Month: July 2006

[posted on corp-focus, July 10]

Boeing Criminal Agreement: Odd and Unusual

By Russell Mokhiber and Robert Weissman

It was 3:36 p.m. on Friday June 30.

The Friday before the July 4th holiday weekend.

Reporters were on their way out of town.

And into our e-mail box comes a press release from the Justice Department announcing that Boeing will not be criminally prosecuted for alleged criminal activity.

According to the press release, Boeing will pay a $50 million criminal penalty and $615 million in civil penalties to resolve federal claims relating to the company’s hiring of the former Air Force acquisitions chief Darleen A. Druyun, by its then CFO, Michael Sears, and its handling of competitors’ information in connection with the Evolved Expendable Launch Vehicle (EELV) Program and certain NASA launch services contracts.

Attached to the press release was a copy of the nine-page civil settlement agreement.

But where’s the non-prosecution agreement — the settlement agreement for the criminal side?

This non-prosecution agreement was not attached to the press release.

Why not?

No answer from the United States Attorney in Alexandria Virginia.

No answer from the United States Attorney in Los Angeles.

No answer from the Justice Department.

After all, it was late Friday.

And then, after all, it was the Monday before the Fourth of July.

No answer.

Finally, only later in the week, Main Justice sends along the non-prosecution agreement.

And now it is clear why Boeing didn’t want the document released.

In the agreement, which covers a two-year period, Boeing agrees not to commit any criminal offenses related to stealing of other companies’ sensitive procurement information or the laws governing federal bribery, graft and conflict of interest.

But unlike the 50 or so corporate deferred and non-prosecution agreements that have preceded this one, Boeing’s team of lawyers had inserted this item:

If a non-executive level Boeing employee violates the agreement, that’s not a violation by Boeing.

Don’t believe it?

Here’s the exact wording:

“For the purposes of determining compliance with this agreement (as opposed to legal responsibility), the commission of a defined offense by a Boeing employee classified at a level below executive management as defined by Boeing’s internal classification structure in place at the time of the execution of this agreement shall not be deemed to constitute the commission of a defined offense by Boeing.”

When told the provision, experts in the field expressed surprise.

“It’s an odd and unusual provision,” said Ryan McConnell of Baker Botts in Houston who has closely followed the rise of corporate deferred and non-prosecution agreements. “I’ve never seen it before.”

“Drawing the line between executives and other employees is a little crude,” said Columbia University Law Professor John Coffee. “I don’t think you want to tell non-executive employees they are legally immune and can’t get the company in trouble. You want the company monitoring all employees.”

“Under this agreement, Boeing gets a pass,” said University of Connecticut Law Professor Leonard Orland. “It’s pretty good negotiating. That’s amazing. Nobody else has it.”

And then the Boeing lawyers inserted this:

That even if a Boeing executive violates the agreement, it’s not a violation by Boeing if the company reports the violation to the federal government.

Don’t believe it?

Here’s the exact language:

“The commission of a defined offense by a Boeing employee shall not be deemed to constitute the commission of a defined offense by Boeing as long as the underlying allegation or conduct is reported by Boeing.”

The lawyers for Boeing did not return calls seeking their interpretation of these provisions.

Those lawyers, as listed in the non-prosecution agreement, are:

Brad Brian and Jerome Roth of Munger Tolles & Olson.

Stephen Preston and Jamie Gorelick of Wilmer Cutler Pickering Hale and Dorr.

And Richard Cullen of McGuire Woods.

Only Boeing’s Tim Neale would speak on the issue.

“We’re not going to comment on what the provisions mean,” Neale said. “The agreement speaks for itself.”

Well, it does.

It means that over the past couple of years, we have gone from convicting corporate criminals for corporate crimes, to allowing them to get off with deferred and non-prosecution agreements, to the low point of the Boeing non-prosecution agreement, which says that even if Boeing violates the agreement, it’s not a violation.

Federal prosecutors in Washington, D.C., Alexandria, and Los Angeles did not return calls seeking answers to some questions, like:

Why wasn’t the Boeing non-prosecution agreement promptly released along with the civil agreement?

