The major problem associated with the regulation of transnational mergers, which affect several national markets, is the allocation of jurisdiction. Each country concerned may wish to exert jurisdiction and apply its national competition law to regulate the anti-competitive effects a merger may have in its territory. However, this approach may lead to risks of inconsistent decisions regarding the legality of mergers. Indeed, the national competition laws applied by the regulating authorities may diverge in several aspects, which raise the likelihood of inconsistency.
The authors advocates the creation of an international merger control framework (IMCF) for the regulation of transnational mergers. This framework will rest on an informal and a formal pillar. The former includes non-legally binding competition principles. Consistency of these principles with the concepts of legitimacy and efficiency, as well as the presence of peer reviews and assistance programmes, should lower the risk of non-implementation. The formal pillar includes bilateral cooperation agreements which apply to merger affecting the countries which have concluded the agreements.
As essential pre-condition for the application of bilateral agreements, the level of cooperation achieved by such agreements should be at least equal to that ensured by the informal pillar. The last part of the study addresses and examines the long and complex processes in merger and acquisition (M&A) transactions. M&A arbitration faces certain difficulties during the transaction. Such difficulties the author seeks to underline. Two main problems of arbitration in M&A transactions, particullarly, have been covered. Firstly, the problem of consent in consolidation of parallel proceedings during M&A transactions, and, secondly parties' consent that validate arbitration agreements/clauses in “assignment” or “succession” after M&A transactions have been completed. The author also tries to clarify the content of consent of parties to a transaction. Finally, a criticism of parallel proceedings is enhanced.
Contents
List of abbreviations
Chapter 1 Introduction
1.1. The aim of this monograph
1.2. The problems regarding the regulation of transnational mergers
1.3. The structure of the book
Chapter II The unilateral strategy
2.1.Introduction
2.2. The concept of extraterritorial jurisdiction
2.3. The grounds of extraterritoriality
A) The principle of objective territoriality
B) The doctrine of effects
2.4. The unilateral strategy and competition law
2.5. The US and EC positions for extraterritorial application of competition law
A) The position ofthe US
B) The position of the EC
2.6. Extraterritorial application of competition lawto merger cases
A) The position of the US
B) The position of the EC
2.7. The demise of the unilateral strategy
2.8 Conclusions
Chapter III
A comparative analysis of EC and US merger control law: The institutional framework and procedural rules
3.1.Introduction
3.2. The history ofUS merger control law
3.3. The history ofEC merger control law
3.4.Introduction to the ЕС/US bilateral cooperation
3.5. The institutional framework
A) Introductory remarks
B) The allocation of regulatory powers
C) The EC administrative regime
D) The US prosecutorial regime
E) Determination of the scope of application of merger control: qualitative and quantitative criteria
3.6. Procedural rules
A) Notification of merger operations
B) Investigation period
C) Notification form
3.7. Differences between EC and US institutional framework and procedural rules: Possible consequences on the outcome of mergers review
A) The powers of the European Commission
B) Role of competitors
C) Different timetable of merger control proceedings
3.8. Criticism of the EC Courts regarding Commission’s administration of merger control
3.9. The EC Regulation 139/2004, the Implementing Regulation n. 1269/2013 and its impact on the EC merger control regime
3.10. The soft law initiatives of the Commission to amend the EC merger control regime
3.11. Conclusions
Chapter IV A comparative analysis of EC and US merger control law: The substantive rules
4.1.Introduction
4.2.Substantive assessment of mergers: Introductory remarks
A) The US substantive test
B) The EC substantive test
4.3. Definition of relevant markets
4.4. Evaluation of anti-competitive effects of mergers
A) The US approach
B) The EC approach
4.5. A comparative analysis of the scope of application of the market dominance test and of the substantial lessening of competition test
A) Monopolist scenario
B) Oligopolist scenario
C) The EC Regulations and the unilateral anti-competitive effects in oligopolies
4.6. The Boeing/McDonnell Douglas merger
A) The decision of the Federal Trade Commission
B) The decision of the European Commission
4.7. The General Electric/Honeywell merger
A) The decision of the Department of Justice
B) The decision of the European Commission
C) The judgement of the Court ofFirst Instance
D) US criticism of the Commission’s decision Ill
4.8. Regulation of foreclosure effects Ill
A) The theory of conglomerate effects Ill
B) The theory of conglomerate effects in the case law of the Commission
C) The theory of conglomerate effects in the case law of the EC Courts
D) The theory of conglomerate effects in the US
E) Comparing the EC and US positions for the assessment of conglomerate effects
F) Critical review of the foundations and practicability of the theory of conglomerate effects
4.9. The EC and US different approaches to regulation of mergers between large firms: Possible explanations
A) Goals of competition law
B) Different perception of market forces
C) Availability of post-merger remedies
D) Treatment of efficiencies
4.10. Final thoughts on convergence and divergence between EC and US merger control laws
4.11. Conclusions
Chapter V A comparative analysis of merger control laws enacted by other jurisdictions
5.1.Introduction
5.2.Institutional frameworks
5.3. Procedural rules
A) Jurisdictional criteria
B) Merger notification regimes
C) Investigation period
D) Notification forms and filing fees
5.4.Substantive rules
A) Substantive tests for the assessment of mergers
B) Competition harms
C) Goals of competition law
5.5. Major implications of differences in national merger control laws
5.6. Conclusions
Chapter VI The bilateral strategy
ó.l.Introduction
6.2. The origins ofbilateral cooperation
A) The first generation ofbilateral cooperation agreements
B) The second generation ofbilateral cooperation agreements
C) De facto application of the principle of comity
6.3. Contributions of the OECD to the development of international cooperation
6.4. The ЕС/US bilateral cooperation
A) The 1991 Cooperation Agreement
B) The 1998 Cooperation Agreement
C) Practical assessment of the ЕС/US bilateral cooperation in merger control
6.5. Regional trade Agreements
A) The Australia New Zealand Closer Economic Relations Agreement
B) Asian Regional Agreements
C) African Regional Agreements
D) American Regional Agreements
6.6. European Regional Agreements
A) Europe Agreements
B) Partnership and Cooperation Agreements
C) Euro-Mediterranean Partnership Agreements
6.7. Competition rules of the European Regional Agreements and regulation of transnational restrictive business practices
A) Pursuance of different level ofharmonization
B) Objectives of Association Agreements
6.8. A critical review of competition rules of European Association Agreements and of Regional Trade Agreements
6.9. A Critical review of the bilateral strategy
A) Advantages ofbilateral cooperation agreements
B) Disadvantages ofbilateral cooperation agreements
6.10. The bilateral strategy and regulation of transnational mergers level of harmonization
Chapter VII Multilateral strategy: Instruments ofhard law
7.1.Introduction
7.2. First attempts to create multinational competition rules
A) The Havana Charter
B) The Draft International Antitrust Code
7.3. The first steps of the proposal for WTO competition rules: From the Van Miert Report to Singapore
7.4. Arguments for WTO competition rules
7.5. Arguments against WTO competition rules
A) Law-making problems
B) Misapplication problems
7.6.0n the road towards Cancún Conference
7.7.The failure of the Cancún Conference. Is it the end of WTO competition rules?
7.8And after Cancún?
7.9. An alternative approach for the creation of multilateral competition rules: The theory of market access developed by Professor Fox
A) Interaction between competition and trade law
B) The set of proposed international principles for regulation of transnational restrictive business practices
C) Some critical thoughts on the theory of market access
7.10. Multilateral instruments of hard law as regulatory tools for transnational Mergers Prospects and problems
A) Unwillingness of countries to cede sovereignty to international bodies
B) Aversion to undertake legally binding commitments
C) The risk of“race to the bottom”
7.11. Conclusions
Chapter VIII Multilateral strategy: Instruments of soft law
8.1.Introduction
8.2. The UNCTAD Set
A) Goals and contents
B) The UNCTAD set and regulation of transnational restrictive business practices
8.3. The initiatives of the OECD
A) Instruments adopted by the OECD
B) Evaluation of the OECD activities
8.4. The International Competition Network
A) The origin of the ICN
B) The ICN: A successful venture
8.5.Soft law international cooperation in the financial services sector
A) The Basle Committee
B) The IOSCO
C) The IAIS
D) Other relevant initiatives
8.6. Lessons from international cooperation in the financial services sector
8.7. Building a feasible international framework for regulation of transnational mergers
8.8. The definition of“transnational” mergers
8.9. The concepts oflegitimacy and efficiency
8.10. The International Competition Principles
A) Conflict-of-jurisdiction rules
B) Principles regarding mergers notification
C) Principles regarding review period
D) Principles regarding notification forms
E) Other procedural principles
F) Principles regarding remedies
G) Principles regarding powers of competition authorities
H) Comments on the Recommended Practices
8.11. Harmonisation of substantive rules
A) Problems associated with harmonisation of substantive rules
B) An innovative approach to harmonisation
8.12. The extrinsic dimension of efficiency
A) The principle of conditionality
B) Technical assistance and capacity building programmes
C) Peer review systems
8.13. Arguments for the creation of the International Framework for Merger Control: A Summary
8.14. Conclusions
Chapter IX Cooperation and coordination of arbitral proceedings in merger and acquisition transactions
9.1.Introduction
9.2. The Scope of Arbitration Clauses in M&A Transactions
9.3. Multiple Proceedings and Parallel Proceedings in M&A Transactions
9.4. Multi-Contract and “Group of Contracts” Doctrine in M&A Transactions
9.5. Parallel Proceedings in M&A Arbitration
9.6. Mechanism ofLis Pendens in M&A Arbitration
9.7. Buenaventura case
9.8. Fomento Case
9.9. Mechanism ofRes Judicata in M&A Arbitration
9.10. Parallel Proceedings depending on related disputes
9.11.Solutions proposed by doctrine and case law in different jurisdictions for joinder of parallel proceedings
9.12. Advantages and disadvantages of consolidation in M&A arbitration
9.13. Consolidation in a single arbitration
9.14. Conclusions
Conclusions
Bibliography
List of abbreviations
illustration not visible in this excerpt
Abstract
The major problem associated with the regulation of transnational mergers, which affect several national markets, is the allocation of jurisdiction. Each country concerned may wish to exert jurisdiction and apply its national competition law to regulate the anticompetitive effects a merger may have in its territory. However, this approach may lead to risks of inconsistent decisions regarding the legality of mergers. Indeed, the national competition laws applied by the regulating authorities may diverge in several aspects, which raise the likelihood ofinconsistency.
