On February 16, 2018, the UK Court of Appeal adopted its much awaited ruling in the iiyama case. Taking stock of the Court of Justice (CoJ) ruling in Intel last year, the Court of Appeal allows plaintiffs in civil cartel damages actions to advance claims based on overcharges incurred by their supply chain operations outside of the European Union (EU), provided that such overcharges ultimately hit their finished goods sales within the EU.

This is perhaps an inevitable proposition, which will probably send shock waves way beyond the Channel. While this judgment does not bind the European Courts, this UK precedent will inspire other national courts across the EU. In addition, following Intel, the European Commission (EC) is most likely emboldened to prosecute non-EU based cartels affecting upstream activities with an indirect effect on sales of finished goods in the EU.

Read more here.

In an increasingly interconnected world, businesses that conduct cross-border transactions will continue to navigate complicated and thorny legal regimes. As long as full compatibility between these regimes is unrealized, the doctrine of international comity will remain alive and well in U.S. litigation. Comity is a choice-of-law principle that concerns the extent “to which the law of one nation, as put in force within its territory, whether by executive order, by legislative act, or by judicial decree, shall be allowed to operate within the dominion of another nation.”[1] Comity is different from other closely-related doctrines like the act of state doctrine (a defense designed to avoid judicial inquiry into state officials’ conduct as opposed to private actors[2]) and the foreign sovereign compulsion doctrine (a defense where “corporate conduct which is compelled by a foreign sovereign” is also protected from liability “as if it were an act of the state itself”[3]).

This article discusses one flashpoint area in comity analysis—the question of what deference to give to a foreign sovereign’s interpretation of its own law, a pending question now before the Supreme Court. Adherence to one set of laws may or may not affect a court’s decision to abstain from jurisdiction. In the United States, circuit courts disagree about the degree of deference that should be given to foreign sovereigns who offer their own interpretations of their laws in litigation. For instance, the Ninth and Second Circuits have given a strong degree of deference to such interpretations, with the Second Circuit recently stating that it is “bound to defer” to such statements.[4] In contrast, the Sixth and D.C. Circuit past approaches show that they do not always compel strong deference to a foreign government’s interpretation of its laws.[5]

The Supreme Court will hear arguments on this circuit split this month. The case on appeal is Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., part of the In Re Vitamin C Antitrust Litigation multi-district class action in which plaintiffs alleged that defendants violated Section 1 of the Sherman Act by conspiring to fix the price and supply of vitamin C sold to U.S. companies. In that case, the Ministry of Commerce (MOFCOM) of the People’s Republic of China filed a statement in district court arguing that international comity required the court to abstain from jurisdiction, because, it said, Chinese law required the defendants to set prices and reduce the quantities of vitamin C sold abroad.[6] In denying the defendants’ motion for summary judgment, the district court refused to give deference to what it perceived was the Chinese government’s “post-hoc attempt to shield defendants’ conduct from antitrust scrutiny.”[7] And in its ruling on the defendants’ post-trial motion for judgment as a matter of law, the district court refused to credit the Chinese government’s statements because of “ample evidence at trial” showing that the government “did not actually compel defendants’ decisions to fix the price and limit the supply of vitamin C.”[8]

In reversing the district court, the Second Circuit held that U.S. courts are “bound to defer” to the foreign government’s interpretation of its laws when the latter “directly participates” in U.S. proceedings through a “sworn evidentiary proffer regarding the construction and the effect of its laws and regulations,” as long as it is reasonable under the circumstances presented.[9] In contrast to the district court’s approach, which looked to the facts, including the extent to which defendants were compelled to engage in price-fixing behavior, the Second Circuit refused to conduct an inquiry into the underlying facts regarding a foreign sovereign’s actual behavior. The Second Circuit drew a sharp distinction between questions of “whether the Chinese Government actually enforced” the laws and “of what Chinese law required.”[10] Facts regarding China’s “unwillingness or inability” to enforce were not relevant to the conflict of law analysis.[11] Neither were facts regarding whether the defendants’ specific form of conduct was compelled by MOFCOM; what mattered was whether the Chinese law “on its face” required the defendants to violate U.S. antitrust laws.[12]

