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Trial Preparation: Not Just for Outside Counsel. April 18, 2007 ABA Antitrust Section Spring Meeting Corporate Counseling Committee. NY662805. Corporate Counseling Committee. Committee Leadership Mike Miller Adam Biegel Susan Boughs Stephen Donovan Allan Huss Erika Lee Paula Render

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Trial Preparation: Not Just for Outside Counsel

April 18, 2007

ABA Antitrust Section

Spring Meeting

Corporate Counseling Committee

NY662805


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Corporate Counseling Committee

  • Committee Leadership

    • Mike Miller

    • Adam Biegel

    • Susan Boughs

    • Stephen Donovan

    • Allan Huss

    • Erika Lee

    • Paula Render

    • For more information see Corporate Counseling Committee’s webpage at www.abanet.org/antitrust


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Panelists

Aimee Imundo

Senior Counsel –

Competition Law & Compliance

General Electric

Washington, D.C.


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Panelists

Michael W. Boomgarden

Antitrust Division

U.S. Department of Justice

Chicago, IL


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Panelists

Gerwin Van Gerven

Linklaters

Brussels, Belgium


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Panelists

K. Craig Wildfang

Robins, Kaplan, Miller & Ciresi LLP

Minneapolis, MN


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Panelists

Michael Miller

Morrison & Foerster LLP

New York, NY


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Meeting Organizers

Adam Biegel

Alston & Bird LLP

Atlanta, GA

&

Paula Render

Bell, Boyd & Lloyd, LLP

Chicago, IL


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Agenda

  • Mock Trial Hypothetical (trial date – April 19, 2007)

  • Price-Fixing Conspiracies from Multiple Perspectives

    • The View from In-House – How Can the Problem Be Prevented?

    • The View from the Government – How Would the Matter Be Investigated?

    • The View from the Plaintiffs’ Bar – How Can Private Parties Pursue Remedies?

    • The View from Overseas – How Would the Matter Be Defended (Part I)?

    • The View from the Defense Bar – How Would the Matter Be Defended (Part II)?

  • Discussion


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United States of America v. Petrol, Inc.


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The Basic Fact Pattern

  • The Alleged Unlawful Agreement:

    • Four Big Players in the Petroleum Resin Industry:

      • Fuel Corporation (Japan) (FI)

      • Gas King (Germany) (GK)

      • Go Oil (Netherlands) (GO)

      • Petrol Inc. (US) (PI)

    • Over drinks and a football game at the November 2000 Meeting of the Petroleum Resin Association, the four biggest PR producers agreed:

      • Keep Production at Current Levels

      • Not Go After the Other’s Customers

      • Followed Any List Price Increase

      • FC would withdraw from Europe

      • GK, GO and PI would leave FC alone in Asia/Pacific

      • Keep the Agreement Secret

  • PI: it “would have to discuss any such agreement with management.”


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The Unraveling

  • Oct ’03: GK Announced Acquisition by Heloflex

  • Oct-Nov ’03: GK Discovers the Conspiracy During Due Diligence

  • Nov ’03: GK Applies for DOJ/EC Leniency Program

  • Feb 2, ’04: DOJ/EC Simultaneous Searches of GO/PI/FC in US/EU

  • Feb 3, ’04: EC Announces Investigation and that Raids Took Place; GO/PI Disclose Grand Jury Subpoenas

  • Feb 4, ’04: GK Announces that It Is Aware of the Investigations, and Is Cooperating

  • Feb 6, ’04: Class Action Lawsuits Filed In: Phila., DC, NY, Houston, Dallas and SF (Damages Sought from 1997 to the Present)

  • Feb 4, ’05: DOJ Announces that: Go Agreed to Plead Guilty ($50 million fine), and that GK Had Been Admitted Into Amnesty Program

  • Civil Actions Stayed Pending Outcome of Criminal Case Against PI


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Corporate Counseling Committee

Aimee Imundo

Senior Counsel, Competition

Law & Compliance

ABA Antitrust Section Spring Meeting

April 18, 2007


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Prevention - Philosophical

  • When are you 100% certain you have:

    • No active cartel participation?

