HB 87-ANTITRUST VIOLATION PENALTIES  3:20:26 PM CHAIR OLSON announced that the first order of business would be HOUSE BILL NO. 87, "An Act relating to penalties for antitrust violations." 3:20:33 PM JAMES WALDO, Staff, Representative Lindsey Holmes, Alaska State Legislature, introduced himself. 3:20:56 PM REPRESENTATIVE HOLMES moved to adopt the proposed committee substitute (CS) labeled 27-LS0331\I, Bannister, 2/16/11, as the working document. There being no objection, Version I was before the committee. MR. WALDO explained the proposed CS would update the penalties for antitrust violations for Alaska. Currently the maximum penalty for an antitrust violation is $20,000 for a natural person and $50,000 for an organization. This bill would increase the maximum penalty for antitrust violations to $1,000,000 for a natural person and $50,000,000 for an organization. The federal penalties are set at $1,000,000 for an individual and $100,000,000 for a corporation. He suggested that the level selected would act as a deterrent. The first section relates to the criminal violation, and would increase the offense from a misdemeanor to a class C felony. 3:23:51 PM MR. WALDO related that proposed Section 2 was added in the proposed CS, to allow the attorney general to seek civil penalties. This would provide an extra tool for the Department of Law (DOL) to pursue antitrust violations, which while not frequently used is available to the department. CHAIR OLSON remarked that he and Representative Holmes have worked with Mr. Sniffen on the language for this bill. 3:24:59 PM CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), Department of Law (DOL), said that the proposed CS would update the antitrust provisions to add a civil penalty provision. Currently, the DOL does not have a civil penalty in its antitrust statute. He pointed out that the criminal violations are more difficult to prosecute due to the necessity to prove beyond a reasonable doubt when making the case. In multi-state actions, states with the strongest penalty provisions end up with more of the settlement money. The state has made good arguments but it would have been nice to have had more authority so it could have argued for a "bigger piece of the pie." The amounts are on the high side compared to other states, but not to federal statutes. In 2007, the federal statutes were amended to increase the penalty to $10,000,000 for individuals and $100,000,000 for corporations. MR. SNIFFEN recalled some states are working to increase their penalty provisions. He referred to a chart in members' packets, which outlines the penalty statutes for other states. Most states were hoping that they could amend their statutes to be in line with federal statutes, he said. 3:28:09 PM REPRESENTATIVE MILLER asked whether the only penalties are fines, except for imprisonment of not more than a year. He surmised that a corporation could not be imprisoned. MR. SNIFFEN answered that a state can imprison corporate officials, and violations by corporations can be felonies. The federal government has imprisoned corporate officials, which can be difficult, but can occur. 3:29:21 PM REPRESENTATIVE CHENAULT asked whether the penalties of $1,000,000 and $50,000,000, respectively, were reasonable since none of the other states' penalties were near that amount. MR. SNIFFEN agreed, except for the federal penalties which are set at $10,000,000 and $100,000,000. He offered his belief that many of the other states enacted their laws in the 70s and 80s. Some are outdated. Alaska would definitely on the high side compared to other states, he said. REPRESENTATIVE CHENAULT expressed concern that the state would strive to match the federal government. 3:30:41 PM REPRESENTATIVE JOHNSON referred to the chart previously referred to, noting that Kansas has a $5,000 per day penalty and he wondered how the penalty is implemented, from inception until the time it is resolved, since the penalties could accrue pretty rapidly. MR. SNIFFEN related it is difficult to determine the start and stop dates. He explained the DOL likes to avoid that method of imposing a penalty since it can be difficult to determine when it should start or end. Typically a penalty provision would commence as soon as the violation is detected and if it goes to court the jury often will often decide the start and when the penalty is abated. He elaborated that determining the dates can lead to considerable discussion and debate. He said sometimes it can be argued that violations start or stop when a memo is written to someone in the company. He further related that the per day penalty provision can create a factual question whereas a flat amount, in particular, a large one, leaves it to the court to decide based on the facts and the goal of deterrence. REPRESENTATIVE JOHNSON asked whether it would be a deterrent to have a $5,000 per day amount. MR. SNIFFEN agreed with the logic, that it would provide an incentive to settle, but he said it also depends on the company since it may result in the attitude of simply the company's cost of doing business. In other instances a flat rate of a $50,000,000 fine can also an incentive. 3:33:45 PM CHAIR OLSON asked if he was familiar with the San Diego based Sempra Energy litigation with the State of California, which arose out of the Energy Crisis of 2000-2001. MR. SNIFFEN said he was unsure. CHAIR OLSON stated it was a price fixing case and the state settled out of court. He thought the damages collectively reached nearly $2 billion. He said the damages were thought to have been $32 billion and if so, this bill might be on the light side. 3:35:06 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 87. REPRESENTATIVE CHENAULT asked whether someone could address the Department of Law's fiscal note. MR. SNIFFEN said he prepared the fiscal note and HB 87 has no additional fiscal impact. REPRESENTATIVE CHENAULT asked if the DOL would not be used. MR. SNIFFEN related that the DOL currently handles these types of cases. He was unsure this would create more work, but the bill would allow for additional penalties and allow the department to have better recoveries. REPRESENTATIVE CHENAULT expressed general concern on zero fiscal notes. As bills pass additional costs are incurred, he said. CHAIR OLSON noted the bill has another committee of referral, which he thought was the House Finance Committee. 3:37:10 PM REPRESENTATIVE JOHNSON asked how many cases of this type the DOL is currently handling. MR. SNIFFEN answered that the DOL just resolved a multi-state case involving the drug Ovcon, manufactured by Warner Chilcott pharmaceuticals. He stated he has another case under consideration that probably is not worth pursuing unless the state had provisions such as this in place to allow for significant recovery. He summarized that there are a few cases, not many. CHAIR OLSON corrected an earlier statement. The next committee of referral is the House Judiciary Standing Committee. 3:38:20 PM REPRESENTATIVE CHENAULT moved to report the proposed committee substitute (CS) for HB 87, labeled 27-LS0331\I, Bannister, 2/16/11, out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, CSHB 87(L&C) was reported from the House Labor and Commerce Standing Committee.