I. Legal Framework
The problem of the extraterritorial application and enforcement of competition laws by competent authorities on both sides of the Atlantic has been recognized for some time. The United States has been enforcing its antitrust laws against European companies since the Alcoa case, in which conspiracy among several European companies was prosecuted in U.S. courts. In the early 1990's the European Community took steps to consolidate itself on the way towards achieving Common Market Objectives, and the Treaty of Maastricht established the European Commission as a single authority charged with enforcement of competition law. The issue of cooperation and coordination of enforcement activities has received a high degree of attention from both sides.
As a result, the 1991 EC/US Competition Cooperation Agreement came into being. Originally this agreement was formed between the Commission and the U.S. Government, however, France and several other EU Member States have successfully proved that the Commission was acting ultra vires before the European Court of Justice (ECJ). Consequently, the treaty was annulled and reconfirmed in the same redaction between the Council of Europe and the U.S. Government in 1995. By a joint decision of the Council and the European Commission on April 10, 1995, the Agreement was approved and declared applicable from the date it was originally signed by the European Commission.
The 1991 Agreement created a basic framework for bilateral cooperation between the Commission on one side and the FTC and DOJ on the other. It regulates mutual notifications (Art. II), exchange of information (Art. III), cooperation and coordination in enforcement activities (Art. IV), negative comity and avoidance of conflicts (Arts. V and VI), and consultations and communications between cooperating authorities (Arts. VII and X). All provisions of the Agreement are exclusively voluntary and dependent on the good will of the parties and their willingness to cooperate. None of the provisions are enforceable and there are no penalties or sanctions for non-cooperation. Although this may be perceived as a disadvantage and obvious weakness of the Agreement, it reflects the desire of the parties at the time of signing to limit any obligations to cooperate to the technical communication between enforcement authorities and subordinate it to national laws and policy objectives.
Application of the 1991 Agreement, particularly the cooperation and coordination of enforcement activities and communication between the parties were further elaborated upon in the 1999 Administrative Arrangement on Attendance, in the form of a memorandum of understanding between the enforcement authorities. This document specifies the possibility of organizing joint hearings and meetings with the parties and both competition authorities.
Finally, the US-EU Merger Working Group, which was established after the failure of the cooperation mechanism in GE/Honeywell in 2001, has prepared a Best Practices on Cooperation in Merger Investigations. This document is best described as a summary of the practices that have been already used by the parties informally in the past. Thus, "Best Practices" emphasizes the importance of non-disclosure waivers by the parties, and although it is stated that parties' failure to disclose will not prejudice the assessment of the transaction, such agreements are still highly recommended. The document repeatedly emphasizes the importance of joint meetings and conferences, including those involving commissioners or their deputies. This provision aims at mergers of large size and importance for both parties when policy and politics might have priority over the cooperation objectives, which may require a high-level of negotiations. More importantly, "Best Practices" discusses the issues of timing in the merger procedures and recommends certain stages of investigative process when notification or joint meetings should take place.
These three documents together created a framework for cooperation between the EU and U.S. in the merger control cases that have evolved during a period of more than a decade, during which previous agreements and practices have been tested on numerous transnational mergers that required approval in the EU and U.S. It should also be noted that due to the specific wording of these agreements, their power lies not in the legal enforcement of their provisions, but rather in the degree of mutual understanding that has been achieved through their endorsement. Although both the Commission and U.S. antitrust authorities often refer to the existing cooperation agreements, it is done not for the purpose of pointing out particular provisions that the agencies have relied on, but rather to demonstrate their good will and a readiness to cooperate. In order to provide a comprehensive analysis of the cooperation mechanism, the elements present in all three documents will be discussed in detail.
II. Exchange of Information Received from the Parties
1991 Agreement provides for the "exchange of information on general matters relating to the implementation of the competition rules." This implies the disclosure of information received from the parties in the process of investigation. However, both U.S. and EU domestic legislation regulates these matters rather differently. These differences have an impact on the cooperation measures undertaken by the parties.
For example, in the EU, "information covered by the provisions of Art. 20 of Council Regulation 17/62 or by equivalent provisions in other regulations in the field of competition may not under any circumstances be communicated by the Commission to the… [US antitrust authorities], save with the express agreement of the source concerned." Regulation 1/2003 and the new EC Merger Regulation of 2004 likewise prohibit the Commission from disclosing confidential information received from the parties during the investigation procedures. There is of course a possibility to allow such transfer when merging parties agree to waive their non-disclosure protection to facilitate the cooperation process. Some commentators believe that multinational merging corporations "will be reluctant to waive their rights from non-disclosure where the exchange of confidential information may lead to civil or even criminal liability." However, these fears are more justified in cases of cartels and other anticompetitive agreements, rather than mergers. In a merger, the worse possible scenario for the merging parties will be the prohibition of the proposed transaction. Also, this work will later discuss how merging parties have appeared to be quite supportive of confidentiality waivers and this procedure has become a common practice.
In the U.S. confidential information may be communicated to the cooperating antitrust authority even without the merging parties' consent. However, according to the 1994 International Antitrust Enforcement Assistance Act, this communication should be based on reciprocity. Thus, a country can share information only if the other country's antitrust authority is also in a position to pass on confidential information.7 However, as discussed above, the EU's antitrust authority is unable to pass on confidential information. This situation can significantly challenge the cooperation process when it is mainly up to the merging parties to decide whether the cooperating authorities should disclose confidential information. As a result, EU and U.S. antitrust authorities, when possessing different information, may reach different conclusions. They may differ not only in their assessment, but also in their calculation of the market shares and other data necessary for the evaluation of the anticompetitive effects.
With increasing consistency, however, merging parties have realized that the disclosure of information to all competition authorities involved in the process is in their best interest. In both the EU and U.S., especially on the second stage of the investigation, competition authorities request similar information needed to evaluate the structure of the markets. Competition authorities request information about merging parties' market shares and characteristics of the products or services provided. The final supply of information to the competition authorities will be very similar. Thus, the parties' disclosure of information significantly facilitates the cooperation process and allows for more efficient and time saving investigation procedures.
