Antitrust & Trade Regulation Update (June 2007)

The Court of First Instance (CFI) has upheld the European Commission’s decision against members of a carbonless paper price-fixing cartel, but reduced the fines imposed by the Commission on two cartel members. Carbonless paper, otherwise known as self-copying paper, is used to create duplicate documents. In December 2001, the Commission ruled that 11 producers of carbonless paper had conspired to fix prices and share markets between 1992 and 1995. The Commission imposed fines on all but one cartel member – which was granted full immunity under the Commission’s Leniency Program – totaling over €313 million. Subsequently, the companies brought actions against that decision before the CFI, seeking an annulment or, in the alternative, reduced fines.

The CFI rejected arguments that the decision should be annulled, but ultimately granted reduced fines to two cartel participants. Specifically, the CFI reduced the fine imposed on Arjo Wiggins Appleton Plc from €184.3 million to €141.8 million on grounds that the company deserved greater leniency for cooperating with the investigation than was originally awarded by the Commission. The CFI also reduced the fine imposed on Papelera Guipuzcoana de Zicuñaga SA from €1.54 million to €1.31 based upon its finding that the Commission failed to establish that the company participated in the cartel’s market sharing activities. In denying requests for reduced fines by the other cartel members, the CFI rejected arguments that the Commission had overestimated the duration of the cartel and its effects on the market.

The Commission has fined Dutch brewers Heineken, Grolsch and Bavaria more than €273 million for conspiring to fix prices within the Dutch beer market between 1996 and 1999. The InBev group, brewer of the popular beer Stella Artois, also participated in the cartel, but received full immunity from fines under the Commission’s Leniency Program. The InBev group was the first to provide the Commission with decisive information about the cartel. The three companies fined have announced that they intend to appeal the Commission’s decision to the CFI.

• On April 11, 2007, the Commission announced that it sent Statements of Objections to several companies suspected of having participated in a cartel for the transport of bulk liquids by sea. Specifically, the companies are believed to have allocated customers, rigged bids, fixed prices and exchanged sensitive business information. Reportedly receiving Statements of Objections were Norwegian shipping companies Odfjell Seachem AS and Jo Tankers BV, and London-based Stolt- Nielsen SA.
• On April 23, 2007, the Commission announced that it sent Statements of Objections to several automotive glass manufacturers for their alleged participation in a price-fixing cartel. The companies are suspected of allocating customers and agreeing on supply quotas and prices for automotive glass, which they collectively supplied to the majority of the European automotive industry. The companies reported to have received Statements of Objections include Pilkington, Asahi Glass and Compagnie de Saint-Gobain.

A company that receives a Statement of Objections may present a defense to the Commission. The Commission will then render a final decision, which may be accompanied by fines of up to 10 percent of each company’s annual worldwide turnover.

The Commission has launched a public consultation on its draft Remedies Notice that would clarify its policy regarding remedies to anticompetitive mergers and acquisitions. Such remedies are ordinarily proposed by the parties to a transaction to resolve antitrust issues identified by the Commission during its merger control inquiry. The Remedies Notice would alter the current guidelines (dating from 2001) in light of an extensive Commission study on merger remedies, recent case law of the European Courts and the Commission’s experience enforcing the 2004 Merger Regulation. The Remedies Notice is expected to be adopted in late 2007.

Brazil’s antitrust regulator, Conselho Administrativo de Defesa Econômica (CADE), has ruled that the planned US$4 billion buyout of the Brazilian oil refiner and fuel distributor Ipiranga Group (Ipiranga) must be restructured to preserve competition in the petrochemicals industry. In March 2007, a consortium of companies that included Brazil’s state-controlled energy company, Petrobras Brasileiro S.A., and petrochemical firms, Braskem and Ultrapar, bought Ipiranga’s assets. The consortium’s plan to divide and integrate Ipiranga’s assets, however, was halted on April 17, 2007 when CADE issued an injunction preventing the takeover until it ruled on whether the transaction would create a monopoly. The injunction was based upon the conclusions that the sale of Ipiranga could harm competition in the petrochemical and fuel distribution markets.

On April 25, 2007, CADE revoked its injunction and ruled to allow the companies to go forward with the takeover, subject to certain conditions. Braskem, the leading provider of thermoplastic resins in Latin America, entered an agreement with CADE that preserves CADE’s power to reverse any portion of the transaction that it decides has an anticompetitive effect. In exchange, Braskem was granted full possession of its share of Ipiranga’s petrochemical assets. Petrobras and Ultrapar must now present to CADE a new plan for allocating Ipiranga’s fuel distribution assets that preserves competition in that sector.

