Last week a Connecticut jury acquitted Stora Enso North America Corp. of criminal “price fixing” charges. The Justice Department indicted Stoa Enso last December for allegedly selling coated magazine paper at “anticompetitive” prices. It’s rare for any company to go to trial on criminal (or even civil) antitrust charges, and an outright not-guilty verdict is even rarer: In the last ten years, the Antitrust Division’s criminal won-loss record is a robust 454-11.
The Antitrust Division’s success in convicting price fixing defendants can be attributed to the Corporate Leniency Policy, an invention of Division lawyers that allows one company in a purported “cartel” to escape all criminal prosecution in exchange for providing evidence against other firms. It’s a terrific bargain. A company can inflict maximum damage on its competitors—who face large criminal fines and treble damages in subsequent civil lawsuits—while prosecutors are generally ensured of quick plea bargains from their remaining targets.
In Stora Enso’s case, competitor UPM-Kymenne took the government’s “amnesty” and said it conspired with Stora Enso to raise prices. Stora Enso said that while executives of the two companies “exchanged information about their respective companies’ decisions to follow a competitor’s price increase,” there was no “agreement or commitment to one another to confirm their pricing conduct.” Stora Enso argued the government’s case “is based on the flawed theory that comprehension as to how a competitor will act is equivalent to an agreement with that competitor to so act.”
The jury agreed. It probably helped that the trial judge instructed the jury that UPM’s amnesty agreement did not constitute evidence that any price-fixing took place. In the light of open court, it’s reasonable for the jury to infer that UPM’s cooperation with prosecutors did not make the company’s executives—who are also spared individual prosecution by the amnesty deal—did not make the firm the most reliable witness against its largest competitor.
But the problem in other criminal antitrust prosecutions is that there is never a light of day. The Corporate Leniency Policy serves one overriding purpose: To keep Antitrust Division investigations secret and avoid any meaningful judicial or public scrutiny. Amnesty agreements are state secrets. The DOJ won’t officially identify any firm that receives amnesty, even in cases dating back more than 15 years. Since the DOJ classifies amnesties as exercises of “prosecutorial discretion,” they are not submitted to any court or disclosed to the public. The courts accept this lack of transparency. Just this past March, a district judge in Washington upheld the DOJ’s refusal to disclose its amnesty agreements under the Freedom of Information Act.
The DOJ’s position is that any transparency would destroy the effectiveness of the Corporate Leniency Policy, which in the words of the Antitrust Division’s top criminal enforcer is designed to create a “race to the prosecutor”. But it’s doubtful companies would stop seeking amnesty if the details were made public. Indeed, most companies voluntarily announce their participation in the amnesty program. The secrecy only benefits prosecutors, who in an ideal world never present evidence to a court or defend their decisions to the public.
When you combine such an expansive view of prosecutorial discretion with the inherent vagueness of antitrust, there’s a real danger that mid-level DOJ bureaucrats will collude with politically-savvy companies to manipulate market outcomes. Imagine a scenario where the Antitrust Division awards amnesty to a U.S.-based company in exchange for implicating its non-U.S. competitors in a price-fixing scheme. This actually happened in the random access memory market, where the lone U.S.-based firm, Micron Technology, signed a non-public amnesty agreement that led to criminal pleas from the other non-U.S. memory manufacturers. The DOJ collected over $700 million in fines, effectively a tariff that benefited Micron. (And at the same time Micron was conspiring to fix prices too high, according to the DOJ, Micron pursued a “dumping” case with the Commerce Department charging a Korean manufacturer with charging too little for its memory. Talk about playing both sides of the fence.)
But let’s imagine another scenario. Suppose a company with political ties to the White House uses its influence to receive amnesty in exchange for implicating a competitor with ties to the opposition party. No, I don’t think this has happened. But if it did, the true nature of the conspiracy would be difficult to discover since all amnesty-related documents are deemed secret, even from the courts. While the DOJ likes to portray corporations as bastions of shadowy, anti-consumer conspiracy, in truth it’s the prosecutors who routinely engage in such collusion.