    • Have detected all cartel activity?

  • You always know only what you know – no more

  • Individuals

  • Orphans

No Excuses Adequate if There is a Miss


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Prevention - Training

  • Stratify

    • Basic – all employees

    • Advanced – Target to population

      • By job responsibility

      • By management responsibility

  • Tailor to the Business?

    • Business model/market environment

    • Acquisitive?

    • Concentrated Market – Sec 2

    • Buy/sell from competitors

  • Early Warning System

    • Enforcement, regulatory trends relating to this business, industry

    • Interplay with other laws if regulated industry

  • Interval

    • Annual? Same material or tailor? New employees?


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Prevention – Monitor Enforcement Trends

  • Which are relevant to your business

    • Same industry

    • Same business model

  • Mini Audits

    • Go to the business

    • Does the training match the model; risks

    • What are the controls

      • Are there processes

      • Are they measured/monitored

      • Check files/other records

      • Contracts/JVs/Buy-sell with competitors

    • Does the business model carry new risks as a result of enforcement changes?

    • Are there aspects of the model/products that should be changed?

    • Is there adequate support for counseling on antitrust issues?


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Prevention - Safeguards

  • Require Procedures and Measure Them

    • Procedures for documenting contacts with competitors

    • Procedures for appropriate legal/manager review and sign off on membership in trade associations

    • Requirements for collecting/handling competitive information

  • Measure whether the procedures are in place and robust

  • Measure whether employees 100% trained


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Detection – New Acquisitions

  • Due diligence usually very limited

  • Employees (management?) may be concealing activity

  • A few risk factors – not definitive

    • Industry concentration

    • Parallel price changes

    • High level of trade association activity

    • Enforcement history in the industry

  • Increase chances of detection:

    • Put company resources on site

    • Visit often

    • Listen to rumors

    • Listen for interesting questions after training sessions


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Antitrust Division Criminal Enforcement ProgramThe Prosecutor’s Perspective

Michael W. Boomgarden

Trial Attorney U.S. Department of Justice, Antitrust Division

Midwest Field Office

Direct Dial: (312) 353-6687

[email protected]

American Bar Association

Antitrust Spring Meeting 2007


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The Prosecutor’s Perspective:

How far things have progressed by the time the subjects or targets learn of the investigation:

Investigative techniques that may have been used

What we may or may not know

What we’re looking for:

Additional evidence, or

Cooperation


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The Company’s Early Contacts with the Investigators & Prosecutors:

  • Dealing with the agent and/or the prosecutor

  • The flow of information from the Government

  • Argumentativeness may not be the best advocacy


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The Decision Whether to Cooperate:

The critical importance of understanding the Amnesty Program

Dealing with “Markers”

Deciding what to do if you’re not first in line


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Fundamental Mistakes (at least the way one prosecutor sees it):

  • Failing to quickly assess and react

    • Permitting panic to cause bad decisions (obstruction & false statements)

    • Dawdling while more nimble-footed lawyers beat you to the punch

    • Failing to make a credible pitch for not being prosecuted (at the right time)


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TRIAL PREPARATION: NOT JUST FOR OUTSIDE COUNSEL

ABA Antitrust Section Spring Conference

Corporate Counseling Committee

April 18, 2007

K. Craig Wildfang

Robins, Kaplan, Miller & Ciresi L.L.P.


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Representing Victims of Cartels

  • How Can A Potential Cartel Victim Protect Itself From Cartel Activity?

  • How Can An Actual Cartel Victim Recover Huge Sums of Money It Paid As A Result Of Cartel Activity (and make the General Counsel’s Office a profit center)?


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Detecting Cartel Activity

  • Analyze Your Client’s Purchases of Major Inputs, and Inputs Into Those Inputs

    • Are your client’s major inputs fungible, commodity-type products where one would expect price to be the focus of competition?

    • Are there few sellers of these inputs?

    • Do the sellers include European or Asian firms?

    • Do the sellers appear to focus competition on non-price aspects of the inputs?


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Detecting Cartel Activity

  • Analyze Your Client’s Purchases of Major Inputs, and Inputs Into Those Inputs

    • Are there seller/buyer or trading relationships among the major sellers (i.e. does one seller sell or trade the input to other sellers, either for use in manufacturing processes or for re-sale)?

