ABA Section of Antitrust Law │ International Committee August 2014 │ Vol. 2

The International Antitrust Bulletin is pub-lished four times a year by the American Bar Association Section of Antitrust Law Interna-tional Committee. The views expressed in the International Antitrust Bulletin are the au-thors’ only and not necessarily those of the American Bar Association, the Section of Antitrust Law or the International Committee. If you wish to comment on the contents of the International Antitrust Bulletin, please write to the American Bar Association, Sec-tion of Antitrust Law, 321 North Clark Street, Chicago, IL 60654-7598.

COPYRIGHT NOTICE © Copyright 2014 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. To request permission, contact the ABA’s Department of Copyrights and Contracts via www.americanbar.org/utility/reprint.

IN THIS ISSUE

What In The World Did I Miss? A summary of the world’s major competition law developments in the past quarter.

Africa .................................................................................................................................................... 2 Asia ........................................................................................................................................................ 3 Australasia ............................................................................................................................................ 4 Europe .................................................................................................................................................. 5 North America .................................................................................................................................... 6 South America ..................................................................................................................................... 7

North America

Procedural Fairness and the Importance of Focusing Solely on Competition ......................... 8 Factors in Competition Analysis

Koren W. Wong-Ervin

The Long Arm of Antitrust Law .................................................................................................... 11 Evelyn Niitväli & Marc Reysen

All Per Se Crimes are Unconstitutional ........................................................................................ 13 Charles D. Weller

New Guidance on the Collection and Seizure of Electronic Evidence in .............................. 15 International Cartel Cases

Mark Krotoski

South America

Chile’s New Guidelines on Vertical Restraints ............................................................................ 18 Juan Cristóbal Gumucio & Igal Schönberger

Asia

DLF Penalty Cemented by Indian Competition Appellate Tribunal ....................................... 20 K K Sharma

Tesco/Trent: Muddying the Waters of Merger Control in India ............................................. 22 Karan Singh Chandhiok

Investigation of International Cartels in Russia ........................................................................... 24 German Zakharov & Alla Zhigaeva

Europe

Private Damages Actions in the EU: The European Directive and New Judgment ............. 26 on the Umbrella Effect—A New Path For Compensation Claims

Christina Hummer

Follow-On Actions: Is Spain a New El Dorado? .......................................................................... 28 Josselin Lucas, Sabrina Camand & Vanessa Jiménez Serrania

European Commission Publishes Detailed Proposals on Changes to ................................... 30 EU Merger Regulation

David Cardwell, Paul Lugard & Simina Suciu

Meet the Authors ........................................................................................................ 32

Contribute to the IAB

If you have a topic idea, please contact one of our Editors-in-Chief, Tom Collin or Krisztian Katona. Articles can cover any topic in the international antitrust area and should be approximately 800-1,200 words. Join the International Committee If you'd like to join our Committee, please visit www.ambar.org/atInternational. Editors-in-Chief Thomas Collin tom.collin@thompsonhine.com

Krisztian Katona kkatona@ftc.gov Assistant Editor Jane Antonio jane.antonio@bakerbotts.com International Committee Leadership

Committee Chair John Taladay Committee Vice-Chairs Thomas Collin Matthew Hall Casey Halladay Krisztian Katona Julie Soloway Suzanne Wachsstock Young Lawyer Representatives Anna Chehtova Jennifer Marsh Follow us on:

AMERICAN BAR ASSOCIATION

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 2

What In The World Did I Miss?

COMESA

June 30, 2014 — COMESA opened a new courthouse, built to the tune of over $4 million. The court will hear antitrust and merger cases that are appealed from the organisation’s Competition Commission. http://africanantitrust.com/2014/06/30/costly-comesa-courthouse-za-investigates-visa-provider-holds-ground-on-sasol-fine/

Kenya

June 5, 2014 — Airtel Networks Kenya Limited requested that the Kenyan Competition Authori-ty probe Safaricom (a competitor) for an abuse of dominance in the mobile money trans-fer market. http://africanantitrust.com/2014/06/05/airtel-kenya-requests-probe-of-safaricom-for-abuse-of-dominance-in-mobile-money-transfer-market/

Mauritius

June 18, 2014 — The Competition Commission of Mauritius recommended fines of approximately €487,000 and €158,000 be im-posed on Phoenix Beverages Ltd (PLB) and Stag Beverages, respectively, for their involvement in a cartel. This is the country’s first cartel investigation to be made public as well as the first time that penalties have been imposed by the Mauritian Competition Com-mission, and the first time a party utilised the Mauritian authority’s leniency programme. www.ccm.mu/English/Documents/Investigations/INV027-Media%20Release-Final%20Report.pdf

South Africa

June 5, 2014 — The Competition Tribunal found Sasol Chemical Industries Limited, a subsidiary of Sasol Ltd, guilty of charging do-mestic customers excessive prices for purified propylene and polypropylene between January 2004 and December 2007, and imposed a fine of R534 million (approximately USD54 million) on Sasol Chemical Industries. www.compcom.co.za/assets/Uploads/AttachedFiles/MyDocuments/Competition-Tribunal-imposes-R534-million-penalty-on-Sasol-for-over-charging.pdf

June 20, 2014 — The South African Competition Commission launched its second market inquiry. The inquiry will focus on the energy sector, particularly liquefied petroleum gas. www.compcom.co.za/lpg-inquiry

July 4, 2014 — The South African Competition Commission recently conducted dawn raids at the offices of Precision and Sons, El-dan Auto Body in Pretoria West, as well as the Vehicle Accident Assessment Centre in Centurion. This is the second dawn raid con-ducted by the Commission in 2014. P recision is an approved auto body repairer to Original Equipment Manufacturers (OEM) such as Cadillac, Dodge, Chrysler, Fiat, Kia, Chevrolet, Toyota and Honda, while Eldan is an approved auto body repairer to OEMs such as Jeep, Fiat, Mitsubishi, Toyota, Honda and Nissan. www.compcom.co.za/assets/Uploads/Competition-Commission-raids-Precision-and-Eldan-offices.pdf

Africa ....................................................................................................................................................................................................... John Oxenham Nortons Inc., South Africa

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 3

What In The World Did I Miss?

This is Neither U.S. Nor EU (Part I) — Microsoft/Nokia Merger: We are the TFTC, MOFCOM, and KFTC

In early December 2013, the U.S. antitrust agencies granted early termination of the initial 30-day mer-ger review period. Similarly, within days, the EU promptly cleared the transaction as not posing any serious antitrust concerns. Back then, most observers expected smooth sailing throughout the rest of the antitrust approval process around the world. However, it appears that from the start, their Asian counterparts had different perspectives and concerns in mind. First, in February 2014, Taiwan’s TFTC came down with a number of conditions for approving the deal. Then on April 8, 2014, MOFCOM, China’s merger enforcement agency, approved the transaction with some strings attached. In late April, Microsoft reportedly withdrew the Korean premerger notification that it had previously filed with the KFTC. Apparently, Microsoft and Nokia restructured the transaction by excluding Nokia’s production facility in Korea from the acquisition, thereby rendering the transaction a non-reportable transaction in Korea. Subsequently, on April 25, 2014, the parties closed the deal. Unfazed, the KFTC

continues with a post-consummation merger investigation. http://goo.gl/2Vxlai; http://goo.gl/rRv962; http://goo.gl/hgIwP8; and http://goo.gl/YDwoXi

This is Neither U.S. Nor EU (Part II) – MOFCOM Sinks P3 Shipping Alliance Proposal

June 17, 2014 — China’s MOFCOM blocked the P3 Alliance proposal among three global shipping companies, Denmark’s Moller-Maersk, France’s CMA CGM and Swiss’ Mediterranean Shipping Company (MSC). In contrast, the U.S. Federal Maritime Commission cleared the deal in March and the EU cleared the proposed transaction on June 3, 2014, just two weeks before MOFCOM announced its decision. The parties to the transaction promptly called off the deal. Reportedly, this is only the second time that MOFCOM completely blocked a mer-ger transaction since the adoption of China’s antitrust statute in 2008. Prior to this decision, MOFCOM reportedly approved 23 transac-tions with conditions and banned only one merger outright out of over 800 merger transactions it reviewed. http://goo.gl/OpVdbr; http://goo.gl/jng7kn; and http://goo.gl/fSFoFd

Asian Antitrust Agencies are Closely Reviewing the Applied Materials/Tokyo Electron Merger, but This Time They are Not Alone

Unlike the Microsoft-Nokia transaction, this time around, MOFCOM and KFTC appear to have plenty of like-minded antitrust agencies around the world. A number of jurisdictions are reportedly conducting in-depth investigations with no immediate end in sight. The U.S. DOJ, China’s MOFCOM, Germany’s Federal Cartel Office, Korea’s KFTC and Japan’s JFTC, among others, are reportedly looking into the proposed marriage of two giant semiconductor manufacturing equipment suppliers. While most observers report that the deal will be ultimately approved, it remains to be seen precisely what types of corrective measures and conditions will have to be agreed to by the merg-ing parties in various jurisdictions. http://goo.gl/NJHx6r; http://goo.gl/0yDggK; http://goo.gl/ttbp4E; http://goo.gl/CgyzP3

Japan, Taiwan and South Korea Chime in on the Meaning of FTAIA

When Motorola’s private damages case against a host of LCD makers was transferred back to Illinois in 2013 after MDL pre-trial proceed-ings in San Francisco, in October 2013, Japan’s Ministry of Economy, Trade and Industry (METI) filed an amicus brief with the District Court for the Northern District of Illinois on the proper interpretation of the Foreign Trade Antitrust Improvements Act (FTAIA), attach-ing amici briefs of Japan, Germany, U.K, Switzerland and Holland filed in the Empagran proceedings of 2004 and 2005. After the District Court sided with the view espoused by the Japanese Government, Motorola filed an immediate appeal to the 7th Circuit. In March, a three-judge panel accepted the appeal but at the same affirmed the District Court’s decision below. Motorola then sought the 7th Circuit’s en banc review, and the real skirmish began. In May 2014, the Korea Fair Trade Commission (KFTC) filed its amicus brief with the 7th Cir-cuit, a few days later followed by another amicus brief by Taiwan’s Ministry of Economic Affairs, also endorsing a more judicious extraterri-torial application of U.S. antitrust law. In early July, the 7th Circuit agreed to rehear the FTAIA issue and the saga continues… http://goo.gl/fpZTQJ; http://goo.gl/JyQMs8; http://goo.gl/aKouCO; http://goo.gl/iU79ZB; http://goo.gl/wsUxek

China Launches Antitrust Review of 80 Industries

June 9, 2014 — China announced that it was conducting an antitrust review of some 80 major industries, including the automobile, pharma-ceutical, and alcoholic beverages industries. This time, MOFCOM, one of three antitrust enforcement agencies in China, is taking the lead. Apparently, MOFCOM already asked various industry associations to help collect information for an anti-monopoly survey, but also hinting that some industries, such as the automobile industry, may be higher priority targets. http://goo.gl/Zx0FdL

Asia .................................................................................................................................................................................................................... Cecil Chung Yulchon LLC, Korea

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 4

What In The World Did I Miss?

Australia

May 22, 2014 — The ACCC and the Ministry of Commerce of the People's Republic of China (MOFCOM) signed a memorandum of understanding which ACCC Chairman Rod Sims says paves the way for increased communication and cooperation between the agencies on mergers which affect both the Australian and Chinese markets. According to Sims, “The scope of the agreement allows the agencies to exchange infor-mation on the definition of markets and theory of harm as well as impact assessments and the design of merger remedies, subject to confidentiality and privacy requirements in each jurisdiction.” www.accc.gov.au/media-release/australia-and-china-to-increase-cooperation-on-mergers-regulation

June 25, 2014 — The ACCC provided a submission to the Harper Review of competition policy. Key rec-ommendations relate to the misuse of market power provisions and so-called “price signalling” provisions in the Competition and Consumer Act 2010. ACCC Chairman Rod Sims has said that the misuse of market power prohibition “is of limited utility in prohibiting anti-competitive conduct by firms with substantial market power” and the ACCC recommends “the introduction of an effects test, including a substantial less-ening of competition, and amendments to overcome limitations inherent in the current interpretation of the

‘take advantage’ test.” The ACCC advocates expanding application of the “price signalling” provisions prohibiting anti-competitive disclosure of information throughout the whole economy, not just the banking sector to which they are currently limited to. www.accc.gov.au/media-release/reinvigorating-australias-competition-policy-accc-submission-to-harper-review

Burma (Myanmar)

The Union Parliament has commenced preparations for the country's first ever Competition Law in line with the country's commitment to the ASEAN Economic Community to introduce national competition law by 2015. The Competition Law will be enforced by the Myanmar Competi-tion Commission and will be formed by Cabinet and consist of a chairman, vice chairman, secretary and board, and will be staffed by “experts and suitable persons” from the civil service and non-governmental organisations. As part of the country's preparation for the law, members of the Myanmar Ministry of Commerce have taken part in a training course on Competition Policy and Law with the support from the ASEAN Secretari-at and the German Government. The bill is expected to be passed within the current parliamentary session and emphasises fairness in business dealings through its unfair competition provisions. It includes elements of consumer protection for not only final consumers but also businesses. The commission will have powers to suspend company operations, issue warnings and fines of up to 7 million kyats (US $7,170). Criminal compe-tition proceedings may also be initiated against serious violators, with penalties of a maximum five-year prison term for individuals or fines.

