Before China, Taiwan used to be a world-factory. Taiwan’s technical companies always focus on improving their progress on product. The past 20 years, Taiwan’s technological competitiveness is becoming increasingly improving. Taiwan’s Information and Communication (ICT) industry plays a significant role in the international market. Goods from Taiwan export to the United States and Europe region are increasing a lot. However, Taiwan’s companies facing patent infringement litigation, as well as facing antitrust law investigation become more often, especially in LCD panel industry.
Here are some statistics provide us to discuss how much would it cost due to antitrust law investigation. During last five years, four Taiwan’s LCD companies paid totally 375 million dollars penalty to the U.S and 435 million Euros penalty to Europe region. Moreover, in the past two years, four LCD companies do not earn profit in their business because of bad economic situation. Therefore, it is worse that they have to pay a huge fine. These facts give me some room to discuss ethical issues. Are there different ethics between two countries? Why the firm is doing well in Taiwan but being charged antitrust in the U.S? How can two corporates compete if they have distinctly divergent ethics? I will argue the issue from some points of view related to ethical standards. First, I would like to introduce more about this event. Event
AUO and the TFT-LCD InvestigationThe AUO trial was part of a long-running antitrust investigation into the TFT-LCD industry. AUO is a Taiwanese company that has become one of the world’s leading manufacturers of TFT-LCD panels, which are the screens that are inserted into flat-screen monitors and displays, among other things. These finished products are then sold in the United States and around the world. Over the last decade, AUO has become one of Taiwan’s largest companies. AUO’s website reports that AUO currently employs over 43,000 people worldwide and, in 2011, the company earned $12.5 billion in total sales revenue. AUO America is a wholly owned subsidiary of AUO and is incorporated in California, but based in Texas. AUO America provides sales support for AUO and its customers in the United States. The AntitrustDivision’s TFT-LCD investigation focused on many of the world’s leading panel makers, including AUO, Samsung Electronics Co. Ltd., LG Display Co. Ltd., Sharp Corp., Chunghwa Picture Tubes Ltd., Chi Mei Optoelectronics and HannStar Display Corp.. According to the Antitrust Division’s trial memorandum, Samsung triggered the investigation in 2006 by informing the DOJ about the price-fixing conspiracy. Samsung was granted conditional leniency. Over the course of the investigation, the Antitrust Division netted massive fines and lengthy jail terms for members of the alleged conspiracy. For example, the DOJ’s trial memorandum and contemporaneous press releases revealed that, in late 2008, LG Philips, Sharp and Chunghwa all agreed to plead guilty and to pay a total of $585 million in fines. An LG executive and three Chunghwa executives later agreed to plead guilty, to serve prison sentences ranging from six to nine months and to pay at total of $125,000 in fines. In December 2009, Chi Mei agreed to plead guilty, pay $220 million in fines, and cooperate with the Antitrust Division’s investigation. In April 2010, two Chi Mei executives agreed to plead guilty, serve eight and 14 months in prison respectively, pay a total of $75,000 in fines, and assist the DOJ with its investigation. In June 2010, HannStar agreed to plead guilty and to pay a $30 million fine. AUO Chooses to Fight
All others pleaded guilty to participating in a conspiracy to fix prices between 2001 and 2006. They have paid hefty fines with some of their executives jailed in the United States. AUO is the only one fighting on. The Antitrust Division had alleged that the companies and individuals participated in a five-year-long conspiracy to fix the prices of LCD panels over the course of more than 60 meetings, including monthly meetings of LCD suppliers that the participants termed “Crystal Meetings”. AUO argued that it was too new and too small to enter into agreements with larger, more established companies. Also, it used information from competitors to undercut them, according to its defense, and increase its market share. DOJ countered these defenses with scores of minutes from the meetings, internal AUO emails strongly suggestive of agreements, and the testimony of cooperating witnesses, several of whom had served prison time for their role in the alleged offenses. None of the defendants elected to testify. Testimony from economists also took center stage. AUO’s economist testifiedthat AUO’s prices consistently were lower than those discussed at Crystal Meetings. DOJ’s economist testified that this was the wrong question. The right question, according to DOJ, was whether AUO’s prices were higher than they otherwise would have been because of the conspiracy. To this question, DOJ’s