As we turn the calendar to 2016, we take a look at some of the trends and developments in U.S. antitrust enforcement from 2015. While the leaders of both the FTC and DOJ have challenged the notion that they are any more aggressive than in the past, there can be little doubt that 2015 continued a trend of active enforcement.
Trends in Cartel Enforcement Affecting U.S. Companies Record Fines and Penalties[1]
There were record fines and penalties of $3.6 billion obtained by the U.S. Department of Justice Antitrust Division (“DOJ”) for FY2015 for illegal cartel behavior. This dovetails with increased cartel enforcement globally. For example, enforcement by the antitrust enforcement agencies in the EU, Germany, France, Brazil, and South Korea has also resulted in billions of dollars of fines.[2] According to Assistant Attorney General Bill Baer, “In 2014 alone, at least 19 different jurisdictions levied criminal fines or administrative penalties against cartel conduct totaling more than $6.5 billion.”[3] Record fines and penalties confirm that the risks associated with cartel activity remain high, which suggests that increased monitoring by companies is well warranted, including re-evaluation and implementation of antitrust compliance polices and procedures.
Greater Focus on Investigating and Prosecuting Individuals
The DOJ has announced a policy to strengthen its efforts to hold corporate executives accountable, (with an exception for Antitrust Division‘s Corporate Leniency Policy). Among other things, the DOJ’s policy provides that:
- To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about the individuals involved in corporate misconduct.
- Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.[4]
Thus, with an increasing and intentional focus on investigating and prosecuting individuals engaged in cartel activity, compliance programs should emphasize these increased risks for individuals and caution officers, managers and supervisors to be diligent in identifying and minimizing any risks.
Global Dawn Raids
With continuing cooperation among enforcement agencies worldwide, there are more and more dawn raids conducted globally. In the recent past, more than 20 dawn raids have been carried out in the EU, China, and the U.S.[5] annually. While the concern and focus is often limited to these jurisdictions, other jurisdictions such as Colombia, Peru, Germany, France, Spain, Poland, Russia, Japan and South Korea also carried out more than 10 dawn raids in 2014.[6] Because dawn raids occur without warning and because electronic and paper documents can be seized, guidelines indicating best practices for dawn raids and searches and seizures are particularly important.
Increased Prospect of Private Litigation in the EU
Whereas in the past only the U.S. subjected cartels to both criminal and civil enforcement, now the EU and other jurisdictions are considering adding private enforcement to their governmental enforcement.[7] This will likely result in an increase in follow-on litigation in these jurisdictions. This also raises a number of legal issues, most significantly with respect to discovery and the presumption of liability in followon suits. Multiple investigations coupled with multiple private suits would inevitably complicate what is already a high risk area. With the increased prospect of private litigation in other jurisdictions, the risks and costs associated with cartel behavior are also likely to increase.
Parental Liability in the EU
Recent cases in the EU in which a parent company is held liable for the actions of its subsidiary[8] should also serve as a warning and indicator of increased liability for U.S. companies doing business abroad. The same may also be true for joint ventures jointly owned by two parent companies.[9] Time will tell, but this may significantly increase the antitrust exposure and liability of U.S. companies doing business outside the U.S.
New Focus on Antitrust Compliance
The DOJ has not formally indicated any change in its policies or practices with respect to antitrust compliance programs, but a recent plea agreement between Kayaba Industry Co., Ltd. (“KYB”), a Tokyobased company, and the DOJ[10] elaborated upon its “forward looking” compliance program, which included direction from top management, classroom training and oneonone training for employees measured by testing the employees before and after the training; an anonymous hotline for the reporting of possible antitrust violations; proactive monitoring and auditing that included prior approval for, and reporting of, any employee contact with competitors be audited inhouse; and discipline and demotion of violators who were involved or who supervised employees who were involved in the conduct. DOJ has explained that “forward looking” means new or updated and enforced policies going forward. DOJ continues to view existing policies as “failed” policies, when cartel behavior has resulted anyway. Apart from the U.S., other jurisdictions are beginning to take note and give credit for compliance programs.[11] Thus, any company, but particularly those doing business outside the U.S., would be well advised to have in place an effective compliance program in all jurisdictions in which they do business.
