463 475 USA - Jones Day · GLOBAL COUNSEL HANDBOOKS 463 Country Q&A ... Timeline for HSR-reportable transactions. ... For a tender offer,

Competition Law 2004/05 Country Q&A United States

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MERGER CONTROL

1. Are mergers and acquisitions subject to merger control inyour jurisdiction? If so, please describe briefly the regulatoryframework and authorities.

US merger laws govern the following:

■ Traditional mergers.

■ Stock or asset acquisitions.

■ Joint ventures.

■ Transfers of interests in intellectual property, contracts or real estate.

Any person is prohibited from acquiring stock or assets where“the effect of such acquisition may be substantially to lessencompetition, or to tend to create a monopoly” (section 7, ClaytonAct). The Clayton Act provides for enforcement by the AntitrustDivision of the US Department of Justice (Antitrust Division) andthe Federal Trade Commission (FTC). Although less common, the50 state attorneys general and private plaintiffs can alsochallenge an acquisition through a lawsuit under the Clayton Act(and, in some cases, under state laws).

Transactions involving certain regulated industries may requirenotification to or approval by other federal or state agencies (seeQuestion 12).

Under the 1988 Exon-Florio Amendments, the Committee onForeign Investment in the US (CFIUS) must receive writtennotice of an acquisition, merger or takeover of a US corporationby a foreign entity. This type of transaction can be suspended orprohibited by the President if it threatens US national security(see box, The regulatory authorities).

2. What are the relevant thresholds/triggering events?

Under the Hart-Scott-Rodino Antitrust Improvements Act of1976 (HSR), parties to a merger or acquisition that meets certainjurisdictional thresholds must notify the Antitrust Division andthe FTC, and must not consummate the transaction until awaiting period has expired (for an overview of the notificationprocess, see United States: merger notifications flowchart).

HSR filing requirements and waiting periods apply if either:

■ The acquiring person will hold voting securities or assets of the acquired person valued at more than US$200 million (about EUR164.2 million).

■ All three parts of the following test are satisfied:

❑ the acquiring person will hold voting securities or assets of the acquired person valued between US$50 million (about EUR41 million) and US$200 million (about EUR164.2 million);

❑ one party has at least US$100 million (about EUR82.1 million) in total worldwide assets or annual net sales; and

❑ the other party has at least US$10 million (about EUR8.2 million) in total worldwide assets or annual net sales.

These thresholds are annually adjusted for inflation. A transac-tion meeting either test is reportable unless one of severalexemptions applies. For example, a complex section of the HSRRules exempts certain transactions involving the acquisition ofassets or voting securities located mainly outside the US.Exemptions also apply to, among other things:

■ Certain acquisitions of goods (for example, for resale, con-sumption or incorporation into finished products) in the ordi-nary course of business.

■ Real property.

■ Mineral reserves.

■ Non-voting securities.

■ Passive investments.

Even if not reportable under the HSR Act, the Antitrust Divisionor the FTC can still investigate and seek to block a transactionfrom being consummated, or in rare cases, to unwind acompleted transaction. The investigation of these transactionsusually arises in response to complaints from customers or otherpotentially affected parties.

For a broad overview of the notification process, see box,Timeline for HSR-reportable transactions. For a description of a

United StatesJoe Sims, Montgomery Kosma and Sara Razi, Jones Day

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proposed rule that would harmonise the HSR treatment ofcorporations and "non-corporate entities” (currently, certaintransactions involving non-corporate entities, such as partner-ships and limited liability companies (LLCs), are not reportable)(see Question 34).

3. Please give a broad overview of notification requirements. Inparticular:

■ Is notification mandatory or voluntary?

■ When should a transaction be notified?

■ Is it possible to obtain formal or informal guidance prior to notification?

■ Who should notify?

■ To which authority should notification be made?

■ What is the form of notification?

■ Is there a filing fee? If so, how much?

■ Is there an obligation to suspend the transaction pending the outcome of an investigation?

■ Mandatory or voluntary. Filing is mandatory for transactions that meet the HSR thresholds (see Question 2). The agen-cies will reject a filing (and refund fees) for a transaction that fails to meet the thresholds.

■ Timing. There is no requirement that a filing be made in a specific time after an agreement has been entered into.

■ Informal guidance. Informal advice on issues relating to HSR pre-merger filing requirements or procedures is availa-ble on an anonymous, confidential basis from the FTC’s Pre-merger Notification Office. The Antitrust Division and the FTC will not offer informal guidance on the merits of mergers and acquisitions or other transactions.

■ Responsibility for notification. Generally, both the acquiring person and acquired person must provide separate notifica-tion. For a tender offer, only the buyer must notify.

■ Relevant authority. Notification is made simultaneously to the FTC’s Premerger Notification Office and the Antitrust Division’s Director of Operations and Merger Enforcement (see box, The regulatory authorities).

■ Form of notification. Parties must complete and file the HSR Notification and Report Form, which requires information describing:

❑ the transaction;

❑ the parties;

❑ their ownership interests; and

❑ the affected industries.

Item 4(c), the most critical part of the HSR filing, requires copies of all “studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s), for the purpose of evaluating or analysing the acquisition with respect to market shares, competition, competitors, mar-kets, potential for sales growth or expansion into product or geographic markets.”

Item 4(c) is interpreted broadly, covering paper or electronic documents (including e-mail and handwritten notes) that discuss the transaction (however briefly), and mention mar-ket shares, competition, competitors or markets (whether or not US markets). Accordingly, completing the filing often requires a thorough search for these materials. In addition, parties should seek legal advice to ensure that they and their agents (such as investment bankers) take due care to avoid exaggerated statements in materials created by or for offic-ers and directors.

