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26 August 2004
On June 22 2004 President Bush signed into law HR 1086, popularly known as the Standards Development Organization Advancement Act 2004, which amends the antitrust laws in four respects:
Title I of the act grants SDOs the same limited antitrust protection that joint ventures currently receive under the National Cooperative Research and Production Act 1993.(1) In order to take advantage of the new protections, an organization must:
For an SDO meeting these requirements, the act provides additional antitrust protection in three respects:
The real story with respect to the Tunney Act amendments is not what was included, but rather what was dropped. Language in predecessor legislation would have significantly impaired the ability of private parties to negotiate antitrust consent agreements with the Department of Justice, while the language passed by Congress will likely have no more than a marginal effect.
The Tunney Act(9) was enacted in 1974 in reaction to criticism of certain antitrust settlements entered into by the Department of Justice under President Nixon.(10) It requires that, following the filing of a description of a proposed antitrust consent judgment by the Department of Justice and a period for public comment, the federal district court must determine whether entry of the proposed judgment "is in the public interest".(11)
Recent decisions interpreting the Tunney Act, however, have been criticized for prohibiting intervention by the court except in the most extreme circumstances. In particular, a 1995 District of Columbia Circuit decision suggested that a judge was obliged to accept an antitrust consent decree unless it "appears to make a mockery of judicial power".(12) That same court held that a reviewing court's "function is not to determine whether the resulting array of rights and liabilities is the one that will best serve society, but only to confirm that the resulting settlement is within the reaches of the public interest".(13)
In light of these decisions, legislation was introduced in the Senate in 2003 (S 1797) to bolster courts' ability to scrutinize antitrust consent decrees.(14) This legislation would have prohibited a court from entering a proposed consent judgment "unless it finds that there is reasonable belief, based on substantial evidence and reasoned analysis, to support [the Department of Justice's] conclusion that the consent judgment is in the public interest".(15)
The ABA Antitrust Section and some in the business community opposed this provision because it would have substantially undermined the ability of parties to enter into binding consent decrees with the government.(16) The ABA Antitrust Section was most concerned that the 'substantial evidence' language could have been interpreted to require courts to engage in a lengthy review of each proposed decree, including evidentiary hearings. If such reviews became the standard, parties would have a significant disincentive to enter into settlements with the Department of Justice because the potential delay, cost and uncertainty of litigation would be offset by concerns about the potential delay, cost and uncertainty in a Tunney Act proceeding.(17) In response to these criticisms, the Senate deleted this provision from the act, replacing it with a definitive statement that "nothing in this section shall be construed to require the court to conduct an evidentiary hearing or require the court to permit anyone to intervene".
The final Tunney Act amendments include a few provisions that are likely to have little impact,(18) a statement that the purpose of both the Tunney Act and these amendments is to ensure that antitrust consent judgments are "in the public interest", and a repudiation of the District of Columbia Circuit's language stating that the role of the court was limited to "determining whether entry of...consent judgments would 'make a mockery of the judicial function'".(19) As a result, this provision will likely have little, if any, practical effect on the ability of parties to enter into consent agreements with the Department of Justice.
The act provides new incentives for firms that have participated in criminal antitrust conspiracies to blow the whistle on their co-conspirators and cooperate with the Department of Justice investigations. Currently, the Department of Justice's antitrust leniency policy provides that a firm and its directors, officers and employees ('covered persons') can avoid criminal prosecution if:
There has been concern among some antitrust enforcers that, as a result of treble damages and joint and several liability, some firms that might otherwise report a conspiracy may not do so because reporting the conspiracy could subject them to liability for three times the damages caused by all of the conspirators.
This section of the act is designed to address these concerns by providing additional incentives for companies to enter into antitrust leniency agreements and to cooperate with plaintiffs in any civil action based on the same conduct.(20) 'Cooperation' with a plaintiff in a civil action is defined to include the following activities:
If the firm cooperates with the plaintiff, the act provides that the firm's liability in the civil action is limited to the actual damages it has caused rather than treble damages and joint and several liability. The act thus may dramatically reduce a firm's potential civil liability for reporting an antitrust conspiracy to the Department of Justice.
Finally, the act stiffens the penalties for criminal violations of the antitrust laws. Specifically, it increases the maximum criminal penalties for individuals from three years' imprisonment and a fine of $350,000(26) to 10 years' imprisonment and a fine of $1 million.(27) For corporations, the maximum fine is increased from $10 million(28) to $100 million.(29) The practical effect of these increases is limited because the Department of Justice has relied upon the alternative maximum fine provision of 18 United States Code Section 3571(d), which allows an alternative maximum fine equal to twice the gain or loss from the conduct. For example, under this provision, the Department of Justice has secured many negotiated fines far in excess of $10 million, including $500 million from Hoffman-LaRoche(30) and $225 million from BASF.(31)
For further information on this topic please contact Janet L McDavid or Jonathan M Grossman at Hogan & Hartson LLP by telephone (+1 202 637 5600) or by fax (+1 202 637 5910) or by email (firstname.lastname@example.org or email@example.com).
(2) "[A] domestic or international organization that plans, develops, establishes or coordinates voluntary consensus standards using procedures that incorporate the attributes of openness, balance of interests, due process and appeals process, and consensus in a manner consistent with the Office of Management and Budget Circular Number A-119, as revised February 10 1998." Standards Development Organization Advancement Act 2003, HR 1086 Section 103(1), 108th Cong (2003).
(3) The act defines 'standards development activity' as "any action taken by an [SDO] for the purpose of developing, promulgating, revising, amending, reissuing, interpreting or otherwise maintaining a voluntary consensus standard, or using such standard in conformity assessment activities, including actions relating to the intellectual property policies of the" SDO. HR 1086 Section 103(2). The definition specifically excludes a number of activities that facially violate the antitrust laws, including allocating markets, fixing or restraining prices, and exchanging sensitive business information among competitors that is not "reasonably required" to carry out the purposes of the SDO. Section 103(2).
(7) See, for example, State Oil Co v Khan, 522 US 3, 10 (1997) (stating that under the rule of reason, "the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature and effect").
(16) See "Comments of the ABA Section of Antitrust Law on HR 1086: Increased Criminal Penalties, Leniency Detrebling and the Tunney Act Amendment" (January 2004) ("ABA Antitrust Section Comments"); see also, for example, letter from John Castellani, president, Business Roundtable to Senator Mike DeWine, December 2 2003, available at www.businessroundtable.org.
(30) See United States v F Hoffman-LaRoche LTD, 99-CR-184-R (May 20 1999), available at http://www.usdoj.gov/atr/cases/f2400/hoffman.pdf.
(31) See United States v BASF Aktiengesellschaft, 99-CR-200-R (May 20 1999), available at http://www.usdoj.gov/atr/cases/f2400/basf.pdf.
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