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By:  Joseph S. Wu

In Champagne Metals v. Ken Mac Metals, Inc., Nos. 04-6222 and 05-6139 (10^th Cir. 2006), plaintiff aluminum distributor, a recent entrant in the aluminum distribution market, alleged that competing aluminum distributors engaged in a conspiracy to withhold business from any aluminum mill that supplied the plaintiff in order to force the plaintiff out of business and deter others from entering the aluminum distribution market in violation of Section 1 of the Sherman Act. The Western District of Oklahoma granted the defendants' motion for summary judgment, holding that plaintiff's proffered evidence of conspiracy was insufficient. According to the district court, the plaintiff did not offer direct evidence of a conspiracy and, applying the principle that the range of permissible inferences from circumstantial evidence of a conspiracy is limited where the economic rationality of the alleged conspiracy is doubtful, the district court found plaintiff's circumstantial evidence of conspiracy insufficient to save it from summary judgment because the economic theory of the plaintiff's claim made little economic sense. On appeal, the Tenth Circuit reversed. It held that the plaintiff had produced direct evidence of conspiracy, though that evidence was not by itself sufficient to overcome a summary judgment motion, and that the district court erred in finding that the plaintiff's economic theory was dubious and consequently undervalued the plaintiff's circumstantial evidence of conspiracy.   

The plaintiff offered the statement of a representative of one of the defendants to an employee of an aluminum mill that supplied the plaintiff that he and "other potential customers [of the mill]…would cause other distributors" to remove their business from the mill if it continued selling to plaintiff as direct evidence of a conspiracy. Viewing this statement in the light most favorable to the plaintiff, as a court must on a motion for summary judgment, the Tenth Circuit found that it was explicit, direct evidence of an agreement between aluminum distributors. However, the Tenth Circuit also found that this statement, by itself, did not meet the burden that a nonmovant on a summary judgment motion bears of presenting facts such that a reasonable jury could find in its favor. The statement did not, for example, indicate which, if any, of the other defendants were among the "other customers" which were part of the agreement. Thus, although the plaintiff did adduce some direct evidence, it was, in the opinion of the court, slight. As such, the Tenth Circuit felt it necessary to consider additional circumstantial evidence to determine whether summary judgment was appropriate.

The plaintiff argued that the district court improperly discounted its circumstantial evidence because it erroneously concluded that the economic theory underlying its claim was "plausible but weak." The district court noted that, although the plaintiff alleged that the purpose of the boycott was to avoid price cutting and maintain market share, the plaintiff did not claim that there was any separate price-fixing or market-allocation agreement, nor was there any evidence of collusion on price or supply. Indeed, the district court found that there was actually ample evidence of competition between the defendants. In addition, there was no evidence of the defendants' market power and it was unclear, based on the structure of the industry, whether a smaller, more strategically designed group of aluminum distributors could have better accomplished the alleged goals of the conspiracy.

In concluding that the district court erred in its analysis of the plausibility of the plaintiff's economic theory, the Tenth Circuit first pointed out that exclusionary group boycotts are in and of themselves a violation of the antitrust laws; a concomitant agreement on price-fixing or market allocation is not necessary for liability. Moreover, plaintiff's theory that the defendant distributors acted together to keep the plaintiff out of the market is, in the view of the Tenth Circuit, entirely economically rational. The defendants could have feared that an aggressive new competitor like the plaintiff could erode their profit margins and take market share from them and banded together in an attempt to prevent the plaintiff's entry through a group boycott of any mill that supplied the plaintiff. The plaintiff introduced evidence that the defendants complained to a mill that supplied the plaintiff that because of plaintiff's entry into the market, "prices had come down in the marketplace," "there wasn't nearly the profit level there used to be," and that "adding another distributor would dilute market share, dilute market pricing." Since the plaintiff's group boycott theory made economic sense, the court concluded, the district court improperly devalued the plaintiff's circumstantial evidence. 

In sum, the Tenth Circuit found that the plaintiff had produced some direct evidence of a conspiracy, though that evidence alone was insufficient, and that the plaintiff had alleged an economically rational group boycott theory that necessitated a serious consideration of the plaintiff's circumstantial evidence of conspiracy. The Tenth Circuit thus remanded the case to the district court, instructing it to "determine…whether the circumstantial evidence, viewed through the lens of a highly plausible theory, and combined with [plaintiff's] direct evidence, creates a genuine issue of material fact as to the existence of a conspiracy."

