Antitrust Enforcement in the United States, Europe and China
January 16, 2019
Antitrust in the United States
Antitrust enforcement under the Trump administration remains alive and well, with several areas getting particular attention from the U.S. agencies in 2018. State attorneys general are also increasingly active in antitrust enforcement through merger challenges and behavioral investigations.
In late 2017, the DOJ challenged AT&T’s proposed acquisition of Time Warner Inc., arguing that the combined company would have an incentive to leverage Time Warner’s content to extract higher carriage rates from distributors and that as one of the only vertically-integrated companies, along with Comcast, AT&T would have an incentive to deny content to other providers. Judge Richard Leon of the U.S. District Court for the District of Columbia found in favor of the defendants in June 2018, finding that AT&T would have little to no incentive to withhold content. The DOJ has appealed the district court’s decision.
Showing an ongoing commitment to investigating vertical issues, the DOJ announced in October 2018 that it had begun updating the 1984 Non-Horizontal Merger Guidelines and expects to issue new guidelines in the next year. Noah Phillips at the FTC also noted in November 2018 that both the Antitrust Modernization Commission and the American Bar Association had repeatedly called for updates to the Non-Horizontal Merger Guidelines as they did not reflect the agencies’ current practices.
Merger Clearance Timing
The antitrust agencies can take several months, sometimes more than a year, to review mergers, particularly international mega-deals. Recent examples of lengthy merger reviews include Bayer AG’s acquisition of Monsanto, which took nearly two years and was cleared only with $9 billion worth of divestitures, and Linde AG’s merger with Praxair Inc., which took 16 months and was cleared by the FTC when the parties agreed to various divestitures.
In September 2018, Assistant Attorney General Makan Delrahim acknowledged that the length of merger reviews “is a problem” and that the DOJ would endeavor to resolve “most” merger investigations within six months of notification if the parties provide necessary documents and data early in the process.
The antitrust agencies continue to investigate potentially unlawful conduct. We have seen some shift away from criminal price-fixing investigations and towards investigations into other conduct, including “no-poach” agreements.
- Conduct-Related Investigations Arising from Merger Review. Complying with merger Second Requests requires companies to produce hundreds of thousands or millions of documents. Increasingly, these productions have triggered conduct investigations separate from the underlying merger investigation, including in the “no-poach” context described below.
- Increased Enforcement Against “No-Poach” Agreements. We are aware of a number of instances in which the DOJ has investigated potential “no-poach” agreements in which companies agree not to recruit employees from each other. For example, in April 2018 the DOJ settled a lawsuit with Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (Wabtec), two of the largest rail equipment suppliers in the world, alleging that the two companies had agreed not to compete in recruiting each other’s employees for a number of years. Assistant Attorney General Delrahim noted that the “complaint is part of a broader investigation by the Antitrust Division into naked agreements not to compete for employees.” Elsewhere, Assistant Attorney General Delrahim has stated that the DOJ has multiple active criminal no-poach investigations, particularly in the healthcare industry.
There have also been active investigations into no-poach agreements at the state level. Washington state, for example, has investigated several fast food chains whose franchise agreements contained no-poach provisions that prevented employees from moving from one restaurant in the restaurant group to another. A number of restaurants, including Applebee’s, Panera, and IHOP, agreed to remove these provisions from their franchise agreements.
Antitrust in Europe
In Europe during 2018, European Commissioner Margrethe Vestager continued to actively enforce merger control and antitrust rules in the lead-up to the end of her mandate in late 2019.
More Burdensome Merger Control Review
The European Commission has placed an increasing burden on merging parties in recent years, especially in complex cases. Extended “Phase 2” reviews now routinely lead to extensive requests for internal documents.
Notable examples include the 800,000 documents produced in ArcelorMittal/Ilva, one-million documents produced in Qualcomm/NXP Semiconductors, and almost three-million documents produced in Bayer/Monsanto. The size of these productions increasingly resembles those that take place during Second Requests in the United States, yet merging parties are typically allowed a small number of working days to compile, review for privilege, and produce the responsive materials.
There is a similar trend in the size of datasets requested by the European Commission’s economists, and the number and complexity of questions put to third parties (and indeed the number of parties contacted).