Trends in U.S. Merger Enforcement
Consistent and Aggressive Merger Enforcement in the U.S.
In the U.S., notified transactions for FY2014 rose 25% to 1,663. Notified transactions in the U.S. with values exceeding $1 billion increased by 58%. Generally, there have been consistent challenges by antitrust enforcement agencies to mergers where the number of competitors was reduced from 4 to 3, 3 to 2, or 2 to 1 or by competitors with large market shares.[12]
Emphasis on Market Definition and on Effect on Potential Entry
One recent trend in enforcement by both agencies is the increasingly narrow product market definition in challenged mergers, which has resulted in higher market concentrations than might have been expected.[13] Another has been the analysis in both regional markets, and a national market, both alleged in the same cases, which has served to limit the number of competitors and increase concentration.[14] There also continues to be consideration of a proposed merger on potential entry or new product development, particularly with respect to pharmaceuticals.[15] It is clear that despite the 2010 Horizontal Merger Guidelines’ suggestion that market definition is not paramount in agency analysis, the agencies do make market definition a centerpiece of any litigation, probably because judges continue to find it relevant. Thus, careful consideration of potential market definition remains an essential part of any antitrust analysis by the parties prior to agreeing to the transaction and particularly with respect to any agreement with respect to defending the transaction if challenged.
Coordination with Foreign Agencies
Our global economy has not only produced global cartel enforcement, it has also expanded the reach of merger enforcement and the importance of coordination among enforcement agencies.[16] According to Bill Baer, “In the last five years [DOJ] has worked with other enforcers in 40% of our merger challenges; last year alone, [DOJ] cooperated with 16 different foreign enforcers sometimes more than one at a time in 14 investigations.”[17] In his speech Bill Baer cited two examples: working with colleagues from China and South Korea to investigate Applied Materials’ proposed merger with Tokyo Electron and coordination between the DOJ and the EC with respect to General Electric’s proposed acquisition of Alstom, SA. Thus, U.S. companies doing business outside the U.S. or involved in a transaction with a foreign company should expect merger filings and possible review in those countries in which it does business. A word of caution is appropriate here as not all jurisdictions use the same test as the U.S. to determine whether a premerger filing is required and review by multiple agencies can affect the time required for review. Similarly, not all countries apply the same standards as the U.S. in analyzing the legality of a merger.[18] It is often advisable to seek advice from local counsel in foreign jurisdictions to determine filing requirements and assess the risk of challenge.
Willingness to Litigate and Strict Requirements for Divestitures
Both the DOJ and FTC have shown an increased willingness to litigate cases which they believe are anticompetitive.[19] A number of cases have been abandoned as a result of just the threat of litigation,[20] and a number of proposed divestitures have been rejected by both the FTC and DOJ in recent cases.[21] In addition, behavioral remedies have been imposed in conjunction with structural remedies or in lieu thereof in a number of cases. Thus, in those transactions where there is a high risk of challenge, the parties need to think realistically and creatively as to what might be required to permit the transaction to pass muster. The FTC has announced a retrospective study of merger remedies to address: (1) reducing the time allowed to complete required divestitures; (2) requiring divestiture of “related assets”; (3) limiting the scope and duration of any ongoing relationship between the divestiture buyer and the parties; and (4) requiring the parties to transfer knowledgeable staff to the divestiture buyer. The study will review the results of 92 orders issued between 2006 and 2012 and will involve interviews, questionnaires and potentially subpoenas to competitors, customers and the parties themselves. While it is important for an agency to evaluate its enforcement practices, in the past this type of exercise has led to stricter scrutiny of the proposed remedies in merger transactions (and in some case challenges of consummated transactions).
