Joel M. Mitnick Tim Muris Joseph J. Simons

1. Developments in Antitrust EnforcementOrganization for International InvestmentGeneral Counsel ConferenceNovember 15 -16, 2011 Joel M. Mitnick Tim Muris Joseph J. Simons Sidley Austin LLP Kirkland & Ellis LLP Paul Weiss

2. INTERNATIONAL ISSUES

3. US-PRC Memorandum of Understanding • For United States: DOJ and FTC • For China: MOFCOM, NDRC and SAIC • Exchanges of information and advice about competition policy • Training programs • Providing comments on proposed laws, regulations and guidelines • Cooperation on specific cases or investigations • Confidentiality issues

4. Extraterritorial Reach of U.S. Antitrust Law China cases: • Animal Sciences Products v. China Minmetals Corp. • In re Vitamin C Antitrust Litigation

5. Extraterritorial Reach of U.S. Antitrust Law Other Recent Cases of Interest: • Minn-Chem Inc. v. Agrium Inc. • Precision Associates v. Panalpina World Transp. (Holdings) Ltd. • In re TFT-LCD (Flat Panel) Antitrust Litigation • In re Transpacific Passenger Air Transp. Antitrust Litigation

6. ENFORCEMENT STATISTICS

7. On Average, 75% of Transactions Receive E.T. Note: Filing thresholds changed in ’01.

8. Fewer Than 5% of Deals Face Enforcement Actions Note: Filing thresholds changed in ’01.

9. HSR Filings Vary Significantly Note: Filing thresholds changed in ’01.

10. Mix of Deals Changes Over Time Note: “Horizontal” is defined per Bureau of Commerce statistics, and does not reflect antitrust markets.

11. Agency Enforcement Rates Vary – Over Time, Across Agencies Note: Filing thresholds changed in ’01.

12. Mixed Results in Agency Merger Litigation • FTC (Fiscal Year 2009 to Date) • Voted to file for injunctions in 9 merger matters • 4 deals abandoned / 3 losses / 2 wins • DOJ • Consent Decrees in TicketMaster/Live Nation & GE/Comcast • Recent victory in H&R Block/2SS Holdings • Presently litigating AT&T/T-Mobile

13. Number of Civil (Non-Merger) Cases Varies by Administration Total Dominance (7) (7) (1) Cases:

14. Number of Civil (Non-Merger) Cases Varies by Administration Total Dominance (7) (0) (1) Cases:

15. DOJ Criminal Enforcement Remains Aggressive, with an Increased Emphasis on Charging Individuals

16. RECENT DEVELOPMENTS

17. DOJ Personnel Changes Sharis Pozen • New acting head of DOJ Antitrust Division • Previously Chief of Staff and Deputy Assistant Attorney General • 6 years with FTC / 14 years in Private Practice • First Major Action: Challenge to AT&T/T-Mobile Deal

18. FTC Personnel Changes Maureen Ohlhausen • New FTC Commissioner • FTC Staff Background (12 years) • Clerk, D.C. Circuit Court of Appeals (2 years) • In-House Counsel and Private Practice (3 years) • Hearing Date – November 15th

19. Updated DOJ Remedies Guidelines • Horizontal mergers – continue to rely heavily on divestiture/structural remedies • Vertical mergers – reflects increasing willingness to use behavioral remedies to address vertical issues • DOJ recognizes that such remedies may better preserve transaction efficiencies • Newly-created Office of General Counsel now has primary responsibility for evaluating as well as reviewing and enforcing compliance with consent decrees

20. HSR Form Changes ─ Background • Proposed changes first published in August 2010; final rules published in July 2011 and took effect in late August • Form changes had two primary purposes: • Eliminate requests that were obsolete or of little value to the competitive analysis • Provide additional information helpful in assessing competitive impact • While some changes are welcome, many impose additional burdens on reporting parties • Private equity funds and master limited partnerships in particular are affected • Reporting parties should build-in additional time to prepare HSR filings, at least initially

21. Most Burdensome New Requirements New Item 4(d) requires the production of additional categories of documents prepared by or for officers/directors in connection with the reported transaction Item 5 is expanded to included revenues from products manufactured outside of the U.S. and sold in or into the U.S.