Did Boeing lawyers request that the non-prosecution agreement not be released?

Why did federal prosecutors agree to the loophole-ridden non-prosecution agreement?

Awaiting your call.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter, . Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, . Mokhiber and Weissman are co-authors of On the Rampage: Corporate Predators and the Destruction of Democracy (Monroe, Maine: Common Courage Press).

(c) Russell Mokhiber and Robert Weissman

[posted on corp-focus, June 30, 2006]

A NEW WAY FOR DRUG DEVELOPMENT?

By Russell Mokhiber and Robert Weissman

Whether you think the pharmaceutical industry is a success or failure depends crucially on how you measure performance.

Although some leading firm’s share price has declined over the last year, from an investor point of view, the industry does remarkably well. It consistently earns a 15-20 percent return on investment. Last year, a down year, the U.S. industry return was 15.7 percent, according to Fortune magazine, ranking it fifth among 50 industry groups.

From a public health perspective, however, the situation is rather different. Thanks to the patent system, Big Pharma companies invest not to address priority public health needs, but to take advantage of potential markets. These are not the same thing.
For example, Big Pharma tends not to invest in diseases that primarily afflict people in developing countries. Between 1975 and 2004, according to Doctors Without Borders, only a tiny fraction of new drugs — only 20 of the 1,556 new chemical entities marketed globally, just over 1 percent — were for tropical diseases and tuberculosis, diseases which account for 12 percent of the total global disease burden.

In the rich countries, too, R&D efforts are badly skewed. The brand-name drug companies tend to invest in drugs for which there are big markets — like erectile dysfunction — as the expense of higher priority health needs. And, Big Pharma emphasizes “me too” drugs — pharmaceuticals which pretty much do what existing products can do — because they are easier to develop and have demonstrated markets. Three quarters of new drugs fall into the me-too category.

The patent-conferred monopoly lets drug companies charge astronomical sums for their products. Prices have no relationship to the cost of manufacture, and virtually none to the more substantial cost of R&D. As New York Times reporter Alex Berenson noted in a recent story, “After years of defending high prices as necessary to cover the cost of research or production, industry executives increasingly point to the intrinsic value of their medicines as justification for prices.” Thus some new cancer treatments are now being priced around $100,000 a year.

The patent system also gives brand-name drug companies a major incentive to invest heavily in advertising and other forms of marketing. This is because the companies are able to charge so much over marginal cost, and because there is no direct competition during the period of patent protection.

In short, under the patent system, we get lots of heavily marketed treatments for erectile dysfunction or male pattern baldness, but way too few for sleeping sickness or dengue fever.

The situation could be different.

When the member countries of the World Health Organization met this past May, an interesting and somewhat unexpected thing happened. Shunting aside objections from Big Pharma, they recognized the shortcomings of the existing drug development system, and they committed to developing plans to “secur[e] an enhanced and sustainable basis for needs driven, essential health research and development relevant to diseases that disproportionately affect developing countries.”

What precisely this means will only be worked out over time, but it may be a major breakthrough.

“The global trade framework will be transformed by this initiative,” says James Love of the Consumer Project on Technology, pointing to the central role of expanded patent and other monopoly protections for Big Pharma in many trade agreements. “No longer will countries see trade agreements about intellectual property rights or drug prices as the only mechanism for sustainable funding of R&D, or the only possible outcome of a bilateral or multilateral trade negotiation.”

Through the WHO initiative, countries may be expected to give greater attention to new public-private efforts to develop medicines, like the Gates Foundation-backed International AIDS Vaccine Initiative. It may also inspire more support for nongovernmental efforts like the Doctors Without Borders-sponsored Drugs for Neglected Diseases Initiative.

Hopefully, it will also lead governments in both rich and poor countries to invest more directly in needs-driven medical research and development. The United States is the global leader in this regard, through the National Institutes of Health. But a key problem with the current NIH model is that the fruits of public investment are licensed away on an exclusive basis, with no price restraints — meaning the public has to pay exorbitant prices for the drugs that taxpayer dollars financed. (For an altogether different and more sensible approach, see the Free Market Drug Act, introduced in the U.S. House of Representatives in 2004 by Representative Dennis Kucinich.)

