50:50 joint ventures – Possibility of parental liability for EU antitrust infringements confirmed.
On 26 September 2013, the Court of Justice of the European Union (“CJEU”) issued two important judgments1 in which it confirms that a parent company can be held liable and fined by the European Commission for the antitrust infringements of its 50:50 joint venture in the EU.
The judgments endorse the European Commission’s current hardened approach of attributing antitrust liability, wherever possible, to parent companies. This approach maximises the level of fines by enabling the European Commission to avail itself of a higher maximum fine limit based not just on the turnover of the subsidiary itself but of the entire corporate group. It also enhances the risk of a finding of recidivism (if different parts of the same corporate group have been involved in competition law infringements in the past) and claims for civil damages in the EU.
Global companies have now received a wake-up call to ensure that they have in place an effective antitrust compliance programme throughout their entire group, including their joint ventures and other non-wholly owned subsidiaries. These judgments also highlight the importance for companies to consider competition law issues at the outset when they structure joint venture arrangements and make acquisitions of less than full ownership.
The fines in dispute
In 2007, the European Commission imposed fines totalling Euro 243.2 million on 6 different companies, including El DuPont and Dow, for participating in an illegal price-fixing and market-sharing cartel in relation to chloroprene rubber. El DuPont and Dow were held to be jointly and severally liable for the conduct of their 50:50 joint venture, DDE. The Commission concluded that Dow and EI DuPont exercised “decisive influence” on the commercial conduct and policies of the joint venture, and therefore could be held jointly liable for DDE’s anti-competitive conduct. In particular, the Commission noted that the parent companies had the power to influence the general market behaviour of DDE due to the role and composition of DDE’s supervisory “Members Committee”, on which high level executives of the parent companies sat.
What are the rules on parental liability in the EU?
Under EU competition law, liability is imposed on “undertakings”. An “undertaking” is an entity or group of entities which effectively function as a single economic unit. A parent and its subsidiaries will form such a unit when the parent exercises “decisive influence” over the conduct of the subsidiary. Decisive influence may be established where the subsidiary, despite having a separate legal personality, does not decide independently its own market conduct but rather is considered to operate in accordance with the will of its parent company.
The General Court judgments
El DuPont and Dow challenged the European Commission’s fining decisions before the General Court, arguing that they could not be held liable for their joint venture’s infringements. The General Court, however, agreed with the European Commission’s assessment that the economic, legal and organisational factors that tied the companies together demonstrated that both El DuPont and Dow exercised decisive influence over DDE’s conduct on the relevant market. As such, DDE formed a part of each of the El Dupont and Dow undertakings, and each parent company could be held jointly liable for DDE’s conduct. Both parties appealed the General Court judgments before the CJEU.
The CJEU judgments
The CJEU held that the General Court correctly applied the rules on parental liability and rejected both appeals. In doing so, the CJEU confirmed:
- The behaviour of a subsidiary can be imputed to the parent company where “that subsidiary does not decide independently upon its own conduct on the market, but carries out, in all material respects, the instructions given to it by the parent company, regard being had in particular to the economic, organisational and legal links between those two legal entities.”
- In order to impose a fine on a parent company, the Commission does not have to establish the personal involvement of the parent in the infringement.
- The Commission must check that the parent exercised decisive influence over the conduct of the subsidiary. The Commission cannot merely find that the parent company is in a position to exercise decisive influence.
- The requirement to check whether the parent company actually exercised decisive influence over its subsidiary applies only where the subsidiary is not wholly owned by its parent company. Where a parent owns 100% of the capital of the subsidiary, there is a rebuttable presumption of decisive influence.
The CJEU added:
- Where two parent companies each have a 50% shareholding in the joint venture which committed an infringement of the rules of competition law, it is only for the purposes of establishing liability for participation in the infringement of that law and only in so far as the Commission has demonstrated, on the basis of factual evidence, that both parent companies did in fact exercise decisive influence over the joint venture, that those three entities can be considered to form a single economic unit and therefore form a single undertaking for the purposes of Article .”
- Although a full function joint venture is deemed, for the purposes of the EU Merger Regulation, to perform on a lasting basis all the functions of an autonomous economic entity and is, therefore, economically autonomous from an operational viewpoint, that autonomy does not mean that the joint venture enjoys autonomy as regards the adoption of its strategic decisions such that there cannot be decisive influence. “The decisive influence of one or more parent companies is not necessarily tied in with the day-to-day running of a subsidiary”.
The CJEU held that in this case the General Court had correctly applies the rules above. It did not find the existence of decisive influence solely on the basis of the possibility that the parent companies could exercise joint control, but on the economic, organisation and legal factors which tied the joint venture in this case to its two parent companies.
The judgments send a clear message to global companies seeking to expand their presence in the EU. It is now very difficult for parents to avoid liability for their joint ventures even when the joint venture is full function and the parent itself engaged in no wrongdoing. Companies should ensure that they have an effective compliance programme, which is implemented throughout the corporate group, including joint ventures and controlling minority shareholdings.
The judgments only address the issue of which group companies form part of the same “undertaking” for the purposes of fining liability. The determination of which group companies form part of the same “undertaking”, or which are in fact separate “undertakings”, may be different when considering whether Article 101 TFEU applies to agreements between a parent and its subsidiary. The CJEU in this judgment seems to have reserved itself the possibility of having a different test for this.
