How To Spot Price Fixing

1. How To Spot Price Fixing Merril Hirsh Partner Troutman Sanders LLP Washington, DC

2. How To Spot Price Fixing • What is price fixing? • What does the law have to say about it? • What should I look for? • What can I do about it?

3. What is “price fixing”? • Well, it is price fixing – e.g. • agreeing on minimum prices • agreeing on benchmarks (e.g., price for particular grade, or the “standard” price list) • agreeing on price differentials between types, sizes, quantities • agreeing on a standard formula for sales • agreeing on elements of prices (e.g., percentage surcharges; credit terms) • agreeing on price discounts/or eliminating them • Agreeing not to lower prices

4. What is “price fixing”? • But prices can be controlled in other ways – e.g. • Allocating markets (geographic, product) • Allocating customers • Agreeing not to compete for particular contracts (e.g., bid rigging, suppression, allocation, subcontracting) • Agreeing to limit supply • Agreeing to limit products • Agreeing to common terms or conditions • Agreeing not to compete in other ways (e.g., advertising, R&D)

5. What does the law have to say about price fixing? • Don’t do it – it is a felony • Section 1 of the Sherman Act provides that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal ….” (15 U.S.C. § 2) • It also creates civil liability for treble damages • “Naked” price-fixing is a per se violation • It can be proved by direct evidence – e.g., - • Or by circumstantial evidence …

6. What should I look for? • Think about how price fixing is done • They need an agreement • They need to be able to police it • They need to be able to keep it up even though it is illegal

7. What should I look for? • General evidence • Identical prices, especially for a long period of time • Prices higher, or not dropping • Higher prices don’t seem to relate to costs of raw materials, previous bids or cost estimates • Difficulty interesting companies in selling to you (reluctance to talk, or ridiculously high quotes, or poor quality samples) • The same companies solicit business, others don’t • Price increases are announced at around the same time, or with the same or a rotating leader • Similar or identical letters explaining price or service changes

8. Sometimes price fixers are unimaginative …

9. Lithe and fierce like a tiger …

10. What should I look for? • Changes in what had been competition: • Odd or new type of inflexibility on prices or terms • Elimination of historic discounts across an industry at the same time • Refusal to negotiate where negotiation is common • Odd lack of availability of product

11. What should I look for? • Unlikely patterns of “competition” • Same company always wins particular bid, while others always seem to submit non-conforming bids • Companies seem to have split up line items (some significantly higher on some and significantly lower on others) • Flip side: bids always come in unexpectedly close to each other • Same increment of bids between different companies (create a chart of bids) • Small (alternating) group win bids • When a contract is rebid, bidders come back in the same order, or with the same differentials

12. What should I look for? • Tip-offs (duh, or doh! depending on your perspective) • One competitor submitting two company’s bids • Company brings multiple bids to opening and only submits after determining (or trying to determine) who else is bidding • Competitors are seen meeting shortly before bids • Apparent knowledge of what competitors will do (e.g., “they won’t give you a better price”) • References to industry-wide price schedules • Statements about customers “belonging” to certain sellers • Statements that bid was “courtesy,” “complementary,” “token” or “cover” • Winning bidder subcontracts to losers, or withdraws and becomes subcontractor • Proposals have identical typefaces, stationery, addresses, or typos, or contain whiteout marks

13. Sometimes price fixers are dumb…

14. Typos …

15. What should I look for? • Sudden competition • Prices drop mysteriously when a new bidder appears on the scene • Sudden willingness to sell followed by exit • Suddenly lower prices follow by price hikes • Unusual evasiveness

16. What can I do about it? • Expand the list of bidders • Require signing and submitting of non-collusion statements that inform bidders of penalties for violating the law • Teach employees to be aware of signs • Maintain all procurement records • Chart out the pattern of bidding over time, place, terms, etc. • Know the markets you are purchasing from (raw materials, patterns) • Ask questions – if prices or bids don’t make sense, press vendors to justify. Think about the explanations. • Report suspicions – don’t assume that everything that is odd is illegal, but don’t assume it is legal either. • Of course … call us!

17. Merril Hirsh Merril Hirsh is a partner in the Washington, DC office of Troutman Sanders LLP. He joined Troutman as part of its January 1, 2009 merger with Ross, Dixon & Bell, LLP, where Merril was the head of the antitrust practice group. In addition to counseling clients on a range of antitrust issues, his litigation on behalf of plaintiffs and defendants includes recovering $76.25 million under the False Claims Act based upon alleged price fixing of carbon fiber; successfully defending USA Track & Field against an antitrust challenge to its competition standards; obtaining an $87.5 million settlement in a telecommunications dispute; and developing the structure for a $3 billion settlement of asbestos liabilities. Compliance Reporter named him “Lawyer of the Year” in 2008 for his representation of the Financial Planning Association in the DC Circuit lawsuit that overturned the SEC’s broker-dealer rule. Before joining Ross, Dixon, Merril was a Trial Attorney in the Justice Department’s Civil Division where, among other things, he represented the Department of Education in the Kansas City school desegregation case. Merril has spoken frequently, published numerous articles and testified before Congress on antitrust issues and has participated on the ABA’s pharmaceutical task force on antitrust issues.