Therefore it is desirable to opt for regulatory approaches which are more sensitive to the transnational nature of mergers and which allow cooperation between competition authorities. A possible solution may be bilateral cooperation agreements through which two countries coordinate the enforcement activities of their national competition authorities. However, the benefits of these agreements are enjoyed only by the signatory parties. The sole reliance upon bilateral agreements does not appear to be the optimal regulatory approach towards transnational mergers.
Transnational mergers can also be regulated by a set of multilateral competition rules created through instruments of hard law. However, every attempt to introduce legally binding multilateral competition rules has failed because of the opposition of countries which perceive such proposals as an unacceptable limitation of sovereignty. Alternatively, multilateral competition rules can be introduced through instruments of soft law. National sovereignty is not threatened by these instruments, but countries may not implement such instruments because of the soft law nature of the latter.
The authors advocates the creation of an international merger control framework (IMCF) for the regulation of transnational mergers. This framework will rest on an informal and a formal pillar. The former includes non-legally binding competition principles. Consistency of these principles with the concepts of legitimacy and efficiency, as well as the presence of peer reviews and assistance programmes, should lower the risk of non-implementation. The formal pillar includes bilateral cooperation agreements which apply to merger affecting the countries which have concluded the agreements. As essential pre-condition for the application of bilateral agreements, the level of cooperation achieved by such agreements should be at least equal to that ensured by the informal pillar. The last part of the study addresses and examines the long and complex processes in merger and acquisition (M&A) transactions. M&A arbitration faces certain difficulties during the transaction. Such difficulties the author seeks to underline. Two main problems of arbitration in M&A transactions, particularly, have been covered. Firstly, the problem of consent in consolidation of parallel proceedings during M&A transactions, and, secondly parties' consent that validate arbitration agreements/clauses in “assignment” or “succession” after M&A transactions have been completed. The author also tries to clarify the content of consent of parties to a transaction. Finally, a criticism of parallel proceedings is enhanced.
Chapter 1 Introduction
l.l.The aim of the book
This book is the result of many lessons, seminars, ecc. which have done from 2004 to 2014 at various Universities in Great Britain and in the United States. The present version is updated until December 2017.
The purpose of this book is to explore the possible strategies for the regulation of transnational mergers. It may be helpful to clarify at the outset that the meaning given to the term of transnational mergers in the present context includes those merger operations whose economic effects are felt in the territory of more than one countryfThe globalisation of economic activities has greatly innovated the traditional structure and dimension of markets. The liberalisation of the international trade regime, which has removed the barriers hindering the flow of trade and investment across countries, has triggered the process of globalization[1] [2]. Accordingly, economic activities have an increasingly international breadth and firms strive to expand their business by entering foreign markets. Mergers enable firms to acquire the control of the assets they need to establish or consolidate their market positions more rapidly than is provided by mere internal growth. Thus mergers are a useful medium through which firms can pursue expansionary strategies.
Statistics reveal that over the last decade the number and value of transnational merger operations have constantly increased-with the notable exception of the years affected by economic recession. In 1990 the value of transnational merger and acquisition deals was $151 billion. By 1999 this figure had soared to $720 billion. The annual growth rate in the number of transnational mergers and acquisitions between 1991 and 1995 was 23%. By 1998 this rate had more than tripled, reaching 76,4%.
1.2. The problems regarding the regulation of trans-national mergers
Ictu oculi, the basic question that competition law enforcers and practitioners have to address when dealing with transnational mergers is which national competition authorities can exert jurisdiction on a given transaction. The identification of the competent competition authorities in transnational mergers is complicated by two factors. Firstly, transnational mergers affect several national markets; but, on the other side, the scope of application of national competition laws and - of national merger control laws- is usually limited to the territory of the regulating countries. Secondly, the great number of countries that have adopted competition law in their national legal systems must be borne in mind. Some scholars have estimated that in 2002 about 90 countries have enacted competition law and many more are planning to do so[3]. As of March 2006, almost 100 competition authorities have joined the International Competition Network. Thus, if a merger affects several national markets, the competition authorities of the countries where such effects are felt may wish to regulate this operation with the aim of protecting their national economic interests[4].
Transnational mergers are therefore likely to be subjected to the review of several national competition authorities, each applying their respective national competition laws. National laws, however, may regulate the various aspects of merger control regime differently[5], such aspects ranging from procedural to substantive rules; from policy goals to the allocation of regulatory powers.
The multi-jurisdictional review of trans-national mergers can raise several problems which may be subsumed into three general categories:
A) Legal problems. The regulating competition authorities may take inconsistent decisions on the validity of mergers. For example, one authority may decide to approve an operation, another authority may decide to disallow it, while a third authority may decide to conditionally authorize the merger. The risk of inconsistency may be attributed to the different substantive standard tests adopted by national merger control laws. Inconsistency may be also created by diverging policy goals pursued by national competition laws and by the discretionary power of competition authorities in the evaluation of facts.
B) Business problems. The merging parties may have to notify the merger operation to many competition authorities and handle many merger control procedures. The parties and their counsels have therefore to examine the different national laws applicable to the merger control procedure. The application of different national laws may result in negative consequences for the merging parties: for example, they may be required to provide different data in the notification forms, which obliges the parties to collect different sets of data for each merger control procedure. Multi-jurisdictional review compels the merging parties to commit considerable financial and human resources to deal with the different merger control procedures, thus increasing compliance costs. Furthermore, the multi-jurisdictional review may decrease the legal certainty with respect to the outcome of the review of mergers.
C) Political problems. The divergent views of competition authorities about mergers may fuel diplomatic tensions between the countries concerned. This is all the more true when the merger operations affect important national interests. Inevitably, such frictions may complicate the execution of the proposed merger operation.
These problems will be labelled as the ‘global competition problems’ in the field of merger control. They emerge when a competition authority assesses the competitive effects of a transnational merger by focusing on the effects of the transaction on its domestic markets. The priority attached to national interests and policies seriously undermines the capacity of competition authorities to take into account the foreign economic interests that are equally affected by the transaction. The consequence is that competition authorities are unable to appreciate the overall economic effects of the merger on international markets. There exists a gap between the international scope of trans-national mergers and the scope of application of national competition laws. Such a gap weakens the viability of the application of national competition laws as an effective regulatory tool for trans-national mergers.
A new model for the governance of business activities which is attentive to their international nature can bridge this gap. This model should pursue the internationalisation of competition law and, more specifically, of merger control law. In this regard, the proposed internationalisation will not only touch on the contents of the merger control provisions but also on the way in which merger control is administered. Firstly, it implies the harmonisation of the procedural and substantive merger control rules. Secondly, it requires the establishment of mechanisms for cooperation and coordination between national competition authorities.
The internationalisation of merger control should be advantageous for both competition authorities and firms. The advantages for the former would consist in fostering mutual trust; providing efficient criteria for the allocation of merger cases; and in developing common methodologies for the purpose of the assessment of merger operations. The gains for firms would be increased legal certainty and less compliance costs.
The question now is which is the best approach to pursue the objective of internationalisation. Different options are theoretically open, which can be better presented in the form of the following questions: Should the internationalisation be pursued with instruments of soft law or with instruments of hard law? Should it cover only bilateral cooperation agreements or should it also include multilateral agreements? Should it require a full unification of national merger control laws or should it be limited to mere harmonisation through general competition law standards? Should it be based on a complex institutional framework or would establishing mechanism for cooperation and coordination be sufficient?
