UNITED STATES
DOJ Extends Review Of InBev's Planned Takeover Of Anheuser-Busch
Global beer conglomerate InBev, S.A. has announced that it received a request for additional information, or "Second Request," from the United States Department of Justice (DOJ) relating to its planned acquisition of Anheuser-Busch, Inc. InBev, which had recently gained Anheuser-Busch's approval of its US$52 billion bid for the company, has pledged to cooperate fully with the DOJ's review. Despite the Second Request, InBev expects to close the transaction before year's end.
Combined, InBev and Anheuser-Busch would be the world's single largest brewer ahead of SABMiller plc. In the United States, Anheuser-Busch controls approximately 50 percent of the beer market, through its Budweiser and Bud Light brands. Direct competition between the brewers is limited as InBev mostly markets more expensive imported beers such as Stella Artois and Beck's. The companies hope that the combination will improve marketing of both InBev's brands in the United States and Anheuser-Busch's brands abroad, and create other cost-saving synergies. Such synergies are likely to be important to the DOJ, which cited cost-saving efficiencies in approving the joint venture between the US operations of SABMiller and Molson Coors Brewing Company in June of this year.
Even if cleared by the DOJ, the combination of InBev and Anheuser-Busch faces additional hurdles. Anheuser-Busch shareholders have yet to approve the transaction, which will yield them US$70 per share of stock. The company has called a special shareholders meeting for this purpose to be held on November 12. In addition, a group of US beer drinkers filed a lawsuit in September in US District Court in St. Louis, Missouri seeking to enjoin the transaction as anticompetitive. Anheuser-Busch responded in public statements that the lawsuit lacks merit and the company will vigorously defend the transaction. Finally, InBev recently announced that it postponed a rights issue valued at US$9.8 billion it had hoped to use to finance the acquisition.
DOJ Issues Report On Single-Firm Conduct
In September the DOJ issued a report about the intersection of the competition laws and unilateral conduct, entitled "Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act." The report is directed at consumers, businesses and policy makers, and is the culmination of a year-long series of public hearings launched in June 2006 to examine issues that arise in the context of Section 2 enforcement. Section 2 makes it unlawful for a firm to acquire or maintain monopoly power through improper means, as opposed to superior innovation or business acumen.
Among the topics discussed in the report are:
- The role of market share in determining monopoly power;
- The tests employed to determine whether conduct is unlawful including effects-balancing, profit-sacrifice, economic rationale and equally efficient competitor tests;
- Predatory pricing and bidding;
- Tying and bundling arrangements;
- Refusals to deal with competitors; and
- Exclusive dealing arrangements.
The report can be downloaded from the DOJ's website.
Although the Federal Trade Commission (FTC) participated in the hearings about single-firm conduct, it did not participate in issuing the report with the DOJ. Reaction to the report from the FTC has been mixed. Commissioners Harbour, Leibowitz and Rosch issued a joint statement that characterizes the report as "a blueprint for radically weakened enforcement of Section 2 of the Sherman Act." The commissioners went on to criticize the report for relying too heavily on economic theory and statements by the one-sided constituency at the hearings, and for endorsing more-demanding standards for Section 2 enforcement than imposed under the current case law. Chairman Kovacic issued a separate, less-critical statement concerning the report. The chairman's statement praised the efforts of those contributing to the hearings and to the report, but called for a deeper examination of the intellectual roots of Section 2 and modern enforcement trends.
Chip Maker Sues High-Def Audio CODEC Developer Over Blu-ray Disc Technology
On October 8, 2008 integrated circuits manufacturer Zoran Corporation filed a lawsuit in the US District Court for the Northern District of California against DTS, Inc., the company that licenses the audio encoding/decoding (or CODEC) algorithm used by Blu-ray disc devices. Zoran had alleged that DTS failed to license the algorithm under fair, reasonable and nondiscriminatory (FRAND) terms, as required under the company's agreement with the Blu-ray Disc Association. According to the terms of the agreement, DTS pledged to license the algorithm on FRAND terms, in exchange for the Association adopting DTS' patented CODEC as the industrywide standard for Blu-ray high-definition audio technology.