    • Does the input market have a history of collusion?

    • Do any of the major sellers have a history of collusion in other markets?


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Detecting Cartel Activity

  • Analyze Your Client’s Purchases of Major Inputs, and Inputs Into Those Inputs

    • Have input prices exhibited any unusual price movements?

    • Has the price relationship between inputs to the inputs (e.g. crude oil) and the inputs themselves changed?

    • When your client seeks suppliers, do they get multiple bids?

    • Is there little seller/buyer switching over time?


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Your Client Has Been A Cartel Victim, Now What?

  • Litigating the Claims of a Cartel Victim

  • Strategic and Tactical Issues

  • How to Maximize Recovery


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Litigate or Not?

  • Considerations re: whether to commence litigation

    • Relationship(s) with sellers

      • Risk of retaliation – usually a non-issue

      • Availability of alternative suppliers

    • Is a pre-filing settlement possible?

      • If so, will the recovery be better if litigation is commenced pre-settlement?


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Decision to Litigate: Alternatives

  • Class Representative

  • Absent Class Member

  • Individual Action Early

  • Opt-Out Later


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Being a Class Representative

  • Pro

    • Assures someone pursues claims

    • Greater control of outcome, especially settlement

    • If injunctive relief is important, only Class has leverage to obtain it

    • Usually fees & costs are advanced by Class counsel

    • Sometimes courts award special compensation to class representatives

  • Con

    • Litigation burdens, discovery, etc.

    • Fiduciary obligation to the Class (including competitors)

    • Risks to supplier relationships


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Being An Absent Class member

  • Pro

    • No cost, risk, hassles, etc.

    • Found money

    • No risks to supplier relationships

  • Con

    • No control over outcome

    • Sometimes have to make opt-out decision before value of claim is known

    • Can get “stuck” in class with no real options


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Early Individual Action

  • Pro

    • Greater control over outcome, especially settlement

    • Ability to “free-ride” - to an extent – on efforts of the Class

    • No fiduciary duties to competitors

  • Con

    • Costs & fees

    • Litigation burdens

    • Risks to supplier relationships

    • Case law not clear on effects of individual action on status as an opt-out

    • If injunctive relief is important, little leverage for individual plaintiffs


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Opt-Out

  • Pro

    • Delays decision until more is known re: value of claim

    • Free-riding

    • Greatest amount of flexibility in settling

  • Con

    • Costs & fees

    • Litigation burdens

    • Risks to supplier relationships

    • Sometimes settlement options are constrained by Class settlement (e.g. MFN clauses)

    • Sometimes courts award fees to Class counsel from opt-out settlements

    • If injunctive relief is important, little leverage for opt-out plaintiffs


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Other Considerations Re: Class, Individual Claim, Opt-Out

  • Size of your clients’ claim – unless substantial, uneconomic to litigate separately

    • Although increasingly counsel for opt-outs cooperate to achieve litigation economies

  • Timing of recovery – typically, Class members don’t get anything until case is completely concluded, whereas Individual and Opt-Out plaintiffs can settle seriatim with defendants and get some money quickly; Class’ delay can be years


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Active Litigation

  • Must assume the need to try the case to maximize recovery

  • Must convince client, Court and adversaries that you will try the case

  • Need to build credibility with the Court

    • Don’t assert frivolous arguments

  • Need to build momentum with the Court

    • Don’t bring loser motions

  • Focus on experts, that’s where the money is!


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Settlement Considerations

  • Defendants – Joint & Several Liability / No Right of Contribution

  • Defendants – Judgment Sharing Agreement?

    • In this hypothetical case, unlikely given disparity in defendant circumstances

  • Plaintiffs – Will Offer Cheap, Early Out To First Defendant

    • Then ratchet up settlement terms


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Manufacturer’s Market Share of the Global Market for Petroleum Resins

CONSPIRACY PERIOD

Sept. 8, 2003

Nov. 4, 2000

45

40

40

40

39

39

39

40

36

36

35

35

35

31

31

30

30

30

30

29

29

28

30

27

26

25

24

23

25

21

%

19

19

19

19

18

20

15

12

10

10

9

9

8

8

8

8

10

7

3

3

3

3

5

2

2

2

2

2

2

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

GERMANY (Gas King)

NETHERLANDS (Go Oil)

JAPAN (Fuel Corp.)

