2016 Annual Report- 19 major trends in Antitrust Law

2016 Annual Report 19 major trends in Antitrust Law 2 | Shearman & Sterling LLP Refined, discriminating and uncompromising. Clients turn to Shearman & Sterling in critical cases. Highly knowledgeable, well-connected, and engaging to work with. Vast experience and presence in key competition jurisdictions. — Global Competition Review Foreword 2 Merger Control 5 01 The effect of the 2010 Merger Guidelines 02 Increased protection measures in EU remedy assessments 03 Potential competition left unsterilized 04 HSR enforcement actions 2015 representative matters Cartels 23 05 Foreign component cartels 06 Dawn raids: A short global overview 2015 representative matters Compliance 35 07 EU antitrust law and sport: Survival of the fittest? 08 Notable developments since the UK’s Financial Conduct Authority became a concurrent competition regulator in the UK 09 The EU Digital Single Market Initiative: The end of territorial distribution models? Unilateral Conduct 47 10 Comparison between the essential facilities doctrine in the EU and the US 11 The Court of Justice’s preliminary ruling in Huawei v. ZTE 12 Discussion of the DOJ Business review letter of IEEE’s patent policy revisions 2015 representative matters Antitrust Litigation 61 13 Recent reforms: A catalyst for damages actions in Europe 14 Forward-looking antitrust compliance programs rewarded by the DOJ in 2015 15 Individual accountability for unlawful corporate conduct following the “Yates Memo” 16 The California Supreme Court and antitrust scrutiny of reverse payment settlements 2015 representative matters State Aid 79 17 Burden-sharing and Bank Recovery and Resolution Directive 18 Manufacturing companies: The case of State aid intervention 19 State aid and tax rulings 2015 representative matters Pro Bono 92 The Antitrust Team 96 Thought Leadership 98 Our Clients 102 About Shearman & Sterling 103 2 | Shearman & Sterling LLP Foreword Shearman & Sterling LLP | 3 We are pleased to present our fourth Antitrust Annual Report summarizing recent major trends in antitrust and our Group’s activities. We are also pleased to announce that this year we are celebrating the 15th anniversary of our European antitrust practice. Over the past 15 years, we have seen dramatic changes to European antitrust enforcement, most recently with the reform of private enforcement of EU competition law. This report documents many of those changes. 2015 has in fact has been an active period for the antitrust agencies across the full-range of their responsibilities: merger control, dominance, cartels, criminal prosecutions, civil non-merger activities, and State aid. Our report begins with mergers. First, we assess the impact of revisions to the US Horizontal Merger Guidelines, which were substantially rewritten and reissued in 2010, and chart how the application of the notions of ‘unilateral effects’ and ‘market definition’ have evolved at the agencies and in the US courts since 2010. We also examine the recent proclivity of the European Commission (EC) to demand enhanced safeguard measures when devising merger remedies and their effect on transactions. We analyze the Federal Trade Commission’s merger litigation defeat in FTC v. Steris, taking a moment to reflect on its significance. On cartel enforcement, we examine the impact of business conducted in one country having anticompetitive consequences in other countries and the implications for the cartel authorities’ investigation in such situations. We also undertake a practical survey of dawn raids in five major countries. On compliance, we discuss the application of the EU antitrust rules to sports; an area that is likely to gain increasing attention. We also look at the UK’s Financial Conduct Authority antitrust enforcement powers and their significance for the financial services industry. Finally, we analyze the EC’s expansive Digital Single Market Initiative, and reflect on what it might mean for territorial distribution models in Europe. On unilateral conduct, we compare the EU and US essential facilities doctrine, highlighting the fundamental differences between the two jurisdictions. We examine the implications of a much-anticipated and controversial Huawei v. ZTE judgment and the precedent it sets. Given the important role of standard-setting organizations, we also discuss the Department Of Justice’s (DOJ) review of the Institute of Electrical and Electronics Engineers’ (IEEE) proposed patent policy revisions. On litigation, we examine the reform of private enforcement of EU competition law, which will inevitably lead to a material increase in cases being brought. We report on the first two cases of companies being rewarded, through lighter penalties, for having robust forward-looking compliance programs in what is a clean break from the DOJ’s sentencing guidelines. We also look at the impact of the “Yates Memo” on antitrust investigations and reflect on whether it will lead to more aggressive positions with respect to individuals. We conclude by assessing what California Supreme Court’s Cipro decision means in terms of antitrust scrutiny of reverse payment settlements. We analyze the interplay between the State aid rules and the Banking Recovery and Resolution Directive in its first application in the 2015 recapitalization and restructuring of the four systemic Greek banks. We also examine the increasingly stringent conditions that are being imposed by the EC on aid granted to manufacturing companies as well as the EC’s (questionable) use of State aid to unwind Member States’ tax rulings with multinational companies. Pro bono remains important to all of us in the Antitrust Group. We survey our diverse assignments and one of our antitrust attorneys shares her experience of working for the International Criminal Tribunal for Rwanda. As ever, we thank you, our clients, for entrusting us with your most important and challenging cases and offer our best wishes for a successful 2016. Stephen C. Mavroghenis Practice Group Co-Head Beau W. Buffier Practice Group Co-Head 01 4 | Shearman & Sterling LLP Merger Control The effect of the 2010 Merger Guidelines In 2010, the US antitrust enforcement agencies issued a comprehensive update to the Horizontal Merger Guidelines, which explain the practices that the Department of Justice (DOJ) and the Federal Trade Commission (FTC) (collectively, the “Agencies”) use in analyzing mergers and acquisitions. The 2010 revision sought to align the Guidelines with the Agencies’ actual practices and provide greater transparency into those practices. Continued overleaf Shearman & Sterling LLP | 5 6 | Shearman & Sterling LLP Merger Control 01 The effect of the 2010 Merger Guidelines As described by Chairwoman Edith Ramirez, the 2010 Guidelines “make clear that merger analysis is not the mechanical application of a series of linear steps, as the 1992 Guidelines had suggested. Rather, merger analysis is a flexible and fact specific process.” Five years after the Guidelines were introduced, the effects are mixed. Two areas of the Guidelines, unilateral effects and market definition, illustrate the impact of the Guidelines in practice. The 2010 Merger Guidelines place a greater emphasis on unilateral effects than the previous Guidelines have, introducing four new subsections that address differentiated products, bargaining and auctions, homogeneous products, and innovation. As the 2010 Guidelines state, “The elimination of competition between two firms that results from their merger may alone constitute a substantial lessening of competition.” The increased focus on unilateral effects plays out in two recent FTC merger reviews. The first transaction was between Holcim and Lafarge, both manufacturers of global building materials, including cement. According to the FTC, after the merger, the combined firm would have been the world’s largest cement manufacturer. The FTC found that the combination would likely harm competition for portland cement in twelve local markets and for slag cement in two more regional markets. According to the FTC, the combination likely would have resulted in unilateral effects in these markets, as “for many customers in the relevant areas, the merging firms are their preferred suppliers and that customers have benefitted from substantial head-to-head competition between the parties in negotiating prices for portland and slag cement.” The FTC allowed the transaction to proceed on condition that the companies divest several assets in the affected markets. In the second transaction, Dollar Tree/Family Dollar, the FTC analyzed the unilateral effects of the merger using a Gross Upward Pricing Pressure Index (GUPPI) analysis. Dollar Tree and Family Dollar are national retailers that sell deeply discounted merchandise, and together, the companies operated over 13,000 stores across the country. Noting that the 2010 Guidelines recognize that a GUPPI analysis “can serve as a useful indicator of whether a merger involving differentiated products is likely to result in unilateral anticompetitive effects,” the FTC used the analysis to screen the thousands of geographic markets potentially at issue and identify those markets where the transaction was most likely to result in unilateral anticompetitive effects. The Commission found that markets with “relatively high GUPPIs suggested that the transaction was likely to harm competition.” After considering other evidence in these markets, the FTC required the companies to divest 330 stores. Based on these two recent examples, it appears that the increased focus on unilateral effects in the 2010 Guidelines has also played out in the Agencies’ merger review focus. Where unilateral effects were once less central to the Agencies’ analysis, they now have increased visibility. Accordingly, companies should be sure to consider unilateral effects in addition to coordinated effects when evaluating the risks of a potential transaction. Change has been slower in other areas. The 2010 Guidelines introduced the concept that “[t]he Agencies’ analysis need not start with market definition.” The Guidelines recognize that while beginning with a defined market may help the Agencies to analyze the competitive effects of a proposed merger, the analysis of competitive effects may also help determine the market definition. Despite the change in the Guidelines’ emphasis, the courts have been slow to shift away from market definition as the initial step in analyzing competitive effects. Several recent decisions have shown that courts continue to begin their analyses with market definition. Unlike the Agencies, whose approaches may shift with the Guidelines, the courts are bound by a long line of precedents that requires market Shearman & Sterling LLP | 7 definition to come before any other analyses. In contrast, the Guidelines are not binding on courts, though courts may consider them in their analyses. This dynamic plays out in recent DOJ and FTC merger challenges. In United States v. BazaarVoice, Inc., the Court started by defining the relevant market as ratings and review platforms in the United States. This definition excluded other social commerce tools that the merged parties argued were in the relevant market. Using this definition, the Court found that BazaarVoice and PowerReviews were the two major companies that provided these services in the United States and that the merger was anticompetitive, and ordered the companies to unwind the merger. Most recently, in FTC v. Sysco Corp., market definition was central to the Court’s finding that the merger would likely lessen competition. Sysco and US Foods are the largest foodservice distribution companies in the United States. Noting that “[m]arket definition has been the parties’ primary battlefield in this case,” the Court conducted a thorough and detailed analysis of the relevant market before finding that the relevant market was broadline foodservice distribution, as the FTC argued, rather than foodservice distribution generally, as the defendants argued. Noting that “the FTC ha[d] carried its burden of establishing a relevant market,” the Court went on to find that the proposed merger would increase market concentration and would likely lessen competition in the relevant market. Because the courts continue to rely on this framework, merging parties who may expect the Agencies to challenge their transactions should be prepared to define a relevant market at the outset. While the Agencies may approach their analysis from a different perspective, market definition remains a critical piece of the merger analysis, particularly with contentious transactions. Where unilateral effects were once less central to the Agencies’ analysis, they now have increased visibility 8 | Shearman & Sterling LLP 02 Shearman & Sterling LLP | 9 Merger Control Increased protection measures in EU remedy assessments Should the European Commission (EC) consider that a transaction presents a “significant impediment to effective competition,” there comes a fork in the road in the merger control review. The notifying party can either fight this preliminary conclusion in a win or loss scenario, or negotiate modifications to the transaction sufficient to remedy the EC’s concerns. Continued overleaf Shearman & Sterling LLP | 9 10 | Shearman & Sterling LLP Merger Control Increased protection measures in EU 02 remedy assessments After the pre-notification and the actual investigation, such negotiations become a third phase of the process, and one which is becoming increasingly difficult for companies to navigate. While the EC has continued its trend for finding pragmatic solutions and continues to be diligent in ensuring the commitments are sufficient to remove the competitive concern (i.e., addressing substantive risk), it has shown a markedly increased wariness regarding the functioning of the remedy in practice — implementation risk. This has manifested itself in a much more rigorous review of the viability of the overall package, as well as more specific requirements for the potential purchaser being included in the commitments and a marked increase in the requirement for an up-front buyer. This all culminates in longer and more intense remedy negotiations with delays to closing and worse: collapsed or prohibited deals. In assessing suitability, the EC examines whether a purchaser: (i) is independent of and unconnected to the parties; (ii) has the financial resources, proven expertise and incentive to maintain and develop the divestment business as a viable and active competitive force; and (iii) would not cause competition problems of its own. It also has the discretion on a case by case basis to impose additional requirements, which it has been doing so with increasing frequency — just over 50% of all divestment remedies now require the purchaser to meet specific requirements beyond the standard. The most common additional requirement is an extension of (ii), that the purchaser has experience of the industry and not be a “financial buyer.” The logic follows that the business will present a stronger competitive force if the purchaser already has experience and knowledge in the relevant industry. It may also be a reaction by both the EC and market test participants to the number of businesses that were acquired and overleveraged by purely financial investors prior to the financial crisis, which led to failed divestment businesses. The requirement is commonly expressed as a need to have a “proven track record” in the sector, but the criteria are frequently more specific such as: (i) experience in the regulatory approval process for the products divested; (ii) an existing distribution network in the relevant Member States; and (iii) specifying that the purchaser already be active in the actual products of concern. An inevitable consequence of placing such importance on the identity of the purchaser is reducing the pool of suitable purchasers, which brings with it an additional risk in itself. Normally, once the conditional clearance decision is adopted, the parties are free to close their transaction vis-à-vis the EC, but must make sure the divestiture is executed within a set period, normally six months. With an up-front buyer clause, however, the parties cannot close the principal transaction unless and until they have entered into a binding agreement for the divestment. The frequency with which these clauses are being used in the EU has increased dramatically in recent years with just one instance being observed between 2010 and 2012, but 13 since the beginning of 2013. This trend is not welcomed by notifying parties as it is likely to further delay closing by two months or more. Moreover, if the inclusion of such a condition is leaked (which is unfortunately all too common), it can add fuel to the fire sale, driving down the divestment business price still further. The EC’s Remedies Notice envisages the circumstances when such clauses will normally be required. In practice, they are frequently seen in conjunction with particularly stringent purchaser criteria, especially if limited interest is shown by potential purchasers, or where the divestment is not standalone and has to be carved from an existing business. Shearman & Sterling LLP | 11 The main implication is the increase in time (and therefore cost) between clearance and closing; it would appear that as a result of the up-front buyer clause, the time between clearance and closing has been more than three months in numerous cases and nearing a year (or more) in others (in cases where the final merger clearance required is the EU). Whilst the EC seems eager to require these clauses and has suggested publicly that certain prohibited transactions could have been permitted had the proffered remedies included an up-front buyer clause, there are also ramifications for it. The parties are forced to find a buyer in a much tighter timeframe; but equally, the EC and the monitoring trustee are then placed under greater pressure to assess and approve the purchaser against a much tighter, albeit commercially driven, timeframe than would otherwise be the case. With post-clearance remedy disputes not generally being public and without any recent data on the performance of divestments since the Merger Remedies study in 2008, it is unclear what is driving this trend. It may be as a result of increasing third party involvement, such as complainants or potential purchasers in the remedies process, trying to take advantage of the rich pickings. It may also be a reaction to the EC being burnt by some remedies that have not worked, such as the troubled implementation of the Outokumpu / Inoxum remedies in the steel industry. What is clear, however, is that prolonged uncertainty regarding both the scope of the required divestment and the closing date of transactions is not welcomed by business. In the context of global transactions with more regulators coming online every year, which follow the lead of the EC on many issues and diverge on others, the cost of divestment packages looks set to rise. Just over 50% of all divestment remedies now require the purchaser to meet specific requirements beyond the standard 12 | Shearman & Sterling LLP 03 Shearman & Sterling LLP | 13 Merger Control Potential competition left unsterilized On September 24, 2015, an Ohio District Court handed a rare defeat to the Federal Trade Commission (FTC), denying the Government’s motion for a preliminary injunction that sought to prevent Steris Corporation from acquiring Synergy Health plc.1 The case was notable because the FTC pursued injunctive relief based on the so-called “actual potential entrant” doctrine: while the merging parties were not current competitors, the FTC alleged that, in the absence of the merger, Synergy likely would have entered the US sterilization market with a disruptive new technology in competition with Steris. Continued overleaf Shearman & Sterling LLP | 13 14 | Shearman & Sterling LLP Merger Control 03 Potential competition left unsterilized Although potential competition concerns are not novel for the FTC, this case was watched closely because it promised to be the first judicial treatment of potential competition in many years. Nonetheless, the Court did not take the opportunity in FTC v. Steris to examine the validity or scope of the potential competition doctrine, and instead decided the case based on the single threshold question of whether the evidence showed that, absent the proposed transaction, Synergy likely would have entered the US market within a reasonable time. Background On October 13, 2014, the parties announced Ohio-based Steris’ proposed acquisition of UK-based Synergy for approximately US$1.9 billion, which would combine the second- and thirdlargest medical sterilization companies in the world. Steris and Synergy claimed that the transaction would combine their geographically complementary businesses. Contract sterilization in the US is essentially a duopoly, with the two main providers accounting for approximately 85% of all US contract sterilization services. Steris was the largest such player, and one of only two US providers of gamma radiation (which is particularly effective for sterilization of healthcare products). By contrast, Synergy had only a small sterilization presence in the United States, with no US gamma offering. Although Synergy did not currently compete with Steris, the FTC’s investigation focused on Synergy’s plans to enter the United States with new x-ray based sterilization technology, which would compete with the incumbents’ established gamma offering. After an intensive Second Request investigation, the FTC issued an administrative complaint challenging the proposed transaction and filed a complaint in the Northern District of Ohio seeking injunctive relief, alleging that the transaction would significantly reduce likely future competition between Steris’ gamma and Synergy’s x-ray in regional markets in the United States. The FTC asserted that Synergy would have become a significant competitor to Steris, but that it abandoned its entry plans because of the merger. Theory According to the FTC, the acquisition of an actual potential competitor violates Section 7 of the Clayton Act2 if: 1. the relevant market is highly concentrated; 2. the competitor “probably” would have entered the market; 3. its entry would have had pro-competitive effects; and 4. there are few other firms that can enter effectively.3 The defendants Steris and Synergy challenged the actual potential entrant theory, arguing that it has long been disfavored and has rarely been adopted by the courts, including the Supreme Court. Decision The Court advised counsel that, for the purpose of the injunction decision, it assumed the validity of the actual potential entrant doctrine and instructed both sides to focus their oral arguments on whether, absent the proposed transaction, Synergy probably would have entered the US market. After three days of hearings, which involved a careful review of documentary evidence and testimony from business executives and customer representatives, the Court concluded that the FTC failed to meet its burden of proof: the evidence did not support the contention that Synergy was likely to enter the market by building one or more x-ray facilities in the United States in the near future. In the Court’s view, significant problems, including a lack of customer commitment and the inability to lower capital costs, “plagued the development” of Synergy’s x-ray project. A key part of the case centered on internal company documents. While the FTC argued that Synergy’s ordinary course documents established that the company was “poised” to enter the United States with disruptive technology and an expectation of winning Shearman & Sterling LLP | 15 the incumbents’ highest-valued customers, Synergy maintained that the documents painted a bleak outlook for the project, an assessment that the Court accepted. The Court focused heavily on the risk profile of Synergy’s entry strategy, noting that the investment was a “bet the farm” proposition that would consume Synergy’s entire annual discretionary budget. Critically, any such investment would also need to be backed by revenue commitments from customers, yet, despite intense marketing and sales efforts, Synergy was unable to obtain a single customer commitment to the x-ray technology. The Court observed that (i) owing to high costs associated with obtaining US Food and Drug Administration validation for x-ray technology, customers did not have any financial incentive to switch from existing technology to x-ray-based services, and (ii) while Synergy’s Board had endorsed the concept of pursuing an x-ray sterilization business in the United States, a business plan was never presented to nor approved by the Board. The FTC asserted that it was the proposed transaction with Steris and the FTC’s own investigation into the deal that prompted Synergy to abandon its x-ray plans. Once again, the Court disagreed, noting that Synergy did not terminate its plans until February 24, 2015, four months following the deal’s announcement. The Court opined that, “[t]he timing of the decision to pull the plug on the US x-ray project may actually be the best evidence that it was done for legitimate business reasons, as opposed to anticompetitive ones. If the merger with Steris was going to prevent Synergy from entering the US market, Synergy would have stopped working on the US x-ray project as soon as the merger was announced in mid-October 2014.” Aftermath On October 30, 2015, the FTC announced that it was not appealing the Court’s decision in FTC v. Steris and that it was dismissing its administrative complaint challenging the transaction. The decision is likely to have little impact, however, on the FTC’s general approach to potential competition cases or on the viability of the future competition theory. Indeed, in its ready acceptance of the theory, the Court did not offer any discussion or opinion concerning its underlying principles or overall validity, and the case is therefore likely to have limited precedential value. Encouraging for the FTC, however, the Court was at least prepared to assume the validity of the actual potential competition doctrine rather than narrowly interpret it in a way that may have constrained the Government’s ability to challenge transactions on similar grounds in the future. It remains to be seen whether FTC v. Steris is a herald of the Agency’s willingness to more aggressively challenge transactions involving potential competitors, but it does demonstrate a preparedness to pursue non-traditional theories of harm as well as the evidentiary impediments that the FTC may face in bringing such cases before the courts. The FTC failed to meet its burden of proof: the evidence did not support the contention that Synergy was likely to enter the market by building one or more x-ray facilities in the United States in the near future 1. FTC v. Steris Corp., No. 1:15 CV 1080, 2015 WL 5657294 (N.D. Ohio Sept. 24, 2015). 