December 6, 2013
By Jean Kim
The European Commission (the “EC”), as expected, has approved Microsoft’s proposed acquisition of Nokia’s handset devices business, demonstrating that antitrust enforcers no longer view the operating system Goliath of the 1990s as a tempting target.
The European approval was the last remaining regulatory hurdle for the parties to go forward with the $7.2 billion acquisition. The FTC granted “early termination” approval last week, which means that it will take no action to block the merger.
These relatively easy approvals by U.S. and European regulators are consistent with the similar ease with which Microsoft’s acquisition of Skype (worth $8.5 billion) sailed through U.S. and EC merger review in 2011. Antitrust enforcers apparently are not concerned with Nokia’s 3% share of the smartphone market going to Microsoft, particularly when Apple and Samsung together account for almost 50% of worldwide smartphone sales in 2013.
Microsoft, after emerging in 2011 from a decade of oversight by the U. S. Department of Justice following the settlement of the DOJ’s 1998 antitrust suit, has truly entered a new era. Antitrust enforcers have turned their gaze to bigger fish like Google and Apple, and no longer have a knee-jerk reaction to Microsoft’s every move in tech markets.
The EC has not completely withdrawn its scrutiny of Microsoft, however. As late as March of this year, the EC fined Microsoft $730 million for breaching its five-year commitment to give customers a choice of browser in connection with the upgrade of its Windows 7 operating system. This penalty was in addition to the more than 1.6 billion euros in fines that the EC had already levied on Microsoft over the last decade.
But Microsoft’s commitment with the EC expires in 2014 (unless extended), and Microsoft may well be left unfettered to pursue an acquisition strategy aimed at making it more competitive in a technological world that is no longer dominated by the personal computer. Microsoft certainly has the funds for a shopping spree with its $77 billion war chest.
With the rollout of Surface tablets, and Xbox’s healthy 30% plus share of the console market, the Nokia acquisition will round out Microsoft’s portfolio and give it a foothold in three device markets where it can deploy and unify its Windows platform.
– Edited by Gary J. Malone
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Categories: Antitrust Enforcement, International Competition Issues
December 5, 2013
A View from Constantine Cannon’s London Office
By James Ashe-Taylor and Julia Schaefer
The governing institutions of the European Union are moving ahead with proposals that could enable consumers and businesses victimized by antitrust violations to have a better chance at recovering damages from cartel members.
Earlier this week, ministers from all 28 member states of the EU agreed at a meeting of the Council of the European Union to push ahead with a legislative proposal which seeks to facilitate damages claims by victims of antitrust violations and to allow them to receive full compensation. Competition Commissioner Joaquín Almunia has called this effort a “milestone in the evolution of competition law enforcement in the EU.”
The European Commission (the EU’s executive arm) published the legislative proposal to revise rules governing antitrust damages actions under member states’ national law on June 11, 2013. The Council (one of the EU’s two legislative bodies) has now authorized its Presidency to start negotiations with the European Parliament (the other legislative body) to agree to revisions in the legislative proposal.
The legislative proposals are designed to remedy defects in private enforcement, an area which Mr. Almunia described as “ineffective” and “uneven.” Currently, victims of antitrust violations face high procedural hurdles in seeking relief, particularly under national discovery rules. These often require a detailed description of specific relevant documents before discovery is permitted, an evidentiary obstacle few victims are able to overcome.
Similarly, the discoverability of leniency documents is often uncertain and determined only on a case-by-case basis. The EU proposals aim to clarify this area of law, in order to give greater protection and certainty to whistleblowers, while at the same time upholding victims’ ability to access all relevant information.
The divergent rules and procedures across the EU member states have encouraged forum shopping for the courts with the most plaintiff-friendly procedural rules. This has meant that the vast majority of damages actions have been brought in the British, Dutch and German courts. The Commission considers this to be contrary to the single market principle. It has also pointed out that forum shopping is a luxury available only to large corporations.
According to Mr. Almunia, the new proposals are about making recovery of compensation by ordinary European citizens and small businesses a reality.
The proposals would also preserve the competition authorities’ power to punish and deter anticompetitive practices.
The EU’s enforcement of its competition laws remains a priority. As discussed on this blog yesterday, the EU has just imposed a new record level of fines against global banks in the Libor and Euribor benchmark manipulation investigations.
While the legislative proposals would bring European private antitrust damages actions a few steps closer to the American model, they would not make the full leap. Unlike in the U.S., where victims of antitrust violations are able to seek triple damages from cartelists as a deterrent, the EU’s proposals are aimed only at compensating for the harm suffered. Punishment, according to the Commission, should remain the exclusive realm of the competition authorities. Moreover, the EU currently does not have a class action regime, which would facilitate damages actions by consumers and small businesses. But on June 11, 2013 the Commission adopted a set of common non-binding principles for collective redress mechanisms in member states, which recommend limited opt-in class action-style laws.