U.S. (Petrol Inc.)

REST OF THE WORLD


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1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

GERMANY (Gas King)

NETHERLANDS (Go Oil)

JAPAN (Fuel Corp.)

U.S. (Petrol Inc.)

REST OF THE WORLD

Manufacturer’s Market Share of the Global Market for Petroleum Resins

CONSPIRACY PERIOD

Sept. 8, 2003

Nov. 4, 2000


Petroleum resins price index l.jpg

130

120

110

100

90

3/1/2000

6/1/2000

9/1/2000

3/1/2001

6/1/2001

9/1/2001

3/1/2002

6/1/2002

9/1/2002

3/1/2003

6/1/2003

9/1/2003

3/1/2004

6/1/2005

9/1/2005

3/1/2006

6/1/2006

9/1/2006

3/1/1997

6/1/1997

9/1/1997

3/1/1998

6/1/1998

9/1/1998

3/1/1999

6/1/1999

9/1/1999

6/1/2004

9/1/2004

3/1/2005

12/1/2000

12/1/2001

12/1/2002

12/1/2003

12/1/2005

12/1/1996

12/1/1997

12/1/1998

12/1/1999

12/1/2004

Petroleum Resins Price Index

CONSPIRACY PERIOD

Sept. 8, 2003

Nov. 4, 2000


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130

4%

3%

120

-3%

2%

3%

4%

-5%

-3%

2%

2%

5%

110

-2%

4%

2%

3%

-3%

2%

-2%

-4%

4%

Rescinded

4%

-2%

100

-2%

-4%

90

3/1/2000

6/1/2000

9/1/2000

3/1/2001

6/1/2001

9/1/2001

3/1/2002

6/1/2002

9/1/2002

3/1/2003

6/1/2003

9/1/2003

3/1/2004

6/1/2005

9/1/2005

3/1/2006

6/1/2006

9/1/2006

3/1/1997

6/1/1997

9/1/1997

3/1/1998

6/1/1998

9/1/1998

3/1/1999

6/1/1999

9/1/1999

6/1/2004

9/1/2004

3/1/2005

12/1/2000

12/1/2001

12/1/2002

12/1/2003

12/1/2005

12/1/1996

12/1/1997

12/1/1998

12/1/1999

12/1/2004

Petroleum Resins Price Index

CONSPIRACY PERIOD

Sept. 8, 2003

Nov. 4, 2000


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ABA Antitrust Section Spring Meeting

Gerwin Van Gerven

18 April 2007


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What should you do on Day 1?

  • Be prepared

  • Arrange support during the dawn raid

  • Avoid the destruction of evidence

  • Know how to deal with communications

    • External/Internal


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What should you do when the raids are over?

  • Review the documents taken away

  • Organize and carry out an internal investigation

  • Understand/explain the alternative courses of action

  • Make the decision


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Going for cooperation

  • Importance of timing

  • Where to go in?

  • Coordination between jurisdictions

    • and … possible conflicts

  • What does cooperation imply?


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    The View from the Defense Bar –

    How Would the Matter Be Defended (Part II)?

    (And How Does that Relate to

    the In-House Lawyer’s Perspective?)

    Michael Miller

    Morrison & Foerster LLP

    New York, NY


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    First, Some Basics


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    What’s an Agreement?

    • Section 1 applies to concerted action only, not unilateral action – it takes two (or more) to violate Section 1

      • There is often a fine line between unilateral and concerted action

    • Need to find the existence of a “contract, combination … or conspiracy” In other words, a “meeting of the minds” on the business conduct in question

      • Doesn’t matter if agreement is coerced, or results from duress

    • “Agreement” Does Not Mean “Signed Contract”

      • Informal agreements count too, written or unwritten, legally binding or not, reached in an office or reached on the golf course

    • Understandings can be tacit, and arise without verbal communication – “[a] knowing wink can mean more than words.”

