Monday, November 23, 2015
An Assessment of Injunctions, Patents, and Standards Following the Court of Justice's Huawei/ZTE Ruling
Miguel Rato and Mark English (Shearman & Sterling) provide An Assessment of Injunctions, Patents, and Standards Following the Court of Justice's Huawei/ZTE Ruling.
ABSTRACT: In its Huawei/ZTE ruling, the Court of Justice of the EU establishes the legal standard for a fair, reasonable, and non-discriminatory (FRAND) defence in EU competition law as a basis for resisting injunction requests in respect of alleged infringement of a standard essential patent.
In our opinion, the Court promotes, in that ruling, a formalistic and stylised test, largely divorced from the reality of licensing negotiations.
It diverges from the test proposed by the Commission in its 2014 Motorola and Samsung decisions and imposes on the implementer/infringer more obligations than had been proposed by the Commission.
Friday, November 20, 2015
Alexandre De Streel, University of Namur and Pierre Larouche, Tilburg Law and Economics Center (TILEC) examine Disruptive Innovation and Competition Law Enforcement.
ABSTRACT: Disruptive innovation, according to business literature, occurs when an innovative product is brought to a market, such as meets the basic requirements of the lower-end of an established value network and also offers added value outside of that value network. That product wins over consumers and progressively takes over the established market, displacing the existing value network in so doing. By now, disruptive innovation is a frequent entry strategy, and it is usually beneficial for welfare.
Despite an ever growing literature on innovation and competition policy, the latter is not well placed to deal with disruptive innovation. Methodologically, disruptive innovation can hardly be captured with the tools of market definition and market power analysis, which do not account for the competition for the definition of the relevant market that is characteristic of disruptive innovation. In addition, competition authorities experience difficulties in acting quickly enough to deal effectively with attempt to prevent disruptive innovation.
However, incumbent firms on the established market can hinder disruptive innovation. The theory of harm is that an incumbent firm with market power seeks to prevent a potential disruptor from another market from executing its strategy, using either (i) anti-competitive practices designed to prevent the creation of an overlap between its innovative product and the established market or (ii) an acquisition with a view to mothball the disruptor and its invention. Against the former, competition authorities should seek to keep markets open and act quickly to prevent practices such as defensive leveraging (as in the Microsoft Explorer case) or the use of IP protection to lock away features of the value network. Against the latter, additional merger thresholds (based on a discrepancy between transaction value and turnover) and an expanded concept of the maverick firm could be effective.
Roberts Was Wrong: Increased Antitrust Scrutiny after FTC v. Actavis Has Accelerated Generic Competition
Lauren Krickl, Cooley LLP and Matthew Avery, Baker Botts LLP argue Roberts Was Wrong: Increased Antitrust Scrutiny after FTC v. Actavis Has Accelerated Generic Competition.
ABSTRACT: In Federal Trade Commission v. Actavis, the Supreme Court ruled that reverse-payment settlements between pharmaceutical patent holders and generic manufacturers are subject to heightened antitrust scrutiny. In a vigorous dissent, Chief Justice John Roberts suggested that greater antitrust scrutiny may actually harm competition by discouraging generics from challenging pioneers’ patents in the first place. This Article finds that, contrary to Roberts’s prediction, the number of Paragraph IV challenges actually increased by twenty percent in the year following Actavis. To restore the incentive balance between pioneers and generics, this Article argues that the Federal Trade Commission should be required to prove patent invalidity before bringing an antitrust suit. This Article also urges the Federal Drug Administration to adopt more transparent disclosure policies, Congress to amend the Hatch-Waxman Act to include a “rolling exclusivity” procedure, and courts to adopt a more coherent framework for evaluating settlements between patentees and generic challengers.
William R Schubert, Heidelberg Center para America Latina (Heidelberg University, Universidad de Chile) is Reviewing Arbitration Awards for Competition Law Violations.