Zoran alleged in its complaint that DTS abused its monopoly in the market for Blu-ray disc technology by demanding large, upfront royalty payments as a condition to negotiating license agreements with chip manufacturers. Zoran further alleged that DTS had prevented Zoran's entry into the Blu-ray device market by threatening device manufacturers with lawsuits should they use parts from a nonqualified supplier like Zoran. According to Zoran DTS' action had restrained competition among Blu-ray devices and chip makers, and prevented Zoran from entering the market for Blu-ray hardware. The complaint seeks monetary damages, preliminary and permanent injunctive relief, and a judgment declaring DTS' patents unenforceable due to misuse.
FTC Challenges Proposed Merger Between Public Records Publishers
The FTC announced that it has intervened to block the proposed US$4.1 billion acquisition by Reed Elsevier Inc. of ChoicePoint Inc. According to the administrative complaint filed with the Commission, the companies are direct competitors in the highly concentrated market for the provision of electronic public records services to law enforcement customers. Reed Elsevier offers public records services through its LexisNexis division, while ChoicePoint offers them through its AutoTrackXP service and CLEAR, a new advanced electronic public records search tool.
Collectively the companies account for more than 80 percent of the market for public records search services sold to law enforcement customers.
To eliminate the potential anticompetitive effects of the consolidation, the FTC will require the combined company to divest all assets relating to the AutoTrackXP and CLEAR services within 15 days of consummating the transaction. Under the terms of a proposed consent order such assets would be acquired by Thomson Reuters Legal Inc., which, according to the FTC, is well-positioned to compete with LexisNexis in the public records services market through its West Publishing division. To ensure the transition to West is successful, the consent order further requires Reed Elsevier to (i) provide transitional services to West for a period of two years following the transfer; (ii) maintain the marketability and viability of ChoicePoint's public records services operations prior to the transfer; (iii) accept an interim monitor appointed by the FTC to monitor the transition and (iv) periodically report to the FTC until the divestiture is completed. The Commissioners' final vote on the proposed consent order is now pending.
Antitrust Lawsuit Over iPhone Moves Forward
A federal district court judge sitting in the Northern District of California has denied the motions by Apple, Inc. and AT&T Mobility LLC to dismiss an antitrust lawsuit over the companies' agreement to make AT&T the exclusive service provider for the popular iPhone device. Plaintiffs had alleged that Apple and AT&T violated Section 2 of the Sherman Act by monopolizing the markets for voice and data services for the iPhone, and that Apple further monopolized the market for aftermarket iPhone applications.
According to the complaint by Apple iPhone users, Apple and AT&T agreed that AT&T would be the exclusive service provider for the iPhone through 2012, and in return Apple would receive a percentage of the service fees. Consumers were not aware of this agreement at the time of purchase when they were only required to enroll in a two-year service plan with AT&T. In the decision denying the companies' motion to dismiss, Judge James Ware wrote that the claims are "ripe for adjudication because plaintiffs are alleging that at the point of purchase and initiation of service, defendants involuntarily impose on consumers a contract exclusivity restriction which restricts their freedom from that point forward for at least the next five years and conceivably for the life of the iPhone."
Judge Ware also declined to dismiss the plaintiffs' claims against Apple for monopolizing the market for aftermarket applications for the iPhone. The plaintiffs alleged that Apple attempted to prevent users from removing "software locks," which are installed on every new iPhone to prevent potentially harmful third-party applications from being downloaded to the device. Apple allegedly enforced this policy by issuing warnings that installing third-party applications would void the iPhone's warranty and by publishing update software that damaged "unlocked" iPhones running third-party applications.
EUROPEAN UNION
Commission Fines Wax Cartel
On October 1, 2008 the European Commission (Commission) imposed fines totaling €676 million on Exxon Mobil, ENI, Hansen & Rosenthal, Tubapetrol, MOL, Repsol, Sasol, RWE and Total for participating in a price-fixing and market-sharing cartel in the market for paraffin and slack waxes in the European Economic Area (EEA). The infringement, which lasted from 1992 to 2005, was brought to the Commission's attention by Shell. In return for its cooperation, Shell was granted full immunity from fines. The fines imposed on Sasol were increased by 50 percent for its leadership role in the cartel, while the fines imposed on ENI were increased by 60 percent for its involvement in previous cartel activity.