FTC finalizes rule extending reporting requirements for pharmaceutical patent transfers
On 6 November 2013, the US Federal Trade Commission (FTC) announced final changes to certain Hart‑Scott‑Rodino (HSR) rules regarding acquisitions of exclusive patent rights in the pharmaceutical industry. The revised rules, which apply only to transfers of pharmaceutical patent rights, will increase the number of licensing arrangements in the pharmaceutical industry that will be subject to the HSR Act’s pre-closing filing and waiting period requirements. The FTC estimates that the rule changes will result in filing requirements each year for approximately 30 additional pharmaceutical licensing transactions that were not reportable under the old rules.
Initially proposed in August 2012, the new rules change the test used to determine when an exclusive license to a pharmaceutical patent transfers rights sufficient to constitute a reportable asset transfer under the HSR rules, assuming the HSR thresholds are met and no exemption applies. The new rules provide that a pharmaceutical patent license may constitute a potentially reportable asset transfer where it transfers “all commercially significant rights” to the licensee on an exclusive basis.
Under the previous test, such arrangements would only be subject to HSR reporting requirements where they involved the transfer of the exclusive right to “make, use, and sell” under a patent. Thus, where the licensor retained any one of these three rights – to make, use, or sell – the acquisition of the remaining rights by a licensee was not reportable even where the HSR filing threshold tests were satisfied.
According to the FTC, the efficacy of the “make, use, and sell” test has been eclipsed by evolution in the pharmaceutical industry that has resulted in it becoming “more common for pharmaceutical companies to transfer most but not all of the rights to ‘make, use, and sell’ under” a patent. The “all commercially significant rights” test is intended to “capture[ ] more completely what the ‘make, use, and sell’ approach was a proxy for, namely whether the license has transferred the exclusive right to commercially use a patent or a part of a patent.” Under the new rule, “the transfer of exclusive rights to a patent or a part of a patent in the pharmaceutical industry [can be] a reportable asset transfer if it allows only the recipient to commercially use the patent as a whole, or a part of the patent in a particular therapeutic area or specific indication within a therapeutic area… even if the licensor retains the limited right to manufacture under the patent or part of a patent for the licensee.”
The new rule reflects the FTC’s longstanding focus on transactions and other conduct in the pharmaceutical industry, but also demonstrates the agency’s commitment to expand its scrutiny of the industry going forward. Following what many consider a victory for the agency at the Supreme Court in FTC v. Actavis this past summer, the FTC has remained active on pharma-related issues, including filing numerous amicus briefs in a range of private litigations and Chairwoman Ramirez has confirmed that the industry will remain a focus of the agency under her leadership. In light of this, by requiring the filing of a broader range of pharma-related transactions, the new rule appears targeted at increasing the FTC’s visibility into the industry, which could in turn prompt further investigations and increased levels of enforcement activity in the industry.
The new rule will become effective 30 days after it and supplementary information explaining the final rule is published in the Federal Register.
US Senate unanimously passes bill adding whistleblower protection in US antitrust cartel investigations
On 5 November 2013, the United States Senate unanimously passed a bill aimed at preventing retaliation against whistleblowers who report criminal antitrust violations. The bill creates a civil remedy – the right to file a complaint with the US Department of Labor regarding any suspected retaliation – to those who cooperate in Department of Justice (DOJ) investigations relating to their employer’s criminal price-fixing or bid-rigging activity. The bill was reported out of committee on 31 October 2013, just five days earlier.
The Leahy-Grassley Criminal Antitrust Anti-Retaliation Act of 2013 amends the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA) by adding civil whistleblower protections for covered individuals who provide the federal government information regarding or otherwise assist an investigation or a proceeding relating to:
- Any violation of or any act or omission the covered individual reasonably believes to be a violation of the antitrust laws.
- Any violation of or any act or omission the covered individual reasonably believes to be a violation of another criminal law committed in conjunction with a potential violation of the antitrust laws or in conjunction with an investigation by the DOJ of a potential violation of the antitrust laws.
Unsurprisingly, the bill limits its protection by excluding anyone who plans, initiates, or attempts a violation of the antitrust laws or another criminal law in conjunction with the antitrust laws, or who obstructs or attempts to obstruct the DOJ.
Whistleblower protection was originally recommended in a July 2011 Government Accountability Office (GAO) report that studied ACPERA’s effect. The report specifically noted that those who report criminal antitrust violations lack a civil remedy should they experience retaliation and suggested such retaliation had been occurring. The report also noted consensus among key stakeholders interviewed by the GAO, mainly antitrust plaintiffs and defense attorneys, who widely supported adding whistleblower protection. At the time of the report, senior DOJ Antitrust Division officials stated that they neither supported nor opposed the addition.
The bill, were it to become law, merely protects those not personally involved in the alleged illegal conduct from retaliation should they come forward. Although a valuable protection in many circumstances, the bill does little to actually incentivize the reporting itself. Other measures, including the introduction of qui tam litigation or the payment of bounties, have also floated around Washington in the decade following the passage of ACPERA. Many believe the addition of one of these financial incentives would also be necessary to have a meaningful impact on individual reporting of cartel activity. Neither measure has been included in the bill.
