Antitrust in focus - November 2021

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This newsletter is a summary of the antitrust developments we think are most interesting to your business. Hugh Hollman, partner currently based in Washington, D.C., is our editor this month (learn more about Hugh in our Q&A feature at the end of the newsletter). He has selected:

General

  • New head of DOJ Antitrust Division (finally) confirmed, HSR 2020 report issued
  • Creation of new Chinese antitrust agency is latest step in strengthening antitrust enforcement
  • European Commission insists EU competition policy can adapt to new challenges but strong enforcement is needed
  • Illumina/GRAIL completion motivates European Commission to adopt unprecedented interim measures
  • UK government continues to gear up for start of strengthened national security regime
  • Individuals increasingly face liability for antitrust breaches under new/bolstered rules and enforcement action
  • International cooperation is high on antitrust authorities’ agendas

Consumer & Retail

  • Hub-and-spoke cartels targeted in Turkey and Portugal

Energy

  • President Biden directs U.S. Federal Trade Commission to investigate oil and gas markets

Industrial & Manufacturing

  • European Commission letter to car manufacturers hints at what will not amount to anti-competitive collusion between rivals

General

New head of DOJ Antitrust Division (finally) confirmed, HSR 2020 report issued

Four months after he was nominated by President Biden, and ten months after Biden took office, Jonathan Kanter has been confirmed as Assistant Attorney General for the Antitrust Division of the Department of Justice (DOJ).

As previously reported, Kanter is a self-described “leading advocate in the effort to promote strong and meaningful antitrust enforcement”. He has previously voiced concerns about U.S. antitrust orthodoxy and the lack of monopoly enforcement actions brought by the U.S. agencies.

Kanter joins the DOJ at a crucial time. The agency is in the midst of several high-profile enforcement actions, including against Big Tech. There are also a series of bills proposing radical changes to the U.S. antitrust regime on the table.

Going forward we expect Kanter to aggressively pursue the directives set out in President Biden’s recent Executive Order, alongside new Federal Trade Commission Chair Lina Khan. In particular, the Order urges the DOJ and the FTC to more closely scrutinise mergers and vigorously enforce antitrust laws, singling out certain sectors, including labour, healthcare, transport, technology, and banking, for particular focus. In an added twist, both Kanter and Khan are currently facing calls from certain technology firms to be recused from various investigations, due to concerns over impartiality.

The FTC has this month made a number of new tech and economic policy leadership appointments to help realise its goal of ensuring its “law enforcement and policy work are keeping pace with new market realities”.

The result of all of this? It seems that significant changes to U.S. antitrust policy and enforcement practice are around the corner. But there will be dissent at the top. For example, our alert on the Hart-Scott-Rodino Annual Report for Fiscal Year 2020, together with an assessment of the merger filing and enforcement data, notes the duelling perspectives of the Democratic and Republican FTC Commissioners. In particular, they disagree on the FTC’s policy response to the current surge in merger control filings.

Creation of new Chinese antitrust agency is latest step in strengthening antitrust enforcement

We are witnessing a new wave of antitrust enforcement in China. In October, for example, we reported on the State Administration for Market Regulation (SAMR) decision to impose a substantial fine on Meituan for exclusivity arrangements in the online food delivery sector.

The latest draft amendments to the Anti-Monopoly Law also make clear that China intends to strengthen its antitrust rules (find out more in our alert).

This month, the establishment of a new Chinese antitrust agency was announced.

The new agency – the “State Antimonopoly Bureau” – is likely to be an “upgraded” version of the current Anti-Monopoly Bureau that sits within SAMR.

In practice, we anticipate that the creation of the new body will result in:

  1. An increase in the number of antitrust officials.
  2. A commitment to the further strengthening of antitrust enforcement in China.

We are monitoring developments and will keep you updated.

European Commission insists EU competition policy can adapt to new challenges but strong enforcement is needed

The European Commission (EC) is in the middle of a detailed review of its competition policy tools. In parallel it is developing brand new instruments, such as the Digital Markets Act regime for digital gatekeepers and the framework for tackling distortive effects of foreign subsidies.

