Antitrust Goes Global

At the root of Empagran are important questions about who can sue and who can be sued in U.S. courts for antitrust violations. On Sept. 11 of this year, the U.S. Court of Appeals for the D.C. Circuit in effect opened the doors of the courthouse to the world. In a 4-3 vote, the full court denied a request to rehear Empagran. In January, a split three-judge panel ruled that foreign purchasers who bought vitamins from overseas producers may file suit in U.S. courts under U.S. antitrust laws. “The same conduct injures both foreign plaintiffs and domestic plaintiffs, and it is clearly the conduct that Congress aims to reach with our antitrust laws,” wrote Judge Harry Edwards, joined by Judge Judith Rogers in the Jan. 17 majority opinion. Judge Karen LeCraft Henderson dissented.

Plaintiffs lawyers vigorously argue that the decision is the most efficient way to deter global cartels. But others say the D.C. Circuit's decision, which exacerbates a split between the Second Circuit and the Fifth Circuit, amounts to judicial imperialism and a green light for a crass money grab. The decision could mean more massive payouts from global vitamin manufacturers and a gravy train for U.S. lawyers eager to file contingent-fee cases on behalf of foreign plaintiffs. But many antitrust lawyers agree that the implications of Empagran go far beyond damages that could be paid by the vitamin producers. “The D.C. Circuit could be perceived to be a world court for antitrust claims based on foreign transactions,” says Andrew Marovitz, lead counsel for defendant BASF AG and a Mayer, Brown, Rowe & Maw partner in Chicago. “This is clearly a hot issue in antitrust.”

Laying the Foundation

The history behind Empagran goes back almost 10 years, to the Justice Department's Antitrust Division investigation into the pricing practices of an international group of vitamin producers. For nearly a decade, a group of vitamin companies had conspired to inflate the price for vitamins used in everything from breakfast cereal to animal feed. The investigation culminated in the conviction of more than a dozen companies, including F. Hoffman-LaRoche Ltd., BASF, Takeda Chemical Industries Ltd. and Eisai Inc. A handful of top executives went to jail. In 1999 alone, the DOJ imposed more than $850 million in fines on members of the cartel. The investigation received the help of a French pharmaceutical firm, Rhone-Poulenc S.A. That company, which took part in the price fixing, blew the whistle on fellow cartel members in exchange for amnesty from criminal prosecution.

The DOJ's criminal case laid the foundation for a slew of private civil cases %mdash; attractive work for plaintiffs' lawyers, since wrongdoing has already been established. The result has been a windfall for select U.S. firms. Dickstein, Shapiro, Morin & Oshinsky saw its revenue shoot up $61 million in 2002, thanks in large part to the contingent fee the firm received for its successful representation of 30 buyers of bulk vitamins. Kenneth Adams, the Dickstein partner who spearheaded the firm's vitamin litigation, says he's been contacted by a host of foreign plaintiffs, but has advised them to wait until the appeals in Empagran have run their course before filing suit. Indeed, many lawyers predict the case is destined for Supreme Court review.

The central question before the court revolves around the interpretation of the Foreign Trade Antitrust Improvements Act of 1982, which amended the Sherman Act. Three different takes on the issue from as many courts of appeals over the last 2 years have not helped clarify what many call the muddy language of the statute.

In February 2001, the New Orleans-based Fifth Circuit held it did not have jurisdiction over a Norwegian company's claim that a price-fixing conspiracy by providers of heavy-lift barge services inflated the company's cost of operating oil platforms in the North Sea. The company also alleged that the cartel's actions inflated oil prices in the United States. In 1997, two of the defendants agreed to pay nearly $50 million in fines after they pleaded guilty to conspiring to “suppress and eliminate competition” in the United States and elsewhere.

