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Presenting a live 90‐minute webinar with interactive Q&A

Antitrust Internal Audits on Pricing Distribution Antitrust Internal Audits on Pricing, Distribution Practices, Competitor Collaborations and MoreManaging the Audit Process, Mitigating Regulatory Sanctions, and Preserving Attorney‐Client Privilege

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, DECEMBER 13, 2011

Today s faculty features:

Richard J. Wegener, Shareholder, Fredrikson & Byron, Minneapolis

Douglas M. Tween, Partner, Baker & McKenzie, New York

John F. Collins, Partner, Dewey & LeBoeuf LLP, New York

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Antitrust Internal Auditson Pricing Distribution Practiceson Pricing, Distribution Practices, Competitor Collaborations and More

December 13, 2011

Douglas M. TweenNew York

ContactDoug Tween is the Leader of Baker & McKenzie's Global Cartel Task Force and a Partner in the firm's New York office. He brings extensive courtroom trial experience to the defense of companies and individuals in antitrust and white collar criminal and regulatory investigations, as well as complex civil litigation and class actions. He also advises on crisis management, conducts internal investigations, and assists corporations with compliance, i k t d irisk management, and governance issues.

Doug is Co-Chair of the American Bar Association's Cartel and Criminal Practice Committee, a Non-Governmental Advisor to the International Competition Network, and a New York Super Lawyer. From 1990 to 2005, he served as a Trial Attorney with the U.S. Department of Justice Antitrust Division. He was one of the U.S. government's most highly-honored antitrust trial attorneys, having received the Attorney General's Distinguished Service Award, the Antitrust Division Award of Distinction, and numerous other citations.

He is currently defending clients in numerous antitrust matters, including air cargo, freight forwarding, refrigerator parts, and municipal foreclosure and tax lien auctions. Among his highlights is obtaining an acquittal for his client after a 10-week federal criminal jury trial in the first case brought by the DOJ's Iraq Procurement Fraud Task Force; and persuading the Antitrust Division to reverse its decision to charge a client after sending a target letter at the conclusion of a three-year investigation.

Douglas M. TweenBaker & McKenzie LLP1114 Avenue of the AmericasNew York, NY 10036

Doug received his J.D., cum laude, in 1989 from Northwestern University School of Law, where he was Articles Editor of the Law Review. He received his B.A. from Columbia College in 1984. After graduation from law school, he served as a law clerk to the Honorable William H. Timbers of the U.S. Court of Appeals for the Second Circuit. He is

[email protected]

©2011 Baker & McKenzie 6

admitted to practice in the States of New York and Connecticut.

The Case for Audits: Evolution of Compliance

The bare compliance policy

Tailored compliance polic

Instilling a culture of compliance

Testing compliance –audits and

Facilitating the detection of non-compliance –policy policy compliance –

ensuring all are aware and trained

audits and health checks

compliance –whistleblowing and internal amnesty programs


Th C f A dit Th DOJ’ ViThe Case for Audits: The DOJ’s View“We know when we see good compliance. We have a

good sense of whether it’s robust and real or created on the cheap. … [I]t’s stunningly bad business not to have a state-of-the-art compliance program. You’ll get a p p g gbetter deal.” DOJ AAG Lanny Breuer (11/4/2010)


The Case for Audits: Enforcers’ Expectations

DOJ Principles of Federal Prosecution of Business Organizations

U.S. Sentencing Guidelines

EC “Compliance Matters” (2011)

50+ Leniency Regimes Globally


The Case for Audits:The Case for Audits: U.S. Corporate Prosecution Principles1 Nature and seriousness of the offense;1. Nature and seriousness of the offense;2. Pervasiveness of the wrongdoing within the business;3. History of similar misconduct;4 Ti l d l t di l f d i d illi t4. Timely and voluntary disclosure of wrongdoing and willingness to

cooperate in the investigation;5. Existence and effectiveness of pre-existing

licompliance program;6. Remedial actions, including efforts to implement corporate

compliance program;7. Collateral consequences, including existence of disproportionate

harm to shareholders;8. Adequacy of prosecution of individuals responsible;


9. Adequacy of civil or regulatory remedies.

The Case for Audits:The Case for Audits:U.S. Sentencing Guidelines

Sentencing of Organizations 8B2.1(b)(5) & 8C2.5(f) – Significant reduction if an

ff d it i ti h i ioffense occurs despite an organization having in place an “effective compliance and ethics program” “The organization shall take reasonable steps to The organization shall take reasonable steps to

ensure that the organization’s compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct”and auditing to detect criminal conduct

Must be more than a “paper program”


The Case for Audits: “Compliance Matters” Compliance Matters: What Companies Can Do Better to Compliance Matters: What Companies Can Do Better to

Respect EU Competition Rules Issued by EC November 2011

Calls for (1) clear strategy; (2) formal staff engagement; (3) constant update; and (4) monitoring and auditing(3) constant update; and (4) monitoring and auditing

EC does not endorse any specific programy p p g

No reduction in fine for pre-existing compliance program


Who Should Conduct the Audit?

