Global - Freshfields Bruckhaus Deringer

Global
antitrust
in 2015
10 key themes
Global
antitrust
in 2015
Businesses today are operating in a climate of increased regulatory scrutiny of deals,
commercial practices and market structures, which means that more companies than
ever before are experiencing for themselves the commercial and financial impact of being
subject to an in-depth and wide-ranging investigation.
This is also a time of rapid change for authorities seeking to enforce a panoply of antitrust
laws and regulations globally. As more economies show signs of recovery, governments
and regulators worldwide are acutely aware of the need to promote effective competition,
while protecting consumers and, sometimes, national interests.
The parallel goals of promoting innovation, growth and employment and ensuring markets
remain open and competitive, while protecting consumer interests, present a number
of challenges and often create uncertainties for business. We are seeing these play-out
in different ways:
• the complex interplay between different antitrust and regulatory authorities seeking to
challenge and sanction the same, or very similar, behaviour of multinational companies,
often under different rules and regulations;
• more authorities having multiple competition and consumer-related goals, and a new
European Commission structure which encourages closer co-operation and co-ordination
between Commissioners in delivering the EU’s economic and political objectives;
• the role of governments and the wider political agenda in antitrust reviews of both
cross-border deals and economically important markets;
• the focus of enforcement efforts on critical and rapidly changing sectors, most notably
financial services, energy and digital; and
• the growing role of courts and private litigants in facilitating consumer redress, and in
providing judicial oversight of the use to which authorities put their extensive powers.
We are delighted to enclose our fifth annual review of key trends in global antitrust enforcement,
which we believe will be important to your strategic planning and risk management in 2015
and beyond.
If more detail on any of these themes would be helpful, please get in touch with
us or approach your usual contact in our antitrust, competition and trade team.
Our best wishes for a successful 2015.
David Broomhall
Martin Klusmann
Co-head, Antitrust,
Competition and Trade Group
Co-head, Antitrust,
Competition and Trade Group
T +32 2 504 7015
E [email protected]
T +49 211 49 79 233
E [email protected]
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10key
themes
1
4
Global antitrust investigations:
Digital markets:
dealing with multiple regulators in
multiple jurisdictions – lessons learned
in the financial sector
2
Global antitrust litigation:
a brave new world
innovation, competition and consumer
protection – getting the balance right
5
Dealing with suppliers,
distributors and customers:
keeping your pricing and information
exchange the right side of the line
3
6
Liability for cartel fines:
China and Hong Kong:
managing risks within corporate
structures and on acquisitions
the ramping up of antitrust enforcement
7
Mission creep:
preparing for EU scrutiny
of minority investments
2
8
Antitrust and the public interest:
implications for cross-border M&A in 2015
9
Merger remedies:
meeting agencies’ higher expectations
10
Navigating a shifting
powerbase in merger control:
expect the unexpected
1
Global antitrust investigations:
dealing with multiple regulators
in multiple jurisdictions –
lessons learned in the financial sector
In 2014, regulators around the world continued
to pursue multiple, parallel investigations into
suspected anti-competitive conduct and market
manipulation by global financial institutions
and other companies.
With multiple authorities, both within and across
several jurisdictions, launching investigations and
imposing record fines, the risk of copycat inquiries,
heavy sanctions, damaging publicity and follow-on
actions in 2015 and beyond is significant.
Although the financial services sector has dominated
headlines, it is not alone in experiencing the spread
of truly global investigations. Other sectors in the
spotlight – including digital, telecoms, energy and
consumer products – face scrutiny into their market
structures and business models.
4
Regulators’ continued focus on the detection
and punishment of deceptive, manipulative
and other anti-competitive conduct requires all
companies and financial institutions to examine
and test truly effective global compliance policies
and systems to avoid allegations of misconduct,
and prepare to defend themselves wherever an
investigation may be being launched.
Over recent years, antitrust authorities worldwide
have continued to work ever more effectively
together to share information and act jointly
to detect and punish anti-competitive behaviour.
However, this model of co-operation is being
tested by the more frequent involvement of sector
regulators who launch parallel investigations into
the same or similar conduct, often under different
laws, powers and sanctions and, in a number of
cases, ‘cross-stimulated’ by the actions taken in
another jurisdiction.
Prevention is key but when the
unpredictable comes, a company
should be ready to react swiftly in
each jurisdiction, including in relation
to whistleblowing in multiple venues
across different countries.
Gian Luca Zampa
Partner, Rome
And regulators are increasingly shifting the
investigatory burden onto the business being
scrutinised, particularly in financial services
where regulators’ powers over regulated institutions
– such as the ability to withdraw banking licences
– create significant incentives to conduct very full
internal investigations and to self-report.
Different relationships with, and duties towards,
regulators can have a material impact on how
companies respond to investigations, particularly
as regards the disclosure and sharing of information.
The availability of antitrust amnesty, for example,
with no analogous non-antitrust amnesty procedure
creates a significant antitrust incentive that must
be balanced against sector regulator penalties.
And the requirements imposed by one authority,
such as restrictions on interviewing witnesses,
can have a material impact on a company’s ability
to progress other regulatory work streams.
Across all sectors, these multi-authority,
multi-jurisdictional and multi-defendant
investigations are raising challenges for global
businesses seeking to comply with a panoply
of legal and regulatory obligations.
Key challenges in defending
a global investigation
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• The race for leniency in multijurisdictional, multi-authority and multi-defendant investigations
In the initial race for leniency, applicants
increasingly seek, and regulators have been
known to grant, broad markers even if the
full details of reportable conduct are not
entirely known. The decision as to when and
how to approach the authorities will have
major implications for a company’s financial
exposure over many years to come. Key criteria
include the particular features of any leniency
regime in place (availability of marker systems,
the cost of co-operation versus the benefits),
exposure to criminal prosecution and/or civil
damages and the risk of sensitive information
becoming known to other regulators or parties.
Undertakings must be aware that each relevant
fact/circumstance that could in itself relate
to or represent a separate infringement needs
to be promptly reported even when apparently
broad markers have been granted so as to
preserve ranking and protection level; failure
to do so could open the door to a number of
unpredictable and undesirable consequences.
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• A
ntitrust immunity is only for antitrust
and does not avoid regulatory fines
Although co-operation may earn discounts
from non-antitrust regulators, even successful
antitrust leniency applicants may face considerable
non-antitrust fines for the same or related
conduct from sector regulators, including
financial services regulators.
5
• Deferred and Non-Prosecution
Agreements (DPAs and NPAs)
US antitrust and non-antitrust investigations
may be resolved through DPAs and NPAs which
involve substantial fines and remedial measures,
but no criminal indictment of the company.
Both the companies under investigation and
the Department of Justice rely on these agreements
to punish banks and other institutions for whom
criminal indictment could result in catastrophic
consequences. The obligation to co-operate
in order to secure a DPA or NPA may drive
regulatory strategy in the US and elsewhere.
Recent public statements by the Antitrust Division
that it will consider bringing antitrust indictments
against banks subject to global investigations may
be tested in the coming year.
• Settlements
The rules governing settlements, and the
benefits in terms of mitigating future claims,
differ significantly between jurisdictions and are,
in many areas, still developing. Often, they have
to be seen as a complementary tool in a broader
defence strategy. A decision to settle in one
jurisdiction, possibly with ongoing investigations
into other parties, needs a global assessment
of the relative costs and benefits, often in the
face of many factual and legal uncertainties.
• Diverging powers and priorities
Each regulator will have different investigation
powers, approaches to enforcement and penalties
they can impose. A company with an effective
defence strategy will understand, and anticipate,
which issues each regulator is most interested in,
what evidence they need to prove their allegations
and whether one or more regulators is taking
the lead in a multi-jurisdictional investigation.
6
A co-ordinated and consistent response from
the dawn raid onwards, which meets the needs
of individual regulators, is essential to protecting
a company’s rights of defence throughout lengthy
investigations and possible follow-on actions with
resulting disclosure obligations.
Agency powers and corporate
compliance: main procedural risks
• Dawn raids
Surprise inspections continue to be a key
investigatory tool for authorities worldwide.
Regulators are increasingly co-ordinating
early on to enable them to launch multiple
simultaneous raids and seize vital evidence.
Companies must have the procedures and policies
in place across all of their operations to respond
to these far-reaching and intrusive powers.
Procedures include having trained response teams
at all sites, and having agreed protocols on group
communication, IT response and dealing with
critical issues that will need escalation such
as privilege, relevance, employee interviews
and leniency.
• Delay and obstruction
Wide-ranging powers of investigation are
coupled with heavy financial, and sometimes
criminal, sanctions for any unreasonable delays
or obstruction. Companies have obligations to
co-operate fully and actively with investigations,
and not to interfere with or delay any searches.
As significant fines are more frequently imposed
for behaviour such as delaying entry to premises
(even to wait for lawyers), refusing to answer
questions or disclose full information, failing
to block email accounts quickly enough and
unexplained interruptions to IT access, all
employees need to understand the powers
of the regulators in their jurisdictions
and their duties to co-operate.
