Global Antitrust in 2018: 10 Key Themes report

Global antitrust

in 2018

10 key themes

Global antitrust in 2018

EU Competition Commissioner Margrethe

Vestager has gained international recognition

for pushing novel and far-reaching theories

motivated by notions of fair competition, with

several of her higher profile targets in 2017

being large US multinationals.

In the US, Makan Delrahim has only recently

been confirmed as Assistant Attorney General

at the Department of Justice’s Antitrust Division

and Joe Simons has now been nominated to serve

as Chairman of the Federal Trade Commission.

Both are seasoned political appointees and

private sector lawyers. Their prior track records

would suggest a more conservative approach

than the prior administration and a sharp

philosophical divergence from the current

direction of Commissioner Vestager.

Could 2018 be a watershed year for trans-Atlantic

divergence, the likes of which we have not seen

since the early millennium? Several important

drivers may compound these tensions:

• fast-moving technology and innovation are

changing the way companies compete to sell

their products and the way consumers interact

with business. Antitrust law and practice are

developing fast, but concerns are rising as to

whether existing tools are adequate to address

the scale and nature of industrial change in

the digital era. As agencies balance free market

economics with choice and fairness,

international convergence on antitrust

principles will be tested;

• the rise of emerging markets is changing

the enforcement landscape, as newer, often

well-resourced agencies increase enforcement

activity in their regions. Many follow EU

principles, but important differences in law

and interpretation exist. As our recent report*

showed, no one can afford to ignore antitrust

in Asia in global deal planning or corporate

compliance; and

• geo-politics continues to shape enforcement

policy as regions face very different

economic challenges and political pressures.

The re-emergence of protectionism within

the G7 and changes in international trade

agreements are clear examples of developing

laws and policies that are already having a

major impact on cross-border trade and

investment. Perhaps less obvious is the impact

of broader public policy and political objectives

on the extending reach of antitrust into a

wider range of areas.

I am delighted to enclose our eighth annual

review of key trends in global antitrust. We start

and finish with important areas of potential

international divergence in trade, public interest

and foreign investment, and state aid, but also

explore how these dynamics will play out on the

ground in reality as agencies across all regions

take action in 2018 in relation to business

consolidation and conduct.

We will be updating these themes through the

year, and holding a number of events to discuss

their implications in more detail. If you are

interested in hearing more, or joining our

discussions, please get in touch with me or

approach your usual contacts in our antitrust,

competition and trade team.

Best wishes for a successful 2018.

Thomas Janssens

Global Head, Antitrust,

Competition and Trade Group

E thomas.janssens@freshfields.com

T +32 2 504 7546

This year, we celebrate the 275th anniversary of our firm and mark our long tradition

of looking ahead to anticipate the impact of changing laws and policies around the

world on our clients. In global antitrust and trade, we will continue to see political and

economic dynamics shape the enforcement of laws that heavily impact transactional

activity and commercial conduct.

Global antitrust in 2018

*www.freshfields.com/en-gb/our-thinking/campaigns/antitrust-in-asia

10 key themes

As companies innovate to compete in

rapidly changing markets, regulators around

the world are adapting quickly to ensure

consumers are protected. In 2018, it is more

important than ever to understand the

significance of these dynamics, which raise

complex legal issues involving an increasing

number of regulators around the world.

We look forward to discussing with you the

key themes in global antitrust and trade

and how they affect your business.

Edward Braham, The Senior Partner

Global antitrust in 2018

10 key themes

1. International competition and trade

Will 2018 be the year when

the mists clear?

Page 7

Pricing and sales practices

Staying antitrust compliant

Page 33

2. The rise of protectionism

Impact on deal planning

Page 11

7. Global antitrust investigations

Protecting your position in

an era of tough enforcement

Page 39

3. Innovative theories in merger control

Getting complex cross-border deals

across the line

Page 17

8. Antitrust litigation

Managing global risk in a rapidly

evolving landscape

Page 45

Deal risk

Managing multiple merger reviews as

authorities step up enforcement and

the risk of third-party challenge grows

Page 23

Employees

Making sure your employment

policies are antitrust compliant

Page 51

5. Platforms in the antitrust spotlight

All eyes on the disruptors

Page 29

10. State aid

Testing the limits of competition law

Page 57

Freshfields Bruckhaus Deringer LLP

4. 9.

Global antitrust in 2018

2017 saw the future of global and regional trade shrouded in

uncertainty, as negotiations towards a new European Union (EU)

and United Kingdom (UK) relationship post-Brexit stumbled and

President Trump faced challenges in implementing important

parts of his manifesto. However, 2018 may see the mists clear to

reveal the future direction of global trade more distinctly.

Europe

The European Council’s decision of 15 December 2017 to move to the second

phase of negotiations with the UK marked a break-through following a lengthy

period of deadlock.

2018 should now witness more concrete progress towards a transitional

agreement (likely to be approximately two years and based on a ‘standstill’

arrangement, supported by financial contributions) and the emerging bones of

the future agreement. Any agreement will be significant to the economic future

of Europe – in 2016, the UK exported £236bn (or 12 per cent of the UK’s GDP)

to the EU27, while the EU27 exported £318bn (or 3–4 per cent of the EU27’s GDP)

to the UK.

At this point, the agreement’s shape is subject to speculation: will it be the

‘bespoke’ deal promoted by the UK government; something more ‘off the shelf’

like the so-called Norway model with the UK joining the European Free Trade

Association (EFTA); or an enhanced version of the Canadian Comprehensive

Economic and Trade Agreement (CETA) that concluded in 2017? In a worst case

scenario where talks break down, both parties would revert to trading on the

terms set out in the World Trade Organization (WTO) agreements at a time

when the WTO is under some stress and struggling for resources, having lost

its historic support from the US.

International competition and trade

Will 2018 be the year when the mists clear?

12%

of UK

GDP

of EU27

GDP

£236bn

Exported to

the EU27

£318bn

Exported to

the UK

International competition and trade

Whatever the result, it is a near certainty that

businesses will face additional supply chain and

trading challenges when dealing with customers

or partners in the EU and UK, whether these

are tariffs or regulatory hurdles. Businesses

will need to make significant adjustments to

accommodate these changes:

• manufacturing businesses will need to

examine their integrated European supply

chains to minimise the impact of paying

tariffs and duties and undergoing customs

controls multiple times for a single finished

product; and

• service-focused businesses will need to ensure

that the relevant licences, structures and

qualifications are in place to ensure they can

continue to service clients effectively.

USA

2017 saw President Trump act on his campaign

promise to pull out of the Trans-Pacific

Partnership (TPP). Domestic challenges have

so far limited President Trump’s further action,

although other US deals under negotiation (the

Transatlantic Trade and Investment Partnership

(TTIP)) and those already concluded are also at

risk. This second group includes the North

American Free Trade Agreement (NAFTA)

(responsible for regional trade increasing from

roughly $290bn in 1993 to more than $1.1tn in

2016) and the Korea–US Free Trade Agreement

(KORUS FTA), worth approximately 0.4 per cent

of South Korean GDP.

Pulling, or threatening to pull, out of trade deals

has been President Trump’s highest profile trade

policy. However, the US executive branch has also

used other instruments, such as the imposition

of high tariffs on foreign goods to counter

alleged state aid and dumping. For instance,

import duties on Canadian Bombardier’s aircraft

rose to 219 per cent (more than tripling the

cost of a single aircraft) after American Boeing

complained of an alleged £40m of state aid

from the Quebec regional government. The US

Department of Commerce also recently imposed

anti-dumping duties of 162 per cent on Chinese

aluminium foil.

That said, recent remarks made by Makan

Delrahim, the newly appointed head of the

Antitrust Division at the Department of Justice

(DOJ), may demonstrate a more internationalist

institutional view. Delrahim has stated that

protectionist use of antitrust laws – to

discriminate against foreign firms and/or favour

domestic firms – is counterproductive to domestic

policy objectives as it undermines incentives

to innovate and risks domestic stagnation.

‘ The coming year will draw out the tension

between Makan Delrahim’s comments

on non-discrimination, procedural

fairness and transparency in competition

law enforcement and President Trump’s

domestic rhetoric and international

trade policy.’

Paul Yde, Antitrust Partner, Washington DC

Regional trade increase

due to NAFTA

‘ 2018 will see the mists clear and

key trade developments, including

those relating to Brexit and

NAFTA, crystallise.’

Martin McElwee, Antitrust Partner, Brussels and London

$1.1tn

$290bn

1993

2016

Global antitrust in 2018

Delrahim believes regulators that align closely

with the interests of ‘national champions’

can ‘sap local economies of energy and

entrepreneurship’, harming both domestic

consumers and global markets.

Businesses will need to monitor the many

messages coming out of the Trump

Administration when it comes to US-related M&A

activity and US imports. It would also be prudent

to assess business exposure under NAFTA and

KORUS FTA and build strategies to mitigate the

impact of any treaty renegotiations, particularly

for sectors where the US has a trade deficit with

the trade partner(s).

Asia

As the US has vacated its position as champion

of trade liberalisation, so China appears to have

seized on the opportunity to fill it – albeit

arguably on its own terms. China has, of course,

failed in many important respects to open its

markets up, but its rhetorical stance has become

markedly internationalist on trade issues.

Other Asian nations, most notably Japan, have

fought to contain China’s trade ascendancy.

Tokyo was instrumental in resuscitating the

Comprehensive and Progressive Trans-Pacific

Partnership (CPTPP, previously the TPP) after

the US’s departure. In 2018, negotiators from

11 countries, including Japan, Canada, Mexico

and Australia – together representing about

15 per cent of the global economy – will revisit

the CPTPP. Some have suggested that the

parties could reach a deal as early as Q2 2018.

Once concluded, businesses operating within

the perimeter of the CPTPP will be able to

reshape their operations to take advantage

of the multilateral agreement. Businesses should

be identifying and planning for any potential

opportunities.

Looking ahead in 2018

• Be ready to react and move quickly

in response to trade developments.

Increasingly the future of trade deals,

particularly multilateral ones, is unclear

even following the deal’s conclusion.

For pre-existing trade deals such as NAFTA

and KORUS FTA, businesses should be

asking themselves the following questions

(among others): How could this affect

the company (eg production, inventory,

financial)? Are there agreements/contracts

that are dependent on the agreement?

Is the supply chain flexible? What should

be changed and how, and what is the

timing of any changes?

• Identify opportunities presented by

shifting trade alliances and deals.

Developments may provide profitable

opportunities to reshape your business,

whether in terms of product and/or

geography.

• Conduct detailed analysis of key trade

deals. These deals may have an impact

(adverse or not) on your business’s sector

and its interests, and may include

provisions affecting market access terms,

particularly for services, and tariffs for

manufacturing.

• Engage and influence policy makers to

ensure the interests of your company and

sector are taken into account in any trade

deals not yet concluded. This may include

informing them of the repercussions of a

particular approach (including financial

and employment impact figures) and

suggesting an alternative approach

(including potential language for a free

trade agreement).

‘ Businesses should be engaging with

governments on an ongoing basis

to ensure their voices are heard in

trade negotiations.’

