Keywords: competition enforcement, global antitrust enforcement
Mayer Brown's competition team presents its "2014 Outlook," where we identify the key issues and describe our expectations for the year ahead.
Generally, in 2014, we expect significant increases in competition law enforcement. In the United States, the second term of the Obama administration has begun with even greater antitrust enforcement, while European competition enforcement continues unabated. Additionally, China and Brazil have emerged as two of the most important regimes.
In 2013, the US Federal Trade Commission (FTC) and Department of Justice's Antitrust Division (DOJ) grabbed headlines with high-profile litigation such as challenges to Apple's conduct with respect to e-book sales and to the merger between US Airways and American Airlines. We expect continued aggressive enforcement across all industries and sectors, with particular focus on the following:
- Merger Investigations. The government has demonstrated that it is prepared and equipped to challenge mergers in court. While it will be possible to get most mergers cleared, some transactions that may have gone through unchallenged five years ago—or even three years ago—will meet with more resistance, and remedies will be scrutinized.
- Vertical Issues. After years of disinterest during the first part of the millennium, there have been expressions of renewed focus on vertical enforcement. The FTC and DOJ will focus on exclusive contracting provisions, "Most Favored Nation" clauses, and/or contractual terms that have the effect of limiting competition. Mergers that raise vertical issues also will be scrutinized.
- Information Exchange. The FTC will issue an opinion in 2014 in a pending administrative case (McWane) that may provide some guidance on information exchange. But regardless of that decision, information exchange is an issue that will continue to generate interest among enforcers. There are long-published guidelines that are unlikely to be modified and that, if followed, generally provide a safety zone in which to operate. Information exchanges outside of the safety zone should be undertaken with care and counsel.
- Intersection of Intellectual Property and Antitrust. The current FTC chairwoman began her career as an intellectual property lawyer. The agencies will review the role of "patent assertion entities" (also called patent trolls), will continue to investigate standard setting conduct, and will sustain their efforts to curb purported abuses of intellectual property. There also could be a legislative fix for patent troll issues in 2014.
- Cartel Enforcement. Although there is a new Deputy Assistant Attorney General in charge of criminal antitrust for the first time in more than eight years, the DOJ likely will maintain its carrot-and-stick approach to detecting, deterring, and prosecuting domestic and international cartels. Attacking international cartels and expanding cooperation with foreign enforcement authorities will remain two of the DOJ's top priorities. In the courts, the DOJ faces two serious challenges to its expansive view of the Sherman Act's application to foreign conduct in cases pending before the Second and Ninth Circuits.
- State Enforcement of Antitrust. State attorneys general will continue to file lawsuits pursuing antitrust claims and will continue to challenge mergers that they think could impact citizens of their respective states. We expect state attorneys general particularly to be active in the health care industry.
With respect to private actions, we expect that several high-profile rulings last year by the Supreme Court and US Courts of Appeals will remain in focus in 2014, as litigants test the application of these cases in the district courts. In addition, businesses should continue to expect that US and foreign government antitrust enforcement efforts will result in follow-on private litigation, as described further below:
- Class Certification Standard. Class Certification will continue to be a hot issue, and we expect class action plaintiffs to continue to press their case for lowering the class certification bar. The law is evolving in this area, particularly as to the level of proof required. The federal appellate courts already have reached conflicting decisions as to the meaning of the Supreme Court's 2013 ruling in Comcast Corp. v. Behrend, which held that critical class certification questions had to be supported by admissible evidence; this makes it more likely that the Supreme Court may take on another class action case. The plaintiffs bar will be looking for ways to make class certifications easier.
- Extraterritorial Reach of US Antitrust Laws. Federal courts continue to disagree on the scope of the Foreign Trade Antitrust Improvements Act (FTAIA). While recent decisions by the Third and Seventh Circuits potentially expand the type of foreign conduct that could violate US antitrust laws, the Second and Ninth Circuits have taken a more restrictive stance. Until the circuit split is resolved, we expect plaintiffs to argue for an expansive view regarding when a defendant's foreign behavior can be subject to US antitrust jurisdiction. US plaintiffs' lawyers also will try to bring actions for recovery against cartels that were based outside the United States, even if the impact on the United States is very limited.
The European Union
In this last year of EU Competition Commissioner Almunia's current term, we expect ongoing merger control enforcement, a significant number of cartel decisions, increased enforcement in key industries such as financial services and network industries, and an intense debate regarding certain subsidy schemes.
