Antitrust in focus - October 2022

General

• Australian government proposes to significantly increase penalties for antitrust infringements
• EU Advocate General opinion recommends alternative route for antitrust assessment of “killer acquisitions”
• U.S. DOJ reiterates commitment to fighting illegal deals as its losses mount
• European Commission publishes revised guidance increasing legal certainty in antitrust matters
• Proposal for radical amendments to Germany’s antitrust rules
• Saudi Arabian antitrust authority indicates more proactive enforcement and heightened scrutiny

Digital & TMT

• EU sets timeline for application of Digital Markets Act as authorities cement international cooperation on antitrust issues in digital sector
• EU Court telecoms opinion seeks to clarify standard of proof for merger control prohibitions
• French appeal court radically cuts antitrust fines imposed for alleged anti-competitive distribution of Apple products

Life Sciences

• European Commission alleges abuse of dominance through misuse of patent procedures and a disparagement strategy

General

Australian government proposes to significantly increase penalties for antitrust infringements

At the end of September, the Australian Assistant Treasurer and Finance Minister announced the government’s plans to introduce legislation that will substantially increase potential penalties for breaches of competition and consumer law. The draft legislation has already passed the first and second reading stages, and awaits parliamentary debate and voting.

Australia’s recently elected Labor Party raised the idea of increasing fines during the recent national elections. In its document Incoming Brief, released for the new government, the Australian Competition and Consumer Commission (ACCC) recommended a penalty increase for consumer breaches.

At present, the maximum penalty imposed on corporations per breach of relevant provisions under the Australian Competition and Consumer Act is the greater of: (i) AUD10 million (approx. USD6.2m), (ii) three times the value of the benefit obtained (if this can be determined by the courts), and (iii) 10% of annual turnover in the preceding 12 months.

The proposal would increase the base maximum penalty for corporations to AUD50m (approx. USD31m), and the turnover-based penalty would also be increased to 30% of turnover for the period in which the breach took place. Penalties for individuals would increase from AUD500,000 (approx. USD309,800) to AUD2.5m (approx. USD1.6m).

The government expects the proposal to make future fines imposed in Australia more comparable with those imposed in other jurisdictions, and to work as a deterrent to ensure a fair level of competition and prevent large players from using their position to dominate markets.

The proposal is also consistent with the current trend towards higher penalties imposed by the courts under the existing law, especially in respect of consumer law breaches. Record-breaking penalties were recently issued by the courts for breaches of the Australian consumer law, including against Volkswagen (which was fined AUD125m in 2021) and the Australian Institute of Professional Services (which was fined AUD153m this year).

Some stakeholders, including the Australian Banking Association (ABA), have already commented on the proposal. In its submission, the ABA argued that if the changes were implemented they would have a significant impact on Australian businesses and other penalty regimes in the economy. It also stated that the increase from 10% to 30% of group turnover would be significant and should be capped.

It remains to be seen whether the proposed change (if introduced) will alter the ACCC’s enforcement policy and whether it will operate to deter companies from engaging in cartels and other anti-competitive practices.

Cartel conduct remains an enforcement priority for the ACCC in 2022-2023, and it is having some success. Our June 2022 edition of Antitrust in focus covered the Federal Court’s first sentencing of individuals for a criminal cartel offence. The court imposed suspended prison terms in the Vina Money case. Recently, in proceedings referred to the Commonwealth Director of Public Prosecutions, Bingo Industries and, separately, its former Managing Director and CEO entered guilty pleas to criminal cartel offences relating to the provision of demolition waste services. There have now been seven criminal cartel cases where guilty pleas have been entered.

In a related media release, ACCC Chair Gina Cass-Gottlieb affirmed the ACCC’s commitment to “taking appropriate action against those who are a party to illegal cartel behaviour”. She said: “Trying to detect cartels early and working with whistleblowers is an essential component of our work.”

EU Advocate General opinion recommends alternative route for antitrust assessment of “killer acquisitions”

We have commented a number of times on measures being adopted by jurisdictions across the globe to tackle so-called “killer acquisitions” (ie acquisitions of start-ups, often in the digital or pharma sectors, which may avoid merger control scrutiny by falling below review thresholds).

At EU level, last year the European Commission (EC) adopted a controversial new policy of accepting (under Article 22 of the EU Merger Regulation) Member State requests to review transactions that do not meet EU or national merger control thresholds. The General Court recently confirmed this approach – see our alert for the details.

Now, an important opinion issued by EU Advocate General Kokott – in which she gives her recommendations to the European Court of Justice (ECJ) in a case relating to the acquisition by TDF Infrastructure Holding (TDF) of Itas – endorses another possible route for assessment of below-threshold mergers.

TowerCast, a rival to the merging parties in the market for television broadcasting in France, complained to the French competition authority (FCA) about the transaction, which did not meet EU or French merger control thresholds and was not referred to the EC. According to TowerCast, TDF’s acquisition of Itas amounted to an abuse of dominance, hindering competition on markets for digital terrestrial television by significantly strengthening TDF’s already dominant position. It reduced the number of competitors from three to two.

The FCA investigation services sent a statement of objections to TDF in 2018 based on an alleged abuse of dominant position. The FCA decision-making body (the Collège) considered that no abuse was committed. TowerCast then appealed to the Paris Court of Appeal, which asked the ECJ whether it is possible for a national antitrust authority to assess an acquisition by a dominant company under the abuse of dominance rules.

