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Happy September! Global antitrust enforcers showed little sign of taking the summer off, and competition law enforcement remains a high priority in many countries. Here’s a quick recap of the summer’s hottest headlines. We look forward to catching up with you this autumn.
Linklaters' Competition/Antitrust Group |
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Click on the images below to view the stories in full. |
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For any other antitrust queries, please contact Jonas Koponen, Sir Christopher Bellamy,
Thomas McGrath, Gerwin Van Gerven or your usual Linklaters contact. |
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| Global |
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The EU ordered Ireland to recover €13 billion in illegal tax subsidies
The EU’s State aid tax decision against Ireland (re Apple) capped off a summer of heightened enforcement by competition authorities around the world.
The European Commission concluded that Irish “transfer pricing rulings”, which reduced the company’s taxable profits in Ireland, constituted illegal government subsidies. The amount at stake is truly unprecedented. Since 2000, the Commission has ordered recovery of subsidies in 254 separate cases, for a combined amount of €10.77 billion. In the Apple case alone, Ireland was ordered to recover up to €13 billion (plus interest).
This highlights the importance for companies to be mindful of State aid risk when relying on tax breaks given by EU States through rulings, incentives or other arrangements. The decision follows similar findings against Luxembourg (re Fiat), Netherlands (re Starbucks) and Belgium (re Excess profit exemption). Investigations into tax rulings involving Amazon and McDonald’s continue; and additional, not yet publicly known, cases will follow.
While the decision has important implications for multinational corporate groups, the Commission’s stance on tax rulings has been challenged before the European courts and the outcome of those appeals is yet to be seen. Uncertainty regarding the legality of tax arrangements between Member States and multinationals continues, and with Apple and the Irish government both expected to appeal the decision, this uncertainty will be prolonged. |
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Innovation effects inspire merger enforcement action
It was a hot summer for “innovation effects” in global merger review, and the topic is also at the heart of broader policies such as the Commission’s “Europe 2020 Strategy” and the Obama Administration’s “Strategy for American Innovation”. European Commissioner Vestager stressed in May 2016 that “protecting innovation is an essential part of competition enforcement. And not just in obvious high-tech industries like IT”. She later tweeted that “the Commission has decided to block Hutchison’s plan to take over O2 in the UK. Why? To serve UK consumers - affordable prices and innovation”. The innovation dimension was analysed in other recent Commission merger decisions, and is also a feature of its current Phase II investigations into Wabtec/Faiveley and Dow/Dupont.
This is not Europe going off on its own: competition agencies are increasingly extending merger analysis from traditional product market competition to the effects on innovation competition. In the US, innovation effects featured prominently in the reviews of Halliburton/Baker Hughes, Applied Materials/Tokyo Electron and, most recently, two health insurance mergers, Humana/Aetna and Anthem/Cigna. In China, the ongoing review of Dell/EMC and last year’s conditional approval of NXP/Freescale both considered the mergers’ effects on innovation.
However, in many industries the notion of “innovation” is difficult to define, more challenging to measure, and the impact on long-term consumer welfare near impossible to predict. Empirical evidence on a merger’s effect on innovation competition is evolving and, consequently, ambiguous. This should mean that the relevance of merger innovation effects varies across industries, yet increased agency focus on this line of investigation will inevitably entail more burdensome, complex and time-consuming review procedures “not just in obvious high-tech industries like IT”. Furthermore, increased cooperation between agencies means innovation will become part of the global dialogue about mergers in the same way as other effects. |
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Jump the gun at the peril of global fines
Agencies worldwide demand full respect for merger review systems and, increasingly, sanction firms that fail to file or wait to close until clearance has been obtained.
The US agencies have long since pursued procedural delinquents. During the summer, the FTC increased civil penalties for violations of the HSR pre-merger notification requirements by more than 150% (up to $40,000 per day)! The DOJ also announced a record US$11 million civil penalty to settle allegations that an activist investment firm, ValueAct Capital, had “jumped the gun” and violated the notification and waiting period requirements under the HSR Act.
With a hardened stance, China’s MOFCOM has sanctioned multinationals, Chinese SOEs and privately-owned firms for failure to adhere to the AML’s filing requirements. Three cases earlier this year saw cumulative fines of around US$177,000. These cases also highlighted that joint ventures must be approved before being established: filing immediately after completion does not prevent liability for fines. Even though fines were relatively low (possibly due to the parties’ cooperation), China’s three antitrust enforcement agencies are reportedly considering increases to the penalties for non-notification to increase deterrence. MOFCOM is also targeting non-compliance in complex mergers, where an acquirer has planned to takeover a target through a series of transactions, for instance in Meinian/Ciming.
