Businesses that participate in Standard Setting Organizations ("SSOs") and seek adoption of their technologies in standards now arguably face additional exposures.  Extending a line of previous SSO patent "hold-up" cases, including Dell, Unocal, and Rambus, the Federal Trade Commission has used its most recent SSO case to define a broader potential scope for liability under Section 5 of the FTC Act, 15 U.S.C. § 45.  The zone of liability now includes businesses that do not conceal their patents before SSO adoption, but later engage in "hold-up" behaviors after adoption – "ex ante," by trying to reneg on previously negotiated agreements with an SSO about the future economic terms on which the patent would be licensed if they were included in the standard.  According to at least a majority of the current FTC, the Act now appears to encompass such actions by corporations with questionable market power, and also provides the basis for additional liability under the consumer protection provisions of the Act as well as unfair competition.

Patent holders have come under repeated criticism by the Federal Trade Commission for opportunistic conduct in SSO's when holders seek to leverage the inclusion of patented innovations in technology standards.  Some of these patent holders have been accused of engaging in "hold-ups."  This problem occurs when SSO members withhold information about their potential or presently owned patented technology.  These members then lobby for adoption of a standard relying heavily on the use of their proprietary technology.  Once the SSO adopts the standard, and other members begin to practice the standard, the "hold up" starts as the patents are revealed, and the patent holder seeks royalties for their continued use.  The members who relied on the standard have invested must time and money, making switching to alternatives economically unreasonable, potentially giving the patent holder some degree of "market power."

On January 23, 2008, the FTC announced a complaint and settlement with Negotiated Data Solutions, LLC ("N-Data"), In the Matter of Negotiated Data Solutions LLC, FTC File No. 051 0094.  The FTC concluded that N-Data violated Section 5 of the FTC Act by engaging in unfair both methods of competition and acts or practices unfair to consumers, relating to the Ethernet standards set by the Institute of Electrical and Electronics Engineers ("IEEE") for data transmission.  Specifically, the FTC found the conduct of N-Data violative of Section 5(a), which prohibits "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce."  15 U.S.C. § 45(a)(1).  The Commission also found an alternative basis for liability under Section 5(n) of the FTC Act, which encompasses consumer protection.  The decision was split 3-2, somewhat unusual in the context of a settlement.  Of course, the settling party neither admitted nor denied liability by signing the consent decree.

The really novel aspect of this case is that unlike prior SSO "hold-up" cases – Dell, Unocal, and Rambus – in this case the defendant N-Data did not conceal the existence of patents during the SSO's adoption process.  Rather, N-Data's patent-holding predecessor was upfront about its patent through the entire standard setting process, agreeing to license the technology to users for $1000 per license.  The problems with N-Data set forth in the complaint arose later, when the successors to the patent, first Vertical Networks, and then N-Data, attempted to leverage its position as a necessary standardized technology by trying to renegotiate the license terms in an effort to obtain more than the original $1000 from each licensee.

The consent indicates that the anticompetitive act relating to the hold-up need not occur at the adoption phase.  At least according to a bare majority of the current Commission, the anticompetitive actions subjecting a business to Section 5 liability can occur at any time.  It is now generally accepted that the act of withholding pertinent information about possession of a patent may subject a business to Section 5 liability, under the previous "hold-up" cases.  However, this case demonstrates that the action of wielding the power conferred ex ante through adoption of a standard in order to "hold-up" adopting members can be equally actionable without the initial dishonesty in the adoption process.

The FTC Act is broader than the Sherman and Clayton Acts, but usually is limited in reach to incipient violations.  The dissent of FTC Chairman Deborah Majoras states that the conduct of N-Data was not incipient because there was no concealment and no actual market power at the time of adoption.  Majoras goes on to question whether N-Data ever enjoyed measurable market power since many users ignored N-Data's request to pay more for licensing.  The fact that there was no initial bad act during the adoption process, and questionable impact after the "hold-up," apparently was an unacceptable expansion for the Chairman of the unfair competition provisions of Section 5.  She appeared concerned about the expansion of liability to what may be a benign license re-negotiation after adoption.