• Evidence gathering
In order to respond to regulators’ increasing
demands for large volumes of electronic evidence,
companies quickly need to establish systems and
procedures that enable them to gather and preserve
evidence centrally, and respond to demands across
several jurisdictions. Experience in recent
investigations has highlighted the importance
of having advanced systems in place quickly that
allow companies to keep track of all the evidence
seized by, or disclosed to, different authorities
and conduct a cohesive global defence strategy.
• Privilege and data protection laws
A global defence strategy must anticipate the
impact key differences in privilege and data
protection laws have on evidence disclosed
to particular regulators, and the ability
of companies to control information flow.
• Disclosure and accounting obligations
Any company under investigation needs to consider
any disclosures needed under listed company and
accounting rules. Disclosure requirements differ
across jurisdictions but announcements will
need to be drafted carefully to avoid allegations
of lack of market transparency while protecting
the company’s position, often at relatively early
stages of investigations.
• Employees interviews
Regulators increasingly supplement documentary
evidence through employee interviews, often with
little or no notice. Authorities in the US have used
these powers for many years and, in 2014, the UK’s
CMA moved closer to that position by adopting
compulsory interview powers.
Legal, compliance and HR functions,
and local management, need to join
forces to manage cohesively the often
conflicting demands across the parallel
work streams.
1
Alastair Chapman
Partner, London
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As interview evidence plays an increasingly
influential role, in-house counsel are faced
with a number of critical decisions in very
short time-frames: the need for separate legal
representation; access to interview evidence
if a company representative is prevented from
attending; and disciplinary action, particularly
where an employee’s ongoing co-operation is
needed. Having up-to-date HR policies in place
which deal with such issues significantly helps
decision-making on the day.
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• Individual criminal prosecutions
When employees are faced with the threat
of prosecution for conduct that amounts to a
criminal offence, interests between company
and employee quickly diverge. Corporate
defence strategies should anticipate the
impact that more prosecutions will have,
particularly on disclosure of evidence and
ongoing co-operation with the authorities.
• Regulatory intrusion into compensation
Regulators continue to exert pressure on
companies, particularly banks, to claw-back
compensation from employees implicated
in wrong-doing and to reduce compensation
to managers with supervisory responsibility.
This is both a legal and a broader stakeholder
management issue where appropriate HR
policies are essential.
7
High stakes global investigations
force companies to choose a regulatory
strategy, including potential leniency,
before they learn the scope of the
underlying conduct and often before
regulators have opened investigations.
Rich Snyder
Counsel, Washington DC
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}} W histleblowing policies
Looking ahead to 2015
There are a number of steps companies should take
to ensure they have proper plans and procedures
in place before they are needed.
}} Compliance and risk assessment must
be tailored to business line functions
Training, risk assessment and other compliance
measures must contemplate risk factors presented
by the commercial activity of each business line.
Different commercial activities present unique
risk factors that must be addressed through
bespoke training and compliance measures.
}} Global compliance
With different laws and procedures around the
world, the delivery of compliance and training
must be tailored to local needs but the content
needs to protect the position of the international
business. Regulators’ broad assertion of jurisdiction
to regulate extraterritorial conduct and global
markets often requires companies to adhere
to global standards not just local norms.
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As part of a wider compliance initiative,
corporations should review their internal
procedures to handle employee concerns.
A well-communicated whistleblowing policy
can be a vital part of a company’s defence
and response strategy.
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3
4
}} Management and communication
All local teams must be trained to deal with firstresponse, with clear protocols in place on which
issues should be escalated (and how) to ensure
the right decisions are taken which may impact
investigations and financial exposure elsewhere.
}} Stakeholder strategies
Damaging wider relationships with shareholders,
suppliers, customers, the media and politicians
as a result of infringing behaviour can have
serious and long-standing effects on a company,
particularly where concerns arise as to the conduct
of senior management or company culture. Having
agreed protocols in place, and a central point of
decision-making to deliver a well-planned and
consistent message is vital to minimising this
impact while ensuring no misleading information
is provided to the market.
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10
2
Global antitrust litigation:
a brave new world
The EU Damages Directive will act
as a catalyst for damages actions across
Europe, particularly because it introduces
a rebuttable presumption of harm.
Onno Brouwer, Partner
Amsterdam and Brussels
Private antitrust litigation is continuing to develop
apace, with the European (public-focused) and US
(private-focused) models increasingly converging,
and with many infringements now resulting in
both public enforcement and private claims.
Legislative developments are changing relevant
legal frameworks in order to facilitate the bringing
of claims, while recent court decisions have clarified
some areas of uncertainty.
And as we noted last year, the claimant bar
continues to expand, particularly outside its
traditional stronghold of the US. Accordingly,
increasing exposure to antitrust litigation risk
globally continues to cause concern.
Legislative reform
Multi-faceted legislative reform to facilitate
antitrust litigation continues to develop in
a number of jurisdictions. The most obvious –
and the most far-reaching – of these reforms
is the EU Damages Directive (104/14), which
was finally adopted on 10 November 2014.
Member states have two years to implement
the Directive.
Explicitly intended to facilitate the bringing
of compensation claims by businesses and
individuals who have suffered loss as a result
of anti-competitive conduct, the Directive
will require significant changes in all the
EU’s domestic legal systems.
• The Directive requires the introduction of
a document disclosure regime for competition
damages cases in the EU member states that
do not already have such a regime (the majority).
• It also establishes a minimum five-year limitation
period for bringing a claim, with this period not
starting to run until the relevant competition
authority has completed its proceedings. Many
member states currently have shorter periods.
• Equally importantly, the Directive introduces
legal presumptions in favour of claimants,
including a presumption that any cartel
infringement has caused loss, which has
the effect of shifting the burden of proof
onto defendants.
These potentially significant changes must
be overlaid onto other, domestic, legislative
developments also designed to facilitate redress
for anti-competitive conduct. In Italy and the
Netherlands, a system for competition law
class actions has been in force for some years
now, while France and Belgium introduced
such systems during 2014.
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The UK’s Consumer Rights Bill, which is currently
working its way through parliament, will introduce
an ‘opt-out’ collective action regime, alongside
a collective settlement regime and a framework
for companies to make voluntary civil redress for
anti-competitive conduct. Outside Europe, South
Korea is actively debating proposals to allow class
action lawsuits and injunctions for competition
law infringements.
These regimes will coexist with, and perhaps
eventually compete with, the established class
action system in both the federal courts in the
US and in each of the 50 separate US state judicial
systems. The US jurisdictions have had opt-out class
actions, the prospect of treble damages, and limited
(or no) contribution rights for several decades, and
US claimant firms are increasingly trying to bring
this experience to the new European systems.
As a result, cartelists may be held liable for
losses caused to individuals or entities which
are not their direct or indirect customers,
and to all claimants for purchases from noncartelist suppliers. The increase in the scale
of liability risk is clear, and in Germany and the
UK, such umbrella claims are increasingly common.
1
The general theme of judicial open-mindedness
towards antitrust claimants can be seen in the
Netherlands, where several claims vehicles have
brought bundled claims before the Dutch courts,
for example in the paraffin wax and air cargo
cases. Similarly, the number of claims brought in
Germany is on the rise and, as there is no legislated
class action regime, claimants are finding other
ways of bundling claims, such as through the
assignment of claims to special purpose vehicles.
4
The European Court of Justice – in a decision
prompted by a reference from the Austrian courts
– has recently concluded that member state legal
systems must allow the claimants to recover for
losses arising from so-called ‘umbrella’ purchases.
These are purchases from competitors of the
cartelists who, although themselves innocent of
any involvement in the cartel, were nevertheless
able to charge higher prices (under the ‘umbrella’
of the cartel) than they would have been able
to had the cartel not been in operation.
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6
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Judicial developments
Judicial rulings also continue to increase the scale
and scope of antitrust litigation risk. For example,
the UK courts have shown themselves willing
to order the disclosure of confidential versions
of European Commission decisions in order to
facilitate the bringing and prosecution of claims,
such as in the air cargo cartel litigation.
2
10
In the UK, we are on the verge of
an opt-out collective action regime.
The key issue for business and
consumer groups is whether the
appropriate balance has been struck
between the legislation’s attempt to
promote claims while putting in place
safeguards to avoid frivolous claims.
Jon Lawrence
Partner, London
11
The continued expansion of US
claimant firms into Europe will
change the antitrust litigation
landscape in Europe. These firms
bring an aggressive approach
to pursuing claims and a wealth
of experience in areas that are
relatively new in Europe, such
as class actions, litigation funding
and novel fee arrangements.
