Understanding, Detecting & Reporting Antitrust Violations

1. Understanding, Detecting & Reporting Antitrust Violations FHWA Alaska Division Anchorage, Alaksa July 13, 2010 Chris Wheeler U.S. Department of Justice Antitrust Division San Francisco Field Office (415) 436-6660 christina.wheeler@usdoj.gov

2. U.S. DOJ Criminal Enforcement & Investigative Offices

3. Antitrust Division Offices New York Philadelphia Washington, D.C. Cleveland Chicago Atlanta Dallas

4. Antitrust Enforcement • Criminal enforcement • Bid rigging • Price fixing • Market allocation • Merger review • Monopolies and other civil violations

5. Penalties Are Significant • Corporation • Up to $100 million • Individual • $1,000,000; and/or • 10 years incarceration • Corporation or Individual • Twice gain to defendant; or • Twice loss to victim

6. Criminal Penalties Obtained Largest Single Fine – $500 Million Largest Single Case – $1.6 Billion Recent jail sentences – 7 1/2 years

7. Basics of Antitrust Law

8. Sherman Antitrust Act – § 1 • “Every 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 declared to be illegal. . . .” • Prohibits agreements among competitors in • restraint of trade or commerce. • Price fixing, market allocation and bid rigging are all • criminal violations.

9. Elements of a Sherman Act § 1 Violation • Agreement • Unreasonable restraint of trade • Interstate commerce

10. Agreement • Meeting of the minds/understanding • Two or more unrelated persons • Does not have to be expressed or written

11. Interstate Commerce • Flow • Affects

12. Conditions Conducive to Collusion • Few sellers or bidders in the industry, or a small group of major vendors controls a large percentage of the market. • The product is standardized (commodity) and other competitive factors, such as design, quality, or service are not prevalent. • The product has no readily available substitute.

13. Conditions Conducive to Collusion • Vendors repeatedly sell to the same buyers. • Competitors in the industry frequently interact through social conventions, trade association meetings, shifting employment, or when conducting legitimate business. • Bidders personally submit bids at the same physical location.

14. Detecting Bid Rigging

15. What is Bid Rigging? • Bid Rotation • Competitors agree to take turns being the low (winning) bidder • Bid Suppression • Competitor agrees not to bid • Complementary Bid • Competitor agrees to bid high

16. Bid Rotation

17. Aircraft Parts Case “Price war is over between Smith & Smith and Jay-Em.” – Presidents of Jay-Em and Smith & Smith, 1986 Prices increased significantly – 60% jump between ’85 and ’86. No economic explanation to support such a significant price increase.

18. Bid Suppression Bidder #2 expressed interest in obtaining project. Had capability and resources to do the project.

19. Judy Green E-Rate Case • West Fresno Elementary School District Technology Project • Green Hired As Consultant to District • Green Creates Request for Proposal (RFP) • RFP calls for bids on four (4) items • Cabling • Data (switches and routers) • Servers • PBX/video

20. Green Orchestrates Bid Rig • TERMS OF BID RIG AGREEMENT • Only vendor H will bid on project • Vendor I subcontract for data and pbx • Vendor P subcontract for servers • Vendor V subcontract for video • Vendor S subcontract for data cabling • Vendors will provide kickback to Green • Green will disqualify non-conspirators

21. Complementary Bid Bidder #1 awards subcontract, or pays kickback to Bidder #2.

22. Typhoon Repair Projects - Guam Minimum of three bids required. Companies either with no interest in project, or in existence only on paper, submit high bids so friend will get the project.

