Antitrust Review Published by the Antitrust and White Collar Defense Practice Group Volume 3, No. 1 January 2005 In This Issue THE MERGER WAVE AND THE FTC Commentators acknowledge we are on the verge of a merger wave with 2005 expected to see a worldwide surge in international deal-making. • The Merger Wave And The United States deals are expected to lead the way with domestic FTC companies the targets of foreign acquirers. United States economic forces are uniquely aligned to drive this global merger boom: interest • The European Court Of First rates are relatively low; corporate profits are strong and getting stronger Instance Upholds Microsoft with many companies sitting on large cash reserves; and corporate pent Remedies up demand for the big deal is at a four-year high. In the final weeks of 2004 the dollar volume of merger deals in the United States exploded, • Differences In Approach sending the worldwide volume of announced deals for the year up over To Merger Remedies By 40% compared to 2003 to almost $2 trillion. Indeed, the number of Hart- The FTC And The Scott-Rodino merger filings in 2004 increased about 42% over the prior Department Of Justice year (from 968 to 1377). Recently announced United States deals pushed Antitrust Division December to a record deal-making month both in the U.S. and worldwide. Combined with other large domestic deals announced earlier • DOJ White Collar Crime in the year, 2004 was as a banner year for mergers and signals that the Update boom is clearly underway. Biggest U.S. Deals - December 2004 Acquirer Acquired Announced $ Billions Sprint Nextel Dec. 15 39.0 Johnson & Johnson Guidant Dec. 15 25.9 Recent Activities Symantec Veritas Software Dec. 16 13.5 DOJ Antitrust Highlights Exelon Public Service Enterprise Dec. 20 12.3 FTC Antitrust Highlights Other Big U.S. Deals - 2004 FTC Consumer Protection Acquirer Acquired Announced $ Billions Highlights J.P. Morgan Bank One Jan. 14 58.8 International Antitrust Cingular Wireless AT&T Wireless Feb. 17 41.0 Highlights Wachovia SouthTrust June 21 14.2 FCC Antitrust Highlights K-Mart Sears Nov. 17 10.9 Citizens Financial Charter One May. 4 10.5 Cox Enterprises Cox Communications Aug. 2 8.4 What, then, will be the response of the FTC - and the antitrust enforcement agencies - to this expected merger wave? Will it be business as usual, or will we see increased aggressiveness? Newly appointed © Sheppard Mullin Richter & Hampton LLP Antitrust Review 2 Chairman Majoras at the November 18 ABA The Chairman discussed four process-related Antitrust Section Fall Forum laid out her proposed projects already underway at the agency: merger policy initiatives for the upcoming year. Her comments indicate few significant changes lie • First, the FTC is continuing to work internally ahead on the merger enforcement front. and with DOJ to determine the most effective methods for identifying responsive materials Central to Chairman Majoras’ antitrust stored in various types of electronic formats. enforcement program is the review of mergers, • Second, the FTC is working to improve its which she noted, with or without a merger wave, ability to receive and review electronic will remain a “core function” at the agency under productions. her leadership. The FTC will not “sit back and turn • Third, the FTC is working on a model letter that on cruise control,” she informed the Fall Forum. would modify the standard Second Request The Chairman’s merger agenda will focus on all instruction to permit and provide specifications aspects of merger review, including substantive for electronic production; and analysis and enforcement, the merger review • Fourth, the FTC is working to produce and (“HSR”) process, merger remedies, and hopes to release in the near future an updated coordination with states and foreign antitrust model Second Request, along with annotations authorities. that should provide useful information to parties and practitioners. Importantly, Chairman Majoras de-emphasized the differences between the two enforcement agencies. “Cooperation” is now the new mantra at the She explained that there is a common perception Commission. Chairman Majoras emphasized the that the two antitrust agencies approach the issue importance of cooperation in merger review. of mergers differently. “Having now held senior “Cooperating with foreign competition agencies positions at both the DOJ and FTC, however, I and promoting convergence toward best practices, believe that most differences between the agencies both on a bilateral and multilateral basis, will are largely overblown and in the past and that both continue to be key components of the FTC’s agencies today strive for flexibility, above all, in enforcement program under my leadership.” crafting merger remedies