Global antitrust
in 2018
10 key themes
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10 key themes
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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
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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
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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
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4. 9.
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Global antitrust in 2018
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Global antitrust in 2018
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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.
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International competition and trade
Will 2018 be the year when the mists clear?
12%
of UK
GDP
4%
of EU27
GDP
£236bn
Exported to
the EU27
£318bn
Exported to
the UK
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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
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Global antitrust in 2018
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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
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Global antitrust in 2018
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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.
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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
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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
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• 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.
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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.
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Global antitrust in 2018
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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
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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).
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Innovative theories in merger control
Getting complex cross-border deals across the line
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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
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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
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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.
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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
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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.
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Deal risk
Managing multiple merger reviews as
authorities step up enforcement and the
risk of third-party challenge grows
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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
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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
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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.
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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
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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.
5.
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
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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
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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
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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.
6.
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%
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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
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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.
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‘ 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
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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.
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10 key themes
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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
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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.
7.
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
40
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
41
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
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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
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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.
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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.
8.
Antitrust litigation
Managing global risk in a rapidly
evolving landscape
claim £14bn against Mastercard
46
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
47
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
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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.
70
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
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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.
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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.
9.
Employees
Making sure your employment policies
are antitrust compliant
52
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
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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
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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
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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
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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
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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
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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
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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.
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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
62
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Our international antitrust,
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Your contacts
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Global antitrust in 2018
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