Increasingly Challenging and Prospective Merger Control Review
These administrative challenges have been paralleled by an increasingly robust enforcement environment. The European Commission has not only challenged cases in which the merging parties were existing competitors (e.g., Praxair/Linde, ArcelorMittal/Ilva, and Thales/Gemalto), but has shown an increased willingness to challenge cases based on less conventional concerns, with a revival of interest in conglomerate issues (e.g., Qualcomm/NXP Semiconductors) and concerns that mergers would stifle innovation, even in as-yet unidentified product markets (e.g., Dow/DuPont, a 2017 case, and Bayer/Monsanto). This focus on prospective competition and innovation has been reinforced by recent public commentary by Commissioner Vestager and the hierarchy of DG Competition. Indeed, the Chief Economist of DG Competition, Tomasso Valletti, made several speeches in the latter part of 2018 advocating for a shift in the burden of proof for “killer acquisitions” made by “super-dominant” companies to increase enforcement against deals that kill off innovative projects or future competition from smaller rivals.
The European Commission has continued to actively enforce European rules against anticompetitive agreements/conduct (Article 101) and the abuse of dominant positions (Article 102).
- Cartels. Until recently, the European Commission enjoyed a full pipeline of cartel cases generated by successive immunity and leniency applications, in particular in the automotive and financial sectors. There are signs, however, that the continued growth in private damages actions in Europe (discussed further below), may have dampened the appetite of potential immunity applicants to come forward. Nevertheless, the European Commission has shown a willingness to prosecute cases outside of a conventional “seller” cartel context, with several ongoing cases focusing on potential coordination between buyers on industrial pricing benchmarks, and on the development of clean emission technology for cars.
- Abuse of Dominance. Two of the European Commission’s three 2018 infringement decisions in this area related to the technology sector. In January, the European Commission fined Qualcomm €997 million for paying rebates to Apple on condition that Apple did not buy 4G baseband chipsets from Qualcomm’s rivals. Most prominently, in July the European Commission levied a €4.3 billion fine on Google, alleging that Google had tied its Google Search app and Chrome browser to its Play app store for the Android operating system, making payments to Android device manufacturers and mobile network operators conditioned on the exclusive pre-installation of the Google Search app, and imposing contractual restrictions on the development and distribution of incompatible versions of the Android operating system.
Continued Growth of Private Enforcement
The growth of private antitrust litigation continues apace in Europe. 2018 marked the date by which all 28 European Union Member States had implemented the European Commission’s 2014 Damages Directive, which is intended to foster opportunities for victims of antitrust infringements to obtain redress before the national courts of the Member States. The European Commission’s 2016 and 2017 trucks cartel decisions alone – which saw six trucks manufacturers fined a total of almost €4 billion – have seen claims worth over €1 billion filed across Europe, including in the United Kingdom, Germany, The Netherlands, Ireland, Spain, and Hungary, with two class actions seeking certification before the United Kingdom’s specialist Competition Appeal Tribunal. MasterCard and Visa are currently facing claims worth billions of euros arising out of the multilateral interchange fees set by the four-party card schemes, including a class action seeking damages of around £14 billion. With prominent litigation funders continuing to invest in claims across Europe, the tendency for cartel decisions to lead to follow-on claims in Europe looks set to continue in 2019.
Finally, the United Kingdom is currently scheduled to leave the European Union on March 29, 2019. Particularly, in the event of a “no deal” exit, national UK competition law would likely apply in parallel to deals or antitrust matters that are not subject to a decision by the European Commission on that date. Going forward, there is consequently a significant likelihood that many international M&A deals will be subject to the dual competence of the European Commission and the UK Competition and Markets Authority, raising the profile of the UK agency in this area.
Antitrust in China
Antitrust enforcement in China continued to be active in 2018, particularly with the integration of three Chinese antitrust agencies into one. The integration appears to have led to an increase in enforcement, a more cautious approach, and some delays in case handling due to staff reshuffling. In 2018 there was also a rapid increase in antitrust litigation cases in China, particularly those involving “standard essential patents”.
New Antitrust Agency
As of late April 2018, China’s three antitrust agencies, the Anti-Monopoly Bureau of Ministry of Commerce (MOFCOM) for merger review, the Price Supervision and Anti-Monopoly Bureau of the National Development and Reform Commission (NDRC) for price-related investigation, and the Anti-Monopoly and Anti-Unfair Competition Bureau of the State Administration for Industry and Commerce (SAIC) for non-price-related investigation, began their integration into the State Administration for Market Regulation (“SAMR”). The integration is expected to streamline and further bolster antitrust enforcement and to improve consistency in antitrust rule-making and enforcement practices. SAMR indicated that its antitrust enforcement priorities are administrative monopolies, infringements by public utilities, failure to notify, and remedy implementation.
Remedy Implementation and Failure to Notify
In January 2018, SAMR penalized Thermo Fisher Scientific for non-compliance with the behavioral conditions imposed in 2014 in connection with its acquisition of Life Technologies. During 2018, SAMR lifted long-term behavioral conditions imposed in three cases (i.e., General Electric/China Shenhua (imposed in 2011), MStar Semiconductor/Media Tek (imposed in 2013), and Henkel Hong Kong/Tiande (imposed in 2012)). SAMR also issued a record 14 penalty decisions in 2018 for failure to notify joint ventures, multi-step transactions, and other acquisitions.