Thomas Wessely, Antitrust Partner, Brussels

Global antitrust in 2018

10 key themes

The rise of protectionism in the world’s leading economies is

expected to have a significant impact on the regulatory landscape

and on cross-border M&A activity in the year ahead. The shift from

political rhetoric to regulatory change features across a number

of major jurisdictions, with at least the US, EU and UK continuing

consultations on more restrictive foreign investment measures.

Enhanced regulatory scrutiny will affect deal planning, strategy and execution

risk. The main challenge for merging parties in 2018 will be to anticipate and

manage political sensitivities as early as possible in the transaction timetable.

Strengthening of foreign investment controls –

a global trend

Our analysis shows that all G7 countries and 55 per cent of G20 countries have

recently strengthened, or are considering new, measures for government

intervention on foreign investment or other public interest grounds. Our own

experience advising on recent significant cross-border transactions also reflects

this. Since 2014, we have seen a 30 per cent rise in the number of transactions

valued at over $1bn on which we advised that have been affected by foreign

investment rules or related public interest intervention.

Western economies in particular are becoming increasingly protectionist,

but we anticipate that governments across most regions will take a more direct

role in scrutinising cross-border M&A in the year ahead.

• In the US, the Committee on Foreign Investment in the United States (CFIUS)

is grappling with a record number of cases and more cases will likely be

pushed into second-stage review in 2018. CFIUS is becoming more aggressive

and unpredictable in terms of process and substance, and will increasingly

be pushing parties to withdraw and refile when faced with concerns.

The rise of protectionism

Impact on deal planning

‘ In some of these deals, parties should

consider early informal engagement

with relevant authorities and allow

enough time for the review process

to run its course. In the US, CFIUS is

likely to continue to face significant

resource constraints, with an increased

workload in 2018.’

Shawn Cooley, Special Counsel (Antitrust), Washington DC

Countries that have recently

strengthened, or are

considering new, measures

on foreign investment

100% 55%

G7 G20

The rise of protectionism

• Certain EU member states will be looking at adopting or amending national

foreign investment screening measures on grounds of security or public order

following the European Commission’s proposed regulation. The draft proposal

sets out a framework for member states to consider the potential effect

of foreign investment on areas including critical infrastructure, critical

technologies, security of supply of critical inputs and control of sensitive

information, although we expect divergence across member states in terms

of national measures. The proposal gives the Commission power to review

and opine on investments of ‘Union interest’, but it stops short of allowing

the Commission to block such investments.

• Germany is one of the principal forces behind the EU initiative and has

recently strengthened its own review procedures. Its new law is broader in

scope and contains longer review periods than the previous regime. Within

the last few months, the relevant ministry has opened a significant number

of in-depth investigations. While, for now, these proceedings have only led

to delays, it appears quite possible that Germany could seek to block specific

investments in the next year, particularly in industries that the government

considers critical.

• In the UK, following a period of historically low political intervention,

the government has signalled that deals will be examined ‘on a case-by-case

basis to ensure they are in the national interest’. The government’s short-term

proposal to expand intervention powers for acquisitions of military or

dual-use products and advanced technology is expected to be enacted quickly.

Consultations on longer-term reforms, including a potential call-in power and/

or a mandatory notification regime, will continue into 2018. We still expect,

however, that the UK will in practice focus resources on cases that raise

genuine national security concerns.

• Japan is another G7 country that has recently introduced more restrictive

foreign investment measures. The amended rules include prior review of the

transfer of shares in unlisted Japanese companies from one foreign investor

to another, and strengthened criminal and administrative sanctions for

breaches of regulations regarding the transfer of certain technologies.

‘ This is an area of increased focus, particularly for the most high-profile

M&A transactions. Whilst restrictions and level of regulatory and

political scrutiny are increasing, our experience shows that the

approaches that you need to get to a successful closing are evolving.

Parties can still take a number of steps to improve their chances of

successfully navigating these choppier waters.’

Bruce Embley, Global Transactions Partner, London, and Co-head of Global M&A

10 key themes

• China, conversely, is relaxing its approach

to inbound foreign investment, mostly by

introducing measures to raise foreign

ownership caps in sectors such as financial

services and vehicle manufacturing, and by

reducing the regulatory burden and improving

the overall transparency of its administrative

process. The political climate is welcoming of

foreign investment, but parties contemplating

deals that affect sensitive or key economic

policy areas such as China’s cyberspace,

information technology and

telecommunications sectors, or critical national

infrastructure such as the Belt and Road

initiative, should continue to expect close

scrutiny. Chinese outbound investment, on the

other hand, will likely face continued scrutiny

as the Chinese government seeks to manage

the direction of Chinese capital outflow

more proactively.

While these and other anticipated changes can

create an uncertain climate for deal making,

parties may want to take this opportunity to

review planned investments in those jurisdictions

and sectors that regulatory change will most

likely affect. New rules may start coming into

effect from late 2018 or early 2019.

Sectors in the spotlight – sensitive

technology and data acquisitions

With national governments emboldened to

intervene in deals that many perceive to be

politically sensitive, we will see a wider range

of industries potentially affected by foreign

investment and public interest considerations.

Whereas intervention traditionally focused

on national security and defence, our research

shows the expansion of foreign investment

and public interest screening into high-tech

manufacturing, energy infrastructure,

telecommunications, pharmaceuticals,

and food and drink manufacturing.

Increasingly, questions around access to valuable

technology, know-how and sensitive data are

driving political intervention. In KUKA/Midea,

political concerns in Germany around the

protection of sensitive industrial and corporate

data were addressed by implementing complex

ring-fencing arrangements.

Some governments, including France’s and the

UK’s, have signalled a willingness to intervene

in deals involving ‘national champions’. Parties

therefore need to pay closer attention to political

sensitivities across sectors.

Finally, an Italian decision in November 2017

blocking the proposed acquisition of an Italian

software application company by the Italian

subsidiary of a French company is a stark

reminder that national interest and security

concerns are not limited to acquisitions involving

non-EU investors.

The rise of protectionism

Anticipating potential intervention

– deal strategy and planning

Despite increased scrutiny and political

intervention, foreign investment into the G20 is

at an all-time high and our experience shows

that merging parties can take a number of

steps to improve their chances of successfully

navigating the uncertain regulatory landscape.

• Early engagement is crucial to achieving the

best possible outcome. Merging parties should

identify all forms of ‘political’ sensitivities

from the outset to ensure a consistent and

compelling deal narrative. As many foreign

investment and public interest regimes are

voluntary, parties will need to agree if,

and how, to engage with authorities, other

potential stakeholders (eg representative

bodies such as works councils) and the media.

• Timing strategy will vary on each deal and

requires careful planning. Going too soon can

risk jeopardising deal momentum, but going

too late can result in pre-emption, leaving

politicians or other stakeholders feeling

marginalised. We have successfully deployed

integrated teams of lawyers, governmental

affairs advisers and communications

consultants to manage the right level of

political engagement at the right time.

• Appropriate deal structuring can improve

overall transaction certainty and can offer a

pre-emptive solution that allows parties to

avoid complex or lengthy regulatory processes.

Options include dual-listed companies, reverse

takeovers and ‘virtual mergers’ (created by

contract only), or carving out particularly

sensitive parts of the business from the outset.

• Finally, adopting a co-ordinated global

remedies strategy that covers both antitrust

and political concessions continues to pay real

dividends in managing complex and sensitive

transactions. In our experience, getting early

political ‘buy in’ (for example by offering

binding undertakings or upfront disposal of

certain assets) can significantly reduce overall

execution risk and timing pressure.

‘ A comprehensive remedies strategy

is crucial in complex, sensitive global

transactions. We can help identify potential

concessions early on to achieve greater

deal certainty and a speedy closing.’

Frank Röhling, Antitrust Partner, Berlin

Looking ahead in 2018

Companies planning cross-border

transactions that may implicate national

security or public interest issues in any

jurisdiction should:

• Identify political and other national

or local sensitivities early – stay close

to local politicians, other stakeholders

and the media throughout the deal

to anticipate and address any shifts

in attitude.

• Present a consistent narrative to relevant

authorities and invest in laying the

political groundwork at an early stage

in the negotiations.

• Carefully consider deal structuring

options to increase transaction certainty

and minimise lengthy pre-closing periods.

• Plan for remedies and potential disposals

to address security and national interest

concerns or to increase public support for

the transaction.

Global antitrust in 2018

Navigating stricter legislation

is only part of the story. In order to get

these deals through, it is crucial to

engage with all potential stakeholders

and to ensure there is a consistent

deal narrative from the outset.

John Davies, Antitrust Partner, Brussels and London

10 key themes

As authorities pay more attention to novel competition issues

in merger control reviews, or dust off previously unfashionable

theories of harm, merging parties need to anticipate and prepare

for this additional scrutiny. They should expect and plan for

authorities to test high-profile deals from a variety of different

angles that go beyond the basic assessment of merger-specific

price effects.

We anticipate that 2018 will bring a renewed focus in some jurisdictions on:

• merger effects on innovation competition in R&D intensive industries;

• common ownership of competing companies as evidence of co-ordinated

effects; and

• conglomerate effects relating to the ability of a merged entity to leverage

a strong market position from one market to another.

Innovation competition

Competition authorities have long recognised that innovation – in addition to

price and product quality – is a relevant component of competition. However,

they have traditionally limited the analysis of the likely impact of a merger

on innovation to the overlaps between the merging parties’ marketed and

(late-stage) pipeline products.

That is changing. In particular, the European Commission has recently applied

more expansive theories of harm involving innovation:

• in the pharmaceutical sector, there are clear signals that the Commission has

become less receptive to the argument that it is too speculative to consider

early-stage pipeline products in an overlap analysis. In J&J/Actelion, for example,

the Commission required the parties to offer a remedy for an overlap between

two early-stage insomnia pipeline products; and

• in Dow/DuPont, the Commission concluded that the merger between two

leading agrochemical companies would give rise to traditional unilateral price

effects. Of greater note, it added that the parties would find it profitable to

reduce their overall R&D investments, resulting in a reduction in the number

of new pesticides brought to the market in the future. The US DOJ, on the

other hand, concluded that the market conditions in the US did not provide a

basis for a similar conclusion (notwithstanding the absence of an established

difference in market conditions between the US and the EU).

Innovative theories in merger control

Getting complex cross-border deals across the line

Innovative theories in merger control

Economists have traditionally considered the

relationship between competition and innovation

to be too complex to predict whether a merger is

likely to reduce or increase innovation. However,

a number of recent publications, including

some by members of the European Commission’s

Chief Economist Team, have taken a less nuanced

position affirming that mergers between

competitors can be expected to reduce the

incentive to invest and innovate (in the absence

of efficiencies).

Although the debate is ongoing as to whether the

Commission’s innovation theory in Dow/DuPont

is based on sound economics and meets the

required evidentiary standards, our experience

from a number of ongoing cases indicates that,

in the EU, mergers will remain subject to close

scrutiny as to how they impact innovation,

regardless of the industry sector.

Whether competition authorities will consider a

transaction as giving rise to innovation concerns

will depend on a variety of factors. These include

the general industry features (eg concentration

levels, drivers of innovation in the industry,

any evidence of the impact of past industry

consolidation on R&D output, etc) and the

closeness between the merging parties in

terms of innovation efforts.