ABSTRACT: This article discusses the risk that international arbitration awards violating national competition laws will be enforced without having received reasonable scrutiny either during arbitration or in the national courts. The risk that competition law violations may be authorized under the guise of enforceable arbitration awards is real, and it is a major policy problem. It is quite easy, for example, to use the international arbitration framework to enforce agreements that authorize anticompetitive activity among competitors in jurisdictions unrelated to the arbitral award (i.e., without power to review it). The problem is that competition law violations in jurisdictions unrelated to the award are unlikely to raise red flags. This is true from the perspective of both international arbitrators and national courts. Arbitrators generally will not raise issues ex officio unless they bear on enforceability of the award. For their part, national courts have thus far not interpreted violations of the competition laws in foreign jurisdictions as potential bars to enforcement. The key to solving this policy problem is getting international arbitrators to identify at least the most serious types of competition law violations – which are the most likely to be deliberately omitted from the issues presented in the arbitration – on their own initiative. To solve this problem, this article recommends that national courts implementing the New York Convention begin to recognize a narrow category of hard-core cartel activities (e.g., price fixing, bid rigging, agreed-upon output restraints, and territorial market allocation, which are universally condemned under national competition laws) as “international public policy.” Doing so will give international arbitrators the incentive to look for and resolve at least the most severe types of competition law issues in order to ensure that they are rendering an enforceable award. That recommendation, while ambitious, does not imply a heightened standard for judicial review or a departure from the prompt enforcement procedures that courts ought to use under the New York Convention. This article maintains that national courts cannot and must not re-decide issues of fact and law already decided by international arbitrators. But it suggests that national courts should consider it a prerequisite to recognition and enforcement that international arbitrators have taken note of and decided at least the most severe types of competition law issues if they are alleged in court during annulment or enforcement proceedings. If national courts do this, they can create an environment in which universally-recognized principles of competition law are upheld in international arbitration. If they do not, there is a serious risk that international cartel activities may trample competition law enforcement around the world and make global markets less efficient.
Thursday, November 19, 2015
Derek W Moore, Federal Trade Commission - Office of Policy Planning and Joshua D. Wright, George Mason University School of Law have written on Conditional Discounts and the Law of Exclusive Dealing.
ABSTRACT: The appropriate antitrust analysis of conditional discounts remains a subject of considerable debate. The debate surrounding how the law ought to treat conditional “discounts” stems largely from the fact that certain discounting practices resemble both conduct that the antitrust laws have analyzed under the “predation” rubric and conduct that the antitrust laws have analyzed under the “exclusion” rubric. The critical question, then, is whether the law should analyze conditional discounts as price predation, exclusive dealing, or some hybrid combination of the two. This Article argues that exclusive dealing provides a superior framework for analyzing conditional discounts. The basis for this claim is relatively simple. There are two economic paradigms to analyze anticompetitive conduct that is not the product of collusion among competitors: predation and exclusion. Most, if not all, modern cases involving conditional discounts are based upon theories of economic harm grounded in the RRC-exclusion framework. Because the relevant economics for understanding these claims involves the economics of exclusion, the legal framework best suited to analyze conditional discounts is the one most closely aligned to the economics of exclusion. As this Article will demonstrate, price-cost tests applied to predatory pricing are not a good match for the economics of exclusion. A price below cost is neither necessary nor sufficient for exclusion. Further, importing a price-cost test to analyze claims sounding in exclusion rather than predation inserts intellectual distance between antitrust economics and the correct legal standard - rather than more closely aligning industrial-organization economics and antitrust law, as has been the overwhelming and beneficial trend over the past fifty years. The false allure of the increased administrability of price-cost tests has led many scholars to argue that loyalty discounting is the exceptional case in which the antitrust laws are improved by imposing a legal framework that does not comport closely with the economic forces describing most conditional-discount-based antitrust claims. They are wrong, both because price-cost tests in the conditional-discount context require subjective, costly, and uncertain determinations of contestability and because prices below cost are not a necessary condition of the relevant anticompetitive mechanism allegedly at work in exclusion cases. Accordingly, courts should reject price-cost tests in conditional-discount cases alleging exclusion in favor of the rule of reason framework applied in exclusive-dealing cases.
Dennis W. Carlton (U Chicago) and Bryan Keating (Compass Lexecon) analyze Antitrust, Transaction Costs, and Merger Simulation with Nonlinear Pricing.
ABSTRACT: This article explores the relationship between transaction costs and antitrust. It makes three points. First, the usual antitrust analysis can be seriously misleading as a guide to consumer or society welfare because it assumes that pricing is linear and uniform. But the type of pricing endogenously depends on transaction costs, including information costs. Second, two key issues in any antitrust analysis are whether transaction costs change as a result of the action under scrutiny and, regardless of whether they change, how the existence of nonlinear pricing alters the usual antitrust analysis. We develop a merger simulation model with nonlinear pricing to illustrate how misleading the standard analysis can be. Third, since transaction costs influence the ability of various coalitions of consumers, distributors, and manufacturers to form, cooperative game theory can provide a unifying perspective into what situations might give rise to the creation and exploitation of market power.