■ Filing fee. The acquiring person must pay a filing fee based on the value of the acquired person’s assets and voting secu-rities that it will hold as a result of the transaction. The fee is:

❑ US$45,000 (about EUR36,961) for transactions valued at US$100 million (about EUR82.1 million) or less;

❑ US$125,000 (about EUR102,669) for transactions val-ued at more than US$100 million (about EUR82.1 mil-lion) but less than US$500 million (about EUR410.7 million); and

❑ US$280,000 (about EUR229,979) for transactions val-ued at US$500 million (about EUR410.7 million) or more. (These thresholds will be adjusted annually for inflation.)

■ Obligation to suspend. The HSR subjects any reportable transaction to a mandatory initial waiting period of 30 days (15 days for a cash tender offer or acquisition in bank-ruptcy). During this time, the parties must not consummate the transaction. If both the Antitrust Division and FTC agree that no further inquiry is warranted, they can grant early ter-mination of the waiting period, typically within two weeks after filing.

If either agency decides to conduct a more complete investi-gation by issuing a Second Request (see Question 4), the waiting period will be extended for a further 30 days (or ten days for a cash tender offer) after the parties have complied with that request. During any waiting period, the parties must take care to avoid co-ordinated activities or premature integration of their businesses, either of which can be unlawful “gun jumping.”





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4. Please outline the procedure and timetable.

Initial waiting period

The initial waiting period allows the agencies to determinewhether the transaction has potential anti-trust issues meriting amore complete investigation, and has the following four possibleresults:

■ If requested by the parties, the agencies can grant early ter-mination of the waiting period if they conclude the transac-tion presents no significant competitive issues.

■ The agencies can permit the waiting period to expire without action, in which case the parties can consummate the trans-action.

■ The staff can launch a fuller investigation by issuing a Request for Additional Information and Documentary Mate-rial, more informally referred to as a Second Request. (The HSR filing requirements themselves are the First Request.)

■ The parties can withdraw and re-file the HSR notification (without an additional filing fee), to provide the staff with an additional 30-day waiting period. In cases where the deci-sion to issue a Second Request appears to be a close deci-sion, it is sometimes a reasonable strategy to grant the agencies more time and to present further arguments and

No

Yes Notification is not required.

No Notification is not required.

No

Yes

Yes

No

UNITED STATES: MERGER NOTIFICATIONS

Yes

Does the transaction involve an acquisition of assets or voting securities?

As a result of the transaction, will the acquiring person hold assets or voting securities of the acquired person valued at more than US$50 million (about EUR41 million)?

As a result of the transaction, will the acquiring person hold assets or voting securities of the acquired person valued at more than US$200 million (about EUR164 million)?

Does any HSR exemption apply? For example, the following types of acquisitions may be exempt, among various others:

! Certain foreign assets or voting securities.

! Certain goods, realty or mineral reserves.

! Certain passive investments.

! Certain convertible non-voting securities.

Notification is mandatory. Each party must file the HSR Notification and Report Form with both DOJ and FTC.

Notification is not required.

Does 1 party have at least US$100 million (about EUR82 million) in total worldwide assets or annual net sales, while the other party has at least US$10 million (about EUR8 million) in total worldwide assets or annual net sales?

Yes No





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information, in the hope of avoiding the costs and delay of a Second Request.

As the first step to investigate a transaction appearing to presentpotential competitive issues, one or both agencies will seek“clearance” from the other to conduct an initial inquiry. Whichagency will seek clearance can often be predicted, based on eachagency’s history and experience with previous transactionsinvolving the markets and companies in question. The agenciesgenerally resolve clearance issues within nine business days offiling. However, clearance issues still arise occasionally and candelay the parties' ability to start substantive discussions with theinvestigating agency.

To determine whether or not a Second Request is merited, thestaff lawyers and economists of the Antitrust Division or FTCconduct a preliminary investigation into the nature and degree ofcompetitive issues presented by a transaction. They can:

■ Hold meetings with counsel and economists for the parties.

■ Interview competitors, customers, industry associations and other interested parties.

■ Issue informal, non-compulsory requests for information and documents to the parties or to others.

Counsel usually have the opportunity to argue that the agencyshould not investigate further, or that any investigation should belimited to particular markets or issues.

Second requests

A Second Request can place substantial burdens on the parties.Typically, it requires answering numerous interrogatories and thecopying, review and production of all paper and electronicdocuments potentially relevant to competition in the products andmarket under investigation. Foreign language documents submittedin response to the Second Request must be translated into English.

Complying with a Second Request and conducting the economicand legal analysis required to argue the company’s interests beforethe agency can take 60 to 90 days or more. Inevitably, it results insignificant expense and some disruption to the parties’ businesses.

Once the parties have complied with the Second Request, thereviewing agency must determine whether to seek a remedy,either by:

■ Negotiating with the parties to create a consent decree or order.

■ Seeking a preliminary injunction from a federal court.

5. How much publicity is given about merger enquiries? Can theparties request that certain information is kept confidential?

Federal statutes prohibit the disclosure of confidential informa-tion provided to the Antitrust Division or the FTC in connection

with an HSR filing or investigation, including the fact that a filinghas been made. The agencies will publicly acknowledge a filingor investigation only when the parties have disclosed itsexistence, or when granting a request for early termination of theinitial waiting period.

The agencies cannot discuss confidential information received fromthe parties with anti-trust enforcement authorities of state or foreignjurisdictions without the parties’ consent. In practice, permission isoften requested and granted, subject to confidentiality guaranteesfrom the governmental entity receiving the information.

If the investigating agency starts litigation to prohibit the transac-tion, it can use confidential documents and information submittedby the parties or others. However, the parties to the transaction orthird parties can seek a protective order from the court restrictingthe disclosure of confidential information.

