[Senate Hearing 113-387]
[From the U.S. Government Publishing Office]
S. Hrg. 113-387
CARTEL PROSECUTION: STOPPING PRICE FIXERS AND PROTECTING CONSUMERS
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HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 14, 2013
__________
Serial No. J-113-41
__________
Printed for the use of the Committee on the Judiciary
______
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89-503 WASHINGTON : 2014
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California CHUCK GRASSLEY, Iowa, Ranking
CHUCK SCHUMER, New York Member
DICK DURBIN, Illinois ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
MAZIE HIRONO, Hawaii JEFF FLAKE, Arizona
Bruce A. Cohen, Chief Counsel and Staff Director
David Young, Republican Chief of Staff
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Subcommittee on Antitrust, Competition Policy and Consumer Rights
AMY KLOBUCHAR, Minnesota, Chairman
CHUCK SCHUMER, New York MICHAEL S. LEE, Utah, Ranking
AL FRANKEN, Minnesota Member
CHRISTOPHER A. COONS, Delaware LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut CHUCK GRASSLEY, Iowa
JEFF FLAKE, Arizona
Caroline Holland, Democratic Chief Counsel
Bryson Bachman, Republican General Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota.. 1
Lee, Hon. Mike, a U.S. Senator from the State of Utah............ 3
WITNESSES
Witness List..................................................... 31
Baer, William J., Assistant Attorney General, Antitrust Division,
U.S. Department of Justice..................................... 4
Ronald T. Hosko, Assistant Director, Criminal Investigative
Division, Federal Bureau of Investigation, Washington, DC...... 4
prepared statement by Messrs. Baer and Hosko................. 33
Salzman, Hollis, Partner & Co-Chair, Antitrust and Trade
Regulation Group, Robins Kaplan Miller & Ciresi, LLP, New York,
New York....................................................... 18
prepared statement........................................... 43
Hockett, Christopher B., Chair, Section on Antitrust Law,
American Bar Association, and Partner, Davis Polk & Wardwell,
LLP, Menlo Park, California.................................... 20
prepared statement........................................... 47
Levenstein, Margaret C., Research Scientist, Institute for Social
Research, Adjunct Professor of Business Economics and Public
Policy, Ross School of Business, University of Michigan, Ann
Arbor, Michigan................................................ 21
prepared statement........................................... 60
Rosman, Mark, Partner, Wilson Sonsini Goodrich & Rosati,
Washington, DC................................................. 23
prepared statement........................................... 67
QUESTIONS
Questions submitted by Senator Klobuchar for Hon. William Baer... 78
Questions submitted by Senator Klobuchar for Ronald Hosko........ 79
Questions submitted by Senator Klobuchar for Margaret Levenstein. 80
Questions submitted by Senator Klobuchar for Mark Rosman......... 81
Questions submitted by Senator Klobuchar for Hollis Salzman...... 82
QUESTIONS AND ANSWERS
Responses of Hon. William Baer to questions submitted by Senator
Klobuchar...................................................... 83
Responses of Ronald Hosko to questions submitted by Senator
Klobuchar...................................................... 88
Responses of Margaret Levenstein to questions submitted by
Senator Klobuchar.............................................. 91
Responses of Mark Rosman to questions submitted by Senator
Klobuchar...................................................... 92
Responses of Hollis Salzman to questions submitted by Senator
Klobuchar...................................................... 98
MISCELLANEOUS SUBMISSIONS FOR THE RECORD
Letter to Hon. Eric Holder from Senators Stabenow, Schumer,
Brown, Klobuchar, Levin, Cardin, and McCaskill; September 30,
2013........................................................... 104
CARTEL PROSECUTION: STOPPING PRICE FIXERS AND PROTECTING CONSUMERS
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THURSDAY, NOVEMBER 14, 2013
U.S. Senate,
Subcommittee on Antitrust, Competition
Policy, and Consumer Rights,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:48 p.m., in
Room SD-226, Dirksen Senate Office Building, Hon. Amy
Klobuchar, Chairman of the Subcommittee, presiding.
Present: Senators Klobuchar, Blumenthal, and Lee.
OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM
THE STATE OF MINNESOTA
Chairman Klobuchar. Good morning, and I am pleased to be
here with Ranking Member Senator Lee. Today we are going to be
discussing criminal enforcement against the most egregious type
of antitrust violation, and that is price fixing. The concept
is simple. Under the law competitors cannot get together and
form a cartel to agree on what prices to charge their
consumers. Price fixing is not only a crime; it is also a tax
on businesses, consumers, and innovation.
Price fixing can come in various forms. It can involve
agreements to set an actual price or agreements to limit
output. It can involve agreements not to compete, such as
rigging a competitive bidding process or dividing up a market
between competitors.
There is absolutely no business justification for this
conduct. Cartels have no purpose other than to rob consumers.
As Justice Scalia wrote in a 2004 Supreme Court decision,
cartels are ``the supreme evil of antitrust.''
Anyone who bought a TV, computer, or other device with an
LCD screen between roughly 2001 and 2006 was a victim of price
fixing. I do not know if they know that, but they were.
Executives from several manufacturers of LCDs met secretly in a
hotel room where they hatched a scheme to fix the prices of
LCDs for major computer and TV makers in the U.S. and around
the globe. They continued to meet for years until one of the
cartel members, fearing detection, notified the DOJ's Antitrust
Division in order to avoid criminal liability by cooperating
with prosecutors. So far, the Justice Department has locked up
13 executives and fined participating companies a total of
$1.39 billion. Yes, that is a billion. Not an ``M,'' a ``B''
for billion.
Over the past two years, the Department of Justice has been
uncovering an extensive network of price fixing in the auto
parts industry--again, something that most Americans may not
know, but does affect them and should matter to them. Between
2003 and 2010, Japanese auto part makers rigged the bids to fix
prices on five billion dollars in auto parts sold in the United
States, everything from seat belts to starter motors to
ignition coils and other essential vehicle components. This
means that car makers here in the U.S., including GM, Ford,
Chrysler, and the U.S. subsidiaries of Honda, Mazda, Nissan,
Toyota, and Subaru paid artificially high prices for parts
included in cars sold to 25 million Americans. The companies
involved have been fined more than $1 billion, and 17
executives have been sentenced to jail time.
The Antitrust Division's work on criminal cartels over the
past two decades is a true success story. The evolution of its
Corporate Leniency Program, which offers leniency to the first
cartel member to report criminal conduct, has clearly helped to
unmask major international cartels. However, despite tough
fines and jail sentences, the DOJ continues to discover more
and more of these cartels.
So we need to ask important questions: Is enforcement as
effective as it can be in deterring price fixing? With the
DOJ's budget tightening due to sequestration, is there a risk
that cartels will get away with even more with their bad
conduct? Is DOJ's focus on large international cartels coming
at the expense of going after more of the localized domestic
cartels?
We will also ask the ultimate question that most consumers
might be asking: How does this impact me? How do consumers, the
victims of price fixing, get their money back?
The Antitrust Division collects extensive fines on behalf
of the government, and they go to a worthy cause: the Crime
Victims Fund. Under the antitrust laws, consumers who are
harmed by cartels must seek restitution for the higher prices
they paid in private litigation. Retailers from Best Buy--that
is our local company; I thought I would add that in--retailers
from Best Buy on down to Mom-and-Pop stores who sold TVs and
computers, auto makers who installed price-fixed auto parts,
and consumers who bought these products all have to go to court
and get their money back.
To make sure that consumers have an incentive and ability
to bring these cases as well as to deter price fixing,
antitrust law holds price fixers liable for treble damages, or
triple the amount they ripped off from their victims.
Congress has acknowledged the critical role that private
suits play when it comes to protecting consumers from criminal
price fixing. In 2004 and again in 2010, Congress passed
bipartisan legislation that provides an incentive to convicted
price fixers to cooperate with the Justice Department and
private litigants in exchange for being liable for only single
as opposed to treble damages for their illegal conduct. We need
to make sure that this system is working and that road blocks
are not being put up to prevent businesses and consumers from
getting the redress that they deserve.
As a former prosecutor, cracking down on white-collar crime
was always a priority of mine, as it is now heading up the
subcommittee of the antitrust group. And when it comes to price
fixing, crime quite literally pays. Companies can make hundreds
of millions of dollars for as long as they can if they keep all
their co-conspirators in line and under wraps. But by having
strong laws on the books against price fixing, tough government
enforcement, and the opportunity for victims to get redress, we
send the message to corporate boardrooms across the globe that
price fixing and bid rigging will not be tolerated and it will
not pay.
I look forward to hearing from our witnesses about the good
work that they are doing, and I will turn it over to Senator
Lee for his opening statement.
OPENING STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE
STATE OF UTAH
Senator Lee. Thank you, Madam Chair. Thanks to both of you
for joining us today.
Cartels cost Americans many billions of dollars every
single year. Each time a consumer pays for a product or for a
service that has been affected by price fixing, bid rigging, or
market allocation, that consumer is necessarily paying a
premium that in some fashion or another enriches persons who
are engaged in criminal conduct.
Cartel activity has no redeeming value, no virtue. There is
widespread agreement among Republicans and Democrats that
cartels should be vigorously pursued and severely punished, and
there is certainly absolute agreement between Senator Klobuchar
and myself on this point.
Our hearing today will focus on what has worked well in
cartel enforcement and potential areas for improvement in that
area. The Department of Justice, working together with the FBI,
has a very impressive record of prosecuting cartels.
In recent years, the Antitrust Division has averaged almost
$1 billion in criminal fines. The average prison sentences for
defendants guilty of engaging in cartel activity has also
increased.
But while these accomplishments are noteworthy, it is very
important for us to remember that the government must not rest
on its laurels. Some commentators suggest that criminal fines,
however large they might be, may not be sufficient to deter
criminal activity by corporations, and in some instances they
may end up punishing shareholders more than the truly guilty
actors.
