United States

Competition Law 2004/05 Country Q&A United States

United States

Joe Sims, Montgomery Kosma and Sara Razi, Jones Day

www.practicallaw.com/A44034

MERGER CONTROL HSR filing requirements and waiting periods apply if either:

1. Are mergers and acquisitions subject to merger control in ■ The acquiring person will hold voting securities or assets of your jurisdiction? If so, please describe briefly the regulatory the acquired person valued at more than US$200 million framework and authorities. (about EUR164.2 million).

■ All three parts of the following test are satisfied: US merger laws govern the following: ❑ the acquiring person will hold voting securities or assets ■ Traditional mergers. of the acquired person valued between US$50 million (about EUR41 million) and US$200 million (about ■ Stock or asset acquisitions. EUR164.2 million);

■ Joint ventures. ❑ one party has at least US$100 million (about EUR82.1 million) in total worldwide assets or annual net sales; ■ Transfers of interests in intellectual property, contracts or and real estate. ❑ the other party has at least US$10 million (about Any person is prohibited from acquiring stock or assets where EUR8.2 million) in total worldwide assets or annual net “the effect of such acquisition may be substantially to lessen sales. competition, or to tend to create a monopoly” (section 7, Clayton Act). The Clayton Act provides for enforcement by the Antitrust These thresholds are annually adjusted for inflation. A transac- Country Q&A Division of the US Department of Justice (Antitrust Division) and tion meeting either test is reportable unless one of several the Federal Trade Commission (FTC). Although less common, the exemptions applies. For example, a complex section of the HSR 50 state attorneys general and private plaintiffs can also Rules exempts certain transactions involving the acquisition of challenge an acquisition through a lawsuit under the Clayton Act assets or voting securities located mainly outside the US. (and, in some cases, under state laws). Exemptions also apply to, among other things:

Transactions involving certain regulated industries may require ■ Certain acquisitions of goods (for example, for resale, con- notification to or approval by other federal or state agencies (see sumption or incorporation into finished products) in the ordi- Question 12). nary course of business.

Under the 1988 Exon-Florio Amendments, the Committee on ■ Real property. Foreign Investment in the US (CFIUS) must receive written notice of an acquisition, merger or takeover of a US corporation ■ Mineral reserves. by a foreign entity. This type of transaction can be suspended or prohibited by the President if it threatens US national security ■ Non-voting securities. (see box, The regulatory authorities). ■ Passive investments.

2. What are the relevant thresholds/triggering events? Even if not reportable under the HSR Act, the Antitrust Division or the FTC can still investigate and seek to block a transaction from being consummated, or in rare cases, to unwind a Under the Hart-Scott-Rodino Antitrust Improvements Act of completed transaction. The investigation of these transactions 1976 (HSR), parties to a merger or acquisition that meets certain usually arises in response to complaints from customers or other jurisdictional thresholds must notify the Antitrust Division and potentially affected parties. the FTC, and must not consummate the transaction until a waiting period has expired (for an overview of the notification For a broad overview of the notification process, see box, process, see United States: merger notifications flowchart). Timeline for HSR-reportable transactions. For a description of a

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proposed rule that would harmonise the HSR treatment of ❑ their ownership interests; and corporations and "non-corporate entities” (currently, certain transactions involving non-corporate entities, such as partner- ❑ the affected industries. ships and limited liability companies (LLCs), are not reportable) (see Question 34). Item 4(c), the most critical part of the HSR filing, requires copies of all “studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s), for the 3. Please give a broad overview of notification requirements. In purpose of evaluating or analysing the acquisition with particular: respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or ■ Is notification mandatory or voluntary? geographic markets.”

■ When should a transaction be notified? Item 4(c) is interpreted broadly, covering paper or electronic documents (including e-mail and handwritten notes) that ■ Is it possible to obtain formal or informal guidance prior to discuss the transaction (however briefly), and mention mar- notification? ket shares, competition, competitors or markets (whether or not US markets). Accordingly, completing the filing often ■ Who should notify? requires a thorough search for these materials. In addition, parties should seek legal advice to ensure that they and their ■ To which authority should notification be made? agents (such as investment bankers) take due care to avoid exaggerated statements in materials created by or for offic- ■ What is the form of notification? ers and directors.

■ Is there a filing fee? If so, how much? ■ Filing fee. The acquiring person must pay a filing fee based on the value of the acquired person’s assets and voting secu- ■ Is there an obligation to suspend the transaction pending rities that it will hold as a result of the transaction. The fee the outcome of an investigation? is:

❑ US$45,000 (about EUR36,961) for transactions valued ■ Mandatory or voluntary. Filing is mandatory for transactions at US$100 million (about EUR82.1 million) or less; that meet the HSR thresholds (see Question 2). The agencies will reject a filing (and refund fees) for a transaction ❑ US$125,000 (about EUR102,669) for transactions val- that fails to meet the thresholds. ued at more than US$100 million (about EUR82.1 million) but less than US$500 million (about EUR410.7 ■ Timing. There is no requirement that a filing be made in a million); and specific time after an agreement has been entered into. ❑ US$280,000 (about EUR229,979) for transactions val- ■ Informal guidance. Informal advice on issues relating to ued at US$500 million (about EUR410.7 million) or HSR pre-merger filing requirements or procedures is availa- more. (These thresholds will be adjusted annually for ble on an anonymous, confidential basis from the FTC’s Pre- inflation.) Country Q&A merger Notification Office. The Antitrust Division and the FTC will not offer informal guidance on the merits of mergers ■ Obligation to suspend. The HSR subjects any reportable and acquisitions or other transactions. transaction to a mandatory initial waiting period of 30 days (15 days for a cash tender offer or acquisition in bank- ■ Responsibility for notification. Generally, both the acquiring ruptcy). During this time, the parties must not consummate person and acquired person must provide separate notifica- the transaction. If both the Antitrust Division and FTC agree tion. For a tender offer, only the buyer must notify. that no further inquiry is warranted, they can grant early termination of the waiting period, typically within two weeks ■ Relevant authority. Notification is made simultaneously to after filing. the FTC’s Premerger Notification Office and the Antitrust Division’s Director of Operations and Merger Enforcement If either agency decides to conduct a more complete investi- (see box, The regulatory authorities). gation by issuing a Second Request (see Question 4), the waiting period will be extended for a further 30 days (or ten ■ Form of notification. Parties must complete and file the HSR days for a cash tender offer) after the parties have complied Notification and Report Form, which requires information with that request. During any waiting period, the parties describing: must take care to avoid co-ordinated activities or premature integration of their businesses, either of which can be ❑ the transaction; unlawful “gun jumping.”