Before specifically addressing these questions, it is important to bear in mind that countries are not usually willing to cede their regulatory powers in the field of merger control as this would amount to an unacceptable curb of national sovereignty. In the light of the above observation, preference should be therefore given to those ideas which are less threatening to national sovereignty.
This book will review different ideas for the internationalisation of merger control, which may fall within two general categories: the bilateral strategy and the multilateral strategy. The former covers bilateral cooperation agreements, which normally are not serious menaces to national sovereignty. However, the benefits of bilateral cooperation are enjoyed only by the countries that are party to the agreements and by individuals and firms belonging to these countries. The multilateral strategy includes instruments of hard and soft law. The ideas that incorporate the instruments of hard law are normally sophisticated and complex and the key element of these ideas is the imposition of legally binding obligations on countries. However, their practicability is weakened by the restrictions they place on national sovereignty. The feasibility of the ideas that embody instruments of soft law may be, on the other hand, undermined by the lack of legally binding force.
In the view of this author, the proposed formula for internationalisation revolves around the creation of an international merger control framework (hereinafter IMCF), which will rest on a formal and an informal pillar. The latter includes instruments of soft law in the shape of international competition principles and has a general scope of application as it will apply to all transnational mergers affecting the participating countries. The formal pillar embraces bilateral cooperation agreements and its scope of application is limited to the mergers affecting the two countries that are party to a cooperation agreement.
1.3. The structure of the book
The structure of the present book is as follows. Chapter two examines the unilateral strategy, namely the extraterritorial application of competition law. Chapters three and four contain a comparative analysis of the procedural and substantive merger control rules enacted by the US and the EC. Chapter five compares the merger control laws adopted in different jurisdictions from the EC and US. Chapter six studies the bilateral strategy. This chapter not only discusses bilateral cooperation agreements, but it also examines the regional trade agreements that contain competition rules. Chapter seven focuses on multilateral instruments of hard law. Chapter eight concerns multilateral instruments of soft law. It includes a detailed analysis of the activities of the International Competition Network and suggests how the international framework for merger control should be created. Chapter nine draws conclusions.
Chapter 2 The unilateral strategy
2.1.Introduction
The main preoccupation of national competition authorities is to safeguard the competitive structure of their domestic markets from any possible distortions, included those brought about by the restrictive business practices carried out abroad. However, there do not exist either internationally applicable competition rules or supranational competition authorities on which it is possible to rely for the regulation of transnational restrictive business practices. Therefore a national competition authority which fears that a business practice may produce anti-competitive effects within its territory applies its own national competition laws to regulate such practice. When an alleged restrictive practice meets the statutory jurisdictional criteria of a given country, the competition authority of that country may be willing to exercise jurisdiction on such a practice, regardless of the place where it has been carried out. The application of national competition laws to transnational restrictive business practices will be labelled as the unilateral strategy.
This approach is not illegal per se, since it is a manifestation of national economic sovereignty, according to which countries have a legitimate interest as well as the right to regulate their economic interests and the structure of their home markets. However, recourse to the unilateral strategy may lead to some undesirable consequences. The regulating countries may apply their national competition laws beyond national borders and infringe the sovereignty of third countries[6]. Such exercise of ‘extraterritorial’ jurisdiction may not be permitted by public international law. Moreover, it is questionable whether the unilateral strategy is a suitable response to global competition problems.
This chapter will examine and critically review the unilateral strategy. The structure of the chapter is as follows. The second section introduces readers to the concept of extraterritoriality. The third section analyses the different grounds of extraterritoriality developed under public international law. The fourth section examines the inbound and the outbound extraterritorial application of competition law under the unilateral strategy. The fifth section deals with extraterritorial application of US and EC competition laws. The sixth section examines the issues of extraterritorial application of US and EC competition laws to merger cases. The seventh section explains why the unilateral strategy is unsuitable to effectively address global competition problems. The eighth section draws conclusions.
2.2.The concept of extraterritorial jurisdiction
The concept of extraterritorial jurisdiction was first developed at the end of the 19th century to address the problems created by the internationalisation of criminal activities. Extraterritoriality is still a valid instrument today to prosecute the authors of those activities which produce offensive effects in several countries. Equally, it can provide the legal basis for a country whose interests are harmed by a restrictive business practices carried out abroad to regulate that practice.
Extraterritoriality generally includes those situations where one of the stages of the process of the application of a legal rule takes place outside the territory of the enacting country. Legal scholars have attempted to further refine the concept of extraterritorial jurisdiction. The qualifying elements of extraterritoriality have variously been identified as “the exercise by a state of legislative and enforcement jurisdiction beyond its borders either over the citizens of other countries or over its own nationals”, or as “prescribing conducts which is outside the territory” and finally as the fact that the authorities of the country that has enacted the rule apply that rule to conducts carried out beyond its national borders[7].
It is possible to set out the noyau dur of extraterritoriality, which consists of the projection of the legal rules of one country upon situations that occur outside the territory of that country. Only laws which intend to regulate conducts performed abroad and which produce effects in the territory of the enacting country are likely to infringe national sovereignty. The principle of national sovereignty, one of the tenets of public international law, empowers countries to exercise exclusive and absolute rights over their territory, the so-called “reserved domain[8].” As, under public international law, all countries are equal, every country has to comply with a duty of non-interference with respect to the reserved domain of other countries.
Sovereignty may be exercised in the form of prescriptive jurisdiction, which includes the power to make decisions or rules and in the form of enforcement jurisdiction, which embraces the power to adopt exclusive measures in pursuance of the enforcement of decisions and rules. The geographical scope of the enforcement jurisdiction is restricted to the territory of the acting country. Accordingly, the principle of sovereignty is breached if a country carries out in the territory of a third country coercive acts with the aim of enforcing its legal rules or decisions without the consent of the third country concerned; or when it carries out such acts in its own territory and in doing so infringes or threaten to infringe the sovereignty of other countries.
The limits within which countries can exercise prescriptive jurisdiction are controversial. Several grounds to justify the assertion of prescriptive jurisdiction have been put forward, some of which still struggle to obtain sufficient recognition. It is agreed that the principle of nationality and the principle of territoriality are the general grounds upon which countries assert jurisdiction. The principle of territoriality confers jurisdiction upon the country in the territory of which the offence has been committed; while, according to the principle of nationality, a country asserts jurisdiction over all those who are connected to that country through the links of nationality, residence and other factors considered as evidence of allegiance. Another possible ground of jurisdiction is the protective principle, which states that a country has jurisdiction over foreign nationals who commit a conduct abroad if such a conduct harms the interests of that country, especially the national security interests. Under the universality principle, a country may try foreign nationals for certain types of offences committed abroad that are especially offensive under public international law. Finally, the principle of passive personality enables a country to try aliens for offences committed abroad that offend the interests of the nationals of that country.
The universality principle, the protective principle and the principle of passive personality derogate from the general rules laid down by the principle of territoriality and the principle of nationality. In fact these principles allow countries to apply their national laws beyond national boundaries, regardless of the place where the conduct has been carried out and regardless of the offender's nationality. Apart from the protective principle, such grounds ofjurisdiction are rarely relevant in the field of competition law. The universality principle is not considered as an appropriate ground to establish jurisdiction in competition matters given the lack of consensus on the meaning of competition harm, as will be exposed in chapter five. As far as the protective principle is concerned, it is uncertain whether the injuries to competition can be regarded as threats to the national security of countries. Similarly, the nationality principle has not been often invoked since countries are not strongly motivated to intervene and regulate conducts which, though carried out by their nationals, are expected to cause anticompetitive effects only on foreign markets[9].
2.3. The grounds of extraterritorial jurisdiction
A) The principle of objective territoriality
Some legal scholars illustrating the resilience of the principle of territoriality wrote “Territoriality, while accepted is a pot which may be filled with water or with wine”. Indeed, this principle can be read according to two different interpretations: subjective and objective territoriality. Subjective territoriality allocates jurisdiction to the country where the conduct is commenced, even if it is completed or consummated abroad. However, the growing movement of persons and goods has rendered such an interpretation ineffective. A conduct may harm an interest located in the territory of one country, whereas its author may be in the territory of a second country. For example: X, who is in the territory of country A throws a bomb at Y, who is in the territory of country B. As a result of the conduct of X, Y dies. The question is: which country can legitimately claim jurisdiction over the conduct of X? A or B? According to the principle of subjective territoriality the jurisdiction is conferred upon A, although the effects of the conduct have been felt only within the territory of B. The terms of the problem remain unchanged if a restrictive business practice, instead of a physical criminal act, is taken into consideration. X and Y are two firms incorporated in country
A. In that country they conclude a cartel that affects the interests of the consumers of country B. The principle of subjective territory confers upon country A jurisdiction over the cartel. В cannot apply its competition law to the cartel, even though the conduct of X and Y adversely affects its domestic markets.
