Antitrust Law Blog

On May 5, the European Commission announced that it had sent a statement of objections to a number of suppliers of marine hoses.  Marine hoses are used by customers in the oil and defense industries to transport oil and petroleum products between tankers and storage facilities.  The statement of objections sets out the Commission's allegations that the companies have participated in a cartel in breach of Article 81 of the EC Treaty and Article 53 of the EEA Agreement.  It follows the Commission's announcement that it carried out dawn raids in the sector in May 2007.  The companies will now have an opportunity to respond to the allegations and evidence set out in the statement of objections. They will have access to the Commission's file and may request an oral hearing.  The Commission's dawn raids were coordinated with the US Department of Justice (DOJ) in the context of a suspected worldwide cartel concerning marine hoses and, in the UK, the Office of Fair Trading (OFT) has also been carrying out a criminal cartel investigation under the Enterprise Act 2002.  In December 2007, DOJ announced that three UK individuals had agreed to plead guilty to their participation in a cartel in the supply of marine hoses in the US, and the OFT announced that it had brought criminal charges under the Enterprise Act against those individuals on their return to the UK.

On March 12, the UK's House of Lords (HoL) allowed an appeal by Ian Norris, former chief executive of the Morgan Crucible Group, against a decision of the High Court which had held that dishonest price-fixing is capable of amounting to the English common law offence of conspiracy to defraud and so is an extradition offence. The HoL remitted the case to a district judge to assess whether it would be proportional to grant an extradition request in relation to the secondary offences regarding Mr. Norris' alleged obstruction of the US criminal investigation into the cartel.  The HoL held that in order for an offence to be committed, aggravating factors such as dishonesty, misrepresentation, fraud or violence must also be present and noted that there had never been a successful prosecution for being a party to, or giving effect to, a price-fixing agreement without the presence of such aggravating features.  The HoL also considered the history of legislation dealing with agreements in restraint of trade.  It considered that, historically, cartel agreements were not, of themselves, necessarily considered to act against the public interest.  Although participation in a cartel could, in some cases, be penalized by civil remedies, it could not give rise to criminal sanctions.  The HoL considered that the system of regulation whereby restrictive agreements were registrable appeared to have represented a regulatory, non-criminal code to deal with cartel agreements.  It was, therefore, unlikely that Parliament could have intended that there should be an extra-statutory system involving criminal sanctions running alongside the regulatory system.  However, the HoL disagreed with Mr. Norris's arguments that these offences were not extradition offences under the Extradition Act because it was not an offence under English law for him to conspire to obstruct a criminal investigation into price-fixing being carried out by a grand jury in Pennsylvania.  The HoL held that price-fixing could have been combined with other elements that may have led to various offences, such as fraud.  The exact outcome of an investigation could not have been determined when it was in progress. The fact that the investigation resulted in a charge of price-fixing alone was no reason to hold that it would not have been an offence under English law to obstruct the progress of an equivalent investigation by the appropriate body in the UK.

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

On 19 December 2007, the UK's Office of Fair Trading ("OFT") announced that it had charged three UK businessmen with cartel offences under the Enterprise Act 2002.  The three individuals were charged with dishonestly participating in a cartel to allocate markets and customers, restrict supplies, fix prices and rig bids for the supply of marine hose and ancillary equipment in the UK.  If the men are found guilty of the cartel offence, they face up to five years in prison and/or an unlimited fine.  The OFT's announcement stated that its investigation related to a worldwide conspiracy between a number of company executives to rig bids, fix prices and allocate markets in the supply of marine hoses, which are used by customers in the oil and defense industries to transport oil between tankers and storage facilities.  The businessmen, together with five nationals from other countries, were originally arrested by the United States authorities in May 2007 for suspected breaches of US antitrust law. The arrests took place in Houston, Texas where they were attending an industry conference, and were timed to coincide with searches carried out by the OFT at locations in the UK, as well as on-site inspections by the European Commission.  On December 12, 2007, DoJ released a statement stating that the three UK individuals had agreed to plead guilty to participating in a conspiracy to rig bids, fix prices and allocate market shares of marine hoses sold in the US in violation of the Sherman Act. The Plea Agreements filed with the US District Court in Houston stated that each agreed to serve certain periods in jail and pay fines:  Peter Whittle, the sole proprietor of a consulting business, PW Consulting (Oil & Marine) agreed to serve 30 months in jail and to pay a fine of US$100,000; Bryan Allison, managing director of Dunlop Oil & Marine Ltd (a UK company based in Grimsby), agreed to serve 24 months in jail and to pay a fine of US$100,000; and, David Bramner, the sales and marketing director of Dunlop Oil & Marine, agreed to serve 20 months in jail and to pay a US$75,000 fine.  Although the three defendants agreed to plead guilty to the charges in the US, they also agreed to be escorted back to the UK to plead guilty to price-fixing charges under the UK's Enterprise Act, and serve jail terms in English prisons for a period no less than the time agreed in their plea agreements.  This is the first time that the OFT has announced that arrests have been made under the criminal cartel provisions of the Enterprise Act.  The case has been heralded both by the DoJ and the OFT as an example of the two authorities working together against cartel activity.  It demonstrates the increasing cooperation between competition authorities in investigating and prosecuting international cartels.  The OFT also stated that the bringing of these charges is "highly significant development in both the UK's own competition regime and in international cooperation against cartels". It considers that the case demonstrates its willingness to "act decisively and innovatively when investigating suspected cartel activity".