Others have raised concerns regarding the difficulty of
discovering cartels by means other than pursuant to the
government's Leniency Program. The Leniency Program has been
hugely successful, but it has some limitations. It depends on
bad actors fearing that there is a reasonable chance that they
will actually get caught. It also depends on a bad actor
turning itself in before the cartel has done too much harm to
consumers.
I look forward to discussing the ways in which the
government can detect and prosecute cartels, even in those
instances in which a guilty company has neither the incentive
nor the courage to come forward.
I also look forward to discussing a few other aspects of
cartel enforcement that may well merit some consideration. I
have heard concerns expressed about the current policy with
respect to providing defendant companies some sort of credit
for having implemented a compliance program. I have also heard
concerns about the potential for double fines for transactions
that affect both the U.S. and a foreign jurisdiction.
Finally, I believe the Antitrust Division and Mr. Baer
deserve a tremendous amount of credit for implementing a new
policy in April of this year by which the names of persons
carved out of a settlement are not made public in an
indictment.
As a final note that is not directly related to this
hearing, I am carefully reviewing the Division's proposed
settlement with American Airlines and U.S. Airways and intend
to follow up with the Department of Justice by letter regarding
that particular transaction.
I look forward to hearing from the witnesses, and thank you
both for being able to help.
Chairman Klobuchar. Thank you very much.
I would like to introduce our distinguished first panel of
witnesses. Our first witness is Mr. William Baer. Mr. Baer was
sworn in as the Assistant Attorney General for the Department
of Justice Antitrust Division in January of this year. Prior to
his appointment, he was a partner at Arnold & Porter and head
of the firm's antitrust practice group and director of the
FTC's Competition Bureau.
Our second witness is Mr. Ronald Hosko. Mr. Hosko was named
the Assistant Director of the Criminal Investigative Division
for the Federal Bureau of Investigation in July 2012.
Previously he served as a special agent in charge of the
Washington Field Office Criminal Division.
I thank you both for appearing at our Subcommittee's
hearing today, and I think you brought a really cool-looking
chart--don't you think?
Senator Lee. Absolutely.
Chairman Klobuchar. So we are looking forward to hearing
about that, and I think I would ask you to rise and I will
swear you in. So raise your right hands. Do you affirm that the
testimony you are about to give before the Committee will be
the truth, the whole truth, and nothing but the truth, so help
you God?
Mr. Baer. I do.
Mr. Hosko. I do.
Chairman Klobuchar. Thank you. All right. Well, let us get
started.
Mr. Baer.
STATEMENT OF WILLIAM J. BAER, ASSISTANT ATTORNEY GENERAL,
ANTITRUST DIVISION, U.S. DEPARTMENT OF JUSTICE; AND RONALD T.
HOSKO, ASSISTANT DIRECTOR, CRIMINAL INVESTIGATIVE DIVISION,
FEDERAL BUREAU OF INVESTIGATION, WASHINGTON, DC
Mr. Baer. Thank you, Chairman Klobuchar, thank you, Ranking
Member Lee. I appreciate you inviting me to appear before you
today, and I am very pleased to be seated alongside Assistant
Director Hosko. The FBI, as you said, Chairman Klobuchar, is a
key and longstanding partner in the Justice Department's
success in battling cartels. Working together, we think we can
and will continue to make a difference for American consumers.
Spotlighting cartel misconduct is the right focus for the
Subcommittee. Price fixing, bid rigging, and other criminal
antitrust crimes cause direct and unambiguous harm to U.S.
consumers. Effective enforcement by the FBI and the Antitrust
Division restores competition and returns markets to
competitive levels, resulting in lower prices for consumer
goods and consumer services.
In this last Fiscal Year just completed, the Division filed
50 criminal cases. We charged 21 companies and 34 individuals
for crimes affecting tens of billions of dollars of U.S.
commerce. The Division obtained criminal fines totaling just
over $1 billion, and courts sentenced 28 individuals to jail
terms that averaged more than two years per defendant. American
taxpayers are well served by effective cartel enforcement.
In just the past five fiscal years, the Antitrust Division
averaged about $850 million in criminal fines per year versus
the average appropriation of about $85 million, minus some
money we get from Hart-Scott-Rodino merger filing fees, but the
direct appropriation on average was $85 million, the fines on
average $850 million. And as the Chairman noted, these fines do
not go to the Antitrust Division. They go to the Crime Victims
Fund, which helps victims of all types of crime throughout the
United States.
In recent years, our efforts have resulted in a dramatic
increase in exposing the world's largest price-fixing cartels.
We have successfully prosecuted cartels involving air
transportation, obtaining $1.8 billion in criminal fines.
Liquid crystal displays, the LCD panels, that go into
everything consumers buy to watch on an iPad or a TV, we
obtained more than $1.4 billion in fines there. And most
recently, as we will talk about, the auto parts matter where to
date we have obtained $1.6 billion in criminal penalties.
Those fines do not tell the whole story. To be sure,
criminal penalties make cartel behavior less attractive for
companies. But it is also the threat of jail time for the
company officials responsible for injuring consumers that is
itself a powerful deterrent. That threat is real. Today more
individuals involved in cartel activity are being jailed for
longer periods of time than ever before. In the 1990s, our
average jail sentence for an antitrust crime was about eight
months. Today the average prison sentence is 25 months, over a
threefold increase.
Successful prosecution of large international cartels
obviously poses significant challenges to the FBI and to us,
with documents, witnesses, and wrongdoers often located outside
the U.S. We have a shared commitment with enforcers around the
world to fighting international cartels, and we work closely
together in trying to overcome those challenges.
Last month, Attorney General Holder described our ongoing
auto parts investigation and how it exemplifies ways in which
the Division and the FBI together cooperate with our foreign
counterparts. This is the largest criminal investigation the
Antitrust Division has ever pursued, both in terms of its scope
and the potential of volume of commerce affected by the
conduct. The investigation included FBI search warrants
executed on the very same day in the United States as dawn
raids were conducted elsewhere around the world. And today the
cooperation with our international counterparts continues. It
includes enforcers from Japan, Canada, Korea, Mexico,
Australia, and the European Commission.
What do we have to show thus far for our efforts? To date,
we have charged 21 companies and 21 executives. All 21
companies have either pleaded or agreed to plead guilty. The
immediate victims of those companies are automotive
manufacturers such as Ford, GM, Chrysler, Honda, Toyota,
Nissan, Subaru, Mazda, and Mitsubishi. And as you can see from
the chart that is stage left, to my right, the conspiracies
covered a wide variety of parts, including important safety
systems such as seat belts, airbags, and antilock brakes.
The cases filed to date involve conduct affecting over $8
billion in auto parts sold to car manufacturers in the United
States, and those are parts used in more than 25 million cars
purchased by American consumers. The multiple conspiracies we
charged in September affected auto companies manufacturing in
14 different States.
Cartels involving components of finished products are not
unique to the automobile industry. For example, our long-
running joint investigation with the FBI into LCD flat panels
uncovered long-running price-fixing conspiracies that affected
computer manufacturers like Hewlett-Packard, Dell, and Apple.
In turn, those conspiracies injured families, schools,
businesses, charities, and government agencies that purchased
the notebooks, the laptops, the computer monitors that
incorporated the LCD panels into their products. We had a trial
last year against one of the corporate conspirators, AUO, and
we offered evidence showing that the conspirators increased
their margin on each product by an average of $53. That meant
every flat panel shipped into the United States had an inflated
price of as much as $53. That stat alone tells us how the
cartel behavior we are trying to attack imposes real costs on
the direct purchasers and in turn on U.S. consumers.
We have also prosecuted successfully cartels in the
financial services industry involving municipal bonds where we
worked together with the FBI, the SEC, the Comptroller of the
Currency, the Federal Reserve, and a working group of 20
different State Attorneys General. There the implicated have
paid about $750 million in restitution, penalties and
disgorgement, and 20 individuals have been charged; 19 have
either been convicted in trials or pleaded guilty.
While our enforcement efforts do focus to a significant
extent on large-scale national and international cartels, we
appreciate that there is local and regional impact that we need
to pay attention to. For example, the Division continues to
uncover collusive schemes among real estate speculators aimed
at eliminating competition at real estate foreclosure auctions.
With the assistance of the FBI and folks at HUD, we are looking
at bid rigging and fraud in local markets in Alabama,
California, Georgia, and North Carolina. To date, we have
already brought charges against 64 individuals and three
companies. That bad behavior involved more than 3,400
foreclosed homes, and it has caused more than $23 million in
loss primarily to mortgage holders.
Together, the FBI and the Antitrust Division's dedicated
public servants are working hard to hold both companies and
individuals responsible for cartel behavior. The American
consumer is the beneficiary of those efforts.
Thank you, and I look forward to responding to your
questions.
Chairman Klobuchar. Thank you very much, Mr. Baer.
Mr. Hosko.
Mr. Hosko. Good afternoon, Chairwoman Klobuchar and Ranking
Member Lee. I appreciate the opportunity to appear before you
today and for your continued support of the men and women of
the FBI.
The FBI has forged a strong partnership with DOJ's
Antitrust Division which has resulted in successful
prosecutions in very significant cases. The international
relationships, diverse scope, and broad intelligence network of
the FBI uniquely positions us to join our DOJ colleagues in
addressing these criminal matters that often have a global
reach.
There is no doubt that collusion within the global economy
undermines the U.S. market and harms U.S. consumers. The FBI is
absolutely committed to investigating domestic antitrust
violations. Recognizing the potential economic impact of
broader multinational conspiracies, the FBI has aligned its
international criminal investigative programs, including
antitrust, to detect and investigate price fixing and other
illicit conduct by foreign cartels.
In 2008, we formed the International Corruption Unit to
manage antitrust, Foreign Corrupt Practices Act, and
international fraud against the government as well as money-
laundering investigations that involve systemic commercial
corruption or complicity of foreign officials.
The alignment recognized the need for shared and enhanced
expertise in multinational criminal investigations, productive
relationships with foreign partners, and the application of
proactive techniques to identify sophisticated conspiracies.
The body of information and intelligence generated by these
cases provides a broader understanding of illicit commercial
activity within regions, countries, and industries.