❑ the parties;

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UNITED STATES: MERGER NOTIFICATIONS

Does the transaction involve an acquisition of assets or voting No Notification is not required. securities?

Yes

As a result of the transaction, will the acquiring person hold assets or voting securities of the acquired person valued at No Notification is not required. more than US$50 million (about EUR41 million)?

Yes

Does 1 party have at least US$100 million As a result of the transaction, will the acquiring person hold (about EUR82 million) in total worldwide assets assets or voting securities of the acquired person valued at No or annual net sales, while the other party has at more than US$200 million (about EUR164 million)? least US$10 million (about EUR8 million) in total worldwide assets or annual net sales?

Yes

Yes No

Does any HSR exemption apply? For example, the following types of acquisitions may be exempt, among various others:

Certain foreign assets or voting securities. Yes Notification is not required. Certain goods, realty or mineral reserves.

Certain passive investments. Country Q&A Certain convertible non-voting securities.

Notification is mandatory. Each party must file the HSR Notification and Report Form with both DOJ and FTC.

■ The agencies can permit the waiting period to expire without 4. Please outline the procedure and timetable. action, in which case the parties can consummate the transaction.

Initial waiting period ■ The staff can launch a fuller investigation by issuing a Request for Additional Information and Documentary Mate- The initial waiting period allows the agencies to determine rial, more informally referred to as a Second Request. (The whether the transaction has potential anti-trust issues meriting a HSR filing requirements themselves are the First Request.) more complete investigation, and has the following four possible results: ■ The parties can withdraw and re-file the HSR notification (without an additional filing fee), to provide the staff with an ■ If requested by the parties, the agencies can grant early ter- additional 30-day waiting period. In cases where the deci- mination of the waiting period if they conclude the transac- sion to issue a Second Request appears to be a close deci- tion presents no significant competitive issues. sion, it is sometimes a reasonable strategy to grant the agencies more time and to present further arguments and

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information, in the hope of avoiding the costs and delay of a with an HSR filing or investigation, including the fact that a filing Second Request. has been made. The agencies will publicly acknowledge a filing or investigation only when the parties have disclosed its As the first step to investigate a transaction appearing to present existence, or when granting a request for early termination of the potential competitive issues, one or both agencies will seek initial waiting period. “clearance” from the other to conduct an initial inquiry. Which agency will seek clearance can often be predicted, based on each The agencies cannot discuss confidential information received from agency’s history and experience with previous transactions the parties with anti-trust enforcement authorities of state or foreign involving the markets and companies in question. The agencies jurisdictions without the parties’ consent. In practice, permission is generally resolve clearance issues within nine business days of often requested and granted, subject to confidentiality guarantees filing. However, clearance issues still arise occasionally and can from the governmental entity receiving the information. delay the parties' ability to start substantive discussions with the investigating agency. If the investigating agency starts litigation to prohibit the transaction, it can use confidential documents and information submitted To determine whether or not a Second Request is merited, the by the parties or others. However, the parties to the transaction or staff lawyers and economists of the Antitrust Division or FTC third parties can seek a protective order from the court restricting conduct a preliminary investigation into the nature and degree of the disclosure of confidential information. competitive issues presented by a transaction. They can:

■ Hold meetings with counsel and economists for the parties. 6. Can third parties make representations and, if so, how?

■ Interview competitors, customers, industry associations and other interested parties. The Antitrust Division and the FTC frequently rely on information from third parties in conducting merger investigations. ■ Issue informal, non-compulsory requests for information and documents to the parties or to others. Agency staff will often initiate contact with third parties potentially affected by a transaction under review. Alternatively, a third party Counsel usually have the opportunity to argue that the agency that wishes to share information relating to a pending (or even a should not investigate further, or that any investigation should be completed) transaction can contact the Antitrust Division or the FTC limited to particular markets or issues. through its counsel. Whether or not customers believe that a transaction is likely to lead to competitive harm, such as higher Second requests prices, can be a decisive factor in the agency’s decision to issue a Second Request or seek a remedy against a transaction. When A Second Request can place substantial burdens on the parties. information from competitors is requested and received, it is Typically, it requires answering numerous interrogatories and the recognised that they can have commercial reasons to be concerned copying, review and production of all paper and electronic about the transaction that may not have any anti-trust significance. documents potentially relevant to competition in the products and market under investigation. Foreign language documents submitted in response to the Second Request must be translated into English. 7. What is the substantive test? Country Q&A Complying with a Second Request and conducting the economic and legal analysis required to argue the company’s interests before Substantive merger analysis is generally conducted under the the agency can take 60 to 90 days or more. Inevitably, it results in analytical framework set out in the Horizontal Merger Guidelines significant expense and some disruption to the parties’ businesses. (the Guidelines), adopted jointly by the Antitrust Division and the FTC in 1992 and revised in 1997. The Guidelines’ analysis Once the parties have complied with the Second Request, the attempts to predict how the transaction will affect the economic reviewing agency must determine whether to seek a remedy, incentives and likely behaviour of consumers and producers. either by: The Antitrust Division or the FTC will challenge a transaction if it ■ Negotiating with the parties to create a consent decree or appears likely to create or enhance market power, or facilitate its order. exercise. Usually, the analysis focuses on a seller’s ability to maintain prices above competitive levels, but can also consider a ■ Seeking a preliminary injunction from a federal court. buyer’s ability to depress prices below competitive levels. The analysis also considers the potential impact of the transaction on non-price aspects of competition, such as product quality, 5. How much publicity is given about merger enquiries? Can the service or innovation. parties request that certain information is kept confidential? Product and geographic markets

