On 31st December 2022, the current R&D Block Exemption 1217/2010 (‘R&D BE’) is due to expire and to be replaced by a new safe harbor regulation which will be supported by guidelines contained within new Horizontal Guidelines to be issued by the European Commission, which are still in draft.  The Commission is seeking to extend the life of the existing R&D BE by six months to the end of June 2023.

We provided a summary of the proposals for the new R&D BE, when the draft was first released in March 2022 and our comments are here.  This remains the latest version of the draft.  Key proposals readers should be aware of are:

  1. There will be new market share thresholds.  Where the parties to the R&D agreement are competitors at the time of the agreement, the combined market share cap is 25% of the relevant product or technology markets.  Similarly, where the R&D agreement is with respect to paid-for R&D, then the market share limit is also 25% of the aggregated shares of the financing party and all the parties funded by the financing party which are engaged in R&D for the same contract products or contract technologies.
  2. R&D agreements will be excluded from the benefit of the R&D BE where there are less than three competing R&D efforts in addition to and comparable with those of the parties to the R&D agreement.
  3. If the R&D agreement provides for joint exploitation, then the exemption will last for 7 years from launch of the products resulting from the R&D.  Thereafter, the exemption continues to apply as long as the 25% market share threshold is not exceeded and, if it is, it still benefits from a further two years exemption.
  4. The exclusion of the benefit of the exemption where the agreement contains hardcore restrictions (Article 8), is as expected.  It includes: banning R&D in unrelated fields; certain output limitations; certain price fixing arrangements; territorial and active sales restrictions.
  5. The Definitions section has been expanded and clarified and there is now a specific section covering withdrawal of the benefit of the exemption by the Commission.
  6. Guidance on the R&DBE is provided in Chapter 2 of the new Horizontal Guidelines.  There will also be guidance in the Market Definition Notice which is being updated too by the Commission.
  7. The new R&D BE, once adopted,  will last for 12 years

Please do not hesitate to contact our team if you have any questions on the existing or new R&D BE.

On October 31, 2022, Judge Florence Pan, now on the D.C. Circuit but sitting by designation in the District Court of the District of Columbia, delivered a “treat” to the Department of Justice (DOJ) and a “trick” to Penguin Random House by blocking its $2.18 billion purchase of rival publisher Simon & Schuster.  The opinion, which was released on November 7, 2022, represents a comprehensive endorsement of the DOJ’s monopsony theory of the case and a complete rejection of the defendants’ counterarguments.  After a string of defeats, the case marks the first win for the DOJ under the Biden administration in a litigated merger challenge.

Continue Reading DOJ Blocks the Penguin/Simon & Schuster Deal:  A Signature Antitrust Win for the Biden Administration

Last month, the U.S. Department of Justice’s (DOJ) Antitrust Division announced that seven directors from the boards of five companies resigned in response to concerns that the directors’ roles violated the prohibition against interlocking directorates under Section 8 of the Clayton Act.1  These resignations follow previous statements by the DOJ that it intended to “reinvigorate” Section 8 enforcement, including a speech delivered earlier this year by Assistant Attorney General (AAG) Jonathan Kanter, who made clear that the Antitrust Division would be closely scrutinizing interlocking directorates.2  This development highlights the need for companies to maintain an effective antitrust compliance program that carefully monitors board memberships and appointment policies to mitigate Section 8 risks.

Legal Background: Clayton Act Section 8

Subject to certain de minimis exemptions, Section 8 of the Clayton Act prohibits “interlocking directors,” which occur when a “person” simultaneously serves as a director or officer of two or more competing corporations. Section 8 is—in effect—a prophylactic statute designed to eliminate the possibility of anticompetitive effects that could arise from competitors coordinating their business decisions or exchanging competitively sensitive information. As such, the prohibition applies only to interlocks involving corporations that are competitors “by virtue of their business and location of operation…such that elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.”3 Unless an exemption applies, an interlock that violates Section 8 is unlawful per se (i.e., there is no consideration of whether the interlock results in anticompetitive effects). 

To remedy a Section 8 violation, the antitrust agencies or private plaintiffs can seek injunctive relief to require the removal of the overlapping director to eliminate the interlock. Private plaintiffs may also seek damages, although we are not aware of any court that has awarded damages for a Section 8 claim.