The adoption of a “common approach” by the Council is a positive step toward finalizing the legislative proposal before May 2014, when new elections are held for the European Parliament. Under the EU’s “ordinary legislative procedure,” the Council will have to reach agreement with the Parliament on the Commission’s proposed legislation. However, disagreement remains on key aspects of the proposals, such as discovery rules and protection for whistleblowers. In addition, political conflicts in the Parliament have led to a month-long postponement of the first reading of the proposal until January of next year.
Despite these roadblocks, there is strong pressure within the Parliament and the Council to complete the legislative passage of this directive before April. Once adopted, the member states would have two years in which to implement the directive into national law.
Additional information about bringing private actions for antitrust damages in the EU can be obtained by contacting James Ashe-Taylor or Julia Schaefer in Constantine Cannon’s London office.
– Edited by Gary J. Malone
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Categories: Antitrust Legislation, International Competition Issues
December 4, 2013
By Gary J. Malone
The record fines imposed by the European Union today as part of its settlement with eight global financial institutions for fixing benchmark interest rates highlight both the risks of collusion and the rewards of coming clean.
Although the EU fined the group of financial institutions a record total of 1.7 billion euros (about $2.3 billion), two of the participants in the cartels—UBS and Barclays—escaped any fines because they alerted the European officials to the wrongdoing.
The financial institutions settled charges that they fixed rates for the London interbank offered rate (“Libor”) in the Japanese yen and the euro interbank offered rate (“Euribor”) in euros. Four of these financial institutions—Barclays, Deutsche Bank, RBS and Société Générale—conspired to fix interest rate derivatives in the euro. Six of them—UBS, RBS, Deutsche Bank, Citigroup, JPMorgan and broker RP Martin—participated in cartels that fixed interest rate derivatives in the yen. Pursuant to the Commission’s cartel settlement procedure, the companies’ fines were reduced by 10% for agreeing to settle.
The Europeans’ investigation follows related investigations into conspiracies to fix the Libor rate by U.S., British and Swiss regulators that led to five financial institutions, including Barclays, RBS and UBS, admitting wrongdoing and agreeing to pay more than $3 billion.
In announcing the settlement, Joaquín Almunia, the EU’s competition commissioner, stated that “What is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other.”
The banks’ settlement with the EU marks the first time that Citigroup and JPMorgan, will pay penalties in the rate-fixing investigations. Citigroup, which will pay 70 million euros in fines, avoided fines of an additional 55 million euros because it cooperated with the European investigation.
The international expansion of investigations into international conspiracies to fix benchmark interest rates is not surprising. Competitors that collude to eliminate competition put themselves at the mercy of not just the multiple regulators that police competition around the world, but also of their co-conspirators when their interests diverge.
As soon as members of a price-fixing conspiracy suspect that cartel activities may be revealed, there can be a race to prosecutors’ doors to get a deal avoiding civil fines or even criminal penalties. After the first whistle-blower reveals the existence of a cartel, however, the next conspirator through the door has to reveal some new wrongdoing in order to get a deal. If that conspirator is aware of any related cartels, they are likely to be revealed to the prosecutors, who will then start new investigations.
After that point, all the other conspirators may soon come to realize that their elaborate cartels were really interlocking houses of cards that could not survive even one defection.
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Categories: Antitrust Enforcement, International Competition Issues
November 27, 2013
By Jeffrey I. Shinder
The steady stream of cartel investigations and lawsuits on both sides of the Atlantic in recent months highlights the need for vigilant antitrust enforcement to protect consumer welfare, despite the views of those, like the Wall Street Journal editorial page, who question the wisdom of antitrust law.
These alleged cartels range from the apparently venal manipulations of the financial services industry, where pure greed and opaque markets have resulted in the Libor, Euribor, and foreign exchange market investigations, to claimed conspiracies of expedience in stagnant or depressed industries, where the protagonists are alleged to have colluded to manage supply and “maintain” price in the face of weak demand. Given the slow growth that has plagued the industrialized world in recent years, we almost certainly will be hearing about more such cartels. Rigorous antitrust enforcement is often the only check against consumers suffering massive overcharges in numerous, even critical, industries.
At the end of last week, European Union (“EU”) regulators disclosed yet another significant investigation with their announcement of an inquiry into whether 14 of the world’s major container shipping companies—including the two leading firms of Danish shipping group A.P. Moller-Maersk A/S and Swiss-based MSC Mediterranean Shipping Company S.A.—have been coordinating price hikes on European routes dating back to 2009.
