• On December 22, the Antitrust Division announced that it will require the holding companies for AMC Entertainment and Loews Cineplex Entertainment, to divest certain movie theater assets in order to proceed with their proposed multi-billion dollar transaction. Allegedly, the transaction, as originally proposed, would have eliminated head-to-head competition between AMC and Loews, which would have likely resulted in higher prices for tickets to first-run, commercial movies in portions of five cities including Boston, Chicago, Dallas, New York, and Seattle. Under the terms of the consent decree, AMC and Loews must divest the following movie theaters: the Webster Place 11 and City North 14 theaters in Chicago; the E-Walk 13 theater in New York; the Fenway 13 theater in Boston; the Meridian 16 theater in Seattle; and the Keystone Park 16 in Dallas. In addition, the newly formed AMC/Loews company must inform the Division if it proposes to acquire movie theater assets in those markets over the next 10 years.

• On December 20, the Antitrust Division announced that it will require UnitedHealth Group Inc. and PacifiCare Health Systems Inc. to divest portions of PacifiCare's commercial health insurance business in Tucson, Arizona and Boulder, Colorado in order to proceed with their deal. The Department will also require United to modify and, after one year, terminate its network access agreement with Blue Shield of California. The Antitrust Division defined a fairly narrow product market in its complaint. According to the complaint, United and PacifiCare are two of the three largest health plans in Tucson selling commercial health insurance to small-group employers, those with between two and 50 employees. The Antitrust Division alleged that without the divestitures, the transaction would eliminate competition between these two health insurers and likely would enable United to raise prices and reduce the quality of commercial health insurance plans to small-group employers in Tucson. Under the proposed consent decree United must divest all of PacifiCare's small-group business in the Tucson area to a purchaser that will remain a viable competitor in the market. The other issue brought up in the complaint is that the acquisition allegedly would have given United the ability to lower the reimbursement rates of physicians in the Tucson and Boulder areas. To address those concerns, the proposed consent decree requires United to divest a percentage of PacifiCare's membership in those markets to a viable competitor. Finally, for the past five years United has rented the provider network of CareTrust Networks, a wholly owned subsidiary of Blue Shield of California. Under the network access agreement governing that relationship, United has access to certain Blue Shield information and the ability to confer with Blue Shield about United's product development in California. PacifiCare and Blue Shield of California are competitors, both for the sale of commercial health insurance and for the purchase of physician and hospital services. After United's acquisition of PacifiCare's business in California, United will be a principal competitor to Blue Shield. The Antitrust Division believed that continuing this close relationship after the merger would give United and Blue Shield opportunities and incentives to coordinate their competitive activities and could reduce competition between them in the future. Therefore, the proposed consent decree prohibits United from continuing to exchange certain information with Blue Shield and requires United to terminate its rental agreement with Blue Shield within one year.

• On December 8, the Antitrust Division announced in a business review letter that it will not challenge the creation of a free edition of the Denver Post and the handling of that edition's non-reportorial and non-editorial business operations under an existing newspaper joint operating agreement ("JOA"). Two daily Denver newspapers, MediaNews Group Inc.'s Denver Post and the E.W. Scripps Co.'s Rocky Mountain News, participate in a JOA organized as the Denver Newspaper Agency. In January of 2001, the Attorney General approved the JOA under the Newspaper Preservation Act. The Act provides limited antitrust immunity for certain joint actions that might otherwise violate the federal antitrust laws. When parties to a JOA created under the Newspaper Preservation Act extend their joint activity beyond what was approved by the Attorney General, the new activity is evaluated under usual antitrust principles applied to joint ventures. Therefore, MediaNews, Scripps, and the Denver Newspaper Agency requested that the Division issue a business review letter expressing its enforcement intentions if the Denver Post created a new free edition.

Authored by:
Andre P. Barlow
202-218-0026
abarlow@sheppardmullin.com

• On December 27, the Commission approved the issuance of a final consent order in the matter concerning Johnson & Johnson's acquisition of Guidant Corporation, along with the transmittal of a letter to Medtronic Vascular, Inc. ("Medtronic"), the commenter of record. The Commission vote approving the final order and letter was 2-0, with Chairman Deborah Platt Majoras and Commissioner Pamela Jones Harbour recused. Medtronic sought certain modifications of the proposed settlement which were denied by the Commission.

• On December 22, Thomas B. Leary announced that he will resign his position as Commissioner of the Federal Trade Commission, effective December 31, 2005. Commissioner Leary, a Republican, was nominated by President Clinton, and served for over six years.

• On December 20, the Federal Trade Commission Chairman Deborah Platt Majoras announced that Susan Creighton, director of the Bureau of Competition for the past two-and-a-half years, will leave the FTC. The Chairman also announced that Jeffrey Schmidt, currently a deputy director in the Bureau, has been named director. Creighton joined the Commission in August 2001 as deputy bureau director, and was named director in July 2003. Schmidt has served as a deputy director of the Bureau of Competition since February 2005.

• On December 17, the United States Senate confirmed William E. Kovacic and J. Thomas Rosch to serve as Commissioners of the Federal Trade Commission in Washington, DC. It is anticipated that Kovacic, who will fill a seat vacated in June by Commissioner Orson Swindle, and Rosch, who will replace Commissioner Thomas B. Leary, will formally be sworn in at the Commission in January.

• On December 16, the Commission approved the filing of comments by the staffs of the Bureau of Competition, the Bureau of Economics, and the Office of Policy Planning with Rep. Bill Seitz of the Ohio House of Representatives concerning Ohio House Bill 306 (HB 306). According to the comments, HB 306, which would amend the operation of wine wholesale franchises in Ohio by, among other things, eliminating the current minimum markup on wine at the wholesale level, is likely to lead to lower wine prices for Ohio consumers and may increase the variety of wines from which the state's consumers can choose. Specifically, the comments state that HB 306 would increase wholesalers' incentives to lower wholesale prices and to undertake efforts to increase the demand for wine suppliers' brands, thereby likely decreasing the costs of wine distribution and increasing competition among both suppliers and wholesalers. The Commission vote approving issuance of the staff comments was 4-0.

• On December 16, following a public comment period, the Commission approved a petition for proposed divestiture from Procter & Gamble Company ("P&G") and Gillette Co. ("Gillette"). The Commission's consent order allowing P&G's acquisition of Gillette required the companies to divest certain assets after the transaction was consummated. In the petition, which was announced on November 8, 2005, the companies requested FTC approval to sell Gillette's Rembrandt toothpaste and tooth whitening business to Johnson & Johnson. That request has now been approved by a vote of 2-0, with Chairman Deborah Platt Majoras and Commissioner Pamela Jones Harbour recused.

• On December 16, following a public comment period, the Commission also approved a modified final consent order in the matter concerning Procter & Gamble Company's ("P&G") recent acquisition of Gillette Co. ("Gillette"). The final order approved by the Commission has been modified in two ways. First, it includes a revised agreement in Non-Public Appendix II, concerning the SpinBrush Asset Purchase Agreement. Second, at the request of P&G, Paragraph III.A. has been changed to require divestiture of the SpinBrush Assets not later than 15 days (instead of 10 days) after the European Commission's approval of the transaction. The Commission vote approving the modified final order was 2-0, with Chairman Deborah Platt Majoras and Commissioner Pamela Jones Harbour recused.