Also of significance was the FTC's use of the consumer protection Section 5(n) of the Act as an alternative basis a claim against N-Data.  It is unusual, though not unprecedented for the FTC to use consumer protection to reach anticompetitive conduct.  Chairman Majoras' dissent raised serious questions about the use of the consumer protection section for major corporations.  The Chairman put substantial emphasis on the identification of a corporation as a consumer, but failed to note that the majority also addressed the downstream effects to individual purchasers of technology.  The majority expressly acknowledged concern for downstream impact to consumers: "[O]ften in [these] contexts, the licensees have an incentive to pass along higher costs to the ultimate consumers who purchase the products."  It is arguable that without the impact downstream, there could be no liability under this provision, but that is not expressly stated by the FTC.  At a minimum, this opinion demonstrates that corporations and downstream consumers are both of concern, at least in the "hold-up" context.

Going forward, practitioners will be looking to the FTC to see the application of Section 5 in future cases, in light of the apparently broad new interpretation and the 3-2 decision split.  Practitioners will also look to see if companies will start to be prosecuted under the consumer protection provisions of the Act.  Until more cases appear, businesses involved with SSOs should be even more cautious and candid in negotiations with SSOs.  These businesses must also be extremely careful ex ante as well, because it appears there are new ways to be found liable under Section 5 of the FTC Act, well beyond any liability under the Sherman Act and Clayton Act.  The working assumption must be that disputes arising from agreements with SSO's concerning future licensing will result not just in breach of contract or patent infringement litigation, but unfair competition and consumer protection exposure as well.

Authored by:

David R. Garcia

310.228.3747

dgarcia@sheppardmullin.com

and

Angela J. Clifford

213.617.4218

aclifford@sheppardmullin.com

In one of the first cases to apply the U.S. Supreme Court's opinion in Credit Suisse Securities (USA) v. Billing, 127 S.Ct. 2383 (2007), a New York District Court found  "clear incompatibility" between federal securities and antitrust laws and dismissed allegations that brokerage firms fixed prices charged to short sellers.  In re Short Sale Antitrust Litig., 2007 U.S. Dist. LEXIS 94116 (S.D.N.Y. Dec. 20, 2007).

If plaintiff Electronic Trading Group LLC ("ETG") were allowed to pursue its price-fixing claim against major brokerages, U.S. District Court Judge Victor Marrero wrote, a lay jury might mistake lawful conduct authorized by the securities laws for a conspiracy.  "Such antitrust suits would likely chill a broad range of activities that the securities laws permit and encourage, and would likely inhibit the short selling activity that provides market liquidity and pricing efficiency."  Id. at *18.

ETG sought to represent a class of short sellers.  In a typical short-sale transaction, a seller, anticipating that a security's price will decline, borrows the security from a broker and sells it on the open market.  Later, the seller buys the same security on the market and returns it to the broker, reaping any decline in price as profit.  Id. at *2 to *3.

Brokers charge short-sellers a fee for locating securities available for borrowing.  They also charge a fee for each day the short seller borrows the security.  If a security is classified as "hard-to-borrow," the borrowing fee may be higher.  Id. at *3 to *4.

ETG alleged that defendants violated Sherman Act Section One by agreeing which securities to classify as hard-to-borrow, and fixing minimum daily borrowing rates.  ETG also claimed that defendants charged improper fees for locating securities, when often the brokerages did not locate or transfer securities at all, but instead maintained running IOU tallies between themselves.  ETG claimed the defendants communicated daily by email, telephone and fax to effectuate the conspiracy.

Defendants, relying on Credit Suisse, argued that securities laws implicitly preclude application of the antitrust laws to such alleged conduct.  Under Credit Suisse, securities laws impliedly preclude antitrust claims when the two regimes are "clearly incompatible."  Credit Suisse, 127 S.Ct. at 2392.  The High Court provided four factors to determine when securities and antitrust laws are incompatible: (1) the conduct alleged is squarely within the "heartland" of financial activity that securities laws seek to regulate; (2) the conduct is within SEC's regulatory authority; (3) the existence of "active and ongoing agency regulation"; and (4) a likelihood of "a serious conflict between the antitrust and regulatory regimes."  Id. at 2397.