2. 15 USC. § 18. 3. Mem. in Supp. of Pl. FTC’s Mot. for TRO and Prelim. Inj. 6, June 4, 2015. 16 | Shearman & Sterling LLP 04 Shearman & Sterling LLP | 17 Merger Control HSR enforcement actions The past year saw a marked increase in HSR Act filing enforcement. The HSR Act requires parties entering into transactions that meet certain jurisdictional thresholds to submit pre-merger notification filings to the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) and to observe a waiting period before consummating the merger. The waiting period provides the antitrust agencies time to investigate proposed mergers for potential anticompetitive effects. Any person who fails to comply with any provision of the Act is liable for a civil penalty for each day during which the person is in violation, with a current maximum daily penalty of US$16,000. Continued overleaf Shearman & Sterling LLP | 17 18 | Shearman & Sterling LLP Merger Control 04 HSR enforcement actions Flakeboard — Don’t Jump the Gun In November 2014, particleboard manufacturers Flakeboard America Limited and SierraPine Ltd. agreed to pay the DOJ combined penalties of nearly US$5 million to settle antitrust claims that the two companies engaged in illegal pre-merger coordination while their then-pending merger was still under antitrust review. Prior to the closing of a transaction, the US antitrust laws continue to treat merging companies as separate entities and, when applicable, as competitors. Specifically, there are two sets of prohibitions. The first, commonly called “gun jumping,” prohibits the purchaser from obtaining “beneficial ownership” of the target prior to the expiration of the HSR waiting period, including by exercising any operational control over the target’s stock or assets. The second, under Section 1 of the Sherman Act, prohibits competitors, even competitors who plan to merge in the coming months, from coordinating their competitive activities. Competitors must therefore refrain from any coordination of commercial activities and exchange of information that may lessen competition or be interpreted as price fixing, such as agreeing to charge similar prices or allocating customers or markets between the two companies. Flakeboard agreed to acquire SierraPine’s particleboard mills in Springfield, Oregon, and Martell, California, and a medium-density fiberboard (MDF) mill in Medford, Oregon. According to the DOJ’s complaint, because of labor issues at the Springfield mill, SierraPine, Flakeboard and Flakeboard’s parent company, Aracuo, agreed to shut down production at Springfield before the HSR waiting period expired and while the DOJ was in the midst of an in-depth antitrust review of the transaction. During the period leading up to the closure, SierraPine gave Flakeboard’s sales employees competitively sensitive information about Springfield’s customers — including the name, contact information, and types and volume of products purchased by each Springfield customer. SierraPine’s sales employees directed Springfield customers to Flakeboard, informing them that Flakeboard would meet their needs and match SierraPine’s prices, rather than trying to compete for the business from SierraPine’s remaining mill in Martell, California. The parties ultimately abandoned the deal in response to the DOJ’s concerns about the transaction’s anticompetitive effects in the sale of MDF. The Springfield mill, however, remained closed. Under the terms of the settlement with the DOJ, Flakeboard, together with its parent companies, and SierraPine each agreed to civil penalties of US$1.9 million for violating the HSR Act. In addition, Flakeboard agreed to disgorge US$1.15 million in profits it earned in violation of Section 1 of the Sherman Act. Both companies also agreed to establish antitrust compliance programs. Although the antitrust rules do permit merging parties to plan for closing and exchange certain competitively sensitive information in the course of diligence and integration planning, the lesson learned from the Flakeboard settlement is to scrupulously avoid any coordination of activities that could be interpreted as antitrust violations. Until consummation, the merging parties must continue to operate their businesses separately and, where applicable, as competitors. Third Point — Passive Investors Beware In the summer of 2015, the FTC charged three affiliated hedge fund companies and their management company, Third Point LLC, for misusing the “passive investment” exemption in connection with the funds’ acquisition of Yahoo stock in 2011. Under this exemption, acquisitions of voting securities that are made solely for the purpose of investment, regardless of the dollar value of the securities, are exempt from the requirements of the HSR Act, provided that the purchaser will not hold more than 10% of the issuer’s voting securities as a result of the transaction. Voting securities are held or acquired “solely for the purpose of investment” if the person Shearman & Sterling LLP | 19 holding or acquiring such voting securities has no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer. The mere voting of the stock will not be considered evidence of the absence of investment intent; however, any investor who anticipates seeking to influence management decisions is regarded by he FTC as an “active investor” and is not entitled to rely on the investment exemption. The FTC has always deemed certain types of conduct to be evidence of a lack of investment intent. Such conduct includes: (i) nominating a candidate for the board of directors of the issuer; (ii) proposing corporate action requiring shareholder approval; (iii) soliciting proxies; (iv) having a controlling shareholder, director, officer, or employee simultaneously serving as an officer or director of the issuer; (v) being a competitor of the issuer; and (vi) doing any of the foregoing with respect to any entity directly or indirectly controlling the issuer. Notably, Third Point did not engage in any of the proscribed conduct. Rather, according to the FTC, Third Point was an activist investor because it: (i) communicated with third parties to determine their interest in becoming the CEO of Yahoo or a potential board member, and taking other steps to assemble an alternate slate of board of directors for Yahoo; (ii) drafted correspondence to Yahoo to announce that Third Point LLC was prepared to join the board of Yahoo; (iii) internally deliberated the possible launch of a proxy battle for directors of Yahoo; and (iv) made public statements that they were prepared to propose a slate of directors at Yahoo’s next annual meeting. Third Point was not fined, in part because it filed HSR shortly after the alleged violation. However, Third Point cannot avail itself of the passive investment exemption for the next five years if it engages in any of the above conduct within four months of making an acquisition. For other investors, the lesson learned is that the FTC interprets the investment exception as being limited to those investors whose sole — not merely principal or predominant — purpose is investment. All hope, however, is not lost; two out of the five FTC Commissioners wrote dissenting opinions in favor of a flat exemption that would apply to holdings of 10% or less of an issuer’s voting securities, regardless of the purchaser’s intent or actions. Leucadia and Blavatnik — Two Strikes You’re Out The FTC has historically afforded parties one strike for inadvertent violations of the HSR Act before seeking penalties. This fall, two parties were hit with fines for repeat violations of the HSR Act. First, in September, the FTC alleged that Leucadia National Corporation, through its subsidiary Jeffries, acquired 13.5% of the voting shares of Knight Capital. Since Jeffries is a broker-dealer, it has an expanded “passive investor” exemption that allows certain institutional investors to go up to 15% of an issuer’s voting stock, but only to the extent that the target is not also the same type of institutional investor as the buyer. Knight Capital is also a broker-dealer, which made the exemption unavailable to Jeffries. Although Leucadia consulted experienced HSR counsel in connection with the transaction, its counsel erroneously concluded that the exemption applied. Because Leucadia had a prior violation in 2007 (for which it wasn’t fined), the FTC fined Leucadia US$240,000 in connection with this missed filing. While this seems like a large fine, the fine was less than 3.5% of the maximum penalty Leucadia could have been fined. Finally, in October, investor Len Blavatnik agreed to pay US$656,000 to settle the FTC’s claims that his company, Access Industries, acquired shares of startup TangoMe without observing the HSR notification and waiting period requirements. Mr. Blavatnik had previously violated the HSR Act in 2010 and made representations to the FTC that he would discuss reportability with counsel prior to any future acquisitions. The FTC alleged that neither Mr. Blavatnik nor Access Industries consulted counsel in connection with the TangoMe purchase, which could explain the relatively high fine, which was approximately 25% of the maximum. 20 | Shearman & Sterling LLP Merger Control 2015 representative matters Shearman & Sterling LLP | 21 BASF Advised BASF on the establishment of a joint venture specializing in cathode materials for lithium-ion batteries with TODA KOGYO Corporation. Bridgepoint Advisers Limited Representing private equity funds managed by Bridgepoint Advisers Limited in the acquisition of Element Materials Technology, a specialist materials testing and laboratory operator from the 3i Group (the main shareholder) for a reported enterprise value of around €900 million. Fairfax Financial Holdings Limited Advised Fairfax Financial Holdings on the acquisition and take-private of Brit Insurance. We advised on the filings in the European Union and the United States and coordinated filings in Brazil, Ukraine, and South Africa. Intercontinental Exchange (ICE) Advising longstanding client ICE on its US$650 million acquisition of London-based Trayport, a provider of software to operate trading networks for over-the-counter (OTC) energy markets. Liberty Global Advising Liberty Global on its £3.5 billion bid for Cable & Wireless Communications Plc., the major communications and entertainment provider, operating in the Caribbean and Latin America. Also acting for Liberty Global on the acquisition of a 3.4% stake in Lions Gate Entertainment Corp. for approximately US$195 million. Mizkan Holdings Acquisition of Unilever’s Ragu and Bertolli Brands. Nokia Represented Nokia on the sale of its HERE digital mapping and location services business to a consortium of leading automotive companies, comprising AUDI AG, BMW Group and Daimler AG, for €2.8 billion. Pall Advised Pall Corporation on its acquisition by Danaher Corporation for US$13.8 billion including assumed debt and net of acquired cash. salesforce.com, inc. Advising salesforce.com, inc. on its acquisition of SteelBrick, Inc., a next generation quote to-cash platform. 22 | Shearman & Sterling LLP 05 Shearman & Sterling LLP | 23 Cartels Foreign component cartels The pipelines of the EU and US antitrust authorities have increasingly been filled with international investigations targeting foreign suppliers of components that were incorporated by the same or other companies into finished products, assembled overseas and then imported into the European Union or the United States. Continued overleaf Shearman & Sterling LLP | 23 24 | Shearman & Sterling LLP Cartels 05 Foreign component cartels These cases (LCD, CRT, Auto Parts,…) raise a number of questions for foreign defendants and potential victims. Two of them are analyzed below. Standing for bringing a civil suit in the US Among those that filed suit against foreign makers of LCD panels in the United States, Motorola sought damages for overcharges based on three categories of price-fixed panels: 1. LCD panels purchased by Motorola that were delivered to it in the United States (category I); 2. LCD panels purchased by Motorola’s foreign subsidiaries and delivered to them outside the United States, where they were incorporated into devices later sold in the United States (category II); and 3. LCD panels purchased by Motorola’s foreign subsidiaries and delivered to them outside the United 3. States, where they were incorporated into devices later sold outside the United States (category III). In November 2014, the Seventh Circuit Court of Appeals found that Motorola could not recover damages on behalf of its foreign subsidiaries (categories II and III).1 The Sherman Act applies when (i) there is a direct, substantial and reasonably foreseeable effect on the US economy; and (ii) the effect gives rise to a federal antitrust claim. The Court assumed the first requirement was met and focused on the second. The anticompetitive conduct increased the cost to Motorola of the cell phones that it bought from its foreign subsidiaries, but the cartel-engendered price increase in the components and in the price of cell phones that incorporated them occurred entirely in foreign commerce. The immediate victims of the price fixing were Motorola’s foreign subsidiaries, which are governed by the laws of the countries in which they are incorporated and operate. As a result, according to the Court, these foreign subsidiaries have to seek relief under the law of these countries. The parent company has no right to seek relief on their behalf in the United States even if it considers US antitrust remedies to be more fearsome than those available under foreign laws. The Court then referred to the Illinois Brick doctrine, which prevents Motorola, as an indirect purchaser, from recovering damages under the Sherman Act.2 The first sale was to a foreign subsidiary of Motorola that could sue the price fixers. The Court stressed that its decision applied to civil cases only and did not diminish the Justice Department’s ability to prosecute foreign subsidiaries for criminal cartel violations. Risk of higher fines in the EU The above-mentioned category II was considered for a different purpose by the EU Court of Justice.3 InnoLux, a manufacturer of LCD panels, sold panels within the InnoLux group to production units located outside the European Economic Area (EEA). These units then incorporated these LCD panels into TVs and IT products, which were then ultimately sold in the EEA to third party companies. The European Commission (EC) took those sales into account (“direct EEA sales through transformed products”) when calculating the fine imposed on InnoLux. On appeal, the company claimed that these sales of finished products by its subsidiary situated outside the EEA were wrongly included in the calculation. The Court of Justice disagreed. According to the Court of Justice, ignoring the value of captive sales of cartelized products outside the EEA would inevitably favor vertically integrated firms that incorporate a significant portion of the cartelized products (as a component) in the production units Shearman & Sterling LLP | 25 located outside the EEA, and then sell the transformed products within the EEA. For the Court of Justice, excluding these sales from the calculation of the fine would enable these companies to avoid a fine proportionate to their importance on the market. The Court of Justice held that there is nothing in EU competition law that prevents the EC from taking into account the value of the cartelized components sold and incorporated into a transformed product outside of the EEA, and subsequently sold into the EEA, when determining the fine. The Court of Justice stressed, however, that the sales of transformed products would be taken into account only up to the value of the cartelized components that were incorporated into these products, when the latter were sold to third party companies established in the EEA. The Court of Justice rejected InnoLux’s argument that taking those sales into account for the purpose of calculating the fine would likely result in the same anticompetitive conduct giving rise to concurrent penalties imposed by non-EU competition authorities. It held that neither the principle non bis in idem nor any other principle of law obliges the EC to take account of proceedings and penalties to which the undertaking has been subject in non-EU States. The position adopted by the Court of Justice risks encouraging the EC to include more non-EU turnover in its fine calculation in future cases. This approach would eventually lead to higher fines. This could also at some point cause friction with non-EU antitrust authorities, as those fines could be seen as having extraterritorial effects. Foreign subsidiaries have to seek relief under the law of their countries even if US antitrust remedies are considered to be more fearsome 1. Motorola Mobility LLC v. AU Optronics Corp., 746 F.3d 842 (7th Cir. 2014). 2. Illinois Brick Co. v. Illinois, 431 US 720 (1977). 3. Case C-231/14 P, InnoLux Corp. v. European Commission (EU:C:2015:451). 26 | Shearman & Sterling LLP 06 Shearman & Sterling LLP | 27 Cartels Dawn raids: A short global overview In an increasing number of jurisdictions, dawn raids are used as an investigative step into breaches of competition law. They often lead to tensions within companies as well as reputational and financial harm. As antitrust authorities do not hesitate to conduct simultaneous dawn raids across jurisdictions, international companies should be aware of the key aspects of the dawn raid procedures in major jurisdictions. Continued overleaf Shearman & Sterling LLP | 27 28 | Shearman & Sterling LLP Cartels 06 Dawn raids: A short global overview EU The European Commission (EC) has broad powers during a dawn raid, including the right under Article 21 of Regulation 1/2003 to access private premises, where it has reasonable suspicion that records related to the suspected infringement are being kept at such premises. The EC is also entitled to seal business premises and review relevant business records. Contrary to other jurisdictions such as the US or Brazil, a warrant is in principle not required for the EC to enter premises. Although legal privilege can limit the EC’s access to certain documents, this applies only to communications from private practice lawyers qualified in the European Economic Area. The EC may use builtin (keyword) search tools or “forensic IT tools” to copy, search and recover data from the company’s systems and data. This can be performed across the company’s “IT environment” and “all storage media,” including the employees’ private devices, which are used for professional purposes.1 This approach has been heavily criticized, as it may clash with data protection rules. The EC has imposed and will impose fines on companies that obstruct an inspection; in 2012, the Court of Justice confirmed a €38 million fine imposed on E.ON for the breaching of a seal. In 2014, the General Court upheld a EC decision imposing a €2.5 million fine on Energetický a prumyslový and EP Investment Advisors for failing to comply with a request to block email accounts of all key individuals targeted by the inspection. US Prior to a dawn raid, US antitrust authorities must obtain a search warrant from a federal or magistrate judge. The warrant must include a description of the premises to be searched and any items to be seized, as well as the time frame within which its powers must be exercised (which cannot be more than 14 days). The US authorities can seize electronic items such as hard drives, laptops and mobile phones, and subsequently make digital copies of electronic data on such devices offsite. Inspectors must provide companies with a list of items seized, but companies are advised to prepare a more detailed list themselves to ensure they have precise information about the scope of the investigation. US authorities are not, however, entitled to access any forms of internal or external lawyer-client communications, as these are legally privileged. Any obstructions of inspections can lead to criminal offenses such as perjury, as well as the imposition of fines. In 2002, a fine of US$1 million was imposed on Morgan Crucible Company, plc. for tampering with evidence and destruction of documents related to the investigation. Individuals in the US can also be imprisoned for up to 20 years and fined up to a maximum of US$250,000 when they destroy, withhold, alter or falsify evidence. In 2014, a one year prison sentence was imposed on a former executive of Denso Corp. due to his deletion of emails and electronic documents relevant to a cartel investigation. Brazil The Brazilian competition authority must obtain a search warrant from a federal judge before conducting a dawn raid and be accompanied by the federal police. State or federal police authorities perform the unannounced inspections when they relate to criminal breaches of Brazilian competition law, such as a cartel. To be valid, the warrant must specify the address of the premises to be searched and the specific items to be seized. The search warrant authorizes the entry and search of the business and private premises, to seal business premises, to seize any items or records and to both examine and copy documents from the company’s IT systems. Where such copies cannot be made, the authorities may seize the hard drives themselves. All forms of lawyer-client communications are protected by legal privilege. Shearman & Sterling LLP | 29 Japan Dawn raids in Japan are managed through the Japan Fair Trade Commission (JFTC)’s administrative procedure, which does not require a search warrant. Instead, it is sufficient that the JFTC has launched an investigation into the relevant company. Inspectors need only present a written summary of the case (facts and alleged legal infringements) prior to commencing an inspection. Any obstruction of inspections can lead to fines of up to ¥3 million (approximately US$25,000), and individual prison sentences of up to one year, but as of October 2015, such obstruction enforcement powers have not yet been exercised. The JFTC can inspect both business and private premises. It can review and copy any documents or materials relevant to the case, including electronic files and data. More importantly, claims of legal privilege or professional secrecy do not limit the JFTC’s access to documents. A proposal to introduce such protections was discussed at a government panel in December 2014, but it has not yet prospered. Hong Kong Hong Kong’s new antitrust regime came into force on December 14, 2015. The Hong Kong Competition Commission (HKCC) is entitled to conduct dawn raids once it has been granted a warrant from the Court of First Instance. The Court will assess whether there are reasonable grounds to suspect that documents relevant to the investigation are, or are likely to be, on the relevant premises. Parties obstructing dawn raids can be fined up to HK$1 million (approximately US$130,000) and could be subject to a two year prison sentence. Obstruction includes the destruction or falsification of documents, the provision of false or misleading information and/or the physical obstruction of a search. The HKCC can access, take possession of, search and copy information recorded in any form, including electronic data. Hard drives and mobile phones can be taken, but must be returned if deemed to be outside the scope of the investigation. The HKCC will not be able to access legally privileged documents in the inspection.2 The company is given seven days, or longer in cases with large volumes of documents, to identify the seized documents that it claims are legally privileged. 