There have been some major developments in the trade, solar cells, Customs, 337/patents, antitrust and securities areas.
SOLAR CELLS—BEAT GOES ON
On September 26th there were reports that the United States and China have been negotiating for the past several weeks toward a settlement of existing trade remedy cases affecting Chinese solar cells that would set a minimum floor price and limit Chinese imports. Apparently, the arrangement would be similar to the one China reached with the European Union, which also included a floor price and provisions aimed at limiting Chinese imports. Another US objective is to remove Chinese duties affecting U.S. exports of solar-grade polysilicon to China.
Apparently, negotiations have taken place, but it is still unclear how intense the talks are at this time or whether they are anywhere close to a breakthrough. Sources report that the U.S. Trade Representative (“USTR”), which is leading the negotiations for the U.S. side, has been talking to the domestic manufacturing industury. As mentioned before since antidumping and countervailing duty orders have already been issued, there cannot be a suspension agreement.
One speculation is that the US and Chinese government could enter into a memorandum of understanding like the U.S-Canada lumber agreement. Regarding who has more leverage in the negotiations, as described below, with the third country loophole in place, since the Chinese companies can source the cells from Taiwan, Chinese companies may not be that affected by the Trade Remedy orders. But certain Chinese producers make most of their money by producing solar cells in China, not the modules and panels.
Furhter increasing the pressure, there was quite a flurry in the newspapers as the Chinese Ministry of Commerce (“MOFCOM”) announced on September 20th its preliminary countervailing duty of 6.5% against Polysilicon from the United States against Hemlock and AE Polysilicon. Other US producers, such as REC Silicon, received a 0% CVD rate. The CVD duty is in addition to the antidumping rates on polysilicon from 53 to over 60% on certain exporters. See attached announcement. MOFCOM ANNOUNCEMENT POLYSILICON
One trade publication quoted me stating that “I really think the United States, for the first time, has encountered a trade war,” Perry said. “All of a sudden, when it throws a rock at China, China throws two or three back.”
In addition, certain newspaper assumed that the countervailing duty replaced the antidumping duty against US polysilicon and the newspapers declared victory for the US side. See http://www.renewableenergyworld.com/rea/blog/post/print/2013/09/china-escalates-trade-war-with-us-over-polysilicon-upping-tariffs-to-63-5
But the reality is quite different. Just like the United States, the Chinese countervailing duty is added to the antidumping duty against US polysilicon so US producers/exporters are still under enormous pressure because of the Chinese trade case. The U.S. imports of polysilicon into China were roughly $2 billion, while the imports of Chinese solar cells to the U.S. were roughly $4 billion. The looming uncertainty has already cost the U.S. manufacturing jobs. As mentioned in my last post, an August 18th article in the Seattle Times stated that Hemlock Semiconductor, the third-largest polysilicon producer, announced plans in January to lay off 400 employees at its Michigan and Tennessee plants, citing an oversupply of solar panels because of the potential for Chinese tariffs. The article also stated that REC Silicon said the trade issues caused it enough uncertainty as far back as January of 2013 to delay a $1 billion capacity expansion at its Moses Lake plant in Washington.
The MOFCOM Polysilicon Decision increased pressure on the United States to negotiate a settlement agreement. On September 23rd, a US solar industry association, the Solar Energy Industrial Association, released a proposed settlement of the solar cells and polysilicon trade cases. SEIA SETTLEMENT PROPOSAL In the attached announcement issued on September 23rd, the SEIA states:
“With no end in sight to the ongoing solar trade dispute between the United States and China, the Solar Energy Industries Association (SEIA) is offering an industry compromise between the U.S. and Chinese solar industries, which could serve as the centerpiece for a fair, negotiated settlement of outstanding issues, benefit end users, and encourage the proliferation of solar energy in the United States and globally. . . .
For months, SEIA has been working behind the scenes in Washington and Beijing to resolve the current conflict and head off an escalation of trade sanctions. SEIA has warned U.S. negotiators that any settlement similar to the recently announced EU-China agreement would represent a blow to the U.S. solar industry because of an expected increase in solar prices. SEIA also believes that any resolution of the U.S.-China solar dispute must recognize the interests of all stakeholders, including American consumers, and not just one segment of the industry.
Highlights of SEIA’s proposed solution include:
• Chinese companies would agree to create a fund that would benefit U.S. solar manufacturers directly and help to grow the U.S. market. Money for the fund would come from a percentage of the price premium Chinese companies are currently paying to third-country cell producers to get around U.S. trade sanctions, reducing costs and supply chain distortion for Chinese companies.
• The Chinese government would also agree to end its antidumping and countervailing duty investigations on U.S. polysilicon exports to China, and remove the threat of artificial cost increases in a key raw material in the solar value chain, benefiting not just Chinese solar companies but all users of solar energy.
