|Authors: Cormac T. Connor|
The Antitrust Division of the United States Department of Justice recently obtained a verdict in a case that was closely watched by the antitrust bar. On March 13, 2012, a federal jury in the Northern District of California determined that AU Optronics ("AUO"), a Taiwanese manufacturer of thin-film transistor liquid crystal display ("TFT-LCD") panels, an American subsidiary of AUO and two senior AUO executives were all guilty of price-fixing. The jury deadlocked on another AUO executive and exonerated two others. Perhaps more important to the antitrust bar was the fact that the jury determined that AUO's involvement in the TFT-LCD conspiracy resulted in gross gains of at least $500 million to the entire conspiracy.
As discussed below, the jury's verdict undergirds the DOJ's long-standing (though, before now, essentially untested) position that, under 18 U.S.C. § 3571(d), the Antitrust Division may use the total amount of gross gains realized by all members of an antitrust conspiracy when seeking to raise the statutory maximum fine for individual members of that conspiracy.
Additionally, the jury's determination with respect to the AUO executives is notable in that the two guilty verdicts reverse a recent trend of defense verdicts for individual defendants, although that reversal is tempered by the fact that only two of the five executives that went to trial were found guilty.
Thus, the AUO verdict provides valuable guidance for potential corporate and individual price-fixing defendants and their counsel. The implications of the verdict also will continue to evolve depending on the eventual sentences, appeals or settlements that are yet to come.
AUO and the TFT-LCD Investigation
The AUO trial was part of a long-running antitrust investigation into the TFT-LCD industry. AUO is a Taiwanese company that has become one of the world's leading manufacturers of TFT-LCD panels, which are the screens that are inserted into flat-screen monitors and displays, among other things. These finished products are then sold in the United States and around the world.
Over the last decade, AUO has become one of Taiwan's largest companies. AUO's website reports that AUO currently employs over 43,000 people worldwide and, in 2011, the company earned $12.5 billion in total sales revenue. AUO America is a wholly owned subsidiary of AUO and is incorporated in California, but based in Texas. AUO America provides sales support for AUO and its customers in the United States.
The Antitrust Division's TFT-LCD investigation focused on many of the world's leading panel makers, including AUO, Samsung Electronics Co. Ltd., LG Display Co. Ltd., Sharp Corp., Chunghwa Picture Tubes Ltd., Chi Mei Optoelectronics and HannStar Display Corp.. According to the Antitrust Division's trial memorandum, Samsung triggered the investigation in 2006 by informing the DOJ about the price-fixing conspiracy. Samsung was granted conditional leniency.
Over the course of the investigation, the Antitrust Division netted massive fines and lengthy jail terms for members of the alleged conspiracy. For example, the DOJ's trial memorandum and contemporaneous press releases revealed that, in late 2008, LG Philips, Sharp and Chunghwa all agreed to plead guilty and to pay a total of $585 million in fines. An LG executive and three Chunghwa executives later agreed to plead guilty, to serve prison sentences ranging from six to nine months and to pay at total of $125,000 in fines.
In December 2009, Chi Mei agreed to plead guilty, pay $220 million in fines, and cooperate with the Antitrust Division's investigation. In April 2010, two Chi Mei executives agreed to plead guilty, serve eight and 14 months in prison respectively, pay a total of $75,000 in fines, and assist the DOJ with its investigation. In June 2010, HannStar agreed to plead guilty and to pay a $30 million fine.
AUO Chooses to Fight
AUO chose to test the Antitrust Division's case rather than plead guilty. At trial, the DOJ presented evidence to prove that, between 2001 and 2006, executives representing AUO and several of its competitors, including LG Philips, Samsung, Chunghwa, Chi Mei and HannStar, participated in over 60 covert gatherings, described as "Crystal Meetings."
