It’s been three years since AU Optronics and other Taiwan companies were found to be involved in fixing the prices of LCD panels sold in the United States. AU was hit with a $500 million U.S. government fine. Executives reportedly conspired to fix prices in hotels, bars and tea shops.Taiwan panel-makers Chi Mei Optoelectronics, Chunghwa Picture Tubes, and Hannstar Display were also penalized in the case.
What’s been the impact since? To learn more, I exchanged recently with Chris Neumeyer, a U.S. corporate attorney working in Taipei. Excerpts follow.
Q. As of a few years ago, how common would you say price-fixing was in Taiwan and in the electronics industry?
A. It depends on how you define price-fixing. In the U.S., price-fixing, bid-rigging and other collusive business practices have been prohibited by the Sherman Antitrust Act since 1890. Since then, other statutes and court decisions have clarified the scope of such illegal acts, but the boundary between legal and illegal is not always clear. For example, suppliers often have perfectly legitimate reasons for sharing information with customers about prices, manufacturing capacity and the like, but such sharing can easily give rise to accusations of illegal collusion.
In Asia, comparable legislation is newer and less well-defined, with Taiwan enacting its Fair Trade Act (“TFTA”) only in 1991 and revising it extensively in February 2015. Like the Sherman Act, the TFTA prohibits collusion among competitors, including agreements to raise or maintain prices, lower production or allocate markets or customers. (Yet) Taiwan’s lawyers, judges and business persons still lack a clear understanding of the contours and consequences of the act and best practices for avoiding unlawful collusion.
Taiwan companies face a far greater threat from U.S. and European regulators than from domestic authorities if they engage in unlawful collusion that purportedly affects prices abroad. In the U.S. and Europe, criminal fines are much larger, criminal actions are generally followed by a flurry of civil lawsuits, and individuals may be sentenced to prison, unlike Taiwan, where punishment usually involves just a relatively modest administrative fine. While the massive U.S. investigation of price-fixing in auto parts, which has yielded US$2.5 billion in fines from 34 companies, has targeted mostly Japanese companies, a handful of Taiwan companies were also snared. Taiwan companies have also been punished for price-fixing related to optical disc drives, cathode ray tubes, capacitors, air cargo and trans-Pacific air passengers.
In short, while it’s hard to precisely quantify the extent of price-fixing and other collusive business practices in Taiwan, it seems clear that many companies in diverse industries have engaged in such practices for years, and continue to do.
Q. How does price-fixing actually occur?
A. Asian involvement in illegal collusion is often blamed on cultural differences. According to common stereotypes, Westerners prefer to get things out in the open, seeking to confront and resolve troublesome issues, while Asians prefer to maintain harmony and avoid confrontation. Thus, if employees of two companies meet and a proposal is made to engage in improper conduct, the stereotypes suggest a Westerner might object to the proposal, whereas an Asian might go along with it or at least not voice an objection, for fear of disturbing business relations.
Experts have testified in U.S. price-fixing litigation concerning such purported cultural differences and in an interview after being released from prison for his alleged involvement in the LCD price-fixing scandal, the former president of Chi-Mei Optoelectronics, Ho Jau-Yang, reportedly suggested the same. “[T]he reason that Taiwan’s panel makers violated antitrust laws is down to the different cultures, environments and habits between the East and West.”
Others refuse to blame culture, instead pinpointing industry factors. A cartel is an association of two or more independent business entities that agree to coordinate production or prices in order to increase profits at the expense of their customers. Various factors are conducive to that happening, and many are present in Asian companies, particularly Asian technology companies.
Such factors include a highly concentrated market which makes it easier for a small number of suppliers to achieve consensus on collusive practices; standardized products that inspire little customer loyalty; joint ventures and strategic alliances that provide financial incentive to conspire; high technological barriers to entry; trade associations and business organizations where competitors can meet; and constant pressure from customers to reduce prices, forcing suppliers to constantly find ways to cut costs.
Perhaps all of those factors play a role, but probably the major factor is just lack of awareness. It’s common that business executives in Taiwan and other Asian countries don’t fully understand that they can’t talk shop with their counterparts in other companies, that such discussions may violate the laws of many countries, and they can be hauled into court or prison even in the U.S. or Europe for conduct that took place solely in Asia among Asian companies.
Q. How has the industry been impacted so far by the U.S. penalties? Will the impact fade?
A. When U.S. courts impose fines on Asian companies for hundreds of millions of dollars and imprison their top executives for conduct that took place in Asia – conduct that many consider to be fairly routine and benign – it makes big news in Taiwan. Many are shocked by such cases, and consider the massive penalties and extraterritorial grasp of U.S. laws to be gross injustices.
The harsh realities – the criminal investigations in multiple jurisdictions, the class actions and civil suits, the leniency programs which encourage snitching on competitors, and the millions of dollars in attorney fees in just the early phases – are so hard to comprehend that it may be easier to think of them as freak occurrences rather than serious business risks to be controlled. Over the past decade, Taiwan companies have been schooled in the horrors of U.S. patent litigation and, to be sure, such disputes can be costly, but the costs of patent disputes are dwarfed by antitrust investigations and corporate executives need to recognize that.
While many have heard that antitrust compliance should be taken seriously, most still don’t get it. Because no easy solutions exist to terminate a price-fixing investigation and the morass of corresponding litigation, companies should devote serious commitment and resources to developing and implementing effective internal compliance training programs, with full support from upper management and boards. Only when top executives grasp the magnitude of such cases and genuinely strive to transform corporate culture, awareness and practices from the top down will we see a reduction in these painful antitrust investigations and litigation.
--Follow me on Twitter @rflannerychina
