposits totaling approximately $4.1 billion as of June 30, 2008, to resolve competitive concerns about the companies’ merger. In addition, the companies agreed to divest approximately half of National City’s lending and related business with middle market customers—generally, businesses with lending needs of more than $1 million—in the Pittsburgh area, and virtually all National City’s middle-market business in the Erie area.
The proposed merger was subject to the final approval of the Board of Governors of the Federal Reserve System. The Division advised the Federal Reserve Board that it would not challenge the merger provided that the agreed-upon divestitures occurred and the parties’ commitments to the Division were included as a condition in the event the Federal Reserve Board enters an order allowing the transaction. Although the framework for the Division’s review of bank mergers in conjunction with Federal Reserve review allows for expedited review for transactions involving financially troubled institutions, the review of the merger of PNC and National City did not implicate the expedited procedures.
Verizon and Alltel
In October 2008, the Division announced that it would require Verizon Communications Corp. to divest assets in 22 states to proceed with its $28 billion acquisition of Alltel Corp. As originally proposed, the transaction would have substantially lessened competition to the detriment of consumers of mobile wireless telecommunications services and likely would result in higher prices, lower quality, and reduced network investments. The divestitures cover the entire states of North Dakota and South Dakota; large portions of the states of Colorado, Georgia, Kansas, Montana, South Carolina, Utah, and Wyoming; and portions of the states of Alabama, Arizona, California, Idaho, Illinois, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Carolina, Ohio, and Virginia.
ECONOMIC ANALYSIS GROUP
This past year, the Division’s Economic Analysis Group (EAG) addressed a range of challenges while reviewing a number of unusually complex merger filings in a wide variety of industries. The analyses employed by its large staff of Ph.D. industrial organization economists were critical to the Division’s evaluation and successful resolution of these matters. EAG staff also engaged in a number of activities in the area of competition advocacy, including engaging with and training staffs of numerous competition agencies from around the world.
On the merger front, EAG’s talents in analyzing competitive effects were exhibited in prominent investigations across a wide cross section of industries. These industries included, among others, real estate (where EAG is currently supporting litigation in Columbia, South Carolina), health insurance (where EAG analysis supported remedying the competitive effects of United HealthCare’s acquisition of Sierra), the newsprint industry (where the Division succeeded in modifying through consent decree Abitibi’s merger with Bowater), airlines (where the Division reviewed the transaction between Northwest Airlines and Delta), and the beef packing industry (which involved monopsony and monopoly issues arising in the context of JBS’s now-abandoned attempt to acquire National Beef Packing Co.). In addition, the Division’s announced challenge to the agreement between Yahoo! and Google relied on empirical and theoretical work by EAG economists.
In the transaction between Abitibi and Bowater, the Division’s challenge implicated a number of subtle issues relating to strongly declining demand for newsprint, the ability of the merging firms to restrict output unilaterally as a consequence of the merger, and the adequacy of candidate divestitures for resolving competitive concerns. In response to concerns raised during Tunney Act proceedings about the adequacy of the proposed relief obtained by the United States, the Division submitted and relied heavily upon an expert declaration prepared by EAG’s staff economist on the matter, Nicholas Hill. In November, the court entered the proposed consent decree, agreeing with the Division that the settlement was indeed in the public interest.
EAG’s work regarding United Health- Care’s acquisition of Sierra addressed several key economic issues in the increasingly important health care arena. These included the possibility of post-merger exercise of monopsony power, or exercise of market power, in the sale of commercial health insurance to employers, as well as concern over competition in the sale of Medicare Advantage plans to senior citizens in the Las Vegas area. Regarding Medicare Advantage, EAG identified significant benefits of competition among incumbent Medicare Advantage plans (notwithstanding the availability of conventional Medicare coverage) and developed persuasive evidence that entry would be unlikely to fully replace the loss in competition for a considerable period of time. Other competitive concerns were eliminated after careful examination of, among other things, shares of provider revenues, commercial enrollment accounted for by the merging firms, and the competitive significance of alternatives. EAG’s findings received support late last year when, following Tunney Act proceedings, the relief obtained by the Division was found to be in the public interest.