The DOJ asserted that, during these Crystal Meetings, most of which occurred in Taiwan, the conspirators agreed to fix and to stabilize the prices of TFT-LCDs designed for notebook computers, desktop monitors, cellphones and televisions, many of which were destined for the U.S. market. Prosecutors asserted that five of AUO's executives, including AUO's president/CEO and AUO America's president, participated in the Crystal Meetings. The DOJ's evidence included testimony by cooperating witnesses from some of the other TFT-LCD makers and a former AUO America employee.
The DOJ also presented testimony from an expert witness concerning the volume of TFT-LCD sales during the period of the conspiracy. Importantly, the testimony about gross gains in sales as a result of the alleged price-fixing described gains realized by all members of the conspiracy, not just AUO. Highlighting testimony by the DOJ's expert, prosecutors later argued that AUO and its co-conspirators took in gross gains of more than $500 million, an allegedly conservative amount that reflected only those gains obtained during the first and last six months of the multiyear conspiracy. Noting that the $500 million figure came from only a short segment of the entire conspiracy period, the DOJ also argued that the true amount of gross gains would actually be much greater, totaling billions of dollars.
The defense, in contrast, presented expert testimony that focused on the gross gains realized only by AUO during the term of the alleged conspiracy. AUO's expert offered no opinion about gains realized by any other party. Instead, AUO's expert opined that AUO itself had not realized any pecuniary gain as a result of its participation in the Crystal Meetings. AUO's counsel later argued there had been no gains for AUO largely because AUO had been bluffing its competitors at the Crystal Meetings and, instead of aligning its prices with its competitors, AUO actually set its prices below the price to which the conspirators had agreed. Thus, counsel argued, AUO had not conspired with its competitors, but had used information from the Crystal Meetings to gain a competitive advantage over them.
After the eight-week trial before Judge Susan Illston, the jury found AUO, AUO America, AUO's president/CEO and AUO America's president, guilty of price-fixing. The jury found that the two other executives named in the indictment were not guilty and deadlocked as to a fifth executive, resulting in a mistrial for him. Finally, having found AUO and AUO America guilty, the jury considered whether the combined gross gains from the conspiracy exceeded $500 million, as argued by the Antitrust Division in its "all-conspirators" theory. The jury found that it did.
The Alternative Fine Statute in Cartel Cases
In its negotiated plea agreements in large cartel cases, the Antitrust Division has long relied on the alternative fine provisions in 18 U.S.C. § 3571(d) to obtain fines above the Sherman Act's statutory maximum, which is currently set at $100 million. Indeed, several of the fines described above imposed in connection with the TFT-LCD investigation were above $100 million. And most recently, the DOJ obtained plea agreements with Japanese auto parts firms agreeing to eye-popping fines of $200 and $470 million. However, the viability of § 3571(d) fines outside of negotiated settlements has been an enduring question because the issue rarely was tested in court.
Section 3571(d) is a general criminal sentencing provision, which provides that, if a defendant "derives pecuniary gain from the offense," then the defendant may be "fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process." Because the provision has almost never been put before a court in an antitrust case, there is only scant judicial guidance on issues such as the applicable standards of proof, how the "gain" is to be measured, or what factors would or would not "unduly complicate or prolong the sentencing process."
In fact, prior to the AUO verdict, we are aware of only two instances in which Antitrust Division prosecutors litigated alternative fines under § 3571(d) and, in each case, the courts rejected the DOJ's request for fines under § 3571(d). See United States v. O'Hara, *3 (D. Me. Sept. 13, 1991) (rejecting alternative fine request because calculation would unduly prolong sentencing process); see also United States v. Andreas, 1999 U.S. Dist. LEXIS 9655, *14 (N.D. Ill. June 2, 1999) (refusing to apply alternative fines where the Antitrust Division DOJ failed to provide certain foreign-located pricing information to defendants). Moreover, all of the gigantic corporate fines that the Antitrust Division procured over the last 15 years in the Vitamins, DRAM, Air Cargo, and, until now, TFT-LCD investigations, had come through negotiated plea agreements.