– Lawyers– In-house/outside counsel

– Preserving attorney-client privilege, especially in EU– Other experts

– Auditors/forensic accountants– Electronic discovery providers

S– Screeners


GETTING STARTED

Richard J WegenerRichard J. Wegener612.492.7323

[email protected]

14© 2011 Fredrikson & Byron, P.A.

Reviewing Industry Structure/Antitrust g yHistory

• Relevant product and geographic markets• Market concentration• Market concentration• Market shares of largest competitors

H th li t i d i ifi t• Has the client experienced any significant antitrust problems in past years?


Determining Audit Scope & g pObjectives

• Initial preliminary interviews with relevant client executives

• Obtain background information• Identify specific areas meriting close attentionIdentify specific areas meriting close attention


Announcing The AuditAnnouncing The Audit

• Client has engaged counsel to provide advice about continued antitrust law compliance

• Audit will be conducted for the client’s well-beingg• Audit is not being conducted because of any specific problems or

suspicions (assuming it is so)• Staff should fully cooperate in making themselves and their files

available to counselavailable to counsel• Staff should avoid discussing the audit with anyone other than

counsel• Except in extraordinary circumstances, counsel’s report will be

limited to matters relating to antitrust compliance.


ANTITRUST INTERNAL AUDITSDecember 13, 2011

John F. Collins212.259.7080j lli @dl

Dewey & LeBoeuf LLPdl.com

[email protected]

I GETTING STARTEDI. GETTING STARTED

Dewey & LeBoeuf LLP | 19

DOCUMENT REVIEW

● What to review?• Paper

• Electronic

● Temporal scope of review

● Privacy issues● Privacy issues

● Key individuals

Topics● Topics• Contacts with competitors

• Joint Venture


• Joint Venture

Document Review(continued)

● Topics (continued)• Resale price maintenance• Robinson-Patman Act compliance• Contacts with dealers• Antitrust investigations in areas

• Current• Past

• Prices• Sales• Output• Trade Association Participation• Government Contracting and Commercial Bribery• Intellectual Property


INTERVIEWS

● One employee at a time if possiblep y p

● Make clear that you represent the company, not the employee

● Have a checklist or questionnaire for your use

● Only counsel should take notes● Only counsel should take notes

● Opportunity to audit awareness of and compliance with any company antitrust compliance programy p y p p g


DOCUMENTING THE AUDIT

● Reason for the Audit

● Written Report• To have or not to have?To have or not to have?

• Privilege Issues• U.S. v. EU

• Counsel’s notes and summaries as basis for oral report

● Analysis• What processes followed

● Conclusions and Recommendations


Compliance Programs

– Policies– Standards of conduct– Training– Reporting requirements & procedures– Audits & health checks– Internal investigations


Compliance Programs: PoliciesCorporate policies should cover:– Corporate policies should cover:– Sherman 1 – agreements unreasonably restraining trade– Clayton 2 and Robinson-Patman – price discrimination– Sherman 2 – monopolization– Clayton 7 – mergers & acquisitions– FTC Act – unfair competition– FTC Act – unfair competition– State antitrust laws– Foreign antitrust laws– Penalties for violations of antitrust laws– Effect of compliance program on penalties– DOJ and other leniency policies


DOJ and other leniency policies

Compliance Programs: Standards of Conduct

– Employees should:– Become familiar with company policies– Participate in training– Comply with company policies and cooperate with the

company in any investigationscompany in any investigations– Disclose any potential violations– Provide annual certification of compliance with antitrust– Provide annual certification of compliance with antitrust

laws and policies


S C CSPECIFIC AUDIT APPLICATIONSAPPLICATIONS


Horizontal Price Fixing Why?Horizontal Price Fixing – Why?

• Increase in Criminal / Civil penalties• Proliferation of leniency programs• Proliferation of leniency programs• International cooperation

Th i• The recession


Horizontal Price Fixing Red FlagsHorizontal Price Fixing – Red Flags

• Customer/territorial agreements• Industry overcapacity• Undifferentiated productsUndifferentiated products• Job-order pricing• Decentralized pricing

Frequent contacts with competitors• Frequent contacts with competitors• Exchange of competitive information (exs. credit

reporting, compensation surveys)


Merger IssuesMerger Issues

• HSR analysisC di t d ti it• Coordinated activity

• Unilateral activity


Merger Issues Coordinated ActivityMerger Issues – Coordinated Activity

• Commoditized product?C t t d i d t ?• Concentrated industry?

• Pricing transparency?


Merger Issues – Opportunity to g pp yCoordinate

• Trade associations?H ft d t d i ti t?• How often do trade associations meet?

• Appropriate association protections?• Standard setting organizations?


Merger Issues Unilateral ConductMerger Issues – Unilateral Conduct

• Supplier / customer relationships (exs.exclusivity, favored nation clauses)?exclusivity, favored nation clauses)?

• Competitor/customer/supplier relationships?relationships?

• Complaints?