6. Can third parties make representations and, if so, how?

The Antitrust Division and the FTC frequently rely on informationfrom third parties in conducting merger investigations.

Agency staff will often initiate contact with third parties potentiallyaffected by a transaction under review. Alternatively, a third partythat wishes to share information relating to a pending (or even acompleted) transaction can contact the Antitrust Division or the FTCthrough its counsel. Whether or not customers believe that atransaction is likely to lead to competitive harm, such as higherprices, can be a decisive factor in the agency’s decision to issue aSecond Request or seek a remedy against a transaction. Wheninformation from competitors is requested and received, it isrecognised that they can have commercial reasons to be concernedabout the transaction that may not have any anti-trust significance.

7. What is the substantive test?

Substantive merger analysis is generally conducted under theanalytical framework set out in the Horizontal Merger Guidelines(the Guidelines), adopted jointly by the Antitrust Division and theFTC in 1992 and revised in 1997. The Guidelines’ analysisattempts to predict how the transaction will affect the economicincentives and likely behaviour of consumers and producers.

The Antitrust Division or the FTC will challenge a transaction if itappears likely to create or enhance market power, or facilitate itsexercise. Usually, the analysis focuses on a seller’s ability tomaintain prices above competitive levels, but can also consider abuyer’s ability to depress prices below competitive levels. Theanalysis also considers the potential impact of the transaction onnon-price aspects of competition, such as product quality,service or innovation.

Product and geographic markets

The first step in the Guidelines’ analysis is to define the relevantproduct and geographic markets. Market definition focuses on





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demand substitution. An appropriately defined market is thesmallest set of products and geographic areas in which ahypothetical monopolist could profitably impose a “small butsignificant and non-transitory” increase in price. If a priceincrease would cause consumers to switch to other products to adegree sufficient to render the price increase unprofitable, themarket definition must be expanded to include those products.

Market shares

The next step is to determine market shares in each relevantmarket. The Guidelines use the Herfindahl-Hirschmann Index(HHI), the sum of the squares of the market shares of the firmsin the market, to make an initial determination of:

■ Whether the market is unconcentrated, moderately concen-trated or highly concentrated.

■ The degree to which the transaction will increase concentra-tion.

Competitive harm

Unless the market is unconcentrated or the increase in concen-tration is below certain thresholds, the Guidelines require consid-eration of various factors that influence the likelihood and degreeof competitive harm that may result. In particular, a merger candiminish competition:

■ By increasing the likelihood or the ability of firms in the market to engage in co-ordinated interaction, such as a tacit agreement to increase prices.

■ By changing the market structure, so that the merged firm would find it profitable to unilaterally raise prices and reduce output, without requiring the co-operation of other market participants.

Presumptions of harm to competition can be lessened ordefeated by evidence suggesting that entry in response to a priceincrease would be timely, likely and sufficient to deter orcounteract the competitive effects at issue.

The Guidelines also require consideration of the efficiencieslikely to be generated by the merger and the likely effects on themerged firm's ability and incentives to compete. For example, atransaction might yield lower prices, improved quality, enhancedservice or new products, despite an increase in concentration inone or more relevant markets.

Innovation and technology markets

In addition to the Guidelines, the Antitrust Guidelines for theLicensing of Intellectual Property (adopted jointly by theAntitrust Division and FTC in 1995) are used for analysingtransactions involving “innovation” and “technology markets.”Innovation markets involve products or technologies not yetcommercialised, but in which a transaction can affect the speedor direction of innovation. Technology markets relate to segmentsin which firms can compete in the sale or licensing of technology.

Vertical transactions

The agencies also examine potential competitive effects arisingfrom vertical mergers and acquisitions. Although there are nofederal guidelines for vertical transactions, the analysis usuallyasks whether a combination is likely to increase the ability andincentive of the post-merger firm to raise the costs of its rivals, orotherwise impair rivals' ability to compete effectively, in eitherupstream or downstream markets.

8. What remedies are available to the regulator and what pow-ers of enforcement does it have?

When the Guidelines’ analysis leads to the conclusion that a mergeris likely to harm competition, the Antitrust Division or FTC can file alawsuit in a federal district court seeking a temporary restrainingorder and an injunction to block the transaction. One infrequentalternative to blocking a transaction completely is an order permit-ting the closing of the transaction, subject to an agreement to 'holdseparate' the acquired entity or certain of its operations.

Both agencies have the option to continue litigation if theirrequest for a preliminary injunction is denied, but generally willnot do so. As a result, the preliminary injunction decision (andany subsequent appeal) frequently determines the final outcome.

Faced with the prospect of litigation, parties frequently seek tonegotiate a settlement with the investigating agency. A settlement, inthe form of a consent decree or order, typically requires divestituresor other structural and behavioural relief that the agency believes willbe sufficient to alleviate the potential harm to competition.

In this context, the agencies, particularly the FTC, have becomemore demanding with respect to the amount and type of assets tobe divested. Perhaps more importantly, the agencies (particularlythe FTC) often prohibit the parties from closing their transactionsuntil either the divestiture has been completed or a willing and ablebuyer for the divested assets has been identified and approved bythe agency. The divestiture process alone can delay the consumma-tion of a transaction for three to six months or longer.

9. Is there a right of appeal against a decision?

A federal district court order granting or refusing a preliminaryinjunction to block a merger can be appealed to the US Court ofAppeals. Appellate decisions are subject to further review at thediscretion of the Supreme Court of the US (Supreme Court).

10. What are the penalties for:

■ Failure to notify or a delay in notifying?

■ Failure to observe a decision of the regulator?