A second element, the Foreign Corrupt Practices Act,
prohibits bribery of foreign public officials by U.S. and
certain foreign businesses for commercial advantage. Partnering
with DOJ's Criminal Division, the FBI investigates allegations
of illegal commercial bribery around the world. Since the Act
itself does not apply to corrupt foreign officials, committed
foreign partners add tremendous value to our efforts.
Through parallel investigations, both the companies'
representatives and corrupt officials can be brought to
justice. To enhance cooperation in this area, the FBI recently
implemented the International Foreign Bribery Task Force. It is
a partnership of law enforcement counterparts from the United
Kingdom, Canada, and Australia, and fosters enhanced
information sharing and investigative cooperation in foreign
bribery matters.
The recent addition of international money-laundering
investigations to the international corruption portfolio
provides yet another avenue for us to identify public and
commercial corruption. For example, a kleptocracy investigation
might reveal the target not only looted his nation's treasury
but accepted bribes from U.S. companies to allow for access to
markets and resources.
During the country's engagements in Afghanistan and Iraq,
hundreds of functions historically performed by military
personnel were privatized. As a result, the FBI and our
partners observed complex and wide-ranging fraud schemes
related to government contracting. In 2005, we launched the
International Contract Corruption Initiative to evaluate the
crime problem, engage the numerous law enforcement agencies
sharing jurisdiction, and develop a mutually reinforcing
strategy to address the problem. As a result of these efforts,
the FBI joined eight other federal law enforcement agencies in
forming the International Contract Corruption Task Force, which
focuses on fraud and corruption related to U.S. military,
reconstruction, and humanitarian aid in Afghanistan and Iraq.
Using forward-deployed agents to conduct assessments of
corruption and fraud allegations, we developed viable cases and
directed domestic field offices to coordinate prosecutions.
Many of the schemes we uncovered involved military and civilian
personnel responsible for some element of the contracting
process. Examples included payment of bribes in exchange for
issuing government contracts and kickbacks to facilitate theft
of diesel fuel using scores of tanker trucks. Individuals
involved were not only criminally derelict in their duty; in
some cases they may have aided the enemy.
As this is in most cases white-collar crime, the primary
motivating force was greed.
Interagency cooperation contributes greatly to the success
of this initiative and others. A joint operations center
staffed by representatives from the eight participating
agencies and collocated within our International Corruption
Unit provides vital information sharing, deconfliction of
cases, and analytic support to deployed investigators.
Despite resource challenges across the government, we have
achieved meaningful success in countering antitrust and other
international corruption. Clearly there is more to be done, but
through coordination with committed foreign and domestic
partners and by effectively prioritizing, the FBI is positioned
to combat the most egregious offenders.
In conclusion, I thank you both for this opportunity to
discuss our programs, and I look forward to answering your
questions.
[The prepared statement of Messrs. Baer and Hosko appears
as a submission for the record.]
Chairman Klobuchar. Thank you very much. Thank you to both
of you.
I did want to put on the record a statement from Senator
Levin of Michigan. As you know, Detroit is home to the auto
industry, the State of Michigan, very important, and it is a
good statement about the concerns that he has about price
fixing and the good work that needs to continue to be done. So,
with that, I will enter Senator Levin's statement in the
record.
[No statement from Senator Levin was submitted for the
record.]
Chairman Klobuchar. Mr. Baer, before I get into the cartel
issues, I want to ask about something that Senator Lee
mentioned in his statement, and that is the settlement of the
U.S. Airways and American Airlines merger.
As we all know from the news this week--and you know better
than all of us up here--the settlement calls for divestiture of
slots at two slot-constrained airports--that would be Reagan
and LaGuardia--and two gates at each of five other large
airports. The Justice Department's complaint, as I recall, was
broad. It said the merger would create some major problems for
competition, and there were fare issues as well as risk of
increases in baggage and change fees, something I have been
involved in in the past in terms of trying to eliminate that or
reduce it.
Do you think that the divestitures address all of these
problems? And what do you see is coming out of this for the
rest of the country in addition to the areas where the slots
were divested?
Mr. Baer. Thank you, Chairman Klobuchar. We do think this
settlement is going to result in a net improvement in the
competitive situation for U.S. air passengers. Why do I say
that? Right now, we have had develop over the years what our
complaint refers to as a relatively cozy oligopoly between the
four major legacy carriers. And what we are trying to do in
terms of this settlement is enable the group of carriers who
are low-cost, effective competitors to be able to offer more
opportunity, more seats at more competitive fares than ever
before.
In coming to that as an acceptable resolution to the
litigation we filed to block the merger, we looked hard at what
happened in airports around the country when low-cost carriers
did get a foot in the door. When United had to give up its
slots at Newark three years ago when it merged with
Continental, Southwest picked up about 30 slots and was able to
enter that market. It, within short order, was able to fly
nonstop to six cities and offer consumers extraordinarily
competitive fares in many of those cities.
Just an example, from Newark to St. Louis, Southwest within
a matter of months had increased the number of seats available
to consumers by twofold, 100 percent. Fares dropped on
average--this is not just the Southwest fare but the competitor
fare--dropped on average by 27 percent. These low-cost carriers
do have and can have a meaningful impact, but it is not just on
the nonstop traffic that they add. They then can connect city
to city, city to city to city, one-stop traffic, and offer
consumers more meaningful competition on those fares than they
are getting today.
As we looked at that hard evidence--and this is just but an
example--Jet Blue was able to obtain a few slots to obtain a
presence here at DCA, and it had a dramatic effect on seats
available up to Boston and the prices charged for those seats.
So enabling some folks who now are constrained because they
do not have access to slots, they do not have access to gates
around the country to be more competitive, we are going to
change the competitive dynamic that the legacy carriers are
facing today. They are going to have to respond, and they do
respond----
Chairman Klobuchar. Do you think that would help, though,
with the change fees and the baggage fees and some of these
other issues that go to areas that are not even included in
your slot-divested areas?
Mr. Baer. Well, we can see from the ads that not all
carriers are alike in terms of how they handle baggage fees.
For example, they compete on that dimension. But because a
carrier like Southwest is very limited today in the points
where it can go to, it does not offer that national competition
that it will be able to offer on a much broader platform if
this deal goes through, if the court accepts our proposed
settlement and divestitures.
Chairman Klobuchar. Okay. Just one more question. I know
you are focused on these low-cost carriers, and we love having
low-cost carriers there as a competitive force. But they do not
always serve some of those small and medium-size cities like I
have in my State. I do not think we have Jet Blue going to
Bemidji or, you know, places like that.
One question I had is the divestiture bidding process. Will
all airlines be able to participate? And as I understand it,
the DOJ has acknowledged that some small and medium-size
communities will lose service as a result of these
divestitures. And if that is the case, shouldn't we allow some
of the carriers that might compete more readily for those
flights to be able to compete for those slots?
Mr. Baer. Thank you, Madam Chair. We do not know that
anyone is going to lose service, and, in fact, you know, we are
not a regulator. We do not decide where people fly and where
they do not fly. But we were conscious in negotiating the
settlement in making sure that none of the slots that were
surrendered by American and U.S. Airways were the small-plane
commuter slots that are designated to fly to small and medium-
size communities. We set those aside, let them keep them in
order to keep open the opportunity for them to fly to those
small and medium-size communities where, as you say, the low-
cost carriers are, at least today under the current
configuration, unlikely to fly. And, separately, the Department
of Transportation and the merging parties--American and U.S.
Air--entered into an agreement in which U.S. Air and American
in the new American configuration agreed to continue to use
those commuter slots to serve small and medium-size communities
and medium-size hubs.
Chairman Klobuchar. But are all airlines going to be able
to participate? Just yes or no.
Mr. Baer. That is the first part of the question. The
answer is, ``Yes, but,'' if I may, and the ``but'' simply is
that we will talk to anybody who can come in and convince us
that they are going to compete those assets aggressively and
effectively. Based on our experience, we have some concerns
about whether the legacy carriers are really going to offer
that competitive dynamic. So we will talk to them. If they do
not like where we end up going, they have an opportunity to
object in court to the settlement. But we will hear them, we
will listen to them. That is what we do.
Chairman Klobuchar. Okay. Well, I just think the goal of an
auction should be to select carriers that can both effectively
compete, as you point out, on price with the new American
Airlines, but also serve those small and medium-size
communities that could lose service as a result of the
divestiture. So I am sure there will be more ahead on that.
But let us get to auto parts and cartels and other things.
We noted that the DOJ has posted impressive wins in prosecuting
cartels, yet year after year, even as more and more larger
fines and prison sentences are imposed, there still seem to be
more and more cartels uncovered. Is price fixing not being
deterred? Or are we just becoming better at detecting it? And I
guess the follow-up question would be: What new innovations is
the DOJ looking at despite limited constraints with funding?
Which I will get to in a minute. What other ideas do you see
ahead for cartel enforcement?
Mr. Baer. Senator, we think we are getting better at
detection, and both you and Senator Lee mentioned the Leniency
Program as one vehicle by which we are able to get companies to
self-report bad conduct. That is successful both on a national
and local level and on an international level.
In addition, by cooperating with helping educate our fellow
competition enforcement agencies around the world on the evils
of cartels, we have actually achieved remarkable convergence in
the last 20 years, agreement that these things should be
prosecuted vigorously, that other governments should establish
leniency programs to encourage self-reporting, and that seems
to be working.
Chairman Klobuchar. Very good. On the resource issue I just
mentioned, last week Preet Bharara, the U.S. Attorney for the
Southern District of New York, raised serious concerns about
the Justice Department's underfunded budget. He said, ``People
are going to start getting away with bad conduct. Victims are
going to be able to be vindicated. In my mind, it is something
of a tragedy.''
Do you share this concern? And do you have enough resources
to maximize detection and prosecution of cartels?
Mr. Baer. We will work as effectively as we can with every
dollar Congress entrusts to us, every taxpayer dollar. That is
our job.