Indonesia

June 10, 2014 — A memorandum of understanding has been signed between the National Consumer Protection Agency (BKPN) and China’s State Administration for Industry and Commerce (SAIC) to facilitate the exchange of information between Indonesia and China, so that Indonesia can learn from China's experience in consumer protection. The new cooperation comes at a time when the government plans to revise the 1999 Consumer Protection Law. Indonesian consumer law lacks a number of features taken for granted in other jurisdictions. For example, coverage is limited only to goods, while in fact consumers also face problems when buying services from service providers. Further the law lacks a proper defi-nition of consumers, restricting it to end-consumers, thereby excluding intermediate-consumers such as manufacturers of goods. www.thejakartapost.com/news/2014/06/10/indonesia-looks-learn-china-s-consumer-protection.html

New Zealand

April 8, 2014 — The New Zealand High Court ordered Kuehne + Nagel International AG (Switzerland) to pay a penalty of $3.1 million (NZ) plus costs for breaches of the Commerce Act, in a long-standing case brought by the Commerce Commission against six international freight forward-ing companies for a range of hard-core cartel behaviour. This order brings the total penalties ordered in the case to a total of $ 11.95 million (NZ). After the other five defendants admitted their role in the cartel and paid their requisite penalties in 2010 and 2011, Kuehne + Nagel admitted in April to being part of a secret classic hard-core cartel that called itself the ‘Gardening Club’ and used secret code words and covert meetings. The Gardening Club agreed to charge surcharges on air freight forwarding services from the UK to countries including New Zealand, apparently to cover the costs of increased UK security measures. The cartel participants agreed that they would each pass on certain costs to customers, rather than compete in the usual way and determine their own pricing structures and price levels. www.comcom.govt.nz/the-commission/media-centre/media-releases/detail/2014/air-freight-cartel-nets-almost-12-million-in-penalties

Singapore

May 27, 2014 — The Competition Commission of Singapore (CCS) has imposed financial penalties totaling S$9.3 million on Japanese bearings manufacturers and their Singapore subsidiaries for price fixing and information exchange. It is CCS's first-ever decision in an international cartel investigation. The investigation revealed that the Parties were competitors and met regularly at meetings in Japan and Singapore where they ex-changed information, discussed and agreed on sales prices for bearings sold to their respective aftermarket customers in Singapore, so as to main-tain each participant's market share and protect their profits and sales. CCS found that the conduct of the Parties from 2006 until 2011, including price-fixing agreements and exchanges of strategic information such as future pricing intentions, amounted to a single overall infringement with the object of preventing, restricting and distorting competition. www.ccs.gov.sg/content/ccs/en/Media-and-Publications/Media-Releases/ccs-imposes-penalties-on-ball-bearings-manufacturers-involved-in.html

Australasia ........................................................................................................................................................................................... Linda Evans Clayton Utz, Australia

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 5

What In The World Did I Miss?

European Union

EU issues detailed consultation on minority shareholdings, July 9, 2014 — The European Commission published a White Paper containing its detailed proposals on new legislation designed to make the acquisition of certain minority shareholdings potentially notifiable under the EU Mer-ger Regulation. The White Paper also contains proposals on limiting the EU’s jurisdiction to re-view joint venture transactions which do not have sufficient nexus with the EU, as well as pro-posed changes to the way in which merger cases are referred between national competition au-thorities and the European Commission. The White Paper consultation period is open until Octo-ber 3, 2014. http://ec.europa.eu/competition/consultations/2014_merger_control/index_en.html

European Commission adopts revised de minimis notice, June 25, 1014 — The European Commission has published a new, revised version of its De Minimis Notice, which is designed to give guidance for situations involving agreements between companies which are of “minor im-

portance”. The major change introduced under the new De Minimis Notice is a clarification to the effect that restrictions of compe-tition “by object” (i.e. agreements which are specifically aimed at restricting competition) can never be considered as being of minor importance, meaning that they will always be seen as constituting an appreciable restriction of competition, in violation of the EU’s main prohibition on anticompetitive agreements. http://ec.europa.eu/competition/antitrust/legislation/de_minimis_notice.pdf

France

French court makes first ever request to European Commission for opinion on antitrust case, June 19, 2014 — The Court of Appeal in Paris set a legal “first” in France by staying an abuse of dominance appeal case involving the telecoms companies Orange and SFR, in order to get European Commission input on the case. The request, made on June 19, seeks the Commission’s opinion on certain factual and legal points because, in the French court’s view, the type of abuse of dominance involve in the case differs from previous cases and calls for the views of the European Commission to be taken into account. The European Commission has issued 29 opinions to national courts since 2004, a facility that is designed to ensure a degree of consistency in application of EU anti-trust-based law in national courts. The Commission must issue its opinion by mid-October, subject to extension in certain circum-stances. http://globalcompetitionreview.com/news/article/36242/france-seeks-first-ever-european-opinion/

Poland

Poland adopts wide-ranging changes to competition law, June 18, 2014 — On June 10, the Polish parliament agreed on a pack-age of changes to the country’s existing competition law. The changes are broad and will alter many of the existing rules on fining policy, settlement procedures and leniency applications in cartel proceedings, and on merger control – with a new one-month Phase I review period for straightforward cases representing a significant shortening from the current two-month review period. The changes will be implemented via amendments to the existing Act on Competition and Consumer Protection, and will likely come into force at the beginning of 2015. www.uokik.gov.pl/news.php?news_id=11074

United Kingdom

New UK competition authority launches energy investigation, June 26, 2014 — Following the entry into operation on April 1 of the new UK competition enforcer – the Competition & Markets Authority (CMA) – the new authority has opened a full market investigation into the energy market in the UK. The investigation will be wide-ranging, covering both electricity and gas supply, and at every level of the energy supply chain. The investigation originates from a preliminary examination of the market carried out by the CMA in partnership with the UK energy regulator, Ofgem, and demonstrates the CMA’s willingness to make full use of its mar-ket investigation powers. The CMA now has 18 months in order to complete its investigation and to issue a report on potential anti-trust problems in the market. www.gov.uk/cma-cases/energy-market-investigation#case-opened-26-june-2014

Europe ................................................................................................................................................................................................... David Cardwell Baker Botts LLP, Brussels

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 6

What In The World Did I Miss?

Canada

May 13, 2014 — Canada’s Competition Bureau closes its investigation of alleged anticompetitive conduct by Alcon related to the supply of its prescription anti-allergy drug, Patanol. www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03736.html

Canada/United States

May 14, 2014 — Louisiana-Pacific abandons its plan to acquire Ainsworth Lumber, its close com-petitor in the sale of a type of manufactured wood-based panel, after the United States Depart-ment of Justice (“DOJ”) and Canada’s Competition Bureau express concern over the merger. www.justice.gov/atr/public/press_releases/2014/305936.htm; www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03724.html

United States

June 4, 2014 — The U.S. Court of Appeals for the Second Circuit affirmed the district court’s dismissal of Lotes’s claim because the U.S. domestic effect of the defendants’ alleged anticompetitive conduct did not “give rise to” Lotes’s claim, and thus was barred by the Foreign Trade Antitrust Improvements Act (“FTAIA”). The court, however, overturned a prior decision and held that the FTAIA’s “direct, substantial, and reasonably foreseeable effect” requirement demands that a plaintiff to show that there is a “reasonably proximate causal nexus” between a defendant’s alleged conduct and the plaintiff’s alleged harm. This holding follows a recent holding by the Seventh Circuit in Motorola Mobility and expressly rejects the Ninth Circuit’s more stringent test, which re-quires plaintiffs to show that the harm was the “immediate consequence” of the alleged wrongdoing. Lotes Co. Ltd. v. Hon Hai Precision Indus-try Co. Ltd., No. 13-2280 (2nd Cir.).

June 5, 2014 — A Japanese automotive parts manufacturer executive is indicted for his role in conspiracy to suppress and eliminate competition in the automotive parts industry and obstruction of justice. www.justice.gov/atr/public/press_releases/2014/306344.htm

June 18, 2014 — The United States Federal Trade Commission (“FTC”) alleged that the proposed merger would result in two firms dominating the sale of glass containers to brewers and spirits distillers. Ardagh agreed to sell six manufacturing plants previously ac-quired through its 2012 acquisition of Anchor Glass to resolve the FTC’s concerns. www.ftc.gov/news-events/press-releases/2014/06/ftc-approves-final-order-settling-charges-ardaghs-proposed

June 23, 2014 — FTC and DOJ participate in a joint agency workshop on conditional pricing practices among firms in a supply chain. www.ftc.gov/news-events/events-calendar/2014/06/conditional-pricing-practices-economic-analysis-legal-policy

July 1, 2014 — The U.S. Court of Appeals for the Seventh Circuit agrees to rehear Motorola’s claims against component manufactur-ers allegedly involved in a global price-fixing scheme, after a three-judge panel summarily dismissed the case. Motorola Mobility LLC v. AU Optronics Corp., No. 14-8003 (7th Cir. July 1, 2014).

Mexico

April 29, 2014 — Mexico approves its new competition law, which becomes effective July 7, 2014. Under the new law, the Federal Competition Commission will be in charge of enforcing merger control rules and conducting investigations related to anticompetitive conduct in all sectors of Mexico’s economy. The only exceptions are the telecommunications and broadcasting sectors, which will be under the authority of the Federal Institute of Telecommunications. www.cfc.gob.mx/cofece/images/Comunicados/COFECE_007_2014.pdf

July 4, 2014 — Mexico’s Senate approves secondary legislation required for the reform of the local telecommunications and TV mar-kets. The bill now passes to the Lower House for approval. www.senado.gob.mx/documentos/votaciones_4_julio_2014.pdf

July 8, 2014 — America Movil, Mexico’s largest telecommunications provider, decides to divest some assets to an independent com-pany, reducing its market share in Mexican landlines and mobile phones to below 50 percent to appease regulators. The proposal must now be approved by Mexico’s Federal Institute of Telecommunications. www.americamovil.com/mailing/AMX_Strategic_Committee.pdf

July 9, 2014 — Mexico’s new Federal Economic Competition Commission submits to Mexico’s Congress the findings of a five-month investigation of Mexico’s concentrated financial sector, and offers 36 recommendations to boost competition. www.cfc.gob.mx/cofece/images/Comunicados/COFECE_013_2014.pdf

North America ...................................................................................................................................................................... Jonathan Gowdy Morrison Foerster, United States

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 7

What In The World Did I Miss?

Brazil

April 28, 2014 — CADE signs Memorandum of Understanding (MOU) with the Japan Fair Trade Commission. According to MOU, the two agencies may coordinate their enforcement activities in areas of mutual interest. In addition, the MOU will facilitate and improve the process of exchange of information between the agencies. http://cade.gov.br/Default.aspx?1c2fff09180de32ffb491b330c35

May 29, 2014 — CADE imposes a fine of approximately US$1.5 billion on members of an alleged cement cartel. According to CADE, the cartel acted in the Brazilian cement and concrete market by fixing prices and sales quantities, and by allocating territories and customers among the cartel mem-bers. CADE’s fines were applied to six companies, six individuals, and three associations. In a surpris-ing move, CADE also determined structural remedies as sanctions on the companies under investiga-tion, including the compulsory divestiture of certain plants and certain minority shareholdings that the

companies had in other businesses in the same market. http://cade.gov.br/Default.aspx?350816e33dd229ea3f0c5fe87ec7

Chile

June 5, 2014 — Chile issues guidelines for the review of vertical agreements. The document provides a detailed description of the criteria that Chile’s antitrust authorities will adopt when reviewing transactions that amount to vertical integrations. www.fne.gob.cl/2014/06/05/fne-lanza-guia-para-el-analisis-de-restricciones-verticales/#more-71087

Uruguay

May 19, 2014 — Uruguay’s antitrust authority was selected to host the XII Foro Latinoamericano de Competencia (“LACF”). The LACF will be held in September and is the largest Latin American conference on competition policy. It is sponsored by the OECD and the IDB. www.mef.gub.uy/competencia/noticias/noticia_20140519.php

South America ....................................................................................................................................................................... Amadeu Ribeiro Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, Brazil

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 8

Procedural Fairness and the Importance of Focusing Solely on Competition Factors in Competition Analysis

Koren W. Wong-Ervin* U.S. Federal Trade Commission, United States

T he importance of ensuring fair and transparent investiga-tive procedures and focusing solely on competition factors

in competition analysis have been topics of much recent inter-national discussion. On May 22, 2014, U.S. Federal Trade Commission (FTC) Chairwoman Edith Ramirez gave a keynote address at an antitrust conference in Beijing1 setting forth core features of fair and transparent processes and explaining that consumers are best served when competition enforcement and policy decisions are based on competition considerations and not other economic or social goals.2 While Chinese officials stated their agreement, at least in principle, with the importance of procedural fairness, there are at least some who defend the use of non-competition factors in competition analysis. Minis-try of Commerce (MOFCOM) Director General Shang Ming has suggested that the balance between competition and indus-trial policy issues in Anti-Monopoly Law (AML) enforcement may tilt more towards the former over time, and National De-velopment and Reform Commission (NDRC) Director General Xu Kunlin has stated his personal recommendation that, except in some emerging or high-risk industries, competition policy should play a fundamental role in encouraging innovation.

The Importance of Fair and Transparent Investigative Procedures

In her keynote address, FTC Chairwoman Ramirez stated that, while there are differences in investigation procedures among antitrust enforcers, core features of fair and transparent investigative processes have emerged, including based on sub-stantial work by multilateral organizations such as the OECD and ICN. These include:

Permitting legal representation for the parties under investigation, including allowing the participation of local and foreign counsel;

Notifying the parties of the legal and factual bases of an investigation and sharing the evidence on which the agency relies;

Facilitating direct and meaningful engagement between the parties and the agency’s investigative staff and deci-sion-makers; and

Ensuring internal checks and balances on decision-making within the agency.3

Chairwoman Ramirez went on to explain that strong proce-dural guarantees not only ensure fairness to parties but also pro-vide substantial benefits to agencies, including allowing them to efficiently reach duly informed decisions and maintain credibil-ity with stakeholders. Specifically, the Chairwoman explained that providing parties with information on the theories of harm and evidence relied upon by the agencies allows parties to re-

spond effectively and helps the agency to better focus its inves-tigation, understand key areas of dispute, and develop its case. “Good process is required to ensure the quality and accuracy of agency decisions. Understanding the parties’ arguments forces the agency to sharpen its own arguments, allows it to test its theories, and provides an opportunity to gain insight into the parties’ evidence and potential defenses.”4 Finally, differing levels of engagement between parties and agencies in parallel investigations can result in “cooperation gaps” due to asymmet-ric information, which can contribute to different analyses and conflicting outcomes.

