GLOBAL ANTITRUST

1
GLOBAL ANTITRUST GLOBAL TRADE.
Price-Fixing, Global
Mergers Extraterritoriality.

• Stuart S. Malawer J.D., Ph.D.

2
I. Antitrust in Global Context. .... Global
Price-Fixing.
COURT ACCEPTS BRITISH AIRWAYS/KOREAN AIR LINES
PLEA The U.S. District Court for the District of
Columbia today accepted the Department of
Justice's plea agreements with British Airways
Plc and Korean Air Lines Co. Ltd. that had been
announced on August 1, 2007. In court today, the
companies pleaded guilty and were sentenced to
pay separate 300 million criminal fines for
their roles in conspiracies to fix the prices of
passenger and cargo flights. "Today's
sentencing demonstrates that those who violate
the antitrust laws and seek to deny American
consumers and businesses the benefits of
competition will be held accountable for their
actions," said Scott D. Hammond, Deputy Assistant
Attorney General for Criminal Enforcement of the
Department's Antitrust Division. "The Antitrust
Division is actively continuing its investigation
into the air transportation industry."
3
(No Transcript)
4
Global Mergers
Dubai Ports World National Security.
New York Times 3.18.06.
5
.. National Security Global Mergers.

• CNOOC Unocal (2005).
• DP World PO Steam Navigation (2006)
• Lucent Alcatel (2006).

6
(No Transcript)
7
.. U.S. Foreign Antitrust as a Global Trade
Issue.
8
.. Recycling Capital by Buyers from Developing
Countries (20052006).

• Lenovo IBM (PC business). Chinese U.S.
• Mittal Arcelor (2006). India EU.
• DP World P O Steam Navigation. UAE U.K.

.. Greater Domestic Mergers in Foreign Markets
(2005-2006).

• Bank of Tokyo Mitsubishi UFJ (Japan).

9
.. Price-Fixing, Mergers Dumping.
Antitrust.
Price-Fixing
Mergers
Dumping.
Antitrust.
Higher Prices
Lower Prices
10
. Global Trade Aspects.

• WTO .
• Competition is a Singapore issue, but dropped
  from Doha Agenda.
• Competition was in ITO. The Havana Charter was
  never ratified nor adopted.

Antitrust.
Trade.
Private / corporate restrictions.
Govt Restrictions.
11
Foreign Branch Foreign Subsidiary
Extraterritorial Application of U.S. Law.
U.S. Law.
U.S. Law.
U.S. Corporation
U.S. Parent Corporation
Yes.
Maybe.
Part of corporation. No separate ownership or
entity.
Equity Ownership.
Separate corporate entity. Incorporated in
foreign country.
Foreign Branch
Foreign Subsidiary
12
.. Global Corporate Activities
Extraterritorial Regulation ..

• The nationality of corporations is determined by
  its state of incorporation. The nationality of
  the shareholders (equity ownership) is
  irrelevant.
• The application of antitrust laws apply generally
  to mergers and price-fixing. Price-fixing is one
  of various unlawful predatory practices, for
  example, division of markets.
• The issue of extraterritorial application of
  national law involves the application of national
  law to outside of a nations territory.
• Often to foreign actors, foreign transactions
  that are lawful under foreign law.
• Applies domestic law to the wrongful act that
  takes place outside of the countrys territory,
  but where the injury is within that territory.
  (For example, higher import prices.)
• Above is known as effects principle. This is
  limited by the international obligation of
  reasonableness.
• Under U.S. law there is a presumption of
  territoriality. Congress can do anything it
  wants as to this. Problem is when the statute is
  silent. The courts need to determine the laws
  foreign reach.
• The U.S. is the primary user of extraterritorial
  application of antitrust law, but the EU is
  doing somewhat the same thing but under different
  theories.
• The U.S. applies the notion of extraterritoriality
  to other forms of international economic
  legislation.
• The potential trade disputes, because of
  inconsistent application of these laws to the
  same transactions, is significant.
• The global response has been primarily diplomacy,
  the creation of informal bodies to address the
  issue and bilateral agreements to limit
  international friction.

13
II. Extraterritorial Application --- U.S.
Antitrust Law.
Case Study Alcoa Case.
Swiss Corp.
U.S. LAW
Conspiracy to Restrict Imports into U.S.
U.S.
Effect (on U.S. Imports)
Canadian Corp (defendant)
Civil action by U.S. against Canadian corporation
as to price-fixing w/in context of monopolization
of U.S. group.
Intent Effect
14
.. Facts (global price-fixing
conspiracy)
Alliance (Swiss Corp)
Various Corporate Members
Not a Member
Alcoa (U.S.)
Member / Shareholder
Limited (Canadian Corp)