Then came the Second Circuit's dramatic departure in Kruman v. Christie's International. The New York-based court found that foreign buyers and sellers alleging a conspiracy by auction houses Christie's and Sotheby's to fix the prices of their services at overseas auctions had a right to sue in U.S. courts. A petition for Supreme Court review was withdrawn after the case settled in 2002 for nearly $500 million.

This makes Empagran the front-runner in the often heated debate over how to interpret the scope of U.S. antitrust laws and their application to foreign conduct. The defendants will file a petition asking the Supreme Court to step in, and on September 24 asked the D.C. Circuit to stay its opinion in the meantime, says John Majoras, a Jones Day D.C. partner and lead counsel for defendant Rhone Poulenc (now Aventis). The Supreme Court petition must by filed by Dec. 10. The stay would prevent the case from heading to trial while the Supreme Court petition is pending.

The Specter of Treble Damages

Should the Supreme Court decline to hear the case or side with the plaintiffs, the Empagran decision will change the risk calculus for companies. Until now, businesses have assumed that the treble damage awards that often follow criminal convictions in the United States for price fixing would apply to U.S. plaintiffs only, says W. Todd Miller of D.C. antitrust firm Baker & Miller. The pool of plaintiffs worldwide could double the bill. “This should strike a fair amount of fear in those companies.”

Miller also argues that the decision amounts to interference with existing antitrust laws in the countries where foreign plaintiffs are based. Cartel prosecution is rising in Canada, Japan, and the European Union. Allowing claims by plaintiffs from those countries in U.S. courts only inhibits the development of local antitrust regimes, in effect superceding their laws. “These are different cultural and public policy issues,” says Miller. “If country X doesn't think that treble damages are appropriate, we're undermining their policies in antitrust enforcement.” In Great Britain, for example, antitrust class actions are permitted, but there are no treble damages. Also, damages are not available if the loss has been passed on to consumers. Limited opportunities for private enforcement of antitrust violations are also available in Spain, Italy, Germany, and France.

Both the Department of Justice and the Federal Trade Commission have been following the case closely. In March, the two agencies submitted an amicus brief to the D.C. Circuit that provided support to the position of the vitamin-makers. The brief stated that the court's ruling “would effect a sea change in the number and type of private antitrust actions permitted under the Sherman Act” and further “deepens a circuit split on an issue of exceptional and recurring importance regarding the scope of antitrust laws.” In addition, they argued, the possibility of treble damages for foreign plaintiffs would cripple the DOJ's corporate leniency policy, which provides criminal amnesty, but not amnesty from private suits, to cartel members that blow the whistle on co-conspirators. “Cooperation by a co-conspirator, through provision of documents or testimony, is often vital to law enforcement,” reads the brief. “To induce such cooperation, the Antitrust Division offers strong incentives to co-conspirators who elect voluntarily to disclose their criminal conduct and cooperate with prosecutors.”

In other words, the financial and legal risks associated with the possibility of paying treble damages to a global class of plaintiffs might well outweigh the benefits of the DOJ's criminal amnesty. Federal antitrust enforcers have only to point to the vitamin investigation itself, which began when vitamin supplier and cartel member Rhone-Poulenc provided information about the cartel in exchange for complete amnesty from criminal prosecution and federal fines.

But Gallagher says the DOJ's strategy for catching cartel law violators doesn't help to prevent the formation of cartels in the first place. The looming threat of treble damages, however, does. “The best laws and the best policies are the ones that deter conduct,” says Gallagher. “Not ones that allow for potential detection.” Adams of Dickstein Shapiro agrees. “Unless you can extract damages from cartels in all markets, not just in the U.S., you lose the deterrent effect,” says Adams. “It means that, indeed, crime still pays.”

Billions of dollars in potential awards, a new map for antitrust litigation, and what many say is a likely spot on the Supreme Court docket; Empagran v. F. Hoffman-LaRoche has it all. What could it mean for U.S. pharmaceutical (and other) companies? “Corporations in this country and all over the world are really scared of this,” says Paul Gallagher, a Washington D.C.-based Cohen, Milstein, Hausfeld & Toll partner who serves as lead plaintiffs counsel in the case.