The bill now heads to the House of Representatives
FTC formally proposes to launch Section 6(b) study on activities of patent assertion entities
The US Federal Trade Commission (FTC) has taken the first formal step to launching a far-reaching study of the impact that patent assertion entities (PAEs) have on innovation and competition. On 27 September 2013, the four Commissioners unanimously voted to seek public comments on a proposal to issue compulsory process orders to some 25 PAEs and 15 other firms in the wireless communications industry, including manufacturers and others engaged in licensing. These orders would demand the production of public and non-public documents and information about the costs and benefits of PAE activities. The much anticipated study could then be used to inform the Commission’s competition policy advocacy efforts as well as potential future enforcement actions.
For purposes of the study, the FTC defines PAEs – known to some critics as “patent trolls”– as firms having a business model based primarily on purchasing patents and then seeking licensing fees from companies that are already practicing the patented technologies. PAE critics claim that PAE activity does not provide any “novel or useful invention” to the public, which is the only reason that the patent laws provide an ability to exclude others from infringing on a patented invention or technique. Moreover, critics complain that PAEs secure patent licenses and settlements at supra-competitive prices by exploiting the high costs of patent litigation and the “hold up” that results from the high costs of switching away from a previously selected technology. As President Barack Obama has bluntly put it, “[ t ]hey’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”
Defenders of PAEs claim that PAE activity spurs innovation by enabling small businesses and individual inventors to achieve the maximum return for their inventions. Supporters also point out that PAEs are merely enforcing the basic right to exclude granted by the patent laws. For years, many courts and businesses believed that the patent laws granted immunity from antitrust law for restrictions and litigation threats within the scope of a patent. However, the FTC’s recent consent orders against Robert Bosch GmbH and Google, Inc., and the high-profile Supreme Court decision in FTC v. Actavis, which opened the possibility of antitrust liability for so-called “reverse payment” settlements in the pharmaceutical industry, reversed this line of reasoning. The assertion of patent rights by PAEs is the next front in the growing battle between the antitrust and patent laws.
The FTC has the authority to launch the proposed study under Section 6(b) of the FTC Act, which empowers the Commission to demand, under penalty of perjury, the production of a broad range of data and information. A 2002 study under Section 6(b) regarding generic drug entry prior to patent expiration resulted in significant legal and policy reforms, culminating with the FTC’s recent victory in the Actavis case. The idea for a 6(b) study on PAE activity has gained momentum since the December 2012 workshop jointly sponsored by the FTC and the Department of Justice. Many workshop participants and commenters called on the FTC to study the merits of PAE activities due to the lack of publically available data and information on which to base a judgment about the competitive effects of PAE activity. Influential politicians have joined in the calls for further study of PAEs, including Sen. Amy Klobuchar, the chairwoman of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, and President Obama, who in June announced a series of executive orders and legislative proposals designed to curb frivolous patent litigation by PAEs.
In recent months, all four of the FTC’s current Commissioners publicly announced support for the 6(b) study. However, the Commissioners have also expressed differing opinions on whether the FTC can or should address any problems found by the study. Whether the Commission will eventually reach a consensus on the use of its enforcement powers under Section 5 or otherwise is still an open question.
The proposal will be open to public comments for 60 days following publication in the Federal Register. After considering the public comments, the FTC will seek clearance from the Office of Management and Budget to begin issuing the compulsory orders. Based on the length of prior 6(b) studies, it is likely that the proposed study will take more than a year to conduct.
NDRC takes aim at anti-competitive practices in the tourism industry
The Chinese National Development and Reform Commission (“NDRC”) issued a press release on 29 September 2013, just before the start of the weeklong Chinese ‘golden week’ holiday around National Day (1st October), reporting on its decision to impose sanctions on 39 companies in the tourism industry. The contested practices of the companies mainly relate to the preceding ‘golden week’ holiday, around Chinese New Year in February 2013.
NDRC’s latest enforcement actions are not only relevant to businesses in the tourism industry – they are also revealing about the authority’s enforcement priorities and point to possible future areas for enforcement in relation to anti-competitive market conduct.
The anti-competitive practices – overview
The NDRC press release describes the facts and actions in four different cases, with three different types of anticompetitive practices:
artificial prices/discounting practices with respect to local speciality products in Sanya, Hainan and Lijiang, Yunnan, two of China’s prime tourist locations;
cartels fixing prices and dividing up markets between large-scale gift shops in Sanya, and price fixing among travel agencies in Lijiang; and
below-cost pricing for tours as ‘bait’ to lure tourists into designated gift shops.
Artificially inflating prices before discounting
Some gift shops in Sanya and Lijiang sold local speciality products such as crystals showing a very high original price on the price tag, to which they then applied a ‘discount’ of around 15-25%. This discount looked attractive to customers, but NDRC’s decision revealed that the original price was “artificial” in the sense that it was a huge mark-up on the price at which the shops purchased the goods – at times as much as 100 times more expensive than the cost to the retailer.
In its press release, NDRC stated that this practice infringes Article 14 of the Price Law, a statute with antitrust provisions as well as rules falling outside the antitrust realm. This provision lists seven types of illegal practices, but the NDRC press release does not explicitly point to any one of them in particular. Most likely, NDRC might have been concerned that the discount applied to a very high original price gave customers the false impression they were actually getting a good deal. Hence, it is possible that, in NDRC’s eyes, paragraph 4 of Article 14 – luring consumers or other business operators to enter into transactions by employing fake or misleading pricing methods – would be the applicable provision.
