Antitrust enforcement in emerging jurisdictions

On 26 March 2014, an historic panel consisting  of senior officials from the antitrust enforcement  authorities of Africa, Brazil, and China presented to,  and took questions from, a packed house of attorneys  at the ABA Section of Antitrust Law’s Spring Meeting  in Washington, DC (ABA Spring Meeting). This was  the first time these emerging antitrust jurisdictions  had been represented by such senior officials at an  ABA Spring Meeting. The panel comprised Vinicius  Marques de Carvalho, President of Brazil’s Conselho  Administrativo de Defesa Econômica (CADE); George  K. Lipimile, Director and Chief Executive Officer of  the Competition Commission of the Common Market  of Eastern and Southern Africa (COMESA); Li Qing,  Deputy Director General of the Price Supervision  and Anti-Monopoly Department of China’s National  Development and Reform Commission (NDRC); and  Zhao Yiqin, Deputy Director of the Anti-Monopoly  Enforcement Division of the Anti-Monopoly and  Anti-Unfair Competition Enforcement Bureau  of China’s State Administration for Industry  and Commerce (SAIC). * Drawn from three key emerging jurisdictions from  around the world, and representing three continents  – Africa, Asia and South America – the enforcement  officials spoke about the authorities they lead and  the issues their authorities face as emerging antitrust  regimes in a world of increasing globalization financially,  commercially, and in terms of antitrust enforcement. ** Emerging economies and globalization Commentators cite many factors as contributing to  the growth of so-called emerging economies relative  to so-called developed economies. These include  lower labour costs, rising productivity, improvements  in transport and communication systems connecting  emerging economies to global markets, a rising  middle class, growth in world trade, and a decline  in trade tariffs.  It is estimated that the economies of the most  prominent emerging markets, including Brazil, China,  and India, have grown by about 600 percent since 1960 compared with 300 percent for the richer, more  industrialized countries. Over the past 20 years,  emerging markets’ share of world GDP, private  consumption, investment and trade is estimated  to have nearly doubled. In addition, “developing”  economies are estimated to have attracted over half  of the total global foreign direct investment in 2013;  the share of foreign direct investment into “developed”  countries has been in decline for some time. The U.S.  remains the top destination in the world for foreign  direct investment, with China (excluding Hong Kong) in  second place. Brazil was 7 th , Mexico 12 th , and India 16 th in 2012 according to UNCTAD. Last year, China was reported to have become the  biggest trader in goods, ahead of the U.S. for the  first time in modern times. 1  Nonetheless, the U.S.  continues to lead the world in the trade for services;  China’s trade in services was less than half that  of the U.S. in 2012, for example. Recently, the  International Comparison Program hosted by the  World Bank has forecast that China will overtake  the U.S. as the largest overall economy in the world  by the end of this year and not 2019, as previously  forecast. Nevertheless, the world’s “rich” countries  still account for 50 percent of global GDP while  comprising only 17 percent of the world’s population. Globalization has also been an increasing feature of  the international enforcement of antitrust law over  the last couple of decades. The great interest in what  the emerging jurisdiction enforcers from Africa, Brazil,  and China had to say at the ABA Spring Meeting  is clear evidence of this trend – a trend that shows  every sign of continuing, and, indeed, of accelerating.  The growth in the number of jurisdictions that have  adopted antitrust laws in the last 20 years or so has  been well-documented elsewhere. This article focuses  on the jurisdictions that were represented on the ABA  Spring Meeting panel. Brazil has substantially amended  its antitrust law and institutional structure with effect  from 2012, bringing about major changes to its previous  regime. China’s Anti-Monopoly Law is five years old,  although China first started to consider the adoption of  an antitrust law regime and to study other jurisdictions’  regimes many years ago. The COMESA Competition  1 Some historians believe that China was the largest trading nation  during the Qing dynasty which lasted from 1644 to 1912. * The panel was moderated by Rachel Brandenburger, Senior Advisor  to Hogan Lovells US LLP, based in New York. Rachel is licensed as a  foreign legal consultant in the State of New York and is admitted in  England and Wales. ** The material in this article is drawn not only from the panel at the  ABA Spring Meeting but also from other sources. ACER Quarterly January 2014 – May 2014 3 Commission was established in 2008, but became  fully operational only in 2013. 2 The tendency to refer collectively to “emerging”  antitrust jurisdictions suggests a greater  homogeneity than in fact exists. In reality, there is  considerable diversity in terms of the economic,  social, political, historical, and cultural influences  that affect the objectives and goals, as well as the  institutional structures, laws and implementation  of the antitrust laws and regimes in emerging  jurisdictions, as is illustrated in the rest of this article.  Brazil Brazil substantially amended its antitrust law and  institutional enforcement structure resulting in major  changes to its previous antitrust law regime. The  new regime merged the Secretariat for Economic  Defence (SDE) with the Administrative Council for  Economic Defence (CADE) to create a single unified  competition authority. The law also generally increased  the financial and personnel resources for competition  law enforcement and introduced a pre-merger control  regime. These revisions did not occur in a vacuum;  CADE analysed several antitrust regimes around the  world, including the United States and European  Union, before introducing the changes in Brazil. With regard to mergers, the changes have resulted  in a significant acceleration of the review process.  In 2005, the average length of proceedings was 252  days; today, CADE President Vinicius Marques de  Carvalho told the ABA Spring Meeting, it is less than  30 days. Despite this positive development, there  remain some concerns about the new merger regime,  including the scope of the jurisdictional thresholds that  are perceived by the international business community  to be too far reaching. CADE also investigates non-merger cases involving  both domestic and international companies, including  both cartel and unilateral conduct cases. In 2013, CADE  introduced a new regulation for the settlement of cartel  investigations through cease and desist agreements  and reductions in fines. CADE President Vinicius  Marques de Carvalho told the ABA Spring Meeting that  the new rules aim to improve settlement agreements  2 In addition, although a number of COMESA member states and  other jurisdictions in Africa have had their own competition laws  and regimes for longer, others have only recently adopted their  own laws and regimes or are proposing to do so. and evidence collection. Specifically, applicants must  confess participation in the antitrust infringement  at issue and cooperate during the investigation to  be eligible for the settlement procedure and fine  reduction. There are four pre-defined discounts based  on the degree of cooperation and order parties reach  agreement with CADE: 1) 30-50% reduction of fine;  2) 25–40%; 3) up to 25%; and, 4) after closure of the  investigation, up to 15%. CADE President Vinicius  Marques de Carvalho also explained that this new  system aims to increase parties’ incentives to seek  leniency. So far, one case has been completed under  the new system, with more than 10 more under review. With the new law and more resources, CADE has  been increasingly active. For example, CADE has  announced investigations into the alleged bid rigging  of government tenders for medical supplies; fines  in relation to cartels in the garbage collection and  fire extinguisher industries, as well as the pharmacy  sector; settlements in relation to cartel investigations  in the air freight and international cable industries; and  investigations into alleged abusive practices in the  mobile, rail freight and ice cream sectors, as well as  into Google search business. China China’s anti-monopoly regime includes three  anti-monopoly authorities. The Ministry of Commerce  (MOFCOM) is the authority that reviews mergers.  The National Development and Reform Commission  (NDRC) and the State Administration for Industry and  Commerce (SAIC) have jurisdiction over price and  non-price infringements, respectively, of the Anti-Monopoly  Law (AML) involving horizontal agreements, vertical  agreements, and abuse of dominance matters. 3 In the past two years, NDRC and SAIC have been  initiating investigations with increased frequency and  levying increasingly large fines against non-compliant  parties. During that period, NDRC is reported to have  concluded more than 30 cases and SAIC at least 12.  The two agencies have investigated cases in a broad  range of consumer-facing sectors, including construction,  agriculture, consumer goods, insurance, pharmaceuticals,  and automobiles.  3 MOFCOM, represented by Director General Shang Ming, participated  in a separate panel dedicated to mergers at the ABA Spring Meeting.4 ACER Quarterly January 2014 – May 2014 The increased enforcement activity of the Chinese  anti-monopoly authorities has triggered concerns  about transparency, procedural fairness, resources,  and timing on the part of the international businesses  subject to the proceedings.  NDRC At the ABA Spring Meeting, Deputy Director General Li  Qing said that NDRC has strengthened its enforcement  staffing since 2011 by adding 20 administrative staff in  the central office and 160 enforcement staff throughout  the provincial offices. She also said that NDRC now  covers more than 20 sectors of the Chinese economy  and that NDRC has taken recent enforcement action  in relation to cartels, vertical restraints, abuse of  dominance, and abuse of administrative monopolies.  Those investigations have been against domestic and  international companies, privately owned companies  and state owned enterprises, and industry associations. In January 2013, NDRC took China’s first enforcement  action against an international cartel. The agency  imposed a penalty of RMB 353 million (approx. US$  56.6 million) 4  against six international manufacturers  (from Japan, South Korea, and Taiwan) of liquid crystal  display, or LCD, flat panel displays. 5  The case was  brought under China’s Price Law, because the LCD  cartel operated prior to the adoption of the AML.  NDRC is reported to have commented that, had the  LCD cartel been operating following the introduction  of the AML, the fines would have been significantly  higher under the AML.  NDRC has also launched a series of enforcement  actions against restraints in vertical agreements  between manufacturers and retailers, particularly  with regard to resale price maintenance (RPM).  Following an investigation into RPM practices in the  automotive industry in 2012, NDRC levied penalties  of RMB 247 million (approx. US$ 39.6 million) and  RMB 202 million (approx. US$ 32.4 million) against  two state-owned enterprises, Moutai and Wuliangye,  for imposing vertical restraints in commercial  agreements that included RPM clauses. NDRC has  also investigated Chinese and international infant  formula manufacturers in relation to RPM and  vertical restraints.  4 The currency conversions in this article are estimated as of 5/12/2014. 5 The U.S. Department of Justice, the European Commission, and  other international antitrust agencies have also investigated and  sanctioned LCD manufacturers. NDRC levied fines totalling RMB 670 million  (approx. US$107.4 million) on six of the  manufacturers and granted full immunity to three  manufacturers. Following  the investigation, a number  of the manufacturers in question are reported to have  implemented significant price reductions for their products. In 2011, NDRC opened a high-profile investigation into  two state-owned telecommunications companies for  abusing their dominance in pricing discriminatingly  wholesale access to their broadband networks.  In that investigation, NDRC is reported to have  accepted a three-year behavioural remedy.  More recently, there has been an apparent focus  on information technology and intellectual property  corporations, including corporations that license  patent technology for mobile devices and networks.  It is reported that NDRC is investigating allegations  that the chip manufacturer Qualcomm charges  discriminatory patent licensing fees in China.  The Qualcomm investigation comes on the heels of a  reported investigation into InterDigital, which develops  patent technologies for wireless devices and networks. SAIC Increased non-merger enforcement activity in  China has not been limited to NDRC; SAIC has also  increased its enforcement efforts. At the ABA Spring  Meeting, Deputy Director Zhao Yiqin highlighted four  features in particular. First, the total number of cases  has increased significantly, with an annual increase of  58 percent. Second, the overall capability of the whole  system has been improved. Third, the range of entities  being investigated has grown, with more than 30 cases  involving corporations spanning the building materials,  insurance, telecoms, second-hand cars, tourism, and  public utilities sectors. In particular, companies in  the building materials, insurance, and public utilities  sectors have been investigated for monopolistic  activities. Fourth, SAIC has begun to publish case  decisions as it attaches importance to transparency. To date, many of SAIC’s investigations have involved  industry associations, particularly in the insurance  and construction industries. In 2012, SAIC fined  13 operating companies and the Building Materials  Industry Association of Liaoning Province, around  RMB 15 million (approx. US$ 2.4 million). SAIC  concluded that the association had facilitated ACER Quarterly January 2014 – May 2014 5 the reaching of monopoly agreements among its  members. In 2013, SAIC concluded an investigation  into the tourism industry in Yunnan. The investigation  involved the bundling of services by hotels, tourist  attraction sites, coach companies and travel agencies,  and SAIC imposed fines on the Yunnan Tourism  Association and the Yunnan Travel Agency Association. Also in 2013, SAIC was reported to have launched an  investigation into Tetra Pak. It is reported that more  than 20 officials are involved in the investigation  of the company’s alleged abuse of its dominant  position by tying the sale of its packaging machines  to packaging materials.  