Authored by:

Anik Banerjee

(213) 617-4124

abanerjee@sheppardmullin.com

It appears that the 3M Company has another exclusive dealing problem based on allegedly anti-competitive unilateral conduct, which in the current antitrust environment is significant news. The appropriate boundaries of unilateral anticompetitive activity have been a subject of intense interest in the antitrust bar since the Supreme Court's decision in Verizon Communs., Inc. v. Law Offices of Curtis V. Trinko, 40 U.S. 398 (2004). Trinko is typically characterized as reflecting increasing judicial skepticism with most antitrust theories attacking unilateral actions by an alleged monopolist. This skepticism has arguably complicated Section 2 monopolization and attempted monopolization cases, and resulted in such cases increasingly being resolved against plaintiffs at the early stages of litigation, particularly when brought by other competitors. However, and seen as bucking the overall trend, in 2003 the Third Circuit upheld a monopolization verdict against 3M arising in large part out of exclusive dealing arrangements which 3M had made with major sellers of clear tape in a case brought by a competitor. See LePage's Inc. v. 3M, 324 F.3d 141 (3rd Cir. 2003). It now appears that 3M, at least at the pleading stage, has been unsuccessful in another Section 2 monopolization claim brought by a competitor because of exclusive distribution arrangements with distributors, this time for retail automotive coated abrasives like sandpaper and polishing and grinding disks. NicSand Inc. v. 3M Company, 05-3431 (6th Cir. 2006) (filed August 8, 2006) ("NicSand").

The Sixth Circuit's decision in NicSand reviving a complaint dismissed in the trial court is therefore interesting in a number of ways. First, it arguably marks a departure from the recent perceived constriction of Section 2 monopolization claims by competitors, and coincidentally also involves 3M and exclusive dealing arrangements. Second, it is an example of a situation where exclusive dealing contracts are attacked not under Section 1 of the Sherman Act as anticompetitive agreements in restraint of trade (the traditional claim), but instead as impermissible unilateral action that allegedly constitutes monopolization and attempted monopolization. Three, the case presents an interesting fact pattern in which an existing market niche was dominated by a small company, which was then displaced in a very short time by a much larger company that then proceeded to dominate the space in turn, provoking interesting questions about antitrust injury and standing as discussed below.

NicSand arose when 3M took steps to increase its presence in the market for DIY (do-it-yourself) retail automotive coated abrasives. According to the facts as alleged, more than 80% of such products sold nationally are distributed through six "big box retailers" – Advanced Auto Parts, Auto Zone, CSK Auto Corporation, K-Mart, Pep Boys and Wal-Mart. In 1996, NicSand had a 67% share of the wholesale market. In 1997 3M initiated a series of transactions that resulted in exclusive contracts with four of the six major big box retailers at very substantial discounts to the prices previously offered by NicSand. One of the remaining two distributors, Wal-Mart, also had a so-called "wrap around program" in which 3M provided discounts conditioned upon Wal-Mart purchasing a complete line of coated abrasives which included abrasives for wood and other surfaces as well as automobiles. The practical impact of 3M's exclusive arrangements, entered into between 1997 and 2000, was to leave NicSand with only significant business at Pep Boys and a small amount of business at Wal-Mart. NicSand entered bankruptcy in 2001. NicSand filed a Section Two case claiming that the exclusive contracting program constituted monopolization and attempted monopolization, although it did not allege that the prices offered by 3M to the big box retailers were predatory or improperly below any legally applicable measure of cost.

The fact pattern just described confronted the Court with a number of complex standing and injury questions. Initially, the Sixth Circuit had to confront whether Section 2 was even an appropriate vehicle for challenging such exclusive dealing arrangements. Analyzing a number of cases and treatises, and relying heavily on its own prior decision in Cottonwood Co. v. US Tobacco Co., 290 F.3d 768 (6th Cir. 2002), the Sixth Circuit concluded that exclusive dealing contracts could at least theoretically form the basis for a unilateral monopolization claim. The Court noted that in the typical exclusive dealing situation, the downstream distributor has the incentive to achieve the lowest possible price from the upstream supplier. This incentive, unless the seller has market power, should result in a negotiated discount that includes some discount to reflect the increased possibility that the upstream supplier could gain market power through the exclusive dealing arrangement. However, the Sixth Circuit noted that any one of the four retailers who did an exclusive deal with 3M might not necessarily seek low enough prices to defray the potential anticompetitive impact of the increased market power which resulted from multiple exclusive arrangements being created by 3M.

