• On October 7, the European Commission cleared under the EU Merger Regulation, the proposed acquisition of MCI by Verizon Communications. Since Verizon is active as a local US ISP, the transaction did not give rise to direct horizontal concerns in the market for global internet connectivity. Its network will nevertheless add to the scope of MCI’s Internet network but the Commission’s assessment of the transaction showed that this overlap between the activities of Verizon and MCI is, however, very limited, and that the combined firm will continue to face several strong and effective competitors. The Commission also examined the vertical effects which result from the combination of Verizon’s activities at the local loop level in a number of areas in the US with MCI’s upstream global telecommunication or international voice telephony activities. However, the Commission’s investigation showed that the effect of this integration will not materially affect competitors’ ability to provide such services.

• On October 5, the European Commission appointed Professor Neil Barrett, a computer scientist, as the Trustee who will provide technical advice to the Commission on issues relating to Microsoft’s compliance with the Commission’s 2004 Decision that Microsoft Corporation broke the EC Treaty’s ban on abuse of monopoly power (Article 82) by leveraging its near monopoly in the market for PC operating systems onto the markets for work group server operating systems and for media players. The Commission’s Decision imposed a fine of €497 million on Microsoft, and required the company to implement remedies as regards both work group server operating systems and media players. The Monitoring Trustee’s role is to provide impartial expert advice to the Commission on compliance issues. For example, as regards the interoperability remedy, where Microsoft is required to disclose complete and accurate interface documentation which would allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers, his expertise might be used in assessing whether Microsoft’s protocol disclosures are complete and accurate, and whether the terms under which Microsoft makes the protocol specifications available are reasonable and non-discriminatory.

• On September 30, 2005, the European Court of First Instance published details of an appeal brought by Microsoft Corporation against the European Commission’s decision that Microsoft make available to third parties, in source code form, software developed by competitors who had received interoperability information from it. The disclosure of the interoperability information was ordered by the Commission’s 2004 decision finding that Microsoft had infringed Article 82 of the EC Treaty’s Competition rules. Microsoft claims, inter alia, that the Commission’s decision unlawfully deprives Microsoft of its property rights; the Commission lacks competence to impose such obligations; and by requiring worldwide, and disclosure of Microsoft’s property rights, the Commission’s decision infringes binding principles of public international law.

• On September 30, the Canadian Competition Bureau announced that it would not challenge the acquisition of The Gillette Company (“Gillette”) by The Procter & Gamble Company (“Procter & Gamble”). Following a thorough review, the Bureau determined that divestitures required by United States and European competition agencies adequately resolved concerns in Canada. The Bureau identified some concern in the oral care markets for battery powered toothbrushes and teeth whitening products. In order to resolve competition concerns raised by the United States Federal Trade Commission, the European Commission and the Competition Bureau, Procter & Gamble agreed to divest the Spinbrush and Rembrandt oral care lines in the United States, Europe and Canada. The Bureau believes that these measures will preserve competitive options for Canadian customers.

• On September 28, Graeme Samuel, Australian Competition and Consumer Commission (“ACCC”) addressing the Economics Society of Australia’s Detection of cartels symposium in Melbourne, stated that the introduction of criminal sanctions for cartel conduct will raise the bar for ACCC investigations. The Immunity Policy, the development of a Memorandum of Understanding with the Director of Public Prosecutions, enhanced training of ACCC staff in a dedicated criminal enforcement and cartel branch, and a campaign to raise awareness of cartels amongst government procurement officials were some of the steps already under way to ensure the agency was equipped to undertake its new role. “Investigations into cartels are some of the most complex and difficult investigations that the ACCC undertakes”, he said. “Proving a criminal cartel offence will take that difficulty to a new level. The inherently secretive nature of cartels and the measures taken to avoid detection often necessitate time consuming and resource intensive investigations.” Mr. Samuel also stated that the introduction of jail sentences for executives involved in cartel behavior would, he hoped, “prey on the minds of Australian company executives”.

