Overview of Current Cartel Investigations

Antitrust enforcement remained active in 2017, with the US Department of Justice (DOJ) pursuing both new and long-developed investigations. However, total fines obtained by the DOJ declined sharply from recent years as the automotive parts and foreign exchange investigations wound down. At the end of 2017, and the start of 2018, the European Commission handed down decisions in a number of significant antitrust cartel investigations related to air freight, trucks, maritime carriers and several automotive parts.

US Developments

  • In November 2017, an Ohio jury acquitted two Japanese firms, Tokai Kogyo Co. Ltd. and Green Tokai Co. Ltd., of price fixing and bid rigging charges in the market for automotive body seals. This was the DOJ’s first auto parts case to go to trial and a potential bellwether for the attitude that US juries might take toward foreign defendants. The defense focused on evidence of intense price competition for the allegedly rigged components during the conspiracy period.
  • In the capacitors investigation, US District Court Judge James Donato of the Northern District of California caught the attention of the industry when he refused to accept the guilty pleas of three companies to horizontal price-fixing. According to the court, these negotiated corporate pleas were not sufficient to penalize the companies and prevent future price fixing agreements. The court called one agreement a “sweetheart deal” and stated that another negotiated plea was merely a “drop in the bucket.” Although the court later accepted open-ended “B” pleas in those cases, the court’s rejection of the traditional fixed-sentence “C” plea agreements may signal less deference to agencies with respect to negotiated plea agreements with companies.
  • Over the past few years, the DOJ has exercised greater leniency in sentencing defendants who claim an inability to pay a large fine, hewing to the principle that punishment and deterrence should not put companies out of business. For example, in the packaged seafood investigation, DOJ gave Bumble Bee Foods a $111 million reduction in penalty for inability to pay and cooperation credit. It is likely that the DOJ will continue to evaluate fines in light of companies’ ability to pay them, including companies in smaller industries such as the promotional products cases. However, companies should be aware that judges may not always accept inability-to-pay defenses. Notably, one reason for Judge Donato’s rejection of the capacitor guilty pleas related to his skepticism about one company’s assertion that it was unable to pay a higher fine.

EU Developments

  • The European Commission continues its investigation into anticompetitive behavior in the automotive parts sector. Most recently, the Commission imposed fines on manufacturers of occupant safety systems, spark plugs and braking systems, totaling €185 million. In each case, the companies agreed to settle with the Commission, which means that they received a fine reduction in exchange for admitting to the Commission’s objections.
  • The Commission imposed a record fine on a truck manufacturer which had decided not to settle with the Commission, contrary to the other participants in the cartel.
  • The Commission re-adopted its previous decision to impose fines on air cargo carriers, after its decision had been annulled by the General Court of the EU.
  • The European Commission confirmed in July 2017 that German car makers Volkswagen, Audi, Porsche, BMW and Daimler are “undergoing examination by the Commission.” The companies are believed to have cooperated on how to meet emissions standards for diesel vehicles. Volkswagen and Daimler are believed to have been among the first companies to cooperate with the European Commission. In October 2017, the Commission confirmed that it had carried out inspections at the premises of car manufacturers in Germany.

Read the full report here.

United States: July – December 2017 Update

Although delays in antitrust appointments continued throughout the second half of 2017, the Federal Trade Commission (FTC) and Department of Justice (DOJ) continued to actively investigate and challenge mergers and acquisitions. Notably, the DOJ challenged the vertical AT&T/Time Warner transaction, the first vertical merger the DOJ has tried since the 1970s. The end of 2017 showed a trend where the FTC and DOJ are focusing on structural remedies rather than behavioral remedies. Additionally, at the end of 2017, the FTC and DOJ challenged several consummated transactions, as well as transactions that were not reportable under the Hart-Scott-Rodino Antitrust Improvements Act.

European Union: July – December 2017 Update

After two concentrations within the agrochemicals sector in the second quarter of 2017 — Dow/DuPont and ChemChina/Syngenta — the European Commission continued to see megamergers notifications in the agrochemical sector in the second half of 2017. The fourth quarter of 2017 saw the second Commission merger decision challenged successfully this year and the fourth case of annulment of a clearance decision since the implementation of the EU Merger Regulation.

