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Stuart S. Malawer J.D., Ph.D.

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  1. GLOBAL ANTITRUST & GLOBAL TRADE. … Price-Fixing, Global Mergers & Extraterritoriality. Stuart S. MalawerJ.D., Ph.D. GLOBAL ANTITRUST .... (2007)

  2. I. Antitrust in Global Context. .... Global Price-Fixing. COURT ACCEPTS BRITISH AIRWAYS/KOREAN AIR LINES PLEA The U.S. District Court for the District of Columbia today accepted the Department of Justice's plea agreements with British Airways Plc and Korean Air Lines Co. Ltd. that had been announced on August 1, 2007. In court today, the companies pleaded guilty and were sentenced to pay separate $300 million criminal fines for their roles in conspiracies to fix the prices of passenger and cargo flights. "Today's sentencing demonstrates that those who violate the antitrust laws and seek to deny American consumers and businesses the benefits of competition will be held accountable for their actions," said Scott D. Hammond, Deputy Assistant Attorney General for Criminal Enforcement of the Department's Antitrust Division. "The Antitrust Division is actively continuing its investigation into the airtransportation industry." GLOBAL ANTITRUST .... (2007)

  3. GLOBAL ANTITRUST .... (2007)

  4. ………Global Mergers Dubai Ports World & National Security. New York Times 3.18.06. GLOBAL ANTITRUST .... (2007)

  5. ……….. National Security & Global Mergers. • CNOOC – Unocal (2005). • DP World – P&O Steam Navigation (2006) • Lucent – Alcatel (2006). GLOBAL ANTITRUST .... (2007)

  6. GLOBAL ANTITRUST .... (2007)

  7. …….. U.S. & Foreign Antitrust as a Global Trade Issue. GLOBAL ANTITRUST .... (2007)

  8. ….. Recycling Capital by Buyers from Developing Countries (2005–2006). • Lenovo – IBM (PC business). [Chinese – U.S.} • Mittal – Arcelor (2006). [India – EU.] • DP World – P & O Steam Navigation. [UAE – U.K.] ….. Greater Domestic Mergers in Foreign Markets (2005-2006). • Bank of Tokyo – Mitsubishi UFJ (Japan). GLOBAL ANTITRUST .... (2007)

  9. ….. Price-Fixing, Mergers & Dumping. Antitrust. Price-Fixing Mergers Dumping. Antitrust. Higher Prices Lower Prices GLOBAL ANTITRUST .... (2007)

  10. …. Global Trade Aspects. • WTO ………. • Competition is a Singapore issue, but dropped from Doha Agenda. • Competition was in ITO. The Havana Charter – was never ratified nor adopted. Antitrust. Trade. Private / corporate restrictions. Gov’t Restrictions. GLOBAL ANTITRUST .... (2007)

  11. Foreign Branch & Foreign Subsidiary: Extraterritorial Application of U.S. Law. U.S. Law. U.S. Law. U.S. Corporation U.S. Parent Corporation Maybe. Yes. Part of corporation. No separate ownership or entity. Equity Ownership. Separate corporate entity. Incorporated in foreign country. Foreign Branch Foreign Subsidiary GLOBAL ANTITRUST .... (2007)

  12. …….. Global Corporate Activities & Extraterritorial Regulation ……….. • The nationality of corporations is determined by its state of incorporation. The nationality of the shareholders (equity ownership) is irrelevant. • The application of antitrust laws apply generally to mergers and price-fixing. Price-fixing is one of various unlawful predatory practices, for example, division of markets. • The issue of extraterritorial application of national law involves the application of national law to outside of a nation’s territory. • Often to foreign actors, foreign transactions that are lawful under foreign law. • Applies domestic law to the “wrongful act” that takes place outside of the country’s territory, but where the “injury” is within that territory. (For example, higher import prices.) • Above is known as “effects principle.” This is limited by the international obligation of “reasonableness.” • Under U.S. law there is a “presumption of territoriality.” Congress can do anything it wants as to this. Problem is when the statute is silent. The courts need to determine the law’s foreign reach. • The U.S. is the primary user of extraterritorial application of antitrust law, but the EU is doing somewhat the same thing but under different theories. • The U.S. applies the notion of extraterritoriality to other forms of international economic legislation. • The potential trade disputes, because of inconsistent application of these laws to the same transactions, is significant. • The global response has been primarily diplomacy, the creation of informal bodies to address the issue and bilateral agreements to limit international friction. GLOBAL ANTITRUST .... (2007)

  13. II. Extraterritorial Application --- U.S. Antitrust Law. Case Study: Alcoa Case. Swiss Corp. U.S. LAW Conspiracy to Restrict Imports into U.S. U.S. Effect (on U.S. Imports) Canadian Corp (defendant) Civil action by U.S. against Canadian corporation as to price-fixing w/in context of monopolization of U.S. group. [Intent + Effect] GLOBAL ANTITRUST .... (2007)