Short Sale court found the first three factors easily satisfied.  Short sales are "essential to the proper functioning of well-regulated capital markets," the court found.  Short Sale at *12 to *13 (quoting Credit Suisse, 127 S.Ct. at 2392).  The SEC has regulatory authority over such transactions and regularly exercises that authority.  Id. at *13 to *14.  In addition, the National Association of Securities Dealers and the New York Stock Exchange also actively enforce short-sale regulations, the court found.  Id. at *15.

The court engaged in a more expansive analysis of the fourth factor: the existence of a "serious conflict" between the antitrust and regulatory regimes.  Id. at *16.  The "question now before this Court is, assuming that the SEC disapproves of (and will continue to disapprove of) the conduct at issue, whether 'allow[ing] an antitrust lawsuit would threaten serious harm to the efficient functioning of the securities market.'"  Id. at *16 (quoting Credit Suisse, 127 S.Ct. at 2396).

The Short Sale court found such a threat.  A fine line separates conduct encouraged by the SEC from forbidden conduct, the court said.  Brokers need to exchange information about availability and price of securities in order to execute short sales, the court said, and SEC regulations implicitly allow this exchange.  Id. at *17.  A nonexpert jury might mistake this lawful exchange of information for a conspiracy, the court said.  Antitrust claims like those presented in the instant suit would deter brokerages from engaging in lawful conduct necessary for an efficient securities market.  Id. at *18.

Similarly, the court found a conflict between securities laws and ETG's claim that defendants conspired to tolerate the non-delivery of securities during short-sale transactions.  In some cases, the court said, the SEC has elected not to require broker-dealers that fail to deliver securities to "buy-in" the other party to the transaction.  Id. at *18.

"Allowing ETG to use the antitrust laws to attack Defendants' alleged decisions not to force buy-ins would impose de facto delivery requirements in spite of the SEC's reluctance to impose such blanket requirements," the court said.  Id. at *19.

The court, therefore, found that the securities and antitrust laws governing short sales were incompatible, and dismissed ETG's antitrust claim.  The court then dismissed state common-law claims (for breach of fiduciary duty, aiding and abetting such a breach, and unjust enrichment) on jurisdictional grounds.  Id. at *22.

Authored by:

Tyler M. Cunningham

415.774.3208

tcunningham@sheppardmullin.com

Dudley v. Aspen Realty, Inc., D. Idaho, Case No. CV-04-121-S-BLW, 11/30/07

Defendants were realtors in Boise, Idaho.  The realtors based their commission charges on the price of both an undeveloped lot, and the price of the home to be built on the lot at a subsequent time.  The plaintiffs, purchasers of undeveloped lots, brought an action under the federal antitrust laws alleging an illegal tie between the commission charged for the sale of the undeveloped lot, and the commission charged on the home which would be built on the lot.  The trial court granted motions for summary judgment, based upon the court's finding that there was no claim, as the degree of foreclosure was "zero".  Under no set of facts, would any of the plaintiffs have purchased the alleged tied product, namely commissions to be paid on a home to be located on the undeveloped lot, from any other seller.  This being the case, there was zero foreclosure, and zero claim.  Dudley v. Aspen Realty, Inc., D. Idaho, Case No. CV-04-121-S-BLW, 11/30/07.

In each of four consolidated cases, the defendant realtor had an exclusive arrangement with the developer of the subdivision.  It provided that each plaintiff allegedly could buy an undeveloped lot if, but only if, he or she agreed to build a house on the lot, and further, agreed to pay a commission based upon not only the price of the undeveloped lot, but the actual or estimated cost of the house.  The plaintiffs argue that they were damaged in their business or property in that in each case, they paid more commission than they would have paid had the commission price been based solely on the price of the undeveloped lot.