Exemptions and Exclusions

Because certain interlocks are deemed to pose minimal risk of competitive harm, Section 8 does not apply where:  

  • The combined total capital, surplus, and undivided profits of either corporation is less than $41,034,000 (indexed annually); or
  • The competitive sales of:
    • either corporation are less than $4,103,400 (indexed annually);
    • either corporation are less than 2% of the corporation’s total sales; or
    • each corporation are less than 4% of the corporation’s total sales.4

Further, Section 8 provides for a one-year grace period following an intervening event that creates an interlocking directorate violation.5 The grace period applies where the officer or director was eligible to serve in that position at the time of appointment (i.e., the appointment did not violate Section 8), but becomes ineligible for that position due to an intervening event that makes continued participation unlawful under Section 8 (e.g., their competitive sales grow above the de minimis thresholds). The officer or director has a one-year grace period from the date of the intervening event to resign from that position. 

Application to Other Entities, Definition of Person, and Indirect Interlocks

While the language of Section 8 refers only to “corporations,” the term is undefined in the Clayton Act. Nonetheless, the DOJ has taken the position in commentary (but not in litigation) that it can use its broader antitrust authority to enforce Section 8 against non-corporate entities because “the harm from interlocking directorates is the same regardless” of the corporate structure.6 

The DOJ and the Federal Trade Commission (FTC) also take the position that under Section 8, entities are “persons” and may violate the statute if their representatives serve as directors or officers of two competing entities, even though the representatives are not the same individuals. At least one district court has adopted this “representative” or “deputization” theory to hold that Section 8 prohibits a parent corporation from designating different agents to serve on the boards of two competing partially owned subsidiaries where the agents’ service on the boards was “not in their individual capacities,” but rather as deputies or agents of the corporation.7 

The DOJ and FTC also take the view that indirect interlocks,  (e.g., where subsidiaries of two companies compete or one company competes with the subsidiary of the other company) can violate Section 8. While there is no definitive test under Section 8, courts have generally looked at the extent of control or influence that a parent company has with respect to directing the activities and competitive policies of the subsidiary to determine whether Section 8 applies. For example, competition with a subsidiary can be attributed to the parent company “where the parent closely controls or dictates the policies of the subsidiary.”8 Although courts have not elaborated on a specific list of factors relevant to this inquiry, the DOJ and FTC have challenged indirect interlocks under Section 8.9

Recent Resignations Highlight Increased Section 8 Risk

Despite some activity in recent years,10 it has been nearly four decades since the DOJ or FTC have filed a lawsuit to enforce Section 8. But with the latest round of announced resignations, the DOJ has made good on its promise to “reinvigorate” Section 8 enforcement.

These resignations eliminated the alleged interlocks on the boards of ten technology/software companies. All of the affected entities were publicly traded corporations, and three of the five individuals who resigned represented investment firms with significant stakes in competing corporations.11 Notably, the DOJ neither required the corporations to enter into consent decrees nor imposed any other settlement conditions. In its press release announcing the resignations, however, the DOJ made it  known that “companies, officers, and board members should expect that enforcement of Section 8 will continue to be a priority for the Antitrust Division” and invited the public to provide information as to any interlocking directorates of which they are aware.12

The resignations follow several pronouncements by the antitrust agencies portending increased Section 8 enforcement. In April, AAG Kanter noted that the DOJ was “ramping up efforts to identify violations across the broader economy” and “will not hesitate to bring Section 8 cases to break up interlocking directorates,” including outside the context of the “merger review process.”13 Then, in June, Deputy Assistant Attorney General Andrew Forman signaled that private equity was of particular focus: “to the extent that private equity investments in competitors leads to board interlocks in violation of Section 8, the division is committed to taking an aggressive action.”14

Implications and Key Takeaways

The DOJ’s proactive approach to Section 8 enforcement marks a departure from prior agency practice, where Section 8 issues primarily arose in the context of transactions reviewed under the Hart-Scott-Rodino Antitrust Act (HSR). It also deviates from the FTC’s 2017 statement that it “relies on self-policing to prevent Section 8 violations.”15 

We believe the announced resignations are likely a harbinger of things to come and expect the antitrust agencies’ proactive approach to Section 8 enforcement to continue. While Section 8 refers only to “corporations,” government enforcers have stated their belief that Section 8 applies more broadly to non-corporate legal entities. With that in mind, companies are well advised to take the following steps to mitigate potential Section 8 concerns.