1. Explanatory note on Commission inspections pursuant to Article 20(4) of Council Regulation No 1/2003, revised on September 11, 2015 2. Guidance on the practical application of legal privilege was issued by the HKCC on December 31, 2015. The EC may use built-in keyword search tools or “forensic IT tools” to copy, search and recover data from across the company’s “IT environment” and “all storage media,” including the employees’ private devices, which are used for professional purposes 30 | Shearman & Sterling LLP Case Year Jurisdictions Simultaneous Dawn Raids Sanctions/Fines Imposed3 Chemicals/PVC 2003 EU Japan US Canada Yes; this was the first instance of international cooperation in dawn raids. Total EC fines of €344.5 million (approx. US$391 million) imposed on acrylic glass companies, and €388.1 million fines (approx. US$440 million) imposed on bleaching chemical companies. Fines in the US were US$72.9 million in respect of bleaching chemical companies, and no fines were imposed on acrylic glass producers. Fines in Japan were ¥1.4 billion (approx. US$12.3 million). Air Cargo 2006 US EU Australia New Zealand Canada South Korea Yes. In the US, fines of more than US$1.8 billion were imposed and six executives were imprisoned; Australia imposed fines of A$46.5 million (approx. US$35 million); and Canada imposed total fines of over C$17 million (approx. US$15 million). Marine Hoses 2007 EU US Australia Japan Brazil South Korea Dawn raids in the US, UK, EU were performed simultaneously. This includes one dawn raid at a UK home address. Japan, Australia, Brazil and South Korea investigations followed shortly afterwards. The EC imposed fines totaling €131 million (approx. US$180 million). US imposed fines totaling US$40.3 million. Brazil imposed fines totaling R$13.5 million (approx. US$6.9 million). Japan imposed fines on only one entity, totaling ¥2.4 million (approx. US$20,000), South Korea imposed fines totaling ₩557 million (approx. US$599,000). Eight executives from the UK, France, Italy and Japan were arrested in the US. Three UK citizens pleaded guilty to cartel infringements in the US, to subsequently serve a sentence of up to 30 months. First set of convictions under the UK’s criminal cartel offence. Refrigeration Compressors 2009 Brazil US EU Yes. US DOJ imposed fines totaling US$140.9 million on two of the entities. A total of €161.2 million was imposed on the parties by the EC (approx. US$225 million), and competition authorities in Canada, New Zealand and Chile also fined companies following dispute actions brought by third parties as a result of the infringement. In Brazil, the charges against the companies were dropped and no fines were imposed, but three individual executives were sanctioned. Automotive Bearings 2011 EU Japan Dawn raid was first performed in Japan, followed a few months later by EC dawn raids. A fine of €953 million (approx. US$1.3 billion) was imposed by the EC. In Japan, the total criminal fines imposed amounted to ¥960 million (approx. US$12 million). One of the entities appealed this fine, which is still pending. Total administrative fines of ¥13 billion (approx. US$163 million) were also imposed. The Competition Commission in Singapore also imposed fines on four Japanese companies, totaling approximately US$18 million, following information provided by the JFTC and the EC. 3. Conversions based on average annual rates of the investigation year. Past simultaneous dawn raids across jurisdictions Shearman & Sterling LLP | 31 Cartels 06 Dawn raids: A short global overview (continued) As in the EU procedure, documents will be placed in sealed containers and removed from the company’s premises where their privileged status is disputed. The company and the HKCC will then discuss the most appropriate method for inspection of such documents and resolution of the dispute, including potential legal instruction or submission to the Court. Where the company has not substantiated its privilege claims in a timely manner, resulting in undue delay, the HKCC can provide the company with a seven-day notice of its intention to inspect the documents that are subject to the outstanding privilege claims. The HKCC can perform such inspection where the company fails to substantiate such privilege claims within the seven day timeframe. Practice In light of the above and particularly the different rules applicable to unannounced inspections in different jurisdictions, companies are advised to have detailed inspection compliance programs in the countries in which they operate, including taking the following key steps: 1. IT staff should be trained and prepared to comply with the requests of authorities to access and copy electronic files; 2. Awareness of the differences in legal privilege rules in each jurisdiction where the company operates should be considered in order to adequately protect relevant documents; and 3. Internal policies for staff and employees should be prepared, reviewed and implemented to ensure full cooperation with inspectors and to minimize the potential exposure to fines. Cartels 2015 representative matters 32 | Shearman & Sterling LLP Bank of America Representing Bank of America in antitrust class actions alleging that financial institutions conspired to manipulate benchmark rates that are used to settle foreign currency exchange transactions. Plaintiffs allege that the conspiracy to manipulate the benchmark rates impacted the pricing on trillions of dollars of foreign exchange instruments and inflicted severe financial harm on plaintiffs. Bank of America and Nomura Securities International Representing Bank of America and Nomura Securities International, Inc. in a class action alleging that 13 defendant banks conspired to manipulate the ISDAfix benchmark rate used for interest rate derivatives transactions. Plaintiffs claim that the alleged manipulation impacted trillions of dollars of financial instruments and that the injuries to the class “were felt on almost all interest rate derivatives transactions that referenced ISDAfix, [and] are likely in the billions of dollars class-wide.” BNP Paribas Securities and Mizuho Securities USA Representing BNP Paribas Securities and Mizuho Securities USA, each with a different Shearman & Sterling team, in the Treasuries antitrust class actions. The complaints all allege that the defendants conspired to fix and manipulate the prices of Treasury securities and related financial products at both the point of purchase and the point of sale. Cargolux Representing Cargolux in both the successful application for annulment of the European Commission’s Decision before the General Court and the damages litigation in the United Kingdom before the High Court. Hanjin Shipping Represented a major international liner shipping company in the European Commission investigation into container shipping transport services concerning alleged anticompetitive price signaling behavior. JTEKT Corporation Representing JTEKT Corp. in the Auto Parts multidistrict follow-on antitrust class action. Major International Bank Advising a major international bank on the European Commission’s investigation of alleged collusion to manipulate the foreign exchange spot sector. Globally, FX is a US$5.3 trillion a day market. The investigation is still preliminary but commentators expect FX to at least mirror the LIBOR scandal and sanctions. The European Commission is investigating a number of major banks. Major International Banks Representing a number of major international banks in connection with the European Commission’s investigations into the alleged manipulation of benchmark rates and alleged collusion in associated derivative trading such as CHF LIBOR, JPY LIBOR and EURIBOR. Major International Bank Representing a major international bank in the Precious Metals Investigation into alleged anticompetitive behavior in precious metals spot trading in the European Union / European Economic Area. Mizuho Corporate Bank, Ltd., Mizuho Trust & Banking Co., Ltd., and Mizuho Bank, Ltd. (collectively, Mizuho) Representing Mizuho in a putative civil class action related to alleged manipulation of yen LIBOR and euroyen TIBOR rates. Major Asian manufacturing company Representing a major Asian manufacturing company in an enquiry into alleged anticompetitive behavior in the capacitors sector in the European Union/European Economic Area. Several major financial institutions Representing several major financial institutions in LIBORand TIBOR-related investigations and litigations, following reports in The Wall Street Journal and other publications questioning the accuracy of US dollar LIBOR rates governing trillions of dollars of transactions throughout the world. Shearman & Sterling LLP | 33 34 | Shearman & Sterling LLP 07 Shearman & Sterling LLP | 35 Compliance EU antitrust law and sport: Survival of the fittest? Despite being an easy source of imagery for Brussels speech writers and spokespersons — no EU antitrust speech is complete without a reference to a “level playing field” or the European Commission (EC) acting as a “referee” to ensure that “the rules of the game” are respected — sport itself might not be the most obvious candidate for the application of EU antitrust rules. Continued overleaf Shearman & Sterling LLP | 35 36 | Shearman & Sterling LLP Compliance EU antitrust law and sport: 07 Survival of the fittest? It is just a game, after all. However, in the EU, as elsewhere in the world, sport can be big business. For example, in 2012, national broadcasting rights for the English Premier League (of professional football) clubs for the next three-year cycle sold for over £5 billion (US$7.7 billion / €7.3 billion). Recent years have seen a plethora of antitrust cases covering a whole range of different aspects of sport, including rules concerning the organization of and participation in sporting competitions, broadcasting rights, player transfer rules, multiple ownership of sporting clubs, ticket sales, financial governance, sale of land to public authorities, online sales of goods, even anti-doping rules. Although not directly an antitrust issue, the recent criminal probes of certain high-ranking FIFA officials has thrown football, and sport more generally, into an unwelcome legal spotlight, and they raise serious issues of governance and accountability. Some may consider that antitrust law could play a role in establishing a better regulatory framework for sport. The European Courts have consistently held that the economic law of the EU (free movement and antitrust rules) applies to the practice of sport if and to the extent that it constitutes an “economic activity.” Conversely, excluded from the ambit of EU law are “question[s] of purely sporting interest” providing that rules under this head “remain limited to [their] proper objective.”1 The European Courts have never precisely defined the concept of “economic activity” or “purely sporting interest” in this context, leaving the question to be dealt with on a case-by-case basis. For example, the EC clearly considers the activities of professional sports clubs and associations to be within the scope of EU law, including EU antitrust law (as well as EU internal market rules). However, the European authorities recognize that when one applies antitrust and other EU law to sporting activities, due account must be taken of sport’s particular characteristics. According to the EC, sport has “popular, educational, social and cultural dimensions” which must be reconciled with its economic dimension and that therefore “[t]he application of [EU] rules to the sporting sector must take account of the specific characteristics of sport, especially the interdependence between sporting activity and the economic activity that it generates, the principle of equal opportunities and the uncertainty of results.”2 In particular, the EC has stated that “it is desirable to maintain and create a certain balance among football clubs playing in a league because it creates better and more exciting football matches, which could be reflected in/ translate into better media rights” and that there may be economic benefits in “protect[ing] weaker clubs through a cross-subsidisation of funds from the richer to the poorer clubs.”3 Similarly, the Court of Justice has recognized “the considerable social importance of sporting activities and in particular football in the [EU], the aims of maintaining a balance between clubs by preserving a certain degree of equality and uncertainty as to results and of encouraging the recruitment and training of young players.”4 Therefore, in the EU, the application of antitrust rules to sport is not simply survival of the fittest and in order to ensure the most intense and fair competition on the field, some (but not too much) collaboration and self-restraint may be required off the field. Of course, this type of conundrum is not unique to sport — think for example of aviation alliances5 or standardization activities6 — and there will inevitably be some read across from other areas, the “specificity of sport” means that the application of antitrust rules to sport presents some unique challenges. As concerns regulatory bodies, in particular FIFA, the General Court has observed that “[t]he very principle of regulation of an economic activity concerning neither the specific nature of sport nor the freedom of internal organisation of sports associations by a private-law body […] which has not been delegated any such power by a public authority, cannot from the outset be regarded as compatible with [EU] law, in particular with regard to respect for civil and Shearman & Sterling LLP | 37 economic liberties.”7 For example, some years ago, the EC investigated the organizers of Formula 1 motor racing and obtained a commitment that the organizing bodies would amend their rules that applied to teams and tracks so that they “are not used to prevent or impede new competitions unless justified on ground relating to the safe, fair or orderly conduct of motor sport.” The EC was particularly concerned “to lower or remove barriers to entry for the creation and operation of other motor sport series, in particular those that might compete with Formula One.”8 The ongoing EC investigation into the rules of the International Skaters Union limiting participation in rival speed skating events has potentially very significant ramifications.9 With the seemingly ever-increasing sums of money involved in sport and a perceived regulatory gap, it seems a safe bet that antitrust scrutiny of sporting activities will only increase in the years to come. Some may consider that antitrust law could play a role in establishing a better regulatory framework for sport 1. Case 36/74, Walrave and Koch v. UCI (EU:C:1974:140), paras 4 and 8-9. 2. Report from the Commission to the European Council with a view to safeguarding current sports structures and maintaining the social function of sport within the Community framework: the Helsinki Report on Sport, COM(1999) 644 final, December 10, 1999. 3. Case COMP/C.2-37.398 — Joint selling of the commercial rights of the UEFA Champions League, paras 129, 131 and 165. 4. Case C-415/93, Bosman (EU:C:1995:463), para. 106. 5. See e.g. “Transatlantic Airline Alliances: Competitive Issues and Regulatory Approaches,” A report by the European Commission and the United States Department of Transportation, November 16, 2010. 6. See e.g. Commission Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, Chapter 7. 7. Case T-193/02, Laurent Piau v. European Commission (EU:T:2005:22), para. 77. It should be noted that no competition law infringement was found in that particular case that concerned the amended FIFA rules on players’ agents. 8. Commission Press Release IP/01/1523 “Commission closes its investigation into Formula One and other four-wheel motor sports,” October 30, 2001. 9. Commission Press Release IP/15/5771 “Antitrust: Commission opens formal investigation into International Skating Union’s eligibility rules,” October 5, 2015. 38 | Shearman & Sterling LLP 08 Shearman & Sterling LLP | 39 Compliance Notable developments since the UK’s Financial Conduct Authority became a concurrent competition regulator in the UK Since being granted concurrent competition powers on April 1, 2015, the Financial Conduct Authority (FCA), the UK financial sector watchdog, is now fielding one of the largest competition teams in the country, following a continued recruitment drive aimed at significantly increasing the number of competition specialists among its ranks. Continued overleaf Shearman & Sterling LLP | 39 40 | Shearman & Sterling LLP Compliance Notable developments since the UK’s Financial Conduct Authority became a concurrent 08 competition regulator in the UK The FCA had around fifty competition experts at the start of 2015 and this number will have doubled by the end of 2015. The FCA has recruited at all levels from private practice as well as other regulators, including the Competition and Markets Authority (CMA), and recently bolstered its decision-making committees with a number of high-profile signings from industry and academia. An expansion of this nature suggests that the FCA aims to take on a significant number of new cases and, in particular, exercise its newly-enhanced powers to enforce UK competition law. This includes taking on cartel and abuse of dominance cases under the Competition Act 98 (CA98), as well as powers to carry out market studies under the Enterprise Act 2002 (EA02) and make market investigation references to the CMA. The FCA’s track record to date is heavily weighted towards market studies. These broad inquiries allow the FCA to look at markets that may not be working well for consumers. Studies have been launched in relation to SME banking, cash savings, retirement income, insurance add-ons and credit cards, with mortgages and asset management next in line for scrutiny. One of the most significant market studies launched by the FCA in 2015 was that into investment and corporate banking services. This was the first wholesale financial market to attract FCA scrutiny following 2014’s wide-ranging “call for inputs.” The FCA is considering three main topics: (i) customer choice of banks and advisers; (ii) limited transparency in terms of information and process; and (iii) bundling and cross-subsidization of services. The FCA chose to launch this particular market study using its financial regulatory powers under the Financial Services and Markets Act 2000 (FSMA) rather than under its concurrent function and the provisions of EA02. This means the FCA is under no statutory time pressure, unlike market studies under EA02 where “provisional findings” must be issued after six months and there is a 12 month time limit to complete the study. What has become clear following the FCA’s issuance of a policy statement on its concurrency guidance is that the FCA does not consider itself prevented from using its FSMA powers to carry out competition-based market studies, from using FSMA powers to impose marketwide or firm-specific remedies at the end of an EA02 market study, or from making a market investigation reference at the end of a FSMA market study. In other words, it has total flexibility to pick and choose between its competition and regulatory powers. Even more contentious has been the discussion around “Principle 11,” a reporting duty obliging regulated firms to self-report anything of which the FCA “would reasonably expect notice.” The FCA proposed an amendment to its Handbook to make explicit that authorized firms are obliged to disclose suspected infringements of “any applicable competition law.” A number of concerns were raised during the consultation regarding the scope of this proposal, in particular because it applied to possible infringements anywhere in the world and there was no materiality threshold. The FCA has amended the scope to catch only “significant” infringements, which is clearly a positive development (although there is still no ‘bright line’ test for what is relevant). The FCA maintains that disclosure of non-UK/ EU infringements is relevant to its remit and says it expects firms to “take a sensible approach” (which again appears somewhat vague) to the question of whether their conduct “may have” infringed competition law. Respondents to the consultation also raised questions as to whether there is a conflict with the privilege against self-incrimination and how the rule will interact with Shearman & Sterling LLP | 41 the CMA’s leniency regime. The FCA disagreed that there were any particular issues in this regard and this will have left companies and their legal advisers with unresolved concerns. Similarly, the FCA’s insistence on retaining the option to require parties wishing to settle CA98 cases with the FCA to waive their rights of appeal puts it at odds with the CMA’s position on the same issue and has increased concerns that the FCA’s combined suite of powers are overly broad. Another interesting development has been the FCA’s consultation on proposed new FSMA rules for fair, reasonable, and non-discriminatory (FRAND) access to regulated benchmarks. With forthcoming legislation such as MiFIR/MiFID II and a possible EU Benchmarks Regulation in the pipeline, it is a legitimate question to ask if there is a danger of over-regulation in this area. Arguably, the additional rules proposed by the FCA are unnecessary, given that the FCA now has concurrent powers to investigate and sanction excessive and/or discriminatory pricing by dominant firms active in financial services such as benchmark provision. There are important checks and balances inherent in a CA98 procedure and a high evidential threshold that must be overcome before a competition law infringement can be established. In the absence of compelling evidence of a prima facie