Would it be true to say that antitrust enforcement is becoming increasingly globalised?
Definitely. We often hear from the business world about the impact of globalisation on business. Globalisation is also impacting the antitrust world, and business needs to bear this in mind when planning its antitrust strategy. There has been an explosion in the growth of antitrust agencies around the world in the last century. In 1900, there were only two antitrust regimes – the U.S. and Canada. In 1990, there were approximately 20 antitrust agencies. Today, there are over 120 different antitrust agencies on every continent of the world apart from Antarctica. Along with the growth in the number of antitrust agencies comes a corresponding increase in the amount of cooperation between antitrust agencies across the world. There is a range of co-operation that takes place on a day-to-day basis, from the sharing of know-how and expertise to deep co-operation on individual matters where more than one agency is investigating the same matter, to many other forms of cooperation along this spectrum of interaction. Cooperation occurs right across the board in all enforcement areas: mergers, cartels, and conduct (or to use the European term, abuse of dominance). Close cooperation between agencies is becoming increasingly frequent as agencies develop “pick up the phone” relationships with each other around the world. Cooperation also takes place within international organisations such as the OECD and ICN. These organisations provide a setting for agencies to exchange experience and expertise and formulate best practices and guidance. In addition, there are a number of Memoranda of Understanding (MOU) and co-operation agreements between antitrust agencies across the world. The U.S., for example, currently has 13 agreements in place (with Australia, Brazil, Canada, Chile, Columbia, China, Germany, EU, India, Israel, Japan, Mexico, and Russia). These set out a general framework for cooperation, and some also include a framework for cooperating on individual cases. In addition, the OECD and ICN have on-going projects aimed at developing the “next generation” of international enforcement cooperation.4 ACER Quarterly May 2014 – October 2014 To date, the most frequent inter-agency case cooperation has been in the mergers field. This is followed by the cartels field where there is also a considerable track record of cooperation, although to date it has involved a smaller group of agencies than is the case for mergers. Cooperation in the conduct area is the least developed area, although there have been some examples, notably between the DOJ and the European Commission in their recent eBooks investigations. There are a couple of reasons for this. First, there have not been as many unilateral conduct investigations with international dimensions as merger or cartel investigations. So, there have been fewer opportunities to develop cooperative relationships between agencies in this area. Secondly, there is less convergence around the world about what conduct triggers a unilateral conduct investigation and therefore less scope for cooperation. This is different from mergers, where cooperation takes place against a backdrop of mandatory pre-notification regimes, or cartels, where there is broad agreement on the type of conduct that warrants investigation. In the mergers field, in 2011 to coincide with the 20th anniversary of the EU/U.S. Cooperation Agreement, the Department of Justice (DOJ), the Federal Trade Commission (FTC) and the European Commission’s Directorate General for Competition issued revised Best Practices on Cooperation in Merger Investigations. In March this year, the DOJ, FTC and Canadian Competition Bureau issued similar merger guidelines. These guidelines are not theoretical. They are based on experience among the agencies of cooperation in many cases, and they guide the investigative teams when they work on cases on a day-to-day basis. I see the future as involving “more, more, and more...” – more international cooperation of more intensity involving more enforcement areas with more agencies. What benefits flow from this greater cooperation between antitrust agencies? Rachel Brandenburger: The key benefits for both business and the agencies are two-fold – more efficient investigations and the avoidance of inconsistent outcomes and/or remedies. Of course, if market structures or competitive interactions differ in different jurisdictions or the alleged facts or behaviour differ, the same outcome will not be justified. But, where it is justified, avoiding inconsistent outcomes benefits the companies concerned, the third parties with relationships with those companies, and ultimately the competitive process and therefore the economies and consumers around the world. As I have said, the same type and level of cooperation is not needed for each case. There is a spectrum of cooperation that depends on the issues, conduct, and markets in each individual case. Cooperation in any individual case may take many forms from agencies occasionally “touching base” with each other to deep and frequent cooperation. Effective cooperation is certainly not a case of “one size fits all”. Companies under investigation need to keep in mind that they cannot control whether there is dialogue between agencies. Cooperation between agencies can often be accomplished solely through the discussion of non-confidential information. However, if an exchange is going to involve confidential information with another agency, it will require a confidentiality waiver from the parties. The decision to provide a confidentiality waiver is the parties’ choice, but providing the investigating agencies with confidentiality waivers