Also among SAIC’s significant anti-monopoly  initiatives are proposed guidelines on the enforcement  of competition law in relation to intellectual property  rights in China. SAIC is currently reviewing a draft  of the guidelines in connection with which it had  previously consulted with antitrust authorities,  including the US and EU authorities, and domestic  and international corporations. SAIC is also focusing  on capacity building, training of staff, and building a  database to improve information sharing and help  standardize its enforcement efforts around the country.  Deputy Director General Li Qing and Deputy Director  Zhao Yiqin both explained how NDRC and SAIC  coordinate their investigations at national and local  levels, transferring a matter if necessary between the  two authorities, without conflict or dispute between  the two authorities over which authority investigates  which matter.  Common Market for Eastern and Southern Africa  (COMESA) COMESA is a regional organization with the mission  of promoting economic integration through trade  and investment in Eastern and Southern Africa (the  Common Market). Currently, COMESA has 19 member  states – Burundi, Comoros, the Democratic Republic of  Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya,  Madagascar, Malawi, Mauritius, Rwanda, Seychelles,  Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.  According to figures presented by COMESA Director  and Chief Executive Officer George Lipimile at the  ABA Spring Meeting, the COMESA region represents  about US$152 billion of imports and about US$157  billion of exports (based on 2008 data).  The COMESA Competition Commission (CCC) has  powers to investigate mergers and anti-competitive  business practices within the COMESA nations,  and is based in Lilongwe, Malawi. The CCC was  established in 2008 and became fully operational  in 2013. To date, about 30 merger filings have been made to  the CCC. As well as reviewing mergers, the CCC is  empowered to prohibit anti-competitive agreements  that prevent, restrict or distort competition within the  Common Market, practices between firms engaged  in rival or potentially rival activities in the Common  Market, and conduct that constitutes an abuse of  dominance in the Common Market or a substantial  part of the Common Market. The regulations  empower the CCC to impose fines on firms that  have infringed these regulations. The CCC also has  powers to authorize agreements or arrangements  if it determines that there are, broadly, efficiencies  or public interest benefits (as recognized by the  regulations) that outweigh the anti-competitive  effects. There are similar, but it seems not  identical, powers in relation to mergers. Director and CEO George Lipimile reported that  the CCC has issued several advisory opinions and  reprimands of restrictive business behavior since  the CCC started work last year.  Conceived as a supranational authority, the CCC  faces a number of challenges, including the scope  of its jurisdiction over mergers, the size of filing fees  for mergers, the relationship between the laws and  regulations of the COMESA regime and those of  its member states, as well as its overall resourcing  levels. The CCC is taking proactive steps to address  these concerns. At the ABA Spring Meeting, Director  and CEO George Lipimile explained that the CCC is  working on setting out a framework for analysing  mergers, including criteria for evaluating potential  unilateral and coordinated anticompetitive effects,  guidelines for the treatment of efficiencies, and  criteria for remedies or conditions to address the  anti-competitive effects of a merger, as well as on  the jurisdictional issues that the merger regulations  have given rise to. In April 2013, the CCC published  initial draft merger assessment guidelines and, in  collaboration with the International Finance Corporation  of the World Bank, has since engaged a consultant to 6 ACER Quarterly January 2014 – May 2014 advise on the review of the current merger regulations.  In addition, the CCC has been seeking feedback from  corporations and advisers that have experience with the  COMESA regime. For example, a workshop was held  in April 2014 to discuss suggested amendments to the  draft guidelines, and a second workshop is expected to  be held over the summer. It has been reported that the  CCC intends to finalize the draft merger assessment  guidelines after the second workshop.  The CCC has also taken informal steps to adjust its  enforcement regime. For example, the absence of  turnover thresholds has been widely criticized as  it could lead to an interpretation that all mergers in  which either or both of the parties generate turnover in  two or more COMESA member states would require a  complete notification filing and payment of a substantial  filing fee. The CCC has elected to interpret the relevant  regulations for parties who pro-actively approach the  CCC so as to resolve issues for transactions that  lack a sufficient nexus with COMESA and do not  restrict competition in COMESA. There are reports  that the CCC has issued five “comfort letters” that,  in effect, exempt such transactions from the need for  a complete filing and payment of the high filing fees.  The increasing importance of antitrust  enforcement in emerging regimes  As the senior enforcement officials at the ABA Spring  Meeting each made clear, antitrust enforcement in  emerging jurisdictions is having an increasing effect  on corporations that do business around the world.  The number of filings needed to be made in any  global merger and the number of cartel or conduct  investigations to which global companies are subject  around the world seems to be set only to increase,  with emerging jurisdictions playing an increasingly  significant role in this enlarged enforcement activity. In response, global corporations increasingly need  to engage in global strategies and coordinated  multi-jurisdictional assessments of their antitrust  issues to minimize the risks of unexpected or  inconsistent outcomes around the world – all the more  so as procedural and substantive differences continue  to exist among different antitrust jurisdictions, including  not least emerging jurisdictions. Interestingly, the four authorities represented at the  ABA Spring Meeting talked about the role of economic  analysis in their investigations. CADE President Vinicius  Marques de Carvalho explained that two of the seven  CADE Commissioners are economists, and since 2012,  CADE has had a specific unit dedicated to helping the  Commissioners and Superintendent with the economic  issues arising in complex mergers and conduct cases.  NDRC Deputy Director Li Qing referred to enforcement  generally as a collaboration of law and economics, and  explained that, in NDRC’s anti-monopoly division, half  of the staff members are lawyers, and the other half  are economists. She also said that NDRC regularly  consults with professional institutions, academic  institutions, scholars, and expert committees under  the State Council, and frequently involves economic  analysis in the penalty phase of an investigation. SAIC  Deputy Director Zhao Yiqin explained that SAIC follows  similar methods as NDRC with respect to economists  in its case investigations. As well as using in-house  economists, SAIC also works with external economists,  such as professors and economic consulting groups,  both domestic and international. Director and CEO George  Lipimile explained that the CCC has two economists on  staff and has the authority to seek outside academic or  consulting advice for complex matters. Also significantly, the officials talked about  international assistance and cooperation among  antitrust authorities around the world. Director  and CEO George Lipimile, representing the newest  authority, spoke of the assistance the CCC has  received from various organizations and institutions,  including the ABA, major law firms, and the U.S.  Federal Trade Commission. NDRC Deputy Director  Li Qing explained that NDRC communicates with  other antitrust jurisdictions and seeks international  collaboration. She referred to the memoranda of  understanding for cooperation that the Chinese  anti-monopoly authorities have signed with the  EU, Korean, UK, and U.S. authorities, and said  that anti-monopoly rules are a world language.  In addition, she said that every jurisdiction has  its own characteristics and features according  to its own political and economic systems and  its developmental stages. ACER Quarterly January 2014 – May 2014 She also said that NDRC is continuing to strengthen  its international collaboration and is also willing to  collaborate with other antitrust authorities on specific  cases. CADE President Vinicius Marques de Carvalho  stressed the increasing role of multi-jurisdictional  antitrust enforcement, the need for international  cooperation especially in combating global cartels,  and the importance of convergence in international  enforcement practices. n  Rachel Brandenburger* Senior Advisor, New York T +1 212 918 3777 Daniel E. Shulak Associate, New York T +1 212 918 3308 * Foreign legal consultant admitted in England and Wales.8 ACER Quarterly January 2014 – May 2014 The situation to date Until now, the UK water sector has been subject  to a strict merger control regime, under which all  transactions involving mergers between UK water  companies (other than those involving a minority  stake which was not sufficient to give any control for  these purposes) were subject to an automatic in-depth  phase II review by the UK competition authorities lasting  several months. The only exception was where the  turnover of either the target water business, or the  acquirer’s water business, did not exceed £10 million  – a small mergers threshold which is now too low  to be relevant for most water company transactions.  This contrasts with the position under the general  merger control rules whereby only a minority of  transactions – those potentially giving rise to a  substantial loss of competition – are referred for a  full phase II investigation. It has arguably reduced  M&A activity in the sector and acted as an obstacle  to industry consolidation.  Furthermore, initiation of the phase II reference to  the Competition Commission (replaced as of this April  by the Competition and Markets Authority (“CMA”))  rested on something of a hair trigger in that it had  to be made where “it is or may be the case that  … arrangements are in progress which, if carried  into effect, will result in a [water] merger”, and so  parties ran the risk of being tipped into a phase II  investigation even at an early stage of deal planning. Once referred, water mergers are assessed by  reference to a test aimed at preserving so-called  comparative competition, whereby the water  regulator OFWAT’s ability to regulate is protected  through the maintenance of a sufficient number  of independent water companies from which it  can derive information in order to make robust  performance comparisons and thereby set stringent  price caps, efficiency targets and service standards.  The questions asked under this test are whether  the merger would prejudice the ability of OFWAT to  make comparisons between UK water companies  -- and also whether the merger would give rise to  (offsetting) relevant customer benefits in the form  of lower prices or better service. The reasons for this special regime go back to the  historic position of UK water companies as a series of  regional monopolies not subject to market competition  and so in need of strong regulation in order to deliver  the best service to customers. Reflecting these constraints, there have been only  two water mergers reviewed under the current  version of the legal regime that has been in force for  the last decade. In South East Water / Mid Kent Water  (2006) there was an adverse finding because of the  loss of comparator (a neighbouring company) and the  parties were required to give significant price cuts to  customers to remedy this. More recently, in South  Staffordshire / Cambridge Water (2012), the merger  was allowed, although the authorities stated that the  decision was finely balanced. However, in recent years, as perhaps acknowledged  in the slightly more permissive approach in South  Staffordshire / Cambridge Water, there has been  increasing pressure for legislative reform to relax the  special regime for water mergers. More sophisticated  regulation and the gradual introduction of market  competition in various areas of the water supply chain  have strengthened the case for giving less weight to  the maintenance of the current number of independent  water companies (several of which are relatively small)  for comparator purposes.  The new rules Under the new Water Act 2014, further exceptions to  the requirement for a phase II review of water mergers  have been introduced in order to allow a lighter-touch  approach. The CMA has the discretion not to initiate a  phase II reference where: ● In the case of prospective mergers, the arrangements  are not sufficiently advanced or not sufficiently likely  to proceed (this addresses the hair trigger problem  of a phase II reference being triggered prematurely  at the deal planning stage); or ● The merger is unlikely to prejudice OFWAT’s ability  to make comparisons between water companies in  order to regulate; or ● Although the merger is likely to prejudice OFWAT’s  ability to make comparisons between water  companies, that prejudice is outweighed by  relevant customer benefits. UK water mergers made easier ACER Quarterly January 2014 – May 2014 9 For the latter two situations, the CMA must obtain an  opinion from OFWAT on those questions and consider  it before coming to a decision, and OFWAT is obliged  to make its assessment using the approach set out  in a published statement of methods, which must  indicate the criteria and their relevant weighting which  it will apply. This should improve predictability for  potential acquirers and investors about the likelihood  of transaction being subject to a phase II review.  