  • Companies should review their existing board membership and ask each director and officer to list the companies for which they serve a similar role to ensure there are no interlocks between competing companies.
  • Companies should review existing board appointment policies to ensure they comply with Section 8. In particular, when onboarding a new officer or director who serves a similar role for another company in a related industry, companies should be mindful of compliance with Section 8.
  • When evaluating potential mergers, acquisitions, or joint ventures, companies should carefully consider if any transaction provisions would give one company the right to appoint an officer or director to a competing company.
  • Private equity firms should carefully review their investment portfolios to ensure there are no interlocks between competing companies.
  • Companies should further consider conducting annual reviews of board memberships to avoid any new Section 8 concerns that may have arisen due to changed circumstances. For example, previously benign interlocks among companies could trigger Section 8, if the companies begin to compete against each other more directly.16 Therefore, Section 8 compliance should be reassessed annually to assess the companies’ growth, new products, repositioning, or acquisitions. This should include an annual assessment of the applicability of the de minimis thresholds triggered by the extent of “competitive sales.”
  • Finally, even if an exemption applies under Section 8, interlocking officers or directors between competing companies may raise antitrust risk under Section 1 of the Sherman Act, which prohibits agreements in restraint of trade. In such a case, companies should consider implementing antitrust guidelines—such as firewalls between interlocked officers or directors and procedures for safeguarding competitively sensitive information—to mitigate potential Section 1 risk.

Endnotes

1 Press Release, U.S. Dep’t of Justice, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates (Oct. 19, 2022), https://www.justice.gov/opa/pr/directors-resign-boards-five-companies-response-justice-department-concerns-about-potentially.

2 Johnathan Kanter, AAG, Antitrust Div., U.S. Dep’t of Justice, Opening Remarks at 2022 Spring Enforcers Summit (Apr. 4, 2022), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-2022-spring-enforcers. 

3 15 U.S.C. § 19(a)(1).

4 15 U.S.C. § 19(a)(2).

5 15 U.S.C. § 19(b). 

6 Makan Delrahim, AAG., Antitrust Div., U.S. Dep’t of Justice, Remarks at Fordham University School of Law (May 1, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-fordham-university-school-law.

7 Reading International, Inc. v. Oaktree Capital Management LLC, 317 F. Supp. 2d 301, 331 (S.D.N.Y. 2003).  The DOJ supported this position in an amicus brief.  See Brief for the United States as Amicus Curiae, Reading Int’l v. Oaktree Capital Mgmt., 03-cv-1895 (S.D.N.Y. Oct. 1, 2003), available at https://www.justice.gov/atr/case-document/brief-united-states-amicus-curiae-13.

8 Square D Co. v. Schneider S.A., 760 F. Supp. 362, 367 (S.D.N.Y. 1991).

9 See In re: Borg-Warner Corp., 101 F.T.C. 863, 910–13 (1983); United States v. Crocker Nat. Corp., 656 F.2d 428, 450 (9th Cir. 1981).

10 In 2016, the DOJ challenged a transaction in which an electronic trading platform, Tullet Prebon, would have acquired a subsidiary of a competitor, ICAP, with ICAP obtaining the right to nominate one member of Tullet’s board.  After the DOJ raised concerns under Section 8, the parties restructured the deal to remove the offending provisions.  See Press Release, U.S. Dep’t of Justice, Tullet Prebon and ICAP Restructure Transaction after Justice Department Expresses Concerns about Interlocking Directorates (July 14, 2016), https://www.justice.gov/opa/pr/tullett-prebon-and-icap-restructure-transaction-after-justice-department-expresses-concerns.

Likewise, the FTC issued blog posts in 2017 and 2019 reminding corporations to be mindful of compliance with Section 8.  See Michael E. Blaisdell, Bureau of Competition, Fed. Trade Comm’n, Interlocking Mindfulness (June 26, 2019), available at: https://www.ftc.gov/enforcement/competition-matters/2019/06/interlocking-mindfulness; Debbie Feinstein, Bureau of Competition, Fed. Trade Comm’n, Have a plan to comply with the bar on horizontal interlocks (Jan. 23, 2017), available at: https://www.ftc.gov/enforcement/competition-matters/2017/01/have-plan-comply-bar-horizontal-interlocks. 