22. Antitrust Reverse Termination Fees (ARTFs) • Fee paid by Buyer to Seller in the event that antitrust issues prevent a deal from closing – AT&T/T-Mobile a recent, prominent example • May or may not be sole & exclusive remedy • In practice, rarely paid • Variations • Ticking Termination Fee – fee increases based on length of time to clearance   • “Take or Pay” Clause – requires payment of purchase price upon termination date, regardless of regulatory review status

23. APPLYING 2010 HORIZONTAL MERGER GUIDELINES

24. New Horizontal Merger Guidelines (“HMGs”): U.S. and Canada Canada has just issued new merger enforcement guidelines (“MEGs”) that are quite similar to U.S. with at least one significant difference Traditional approach in U.S. was to focus on providing general principles rather than to place an emphasis on endorsing specific techniques New U.S. HMGs attempt to provide more specific guidance, focusing on specific techniques for market definition and unilateral effects analysis New MEGs follow more traditional approach

25. Downsides to Focusing on Specific Techniques Former U.S. DOJ chief economist is worried that identification of specific techniques may codify methods that are in vogue today (in some cases, despite a lack of empirical evidence establishing their usefulness) but may fall out of favor tomorrow based on additional research.” (Dennis Carlton and Mark Israel, Antitrust Source Oct. 2010).

26. HMGs: Specific Techniques New HMGs are written so that margins play a central role in market definition and unilateral effects Margins used to estimate demand elasticity Margins and linear demand assumption used to implement Critical Loss Analysis Margins play a central role in unilateral effects analysis through UPP These specific techniques are all controversial Broader implications than just prosecutorial discretion – presumptions and court adoption

27. Margins and Demand Elasticity HMGs create presumption that “high pre-merger margins normally indicate…demand is not highly sensitive to price.” 2010 HMGs at § 4.1.3. Presumption based on theoretical textbook Lerner condition, which by its own terms can be used to estimate demand effects of a small but significant price increase only in static markets with linear demand. “Because firms in actual market settings do not generally set prices based on static optimization, inferring demand elasticity from static margins (as the 2010 Guidelines appear to do) can lead to wrong inferences regarding the likely effects of a transaction.” (Ordover) “Clearly, almost all real-world markets are dynamic. In all of these examples, the Lerner index is insufficient (if not misleading).” (Pindyck) “[Margin-based assumptions] appear to be unjustified and they suggest an enforcement policy that would be inconsistent with good policy or actual enforcement outcomes.”(ABA Antitrust Section Comments on Draft HMGs.)

28. Margins and Critical Loss HMGs require use of the Lerner condition (and probably linear demand) in implementing Critical Loss Analysis Results in extremely narrow market definitions Controversial for same reasons Lerner is controversial plus lack of basis for assumption of linear demand.

29. Market Definition Using Lerner Index:10 Equally Situated Firms

30. Margins and Unilateral Effects HMGs appear to endorse Upward Pricing Pressure analysis (“UPP”) for review of differentiated products mergers UPP is controversial “We are unaware of any empirical studies showing the usefulness of UPP as a method to screen mergers and …only weak empirical evidence [for] merger simulations.” (Carlton)

31. UPP Formula %UPP = D*M –E*(1-M)*(1-D) D = Diversion Ratio M = Margin E = Efficiencies (reduction in MC) If E = 0, then %UPP is positive for any positive margin and diversion

32. UPP Model by Margins and Rivals:Problematic Mergers For UPP = 5%

33. UPP Model by Margins and Rivals:Problematic Mergers for UPP = 10%

34. Implications • New techniques based on margins would support dramatically increased enforcement • How are these techniques being used in practice? • Screening tool? • In conjunction with many other types of evidence? • To create presumption of anticompetitive effect? • And if so, how strong?

35. Back-Up

36. Market Definition Formula Under the Lerner Index A ≥ S/(M+S) A = Diversion M = Margin S = SSNIP If Diversion is greater than S/(M+S), then the HMT is met and a market is defined S/(M+S) = basic Critical Loss Market defined where A ≥ CL