Now, in a communication taking stock of its progress, the EC sets out how EU competition policy is “fit for new challenges”. It focuses on the green and digital transitions and a “resilient” Single Market.

The communication delivers two key messages:

  1. EU competition rules have the in-built ability to adapt to new market circumstances, priorities and customer needs. The EC does not, therefore, advocate any radical overhaul.
  2. Strong competition enforcement is crucial. We can expect the EC to continue to vigorously enforce both antitrust and merger control rules. The EC will also continue to use tools such as interim measures (as in the Broadcom case) to tackle risks of serious and irreparable damage to competition in fast-moving digital markets. In particular, the EC notes that the new Article 22 merger control referrals policy (see the Illumina/GRAIL article below) should allow it to review acquisitions of targets that would ordinarily not require notification to the EC (eg, innovative digital companies) with competitive potential beyond what their turnover would indicate.

In addition to these headlines, there are some other points worthy of mention.

More antitrust guidance for businesses

The communication sets out a number of areas where updated or new guidance can be expected.

For example, the revised horizontal guidelines (expected by Q4 2022) will contain guidance on how rivals can cooperate to develop more sustainable products or production processes. They will also cover data sharing, and will generally give more information on how firms can engage in joint R&D and production arrangements. And the EC says it “might” offer guidance on network sharing, which it explicitly encourages provided there is no undue reduction in competition.

In parallel, the EC says it stands ready to give individual antitrust guidance to companies on specific initiatives, something it has been more reluctant to do in the recent past. This guidance could relate to agreements that pursue sustainability objectives, or that bring to market innovative and more efficient solutions that contribute to the digital transition.

The EC gives the example of a letter sent to Gaia-X on how to ensure the organisation’s membership criteria and working rules comply with antitrust law. This follows a recently published letter to carmakers on non-problematic elements of their cooperation (see our article below). It remains to be seen, however, whether the EC will reserve this route for only the most novel types of agreement/conduct and/or time critical cases.

Quietening the critics

As expected, the EC does not make any major concessions to calls from France and Germany for amended EU merger control rules that support the emergence of “European Champions”. It notes that it is in the process of updating the 1997 market definition notice to take account of digitalisation and globalisation. This is expected by Q1 2023, possibly earlier.

In the EC’s view, EU merger control rules make an important contribution to preventing dependencies and ensuring supply chains remain diversified and reliable. Continuing to stay true to a message we have heard Commissioner Vestager deliver on a number of occasions, the EC points out that merger rules allow companies to grow and gain necessary scale to compete, subject to sufficient competition and choice remaining in the market to drive innovation and investment.

Amendments to the State aid rules continue at pace

The EC views forthcoming changes to State aid rules as key for both the green and digital transitions. It highlights in particular the new climate, environmental protection and energy aid guidelines, planned new regional aid guidelines, revisions to the Important Projects of Common European Interest framework, and guidelines for broadband (on which the EC has just launched a consultation).

Interestingly, the EC states that it may approve public support to fill possible funding gaps in the semiconductor ecosystem for European first-of-a-kind facilities, in particular. It recognises the extraordinary relevance of the industry and the importance of achieving a secure supply of semiconductors for European businesses. Although it notes that such aid would have to be subject to strong safeguards.

In the context of the EU’s recovery from the coronavirus pandemic, the EC announced a sixth amendment to the State aid Temporary Framework. The existing measures were extended until 30 June 2022 to avoid businesses being suddenly cut-off from public support while disturbances continue. Two new tools are established that enable Member States to: (1) create direct incentives for private investments (such as support for roll-out/upgrade of digital infrastructure or for increasing energy efficiency of buildings); and (2) leverage private funds and make them available for investments in SMEs.

Timeline for change

The EC sets out when we can expect the various revised rules and guidelines. The majority are tabled for the next 12-24 months. We will keep you updated as key materials are released.