■ Failure to notify. If an initial filing is found to be deficient during the waiting period (for example, if a party failed to





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produce all 4(c) documents), the parties can be forced to restart the process with a new HSR filing and new waiting periods.

■ Failure to observe. Failure to comply with the HSR is punish-able by fines of US$11,000 (about EUR9,035) for each day in violation. In addition, parties can be forced to divest any acquired assets.

Agency allows transaction to close, or files for preliminary injunction in federal district court.

Staff recommendation goes to agency decision makers (20 days into waiting period).

If harm to competition is deemed likely, agency staff:

! Explain concerns;

! Seek to negotiate settlement; or

! Prepare for litigation to obtain injunction.

Agency staff determine adequacy of compliance.

Agency staff review documents and information produced by the parties, interview third parties (for example, customers and competitors) and discharge key employees.

Agency determines whether to issue a Second Request seeking more information. If no Second Request, parties can close transaction.

Agency conducts initial investigation to determine whether competitive issues merit further inquiry.

If transaction raises potential issues, DOJ and FTC decide which agency will review within 9 business days after HSR filing (sometimes longer).

If transaction is public, DOJ or FTC may begin investigation using public sources.

Parties prepare and submit white papers or other materials to agency decision makers in an attempt to influence decision on staff recommendations.

Parties:

! Attempt to persuade agency staff on any competitive issues raised;

! Negotiate settlement (including assets tobe divested and buyer); or

! Prepare for litigation.

Parties certify substantial compliance with the Second Request.

Parties:

! Collect, review, and produce documents;

! Respond to interrogatories;

! Prepare white papers; and

! Discuss issues with agency staff.

Parties negotiate scope of Second Request with agency.

In the hope of avoiding a Second Request, parties can withdraw HSR filing and refile to provide the agency with an additional 30 days for initial review (without paying additional filing fees).

Each party files HSR form. Waiting period commences.

Litigation: theoretically unlimited

Post-compliance waiting period: 30 days (unless parties agree to

extension)

Second Request compliance: 60-120 days

Initial waiting period: 30 days

TIMELINE FOR HSR-REPORTABLE TRANSACTIONS

Parties agree to merger/acquisition.

No deadline to provide notice

Actions by agencyActions by parties

Note: A compressed schedule applies to cash tender offers and acquisitions in bankruptcy.





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Violation of a final FTC order is punishable by penalties of up to US$11,000 (about EUR9,035) per violation, with each day of a continuing violation counted as a separate offence. The agency can commence a judicial proceeding to enforce compliance with its decisions.

11. If a merger is cleared, are any restrictive provisions in theagreements (such as non-compete covenants) automaticallycleared?

A merger is not necessarily cleared under US procedures, sinceafter reviewing and permitting a transaction to proceed withoutchallenge, the agencies can later decide to request information,and seek remedies against a merger or any other businesspractice that threatens harm to competition. There is no statuteof limitations on Clayton Act violations. However, challenges aftera transaction has been consummated are relatively rare.

Merger review typically covers all a transaction’s potential effectson competition, whether arising from its effects on concentrationor other issues, such as licensing of intellectual property orcovenants not to compete.

Even after a transaction is consummated, the agencies cancontinue to investigate any other potential anti-trust issuesrelating to the markets or parties under investigation, notnecessarily arising from the merger agreement itself. Althoughdocuments produced in the investigation remain subject toconfidentiality, they can be used in other ongoing investigations.

12. Are any industries specifically regulated?

Mergers involving common carriers and other highly regulatedindustries are subject to review by specialised agencies (generallyin addition to the Antitrust Division or the FTC). In particular:

■ Telecommunications. Mergers affecting broadcast services and telecommunications common carriers, or requiring the transfer of a telecommunications licence, generally require approval by the Federal Communications Commission. Approval by state or municipal authorities also may be required, for example when a transaction will result in a change of control of cable television franchises.

■ Energy. Mergers involving the electric power and natural gas industries may require approval by federal regulators, includ-ing the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission, as well as by state pub-lic utility commissions. In particular, FERC authorisation is required for any merger or acquisition involving public utili-ties subject to its jurisdiction (section 203, Federal Power Act).

■ Banking. Special anti-trust rules apply to transactions involving financial institutions, including the:

❑ Bank Merger Acts of 1960 and 1966;

❑ Bank Holding Company Act Amendments of 1970; and

❑ Gramm-Leach-Bliley Financial Services Modernization Act of 1999.

These transactions can be subject to review and approval by the:

❑ Office of the Comptroller of the Currency;

❑ Federal Deposit Insurance Corporation;

❑ Board of Governors of the Federal Reserve System; and

❑ Office of Thrift Supervision.

Many transactions involving financial institutions are exempted from HSR filing requirements, but are resolved by the approving agency in consultation with the Department of Justice (and the FTC for non-bank acquisitions).

■ Transportation. The Surface Transportation Board has exclu-sive jurisdiction over mergers and consolidations involving railroads. Since the early 1990s, the Antitrust Division has assumed responsibility for mergers and acquisitions involv-ing air carriers. The Department of Transportation retains authority to approve and, in some cases, to grant anti-trust immunity to agreements between US and foreign air carriers. At times, it has exercised that authority despite objections from the Antitrust Division.

RESTRICTIVE AGREEMENTS AND PRACTICES

13. Are restrictive agreements and practices regulated? If so,please give a broad overview of the substantive provisionsand regulatory authority.

Any contract, combination, or conspiracy in restraint of trade isprohibited by Section 1 of the Sherman Act. Liability depends onboth:

■ The existence of an agreement, that is, some type of con-certed action.

■ Proof that the challenged conduct unreasonably restrains competition. That is, a reviewing court must form a judg-ment about the competitive significance, or market impact, of the challenged practice.

