Publications: The Evidentiary Role of Antitrust Compliance Policies in Section One Civil Litigation

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Antitrust compliance policies have become a standard part of the corporate compliance milieu, joining policies on harassment, IT abuse, document retention, and many others. Antitrust compliance policies serve numerous salutary corporate objectives, including educating the workforce to avoid exposing the company to antitrust litigation and potentially protecting the company from criminal exposure if low-level employees violate the law.

Thus, a robust antitrust compliance program can act as a shield against antitrust litigation and exposure. See e.g., U.S. v. Stolt-Nielsen S.A., 524 F.Supp.2d 586, 608 (E.D. Pa. 2007) (Compliance with leniency agreement found because “[b]y promptly instituting the antitrust compliance policy . . . Stolt-Nielsen ‘took prompt and effective action to terminate its part in the anticompetitive activity being reported.’”). However, lawyers involved in civil price-fixing litigation know all too well that plaintiffs’ lawyers regularly try to use non-compliance with antitrust policies as an evidentiary sword, seeking admissions from witnesses on whether particular actions were permitted or prohibited by the employee’s compliance policy. The following actual exchange is typical of plaintiff deposition questioning:

Q. Do you understand the [] antitrust compliance program to tell [] employees that they are not to share with competitors, either directly or through a third party, information concerning future price moves planned by [your company]?
A. Our policy would certainly say that we would not provide to our competitors, directly or intentionally through a third party, future pricing moves.

Q. Because that would be a violation of the antitrust laws, as you understand them?
A. I believe so.

Experienced antitrust counselors know that a well written compliance policy is not intended as a statement of antitrust law. Indeed, it is recognized that “sometimes, the drafter of the materials will opt to set the written standards higher than what the law requires” so as to avoid behavior which, while not illegal, could expose the company to expensive and distracting litigation or investigations. Hannay, W., Corporate Compliance Series: Designing An Effective Antitrust Compliance Program, Chapter 3:8 (2005). It is thus questionable whether an admission of violating a company’s antitrust compliance policy has any evidentiary significance. Given the recurrent use of antitrust compliance policies in civil antitrust litigation, it is perhaps surprising that there is little settled law on the admissibility of such evidence. This prudential dearth is most likely due to the infrequency of civil price-fixing actions reaching trial.

This article shares my recent experience with, and views about, these evidentiary issues in In re High Pressure Laminates Antitrust Litigation (S.D.N.Y.) No. 00-MD-1368. The HPL Litigation was tried to a verdict before Judge Charles Brieant in the White Plains Division of the Southern District of New York during April and May, 2006.

The HPL plaintiffs were seeking a post-trebling damages award of $1.3 billion from the sole nonsettling defendant, Wilsonart International. Plaintiffs’ primary evidence was certain conversations among HPL competitors, and the plaintiffs sought and were allowed to introduce some testimony relating to whether the conversations were a violation of applicable company policies, subject to a limiting instruction. The jury ultimately returned a complete defense verdict in favor of Wilsonart, ending more than six years of
litigation.

This article discusses the arguments advanced for and against admission of antitrust compliance policies and reproduces the curative instruction delivered by Judge Brieant. It is hoped that this article can serve as a practical resource for those briefing this issue in the future.

It is the author’s view that such evidence ought not be admissible because of a lack of relevance and the very real prospect of jury confusion. This is a view most likely shared by Judge Brieant, who stated at summary judgment that “any violation of defendants’ antitrust compliance policies by one of its employees is not evidence of a violation of the antitrust laws.” (Slip Op., Sept, 7, 2004 at 20.) The prudential significance of Judge Brieant’s admissibility ruling in the HPL case is limited by the unique factual context of the HPL case, where a key document discussing a competitor conversation made reference to, and was prepared pursuant to, an antitrust compliance policy. As Judge Brieant explained during his oral ruling, he believed the compliance evidence had “to be received to give coherence to the [] memorandum at issue.” (April 10 Tr. at 5.) Absent such a need to “give coherence,” it is questionable whether the deposition testimony at issue would have been admissible.¹⁴⁶

I. IS EVIDENCE OF THE CONTENT OF OR COMPLIANCE WITH DEFENDANTS’ ANTITRUST COMPLIANCE POLICIES RELEVANT PURSUANT TO FEDERAL RULE OF EVIDENCE 402?

The threshold question in evaluating the admissibility of antitrust compliance policies is whether it is relevant evidence. To be relevant under Fed. R. Evid. 402, evidence must have “a tendency to make the existence of any fact that is of consequence to the determination of the action more probably or less probable than it would be without the evidence. Conway v. Icahn & Co., Inc., 16 F.3d 504, 511 (2d Cir. 1994). “Evidence which is not relevant is not admissible.” Jones v. Spentonbush-Red Star Co., 155 F.3d 587, 593 (2d Cir. 1998) (citing Fed. R. Evid. 402).

