Last month, we were excited to publish our article, The Use of Expert Witnesses for Penalty Determinations in Criminal Antitrust Cases: A Study of United States v. AU Optronics, in Antitrust Magazine.  The article examines the use of expert testimony during the trial in AU Optronics, No. 09-cr-110 (N.D. Cal), and discusses several strategic issues for practitioners to consider in responding to expert testimony in criminal cartel cases.

As luck would have it, just days after our article was published, the Ninth Circuit issued its long-awaited AU Optronics decision addressing the requirements of the Foreign Trade Antitrust Improvements Act (“FTAIA”).  Most notably, the Ninth Circuit determined that:

• The requirements of the FTAIA are substantive and not jurisdictional.
• Import trade/commerce is excluded from the reach of the FTAIA.
• If the government proceeds under the FTAIA using a “domestic effects” theory, it must prove that the defendants’ conduct had a “direct, substantial and reasonably foreseeable effect” on United States commerce.  However, the Ninth Circuit declined to resolve whether the government satisfied this standard because it found that substantial evidence supported a conviction under the “import trade/commerce” theory.

In other words, the Ninth Circuit declined to weigh in on what many commentators believed was the most significant issue:  the application of the requirement that the government can succeed under FTAIA only if it shows a “direct, substantial and reasonably foreseeable effect” on United States commerce.  This absence is especially notable in light of the Second Circuit’s June 4, 2014 decision in Lotes and the Seventh Circuit’s March 27, 2014 decision (which was later vacated) in Motorola – both of which addressed that very issue.

One possible explanation for the Ninth Circuit’s decision to refrain from addressing the domestic effects theory is the ambiguities in the government’s evidence on this issue, and particularly in the testimony provided by its economic expert.  The Ninth Circuit wrote:

Finally, we address the sufficiency of the evidence under the domestic effects exception, which was directed at foreign sales of panels that would be incorporated overseas into finished consumer products that would ultimately be sold in the United States. . . . The essence of their objection is that the offshore conduct is too attenuated from the United States; that the intervening development, manufacture, and sale of the products worldwide resulted in a diffuse effect; and that the evidence does not support a “direct, substantial, and reasonably foreseeable effect” on United States commerce.

Indeed, the government’s expert created some ambiguity regarding “the exact flow of how panels go from the plants of the Crystal Meeting participants into a product, to a — what are called an ‘OEM’ — the computer maker — and get to the United States.” Admitting that there was “not good data” on how the price-fixed panels wound up in finished consumer goods sold in the United States, the expert explained that“[f]or example, Dell may have someone else put together the monitor,” and that assemblers for panels were located in China, Singapore, Taiwan, Japan, and Mexico. Although negotiations took place in the United States, and there is no dispute that customers in the United States purchased finished products containing the price-fixed TFT-LCDs, such as computer monitors and laptop computers, this testimony raises a significant question regarding whether the effects were sufficiently direct to uphold a verdict based on the domestic effects claim.

Our article discusses the importance of expert testimony to prove a defendant’s gains from the conspiracy when the government seeks to use the alternative fines provision, 18 U.S.C. § 3571(d), to increase the statutory maximum penalty.  The Ninth Circuit’s opinion suggests yet another important use of expert testimony:  in a global economy where components are frequently purchased overseas before they are incorporated into finished goods that are sold in the United States, expert testimony may be necessary (and will frequently be helpful) for the government to establish the effect of a component price on the price of the finished goods sold in the United States.  In either case, however, there is a risk that expert testimony will be limited by the absence of available data.

In AU Optronics, the absence of data substantially limited the expert’s testimony both concerning the defendants’ gains in the United States and the domestic effects of the anticompetitive conduct.  As for the defendants’ gains, the government’s expert in AU Optronics was unable to testify concerning the exact dollar value of the cartel’s gains in the United States.  Instead, he determined that the six cartel participants received approximately $71.8 billion in worldwide revenue for LCD panels.  He then assumed that 32.7% of those LCD panels entered the United States; this assumption was not based on actual sales data, but was instead an estimation based on reports that approximately 32.7% of personal computers are sold in the United States and that the primary use of LCD panels is in personal computers.  The AU Optronics jury accepted these facts, but – as we discuss in the Antitrust Magazine article – there is a serious risk to the government that these types of assumptions may be insufficient to establish the dollar value of the cartel’s gains beyond a reasonable doubt.

Likewise, the expert testimony the Ninth Circuit points to – the effects of overseas component pricing on the price of finished goods in the United States – may be subject to some of the same vagaries.  There, too, the Ninth Circuit noted that the government’s expert admitted that “there was ‘not good data’ on how the price-fixed panels wound up in finished consumer goods sold in the United States” and that this ambiguity “raise[d] a significant question regarding whether the effects were sufficiently direct to uphold a verdict based on the domestic effects claim.”

While the absence of concrete data may pose difficulties for the government, it may also serve to increase the importance (and frequency) of expert testimony for the government to succeed in proving the elements required by each of these statutory schemes.  We hope many of you will read our article as you evaluate the strategic considerations in responding to the government’s use of expert testimony or affirmatively calling your own expert witness to mount a defense.