due process in competition · pdf filethe process or proceedings may be ... 78% of individuals...

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Keynote Address by

Judge Douglas H. Ginsburg

U.S. Court of Appeals for the District of

Columbia Circuit

Due Process in

Competition Proceedings

International Competition Network

Roundtable on Investigative Process

March 25, 2014

Washington D.C.

Copyright by the author (2014)

Used by permission

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“A precise definition has never been attempted. It does not always

mean proceedings in court. Its fundamental requirement is an

opportunity for a hearing and defense, but no fixed procedure is

demanded. The process or proceedings may be adapted to the nature

of the case.” Ballard v. Hunter, 204 U.S. 241, 255 (1907).

Defining Due Process

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“The extent to which procedural due process must be afforded the

recipient is influenced by the extent to which he may be condemned to

suffer grievous loss.” Goldberg v. Kelley, 397 U.S. 254, 263 (1970).

Does an antitrust case threaten “grievous loss”? Sometimes yes,

sometimes no.

The Stakes for Antitrust

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Criminal Actions – high stakes, therefore more process is due.

In the United States, corporate fines are breaking records and for

individuals jail time is increasingly likely. For example:

Defendants in the DoJ’s auto parts cartel case have agreed to pay $1.6 billion in

criminal fines.

The DoJ won a criminal verdict of $500 million against AU Optronics in the LCD

panel cartel case

78% of individuals sentenced in DoJ cases received jail time in Fiscal Year 2012.

The average prison sentence was 25 months.

Criminal sanctions are now available in many countries.


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Civil Actions – if the stakes are very high, why should procedures be any fewer?

Civil fines rival criminal fines.

The EC fined seven cathode ray tube companies € 1.47 billion in 2012.

As noted by the ECJ in the Schindler elevator cartel case: “[I]n its judgment in A. Menarini

Diagnostics v. Italy, relating to a penalty imposed by the Italian competition authority ..., the

European Court of Human Rights considered that, given that the fine imposed was high [€6

million], the penalty, because of its severity, fell within the criminal sphere.”

In R. v. Wigglesworth, the Supreme Court of Canada held where a conviction could result in

a fine that “by its magnitude would appear to be imposed for the purpose of redressing a

wrong due to society at large,” the proceeding would be subject to § 11 of the Canadian

Charter of Rights and Freedoms, which deals with fundamental fairness.

Reputational damage to individuals as well as to companies can be significant.

As the U.S. Supreme Court observed in Roth, more process is due when government action

“impose[s] upon [an individual] a stigma or other disability that foreclose[s] his freedom to

take advantage of other employment opportunities.” 408 U.S. 564, 572 (1972).

Human capital built up over decades is destroyed in an instant if the consequence of an

infringement decision is to make a person unemployable in his field of endeavor.


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Civil Actions – if the stakes are very high, why should procedures be any fewer?

Private plaintiffs – increasingly via class actions – will follow public cases.

After the civil judgment in the DoJ’s Microsoft case, the company faced follow-on suits from

Sun Microsystems and more than 60 other plaintiffs.

Even after the DoJ had dropped its investigation of Dow Chemical and other alleged

members of a cartel, a class action suit went ahead and last year the plaintiffs won $1.2

billion in damages.

Other jurisdictions could follow on with their own actions.

There are now at least 115 jurisdictions worldwide.

Many of them could impose significant sanctions, including some criminal sanctions for

individuals.

Why should any lesser process be used because a case is brought before an

administrative agency?


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Delay

Hearing Before the Actual Decision Maker

Neutral Decision Maker

Right to Confront Evidence

Reasoned Decision Based Solely upon the Evidence

Review by an Independent Tribunal

Six Due Process Concerns to Consider

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Justice delayed is indeed justice denied.

Speedy Trial Clause of the U.S. Constitution applies in criminal cases.

But the U.S. Supreme Court has also held “due process” forbids

“oppressive delay” in getting to a final resolution, United States v. Lovasco,

431 U.S. 783, 789 (1977), and “due process” applies, mutatis mutandis, to

civil cases as well.

Consequences of delay in resolving an antitrust investigation:

Making a merger economically non-viable; parties cannot put a deal on hold

for a year or more while an agency evaluates it.

Individuals kept under the specter of investigation find their lives and

careers are disrupted.

Judicial review becomes an empty promise.

Delay

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“The fundamental requirement of due process is the opportunity to be

heard at a meaningful time and in a meaningful manner.” Mathews v.

Eldridge, 424 U.S. 319, 333 (1976).


“Have you tried removing the blindfold?”

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Has the decision maker him or her self heard the evidence? Read the

testimony? Or is the decision maker just a bureaucrat stamping

“Approved” on a decision in reality made by someone else? Would you tolerate that from a court? Imagine a judge who doesn’t attend a hearing or

read the pleadings but lets his assistant recount the evidence in a memorandum.

Imagine yourself a party: your company, your reputation, perhaps your career are at

stake.

Is it enough to review the cold, written record or must the decision

maker be present to judge the credibility of witnesses and experts? For example, when a case is heard in the first instance by an Administrative Law Judge

(ALJ) and then appealed to the FTC, the Commissioners have not heard the evidence

as it was presented, and yet they are charged by statute [APA § 557(b)] to review the

ALJ’s findings of fact de novo.

Former Commissioner Rosch expressed his doubt about this arrangement in remarks

before the Antitrust Section of the ABA at its Fall Forum in 2012, saying, “I am

squeamish about second-guessing an ALJ’s findings of fact, especially when they are

based on the credibility of witnesses.”


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“[I]t certainly deprives a defendant in a criminal case of due process of law to

subject his liberty or property to the judgment of a court, the judge of which has a

direct, personal, substantial pecuniary interest in reaching a conclusion against

him.” Tumey v. State of Ohio, 273 U.S. 510, 523 (1927).

