LCD Makers Under Fire
Europe levies €649 million in fines, mostly against Taiwanese companies. Hundreds of millions more are at stake
Photo: Imaginechina/AP Photo
15 December 2010—Taiwanese manufacturers of liquid crystal display (LCD) panels are now under pressure following the European Commission’s announcement last week that five Asian electronics companies would be fined €649 million (US $866 million) for operating a price-fixing cartel that harmed European buyers of television sets, computers, mobile phones, and other products that use the key LCD component.
Korea’s Samsung Electronics, the world’s largest flat-panel maker, received full immunity from fines under the EC’s leniency program, as it was the first to provide information about the cartel to government investigators. The commission accused the six companies of fixing prices on LCD panels between October 2001 and February 2006. The cartel members met around 60 times, mainly in hotels in Taiwan, for what they called "the Crystal meetings."
Among the five affected firms, Taiwan-based Chimei Innolux Corp. received the heaviest fine of €300 million ($401 million). The EC fined South Korea’s LG Display €215 million, Taiwan’s AU Optronics Corp. (AUO) €117 million euros, Taiwan’s Chunghwa Picture Tubes (CPT) €9 million, and Taiwan’s HannStar €8 million. The EC says it took the companies’ sales revenue from panels into account when setting the fines, which were reduced in exchange for the companies’ cooperation: LG by 50 percent, AUO by 20 percent, and CPT by 5 percent.
In a statement on 9 December, AUO said that it had fully cooperated with the commission during the four-year investigation of the TFT-LCD industry. The company said it expects to appeal the commission’s decision to the General Court in Luxembourg and to vigorously defend itself.
At press time, other affected Taiwanese firms had not yet announced whether they will appeal, but one expressed strong discontent with the heavy fine. Terry Gou, chairman of Taiwan-based Hon Hai Group (parent company of Foxconn) and a major shareholder of Chimei Innolux, visited European Union representatives in Taipei on 10 December. He told reporters that the fine was unfair and too high. "We will not easily pay the money that we shouldn’t have to pay in the first place. For our shareholders, we must fight to the end," he said, contending that the Korean manufacturers, Samsung and LG, the world’s top-two LCD makers, were actually leading the cartel and that Taiwanese firms were only collaborating.
Gou said he did not get involved in the panel industry until 2005 and had no idea about the Crystal meetings. But he now worries that the fine would hurt this year’s net profit of Chimei Innolux, which became Hon Hai’s panel subsidiary on 18 March 2010 when Chi Mei Optoelectronics Corp. merged with Gou’s Innolux Display Corp.
John M. Connor, an economist specializing in international price fixing and antitrust law enforcement at Purdue University, says the EC fines on the five LCD cartelists were probably modest in light of the large number of sales of flat panels in the EU from 2001 to 2006. According to Connor, EC fines are computed, essentially by multiplying each company’s "affected sales" by between 15 and 30 percent. "I estimate that the EC’s fines are based on affected industry sales in the EU of $7 billion to $15 billion. If anything, this is a low sales figure, because worldwide sales of flat panels are reported by industry sources to be around $130 billion during 2001 to 2006, and EU demand may be one-third of the world," he says. Regarding Chimei Innolux’s statement about the harshness of its EC fine, Connor says it is either due to naïveté or to "sour grapes."
Regarding Samsung’s conditional immunity from prosecution in the EU, Robert Lande, director of the American Antitrust Institute (AAI), says there’s nothing wrong. "Of course the firm that blew the whistle on the cartel should not pay a fine. This gives firms incentives to tell the authorities about the cartel. However, these firms still face private treble damages suits in the United States," he says.
In Europe, cartel members are facing the same situation. According to Jürgen Basedow, director of the Hamburg-based Max Planck Institute for Comparative and International Private Law (and the former chairman of the German Monopolies Commission), a fine does not exclude damages claims brought by companies that purchased LCDs from members of the conspiracy at cartel prices. "Such private damages actions can be observed in European practice more and more often. Although European jurisdictions—unlike the law of Taiwan—do not allow for a trebling of damages, the amounts at stake may be very high and exceed the fines," Basedow told IEEE Spectrum in an e-mail.
The EC’s 140-page decision was dispatched by the commission on 9 December to the affected firms in Asia. According to EC Competition Policy spokeswoman Amelia Torres, after the full decision is received, the firms have about two months to decide whether to appeal the decision at the EU’s General Court. "If they do, they can opt to provide a bank guarantee rather than the amount itself until the court judgment," Torres told Spectrum in an e-mail.
Taiwan’s vice premier, Sean Chen, convened a meeting Monday with the four LCD makers and ordered the establishment of a task force to work on the EC case. A separate team was already in place to assist AUO with another antitrust case, in the United States, where a grand jury indicted six AUO officers in June.
According to Li-chun Sun, a commissioner of the cabinet-level Fair Trade Commission, Taiwan launched its own investigation into the LCD cartel in 2005 and closed it in 2008. "Products were mainly sold to both the U.S. and Europe. Therefore, Taiwanese consumers were little affected," says Sun. There is currently no plan to review the case, he adds.
U.S. fines so far have been about $893 million, but the Department of Justice is putting great pressure on AUO to plead guilty and pay a big fine. "Based on its large market share, I suspect that the DOJ is demanding a fine of more than $400 million from AUO," says Connor. "Although AUO says it will go to trial to defend itself, no such trial has happened in over 15 years. It is a risky strategy because the prosecutors have the full cooperation of Samsung (many documents and witnesses) to assist the government’s case." His research shows that in international cartel cases, private settlements, on average, cost all the members of cartels three or four times as much as their government fines. "If they are able to pay it, the LCD makers might pay more than $2 billion in private settlements a couple of years from now," he says. "Because Samsung is reportedly the biggest U.S. supplier of flat panels, it will likely pay several hundred millions."
The cartel’s collapse comes at the start of a big push into mainland China. In March, AUO announced plans to build a plant in eastern China. The project has remained stuck in the government’s review process, much to Taiwanese tycoon Gou’s ire. Perhaps sensitive to Gou’s criticism, the Ministry of Economic Affairs said last week that approval could be granted before the end of December. But Taiwan’s Korean rivals have a head start, having gotten their projects approved by the Chinese government in November. Samsung plans to invest more than $2 billion to build a production line in eastern China, and LG will spend $4 billion in southern China. Japan’s Sharp Corp. is also negotiating with China on building a plant.
About the Author
Yu-Tzu Chiu is a Taipei-based reporter and frequent contributor to IEEE Spectrum . In November 2010, she reported on the effects of skirmishes at the Korean armistice line on the memory and display industries.