Overview: International Competition
Developments in International Competition Policy and Their Impact on Internationally Active Companies
The overall context: the internationalisation of competition law enforcement
Recently, companies doing business internationally have been experiencing great changes in the competition law signposts that guide them through the landscape in which they operate. Numerous jurisdictions have introduced new or updated rules governing business activities that have an impact on conditions of competition in their domestic marketplace. Those who might think this only includes out of the way places that have finally caught up with the rest of the enlightened world could not be more wrong. Important economies, in particular in Asia, such as the People's Republic of China and India, are bringing on legislation that puts competition issues at the centre of their legal textbooks. But a proliferation of modern competition laws is not the only remarkable development. Often - China and India again are prime examples - this is combined with the setting up of an institutional and procedural framework that is a prerequisite for an effective and efficient enforcement of such rules. At the same time, well established authorities - such as Japan's Fair Trade Commission (JFTC) or the Korean Fair Trade Commission (KFTC) - have embarked upon a programme of vigorous enforcement of their respective competition rules.
Overall, recent developments have seen more aggressive competition law enforcement by public authorities in many jurisdictions. This applies to authorities that have been around for a long time, such as the Canadian and many European regulators, as well as those that have arrived more recently on the scene. US authorities have consistently pushed for and exported their faith in a tough approach on cartels that extends to the limits of what is legally possible. However, the change of administration also seems to herald a new approach to non-cartel enforcement of antitrust rules in areas such as unilateral behaviour or mergers.
In this regard, companies and their advisers have generally seen a lowering of thresholds for intervention. At the same time, they have also experienced a rise in the level of fines when companies and individuals find themselves on the wrong side of the law. The threat to individuals, in particular, has grown significantly. This is mainly due to the promotion of criminal sanctions for cartel-type behaviour. The seeds sown by the US authorities, keen to export this concept, have borne fruit in a number of jurisdictions. In fact, they have already led to criminal convictions in a number of countries, most notably the UK.
The internationalisation of competition rules does not only mean that there are more individual competition laws or that each on its own is more aggressively enforced. It also means that competition authorities are increasingly willing to apply their local law to activities that occur outside of their own jurisdiction if it can be claimed that they produce local effects as well. This results in multiple local laws often being applied to a single set of actions - whether this is the operation of a cartel or the implementation of a merger. This exposes companies to the danger of not just double but multiple jeopardy and increases the complexity of, as well as costs associated with, the handling of multi-jurisdictional investigations. Companies with a potential exposure and their advisers need to familiarise themselves with different local laws that may cumulatively apply to their behaviour. They also need to understand that enforcers today cooperate more effectively with each other than they have ever done in the past. When combined with the threat of civil litigation for damages in antitrust cases, this gives enforcers in today's world a number of very powerful tools to maintain competitive market structures and enforce compliant behaviour.
New laws and regulations: competition law continues to go international
The key element to any competition policy is the existence of a proper competition law - ideally one that combines substantive provisions with the procedural rules (not necessarily contained in the same document) that allow for effective enforcement. The recent past has seen the introduction of new or substantially modernised competition rules in many jurisdictions, in particular in Asia. Singapore recently enacted its first comprehensive competition law, while even Hong Kong - traditionally vociferous in its rejection of the need to have a general competition law - is now consulting stakeholders to establish what would be the acceptable and effective scope of competition rules for its economy.
A prime example of the latest wave of countries adopting new competition rules is the Peoples' Republic of China. Its new Antimonopoly Law took effect on 1 August 2008. The legislative history of the law, which spans more than 10 years of drafting, reflects the care legislators have taken in considering the social, political and economic context in which the law was adopted and will need to operate. The legislative process - as well as the still ongoing process of drafting various implementing regulations that will breathe life into this skeleton - shows that the drafting of local competition rules today rarely if ever occurs in a vacuum. Where new rules come into being, international organisations such as the OECD and the ICN weigh in with recommended practices, regulators from other 'key' jurisdictions gladly share their experiences with the local legislators and international as well as national Bar associations may weigh in to provide a practitioner's assessment of the shape of things to come.