Snapshot of Events (Legislation/Agency Remarks/Speeches/News, etc.)

United States

  • Seats at the FTC Remain Unfilled Despite Continued Progress in the Appointment of New Antitrust Leadership

After a long wait, on September 27, the Senate confirmed Makan Delrahim, President Trump’s nominee to head DOJ’s antitrust division. The DOJ has also named several deputies to serve under Delrahim: Andrew Finch, Bernard Nigro, Luke Froeb, Donald Kempf and Roger Alford. These positions are not subject to Senate confirmation.

President Trump nominated four Commissioners for the FTC, including Joseph Simons to lead the FTC as Chairman. Joe Simons is an experienced antitrust attorney who was previously Director of the FTC’s Bureau of Competition. He has mainstream Republican views. Until the new Commissioners are confirmed, there must presently be unanimity between the two Commissioners for the FTC to take action.

  • FTC Warns That It May Challenge Vertical Mergers

Acting Bureau of Competition Director, Bruce Hoffman, gave remarks at the Global Antitrust Enforcement Symposium on September 13, 2017. He said that the FTC would be ready to challenge vertical mergers if there were competition issues to resolve. He added that the FTC may impose structural remedies in vertical mergers where it views the remedy as necessary to prevent competitive harm.

  • Senator Amy Klobuchar (D-Minn) Introduces New Legislation to Curtail Market Concentration and Enhance Antitrust Scrutiny of Mergers and Acquisitions

On September 14, 2017, two bills were introduced by Senator Amy Klobuchar to the Senate: the Consolidation Prevention and Competition PromotionAct (CPCPA) and the Merger Enforcement Improvement Act (MEIA). Both bills are part of the Senate Democrats’ “A Better Deal” antitrust agenda. The CPCPA would impose extra scrutiny on so-called “mega deals” by shifting the burden of proof from antitrust enforcers to the companies. It would also update the Clayton Act to refer to “monopsonies” in addition to “monopolies.” The MEIA would increase the resources allocated to antitrust enforcers, both in terms of substantive information and financial terms.

  • DOJ To Focus on Structural Remedies

Assistant Attorney General Makan Delrahim gave remarks at the American Bar Association Section of Antitrust Law’s Fall Forum on November 16, 2017. He announced that DOJ would seek to reduce the number of long-term consent decrees and focus on structural remedies instead of behavioral remedies.

  • Senator Elizabeth Warren (D-Mass) Criticizes Recent Antitrust Enforcement

In a speech at the Open Markets Institute on December 6, 2017, Senator Elizabeth Warren advocated steps to improve antitrust enforcement. On mergers, she stated that increased enforcement is needed not just for horizontal mergers between direct competitors, but also for vertical mergers.

European Union

  • Application of EU Merger Control Clarified: Non-Full Function Existing Joint Ventures Fall outside the Scope of EU Merger Control

On September 7, 2017, the European Court of Justice decided that, where joint control is acquired over a new or existing undertaking (or parts of an undertaking), that transaction can only fall within the scope of the EU Merger Regulation where the resulting entity will be ‘full-function.’

  • Marine Harvest Gun Jumping Fine Upheld by the General Court

On October 26, the General Court confirmed the €20 million fine imposed by the Commission on Norwegian salmon farmer Marine Harvest in 2014 for allegedly implementing its acquisition of salmon producer Morpol ASA before notifying and receiving clearance from the Commission.

While Marine Harvest had been in contact with the Commission since December 2012, it only formally notified the acquisition of Morpol ASA on 9 August 2013. The Commission held, and the General Court agreed, that the company’s merger filing obligation was triggered several months earlier, when Marine Harvest acquired a 48.5 percent controlling shareholding in Morpol ASA in December 2012.