At the same time, the combination of sequestration and the
need to impose a limitation on hiring until that process sorts
itself out means we have actually many fewer prosecutors going
after antitrust crimes today than we did three years ago. We
have gone from about 124 down to about 84. As you know, based
on your experience, that kind of reduction cannot help but have
an impact.
Chairman Klobuchar. And does that include the ones that
were eliminated because of the closure of the field offices in
places like Cleveland, Atlanta, Dallas, and Philadelphia?
Mr. Baer. We offered the opportunity for all those people
to transfer. Some did, some----
Chairman Klobuchar. Right. Many positions were eliminated,
I----
Mr. Baer. No, the positions were not eliminated, but with a
hiring freeze in place, we are limited in our ability to go out
and recruit replacements.
Chairman Klobuchar. Right.
Mr. Baer. Hopefully when we get that issue resolved, we can
get back to our normal hiring practice.
Chairman Klobuchar. Well, right, and I would love to, as we
talked about in the hallway, replace sequestration, and I have
some ideas on how we can do it right now, and I am hopeful we
are going to do something about this going forward with the
budget negotiations while still bringing our debt down, because
I am afraid we are going to lose out for consumers in the long
term if we do not have people going after cartels like these.
But as I mentioned, some of these field offices did close down,
most likely because of budget issues.
Do you think that it is harder to go after some of these
local--you know, where people might be more willing to come
forward about price fixing at an auto dealer shop or all kinds
of things when you do not have those?
Mr. Baer. We hope not. Part of what we do, in addition to
our Leniency Program, is we do considerable outreach,
particularly with other government officials at the federal,
State, and local level, helping particularly federal
procurement officials understand where they might be seeing a
suspicious pattern of bidding behavior, and they will know who
to come to at the FBI or over at the Antitrust Division.
I learned this morning that over the past four years or so
we have actually done briefings and education for over 20,000
civil servants at various levels of government to help them
help us. That is one way we can enrich the process. But it is a
challenge doing outreach at the level we would like to do with
the resources currently available to us.
Chairman Klobuchar. Okay. Do you want to follow up at all,
Mr. Hosko?
Mr. Hosko. I would share the U.S. Attorney's and Mr. Baer's
concern and my Director's concern about the resource
restrictions that we are facing. In the past 12 years, the FBI
shifted approximately 1,200 agents out of the criminal programs
to address the counterterrorism threat, and that was hundreds
of agents out of our white-collar crime program. With each of
those agents that is not in this strata of our work, that is an
opportunity for some person who wants to conspire unlawfully to
commit crimes that we are talking about here today, the whole
range of white-collar crime.
There are hundreds of Internet frauds that are being
conducted today that we cannot touch, nor could we ask to have
prosecuted because we do not have the sufficient numbers of
people to conduct the investigations or to have them prosecute
it.
So this is another piece of that market, the white-collar
crime market broadly, that without FBI agents there and without
somebody else filling that void--it might be State and local
law enforcement effectively trained to fill the void and take
the cases--there is going to be a gap, and that gap presents an
opportunity for price fixers and predators.
Chairman Klobuchar. Very good. I do not know if you know,
but Mr. Comey, Director Comey, and I went to law school
together. We were in the same class.
Mr. Hosko. I did not know that.
Chairman Klobuchar. Yes, there you go. So I will report
back to him that you are doing a good job, Mr. Hosko.
Mr. Hosko. Thank you.
[Laughter.]
Chairman Klobuchar. But also I have appreciated--and you
can tell him this--that he has been out front on how many FBI
agents this is going to mean if this continues with the
sequester. I think the number is--what is it, 2,000?
Mr. Hosko. It is roughly 3,500 personnel.
Chairman Klobuchar. 3,500, okay.
Mr. Hosko. And I think it bears mentioning that we need
smarter FBI agents, and among the first things that we turned
off in Fiscal Year 2013 was training. So our opportunity to get
together with prosecutors, with partners, and with our own work
force to make them smarter on these subjects got flattened last
year because of the impacts of sequester on our budget. We need
a smarter work force, a more agile work force, and these
impacts will take us in the other direction.
Chairman Klobuchar. All right. Good. Well, I have gone on
awhile here, so I am going to give it over to Senator Lee to
ask as many questions as he wants. Thank you very much to both
of you.
Senator Lee. Thank you very much.
First of all, on the airline issue, I am pleased to hear
you discuss the bidding process for the slots made available
under the terms of the settlement agreement. That is an issue
that, as you know, Senator Klobuchar and I have been concerned
about, and that is an issue that we opined about in our letter
that we sent to you a few months ago. And I continue to share,
of course, Senator Klobuchar's view that the bidding process
should be open and competitive, and so I look forward to
following up on that by letter.
Mr. Baer, with respect to some concerns that I have had
about people coming to me and indicating that there is a
potential for U.S. companies to be fined for the same conduct,
I wanted to raise some of those concerns with you. There is
some potential, as I understand it, for a company, including a
U.S. company, to be fined twice for the same conduct related to
a cartel. Such double counting, as I understand it, would arise
in a context in which both the United States and a foreign
government stand convinced that the same transaction had an
impact on its own customers, on its own consumers within that
country.
I know this can be complex, and it can be really difficult
to ascertain in any given context for any given activity. But I
just wanted to ask you what the Division can do, if anything,
to ensure that companies, including and especially U.S.
companies, are not made subject to double fines for the same
transaction in a cartel investigation.
Mr. Baer. Thank you, Senator. First, in determining what a
fine amount should be in the United States, we are guided by
the U.S. Sentencing Guidelines, which require us to take a look
at the volume of affected commerce involving the United States.
So in calculating our fines, we are looking not at the
worldwide sales, but we are looking at the sales that have a
connection to the United States and potential adverse impact on
U.S. consumers. And then we work out a fine under a formula
under the Sentencing Guidelines.
In terms of trying to make sure, though, that people are
not getting hit two, three, four, or five times around the
world for the same thing, we have begun working quite closely
with other enforcers, talking about methodology where we can,
we have got confidentiality issues in terms of Rule 6(b) about
what we can share, but talking about approaches so that the
cartel offense is properly penalized but not overly penalized,
that this just does not become a tool for everybody to get
dollars. So it is a legitimate concern, but we are focused on
it.
Senator Lee. Okay. And you think the procedures you have in
place are adequate to address that?
Mr. Baer. Yes, sir.
Senator Lee. Okay. As I understand it, the Department does
not currently have in place a mechanism whereby a company's own
compliance program can be taken into account when discussing
settlement for illegal cartel activity. Is that the case?
Mr. Baer. I think there is a misperception out there. When
we are looking at the fine that we are going to demand from a
cooperating company, we do look at the cooperation they
provided, that is, the self-confession, even if they are not in
under the Leniency Program; but we also take a look at--and in
private practice I have benefited from this when I represented
corporations--the quality and extent of the in-house compliance
program. But it goes to the size of the fine, not whether the
misconduct occurred or not, and that is where sometimes I think
there may be a misunderstanding out there in the business
community that I need to work on.
Senator Lee. Okay. So it does exist, it can be taken into
account, it is routinely taken into account. It just relates to
the severity of the fine and not whether or not an action
should be brought.
Mr. Baer. That is correct, although routinely taken into
account does not mean we routinely credit it because we have
really got to look at whether it was something that is on paper
or that is real.
Senator Lee. Right, or whether it is something that is
there largely to cover up the fact that something funny might
be going on behind the scenes.
Mr. Baer. Yes, sir.
Senator Lee. Do you think the extent to which you take it
into account is adequate? Does it adequately reward--I do think
there are tremendous benefits to be born--to the extent to
which any company believes that by having a pretty robust,
honest, and aggressive internal compliance program, to the
extent they believe that they will benefit from doing that, I
think they will do it. And the more we can do to incentivize
companies to do this, the better off I think we are going to
be, because we are going to--obviously whenever we are
operating in the world of government, we are dealing with
finite resources--resources that can become more finite over
time with things like sequestration and things like that. And
so the more we can get people to police themselves rather than
requiring you to police them, the better off we are going to
be.
Do you think the extent to which you take that into account
currently adequately incentivizes that?
Mr. Baer. Senator, I think the key incentive is the
penalties that people pay if they do not comply, if
corporations and their officers are involved in the misconduct.
I have been practicing in this area for many years, and part of
the time in the private sector, and one reason why I think we
are seeing fewer U.S. corporations involved in antitrust
misconduct is that the level of awareness within the corporate
community, particularly in the U.S., has risen over the last 20
years. The consequences are so severe.
So I do think the threat of bad outcomes is motivating
better front-end attention being paid by both lawyers and by
the company execs.
Senator Lee. What about the types of penalties, not just
the magnitude of the penalty but the types of penalties
available? Are those adequate?
Mr. Baer. I believe they are. You know, it is always hard
to tell what you are deterring and not deterring and what you
are overdeterring. But these are huge penalties. Companies are
worried about them. They are worried about the treble damage
consequences that come on top of an antitrust violation. And
one measure of whether it is working properly is the number of
companies who are coming in and voluntarily self-confessing.
You know, if the first one in does get leniency for itself as a
company and cooperating employees, but it still faces civil
penalties, and the other companies rush in because they know we
are going to respect the fact they got in early and owned up
and give them a downward adjustment in what they would
otherwise have to pay, I think it is working pretty well. I do
not think we need more authority than we have now.
Senator Lee. Including authority to make someone ineligible
to serve on a corporate board in the future?
Mr. Baer. I think the thought of going to jail is a pretty
powerful deterrent absent having other authority.
Senator Lee. Thank you very much.
Thank you, Madam Chair.
Chairman Klobuchar. Thank you very much.
We have been joined by Senator Blumenthal, someone who
knows a little bit about prosecuting wrongdoers.
Senator Blumenthal.
Senator Blumenthal. Thank you. I want to first thank
Senator Klobuchar and Senator Lee for having this hearing--
very, very important and significant not only to the
profession--and I thank you, Assistant Attorney General Baer,
for your professional involvement over many years in this area
of law--but also to the American people, and particularly as
institutions become bigger and people lose confidence and trust
in the workings of the marketplace as those institutions become
bigger and more powerful, I think the work that you do is ever
more important.