Furthermore, in June 2021, two executives of Endeavor Group Holdings Inc. resigned their positions from the board of Live Nation Entertainment Inc. after the DOJ “expressed concerns that their positions on the Live Nation Board created an illegal interlocking directorate.”  Press Release, U.S. Dep’t of Justice, Endeavor Executives Resign from Live Nation Board of Directors after Justice Department Expresses Antitrust Concerns (June 21, 2021), https://www.justice.gov/opa/pr/endeavor-executives-resign-live-nation-board-directors-after-justice-department-expresses.

11 Press Release, U.S. Dep’t of Justice, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates (Oct. 19, 2022), https://www.justice.gov/opa/pr/directors-resign-boards-five-companies-response-justice-department-concerns-about-potentially.

12 Id.

13 Johnathan Kanter, AAG, Antitrust Div., U.S. Dep’t of Justice, Opening Remarks at 2022 Spring Enforcers Summit (Apr. 4, 2022), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-2022-spring-enforcers.

14 Andrew Forman, Deputy AAG, Antitrust Div., U.S. Dep’t of Justice, Keynote at the ABA’s Antitrust in Healthcare Conference (June 3, 2022), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-andrew-forman-delivers-keynote-abas-antitrust.

15 Debbie Feinstein, Bureau of Competition, Fed. Trade Comm’n, Have a plan to comply with the bar on horizontal interlocks (Jan. 23, 2017), available at: https://www.ftc.gov/enforcement/competition-matters/2017/01/have-plan-comply-bar-horizontal-interlocks.

16 For example, in 2009, the FTC began investigating interlocking directors between Apple and Google.  Google’s entry into the smartphone market—with the introduction of its Android platform—put Google in direct competition with Apple, raising potential Section 8 concerns. The companies ultimately resolved the investigation by requiring the two overlapping directors to each resign from one of their respective board positions.  See Statement of Fed. Trade Comm’n Chairman Jon Leibowitz Regarding the Announcement that Arthur D. Levinson Has Resigned from Google’s Board (Oct. 12, 2009), available at http://www.ftc.gov/opa/2009/10/ google.htm.

Similarly, in 2016, David Drummond, a longtime Alphabet executive and director at Uber, proactively resigned from Uber’s board after Alphabet’s increasing investments in autonomous vehicles put it in direct competition with Uber’s similar endeavors.  See Mike Isaac, Uber and Alphabet’s Rivalry Heats Up as Director Chooses Sides, N.Y. Times (Aug. 29, 2016), available at https://www.nytimes.com/2016/08/30/technology/uber-and-alphabets-rivalry-heats-up-as-director-chooses-sides.html.

As discussed previously, the FTC under Chair Khan has adopted an aggressive posture toward antitrust enforcement.  Although the current FTC agenda draws on some powerful enforcement weapons, the leadership of the FTC believes that additional ammunition is required to reach the full extent of potential anticompetitive behavior and the harms associated with it.  To challenge other forms of anticompetitive behavior, the FTC is considering bringing back two long disused arrows in its quiver:  Section 5 of the FTC Act and the Robinson-Patman Act.

Two recent speeches by Chair Khan and Commissioner Bedoya outline the potential for the revival of these provisions.  Both speeches share a theme:  the belief that the purpose of the antitrust laws is to prevent unfair methods of competition, not just to promote efficient ones.  Chair Khan and Commissioner Bedoya are arguing that both the courts and the agency have gone down the wrong track for antitrust enforcement since the 1980s.  Accordingly, the FTC appears to be returning to older schools of thought about antitrust enforcement and using statutory provisions that have been relatively dormant in recent decades; the implications of that return will be seen soon.

Section 5.  Section 5 of the FTC Act prohibits “unfair methods of competition” and “unfair or deceptive acts or practices” in or affecting commerce.  Enacted in 1914, Section 5 was intended to cover gaps in the Sherman Act by reaching other conduct that threatens open and competitive markets but is not captured by the language of the Sherman Act.  In an earlier era, the FTC had frequently used Section 5 to bring standalone actions against conduct including invitations to collude, price discrimination, de facto bundling, and tying and exclusive dealing.  But starting in the 1980s the FTC began to use Section 5 more sparingly.  In 2015, this reached its apotheosis when the FTC issued a policy statement that an act or practice in question would be challenged on a standalone basis under Section 5 only if it caused or was likely to cause “harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.”  In the five years after the 2015 statement, the FTC brought only one standalone Section 5 complaint.  Even in that action, a complaint against Qualcomm for its alleged “no license-no chips” practice, the FTC still relied primarily on Sherman Act theories of harm, rather than focusing on any notion of “unfairness.” Chair Khan, though, now plans to reverse that trend, as one of her first actions after taking office was to withdraw the 2015 policy statement.