Finally, in the transaction between Northwest and Delta, key issues included whether the airlines constrained one another’s pricing and whether a merger would permit the parties to achieve cognizable efficiencies. As to the former, extensive crosssection empirical analysis determined that any competitive constraints imposed by one upon the other were quite limited and applied to only a fraction of the firms’ far-flung operations. As to efficiencies, EAG economists made use of the parties’ own internal computer models while conducting an independent assessment of the potential efficiencies of the transaction, ultimately concluding that cognizable efficiencies were plausible and sufficient.
In addition to its work in the merger arena and as part of its increasing efforts in the area of competition advocacy, EAG organized a workshop on airline economics to mark the 30th anniversary of the Airline Deregulation Act. At the workshop, which was attended by a number of academic experts and trade industry experts, EAG staff members presented two papers dealing with the thorny issue of entry into city-pair markets by firms with existing operations elsewhere and the competitive effects of a capacity agreement among competitors in Hawaii.
EAG staff regularly make formal economic presentations at government and academic conferences and participate in training activities for antitrust attorneys. EAG has also been actively involved in the growing area of international antitrust cooperation and enforcement, largely in the area of training lawyers and economists at nascent competition agencies around the world. Its efforts this year included presentations in China and Korea on the use of empirical tools in antitrust enforcement, and the holding of a three-day workshop for staff members at foreign competition agencies on the use of economics in antitrust enforcement.
ANTITRUST DIVISION CONTINUES AWARD-WINNING PRO BONO PROGRAM
Antitrust Division personnel continued the Division’s long tradition of active pro bono participation this last year.
Particularly noteworthy were their efforts in staffing the D.C. Bar’s monthly Saturday morning Pro Bono Advice & Referral Clinic. Volunteers at the Advice & Referral Clinic assist low-income individuals by assessing their legal claims and giving general information and advice on a wide range of civil matters. This clinic serves around 1,000 clients a year, most of whom have nowhere else to turn for legal help.
The Antitrust Division has been responsible for staffing the clinic on a quarterly basis for the last 10 years. It is the only Justice Department component to undertake this commitment. In addition, the Antitrust Division on several occasions has lent a hand to other federal agencies considering making such a commitment.
There are several other pro bono clinics in the D.C. area that Division personnel also help to staff on their own time. One of those is the Employment Justice Center Workers’ Rights Clinic, which assists low-income residents with employment issues. Another is the D.C. Bar Pro Bono Program’s Small Business Brief Advice Legal Clinic, which assists small, disadvantaged community entrepreneurs regarding general legal questions they may have about their businesses. A third example is the Domestic Violence Pro Se Clinic, a walk-in clinic for pro se victims of domestic violence.
Source: DOJ Antitrust Division
Just as importantly, Division lawyers and support personnel continue frequently to provide assistance, primarily through the D.C. Bar Pro Bono Case Clinic, to pro bono clients in their individual cases. For example, a Division lawyer recently was co-counsel for a tenant in a pro bono landlord-tenant eviction case in which the tenant had withheld rent because her landlord had failed to make repairs to numerous housing code violations. Similarly, a Division paralegal recently assisted in a pro bono case in which the client was suing to redress the wrongful garnishment of her bank account. Those efforts are similar to those that led to Division lawyers James Yoon and Mark Pletcher winning the Washington Council of Lawyers’ Government Pro Bono Award in 2007 and 2006, respectively. The Council noted Yoon’s “dedicated support of the DOJ Pro Bono Program” and that Pletcher “serves as an example to all government attorneys.”
Also noteworthy this last year were the efforts of personnel in the Division’s Chicago Field Office to launch a structured pro bono effort outside of Washington D.C. Their commitment to starting the program was extraordinary. On their own time, these individuals spearheaded efforts to recruit volunteers and find appropriate pro bono opportunities in the Chicago area for federal employees. This included recruiting, screening, and selecting possible Chicago legal services organizations, as well as planning and organizing the event that launched the program. Because of their effort, federal lawyers and support personnel in Chicago are now volunteering their time to organizations such as the Cabrini Green Legal Aid Clinic and the Constitutional Rights Foundation. The Public Interest Law Initiative in Chicago recently nominated the federal government’s Chicago program for the ABA Pro Bono Award. Furthermore, at the request of the Office of the Deputy Attorney General, a Division lawyer participates as a federal government representative on the committee that serves as the pro bono information and resources clearinghouse and liaison for the Chicago area.
