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Antitrust M&A Snapshot | DOJ Arbitrates Market Definition Dispute While EC Clears Acquisition of Broadband and Energy Networks

There was significant antitrust activity in the third quarter of 2019. In the United States, the Federal Trade Commission (FTC) and Department of Justice (DOJ) continued an active docket challenging M&A transactions. DOJ is resolving antitrust reviews significantly faster than the FTC, following DOJ’s 2018 policy establishing a six-month target. The DOJ also made use, for the first time, of its authority to arbitrate a market definition dispute, potentially opening the door for a new tool the DOJ could employ to resolve challenges more rapidly.

In the European Union, the European Commission (EC) agreed to clear, subject to conditions, the acquisition of broadband and energy networks following lengthy Phase 2 investigations. Meanwhile, the national European regulators opened new in-depth investigations into commercial radio advertising, software as a service for airlines, autonomous sea surface vehicles and the promotion of live music events (all in the UK) and prohibited the merger of two recyclers (Germany).

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Five Things To Know About German Merger Control

As reported previously, German competition law was recently amended. The amendments included with the introduction of a “size of transaction”-threshold a notable change with respect to German merger control. The following is a reminder of five important features of German merger control which you should be aware of:

The jurisdictional thresholds of German merger control are easily triggered

German merger control applies if the parties to a transaction (usually the acquirer and the target) exceeded, in the last financial year, certain turnover thresholds. In an interna­tional context, these thresholds are relatively low and easily triggered:

  • Joint worldwide turnover of all parties > € 500 million, and
  • German turnover of at least one party > € 25 million, and
  • German turnover of another party > € 5 million.

There is a new “size of transaction”-threshold

Since June 2017, German merger control can also be triggered if a newly introduced “size of transaction”-threshold is exceeded:

  • Joint worldwide turnover of all parties > € 500 million, and
  • German turnover of at least one party > € 25 million, and
  • “value of compensation” > € 400 million, and
  • The target company has “significant business activities” in Germany (which may be activities with revenues < € 5 million).

The “value of compensation” includes the purchase price and all other assets and non-cash benefits, as well as liabilities assumed by the purchaser.

Acquisition of minority shareholdings may be notifiable

Similar to the HSR Act, but different to European Union merger control and most European jurisdictions, German merger control is not limited to the “acquisition of control”. Additional triggering events are

  • The acquisition of 25% or more of the shares in a company, and
  • The acquisition of a shareholding below 25% if this, combined with other factors (e.g. the right to appoint one out of five members of the board), may have an im­pact on competition (“acquisition of ability to exercise competitively significant influ­ence”).

Review of joint venture situations

German merger control may apply in joint venture situations that are often not covered by other merger control laws:

  •  German merger control may apply to the setting up of a joint venture company, even if the joint venture will have no activities in Germany. The jurisdictional thresholds may be satisfied by the parent companies alone. While there is an exemption for transactions with “no effect in Germany”, it is interpreted very narrowly and applies only in exceptional circumstances.
  • German merger control applies to all joint venture situations where two or more par­ties acquire or continue to hold a shareholding of 25% or more. Examples:
    – A and B set up a 50/50 production joint venture.
    – A acquires sole control and a 70% shareholding, and B acquires a non-control­ling 30% shareholding.
    – A sells 75% of a fully owned subsidiary to B, and retains only a 25% minority shareholding.
    – A, B and C each own 1/3 in a joint venture company. C divests his share­holding [...]

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

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.

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European Commission Launches New Cartel Reporting Tool, Member States Laud the Role of Whistleblowers

European Commissioner of Competition Margrethe Vestager made news when she announced that the European Commission had launched a new IT system enabling individuals to anonymously report cartel activity. In parallel, several EU Member States have–in recent weeks–highlighted the role of individual informants in their own enforcement efforts. Taken together, these developments show that the stakes of effective and meaningful antitrust compliance continue to rise, as individuals have more avenues to report anticompetitive conduct.

Speaking in Berlin on March 16, 2017, Commissioner Vestager stated, “We’ve discovered a lot of cartels thanks to leniency programs […] But we don’t just rely on leniency. We pay attention to other methods as well. And that includes encouraging individuals to come forward, when their conscience is troubled by the information that they have about a cartel. That’s why we recently launched a new IT system to help people tell us anonymously about cartels. The system means that we can communicate both ways with them without risking their anonymity while we gather information.”