Lack of legal precedent notwithstanding, Antitrust Division prosecutors have argued in plea negotiations for years that the computation of gross gains or losses envisioned by § 3571(d) apply to the aggregate gains or losses caused by the actions of the all the participants to the cartel, not just to the individual defendant being prosecuted. Potential fines under this theory could be crippling to defendants, causing many to choose the certainty of a negotiated fine over the uncertainties of a trial.
Although some courts have looked to aggregated gains or losses when calculating fines in other areas, see, e.g., Kaplun v. Attorney General of United States, 602 F.3d 260, 266 (3d Cir. 2010) (evaluating immigration appeal which pertained to appellant's prior conviction for securities fraud and accepting that court's calculation of aggregate losses incurred by over 200 investors in imposing sentence under § 3571(d)); United States v. Parenteau, 805 F. Supp. 2d 438, 445 (S. D. Ohio 2011) (imposing fine amounting to twice the gross gain realized by defendant and his co-conspirators in money laundering and fraud case), other than the AUO trial, we are aware of no court that had ever adopted the Antitrust Division's "all conspirators" theory concerning aggregated gains or losses when imposing a sentence in an antitrust case.
Perhaps recognizing the tenuous nature of its aggregate-gains-or-losses theory, during pretrial briefing in the AUO matter, the Antitrust Division attempted to persuade Judge Illston to bifurcate the trial and to remove the question of gross gains from the jury. Instead, the Antitrust Division wanted the court to rule separately on issues related to gross gains for purposes of a § 3571(d) analysis.
In her July 18, 2011 order, Judge Illston denied the Antitrust Division's bifurcation request and ruled that, consistent with the holdings in Apprendi v. New Jersey, 120 S.Ct. 2348, 2362-63 (2000) and United States v. Pfaff, 619 F.3d 172, 174-75 (2d Cir. 2010) (finding that § 3571(d) issue in tax evasion case must be submitted to jury and proved beyond reasonable doubt), the DOJ would have to prove the amount of any gross gains to the jury beyond a reasonable doubt.
The court also rejected the Antitrust Division's argument that, according to dicta in Oregon v. Ice, 129 S.Ct. 711, 719 (2009), the imposition of a fine was a not a core function of the jury. Judge Illston reasoned that, in the price-fixing context, where the "the primary form of punishment" sought for corporate defendants amounted to a fine, the imposition of that fine would fall squarely within the core functions of the jury and, thus, the standards in Apprendi would apply. Importantly, however, the court agreed with the Antitrust Division that the gross gains question would be put in terms of the aggregate amount of gains realized by all members of the conspiracy, not just AUO.
As a result, the verdict form that was submitted to the jury asked if the participants in the conspiracy derived any gains from the conspiracy and, if so: "Was the amount of combined gross gains derived from the conspiracy by all participants in the conspiracy, including [AUO, AUO America, LG Philips, Samsung, Chunghwa, CMO and HannStar], $500 million or more?". The jury's answer to both of those questions, as we now know, was "yes."
Potential Impact on Fine Negotiations
The AUO verdict is sure to strengthen the Antitrust Division's bargaining position in current and future cases, especially those involving potential alternative fines under § 3571(d). Before the AUO trial, all applications of § 3571(d) had involved plea agreements which, by their nature, did not require the Antitrust Division to prove the basis for its fine request to a jury beyond a reasonable doubt.
Previous defendants had accepted the DOJ's terms based on the possibility that the Antitrust Division could convince a jury to accept its theories on aggregate gross gains. Even though the Antitrust Division had never successfully presented § 3571(d) issues to a jury, the specter of a doubling of aggregated gross gains or losses had proved to be so intimidating that cartel defendants chose to settle rather than risk a trial.
The AUO case now moves to the sentencing phase. Assuming the parties do not reach a settlement prior to sentencing, the sentence that actually is imposed by Judge Illston will influence negotiations in other present and future antitrust cases. It will provide the court-imposed sentencing benchmark that the Antitrust Division and the defense previously lacked. The potential sentences that the AUO defendants face are noteworthy. Under the Federal Sentencing Guidelines, and because the jury agreed that the conspirators in the AUO case generated an aggregated gross gain of more than $500 million, the AUO defendants' potential fine could theoretically be as high as $1 billion.
