conducting global antitrust internal audits in an era of...

Conducting Global Antitrust Internal Audits in an Era of Heightened Enforcement Assessing Risk and Monitoring Compliance With Antitrust Laws in the U.S., Asia, Europe, Latin America and Russia

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WEDNESDAY, JANUARY 22, 2014

Presenting a live 90-minute webinar with interactive Q&A

John F. Collins, Partner, Frommer Lawrence & Haug, New York

Douglas M. Tween, Partner, Baker & McKenzie, New York

Richard J. Wegener, Counsel, Faegre Baker Daniels, Minneapolis

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John Collins

John F. Collins is a partner in the firm’s New York office where he specializes in antitrust litigation. As part of this work, he has a significant experience in mergers and acquisitions transactions and advising clients on how to navigate the antitrust agencies that approve these transactions. He advises clients on all aspects of antitrust litigation, including representation in front of agencies and grand juries. Mr. Collins has over 35 years of experience representing clients as plaintiffs and defendants in jury and non-jury civil commercial litigations in federal and state courts throughout the United States, and has represented clients in administrative proceedings before the Federal Trade Commission, the International Trade Commission, the Antitrust Division of the Department of Justice, and the Securities and Exchange Commission. He has particular expertise in the convergence of antitrust and intellectual property law, which is an issue being considered by the Supreme Court through a number of cases. Clients rely on this expertise to allow them to be represented by one lawyer who understands both aspects of antitrust and IP law, rather than having two who only are experts in one of these areas. He can be reached at (212) 588-0800 and [email protected].

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Contact Douglas Tween is Chair of Baker & McKenzie's White Collar Defense

and Investigations Group and head of the firm’s New York Litigation

Department. He brings extensive courtroom trial experience to the

defense of companies and individuals in antitrust and white collar

criminal and regulatory investigations, as well as complex civil

litigation and class actions. He also advises on crisis management,

conducts internal investigations, and assists corporations with

compliance, risk management, and governance issues.

Mr. Tween is Chair of the American Bar Association's Cartel and

Criminal Practice Committee and a Non-Governmental Advisor to the

International Competition Network. He has been named as a Notable

Practitioner by Chambers and Partners and been Recommended by

Global Competition Review.

From 1990 to 2005, Mr. Tween served as a Trial Attorney with the U.S.

Department of Justice Antitrust Division. He was one of the U.S.

government's most highly-honored antitrust Trial Attorneys, having

received the Attorney General's Distinguished Service Award, the

Antitrust Division Award of Distinction, and numerous other citations.

Mr. Tween received his J.D., cum laude, in 1989 from Northwestern

University School of Law, where he was Articles Editor of the Law

Review. He received his B.A. from Columbia College in 1984. After

graduation from law school, he served as a law clerk to the Honorable

William H. Timbers of the U.S. Court of Appeals for the Second Circuit.

He is admitted to practice in New York and Connecticut.

Douglas M. Tween

Baker & McKenzie LLP

452 Fifth Avenue

New York, NY 10018

+1-212-626-4355

[email protected]

Richard Wegener

► Richard Wegener, counsel in the Minneapolis office of Faegre Baker Daniels, practices in the areas of

antitrust, competition, regulatory and administrative law counseling and litigation by federal and state

agencies, including the U.S. Food and Drug Administration (FDA), the United States Department of

Agriculture (USDA), the Federal Trade Commission (FTC) and the Consumer Products Safety

Commission (CPSC) with a special emphasis on agribusiness and food/dietary supplement matters,

including product formulation, manufacture, labeling, advertising and claim substantiation, safety, recalls,

inspections, green marketing and California Proposition 65.

► With regard to FDA enforcement, Mr. Wegener advises clients concerning FDA inspections and helps

clients respond to inspectional observations (FDA Form 483) and FDA Warning Letters. He has

successfully represented food manufacturers in federal court proceedings enjoining state agencies from

seizing food products and resisting FDA penalties for product adulteration.

