McDermott’s Annual EU Competition Review summarizes key developments in EU competition rules. During the previous year, several new regulations, notices and guidelines were issued by the European Commission. There were also many interesting cases decided by the General Court and the Court of Justice of the European Union. All these new rules and judicial decisions may be relevant for your company and your day-to-day practice.

In our super-connected age, we can be inundated by information from numerous sources and it is difficult to select what is really relevant to one’s business. The purpose of this review is to help general counsel and their teams to be aware of the essential updates.

This review was prepared by the Firm’s European Competition Team in Brussels, Paris and Germany.

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On 16 January 2019, the Court of Justice of the European Union (CJEU) dismissed the appeal by the European Commission (Commission) against the 2017 judgment of the General Court of the European Union (GCEU). This annuls the Commission’s decision to block the proposed acquisition of TNT Express NV (TNT) by United Parcel Services (UPS) in its entirety (C-265/17 P). The judgment reminds the Commission that it must maintain a balance between the need for speed and the observance of the rights of the defence in merger proceedings.

IN DEPTH

Background

By decision on 30 January 2013, the Commission blocked the proposed acquisition of TNT by UPS (Case M.6570).

On 7 March 2017, the GCEU annulled the Commission’s decision in its entirety on the grounds that (i) the Commission infringed UPS’s rights of defence by failing to communicate to UPS the final version of an econometric model on which it relied in its prohibition decision and that (ii) UPS might have been better able to defend itself if it had at its disposal the final version of that model.

The Commission challenged the GCEU judgment before the CJEU. First, the Commission argued that it was not required to communicate the final econometric analysis to UPS. Second, the Commission claimed that even if UPS’s rights of the defence had been infringed, the GCEU should have dismissed UPS’s plea alleging infringement of the rights of the defence as ineffective because a significant impediment to effective competition (“SIEC”) could in any event be established in Denmark and the Netherlands without having to rely on the econometric model concerned.

Continue Reading EU Court of Justice Confirms Annulment of Commission Prohibition Decision Due to a Procedural Irregularity

The European Commission recently reaffirmed that industrial policy objectives have no role to play when it comes to applying the EU merger control rules. Despite unusually intense industrial and political pressure to get the Siemens/Alstom railway merger done, Competition Commissioner Vestager has forcefully reiterated that the substantive test under the EU Merger Regulation remains exclusively competition based.

Read the full article.

Overview of Current Cartel Investigations

Although the third quarter of 2018 saw guilty pleas and new indictments in several current Department of Justice (DOJ) investigations, 2018 continues a downward trend in antitrust enforcement. At its current pace, DOJ’s annual 2018 fines will end around $300 million—well short of the billion-dollar plus highs in 2014 and 2015, during the height of the auto parts and foreign exchange investigations. The same downward trends exists in the EU, where the European Commission did not render any cartel decisions in the third quarter of 2018. Nonetheless, in a sign of things to come, the Commission took significant procedural steps in the ethanol benchmarks and car emissions cases.

US Developments

  • We learned of two new DOJ investigations in the third quarter. First, two executives were arrested on charges of fixing prices of freight forwarding services of containerized goods destined for international shipping. This investigation appears to be distinct from the DOJ’s investigation of roll-on/roll-off international shipping services for vehicles. Second, a foam maker stated in its July 2018 complaint against several chemical companies that the DOJ is investigating the polyurethane industry. The DOJ has not announced an investigation in the polyurethane industry, but one defendant in the foam maker’s case confirmed the existence of the investigation.
  • The DOJ secured two more guilty pleas in its ongoing investigation into bid rigging of public real estate foreclosure auctions, one in Mississippi and one in Florida. Unlike the typical case involving auctions on the courthouse steps, the Florida case involved a real estate investor rigging bids in online public foreclosure auctions.
  • Eleven state attorneys general have initiated investigations into the use of “no-poach” clauses in employment contracts. The Washington State Attorney General is most active, obtaining agreements from 30 nationwide franchise chains to eliminate the practice of including no-poach clauses in their franchise contracts. While the Washington AG’s investigation first focused on fast-food chains, its investigation has since expanded into other industries.

EU Developments

  • The Commission sent a Statement of Objections to two companies in the biofuels sector for conduct concerning ethanol benchmarks. A third company is in settlement talks with the Commission.
  • In July 2018, the General Court of the EU confirmed a fine that the Commission had imposed on an investment bank for the conduct of its subsidiary in the power cables cartel on the basis of the parental liability presumption. This is noteworthy because the investment bank held less than 91% of the subsidiary’s shares.
  • In September 2018, the Commission opened an in-depth investigation into possible collusion between German car manufacturers on emissions control systems.
  • Also in September, the Commission sent a Statement of Objections to a rail company for obstructing its investigation during a dawn raid. The company provided incorrect information and deleted data from a computer. The dawn raid was part of an investigation in the rail passenger transport sector.