Common ownership

The effects of common minority investment have

been a subject of interest in US competition law

in recent years. The theory is that institutional

investors with holdings in multiple competing

firms may have the incentive to dampen

competition, either by facilitating co-ordination

among portfolio companies or by pressuring

portfolio companies to adopt common strategies.

The US antitrust agencies have shown interest

in recent controversial empirical studies that

have attempted to link the growth of common

ownership with reduced capacity and higher

prices in several industries, including airlines,

banking and retail pharmacies.

Although common ownership has not

traditionally featured significantly in merger

reviews, there are signs that this is changing,

particularly in oligopolistic industries where

authorities are starting to evaluate common

ownership as evidence of co-ordinated effects.

In the EU, again in Dow/DuPont, widespread

common ownership in the agrochemicals

industry was viewed as an ‘element of context’

by the Commission that implied a greater level

of concentration than traditional concentration

metrics like market shares or Herfindahl-

Hirschman Index (HHI) calculations suggested.

The Commission argued that common

shareholdings likely had a negative impact

on price and innovation competition in the

agrochemicals industry – and used as evidence

of this the influence exerted on companies by

supposedly ‘passive’ common minority investors.

‘ I expect the impact on innovation

to remain an important aspect

of merger reviews in the EU, in

particular in R&D-heavy sectors.

Although different agencies are

adopting different approaches

in this area, merging parties

need to be aware of the risk in

multijurisdictional filings that

there will be additional focus

on innovation.’

Frank Montag, Antitrust Partner, Brussels

10 key themes

The challenge for 2018 will be to anticipate the

deals in which common ownership may be an

issue and find ways to test the proposition that

common ownership softens competition.

It remains to be seen whether other authorities

will follow the European Commission’s lead in

this area – in the UK, for example, the apparent

reticence of the Competition and Markets

Authority (CMA) may change in light of the

recent wave of shareholder activism across

Europe and particularly in the UK. However,

companies will need to follow such developments

closely given the considerable scope for

application by authorities in the future. In any

event, this is another non-traditional element

that parties should factor into their merger

control risk analysis.

Conglomerate and vertical effects

The conglomerate effects theory of harm has

fallen out of common use by the European

Commission since GE/Honeywell back in 2001.

However, a series of recent cases in a diverse

range of industries indicates that the Commission

is looking at issues around conglomerate effects

with renewed interest.

In recent cases, the Commission has articulated

serious concerns about the relationship the

proposed transactions would create between

merging parties selling complementary products.

In particular, the Commission investigated

concerns that the transactions would increase

the parties’ ability and incentive to:

• bundle complementary products,

‘squeezing out’ competing products; and

• degrade the interoperability between

their products and a rival’s competing

downstream product, in favour of their

own downstream product.

In these cases, the Commission required

commitments to allay conglomerate concerns.

For example, in Broadcom/Brocade, clearance

was conditional on commitments covering

non-discrimination measures and firewalls,

to resolve concerns about technical degradation

of interoperability and/or misuse of confidential

information. In Microsoft/LinkedIn, commitments

concerned access to Microsoft’s application

programming interfaces (APIs) and options

for customers to disable LinkedIn features,

to resolve concerns about the integration

of LinkedIn into Microsoft’s programmes

and denial of access to competitors to its

APIs. There is continuing focus on this

theory of harm in a number of ongoing cases

(including Qualcomm/NXP and Essilor/Luxottica).

‘ The reaction to the US-based

literature on common ownership

has been far-reaching. The European

Commission in Dow/DuPont heavily

cited this and we know that US

authorities consider common

ownership issues in their merger

investigations. With this backdrop

on both sides of the Atlantic, it

is important that we recognise

common ownership issues early

and proactively manage the risk.’

Mary Lehner, Antitrust Partner, Washington DC

Innovative theories in merger control

Traditionally, US authorities have approached

conglomerate effects and other non-horizontal

merger theories with considerable scepticism.

By way of example and contrast with the

European Commission, the DOJ cleared the

Qualcomm/NXP deal without conditions in early

2017, just as it had cleared GE/Honeywell without

conditions in 2001. Very recently, however, the

DOJ filed in federal court to block the AT&T/Time

Warner merger, the first time in decades that

a US agency has litigated an injunction on a

non-horizontal merger theory. Although the

role of political influence on the DOJ’s decision

has been raised in related media coverage,

the case would not have been filed without a

recommendation from DOJ career staff, and

the prosecutorial and judicial precedent will

be significant to future conglomerate and

vertical transactions.

‘ Merging parties operating in

complementary markets cannot

be complacent about the level of

scrutiny regulators will exercise

on their deal. A lack of overlap

does not mean authorities will

necessarily wave the deal through.

By their nature, conglomerate

concerns can often be difficult

to remedy.’

Alastair Chapman, Antitrust Partner, London

Looking ahead in 2018

Companies planning complex deals in 2018

are advised to prepare early and well and

should think outside the box as authorities

test high-profile deals from a variety of

different and, in some cases, novel angles.

• Be prepared for an investigation on the

different parameters of competition;

whereas the focus of merger analysis has

traditionally been on potential price

effects, competition authorities may

navigate into more speculative areas

and assess the impact of a transaction

on overall levels of innovation and R&D

in the industry.

• Analyse common shareholdings in each

merging party and their competitors,

particularly in oligopolistic industries with

significant shareholdings owned by

common financial investors.

• Anticipate conglomerate effects in

circumstances where the merging parties

operate in complementary fields where at

least one of the parties has market power.

10 key themes

Merging parties will have to think about

how to manage the advent of these new

and developing theories of harm in terms

of deal planning and risk allocation.

Navigating these challenges successfully

from both the M&A and the antitrust

perspective will be mission-critical for

successful complex global mergers in the

year ahead.

Rick Georg van Aerssen, Partner, Frankfurt,

London and Düsseldorf, and Co-head of Global Transactions

10 key themes

As authorities worldwide step up enforcement of their merger

control rules, companies planning deals in 2018 must pay even

closer attention to their obligations and conduct throughout the

period from early planning up to final merger control clearance.

We are seeing more authorities impose heavy fines for an increasingly wide

range of pre-clearance conduct, with accompanying strong signals that

authorities will take tough action against any parties that infringe the

rules this year.

Wider risks in 2018 include the trend in all regions for more intervention

in merger review processes by third parties – whether they are competitors,

activists or government agencies (see further in theme 2) – and, for deals

affecting the EU and UK, legal uncertainty caused by the UK’s impending

exit from the EU’s ‘one-stop-shop’ for merger review.

Managing these risks on multiple merger reviews affecting a single deal requires

a thorough understanding of often complex rules in each jurisdiction and robust

procedures that safeguard against breach of increasingly burdensome obligations.

Gun-jumping – tough enforcement against parties that fail

to notify on time or integrate their businesses pre-clearance

Most companies are aware that failing to notify a deal on time or integrating

businesses pre-clearance exposes them to risk of fines and other penalties.

However, difficulties arise in practice when parties experience lengthy periods

between signing and closing, or they pursue more novel deal structures where

filing obligations may be less clear. Recent cases have shown that the price for

getting it wrong can be very high:

• Early integration: following a record €80m fine in France in late 2016 and

recent enforcement action by several other authorities in the US and Europe,

parties’ conduct between signing and closing has come into sharp focus

globally. Pending clearance, merging parties must act as independent

competitors. This means:

– no integration, exercise of management control, joint marketing,

co-ordination of commercial behaviour or uncontrolled sharing of

sensitive information;

– pre-closing obligations should be strictly limited to non-ordinary course

action and legitimate value protection; and

– robust structures should limit the exchange of commercially sensitive

information to information that is strictly necessary for deal planning

and to ring-fenced clean teams. Parties should also have appropriate

documentation in place to demonstrate the existence and operation

of such structures if challenged.

Deal risk

Managing multiple merger reviews as

authorities step up enforcement and the

risk of third-party challenge grows

Deal risk

Concerns have arisen in practice that

authorities may apply different criteria when

drawing the fine line between legitimate

planning on the one hand and premature

integration on the other, with (some) European

authorities being more restrictive than their

US counterparts. Current uncertainties,

compounded by a marked increase in

third-party complaints about alleged

gun-jumping, are driving some companies

engaged in global deals to change traditional

approaches. Ongoing cases may provide more

guidance on the scope of legitimate planning

in 2018, but pending that, companies should

exercise particular caution over conduct

between signing and closing.

• Novel deal structures: recent action in China,

Japan and Europe has confirmed a tightening

approach to deal structures that enable a seller

to dispose of a business quickly and transfer

regulatory risk to the buyer. In two-step

transactions, for example, where an interim

buyer acquires the target before the final deal

is approved, the initial step will trigger a

notification requirement in most major

regimes if the two steps are interlinked and the

ultimate buyer bears economic risk from step

one. In these cases, implementing step one

before notifying the relevant authorities

and obtaining approval will amount to

gun-jumping. Given the increased focus

globally, early engagement with the authorities

is a pre-requisite for parties pursuing similar

structures in 2018.

False and misleading information –

the importance of verifying your

facts and evidence

Recent cases have confirmed that merging

parties face heavy penalties if they fail to disclose

sufficient and correct information during

reviews, or if they provide misleading responses

to requests for information. This proves

particularly challenging when authorities

demand voluminous data and internal

documents within tight time frames,

which then form core parts of their evidence.

Parties involved in complex deals should ensure

their document review tools and procedures

for preparing and verifying submissions are

watertight. Disclosure of facts and evidence

must be full and accurate, which includes future

plans on product development or innovation.

Authorities are often now requiring parties to

file, for example, detailed methodology notes

alongside substantive submissions to ensure

transparency in relation to the way in which

the parties collected the information.

Authorities are particularly sensitive to any

allegations that the merging parties may have

tried to influence the way in which customers

respond to market testing. It is customary and

legitimate for companies to engage with their

customers following the announcement of a

transaction, but this process must be managed

to ensure that such contacts are not used to

influence customers’ feedback to the regulators.

‘ As the spotlight in France and

elsewhere remains firmly on parties’

conduct between signing and

closing, a clear understanding

of the fine line between legitimate

planning and integration is more

important than ever in 2018.’

Jérôme Philippe, Antitrust Partner, Paris

‘ Recent European Commission

investigations emphasise the need for

even greater care to be taken when

submitting evidence to the authorities.

This continues to be challenging as

regulators demand ever-increasing

volumes of data and internal

documents within tight timelines.’

Sascha Schubert, Antitrust Partner, Brussels

10 key themes

Safeguarding legal privilege in

multijurisdictional reviews

As parties face demands for substantial

document production by more authorities, it is

becoming increasingly challenging to protect

legally privileged materials. The scope of legal

privilege differs significantly across jurisdictions,

with the EU position generally narrower than

other jurisdictions (including the US and UK)

but going beyond what some EU member states

accept (including Germany). In Asia, legal

privilege is less established: the concept does

not even exist in mainland China, Japan or

South Korea.