The Japan Fair Trade Commission (JFTC) has adopted amendments to its "Guidelines on the Application of the Anti-Monopoly Act to Reviewing Business Combination" (the Merger Guidelines), which are designed to improve the transparency and predictability of the merger review process and to reduce delays caused by the agency’s review. Among the notable changes to the Merger Guidelines is a new test for determining the degree of market concentration posed by a merger or acquisition. The JFTC will now measure market concentration according to the Herfindahl-Hirschman Index and place less emphasis on the parties’ respective market shares. In addition, the amended Merger Guidelines allow the JFTC to look beyond Japan when determining the relevant geographic market if competition from foreign suppliers affects prices in Japan. The JFTC may now consider foreign markets and competitors and, where appropriate, define markets to include other parts of Asia or the world. In conjunction with its amended Merger Guidelines, the JFTC updated its "Policies of Dealing with Prior Consultation Regarding Business Combination Plan" (the Pre-Consultation Notification Plan). The preconsultation process allows parties to seek an unofficial opinion on a proposed merger or consolidation, whether or not they are required by Japan’s Anti-Monopoly Act to file a formal premerger notification. The revised Pre-Consultation Notification Plan clarifies the procedures for applying for pre-consultation and the information required by the JFTC.

South Africa’s Competition Tribunal has found that steel producer Mittal Steel SA (Mittal) abused its dominant market position by charging excessive prices for its flat steel products. In so finding, the Tribunal concluded that Mittal is "no mere ‘dominant firm’ – it is ‘super-dominant,’ a ‘monopoly’ in the parlance of US antitrust law.

It is, for all intents and purposes, an uncontested firm in an incontestable market." The Competition Tribunal initiated the action against Mittal after receiving complaints about Mittal’s prices from gold producers Harmony Gold and DRDGold. The gold producers had complained to South Africa’s Competition Commission in 2003, but the Commission found no violation of the Competition Act. As a result of the Competition Tribunal’s ruling, Mittal now faces possible structural remedies, and an administrative penalty of up to 10 percent of Mittal’s annual turnover of flat steel products (approximately ZAR1.6 billion). The Tribunal will delay its consideration of structural remedies until the administrative penalty is decided; however, it has indicated that it will consider breaking up Mittal’s joint venture with steel trading firm Macsteel International, as well as divestitures of Vanderbijlpark Works and Saldanha Steel. The Tribunal has set a hearing for July 27, 2007 during which it will hear mitigating evidence to determine the extent of the administrative penalty. In the meantime, Mittal will appeal the Competition Tribunal’s finding.

Citing insufficient evidence, officials at the Korean Fair Trade Commission (KFTC) have announced that the agency has closed its investigation into the price-fixing conspiracy among the world’s largest producers of DRAM. Although two of the DRAM producers under investigation are based in South Korea, namely Samsung Electronics Company Ltd. and Hynix Semiconductor, Inc., the KFTC was unable to develop enough evidence to prove that the companies had violated South Korean law or that their acts had affected the South Korean market. In closing the investigation KFTC officials stressed that there had been no acquittal – meaning that the decision did not amount to a finding that the companies’ acts did not violate the law. Accordingly, the KFTC could resume its investigation if it discovers new evidence.

The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) have published a joint report about the interface between intellectual property and competition, entitled "Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition." The report is addressed to consumers, businesses and intellectual property rights holders, and describes both agencies’ views on competition policy in areas where intellectual property rights are concerned. Among the issues the report addresses are (i) refusals to license; (ii) incorporation of patented technologies in industry standards; (iii) cross-licensing and patent pooling; (iv) intellectual property licensing practices; (v) tying and bundling of intellectual property rights; and (vi) strategies used to extend the market power conferred by patents beyond their legal duration. The report is based on information gathered during a series of hearings hosted by the agencies, beginning in February 2002. Such hearings, according to the report, confirmed the agencies’ current approach to intellectual property issues. In most cases, the agencies analyze business practices that involve intellectual property rights under the rule of reason, accounting for both the efficiencies and anticompetitive effects of the particular practice. "This analysis," according to the report, "focuses on preserving incentives for creativity and innovation, and avoids applying intellectual property-specific rules that may undermine creativity and innovation." The report is available on the FTC’s website, at the following Internet address: http://www.ftc.gov/opa/2007/04/ipreport.shtm.

The US District Court for the District of New Mexico has granted the FTC’s request for a temporary restraining order blocking Western Refining, Inc.’s proposed US$1.4 billion takeover of rival Giant Industries, Inc. pending completion of a preliminary injunction hearing. According to the FTC’s complaint, the acquisition, if consummated, would substantially reduce competition and cause higher prices for the bulk supply of light petroleum products, including automotive gasoline, to the Northern New Mexico market. The area allegedly affected by the proposed acquisition comprises 11 New Mexico counties, including Albuquerque and Santa Fe.

The hearings on the FTC’s preliminary injunction began on May 7, 2007; the parties are awaiting the court’s ruling.