And I want to begin with the Leniency Program, which really
works only because you have done effective enforcement in the
past. In other words, as you aptly described it, the fear or
apprehension--in other words, the deterrent effect of past
prosecutions--is what drives the Leniency Program at the end of
the day.
And my concern is that most of the cases that are brought
today, I think, from what I have seen, are generated
exclusively from firms that have decided to come forward and
seek leniency applications. And I know that resources are a
consideration, that enforcement requires more than just issuing
a subpoena. You have to have experts and litigators and
economists to evaluate what comes through a subpoena, as well
as other sources of evidence, to bring that investigation to
trial and then to pursue the trial.
I am worried that the success of the Leniency Program
combined with budget constraints that your Division faces will
in effect give you incentives to pursue only the companies that
come forward--the low-hanging fruit, for lack of a better
term--and the large dollar amount in our international cartels
that come to your attention through the Leniency Program, and
perhaps forgo the smaller but equally harmful domestic cartels
that require more Department of Justice resources if there is
nobody coming forward. And needless to say, as I know from
personal experience, some of the most egregious and harmful of
the cartels may have nobody coming forward. So maybe to get
your general reaction to those concerns.
Mr. Baer. I share the concerns, and we are paying attention
to it. The majority of our case leads come from leniency but
not all. We have successfully just last month prosecuted bid
rigging at a Superfund site in New Jersey, hospital procurement
fraud in the State of New York. We talked in my prepared--our
joint prepared remarks about our cooperative efforts to deal
with real estate mortgage foreclosure fraud all around the
country. We are working as best we can to get our people to
stretch and continue outreach efforts to educate State and
local and county officials about what to look for and when to
come to the FBI office in their community or come to us and we
will work together and we will go after it.
Senator Blumenthal. Let me ask you, in terms of sort of
leveraging resources, what is the state of cooperation with
State Attorneys General these days?
Mr. Baer. Speaking to a former Attorney General of the
State with whom, when I was at the FTC, we cooperated well, I
think it is in a good place. In some ways it is not for me to
say, but on matters like going after the Apple e-books
conspiracy, we had I think 34 co-plaintiff States and reached a
very successful outcome, good working relationship. On merger
investigations like beer and like the recent merger involving
American and U.S. Air we settled, we worked closely and
cooperatively.
Part of what we need to do is make sure that we recognize
the legitimate State interests that need to be reflected in any
discussion about settlement or challenge, but so far I think it
is working quite well, and I have been pleased to get back on
that side of the ledger.
Senator Blumenthal. Thank you.
I want to focus on an issue concerning congressional
exemption under the antitrust laws, a little bit different from
what we have been discussing. As you may know, Senator McCain
and I have introduced a measure called the ``FANS Act,'' F-A-N-
S, because we are troubled by the blackout policies of
professional sports leagues and broadcast and cable networks
that all too often leave sports fans in the dark, literally,
unable to watch games that they want to see. And we believe
that the leagues enjoy antitrust exemptions and billions of
dollars in subsidies that should require them to give fans fair
access to their favorite teams on TV, which is why we
introduced this legislation actually just last Monday that
would protect fans, consumers, and taxpayers who essentially
make these leagues successful. Part of the reason they are
successful also is they enjoy live programming antitrust
exemptions that enable them to have live programming more
available to consumers and using the cable and the Internet.
I am not asking you to give me your opinion or judgment on
the proposed legislation right now. I understand you may want a
chance to look at it. I would hope that perhaps you would and
give me your views on it. But talking in general about
antitrust exemptions, if the market dynamics show that prices
are increasing, in this case it is the rights to sports
programming, and the evidence for a unique marketplace need to
collude--and here they are colluding, and that evidence is
unclear--isn't it appropriate for Congress to consider
revisiting antitrust immunities that have been granted in the
past?
Mr. Baer. Senator, I appreciate the pass on the specifics
of the legislation because I could not respond adequately,
although we will look at it. As a general matter, the Antitrust
Division of the Justice Department and my colleagues at the
Federal Trade Commission have urged that antitrust exemptions
be granted sparingly and be looked at very, very closely. That
continues to be the view of the Justice Department.
Senator Blumenthal. Well, I certainly join you in that
general view and hope that you will perhaps join me in
advocating that this exemption should be narrowed or eliminated
if the leagues continue these blackout policies that are
essentially anti-consumer and take advantage of market power
without any public benefit or insufficient public benefit to
justify them. So I thank you for that view, and I look forward
to hearing more about it.
Thank you, Madam Chair.
Chairman Klobuchar. Thank you very much, Senator
Blumenthal.
Before you leave and we get our next panel up, we really
felt that we have not given you enough opportunity to talk
about your chart, Mr. Baer, if that is your chart, with your
car and everything, so we wondered if you wanted to add
anything for your final question about the auto products
targeted by the conspirators and which are some of the biggest
parts of the car products that are targets.
Mr. Baer. We developed that chart in part just to show the
pervasiveness of the bad conduct pattern we had seen. If you
look at the auto products that the conspirators fixed prices
on--this is just what we have discovered and prosecuted so far,
it is not necessarily the end of the game by any stretch--but,
you know, Mitsubishi got overcharged for alternators, starter
motors, ignition coils. Hitachi, you know, six different
products, air flow meters, throttle bodies, ignition coils,
alternators, valve timing controller devices, starter motors.
It is Mitsubishi compressors, condensers.
If you look around the car and look at the safety systems
or the electrical systems, there has been a very bad pattern of
conduct that domino by domino we--the dominoes are falling. I
almost mixed a metaphor there, but I caught myself. The
dominoes are falling, and we think we are actually, as we go
forward, going to be able to deliver more good news to the
American consumer about prosecuting bad conduct with the help
of the guy to my left and his terrific team.
Chairman Klobuchar. Okay. Do you want to add anything, Mr.
Hosko?
Mr. Hosko. No. I echo Mr. Baer's sentiments.
Chairman Klobuchar. Okay, very good. Well, we are looking
forward to hearing about more successes, and if there is
anything we can help with legislatively, even the smallest
things, we would love to do anything to help. And I think your
first answer to that, ``Yes, get rid of the sequestration,
Senator.'' But if there are any tools that we can give you and
legal issues, we would love to work together to help you.
Do you want to add anything, Senator Lee?
[No response.]
Chairman Klobuchar. Okay. Thank you, both of you.
Mr. Baer. Thank you very much.
Mr. Hosko. Thank you.
Chairman Klobuchar. We will call up our second panel.
[Pause.]
Chairman Klobuchar. Okay. I would like to now introduce our
next panel of distinguished witnesses.
Our first witness will be Hollis Salzman. Ms. Salzman is a
partner at Robins Kaplan Miller & Ciresi, which I will add is a
Minneapolis-based law firm, and I do not think that is why she
is here. In fact, I think our staff was looking for experts in
this area, and it just happened to be a Minneapolis-based law
firm because, in fact, you are out of the New York office, and
she is the co-chair of the Antitrust and Trade Regulation
Group, and I will say Robins Kaplan has handled some major
international civil litigation and handled it quite well.
We next have Mr. Christopher Hockett. Mr. Hockett is a
partner at Davis Polk and serves as the head of the firm's
antitrust practice, also a very well-known firm. He is also
chair of the section on antitrust law for the American Bar
Association and is testifying on behalf of the section.
Our third witness will be Ms. Margaret Levenstein. Dr.
Levenstein is the executive director of the Michigan Census
Research Data Center and an associate research scientist for
the Institute for Social Research at the University of
Michigan. She is also an adjunct professor of business
economics and public policy in the Ross School of Business. So
being from Michigan, you probably care a lot about cars. Okay.
You do not have to answer that.
Our final witness will be Mark Rosman. Mr. Rosman is a
partner at Wilson Sonsini Goodrich & Rosati, where he is a
member of the firm's antitrust practice.
A friend of mine from the University of Chicago was at your
firm for a long time. We can talk about it later.
Prior to joining the firm, he served as assistant chief of
the National Criminal Enforcement Section in the Justice
Department's Antitrust Division.
So I ask our witnesses to rise and raise their hands as I
administer the oath. Do you affirm that the testimony you are
about to give before the Committee will be the truth, the whole
truth, and nothing but the truth, so help you God?
Ms. Salzman. I do.
Mr. Hockett. I do.
Ms. Levenstein. I do.
Mr. Rosman. I do.
Chairman Klobuchar. Thank you. Why don't we begin with Ms.
Salzman.
STATEMENT OF HOLLIS SALZMAN, PARTNER & CO-CHAIR, ANTITRUST AND
TRADE REGULATION GROUP, ROBINS KAPLAN MILLER & CIRESI, LLP, NEW
YORK, NEW YORK
Ms. Salzman. Thank you very much for inviting me to be here
to testify. We talked a lot about the auto parts litigation,
and I am one of the co-lead counsels in the private enforcement
actions that supplements the criminal cases in the auto parts
cases.
I wanted to make three points here today that are outlined
in my written testimony.
The first point relates to ACPERA, and I echo the comments
made earlier today. The Antitrust Division's use of the amnesty
and leniency for the first firm who reports its participation
in a cartel and providing evidence against the cartel has been
hugely successful. For example, the air cargo litigation, the
LCD case, and most recently, and as we have been discussing
today, the auto parts cartels where the DOJ has secured record
fines and sent ample numbers of people to jail for violating
the antitrust laws. These are real-life cases that affect real
people. These are consumers that are harmed, consumers who
purchase computers, cell phones, automobiles. These are
products purchased by every household in America, and consumers
are greatly affected by these cartels and the overcharges to
their products as a result.
ACPERA could be enhanced. Specifically the statute does not
provide enough guidance on the contours of the required
cooperation and the timing of such cooperation in civil cases.
A recent example is in the auto lights litigation that is
pending before Judge Wu in the Central District of California.