• In return, the U.S. antidumping and countervailing duties orders would be phased out.”
In other words, the SEIA is proposing that the US Solar Industry and the Chinese solar industry simply come together and sing Kumbhaya, a let’s get together song, and everything will be fine again. The reality is much different.
Although the United States and Chinese governments apparently are negotiating, the first problem with any settlement agreement is that the Chinese government has to agree. With the Third Country loophole in place, that is if foreign solar cells are put in Chinese panels and modules, the panels and modules are not in the antidumping and countervailing duty case, Chinese modules and panels are not shut out of the US. In fact, estimates are that the price difference between Chinese and Taiwan solar cells is an estimated 5 to 10 cents so the prices for modules and panels in the United States have only gone up by about $10. Such a small prices increase has no impact on the US market. So unless Commerce closes the loophole on its own or because of Court appeals, the Chinese government has no incentive to enter into such a settlement agreement.
Moreover, the US Solar Cell industry has no interest in such a settlement agreement. In response to SEIA proposal, US counsel representing the US solar cell producers, including Solar World, indicated that they did not have any any intention of giving up unless and until China’s unfair trade practices have stopped.
Counsel for the US industry indicated that his clients are highly skeptical of any arrangement or settlement with China given its history of predatory trade pract1ces. Since no agreement was negotiated in the initial investigation, getting the US industry’s agreement will be critical to any Solar Cells agreement because the Petitioners, including Solar World, must agree to withdraw their complaint.
This fight will definitely go on.
HARDWOOD PLYWOOD CASE
Another major trade fight is the antidumping and countervailing duty case against Hardwood Plywood from China. On September 17, 2013, the Commerce Department issued its final antidumping and countervailing duty determinations in the Hardwood Plywood from China case. As indicated in the attached notice, COMMERCE DEPARTMENT FACT SHEET HARDWOOD PLYWOOD the Antidumping rates range from 55.76% to 62.55% for the mandatory respondents and 59.46% for the rest of the Chinese companies that cooperated in the investigation and 121% for the Chinese companies that did not cooperate.
In the Countervailing Duty case, the three companies that were chosen as mandatory respondents received 0%. But as mentioned before, even though the Chinese companies that were individually examined received 0%, the Commerce Department’s methodology does not let the Department go negative on the rest of China. Despite the 0% dumping rates for the mandatory Chinese respondent companies, all other Chinese companies, more than 100 companies, received a 13.58% Countervailing Duty rate. Fairness Commerce style.
In addition, how did the Commerce Department calculate an antidumping rates of approximately 55 to 62% for Chinese companies? By using Bulgaria as the surrogate country. Do you really think that Bulgaria is a more market driven economy than China? Of course not, but that is not the point.
On September 19, 2013 at the ITC injury hearing Senator Wyden from Oregon testified for the US Industry stating:
“The growing tide of Chinese imports is sinking the boat of the American hardwood plywood industry . . .Left unchecked, these illegal trade practices undermine economic growth, struggling Oregon communities, and encourage more of these unacceptable trade practices by China and others who seek to play by their own rules. . . American communities that are reliant on manufacturing had been brought “to the brink of economic collapse because of unfair trade.”
But who is the real loser in the Hardwood Plywood case, not the Chinese nor the US hardwood plywood industry. The real losers in the Hardwood Plywood case are the downstream US producers of cabinets, furniture, boats, paneling and in home construction, crating and packaging, store fixtures, flooring underlayment and many other products, some of which are located in Oregon.
As Mr. Simon, the co-chairman of American Alliance and for Hardwood Plywood, and Mr. Titus, the executive vice president of the US Kitchen Cabinet Manufacturers Association, state in the attached article from the Wall Street Journal, “Protectionists Pick Your Pocket Again, You’ll Pay More for Cabinets, and Anything Made with Chinese Plywood and US jobs will be lost too” WSJ ARTICLE:
“Many thousands of U.S. factories depend on a steady, affordable supply of this plywood for the products they will sell at home and abroad. Whether those downstream manufacturers sink or swim may be determined in Washington this week in two separate events—a ruling and a hearing.
The damage to U.S. manufacturers that rely on hardwood plywood has already begun. The combined tariffs have jolted supply chains, spiking the cost of imported hardwood plywood and creating painful shortages due to a lack of domestic supply. The first to suffer will be American jobs in manufacturing and woodworking. .. . Today, many U.S. manufacturers that depend on imported Chinese hardwood plywood fear that the tariffs will force the production of cabinets, furniture and other products now made in the U.S. to sites overseas. The domestic kitchen and bath-cabinet industries alone have $8.2 billion in annual sales. But how will the U.S. industry, hit by tariffs, compete with kitchen cabinets and other products made abroad—that can be shipped to the U.S. free of import duties? Competition will come from Canada and Mexico as well as China. . . .
