Bloomberg News

AU Optronics, Two Executives Convicted of Panel Price Fixing

March 13, 2012

AU Optronics Corp. (2409), Taiwan’s second-largest maker of display panels for computers and televisions, its vice chairman and a senior vice president were convicted of colluding with rivals to fix prices.

A federal jury in San Francisco found two other company officials not guilty yesterday and couldn’t reach a unanimous decision on a fifth executive charged in a U.S. investigation of price-fixing among makers of electronic components used in televisions, laptop computers and mobile phones. The company faces a fine of as much as $1 billion, the Justice Department said yesterday.

Executives of Hsinchu, Taiwan-based AUO secretly met with counterparts at other panel makers in hotel rooms, karaoke bars and tea rooms around Taiwan at so-called crystal meetings from 2001 to 2006 to set prices as an oversupply was pushing prices down 40 percent, federal prosecutors told jurors during the eight-week trial.

AUO is the only LCD maker charged with price-fixing by the U.S. to take its case to trial. Since 2008, rivals including LG Display Co. (034220), Chunghwa Picture Tubes (2475), Chi Mei Optoelectronics Corp. (3009) and Sharp Corp. (6753) agreed to plead guilty and pay more than $890 million in fines. Seventeen executives have been charged and 10 have pleaded guilty and have been sentenced to prison, the Justice Department said in a statement yesterday.

Company Will Appeal

AUO said it will appeal the verdict and a fine that it expects to be issued within the next few months. The evidence presented by prosecutors at trial was “distorted and incomplete,” it said in a statement.

“The company presented undisputed evidence that it consistently priced below the so-called crystal prices from 2001 to 2006, which the company believes to be solid evidence that it did not participate in any price fixing agreement,” according to the statement.

The convicted executives face fines as high as $1 million and as long as 10 years in prison. Relatives of the executives, who are all Taiwan residents, wept in the courtroom after the verdicts were read.

AUO shares dropped as much as 2.5 percent in Taipei trading today, the biggest intraday decline since March 2. The stock was down 1.3 percent at NT$15.65 as of 10:29 a.m. local time.

U.S. Statute

“The magnitude of the possible fine, $1 billion, may shock a lot of people. AUO has only provisioned for about one third of that,” said Jamie Yeh, who rates the stock underweight at Barclays Bank Plc in Taipei. “The fact that they lost the case was expected” and may account for the share’s decline being less than the daily limit.

“At every step, our lawyers and accountants have discussed the appropriate provisions,” AUO Chief Financial Officer Andy Yang said today. He declined to say how much has already been provisioned or whether that figure will increase after yesterday’s verdict.

“This case is just beginning,” company attorney Dennis Riordan said in an interview after the verdict. “The most important question it raises, which the jury didn’t get, is does the Sherman Act apply to conduct that takes place on foreign soil?”

Whether the act, a U.S. statute outlawing conduct that stymies competition, can be used against companies and people for actions outside the country has never been decided by a U.S. court and will be the focus of AUO’s appeal, Riordan said.

$500 Million Gain

The defendants will first seek a new trial and acquittal. A sentencing date will be set after U.S. District Judge Susan Illston, who presided over the trial, rules on those questions, Riordan said.

H.B. Chen, former president and now vice chairman of AUO, was found guilty along with Hui Hsiung, who was executive vice president during the alleged conspiracy. The jury also said the amount of gain from all companies participating in the price- fixing conspiracy was more than $500 million.

L.J. Chen, a former director of the company’s desktop display group who is now president of solar business operations, and Hubert Lee, a senior manager for the group, were found not guilty. Illston declared a mistrial on the fifth company executive, Steven Leung, who was also a senior manager of the group. Riordan said all five executives still work for the company.

‘Less Culpability’

“The jury finding $500 million in ill-gotten gains by members of the cartel demonstrates the harmful effect of this price-fixing conspiracy on American businesses and consumers,” Acting Assistant Attorney General Sharis Pozen said in a statement yesterday.

Some jurors argued there wasn’t enough evidence to show that Leung willingly participated in the conspiracy and it appeared he was being directed by his managers, said one juror, a former AT&T Inc. (T) employee who wouldn’t give her name. The jury voted 8-4 to convict Leung, the juror said in an interview.

L.J. Chen and Lee had “less culpability” than their superiors, she said. The guilty verdicts for the company were based in part on evidence of what AU Optronics did with the information it got from meeting with competitors, the juror said.

Average Overcharges

The monthly crystal meetings corrupted competition and directly affected purchasers such as Dell Inc. (DELL), Hewlett-Packard Co. (HPQ) and Apple Inc. (AAPL), prosecutors told the jury during the trial.

Average overcharges during the conspiracy amounted to about $53 a panel, Michael Scott, a Justice Department attorney, told the jury.

“They stole money from consumers and caused serious harm,” Scott said in closing arguments on Feb. 28.

Government witnesses included Chunghwa and Chi Mei executives who had pleaded guilty and received prison sentences in the U.S. They testified that AUO executives attended the meetings, Scott said.

Lawyers for the company said it never agreed to fix prices and attended the meetings to gauge market conditions and monitor competitors, neither of which is illegal.

Product prices plunged during the alleged conspiracy, with 15-inch panel prices falling to $125 from $200 and 19-inch panel prices dropping to $195 from $405, said John Cline, a company attorney.

‘Bought and Sold’

“That doesn’t sound to me like stealing,” Cline said during closing arguments. “If they agreed to fix prices, why would prices not go up?”

Government witnesses were “bought and sold” with lenient sentences in exchange for their cooperation and testimony, said Christopher Nedeau, another lawyer for the company. The witnesses couldn’t remember details about what was said at the meetings or who said what, Nedeau told jurors.

The witnesses also testified that participants in the meetings lied about pricing and tried to bluff their competitors, he said.

“Crystal meetings were an easy way to keep an eye on competition,” Nedeau said.

AUO also faces civil lawsuits in federal court in San Francisco by purchasers of LCD panels.

Chimei Innolux Corp. (3481) is Taiwan’s largest maker of liquid crystal displays.

The case is U.S. v. Lin, 3:09-cr-00110, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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