Such inconveniences may be resolved with a broader interpretation of the principle of territoriality- objective territoriality. This confers jurisdiction upon the country in the territory of which a crime, though commenced abroad, is completed or consummated. In other words, it is necessary that the essential element of the offence is consummated on the territory of the country claiming jurisdiction.
The principle of objective territoriality was first applied during the Lotus case debated before the Permanent Court of International Justice. After a collision at high sea between a French steamer-The Lotus-and a Turkish collier, the latter sank and eight Turkish nationals died. When The Lotus moored at a Turkish port the local authorities arrested the French officer of the watch and charged him with manslaughter. The Permanent Court first ruled that “international law prohibits a state from exercising jurisdiction in its own territory in respect of any case which relates to acts which have taken place abroad and in which it cannot rely on some permissive rule of international law.” The decision recognised that countries enjoy a wide discretion regarding the territorial scope of application of their laws. They can apply their national laws extraterritorially unless their discretion is restricted by international prohibitive rules. The Court also held that “offences, the authors of which at the moment of the commission are in the territory of another state, are nevertheless to be regarded as having been committed in the national territory, if one of the constituent elements of the offence, and more especially its effects, have taken place here.” From this excerpt of the judgment it can be concluded that Lotus enables, under certain circumstances, a country to assert jurisdiction over an offence where only a part of the criminal conduct takes place in that country.
B) The doctrine of effects
The language of Lotus is quite ambiguous since it refers to the place where the conduct is completed and to the place where the conduct produces its effects. So Lotus is also invoked as the basis for the doctrine of effects. This doctrine is a further attempt to extend the reach of the principle of territoriality and confers jurisdiction upon the country within whose territory the conduct produces its effects, even if that conduct has been entirely carried out abroad. Although it is strongly supported by American scholars and courts, the doctrine is far from being generally accepted. It is rejected by those who claim that public international law recognises only a limited range of grounds of jurisdiction, which does not include the doctrine of effects[10]. It is also feared that the doctrine may be incompatible with the constitutional principles of international trade law, such as the principle of multilateralism and the principle of non-discrimination, which are part of the legal system of the WTO. The Committee on the Extraterritorial Application of National Law of the International Chamber of Commerce recommended that countries should refrain from an extensive extraterritorial application of their national laws; or they should exercise extraterritorial jurisdiction consistently with international law and with the rule of reasonableness.
The advocates of the doctrine of effects dismiss such criticism by observing that in international law there exist no clear-cut rules that prevent countries from asserting jurisdiction on the basis of the doctrine. Furthermore, the doctrine is a useful tool to deal with transnational economic activities and to regulate the offences caused by them. However, these scholars are aware of the need to set the precise limits within which countries can legitimately assert jurisdiction on the basis of the doctrine. In the absence of such limits the most influential countries may yield to “legal imperialistic” temptations and exert overtly extraterritorial jurisdiction with the consequence that the sovereignty of less strong countries is infringed. Justice Fitzmaurice in the Barcelona Traction case voiced such concern where he stated that countries should exercise jurisdiction with moderation and restrain in relation to situations in which a foreign element is involved[11].
For these reasons legal scholars have proposed theories which should restrain the scope of application of the doctrine of effects within reasonable boundaries. A first possible option is the theory of primary effects, which confers jurisdiction upon those countries that have a legitimate interest in regulating a given conduct[12]. A country has such a legitimate interest when the primary effects of the conduct, defined as the direct and substantial effects, are felt within its territory. The necessity to establish direct and substantial effects as a pre-condition for exerting jurisdiction should prevent countries from exercising jurisdiction on those restrictive business practices that produce only indirect and insignificant effects in their territories. Other academics advocate the idea that jurisdiction should be assigned to the countries where the conduct to be regulated produces substantial, direct and reasonably foreseeable effects[13]. The first condition- the effects must be substantial- is fulfilled when the effects are appreciable and non negligible. Secondly, the effects must be direct: there must be exist a direct causal link between the conduct and the effects, which is not interrupted by other intermediary factors. The third condition, which requires that the effects must be reasonably foreseeable, refers to the intention of the parties to cause the effects in the country[14].
2.4. The unilateral strategy and competition law
The principle of objective territoriality, and especially the doctrine of effects, provides the legal basis for the unilateral extraterritorial application of national competition laws. Two different forms of extraterritorial application of competition laws may be examined: inbound and outbound extraterritoriality. Inbound extraterritoriality is where the competition law of a country applies to a restrictive business practice that distorts competition in the markets of that country, even though the practice has been carried abroad. As an example of inbound extraterritoriality, in Nippon Paper US competition law was applied to a price-fixing cartel agreement concluded in Japan, which intended and effectively produced restrictive effects in the US domestic markets[15].
Outbound extraterritoriality concerns the application of one country's competition law to a conduct that is performed in the territory of another country which impedes or hinders the access of the firms of the first country to the market of the second country. In simpler terms, outbound extraterritoriality deals with the problem of market access. An example of outbound extraterritoriality may be found in Pilkington, where a US- based company complained that the pool of patent licence agreements set up by Pilkington, a British company, contained stringent territorial restrictions that prevented the plaintiff from exporting its products. As the conduct of Pilkington harmed the interests of a US firm, it was held to fall within the US jurisdiction, even though it was carried out abroad.
2.5. The US and EC positions for extraterritorial application of competition law A) The position of the US
The US can be regarded as a strong advocate of extraterritoriality in competition law matters. Initially the US Supreme Court disapproved of the extraterritorial application of the Sherman Act and held that US law must be applied only within its own territory. Such a restrictive position was abandoned by the US Supreme Court in Alcoa where it recognised the extraterritorial application of competition law and endorsed the doctrine of effects as the legal basis for extraterritoriality. Alcoa concerned an international cartel in the aluminium market, which was entered into, amongst many others, by a company incorporated in Canada, formerly owned by the US company Alcoa, and which was importing into the US. Learned Hand J. ruled that: “any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends”. Therefore, a conduct, carried out abroad, falls within US jurisdiction, provided that it is intended to affect, and does affect imports[16] [17]. The Supreme Court confirmed this in Hartford Fire, which concerned a suit brought against London-based insurers who entered into a cartel which negatively affected the US domestic reinsurance market. The Court applied the doctrine of effects and found that the conduct put into practice by the British firms fell within US jurisdiction since it intended to produce and did produce relevant effects in the US markets[17].
The US lower courts in some cases have attempted to attenuate the rigidity of the case law of the Supreme Court concerning the exercise of extraterritorial jurisdiction. Thus in Timberlane the court conditioned the application of the US law to a three-pronged test[18]. The first limb of the test mirrors the doctrine of effects spelt out in Alcoa. It requires that the effects of the conduct have to be so large as to amount to a cognisable injury to the plaintiff and to a civil breach of competition law. In addition, Timberlane calls for the evaluation of whether US domestic interests-and the links to the US-are strong enough, as opposed to the interests of foreign countries, to justify the extraterritorial exercise of USjurisdiction[19]. On the one hand, Timberlane confirmed the doctrine of effects as a criterion to establish jurisdiction. But, on the other hand, it put forward a rule of juridical reasonableness with the purpose of restraining the discretion of courts as to the exertion of US jurisdiction. Courts should therefore balance US interests with the foreign interests concerned and should close the proceedings before them if they are convinced that a third country has a stronger interest than the US in disciplining that conduct[20].
The American Law Institute in its 1987 Restatement Third of Foreign Relations Law of the United States has codified this approach. It holds that, in order to assert jurisdiction, not only must courts apply the Alcoa test, but they should also apply a jurisdictional rule of reason, which can be regarded as an expression of international comity considerations. Thus, in case the conditions for the application of the doctrine of effects are met, a court should, nevertheless, refrain from exercising jurisdiction when it finds that a foreign country has a greater interest in regulating the situation[21]. The US Government has adopted a similar position in its Antitrust Enforcement Guidelines for International Operation in which it sets out various factors that need to be taken into account while assessing comity considerations[22].
This balancing-interest test does not appear to be completely convincing. First, the comparison of the interests of foreign countries with the domestic interests implies evaluations that are typical of diplomatic functions, which do not fit well with the traditional functions of judiciary. Secondly, the courts may recognise the prevalence of the national interests of the country to which they belong to the detriment of foreign interests. The rule of reasonableness and the balancing-interests test of Timberlane make reference to the principle of international comity. However, after Hartford Fire, the principle of comity with regard to competition law matters seems rather unimportant as it has been held that comity is relevant only in case of a true conflict. Such a conflict occurs when a foreign party is forced to violate its national law in order to comply with obligations imposed by US law. Thus, the Timberlane test risks being meaningless, especially in the field of merger control where one of the constitutive elements of such conflict (the obligation imposed by one of the concurrent jurisdiction to carry out a conduct) will not occur because countries do not oblige firms to conclude merger agreements.