The approach is the same in India. The CCI has imposed penalties for gun-jumping in a number of cases this year, where the merger parties have closed global transactions before approval. Brazil’s Administrative Council for Economic Defense (CADE) imposed its eighth fine for gun-jumping since the merger review regime came into force in 2012. But CADE also declared – for the first time – that the gun-jumping rendered the transaction in question null and void, suspending all effects of the deal until it has been properly reviewed and cleared. |
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| European Union |
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Cartel investigation settled for a €3 billion truck-load of fines
The European Commission fined four truck makers nearly €3 billion for allegedly coordinating the pricing of trucks sold in the EU during a 14 year period. MAN would have received a fine of around €1.2 billion had it not been awarded immunity. One firm refused to settle and remains under investigation, making this the sixth “hybrid settlement” case (out of a total 21 settlement cases).
This resolution confirms the success of the Commission’s cartel settlement programme. The total amount of fines imposed by the Commission in this case was higher than in any previous case. Also, MAN’s fine, had it not been the first to report the cartel to the Commission, would have been the highest ever imposed on a single firm. Despite very high fines, the five firms elected to settle with the Commission and, by doing so, at least in part assumed responsibility in follow-on civil proceedings. Reportedly, in the first month after the Commission’s decision, plaintiffs filed follow-on claims in German and Dutch Courts totalling more than €100 billion. |
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Highest Court ruled on cartel liability for third parties’ acts
The EU’s Court of Justice ruled in VM Remonts on the boundaries of a company’s liability for anti-competitive behaviour of its independent service providers. The Court held that such liability attaches where a company’s service provider is in fact acting under that company’s control or direction, or where the company had knowledge or reasonable foresight of the anti-competitive conduct.
Service providers must, of course, continue to apply a degree of care not to become a cartel facilitator. For companies instructing service providers, the need to do some basic due diligence and to have appropriate and documented information barriers in place where providers also work for competitors may have become more acute, as companies face responsibility for the actions of a third party not only if they knew, but also if they should have known, that the cartel facilitation was occurring. Click here to read more. |
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English cartel damages arise only from cartelised sales or implementation in the EU
The English High Court held in two recent summary judgments that damages cannot be awarded if the cartelised product was sold outside the EU – even if the product was later (indirectly) sold into the EU as part of a transformed product. However, the claimant may still have a claim, even if it did not purchase any cartelised product (directly or indirectly) in the EU, but must then show that it, in fact, suffered loss from the implementation of the cartel in the EU. The Court’s decisions came in iiyama v. Schott & others and iiyama v. Samsung Electronics & others.
As these judgments were handed down, the deadline for implementation of the Antitrust Damages Directive into national law is less than four months away (27 December 2016). This process – which will increase the relevance of competition damages actions for businesses’ risk management and compliance strategies – is already well underway in many countries. Click here to read more. |
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The UK’s vote for “Brexit” will not soon change competition law enforcement
On 23 June, the UK voted in a referendum to leave the European Union, triggering major political upheaval and the elevation of Theresa May as the new Prime Minister. Negotiations with the 27 other Member States will be required to agree the terms of withdrawal and settle the UK’s future relationship with the EU. At the same time, the UK will have to decide how to disentangle its domestic laws from EU law. The Prime Minister has indicated that she will not trigger the two-year “Article 50” process to formally leave the EU before January 2017.
For domestic competition law enforcement, the UK’s vote will mean little or no change. For international deals, Brexit will in due course add complexity to the merger review map by removing the UK from the EU’s one-stop-shop system. Some deals will then require approval from both the European Commission and the UK Competition & Markets Authority (CMA), with implications for businesses in terms of the time, expense and regulatory uncertainty involved in achieving clearance. In relation to cross-border anti-competitive conduct such as cartels and abuse of dominance, once the UK leaves the EU, businesses will be subject to separate enforcement measures by the European Commission and the CMA, potentially resulting in the imposition of fines or other restrictions on their conduct by both authorities for the same behaviour. For the time being, it is “business as usual” but further developments will be worth watching closely. |
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| United States |
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US agencies continue to require broad remedies, or challenge deals
The DOJ and FTC have continued their tough review of mergers, requiring substantial divestitures and challenging deals when proposed remedies are deemed insufficient. Dissatisfied with the parties’ proposed divestitures, the DOJ, along with state attorneys general and the District of Columbia, sued to block Aetna’s proposed acquisition of Humana, and Anthem’s proposed acquisition of Cigna, alleging that the proposed mergers would concentrate the market from five to three main competitors and substantially decrease competition in US health insurance. These challenges follow a string of abandoned mega-mergers after objections from the regulators, including Staples/Office Depot and Halliburton/Baker Hughes, both terminated in May.