These efforts are a continuation of the tradition of strong commitment to pro bono service that led to the Division winning the Attorney General’s Community Service Award in 2007. It remains true now, as it was noted then, that the Division’s commitment to pro bono legal assistance and volunteerism is due to the efforts of all Division employees who give generously of their talents and own time to the community.
NETWORKS AND TECHNOLOGY ENFORCEMENT SECTION: ENFORCING THE ANTITRUST LAWS IN HIGH TECH AND FINANCIAL INDUSTRIES
The Networks and Technology Section
The Networks and Technology Enforcement Section (NTES) is responsible for the enforcement of the antitrust laws and competition advocacy in the areas of computer hardware and software, high techcontinued from page 2 column 5 Economic Analysis Group nology component manufacturing, Internetrelated businesses, financial services and the securities industry. NTES has more than 40 highly skilled and dedicated professionals and support staff, including five attorneys with more than 30 years of enforcement experience. The NTES team brings together a unique combination of attorneys with technical and industry expertise with a deep knowledge of computer and financial markets. Over the years, NTES has investigated and litigated a wide range of high profile cases, including in 2008, U.S. v. Thomson, a merger of the second- and third-largest financial data providers in the world; in 2004, U.S. v. Oracle, a merger of two of the largest providers of high-function financial management and human resource management software; and in 2003, U.S. v. First Data, a merger of two of the nation’s largest PIN debit networks.
This past year, NTES handled a variety of merger and civil non-merger investigations involving cutting edge technologies, including the services agreement between Yahoo! and Google. Under the agreement, Google would have placed sponsored search and contextual ads on Yahoo! search result pages and on the web pages of Yahoo! syndication partners in the United States and Canada. A fundamental debate raised by the agreement was whether it should be viewed as a traditional “outsourcing” agreement similar to the kinds of agreements Google had with many other web publishers, or whether it should be viewed as a horizontal agreement between competitors that would diminish competition and lead to higher prices and reduced innovation. The evidence developed during the investigation led NTES to conclude that, under the agreement, Google and Yahoo! would have become collaborators rather than competitors. The agreement was abandoned after the Division informed the parties that it would file suit to block implementation of the agreement. This was a multijurisdictional investigation; NTES attorneys consulted closely with the Canadian Competition Bureau and Attorneys General from 15 states.
NTES attorneys investigating financial markets encountered a variety of recurring legal issues including network effects, twosided markets and vertical integration. Vertical issues and network effects were a central part of the Division’s analysis of the Chicago Mercantile Exchange’s (CME) acquisition of the Chicago Board of Trade (CBOT). CME and CBOT were two of the largest futures exchanges in the United States and CME provided clearings services for its own futures contracts and CBOT’s. The network effects created by common ownership of an exchange can generate efficiencies, but they can also make it more difficult for potential exchange competitors to enter the market. The Division ultimately determined the transaction would not have anticompetitive effects based, in part, on its conclusion that the futures products offered by CME and CBOT were not close substitutes and neither firm was likely to introduce new products to compete directly with the other’s established products.
In addition to merger and civil non-merger enforcement, NTES has put significant efforts into assuring Microsoft’s compliance with the Department’s consent decree. The consent decree was the result of a settlement negotiated after the Division proved that Microsoft had a monopoly position in the IBM-based PC operating system market and that Microsoft unlawfully maintained that monopoly by engaging in exclusionary conduct to thwart threats to its operating system monopoly from middleware products such as Internet browsers. The decree has effectively prevented Microsoft from continuing its anticompetitive practices and has restored the ability of software vendors to develop middleware products that might erode the dominance of Microsoft’s Windows operating system. NTES staff has worked constructively with European Commission (EC) staff, which has pursued its case against Microsoft for violating EC competition laws, to ensure that the EC’s actions do not create any undue conflict with NTES’s continuing enforcement efforts.