Illumina/GRAIL completion motivates European Commission to adopt unprecedented interim measures

In August, Illumina chose to complete its acquisition of GRAIL despite an in-depth EC investigation into the deal. It said the EC’s decision was not expected until after the end of the transaction expiry date. It seems that Illumina partly wanted to avoid paying a substantial breakup fee.

The EU merger control regime is suspensory. A standstill obligation prevents companies implementing transactions prior to clearance. Within two days of the parties closing their transaction, the EC had opened an investigation into whether Illumina and GRAIL’s decision to close their transaction infringed the merger control rules. The companies are potentially liable for a fine of up to 10% of their annual worldwide turnover. The EC is keen to deter gun-jumping and any risk to the effectiveness of its ex-ante merger control enforcement, as shown by its record EUR124.5m fine on Altice, recently largely upheld on appeal.

On top of this, the EC has now adopted interim measures to apply in the period until its final decision on the substance of the case. These legally binding measures are aimed at preventing irreparable harm to competition as well as irreversible integration of the merging parties. They go further than voluntary measures already proposed by Illumina.
Unsurprisingly, Illumina is required to keep GRAIL separate and run by an independent hold separate manager, exclusively in GRAIL’s interest. There are restrictions on the parties sharing confidential business information. Illumina must finance additional funds to operate and develop GRAIL. And any business interactions between the two must be conducted at arm’s length, in line with industry practice.

However, the EC has also included a more controversial and practically awkward demand: for GRAIL to “actively work on alternative options to the transaction”. The EC’s motivation is clear. Should it ultimately decide that the deal needs to be undone, it does not want that to stall GRAIL’s continued ability to develop innovative cancer detection technology.

A monitoring trustee will supervise the companies’ compliance with the measures. Any breach risks penalty payments of up to 5% of their daily turnover and/or fines of up to 10% of their annual worldwide turnover.

The case breaks new ground in a number of respects. The early implementation was unprecedented in nature. The interim measures are a first for the EC. And, going back in time, the deal was the first to be referred to the EC under its revised Article 22 policy. This policy explains that the EC now encourages Member States to refer certain transactions to it that do not meet either EU or national merger control thresholds. Indeed, the novelty of that move forms part of Illumina’s challenge of the referral decision. It claims that the EC does not have jurisdiction to review the deal at all. A win in that appeal would make the EC’s gun-jumping investigation moot. Watch this space.
For more on the case, see our recent alert.

UK government continues to gear up for start of strengthened national security regime

As we’ve reported previously, a far-reaching national security regime commences in the UK on 4 January 2022. The new rules introduce mandatory suspensory notification for certain acquisitions of qualifying entities in 17 designated sensitive areas of the economy. They also encourage voluntary notification of other transactions in the wider economy potentially raising national security concerns.

This month the government has published additional guidance to assist in the interpretation of these new rules.

First, it laid a “Section 3 Statement” before Parliament for approval. This statement explains how the government expects to use a power to “call in” relevant acquisitions for assessment, whether or not those acquisitions have been notified. It, therefore, gives crucial guidance on the likelihood of deal intervention. Our alert provides more detail on the headlined points.

More recently, the government has published new guidance to assist in the assessment of whether an acquisition falls within the scope of one of the 17 mandatory areas of the economy. And revised guidance sets out what can be expected in terms of process for all relevant acquisitions, including the stages and length of investigation periods and the powers of the government to request information and attendance at meetings. A regulation setting out the prescribed form and content of mandatory and voluntary notices has also now been laid before Parliament. Our alert summarises points of note.

Individuals increasingly face liability for antitrust breaches under new/bolstered rules and enforcement action

The sanctions for companies that breach antitrust rules are well known. Fines can be eye-wateringly high and agreements can be ruled void and unenforceable. Many jurisdictions are seeing a considerable uptick in private enforcement following on from antitrust infringements.

But the potential sanctions for individuals should not be overlooked. In some jurisdictions, fines and, in certain cases, prison sentences, are on the cards. While in countries such as the U.S., criminal liability for individuals is well established, we are seeing many others recently introducing new provisions or stepping up enforcement efforts.