  14. …….. Facts (global price-fixing conspiracy) Alliance (Swiss Corp) Various Corporate Members Not a Member Alcoa (U.S.) Member / Shareholder Limited (Canadian Corp) Civil action by U.S. against Canadian corporation as to price-fixing w/in context of monopolization of U.S. group. • 1931 Production Quotas • 1936 U.S. Import Restrictions via Royalties One of the Defendants in action by U.S. (DOJ). GLOBAL ANTITRUST .... (2007)

  15. General Legal Issue:Violation of Sherman Act Section 1 ? Specific Issue: Does U.S. antitrust law apply extraterritorially so as to give to U.S. courts jurisdiction over a foreign corporate conspiracy (outside of the U.S.) that is intended and does restrict imports into the U.S. ? GLOBAL ANTITRUST .... (2007)

  16. Holding:U.S. antitrust law (Section One of the Sherman Act) applies to a foreign conspiracy to restrict imports into the U.S. (between two foreign corporations) when there is both an intention to do so and an effect within the United States (that is an impact on imports into the U.S.). GLOBAL ANTITRUST .... (2007)

  17. General U.S. Jurisprudence: • As a matter of U.S. law there is a presumption of territoriality. That legislation is intended to apply only to acts done within the U.S. unless the Congress otherwise provides. • General International Law: • Recognizes the “Effects Principle” of jurisdiction as long as it is reasonable (Principle of Reasonableness / Balancing Test). GLOBAL ANTITRUST .... (2007)

  18. BASIC POLITICAL PROBLEMS. • Actors are foreign and the transaction is outside of the U.S. • Most important, the actions are lawful under foreign law. • Raises the issue of “judicial imperialism” as well as the “clash of competing national laws” in a “horizontal legal system.” GLOBAL ANTITRUST .... (2007)

  19. Antitrust is one of the major fields of U.S. economic legislation and regulation that has been applied extraterritorially for the longest time (since 1945). • Other fields have now been applied extraterritorially, for example, securities legislation, pretrial discovery, export control regulations, corporate governance (Sarbanes – Oxley). GLOBAL ANTITRUST .... (2007)

  20. Extraterritoriality has generally caused fierce resistance by other countries as violations of their national sovereignty. Such actions impact on companies and transactions located within the jurisdiction of foreign states. • Most of these countries have been our closest political allies (but strongest global competitors). • Yet, the European Union is also applying its competition laws extraterritorially or at least to foreign actions by U.S. firms. For example, MCI / WorldCom merger (1998) ; MCI - World Com - Sprintmerger (2000); AOL – Time Warner (2000); Oracle – People Soft (2004/5); Microsoft practices (Windows 2004-2006). GLOBAL ANTITRUST .... (2007)

  21. Most recently, this can be seen in the area of global mergers(transborder mergers), even domestic mergers with global implications (by U.S. firms having assets or transactions within the EU or effect within the EU), and U.S. firms business practices with implications within the EU. • In 2006 a Japanese firm has agreed to plead guilty for obstruction of justice in a merger case. • An example of the U.S. Justice Dept. activity in the area of global price-fixing is its settlements of criminal antitrust cases, starting in 1999, against foreign pharmaceuticals involving a global conspiracy for price-fixing and setting production quotas in the global vitamin market impacting. • This has resulted in the largest fines ever imposed in guilty please for price-fixing - - about $850 m. in fines. The subsequent civil litigation has one settlement of $1.17 b. (2000). GLOBAL ANTITRUST .... (2007)

  22. Other examples of global price-fixing: • A Japanese executive was sentenced to jail for international antitrust violation (2004). • In 2004, De Beers agreed to plead guilty to a criminal global price-fixing (for a conspiracy with GE) in a ten-year old case. • Two criminal pleas in global price-fixing cases, in 2004, involved Infineon Technologies and Bayer AG. • In 2005, Samsung, one of the largest criminal global price-fixing cases (involving foreign chip makers) was settled for $300 million.  This is the largest antitrust fine during the Bush administration and the second largest ever.  This opens the way for  multi-billion civil litigation. • In 2006, Samsung executives plead guilty& to serve jail time in U.S. GLOBAL ANTITRUST .... (2007)

  23. …….. Extraterritoriality: Basic Dilemma. • Potential Regulation by Two Governments – Often Unlawful under U.S. Law & lawful under foreign Law. Can the U.S. & EU regulate the foreign branch or subsidiary? When does U.S. law apply? EU Law. U.S. Branch / Subsidiary Corporate Group EU U.S. Parent “Clash of competing legislation” as to foreign actorsand foreign actions and foreign legality. GLOBAL ANTITRUST .... (2007)

  24. …. Dual Principles : “Effects Principle” & “Principle of Reasonableness” U.S. Effect w/in U.S. Extraterritorial Application of U.S. Law(e.g. antitrust, mergers, alliances and contracts) “Effects Principle” World Act outside of U.S. (by foreign actor) “Effects Principle” now qualified by “Reasonableness Principle” (both international & U.S. law) S. malawer @ 2002 GLOBAL ANTITRUST .... (2007)