One might challenge the notification and disclosure provisions of the 1991 Agreement as an open door for manipulation because of the undertakings that might be involved in strategic disclosures, such as providing the cooperating parties with different amounts of information and thus influencing their decisions. Sometimes parties might want to play the competition authorities against each other, as was the case in the Boeing/McDonnell Douglas merger. In the Boeing/McDonnell Douglas merger, U.S. antitrust agencies and even the U.S. administration extensively lobbied the Commission for a decision in favor of the merger. However, such cases are rare, and when the parties do not disclose the information, the cooperation process will simply slow down and the parties will have to deal with each competition authority separately. This might significantly prolong the process and more importantly, it could destructively affect the timing arrangements, which are crucial for the efficient clearance procedure on both sides of the Atlantic. This could occur because of the procedural differences between EU and U.S. merger control systems.
To avoid this destructive impact, parties usually grant blanket non-disclosure waivers. This allows the competition authorities from both sides of the Atlantic to operate with the same documents and information. This further facilitates similar decisions by all competition authorities on a particular merger case. Moreover, according to the Administrative Arrangement of Attendance of 1999 and Art. 13 of the Best Practices on Cooperation in Merger Investigations, parties and competition authorities have an opportunity to meet, and exchange and discuss the information delivered by the parties for the purposes of merger assessment. There is also a practice of setting up a common questionnaire directed to the parties in order to request the necessary data that the Commission, FTC and DOJ will use. The questionnaire serves more as an informational basis for the decisions on matters of common concern, rather than an official document or form requested from the parties. This further displays the flexibility and technical nature of the cooperation mechanism.
III. Negative and Positive Comity in Merger Investigations
As previously discussed, international comity as a general principle of international law has been interpreted with a high degree of divergence when it was related to issues of antitrust, and particularly to merger control. Based upon existing case law on both sides of the Atlantic, in the absence of detailed guidelines or structured agreements, national authorities seem to be quite inconsistent when applying this principle and taking into consideration interests, law, and policies of other states.
The 1991 Agreement has attempted to cure this gap by introducing a "traditional comity" procedure. Under this procedure, each party undertakes to account for the important interests of the other party when it takes measures to enforce its competition rules. Regarding cooperation in merger cases, the Commission adopted its decision in the Boeing/McDonnell Douglas "having regard to the Agreement between the European Communities and the Government of the United States of America regarding the application of their competition law, and in particular Articles II and VI thereof."
The 1991 Agreement has also introduced a "positive comity" procedure whereby either party can invite the other to take, on the basis of the latter's legislation, appropriate measures based on its own legislation regarding anti-competitive behavior implemented on its territory that affects the important interests of the requesting party. This procedure has been elaborated upon in the 1998 EU-US Positive Comity Agreement, which suggests that in certain circumstances one party may defer or suspend its enforcement activities in favor of the other party taking the lead against the anti-competitive activity in question. EU partners have acclaimed the 1998 Agreement very enthusiastically. Former Commissioner for Competition Mario Monti stated that "such innovative cooperation arrangements herald, in my view, a whole new avenue for bilateral cooperation, opening the possibility for sensible burden-sharing between agencies located in different parts of the world - positive comity allows a particular problem to be dealt with by the agency best-placed (notably in terms of fact-finding or the imposition of sanctions) to do so."
However, as Canenbley and Rosenthal note in their work, it is questionable whether multinational companies can invoke any individual "right to deference" based on the positive comity principle in the 1998 Agreement. As previously discussed, the 1998 Agreement expressly excludes merger control cases. Additionally, in mergers involving large multinational corporations, hardly any of the jurisdictions concerned are likely to refrain from examining the consequences of such transactions in light of their own domestic competition regulations and policies. As to the provisions of the country better placed in terms of enforcement measures, previous examples demonstrate that each party was eager to influence the decision even in cases where it was not a primary enforcement jurisdiction.
In practice, especially in merger cases, positive comity provisions are infrequently used. The parties usually appeal to the authority that is best placed to review the transaction. Because the positive comity provisions are hardly applicable in merger cases, where for example the Commission will apply the "community dimension" threshold to establish its jurisdiction, parties will have to address every competition authority concerned. That is why the question of referral to the best-suited authority does not arise and the whole cooperation process focuses on joint notifications, discussions, and coordination.
IV. Remedies: Commitments, Divestitures and Other Actions to Avoid Negative Impact on Competition
Another important element in the analysis of bilateral cooperation between antitrust enforcement authorities in the EU and U.S. is the issue of the sanctions and remedies that might be imposed as penalties on the non-complying actors. Since transnational mergers often fall under multiple jurisdictions, numerous enforcement agencies might apply domestic remedies and sanctions to reach the desired outcome in compliance with their national legislation. In merger control enforcement for example, commitments required by one party might reach beyond those requested by the other cooperating party. On numerous occasions the European Commission has not considered the principle of proportionality.
Another principle - neb is in idem (there should be no sanction for an action that has already been sanctioned) has been interpreted very restrictively by the Commission and the Court of First Instance (CFI). In the Lysine case, the CFI held that this principle prevents the defendant from being sanctioned by the Commission in the proceedings brought by the Commission for a second time. However, in the same case, the CFI held that repeated sanctions are justified if they pursue different goals. Specifically, non bis in idem could not be applied in that case since procedures conducted and penalties imposed by the Commission were pursuing different goals than those of the U.S. and Canadian authorities, which were aimed at protection of U.S. and Canadian markets.
The EU authorities' position on this issue raises significant concerns for multinational companies that must comply with requirements and sanctions imposed by multiple national authorities. This is particularly problematic considering that the European Commission bases the amount of its fines on the worldwide turnover of the undertakings involved, regardless of their actual presence in the European Community market. Thus, the Commission can impose worldwide scale sanctions for Community-wide violations, which also runs beyond the principle of proportionality that the Commission applies when clearing domestic mergers. This unsatisfactory situation poses a constant risk of double sanctions for transnational mergers examined on both sides of Atlantic.