• 1931 Production Quotas
• 1936 U.S. Import Restrictions via Royalties

Civil action by U.S. against Canadian corporation
as to price-fixing w/in context of monopolization
of U.S. group.
One of the Defendants in action by U.S. (DOJ).
15
General Legal Issue Violation of Sherman Act
Section 1 ? Specific Issue Does U.S. antitrust
law apply extraterritorially so as to give to
U.S. courts jurisdiction over a foreign
corporate conspiracy (outside of the U.S.) that
is intended and does restrict imports into the
U.S. ?
16
Holding U.S. antitrust law (Section One of the
Sherman Act) applies to a foreign conspiracy to
restrict imports into the U.S. (between two
foreign corporations) when there is both an
intention to do so and an effect within the
United States (that is an impact on imports into
the U.S.).
17

• General U.S. Jurisprudence
• As a matter of U.S. law there is a presumption
  of territoriality. That legislation is intended
  to apply only to acts done within the U.S. unless
  the Congress otherwise provides.
• General International Law
• Recognizes the Effects Principle of
  jurisdiction as long as it is reasonable
  (Principle of Reasonableness / Balancing Test).

18

• BASIC POLITICAL PROBLEMS.
• Actors are foreign and the transaction is
  outside of the U.S.
• Most important, the actions are lawful under
  foreign law.
• Raises the issue of judicial imperialism as
  well as the clash of competing national laws in
  a horizontal legal system.

19

• Antitrust is one of the major fields of U.S.
  economic legislation and regulation that has been
  applied extraterritorially for the longest time
  (since 1945).
• Other fields have now been applied
  extraterritorially, for example, securities
  legislation, pretrial discovery, export control
  regulations, corporate governance (Sarbanes
  Oxley).

20

• Extraterritoriality has generally caused fierce
  resistance by other countries as violations of
  their national sovereignty. Such actions impact
  on companies and transactions located within the
  jurisdiction of foreign states.
• Most of these countries have been our closest
  political allies (but strongest global
  competitors).
• Yet, the European Union is also applying its
  competition laws extraterritorially or at least
  to foreign actions by U.S. firms. For example,
  MCI / WorldCom merger (1998) MCI - World Com -
  Sprint merger (2000) AOL Time Warner (2000)
  Oracle People Soft (2004/5) Microsoft
  practices (Windows 2004-2006).

21

• Most recently, this can be seen in the area of
  global mergers (transborder mergers), even
  domestic mergers with global implications (by
  U.S. firms having assets or transactions within
  the EU or effect within the EU), and U.S. firms
  business practices with implications within the
  EU.
• In 2006 a Japanese firm has agreed to plead
  guilty for obstruction of justice in a merger
  case.
• An example of the U.S. Justice Dept. activity in
  the area of global price-fixing is its
  settlements of criminal antitrust cases,
  starting in 1999, against foreign pharmaceuticals
  involving a global conspiracy for price-fixing
  and setting production quotas in the global
  vitamin market impacting.
• This has resulted in the largest fines ever
  imposed in guilty please for price-fixing - -
  about 850 m. in fines. The subsequent civil
  litigation has one settlement of 1.17 b. (2000).

22

• Other examples of global price-fixing
• A Japanese executive was sentenced to jail for
  international antitrust violation (2004).
• In 2004, De Beers agreed to plead guilty to a
  criminal global price-fixing (for a conspiracy
  with GE) in a ten-year old case.
• Two criminal pleas in global price-fixing cases,
  in 2004, involved Infineon Technologies and
  Bayer AG.
• In 2005, Samsung, one of the largest criminal
  global price-fixing cases (involving foreign chip
  makers) was settled for 300 million.  This is
  the largest antitrust fine during the Bush
  administration and the second largest ever.  This
  opens the way for  multi-billion civil
  litigation.
• In 2006, Samsung executives plead guilty to
  serve jail time in U.S.

23
.. Extraterritoriality Basic Dilemma.

• Potential Regulation by Two Governments Often
  Unlawful under U.S. Law lawful under foreign
  Law.

Can the U.S. EU regulate the foreign branch or
subsidiary?
When does U.S. law apply?
EU Law.
U.S.
Branch / Subsidiary
Corporate Group
EU
U.S. Parent
Clash of competing legislation as to foreign
actors and foreign actions and foreign legality.
24
. Dual Principles Effects Principle
Principle of Reasonableness
U.S.
Effect w/in U.S.
Extraterritorial Application of U.S. Law (e.g.
antitrust, mergers, alliances and contracts)
Effects Principle
World
Act outside of U.S. (by foreign actor)
Effects Principle now qualified by
Reasonableness Principle (both international
U.S. law)
S. malawer _at_ 2002
25
U.S. Antitrust Guidelines for International
Operations (1995).