competition law infringement, this could explain why in practice the FCA appears to be favoring market studies and/or its regulatory powers as a means to investigate and resolve perceived competition concerns, rather than its newlygranted competition powers. If true, this presumably gives rise to a certain amount of unmet demand within the organization, in the sense that the FCA’s new competition recruits will doubtless be keen to pursue CA98 cases as well as market studies. The more obvious candidate for a CA98 test case could be an abuse of dominance case rather than a cartel, given that cartels in the financial sector are likely to come before the European Commission (see for example LIBOR and EURIBOR). Currently, it seems the FCA is still in the process of identifying some suitably low hanging fruit that it can convert into a reasonably easy victory. There will come a time, however, when the FCA will need to be seen to be making active use of its CA98 powers if it is to avoid questions being asked as to whether it was in fact necessary for the FCA to have been made a concurrent regulator. The FCA aims to take on a significant number of new cases and, in particular, exercise its newly-enhanced powers to enforce UK competition law 42 | Shearman & Sterling LLP 09 Shearman & Sterling LLP | 43 Compliance The EU Digital Single Market Initiative: The end of territorial distribution models? On May 6, 2015, the European Commission (EC) launched the Digital Single Market Initiative (DSM). The DSM has been promoted as the number one priority of the current EC under President Jean-Claude Juncker. The initiative combines a series of legislative actions with wide-ranging antitrust enquiries aimed at eliminating perceived barriers to cross-border online trade within the European internal market. Continued overleaf Shearman & Sterling LLP | 43 44 | Shearman & Sterling LLP Compliance The EU Digital Single Market Initiative | The end 09 of territorial distribution models? The DSM is built on three main themes, namely: “better access for consumers and businesses to digital goods and services across Europe,” “shaping the environment for digital networks and services to flourish,” and “creating a European digital economy and society with long term growth potential.” For each of these themes, the DSM calls for a number of legislative reviews, enforcement actions and enquiries to be undertaken during 2015 and 2016. Without doubt, the DSM is an ambitious policy project. But, equally, the EC appears determined to deliver. Diagnosis: Fragmented online markets The EC believes that the digital markets in the EU still remain fragmented along the national borders of its Member States. The EC found that while 50% of all consumers in the EU shopped online in 2014, only 15% of those purchased a product or a service from a vendor located in another Member State.1 The EC also found that consumers sometimes cannot purchase goods or services that are available in other Member States, or only at prices or under conditions that are available in their own Member State. The EC estimates that by fully connecting the digital markets in Europe, a whopping €415 billion could be added to the continent’s annual gross domestic product. The EC is also convinced that only a fully connected digital market provides the breeding ground for European champions that can become the Amazons, Facebooks, Googles or Apples of the future. Today, Europe’s fragmented digital markets are believed to often prevent European start-ups to grow to scale. The EC is convinced that in order to become competitive in a world that is being transformed by digital technologies, Europe needs to change. However, the DSM is as much the consequence of longstanding, fundamental principles of EU law as it is a product of such realpolitik. The integration of various national markets into one single internal market is and always has been the principal economic rationale of the EU. EU policy envisages that goods and services can move freely throughout the internal market, with the result that those most demanded by consumers will be most successful, irrespective of their country of origin. Remedy: Removing regulatory and private barriers to crossborder trade The EC is seeking to remove what it views as “barriers” to cross-border trade. To this end, the EC is pursuing a twofold approach challenging both “regulatory” barriers and “private” barriers: ▪ Regulatory barriers: The DSM seeks to identify and remove the remaining disparities in national laws that companies need to deal with when they venture out of their home market. This includes differences in consumer laws, VAT collection processes, rules on contracts, etc. ▪ Private barriers: These are primarily contractual restrictions in supply and distribution agreements that prevent retailers from selling goods or services online to customers located in another EU country. While tackling regulatory barriers requires changes to existing laws, the EC uses its existing powers under EU competition law to tackle the perceived “private barriers.” EU competition law is based not only on competition economics, but also on the policy objectives of market integration. EU competition rules, in particular the rules on vertical agreements, are designed to encourage cross border trade and reduce price differentials between different Member States. When it comes to perceived private barriers to cross-border online trade, geo-filtering is certainly the EC’s bête noire. 2 Geo-filtering technology can be configured to block or re-route consumers based on their location. Accordingly, geo-filtering is facing intense scrutiny by the EC. Shearman & Sterling LLP | 45 However, the integrative function of competition law has limits. Allocating a territory exclusively to one reseller is generally legitimate. The distinction between “active” and “passive” sales is crucial in this context. Contractual restrictions on ‘active sales’ are usually unproblematic. However, contractual restrictions on passive sales are often considered to be impediments to competition. Passive sales are sales that are made in response to unsolicited requests by customers that have not been targeted by the seller. Active sales are sales that are the result of the seller’s efforts to target a specific customer group or territory. While the distinction is fairly clear in the analogue space, it appears tremendously difficult to make the distinction in the online space. New forms of marketing that are emerging in the internet era, such as stealth, viral and word-of-mouth marketing, barely fit into the old framework. Result: Is the DSM the beginning of the end of territorial distribution models in Europe? The DSM initiative is in full swing. For example, copyright territoriality has already been the target of a multi-pronged assault, with the EC pursuing an antitrust investigation3 and various legislative reviews in parallel. The EC has also launched an antitrust sector enquiry. Initially focused on distributors of digital content, the sector enquiry has a very broad scope and is expected to eventually cover a wide range of products and services. Depending on the results of the enquiry, the EC can pursue separate cases against individual companies. Furthermore, it has launched a consultation on geoblocking and other geographically-based restrictions when shopping and accessing information online. However, while competition law enforcement can be an effective tool in tackling restrictions included in contracts, the EC’s toolset is much more limited where the company unilaterally decides not to service a customer in a specific Member State. Unilateral behavior can be challenged only under EU competition rules if it amounts to an abuse of a dominant market position. Establishing dominance requires a complex analysis. Also, the rules on dominance have historically not been employed to capture price discrimination or refusals of supply vis-à-vis end customers. Nonetheless, the EC is fervent about the single market. Where it can, the EC will vehemently enforce competition law to facilitate cross-border trade. Companies pursuing a territorial approach to selling its products or services within Europe should thus review its exposure to antitrust risks. The EC is convinced that in order to become competitive in a world that is being transformed by digital technologies, Europe needs to change 1. Commission Staff Working Paper — Analysis and Evidence Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: A Digital Single Market Strategy for Europe, COM(2015) 192 final. 2. For example, Vice-President for the Digital Single Market, Andrus Ansip, asked whether there is “anyone who would not want to get rid of geo-blocking” and clearly expressed his wish to “do away with all those fences and walls that block us online. People must be able to freely go across borders online just as they do offline.” See Blog post by Andrus Ansip, Digital for Europe: mapping out the way ahead, November 12, 2014, available at: https://ec.europa.eu/ commission/2014-2019/ansip/blog/digital-europe-mapping-out-wayahead_en. See also, Commission Press Release IP/15/4653 “Digital Single Market Strategy: European Commission agrees areas for action,” March 25, 2015. 3. In 2014, the Commission opened an antitrust investigation to examine certain clauses in the pay-TV licensing agreements between several major US film studios and the largest European pay-TV broadcasters. 46 | Shearman & Sterling LLP 10 Shearman & Sterling LLP | 47 Unilateral Conduct Comparison between the essential facilities doctrine in the EU and the US Although essential facilities cases are few and far between, their legal standard is informative. We compare the legal standards for the essential facilities doctrine as applied in the EU and the US. It intends to show that both legal systems have little, yet fundamental, differences in their approaches to essential facilities cases and that these differences stem from fundamentally different views held in each legal system as to the interaction between property rights, freedom of initiative and promoting economic efficiency through competitive markets through antitrust law. Continued overleaf Shearman & Sterling LLP | 47 48 | Shearman & Sterling LLP Unilateral Conduct Comparison between the essential facilities 10 doctrine in the EU and the US The US origin of the essential facilities doctrine The essential facilities doctrine is said to trace its origins to United States v. Terminal Railroad Ass’n. 1 In that case, the Supreme Court held that it was improper for a group of railroads that jointly owned the only terminal that could accommodate traffic into and out of St. Louis to deny their competitors access to the terminal on fair terms because such access was essential to those competitors’ ability to compete on the downstream rail market. However, Terminal Railroad did not involve single firm conduct, but rather conduct by a number of parties. It was in Alaska Airlines, Inc. v. United Airlines, Inc., 2 that the US courts (the Ninth Circuit) approached the issue of essential facilities under Section 2 of the Sherman Act. It described the doctrine as “impos[ing] liability when one firm, which controls an essential facility, denies a second firm reasonable access to a product or service that the second firm must obtain in order to compete with the first.”3 The Ninth Circuit, therefore, established four conditions for a party to make a claim against a company holding an essential facility: (i) the privately held control of a facility, (ii) the competitors’ impossibility of duplicating this (essential) facility, (iii) a refusal to supply/give access and (iv) the feasibility of providing access. US courts then indicated that the essential facilities doctrine could apply to intellectual property just as it applied to physical assets. Thus, regarding telephone directory listings protected by copyright, one such court held: “[a]lthough the doctrine of essential facilities has been applied predominantly to tangible assets, there is no reason why it could not apply, as in this case, to information wrongfully withheld. The effect in both situations is the same: a party is prevented from sharing in something essential to compete.”4 The EU version of essential facilities EU Courts have been less forthcoming in referring to the essential facilities doctrine, never having explicitly endorsed it in its jurisprudence. The only precedents that make an explicit reference to the essential facilities doctrine are decisions by the European Commission (EC) on airport and port infrastructures and services (e.g., in Sea Containers v. Stena Sealink5 where a so-called “essential facility” was referred to for the first time). However, EU Courts have dealt with the issue of refusal to deal on a number of occasions. It was first considered in Commercial Solvents6, where the Court of Justice held that when (i) a dominant company in an “upstream” market (ii) refused to supply its competitors with (iii) an “indispensable” input, (iv) if such refusal to supply risked eliminating competition in the downstream market and (v) there were no objective justifications and/or overriding efficiencies, it could be held liable for infringing Article 102.7 On requests for access to physical infrastructure — closer to the origin of the essential facilities doctrine — the Court of Justice in Bronner8 narrowed the scope of a duty to deal and deemed that a dominant company could not be held liable in cases where it refused to supply an input where there were no “technical, legal or even economic obstacles capable of making it impossible, or even unreasonably difficult” for the requesting company to operate in the downstream market — i.e., when the input sought would not be indispensable and the refusal to deal would not lead to the elimination of all competition in the market. In refusal to deal cases on intellectual property, the Court of Justice also held consistently that only in “exceptional circumstances” a refusal to deal could be deemed abusive. In Magill9, the Court of Justice ruled that only where a refusal would pre-empt the appearance of a new product and reserved the secondary market to the dominant company, thereby excluding all competition, it could be deemed abusive. This was confirmed in IMS Health, where the Court of Justice further held that “only where the undertaking which requested the licence does not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market”10 could there be antitrust liability for a refusal to deal. And although in the first Microsoft case11, the General Court held that a “limitation not only of production or markets, but also of technical development” (emphasis added)12 could be Shearman & Sterling LLP | 49 pertinent to the assessment of a refusal to deal, in the second Microsoft case13, the General Court recalled that a refusal to deal could be deemed abusive only if it prevented “the emergence of a new product for which there is a potential consumer demand, that it is unjustified and that it is such as to exclude any competition on a secondary market.”14 The Guidance Paper and Trinko In line with the case law, the Guidance Paper foresees that access to an essential facility or a network is a type of refusal to deal.15 However, the respective Section of the Guidance Paper is essentially shaped by the two most common types of refusal to deal: (i) (margin squeeze) cases in (network) regulated markets where obligations to supply are already imposed by a public authority16 and (ii) the termination of existing supply arrangements.17 This could explain that the requirements on elimination of effective competition and consumer harm are substantially less demanding than those set out in the courts’ case law. In the Guidance Paper, the EC would be satisfied with an elimination of competition (and not all competition) immediately or over time of effective competition18 (encompassing constructive refusals to supply yet defying the notion of essential) and consumer harm in cases “where follow on innovation is likely to be stifled”19 (an elusive hypothetical to be assessed by any alleged holder of an essential facility). This marks a substantial departure from the US courts’ stance in Trinko. 20 In Trinko, faced with a claim about the failure of the essential facilities’ holder to cooperate and provide assistance to would-be competitors (as required by the Telecommunications Act), the US Supreme Court ruled that “essential facilities claims should […] be denied where a state or federal agency has effective power to compel sharing and to regulate its scope and terms.” In essence, with Trinko, the US Supreme Court disregarded its lower courts’ jurisprudence on the essential facilities doctrine and considered this type of regulatory intervention inherently best suited for the legislative branch. Essential facilities going forward Article 102 TFEU and Section 2 of the Sherman Act share a common role as a general provision with a horizontal reach, seeking to promote effective competition by ensuring that markets function properly. By enabling public and private enforcers to defend the competitive process, these provisions stand at the opposite of sectorial regulatory intervention under the aegis of the legislative branch. Neither provision seeks to address market failures and — as the US Supreme Court noted in Trinko — the courts would likely be a poor surrogate to properly functioning regulatory agencies, addressing those market failures, where such regulatory intervention is possible. As the essential facilities doctrine impacts the freedom to dispose freely of one’s property — a right that is at the core of the economic and industrial organization — it sits in the fence between horizontal intervention and sectorial regulation. The differences between the EU and the US are informative of the ability of federal agencies to intervene to correct market failures. More importantly, they are indicative of each legal system’s approach to property rights and freedom to trade. The essential facilities doctrine sits in the fence between horizontal intervention and sectorial regulation 1. United States v. Terminal Railroad Ass’n, 224 US 383 (1912). 2. Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536 (9th Cir. 1991). 3. Ibid., at 542. 4. BellSouth Adver. & Publ’g Corp. v. Donnelley Info. Publ’g, Inc., 719 F. Supp. 1551, at 1566 (S.D. Fla. 1988). On appeal, the Eleventh Circuit found, however, that the information was not protected by copyright. 5. Case IV/34.689 — Sea Containers v. Stena Sealink — Interim measures. 6. Cases 6-7/73, Commercial Solvents v. European Commission (EU:C:1974:18). 7. Ibid., para. 25. 8. Case C-7/97, Oscar Bronner GmbH v. Mediaprint Zeitungs — and Zeitschriftenverlag GmbH et al. (EU:C:1998:569). 9. Joined cases C-241/91P and C-242/91P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v. European Commission (“Magill”) (EU:C:1995:98), paras 49-50. 10. Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG (EU:C:2004:257), para. 49. 11. Case T-201/04, Microsoft v. European Commission (EU:T:2007:289). 12. Ibid., para. 647. 13. Case T-167/08, Microsoft v. European Commission (EU:T:2012:323). 14. Ibid., para. 139. 15. Communication from the Commission — Guidance on the Commission’s enforcement priorities in applying Article 102 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, para. 78. 16. Ibid., para. 82. 17. Ibid., para. 84. 18. Ibid., para. 85. 19. Ibid., para. 86-88. 20. Trinko, 540 US 398 (2004). 50 | Shearman & Sterling LLP 11 Shearman & Sterling LLP | 51 Unilateral Conduct The Court of Justice’s preliminary ruling in Huawei v. ZTE This year, the EU Court of Justice considered in Huawei v. ZTE1 whether it is an abuse for a dominant holder of a standard essential patent (SEP) to seek an injunction against a potential licensee. This much anticipated ruling is a bit of a letdown, however. The Court of Justice overlooks the commercial reality of licensing negotiations and adopts a simplistic and stylized novel legal test that tips the balance in favor of the potential licensee. Continued overleaf Shearman & Sterling LLP | 51 52 | Shearman & Sterling LLP Unilateral Conduct The Court of Justice’s preliminary ruling 11 in Huawei v. ZTE The reference The ruling is the result of an Article 267 TFEU reference from the Landgericht Düsseldorf made in the context of litigation in Germany between the two Chinese technology companies. Huawei sought an injunction against ZTE in respect of a patent potentially essential to the 4G/LTE standard, which it had committed to license on fair, reasonable, and nondiscriminatory (FRAND) terms should that patent prove to be actually essential to the standard. ZTE raised a competition law defense and argued that the seeking of an injunction amounted to an abuse of Huawei’s dominant position. The Landgericht Düsseldorf had found itself caught between the competing legal standards of the Bundesgerichtshof (the German Federal Court of Justice) and the European Commission (EC) in determining at what point a dominant company abuses its dominant position by seeking an injunction.2 The Court of Justice summarized the reference from the German court as follows: “In what circumstances the bringing of an action for infringement, by an undertaking in a dominant position and holding an SEP, which has given an undertaking to the standardisation body to grant licences to third parties on FRAND terms, seeking an injunction prohibiting the infringement of that SEP or seeking the recall of products for the manufacture of which the SEP has been used, is to be regarded as constituting an abuse contrary to Article 102 TFEU.”3 The German court did not refer any questions regarding dominance as Huawei’s dominance was not in dispute. The ruling: a novel test On July 16, 2015, the Court of Justice handed down its preliminary ruling. The Court of Justice answered the German court’s question by devising a novel legal standard. “[A]s long as”4 the dominant SEP holder takes certain steps and (as long as) the alleged infringer has failed to take certain other steps, it will not be an abuse for an SEP holder to seek an injunction. The test is as follows: ▪ First, the SEP holder must inform the alleged infringer of the supposed infringement by specifying the patent and the way in which it is purported to have been infringed. ▪ Second, the alleged infringer must have indicated its willingness to agree to a license on FRAND terms. No time period is indicated in the judgment within which the alleged infringer must do this. ▪ Third, the SEP holder should present “a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated.”5 ▪ Fourth, the alleged infringer must continue to use the SEP in question and must have failed to respond “diligently” to the offer made by the SEP holder “in good faith,” and there must not have been any “delaying tactics.”6 If the alleged infringer does not accept the offer made to it by the SEP holder the Court of Justice suggests that it must make a “specific counter-offer” on FRAND terms.7 ▪ Fifth, if the counter-offer is rejected by the SEP holder, the alleged infringer must provide “appropriate” security, such as a bank guarantee that accounts for past acts of the use of the SEP.8 ▪ Finally, where no agreement is reached, the parties “may,” by common agreement, request that the amount of the royalty is determined by an independent third party, without delay.9 The ruling The Court of Justice emphasizes “the particular circumstances of the case,” which it considers to be the essentiality of the SEP for any downstream operator to compete on the market for standard-compliant devices and the commitment that a holder of an SEP gives to the standard-setting organization (SSO) when nominating its patent for inclusion in a standard to license on FRAND terms, which it suggests creates a legitimate expectation that a license will be granted. The Court of Justice also highlighted the fact that the SEP holder can by virtue of holding an essential patent prevent competitors’ products from appearing on the market and Shearman & Sterling LLP | 53 reserve for itself the manufacture of such products. This appears to suggest that every request for an injunction would be granted, which is not the case, as injunctions are a discretionary tool, and the result would be the removal of products from the market. This wrongly assumes that all patents belonging to a given standard are always infringed by products operating that standard. The test conflates the question of whether requesting an injunction can amount to an abuse of a dominant position with the question of when an injunction should be granted. Further, the Court of Justice appears to equate a request for an injunction with a refusal to license by suggesting that the commitment to license on FRAND terms creates a legitimate expectation that a license will be granted. However, the FRAND commitment given by the SEP holder to the SSO does not include a promise not to seek an injunction. FRAND relates solely to the terms on which a license would be granted. The novel test is simplistic and formalistic and leaves a number of questions unanswered. For example, questions are likely to stem from the test as to how FRAND should be determined. Another question that may arise is whether if an implementer indicates as part of its counter-offer that it is willing to have the royalty rate determined by an independent third party, has it satisfied the requirement to present a FRAND offer? In addition, one may ask what it means to act “diligently” and what constitutes “appropriate security.” The ruling assumes that negotiations take place patentby-patent in a neat, formal manner. The ruling does not envisage the real nature of business-to-business negotiations that rarely involve just one exchange of an offer and counteroffer. The Court of Justice also does not consider that patent licensing is more likely to take place on a portfolio basis or that cross-licensing may be an important part of the deal. The ruling departs from both the Orange Book standard and the EC’s decisions in Motorola and Samsung. It unfortunately also does not address more generally when litigation may be abusive. Before Huawei v. ZTE, two General Court judgments, ITT Promedia10 and Protégé11, established the legal standard for abusive litigation. Following those cases, litigation may be deemed abusive where it is manifestly unfounded and is part of a plan to eliminate competition. Regrettably, the Court of Justice in Huawei v. ZTE neither confirmed nor distinguished the General Court’s test. Overall, the ruling provides a limited safe-harbor for an SEP holder that complies with the test set out in Huawei v. ZTE. However, the balance is tipped in favor of the infringer who does not suffer any consequence for its failure to make a FRAND counter offer and may be encouraged on the basis of this ruling to raise an antitrust defense in litigation. National courts will now need to apply the test set out in this case in litigation before them; no doubt they will need to ask further questions. Overall, the ruling provides a limited safe-harbor for an SEP holder that complies with the test set out in Huawei v. ZTE 1. Case C-170/13, Huawei Technologies (EU:C:2015:477). 