The WHO initiative should also spark debate over alternatives to the patent system. Organizations like the Consumer Project on Technology have suggested moving away from the award of a marketing monopoly to drug developers, and instead paying them directly, based on the value in public health terms of their product. Then prices to consumers or public or private insurers could be set competitively. All drugs would be generic. This approach could cut out the massive industry waste on marketing and direct what is spent on R&D more efficiently

We could end up with a win-win-win: more money for R&D, directed more effectively, and lower prices.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter, . Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and associate counsel for the Consumer Project on Technology . Mokhiber and Weissman are co authors of On the Rampage: Corporate Predators and the Destruction of Democracy (Monroe, Maine: Common Courage Press).

(c) Russell Mokhiber and Robert Weissman

[posted to corp-focus, June 22, 2006]

JIFFY LUBE CAUGHT WITH ITS PAN DOWN

By Russell Mokhiber and Robert Weissman

It is every customer’s nightmare.

You take your car in for an oil change.

And the guy goes down the checklist of things they have done — and charges you $60.

But did they actually do what they said they did?

They said they changed the fuel filter.

But did they?

They said they flushed the transmission?

But did they?

Trust, but verify.

Tipped off by a Jiffy Lube insider, KNBC — the NBC affiliate in Los Angeles — wired two test cars with hidden cameras to watch Jiffy Lube mechanics at work.

Those cars were then driven to Los Angeles-area Jiffy Lube outlets to get an oil change.

At one, the mechanic recommends that the fuel filter be changed.

“We pay up, but they didn’t change the fuel filter,” KNBC reporter Joel Grover told his viewers earlier this month. “We know that, because before taking our car in, we lowered the gas tank so I could mark the fuel filter. After leaving that Jiffy Lube, we checked the fuel filter and the original one that I had marked was still on the car.”

At another Jiffy Lube outlet, the manager recommends a top-of-the-line transmission flush.

“It’s a machine called T-Tech, which they’re supposed to hook up to the transmission lines under the car to suck out all the dirty fluid,” Grover said. “But the entire time our car was being serviced, we noticed no one ever touched that machine. And our hidden camera shows no one ever touched the transmission lines underneath. But they charged us for the T-Tech service anyway. And it happened to us again at another Jiffy Lube.”

In fact, Grover says, he got stiffed at five out of nine Los Angeles area Jiffy Lubes he tested.

Jiffy Lube insiders told Grover that Jiffy Lube employees are on a quota system.

“They are pushed to sell a certain amount of repairs per car,” Grover said. “And they say with the big volume of cars that come into these stores, there’s really no way to do all the repairs they sell.”

The 31 Los Angeles area Jiffy Lube centers are owned by Heartland Automotive.

Jiffy Lube issued a statement saying “it does not tolerate the problems discovered in the KNBC report.”

The company said that six employees, including a district manager shown in the video “are no longer working for Heartland Automotive.”

Five of the service centers found to have been ripping off consumers were closed for two days in May for “re-training.”

Jiffy Lube also said that it would institute its own “mystery shop program” to ensure that “all procedures and policies are properly followed.”

“Over the next several months, video cameras and monitors will be installed in the 31 Heartland Automotive-owned service centers so customers can watch their services being performed,” the company said.

“Further violations of company policies could result in the revocation of franchise agreements for the affected service centers.”

Why not institute that policy for all 2,200 Jiffy Lube centers across the United States?

Are Jiffy Lube customers to assume that they too are being ripped off?

A Jiffy lube spokesperson answered this way — Jiffy Lube has a number of quality-control processes in place to ensure customers receive a high-quality experience. Some of these include a nationwide mystery-shopping program and required computer-based and on-the-job training for all service center employees. Jiffy Lube customers also have several options available to them if they believe for any reason they have not received top-quality service. Toll-free customer service phone numbers are printed on the back of every Jiffy Lube invoice. Customers can also request the return of their old parts — excluding used motor oil and other fluids — after they have services performed.

As for us, from now on, we’re either going to change it ourselves, or go to our local garage.