These differences present challenges in

cross-border deals where disclosure in one

jurisdiction may amount to waiver and lead

to subsequent disclosure to other authorities

and courts. Parties are advised to maintain

detailed records of privileged materials in

each jurisdiction, and be ready to justify

such claims to avoid forced disclosure.

Post-closing interventions –

by authorities or competitors

Companies should also take account of the

growing trend of authorities or competitors

challenging completed deals.

The US agencies, for example, can challenge

completed deals, even when the mandatory

Hart-Scott-Rodino Act (HSR) waiting period has

expired without agency intervention or when

the deal did not trigger an HSR notification.

Recent use of these powers reinforces the

fact that the US agencies will not hesitate to

pursue consummated transactions when

deemed necessary.

Even when authorities do not have such broad

powers, where concerns are raised they will

challenge parties’ assessments of whether a deal

required notification, as demonstrated recently

in China by Mofcom’s investigation into Didi

Chuxing’s acquisition of Uber China.

In Europe, an increasing number of Commission

decisions are subsequently challenged in court,

not only by the addressees of a prohibition

decision but also by disgruntled competitors

unhappy with merger clearances. 2017 saw rare

examples of the EU’s General Court annulling

a Commission clearance decision (Liberty Global/

Ziggo) and overturning a prohibition decision

(UPS/TNT). Both cases confirm the importance

of procedural safeguards for parties and third

parties throughout the investigation, and of

well-reasoned Commission decisions.

‘ Mofcom’s 300,000 yuan ($43,000)

fine on Canon for its two-step

acquisition of Toshiba’s medical unit,

its investigation of Didi Chuxing’s

acquisition of Uber China and the

possibility of future increases in

fines for failure to notify send strong

signals to companies that fail to

take proper account of China’s strict

merger control rules.’

Alastair Mordaunt, Antitrust Partner, Hong Kong

Deal risk

Brexit uncertainty – implications

for merger control risk

Through 2018, companies planning deals that

affect EU and UK markets will need to take

account of the impact Brexit may have on how

and where their deal is reviewed. Post-Brexit (or

any transitional period), the EU’s ‘one-stop-shop’

for merger reviews will no longer apply to the

UK, meaning that deals will be subject to parallel

EU and UK reviews if relevant thresholds are met.

This will mean:

• the review of more deals in the UK: the CMA

estimates up to 50 additional cases per year

(almost doubling current numbers), with about

six more phase 2 investigations (again doubling

the current caseload) – even with additional

funding, such increases are likely to present

challenges for the authority and merging

parties; and

• the review of fewer deals by the European

Commission: if current thresholds remain the

same, informal estimates suggest that around

100 fewer cases per year will be subject to EU

review (notified deals currently number

around 360 each year).

To mitigate any impact of parallel reviews on deal

timing or outcome, parties will need to ensure

that they manage the process effectively across

the EU and UK and that all likely concerns (and

potential areas of divergence) are understood

from the outset.

For deals crossing the Brexit period, parties will

need to stay close to developments in both the EU

and UK on the transitional arrangements that are

needed to resolve current uncertainties, such as

which authority gains or cedes jurisdiction at

different points. For complex deals likely to face

protracted pre-notification and in-depth

investigation, parties must factor in these risks

from early 2018.

Looking ahead in 2018

• Plan early – make sure you have a

thorough understanding from the outset

of all the rules and your obligations in each

jurisdiction, taking full account of any

increased risk of regulatory or third-party

intervention in deal timelines.

• Robust procedures – implement strict

procedures and processes that ensure

complete and accurate submissions of

evidence, while maintaining full business

separation between signing and closing

and controlling the flow of sensitive

information through ring-fenced

clean teams.

• Contractual terms – pay close attention to

any arrangements governing the conduct

of the target between signing and closing,

making sure that any purchaser rights are

tightly confined to non-ordinary course

decisions that directly affect target value.

10 key themes

Increased regulatory risk, particularly

in cross-border deals where several

merger control authorities will be

involved, is driving parties to focus

heavily on antitrust risk allocation when

negotiating transaction agreements.

We are helping more clients find

increasingly sophisticated solutions,

making sure their deals accurately

reflect their business goals and legal

needs in the current risk environment.

Matthew F Herman, Global Transactions Partner,

New York, and Co-head of Global M&A

10 key themes

As digital platforms continue to grow in social and economic

importance, there can be no doubt about the ever brighter global

spotlight directed at their practices. Given the scale of industrial

change in the digital era, the challenge facing antitrust authorities

in 2018 is whether their competition tools are sufficient to protect

consumers and maintain competitive markets, or whether more

regulation is needed.

In Europe, Commissioner Vestager’s focus on fairness and trust, while

recognising the limits of antitrust to meet broader policy objectives, has

heightened the international debate on the roles of antitrust and regulation

in markets. As more authorities launch investigations into online platforms

and their impact on competition and choice, key areas of divergence in

approach are likely to emerge.

Inquiries and investigations

Since publishing their joint paper on big data in 2015, the French Autorité de

la Concurrence (the FCA) and the German Bundeskartellamt (the BKA) have

continued to take the lead in seeking to develop big data-driven theories of

harm that target the business practices of online digital platforms. This includes

the FCA’s ongoing sector inquiry into online advertising and the BKA’s

controversial antitrust investigation into Facebook’s user privacy terms, which has

reached the preliminary assessment that these violate data protection law

and are an abuse of dominance.

And they are not alone. Data protection authorities have also been seeking some

of the limelight. Authorities in France, Spain and the Netherlands have all

concluded individual investigations into Facebook’s privacy terms. In some

instances these authorities have combined forces with competition authorities

and communications bodies to unpick further the circumstances in which big

data translates to a restriction of competition for online digital platforms –

for example in Italy where the current three-agency sector inquiry on big data

was initiated by the Italian Antitrust Authority along with the telecom and

data privacy regulators.

Platforms in the antitrust spotlight

All eyes on the disruptors

‘ While authorities are well aware of the fact that online platforms

have brought many benefits to today’s society, they have also observed

that online industries where big data plays a key role often show a

high degree of market concentration and, in certain circumstances,

that big data might be the source of market power, potentially raising

barriers to entry. Agencies are concerned that today’s disruptors might

hinder the development of tomorrow’s disruptors.’

Gian Luca Zampa, Antitrust Partner, Rome

Platforms in the antitrust spotlight

Authorities worldwide are replicating these

developments, with Asian authorities particularly

prominent in taking enforcement action aimed

at the business models of global platform

businesses. Following the European Commission’s

record-breaking €2.42bn fine on Google, the Korea

Fair Trade Commission (KFTC) and Japan Fair

Trade Commission (JFTC) continue to develop

plans to regulate technology companies with the

aim of preventing the monopolisation of data

collection and/or any hindrances to market entry.

The JFTC appears to be particularly interested

in the potential impact of data accumulation.

Its 2017 report recognises the innovative and

pro-competitive benefits that flow from

accumulating large amounts of data, but warns

against potential anticompetitive consequences

through market foreclosure.

Structural and regulatory changes

The KFTC and the JFTC plans are only part of

a wider web of interrelated global regulatory

changes affecting digital platforms anticipated

in 2018. The provisions of the EU General Data

Protection Regulation (GDPR), which come into

force in May 2018, will introduce stricter rules

on the transfer of personal data, among a

number of other changes.

And that is just a flavour of what may follow: as

well as being mindful of relevant sector-specific

regulation, which may be a poor fit for new

business models but nevertheless cannot be

disregarded, DG CONNECT is currently

considering proposals for specific EU regulation

of digital platforms to better protect consumers.

Its policy proposals include the stimulation of

industry-led action, with the hope that this will

lead to the creation and adoption of voluntary

platform standards. Also under consideration

is targeted legislation, in addition to current

competition laws, which would include banning

problematic business-to-platform commercial

practices, or – the most obtrusive option –

introducing a detailed regulatory framework

accompanied by an EU-level regulator.

The 2016 French Digital Republic Act – which

came into force despite the reservations of the

FCA – includes personal rights for consumers to

recover all posted content and data, control and

monitor the use of personal data, and request the

removal of all data collected before the age of 18.

The extent to which other EU member states and

the world at large may be inspired by this and

follow suit, either ahead of, alongside or

following any further action by the European

Commission, remains to be seen.

It is already widely suggested that this approach

is anti-American, targeting US West Coast, highly

successful firms with innovative products and

business models. In the run-up to the

Commission’s fine on Google, a letter published

without signatures showed Washington lobbyists

rallying support from members of Congress

against the EU’s perceived ‘aggressive and

heavy-handed antitrust enforcement action

against American companies’. Later in 2017,

newly confirmed Assistant Attorney General

for the DOJ’s Antitrust Division, Makan

Delrahim, spoke out about the importance of

non-discrimination and expressed concerns that

competition agencies in some countries may have

used antitrust to ‘favour domestic companies

or discriminate against foreign firms’. 2018 will

be a key year for international enforcement,

particularly in these areas as policy and

political dynamics play out in practice.

‘ The JFTC has not conclusively

stated that any particular types of

behaviour are a clear risk area, but

the authority is definitely mapping

out a path for future enforcement

action in this space.’

Kaori Yamada, Antitrust Partner, Tokyo

‘ Just as the GDPR is giving huge

new powers to privacy regulators,

businesses are also having to prepare

for their data use attracting the

attention of competition regulators.’

Klaus Beucher, IP Partner, Düsseldorf

10 key themes

Looking ahead in 2018

Businesses – not only digital platforms but also

those affected by their business practices –

have much to think about in 2018. Whatever

combination of tools (antitrust or antitrust

combined with data protection and/or consumer

protection) or form (investigations, regulation

and/or litigation) is chosen, we expect the

following to feature prominently in the

year ahead:

• Increased use of merger control – facilitated

through the introduction of deal value-based

thresholds in Austria and Germany (and

potentially to follow at EU level and elsewhere)

– as authorities seek to scrutinise the business

rationale of mergers between platform

businesses.

• Narrow market definitions and a focus on

broader conglomerate effects, both in

mergers and behavioural investigations – as

seen in the Commission’s decision in Microsoft/

LinkedIn, which focused on ‘professional social

networks’ (excluding less targeted providers)

and ‘online social advertising’.

• A need to get ahead through pro-active

engagement with the competition authorities

and to intertwine legal and economic

considerations more closely – particularly in

relation to engagement with new ‘expert’

teams from the regulators. In particular, note

Commissioner Vestager’s September 2017

announcement of the creation of a ‘body of

experts’ to advise the Commission on big

data cases and the UK CMA’s November 2017

announcement of a new ‘technology team’

comprising data scientists, computer experts

and economists.

• A greater willingness by platforms to

challenge novel and controversial theories

being developed by the agencies and to seek

validation of their business practices in court.

For example, Agents Mutual was successful

before the UK Competition Appeal Tribunal in

July 2017 in demonstrating that its terms and

conditions, restricting suppliers from using

other platforms, were in fact pro-competitive

on the basis that they helped a new platform

break into a concentrated market featuring a

number of well-established platforms.