- Merger Control. The Commission will continue to try to expand its jurisdiction, particularly to minority shareholdings, and will conclude a number of in-depth investigations in 2014. The telecommunications sector will be subject to significant review as the European Commission will examine thoroughly consolidation in mobile networks. While the new simplification of the merger control process for noncontroversial mergers could result in more efficient reviews, we are somewhat skeptical that it will meet expectations.
- National Agencies Will Play Key Roles. National competition agencies in Europe will play an important role in 2014. In the highly politicized food and retail industries, the Commission largely has deferred to national regulators the investigation of potential anticompetitive conduct. National antitrust authorities, such as those in France, Germany, and the UK (which will have a new competition authority, the Competition and Markets Authority, beginning on April 1, 2014), are front-runners in investigations in the online trading space. However, the Commission will continue to exert its influence and will conduct raids and investigations in cases it deems important.
- Intellectual Property. Intellectual property issues will be prominent in 2014. The existing framework for the analysis of technology transfer agreements (patent licensing, software copyright licensing, etc.) will expire at the end of April 2014, requiring the Commission to update the current rules regarding the licensing of intellectual property rights. Other areas in the 2014 spotlight will be investigations around standard essential patents, in particular in the IT and telecommunication sectors and in the energy industry.
- Private Damages. It is likely that the Commission's proposal for a directive to Member States to implement rules governing actions for damages for infringements of the EU antitrust rules will be adopted before the elections for the European Parliament in summer 2014. This will conclude a process that was begun by the Commission in 2005. This directive aims at removing the main obstacles to effective compensation for citizens and businesses harmed by EU antitrust law violations. Once the directive has been adopted, it must be implemented locally by the EU Member States within a defined period. In the meantime, the Commission's proposal has not deterred individual Member States from developing their own laws and procedures to facilitate competition damages actions, with the United Kingdom, Germany, and the Netherlands seeing the greatest number of claims. We expect to see the volume of new damages claims increase in 2014, and we expect to see a number of disputes regarding jurisdiction.
- State Aid. The Commission will complete the modernization of the state aid rules in such key areas as airports and airlines, energy, environment, research and development, and rescue and restructuring aid. In particular, we expect that the proposed guidelines for assessing public support in the field of energy and the environment will trigger an intense public debate, as national support for a number of important industries across Europe is at stake.
China pursued aggressive enforcement of its Anti-Monopoly Law's behavioral rules in 2013. This enforcement trend is set to continue with fines for the first time going into the hundreds of millions of US dollars. Private enforcement now also is vibrant, and the Supreme People's Court recently heard its first abuse of dominance case—Qihoo 360 v. Tencent QQ. Merger control will continue to grab the headlines as MOFCOM, China's Ministry of Commerce, shows that it will not shy away from controversial remedies.
- Alleged Anti-Competitive Agreements. Cartels and vertical agreements (in particular, resale price maintenance—RPM) will continue to attract the attention of the National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC)—the two agencies in China responsible for enforcing non-merger competition law. Given NDRC's preference for a per se approach to a supplier's requirement that a retailer set a fixed or minimum resale price, as demonstrated in Infant Formula, sectors where such practices continue will likely become a focus of unwanted attention. LCD Panels highlights the risk of Chinese enforcers initiating "copy cat" investigations in the wake of investigations in the European Union and the United States. We expect this trend to continue.
- Abuse of Dominance. While Chinese authorities have not had any high-profile abuse case, this is set to change in 2014. A number of multinationals are now under investigation for alleged abuse of dominance in markets such as packaging machinery. The decisions in these investigations can be expected to set the tone for some time to come.
- Intersection of Intellectual Property and Antitrust. The interplay between intellectual property law and competition law, and the extent to which industrial policy plays a part in resolving the tension between these two areas, will be something to watch. Notwithstanding official pronouncements that industrial policy should begin to take a back seat in competition cases generally, we expect that industrial policy will continue to feature in high-profile IP-related cases. The authorities also will issue long-awaited rules on the application of competition law to abuses of intellectual property rights, including standard essential patent licensing.
- Merger Control. MOFCOM's growing caseload, combined with its lack of resources, will result in the extended review periods to which we are unfortunately accustomed. While MOFCOM will publish new rules for simple cases in 2014, industrial policy will continue to feature in the more difficult cases and any transaction that involves key inputs for Chinese manufacturers will be scrutinized closely. With MOFCOM now having opened 10 investigations into alleged breaches of the notification obligation, 2014 may be the year that MOFCOM orders parties to "unscramble the eggs" and undo a consummated merger.