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United States: July – September 2018 Update

Both US antitrust agencies marked the third quarter of 2018 with significant policy announcements regarding the merger review process. The announced reforms seek to expedite the review process through cooperation between the agencies and the merging parties. Moving first, the Federal Trade Commission (FTC) revealed a Model Timing Agreement that provides the FTC Staff with earlier notice of the parties’ intent to substantially comply with a Second Request. Earlier notice allows the FTC Staff to create a more effective timeline for meetings with division management, front office staff and the Commissioners. Less than two months after the FTC revealed its Model Timing Agreement, the Antitrust Division of the US Department of Justice (DOJ) announced procedural reforms aimed at resolving merger investigations within six months of filing. The DOJ will commit to fewer custodians and depositions in exchange for the merging parties providing key information earlier in the investigation. Overall, these reforms appear to be a positive step forward for parties considering future transactions, but their effectiveness remains uncertain as the agencies start a difficult implementation period. While the FTC timing agreement may provide more certainty around the process, it does not reduce the review timing and actually extends it.

EU: July – September 2018 Update

The European Commission (EC) remained quite active clearing mergers in the third quarter of 2018. Most notably, the EC cleared Apple’s acquisition of Shazam without imposing conditions despite the EC’s stated concerns about access to data as a competitive concern. The EC opened a Phase II investigation into the transaction to investigate the potential for Apple to obtain a competitive advantage over competing music streaming services by accessing Shazam’s consumer data obtained through its music recognition services. In this case, the EC did not find evidence that the access to Shazam’s data would provide Apple a competitive advantage. In addition, the EC found that there were no concerns about Apple potentially restricting Shazam as referral source for Apple’s competitors. Going forward, it is clear that access to data is an issue that the EC will continue to investigate, but it is also clear that the EC is taking a careful approach in assessing when that access will truly lead to a competitive harm.  Continue Reading Antitrust M&A Snapshot

United States: April – June 2018 Update

The second quarter of 2018 ushered in a trial defeat for the US Department of Justice (DOJ) and the beginning of a new era at the Federal Trade Commission (FTC). In June, Judge Richard J. Leon of the US District Court for the District of Columbia denied the DOJ’s requested injunction of the AT&T/Time Warner acquisition. The case marked the first litigated vertical challenge by the Antitrust Division in nearly 40 years. DOJ filed a notice of appeal of the district court’s decision. At the FTC, four new commissioners were sworn in in May, with a fifth to join upon the approval of current commissioner Maureen Ohlhausen to the US Court of Federal Claims. With the transition nearly complete, new FTC Chairman Joseph Simons announced plans to re-examine and modernize the FTC’s approach to competition and consumer protection laws, possibly charting a new course for FTC antitrust enforcement.

EU: April – June 2018 Update

In this quarter, we saw two significant developments concerning the issue of gun-jumping. First, the Court of Justice of the European Union (CJEU) clarified the scope of the gun-jumping prohibition, ruling that a gun-jumping act can only be regarded as the implementation of a merger if it contributes to a change in control over the target. Second, the European Commission (EC) imposed a €124.5 million fine on Altice for having breached the notification and the standstill obligations enshrined in the EUMR by gun-jumping. The EC also issued two clearance decisions following Phase II investigations in the area of information service activities and the manufacture of basic metals. Continue Reading Antitrust M&A Snapshot

The second quarter of 2018 proved to be an active one with a number of US Department of Justice (DOJ) investigations resulting in criminal charges against individual executives. However, the DOJ’s total criminal fines still fall below the highs reached in 2014 and 2015. In this period, the European Commission made one notable cartel decision, imposing fines on eight Japanese manufacturers of capacitors.

McDermott’s Cartel Snapshot presents the latest information about active antitrust investigations to inform defense representatives, in-house counsel and agency regulators of the latest compliance risks and private actions. Our highly rated team of competition lawyers has selected the most relevant US and EU cartel matters to support risk management assessments for international cartel defense and to provide insights for legal and business planning.

Read full article. 

United States: January – March 2018 Update

One year into the Trump administration, the US antitrust agencies are finally starting to implement their enforcement policies. Most notably, trial began in the US Department of Justice’s (DOJ) challenge of the AT&T/Time Warner merger, which is the Antitrust Division’s first significant vertical challenge in several decades. Judge Richard J. Leon’s opinion in that case could alter the outlook for several other vertical transactions pending before the agencies. While the DOJ was preparing for trial, the Federal Trade Commission (FTC) was preparing for a transition to five new commissioners, who were approved by the Senate in April. It remains unclear whether the new, Republican-led FTC will be more moderate in its enforcement efforts, similar to prior Republican administrations, or will follow in the footsteps of President Trump’s DOJ, which has been surprisingly aggressive.

EU: January – March 2018 Update

The European Commission (EC) continued to be quite active in the first quarter of 2018, clearing five mergers. The most significant decision was the approval of a megamerger in the agrochemical sector—Bayer/Monsanto—where the parties submitted a remedy package that totalled over €6 billion. This remedy package included divestitures of research and development assets that addressed the EC’s concerns about innovation, similar to the EC’s Dow/DuPont clearance last year. In addition to Bayer/Monsanto, two other proposed acquisitions in the chemicals sectors fell through, most notably Celanese/Blackstone, due to excessive divestiture requests required by the Commission. Continue Reading Antitrust M&A Snapshot

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.