in particular Additionally, as antitrust regimes are continuing to transactions.” grow around the world, “the FTC will continue to devote significant resources to assisting new While addressing merger process reform, which agencies as they strive to formulate and implement seems to be a key component of her agenda, sound competition policy.” Chairman Majoras commented that she has “long pushed for improvements in merger review It is worth noting that Chairman Majoras procedures, both as a government enforcer and specifically commented on the role of customer private practitioner.” As a result, she indicated that testimony after the Oracle and Arch Coal decisions it “should come as no surprise, then, that one of my at an earlier gathering. At a George Mason priorities will be to lend renewed vigor to merger University School of Law Symposium on October process reform.” One wonders if process reforms 6, she emphasized quite clearly that customer under the new Chairman will trump substantive complaints and customer testimony provided the enforcement. I suspect it will. enforcement agencies with real-world tests of product market and with examples of Antitrust Review 3 anticompetitive effects and consumer harm. Such The Commission imposed a fine of EUR 497 testimony, she observed, is practical and realistic million, and ordered Microsoft to bring the abuses and not theoretical. Chairman Majoras vowed to to an end, and to: continue to base FTC merger challenges on customer testimony and complaints. • Disclose, within 120 days, the relevant interoperability information and allow For more information, please contact Robert W. Doyle, Jr. at competitors to use it on reasonable and non- (202) 218-0030 or [email protected] discriminatory terms to develop compatible server products (the “interoperability remedy”). THE EUROPEAN COURT OF FIRST • Within 90 days, offer a fully functional version INSTANCE UPHOLDS MICROSOFT REMEDIES of its Windows client operating system which does not incorporate WMP. Microsoft was still On December 22 the President of the Court of First permitted to offer a bundled version of Instance, Mr. Bo Vesterdorf, (the “President”) Windows including WMP (the “tying remedy”). dismissed an interim measures application by Microsoft Corporation (“Microsoft”), by which it On June 8 2004, Microsoft lodged an appeal with sought to suspend the remedies imposed by the the European Court of First Instance (“CFI”) European Commission (the “Commission”) in its challenging the Commission’s decision. Microsoft decision finding that Microsoft had breached subsequently sought interim relief to suspend the Article 82 of the EC Treaty. The President found operative parts of the Commission’s decision (the that Microsoft had shown that it had a prima facie order to bring the infringements to an end and the case. However, Microsoft had not produced imposition of the two remedies). Following this sufficient evidence to show that the application, the Commission agreed that it would implementation of the remedies might cause it not seek to enforce the parts of its decision relating serious and irreparable damage. to the remedial orders until the application for interim relief had been decided. The President Background granted leave for various parties to intervene in the appeals. On 24 March 2004, the Commission adopted a The Order decision finding that Microsoft had infringed Article 82 of the EC Treaty by: In order for interim measures to be granted, the applicant must: • Refusing to supply its competitors with certain necessary interoperability information and • Demonstrate the seriousness of the main preventing them from using this information to application and put forward the pleas of fact and develop competing products, thereby law establishing a prima facie case for the foreclosing them from the market for work interim measures applied for (that is, the main group server operating systems. action must not be manifestly inadmissible or • Making availability of the Windows client unfounded). personal computer operating system conditional • Establish the urgency of the request, showing on the acquisition of Windows Media Player that serious and irreparable damage would be (“WMP”) software, thereby foreclosing the caused, should the measures sought not be market for media player software. granted. Antitrust Review 4 The President considered separately the case for • There is a genuine dispute between the suspension of the interoperability remedy and the Commission and Microsoft as to the tying remedy. indispensability of the information at issue. The question of whether the information The Interoperability Remedy requested from Microsoft is actually necessary for interoperability requires a thorough Prima Facie Case