early in the investigation usually facilitates effective and efficient investigations to the benefit of all concerned. Is the cartel enforcement regime getting tougher? Mark Jones: Yes. In Europe it is already tough and there is no sign of this changing. For example, just this year the European Commission has levied a total of EUR 1.576 million in cartel fines. Perhaps more telling is the longer term perspective: the European Commission’s fines over the last five years are significantly higher than they have been over the last decade and a half. As for the future, unsurprisingly, the new EU Competition Commissioner, Margrethe Vestager, has told the European Parliament that she will pursue effective enforcement against cartels as a “top priority” during her mandate. More generally, antitrust authorities around the world have continued to improve their enforcement toolkit on a number of fronts and not just through increased international cooperation: there is increased criminalisation of cartel activity; more extensive deployment of investigatory powers such as dawn raids; and more effective procedures to uncover and prosecute cartels through leniency and settlement regimes which use the prospect of immunity from or ACER Quarterly May 2014 – October 2014 5 reduction of fines to incentivise companies to come forward with evidence and admit liability. For example, the UK has also amended its criminal cartel law with a view to making it easier to bring criminal cartel prosecutions. Under this new law, it will no longer be necessary to prove dishonesty as the requisite mental element of the offence, which should make it easier for prosecutions to be brought. The UK has also recently made progress with its criminal enforcement track record. In June, the UK’s Competition and Markets Authority obtained a guilty plea from an executive charged with fixing prices, allocating customers, and bid-rigging in relation to the market water-storage tanks. This is the UK’s first successful criminal prosecution since its failed prosecution of Virgin Airways executives in 2010. What about the U.S.? Would you say that the enforcement regime is getting tougher there? Kathryn Hellings: While the U.S. DOJ has been extraordinarily successful in investigating and prosecuting cartels in recent years, I would not necessarily say that the U.S. is getting tougher on targeting international cartels. I would say, however, that they are getting better at it, as indicated by the record results they have obtained in recent years. In my opinion, over the past decade, the DOJ’s success has been fostered by several new legal developments, such as increased penalties and wiretap authority, and the use of additional, more aggressive investigatory techniques. Additionally, the DOJ’s commitment to transparent and predictable treatment for cooperation by the accused with the DOJ has also contributed greatly to the agency’s success in cracking cartels. Probably the most notable legal development that has contributed to DOJ’s success occurred in 2004, when penalties for antitrust crimes were significantly increased. Most notably, imprisonment for individuals was increased from a three-year maximum jail sentence to a 10-year maximum jail sentence, and corporate fines were increased from a maximum of $10 million to a maximum of $100 million. The stakes are higher than ever before, and these penalty enhancements have given the DOJ more leverage when negotiating plea deals. With stiffer penalties comes greater leverage, which has, in part, led to the recent success of the Antitrust Division. Additionally, the investigatory tools used by antitrust enforcers in the U.S. have gotten much stronger, which has improved the DOJ’s ability to detect cartels and obtain evidence. For example, over the past 10 years, U.S. antitrust enforcers obtained wiretap authority. They began to regularly execute search warrants. U.S. antitrust enforcers also work more frequently and closely with federal agents than ever before. With more tools in their tool chests, U.S. antitrust enforcers are able to get stronger evidence, which has led to greater success at the plea negotiation table. Finally, the DOJ has in the past 10 years worked hard to provide predictability and transparency for those who are subject to investigations. The amnesty program has been incredibly successful, in part because the Antitrust Division has, in the past 10 years, established a transparent and predictable program. Defence counsel has become increasingly comfortable with the requirements and benefits of the DOJ’s amnesty program, and, as a result, they are now more likely than ever to seek amnesty or amnesty plus. Moreover, even without amnesty, companies are oftentimes quick to cooperate with enforcement officials, in part because the benefits of cooperation have, in the past decade, been frequently espoused by DOJ officials. In short, in the past 10 years, the DOJ has successfully proven that cooperation yields reliable and predictable benefits in criminal antitrust cases. What is Mexico’s track record in pursuing international cartels? Omar Guerrero Rodríguez: Since Mexico began regulating competition in 1992, it did not have a significant presence in the field of investigating and sanctioning international cartels. The leniency program inserted in 2006 gained momentum after the May 2011 amendments to the competition statute, as the power to impose high fines on cartelists was included and, more importantly, cartel behavior was criminalized (with potential imprisonment up to a maximum of 10 years). Nowadays, most international investigations have commenced as a natural consequence of leniency programs, public information in other countries or cooperation with foreign agencies. As a result, the former Federal Competition Commission (CFC) investigated several international cases. These cases, at the beginning, resulted in small fines (e.g. lysine 6 ACER Quarterly May 2014 – October 2014 case), but more recent cases have significantly increased the level of fines on cartel participants. There are a number of international cartel investigations (although completed in other jurisdictions) which are still ongoing in Mexico (e.g. consumer electronics products, and auto parts). In 2014, Cofece (the new competition autonomous constitutional body in Mexico for all industries except telecoms, radio and TV) levied its first fine upon an international refrigerator compressor cartel that had effects in Mexico. Cofece imposed fines totalling an equivalent of U.S.