The Sixth Circuit was unequivocal that 3M's conduct could constitute an antitrust violation under Section 2 for pleading purposes. The District Court had found that the exclusive dealing contracts at issue were no more than 3M's appropriate response to a concentrated market with significant entry barriers given the way large retailers renegotiated contracts on only an intermittent basis, and so constituted appropriate pro-competitor behavior. The Sixth Circuit felt that on the facts as alleged, it was required to accept as true that the multiple exclusive agreements created by 3M over a two-and-a-half-year period resulted in the creation of market power through means other than a superior product or business acumen. The Sixth Circuit rejected the notion that an antitrust claim could not be stated in this fact situation without also alleging that the discounted prices offered by 3M to the big box retailers were predatory.

The Sixth Circuit then turned to the issue of competitor standing. In particular, the Sixth Circuit credited the notion that the obvious private plaintiffs to enforce Section 2 of the Sherman Act in this circumstance were the big box retailer purchasers. However, the Sixth Circuit also observed that there could be powerful real world incentives restraining the large retailers from taking legal action. Under those circumstances, it was appropriate in the Court's view to permit NicSand to serve as an advocate for the downstream distributors economic interests even though it was 3M's direct competitor.

Finally, the Sixth Circuit struggled at length with the concept of "antitrust injury." In a detailed review of Sixth Circuit case law following the Supreme Court's seminal announcement of the antitrust injury requirement in Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 US 477 (1977), the Sixth Circuit stated that it was absolutely required for NicSand to plead cognizable impact on the competitive process apart from any negative economic impact on NicSand itself. Ultimately, the Sixth Circuit focused on the fact that the complaint alleged that 3M's exclusive dealing agreements brought about the elimination of a superior product purely through improperly acquired market power. Moreover, and somewhat perversely, the Sixth Circuit also focused on the fact that prior to 3M's entry, NicSand was essentially the only substantial participant in the market. In other words, market injury would have to have overlapped to a degree with NicSand's injury because NicSand played such a substantial role in the market before 3M entered.

Perhaps not a surprise, the majority decision provoked a scathing dissent. The dissenting judge made the expected observation that 3M's conduct was manifestly pro-competitive since it displaced an entrenched monopolist by offering lower prices. Moreover, it was perfectly obvious from a description of the market, even as alleged by the plaintiff, that the market was dominated by a discrete group of powerful and sophisticated purchasers with plenty of market power of their own who were more than capable of looking after their own interests. Finally, the dissenting judge was wholly unpersuaded that the products at issue were sufficiently sophisticated or unique so that barriers to entry existed which could not be surmounted in the future by another entrant in the same way 3M had displaced NicSand. Petitions for rehearing en banc and ultimately a petition for certiovari would seem to be a distinct possibility.

Authored by:

David R. Garcia

(310) 228-3747

dgarcia@sheppardmullin.com

In an opinion that sheds light on the defenses available to a company accused of price discrimination, the Seventh Circuit Court of Appeals has upheld a jury's defense verdict in favor of tobacco giant R.J. Reynolds Tobacco Co. ("Reynolds"). R.J. Reynolds Tobacco Co. v. Cigarettes Cheaper!, 2006 U.S. App. LEXIS 21590 (7th Cir. Aug. 24, 2006), reh'g denied, 2006 U.S. App. LEXIS 23811 (7th Cir. Sept. 15, 2006). Specifically, the unanimous panel: (1) allowed Reynolds protection under the "general availability" defense even though its generally available discount was conditioned on the retailer's agreement to provide a certain level of advertising; (2) remarked that evidence of intent in a Robinson-Patman Act trial could only serve to confuse the jury; and (3) held that a generally available discount can qualify for a "meeting competition" defense, if it counters a similar discount from a competitor.