With respect to potential barriers to ensuring fair and trans-parent procedures—namely, inadequate resources, a desire to preserve the integrity of the investigative process, and the need to protect confidential information and sources—, the Chair-woman explained that transparency can result in increased effi-ciencies by allowing the agency and the parties to focus re-sources on key issues, and that confidentiality protections need not pose an impediment to fair and transparent procedures. “In addition to short-term efficiencies there are also long-term effi-ciencies from greater transparency, including increased compli-ance and deterrence.”5 With respect to confidentiality, a num-ber of measures can be employed to balance transparency with confidentiality, including providing access to confidential infor-mation subject to a protective order; providing meaningful, de-tailed summaries of the confidential information; and disclosing confidential information only to a limited set of individuals, such as outside counsel subject to an agreement not to share the information with individuals within the company with whom it might lead to competitive concerns.

Following the Chairwoman’s keynote address, Director General Xu stated that, at NDRC, all companies have the op-portunity to present a defense, and SAIC Director Yang Jie stat-ed that SAIC provides the core features discussed by Chair-woman Ramirez.6

The Importance of Focusing Solely on Competition Fac-tors in Competition Analysis

In many Asian, as well as other, countries, competition analysis explicitly or implicitly includes the consideration of non-competition factors, such as employment or the environment. For example, Article 1 of China’s AML provides that the AML was enacted “for the purpose of preventing and restraining mo-nopolistic conduct, protecting fair competition in the market, enhancing economic efficiency, safeguarding the interests of consumers and social public interest, promoting the healthy development of the socialist market economy.” Article 4 of the AML further states that “[t]he state constitutes and carries out

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 9

competition rules that accord with the socialist market econo-my, perfects macro-control, and advances a unified, open, com-petitive and orderly market system.”

Similarly, Article 1 of Korea’s Monopoly Regulation and Fair Trade Act provides that the purpose of the Act includes the promotion of “fair” competition and the achievement of “balanced economic development.” Article 1 of Japan’s Anti-monopoly Act states that purpose of the Act is “to promote fair and free competition, . . . to heighten the level of employment and actual national income, and thereby to promote the demo-cratic and wholesome development of the national economy as well as to assure the interests of general consumers.” The In-troduction to India’s Competition Act states that, in interpreting the Act, the Competition Commission should “keep[] in view . . . the economic development of the country.” Chapter 2, Article 3 of Indonesia’s Competition Law states that the purpose of the law includes safeguarding the interests of the public, creating effective and efficient business activities, and ensuring fair busi-ness competition to ensure equal business opportunities for large, middle, and small-scale entities. Article 2 of the Act fur-ther states that “[b]usiness activities of business actors in Indo-nesia must be based on economic democracy, with due observa-tion of the equilibrium between the interests of business actors and the interests of the public.”

As the Chairwoman explained in her speech, in contrast, in the United States, competition law focuses exclusively on pre-venting or remedying anticompetitive practices. This is because experience has taught us that consumers and economic devel-opment are best served when competition law and policy focus on an analysis of competitive effects and consumer welfare, and that robust and undistorted competition produce substantial benefits for consumers and society as a whole by promoting growth, spurring innovation, and facilitating the efficient alloca-tion of resources.

Studies such as the McKinsey Global Institute’s survey of the economic performance of thirteen nations support this as-sessment.7 This study showed that productivity makes a crucial difference in economic development and that the presence or absence of undistorted competition among firms is critical to productivity. When competition is distorted, firms that fail to meet the demands of the market to produce what consumers want at competitive prices are not pressured to either improve or exit the market. As a result, an entire economy becomes less competitive. Investment lags, jobs are more scarce, goods and services are more expensive, and more of what consumers spend goes to enriching monopolists instead of their own lives. Conversely, competition begets efficient, productive firms, which are better able to compete domestically and globally. This, in turn, increases domestic economic growth and stand-ards of living.

In her keynote address, the Chairwoman explained that the use of non-competition factors in competition analysis raises a number of other concerns, such as the difficulty of balancing competition and non-competition factors across different mar-

kets and balancing efficiency concerns against equity concerns; the likelihood that public policy issues may undermine consum-er welfare considerations; the likelihood of undermining clarity and predictability in antitrust enforcement; and the lack of ex-pertise by competition officials to weigh non-competition fac-tors.

During a lively two-hour panel discussion on the first morning of the May 21-23 Beijing conference, UIBE Professor Huang Yong asked both Director General Shang and Director General Xu about the relationship between competition policy and other policies. DG Shang responded that MOFCOM’s decisions are reviewed by other agencies and their comments often include industrial policy direction. However, DG Shang stated that while MOFCOM’s decisions are made in what he referred to as the “shadow” of industrial policy, MOFCOM does not engage in the shadow. DG Shang also stated that the AML agencies have done a lot of research in this area and that one of their findings is that, in other countries, implementation of competition laws in the beginning stages are weak and that industrial policy considerations at certain stages of economic development is quite strong and dominant, but that over time competition policy becomes more important. According to Shang, competition policy is gradually becoming more im-portant in China, but both competition policy and industrial policy are necessary to promote the healthy development of China’s economy.

Director General Xu stated that over the past 30 years, in-dustrial policy has played a very important role in promoting the development of China’s economy and has a very important role in China’s economy under conditions of shortage. However, according to Xu, there is currently significant excess industry capacity in China, and thus China should reexamine its use of industrial policy in competition analysis. Xu further stated that the AML agencies have made great efforts to study this issue and determine how best to give competition policy a fundamen-tal role while still coordinating other economic policies to estab-lish a unified, competitive, orderly, and dynamic market.

On July 10, 2014, in the Strategic and Economic Dialogue, China, along with the United States, “recognize[d] that the ob-jective of competition policy is to promote consumer welfare and economic efficiency rather than promote individual com-petitors or industries, and that enforcement of their respective competition laws should be fair, objective, transparent, and non-discriminatory.”8 In addition, “China commit[ted] that its three Anti-monopoly Enforcement Agencies (AMEAs) are to provide to any party under investigation information about the AMEA’s competition concerns with the conduct or transaction, as well as effective opportunity for the party to present evidence in its defense.”9 It will be interesting to observe what effect this will have on China’s implementation of its AML.

* The views expressed here are the author’s own and do not purport to

represent the views of the Commission or any of its Commissioners. The author thanks Randy Tritell for his helpful comments on this article.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 10

1 The conference was held on May 21-23, 2014, and was sponsored by the ABA Section of Antitrust Law and the Expert Advisory Committee of the Anti-Monopoly Commission of China’s State Council, with the support of the Competition Law Center of China’s University of International Business and Economics (UIBE). The conference was attended by approximately 245 peo-ple from 19 countries.

2 Edith Ramirez, Chairwoman, U.S. Federal Trade Comm’n, “Core Competition Agency Principles: Lessons Learned at the FTC,” Keynote Ad-dress Before the ABA Antitrust in Asia Conference (May 22, 2014), available at www.ftc.gov/system/files/documents/public_statements/314151/140522aba chinakeynote.pdf. The speech also covered the need for competition agencies to carefully balance competition principles and intellectual property rights, but this article focuses on the other two topics.

3 Id. at 2. 4 Id. at 4. 5 Id. at 5. 6 Director General Xu’s comments were made on May 22, 2014 at the

ABA conference; Director Yang’s comments were made on May 24, 2014 at a subsequent conference hosted by the Korea-China Market and Regulation Law Center.

7 See, e.g., William Lewis, THE POWER OF PRODUCTIVITY: WEALTH, POVERTY, AND THE THREAT TO GLOBAL STABILITY (2004) at 13.

8 “U.S.-China Joint Fact Sheet Sixth Meeting of the Strategic and Eco-nomic Dialogue” (July 10, 2014), available at www.treasury.gov/press-center/press-releases/Pages/jl2561.aspx.

9 Id.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 11

The Long Arm of Antitrust Law

Evelyn Niitväli & Marc Reysen RCAA, Belgium & Germany

O n April 4, 2014 the U.S. Department of Justice (“DOJ”) announced that Romano Pisciotti, an Italian national, had

been extradited to the U.S. from Germany. The Pisciotti case is the first ever extradition based on an antitrust charge.1 It shows that it will become increasingly difficult for businessmen in-volved in cartel activities to evade criminal sanctions in the U.S.

Facts of the Case

Mr. Pisciotti is a former executive of Parker ITR, a marine hose manufacturer. Parker ITR is one of five companies that pleaded guilty for participating in a conspiracy to rig bids, fix prices, and allocate market shares of marine hose sold in the U.S. and elsewhere. According to the DOJ, the conspiracy be-gan at least as early as 1999 and continued at least until May 2007.

In August 2010, a grand jury in the U.S. District Court for the Southern District of Florida returned a sealed indictment against Mr. Pisciotti that charged him with one count of violat-ing the Sherman Act. The indictment alleged that Mr. Pisciotti joined and participated in the conspiracy concerning marine hose from at least as early as 1999 until at least November 2006.

As Mr. Pisciotti remained at large, he was placed on the “Red Notice” list of Interpol. As a result, he was arrested at the Frankfurt airport on July 17, 2013 on a stopover between Nige-ria and Italy during a business trip.

Following several months of litigation, Mr. Pisciotti was eventually extradited from Germany and arrived in the U.S. on April 3, 2014. A few days later, on April 24, 2014, he pleaded guilty and was sentenced to serve two years in prison and to a US $50,000 criminal fine. However, he was granted credit for the nine months and sixteen days he had been held in custody by the German government pending his extradition.

Legal Proceedings

As Mr. Pisciotti did not consent to the extradition, his case was (and in part still is) subject to court proceedings in Germa-ny and at the EU level. In the proceedings, Mr. Pisciotto raised various objections against his extradition, in particular:

a lack of double criminality; the necessity of a detailed review as to whether the evi-

dence submitted in the extradition documents was suf-ficient to prove that he had committed an offense;

a lack of precision of the relevant provisions of the Sherman Act;

a violation of the freedom to provide services within the EU and the principle of non-discrimination under EU law;

disregard of the principles of proportionality and dou-ble jeopardy as regards his provisional arrest with a view to extradition; and

health issues.

Deciding on the admissibility of the extradition, the Higher Regional Court (Oberlandesgericht) in Frankfurt rejected all of Mr. Pisciotti’s complaints and found his extradition to be permissi-ble.2

In its decision, the court stressed the fact that the principle of double criminality was satisfied in Mr. Pisciotti’s case. It ex-plained that the alleged conduct of Mr. Pisciotti qualified as a violation of the Sherman Act in the U.S. and as bid-rigging pur-suant to Sec. 298 of the Criminal Code (Strafgesetzbuch) in Ger-many.

For its assessment, the court relied on the extradition docu-ments supplied by the U.S. authorities, in particular a list of ten-der procedures between the years 2000-2006 which had alleged-ly been affected by the conspiracy. According to the list, Mr. Pisciotti’s then-employer had been awarded 131 contracts with a total volume of more than US $73 million.

The court concluded that the list of tenders was sufficient to substantiate the alleged criminal offense for the purpose of the extradition proceedings. The fact that the list did not con-tain detailed information as to the individual actions of Mr. Pis-ciotti in the context of the various tender offers did not raise concerns as the court considered Mr. Pisciotti to have been a “central figure” in the cartel.

The court also pointed out that the principle of double criminality in an extradition case did not presuppose that the extradition documents contain information on all facts that would be required for a criminal conviction under German law. Rather, it held that, according to established case law as regards extradition proceedings with the U.S., there was generally no review as to whether there are reasonable grounds to believe that the person sought has committed the offense with which he is charged. Germany could rely on the accuracy of the extra-dition documents absent special circumstances suggesting oth-erwise.

Mr. Pisciotti appealed the decision of the Higher Regional Court in Frankfurt and sought a temporary injunction from the German Federal Constitutional Court (Bundesverfassungsgericht).

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 12

However, the Constitutional Court rejected his motion and did not prevent the extradition.3

In addition to the German court proceedings, Mr. Pisciotti also turned to the European Commission and raised a com-plaint against Germany. He claimed that with his arrest Germa-ny broke EU rules that guarantee the freedom to provide ser-vices within the EU. Furthermore, he alleged that German law discriminated against him as an Italian national as the German Constitution (Grundgesetz) contains a provision protecting Ger-man nationals from extradition.

As regards the freedom to provide services, the Commis-sion concluded that EU law was not applicable in Mr. Pisciotti’s case as he had not been providing services in Germany when he was arrested. The complaint as regards discrimination based on nationality is apparently still being examined by the Commis-sion.

On June 6, 2014, Mr. Pisciotti filed a case for failure to act against the Commission with the General Court.

Conclusion

The case of Mr. Pisciotti shows that the risk of an extradi-tion to the U.S. based on antitrust charges is not a purely theo-retical one. But for all that, an extradition remains a complicat-

ed process that will only be successful when a number of condi-tions are satisfied. This fact is well illustrated by the Pisciotti case. Had Mr. Pisciotti been a German national, he would not have been extradited due to the protection of its own nationals laid down in the German Constitution. The same applies if Mr. Pisciotti’s stopover had taken place in a country in which anti-trust violations do not constitute a criminal offense as in such case the principle of double criminality would not have been fulfilled. However, with an increasing number of countries adopting criminal antitrust statutes, the principle of double criminality is likely to be less of a hurdle in the future, and there will be fewer safe havens for cartel offenders.

1 In 2004, the DOJ sought the extradition of Ian Norris, the former

CEO of Morgan Crucible, from the UK on the basis of a price-fixing charge and obstruction of justice. However, when Mr. Norris was eventually extra-dited after six years of litigation, his extradition was based on the obstruction of justice charges only as price-fixing had not been a criminal offense in the UK at the time the alleged offenses had been committed.