Further flexibility in dealing with water mergers is  introduced by giving the CMA the ability to accept  undertakings as an alternative to a phase II reference  (eg a price cut for customers).  In addition, the CMA is required to review and advise  the Government from time to time on whether the  £10 million turnover threshold should be changed.  The Government has considered but decided against  increasing it to £70 million in introducing the new  Act, but this provides the possibility for the issue to  be revisited in due course in order to make the small  mergers exception applicable to a broader group of  water companies. Promoting the introduction of more market  competition, the new Water Act also introduces  new types of licences for market entrants to  wholesale and retail water and sewerage services  using incumbent water companies’ networks.  Implications These reforms, while not a radical change to the special  regime for UK water mergers, nevertheless potentially  open the way to more M&A activity in the sector by  reducing the deterrent of a lengthy and burdensome  phase II merger control investigation being triggered in  almost all cases. The changes could increase industry  buyer activity, alongside financial investor interest, in  water company targets.  Although essentially procedural, they are also indicative  of a trend, taking account of other developments in the  industry, which places less weight in preserving the  current number of independent comparator companies.  While the assessment of any particular water merger  will turn on the identity of the companies involved and  the details of the proposal, at a more general level  all of this suggests that there will be greater scope  to obtain merger control approval of water mergers,  particularly those involving the smaller water-only  companies where there may be efficiencies giving  rise to relevant customer benefits. With greater separation of activities and competition  in a number of areas, there is also the possibility of  cross-company restructuring and consolidation at  particular levels of the supply chain as an alternative  to the acquisition of entire water companies in their  current vertically integrated form. Reflecting the current climate, it is interesting to note  the recent comments of OFWAT’s Chief Executive,  Cathryn Ross, at the regulator’s annual City briefing  last month, which touch on these issues: “We also  recognise that changes to industry structure may be  appropriate. I don’t have an industry blueprint that I’m  working to, but I would be surprised if 18 vertically  integrated water companies were the most appropriate  structure. And I want to say clearly that we are open  to conversations about changes to that structure.” n Mark Jones Partner, London T +44 20 7296 2428 mark.jones@hoganlovells.com10 ACER Quarterly January 2014 – May 2014 On 17 April 2014, the European Parliament adopted  a directive which governs damages actions for  infringements of competition law.  This directive has been long – awaited and turns  an important new page for the EU competition  law enforcement landscape.  Why the directive? Historically, damages actions arising out of  infringements of competition law have been more  commonly seen in the United States, where the  incentive of triple damages and the availability of class  actions and contingency fees have encouraged private  enforcement. Conversely, in the EU greater emphasis  has been placed on the public enforcement regime,  looking to investigations and fines by competition  authorities to deter infringement. Effective private  enforcement in the EU has largely been limited to a  few jurisdictions, such as the UK, Germany, and the  Netherlands. This is now changing.  This directive seeks to harmonise certain divergences  between Member States’ systems with a view to  establishing a minimum standard which facilitates  competition damages actions throughout the EU.  It also seeks to fine-tune the interaction between  private and public enforcement by, for example,  clarifying the extent to which leniency applications  can be ordered for disclosure in private litigation. Key elements The key elements of the directive are as follows. 1. Full compensation Member States must ensure that victims of  competition law infringements are able to obtain  “full compensation”. This should cover the “right  to compensation for actual loss and for loss of profit,  plus payment of interest”. However, it is expressly  provided that “full compensation” should not lead to  “overcompensation, whether by means of punitive,  multiple or other types of damages”.  2. Disclosure of documents The Directive provides that national courts should have  extensive rights to order the disclosure of evidence  from a defendant or third party. However, these rights  should be proportionate. The Directive seeks to avoid  “fishing expeditions”, by stating that national courts  should “prevent non-specific search of information  which is unlikely to be of relevance for the parties in the  procedure”. Furthermore, Member States shall ensure  that national courts give full effect to applicable legal  professional privilege under EU or national law, and  that they have at their disposal effective measures to  protect confidential information. Disclosure of evidence  should be ordered from a competition authority only  when it cannot be reasonably obtained from another  party or a third party. Whilst the new rules add little to existing English  disclosure rules, they represent a radical change  for certain Member States which do not currently  require disclosure of documents.  3. Evidence on the file of a competition authority –  Protected documents With respect to documents that form part of the  relevant competition authority’s file, the Directive  establishes a black, grey and white list. The lists  open up a wide variety of evidence on the competition  authority’s file to disclosure, but also seek to protect  the attractiveness of leniency programmes by  limiting the risk that certain documents provided to  a competition authority in the context of a leniency  application might later become available for use  against leniency applicants in damages actions. Black list National courts cannot at any time order the  disclosure of leniency corporate statements  and settlement submissions. This prohibition on  disclosure extends to extracts from such documents  which appear in otherwise grey or white lists.  The European Commission has been keen to exempt  leniency statements from disclosure requirements in  order to ensure that companies are not deterred from  cooperating with it under its leniency programme.  By imposing an absolute prohibition on the disclosure  of leniency statements with this black list, the European  Commission has attempted to resolve the uncertainty  created by the Court of Justice of the European Union  in Pfleiderer (Case C-360/09), which held that, in the  absence of EU rules, it is for the national courts to  determine, on a case-by-case basis, whether to allow  claimants access to leniency documents submitted  to a competition authority by a defendant. EU antitrust damages directive adopted – path now cleared  for an increase in damages actionsACER Quarterly January 2014 – May 2014 11 Grey list After a competition authority has closed its  proceedings by adopting a decision or otherwise,  national courts may order the disclosure of documents  such as requests for information and the statement of  objections, replies of parties to requests for information  and settlement submissions that have been withdrawn. White list National courts can order the disclosure of documents  that do not fall into any of the categories listed in the  grey and black lists. 4. Limitation periods Member States shall ensure that the limitation period  for bringing damages actions is at least 5 years. This  period runs from the time when the claimant knows, or  can reasonably be expected to know, that the particular  defendant infringed competition law and caused the  claimant harm. The limitation period is suspended  or interrupted during a competition authority’s  investigation and until at least one year after an  infringement decision has become final or proceedings  are otherwise terminated. This rule has the potential to  give rise to very long periods of exposure to claims. 5. Joint and several liability Member States shall ensure that undertakings which  infringed competition law are jointly and severally liable.  This is subject to two exceptions. ● An immunity recipient is liable only to its own direct  and indirect purchasers, unless the claimant can  prove that it cannot obtain full compensation from  the other undertakings that were involved in the  same infringement of competition law ● Small or medium-sized enterprises that did not  lead or coerce others into the infringement and  have not committed a competition law infringement  before shall be liable only to their own direct  or indirect purchasers if (i) their market share  was below 5% during the infringement and (ii)  application of the normal rules would “irretrievably  jeopardise its economic viability and cause its  assets to lose all their value”. Infringing companies may recover a contribution  from any other infringing undertaking, the amount  of which will be determined in the light of their  relative responsibility for the harm caused by the  infringement. An immunity recipient will be liable in a  contribution claim only for the loss that it has caused  to its own direct or indirect purchasers. Protection  from contribution claims is also provided for infringers  who reach consensual settlements with claimants. 6. Passing-on defence The Directive requires all Members States to allow  the passing-on defence, and thereby to exclude  compensation being paid to claimants that have  passed on their loss to others, such as their own  customers. The defendant bears the onus of proving  that the overcharge was passed on. For this purpose,  defendants may reasonably require disclosure from  the claimant and from third parties. 7. National decisions Member States shall ensure that a final decision of  a national competition authority or a review court be  presented before their national courts “as at least prima  facie evidence that an infringement of competition  law has occurred.” The Directive no longer prescribes  (as it did in its earlier draft) that decisions of national  competition authorities or courts of one Member State  be binding before a court of another Member State.  8. Presumption and quantification of harm It shall be presumed that cartel infringements  cause harm. The infringer shall have the right to  rebut this presumption.  Member States must allow national courts to  estimate the amount of harm “if it is established that  a claimant suffered harm but it is practically impossible  or excessively difficult to precisely quantify the harm  suffered on the basis of the available evidence.” 9. Collective actions The directive does not provide for collective actions.  However, in June 2013, the European Commission  published a Recommendation on collective redress.  Whilst this document is non-binding, it encourages  Member States to introduce opt-in collective redress  claims for breaches of EU law. A number of Member  States have already introduced collective claims.  France, for example, introduced collective claims based  on breaches of competition law in March this year.ACER Quarterly January 2014 – May 2014 What next? Member States have two years and 20 days to  implement the Directive within their own national  legislation following the directive’s formal publication  (expected September/October 2014). However, national  judges may well, even before then, begin to take  the Directive into account in pending civil damages  proceedings to the extent that they are able to do so  within their current national rules and procedures.  Impact Companies now need to brace themselves for a  hardened enforcement landscape in the EU. Whilst  the impact will be felt more in some Member States than  others, the Directive contains significant changes for  every jurisdiction. On the one hand, claimants are bolstered by the  long limitation period provided for in the Directive,  the presumption of harm, and the disclosure rules  which will have a large impact on the legal regimes  of some Member States. On the other, defendants  will benefit from the greater clarity and uniformity in  relation to disclosure of leniency material, the rules on  the passing-on defence and the entitlement to bring  contribution claims. The Directive applies to any infringement of European  competition law and competition law of the Member  States. This could include abuse of dominance, and  even non-hardcore infringements of competition law  within vertical arrangements. This hardening of the  competition enforcement regime in the EU therefore  impacts not just those companies involved in a cartel.  This adds further incentives for companies to ensure  that the entirety of their competition law compliance  programme is as effective as possible. n Ivan Shiu Partner, London T +44 20 7296 2834 Peter Citron Of Counsel, Brussels T +32 2 505 0905 peter.citron@hoganlovells.comACER Quarterly January 2014 – May 2014 13 On 10 April 2014, the Department of Justice (DOJ)  and Federal Trade Commission (FTC) issued a joint  policy statement on the antitrust implications of  sharing cybersecurity information to help facilitate the  flow of cyberintelligence throughout the private sector.  