In a recent speech, Chair Khan made clear her view that Section 5 should be used by the FTC more expansively.  To that end, she promised that the FTC would soon issue a policy statement that “reflects the statutory text, our institutional structure, the history of the statute, and the case law.”  Given that Chair Khan believes Section 5 gives the FTC considerable power to address unfair practices, the policy statement may foreshadow another major expansion of the FTC’s enforcement efforts.

Robinson-Patman Act.  The Robinson-Patman Act arose out of a similar concern to Section 5: there were behaviors that harmed competition but were not captured by the Sherman Act’s prohibitions.  Originally enacted in 1936 to protect small retailers from the growing strength of chain stores, the Robinson-Patman Act prohibits “discriminat[ing] in price between different purchasers of commodities of like grade and quality” when the effect would be to harm competition.  The prohibition applies to competing purchasers who intend to resell the commodity, meaning that it does not apply to direct sales to consumers.  Although it has a broad reach, the need to demonstrate injury to competition, as well as to overcome the defenses to such discrimination, such as cost justification and meeting competition, have made Robinson-Patman cases notoriously difficult for plaintiffs to prove.

Despite the lofty goals of the Robinson-Patman Act, the FTC has not brought an action under the statute in more than 20 years.  The statute’s concern for small retailers found itself out of step with the emphasis on efficiency and consumer welfare prompted by the free market turn antitrust enforcement took in the 1980s.  Recently, though, Commissioner Bedoya has called for the FTC to embrace the historical purpose of antitrust enforcement – to protect small businesses from unfairness.  In this regard, Commissioner Bedoya suggests that Robinson-Patman enforcement has not been shown to be correlated with higher prices, and he points out that the FTC is charged with stopping unfair methods of competition, not inefficient ones. His speech echoes a similar statement by Commissioner Slaughter that the FTC should revive its use of the Robinson-Patman Act.  And Chair Khan advocated for the use of the Robinson-Patman Act in writing prior to her appointment.  All three believe that the FTC should focus on protecting small competitors and the “competitive process,” an emphasis that may be interpreted to include keeping small competitors on a level playing field with larger retailers.

Implications.  The immediate effect of the revival of these tools may be limited.  For Section 5, Chair Khan admits that the agency’s last aggressive enforcement actions in the 1980s, such as Boise Cascade in the Ninth Circuit or Ethyl in the Second Circuit, foundered, although she blames their problems on evidentiary issues, not in the legal theories.  Of course, the FTC would also face a judiciary that may be more conservative overall, and generally more receptive to economic and efficiency arguments than arguments about unfairness.

Similarly, as mentioned above, for Robinson-Patman, the FTC will need to overcome sophisticated defenses based on cost-justifications and other arguments.  Courts valuing efficiency and cost-savings may continue to find such arguments persuasive to the extent consumers benefit from large retailers passing their lower prices along to customers.

It seems clear the FTC’s revival of these old tools demonstrates a desire to return to the initial purposes of the antitrust laws and to push the boundaries of recent antitrust enforcement.  Even if it only brings a few cases or does not have much success, the threat of new enforcement may discipline businesses and require a re-examination of current business practices.

Further to our blog piece at the beginning of this year, there have been additional developments at the EU and national levels in respect to gun-jumping in merger cases. In general, a breach of EU or national rules could occur when the merging parties (i) fail to notify their merger when the relevant thresholds have been met; and/or (ii) the parties implement the transaction before receiving the approval(s) (i.e., fail to observe standstill obligations during the review period). The merger parties should not underestimate their obligations as failure to do so could result in substantial fines.

EU General Court confirmed a € 28 million fine for a failure to comply with EU merger control rules

On May 18, 2022, the General Court confirmed a fine of € 28 million  imposed by the European Commission on a Japanese multinational company specialising in the manufacture of optical and image processing products for its failure to observe the standstill and notification obligations in the acquisition of a Japanese medical equipment company.