Wilsonart argued that defendants’ antitrust compliance policies and their application had no probative value and were thus irrelevant under Fed. R. Evid. 402 because the existence of such policies or alleged violations of such policies do not establish an element of a per se section one claim. Plaintiffs argued that relevance was established by the fact that indisputably relevant evidence “contains references to antitrust compliance policies.” Plaintiffs did not identify an element made more likely by the evidence, relying instead on the need to provide context to other evidence which had already been determined to be relevant.

A. Can Antitrust Compliance Policies Be Used As Evidence Of Intent To Violate The Antitrust Law, And Is Willfulness An Element Of A Per Se Claim?

Most price-fixing class actions allege an agreement to fix prices that are illegal per se. Willfulness and intent have limited significance in a per se civil price-fixing case because “per se analysis does not allow inquiry into the intent behind the restraint . . . .” Craftsmen Limousine, Inc. v. Ford Motor Co., 363 F.3d 761, 773 (8th Cir. 2004). See also Spectators’ Comm. Network, Inc. v. Colonial Country Club, 253 F.3d 215, 220 (5th Cir. 2001) (under per se analysis, “even reluctant participants have been held liable for conspiracy.”) Accordingly, when the claim is one governed by the per se rule, “the trial court must reject as immaterial and irrelevant defendants’ proffered evidence of their intent, motive and good faith in entering into the agreement . . . .” United States v. Columbia Pictures Corp., 189 F. Supp. 153, 159 (S.D.N.Y.1960).147 The basis for admission of antitrust compliance policies must thus be based on something other than the need to establish intent.

B. Is Evidence Of Defendants’ Antitrust Compliance Policies Relevant To Show Awareness Of The Antitrust Laws Under Fed. R. Evid. 402?

There is no law holding that awareness of the antitrust laws is an element of a per se price-fixing claim. Further, the fact that a defendant’s employee has read his/her company’s antitrust manual does not mean he/she is aware of what conduct is proscribed or allowed by the antitrust laws because compliance manuals are not the antitrust laws. Judge Brieant stated in his oral ruling that “practically every major manufacturer in the country has an antitrust compliance guide, [and] that almost always the guide imposes greater restrictions on the sales force than the statute and caselaw does.” (Tr. 4/10/06 at 3.)

Such policies are intended to serve as a guide to employees on what types of conduct may give rise to scrutiny by government agencies and civil plaintiffs, not as a restatement of the contours of the Sherman Act. A comparison of the language of Wilsonart’s antitrust compliance policy with governing antitrust law demonstrates the point:

Wilsonart Policy
“Under no circumstances should you contact a competitor to verify a price. (emphasis in original).”

Governing Law
“The exchange of price data and other information among competitors does not invariably have anticompetitive effects; indeed such practices can in certain circumstances increase economic efficiency and render markets more, rather than less, competitive.” United States v. united States Gypsum Co., 438 U.S. 422, 441 n.16 (1978); Blomkest Fertilizer, Inc., v. Potash Corp. of Sask., Inc., 203 F.3d 1028, 1033- 34 (8th Cir. 2000)

C. Is Evidence Of A Defendant’s Antitrust Compliance Policy Irrelevant Under Fed. R. Evid. 402 As An Improper Attempt To Influence The Jury About The Applicable Legal Standards In This Case?

By introducing testimony about defendants’ antitrust compliance policies, there is a risk that juries could substitute governing antitrust
precedent with the summaries of such precedent contained in defendants’ polices. Such witness testimony is not relevant because “[i]t is not for witnesses to instruct the jury as to applicable principles of law, but for the judge.” Marx & Co., Inc. v. Diner’s Club, Inc., 550 F.2d 505, 509-10 (2d Cir. 1977).

II. IS ANTITRUST COMPLIANCE EVIDENCE INADMISSIBLE UNDER FED. R. EVID. 702 AND 703 BECAUSE THE LEGAL NATURE OF THE TESTIMONY IS AN IMPROPER SUBJECT FOR EXPERT TESTIMONY AND BECAUSE THE LAY WITNESSES LACK FOUNDATION?

