Wilmer Cutler Pickering Hale and Dorr Antitrust Series

Unilateral Effects: The Enforcement Act under the Old EC Merger Regulation

Claus-Dieter Ehlermann et al. — Wed, 15 Mar 2006 11:18:22 PST

The reform of the EC Merger Regulation was preceded by an animated debate about whether the traditional "dominance" test allowed the Commission to challenge mergers that did not lead to single firm or collective dominance in the traditional sense, but nevertheless may have reduced competition to the detriment of consumers. The authors submit that the dominance test failed to reach such situations of "unilateral" or "non-coordinated" effects. The old Merger Regulation therefore suffered from a potential "enforcement gap" that was closed only by the legislative change to the "significant impediment of effective competition" test. National jurisdictions still using variants of the dominance test may want to consider this aspect in their legislative reform plans.

Trading and Distribution in China

Lester Ross et al. — Wed, 15 Mar 2006 11:18:21 PST

Trading and distribution rights were major issues in the negotiation of China’s entry to the World Trade Organisation, a process which took 14 years before concluding in late 2001. Trading rights, i.e. the right to import and export goods, had historically been mainly restricted to a small number of largely sector-specific state-owned monopoly trading enterprises. Trading rights were modestly liberalised in the years preceding China’s entry, but generally remained tightly restricted.

Mario Monti’s Legacy: A U.S. Perspective

William Kolasky — Wed, 15 Mar 2006 11:18:18 PST

The departure of Commissioner Mario Monti from his post as the EC Commissioner for competition policy provides a good opportunity to reflect upon the achievements and perceived failures of the European Commission in the field of antitrust law over the past five years. This paper attempts to do so on the basis of six core principles of sound competition policy. Under the first principle, it is undisputable that the Commission under Commissioner Monti’s leadership has been at the forefront of the international efforts undertaken in the fight against cartels. Second, despite some weaknesses in areas such as conglomerate mergers or in its approach to the Microsoft case, the Commission’s focus now appears to be in the protection of competition, not competitors. Third, after a string of annulments of Commission merger decisions by the EC judiciary, the Commission has made substantial progress toward assuring that its decisions are based on sound economics and hard evidence (including consideration of efficiencies). Fourth, recent Commission policy confirms that the Commission is ready to limit intervention to those cases that really cause harm to the competition process. Fifth, despite some concerns arising from the reform of the merger review process, the Commission is working hard to ensure that competition laws do not become bureaucratic roadblocks to efficient transactions. Sixth, Commissioner Monti has been instrumental in promoting international initiatives designed to promote a better understanding of competition policy.

“Start-Up Aid” for Low Cost Carriers– A Policy Perspective

Sven Völcker — Wed, 15 Mar 2006 11:18:16 PST

On 7 February 2005, the European Commission published draft “Community guidelines on the financing of airports and start-up aid to airlines departing from regional airports” for consultation. This article focuses on the Draft Guidelines’ statements on “start-up aid,” which seek to integrate the Commission’s statements in last year’s Charleroi decision into a consistent state aid policy framework. It is submitted here that such an attempt is highly problematic, given the absence of a coherent and objective justification for start-up aid in its proposed form. The Commission should not depart from its long-standing hostility to operating aid for reasons of perceived political expediency. At the very least, the Commission should limit the distortive effects of such aid to the greatest possible extent, in particular by limiting it to routes to and from truly regional airports.

Pharma Bulletin - Spring 2005

Mark Heller et al. — Wed, 15 Mar 2006 11:18:14 PST

FDA to Create Drug Safety Board In February 2005, the Food and Drug Administration (FDA) announced that it will create a new independent Drug Safety Oversight Board (DSB) to oversee the management of drug safety issues within the Center for Drug Evaluation and Research (CDER). The FDA Commissioner will appoint individuals from the FDA and medical experts from other Health and Human Services agencies and government departments to the DSB, which also will consult with other medical experts and patient and consumer group representatives. Additionally, the FDA is proposing a new “Drug Watch” web page for emerging data and risk information, and anticipates an increased use of information sheets written for healthcare professionals and patients. Because of the potential concerns associated with disseminating emerging information prior to regulatory action, the agency has stated it will solicit public input. The FDA will issue draft guidance on procedures and criteria for identifying drugs and information for the Drug Watch web page.