• On December 6, the Commission approved the publication of a Federal Register notice concerning final amendments to the Hart-Scott-Rodino ("HSR") Rules, 16 C.F.R. Parts 801 and 803. As detailed in the notice, the Commission is enacting a change to relieve the burden of complying with Items 4(a) and (b) of the Notification and Report Form. Currently, paper copies of annual reports, annual audit reports, and regularly prepared balance sheets and copies of certain documents, such as 10Ks filed with the Securities and Exchange Commission, must be provided in response to these Items. The modification will allow filing persons to provide an Internet address linking directly to the documents required by Items 4(a) and (b) in lieu of providing paper copies.

  The second amendment to the rules will specify that an acquiring person's notification, and an acquired person's notification in certain types of transactions, will expire after eighteen months if a second request to them remains outstanding. In addition, the Commission is making technical corrections to certain rules and to the form and instructions to address certain oversights in the final rules promulgated in connection with the treatment of unincorporated entities.

  The rulemaking has been drafted jointly with staff of the U.S. Department of Justice's Antitrust Division, and reflects their views as well as those of the staff of the FTC's Premerger Notification Office. The Commission vote approving publication of the Federal Register notice was 4-0.

• On December 2, the Commission announced it had authorized the filing of an amicus brief in In re Tamoxifen Citrate Antitrust Litigation, a case pending before the U.S. Court of Appeals for the Second Circuit. The case concerns a decision by a divided panel of the Appeals Court upholding the dismissal of an antitrust challenge to a patent litigation settlement between AstraZeneca, the manufacturer of tamoxifen citrate, the most widely prescribed drug for breast cancer treatment, and Barr Labs., a U.S. Food and Drug Administration applicant for a generic counterpart.

  According to the FTC's brief, the Appeals Court should rehear the case to correct its previous decision. The brief argues that the Appeals Court's panel did not properly consider the Hatch-Waxman Act, which encourages challenges to pharmaceutical patents to facilitate the early entry of generic drugs into the market. In addition, the brief states that the Appeals Court's decision, if not corrected, would permit the holder of a challenged drug patent to harm competition, and thus consumers, by unjustifiably paying a would-be generic rival to stay off the market. The Commission vote authorizing the amicus brief was 4-0.

• On December 2, the Commission announced it had issued a study entitled Report on Ethanol Market Concentration" that examines the current state of ethanol production in the United States and measures market concentration using capacity and production data. The study considers the possible effect on market concentration of marketing agreements between ethanol producers and ethanol marketers. The study concludes that U.S. ethanol production is not unduly concentrated and that existing concentration levels do not justify a presumption that one firm, or a small group of firms, could wield the market power necessary to coordinate on prices or output.

  The study also concludes that the likelihood of anticompetitive conduct is even lower than the production concentration levels might suggest because significant new entry in ethanol production and marketing will occur in the next year and is expected to continue for several more years. Furthermore, the likelihood of anticompetitive behavior would be even lower if ethanol is considered part of a larger antitrust product market that includes gasoline or certain gasoline blendstocks. The study, which is available now on the Commission's Web site and as a link to this press release, was submitted to Congress and the Administrator of the U.S. Environmental Protection Agency, as required by Section 1501(a)(2) of the Energy Policy Act of 2005, as codified at 42 U.S.C. Sec. 7545(o)(10). Similar studies will be produced annually. The Commission vote to issue the study, which was prepared by the staff of the Bureaus of Competition and Economics, was 4-0.

• On December 1, the Commission released its unanimous administrative opinion and order in the matter of North Texas Speciality Physicians ("NTSP"). The Commission ruled that NTSP, an association of independent physicians in the Forth Worth, Texas area, illegally fixed prices in its negotiations with payors, including insurance companies and health plans. The Commission opinion, authored by Commissioner Thomas B. Leary, affirmed a November 2004 ruling by Administrative Law Judge (ALJ) D. Michael Chappell, with some modifications, and issued an order that requires the respondent association to cease and desist from the illegal conduct and to terminate pre-existing contracts with payors for physician services. The Commission concluded that NTSP's contracting activities with payors "amount[s] to unlawful horizontal price fixing". The opinion states that, through a variety of mechanisms, NTSP was able to orchestrate price agreements among its physicians. The evidence in the case, the Commission found, "shows not only negotiation activity in aid of a collective agreement on a minimum fee schedule, but also specific enforcement mechanisms - such as the powers of attorney and collective withdrawal from payor networks - in order to coerce agreement from payers". These actions, when viewed as a whole, the Commission wrote, "leave no doubt that the overriding purpose behind NTSP's conduct was to fix prices".

• The Commission specifically addressed RTSP's claims on appeal and found that: (1) the FTC does have jurisdictional authority to review alleged anticompetitive conduct by NTSP, because it is a corporation that is "organized to carry on business for its own profit and that of its members"; (2) NTSP's argument that its physicians are not "members" under Texas law is invalid because it "elevates form over substance"; (3) NTSP satisfies the interstate commerce jurisdictional requirement, because its actions to maintain fee levels, if successful, could be expected to affect the flow of interstate payments from out-of-state payors to NTSP physicians; (4) NTSP is not a "sole actor" when it negotiates on behalf of the competing physicians who control it, but rather, under antitrust law, is the agent for the group, and thus, the member physicians conspired to fix prices even though they did not communicate directly with one another; and (5) NTSP's claims of teamwork, spillover, and other efficiencies were not legitimate and not supported by the evidence.

Authored by:
Robert W. Doyle, Jr.
202-218-0030
rdoyle@sheppardmullin.com

• Relief defendant Pamela Pukke, the estranged wife of AmeriDebt, Inc. founder Andris Pukke, agreed to forfeit all rights to assets currently held in receivership and will cooperate with the Federal Trade Commission ("FTC") in its continuing case against her husband and his company, DebtWorks, Inc., under the terms of a court settlement filed and announced on December 30. In addition, she will give up her ownership interest in two homes the Pukkes own in Maryland and Florida and will be subject to a $4 million judgment if she is found to have misrepresented her financial condition. The FTC alleged that she received significant assets - as much as $4 million - from AmeriDebt's deceptive operations, but did not actively participate in or control the defendants' deceptive debt-management scheme. The money collected from Mrs. Pukke will be used to provide consumer redress. In a complaint filed in 2003, the FTC charged that AmeriDebt, Inc., DebtWorks, Inc., and Andris Pukke deceived consumers with claims that AmeriDebt was a nonprofit organization that could help consumers get out of debt without an up-front fee. The FTC charged that, rather than operating for charitable purposes as advertised, AmeriDebt funneled profits to affiliated for-profit entities and individuals, including DebtWorks and Andris Pukke. According to the FTC, AmeriDebt deceived new clients when it required an up-front payment to enroll in the program. AmeriDebt then kept these initial payments as fees without consumers' knowledge, rather than disbursing the money to consumers' creditors as promised. The complaint also charged that, contrary to their claims that they provided counseling, the defendants simply enrolled customers in debt-management plans.