A class action filed by foreign vitamin buyers, the suit is the latest round in the already epic litigation over vitamin price fixing. The cases stem from a Department of Justice criminal investigation that began in the mid-1990s and have yielded more than $1 billion in fines against a cartel of multinational pharmaceutical giants.

Background

At the root of Empagran are important questions about who can sue and who can be sued in U.S. courts for antitrust violations. On Sept. 11 of this year, the U.S. Court of Appeals for the D.C. Circuit in effect opened the doors of the courthouse to the world. In a 4-3 vote, the full court denied a request to rehear Empagran. In January, a split three-judge panel ruled that foreign purchasers who bought vitamins from overseas producers may file suit in U.S. courts under U.S. antitrust laws. “The same conduct injures both foreign plaintiffs and domestic plaintiffs, and it is clearly the conduct that Congress aims to reach with our antitrust laws,” wrote Judge Harry Edwards, joined by Judge Judith Rogers in the Jan. 17 majority opinion. Judge Karen LeCraft Henderson dissented.

Plaintiffs lawyers vigorously argue that the decision is the most efficient way to deter global cartels. But others say the D.C. Circuit's decision, which exacerbates a split between the Second Circuit and the Fifth Circuit, amounts to judicial imperialism and a green light for a crass money grab. The decision could mean more massive payouts from global vitamin manufacturers and a gravy train for U.S. lawyers eager to file contingent-fee cases on behalf of foreign plaintiffs. But many antitrust lawyers agree that the implications of Empagran go far beyond damages that could be paid by the vitamin producers. “The D.C. Circuit could be perceived to be a world court for antitrust claims based on foreign transactions,” says Andrew Marovitz, lead counsel for defendant BASF AG and a Mayer, Brown, Rowe & Maw partner in Chicago. “This is clearly a hot issue in antitrust.”

Laying the Foundation

The history behind Empagran goes back almost 10 years, to the Justice Department's Antitrust Division investigation into the pricing practices of an international group of vitamin producers. For nearly a decade, a group of vitamin companies had conspired to inflate the price for vitamins used in everything from breakfast cereal to animal feed. The investigation culminated in the conviction of more than a dozen companies, including F. Hoffman-LaRoche Ltd., BASF, Takeda Chemical Industries Ltd. and Eisai Inc. A handful of top executives went to jail. In 1999 alone, the DOJ imposed more than $850 million in fines on members of the cartel. The investigation received the help of a French pharmaceutical firm, Rhone-Poulenc S.A. That company, which took part in the price fixing, blew the whistle on fellow cartel members in exchange for amnesty from criminal prosecution.

The DOJ's criminal case laid the foundation for a slew of private civil cases %mdash; attractive work for plaintiffs' lawyers, since wrongdoing has already been established. The result has been a windfall for select U.S. firms. Dickstein, Shapiro, Morin & Oshinsky saw its revenue shoot up $61 million in 2002, thanks in large part to the contingent fee the firm received for its successful representation of 30 buyers of bulk vitamins. Kenneth Adams, the Dickstein partner who spearheaded the firm's vitamin litigation, says he's been contacted by a host of foreign plaintiffs, but has advised them to wait until the appeals in Empagran have run their course before filing suit. Indeed, many lawyers predict the case is destined for Supreme Court review.

The central question before the court revolves around the interpretation of the Foreign Trade Antitrust Improvements Act of 1982, which amended the Sherman Act. Three different takes on the issue from as many courts of appeals over the last 2 years have not helped clarify what many call the muddy language of the statute.

In February 2001, the New Orleans-based Fifth Circuit held it did not have jurisdiction over a Norwegian company's claim that a price-fixing conspiracy by providers of heavy-lift barge services inflated the company's cost of operating oil platforms in the North Sea. The company also alleged that the cartel's actions inflated oil prices in the United States. In 1997, two of the defendants agreed to pay nearly $50 million in fines after they pleaded guilty to conspiring to “suppress and eliminate competition” in the United States and elsewhere.