The statement addresses the long-standing concern  that sharing cyberintelligence may violate antitrust law  under certain circumstances and explains the analytical  framework for such arrangements to make it clear  that legitimate cyberintelligence exchanges will not  raise antitrust issues. Intelligence sharing is considered a productive,  if not critical, step towards protecting against  and responding to cyberattacks. Businesses  are increasingly sharing information with each  other to help guard against future cyberattacks  or even discover existing undetected attacks on  their information systems. In today’s increasingly  complex threat environment, organizations commonly  have similar vulnerabilities in their information systems  and often face similar threats due in large part to  malware becoming increasingly commodified on  black markets. Thanks to a thriving market for hacker  toolkits, advanced malicious software is now available  to less technically sophisticated criminals, who can  easily configure the same malware to attack across  different organizations. As a result of the heightened threat of cyberattacks,  the U.S. government has sought to promote  cyberintelligence sharing between the private and  public sector through both executive action and  legislation. For example, several bills (including  this one) have been introduced in the House and  Senate to help encourage information sharing by,  amongst other things, establishing a clearing house  for threat information, incidents, and recovery  actions. Moreover, President Obama signed the  Executive Order on Improving Critical Infrastructure  Cybersecurity in February 2013, which called for the  U.S. government to increase the volume, timeliness,  and quality of cyber threat information shared with  U.S. private sector entities. Additionally, information  sharing activities have been incorporated into various  information security standards and frameworks. For  example, the National Institute of Standards and  Technology (NIST) “Framework for Improving Critical  Infrastructure Cybersecurity,” released in February  2014, indicates that entities should have a process in place  for receiving information on threats and vulnerabilities  from information sharing forums and sources. However, information sharing remains a voluntary best  practice amongst security professionals, as no law  or regulatory standard has gone so far as to mandate  the sharing of threat information with unaffiliated third  parties. And although organizations in certain sectors,  including financial services, are known to actively share  cyberintelligence with each other through Information  Sharing and Analysis Centers (ISACs) and other fora,  obstacles still exist to the widespread sharing of threat  information across the United States. There are, for  example, concerns over the currency and practical  utility of some of the threat information being shared.  Moreover, for many years concerns have been voiced  over the risk that sharing threat information with  other businesses might be viewed as an unlawful  anticompetitive practice in violation of antitrust laws. In response to this particular concern over antitrust  risks, the DOJ’s Antitrust Division and the FTC  (collectively, the Agencies) recently released a joint  “Antitrust Policy Statement on Sharing of Cybersecurity  Information” to reduce uncertainty for those who want  to share information on cyberattacks. By explaining  how their analytical framework applies to information  sharing, the Agencies sought to “make it clear that they  do not believe that antitrust is – or should be – a roadblock  to legitimate cybersecurity information sharing.” In examining information exchanges, the Agencies  review the nature, business purpose, and likely  competitive effect of an agreement. The Agencies’  primary concern is with the sharing of any  competitively sensitive information – such as price,  cost, or output information – that may facilitate price or  output coordination and undermine competition among  competitors. Although some agreements – such as  those fixing prices or outputs, rigging bids, or dividing  markets among competitors – will almost always be  illegal, the central question for most information sharing  agreements is “whether the relevant agreement likely  harms competition by increasing the ability or incentive  profitably to raise prices above or reduce output,  quality, service, or innovation below what likely would  prevail in the absence of the relevant agreement.” DOJ and FTC clarify antitrust implications of cybersecurity  information sharing14 ACER Quarterly January 2014 – May 2014 The Agencies’ recent joint statement applies this  framework to cybersecurity threat information  exchanges to establish that “properly designed sharing  of cyber threat information should not raise antitrust  concerns.” When evaluating the antitrust risks of  sharing cyberintelligence, businesses should take into  account the three main factors that the Agencies relied  upon in coming to their conclusion: ● Cyber threat information sharing can improve  efficiency and help secure our nation’s networks  of information and resources. Because companies  are almost always likely to share information “in an  effort  to protect networks... and to deter cyberattacks”  rather than conspire or harm competition, the Agencies  will “consider the valuable purpose behind the  exchange of information.” ● Cyber threat information typically is very  technical in nature. The Agencies note that the  “nature of the information being shared is very  important to the analysis.” Because cybersecurity  information such as threat signatures, indicators, and  IP addresses is highly technical, “sharing of this type  of information is very different from the sharing of  competitively sensitive information such as current  or future prices and output or business plans.” ● Cyber threat information exchanges are unlikely  to harm competition. As noted above, “cyber threat  information covers a limited category of information.”  Because of this, disseminating cyber threat  information is “unlikely in the abstract to increase  the ability or incentive of participants to raise price  or reduce output, quality, service, or innovation.” This analysis mirrors the guidance provided by the  DOJ in a business review letter to the Electric Power  Research Institute (EPRI) in October 2000. The EPRI had developed an Enterprise Infrastructure  Security (EIS) program to help exchange industry  best practices for cybersecurity programs as well  as information related to specific cybersecurity  vulnerabilities. The EPRI also adopted a number of  measures to prevent any anticompetitive effects,  including 1) ensuring all information exchanged  related directly to physical and cybersecurity; 2)  prohibiting the discussion of specific prices for  cybersecurity equipment and systems; 3) prohibiting  the exchange of company-specific competitively  sensitive information; 4) prohibiting the use of the  program as a conduit for discussions by vendors,  manufacturers, and security providers with respect to  any exchange participants; and 5) ensuring neither the  EPRI nor any participant recommended the products or  systems of any particular manufacturer or vendor. As in  the Agencies’ recent joint statement, the DOJ in 2000  noted that the information exchange did not appear  to pose any threats to competition and, indeed, could  “result in more efficient means of reducing cyber–security  costs” and lead to savings for consumers, which “could  be procompetitive in effect.” Thus, companies that share technical cybersecurity  information such as indicators, threat signatures, and  security practices, and avoid sharing competitively  sensitive information such as business plans, prices,  or output, have ample assurance from the relevant  agencies in the United States that they should not run  afoul of the antitrust laws. Nevertheless, businesses  should still conduct a fact-driven analysis of their  information sharing policies and procedures based on  the Agencies’ 2014 guidance in order to ensure that  they are sharing cyberthreat information in accordance  with antitrust law. n Janet McDavid Partner, Washington T +1 202 637 8780 Joseph Krauss Partner, Washington T +1 202 637 5832 Mike Parsons Associate, Washington T +1 202 637 6152 michael.parsons@hoganlovells.comACER Quarterly January 2014 – May 2014 1516 ACER Quarterly January 2014 – May 2014 On 1 April 2014, widespread reforms to the UK’s  competition law regime entered into force. The Office  of Fair Trading (OFT) and Competition Commission  (CC) have ceased to exist and been replaced by the  Competition and Markets Authority (CMA). As part  of the reforms, the merger control regime has been  toughened up. This briefing sets out some of the key  changes for deal-makers. What hasn’t changed?  Much stays the same: ● The jurisdictional tests remain the same. Mergers are  still subject to the UK regime if the target company’s  UK turnover is over £70 million, or if the deal creates  or enhances a UK share of supply of 25% or more for  goods or services of a particular description. ● Deals are still subject to the UK regime in cases  where one business acquires ‘material influence’  over another business, even if it falls short of a  controlling stake. ● The substantive analysis of whether a deal is anticompetitive has not changed, and the CMA has the  ability to block deals, or require far-reaching remedies  such as divestments or behavioural undertakings. ● The Phase 1/Phase 2 investigation structure remains.  The vast majority of deals will still be cleared after  the initial Phase 1 review process; potentially  problematic deals will still be subject to the in-depth  24-week Phase 2 process. ● The merger control notification regime is still  voluntary, although it is now slightly more risky not to  notify for pre-clearance as a result of the strengthened  hold-separate measures discussed below. ● The filing fees of between £40,000 and £160,000  remain the same (they were only fairly recently  increased to current levels). What has changed? Revised process Both the CMA’s processes and the documentation  required have been revised. A more prescribed form of notification has been  introduced. This requires extensive data gathering  and drafting. Deal parties will also need to provide  a potentially large volume of internal documents to  the CMA. It remains to be seen to what extent CMA  case teams will be willing to grant derogations from  the full requirements. So parties will need to prepare  the materials for submission to the CMA earlier in  order to avoid delay. The CMA now has formal information-gathering  powers applying to all stages of the merger  assessment process and to both the deal parties  and third parties, with the ability to impose financial  penalties for failure to comply with a compulsory  request. Under the previous regime, the OFT did not  have the power to force parties to provide information  or documents, and deadlines were less strict. So the  process will be more demanding in this respect as well. Hold separate measures The CMA has enhanced powers to impose so-called  interim measures to prevent or unwind pre-emptive  transaction implementation which might prejudice  their subsequent ability to unwind the deal if they  conclude it is anti-competitive. This now applies at  both the Phase 1 and Phase 2 stages of the review  – and to both mergers that have completed and  those that have not yet done so. The powers apply  even where the CMA is not yet clear whether it has  jurisdiction over the deal. The measures can apply  with immediate effect once issued; the CMA will  now issue orders rather than take time to negotiate  measures by way of undertakings agreed with the  parties. The CMA can impose large financial penalties  (up to 5% of worldwide group turnover) where  interim measures are breached. These enhanced powers also now allow the CMA to  order merging parties to reverse any integration that  has already happened (at the parties’ own cost) and not  to integrate further. The onus will be on the parties to  plead for derogations where these are needed – for  example in an asset acquisition where the target  cannot stand on its own and needs support services  from the new owner. This is a significant change and the CMA has said  that it will look to impose these measures to a  much greater extent than it did under the previous  regime. At the very least, parties should expect the  CMA to impose them in nearly all mergers that have  completed prior to the start of the CMA’s investigation. New UK merger control regimeACER Quarterly January 2014 – May 2014 17 Single authority review The transition from Phase 1 to Phase 2 ought to  be smoother now that cases stay within the same  organisation throughout the process. For example,  some members of the Phase 1 case team will continue  to work on the case in Phase 2 and there should be  less repetition of information requests at Phase 2.  