• On December 27, the FTC approved the publication of a Federal Register notice announcing that in 2006 it would conduct a regulatory review of the Guides for the Nursery Industry, 16 CFR part 18, the Recycled Oil Rule, 16 CFR part 311, and the Used Car Rule, 16 CFR part 455. The notice, which can be found on the FTC's website also contains a revised regulatory review calendar for the next 10 years. The FTC vote approving publication of the Federal Register notice was 4-0.

• The Commission authorized the staff to file an amended complaint in the matter currently pending against Del Sol LLC, et al on December 23. In April 2005, staff of the FTC's Division of Enforcement and the Western Region charged Del Sol, LLC, also d/b/a as Del Sol Educational, and its principal, Fernando Lopez Gonzalez, with violating Section 5 of the FTC Act and the Telemarketing Sales Rule ("TSR"). At the request of the FTC, the court entered an ex-parte temporary restraining order on the day the complaint was filed and, after a hearing, entered a preliminary injunction on May 24, 2005. The defendants allegedly engaged in a Spanish-language telemarketing operation scamming consumers out of hundreds of dollars with false promises of free laptop computers and digital video cameras and discounts on brand name perfumes and music CDs. The amended complaint alleges that in conducting this telemarketing scam, the defendants violated the National Do Not Call ("DNC") Registry by calling consumers who had registered their telephone numbers on the Registry and by calling numbers within a given area code without first paying the annual fee for access to the DNC Registry. The amended complaint corrects the name of the principal from "Fernando Lopez Gonzalez" to "Fernando Gonzalez Lopez". It was filed in federal district court on December 8, 2005 and entered by the court on December 13, 2005. The Commission vote authorizing the staff to file the amended complaint was 4-0.

• The FTC, U.S. Attorneys, the FBI, the U.S. Postal Inspection Service, Canadian consumer protection officials, and three state Attorneys General announced a law enforcement initiative on December 20 targeting spammers who are cluttering consumers' mail boxes with millions of illegal and unwanted e-mail messages. The FTC targeted three operations, the Canadian Competition Bureau settled two cases, and the Attorneys General of Florida, North Carolina, and Texas filed complaints seeking to block the illegal spamming of three more operations. U.S. federal criminal authorities also executed search warrants as part of this initiative. The FTC targeted operators who allegedly violated federal law by sending spam with false "from" information and misleading subject lines, and by failing to provide an "opt-out" option or a physical address. Documents filed with the court detailed how the spammers hijacked innocent consumers' computers and turned them into spamming machines that relayed the illegal spam while concealing the real sender. This practice obscures the original source of the message so spammers can avoid detection by law enforcers and others, and allows them to elude filters used by Internet service providers. Two "victims" that appeared to be computers with open proxies actually were "honey pots" or "proxy pots" that did not relay the spam, but captured it, with its original routing information, to pass along to law enforcers. The FTC also issued a report assessing the effectiveness of the CAN-SPAM Act, which concludes that technological anti-spam advances have reduced the amount of spam reaching consumers' in-boxes. Moreover, rigorous law enforcement has had a deterrent effect on spammers. As a result, consumers are receiving less spam now than they were receiving in 2003.

• The FTC settled charges on December 15 against three corporations and their owners and officers that the defendants used deceptive practices to promote their multilevel-marketing program and operate an illegal pyramid scheme. The Commission will receive about $1.5 million in consumer redress as part of the settlement. Three of the defendants, who had been top distributors for Equinox International, a multilevel-marketing firm sued by the FTC in 1999, are permanently banned from the multilevel-marketing industry. The defendants sold products such as water filters, cleaning supplies, nutritional supplements, and beauty aids through a nationwide network of distributors. In its complaint filed in December 2002, the FTC alleged that while distributors were told they could make money by selling the products, the defendants emphasized that they could make more money by focusing on recruiting new distributors. According to the complaint, distributors used deceptive claims to lure prospective participants, including claims that salaried jobs were being offered. The complaint further alleged that the defendants misrepresented distributors were likely to earn substantial incomes, and that the defendants operated an illegal pyramid scheme. The defendants - Trek Alliance, Inc.; J. Kale Flagg; Richard and Tiffani Von Alvensleben; Harry Flagg; Trek Education Corporation; and, VonFlagg Corporation - are a multi-level marketing company, its owners and officers, its training arm, and its parent corporation. The orders against Kale Flagg, the Von Alvenslebens and the corporations permanently ban them from multilevel-marketing. In addition, Kale Flagg is ordered to pay $360,000 and the Von Alvenslebens to pay $515,000. Harry Flagg - who, unlike the other individual defendants, had not previously been involved in multilevel-marketing - is not subject to a ban, but is prohibited from participating in illegal pyramid schemes and is required to pay $20,000. The orders for all of the defendants also prohibit the violations alleged in the Commission's complaint. Additionally, as part of the settlement, the defendants authorized their insurance company to pay $600,000 to the FTC, which will be used as consumer redress.

• The FTC announced on December 13 that satellite television provider DIRECTV will pay $5,335,000 to settle FTC charges that since October 2003, DIRECTV and companies it hired to promote DIRECTV programming have been violating the DNC provisions of the FTC's TSR. This is the largest civil penalty ever announced by the FTC in a case enforcing any consumer protection law. At the FTC's request, the U.S. Department of Justice filed the complaint and stipulated settlements in Federal District Court in Los Angeles. The complaint names as defendants DIRECTV, five firms that telemarketed on its behalf, and six principals of those telemarketing firms. Settlements with DIRECTV and two of the telemarketing firms and their principals were filed along with the complaint. The complaint alleged that telemarketers calling on behalf of DIRECTV contacted consumers on the National DNC Registry. In addition, the complaint alleged that one of the telemarketers - Global Satellite, directly or through another entity - abandoned calls to consumers by failing to put a live sales representative on the line within two seconds after the called consumer completes his or her greeting, as required under the law. Finally, the complaint alleged that DIRECTV provided substantial assistance and support to Global Satellite, even though it knew or consciously avoided knowing, that Global Satellite was violating the TSR.

Authored by:
Camelia Mazard
202-218-0028
cmazard@sheppardmullin.com

• On December 30, the UK's Office of Fair Trading ("OFT") announced the clearance of the proposed acquisition by BSkyB Broadband Services Limited ("Sky") of Easynet Group Plc ("Easynet") and the merger of NTL Incorporated ("ntl") and Telewest Global, Inc ("Telewest"). Both cases relate to the emergence of Digital Subscriber Line ("DSL") as an alternative means to provide 'triple-play' (pay-TV, internet and telecommunications) services. Sky's acquisition of Easynet will enable it to offer triple-play services, in which it currently has no offering, in competition with other providers. Third parties raised concerns about the potential for Sky blocking the supply of pay-TV content to its emerging DSL rivals given its market power in premium content provision and its significant buyer power in non-premium content. However, the OFT found that Sky already has the potential to do this, and the merger does not materially alter its incentives in this area. Telewest and ntl are now the only two cable operators but, as their local networks do not overlap, they do not compete in providing services over cable and the potential for them to do so is minimal. Where they do overlap (in wholesale telecommunications services and narrowband internet) outside their local cable networks they will still face a number of other significant competitors.