2. The Bundesgerichtshof’s Orange Book (KZR 39/06, 6 May 2009) decision required an alleged infringer to make an unconditional offer to accept a license on FRAND terms to avoid an injunction. There were also further obligations if the alleged infringer had already used the patent to behave like a licensee, which meant paying royalties and not challenging the validity of the patent. In contrast, the European Commission’s Motorola (Case COMP/AT.39985) and Samsung (Case COMP/AT.39939) decisions considered it an abuse of a dominant position for a dominant undertaking to seek an injunction where there was a “willing licensee”, although the European Commission didn’t define precisely when a licensee would be considered to be “willing”. 3. Huawei/ZTE, para. 44. 4. Ibid., operative part. 5. Ibid., para. 63. 6. Ibid., para. 65. 7. Ibid., para. 66. 8. Ibid., para. 67. 9. Ibid., para. 68. 10. Case T-111/96, ITT Promedia NV v. European Commission (EU:T:1998:183). 11. Case T-119/09, Protégé International Ltd. v. European Commission (EU:T:2012:421). 54 | Shearman & Sterling LLP 12 Shearman & Sterling LLP | 55 Unilateral Conduct Discussion of the DOJ Business review letter of IEEE’s patent policy revisions In February 2015, the Antitrust Division of the US Department of Justice (DOJ) told counsel for the Institute of Electrical and Electronics Engineers (IEEE) that “IEEE and other standards-setting organizations are free to adopt those modifications to their policies that they believe will benefit their standards-setting activities.” As a result, the proposed IEEE Patent Policy changes were implemented, without respect, however, for key principles such as consensus among major technology companies. Continued overleaf Shearman & Sterling LLP | 55 56 | Shearman & Sterling LLP Unilateral Conduct Discussion of the DOJ Business review letter of 12 IEEE’s patent policy revisions Contrary to what was argued by some industry players, the DOJ did not endorse the IEEE’s policy changes: “We were asked a question, and we answered the question,” said Assistant Attorney General Renata Hesse.1 But what are these changes and do they substantially impact the role of regulators and/or antitrust enforcers? Process The IEEE is a leading developer of global industry standards in a broad range of electro-technical subjects, such as the standard for WI-FI. When a patent becomes included in a standard, that patent becomes known as a standard essential patent (SEP). As the adoption of a technology into a standard may result in substantial market power, standard-setting organizations (SSOs) such as the IEEE invite owners of SEPs to commit to license their SEPs on F/RAND ((fair,) reasonable and nondiscriminatory) terms. Starting in March 2013, the IEEE’s relevant body proposed changes to the IEEE’s Patent Policy. Those proposed changes were allegedly designed to better define a reasonable rate, to clarify whether an SEP holder could seek an injunction or exclusion order, and to respond to (some of the) competition enforcers’ concerns. Controversial changes One of the most controversial changes concerns the definition of a reasonable royalty rate. The new policy provides that determination of a reasonable rate should consider the smallest saleable unit that practices the patented technology. The concept of the “smallest saleable patent-practicing unit” (SSPPU) is detached from the realities of the licensing world. This concept was in fact construed as an evidentiary principle created to “help [the US] jury system reliably implement the substantive statutory requirement of apportionment of royalty damages to the invention’s value.”2 This new definition of a “reasonable rate” ignores that royalties are calculated based on both a rate and a base. The reasonableness of a royalty payment will be assessed on the basis of these two elements and the royalty rate can be adjusted upwards or downwards depending on the royalty base that has been agreed upon. What transpires from the IEEE’s policy changes is an actual request for lower royalties by standard implementers rather than a proposal for a better method for calculating royalty payments. The second major change concerns the availability of an injunction or exclusion order. The policy change says that an SEP holder may not seek an injunction or exclusion order unless the standard implementer has failed to participate in or comply with the outcome of an adjudication (or first-level appellate review). This change is difficult to reconcile with the DOJ’s and US Patent and Trademark Office’s Policy Statement on Remedies for SEPs Subject to Voluntary F/RAND Commitments, which indicates that, as interpreted by the Federal Circuit: “[a]n injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.”3 Another key change concerns the definition of “compliant implementation” which now implies that an SEP holder making an IEEE RAND commitment cannot refuse to license its patents for use in standards at certain levels of production (including the component level). The DOJ recognized that this provision entailed a departure from historical licensing practices and stressed that this change does not mandate specific licensing terms at different levels of production. “For example, the royalty rate need not necessarily be the same at all levels of production.” Impact? The DOJ said it would not challenge the proposed changes to the IEEE’s patent policy. The DOJ supports SSOs’ efforts to clarify their patent licensing policies as they may help SEP holders and standard implementers to reach mutually beneficial licensing agreements. The DOJ noted, however, that it was not its role to “assess whether IEEE’s policy choices [were] right.” Shearman & Sterling LLP | 57 The revised Patent Policy has been subject to criticism from a number of companies that significantly contribute patents to standards, but also from antitrust enforcers, practitioners and scholars. Thus, in February 2015, the European Commission urged a “careful balance” be maintained between access to technology standards and appropriate remuneration for patents. Innovative companies such as Qualcomm, Nokia, Ericsson, InterDigital, Orange (formerly France Télécom) and Dolby Labs have voiced disappointment about the DOJ’s letter due to, inter alia, the absence of substantial analysis of the anticompetitive effects of the IEEE’s policy changes. They stressed that the global success of the WI-FI technology demonstrated that the IEEE Patent Policy — as implemented before the proposed changes — had worked, “balancing encouragement for invention companies to invest in the expensive R&D that makes possible technological advancement with guarantees for fair access to the standards.”4 Changes to the IEEE’s Patent Policy favor one business model over another and risk comprising the incentives of technology leaders to continue contributing their innovations to technologies developed within SSOs. These business considerations have resulted in a number of highly innovative tech companies seeking to protect their interests. Some have indicated their disapproval by announcing that they will agree to offer their SEPs reading on the high-speed Wi-Fi standard that is under development, but that they will refuse to license them under the revised IEEE’s Patent Policy. Others that opposed the changes to the IEEE’s Patent Policy also have appealed the re-accreditation of the IEEE by the American National Standards Institute. What transpires from the IEEE’s policy changes is an actual request for lower royalties by standard implementers rather than a proposal for a better method for calculating royalty payments 1. ABA Antitrust Spring Meeting, April 2015. The business review letter indicates only that the DOJ does not have the present intent to challenge the revised Patent Policy. 2. See Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1232 (Fed. Cir. 2014). 3. Apple Inc. v. Motorola, Inc., No. 2012-1548, -1549, Slip op. at 72 (Fed. Cir. Apr. 25, 2014), citing US Dep’t of Justice and US Patent and Trademark Office, Policy Statement on Remedies for Standard Essential Patents Subject to Voluntary F/RAND Commitments, at 7-8 (Jan. 8, 2013). 4. Qualcomm statement, February 11, 2015, available at: http://www. evaluationengineering.com/2015/02/11/qualcomm-responds-toupdated-ieee-standards-related-patent-policy/. 58 | Shearman & Sterling LLP Unilateral Conduct 2015 representative matters Shearman & Sterling LLP | 59 Intercontinental Exchange (ICE) Represented ICE Clear Europe in the context of the European Commission’s CDS — Clearing investigation into whether arrangements between ICE Clear Europe and various international banks foreclose CDS clearing in breach of Articles 101 and 102 TFEU. The case was formally closed on December 4, 2015. Nokia Advising Nokia in connection with the current European Commission investigation concerning Android. Qualcomm After our prior success defending Qualcomm, the world’s leading developer of wireless communication technology, in the European Commission’s investigation of complaints lodged by Nokia, Ericsson, NEC, Panasonic, Texas Instruments and Broadcom, the team is currently representing Qualcomm on two European Commission investigations regarding alleged predatory pricing and exclusivity payments. 60 | Shearman & Sterling LLP 13 Shearman & Sterling LLP | 61 Antitrust Litigation Recent reforms: A catalyst for damages actions in Europe Private enforcement of EU competition law continues to be a “hot topic”, and recent reforms at both an EU and national level will act as a further catalyst for damages actions in Europe. Continued overleaf Shearman & Sterling LLP | 61 62 | Shearman & Sterling LLP Antitrust Litigation Recent reforms: A catalyst for damages actions 13 in Europe The EU Damages Directive After almost a decade of consultation and discussion, on November 26, 2014 the much-anticipated EU Damages Directive was signed into law. Published in the Official Journal on December 5, 2015, Member States have until December 27, 2016 to transpose the Directive into national law. The Directive is intended to fine-tune the interplay between private damages actions and public enforcement of the EU antitrust rules by the European Commission (EC) and the national competition authorities of the EU Member States and remove practical obstacles to compensation for victims of infringements of EU competition law. In order to facilitate the bringing of claims by businesses and individuals who have suffered loss as a result of anticompetitive conduct, the Damages Directive: ▪ Establishes a rebuttable presumption that cartels cause harm; ▪ Requires the introduction of a document disclosure regime for competition damages cases in the EU Member States that do not already have such a regime; ▪ Introduces a minimum five-year limitation period for bringing a claim, with this period not starting to run until the relevant competition authority has completed its proceedings; ▪ Confirms that decisions of national competition authorities finding an infringement, as well as the decisions of the EC, will automatically constitute proof before national courts of all Member States that the infringement occurred; ▪ Underlines that victims are entitled to full compensation for the harm suffered, which covers compensation for actual loss and for loss of profit, plus payment of interest from the time the harm occurred until compensation is paid; ▪ Clarifies the legal consequences of “passing on”; ▪ Provides for joint and several liability, so that participants in an infringement, other than immunity recipients, will be responsible towards the victims for the whole harm caused by the infringement, with the possibility of obtaining a contribution from other infringers for their share of responsibility; and ▪ Permits national courts seized with an action for damages to suspend proceedings where the parties to those proceedings are involved in consensual dispute resolution, so as to allow a faster and less costly resolution of disputes. Changes to EU Procedural Rules On August 6, 2015, the EC amended its procedural rules (set out in the Implementing Regulation, the Notice on Access to the File, the Notice on Co-operation with National Courts, the Leniency Notice, and the Settlement Notice) to reflect the Damages Directive and provide some additional clarification and providing guidance on how the balance between private and public enforcement of the EU competition rules will operate in practice. For example, following the amendments, the Implementing Regulation confirms that leniency corporate statements may be given to the EC orally, and that pre-existing information does not form part of the leniency corporate statement and establishes that settlement submissions may be provided orally. The amended Implementing Regulation also sets out limitations on the use of information obtained in EC proceedings. This reflects Article 6 of the Damages Directive, which provides that certain categories of information, notably leniency corporate statements and settlement submissions, should be protected from disclosure in damages claims. Shearman & Sterling LLP | 63 Amendments to the Leniency and Settlement Notices clarify that the EC cannot transmit leniency corporate statements for use in follow-on damages claims in the national courts, while the Notice on Co-operation with National Courts underlines that disclosure to national courts should not unduly affect the effectiveness of the EC’s enforcement, or interfere with ongoing investigations. National Reforms The Damages Directive is intended to lead to an increase in claims being brought, including claims in Member States where there has until now been little, if any, private enforcement. However, the important reforms introduced by the Directive should be viewed in conjunction with national legislative developments also designed to facilitate redress for anticompetitive conduct, particularly measures concerning collective redress mechanisms. The Damages Directive contains no provision on collective redress — absent agreement on the issue, the EC abandoned trying to include such mechanisms in the Directive itself, leaving Member States to determine whether or not to introduce collective redress actions in the context of private enforcement of competition law. However, the EC recommendation concerning common principles for injunctive and compensatory collective redress mechanisms calls on the Member States to put in place collective redress mechanisms. Certain Member States, notably Italy and the Netherlands, have had a class action regime in force for a number of years. In 2014, France and Belgium introduced class action regimes. In the UK, the Consumer Rights Act 2015 (CRA15), which came into force on October 1, 2015, introduced an “opt-out” collective action regime, together with provisions for collective settlement and for voluntary redress. From October 1, 2015, nominated representatives approved by the Competition Appeal Tribunal (CAT), have been able to bring claims on behalf of defined groups of claimants by way of “opt-out” collective actions. The CAT must be satisfied that the claims are eligible for a collective action. In order to be eligible, they must raise the same or similar or related issues of fact or law. “Opt-out” proceedings will not include any class member who is not domiciled in the UK. Any nondomiciled claimants must “opt-in” to the proceedings. At the same time, the CRA15 introduced an “opt-out” collective settlement procedure, which allows the CAT to make an order approving the settlement of claims without a claim having already been brought before the CAT. A collective settlement approved by the CAT is binding on all UK-claimants that did not “opt-out” in the specified time and any non-UK domiciled claimants that have opted-in. In addition, the CRA15 introduces voluntary redress schemes as a form of alternative dispute resolution. These statutory compensation programs are designed to provide victims of competition law infringements with the means to obtain compensation without having to engage in litigation. Looking Forward The reforms outlined above certainly pave the way for an increase in damages actions in Europe. As the deadline for implementation of the Damages Directive approaches, further reforms look likely to keep private enforcement at the top of the agenda. 64 | Shearman & Sterling LLP 14 Shearman & Sterling LLP | 65 Antitrust Litigation Forward-looking antitrust compliance programs rewarded by the DOJ in 2015 Now more than ever, companies being investigated by the US Department of Justice (DOJ) for potential antitrust violations have reason to invest in their antitrust compliance programs. Continued overleaf Shearman & Sterling LLP | 65 66 | Shearman & Sterling LLP Antitrust Litigation Forward-looking antitrust compliance programs 14 rewarded by the DOJ in 2015 First, 2015 saw the first and second ever downward departures from the DOJ’s sentencing guidelines where the departure was due, in part, to the implementation of a robust and “forward looking” compliance program by the defendant company. Second, in its sentencing memorandum in its case against Kayaba Industry Co., Ltd. d/b/a KYB Corporation (KYB), the second of the two downward departures, the DOJ set forth the particulars of KYB’s compliance program in some detail, thus providing a roadmap for future investigated companies to follow. Lastly, the DOJ’s growing interest in compliance programs can be seen across its divisions; the DOJ recently hired its first ever compliance expert to join its Fraud Section. On May 19, 2015, the DOJ entered into a plea agreement with Barclays PLC (Barclays) wherein Barclays pled guilty to price-fixing within the foreign currency exchange market. Barclays was sentenced to pay a US$650 million fine, which represented a downward departure from the sentencing guidelines. The reasons given for Barclays’ reduced fine were substantial assistance with the DOJ’s investigation and “the substantial improvements to [Barclays’] compliance and remediation program to prevent recurrence of the charged offense.” Unfortunately, the plea agreement does not describe the contours of the compliance program that warranted this departure. In June 2015, Deputy Assistant Attorney General Brent Snyder provided further context for the DOJ’s sentence in the Barclays case in his remarks at the Sixth Annual Chicago Forum on International Antitrust. There, Snyder emphasized the important distinction between “backward looking” and “forward looking” compliance efforts stating that “[a] compliance program that fails to deter or detect cartel behavior cannot qualify for [a reduced fine].” Snyder also made clear that the DOJ will only credit forwardlooking compliance programs “that reflect in some way genuine efforts to change a company’s culture….” Regarding what constituted this required change in culture, Snyder elaborated: “Senior executives who lead by example and hold themselves and others accountable bring about culture change. Senior executives who create a zero tolerance compliance environment bring about culture change. And companies that make responsible personnel decisions about culpable employees — those who will be carved out of the company’s plea agreement and do not accept responsibility — bring about culture change. That is what we will be looking for.” Snyder specifically referred to Barclays’ recent compliance efforts as an example of such cultural change. Acknowledging that it is often difficult to “separate rhetoric from real commitment[,]” Snyder stressed that the DOJ observed first-hand positive results from Barclays’ new compliance program during the course of its foreign exchange investigation. The KYB sentencing memorandum, filed on October 5, 2015, provides an excellent example of Snyder’s articulated cultural change in action. KYB pled guilty to price-fixing in the market for shock absorbers sold to manufacturers of cars and motorcycles. Notably, KYB received a downward departure of 40% less than the minimum fine calculated using the sentencing guidelines due to its substantial assistance in the DOJ’s investigation and its implementation of a “new compliance policy to educate its employees to ensure that the company does not violate the antitrust laws in the future.” Regrettably, the DOJ did not quantify the extent to which each of the two factors influenced its downward departure. Unlike with Barclays, the KYB sentencing memorandum provides the details of the compliance program instituted by KYB that merited the downward departure. The DOJ’s focus on cultural change is clear from the outset: “From the moment KYB received notification of the government’s investigation, management committed to instituting policies that would ensure that it would never again violate the Shearman & Sterling LLP | 67 antitrust laws.” Further, the DOJ commended KYB’s compliance program for containing “the hallmarks of an effective compliance policy,” which included: ▪ Direction from top management: KYB’s emphasis on antitrust compliance came “straight from the top” — KYB’s president demanded that a full investigation be conducted and ordered the cooperation of all employees. ▪ Training: All senior management and sales personnel must now undergo classroom training in antitrust compliance. Further, one-on-one training is provided to particularly at-risk individuals, such as sales personnel. All trainees are tested both at the start and finish of their training. ▪ Anonymous reporting: KYB established an anonymous hotline and encouraged its employees to report any possible violations. ▪ Monitoring and auditing: The compliance policy requires prior approval, where possible, of all contacts with competitors and reporting of all contacts with competitors. These reports are audited by in-house counsel. Additionally, sales personnel must certify that all prices were independently determined and that they did not exchange information or conspire with competitors when determining the price. ▪ Discipline of violators: KYB demoted two highranking employees who were personally involved in, or supervised, the illegal price-fixing. The KYB sentencing memorandum represents the clearest and most detailed articulation by the DOJ of what constitutes an effective antitrust compliance program to date. The DOJ’s renewed emphasis on compliance programs is not limited to the antitrust context. Indeed, in November 2015, the DOJ retained its first ever in-house compliance expert, Hui Chen. Ms. Chen joined the DOJ’s Fraud Section, which is responsible for prosecuting violations of the US Foreign Corrupt Practices Act (FCPA) and other fraud-related matters. Assistant Attorney General Leslie R. Caldwell provided a preview of what role the DOJ’s new compliance expert will play in her remarks at the November 2, 2015, SIFMA Compliance and Legal Society New York Regional Seminar. There, Caldwell enumerated the hallmarks of an effective FCPA compliance program, which largely echo those enumerated in the KYB sentencing memorandum and include: strong direction and support from senior management; adequate resources for compliance teams; clear written policies; repeated training of employees; mechanisms to enforce compliance policies, including reporting potential violations and disciplining employees found to be in violation; and conveying the importance of compliance to third party vendors, agents and consultants. In the FCPA context as with antitrust compliance, the DOJ looks particularly to the engagement of senior management and an observable change in culture. 