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Global Antitrust.

Global Antitrust. Predatory Practices & Mergers [Sherman Act] Amosa Jumbam Tingting Huang. Overview. Recent global antitrust practices concerns price-fixing and mergers on a global scale. Cases involved: DRAM Price Fixing British Airways/Korean Air Lines

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Global Antitrust.

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  1. Global Antitrust. Predatory Practices & Mergers [Sherman Act] Amosa Jumbam Tingting Huang

  2. Overview Recent global antitrust practices concerns price-fixing and mergers on a global scale. Cases involved: DRAM Price Fixing British Airways/Korean Air Lines AT&T CORP. / TELE-COMMUNICATIONS, INC F. HOFFMANN-LA ROCHE LTD … Just to name a few

  3. Overview (continued) The main U.S. legislation that governs Antitrust is the Sherman Act. Subsequent Legislations include Clayton Act Federal Trade Commission Act

  4. Legislation • The Sherman Act was signed into law in 1890 by President Benjamin Harrison and was named after its author, Senator John Sherman. • The Sherman Act was the first U.S. government action to limit cartels and monopolies and is the oldest of all federal antitrust law. • The birth of the Act was helped by the strong public opposition to the concentration of economic power in large corporations that had been taking place after the Civil War.

  5. Legislation (continued) • The Act was initially proposed to break up the Standard Oil trust and the name “antitrust” has been used since. • Despite the name, the Sherman Act is not targeted at trusts only, but at any form that creates a “restraint of trade”. • For a decade right after its passage, the Act was rarely effectively used against monopolies. Its only effective use during that time was against the labor unions.

  6. Legislation (continued) • In 1895 the Supreme court dismantled the Act in United States v. E.C. Knight Company with an explanation that the company’s control of manufacturing did not constitute control of trade. • In 1898 President McKinley launched the “trust-busting” era. • President Theodore Roosevelt used the Act extensively in his antitrust campaign which led to the successful employment of the Act. • In 1904 the Supreme Court ordered to dissolve the Northern Securities Company in State of Minnesota v. Northern Securities Company. • In 1911 the Supreme Court found Standard Oil Company in violation of the Sherman Act.

  7. Legislation (continued) • In this decision, the Supreme Court established an important legal standard “the rule of reason” which stated that “the large size and monopoly in themselves are not necessarily bad and do not violate the Sherman Antitrust Act. Rather it is the use of certain tactics to attain or preserve such position that is illegal”. • The most successful application of the Act in the second half of the 20th century is the breakup of AT&T. • Recent antitrust case in the U.S. involves the fight against the monopolistic practices by Microsoft. • Since the inception of the Act, its application has been met with intense pressure from the trusts/businesses and been hampered by the lobbying of the large corporations.

  8. Key Provisions • Section 1 Trusts, etc., in restraint of trade illegal; penalty Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. • Section 2 Monopolizing trade a felony; penalty Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. • Section 3 Trusts in Territories or District of Columbia illegal; combination a felony Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or both said punishments, in the discretion of the court.

  9. Key Provisions • Section 4 Jurisdiction of courts; duty of United States attorneys; procedure The several district courts of the United States are invested with jurisdiction to prevent and restrain violations of sections 1 to 7 of this title; and it shall be the duty of the several United States attorneys, in their respective districts, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties complained of shall have been duly notified of such petition the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises. • Section 5Bringing in additional parties Whenever it shall appear to the court before which any proceeding under section 4 of this title may be pending, that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned, whether they reside in the district in which the court is held or not; and subpoenas to that end may be served in any district by the marshal thereof. • Section 6Forfeiture of property in transit Any property owned under any contract or by any combination, or pursuant to any conspiracy (and being the subject thereof) mentioned in section 1 of this title, and being in the course of transportation from one State to another, or to a foreign country, shall be forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure, and condemnation of property imported into the United States contrary to law.

  10. Key Provisions • Section 6a. Conduct involving trade or commerce with foreign nations Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless – (1) such conduct has a direct, substantial, and reasonably foreseeable effect - • (A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or • (B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and (2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section. If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States. • Section 7 ''Person'' or ''persons'' defined The word ''person'', or ''persons'', wherever used in sections 1 to 7 of this title shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

  11. Criticisms of the Act • Critics question whether the Act improves competition and benefits consumers or just aids inefficient businesses at the expense of larger, more innovative ones. One of the critics is former Fed Chairman, Alan Greenspan. • Some debates whether the goal of the Act should be increased competition or lower prices. • Others criticize the Act for its failure to define key terms such as combination, conspiracy, monopoly and trust and for its narrow interpretation of what constituted trade or commerce among states.

  12. Enforcement • The responsibility is on the government attorneys and district courts to pursue and investigate suspected violations of the Act. • The Department of Justice brings criminal actions and civil actions against suspected violators. • The Federal Trade Commission can also launch civil action against possible violators of antitrust laws.

  13. Sherman Act Cases DRAM Price Fixing British Airways/Korean Air Lines AT&T CORP. / TELE-COMMUNICATIONS, INC F. HOFFMANN-LA ROCHE LTD

  14. DRAM Price Fixing • In 2002 US Department of Justice began a probe into the activities of Dynamic Random Access Memory (DRAM) manufacturers • US computer makers, including Dell and Gateway, claimed that inflated DRAM pricing was causing lost profits and hindering their effectiveness in the marketplace. • To date, five manufacturers have pleaded guilty to their involvement in an international price-fixing conspiracy including,Hynix, Infineon, Micron Technology, Samsung and Elpida.