Several high-profile mergers survived antitrust scrutiny from the regulators over the summer, but not without substantial divestitures. Anheuser-Busch InBev agreed to divest all of SABMiller’s business in the US (including its stake in MillerCoors), and permit the DOJ to review any potential acquisitions of distributors or brewers (including non-HSR reportable transactions), in order to proceed with its proposed US$107 billion acquisition. Teva was required to divest over 75 generic drug products in order to proceed with its proposed US$40.5 billion acquisition of Allergan’s generic business. And Koninklijke Ahold and Delhaize Group were required to divest 81 supermarkets in seven states in order to proceed with their proposed US$28 billion merger. |
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Antitrust in the presidential election
Increased antitrust enforcement under the Obama Administration remains a priority for the Democratic party, which included antitrust enforcement in its platform for the first time since 1988, pledging to go after dominant companies seen as abusing market power. In a recent speech on antitrust policy, Democratic senator from Massachusetts Elizabeth Warren cautioned against the concentration of market power and its effects on consumers and innovation, naming Google, Apple and Amazon for decreasing competition. Republicans, meanwhile, have remained silent on antitrust policy. |
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DOJ investigates generic pharmaceutical pricing
The DOJ issued a subpoena to the US affiliate of Indian drug manufacturer Sun Pharma, seeking employee records and information regarding communications with competitors related to generic drugs. The subpoena follows recent investigations into price fixing of generic drugs and public scrutiny of generic drug prices, including by Congress. Mylan, Lannett, Impax Labs, Par Pharmaceutical and Allergan have also disclosed receiving similar subpoenas from the DOJ. |
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DOJ extends prohibition of interlocking directorates to two non-US entities
The DOJ asserted that a transaction between UK competitors ICAP plc and Tullet Prebon would violate Section 8 of the Clayton Act which prohibits interlocking directorates (where one individual sits on the board of both companies). This marks the first time the DOJ has challenged two non-US entities for violating Section 8. The parties resolved the DOJ’s concerns by restructuring the proposed US$1.5 billion transaction so that ICAP would no longer own any part of Tullett Prebon or have any right to nominate a member of Tullett Prebon’s board of directors. Click here to read more. |
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| China |
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State Council aligns policies for “single market”
The State Council, the Chinese government’s highest executive body, published an opinion on the improvement of China’s competition review system. The opinion aims to regulate the conduct of government bodies with a view to preventing policies that would otherwise exclude or limit competition. The ultimate goal is to abolish provincial/local barriers to trade and thereby foster a single Chinese national market. To this end, public authorities are required to gradually abolish or revise existing rules and practices that create provincial hurdles to fair competition. |
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NDRC targets the healthcare sector in a continued run of enforcement
Enforcement action by the NDRC has continued unabated. For instance, the agency took enforcement action against three Chinese suppliers of insomnia drugs. The offending agreements concerned boycotts and price fixing. Unusually, the NDRC did not identify an explicit price fixing agreement, but rather that a cartel was formed through communications of price increase proposals which created expectations that other members of the cartel would follow and implement these. In addition, the NDRC’s Shanghai branch has decided to impose fines totalling US$1.2 million on domestic household appliance giant Haier for resale price maintenance.
The NDRC also drove ahead its investigations into the healthcare sector. It is understood that investigations have involved almost every major player in the industry, covering producers, suppliers and distributors, and all major aspects of the conduct rules. For instance, in May, the NDRC announced it would carry out investigations in the pharmaceutical sector concerning suspected agreements between, and abuse of dominance by, pharmaceutical companies, fraudulent pricing behaviours of retailers, non-compliance with government pricing policies, non-compliance with requirements to display and publish prices, among other things. In August, the NDRC issued further questionnaires to around 20 companies in the pharmaceutical and medical device sectors. These investigations continue. |
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| Rest of Asia |
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New Asian enforcers and marked increase in enforcement activity
Agencies in several Asian countries are enforcing competition laws more forcefully than ever before. Enforcers in Korea and Taiwan are driving fines to unprecedented levels and Japan is pushing towards criminal sanctions for individuals. For example, in the first half of 2016, the Korean Fair Trade Commission is understood to have imposed fines of more than US$600 million on firms in industries such as auto parts and (more than US$100 million in) cardboard.