The position of the Congress is expressed in the 1982 Foreign Trade Antitrust
Improvement Act56. It lays down that foreign commerce other than import commerce does not fall within the scope of application of the US competition law, unless the conduct has a direct substantial and reasonably foreseeable effect on the US commerce. In order to identify the export transactions that are exempted from the Sherman Act, the Foreign Trade Antitrust Improvement Act relies on a test, the wording of which is similar to the Alcoa judgment. The only difference is the added element of foreseeability and the exclusion of any reference to the interest-balancing test of Timberlane[23].
The doctrine of effects has been further refined in Empagran by the US Supreme Court. In this case the Court has dealt with a previous decision of the DC Circuit Court of Appeals based on a broad interpretation of Section 6a of the FTAIA. The Circuit Court held that US courts have jurisdiction on damage claims brought by foreign plaintiffs against foreign defendants for injuries caused abroad by a price-fixing cartel, even if such injuries are not dependent on injuries felt within the US territory. The US Supreme Court disagreed with such an analysis and ruled that the appealed decision might have restrained the capability of a country to regulate independently its own commercial affairs, and thereby it might infringe the international law principle of non-interference. The Court reached the conclusion that US competition law cannot apply to a pricefixing cartel with domestic and foreign anti-competitive effects when the adverse foreign effect is not dependent on the domestic adverse effects. So, Empagran says that US courts can exert personal jurisdiction over foreign defendants provided that the foreign harms for which the plaintiff seeks compensation is dependent on US harm[24]. Extraterritoriality raises even more serious concerns with respect to enforcement jurisdiction. Because of the limitation imposed by international law to the territorial scope of enforcementjurisdiction, countries are not allowed to carry out in the territory of another country any act of material coercion. Indeed, the regulating country has to have the consent of the foreign country concerned in order to carry out the exaction of sanctions, the servicing of summons and the gathering of evidence in the territory of the latter.
Despite such restraints the US has opted for an aggressive exercise of enforcement jurisdiction by attempting to impose treble damages awards and disclosure orders of evidence on non-resident persons, alleged to be involved in restrictive business practices. To these intrusions the countries concerned respond with diplomatic and legal measures[25]. Legal responses have consisted of “blocking statutes”, which prevent their nationals from complying with the orders issued by the US authorities[26]. These statutes prohibit disclosure, copying, inspections or removal of documents located in the territory of the legislating country when they are necessary to comply with orders issued by foreign authorities and also impedes the enforceability of certain foreign judgements. Moreover, some of these statutes, such as the UK Trading Interest Act of 1980 have provisions that specifically deal with treble damages. This piece of legislation prevents the recovery of treble damages from British nationals through a “claw back provision” that enables British citizens, companies or persons carrying business in the UK to bring an action before the UK courts to recover the non-compensatory part of any such damages they have paid. It should be noted that blocking statutes such as the UK Trading Interest Act of 1980 bring about some undesirable side effects. These laws statutorily rule out or at least attenuate the liabilities of nationals of enacting countries which can arise from the infringement ofUS competition law.
B) The position of the EC
The EC judicature has been traditionally more prudent on the extraterritorial application of competition law. Although the Commission and the Advocates General have often invited the European Court of Justice to apply the doctrine of effects, the Court has always rejected such proposals and has preferred to rely on the less controversial principle of territoriality.
In the Eleventh Report on Competition Policy the Commission expressed its preference for the extraterritorial application of the EC competition rules. It stated that Articles 81
and 82 EC Treaty should apply to the conducts performed by non-EC based firms, provided that these conducts have an appreciable impact on the Common Market. As legal base for the extraterritorial application of EC competition law, the Commission pointed to the principle of internal effects, which should have the same reach as the doctrine of effects. The Commission considered extraterritoriality as an indispensable tool to protect the competitive structure of the EC markets from all the business practices that are alleged to cause anti-competitive effects within the EC, including those put in practice abroad[27].
Dyestuffs is the first case in which the European Court of Justice examined the issue of extraterritoriality; it concerned a trans-national price-fixing cartel concluded by firms based outside the EC. In Dyestuffs the Court did not apply the doctrine of effects to establish EC jurisdiction, but it relied on the doctrine of single economic unit. According to this doctrine, the conduct of subsidiaries are imputable to the parent company provided that the subsidiaries lack autonomy to decide their market behaviour and put into practice directions issued by their parent companies. Since the firms that took part in the cartel had subsidiaries established within the EC and the conduct of the subsidiaries were held to be imputable to the parent companies, the Court decided that the contested cartel was caught by ECjurisdiction.
The European Court of Justice further clarified its views on extraterritorial jurisdiction in Wood Pulp[28]. The Commission instituted proceedings pursuant to Article 81 EC[29]
Treaty against non-EC firms, which entered into an international cartel alleged to produce anti-competitive effects in the EC wood pulp market. The Commission exerted jurisdiction on the cartel because there were substantial direct and intended effects caused by the contested practice in the EC. Such effects were ascribed to the implementation of the cartel within the EC[30]. Advocate General Darmon engaged in a thorough review of the current state of international law regarding extraterritorial jurisdiction and concluded that the principle of substantial, direct and foreseeable effects was the most appropriate criterion to establish EC jurisdiction[31]. The doctrine of effects had already been endorsed by Advocate General Mayras in Dyestuffs, where he stated that if the Commission had relied only on the principle of territoriality it would have been unable to prosecute the restrictive business practices carried out by non-EC firms despite their adverse impact on EC markets.
The Court took a different position from the Commission and the Advocate General ruling that the decisive factor to establish EC jurisdiction is not the place where the practice was formed; rather it is the place where the practice is implemented which is important, because anti-competitive effects are felt in the place of implementation. Given that the parties to the cartel had effectively implemented their pricing agreement within the EC the cartel was held to be within EC jurisdiction, regardless of whether the parties used subsidiaries, agents, sub-agents or branches established in the EC. Thus the Court did not subscribe to the doctrine of effects and developed a different criterion to ascertain whether the exercise ofEC jurisdiction is consistent with international law: the doctrine of implementation.
This doctrine is considered by the Court as a manifestation of the principle of territoriality universally recognised in public international law, although commentators had been split on the meaning and scope of the doctrine of implementation. It has been argued that the requirement that a restrictive business practice is implemented within the EC is satisfied when the parties to the practice put it into effect by selling to EC purchasers either directly or through sales agents or sales offices[32]. According to this reading of Wood Pulp, the doctrine of implementation requires some form of presence of the firms in the EC markets.
It has also been argued that a consistent interpretation of the doctrine of implementation with international law would require a more qualified presence of firms in the EC markets. Since international law allows a country to assert jurisdiction on a given situation only if there exists a sufficiently close link between that country and the situation to be regulated, some scholars have argued that a restrictive business practice is implemented in the EC when a foreign firm sets up at its own risk a marketing organisation within the EC. Instead, the requirement of implementation is not met when the non-EC firm sells directly to EC customers or through authorised independent dealers.
These theories appear to embrace quite a restrictive view on the scope of the doctrine of implementation. In the view of the proponents of these theories, the doctrine should only cover those restrictive business practices carried out through positive conducts. For example, if a group of firms enter into a cartel agreement to fix the selling prices of a particular product and then sells the products at the agreed prices in the EC, those firms can be subjected to EC jurisdiction upon the basis of the doctrine of implementation. On the other hand, the restrictive business practices carried out through negative conduct or inaction would not be caught by the doctrine of implementation. According to this interpretation of the doctrine, agreements by which parties undertake a non facere obligation to not sell in the EC or not to purchase from EC buyers should not fall within EC jurisdiction, even though such practices may produce anti-competitive effects in the EC.
In order to avoid such problems, legal scholars have developed ideas and theories that should extend the scope of application of the doctrine to negative conducts as well. It has been maintained that the doctrine applies to negative conducts when such conduct are the method by which anticompetitive effects are caused. A broad interpretation of the doctrine, according to which implementation includes the conduct performing the agreement and the effects caused by the conduct has been proposed. The conduct and the ensuing effects are a single undistinguishable entity and both of them have to be present in the EC territory in order to assert EC jurisdiction. This concept of implementation is so extensive that it can include restrictive business practices practiced carried out both in positive and negative form[33]. The theory of constituent effects, in the view of some scholars, should supplement the doctrine of implementation in order to regulate negative restrictive business practices. This theory indicates in the injury of the interests protected by the rule that has been infringed by the conduct the pre-condition for the application of that rule. A constituent effect consists of “an appreciable effect on the competitive market conditions”. Jurisdiction is therefore conferred upon the country where not insignificant anti-competitive restrictive effects are produced by the conduct. Therefore, any conduct, regardless whether active or inactive, producing such effects within the EC markets should be within ECjurisdiction.