Federal statutes prohibit the disclosure of confidential informa- The first step in the Guidelines’ analysis is to define the relevant tion provided to the Antitrust Division or the FTC in connection product and geographic markets. Market definition focuses on

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demand substitution. An appropriately defined market is the Vertical transactions smallest set of products and geographic areas in which a hypothetical monopolist could profitably impose a “small but The agencies also examine potential competitive effects arising significant and non-transitory” increase in price. If a price from vertical mergers and acquisitions. Although there are no increase would cause consumers to switch to other products to a federal guidelines for vertical transactions, the analysis usually degree sufficient to render the price increase unprofitable, the asks whether a combination is likely to increase the ability and market definition must be expanded to include those products. incentive of the post-merger firm to raise the costs of its rivals, or otherwise impair rivals' ability to compete effectively, in either Market shares upstream or downstream markets.

The next step is to determine market shares in each relevant market. The Guidelines use the Herfindahl-Hirschmann Index 8. What remedies are available to the regulator and what pow- (HHI), the sum of the squares of the market shares of the firms ers of enforcement does it have? in the market, to make an initial determination of:

■ Whether the market is unconcentrated, moderately concen- When the Guidelines’ analysis leads to the conclusion that a merger trated or highly concentrated. is likely to harm competition, the Antitrust Division or FTC can file a lawsuit in a federal district court seeking a temporary restraining ■ The degree to which the transaction will increase concentra- order and an injunction to block the transaction. One infrequent tion. alternative to blocking a transaction completely is an order permitting the closing of the transaction, subject to an agreement to 'hold Competitive harm separate' the acquired entity or certain of its operations.

Unless the market is unconcentrated or the increase in concen- Both agencies have the option to continue litigation if their tration is below certain thresholds, the Guidelines require consid- request for a preliminary injunction is denied, but generally will eration of various factors that influence the likelihood and degree not do so. As a result, the preliminary injunction decision (and of competitive harm that may result. In particular, a merger can any subsequent appeal) frequently determines the final outcome. diminish competition: Faced with the prospect of litigation, parties frequently seek to ■ By increasing the likelihood or the ability of firms in the negotiate a settlement with the investigating agency. A settlement, in market to engage in co-ordinated interaction, such as a tacit the form of a consent decree or order, typically requires divestitures agreement to increase prices. or other structural and behavioural relief that the agency believes will be sufficient to alleviate the potential harm to competition. ■ By changing the market structure, so that the merged firm Country Q&A would find it profitable to unilaterally raise prices and In this context, the agencies, particularly the FTC, have become reduce output, without requiring the co-operation of other more demanding with respect to the amount and type of assets to market participants. be divested. Perhaps more importantly, the agencies (particularly the FTC) often prohibit the parties from closing their transactions Presumptions of harm to competition can be lessened or until either the divestiture has been completed or a willing and able defeated by evidence suggesting that entry in response to a price buyer for the divested assets has been identified and approved by increase would be timely, likely and sufficient to deter or the agency. The divestiture process alone can delay the consumma- counteract the competitive effects at issue. tion of a transaction for three to six months or longer.

The Guidelines also require consideration of the efficiencies likely to be generated by the merger and the likely effects on the 9. Is there a right of appeal against a decision? merged firm's ability and incentives to compete. For example, a transaction might yield lower prices, improved quality, enhanced service or new products, despite an increase in concentration in A federal district court order granting or refusing a preliminary one or more relevant markets. injunction to block a merger can be appealed to the US Court of Appeals. Appellate decisions are subject to further review at the Innovation and technology markets discretion of the Supreme Court of the US (Supreme Court).

In addition to the Guidelines, the Antitrust Guidelines for the Licensing of Intellectual Property (adopted jointly by the 10. What are the penalties for: Antitrust Division and FTC in 1995) are used for analysing transactions involving “innovation” and “technology markets.” ■ Failure to notify or a delay in notifying? Innovation markets involve products or technologies not yet commercialised, but in which a transaction can affect the speed ■ Failure to observe a decision of the regulator? or direction of innovation. Technology markets relate to segments in which firms can compete in the sale or licensing of technology. ■ Failure to notify. If an initial filing is found to be deficient during the waiting period (for example, if a party failed to

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TIMELINE FOR HSR-REPORTABLE TRANSACTIONS

Actions by parties Actions by agency

Parties agree to merger/acquisition. If transaction is public, DOJ or FTC may begin investigation using public sources. No deadline to provide notice Each party files HSR form. Waiting period If transaction raises potential issues, DOJ and commences. FTC decide which agency will review within 9 business days after HSR filing (sometimes Initial waiting longer). In the hope of avoiding a Second Request, period: 30 days parties can withdraw HSR filing and refile to Agency conducts initial investigation to provide the agency with an additional 30 days determine whether competitive issues merit for initial review (without paying additional further inquiry. filing fees).

Agency determines whether to issue a Second Request seeking more information. If no Second Request, parties can close transaction. Second Request Parties negotiate scope of Second Request compliance: with agency. 60-120 days

Parties: Agency staff review documents and information produced by the parties, interview third parties (for example, customers and competitors) and Collect, review, and produce documents; discharge key employees.

Respond to interrogatories;

Prepare white papers; and

Discuss issues with agency staff.