Recently in that case, the plaintiffs made a motion before the
court to exclude the ACPERA applicant's right to seek single
damages in a case because the applicant did not cooperate in a
timely fashion or in a robust manner with the plaintiffs in
that action, and Judge Wu agreed with the plaintiffs. The
timing of cooperation is particularly relevant if you think
about it in terms of a statute of limitations. If a defendant,
an ACPERA applicant, is to provide quality evidence and that
evidence provides additional co-conspirators that could be
brought into litigation or that should have charges brought
against it as participants in the conspiracy but that
information arrives after a statute of limitations has run,
that information has no value for the private plaintiff.
So we think that having appropriate explanations in the
ACPERA statute as part of it, both in terms of what is expected
of a leniency applicant in terms of its cooperation in a
private case, as well as the timing of the cooperation, will
not only assist the private litigants, but will also provide
guidance to defendants in their process as they move through
their Leniency Program and would likely want to take advantage
of the single damages limitation that is being offered to them.
A second point, while not part of ACPERA, is the Senate's
recent passing of the Whistleblower Act for reporting antitrust
crimes, which will enhance the ability to secure evidence of
antitrust violations. We are hopeful that this Act will receive
approval of the full Congress.
We do think, however, that the added provision of a
financial reward for reporting should be reconsidered by the
Senate as such a provision would motivate employees to step
forward with information on criminal acts.
Finally, given the tremendous success of the Department of
Justice's cartel enforcement, including recoupment of record
fines exceeding well over $1 billion in each of the last two
years alone, we urge Congress to consider increased funding for
the DOJ's antitrust enforcement efforts. It is especially in
difficult economic times when companies are looking for ways to
increase profits, which may include engaging in unlawful
conspiracies, and given the recent DOJ record fines, which are
growing daily, increased and continued funding for the
Department of Justice makes good economic dollars and sense.
Thank you.
[The prepared statement of Ms. Salzman appears as a
submission for the record.]
Chairman Klobuchar. Thank you very much.
Next, Mr. Hockett.
STATEMENT OF CHRISTOPHER B. HOCKETT, CHAIR, SECTION ON
ANTITRUST LAW, AMERICAN BAR ASSOCIATION, AND PARTNER, DAVIS
POLK & WARDWELL, LLP, MENLO PARK, CALIFORNIA
Mr. Hockett. Good afternoon, Chairman Klobuchar and Ranking
Member Lee. I am Chris Hockett. I am a partner at Davis Polk
and chair of the 8,000-member Section of Antitrust Law. My
remarks today are given on behalf of the Antitrust Section, and
I thank you for the honor of appearing before you.
As we have heard from every witness so far--and I do not
think there will be any change by the end of the day--there is
no question that cartels hurt American consumers and the
American economy by raising prices, stopping competition,
reducing output, and reducing quality. And for decades, it has
been a top priority of the Antitrust Division to prosecute
cartel conduct.
The commitment of the Division to this mission has been
exemplary and unwavering over multiple administrations. Our
Nation's Criminal Antitrust Enforcement Program is truly a
model of bipartisan or nonpartisan consistency. And as Chairman
Klobuchar and Ranking Member Lee have observed, it has also
been highly successful.
The advent of the revised Leniency Program in the 1990s and
Congress' decision to increase penalties for criminal antitrust
conduct have launched a new era of success in detecting and
prosecuting large international cartels that inflict
significant harm on the American public.
As one former Division head once said, ``Leniency programs
are the greatest investigative tool ever designed to fight
cartels.''
Now, is the system working perfectly? No. There is always
room for improvement. So what are the important challenges and
what can we do about them?
Well, I have made some remarks about that in my written
testimony, but today I would like to briefly highlight two
things.
One, personnel cuts. Over the years, the returns on cartel
enforcement efforts have been multiples of the Antitrust
Division's budget. You heard from Assistant Attorney General
Baer 10 times each year, year over year. And we are currently
in the midst of a boom in U.S. cartel enforcement with the auto
parts investigation being the largest ever, and it is just one
among many.
However, this intense activity level coincides with other
events that have resulted in a one-third decrease in the number
of cartel enforcers at the Division plus the implementation of
a hiring freeze. It is perhaps too early to tell the effects of
this head-count reduction, but given the importance of cartel
enforcement to American consumers and the complexity of the job
that needs to be done, the current situation presents a
significant concern.
The second thing is the internationalization of cartel
enforcement. Antitrust law has been one of the United States'
most successful exports over the past 20 years, and that
includes cartel enforcement. Other countries have seen the high
fines and criminal sanctions associated with our enforcement
efforts and have followed our lead. Fifty countries now have
leniency programs, and we are encouraging other countries to
adopt criminal laws to prevent antitrust violations, and they
are.
Now, that is in many ways a very good thing because it
increases the chances of detection, it increases deterrence,
but there are also some downsides. It adds complexity and
requires the kind of coordination that Assistant Attorney
General Baer mentioned they were engaged in: coordination,
cooperation, engagement with counterparts around the world,
among other things, to avoid the kind of double recovery
problem that Senator Lee mentioned.
The proliferation of these vigorous anti-cartel mechanisms
around the world also creates another complexity, and that is,
criminal sanctions are going to be enforced by jurisdictions
whose notions of due process and fair treatment are different,
quite a bit different from our own. And we strongly support the
Division's continued involvement to ensure transparent and fair
investigative, administrative, and adjudicative procedures
related to cartel enforcement, both in the U.S. and abroad. We
at the Antitrust Section are committed to furthering those
goals, but we are no substitute for the Antitrust Division,
which is an active and important leader in international
organizations such as the ICN and the OECD.
So we urge the Antitrust Division to be supported in its
efforts to stay engaged in those very, very important
international dialogues for the sake of American consumers and
American businesses doing business globally, because we do not
want people to be thrown in jail for getting into a joint
venture.
[The prepared statement of Mr. Hockett appears as a
submission for the record.]
Chairman Klobuchar. Very good. Thank you.
Dr. Levenstein.
STATEMENT OF MARGARET C. LEVENSTEIN, RESEARCH SCIENTIST,
INSTITUTE FOR SOCIAL RESEARCH, ADJUNCT PROFESSOR OF BUSINESS
ECONOMICS AND PUBLIC POLICY, ROSS SCHOOL OF BUSINESS,
UNIVERSITY OF MICHIGAN, ANN ARBOR, MICHIGAN
Dr. Levenstein. Thank you, Senator Klobuchar and Senator
Lee, for inviting me to speak to you today.
As we have said, cartels can and do have a significant
negative impact on consumers and competition. My research with
Valerie Suslow has shown that cartels do last, perhaps not
forever, but on average seven to 10 years. Cartels have been
found in a wide variety of industries, including ones that are
technologically dynamic, not just staid, staple goods
industries, but things like computer chips and flat panel
screens. Cartels affect consumers in industry, agriculture,
financial services, and the public sector.
While economists, which I am, being economists, differ on
exact estimates of the impact of cartels on prices, it is clear
that cartels can raise prices substantially. But cartels do not
simply raise prices. To survive and protect their profits,
cartels must prevent entry. They must create barriers to entry.
Some of these barriers will not endure, but if you are a
firm attempting to enter an industry and are denied access to
technology, as happened to a firm in the graphite electrodes
industry, or denied access to customers, as happened to someone
who tried to go up against the sewing needle cartel, or faced
with a targeted price war, as happened to a firm that was
trying to sell steel pipes, then it will not matter to you that
some other firm, but perhaps with deeper pockets, manages to
wear the cartel down years later. Your entrepreneurship, the
potential that your dynamic activity could contribute to our
economy, is stymied.
The Antitrust Division has had a strong and consistent
anti-cartel enforcement policy for the past 20 years. But
cartels continue to form, and we see recidivism among convicted
cartel members. This suggests that existing penalties, while
they have increased, are still insufficient. Firms still treat
these fines as the cost of doing business. We can and should
increase fines, and corporate fines are critical to aligning
shareholders' incentives with consumer welfare. But fines large
enough to deter collusion are probably large enough to bankrupt
firms given the uncertainty in detection and the high profits
that collusion dangles in front of firms. We do not want to
bankrupt firms. That simply undermines rather than strengthens
competition.
So we need smarter, not simply larger, penalties. Jail
terms, embraced by the Division, provide a more effective--a
very effective, I think, deterrent to individual executives and
to managers.
Two other potential remedies I think should be considered.
First of all, I think we should consider banning executives
who have been convicted of felonies against consumers in their
industry. There are not an enormous number of tools to do that,
but I do not think it is impossible. There are some ways that
we could imagine doing that.
I also think we need to consider increased scrutiny of
mergers of former cartel members. We have seen in a couple
instances cartels broken up, only to see consolidation in the
industry afterwards, which defeats the purpose.
Finally, you might consider increased private litigation as
a way to increase deterrence, but I think it is important to
remember that private action by itself rarely discovers
cartels. Civil penalties are important for fairness, and the
DOJ, with its outreach to consumers, can help consumers to
detect and prevent collusion, and so bring private resources,
sort of a Consumer Neighborhood Watch, if you like, to bear. So
private action can complement federal action, but it is not a
substitute for federal action.
Amnesty has been very effective at breaking up cartels,
particularly international cartels that had long considered
themselves immune. But amnesty cases still require resources,
and unless there are effective resources for--unless
prosecutorial resources are expanded or at least maintained,
amnesty cases crowd out other investigations. Colluding firms
hide what they are doing and develop ever more sophisticated
ways of operating and hiding these things, and so it takes
increasing resources on the part of investigators to discover
collusion.
Investigative resources can pay off. Newly developed
statistical screening techniques discovered collusion in LIBOR
three years before the Wall Street Journal reported on it.
Novel techniques in analyzing Web-based communication could be
used to discover invitations to collude, such as those that
were employed in the U-Haul case.
Intra-industry swaps, which have legitimate business
purposes but which are also used regularly to meet cartel
quotas, could be investigated.
The Division and FTC should also identify highly
concentrated market niches. Most cartels operate in extremely
concentrated markets. In one study, Professor Suslow and I
found that over two-thirds of cartels were in markets with a
four-firm concentration ratio of over 75 percent, and these
were often global concentration ratios. With appropriate
resources, the DOJ and the FTC can identify markets that are at
risk. This is not a simple task, as market definition is key.