At the same time, paragraph 7 of Article 14 prohibits companies from making “exorbitant profits,” and NDRC at various places in the press release pointed out the vast differential between the sales price and the cost to the retailer – that is, the ‘profit.’
The two alleged cartel activities which NDRC challenged also took place in Sanya and Lijiang, respectively.
In Sanya, the NDRC statement notes that three of the only four large-size gift shops in Sanya (with parking space for tourist buses) met on numerous occasions to agree on prices and discounts for crystals, and divided up the market neatly amongst themselves by granting each participant a fixed market share. In mid-2012, the three companies entered into a written “industry self-discipline agreement” to do the same, and even opened a joint bank account where each of them made a payment that served as a deposit to ensure that it would not deviate from the agreed prices and market shares.
NDRC held this conduct to be market partitioning between competitors, in breach of the Anti-Monopoly Law (“AML”). The authority imposed fines of 4% and 2% of the annual sales revenues on two of the cartel members. Interestingly, the third participant in the illegal agreements was let off without a fine. The press release notes that the latter company was granted immunity from fines because it had self-reported and provided important evidence, allowing NDRC to discover the improper activities. Another interesting facet was that NDRC imposed an additional fine of close to RMB 100,000 (approximately USD 16,000 or EUR 12,000) on one of the cartel members for non-cooperation with NDRC during the investigation procedure, including the removal, concealment and deletion of evidence.
In Lijiang, NDRC found eight travel agencies – including the local branch of online agent Ctrip – to have engaged in price fixing of hotel nights (for example, three star hotels at RMB 560 per person), meal vouchers and so forth. The companies reportedly met 24 times in 2011 and 2012 under the auspices of a local industry association. Like the gift shops in Sanya, the eight travel agencies in Lijiang entered into a written contract that allocated prices, discounts and market shares to each of the participants.
NDRC found this conduct to constitute a violation of the AML’s anti-cartel provisions and ordered each of the eight companies to pay fines equivalent to 5% of their annual sales revenues, totalling around RMB 3.3 million (approximately USD 540,000 or EUR 400,000).
Bait-pricing to lure customers
NDRC’s last investigation also took place in Hainan. Here, the authority challenged a common practice in China’s tourism industry – the so-called “zero/ below-cost group fee” (“零负团 费”), whereby travel agencies charge their customers a price for a tour that is below cost. In China, it is a widespread practice that travel agencies attract customers by offering a below-cost group fee, and then receive commissions from the shops into which the travel agencies ‘guide’ the customers on the tour, often using pressure tactics to ensure the tourists ‘consume’ within the designated shops.
NDRC challenged this bait-pricing practice on the basis that it infringed Article 14 of the Price Law. Again, the NDRC press release does not explicitly state which paragraph in that provision was considered to have been breached. Nonetheless, the press release speaks about “dumping,” which seems to be a clear reference to paragraph 2 of Article 14, prohibiting “dumping” at below cost price.
NDRC imposed a fine of RMB 300,000 (around USD 49,000 or EUR 36,000 ) on each tour operator under investigation found to have engaged in this bait‑pricing practice.
There are a number of issues in this Hainan and Yunnan tourism case that merit further analysis and attention. First, both the artificial pricing/discounting and the baitpricing practices were punished under the Price Law. However, it would have been possible for NDRC to have challenged both types of conduct under the AML, if the respective conditions had been fulfilled.
One underlying issue of the artificial pricing/discounting practice was that, even after discounts, the price of the goods was still substantially above their cost price. As mentioned, Article 14(7) of the Price Law prohibits making “exorbitant profits,” but NDRC’s finding must also be viewed in context of its enforcement action in the River sand case, where the authority found two companies in Shaoguan, Guangzhou to have charged “excessive prices.” The decision in that case was taken under the AML, and one of the parameters that led NDRC to find a breach of the law was that the prices charged were significantly above cost.
In turn, in the Hanan and Yuman tourism cases, NDRC challenged the bait-pricing practice arguing that it constituted “dumping” in violation of the Price Law. Again, the AML has a very similar provision – ‘predatory pricing’ – which prohibits below cost pricing in a similar way as the Price Law does, and was relied upon by NDRC in the River sand case.
A key difference between the Price Law and the AML is that the latter requires a company to be in a “dominant market position” for the ‘excessive pricing’ and ‘predatory pricing’ prohibitions to apply, while the former does not. In these cases in the tourism industry, it is very likely that none of the companies under investigation is (or was at the time) in a dominant market position (which is presumed under the AML at a market share of 50% or above) – numerous gift shops and tour operators were involved in the artificial pricing/ discount and bait-pricing schemes, respectively, which indicates low market shares.
When considered in conjunction with other cases, a consistent pattern in NDRC’s enforcement strategy seems to be starting to emerge: when the AML is applicable, the authority will probably rely on this law, which allows the imposition of fines of between 1% and 10% of the perpetrating company’s annual sales revenues. This is quite a powerful remedy that can also be combined with confiscation of unlawful income, and hence can serve as a deterrent to others who might be considering similar conduct. When the AML does not apply – for example, because the perpetrator does not have a dominant position – then NDRC may still initiate proceedings under the Price Law (where punishments “only” include fines up to a statutory maximum or a multiple of the “unlawful gains” obtained through the anti-competitive conduct).