In recent weeks we have seen developments in two camps.

First, new rules that introduce or strengthen powers to penalise individuals for breaching antitrust rules. In particular:

  • China’s draft revised Anti-Monopoly Law proposes heavier penalties for violations across the board. Among the changes is a potential CNY1 million (approx. USD160,000) fine for individuals, including senior executives, for infringements of the rules on monopolistic agreements.
  • Under Cambodia’s brand new competition law, individuals face imprisonment of between one month and two years, and fines ranging from KHR5m to KHR100m (approx. EUR1,000 to EUR21,000) for cartel conduct.

Second, there have been several instances of enforcement action against individuals. For example:

  • In Australia, the ACCC secured its first guilty plea from an individual under the criminal cartel regime. A former export manager pleaded guilty to three charges and admitted his guilt in relation to a further seven offences. This relates to a price fixing, bid rigging and market sharing cartel in the pharmaceutical ingredient sector. He could be sentenced to up to ten years in prison and/or ordered to pay up to AUD420,000 per offence.
  • In Lithuania, a court disqualified a former cinema company executive from holding managerial positions for three years. The ruling came after the Competition Council found that she was directly involved in price-fixing agreements relating to film distribution prices.
  • The Peruvian competition authority imposed fines on 26 executives (as well as 33 companies) for bid-rigging in the construction market.

These developments highlight not only the importance of having a robust antitrust compliance programme in place, but also for individuals to properly engage with (and follow) the training and guidance offered to them by their employers.

International cooperation is high on antitrust authorities’ agendas

Cooperation between antitrust authorities is not a new concept and there are numerous venues in which antitrust enforcement officials engage with one another, such as the International Competition Network and the OECD’s Competition Committee. Across the world, authorities discuss the best ways of ensuring that antitrust rules are fit for purpose and consider ongoing challenges such as globalisation, digitisation and sustainability. In merger control, there is increasing coordination on remedies packages, to try to ensure a “global” solution to antitrust issues in multinational cases, a recent example being S&P/IHS Markit. And in cartels, we have heard that sharing leads between agencies has been important in helping to discover potential infringements.

While these collaboration efforts are ongoing, they look set to increase. In the last couple of months we have witnessed a number of new pledges to coordinate as well as renewed enthusiasm about the benefits that such cooperation can bring.

Two developments stand out:

  1. Commissioner Vestager has heralded a “new era of transatlantic cooperation”. This follows the recent establishment of the Trade and Technology Council through which the U.S. and the EU will coordinate their approaches to global trade, economics and technology. She underlined the need to strengthen common values and to address shared concerns, eg, on the role of platforms. Commissioner Vestager highlighted the recently announced Joint Technology Competition Policy Dialogue, which will focus on developing a common EU-U.S. approach to competition in the digital sector. More generally, in her view, the growing convergence between EU and U.S. antitrust policies/rules makes closer cooperation more likely to be effective.
  2. The heads of ASEAN competition authorities had their first meeting, where they committed to closer regional cooperation. Key action points relate to merger cases. Members intend to develop guidelines for sharing cases and set up a portal to exchange information. They also aim to develop a manual on competition policy and law for the digital economy and to implement other regional competition law initiatives, particularly in e-commerce.

The ASEAN members are putting their cooperation commitments into practice. The Philippine Competition Commission has recently given training to the Malaysian authority on merger control. It plans to do the same for Cambodia, which has only just passed its own competition law.

Elsewhere we have seen similar initiatives. The Spanish and Italian antitrust authorities have signed a Memorandum of Understanding. They commit to cooperate in order to better identify and investigate cartels and abuses of dominance. And they aim, where possible, to develop common positions on potential EU law reforms.

“Deepening cooperation” to ensure strong enforcement was also a key driver of recent meetings between Polish and Portuguese antitrust authorities. They shared experiences and exchanged knowledge on a range of competition-related topics.