• Issued jointly by the Dept. of Justice and
  Federal Trade Commission as guidance only.
  Discusses basic antitrust legislation,
  extraterritoriality and presents a set of
  hypotheticals concerning international antitrust
  (foreign commerce / jurisdiction, cartels,
  mergers and trade related issues).
  http//www.usdoj.gov/atr/public/guidelines/interna
  t.txt

26

• Some discussion of foreign merger laws (and
  their extraterritoriality) and international
  efforts at cooperation.
• Merger laws of EU, Canada, Germany, France and
  Australia and their extraterritorial application.
• Bilateral Antitrust Cooperation Agreements.
  (Germany, Australia and Canada). (Similar
  agreement with the EU was invalidated by the
  Court of Justice for the European Union.)
• General Mutual Legal Assistance Agreements
  (MLATs).
• OECD Recommendation Concerning Cooperation as
  to Restrictive Business Practices Affecting
  International Trade. (1986).

27
IV. BASIC U.S. ANTITRUST LEGISLATION.

• Sherman Act (1890)
• Section 1 -- Prohibits conspiracies in restrain
  of trade.
• Section 2 -- Prohibits monopolization or attempts
  at monopolization.
• Both sections apply to foreign commerce
  (import and non-import foreign commerce)
• Applies to unreasonable restraints

28

• Per se violation those subject to a rule of
  reason. Newer notion of economic efficiency
  in applying rule of reason.
• Some per se violations horizontal price fixing
  or market division certain tying arrangements.
• Criminal actions by the Dept. of Justice as well
  as civil actions by either DOJ or the FTC.
• Typically private civil litigation occurs after
  the criminal actions. Different standards of
  evidence.
• Will often involve class actions contingency
  fee arrangements.
• Treble damages in civil actions.

29

• Section 2 of Sherman Act (Monopolies)
• Relates primarily to single firm market power.
• Dual analysis Definition of market (product
  geography) and exclusionary practices (in
  obtaining or retaining monopoly).
• Government enforcement and private party
  litigation.
• Criminal and civil sanctions (treble damages).
• Contingency fee arrangements in private
  litigation.

30

• Clayton Act (1914)
• Section 7 applies to mergers and acquisitions
  and joint ventures..
• Pre-merger Notifications (Hart-Scott-Rodino
  Notifications)
• Only for largest mergers (about 1) (100million
  threshold).
• General guidelines have also been issued
  concerning horizontal mergers, vertical mergers
  and conglomerate mergers.
• The FTC Justice have responsibility in
  reviewing merger proposals. (Under the Clayton
  Act -- HSR.)

31

• Federal Trade Commission Act (FTC)
• Section 5 declares unlawful unfair methods of
  Competition and unfair or deceptive acts.
• Administrative action against actions falling
  within the Sherman Act and Clayton Act as well as
  those outside of those acts.
• Enforcement concerning international deceptive
  practices has become increasingly important.

32
VI. U.S. Global Efforts as to Antitrust
Governance.

• Have bilateral agreements on antitrust
  enforcement, for example, the agreement with the
  U.S. and the EC on enforcement of competition
  laws.
• For example, a new one signed this October 2004
  with Canada.
• This is in addition to the International
  Competition Network (ICN), loose consultation,
  that has been developed since 2002.
• The issue of competition policy is on the Doha
  Agenda. But no clear vision of what might emerge.
  (At the most some international disciplines as a
  minimum standard for national action and the
  subject to review by the DSU.) Dropped from
  Doha Agenda after Cancun Ministerial.

33
International Competition Network
--Principles (2002).

• The International Competition Network (ICN)
  provides antitrust agencies from developed and
  developing countries with a more focused network
  for addressing practical antitrust enforcement
  and policy issues of common concern. It
  facilitates procedural and substantive
  convergence in antitrust enforcement through a
  results-oriented agenda and informal, project
  driven organization.
• First annual meeting September 2002.
• An initial ICN project concerns the merger
  control process in the multi-jurisdictional
  context.
• Website http//www.internationalcompetitionnetwor
  k.org

34
VII. Information (U.S. Foreign International).

• 
  United States Websites.
• U.S. Dept. of Justice Antitrust website
  http//www.usdoj.gov/atr/overview.html
• For foreign and international Web sites
  concerning antitrust, see http//www.usdoj.gov/atr
  /contact/otheratr.htm
• For the International Competition Advisory Policy
  Committee to the Antitrust Division see,
  http//www.usdoj.gov/atr/icpac/icpac.htm
• ICPAC Final Antirust Trade Report (2000) at
  http//www.usdoj.gov/atr/icpac/icpac/execsummary.h
  tm
• The International Competition Network Guiding
  Principles for Merger Control. (2002).
  http//www.usdoj.gov/atr/public/speeches/200234.ht
  m
• Synopsis of Antitrust Enforcement, at
  http//www.ftc.gov/ogc/brfovrvw.htm
• 
  Foreign National Websites.
• Competition Policy WTO. (Click here).
• Link to International Documents from the
  Antitrust Division of the U.S. Dept. of Justice.
  (Click here).
• Links to national antitrust offices worldwide.
  (Click here).
• International Competition Network. (ICN)
• Database of national competition laws. (Click
  here).
• OECD Competition. (Click here).
• UNCTAD Competition Policy. (Click here).