Thus, local legislators need to strike a balance between local legal traditions and emerging international standards. Ideally, they understand that their choice also reflects the balance between specific local economic requirements and the realities of markets that are often worldwide. Under these circumstances, the exact shape of the local law may be in a state of flux for a while, in particular where the legislator chose to use broad language and sweeping clauses. Developing a competition policy suitable to local needs may be a long drawn-out process requiring consultation among a number of public stakeholders in the process. It is often frustrating for companies caught in the process of a new law's gestation.
However, obtaining at least a minimum level of the buy in of all constituencies involved in the process will allow a law to operate much more smoothly in the long run. In this regard, Chinese authorities, for example displayed a remarkable endurance in terms of both considering models from abroad as well as local peculiarities - such as the need to find the right way to treat state-owned enterprises. The overall jury is still out (given that a few pieces of the puzzle are still missing) but the signs so far have been that a workable compromise may be emerging at various levels. The same is true for India, where local regulators and practitioners have been reaching out to the worldwide antitrust community to obtain inspiration for the implementation of their own local rules.
However, things do not always remain the same in those jurisdictions that have had competition rules on their books for a long time. Both the US regulators as well as the European Commission have set out on an ambitious plan to modernise their competition policy and the way it is implemented in detail - most recently in relation to how the European Commission is assessing cases of unilateral conduct. In such cases, even those authorities who like to consider themselves as the pilots of international competition policy often find themselves in uncharted waters.
The resulting lack of legal certainty has a direct effect on companies that do business internationally. They are faced with moving goal posts - posts that are possibly moving in different directions on the same playing field. The abolishment of the liner shipping block exemption regulation in the European Union is a case in point - it affects not just what shipping companies do in Europe. It has a direct effect on their activities at the other end of the line, which often happens to be in Asia. Companies that operate in such an environment need to be able to deal with the complexities that result from the lack of a uniform international competition policy. This raises major challenges for the development of a coherent commercial and compliance policy of those companies that are exposed to more than one set of competition rules. Add the recognition that local rules may change in the course of time and it becomes clear that navigating the substantive waters of international competition law and policy may present a real challenge to companies and their advisers.
Competition authorities: old acquaintances and a number of new faces
Stakeholders do not only need to get acquainted with new rules, they will also need to understand that a number of new authorities have appeared on the competition scene and that some existing authorities have significantly changed their mode of operation. In this regard, it should be noted that a country does not need to be large to merit a serious competition authority. The newly set up Singaporean authority has quickly established itself as an enforcer that does not shy away from using its powers when it sees a need to do so.
Older authorities like to reinvent themselves, in particular when a change in the law gives them an opportunity to do so. One of the most recent examples for this phenomenon is China. There, the advent of the Chinese AML and merger control related implementing rules has significantly changed the position of MOFCOM - the Chinese authority with jurisdiction in merger control matters. Although not a newly created entity, it has quickly developed a new and distinct public profile as a merger control enforcer, most notably through the approach adopted in cases InBev/Anheuser Busch and Coca-Cola/Huiyuan Juice Group. While many procedural and institutional issues still need to be sorted out in China, it is clear that competition law has very quickly become a force to be reckoned with. In the same vain, many other older authorities have become more active and more effective (eg, CADE, KFTC and JFTC, just to name a few). Even if they still need to become comfortable with the rules they equipped themselves with, they have already come out flexing their muscles.
Indeed, young competition authorities are not necessarily the only ones trying out new tricks. Even the venerable European Commission is contributing to the debate: in procedural terms, it has surprised many by imposing an unprecedented fine of e36 million on the German energy supplier EOn for breaking a seal to an office during an ongoing Commission investigation. But the authority is at the cutting edge not just when it comes to procedural questions. Its pursuit of unilateral conduct cases against Microsoft, Qualcomm and Intel has been widely noted. In fact, other authorities, such as the KFTC, have quickly followed suit, starting investigations of their own into the same or similar alleged behaviour of the same companies. In the case of Intel, the KFTC defined very narrow, local markets to conclude that certain rebates granted by Intel to Korean-based computer manufacturers violated Korean competition. In the case of Microsoft, the KFTC went beyond the European Commission's decision to condemn not only Microsoft's tying of its media player to its Windows personal computer operating systems, but also the tying of its messenger application and its media server application to Microsoft's server operating systems.