The GE/Honeywell case illustrates the problem of remedies imposed without considering the other party's interests and the diverging approach to conglomerate mergers. The U.S. has abandoned the anticompetitive assessment of this type of merger by amending the 1968 Merger Guidelines. Under the new guidelines the analysis of conglomerate mergers no longer appears and is not considered by the enforcement authorities as a threat to effective competition. This can be explained by the definitive shift to consumer welfare as the number one priority in competition policy. The Commission's analysis has relied on the portfolio effects theory as well as other potential long-term effects such as the elimination of potential competitors. Its U.S. counterpart has heavily criticized this approach as outdated, but from the Commission's point of view, supported by scholarly writings, it was the correct approach according to EU competition law and policy objectives, which have their own unique features such as common market objectives.
The CFI affirmed the decision of the Commission in the GE/Honeywell merger in its judgment on December 14, 2005, but revealed that the Commission made numerous mistakes and failed to provide adequate factual evidence in support of its findings. This prompted the Commission to prepare new guidelines for vertical and conglomerate mergers and base its future decisions on sufficient proof and rigorous economic analysis.
The attempted GE/Honeywell merger resulted in a different outcome on each side of the Atlantic, a result that illustrates an interesting apparent breakdown of the 1991 Agreement. The merger was first cleared by the U.S. DOJ, but then rejected by the European Commission. As in Boeing/McDonnell Douglas, minimal cooperation took place between the two government parties to ensure a consistent interpretation of the 1991 Agreement. EU Competition Commissioner Mario Monti noted, while commenting on the decision of the DOJ, that "the different interpretation reached by the Justice Department, which expressed none of the qualms voiced by the European regulators, was a troubling development." Each governing party accused the other of non-cooperation and of not taking into account the other party's critical interests. The 1991 Agreement apparently failed, in this particular case, due to a lack of effective enforcement provisions and a lack of willingness of the parties to accept the other's position. Despite formal adhesion to the principles of the Agreement and mutual praise of its utility in "peaceful times", with diverging evaluations of the Agreement and diverging economic interests, the provisions of the 1991 Agreement were once again no more than dead letter.
Art. VI of the 1991 Agreement generally reflects the main purpose of this bilateral treaty, namely avoiding conflicts over enforcement activities. Enforcement of the remedies and restrictions imposed on a merger by one governing party's competition authority comes with the threat of an extraterritorial application of competition laws in violation of the other governing party's law. It is crucial to the evaluation of Art. VI's effectiveness as a means of preventing conflict to consider how much emphasis the provision has been afforded in past investigations and enforcement measures.
The recent Microsoft decision, although not a merger case, is relevant as a starting point for the present discussion because it demonstrates how the European Commission has considered the principles of Art. VI in the past, and it reveals the main weakness of the Agreement - a lack of enforcement procedures.
Despite a furious response by the U.S. Congress, the European Commission, supported by scholarly writings, claimed that all the requirements of Art. VI were being observed. The Microsoft case was significant for both sides, although the U.S. was particularly impacted because Microsoft Corporation is incorporated and operates in the U.S. None-the-less, according to the Art. VI 3(a), either governing party may act under the Agreement. Section (b) is also applicable because the activities of Microsoft affect competitors and consumers on both sides of the Atlantic. Since the European Commission started the investigation into Microsoft, and the DOJ joined only at a later stage, it was reasonable to expect the Commission to render the decision under the Agreement in the Microsoft case.
A more detailed analysis is needed to understand the correlation between the enforcement activities imposed by the Commission and the enforcement activities imposed by U.S. laws or articulated economic policies. Art. VI 1 assumes that the critical interests of a party are normally reflected in the antecedent laws, decisions, or statements of policy made by the party's competent authorities. In the Microsoft case, the DOJ clearly demonstrated its stance on the conduct in question by closing the investigation without further action. It should be further assumed that this stance was in accordance with applicable American laws. The only statement contradicting this position was issued by a group of U.S. legislators. However, due to the vague wording of the above-cited article it is difficult to decide whether the legislative statement amounted to an important expression of interest or policy by a party to the Agreement. Failure to define what constitutes a "statement of policy" under Art. VI is a regrettable shortcoming of the treaty. Amending the treaty to include a mandatory positive comity provision has been suggested, but seems to be very unlikely, since governing parties can improve the situation simply by expressing their statements and decisions more clearly. For example, the DOJ could have clearly stated the reasons for closing its investigation in the Microsoft case and illustrated how Microsoft Corporation's conduct and the reasoning behind the decision to close the case was in accordance with U.S. antitrust law. These deliberate efforts could be used by one cooperating party as proof of deference towards the other party. It is uncertain, however, whether a cooperating party will actually consider the interests of the other cooperating party in such matters.
All these criticisms should be considered with the objectives of the cooperation process in mind. It is commonly accepted by practitioners in the field of merger control that it is not the purpose of the cooperation treaty to produce identical results for each cooperating party. Art. 1 of the Best Practices illustrates that the objective of cooperation is to reach non-conflicting results which do not frustrate other side's remedial objectives. In this respect, it should be noted that the Boeing/McDonnell Douglas and GE/Honeywell cases led to diverging outcomes, not because of the failure of the cooperation mechanism as such, but because of divergence in the substantive laws of the U.S. and the EU. This is why it would be a mistake to exaggerate the alleged failure of the cooperation process in these two cases. In each case, the failure is limited in the sense that the coordination process only failed to achieve identical outcomes. However, the prohibition of the European Commission did not go so far as to impose remedies contrary to U.S. antitrust law. Abandoning the proposed mergers did not violate any U.S. antitrust regulations, so the outcome of these two cases did not introduce any substantive conflict between competition laws of the cooperating governing parties. Though the outcome was unfortunate for the companies, and possibly frustrated certain U.S. economic interests, it did not signify actual failure regarding the cooperation envisioned in the 1991 Agreement or subsequent documents. Furthermore, as the deficiencies of the Agreement became apparent to cooperating parties on both sides of the Atlantic, soon after the GE/Honeywell decision, a US-EU Merger Working Group was established to improve the cooperation mechanism.