Subsequently, the Supreme Court granted certiorari, which was sought by the antitrust plaintiffs. In its amicus brief supporting the plaintiffs, the United States government has taken the view opposite to the Second Circuit. The USG amicus criticizes the Second Circuit’s insistence on relying on the “four corners” of MOFCOM’s statement.[13] The amicus advocates for a court to be “neither bound to adopt the foreign government’s characterization nor barred from considering other materials that support a different interpretation.”[14] And though a U.S. court would “ordinarily afford” the views of a foreign government “substantial weight,” the “ultimate responsibility” for determining the governing law lies with the court.[15]

This approach is notable for its consistency with the January 2017 Antitrust Guidelines for International Enforcement and Cooperation, established by the Obama administration. And though the Guidelines were released after the Second Circuit’s opinion, the Agencies reserved the right to inquire into the extent to which a foreign sovereign encourages or discourages certain courses of conduct in deciding whether to enforce U.S. antitrust laws.[16] Indeed, both the amicus brief and the Guidelines state that the weight accorded to the views of a foreign government depends on the circumstances of each case.[17]

Finally, MOFCOM recently filed a joint motion with the defendant-respondents for leave to participate in oral argument and has announced its intent to file an amicus brief. In its motion, MOFCOM argues that it has a “unique ability” to assist the Supreme Court in the meaning and effect of China’s trade laws.[18] The motion warns that the creation of “a weak or indeterminate deference rule” would “invite error” at the lower courts; “incentivize parties to attack the candor and motives of the foreign sovereign”; “subject private parties to conflict legal obligations”; and “discourage foreign sovereigns from appearing in U.S. courts.”[19] At least part of MOFCOM’s brief will focus on how the interpretation of MOFCOM’s policies “carries decisive weight under Chinese law.”[20]

We can glean several takeaways with regards to this unsettled area of the law:

  • Businesses whose operations span jurisdictions that have potentially divergent legal regimes should carefully analyze the likely conflict of law that may arise.
  • Businesses would be well-served in analyzing how their conduct, whether current or contemplated, relates to their home countries’ regulations. At least in the antitrust context, the current administration has signaled its intent to consider other factors as to how a foreign law is actually enforced with regards to businesses when deciding whether to investigate or to enforce U.S. laws, even if that stands in contrast with how some courts conduct such an analysis.
  • The Supreme Court’s decision on In re Vitamin C Antitrust Litigation on the reach of a U.S. law may have repercussions for the treatment that U.S. companies receive abroad. As MOFCOM’s motion for oral argument recognized, the resolution of this question would impact future cases.[21] Other legal regimes, particularly newly-developing ones, may choose to mirror whatever approach comes from the highest court in the U.S. when it comes to enforcing their own laws against U.S. companies operating within their borders. Or, a rule that limits the deference afforded to a foreign government’s interpretation may in fact incentivize regulators to cooperate with each other early on in the course of an investigation or enforcement to avoid any potential conflict.

 

[1] Hilton v. Guyot, 159 U.S. 113, 164 (1895).

[2] O.N.E. Shipping, 830 F.2d, 449 452 (2d Cir. 1987) (citing Hunt v. Mobil Oil Corp., 550 F.2d 68, 73 (2d Cir. 1977), cert. denied, 434 U.S. 984, 98 S.Ct. 508 (1977)).

[3] Timberlane Lumber Co. v. Bank of Am., N.T. & S.A., 549 F.2d 597, 606 (9th Cir. 1976).

[4] Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468, 1471, 1474 & n.7 (9th Cir. 1992); In re Vitamin C Antitrust Litig., 837 F.3d 175, 189 (2d Cir. 2016), cert. granted in part sub nom. Animal Sci. Prod., Inc. v. Hebei Welcome Pharm. Co., 138 S. Ct. 734 (2018).