Oracle in Brussels

Christian Duvernoy et al. — Wed, 15 Mar 2006 11:18:12 PST

It was hands across the water when both a U.S. district court and the European Commission cleared the $10.3 billion merger of Oracle and PeopleSoft. The Department of Justice, which had opposed the deal, had decided not to appeal its defeat in the San Francisco court, and it is thought that the Commission took this as a sign that U.S. regulators would not take it amiss if their European counterparts also let the merger proceed. In any event, there was none of the resentment and outrage that bubbled over not so long ago when U.S. antitrust authorities approved the GE/Honeywell deal and their European counterparts killed it. With Oracle/PeopleSoft, convergence was the word of the day. But a close look at the U.S. court decision and the European regulatory ruling in late 2004 reveals how often the San Francisco judge and the Brussels authorities took dramatically different approaches to important components of their decisions. Two lawyers representing Oracle before the European Commission, Wilmer Cutler Pickering Hale and Dorr ’s Sven Völcker and Christian Duvernoy of the firm’s Brussels office, identify no fewer than six key issues on which the American court and the European Commission took diametrically opposed positions. Fielding a team led by former Director-General of DG Competition at the European Commission, Claus-Dieter Ehlermann, Wilmer was EU antitrust co-counsel to Oracle together with long-standing European antitrust2004 when the bidder announced that it had at last gained control of its target. Oracle CEO Lawrence Ellison had been reviewing strategic acquisitions for some time and PeopleSoft had been on his list of candidates. Larry Ellison has said publicly that software is due for consolidation and he clearly wanted to be a survivor.

Schering-Plough Corp. v. Federal Trade Commission: Eleventh Circuit Rejects the FTC’s Position on “Reverse Payments” in Patent Suit Settlements

Ulrich Quack et al. — Wed, 15 Mar 2006 11:16:51 PST

In recent years, the Federal Trade Commission (“FTC” or the “Commission”) has investigated several settlement agreements between pioneer and generic drug manufacturers involving “reverse payments.” In the view of the FTC, reverse payments are cash that a pioneer drug manufacturer pays to a generic manufacturer who has challenged the patent(s) protecting the pioneer drug, in exchange for the generic manufacturer’s agreement to delay market entry. Such payments sometimes occur in the settlement of patent infringement actions. The Commission has been extremely skeptical of reverse payments, viewing them as objective indicia of intent to illegally share monopoly profits that the delayed generic entry perpetuates. It has successfully challenged settlement agreements that included reverse payments involving the market entry of generic Cardizem (hypertension treatment) and generic Hytrin (hypertension and angina treatment).

Antitrust Enforcement: Four New Investigations Opened by the AGCM in the First Months of 2005

Antonio Capobianco et al. — Wed, 15 Mar 2006 11:16:50 PST

The first three months of this year have witnessed extensive enforcement activity by Italy’s Autorità Garante per la Concorrenza ed il Mercato (“AGCM”). In the closing 90 days of the chairmanship of Professor Tesauro, former Advocate General at the European Court of Justice, the AGCM initiated a number of investigations for infringement of EC competition rules in various key markets: natural gas, telecommunication services, pharmaceuticals and postal services. The cases reported below are of particular interest since they are the first examples of enforcement of EC competition rules by the AGCM in the new “modernised” system of European enforcement.