On September 17, the European Court of First Instance (CFI) essentially rejected the appeal by Microsoft against the European Commission's (EC) decision that it had abused its dominant position.  The CFI upheld the EC's finding that Microsoft had breached Article 82 by virtue of its refusal to grant interoperability information, and its bundling of Windows Media Player with the Windows PC operating system.  The CFI also confirmed the €497 million fine imposed on Microsoft, and the EC's remedies requiring the provision of interoperability information, and the unbundling of Windows Media Player.  However, the CFI concluded that the mechanism for the appointment of a monitoring trustee was unlawful.  It concluded that the EC had no authority to compel Microsoft to grant a monitoring trustee powers that the EC itself is not authorized to confer on a third party, or to require Microsoft to pay the costs of the monitoring trustee.

Between September 3 -5, 2007, Ms Neelie Kroes, EC Competition Commissioner, visited Beijing where she held high-level ministerial meetings on competition policy, and on enhancing cooperation between the EC and the Chinese competition authorities.  She discussed the Chinese and European economies, and the role of competition policy in enhancing their competitiveness. During her visit, Ms. Kroes had high-level ministerial meetings with the Ministry of Commerce, and the State Administration of Industry and Commerce as well as with senior academics, and representatives of the European and Chinese business communities. The visit coincided with the adoption of the first comprehensive Anti Monopoly Law by the Standing Committee of the National People's Congress of the People's Republic of China (see above).  The visit took place in the framework of the EU-China Competition Policy Dialogue, and is the latest in a range of EU-China contacts to discuss competition policy matters that began in 2003.  Ms Neelie Kroes said: “I congratulate the Chinese authorities for the adoption of the Anti-Monopoly Law. I am very impressed with the work of the Chinese legislature, which has taken this important step towards an effective competition regime. The implementation of a transparent and non-discriminatory competition framework will benefit the Chinese economy and Chinese consumers. I hope China will derive the same economic benefits as we have in the EU, where a sound competition policy has helped to create open markets and increased consumer welfare”.

On July 27, the European Commission (EC) confirmed that it sent a Statement of Objections (SO) to Intel alleging that Intel infringed European competition rules on the abuse of a dominant position (Article 82) with the aim of excluding its main rival, AMD, from the x86 Computer Processing Units (CPU) market.  In the SO, the EC alleges that Intel engaged in three types of abuse of a dominant market position.  First, Intel allegedly provided substantial rebates to various Original Equipment Manufacturers (OEMs) conditional on them obtaining all or the great majority of their CPU requirements from Intel.  Secondly, Intel allegedly made payments in order to induce an OEM to either delay or cancel the launch of a product line incorporating an AMD-based CPU.  Third, in the context of bids against AMD-based products for strategic customers in the server segment of the market, Intel allegedly offered CPUs on average below cost.  The EC alleges that these three types of conduct were aimed at excluding AMD, Intel's main rival, from the market, and each exclusionary practice  reinforced the other as part of a single, overall anti-competitive strategy.  Intel has 10 weeks to reply to the SO, and will then have the right to be heard in an Oral Hearing.

DOJ Obtains Consent Degree forcing Divestiture in Monsanto/Delta & Pine Land

On May 31, the Department of Justice Antitrust Division announced that it had reached a settlement with Monsanto, resolving the objections that the Division had with Monsanto's purchase of Delta & Pine Land ("Delta").  Numerous interest groups had watched the merger closely, as it involved the vertical integration of the largest producer of cotton seed traits (favorable growing characteristics that are introduced into cotton seeds via genetic engineering) with the largest producer of cottonseeds, and the horizontal integration of two cottonseed producers.

On May 22, the European Commission (EC) approved the proposed acquisition of the music publishing business of Bertelsmann Music Group (BMG) of Germany by the US-based Universal.  The EC held that the proposed merger, as initially notified, raised serious doubts as regards adverse effects on competition in the market for music publishing rights for online applications.  However, following an in-depth investigation, the EC held that its concerns would be removed by the remedies package proposed by the parties concerning the divestiture of a number of publishing catalogues.  In the light of these commitments, the EC concluded that the proposed operation would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.  EC Competition Commissioner, Neelie Kroes, stated, "Digital music has the potential to change the face of the music industry in Europe. I am satisfied that the significant remedies will keep these markets competitive and ensure that consumers will not be harmed by the merger".