    • But:

      • Parallel conduct – even “conscious parallelism” – is NOT enough to establish the existence of the requisite concerted action


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    Proving the Agreement: Direct Evidence

    • Obviously, can prove the existence of an agreement through direct evidence

    • Question: “Who would leave behind direct evidence of an illegal conspiracy?

    • Answer: You would be surprised

      • International amnesty programs encourage the creation of direct evidence – including video and audio tapes – of conspiracies

      • Antitrust violators often give in to the apparently irresistible urge to name their conspiracy: The Club, the Group, etc.; or refer to “responsible” pricing, “truces” and the like

      • While it is less common in the current legal environment, foreign business people sometimes do not realize that what they were doing was illegal, or never thought it could be prosecuted in the US


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    Circumstantial Evidence Counts Too

    • Circumstantial Evidence Also Can Be Used

    • “Conscious Parallelism” Alone Is Not Enough

      • “Following the Leader”

    But: “[A]ntitrust law limits the range of permissible inferences from ambiguous evidence in a § 1 case. Thus, … conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy. To survive a motion for summary judgment or for a directed verdict, a plaintiff seeking damages for a violation of § 1 must present evidence ‘that tends to exclude the possibility’ that the alleged conspirators acted independently….” Matsushita.


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    Conscious Parallelism “Plus”

    • But “Conscious Parallelism, Together With So-called “Plus Factors,” Can Be Enough To Establish The Existence Of An Agreement

    • What are Plus Factors?

      • Everything


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    What Are Plus Factors?

    • Acts contrary to a defendant’s economic interest, but rational if the alleged agreement existed

    • Providing pretextual reasons for given conduct

    • Opportunity for collusion (esp. when followed by parallel action)

    • Similarity of language, terms and conditions where similarity is otherwise improbable

    • Departure from normal business practices

    • Motive to conspire

    • Evidence suggesting hostility to the “victim” of the conduct

    • The Kitchen Sink


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    But I had no Choice!


    Slide55 l.jpg

    But I didn’t really mean it!


    Slide56 l.jpg

    But we were just talking over a few drinks!


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    But it was in the middle of a meeting talking about other, legitimate subjects, and I didn’t want to be rude or make a scene!


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    But we were just playing golf!


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    Lessons from the Birth of the Conspiracy

    • Coercion Is No Defense

    • You Can Conspire Even If You Didn’t Mean To

      • Evidentiary Issue

      • The Benefits of the Conspiracy

    • “Conspiring While Intoxicated” Is No Offense

    • “Conspiring During A Social Event” Is No Offense

    • Competitors Don’t Play in Blind Draw Foursomes Together

    • Sometimes You Are Required to Make a Scene, Even If Others Will Think You are Rude or Even Uncool


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    Leaving A Conspiracy Is Harder than Not Entering In the First Place


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    Of All The Words of Mice and Men…

    • “Petrol Inc. said it was not happy with lower prices…” [¶ 14F]

    • “Contrary to what he said in Gas King’s suite, Petrol Inc. had no intention of getting back to the others about any deal…” [¶ 14O]

    • “…because he knew from training at the company that he should not be talking business with competitors…” [¶ 14O]

    • “…and he could not agree with competitors about setting prices, production levels or selling product in any particular region.” [¶ 14O]

    • “In Petrol Inc.’s mind, he was just playing along with the other three companies…” [¶ 14O]

    • “Better to get out of the room saying what he thought the others wanted to hear and let them think he was going along with them rather than provoking an angry business response from any of them.” [¶ 14O]


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    ...Many of Them Are Admissible Into Evidence

    • “Better to get out of the room saying what he thought the others wanted to hear and let them think he was going along with them rather than provoking an angry business response from any of them.”[¶ 14O]

    • PI “said in words or substance that Gas King knew that Petrol was a follower and smiled when he made this statement.” [¶ 16]

    • PI “let Gas King think that [PI] would go along with the discussion they had just had…” [¶ 16]

    • GK said that “he was glad that [PI] was following the prices of others. PI said GK should not read anything into that and changed the subject to discuss the beautiful view of the mountains from the chair lift.”[¶19]