This point was reinforced by Mr. Carl Spencer of Spencer Cabinetry, who testified at the ITC on behalf of the Kitchen Cabinetry industry in the attached article from Woodworking Network, ” Plywood Antidumping Ruling: Upside-Down System of Justice” See http://www.woodworkingnetwork.com/wood-blogs/industrial-woodworker/production-industry-guest-blogs/Upside-Down-System-of-Justice-226075531.html?page=2#sthash.wgd6pcex.dpbs
In the Article, Mr. Spencer states:
“My in-depth exposure has convinced me that a lot more American cabinetmakers need to get involved right away. This isn’t just someone else’s issue — our own very existence may be at stake, and it’s ten seconds to midnight. . . .”
“It’s a serious mistake for your readers to think this will not greatly affect them. Whether we buy any imported plywood or not, restricting the longstanding pipeline of hardwood plywood imported for use as secondary wood will trigger spot shortages and drive up prices of all domestic material for everyone. That is the whole reason the Cartel of Six filed their complaint in the first place. . . .
“even though our hardwood plywood prices will go up a lot, they will not go up for our direct cabinetmaking competitors in China, Canada, Mexico, or elsewhere. As an example, we are already competing every day with Canadian companies, whose primary market is the United States.”
“From our point of view, our own government’s actions amount to a de facto stimulus, not for Americans, but instead for the Chinese, Canadian, and Mexican cabinet industries — all of whom can still buy plywood from China at the true world price. In the end, it is the American cabinet companies that will be punished, especially the small ones, and American jobs that will be lost.” . . .
“As it stands now, over 9,300 of us cabinet companies must now pay them for it for as long as we survive . . .”
“The handwriting is on the wall. It might be well for the woodworking press to move their headquarters to Canada and have staff who speak Mandarin in order to better keep up with the new American cabinet industry.”
When the US government imposes antidumping and countervailing duties on US imports using an unfair process that is tilted in favor of US producers, the Government creates little monopolies. When the products at issue are raw materials, the real losers are US producers of downstream products, which are either driven out of business because they cannot compete in the downstream market with imports that have access to the cheaper raw materials or forced to close their US production facilities and move to China.
NEW ANTIDUMPING AND COUNTERVAILING DUTY INVESTIGATIONS
On September 16, 2013, the Commerce Department initiated antidumping and countervailing duty review investigations on Monosodium Glutamate (“MSG”) from China. ITC Notice and Chinese companies in the review are listed below:
Docket No: 2979
Document Type: 701 & 731 Petition
Filed By: Iain R. McPhie
Firm/Org: Squire Sanders (US) LLP
Behalf Of: Ajinomoto North America Inc.
Date Received: September 16, 2013
Commodity: Monosodium Glutamate (MSG)
Country: China and Indonesia
Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of antidumping and countervailing duties on imports of Monosodium Glutamate (MSG) from People’s Republic of China and Republic of Indonesia.
Status: 701-TA-503-504 and 731-TA-1229-1230 (Preliminary)
The Chinese respondent producers and exporters in the MSG case are: Fufeng Group, Meihua Holdings Group, Henan Lotus Flower Gourmet Powder Co., Ltd, COFCO Biochemical (Anhui) Co. Ltd.), Shandong Linghua Monosodium Glutamate Incorporated Co. , Jining Jusheng Gourmet Powder Food Co., Ltd., Shandong Xinle Monosodium Glutamate Foods Co. Ltd., COFCO Limited, Ningxia Eppen Bio-Tech Co., Ltd., Huanyu Gelin Food Development Co Ltd., Haerbing Juhua Biotech Co. Ltd, Fujian Province Jianyang Wuyi MSG Co., Ltd., and Shandong Qilu MSG Group Co.,
On September 18, 2013, an antidumping and countervailing duty petition was filed against Grain Oriented Electrical Steel from China. Notice and Chinese companies are listed below:
Docket No: 2980
Document Type: 701 & 731 Petition
Filed By: John M. Herrmann
Firm/Org: Kelley Drye & Warren LLP
Behalf Of: AK Steel Corporation, Allegheny Ludlum LLC, and the United
Date Received: September 18, 2013
Commodity: Grain-Oriented Electrical Steel
Countries: People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and the Russian Federation.
Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of antidumping and countervailing duties on imports of Grain-Oriented Electrical Steel from the People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and The Russian Federation.
Status: 701-TA-505 & 731-TA-1231-1238
The Chinese respondents in the GOES case are: Anshan Iron & Steel Group Corporation, Hebei Shougang Qian’an Iron & Steel Co., Ltd. (subsidiary of Beijing Shougang Co. Ltd.), Baoshan Iron & Steel Co., Ltd. (subsidiary of Baosteel Group headed by parent company Shanghai Baosteel Group Corporation) (“Baosteel”), and Wuhan Iron & Steel Co. Ltd. (”Wuhan” or “WISCO”).