Weighed against these efficiencies is the increased  risk of ‘confirmation bias’ affecting Phase 2. To address  this, new CMA members will join the case team in  order to preserve the ‘fresh pair of eyes’ that the CC  used to provide, which was a feature generally valued  by merging parties. Timing Statutory time limits have been introduced for all  stages of the merger assessment process, including  the following: ● There is a strict 40 working day time limit for Phase  1 investigations – although the clock only starts  when the CMA says it starts, and the CMA can stop  the clock fairly easily (for example, by sending an  information request with a short deadline and then  stopping the clock when the parties fail to comply  in time). The new statutory deadline is also likely to  make pre-notification discussions longer in practice  because before the clock starts both the CMA case  team and the parties will want to ensure that the  CMA will have all the information it needs. ● There is a time-limited procedure for offering  undertakings to remedy competition concerns so as  to avoid a Phase 2 inquiry and for the CMA to decide  whether to accept them. This is an improvement  over the previous process, which essentially required  parties to offer the undertakings (if they wished  to) before they knew for sure what the problems  actually were. ● The CMA can also now suspend the start of its  Phase 2 investigation for up to 3 weeks, upon  request by the parties where they are likely to  abandon a merger that has not yet been completed. ● Following a Phase 2 inquiry, there is a shorter period  of 12 weeks (extendable by a further 6 weeks) for  the CMA to make an order or accept undertakings  implementing final remedies. Conclusion Some aspects of the UK merger regime have  been toughened up, such as the documentation  requirements, the information-gathering powers,  and the ability to unwind integration that has already  occurred. While these changes are not fundamental,  the regime is likely to feel more severe than it used to  and more similar to regimes with mandatory notification  processes such as under the EU Merger Regulation. n Mark Jones Partner, London T +44 20 7296 2428 mark.jones@hoganlovells.com18 ACER Quarterly January 2014 – May 2014 On 21 March 2014, the European Commission adopted  new rules for the assessment of technology transfer  agreements under EU competition law. The package  will apply from 1 May 2014. The package involves changes to two instruments: ● the Technology Transfer Block Exemption  (“TTBER”), which provides a safe harbour until April  2026 for certain agreements that license patents or  other technology rights for production, provided that  they do not contain certain blacklisted or excluded  provisions and are entered into between companies  with limited market power (as defined by reference  to market shares); and ● the Technology Transfer Guidelines, which provide  guidance on the application of the TTBER and on  the application of EU competition law to technology  transfer agreements that fall outside the safe  harbour of the TTBER. Whilst the package does not involve radical change  for the EU regime, it does impose a stricter regime  for certain contractual provisions such as exclusive  grant–backs, termination for challenge clauses, and  passive sales restrictions. These provisions will now  not benefit from an automatic safe harbour, and will  require assessment on a case-by-case basis. The  package also provides more detailed and clearer  guidance in certain areas, most notably with respect  to settlement agreements and technology pools. Main changes to the TTBER The main changes to the TTBER include the following. ● Exclusive grant-backs. An exclusive grant-back  provides the licensor with the exclusive right to  exploit any improvements made by the licensee to  the licensed technology. Under the new TTBER, all exclusive grant-backs  (irrespective of whether they refer to severable or  non–severable improvements) will now fall outside  the safe harbour of the block exemption and require  individual assessment. This contrasts with the  position under the old TTBER where only exclusive  grant-backs of severable improvements were  excluded. However, in our view the Commission’s  “more prudent approach” is designed to enable a  specific consideration of the impact of the precise  clause concerned on competition and does not  indicate a general presumption against such clauses. ● Termination for challenge clauses. Termination  for challenge clauses provide the licensor with  the possibility to terminate the agreement if the  licensee challenges the validity of the licensed  intellectual property. The new TTBER excludes these clauses in  non–exclusive licensing agreements from its safe  harbour, requiring them to be assessed on a case– by–case basis. Termination for challenge clauses in  exclusive licences continue to be included within the  safe harbour (provided that the market share limits  are not exceeded). The draft of the new TTBER, which was issued for  consultation in February 2013, proposed to exclude  all termination for challenge clauses from its safe  harbour. This proposal was heavily criticised during  the consultation on the basis that it could serve  as a disincentive for licensors to grant a licence.  Indeed, termination for challenge has long been an  accepted compromise between the licensor’s desire  actually to prohibit challenges and the licensee’s  desire not to pay royalties for invalid intellectual  property rights. The controversy has led to the  European Commission in its final text to distinguish  between exclusive and non–exclusive licences.  In its press release accompanying the final package,  the European Commission notes that this distinction  “will in particular support SME innovators to license  out their technology on an exclusive basis, without  creating a situation of dependence towards their  exclusive licensees.” It might also be noted that  the Commission’s distinction is consistent with  its insistence in the Samsung case that a willing  licensee on FRAND terms for standard essential  patents should always be free to challenge the  validity of the patents concerned. ● Purchase of raw material or equipment. The new  TTBER introduces a revised test for determining  whether provisions in a technology transfer  agreement that relate to the sale and purchase of  raw material or equipment are also covered by the  TTBER. The test under the old TTBER was whether  such provisions were “less important” than the  New EU antitrust rules for technology transfer agreementsACER Quarterly January 2014 – May 2014 19 actual licensing of technology, which was difficult  to apply. The test is now whether the provisions  are “directly related” to the production or sale of  the contract products which are produced with the  licensed technology. This means that even if the  input bought from the licensor (and to be used with  the licensed technology) is more expensive than the  royalties to be paid for the licensed technology, the  provisions relating to the purchase are still covered  by the TTBER. This change will potentially be very  reassuring to licensors. ● Passive sales restrictions. Under the old TTBER, a  licensor could restrict not only active sales but also  passive sales (responding to unsolicited orders) to a  territory or customer group reserved exclusively to a  single licensee for an initial two year period after  the protected licensee began sales. The European Commission, with the aim of aligning  the TTBER with the block exemption regulation on  vertical restraints, has now removed passive sales  restrictions from the automatic exemption of the  TTBER. This type of restriction now needs to be  assessed on a case-by-case basis. The Guidelines,  however, state that this type of passive sale  restrictions can still be allowed if the restraints are  objectively necessary for the licensee to penetrate  a new market. They also state that “in an individual  case a longer period of protection for the licensee  might be necessary in order for the licensee to  recoup the costs incurred.” Realistically, this change  is not expected to have much impact. The old  possibility for a block-exempted two year passive  sales restriction was of little commercial usefulness,  because of the short time period involved and the  difficulty of administering a system where the  restriction did not depend on a single date known  to the restricted licensee (such as when it obtained  its license or when it began sales) but rather on the  multitude of possibly uncertain dates on which other  licensees began sales in their respective territories  across Europe. ● No new treatment of in-house production. The draft new TTBER, which was circulated for  consultation in February 2013, included a new  market share threshold of 20% for agreements  between non-competing undertakings when the  licensee owns a technology for in-house production  similar to that of the licensor. The reason for  the change was allegedly to avoid a situation in  which the licensee could foreclose entrants to the  downstream market by entering into an exclusive  license with the only company licensing out a  competing technology whilst benefiting from the  higher market share threshold for non-competitors  (30%). The European Commission has abandoned  this additional threshold in the new TTBER. In its  press release, the European Commission states that  “this was seen by stakeholders as adding too much  complexity to deal with a scenario which is rare.” Guidelines for technology transfer agreements The main changes to the guidelines include the following. ● Settlement agreements. A settlement agreement  is a contractual resolution between the parties to end  disputes regarding the infringement or validity of IPR. The new guidelines clarify that settlement  agreements which lead to a delayed or otherwise  limited ability for the licensee to launch the  product on any of the markets concerned may be  prohibited by Article 101(1) TFEU. The guidelines  note that “pay-for-restriction” or “pay-for-delay”  type settlement agreements often do not involve  the transfer of technology rights, but are based on a  value transfer from one party in return for a limitation  on the entry and/or expansion on the market of the  other party and may be caught by Article 101(1).  The European Commission notes that it will be  “particularly attentive to the risk of market allocation/ market sharing.” The clarification reflects the  position that the European Commission has taken  with respect to patent dispute settlements in the  pharmaceutical sector. The guidelines state that non-challenge clauses in  settlement agreements are generally considered  to fall outside Article 101(1) TFEU. However, a  non-challenge clause in a settlement agreement  may infringe Article 101 (1) “where an intellectual  property right was granted following the provision  of incorrect or misleading information.” Scrutiny of  such clauses may also be necessary “if the licensor,  besides licensing the technology rights, induces,  financially or otherwise, the licensee to agree not  to challenge the validity of the technology rights”.20 ACER Quarterly January 2014 – May 2014 ● Technology pools. Following the European  Commission’s most recent experience in the field of  standards, the European Commission clarifies that  its guidance on pools of essential patents includes  both pools relating to patents needed to produce a  particular product but also pools of patents needed  to comply with a particular standard. The European  Commission proposes a comprehensive safe harbour  expected to provide further incentives to the creation  of pro-competitive pools. Furthermore, the European Commission clarifies  that licensing agreements between the pool and  third parties continue to fall outside the scope of  the TTBER. Impact The new regime comes into force at a time when  competition authorities globally are increasing  antitrust enforcement at the interface between IP  and competition law. The European Commission  has taken recent enforcement action in the fields of  pharmaceuticals and mobile communications devices.  The US competition authorities are similarly focused  on these industries, particularly following the recent  Supreme Court decision in US v. Actavis that  “pay for delay” settlements have “the potential for  genuine adverse effects on competition” and are  subject to scrutiny under the rule of reason.” In China,  antitrust issues have arisen in relation to standard  essential patents, both in the merger and conduct  contexts, for example in the Huawei v. InterDigital litigation. One of China’s competition authorities – the  State Administration for Industry and Commerce – is  currently drafting a regulation on the application of  antitrust rules to IPRs, and the regulation’s scope is  expected to be similar, though by no means identical,  in content as the TTBER regime.  Against this global trend of increasing scrutiny,  business should take careful note of the new regime,  and ensure that their licensing practices reflect the  new rules. n Christopher Thomas Partner, Brussels T +32 2 505 0929 christopher.thomas@hoganlovells.comACER Quarterly January 2014 – May 201422 ACER Quarterly January 2014 – May 2014 The Common Market of Eastern and Southern Africa  (“COMESA”) is a supranational organisation with  19 Member States: Burundi, Comoros, Democratic  Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia,  Kenya, Madagascar, Malawi, Mauritius, Namibia,  Rwanda, Seychelles, Sudan, Swaziland, Uganda,  Zambia and Zimbabwe. The COMESA Competition Commission (“CCC”)  commenced operations on 14 January 2013 and  implements a supra-national merger control regime  (as well as other competition provisions) under: ● the COMESA Competition Rules; and ● the COMESA Competition Regulations 2004  (the “Regulations”). In a nutshell, the COMESA merger control regime is  based on the following rules: ● zero turnover or asset thresholds apply. Any  transaction where at least one party operates in  two or more COMESA Member States may be  notifiable (however, see below on Article 3(2) of  the Regulations); ● mandatory filings to the CCC must be made within  30 days from the decision to merge. Failure to notify  results in the transaction being unenforceable in the  COMESA region; ● a filing fee is payable based on the lower of: 1)  $500,000; or, ii) 0.5% of whichever of the parties’  combined annual turnover or combined asset value  in the COMESA region is higher; ● according to the legislation, “all parties to the merger  are obliged to individually submit a notification to  the CCC with the exception of a hostile bid where  only the acquiring party must submit a notification”.  