• On December 21, the European Commission fined four companies €75.86 million for allegedly operating a cartel in the rubber chemicals market, in clear violation of EC Treaty competition rules which forbid cartels and other restrictive business practices (Article 81). Three companies allegedly agreed to exchange information about prices and/or raise prices of certain rubber chemicals in the European Economic Area and world-wide markets at least from 1996 to 2001. A fourth company allegedly joined the cartel in 1999 and 2000. The level of the fines confirms the Commission's determination to crack down hard on firms that take part in cartels. This is the fifth Commission decision in 2005 against hard core cartels. EC Competition Commissioner, Neelie Kroes, said "Cartels are a scourge. I will ensure that cartels will continue to be tracked down, prosecuted and punished. With this latest decision, I am sending a very strong message to company boards that cartels will not be tolerated, and to shareholders that they should look carefully at how their companies are being run."

• On December 21, the Australian Competition and Consumer Commission instituted proceedings in the Federal Court, Melbourne, against Visy Industries Holdings Pty Ltd, Visy Industries Australia Pty Ltd and Visy Board Pty Ltd. Proceedings were also been taken against the Chairman of the Visy Group, the Chief Executive Officer of the Visy Group, and the former General Manager of Visy Board, for allegedly being knowingly concerned in or party to the contravening conduct by the Visy respondents. The ACCC alleges that the above respondents engaged in conduct in the corrugated fiberboard container industry that was anti-competitive, including engaging in price-fixing and market sharing, in contravention of section 45 of Australia's Trade Practices Act 1974. The ACCC alleges that between 2000 and late 2004, the Visy respondents entered into and gave effect to anti-competitive arrangements with its principal competitor Amcor Ltd in the supply, throughout Australia, of corrugated fiberboard containers. Amcor Ltd and its former senior executives have to date received immunity from legal proceedings by the ACCC after the company came forward with information about the alleged conduct under the ACCC's 2003 Leniency Policy.

• On December 20, France's Conseil de la concurrence imposed fines totaling €14.4 million euros (approx. $17.2 million) on Buena Vista Home Entertainment Inc. ("BVHE"), and three French retailers, Carrefour SA, Casino Guichard-Perrachon SA and Selection Disc Organisation SA, for allegedly fixing home video prices between 1995 and 1998. The French antitrust authority held that BVHE had allegedly initiated a vertical collusion with retailers Casino and Carrefour, as well as with wholesale company SDO, which aimed at setting the retail price of Disney home videos artificially high. The French antitrust authority emphasized that that such conduct was a "particularly serious" offence, and imposed the following individual fines: Buena Vista Home Entertainment was fined €3.1 million euros ($3.7 million), Carrefour €5.7 million euros ($6.8 million), Casino €3.2 million euros ($3.8 million) and SDO €2.4 million euros ($2.9 million).

• On December 20, the European Commission approved the acquisition by US oil and chemical services company, Koch Industries Inc. ("Koch") over Georgia-Pacific Corporation ("Georgia-Pacific"). Although both companies are active in the production of pulp, the EC held that they would have a small combined market share on the global pulp market, and there was no horizontal overlap between the activities of the two companies within the European Economic Area. The Commission also examined the vertical relationship between Koch and Georgia-Pacific, since Koch supplies Georgia-Pacific with pulp, which is necessary to produce packaging, paper and tissue paper products. The EC also ruled out possible vertical concerns, as Koch has a small market share of pulp supply, and there are a number of alternative producers who could supply any of the various potential downstream product markets.

• On December 20, the European Commission published a Green Paper on how to facilitate actions for damages caused by violations of EC Treaty competition rules' ban on restrictive business practices and abuse of dominant market positions (Articles 81 and 82 respectively). Violations of these rules, in particular, by price fixing cartels, can cause considerable damage to companies and consumers. However, numerous obstacles currently hinder actions for damages by injured parties in national courts. The Green Paper identifies certain of these obstacles, such as access to evidence and the quantification of damages, and presents various options for debate for their removal. The options set out in the Green Paper would seek to ensure that companies and consumers were compensated for their losses, while avoiding vexatious claims. EC Competition Commissioner, Neelie Kroes, said: "Businesses and individuals who suffer losses because of illegal activities such as cartels have a right to compensation. Currently, this right is all too often theoretical because of obstacles to exercising this right in practice. This Green Paper sets out options for making that right a reality, and so making companies that break the competition rules pay for the harm that they do."

• On December 19, the European Commission published a Staff Discussion Paper on the application of EC Treaty competition rules on the abuse of a dominant market position (Article 82). The Discussion Paper is designed to promote a debate as to how EU markets are best protected from dominant companies' exclusionary conduct, conduct which risks weakening competition on a market. The paper suggests a framework for the continued rigorous enforcement of Article 82, building on the economic analysis carried out in recent cases, and setting out one possible methodology for the assessment of some of the most common abusive practices, such as tying, and rebates and discounts. Other forms of abuse, such as discriminatory and exploitative conduct, will be the subject of further work by the Commission in 2006. The Commission is inviting comments on the present discussion paper by March 31, 2006.

• On December 13, the European Commission revised its rules for access to the Commission's files by parties involved in its merger and antitrust cases in order to increase the transparency of competition procedures. It underlined the Commission's commitment to due process and parties' rights of defense. Access to the file is an important procedural step in all contentious antitrust and merger cases. It allows the companies that receive Statements of Objections i.e. the Commission's explanation as to why it has reached the preliminary view that the addressees may have broken the competition rules, to see all of the evidence, whether it is incriminating or exonerating, in the Commission's file. A party can then understand the facts which led the Commission to send a Statement of Objections, and draw the Commission's attention to elements of the file which the party believes have not been given sufficient weight. This is a fundamental procedural safeguard which ensures the rights of defense of companies.

• On December 12, the Italian Competition Authority, announced it had imposed a €2 million fine on ANIA, the Associazione Nazionale delle Imprese Assicurative (National Association of Insurance Companies), for allegedly encouraging the use of uniform cost parameters in determining payments for auto insurance claims. The Italian antitrust authority imposed a further €200,000 fine on ANAI for also allegedly fixing a scale of fees with various car insurance adjusters associations. An authority spokeswoman said the practices prevented car insurance companies from competing with each other on the costs of settling auto claims.

• On December 8, the Canadian Competition Bureau announced that Nippon Carbon Co. Ltd. ("NCK") pleaded guilty and was fined $100,000 by the Federal Court of Canada for aiding and abetting an international conspiracy to fix the price of graphite electrodes used in steel production. "NCK aided price-fixing arrangements which lessened competition for graphite electrodes in Canada," said Denyse MacKenzie, Senior Deputy Commissioner of Competition. "The Competition Bureau will continue to pursue individuals and businesses involved in price-fixing cartels as a top enforcement priority." NCK is the seventh party to be convicted in Canada for participating in the graphite electrodes cartel. UCAR Inc., SGL Carbon Aktiengesellschaft, Tokai Carbon Co., Mitsubishi Corp. and two former UCAR executives, Robert P. Krass and Robert J. Hart, were previously fined a total of nearly $25 million for their roles in the international conspiracy.