In granting summary judgment, the court began its analysis by noting that an essential element of a tying claim is that the challenged practice "affects of not insubstantial volume of commerce in the tied product market".  The court reasoned that there must be a not "insubstantial volume of commerce," that has an effect on the tied product market.  This implies that there must be actual foreclosure to a defendant's competitors.  The defendant's competitors are foreclosed in that they lose opportunities to make sales within the relevant tied product market.  Plaintiff purchasers under the alleged tying arrangement are injured in their business or property in that they are required to buy a product that they would otherwise not wish to buy, or would only wish to buy from a defendants competitors.[1]

In granting summary judgment, the court adopted the reasoning of Professor Areeda, and his analysis that:

"When all buyers are forced to take a tied product they do not want and would not have purchased elsewhere, tied-market foreclosure is zero and thus does not satisfy even the minimal requirements for per se illegality."[2]

Professor Areeda terms this "zero foreclosure".  In adopting Professor Areeda's analysis, the court noted that where no purchaser would have otherwise purchased the tied product, even from a competitor of the defendant, there can be no adverse impact on competition, as no portion of the market which would otherwise have been available to other sellers has been foreclosed.

The court notes that Professor Areeda's discussion of zero foreclosure is based upon the United States Supreme Court's decision in Jefferson Parish Hosp. Dist. No. 2 v. Hyde.[3]The court notes that there is an inconsistency in Jefferson Parish in that "at first blush" Professor Areeda's reliance "seems misplaced".  The court notes that Jefferson Parish tells us that an essential characteristic of a tying arrangement is that a buyer is coerced into taking a product "the buyer either did not want at all or might have preferred to purchase elsewhere on different terms".[4]The Supreme Court thus has suggested both that a tying claim may lie when the tied product is wholly unwanted, and has also suggested that there could be no such claim because there can be no adverse impact on competition in the market for the tied product.

In parsing this seeming inconsistency, the court notes that the question "is not whether plaintiffs had standing to bring their tying claims", but rather whether the tie, and allegedly forcing plaintiffs to buy plaintiff's real estate services based upon the value of a home to be later erected on the unfinished lot, foreclosed other realtors from selling that same product.[5]Citing Paladin Associates, Inc. v. Montana Power Co.[6], the court notes that where there is "zero foreclosure", there is zero tying claim.  This is because there cannot be any adverse affect on competition.[7]The defendants met their summary judgment burden in demonstrating that as a matter of law, no one would have paid a commission on the hypothetical house.  As the commission services could never have been earned from any source, there could not be any foreclosure, and thus no impact on a cognizable relevant market.  Thus, the court resolved the seeming inconsistency within the language of Jefferson Parish, and as Professor Areeda opined, there was "zero foreclosure".

Authored by:

Don T. Hibner, Jr.

213.617.4115

dhibner@sheppardmullin.com

In a Fourth Circuit opinion, the court upheld the standing to sue of a plaintiff (former owner of WordPerfect) assertedly injured by defendant as a means to inflict harm to competition in the defendant's market (operating systems) even though plaintiff did not participate in defendant's market.  The court also rejected defendant's proposed bright-line rule that only consumers or competitors in the relevant market have standing to sue.  Novell, Incorporated v. Microsoft Corporation, 505 F.3d 302 (4^th Cir. 2007).

In a Second Circuit opinion, defendant manufacturer allegedly had acquired its only manufacturing rival; refused to continue to sell to plaintiff distributor; and integrated vertically to the distribution level.   The court held that the terminated distributor lacked standing to sue for monopolization at the manufacturing level.  The court also ruled that the distributor had failed to state a claim as defendant's competitor at the distribution level, holding that plaintiff had pleaded no facts, as implicitly required by Twombly, that took defendant's vertical integration out of the lawful category.  Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117 (2d Cir. 2007).

