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Transcript of Competition Law
Goals: Protect Competition in Domestic & Foreign Markets
Modern Competition Law: Rules and Principles
Enforcement of and Differences in the Law in US, Europe, and CA
International cooperation and comity
Competition law regulates business practices and transactions that create or abuse market power and interfere with the free play of market forces.
Different meaning of word “competition” in laws of different jurisdictions
Different conceptions of “harm to competition” or “lessening of competition”
Historically it defined the harm broadly:
when conduct or transaction creates or increases economic power in relevant market to the detriment of buyers.
the harm reveals itself in lower output and higher prices to buyers and ultimate consumers.
Since 1980s “consumer welfare” paradigm was introduced to limit the scope of the law.
US Antitrust Law (Sherman Act)
EU TFEU (Treaty of Rome)
Defines harm as:
behavior that “unlevels the playing field”
acts that exclude, coerce, or exploit weaker firms or create market barriers for the flow of goods or investments across national borders
Cartels and Boycotts
Private cartels are illegal or illegal subject to defenses virtually in every jurisdiction that has an antitrust law.
However, some jurisdictions allow cartels to counteract a crisis or depression or serve some other public interest.
Cartels are agreements among competitors to lessen the competition among them.
Cartels are often accompanied by boycotts to keep non-members out of the market and, thus, to protect the incumbents.
Boycotts are illegal under almost all jurisdictions.
It’s difficult to reveal cartels, they rarely leave footprints. Many nations have leniency programs that promise freedom from punishment to the first to report a cartel.
Each penalty was reduced depending on the level of co-operation provided to the ACCC with Qantas receiving the largest discount of 50%.
Legal proceedings against other airlines are continuing.
Case #1: International Air Cargo Cartel
In June 2006,
airline office in US and Europe
were simultaneously raided as they were accused in
in setting their fuel and security surcharges.
informed the authorities of the illegal agreements and were granted immunity from prosecution.
imposed have exceeded
1.5 billion US dollars
and several airline executives have faced jail terms. Some airlines have had to compensate customers measuring hundreds of millions of dollars.
the ACCC has pursued 15 local, European and Asian based airlines for price fixing in the Australian air cargo market.
The Federal Court has imposed
in penalties to date:
$20 million penalty against Qantas,
$5 million against British Airways and
$5.5 million against each of Japan Airlines and Korean Airlines.
Monopolization and abuse of dominance
is a entity that has a market power willfully acquired or maintained by anticompetitive acts.
Sometimes it may be illegal to achieve monopoly status even without anticompetitive acts (abuse of dominance/ super dominance).
Not all prices and tying cases can be considered anticompetitive, only if the conduct exclude rivals and/ or threaten harm to consumers.
Case #2: Microsoft
In May 1998, DOJ filed a suit against Microsoft.
Abuse of monopoly power,
Unfair market strategy,
Violation of Sherman Act, Sections 1 and 2
Violation of 1994 Consent Decree by executing tying and bundling,
In November 5, 1999, the Court recognized Microsoft as a monopoly, and that Microsoft had taken actions to crush threats to that monopoly, including Apple, Java, Netscape, Linux, and others. Judgment was split in two parts.
On April 3, 2000, the Court issued the conclusions of law, according to which Microsoft had committed monopolization and tying in violation of Sections 1 and 2 of the Sherman Act. Microsoft immediately appealed the decision.
On June 7, 2000, the Court ordered a breakup of Microsoft as its "remedy". According to that judgment, Microsoft would have to be broken into two separate units, one to produce the operating system, and one to produce other software components
On September 6, 2001, DOJ announced that it was no longer seeking to break up Microsoft and would seek lesser antitrust penalty.
Microsoft decided to draft a settlement proposal allowing PC manufacturers to adopt non-Microsoft software. Microsoft also proposed other remedies, which were approved by DOJ.
In General: it is restraints imposed in the course of the distribution of a product or service:
for example, restraints imposed by manufacturers on distributors that confine where, or whom, and at what price the distributor may resell.
include, also, exclusive dealing, requirements contracts, and tie-in contracts exclusionary effect on strangers to the contract
Licenses of Intellectual Property
Legal monopolies conferred by patents, trademarks, and similar rights.
Competent Authorities should make sure that they are not used beyond the government grant of rights to stifle competition
For example, an owner or licensor of a patent was categorically enjoined not to tie, not to require grant backs, and not to charge royalties after the patent expires.