V. Case Study of the Cooperation Mechanism: Achievements and Challenges
The benefits of the cooperation process have been demonstrated in numerous instances where coordination of enforcement activities led to an acceptable outcome for both parties, despite the initial assessment of the competition authorities differing substantially. For example, in the Halliburton/Dresser merger,the cooperation mechanism allowed the merging parties to arrange and timely communicate to the Commission the divestitures imposed on Halliburton by the DOJ. The Commission, which was also concerned with same issue, took into account the remedy imposed by its U.S. counterpart during its assessment and as a result the market where divestitures were imposed raised no more concerns in the Commission's investigation and decision to clear the merger.
Similarly, in the recent Reuters/Telerate merger, the Commission was concerned with the market for data platforms (MDPs) because each party held dominant market positions. The Commission thus focused the cooperation process with U.S. antitrust authorities (the DOJ in this case) on finding an acceptable remedy to address the anticompetitive effects on the MDP market. This cooperation resulted in the merging parties proposing that a perpetual worldwide exclusive license for TRS (Telerates's MDP) be granted to Hyperfeed, one of their competitors. This solved the anti-competition problem and in the words of Competition Commissioner Neelie Kroes, the Commission was "very pleased with this outcome, which follows close co-operation with the U.S. Department of Justice and coordinated efforts to find a suitable remedy that fully resolves the Market Data Platforms competition problem." In this case the cooperation process produced the remedy that might have been otherwise hidden from the parties.
Interestingly, Hyperfeed, the company that was granted the license according to the commitment of the merging companies, is also an American corporation. This illustrates that the cooperation process can be used in creative ways to promote not only the desired outcome, but also other objectives. In this case the remedy was advocated mainly by the merging parties and the U.S. antitrust authorities. Besides the acceptable remedy of protecting a competitive MDP market, merging parties supported by U.S. authorities were able to offer a commitment that also benefited an American business.
The recent Johnson & Johnson/Guidant merger demonstrates another example of how the cooperation process can affect the final decision of a merger control authority. This merger involved two U.S. companies and was jointly investigated by the Commission and FTC. At the beginning of its investigation, the Commission was concerned with the highly concentrated market of vascular medical devices because the merging firms were direct competitors in this market and therefore the merger was considered to cause significant anticompetitive effects. However, through the process of investigation in close cooperation with the FTC, which had an opportunity to present the Commission with its own assessments and conclusions, the Commission finally found that the market under question had new potential entrants and with the divestitures imposed on the merging parties, the anticompetitive effects could be avoided. The Commission cleared the merger subject to the certain conditions and taking into account the arguments advanced by the FTC.
A very similar scenario developed in the more complicated Exxon/Mobil merger. This was the first merger where the FTC acted as a cooperating party with the Commission. This case involved the merger of two major oil extracting and processing companies with significant operations in both the Common Market and worldwide. The Commission found that the proposed merger would create or strengthen a dominant market position in at least eight different product markets. From the beginning the FTC made clear that it was going to pursue several remedies in order to protect U.S. markets and that the parties could under no circumstances merge without any remedies being imposed. The potential for conflicting remedies was high, but the cooperation process allowed the merger to be approved with a common set of commitments and divestures agreed to by both EU and U.S. antitrust authorities. It appears in this case that U.S. authorities were successful in bringing to the attention of the Commission relevant facts and arguments that achieved their desired outcome, very similar to the outcome in the Johnson & Johnson/Guidant merger.
Also, in the GE/Instrumentarium merger, the Commission was concerned with the concentration that might result in several markets, namely patient anesthesia monitors, C-arms (mobile X-ray machines), and mammography equipment. During the second stage of investigation launched by the Commission, an extensive cooperation process took place between the Commission and the DOJ. As a result, the Commission was satisfied with the divestitures in the patient monitor market and realized that the other two markets will not suffer anticompetitive effects because of the proposed merger. Here again, even on the second stage of investigation, which means that serious competition concerns were present, the cooperation process resulted in an acceptable outcome because after the arguments of each side were presented and analyzed, an alternative remedy was found. Thus, the Commission dropped its concerns regarding x-ray machines and mammography equipment markets and ultimately cleared the merger.
In some cases the Commission has received commitments from merging parties earlier than the DOJ has filed its consent decree. In these cases, the Commission has amended their imposed commitment obligations so as not to conflict with U.S. antitrust enforcement. The DOJ has thus demonstrated that it would consult with the Commission in good faith in order to achieve commitments acceptable to both parties. The GE/Instrumentarium transaction is a good example of a situation in which the US-EU Best Practices for mergers were put to good use, and it is an example of an outcome that is far more common than the result in GE/Honeywell.
The Bayer/Aventis merger underscores the value of continual communication between U.S. and EU competition authorities. This case considered how seed treatment products and the insecticidal, herbicidal, and fungicidal markets dominated the agricultural sector. The commitments required from the parties involved exclusive licensing of trademarks, patents and know-how. The FTC suggested remedies aimed at strengthening the U.S. market while disadvantaging other competitive markets. Having granted non-disclosure waivers and facilitating in-depth negotiations, the parties approved the merger subject to numerous divestitures and other conditions.
Cooperative negotiations help dissuade possible divergences from the merger control systems' procedural mechanisms on both sides of the Atlantic. This feature has been demonstrated in the complex investigation of the Alcoa/Reynolds merger, which created the largest aluminum producer worldwide. The FTC initially targeted the commoditization of alumina hydrate, a raw material used in the production of detergents and purification of water. If successful, that merger would have created the largest alumina hydrate producer in the European Economic Area (EEA). Ultimately, with the DOJ's assistance, participating parties crafted an agreement in which Reynolds yielded its interest in Stade so as to avoid an anticompetitive effect on the Common Market and EEA. Although produced by the parties late in the investigation, the Commission nevertheless accepted this commitment because it solved the problem without further need for market testing.