On April 3, the European Commission ("EC") announced that it sent a Statement of Objections to a number of major record companies and Apple, alleging that the agreements between each record company and Apple restrict music sales (via iTunes on-line stores), and infringe Article 81 of the EC Treaty by imposing territorial restrictions which prevent consumers from buying music downloads from the iTunes on-line store in their country of residence.  The EC alleges that this restriction is imposed by verification by iTunes of a customer's country of residence from consumers' credit card details.  The EC further alleges that the territorial sales restrictions in the agreements between Apple and the major record companies restrict consumers' choice as to where to buy music, what music is available and at what price.  The EC has given the undertakings involved two months to respond to the Statement of Objections in writing.  The undertakings will be given access to the EC's file, other than business secrets, other confidential information and internal documents of the EC or member state competition authorities. The undertakings can also request an oral hearing at which to present their defense.  The Statement of Objections does not allege that Apple is in a dominant market position, and does not concern Apple's use of its proprietary Digital Rights Management (DRM) to control usage rights for downloads from the iTunes on-line store.

Antitrust Division Finds No Problem with Pork Merger

On May 4, 2007, the Antitrust Division issued a press release announcing that it had decided not to challenge Smithfield Foods acquisition of Premium Standard Farms.  In its press release, the Division indicated that it found that the acquisition would not pose a competitive problem for either consumers of fresh and processed pork, nor for pork farmers in the Midwest or in Virginia or the Carolinas.

FTC Kills Funeral Home Directors’ Attempt to Bury Competition

FTC Testifies Before House of Representatives on Patent Reform

• On February 15, 2007, Suzanne Michel, Deputy Assistant Director for Policy and Coordination in the FTC's Bureau of Competition testified before the House of Representatives' Subcommittee on Courts, the Internet, and Intellectual Property on the subject of patent reform. In this testimony, Ms. Michel noted that patent protection serves many public policies. Patent protection encourages firms to compete in the race to invent new products, eases the ability of innovators to attract funding and develop relationships needed to commercialize inventions, and facilitates the public disclosure of scientific and technical information that can stimulate further scientific progress. However, the testimony noted, competition is also a major spur for innovation and patents of "questionable quality i.e. patents that are too broad or of dubious validity – can harm competition and innovation

FTC Releases Report on Horizontal Merger Investigations

• The Federal Trade Commission released a report on January 25 which detailed the characteristics of the horizontal mergers it has challenged from 1996 to 2005. Although the 6 page written portion of the report only described which variables the FTC had examined, the tables included with the report allow the reader to compare how those variables affect the odds of the FTC challenging a merger for which the it has issued a second request.

Reforms to Second Request Procedures Announced

• On December 15, the Antitrust Division released its amendments to its 2001 Merger Review initiative. The Division hopes that the changes will shorten the amount of time spent on merger reviews and reduce the amount of documents produced by focusing the Division on the most relevant issues and time periods. In addition, the Division also made changes to its model second request.

   

• On November 29, the European Commission fined five groups of companies a total of €519m for allegedly participating in a cartel to fix prices and share customers for certain types of synthetic rubber in violation of the EC Treaty’s ban on restrictive business practices (Article 81).  The overall fine is the second highest imposed by the Commission in a cartel case, and brings the total amount of cartel fines imposed this year to €1.843 billion - a new annual record for the Commission. The Commission stated that its Decision was based on numerous documents, corporate statements, and witness interviews provided by the Leniency applicants, together with meetings notes discovered by the Commission during an on-site inspection. The Commission alleged that the cartel agreements were made before, or after, the official meetings of the European Synthetic Rubber Association which took place in various European cities.  During these meetings, the Commission alleged that the participants agreed prices, exchanged information on key customers, and the amounts of synthetic rubber supplied to them. Competition Commissioner, Neelie Kroes, stated, “Cartels strike at the heart of healthy economic activity.  They undermine competition, raise prices for consumers and reduce the diversity, quality and innovation of European companies. The Commission has imposed high fines in this case, but if companies continue to indulge in cartel activities, then they can expect their fines to be even higher in the future”.

Court Refuses to Dismiss Division’s Suit against National Association of Realtors

• In United States v. National Association of Realtors, No. 05 C 5140 (N.D. Ill. Nov. 27, 2006) (available at http://www.usdoj.gov/atr)., Judge Filip rejected the National Association of Realtors' ("NAR") arguments that the Court lacked subject matter jurisdiction or that the Division had failed to state a claim. Importantly, Judge Filip held that just because NAR had changed its policies in response to the threatened filing of a complaint did not mean that there was no case or controversy about the initial filing.

District Court Schedules Tunney Act Hearing

• On November 30, 2006 at 2pm, the U.S. District Court for the District of Columbia will hold a hearing on the government's Motion for Entry of Final Judgments in deciding whether to approve the merger of AT&T and SBC and the merger of MCI and Verizon. Judge Sullivan surprised many observers by demanding that the Department of Justice and the merging parties submit much of the evidence that the Antitrust Division had reviewed during the second request it had issued during both mergers.