2015 saw several firsts for the DOJ in the compliance realm, signaling a renewed interest in the area. Moreover, the KYB sentencing memorandum demonstrates that investment in compliance can lead to significant savings for a company already under investigation by the DOJ. Further, the sentencing memorandum also provides the first concrete details regarding which compliance policies merit a downward departure from the sentencing guidelines. Any company being investigated by the DOJ for antitrust violations would do well to seriously consider investing in a robust forward-looking compliance program; the ultimate savings are likely to eclipse the cost of instituting such a program. 15 68 | Shearman & Sterling LLP Antitrust Litigation Individual accountability for unlawful corporate conduct following the “Yates Memo” In the wake of criticism that the US Department of Justice (DOJ) has not adequately prosecuted individuals in connection with the financial crisis, in September 2015, Deputy Attorney General Sally Quillian Yates issued a policy memorandum, “Individual Accountability for Corporate Wrongdoing,” (the “Yates Memo”) that places new, or increased, emphasis on holding individuals responsible for unlawful corporate conduct.1 The Yates Memo articulates six “key steps” intended to “strengthen [the DOJ’s] pursuit of individual corporate wrongdoing.” Continued overleaf Shearman & Sterling LLP | 69 70 | Shearman & Sterling LLP Antitrust Litigation Individual accountability for unlawful corporate 15 conduct following the “Yates Memo” Included among these “key steps” are the requirements that, in order to qualify for any cooperation credit, corporations must provide the DOJ with all relevant facts relating to individuals responsible for misconduct, and that, “absent extraordinary circumstances or approved departmental policy,” culpable individuals will not be released from civil or criminal liability when the DOJ resolves matters with a corporation. The Yates Memo directs that DOJ attorneys should focus on individuals from the inception of any corporate investigation, have a clear plan to resolve individual cases when resolving matters with a corporation, and focus on whether to commence civil actions against individuals “based on considerations beyond that individual’s ability to pay.” The policy directives recited in the Yates Memo may indicate increased emphasis on individual liability rather than substantive policy changes. That said, the policies embedded in the Yates Memo will have implications for companies engaging with the DOJ in that DOJ attorneys will be operating under clear guidance to pursue individuals vigorously and with more concrete support in doing so than before the Yates Memo was issued. Impact on Antitrust Investigations The Yates Memo provides that, where the DOJ resolves a matter with a corporation before reaching a resolution with responsible individuals, DOJ attorneys “should take care to preserve the ability to pursue these individuals.” The memo goes on to note that “[b]ecause of the importance of holding responsible individuals to account, absent extraordinary circumstances or approved departmental policy such as the Antitrust Division’s Corporate Leniency Policy,” resolution agreements with corporations should not dismiss charges against or immunize individual officers or employees. In part, the Antitrust Division’s Corporate Leniency Policy provides that, if a corporation qualifies for leniency under “Part A” of that Policy, by, among other things, being the first to come forward to report illegal antitrust activity before the Division has begun an investigation, then the corporation and all directors, officers, and employees of the corporation who admit their involvement in the illegal antitrust activity as part of the corporate confession will receive leniency, i.e., will not be charged criminally, assuming they qualify and fulfill all the requirements of the Policy.2 The Yates Memo makes clear that the Division’s Corporate Leniency Policy is an “approved departmental policy” and consequently is not changed by the guidance articulated in the Yates Memo. It’s been reported that Renata Hesse, Deputy Assistant Attorney General for the Antitrust Division, recently noted that the Yates Memo has been “internalized” by the Antitrust Division.3 Hesse also reportedly said that “I don’t expect to see a dramatic change in how the division does business, but we are looking at what the [Yates Memo’s] guidance is and assessing policies on both civil and criminal sides.” Hesse reportedly added that “[t]he policies you are familiar with, those are not changed by the [Yates Memo] at all.” The Division historically has focused attention on individual accountability. Former Deputy Assistant Attorney General Scott Hammond noted in 2010 that “[t]he Antitrust Division has steadfastly emphasized the importance of individual accountability and stiff corporate fines to induce leniency applications and optimize deterrence of cartel conduct.”4 Based on Hesse’s reported comments, one can conclude that first-in Part A leniency applicants will continue to win immunity for the company and all individuals, assuming that the leniency applicant meets all the requirements of the Policy. This is somewhat less clear for Part B applicants, who do not meet all the Division’s requirements for Part A leniency but must satisfy similar as well as additional requirements. Part B of the Division’s Leniency Policy does not provide for leniency for directors, officers, or employees of the corporation to the same extent as Part A, but does allow that directors, officers and employees who come forward with the corporation will be considered for Shearman & Sterling LLP | 71 immunity from criminal prosecution on the same basis as if they had approached the Division individually. The Division notes that, “[i]n practice . . . the Division ordinarily provides leniency to all qualifying current employees of Type B applicants in the same manner that it does for Type A applicants.” Reading the Yates Memo together with comments attributed to Deputy Attorney General Hesse, the shift in emphasis signaled by the Yates Memo is not likely to have a meaningful effect on the Division’s Leniency Policy for qualifying Part A leniency applicants. It remains to be seen whether, as a consequence of the Yates Memo, the Division may change its stated ordinary practice of treating “all qualifying current employees of Type B applicants” the same as the current employees of Part A applicants on the ground that while the Division’s express policies won’t change, its ordinary practices may become more attuned to the policies articulated in the Yates Memo. Similarly, the Division may be less willing to extend leniency to former directors, officers or employees. The Division has stated that it is “under no obligation” to grant leniency to former directors, officers or employees, but has the authority to agree not to prosecute them if they come forward and cooperate. The Yates Memo has meaningful potential to change the way the Division interacts with companies under investigation that do not qualify for leniency. Historically, cooperating corporations that have not qualified for leniency have been able to negotiate agreements that exculpated individuals. In such cases, the Division would assess the extent of a company’s cooperation and an individual’s culpability to decide whether to include the individual in a plea agreement. While the Division “carved-out” certain employees on the grounds of culpability, the Division otherwise provided immunity to other corporate employees. The directives of the Yates Memo can potentially make carve-outs more common and, conversely, “carve-ins” more difficult to obtain. Recognizing that carving out an executive from the scope of a plea agreement isn’t equivalent to indicting that executive, rigorous application of the Yates memo guidelines could increase the likelihood that carved-out individuals will face criminal prosecution. If the Antitrust Division adopts a more aggressive position with respect to individuals, internal corporate investigations may become more contentious because directors, officers and employees may consider their interests starkly adverse to the interests of the company due to the risk of individual liability. Conclusion It is likely that the guidance laid out in the Yates Memo will affect some attributes of the way the Antitrust Division Department interacts with some leniency applicants and cooperating corporations. While the Division has long been open about prosecuting culpable individuals,5 the Yates Memo reflects at least a shift in tone and emphasis, if not a substantive policy change, that is likely to have consequences for the way the Division does business. That said, because the Yates Memo specifically endorses the Division’s leniency policies, qualifying leniency applicants are least likely to be meaningfully affected. Cooperating corporations and their directors, officers and employees that do not qualify for leniency are likely to be treated consistently with the Yates Memo’s guidelines, and non-cooperating corporations and their directors, officers and employees will undoubtedly experience the full force of the DOJ’s shift in emphasis. 1. The Yates Memo can be found at: http://www.justice.gov/dag/file/769036/download. 2. For a complete statement of the Division’s Leniency Policy, see http://www.justice.gov/atr/leniency-program 3. Renata Hesse, Deputy Assistant Attorney General, US Department of Justice Antitrust Division, Address at the Fordham Competition Law Institute (October 1, 2015). 4. Scott D. Hammond, Deputy Assistant Attorney General from Criminal Enforcement, Department of Justice Antitrust Division, The Evolution of Criminal Antitrust Enforcement Over the Last Two Decades (February 25, 2010), available at http://www.justice.gov/atr/speech/ evolution-criminal-antitrust-enforcement-over-last-two-decades. 5. Over the past 12 months the Division has prosecuted over 60 individuals for criminal violations of the Antitrust laws while prosecuting only 17 companies. 16 72 | Shearman & Sterling LLP Antitrust Litigation The California Supreme Court and antitrust scrutiny of reverse payment settlements The California Supreme Court’s May 2015 decision in In re: Cipro Cases I & II, 61 Cal. 4th 116, 348 P.3d 845, 187 Cal. Rptr. 3d 632 (2015), provides guidance in an area where antitrust and patent law intersect, and where some federal courts, but no other state high court, had provided little to date. Building on the US Supreme Court’s 2013 decision in FTC v. Actavis, the California Supreme Court laid out a roadmap for evaluating reverse payment patent settlements challenged on antitrust grounds. Although Cipro interprets California law, it has been cited with approval by a few federal district courts. Whether other courts follow suit remains to be seen. Continued overleaf Shearman & Sterling LLP | 73 74 | Shearman & Sterling LLP Antitrust Litigation The California Supreme Court and antitrust 16 scrutiny of reverse payment settlements In its 2013 Actavis decision, the US Supreme Court addressed the lawfulness, under federal antitrust law, of reverse payment settlements between pharmaceutical patent holders and generic competitors engaged in patent infringement litigation. Under a reverse payment, or “pay for delay” settlement, the holder of a patent for a name-brand drug pays the alleged patent infringer to delay sale of its generic drug for a specified period of time, commonly ending before the patent expires. The Court adopted a middle ground between the position advocated by the Federal Trade Commission (FTC) and the conclusion reached by the Eleventh Circuit. The Court rejected the FTC’s argument that reverse payment settlements in patent infringement litigation are “presumptively unlawful.” At the same time, the Court rejected the Eleventh Circuit’s position that such settlements are essentially “immune” from antitrust scrutiny so long as their “anticompetitive effects fall within the scope of the patent’s exclusionary potential.” Instead, the Court held that though they are not presumptively unlawful, such settlements can sometimes violate antitrust law, and the fact that “the anticompetitive effects of the reverse settlement agreement might fall within the scope of the exclusionary potential of [the] patent” does not “immunize the [reverse settlement agreement] from antitrust attack.” The Court did not articulate a bright line test for evaluating reverse payment settlements. Instead, it concluded that, because reverse payment settlements are not presumptively unlawful, they should be evaluated using the “rule of reason”: “[a]n antitrust defendant may show in the antitrust proceeding that legitimate justifications are present, thereby explaining the presence of the challenged term and showing the lawfulness of that term under the rule of reason.” The Court rejected the FTC’s proposed “quick look” approach, which would have shifted the “burden to show empirical evidence of procompetitive effects” to the defendant. The Court noted that “the likelihood of a reverse payment bringing about anticompetitive effects depends upon its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment,” and other factors. Id. In Cipro, the California Supreme Court applied Actavis in interpreting state antitrust law, and formulated a four-part test for determining whether a reverse payment settlement is anticompetitive. Indirect purchasers of the antibiotic Cipro brought suit against Bayer, the manufacturer and patentholder, and Barr Pharmaceuticals, the generic manufacturer, for having agreed to a reverse payment settlement in violation of California’s Cartwright Act. California is among the states that allow indirect purchasers to recover under state antitrust law. In 1991, with twelve years left on Bayer’s patent, Barr had filed an application under the Hatch-Waxman Act to market a generic version of Cipro, claiming that Bayer’s patent was “invalid and unenforceable.” Bayer filed a patent infringement suit. The parties subsequently settled, with Barr agreeing to postpone marketing its generic version of Cipro until Bayer’s patent expired, and Bayer, in turn, agreeing to “make payments to Barr and to supply it with Cipro for licensed resale Id. Between 1997 and 2003, Bayer paid Barr over US$398 million under the terms of the settlement. The trial court granted summary judgment for the defendants, holding that “because the settlement agreement did not restrain competition longer than the exclusionary scope of the [patent], it did not violate the Cartwright Act.” The Court of Appeal affirmed, holding that “a settlement of a lawsuit to enforce a patent does not violate the Cartwright Act if the settlement restrains competition only within the scope of the patent, unless the patent was procured by fraud or the suit for its enforcement was objectively baseless.” Examining the issue in light of Actavis, the California Supreme Court reversed, concluding that a test that presumes the validity of patents “in most cases” “accords excess weight to the policies motivating patent law, gives insufficient consideration to the concerns animating antitrust law, and must be rejected.” Under Actavis, “patents are no longer to be treated as presumptively ironclad” for antitrust purposes. In other words, “the period of exclusion attributable to a patent is not its full life, but its expected life had enforcement been sought,” and this is “the baseline against which the competitive effects of any agreement must be measured.” Actavis clarified that the “rule of reason” approach applies when evaluating reverse payment settlements, but provided little additional guidance. In Cipro, the California Supreme Shearman & Sterling LLP | 75 Court provided a construct for evaluating reverse payment settlements. The Court held that a “third party plaintiff challenging a reverse payment patent settlement must show four elements. First, the plaintiff must show that the settlement involves a delay: a “limit on the settling generic challenger’s entry into the market.” Second, the plaintiff must show a reverse payment, which need not be in the form of cash to trigger antitrust concerns: the second element is satisfied by showing that the “settlement includes cash or equivalent financial consideration flowing from the brand to the generic challenger.” Third, the plaintiff must show that this reverse payment “exceeds the value of goods and services other than any delay in market entry provided by the generic challenger to the brand.” And finally, that the reverse payment also exceeds “the brand’s expected remaining litigation costs absent settlement.” In other words, where a reverse payment settlement “reflects traditional settlement considerations, such as avoided litigation costs,” it does not trigger the same antitrust concerns. A showing of the four elements is sufficient to make out a prima facie case that “the settlement is anticompetitive.” Once a plaintiff shows “an agreement involving a reverse payment and delay,” the burden shifts to the defendant to produce evidence of “litigation costs and the value of collateral products and services.” If the defendant cannot produce such evidence — because, for instance, it does not dispute that the reverse payments far outweigh the “collective amounts” of litigation costs and collateral services — then the plaintiff has met its burden. If the defendant does produce the required evidence, the plaintiff has the burden of persuasion that the reverse payment exceeded the value of collateral services and litigation costs. The “larger the gap” between the two, the “stronger the inference one can draw” of an antitrust violation. Although the California Supreme Court has provided guidance in an area with few bright lines, Cipro neither addresses nor resolves a number of key analytical issues. For example, it is not always easy to determine whether a patent owner is actually paying for delay or is paying for the goods and/or services, particularly when many reverse payment settlements are supply or manufacturing deals. Likewise, whether a settlement reflects traditional “settlement considerations” won’t be simple to judge, including how the settlement parties judged their respective positions in litigation, either objectively or subjectively. Thus, while Cipro provides guidance, there is still uncertainty in advising clients how to apply Actavis — and Cipro. Cipro has been cited with approval by federal courts. See In re Actos End Payor Antitrust Litigation, No. 13-CV-9244 RA, 2015 WL 5610752 at *10 (S.D.N.Y. Sept. 22, 2015) (citing Cipro for the proposition that “Actavis is not dispositive of reverse payment claim[s]” under state law); In re Aggrenox Antitrust Litigation, No. 3:14-MD-2516 SRU, 2015 WL 4459607 at *9 (D. Conn. July 21, 2015) (agreeing with the California Supreme Court’s observation that “nothing in [Actavis]’s discussion of the legal rules at the boundary between antitrust and patent law hinged on the happenstance that the case under review involved a public prosecutor”) (citation omitted); In re Capacitors Antitrust Litigation, No. 14-CV- 03264-JD, 2015 WL 3398199 at *13 (N.D. Cal. May 26, 2015) (explaining that the “California Supreme Court has been careful to emphasize that the state’s antitrust laws are not mere clones of federal law subject to federal court opinions”). In Aggrenox, the district court called Cipro “one of the most thorough and thoughtful discussions of Actavis yet issued by any court.” 2015 WL 4459607 at *9. The only Court so far to speak disapprovingly of Cipro has been the District Court for the Eastern District of Pennsylvania. See In re Wellbutrin XL Antitrust Litigation, No. CV 08-2431, 2015 WL 5582289, at *25 (E.D. Pa. Sept. 23, 2015) (noting that “[t]he Court is not persuaded by the district court and California Supreme Court decisions that found that causation is satisfied by showing that the defendants’ actions ended the patent litigation, making it unnecessary to consider the patent’s validity”). By providing a roadmap for evaluating reverse payment settlements, the California Supreme Court occupied territory left open by Actavis. Cipro may serve as a guide for other state courts seeking to evaluate reverse payment settlements under their own state laws and may also incent plaintiffs to challenge reverse payment settlements primarily in state courts. As yet it is too early to say what long-term impact Cipro will have in state or federal courts. 