  • EC Is Ramping Up Enforcement: Conditional Merger Clearances Doubled during Margrethe Vestager’s First Three Years

Since the start of Vestager’s tenure on November 1, 2014, the Commission cleared a total of 70 deals subject to commitments, whereas between February 2010 and February 2013 — Joaquin Almunia’s first three years in the Commission — 34 deals were approved conditionally. Vestager sought remedies in 6.8 percent of cases, while Almunia only required them in 3.9 percent.

In 2014–2017, 55 conditional clearances were granted in Phase I, while 15 were Phase II cases. Between 2010 and 2013 there were 25 Phase I conditional clearances and 9 Phase II, according to data from the EC’s merger database.

Read the full report here.

At the one year anniversary of the Trump administration, antitrust merger enforcement remains similar to the Obama administration, but it is still early to judge given the delays in antitrust appointments and given the DOJ’s lawsuit against the vertical AT&T/Time Warner transaction, the first vertical merger litigation in decades.  Below are some of the recent developments that have impacted merger enforcement by the Federal Trade Commission (FTC) and Antitrust Division of the US Department of Justice (DOJ), as well as European regulators.

Continue Reading.

  1. Jurisdictional thresholds

French merger control applies if the turnovers of the parties to a transaction (usually the acquirer(s) including its (their) group(s) of companies, and the target) exceeded, in the last financial year, certain (cumulative) thresholds provided in Article L. 430-2, I of the French Commercial Code (the “Code”):

  • Combined worldwide pre-tax turnover of all concerned parties > €150 million; and
  • French turnover achieved by at least two parties individually > €50 million euros; and
  • The transaction is not caught by the EU Merger Regulation.

Specific (and lower) thresholds exist for mergers in the retail sector or in French overseas departments or communities[1].

In the situation of an acquisition of joint control, a transaction can be notifiable where each of the acquirers meets the thresholds even if the target has no presence or turnover in France.

There is no exception applicable to foreign-to-foreign transactions.

Acquisitions of ‘non-controlling’ minority shareholdings are not notifiable.

  1. Filing is mandatory and failure to file or early implementation can be sanctioned

Under Article L. 430-3 of the Code, a notifiable merger cannot be finalized before its clearance by the French Competition Authority (the “FCA”) but the Code does not provide any specific deadline for the notification. There is no filing fee.

Failure to notify a reportable transaction can be sanctioned by the FCA as follows:

  • A daily penalty can be imposed on the notifying party(ies) until they notify the operation or demerge, as the case may be; and
  • A fine can be imposed on the notifying party(ies) up to:
    • For corporate entities: 5% of their pre-tax turnover in France during the last financial year;
    • For individuals: €1.5 million.

Due to the suspensive effect of the filing, these sanctions also apply when the parties start to implement a notified transaction before receiving clearance (so-called ‘gun jumping’) from the FCA.

Nevertheless, individual exemptions may be granted by the FCA to allow undertakings to close before receiving clearance; in practical terms, exemptions are exceptional and limited to circumstances where insolvency proceedings have been opened, or are about to be opened, in relation to the target.

  1. Timeline of merger control procedure

The majority of notified transactions are cleared in Phase I, which lasts 25 business days as from the receipt by the FCA of a complete notification.

A simplified procedure, which lasts for about 15 business days, is available for non-problematic acquisitions, which is often the case for transactions involving private equity funds. Simplified procedures accounted for about 50% of the notified transactions between May 2016 and May 2017.

Phase II is reserved for problematic acquisitions requiring a deeper examination and takes at least an additional 65 business days.

In addition, parties can pre-notify a transaction with the FCA. The pre-notification procedure can prove to be very useful in order to confirm the notifiability of a transaction, the nature and amount of information that will be required by the FCA in the actual filing, and/or obtain a first impression of the FCA’s preliminary analysis of potential competition issues that may be raised by a transaction.

[1]     Thresholds applying to mergers including at least two parties operating one or several shops of retail business (“magasin de commerce de détail”) or one party having its activity, at least in part, in a French overseas department or community are the following:

  • Combined worldwide pre-tax turnover of all concerned parties > €75 million; and
  • French turnover achieved by at least two parties in the retail business sector > €15 million OR turnover achieved by at least two parties in at least one overseas department/community > €15 million (or if active in the retail business sector > €5 million); and
  • The transaction is not caught by the EU Merger Regulation.