• More consumer class actions and strategic

litigation from competitors, particularly

following the EU Antitrust Damages Directive

– which shifts the balance in favour of

claimants by requiring the consideration of

final decisions from competition authorities

as evidence of an infringement. We anticipate

a number of claims against Google following

the Commission’s recent decision, with more

expected to ensue in relation to the pending

AdSense and Android investigations. These

cases will likely spur claimants to pursue

litigation based on ‘abuse of dominance’

theories in future.

‘ The agencies are beginning to

upskill their approach to data

and technology so companies

may face more far-reaching

probes than in the past.’

Deirdre Trapp, Antitrust Partner, London

‘ In an increasingly interconnected

world, and with potentially large

commercial rewards expected

from the ‘internet of things’,

digital platforms and technology

companies face ever-increasing

scrutiny from antitrust authorities

competing among themselves

to develop novel enforcement

strategies and the likelihood of

an increased use of antitrust law

as part of litigation strategies in

commercial disputes.’

James Aitken, Antitrust Partner, London

10 key themes

In 2018, distribution and pricing of goods and services will remain

a hot antitrust topic, throwing up compliance challenges but also

bringing more clarity to the rules. Although the US continues

mostly to exhibit a light touch on distribution issues, Europe and

Asia are experiencing waves of enforcement.

We expect cases in 2018 to apply existing principles to new practices and to shed

light on lesser-explored corners, such as how antitrust law can tackle potential

concerns arising from pricing algorithms. As European Commissioner Vestager

put it: ‘it’s not easy to know exactly how those algorithms work’ but ‘companies

can’t escape responsibility for collusion by hiding behind a computer program’.

However, internet distribution is by no means the whole story, with practices

such as resale price maintenance (RPM) attracting plenty of attention and more

enforcement against excessive pricing, so far mainly in pharmaceutical and

technology markets.

The issue of rebates and other commercial terms used by dominant companies

is also at the fore in Europe and Asia – in the former case with the EU Court

of Justice at last endorsing the need for an analysis of effects before exclusivity

rebates can be considered to be anti-competitive.

Pricing, the internet and other restrictions

The European Commission’s 2017 e-commerce sector report found that pricing

restrictions or recommendations were by far the most common types of

restrictive clauses reported by retailers, with 42 per cent of those surveyed saying

they were subject to these clauses. But other restrictions are prevalent too: 18 per

cent were restricted in their use of online market places, and a surprisingly high

11 per cent cited territorial restrictions.

As the internet grows in importance and online sales methods become ever more

sophisticated, authorities, courts and lawmakers are racing to monitor and

control business practices. Globally there is much similarity of approach across

jurisdictions, though the US remains generally more permissive of most

distribution arrangements provided they are not made between competitors.

But, even in the case of jurisdictions with broadly similar rules, there can be

significant differences in enforcement.

Pricing and sales practices

Staying antitrust compliant

Restrictions reported by EU retailers

Pricing

restrictions

Restricted use of

online market places

Territorial

restrictions

42% 18% 11%

Pricing and sales practices

Markets subject to recent enforcement action in Europe have included, among

many examples, golf clubs and mobility scooters in the UK and food supplements

in Germany. The European Commission’s ongoing post e-commerce sector

inquiry investigations into films, fashion, brand licensing, hotels, video games

and consumer electronics may provide guidance on a variety of issues. Several of

these cases involve online pricing restrictions, on which enforcers are especially

vigilant. These restrictions often originate in physical outlets seeking protection

from the lower prices that internet sellers are able to charge. Suppliers wanting

to maintain both types of sales channel face a challenge.

Selective distribution – a model where goods may only be sold to authorised

resellers that comply with specified quality criteria, or to end users – provides

some room for manoeuvre. Even here, the long-established approach that these

systems could exclude pure internet resellers was coming under sustained

assault by the enforcement authority and courts in Germany. However, in 2017

the tables turned back in favour of manufacturers. Early in the year, an EU

Advocate General opined that manufacturers do not have to allow distributors

to sell through third-party platforms. This was followed in the latter half of 2017

by a Dutch court upholding Nike’s restrictions on the use of certain third-party

platforms on the basis that they served to protect the brand image of a luxury

product, and Caudalie winning a similar case on its skincare products in France.

Finally, in December the EU Court of Justice ruled firmly in the Coty case to

uphold certain restrictions on distributors’ use of third-party platforms to sell

luxury goods.

‘ For many brand owners, distribution via digital platforms is an essential

part of any growth strategy. However, if pricing models are not right,

bricks-and-mortar retail customers may be consistently undercut

by their digital competitors. This often leads to pressure on brand owners

to seek to influence online resale pricing. In many parts of the world,

succumbing to that pressure would be the wrong choice. Brand owners

should explore other solutions, such as incentivising appropriate levels

of investment in customer service by the online players.’

Alex Potter, Antitrust Partner, London

10 key themes

For many companies Asia and especially China

are important growth areas for their products.

Given that they cannot be directly present in

each jurisdiction, companies will often work with

independent distributors and agents, and so

face pricing issues. As volumes of online sales

continue to grow (a 2017 PwC report found that

52 per cent of Chinese consumers shop daily or

weekly by phone) the enforcement focus, and the

tensions this causes between traditional bricksand-

mortar retailers and online sellers, is bound

to increase.

Asia is a particularly challenging region in which

to ensure compliance because of the widely

varying approaches to RPM and other vertical

restrictions found in the different jurisdictions:

• in China, RPM is a hot topic and the approach

is strict, verging on a per se prohibition before

China’s antitrust agencies (with US medical

devices company Medtronic recently fined RMB

118.5m (c €15m)), but a ‘rule of reason’ analysis

before at least one Chinese court;

• in Singapore, non-dominant companies are for

now effectively free to impose any preferred

restrictions in their relations with distributors

and sales agents; and

• the Japanese authorities have been particularly

vigilant in the area of online restrictions,

recently forcing Amazon to adjust its online

most favoured nation (MFN) practices.

Faced with such a variety of laws in Asia,

companies are often best advised to adopt a high

standard across the board, providing for limited

exceptions where that is feasible.

Excessive pricing: ‘It’s not fair!’

In 2018, we are likely to see a continued trend

towards more enforcement against companies

that are pricing ‘excessively’ and demand for

more guidance as to exactly what ‘excessive’

means. Although the law is not new, the appetite

for bringing cases is, so far focusing on the

pharmaceutical industry and technology sector:

• Pfizer and its distributor Flynn are currently

contesting UK authority fines (£84.2m and

£5.2m) for excessive pricing of Pfizer’s epilepsy

medication. Following de-branding and Pfizer

increasing its price 2,600 per cent, the UK CMA

found that in the presence of such a significant

increase, there was no need to carry out an

international comparison, which might have

showed similar high prices elsewhere;

• in Italy, Aspen has been fined for excessive

pricing of cancer medicines and it is now under

investigation by the European Commission

in respect of the rest of the EU; and

• in Asia, the recent fines against Qualcomm

– first in China, then South Korea and most

recently in Taiwan – show that the interest

in excessive pricing is not limited to Europe,

and highlight the increasing risk of excessive

pricing claims in the technology sector in Asia.

‘ As approaches to RPM and other

vertical restrictions vary widely across

Asia, hard decisions have to be made

when crafting a strategy across the

region. Companies need to remain

on top of regional developments, as

some jurisdictions get tougher with

enforcing against restrictions in sales

and distribution arrangements.’

Ninette Dodoo, Antitrust Counsel, Beijing

Pricing and sales practices

This renewed enthusiasm for excessive pricing

cases is part of a broader interest in the fairness

of commercial dealings, a concept that has so

far not been satisfactorily linked to the normal

theories of competitive harm deployed by

enforcement authorities.

Rebates: companies with market

power must still tread carefully

In Europe, the Intel case on the legality of

exclusivity rebates granted by dominant

companies continues on its way through the

EU courts. A recent Court of Justice judgment

introduced flexibility in this area, which had

previously been subject to a more or less absolute

prohibition. The case was sent back to the

General Court, whose next judgment should

bring further insight. More generally, this case

is expected to spur European authorities into

a more economic approach to other types of

conduct by dominant companies.

But while Intel certainly moves the law away

from knee-jerk illegality for exclusivity rebates,

dominant companies are directed instead

towards the murky waters of effects analysis.

Murky not because of an absence of economic

tools – there are well-understood techniques

to deploy. However, the fact that both Intel and

the European Commission undertook detailed

economic analysis on the same rebate scheme

and reached diametrically opposed conclusions

illustrates the challenge facing those who seek

to use this greater freedom.

Finally, China’s case against Tetra Pak – a virtual

replay of 1992 proceedings brought against the

same company in Europe – sheds light on how

rife the question of rebates is in some parts

of Asia.

Looking ahead in 2018

• Increased scrutiny of distribution and

pricing arrangements – be prepared for

more vigorous enforcement in many

jurisdictions, notably from the European

Commission and some Asian authorities.

This certainly applies to online selling

but also extends to more traditional

sales models.

• Beware of differences between

jurisdictions – in the case of businesses

based in places where restrictions imposed

on distributors are subject to relatively

relaxed rules (such as the US and

Singapore), build awareness that in

other jurisdictions you need to check

carefully what is and is not allowed.

For example, in many parts of the world,

RPM remains close to a per se

infringement, with clear enthusiasm for

enforcement spreading to Asia.

• Watch the current EU investigations –

the results of the ongoing European

Commission cases are likely to bring

new clarity to some of the many issues

that it left open in its e-commerce

report, and may inform approaches in

other jurisdictions.

10 key themes

US businesses are especially vulnerable to

mistakes in the areas of distribution and

pricing practices, in part because US law

generally provides firms much greater

latitude. As a result, although a natural

instinct, simply extending distribution and

pricing policies developed originally in the

US into Europe and Asia can leave US firms

exposed to underappreciated competition

law risks.

Thomas Ensign, Antitrust Partner, Washington DC

10 key themes

Recent developments in global cartel enforcement –

raising the stakes

With around 130 competition authorities across the world, and extensive

co-operation arrangements in place, firms that engage in cartels face a risk

of both public and private enforcement actions in an ever-increasing number

of countries.

As an example, in the past five years, more than 50 companies involved in the

global auto parts cartel have faced public and/or private prosecution in 10

different jurisdictions (Australia, Brazil, Canada, China, the EU, Japan, Korea,

Mexico, Singapore and the US), while other agencies, including in South Africa,

continue to investigate.

In spite of these developments, a number of competition agencies remain

concerned that cartel activity may still be underdetected and insufficiently

deterred, leading to enhanced detection techniques and demands for

increased sanctions.

New means of cartel detection

Since the 1990s, the burgeoning use of leniency or amnesty programmes has

proved to be a highly successful means of enabling competition agencies to find

direct evidence of antitrust infringements. More than 50 jurisdictions now have

such programmes in place.

Recognising, however, that they should not be over-reliant on leniency

applications, many competition authorities are developing a range of other

detection mechanisms to collect evidence, particularly through:

• encouraging complaints and whistleblowing from employees, purchasers,

procurement officers and/or the general public (while at the same time seeking

to ensure that whistleblowers are protected from retaliation in the workplace);

• using structural and behavioural screens; and

• honing their own intelligence and information gathering procedures.