The DOJ has arrested and charged eight executives with conspiring to rig bids, fix prices and allocate markets for US sales of marine hosing. The type of marine hose affected by the alleged conspiracy is used to transport oil between tankers, buoys and storage facilities. Major US purchasers of marine hose include Shell, ExxonMobil and Chevron, as well as the US Department of Defense. The DOJ has released the names of those charged in the conspiracy. They include Peter Whittle, the owner of UK-based industry consulting firm PW Consulting (Oil & Marine) Ltd.; Bryan Allison and David Brammar, the managing director and sales and marketing director, respectively, of UK-based Dunlop Oil & Marine, Ltd.; Jacques Cognard and Christian Caleca, a manager and the president of the Industrial Hose Business Unit, respectively, of the French company Trelleborg Industrie SA; Vanni Scodeggio, a business unit head of the Italian firm Parker ITR slr; Francesco Scaglia, a product manager of the Italian firm Manuli Rubber Industrie SpA; and Misao Hioki, an executive of the Japanese operations of Bridgestone Corporation. Each of the eight executives charged are foreign citizens; four were arrested on the day after meeting in a Houston hotel allegedly to effect the conspiracy.

According to charging documents, the executives met and conspired at various times beginning in 1999 and continuing to the present. One executive, Whittle, is charged with coordinating the conspiracy among the marine hose manufacturers. He allegedly collected US$300,000 per year to allocate marine hose projects, referring to the winning bidder in correspondence as the "champion" for that project. The investigation of the marine hose conspiracy is ongoing and is jointly being conducted by the DOJ’s National Criminal Enforcement Section, the Defense Criminal Investigative Service, the Department of Defense Office of Inspector General, the US Navy Criminal Investigative Service and the FBI. In addition, and in coordination with their US counterparts, regulators from the UK’s Office of Fair Trade (OFT) and the EU simultaneously executed search warrants against companies in France, Italy and the UK.

The DOJ has announced that it reached an agreement with Chicago-based Amsted Industries, Inc. (Amsted) that will require the company to divest assets relating to its manufacture of end-of-car cushioning devices (EOCCs). EOCCs are hydraulic shock absorbers installed in railroad cars to protect sensitive cargo from disturbances during railcar coupling and transit. The DOJ opened an investigation of Amsted’s EOCC operations after receiving complaints about rising prices of EOCCs following Amsted’s December 2005 acquisition of rival FM Industries (FMI). According to the DOJ, prior to the transaction, Amsted and FMI were the only manufacturers of EOCCs, and were two of only three companies selling refurbished EOCCs. Despite the harm to competition posed by the Amsted-FMI transaction, the DOJ did not immediately intervene because the transaction was not reported to the FTC and DOJ under Section 7A of the Clayton Act. At the time it was consummated, the transaction did not meet the minimum value threshold for premerger notification.

On April 18, 2007, the DOJ filed a civil complaint in the US District Court for the District of Columbia alleging that Amsted’s acquisition of FMI harmed competition. At the same time, the DOJ filed a proposed consent decree. If approved by the district court, the consent decree will require Amsted to divest all tangible and intangible assets that it acquired from FMI that are used in producing new and refurbished EOCCs. This measure, according to the DOJ, would create an opportunity for new entry into the EOCC market. The proposed consent decree also would prohibit Amsted from acquiring any assets or interests relating to the development, production or sale of EOCCs without first notifying the DOJ, for a period of 10 years.

The DOJ will accept public comments on the proposed consent decree for a period of 60 days, as provided under the Tunney Act. Upon expiration of the comment period, the district court will enter a final judgment approving the consent decree if it finds that it serves the public interest.

A sixth executive of Samsung Electronics Company, Ltd. (Samsung) has agreed to plead guilty to conspiring to fix prices for dynamic random access memory chips (DRAM). The executive, Il Ung Kim, is a citizen of Korea and a former vice president for marketing in Samsung’s memory division. The indictment against Kim, which was filed in the US District Court in San Francisco in October 2006, alleged a single count of price fixing in violation of the Sherman Act. Under the terms of his plea agreement, Kim will serve 14 months in a US prison – the longest term ever by a foreign defendant charged with price fixing in the United States. In addition, Kim will pay a US$250,000 criminal fine and assist prosecutors in their continuing investigation of the DRAM conspiracy.

To date, the court has imposed fines totaling more than US$730 million against members of the DRAM cartel – the second largest total ever resulting from a US criminal antitrust investigation. Including Kim, 18 individuals and four companies have been charged for their roles in the conspiracy. The companies include Samsung; another Korean DRAM manufacturer, Hynix Semiconductor, Inc.; German manufacturer Infineon Technologies AG; and Japanese manufacturer Elpida Memory, Inc. Affirming the extraterritorial reach of the Sherman Act against members of foreign price fixing cartels, the assistant attorney general in charge of the DOJ’s Antitrust Division, Thomas O. Barnett, stated that his agency is "committed to prosecuting executives who violate US antitrust laws and harm consumers and competition in the United States, even when those executives conduct their cartel activity overseas."

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