HB 275-ANTITRUST ACTIONS & PENALTIES  3:40:18 PM CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 275, "An Act authorizing certain causes of action for relief for direct or indirect injuries sustained as a result of antitrust violations; repealing the provision limiting to the attorney general the recovery of monetary relief for injury directly or indirectly sustained as a result of an antitrust violation; and relating to criminal and civil penalties for antitrust violations." 3:41:34 PM GRETCHEN STAFT, Staff, Representative Max Gruenberg, Alaska State Legislature, explained on behalf of the prime sponsor, that HB 275 is a consumer protection bill. She paraphrased from the sponsor statement, which read [original punctuation provided]: The purpose of HB 275 is threefold: 1. Increase the penalties for antitrust violations 2. Allow recovery for parties injured indirectly, as well as directly, by antitrust violations 3. Allow the attorney general to bring an antitrust action for additional equitable and monetary relief. The first function of HB 275 is to increase the penalties levied against those who violate antitrust laws. Under current law, an antitrust violation under AS 45.50.562 or 45.50.564 is only a misdemeanor and is only punishable by a fine of $20,000 or $50,000, respectively, for natural persons or organizations. Because of the enormous profits that may potentially be realized through antitrust violations, the current penalties do not serve as significant deterrents. HB 275 will make an antitrust violation under AS 45.50.562 or 45.50.564 a class C felony. The bill will also increase the fines for such violations to $1,000,000 for natural persons and $50,000,000 for organizations. This will provide a much stronger deterrent to would-be antitrust violators. The second purpose of the bill is to expand the pool of parties who may bring an action against antitrust violators. Under current law, only parties injured directly by antitrust violations may bring a private action. This bill will allow parties who are injured directly or indirectly by antitrust violations to bring an action to recover damages, terminate an interlocking relationship, or both. 3:42:17 PM REPRESENTATIVE CHENAULT asked for clarification on the "parties who are directly or indirectly injured by antitrust violations." MS. STAFT related a scenario in which a manufacturer of a computer chip is engaged in illegal trade restriction by artificially setting the price of its product too high. The manufacturer subsequently sells its chips to a computer manufacturer, who in turn sells the computer to the consumer. Under current law, a person could not bring a lawsuit against the computer manufacturer even though it raised the price of the computer. Basically, the manufacturer paid more for the computer chip, she stated. Under current law only the manufacturer could bring the lawsuit, but under HB 275, the consumer could initiate the lawsuit. 3:43:56 PM REPRESENTATIVE CHENAULT related his understanding the consumer would be the indirect purchaser. MS. STAFT agreed that the consumer would be indirect purchaser. 3:44:30 PM REPRESENTATIVE CHENAULT pointed out that the computer manufacturer could bring the lawsuit based on artificial price, but the computer manufacturer would not be directly damaged by the increased cost of the computer chips since the manufacturer would pass on the cost to the consumer. MS. STAFT related that one could argue the computer manufacturer is directly affected since the higher computer chip cost could contribute to a decrease in the volume of the total sales. Thus, consumers may decide not to buy the computer from the manufacturer since the computer may cost more than one without an inflated chip cost. 3:45:27 PM MS. STAFT turned to the sectional analysis of HB 275. She explained that Section 1 & 2 would allow a person injured directly or indirectly by a violation of this statute to bring an action to terminate the prohibited interlocking relationship. MS. STAFT related that proposed Section 3 would provide that a person bringing an action for antitrust violation shall mail a copy of the complaint to the attorney general. This is to provide notice in case it may wish to intervene and bring in more citizens under the scope of the action. MS. STAFT explained that proposed Section 4 would allow the Attorney General (AG) to bring a civil action to secure monetary, injunctive, and other equitable relief on behalf of the state or its agencies injured directly or indirectly by an antitrust violation. Under current law the AG can only obtain monetary relief. MS. STAFT highlighted that proposed Section 5 would allow the AG to bring a civil action on behalf of persons doing business or residing in the state to secure monetary, injunctive, and other equitable relief for direct and indirect injuries sustained from antitrust violations. MS. STAFT noted that proposed Sections 6, 7, and 8 make conforming changes. MS. STAFT related that proposed Section 9 defines "person" and adds governmental agencies including political subdivisions of the state, home rule or general law, cities or boroughs and other governmental agencies such as the Alaska Railroad Corporation (ARRC) and the University of Alaska. 