Parties certify substantial compliance with the Second Request.

Post-compliance Agency staff determine adequacy of Parties: waiting period: compliance. 30 days (unless Attempt to persuade agency staff on any parties agree to Country Q&A If harm to competition is deemed likely, competitive issues raised; extension) agency staff:

Negotiate settlement (including assets to be divested and buyer); or Explain concerns;

Prepare for litigation. Seek to negotiate settlement; or

Prepare for litigation to obtain injunction. Parties prepare and submit white papers or other materials to agency decision makers in an attempt to influence decision on staff Staff recommendation goes to agency decision recommendations. makers (20 days into waiting period).

Litigation: Agency allows transaction to close, or files for Note: A compressed schedule applies theoretically preliminary injunction in federal district court. to cash tender offers and acquisitions in unlimited bankruptcy.

produce all 4(c) documents), the parties can be forced to ■ Failure to observe. Failure to comply with the HSR is punish- restart the process with a new HSR filing and new waiting able by fines of US$11,000 (about EUR9,035) for each day periods. in violation. In addition, parties can be forced to divest any acquired assets.

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Violation of a final FTC order is punishable by penalties of up ❑ Bank Holding Company Act Amendments of 1970; and to US$11,000 (about EUR9,035) per violation, with each day of a continuing violation counted as a separate offence. ❑ Gramm-Leach-Bliley Financial Services Modernization The agency can commence a judicial proceeding to enforce Act of 1999. compliance with its decisions. These transactions can be subject to review and approval by the:

11. If a merger is cleared, are any restrictive provisions in the ❑ Office of the Comptroller of the Currency; agreements (such as non-compete covenants) automatically cleared? ❑ Federal Deposit Insurance Corporation;

❑ Board of Governors of the Federal Reserve System; and A merger is not necessarily cleared under US procedures, since after reviewing and permitting a transaction to proceed without ❑ Office of Thrift Supervision. challenge, the agencies can later decide to request information, and seek remedies against a merger or any other business Many transactions involving financial institutions are practice that threatens harm to competition. There is no statute exempted from HSR filing requirements, but are resolved by of limitations on Clayton Act violations. However, challenges after the approving agency in consultation with the Department of a transaction has been consummated are relatively rare. Justice (and the FTC for non-bank acquisitions).

Merger review typically covers all a transaction’s potential effects ■ Transportation. The Surface Transportation Board has exclu- on competition, whether arising from its effects on concentration sive jurisdiction over mergers and consolidations involving or other issues, such as licensing of intellectual property or railroads. Since the early 1990s, the Antitrust Division has covenants not to compete. assumed responsibility for mergers and acquisitions involving air carriers. The Department of Transportation retains Even after a transaction is consummated, the agencies can authority to approve and, in some cases, to grant anti-trust continue to investigate any other potential anti-trust issues immunity to agreements between US and foreign air carriers. relating to the markets or parties under investigation, not At times, it has exercised that authority despite objections necessarily arising from the merger agreement itself. Although from the Antitrust Division. documents produced in the investigation remain subject to confidentiality, they can be used in other ongoing investigations. RESTRICTIVE AGREEMENTS AND PRACTICES

12. Are any industries specifically regulated? 13. Are restrictive agreements and practices regulated? If so, Country Q&A please give a broad overview of the substantive provisions and regulatory authority. Mergers involving common carriers and other highly regulated industries are subject to review by specialised agencies (generally in addition to the Antitrust Division or the FTC). In particular: Any contract, combination, or conspiracy in restraint of trade is prohibited by Section 1 of the Sherman Act. Liability depends on ■ Telecommunications. Mergers affecting broadcast services both: and telecommunications common carriers, or requiring the transfer of a telecommunications licence, generally require ■ The existence of an agreement, that is, some type of con- approval by the Federal Communications Commission. certed action. Approval by state or municipal authorities also may be required, for example when a transaction will result in a ■ Proof that the challenged conduct unreasonably restrains change of control of cable television franchises. competition. That is, a reviewing court must form a judg- ment about the competitive significance, or market impact, ■ Energy. Mergers involving the electric power and natural gas of the challenged practice. industries may require approval by federal regulators, including the Federal Energy Regulatory Commission (FERC) and Conduct that unambiguously injures competition is virtually the Nuclear Regulatory Commission, as well as by state pub- always held to be per se unlawful. Classic examples include lic utility commissions. In particular, FERC authorisation is naked restraints such as price-fixing or market allocation among required for any merger or acquisition involving public utili- horizontal competitors. Under the per se rule, these restraints are ties subject to its jurisdiction (section 203, Federal Power unreasonable as a matter of law, without the need to establish Act). their purpose or an actual harmful effect. Courts have also held vertical minimum price restrictions, tying arrangements and ■ Banking. Special anti-trust rules apply to transactions group boycotts to be per se unlawful. involving financial institutions, including the: The “rule of reason” governs conduct, such as vertical agreements ❑ Bank Merger Acts of 1960 and 1966; establishing maximum prices or exclusive distribution territories,

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that can have pro-competitive effects in certain circumstances. position is taken and pursued solely to impose burdens on Analysis under the rule of reason mirrors the Guidelines (see rivals or deny them access to government processes. Question 7) in many important respects. It requires the fact-finder to examine a variety of competitive factors, including: ■ The state action doctrine immunises state and local government actors carrying out a clearly articulated governmental ■ The relevant market. policy. It also protects private parties from liability when:

■ The defendants’ market power. ❑ the private party acted under a clearly articulated state policy; and ■ The competitive state of the market before and after the challenged restraint took effect. ❑ the state actively supervised the private party’s allegedly anti-competitive conduct. ■ The history, purpose, nature and effect of the conduct in question. In addition, Congress has limited the reach of the federal antitrust laws by exempting certain conduct by the following: The restraint can be deemed unlawful if its demonstrable anti- competitive effects substantially outweigh its competitive ■ Labour organisations. benefits. ■ Insurance providers. Restrictive agreements can also violate the Clayton Act, the FTC Act or various state laws. The substantive standards generally ■ Agricultural producers and co-operative associations. track those applied under the Sherman Act, except that various states can extend damages remedies to a broader class of injured ■ Medical staff peer review boards. parties (that is, consumers or other indirect purchasers, who do not have standing under federal anti-trust laws). ■ Export associations.