• On December 1, the French Competition Conseil, the Conseil de la concurrence, imposed fines totaling €534 million (approx. $633 million) on three cellular phone networks for allegedly sharing strategic information on new subscriptions and cancellations, and agreeing to stabilize their market shares based on jointly-defined targets. The French antitrust authority held that since the French mobile market is difficult to penetrate and comprises only three operators, information sharing of this kind is likely to distort competition by reducing uncertainties over competitors' strategies and diminishing each company's commercial independence. The alleged agreement to maintain market shares allegedly led price increases. The French authorities held that a large fine was justified due to the particularly serious nature of the practices, and the substantial damage to the France's telecommunications market.

Authored by:
Neil Ray
415-774-3269
nray@sheppardmullin.com

• On December 5, 2005, the FCC requested additional documents and information to supplement its review of applications proposing the sale of Adelphia cable systems to Time Warner and Comcast. The applications also propose several Time Warner-Comcast system swaps. The request sought documents and/or narrative responses in the following areas:

  
  Corporate Organization and Agreement Terms. The FCC asks whether certain aspects of the agreements associated with the transactions are consistent with the obligation to divest certain Comcast assets currently held in trust (such assets are subject to a divestiture requirement under the terms of the FCC's 2002 decision approving Comcast's acquisition of AT&T Broadband).

  Systems/Services/Subscribers. Details on each cable system owned by Adelphia, Comcast, and Time Warner including the number of subscribers served, geographic areas served, nature/percentage of economic interest and management control, date of acquisition, and lists of competitors for each system; information on the services offered by each system (i.e., basic, expanded, digital, high-speed Internet, voice, bundles), the revenue generated by each service offering, and subscribership/churn data for each offering.

  Content. Documents and information on the parties' interests in and agreements with video programming networks. Documents and information on how the parties select the video programming content they will carry on their systems.

  Broadband/VOIP. Compliance with net neutrality principles, VOIP 911 requirements, and nomadic customer premises equipment requirements.

  Regional Concentration Issues. Work papers and underlying data used by the parties in responding to claims that regional concentration will harm competition and the public interest, especially with respect to competitors' access to regional sports programming.

  The FCC letters requested that the applicants file responsive documents and narratives by December 19, 2005. Responses filed by the applicants are available for public review via the FCC's electronic comment filing system and the transaction webpage: http://www.fcc.gov/transaction/tw-comcast_adelphia.html. Material that the applicants deemed sensitive was filed pursuant to the FCC's protective order in this proceeding. Parties that have filed comments in this proceeding may review such material by executing an acknowledgment of confidentiality, as specified in the protective order. The applicants have requested a heightened level of confidential treatment for certain material filed in response to the FCC letters. The FCC has not yet addressed this request.

  The FCC's review of the proposed transactions commenced in May 2005. Several years ago, the FCC set a goal to complete its review of transactions within 180 days of the date public notice of a proposed transaction. Today [December 29], the FCC's transaction "clock" for the Adelphia sale is on day [208], which places the FCC's review [twenty-eight] days beyond its timing goal. Required bankruptcy court and FTC approvals also remain pending.

  
  

  Authored by:
  Erin Dozier
  202-772-5312
  edozier@sheppardmullin.com
  

On December 14, 2005, the European Court of First Instance ("CFI") denied the application of General Electric Company ("GE") and Honeywell International ("Honeywell") for annulment of the merger prohibition issued by the European Commission ("Commission") of July 3, 2001.¹ There, the Commission declared that the acquisition of the assets of Honeywell by GE would be a "concentration incompatible with the common market". A concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market, or a substantial part thereof, is declared incompatible with the common market. ²

In a lengthy opinion, consisting of 735 numbered paragraphs, the CFI upheld the Commission's merger prohibition decision, and held that the horizontal effects of the proposed acquisition were sufficient to establish that the Commission's merger prohibition was well founded. However, it noted further that the Commission committed "manifest errors of assessment" with regard to the effects of the merger on particular markets. Specifically, it found that its analysis of "conglomerate effects" resulting from the concentration was erroneous, as the Commission was required to establish that there was a "high probability that the anti-competitive effects will occur and not merely that they might occur." The CFI held that the Commission "must quantify those effects and show that they will result from the merger rather than from pre-existing market conditions".³ The CFI further stated:

"That requirement is particularly important in cases such as the present, in which the merger is conglomerate, since it is accepted that such mergers rarely have anti-competitive effects."⁴

The decision may manifest a significant level of convergence between European Community and United States antitrust merger analysis and policy.

Background. On October 22, 2000, GE and Honeywell announced their plans to merge. After the United States Department of Justice informally indicated that it would allow the merger to proceed, subject to "fix it first" remedies, the parties filed their notification with the Commission. The Commission, however, found the "remedies" commitments insufficient, and blocked the merger. As the parties were prohibited to put the merger into effect in the European Community ("EC"), it was abandoned. The parties thereafter filed an application for annulment of the Commission's decision.

The CFI held that in the context of the proceedings before the Commission, it validly found that the merger would have created or strengthened dominant positions, as a result of, which effective competition would have been significantly impeded in three markets. The CFI held that the horizontal effects of the proposed merger were sufficient to establish that the Commission's merger prohibition decision was well founded. The CFI upheld the Commission's finding that the merger would have significantly impeded competition in: (i) the market for jet engines for large regional aircraft; (ii) the market for engines for corporate jet aircraft; and (iii) the market for small marine gas turbines.

The CFI concluded that in the first market, GE had a pre-existing dominant position. In the other two markets, the merger would have strengthened the pre-existing dominant position and further, would have created dominant positions for the merged entity in the markets for engines for corporate jet aircraft, and for small marine gas turbines. Each of these markets would have created or strengthened a dominant position which would have resulted in effective competition being significantly impeded in the common market.

However, the CFI noted that the Commission's decision constituted "manifest errors of assessment" in the following particulars:

• The part of the Commission's decision relating to the vertical overlap between Honeywell's engine starters and GE's engines was considered to be unfounded. The Commission failed to take in to account the deterrent effect of EC Article 82. The Commission must show that this condition is established to a "high probability" that anticompetitive effects will occur, and not merely that they might occur. It is incumbent upon the Commission to quantify these effects and show that they will result from the merger, and not merely result from pre-existing market conditions. The CFI added "this 'requirement is particularly important in cases such as the present, in which the merger is conglomerate, since it is accepted that such mergers rarely have anti-competitive effects.'"⁵

• The Commission did not establish to a sufficient degree of probability that the merged entity would have bundled sales of GE engines with Honeywell's avionics and non-avionics products. Thus, it failed to demonstrate with sufficient probability that dominant positions would have been created or strengthened in such markets.