    • PI “said that business was good as PI followed the lead of some of the other bigger producers. GO stated that since their 4-way meeting two years ago, business had been terrific….By this time, PI had to hit his next golf shot and the subject did not come up the rest of the round.” [¶20]


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    But the Trial Basics Are Different


    But note l.jpg

    But Note

    • From FY96-FY06:

      • 367 Prosecutions for Sherman Act Violations

      • 307 Guilty Pleas

      • 15 Dismissals

      • 45 Cases To The Jury

      • 22 Convictions – 49% Conviction Rate

      • Source: To Plead Or Not to Plead? Reviewing A Decade of Criminal Antitrust Trials, Warin, Burns & Chesley, The Antitrust Source (July 2006)

    • There Is a Difference Between Legal Analysis and Trial – And Counseling May Be Even More Different

    • The Narratives May Differ


    Slide65 l.jpg

    Where You Stand Depends On Where You Sit


    The know your client rule l.jpg

    The Know Your Client Rule

    • The Rule: Know Your Client

    • External Counsel’s Approach May (Will) Differ Depending on the Nature of the Client

      • The Corporation

      • The Individual Executive

    • Corporations Do Not Go To Jail

    • Individuals May (Will) Be Less Concerned About Civil Suits


    Slide67 l.jpg

    The Leniency Decision


    Antitrust criminal penalty and reform act of 2004 l.jpg

    Antitrust Criminal Penalty and Reform Act of 2004

    • Seeking Leniency is More Attractive...

      • Detrebling of Civil Damages

    • The Alternative Is Less Attractive

      • Increased Maximum Corporate Statutory Fine to $100 million

      • Increased Maximum Individual Fine to $1 million

      • Increased Maximum Jail Term to 10 years

      • Amnesty Is More Attractive (for other alleged conspirators, that is – the Race to the DOJ)

    • So, Why Apply for Leniency?

      • Company Avoids a Criminal Fine

      • Cooperating Individuals Avoid Fine and Jail Time

      • Detrebling of Civil Damages

      • Certainty of Treatment (but see Stolt?)

      • Interplay of New EC Leniency Treatment


    No answers just questions l.jpg

    No Answers, Just Questions

    • How quickly must a decision be made? Time for an investigation?

    • Was there unlawful activity? Defenses? Borderline conduct?

    • Will the government otherwise discover the conduct? Private plaintiffs?

    • Will you be the first to report? What are others going to do (don’t ask them!)?

    • If not first, any benefit to being second or third?

    • If apply for leniency, prepared to follow through?

    • State consequences? International consequences?

    • What is range of criminal liability? Civil liability?

    • Role of individuals? Impact on company?

    • Impact on industry?

    • If you don’t apply for leniency, what is the alternative? How do costs/benefits of that strategy compare?


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    Is Leniency Fair?

    • Is Petrol Really the Most Culpable Player in the Mock Trial? It’s the Smallest, Arguably Least Culpable Player

    • The DOJ’s Leniency Program Tries to Take Fairness Concerns Into Account

      • Under Section A, the Policy takes into account whether the corporation coerced others to participate, and was not the leader or originator

      • Under Section B, the Policy takes into account whether granting leniency would be unfair to others, considering among other things the corporation’s role in it

    • If the Corporation Qualifies for Leniency Under Section A, All Directors, Officers, and Employees Who Admit Their Involvement Do Too

    • Note: Individuals Can Qualify for Leniency Even If the Corporation Does Not (Section C of the Policy)


    Slide71 l.jpg

    The International Conspiracy


    Empagran settles the question right l.jpg

    Empagran Settles the Question, Right?

    • Empagran: Non-US plaintiffs that suffer “independent foreign harm,” that is “independent of any adverse domestic effect,” cannot sue under the Sherman Act

    • In re MSG (D. Minn.) – Plaintiffs argued they could sue under the Sherman Act even though the transaction was wholly foreign because the cartel could not have been maintained without the US element of the cartel

    • Sniado

    • MM Global Services

    • Dow Chemical

    • Where Does In re Petroleum Resin Fit?


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