The transaction was carried out in two steps through the acquisition of different types of shares. During the first step, the interim acquirer acquired different voting and non-voting shares (95% control of the target), and the ultimate acquirer acquired 5% of the shares of the target. As the second step, the acquirer exercised its share options, acquiring 100% of the shares of the target. While the transaction was notified to the Commission as a whole (i.e., the acquisition of 100% of all shares of the target) and the Commission cleared the transaction, the Commission also found that during the first step of the transaction, due to the partial implementation of the transaction, the acquirer failed to notify a concentration in breach of Article 4(1) of Regulation (EC) No 139/2004 and for implementing a concentration in breach of Article 7(1) of that regulation. The reason is that the first step was carried out before the notification of the transaction to the Commission.

The Court confirmed that the implementation of a transaction can take place as soon as the parties to the transaction implement operations contributing to a lasting change of control of the target. In other words, the implementation of the transaction can take place before the actual acquisition of control over the target.

French Competition Authority imposed a €7 million fine for a failure to comply with French merger control rules

The French Competition Authority imposed a fine of € 7 million  on a company active in the market for alcoholic beverages (especially production and distribution of spirits) for implementing its acquisition of another company active in the same market. Even though the merger was cleared on February 28, 2019, the acquirer was then subjected to dawn raids just a week after its’ clearance. The Authority found that the acquirer implemented the acquisition without submitting a notification to the Authority and failed to observe the standstill obligation under the French Commercial Code.

The Authority found that the acquirer exercised decisive influence over the target prior to the notification by:

  • Acquiring the majority stake in the target – resulting in 3 of 11 directors in the target being from the acquirer, which allowed them to obtain competitively sensitive information and monitor the activities of the target;
  • Intensifying commercial and financial relations between the parties, for example, by increasing supplies and opening credit lines; and
  • Being involved in the strategic and operational decisions of the target (e.g., through the involvement of appointing the managing director of the target).

The above cases highlight that even if an acquisition is ultimately cleared by a competent authority, the parties can still face substantial fines if they fail to notify the transaction before the implementation and/or implement the transaction before the authority has finalised the review. The parties should carefully assess each step of the proposed transaction to ensure merger control compliance at the EU and national level.

Steptoe’s antitrust team would be happy to support you in any merger control-related assessment.

The Court of Justice of the European Union (CJEU) handed down two judgments providing guidance on the protection against double jeopardy (the principle ne bis in idem) in competition law cases. Article 50 of the Charter of Fundamental Rights of the European Union (Charter) provides that “no one shall be liable to be tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union in accordance with the law“. However, cases C-117/20 Bpost and C-151/20 Nordzucker underlined that undertakings may be liable more than once upon the same material facts in so far as authorities act under a different legal basis and in a complementary manner. The judgments bear practical implications beyond the field of EU competition law.

The Bpost case relates to a discount tariff scheme for postal services deemed to be discriminatory toward some of Bpost’s customers; which was in place between January 2010 and July 2011. Based on the same material facts, Bpost was fined € 2,3 million euros by the sectoral authority, the Postal Regulatory Authority, in 2011 (subsequently annulled by the Brussels Court of Appeal), and € 37,4 million euros by the Belgian Competition Authority in 2012 for an abuse of dominant position. In the Nordzucker case, two German sugar producers were prosecuted by the Austrian Competition Authority for a breach of EU and Austrian competition law by engaging in a cartel based on illegal information exchange about the sugar market in Austria. The German authority had previously found the breach of EU and German competition law based on the same facts and imposed a fine of 195,5 million euros on one company.

Prohibiting double jeopardy emerges as a supra-conventional standard of procedure and such protection is envisaged. Examples include Article 50 of the Charter, Article 4§1 of the additional protocol N°7 of the European Convention on Human Rights, Article 14-7 of the United Nations Pact on Civil and Political Liberties, as well as Article 54 of the application Convention of the Schengen Treaty. However, the material content of this principle has been applied inconsistently under European law (see, e.g. , cases C-373/14P Toshiba and C-524/15 Menci). The Bpost and Nordzuker judgments have confirmed a wider application of the principle of no double jeopardy. As per Article 52(1) of the Charter, the ne bis in idem principle may be overridden, exceptionally, only if the decisions in question (i) respect the essential legal principles; (ii) are strictly necessary; and (iii) respond to objectives of general interest.

The CJEU has held that a company may also be punished for an infringement of competition law where, on the same facts, it has already been the subject of a final decision for failure to comply with sectoral rules. However, such double punishment is subject to the following cumulative conditions:

  1. There are clear and precise rules that make it possible to predict which acts or omissions are liable to be subject to such duplication;
  2. There is coordination between the two competent authorities;
  3. The two sets of proceedings are conducted in a sufficiently coordinated manner within a proximate timeframe; and
  4. The overall penalties imposed must correspond to the gravity of the infringements.