Michael Lacovara
Partner, New York
However, the EU has recently suffered a blow
in its attempt to promote claims. It sought to lead
by example, by bringing its own damages claim
in the Belgian courts against participants of the
elevators and escalators cartel. The claim was
dismissed. The court expressed great scepticism
as to the evidentiary value of the three economic
reports filed by the Commission in relation to its
damages claim. Similarly, in the synthetic rubber
litigation in the UK, which settled during trial,
the court during the course of the trial expressed
considerable scepticism as to the ultimate value
of complex economic expert evidence, particularly
when weighed against factual evidence from the
relevant businesses about the actual drivers of their
prices and purchasing patterns.
12
Outside Europe, there has been a marked increase
in the number of private antitrust cases in China
(see theme 6). In the US, a key area of developing
jurisprudence is the degree to which US antitrust
laws reach conduct outside of the US. One can
assume that the robustness of relief available
in other jurisdictions will play at least a passive
role in the development of that body of law.
The long-anticipated EU Damages
Directive is the most significant
development in European antitrust
law for many years. Once implemented,
it is likely to lead, over time, to an increase
in claims and to claims being brought
in member states where there have
previously been few, if any, such cases.
Thomas Kreifels
Partner, Düsseldorf
Looking ahead to 2015
A key focus for 2015 will be the efforts of EU member
states to grapple with the changes they are required
to implement as a result of the Damages Directive.
There is likely to be lobbying from parties with a
vested interest in the manner in which the Directive
is translated into domestic law, such as claimant
and defendant firms, litigation funders, consumer
organisations and business associations.
It will also be interesting to see the extent to which
any member state courts seek to apply some of the
principles underlying the Directive, without waiting
for legislative change, to the extent that their domestic
legal system permits them to do so.
Spurred by the developments discussed above, the
claimant bar continues to expand outside of the US.
Claimant firms are building their presence in the
UK, recruiting both staff and clients aggressively,
and opening offices in continental Europe. Brussels
is one city of focus, but we would be surprised if the
leading claimant firms did not expand their presence
on the ground in other European jurisdictions,
including Germany, and (in due course) Asia.
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3
Liability for cartel fines:
managing risks within corporate
structures and on acquisitions
In the EU, liability for antitrust
infringements can attach to several
entities in a corporate group. Current
and former owners can be liable for the
conduct of subsidiaries, even indirect
subsidiaries, joint ventures and other
entities which are not wholly owned.
Bea Tormey
Partner, London
Over the last 20 years the acceptance that ‘naked’
cartel activity poses a severe threat to economies and consumers has led to a global fight against
cartels and a focus on how best to detect, punish
and deter cartels. Most competition law systems
now treat cartel conduct as an ‘automatic’ violation
of the rules. Further, sanctions for those found to
have engaged in cartel activity have been mounting
and leniency regimes have been burgeoning.
For companies, this policy has translated into a
dramatic increase in the level of fines being imposed
on those found to have infringed anti-cartel rules
but not to have blown the whistle in time to benefit
from immunity. In the US, for example, corporate
fines imposed in fiscal years 2009–2013 exceeded
$5bn and in the EU, corporate fines imposed in the
period 2010–2014 totalled nearly €9bn, a dramatic
increase from the €293m fines imposed in the
period 1995–1999.
14
Further, an increasing reality in the EU is that
these fines are not imposed solely on the legal
entity actually involved in the infringement
but also on other responsible companies within
the same economic unit. The Commission (with the
approval of the EU courts) now seeks, where it can,
to hold parent companies jointly and severally liable
for the infringement of their subsidiaries where that
parent is able to, and does actually, exercise decisive
influence over the policy and direct the conduct
of its subsidiary.
This can occur even when the conduct is committed
by an indirect subsidiary and/or where the conduct
was unknown to the parent. Decisive influence
(potential and actual) is presumed to exist where
the parent holds a 100 per cent shareholding in
a subsidiary (or a de minimis amount less) and has
been found to exist, where:
• the parent holds only a majority interest in the
infringing entity or a minority interest which
is allied to rights greater than those normally
granted to minority shareholders;
• the parent has negative control over its subsidiary,
at least where two or more parents have negative
control over a JV and so co-operate to determine
the JV’s commercial policy – that is, in situations
where the parents have the power to exercise, and
have actually exercised, joint control over a JV; and
• a
parent is a financial investor but exercises
‘control’ over its investment.
Owning an entity that commits a
competition law violation only for
a short period and selling it on does
not shield the seller from liability
in the EU. Further, a new parent
might decide to alert a competition
authority to the infringement and
expose the seller to liability for its
past infringements.
Uta Itzen
Partner, Düsseldorf
This position contrasts starkly with the US
common law approach, which treats corporate
entities separately – even a parent and its wholly
owned and controlled subsidiary – except in rare
cases when ‘piercing the corporate veil’ is justified.
It is also clearly established under EU law that a
parent cannot ordinarily escape or shift its liability
by selling an infringing entity. Rather, the principle
of personal responsibility requires that liability
attaches to the original operator managing the
undertaking in question when the infringement
was committed even if, when the decision finding
the infringement is adopted, another person has
assumed responsibility for operating that entity.
Although this means that a parent purchasing an
entity cannot, save in exceptional circumstances,
be held responsible for past infringements, purchasers
can be held responsible for infringements that
continue or are repeated or renewed in the posttransfer period.
In the US, it is purchasers which need to exercise
particular care in M&A transactions because if
they acquire shares in an entity involved in cartel
activity, liability will generally remain with
that entity (and not with its previous owner).
The evolving law in this area creates many
potential traps for the unwary.
1
A number of EU member states follow the same
approach under their national laws to that adopted
in the EU. Not all do so, however. In Germany,
for example, only the actual legal entity which
committed the breach is liable for a cartel
infringement. Nonetheless, fines are calculated
in Germany by reference to the turnover of
the ‘economic unit’ of which it forms part,
meaning that the levels of antitrust fine have
also increased significantly.
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Infringing conduct is increasingly covert
and difficult to detect. Purchasers must
therefore adopt sophisticated techniques
when conducting due diligence if they
wish to avoid exposure to the severe
consequences which may follow from
buying an entity which has been engaged
in cartel activity.
Bruce McCulloch
Partner, Washington DC
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}} Sellers beware
Looking ahead to 2015
Anticompetitive conduct is difficult to identify
but the risks of infringement for companies
are significant. Antitrust investigations are
time-consuming and intrusive and may cause
reputational damage which is hard to repair.
In some major jurisdictions, liability for
fines in respect of cartel infringements may
attach to several entities within a corporate
group, including current and former owners.
Businesses must therefore exercise extreme
caution when buying and selling subsidiaries.
A number of issues should be addressed
to minimise these risks.
}} Compliance
Do your compliance programmes operate
for all companies for which you would
be held to account?
}} Investments
Do not assume that because you hold only
a minority shareholding or a non-controlling
interest in a subsidiary, or you are only a partner
of a joint venture, that you will not be held
responsible for its competition law infringements.
1
In the EU, sale of an infringing entity will not
ordinarily absolve you from responsibility for
its conduct during the period that you owned
it. Further, a new parent might decide to alert
a competition authority to the infringement
and seek immunity from fines.
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3
4
Your liability as the seller may be unaffected
by the new owner’s leniency application,
contractual arrangements or the fact that
the infringement is historic. Consequently,
consider reporting any violations uncovered
prior to a sale.
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6
}} Buyers beware
7
Serious antitrust infringements are likely
to be concluded secretly and so are difficult
to detect. In addition, exposure to antitrust
fines is difficult to shift through contractual
protection. Purchasers consequently need to
adopt a sophisticated approach to due diligence
when buying new businesses that is one step
ahead of the advanced investigative techniques
of antitrust authorities and immediately bring
detected infringements to an end.
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4
Digital markets:
innovation, competition and consumer
protection – getting the balance right
While the last few years have seen the interface
of patent and antitrust law ignite a number of new
legal, industry and policy developments, it is likely
that the year ahead will see the re-emergence of
a number of key themes in antitrust enforcement
in digital markets – data, interoperability and
incentives for innovation – at the forefront of
agencies’ prioritisation for antitrust enforcement.
Antitrust authorities globally are expected to step up
their focus on potential concerns in digital markets
as political concerns and pressures regarding data
security, network effects and potential barriers
to entry mount.
Much of the global agenda in this area in the recent
past has been led from Europe, with high-profile
– and controversial – investigations concerning
Google and the enforcement of standard essential
patents attracting other enforcers globally. The
appointment of a specific Vice-President, Andris
Ansip, responsible for the ‘Digital Single Market’
project and the political priority given to digital
markets by President Juncker in his Guidelines to
Digital Economy Commissioner, Günther Oettinger,
and Competition Commissioner Margrethe Vestager,
are a clear signal that the European focus on digital
markets is likely to increase during 2015.
As the headlines report calls from the European
Parliament to break up Google, political intervention
in antitrust enforcement appears more real than ever.