Ioannis Kokkoris, Queen Mary, University of London asks Should China Harmonize Its Merger Assessment With the U.S. and EU.
ABSTRACT: China’s Anti-Monopoly Law (AML) came into force in August 2008, and has been deemed “the equivalent of the United States’ (U.S.) Sherman Antitrust Act or the analogous portions of the Treaty Establishing the European Community.”
From the very beginning, the merger control regime in China has been more intensively scrutinized and analyzed than the enforcement of anti-competitive agreements and abuse of dominance, and many of the merger parties are multinational corporations whose mergers would be notified to multi-jurisdictions. Consequently, there were some controversial decisions, such as P3 Alliance, Google/Motorola, Seagate/Samsung, which are divergent from the decisions of the major merger authorities such as the European Union (EU) Commission or the U.S. FTC for the same cases. Some of the decisions made by the Ministry of Commerce (MOFCOM) were fraught with unusual analytical process and remedies. The Chinese competition authorities have also been involved in international cartels (e.g. LCD panel) as well as abuse of dominance cases (e.g. Qualcomm) that were investi-gated by a number of major jurisdictions. The international profile of the Chinese antitrust authorities is described as “one of the world’s youngest and least understood regulators.”
Giacomo Calzolari and Vincenzo Denicolo have an interesting paper on Exclusive Contracts and Market Dominance.
ABSTRACT: We propose a new theory of exclusive dealing. The theory is based on the assumption that a dominant firm has a competitive advantage over its rivals, and that the buyers' willingness to pay for the product is private information. In this setting, the dominant firm can impose contractual restrictions on buyers without necessarily compensating them, implying that exclusive dealing contracts can be both profitable and anticompetitive. We discuss the general implications of the theory for competition policy and illustrate by examples its applicability to antitrust cases.
Wednesday, November 18, 2015
Babette Boliek, Pepperdine University School of Law describes The Potential Reach of O'Bannon.
ABSTRACT: In August 2014 a Stanford University graduate made a remarkable play in college athletics. Although fans may not know her by name, this northern California woman may have profoundly and forever changed the relationship between student-athletes and their respective schools. As the deciding judge in the antitrust-based lawsuit of O’Bannon v. NCAA Judge Claudia Wilken bucked long standing legal precedent to set aside NCAA rules that limited student athlete scholarships and prohibited student-athletes from receiving compensation for the use of their names, images and likenesses. The Ninth Circuit, which decided the O’Bannon appeal, declared the case “momentous.” The narrow issue decided by Judge Wilken was that the NCAA rules restrain price competition in violation of Section 1 of the Sherman Act. But as the Ninth Circuit noted, as great may be the import of the final ruling the mere fact that the court found the NCAA restrictions subject to antitrust review was remarkable. Indeed, for some time courts have struggled with Supreme Court precedent to decide if (i) all NCAA restraints are commercial but some restraints are carved out as almost per se procompetitive or (ii) some NCAA restraints are carved out as noncommercial and are entirely outside of antitrust review. O’Bannon adds to the current Circuit split by determining that antitrust scrutiny is appropriate and can be applied with vigor. Given the importance, and the Ninth Circuit’s affirmation, of the district court’s analyses on the central legal issues of O’Bannon, the question presented in this essay is: what is the potential reach of O’Bannon in the student athlete labor market and to the applicability of antitrust law?
Herb Hovenkamp, Iowa, is Re-Imagining Antitrust: The Revisionist Work of Richard S. Markovits.
ABSTRACT: This review discusses Richard Markovits’ two volume book "Economics and the Interpretation" and "Application of U.S. and E.U. Antitrust Law" (2014), focusing mainly on Markovits’ approaches to antitrust tests of illegality, pricing offenses, market definition and the assessment of market power, and his important work anticipating unilateral effects theory in merger cases. Markovits argues forcefully that the Sherman and Clayton Acts were intended to employ different tests of illegality. As a result, even when they cover the same practices, such as mergers, exclusive dealing, or tying, they address them under different tests. He then shows how he would analyze various practices under the two statutes, discussing virtually every practice that has been the subject of significant antitrust litigation. He also discusses, more briefly, the competition law of the European Union.