NTES has an active competition advocacy program. In the area of the unauthorized practice of law, NTES reviews proposed legislation and state supreme court rules that would unnecessarily limit competition between lawyers and non-lawyers by defining certain services as the practice of law. The Division has advocated that the definition of the practice of law should be limited to activities for which specialized legal knowledge and training is demonstrably necessary. In areas where legal knowledge and training is not necessary, such as real estate title searches, consumers may benefit from competition between lawyers and non-lawyers. The Division recently filed comments with the New York State Assembly, Wisconsin Supreme Court, and Supreme Court of Hawaii advocating against proposals that would bar non-lawyers from providing these types of services. NTES also periodically provides competition advice to the Department of Commerce in its oversight of the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN is responsible for technical elements of the Internet domain name system and competition for generic top level domain name registrations. On Dec. 3, 2008, the Division advised Commerce to encourage ICANN to manage the introduction of new generic top level domains in a manner that safeguards the interests of domain name customers in obtaining high quality domains at the lowest possible price.
The Division acts as a strong advocate for competition, seeking to promote competition in sectors of the economy (including, but not limited to, such major industries as telecommunications, transportation, and energy) subject to federal, state, and local government regulation. The Division’s role in this area is relatively simple: to promote reliance on competition wherever appropriate and to ensure that any necessary regulation is well designed to achieve its objectives and disrupts market forces no more than necessary. Some of our recent efforts include the following:
Telecommunications: In November 2008, the Department of Justice published Voice, Video and Broadband: The Changing Competitive Landscape and its Impact on Consumers. The report addresses a number of issues that may affect consumers of telecommunications services and antitrust analysis in the industry. Chapter 1 provides an overview of developments in the three industry segments addressed at the symposium: video, telephony, and broadband. Chapter 2 summarizes the evidence presented on the competitive effects of additional entry in the three industry segments. The broad consensus was that competition provides consumers with significantly more choice today than they had in the past—more providers, greater variety in video entertainment, and a wider selection of devices to access the Internet. Chapter 3 discusses possible obstacles to entry. Chapter 4 discusses the Department’s future competition advocacy and enforcement activities. The report stresses the importance of taking into account changing industry dynamics, relying on evidence of market conditions, and having reliable data and sophisticated economic frameworks to study the competitive conditions in this dynamic industry. The Department remains committed to monitoring the industry vigilantly, investigating alleged antitrust violations, and enforcing the antitrust laws against anticompetitive practices harming consumers. The report is available at http://www.usdoj.gov/atr/public/reports/239284.pdf.
Airline Industry: In October 2008, the Division hosted a workshop on recent developments in airline antitrust and competition research to mark the 30th anniversary of airline deregulation in the United States. Topics addressed at the workshop included the pricing effects of airline antitrust immunity, airline pricing during and after bankruptcy, the price effect of eliminating potential competition, and regulatory reform in the airline industry. Workshop materials are available at http://www.usdoj.gov/atr/public/workshops/airlines2008/index.htm.
Health Care: In the past year, the Division continued to provide advice to states on Certificate-of- Need (CON) laws. In September 2008, the Division and the Federal Trade Commission urged the Illinois Task Force on Health Planning Reform to consider seriously whether Illinois’s CON law does more harm than good, detailing how CON laws can impede the efficient performance of health care markets. A copy of the letter is available at http://www.usdoj.gov/atr/public/comments/237351.htm. In June 2008, the Division recommended that Michigan reject proposed CON rules for a certain cancer therapy that likely would permit only a single facility, run by a majority of current competitors for radiation oncology services, in the state. A copy of that letter is available at http://www.usdoj.gov/atr/public/comments/ 234407.htm.
Real Estate: The Division advised that proposed Montana legislation requiring real estate brokers to participate in all aspects of buying a home would harm consumers by denying them the opportunity to save money by purchasing a subset of services from fee-for-service brokers and by insulating traditional full-service brokers from competition from fee-for-service brokers. A copy of that letter is available at http://www.usdoj.gov/atr/public/comments/238921.htm.