2 Decision of the Higher Regional Court in Frankfurt, January 22, 2014 – 2 Ausl A 104/13.

3 Decision of the German Federal Constitutional Court, February 17, 2014 – 2 BvQ 4/14.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 13

All Per Se Crimes are Unconstitutional

Charles D. Weller United States

I n 2012 alone, the Antitrust Division of the U.S. Department of Justice filed 67 criminal cases, obtained over US $1.1 bil-

lion in criminal fines and sent 45 people to prison with sentenc-es averaging over two years in its vigorous pursuit of per se crimes. “The Division remains committed,” as we all know, “to ensuring that culpable foreign nationals, just like U.S. co-conspirators, serve prison sentences for violating the U.S. anti-trust laws and to using all appropriate tools to find and arrest or extradite international fugitives.”1

Serendipitously, in 2005 in Booker,2 the Supreme Court rev-olutionized sentencing law by applying a criminal defendant’s Sixth Amendment right to have a jury, not the judge, decide fact issues related to sentencing. Not long thereafter, for the first time in my forty-year career as an antitrust lawyer, I tried with two outstanding criminal defense lawyers a criminal antitrust case that lasted three weeks, with a jury verdict for the two de-fendants and their company. Defending the case led me to Booker and other areas of criminal Constitutional law that, to my knowledge, have never been applied together to criminal anti-trust. The result is just as revolutionary. Application of these other areas of Constitutional law outside the usual realm of anti-trust practice leads a to a conclusion that all per se crimes are unconstitutional, in more ways than one. They are outlined below.3

No. 1: The Supreme Court Has No Authority to Create Crimes; Only Congress Can

In 1812, the Supreme Court held that federal courts cannot create common law crimes. In United States v. Hudson & Good-win,4 the Court stated, “The legislative authority of the Union must first make an act a crime, affix a punishment to it, and de-clare the court that shall have jurisdiction of the offense.” More recently in 1985, the Court reiterated, “The definition of the ele-ments of a criminal offense is entrusted to the legislature, partic-ularly in the case of federal crimes, which are solely creatures of statute.”5

No per se crime, let alone the elements of the crime, of course, is found in the statutory language of the Sherman Act. All per se crimes and their elements were created by the federal courts. That the federal courts cannot do. They, thus, are all unconstitutional.

No. 2: Conclusive Presumptions of the Unreasonable Restraint of Trade Element Violate Constitutional Jury Trial Rights

The Supreme Court has already ruled in an antitrust case that conclusive presumptions of an element of the crime are unconstitutional. In United States v. United States Gypsum Co.,6 the

Court held that a jury instruction that conclusively presumed the intent element of an antitrust crime was unconstitutional. “‘A conclusive presumption [of intent] which testimony could not overthrow would effectively eliminate intent as an ingredient of the offense…’. [U]ltimately the decision on the issue of intent must be left to the trier of fact alone”7 – the jury, not the judge (unless the defendant has waived the right to a jury trial).

The same Constitutional prohibition applies to the unrea-sonable restraint of trade element of an antitrust crime. Ac-cordingly, the standard per se criminal jury instructions with conclusive presumptions are unconstitutional.

No. 3: The Naked Agreement Element of a Per Se Crime Constitutionally Must Be Decided by the Jury, Not the Judge

The Supreme Court in United States v. Gaudin8 held that a criminal defendant is guaranteed a jury trial of all the elements of a crime under the Fifth and Sixth Amendments. In that case, the crime involved a false loan application to a federal agency. The standard practice was for the judge, not the jury, to decide the materiality element of the crime, just like the naked agree-ment element is treated in antitrust.

A unanimous Supreme Court held, however, that the Con-stitution “require[s] criminal convictions to rest upon a jury deter-mination that the defendant is guilty of every element of the crime with which he is charged, beyond a reasonable doubt.”9 Further, the Court stated that there is an “historical and constitutionally guaranteed right of criminal defendants to demand that the jury decide guilt or innocence on every issue, which includes applica-tion of the law to the facts.”10 Thus, having the judge decide the materiality issue, rather than the jury, was unconstitutional.

Applying this ruling to antitrust, contrary to long-standing practice, the jury, not the judge, must decide the naked agree-ment element of all per se crimes.

Further, this Constitutionally defective assumption that the naked agreement element is a legal, not a jury, issue infects two other aspects of criminal antitrust, covered next.

No. 4: The Grand Jury Must Decide the Naked Agree-ment Element of a Per Se Crime

Russell v. United States11 is the leading case on Constitutional grand jury rights. There, the Court explained the Fifth and Sixth Amendments to the Constitution underlay “the purpose served by a grand jury indictment in the administration of feder-al criminal law.”12 “The Fifth Amendment provides that ‘No per-son shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury;”

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 14

and “the guaranty of the Sixth Amendment [is] that, ‘In all crimi-nal prosecutions, the accused shall enjoy the right . . . to be in-formed of the nature and cause of the accusation.’”13

More specifically for present purposes, the Court made clear that that a defendant cannot “be convicted on the basis of facts not found by, and perhaps not even presented to, the grand jury which indicted him.”14

Thus, not presenting the naked agreement element and facts to the grand jury is unconstitutional as well.

No. 5: The Indictment Must Include the Essential Facts of the Naked Agreement Element

The Court in Russell also held that “[w]here guilt depends so crucially upon such a specific identification of fact, our cases have uniformly held that an indictment must do more than simply repeat the language of the criminal statute,”15 and it quoted Rule 7(c) of the Federal Rules of Criminal Procedure, which reads in part, the “indictment or the information shall be a plain, concise and definite written statement of the essential facts constituting the offense charged.”16

Again, because it has long been assumed that the naked agreement element is a legal, not a jury, issue, its essential facts usually are not in in the indictment. Accordingly, this practice is both unconstitutional and violates Rule 7(c).

In conclusion, ending per se crimes is good public policy for two reasons. First, it will focus criminal enforcement on truly cartel conduct the Sherman Act still proscribes. Second, it will remove the major chilling effect that ambiguous per se crimes with huge criminal risks impose on American innovation and competiveness globally.

1 U.S. Dep’t of Justice, Antitrust Div., 2014 Criminal Enforcement Up-date, available at www.justice.gov/atr/public/division-update/2014/criminal-program.html. In 2013, the Division filed 50 criminal cases, obtained over US $1 billion in criminal fines and sent 28 individuals to prison with sentences averaging over two years. Id.

2 United States v. Booker, 523 U.S. 220 (2005). 3 For more detail, see my article, The End of Criminal Antitrust’s Per Se

Conclusive Presumptions, 58:4 ANTITRUST BULL. 665 (2013). 4 11 U.S. 32, 34 (1812). 5 Liparota v. United States, 471 U.S. 419, 424 (1985). 6 438 U.S. 422 (1978). 7 Id. at 446 (brackets in original; emphasis added). 8 515 U.S. 506 (1995). 9 Id. at 510 (emphasis added; footnote omitted). 10 Id. at 513. 11 369 U.S. 749 (1961). 12 Id. at 760. 13 Id. at 760–61 (italics in original). 14 Id. at 770. 15 Id. at 764. 16 Id. at 762 (quoting FED. R. CRIM. P. 7(c) (emphasis added)).

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 15

New Guidance on the Collection and Seizure of Electronic Evidence in International Cartel Cases

Mark Krotoski1 U.S. Department of Justice, Antitrust Division, United States

I n April 2014, the International Competition Network (ICN) Cartels Working Group released new, updated chapter on

“Digital Evidence Gathering” for international antitrust en-forcement.2 The primary objectives of the chapter are to ex-plain “ICN member approaches to digital evidence gathering and to identify good practices and procedures” for the collec-tion and seizure of this evidence during the investigation and prosecution.3

The update provides useful suggestions concerning the preservation, identification, and seizure of electronic evidence in cartel cases. The recommendations may also aid leniency appli-cants since electronic evidence is regularly provided to competi-tion agencies in the leniency process. This article highlights some of the best practices noted in the new guidance and the increasing importance of electronic evidence in international cartel enforcement.

Growing Role of Electronic Evidence in Cartel Enforce-ment Cases

The amount of electronic data created and used by business continues to grow exponentially. A recent report estimates that in 2014 more than 108 billion emails were sent and received by businesses each day. Daily business email use is expected to in-crease in 2018 to nearly 140 billion.4 As part of this digital trend, some businesses now promote paperless practices. Con-sequently, some records will be created and exist only in elec-tronic form.

Not surprisingly, electronic evidence can provide numerous benefits in a cartel investigation and prosecution. Illustratively, key cartel electronic records, such as “competitive strategy and communication between” competitors, may be located in an examination of seized data.5 Emails between cartelists have highlighted how collusion was planned and executed.6 Elec-tronic communications may confirm meeting locations, includ-ing those in other countries. Electronic records provide metadata (or data about data) concerning the history of the rec-ords.7 By using “hash values,” also known as “digital finger-prints” or “digital DNA,” examiners can determine how many records exist for a particular document.8 “User attribution” information can be used to identify the author of a particular record.9 Deleted electronic records may be recoverable.10 Elec-tronic records can be used to corroborate other key evidence in the investigation and to provide new leads for investigators.

However, there are a host of challenges in identifying, pre-serving, collecting and analyzing electronic evidence in a cartel investigation. Consider a couple of examples. Company data may be stored in multiple locations, including on the network, external servers, storage media (such as hard drives and thumb

drives), cell phones, and in the cloud.11 Further, some of the data may be stored in different jurisdictions and countries. In these circumstances, coordination among competition agencies is necessary to maximize the opportunity to seize relevant evi-dence and minimize the risk of destruction of records in multi-ple locations. Electronic records can be fragile, based on lim-ited retention periods by Internet providers or company poli-cies. Efforts may be taken to destroy electronic records, pre-senting forensic challenges in recovering the records. Electron-ic records may be maintained in multiple languages, requiring translation services to identify and understand key evidence. Data may be encrypted and require company assistance to ob-tain encryption keys or the use of decryption tools12

Managing the Collection of Voluminous Amounts of Data

As the new chapter notes, competition agencies seize or obtain electronic evidence through three primary avenues: (1) searches, raids and inspections; (2) compelled production; and (3) through a leniency application.13 Electronic evidence is now common for each manner of collection.

Given the voluminous amount of data that may be obtained in a cartel investigation, the ability to manage the collection ef-fectively and efficiently by competition agencies remains essen-tial. There are tradeoffs. One central challenge is to identify and seize relevant information concerning the cartel investiga-tion. At the same time, investigators seek to avoid the over col-lection of data. Also, the relevance of some key terms and data may not be known until later in the investigation.

Early “Electronic Evidence Case Plan”

In addressing the challenges in managing collection of data, one key best practice concerns the early development of an Electronic Evidence Case Plan (“Plan”). The Plan promotes efficiencies by identifying likely electronic evidence and preserv-ing it for seizure. The new chapter suggests that competition agencies consider establishing a Plan early in a case for identifi-cation, preservation, and collection of digital evidence. The Plan will focus on such matters as what types of digital evidence may be used, where it is located or stored, and in how many places it may be found. These matters will affect the timing of any search, raid or inspection and maximize the seizure of digital evidence.

It is usually not possible to collect all of the electronic evi-dence involved in the case. For example, some evidence may be in multiple locations beyond the reach of enforcers. A Plan will enhance the likelihood that relevant evidence is identified and collected. It may include some of the following issues and factors:

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 16

How was the offense committed? For example, what computers and devices may have been used?

What type of electronic records were created and main-tained?

Where is the electronic evidence stored and located for collection?

In how many places can the same or similar evidence be found?

What retention policies or timing issues may affect collec-tion of electronic evidence? What preservation authority may be used to preserve the evidence pending legal pro-cess (discussed below)?

What legal process may be necessary to obtain electronic evidence (such as search warrant, Mutual Legal Assis-tance Treaty request)?

Are there any unique circumstances that should be con-sidered in the case?

Contrasting Electronic and Hard Copy Evidence

Notwithstanding the increasing number of electronic rec-ords created by businesses, an effective investigative strategy should focus on capture of both electronic and hard copy ver-sions. In fact, both forms of evidence may highlight distinct evidentiary leads or information.14 A hard copy may contain fingerprints, hand writing or other special notations. The same record in electronic form will not have these features but may include metadata that reveal multiple drafts, authorship, and other historical information.

While there may be only one or a few hard copies, the elec-tronic records may be stored and found in multiple locations. For example, an email that is sent from cartelist A to cartelist B may be found on the sender’s device or computer, the Internet Service Provider server, company servers, the recipient’s Inter-net Service Provider server, and the recipient’s device or com-puter, among other locations. Relevant records may be found anywhere along the path of transmission of a communication. Investigators should seek to find all versions of a record.

Taking Necessary Steps to Preserve Electronic Evidence

As already noted, preservation is a key aspect of any Plan. The ICN chapter highlights the importance of “[p]reserve[ing] digital information before any search begins to avoid destruc-tion or alteration.”15

Some jurisdictions permit law enforcement agencies to pre-serve data pending sufficient legal process. For example, in the United States, law enforcement officials may request that an Internet Service Provider preserve email or other account infor-mation pending appropriate legal process, such as a search war-rant.16 The preservation lasts for 90 days and can be extended an additional 90 days. No information is obtained until legal process has issued. The preservation request ensures that the data are available once legal process has issued.

On the international level, the ICN chapter notes that “the G8 24/7 Network provides an avenue to request the preserva-

tion of electronic evidence in other countries pending legal pro-cess.”17 This network supplies the most effective means for competition agencies to preserve electronic evidence in other foreign jurisdictions once program requirements are met.

Obstruction of Justice

The ICN chapter also notes the importance of employing “digital evidence gathering practices and procedures that inhibit and help prevent destruction of digital evidence and obstruc-tion.”18 As recent investigations have highlighted, it is not un-common for records to be destroyed as soon as information is obtained about the investigation or even during or after a dawn raid. By using forensic tools, enforcers have been successful in restoring or recovering data deleted during or after an investiga-tion.19

Competition agencies have demonstrated the ability to hold executives accountable for obstruction of justice involving the destruction of electronic records in other jurisdictions. In one recent case, an executive of an international company learned that the FBI was executing a search warrant at company offices in the United States concerning potential violations of antitrust laws. In another country he began deleting numerous emails and electronic files which “contained communications be-tween” his company “and one or more of its competitors re-garding Requests for Quotation made by” a manufacturer. Lat-er, in court papers, he admitted that he “deleted these e-mails and electronic files with the intent to impair the availability of these e-mails and electronic files for use in the government's investigation.”20 In March 2014, the executive pled guilty to obstruction of justice in the United States and was sentenced to serve one year and one day in federal prison.

Conclusion

The ability to obtain relevant electronic evidence is increas-ingly important in cartel investigations. The recently issued ICN chapter on Digital Evidence Gathering identifies several useful best practices for the collection and use of electronic evi-dence in cartel enforcement. Early creation of a Plan remains central to identifying, preserving, and collecting relevant evi-dence in an effective and efficient manner. In the end, each cartel case requires a tailored forensics approach to see that the particular needs and issues of the investigation are addressed.