► After receiving both his Bachelor of Arts and Juris Doctor degrees from the University of Nebraska, where

he served as Managing Editor of the Law Review, Mr. Wegener became an associate with the firm that

served as General Counsel to ConAgra. Before returning to private practice, he served as Division

Counsel to the United States Food Group of The Pillsbury Company. He is a member of the Food and

Drug Law Institute and serves on the governing council of the Minnesota Bar Association Food, Drug &

Device Law section. Based on a survey of practicing attorneys, he is listed as both a “Super Lawyer” in

Antitrust Litigation and a “Leading Attorney” in Antitrust and Trade Regulation law.

► Mr. Wegener can be reached at 612.492.7323 and [email protected].

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1. Getting Started

• The case for audits (Mr. Tween)

• Who should conduct the audit? (Mr. Tween)

• Reviewing industry structure and client antitrust history (Mr. Wegener)

• Determining audit scope and objectives (Mr. Wegener)

• Announcing the audit (Mr. Wegener)

• Document review (Mr. Collins)

• Interviews (Mr. Collins)

• Documenting the audit (Mr. Collins)

2. Specific Audit Applications

• Compliance programs (Mr. Tween)

• Horizontal price fixing (Mr. Wegener)

• Merger issues (Mr. Wegener)

• Monopolization and attempted monopolization (Mr. Wegener)

• Price discrimination (Mr. Wegener)

• Resale price maintenance (Mr. Collins)

• Trade association participation (Mr. Collins)

• Government contracts (Mr. Collins)

• Commercial bribery (Mr. Collins)

• IP issues (Mr. Collins)

3. Disclosure of Wrongdoing and Other Post-Audit Issues

• Attorney-client issues (Mr. Wegener)

• Attorney work product issues (Mr. Wegener)

• Data privacy and protection (Mr. Tween)

• Self-evaluation: Sarbanes-Oxley and audit letters (Mr. Collins)

4. Questions (Messers. Collins, Tween & Wegener)

The Case for Audits: Evolution of Compliance

The bare

compliance

policy

Tailored

compliance

policy

Instilling a

culture of

compliance –

ensuring all

are aware and

trained

Testing

compliance –

audits and

health checks

Facilitating the

detection of non-

compliance –

whistleblowing and

internal amnesty

programs

©2014 Baker & McKenzie 12

The Case for Audits: The DOJ’s View

“We know when we see good compliance. We have a

good sense of whether it’s robust and real or created on

the cheap. … [I]t’s stunningly bad business not to have

a state-of-the-art compliance program. You’ll get a

better deal.” DOJ AAG Lanny Breuer (11/4/2010)


The Case for Audits: Enforcers’ Expectations

DOJ Principles of Federal Prosecution

of Business Organizations

U.S. Sentencing Guidelines

EC “Compliance Matters” (2011)

50+ Leniency Regimes Globally


The Case for Audits:

U.S. Corporate Prosecution Principles 1. Nature and seriousness of the offense;

2. Pervasiveness of the wrongdoing within the business;

3. History of similar misconduct;

4. Timely and voluntary disclosure of wrongdoing and willingness to cooperate in the investigation;

5. Existence and effectiveness of pre-existing compliance program;

6. Remedial actions, including efforts to implement corporate compliance program;

7. Collateral consequences, including existence of disproportionate harm to shareholders;

8. Adequacy of prosecution of individuals responsible;

9. Adequacy of civil or regulatory remedies.


The Case for Audits:

U.S. Sentencing Guidelines

Sentencing of Organizations

8B2.1(b)(5) & 8C2.5(f) – Significant reduction if an

offense occurs despite an organization having in

place an “effective compliance and ethics program”

“The organization shall take reasonable steps to

ensure that the organization’s compliance and

ethics program is followed, including monitoring

and auditing to detect criminal conduct”

Must be more than a “paper program”


The Case for Audits: “Compliance Matters”

Compliance Matters: What Companies Can Do Better to Respect EU Competition Rules

Issued by EC November 2011

Calls for (1) clear strategy; (2) formal staff engagement; (3) constant update; and (4) monitoring and auditing

EC does not endorse any specific program

No reduction in fine for pre-existing compliance program


Who Should Conduct the Audit?