CIVIL NON-MERGER ENFORCEMENT
The Division’s civil non-merger enforcement efforts this past year focused on important sectors of the economy.
An agreement between Google and Yahoo!, whereby Yahoo! would have been able to replace a significant portion of its own Internet search results advertisements with search results advertisements sold by Google, was abandoned after the Division informed the parties that it would file a lawsuit to block the agreement. The two firms operate search engines and search advertising platforms. A search engine allows people to search for information on the Internet. When a person types in a query, a search engine provides the user links to Web pages relevant to the query. In addition to the “natural” results of the search, a search advertising platform also displays advertisements that are relevant to the search query. When the user clicks on an advertisement, the advertiser typically pays a fee to the operator of the search advertising platform. Search advertising companies compete to provide users with the most relevant advertisements through the development of their search software. Search advertising companies also offer their search engines to thirdparty syndication partners that have their own websites. If a user clicks on an advertisement from the partner Web site, the search advertiser shares the advertising revenues with the syndication partner.
The Division concluded that the arrangement likely would have denied consumers the benefits of competition—lower prices, better service, and greater innovation. Google had a market share in excess of 70 percent in the markets for search engines and search syndication, and Google and Yahoo! had combined shares of more than 90 percent. Google and Yahoo! competed with each other in many ways, particularly through investments to improve their ability to match queries with appropriate advertising. The Division found that the two firms would have become collaborators rather than competitors for a significant portion of search business and that Yahoo! would have significantly reduced incentives to invest in the aspects of its advertising business that it would allocate or outsource to Google.
The Consolidated Multiple Listing Service case team. Front Row (L-R): Timothy Finley, Ethan Glass,
David Kully; Back Row (L-R): Iden Baghdadchi, Lisa Scanlon, Nathan Sutton, Mary Beth McGee,
Owen Kendler, Samuel Chapple-Sokol.
There have been two major developments in the Division’s efforts to promote competitive markets in the real estate industry. First, the United States sued the Consolidated Multiple Listing Service (CMLS) of Columbia, South Carolina, in May 2008, challenging rules limiting competition from low-price and innovative brokers, discouraging entry, and resulting in consumers in Columbia paying inflated rates for real estate brokerage services. The CMLS, for example, banned contracts that allow home sellers to avoid paying a commission if they find their own buyer and also required that listing brokers provide each home seller with a prescribed set of services even if the home owners desired to perform some of these services on their own.
The second major development was a favorable settlement of the action against the National Association of Realtors (NAR) challenging certain NAR rules that limited competition from real estate brokers who use the Internet to serve their customers. Under the settlement, NAR agreed to repeal its anticompetitive rules and to require affiliated Multiple Listing Services to do so as well—essentially, the same relief requested in the complaint. The new NAR policy will guarantee that Internet-based brokerage companies will not be treated differently than traditional brokers. Under the new policy, brokers will not be permitted to withhold their listings from other brokers who serve their customers through virtual office websites (VOWs). Brokers will be able to fully use VOWs and cannot be excluded from Multiple Listing Service membership based on their business model.
In January 2009, the Division obtained a consent decree against AT&T Inc. to resolve alleged violations of the Final Judgment in United States v. AT&T, Inc. and Dobson Communications Corp., No. 1:07-CV-1952 (D.D.C.). In the underlying case, the Division obtained divestitures addressing competitive concerns in the market for mobile wireless services arising from the merger of AT&T and Dobson Communications Corp. AT&T allegedly violated provisions requiring that AT&T operate its mobile wireless businesses in three cellular marketing areas separately and independently from its other businesses and maintain them as viable competitors until they could be divested. AT&T paid $2.05 million to settle the alleged violations.
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, the Division has made strengthening international cooperation and promoting antitrust policy convergence key priorities. In 2008-2009, the Division pursued these goals by continuing to work closely with multinational organizations and by working to develop and maintain strong bilateral relationships with enforcement agencies in other countries.
Two organizations stand out for their recent work in achieving consensus on important issues: the International Competition Network (ICN) and the Organization for Economic Cooperation and Development (OECD). The Division has participated in both organizations extensively.