Expert witnesses are not allowed to testify about the applicable legal standards because “[i]t is a well-established rule . . . that experts are not permitted to present testimony in the form of legal conclusions.” See United States v. Articles of Banned Hazardous Substances Consisting of an Undetermined Number of Cans of Rainbow Foam Paint, 34 F.3d 91, 96 (2d Cir. 1994). This “prohibition extends to testimony regarding the legal significance of documents.” Bank Brussels Lambert v. Credit Lyonnais S.A., No. 93 CIV 6876, CIV 6876, 2000 WL 1694321 at *1 (S.D.N.Y. Nov. 13, 2000). If such expert testimony is inadmissible, it is difficult to see how a party could be allowed to elicit the same testimony from lay witnesses who lack the foundation that an expert possesses. As Judge Learned Hand once warned trial courts: “Argument is argument whether in the [witness] box or at the bar, and its proper place is the last.” Nichols v. Universal Pictures Corp., 45 F.2d 119, 123 (2d Cir. 1930).

III. SHOULD EVIDENCE OF THE CONTENT OF OR COMPLIANCE WITH ANTITRUST COMPLIANCE POLICIES BE EXCLUDED PURSUANT TO FEDERAL RULE OF EVIDENCE 403?

Even if a court were to find some probative basis under Fed. R. Evid. 402 to admit evidence regarding antitrust compliance, it still must weigh that probative value against any prejudice to the party opposing admission under Fed. R. Evid. 403. “[Rule 403] provides in pertinent part that even relevant evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury.” United States v. Cruz, 363 F.3d 187, 194 (2d Cir. 2004) (citation omitted).

A. Is Evidence Of Non-Compliance With Antitrust Policies An Attempt To Create Unfair Prejudice By Portraying Defendants As “Bad Guys” Who Were Willing To Violate Company Policy, Thereby Creating An Improper Inference Of Wrongdoing Under The Antitrust Laws?

The introduction of evidence regarding violations of antitrust compliance policies can prejudice a defendant by giving the jury the impression that if defendants would violate their own company antitrust policies they would also violate the antitrust laws. This type of argument is governed by Fed. R. Evid. 404(b).

In the HPL case, plaintiffs argued that a witness “knowingly violated his company’s antitrust compliance policy in [a] conversation, and that he admits that the conversation was inappropriate, has a tendency to show that his conversations with competitors were not innocuous locker room talk, but instead, the conspiratorial meetings of coconspirators.” (Pltf Mem. at 3-4.) This “character evidence” is typically inadmissible pursuant to Fed. R. Evid. 404(b) as “[c]haracter evidence is not admissible to prove conduct.” Eng. v. Scully, 146 F.R. D. 74, 77 (S.D.N.Y. 1993). Evidence of alleged violations of company policy will unavoidably paint these employees with the broad brush of rule-breakers and thus is normally excluded pursuant to Fed. R. Evid. 404(b). See Giles v. Rhodes, No. 94 Civ. 6385, 2000 WL 1425046, at *14 (S.D.N.Y. Sept. 27, 2000) (excluding evidence pursuant to Fed. R. Evid. 404(b) because “[a]dmitting [such evidence] would serve only to paint [defendant] as a rule violator, an impermissible purpose under 404(b).”) (emphasis added).

Character evidence that an employee previously had violated an internal policy, and thus would violate the antitrust laws, is the sort of “bad man” evidence excluded by the Federal Rules of Evidence.
The rationale behind Fed. R. Evid. 404(b) is that:

[C]haracter evidence is of slight probative value and may be very prejudicial. It tends to distract the trier of fact from the main question of what actually happened on the particular occasion. It subtly permits the trier of fact to reward the good man and punish the bad man because of their respective characters despite what the evidence in the case shows actually happened. Lombardo v. Stone, 99 Civ. 4603, 2002 WL 113913 at *3 (S.D.N.Y. Jan. 29, 2002) (citations omitted).

B. Could Evidence Of Antitrust Compliance Policies Mislead The Jury As To The Applicable Legal Standards And Confuse The Issues Regarding What Standards Of Conduct Apply?

Another consideration is whether admitting evidence of antitrust policies will mislead and confuse the jury as to whether anything improper occurred under section one of the Sherman Act. The antitrust laws are complex and difficult to understand even for those who practice antitrust on a full-time basis, and it is potentially unreasonable to expect a jury to make such distinctions; especially where the lay “opinions” are inconsistent with this Court’s jury instructions.

1. Could The Inconsistency Between Company Policies And The Antitrust Laws Confuse The Issues And Mislead The Jury?

Expecting a jury to sort out the difference between the antitrust compliance policies and the jury instructions may be unrealistic, especially when measured against the limited probative value. In good faith, companies across the nation have implemented compliance policies in an effort to avoid even close encounters with antitrust enforcement. These policies thus often prohibit actions that antitrust law does not. These blanket prohibitions are a prophylactic effort to avoid litigation, and allowing plaintiffs to turn these policies from a “shield into a sword” could have a chilling effect on companies’ efforts to educate their workforce about the antitrust laws.

