Hoffmann-La Roche: The Low Bidder Was Chosen in Advance

In the Hoffmann-La Roche vitamins cartel case, the Justice Department’s criminal information charged the company with fixing vitamin prices, dividing sales volumes and rigging bids for vitamin premixes. Suppliers allegedly chose who would win particular contracts, agreed on the winner’s price and arranged for competing suppliers to stay out or bid high. The customer could receive several offers while the suppliers had already settled the outcome among themselves.

F. Hoffmann-La Roche Ltd., based in Basel, Switzerland, manufactured and sold vitamins and vitamin premixes to customers in the United States and elsewhere. The products went into human food, pharmaceuticals and animal feed. In announcing the criminal cases, the Justice Department said consumers paid inflated prices for vitamins and vitamin-enriched foods.

The Justice Department’s later account of the criminal case confirms that Roche pleaded guilty to the conspiracy.

Vitamin Price Fixing Backed by Sales Allocations

The criminal information alleged that Roche and other manufacturers agreed both on vitamin prices and on how much each company would sell. In its original criminal-case announcement, the Justice Department reported charging BASF separately over the same conspiracy. The department said the conspiracy affected more than $5 billion of commerce.

According to the information, participants held meetings and conversations in the United States and elsewhere about prices and volumes for the affected vitamins. They agreed to fix, increase and maintain prices, and to allocate approximate sales volumes among the companies. Those decisions then reached the customer through price announcements, price quotations and sales made on the agreed terms.

The arrangement also had a way to check whether participants were keeping their promises. Prosecutors alleged that the companies exchanged sales and customer information to monitor and enforce the agreements. That gives the data exchange its significance: a rival’s customer information helped the suppliers police the division of business.

For a sales employee, the connection between those records matters. A volume instruction, a customer report shared with a competitor and a price quotation issued afterward can explain different parts of the same decision.

The separate criminal charge described in the Justice Department’s August 1999 announcement reached senior product leadership. Prosecutors charged the former president of Roche’s Vitamins and Fine Chemicals Division, who also served on its executive committee, with participating in price, volume and premix-contract coordination. That account places the alleged decisions within the management of the vitamin business.

Premix Bid Rigging Chose the Winner and the Losing Offers

For vitamin-premix contracts, the criminal information alleged that suppliers selected the low bidder before submitting their offers. They also agreed on the price that the selected bidder would quote. The choice of supplier and the price the customer would see were parts of the same arrangement.

The other suppliers then helped that choice succeed. Some refrained from bidding. Others submitted intentionally high complementary bids, offers designed to lose while giving the customer the appearance of competing prices. Prosecutors alleged that the companies then sold premixes at the rigged prices.

A purchasing department comparing those offers would see the lowest submitted price. Under the charged arrangement, that price had already been agreed with the supposed competitors. Asking for competing bids had produced a comparison the suppliers themselves controlled.

This is why the losing quote can matter as much as the winning one. An instruction to raise a bid, a conversation identifying the intended winner or a decision to withhold an offer connects the customer’s bid file to what happened inside the suppliers. The person who prepared the losing offer may know why it was never supposed to win.

The same device appeared in a government purchasing case involving Berg Companies. In its civil settlement announcement, the Justice Department said Berg admitted coordinating and submitting inflated quotes for military shelters. The alleged purpose was to make designated suppliers win purchases that required independent competition. A pile of quotes can conceal the same agreement as a missing quote: the suppliers have decided who gets the order.

Which Vitamins and Customers Were Involved?

The Roche information identifies vitamins A, E, B2, B5 and C, beta carotene, and vitamin premixes. It describes chemically synthesized vitamins sold to human-food, pharmaceutical and animal-feed customers. Premixes blended several vitamins and other products into dry or spray-on additives used to enrich food and feed.

The Justice Department’s original announcement made the reach into finished food concrete by naming breakfast cereals and other processed foods that used premixes.

The information describes changing participants and products over time: vitamins A and E were affected from January 1990 into February 1999, while the premix period ran from January 1991 into at least December 1997. Someone responsible for premix bids saw a different part of the business from someone quoting a single vitamin to a pharmaceutical customer. Each could hold records showing how an agreement became an actual sale.

How Is Bid Rigging Detected?

Bid rigging can be exposed by connecting the bids customers received with communications explaining how suppliers chose their prices and the intended winner. The Roche information describes that connection directly: competitor discussions, agreed bids, deliberately high offers and resulting sales. In its original criminal-case announcement, the Justice Department credited information from Rhone-Poulenc and others with leading directly to the charges.

A sales or procurement insider may know how a quote changed, who directed the change and which customer it concerned.

The Vitamins Settlement Ceiling and the Purchasers’ Recovery

The vitamins class-recovery account distinguishes the roughly $1.05 billion ceiling from the roughly $242 million identified as actual recovery in the 2001 fee opinion.

Where a Vitamin Industry Whistleblower Fits

The Justice Department and Postal Service reward program can pay antitrust whistleblowers. Our whistleblower experts assess with you whether your evidence fits the program, starting with the customer, the payment and what your records show.

Government purchases can also put false claims at the center of a case, as the military-shelter allegations against Berg illustrate. Where the evidence connects coordinated bids to false government claims, we assess the False Claims Act route. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Why the Bid Changed

Our whistleblower experts can connect a vitamin sales allocation or deliberately high premix bid with the customer-volume records used to enforce it.