Global antitrust investigations

Protecting your position in an era

of tough enforcement

50 companies involved in the global

auto parts cartel faced prosecution in

10 different jurisdictions

Global antitrust investigations

The European Commission recently developed

a whistleblowing tool (similar to that introduced

in Germany in 2012), encouraging any individual

to provide it with information about cartel

behaviour or other anti-competitive business

practices. In the UK, regulators offer financial

rewards to informers, and the Korea Fair Trade

Commission (KFTC) uses a Bid Rigging Indicator

Analysis System (BRIAS), which automatically

quantifies the statistical likelihood of collusive

tendering in public procurement markets.

The KFTC has used BRIAS to bring a number

of successful bid-rigging prosecutions, including

in the construction sector.

Greater sanctions for cartelists and

their employees

As well as working together to co-ordinate their

investigations and to bolster enforcement, many

competition authorities are carefully considering

how best to sanction infringements. Although

corporate fines are continuing to escalate (the

European Commission imposed nearly €2bn in

cartel fines in 2017), a view taking hold is that

fines may not be sufficient on their own to deter

cartel behaviour.

A growing number of jurisdictions also provide

for criminal or civil sanctions for responsible

individuals (eg imprisonment and fines),

non-monetary civil sanctions for both individuals

and corporations (eg individual director

disqualification orders and debarment), and/or

are encouraging private damages litigation by

those that have suffered loss in consequence

of an infringement.

In the US, for example, not only have companies

been fined more than $2.9bn in relation to the

auto parts cartel, but more than 65 individual

executives have been charged as a result of their

connected activity, and private settlements are

likely to result in more than $2bn in damages

paid to class action plaintiffs.

The increased risk of detection and the broader

array of penalties are raising the stakes in cartel

proceedings, highlighting the need for firms to

ensure that:

• their compliance programmes are robust,

and not merely a box-ticking exercise;

• they are prepared for agency investigations;

and

• they give careful consideration to leniency

applications, which offer the prospect of

immunity from (or reductions in) fines and

other sanctions but raise the risk of increased

exposure to damages actions.

Although the benefits of successful leniency

applications are growing, the wider enforcement

picture creates greater complexity and risk for

such applicants.

‘ As competition agencies increase

their range of detection techniques,

the risk of cartels being uncovered

grows. In Germany, the FCO has

stated that it has received more

than 1,400 pieces of information

under the whistleblowing tool it

introduced in 2012, and that the

information received has led it to

initiate a number of proceedings.’

Tobias Klose, Antitrust Partner, Düsseldorf

European

Commission

imposed

€2bn

cartel fines in 2017

10 key themes

Effective compliance programmes

are not optional

Businesses must ensure that they operate a

carefully constructed competition compliance

programme, backed by audits, monitoring

reviews and risk assessments, which will both

prevent illegal conduct from occurring and

ensure that prohibited practices are detected

quickly. Although not all jurisdictions reduce

penalties for companies that maintain effective

compliance and ethics programmes, the US

Sentencing Guidelines reduce criminal fines for

such firms, and the German Federal Supreme

Court has held that compliance efforts are to be

taken into account in the setting of a (criminal)

fine in Germany.

The US DOJ recently granted a defendant a

40 per cent reduction in fine, based on both the

company’s co-operation with the DOJ and its

institution of an effective compliance

programme. In its sentencing memorandum,

the DOJ emphasised that the company’s

compliance programme: (i) was directed by senior

management, making antitrust compliance

‘a true corporate priority’; (ii) included both

classroom training and one-on-one training for

personnel at high risk for antitrust violations,

such as sales personnel; (iii) required prior

approval of contact with competitors where

possible, and required reports of contact

with competitors, which were audited by

in-house counsel; (iv) required sales personnel

to certify that all prices had been independently

determined; and (v) established an

anonymous hotline for employees to report

possible violations.

Companies must be prepared

to respond decisively during

investigations

Companies must prepare their officers and

employees to defend corporate rights in the event

of agency investigations, such as dawn raids.

Moving beyond phone lists and printed

checklists, companies are increasingly utilising

dawn raid apps that allow secure, real-time,

privileged communications with external counsel

and help counsel to co-ordinate their defence

across different sites and continents.

Assessing the pros and cons of

leniency applications

Although intuitively the attractiveness of a

leniency application increases in line with the

increased risk of severe penalties for cartel

infringements, the rising stakes and developing

enforcement picture means that such

applications are not without some risk and cost.

Firms that uncover unlawful cartel activity must

carefully consider the question of whether to

make co-ordinated leniency applications in all

jurisdictions where a violation might have been

committed, taking account of those risks and the

possibility of a hidden price tag. In particular,

firms should be aware of a number of issues.

• Inherent in most leniency situations is the

requirement to make admissions to the

agencies concerned about the commission

of infringing conduct. Although in a number

of jurisdictions immunity recipients may be

protected from punitive damages, and/or joint

and several liability, these admissions of

course facilitate private damages actions and

potential claims in multiple jurisdictions as

appetite for antitrust litigation continues to

grow (see further in theme 8).

‘ DOJ is increasingly focused on corporate compliance programs, including

in the antitrust context. In addition to preventing or detecting crimes,

adopting and implementing an effective program can lead to reduced

fines where misconduct nonetheless occurs.’

Brent Wible, Dispute Resolution Counsel, Washington DC

Global antitrust investigations

• There is some risk that authorities will share

leniency evidence with other competition

agencies or disclose the details in private

litigation. There is an absolute bar on the

disclosure of leniency statements in civil

litigation in some jurisdictions, but authorities

have not adopted a uniform approach to this

issue globally.

• The question of where to apply for leniency

can be a complex one. Failing to seek leniency

from a jurisdiction that might investigate the

conduct will be a costly mistake. For example,

there are a number of instances in which,

following leniency applications made in the US

and the EU, competition authorities in Brazil

and South Africa opened investigations.

Conversely, seeking leniency from an authority

that might not otherwise have investigated the

conduct may also prove problematic. In the EU,

for example, a category of information sharing

is treated, and sanctioned, as hard-core

cartel conduct. Such conduct may, however,

not be treated so severely (or even prosecuted)

in the US.

• Although the European Commission is seeking

to address some of the complexities and

hazards associated with multiple leniency

applications in the EU, the Commission is not

currently envisaging a ‘one-stop-shop’ EU

leniency regime (in which, for example, a

party makes a single leniency application to

the Commission).

• Current and former employees of firms seeking

leniency may remain exposed to individual

liability, including the risk of extradition to,

and criminal prosecution in, the US. Indeed, in

addition to detaining many foreign executives

who are in, or who have travelled to, the US,

since 2010 the DOJ Antitrust Division has

successfully extradited a number of defendants

(including from Bulgaria, Canada, Germany,

Israel and the UK). These risks often create

conflicts of interest between companies and

employees and might well reduce an

individual’s appetite for co-operating either

with the authorities or with a company’s

internal investigation. Companies may

therefore need to consider the introduction of

internal amnesty programmes to incentivise

individuals to come forward.

‘ In multijurisdictional proceedings,

companies must take into account

employee considerations when

deciding whether to seek leniency

or to co-operate with cartel

enforcers. Unless the company has

first-in leniency status in criminal

jurisdictions such as the US,

co-operation in the investigation

likely places its culpable employees

at risk of criminal prosecution. This

risk, which must be understood by

the relevant employees, could

impact on the level of co-operation

that the company can provide.’

Bruce McCulloch, Antitrust Partner,

Washington DC

10 key themes

• The time and cost of complying with different

agency demands during the leniency process is

significant. Indeed, the time from marker

request to completion of the leniency process

can span more than a decade.

• Finally, successful leniency applications protect

the applicant from antitrust liability, but not

from liability for other violations, such as

bribery, that are not typically deemed to be

‘integral to’ the underlying antitrust offence.

Most recently, in financial services

investigations, successful leniency applicants

have paid hundreds of millions of dollars in

plea agreements with the DOJ’s Criminal Fraud

section for related conduct. Companies must

therefore assess the impact of the conduct

more broadly, and beyond its compatibility

with antitrust or financial services laws.

‘ As the risk of detection grows, companies which become aware of

misconduct are increasingly having to grapple with the complex decision

of whether, and if so where, to apply for leniency. Any decision to do so

must be taken with a full understanding of the costs, risks and obligations

it will entail, as well as the undeniable benefits.’

Bea Tormey, Antitrust and Dispute Resolution Partner, London

Looking ahead in 2018

• Deciding whether to apply for leniency

from an antitrust authority is an

increasingly difficult calculation,

particularly when these decisions must

be taken under tight time constraints.

• Take particular care to ensure you

understand the full implications of private

damages actions that are likely to follow,

possibly in multiple jurisdictions.

• Ensure you take account of all possible

areas of civil and criminal exposure for

your business and its individuals from

the outset.

10 key themes

As appetite for antitrust litigation continues, defence strategies

must increasingly cater for co-ordinating proceedings in multiple

jurisdictions. Understanding the position in different jurisdictions

is key to deciding how to challenge or defend cases.

In the EU, implementation of the EU Antitrust Damages Directive was intended

to aid recovery of damages for breach of competition claims. However, the

legislation has not yet created the anticipated level playing field across the

region. Meanwhile, class actions regimes within the EU are developing (if slowly).

Although in some countries, such as the UK, the first claims have not succeeded,

we expect potential claimants to learn from these cases and continue to use

the regimes.

And across Asia, we are seeing a trend of more antitrust damages litigation.

Businesses operating in China and Japan, for example, need to be aware that

the landscape – and risk level – is changing.

The UK Competition Appeal Tribunal’s judgments in

Pride and Mastercard – a mixed start for antitrust class

actions in the UK

The claims against Pride (relating to mobility scooters) and Mastercard

(concerning bank interchange fees) in the UK Competition Appeal Tribunal

have been the first to test the limits of the UK’s opt-out and opt-in class

action and class settlement regime for antitrust claims, introduced in 2015.

In judgments given in 2017, neither claim continued past the class certification

stage, leading some to question the prospects of the regime.

However, despite the slow start, the door remains very much open for future

claims. By providing the proposed class representative with the opportunity

to reformulate her claim, Pride showed that the Tribunal would be flexible

at the certification stage if the claimants can reasonably overcome any obstacles.

The claimants later withdrew the claim. And in the £14bn claim against

Mastercard, although the Tribunal dismissed the claimants’ application for

certification, it found that third-party funders could, in principle, be paid

from any unclaimed damages – a significant pro-claimant outcome.

Antitrust litigation

Managing global risk in a rapidly

evolving landscape

claim £14bn against Mastercard

Antitrust litigation

Both claims brought to date were difficult ones given the nature of the

infringements and the broad classes proposed. Now that the Tribunal has

clarified the expectations, the ground is ready for a suitable case. However,

a cautionary note: future applicants should be prepared to take a rigorous

approach to their proposed expert methodology, which the Tribunal will

scrutinise carefully to test the viability of the claim as a class action.

US class actions – a rougher road for class claimants

in the years ahead

Recent court decisions in the US make plaintiffs’ task of certifying their class

increasingly difficult. First, new precedent requires courts hearing motions

for class certification to give plaintiffs’ damages models a ‘hard look’ to assess:

(i) consistency with their liability theory; (ii) whether plaintiffs have affirmatively

proved the class criteria through rigorous analysis; and (iii) whether statistical

models adequately satisfy the requirement that the questions common

to class members predominate over any questions affecting only individual

class members.