As indicated below, the ironic point is that the Chinese Government has levied antidumping and countervailing duties on US exports of GOES to China. Although the US has taken the GOES case to the WTO and won a victory, the orders stay in place in China. The 3 plus years that the orders have been in place, however, have allowed the Chinese GOES industry to catch up and now export GOES to the US, which is causing problems for the US GOES industry.
In the Steel Antidumping and Countervailing Duty Wars between the US and China, what goes around, comes around.
IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION
As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.
On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.
We will be targeting two major issues—Working for market economy treatment for China in 2016 and working against retroactive liability for US importers. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.
If anyone is interested in the Alliance, please feel free to contact me.
CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW
Attached is the Chinese Government’s Ministry of Commerce (“MOFCOM”) September 20th announcement of preliminary countervailing duties to be levied on polysilicon imports from the US. MOFCOM ANNOUNCEMENT POLYSILICON
The US battle with the Chinese government on its antidumping and countervailing duty orders against GOES from the US is still being fought out. In response to the August 12th announcement by MOFCOM that it had met its WTO obligations in the GOES case, on September 11, 2013, the USTR stated that it is “currently evaluating China’s re-determination of antidumping and countervailing duties on GOES from the United States” and that if the Chinese government’s actions are not sufficient to comply with the WTO’s recommendations and rulings, the US could initiate further proceedings at the WTO.
As the recent US antidumping and countervailing petitions against GOES from China indicate, however, the US GOES industry has already lost its technical/tactical advantage.
Although the US Steel industry complains about Chinese antidumping and countervailing duty cases against US GOES exports, in light of US refusal to use actual prices and cost in China calculate dumping rates and the Commerce Department’s methodology that finds dumping and subsidization in 100% of the cases against China, such criticism has a very hollow ring.
On September 30, 2013, a US agent for a dozen Chinese honey importers was sentenced to three years in prison for her role in smuggling operations that allegedly avoided nearly $40 million in US antidumping duties. At a federal court hearing in Chicago, Hung Yi lin -who pled guilty last year to three counts of entry of goods into the U.S. by means of false statements- was also ordered to pay $512,852 in restitution, but avoided the six-year prison sentence sought by prosecutors.
Lin, 43, also known as Katy Lin, allegedly played a pivotal role in helping her clients falsify documents on shipping containers loaded with Chinese-origin honey from 2009 to 2012, making it appear that they were filled with sugars or syrups. Through her California-based company KBB Express, Lin brought in $11.5 million of honey into the US avoiding almost $40 million in antidumping duties.
Ms. Lin’s attorney argued that his client was simply a hardworking immigrant, who was merely a freight forwarder and did not profit from the scheme. Ms. Lin in tears told the US Judge Milton I. Shadur that she was not attempting to flee prosecution, when she was arrested on her way out of the country. “I’m really sorry if anything I did hurt this country. I came here for my dream . . . .”
In response, however, the Assistant US Attorney argued that the Mr. Lin’s role was absolutely critical in the sophisticated scheme. The Assistant U.S. Attorney also stressed the damage to the U.S. honey industry when the price of honey collapsed due to the smuggling operation and other similar schemes.
CAFC DETERMINATION –MICROSOFT NO DOMESTIC INDUSTRY UNDER 337
On October 3, 2013, the third day of the Government shutdown, we can say that at least the Courts are open. Today the Court of Appeals for the Federal Circuit (“CAFC”) issued its attached decision in Microsoft v. US International Trade Commission (“ITC”) and Motorola in which Microsoft appealed an ITC determination of no violation in a 337 case. MICROSOFT DOMESTIC INDUSTRY The CAFC affirmed the ITC on almost every part of the decision, remanding on one small aspect of one patent back to the ITC. The most important issue is the its decision on domestic industry, which will effect future 337 cases against China.
In that decision, which is attached, the CAFC dismissed one part of Microsoft’s patent case becasue Microsofit did not establish that the patented invention, the specific patent in question, was actually practiced in the United States and, therefore, there was no domestic US industry with regards to this patented product. The CAFC stated:
“Microsoft’s failing was simple. Although Dr. Olivier purported to identify “client applications” in an example application that Microsoft provides to third party phone manufacturers, Microsoft failed to show that any such “client applications” are actually implemented on any third-party mobile device. . . According to the ALJ, because Microsoft did not point to evidence that its expert examined client applications in fact running on third-party mobile phones or confirmed how they operated, Microsoft failed to show that there is a domestic industry product that actually practices the ’376 patent. . . .In this appeal, we do not reach Microsoft’s challenge to the non-infringement determination because we find substantial evidence to support the Commission’s finding of no domestic industry, which suffices to support its finding of no violation based on this patent. There is no question about the substantiality of Microsoft’s investment in its operating system or about the importance of that operating system to mobile phones on which it runs.”