Case #3: Mediaset
EC accused Mediaset in violation of Article 102 TFEU on the market for the sale of TV advertising lots.
In 2004, Mediaset concluded with major Italian soccer clubs various contracts:
on broadcasting rights of football matches for the 2004-2007 seasons
on exclusive preemption rights for the transmission of their matches through all platforms (Internet, mobile phones, DTT, satellite, etc.) for the period of 2007-2016
Mediaset rendered unavailable for long period of time relevant TV content for its competitors.
Thus, purchasing exclusive rights increases the sale of advertising lots.
In the course of the proceedings, Mediaset took several actions to avoid punishment:
Sold the broadcasting rights via satellite to Sky Italia;
Retained itself the exclusive rights only for DTT platform;
Left all other platforms available for other TV operators;
Reduced the duration of the preemption rights from 2016 to 2009.
EC Competent Authority deemed these commitments satisfactory and closed the procedure without imposing any fine.
Only mergers that created or increased dominance are prohibited.
This may lead to oligopoly situation: price control and placing barriers to market entry, which may harm consumers
Market effects of mergers need to be assessed: in case of minor effects the claims can be waived.
Thus, careful investigations need to be conducted, especially at pre-merger state.
Case #4: Deutsche Börse/ NYSE
On February 1, 2012 EC decided to block the planned merger between two exchanges.
the merger would lead to quasi-monopoly in the market of European financial derivatives traded globally on exchanges;
the merger would make it very difficult to actual or potential competitors to enter the market.
The remedies offered by the Parties were deemed to insufficient to eliminate the Commission’s competition concerns.
Deutsche Börse lodged an appeal against this decision.
Case #5: Takeover of Aer Lingus by Ryanair
On February 27, 2013, EC prohibited the proposed takeover of the Irish carrier Aer Lingus by the low-cost airline Ryanair.
the merger would harm consumers by creating a monopoly or at least a dominant position on 46 routes where, currently, these two airlines compete against each other;
the Commission found out that market positions of these airlines have become even stronger (combined market share increased from 80% in 2007 to 87% in 2012).
The Parties offered some remedies (e.g. divestment of 43 routes to their rivals), but EC found them insufficient.
Ryanair is planning to appeal against this decision.
Case #6: Acquisition of McDonnell Douglas by Boeing
Boeing proposed to acquire its competitor, McDonnell Douglas, the smallest of the only three firms in the market. The only competitor in that case remains Airbus Industrie.
The US Federal Trade Commission closed its investigation of this merger.
McDonnell Douglas was found to be in a weak position and not able to compete in sales of future generation aircrafts.
EC found this merger anticompetitive and permitted it to proceed on condition that Boeing give up on exclusive contracts it concluded with number of airlines and share technology with McDonnell Douglas.
Joint ventures (JV) and Alliances
are agreements between firms to engage in a specific joint activity, often through the creation of a jointly owned and controlled subsidiary, to perform a task useful to both.
are a form of JV. It is joint endeavors by firms in different geographic markets. The alliances help each partner to penetrate the market of the other
Sometimes such ventures may serve as a cover for cartels, i.e. for price fixing or market division.
There are concerns whether the venture creates or enhances market power.
Case #6: De Beers/LVMH Moet Hennessy Louis Vuitton SA
In 2001, these two companies decided to establish a JV Rapids World Ltd. with the purpose to increase efficiency and reduce costs in diamonds production and sales.
This JV was deemed to become the leading player in branded high-end jewelry retailing.
Nevertheless, the transaction was authorized and JV was established.
EC considered that the JV would not significantly strengthen De Beers’ already dominant position.
Other Collaborations among Competitors
Competitors may collaborate in various ways:
Participate in trade association decisions,
Agree on standards, and
Form buying or selling groups, including business-to-business platforms in the Internet.
These practices may produce
that inure to benefits of consumers,
Also they could be
against consumers or risk harming them.
effects outbalance significantly the
effects, then collaboration may be found illegal.
US and EU Competition Laws
On the surface, there is much in common b/n two laws
Both US and EU Competition Laws have common objective: to advance the interests of consumers and protect the free flow of goods in a competitive economy.
BUT: both have different histories and significant variations in law, policy and enforcement.
Goals of Competition Policy
US antitrust law: to protect consumer’s welfare (i.e. produce a variety of goods at reasonable prices). Main assumption: a robust competitive system would automatically be efficient.