$16.9 million in that case. This number stands in stark contrast to that of the leaders in the combat against international cartels: the United States and the European Commission. Both have already amassed over U.S.$1 billion in fines during 2014, and each is on track to break previous records. However, it is expected that fine levels in Mexico will increase significantly, as the cases under investigation will fall under the new competition regime where fines can be up to 10% of revenue in Mexico. Mexico’s disappointing track record can be traced to some determinative factors. First, the switch from the CFC to Cofece has caused a lag in time as administrative activities have taken precedence over investigations. Second, there is no experience on criminal prosecution. Third, the competition authority has faced important problems with service of process through letter rogatories. Fourth, shortage of personnel to process all information coming from international investigations (including translations struggles and costs) has made it more difficult to put a sound case. Additionally, before the 2013 Constitutional amendments, the CFC did not have the kind of jurisdictional power that the U.S. or EU have, such as long-arm jurisdiction or surprise on-the-spot inspections (dawn raids). However, Mexico’s potential for additional investigations will significantly increase as Cofece develops. First, Cofece will keep on promoting the leniency program as an avenue for companies and individuals to blow the whistle and gain amnesty. Leniency/immunity programs have been by far the most important factor leading to successful investigations in both the U.S. and EU, and Mexico will keep on following that trend. In fact, through the immunity program, Cofece found out about the refrigerator cartel and many other cartels under investigation. ACER Quarterly May 2014 – October 2014 7 Cofece has also been busy setting up cooperation agreements with other countries’ investigation authorities as well as the OECD in order to improve access to worldwide investigations, which will facilitate access to information to determine whether certain anti-competitive practices have effects in the Mexican market. According to Cofece, the division devoted to the pursuit of international cartels has already seen a 65% increase in activity since it was established less than one year ago. It appears that these developments will be effective in getting Cofece more active in pursuing investigations of international cartels. In April 2014, an Italian citizen became the first foreign national to be extradited to the U.S. solely based on an antitrust violation. Are we going to see a lot more extradition in the future? Kathryn Hellings: It has long been the case that the DOJ has used Interpol’s Red Notice to catch and detain fugitives in antitrust cases. So, in that way, fugitives in antitrust cases have always run the risk of detention whenever they‘ve crossed borders. That being said, despite the risk of detention, fugitives were generally not extraditable for antitrust crimes. This is because most countries did not historically have criminal antitrust laws. In order to successfully extradite a fugitive, there must be dual criminality. A person may be extradited only when his/her actions constitute an offense in both the requesting and requested states. While historically very few countries had criminal cartel laws, making extradition efforts to the U.S. impossible, in the past decade, the number of countries with criminal cartel laws has dramatically increased. The number of countries with criminal cartel laws has, as Mark has said, more than doubled in the last decade, and that number is trending upward. With increased global criminalization of cartel conduct comes an increased risk of extradition. I think the lesson to be learned is: if you currently are or become in the future a fugitive in an antitrust investigation the world is getting more dangerous for you; there are fewer safe havens. The DOJ’s Antitrust Division has indicated a willingness to extradite, and you can expect that they will continue to look for opportunities – albeit the right opportunities – to do so. Is global antitrust litigation risk now matching the U.S.? Kathryn Hellings: I can’t say whether the global antitrust litigation risk now matches the U.S., but I can say that the global antitrust landscape continues to get more and more complex and treacherous for companies and individuals under investigation. It is exactly this landmine of global investigations and litigation that make our practice group at Hogan Lovells so attractive. It is becoming increasingly necessary for companies under investigation to have one uniform global approach and message – from the outset of a global investigation through the resolution of the civil litigation – and we have a unique team that is capable of providing that for clients. Mark Jones: A greater amount of successful antitrust litigation is definitely on the cards in Europe. Effective private enforcement in the EU has to date largely been limited to a few jurisdictions, such as the UK, Germany, and the Netherlands. This is now changing. In April 2014, the European Parliament adopted a directive governing damages actions for infringements of EU competition law. 