This new investigation follows raids on some of these companies two years ago by the European Commission (the “Commission”). According to the Commission, major shipping companies have been using press releases on their websites to signal impending price increases to each other. While such signaling, standing alone, would be insufficient to support an antitrust violation in the United States, it could be found to violate EU law if it has resulted in higher prices and harm to competition. However, the targets of the investigation undoubtedly will argue that their price increases were necessitated by competition in the industry and that their conduct reflected individual, and lawful, conduct that did not harm competition.
Notably, this investigation is taking place against the backdrop of separate U.S. and EU regulatory scrutiny of the planned “P3” vessel-sharing alliance among Maersk, MSC and France’s CMA CGM S.A. The alliance would purportedly address persistent overcapacity and declining freight rates through an agreement to share ships and engage in related cooperative operating activities, under a common management, while retaining individual commercial status and control of consignments.
Last month, the three shipping companies filed their proposed agreement with the U.S. Federal Maritime Commission (“FMC”) under the U.S. Shipping Act of 1984. The FMC is taking public comments on the agreements until November 29, 2013. If the FMC declines to enjoin the alliance or require additional information, the agreement will become effective on December 8, 2013. While that would confer antitrust immunity under U.S. law on the alliance, in this instance such immunity is not available under EU competition law.
Although EU law does exempt certain agreements among shipping companies from Article 101(1) of the Treaty on the Functioning of the European Union, the proposed alliance does not meet the requirements of that exemption. Thus, even if the alliance survives FMC scrutiny, which is not a given, it may receive a rougher ride in the EU.
Moreover, while the Commission claims that its price-signaling investigation is separate from its ongoing review of the P3 alliance, the cartel investigation could conceivably influence the Commission’s willingness to approve the alliance. It would not be surprising if the price-signaling investigation causes the Commission to impose additional restrictions on the alliance, even if it is approved.
Given the significance of the shipping industry to the global economy, the progress of these regulatory efforts in Brussels is well worth watching.
– Edited by Gary J. Malone
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Categories: Antitrust and Price Fixing, Antitrust Litigation, International Competition Issues
November 26, 2013
By Jeffrey I. Shinder and Ankur Kapoor
On November 20, 2013, U.S. District Judge Colleen Kollar-Kotelly set the stage for judicial review of the settlement that the U.S. Department of Justice (“DOJ”) has reached to resolve its challenge of the proposed merger of American Airlines and US Airways.
The court’s order sets the schedule for the Tunney Act procedure, which is the congressionally mandated judicial review process that is designed to ensure that the DOJ’s settlements are in the public’s interest of vigorous antitrust enforcement. Under this procedure, when the DOJ settles an antitrust case it must file a “competitive impact statement” justifying the settlement’s resolution of the competitive concerns raised by the DOJ. Interested parties are then given an opportunity to respond and comment. These materials are submitted to a federal judge who is empowered by the Act to reject the settlement if the court finds that it is not in the public interest.
For the controversial American Airlines-US Airways merger, this process will likely play out by the spring of 2014. The court has set deadlines of February 7, 2014, for public comment, and March 10, 2014, for the DOJ to respond to any such comments. At that time, the court will determine whether and when to hold a public hearing.
Since the Tunney Act’s standards were tightened by Congress in 2004, courts have generally deferred to the DOJ and played a modest role in reviewing antitrust settlements. Although most commentators expect this pattern of judicial deference to continue with the American Airlines-US Airways settlement, there are substantial reasons why this settlement should be subjected to searching scrutiny.
Some background is instructive. Initial market and antitrust expectations predicted that the merger would be cleared, possibly with substantial divestitures of take-off and landing slots at Washington, DC’s Reagan National Airport and with a few other divestitures of rights at certain airports. Industry commentators noted that the two airlines’ networks overlapped significantly only at Reagan National, and the airlines stated that there was overlap on only 13 non-stop routes (the DOJ said 17). To the surprise of the industry, and apparently to the two airlines as well, the DOJ filed suit in August while the parties were in the midst of settlement negotiations.
