Antitrust Anxiety

In the early hours of Feb. 14, 2006, all hell broke loose in the air cargo carrier industry. EU antitrust officials carried out unannounced raids on the offices of carriers including Air France-KLM, Cargolux Airlines, British Airways and SAS, searching for evidence that would prove allegations of widespread price fixing. Regulators from Asia and the U.S. soon followed with their own investigations--raising suspicions of a massive global cartel.

But regulator inquiries and potential indictments were only the start of the carriers' worries. In the wake of the investigations, the U.S. plaintiffs' bar filed a massive onslaught of class action lawsuits, seeking about $1 billion in recoveries on behalf of customers that overpaid for services.

The plaintiffs' frenzy in the cargo carrier scenario exemplifies a litigation trend that has every industry watching its back--a massive upsurge in civil antitrust litigation in U.S. federal courts. According to a comprehensive study of federal dockets published on the antitrust law newswire Competition Law360, civil antitrust filings are up 42 percent in the first half of 2006 as compared to the same period in 2005.

"We don't know what industries will come under investigation, but the phenomenon will continue," says Ray Hartwell, partner at Hunton & Williams. "We are going to see a sustained increase in federal civil antitrust filings."

Plaintiff Powers

Civil antitrust suits always have been lucrative for the U.S. plaintiffs' bar. A successful antitrust plaintiff is entitled to treble damages, as well as attorneys' fees and costs under the Sherman and Clayton acts. In addition, antitrust defendants are subject to joint and several liability, which means that any single responsible party can be held liable for all the damages a cartel causes.

But along with those high stakes comes a corresponding complexity to antitrust litigation. It's not easy to prove, for example, that a company engaged in predatory pricing to squeeze out competitors. However, a few trends are making it easier for plaintiffs to bring successful antitrust suits.

First, the European Commission is becoming more focused on investigating and prosecuting antitrust violations. Its high-profile investigations help plaintiffs identify vulnerable targets, as well as providing them with a wealth of information on which to base a suit.

"After the publicity of a dawn raid by EC officials gets out, the class action bar goes into overdrive," says Alan Wiseman, partner at Howrey in Washington, D.C. "U.S. plaintiffs file suit immediately, regardless of whether there's a U.S. component to the alleged conduct."

The air cargo cartel is a perfect example of this phenomenon--although the alleged price-fixing activity occurred in Europe, U.S. plaintiffs filed 80 class action suits against Germany-based Lufthansa alone, based on the theory that in a global marketplace, cartel activity affects consumers worldwide.

Further stoking antitrust litigation is an increase in collaboration between regulators. For instance, earlier this year, antitrust officials in the U.S., EU, Japan and Canada simultaneously raided 14 plastic additives producers in nine countries to investigate a suspected price-fixing cartel. This cooperation among international regulators gives U.S. plaintiffs compelling evidence that the antitrust activity is affecting consumers on a global scale.

In addition, the plaintiffs' bar now catches wind of possible antitrust activity earlier than it did in the past due to increased pressure on companies to disclose anything that could impact financial performance.

"Under Sarbanes-Oxley, getting a subpoena in an antitrust investigation is a reportable event," says Patrick Ahern, partner at Baker & McKenzie.

Finally, the Class Action Fairness Act allows defendants to remove many multi-party cases to federal court. Therefore, plaintiffs are going directly to the federal courts to avoid the extra step, which may account for some of the increased activity on federal dockets, Hartwell says.

Pulling The Plug

With international regulators continuing to focus on ferreting out antitrust abuses, the plaintiffs' bar will remain poised to jump on each suspected violator. And it's difficult to tell which industry will be the next to come under the microscope. In the past year, international regulators have investigated cartels in such diverse industries as air cargo, plastic additives, acrylics and pineapple and banana growers--all of which led to significant U.S. civil litigation.

One tactic that can soften the blow of antitrust accusations is to self-report any anticompetitive activity the company uncovers internally. Under both U.S. and EU laws, a whistleblower gets amnesty from regulatory fines and prosecution for both the company and its executives.

Lufthansa took this route, cooperating with investigators and blowing the whistle on cartel activity among air cargo carriers. Of course, that didn't bar private plaintiffs from filing civil claims, and Lufthansa paid $85 million to settle U.S. claims against it in September. And the company still has to contend with significant civil litigation in Canada.

But despite the exposure to civil litigation, most experts advise that if a company uncovers evidence of a collusive scheme, it is far better off self-reporting than waiting for regulators to uncover the conduct.

"You could save the company millions of dollars in fines by blowing the whistle," Ahern says. "Arguably, you have a duty to shareholders to do so."

Further strengthening the case for self-reporting is a 2004 revision to antitrust laws. Now U.S. law provides that an amnesty recipient is liable only for single damages in civil litigation.

That incentive essentially means that whenever cartel activity exists, some party will blow the whistle. While reporting violations may start the ball rolling with civil suits, at least it will protect the company from pleading guilty to criminal charges, paying fines to regulators and potentially being held liable for treble damages.

Minimizing Risk

Obviously, given the huge risks associated with antitrust suits, avoiding violations altogether is the best-case scenario. If violations do occur, being the first to blow the whistle to secure amnesty significantly reduces the company's exposures. But even in the worst-case scenario, where the company is a target of an unexpected investigation, there are a few other things you can do to minimize the negative impact of civil antitrust litigation.

One key is looking for early settlement opportunities. "Go out and be proactive with large customers and look for a business resolution or settlement," Wiseman says. "This takes those claims out of any class action and also reduces the possibility that large customers will opt out and pursue recoveries separately."

U.S. defendants in antitrust litigation also should look carefully at whether the court in which the plaintiff has filed can acquire subject matter jurisdiction over the case.

"Because conduct uncovered in Europe is spurring the filing of U.S. class actions, you should look at whether there's jurisdiction over these claims as they're alleged," Ahern says. "[The Supreme Court's 2004 decision in] Hoffmann-La Roche v. Empagran makes it more difficult to bring a U.S. class action based on non-U.S. purchases."

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