The market for paraffin and slack waxes is estimated to be worth €500 million annually. Paraffin wax is used in numerous consumer products, such as candles, paper cups and plates, chemicals, tires, car components, rubber, packaging and certain adhesives. Slack wax is a raw material used in the production of paraffin wax.
ECJ Rules In Major Pharmaceuticals Case
The European Court of Justice (ECJ) has issued a preliminary ruling in the dispute over supply quotas imposed by GlaxoSmithKline (GSK) on prescription drug wholesalers in Greece. In 2000 GSK interrupted the supply of three medicines (Lamictal, Imigran and Serevent) to wholesalers in Greece to eliminate parallel trading, i.e., exporting to higher-priced Member States. In 2001 it resumed supply to the wholesalers, but at volumes sufficient only to meet national demand.
In ruling on GSK's conduct, the ECJ stated that unless objectively justified, a dominant firm's refusal to fill orders to restrict parallel trading is an abuse of dominance under Article 82 EC. The court further noted that price regulation by Member States, which is pervasive in the pharmaceuticals industry, is not a sufficient justification for such conduct. The court did recognize, however, that a drug maker is entitled to protect its own commercial interests when confronted with orders that are out of the ordinary in terms of quantity. Such determination, the court added, would be assessed by the national courts in light of the needs of the national market and previous trading relations.
Freight Cargo Customers Seek Remedies From The UK High Court
A US-based law firm has initiated a representative action before the UK High Court against British Airways on behalf of indirect and direct purchasers of air cargo services that suffered losses as a result of the airline's role in a price-fixing cartel. In August 2007 British Airways and Korean Air Lines agreed to plead guilty to charges brought by US regulators and to pay US$300 million each for participation in the conspiracy in both the passenger and cargo sectors. The information uncovered during the proceedings in the United States contributed to the private action brought in the United Kingdom.
To date, three former executives of British Airways have been prosecuted under the criminal law in the United Kingdom for their roles in the cartel.
Private Antitrust Actions Likely By TV Stations In Germany
Germany's antitrust authority, the Bundeskartellamt, has granted access to information gathered during its investigation of IP Deutschland and SevenOne Media (advertising subsidiaries of RTL and ProSiebenSat 1, respectively) to several small TV stations in Germany. In November 2007, the advertising companies, being investigated by the Bundeskartellamt, agreed to pay fines totaling €216 million for certain agreements found by the antitrust authority to have foreclosed competition by smaller broadcasters and hindered new market entrants. The small TV stations are considering private actions against RTL and ProSiebenSat 1 to recover monetary losses caused by the agreements.
Germany Investigates Pay-TV Policies
On September 18, 2008 the Bundeskartellamt launched an investigation into the alleged abuse of dominance by pay-TV operators Premiere, Kabel Deutschland and Unitymedia. Pay-TV customers in Germany are required to purchase set-top boxes that can be activated to receive the signal of a single provider. If the same customer moves to a location where the provider does not operate, he or she must buy a new set-top box. The authority will investigate whether such practices restrict competition in the pay-TV advertising market.
Commission Publishes Emergency Guidance On State Aid To Struggling Banks
The European Commission has published new guidance to inform Member States about how they can assist struggling financial institutions without violating EU state aid rules. In general, the state aid rules prohibit the use of tax dollars by Member States to subsidize or otherwise prop up national businesses in a way that distorts cross-border competition. An exception to the state aid rules allows certain measures to be taken "to remedy a serious disturbance in the economy of a Member State" (Article 87(3)(b) of the EC Treaty). The new guidance clarifies how Member States might use this exception, and how the Commission will review proposed measures in light of the present global financial crisis.