1 The views in this article do not necessarily reflect those of the Depart-

ment of Justice. 2 Cartel Enforcement Subgroup 2: ICN Cartels Working Group, Anti-

Cartel Enforcement Manual Chapter on Digital Evidence Gathering (hereinafter “Digital Evidence Gathering Chapter”), available at www.icnmarrakech2014.ma/pdf/Anti-Cartel_Enforcement_Manual.pdf. The chapter updates a prior one from March 2010. See Anti-Cartel Enforcement Manual Cartel Working Group, Subgroup 2: Enforcement Techniques, Digital Evidence Gather (March 2010) (Chapter 3), available at www.internationalcompetitionnetwork.org/uploads/library/doc627.pdf.

3 Digital Evidence Gathering Chapter, at 4.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 17

4 Email Statistics Report, 2014–2018, The Radicati Group, Inc. (April 2014), available at www.radicati.com/wp/wp-content/uploads/2014/04/Email-Statistics-Report-2014-2018-Executive-Summary.pdf; see also id. at 2 (“Email remains the most pervasive form of communication in the business world, while other technologies such as social networking, instant messaging (IM), mobile IM, and others are also taking hold, email remains the most ubiquitous form of business communication.”).

5 Digital Evidence Gathering Chapter, at 32 (in noting some of the advantages in collecting electronic evidence, “[o]ne competition agency re-ported that the main advantage is that information about the company’s com-petitive strategy and communication between the competitors are usually found on digital media.”).

6 See, e.g., Antitrust: Commission imposes € 169 million fine on freight forwarders for operating four price fixing cartels (March 28, 2012) (noting “a specific yahoo email account was set up to facilitate exchanges between the cartel participants”), available at http://europa.eu/rapid/press-release_IP-12-314_en.htm; see also Antitrust: Commission fines producers of high voltage power cables € 302 million for operating a cartel (April 2, 2014) (“The cartel-ists regularly met each other in hotels in South-East Asia and Europe and maintained further contacts by means of e-mails, faxes and telephone calls.”), available at http://europa.eu/rapid/press-release_IP-14-358_en.htm.

7 Digital Evidence Gathering Chapter, at 6 (defining “metadata” as “information about a particular data set or digital document, which describes how, when, and by whom the data set or digital document was collected, cre-ated, accessed, or modified.”).

8 Id. at 6 (defining hash value as “a mathematical algorithm produced against digital information (e.g. a file, a physical disk, a logical disk) thereby creating a ‘digital fingerprint’ or ‘digital DNA’ for that information.”). For more on the role of hash values, see Carroll and Krotoski, Using “Digital Fin-gerprints” (or Hash Values) for Investigations and Cases Involving Electronic Evidence, 62 United States Attorneys’ Bulletin 44-82 (May 2014), available at www.justice.gov/usao/eousa/foia_reading_room/usab6203.pdf.

9 Digital Evidence Gathering Chapter, at 23, 24, 34 (noting the im-portance of user attribution evidence).

10 Id. at 32 (in noting some of the advantages in collecting electronic evidence, “[o]ne competition agency reported that the main advantage with making forensic images is the possibility to restore erased data.”). “Generally, until data is overwritten it may be recoverable.” Id. at 5.

11 Id. at 5 (defining “Cloud computing” as “a new supplement, consump-tion and delivery model for IT services based on the Internet, and typically involves the provision of dynamically scalable and often virtualised resources as a service over the Internet. This comprises common business applications online which are accessed from a web browser, while the software and data are stored on servers in unknown locations on the Internet.”).

12 Id. at 6 (“Encryption is the conversion of plaintext to ciphertext through the use of a cryptographic algorithm.”).

13 Id. at 10. 14 Id. at 7-8 (contrasting the evidence that may be available from elec-

tronic and hard copy formats). 15 Id. at 19. 16 18 U.S.C. § 2703(f). For more information on the preservation author-

ity under Section 2703(f), see Searching and Seizing Computers and Obtaining Electronic Evidence in Criminal Investigations, Computer Crime and Intellec-tual Property Section, Criminal Division, U.S. Department of Justice, at 139-40 (2009), available at www.justice.gov/criminal/cybercrime/docs/ssmanual2009.pdf; Ryan and Krotoski, Caution Advised: Avoid Undermining the Legitimate Needs of Law Enforcement to Solve Crimes Involving the Internet in Amending the Electronic Communications Privacy Act, 47 U.S.F. L. Rev. 291, 306-09 (Fall 2012) (providing case examples in which key evi-dence was preserved under § 2703(f) and examples where cases had to be closed due to the inability to preserve evidence), available at www.usfca.edu/uploadedFiles/Destinations/School_of_Law/Academics/Co-Curricular_Programs/(5)SAN47-2RyanandKrotoski.pdf.

17 Digital Evidence Gathering Chapter, at 19 (providing internet links to further information about the 24/7 Network) (footnote omitted).

18 Id. at 22. 19 Id. at 7 (“Although using digital evidence gathering to locate evidence

does not prevent the possibility of obstruction of an investigation, it does provide the possibility of recovering deleted or destroyed evidence.”).

20 United States v. Kazuaki Fujitani, Plea Agreement, No. 14-CR-20087-GCS-PJK (EDMI March 11, 2014), available at www.justice.gov/atr/cases/f304400/304403.pdf; see also Former Denso Corp. Executive Agrees to Plead Guilty to Obstructing Automotive Parts Investigation, Press Release, U.S. Department of Justice (Feb. 20, 2014), available at www.justice.gov/opa/pr/2014/February/14-at-177.html.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 18

Chile’s New Guidelines on Vertical Restraints

Juan Cristóbal Gumucio & Igal Schönberger1 Cariola Díez Pérez-Cotapos & Cía. Ltda., Chile

O n June 5, 2014, the Chilean Competition Agency, the Fis-calía Nacional Económica (“FNE”), launched Guidelines

for the Analysis of Vertical Restraints (“Guidelines”).2 The Guidelines are FNE’s internal rules of analysis which do not bind the Competition Court (TDLC), the Supreme Court, or private undertakings. If the latter do not follow the Guidelines, however, they may risk prosecution by the FNE before the TDLC.

The Guidelines reflect a strong influence by European law. Indeed, the European Guidelines on Vertical Restraints– issued in 2010–are repeatedly quoted in the Guidelines. Before draft-ing the Guidelines, the FNE asked for the assistance of French Professor Patrick Rey who wrote the paper, Vertical restraints – an economic perspective (2012).3 This paper was sponsored by the Chile-Mexico Joint Cooperation Fund developed between the Chilean and Mexican Competition Agencies. A draft of the Guidelines was published for comments in October 2013.4 Sev-eral organizations sent comments, including the U.S. Federal Trade Commission and the American Bar Association, Section of Antitrust Law.

The FNE states that vertical restraints may be procompeti-tive or anticompetitive and that it will focus on their effects on competition rather than on their form. It remains to be seen how deep FNE’s commitment will be to an “effects-based” approach. For example, the Guidelines state that minimum resale price maintenance (RPM) may be the most “potentially pernicious” restraint, and analysis of potential risks may be bi-ased towards finding risks if the market-share threshold, dis-cussed below, is met.

Main Aspects of the Guidelines

Vertical restraints are defined as the mechanisms established be-tween independent economic agents, located at different levels of the supply chain, aimed at regulating the terms under which certain goods or services shall be bought, sold or resold. The Guidelines enunciate examples of the most typical vertical restraints, distinguishing between intrabrand5 and interbrand6 restraints.

To assess whether vertical restraints shall be deemed competitive or anticompetitive, the FNE will evaluate (1) the market share of the parties; (2) the risks of anticompetitive effects; and (3) their efficien-cies.

Market Share Threshold

As a general rule, the FNE will not initiate an investigation nor will it conclude an investigation–if already initiated–when the parties involved in a vertical restraint each have 35% or less market share. This de minimis rule will not apply if there is a cu-mulative effect of parallel networks of similar vertical restraints or in some other extraordinary cases such as minimum RPM.

Since the parties might not know whether there is a cumulative effect in the market due to parallel networks by competitors, the 35% threshold may not serve as a true safe harbor.

Risks of Anticompetitive Effects

The Guidelines mention as the main potential risks arising out of vertical restraints: (1) facilitation of coordinated con-ducts; and (2) foreclosure of competitors.

Facilitation of Coordinated Conduct

“Sham vertical agreements”: Downstream firms may use vertical restraints, such as RPM or exclusive territories, in order to maintain a cartel (coordinating prices or allocat-ing market territories).

“Hub and spoke cartel”: Downstream firms may use an upstream common supplier to exchange information.

In the absence of collusion, certain vertical restraints may soften interbrand competition by weakening intraband competition. The Guidelines give three examples: (1) common agency;7 (2) interlocking relationships;8 and (3) strategic delegation.9

Foreclosure of competitors

RPM might prevent deep-discounting distributors from entering the market.

Exclusivity or loyalty rebates may raise rivals’ costs.

Certain restraints, including tying and bundling, may be capable of leveraging the dominant position held in one market to a second market related to it.

In order to assess these potential risks, the FNE will review, among other things, market concentration; market position of the parties and competitors; entry barriers; cumulative effects; bargaining counter power; economies of scale and scope; ma-turity of the market; consumer search costs; scope and duration of the restraints; type and number of restraints; and number of clients affected.

Efficiencies

The Guidelines recognize that vertical restraints may pro-duce efficiencies, such as the elimination of double marginaliza-tion; the avoidance of free riding; or the prevention of hold-up problems (i.e., using the vertical restraint to avoid an opportun-istic behavior of the counterparty once the investment is sunk, which otherwise would lead to under investment).

If the FNE finds that the vertical restraint in question pro-duces risks, the efficiencies claimed by the parties shall be

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 19

weighed against those risks. The parties must prove that the efficiencies are truthful (“veraces”)10–which means that they are apt to solve a coordination issue among the parties–and that there are no less restrictive means by which to reach the same goals. Should the efficiencies not be deemed an effective coun-terweight to the potential risks, the restraint will be deemed an-ticompetitive.

Conclusion

The Guidelines refer to several commercial terms which are common in the Chilean economy. Even though the Guidelines do not condemn these commercial practices, once the 35% threshold is met, the FNE may readily find risks. Undertakings with a market share above the threshold should be prepared to demonstrate that a vertical restraint produces efficiencies that offset any identifiable risks of anticompetitive effects.

1 All views expressed herein are those of the authors alone. 2 The Guidelines can be found at www.fne.gob.cl/wp-content/

uploads/2014/06/Guia-Restricciones-Verticales.pdf. 3 www.fne.gob.cl/wp-content/uploads/2013/11/Patrick-Rey.-Vertical-

Restraints.pdf. The FNE also recognizes indebtedness to Michael Jacobs, an American lawyer hired as a consultant. See Legal treatment of vertical restraints:

some lessons from the ongoing international debates (2012), www.fne.gob.cl/wp-content/uploads/2012/10/Legal-Treatment-of-Vertical-Restraints.pdf.

4 An English-language version of the draft can be found on the FNE’s website at www.fne.gob.cl/english/wp-content/uploads/2013/12/Guidelines-on-vertical-restraints-FNE-Final1.pdf.

5 E.g., minimum RPM, maximum RPM, recommended resale prices, exclusive territories, exclusive or selective distribution, service requirements, most favored nation clauses.

6 E.g., exclusive dealing, nonlinear prices (two-part tariffs and loyalty rebates), tying and bundling, slotting allowances, quantity forcing.

7 If the distributor enjoys a monopoly position, rival producers can use the distributor as a “common agent” to eliminate interbrand competition, leading to joint profit-maximizing prices.

8 In oligopoly markets, both upstream and downstream, each distributor deals with several producers and vice versa, so that some vertical restraints might limit intrabrand competition by making those distributors act as “common agents.”

9 By altering the behavior of distributors in downstream markets, through ad hoc vertical restraints, producers can influence the behavior of their rivals when they negotiate with their own distributors. A producer can then take advantage of this to credibly commit not to behave aggressively, with the purpose of encouraging its rivals to diminish their intensity of competition.

10 The Guidelines offer a chart of “likelihood of truthfulness.”

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 20

DLF Penalty Cemented by Indian Competition Appellate Tribunal

K K Sharma K K Sharma Law Offices, India

S ince enactment of the Competition Act, 2002 (“Act”) and its coming into force in 2009, there has been keen anticipa-

tion as to how enforcement of competition law would unfold in India. Conferences sponsored and supported by the Interna-tional Bar Association and other professional and business asso-ciations have looked at the issue extensively. A recent decision by the Competition Appellate Tribunal (“COMPAT”) provides a clear indication as to how the Act will be enforced.

It cannot be denied that for any economy, and more so for a developing economy like India, real estate is an important sec-tor. In India, it is the second-largest employment generator after agriculture and contributes about 5-6% to India’s GDP.1 Stories of hapless apartment buyers at the mercy of real estate developers in this sector, which is practically unregulated except on technical matters, are commonplace. It was one such griev-ance by Belaire Owner’s Association (“BOA”) against DLF Ltd. that landed before the Competition Commission of India (“CCI”) in the form of a complaint, called an Information in the Act. BOA alleged that DLF was abusing its dominant position in the market for residential housing in Gurgaon, near New Delhi, by imposing arbitrary, unfair and unreasonable condi-tions in the Apartment Buyers Agreement (ABA) despite being prohibited by section 4 of the Act.2 The CCI agreed with the Information and, holding that DLF had indeed abused its domi-nant position, issued an order noting 16 clauses of the ABA to be abusive. It was a landmark decision in the early days of the CCI. The CCI imposed approximately US $103 million as pen-alty on DLF, calculated as 7% of the average turnover of the company in the preceding three years.3 DLF was also ordered to cease and desist from formulating and imposing such unfair conditions in its agreements and to modify unfair conditions already imposed on its buyers, within three months of the date of receipt of the order.4

DLF appealed the CCI order to the COMPAT. In its order dated May 19, 2014,5 the COMPAT upheld the penalty imposed by the CCI, agreeing that DLF had abused its dominant posi-tion in violation of section 4(2)(a)(i) & (ii) of the Act. In its de-cision, the COMPAT identified four issues: (1) whether the pro-visions of the Act were applicable to this case; (2) what was the relevant market under consideration; (3) whether DLF was dominant in the relevant market; and (4) if dominant, whether there was any abuse of the dominant position in the relevant market.