For example, there are over 5,600 commercial banks in the
United States, and for decades most economists thought of U.S.
banking as being overly fragmented, not too concentrated. But
the number of participants in LIBOR is much smaller. The number
of participants in foreign exchange markets, which were also
subject to collusion we now know, is smaller still. And I can
count on one hand the number underwriting municipal bonds.
Thus, Professor Suslow and I called a recent paper ``Constant
Vigilance.''
While we will never stop all price fixing--and we probably
would not want to because that would be overdeterrence--there
are both investigative tools and sanctions that, with
appropriate policies and resources, we can apply to reduce the
impact of anticompetitive behavior on consumers and
competition.
Thank you.
[The prepared statement of Dr. Levenstein appears as a
submission for the record.]
Chairman Klobuchar. Thank you very much.
Mr. Rosman.
STATEMENT OF MARK ROSMAN, PARTNER, WILSON SONSINI GOODRICH &
ROSATI, WASHINGTON, DC
Mr. Rosman. Good afternoon and thank you, Chairman
Klobuchar and Senator Lee. My name is Mark Rosman, and I am a
partner at Wilson Sonsini Goodrich & Rosati in the Antitrust
Group here in Washington, D.C. Before joining Wilson Sonsini, I
was a trial attorney and prosecutor for the U.S. Department of
Justice Antitrust Division for 2 decades, and I work both in
the field office as well as at the headquarters. It is my
distinct honor to have worked for the DOJ, and it is a distinct
honor to be here today to testify with you all.
Before leaving the DOJ, I was the lead prosecutor on the
airlines investigation, which you heard Assistant Attorney
General Baer allude to, bringing in $1.8 billion in fines. It
was certainly a proud accomplishment of mine while I was at the
Department. And I brought in this little piggy bank that I kept
on my desk when I was at the Department. It is from China, and
one of the prosecutors in my old office brought this back for
me, and I kept it on my desk as a little good luck charm and
also a bit of a motivator to bring in the big fines. And I have
this on my desk today, but it has a little bit of a different
meaning to me today.
Number one, when I look at it, I wonder: Could I ever have
really put $1.8 billion in this little piggy bank?
But, also, I wonder, to echo Dr. Levenstein's comments,
whether going for bigger fines was always the best thing and
the right thing that the Department should be doing as opposed
to looking at some other alternatives that the Senators here
today have raised and asked about, going for smarter fines,
perhaps. And I am going to talk a little bit more about that in
my comments.
In my written comments I outline four areas of concern, and
I do not think anybody can really question the success of the
Antitrust Division, and these comments are made in the vein of
improving and building on that success.
One of the areas of concern is a discussion of refocusing
and rebalancing, if you will, the Division's focus on these
blockbusters, I will call them, cartels, international cartels.
And I think we heard Senator Blumenthal ask a good question
about, you know, whether perhaps--or at least raise a concern
whether the emphasis and the focus has shifted, the pendulum
has swung to the other end of the spectrum such that there may
be a lack of focus on domestic and regional price-fixing
violations.
A second concern I raised is about the application of the
guidelines to lower-level employees and mid-level employees,
and whether the Antitrust Division should consider using some
guidelines applications such as offering individuals who are
involved in these offenses a minimal or minor role adjustment
in order to encourage cooperation, because juries recently have
acquitted a number of these individuals that have been brought
to trial in cases, and there have been a lot of resources spent
prosecuting lower-level individuals.
A third concern goes to your point, Senator Lee, about the
point that you have raised about double counting and whether
there are other ways the Division could approach sentencing and
fines for corporations. And, in particular, there is a practice
that is used now and has been used for quite some time of a
bump, it is called, if you will, for indirect commerce. And
this is significantly raising the fines both in the airlines
cases that I worked on, but also continuing today in the auto
parts cases, and whether that commerce--whether the Division
needs to go after that commerce, whether it is just serving a
deterrent effect, and whether it may be best gone after by
other authorities that are now actively investigating these
types of violations.
And then, finally, I raise some thoughts in my written
remarks about concerns about deterrence generally and
specifically as to individuals who are involved, and I think
there has always been a push, and certainly when I was at the
DOJ, of raising the bar, increasing the amount of time
individuals go to jail, and certainly I would agree with the
Assistant Attorney General's remarks that fear of going to jail
is a deterrent, but I think one thing that I would highlight is
also there has to be a fear of detection, a fear of getting
caught. And I think the professor alluded to that as well. And
so, you know, if you are not really afraid of getting caught,
having longer and higher jail sentences may not be the best
deterrent.
With that, I see my time is up, and I am happy to answer
any questions that you may have.
[The prepared statement of Mr. Rosman appears as a
submission for the record.]
Chairman Klobuchar. Thank you very much. We are going to
get started. Senator Lee is going to go first this time.
Thanks.
Senator Lee. I want to talk a little bit more about the
bump, Mr. Rosman. I suspect that this happens a fair amount
because they want to obtain a larger fine. They have got their
own piggy bank on their desk. I thought that was interesting,
by the way. That was the first thought I had, was how you could
possibly fit over $1 billion in such a thing. My second thought
was that that piggy bank sort of resembles a cat. I do not know
quite what to do with that, but I do not know, maybe they have
a different variety of pig there.
But it seems to me that this could result in double
counting and double penalizing the same conduct, the same
transaction. How do they go about it? And, more importantly,
what can we do to help discourage improper bumping?
Mr. Rosman. Yes, so I will say that when I was at the
Division--and I am sure today it is the case as well--the
leadership and the attorneys were mindful of this issue, and so
there was a concern, and there were discussions and ongoing
discussions today, as we have heard, with their counterparts
from other countries to try to take into account that this is a
real issue.
And so, for example, in the airlines cases, when you looked
at indirect commerce, it was a question of inbound, what was
called ``inbound commerce''--in other words, for air cargo or
passenger commerce, commerce that was literally on flights
coming into the United States. And so that was part of the
bump. But the DOJ did not take a dollar-for-dollar measure of
that commerce. There was actually an adjustment that was made
based on the import-export ratio. So the DOJ did try to take
into account and not actually take all of that commerce.
What I am questioning here today is: Is that enough? And
given the increasing levels of enforcement worldwide, do they
really need to go after that? And are there, in fact, other
ways to incentivize companies, such as through compliance
program credit and perhaps other penalties, such as increased
corporate governance, that would achieve the same goals that
the Division has rather than just simply trying to ratchet up
the fines.
Senator Lee. I do not necessarily hear you saying that
there is a legitimate purpose for the practice. Do you think
there is? Should it be abandoned altogether?
Mr. Rosman. Well, I would say that, you know, it depends on
the facts. As you pointed out earlier, these are complex kind
of factual considerations, even getting down to the level of,
you know, where is the product that is in question invoiced?
You know, where is the invoice sent to? Is it sent to the
United States? Is it sent to some other country to try to
determine where the sale takes place?
So it is a very fact-driven type of analysis, and in some
cases, if there is a direct--you know, you could say that even
in an indirect sale there is some effect on the United States.
I am not here to say that that is impossible. But I think that
given that the fines are reaching very high levels, even just
taking direct commerce alone, it is a fair question to ask: Do
you need this indirect commerce? Does it really serve a
deterrence purpose? Other countries going after that commerce
that takes place in their country, is that enough of a
deterrent without having to account for it, even if you agree
that it might have had some indirect effect on the U.S.? I
think that is a valid question.
Senator Lee. Thank you. That is helpful.
Dr. Levenstein, let us talk about fines and jail time. You
talk in your testimony about the fact that in some
circumstances fines might not work and, in fact, might be even
counterproductive. You might reach a point at which they become
counterproductive. Talk to me a little bit about why reliance
on prison time and/or debarment might be better.
Dr. Levenstein. I think the way that economists think about
this is that, in order to deter collusion, you need to have the
expected payoff to collusion be negative. You do not want it to
pay. And you can have it not pay by having high fines. You can
have it not pay by having it likely that you will have to pay
those fines, so increasing the investigative activity, the
likelihood of detection will also increase deterrence.
There are other things, though. There are individuals who
may not have to pay the fines or may be compensated in other
remunerative ways. When you think about going to jail, you
might actually get managers who are not willing to engage in
collusion if you use prison sentences.
I think there are other things that--so I think that--well,
there are two things. One is that prison sentences are
effective deterrents if people believe that they are likely to
face them. So, again, it is always combined with discovery.
I think that we want to think about things like barring
people from an industry because there are clearly certain
industries and certain firms that have been engaged in this
activity over and over again, and we even have the suggestion
that there are firms that say, okay, you take one for the team
and then we will take care of you after that. And people have
to understand that--this is not an acceptable way to compete,
and that you cannot participate in the market if you do this.
Senator Lee. Yes, that, and I suppose are people who, once
they have learned they can earn a living in a certain way, they
would like to continue earning a living that way, especially if
it is very lucrative.
Dr. Levenstein. Well, when people have been successful at
doing this and the fines are not--the fines are not enough to
make it not profitable. That is the bottom line. And if you
know that it is still profitable, then you are going to keep
doing it.
Senator Lee. Okay. Mr. Hockett, you expressed some concerns
regarding fair treatment and due process for defendants,
especially in foreign jurisdictions with which the U.S.
cooperates in investigations. What do you think we could do to
help alleviate those concerns within the U.S. in that regard?
Mr. Hockett. You know, a couple of ways. I think, number
one, set a good example by continuing to provide transparency,
fairness, and due process in our own system when we are
addressing conduct by people who live outside the United
States.
Second, I think continuing to engage in these international
fora, which is something that may seem sort of extra and
optional to people who are not involved in it, but it is really
the only way that the U.S. Government can try to shape the
norms of what is considered a hard-core antitrust violation
worthy of jail time or huge fines and how people are treated in
those systems. It is a big challenge because unlike, say,
merger enforcement, which bolts onto a country's regime
probably they did not have anything like it until they decided
to adopt it, a criminal antitrust enforcement regime overlays
the country's native criminal justice system, which, as I
indicated before, might be dramatically different from what we
are used to and the guarantees of due process and procedural
fairness that we are used to.