18
Data – gatekeepers, networks
and barriers to entry
The ‘two-sided’ business model of functionalities
such as search or operating systems offered for
‘free’, underpinned by monetised services, is fast
coming under pressure as antitrust authorities
become more sophisticated in their analysis of the
relationship between ‘big data’ and competition.
These ‘network effects’ – and whether
they arise from the operation of
competitive forces or market power –
are coming under ever-closer scrutiny.
Laurent Garzaniti
Partner, Brussels
Antitrust authorities are increasingly concerned
that, as users make greater use of ‘free’ services
and contribute greater amounts of user data to the
position of the platform, the better able the platform
is to offer a more relevant and user-friendly service.
In turn, this attracts a greater number of users
in a ‘virtuous circle’. The more users a platform
is able to attract, the more attractive it is as an
advertising space worth paying for or as a system
that developers will wish to write applications for.
Interoperability – opening
up ‘open source’ systems
Innovation – regulating
new business models
1
And the digital debate does not stop in Europe.
For example, in common with their European
counterparts, Chinese competition authorities
have been paying close attention to restrictions
on the ability of manufacturers to customise the
Android operating system. The intensity of the
scrutiny of digital business models, particularly of
major US-based companies, leads some to speculate
that wider considerations, such as the protection of
perceived national interests or wider concerns about
data security are driving the enforcement agenda
and influencing the outcomes sought by regulators
far beyond the realms of ‘traditional’ antitrust
analysis as it has been understood up to now.
Continued disruptive innovation also brings
digital business models face to face with more
‘traditional’ forms of regulation, such as in the
fields of payment and content. Traditional payment
and content businesses have faced years of intense
antitrust and other regulatory investigations in the
recent past. Several leading authorities (including in
Germany and the UK) are focusing their resources
on the digital sector and the impact of new business
models on competition and consumers. At the same
time, industry participants are acutely aware of
the need for regulation not to stifle innovation
and the development of new solutions.
2
Last year, a white paper from China’s Ministry of
Industry and Information Technology, reported
its view that Google had too much control over
the Android operating system and signalled
support for the emergence of a home-grown
mobile operating system. The white paper also
signalled a clear desire from China to reduce its
dependence on foreign standards.
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The overlay of existing antitrust
scrutiny and evolving regulatory
standards creates an increasingly
complex terrain through which
those developing new and innovative
business models must navigate.
10
James Aitken
Partner, London
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Looking ahead to 2015
Digital markets can expect further intensified
global antitrust scrutiny from authorities who
have a growing confidence to broaden their focus
and, in some cases, are prepared to employ novel
and far-reaching theories in their investigations.
Antitrust agencies are likely to work in tandem
with policy objectives pursued by other regulators.
We can expect:
}} greater and bolder moves to impose structural
changes to reduce barriers to entry and
associated network effects of ‘big data’
gatekeepers – including a greater role for the
European Data Protection Supervisor (EDPS)
regarding the processing of personal data and
potentially intrusive measures to restructure
business models. Commercial strategies for
maximising the use of data will need to be
risk-assessed and stress-tested to take account
of potential regulatory intervention;
20
}} growing global attention on business models
in the digital space with the potential for a
greater number of unconventional outcomes
– including a greater emphasis on public policy
or national interest considerations. Digital
businesses will need to assess whether they
may be exposed to the influence of powerful
local regulators or lobbies and to familiarise
themselves with the regulatory and political
landscape to avoid unexpected intrusions in
their arrangements;
}} an increasingly complex regulatory landscape
as ‘traditional’ regulators, for example, of financial
services or consumer protection increasingly
expand their activities to cover digital businesses
and models. Businesses developing digital business
models will need to take account of the views and
approaches of a number of regulators, including
the information-sharing powers available to
competition and other regulatory authorities; and
}} growing scrutiny over data privacy and
security rules, with plans to increase fines for
non-compliance with EU data protection laws
to 5 per cent of annual global turnover, and new
reporting obligations for cyber security incidents
to public authorities.
21
5
Dealing with suppliers,
distributors and customers:
keeping your pricing and information
exchange the right side of the line
2014 has witnessed continued enforcement efforts
in vertical agreements, with a number of agencies
closely interested in: (i) vertical restraints, with
a particular focus on e-commerce markets and
their impact on bricks and mortar outlets; and
(ii) the potential detrimental effects of the
exchange of competitively sensitive information
via third parties such as customers and suppliers.
Internet minimum advertised prices (IMAP –
where the supplier of a product/service places
restrictions on what prices a distributor/retailer
can display on online channels) are also attracting
interest from the regulators.
Pricing practices
• It is well known that the US has historically
adopted a different approach to RPM compared
to Europe and parts of Asia. The US ‘rule of
reason’ approach focuses on the need to assess
whether any benefits from RPM practices may
outweigh competitive harm, rather than outright
prohibiting these practices. Most recently, the
Australian competition authority also applied a
rule of reason approach and granted an exemption
from the ban on minimum prices for complex,
highly differentiated products, recognising that
the need to prevent free-riding in the specific case
at hand outweighed clear, but limited consumer
detriment. However, other jurisdictions take
a more interventionist approach with potential
serious implications for global agreements of
internationally operating companies.
Practices such as resale price maintenance (RPM – the
enforcement of minimum or recommended retail
prices by suppliers) and retail-level most-favourednation clauses (MFNs – where a seller promises or is
obliged to set a price for a particular product/channel
which is pegged to the price of another product/
channel) are current hot topics in international
antitrust enforcement, particularly in the fastmoving online trading world.
Companies can expect information
exchange infringement issues to
gather pace across Europe and the
US. Businesses need to appreciate the
fine legal line which can be crossed
when communicating confidential
information, particularly about future
intentions, to their suppliers and/or
customers. Special care is required
where the customer is also a competitor.
Deirdre Trapp
Partner, London
22
A few clear trends have emerged in 2014.
RPM
• Several national competition authorities in
Europe continue to adopt a strict approach to
RPM and treat RPM as a per se infringement,
despite the efficiencies defence recognised
by the European Commission in its Vertical
Block Exemption Guidelines (particularly in the
online world). At a national level, the German
Bundeskartellamt has taken a vigorous approach
against companies in tackling RPM cases, with
ongoing investigations in a number of product
categories including pet food, coffee, confectionery,
beer, baby food and personal care and involving
more than 70 manufacturers and retailers.
• RPM is also the most complained-about practice
in the UK, resulting in a growing number of
enforcement cases, including investigations into
sectors as diverse as online travel agents, eBooks
and sports bras.
• RPM is increasingly high on the list of priorities
of antitrust enforcement agencies in China (see
theme 6). The Chinese National Development and
Reform Commission’s decisional practice confirms
a robust approach against RPM. We expect the
Hong Kong authority to take a similar approach
under its new competition law.
MFN clauses
• Price parity or MFN clauses may act as a catalyst
for entry in fast-growing and dynamic markets.
However, their ability potentially to restrict the
sellers’ freedom to set prices, raise barriers to
entry and soften competition at the downstream
level, means that MFNs are increasingly under
scrutiny. The Bundeskartellamt has condemned
MFNs in the hotel online booking sector as an
infringement of competition law by object and
effect. The French, Italian and Swedish authorities
are currently market-testing a set of commitments
offered by Booking.com to address concerns about
the potential anti-competitive effects of its MFN
clauses. There currently appear to be at least seven
investigations into that industry by national
agencies in Europe alone (Austria, France, Germany,
Ireland, Italy, Sweden and the UK – a number of
other agencies are also rumoured to be interested
in examining the issues) as well as investigations in
Switzerland and China. ‘Wide’ MFNs, ie provisions
that require parity across all distribution channels,
have been found to be anti-competitive in the UK
private motor insurance sector.
IMAP
• Some antitrust authorities are now starting to ask
about the impact of IMAPs. Their concern is that
they may reduce the incentive for customers to
shop around and find the best price for a particular
product and potentially amount to an online sales
ban. In addition, in some circumstances, IMAPs
may facilitate horizontal collusion.
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In Germany, the Bundeskartellamt
has been at the forefront of vertical
enforcement, spearheading a number
of investigations in a range of
product categories.
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Helmut Bergmann
Partner, Berlin
9
Information exchange
Competition authorities remain increasingly
vigilant for practices designed to co-ordinate or
facilitate the co-ordination of market behaviour,
including when this is achieved by way of exchange
of competitively sensitive information via customers
or suppliers. This is a difficult area where the
boundaries between legitimate and problematic
information exchanges are not always self-evident.
Hub and spoke issues continue to be a fertile hotbed
for potential infringement, and competition agencies
are taking an interest in such conduct, building
upon a number of decisions in the UK and the
US. For example, the Polish competition authority
recently issued fines for several hub and spoke
infringements in the pet food market.
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10
}} MFN risks
Antitrust enforcers are increasingly interested
where: (i) the company seeking the MFN has
significant market power and it can be shown that
the risk of anti-competitive exclusion outweighs
the potential pro-competitive benefits; (ii) there
is a network of parallel agreements, which could
lead artificially to increased price transparency; or
(iii) the MFN is used to facilitate price co-ordination
among suppliers.