In short, companies would be well advised to look beyond the AML and factor in the Price Law, the Anti- Unfair Competition Law and other laws and regulations with antitrust-type provisions in their competition law compliance efforts.
Second, the Hainan and Yunnan tourism cases would seem to be a further indication that NDRC is ‘branching out,’ tackling new legal issues, practices and industries. These cases illustrate how NDRC is going beyond classical cartel conduct (at least in NDRC’s eyes), and starting to examine aspects of ‘excessive’ and ‘predatory’ pricing. With the exceptions of the River sand case and possibly the Shandong drug case, NDRC has to our knowledge not brought excessive or predatory pricing cases under the AML since the law came into effect. Now, clearly, NDRC has decided not to draw the line at prosecuting cartel and resale price maintenance cases.
Third, a key message of the Hainan and Yunnan tourism cases is that NDRC continues to be focused on products and services that are directly purchased by end consumers. The vast majority of NDRC’s enforcement cases involve consumer goods or services (not industrial or intermediate goods). Examples are edible rice noodles, white liquor, salt, baby milk formula, washing powder, pharmaceutical drugs or Internet access.
The timing of the decision in this case is very telling – publishing the press release just before the National Day vacation could be taken as evidence that the authority was aiming to achieve maximum visibility in the media and in the eyes of the Chinese consumer; as people on the ground will be well aware, the whole underlying purpose of creating the long ‘golden week’ holiday was to encourage spending by consumers, and perhaps one reason for the timing was to convey the message to consumers that NDRC was looking after their interests as they prepared to embark on their travels.
FTC & DOJ release updated model confidentiality waiver for use in cross-border investigations
On 25 September 2013, the FTC and Department of Justice’s Antitrust Division (DOJ) issued an updated joint model waiver of confidentiality for use by parties in cross-border merger and civil non-merger investigations. The model waiver outlines the terms under which a party subject to a multi-jurisdictional investigation may waive its confidentiality protections in order to facilitate the sharing of confidential information between US and non-US competition authorities. In addition, the agencies released a set of Frequently Asked Questions (FAQ) touting the benefits of signing such a waiver, outlining the process for submitting it, and detailing the protections afforded to the confidential information.
With antitrust enforcement having expanded exponentially over the last two decades to more than 130 countries, the DOJ and FTC increasingly seek confidentiality waivers from parties. As explained in the accompanying press release issued by the agencies, waivers generally allow for greater cooperation and coordination between competition authorities, enabling agencies “to make more informed, consistent decisions and coordinate more effectively, often expediting the review.” The agencies acknowledge that providing a waiver is entirely voluntary and within the party’s sole discretion and state that “a decision not to provide a waiver will not prejudice the outcome of the DOJ’s or FTC’s investigation.” The FAQ takes care to note, however, that “a decision to not grant a waiver” may have “practical effects” such as increasing the length of an investigation or causing inconsistent outcomes across competition authorities.
According to the FTC and DOJ, the new model waiver “reflects both agencies’ recent experience with waivers,” and is intended to update and replace earlier forms.
Overview of the provisions in the model waiver
Under the model waiver, parties involved in a merger or civil non-merger investigation voluntarily waive the statutory confidentiality protections normally covering confidential information submitted to the FTC or DOJ in the ordinary course of an investigation. The agencies can then exchange the confidential information with those competition authorities specifically named in the waiver subject to the US agencies’ policy regarding the treatment of confidential information.
The model waiver is a broad waiver that applies to all confidential information provided by the party to the competition authority, whether written, electronic, and oral, such as documents, data, statements, interrogatory responses, transcripts, testimony, and proposed remedies. The FAQ states that the model waiver is intended to be used “in almost all civil matters,” but acknowledges that in some circumstances a more limited waiver may be appropriate. In addition, the FAQ encourages parties to provide waivers at the outset or at an “early stage” of an investigation but recognizes that parties may initially decide against signing a waiver and continue to evaluate the option as the investigation progresses.
For disclosures by the FTC or DOJ to a non-US competition authority, the updated model waiver provides that the confidential information is protected by the laws of the non-US authority supported by a common understanding with the US agencies such as a bilateral or multilateral agreement. A party providing the model waiver to the US agencies typically submits a similar waiver to the non-US authority as well.
For disclosures to the FTC or DOJ by a non-US competition authority, the updated model waiver states that the US agencies will provide the same level of protection under US laws as if the information had been directly requested and obtained by the FTC or DOJ. This protection extends to the destruction or return of documents, as well as the assertion by the FTC or DOJ of all exemptions from disclosure in the event of a request for disclosure under the Freedom of Information Act.
Additional privilege protection included in the model waiver
A significant addition to this updated model waiver from prior models – and from the International Competition Network’s model waiver cited in the FAQ – is a provision regarding the treatment of privileged information. Under the model waiver, the agencies will not seek information protected by US legal privilege from non-US competition authorities in the course of an exchange of confidential information. As different countries have different rules regarding privileges, it is not uncommon that information submitted in one jurisdiction would be privileged in another. Previously, there was much uncertainty regarding waiver provisions governing the treatment by the FTC or DOJ of information privileged under US law. These provisions were individually negotiated and inconsistently incorporated into waiver agreements. Now, parties are provided clarity around the issue. Furthermore, the new model waiver also includes a “clawback” provision: Any privileged information that the FTC or DOJ does receive from a non-US competition authority will be treated as an inadvertent production, and the US agencies will return or destroy the privileged information.