So what we do not want is a situation in which American
businesses and citizens doing business abroad are confronted
with claims that seem quite exotic as far as hard-core
antitrust violations and then are treated to foreign justice
systems that are unfair.
The only way to do that is through the soft influence that
we have through these international fora, and in which the DOJ
has played quite an active role, but they are increasingly
constrained in doing that by the lack of funds.
Senator Lee. Thank you.
Thank you, Madam Chair.
Chairman Klobuchar. Very good. Thank you.
I will start with you, Ms. Salzman. You represent victims
of price fixing, the consumers, and often companies that have
paid higher prices because of a crime and criminal cartels.
What is the magnitude of the harm? And what have you seen that
it means for their bottom line and their ability to expand
their businesses?
Ms. Salzman. I think that that is a very good question, but
it varies from case to case, and depending on the particular
conspiracy, each conspiracy takes on its own characteristics in
terms of the amount of overcharge.
I cited a study in my written testimony, and, you know,
depending on how you look at the averages, you are looking at
probably, at the low end, around 25 percent of an overcharge.
And what this does to consumers is consumers do not know about
these antitrust conspiracies because, until it is brought to
light either by the government or private enforcement, they
just continue to overpay higher prices for goods. And for
businesses that are paying for overpriced goods from purchases
from wrongdoers, they are passing it on to consumers who are
ultimately injured. But also for the businesses what it does is
it creates higher costs for them in terms of inputs for their
businesses, and that in and of itself is a problem for their
business model and what else they could do with those funds in
terms of competing in the market, research and development,
other ways that they could spend that money.
I was wondering if I could make one comment to the bumping
question.
Chairman Klobuchar. Sure.
Ms. Salzman. I just have a slightly different perspective
on this bumping issue. The way that I see it--and I am thinking
in particular in the auto parts litigation, where there was an
imputed amount in the fine, it had to do with goods that were
manufactured abroad, but put into a product that ultimately
ended up in the United States. And to me that is commerce that
affects our consumers here in the U.S. And if you violate the
antitrust laws and you are being brought to justice for that,
you should be held accountable for those transactions.
Chairman Klobuchar. We talked earlier about the lawyer
power in the Antitrust Division and across the board, including
with the FBI, with their agents. How do you think this will
negatively affect consumers if we see this continued drawdown
of people working in this complex area?
Ms. Salzman. I think, as I said in my remarks, that I do
think funding the Department of Justice so that it has adequate
staffing and funds to continue their investigation is
imperative for our economy. In bad economic times, companies
look for ways to make money, and unfortunately some of the
companies look to conspiring with their competitors, which
results in higher prices for small businesses and consumers. So
I think it is imperative that the Department of Justice
continue to get funding and increased funding.
Chairman Klobuchar. And if they do not bring a case for
whatever reason, does that affect your decision about what you
do?
Ms. Salzman. It does not always affect our decision. There
are times when we are given information on a conspiracy and we
try to investigate, but without the power of subpoena that the
Department of Justice has, it is very difficult to get the
necessary early information and evidence that would be required
to sustain a motion to dismiss a complaint in court.
Chairman Klobuchar. Very good. Thank you.
Mr. Hockett, Senator Lee asked you about the international
aspect of this, and just stepping back from--I know you have
these concerns on the due process issues and other things. Just
how has it changed over the years? I would just think more and
more this has become an international issue, so there is a
reason to pursue it beyond our--I do not think these crooks
care about the State borders or country borders, and look at
this as an international issue, and isn't there an argument to
actually have this be more of an issue that is raised in
whether it is trade negotiations or other things without other
countries?
Mr. Hockett. Yes, it is certainly a global issue. These
cartels that have come to light, largely through the Leniency
Program, have operated across international borders. They have
hurt not only U.S. consumers but consumers all around the
world. And as I have indicated, the regimes designed to enforce
against cartel conduct have sprouted up all over the world with
our encouragement. That is what makes it so important for our
enforcers to work side by side with theirs, not simply to
promote fairness and avoid double recoveries, but also to
coordinate the enforcement efforts themselves, which require
simultaneous seizures of information, dawn raids, sharing of
information consistent with confidentiality requirements, so
that they can act as effective law enforcement agents and
prosecutors.
Chairman Klobuchar. Thank you.
Dr. Levenstein, understanding that more than just economic
data is needed to prove price fixing, some experts have
suggested that the DOJ should use economic screening tools to
monitor industries, particularly those that are highly
concentrated, as a way of detecting potential cartel activity.
For example, a number of foreign jurisdictions use economic
screens, and screens are widely attributed to discovering the
LIBOR conspiracy.
What is your view on the use of economic screens to detect
cartels?
Dr. Levenstein. Well, I think statistical screens----
Chairman Klobuchar. Would you explain it to everyone here
what that means?
Dr. Levenstein. A statistical screen is simply a way of
looking at the prices that are supposedly set independently by
all of the participants in a market to see whether or not it is
even within the realm of plausibility that they were set
independently without working together. And it was clear from
the analysis of the LIBOR case that the probability that these
prices--that these LIBOR rates had been set independently on a
daily basis over many, many years and somehow ended up the way
that they did was not within the realm of possibility. And they
use--I mean, it is not just are they the same prices, but they
actually look at the matching of the digits in the price to
determine these things in that particular case.
Screens have also been used in some gas price-fixing cases
I believe the FTC has looked at.
They have also been used, say, in the school milk auctions.
They have been shown that you can use those. That was done ex
post, not to discover the cartel, but they have been shown to
be quite effective in distinguishing, particularly when you are
talking about auctions, where you have a small number of
bidders, when you have auctions where the bids become public,
it is actually--it is very hard for the customer to protect
itself because we do want transparency from our local
governments, but it makes it very easy for these firms to do
this, and it is a very useful technique in getting at it.
Chairman Klobuchar. And critics have said that there is
sometimes a risk of a false positive. How do you respond to
that?
Dr. Levenstein. You need good investigative techniques. You
need good statisticians. I do not think anybody is saying, oh,
just because they charge the same price, that means it is
collusion. But the techniques are actually quite robust.
Chairman Klobuchar. Okay. Thank you very much.
Mr. Rosman, just one last question here. Do you agree that
private enforcement and private follow-on suits are an
important component to antitrust law and the benefit of
consumers? And are there barriers now for victims to get to
court?
Mr. Rosman. I do agree that private enforcement is an
important part of the mix of deterrence, and as was referred to
earlier, treble damages are a big component of that. So I think
it is important, yes.
Are there barriers now? I am not sure there are significant
barriers. Ms. Salzman might disagree with me about that. I
think that, you know, you certainly see whenever there is an
investigation brought by the DOJ you can almost, you know,
bet--you could bet that there are going to be class action
suits filed right on the heels of whatever case--it does not
even have to be a case, frankly. It can be a search warrant, a
headline in the news, and these cases are going to be filed.
And there are now, you know, many more cases where
plaintiffs are choosing to opt out, such as, I believe, Best
Buy was one of those cases where they believe they have their
own case for damages; they can opt out of the class action.
So I think there is a robust private enforcement that is
going on out there. Perhaps there could be some fine tuning to
it, but I think that plaintiffs do have a strong voice out
there right now.
Chairman Klobuchar. All right. Do you have any follow-ups?
[No response.]
Chairman Klobuchar. Okay. Very good. Well, I wanted to
thank all of you. I think this was a robust hearing, to use Mr.
Rosman's word there at the end, and I know that there were some
ideas tossed out there for changes to the law, which we
appreciate. And we really appreciate everyone's time, and thank
you for all of your efforts in this very, very important area.
We will leave the record open for a week--is that enough
time? Okay--for colleagues to put any questions on the record
or for ourselves, and we just want to thank you all for taking
time out of your day today and visiting with us, and we learned
a lot. So thank you for that, and the hearing is adjourned.
[Whereupon, at 4:31 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Additional Material Submitted for the Record
[GRAPHIC] [TIFF OMITTED] T9503.001
[GRAPHIC] [TIFF OMITTED] T9503.002
Prepared Statement of William J. Baer, Assistant Attorney General,
Antitrust Division; and Ronald T. Hosko, Assistant Director, Criminal
Investigative Division, Federal Bureau of Investigation
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Prepared Statement of Hollis Salzman, Partner and Co-Chair, Antitrust
and Trade Regulation Group, Robins, Kaplan, Miller & Ciresi, L.L.P.
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Prepared Statement of Christopher B. Hockett, Chair, Section on
Antitrust Law, American Bar Association, and Partner, Davis Polk &
Wardwell, L.L.P., Menlo Park, California
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Prepared Statement of Margaret C. Levenstein, Research Scientist,
Institute for Social Research, Adjunct Professor of Business Economics
and Public Policy, Ross School of Business, University of Michigan, Ann
Arbor, Michigan
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Prepared Statement of Mark Rosman, Partner, Wilson Sonsini Goodrich &
Rosati, Washington, DC
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Questions submitted by Senator Amy Klobuchar for Assistant Attorney
General William Baer
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Questions submitted by Senator Amy Klobuchar for Ronald Hosko
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Questions submitted by Senator Amy Klobuchar for Margaret Levenstein
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Questions submitted by Senator Amy Klobuchar for Mark Rosman
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Questions submitted by Senator Amy Klobuchar for Hollis Salzman
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Responses of Assistant Attorney General William Baer to questions
submitted by Senator Klobuchar
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Responses of Ronald T. Hosko to questions submitted by Senator
Klobuchar
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Responses of Margaret Levenstein to questions submitted by Senator
Klobuchar
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Responses of Mark Rosman to questions submitted by Senator Klobuchar
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Responses of Hollis Salzman to questions submitted by Senator Klobuchar
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Letter to Hon. Eric Holder, Attorney General, U.S. Department of
Justice
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