Conduct that unambiguously injures competition is virtuallyalways held to be per se unlawful. Classic examples includenaked restraints such as price-fixing or market allocation amonghorizontal competitors. Under the per se rule, these restraints areunreasonable as a matter of law, without the need to establishtheir purpose or an actual harmful effect. Courts have also heldvertical minimum price restrictions, tying arrangements andgroup boycotts to be per se unlawful.

The “rule of reason” governs conduct, such as vertical agreementsestablishing maximum prices or exclusive distribution territories,





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that can have pro-competitive effects in certain circumstances.Analysis under the rule of reason mirrors the Guidelines (seeQuestion 7) in many important respects. It requires the fact-finderto examine a variety of competitive factors, including:

■ The relevant market.

■ The defendants’ market power.

■ The competitive state of the market before and after the challenged restraint took effect.

■ The history, purpose, nature and effect of the conduct in question.

The restraint can be deemed unlawful if its demonstrable anti-competitive effects substantially outweigh its competitivebenefits.

Restrictive agreements can also violate the Clayton Act, the FTCAct or various state laws. The substantive standards generallytrack those applied under the Sherman Act, except that variousstates can extend damages remedies to a broader class of injuredparties (that is, consumers or other indirect purchasers, who donot have standing under federal anti-trust laws).

Finally, the Robinson-Patman Act prohibits price discriminationinvolving commodities sold for use, consumption or resale withinthe US. Unless it has legitimate justification (for example,meeting competition or differing costs), a seller must not chargedifferent prices to two buyers for commodities of similar gradeand quality, if doing so results in competitive injury to thedisfavoured purchaser.

14. Do the regulations only apply to formal agreements or canthey apply to informal practices?

An unlawful agreement can be express or implied, formal orinformal and written or unwritten. Finding an agreement typicallyrequires evidence that tends to exclude independent action. Thatis, “direct or circumstantial evidence that reasonably tends toprove that [the parties] had a conscious commitment to acommon scheme designed to achieve an unlawful objective.”

15. Please summarise any exclusions or exemptions.

The federal courts have developed the following two doctrines,recognising that the primary role of the anti-trust laws is toregulate private anti-competitive conduct, rather than to correctfailures in the democratic political process:

■ The Noerr-Pennington doctrine holds that private parties cannot violate the anti-trust laws by exercising their consti-tutional right to petition government through litigation, legis-lation, or regulatory action. Noerr immunity extends to concerted action by competitors, even if intended to exclude rivals and resulting in harm to competition. It does not extend to so-called “sham” petitioning, where a baseless

position is taken and pursued solely to impose burdens on rivals or deny them access to government processes.

■ The state action doctrine immunises state and local govern-ment actors carrying out a clearly articulated governmental policy. It also protects private parties from liability when:

❑ the private party acted under a clearly articulated state policy; and

❑ the state actively supervised the private party’s allegedly anti-competitive conduct.

In addition, Congress has limited the reach of the federal anti-trust laws by exempting certain conduct by the following:

■ Labour organisations.

■ Insurance providers.

■ Agricultural producers and co-operative associations.

■ Medical staff peer review boards.

■ Export associations.

■ Shippers.

■ Sports leagues.

■ Banks and other financial institutions.

16. Is there any formal guidance on product and geographic mar-ket definition?

Courts generally take an approach to product and geographicmarket definition similar to that described in the Guidelines (seeQuestion 7).

17. Is there a formal notification requirement? In particular:

■ Is it possible/advisable to notify?

■ Is it possible to obtain informal guidance?

■ Who should notify?

■ To which authority should notification be made?

■ What is the form of notification?

■ Is there a filing fee? If so, how much?

■ Notification. There is no formal notification requirement for restrictive agreements and practices under US law.

Under the National Co-operative Research and Production Act of 1993 (NCRPA), parties to production and research joint ven-tures can limit their anti-trust exposure to actual damages (plus





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costs and attorneys’ fees) by providing notification to the Anti-trust Division and FTC. The Standards Development Organiza-tion Advancement Act of 2004 recently extended similar protection to voluntary consensus standards bodies engaged in efforts to develop technical standards.

Under the Export Trading Company Act of 1982, parties engaged in export trade can obtain a certificate of review providing limited immunity from the anti-trust laws for activ-ities specified in the certificate.

■ Informal guidance. Parties can obtain informal guidance through a business review letter from the Antitrust Division, or an advisory opinion from the FTC.

■ Responsibility for notification. Not applicable.

■ Relevant authority. The Antitrust Division or the FTC.

■ Form of notification. Not applicable.

■ Filing fee. Not applicable.

18. Please outline the procedure and timetable.

Not applicable.

19. Are details of any potentially restrictive agreement or prac-tice made public during the investigation? If so, can the par-ties request that any information is kept confidential?

Documents obtained through compulsory processes generallyremain confidential, except that they can be used in court proceed-ings. Details of a potentially restrictive agreement or practice canbecome public if the Antitrust Division or FTC files a lawsuit orenters a consent order. However, pleadings and documentscontaining competitively sensitive information can be filed underseal, or otherwise protected against disclosure by court order.

20. Can third parties initiate an investigation by making a com-plaint or representations during the course of an investiga-tion? If so, how?

A third party has no formal ability to compel a governmentinvestigation, but can file a private lawsuit for violation of theanti-trust laws. In practice, agency investigations often resultfrom consumer or competitor complaints, information from othergovernment agencies or the press.

21. What are the regulator's enforcement powers and what arethe other consequences of implementing a prohibited re-strictive agreement or engaging in a prohibited practice? Inparticular:

■ What orders can be made and fines imposed?

■ Can an entire agreement be declared void (that is, not only any restrictive provisions)?