Fourth Circuit

In Novell, Incorporated v. Microsoft Corporation, 505 F.3d 302 (4^th Cir. 2007), plaintiff Novell had owned WordPerfect and Quattro Pro, referred to as "office-productivity applications" or "applications."  Novell alleged that defendant Microsoft's conduct "injured competition in the market for PC operating systems, a market in which Novell's products did not directly compete."  Novell, at 304.[1]

Microsoft assertedly took a number of steps to prevent or limit plaintiff's application from remaining viable for use with the operating systems of others and of Microsoft.  Plaintiff alleged that this injured competition in the operating systems market because its application "offered competing operating systems the prospect of surmounting the applications barrier to entry and breaking the Windows monopoly."  Novell, at 308 (footnote omitted).  Plaintiff cited an email by a senior Microsoft official who allegedly described the applications barrier to entry as a "'moat' that protects the operating systems business."  Novell, at 317.

Microsoft brought a motion to dismiss, asserting that plaintiff lacked antitrust standing.  First, it argued that plaintiff lacked standing under defendant's proposed "bright-line rule that only consumers and competitors in the relevant market have standing to bring private treble-damages claims under § 4."  Novell, at 311.  The Novell court rejected defendant's proposal, stating that it is virtually impossible to announce a black-letter rule that will dictate the result in every case.  Citing, e.g., Assoc. Gen Contractors v. Cal. State Council of Carpenters, 459 U.S. 519, 536 (1983), and Blue Shield v. McCready, 457 U.S. 465, 479 (1982).

The allegations that Microsoft injured Novell in order to maintain an alleged applications barrier to entry in the PC operating system were, in the court's view, sufficient to confer standing.  The court found that Novell's injury was sufficiently direct, and that issues regarding identifying and apportioning damages did not preclude standing.

Second Circuit

The Second Circuit Court of Appeals held that a terminated distributor (1) lacked antitrust injury and (2) failed to state a claim when suing its former supplier under Section 2 of the Sherman Act and Section 7 of the Clayton Act.  Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117 (2d Cir. 2007).  Plaintiff was a former aggregate (crushed stone) distributor.   Defendant, plaintiff's former supplier, was a manufacturer of aggregate.

Defendant allegedly acquired its only significant manufacturing competitor and refused to sell to plaintiff, thereby depriving plaintiff of any source of supply.  Defendant integrated vertically into the distribution market.  Plaintiff claimed that it was forced to sell its assets to defendant at a sacrifice.

Plaintiff contended that it had standing as both a customer and a competitor of defendant.  The court first affirmed the dismissal of plaintiff's claim as a customer for lack of any antitrust injury.  The court held that where "a defendant is alleged to have acquired other firms in order to achieve monopoly power at the manufacturing level of a product market, dealers and distributors terminated in the aftermath do not have standing to assert claims under section 2 of the Sherman Act or Section 7 of the Clayton Act for monopolization at the manufacturing level."  Port Dock, at 123.

The court then turned to plaintiff's claim that defendant had monopolized the distribution level by vertically expanding into that level and refusing to deal with plaintiff.  The court affirmed the district court's dismissal for failure to state a claim, stating that, "Vertical expansion by a monopolist, without more, does not violate section 2 of the Sherman Act."  Port Dock, at 124.  "[V]ertical expansion into another level of the same product market will ordinarily be for the purpose of increasing its efficiency, which is a prototypical valid business purpose."  Port Dock, at 124.

Because the court viewed the alleged activity to be presumptively lawful, it held that plaintiff had failed to meet the pleading test required by Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1966 (2007).   Plaintiff had failed to allege that defendant had engaged in anticompetitive conduct that would remove defendant's vertical integration from the lawful category.  Port Dock, at 125 ("it was incumbent upon [plaintiff] to plead further facts 'plausibly suggesting' an anticompetitive aspect to the refusal to deal").

Authored by:

Thomas D. Nevins

415.774.3284

tnevins@sheppardmullin.com

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 imposes premerger notification and waiting period obligations on transactions over a certain size, where the parties are over a certain size, before those transactions may be completed.  Each "person" who is a party to an HSR-reportable deal must file an HSR notification with the DOJ and the Federal Trade Commission.  On January 28, 2008, the Federal Trade Commission published revised thresholds for premerger filings under the HSR Act.  The new thresholds go into effect February 28, 2008.  Acquisitions that have not closed by that date will be subject to the new  thresholds.  The Act requires all persons contemplating certain mergers or acquisitions meeting the jurisdictional thresholds in the Act to file notification with the FTC and the Department of Justice's Antitrust Division.  Filing persons must wait a designated period of time, usually 30 days, before completing their transactions.