“But that is not enough under the statute. Section 337, though not requiring that an article protected by the patent be produced in the United States, unmistakably requires that the domestic company’s substantial investments relate to actual “articles protected by the patent.” 19 U.S.C. §§ 1337(a)(2), (3). A company seeking section 337 protection must therefore provide evidence that its substantial domestic investment—e.g., in research and development—relates to an actual article that practices the patent, regardless of whether or not that article is manufactured domestically or abroad. . . .”
“We conclude that there is substantial evidence to support the Commission’s determination that Microsoft failed to meet that requirement. . . . The Commission did not lack substantial evidence to support its finding that Microsoft simply failed to identify any actual phones with the required components performing as required. . . .”
“On that basis, the Commission could find that Microsoft failed to show that any Microsoft-supported products practiced the ’376 patent. We therefore affirm the Commission’s finding of no proven domestic industry, and hence no section 337 violation, involving this patent.”
SUPREME COURT ARGUMENTS ON DOMESTIC INDUSTRY
On September 9, 2013, in Nokia v. US International Trade Commission, Nokia attempted to persuade the Supreme Court to take jurisdiction and overturn the CAFC’s January 2013 decision in Interdigitial Communications LLC et al v. International Trade Commission and Nokia Inc. that licensing of specific patents by InterDigital in the United States was enough to be a domestic industry under section 337. Nokia argued that nonpracticing entities should not be considered a domestic industry under section 337.
In response, according to InterDigital, when it ruled that it had satisfied the domestic industry requirement, the CAFC simply followed “the intent of Congress to enlarge the domestic industry requirement to cover licensing activities – when those activities are substantial and connected to exploitation of the patents at issue. . . .” InterDig Brief
In the attached Supreme Court brief, the ITC sided with InterDigital. ITC BRIEF 19 USC 1337(a)(3) (C) specifically provides that a domestic industry “shall be considered to exist if there is in the United States with respect to the articles protected by the patent, “substantial investment in the patent’s exploitation, including engineering, research and development or licensing”. The ITC pointed to record evidence that InterDigitial had “invested a total of approximately $7.6 million in salaries and benefits for employees engaged in its licensing activities, and it received almost $1 billion in revenues from portfolio licenses (including the patents in suit) related to its cellular technology. . . .”
In addition, the ITC pointed to the CAFC’s explanation that in 19 1337(a)(3)(C) Congress intended to protect “innovators who did not actually produce goods in this country, but who were injured by the importation of goods that incorporated the technology that they had invented or sought to license”.
NEW 337 CASE
On September 26, 2013, a new 337 case was filed against Aumed Group Corp. in China on handheld magnifiers. See notice below:
Docket No: 2984
Document Type: 337 Complaint
Filed By: Matthew B. Lowrie
Firm/Org: Foley & Lardner
Behalf Of: Freedom Scientific, Inc
Date Received: September 26, 2013
Commodity: Handheld Magnifiers
Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Handheld Magnifiers and Products Containing Same. The proposed respondents are Aumed Group Corp., China; and Aumed Inc., San Carlos, CA.
MARINE SONAR DEVICES AGAINST HONG KONG
On September 20, 2013, a new 337 case was filed on Marine Sonar Imaging Devices against a Hong Kong company. See notice below.
Docket No: 2981
Document Type: 337 Complaint
Filed By: M. Scott Stevens
Firm/Org: Alston and Bird LLP
Behalf Of: Navico Inc. and Navico Holding AS
Date Received: September 20, 2013
Commodity: Marine Sonar Imaging Devices
Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Marine Sonar Imaging Devices, Products Containing the Same, and Components Thereof. The proposed respondents are: Raymarine Inc., Nashua, New Hampshire; Raymarine UK Ltd., United Kingdom; and In-Tech Electronics Ltd, Hong Kong.
NEW PATENT BILL PROPOSES TO MAKE IT MORE DIFFICULT FOR NPES/PATENT TROLLS
The House of Representatives released the attached draft patent bill on September 23, 2013 aimed at making it more difficult for patent trolls, non-practicing entities (“NPEs”), to bring patent cases. HOUSE PATENT BILL The bill will raise the pleading requirements, making it more difficult for NPEs to file frivolous suits. The pleading requirements would also increase the cost and complexity of patent cases.
The bill would also require the losing party in patent cases to pay the costs of the prevailing party unless the judge finds that the suit was “substantially justified,” creating an exception in patent cases to the “American rule” that parties are generally responsible for paying their own attorney’s fees.