In addition to well-established agencies flexing their muscles with domestic and international firms, new regulators ramped up operations in Hong Kong and the Philippines. Beyond this, reforms are underway in Indonesia, Vietnam and Thailand that may introduce criminal sanctions for antitrust violations. |
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Spotlight on Asia's shipping industry
The importance of Asian ports to global shipping routes is matched with the recent spotlight being thrown on the industry by regulators across the Asian region. Whilst Singapore began the year by extending immunity until 2020 to a number of commercial agreements in the sector, the new antitrust agency in Hong Kong has spent its first nine months considering a potential block exemption for the industry. Aside from such broader industry-wide measures, antitrust investigations by a number of Asian regulators into specific practices have picked up pace. Whilst China’s NDRC continues its investigations, other Asian agencies have taken their own actions to end cartel conduct in the sector. For example, in June 2016 the Malaysian enforcer imposed a range of fines on port operators for price fixing of rebates in the port of Penang. |
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| India |
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CCI clarifies merger review jurisdiction, intensifies scrutiny of non-competes
The Competition Commission of India clarified parties’ obligations to notify asset acquisitions for (mandatory, suspensory) merger review. In a recent order, the CCI held that an unincorporated entity or business division of a company does not qualify as an “enterprise”. In consequence, the value of a seller’s entire sales and assets (not only those of the target business) count towards India’s jurisdictional thresholds. The approach is inconsistent with the application of equivalent rules internationally and also with the Competition Act itself: for instance, the sale of an asset could be subject to (mandatory, suspensory) merger review in India if the transaction is structured as an asset deal, but not if structured as a share deal.
Separately, the CCI is now reviewing non-compete restrictions in greater detail. In a recent acquisition, the CCI directed parties to modify the duration of a non-compete from five to three years. In another case, the CCI directed the parties to modify the geographical scope of the non-compete restriction to apply only to territories where the target operated. In general, the CCI has observed that non-compete provisions must be reasonable in terms of the scope of products, territories and duration; however, guidance is still evolving on a case by case basis. |
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| Australia |
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The longer arm of Australia’s competition law enforcers
According to the Australian Federal Court in ACCC v Prysmian and ACCC v Yazaki, a more expansive approach will be taken to the extraterritorial ambit of Australia’s competition laws.
In both cases, proceedings were brought against overseas parent companies, rather than Australian-based subsidiaries. The ACCC was ultimately successful in establishing that the parent companies “carried on business” in Australia. This means that more foreign businesses could be caught by Australia’s criminal and civil cartel laws.
These decisions coincide with the commencement of the first criminal cartel case in Australia since the introduction of criminal cartel laws in 2009. Criminal charges were laid against global shipping company Nippon Yusen Kabushiki Kaisha (NYK) after an ACCC investigation into NYK’s transportation of imported vehicles to car manufacturers. NYK has faced charges in other jurisdictions, including the United States. NYK has since pled guilty and could now face substantial fines of up to AU$10 million, three times the benefit obtained from the offence or 10% of Australian turnover. The Australian proceedings will test, for the first time, how fines are to be determined under the criminal cartel laws.
Case law on the application of Australia's cartel laws, both civil and criminal, is developing quickly and this is likely to continue with the ACCC indicating that it has a number of investigations currently underway. |
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| South Africa |
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Striking a balance – “public interest” in merger review
South Africa’s Competition Commission, in two recent conditional merger approvals, adopted a broad interpretation of the notion of “public interest” in South African merger review and extracted remedies that arguably were not merger-specific. After extensive negotiations in the reviews of Coca-Cola Beverages Africa Limited and Anheuser-Busch Inbev/SABMiller, the South African Competition Commission recommended a number of far reaching conditions due to concerns that were more related to the public interest than competition policy. These included the establishment of large investment funds aimed at enterprise and agricultural development.
These merger reviews highlight the importance that the South African authorities afford to public interest considerations, but also how intertwined competition and industrial policy are in South Africa. As a result, merger parties should be prepared to address questions on the transaction’s effect on a variety of topics, such as the industrial sector or region, employment, the competitiveness of small businesses, firms controlled or owned by historically disadvantaged persons, or of national industries in international markets. |
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| Brazil |
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Reaching the railways — the Petrobras scandal continues
Brazil’s antitrust authority, CADE, has opened its third follow-on cartel investigation related to the Petrobras corruption scandal. This marks the 32nd phase of the agency’s probe, which covers numerous criminal and administrative infringements.
The new investigation was launched in June, when 14 bench warrants and 44 dawn raids were carried out by CADE and the Federal Police together with the Public Prosecutor’s Office. Camargo Correa had applied for leniency, thereby prompting this search into a suspected decade-long cartel that allegedly rigged bids for railway engineering projects. Two other investigations opened in 2015, concerning engineering projects and assembly work of oil and gas platforms and a nuclear power plant, are still ongoing. The Brazilian government has requested that CADE set up rules to increase competitiveness and transparency in future bidding processes to prevent the formation of cartels.
In addition to these new investigations, the Brazilian press has been reporting further leniency agreements entered into with public authorities other than CADE in the context of the Petrobras saga. If the agreements are finalised, they may lead to additional investigations for anti-competitive behaviour. |
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