The filing thresholds are revised annually, based on gross national product.  The thresholds include a size of transaction test and a size of person test.  The size of transaction test includes the value of the assets, stock or noncorporate interests (such as partnership or membership interests) being acquired in the deal, and the value of assets, voting securities or noncorporate interests of the target that the acquiring person already holds.  In asset deals, the value of the assets is either the acquisition price or the fair market value of the assets, whichever is higher.  In stock deals, the value of the stock is determined by the acquisition price or market price, whichever is higher.  The size of person test measures the size of the “ultimate parent entity” of the buyer and seller.  The "ultimate parent entity" is an entity or natural person that controls the buyer or seller and is not itself controlled by anyone else, e.g., the entity or natural person that has 50% or more of the voting securities of the buyer or seller.[1]

The new thresholds are:

While the filing thresholds have changed, the filing fees have not.  If the value of the transaction is more than $63.1 million but less than $126.2 million, the filing fee is $45,000.  The filing fee is $125,000 if the value of the transaction is $126.2 million or more but less than $630.8 million.  If the value of the transactions is $630.8 million or more, the filing fee is $280,000. 

The above rules are general guidelines only and their application may vary depending on the particular transaction.

Authored by:

Heather Cooper

213.617.5457

hcooper@sheppardmullin.com

On January 11, the newly elected Australian Labor government issued draft legislation to criminalize "serious cartel conduct".  Acting on a November 2007 election promise to introduce criminal penalties for cartel conduct within the first 12 months of gaining office, the new Government issued a Discussion Paper, and is seeking public comment on two principal issues: (i) how to distinguish the proposed criminal prohibitions from civil prohibitions; and (ii) whether telephone interception powers should be available to the Australian Competition and Consumer Commission (ACCC) in relation to the new criminal cartel offences.  The draft legislation would create criminal offences for making, or giving effect to, a contract, arrangement or understanding (CAU) that contains a cartel provision "with the intention of dishonestly obtaining a benefit".  A cartel provision is defined in the draft legislation as a provision of a CAU that relates to: price- fixing; restricting outputs in the production and supply chain; allocating customers, suppliers or territories; or bid-rigging by parties "that are or otherwise would be in competition with each other".  The draft legislation also proposes jail terms of up to five years, and fines of AUS$220,000 for corporate executives found guilty of engaging in cartel conduct.  Companies face exposure to fines of at least AUS$10 million. The draft legislation also creates new civil cartel offences which parallel the criminal cartel offences.  These civil offences do not require proof of "dishonest intent".

On January 23, the European Commission announced fines totaling €34.2 million on the Bayer and Zeon groups of companies for infringing Article 81(1) of the EC Treaty by participating in an alleged price-fixing cartel in the nitrile butadiene rubber (NBR) market.  NBR is a type of synthetic rubber widely used in car manufacturing for fuel and oil handling hoses, seals, o-rings and water handling applications.  In March 2003, the Commission conducted unannounced inspections at the premises of NBR producers, following the receipt of an application for leniency by an unnamed third party.  The Commission alleged that, at least between late 2000 and 2002, Bayer and Zeon operated a cartel to fix prices of NBR.  In particular, the EC alleged that the companies held regular meetings to both discuss prices and co-ordinate price increases, to exchange sensitive commercial information, and to follow up the implementation of their agreements.  The Commission alleged that each of the companies involved infringed Article 81(1) of the EC Treaty, and imposed the following fines on the infringing companies: Bayer - €28.87 million with the benefit of a 30% reduction under the Leniency Notice, but also with a subsequent 50% increase for recidivism; and Zeon - €5.36 million with the benefit of a 20% reduction under the Leniency Notice, and a further reduction for being the first to disclose the first period of the cartel to the Commission.  The Commission noted the co-operation of both Bayer and Zeon in the investigation, but also the fact that it increased the fine imposed on Bayer as a repeat offender.  This increase, however, was limited to 50%, although the fining guidelines do allow for an increase of up to 100% for each prior infringement.  The Commission considered that as the several infringements by Bayer took place over a similar period of time they were parallel infringements and a 50% increase was sufficient.