■ Can personal liability (civil or criminal) attach to individual directors or managers?

■ Can third parties bring claims for damages?

■ Orders and fines. Generally, criminal sanctions are only sought in cases involving per se unlawful conduct. Criminal violations of the Sherman Act are punishable by imprison-ment for up to ten years and/or fines of up to US$1 million (about EUR821,355) per violation for individuals and US$100 million (about EUR82.1 million) per violation for corporations. Alternatively, a defendant can be fined up to twice the gross gain or twice the gross loss if any person derives financial gain from the offence, or if the offence results in financial loss to a person other than the defend-ant, but the government must prove that loss (or gain) to the jury beyond reasonable doubt (Blakely v Washington, (24 June 2004) No. 02-1632, 2004 WL 1402697, at para-graph 4).

The agencies can file a civil action in a federal district court or before an FTC administrative law judge seeking injunctive or other equitable relief (for example divestiture, rescission or forfeiture), designed to restore competitive conditions. The FTC can also seek consumer remedies through restitu-tion or the removal of unjust gains.

Anti-trust cases brought by the federal enforcement agen-cies are most frequently resolved by consent decree. A con-sent decree saves the government the expense of trying a case to conclusion and allows defendants to avoid the later evidential implications of an anti-trust verdict against them. Consent decrees often include provisions terminating the challenged conduct, requiring specific compliance efforts and arranging for periodic compliance reports. The Tunney Act requires the Antitrust Division to submit a consent decree for judicial review and approval. Although Tunney Act review has generally not been extensive, Subtitle B of the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (15 USCA sections 1-3, 16 (2004)) (Antitrust Reform Act 2004) instructs courts to undertake a more thor-ough review, to ensure that US settlements of anti-trust cases are always in the public interest. FTC consent orders are reviewed and approved only by the Commission.

■ Impact on agreements. In many circumstances, an entire agreement will be declared void.

■ Personal liability. An individual who has been convicted of violating the Sherman Act can be fined up to US$1 million (about EUR821,355) and sentenced to up to ten years in a federal prison for each offence.

■ Third party claims. The Clayton Act permits private parties injured by an anti-trust violation to sue in a federal court for





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three times their actual damage suffered, plus court costs and attorneys’ fees. State attorneys general can also bring civil suits under the Clayton Act on behalf of injured con-sumers in their states. Groups of consumers or companies often bring suits on behalf of similarly situated individuals or companies (class actions).

The Antitrust Reform Act 2004 has recently provided that when a firm fully co-operates with a plaintiff, the firm’s lia-bility in the civil action is limited to the actual damage suf-fered. Because the principle of joint and several liability still applies to all other defendants, the remaining defendants in any civil damage action are still potentially liable for the remainder of the full amount of three times the damage caused by the conspiracy as a whole.

The Supreme Court has recently held that the Sherman Act does not apply to injuries suffered outside the US, even if the same illegal agreement had adverse effects on the domestic US market. However, the Supreme Court left open the possibility of a claim where higher foreign prices were connected with or caused by higher prices in the US (F Hoff-man-LaRoche Ltd v Empagran SA, (2004) 124 SCt 2359).

The Supreme Court has also recently held that a federal dis-trict court can order a person in its district to produce mate-rials for use by a foreign tribunal, even when the foreign tribunal itself would not compel production of the docu-ments. The federal district courts are also not required to limit discovery to those documents that would be discovera-ble in US domestic litigation similar to the foreign proceed-ings. Before this Supreme Court ruling, the EU expressed concerns that the use of relatively broad US discovery would undermine its own leniency programme. This was not explored by the Supreme Court, which decided instead to leave it to the federal district courts to determine the extent of foreign discovery in each case (Intel v AMD, (2004) 124 SCt 2466).

22. Is there a right of appeal against a decision of the regulator?

Decisions of a federal district court and of the FTC can beappealed to the US Court of Appeals.

23. Please summarise any powers that the relevant regulator hasto investigate potentially restrictive agreements or practices.

In criminal investigations, the Antitrust Division generally usesgrand jury subpoenas to gather documents or other physicalevidence and to demand testimony. The agency also frequentlyinterviews witnesses, conducts electronic surveillance andexecutes search warrants (sometimes with the assistance of theFederal Bureau of Investigation or other federal agencies).

The Antitrust Division has a Corporate Leniency Policy (theAmnesty Program), and an Individual Leniency Policy.

The Amnesty Program has the following three basic parts:

■ Automatic amnesty, provided a corporation comes forward before the start of an Antitrust Division investigation.

■ Discretionary amnesty, if a corporation reports illegal anti-trust activity after an investigation has begun.

■ Automatic amnesty for corporate directors, officers and employees if the corporation qualifies for the same.

In each case, the corporation must be the first to come forward,co-operate fully with the Antitrust Division and make restitutionto injured parties, where possible. Conspiracy ringleaders are noteligible for amnesty. To further encourage corporations to exposetheir co-conspirators and co-operate, the Antitrust Reform Act2004 states that a firm which is granted amnesty and “co-operates fully” with treble damage plaintiffs will be liable only foractual damages caused, and will be relieved of the burden oftreble damages and joint and several liability for harm caused byco-conspirators.

The Individual Leniency Policy allows an individual to obtainleniency if:

■ The Antitrust Division has no previous information about the alleged illegal activity, when the individual seeks leniency.

■ The individual reports the illegal activity completely and continues to co-operate with the division.

■ The individual was not the leader of the alleged illegal activity.

The Civil Investigative Demand (CID) is the primary way the anti-trust authorities gather evidence for civil cases. A CID is a generaldiscovery subpoena, issued to any person whom the agencybelieves possesses material relevant to a civil investigation. CIDscan demand documents and other tangible things, oral testimonyand answers to detailed interrogatories.