Finally, the Robinson-Patman Act prohibits price discrimination ■ Shippers. involving commodities sold for use, consumption or resale within the US. Unless it has legitimate justification (for example, ■ Sports leagues. meeting competition or differing costs), a seller must not charge different prices to two buyers for commodities of similar grade ■ Banks and other financial institutions. and quality, if doing so results in competitive injury to the disfavoured purchaser. 16. Is there any formal guidance on product and geographic market definition? 14. Do the regulations only apply to formal agreements or can they apply to informal practices? Courts generally take an approach to product and geographic market definition similar to that described in the Guidelines (see An unlawful agreement can be express or implied, formal or Question 7). Country Q&A informal and written or unwritten. Finding an agreement typically requires evidence that tends to exclude independent action. That is, “direct or circumstantial evidence that reasonably tends to 17. Is there a formal notification requirement? In particular: prove that [the parties] had a conscious commitment to a common scheme designed to achieve an unlawful objective.” ■ Is it possible/advisable to notify?

■ Is it possible to obtain informal guidance? 15. Please summarise any exclusions or exemptions. ■ Who should notify?

The federal courts have developed the following two doctrines, ■ To which authority should notification be made? recognising that the primary role of the anti-trust laws is to regulate private anti-competitive conduct, rather than to correct ■ What is the form of notification? failures in the democratic political process: ■ Is there a filing fee? If so, how much? ■ The Noerr-Pennington doctrine holds that private parties cannot violate the anti-trust laws by exercising their consti- tutional right to petition government through litigation, legis- ■ Notification. There is no formal notification requirement for lation, or regulatory action. Noerr immunity extends to restrictive agreements and practices under US law. concerted action by competitors, even if intended to exclude rivals and resulting in harm to competition. It does not Under the National Co-operative Research and Production Act extend to so-called “sham” petitioning, where a baseless of 1993 (NCRPA), parties to production and research joint ventures can limit their anti-trust exposure to actual damages (plus

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costs and attorneys’ fees) by providing notification to the Anti- ■ What orders can be made and fines imposed? trust Division and FTC. The Standards Development Organiza- tion Advancement Act of 2004 recently extended similar ■ Can an entire agreement be declared void (that is, not only protection to voluntary consensus standards bodies engaged in any restrictive provisions)? efforts to develop technical standards. ■ Can personal liability (civil or criminal) attach to individual Under the Export Trading Company Act of 1982, parties directors or managers? engaged in export trade can obtain a certificate of review providing limited immunity from the anti-trust laws for activ- ■ Can third parties bring claims for damages? ities specified in the certificate.

■ Informal guidance. Parties can obtain informal guidance ■ Orders and fines. Generally, criminal sanctions are only through a business review letter from the Antitrust Division, sought in cases involving per se unlawful conduct. Criminal or an advisory opinion from the FTC. violations of the Sherman Act are punishable by imprison- ment for up to ten years and/or fines of up to US$1 million ■ Responsibility for notification. Not applicable. (about EUR821,355) per violation for individuals and US$100 million (about EUR82.1 million) per violation for ■ Relevant authority. The Antitrust Division or the FTC. corporations. Alternatively, a defendant can be fined up to twice the gross gain or twice the gross loss if any person ■ Form of notification. Not applicable. derives financial gain from the offence, or if the offence results in financial loss to a person other than the defend- ■ Filing fee. Not applicable. ant, but the government must prove that loss (or gain) to the jury beyond reasonable doubt (Blakely v Washington, (24 June 2004) No. 02-1632, 2004 WL 1402697, at para- 18. Please outline the procedure and timetable. graph 4).

The agencies can file a civil action in a federal district court Not applicable. or before an FTC administrative law judge seeking injunctive or other equitable relief (for example divestiture, rescission or forfeiture), designed to restore competitive conditions. 19. Are details of any potentially restrictive agreement or prac- The FTC can also seek consumer remedies through restitu- tice made public during the investigation? If so, can the par- tion or the removal of unjust gains. ties request that any information is kept confidential? Anti-trust cases brought by the federal enforcement agen- Country Q&A cies are most frequently resolved by consent decree. A con- Documents obtained through compulsory processes generally sent decree saves the government the expense of trying a remain confidential, except that they can be used in court proceed- case to conclusion and allows defendants to avoid the later ings. Details of a potentially restrictive agreement or practice can evidential implications of an anti-trust verdict against them. become public if the Antitrust Division or FTC files a lawsuit or Consent decrees often include provisions terminating the enters a consent order. However, pleadings and documents challenged conduct, requiring specific compliance efforts containing competitively sensitive information can be filed under and arranging for periodic compliance reports. The Tunney seal, or otherwise protected against disclosure by court order. Act requires the Antitrust Division to submit a consent decree for judicial review and approval. Although Tunney Act review has generally not been extensive, Subtitle B of the 20. Can third parties initiate an investigation by making a com- Antitrust Criminal Penalty Enhancement and Reform Act of plaint or representations during the course of an investiga- 2004 (15 USCA sections 1-3, 16 (2004)) (Antitrust tion? If so, how? Reform Act 2004) instructs courts to undertake a more thorough review, to ensure that US settlements of anti-trust cases are always in the public interest. FTC consent orders A third party has no formal ability to compel a government are reviewed and approved only by the Commission. investigation, but can file a private lawsuit for violation of the anti-trust laws. In practice, agency investigations often result ■ Impact on agreements. In many circumstances, an entire from consumer or competitor complaints, information from other agreement will be declared void. government agencies or the press. ■ Personal liability. An individual who has been convicted of violating the Sherman Act can be fined up to US$1 million 21. What are the regulator's enforcement powers and what are (about EUR821,355) and sentenced to up to ten years in a the other consequences of implementing a prohibited re- federal prison for each offence. strictive agreement or engaging in a prohibited practice? In particular: ■ Third party claims. The Clayton Act permits private parties injured by an anti-trust violation to sue in a federal court for