The GE/Agfa NDT merger illustrates how the cooperative approach can successfully cultivate a fair and balanced decision without producing contradicting remedies. Although adjudicated under the old Merger Regulation and failing to reach the "communal dimension" threshold, Germany, Austria, Greece, Ireland, Spain, Portugal and Italy decided to refer the case to the Commission. Moreover, the FTC's oversight coupled with GE's commitment to divest the NDT business in GE's subsidiary, Panametrics, allowed the Commission to clear the merger while the FTC investigated.
The cooperative process yields a key benefit for the competitive parties and antitrust authorities. First, even though the new Merger Revolution dispensed with the differing objectives enforcement authorities might seek, the Best Practices and Administrative Arrangement on Attendance lead to the active involvement of the parties in exchanging and testing information and dialogue.
The cooperation process makes the evidence physically possible that underlines the more probing analysis each party receives from having submitted the same information. In the MCI WorldCom/Sprint merger,the Commission had to collect data on Internet traffic and revenue from a large number of U.S. companies. The DOJ, involved in the investigation of the merger, provided the necessary close cooperation. Consequently, the Commission obtained the necessary evidence to facilitate a sophisticated analysis of the case with the same information as its U.S. counterpart. Although the Commission ultimately blocked the merger, the cooperative process nevertheless could be viewed as successful.
VI. Strategic Considerations for Merging Companies
The mechanism of merger control cooperation between the U.S. and EU also provides considerable strategic benefits that merging parties derive from the merger assessment process. While the objectives of the cooperative process help to avoid conflict in antitrust enforcement while simultaneously ushering cooperation into the investigation process, the facilitation of transatlantic mergers where both sides contribute to final solution remains the ultimate goal.
The proliferation of international mergers poses significant difficulties not only to the competitive authorities assessing the effects of the proposed transactions, but also to the merging undertakings. Such undertakings must now navigate through differing substantive and procedural regulations in multiple jurisdictions. The cooperative framework, applied in the investigation of the transatlantic mergers by the EU and U.S. antitrust authorities, provides several strategic advantages to the merging companies.
First, merging parties benefit tremendously from the exchange of information. As previously discussed, with increasing frequency merging parties have granted blanket waivers to antitrust authorities, making the information exchange an efficient, time and resource saving procedure. By disclosing information to both sides, merging parties can rely on the same facts and data as the investigating authorities. By providing uniform information to both sides, merging companies have a greater chance that arguments accepted by one side will be accepted by the other side, because the arguments are supported by the same facts and data.
Communication between competition authorities on both sides of the Atlantic not only facilitates their cooperation, but also allows the merging companies to deliver their arguments. For example, U.S. companies could first notify U.S. antitrust authorities about the proposed merger, which would allow them to be ahead in the investigation compared to their European colleagues. This could also aide with the stringent deadlines used by the Commission and the greater amount of information required. Finally, after the parties have convinced U.S. antitrust authorities that the proposed merger does not pose any significant challenges, the arguments and possible commitments can be communicated to the Commission by not only the merging companies but also by the U.S. authorities. U.S. authorities can then also advocate their position in front of the Commission.
In summary, merging parties could first notify the authority which is more likely to approve the proposed concentration with the aim to use it as a tool for advocating the arguments for the approval to the other side. The case law has seen both successes and failures in this respect, but generally, the chances of merging companies getting their points across are stronger when already supported by a competition authority, which by communicating and coordinating enforcement activities with the other side will be at the same time promoting the interest of the merging companies. As was demonstrated in the cases above, the U.S. authorities, particularly the DOJ, have been quite successful in advocating their positions before the Commission.
While this relationship usually remains behind the scenes, European officials are often receptive to the views of their American colleagues because of the solid economic analysis that U.S. authorities use in their merger assessment. It is clear that the EU has been continuously reforming its merger control system in the direction of convergence with the American model. These processes have an important implication in the cooperation process. Namely, while the EU is adopting substantive tests and other criteria in its merger assessment, such as efficiencies, coordinated effects, etc., it should be expected that European officials will be more receptive to the position of their American colleagues who have been implementing these tools longer and have significant practical experience in this field. At the same time, it should be expected that this situation will evolve as EU officials acquire more expertise under the new substantive law. The new position of Chief Economist is aimed at contributing to this contemplated change.
Merging parties can also benefit from the joint meetings and hearings provided in the Administrative Agreement on Attendance and Best Practices. These joint conferences with the participation of merging parties presents a floor to argue their position in front of both competition authorities and provides another chance to clarify certain statements, and an opportunity to discuss possible commitments. This is an efficient time and cost saving mechanism in addition to the strategic tools described above.
Thus, for the merging parties the cooperation process offers a variety of strategic tools that they can use in order to promote the proposed concentration. Information, commitments, and arguments in favor of particular remedies are communicated through the channels of competition agencies, which sometimes can support the position of merging parties. Joint meetings, hearings, and conferences further develop the discussion among the competition authorities and merging companies. Timing arrangements facilitate the procedural aspects of receiving an approval from both sides. In the absence of the cooperation process, merging parties had to coordinate the notification, investigation, and meetings with each authority separately. Now, within the cooperation framework, participating authorities could partially fulfill these tasks between themselves.
The analysis of the efficiency and positive effects that the cooperation framework introduced is in the assessment of the merger cases under the 1991 EC-US Competition Cooperation Agreement. The Agreement demonstrates that despite the lack of enforcement and dependency on the good will of the parties, the cooperation mechanism is functioning efficiently for the benefit of both the competition authorities and the merging parties. In terms of better understanding each other's competition policy regimes, numerous examples of jointly investigated merger cases that have been cleared with the compatible remedies imposed on the parties are a success. Coinciding decisions taken on both sides of the Atlantic demonstrates a sufficiently high degree of performance in the cooperation mechanism. These examples show how the cooperation framework is contributing to converging decisions, because EU and U.S. authorities have had an opportunity to learn from one another in a close cooperative relationship.