}} IMAP risks
Looking ahead to 2015
}} RPM risks
Ensure that your contracts and business conduct
in supplier-distributor relations do not directly
or indirectly give rise to RPM, particularly in the
online world. The focus should be on compliance
in these areas and on achieving clarity on whether
the agreement gives rise to efficiencies capable
of justifying a restriction.
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We are seeing the first signs of real agency interest
in this area in Europe. For businesses active in
online selling, this needs to be a compliance focus.
}} Global nature of issues
Companies with an international footprint need to
appreciate the increased proactivity of regulators
across a range of jurisdictions and the risk of
parallel investigations, as well as the potential
discrepancies in approach.
6
China and Hong Kong:
the ramping up of antitrust enforcement
After much deliberation, the Hong Kong competition
law is finally expected to come into force in 2015.
Meanwhile, we can expect China to continue to
ramp up antitrust enforcement of the PRC’s AntiMonopoly Law with the focus so far having been
on cartel behaviour and resale price maintenance.
These two developments are very likely to be viewed
by many international companies as the ‘new normal’
in terms of antitrust enforcement in Asia.
Hong Kong – the emergence
of a new competition regime
The Hong Kong Competition Ordinance has been
given fresh impetus following publication of draft
Guidelines in October 2014 that were intended to
flesh out the provisions contained in the Ordinance.
Following the publication of the draft Guidelines,
it now seems that there is a timetable in place and
full entry into force is expected to take place in late
summer 2015.
The draft Guidelines, according to the Hong Kong
Competition Commission, draw on the best practices
from other established competition law regimes.
However, there are some important gaps and key
questions that remain to be answered prior to
the coming into force of the Ordinance in 2015.
In particular:
• there is no safe harbour/block exemption for
vertical agreements which means that companies
may need to self-assess the competitive effects of
all such agreements. This will be time-consuming
and add to compliance costs given the careful
consideration that may need to be given to
the analysis;
• unlike in other jurisdictions such as the EU and
China, there is currently no indicative market
share threshold to assess whether a company
may hold a substantial degree of market power
(the Hong Kong equivalent of dominance in the
EU) and is subject to a special responsibility not
to engage in conduct that may lessen competition
in Hong Kong. Silence on this point, which is
substantially out of line with most established
antitrust regimes, creates considerable uncertainty,
particularly when a threshold as low as 25 per
cent was debated in the legislative passage of
the Ordinance;
• it remains unclear from the Ordinance and
the draft guidance published to date whether
company directors and employees are susceptible
to potentially substantial pecuniary penalties for
infringement of the key competition rules in the
Ordinance. More light may be shed on this point
when the Commission publishes its Guidelines
on the leniency process in early 2015; and
• a number of important parts of the competition
framework are not yet in place. These include
guidance on the availability of whistleblowing
procedures (leniency), a broader statement
on the Commission’s enforcement policies and
international co-ordination. It is to be hoped that
a fuller picture of the Hong Kong competition
regime will emerge upon publication of this
further guidance.
It is to be seen whether all of the current uncertainties
will be resolved in the next 12 months in the run-up
to the coming into force of the Ordinance. If not,
companies will need to consider how best to ensure
compliance in the absence of clear bright lines on
some key issues.
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The Hong Kong Competition
Commission is a very powerful
regulator and all eyes will now
be on how it exercises its powers
in one of the world’s foremost
economic centres.
Nicholas French, Partner
Beijing and London
China – the shifting sands
of antitrust enforcement
Since 2013, the China antitrust agencies have
significantly intensified their enforcement activities,
such that between January 2013 and July 2014, the
agencies concluded more cases than in the entire
period prior to that since the introduction of the China
antitrust law in August 2008. The general increase
in enforcement activity has been accompanied by
a significant increase in fines.
A number of factors suggest that the sharp increase
in enforcement activity is expected to continue
into 2015.
The enforcement activity is likely to be driven by
an expected increase in the number of complaints
and leniency applications that may give rise to
further investigations.
26
In particular:
• the National Development and Reform Commission
(the NDRC) – the antitrust agency responsible for
price-related infringements such as price fixing
– has made available for consumers a nationwide
price complaint platform and the information
received is stored in a database. As a result, it is
expected that price-related complaints will be
pursued and investigated more systematically and
efficiently in China as the system comes into play;
• the agencies are further encouraging third party
complaints by increasing the monetary reward
for those that supply evidence; and
• leniency programmes are increasingly being used
to incentivise companies to self-report antitrust
violations in exchange for more lenient treatment.
Further indicators of an expected ramping
up in enforcement include:
• the Chinese authorities having entered into
various co-operation agreements with competition
authorities internationally, which increases the risk
that an investigation in another jurisdiction will
spark similar antitrust investigations in China; and
• in 2014, an investigation was concluded that was
triggered by private litigation. This may indicate a
new trend in antitrust enforcement where regulator
action will follow on from private litigation. This
is the opposite of the international norm where
litigation is generally the ‘follow-on’ piece.
The agencies have indicated that enforcement
action will focus on sectors that impact ‘people’s
livelihood’. Specifically, SAIC (the State Administration
for Industry and Commerce) – the antitrust agency
responsible for non-price related infringements –
announced that it is focusing on telecommunications,
public transportation and public utility sectors.
Similarly, the NDRC has stated that, among other
things, it will focus on aviation, household chemicals,
automobile, telecommunications, pharmaceuticals
and home appliances.
Regarding the type of violations, recent investigations
have shown that the agencies are increasingly looking
into the conduct of international companies and are
focusing on:
• price fixing:
an example is the imposition of significant fines
in relation to Japanese automotive parts makers,
where two companies received full immunity;
• RPM:
the NDRC has conducted several high-profile
investigations, including in relation to contact
lenses; and
• i nformation exchange:
the agencies have indicated that they are
increasingly concerned about the exchange
of commercially sensitive information in the
context of trade organisations.
In terms of procedures in China, international
companies need to be mindful of some perceived
differences in rights of defence and the speed
at which the agencies may conduct and
conclude investigations.
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Looking ahead to 2015
4
5
While competition laws will be familiar to multinational companies, there may be challenges for
employees and local teams in transitioning to the
new antitrust regimes. There are some steps that
you can take to ease the transition, including:
6
7
}} ensuring your compliance programmes
are tailored to the nuances of the Chinese
and Hong Kong antitrust regimes; and
8
9
}} reviewing your commercial agreements
to ensure that all the terms and conditions
are consistent with Chinese and Hong Kong
antitrust law principles especially concerning
resale price maintenance.
10
27
International companies are
increasingly finding they are
subject of investigations by
sophisticated antitrust agencies
in China; there’s very much
a sense of an antitrust regime
coming of age and companies
need to pay close attention.
Ninette Dodoo
Counsel, Beijing
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7
Mission creep:
preparing for EU scrutiny
of minority investments
2015 is looking set to be the year the European
Commission significantly expands its powers to
investigate minority, non-controlling investments.
Such a move would bring the Commission’s powers
into line with several other major authorities –
including those in Austria, Brazil, Germany,
Japan, the UK and US. It is also likely to lead
to similar extensions of power elsewhere in the
world, where merger control practice tends to be
heavily influenced by the Commission’s approach.
Many antitrust authorities take a close interest in
minority stakes because of their potential to change
how companies compete, either through changed
financial incentives, co-ordinated behaviour through
information flow or influence over commercial
behaviour through blocking rights.
Acquisitions of minority interests
have long been scrutinised by the
US Federal Trade Commission and
Department of Justice. In particular,
the US authorities have focused on
cross-holdings by competitors and
third party (private equity) investments
in competing firms. These cases show
us that in certain instances, regulatory
risk may be mitigated by limiting
the acquirer’s degree of control
in the target and access to target
competitively sensitive information.
Mary Lehner
Counsel, Washington DC
30
EU merger control – changes ahead
Following publication of detailed proposals in
July 2014, the Commission is moving towards
legislative change, despite considerable opposition
from corporate and financial investors who have
argued that regulatory intervention in such deals
could stifle investment and economic growth.
The Commission’s proposals, as currently drafted,
will impose filing obligations on parties making
acquisitions that meet certain prescribed thresholds.
Closing will need to be suspended for at least three
weeks, and possibly much longer if competition
issues are identified that merit investigation. Even
if a transaction closes without a full notification
being required, there remains a risk of subsequent
intervention and divestment orders for up to six
months. The impact on timing and completion
risk for such deals will be significant.
Helpfully, the Commission has recognised that
the regime should only apply to the minority of
deals that potentially raise competition concerns.
Officials have stated that they are expecting only
around 30 notifications each year (with annual
notifications under existing rules currently
numbering around 280). However, most experienced
investors and advisers agree that this number is
unrealistically low, unless the current proposed
thresholds are both raised and more clearly defined.