economist emphatically testified “yes”, and supplied further testimony that the gain from the conspiracy far exceeded $500 million. The AUO case now moves to the sentencing phase. Assuming the parties do not reach a settlement prior to sentencing, the sentence that actually is imposed by Judge Illston will influence negotiations in other present and future antitrust cases. It will provide the court-imposed sentencing benchmark that the Antitrust Division and the defense previously lacked. The potential sentences that the AUO defendants face are noteworthy. Under the Federal Sentencing Guidelines, and because the jury agreed that the conspirators in the AUO case generated an aggregated gross gain of more than $500 million, the AUO defendants’ potential fine could theoretically be as high as $1 billion. Different ethics between two countries
Law and culture are two parts that form ethics. In the U.S, antitrust law has been issued since 1980. It has been developed for 32 years. The main idea of the law is as follow: The United States antitrust law is a body of laws that prohibits anti-competitive behavior (monopoly) and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both, or generally to violate standards of ethical behavior. Like antitrust law in the U.S, we have Fair Trade Act law in Taiwan. It has been developed for 16 years. The main idea of Fair Trade Act law is the same as antitrust law. However, Fair Trade Act law gives firms more flexibility to run business. There are some exceptions that firms can have coordinate action. According to Article 14, no enterprise shall have any concerted action; unless the concerted action that meets one of the following requirements is beneficial to the economy as a whole and in the public interest, and the application with the Central Competent Authority for such concerted action has been approved: 1. Unifying the specifications or models of goods for the purpose of reducing costs, improving quality, or increasing efficiency; 2. Joint research anddevelopment on goods or markets for the purpose of upgrading technology, improving quality, reducing costs, or increasing efficiency; 3. Each developing a separate and specialized area for the purpose of rationalizing operations; 4. Entering into agreements concerning solely the competition in foreign markets for the purpose of securing or promoting exports; 5. Joint acts in regards to the importation of foreign goods for the purpose of strengthening trade; 6. Joint acts limiting the quantity of production and sales, equipment, or prices for the purpose of meeting the demand orderly, while in economic downturn, the market price of products is lower than the average production costs so that the enterprises in a particular industry have difficulty to maintain their business or encounter a situation of overproduction; 7. Joint acts for the purpose of improving operational efficiency or strengthening the competitiveness of small-medium enterprises. After receipt of the application referred to in the preceding Article, the Central Competent Authority shall make a decision of approval or rejection within three months, the period of which may be extended once if necessary. Above exceptions show us different definition of coordination. In my points of view, antitrust law gives a wide range of cartel. Any anti-competitive behavior or unfair business practices will be seen as against the law. In contrast to antitrust law, Fair Trade Act law provides some exceptions. In other words, it is kinder to companies that they have less possibility to against the law. In this case, AUO set its price lower than the price they agreed in the Crystal meeting. Based on this fact, it is not easy to decide whether AUO is guilty or not. Obviously the firm really did not set a price-fixing. Another point is about culture. As I know, managers in Taiwan usually have good social networks. It is normal for them to share industry information, cost and price, and views of company’s future in restaurant after work. Moreover, in order to gain more information from competitors, sometimes managers will lie to their competitors. Thus, it is quite possible that information managers get are worthless since no one tells the truth. Also, it may happen that no one will follow what they agree in a meeting unless they sign a contract. Take a look to AUO’s argument, it said it used information from competitors to undercut them. In addition, it claimed that the price they agreed in Crystal Meetings was not the same price they sold in reality. In Taiwan, above behaviors arereasonable. But in the U.S, any business or social behavior, regardless of both the boss greeting to each other, as long as it comes to any form of information exchange for the agreed prices, are regarded as illegal and may violate the bottom line of the anti-trust laws. It is different culture. Conflict of interests
