On November 29, 2017, a Japanese auto parts manufacturer and its US subsidiary defeated the US Department of Justice’s (DOJ) claims that the companies conspired with others to fix prices and rig bids for automotive body sealing products. The case involved a rare trial involving criminal antitrust charges. After 13 days of trial, a jury returned a not-guilty verdict for Tokai Kogyo Co. Ltd. and its subsidiary, Green Tokai Co. Ltd. In June 2016, a grand jury in the United States District Court for the Southern District of Ohio handed down indictments against both companies and one of their former executives.
The indictment alleged that Tokai Kogyo and Green Tokai violated Section One of the Sherman Act (15 USC § 1) by agreeing with competitors to fix prices and rig bids for automotive body sealing products sold to Honda Motor Co. Ltd. in the United States from March 2008 to at least August 2013. The indictment further alleged that Tokai Kogyo and Green Tokai attempted to conceal their alleged misconduct through coded messages and instructions to delete emails and phone messages.
Shortly after the indictment was filed, Tokai Kogyo’s and Green Tokai’s primary competitor, Nishikawa Rubber, pleaded guilty to conspiring to fix prices and rig bids for automotive body sealing products sold to Honda, Toyota and Fuji Heavy Industries Ltd. (Subaru). Nishikawa Rubber agreed to pay a $130 million criminal fine. Two Nishikawa Rubber executives also pleaded guilty to Sherman Act violations and agreed to pay a fine and serve time in prison for their role in the conspiracy. Two others are awaiting trial.
DOJ’s case against Tokai Kogyo and Green Tokai consisted primarily of testimony from former Nishikawa Rubber executives. Tokai Kogyo and Green Tokai impugned the credibility of DOJ’s witnesses—employees of a competing supplier who had received immunity in exchange for cooperating with the government. The companies also countered DOJ’s claims by presenting evidence of vigorous competition in the market.
Although Tokai Kogyo and Green Tokai ultimately prevailed against DOJ’s claims, DOJ’s allegations presented a significant business distraction and expense for the companies. A vigorous defense to a government investigation often costs millions of dollars and involves the production and review of countless company documents and data, as well as interviews and testimony from key company personnel.
This case demonstrates the significant risks and uncertainties that DOJ faces when it proceeds to trial in a criminal antitrust case, even when there are cooperating witnesses and alleged co-conspirators that pleaded guilty. Although DOJ’s corporate leniency program remains strong, the resulting cartel investigations often result in guilty pleas rather than in trial. For example, in DOJ’s long-running investigation of the automotive parts industry, Tokai Kogyo and Green Tokai were the first companies DOJ indicted in its investigation, which has charged 48 automotive parts companies with antitrust violations. The remaining companies settled the charges against them through guilty pleas entered with DOJ.
Indeed, DOJ’s recent conviction record in criminal antitrust cases is mixed. In 2012, a federal jury convicted AU Optronics, its US subsidiary, and two senior executives of price-fixing, but found two low-level employees not guilty and declared a mistrial against another employee. And, in 2008, a mistrial was declared against the only executive to proceed to trial in DOJ’s investigation of the dynamic random access memory (DRAM) industry, while two sales managers charged with price-fixing in the marine hose investigation were acquitted. Thus, although uncommon, defending criminal antitrust charges at trial remains a high-stakes yet possibly high-reward strategy for companies and executives.