DOJ Wants to Make an Example of AU Optronics

Capping off its antitrust prosecution of LCD panel makers, the US Department of Justice is throwing the book at AU Optronics Corp. It's clear from its sentencing memorandum that the department wants to make an example of a company that the government says violated the law willfully, repeatedly, and without remorse.

The memo recommends a $1 billion fine for the company. For each of the two executives convicted in March of colluding with competitors to fix prices -- H.B. Chen, AUO's president and COO, and Hui Hsiung, executive vice president of the company and president of its AUO America -- the department recommends a $1 million fine and 10 years in prison.

Of the LCD makers charged in the San Francisco case, AUO was the only one to go to trial. The others, including LG Display Co., Chunghwa Picture Tubes, Chi Mei Optoelectronics Corp., and Sharp Corp., agreed to plead guilty and pay more than $890 million in fines, Bloomberg reported. AUO has said it will appeal.

The DOJ said the companies involved in the case sold at least $23.5 billion of price-fixed panels to the US market, including $2.34 billion of goods sold by AUO. This was "the most serious price-fixing cartel ever prosecuted by the United States," the memo said. "The conspiracy affected every family, school, business, charity, and government agency that paid more to purchase notebook computers, computer monitors, and LCD televisions during the conspiracy."

Unlike the other companies, AUO and its executives "have refused to cooperate, assist the investigation, or accept responsibility after the government discovered the cartel or even after the jury convicted them," the department said. AUO has not disciplined the executives responsible. "Indeed, it continues to employ convicted felons and indicted fugitives. H.B. Chen continues to serve as AUO's Vice-Chairman. AUO also employs indicted fugitives who continue to have a sales function with the company." The memo did not name these individuals.

But large fines and long prison terms aren't enough to deter the bad behavior, the memo said. The government also recommended that the court require AUO to hire a monitor to develop and implement an antitrust compliance program.

The DOJ argued that the corporate culture at AUO was bad from the get-go. "The company has been engaged in felonious conduct from its inception." In September 2001 -- the month the company was founded -- its representatives and executives started meeting with competitors and conspiring to "stabilize prices in the LCD market," according to the memo.

AUO has never known any other way of doing business and has never willingly operated lawfully. That being the case, one cannot expect AUO to reinvent itself and begin to operate legitimately for the first time in its existence on its own, especially when it maintains to this day that it has done nothing wrong... There is no reason to assume that its conviction and the imposition of a criminal fine, alone, will cause AUO to cease engaging in collusive practices.

Finally, the DOJ wants the court to require the company to run full-page ads in three trade publications in the US and three in Taiwan publicly acknowledging its conviction, its punishment, and the remedial steps it is taking as a result of the case.

Sentencing is scheduled for Thursday, Sep. 20. If you were the judge, would you punish the company so severely? Is such punishment likely to serve as a deterrent to other companies and executives?