The proposed new regime
Acquisitions of non-controlling stakes that
meet EU turnover thresholds must satisfy two
cumulative tests in order to fall within the new
regime: (1) they must be significant enough to allow
the acquirer to influence the target’s commercial
policy; and (2) the acquisition must be in a competitor
or vertically related company.
Significance
Currently, significance will be presumed at around
20 per cent due to corporate rights and changes
in financial incentives that accrue (or are deemed
to accrue) at such a level. However, links may be
deemed significant at much lower levels (even as
low as 5 per cent), if the investment is combined
with additional factors such as a de facto blocking
minority (through low shareholder attendance
at general meetings), board representation or
access to commercially sensitive information.
Experience in other regimes where jurisdiction
may be determined by, for example, shareholder
attendance at general meetings, supplier and
other key commercial relationships, debt finance
arrangements or potentially wide concepts such
as ‘commercially sensitive information’ suggests
that the decision whether a deal should be notified
will be far less clear-cut than international best
practice on clear and objectively quantifiable
criteria demands.
Competitors and vertically related companies
Under the second limb of the test, the concepts
of ‘competitor’ and ‘vertically related company’
have also raised concerns, given their potential
for wide and subjective interpretation.
Could, for example, a ‘competitor’ include a
potential competitor, or a company active in
the same sector but different geographic market?
How will the Commission assess different views
and evidence on closeness of competition between
particular companies? Could the concept of vertical
link capture all supplies into a product or service,
or will it be limited to those links where realistic
concerns over input or customer foreclosure could
arise? What happens if a competitor relationship
develops over time?
In the UK, where the same ‘share of supply’ test
has been in place for over 40 years, and where
a long line of cases and detailed guidance should
provide sufficient legal certainty, the question
whether a 25 per cent ‘share of supply’ is created
or enhanced by an acquisition is still often debated
over many months.
1
In Germany, uncertainties created by a jurisdiction
test that relied on market definition and quantifying
market size recently led to the abolition of an
exemption for mergers in small (de minimis) markets.
4
It is clear that, in a mandatory filing regime with
significant financial penalties for breach, filing
thresholds should be capable of determination by
the acquiring party at the time the transaction is
being contemplated, without the need for in-depth
market analysis. In the case of minority acquisitions,
detailed information about the target’s portfolio
companies is likely to be even more limited than
in some cases of acquisitions of control. Experience
in other regimes which incorporate similar concepts
that rely on categorising markets, market shares
or commercial relationships emphasise the need
for objectively clear thresholds.
6
These changes will have major
implications for financial and corporate
investors looking to invest in companies,
and build portfolios, with limited
regulatory interference or risk. Now
is the time to assess whether you have
adequate systems in place to assess
filing requirements and avoid serious
financial penalties being imposed.
Rafique Bachour
Partner, Brussels
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Penalties
Recent cases have highlighted the importance of
establishing clear thresholds, and the risks of getting
it wrong: in July 2014, the Commission imposed a
€20m fine on salmon farmer and processor Marine
Harvest for acquiring a 48.5 per cent stake in its
rival, Morpol, without clearance.
The German authority has demonstrated
a pragmatic approach to pure financial
investments and minority stakes not
raising concerns. However, it has
taken strong action to prevent crossshareholdings between competitors
and vertical integration in markets
where competition may be impeded.
Intervention to limit vertical integration
in the energy sector, in particular, has
been a key area of focus.
Thomas Lübbig
Partner, Berlin
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Looking ahead to 2015
It currently looks fairly certain that these major
changes to the EU merger regime will come into
force, although the timing and the details are still
to be worked out. In the meantime, corporate and
financial investors looking to acquire minority
stakes should be anticipating a number of changes
to deal timing and completion risk ahead.
}} Deal planning
Parties will need to anticipate likely regulatory
intervention and the impact on overall deal
certainty in their:
• due diligence – asking the right questions
to identify potential overlaps and assess risk
early on;
•transaction documents – ensuring adequate
protection through regulatory conditions,
long-stop dates and co-operation agreements
to help ensure the conditions are satisfied; and
•financing – anticipating potentially higher
costs involved in a longer and less certain
transaction timetable.
}} Competition assessment and evidence
The Commission plans to apply the same
substantive assessment that it applies to
acquisitions of control – whether the transaction
will lead to a significant impediment of effective
competition – with theories of harm tailored
to the specific circumstances of the minority
holding. Experience in other regimes (notably
Germany and the US), however, suggests that
the Commission may conduct its review as if
control is being acquired, despite the fact that
the parties will remain competitors. In practice,
it will be important for parties to be able to
advocate the impact a lower level of influence
should have on the substantive assessment,
through economic and market-based evidence.
}} Upfront planning
More upfront time will be needed to assess
whether a deal is caught and prepare the
notification, if needed. Current levels of
uncertainty around the jurisdiction tests,
and the penalties involved in failing to notify
a notifiable deal, suggest that more investors
will choose to notify transactions – or make
a full, voluntary filing – than the Commission
currently anticipates.
}} Overall timetable
For deals that are caught, closing may need
to be suspended for several weeks or months,
depending on the issues at stake and the authorities
involved. Parties will need to consider whether
they should commit the time and cost involved
in a lengthy review, and agree fall-back positions
if necessary.
}} Publicity
The Commission will publish details of filings,
and will circulate the notification to authorities
in all 28 member states, resulting in significantly
increased publicity – and flow of information
around – minority investments. Companies
should anticipate much more transparency
across their portfolio interests and investments.
To prepare for these changes, there are a
number of steps companies could take now.
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}} Knowledge of portfolio interests
Investors will need to be able to check for
competitive overlaps and vertical links in minority
stakes across all investor holdings, including
aggregating positions held by different funds
or divisions (eg debt finance, equity investment,
broking). Acquisitive investors should ensure they
have the systems in place to enable them to make
these checks both accurately and efficiently.
}} Understanding how the new
regime will operate in practice
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The Commission’s approach, and how it interprets
its potentially broad powers in practice, will need to
be monitored closely in order to identify notifiable
deals and understand the impact on completion
risk and timing. At least until detailed guidance
and reliable case law is established, investors are
strongly advised to involve antitrust advisers,
who have regular experience with the regime,
early on in any deal discussions.
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8
Antitrust and the public interest:
implications for cross-border M&A in 2015
US
Although large M&A transactions have, for some
time, required careful management to co-ordinate
merger control review by competition agencies in
multiple jurisdictions, the number of cross-border
transactions that are now also attracting foreign
investment or some kind of public interest review
are mounting noticeably.
Indeed, cross-border M&A across the globe is
attracting increased political and media attention,
which imposes acute pressure on governments to
act to protect national security, jobs and national
industries of strategic importance, all quite apart
from the competition issues the transaction may raise.
This trend of greater suspicion towards foreign
investment looks set to remain as countries struggle
to recover from the financial and economic crisis and
as anxiety about national, electronic and technology
security heightens.
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In the US, Members of Congress and other relevant
stakeholders are increasingly calling upon the
Committee on Foreign Investment in the United
States (CFIUS) and the President to protect national
defence, critical infrastructure and technology
by reviewing extensively and possibly blocking
foreign acquisitions where ‘there is credible
evidence… that the foreign interest exercising
control might take action that threatens to impair
the national security’.
Although certain due process rights must be
respected where the President intends to suspend
or prohibit a transaction under this foreign investment
legislation, the President’s decisions on the merits
are not judicially reviewable. Further, legislation
has recently been proposed to expand the types
of investment subject to national security review
and to subject certain foreign investment to a ‘net
benefit’ test.
If adopted, a greater swathe of transactions will
require assessment to determine whether the net
effect of the transaction is positive, both over the
short- and long-term. The proposed legislation would
constitute a radical departure from the current
generally applicable US national security and antitrust
merger control regimes.
In May 2014, the French government
enacted a new decree on foreign
investments subject to prior governmental
authorisation. Although the French
regime remains governed by the principle
of freedom of investment, the decree
significantly extended the list of strategic
sectors in relation to which the prior
authorisation procedure applies.
Maria Trabucchi
Partner, Paris
In the EU there is currently debate as
to whether the structure of the new
Commission might encourage closer
scrutiny of mergers with the potential
to impact on EU policies other than
competition policy.
John Davies, Partner
Brussels and London
Europe
In the EU, a number of governments have power to
intervene in transactions which raise public interest
considerations, and to override any competition law
assessment conducted. Indeed, in 2014, there were
some notable examples of backlash against foreign
mergers within the member states. For example,
the French government became so concerned about
the risks created by General Electric’s proposed
acquisition of French energy and transport company,
Alstom, that it enacted a new decree on foreign
investments expanding greatly the circumstances
in which investments in specified strategic sectors
require authorisation from the Ministry of Economy.