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. Whilst the impact will be felt more in some Member States than others, the Directive contains significant changes for every jurisdiction. The European Commission has also adopted a recommendation which encourages EU Member States to set up collective redress mechanisms, including class actions by mid-2015. This would be on the more restricted opt-in basis, where claimants have to proactively take steps to join the claim. In the UK, however, reforms are being pushed to allow the possibility of opt-in claims as well, where claimants within a class are automatically included in an action unless they take steps to opt out. There is already significant class action activity in some European countries, such as the UK, where numerous claims have been brought, although most have settled before trial.8 ACER Quarterly May 2014 – October 2014 Changing competition law regimes Many regimes around the world have recently introduced significant changes to their competition law regime, including Mexico. Why did Mexico need a new competition law? Ricardo A. Pons Mestre: Mexico’s new political regime considered that effectiveness in the enforcement of competition law was essential to foster investment and growth in the country. Therefore, the competition law regime was totally overhauled in 2013 through an amendment to the Mexican Constitution §28. The 2013 Constitutional reform created two competition authorities, empowered them with new functions, launched a new system for challenges of competition decisions and created specialized constitutional federal tribunals to hear those challenges. In this context, the 2014 new Competition law was the implementation of the Constitutional reform that sends a clear message that competition authorities are empowered with a better toolkit to perform investigations and detect anti-competitive conduct. Likewise, criminal and administrative sanctions were enhanced in order to send a clear deterrence message to the general public and strengthen the “carrot and stick” policy. Omar Guerrero Rodríguez: The reform in the Mexican Constitution §28 came as surprise, since the 2011 Competition Law amendment was the axis of all previous reforms to our Mexican competition law. It was quite odd that after the 2011 competition amendments, which had greatly increased the ability of regulators (the former CFC) to investigate and sanction severely anti-competitive behaviour, the Constitutional amendment dissolved the CFC and created a new framework. This was especially surprising to those outside Mexico, where the chairman of the CFC was also the chairman of the Steering Committee of the International Competition Network (ICN), and therefore, the CFC’s recognition outside Mexico did not necessarily mean that such feeling was shared elsewhere. Furthermore, there was strong and sound criticism (e.g. OECD) of the status of competition in the telecom sector. Two cases decided in 2012 proved the inadequacy of the previous regime in dealing with anti-competitive actions. One involved the finding of anti-competitive practices against Telcel, and the other involved the purchase of lusacell by Televisa. Although these cases arose before the 2011 amendments and thus were not analysed under the amended law, there was major discontent that those actors were stronger than the regulator. Thus, there was a feeling that only by providing a major overhaul of the competition system at the constitutional level, competition (and particular in the telecom sector) would be enhanced. The Constitutional amendments have provided Mexico with the potential to transform from an attractive developing market into a Latin American powerhouse on the same level as other countries, such as Brazil. Merger control In the context of greater cooperation between agencies across the world, what does business need to do in order to ensure a smooth process for the clearance of mergers? Mark Jones: For any significant transaction, it is now not uncommon for the parties to have to navigate merger control filings in multiple jurisdictions (sometimes as many as 20). There has been active merger control enforcement by many new or evolving regimes in recent years, including important jurisdictions such as in China, India, and the COMESA block in Africa. In this context, parties need to prepare a careful merger control clearance strategy in advance. Even the initial determination of where filings are required can involve significant time and effort. While there is increasing cooperation between antitrust agencies worldwide, jurisdictional tests still vary widely (turnover, market share or asset-based tests). Timing is an important practical issue to take into account and coordinate across jurisdictions: how soon is it possible to file notifications, how long is the review period, and (since there is more often than not a prohibition on closing the transaction before the authorities clear it) what the impact is on the wider deal timetable. Another important issue is what assessment test each of the relevant authorities will apply and their differing approaches to any possible competition concerns. For example, presenting a consistent approach to issues such as market definition will generally be desirable. The transaction parties will also need to consider the possible need for remedies to the competition issues,