Considerations before proposing a confidentiality waiver
From a practical standpoint, before signing a waiver, parties should consult with counsel both in the US and the relevant non-US jurisdiction(s) as differences in laws may require adding or modifying provisions in the model waiver. For instance, parties should understand what protections are afforded to confidential information under the laws of the non-US jurisdiction and what rules and procedures govern that competition authority’s treatment of confidential information. Similarly, parties will need to understand the privilege laws of the non-US jurisdiction and may need to add language strengthening privilege protection. Furthermore, parties and their counsel may believe a more limited waiver may be appropriate or believe that delaying the decision on whether to provide a waiver may be appropriate in their particular circumstance.
With regard to the additional provisions concerning privilege, parties initially submitting documents to non-US competition authorities should follow the FTC’s and DOJ’s recommendation to clearly mark all documents that are privileged under US law. This will require coordination with US counsel to ensure a proper understanding of US privilege protections and the establishment of a procedure for identifying and labeling documents produced.
Parties should also consider potential downstream investigations by competition authorities that may benefit from the disclosure of confidential information. Unlike the model waiver in the EU, which limits the use of confidential information by the EU and non-EU competitions authorities to the investigation into the proposed transaction and “for no other purpose,” no similar limitation is provided in the FTC’s and DOJ’s model waiver.
From a strategic standpoint, this latest push towards greater cooperation among competition authorities reminds parties that it is increasingly apparent that antitrust investigations are no longer regional issues to be addressed with piecemeal strategies. Parties must increasingly consider their overall global strategy early in the process and account for the fact that – waiver or no waiver – regulators are permitted to (and likely are) communicating. Parties and counsel must consider how arguments made in one jurisdiction impact those to be presented in another, and whether or not to provide a waiver is a strategic legal decision highly specific to the facts. Parties and their global competition counsel must carefully weigh these considerations when assessing whether providing a waiver is in the best interests of all parties.
Important changes to Hungary’s competition law regime
On 18 October 2013, the Hungarian government presented a bill which introduces significant reform to the competition law regime in Hungary. Key changes include the prohibition of gun jumping (closing a transaction prior to merger control clearance), the shortening of the merger control review period, and the introduction of a settlement procedure.
The bill is planned to enter into force on 1 July 2014. Certain provisions, which concern the organisation of the Hungarian competition authority (“HCA”), are planned to enter into force before this on 1 January 2014. The bill will be discussed by the Hungarian Parliament in the forthcoming weeks.
The most significant changes included in the bill are the following.
The amendments introduce an explicit prohibition of gun jumping. Currently the closing of a transaction without prior approval is permissible at the parties’ own risk as long as the merger control approval is obtained subsequently, since such approval renders the transaction to have come into existence retroactively. The bill introduces a provision that states explicitly that a notifiable transaction may not be implemented without prior approval, and that, in particular, voting rights and the right to appoint the management may not be exercised without the approval of the HCA. The bill also introduces the possibility of fines if a notifiable transaction is closed without prior merger control approval. This is a daily fine of a minimum of HUF 50,000 and a maximum of HUF 200,000. The total amount of fines is capped at 10% of Hungarian turnover.
In line with practice under the EU Merger Regulation, it is proposed that the HCA will be entitled to permit gun jumping upon individual request if such gun jumping is necessary to proceed with the normal course of business and the preservation of assets and will not prevent the requesting parties from complying subsequently with the final decision of the HCA.
Shortening of the merger control review period
In view of the introduction of a suspension clause, the bill introduces a shortened Phase 1 review period for mergers subject to mandatory notification to the HCA under Hungarian merger control. The Phase 1 review period has been reduced from 45 days to 30 days. Cases requiring a full Phase II investigation are still subject to a 4 month review period, subject to a possible 2 month extension. The possibility of holding pre-notification discussions has also been introduced.
The bill introduces the possibility for undertakings that are members of a cartel and are already subject to the proceedings of the HCA to enter into a settlement agreement with the HCA. This can lead to a decrease in fine of 10%.
Access to file
The bill also introduces changes to the rules on access to file by allowing broader access to file than is currently permitted.
National strategic importance
On 11 October 2013, another bill was submitted to the Hungarian Parliament which qualifies certain concentrations as concentrations of national strategic importance, Concentrations with such a qualification will be exempted from the competition clearance procedure of the HCA.
This amendment has raised the attention of the media in Hungary as it has been alleged to be in connection with certain aspirations of the Hungarian Government to acquire through state owned undertakings certain gas storage facilities that may be hindered by the HCA in the course of its competition clearance proceedings, although the proposed new rules are not limited to acquisitions by state owned undertakings.
Tougher competition law enforcement regime in Belgium – New Belgian competition law enters into force
On 1 September 2013, a new Belgian Competition Act entered into force. The new rules introduce significant procedural changes which are likely to lead to more efficient enforcement of competition law in Belgium. What is new?