NEW PATENT CASES AGAINST HUAWEI, ZTE, HANGZHOU COMPANY AND OTHER CHINESE COMPANIES
On September 9, 2013, ACQIS filed a patent complaint against Huawei. ACQIS HUAWEI
On September 17, 2013, C. B. Worldwide Inc. filed a patent complaint against Chinese companies, Hangzhou Yizhan Pet Products, Allara China Ltd., Shanghai ITCPC Import and Export Co. and Petlike. The complaint alleges misappropriation of technology, patent infringement and breach of contract. CHINA TOYS HANGZHOU
On September 25, 2013, Nidec Motor Corporation filed a patent complaint in the Federal District Court in Missouri against Broad Ocean Motor, Broad Ocean Technologies and Zhongshan Broad Ocean Motor Co., Ltd.
On September 26, 2013, James Grove and LF Products filed a patent case against COSTCO and Global Furniture (Zhejiang) Co. Ltd. ZHEJIANG COSTCO
JUSTICE DEPARTMENT’S SYSTEMATIC INVESTIGATION OF ASIAN CARTELS
To illustrate that antitrust cases against Chinese companies for price fixing are not just China bashing, the following are additional examples of the major movement by the Justice Department and private plaintiffs in the United States to go after cartels, price fixing by foreign companies, aimed at the US market. Well known antitrust experts have told me that Justice is targeting foreign cartels, especially Asian cartels, and is systematically going through industry after industry looking for evidence of price fixing.
In light of the ongoing cases against Vitamin C, Magnesium and Bauxite from China, it is just a matter of time before the Justice Department and Private Plaintiffs start to target Chinese companies for price fixing on various products. One of the first targets of such price fixing investigations may be auto parts.
NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY TO PRICE FIXING CARTEL
On September 26th, the Justice Department issued the attached announcement that Nine automobile parts manufacturers and two executives agreed to plead guilty to fixing prices on automobile parts sold to U.S. car manufacturers and installed in U.S. cars. FULL DOJ NOTICE AUTO PARTS SEPT 26 NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY
The nine Japanese Companies agreed to pay a total of more than $740 million in Criminal fines. The September 26th announcement states as follows:
“Nine Japan-based companies and two executives have agreed to plead guilty and to pay a total of more than $740 million in criminal fines for their roles in separate conspiracies to fix the prices of more than 30 different products sold to U.S. car manufacturers and installed in cars sold in the United States and elsewhere . . . The department said that price-fixed automobile parts were sold to Chrysler, Ford and General Motors, as well as to the U.S. subsidiaries of Honda, Mazda, Mitsubishi, Nissan, Toyota and Fuji Heavy Industries–more commonly known by its brand name, Subaru.”
“These international price-fixing conspiracies affected more than $5 billion in automobile parts sold to U.S. car manufacturers, and more than 25 million cars purchased by American consumers were affected by the illegal conduct,” said Attorney General Eric Holder. “The Department of Justice will continue to crack down on cartel behavior that causes American consumers and businesses to pay higher prices for the products and services they rely upon in their everyday lives.”
“Some of the price-fixing conspiracies lasted for a decade or longer, and many car models were fitted with multiple parts that were fixed by the auto parts suppliers,” said Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s criminal enforcement program. “The Antitrust Division has worked hand in hand with its international competition colleagues who have provided invaluable assistance to the Justice Department in breaking up these worldwide price-fixing cartels.”
“Today’s charges should send a message to companies who believe they don’t need to follow the rules,” said Ronald Hosko, Assistant Director of the FBI’s Criminal Division. “If you violate the laws of this country, the FBI will investigate and put a stop to the threat you pose to our commercial system. The integrity of our markets is a part of the foundation of a free society.”
“Including those announced today, 20 companies and 21 executives have been charged in the Antitrust Division’s ongoing investigation into price fixing and bid rigging in the auto parts industry. All 20 companies have either pleaded guilty or have agreed to plead guilty and have agreed to pay more than $1.6 billion in criminal fines. Seventeen of the 21 executives have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences.”
“Each of the companies and executives charged today has agreed to cooperate with the department’s ongoing antitrust investigation. The plea agreements are subject to court approval. The companies’ and executives’ agreed-upon fines and sentences are:
• Hitachi Automotive Systems Ltd. to pay a $195 million criminal fine;
• Jtekt Corporation to pay a $103.27 million criminal fine;
• Mitsuba Corporation to pay a $135 million criminal fine;
• Mitsubishi Electric Corporation (MELCO) to pay a $190 million criminal fine;
• Mitsubishi Heavy Industries Ltd. to pay a $14.5 million criminal fine;
• NSK Ltd. to pay a $68.2 million criminal fine;
• T.RAD Co. Ltd. to pay a $13.75 criminal fine;
• Valeo Japan Co. Ltd. to pay a $13.6 million criminal fine;
• Yamashita Rubber Co. Ltd. to pay a $11 million criminal fine;
• Tetsuya Kunida, a Japanese citizen, to serve 12 months and one day in a U.S. prison, and to pay a $20,000 criminal fine; and
• Gary Walker, a U.S. citizen and former executive of a U.S. subsidiary of a Japan-based automotive products supplier to serve 14 months in a U.S. prison, and to pay a $20,000 criminal fine.”
