Delivering for Best-in-Class Wholesaler-Distributors
July 6, 2020

Former CEO Sentenced to 40 Months in Prison for Price Fixing

On June 16, 2020, the former President and CEO of Bumble Bee Foods was sentenced to serve 40 months in jail and pay a $100,000 criminal fine for his leadership role in a three-year antitrust conspiracy to fix prices of canned tuna.

The federal Sherman Act imposes criminal penalties of up to $100 million for a corporation violating the antitrust laws. Corporate executives, personally, face up to 10 years in prison and up to $1 million in criminal penalties for violations.

Christopher Lischewski was charged on May 16, 2018, in an indictment returned by a federal grand jury in San Francisco. After a four-week trial in late 2019, he was convicted on the single count of participating in a conspiracy to fix prices of canned tuna. In imposing the 40-month prison sentence, the Court found that Lischewski was a leader or organizer of a multi-year price fixing conspiracy and that it affected over $600 million dollars of canned tuna sales.

A Justice Department official commented, “The sentence imposed today will serve as a significant deterrent in the C-suite and the boardroom.”

In 2017, Bumble Bee pleaded guilty and was sentenced to pay a $25 million criminal fine. In September 2019, Starkist Co. was sentenced to pay a statutory maximum $100 million criminal fine for its role in the price-fixing conspiracy. In late 2019, Bumble Bee filed for Chapter 11 bankruptcy protection. In addition, three other executives were charged in the investigation. The other executives pleaded guilty and testified in Lischewski’s trial.

During the jury trial, the government introduced evidence of Lischewski’s interaction with competitors and executives, including regular meetings and the exchange of proprietary pricing information, and his efforts to keep the meetings and communications secret.

Attorneys for the defendant have indicated that they plan on filing an appeal.

 

Amazon Faces Liability for a Third-Party Vendor’s Defective Products

It is well settled law that wholesaler-distributors and other resellers in the supply chain face potential strict product liability for injuries cause by defective products they sell, due to their legal status as a “seller” of that product.

A recent U.S. appeals court decision (2-1 vote) reversed a lower court ruling and held that under Pennsylvania law Amazon was liable as a “seller” of an allegedly defective product sold by a third-party vendor on the Amazon site, even though Amazon did not take title to, or possession of, the product (Oberdorf v. Amazon.com Inc., 3rd Cir., No. 18-1041). Amazon derives over 50% of its revenue from sales of products sold by over one million third-party vendors.

In the ruling the court focused on Amazon’s extensive contractual authority in controlling the sales of products offered by third-party vendors on the Amazon marketplace. Click here to view the Amazon Services Business Solutions Agreement.

Amazon recently agreed to make changes to this agreement that are intended to benefit US vendors and others worldwide, in order to close an investigation by Germany’s antitrust enforcers. Unfortunately for vendors, the revised agreement will give Amazon the right to terminate the agreement at any time “for convenience” (i.e., without cause for any reason or no reason) by giving 30 days advance notice with Amazon retaining ownership of, and unlimited rights to use, all the vendor’s customer information and sales data.

However, within hours of the German settlement, the European Union opened a broader antitrust investigation to assess whether Amazon’s use of sensitive customer data gathered from third-party vendors selling on the Amazon site violates EU competition laws. https://ec.europa.eu/commission/presscorner/detail/en/ip_19_4291. The probe will focus on Amazon’s dual role as an online seller of its own products and as a sales channel for independent sellers, and whether Amazon misuses the customer data it gathers (and owns exclusively) to harm those independent sellers and competition generally. The contractual restrictions listed below are certain to receive EU scrutiny.

The contractual restrictions include:

  • The identity of, and all information provided by, the “customer” making a purchase from the Vendor on the Amazon site is deemed Amazon confidential information, owned exclusively by Amazon. The Vendor may not disclose this Amazon transactional information to any person. Further, the Vendor is prohibited from using this information for “any marketing or promotional purposes whatsoever.”
  • The Vendor can only communicate with customers regarding their Amazon orders through the Amazon platform.
  • All information the Vendor provides to Amazon may be exploited by Amazon in any manner and for any commercial or non-commercial purpose. This includes any Vendor information reasonably requested by Amazon.
  • The price charged by the Vendor on Amazon cannot be higher than the price charged by the Vendor in other sales channels other than physical stores.
  • All customer payments are received by Amazon as the Vendor’s agent and periodically remitted to the Vendor, minus Amazon’s commissions.
  • Amazon retains the right to stop or cancel orders, or to suspend providing services to the Vendor, or to terminate the agreement in its sole discretion, without any prior notice.

This case involved a dog collar that failed and injured the plaintiff. Significantly, the third-party vendor (The Furry Collar) could not be located by the plaintiff or Amazon following the injury, leaving Amazon, according to the court, “as the only member of the marketing chain available to the injured plaintiff for redress.”

In the dissenting opinion, the judge reasoned that several non-Pennsylvania court decisions had excused Amazon from strict product liability as a seller because Amazon did not take and transfer legal title to products sold by third-party vendors, nor did Amazon ever take possession of the vendor’s product.

The case, filed in June 2016, now returns to the federal district court for trial.

While this decision is limited to an interpretation of Pennsylvania law, it could be persuasive authority in other states where claims are made against online marketplaces that play a critical role as the compensated intermediary for the sale of products to consumers and others.

Click here to view the opinion.

 

No-Poach Agreements Face Criminal Antitrust Enforcement

In almost all instances, a violation of the federal antitrust laws involves an agreement, understanding or conspiracy among competitors who are selling the same type of products or services, or between suppliers and the resellers of those products or services. The Antitrust Division of the US Justice Department has stepped up enforcement actions against companies who are not direct competitors or are not in a seller-buyer relationship who enter into no-poach agreements. And – importantly – the government has announced its intention to proceed criminally against employers who make no-poach or no-hire agreements.

A no-poach agreement involves an agreement between two or more employers not to compete for each other’s employees, including a promise not to hire or recruit each other’s workers. These no-poach agreements are per se unlawful under the antitrust laws because they eliminate competition in the same manner as agreements to fix prices – they eliminate competition for human resources, thus denying employees the benefit of competitive labor markets.

If a company enters into or continues a no-poach agreement or understanding with one or more companies, there is a significant antitrust risk of criminal penalties as well as civil triple damage lawsuits by private parties under the federal antitrust laws.

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