Negative restrictive business practices fall under EC jurisdiction should the EC exert jurisdiction on the basis of the doctrine of effects. Some scholars have embraced the idea that with Wood Pulp the EC has effectively adopted the doctrine of effects. First, they observe that, although the Court makes references to the doctrine of implementation, the judgement factually endorses the doctrine of effects in all but the name. Secondly, they outlined the difficulties of the distinction between the implementation of a conduct in the EC and the effects of a conduct on the EC, since these two concepts are inextricably linked. Finally, it seems improbable that the Court has introduced two different criteria for the assertion of jurisdiction: the doctrine of implementation as regards the application of the Articles 81 and 82 EC Treaty and the doctrine of effects as regards the application of merger control regulation.
2.6.Extraterritorial application of competition law to merger cases
Apparently, the US and EC have adopted different criteria for the purpose of exerting jurisdiction on competition law matters. However the scope of application of the doctrine of effects and of the doctrine of implementation is analogous, with the only exception being that the former covers negative restrictive business practices while the latter does not. Now it is time to examine the approach adopted by the US and the EC in asserting jurisdiction over merger cases. Several scenarios concerning the possible extraterritorial application of merger control law may be illustrated:
-In the first scenario country A applies its merger control legislation to a merger which takes place between firms incorporated and trading in its own territory. In this case the merger review conducted by the competition authority of A cannot be considered as exerting extraterritorial jurisdiction as none of the merging parties have foreign elements with respect to A.
-In the second scenario the competition authority of country В assesses a merger, which has some foreign elements. The merging parties are not incorporated and do not have any relevant assets in B; but their volume of sales achieved in В meets the country's statutoryjurisdictional thresholds. The exercise of jurisdiction of В over the merger can be regarded as an exertion of extraterritorial jurisdiction.
-In the third scenario the merging parties are incorporated in country D, but they have a stable market organization or production facilities in country C. Because of the substantial presence of the parties in C the merger is likely to have relevant effects in the markets of this country. For this reason, the application of the merger control law of C to the merger should not be regarded as extraterritorial jurisdiction.
-The last hypothetical scenario deals with the problem of market access. Two firms incorporated and trading in country E decide to merge. The merged entity enjoys a great market power in the relevant market, which restricts the access of new entrants to this market. The competition authority of D, fearing that its national firms cannot enter the market of E, opens an investigation into the legality of the merger. This procedure can be considered as an extraterritorial exercise of jurisdiction, more precisely it is an expression of outbound extraterritoriality.
A) The position of the US
The US Clayton Act does not contain any rules with the specific purpose of delimiting US territorial jurisdiction on merger control. So the doctrine of effects, which is relied on for the assertion of jurisdiction with respect to Sherman Act, can be also applied to merger cases[34]. The doctrine enables the US competition authorities to subject to their regulatory review all mergers provided that they have direct substantial and reasonably foreseeable effects on US commerce, even if the merger involves foreign firms. However, where a merger agreement is entered into only by foreign firms the US competition authorities must demonstrate the existence of “minimum contacts” between US territory and foreign firms in order to assert US jurisdiction on that merger. The International Guidelines of 1995 shed some lights on the concept of “minimum contacts” by clarifying that such requirement is met when the foreign firms import their products into the US and collectively account for a substantial percentage of the US sales of the product. It is irrelevant whether the firms have production facilities in the US.
Further difficulties concern the enforcement of remedies adopted by the US competition authorities when such remedies concern assets located abroad. The execution of these remedies requires the cooperation of foreign competition authorities, as the Institut Merieux case revealed. Institut Merieux, - a French company - which was the sole supplier of rabies vaccines in the US market, decided to buy Connaught, a Canadian firm, which was the only supplier of inactivated polio vaccine in its country. Each of the parties was one of the few potential entrants into the relevant market in which the other party was already trading. The Federal Trade Commission decided to exert jurisdiction on the proposed merger given that it would have had a relevant impact in the US market. The review of the transaction was problematic, especially with respect to enforcement jurisdiction, since neither party had relevant assets in the US. Public international law bans countries from exercising enforcement jurisdiction beyond their national boundaries without the consent of the country in the territory of which the measure is to be enforced. For this reason, the Federal Trade Commission was obliged to seek cooperation of the Canadian competition authority to address and enforce effective remedies concerning assets located in Canada[35].
Many examples exist in which the U.S. Department of Justice (DOJ) has brought actions under the Sherman Act against foreign corporations and their directors for acts that occurred outside the United States where there is “a direct substantial and reasonably foreseeable effect” in the United States. For instance, in Caribbean Broadcasting Systems, Ltd. v. Cable & Wireless, PLC, a court held that the plaintiffs allegations were sufficient to establish a “direct, substantial and reasonably foreseeable effect”[36] because it alleged that there is a significant market for the sale of English- language radio advertising in the eastern Caribbean, which includes Puerto Rico and the U.S. Virgin Islands, that many companies based in the United States are customers in this market, that there are substantial barriers to entry into the market, and that the defendants engaged in international conduct that gave them monopoly power and injured consumers in this market[37]. Many additional examples in which the DOJ was successful in bringingsimilar actions are illustrated in the cases discussed in the remainder of this Part.
While it is unnecessary to review U.S. law in detail, it is helpful to briefly review the most important U.S. case law in the area. The starting point is the 1909 decision of the U.S. Supreme Court in American Banana v. United Fruit Co. In that case, the U.S. Supreme Court first considered the application of the Sherman Act to foreign trade and commerce and rejected extraterritorial application. Justice Holmes noted that “the acts causing the damage were done (...) outside the jurisdiction of the United States” and that the legality of the act “must be determined wholly by the law of the country where the act is done”. Therefore, the U.S. Supreme Court originally took the strict view that the Sherman Act can only apply territorially and that territoriality relates to the place where the act was performed. If the action was outside of the United States, the Sherman Act could not be applied.
A rather radical change took place in 1945 when the Second Circuit in the Alcoa case explicitly abandoned the territoriality principle and held that the main consideration is whether the Sherman Act also prohibited agreements made abroad that “would clearly have been unlawful, had they been made within the United States”. Judge Learned Hand presented an “effects” test, holding that the Sherman Act prohibited acts that took place outside of U.S. territory “if they were intended to affect imports and did affect them”. Most commentators consider this Alcoa decision as a turning point in U.S. case law, creating a legal basis for an extraterritorial application of U.S. antitrust law[38]. Later, the U.S. Supreme Court adopted the view Learned Hand expressed in the Alcoa case.The Alcoa case also held that courts should “not (...) read general words, such as those in [the Sherman] Act, without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the ‘Conflicts of Laws’”. This language refers to the comity doctrine, in which a balancing of interests takes place whereby at least legitimate interests of other countries should be taken into account when deciding upon the extraterritorial application of U.S. antitrust law.
U.S. case law further evolved with the U.S. Supreme Court decision in Hartford Fire Insurance Company v. California (Hartford). In Hartford, the plaintiffs alleged that the defendants, which included certain London reinsurers, had violated the Sherman Act. The defendants argued inter alia that the court should decline jurisdiction on international comity grounds because the laws of the United Kingdom permitted the anti-competitive conduct, whereas the Sherman Act prohibited it. In Hartford, the U.S. Supreme Court, however, ruled that the comity doctrine was immaterial to the determination since the “persons subject to regulation by two states can comply with the laws of both.” Commentators suggest that this decision strongly reduced the role of comity in U.S. law, given that the U.S. Supreme Court has refused to engage in comity analysis and therefore has maintained jurisdiction to allow U.S. interests to prevail. Brian Peck stated that the Hartford decision led “from comity to conflict”.
The U.S. Supreme Court presented another nuance in F. Hoffmann-LaRoche Ltd. v. Empagran S.A., (Empagran), in which Justice Breyer held that ambiguous statutes should be interpreted in accordance with international law to avoid “unreasonable interference with the sovereign authority of other nations”[39]. Breyer stated that this rule “helps thepotentially conflicting laws of different nations work together in harmony-a
harmony particularly needed in today’s highly interdependent commercial world.” Breyer further held that U.S. antitrust law should apply in an extraterritorial manner when it is “reasonable, and hence consistent with respective comity principles.
Notably, this wide extraterritorial application of U.S. antitrust law is not merely troublesome for foreigners. It could be argued that this wide reach of U.S. law potentially violates the sovereignty of other nations. On the other hand, this wide extraterritorial jurisdiction makes U.S. antitrust law very attractive for foreign plaintiffs. Wurmnest suggests that given the plaintiff-friendly characteristics of U.S. antitrust law, such as generously allowing private enforcement, liberal discovery rules, treble damages, and jury trials, foreign victims of anti-competitive behavior may benefit from the liberal U.S. jurisdiction rules. Moreover, the U.S. Supreme Court has also allowed the use of U.S. antitrust law by foreign plaintiffs because denying these foreign plaintiffs standing would “lessen the deterrent effect of treble damages”. In addition, foreign plaintiffs seem to do relatively better than domestic litigants in such suits. Furthermore, after considering the U.S. Supreme Court’s case law, the DOJ, possessing proper jurisdiction over the Sherman Act, and the FTC, possessing proper jurisdiction over merger control under the Clayton Act, have jointly issued antitrust enforcement guidelines for international operations.61 The guidelines provide specific criteria concerning the extraterritorial application of U.S. antitrust law,including: -the relative significance of the alleged violation of conduct within the United States as compared to conduct abroad, -the degree of conflict with foreign national law, and -the effectiveness of foreign enforcement as compared with U.S. enforcement. The DOJ also has discretion in enforcing laws extraterritorially and can therefore determine whether to effectively bring conduct abroad within the scope ofU.S. competition law.