Then came the Second Circuit's dramatic departure in Kruman v. Christie's International. The New York-based court found that foreign buyers and sellers alleging a conspiracy by auction houses Christie's and Sotheby's to fix the prices of their services at overseas auctions had a right to sue in U.S. courts. A petition for Supreme Court review was withdrawn after the case settled in 2002 for nearly $500 million.

This makes Empagran the front-runner in the often heated debate over how to interpret the scope of U.S. antitrust laws and their application to foreign conduct. The defendants will file a petition asking the Supreme Court to step in, and on September 24 asked the D.C. Circuit to stay its opinion in the meantime, says John Majoras, a Jones Day D.C. partner and lead counsel for defendant Rhone Poulenc (now Aventis). The Supreme Court petition must by filed by Dec. 10. The stay would prevent the case from heading to trial while the Supreme Court petition is pending.

The Specter of Treble Damages

Should the Supreme Court decline to hear the case or side with the plaintiffs, the Empagran decision will change the risk calculus for companies. Until now, businesses have assumed that the treble damage awards that often follow criminal convictions in the United States for price fixing would apply to U.S. plaintiffs only, says W. Todd Miller of D.C. antitrust firm Baker & Miller. The pool of plaintiffs worldwide could double the bill. “This should strike a fair amount of fear in those companies.”

Miller also argues that the decision amounts to interference with existing antitrust laws in the countries where foreign plaintiffs are based. Cartel prosecution is rising in Canada, Japan, and the European Union. Allowing claims by plaintiffs from those countries in U.S. courts only inhibits the development of local antitrust regimes, in effect superceding their laws. “These are different cultural and public policy issues,” says Miller. “If country X doesn't think that treble damages are appropriate, we're undermining their policies in antitrust enforcement.” In Great Britain, for example, antitrust class actions are permitted, but there are no treble damages. Also, damages are not available if the loss has been passed on to consumers. Limited opportunities for private enforcement of antitrust violations are also available in Spain, Italy, Germany, and France.

Both the Department of Justice and the Federal Trade Commission have been following the case closely. In March, the two agencies submitted an amicus brief to the D.C. Circuit that provided support to the position of the vitamin-makers. The brief stated that the court's ruling “would effect a sea change in the number and type of private antitrust actions permitted under the Sherman Act” and further “deepens a circuit split on an issue of exceptional and recurring importance regarding the scope of antitrust laws.” In addition, they argued, the possibility of treble damages for foreign plaintiffs would cripple the DOJ's corporate leniency policy, which provides criminal amnesty, but not amnesty from private suits, to cartel members that blow the whistle on co-conspirators. “Cooperation by a co-conspirator, through provision of documents or testimony, is often vital to law enforcement,” reads the brief. “To induce such cooperation, the Antitrust Division offers strong incentives to co-conspirators who elect voluntarily to disclose their criminal conduct and cooperate with prosecutors.”

In other words, the financial and legal risks associated with the possibility of paying treble damages to a global class of plaintiffs might well outweigh the benefits of the DOJ's criminal amnesty. Federal antitrust enforcers have only to point to the vitamin investigation itself, which began when vitamin supplier and cartel member Rhone-Poulenc provided information about the cartel in exchange for complete amnesty from criminal prosecution and federal fines.

But Gallagher says the DOJ's strategy for catching cartel law violators doesn't help to prevent the formation of cartels in the first place. The looming threat of treble damages, however, does. “The best laws and the best policies are the ones that deter conduct,” says Gallagher. “Not ones that allow for potential detection.” Adams of Dickstein Shapiro agrees. “Unless you can extract damages from cartels in all markets, not just in the U.S., you lose the deterrent effect,” says Adams. “It means that, indeed, crime still pays.”