For businesses, greater cooperation will likely lead to quicker investigations and speedier decision-making, especially in complex areas such as digital markets. It may also facilitate a more transparent and uniform approach to certain business practices, which will help companies to better identify potential risks.

Consumer & Retail

Hub-and-spoke cartels targeted in Turkey and Portugal

Enforcement action against “hub-and-spoke” cartels is relatively rare. Such infringements involve competitors exchanging sensitive information through a third party, usually a common supplier. They can result in the fixing of retail prices without the retailers ever having direct contacts with each other. This lack of contact can make them difficult for antitrust authorities to prove.

In the past few weeks, however, we have seen two antitrust authorities penalise hub-and-spoke conduct.

In Turkey, the antitrust authority imposed TRY2.1 billion (EUR241m) in fines on five retailers of food and cleaning products and a supplier. It found that the retailers coordinated prices and price changes and exchanged competitively sensitive information. Compliance with the coordinated prices was monitored and deviations were punished. The coordination took place both directly between the retailers, and through their common supplier Savola Gida, acting as intermediary, or “hub”.

The case is significant. The fines are a record – the largest ever to be imposed in a single case. And the decision marks the first time the authority has explicitly referred to a hub-and-spoke infringement.

The Portuguese authority, AdC, also has hub-and-spoke cartels in its sights. It first sanctioned this type of infringement in late 2020, when it fined supermarkets and drinks suppliers a record EUR303.4m for two separate hub-and-spoke cartels.

Now, it has imposed two more sets of fines:

  1. fines of EUR93m on brewer Super Bock and four supermarkets for fixing the prices of certain beer, cider and bottled water over a period of more than 12 years. Super Bock was handed the highest fine (EUR33.2m). It has announced it will appeal.
  2. EUR25m on three supermarkets and supplier Bimbo Donuts, for a scheme to fix retail prices of several Bimbo Donuts products for over 11 years.

These cases show that hub-and-spoke cartels are firmly on the radar of (at least some) antitrust authorities. It will be interesting to see if they prompt others to follow suit.

Energy

President Biden directs U.S. Federal Trade Commission to investigate oil and gas market

In a headline-grabbing move, President Joe Biden has sent a letter to U.S. Fair Trade Commission (FTC) Chair Lina Khan, urging the agency to investigate potential anti-competitive conduct in the oil and gas industry.

While acknowledging that Chair Khan has already directed the FTC to strengthen oversight of mergers in the sector, President Biden asks for a further examination of what is happening in oil and gas markets. He directs the FTC to use all of its powers to deal with any wrongdoing uncovered.

The energy industry should therefore expect increased scrutiny in the near future, although as yet it is unclear what form that will take.

Read our alert to find out more about the letter, and what the FTC might do in response.

Industrial & Manufacturing

European Commission letter to car manufacturers hints at what will not amount to anti-competitive collusion between rivals

In our July edition of Antirust in focus we commented on the European Commission (EC)’s car emissions cartel decision. The EC found that five car manufacturers illegally colluded to restrict competition in relation to emission cleaning technology for diesel cars. It was the first time that the EC found that cooperation on technical development, as opposed to price fixing or market sharing, amounted to cartel behaviour. Fines imposed exceeded EUR875m.

At the same time as the decision, and in an unusual move, the EC sent a letter to the companies giving its views on the aspects of their technical cooperation that did not raise antitrust concerns.

This letter has now been published. It relates to particular instances of coordination by the car manufacturers. The EC has clarified that it only reflects its views and is not a binding decision.

Nonetheless, the letter gives some clues as to the general types of technical cooperation between competitors that the EC might not consider as problematic under the antitrust rules. These could include:

  • deciding to focus on joint development of a product, where firms are still free to develop other related technologies and bring them to the market
  • standardising certain parts/features of a product, where this enables uniform use and therefore leads to efficiency enhancements and cost savings without negatively impacting effectiveness
  • discussing quality standards, where these enable firms to widely offer suitable products and, again, do not negatively impact the effectiveness of the product
  • discussing the build-up of appropriate supply infrastructure, where this is needed by producers and customers and where only anonymised and aggregated data is shared
  • discussing and preparing a common position on future legislative proposals, provided that these contacts are limited to influencing future legislative measures and are not used to coordinate market conduct

The EC has hailed the letter as an example of the guidance it plans to give businesses on whether their cooperation to produce greener products is legal. Time will tell how often the authority will take a similar route in future cases. And whether any guidance will focus only on coordination in an environmental or sustainability context, or cover cooperation in a broader sense.