Second, the Supreme Court’s application of the Federal Arbitration Act gives

companies the opportunity to avoid class actions entirely through incorporating

mandatory non-class arbitration agreements. The provisions do not allow a class

to bring arbitrations. US courts recently confirmed the enforceability of clauses

requiring non-class arbitration in antitrust cases, even where the cost of

individually arbitrating makes the bringing of such claims unlikely.

Where guilty pleas, or even active cartel investigations, make it unlikely that

defendants will win a motion to dismiss (challenging the sufficiency of the

allegations) or a motion for summary judgment (challenging the sufficiency

of the evidence), contesting class certification may represent the defendants’

best chance to win the case.

‘ Although the first two UK class actions failed at the certification

stage, the Tribunal has gone out of its way to encourage future

claims in more suitable cases, for example by allowing third-party

funders to be paid from unclaimed damages.’

Mark Sansom, Antitrust and Dispute Resolution Partner, London

‘ Despite recent judgments favouring defendants in high stakes

antitrust litigation, opposition to class certification will in many

cases still offer defendants in cartel follow-on cases the best

opportunity to exit the litigation quickly.’

Rich Snyder, Antitrust Counsel, Washington DC

10 key themes

The EU Antitrust Damages Directive is implemented across

Europe, but what now?

Since December 2016, 25 EU member states have implemented the EU Antitrust

Damages Directive (2014/104/EU), which seeks to facilitate claims for breaches

of competition law. The Directive has, to some degree, levelled the procedural

and substantive playing field between EU member states by, for example,

harmonising limitation periods, prescribing certain minimum levels of

disclosure and establishing a presumption that cartel infringements cause

harm. However, uneven implementation has also created disparities that

could affect where in the EU parties bring antitrust damages claims.

For example, the Directive states that only procedural provisions can have

retrospective effect but it does not define what is substantive and what is

procedural for this purpose. Different member states have therefore taken

different, and inconsistent, approaches in implementing the Directive at the

national level. In Ireland, both procedural and substantive changes apply only

to competition law infringements that occurred after 27 December 2016.

In comparison, in Germany, the new disclosure regime applies to litigation

begun after 26 December 2016 even if the infringing conduct occurred before.

Even when all the provisions of the Directive are in force across the member

states, there will continue to be differences as some jurisdictions’ existing

provisions go beyond the requirements of the Directive; therefore, some member

states will continue, for example, to have longer limitation periods or more

generous disclosure regimes than others. In every case, parties must carefully

assess jurisdictional strategy both during and after the transition period.

‘ With the Damages Directive now in force across Europe we expect

to see a rise in the number of antitrust damages actions as claimants

seek to take advantage of the new presumption of damage,

more generous limitation rules and new disclosure regimes.’

Thomas Kreifels, Dispute Resolution Partner, Düsseldorf

Antitrust litigation

Antitrust mass damages claims

initiatives bolstered in the EU

In 2018, we expect EU legislators to pave the

way for further large-scale antitrust litigation,

particularly in the field of mass (consumer)

damage claims.

According to the responsible European

Commissioner, Věra Jourová, the Commission

will adopt measures in 2018 enabling consumers

to ‘defend themselves better in cases of

mass harm’. These are likely to build on the

Commission’s 2013 Recommendation on which

a report of its implementation is expected

imminently.

The Netherlands, already a very active

jurisdiction for antitrust damages claims, is in

the meantime seeking further to facilitate and

streamline mass damages claims procedures

through a legislative proposal that we expect

to be adopted in 2018. The new rules would

allow class actions seeking monetary damages,

including in follow-on antitrust claims.

The legislative proposal would also allow the

courts, where there are parallel claims, to assign

a leading plaintiff (with the possibility of opting

out for those who wish to pursue their claims

separately). If adopted, the law would apply

globally yet simultaneously tighten existing

admissibility requirements to try to ensure

a nexus to the Netherlands and avoid abuses

of the procedure.

The emergence of antitrust damages

claims in Asia

A growing number of Asian jurisdictions are

now providing a forum for antitrust damages

claims, with an increasing trend towards more

antitrust damages litigation.

In China, the courts are becoming an

increasingly important battlefield for companies

and individuals seeking antitrust damages,

especially in those cases that involve intellectual

property or consumer disputes. In 2014, Chinese

courts heard around 70 antitrust cases; in 2016,

this number was 161 in Beijing alone.

antitrust cases

161

in Beijing alone

2014 2016

‘ Cases such as “car emissions” have

captured the attention of legislators at

EU and national level. They wish to see

a better system, both for claimants

and defendants, of dealing with mass

claims and we are likely to see further

moves in this area.’

Martin Klusmann, Antitrust Partner, Düsseldorf

10 key themes

Although at this time the size of the claims

remains generally small, many expect claims’

sizes to increase over time. China has established

dedicated courts for antitrust cases across its

major administrative regions, leading to

increased sophistication and confidence in

adopting complex competition analysis in trials.

Follow-on claims are also developing, with

China’s first case having received final judgment

in 2016. Despite the high standard of proof, as

Chinese courts become an increasingly popular

avenue for seeking antitrust remedies, we expect

more damages claims to occur.

Japan has traditionally seen limited antitrust

damages claims beyond bid-rigging cases brought

by public bodies. This is evolving, however,

driven by rising shareholder derivative actions

against listed companies and their directors for

failures to claim antitrust damages, prevent

antitrust violations, or file antitrust leniency

applications with regulators. This evolving

pressure to litigate is expected to lead to more

damages claims in a country with a traditionally

less litigious culture.

The Hong Kong Competition Ordinance came

into force in 2015. Although the regime still does

not permit stand-alone actions, one can expect

an onset of follow-on damages litigation,

once the first investigations have proceeded

to enforcement action and appeals have been

heard. In time, Hong Kong could become

another important venue in Asia for antitrust

damages claims.

Looking ahead in 2018

• Asia – as antitrust damages claims are on

the rise in Asia, companies doing business

in the region should be ready to manage

the increasing antitrust litigation risks,

on top of the growing enforcement activity

of antitrust agencies.

• EU – expect continued advances in class

actions regimes including in the antitrust

litigation arena. Differences in the

implementation of the Damages Directive

across the EU will favour continued ‘forum

shopping’, allowing claimants to initiate

proceedings in countries where the most

favourable rules enter into force at the

earliest date. Businesses must take this

into account when considering litigation

strategy.

• UK – the UK Competition Appeal Tribunal

has laid down the ground rules for

certifying antitrust class actions, with

further claims publicly announced as

being imminent. Expect further testing

of the regime, possibly through some

opt-in cases.

• US – class action defendants will rely

on recent favourable class certification

decisions to press their advantages in

cartel follow-on litigation. The aim will be

to defeat class certification as early in the

process as possible.

10 key themes

Did you know that your employment practices could violate

antitrust law? Firms that compete to hire or retain employees are

competitors in the employment marketplace, regardless of whether

the firms make the same products or compete to provide the same

services. In this context, the job market is, like any other market,

subject to antitrust law.

Failure to consider carefully the relevant antitrust and employment risks of a

transaction at an early stage may trigger expensive injunctive actions, fines and

damages, and may affect the reputation of your company. In the US, it may now

even result in criminal prosecution.

No-poaching agreements – be aware of the risks associated

with recruiting competitor talent

Employees are important firm assets and firms have legitimate interests in

retaining valuable employees and minimising employee turnover. No-poaching

agreements (ie agreements that restrict a firm from recruiting or hiring a

competitor’s employees) are a relatively common practice that should, however,

be carefully analysed. When companies agree not to hire from each other to

keep wages down for employees, this becomes an anti-competitive exercise that

adversely affects both employees and the market.

In the US, the DOJ recently conducted a high-profile investigation involving

some of the major Silicon Valley companies and found that their ‘no cold call

agreements’ – to refrain from contacting employees at competitor companies

with job offers – breached the antitrust rules. This resulted in private follow-on

damages cases that had multimillion-dollar settlements (reportedly in excess of

$435m), on top of legal fees and serious reputational damage.

Employees

Making sure your employment policies

are antitrust compliant

Employees

Following that case, the DOJ issued its Antitrust Guidance and Red Flags for HR

Professionals according to which, naked no-poaching agreements among

employers are per se illegal under the antitrust laws. That means that if the

agreement is separate from or not reasonably necessary to a larger legitimate

collaboration between the employers (eg an R&D JV), the agreement is deemed

illegal without any inquiry into its competitive effects.

The Guidance also makes clear that the DOJ will investigate such no-poaching or

wage-fixing agreements using its criminal powers. In September 2017, Deputy

Assistant Attorney General Barry Nigro stated that the DOJ was currently

examining a number of such cases. He was widely quoted as saying that he was

‘surprised’ by the large number of such investigations, further observing ‘the

fact that we have so many investigations in this area highlights how seriously

the division takes these sorts of allegations’. It would appear that the DOJ is

making good on its promise of much more vigorous enforcement in this area.

The legality of no-poaching and wage-fixing agreements is also receiving

considerable attention in Europe. No-poaching agreements are not per se illegal.

However, agencies normally view no-poaching agreements as unlawful

horizontal market allocations when they negatively impact competition by:

(i) diminishing competition among firms to attract skilled employees;

(ii) decreasing employees’ access to other, more lucrative employment

opportunities; or (iii) limiting employees’ ability to change jobs readily within

their chosen fields. This means the agreements are illegal if agencies can

show these effects.

‘ In today’s world with increasing concerns over jobs and benefits,

it is expected that agencies will be much more likely to accept

that the anti-competitive effects of these no-poaching agreements

have been or can be shown.’

Alan Ryan, Antitrust Partner, Brussels

10 key themes

As an example, in Spain the National

Commission for Markets and Competition

(CNMC) imposed total fines of €14m for a cartel

in the freight forwarding industry, citing a

no-poaching agreement as one of the elements of

the anti-competitive conduct that infringed both

EU and Spanish law. Authorities have also struck

out several other no-poaching agreements in

countries such as France, Germany and the

UK based on non-competition grounds.

The antitrust risk of exchanging

HR information

Following the issue of the US Guidance, the

exchange of HR information among companies

has also become an increased risk. In particular,

antitrust concerns may arise if a company

exchanges company-specific information about

employee compensation or terms of employment

with another company.

This also applies to the EU and other countries,

where exchanges of confidential information can

give rise to an infringement of competition law

and to potential fines for the companies involved.

In the EU, even the unilateral disclosure of

information could constitute a prohibited

concerted practice for the purposes of EU

competition law. An undertaking that receives

information relating to an anti-competitive

arrangement, without manifestly opposing it,

will be taken to have participated in a concerted

practice, unless that undertaking puts forward

evidence to establish that it had indicated its

opposition to the anti-competitive arrangement

to its competitors.

This means that companies should review their

HR benchmarking studies. In order to avoid

liability for information exchanges, parties

should consider: exchanging information

through a neutral third party that only publishes

aggregated information, which shields the

identity of the underlying sources; or only

exchanging older, historic data (usually at least

one year old).