- Civil Litigation and Judicial Review of Administrative Enforcement. In 2014, we can expect the first antitrust judgment from the China Supreme People's Court, as well as continued activity in the lower courts. In many ways, antitrust in the courts demonstrates a genuinely rigorous engagement with the issues—a true economics-based approach—that one does not always see in public enforcement. Continued aggressive public enforcement will see pressures building for increased procedural protection in 2014, and some parties may turn to the courts in that context.
- Hong Kong. The Hong Kong Competition Commission will announce key appointments to the secretariat of the Competition Commission in the first quarter. The first set of competition law guidelines should be published in the second quarter for consultation and adopted later in the year. We expect that the date for implementation of the prohibitions in the Competition Ordinance will be made known in the second half of the year. The prohibitions will likely come into effect at the very end of 2014 or beginning of 2015.
The Brazilian Antitrust Authority (CADE) 2013- 2016 Strategic Plan, which was issued in June 2013, states an intention to focus on sectors that "have a big social and economic impact." We expect that 2014 will bring enhanced enforcement, including the following:
- Merger Control. Oil and gas, civil construction, and banking and financial are some of the sectors included in the priority list of the Brazilian Antitrust Authority. As CADE focuses on those sectors with substantial "social and economic impact," we expect detailed merger reviews will continue. We also expect additional focus on non-substantive elements of merger filing, such as challenging parties that provide misleading information or engage in pre-clearance gun-jumping activities. CADE also will give attention to providing guidance on the meaning of an "associative agreement," which is described in the new Brazilian Antitrust Law as a "concentration act" but currently remains largely undefined.
- Cartels. CADE has focused on international cooperation recently, signing 10 collaboration agreements in the last two years. In 2014, CADE will apply a special effort in fighting unlawful collusion in public bids. The Soccer World Cup is to be held in Brazil, and CADE and other authorities likely will focus on rooting out corruption in the public or semipublic sectors. High-profile cases like the cement and concrete cartel investigations should be ruled on this year.
- Brazilian Leniency Policy. CADE will continue to emphasize its leniency program, which creates great incentives for companies to identify wrongful conduct. As of October 2013, there were more than 50 formalized Leniency Applications pending, and we expect CADE to launch a great deal of new cartel investigations.
- Abuse of dominance. We expect more abuse-of-dominance cases in 2014. While CADE has struggled to bring these cases in the past, recent high-profile cases in 2012 and 2013 suggest that there will be more to come.
- Competition Litigation. Judicial review will help to clarify key legal doctrine in Brazil. Parties have been challenging CADE's decisions, and court decisions will provide further guidance on the elements and level of proof for a violation. Key issues, such as the intersection between competition and intellectual propriety in Brazil, likely will be developed in the courts.
Key Industry Sectors
We believe that the following industry sectors could be particular targets for competition inquiries or actions.
- Banking and Financial. Regulators in the United States and the European Union will focus on this industry, with the DOJ's investigations in the financial services industry, such as those involving municipal bonds, LIBOR, and foreign exchange rates, likely to intensify. The banking and financial industry not only has received increased scrutiny from antitrust enforcement agencies, but also has been the subject of increased private civil litigation. We expect this trend to continue, as antitrust enforcers will review more and more benchmarking and other practices, while plaintiffs will look to expand into other areas of the financial services business.
- Pharmaceuticals. The US Supreme Court's ruling in FTC v. Actavis, that plaintiffs may establish antitrust liability in "reverse payment" patent settlement under a rule of reason analysis, may have created more questions than answers. The US plaintiffs' bar will continue to bring lawsuits challenging pharmaceutical practices and trying to stretch the antitrust laws to reach new conduct. The US antitrust agencies also will continue to focus on pharmaceutical antitrust, including "reverse payment" patent litigation settlements, and other practices that purportedly delay or hinder generic drug companies or otherwise result in higher prices, such as "product hopping" and the use of restricted distribution systems. We also expect the European Union to maintain its focus on the pharmaceutical industry and to continue to pursue abuse-of-dominance cases against pharmaceutical companies that make agreements relating to pharmaceutical entry or that might result in higher prices.
- Auto Parts. The ongoing criminal investigation into the auto parts industry will continue to generate corporate and individual pleas, although the biggest corporate fines may be behind us. There likely will continue to be private litigation against alleged participants in the United States.
- Health Care Providers. The US antitrust agencies will continue to closely examine consolidation among health care providers in 2014. Recent enforcement efforts have centered on the merger of hospitals. In the coming year, however, we expect a higher level of scrutiny on hospitals' efforts to acquire physician practices and mergers between physician practices.
Originally published January 22, 2014
1 Observations about Brazilian law are by Tauil & Chequer Advogados.
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