Although the actual fine imposed will likely be lower, it will still be well in excess of the $100 million Sherman Act maximum. See § 2R1.1(b)(2)(F). For the individuals, assuming that there will be no additions to the Offense Level for prior criminal records or subtractions for accepting responsibility (because the defendants went to trial), each of the convicted defendants could potentially face multiyear sentences and fines above $1 million, which is the Sherman Act maximum for individuals.
Although the outcome of the sentencing phase and any appeal will determine the ultimate importance of the AUO case, the AUO verdict itself is significant because the Antitrust Division proved that, when put to the test, it could successfully carry its burden of proof with respect to § 3571(d) elements without "unduly complicating" the sentencing process.
If the court imposes the giant fines and sentences that are possible given the jury's findings, then the Antitrust Division will enjoy greater credibility and confidence and, therefore, greater leverage in future plea negotiations. While defense counsel may still argue that the division is not capable of proving the necessary elements for § 3571(d) fines in each particular case, the AUO trial, at a minimum, shows that it can be done.
Effect on Plea Negotiations for Noncorporate Defendants
The verdicts against the two AUO executives were ground-breaking in that it was the first time that the Antitrust Division had obtained guilty verdicts against foreign nationals. It also came as a boost to the division, which has had a mixed trial record against individuals in cases such as DRAM and Marine Hose. The division's successes, however, were diminished by its failure to secure guilty verdicts against all five of the AUO executives that had been charged.
Notably, the two individual defendants that were convicted were reportedly the two highest-ranking executives among the group. According to the Antitrust Division's closing arguments, these two defendants were the guiding hands of AUO's and AUO America's involvement in the price-fixing scheme, in that each man participated actively in early pricing negotiations with the other co-conspirators and attended many of the Crystal Meetings in person.
The jury's determination that two lower-ranking AUO executives were not guilty demonstrates the limits of the division's victory: It appears that it will be difficult for the division to cast a net so wide that lower-ranking executives will also be found to be culpable. In particular, the two acquitted defendants were described by the prosecutors as having been more akin to lieutenants in the organization, tasked with the implementation of pricing agreements that were reached during the Crystal Meetings. Although one of these defendants was alleged to have participated personally in certain Crystal Meetings, prosecutors conceded that there was no evidence that the other individual defendant ever attended any of the Crystal Meetings.
As for the fifth individual defendant, the Antitrust Division's evidence and arguments seemed to place him in a more intermediate role when compared to the other four executives. This last defendant was apparently less involved in the conspiracy than the executives who were found guilty, but more involved than those who were acquitted outright, which may explain why the jury was deadlocked on his case. Furthermore, although this last defendant was alleged to have attended and participated in several Crystal Meetings, he was also described by prosecutors as being a "note-taker" during those meetings, which again demonstrates his intermediate role and perhaps explains the jury's inability to reach a unanimous decision.
The AUO verdict may create tension among future or current individual defendants, at least with respect to assessing each person's exposure under antitrust charges. Counsel for lower-level executives should consider the AUO verdict as being at least a signal that their clients have a greater chance of exoneration at trial. The AUO verdict should encourage these mid- and lower-level individual defendants and their counsel to resist demands from the Antitrust Division (and, perhaps, by the corporate defendants who are negotiating with the division) for plea agreements that involve even modest amounts of jail time.
Conversely, counsel for more senior executives should recognize the AUO verdict as a sign that their clients may be viewed by the jury as personifications of the corporate defendants, such that the jury may be more willing to hold the senior leadership of the corporation responsible for the corporation's conduct than it would lower-level executives.
Lastly, the Antitrust Division has repeatedly said that jail time is the most effective deterrent to future price fixing, and has repeatedly proclaimed its intention to be more aggressive in prosecuting individuals. However, actual prosecutions of individuals, especially in the major international cartel cases, have been rare, something for which the division has been criticized. Given the range of potential jail time that the two senior AUO executives are facing, it will be instructive to see what sentences the Antitrust Division recommends and what Judge Illston imposes. Indeed, the amount of any jail time may be of greater significance to the course of future plea negotiations than the convictions themselves.