‘ Very often HR departments assume

that since they neither market

nor sell products or services,

competition law compliance is not

a matter of concern. While it is true

that most antitrust cases involve

allegedly impermissible concerted

action among sellers, many fail to

appreciate that the antitrust laws

in most jurisdictions also proscribe

price co-ordination among buyers.

Having defended companies in

both government HR investigations

and private litigation, I can attest

that this can be a very hard lesson

to learn.’

Terry Calvani, Antitrust Of Counsel,

Washington DC

‘ The key point to remember is

that, in the EU, the mere receipt

of information concerning

competitors may be sufficient

to give rise to a prohibited

concerted practice.’

Uta Itzen, Antitrust Partner, Düsseldorf

Employees

Whistleblowing – navigating the

changing landscape

We are seeing that whistleblowing continues

to make the headlines and the role of the

whistleblower has become even more prominent

in recent times.

We believe that there is a clear business interest

in ensuring that the right whistleblowing

framework and culture are in place to encourage

employees to speak up without fear of retaliation.

This can allow businesses to identify problems,

investigate internally at an early stage and

resolve any issues, all while retaining control

of the process – something that may be lost

if the employee feels they are not being taken

seriously and goes to a regulator or the press

with their complaint.

Last year, we carried out a whistleblowing

survey*, publishing the results in November 2017.

We gathered opinions from 2,500 business

managers across Germany, France, Hong Kong,

the UK and the US on the attitude to

whistleblowing across different jurisdictions.

Our key finding is that there has recently

been an increase in employee involvement in

whistleblowing: whistleblowing is becoming

more the ‘norm’ (47 per cent of business

managers are either witnessing or engaging

in whistleblowing). However, the case remains

that a significant proportion of managers polled

(55 per cent) think employees believe that

blowing the whistle would have a negative

impact on them personally.

Organisations continue to have a clear interest

in ensuring that the right whistleblowing

framework and culture are in place in order to

deal properly with an issue and prevent further

damage more quickly, rather than leave an

employee with no option but to raise the issues

externally, most likely at a later stage, by which

time matters may have escalated.

of managers witnessed or

engaged in whistleblowing

47% 55%

of managers think employees

believe whistleblowing could

have a negative effect

Looking ahead in 2018

• Make sure you update your competition

compliance programmes and include

training for your HR teams.

• Do not agree employee salaries or terms

of employment with another company

or refuse to solicit or hire that other

company’s employees.

• Do not exchange company-specific

information about employee compensation

or terms of employment with another

company.

• Review whistleblowing procedures in

your company.

*www.freshfields.com/en-gb/our-thinking/campaigns/whistleblowing

10 key themes

It can be invaluable to take a proper look,

with the benefit of hindsight, at why the

incident leading to the investigation came

about, why the risk management process

was compromised on that occasion, what

lessons can be learned, and what could be

improved for next time. This type of review

can set the business on the right track for

any future issues that might come along.

Caroline Stroud, Partner,

London, and Global Head of People and Reward

10 key themes

We expect the phenomenon of competition authorities making

an expansive interpretation of their competition law remit to

continue in 2018. National competition authorities are increasingly

investigating policy areas more traditionally addressed by

legislative efforts, demonstrating a willingness to use competition

law tools to investigate areas where regulation is lacking

or inadequate.

State aid and taxation – the story goes on

Nowhere is this trend more obvious than in the European Commission’s

continued State aid investigations into the taxation of multinational companies.

Events such as the leak of the ‘Paradise Papers’ have only served to increase the

spotlight already being shone on the tax affairs of multinationals.

While tax legislative reform at the international and European level is ongoing,

the Commission wants to see results more quickly. Commissioner Vestager

has in particular highlighted the taxation of digital companies, noting that

European tax systems based on a company’s physical assets are not well designed

for modern ways of doing business. Claiming that domestic digital businesses

pay less than half the effective tax rate of their offline equivalents, the

Commissioner recognised that competition rules alone could not fix the

issue. However, it is clearly an important part of her agenda.

The Commission has continued apace in

relation to its fiscal State aid investigations

with: (i) the conclusion of its investigation

into Luxembourg’s tax treatment of

Amazon, resulting in recovery amounting

to around €250m; (ii) the announcement

of enforcement action against Ireland for

failure to recover monies in relation to the

Commission’s August 2016 final decision

in the Apple investigation; and (iii) the

opening of a new investigation into certain

UK tax rules.

10.

State aid

Testing the limits of competition law

recovered

from Luxembourg

tax investigation

250m

State aid

The UK provisions subject to scrutiny allow

certain exemptions from the application of the

UK Controlled Foreign Company (CFC) rules,

targeting tax avoidance for certain financing

income (ie interest payments received on

intercompany loans). The Commission is

investigating whether these rules allow

multinationals to pay less UK tax, in breach

of EU State aid rules.

The Commission’s launch of the UK CFC

investigation shows that Brexit has not dampened

the Commission’s enforcement appetite vis-à-vis

the UK. Moreover, it shows that the Commission

is examining a wider range of tax scenarios for

potential State aid than ever before.

It is also clear from the UK CFC investigation and

the ongoing McDonald’s and GDF Suez/Engie

investigations that the Commission has broader

concerns than transfer pricing rules. Wider

taxation issues such as double taxation treaties,

exemptions from anti-avoidance rules and the

qualification of certain hybrid debt instruments

are of interest to the Commission.

In addition, public statements from Commission

officials on the Amazon decision highlight that

the Commission believes it does not need a

formal tax ruling to be in place in order to

investigate the tax treatment of a multinational

company. Rather, it claims that the mere

agreement of a tax situation through the

acceptance of a tax return may be sufficient

for a finding of State aid.

Wider than taxation

While the use of State aid to achieve wider

reform goals is currently most apparent in

relation to taxation, the European Commission

has used State aid as a tool of reform in

other key focus areas – energy and banking.

The Commission has used State aid rules,

in the absence of (comprehensive) legislation

on the financing of renewable energy projects,

to diversify the EU’s energy mix and to facilitate

energy market liberalisation. In banking, State

aid rules were used as a crisis management tool

paving the way for extensive legislation leading

to the Banking Union.

In 2017, the European Commission approved an

aid package for an orderly wind-down of Italy’s

Veneto Banca and Banca Popolare di Vicenza, and

allowed a state-backed rescue to bail out Monte

dei Paschi di Siena. This use of the Commission’s

State aid arsenal notwithstanding the existence

of far-reaching banking legislation is a clear

indication that State aid rules are seen as a

fallback if concerns are perceived, in these cases

regarding the consequences of the bail-in of

creditors. The key takeaway from this is that

even when legislation is adopted, companies

should not discount the possible impact of State

aid rules.

‘ The uncertainty for companies and their

tax advisers continues. It is now more

important than ever that companies focus

on not only the results of legislative reform

and their structures going forward, but also

analyse past structures and identify any

potential risks. Adherence to black letter

tax law may not be enough to avoid

State aid investigations,’

Eelco van der Stok, Tax Partner, Amsterdam

10 key themes

Wider than State aid

This expansive view and use of State aid can be

seen as part of a general trend to push the

boundaries of what competition law has achieved

in the past. Other examples include how privacy

and data protection issues may drive larger

scrutiny of data in merger control. In addition,

the ongoing investigation by Germany’s

Bundeskartellamt into Facebook’s user privacy

terms shows a willingness to use all competition

tools available to drive a broader agenda –

endorsed openly by Commissioner Vestager.

Limitation on such an approach

The Commission’s expansive view of its

competition law remit will likely face its first big

test in 2018 with the General Court expecting to

hear the first of the appeals in the fiscal State aid

investigations. It is impossible to predict which

way the General Court will go but the Court of

Justice’s judgment in the Intel case and the

General Court’s overturning of the Commission’s

prohibition of the UPS/TNT merger may be a sign

that the European Courts are willing to apply a

more critical eye to the Commission’s activities.

International effects and Brexit

While State aid is a European concept, we are

increasingly seeing State aid-like arguments in a

world displaying more protectionist tendencies.

As discussed in theme 2, EU foreign investment

proposals single out purchasers benefiting from

government funding. In addition, as seen in 2017

in the Boeing/Bombardier case, WTO rules are

being used to combat potentially problematic

state funding and we would expect to see more

cases like this.

2018 will shed more light on the shape of any

State aid regime in the UK post-Brexit. So far the

UK government has been tellingly quiet on this.

State aid rules are included among the list of

treaty provisions that regulators envisage would

continue to have direct effect and therefore still

apply post-Brexit pursuant to the European Union

(Withdrawal) Bill. While the exact shape of

any regime is yet unknown, the UK will at a

minimum have to comply with WTO rules and

will more likely have a more advanced regime

if recent EU trade agreements are to serve as

an indication. The Ukraine–European Union

Association Agreement contains nearly identical

State aid provisions to those in the EU and the

EU–Singapore Free Trade Agreement extends

WTO subsidy rules to cover services and not

just goods.

‘ The Commission is continuing to

see State aid as a flexible tool to be

used where legislation is absent,

or is in the Commission’s eyes

insufficient, particularly in areas

important to wider Commission

policy drivers.’

Andreas von Bonin, Antitrust Partner, Brussels

State aid

Looking ahead in 2018

In 2018, companies will need to consider:

• New areas of uncertainty – companies

should continue to review their tax affairs to

identify possible State aid issues, especially in

relation to tax avoidance schemes. It is clear

that adherence to the black letter rules of tax

law may not be enough to escape State aid

scrutiny. We have yet to witness the fallout

from the most recent Paradise Paper leaks

and the Commission may seek to investigate

new areas. Therefore, while 2018 hopefully

will deliver some guidance in the form of

new legislation and potential court decisions,

uncertainty will persist.

• US and international reaction – the current

US administration’s tax reform plan may

ease some State aid concerns by removing

the aspect of ‘untaxed’ income. However,

the global reach of the State aid rules and

the Commission’s willingness to open

investigations against high-profile

multinationals means that reactions and

retaliatory actions from the US in particular

may be more likely. State aid-like cases such

as disputes under WTO subsidy rules are set

to grow in importance, as seen by the Boeing/

Bombardier dispute.

• Brexit – no matter the shape of the UK’s

post-Brexit State aid regime, the EU will not

want the UK to be able to grant advantages to

companies operating there and so State aid

will remain an important topic post-Brexit.

• Ongoing legislative reforms – 2018 and

beyond will see further progress on a

European Common Consolidated Corporate

Tax Base (CCCTB), the implementation of the

second Anti-Tax Avoidance Directive,

country-by-country reporting and likely

legislative proposals on taxing the digital

economy. Therefore, digital companies

in particular should actively monitor

any developments and audit their

existing structures.

10 key themes

2018 will bring more clarity as to what

a post-Brexit State aid regime will

look like in the UK. Current signs point

to State aid being a part of any post-

Brexit UK competition regime and the

EU will not want the UK to be able to

skew the playing field post-Brexit as

demonstrated by the Commission’s new

State aid investigation into UK CFC rules.

Michele Davis, Antitrust Partner, London

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10 key themes

Global antitrust in 2018

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