On a strict reading, each party would therefore  be required to submit a filing and pay the full filing  fee. However, in its draft guidelines, the CCC has  adopted a more lenient interpretation and in practice  will accept joint notification or notification from  either party and payment of a single fee in respect  of that filing. There can be an agreement between  the parties as to how to split the fee; ● while there is some discussion around this point, it  seems that once the parties notify a transaction they  do not have to suspend it pending the CCC’s approval; ● the CCC has 120 days to review a notified transaction  but it can request an extension; ● the substantive review takes into account competition  and public interest grounds. The regime was heavily criticised from the beginning,  which led COMESA to publish draft Merger  Assessment Guidelines in April 2013. While these  guidelines did provide some clarification, a number  of issues remained unresolved. The main points of criticism are the thresholds  being set at zero, the low degree of local nexus  required, the high filing fees and the ambiguity as to  whether the regime constitutes a “one-stop shop”,  replacing the need for filing in each of the member  states. In response to these criticisms, the CCC, in  collaboration with the International Finance Corporation  of the World Bank, has engaged a consultant to review  the merger provisions of the Regulations, including  the zero thresholds, local nexus, effect on competition  (see below on Article 3(2) of the Regulations), one-stopshop, and filing fees. In this regard, a first workshop  discussing the suggested amendments took place in  April 2014, and a second one is expected to be held  over the summer. The first workshop focused on  finalising the draft Merger Assessment Guidelines  and in particular the interpretation of Article 3(2) –  see below. The CCC’s intention is to finalise the draft  Merger Assessment Guidelines after the second  workshop, and eventually issue additional Guidelines. These are obviously encouraging steps, but the CCC  has also taken informal steps to make its regime more  pragmatic with immediate effect. Specifically, the  CCC has used Article 3(2) of the Regulations, which  provides that the COMESA merger rules apply only  to transactions “which have an appreciable effect  on trade between Member States and which restrict  competition in the Common Market”. The absence of  turnover thresholds could have led to the interpretation  that all mergers in which either or both of the parties  generates turnover in two or more COMESA members  states would be caught by Article 3(2). But this is not  the interpretation that the CCC has adopted for parties  that decided to approach the CCC to find a practical  solution for a transaction which lacked sufficient nexus  with COMESA and did not restrict competition. In fact,  we understand that the CCC has issued 5 “comfort  COMESA New developments in the COMESA merger control regime – on the path to maturityACER Quarterly January 2014 – May 2014 23 letters”, including one for one of our clients, which  in essence exempted the transactions from the need  for a complete notification, and therefore from the  payment of the high filing fees. The basis for these  “comfort letters” was the absence of appreciable  effect on trade between COMESA Member States  and the absence of any restriction of competition  in the COMESA Common Market. In practice, a three-step process was followed: ● the parties (or one of them) sent an informal letter  to the CCC explaining that they/it considered that the  COMESA merger rules did not apply because the  proposed transaction did not meet the requirements  of Article 3(2) of the Regulations; ● the CCC invited the parties (or the party) to submit  a “bare bones” filing to enable it to assess whether  the requirements of Article 3(2) of the Regulations  were met (the “bare bones” filing was not  accompanied by any filing fees); ● on the basis of such a “bare bones” filing, the CCC  issued a “comfort letter” exempting the proposed  transaction from a complete notification, and  therefore from the payment of any filing fee. It is important to note that the assessment whether  the requirements of Article 3(2) of the Regulations are  met is one that can only be made by the CCC itself.  The CCC has explicitly stated that any unilateral  self-assessment by the parties or their lawyers of  whether the requirements of Article 3(2) are met is  therefore not permitted. This is a welcome and pragmatic clarification of the  applicability of the COMESA merger control rules. It is  indicative of an approach by the CCC of encouraging  companies doing business in the region to engage  constructively with COMESA’s merger control regime,  rather than to seek ways of avoiding it. Hopefully, this  informal process will be “codified” with the on-going  review procedure, which will also resolve the other  ambiguities of this newly operational merger control  regime, which seems to be progressively maturing. n Dimitris Vallindas Senior Associate, Brussels T +32 2 505 0974 dimitris.vallindas@hoganlovells.com24 ACER Quarterly January 2014 – May 2014 On 20 March 2014, China’s Ministry of Commerce  (“MOFCOM”) issued a brief press release. The release  said that, from May 1 onwards, the authority will make  public on its website all decisions resulting in a finding  that a company has failed to notify a merger in breach  of the Anti-Monopoly Law (“AML”). The merger control regime in China has now been in force  for over five years. Many of its key elements are relatively  straight-forward: if a reportable transaction meets the  relevant sales revenue thresholds, a notification must be  filed with MOFCOM – and MOFCOM’s approval must be  obtained – before the transaction can be implemented.  If a reportable transaction is closed without MOFCOM  approval, then the “notifying party(ies)” of the  transaction breach(es) the AML. If MOFCOM concludes  that, indeed, a breach has occurred, it can impose  sanctions on this(ese) party(ies). In particular, MOFCOM  can impose a fine of up to RMB 500,000, and is  empowered to order the transaction to be unwound. But perhaps the biggest risk for companies which fail to  meet their AML notification obligations is the threat of  being publicly ‘named and shamed’ if the infringement  decision is made public. In that past, MOFCOM has reportedly investigated  – and sanctioned – several companies for failing to  file reportable transactions. However, none of these  decisions was made public.  Now, the press release of 20 March appears to send  a clear signal: the ‘honeymoon period’ is over, as  MOFCOM plans to step up enforcement activities.  Just to reinforce the point, MOFCOM included a  dedicated fax number inviting whistle-blowers to  report transactions that were not notified in breach  of the law in the text of the press release.  With over five years of enforcement experience behind  it, MOFCOM seems to have gained in confidence and  to be ready to set new priorities and enforcement goals.  Enforcement against transactions that were not notified  in breach of the law seems to be one of these priorities. n MOFCOM signals tougher stance on non-reported M&A deals Adrian Emch Partner, Beijing T +86 10 6582 9510 adrian.emch@hoganlovells.comACER Quarterly January 2014 – May 201426 ACER Quarterly January 2014 – May 2014 In February 2014, China’s Ministry of Commerce  (“MOFCOM”) enacted the Interim Regulation  on the Standards Applicable to Simple Cases of  Concentrations between Business Operators (“Simple Cases Regulation”). This regulation sets  out the types of transactions that qualify as “simple  cases,” as a first timid step towards a simplified,  fast-track merger control procedure. MOFCOM has recently been drafting implementing  rules for the Simple Cases Regulation. On 18 April,  MOFCOM made the second step towards a fasttrack procedure by issuing the Guiding Opinions on  the Notification of Simple Cases of Concentrations  between Business Operators (Trial) (“Guiding  Opinions”) and its two annexes, the simplified  notification form and the ‘public notice’ template  (collectively, the “Implementing Rules”). The new  rules took effect from the date of publication. Simplified regime The simplified notification form, as part of the  Implementing Rules, will allow merging parties to  provide fewer documents and less information when  filing a merger control notification. Several sections  which appear in the standard notification form were  deleted in the simplified notification form. Time savings? The Implementing Rules also provide for a shorter  timeline: as in other jurisdictions, the Chinese simplified  merger system appears to be aimed at reducing the  merger review processing period. In particular, the new  system provides for a period of public consultation  by way of ‘public notice,’ whereby MOFCOM issues  the basic details of the transaction filed on its website  and invites all interested parties to comment. The  Guiding Opinions stipulate that the public notice will be  uploaded after ‘case acceptance,’ and third parties will  have 10 days to comment. In principle, the issuance  of the public notice and comment opportunity should  allow MOFCOM to short-circuit the (sometimes  lengthy) one-on-one consultations with individual  stakeholders on a typical standard filing. However in terms of hard law, there are no  specific, shorter timelines in place as a result of  the Implementing Rules. In addition, there is no  obligation on MOFCOM to issue the public notice  within a specific deadline after case acceptance.  Hence, a “simple case” may still enter into “phase  2” of the merger control procedure. Furthermore, the  phase between filing the (simplified) notification and  case acceptance may still be relatively lengthy, mainly as  a result of the shortage of manpower within MOFCOM  for dealing with this part of the procedure. In short, it  may be too early to qualify the new Implementing Rules  as a true “fast-track” procedure. Only future MOFCOM  practice will confirm whether “simple cases” will indeed  consistently be cleared earlier on in the process as  compared to a standard filing. “Simple case” application rejected, or revocation  – back to square one The principle on which the Implementing Rules are  based is that the merging parties need to assess  whether their transaction qualifies as a “simple case”  and will assume the consequences of that assessment. The Guiding Opinions state that the parties themselves  must apply for “simple case” status. The Simple  Cases Regulation stipulates that the following types  of transaction can be treated as ‘simple cases’: ● in a horizontal merger, if the combined market share  of all parties involved is below 15%; ● in a vertical merger, if the parties’ market share  in the upstream or downstream is below 25%; ● in a conglomerate merger, if the parties’ market  share in any market is below 25%; ● in the establishment of an off-shore joint venture, if the  joint venture does not engage in any business in China; ● in the acquisition of equity or assets of off-shore  entities, if the target does not engage in any  business in China; and ● where an exit is made from a joint venture by one or  more of its shareholders, and the number of controlling  shareholders of the joint venture is reduced. However, the Simple Cases Regulation and the Guiding  Opinions also provide the basis for MOFCOM to reject  the application for “simple case” status, or to revoke  this status. One reason that would cause MOFCOM to  do this is a grounded complaint by a third party within  the 10-day period for comment after the public notice.  Next step towards a simplified, fast-track merger  procedure in ChinaACER Quarterly January 2014 – May 2014 27 If that scenario materializes, the merging parties do not  only lose “simple case” status, but are also obliged to  re-file the notification. Unless MOFCOM ends up doing  things differently in practice, this may raise the possibility  of the merging parties having to start the process from  scratch and go through the relatively lengthy pre– acceptance phase again. In other words, there remains a  risk that, if the “simple case” application is not accepted  or the status is subsequently revoked, the entire merger  process could take longer than a standard process. Increased transparency In general, MOFCOM’s recourse to the public notice  process will increase the transparency of merger  control procedures in China. Up to now, MOFCOM’s  consultations with third parties have tended to focus  more on domestic stakeholders, since MOFCOM reached  out primarily to other Chinese governmental bodies and  industry associations which tend to be dominated by local  market players. Henceforth, the public notice system will  make information on notifications submitted to MOFCOM  accessible to all, in real time.  Conclusion  The Simple Cases Regulation and the Implementing  Rules are an important building block in establishing a  simplified regime for so-called “simple cases” in China.  If implemented properly, there will be time savings and  efficiencies in terms of lower document requirements  as compared to a standard merger control notification.  The public notice process will replace the one-onone consultations, but it is not clear whether many  parties will be willing to assume the risk of applying for  “simple case” status; the worst-case scenario would  be obtaining and then losing “simple case” status,  which might lead to a second pre-acceptance phase. It is encouraging to see MOFCOM bringing this new  level of sophistication to the five-year old merger  control regime. However, only time will tell whether  MOFCOM will allocate the resources and develop the  internal expertise to turn the simplified regime into a  true ‘fast-track’ process: one that genuinely cuts red  tape and reduces the high administrative burden for  businesses filing merger notifications in China. n Sherry Hu Associate, Beijing T +86 10 6582 9597 ACER Quarterly January 2014 – May 2014 The New York Attorney General’s (NYAG) office has  announced that it has reached a settlement with two  generic drug manufacturers regarding allegations that  an agreement between the firms not to challenge  each other’s eligibility for regulatory exclusivity was  anticompetitive. Although not a traditional reverse  payment patent settlement agreement between branded  and generic drug companies, the settlement reflects a  move by antitrust enforcers to apply reverse payment  case law and principles to a broader range of agreements  in the pharmaceutical space in the wake of FTC v. Actavis.  Interestingly, the case was brought by the NYAG alone;  the FTC, which is typically very active and aggressive  on these matters, was not part of the settlement. Background The settlement resolves an investigation by the  NYAG into a 2010 agreement between Ranbaxy  Pharmaceuticals, Inc. (Ranbaxy) and Teva  Pharmaceuticals USA (Teva) related to atorvastatin  calcium, the generic version of Lipitor®. In 2002,  Ranbaxy was the first generic drug company to file an  Abbreviated New Drug Application (ANDA) to market  atorvastatin calcium. It was expected to be eligible to  enjoy the 180-day exclusivity period that is generally  granted to the first generic drug company to file an  ANDA for a branded product coming off of exclusivity.  Teva and other generic drug companies also filed  ANDAs for atorvastatin calcium. Although Pfizer, the  maker of Lipitor, sued Ranbaxy, Teva, and other ANDA  filers for alleged infringement of the atorvastatin  calcium patents, that litigation settled and Ranbaxy  received a license to market atorvastatin calcium. The  license permitted Ranbaxy to enter the market in late  November 2011, and Ranbaxy’s first-filer exclusivity  would have lasted until late May 2012.  