The guidance provides that to ensure compliance with the state aid rules and the exception for serious economic disturbances, Member States should disclose state aid plans to the Commission before they are implemented. The Commission has pledged to respond to requests for approval of proposed state aid plans, where necessary, within 24 hours or over the weekend. To be approved, plans such as guarantees or recapitalization schemes must meet certain conditions to ensure that they are narrowly tailored to stabilize the target institutions and minimize any distortion of competition. Such conditions include, inter alia, that (i) eligibility for aid not be based on nationality of the beneficiary institutions; (ii) aid is limited in duration and scope so as to provide only as much assistance as is required to endure the current economic turmoil; (iii) conditions for receiving aid prevent abuse by institutions that might seek to leverage aid to enhance their competitive positions; and (iv) appropriate follow-up measures are included that provide for necessary structural adjustments to the financial sector as a whole or beneficiary institutions.
The guidance document may be downloaded from the Commission's website.
AROUND THE WORLD
JAPAN – Major Record Producers Challenge JFTC Ruling
Sony Music Entertainment together with three major record producers in Japan have filed a lawsuit in the Tokyo High Court challenging a July 2008 ruling by the Japan Fair Trade Commission (JFTC) that the companies engaged in unfair trade practices and concerted refusals to deal. The JFTC's ruling followed a cease and desist recommendation that was issued by the JFTC on March 24, 2005, but ignored by the companies.
The focus of the JFTC's investigation was a suspected arrangement among Sony and the other recording companies relating to the use of popular songs as mobile phone ring tones. The companies provided Chaku-Uta services, which sold parts of original recordings for ring tones through a distributor that the companies themselves co-founded. The JFTC found that such arrangement impeded competition because each recording company blocked access to songs by other competing services.
In appealing the JFTC ruling Sony claimed that the each company's refusal to deal with the other ring tone providers resulted from independent business decisions. The JFTC noted in its decision that it discovered no direct evidence of concerted action and that its findings were based solely on circumstantial evidence.
BRAZIL – CADE Contemplates Changing Merger Filing Thresholds
Brazil's antitrust authority, Comisión Nacional de Defensa de la Competencia (CADE), has announced that it will consider a new interpretation of Brazil's competition law that would change the merger notification thresholds. Under the current interpretation mergers must be notified to CADE when a company proposes to acquire a company that has a 20-percent share in any given market. The agency is contemplating the elimination of this filing requirement if the transaction would not further concentrate the market and if the companies' combined annual revenues would not exceed 400 million Brazilian reals (approximately US$191 million).
CADE is expected to formalize the new interpretation by issuing a binding statement, which can occur only after it applies new interpretation in at least 10 cases.
RUSSIA – FAS Launches New Anticartel Department
On October 2, 2008 Russia's Federal Antimonopoly Service (FAS) announced the formation of a new anticartel department to be headed by Alexander Kinev, the FAS' former chief of the Department for State Service and Staff. Anticartel enforcement has been an area of increasing concern for the FAS, and Chairman of the Government of the Russian Federation, Vladimir V. Putin, has publicly called for tougher enforcement of the antimonopoly laws against cartel participants.
The FAS has outlined three preliminary objectives for the new department: (i) drafting new legislation to strengthen FAS' enforcement capabilities and the statutory penalties for cartel behavior; (ii) improving the FAS leniency program for parties that disclose violations of the anticartel provisions and cooperate in the prosecution of other violators and (iii) carrying out inquiries of markets that the FAS believes are controlled by cartels.
SOUTH KOREA – KFTC Grants Conditional Approval To eBay Acquisition
The South Korean Fair Trade Commission (KFTC) has approved eBay Inc.'s proposed acquisition of a 36.6-percent stake in Korea-based online marketplace Gmarket Inc. from Interpark Corp. and its chairman Ki Hyung Lee. eBay's Internet operations in South Korea, named Internet Auction, compete directly with Gmarket's online auction and shopping website. Were eBay to raise its stake in Gmarket through the share purchase from Interpark, it would control more than 50 percent of its largest competitor and effectively control 87 percent of the market in Korea for Internet-based consumer-to-consumer transactions. Acknowledging the high degree of concentration posed by the transaction, the KFTC nevertheless cleared eBay to proceed on the condition that the companies agree to not raise seller commissions for three years following the deal. The KFTC further cited ease of entry into the market as a justification for allowing the deal to go forward.
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