Monopolization & Attempted p pMonopolization

• “Scope of the audit” issues“M h i f th dit” i• “Mechanics of the audit” issues


Monopolization Audit ScopeMonopolization – Audit Scope

• Relevant product market?M k t ?• Market power?


Monopolization Audit MechanicsMonopolization – Audit Mechanics

• Industry problems• Section 2 / Section 7 issues• Predatory pricingPredatory pricing• Market / Territorial allocation• Refusals to deal

Patent fraud• Patent fraud• Sham litigation


Price DiscriminationPrice Discrimination

• List price• Amount “off” list• Rebates• Promotional allowances• Net price• Volume


II. SPECIFIC AUDIT APPLICATIONSAPPLICATIONS


RESALE PRICE MAINTENANCE

● Vertical Price Fixingg

● Agreements between participants at different levels of the market that establish the resale price of products or services

• Specific resale price

• Price floor below which resales cannot occur(Minimum RPM)

• Price ceiling above which resales cannot occurPrice ceiling above which resales cannot occur(Maximum RPM)


RESALE PRICE MAINTENANCE(continued)

● Disparity between federal and state law can be a p ysource of confusion

• Federal Law• State Oil Co. v. Khan, 522 U.S. 3 (1997)

(Maximum price restraints)

• Leegin Creative Leather Products, Inc. v. PSKS, Inc., g551 U.S. 877 (2007)(Minimum price restraints)

• Rule of reason rather than per se unlawful standard



• State Law• Some prohibit

• Some permit

• Some uncertain

• www.antitrustsource.com (April 2011)(Summaries and updates on state laws)



● Company Pricing Policiesp y g• Suggested Resale Prices

• Colgate Program - United States v. Colgate & Co. 250 U.S. 300 (1919)

• Special Promotional Programs

C ti Ad ti i• Cooperative Advertising

• Most Favored Nation Clauses


TRADE ASSOCIATION PARTICIPATION

● Permitted or Not

● Internal Accounting and Reporting

● Materials Review● Materials Review

● Periodic Interviews

C i M b hi O h R ibili● Committee Memberships or Other Responsibility Roles


OTHER AREAS

● Government Contractingg• Foreign Corrupt Practices Act

• 15 U.S.C. §§ 78dd-1, et seq.

• Whistleblower Statutes

● Commercial Bribery• Robinson-Patman Act § 2(c)

● Intellectual Property Issues• Up-to-date Licenses

• Employee Downloading


• Patent Trolls

DISCLOSURE OFDISCLOSURE OF WRONGDOING &WRONGDOING &

OTHER POST AUDITOTHER POST-AUDIT ISSUESISSUES


Attorney Client PrivilegeAttorney – Client Privilege

C l h ld d h di• Counsel should conduct the audit• Non-lawyers must act under direction of counsel• Client’s board or management should “authorize” the audit• Inform interviewees of audit purpose• Inform interviewees of audit purpose• Conduct interviews in private / strict confidence• Don’t create unnecessary documents• Documents should be labeled “Privileged & Confidential” and strictlyDocuments should be labeled Privileged & Confidential and strictly

controlled


Attorney Work ProductAttorney Work Product

• “Opinion” work product vs. “other” work product• “In anticipation of litigation”p g• Materials prepared by or at the direction of

counsel


Data Protection and Privacy

– Cultural differences between US vs. rest of world– Employment law– Data privacy law– Business secrets law

– Pitfalls– Email review

C id d i– Consider advance waivers


Data Protection and Privacy

– Document creation and retention– Liability often based on company’s internal documents

A id i i l l th t t– Avoid imprecise or careless language that may suggest anticompetitive conduct– “Dominance,” “destroy the competition,” “stabilize the y p

industry,” “industry consensus,” “delete after reading”– Establish consistent and non-selective document policy

Do not retain documents no longer needed– Do not retain documents no longer needed– Keep privileged communications separate and well-

marked


III. DISCLOSURE OF WRONGDOINGWRONGDOING


DISCLOSURE OF WRONGDOING

● Government Amnesty Programsy g• Department of Justice Corporate Leniency Program

(see Antitrust Div., U.S. Dep’t of Justice, Corporate Leniency Policy (Aug. 10, 1993), available at www.usdoj.gov/atr/public/guidelines/0091.htm)) j g p g )

• Department of Justice Individual Leniency Program(see Leniency Policy for Individuals (Aug. 10, 1994), available at www.usdoj.gov/atr/public/guidelines/0092.htm)

• EC Leniency Program and Interaction with Member States (see Commission Notice on Immunity from Fines and Reduction of Fines in Cartel Cases, 2002/C45/03, 2002 O.J. (C45) 3, available at htt // i t/ l / i/ / j/d t/2002/ 045/ 04520020219 00030005 df)http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/c_045/c_04520020219en00030005.pdf)


DISCLOSURE OF WRONGDOING(continued)

● Sarbanes-Oxley Acty(see Pub.L. 107-204 http://www.gpo.gov/fdsys/pkg/PLAW-107publ204/content-detail.html)

● Public vs Private Companies● Public vs. Private Companies

● Counsel as Whistle Blower

A di L● Auditors Letters