However, before Ranbaxy’s ANDA was approved, the  FDA suspended its substantive review of the ANDA  due to concerns about some of the data underlying  its application. Because of this delay, Ranbaxy was  concerned that it would not be prepared to enter the  market as of the date on which the Pfizer license  was to commence. In the face of this risk, Ranbaxy  approached Teva and reached an agreement under  which Teva would launch its generic atorvastatin drug  in place of the Ranbaxy product and the two firms  would split the profits.  The agreement also contained another provision,  however, which was unrelated to generic atorvastatin  and served as the focus of the NYAG’s scrutiny. The  provision provided that for a period of at least two  years neither Ranbaxy nor Teva would “challenge the  other Party’s right to First to File Exclusivity for any  ANDAs filed as of the Effective Date, or the viability,  completeness or status of any ANDAs, filed with FDA  as of the Effective Date.” Assuming Ranbaxy or Teva  entered the market in November 2011, the agreement  would last until May 2014, and Ranbaxy did indeed  enter in November 2011.  Under the terms of the settlement reached with  the NYAG, the parties agreed to pay the state  US$300,000 and terminate the agreement.  Analysis In its findings, the NYAG explicitly analogized the socalled “No-Challenge” provision to a reverse payment  patent settlement because, according to the NYAG,  “the effect of a successful challenge to a [Sole First  Filer Exclusivity] is not unlike the effect of a successful  challenge to a brand manufacturer’s patent–faster and  greater entry of multiple generic competitors, leading to  faster and greater price reductions.”  The core theory of harm reflected in the NYAG’s  findings and its announcement of the settlement – namely, that the agreement served only to protect each  firm’s market position and reduce the risk that either  would be deemed ineligible for first-filer exclusivity –  is strongly reminiscent of language in the U.S. Supreme  Court’s recent ruling on reverse payment patent  settlements in Actavis. In Actavis, Justice Breyer,  writing for the majority, described the competition  concern in that context arising because a patentee  was using its monopoly profits to “prevent the risk of  competition.” (emphasis added) Although the NYAG’s analysis relies heavily upon  Actavis and other principles that have been applied  in the context of traditional reverse payment patent  settlements, the settlement also suggests that the  NYAG is looking to push beyond the bounds of Actavis.  Specifically, in its findings the NYAG also analogizes  the No-Challenge provision to “an agreement between  competitors to divide markets,” which if not per se  illegal, is at a minimum “inherently suspect under  the antitrust laws and would be presumed unlawful  NY Attorney General forges new ground in scrutiny of pharmaceutical  agreements with first-filer exclusivity no-challenge settlement ACER Quarterly January 2014 – May 2014 29 by a court.” In Actavis, the Supreme Court explicitly  declined to adopt the position advanced by the FTC  in that case that reverse payment patent settlements  should be presumptively unlawful and subject only to  “quick look” rule of reason analysis.  The NYAG also considered whether the No-Challenge  provision was reasonably necessary to facilitate the  sharing of confidential information in furtherance of  the atvorastatin arrangement, and therefore a lawful  ancillary restraint to an otherwise pro-competitive  agreement. The NYAG ultimately concluded that it was  not for three primary reasons: ● the parties only needed to share a limited amount  of confidential information in order to carry out  the atorvastatin arrangement and other provisions  contained in the agreement were sufficient to  address these concerns; ● the No-Challenge provision was not “narrowly tailored  to address any legitimate confidentiality concerns”  because the No-Challenge provision covered a broad  range of drugs and prohibited any and all challenges,  regardless of the legal or factual basis; and ● the parties could have used a less restrictive means to  address any confidentiality concerns (e.g., firewalls). Conclusion Although the specific type of agreement at issue here  is likely to be rare, the analytical framework applied by  the NYAG is potentially applicable to countless types  of other agreements entered into by branded and  generic drug companies alike. In particular, in the event  this approach is adopted by other antitrust enforcers  such as the FTC or other state attorneys general, it  could usher in scrutiny of agreements that have not  previously been a primary focus of regulators and  private plaintiffs. Thus, it remains important to carefully  consider the antitrust implications of any agreement  in the pharmaceutical space relating to the timing of  generic entry into the market. n Robert F. Leibenluft Partner, Washington T +1 202 637 5789 Lauren Battaglia Associate, Washington T +1 202 637 5761 lauren.battaglia@hoganlovells.com30 ACER Quarterly January 2014 – May 2014 Recently, a federal judge in the U.S. District Court  for the District of New Jersey held that only patent  settlements involving a reverse monetary payment will  be subject to antitrust scrutiny under the framework  articulated by the Supreme Court last year in FTC  v. Actavis. In affirming its earlier ruling dismissing  the direct purchaser complaint, the court held that  nothing in Actavis altered the conclusion it had reached  previously under the U.S. Court of Appeals for the  Third Circuit’s ruling in In re K-Dur Antitrust Litigation  that the settlement did not, in fact, contain a reverse  “payment” because there was no transfer of money  between the parties. This most recent development  in the ongoing debate regarding these agreements is  significant not only because it is the latest effort by  the courts to clarify and develop the framework put  in place under Actavis but also because it constitutes  a departure from other recent district court rulings  that have suggested that Actavis may apply to  non-monetary forms of compensation.  Background The agreements at issue in the case settled patent  litigation between GlaxoSmithKline (GSK) and Teva  Pharmaceuticals (Teva) related to GSK’s drug, Lamictal,  which is used to treat epilepsy and bipolar disorder and  is available in chewable and tablet forms. Under the  terms of the agreement, Teva was permitted to sell  generic chewables approximately 37 months prior to  expiration of the relevant patent and generic tablets  approximately six months prior to patent expiration.  GSK also granted Teva an exclusive license to the  relevant Lamictal patent, which was exclusive even  as to GSK during Teva’s first-filer exclusivity period.  The result of this provision was that GSK would not  compete with Teva through marketing of an Authorized  Generic version of Lamictal in either chewable or tablet  formulations during that period of time.  The opinion In the ruling, Judge William H. Walls held that Actavis  articulated what was effectively a three-part test –“two  steps to determine when to apply the rule of reason,  followed by an application of the rule of reason” to the  particular circumstances. First, the court must determine  whether there is a reverse payment. Second, the court  must determine whether that reverse payment is large  and unjustified. Third, the court must apply the rule of  reason, guided by the five considerations set forth by  the Supreme Court in Actavis. According to Judge Walls, the first step of the  analysis – whether an agreement involves a reverse  payment –“hinges on what the parties exchanged in  the settlement and must include money.” Although  stopping short of arguing that the ruling in Actavis explicitly decided the issue, Judge Walls identified  numerous portions of the majority opinion referencing  monetary payments and stated that “[b]oth the  majority and dissenting opinions reek with discussion  of payment of money.” The opinion mentions, in  particular, Chief Justice John Roberts’ dissent in  Actavis, which Judge Walls characterized as including  a critique of “the majority precisely because it drew a  line between monetary and non-monetary payments.”  Thus, according to Judge Walls, even Chief Justice  Roberts in dissent read the majority opinion as only  addressing monetary reverse payments.  Interestingly, Judge Walls also relied upon the  reasonableness of the agreement at issue – in  particular, the fact that Teva was allowed early entry, that  there was no monetary payment, and the brief duration  of the exclusive license as to GSK – as further evidence  that it was “not of the sort that requires Actavis  scrutiny.” Thus, the particular factual circumstances  presented in the settlement agreement at issue in  Lamictal may have also played a role in Judge Walls’  view as to the need for antitrust scrutiny of settlements  involving non-monetary forms of compensation.  Other recent decisions In the opinion, Judge Walls also addresses other recent  rulings regarding pharmaceutical patent settlements,  specifically In re Lipitor and In re Nexium, which have  suggested other interpretations of Actavis. In Lipitor,  another federal district court in New Jersey granted  plaintiffs leave to amend their complaint in light of  Actavis to include allegations of non-monetary forms of  payment. In allowing the amendments, Judge Peter G.  Sheridan declined to decide the substantive question  as to the scope of Actavis, but noted that “nothing in  Actavis strictly requires that the payment be in the form  of money … .” According to Judge Walls, this was  unpersuasive because the ruling did not in fact decide  the issue and thus was “more like a request for further  briefing than a decision.” Federal judge limits antitrust scrutiny of pharmaceutical  reverse payments to settlements involving monetary transfersACER Quarterly January 2014 – May 2014 Judge Walls also distinguished as dictum a case from  federal district court in Massachusetts, Nexium, where  Judge William G. Young, similar to Judge Sheridan,  held that “[n]owhere in Actavis did the Supreme Court  explicitly require some sort of monetary payment … to  constitute a reverse payment.” Moreover, according  to Judge Young, “[a]dopting a broader interpretation of  the word ‘payment’… serves the purpose of aligning  the law with modern-day realities.” In addition to being  dicta because a cash payment was also alleged in the  case, Judge Walls noted that in Nexium the court had  also found that scrutiny was appropriate because each  of the settlements was “either ‘outsize’ or ‘entirely  disconnected’ from the dispute over the Nexium  patents,” which was not the case in Lamictal.  Conclusion We are still in the early days of trial courts answering  the Supreme Court’s call in Actavis for them to tailor  the specific rule of reason analysis “so as to avoid,  on the one hand, the use of antitrust theories too  abbreviated to permit proper antitrust analysis, and,  on the other, consideration of every possible fact or  theory irrespective of the minimal light it may shed.”  The split reflected in these cases confirms that not  only is this is not the last word on the issue of the  definition of “reverse payment” but also more broadly  serves to highlight that debate regarding this and other  key threshold issues in this space remains fierce and  subject to rapid developments. n Robert F. Leibenluft Partner, Washington T +1 202 637 5789 Lauren Battaglia Associate, Washington T +1 202 637 5761 lauren.battaglia@hoganlovells.com32 ACER Quarterly January 2014 – May 2014ACER Quarterly January 2014 – May 2014 33 Competition law implementation approaches in Hong Kong The Competition (Amendment) Bill 2014 (“Bill”) was  published in the official gazette on 9 May 2014. The Bill  is yet another step in the process of implementation for  the Hong Kong Competition Ordinance (“Ordinance”),  which was enacted in June 2012.  Parts of the Ordinance are already in force,  namely those relating to the establishment of the  Competition Commission and the Competition Tribunal  (“Tribunal”). The Bill tables the provisions necessary for  the full operation of the Tribunal as a superior court of  record with primary jurisdiction to hear and adjudicate  competition-related cases, before the Ordinance  comes into full effect – now expected to be in 2015. The Bill will have its first reading in the Legislative Council  on 14 May, and few objections are expected to be raised.  Key amendments The Bill endows the Tribunal with all the powers,  rights and privileges of the Court of First Instance  (“CFI”), including: ● the power to make orders prohibiting persons from  leaving Hong Kong; ● the power to award simple interest on debts and  damages for which judgment is given and to provide  that judgment debts are to carry simple interest;  ● provision for the payment of penalties and fines  imposed by the Tribunal to be enforced by the  Tribunal in the same manner in which a judgment  of the CFI may be enforced; ● provisions regarding the Tribunal’s registrars,  their jurisdiction and powers, and the privileges  and immunities they enjoy; ● the power for members of the Tribunal to order the  reimbursement of expenses incurred by witnesses  by reason of their attendance at the proceedings; ● miscellaneous consequential amendments to  other Ordinances. Comments Since the Ordinance was enacted in June 2012, the  authorities have pursued a step-by-step approach in  putting into effect the rules and laying out the detailed  substantive and procedural framework for the future  enforcement activities. The Bill is yet another step  towards implementing Hong Kong’s competition  law regime in full.  