Marking the 20th anniversary of the cooperation agreement between the United States and the European Union regarding the application of their competition laws, the US and EU antitrust/competition agencies have published a revised set of Best Practices on Cooperation in Merger Investigations ("Best Practices"). The new revisions provide greater guidance to companies wishing to facilitate merger reviews, recognize that other countries also may be conducting their own reviews, and emphasize coordination between agencies at key stages of their inquiries.
Published on 14 October 2011, the Best Practices address both the filing stage and the investigation stage of merger review, including determination of remedies. The Best Practices also provide guidance on communication between agencies and with parties (and third parties) at pivotal stages of an investigation, acknowledging that the success of such cooperation is largely in the hands of the parties themselves.
The Best Practices provide:
- Detailed guidance on how and when firms could seek, and facilitate coordination of, the review of transactions by the US and EU agencies
- Clarity on how the US and EU agencies would coordinate their investigation of transactions, including at the stage of designing and implementing remedies.
Objectives of the Best Practices
The Best Practices were adopted by the Competition Directorate-General of the European Commission ("DG Competition"), the US Federal Trade Commission, and the Antitrust Division of the US Department of Justice. Consistent with the version published in 2002 (the "2002 Best Practices") the latest Best Practices are intended to:
- Promote fully-informed decision-making;
- Minimize the risk of divergent outcomes;
- Enhance the efficiency of investigations;
- Reduce burdens on merging parties and third parties; and
- Increase the overall transparency of the merger review process.
Initiation of Cooperation and Consultation between Agencies
Recognizing the advantages of effective coordination between the different agencies, the Best Practices encourage prompt initial contact between agencies when it appears that a merger may require review by both the US and EU agencies. Such cooperation can begin at the prenotification stage—for example, when DG Competition and the US agencies discuss preparatory steps in cases that are still in the process of being referred to DG Competition by national Member States in the European Union—particularly where the parties have granted a waiver of confidentiality at that stage.
Similar to the 2002 Best Practices, the revised Best Practices identify the key stages of an investigation and the key staff members at each agency that productively may engage in consultations. Recognising the growing importance of economic evidence in the investigations, the Best Practices explicitly encourage consultations between agency economists. The key stages are identified as:
- Before the relevant US agency either closes an investigation without taking action or issues a second request;
- No later than three weeks following the initiation of a Phase I investigation by DG Competition;
- Before DG Competition opens a Phase II investigation or clears the merger without initiating a Phase II investigation;
- Before DG Competition closes a Phase II investigation without issuing a Statement of Objections or before the DG Competition anticipates issuing its Statement of Objections;
- Before the relevant Department of Justice section/Federal Trade Commission division makes its case recommendation to senior leadership;
- At the commencement of remedies negotiations with the merging parties; and
- Prior to a reviewing agency’s final decision to seek to prohibit a merger.
The Best Practices also encourage the agencies to coordinate their investigations—for example, by holding joint calls or meetings with the merging parties and the relevant staff to discuss the timing of the respective investigations.
Regarding the collection and evaluation of evidence, coordination may be possible in:
- Sharing publicly available information consistent with any confidentiality obligations;
- Discussing analyses by the respective agencies, including those relating to market definition, competitive effects, efficiencies, theories of competitive harm, economic theories, and empirical evidence needed to test those theories;
- Possible remedies; and
- Information or discovery requests directed to the merging parties and third parties, including the exchange of draft questionnaires to the extent permitted by the respective jurisdictions’ laws and regulations.
Role of Parties in Facilitating Cooperation
THE NOTIFICATION AND INVESTIGATION STAGE
The Best Practices emphasise the role that parties can play in facilitating a cooperative process, particularly concerning the coordination of the timing of investigations. It is suggested that parties to a merger requiring review inform the agencies in both jurisdictions as early as possible. The Best Practices suggest providing such information as the names and activities of the parties, the sectors involved, the anticipated date of filing in each jurisdiction and any issues relevant to the timing of the merger. Specific topics that could be addressed at this stage include the appropriate time to file and suggested time frames for submission of documents or other information and interviews.
The Best Practices encourage parallel filings in the United States and the European Union, and also recognise that cooperation can best be achieved if the timing of filing allows for cooperation at key decision-making stages. The importance of timing is stressed in relation to those cases where the parties anticipate that the US agency will issue a second request and the parties are seeking a Phase I clearance decision with commitments from DG Competition.
To help facilitate coordination, the Best Practices encourage use of the timing flexibility provided for in the procedures of the respective agencies. For example, it is noted that after the issuance of a second request in the United States and the opening of a Phase II investigation in the European Union, the parties can negotiate a timing agreement with the US agency based on the date on which the parties will certify compliance with the second request, and that, in the European Union, parties can possibly request to extend the review period by up to twenty working days.
The Best Practices acknowledge that waivers of confidentiality are common in cases involving cooperation between DG Competition and the US agencies, and that these waivers enable more complete communication between the reviewing agencies and with the merging parties regarding relevant evidence. However, recognizing that legal professional privilege differs between the United States and the European Union, the Best Practices provide that the agencies will accept a stipulation in waivers that the parties provide to DG Competition that excludes from the scope of the waiver evidence that is properly identified by the parties as, and qualifies for, the in-house attorney-client privilege under US law.
It normally is in the interest of the parties to coordinate the timing and substance of remedy proposals in order to minimize the risk of inconsistent or conflicting results or difficulties in implementation. The Best Practices envision the sharing of draft remedy proposals between the reviewing agencies and the agencies’ participation in joint discussions with the merging parties, prospective buyers, and trustees. Particular emphasis is placed on communication and early coordination in cases where remedies may include an upfront buyer and DG Competition is considering a Phase I remedy. Confusion might arise, for example, if the US agency were to conclude that an upfront buyer of the assets to be divested is necessary while DG Competition concludes that parties should be allowed to propose a purchaser after a clearance decision.
In addition to avoiding the risk of inconsistent or conflicting remedies, cooperation in the remedies phase can result in the acceptance of common remedy proposals or even the appointment of common trustees or monitors which could be in the interest of both the agencies and the parties.
In the 2010 case of Cisco/Tandeberg, the US Department of Justice took into account the commitment that the parties gave to DG competition, and it closed the investigation on the same day that DG Competition announced the clearance decision. That action was characterized by then-Assistant Attorney General Christine Varney as "a model of international cooperation between the United States and the European Commission" with respect to which "[t]he parties should be commended for making every effort to facilitate the close working relationship between the Department of Justice and the European Commission."
The 2002 Best Practices have served well, and the greater clarity provided under the 2011 version are welcome. Hopefully, the new Best Practices will serve as a model for cooperation among competition authorities in other jurisdictions as well.