3:47:46 PM MS. STAFT stated that any instance of "person" in the bill refers to the expanded definition. MS. STAFT related that proposed Section 10 provides "the meat" of the bill. This provision would raise the criminal penalties for an anti-trust violation. Thus, a violation of AS 45.50.562 or 45.50.564, which addresses restraint of trade and monopolies, would be raised from a misdemeanor to a class C felony. This section also raises the maximum criminal fines from $20,000 to $1 million for a natural person and from $50,000 to $50 million for an organization. She pointed out that these are maximum fines and a judge would have discretion. 3:48:43 PM MS. STAFT, in response to Representative Buch, agreed that the penalties would not affect a business in the same way it would affect a natural person. She commented that since a corporation cannot be jailed, the fines are raised. She referred to page 4, lines 11-12, noting that the penalty is a felony. REPRESENTATIVE BUCH related his understanding that is the reason that person and natural person are defined. MS. STAFT agreed. She pointed out that a natural person would likely have limited resources, but may not be able to do as much damage as an organization. 3:50:02 PM REPRESENTATIVE CHENAULT related he was contemplating the expansion of political subdivision and home rule, as allowing "anyone" to sue. MS. STAFT offered her belief that one reason to add these entities to the definition of a "person" is that it would allow a city to recover taxpayers' money. She related a scenario in which a person sold a product as an additive to asphalt to pave streets. However, if the company artificially set the price of its product too high it would cause the city to pay more to pave the streets. This provision would allow the city to recover taxpayers' money. She related that cities can be injured and the Assistant Attorney General, Ed Sniffen, could better explain the expanded definitions. 3:51:35 PM REPRESENTATIVE CHENAULT understood antitrust lawsuits occur, but commented that anyone who thinks they are affected would have the ability to sue. 3:52:10 PM CHAIR OLSON asked why some entities, such as the Alaska Housing Finance Corporation (AHFC) and the Permanent Fund Corporation (PFC) are excluded in the bill. MS. STAFT suggested that some entities are subdivisions of the state and can be represented by the attorney general. Other organizations could bring suit since they are included in the definition of person. CHAIR OLSON referred to page 2, line 1 to the inclusion of the Alaska Railroad Corporation (ARRC) and the University of Alaska (UA). MS. STAFT related that the ARRC and UA cannot bring private actions, but the state's attorney general can bring actions on either entity's behalf. This bill would allow either entity to bring private actions. She explained that private attorney fees are higher. She surmised that likely someone would alert the AG of a proposed antitrust violation and the attorney general would proceed. This provision would allow an option for either entity to bring the suit. However, either entity would still have to prove the same elements that the AG would have to prove. 3:54:15 PM REPRESENTATIVE CHENAULT expressed concern that entities like the ARRC or the University could bypass the safeguards that have been put in place within the attorney general's office. MS. STAFT related that other states have these provisions in place to allow private citizens to bring lawsuits forward and it has worked well. REPRESENTATIVE CHENAULT maintained his concern if the AG did not believe an action warranted lawsuit, the UA system or another state agency could file a lawsuit. He offered his belief that it is the attorney general's responsibility to handle state matters. 3:56:00 PM REPRESENTATIVE NEUMAN asked for clarification of the terms "direct and indirect" injury. MS. STAFT responded that only direct purchasers can bring a lawsuit for antitrust violations. She restated her previous scenario in which a computer chip manufacturer is engaged in artificially setting the price to high for a computer chip, with the manufacturer passing on the cost to consumer. In that scenario, the consumer is the indirect party and under current law could not bring a lawsuit. This bill would allow the consumer to recover damages. REPRESENTATIVE NEUMAN related an instance in which a refinery manufactures gas and asked whether the consumer could file a lawsuit. MS. STAFT responded that she believed so, but noted that the consumer must prove the elements. She deferred to Mr. Sniffen for further clarification. 3:58:13 PM REPRESENTATIVE NEUMAN maintained the lawsuit could still be filed. MS. STAFT agreed. She stated that the case would need to go through a discovery process. 3:58:35 PM MS. STAFT explained that proposed Section 11 would create a civil penalty provision and would allow the AG to bring an action for civil penalties and sets the maximum civil penalties at $1 million for a natural person and $50 million for an organization. MS. STAFT related that proposed Section 12 would expand the provision regarding proof of aggregate damages to cover any action brought under AS 45.50.562-596. It provides the same definition of "person" as seen earlier in the bill. MS. STAFT offered that proposed Section 13 would provide conforming changes and again uses the expanded definition of person. MS. STAFT stated that proposed Section 14 would add additional remedies a court may use for antitrust violations, including the revocation, forfeiture, or suspension of the business organization's charter, franchise, certificate of authority, privilege, or license, dissolution of the business organization, and divesture of any asset. She noted that the language provides that a court "may" rather than "shall" add additional remedies. 