  25. …… U.S. Antitrust Guidelines for International Operations (1995). • Issued jointly by the Dept. of Justice and Federal Trade Commission as guidance only. Discusses basic antitrust legislation, extraterritoriality and presents a set of hypotheticals concerning international antitrust (foreign commerce / jurisdiction, cartels, mergers and trade related issues). GLOBAL ANTITRUST .... (2007)

  26. Some discussion of foreign merger laws (and their extraterritoriality) and international efforts at cooperation. • Merger laws of EU, Canada, Germany, France and Australia and their extraterritorial application. • Bilateral Antitrust Cooperation Agreements. (Germany, Australia and Canada). (Similar agreement with the EU was invalidated by the Court of Justice for the European Union.) • General Mutual Legal Assistance Agreements (MLATs). • ”OECD Recommendation Concerning Cooperation as to Restrictive Business Practices Affecting International Trade.” (1986). GLOBAL ANTITRUST .... (2007)

  27. IV. BASIC U.S. ANTITRUST LEGISLATION. • Sherman Act (1890): • Section 1 -- Prohibits “conspiracies in restrain of trade.” • Section 2 -- Prohibits monopolization or attempts at monopolization. • Both sections apply to “foreign commerce” (import and non-import foreign commerce) • Applies to “unreasonable restraints” GLOBAL ANTITRUST .... (2007)

  28. “Per se violation” & those subject to a “rule of reason.” Newer notion of “economic efficiency” in applying rule of reason. • Some per se violations: horizontal price fixing or market division; certain tying arrangements. • Criminal actions by the Dept. of Justice as well as civil actions by either DOJ or the FTC. • Typically private civil litigation occurs after the criminal actions. Different standards of evidence. • Will often involve class actions & contingency fee arrangements. • Treble damages in civil actions. GLOBAL ANTITRUST .... (2007)

  29. Section 2 of Sherman Act (Monopolies): • Relates primarily to single firm market power. • Dual analysis: Definition of market (product & geography) and exclusionary practices (in obtaining or retaining monopoly). • Government enforcement and private party litigation. • Criminal and civil sanctions (treble damages). • Contingency fee arrangements in private litigation. GLOBAL ANTITRUST .... (2007)

  30. Clayton Act (1914): • Section 7 applies to mergers and acquisitions and joint ventures.. • Pre-merger Notifications (“Hart-Scott-Rodino Notifications”) • Only for largest mergers (about 1%) ($100million threshold). • General guidelines have also been issued concerning horizontal mergers, vertical mergers and conglomerate mergers. • The FTC & Justice have responsibility in reviewing merger proposals. (Under the Clayton Act -- HSR.) GLOBAL ANTITRUST .... (2007)

  31. Federal Trade Commission Act (FTC): • Section 5 declares unlawful “unfair methods of Competition and unfair or deceptive acts.” • Administrative action against actions falling within the Sherman Act and Clayton Act as well as those outside of those acts. • Enforcement concerning international deceptive practices has become increasingly important. GLOBAL ANTITRUST .... (2007)

  32. VI. U.S. Global Efforts as to Antitrust Governance. • Have bilateral agreements on antitrust enforcement, for example, the agreement with the U.S. and the EC on enforcement of competition laws. • For example, a new one signed this October 2004 with Canada. • This is in addition to the International Competition Network (ICN),loose consultation, that has been developed since 2002. • The issue of competition policy is on the Doha Agenda. But no clear vision of what might emerge. (At the most some international disciplines as a minimum standard for national action and the subject to review by the DSU.) – Dropped from Doha Agenda after Cancun Ministerial. GLOBAL ANTITRUST .... (2007)

  33. ……… International Competition Network --Principles (2002). • The International Competition Network (ICN) provides antitrust agencies from developed and developing countries with a more focused network for addressing practical antitrust enforcement and policy issues of common concern. It facilitates procedural and substantive convergence in antitrust enforcement through a results-oriented agenda and informal, project driven organization. • First annual meeting September 2002. • An initial ICN project concerns the merger control process in the multi-jurisdictional context. • Website: GLOBAL ANTITRUST .... (2007)

  34. VII. Information (U.S. Foreign & International). • United States Websites. • U.S. Dept. of Justice Antitrust website: • For foreign and international Web sites concerning antitrust, see • For the International Competition Advisory Policy Committee to the Antitrust Division see, • “ICPAC Final Antirust & Trade Report” (2000) at • “The International Competition Network – Guiding Principles for Merger Control. (2002). • “Synopsis of Antitrust Enforcement,” at • Foreign & National Websites. • “Competition Policy & WTO.” (Click here). • Link to International Documents from the Antitrust Division of the U.S. Dept. of Justice. (Click here). • Links to national antitrust offices worldwide. (Click here). • “International Competition Network. (ICN)” • Database of national competition laws. (Click here). • OECD & Competition. (Click here). • UNCTAD & Competition Policy. (Click here). GLOBAL ANTITRUST .... (2007)