[5] McKesson Corp. v. Islamic Republic of Iran, 672 F.3d 1066 (D.C. Cir. 2012); Chavez v. Carranza, 559 F.3d 486 (6th Cir. 2009).

[6] 837 F.3d at 182.

[7] 810 F.Supp.2d 522, 552 (E.D.N.Y. 2011).

[8] 2013 WL 6191945, at *2 (E.D.N.Y. Nov. 26, 2013).

[9] 837 F.3d at 189.

[10] Id. at 192.

[11] Id.

[12] Id.

[13] Brief for the United States as Amicus Curiae, p. 22, Animal Sci. Prod., Inc. v. Hebei Welcome Pharm. Co., 138 S. Ct. 734 (2018) (“United States Amicus Brief”).

[14] Id., p. 9.

[15] Id., p. 12.

[16] U.S. Dep’t of Justice and Fed. Trade Comm’n, Antitrust Guidelines for International Enforcement and Cooperation at p. 29 (Jan. 13, 2017), https://www.ftc.gov/system/files/documents/public_statements/1049863/international_guidelines_2017.pdf (“Guidelines”).

[17] United States Amicus Brief, p. 9 (“But courts have correctly recognized that the appropriate weight depends on the circumstance”); Guidelines, p. 28 (“The relative weight given to each factor depends on the facts and circumstances of each case.”).

[18] Respondents’ and Amicus Curiae Ministry of Commerce of the People’s Republic of China’s Joint Motion for Leave to Participate in Oral Argument and for Divided Argument, p. 2, Animal Sci. Prod., Inc. v. Hebei Welcome Pharm. Co., 138 S. Ct. 734 (2018).

[19] Id., p. 5.

[20] Id.

[21] Id., p. 4.

On January 23, 2018, the European Court of Justice (CoJ) handed down an interesting judgment in the Hoffman-La Roche / Novartis case (C-179/16). For the first time, the CoJ takes a stance on an emerging hot topic in EU antitrust law: disparagement – or, in more trendy terms, fake news. And the CoJ’s message is clear: the EU will show no mercy for businesses engaging in such practices.

In our view, the judgment conveys three key messages:

  • Disparagement can come in many forms and shapes. The Hoffmann – La Roche / Novartis case arguably features a rather unconventional and somewhat counterintuitive disparagement scenario, that is, one where the disparaged party is also part of the collusion. As such, this case illustrates the huge variety of scenarios that can fit under the header ‘disparagement.’ However, that is not to say that any form of criticism towards your competitors will get you in trouble. In practice, all cases to date deal with well-organized disparagement campaigns. Thus, a few negative comments in passing are unlikely to give rise to an investigation.
  • Disparagement goes beyond fake news, at least in certain sectors. As noted above, the concept of disparagement extends beyond the dissemination of incorrect information. The dissemination of correct information, but in a partial way, may also raise issues, especially when it impacts an economic sector that is highly risk-adverse. In this regard, we note that most precedents on disparagement – if not all – featured misleading health claims. It remains to be seen whether a similar theory of harm could be argued in relation to less sensitive sectors or in relation to practices unrelated to human health.
  • If prosecuted under Article 101 TFEU, effects do not need to be proven since disparagement can be a “by object” infringement. As a result, failed disparagement strategies may also trigger antitrust enforcement.

Want to learn more about the judgment? Check out our briefing.

A few days after the Coty judgment,[1] the German Federal Court of Justice[2] (Bundesgerichtshof or BGH) upheld the decision of the Higher Regional Court of Düsseldorf in the Asics case,[3] confirming that Asics, the sport shoes manufacturer, may not prevent its selective distributors from cooperating with price comparison engines to promote the Asics branded products.