Among Markovits’ most influential contributions to antitrust policy is his critique of traditional antitrust approaches to market power and market definition. His work was highly influential in the development of modern "unilateral effects" theories of merger analysis. A provocative question that Markovits’ work invites is whether the unilateral effects approach can or should be extended beyond merger cases. The Supreme Court has insisted that relevant markets be defined in Sherman Act §2 cases, as well as for §1 cases under the rule of reason. No lower court today would be likely to find traditional market definition unnecessary in those areas without new Supreme Court guidance. The same thing is very likely true for tying or exclusive dealing cases requiring assessment of market foreclosure.
One fact seems inescapable: if the logic of unilateral effects analysis applies to mergers, then it should apply equally to other antitrust practices that serve to eliminate or blunt competition between reasonably adjacent firms in differentiated markets. For example, a firm that predates its closest rival into bankruptcy may be able to induce a unilateral price increase, just as much as a merger between these same two firms. Indeed, the industrial organization literature often treats merger and predation as alternative ways of eliminating a rival. The same thing could also be true of tying or exclusive dealing intended to deny a relatively close rival access to a market, as well as loyalty discounts. All of these could be used in differentiated markets to exclude reasonably proximate rivals, with the result that prices increase.
Ironically, giving legal recognition to the problem of eliminating competition in unilateral effects mergers, while denying recognition in nonmerger cases arising in the same market settings, gives firms the incentive to employ the pricing or contractual exclusion strategies rather than merger. One perverse result may be that the elimination of competition will occur, but without the offsetting efficiencies that at least some mergers can provide.
Peter Grajzl, Washington and Lee University - Department of Economics; CESifo, and Andrzej Baniak, Central European University (CEU) - Department of Economics, examine Private Enforcement, Corruption, and Antitrust Design.
ABSTRACT: Recent adoption of competition laws across the globe has highlighted the importance of institutional considerations for antitrust effectiveness and the need for comparative institutional analyses of antitrust that extend beyond matters of substantive law. Contributing to the resulting nascent research agenda, we examine how the rationale for enabling versus precluding private antitrust enforcement as one salient choice in antitrust design depends on whether antitrust enforcement is corruption-free or plagued by corruption. Contingent on the nature of adjudicatory bias, bribery either discourages private antitrust lawsuits or incentivizes firms to engage in frivolous litigation. Corruption expectedly reduces the effectiveness of antitrust enforcement at deterring antitrust violations. Yet private antitrust enforcement as a complement to public enforcement can be social welfare-enhancing even in the presence of corruption. Under some circumstances, corruption actually increases the relative social desirability of private antitrust enforcement. Our analysis highlights that the appropriate design of antitrust institutions is context-specific.
Barak Orbach, University of Arizona has written about Antitrust Stare Decisis.
ABSTRACT: The concept of stare decisis, the idea that the Supreme Court follows its own precedents, presumes that settled law offers advantages that may outweigh the costs of its imprecision. Explaining its antitrust jurisprudence, the Supreme Court occasionally argues that stare decisis has “less-than-usual force in cases involving the Sherman Act.” This narrative, however, doesn’t describe correctly the law. The concept of stare decisis has produced specific applications in antitrust law that follow five general patterns: the traditional, post-traditional, methodological, anomalous, and neglected antitrust stare decisis. (1) The “traditional pattern” consists of the old per se illegality rules, which the Court was reluctant to overturn on stare decisis grounds. (2) The “post-traditional pattern” emerged in the late 1970s as a judicial policy that intended to update antitrust law by narrowing and even overruling precedents. The Court sometimes presents this pattern as its general antitrust stare decisis jurisprudence. (3) The “methodological pattern” is the practice of relying on judicial statements to structure antitrust analysis. (4) The “anomalous pattern” is comprised of antitrust doctrines, such as the baseball exemption, that were created because of peculiar beliefs and have survived because of stare decisis even though antitrust lawyers and economists generally consider them misguided. (5) The “neglected pattern” refers to the underdevelopment of antitrust stare decisis resulting from the Court’s limited interest in antitrust law. This paper explains the patterns of antitrust stare decisis and the relationships among them.
Holiday cheer from someone who just bought a seasonal Keurig variety yesterday at Trader Joe's (and I love Trader Joe's as a concept and for the combination of price and quality) - Pumpkin Spice: Coffee is good for your health and can save your life. Every antitrust lawyer and economist should rejoice.