In addition, Pfizer’s proposed acquisition of UK
pharmaceuticals company AstraZeneca triggered
considerable debate in the UK and led to pleas for
the government to intervene in, and to influence
the outcome of, the case. In the end, however, the
government did not have to decide whether it should,
or could, take action as a number of factors combined
to contribute to Pfizer’s bid failing.
Although at the EU level, the Commission has, to
date, generally been welcoming of foreign investment
and conducted merger analysis in a way that is free
of ‘non-competition’ considerations, the current
debate is whether this stance might change under
the new Commission. A key issue for 2015 will be
whether the new Commission structure, which
places emphasis on co-operation and co-ordination
between the Commissioners, might encourage
closer scrutiny of mergers with potential impact
on EU policies other than competition policy.
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3
4
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10
Interventions worldwide
In Canada, the Investment Canada Act confers broad
powers on the government to review whether certain
direct acquisitions of control by a non-Canadian
of a significant Canadian business is likely to be of
‘net benefit’ to Canada. The criteria to be considered
under the net benefit test are widely drawn and the
Canadian government’s rejection, in 2010, of BHP
Billiton’s hostile bid for Potash Corporation of
Saskatchewan has been considered to reflect an
extraordinary degree of national protectionism.
In Australia, the government has rejected bids
found to be unproblematic on competition grounds,
which it considered to be contrary to Australia’s
national interest (for example, ADM’s bid for
Graincorp in 2013).
In China, the nature and some recent outcomes
of the merger review conducted under the Chinese
Anti-Monopoly Law (AML) has also led to some
concerns that the AML may be applied to protect
domestic businesses from foreign control.
36
The proposed US legislation seeking
to establish a ‘net benefit’ test raises at
least worrying overtones of protectionism
given the elastic nature of that test.
Even if the legislation never becomes
law, its mere proposal is quite significant:
it underscores that acquiring (directly
or indirectly) control of a US business
that could implicate national security
concerns – very broadly defined – must
be planned for carefully with knowledge
not only of the CFIUS filing and review
process, but also of ways to interact
successfully with all relevant stakeholders.
Bob Schlossberg
Partner, Washington DC
Looking ahead to 2015
These developments indicate that cross-border
transactions need to be planned carefully as the
risk of public interest or foreign investment review
increases the difficulty of managing a transaction
and of predicting its outcome.
}} Unpredictable timetables
First, the variety of foreign investment and public
interest regimes makes it harder to co-ordinate the
timing of a deal. Although competition agencies
have become used to co-operating and co-ordinating
their merger review processes, similar structures
are not in place for foreign security and public
interest reviews.
}} Uncertain outcomes
Second, review outcomes are becoming more
uncertain and more vulnerable to the exercise
of political preferences. The less transparent
criteria make it more likely that deals, especially
in sectors liable to trigger national sensitivities,
may be derailed.
37
9
Merger remedies:
meeting agencies’ higher expectations
Competition authorities are showing a growing
interest in the use of remedies as a tool to clear
complex deals. It is our expectation that this
trend will continue, if not intensify in 2015.
Authorities are recognising that consolidation
in certain sectors, such as telecoms, can produce
significant synergies and therefore may be beneficial
to customers, in terms of product innovation, service
delivery and pricing. They are demonstrating a clear
willingness to avoid prohibiting such transactions
if workable solutions can be found.
However, authorities are increasingly demanding more
extensive and complex remedy packages. Moreover,
when testing whether these remedy packages will
deliver the desired outcomes, authorities are being
more thorough than ever before, and we expect this
intensive scrutiny to continue.
Lengthy and complex remedy
negotiations are becoming
increasingly common. Advance
preparation of remedy proposals,
together with evidence that
demonstrates long-term viability,
is essential to facilitating this process
and achieving the desired outcome.
Winfred Knibbeler
Partner, Amsterdam
38
In-depth scrutiny over the
effectiveness of divestment remedies
Negotiations over scope and implementation of
divestment remedies can be lengthy and complex,
with in-depth scrutiny and market testing often
taking several months.
Firstly, a simple divestment of assets, such as key
personnel, knowhow and facilities is often no longer
sufficient. Obligations may be imposed to transfer
contractual relationships, to provide the acquirer
with sufficient financial means or to maintain
commercial relations with the divested business
for several years. In the Syniverse/Mach merger,
for example, the European Commission requested
a divestment of infrastructure which could allow
a purchaser to offer a comprehensive set of services.
Long-term viability and an
increased use of ‘upfront buyers’
Secondly, merging parties are often required to
provide satisfactory evidence as to the long-term
viability of the proposed acquirer. If, for example,
a new entrant is proposed as a buyer of assets, it
should be undisputable that this entrant is here to
stay. A remedy package will only be approved if the
authorities are comfortable that the acquirer will
be, and/or will continue to be, able sufficiently to
constrain the market behaviour of the merged entity.
‘Upfront buyers’ are used to manage risks about
the long-term viability of the divestment package
or the availability of suitable buyers. Whereas this
additional obligation on parties was previously
considered exceptional, we now see authorities
using this tool more frequently.
A requirement to identify an upfront buyer will
have significant consequences for the timing of
a transaction, since divestment of the business
(or at least the signing of legally binding agreements)
will usually be a prerequisite for clearance and/or
for the closing of the transaction. Agreeing such a
sale upfront inevitably requires access to the business
and, therefore, co-operation with the target to ensure
proper due diligence and valuations can be carried out.
More creativity
Authorities are also showing more creativity and
a growing acceptance of less orthodox remedies.
In Liberty Global/Ziggo, for instance, extensive
behavioural commitments not to hinder so-called
‘over-the-top’ distribution of television content and
to maintain interconnection capacity were accepted.
In Hutchison 3G/Telefonica Ireland, the Commission
demanded the merging mobile network operator
(MNO) to divest 30 per cent of its network capacity
in terms of bandwidth to enable the short-term
entry or expansion of one or several mobile virtual
network operators (MVNOs), which could compete
with the merged entity. On top of that, to ensure the
viability of the market entrants, the MNO was also
obliged to provide a dedicated ‘pipe’ to the MVNO
entrants from the merged entity's network for
voice and data traffic.
MOFCOM, the Chinese merger control authority,
has exercised its powers in even more unusual ways.
They have continued to experiment with unique
‘hold separate’ remedies on buyers, which although
allowing a transaction to proceed, require the
management and operation of the target (or parts of
it) to be kept completely separate from the acquiring
company for an uncertain period of time (Samsung/
Seagate, Western Digital/HGST, Gavilon/Marubeni
and MediaTek/MStar).
In China, MOFCOM’s technical
expertise has become significantly
more sophisticated. The agency is
increasingly confident in tackling
complex competition issues raised by
global transactions, and in particular
is willing to respond to those situations
with unorthodox and innovative remedies.
Jenny Connolly, Partner
Hong Kong and London
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4
5
6
Some of these remedies have global implications
for merging parties, and have been imposed over
and above divestment remedies already ordered by
other national authorities. They can have profound
effects on deal rationale and synergies and must
be carefully considered.
In another high-profile case (Microsoft/Nokia)
MOFCOM has taken the unusual step of imposing
remedies on a seller’s post-transaction behaviour,
where it was concerned that retention by the seller
of certain intellectual property rights following
the sale of the operating business might create
scope for patent abuse. Both types of remedies
demonstrate a desire by MOFCOM to find a way
for international transactions to proceed, while
nevertheless addressing China-specific concerns
about such deals.
39
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8
9
10
40
A lengthy negotiation
In the negotiation process on remedy packages,
authorities are demonstrating an appetite to dive
into the details of the remedies offered with an
unprecedented degree of granularity. Parties should
expect several rounds of negotiations on the exact
wording of the remedy package and, before approval,
remedy packages are extensively tested in the market.
Once the remedy package has been approved,
parties will then have to closely co-operate with
authorities on the actual drafting of agreements
that are concluded pursuant to remedies offered.
An ‘off-the-shelf’ SPA will often not suffice.
A combination of all of these factors significantly
impacts the duration of remedy negotiations, putting
pressure on timeframes to which authorities are
bound. Attempts to ‘stop-the-clock’, often by mutual
agreement with the parties, should therefore be
anticipated in deal timetables.
Authorities around the world put
much more emphasis than in the
past on the long-term viability and
efficacy of merger remedies to ensure
benefits are delivered to customers
in consolidating markets. However,
this focus is coupled with a growing
acceptance of more novel remedy
designs, which demands more
creative thinking but should be
welcomed by merging parties.
1
Looking ahead to 2015
2
This intensified scrutiny of remedy packages may
appear as an increased burden on notifying parties,
since much more upfront planning is required:
}} if a divestment remedy is anticipated, parties
must consider the availability of acceptable
potential buyers very early on in the process;
3
4
5
}} if more unusual remedies (such as behavioural
commitments) are anticipated, parties should
consider involving experts at an early stage to
ensure the evidence is available to demonstrate
the viability of the remedies. Such advance
planning could significantly speed up
discussions with authorities;
6
7
8
9
}} since there is less certainty on the timing
of the merger approval process, committing
to a contractual long-stop date should be
carefully considered.