The Bill is also a reminder that the enforcement  regime for the Ordinance is a ‘mixed system,’ with  both an initial administrative law procedure followed  by a litigation process. Businesses and their lawyers  will need to engage in a cooperative, multi-disciplinary  preparation effort as early as possible before the  prohibitions in the Ordinance are enforced with vigour. n Laura Patrick Senior Associate, Hong Kong T +852 2840 5978 laura.patrick@hoganlovells.com34 ACER Quarterly January 2014 – May 2014 France Reduction of fine in the Bang & Olufsen case On 13 March 2014, the Paris Court of Appeal confirmed  the decision rendered in December 2012 by the French  Competition Authority fining Bang & Olufsen (B&O) for  banning de facto resellers of its selective distribution  network from internet sales. Mirroring the Pierre Fabre ruling, the Court of Appeal confirmed the existence  of a restriction by object and ruled out the possibility  of individual exemption under Article 101(3) TFEU as  B&O was found to have imposed “restrictions that  were not indispensable to the running of an efficient  network”. The Court of Appeal, however, reduced the  sanction from €900 000 to €10 000, as the Authority  should have taken into account the legal uncertainty at  the time as to the ban of internet sales when assessing  the gravity of the infringement. Damages granted in the lysine cartel On 27 February 2014, the Paris Court of Appeal granted  in a follow-on action compensation amounting to €1.66  million to the poultry producer Doux for damages it  had suffered as a result of Ajinomoto Eurolysine’s  participation in a cartel in the lysine sector. Applying  the passing-on defence theory enshrined by the French  Supreme Court in June 2010, the Court of Appeal  considered that Doux had not passed the increase in  prices on to its clients, and thus on to consumers. n Germany German Court dismisses CDC damages claim On 17 December 2013, the Regional Court of  Düsseldorf (Landgericht Düsseldorf) dismissed a  follow-on damage claim brought by the Belgian  company Cartel Damage Claims S.A. (“CDC”)  against six members of the German cement  producers’ cartel. CDC had acquired the claims of  several cement purchasers for a fixed fee of EUR  100 and agreed to share between 65% and 85%  of the amount of damages obtained. The Court held that the transfer of the claims to CDC  was invalid because firstly, the assignments prior to  June 2008 violated the German Legal Consultation  Act (Rechtsberatungsgesetz) which prohibited the  commercial collection of third party claims without  a respective license, and secondly, because CDC’s  business model violated public policy by shifting the  financial risk of litigation to the cement producers  without taking any risk of loss on its own. According to  German Civil Procedure Law, the defeated party has to  pay the court fees as well as the winning party’s costs  (including lawyers’ fees). However, as the CDC “vehicle”  was only minimally funded, it would never be able to  cover the costs in the event of losing the lawsuit. First Ever Antitrust Extradition to US On 4 April 2014, the U.S. Department of Justice (DoJ)  announced the first ever extradition from Germany  on antitrust charges. The former executive of Parker  ITR Srl, a marine hose manufacturer headquartered in  Northern Italy, was arrested in Germany on 17 June  2013. On 3 April 2014, he was transferred in custody  to Florida. He is accused of price fixing, market sharing  and bid rigging from 1999 to 2006 in the market of  marine hoses, a flexible rubber hose used to transfer  oil between tankers and marine terminals. The Italian  national is now in danger of being sentenced for up to  10 years of prison and of receiving a criminal fine of  USD 1 million. It has been reported that the Italian national complained  to the European Commission against his extradition  from Germany by arguing that Germany violated EU  rules, namely the guarantee of free movement of  business people and the prohibition of discrimination  on the ground of nationality. The complaint concerning  free movement has been rejected by the European  Commission, but the discrimination complaint is still  being examined. There are no criminal penalties for breaching competition  law under German law, except for bid rigging. This  extradition is in line with the increasing criminalization of  cartels both internationally and in Germany. n Italy Italy’s Council of State upholds dominance-abuse  decision against Coop Estense. Italy’s Supreme Administrative Court has annulled a  judgment from Rome’s Administrative Court, which  overturned an antitrust decision on an abuse of market  power by Coop Estense against Esselunga, two leading  companies active in the mass retail field. The court said  Coop Estense had tried to stop Esselunga opening two  supermarkets in the province of Modena and this was  illegal. The court also confirmed the original fine of 4.6  million euros. Round-up of national developmentsACER Quarterly January 2014 – May 2014 35 ICA closes antitrust investigation into railway  market following commitments In March 2014, the Italian Competition Authority (ICA)  closed its antitrust investigation into suspected market  abuse by six units of Ferrovie dello Stato, following  commitments made by one of the subsidiaries. In  its final decision, the ICA stated that the submitted  commitments were strong enough to give rival  operators access to Italy’s railway infrastructure and  market for high-speed passenger transport. Abuse of dominance in cellulosic-waste markets. In March 2014, the Italian Competition Authority (ICA)  imposed a fine of around 1.9 million euros on HERA,  and on its subsidiary, Herambiente, for abusing its  market position regarding waste-paper collection in  the Italian region of Emilia Romagna. The practice  allegedly blocked rivals’ access to cellulosic waste from  urban waste collections. In addition, the ICA imposed  a commitment on HERA requiring HERA to submit to  the ICA documentation relating to the next tendering  procedures for the disposal of waste cellulosic. n Poland Commitment decision on polish gas market  In January 2014, the Polish Competition Authority (PCA)  issued a commitment decision which requires Polskie  Górnictwo Naftowe i Gazownictwo (PGNiG) to amend  its model contract and to offer its business partners  annexes removing all clauses which restrict the resale  of the gas. The PCA had concerns that PGNiG might  be abusing its dominant position and hindering the  liberalization of the gas market.  Conditional merger clearance for acquisition  of hypermarkets  In January 2014, the Polish Competition Authority  (PCA) issued a merger clearance decision for  Auchan’s purchase of Real’s hypermarkets subject  to commitments to sell certain hypermarkets.  During its investigation, the PCA carried out market  research into the substitutability of different types  of large retail store (discount stores, supermarkets,  hypermarkets). In the PCA’s view, there is asymmetry  of competition: discount stores and supermarkets do  not exert competitive pressure on hypermarkets, while  hypermarkets exert pressure on discount stores and  supermarkets. The PCA, therefore, established two  markets: the market of hypermarkets and the market  of discount stores and supermarkets. The PCA held  that the market of retail in hypermarkets has a local  scope with hypermarkets operating within a market  encompassing a radius of 20 or 25 minutes of car  drive competing with each other. n Russia First extra-territorial cartel case On 26 February 2014, the Commission of the FAS  (the case hearing body of the Russian Competition  Authority) found two foreign companies Uzmobile  and Rubicon Wireless Communication, which are  both registered Uzbek telecom operators, in breach  of section 11(1)(4) of the Russian Competition Law  (No135-FZ of 26 July 2006) which prohibits agreements  between competitors aimed or having the effect of the  reduction of output or the discontinuation of production.  While this case is part of a larger corporate and  commercial dispute between Russian and Uzbek  telecom operators, it is the first time that the FAS  has tested its powers to investigate and prosecute  international cartels formed totally abroad but having  a negative impact on the Russian market.  Automobile market inquiry The FAS is set to make an inquiry into the automobile  market (passenger vehicles) later this year. This is part  of an on-going effort to make the automobile market  more transparent and to eliminate restrictive practices  between car makers, dealers and distributors. The  previous inquiry into the practices in the automotive  market aimed primarily at the sales and spare parts  supply chain and ended in a Code of Conduct being  signed by all major carmakers.  The current inquiry is expected to be very broad, and  will include some industry specific tests for geographic  and product market definition. All interested parties are  invited to participate and submit their comments. n South Africa The costs of competition litigation The merger between Pioneer Hi Bred International Inc  and Pannar Seed (Pty) Ltd resulted in the Constitutional  Court of South Africa passing judgement on an issue  unrelated to the effects of the merger, but rather  in relation to a costs order granted against the  Competition Commission.36 ACER Quarterly January 2014 – May 2014 In a unanimous judgment the Court held that the  Competition Appeal Court (“the CAC”), as an appellate  court, was empowered only to review and consider  appeals from decisions of the Tribunal. Its power to  award costs in Tribunal proceedings extended no  further than those of the Tribunal and thus it is not  empowered to make adverse cost orders against the  Commission. It also held that the Tribunal (and by  extension the CAC) could only make an award of costs  against the Commission where it was found to have  acted maliciously or in bad faith. In regard to proceedings before the CAC itself, the  Court held that the CAC has the power to order costs  against the Commission, but that such power is limited  by the Act. n UK Time limits for damages claims On 9 April 2014, the Supreme Court allowed an appeal  by Morgan Advanced Materials plc (formerly Morgan  Crucible) relating to damages claims following the 2003  European Commission carbon and graphite products  cartel decision. The Supreme Court concluded that  a European Commission decision establishing an  infringement of Article 101 TFEU constitutes in law a  series of individual decisions addressed to its individual  addressees. The only relevant decision establishing  infringement in relation to an addressee who does  not appeal is the original Commission decision. Any  appeal against the finding of infringement by any other  addressee is irrelevant to a non-appealing addressee.  Therefore, the two year time period for the claimants  to bring their actions against Morgan began to run in  February 2004, when the time for Morgan to appeal  expired. It was not relevant that there were appeals by  other addressees against the infringement decision.  Accordingly, the damages action against Morgan, which  was not brought until December 2010, was out of time.  Recommended retail prices On 27 March 2014, the OFT (as it then was) issued  a decision finding that a manufacturer of mobility  scooters and eight of its UK-wide online retailers have  infringed the Chapter I prohibition of the Competition  Act 1998. The OFT found that the parties entered into  agreements, or engaged in concerted practices, that  prevented the UK-wide online retailers from advertising  online prices below the manufacturer’s recommended  retail price for certain of its models of mobility scooter.  The OFT has not imposed fines as the parties’  turnovers fell within the thresholds for immunity from  fines for “small agreements” under section 39 of the  Competition Act 1998. However, the OFT has directed  the parties to bring the arrangements to an end and  to refrain from entering into the same or similar  arrangements in the future. n United States White House announces “major progress” on  patent issues On 20 February 2014, the White House updated its plans  to combat “patent trolls,” foster innovation, and improve  the U.S. patent system. The Obama administration  announced three new executive actions and again called  on Congress to pass patent reform legislation, while also  declaring “major progress” toward achieving plans it laid  out in a June 2013 initiative. This week’s announcement  is the latest effort by the White House to make it more  difficult for frivolous litigation to hamper American  innovators and consumers.  The new executive actions each involve plans to  strengthen the quality of U.S. patents. The White  House calls on the U.S. Patent and Trademark  Office (PTO) to launch an initiative described as  “crowdsourcing prior art,” which aims to improve the  ability to identify prior art so that patent examiners  can more easily determine whether an invention is  truly novel. In addition, the PTO will further expand its  technical training of patent examiners and encourage  pro bono and pro se assistance of inventors. With  proponents of patent reform arguing that weak patents  encourage abusive and anticompetitive litigation tactics,  these initiatives are an attempt to prevent additional  weak patents from being issued in the first place. While the June 2013 initiatives are ongoing, the White  House declared it has already delivered on several  commitments. For one, the PTO will soon issue a final  rule requiring increased transparency of ownership  for parties involved in proceedings before the PTO.  To counter the patent trolls that have sued “main  street” retailers, the PTO will launch an online toolkit  to help consumers and small businesses understand  their rights and the risks and benefits of litigation or  settlement. In general, the press release suggests  the White House will remain aggressive in challenging  alleged abuses of the patent system and will ACER Quarterly January 2014 – May 2014 37 continue to look for ways to undermine the potential  anticompetitive effects of patent assertion entities. n38 ACER Quarterly  January 2014 – May 2014 Competition and EU law planner The Competition and EU law Planner is a service and publication entirely free of charge.  For further details please contact us at: www.eucompetitionevents.comACER Quarterly  January 2014 – May 2014 39 We have developed a customizable competition law  compliance e – learning, testing and risk management  programme, providing awareness level training for all  company employees.  COMPETE is based on state – of – the – art, tried and  tested online training solutions with high customer  satisfaction. 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