Spanish Competition Tribunal Rejects Price Squeeze Allegations in Relation to Mobile VPN Services

Axel Desmedt et al. — Wed, 15 Mar 2006 11:16:49 PST

On December 20 and 22, the Spanish Competition Tribunal (Tribunal de Defensa de la Competencia, or TDC) dismissed three actions that were brought by Uni2 and WorldCom (both alternative fixed operators) against the three Spanish mobile operators (Telefonica Moviles, Vodafone, and Amena) for abuse of a dominant position. The complaints alleged that the three mobile operators applied a price squeeze on the corporate market segment and discriminatory pricing practices as regards mobile termination services. In particular, according to Uni2 and WorldCom, during the period of 2000-2002, the three Spanish mobile operators offered retail services to corporate clients (including pricing terms for fixed-to-mobile calls) that were lower that the wholesale call termination prices imposed on other telecommunications operators, and in particular fixed telecommunications operators. The factual issues in the three cases brought before the TDC against Telefonica Moviles, Vodafone, and Amena are slightly different, but the legal conclusions are essentially the same.

Antitrust and Competition Law Update

Ulrich Quack et al. — Wed, 15 Mar 2006 11:16:47 PST

The US Federal Trade Commission(FTC) has announced sweeping changes to the Hart-Scott-Rodino (HSR) Act premerger reporting rules, including those governing transactions involving partnerships and LLCs, that will come into effect on April 6, 2005. See 70 Fed. Reg. 11526 (March 8, 2005). In addition to reconciling the HSR analysis of LLCs, partnerships and other unincorporated entities with that of corporations, the new rules will make a number of technical adjustments and codify some informal FTC interpretations. The changes will make some transactions reportable that have historically be exempt; this effect will be offset to some extent by new exemptions from filing, most notably a significant expansion of the exemption for acquisitions of voting securities of entities whose assets would be exempt if acquired directly. We discuss all of these changes in more detail below.

Antitrust and Competition Law Update: Tetra Laval--A landmark judgement on EC Merger Control

Ulrich Quack et al. — Wed, 15 Mar 2006 11:16:45 PST

On 15 February 2005, the European Court of Justice (ECJ) dismissed the European Commission’s appeal in the Tetra Laval/Sidel merger case.2 The ECJ’s judgment establishes two signiﬁcant principles that apply beyond the facts of this particular case:The judgment conﬁrms that the Court of First Instance (CFI) for all practical purposes will continue to be the ultimate arbiter of disputes about the Commission’s use of evidence and economic assessment in merger control proceedings. The ECJ has signaled that it will generally not entertain appeals asserting that the CFI engaged in excessive scrutiny of the Commission’s assessment and therefore overstepped the permissible boundaries of judicial review. Had the ECJ upheld the arguments raised by the Commission, this may well have had a chilling effect on the CFI’s willingness to subject the Commission’s merger decisions to strict scrutiny. This in turn would have severely limited the effectiveness of judicial review, in particular in the age of the Commission’s “more economicsbased approach” and the increasing importance of complex factual and economic evidence in merger cases. • While the judgment does not preclude prohibition of conglomerate mergers under the Merger Regulation, it imposes stringent legal and practical constraints on the Commission’s ability to challenge such mergers on the basis of “leveraging”- type theories of competitive harm: Finding that “the chains of cause and effect [underlying leveraging theories] are dimly discernible, uncertain, and difﬁcult to establish”, the ECJ required a particularly high quality of evidence to support a conclusion that the leveraging developments will occur following the merger. By requiring that the Commission examine on a case-by-case basis whether behavioral commitments (such as not to bundle different products) might be effective, the ECJ’s judgment makes it less likely that the Commission will pursue leveraging theories in merger review. The judgment effectively compels the Commission to reassess its method of evaluating commitments, which currently calls for the rejection of even the most carefully crafted long-term behavioral commitments that adequately address conglomerate concerns.