Conglomerate Effect and Behavioral Remedies
SAMR continues to favor behavioral remedies, some of which are unconventional and are used to address concerns from Chinese industries. When stakeholders raise vague conglomerate effects theories, which SAMR takes seriously, it can result in significantly prolonged review, and often results in behavioral remedies. All four of the conditional approvals granted by SAMR in 2018 involved China-specific behavioral remedies and three of them involved conglomerate effects theories.
- Bayer/Monsanto. In March 2018, SAMR approved the agriculture merger between Bayer and Monsanto with conditions including the divestitures required in the European Union, as well as additional behavioral conditions guaranteeing Chinese app developers and users access to the merging parties’ digital agricultural platform.
- Essilor/Luxottica. In July 2018, SAMR conditionally approved the conglomerate merger between a French optical group, Essilor, and an Italian luxury eyewear group, Luxottica. The merger involves very limited overlaps and was unconditionally cleared in the European Union and the United States. However, SAMR imposed multiple behavioral conditions, including prohibition on tying, exclusivity distribution, and selling below costs, as well as commitment to supply to Chinese retailers on fair, reasonable and non-discriminatory (“FRAND”) terms and report future acquisitions.
- Linde/Praxair. In September 2018, SAMR conditionally approved the merger between Linde and Praxair, both active in industrial gases. In addition to divestitures, SAMR also imposed behavioral conditions requiring stable and timely supply of products to Chinese customers at reasonable price and volume.
- UTC/Rockwell Collins. In November 2018, SAMR conditionally approved the acquisition by United Technologies Corporation of Rockwell Collins, both active in the aerospace components sector. SAMR’s conditions included the divestitures required in the European Union, and multiple behavioral conditions with regard to certain specific products, including prohibition on tying or bundling, a guarantee to continue the supply of existing products to Chinese customers, technological licenses on FRAND terms, and performance of existing contracts with Chinese customers.
Merger Review Timeline
Although review of most merger cases with limited exposure to Chinese stakeholders that are under the simplified procedure could be completed within 30 days after being accepted, SAMR’s review of whether the case qualifies for the simplified procedure has become very strict, data heavy, and time consuming. There were cases in 2018 that were required to be pulled from the simplified procedure and refiled under the normal procedure a few months after the case was initially filed.
The Chinese merger review process for cases under the normal procedure continues to be lengthy and unpredictable, in particular in international mega-deals. All four conditional approval cases took more than a year to conclude.
SAMR continues to take a hard stance against unlawful antitrust behaviors, particularly cartels and resale price maintenance. In 2018, SAMR examined more than 30 monopoly agreements and abuse of dominance cases. SAMR also issued its first antitrust penalty on individuals for obstructing an antitrust investigation.
SAMR appeared to have prioritized investigations in domestic markets and on monopolies by local governments or public utilities in 2018, and therefore there were fewer high-profile investigations involving multinationals compared to 2015-2017. The two noteworthy investigation inquiries involving multinationals are both in the semi-conductor sector: SAMR launched an official investigation on three major suppliers of dynamic random access memory, Samsung Electronics, SK Hynix, and Micron Technology, and SAMR may also have issued inquiries to Taiwan Semiconductor Manufacturing Co.
China is in the process of amending its Anti-Monopoly Law. The upcoming amendments may include reconciliation of different understandings of vertical agreements, incorporation of fair competition review, and revisions to penalty provisions.
After integration, SAMR also started consolidating the existing implementation rules and continued drafting guidelines regarding antitrust enforcement in the automobile industry and in the areas of intellectual property rights, calculation of antitrust fines and illegal gains and leniency programs, among others. These guidelines are expected to provide more guidance to companies in these areas.
In 2018, the number of antitrust litigations in China continued to increase steadily. Chinese courts have handled more than 100 lawsuits involving standard essential patents over the past year. In early 2018, Shenzhen Intermediate People’s Court handed down a detailed decision in Huawei v. Samsung.
The court found that Huawei had fulfilled its FRAND obligations in the licensing negotiations, and granted an injunction against Samsung for infringement of Huawei’s standard essential patents. In late 2018, China’s Supreme People’s Court announced that as of January 1, 2019, it will establish a new Intellectual Property Rights Tribunal to hear antitrust appellate trials, among others, which are currently heard by lower courts. This move aims at unifying adjudication standards and improving adjudication quality in complicated and technical cases, including the rapidly increasing antitrust-related civil and administrative lawsuits.