76 | Shearman & Sterling LLP Antitrust Litigation 2015 representative matters Shearman & Sterling LLP | 77 Bank of America Representing Bank of America in antitrust class actions alleging that financial institutions conspired to manipulate benchmark rates that are used to settle foreign currency exchange transactions. Plaintiffs allege that the conspiracy to manipulate the benchmark rates impacted the pricing on trillions of dollars of foreign exchange instruments and inflicted severe financial harm on plaintiffs. Bank of America and Nomura Securities International, Inc. Representing Bank of America and Nomura Securities International, Inc. in a class action alleging that 13 defendant banks conspired to manipulate the ISDAfix benchmark rate used for interest rate derivatives transactions. Plaintiffs claim that the alleged manipulation impacted trillions of dollars of financial instruments and that the injuries to the class “were felt on almost all interest rate derivatives transactions that referenced ISDAfix, [and] are likely in the billions of dollars class-wide.” BNP Paribas Securities and Mizuho Securities USA Representing BNP Paribas Securities and Mizuho Securities USA, each with a different Shearman & Sterling team, in the Treasuries antitrust class actions. The complaints all allege that the defendants conspired to fix and manipulate the prices of Treasury securities and related financial products at both the point of purchase and the point of sale. Cargolux Representing Cargolux in both the successful application for annulment of the European Commission’s Decision before the General Court and the damages litigation in the United Kingdom before the High Court. JTEKT Corporation Representing JTEKT Corp. in the Auto Parts multidistrict follow-on antitrust class action. Mizuho Corporate Bank, Ltd., Mizuho Trust & Banking Co., Ltd., and Mizuho Bank, Ltd. (collectively, Mizuho) Representing Mizuho in a putative civil class action related to alleged manipulation of yen LIBOR and euroyen TIBOR rates. Several major financial institutions Representing several major financial institutions in LIBOR- and TIBOR-related investigations and litigations, following reports in The Wall Street Journal and other publications questioning the accuracy of US dollar LIBOR rates governing trillions of dollars of transactions throughout the world. 78 | Shearman & Sterling LLP 17 State Aid Burden-sharing and Bank Recovery and Resolution Directive 2015 was a crucial year for a number of European banks, particularly the four largest Greek banks (National Bank of Greece, Pireaus Bank, Eurobank and Alpha Bank), which were the first to experience the application of the burden sharing rules of the EU state aid framework in conjunction with the Bank Recovery and Resolution Directive (BRRD) rules. Following a period of unprecedented political and financial instability in Greece, recapitalization measures were adopted in autumn 2015, enabling those banks to strengthen their capital base so as to meet EU regulatory requirements and to better withstand possible future systemic shocks. Continued overleaf Shearman & Sterling LLP | 79 80 | Shearman & Sterling LLP State Aid Burden-sharing and Bank Recovery and 17 Resolution Directive These efforts occurred at a transitional period, whereby the existing EU State aid framework regulating recapitalizations and restructuring of banks1 were applied in conjunction with the BRRD which entered into force on January 1, 2015. Both the EU State aid framework and the BRRD provide for burden-sharing measures by private investors, with the aim to preserve financial stability albeit not at the expense of taxpayers. Although the BRRD’s “bail-in tool” formally entered into force on January 1, 2016, Greece chose to partially apply it prior to that date. Burden-sharing under the two sets of rules and their interplay in the Greek banks’ case is described below. Burden-sharing under the EU State aid framework One of the key principles underpinning the applicable EU State aid framework is that banks that have a capital shortfall cannot simply benefit from financial help from Member States, i.e., State aid; rather, banks must first take a variety of capital-raising measures, including: (i) rights issues; (ii) voluntary conversion of subordinated debt instruments into equity on the basis of a risk-related incentive; (iii) liability management exercises which should in principle be 100% capital-generating if the capital shortfall cannot be overcome in full and therefore State aid is required; (iv) capital-generating sales of assets and portfolios; (v) securitization of portfolios in order to generate capital from non-core activities; (vi) earnings retention; and (vii) other measures reducing capital needs. Capital-raising measures adopted by the banks themselves are voluntary, and investors cannot be obligated to participate in such efforts. If capital-raising measures do not succeed in bridging the bank’s capital shortfall in its entirety, and it is established that State aid is required, the bank cannot benefit from such aid unless equity, hybrid capital and subordinated debt holders share the burden of the recipient bank’s losses to the maximum extent possible in order for the amount of State aid to be minimized. In practice, this means that the Member State will adopt statutory burdensharing measures affecting the bank’s investors who have not already fully participated in the voluntary capitalraising effort. In principle, State aid can only be granted after burden-sharing has taken place and the European Commision (EC) has approved the bank’s restructuring plan. The degree of burden-sharing depends upon whether the bank’s capital ratio is above or below the EU regulatory minimum. If the recipient’s capital reserve is below the “base case” but above the “adverse case” scenario, burden-sharing would involve the conversion of, among other instruments, subordinated debt into equity and the issuance of new shares, inevitably resulting in dilution of existing shareholders. If the recipient’s capital ratio is below the “adverse case” scenario, burden sharing would entail the conversion or write-down of subordinated liabilities, while equity and hybrid capital must also fully contribute to offset any losses. It is not entirely clear what is meant by “to fully contribute,” and in particular whether this equates to 100% write-down or whether conversion of debt into equity is sufficient. Senior liabilities are exempt from statutory burden-sharing under the Banking Communication. Also, an exemption from the statutory burden-sharing measures may be granted where that would endanger financial stability or lead to disproportionate results, particularly where the aid received is small compared to the bank’s risk weighted assets and the capital shortfall has been reduced significantly through capital-raising measures. Also, if necessary, authorities could reconsider the sequencing of burden-sharing measures so as to avoid any disproportionate results. In acknowledgment of the fact that statutory burdensharing measures restrict the right to property, the Banking Communication also foresees that subordinated creditors should not receive less in economic terms in exchange for the conversion or write-down of the financial instruments they hold in the bank than what those instruments would have been worth if no State aid were to be granted (“no creditor worse off principle”). It is not for the EC to resolve disputes relating to the application of that principle; rather, such matters fall within the jurisdiction of national courts. Shearman & Sterling LLP | 81 Burden-sharing under the BRRD The BRRD provides for a framework enabling Member States to deal more efficiently with national and cross-border bank failures. The aim is to ensure long-term financial stability and to reduce the potential public cost of possible future financial crises. Under the BRRD, a failing bank must be put in resolution. Resolution tools should include the sale of the business or shares of the relevant bank, the creation of a bridge bank, and the separation of performing assets from the impaired or under-performing assets of the failing bank. The BRRD’s bail-in tool provides that shareholders and creditors (including senior creditors) must bear losses in order to minimize the resolution costs borne by taxpayers. In principle, bail-in would apply to any liability that is not backed by assets or collateral, and which is not expressly exempt under the BRRD. Exempt liabilities include (i) deposits protected by a deposit guarantee scheme; (ii) short-term inter-bank lending or claims of clearing houses and payment and settlement systems (with a remaining maturity of seven days); (iii) client assets; and (iv) liabilities such as salaries, pensions, or taxes. Exceptionally, authorities can exclude other types of liabilities on an individual, case-by-case basis if strictly necessary to ensure the continuity of critical services or to prevent widespread and disruptive contagion to other parts of the financial system, or if such liabilities cannot be bailed-in within a reasonable timeframe. In terms of sequencing, the BRRD provides that the write-down of liabilities will follow the ordinary ranking in insolvency proceedings. First, equity, and other instruments ranking the same as equity, must fully absorb losses. Second, if required, losses will be imposed evenly on holders of subordinated debt. Third, if required, losses will be imposed evenly on senior debt-holders. Deposits from SMEs and natural persons, including in excess of €100,000, will be preferred over senior creditors. The exact degree of burden-sharing under the BRRD is assessed on a case-by-case basis, and relies on a formal valuation of the bank’s assets. Exceptionally, and where strictly necessary for financial stability, bail-in could reach up to 8% of total liabilities including capital (or alternatively 20% of risk weighted assets in specific situations). Resolution funds could then assume 5% of the losses. At this point, public funds could either be provided to give limited support to the resolution fund or, in extraordinary circumstances, directly to cover losses after the 5% contribution from the resolution fund and if bail-in has reached eligible deposits. In case of severe systemic stress, public funds could replace the resolution fund immediately, but only after bail-in of up to 8% of total liabilities. Moreover, in circumstances of extraordinary systemic stress, the BRRD foresees that national authorities may grant viable banks State aid outside of resolution (“precautionary recapitalization”). Such aid would be subject to the applicable EU State aid rules, and would be granted only after shareholders and creditors have borne losses equivalent to 8% of the bank’s liabilities. Applying the precautionary recapitalization scenario, Greek authorities amended the applicable national law partially bringing forward the BRRD’s bail-in tool, so as to facilitate the 2015 recapitalization of the four main Greek banks through private means. Finally, the BRRD acknowledges that interference with property rights should not be disproportionate; rather, shareholders and creditors should not incur greater losses than those which they would have incurred if the institution had been wound up upon the adoption of the resolution decision (“no creditor worse off than under normal insolvency proceedings principle”). The expression of this principle is similar, albeit not identical, to the “no creditor worse off principle” under the EU State aid framework. 1. Articles 107 — 109 TFEU and guidelines, communications and notices, particularly the Banking Communication of July 30, 2013 (“Banking Communication”), the Recapitalisation Communication of January 15, 2009, the Restructuring Communication of August 19, 2009, and the Impaired Assets Communication of March 26, 2009. 82 | Shearman & Sterling LLP 18 Shearman & Sterling LLP | 83 State Aid Manufacturing companies: The case of State aid intervention Since the start of the financial crisis, very large amounts of State aid have been made available to support the European banking system. However, the amount of aid made available to industrial undertakings has declined by over 20% since 2009.1 On top of the headline reduction in available support, industrial companies have also needed to become accustomed to the substantially changed State aid architecture following modernization in mid-2014. Continued overleaf Shearman & Sterling LLP | 83 84 | Shearman & Sterling LLP State Aid Manufacturing companies: The case of State 18 aid intervention State aid control in the EU is undergoing a quiet revolution. In 2014, the European Commission (EC) embarked on an ambitious reform to ‘modernize’ State aid rules. The modernization effort has touched all aspects of the State aid regime, although perhaps the single most significant change has been the dramatic extension to the scope of the General Block Exemption Regulation (GBER). The GBER grants automatic approval for Member States to pay aid that falls within certain criteria. The practical effect of extending the GBER has been a massive drop in State aid notifications to the EC. This, together with a change to the standing rules for complaints, has transformed the State aid regime from a reactive system where the EC spent its time considering complaints and notifications into a regime where the EC is able to pick and choose which cases it investigates — in a similar way to how the antitrust system works. Now an ever larger proportion of the State aid made available to industrial companies falls under the GBER; understanding the operation and predicting compliance with GBER is therefore crucial — yet this is proving a surprisingly difficult and risk-laden activity in practice. The EC has always had the ability to ‘call in’ GBER cases and ultimately find that it was improperly applied and the aid should be repaid. Recipients knew therefore that there was a risk that they would have to pay the money back. In practice this risk was mitigated by two factors: 1. the EC had never ordered recovery of aid wrongly granted under the GBER — although doubtless sums have in fact been repaid without the EC needing to resort to a formal recovery order; and 2. the low GBER thresholds moderated the risk associated with having to repay GBER aid. Now that the GBER thresholds are much higher and the EC has much more time and resources to investigate and monitor Member States’ use of the GBER, aid recipients now need to be really careful that the aid they have received is compliant. Assessing compliance is made more difficult by the lack of published decisions in relation to interpretation of the GBER — the room for confusion and divergent interpretations on provisions of the GBER and uncertainty over the extent of the discretion accorded a Member State in applying the GBER. The EC has published FAQ documents that seek to explain the EC’s thinking and interpretation of certain points, but the EC, Member States and companies are still feeling their way. Often aid recipients will rely on their Member States to get it right, yet the courts don’t accept Shearman & Sterling LLP | 85 reliance on Member States as a basis to resist repayment of aid subsequently found to be unlawful. Worse, the sophistication and ability of Member States to understand and apply the rules accurately is of variable quality. Industrial companies wishing to take advantage of the new GBER will need to make sure they fully understand the rules, the latest interpretations of those rules and have defense arguments in place if the EC ‘calls in’ the grant. The EC, meanwhile, will need to accept the logic of the modernization step it has taken. State aid control under the GBER has in large part been delegated to the Member States and as such the Member States ought to be allowed a margin of discretion in applying those rules sensibly. Aid recipients now need to be really careful that the aid they have received is compliant 1. European Commission statistics available at http://ec.europa.eu/ competition/state_aid/scoreboard/non_crisis_en.html 86 | Shearman & Sterling LLP 19 Shearman & Sterling LLP | 87 State Aid State aid and tax rulings During 2015 the European Commission (EC) maintained its policy of cracking down on corporate tax avoidance by multinational companies through investigating the compliance of certain tax practices in EU Member States with State aid laws. As a result, in October 2015, the EC adopted decisions against Luxembourg (in respect of Fiat)1 and the Netherlands (in respect of Starbucks),2 which require these governments to recover unpaid taxes running into tens of millions of Euros. Continued overleaf Shearman & Sterling LLP | 87 88 | Shearman & Sterling LLP State Aid 19 State aid and tax rulings The focus of the EC’s investigations over the past year has been on “tax rulings,” which are effectively comfort letters issued by Member States to certain companies regarding aspects of their corporate tax arrangements. While the EC has made it clear that tax rulings do not constitute State aid per se, (for example where it merely clarifies the application of general tax rules based on objective criteria), it is clear the EC will dispute tax rulings that it considers amount to validating preferential tax treatment, which would constitute State aid. The impetus to apply State aid rules in the context of tax avoidance has been created by wider political and policy considerations. In particular, there is concern over “aggressive” tax planning by large multinational companies that are seen to be not paying their fair share, as well as political frustration within the Eurozone over tax competition between Member States due to the absence of tax harmonization. Under EU law, State aid is an advantage given by a Member State to certain undertakings or certain sectors of activity (i.e., the advantage is selective), which affects competition in the EU. This advantage can take any form and so may include a tax ruling in favor of a company where it gives it preferential tax treatment and represents foregone revenue for the State. Therefore, while the formulation of a general tax regime is a matter for the Member State concerned, the EC considers that “treating economic agents on a discretionary basis may mean that the individual application of a general measure takes on the features of a selective measure, in particular where exercise of the discretionary power goes beyond the simple management of tax revenue by reference to objective criteria.”3 As a result, according to the EC, “every decision of the administration that departs from the general tax rules to the benefit of individual undertakings in principle leads to a presumption of State aid and must be analysed in detail.”4 The question is therefore whether a tax ruling gives the recipient company an advantage that others subject to the general taxation regime do not enjoy. The decisions against Luxembourg and the Netherlands concern tax rulings that related to pricing calculations used in respect of intra-group transactions of Fiat and Starbucks, respectively. Such intra-group transactions are supposed to be carried out on an arm’s length basis, for which detailed guidance is given in the OECD Transfer Pricing Guidelines (OECD Guidelines).5 However, the EC considered that the tax rulings under investigation endorsed non-arm’s length transactions, which had the effect of reducing the tax burden for the companies concerned, which gave the companies a selective advantage and therefore amounted to State aid. In coming to this conclusion, the EC said the tax rulings endorsed artificial and complex methods to calculate taxable profits of the companies which did not reflect economic reality. The cases on tax rulings that validate intra-group transfer pricing arrangements raise important legal questions, including around the relationship between the assessment of compliance with the arm’s length principle and the State aid criteria of selective advantage, and also what is the relevant reference base for such an assessment. This assessment may not be as straightforward as the EC contends, and the burden is on the EC to demonstrate that the arrangements amount to State aid. The EC considers that where the OECD Guidelines are not applied “correctly,” there exists a selective advantage. However, the OECD Guidelines are not binding on Member States, and themselves state that “transfer pricing is not an exact science but does require the exercise of judgment on the part of both the tax administration and taxpayer”6 and that “because transfer pricing is not an exact science, there will also be many Shearman & Sterling LLP | 89 occasions when the application of the most appropriate method or methods produces a range of figures all of which are relatively equally reliable.”7 Acknowledging that these are not matters of exact science means there must be room for the discretion of the tax authorities, especially given the formulation of taxation policy is the prerogative of the Member State. The EC must be cautious not to simply impute its view as to what is acceptable for that of the relevant tax authority, but its decisions must be based on sound legal principle. While it is almost certain that the legal basis for these decisions will be challenged in the European Courts, such appeals will take years to resolve, and these decisions will be of concern to many multinational companies that rely on similar rulings. Tax rulings are required for legal certainty, and the system of tax rulings is a well-established feature of the legal landscape — as is apparent following “Lux Leaks,” in which details of tax arrangements between Luxembourg and hundreds of companies were made public. These decisions will therefore have a destabilizing effect; indeed, multinational companies will already be considering State aid issues as part of their tax planning. The EC has committed to reviewing all the “Lux Leaks” documents and has requested details of similar rulings from other EU Member States. As we move into 2016, the EC is pursuing other highprofile investigations against Ireland (in respect of Apple), and Luxembourg (in respect of Amazon and McDonald’s) and it will likely also have to contend with appeals against the decisions it made in 2015. Developments in these cases will be closely monitored, although it may well be a long time before we have clarity in this important area. Acknowledging that these are not matters of exact science means there must be room for the discretion of the tax authorities 1. Case SA.38375 — Luxembourg — Fiat Finance and Trade Ltd. 2. Case SA.38374 — The Netherlands — Starbucks. 3. Commission Notice on the application of State aid rules to measures relating to direct business taxation (“Tax Notice”), para. 21. 4. Tax Notice, para. 22. 5. Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, OECD, 2010. 6. OECD Guidelines, para. 1.13. 7. OECD Guidelines, para. 3.55. 