Yearly reports prepared by the Commission regarding cooperation with U.S. antitrust authorities show a high degree of satisfaction. The reports outline several major directions where cooperation is especially valuable: enhancing the respective enforcement activity, avoiding unnecessary conflicts or inconsistencies between those enforcement activities, and understanding each other's competition policy.
It should be noted that both parties recognize the deficiency of the existing bilateral agreements, however, no further steps such as introduction of mandatory provisions concerning comity or inclusion of some kind of enforcement mechanism have been seriously considered. The U.S. is obviously skeptical about any international treaties that could limit its sovereignty. For the EU, the same concerns are expressed by the objectives of the common market with the protection of European competitors from the anticompetitive behavior of foreign firms, not bound by similar competition laws. This is why the only response that fits in the existing framework is the further promotion of mutual consultation, the elaboration and discussion of common policies, and the adoption of recommended best practices. After the GE/Honeywell conflict the cooperating parties decided to mobilize their resources to foster the activity of the previously created EU-US Merger Working Group. As a result, in 2002 the Group adopted Best Practices for Coordinating Merger Review.
The cooperation process also presents significant strategic advantages to the merging parties. While there is always room for improvement, the examples of successful merger clearances speak in favor of the application of the existing framework. While the business community has not been especially active in influencing the ongoing merger control reforms, and lobbying for the simplification of the procedural rules, law firms have been successfully navigating the existing system representing their clients' interests. Numerous interviews and consultations conducted for the purposes of the present research show a high degree of content with the existing framework, although certain criticisms are present.
Taking into account the interests of the business community and their legal representatives, antitrust authorities have adopted several clarification documents such as the Horizontal Merger Guidelines by the Commission, the Commentary to the Merger Guidelines by the FTC and the DOJ, ongoing reform of the merger review procedures under the Hart-Scott-Rodino Act initiated by the FTC, and other initiatives. These all demonstrate that the framework is being reformed, although in different ways, in order to better correspond to the needs of the competition authorities and merging parties.
While the U.S. has entered into the agreement pursuant to the powers given by the U.S. Congress in furtherance of the principle of "positive comity" in the 1994 International Enforcement Assistance Act, the ability of the Commission to enter such agreements was successfully challenged by France, which relied on the lack of competence according to Articles 228 and 229 of Treaty I. Case C-327/91, France v. Comm'n, 1994 E.C.R. I-364, 5 CMLR 517 (1994).
Positive comity instruments were developed in another bilateral treaty signed between the U.S. and EU in 1998. The Positive Comity Agreement, however, does not apply in the case of mergers and will be addressed in the present work only briefly for the purposes of evaluating the application of comity in the merger cases. US-EU Agreement on the Application of Positive Comity Principles in the Enforcement of Competition Laws, Jun. 4, 1998, available at http://www.ftc.gov/bc/us-ec-pc.htm (last visited Mar. 5, 2006)
Art V (4) of the Agreement provides that "nothing in this Agreement limits the discretion of the notified Party under its competition laws and policies as to whether or not to undertake the enforcement activities"
Art. IX of the Agreement provides that it will be applied in a manner consistent with the existing laws of the EU and the U.S., and their respective states or member states. Agreement Regarding the Application of Competition Laws, Art. 9, Sep. 23, 1991.
Bulletin EU 3-1999, Competition (18/43); 1999 Report from Commission to the Council and the European Parliament, at 5, COM (2000) 618 final (Oct. 10, 2000); Bulletin EU 3-1999, Competition (18/43); 1999 Report, at, COM (2000) 618 final.
See Cornelis Canenbley & Michael Rosenthal, Cooperation Between Antitrust Authorities In and Outside the EU: What Does it Mean for Multinational Corporations?, Part 2, Eur. Competition L. Rev., Vol. 26, Issue 3, March (2006).
See Charles S. Stark, Chief of Foreign Commerce Section, Antitrust Division, US Department of Justice, International Aspects of Antitrust Enforcement: A US Perspective, (Feb. 13-14, 1995), available at http://www.justice.gov/atr/public/speeches/0156.htm (last visited Mar. 5, 2006).
Marianne Brun-Rovet, Joshua Chaffin, Caroline Daniel and James Harding, US: Boeing's Skillful Lobbying Efforts, Financial Times, Dec. 8, 2003, available at http://www.corpwatch.org/article.php?id=7856 (last visited Mar. 5, 2006).
Barry Schweid, US Wants Europe Backing on Merger, AllPolitics, July 22, 1997, available at http://legalminds.lp.findlaw.com/list/antitrust/msg00527.html (last visited Mar. 5, 2006).
Common use of this practice is reflected in Art. 1.2.1 of the Report from the Commission to the Council and the European Parliament on the application of the agreements between the European Communities and the Government of the United States of America and the Government of Canada regarding the application of their competition laws 1 January 2002 to 31 December 2002, available at http://ec.europa.eu/comm/competition/international/bilateral/canada/2002_report_en.pdf (last visited Mar. 5, 2006).
US-EU Merger Working Group, Best Practices on Cooperation in Merger Investigations, available at http://www.ftc.gov/opa/2002/10/mergerbestpractices.htm (last visited Mar. 5, 2006).
This is relevant in the cases when cooperating authorities were appropriate organize joint interviews of merging parties and third parties, as mentioned in Global Competition Convergence and Cooperation: Looking Back and Looking Ahead, address by William J. Kolasky, Deputy Assistant Attorney General, Antitrust Division, US Department of Justice, presented at the American Bar Association Fall Forum, Washington DC, November 7, 2002, available at http://www.usdoj.gov/atr/public/speeches/200442.htm (last visited Mar. 5, 2006).
See Gencor/Lonhro, Alcoa, and Timberlane Lumber cases, which demonstrate the lack in uniformity of interpretation of international comity by U.S. courts and the European Commission when deciding over mergers and other antitrust issues with participation of foreign elements.