According to antitrust law, in order to prevent enterprises from illegal cartel, the development of so-called “forgiveness policy”, you can enjoy criminal immunity recourse without penalty. This “winner-takes-all” system gives someone incentives to blow the whistle. No wonder that Samsung Electronics Corp. would rather make a deal with DOJ. Samsung Electronics Corp. is the biggest LCD maker of the world. Comparing the conflict of interests, whether there is an agreement in Crystal meeting or not, it seems that blow a whistle action will bring Samsung Electronics more benefits. In other words, Samsung can be granted conditional leniency and also undercut competitors profits. Furthermore, let us discuss in another way. Perhaps Samsung knows about ethics and antitrust law in the U.S better than its competitors. It understands there is a forgiveness policy will benefits one who blow the whistle. Therefore, Samsung would be glad join Crystal meeting, and collect information from the meeting. Samsung can take all interest after making a deal with DOJ and to maintain its leading position. On the other hand, the biggest LCD maker should agree with price-fixing or it will not work at all. For example, all other LCD makers except Samsung agree that they will set up a higher price to sell their products to the U.S. But Samsung has biggest market share. And if its price sell lower than price-fixing, it can take all market share. In simpler words, all LCD makers should join the meeting and agree with the price, otherwise the deal will not work. Fiduciary principle
One of relevant standards in ethics is Fiduciary principle. It refers to act in the best interest of the company and its investors. Comparing the situation of four companies in Taiwan, AUO chooses to fight and others choose to compromise: Chi Mei agreed to plead guilty, pay $220 million in fines; Chunghwa agreed to plead guilty, pay $65 million in fines; HannStar agreed to plead guilty and to pay a $30 million fine. For AUO, according toreport, the potential fine could theoretically be as high as $1 billion. Moreover, AUO has to spend money on the lawsuit and it prepares 33 million to fight for itself. AUO claim that it is innocent, and the reason why it chooses to fight is to maintain its reputation. As we can see, these facts raise some questions to think of. Do other companies choose to compromise in order to act in the best interest of the company and its investors? Which solution is better, to fight or to compromise? Comparing the money they spend on the case between two options. From investor’s point of view, they will prefer firm to plead guilty. This decision can save company money and time and most important thing is that company can go back to focus on its business. It does not have to spend sources on the lawsuit. It is better choice for investors and also will reflect on stock price. However, it takes AUO lots of time to face the trial and lots of money to spend on the lawsuit. The company still insists on its innocent. The company believes the truth will give it a fair judge.
ConclusionThis paper is based on some event and to raise some questions to explain the conflicts of ethics. For Samsung, it is obviously that it made an unethical decision. But take a deeper view of it, the antitrust law itself provides a forgiveness policy to motivate firm to break the promise. The law gives you the reason to do unethical decision. This reminds me of the case in the class. The system in Harvard MBA program seems to give students some incentives to achieve higher scores through any methods. In contrast to antitrust law, Fair Trade Act law does not provide incentive to blow the whistle. In addition, Fair Trade Act law even gives some exceptions of cartel action. We can not jump to conclusion which law is better. The law is derived from culture, and it is reasonable for specific people. And focus on AUO’s responds, there is no right or wrong answer to this case. It is different ethics based on different law and culture. In Taiwan, it is usual that managers have some sorts of meeting in order to gain some information from other competitors. But in the U.S, any intention can be seen as an illegal behavior. As long as it comes to any form of information exchange for the agreed prices are regarded as illegal and may violate the bottom line of the anti-trust laws. It is an international businessworld. The global anti-trust or anti-competitive litigation has evolved into a business competition. It means that not only pays money penalties, professional managers being charged guilty, and even affects the normal operation of the company. It is not the first time for Taiwan’s companies to be charged antitrust. Paying a huge fine does not only harm company but also harms economy of nation. During these events, Taiwan’s enterprises should specializes in antitrust law, and carefully re-construct the strategy of the safety net of corporate legal to protect themselves. And once again, it goes back to my most important idea that I have learned in ethics class: the firm should figure out what is the rule of the game it plays.