Between 2012 and 2013, Marine Harvest ASA (“Marine Harvest”), a Norwegian seafood company, acquired Morpol ASA (“Morpol”), a Norwegian producer and processor of salmon. Marine Harvest notified the transaction to the European Commission under the European Union’s Merger Regulation (“EUMR”), but implemented it prior to the European Commission having granted clearance. In 2014, the European Commission imposed a EUR 20 million fine on Marine Harvest for “jumping the gun”. On 26 October 2017, the General Court of the European Union (“General Court”) confirmed the European Commission’s decision (“Decision”).

WHAT HAPPENED:

On 14 December 2012, Marine Harvest entered into a share and purchase agreement (“SPA”) with companies owned by Jerzy Malek, the founder and former CEO of Morpol. Under the SPA, Marine Harvest acquired 48.5% of the shares in Morpol (“Initial Transaction”). The Initial Transaction was closed on 18 December 2012. On 15 January 2013, Marine Harvest submitted a mandatory public offer for the remaining 51.5% of the shares in Morpol (“Public Offer”). Following settlement and completion of the Public Offer in March 2013, Marine Harvest owned a total of 87.1% of the shares in Morpol (together, the “Transaction”).

Marine Harvest established first contact with the European Commission on 21 December 2012 by submitting a “Case Team Allocation Request”, which initiates the pre-notification process under the EUMR. After submitting various drafts and answers to requests for information, Marine Harvest formally notified the Transaction on 9 August 2013. On 30 September 2013, the European Commission cleared the Transaction subject to some conditions.

On 31 March 2014, the European Commission formally launched a separate investigation into alleged “gun jumping” by Marine Harvest, and in the decision of 23 July 2014, the European Commission imposed a fine of EUR 20 million on Marine Harvest (“Fining Decision”). The European Commission held that Marine Harvest, by implementing the Initial Transaction, had acquired de facto control over Morpol. By acquiring de facto control, Marine Harvest had infringed Art. 7(1) EUMR (“Standstill Obligation”). Under the Standstill Obligation, transactions requiring notification to, and clearance by, the European Commission may not be implemented prior to clearance.

The European Commission rejected Marine Harvest’s argument that the implementation of the Initial Transaction was covered by an exemption provided for in Art. 7(2) EUMR (“Public Bid Exemption”). Under the Public Bid Exemption, the acquisition of control from various sellers through a public bid, or a series of transactions in securities, can be implemented prior to clearance. However, this applies only if the transaction is notified without delay to the European Commission, and if the acquirer does not exercise the respective voting rights. According to the European Commission, the Public Bid Exemption is not intended to cover situations involving the acquisition, from a single seller, of a “significant block of shares” which in itself confers de facto control.

Marine Harvest appealed against the Fining Decision to the General Court. However, with the Decision, the General Court confirmed the European Commission findings, both on substance on with respect to the level of the fine.

WHAT THIS MEANS:

The Decision is an impressive reminder that gun jumping, i.e. the implementation of transactions prior to clearance by the relevant antitrust authorities, can entail severe consequences. Under European merger control law, the European Commission can impose fines of up to 10% of the group’s total turnover on companies infringing the Standstill Obligation. Antitrust authorities in most other major antitrust jurisdictions have comparable sanctioning tools.

The Decision also confirms that the acquisition of a minority stake may well be considered as conferring de facto control. This applies in particular to situations where the minority shareholder is highly likely to achieve a majority at the shareholders’ meetings, taking account of the size of its shareholding and the level of attendance of other shareholders at shareholders’ meetings in preceding years. The General Court furthermore emphasises that the mere possibility to exercise control is sufficient for a breach of the Standstill Obligation. Whether the acquirer actually makes use of that possibility (Marine Harvest argued it did not) is of no relevance.