"As its name implies," Cigarettes Cheaper! sells discount cigarettes. The company charged particularly low prices for cigarettes made by Philip Morris, in exchange for extensive advertising. Reynolds accused the discounter of "reimporting" Reynolds cigarettes, intended for sale outside the United States, back into the country for domestic sale. Reynolds filed suit claiming that the gray-market sales violated the Lanham Act, 15 U.S.C. §§1050 to 1127.

Cigarettes Cheaper! responded with two antitrust counterclaims. The discounter claimed Reynolds conspired to with retail dealers to drive it out of business, in violation of the Sherman Act, 15 U.S.C. §§1 and 2. Cigarettes Cheaper! also claimed Reynolds charged different prices to different retail dealers and refused to give Cigarettes Cheaper! its lowest level of discounts, in violation of the Robinson-Patman Act, 15 U.S.C. §13. Reynolds defended against this latter charge by claiming that these discounts were available to Cigarettes Cheaper! if the company would stop its gray market sales. Alternatively, Reynolds claimed that the discounts were necessary to meet competition. A district court granted summary judgment for Reynolds on the Sherman Act claim; a jury awarded Reynolds approximately $4 million in damages on its Lanham Act claim; and a different jury returned a general verdict in favor of Reynolds on the Robinson-Patman Act claim. Cigarettes Cheaper! appealed all three outcomes.

In an opinion authored by circuit Judge Frank H. Easterbrook, the appeals court affirmed all three. The panel upheld the jury's finding that Reynolds presented a legitimate "in general availability" defense by showing that its deepest discounts were as available to Cigarettes Cheaper! as to any other retailer, if the discounter would stop selling gray market cigarettes and provide Reynolds with the same level of support it provided Philip Morris.

The appeals court also upheld the trial court's decision to exclude colorful memos in which Reynolds executives expressed their desire to "shut down" and "kill" Cigarettes Cheaper! "on the beach." Evidence regarding intent was irrelevant to the Robinson-Patman claim, Easterbrook wrote, and could only serve to confuse the jury. "[A] bad intent is not part of the plaintiff's prima facie case under §13(a), and a 'good' intent (apart from its a bearing on the statutory justifications) does not excuse price discrimination," Easterbrook wrote.

The panel also found proper a jury in instruction that Reynolds need not establish its meeting competition defense on a customer-by-customer basis, but instead "must simply show that its offer of lower prices or greater allowances was reasonably tailored to the competitive situation that it realistically faced in the marketplace." While it's possible that the jury might misread this instruction to require no more than a generally competitive market, Easterbrook wrote, this was unlikely given that a second instruction clearly place a burden on Reynolds to show that it was meeting prices available to customers from another source. "If producer A makes a generally available offer, then a generally available response meets the competition," Easterbrook wrote.

The appeals court also upheld the grant of summary judgment in favor of Reynolds on the Sherman Act claim. The court found that Cigarettes Cheaper! failed to establish a predatory pricing claim as there is no evidence to suggest that consumers would ultimately be injured by its discounts. "[I]n antitrust litigation, 'cut-throat competition' is a term of praise rather than condemnation." Further, the court found that Cigarettes Cheaper!'s claim that Reynolds organized retail dealers into a cartel to charge a monopoly price for cigarette distribution was both illogical and unsupported by the evidence.

Authored by:

Tyler M. Cunningham

(415) 774-3208

tcunningham@sheppardmullin.com

DOJ and FTC Issue Hart Scott Rodino Statistics for 2005

• On September 8, the Federal Trade Commission released its annual report to Congress on merger filings under the Hart Scott Rodino Act. According to the report, the total number of HSR filings increased by 17%, from 1,454 transactions in 2004 to 1,695 in 2005. Although this still represents a substantial decrease from the 4,926 filings in 2000, the report noted that the thresholds had been amended in 2001, increasing the minimum size of a reportable transaction from $15 million to $50 million (now $56.7 million for 2006).

  During 2005, the FTC issued second requests for 25 transactions and challenged 14, while the Antitrust Division also issued 25 second requests, while only challenging 4 of the transactions. Each agency had a challenge rate of approximately 3.1% of transactions, an increase from a rate of 2.5% in 2004. Of the 14 transactions challenged by the FTC, 9 resulted in consent decrees, 4 resulted in abandoned transactions, and only 1 required the FTC to obtain an injunction.