The ICN, which has grown from 15 founding members in 2001 into a global network of more than 100 members from more than 90 jurisdictions, has become an important forum for senior antitrust officials and non-governmental advisors from developed and developing countries to share expertise and promote convergence in antitrust enforcement. ICN’s Recommended Practices for Merger Notification and Review Procedures—developed in the Merger Working Group under the Division’s leadership and in close cooperation with non-governmental advisors worldwide—is one of ICN’s most heralded achievements. Many ICN member agencies have developed or amended their merger review laws so that they will be in closer conformity to those practices, bringing greater consistency to the merger review process across jurisdictions and reducing unnecessary delay and burden on merging firms.
ICN has continued to tackle some of the most difficult and timely antitrust issues faced by the international antitrust community. At the April 2008 annual meeting in Kyoto, Japan, ICN members adopted important new Recommended Practices on substantive merger analysis and the assessment of unilateral conduct. The recommendations for merger analysis cover the legal framework for merger analysis, the role of market shares in helping to identify mergers that may raise competitive concerns, and the assessment of entry as an integral part of merger analysis. The Recommended Practices on the assessment of substantial market power or dominance under unilateral conduct laws provide that a firm should not be found to possess substantial market power without comprehensive consideration of factors affecting competitive conditions and that market shares in themselves do not indicate the presence of substantial market power. The Recommended Practices further provide that agencies should use a sound analytical framework, firmly grounded in economic principles, in determining whether a firm has substantial market power. Within the Cartel Working Group, the Division led an effort to identify and discuss the key benefits and issues in designing and implementing effective cartel settlement systems.
The ICN work program leading up to this June’s annual meeting in Zurich, Switzerland has been ambitious. The Merger Working Group, co-chaired by the Division, has continued its project on recommendations for substantive merger analysis, with an eye toward adopting new additional recommended practices on competitive effects analysis at the Zurich meeting. The Unilateral Conduct Working Group has been studying in detail ICN members’ practices on tying, bundled discounting, and loyalty discounts. ICN also sponsored workshops on specific topics to promote greater understanding and implementation of ICN work product. In March 2009, the Division and the Federal Trade Commission co-hosted the ICN’s first workshop devoted to unilateral conduct issues, and the Division has played a key role in planning workshops on cartels and mergers.
Over the last year, the OECD’s Competition Committee continued to serve as an important forum for discussion and convergence among the antitrust enforcers of its 30 members and 10 observers. In the past year, the Competition Committee has also completed Guidelines for Fighting Bid Rigging in Public Procurement, a practical checklist for procurement officials on designing and operating procurement programs so as to avoid collusion. It has held roundtables on a wide range of important antitrust issues, including monopsony, resale price maintenance, cartel settlements, the construction industry, market studies, and fidelity and bundled discounts. At its most recent meeting in February, the Committee devoted two days to discussion of competition issues relating to the current global financial situation and sponsored the eighth Global Forum on Competition, to which senior officials from more than 20 developing countries participated in roundtables covering the interaction of antitrust and industrial policy, the impact of the informal sector, challenges facing new agencies, and the role of antitrust enforcement during economic crises.
The Division remains committed to developing strong, productive, bilateral relationships with its foreign counterparts. The Division continues to work closely with its Canadian and European counterparts on a wide range of cartel, merger, and civil nonmerger enforcement and policy matters. For example, the Division and the Canadian Competition Bureau cooperated extensively throughout the course of their respective investigations of the agreement between Yahoo! and Google, which was abandoned after the Division informed the companies that it would file an antitrust lawsuit to block implementation of the agreement. On the merger side, the Division and the European Commission cooperated closely on their reviews of the transaction between Manitowoc and Enodis.
The Division has been working actively with China as it begins to enforce its Antimonopoly Law. The Division has had many exchanges with its Chinese counterparts to help ensure that China’s proposed regulations and guidelines are in line with international best practices. During the past year, the Division also participated as instructors in training workshops in China on merger remedies and cartel enforcement.