1. Background

From 2012 to 2015, the German subsidiary of Asics set up a selective distribution system which imposed a number of limitations on the online sales activities by authorized dealers in Germany. In particular, Asics prohibited its authorized distributors from (i) selling through online marketplaces such as Amazon and eBay, (ii) using price comparison engines, and (iii) using Asics trademark on the distributor’s online search advertisements.

Continue Reading I Want to “Run” Free: Authorized Dealers Cannot Be Prevented from Using Price Comparison Websites

Following an inquiry in July 2017, the House of Lords’ European Union Committee published on February 2, 2018, a report titled – ‘Brexit: competition and State aid’ – on the future of the UK’s competition law regime after Brexit.

The House of Lords report provides a detailed account of the most pressing issues that the UK’s competition law regime is facing ahead of Brexit. It also shows the high levels of uncertainty that businesses operating between the EU and the UK face.

This uncertainty suggests that businesses should – at least for now – adopt a cautious approach, for example, when formulating their distribution and acquisition strategies in the UK.

Whatever the statutory changes to the UK’s competition law regime after Brexit are, EU law will still remain an important factor to consider when taking business decisions, especially because of the geographical proximity and close trading relationships between the UK and the EU. This means that going forward businesses need to have guidance.

Steptoe has years of experience in successfully advising businesses on their strategic decisions in the EU and the UK. Our experienced lawyers can help your business to successfully navigate the demands and potential opportunities of Brexit.  Continue Reading House of Lords Report on Brexit and Competition: What Does it Mean for Businesses?

Please join Steptoe partner Jonathan Sallet and Professor Jonathan Baker on Wednesday, February 28, for a discussion of antitrust enforcement activity in the US and what could be in store as we move into 2018.  Key issues to be discussed include enforcers’ new emphasis on vertical theories of harm when reviewing mergers; how two-sided markets should be assessed when defining product markets; and renewed questions about the nature and evidence of competitive harm that must be shown, particularly regarding prospective buyer power.

Recent mergers have prompted regulators and courts to consider how best to analyze the potential competitive effects arising from increased buyer power created by a merger.  Agencies, judges, and antitrust commentators have taken different approaches to buyer power issues in this quickly-developing landscape.  Steptoe partner Jonathan Sallet explores these perspectives in his article “Buyer Power in Recent Merger Reviews.”  Sallet frames the discussion by highlighting tension between the analyses of recent mergers before the FTC and DOJ.

The article also raises key antitrust questions for companies that may potentially augment their buying power through combination:  Continue Reading Jon Sallet Publishes “Buyer Power in Recent Merger Reviews”

Steptoe has been following the Coty case closely and is the reason why we held the first debate only 24 hours after the Court of Justice made its judgment. Therefore, we have been pleased to contribute to the developing debate by publishing our article on the Coty case for Kluwer’s Competition Law Blog.

Click here to visit their blog and to read our article.

24 hours after the delivery of the eagerly awaited Coty judgement, the Steptoe EU Competition team is pleased to invite you to an in-person event to debate with lead stakeholders on the consequences of this judgment for the online resale of branded goods in the EU.

The event will be held at our premises in Brussels on December 7 from 5:00 pm to 6:00 pm and it will also be video live streamed for those who cannot attend in person.

More information in this link.

(Participation is free of charge)

Are platform bans anti-competitive? While brand owners, distributors, platforms and the antitrust community are clinging to the edge of their seats waiting for the final determination from the European Court of Justice (CoJ) in the Coty judgment awaited on December 6, 2017, we are reporting on an interesting development in France on this topic.

On September 13, 2017, the French Supreme Court (Cour de cassation) delivered its judgment in the Caudalie case. The judgment overturns a previous ruling of the Paris Court of Appeal (Cour d’appel de Paris) which found that platform bans may be restrictive of competition. Check out our briefing to learn more about the judgment, as well as its practical implications (spoiler alert: Caudalie does not settle the debate on platform bans).