Similarly, the CJEU did not oppose to the possible establishment of a competition law infringement in one Member State where the conduct occurred, even when the same conduct has already resulted in a final decision in another Member State. The duplication of proceedings based on the territorial scope can only be pursued where the same facts have anticompetitive objects or effects in the relevant Member States. In other words, the second Member State cannot base its infringement decision on anticompetitive object or effect in the first Member State. The companies that have participated in a national leniency program and have consequently not been fined in the first Member State can still benefit from the protection against double jeopardy – as it is not a prerequisite for the protection that they have been subject to a fine.

Should the authorities not adhere to the above conditions, they risk infringing the prohibition against double jeopardy.

It will ultimately be for the national courts to decide whether, in the Bpost and Nordzuker cases, the authorities did not infringe the ne bis in idem principle and the companies can rely on it as defence. The CJEU guidance imposes some limits on unlimited prosecutions by the authorities based on the same facts. At the same time, the protection against double jeopardy is not a blanket defence that the companies can rely on.

The European Commission is currently running a public consultation on the draft Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (“draft Horizontal Guidelines”) and the draft revised horizontal block exemption regulations until 26 April 2022. The long-awaited draft Horizontal Guidelines have introduced a new chapter (Chapter 9) on sustainability agreements. Against the background of various green initiatives by the EU, including its ambitious Green Deal and Chemicals Strategy for Sustainability (see our analysis here), the industry has been advocating for further guidance on collaboration among competitors to meet different sustainability goals. Any guidance is further welcomed as it is proposed by the draft Directive on Corporate Sustainability Due Diligence that undertakings should collaborate to increase their ability to bring the adverse environmental or human rights impacts to an end (see our analysis here).

We explore here below the proposed approach by the Commission on the sustainability agreements – horizontal cooperation agreements that genuinely pursue one or more sustainability objectives. The draft Horizontal Guidelines and the proposed approach may be further revised based on the input from different stakeholders gathered during the public consultation.

Continue Reading Client Alert: Sustainability Corporation Among Competitors and Competition Rules – Do We Have Clear Guidance from the European Commission?

On March 8, 2022, the Competition and Markets Authority (CMA) published its decision to accept commitments offered by Gridserve (the owner of The Electric Company Limited) and three motorway service area (MSA) operators: Roadchef, MOTO and Extra.  This article considers the background and implications of the CMA’s enforcement action against the parties.

Continue Reading The CMA Investigation into EV Chargepoint Operators and Net Zero

Since launching its review programme in September 2019, the Commission has been working to update its Horizontal Guidelines and two sets of block exemptions, R&D and Specialisation, both of which are due to expire on December 31, 2022. The Commission consulted widely (to which we contributed) and has just published proposed drafts of each in a final round of consultations, which will expire on April 26, 2022. Alongside this programme, the Commission is also updating the Verticals Block Exemption and the Market Definition Guidelines, for which further drafts are expected in the coming months.

Continue Reading Commission Moves Closer to Finalizing New Horizontal Guidelines and R&D and Specialization Block Exemptions

On January 18, 2022, Lina Khan, the Chair of the Federal Trade Commission (FTC), and Jonathan Kanter, the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice (DOJ), held a joint press conference to announce that the agencies would be requesting comments on considerations for new horizontal and vertical merger guidelines. The comments will help inform the agencies in drafting new guidelines for vertical and horizontal mergers. Once the new guidelines are drafted, the agencies plan to hold another comment period, with the goal of finalizing the guidelines by the end of 2022.

The agencies last revised the Horizontal Merger Guidelines in 2010. The Vertical Merger Guidelines were more recently updated in 2020. After the change in administration following the 2020 election, President Biden emphasized antitrust enforcement as a way to increase competition in the American economy. In particular, he issued an Executive Order on Competition, which, among other actions, requested that the DOJ and the FTC re-examine the vertical and horizontal merger guidelines. (For more coverage of the Executive Order on Competition, visit Steptoe’s Executive Order Tracker.) The FTC acted swiftly, voting along party lines to withdraw its approval of the Vertical Merger Guidelines due to concerns about placing too much emphasis on potential procompetitive benefits of vertical mergers. On the same day that the FTC withdrew its approval of the Vertical Merger Guidelines, the DOJ announced that it would be carefully reviewing the analytical methodology of the Vertical Merger Guidelines and would seek further comment at a later date.