10
The increased focus of sophisticated remedy
design may, however, also have a significant
upside. If parties:
}} take the time to engage with authorities, and co-operate with them to remove any doubts as
regards potential competition concerns; and
}} are willing to offer sufficient and detailed remedies,
the prospects of getting the green light for mergers
in concentrated markets that still bring significant
cost synergies may have increased.
Thomas Wessely
Partner, Brussels
41
10
Navigating a shifting
powerbase in merger control:
expect the unexpected
With over 125 competition regimes worldwide,
and more regimes in the pipeline, the importance
of a co-ordinated approach to merger control
in cross-border M&A transactions will continue
to increase.
Companies planning deals in 2015 should be
aware of several key trends in global merger
control which are continuing to impact heavily
deal timing and certainty.
Merger control regimes globally are streamlining
investigations for more straightforward cases,
while tightening procedures, strengthening
enforcement powers and devoting more resources
to deals that raise concerns in consolidating sectors.
Mature jurisdictions in Europe, America and Asia
are likely to be on your deal team’s radar from the
outset. Yet, as more countries adopt merger control
rules and are keen to establish themselves on the
international stage, global deals are increasingly
being influenced by jurisdictions that, currently,
would not typically be considered as key to execution
in the early stages of planning a deal.
In 2014, we experienced significant changes to
filing thresholds, disclosure requirements and
powers of intervention in several major regimes.
In 2015, regulatory requirements in cross-border
deals are expected to increase further as more
changes are implemented and more regimes
become fully operational. Most notably, 2015
is the deadline for the 10 member states of the
Association of Southeast Asian Nations (ASEAN),
to put in place competition regimes, and, currently
all but one of these countries is on track to meet
this goal.
Relationships with competition
authorities are very important –
so understanding your authority
really does matter.
Andrea Gomes da Silva
Partner, London
42
The impact of newer regimes
Often, a relatively new authority, in a jurisdiction
which could appear incidental on first view, may
well choose to ‘flex its muscles’ on a high-profile
global deal, and/or take a different approach than
other authorities, sometimes because of politically
driven concerns. This can result in frustrating
time delays or divergent outcomes, so advance
knowledge is key.
A wider range of non-competition
factors taken into account
As discussed in theme 8, wider public interest,
foreign investment and local political issues are
increasingly at stake in merger control, which,
if unanticipated or poorly managed, may make the
route to merger clearance a little less smooth, or in
the worst case scenario, result in significant remedy
requirements or a prohibition decision.
These can result from political interventions,
or a wider range of factors being embedded in
a country’s regime. In several countries in Africa,
for example (including Kenya, Namibia and South
Africa), local socio-economic considerations remain
important to any merger analysis. If an authority
examines the impact of a merger on employment,
parties should expect requests for details of likely
redundancies and potentially the imposition of
commitments in relation to maintaining the local
workforce and/or investing in the local economy.
In practice, this means that, very early on in
the transaction timetable, companies planning
integration across multiple jurisdictions need to
have an in-depth view of employment efficiencies
and other public interest considerations specific
to certain countries. Failure to provide these
figures in a timely manner can result in delays.
Headline timetables can be misleading
Parties should pay close attention to when the filing
‘clock’ (and therefore the filing deadline) will start
running, and the length, in practice, of any review
period. In some newer jurisdictions, the clock may
start to run from Board approval of binding heads
of terms (eg India). In others, notification will be
triggered by the conclusion of a legally binding
agreement or the announcement of a public bid.
However, most authorities’ published review
periods do not include:
• pre-notification reviews,
which are tending to become longer and more in-depth across the board. In the UK, for example,
recent changes were intended to streamline review
periods and improve certainty and predictability
for business. However, early experience shows that
more time should be factored into deal planning
in order to complete extensive pre-notification
investigations and market testing. These may
well add several weeks to a clearance timetable;
• ‘stopping of the clock’ by the authority:
most authorities are able to stop the clock each
time they request additional information until
all information is submitted. The Indian authority,
for example, recently stated that it has reviewed
and cleared all mergers notified since 2011 within
a 30-day Phase 1 time period. This 30-day review
period, however, does not include time spent
by parties responding to initial information
requests; and
• referral between authorities:
referrals between supra-national authorities
(eg the EU and COMESA) and national competition
authorities can be lengthy and unpredictable,
significantly impacting deal timetables. As and
when more regional blocks are formed, this process
is likely to become more prevalent.
43
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}} Anticipating potential remedies
Looking ahead to 2015
Over the coming year, we expect to see several
important trends continue.
}} Authorities’ resources under pressure
The increased volume of M&A and antitrust
enforcement has put agency case teams under
pressure. The knock-on effect is there can
be little room to manoeuvre in the face of
impending deadlines.
}} Focus on disclosure
Parties should expect to make increasingly
significant disclosures of internal documents
as part of a filing. They should be addressing
document creation and managing disclosure
as part of a co-ordinated and efficient multijurisdictional approach, while also maintaining
legal privilege where appropriate.
}} Increased role of political
influence on merger control
Given the political situation in many regions,
we expect the global political climate to continue
to have a significant impact on merger control,
particularly in key strategic sectors. The importance
of anticipating political influences and maintaining
constructive relationships with all relevant
governments, authorities and regulators should
not be underestimated (see further in theme 8).
44
As discussed in theme 9, in tricky transactions,
parties should decide early whether negotiations
should include upfront discussions of potential
remedies. Solutions may be needed to resolve
global or local concerns, which will need to
be balanced against commercial objectives.
}} Realistic deal planning
Parties should allow sufficient time for a thorough
analysis of all potential (competition and noncompetition) concerns, including a review of all
the evidence, in order to develop a joined-up and
consistent strategy across jurisdictions. Thinking
more creatively, is there something about one
of the parties’ position in a country that means
the deal will have undue prominence in the
mind of the regulator? It requires lateral thinking,
knowledge of a regulator’s mindset, and awareness
of broader concerns to work out what this might be.
}} Shareholder and other stakeholder management
Early engagement with all stakeholders who may
have views on the deal is highly recommended.
A joined-up strategy is essential in politically
sensitive jurisdictions or where the sector or
parties involved are under the media spotlight.
Make sure that you fully understand
the authority’s investigation processes
and that you obtain ‘real-world’ advice.
Are there any obvious patterns of previous
enforcement or decision-making? Is the
authority pursuing any particular political
or other agenda? Is it looking to make an
example of a certain situation or event?
Thomas Janssens
Partner, Brussels
45
Your contacts
Amsterdam
Brussels
Cologne
Hong Kong
Onno Brouwer
Winfred Knibbeler
T +31 20 485 7000
Rafique Bachour
David Broomhall
Onno Brouwer
John Davies
Laurent Garzaniti
Hein Hobbelen
Thomas Janssens
Dr Frank Montag
Andrew Renshaw
Alan Ryan
Dr Andreas von Bonin
Dr Thomas Wessely
T +32 2 504 7000
Dr Michael Esser
Dr Ulrich Scholz
Dr Christoph Sieberg
T +49 221 20 50 70
Jenny Connolly
William Robinson
T +852 2846 3400
Beijing
Ninette Dodoo
Nicholas French
T +8610 6505 3448
Berlin
Dr Helmut Bergmann
Dr Thomas Lübbig
Dr Hans-Joachim Prieß
Dr Frank Röhling
Dr Roland Stein
T +49 30 20 28 36 00
46
Düsseldorf
Dr Uta Itzen
Dr Tobias Klose
Dr Martin Klusmann
Dr Thomas Kreifels
Dr Peter Niggemann
Dr Burkhard Richter
Prof Dr Gerhard
Wiedemann
T +49 21 149 790
London
Madrid
Rome/Milan
Vienna
James Aitken
David Aitman
Rod Carlton
Alastair Chapman
Jenny Connolly
John Davies
Nicholas French
Andrea Gomes da Silva
Jon Lawrence
Paul Lomas
Martin McElwee
Alex Potter
Simon Priddis
Mark Sansom
Bea Tormey
Deirdre Trapp
T +44 20 7936 4000
Francisco Cantos
Alvaro Iza
T +34 91 700 3700
Tommaso Salonico
Gian Luca Zampa
T +39 06 695 331
Dr Axel Reidlinger
T +431 515 150
Washington DC
Moscow
Tokyo
Alexander Viktorov
T +7 495 785 3000
Takeshi Nakao
Kazuki Okada
Akinori Uesugi
T +81 3 3584 8500
New York
Michael Lacovara
T +1 212 230 4630
Terry Calvani
Tom Ensign
Mary Lehner
Bruce McCulloch
Robert Schlossberg
Rich Snyder
Paul Yde
T +1 202 777 4500
Paris
Jérôme Philippe
Maria Trabucchi
Jérôme Fabre
T +33 1 44 56 44 56
47
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