EU Competition Law: Economic integration of various member nations. Main assumption: Joint ventures, mergers and other collaborations may be necessary to enhance technological development and therefore to allow European companies to compete effectively at the global markets.
US: More complicated and litigation oriented. The main reason is that there are too many sources of enforcement and regulation.
At the federal level, there are two agencies: the Antitrust Division of the Department of Justice and the Federal Trade Commission.
Sometimes the law is influenced by protectionist efforts of the Department of Commerce and the International Trade Commission.
Other ministries and agencies also have power to adjust law provisions.
EU: More regulatory and bureaucratic. But merger enforcement is more lenient .
Much regulation is based on a system of notifications and approval by negative clearance.
Enforcement against cartel behavior
US and EU laws are probably most similar in their hostility to any kind of cartel behavior.
Price-fixing and other related practices often result in criminal penalties, which can be enormous.
Cartel behavior is under jurisdiction of the Department of Justice.
Substantial staff in Washington office, as well as in regional offices, is devoted to detecting and challenging cartels.
EU law has some exemptions:
for crisis cartels (rationalization cartels in which there is chronic industry overcapacity) provided that the industry adheres to very strict conditions.
Small- and medium sized firms are allowed to enter into specialization agreements, agreeing to specialize in certain product markets.
The EC staff for detecting cartels is very thin: there is no investigative staff and, as a result, cartels are normally uncovered.
Dominant Firm Behavior
The controlling law provision is silent on defining a dominant firm. But US leading cases appear to treat firms as holding monopoly power only if they control about
two-thirds or more of a relevant market.
Market power alone is not enough to violate the law; there must be an element of unacceptable conduct to achieve or maintain that position (predatory pricing, acquisition of direct rivals, long-term agreements with penalty clauses if the customer switches to another service provider etc).
A dominant firm is one that has the power “to behave to an appreciable extent independently of its competitors, an ultimately of its consumers.”
A firm with 40% market share in the presence of significant barriers to entry is considered to be dominant.
A firm with 50% of market or more is presumed to have dominance (even in absence of any barriers to entry).
Mergers and Joint ventures
Exceptionally vigorous. Mainly focuses on a concern that mergers might lead to abuse of dominance.
US law tends to find violations in three types of mergers:
Direct horizontal mergers between competitors – combined market share of the merging parties is 20% in concentrated market with significant barriers to entry;
Mergers b/n customers and suppliers – each firm accounts for 20% or more of the market with significant barriers to entry.
Conglomerate mergers – mainly horizontal mergers, when there is a threat that concentration will lead to coordinated anticompetitive behavior.
When a company or one of its divisions is in bankruptcy, mergers may be allowed.
BUT: the firm must show that it is unable to meet its financial obligations in the near future, and there is no other buyer tendering a reasonable offer that would keep the firm in the market and create a less-severe danger to competition.
In court practice, it is rare that firms can successfully assert a failing-company defense.
With respect to joint ventures, it is more lenient.
When two firms are otherwise unable to enter the market on their own join forces to create a new competitor, the transaction is legal.
Problems arise when the two firms are already in the market and combine forces.
The law prohibits mergers that create or enhance “dominance,” so as to substantially impair efficiency in the market. If the merger is to consumers’ advantage, it is acceptable.
Political considerations seem to penetrate the EU decision-making process more easily and frequently, and therefore it is more likely that industrial policy will creep into decisions and influence outcomes.
Case review is less technical.
It is also lenient to joint ventures.
US: To prove predation, the courts require evidence that the defendant charged prices below reasonably anticipated marginal cost (MC). Due to difficulties in measuring MC, most courts use average variable cost as its substitute.
Even when prices are below some acceptable level, some US courts have concluded that there can be no predatory pricing if actual or potential rivals are so numerous that a predator would not be able to recoup its investments in low prices after some or all rivals are eliminated.
EU: more focused on disciplining or eliminating a competitor.
Competition Law in Central Asia
Global Competitiveness Index
Differences in Competition Law
To protect competition and create conditions for effective functioning of commodity markets.
Kazakhstan, Tajikistan, Kyrgyzstan & Uzbekistan
Abuse of dominance
Kazakhstan and Kyrgyzstan
A firm is considered as dominant if it holds 35% or more of market share.
A firm is considered as dominant if it holds 65% of market share. In some cases, a firm may be considered as dominant if its market share is in range 35-65% (based on stability of its market share during 1 year, market shares of other firms or presence of barriers to entry for new competitors).