Finally, watch out for the EC’s revised draft guidelines on horizontal cooperation agreements, due out for consultation in the coming months. They should also provide companies with clarity on some of these issues.

About your editor

Hugh is a partner in our global antitrust team, currently based in our Washington, D.C. office. His distinctive public and private sector experience, as both in-house and outside counsel, allows him to effectively tailor his advice to efficiently meet the business objectives of his clients. He has significant experience in representing clients across the globe on all aspects of antitrust law from merger approvals, cartel investigations, and civil antitrust cases, to the management of complex multinational competition matters. His expertise spans a wide range of industries, including energy and petrochemicals, technology, telecommunications, healthcare, life sciences, aerospace, and retail, and he has particular knowledge of the MENA region.

Hugh’s previous experience includes working as the global group head of antitrust/competition law for one of the world’s largest energy companies and serving as an attorney advisor to U.S. Federal Trade Commissioner William Kovacic.

Hugh is qualified in the U.S., England and Wales, and South Africa. He received a Juris Doctor and a Masters in Laws from Duke University School of Law, and also has a Bachelor in Laws and a Bachelor of Business Science from the University of Cape Town. He is an advisor to the Business at OECD Competition Committee and is a Non-Governmental Advisor to the International Competition Network. He is on the editorial boards for the ABA Antitrust Section’s Antitrust Magazine and Oxford University Press’s Journal of Antitrust Enforcement. Previously he was an Academic Visitor at Oxford University and a fellow at the British Institute of International and Comparative Law (BIICL).

Spotlight on Hugh

A typical working day in D.C.…. starts early with China clients and matters as they are currently 13 hours ahead. My work then generally tracks the jurisdictions westward where my clients and teams are located as the day goes on. This means that the start of my day is often fast paced as I catch up with what has happened overnight, then gradually winds down as the day continues, which provides more of an opportunity to plan and prepare for the next day.

If I hadn’t become an antitrust lawyer, I would…. have been a scuba diving instructor.

The best career advice I’ve been given is…. that a single conversation can be worth more than years of study.

The most interesting case I’ve worked on …. in antitrust law was a USD69 billion acquisition by one of the world’s largest energy companies of a large petrochemical company. The sheer scale and complexity of this merger meant that every day had a new twist that kept the team permanently on our toes. Outside of antitrust, my most interesting case was a U.S. Supreme Court case arising out of the Guantanamo Bay detentions in which our team prepared a series of amicus briefs for pro bono clients advocating for human rights and the rule of law in the treatment of detainees. The additional work paid off as the U.S. Supreme Court ruled that the Geneva Convention could be directly enforced by the nation’s highest court and the team’s efforts were recognised with a human rights award.

For me, being a good lawyer/advisor means…. caring about the needs of my clients, building long-term relationships that outlast the matter at hand, and offering concise, accurate, and timely advice.

Something I’d like to do but haven’t yet done is…. climbing Kilimanjaro and Mount Kenya. I was born in Nairobi, Kenya, and climbing the two tallest mountains on the African continent has always been a dream.

My ideal weekend in a sentence…. sailing with my family and discovering new places to visit.

My typical weekend in a sentence…. helping my daughters with their homework and walking the family dog!

Something that might surprise you about me is…. that I often take months to finish a book as I have the unfortunate habit of reading up to ten at a time.

My top tip for visitors to D.C. (now that travel possibilities are opening up a little) is…. visit the Hirshhorn Museum as the curated exhibits are usually among the very best in the world and always changing

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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