On the first issue, the COMPAT ruled that CCI did not have jurisdiction over agreements entered into prior to May 20, 2009, when the enforcement powers were first given to the CCI. While accepting the reliance of the CCI on the Bombay

High Court’s decision in Kingfisher Airlines Limited v. Competition Commission of India [Writ Petition No.1785 of 2009], the COM-PAT stated that Kingfisher clearly provided that agreements en-tered into prior to the coming into force of the Act were valid and, therefore, there was no justification for the CCI to rewrite the ABA. Further, the COMPAT noted that Section 27(d) of the Act6 applies to only those agreements which are covered by, and found to be in contravention of, Section 3 of the Act,7 which prohibits anticompetitive agreements. Since Section 27, which authorizes the CCI to issue remedial orders or impose penalties, only speaks of “action” with reference to Section 48 (which prohibits abuse of a dominant position), the CCI only has the power to direct the guilty party to discontinue the ac-tions in abuse of its dominant position, or to impose a penalty, but not to modify agreements. Hence, the COMPAT held that the CCI erred in ordering modification of the ABA.9 The COMPAT went on to state that the CCI had jurisdiction to look into the actions of DLF post-May 20, 2009, when the en-forcement provisions came into force, to determine whether the company had abused its dominant position under Section 4 of the Act.10

On the second issue, the COMPAT agreed with delineation of the relevant product and geographic markets by the CCI. The order of the COMPAT is based on the understanding that the relevant market was that of “service of developer/builder in respect of high-end residential accommodation in Gurgaon,” as was determined by the CCI.11

With regard to dominant position—the third issue—the COMPAT concurred with CCI that a pragmatic approach should be adopted in determining the question of dominance, taking into consideration a spectrum of factors.12 Based on fac-tors given in the Act, the COMPAT agreed that DLF was a dominant player in the relevant market.13

In examination of the fourth issue—whether DLF abused its dominant position—the COMPAT restricted itself to exam-ining the actions of DLF after May 20, 2009. The construction of additional floors in the buildings of the residential projects without intimating the same to prospective buyers of the flats or obtaining their consent was held to be an abuse. This action caused a significant reduction in actual usable area available to the buyers as well as in common areas open to all residents. Payments to be made to DLF, on the other hand, increased because of the enhanced chargeable area. This was held in vio-lation of Section 4 of the Act.

The COMPAT held that DLF had abused its dominant position in violation of Section 4(2)(a)(i) and (ii) of the Act. While noting that a dominant player in the market has a special

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 21

duty to conduct itself within the four corners of the law, the COMPAT upheld the entire penalty of US $103 million im-posed by the CCI, stating that, “An abuse of dominance whether it is on one count or on many remains an abuse and therefore it must be dealt with iron hands.” 14 DLF now has to pay an interest of 9% on the total amount of the penalty calculated from the date of the orig-inal CCI Order, bringing the total penalty amount to almost US $125 million.

The order by the COMPAT paves the way for BOA to file compensation claims under Section 53N(4) of the Act, a proce-dure the flat owners are likely to pursue. DLF, in that case, could face potential compensation claims in excess of US $167 million (INR 1000 Crores)15 in addition to the penalty already imposed. This order also seems to have significantly restricted the scope of Section 27(d) of the Act by limiting it only to viola-tions under Section 3 of the Act. We have to now wait and watch the appeal in the Indian Supreme Court by DLF to see in which way the law settles in this respect.

1 See Competition Commission’s Penalty on DLF and Likely Effects on Indian Real Estate Industry (2012), available at www.icmrindia.org/casestudies/catalogue/Business % 20Ethics/DLF % 20and % 20Indian %20Real%20Estate%20Industry-Case%20Study.htm.

2 Section 4 of The Competition Act, 2002, available at www.vakilno1.com/bareacts/comptn2002/comptn.html#Section_4_Abuse_ of_dominant_position.

3 Belaire Owner’s Ass’n v. DLF Ltd., Case No. 19/2010 (Aug. 12, 2011 CCI), Order ¶ 13.6, available at www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf.

4 Id. ¶ 13.3. 5 DLF Ltd. v. Competition Commission, [Appeal No.20/2011, decided

May 19, 2014] (“COMPAT Order”), available at http://compat.nic.in/upload/PDFs/mayordersApp2014/19_05_14.pdf.

6 Section 27 of The Competition Act, 2002, available at www.vakilno1.com/bareacts/comptn2002/comptn.html#Section_27_Orders _by_Commission_after_inquiry_into_agreements_or_abuse_of_dominant_position.

7 Section 3 of The Competition Act, 2002, available at www.vakilno1.com/bareacts/comptn2002/comptn.html#Section_3_Anti_ competitive_agreements.

8 COMPAT Order ¶ 74. 9 Id. 10 Id. ¶ 75. 11 Id. ¶¶ 83, 84. 12 Id. ¶ 86. 13 Id. ¶¶ 87- 93. 14 Id. ¶¶ 123, 124 (italics added). 15 See DLF Customers in Three Gurgaon Projects to Seek Compensation, ECO-

NOMIC TIMES (India), May 23, 2014, available at http://articles.economictimes.indiatimes.com/2014-05-23/news/50054941_1_com petition-appellate-tribunal-belaire-owners-association-park-place-residents.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 22

Tesco/Trent: Muddying the Waters of Merger Control in India

Karan Singh Chandhiok Chandhiok & Associates, India

T he Competition Commission of India (“CCI”) recently fined a British supermarket operator, Tesco, INR 30 mil-

lion (approximately US $500,000) for delay in filing a premerger notification.1 The fine is the largest imposed on a corporation under Section 43A2 of the Competition Act, 2002 (“Act”) and adds to the INR 65.55 million (approximately US $1 million) in fines already levied to date.3

Indian merger control, like that in most jurisdictions, adopts a mandatory filing requirement4 with a “standstill obligation.”5 Accordingly, parties in most transactions are required to notify the CCI within 30 calendar days of (i) execution of any “agreement” or “other document,” in cases of acquisitions; or (ii) approval from the respective boards of directors of the com-bining parties, in cases of mergers or amalgamations.6

The Act defines an “agreement” as any arrangement or un-derstanding between parties irrespective of whether or not it is formal or in writing, or is intended to be enforceable by legal proceedings.7 While there was concern that this broad defini-tion would lead to speculative notifications, stakeholders also viewed it as permitting initiation of CCI’s 210-day review period as quickly as possible.8 Nevertheless, the CCI has taken the approach that the notification requirement under the Act is trig-gered only upon the execution of definitive documents. In ABNL,9 the CCI rejected a formal notification that was filed upon execution of a memorandum of understanding and a sub-scription and investor rights agreement between the combining parties. Although the combination related to a merger, the CCI reasoned that such documents were only steps in the negotia-tions between the concerned parties. The competition bar and businesses would prefer the flexibility to approach the CCI as long as they have a good faith intention to consummate the transaction, but the CCI’s position has the merit of providing certainty to a new merger control regime. Consequently, it had been accepted that the obligation to notify the CCI was trig-gered only upon signing of definitive documents.

The Tesco decision has muddied these waters. On March 31, 2014, Tesco notified the CCI of its proposed acquisition of a 50 percent equity stake in Trent Hypermarket Limited (“Trent”). The notification followed the execution of a joint venture agreement and share purchase agreement between the parties. The combination was approved, but proceedings against Tesco were initiated for delay in filing by 73 days.10

The CCI referred to its Combination Regulations, which define “other document” to include a document which “has not been executed but the intention to acquire is communicated to the Central Government or State Government or a statutory authority.” According to the CCI, the 30-day notification peri-

od commenced on December 16, 2013, when Tesco ap-proached the Department of Industrial Policy and Promotion (“DIPP”), followed on December 17, 2013 by contact with the Foreign Investment Promotion Board (“FIPB”) for approv-al under India’s foreign investment control laws. This was the triggering date, not when the agreements were executed.

Tesco argued to the CCI that, at the time of submitting its proposal to the DIPP and FIPB, the respective boards of direc-tors had only provided an in-principle approval of the proposal and the communication to the government bodies was only a step toward negotiation of the deal. A notification to the CCI at that stage would have been premature and incomplete on the basis of the ABNL11 decision. The CCI rejected the arguments and observed that the proposal to the government bodies pro-vided adequate details about the type, nature, and purpose of the contemplated combination.

The CCI’s order is contrary to its own decisional practice. First, in ABNL,12 the CCI specifically noted that the transaction was subject to execution of an implementation agreement and required the approval by the respective board of directors of the concerned parties. Similarly, the Tesco board resolution ex-pressly stated that the transaction was subject to execution of definitive agreements. Second, the CCI was only notified of the Jet/Ethiad13 combination following execution of definitive docu-ments. In that case, the combining parties had been in several rounds of discussions with various ministries and government departments prior to execution of definitive documents. The proceedings under Section 43A were confined to gun jumping and were silent on whether or not Ethiad notified the regulator within time.14

The Tesco decision has raised an important question on mer-ger enforcement: What is the real scope of Section 43A? Sec-tion 43A allows the CCI to impose a penalty of up to one per-cent of the total turnover or the assets of the combining parties, whichever is higher, on any enterprise that fails to give notice under Section 6(2) of the Competition Act. It is submitted that this penalty should be limited to parties that have indulged in gun jumping or deliberately avoided a notification. It should not extend to parties, like Tesco, that in good faith approach the CCI and ensure that a combination is only consummated after it has received requisite approval. As such, the obligation to noti-fy the CCI within thirty calendar days should be taken as direc-tory and not mandatory. In this context, an analogy may be drawn with Order VIII Rule 1 of The Code of Civil Procedure, 1908 (“Code”) which obligates a defendant to file a written statement of his defence within thirty calendar days of receiving summons. Both the rule of the Code and Section 6(2) of the Competition Act use the word “shall.” In this regard, the Su-

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 23

preme Court of India has held:

“The use of the word ‘shall’ in O. VIII, r1 by itself is not con-clusive to determine whether the provision is mandatory or directo-ry. We have to ascertain the object which is required to be served by this provision and its design and context in which it is enacted. The use of the word ‘shall’ is ordinarily indicative of mandatory nature of the provision but having regard to the context in which it is used or having regard to the intention of legislation, the same can be construed as directory… .”15

Even the International Competition Network in its Recom-mended Practices for Merger Notification Procedures has es-poused the view that jurisdictions should not impose a deadline for premerger notifications.16

The Tesco decision will no doubt create confusion for noti-fying parties, especially considering the myriad of regulators and government bodies with which parties need to engage. Moreo-ver, the most innocuous of notification to other regulators or statutory bodies may trigger an immediate filing requirement with the CCI. The silver lining in this case, to the extent one can be found, is that the decision opens a back door for parties to make an early notification to the CCI.

The CCI has consistently been looking at ways to improve the merger control regime on the basis of feedback it receives, and it is hoped that the CCI will lend some clarity on these is-sues in the near future. Until such time, parties will be well ad-vised to scrupulously plan their transaction and notification timetables and informally engage with the CCI early in the pro-cess, as this may avoid fines on account of any inadvertent de-lays.17

1 Combination Case No. C-2014/03/162 (order under §43A issued on May 27, 2014), available at www.cci.gov.in/May2011/OrderOfCommission/CombinationOrders/C-2014-03-162RO.pdf.

2 Section 43A of the Competition Act: “Power to impose penalty for non-furnishing of information on combinations: If any person or enterprise who fails to give notice to the Commission under sub-section (2) of section 6, the Commission shall impose on such person or enterprise a penalty which may extend to one per cent. of the total turnover or the assets, whichever is higher, of such a combination.”

3 The CCI’s decisions under §43A of the Competition Act are available at www.cci.gov.in/index.php?option=com_content&task=view&id=171.

4 Section 6(2) of the Competition Act. 5 Section 6(2A) of the Competition Act. Parties to a combination can-

not close their transactions for a period of 210 calendar days or receipt of an approval from the CCI, whichever is earlier.

6 Section 6(2) of the Competition Act. There are also limited categories of transactions that only require a post-closing notification to the CCI (see § 6(5) of the Competition Act).

7 Section 2(b) of the Competition Act. 8 Section 31(11) of the Competition Act provides for a 210-day period

in which the CCI may review a combination. At the end of this review period, the combinations is deemed to be approved.

9 Combination Case No. C-2012/07/69. 10 Combination Case No. C-2014/03/162, at ¶ 11. 11 Combination Case No. C-2012/07/69. 12 Id. ¶ 7. 13 Combination Case No. C-2013/05/122. 14 Id. (order under §43A issued Dec. 19, 2013). 15 Salem Advocate Bar Ass’n, Tamil Nadu v Union of India, AIR 2005

SC 3353. 16 Int’l Comp. Network, Recommended Practices for Merger Notifica-

tion Procedures, at 6 (“Jurisdictions that prohibit closing while the competi-tion agency reviews the transaction . . . should not impose deadlines for pre-merger notification.”), available at www.internationalcompetitionnetwork.org/uploads/library/doc588.pdf.

17 In Uttam Galva Steels Limited/Shri Uttam Steel and Power Limited (Combination Case No. C-2013/11/140), the CCI did not impose a penalty for a delay in filing, as the parties had been engaged with it informally during the period of delay.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 24

Investigation of International Cartels in Russia

German Zakharov & Alla Zhigaeva ALRUD Law Firm, Russia

I nternational cartels pose a significant threat to competitive markets, and conduct pursuant to unlawful cartels is among

the most serious violations of antitrust law. Recent cartel en-forcement has been characterized by a rise in cooperation among competition enforcement agencies around the world, with a dramatic increase in fines for cartel participants. Investi-gation of these practices is a top priority for the Federal Anti-monopoly Service of the Russian Federation (“FAS”).

We provide below a description of the legislative regulation of cartels in Russia as well as a review of recent cases.