24. How is Article 81 enforced by your jurisdiction’s national com-petition authority and courts in accordance with EC Regula-tion 1/2003 (EU member states only)? Are there anydifferences between the enforcement of Article 81 and theenforcement of your jurisdiction’s national competition laws?

Not applicable.

MONOPOLIES AND ABUSE OF MARKET POWER

25. Are monopolies and abuses of market power regulated? If so,please give a broad overview of the substantive provisionsand regulatory authority.

Section 2 of the Sherman Act (Section 2), along with parallelprovisions in many state anti-trust laws, prohibits monopolisationand attempted monopolisation, but not the mere possession of a





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monopoly (or dominant position). It prohibits a defendant whopossesses substantial market power (or monopoly power) in a well-defined relevant market from engaging in predatory or exclusionaryconduct that contributes to the maintenance or achievement ofmonopoly power. This protects from liability firms that becomedominant through legitimate means, such as by producing asuperior product or service or by achieving superior efficiency.

Section 2 also prohibits attempted monopolisation based on:

■ Exclusionary or predatory conduct.

■ A specific intent to monopolise.

■ A dangerous probability that the conduct, if continued, will result in a monopoly.

A defendant can avoid liability by proving legitimate businessjustifications for its conduct.

Section 2 does not cover conduct that, on balance, benefitsconsumers or, alternatively, does not sacrifice short-term gainsfor the predominant purpose of excluding competitors.

26. Are there any specific tests for dominance?

The Supreme Court has defined monopoly power as “the powerto control market prices or exclude competition”. Monopolypower is evaluated in economic terms, based on a party’sdemonstrated ability to exclude competition.

Courts often attempt to infer monopoly power from the allegedmonopolist's market share. Market shares greater than 70% areusually deemed evidence of monopoly power. This presumptioncan sometimes be rebutted by showing the absence of entrybarriers, or the incentives and ability of competitors to expandoutput. Firms with market shares of less than about 50% arerarely held to possess monopoly power, regardless of thestructure of the market.

27. Are there any broad categories of behaviour that may consti-tute abusive conduct?

Several types of anti-competitive conduct can form the basis of aclaim under Section 2. Four of the most common categories ofchallenged conduct are:

■ Vertical agreements that foreclose competition. Although the anti-trust laws generally do not prevent a firm with monopoly power from competing vigorously, certain contracts for the purchase or sale of goods and services can form the basis of a monopolisation claim. For a monopolist, certain types of vertical arrangements, such as long-term contracts, exclusiv-ity terms, loyalty programmes, or conditional sales or dis-counts, can be characterised as tying or exclusive dealing in violation of Section 2.

■ Predatory pricing. Predatory pricing has been defined by the Supreme Court as “pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run”. To distin-guish predatory pricing from pro-competitive price-cutting, a plaintiff typically must show that:

❑ the challenged prices are below average variable cost; and

❑ the defendant has a dangerous probability of recouping its below-cost pricing by charging monopoly prices after its rivals have been driven out of the market.

■ Refusals to deal. Usually a firm has complete discretion to decide which customers and suppliers to do business with. However, in some circumstances, courts have found a monopolist’s unilateral refusal to deal to violate Section 2. These cases often involve a monopolist’s control of an essen-tial facility and refusal to make that facility available on non-discriminatory terms. However, the Supreme Court has explicitly refused to endorse or reject this doctrine, describ-ing it as merely one form of Section 2 liability.

■ Monopoly leveraging. Monopoly leveraging, to the extent it sur-vives as a distinct offence after a recent decision (Verizon Com-munications Inc v Trinko (2004) 124 SCt 872), requires proof of the usual elements of Section 2 (see Question 25).

Generally, a plaintiff must prove a dangerous probability that thedefendant will monopolise the secondary market, by abusing itsmonopoly power in the primary market.

28. Are there any exclusions or exemptions?

They are similar to those available for restrictive agreements andpractices (see Question 15).

29. Can pre-notification guidance be obtained? If so, please out-line the procedure?

Pre-notification guidance can be obtained in a way similar to thatfor restrictive agreements and practices (see Question 17).

30. Please summarise the regulator's powers of investigation.

They are similar to those for restrictive agreements and practices(see Question 23).

31. What are the penalties for abuse of market power?

Virtually all Section 2 violations are addressed in civil, not criminal,proceedings. Fines and other remedies available are the same as forrestrictive agreements and practices (see Question 21).





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THE REGULATORY AUTHORITIES

Name. Antitrust Division, US Department of Justice

Head. R Hewitt Pate (Assistant Attorney General)

Contact details. 950 Pennsylvania AvenueNW WashingtonDC 20530T +1 202 514 2401F +1 202 616 2645E [email protected] www.usdoj.gov/atr/

Outline structure. The Assistant Attorney General for Antitrust,who is nominated by the President and confirmed by the Senate,oversees the Antitrust Division. Five Deputy Assistant AttorneysGeneral and a number of special counsel assist the AssistantAttorney General. The Antitrust Division has several Washingtonsections and seven regional offices in Atlanta, Chicago,Cleveland, Dallas, New York, Philadelphia and San Francisco.Each section and field office is supervised by a particularDeputy Assistant Attorney General. The Director and DeputyDirector of Operations, the Director of Criminal Enforcement andthe Economics Director of Enforcement are career employeeswith supervisory responsibility for their respective programmes.

Responsibilities. The mission of the Antitrust Division is topromote and protect the competitive process of the US economythrough the enforcement of the anti-trust laws. The AntitrustDivision criminally prosecutes serious and wilful violations ofthe anti-trust laws and files civil suits for injunctive relief andmonetary damages. It also shares responsibility with the FTC forassessing the economic impact of proposed mergers andacquisitions and, in some circumstances, negotiating an agreedremedy or filing a lawsuit to block the proposed transaction.