24. Detecting Price Fixing

25. What is “Price Fixing”? • Agreement to raise, lower or maintain prices • Agreement not to negotiate on price • Agreement to limit discounts, rebates or promotions • Agreement on price formulas or guidelines

26. Lysine Video Clip Tape Segment: January 18, 1995 Cartel Meeting in Atlanta, Georgia – The Lysine Cartel Members Show Disdain For Customers And Antitrust Enforcement 26

27. Detecting Allocation Schemes

28. What are “Allocation Schemes” Any agreement not to compete for specific: * Territories * Customers * Products

29. Dust Control Case Pre-conspiracy Conspiracy Wyoming Wyoming Co. A Co. A Co. B Co. B Colorado Colorado Prior to agreement, A&B competed for work in both states. After agreement, each limited quotes to customers in allocated territory.

30. Commercial Garbage Cases New Customers Existing Customers Company A Company B Company C Company either refused to quote or quoted high drop-box price. Company was servicing customers in same area at lower prices.

31. Sources of Antitrust Cases • Employees • Current or former • Customers/Purchasing Agents • Suspicious patterns/incriminating remarks • Competitors • Invited into conspiracy • Corporate Amnesty Program

32. Suspicious Bid Patterns • The same suppliers, with similar capabilities, submit bids and each company seems to take a turn being the successful bidder (bid rotation). • The same company always wins a particular procurement and there are other companies with similar capabilities, but either don’t bid or consistently submit higher bids (bid suppression). • Some bids are much higher than published price lists, previous bids by the same firms or engineering cost estimates.

33. Suspicious Bid Patterns • Fewer than normal competitors submit bids and there is no economic explanation for the reduction in competitors, i.e. full workload, bankruptcy, etc. • A company appears to be bidding substantially higher on some bids than on other bids; with no apparent cost differences to account for the difference. • A successful bidder subcontracts work to competitors that submitted unsuccessful bids on the same project. • A company withdraws its successful bid and subsequently is subcontracted work by the new winning contractor.

34. Conduct That Indicates Possible Collusion • Indications that one competitor may have prepared bid or pricing documents for other competitors: • Identical calculation, syntax or spelling errors • Identical handwriting, typeface or stationery in the bid proposals or price announcements submitted by competing vendors • Identical postmarks, return addresses, fax telephone numbers or e-mail addresses – for electronic bids, also consider reviewing the metadata (hidden data)

35. Conduct That Indicates Possible Collusion • Bid or price documents contain white-outs or other notations indicating last minute price changes. • A bidder requests a bid package for himself and a competitor or submits both his and another’s bids. • A company submits a bid when it is incapable of successfully performing the contract. • A company brings multiple bids to a bid opening and submits its bid only after determining (or trying to determine) who else is bidding.

36. Suspicious Statements That Indicate Possible Collusion • Use of the word “we” with reference to the industry: we decided to raise prices, we decided company X would be the low bidder. • Statement that a particular customer, territory or contract “belongs” to a certain vendor: “It was our turn to win.” “We were supposed to be the low bidder.” • Statements related to a cessation of price competition: “The price war is over, prices will go up.” • Any statement indicating vendors have discussed prices among themselves or even that they have had non-public meetings or communications.

37. What You Can Do To Discourage and Detect Collusion • Expand bidders list – solicit as many reliable sources as economically possible and keep track of possible bidders who express interest in the project. • Require the submission of sealed bids to be delivered by a specified time and to a specified location and date and time stamp the bids when they are received. • Set the public bid opening at least one day after specified due date. • Require a certification of independent price determination to be submitted with all bids. Avoid abstract words such as “competitor,” “collude,” or “sham” in certification.

38. What You Can Do To Discourage and Detect Collusion • Retain all bids, envelopes, facsimile transmittal sheets or e-mail transmittal messages, that the bids or quotes were in or which accompanied the bids. • If the prices or bids submitted don’t make sense, press your vendors to explain and justify their prices. • Become familiar with the market in which you make your purchases.

39. Other Criminal Violations Mail or Wire Fraud False Statements Obstruction

40. USDOJ Antitrust DivisionARRA Initiative Website • www.usdoj.gov/atr/public/criminal/economic_recovery.htm

41. Questions? Chris Wheeler USDOJ, Antitrust Division (415) 436-6660 Christina.Wheeler@usdoj.gov