Commissioner Vestager noted that the European Commission’s new system is modelled on a system implemented by the German Federal Cartel Office (FCO) in 2012. Notably, the FCO itself published a brochure in late February 2017 titled “Effective Cartel Enforcement” highlighting, among other things, the success of its whistleblowing program. The FCO noted that its system is accessible from its website and “guarantees the anonymity of informers while still allowing for continual reciprocal communication with the investigative staff [at the FCO] via a secure electronic mailbox.” Between June 2012 and December 2016, the FCO reports receiving 1,420 tips, “some of which” have led to proceedings resulting in fines.

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German Court Rejects National Competition Authority Liability for Damages After Unlawful Prohibition of a Merger

The Higher Regional Court in Düsseldorf yesterday dismissed an action for damages of €1.1 billion brought by GN Store Nord against the German Federal Cartel Office. The judgment sheds some light on the possibility for companies to claim damages in the context of an unlawful prohibition of a proposed merger.

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Germany: New Fining Guidelines

by Martina Maier and Philipp Werner

The German Federal Cartel Office (FCO) has recently published new Guidelines for the Setting of Fines.  These guidelines implement the recent decision by the German Federal Supreme Court (BGH, judgment of 26.02.2013), according to which the 10 percent maximum fine does not constitute a cap but the upper limit of the fining range.

With these guidelines, the German FCO departs from the method of sitting fines used by the EU Commission and other competition authorities.




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Germany Amends Competition Law: Key Changes

by Martina Maier, Philipp Werner and Robert Bäuerle

On 18 October, the German Federal Parliament (Bundestag) adopted several changes to German competition law.  The new legislation still has to be passed by the second chamber of the German parliament (Bundesrat) but the changes are expected to come into force on 1 January 2013.  Overall, the changes are less far-reaching than many of the proposals discussed during the preparatory phase of the reform.  The changes, however, are significant and will have to be taken into account by companies doing business in Germany. The article summarizes the main points of the reform.

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German Court Protects the Confidentiality of Leniency Submissions

by David Henry, Martina Maier and Philipp Werner

In the wake of the seminal European Court of Justice (ECJ) ruling in case C-360/09 – Pfleiderer AG v Bundeskartellamt, Amtsgericht Bonn (Bonn local court), in a decision rendered on 18 January 2012 (case 51 Gs 53/09), has refused to give a damages claimant access to leniency submissions held by the German Federal Cartel Office (FCO).  Although strongly welcomed by the FCO, the decision is a blow to potential damages claimants in Germany, especially as it is not open to appeal.

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German Antitrust Regulator Steps Up the Fight Against Gun-Jumping

by Martina Maier and Philipp Werner

More than 100 countries worldwide have merger control regimes.  In the majority of these regimes, including the U.S., EU and most EU Member States, parties to a transaction may not close a deal without approval from the competition antitrust regulator.  An infringement of this obligation, or "gun-jumping", carries risks that are generally well understood.  But companies should be aware that the German Federal Cartel Office (FCO) has recently taken a more aggressive approach in its enforcement of gun-jumping, in particular concerning the fining policy for gun-jumping.

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Top EU Court Rules That Companies May Have Access to Leniency Statements Submitted to National Competition Authorities

by Martina Maier, Philipp Werner and David Henry

The European Court of Justice (ECJ) ruling of 14 June 2011 followed a case that originated in Germany.  Pfleiderer, a firm in the wood industry, was considering a damages claim against members of a paper cartel.  It sought access to the cartel files held by the German Competition Authority (FCO) in order to substantiate its claim.  A dispute followed over whether disclosing the documents of companies who had cooperated with the FCO would undermine the national leniency programme since potential leniency applicants would fear eventual disclosure.

A German court asked the ECJ for a preliminary ruling whether or not the provisions of EU competition law are to be interpreted as meaning that cartel victims can be granted access to leniency applications received by an EU Member State competition authority.

The ECJ has held  that it was for the courts and tribunals of each EU Member State on the basis of their own national law to determine the conditions under which such access must be permitted or refused by weighing the interests protected by EU law.  The upshot of this ruling is therefore that each judge in each Member State has a discretion as to what type of leniency document can be disclosed to a cartel victim.  The ECJ has therefore distanced itself from recommendations made by the Advocate General who suggested that documents which existed before the cartel was uncovered could be disclosed  but said that submissions drafted for the purpose of revealing the infringement should be protected.

For leniency applicants, weighing the decision whether to apply for leniency has now become even more complex. On the one hand, a potential leniency applicant stands to benefit from immunity, or a reduction, from fines. On the other hand,  it will now have to take into consideration not only the remaining risk of a fine and criminal sanctions but also the the fact that private damages claimant might get easier access to incriminating evidence. Such complexity is all the more greater given that the ECJ’s ruling may lead to different results in different European countries.

 




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