Mario Monti’s Legacy for Competition Policy in Article 82

Claus-Dieter Ehlermann et al. — Wed, 15 Mar 2006 11:16:44 PST

Commissioner Mario Monti’s impact on Article 82 of the EC Treaty during his period as EC Competition Commissioner has not been as revolutionary as his impact on other areas of EC competition law. Nonetheless, the European Commission has done serious work on Article 82 cases, notably taking several important decisions: Microsoft in the area of refusal to supply and tying and Michelin II on rebates. The European Court of Justice (ECJ) and the Court of First Instance (CFI) have also made important contributions to the law on Article 82 with their judgments in IMS Health and in appeals from these rebates cases. On a legislative front, Commissioner Monti has brought the Commission’s modernization program through to adoption of a new enforcement system in May 2004, with significant re-emphasis of Commission activity on cases with market power, interesting initiatives to allow dominant companies to benefit from Article 81(3) and a general review of Article 82 enforcement.

Major Events and Policy Issues in EC Competition Law 2003-2004 Part 2

John Ratliff — Wed, 15 Mar 2006 11:16:43 PST

This paper is the second and final part of the overview of ‘‘Major Events and Policy Issues in EC Competition law in 2004’’, following from last month’s journal. This part of the paper is divided into three sections: (1) Recent Commission decisions on cartels, co-operation, distribution and abuse of dominant position, including notably the Microsoft decision; (2) an outline of current policy issues, including possible extension of in-house privilege and possible Art.82 EC guidelines; (3) a survey of some areas of particular interest.Notably, the Commission’s recent drive topromote cempetition in the liberal professions with a decision involving Belgian Architects; recent energy cases; and the Commission’s decision on the sale of UEFA’s football media rights.

Antitrust and Competition Law Update: HSR Filing Thresholds Increased for Inflation Acquisitions Unreportable Up to $53.1 Million Effective March 2, 2005

Ulrich Quack et al. — Wed, 15 Mar 2006 11:15:26 PST

For the ﬁrst time since the passage of the HSR Act in 1976, the Federal Trade Commission has published new HSR thresholds adjusted for inﬂation, slightly reducing the overall number of transactions that will require premerger notiﬁcation ﬁlings. The new, higher thresholds will become effective on March 2, 2005. See 70 F.R. 5020 (January 31, 2005). These threshold raises match changes in the gross national product, and will be readjusted annually going forward, as required by the 2000 amendments to the Hart-Scott-Rodino Antitrust Act of 1976. As of the effective date, acquisitions will be reportable under the HSR Act only if the acquiring person will hold as a result voting securities or assets worth more than $53.1 million.

Implications of the Court of First Instance’s Microsoft Order

Sven Völcker et al. — Wed, 15 Mar 2006 11:15:25 PST

On 22 December 2004, the President of the European Court of First Instance issued an order rejecting Microsoft’s application for a suspension of the remedies imposed by the European Commission in its decision of 24 March 2004, effectively forcing Microsoft to provide interoperability information to rival server operating systems suppliers, and to offer an “unbundled” version of its Windows operating system without the Windows Media Player. The President found that, while Microsoft had established a prima facie case on the merits, it had not proved that it would suffer serious and irreparable harm from immediate implementation of the remedies ordered by the Commission (see CLI 18 January 2005, p.16). Microsoft has since announced that it will not appeal the CFI President’s order to the President of the European Court of Justice (Reuters, 24 January 2005). This article first discusses some of the procedural issues highlighted by the President’s order, and in particular examines the considerations that may have influenced Microsoft’s decision not to appeal. It then explores the potential significance of the President’s statements about Microsoft’s prima facie case for Microsoft’s pending main action for annulment (Case T-201/04).

Major Events and Policy Issues in EC Competition Law, 2003–2004 (Part 1)

John Ratliff — Wed, 15 Mar 2006 11:15:24 PST

This paper is designed to offer an overview of the major events and policy issues related to Arts 81, 82 and 86 EC in the last year. The paper follows the format of previous years and is divided into three sections: — A general overview of major events (legislation and notices, European Court cases and European Commission decisions). — Anoutlineofcurrent policy issues, including legal privilege, private actions and Art.82 guidelines. — Discussion of certain areas of specific interest, notably competition and the liberal professions, energy, sport and media and certain international issues.