The DOJ’s well-drafted complaint elaborated in great detail how the proposed transaction threatened to reduce competition. First, the DOJ alleged that the merger would reduce competition not only at Reagan National and for a handful of non-stop routes, but for more than 1,000 city pairs (almost all of which involved one-stop routes) because of the high concentration in those markets that would result from the merger. Second, the DOJ alleged that the merger would reduce or eliminate US Airways’ incentive to continue to offer its “Advantage” fares, which are one-stop fares allegedly priced substantially lower—sometimes 50% or more—than other airlines’ one-stop and non-stop fares. Although the DOJ did not allege it explicitly, the DOJ clearly viewed US Airways as a pricing “maverick” under the federal antitrust agencies’ Horizontal Merger Guidelines and was proceeding under a theory that the merger would substantially reduce or eliminate US Airways’ disruption of certain city-pair markets. Third, the DOJ alleged that the merger would result in consolidation in domestic air transportation to the point where there would be only three remaining “legacy” carriers (i.e., carriers that existed prior to deregulation beginning in the late 1970s). The DOJ discounted competitive constraints by newer, lower-cost carriers with less extensive networks, such as JetBlue and Southwest, and alleged that an industry with only three legacy carriers would facilitate price coordination on both airfares and ancillary charges like baggage fees.
The DOJ settlement addresses only the competitive issues raised by the merger at Reagan National, New York’s LaGuardia International Airport, and to a lesser degree at five other airports (Chicago’s O’Hare International, Los Angeles International, Boston’s Logan International, Miami International, and Dallas Love Field). The settlement requires divestiture of: 104 air-carrier slots at Reagan National (slots are federally granted take-off and landing rights that must be obtained before an aircraft can operate at Reagan National, LaGuardia, JFK International, and Newark International, because of the heavy air traffic at those four airports); 34 slots at LaGuardia; and rights and interests with respect to two gates at each of the other five airports. The divestitures at Reagan National would result in the merged airline increasing its market share there by only 2%.
The DOJ settlement does not address any of the other competitive impacts alleged in the DOJ’s complaint. Given that the DOJ made these allegations after an exhaustive factual and economic investigation into the industry, generally, and into these two airlines, specifically, it begs the question why the DOJ would abandon these competitive issues in the settlement. The purpose of the Tunney Act proceeding is to answer this question. If the DOJ did indeed have sufficient facts and economic analyses to back these allegations, the settlement may, and should, be hard-pressed to survive judicial review—particularly given Judge Kollar-Kotelly’s reputation for deep and detailed analysis. Indeed, the DOJ ought to welcome rigorous scrutiny of the settlement given the unusual political pressure brought to bear in favor of the merger by state and city officials, airports, unions, and other groups.
To be sure, there are reasons why the competitive impacts alleged in the DOJ complaint may have been difficult to prove at trial. First, with respect to the high levels of market concentration for travel between the 1,000-plus city-pairs, the DOJ complaint used airlines’ revenues to calculate market shares and concentration. Revenues may not be a correct metric. To the extent that there is significant excess capacity on a given route, the fact that there are only two or three airlines operating that route need not result in high prices. Because the marginal cost of flying an additional passenger is so low, airlines on such routes do, and will continue to, cut prices in order to fill their planes as much as they can. Many of the 1,000-plus routes identified in the DOJ’s complaint are less-traveled routes for which excess capacity is a relatively greater possibility. Revenue shares arguably overstate legacy airlines’ market shares and understate low-cost carriers’ market shares.
Second, with respect to US Airways’ Advantage fares, the legacy airlines’ capacity cut-backs since 9/11—and US Airways’ possible relatively greater excess capacity given its relatively greater service on less-traveled routes—also could explain US Airways’ penchant to offer substantially lower prices at the last minute and for other airlines’ inability and disincentive to do so because their planes are already filled. With a fuller plane, it may be more profitable for an airline to charge higher prices to inelastic passengers on a tight schedule at the last minute. In short, US Airways’ “maverick” pricing may not be a disruptive price constraint on the other legacy airlines but instead is just a manifestation of excess capacity on a particular route at a particular time.
Third, with respect to competition by low-cost carriers like JetBlue and Southwest, the DOJ’s complaint is at odds with its statements concerning the settlement that divestiture of slots and gates to JetBlue and Southwest will ensure even more competition than a full stop to the merger would have done.
Whether the competitive impacts alleged in the DOJ complaint were merely theoretical or actually factual remains to be seen. Although a Tunney Act proceeding is not a forum to litigate the very issues that were settled, some analysis of the alleged competitive impact is necessary to ascertain whether the DOJ complaint’s alleged view of the domestic airline industry was correct. If the DOJ complaint had a substantial basis, then the settlement falls far short of addressing the competitive harms identified in the complaint, and the settlement should be rejected. If the complaint did not have a substantial basis, then the industry and the public need to know that in order to assess competition in the domestic airline industry in the future.
– Edited by Gary J. Malone
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Categories: Antitrust Enforcement, Antitrust Litigation
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