• On September 23, 2005, Neelie Kroes, European Competition Commissioner, delivered a speech to the Fordham Corporate Law Institute, New York, on the policy review of Article 82 of the EC Treaty. She stated her belief that Article 82 enforcement should focus on conduct that has actual or likely restrictive effects on the market, which harm consumers. Her philosophy is that competition, and not competitors, should be protected. The aim is to avoid consumer harm, and aggressive competition, including by dominant companies, is good as long as it ultimately benefits consumers. The Commissioner also believes that inefficient competitors should not be protected by European competition policy from aggressive price-based actions of a dominant firm. She stated that one possible approach to pricing abuses could be based on the premise that only the exclusion of “equally efficient” competitors is abusive.

• On September 22, an association of independent music companies challenged the European Commission in court in Luxembourg over its decision to clear the SonyBMG merger last year. The one-day hearing plays a vital role in the appeal which had already been fast-tracked by the court. This is the first time small businesses have taken on the Commission in legal action of this scale. The association contests that Commission’s clearance decision wrongly decided that the merger would not create or strengthen a collective dominant position on the markets for recorded music and the wholesale market for licenses for online music; would not create a position of single dominance on the market for the distribution of online music; and would not lead to coordination of the parties’ respective music publishing businesses, which are not covered by the concentration. The court is expected to rule on the case in three to six months.

• On September 21, the European Court of First Instance approved the European Commission’s decision to prohibit the proposed acquisition of G�s de Portugal, the Portuguese gas incumbent, by Energias de Portugal, the Portuguese electricity incumbent, and the Italian energy company ENI. In December 2004, the Commission prohibited the merger as it considered that the deal would significantly impede effective competition and deprive domestic and industrial customers from the benefits of competition. The Court’s judgment confirms that the Commission was right to block the merger in the absence of adequate remedies. The Court held that companies must propose adequate remedies in due time with a view to solve fully the competition concerns identified by the Commission.

• On September 15, the Bundeskartellamt in Bonn, Germany, imposed fines totaling over €20 million against seven public insurance companies, and the directors involved. Earlier this year, the Bundeskartellamt had imposed fines totaling approx. €130 million against ten other insurance companies. The cartel law violations involve industrial property insurance sector, the buildings monopoly insurance sector, and property insurance in the hospital sector. President of the Bundeskartellamt, Ulf B�ge, said, “Evidence has shown that the insurance companies in question have agreed since mid 1999 on how to set insurance premiums and conditions in order to turn around the market to their advantage. This is a clear infringement of cartel law and the persons committing the offence were aware of that fact.”

• On September 14, the European Commission fined thread producers from Germany, Belgium, The Netherlands, France, Switzerland and the United Kingdom a total of €43.497 million for operating cartels in the market for industrial thread in violation of EC Treaty rules on restrictive business practices (Article 81). “Cartel behavior is illegal, unjustified and unjustifiable, and will be punished severely no matter how large or small the companies involved” declared EU’s Competition Commissioner, Neelie Kroes. “I will not allow consumers to be denied the benefits of the [European] Single Market by companies carving up markets between themselves”.

• On September 8, the Australian Federal Court in Perth held that Admiral Mechanical Services Pty Ltd, Direct Engineering Pty Ltd, Envar Engineers and Contractors Pty Ltd, and Scott Mechanical Services Pty Ltd had engaged in price-fixing and other cartel conduct with competing commercial and industrial air-conditioning and mechanical services contractors with respect to tender prices to be submitted by them for the supply of those services in relation to particular projects in Western Australia. The court also declared that six individuals were directly or indirectly knowingly concerned in, or party to, the contraventions.

• On September 7, the governments of Canada and Japan signed an agreement to improve competition law enforcement in areas such as international cartels and merger review. “This agreement provides the Bureau with another key enforcement tool to deal with anti-competitive activities in increasingly globalized markets,” said Ms. Scott, Canada’s Commissioner of Competition. “More cooperation between competition authorities facilitates compliance and effective enforcement of competition laws, for the benefit of businesses and consumers.” The agreement contains provisions for enforcement cooperation and coordination, notification on enforcement actions that may affect the other country, conflict avoidance and consultation with respect to enforcement activities, and effective confidentiality protections. It is similar to existing agreements that Canada has signed with the United States, the European Union, and Mexico.

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