– Lawyers

– In-house/outside counsel

– Preserving attorney-client privilege, especially in EU

– Other experts

– Auditors/forensic accountants

– Electronic discovery providers

– Screeners


Reviewing Industry Structure/Antitrust History

►Relevant product and geographic markets

►Market concentration

►Market shares of largest competitors

►Has the client experienced any significant antitrust problems in past years?

19

Determining Audit Scope & Objectives

► Initial preliminary interviews with relevant client executives

►Obtain background information

► Identify specific areas meriting close attention

20

Announcing the Audit

►Client has engaged counsel to provide advice about continued

antitrust law compliance

►Audit will be conducted for the client’s well-being

►Audit is not being conducted because of any specific problems or

suspicions (assuming it is so)

►Staff should fully cooperate in making themselves and their files

available to counsel

►Staff should avoid discussing the audit with anyone other than counsel

►Expect in extraordinary circumstances, counsel’s report will be limited

to matters relating to antitrust compliance

21

DOCUMENT REVIEW

What to review? Paper Electronic

Temporal scope of review Privacy issues Key individuals Topics

Contacts with competitors Joint Venture Foreign Corrupt Practices Act

22

Document Review (continued)

Topics (continued) Resale price maintenance Robinson-Patman Act compliance Contacts with dealers Antitrust investigations in areas

Current Past

Prices Sales Output Trade Association Participation Government Contracting and Commercial Bribery Intellectual Property

23

INTERVIEWS

One employee at a time if possible

Make clear that you represent the company, not the employee

Have a checklist or questionnaire for your use

Only counsel should take notes

Opportunity to audit awareness of and compliance with any company antitrust compliance program

24

DOCUMENTING THE AUDIT

Reason for the Audit

Written Report

To have or not to have?

Privilege Issues

U.S. v. EU

Counsel’s notes and summaries as basis for oral report

Analysis

What processes followed

Conclusions and Recommendations

25

Compliance Programs

– Policies

– Standards of conduct

– Training

– Reporting requirements & procedures

– Audits & health checks

– Internal investigations


Compliance Programs: Policies

– Corporate policies should cover:

– Sherman 1 – agreements unreasonably restraining trade

– Clayton 2 and Robinson-Patman – price discrimination

– Sherman 2 – monopolization

– Clayton 7 – mergers & acquisitions

– FTC Act – unfair competition

– State antitrust laws

– Foreign antitrust laws

– Penalties for violations of antitrust laws

– Effect of compliance program on penalties

– DOJ and other leniency policies


Compliance Programs: Standards of Conduct

– Employees should:

– Become familiar with company policies

– Participate in training

– Comply with company policies and cooperate with the

company in any investigations

– Disclose any potential violations

– Provide annual certification of compliance with antitrust

laws and policies


Horizontal Price Fixing – Why?

► Increase in Criminal / Civil penalties

►Proliferation of leniency programs

► International cooperation

►The recession

30

Horizontal Price Fixing – Red Flags

►Customer/territorial agreements

► Industry overcapacity

►Undifferentiated products

►Job-order pricing

►Decentralized pricing

►Frequent contacts with competitors

►Exchange of competitive information (exs. credit reporting, compensation surveys)

31

Merger Issues

►HSR analysis

►Coordinated activity

►Unilateral activity

32

Merger Issues – Coordinated Activity

►Commoditized product?

►Concentrated industry?

►Pricing transparency?

33

Merger Issues – Opportunity to Coordinate

►Trade associations?

►How often do trade associations meet?

►Appropriate association protections?

►Standard setting organizations?

34

Merger Issues – Unilateral Conduct

►Supplier / customer relationships (exs. exclusivity, favored nation clauses)?

►Competitor/customer/supplier relationships?

►Complaints?

35

Monopolization & Attempted Monopolization

►“Scope of the audit” issues

►“Mechanics of the audit” issues

36

Monopolization – Audit Scope

►Relevant product market?