On January 9, the UK Consumers' Association – Which? - announced that it had reached an agreement with JJB Sports plc (JJB) to settle the damages action brought by it under section 47B of the Competition Act 1998 on behalf of a number of individual consumers.  Which? brought this action in March 2007 after JJB was refused leave by the House of Lords to appeal the Court of Appeal's judgment upholding the Competition Appeal Tribunal's ("CAT") judgments relating to JJB's infringement of the Chapter I prohibition, by allegedly fixing the prices of replica England and Manchester United football kits, and confirming a fine of £6.7 million.  The CAT had adjourned the first case management conference in the action whilst settlement negotiations continued.  This is the first and only consumer damages action brought so far under section 47B of the Competition Act.  Under the settlement agreement, customers who joined the damages action and who purchased England and Manchester United football shirts during specific periods in 2000 or 2001 will receive a payment of £20 each.  In addition, consumers who did not join the action will be entitled to claim either £5 or £10 if they provide proof of purchase of one of the affected shirts or the shirt itself at a JJB store before 5 February 2009.  JJB has stated that it does not, in settling the action, acknowledge or admit that any consumers suffered loss giving rise to an action for damages as a result of its words, actions, or behavior.

On January 25, details were published of an appeal lodged by Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd with the European Court of Justice (ECJ) against a Court of First Instance (CFI) judgment upholding a decision of the European Commission that documents seized during a Commission investigation were not covered by legal professional privilege.  On September 17, 2007, the CFI upheld the Commission's decision that documents seized during its investigation were not covered by legal professional privilege.  Although the CFI acknowledged that preparatory documents could be privileged, the main purpose of such documents had to be to seek external legal advice.  This was not the position in relation to the documents in this case. Further, the CFI concluded that the concept of independence meant that privilege would not cover advice from a lawyer in a relationship of employment with its clients.  The CFI was not persuaded that the concept should be extended so that advice from in-house legal advisers was covered by legal professional privilege.  The CFI, therefore, confirmed that communications between in-house counsel and internal clients are not privileged in relation to Commission competition investigations.  Akzo Noble and Akcros Chemicals have brought an appeal against the CFI's judgment, seeking orders that the CFI's judgment be set aside insofar as it rejected the claim of legal professional privilege for communications with Akzo Nobel's in-house lawyer and that the Commission's May 2003 decision be annulled.  Akzo Noble and Akcros Chemicals argue that the CFI (i) breached the principle of proportionality by incorrectly interpreting the principle of legal professional privilege as explained in AM & S v Commission (Case 155/79 [1982] ECR 1575); (ii) infringed the general principles of protection of the rights of defense and of legal certainty by refusing to reinterpret the principle of legal professional privilege in view of the significant developments in the legal landscape; and (iii) infringed Article 5 of the EC Treaty (principle of attribution of competence) and the principle of national procedural autonomy.

On February 4, the Organization for Economic Co-operation and Development (OECD) published a paper which summarized the outcome of discussions on issues connected with the private enforcement of competition cases.  Between October 2004 and June 2006, the OECD Competition Committee held a series of roundtable discussions on issues connected with private enforcement of competition cases.  The OECD's paper draws together the outcome of each of these discussions.  In particular, the paper contains submissions by member countries, papers prepared by experts and a summary of each of the discussions.  Although the discussions took place in the context of the ongoing consideration of the issue of private enforcement by the European Commission, the discussions considered the experience of private enforcement in countries such as Australia and Canada, as well as the US.  No agreed "best practices" on private enforcement were established as a result of the discussions.  Rather, a range of views were heard and general consideration was given to the challenges that face each jurisdiction in designing private enforcement rules that move a competition regime towards optimal enforcement, seek to maximize deterrence, but which avoid excessive costs and burdens.   These discussions are of interest given the European Commission's work in this area, and its much anticipated White Paper on private actions, which it is due early in 2008.