Current Anti-Cartel Legislation and Enforcement

Under the Competition Act of the Russian Federation, car-tel agreements are deemed illegal if they result or may result in any of following:

1. fixing prices, including by way of setting discounts, bo-nuses or other rebates;

2. big rigging; 3. market sharing; 4. reducing or restraining product output; or 5. boycotts (refusing to enter into a contract with certain

sellers and buyers).

These restrictions are similar to “per se” prohibitions under U.S. antitrust law. The FAS is not required to demonstrate that a cartel arrangement which violates any of the above has result-ed in the actual restriction of competition.

International Cooperation

The Competition Act provides for extraterritorial applica-tion to agreements concluded in foreign jurisdictions. The FAS regularly refers to such provisions in requests for documents and information from foreign companies.

The FAS is expanding cooperation with foreign competi-tion authorities in cartel investigations, including improving the legal framework for international cooperation between the FAS Russia and competition authorities of foreign countries and im-proving mechanisms for investigation of cartels within the Cus-toms Union of Belarus, Kazakhstan and Russia.

In order to expand the legal framework to ensure coopera-tion with foreign competition authorities, the FAS has signed so-called “new level” agreements with:

the Competition Commission of the United Mexican States (2010);

the Competition Authority of Hungary (2010); the Austrian Competition Authority (2011);

the Directorate General for Competition of the Euro-pean Commission (2011); and

the Competition Authority of Spain (2011).

These agreements set out the mechanism for interaction, including exchange of non-confidential information, when deal-ing with specific international antitrust cases.

The Treaty on the Unified Principles and Rules of Compe-tition, concluded in 2010 among Russia, Belarus and Kazakh-stan at the Eurasian Economic Union level, establishes a legal framework for cooperation among these countries. Authorities in the member states can cooperate by way of requesting confi-dential information from each other and requesting certain pro-cedural actions.

The FAS has promoted the concept of an anti-cartel con-vention that would allow close cooperation in international car-tel investigations. The convention would be similar to conven-tions already in place for combating corruption and money-laundering.

Leniency Program

Russian legislation provides for two types of leniency pro-grams: (1) an administrative leniency program; and (2) a crimi-nal leniency program.

The provisions of the administrative leniency program are included in a special note to the Code on Administrative Of-fences. Under this Code, legal entities taking part in restrictive agreements or concerted practices have the opportunity to par-ticipate in a leniency program if they can demonstrate that they: (i) voluntarily reported to the antitrust authority about entering into anticompetitive agreements or executing concerted practic-es; (ii) stopped participating in the agreements; and (iii) gave evidence about the agreements. If they do so, they are fully relieved from administrative liability. Full immunity is possible in respect of all anticompetitive agreements (e.g., cartels, vertical restraints and other anticompetitive agreements). The FAS is the agency responsible for handling administrative leniency ap-plications.

Criminal leniency rules are provided by the Criminal Code of the Russian Federation as a special note to Article 178, which establishes liability for entering into anticompetitive agreements (including participation in cartels) and abuse of a dominant po-sition. A firm that has committed a crime stipulated by Article 178 shall be relieved from criminal liability if it has facilitated disclosure of the crime, has compensated the damage incurred, or transferred to the federal budget the income received in the result of the crime. Full immunity is possible in respect of all anticompetitive actions (e.g., criminal abuse of dominance, car-

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 25

tels, and vertical agreements). The Ministry of Internal Affairs of the Russian Federation is the office authorized to implement the criminal leniency program.

Use of the administrative leniency program is expanding. In 2013, the FAS registered twenty-nine administrative leniency applications. In comparison, in 2012 there were only thirteen applications.

Recent Statistics

The FAS imposed two cartel fines in 2013 totaling US $20.3 million, falling short of its 2012 level (US $31 million). The larger fine (US $16.8 million) was entered against seven produc-ers of polyvinylchloride chemicals, and the FAS has warned that it continues to pay “special attention” to the chemicals sector. In November 2013, the FAS imposed a US $3.5 million fine against a group of fishing companies for collusive conduct in the market for various products made from pollock. It suggest-ed that the investigation is ongoing and that further fines will be handed down “in the near future.”

The FAS regularly transfers evidence obtained in adminis-trative investigations to the police asking for initiation of crimi-nal proceedings against cartel participants.

Recent Cases

The “Fish-Vietnam” case

Russian importing companies (Russian Fish Company CJSC, Atlantic-Pacific CJSC, AMIFISH Ltd., Mega Line Ltd. and Pervomaisky Cold-Storage Facility Trading House Ltd.) entered into an anticompetitive agreement which led to the

price fixing of pangasius fish fillets produced in Vietnam and exported to Russia. The FAS determined that the companies had also unlawfully divided markets. A nonprofit organization, the Association of Industrial and Commercial Enterprises on the Fish Market, coordinated the actions. The FAS forwarded the results of its investigation to the Ministry of Interior to open a criminal case against company officials.1

Uzbek case

The FAS determined that two Uzbek mobile telephone op-erators had concluded an agreement against an Uzbek subsidi-ary of a Russian company which led to market foreclosure and affected competition in the Russian market for mobile commu-nication.

Liner shipping investigation

The FAS continues its investigation of possible price fixing among major liner shipping companies which might affect Rus-sian markets.

Conclusion

The FAS has extended relationships with foreign competi-tion authorities, and the results of its efforts are becoming evi-dent. It is establishing closer cooperation with competition agencies of other countries in order to investigate international cartels.

1 See Press Release, Fed. Antimonopoly Serv., FAS Fined Cartel Partici-pants Supplying Fish from Vietnam (Feb. 28, 2014), available at http://en.fas.gov.ru/news/news_33545.html.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 26

Private Damages Actions in the EU: The European Directive and New Judgment on Umbrella the Effect—A New Path For Compensation Claims

Christina Hummer Saxinger Chalupsky & Partner Rechtsanwälte GmbH, Belgium

Introduction

On April 17, 2014, the European Parliament adopted a Eu-ropean Union (“EU”) proposal for a directive on private dam-ages actions (“Directive”),1 which will enter into force upon approval by the EU Council of Ministers. Consequently, na-tional legislations of the EU Member States will have to be amended accordingly.

The Directive aims to coordinate claims for damages and the enforcement of competition rules by national competition authorities. Member States shall ensure that any injured party may demand and receive full compensation. Full compensation for damages comprises (i) incurred financial losses, (ii) loss of profit, and (iii) the payment of interest. Thus, according to Ar-ticle 2 of the Directive, anyone who has suffered harm caused by an infringement of EU or national competition law shall be able to claim full compensation for such harm.

Disclosure of Evidence

The Directive provides in Articles 5-8 extensive rules on the “disclosure of evidence.” According to Article 5(2), it is the obligation of Member States to ensure that national courts or-der the disclosure of evidence if the requesting party has proven that the specified evidence is relevant for quantifying and sub-stantiating the damages claim. As a result, Member States shall ensure that the ordered disclosure of evidence is proportionate and related to an EU-level action for damages. When assessing proportionality, a balance between the interests of the company and those at stake for all private parties and interested third par-ties has to be determined. For this purpose, a hearing of the defendant is necessary.

In general, business secrets or other confidential infor-mation disclosed during the proceedings should be protected. The Directive states, “Member States shall ensure that national courts have at their disposal effective measures to protect confi-dential information from improper use to the greatest extent possible whilst also ensuring that relevant evidence containing such information is available in the action for damages.” More-over, Article 6 of the Directive provides certain specific limits on the disclosure, in particular that “national courts cannot at any time order a party or a third party to disclose any of the following categories of evidence: (a) corporate leniency state-ments; and (b) settlement submissions.” Nonetheless, “national courts can order the disclosure of the following categories of evidence only after a competition authority has closed its pro-ceedings or taken a decision [. . . ]: (a) information that was pre-pared by a natural or legal person specifically for the proceed-ings of a competition authority; (b) information that was drawn up by a competition authority in the course of its proceedings.”

Statute of Limitations

According to the Directive, the limitation period is five years after the infringement ended, starting from the day the victim acquired knowledge of (i) the existence of the infringe-ment, (ii) the damage resulted from that precise infringement, and (iii) the identity of the wrongdoers.

In the case of ongoing official proceedings or investigations related to the infringement regarding the damages action, the period of limitation will be suspended. In such cases, the sus-pension of the period of limitation will end not less than two years after proceedings have been closed and a decision is final.

Joint and Several Liability of Cartel Members in Damages Actions

Cartel members are in general jointly and severally liable to victims in private damages actions. Thus, each cartel member is obliged to compensate the victim to its full extent. Only small and medium-sized companies that did not lead or contribute to the cartel, and whose participation represents less than five per-cent of the total damage caused, can be exempt from joint and several liability.

Nevertheless, the Directive, in Article 4, foresees a condi-tional exclusion of joint and several liability for companies that have been granted immunity from fines under a leniency pro-gramme. Thus, such companies may only be held liable if the victim demonstrates that the other cartel members are unable to compensate for the full extent of the damage.

Calculation and Scope of Damages

Despite the new Directive, European law lacks guidelines on how to calculate and quantify damages resulting from com-petition infringements. However, the Directive instructs Mem-ber States to apply national rules for identifying and quantifying relevant damages. Accordingly, it is to be determined within this practice what information victims need to provide national courts to enable a damages action and which methods can be implemented to calculate the amount of damages.

Umbrella Pricing Effect

On June 5, 2014, the European Court of Justice (“ECJ”) clarified the extent of cartel damages that can be recovered in Europe. In Kone,2 the ECJ ruled that victims of the “umbrella pricing effect” are entitled to compensation from cartel mem-bers. The court pointed out that the market price is a main fac-tor when determining sales prices and strategies. Thus, compet-itors who are not involved in the cartel will also increase prices in response to market conditions.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 27

Ultimately, if market conditions are distorted by a cartel, non-infringing competitors will also set prices at a level they would not have set under normal competitive circumstances. The ECJ also stated that the effectiveness of European compe-tition law may be affected were national regulation to limit the possibility of filing cartel-related damages claims to only against those who suffered from a direct contractual link. A causal rela-tionship between the claimed damages and the antitrust in-fringement should suffice this legal requirement. Thus, victims of the umbrella pricing effect may be compensated by cartel members even if no direct contractual relation was ever estab-lished.

Relying on the Kone decision and to comply with the princi-ple of equivalence and to maintain the effectiveness of Europe-an competition law, national rules concerning damages actions emerging from antitrust infringements shall not be interpreted less favorably than other remedies that concern only national law.

Conclusion

It is to be seen how the Directive will be implemented by national legislatures. These changes and the recent ECJ judg-ment on umbrella pricing effect will, however, pave the way for future private damages actions in Europe.

1 Proposal for a Directive of the European Parliament and the Council on certain

rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, COM(2013) 404 (June 11, 2013), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0404:FIN:EN:PDF.

2 Case C-557/12, Kone AG and Others v ÖBB-Infrastruktur AG (June 5, 2014), available at http://curia.europa.eu/juris/celex.jsf?celex=62012CJ0557&lang1=en&type=TXT&ancre=.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 28

Follow-On Actions: Is Spain a New El Dorado?

Josselin J. Lucas Sabrina Camand Vanessa Jiménez Serrania Paul Hastings LLP, USA and France Paul Hastings LLP, France University of Salamanca, Spain

A recent Spanish competition case, also known as the “Sugar Cartel Saga,” has attracted the attention of interna-

tional antitrust practitioners. This case is accurately depicted as a significant step forward by Spanish courts in favor of private enforcement of both European Union (“EU”) and national an-titrust rules. Within the context of the forum shopping issue in the EU for plaintiffs in mass litigation, it certainly creates op-portunities in Spain.

However, concerning follow-on actions, the Spanish legal system greatly differs from those of other EU Member States and, to some extent, from the EU-wide harmonized standards proposed by the draft EU Directive on damages actions under national law for infringement of competition law1 (“draft EU Directive”).

A limited binding effect of administrative decisions issued by the Spanish Antitrust Agency (Comision Nacional de los Merca-dos y de la Competencia) on local courts, along with particular con-ditions of admission of the passing-on defense and a specific class-action system, make Spain a unique jurisdiction within the European Union. ¡Su atencion, por favor!

The Sugar Cartel Saga

In a judgment dated November 7, 2013,2 the Supreme Court of Spain (Tribunal Supremo) awarded EUR 4.1 million in damages to a group of fourteen sweet manufacturers, e.g., Wrigley (a company of Mars, Inc.), Nestlé SA, and LU Biscuits (a company of Mondelez International).3 This judgment is the result of a follow-on action brought against a Spanish sugar company, Azucarera Ebro, for its participation in a price-fixing cartel with other Spanish sugar companies.

This is the second time that Spanish courts awarded damag-es to third parties as a result of a defendant’s participation in a price-fixing cartel. The first judgment, dated June 8, 2012,4 was rendered by the Supreme Court of Spain against another Span-ish sugar manufacturer, Acor. Both follow-on actions followed the same administrative decision issued by the Spanish Antitrust Agency on April 15, 1999 to fine several Spanish sugar manu-facturers for participating in a price-fixing cartel.5

Uncertainty Regarding the Binding Effect of the Spanish Antitrust Agency’s Rulings on National Courts

In the Spanish legal system, the principle of independence of the judiciary, which is expressly mentioned in the Spanish Constitution,6 is strictly applied by local courts. In the Sugar Cartel Saga, despite the principle of independence of the judici-ary, certain aspects of the Spanish Antitrust Agency’s adminis-trative decision issued on April 15, 1999 have been fully admit-ted and taken into account by the Supreme Court of Spain in the civil proceedings. However, this is still far from the binding

effect of administrative decisions issued by national competition authorities in other EU Member States, particularly in the UK.7

More interestingly, the limitations of the binding effect of administrative decisions issued by the Spanish Antitrust Agency on local courts greatly differ from the clear and full recognition of such a principle in the draft EU Directive.8 In Spain, admin-istrative findings by the Spanish Antitrust Agency can be used by parties to prepare their damages claims for breach of compe-tition law. However, those administrative decisions issued by the Spanish Antitrust Agency are not legally binding on Spanish civil or commercial courts.