Procedure for obtaining documents. The Antitrust Divisionprovides the following documents on its website:

■ Public court and administrative filings.

■ Guidelines and policy statements.

■ Press releases.

■ Speeches.

■ Congressional testimony.

■ Business review letters.

To obtain copies of Antitrust Division documents not posted onits website, the Antitrust Documents Group can be contacted on+1 202 514 2481, or by e-mail at [email protected].

Name. Federal Trade Commission (FTC)

Head. Deborah Majoras (Chairman)

Contact details. 600 Pennsylvania AvenueNW WashingtonDC 20580T +1 202 326 3300F +1 202 326 2624 (pre-merger notification office)E [email protected] www.ftc.gov

Outline structure. The FTC is comprised of five commissionersnominated by the President and confirmed by the Senate. Thecommissioners serve staggered seven-year terms, and no morethan three commissioners of the same political party can serveat any one time. The President selects one commissioner to actas chairman. The FTC has responsibility for both competitionand consumer protection matters.

Responsibilities. The FTC’s Bureau of Competition reviewsproposed mergers and acquisitions and investigates allegedanti-trust violations. In certain circumstances, it willrecommend that the FTC takes formal enforcement action. If theFTC decides to take action, the Bureau of Competition willlitigate the matter in a federal court, or before the FTC’sadministrative tribunal. The Bureau of Competition also servesas a research and policy resource, by preparing reports andtestimony for Congress and offering comments on anti-trust andcompetition issues pending before other agencies.

Procedure for obtaining documents. The following types ofdocuments are available on the FTC’s website:

■ Advisory Opinions.

■ Commission Actions.

■ Early Terminations of HSR Waiting Periods.

■ Guidelines.

■ HSR Pre-Merger Notification Regulations and Materials.

■ News releases.

■ Protocol for Federal-State Co-operation.

■ Speeches.

■ Testimony.

www.practicallaw.com/This article was first published in the Global Counsel Competition Law Handbook 2004/05 and is reproduced with the permission of the publisher,




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32. How is Article 82 enforced by your jurisdiction’s national com-petition authority and courts in accordance with EC Regula-tion 1/2003 (EU member states only)? Are there anydifferences between the enforcement of Article 82 and theenforcement of your jurisdiction’s national competition laws?

Not applicable.

JOINT VENTURES

33. Please explain how joint ventures are analysed under com-petition law.

Joint ventures can be subject to the provisions of Sections 1 and2 of the Sherman Act, Section 5 of the FTC and Section 7 of theClayton Act. If the joint venture involves forming a corporation orlimited liability company, it can also be subject to HSR notifica-tion requirements.

The term “joint venture” refers to almost any collaborativeactivity, by which two or more firms combine their resources tomake or sell a product or service, or pursue a common strategicobjective. A court or agency analysing a joint venture mustconsider the competitive relationship of the participating firms(for example, whether they are actual or potential competitors),as well as the structure and purpose of the joint venture.

A joint venture is likely to be held unlawful in itself if it facilitatesprice-fixing or market allocation and does not meaningfullyintegrate the productive assets of the participating firms. Incontrast, joint ventures that increase the participating firms’efficiency and enable them to compete more effectively as aresult of integration of productive assets will be evaluated, andlikely upheld, under the rule of reason.

The Competitor Collaborations Guidelines (issued jointly in April2000 by the Antitrust Division and the FTC) set out in detail theagencies’ approach to investigating and analysing joint ventures.They also provide anti-trust safety zones for:

■ All good faith collaborations, where the combined market shares of the collaboration and its participants are no more than 20% of the relevant market.

■ Research and development (R&D) joint ventures, where three or more independently controlled research efforts, in addition

to those of the collaboration, possess the specialised assets and incentive required to undertake a project that is a close substitute for the R&D activity of the joint venture. The Stand-ards Development Organization Advancement Act of 2004 generally offers the same limited anti-trust protections that R&D joint ventures currently receive to voluntary consensus bodies seeking to develop technical standards.

However, these safety zones do not apply to agreements that areper se unlawful, or to competitor collaborations subject to mergeranalysis.

PROPOSALS FOR REFORM

34. Please summarise any proposals for reform.

On 30 March 2004, the FTC proposed significant changes to theHSR regulations. The main purpose is to harmonise the HSRtreatment of corporations and “non-corporate entities”, a newterm defined to include partnerships, LLCs, co-operatives andother non-corporate entities that possess an interest in the profitsor assets of the acquired or acquiring entity.

Under the proposed rules, many transactions involving partner-ships and LLCs that were previously not reportable will becomereportable. To remove the distinction between corporate and non-corporate entities, certain intra-person asset transfers betweennon-corporate entities will be exempt. The proposed rules will alsoalleviate the dissimilar treatment of asset and voting securitiesacquisitions. Following the consultation period, final rules will bereleased and will become effective 30 days after publication.

The US Congress recently established the Antitrust Moderniza-tion Commission, which is a 12-member bipartisan commissionthat will evaluate the current operation of anti-trust enforcementand decide whether the anti-trust laws need to be modernised.The Commission is to:

■ Solicit the views of “all parties concerned with the operation of the anti-trust laws”.

■ Identify and study substantive, procedural and structural anti-trust issues, potentially requiring legislative attention.

■ Report to Congress and the President within three years after the Commission’s first meeting (the Commission recently held its first official meeting).

comphandbookThis article was first published in the Global Counsel Competition Law Handbook 2004/05 and is reproduced with the permission of the publisher,


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