A firm is considered as dominant if it holds 50% of market share. In some cases, a firm may be considered as dominant if its market share is in range 35-50% (based on stability of its market share during 1 year, market shares of other firms or presence of barriers to entry for new competitors).
The law forbids mergers or agreements b/n enterprises that would result in the controlling share of more than 35% of relevant market.
The law does not allow mergers that restrict competition, though with no specification of combined market share.
The law controls mergers if the value of their combined assets exceeds 200,000 minimum wages (=250 somoni ~ 52 USD) ~ 10,400,000 USD
The law controls those mergers which satisfy one of the conditions:
The value of the combined assets exceeds 100,000 minimum wages (=91530 sum ~ 42 USD) ~ 4,200,000 USD
The value of combined revenue for the year preceding to merger exceeds 100,000 minimum wages.
One of the merging parties is holding a dominant position in the market.
When laws were adopted?
December 25, 2008
July 22, 2011
November 14, 2011
December 28, 2012
Most of violations are attributable to oil and gas sector (24%), and agriculture (15%). 170 investigations took place in 2012. Most of legal cases were related to unfair competition and abuse of dominance. 282 judicial proceedings. About 70% of cases are won by the Antimonopoly body.
Kyrgyzstan and Tajikistan
No information on legal cases.
298 cases on abuse of dominance and unfair competition in 2012 (98% of those cases are related to abuse of dominance).
International cooperation and comity
Guidelines on Conduct of Multinational Companies by OECD;
Restrictive Business Practices rules or UNCTAD Code;
Competition Law could be globalized so that national blinders are removed and analysts take a comprehensive world view, not a narrow nationalistic view;
These incremental steps could help to bring the antitrust law into the twenty-first century.
End of 19th century - end of World War II – US is the only prominent enforcer of antitrust law
End of WWII- Germany and Japan adopted antitrust law as an antidote to the political authoritarianism (in connection with US assistance programs)
In the 1950s – western Europe created a common market designed to eliminate government-imposed barriers to trade
Late 1980s- collapse of Communism in USSR and Eastern Europe. “Newly democratic” states adopted market systems
Approximately 100 countries now have competition laws, most of which were adopted since 1990
Brief historical overview
The origins and evolution of Antitrust Law in the US
1890 – adoption of the basic and principal US antitrust law - the Sherman Act
The law was enacted in response to the power and predation of the large trusts formed by Rockefeller, Morgan, etc. to control major sectors of the American economy such as railroads, steel, oil, farm machinery, sugar and banking in the wake of the Industrial Revolution
The trusts were usually secret, so that neither buyers nor suppliers of the apparent competitors knew of the common control.
Prohibits contracts, combinations, and conspiracies in restraint of trade in the form of trusts or otherwise
Prohibits monopolization and attempts and conspiracies to monopolize
1914 – adoption of the principal merger law, The Clayton Act
Reason: Perception that Sherman act had no teeth, failed to protect small and middle-sized businesses against the growth of power and privilege
The Clayton Act contains restrictions against:
mergers of competitors
if the effect of such conduct “may be substantially to lessen competition or tend to create a monopoly”.
Extensions of Clayton Act
1936 – the Robinson-Patman Act extended the Clayton Act’s prohibition of certain price discrimination to protect small businesses from favouritism granted to their more powerful competitors.
In the 1940s, in the midst of the war, there was a great merger wave. Observing the giant firms in Germany working hand-in-hand with Hitler, Americans were deeply concerned by the rise of industrial concentration in the US.
Mergers were viewed as the principal vehicle for increased concentration.
In 1950 – Congress passed the Celler-Kefauver Amendment to the Clayton Act, strengthening government controls over mergers that ‘may’ lessen competition.
The origins and evolution of Antitrust Law in the US
The language of these statutes is short and general, and the antitrust law as applied has developed largely through judicial decisions in a common law tradition.
Development of the law is influenced by guidelines and enforcement initiatives of the antitrust agencies.
Adoption of Competition Law in Europe
At the end of World War II, antitrust law was widely perceived as an important check against both governmental power and private corporate power.
Antitrust took root in West Germany, both because of the persistence by the US occupation authorities under the aegis of the Marshall Plan, and because of the appeal of ordoliberal philosophy underpinning the Freiburg School.
1957- 6 European nations signed the Treaty of Rome, creating the European Economic Community.
Community’s basic competition policy
Influenced by German and US competition laws.
