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Hitachi-LG Pleads Guilty To Rigging Optical Drive Prices

Company will pay $21.1 million dollar fine for over-charging Dell, HP, and Microsoft for optical drives used in their PCs and laptops.

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The FBI and the Department of Justice last week announced that Hitachi-LG Data Storage, a joint venture between Hitachi and LG Electronics, pled guilty to charges stemming from a bid-rigging and price-fixing conspiracy involving sales of optical drives to Dell, HP and Microsoft for use in their PCs and laptops. Hitachi Ltd. is based in Japan; LG Electronics is based in Korea. The joint venture agreed to a $21.1 million criminal fine for its participation in the 15-count felony charge.

Seven counts involved Hitachi-LG's relationship with Dell; six counts related to HP; one count related to Microsoft; and, the final count involved wire fraud to HP. The Department of Justice did not disclose how much each of these companies was over-charged for CD-ROM, CD-RW, DVD-ROM, and DVD-RW drives by Hitachi-LG. Hitachi-LG leads the optical drive market share followed by Samsung. Dell, HP and Microsoft declined to comment on this announcement.

According documents filed in the U.S. federal court in San Francisco on Friday, Hitachi-LG and various unnamed co-conspirators released bids on optical drives that were non-competitive. Further, they exchanged sales, market share, and pricing information, and they colluded on bidding strategies. Both Dell and HP hosted events to procure optical drives and announced that they would award expenditures for optical drives based on where the pricing from suppliers ranked. Pricing information was leaked to Hitachi-LG and its co-conspirators.

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Although the other co-conspirators were not named, Hitachi-LG has agreed to assist the department in its ongoing investigation of the optical disk drive industry. Justice indicated that more charges will be filed, , but did not say whether other charges would be made against Hitachi-LG or other vendors of optical drive products.

Further, no one knows whether the criminal fine was the result of a plea deal. But under provisions of the Sherman Antitrust Act, which limits cartels and monopolies, organizations can be fined up to $100 million for violations. The one count of wire fraud carries a $500,000 fine. Also victims of bid rigging and price-fixing--in this case, Dell, HP, and Microsoft--can seek civil recovery of up to three times the amount of damages suffered.

This is the third charge of violation of the Sherman Act in the storage industry this year. In July, GSI Technology filed a complaint against Cypress Semiconductor charging Cypress with trying to monopolize the market for Quad Data Rate and Double Data Rate SRAM. Earlier this year, Ritz Camera & Image charged SanDisk, the leader in market share according to Gartner, with conspiracy to monopolize the market for NAND flash memory products.

Deni Connor is founding analyst for Storage Strategies NOW, an industry analyst firm that focuses on storage, virtualization, and servers.

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