Association of Coffee Consumption with Total and Cause-Specific Mortality in Three Large Prospective Cohorts
- Ming Ding1;
- Ambika Satija1;
- Shilpa N. Bhupathiraju1;
- Yang Hu1;
- Qi Sun2;
- Jiali Han3;
- Esther Lopez-Garcia4;
- Walter Willett2;
- Rob M. van Dam5;
- Frank B. Hu2*
- Harvard School of Public Health, Boston, MA
- Harvard School of Public Health, Boston, MA & Brigham and Women's Hospital and Harvard Medical School, Boston, MA
- Indiana University, Indianapolis, IN
- Universidad Autónoma de Madrid/IdiPAZ, CIBER of Epidemiology and Public Health (CIBERESP), Madrid, Spain
- Harvard School of Public Health, Boston, MA & National University of Singapore and National University Health System, Singapore
Background—The association between consumption of caffeinated and decaffeinated coffee and risk of mortality remains inconclusive.
Methods and Results—We examined the associations of consumption of total, caffeinated, and decaffeinated coffee with risk of subsequent total and cause-specific mortality among 74,890 women in the Nurses' Health Study (NHS), 93,054 women in the NHS 2, and 40,557 men in the Health Professionals Follow-up Study. Coffee consumption was assessed at baseline using a semi-quantitative food frequency questionnaire. During 4,690,072 person-years of follow-up, 19,524 women and 12,432 men died. Consumption of total, caffeinated, and decaffeinated coffee were non-linearly associated with mortality. Compared to non-drinkers, coffee consumption one to five cups/d was associated with lower risk of mortality, while coffee consumption more than five cups/d was not associated with risk of mortality. However, when restricting to never smokers, compared to non-drinkers, the HRs of mortality were 0.94 (0.89 to 0.99) for ≤ 1 cup/d, 0.92 (0.87 to 0.97) for 1.1-3 cups/d, 0.85 (0.79 to 0.92) for 3.1-5 cups/d, and 0.88 (0.78 to 0.99) for > 5 cups/d (p for non-linearity = 0.32; p for trend < 0.001). Significant inverse associations were observed for caffeinated (p for trend < 0.001) and decaffeinated coffee (p for trend = 0.022). Significant inverse associations were observed between coffee consumption and deaths due to cardiovascular disease, neurological diseases, and suicide. No significant association between coffee consumption and total cancer mortality was found.
Conclusions—Higher consumption of total coffee, caffeinated coffee, and decaffeinated coffee was associated with lower risk of total mortality.
Tuesday, November 17, 2015
Their comments are in quotes.
- Chanukah (Shake It Off) - "This is almost as cool as Taylor Swift"
Sohvi Leih, University of California, Berkeley - Haas School of Business and David Teece, University of California, Berkeley - Business & Public Policy Group identify Market Entry Strategies.
ABSTRACT: A firm’s business strategies regarding the choice of a market, market entry timing, and entry mode can significantly influence the firm’s performance. A number of factors such as control, experience, and cultural distance can influence the formulation of a firm’s market entry strategy – e.g. whether to choose between licensing and franchising or between joint ventures or wholly owned subsidiaries. Scholars have analyzed the choice of a firm’s market entry strategy from various theoretical perspectives, such as transaction cost economics, the resource-based view, the capabilities perspective and the eclectic framework.
SECTORAL REGULATION AND COMPETITION POLICY: THE U.K.'S CONCURRENCY ARRANGEMENTS—AN ECONOMIC PERSPECTIVE
Jon Stern, City University has written on SECTORAL REGULATION AND COMPETITION POLICY: THE U.K.'S CONCURRENCY ARRANGEMENTS—AN ECONOMIC PERSPECTIVE.
ABSTRACT: This article discusses the U.K.'s concurrency arrangements under which sector regulators can apply aspects of competition law to their industries. It is frequently claimed that concurrency is a unique aspect of U.K. competition policy. However, this article argues that it arose during the 1980s as one aspect of an almost uniquely procompetitive regulatory framework for privatized telecommunications and other U.K. infrastructure industries. The article discusses the origins of these formal concurrency arrangements and their use in the U.K. since the 1980s. It also compares the U.K. with other EU and OECD countries over the role of ex post competition policy relative to ex ante regulation and the interactions between sector regulators and competition authorities. It emphasizes the role of “informal” concurrency as well as “formal” concurrency in the U.K. and other countries. The article concludes with a discussion of the likely prospects for the U.K. under the enhanced concurrency regime established in 2013 and makes some recommendations for the future. Developing and implementing effective methods to evaluate the net welfare benefits of the enhanced concurrency regime will be crucial both in their own right and in establishing a robust deterrence strategy against anticompetitive behavior in industries with sector regulators.