The CFI affirmed the Commission's finding that a market share of 50%, except in exceptional circumstances, constituted prima face evidence of a dominant position, and warranted a conclusion that GE's pre-existing market position was dominant. The case is non-remarkable, in that confirms that the strengthening or creation of a dominant position, may amount to proof of a significant impediment to effective competition.

Significance. The rejection of the Commission's conglomerate merger economic effects analysis may be viewed as concrete movement toward greater convergence with United States antitrust merger policy. In fact, the rejection by the CFI of the Commission's conglomerate merger economic effects theory is the second rejection on the issue this year. Previously, the CFI overturned a Commission decision to block a merger between Swedish packing giant Tetra Laval and a French company, Sidel.⁶ In Tetra Laval, the CFI overturned the Commission's decision to prohibit a proposed merger on the basis that the Commission failed to prove that a merged entity would not only have the ability to harm competition, but that it would, in fact act anti-competitively. In GE/Honeywell, however, while the theory of anti-competitive conglomerate effects formed the basis of the Commission's decision, it was unnecessary to the decision, as the merger's horizontal effects were sufficient in themselves to establish that the concentration was incompatible with the common market. The CFI held that the Commission did not sufficiently establish that the merged entity would have bundled sales of GE's engines with Honeywell's avionics and non-avionics products. It held that in the absence of such bundled sales, the mere fact that the merged entity would have a wider range of products than its competitors was not sufficient to establish that dominant positions would have been created or strengthened in the different markets involved. Accordingly, the Commission made a "manifest error of assessment" in prophesizing, but not proving, the probability of actual effects flowing from a conglomerate merger.

By definition, conglomerate mergers involve firms that are not actual or potential competitors, and do not have an actual or potential customer-supplier relationship.⁷ Challenges to conglomerate mergers generally have been limited to cases where an anticompetitive effect was alleged in one of the markets affected by the merger.⁸ Thus, while the rejection of the Commission's conglomerate merger economics effects theory constituted "manifest error", it was harmless error. This is because, as the CFI observes, the application for annulment was properly rejected, as the Commission's decision was based on a combination of elements of fact and law which were complimentary, and not exclusive. It was clearly sufficient to justify a prohibition on the concentration to find that there were pre-merger dominant positions that would have been strengthened as a result of the merger.

Nevertheless, the decision should be welcomed by United States antitrust enforcers. Commenting on the European Commission's application of conglomerate merger economic theory, in its analysis of the proposed acquisition of Honeywell by GE, Assistant Attorney General for the Antitrust Division, Charles A. James observed that the reasoning was "antithetical to the goals of sound antitrust enforcement."⁹

While several early United States cases held that conglomerate mergers could violate Section 7 of the Clayton Act by entrenching the position of a dominant firm, the United States enforcement agencies have applied the theory very cautiously.¹⁰ The application of conglomerate merger economic effects theory has not resulted in a United States court finding liability on this theory, at least since the 1970's.¹¹

Finally, it should be noted that the decision of the Court of First Instance has been well received by the Commission. Competition Commissioner Neelie Kroes stated,

"I am pleased to welcome this important ruling insofar as it upholds the Commission's decision. The Commission will consider carefully what lessons may be learned from this judgment for our future merger policy. The ruling illustrates that in such complex transactions it is crucial for merging parties to come up with adequate remedies for all competition concerns identified by the Commission. Indeed, insuring effective competition throughout the aerospace products industry remains an important aim."¹²

Is everybody happy? An appeal, limited to points of law, may be brought before the Court of Justice of the European Communities, within two months of its notification.

1. Paragraph 78 at page 11.


2. Tetra Laval v. Commission, Case T-5/02, ECR II-4381 (2002).


3. See, ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS at 368 (2002).


4. See, e.g., United States v. ITT Corp., 306 F. Supp. 766, 796 (D. Con. 1969), appeal dismissed, 404 U.S. 801 (1971).


5. See, Charles A. James, Assistant Attorney General, Antitrust Division "International Antitrust in the 21^st Century: Cooperation and Convergence, Remarks Before the OECD Global Forum on Competition (Oct. 17, 2001)," available at www.usdoj.gov/atr/public/speeches/9330.htm.


6. See, FTC v. Procter & Gamble Co., 386 U.S. 568, 578 (1967) (conglomerate merger violated Section 7 by substitution of a powerful acquiring firm for a smaller incumbent, thus creating a likelihood that the competitive structure of the market would be substantially reduced, by raising barriers to entry, and by created umbrella effects, thus dissuading smaller firms from aggressively competing.).


7. See, e.g., Emhart Corp. v. USM Corp., 527 F.2d 177 (1st Cir. 1975); NBO Indus. Treadway Companies v. Brunswick Corp. 523 F.2d 262, 274-75 (3rd Cir. 1975), vacated and remanded sub. nom, Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977). Early cases have also held that an acquisition could violate Section 7 where it created a substantial possibility for the creation of market foreclosure through reciprocity dealing. See, e.g., FTC v. Consolidated Foods Corp., 380 U.S. 592 (1965).


8. European Commission Press Release, December 14, 2005, IP/05/1601.


Authored by:
Don T. Hibner, Jr.
213-617-4115
dhibner@sheppardmullin.com

In Walker Process Equip Co., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965), the Supreme Court held that the enforcement of a fraudulently procured patent may violate Section 2 of the Sherman Act assuming the other elements of a Section 2 violation are also proved. In recent years, such Walker Process claims have become commonplace, and often asserted as counterclaims in patent infringement cases. The parties asserting such claims, however, are normally those who manufacture competing and potentially infringing products and the damage remedy is normally lost profits.

In Molecular Diagnostics Laboratories v. Hoffman-LaRoche, 2005 U.S. Dist. LEXIS 30142 (D.C. D.C. 2005), however, the plaintiff asserting the Walker Process claim was a direct purchaser of the patented product. It did not produce a competitive, potentially infringing product at all and was not a defendant in an infringement suit. Plaintiff's alleged injury was that it was forced to pay an artificially inflated price for the patented product as a result of the enforcement of a patent obtained by fraud. Defendants moved to dismiss under Rule 12(b)(6) asserting that, unlike a competitor, purchasers making Walker Process claims do not have standing or suffer antitrust injury. Judge Kennedy denied the motion holding that, under the applicable Supreme Court standing/antitrust injury cases, direct purchasers do have standing to assert Walker Process claims.

The court began by noting that, except for two cases, neither the parties nor the court had been able to identify an instance in which a purchaser, as opposed to a competitor, litigated a Walker Process claim. The two exceptions were In re Remeron Antitrust Litigation, 335 F. Supp. 2d, 522 (D.N.J. 2004) and Carrot Components Corp. v. Thomas & Betts Corp., 1986 U.S. Dist. LEXIS 29723 (D.N.J. 1986). Both held that the purchasers lacked standing to pursue Walker Process claims.