At a news conference about the guilty plea, Scott D. Hammond, Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program, stated as follows in the attached statement:
“We have seen a pattern during the course of this investigation. The detection of one auto part conspiracy has led to the discovery of other conspiracies involving a new set of products, a new group of conspirators and a new list of victims. And as the Attorney General said, our work isn’t done. . . .”
“The companies and executives charged today will pay a heavy price for their conduct. As of today, more than $1.6 billion in criminal fines have been obtained thus far and 17 auto parts executives are currently serving prison time or are awaiting sentencing. The deterrent impact of their sentences should resonate in boardrooms around the world.”
“As today’s charges demonstrate, global cartels operating largely outside of our borders often constitute the biggest competitive threat to our economy, our businesses and our consumers. The Antitrust Division and the FBI have worked closely with our international competition colleagues to break up these worldwide price-fixing cartels.”
LIQUID CRYSTAL DISPLAY (LCDS) FROM TAIWAN
In San Francisco, a criminal antitrust trial is proceeding against Borlong Bai of AU Optronics in Taiwan for his involvement in a cartel to price liquid crystal displays. AUO, its US subsidiary and two executives were convicted of price fixing last year and two other executives were found not guilty. Bai’s attorneys are arguing that although he was a manager of AUO’s division that sold LCDs to laptop computer companies, Bai simply used the information he received to outmaneuver his rivals and not to fix prices.
The Justice Department is arguing that Bai was essential to the global conspiracy to fix prices of LCDs.
ANTITRUST AG BILL BAER SPEECH ON CRIMINAL ANTITRUST CASES LCDS FROM TAIWAN
On September 25, 2013, Bill Baer, the Assistant Attorney General for the Antitrust Division at the Justice Department spoke to the Georgetown Law’s 7th Annual Global Antitrust Enforcement Symposium on the importance of the lesson from the LCDs case against Taiwan companies. BAER DOJ STATEMENT Mr. Baer stated in the attached speech:
“Criminal enforcement is a large part of what we do at the Division. Effective sanctions matter there too. Guided by the federal Sentencing Guidelines, our prosecutors seek criminal sentences that are consistent with statutory considerations and reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford deterrence, protect the public, and offer defendants an opportunity for effective rehabilitation.”
“Last year, for the first time, the division recommended that a criminal antitrust defendant be required, as a condition of its probation, to retain an independent corporate monitor to develop and implement an effective antitrust compliance program. The defendant, AU Optronics Corporation (AUO), its U.S. subsidiary, and two of its top executives, had been convicted at trial for their role in a conspiracy to fix the price of liquid crystal display (LCD) panels – a conspiracy that had a significant impact on U.S. commerce.”
“Rarely has a company needed an effective antitrust compliance program as much as AUO. AUO was founded the very month the LCD conspiracy began. From its inception, AUO’s standard operating procedure was collusion. “Antitrust compliance program” was not in its lexicon. Even after conviction, AUO continued to employ convicted price-fixers and indicted fugitives. As a result, the division argued that there was no reason to believe that AUO’s conviction and the imposition of a criminal fine – even a large fine – would deter AUO from engaging in future collusive conduct.”
“The court agreed. In addition to a $500 million fine, the court sentenced AUO and its subsidiary to three years of probation during which the companies are required to develop, adopt, and implement an effective compliance and ethics program, and to retain an independent monitor to oversee that program. Consistent with the division’s willingness to request external monitors in the civil context, the division will consider seeking conditions of criminal probation that include independent monitors when faced with circumstances in which the division is not persuaded that penalties alone will deter future illegal behavior.”
Attached are two class action complaints filed in October against Japanese auto parts. As a result of the Justice Department plea agreements, Japanese auto parts companies and probably eventually Taiwan auto parts companies are exposed to $100s of millions, if not billions of dollars in liability under private right of action triple damage antitrust cases. AUTO PARTS SWITCHES PANASONIC DIAMOND AUTO PARTS AT CASE
US FTC CHAIRWOMAN STATES THAT CHINA NEEDS TO ENSURE PROCEDURAL FAIRNESS IN ITS ANTITRUST PROCEEDINGS
On September 25, 2013, at a conference in Washington DC, FTC Chairwoman Edith Ramirez questioned the Chinese Government’s fairness in antitrust proceedings. Ms. Ramirez stated:
“While every country must determine its own competition policy, we believe consumers and competition policy are best served when competition enforcement is based solely on economic analysis of effects on competition. But if other factors nonetheless enter into competition decisions, their nature and effect should be transparent.”