►Market power?

37

Monopolization – Audit Mechanics

► Industry problems

►Section 2 / Section 7 issues

►Predatory pricing

►Market / Territorial allocation

►Refusals to deal

►Patent fraud

►Sham litigation

38

Price Discrimination

►List price

►Amount “off” list

►Rebates

►Promotional allowances

►Net price

►Volume

39

RESALE PRICE MAINTENANCE

Vertical Price Fixing

Agreements between participants at different levels of the market that establish the resale price of products or services Specific resale price

Price floor below which resales cannot occur (Minimum RPM)

Price ceiling above which resales cannot occur (Maximum RPM)

40

RESALE PRICE MAINTENANCE (continued)

Disparity between federal and state law can be a source of confusion

Federal Law

State Oil Co. v. Khan, 522 U.S. 3 (1997)

(Maximum price restraints)

Leegin Creative Leather Products, Inc. v. PSKS, Inc.,

551 U.S. 977 (2007)

(Minimum price restraints)

Rule of reason rather than per se unlawful standard

41


State Law

Some prohibit

Some permit

Some uncertain

www. Antitrustsource.com (April 2013) (Summaries and updates on state laws)

42


Company Pricing Policies

Suggested Resale Prices

Colgate Program – United States v. Colgate & Co., 250 U.S. 300 (1919)

Special Promotional Programs

Cooperative Advertising

Most Favored Nation Clauses

43

TRADE ASSOCIATION PARTICIPATION

Permitted or Not

Internal Accounting and Reporting

Materials Review

Periodic Interviews

Committee Memberships or Other Responsibility Roles

44

OTHER AREAS

Government Contracting Foreign Corrupt Practices Act

15 U.S.C. §§ 78dd-1, et seq

Whistleblower Statutes

Commercial Bribery Robinson-Patman Act § 2(c)

Intellectual Property Issues Up-to-date Licenses

Employee Downloading

Patent Trolls

45

Attorney – Client Privilege

►Counsel should conduct the audit.

►Non-lawyers must act under direction of counsel.

►Client’s board or management should “authorize” the audit.

► Inform interviewees of audit purpose

►Conduct interviews in private / strict confidence.

►Don’t create unnecessary documents.

►Documents should be labeled “Privileged & Confidential” and strictly controlled.

47

Attorney Work Product

►“Opinion” work product vs. “other” work product

►“In anticipation of litigation”

►Materials prepared by or at the direction of counsel

48

Data Protection and Privacy

– Cultural differences between US vs. rest of world

– Employment law

– Data privacy law

– Business secrets law

– Pitfalls

– Email review

– Consider advance waivers


Data Protection and Privacy

– Document creation and retention

– Liability often based on company’s internal documents

– Avoid imprecise or careless language that may suggest anticompetitive conduct

– “Dominance,” “destroy the competition,” “stabilize the industry,” “industry consensus,” “delete after reading”

– Establish consistent and non-selective document policy

– Do not retain documents no longer needed

– Keep privileged communications separate and well-marked


SELF-EVALUATION

Government Amnesty Programs

Department of Justice Corporate Leniency Program (see Antitrust Div., U.S. Dep’t of Justice, Corporate Leniency Policy (Aug. 10, 1993), available at www.usdoj.gov/atr/public/guidelines/0091.htm)

Department of Justice Individual Leniency Program (see Leniency Policy for Individuals (Aug. 10, 1994), available at www.usdoj.gov/atr/public/guidelines/0092.htm)

EC Leniency Program and Interaction with Member States (see Commission Notice on Immunity from Fines and Reduction of Fines in Cartel Cases, 2002/C45/03, 2002 O.J. (C45) 3, available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/c_045/c_04520020219en00030005.pdf)

51

SELF-EVALUATION (continued)

Sarbanes-Oxley Act (see Pub.L. 107-204 http://www.gpo.gov/fdsys/pkg/PLAW-107publ204/content-detail.html)

Public vs. Private Companies

Counsel as Whistle Blower

Auditors Letters

52