Robert M. Feinberg, American University and Minsoo Park, Sungkyunkwan University examine DETERRENCE EFFECTS OF KOREAN ANTITRUST ENFORCEMENT ON PRODUCER PRICES AND PROFIT MARGINS.
ABSTRACT: Antitrust enforcement is well established in Korea, yet there has been little study of its effectiveness. John Connor, however, noted that “the Korean [Federal Trade Commission] has the best record of anti-cartel enforcement in Asia.”1 In this article, we examine several datasets to investigate whether antitrust enforcement in Korea, especially anti-cartel activity, has had a price-limiting impact over the past couple of decades. We compare the behavior of firms and industries that have been subject to antitrust investigation to those that have not. We examine the response of the firms and industries under antitrust investigation following the cases. The results presented here are consistent across two very different data sets of indicators for the Korean economy. The results suggest that long-term deterrence is unlikely to be observed from antitrust investigations, although the impact on short-term price and profit margin may be expected. However, the stronger effects observed suggest that firms in Korea have begun to pay more attention to the actions of the Korean Federal Trade Commission (KFTC) over the past decade since the more rigorous enforcement of antitrust.
Ariel Ezrachi explores The Competitive Effects of Parity Clauses on Online Commerce.
ABSTRACT: Parity clauses, also known as most-favoured-nation clauses, are designed to address the hold-up problem in vertical relations and facilitate investment and efficiencies by the downstream platform. However, when designed too broadly, they have the potential of undermining the dynamics of competition and reducing consumer welfare. This paper explores the welfare effects of parity clauses and reflects on the level of intervention they may call for. It reviews the possible theories of harm associated with parity clauses and draws a dividing line between the effects generated by narrow and wide parity.
Monday, November 16, 2015
Mike Carrier, Rutgers-Camden discusses How Not to Apply the Rule of Reason: The O’Bannon Case.
ABSTRACT: The case of NCAA v. O’Bannon has received significant attention. Straddling the intersection of antitrust, intellectual property, and sports law, the case presents engaging and complex issues. Much of the complexity, however, is unnecessary. For it stems from a Ninth Circuit ruling that misconstrued antitrust law. In particular, the court applied a version of the Rule of Reason that short-circuited the analysis and insufficiently deferred to a district court judge who presided over an exhaustive trial on amateurism.
Based on my review of more than 700 Rule-of-Reason cases in the modern era, the first section of this essay highlights courts’ analyses based on “less restrictive alternatives” and a four-stage burden-shifting framework. Second, it highlights three errors with the Ninth Circuit’s application of the Rule of Reason: inappropriately holding that the plaintiff’s failure to prove a less restrictive alternative resulted in the plaintiff losing the case, misconstruing the scope of the justification to which the alternative would be applied, and eliminating the balancing stage of the analysis. The final section emphasizes the court’s error in substituting its conception of amateurism for that of the lower court.
The essay concludes that the Ninth Circuit’s ruling striking down the $5,000 payment for the use of student-athletes’ names, images, and likenesses should be overturned for a fuller balancing of anticompetitive and procompetitive effects.
Murillo Campello Cornell University; National Bureau of Economic Research (NBER) Daniel Ferres Universidad de Montevideo Gaizka Ormazabal University of Navarra, IESE Business School ask Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions.
ABSTRACT: Stock market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors on their boards. This finding is robust to self-selection and is pronounced when independent directors hold more outside directorships and fewer stock options -- when those directors have fewer economic ties to indicted firms. Results are even stronger when independent directors' appointments were attributable to SOX, preceded their CEO's own appointment, or followed class action suits -- when directors have fewer ties to indicted CEOs. Independent directors serving on indicted firms are penalized by losing board seats and vote support in other firms. Firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs. They are also more likely to dismiss scandal-laden CEOs after public indictments. Our results show that cartel prosecution imposes significant personal costs onto independent directors and that they take actions to mitigate those costs. We argue that understanding these incentive-compatible dynamics is key in designing strategies for cartel detection and prosecution.