  The agencies also recovered $2,350,000 in fines from two parties in 2005 for failing to notify the agencies of transactions. In a footnote, however, the report stated that "[w]hen the parties inadvertently fail to file, the enforcement agencies generally do not seek penalties where the parties promptly make corrective filings after discovering the failure to file, submit an acceptable explanation of their failure to file, and have not previously violated the act." However, in the two cases where the department did collect fines, the agencies focused on either the intent of the acquiring party or on tardy applications with incorrect information.

  The Antitrust Division obtained a $2,000,000 fine from Smithfield, Incorporated after Smithfield, the largest pork packer in the United States, bought shares worth more than $15 million of IBP, the second largest pork packer in the United States. Smithfield had argued that the transaction was not reportable, because it had acquired the shares for investment purposes only. The antitrust division disagreed, noting that Smithfield had actively contemplated acquiring IBP prior to making the share acquisition, meaning that it did not qualify under the investment purpose exception to the rules. In the final consent decree, the Smithfield did not admit liability, but did agree to pay $2,000,000.

  The other transaction which resulted in a fine involved a hedge fund manager who had made share acquisitions of two companies beyond the thresholds without reporting them. In both cases, the hedge fund had acquired fewer than 50% of the outstanding shares, but had acquired shares in excess of the threshold value, approximately $50 million. Although the fund had made a corrective filing within a few months of the acquisition in 2003, in January 2005 the FTC notified the fund that the actual ultimate parent entity of the fund was Mr. Sarcane, its manager, and that therefore he was required to file a notification. Therefore, because Mr. Sarcane had failed to file the notification, the notification was defective, and he had to pay $350,000 in fines.

  These examples from the report highlight the importance of correctly determining the ultimate parent entity when filing a notification and exercising caution when using the investment purpose only exemption, especially when acquiring shares of a competitor.

FTC Approves Consent Decree with Austin Realtors

• On September 5, 2006, the FTC announced that it had approved a settlement with the Austin Board of Realtors that forces the Board of Realtors to make real estate information available on its multiple listings services website from brokers who use discounted services.

  Under the prior rule adopted by the Board of Realtors, only brokers using a traditional Exclusive Right to Sell Listing arrangement, whereby the buyer pays the agent a set commission to sell the house, could have their listings advertised on the MLS and other websites. Those brokers using a Exclusive Agency Listing, in which the agent agrees to be paid a set commission but permits the homeowners to pay him or her a reduced commission if the owner sells it without the assistance of the broker, were barred from having their homes listed on the MLS. Exclusive Agency Listing arrangements are typically offered by discount brokers in return for unbundled services.

  On July 13, 2006, the FTC filed a complaint and proposed consent decree, asking that the Board of Realtors be enjoined from enforcing this rule. According to the complaint, the rule had substantial anticompetitive effects, in that brokers offering discounted or unbundled services were unable to have their homes seen by a wide audience. As a result, many brokers had stopped offering discounted services. In addition, the MLS and other websites controlled by the Board of Realtors were the only way in which a wide audience could see the which homes were available, giving them substantial market power. In the decision and order, the FTC not only forced the Board of Realtors to allow homes listed under the Exclusive Agency contracts to be seen, it also forced the Board of Realtors to not discriminate against the listings, through limits on downloads or viewings. 

  The consent decree is significant, because it represents a successful prosecution of a real-estate practice by the FTC. Although private litigants sued realtors for practices such as commission fixing and exclusive websites, their successes have been limited. This consent decree could potentially be used by private litigants to both establish market power and market harm in real estate cases.