Enforcement of competition rules: parallel and more aggressive enforcement of national competition rules
Lowering the thresholds for intervention
In this way, newly set up authorities as well as long-established enforcers are trying to establish themselves on the international map of competition law enforcement. One way of achieving such an aim is to aggressively advance the boundaries of competition rules. Enforcers are thus pushing down the thresholds for intervention. Investigations (and convictions) these days include, for example, information exchanges in the area of cartels. In the merger control arena, the focus has shifted from the dominance test to the arguably weaker threshold test of significantly reducing competition in the area of merger review.
For any company, the problem is compounded by the fact that competition rules are not always closely aligned. For example, Asian companies acquiring minority shareholdings in other entities may find that 'merger' control rules in other countries - eg, Germany, the UK or the US - often capture transactions that are far from giving the acquirer a significant level of control over the target entity. Thus, if they acquire a minority shareholding in a foreign entity or set up a joint venture with a partner aiming to do business in other countries, they may be well advised to consider the implications of competition laws in foreign countries. On the other hand, restructuring operations within Asian conglomerates may trigger filing requirements in other jurisdictions that adopt a fairly narrow approach with regard to the exemptions from merger control rules for transactions within a group of companies. Similarly, companies that allow their subsidiaries a certain freedom in structuring their daily operations may be surprised to find how far competition rules actually reach into what they may consider ways of ordering competition within their group.
The latter may also be particularly relevant in jurisdictions that do not capture the acquisition of less than co-control as a concentration under their merger control rules. In the EU, for example, only the establishment of sole or joint control over another entity is captured. However, senior officials of the European Commission have recently made it clear that the authority is likely to focus on minority shareholdings under aspects of the behavioural rules, in particular article 81 of the EC Treaty. Thus, strategic collaboration projects may be captured by either structural rules - ie, merger control - or behavioural rules - eg, article 81 of the EC Treaty. At any rate, parties are advised to tread warily.
Raising the level of fines and damages
Another recent development in competition law policy is the increasing level of the fines imposed on cartel offenders. Authorities are generally pushing up the level of fines, in particular in the area of cartels. While the US DOJ initially was at the forefront of this development, now the European Commission is carrying the crown of the highest fines. The European Commission's recent Car Glass decision imposed fines of more than e1.3 billion on the participants. Neelie Kroes, the European commissioner for competition, has repeatedly pointed out that even such fines do not reach 10 per cent of worldwide revenue, the maximum amount the Commission can impose. However, she does fail to mention that these fines may represent a multiple of the revenues generated by the entity that actually committed the infringement. This is another area where the Asian style conglomerates need to be very careful, as depending on their group structure, turnover - and hence fine exposure - may be exponentially increased.
While fines are also finding their way into Asian enforcement - both the JFTC and the KFTC have commenced levying fines - companies subjected to antitrust will often find these fines (as significant as they are) may pale in comparison to the damages that civil plaintiffs can demand. For example, the KFTC fined Microsoft 33 billion won (approximately US$36 million) in its tying decision, but Microsoft paid the complainants Daum Communications US$30 million and RealNetworks US$761 million to settle their civil lawsuits. Again the US is leading the way with a well-oiled machine of plaintiffs lawyers, treble damages and class actions, and in Europe, the UK is steadily following suit. Geographic location is scant protection, given that the impact on commerce is defined ever more widely and indirectly, hence Asian companies will want to assess carefully any potential exposure they may have in the civil arena and structure their defence efforts accordingly.
Introducing criminal sanctions and applying them vigorously
Criminal sanctions seem to be another way of promoting national competition rules. The US DOJ has been wielding this sanction for years and is aggressively pushing the duration upwards; in Europe, the UK is on track to catch up fast with its transatlantic partner. Asian executives are by no means safe from the global reach of antitrust. In the worldwide DRAM investigation, the US DOJ sent scores of Japanese and Korean executives to jail (including some of the then-longest jail sentences, of up to 14 months), and is set to repeat the same feat in the CRT and LCD proceedings. Not wishing to be left behind, the UK authorities meanwhile proceeded to sentence the key participants in the marine hose cartel to jail terms of up to 30 months.