  15. DRAM Price Fixing • In December 2003, the Department charged Alfred P. Consello, a Regional Sales Manager for Micron Technology Inc., with obstruction of justice in violation of 18 U.S.C. § 1503. • In October of 2004 four executives from Infineon were each sentenced to 4 to 6 months in jail, and fined $250,000

  16. DRAM Price Fixing • In October 2004, Infineon pled guilty. The company was fined $160M for its involvement, which at the time was the third largest antitrust fine in US history. • Hynix Semoconductor also pleaded guilty in April 2005 with a $185M criminal penalty. • In October 2005, Samsung entered their guilty plea in connection with the cartel and was fined $300 million.

  17. British Airways/Korean Air Lines • AUGUST 1, 2007 the Department of Justice U.K.-based British Airways Plc and South Korean-based Korean Air Lines Co. Ltd. have each agreed to plead guilty and pay separate $300 million criminal fines for their roles in conspiracies to fix the prices of passenger and cargo flights • British Airways and Korean Air are each charged with two counts of price fixing in violation of the Sherman Act. Each count of the Sherman Act carries a maximum sentence of 10 years of imprisonment for individuals and a fine of $100 million for corporations

  18. British Airways/Korean Air Lines • Korean Air is the largest passenger carrier from the United States to Korea and averages more than $250 million a year on those flights. British Airways is the largest passenger carrier from the United Kingdom to the United States. It had $14 billion in total passenger revenues in 2006

  19. British Airways/Korean Air Lines • British Airways' fuel surcharge for round-trip passenger tickets was around $10 per ticket. By the time the passenger conspiracy was cracked in 2006, the surcharge was nearly $110 per ticket a 10-fold increase, said the Department. The Department noted that during the air cargo conspiracy, British Airways' fuel surcharge on shipments to and from the United States changed more than 20 times and increased from four cents per kilogram of cargo shipped to as high as 72 cents per kilogram

  20. British Airways/Korean Air Lines • The Department noted that the conspirators agreed to increase the fuel surcharge over time from 10 cents per kilogram to as high as 60 cents for each kilogram of cargo shipped from the United States. The Department also charged that Korean Air reached an agreement with its rival to fix certain passenger fares for flights from the United States to Korea

  21. AT&T CORP. / TELE-COMMUNICATIONS, INC • The United States brings this antitrust action to prevent the proposed merger of Tele-Communications, Inc. ("TCI") into a wholly owned subsidiary of AT&T Corporation ("AT&T"). • This action is filed under Section 15 of the Clayton Act, as amended, 15 U.S.C. § 25, to prevent and restrain the violation by defendants, as hereinafter alleged, of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18

  22. AT&T CORP. / TELE-COMMUNICATIONS, INC • The relevant geographic markets are those areas in which AT&T is one of the two cellular licensees, and in which Sprint PCS is a PCS licensee. These areas include the metropolitan areas of New York City; Los Angeles; Dallas-Fort Worth; San Francisco-Oakland-San Jose; Miami-Ft. Lauderdale; Minneapolis-St. Paul; Seattle; Pittsburgh; Denver; Portland, OR; Sacramento; Salt Lake City; Las Vegas; and at least 18 other metropolitan markets. • In each of the geographic areas described in Paragraph 16, the market for the provision of mobile wireless telephone services is highly concentrated. AT&T is the largest or second largest provider of mobile wireless telephone services in each of these markets. Sprint is one of a small number of competing providers in each of these markets and is a uniquely close substitute for AT&T.

  23. AT&T CORP. / TELE-COMMUNICATIONS, INC • The effect of the proposed acquisition of TCI by AT&T may be substantially to lessen competition in interstate trade and commerce in violation of Section 7 of the Clayton Act. • The DOJ requested (a) adjudication that AT&T's proposed acquisition of TCI would violate Section 7 of the Clayton Act; (b) preliminary and permanent injunctive relief preventing the consummation of the proposed acquisition

  24. F. HOFFMANN-LA ROCHE LTD • F. Hoffmann-La Roche Ltd and co-conspirators entered into and participated in a combination and conspiracy to suppress and eliminate competition by fixing the price and allocating the volume of certain vitamins manufactured and sold in the United States and elsewhere, and to allocate customers for vitamin premixes sold in the United States. • The combination and conspiracy engaged in by the defendant and its co-conspirators was in unreasonable restraint of interstate and foreign trade and commerce in violation of Section 1 of the Sherman Act (15 U.S.C. § 1)

  25. F. HOFFMANN-LA ROCHE LTD • Roche, a pharmaceutical conglomerate based here, was by far the biggest player in what the United States Justice Department has described as a sophisticated cartel to fix worldwide vitamin prices as much as 25 percent above the market level. • Roche agreed to pay $500 million to settle charges with the Justice Department. Two of its top executives resigned, and one of them agreed to serve a four-month prison sentence in the United States

  26. Major Problems • Extraterritoriality is a major problem in the application of U.S. Antitrust law. • The actions under investigation are legal under foreign laws. • Application of U.S. antitrust law raised the issue of “clash of competing national laws”. • Extraterritoriality has met with fierce opposition from other countries as violation of their national sovereignty.

  27. References • http://en.wikipedia.org/wiki/DRAM_price_fixing • http://www.usdoj.gov/atr/public/press_releases/2007/224928.htm • http://www.usdoj.gov/atr/cases/f2100/2141.htm • http://www.usdoj.gov/atr/cases/f2400/2452.htm • http://www.usdoj.gov/atr/foia/divisionmanual/ch2.htm#a1 • http://www.linfo.org/sherman.htm

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