United States: Top Legal Issues Facing Automotive Suppliers In 2014 - Antitrust

Executive Summary

Recent U.S. and European antitrust developments will have important implications for suppliers in the motor vehicle industry. U.S. antitrust developments include, in particular, 1) the April 2013 U.S. Supreme Court decision on class action standards; 2) the ongoing and expanding criminal antitrust investigation of the auto parts industry; and 3) challenges to mergers (large and small, non-reportable) underscoring continued tough and aggressive enforcement of the merger laws. There have been important developments affecting automotive suppliers in the international sector as well, for example: 1) European legislation that would facilitate collective redress of damages through class actions; 2) the availability in the European Union of the so-called "failing company" defense to otherwise potentially anticompetitive mergers; and 3) Europe's intensifying fight to eradicate cartel activity, like in the United States.

Antitrust Legal Issues

1. U.S. SUPREME COURT RESTRICTS CLASS CERTIFICATION IN ANTITRUST TREBLE-DAMAGE ACTIONS

In April 2013, the U.S. Supreme Court ruled in Comcast vs. Behread that plaintiffs in antitrust treble-damage actions will have, henceforth, to satisfy much more demanding criteria in order to obtain class certification. The Court decided that plaintiffs must establish, to meet the requirements of Rule 23 of the Federal Rules of Civil Procedure, evidentiary proof that damages can be measured on a "class-wide" basis. The Court stated that lower courts must bar certification where individual damage calculations are required. This criterion replaces a longstanding rule that had permitted class certification on a much more flexible basis. The Court ruled further that the class determination may require examination of the merits of the plaintiffs' claim to insure that the proposed theory of damages fits the underlying substantive merits theory and is not arbitrary. It will be important to see how this decision will be implemented in the future. Suffice to say, this Comcast decision may prove very significant for automotive suppliers, if the decision effectively eases the burden, costs, and risks associated with treble-damage antitrust actions.

2. U.S. DEPARTMENT OF JUSTICE ANTITRUST DIVISION CONTINUES ITS BROAD AND AGGRESSIVE CRIMINAL ANTITRUST INVESTIGATION OF THE AUTO PARTS INDUSTRY

For several years, the Antitrust Division of the U.S. Department of Justice has been conducting an everexpanding criminal investigation of the auto parts industry.

The DOJ has used its leniency and leniency-plus programs to effectively expand the enforcement net. Fines totaling more than $1.6 billion and substantial jail time for convicted individuals have been recorded so far. It should be clear that automotive suppliers must make antitrust compliance a high priority to avoid the serious consequences that can come from antitrust violations.

3. MERGERS AND ACQUISITIONS CONTINUE TO BE SUBJECT TO REVIEW AND CHALLENGE, WHETHER THEY ARE LARGE AND WELL-PUBLICIZED DEALS OR SMALL UNREPORTABLE DEALS THAT RAISE SERIOUS ENFORCEMENT CONCERNS

The FTC and the DOJ, which share merger enforcement responsibility, continue to emphasize investigation and prohibition of anticompetitive acquisitions. The regulators may go to court to try to block the transaction or demand that the competitive problems posed by the transactions that they view as problematic be resolved before granting clearance. Thus, there have been well-publicized challenges to large deals like American/US Airways and InBev/Grupo Modelo. At the same time, the enforcement agencies have increasingly challenged small, non-reportable transactions, even years after consummation, if the acquisitions raised significant anticompetitive risks for the markets involved. Thus, automotive suppliers must be proactive in vetting in advance their potential deals even if the size of the proposed transaction would not be reportable under HSR rules.

4. ON THE INTERNATIONAL FRONT, THE EUROPEAN COMMISSION IS PUSHING LEGISLATION TO ESTABLISH EU-WIDE REGIMES TO FACILITATE RECOVERY OF LOSSES DUE TO RESTRICTIVE TRADE PRACTICES

In June 2013, the European Commission proposed legislation (a "directive") that would require all EU member states to enact national laws that would help persons injured by violations of EU antitrust laws (e.g., cartels and abuses of dominant positions) to recover damages for their injuries. The proposal seeks to harmonize and liberalize current national rules on damage actions, particularly with regard to discovery of evidence, statutes of limitations, measure of damages, consensual settlements, and presumptive effects of national determinations of injury. There is a parallel effort to establish an EU-wide system of "collective redress." While eschewing any desire to adopt what the European Union sees as the "punitive" and "unfair" U.S. treble-damage system, the proposals reflect the increasing priority to redress the perceived ongoing failure of the EU member states to protect persons injured from antitrust violations.

5. ON THE MERGER FRONT, THE EU HAS ADOPTED AN EXCEPTION TO ITS STRICT MERGER LAWS, PERMITTING "FAILING COMPANIES" TO BE ACQUIRED BY COMPETING ENTERPRISES

While long recognized in the United States, the "failing company" exception to EU merger control regulation was only recently explicitly sanctioned. In October 2013, the European Commission approved the acquisition of Olympic Air by Aegean Airlines, Olympic's only direct competitor. The Commission found, after an intensive eight-month investigation, that Olympic was likely to exit the market because of its grave financial condition, leaving the Greek market in the hands of Aegean with or without the merger. Entry by a thirdparty airline, which might have otherwise served as a market discipline to Aegean, was considered highly unlikely. Under the circumstances, the acquisition was deemed to be without any substantial anticompetitive effect. In the United States, the "failing company" defense is very difficult to establish. It remains to be seen whether this EU exception will, as in the United States, be available only in rare circumstances. If the policy has greater flexibility than in the United States, it may facilitate EU or EU member state approval of acquisitions of distressed automotive industry competitors and create previously unavailable market investment opportunities.

6. EU CARTEL PROSECUTION REMAINS, LIKE IN THE UNITED STATES, A HIGH ENFORCEMENT PRIORITY

While EU competition rules are not criminal, unlike their U.S. counterparts, the EU Commission has used its sweeping powers to detect, investigate, and prohibit cartel activity. system of leniency and leniency-plus, like the U.S. Department of Justice, to incentivize whistleblowers to alert the Commission to cartel activity.

The Commission regularly engages in so-called "dawn raids" to gather evidence from company records. It actively cooperates with other enforcement agencies, like the DOJ, to further strengthen its enforcement leverage. Thus, as with the United States, EU cartel enforcement underscores the need for strict compliance efforts.

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