Finally, the Decision clarifies that the European Commission is entitled to apply a narrow interpretation of the Public Bid Exemption. Parties who intend to rely on the Public Bid Exemption for (partly) implementing transactions prior to clearance should do so, if possible, only after consulting with the European Commission. Indeed, the European Commission, confirmed by the General Court, held that Marine Harvest acted negligently in not having consulted with the European Commission. Marine Harvest’s negligence was a main factor for the European Commission to conclude that a significant fine should be imposed – even though, as Marine Harvest argued throughout the proceedings, the European Commission did not impose a fine in a very similar, previous merger case.

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

Read the full report here.

On 12 July 2017, the German Federal Cartel Office (FCO) published a guidance paper (Guidance Paper) on the prohibition of resale price maintenance (RPM). The Guidance Paper has a particular focus on the food retail sector. At the same time, it offers good insights into the FCO’s current overall thinking on RPM. The FCO reiterates that companies engaging in RPM may be subject to severe fines. In addition, it is evident from the Guidance Paper that the FCO has a very broad understanding as to what may be considered as RPM.

WHAT HAPPENED:

  • RPM describes a situation where a supplier and a retailer agree that the retailer will not resell the supplier’s products below a certain (minimum) price.
  • While RPM falls under the rule of reason under US Federal antitrust law, it is considered as a hardcore antitrust restriction in most European jurisdictions, as well as under some US State antitrust laws (cf. Maryland’s Attorney General’ recent challenge of RPM).
  • The FCO is arguably the most active antitrust authority in terms of RPM. In recent years, it imposed fines for alleged RPM in a number of proceedings across various industries, including cosmetics, furniture, mattresses, tools and toys. In December 2016, the FCO imposed fines totaling € 260.5 million on 27 food retailers and food manufacturers.
  • A number of authorities provided in the past guidance on RPM. For example, the European Commission addresses RPM in its Guidelines on Vertical Restraints, and in the United Kingdom, the CMA published in June 2017 a one-pager on RPM. The FCO’s Guidance Paper now offers very comprehensive and specific guidance on RPM, in particular, but not exclusively, with respect to the retail sector.

Continue Reading THE LATEST: German Antitrust Authority Issues Guidelines on Resale Price Maintenance

On 10 May 2017, the European Commission published its final report on the e-commerce sector inquiry. The report is divided into two sections, covering e-commerce issues in relation to consumer goods and digital content. It also identifies business practices that might restrict competition and limit consumer choice. It would be advisable for e-commerce businesses to review their commercial practices and revise them as necessary in light of the Commission’s stated aim of targeting e-commerce business practices that may negatively impact the functioning of the Digital Single Market.

Read the full article. 

WHAT HAPPENED:

  • Rolls-Royce and SENER have a 47 percent/53 percent joint-venture in Industrial de Turbo Propulsores (ITP)–an aircraft engine components manufacturer.
  • Rolls-Royce, together with ITP, MTU and Safran, are members of a military engine consortium–Europrop International (EPI)–that supplies the engine to the Airbus’ A400M, the primary competitor to the Lockheed Martin C-130J.
  • The European Commission (EC) had concerns that Rolls-Royce’s full ownership of ITP would increase its influence in EPI such that Rolls-Royce could undercut the competitiveness of the EPI engine, and consequently subvert Airbus’ competitiveness vis-à-vis Lockheed Martin.
  • The EC and Rolls-Royce agreed to a behavioral remedy focused on EPI’s governance rules that would eliminate the potential conflict of interest and maintain EPI’s competitiveness. While the EC press release does not provide details, the agreement likely allows MTU and Safran to control the consortium’s decision making.

WHAT THIS MEANS:

  • Antitrust enforcers continue to investigate competitive impacts from vertical transactions.
  • While antitrust enforcers have a strong preference for structural remedies, when addressing vertical competition issues, there is greater potential that enforcers will accept a behavioral fix.
  • Antitrust enforcers continue to focus on antitrust impacts in narrow markets. Here, the remedy is designed to maintain competition between the Airbus A400M and Lockheed Martin’s C-130J – military turboprop transport aircraft.