A simplified authority
The Belgian Competition Authority has been simplified to form a single administrative authority with both an investigative and decision-making arm. Under the old Competition Act, investigations were led by the Competition Prosecutors. This was the case for investigations into possible antitrust infringements and also for notified transactions, at least if they did not follow the simplified procedure. At the conclusion of their investigation, the Competition Prosecutors prepared a report for an administrative tribunal (the Competition Council) which decided on the existence of (and fines for) antitrust infringements or the approval of a transaction.
The Competition Council has now been abolished and proceedings will take place as follows:
At the conclusion of antitrust investigations, the Competition Prosecutors will in the future send a statement of objections to the companies (or associations) involved and, after receiving their response to it, submit a draft decision to a new body, the Competition College. After hearing the parties concerned once more, the College (composed of the president of the new authority and two persons appointed by him ad hoc) will decide on the matter.
In merger cases, the Competition Prosecutors will simply submit a draft decision to the Competition College which, after hearing the parties concerned, will determine whether the transaction is permissible or not. Transactions which are notified under the simplified procedure will continue to be decided by the Prosecutors alone, but the review period for simplified mergers has been reduced to 15 working days.
The reform is aimed at speeding up the decisionmaking process of the authority. Therefore strict deadlines are foreseen for the steps in the antitrust proceedings. Furthermore, parties which are subject to an investigation will be required to submit all relevant documents in their defence during the Prosecutors’ investigation and will no longer be allowed to submit new documents afterwards to the Competition College, unless the document constitutes factual evidence or responds to allegations which the undertaking (or association) was not aware of before.
Appeals against decisions of the Competition College can be brought to the Brussels Court of Appeal (as was the case for decisions of the Competition Council).
The procedure for interim measures in respect of alleged antitrust infringements has been reformed in a number of ways. In order to speed up the process, third parties will be able to bring a request for interim measures directly before the Competition College. The Competition Prosecutors will no longer be required to prepare a preliminary assessment of the need for interim measures. On the other hand, the Competition Prosecutors will also be able to request interim measures ex officio (i.e. even in the absence of a request from a third party).
A settlement procedure along the lines of the procedure of the European Commission has been introduced. This procedure will be available to all types of antitrust cases, including dominance cases, and is not just limited to cartel investigations. Settlement can lead to a reduction in fine of 10%, and a further reduction is possible where companies commit to compensate the victims of the infringement.
The new competition law foresees that individuals who engage in negotiations or agreements with competitors to fix prices to customers, to limit production or sales, or to share markets can be personally fined up to EUR 10,000. Individuals will also be able to apply for leniency for such actions.
Price regulation The Price Observatory, a price monitoring institution of the Ministry of Economy, will be empowered to report “problems concerning prices or margins, an abnormal price evolution or a structural market problem” to the new authority. Based on this report and after having heard the companies (or associations) concerned, the Competition College can take temporary measures for a period of six months to avoid serious, direct and irreparable harm to undertakings or consumers or the general economic interest.
Companies active in Belgium now face a tougher competition law enforcement landscape. The new rules provide a timely moment for businesses with operations in Belgium to remind employees of the importance of competition law compliance, and to verify that competition law compliance procedures are as effective as possible.
Round-up of key developments
Deutsche Bahn dawn raid judgment On 6 September 2013, the General Court dismissed the challenge by Deutsche Bahn of three European Commission dawn raid decisions. The court ruled that no prior court approved search warrant was required for an inspection to be legal since there are a number of legal safeguards under Regulation 1/2003, including comprehensive judicial review. The court also confirmed that the European Commission is not obliged to turn a blind eye to potentially incriminating documents which are out of scope but discovered during a dawn raid. The European Commission may adopt a new decision to enable the documents that were not covered by the initial decision to be gathered.
On 8 October 2013, the European Commission published a guidance note for leniency applicants on delivering oral statements at DG Competition. The guidance explains what should and should not be included in oral corporate statements. It also explains the procedure for an applicant to check the accuracy of audio files and transcripts of the oral statement.
RPM fine On 10 October 2013, the Paris Court of Appeal confirmed a decision of the French Competition Authority dated 20 March 2012, imposing a €35.3 million fine on three leading suppliers in the dog and cat food sector for having restricted competition, during 5 years, on the dry dog and cat food market in specialist retail (covering specialist shops, such as pet shops, farmers and vets). From 2004 to 2008, two of those companies imposed resale prices to their wholesalers and made agreements with them containing territorial and supply exclusivity clauses as well as provisions prohibiting passive sales. The third company forbade exports of its products outside France. This is also the first time that the Paris Court of Appeals confirms that the Competition Authority’s Guidelines dated 16 May 2011 on the Method Relating to the Setting of Financial Penalties do not infringe any fundamental rights of defense.
Best price clause of hotel booking portal The German Competition Authority (Bundeskartellamt) has confirmed its competition concerns about the best price clause used by the hotel booking portal HRS and issued a second statement of objections. HRS uses so-called best price clauses in its contracts with the hotels featured on its booking portal. Accordingly, the hotels are obliged to always offer their lowest room price, maximum room capacity and most favourable booking and cancellation conditions available on the Internet also via the HRS booking portal. The Bundeskartellamt takes the view that these best price clauses only seem to be to the benefit of consumers at first sight. In reality, they hinder price competition for better offers between the portals and between the hotels. As a consequence, best price clause are to the detriment of consumers since neither the booking portals nor the hotels are able to make them better offers or offer them more favourable conditions. The new statement of objections gives HRS the opportunity to review its previous position on this issue. Best price clauses between internet platforms and hotels have also become an issue for other competition authorities, both within and outside the European Union. The Bundeskartellamt is liaising closely with its foreign colleagues in this matter.