Related Treaty provisions prohibit member states from
restraining trade in the European internal market
control member state subsidies that distort competition in the internal market
Administration of the competition law of the European Community was centralized in the European Commission (legislation adopted in 1962)
Late 1960s – significant role in the world competition community.
EC competition law has become Major Model for the world
While the USA today extends the purview of its law principally by extraterritorial applications, the EU ‘exports’ EC competition law through free trade agreements with most of its trading partners;
The agreements require the partner to apply EC law to restraints in the free trade area, and they require nations that have applied for membership in the EU to revise their own national laws to approximate European competition law.
Much of the substance and doctrine of US antitrust law was adopted or adapted by the EC, although with some important differences
EC Competition Law as Major Model
US Antitrust law's not widely shared features
Private treble damage actions
Extensive pretrial discovery
These US procedural vehicles, especially in combination, are often considered draconian and have led to tensions sometimes erupting in debates on extraterritoriality
domestic competition laws are applicable to foreign firms - but also to domestic firms located outside the state’s territory, when their behaviour or transactions produce an "effect" within the domestic territory.
The "nationality" of firms is irrelevant for the purposes of antitrust enforcement and the effects doctrine covers all firms irrespective of their nationality.
Protecting competition in domestic markets
Opening foreign markets
Artificial barriers to trade (Japan)
The economic reforms included adoption of competition laws in order to:
Check abuse of private power
To limit privilege
To open markets to trade and competition
Source: World Economic Forum report, 2013-2014
Global Competitiveness Index
Source: World Economic Forum report, 2013-2014
In 2012, Tajikistan's ranking was 100th, but in 2013 its rating is missing due to lack of data.
Tajikistan (in 2012):
Extent of market dominance: 54
Intensity of local competition: 107
Effectiveness of anti-monopoly policy: 85
Australian Competition & Consumer Commission, “Cartel Case Studies and Legal Cases:: International Air Cargo Cartel.” ACCC. Accessed on October 19, 2013, http://www.accc.gov.au/business/anti-competitive-behaviour/cartels/cartels-case-studies-legal-cases.
Mario Siragusa, Matteo Beretta, & Matteo Bay. “Competition Law in Italy: The first 20 years of law and practice.” Cleary Gottlieb Steen & Hamilton LLP. Accessed on October 26, 2013, http://www.cgsh.com/files/Uploads/Documents/Competition%20Laws%20Outside%20the%20United%20States.pdf.
Robbert Snelders & Simon Genevaz, “Merger Efficiencies and Remedies.” Merger Controls 2006. Accessed on October 26, 2013, http://www.cgsh.com/files/Publication/74073f21-9a08-4be3-a28b-6077c3d867eb/Presentation/PublicationAttachment/7be91738-3d07-40f1-a4c7-61745c9a62f2/MC06-Chapter-2-Cleary-Gottlieb.pdf.
A. Douglas Melamed & Daniel L. Rubinfeld, “U.S. vs Microsoft: Lessons Learned and Issues Raised,” from Eleanor M. Fox & Daniel A. Crane, Antitrust Stories. Foundation Press/2007: 287-310.
Eleanor Fox, International Competition Law, Chapter 7, "Economic Law," 2007.
Eleanor Fox, "Comparison: US and EU Competition Laws," 2011.
World Economic Forum report 2013-2014, http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf.
World Economic Forum report 2012-2013, http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf
Thank you for attention!
Case #7: MTS subsidiary in Uzbekistan
MTS -one of the largest telecommunications service providers in Russia;
Uzdunrobita LLC - subsidiary of MTS, based in Uzbekistan
In July 2012, the Uzbek government suspended activities of Uzdunrobita LLC "due to systematic violations of the regulations"
In its turn, Uzdunrobita LLC accused the antimonopoly authority in abuse of power.
In January 2013, Uzdunrobita LLC was declared bankrupt.
In May 2015, Federal Antimonopoly Service (FAS) of Russia started criminal proceedings against Rubicon Wireless Communication, LLC and Uzmobile, LLC.
In particular, FAS accused both companies in organizing a cartel, aimed at elimination of their main competitor - Uzdunrobita LLC.
According to the Russian Competition Law, FAS can consider anticompetitive agreements, entered into outside of Russia, if they impact the local competition.
FAS considers that illegal elimination of MTS subsidiary from the Uzbek telecommunications market led to significant reductions in the volume of international connections between RUS and UZB.
However, the main aim of FAS is to protect interests of the abroad-based Russian business through anti-monopoly reaction.
Proceedings are still ongoing.