Antitrust and Competition Law Update: Brazil Adjusts Merger Notiﬁcation Thresholds

Ulrich Quack et al. — Wed, 15 Mar 2006 11:15:23 PST

Brazilian merger notiﬁcation requirements, traditionally a major hurdle for multinational mergers, have just become less burdensome. In an unexpected development last Wednesday, the Brazilian antitrust authority (“CADE”) announced a new interpretation of the Brazilian merger notiﬁcation thresholds that may reduce foreign merger ﬁlings in Brazil by more than 90%. CADE reversed 10 years of precedent by declaring that, in line with the approach of many other jurisdictions worldwide, the Brazil notiﬁcation threshold of 400 million Reales should henceforth be assessed in terms of Brazilian turnover rather than worldwide turnover. (ADC Telecommunications Inc. / Krone International Holding Inc., announced January 19, 2005.)

Information exchanges between competitors: the Italian Competition Authority’s recent practice

Antonio Capobianco et al. — Wed, 15 Mar 2006 11:15:21 PST

In 2004, two cases on exchanges of information between competitors were decided by the Italian competition authority (“AGCM” – the Autorità Garante per la Concorrenza ed il Mercato). This revived a lively debate on the conditions in which these practices should be prohibited and whether they are anticompetitive per se. Over the years, the AGCM has taken a firm stand against such practices, in some cases beyond that taken by the European Commission and the European Court. This article reviews the rules and outlines the innovative approach that the AGCM has recently adopted.

The Article 82 EC Abuse Concept: What Scope is There for Modernization?

Ulrich Quack et al. — Wed, 15 Mar 2006 11:14:10 PST

On 30 September 2004, Wilmer Cutler Pickering Hale and Dorr LLP, the University of Nyenrode, and Global Competition Review co-sponsored a seminar on the reform of Article 82 EC by the European Commission. The seminar raised a great deal of interest amongst members of the legal community and attracted a large attendance. The speakers included some of the most well-known top-level policy makers, academics, and practitioners in the ﬁeld of competition law. Over the last two years, there have been numerous calls for modernization of the way in which Article 82 of the EC Treaty is applied by the European Commission and, with decentralization in mind, by 25 national competition authorities and many more national courts. Modernization in other areas has involved a greater focus on the economic effects of the relevant practice. In Article 82 EC cases, enforcement has, however, been more based on the perceived object of a criticized practice with the effect being inferred from market power. Classic positions on ﬁdelity market power. Classic positions on ﬁdelity rebates and the special responsibilities of dominant companies have also been reafﬁrmed recently by the European Court in judgments such as Michelin II, Masterfoods II, and BA/Virgin. The aim of the seminar was to look at the concepts underlying the current law in relation to rebates and tying and bundling to compare how EU and US enforcers deal with such issues and to make suggestions for possible European Commission guidelines on Article 82 EC enforcement practice.

The rise of anti-dumping, Effects on business

Natalie McNelis — Wed, 15 Mar 2006 11:14:06 PST

While conventional wisdom is that dumping is selling at a loss, this is not necessarily the case. Dumping is exporting a product at a lower price than that charged on the home market (the dumping margin (see Glossary)). As a result, a company may be making money on the export of a product, but if it is making a greater profit on its home market than it is making on a foreign market, it may be dumping. A company may engage in dumping as part of a deliberate strategy (for instance, it may be protected from competition on its home market and may use this advantage to push competitors out of other markets). Alternatively, price differences between domestic and imported products may be explained by different demand curves or other normal business behaviour. Either way, dumping can affect competition in markets that import these lower priced products, and has the potential to eliminate local competitors.