ICA clarifies second merger notification threshold In August 2013, the Italian Competition Authority (ICA) published a communication which clarifies how the second threshold under the merger control rules applies to newly set-up joint ventures. Following recent changes to Italian merger control law which entered into force in January 2013, a transaction has be notified to the ICA if: (i) the Italian aggregate turnover of all undertakings concerned exceeds Euro 482 million, and (ii) the Italian turnover of the target exceeds Euro 48 million. The communication clarifies that in the case of the set-up of a new joint venture, the turnover of any contributions made by the undertakings acquiring the joint control of the new joint venture shall be taken into account.
Maritime transport The ICA has launched a preliminary investigation in order to verify if some companies operating in the maritime transportation sector in the Strait of Messina, have entered into an agreement as regards prices and the division of the market. On the basis of the first data collected by the ICA, in the last three years there has been a significant parallel increase in prices of up to 150%.
Borderline between protection of business secrets and violation of the right of defence On 3 October 2013, the Polish Supreme Court set aside judgments of courts of lower instances approving the decision of Polish Competition Authority (PCA) finding that PKP Cargo (provider of rail transportation services) abused its dominant position. In 2009, the PCA found that PKP Cargo treated unequally its contractors and imposed a fine of PLN 60M (EUR 14.7 M). The Supreme Court held that the lower court decisions should be quashed due to a procedural error. The PCA had referred in the justification of its decision to a confidential attachment containing business secrets of other companies, which PKP Cargo did not get access to for the purposes of its defence.
Fines for participants/initiators
On 23 May 2013, the Polish Court of Appeal reduced the fine imposed by the PCA on a party to an anticompetitive agreement fixing minimum resale prices for hearing aids. The court held that the final amount of a fine imposed on a passive party to a vertical agreement could not be higher than the fine levied on the supplier (in this case Phonak Polska) which had imposed the minimum prices (Phonak Polska).
National Commission on Markets and Competition begins operations On 7 October 2013, the new National Commission on Markets and Competition (Comisión Nacional de los Mercados y la Competencia, “NCMC”) became fully operational in Spain.
The NCMC merges into one single institution the former National Competition Commission and the six regulators which were in charge of supervising the sectors of energy, telecoms, media, postal services, airport services and rail services. The decision-making body of the NCMC, the Council, has 10 members. The Council is divided into two chambers: (i) the Competition Chamber (chaired by the President) and (ii) the Regulation Chamber (chaired by the Vicepresident of the NCMC).
The NCMC’s President is José María Marín Quemada (a former University Professor and member of the Governing Council of the Bank of Spain) and its Vice- President is María Fernández Pérez (a former senior official from the Spanish Ministry of Economy). The remaining members of the NCMC’s Council come mostly from the Spanish high civil service or politics. From an operational standpoint, the NCMC is structured around four Investigation Directorates (“IDs”) in charge of handling files in their respective areas/sectors: (i) Competition, (ii) Energy, (iii) Telecoms/ Media and (iv) Transport/Postal.
Fines in the Port of Valencia
On 2 October 2013, the NCC imposed fines of more than €43.5 million on trade associations active in the road transportation sector and loading terminal companies active in the Port of Valencia, as well as the Port Authority of Valencia. Two trade associations were fined more than €10 million.
The alleged anti-competitive behaviour lasted for a period between 1998 and 2011, when the parties are alleged to have agreed, inter alia, on price increases and fuel surcharges for road transportation services in the Port of Valencia. Such agreements were reached as a result of a meeting called by the Port Authority of Valencia after drivers blockaded the Port due to fuel increases.
Access to CC data room
On 2 October 2013, the Competition Appeal Tribunal (CAT) handed down its ruling on an application by BMI Healthcare, HCA International and Spire Healthcare for review of a Competition Commission (CC) decision relating to the operation of a data room in its private healthcare market investigation.
The CAT held that the terms on which the CC allowed access to the disclosure room was in breach of the CC’s statutory duty to consult under section 169 of the Enterprise Act and in breach of the rules of natural justice. In particular, the disclosure room rules were deficient as they did not allow the parties’ advisers to take notes of relevant information, the advisers were not provided with the means to draft a proper and considered response, and the time allowed to access the disclosure room was unreasonably short.
Statutory audit services market investigation
On 15 October 2013, the CC announced its final report on its market investigation into the supply of statutory audit services to large companies in the UK. The Competition Commission has decided on a package of remedies to address the adverse effect on competition identified. It has decided to require FTSE350 companies to tender their statutory audit engagement every 10 years (not five years as previously proposed). In addition, the Audit Quality team of the Financial Reporting Council (FRC) should review every FTSE 350 audit engagement on average five years and the FRC should adopt a new object to have due regard to competition. Further, the Competition Commission has decided to prohibit clauses in loan agreement that limit the choice of auditor (although it will be possible to specify objective selection criteria).
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