At this stage, because of the uniform application of EU competition law,9 only the administrative decisions issued by the European Commission’s DG Competition under Articles 101 and 102 of the TFEU bind Spanish courts.10

Specific Criteria for the Passing-On Defense

In its judgment dated November 7, 2013, the Supreme Court of Spain identified two cumulative criteria for a Spanish court to admit the passing-on defense. The burden of proof is on the defendant who must prove that the claimant has passed the overcharge down the supply chain. In addition, the defend-ant must prove that the claimant has not suffered a reduction in its volume of sales.

This is a very high standard of proof for the defendants, especially compared with provisions of the draft EU Directive that facilitate claims of indirect consumers by establishing a re-buttable presumption that they suffered a part of the price in-crease, to be estimated by the Court.11

Limited Scope and Procedural Specificities of the Span-ish Class Action System

The scope of the Spanish class action system, which was introduced in 2001, is expressly limited to consumers. The Spanish approach of some procedural aspects is also an interest-ing contrast to the U.S. class action system.

In Spain, certain legal entities can bring actions on behalf of consumers where a number of consumers have suffered from the same damage. More precisely, there are two types of group actions depending upon whether the victims are (easily) identi-fied or not. Where the victims are identified or at least easily identified, an action can be brought by a consumer protection association or any other authorized legal entity to protect the collective interest (hereinafter referred to as “collective action”) (acción para la defensa de interes colectivos).12 Where the victims are unknown, a limited number of consumer protection associa-tions that are considered sufficiently representative can bring an

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 29

action for the protection of widespread or diffuse interests (acción para la proteccion de interes difusos).13

In the case of a collective action, as the purpose of such an action is to protect a collective interest, i.e., a more general inter-est than the sole individual interest of any victim, a victim does not need to agree to participate in collective actions brought by a consumer protection association or any other authorized legal entity. On a voluntary basis, victims can opt-in so that they will be able to claim their damages in the same proceedings. Vic-tims cannot opt-out. If they stay out of the collective action, victims will nonetheless be bound by the judgment and are still entitled to separately bring their own damages action.

Conclusion

As illustrated by the recent Sugar Cartel Saga, the Spanish legal system is a friendly environment for follow-on actions. However, the current Spanish follow-on action system clearly differs from the future EU harmonized standards as mentioned in the draft EU Directive. For international antitrust practition-ers, two main concerns may arise on the binding effect of the Spanish Antitrust Agency’s rulings on Spanish courts, and on the passing-on defense, respectively. In practical terms, in the coming years, significant amendments to the current Spanish legislation will have to be passed. Meanwhile, for victims of cartel activities, it seems that there are significant opportunities to launch follow-on actions in Spain.

* All views expressed herein are those of the authors alone.

1 Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, COM(2013) 404 (June 11, 2013), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0404:FIN:EN:PDF.

2 Supreme Court of Spain, Ebro, STS 5819/2013, November 7, 2013. 3 Nestlé SA was awarded EUR 1.55 million. Wrigley was awarded EUR

702,950, Chocovic SA: EUR 448,188; LU Biscuits SA: EUR 191,674; Dela-viuda: EUR 90,177 and Lacasa Group: EUR 76,109.

4 Supreme Court of Spain, Acor, STS 5462/2012, June 8, 2012. 5 Defense of Competition Tribunal (the equivalent of the current

Comision Nacional de los Mercados y de la Competencia), Case n°.426/98, Azúcar, April 15, 1999.

6 Article 117.1 of the Spanish Constitution. 7 See Sections 47 and 58 of the UK Competition Act 1998. 8 The draft EU Directive introduces in its article 9, inspired by the UK

follow-on action system, a binding effect of the administrative decisions is-sued by a national authority on the national courts of that specific Member State of the EU. “Member States shall ensure that an infringement of competition law found by a final decision of a national competition authority or a review court is deemed to be irrefutably established for the purposes of an action for damages brought before their national courts under Article 101 or 102 of the Treaty or under national competition law.”

9 Article 16 of the EU Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 101 and 102 of the Treaty.

10 Francisco Marcos, “Competition Law Private Litigation in the Spanish Courts”, Working Paper IE Law School AJ8-202, June 23, 2013, pp. 37-38.

11 The draft EU Directive states, in its article 14.1: “Member States shall ensure that, where in an action for damages the existence of a claim for damages or the amount of compensation to be awarded depends on whether - or to what degree - an over-charge was passed on to the claimant, taking into account the commercial practice that price increases are passed on down the supply chain, the burden of proving the existence and scope of such pass-on shall rest with the claimant who may reasonably require disclosure from the defendant and from third parties.”

12 Article 11.2 of the Spanish Law of Civil Procedure. 13 Article 11.3 of the Spanish Law of Civil Procedure.

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 30

European Commission Publishes Detailed Proposals on Changes to EU Merger Regulation

David Cardwell, Paul Lugard & Simina Suciu Baker Botts LLP, Belgium

O n July 9, the European Commission (“Commission”) published details of its proposals to change the way in

which acquisitions of minority shareholdings are treated under the EU Merger Regulation (“EUMR”).1 The Commission’s White Paper also sets out proposals for changing the rules on how cases are referred between national competition authorities and the Commission, as well as for narrowing the scope of the Commission’s jurisdiction to review certain categories of trans-actions. The White Paper gives encouraging signs of a con-scious effort by the Commission to lessen the regulatory burden on companies in terms of case referrals and transactions that have no real impact on the European Economic Area (“EEA”). However, the centerpiece of the Commission’s White Paper – a significant extension of the Commission’s jurisdiction to review acquisitions of minority shareholdings – would represent an expansion of the administrative burden for companies and is all but certain to form the focal point of stakeholders’ comments during the consultation period.

Proposed Expansion to Cover Minority Shareholdings

Having already launched an initial consultation period in June 2013,2 the Commission has now reflected on the responses that it received from stakeholders and narrowed down the vari-ous options it had set out into a concrete proposal as to how it wants to change the law. Although the options proffered by the Commission in 2013 had included the fairly draconian approach of imposing a mandatory filing obligation on any company ac-quiring a minority shareholding above a certain percentage, the Commission has, in the end, rejected taking this more severe route. Instead, the White Paper sets out a proposed hybrid of a “targeted transparency system.” This equates to a requirement that an acquiring party submit an “information notice” to the Commission if its acquisition would create a “competitively-significant link” (assuming that the parties to the transaction also meet the existing revenues thresholds set out under the EUMR). The Commission would then publish details of the transaction and would have 15 working days to assess whether or not the parties should be required to submit a full notifica-tion of the transaction. Third parties and EU Member States would also have the opportunity to contact the Commission to voice their concerns or other comments. The parties would be required to suspend closing until the initial 15 working day peri-od lapses, unless the Commission calls for a full notification, in which case closing would be suspended until the Commission issues a formal merger clearance decision.

The Commission proposes that companies determine for themselves whether or not their transactions will lead to the acquisition of a “competitively-significant link.” The acquisition of an interest in a competitor or a vertically-linked company will

qualify, provided that the shareholding is either approximately 20 percent, or it is between 5 and 20 percent with certain ac-companying minority veto rights falling short of strategic con-trol in the traditional sense (the right to appoint a board mem-ber or access to commercially-sensitive information, for exam-ple).

Significant or Not?

The Commission’s proposed new system would be predi-cated on parties self-assessing whether or not their minority acquisitions meet the criteria for submission of an information notice. While the proposed new self-assessment system is, in theory, a more flexible approach than introducing a mandatory notification system for all acquisitions of structural links above a certain threshold, the proposals in the White Paper still repre-sent an addition to the existing administrative burden on com-panies. The bottom line is that companies would need to ana-lyze various minority acquisitions which they have not previous-ly had to assess and potentially submit information (including market share data) to the Commission which they have not had to submit before.

Experience at the national level in Germany and the UK, which also treat minority acquisitions as potentially notifiable provided that they give rise to some sort of “competitive signifi-cant influence” (“material influence” in the case of the UK), or in Austria that also captures acquisitions of twenty-five percent or more, would suggest that assessment of the significance or otherwise of any given minority shareholding rights is a fact-specific exercise that is susceptible to multiple, alternative inter-pretations. A minority right which is determined in one case to be indicative of material/competitively-relevant influence may not be so significant in another case with a different level of shareholding and/or a different combination of minority pro-tection rights.

In practical terms, the potential for increased legal uncer-tainty here is clear, with parties caught between not notifying and facing the risk that the Commission will investigate retro-spectively, or choosing to notify even the most minor transac-tions in order to avoid that uncertainty.

Other concerns raised by the Commission’s White Paper include the loss of confidentiality as regards transactions that are subject to an information notice: parties who may otherwise have wished to retain a level of confidentiality for a particular minority acquisition will have its details made public upon filing of an information notice. A further element of uncertainty con-cerns a proposed four- to six-month period following the sub-mission of an information notice, during which the Commission is entitled to begin an investigation into a transaction. Even if

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 31

the parties have closed or begun to close a transaction, the Commission will still be entitled to require the submission of a full notification and could, where appropriate, require the par-ties to enter into hold separate arrangements in order to prevent further integration of the companies’ businesses, until the Com-mission approves the acquisition.

Other Proposed Changes

The White Paper includes proposals for less contentious changes, principally concerning the referral of merger cases be-tween Member State competition authorities and the Commis-sion. The most significant change would be in relation to refer-rals from national competition authorities to the Commission, on the request of the notifying parties. Currently, parties to a transaction that is notifiable in three or more individual EU Member States can, through a “Reasoned Submission,” request that the Commission carry out a single, EU-wide review; after submission, the Commission must wait for fifteen working days in case any relevant Member State objects to the application. Only after expiry of that period can the parties proceed to file a full notification with the Commission.

Under these proposals, parties would be able to file a full notification directly with the Commission; any relevant Member State would be entitled to object during the first fifteen working days of the Commission’s formal review period. Adoption of this proposal would effectively eliminate the unwelcome addi-tional time added to the overall regulatory process when parties decide to apply for EU-wide review at the Commission rather than filing multiple notifications at Member State level. It would also end the significant duplication that exists under the current system as far as Reasoned Submission and Form CO notifications are concerned, all of which would likely make the use of the Reasoned Submission procedure a substantially more attractive option for notifying parties.

Final Thoughts

The Commission ends its White Paper with two related proposals, the adoption of either of which could, in theory, lead to a welcome rolling back of the EUMR’s reach over certain transactions: the Commission proposes that notification will no longer be required for (a) the creation of full function joint ven-tures that are located and operational completely outside the EEA, with no links to the EEA market; and (b) transactions where the parties have no horizontal or vertical links. In the latter case, the Commission proposes that these types of trans-actions (currently notifiable under the Commission’s “Simplified Procedure”), might be dealt with via a form of “targeted transparency system,” as proposed for minority acqui-sitions.

These final two proposals are tentative, and it is difficult to anticipate how much of an impact they would have until the Commission publishes the text of the actual draft legislation. That draft legislation will not appear for many months yet and, even when the Commission does publish its formal legislative proposal, adoption of the law will be subject to the political and diplomatic back-and-forth of the Council of the European Un-ion and European Parliament, meaning that the text of any law eventually adopted may not reflect exactly what is in the final proposed legislative text issued by the Commission. For now, interested parties have until October 3, 2014 to respond to the Commission’s consultation on its White Paper.

1 Commission’s White Paper on “Towards more effective EU merger control,”

accompanied by the Staff Working Document and the Impact Assessment, available at http://ec.europa.eu/competition/consultations/2014_merger_ control/index_en.html.

2 Commission’s Staff Working Document “Towards improving EU merger control,” available at http://ec.europa.eu/competition/consultations/ 2013_merger_control/index_en.html.  

International Committee │ ABA Section of Antitrust Law August 2014 │ Vol. 2

AMERICAN BAR ASSOCIATION 32

Meet the Authors David Cardwell is a Senior Associate in the Brussels office of Baker Botts L.L.P. Sabrina Camand is a Junior Associate in the Paris office

of Paul Hastings LLP and a member of the Paris Bar. She graduated with a double Master’s Degree in French and Swiss Law and also holds a LL.M in European Legal Studies from the College of Europe.

Linda Evans is a Partner in the Sydney office of Clayton Utz.

Christina Hummer is a Partner in the Brussels office of Saxinger Chalupsky & Partner Rechtsanwälte GmbH.

Charles Weller at 69, is now in solo practice in Cleveland after Jones Day and Baker Hostetler .

Evelyn Niitväli is a Partner in the Frankfurt office of RCAA.

Marc Reysen is a Partner in the Frankfurt and Brussels offices of RCAA.

Igal Schönberger is an Associate in the Santiago office of Cariola Díez Pérez-Cotapos & Cía. Ltda.

Karan Singh Chandhiok is a Partner in the New Delhi office of Chandhiok & Associates.

Cecil Chung is Senior Foreign Counsel in the Seoul office of Yulchon LLC.

Juan Cristóbal Gumucio is a Partner in the Santiago office of Cariola Díez Pérez-Cotapos & Cía. Ltda.

Mark Krotoski is an Assistant Chief in the Antitrust Division, U.S. Department of Justice .

Josselin Lucas is a Senior Associate in the Washing-ton office of Paul Hastings LLP. He is a member of the Paris and Brussels Bars and licensed to practice as a Special Legal Consultant in the District of Columbia.

John Oxenham is a Co-Founder and Director of Nortons Inc. in Sandton.

Amadeu Ribeiro is a Partner in the Rio de Janeiro office of Mattos Filho, Veiga Filho, Marrey Jr. e Qui-roga Advogados.

Jonathan Gowdy is a Partner in the Washington office of Morrison Foerster.

K K Sharma is Chairman of K K Sharma Law Offices in New Delhi, India.

German Zakharov is a Senior Associate in the Moscow office of ALRUD Law Firm.

Koren W. Wong-Ervin is Counsel for International Antitrust in the Office of International Affairs at the U.S. Federal Trade Commission.

Vanessa Jiménez Serrania is a PhD Candidate of the University of Salamanca and a member of the Madrid Bar. She is also a Senior Lecturer in European IP and Commercial Law at the Universities of Salamanca and Oberta de Catalunya.

Alla Zhigaeva is a Junior Attorney in the Moscow office of ALRUD Law Firm.

Paul Lugard is a Partner in the Brussels office of Baker Botts L.L.P.

Simina Suciu is an Associate in the Brussels office of Baker Botts L.L.P.