In Molecular Diagnostics, Judge Kennedy distinguished Carrot Components since there the plaintiff claimed to be a competitor. The Remeron plaintiffs, however, were direct purchasers who neither produced a competing product nor were parties to any infringement suits. This was sufficient for the Remeron court to hold they lacked standing to assert Walker Process claims. Judge Kennedy's opinion in Molecular Diagnostics states, however, that the Remeron court cites neither any controlling precedent nor compelling justification for its conclusion of no standing. The Molecular Diagnostics court further criticized Remeron on the basis that it focused on the wrong type of injury for a Walker Process claim. The relevant injury, said the court, was not the enforcement of the fraudulent patent standing alone, but rather the antitrust injury flowing from the Section 2 violation. A Walker Process claim is not, said Judge Kennedy, just a fraud claim where the harm arises from an invalid patent but rather the use of an invalid patent to establish a monopoly.

Viewed from this antitrust perspective, Judge Kennedy concluded that there is no reason to treat the standing requirements for a Walker Process claim different from those generally applicable to antitrust claims. Pursuant to Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) and Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), direct purchasers not only have standing to sue but are the "preferred plaintiffs" in private treble damage litigation. While other factors - such as the potential for duplicative recovery and the existence of other parties that may have been more directly harmed - should be considered, the Molecular Diagnostics court "sees no reason to limit standing to competitors." 2005 U.S. Dist. LEXIS 30142 at 13. Although competitors subject to infringement suits may be in a stronger position to detect Walker Process claims, direct purchasers have frequent interactions with the defendants. In Judge Kennedy's view, increasing the number of parties scrutinizing the actions of potential monopolists will help provide the deterrent purpose of the treble damage remedy. Likewise he found little risk of duplicate recovery since direct purchasers are entitled to recover the full extent of any overcharge.

Molecular Diagnostics is significant in that it departs from prior case law, and is apparently the first reported decision to squarely hold that direct purchasers do have standing to assert Walker Process claims even though they did not produce a potential infringing product at all. Given the classic formulation that "consumers and competitors" incurring antitrust injury usually have standing, its holding is unremarkable. Nonetheless, the court's rather broad reading of general antitrust standing principles unrelated to the type of violation alleged may be tested on appeal. There are probably more chapters to be written before this purchaser standing issue is resolved.

Authored by:
Carlton A. Varner
213-617-4146
cvarner@sheppardmullin.com

The two antitrust agencies are enacting some minor changes to the Hart-Scott-Rodino ("HSR") Notification Rules that impacts all companies that are required to file HSR Notification Forms in connection with their deals.

On December 30, 2005, the FTC, with the concurrence of the Antitrust Division, approved the publication of a Federal Register notice announcing final amendments to the HSR Rules, 16 CFR Parts 801 & 803. Under the amendments, persons filing HSR Forms are to use the 2002 North American Industry Classification System ("NAICS") rather than the 1997 NAICS data when reporting revenue data by industry and product codes in items 5 and 7 of the Form. The 2002 NAICS update by the Office of Management and Budget includes substantial code revisions within certain sectors and a number of revisions in other sectors. The Form and Instructions for filling out the Form have been updated to reflect these changes. The amendments also require filing person to use 2002 rather than 1997 as the base year for reporting U.S. revenues generated by their business activities. To facilitate the changeover from 1997 to 2002 NAICS data, filers may use either 1997 or 2002 information for 30 days following the effective date, which is December 30, 2005, provided that all filing parties to a transaction use the same year and use the same codes in Item 7 of the HSR Form.

On December 6, the Commission approved the publication of a Federal Register notice concerning final amendments to the HSR Rules, 16 CFR Parts 801 and 803. The Commission is enacting a change to relieve the burden of complying with Items 4(a) and (b) of the HSR Form. Paper copies of annual reports, annual audit reports, and regularly prepared balance sheets and copies of certain documents, such as Form 10 Ks filed with the Securities and Exchange Commission, must be provided in response to Items 4(a) and 4(b). The modification, however, allows filing persons to provide an Internet address linking directly to the documents required by Items 4(a) and (b) in lieu of providing paper copies. The new rules indicate that if the Internet address is inoperative that the parties must make these documents available to the agencies by either referencing an operative Internet address or by providing paper copies to the agencies by 5:00 pm the next business day.

Another change to the rules specifies that an acquiring person's notification, and an acquired person's notification in certain types of transactions, will expire after eighteen months if a second request to them remains outstanding. With this change the FTC is seeking to close a loophole regarding stale filings with the expiration of a notification. In the past, some parties received second requests for additional information but made no attempt to comply with the second requests. What normally occurred in those situations is that parties would withdraw their filings. In other instances, parties refused to withdraw their filings meaning that the waiting period was suspended and the agency's investigation would remain open indefinitely. The new rule specifies that filings will expire after 18 months if second requests to the parties remain outstanding.

Three other technical corrections to certain rules and to the Form and instructions address certain oversights in the final rules promulgated in connection with the treatment of unincorporated entities. First, the definition of voting securities is revised to reflect the changes to the control test for unincorporated entities. Second, the acquisition of non-corporate interests is added to the section on annual net sales and total assets, to allow the exclusion of cash to be sued in the acquisition of non-corporate interests and the value of any securities or assets of the acquired persons already held by an acquiring person with no regularly prepared balance sheet. Third, a reference to non-corporate interests is added to a section on aggregate total amount of voting securities and assets, so that if an acquiring person is acquiring controlling interests in two unincorporated entities from the same acquired person the value of the non-corporate interest in both entities be aggregated to determine the value of the transactions.

Further changes are expected later this month or February of 2006 as the FTC is expected to announce new jurisdictional thresholds for HSR filings. The threshold changes are required under a 2000 amendment to the HSR Act, which requires the FTC to adjust on an annual basis the size of transaction and size of person test.

While all of these changes appear to be minor, they do relieve some of the burden on companies that are required to file HSR Notification Forms in connection with their deals especially with regards to providing paper copies when Internet links are sufficient and providing 2002 revenue data instead of searching for 1997 data.

Authored by:
Andre P. Barlow
202-218-0026
abarlow@sheppardmullin.com

Effective antitrust enforcement in an increasingly global economy depends on close governmental cooperation and coordination as well as respect of the decisions other nations. But how should United States antitrust enforcement agencies react when increased dialogue and communication with foreign antitrust agencies which is meant to reduce misunderstanding, and over time, reveal areas of agreement, actually leads to a divergence in the application of antitrust policies?

On December 7, J. Bruce McDonald, Deputy Assistant Attorney General for the Antitrust Division of the Department of Justice ("DOJ"), released a statement which criticized the decision of the Korean Federal Trade Commission ("KFTC") to fine Microsoft Won 33bn (approx. $31m) for allegedly abusing its dominant position in the South Korean market. Of particular concern to the DOJ was KFTC's requirement that Microsoft separate its Media Player and instant messaging software from the Windows operating system within six months. Microsoft will be required to offer two new versions of Windows in South Korea, one of which must be stripped of Windows Media Player and instant messenger software. The other must contain links to internet pages that allow users to download competing software products.