[...]
l See: G. Abbamonte, V. Rabassa, “Foreclosure and vertical mergers”, (2001), ECLR, 214. D. Bailey, “Standard of proof in EC merger proceedings: A common law perspective”, (2003), CMLR, 845. B. Bishop, C. Carrara, “Merger control in new markets”, (2001), ECLR, 31. L. Colley, “From defence to attack? Quantifying efficiency arguments in mergers”, (2004), ECLR, 355. J. B. Vesterdorf, “Certain reflection on recentjudgments reviewing commission merger control decisions”, in M. Hoskins and W. Robinson (eds.), A true European, Essays forjudge David Edward, (2993),Hart publishing, 10. J. Vickers “Competition, economics and policy”, (2003), ECLR, 95. M. Broberg, The European Commissioni’s jurisdiction to scutinise mergers, (2003), Kluwer. J. Cook, C. Kerse, “EC Merger control”, (2005), Sweet and Maxwell. A. Jones, B. Sufrin, EC competition law: Text, cases and materials, (2004), Oxford University Press, ch. 12. D. Stephen, “Mergers and merger remedies in the EU: Assesing the consequences for competition”, (2007), Cheltenham, UK, Edward Elgar. J. Cook, C. Kerse, “EC merger control”, (2005), Sweet and Maxwell. D.F. Broder, “A guide to US Antitrust law”, (2005), Sweet and Maxwell. S. Mathijsen, “A guide to European Union law”, (2007), Sweet and Maxwell.
[2] Maher Dabbah, The Internationalization of Antitrust Policy (Cambridge University Press, Cambridge 2003) 13. Joseph Wilson, Globalization and the Limits of National Merger Control Laws (Kluwer Law International, The Hague/London/New York 2003) 29. For an explanation of the reasons underlying the merger &acquisitions activities, see UNCTAD, Press Release, TAD/INF/PR055 03/10/00, Survival in Global Business Arena is Key Driver of Cross Border Merger and Acquisition Boom. Questions Mount in Developed and Developing Countries as Merger Activities Hits Record Levels, States New UNCTAD Report, 1996. See also in argument: H. Beladi, A. Chakrabarti, D. Raymond Hollas, Cross-border mergers and upstreaming, in The World Economy, 2017, pp. 600ss.
[3] Wolfgang von Meibom and Andreas Geiger, ‘A World Competition Law as an Ultima Ratio’, [2002] ECLR445, 445.
[4] In the introduction to its first report on competition policy the Commission wrote: “(...) competition is the best stimulant of economic activity since it guarantees the widest possible freedom of action to all. An active competition policy pursued in accordance with the provisions of the treaties establishing the communities makes it easier for the supply and demand structure continually to adjust to technological development. Through the interplay of decentralized decision making machinery, competition enables enterprises continuously to improve their efficiency, which is the sine qua non for a steady improvement in living standards and employment prospects within the countries of the Community. From this point of view, competition policy is na essential means for satisfying to a great extent the individual and collective needs of our society (...)”. See a proactive competition policy for a competitive Europe, COM (2004) 293 final. See also: S. Ehlerman, “The contribution of EC competition policy to the single market” (1992) 29, CMLR, 257. In 2004 the Commission set out its ideas for a proactive competition policy characterised by: “(...) improvement of the regulatory framework for competition which facilitates vibrant business activity, wide dissemination of knowledge, a better deal for consumers, and efficient restructuring throughout the internal market; and enforcement practice which actively removes barriers to entry and impediments to effective competition that most seriously harm competition in the internal market and imperil the competitiveness of European enterpreses (...)”. Competition law and policy in the European Union (OECD, 2005). This report was the basis for a peer review examination of the European commission in the OECD Competition Committee, October 2005. se also Report by EAGP, An economic approach to art. 82 (July 2005), Coordinator Patrick Rey. Cfr. Van der Wolde M., Jones C., Competition law, Sweet & Maxwell, (2016); Whish R., Bailey D., Competition law, Oxford University Press, (2015); Sauter W., Coherence in European Union competition law, Oxford University Press, (2016).
[5] Ulrich Schawalbe, Daniel Zimmel, Law and economics in european merger control, Oxford University Press, (2009). A. G. Toth, The Oxford Encyclopaedia of European community law: volume III. Competition law and policy, Oxford University Press, (2008). Drauz Gotz, Bengtsson Claes, Jones Christopher, mergers and acquisitions, Leuven, Claeys and Casteels, (2006). Alison Jones, Smith Brenda, EC competition law: Text, cases and materials, Oxford University Press, (2007). Peter C. Carstensen, Susan B. Farmer, Competition policy and merger analusis in deregulated and newly competitive industries, Edward Elgar Publishing, (2008). Farrid Bektashi, Collective dominance in EC competition law: Role of structural links: Case law analysis under the EC merger regulation, VDM Verlag, (2008).
[6] Asif Qureshi, International Economic Law (Sweet & Maxwell, London 1999), chapter 3: ‘Extraterritorial Jurisdictioninthe Economic Sphere’.
[7] Alina Kaszorowska, ’International Competition Law in the Context of Global Competition Law’ [2000] ECLR 117, 118. Brigitte Stem, ‘Une tentative d’élucidation du concept d’application extraterritoriale’ [1986] Revue Québécoise du Droit International 48, 51: “Il y a extraterritorialité de l’application d’une norme, si tout ou un partie du processus d’application se déroule en dehors du territoire de l’Etat qui l’a émise”. André Nollkaemper, ‘Rethinking States’ Rights To Promote Extraterritorial Values in International Economic With a Human Face’ in F.Weiss, E.Denters and P.de Waart (eds), International Economic with a Human Face (Kluwer Law International, The Hague 1998) 188.
[8] Ian Brownlie, Principles Of Public International Law (Clarendon Press edition, Oxford 1998) 291; Malcom Shaw, International Law (Cambridge University Press, Cambridge 1997) 454.
[9] André Fiebig, ’International Law Limits on the Extraterritorial Application of the European Merger Control Regulation’ [1998] ECLR 323, 326.
[10] John E. Ferry, ‘Towards Completing the Charm: The Woodpulp Judgement’ [1989] EIPR 19, 20. Aldo Frignani and Michel Waelbroeck, European Competition Law, (Transnational Publishers Inc. Ardsley NY 1998), 86. Paul Demaret, ‘Extraterritorialité des lois et les relations transatlantique: Une question de droit ou de diplomatie ?’ [1985] RTD Eur 1,31; R.Y. Jennings, ‘Extraterritorial Jurisdiction and the United States Antitrust Law’ [1957] BYBIL 146. Nicolas Ligneul, ‘Droit International de la Concurrence: Plaidoyer pour une Approche Intégrée et Progressive’ [1999] RMCLUE 458, 460. Paul Torremans, ‘Extraterritorial Application of EC and US Competition Law’ [1996] ELRev 280, 286. Demaret, above n 29, 33; F.A. Mann,’The Doctrine of Jurisdiction in International Law’ (1964) 3 Academie de Droit International. Recueil des Courses, 126, who argues that ’an inflexible territoriality principle is no longer suited to the modem world’. Bruno Nascimbene,’Aspetti Intemazionali della Politica di Concorrenza Comunitaria’ [2002] Il Diritto del Commercio Intemazionale 309, 312.
[11] Michael Akehurst, ‘Jurisdictioninlntemational Law: Antitrust Law’ [1972-73] BYBIL 145, 198.
[12] Ex multis, Demaret above n 29, 32; The Third Restatement Of Foreign Relations Law Of The United States recently published by the American Law Institute; Opinion of Darmon AG in Case 89, 104, 116, 177 and 125 to 129/ 95 A. Ahlstrom OY and others v. Commission, [1988] 4 CMLR 901, 930.
[13] Judgement of February 5th 1970, International Court of Justice, Reports of Judgements, opinions and orders, 1970, 4, 105.
[14] Neale A.D. and Mel Stephens, International Business and National Jurisdiction, (Claredon Press Oxford, 1988)167.
[15] United States v. Nippon Paper Industries Co. Ltd, 109 F.3d 1. For a comment on the case, see Richard Reynolds, James Sicilian and Philip Wellmann, ‘The Extraterritorial Application of the U.S. Antitrust Laws to Criminal Conspiracies’ [1998] ECLR 151.