In sum, the full impact of the AUO verdict for the Antitrust Division and for the antitrust defense bars remains to be seen because the actual sentences imposed and the outcomes of any appeals certainly will provide additional guidance. However, it is clear that the Antitrust Division will now take the position that is now on surer footing with respect to fines under § 3571(d) and likely is to be more confident in its ability to secure convictions against corporations and senior executives.
--By Cormac Connor and Chris Casamassima, Kirkland & Ellis LLP
Cormac Connor is of counsel in Kirkland's Washington, D.C., office, where he works with the government investigations and commercial litigation practice groups. Chris Casamassima is a partner who focuses on antitrust in the firm's Los Angeles office.
The authors wish to thank Tefft W. Smith, in the firm's Washington, D.C., office, for his valuable contributions to this article.
The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
 See Press Release, U.S. Dep't of Justice, Furukawa Electric Co. Ltd. and Three Executives Agree to Plead Guilty to Automobile Parts Price-Fixing and Bid-Rigging Conspiracy (Sept. 29, 2011) (http://www.justice.gov/atr/public/press_releases/2011/275503.htm); Press Release, U.S. Dep't of Justice, Yazaki Corp. and Four Yazaki Executives Agree to Plead Guilty to Automobile Parts Price-Fixing and Bid-Rigging Conspiracies (Jan. 30, 2012) (http://www.justice.gov/atr/public/press_releases/2012/279734.htm).
 At least one court made a preliminary finding in favor of the Antitrust Division's aggregate gains theory. When it sentenced certain individual defendants who had been implicated in the lysine conspiracy, the trial court rejected defendant Andreas' argument that the court could not impose a fine against him because the proceeds of the conspiracy were realized entirely by the corporation for which Andreas had been working at the time. United States v. Andreas, *2 (N.D. Ill. Feb. 24, 1999). The trial court found that § 3571(d) "clearly and unambiguously states" that an alternative fine may be imposed "[i]f any person derived a pecuniary gain from the offense." Id. Further, looking to the legislative history behind § 3571(d), the court noted that Congress intended § 3571(d) to extend to criminal defendants such as Andreas so that they would be liable for their conduct "even if they intended to enrich a third party." Id. (citing H.R. Rep. No. 100-390, § 6 at 6, reprinted in 1987 U.S.C.C.A.N. 2142). The ultimate sentence imposed on Andreas by the court, however, amounted to a fine of only $350,000, see United States v. Andreas, Am. Sent'g Order, Case No. 96 C.R. 762 (N.D. Ill., July 9, 1999), which was equal to the statutory cap that the Sherman Act imposed on individual defendants at the time.
 For example, the DRAM investigation resulted in guilty pleas and fines totaling more than $730 million from several corporations, as well as a 14-month jail term for a Samsung executive. Only one of the DRAM cases went to trial. That case, which was brought against an individual, lasted three weeks and resulted in a jury that deadlocked 10-2 in favor of acquittal. In another example, two individual defendants who went to trial in the Marine Hose investigation were both acquitted, despite the fact that other individuals, who had previously pleaded guilty and agreed to cooperate, testified as witnesses for the Antitrust Division.
 See, e.g., Division Update, U.S. Dep't of Justice (Spring 2011) (http://www.justice.gov/atr/public/division-update/2011/criminal-program.html); Scott D. Hammond, Ten Strategies for Winning the Fight Against Hardcore Cartels, Oct. 18, 2005, speech before the Paris Working Party No. 3 Prosecutors Program.
 See Tefft W. Smith, Comments for the Antitrust Modernization Commission Hearing on Criminal Antitrust Remedies (Nov. 3, 2005) (http://govinfo.library.unt.edu/amc/commission_hearings/pdf/Smith_Statement.pdf).
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