That case involved a small-town mayor who got $12 in court costs and fees if he

found the defendant guilty, but not otherwise.


Are institutions different from individuals

with respect to incentives?

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Does the competition agency keep the fines it imposes? Then the decision

maker is hardly neutral.

Even if not, why should it brag about how much it collected for the government?

The Antitrust Division does:

“The [Fiscal Year] 2012 $1.14 billion criminal fine total is the highest ever

obtained by the Division in a single year and the second time since 2009 that the

Division exceeded the $1 billion fine mark.”

The FTC and DG Comp reports similar statistics.

Why the self-promotion?

Aggregate figures are irrelevant to deterrence.

To get a bigger budget? So the more they collect, the more they are rewarded? That

is a perverse incentive and there is a lot more than $12 involved.


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“All parties must be fully apprised of the evidence submitted or to be

considered, and must be given [an] opportunity to cross-examine witnesses,

to inspect documents, and to offer evidence in explanation or rebuttal. In no

other way can a party maintain its rights or make its defense. In no other way

can it test the sufficiency of the facts to support the finding.” Interstate

Commerce Comm'n v. Louisville & N.R. Co., 227 U.S. 88, 93 (1913) .

Two concerns are implicated: notice of the case and of the evidence, and an

opportunity to rebut that evidence. This requires both

Transparency in the law, and

Transparency in the investigation.


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How transparent is the applicable law?

Query whether antitrust consent decrees have made things more opaque for

parties and whether this opacity gives the agencies more leverage to extract

concessions.

Professor Whish just last year lamented the practice of agencies entering into

settlements and accepting commitments, “[Without infringement decisions] how

does the law develop? What is the law in cases like Google or Samsung? I

suspect I will never find out.”

Does the decision maker decide only after the party has been able

meaningfully to confront the evidence against it?

DG Comp has an open-file policy. Once it issues a Statement of Objections, the

accused may examine the evidence against it (subject to confidentiality limitations).

In the United States, the record is mixed: the Antitrust Division does not have an

open-file policy even in criminal cases. Some U.S. Attorneys do. Some states do.

The FTC follows its own rules for discovery in its “Part 3” internal hearings. 16

C.F.R. § § 3-4.


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“The decisionmaker’s conclusion ... must rest solely on the legal rules

and evidence adduced at the hearing.... To demonstrate compliance

with this elementary requirement, the decisionmaker should state the

reasons for his determination and indicate the evidence he relied on.”

Goldberg, 397 U.S. at 271.

Reasoned Decision Based Solely Upon the Evidence

“That’s unanimous then – we don’t know what to do.”

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Does the agency cite to the record to substantiate its every finding of

fact?

This is among the most common failings the D.C. Circuit Court of Appeals

finds in reviewing agency decisions.

There may well be evidence in the record to support the agency’s finding,

but whether the agency relied upon that evidence, or overread the

evidence, or consulted an astrologer, is for the agency to say when we send

the matter back for reconsideration.

Reasoned Decision Based Solely Upon the Evidence

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“[T]he prescribed procedures not only provide the claimant with an effective

process for asserting his claim prior to any administrative action, but also

assure a right to an evidentiary hearing, as well as to a subsequent judicial

review before the denial of his claim becomes final.” Mathews v. Eldridge, 424

U.S. 319, 349 (1976) (procedure for discontinuance of social security

payments).


“OK, all those in favor of delegating

decision-making, shrug your shoulders”

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Is the tribunal – usually a court but it can be a commission – independent of

government when it reviews an agency’s allegations or decision?

If so, to what standard does the judiciary hold the agency accountable?

The DoJ must bring its case in a court of first instance.

In a criminal case, such as a cartel matter, it must prove “guilt beyond a

reasonable doubt.” In a civil matter, usually a conduct case, its burden is to show

guilt by “a preponderance of the evidence,” as must any private plaintiff in any

civil case.

The court of appeals applies the law de novo but defers to the first-instance court

with regard to findings of fact unless “clearly erroneous.” Why?

Because the first-instance judge personally saw and heard the witnesses and

assessed their credibility.


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To what standard does the judiciary hold the agency accountable?

When an FTC decision is appealed...

The court applies the law de novo, even though the Commission’s judgment is

based upon its expertise.

And even though the law requires that the FTC’s findings of fact must be

affirmed under the deferential “substantial evidence” standard [APA § 706(2)(E);

Indiana Fed’n of Dentists, 476 U.S. 447, 454 (1986)], query whether this is

warranted if the Commission has overturned the ALJ based upon evidence the

Commissioners did not actually hear.

As former Commissioner Rosch said: “Whatever the law may be, I am not

convinced that appellate courts agree that as a doctrinal matter, the FTC should

subject an ALJ’s findings of fact to a de novo review ....” Indeed it makes no

sense to elevate the judgment of someone who did not hear the evidence over

that of the person who did hear the evidence.


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These six due process concerns (delay, hearing before the actual decision

maker, a neutral decision maker, the right to confront evidence, a reasoned

decision based solely upon the evidence, and review by an independent

tribunal) should frame our discussion for whether agency procedures are

providing sufficient safeguards to achieve not only

1. Accuracy in the result, but also

2. Legitimacy in the eyes of the parties and the public.

Conclusion

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“At some point the benefit of an additional safeguard to the individual

... may be outweighed by the cost,” Mathews, 424 U.S. at 348.

Conclusion: Due Process in Perspective

Ask yourself:

Has your agency reached that point

yet?

Ask again, from the point of view of a

company or individual charged with an

infringement.

due process in competition · pdf filethe process or proceedings may be ... 78% of individuals...

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