Continued Challenge of Consummated Mergers
Both the DOJ and the FTC have continued to challenge consummated mergers where they found a cause to do so.[22] Typically, these challenges have been brought in nonreportable transactions. These cases underscore the importance of antitrust review in all cases even when a premerger filing is not required.
Gun jumping
The U.S. continues to monitor gun jumping with respect to failure to file premerger notification as required under the HartScottRodino Act even where there is no other antitrust concern[23] and collusive conduct prior to closing.[24] Other jurisdictions have also begun to express concern and charge companies with illegal gun jumping in merger transactions.[25] Thus, attention to premerger filing requirements is important even if there is no antitrust concern about the transaction. Similarly, compliance with gun jumping guidelines, which explain the conduct that is impermissible prior to closing are of importance, whether or not the transaction itself is challenged. This legal alert keeps the clients of the firm “Baker & McKenzie” and other interested parties abreast of changes in legislation that may, to one degree or another, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this legal alert are not legal opinions and cannot replace the necessity of receiving legal consultations or opinions in specific practical situations. Please consult Baker & McKenzie’s website for information on antitrust services we offer www.bakermckenzie.com/antitrustcompetition
[1] The DOJ has also pursed other aggressive remedies, including the appointment of an independent antitrust monitor where it believes it is warranted. [2] Data from 2015 are not yet available but total fines in 2014 were 1.7 billion EUR in the EU, 1 billion EUR in France, US$1.3 billion in Germany, US$1 billion in South Korea, and US$1.67 billion in Brazil. [3] Remarks at the Ninth Annual Global Antitrust Enforcement Symposium (Sept. 29, 2015). [4] DOJ Deputy Attorney General Yates Memo (September 9, 2015). [5] In the U.S. a dawn raid is typically referred to as “search and seizure”. Best practices with respect to dawn raids and searches and seizures are different. [6] Global Competition Review: Rating Enforcement 2014, supplemented by estimates from Baker & McKenzie lawyers. [7] See e.g., EU Directive on Antitrust Damages Actions, which was signed into law by the European Parliament on November 26, 2014, requires the Member States to incorporate the Directive’s minimum standards into national law by December 2016. [8] Case T104/13 CRT (GC, September 9, 2015)(As a shareholder with 35.5%, the General Court upheld the finding on Toshiba’s liability for MTPD’s conduct). [9] Case T91/13 CRT (GC, September 9, 2015)(Joint venture parties were found liable in a 50/50 joint venture where both LGE and Philips could control how strategic commercial decisions were adopted and supervised the management of the JV). [10] See US Sentencing Memorandum, United States v Kayaba Indus, 1:15CR00098, ECF 21 (S.D. Ohio October. 5 2015). [11] In Australia, Canada, Chile, France, India, Israel, Singapore and the UK, antitrust agencies are able to treat the existence of a compliance program as a mitigating factor insofar as it evidences a genuine compliance culture. Other jurisdictions considering or in the process of considering whether compliance program should be a mitigating factor are Brazil and Hong Kong. [12] Reynolds American/Lorillard (2015)($27 billion)(2nd and 3rd largest tobacco companies with estimated market share of 42%); Tokyo Electron/Applied Materials ($29 billion) (1st and 2d largest nonlithography semiconductor equipment); Sysco/US Foods ($8.2 billion)(two largest food distributors with estimated market share of 75%); Sun Pharmaceutical ($4 billion)(4 to 3 required divestiture);Endo/Par Pharmaceutical ($8 billion)(3 to 2 in one product and 4 to 3 in another) ;Under DOJ review: Aetna (3rd) & Humana (5th); Anthem (2d) & Cigna (4th) (2015) AB Electrolux/GE ($3.3 billion) (result in a duopoly)(2015). [13] See Bazaarvoice (market defined as online product rating and review platforms); Twin America (market defined as hop-on/hop-off double-decker bus tours); National CineMedia and Screenvision (market alleged to be preshow advertising); Steris/Synergy Health (DOJ defined market as radiation sterilization services rather than all sterilization services); Valent Pharmaceutical/Precision Dermatology (FTC defined market as acne treatments with single agent topical tretinoins rather than broader acne treatment market). [14] See e.g., Sysco/US Foods (where FTC identified separate market for national suppliers as well as 32 regional markets); Comcast/TimeWarner (where the DOJ alleged a national market for content distribution rather than regional markets for content consumption). [15] Sun Pharmaceuticals/Ranbaxy ($4 billion)(Ranbaxy was a potential entrant); WatsonActavis (potential competitors in 8 product categories); Mylan/Agila (potential competitors in 5 products categories); Actavis/Warner Chilcott (potential competitor in one product); Endo/Boca (potential competitor in two products); Steris/Synergy ($1.9 billion )(new technology but for the merger)(challenged but district court upheld proposed merger); Nielsen/Arbitron (divestiture and license required due to potential competition in future market)(FTC 2013). [16] See Continental AG/Veyance (DOJ worked with Canada, Brazil, and Mexico); Applied Materials/Tokyo Electron (U.S. and South Korea coordinated investigation); General Electric/Alstom (U.S. and EU coordinated investigation). [17] Remarks at the Ninth Annual Global Antitrust Enforcement Symposium (Sept. 29, 2015). [18] For example, China blocked a strategic alliance between container shipping companies (P3 Alliance) that had not been challenged in either the U.S. or the EU. [19] Sysco/US Foods (FTC 2015); Steris/Synergy Health (FTC 2015); Electrolux/General Electric (DOJ 2015); National CineMedia/Screenvision ( DOJ 2015). [20] Comcast/Time Warner Cable (2015); Bumble Bee/Chicken of the Sea (2015); Applied Materials/Tokyo Electron (2015). [21] Sysco/US Foods (2015)(Parties’ plan to sell off 11 US Foods distribution centers was rejected as insufficient by FTC); ZF Friedrichshafen AG/TRW Automotive (2015) (FTC required divestiture in Europe even though no sales from Europe in the US); Applied Materials Inc./Tokyo Electron (2015) (DOJ rejected proposed divestiture because it did not adequately address the future impact of the deal on innovation in future generations of semiconductor equipment)(DOJ); Bazaarvoice/ PowerReviews (Retrospective review required divestiture of more assets than originally acquired)(DOJ 2014); AB Electrolux/GE (2015) ($3.3 billion)(several divestiture offers rejected by DOJ); Staples/Office Depot ($6.3 billion) (2015)( FTC rejected proposed divestiture); Halliburton/ Baker Hughes (2015) (DOJ rejected several divestiture proposals). [22] See e.g., FTC v. ProMedica Health System, 749 F.3d 559 (6th Cir. 2014)(divestiture required); U.S. v. Hereaus ElectroNite/MINCO (2014); U.S. v. Bazaarvoice/PowerReviews (N.D. Cal. 2014); FTC’s challenge to Graco’s acquisitions of Gusmer and GlasCraft)(2013); Polypore Int’l, Inc. v. FTC, 686 F.3d 1208 (11th Cir. 2012)( divestiture required). [23] See U.S. v. Berkshire Hathaway, No. 1:14cv01420 (second failure to file resulted in penalty of $896,000). [24] U.S. v. Flakeboard America Ltd., Case No. 3:14cv49(2015))(fined $3.8 million in penalty and $1.15 million in disgorgement due to buyer’s decision to close seller’s plant and allocate customers before closing). [25] See. e.g.,. Guidelines to Analysis of the Prior Fulfillment of Acts of Economic Concentration (Brazil)(May 2015). See also cases in China for failure to notify in 4 separate transactions: BestTV New Media/ Microsoft joint venture; Nanjing Puzhen Rolling Stock Works, Ltd. / Bombardier Transportation joint venture; Fujian Province Electronic Information (Group) Co., Ltd/35% stake in Shenzhen Connaught Communications Limited; Shanghai Fosun Pharmaceutical Development Co., Ltd / 35% stake in Futaba Suzhou Pharmaceutical Co., Ltd.