On January 16, the Bulgarian Commission for Protection of Competition (CPC) fined 13 manufacturers of vegetable cooking oil and their industry association (the Union of the Manufacturers of Vegetable Oils and Oil Products in Bulgaria (UMVOOPB)) for participating in an alleged cartel. The total amount of the fines imposed exceeded 1.86 million Bulgarian levs or almost €1 million.  The CPC alleged that during the UMVOOPB management board meetings, for the period 2006-2007, the members of the cartel colluded to fix the purchase price of their main raw material (sunflower seeds) and the selling price of their end product (sunflower cooking oil).  Further, the CPC alleged that the manufacturers also exchanged other sensitive commercial and sales data, enabling them to co-ordinate their market behavior.  For their role in the price-fixing scheme, the competition authority imposed on the three largest manufacturers in the country fines of BGN300,000 (approximately €153,000), which is the maximum fine currently allowed under Bulgarian competition law.  The fines followed the CPC's dawn-raids at the end of September and the first half of October 2007 in the offices of several industry associations, including the UMVOOPB.

On December 26, the Office of Economic Law of the Brazilian Ministry of Justice (SDE) and the Brazilian Federal Police entered into a cooperation agreement with respect to the investigation, and prosecution of alleged cartels.  During the past few years, the Brazilian antitrust authorities have been increasingly taking action against cartels.  In 2007, the SDE conducted 84 dawn raids in connection with alleged cartel infringements.  The SDE and the Federal Police also recently announced they intend to create a single investigatory team to co-ordinate the exchange of information and documents.  They will also coordinate their investigations by harmonizing their searches of documents such as electronic records, and create individual task forces for specific cases.

On January 18, Slovakia's Anti-monopoly Office fined 16 companies from seven countries a total of SKK 350 million (€10.3 million), in the first ever application of the office's leniency program.  The fines ranging from SKK10 million (€295,000) to SKK50 million (€1.47 million), were imposed in respect to an alleged illegal agreement between suppliers of gas-insulated switchgear that lasted from 1988 to 2004.  ABB, a Swiss producer of the gear, was granted immunity from fines by cooperating with the Slovak authorities under the terms of its leniency program.  Switchgear is used to protect and isolate electrical equipment in power grids.   The decision follows a similar ruling the European Commission in which fines of over €750 million were imposed.  However, the EC's decision related only to the 15 European Union member states between 1988 and 2004, and there was still a case to answer in Slovakia who joined the EU in 2004.

On January 21, Egypt's attorney general ordered 20 cement company officials to appear at the criminal court in Nasr City on alleged cartel charges after an investigation into the companies by Egypt's Competition Commission found evidence of alleged price-fixing and collusion to restrict the marketing of certain products.  The Egyptian courts can impose fines ranging from 30,000 to 10 million Egyptian pounds (€1.2 million) but cannot impose any custodial sentences.  Last November, the Egyptian trade and industry minister, Mohamed Rachid, announced plans to amend the country's antitrust law.  He said current fines and sanctions were not high enough, and that the country's existing antitrust rules, established in 2005, had become redundant.  Mona Yassine, chairperson of the commission, welcomed the attorney general's decision: "The authority is trying by all possible means to stop any anti-competitive practices, and to create a competitive environment to attract investment and to achieve consumer welfare".

On December 18, the lower house of the Chilean Congress approved and passed to the Senate a bill that reforms the Anti-trust Law.  The draft bill mainly consists of an increase in the investigatory powers of the National Economic Prosecutor's Office; the introduction of a leniency statute; the increase of the amount of fines that the Antitrust Court can impose; and, regulations dealing with the membership of the Antitrust Court.

Authored by:

Neil Ray

415.774.3269

nray@sheppardmullin.com