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three times their actual damage suffered, plus court costs The Amnesty Program has the following three basic parts: and attorneys’ fees. State attorneys general can also bring civil suits under the Clayton Act on behalf of injured con- ■ Automatic amnesty, provided a corporation comes forward sumers in their states. Groups of consumers or companies before the start of an Antitrust Division investigation. often bring suits on behalf of similarly situated individuals or companies (class actions). ■ Discretionary amnesty, if a corporation reports illegal antitrust activity after an investigation has begun. The Antitrust Reform Act 2004 has recently provided that when a firm fully co-operates with a plaintiff, the firm’s lia- ■ Automatic amnesty for corporate directors, officers and bility in the civil action is limited to the actual damage suf- employees if the corporation qualifies for the same. fered. Because the principle of joint and several liability still applies to all other defendants, the remaining defendants in In each case, the corporation must be the first to come forward, any civil damage action are still potentially liable for the co-operate fully with the Antitrust Division and make restitution remainder of the full amount of three times the damage to injured parties, where possible. Conspiracy ringleaders are not caused by the conspiracy as a whole. eligible for amnesty. To further encourage corporations to expose their co-conspirators and co-operate, the Antitrust Reform Act The Supreme Court has recently held that the Sherman Act 2004 states that a firm which is granted amnesty and “co- does not apply to injuries suffered outside the US, even if operates fully” with treble damage plaintiffs will be liable only for the same illegal agreement had adverse effects on the actual damages caused, and will be relieved of the burden of domestic US market. However, the Supreme Court left open treble damages and joint and several liability for harm caused by the possibility of a claim where higher foreign prices were co-conspirators. connected with or caused by higher prices in the US (F Hoff- man-LaRoche Ltd v Empagran SA, (2004) 124 SCt 2359). The Individual Leniency Policy allows an individual to obtain leniency if: The Supreme Court has also recently held that a federal district court can order a person in its district to produce mate- ■ The Antitrust Division has no previous information about the rials for use by a foreign tribunal, even when the foreign alleged illegal activity, when the individual seeks leniency. tribunal itself would not compel production of the documents. The federal district courts are also not required to ■ The individual reports the illegal activity completely and limit discovery to those documents that would be discovera- continues to co-operate with the division. ble in US domestic litigation similar to the foreign proceedings. Before this Supreme Court ruling, the EU expressed ■ The individual was not the leader of the alleged illegal activity. concerns that the use of relatively broad US discovery would undermine its own leniency programme. This was not The Civil Investigative Demand (CID) is the primary way the anti- explored by the Supreme Court, which decided instead to trust authorities gather evidence for civil cases. A CID is a general leave it to the federal district courts to determine the extent discovery subpoena, issued to any person whom the agency of foreign discovery in each case (Intel v AMD, (2004) 124 believes possesses material relevant to a civil investigation. CIDs SCt 2466). can demand documents and other tangible things, oral testimony and answers to detailed interrogatories. Country Q&A 22. Is there a right of appeal against a decision of the regulator? 24. How is Article 81 enforced by your jurisdiction’s national competition authority and courts in accordance with EC Regula- Decisions of a federal district court and of the FTC can be tion 1/2003 (EU member states only)? Are there any appealed to the US Court of Appeals. differences between the enforcement of Article 81 and the enforcement of your jurisdiction’s national competition laws?

23. Please summarise any powers that the relevant regulator has to investigate potentially restrictive agreements or practices. Not applicable.

In criminal investigations, the Antitrust Division generally uses MONOPOLIES AND ABUSE OF MARKET POWER grand jury subpoenas to gather documents or other physical evidence and to demand testimony. The agency also frequently 25. Are monopolies and abuses of market power regulated? If so, interviews witnesses, conducts electronic surveillance and please give a broad overview of the substantive provisions executes search warrants (sometimes with the assistance of the and regulatory authority. Federal Bureau of Investigation or other federal agencies).

The Antitrust Division has a Corporate Leniency Policy (the Section 2 of the Sherman Act (Section 2), along with parallel Amnesty Program), and an Individual Leniency Policy. provisions in many state anti-trust laws, prohibits monopolisation and attempted monopolisation, but not the mere possession of a

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monopoly (or dominant position). It prohibits a defendant who ■ Predatory pricing. Predatory pricing has been defined by the possesses substantial market power (or monopoly power) in a well- Supreme Court as “pricing below an appropriate measure of defined relevant market from engaging in predatory or exclusionary cost for the purpose of eliminating competitors in the short conduct that contributes to the maintenance or achievement of run and reducing competition in the long run”. To distin- monopoly power. This protects from liability firms that become guish predatory pricing from pro-competitive price-cutting, a dominant through legitimate means, such as by producing a plaintiff typically must show that: superior product or service or by achieving superior efficiency. ❑ the challenged prices are below average variable cost; and Section 2 also prohibits attempted monopolisation based on: ❑ the defendant has a dangerous probability of recouping ■ Exclusionary or predatory conduct. its below-cost pricing by charging monopoly prices after its rivals have been driven out of the market. ■ A specific intent to monopolise. ■ Refusals to deal. Usually a firm has complete discretion to ■ A dangerous probability that the conduct, if continued, will decide which customers and suppliers to do business with. result in a monopoly. However, in some circumstances, courts have found a monopolist’s unilateral refusal to deal to violate Section 2. A defendant can avoid liability by proving legitimate business These cases often involve a monopolist’s control of an essen- justifications for its conduct. tial facility and refusal to make that facility available on non- discriminatory terms. However, the Supreme Court has Section 2 does not cover conduct that, on balance, benefits explicitly refused to endorse or reject this doctrine, describ- consumers or, alternatively, does not sacrifice short-term gains ing it as merely one form of Section 2 liability. for the predominant purpose of excluding competitors. ■ Monopoly leveraging. Monopoly leveraging, to the extent it sur- vives as a distinct offence after a recent decision (Verizon Com- 26. Are there any specific tests for dominance? munications Inc v Trinko (2004) 124 SCt 872), requires proof of the usual elements of Section 2 (see Question 25).