The problem with Ms. Ramirez’s statement is that the Chinese government’s first experience with US government fairness is through the US antidumping laws. For decades, the Chinese companies and government have been subjected to Commerce Department antidumping and countervailing duty proceedings, which are clearly not fair and transparent. With its surrogate country and surrogate value analysis, Commerce Department determinations in antidumping cases on their face are arbitrary and capricious. Using Bulgaria as a surrogate country in the Hardwood Plywood case is just such an example.
The procedural unfairness inherent in US antidumping and countervailing duty laws affects the entire legal relationship between the US and China. Chinese government officials and many Chinese companies sincerely believe that the United States is simply out to bash Chinese companies and procedural fairness be damned.
What is sauce for the goose is sauce for the gander. If the Commerce Department uses inherently unfair procedures in its antidumping and countervailing duty investigations, which have no basis in economic reality, from the Chinese government’s point of view why should it base its competition policy on “economic analysis of effects of competition.”
CLASS ACTION ANTITRUST CASE AGAINST KOREAN NOODLE COMPANIES
On September 5, 2013, the attached class action antitrust case complaint was filed in Federal District Court in California by Stephen Fenerjian against Korean noodle companies for price fixing on exports of noodles to the United States. The target companies are: Nong Shim Company Ltd., Nong Shim America Inc., Ottogi Company Ltd., Ottogi America, Inc., Samyang Foods Company Ltd., Samyang (USA) Inc., Korea Yakult Co., Ltd., and Paldo Company Ltd. KOREAN NOODLES ANTITRUST CASE
SEC GRANTS DELAY IN PROCEEDING AGAINST US ACCOUNTING FIRMS FOR REFUSING TO RELEASE AUDIT DOCUMENTS OF CHINESE COMPANIES
On October 2, 2013, in the attached order, SEC ORDER ACCOUNTING FIRMS the U.S. Securities and Exchange Commission (“SEC”) granted a request from an administrative law judge to give an additional 100 days to determine whether top accounting firms, such as Ernst & Young, Deloitte and Price, Waterhouse, have to produce audit document of Chinese company clients that are suspected of defrauding their US investors through reverse mergers. In December 2012 the SEC started this case because it believes the accounting firms, including the Big 4, have refused to to cooperate with document requests in an investigation into China-based companies whose securities are publicly traded in the U.S. in violation of US security laws. The accounting firms argue that they fear violating Chinese secrecy laws. As evidenced by the complaints on this site, the SEC has cracked down in the last few years on fraudulent reverse mergers, in which Chinese companies have used existing public shell company to merge with a private operating company, leaving the shell company as the surviving legal entity. The crackdown, however, has been delayed by the Chinese privacy laws, which bar China-based auditors, including the subsidiaries of US accounting firms, from turning over Chinese client information.
The accounting firms have been fighting requests for audit paperwork related to Chinese companies accused of fraud on US investors. In July, following bilateral investment talks, the U.S. announced that China had agreed to turn over certain audit documents to the SEC and the Public Company Accounting Oversight Board. That deal came shortly after the PCAOB announced a memorandum of understanding with the China Securities Regulatory Commission and the country’s Ministry of Finance to ease restrictions on release of audit information in fraud investigations.
A number of new securities complaints cases have been filed against Chinese companies.
On September 26, 2013, the Securities and Exchange Commission (“SEC”) filed the attached securities fraud complaint against Lee Chi Ling (“Lee”) and Perfect Genius Limited (“Perfect Genius”), alleging securities fraud in a classic “pump and dump”scheme from at least June 2004 through at least February 2006 to manipulate the price of the common stock of China Energy Savings Technology, Inc. PERFECT GENIUS
On September 26, 2013, the SEC filed a securities fraud complaint against defendants Chan Tze Ngon, a/k/a Chen Zi Ang and Ron Chan, (“Chan”), and Jiang Xiangyuan (“Jiang”). The case involves two securities fraud schemes engineered by former high level officials of ChinaCast Education Corporation (“ChinaCast”) to steal about $100 million out of the company by diverting monety to their private accounts. CHINA CAST
On September 27, 2013, the SEC filed a securities fraud complaint against Universal Travel Group (UTG), a China-based travel company, UTG’s former ChiefExecutive Officer Jiangping Jiang (“Jiang”); and UTG’s former Chief Financial Officer, Jing Xie (“Xie”) for diverting $41 million in public and private stock offerings in the United States to numerous unknown parties in Hong Kong and the PRC. In an interesting note, the attached complaint also includes consent judgements by UTG, Jian and Xie in which they agree to the SEC charges and agree to pay fines and penalties. Even in China, you can run, but not hide. UNIVARSAL TRAVEL
On September 30, 2013, Another class action securities case was filed against Light in the Box Holding, a Beijing company, and two Chinese individuals for securities fraud. LIGHT IN THE BOX
If you have any questions about these cases or about the US trade, customs, patent, antitrust or securities law in general, please feel free to contact me.