90 | Shearman & Sterling LLP State Aid 2015 representative matters Shearman & Sterling LLP | 91 Committee of Subordinated Creditors of Banco Espírito Santo Representing a group of holders of subordinated debt in Banco Espírito Santo (BES) — a leading Portuguese bank which, in August 2014, became the first bank to be subjected to a “resolution” measure, involving a split into a “good bank” and a “bad bank” — in legal proceedings before the Court of Justice challenging the European Commission’s decision to approve Portugal’s bailout of the bank, which we believe to be in breach of EU State aid rules. Investors in Sardinian ferries Advising investors in Onorato Partecipazioni-NewCo in relation to the ongoing European Commission investigation into State aid granted by Italy to companies of the former Tirrenia Group for operating certain maritime routes and with regard to the privatization of companies of the Group. Also advising on the notification of the Onorato Partecipazioni-NewCo/Moby-Compagnia Italiana di Navigazione transaction to the Italian antitrust authority. Government of Cyprus Advising on all aspects of the current privatization of Cyprus Telecommunications Authority (CYTA). Eurobank Advised on the State aid aspects of its restructuring and its recapitalization to cover the €2.04 billion capital shortfall identified by the comprehensive assessment conducted by the European Central Bank in the context of the third economic adjustment program agreed between Greece and the European Commission. Jaguar Land Rover Advising on State aid issues in relation to a number of on-going projects in the UK. Also advising Jaguar Land Rover on the regional aid aspects of a major development of a new manufacturing plant in the city of Nitra in western Slovakia with an initial capacity of 150,000 cars per year. Piraeus Bank Advised on the State aid aspects of its restructuring and €4,933 million recapitalization following the settlement between the Greek Government and its creditors in 2015. Pro Bono 92 | Shearman & Sterling LLP Shearman & Sterling LLP | 93 Below is a summary of just some of the fantastic pro bono work that is being undertaken by the Global Antitrust Group. There are numerous other worthy projects that have been worked on beside those described below. Co-Counsel With LatinoJustice On A Significant New Civil Rights Policing Matter Heather Kafele and Arjun Chandran have been part of the team working on a large litigation matter focusing on alleged police discrimination against Latinos. After conducting research and drafting submissions, in the spring of 2015 the team filed a complaint against the Suffolk Police Dept in the Eastern District of New York, United States District Court. Lawyers Without Borders Lawyers Without Borders is a 501(c)(3) charitable organization that harnesses the pro bono work of lawyers from around the world into volunteer service in global rule of law, capacity building and access to justice initiatives. MTV Gender Violence Project Marixenia Davilla coordinates relevant work streams and legal work concerning the creation of the fourth edition of the Shuga comic strip focusing on Nigeria, and in particular Lagos. The Shearman team has reviewed and provided comments on the draft comic strip plot, and has prepared information panels providing advice to sexual assault victims, good practices, and an overview of the legal framework dealing with the various forms of sexual assault. PILPG The Public International Law & Policy Group (PILPG) is a global pro bono law firm that provides legal assistance to states and governments with the negotiation and implementation of peace agreements, the drafting of post-conflict constitutions, and the creation and operation of war crimes tribunals. We have two active research memos being worked on by individuals across many offices, as detailed below. Memorandum on Legal and Policy Considerations for Developing a Database of Human Rights Violations Athina Kontosakou and Ruba Ameen have assisted in the drafting of this memorandum, requested by NGOs who are aiming to compile such a database with a view to documenting and subsequently combating the increasing human rights violations in the middle-east. The team divided work on the memorandum by jurisdiction, and each team was tasked to research into particular countries and into any relevant human rights databases developed and managed by such countries. The Antitrust team members compiled a summary of examples of human rights databases, as well as other more general practical advice on the development of such databases drawing on previous publications by other worldwide NGOs. Counterterrorism Savas Manoussakis and Simon Thexton are part of the team assisting PILPG in advising on the legal implications of the rise of terrorist groups in the Middle-East, specifically the Islamic State in Iraq and Syria (ISIS). The memo analyzed certain international legal obligations related to the prevention of terrorism, international legal obligations as established in international and regional treaties, as well as customary international law, and also identified instances in which governments have violated international legal obligations related to the prevention of terrorism by allowing ISIS to grow and operate. Representation of Low Income Individuals in Matters Involving Family Law and Immigration Unaccompanied Children Clinic Unaccompanied minor children from Central America have been fleeing violence in their countries and migrating to the United States. When they arrive in the New York City area, they are summoned to appear before an immigration judge. A group of NGOs operates a clinic in the courthouse where the children meet with a volunteer lawyer to be interviewed. The interviews, along with a review of their 94 | Shearman & Sterling LLP documents, determine if the children qualify for ongoing pro bono legal services. Timothy Haney and Aleksandra Petkovic have both volunteered at the clinic. SSI Overpayment Clinic Aleksandra Petkovic participated at a clinic staffed by lawyers from Shearman & Sterling and the in-house legal department at Credit Suisse. At the clinic, which is held on site in the New York office, a lawyer from the Legal Aid Society trains the volunteers and supports them in interviewing low income clients with possible overpayment issues relating to their social security disability benefits. A4ID Sustainable Development Goals Project Shirin Lim and Julie Vandenbussche are part of the team assisting in research and analysis of the links between the law (globally) and three Sustainable Development Goals (SDG’s): ▪ Goal 1: end poverty in all its forms, everywhere; ▪ Goal 8: promote sustainable economic growth, employment and decent work for all; and ▪ Goal 11: make cities and human settlements inclusive, safe, resilient and sustainable. The research/analysis will eventually form part of a comprehensive document that will be a legal guide to the SDGs, disseminated throughout the global legal, government and stakeholder community for free in hardcopy and online, as well as developing an online knowledge sharing platform that allows open discussion and critique of the developing guide as a living document, facilitating continuous discussion of implementation possibilities. This work was referred to us by an organization called Advocates for International Development (or A4ID). A4ID is a charity that empowers lawyers to use their skills to fight world poverty and acts as a pro bono broker and legal education service. World Bank Research — Legal Rights Of Ethnic Minorities, Religious Minorities and LGBTI Individuals The World Bank is a United Nations international financial institution that provides loans to developing countries for capital programs. Its Equality of Opportunity in Global Prosperity project aims to measure the impact on the economy of discriminatory legislation against ethnic, religious and sexual minorities. Legal Rights Research Savas Manoussakis has led the team of Associates assisting the Equality of Opportunity in Global Prosperity team of the World Bank in completing surveys in relation to the legal rights of ethnic minorities, religious minorities and LGBTI individuals. The questionnaires comprise six topics: (i) access to institutions; (ii) access to property; (iii) access to education; (iv) access to public services and social protection; (v) access to the labor market; and (vi) protection from hate crimes. The data will be used by researchers to show strong correlations between regulatory environments and outcomes. It will benefit the international human rights community and civil society organizations working to protect the rights of minorities, and the academic community looking for better tools and data on discrimination and for cross-country analysis. Proponents of reform would also be able to point to recent reforms in other similarly situated economies and identify best practices. The ultimate beneficiaries of the project will be marginalized groups around the world. Shearman & Sterling LLP | 95 Pro Bono Over the past 15 years, 136 Shearman & Sterling associates have volunteered to work at the International Criminal Tribunal for Rwanda (ICTR). They have been assisting in the prosecution of certain persons accused of genocide and related crimes during the course of the massacres that occurred in Rwanda in April to July, 1994. Julie, who is an Antitrust associate in Shearman & Sterling’s Brussels office, spent six weeks at the ICTR, which is based in Arusha, Tanzania. She is now a key member of the Brussels’ office pro bono committee. I first heard about the project through an email from our firm’s chair of global pro bono, antitrust partner Heather Kafele, which Stephen Mavroghenis, Brussels Managing Partner and Antitrust Practice Group Co-Head, shared within the team. I did not hesitate. For me this was an experience not to be missed: the feeling that I could contribute to something bigger, to a “key event in history,” to the development of international and human rights laws and their enforcement. I was also interested in discovering a new working environment, the judicial, and new fields of law, international law and human rights law. The firm supported associates in many ways. First, by helping lawyers prepare before going, through suggested readings and sharing memos drafted by colleagues during their secondment at the Tribunal. On the ground in Arusha, we had a point of contact at the Tribunal to take us through our first day, showing us around, introducing us to people. There was a “Shearman” office: a room reserved for Shearman & Sterling lawyers. Finally, the logistics were being taken care of from accommodation to providing us with a list of key contacts to organize safaris. My first day in Arusha was a bit like any first day in a new job: getting all things done regarding security, access to building, IT, and then getting introduced to people. I then sat with my ‘mentor’ to get some background information with regard to the Butare case. Most of the work consisted of assisting the prosecution team with legal research in preparation of the Butare appeal. Typically, we would arrive at the Tribunal early in the morning, do some research and draft notes, and then grab lunch with colleagues. We would also have informal meetings to discuss our progress and get insights on similar cases or how the Court addressed certain legal issues in previous cases. Once or twice a week we would have a team meeting to discuss research results, strategy and procedural issues. Often we would be invited by colleagues for drinks or dinner. The electricity cuts surprised me. Having no light, no phone, no computer and no Internet... led me to rediscover the pleasure of going back to books and papers. Living six weeks in Arusha was unreal because I encountered two different worlds in one city. On one hand a first world city; on the other a large poor population living in shanty towns. For me the language barrier to engage with local people (especially the cleaning lady and the security guards) was tough. Still, I spent memorable moments with them during weekends in the garden with monkeys playing around us. I also got to be introduced to a local NGO called Shanga, which helps disabled Tanzanians by skilling them in the manufacturing of quality products out of recycled materials. Visiting them, I will always remember their pride in being able to contribute to the economy. Looking back at my experience, it brought me an increased awareness that we really are privileged. I developed certain qualities such as patience, putting things in perspective and looking at life in a more nuanced way. I now have a better understanding of the developing world and cultural differences. Small contributions, I learned, can have a large impact (e.g., I left most of my clothes and stuff like toothpaste, soap, etc., to the locals and they were extremely grateful). To someone considering a similar commitment, I’d say do it, but go with an open mind. There is no space for bias if you want to make the most of it. Julie Vandenbussche shares her experiences of working for the ICTR 96 | Shearman & Sterling LLP Laura Abram Associate [email protected] Brussels T: +32 2 500 9826 Mikael Abye Associate [email protected] San Francisco T: +1 415 616 1197 Elvira Aliende Rodriguez Counsel [email protected] Brussels T: +32 2 500 9837 Christopher Bright Of Counsel [email protected] London T: +44 20 7655 5163 Beau W. Buffier Partner [email protected] New York T: +1 212 848 4843 Brian G. Burke Partner [email protected] Hong Kong T: +852 2978 8040 Arjun Chandran Associate [email protected] New York T: +1 212 848 7292 Wayne Dale Collins Partner [email protected] New York T: +1 212 848 4127 Marixenia Davilla Associate [email protected] Brussels T: +32 2 500 9841 Jessica K. Delbaum Partner [email protected] New York T: +1 212 848 4815 Mark J. English Associate [email protected] Brussels T: +32 2 500 9842 Pedro Fajardo Associate [email protected] Brussels T: +32 2 500 9884 Stephen Fishbein Partner [email protected] New York T: +1 212 848 4424 Jerome S. Fortinsky Partner [email protected] New York T: +1 212 848 4900 Geert Goeteyn Partner [email protected] Brussels T: +32 2 500 9823 Gabriella Griggs Associate [email protected] London T: +44 20 7655 5664 Adam S. Hakki Partner [email protected] New York T: +1 212 848 4924 Timothy J. Haney Associate [email protected] New York T: +1 212 848 7685 Masahisa Ikeda Partner [email protected] Tokyo T: +81 03 5251 1601 Heather Lamberg Kafele Partner [email protected] Washington DC T: +1 202 508 8097 Kelly Karapetyan Associate [email protected] New York T: +1 212 848 8636 Misaki Kodama Associate [email protected] Tokyo T: +81 03 5251 0228 Athina Kontosakou Associate [email protected] Brussels T: +32 2 500 9806 Sebastian Krujatz Associate [email protected] London T: +44 20 7655 5911 Shirin Lim Associate [email protected] London T: +44 20 7655 5708 Savas Manoussakis Associate [email protected] London T: +44 20 7655 5712 Hugh Martin Associate [email protected] New York T: +1 212 848 4866 Stephen C. Mavroghenis Partner [email protected] Brussels T: +32 2 500 9814 George Milton Counsel [email protected] London T: +44 20 7655 5625 Toshiro M. Mochizuki Counsel [email protected] Tokyo T: +81 03 5251 0210 Kana Morimura Associate [email protected] Tokyo T: +81 03 5251 0211 Yuko Ohba Associate [email protected] Tokyo T: +81 03 5251 0220 Keith R. Palfin Counsel [email protected] Washington DC T: +1 202 508 8179 Aleksandra Petkovic Associate [email protected] New York T: +1 212 848 4484 Miguel Rato Partner [email protected] Brussels T: +32 2 500 9834 Collette Rawnsley Counsel [email protected] London T: +44 20 7655 5063 The Antitrust Team Shearman & Sterling LLP | 97 Matthew Readings Partner [email protected] London T: +44 20 7655 5937 Patrick D. Robbins Partner [email protected] San Francisco T: +1 415 616 1210 Richard F. Schwed Partner [email protected] New York T: +1 212 848 5445 Trevor Soames Partner [email protected] Brussels T: +32 2 500 9813 Mark Steenson Associate [email protected] London T: +44 20 7655 5602 Mathias Stöcker Counsel [email protected] Frankfurt T: +49 69 9711 1619 James P. Tallon Partner [email protected] New York T: +1 212 848 4650 Simon Thexton Associate [email protected] London T: +44 20 7655 5731 Leo Tian Associate [email protected] Hong Kong T: +852 2978 8077 Julie Vandenbussche Associate [email protected] com Brussels T: +32 2 500 9844 James Webber Partner [email protected] London T: +44 20 7655 5691 Chiharu Yuki Associate [email protected] Ranked as Global Elite Practice by Global Competition Review — GCR100, 2016 98 | Shearman & Sterling LLP Thought Leadership Shearman & Sterling LLP | 99 Academic Roles Brussels School of Competition Miguel Rato | Lecturer | EU Competition Law and Intellectual Property College of Europe Elvira Aliende Rodriguez | Guest Lecturer | EU Competition Law IEB — Instituto de Estudios Bursatiles Mark English | Lecturer | European Commission enforcement procedure and the application of EU competition law to the transport sector Leiden University Geert Goeteyn | Visiting Professor | EU Competition Law and its Application in the Aviation Industry New York University Wayne Dale Collins | Adjunct Professor of Law | Case Development and Litigation Strategy Oxford University Matthew Readings | Visiting Professor | Competition law (Undergraduate level) Yale Law School Wayne Dale Collins | Visiting Lecturer | Antitrust Blogs Antitrustunpacked.com A blog providing concise but operationally meaningful content to in-house counsel and senior management on important antitrust and competition law topics Carteldigest.com A repository of key data on global cartels with significant enforcement activity in the past 30 years. Publications Antitrust Adviser, 5th Ed. Mergers and Acquisitions | Beau Buffier, Jessica Delbaum, Matthew Jennejohn | December 2015 L’Echo Opinion piece looking back at the Court of Justice’s ruling in the dispute between Huawei and ZTE over Standard Essential Patent licensing | Miguel Rato | December 2015 CompLaw Blog ‘Notable developments since the UKs Finance Conduct Authority was granted concurrent competition powers’ | George Milton | November 2015 JECLAP ‘EU Merger Control: The relevance of captive sales for the purpose of market definition and competition assessment’ | Geert Goeteyn, Sara Ashall | November 2015 Competition Policy International ‘Huawei: Establishing the Legal Standard for a FRAND Defense as a Basis for Resisting Requests for Injunctive Relief for Infringements of SEPs Under Competition Law’ | Miguel Rato, Mark English | October 2015 JECLAP ‘An assessment of injunctions, patents and standards following the Court of Justice’s Huawei v. ZTE ruling’ | Miguel Rato, Mark English | October 2015 Global Competition Review IP & Antitrust: United States | Jessica Delbaum, Timothy Haney | July 2015 Global Competition Review IP & Antitrust: European Union | Miguel Rato | July 2015 Global Competition Review The Antitrust Review | Chapter on EU Cartels and leniency | Elvira Aliende Rodriguez, Laura Abrams, Julie Vandenbussche | August 2015 100 | Shearman & Sterling LLP JECLAP ‘Vinci Construction e.a. v.France: Limits on unannounced Inspections on the Basis of the Rights to a Fair Trial and to the Respect for Privacy’ | Collette Rawnsley | July 2015 e-Concurrences ‘The Court of Justice’s Preliminary Ruling in Huawei v. ZTE: The Final Word?’ | Miguel Rato | July 2015 JECLAP ‘Away from market shares? The increasing importance of contestability in EU competition law cases’ | Geert Goeteyn, Sara Ashall | February 2015 Speaking Engagements IBC Legal Standards, Patents & Competition Conference — Interactive workshop: The future of litigations SEPs — Impact Huawei v. ZTE | Collette Rawnsley, Mark English | December 3, 2015 IBC Legal Standards, Patents & Competition Conference | Trevor Soames (Chair) | December 1 & 2, 2015 IBC Legal Compliance & Ethics International: Risk assessment & High risk markets workshop days “What are the competition risks to your business” | Stephen Mavroghenis | November 19, 2015 Brussels School of Competition The Chillin’ Competition conference “Competition law and Intellectual Property: A new balance?” | Miguel Rato | November 19, 2015 IBC Legal Antitrust panel at the Compliance and Ethics International conference | Stephen Mavroghenis | November 19, 2015 NERA Economic Consulting Roundtable conference “The impact of antitrust on deal-making & operations in the US, EU and China” | Beau Buffier | November 13, 2015 International Financial Law Review (IFLR) The Competition Law Forum 2015 “A comparative update on competition issues in regulated markets” | Matthew Readings and Christopher Bright (Chair) | November 12, 2015 Global Competition Review (GCR) 7th Annual Brussels: The conference about the bigger picture | November 9 & 10, 2015 ▪ Panel on “Competition challenges from online retailing — new wine in old bottles?” | Stephen Mavroghenis ▪ Panel on “Article 102 — navigating the compliance maze post-Intel” | Trevor Soames The UCL Institute of Brand and Innovation Law, George Washington University’s Faculty of Law, GSMA, ITU and ETSI Patents in Telecom “Injunctions Panel” | Geert Goeteyn | November 5 & 6, 2015 Luxottica Global Legal Conference | Miguel Rato | November 5, 2015 Cambridge Forums Antitrust Litigation forum | Heather L. Kafele | November 1 & 2, 2015 New York Bar Association International Section Seasonal meeting 2015, Panel on “Cartel Enforcement and Competition Law Developments in Brazil” | Heather L. Kafele | November 15 – 17, 2015 American Bar Association Antitrust Intellectual Property Conference, Panel on “Do patents really promote innovation?” | Trevor Soames | October 8, 2015 International Bar Association Annual Conference, “Due process in competition cases” | Stephen Mavroghenis | October 5, 2015 Concurrences “SEPs & FRAND after the ECJ Huawei / ZTE Ruling” | Miguel Rato | September 30, 2015 Bright Network The Bright Network Festival, Panel on “Getting ahead in commercial law” | James Webber | September 15, 2015 The Law Society of England and Wales Legal ConfEx, Masterclass on “Developments in private antitrust litigation” | James Webber | September 9, 2015 Liège Competition and Innovation Institute (LCII) Morning Briefing “Huawei v. ZTE” | Miguel Rato | September 4, 2015 American Bar Association Criminal & Cartel Committee, Panel on “Cartel/Criminal updates for 2015” | Heather L. Kafele | August 28, 2015 IBC Legal Competition law challenges in Asia “IP and competition law in the IT sector” | Miguel Rato | July 14, 2015 NERA Economic Consulting 34th Antitrust and Trade Regulation Seminar | Beau Buffier | July 8 – 11, 2015 Kluwer Law Global Competition Law Forum Beijing | Miguel Rato | July 9, 2015 Thought Leadership (continued) Shearman & Sterling LLP | 101 Concurrences “What is FRAND?” | Trevor Soames & Miguel Rato | June 30, 2015 The American Lawyer US — EU Legal Summit, Panel moderator “Opting to blow the whistle or choosing to walk away?” | Stephen Mavroghenis | June 30, 2015 Global Competition Review (GCR) 3rd Annual IP & Antitrust | Trevor Soames and Miguel Rato, Chair | June 4, 2015 The Knowledge Group “Mitigating Antitrust Risks in Mergers & Acquisitions Transactions: What Every Firm Needs to Know in 2015” | Jessica Delbaum | June 1, 2015 Global Competition Law Center (GCLC) Lunch Talk Series, “The E-Commerce Sector Inquiry: What, Why and How?” | James Webber | May 22, 2015 Kluwer Law Global Competition Law Forum Tokyo | May 21, 2015 ▪ “EU Competition law and IP: Recent developments” | Miguel Rato ▪ Grand Panel “Compliance and regulatory issues for international companies — Best practice advice for in-house counsel” | Stephen Mavroghenis Global Competition Review (GCR) GCR Live IP & Antitrust | May 19, 2015 ▪ Industry panel “Real world licensing of IP” | Miguel Rato ▪ Chair of Conference: Trevor Soames and Miguel Rato American Bar Association / New York State Bar Association Antitrust Section Program, “Practicing before the enforcement agencies: New York” | Jessica Delbaum, Moderator | May 13, 2015 Competition Law Association “Procedural fairness in merger and market investigations” | James Webber | May 7, 2015 British Institute of International and Comparative Law (BIICL) 12th Annual BIICL Mergers and Markets conference, Panel on “Litigated issues in mergers and markets cases: judicial review from supermarket scanners to ferry workers, cement plants to hospital data rooms” | James Webber | April 30, 2015 IBC Legal Advanced EU Competition Law | April 28 & 29, 2015 ▪ “Cartel settlements” | Trevor Soames ▪ Panel on “Mergers — trends and challenges” | Stephen Mavroghenis International Financial Law Review (IFLR) Competition Law Roundtable | Christopher Bright, Matthew Readings, James Webber | April 28, 2015 InHouse Community Korea Outbound Symposium | April 15, 2015 ▪ “US Merger Control: Overview, recent trends and practical tips for deal planning” | Beau Buffier ▪ “Don’t get caught unawares: Lessons from the antitrust frontlines in global cartel and merger defense” | Patrick Robbins ▪ “Managing in a world of antitrust risk — Lessons from the frontlines in cartels, merger control and antitrust litigation: European Union” | Mark English Global Competition Review (GCR) GCR Live 2nd Annual IP & Antitrust USA | Trevor Soames, Miguel Rato — Chair | April 14, 2015 RBB Economics Annual Johannesburg Conference, “Non-horizontal mergers” | James Webber, Patrick Robbins | April 9, 2015 IBC Legal Private enforcement of competition law conference | Collette Rawnsley | March 25, 2015 American Bar Association 2015 Asia Forum, Panel on “Protecting your client in an era of global enforcement” | Stephen Mavroghenis | March 2 & 3, 2015 IBC Legal Competition law in the Aviation sector | Geert Goeteyn, Chair | January 29, 2015 New York State Bar Association NYB Association Women’s Panel & Networking Event, Panel on “Development of foreign clients” | Heather Kafele | January 28, 2015 International Financial Law Review (IFLR) European in-house Counsel Summit, Panel on “Competition: strategies for dealing with new regulators” | Matthew Readings, George Milton | January 22, 2015 102 | Shearman & Sterling LLP Aditya Birla Air Canada Airline Personnel Directors Council Albemarle Corporation American Sugar Anglo American Ardagh Areva Bank of America Merrill Lynch Barclays Bank Barry Callebaut BASF BMI Business 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