Council Regulation (EEC) No. 4064/89, of 30 July 1997, Case No. IV/M.877, available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m877_19970730_600_en.pdf (last visited Mar. 5, 2006).
1998 O.J. (L 173) 28 Agreement between the European Communities and the Government of the United States of America on the application of positive comity principles in the enforcement of their competition laws173 28-31 (1998).
See Cornelis Canenbley & Michael Rosenthal, Cooperation Between Antitrust Authorities In and Outside the EU: What Does it Mean for Multinational Corporations?, Part 2, Eur. Competition L. Rev., Vol. 26, Issue 3, March (2006).
In the merger of Boeing/McDonnell Douglas Commissioner Van Miert threatened that, if the merger should be consummated without EC approval, the European Commission would impose prohibitive fines on Boeing and might seize Boeing planes flying into European Union. Edmund L. Andrews, Boeing Concession Averts Trade War With Europe, N.Y. Times, July 24, 1997.
EU/Competition/Background Information, available at http://europa.eu.int/comm/competition/international/ bilateral/background/us1_en.html (last visited Mar. 24, 2006).
In the Microsoft case, involving issues of dominance, the Commission has imposed additional commitments on the firm after U.S. authorities have cleared the case and the U.S. court has reached an acceptable settlement that was aimed to redress the anticompetitive behaviour worldwide. Nevertheless the Commission has imposed additional disclosure requirements on Microsoft, pursuing the goal of protecting competition on the common market. In the Boeing/McDonnell Douglas case the companies had to comply with the commitments demanded unilaterally by the Commission without any claims from the U.S. antitrust authorities.
For example, Art. 14(2) of the ECMR specifies that the amount of fines imposed on the companies in breach of the Regulation should be calculated at the rate not exceeding 10% of the aggregate turnover of the undertaking concerned.
1968 Merger Guidelines included Section II Vertical Mergers, available at http://www.usdoj.gov/atr/hmerger/11247.htm (last visited Mar. 5, 2006).
1982 amended Merger Guidelines addressed only horizontal effects of non-horizontal mergers (Section IV) available at http://www.usdoj.gov/atr/hmerger/11248.htm (last visited Mar 5, 2006) and 1992 version available at http://www.usdoj.gov/atr/hmerger/11250.htm (last visited Mar. 5, 2006) does not make any formal distinction between horizontal and vertical mergers addressing only the anticompetitive effects that mergers can raise.
See Albert A. Foer, The Goals of Antitrust: Thoughts on Consumer Welfare, Working Paper 05-09, American Antitrust Institute, available at http://www.amc.gov/public_studies_fr28902/merger_pdf/060522_AAI.pdf (last visited Mar. 20, 2006).
Richard Burnley, Who's Afriad of Conglomerate Mergers? A Comparison of the US and EC Approaches, 28 World Competition 1 (2005). Author argues that economic efficiency and long-term are of course speculative terms and there is no reason why Commission should conform to economic standards applied elsewhere. "The Commission should not be shy of diverging from US theory in this respect. EU competition law must not be afraid of its own evolution and culture."
William Drozdiak, "EU Blocks Merger of GE, Honeywell; Trade Tension Rises", Houston Chronicle, July 4, 2001, (cited in Joseph Wilson, Globalization and the Limits of National Merger Control Laws, 208 (The Hague: Kluwer Law International, 2003), p. 208).
See Markus Muller, "The European Commission's Decision against Microsoft: A Violation of the Antitrust Agreements between the United States and the European Union?", 26 Eur. Compet. Law Rev., 309 Vol. 26 309-315 June 2005.
For example, after the investigation regarding Air France/KLM merger, DOJ has clearly explained its reasoning by choosing not to challenge the merger because it did not have a significant impact on the U.S. markets and acknowledging the significance of the merging companies in their effect on the European market. For details, see Bruce J. McDonald, Deputy Assistant Attorney General, Antitrust Division, DOJ, Transportation Update: Remarks to the ABA Section on Antitrust Law Transportation Industry Committee, 2004 Annual Spring Meeting, Washington, DC, (March 31, 2004), available at http://www.usdoj.gov/atr/public/speeches/203369.pdf (last visited Mar. 16, 2006).
At least it is true for GE/Honeywell, where parties have communicated extensively and the diverging outcome has its roots in the differing attitude of the EU towards conglomerate mergers. Failure of cooperation in Boeing merger could be also explained by the lack of experience of the parties in the cooperation matters and highly politicized nature of the transaction.
Commission Regulation 4064/89, 1998 O.J. (L 180) 1 (EC), available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m1140_en.pdf (last visited Oct. 8, 2006).
DOJ was concerned with the anticompetitive effects that the proposed merger might have on the market for drilling fluids. Halliburton at that time owned 36 percent of shares in M-I Drilling Fluids LLC. Because of this, the DOJ put in the condition that Halliburton should divest part of its participation from M-I. This remedy was fulfilled and communicated to the Commission, which had not considered this particular market in its analysis. See Press Release, Halliburton Co. agrees to sell part of its worldwide oil field services business and its drilling fluids business in order to proceed with Dresser Industries merger, US Department of Justice (Sept. 29, 1998), available at http://www.usdoj.gov/opa/pr/1998/September/450at.htm (last visited Mar. 5, 2006).
Commission Decision 139/2004, 2005 O.J. (L 24) 1 (EC), available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m3692_20050523_20212_en.pdf (last visited Oct. 8, 2006).
Press Release, European Commission, Declaring a Concentration to be Compatible with the Common Market and the Functioning of the EEA Agreement (May 25, 2005), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/596.
Commission Decision 139/2004, 2005 O.J. (L 24) 1 (EC), available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m3687_20050825_20600_en.pdf.
"Both J&J and Guidant are active worldwide in the development, production and sale of vascular medical devices. Their products are used by physicians in procedures to treat vascular diseases; both in the heart (coronary arteries) and in other parts of the human body (e.g. carotid, renal, femoral arteries). The firms are direct competitors in respect of a number of products and are both among a limited number of leading companies in Europe and worldwide." See Mergers: Commission Opens In-Depth Investigation into Johnson & Johnson's Take-over of Guidant Corporation, Brussels European Council (Apr. 22, 2005), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/471.