For example, companies that are afraid of any hint of wrongdoing or potential litigation from plaintiffs’ attorneys may strictly prohibit their employees from any contact with the employees of competitors. But simply having contact with a competitor’s employees, and even having close relationships and frequent contacts with a competitor’s employees, does not run afoul of the antitrust laws. See Schwimmer v. Sony Corp. of America, 677 F. 2d 946, 952-53 (2d Cir. 1982); H.L. Moore Drug Exchange v. Eli Lilly, 662 F.2d 935, 941 (2d Cir. 1981). The fact that one employee has a close relationship with a competitor’s employee and has frequent contact with him, while admittedly a violation of a company antitrust policy, does not result in a violation of the antitrust laws. Likewise, to avoid any potential inference of misconduct a company may strictly prohibit meetings or contacts with competitors at trade shows or association meetings. But this prohibition has no relation to the standards of conduct allowed or proscribed by the antitrust laws. See Venture Technology, Inc. v. National Fuel Gas Co., 685 F.2d 41, 44-45 (2d Cir. 1982); Alpha Lyracom Space Communs. v. COMSAT Corp., 968 F. Supp. 876, 894 (S.D.N.Y. 1996)

2. Could Inconsistencies Between Different Defendants’ Antitrust Compliance Policies Confuse And Mislead The Jury?

Not only are antitrust compliance policies frequently more stringent than the antitrust laws, but the compliance policies of individual companies can significantly differ from one another. That was certainly the case in the HPL litigation:

Wilsonart Compliance Policy
“1. Do not discuss prices, production or terms and conditions of sales with competitors. 2. Do not divide, or discuss division of, customers markets, or territories with competitors.”

Competitor’s Compliance Policy
“Although certain cooperative activities between competitors are lawful, they may still pose some antitrust risk.”

Introducing evidence of the various defendants’ antitrust compliance policies would not only require a jury to determine what is appropriate behavior under the antitrust laws and distinguish the prohibitions of the antitrust compliance policies when said policies are in conflict with antitrust laws, but further distinguish between each defendants’ individual compliance policy. This distinction upon distinction could easily confuse a jury.

C. Is A Limiting Instruction Regarding Defendant’s Antitrust Compliance Policies Sufficient To Prevent Unfair Prejudice?

In the HPL case, Judge Brieant found that the unique facts provided a basis for admissibility, stating that “it is almost essential that [the policies] come in as part of the factual background explaining the reason for and existence of certain exhibits” but that he had made “a Rule 403 ruling . . . conditioned on a limiting instruction being given contemporaneously.” (Tr. 4/10/06 at 1-2.)

Judge Brieant delivered the following limiting instruction: Members of the jury, I’m just reading this to be on the safe side. I did instruct you earlier that it’s ordinary and commonplace practice in the industry for corporations to have guidelines and policies for complying with the antitrust laws, and you’re instructed that a violation of an antitrust guideline or policy is not necessarily a violation of the federal laws, because the guidelines are ordinarily written to be more stringent than the federal statute in order to avoid any question of a violation of a law.

And you should understand that Wilsonart is not being charged with violating its own antitrust guidelines or the antitrust guidelines or policies of any other company. And the charge here has to do with the federal statute, and I will explain to you at the proper time the Sherman Act provisions that are relevant to this case and what they mean. (4/12/06 Tr. at 8:24-19:13.)

Limiting instructions have some merit in assisting the jury in evaluating antitrust compliance evidence. However, under a Fed. R. Evid. 404 analysis, “[g]iving [a limiting] instruction may lessen but does not invariably eliminate the risk of prejudice notwithstanding the instruction.” United States v. Figueroa, 618 F.2d 934, 943 (2d Cir. 1980). Judge Brieant clearly felt that, given the need for context, the limiting instruction would be sufficient. He delivered this instruction in one form or another several times contemporaneous with the admission of certain evidence, and again with the closing instructions.

CONCLUSION

It is likely that, absent a need to provide context to specific evidence, antitrust compliance policy evidence ought not be admissible. It is this author’s view that efforts to use Judge Brieant’s ruling beyond this limited context would be inappropriate. It is hoped that this article will assist those dealing with similar evidentiary issues in the future.

146 Judge Brieant did not allow all testimony related to antitrust compliance into evidence. The record is replete with instances where particular questions and answers concerning antitrust compliance were not admitted because they did not provide “context.”

147 Criminal antitrust cases are different because “a defendant’s subjective intent is a required element of a criminal antitrust violation. . ..” .U.S. v. Andreas, 216 F.3d 645, 669 (7th Cir. 2000). Accordingly, the evidentiary use of antitrust compliance policies in a criminal context ought have little bearing on the admissibility of such evidence in a civil case.