The KFTC decision is a setback to relations with the DOJ and the US Federal Trade Commission which date back to 1996, and the on-going negotiations for a bilateral cooperation agreement. The KFTC decision mirrors the European Commission decision in March 2004 which required Microsoft to also offer an unbundled version of its Windows software. In light of the EU's experience, the DOJ believes that the KFTC's proposed remedy will be ineffective: "[D]emand in Europe for the version of the operating system with the media player code removed has been lackluster, suggesting limited effect on competition from the type of unbundling remedy the Korean Fair Trade Commission is pursuing".

Moreover, there are concerns that the proposed remedy will stifle technological innovation in Korea. In response to the KTFC decision, Microsoft stated that "competition in these technologies has been, and remains, vibrant" and, that the "decision could have the effect of chilling innovation in Korea". The DOJ agrees. "The Division continues to believe that imposing 'code removal' remedies that strip out functionality can ultimately harm innovation and the consumers that benefit from it".

There is a general consensus that the United States antitrust agencies have benefited enormously from their ability to learn from mistakes in antitrust goals and antitrust analysis over the past 100 years. This experience arguably allows the DOJ to share its experiences, and challenge the application of antitrust policies and the enforcement practices of foreign agencies in individual cases. In this case, the DOJ believes that "Sound antitrust policy should protect competition, not competitors, and must avoid chilling competition even by 'dominant' companies" and, that "regulators should avoid substituting their judgment for the market's by determining what products are made available to consumers". Accordingly, "Korea's remedy goes beyond what is necessary or appropriate to protect consumers".

Certainly, foreign antitrust agencies have their differences stemming from, for example, different legal systems that take the form of set legal or procedural frameworks, or, in terms of analytical approaches, remedies, and internal procedures. But an immeasurably valuable means of avoiding divergent and conflicting remedies is increased bilateral cooperation and coordination. Sometimes, this will mean deference to the decision of foreign enforcement agencies. But there must have been an opportunity for the other country to express its concerns, and the enforcing country should not needlessly disregard the concerns of the other country. This may have been the concern at the DOJ following the KFTC's decision in the Microsoft case. "We had previously consulted with the Commission on its Microsoft case and encouraged the Commission to develop a balanced resolution that addressed its concerns without imposing unnecessary restrictions".

Despite the above criticism, the DOJ nevertheless recognizes that increased international cooperation and coordination is the primary means to improve antitrust enforcement across the globe, and, in particular, between the US and Korea. "Notwithstanding today's divergence, it is important to emphasize the overall strong and positive relationship between the US and Korea on matters of competition policy. The continued success of this working relationship is particularly important in the context of global markets". This cooperation and enforcement should benefit both consumers and business in Korea and the US, and generally lead to closer relations between the two governments.

Authored by:
Neil Ray
415-774-3269
nray@sheppardmullin.com

The United Kingdom's Office of Fair Trading ("OFT"), the primary UK government agency for enforcing laws protecting competition and consumer welfare, will no longer provide confidential guidance and informal advice on potential mergers not yet made public, it announced last November.¹ Previously, competition counsel representing merging parties could obtain, free of charge, a view from the OFT, before the merger was made public, on whether a transaction presented competition issues and whether it would be referred to the UK's Competition Commission for a second stage, in-depth investigation. The announcement cited scarcity of resources due to heightened expectations at a time of increased caseload as the primary reason for the change.

In the UK, unlike in many other countries, there is no mandatory requirement that parties notify sizeable or potentially problematic transactions prior to closing.¹ Voluntary notification in one of two alternate forms prescribed in the Enterprise Act reduces the wait period for the OFT's decision to clear the transaction or refer it to the Competition Commission. The OFT must, under the Enterprise Act, refer a transaction to the Competition Commission where the transaction has resulted or may be expected to result in a substantial lessening of competition.

Notification to the OFT and review by the UK's Competition Commission would not come into play, however, when a transaction falls within the scope of the EC Merger Regulation. That regulation preempts a national filing requirement and the European Commission will have exclusive jurisdiction to consider the transaction.

Significantly, for merger and acquisition transactions that do not fall within the scope of the EC Merger Regulation, unless the parties publicly announce the transaction, they will now have to rely on the advice of competition counsel, without the aid of the OFT's informal or confidential input, to determine the likelihood of a reference to the Competition Commission. The change could thus have a chilling effect on mergers and acquisitions in cases where there is uncertainty, and purchasers may now face greater risk. The greater reliance on external counsel's advice and the additional risk involved in mergers and acquisitions heighten the need for merging parties to involve competition counsel at the earliest stages of a potential merger or acquisition.

The prior availability of these free services made the UK's merger system nearly unique. No such services are available in the United States, for example. The OFT cited resource issues as a principal reason for its abandonment of the free services but did not, in its announcement of the change, indicate whether it had considered charging a fee, as Canada or other jurisdictions may do, in lieu of disposing almost entirely of the services.³

Further explaining its reasons for adopting the measure, the OFT said that circumstances had changed. The duty to refer merger cases to the Competition Commission imposed on the OFT under the Enterprise Act, along with judicial guidance on this, has made it "more difficult to give helpful advice on whether the OFT is likely to refer a case" to the Competition Commission. The OFT added that the value of such advice was inherently limited by dependence on inquiring parties' submissions without any ability to test arguments with or gather evidence from other market participants. Despite these limitations, the OFT had found that parties would rely too heavily on its advice without due regard for the qualifications and caveats laden in it. Another reason why the measure was adopted was to relieve the OFT of the substantial increase in and complexity of the caseload that results from the duties imposed on the OFT under the Enterprise Act. The cutback on the provision of confidential guidance and informal advice will allow the OFT, it says, to prevent diversion of resources from the OFT's duty to review public-domain merger case.

The change was characterized as interim and the OFT says it will publish its long-term position on the provision of these services as early as practicable in the new financial year 2006-2007. In addition, the OFT made a limited exception to the termination of the availability of informal advice. No exception was made to its abandonment of its confidential guidance services. Mergers involving public bodies or private enterprises unable to afford external competition counsel, and other "exceptional cases" may be afforded informal advice. The OFT has not specified what could qualify as an "exceptional case".

1. Office of Fair Trading, Provision of Confidential Guidance and Informal Advice, November 2005 News Release, available online: http://www.oft.gov.uk/NR/rdonlyres/AA1711C5-41BB-4551-B27B-5A858E3E0417/0/mergersinformal.pdf


2. A merger or acquisition is subject to an investigation by the UK Competition authorities when two firms' enterprises cease to be distinct, and the transaction will result in an increase to market share of greater than 25% or the value of the company being taken over exceeds ? 70 million.


3. Canada's competition authority, for example, offers a form of pre-merger advice known as the Advanced Ruling Certificate. An ARC application costs $50,000 CAN and will be issued where the Competition Commissioner is satisfied that she would not have sufficient grounds on which to challenge a proposed transaction in the Competition Tribunal.. If issued, an ARC (1) exempts the transaction from application of the notifiable transactions provisions of the Competition Act, when the transaction is completed within one year of the date of issuance; (2) precludes the Commissioner from challenging the merger on substantially the same information as that on which the ARC was issued; and (3) preempts the Commissioner from exercising her authority to apply for a remedial order in respect of the transaction.


Authored by:
Heather M. Cooper
213-617-5457
hcooper@sheppardmullin.com