16 US v Aluminium Co. of America et al., 148 F. 2d 416 (1945). After the Alcoa judgement the doctrine of effects has been also invoked in cases decided by lower courts, among which, US v. Watchmakers of
Switzerland Information Center Inc. 1963, Trade Cases CCH, para. 70600 and Zenith Radio Corp. v.
Hazeltine Research Inc. 1965, Trade Cases CCH 1965.
17 Hartford Fire Insurance Co. v. California, 509 U.S. 764 (1993).
18 Timberlane Lumber Co. v. Bank of America, 549 F. 2d 597 (1976) 608.
[19] Timberlane, ibid., para.13. This test was also applied, though with some amendments, in Mannington Millsv. Congoleum Corporation 595 F.2d, 1287 (1979).
20 Jean Gabriel Gastel,‘The Extraterritorial Effects of Antitrust Laws’ (1983) I 21 Académie de Droit International Recueil des Cours 13. Marie Demetriou and Aidan Robertson, ‘U.S. Extraterritorial Jurisdiction in Antitrust Matters: Recent Developments’ [1994] ECLR 461, 463. Antonio Bavasso, ‘Gencor. A Judicial Review of the Commission Policy and Practice: Many Light and Some Shadows’ (1999) 22 World Competition 4, 45; Richard Whish, Competition Law, (Oxford University Press, Oxford 2005) 395. Alison Jones and Brenda Sufrin, EC Competition Law: Text, Cases And Materials, (2nd ed., OxfordUniversity Press, Oxford, 2004) 1238.
21 Empagran SAvF. Hoffmann-LaRoche Ltd, 315 F.3d 338 (D.C. Cir. 2003).
[22] F. Schere, D. Ross, “Industrial market structure and eonomic performance”, Houghton Mifflin, 1990. R. Lispey, K. Chrystal, “Economics”, Oxford University Press, 2003. S. Bishop, M. Walker, “The economics ofEC competition law. Concepts, application and measurement”, Sweet and Maxwell, 2002.1. Maher, “Competition law and intelektuál property rights: Evolving formalism”, in P. Craig and G. De Bùrga (eds.), “The evolution of EU law”, Oxford University Press, 1999, ch. 16. C. Bellamy, G. Child, “European community law of competition”, Oxford University Press, 2007. J. Faull, A. Nikpay (eds.), “The EC law of competition”, Oxford University Press, 2007. M. Furse, “Competition law of the UK and EC”, Oxford University Press, 2006. D. Goyder, “EC competition law”, Oxford University Press, 2003. A. Jones, B. Sufrin, “EC Competition law: text, cases and materials”, ultimate edition, Oxford University Press. C. Kerse, N. Khan, “EC antitrust procedure”, Sweet and Maxwell, 2005. V. Korah, “EC Competition law and practice”, Hart publishing, 2004. O. Odudu, “The boundaries of EC competition law: The scope pf article 81”, Oxford University Press, 2006. R. Wesseling, “The modernisation of EC antitrust law”, Hart publishing, 2000. R. Whish, “Competition law”, Lexis Nexis, 2003.
[23] Deepa Rishikesh, ‘Extraterritorial Versus Sovereignty in International Antitrust Jurisdiction’ (1995) 14 (3) World Competition 33, 40. Laurence Idot, ‘Comment à Entreprise de Pâte de Bois c. Commission des Communautés Européennes’ [1989] RTD Eur 341, 359.
[24] Opinion of AG Mayras in Case 48/69 et al. I.C.I. and others v. Commission, [1972] ECR 587, 604; Opinionof AG Darmon in Cases 89,104,114,116,117and 125-129/85, above n 37, 928.
25 F. Hoffmann-LaRoche Ltd v Empagran SA, 542 US 155 (2004). Cedric Ryngaert, 'Foreign-to-Foreign Claims: the US Supreme Court's Decision (2004) v the English High Court's Decision (2003) in the Vitamins Case [2004] ECLR 611. Peter Muchlinski, Multinational Enterprises and the Law, (Blackwell Oxford 1999) chapter 5, “The Jurisdictional Limits of Regulation through National or Regional Law”, especially 146.
26 For example, the French Act 19-07-1980, Journal Officielle de la République Française 17-07-1980 at 1799; the UK Trading Interest Act 1980.
[27] Ibid, para 35. The Commission drew support from an obiter dicta in ajudgement of the European Court of Justice. (Case 22/71 Beguelin Import Company, v. S.A. G.L. Import Export [1971] ECR 949). The Court said that article 81 (85) of the EC Treaty applies to an agreement entered into by some non-EC undertakings if the agreement is operative on the territory of the common market.
[28] Cases 89,104,114,116,117and 125-129/85, above n68, 14.
[29] Article 81 (ex Article 85) is the principal weapon to control anti-competitive behaviour by cartels: “1. The following shall be prohibited as incompatible with the common market; all agreements between undertakings, decisions by assicuration of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market and in particular those which: a) directly or indirectly fix purchase or selling or any other trading conditions; b) limit or control production, markets, technical development or investment; c) share markets or sources of supply; d) apply dissimilar conditions to equivalent transaction with other trading parties, thereby plaining them at a competitive disadvantage; e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligation which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2. Any agreements or decision prohibited pursuant to this article shall be automatically avoid.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: a) any agreement or category of agreements between undertakings; b) any decision or category of decision by association of undertakings; c) any concerted practice or category of concerted practices which contributed to improving the production or distribution of goods or to promoting technical or economic progress, which allowing consumers a fair share of the resulting benefit and which does not: a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question”.
[30] Re Wood Pulp, EC Commission Decision n. 85/201, [1984] CMLR 475, para 79.
[31] OpinionofAG Darmon inCases 89,104,114,116,117and 125-129/85, above n37, 920-932.
[32] Dieter Lange and John Byron Sandage, ‘The Wood Pulp Decision and its Implications for the Scope of EC Competition’ [1989] ECLR 137, 165; Torremans above, n 32, 285. Yves Van Gerven and Lorelien Hoet, ‘Gencor: Some Notes on Transnational Competition Law Issues’ (2001) 28 (2) LIEI 195, 203.
[33] Dieter Lange and John Byron Sandage, ‘The Wood Pulp Decision and its Implications for the Scope of EC Competition’ [1989] ECLR 137, 165; Torremans above, n 32, 285. Yves Van Gerven and Lorelien Hoet, ‘Gencor: Some Notes on Transnational Competition Law Issues’ (2001) 28 (2) LIEI 195, 203. Theofinis Christoforou and David Rockwell, ‘European Community Law: The Territorial Scope of Application of EEC Antitrust Law’ (1989) 30 Harvard International Law Journal 195, 204. David Snyder, ’Mergers and Acquisitions in the European Community and the United States: A Movement Towards a Uniform Enforcement Body?’ (1997-98) 29 Law & Policy in International Business 115, 121; Mark Friend, ’Competition and Industrial Policy: The Long Arm of Community Law’ [1989] ELRev 169, 171. Todd Miller and Donald Baker, ‘USA Merger Control Laws’ in William Rowley and Donald Baker (eds.) International Mergers (Sweet and Maxwell, London 2000) 64-5. Joseph Griffin, ‘Antitrust Aspects of Cross-Borders Mergers and Acquisitions’ [1998] ECLR 11, 13.
34 Institut Merieux S.A., 891 0098, 55 Fed.Reg. 1614 (Jan. 17,1990).
35 Deborah Owen and John Parisi, ‘International Mergers and Joint Ventures: A Federal Trade
CommissionPerspective’ [1990] Fordham Corporate Law Institute 1, 5-14.
36 Richard W. Beckler & Matthew H. Kirtland, “Extraterritorial Application of US Antitrust Law: What Is a “Direct, Substantial, and Reasonably Foreseeable Effect” Under the Foreign Trade Antitrust Improvements Act?”, Texas International Law Journal, (2003).
37 Roger P. Alford, “The Extraterritorial Application of Antitrust Laws: The United States and European Community Approaches”, Vanderbilt Journal of International Law, (1992).
38 Wolfgang Wurmnest, “Foreign Private Plaintiffs, Global Conspiracies, and the Extraterritorial Application of U.S. Antitrust Law”, in Hastings international & Comparative Law Review, (2005), 205210. Alexander Layton & Angharad M. Parry, “Extraterritorial Jurisdiction-European Responses”, in Houston Journal of International Law, (2004), 310-311.
39 Erika Siegmund, “Extraterritoriality and the Unique Analogy Between Multinational Antitrust and Securities Fraud Claims”, 51 Vanderbilt Journal oflntemational law, (2011), 1047.
- Arbeit zitieren
- Dimitris Liakopoulos (Autor:in), 2017, A comparative analysis of EU and US transnational mergers regulation, München, GRIN Verlag, https://www.grin.com/document/384880
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