4:00:15 PM MS. STAFT offered that proposed Section 15 would provide conforming changes and also provides for an expanded definition of person. MS. STAFT related that proposed Section 16 would repeal AS 45.50.576(b), AS 45.50.577(i), and 45.50.580(a). 4:00:44 PM REPRESENTATIVE T. WILSON asked for the reason that this bill was brought forward. MS. STAFT explained that the sponsor attended a series of meetings, and a national antitrust expert testified. The bill sponsor asked how Alaska's antitrust statutes could be improved. She related that the antitrust experts suggested that Alaska could give its private citizens the ability to bring action and that penalties could be increased. Mr. Sniffen provided input and the bill was brought forth. 4:02:01 PM REPRESENTATIVE BUCH recalled "digging" into the corporate responsibilities. He stated that an agency was involved in which an owner was instrumental in a corruption case. The question arose as to whether the damages were high enough and whether an owner who cooperated in the case could eliminate liability to the company. He offered his belief that may have been one reason the sponsor was interested in the antitrust provisions. REPRESENTATIVE NEUMAN agreed with Representative Buch. 4:03:32 PM CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), Department of Law (DOL), offered that his responsibilities include enforcement of the Consumer Protection Act and antitrust statutes. He explained that under current law, only the AG has the ability to bring an action for indirect damages. He related that there is an actual case that Alaska, along with other states, was involved in against a computer chip manufacturer in California. He said that Alaska had to "pull out of that case" because Alaska did not have authority to bring these kinds of actions. That resulted in passage of our current statute that allows the AG to bring actions against indirect damages. This bill removes the restriction that only the AG can bring these types of actions. The DOL does not necessarily have problems in Alaska. In other states private parties can initiate actions. This bill is limited to indirect damage cases. He referred to a U.S. Supreme Court case called Illinois Brick vs. Illinois, so it is referred to as the Illinois Brick Rule. The Alaska statute is an Illinois Brick repealer, which gives the government the opportunity to bring the cases. Most states allow private parties to bring these actions, although he did not know if other states extend the ability to political subdivisions like the ARRC or the UA. He offered to look into this and report back to the committee. 4:06:34 PM MR. SNIFFEN explained the second part of the bill provides for a civil penalty. The DOL supports this provision since the current statutes do not provide for civil penalties, only criminal penalties. Currently, it is a misdemeanor and up to a $50,000 fine if a corporation or up to a $20,000 fine for a violation. The criminal violation requires proof beyond a reasonable doubt. He pointed out that almost every other state has civil penalties. He reviewed approximately twenty states and Ohio has a $500 per day penalty, California has a penalty up to $1 million, or two times the gross gain or loss. Nevada uses five percent of the actual sales as a potential penalty. He stated that what really is prompting states to amend their statutes is that the Federal Trade Commission (FTC) has increased the federal antitrust penalties to $10 million per individual and $100 million for an organization. Thus, the penalties contained in HB 275 are penalties that should act as a deterrent. 4:08:16 PM MR. SNIFFEN referred to the question on the gasoline refinery. He agreed that under current law it would be difficult to bring a lawsuit against Tesoro Alaska Company (Tesoro) in the instance that a consumer believed that gas prices were artificially high and were set because Tesoro engaged in price fixing activity with a refiner or distributers. The AG would be required to bring the lawsuit, he stated. 4:08:41 PM REPRESENTATIVE NEUMAN related his understanding that the AG could file a lawsuit against a refinery. MR. SNIFFEN agreed that the AG currently has the ability. REPRESENTATIVE NEUMAN asked whether a gas station would be able to sue. MR. SNIFFEN answered yes. It would depend on whether the gas station was buying direct from the refinery. Under this bill, the gas station could also bring that action against a refinery. In further response to Representative Neuman, he explained that if the gas station is purchasing the product directly from Tesoro and not through a distributor, the gas station would be direct purchaser and would be entitled to any damages it suffered. REPRESENTATIVE NEUMAN related that if Tesoro has a pipeline to a bulk plant in Anchorage, but a trucking company moves the gas, the station pays the bill. He asked if the gas station would have the ability to bring an action. MR. SNIFFEN offered his belief that the trucking company would just be a pass through and the gas station would have the ability as the purchaser to bring antitrust action against the refinery. However, this bill would definitely give them the ability to do so. 4:12:14 PM [HB 275 was held over.]