Authored by:

Chris Bowen

(202) 772-5348

cbowen@sheppardmullin.com

• On September 29, the European Commission adopted draft amendments to its Notice on Immunity from Fines and Reduction of Fines in Cartel Cases (the 2002 Leniency Notice). The proposed amendments take stock of issues that have arisen during the four years of application of the 2002 notice, and are in line with the European Competition Network’s (ECN) Model Leniency Program. These developments move towards a one stop leniency shop by harmonizing the procedure and requirements for leniency applications, to make it easier for companies to apply for leniency when it is not clear which authority will take the case forward. The changes to the Commission’s Notice also introduce a marker system, and clarify the information an applicant needs to provide to benefit from immunity as well as the conditions for immunity and reduction of fines. European Competition Commissioner, Neelie Kroes, said, “Cartels do severe damage to the European economy, and are serious violations of the competition rules. Effective action against cartels requires heavy sanctions to punish and deter and incentives to participants to report cartels. My colleagues in the ECN share my concerns about potential shortcomings in the current system and we are joining forces to deliver a European one stop shop model. The Commission Leniency Notice is a formidable and successful tool to detect and terminate cartels. These changes will make it even more effective”.
  
  
• On September 28, the European Commission launched a public consultation on a draft set of guidelines that clarifies the Commission’s current practice with regard to jurisdictional issues in merger control. The new draft Notice consolidates the existing texts and adapts them in the light of recent judgments of the European courts, of the new EU Merger Regulation adopted in 2004, and of the Commission’s case practice. The overall aim of the new Notice will be to give more precise and user-friendly guidance to parties involved in a merger, takeover or joint venture to establish whether the Commission is competent for an envisaged transaction and so whether a concentration must be notified to the Commission for clearance. The public consultation will be open until December 1, and the Commission has invited all interested parties to submit their observations within this time-frame.
  
  
  
• On September 20, the European Commission fined 30 companies a total of €314.7 million for allegedly participating in a copper fittings cartel, in violation of the EC Treaty’s ban on restrictive business practices (Article 81). Between 1988 and 2004, the Commission alleged that the companies fixed prices, discounts and rebates, agreed on mechanisms to coordinate price increases, allocated customers and exchanged commercially important and confidential information. Four companies had their fines increased by 60% because they allegedly continued their illegal arrangements after the Commission’s initial inspections. The investigation was prompted by an application for leniency lodged in January 2001 under the 1996 Leniency Notice. Subsequently, the Commission carried out unannounced inspections. Later, the Commission issued requests for information which triggered applications for reduction of fines by several undertakings. Competition Commissioner, Neelie Kroes, said, “We will not tolerate cartels and will take all measures to stamp them out. We will not only punish firms severely for cartel behavior, but also increase the fines for flagrantly continuing after a Commission dawn raid and for providing wrong or misleading information”.
  
  
• On September 11, the Attorney General of Canada laid criminal charges of obstruction and destruction of documents against a ventilation company employee in Laval, Quebec with respect to an ongoing Competition Bureau investigation. Joël Perreault, an appraiser with Les Entreprises Promécanic Ltée., was charged under Sections 64 and 65 of Canada's Competition Act with obstructing the course of an investigation and destroying documents during the execution of a search warrant at Promécanic. The Bureau alleges that between February 22 and March 1, 2006, Mr. Perreault removed and destroyed pages from his agenda that contained information relevant to the Competition Bureau’s investigation. The Competition Act contains provisions which protect the integrity of investigations and proceedings. Penalties for obstruction include a maximum fine of $5,000 or two years in prison, or both. In the case of destruction of documents, the penalties are a maximum fine of $25,000 or two years in prison, or both.
  
  
• On September 27, the European Court of First Instance (CFI) dismissed appeals by Archer Daniels Midland Co (ADM) and Jungbunzlauer AG (JBL) against a decision of the European Commission which fined them for participation in an alleged illegal price-fixing cartel in the citric acid sector.  The CFI upheld the fines imposed by the Commission. In particular, the CFI rejected the appellants' reliance on the principle of ne bis in idem to claim that account should have been given to the fines imposed in the US or Canada. The CFI held that the aim of the US and Canadian laws is to protect competition in their markets, while the aim of the EU rules are to protect competition in the EU. Thus, the CFI held that the appellants failed to demonstrate that the Commission breached the principle of fairness by not taking into account related fines previously imposed in other jurisdictions. Further, the CFI dismissed claims that the fine had no deterrent effect because the conduct had already been sanctioned outside the EEA. The CFI held that the Commission is entitled to decide the level of fines in order to reinforce their deterrent effect. The object of deterrence relates to the conduct of undertakings within the EU or EEA. Therefore, the deterrent effect cannot be assessed by reference to the particular situation of the fined company.
  
