VoluntaryTrade.org

Class-action attorneys Melvyn Weiss and William Lerach were recently sentenced to prison because they paid "kickbacks" to lead plaintiffs in class actions where Weiss or Lerach's firm served as lead counsel. Tort reform advocates applauded the Department of Justice, which prosecuted Weiss and Lerach, for standing up against the abusive practices of the civil plaintiff's bar. But while the two lawyers languish in prison, the DOJ's Antitrust Division continues to operate its own kickback scheme free from the prying eyes of the courts and the general public.

In 1993, the DOJ's Antitrust Division adopted a "Corporate Leniency Policy" (CLP), whereby the first company to approach prosecutors with evidence of a "price fixing" conspiracy receives complete amnesty for itself and its executives. Most criminal antitrust investigations depend on the CLP, and consequently, few cases are ever litigated. The non-amnesty recipients simply sign plea agreements and pay massive fines to the U.S. Treasury. The alleged victims are not compensated; they must retain additional plaintiff's lawyers to file a class action.

Unlike plea agreements, which are submitted to a judge, amnesty deals are unilateral executive actions. In form and function, these amnesties are pardons, although they're not made by the president as the Constitution requires. They're also state secrets. The DOJ refuses to publicly disclose the terms of its amnesty agreements or acknowledge the identities of amnesty recipients. (Most recipients eventually identify themselves.)

Former Antitrust Division chief R. Hewitt Pate once bragged the CLP forces a "race to the prosecutor" with "severe penalties" for the losers. But that undercuts the argument that antitrust protects competitive markets. The amnesty recipient receives a decisively unfair competitive advantage by not paying a criminal fine (or triple damages in subsequent civil lawsuits) despite committing the same allegedly illegal act as its competitors. Furthermore, customers are worse off since the DOJ's fines remove capital from the market that would otherwise go towards the production of goods and services. A "race to the prosecutor" forces businesses to run away from their customers and shareholders.

The CLP is nothing more than a kickback scheme that rewards a "lead" defendant for serving up co-conspirators to the DOJ. This gives companies a perverse incentive to entrap their competitors by establishing price agreements and then turning state's evidence. One of the most brazen examples is Micron Technology, an Idaho-based manufacturer of computer memory. In 2003, Micron received amnesty from the DOJ to implicate other memory manufacturers in a price-fixing scheme. Micron's competitors ended up paying over $730 million in fines, a record haul for the DOJ's Antitrust Division. Micron paid nothing.

Micron's amnesty may have been aided by then-Rep. "Butch" Otter, now Idaho's governor, who wrote an emphatic letter demanding the DOJ grant Micron special treatment in any antitrust investigation because it was the only U.S.-based memory manufacturer. (Otter failed to mention that he owned Micron stock and had longstanding family and business ties to Micron's founder.) And while Micron negotiated its amnesty deal, the company's lawyers lobbied the FTC to bring a separate antitrust case against Rambus, a memory developer involved in patent infringement litigation with Micron. To complete the rent-seeking trifecta, Micron also got the International Trade Commission to levy tariffs against Hynix, one of the firms Micron told the DOJ it was colluding with.

Ironically, when the DOJ prosecuted a Hynix executive on criminal antitrust charges, a California jury returned a not guilty verdict. Jurors said the testimony of the DOJ's star witness--Micron executive Mike Sadler--lacked credibility. One juror told the press that Sadler was a "lying sack of shit."

The same juror told an Idaho television station that many jurors viewed Micron as the real ringleader of the price-fixing conspiracy. If true, that would contradict the CLP, which states a company can only receive amnesty if it "was not the leader in, or originator of the activity." But since the DOJ is the sole interpreter of its own policy, it's unlikely anyone will be disciplined for Micron's unjust and unconstitutional kickback.

 * * * 

If you enjoyed this article, please consider making a tax-deductible contribution to the Voluntary Trade Council.