The Supreme Court has defined monopoly power as “the power Generally, a plaintiff must prove a dangerous probability that the to control market prices or exclude competition”. Monopoly defendant will monopolise the secondary market, by abusing its power is evaluated in economic terms, based on a party’s monopoly power in the primary market. demonstrated ability to exclude competition.

Courts often attempt to infer monopoly power from the alleged 28. Are there any exclusions or exemptions? Country Q&A monopolist's market share. Market shares greater than 70% are usually deemed evidence of monopoly power. This presumption can sometimes be rebutted by showing the absence of entry They are similar to those available for restrictive agreements and barriers, or the incentives and ability of competitors to expand practices (see Question 15). output. Firms with market shares of less than about 50% are rarely held to possess monopoly power, regardless of the structure of the market. 29. Can pre-notification guidance be obtained? If so, please outline the procedure?

27. Are there any broad categories of behaviour that may consti- tute abusive conduct? Pre-notification guidance can be obtained in a way similar to that for restrictive agreements and practices (see Question 17).

Several types of anti-competitive conduct can form the basis of a claim under Section 2. Four of the most common categories of 30. Please summarise the regulator's powers of investigation. challenged conduct are:

■ Vertical agreements that foreclose competition. Although the They are similar to those for restrictive agreements and practices anti-trust laws generally do not prevent a firm with monopoly (see Question 23). power from competing vigorously, certain contracts for the purchase or sale of goods and services can form the basis of a monopolisation claim. For a monopolist, certain types of 31. What are the penalties for abuse of market power? vertical arrangements, such as long-term contracts, exclusiv- ity terms, loyalty programmes, or conditional sales or dis- counts, can be characterised as tying or exclusive dealing in Virtually all Section 2 violations are addressed in civil, not criminal, violation of Section 2. proceedings. Fines and other remedies available are the same as for restrictive agreements and practices (see Question 21).

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THE REGULATORY AUTHORITIES

Name. Antitrust Division, US Department of Justice Name. Federal Trade Commission (FTC)

Head. R Hewitt Pate (Assistant Attorney General) Head. Deborah Majoras (Chairman)

Contact details. 950 Pennsylvania Avenue Contact details. 600 Pennsylvania Avenue NW Washington NW Washington DC 20530 DC 20580 T +1 202 514 2401 T +1 202 326 3300 F +1 202 616 2645 F +1 202 326 2624 (pre-merger notification office) E [email protected] E [email protected] W www.usdoj.gov/atr/ W www.ftc.gov

Outline structure. The Assistant Attorney General for Antitrust, Outline structure. The FTC is comprised of five commissioners who is nominated by the President and confirmed by the Senate, nominated by the President and confirmed by the Senate. The oversees the Antitrust Division. Five Deputy Assistant Attorneys commissioners serve staggered seven-year terms, and no more General and a number of special counsel assist the Assistant than three commissioners of the same political party can serve Attorney General. The Antitrust Division has several Washington at any one time. The President selects one commissioner to act sections and seven regional offices in Atlanta, Chicago, as chairman. The FTC has responsibility for both competition Cleveland, Dallas, New York, Philadelphia and San Francisco. and consumer protection matters. Each section and field office is supervised by a particular Deputy Assistant Attorney General. The Director and Deputy Responsibilities. The FTC’s Bureau of Competition reviews Director of Operations, the Director of Criminal Enforcement and proposed mergers and acquisitions and investigates alleged the Economics Director of Enforcement are career employees anti-trust violations. In certain circumstances, it will with supervisory responsibility for their respective programmes. recommend that the FTC takes formal enforcement action. If the FTC decides to take action, the Bureau of Competition will Responsibilities. The mission of the Antitrust Division is to litigate the matter in a federal court, or before the FTC’s promote and protect the competitive process of the US economy administrative tribunal. The Bureau of Competition also serves through the enforcement of the anti-trust laws. The Antitrust as a research and policy resource, by preparing reports and Division criminally prosecutes serious and wilful violations of testimony for Congress and offering comments on anti-trust and the anti-trust laws and files civil suits for injunctive relief and competition issues pending before other agencies. monetary damages. It also shares responsibility with the FTC for assessing the economic impact of proposed mergers and Procedure for obtaining documents. The following types of acquisitions and, in some circumstances, negotiating an agreed documents are available on the FTC’s website: remedy or filing a lawsuit to block the proposed transaction. ■ Advisory Opinions. Procedure for obtaining documents. The Antitrust Division provides the following documents on its website: ■ Commission Actions.

■ ■ Early Terminations of HSR Waiting Periods. Country Q&A Public court and administrative filings.

■ Guidelines and policy statements. ■ Guidelines.

■ Press releases. ■ HSR Pre-Merger Notification Regulations and Materials.

■ Speeches. ■ News releases.

■ Congressional testimony. ■ Protocol for Federal-State Co-operation.

■ Business review letters. ■ Speeches.