  
• On September 13, the European Commission held that 8 suppliers and 6 purchasers of road bitumen in The Netherlands allegedly participated in a cartel from 1994 to 2002 to fix prices in violation of the EC Treaty competition rules’ ban on restrictive business practices (Article 81). A total of 14 companies were fined a total of €266 million. The bitumen suppliers and construction companies allegedly fixed the gross price of all road pavement bitumen sold in the Netherlands, and allegedly agreed uniform minimum rebates for the construction companies that were cartel members, and a smaller maximum rebate for all other road builders. The Commission held that this restricted price competition, and disadvantaged smaller road building companies. Two companies had their fine increased as they allegedly began, and led the cartel. A third company's fine was also increased for being a repeat offender. A fourth company's fine was also increased for allegedly having tried to obstruct the Commission’s investigation. Bitumen, a by-product of fuel production, is mainly used to make asphalt, binding other road surfacing materials together. This cartel covered all bitumen used for road construction in the Netherlands, a market valued around €62 million in 2002.
  
  
• On September 22, Barton Mines Corporation and Barton International Inc, two US companies operating in Australia, were ordered to pay penalties totaling AU$1.525 million by the Australian Federal Court after they admitted entering into an illegal market sharing arrangement for the supply of alluvial garnet in Australia. Alluvial garnet is a mineral used as an abrasive in the preparation of surfaces.  The Federal Court declared that the two companies breached Section 45 of the Trade Practices Act by entering into a market sharing agreement by which the companies agreed to restrictions in relation to the geographic territories into which each would be permitted to supply alluvial garnet. Australian Competition and Consumer Commission Chairman, Mr. Graeme Samuel, commented, "This is a significant penalty for a contravention of Part IV of the Trade Practices Act which should serve as a warning to other companies which may try to collude and allocate markets between them. Whilst the Barton companies are overseas companies, when they are operating in Australia they are subject to the Act". Mr. Samuel added that, "The ACCC will apply the cartel provisions of the Act just as vigorously to foreign companies as it will to home grown cartel participants".
  
  
• On September 21, the French Competition Council endorsed the principle of consumer class actions for damages arising from anticompetitive conduct. The Conseil de la Concurrence stated that class actions can compensate the losses suffered by consumers "by restoring the balance of power between powerful companies, which are often large groups, and consumers, which are by nature isolated". Moreover, "[P]rivate actions, in general, and class action mechanisms, in particular, can contribute to strengthen deterrence in making the victim, and notably the consumer, a real player, and an ally of public authorities in the fight against anticompetitive practices". However, the French competition authority also stated that it would ensure that civil suits brought by consumers did not undermine its leniency program by "guarantee[ing] the confidentiality of the declarations made by the companies which benefit from leniency, so that they cannot be used in a civil procedure".
  
  
• On September 15, Ms Neelie Kroes, European Competition Commission, gave a speech to The Council on Foreign Relations in New York on developments in antitrust policy in the EU, and the US. She discussed recent developments in three particular areas – cartels, unilateral conduct, and private damages action. With respect to cartels, she explained that the Commission had created a dedicated cartel Directorate of around 60 officials, and had proposed new guidelines on fines would subject  repeat offenders to a 100% fine increase. Despite significant differences in the legislation governing unilateral conduct, Ms. Kroes noted that US and EU enforcement approaches are convergent in a number of respects, for example, the competition rules are designed to protect competition not competitors, and large companies have a right to compete, and dominance alone is not itself a problem. She acknowledged that the EU is far behind the US in private damages actions but that the Commission had launched a Green Paper on private damages to discuss a number of fundamental issues. Ms. Kroes concluded by noting that the competition systems in the EU and US have more similarities than differences.
  
  
• On September 22, the Canadian Competition Bureau published an Information Bulletin on Merger Remedies in Canada. The Bulletin provides guidance to businesses and legal counsel on the objectives and general principles applied by the Bureau when it seeks, designs, and implements remedies to resolve competition concerns arising from proposed transactions.
  
  To facilitate negotiated settlements between merging parties and the Competition Bureau, an outline of a consent agreement is included as an appendix to the Bulletin.

   

Authored by:

Neil Ray

415-774-3269

nray@sheppardmullin.com