That date finally arrived on January 18. Statements from both Chair Khan and Assistant Attorney General Kanter emphasized that the point of the proceeding was to modernize the guidelines to reflect new economic understanding and lessons from past mergers. They noted that while traditional merger enforcement had focused on the first prong of the Clayton Act’s prohibition of mergers that “may substantially lessen competition,” it would be important in revising the guidelines to ensure that the second prong, barring mergers that “tend to create a monopoly,” is also respected. And, in so doing, they invited comments from a wide range of interested parties, particularly those who are beyond the traditional antitrust community, such as consumers and farmers.

The agencies’ request for information (RFI) raises questions and issues that may represent a substantial shift in antitrust enforcement. Many of the questions indicate a clear skepticism for the conventional antitrust enforcement tools of analysis. For instance, the comments on efficiencies bluntly question whether the guidelines’ approach is consistent with congressional directives and case law. The questions suggest a potential shift toward expressly stating a goal of preserving small businesses, favoring non-efficiency-related social and environmental causes, and perhaps eschewing a goal of maximizing economic efficiency in favor of adopting a total welfare standard. This would be a sharp departure from the economics-based approach that has characterized the guidelines since the adoption of the horizontal guidelines of 1982.

The RFI is another indication that the Biden administration plans to take a more aggressive approach to antitrust enforcement that is a departure from the trend over the past 40 years. Several days after the RFI was issued, Assistant Attorney General Kanter explained that when the Antitrust Division “concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction. It is the surest way to preserve competition.” He continued: “We must give full weight to the benefits of preserving competition that already exists in a market, rather than predicting whether a divestiture will actually serve to keep a market competitive. That will often mean that we cannot accept anything less than an injunction blocking the merger – full stop.” Assistant Attorney General Kanter stated that while it is easier for courts to “carry forward a test, even when that test was developed at a time when markets functioned in radically different ways,” that “it’s our job as enforcers to ensure that courts engage with markets as they actually exist.” This tough talk raises expectations that new guidelines will be paired with aggressive action, including more litigated challenges to deals.

So, what does the RFI request? In a relatively short document, the agency seeks public input on 15 categories of issues. The RFI begins by asking if the current guidelines accurately reflect the text of the second prong of Section 7 of the Clayton Act, which prohibits mergers that “may … tend to create a monopoly.” In this regard, the RFI asks for input on how rollups and tendencies toward concentration in an industry should be evaluated. The RFI asks what kinds of evidence should be considered and whether the guidelines have focused too much on certain types of evidence while placing insufficient reliance on evidence such as head-to-head competition between the merging parties. The RFI also questions whether predictive quantification has been overemphasized. The RFI suggests that evidence of the harms of past mergers may help to identify characteristics that could be used going forward to anticipate adverse outcomes from transactions.

With regard to coordinated and unilateral effects, the RFI specifically requests information about developments in research and practice, reflecting a potential interest in research that breaks from traditional antitrust analysis. The RFI also asks whether the current guidelines adequately identify mergers that are presumptively unlawful or if revisions are necessary to help identify the characteristics of mergers that may be anticompetitive. In what would be a substantial departure from the approach adopted first in the 1982 merger guidelines, the RFI also asks whether there are alternatives or replacements for HHI-based metrics.

In line with some current economic thinking, the RFI asks whether markets need to be precisely defined. The RFI appears skeptical of many of the traditional tools for market definition, even asking if the exercise of defining a market masks the potential for dynamic competition to be lost. The RFI also seeks comment on whether the guidelines should move away from a quantitative-based approach to market definition in favor of considering more qualitative evidence.

With regard to potential and nascent competition, the RFI asks for comments on how the agencies can assess whether a nascent competitor could grow into a plausible competitor and what degree of probability should be sufficient to condemn a proposed acquisition. In connection with remedies, the RFI seeks comment on whether the remedies process should be formalized and deadlines erected for remedy proposals, which would likely strengthen the agencies’ hands when negotiating remedies with merging parties.

Finally, the RFI asks for comments on several additional issues, including monopsony power and labor markets, innovation and IP, digital markets, and special characteristics markets. The RFI ends with a series of fundamental questions about barriers to firm entry, efficiencies, and failing and flailing firms claim.

Comments are due on or before March 21, 2022.