Antitrust Case Targets Actions on Foreign Soil

In the Art Deco federal courthouse in Boston, a jury of 12 men and women is deciding a critical question: Did executives of Japanese paper companies violate U.S. criminal law when they met over tea in Tokyo to discuss, among other things, the prices of thermal fax paper?

Federal prosecutors said the meeting led to a 10% increase in fax paper prices in this country. It also triggered the indictment of Nippon Paper Industries Co., a U.S. firm and five other Japanese companies on price-fixing charges.

Nippon’s landmark antitrust trial, which has been underway for the last six weeks, marks the first time a foreign company is being tried for alleged misconduct that took place entirely on foreign soil. Jurors will begin their second week of deliberation today.

The outcome of the Nippon trial, legal scholars say, will help to determine if and how the government will prosecute similar cases against foreign firms.

As business becomes increasingly global, federal trustbusters are crossing international borders to hunt cartels that fix prices for products ranging from cars to medicine.

About 25 grand juries across the nation are hearing cases involving alleged collusion by foreign corporations to fix prices of products sold in the United States, according to Joel I. Klein, the Justice Department’s antitrust chief.

“If the government wins, its victory will have some deterrent effect against price fixing in the world,” said Eleanor Fox, an antitrust expert at New York University Law School. “If they lose, it sends a message that people can get away with price fixing and hurt American consumers.”

The trial has drawn heated protests from Japan, which argues, in court papers, that the U.S. indictment of Nippon violated international law and mocked Japanese sovereignty.

But it also demonstrates the lengthy arm of U.S. law.

During the trial, the government’s star witness testified from the U.S. Embassy in Tokyo via a videoconference hookup. So when law clerk Noah Novogrodsky shouted “All rise!” in Boston to introduce U.S. District Judge Nancy Gertner, the witness, attorneys and consular officers in Tokyo would jump to their feet.

The alleged crimes that precipitated Nippon’s trial, according to prosecutors, occurred when 10 Japanese paper makers got together three times in 1990 to discuss falling fax paper prices.

The paper makers plotted to increase prices in the United States by 10%, according to minutes of those meetings revealed in court by prosecutors.

In 1995, the Department of Justice indicted Jujo Paper Co., a Wisconsin paper company and five other Japanese paper makers for price fixing.

The U.S. firm, Appleton Papers Inc., was acquitted by a Milwaukee jury last year. The five other Japanese firms have entered guilty pleas and paid hefty fines.

But Nippon, which merged with Jujo in 1993, has consistently denied any wrongdoing and sought vindication in court. It hired O’Melveny & Myers, the law firm that counts former Secretary of State Warren Christopher as a partner, to defend the firm’s honor in court.

Nippon executives got some satisfaction two years ago when a federal judge dismissed the charges. The alleged crime was beyond the reach of the Sherman Antitrust Act, said Chief U.S. District Judge Joseph L. Tauro, because it took place in Japan.

But a federal appeals panel swiftly reversed Tauro’s ruling.

“There is a first time for everything,” wrote Judge Bruce M. Selya of the 1st U.S. Circuit Court of Appeals when he rejected Nippon’s argument that such a case had never been filed in the 100 years since the Sherman Act was enacted.

“We live in an age of international commerce where decisions reached in one corner of the world can reverberate around the globe in less time than it takes to tell the tale,” Selya said for a unanimous three-judge panel. “Thus a ruling for [Nippon] would create perverse incentives for those who would use nefarious means to influence markets in the United States.”

Nippon appealed to the U.S. Supreme Court. In a friend-of-the-court brief, the Japanese government implored the high court’s justices to reverse the appellate decision, arguing that such a prosecution would have “profound implications for the sovereignty of Japan.”

But the justices rejected that plea, tossing the case to Judge Gertner’s courtroom in Boston’s financial district.

The federal courthouse in Boston became famous as the site for the Boston school desegregation cases. Not too long ago, it was the setting for a real-life legal drama about toxic pollution chronicled in the bestseller “A Civil Action.”

During the last six weeks, Gertner and lawyers in the case have been setting another precedent--conducting a trial partly through a videoconference system that was used to beam a key witness’ testimony from Tokyo to Boston.

The trial demonstrates some of the logistical problems federal prosecutors will encounter as they attempt to bring similar cases before American juries.

Even before Nippon’s trial, Gertner’s courtroom was outfitted with computers and a dozen television monitors to display some of the 2 million pages of documents assembled by federal prosecutors.

When Gertner determined that jurors should be allowed to see a particular document, she would hit the on button on her “control box,” lighting up six television screens in front of the jury.

“I feel less of a judge and more of a starship commander,” said Gertner about the high-tech apparatus in her courtroom. “I feel like Capt. Picard.”

And when the government’s star witness decided that he could not travel to Boston to testify, Gertner ordered that two large-screen television monitors be installed in her courtroom to receive his testimony via an international transmission.

But that was only possible after Nippon’s lawyers waived their constitutional right to confront the witness face to face.

During a six-day period, Gertner, prosecutors and defense attorneys would remain in court late at night to tape testimony of the government witness, who would show up at the U.S. Embassy in Tokyo about 7:30 a.m the next day. The next morning in Boston, jurors saw an edited version of the tape.

Some courtroom observers wonder whether it was worth the trouble. During the trial, the star witness, Shigeru Hinoki, an executive with one of the paper makers that had earlier pleaded guilty, denied through a translator that the manufacturers had agreed to fix prices. That directly contradicted Hinoki’s earlier account of the 1990 meetings to them, prosecutors said.

Others questioned why prosecutors were pursuing the case at all.

Thermal fax paper, the glossy specialty paper that was once used for many fax machines and certain medical printing equipment, is now a virtually defunct industry.

Even in 1990, North American sales by Japanese paper makers accounted for only $120 million. Of that amount, Nippon’s predecessor took in a mere $6 million.

But there is little doubt, legal scholars say, that the government is pursuing the case to send a message to price fixers around the globe.

Prosecutors, who could have charged Nippon with civil violations, opted instead for criminal charges, which carries a fine of up to $10 million.

Fox, the NYU law professor, said she was not familiar with the facts in the Nippon case but added that the U.S. government should not be precluded from chasing firms like Nippon if prosecutors can prove that they conspired to hurt U.S. consumers.

“The world is shrinking, and price fixing is accepted as illegal behavior all over the globe,” Fox said. “Why should you be able to escape prosecution by doing your illegal act in a foreign country?”

But Alan M. Cohen, an attorney for Nippon, said in court there is sometimes a thin line separating U.S. antitrust law and Japanese business culture.

Japanese competitors routinely get together to discuss common issues in their industries, Cohen said. “A bunch of guys having tea in Tokyo is not a U.S. crime.”