"The investigation has revealed that, while Guidant would likely have been one of the key players in the market for DES, other new entrants, primarily Medtronic and Abbott, will also be likely to exert a significant competitive constraint, compensating for the loss of competition resulting from J&J's acquisition of Guidant." See Mergers: Commission Approves Takeover of Guidant Corporation by Johnson & Johnson, subject to conditions, Brussels European Council (Aug. 25, 2005), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/1065.
Case No. IV/M.1383 Exxon/Mobil, available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m1383_en.pdf (last visited Mar. 25, 2006).
These included: (1) Wholesale transmission of natural gas in the Netherlands; (2) Long distance wholesale transmission of natural gas in Germany; (3) Underground storage facilities for natural gas servicing the South of Germany; (4) Group I Base oils in the EEA; (5) Motor fuel retailing in Austria, Germany, Luxembourg, Netherlands and the UK; (6) Motor fuel retailing on toll motorways in France; (7) Aviation lubricants world-wide; (8)Aviation fuels at Gatwick Airport.
Johnson & Johnson/Guidant, No. COMP/M.3687, available at http://europa.eu.int/comm/competition/mergers/cases/ (Follow "Company Name" hyperlink; then follow "J" hyperlink; then follow M. 3687; then follow "en" hyperlink) (last visited Oct. 8, 2006).
Commission Decision 4064/89, 2003 O.J. (L1) (EC), available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m3083_en.pdf.
Commission Opens Probe into General Electric's of Finnish Medical Equipment Maker Instrumentarium, Brussels European Council (Apr. 3, 2003), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/03/493.
"The Commission also analyzed the impact of the merger in the X-ray machine markets for mobile C-arms and mammography devices. However, the in-depth investigation did not reveal any serious competition concerns, in particular in view of the significant position of competitors and other specific features of these markets. The Commission co-operated closely with the US Department of Justice in the review of the GE/Instrumentarium case." See Commission Clears Acquisition of Instrumentarium by General Electric Subject to Conditions, Brussels European Council (Sept. 2, 2003), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/03/1193.
Case No. COMP/M.2547, Bayer/Aventis Crop Science, available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m2547_en.pdf , (last visited Mar. 26, 2006).
"The European Commission has decided to open an in-depth investigation into the proposed acquisition of Aventis Crop Science by Bayer AG. The Commission feared the merger would significantly reduce competition in the fields of insecticides, herbicides, fungicides and seed treatment products for the agricultural sector. Furthermore, the merger might indirectly spur parasital outbreaks in domestic animals." See Commission deepens probe into Bayer's acquisition of Aventis Crop Science, European Commission (Dec. 4, 2001), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/01/1736.
"Bayer has offered a comprehensive set of commitments, including the sale, in one single package, of best-selling insecticide Fipronil and a number of fungicides, which together constitute ACS' entire European seed treatment business. The commitments fully resolve the Commission's competition concerns. On the basis of the bilateral agreement on antitrust co-operation between the European Commission and the United States of America, the Commission and the Federal Trade Commission have co-operated closely in their analysis of the acquisition of ACS by Bayer." See Commission clears Bayer's acquisition of Aventis Crop Science, subject to substantial divestitures, European Commission (Apr. 17, 2002) available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/02/570.
Case No. COMP/M.1693, Alcoa/Reynolds, available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m1693_en.pdf, (last visited Mar. 25, 2006).
"The European Commission has decided to authorize a merger between U.S. aluminum producers Alcoa and Reynolds subject to undertakings submitted by the companies. The merger, which will create the largest integrated aluminum producer worldwide, would have resulted in dominant positions in three product markets: smelter-grade alumina (SGA), commodity alumina hydrate and high purity P0404 aluminum. But Alcoa proposed significant divestments aimed at restoring the competitive conditions prevailing before the merger therefore ensuring healthy competition and protecting consumers' interests." See Commission clears merger between Alcoa and Reynolds Metals, under conditions, European Commission (May 3, 2000), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/00/424.
Case No. COMP/M.3136 GE/Agfa NDT, available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m3136_20031205_440_en.pdf (last visited Mar. 25, 2006).
"The European Commission has granted clearance under the Merger Regulation to the proposed acquisition of Agfa's non-destructive testing (NDT) business by General Electric (GE) of the US. The Commission's review highlighted serious concerns in the market for portable ultrasound NTD devices, but GE was able to address these concerns by offering to divest the ultrasound NDT business of its subsidiary Panametrics." See Commission clears GE's acquisition of Agfa's NDT business, subject to conditions, European Commission (Dec. 5, 2003), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/03/1666.
Case No. COMP/M.1741 MCI WorldCom/Sprint, available at http://europa.eu.int/comm/competition/mergers/cases/decisions/m1741_en.pdf (last visited Mar. 24, 2006).
Mario Monti, Inst. For Int'l. Econ., Policy brief 01-6, Prospects for Transatlantic Competition Policy (May 2001), available at http://www.iie.com/publications/pb/pb.cfm?ResearchID=74.
"Pursuant to the EU-US agreement of 1991 on antitrust co-operation, the European Commission has examined the merger in parallel with the US Department of Justice. The two authorities have conducted independent and separate investigations but the Commission and the US Department of Justice have enjoyed a good working relationship. This co-operation will continue in future cases, especially if and when the two authorities identify common competition concerns that might require a jointly pursued remedial action." See Commission prohibits merger between MCI WorldCom and Sprint, European Commission (June 28, 2000), available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/00/668.
Report from the Commission to the Council and the European Parliament on the application of the agreements between the European Communities and the Government of the United States of America and the Government of Canada regarding the application of their competition laws, January 1, 2002 to December 31, 2002, available at http://europa.eu.int/comm/competition/international/bilateral/canada/2002_report_en.pdf (last visited Mar. 25, 2006).