To obtain copies of Antitrust Division documents not posted on ■ Testimony. its website, the Antitrust Documents Group can be contacted on +1 202 514 2481, or by e-mail at [email protected]. www.practicallaw.com/

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32. How is Article 82 enforced by your jurisdiction’s national com- to those of the collaboration, possess the specialised assets petition authority and courts in accordance with EC Regula- and incentive required to undertake a project that is a close tion 1/2003 (EU member states only)? Are there any substitute for the R&D activity of the joint venture. The Stand- differences between the enforcement of Article 82 and the ards Development Organization Advancement Act of 2004 enforcement of your jurisdiction’s national competition laws? generally offers the same limited anti-trust protections that R&D joint ventures currently receive to voluntary consensus bodies seeking to develop technical standards. Not applicable. However, these safety zones do not apply to agreements that are per se unlawful, or to competitor collaborations subject to merger JOINT VENTURES analysis.

33. Please explain how joint ventures are analysed under competition law. PROPOSALS FOR REFORM

34. Please summarise any proposals for reform. Joint ventures can be subject to the provisions of Sections 1 and 2 of the Sherman Act, Section 5 of the FTC and Section 7 of the Clayton Act. If the joint venture involves forming a corporation or On 30 March 2004, the FTC proposed significant changes to the limited liability company, it can also be subject to HSR notifica- HSR regulations. The main purpose is to harmonise the HSR tion requirements. treatment of corporations and “non-corporate entities”, a new term defined to include partnerships, LLCs, co-operatives and The term “joint venture” refers to almost any collaborative other non-corporate entities that possess an interest in the profits activity, by which two or more firms combine their resources to or assets of the acquired or acquiring entity. make or sell a product or service, or pursue a common strategic objective. A court or agency analysing a joint venture must Under the proposed rules, many transactions involving partner- consider the competitive relationship of the participating firms ships and LLCs that were previously not reportable will become (for example, whether they are actual or potential competitors), reportable. To remove the distinction between corporate and non- as well as the structure and purpose of the joint venture. corporate entities, certain intra-person asset transfers between non-corporate entities will be exempt. The proposed rules will also A joint venture is likely to be held unlawful in itself if it facilitates alleviate the dissimilar treatment of asset and voting securities price-fixing or market allocation and does not meaningfully acquisitions. Following the consultation period, final rules will be integrate the productive assets of the participating firms. In released and will become effective 30 days after publication. contrast, joint ventures that increase the participating firms’ Country Q&A efficiency and enable them to compete more effectively as a The US Congress recently established the Antitrust Moderniza- result of integration of productive assets will be evaluated, and tion Commission, which is a 12-member bipartisan commission likely upheld, under the rule of reason. that will evaluate the current operation of anti-trust enforcement and decide whether the anti-trust laws need to be modernised. The Competitor Collaborations Guidelines (issued jointly in April The Commission is to: 2000 by the Antitrust Division and the FTC) set out in detail the agencies’ approach to investigating and analysing joint ventures. ■ Solicit the views of “all parties concerned with the operation They also provide anti-trust safety zones for: of the anti-trust laws”.

■ All good faith collaborations, where the combined market ■ Identify and study substantive, procedural and structural shares of the collaboration and its participants are no more anti-trust issues, potentially requiring legislative attention. than 20% of the relevant market. ■ Report to Congress and the President within three years after ■ Research and development (R&D) joint ventures, where three the Commission’s first meeting (the Commission recently or more independently controlled research efforts, in addition held its first official meeting). comphandbook

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Antitrust & Competition Law Practice An Integrated Team of 100 Competition Counselors and Litigators in 16 Offices Around the World

ATLANTA FRANKFURT MUNICH Tel: +1 404 521 3939 Tel: +49 69 9726 3939 Tel: +49 89 20 60 42 200 Fax: +1 404 581 8330 Fax: +49 69 9726 3993 Fax: +49 89 20 60 42 293 George T. Manning Dr. Carsten T. Gromotke Dr. Hans-Werner Moritz email: [email protected] email: [email protected] email: [email protected] BRUSSELS LONDON PARIS Tel: +32 2 645 14 11 Tel: +44 20 7039 5959 Tel: +33 1 56 59 39 39 Fax: +32 2 645 14 45 Fax: +44 20 7039 5999 Fax: +33 1 56 59 39 38 Bernard E. Amory Gregory P. Olsen Eric Morgan de Rivery email: [email protected] email: [email protected] email: [email protected] Alexandre G. Verheyden email: [email protected] LOS ANGELES SAN FRANCISCO Tel: +1 213 489 3939 Tel: +1 415 626 3939 CHICAGO Fax: +1 213 243 2539 Fax: +1 415 875 5700 Tel: +1 312 782 3939 Jeffrey A. LeVee Robert A. Mittelstaedt Fax: +1 312 782 8585 email: [email protected] email: [email protected] Thomas F. Gardner email: [email protected] MADRID SHANGHAI Tel: +34 91 520 39 39 Tel: +86 21 2201 8000 CLEVELAND Fax: +34 91 520 39 38 Fax: +86 21 5298 6569 Tel: +1 216 586 3939 José María Jiménez-Laiglesia Peter J. Wang Fax: +1 216 579 0212 email: [email protected] email: [email protected] Thomas Demitrack Juan Jiménez-Laiglesia email: [email protected] email: [email protected] TOKYO Tel: +81 3 3433 3939 DALLAS MILAN Fax: +81 3 5401 2725 Tel: +1 214 220 3939 Tel: +39 02 7645 4001 Shinya Watanabe Fax: +1 214 969 5100 Fax: +39 02 7645 4400 email: [email protected] Joseph L. McEntee Stefano Macchi di Cellere email: [email protected] email: [email protected] WASHINGTON Tel: +1 202 879 3939 Thomas R. Jackson Fax: +1 202 626 1700 email: [email protected] Joe Sims email: [email protected] Phillip A. Proger email: [email protected]

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