In Asia, at least Japan and Korea have criminalised their antitrust enforcement. While this has not yet led to significant jail terms being imposed upon individuals, it has as a direct consequence meant that extradition to, say, the US or UK, is becoming much more of an immediate threat.1
'Me too' enforcement activity
In fact, cases such as the cartel investigations into lysine, DRAM, marine hose or air cargo, and the monopolisation investigations into Microsoft, Qualcomm, Rambus and Intel reveal one of the main drivers that trigger investigations for breaches of competition laws in many countries: similar investigations pursued by other authorities. In global markets a cartel that is uncovered in one jurisdiction is very likely to have produced effects in other countries too. Thus, simply reading the Financial Times or The Wall Street Journal may be one of the most effective investigative tools for many competition authorities. They are relying on the application of the effects doctrine to establish jurisdiction over behaviour that may have occurred very far away. Traditionally, applying this doctrine would have considered whether the parties to the offending arrangements had any business activities in a particular jurisdiction (or, as a result of certain arrangements - eg, market partitioning agreements - did not do any business in this jurisdiction). While this already seems to establish jurisdiction very broadly, competition authorities are taking the concept one step further: under recent US and EU practice, even indirect effects of a cartel may trigger the application of local rules. Thus, if a manufacturer of widgets located in country X sources components from suppliers in countries Y and Z and then proceeds to sell his widgets in countries A and B, the competition rules of A and B may apply to any anticompetitive agreements between component suppliers located in Y and Z. This may come as a surprise to many suppliers of intermediate products. Arguably, such an approach is likely to affect Asian manufacturers in particular, given that they often supply components that find their way into products sold worldwide - a typical issue in high-tech and consumer electronics-type industries such as those where Asian companies excel.
Copycat enforcement activity does not only increase the risk of additional administrative fines. In cartel investigations or abuse cases, it also increases the risk of sources from which third parties claiming damages may obtain information to support their civil actions.
In all areas of competition law, such multiple investigations into one and the same set of facts increase the resources required to manage the overall procedure. Any major M&A transaction worth its salt is likely to require filing in more than a dozen jurisdictions. Increasingly, this is likely to apply to Asian companies as, like Lenovo buying IBM's personal computer business, they venture beyond their home markets and acquire companies located and active abroad. This increasingly exposes them to the need to obtain merger control approval for their transactions in a multitude of jurisdictions.
More effective cooperation among competition authorities
National procedures are increasingly subject to effective cooperation among enforcers that may have a stake in the matter. Nowadays, it is more common to use extradition and mutual legal assistance treaties and various other 'softer' instruments to establish the facts of a case required to issue a decision. Moreover, federal courts in the US may compel discovery at the behest of either foreign regulators or private 'interested' parties for use in competition proceedings before a foreign or international tribunal, including criminal investigations.2 Thus, what happens in one jurisdiction may soon be very relevant in another jurisdiction. This means that companies cannot afford to enter into complex multi-jurisdictional investigations without a very clear plan of what steps to adopt and when to take them.
Outlook: what does it mean for companies and their advisers?
This overview has provided a brief glimpse of the complexities inherent in the international application of competition laws. When companies start to do business in various countries, maintaining compliance may soon become a real challenge for the inhouse legal department of the client and his outside counsel. Substantive rules need to be compared and put into context. Legal requirements and economic needs must be weighed against each other. Overall, handling competition issues will require informed risks to be taken while maintaining a sound track record of compliance. With regard to the latter, a very clear message from senior management that non-compliant behaviour will not be tolerated already goes a long way towards keeping employees on the right side of the law.
However, even where such measures are taken, companies need to be aware of the threat of non-compliant behaviour and the resulting government investigations. As the latter may very well occur simultaneously, it is important to have a contingency plan - ideally not for one but for several jurisdictions. It must be remembered that, where one investigation is started, others are likely to follow sooner rather than later. Managing the antitrust risks associated with multiple parallel investigations (and the corresponding private litigation) becomes a major management challenge that can only be mastered by developing a truly international strategy to match the proliferation of evolving international enforcement policies.
- J M Joshua, P D N Camesasca, Y J Jung, 'Extradition and mutual legal assistance treaties: cartel enforcement's global reach' 75 Antitrust Law Journal 353 (2008).
- See 28 USC Â§ 1728. See also Intel Corp v Advanced Micro Devices, 542 US 241 (2004) (holding that section 1728 "authorizes, but does not require," US district courts to compel discovery at the behest of private "interested" parties for use in foreign competition proceedings).