International cooperation is also fostered by the Division’s technical assistance program, through which the Division works with many new antitrust agencies around the world to help ensure that their systems reflect sound economics and consumer welfare goals. In the past two decades, the Division and the Federal Trade Commission have conducted more than 425 missions to scores of countries on both short-term trips and multi-month advisory programs. In 2008-2009, recipients of this type of training included antitrust agencies in Brazil, China, Egypt, Central America, Russia, Vietnam, and South Africa.
Also in 2008, the Division hosted its second annual training program on antitrust and economics for both Department of Justice employees and officials of foreign antitrust agencies. Sixteen officials from 10 different foreign antitrust agencies attended the program. The training session addressed a variety of topics, including unilateral and coordinated effects, exclusive dealing, and remedies. It concluded with practical programs about the common mistakes that are made in antitrust investigations.
ANTITRUST DIVISION SECTION CONTACTS
OFFICE OF OPERATIONS
Director: Robert Kramer;
Deputy Director: Patricia Brink
The Office of Operations coordinates investigations and litigation policies and procedures affecting the Division's operations.
Executive Officer: Thomas King;
Deputy Executive Officer: Vicki Ellison
Litigation I Section
Chief: Joshua Soven;
Assistant Chief: Joe Miller
Civil antitrust enforcement in industries such as dairy, health care, paper and insurance.
Litigation II Section
Chief: Maribeth Petrizzi;
Assistant Chief: Dorothy Fountain
Civil antitrust enforcement in industries such as defense, waste and banking.
Litigation III Section
Chief: John Read;
Assistant Chief: David Kully
Civil antitrust enforcement in industries such as music, movies, and publishing.
Networks and Technology Section
Chief: Jim Tierney;
Assistant Chief: Scott Scheele
Telecommunications and Media Section
Chief: Nancy Goodman;
Assistant Chief: Laury Bobbish
Transportation, Energy, and Agriculture Section
Chief: Donna Kooperstein;
Assistant Chief: William Stallings
Chief: Cathy O’Sullivan;
Assistant Chief: Bob Nicholson;
Assistant Chief: John Powers
Foreign Commerce Section
Chief: Edward Hand;
Assistant Chief: Anne Purcell White
Legal Policy Section
Chief: Robert Potter;
Deputy Chief: Gail Kursh;
Assistant Chief: Howard Blumenthal
Competition Policy Section
Chief: W. Robert Majure;
Assistant Chief: Jeffrey Wilder
Economic Litigation Section
Chief: Norm Familant;
Assistant Chief: Oliver Richard
Economic Regulatory Section
Chief: Elizabeth Armington;
Assistant Chief: Ronald Drennan
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.
Chief: Nezida Davis;
Assistant Chief: James Kurosad
Chief: Marvin Price, Jr.;
Assistant Chief: Frank Vondrak
Chief: Scott Watson;
Assistant Chief: Michael Wood
Chief: Duncan Currie;
Assistant Chief: Mitchell Chitwood
Chief: Ralph Giordano;
Assistant Chief: John McReynolds
Chief: Robert Connolly;
Assistant Chief: Joseph Muoio
Chief: Phillip Warren;
Assistant Chief: Niall Lynch
National Criminal Enforcement Section
Chief: Lisa Phelan;
Assistant Chief: Mark Rosman
Assistant Chief: John Terzaken
U.S. Department of Justice, Antitrust Division: www.usdoj.gov/atr
Law firms and the general public may obtain paper copies of Division documents from the Antitrust Documents Group:
The following links may be used to obtain Division documents online:
Public Court and Administrative Filings:
Guidelines and Policy Statements:
Business Review Letters:
Copies of Division press releases (from 1992 to the present) can be found online at:
http://www.usdoj. gov/atr/public/press_ releases/2009/index09.htm
Media may contact the Office of Public Affairs at:
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 Division employees:
To comment on past or ongoing investigations, send an e-mail to antitrust.atr@ usdoj.gov.
Report Possible Antitrust Violations
If you have information about a possible antitrust violation or potential anticompetitive activity please contact the Division:
Phone: 1-888-647-3258 (toll-free in the U.S. and Canada) or
(Attn: Citizen Complaint Center)
U.S. Department of Justice
Citizen Complaint Center
950 Pennsylvania Avenue, NW
Washington, DC 20530