In the Advocate General’s opinion, the answer is yes.

Her view is that this type of “supplementary application” of the EU abuse of dominance rules is “likely to contribute to the effective protection of competition” and to fill a “gap in protection” that has emerged in the coverage and control of killer acquisitions.

However, she does set out some caveats. A deal can only be assessed under EU abuse of dominance rules where it has not been approved under EU or national merger control thresholds (unless the dominant firm has engaged in conduct that goes beyond the approved acquisition). Significantly, she says that if an authority finds that a company has abused its dominance through an acquisition, the deal should not face prohibition/unwinding. She considers that fines could be appropriate instead.

All eyes will be on the ECJ to see if it follows the Advocate General’s opinion. While in its 1973 Continental Can judgment the ECJ held that an acquisition could be prohibited under EU antitrust law as an abuse of dominance, many (including the FCA in this case) argue that Continental Can preceded the adoption of the EU Merger Regulation and therefore is obsolete.

If the ECJ takes the same line as Advocate General Kokott, the EC will have yet another tool in its armoury for pursuing below threshold transactions, albeit one that is limited to acquisitions by dominant players. The result would be even more uncertainty for deal makers. We will update you when the ECJ hands down its final ruling.

U.S. DOJ reiterates commitment to fighting illegal deals as its losses mount

Our September 2022 edition of Antitrust in focus noted the U.S. Department of Justice (DOJ)’s losses in two merger challenges: UnitedHealth Group/Change Healthcare and U.S. Sugar/Imperial Sugar.

This month the DOJ was dealt another blow when a U.S. District Court judge refused to block Booz Allen’s acquisition of EverWatch. The DOJ had claimed that the deal would eliminate all competition for a single contract for providing mathematical modelling and simulation services to the National Security Agency (NSA). The merging parties were the only two bidders.

However, the judge concluded that, post-merger, Booz Allen would continue to have strong countervailing incentives to compete for the contract. For example, given the relatively small size of the contract, the company would be unlikely to jeopardise its reputation and potentially risk losing other contracts by taking advantage of its strengthened position in relation to the NSA contract to hike prices.

Interestingly, the judge also dismissed internal documents ‒ many of which were “informal chats and emails from lower-level employees” made after news of the merger had broken ‒ cited by the DOJ as direct evidence of actual detrimental effects on competition. She noted that “Banter with coworkers is a natural and expected response to big news. The court cannot predict a company-wide shift in bidding strategy based on these off-handed and speculative comments”.

It remains to be seen whether the DOJ will appeal the ruling. Indeed, it will take some comfort from the fact that the parties committed to submit separate bids, construct firewalls between the bidding teams and create financial incentives for the winning team. They are required to provide the court with a status update.

The Booz Allen case is not the only defeat for the DOJ this month. The judge of a U.S. District Court requested that the DOJ dismiss criminal antitrust charges against two remaining executives for their roles in a nationwide price-fixing and bid-rigging collusion for broiler chicken products. The judge held that the DOJ had failed to establish the conspiracy by not providing a sufficient level of evidence. The result of this latest move is that, following a series of mistrials and dismissals, the DOJ has failed to secure a single conviction against the total of 14 individuals it brought criminal charges against for their role in the alleged broiler chicken cartel.

What is clear is that these defeats are unlikely to deter the DOJ. Assistant Attorney General for the DOJ Antitrust Division Jonathan Kanter has reportedly subsequently said that the DOJ is not afraid of going to court and will fight illegal deals. He has pointed to the deterrence value of numerous successful challenges and abandonments ‒ for both anti-competitive mergers and behaviours.

As another signal of its enforcement focus, this month the DOJ also reported that it required seven directors to resign from the board of five companies in response to concerns about potentially illegal interlocking directorates in violation of Section 8 of the Clayton Act. The DOJ notes that the announcement is “the first in a broader review of potentially unlawful interlocking directorates” where directors and officers sit on boards of competing companies.

European Commission publishes revised guidance increasing legal certainty in antitrust matters

First, the European Commission (EC) has adopted a revised Informal Guidance Notice. This notice explains when and how individual undertakings can seek informal guidance from the EC on the application of EU antitrust rules in cases of genuine uncertainty. Where cases present novel or unresolved questions, companies may request and the EC may provide a non-binding written statement or “guidance letter” on the interpretation of the relevant rules.

While the original version of the notice had been in place since 2004, the very strict criteria set out within it meant that it was never used in practice.

The revised notice now potentially provides greater flexibility and legal certainty. The definition of what amounts to a “novel” question has been broadened to catch cases where there is “no sufficient clarity” (as opposed to “no clarification”) in the existing EU legal framework. In addition, the EC is free to address a wider range of issues, including the relevance of the practices for the achievement of its own enforcement priorities and the EU’s interests.

In principle, the EC will not impose any fines on an applicant relying in good faith on a guidance letter. Informal guidance may therefore become a more popular route for businesses considering new and emerging ways of doing business. Companies could seek comfort, for example, that their cooperation on sustainability initiatives or the introduction of new technology complies with EU antitrust rules.

The EC also envisages the use of informal guidance in crisis or other emergency situations, including any deterioration in the public health situation and related disruptions in the supply of essential products and services. Indeed, at the same time as adopting the notice and in light of the relative improvement of the public health situation in Europe, the EC decided to withdraw its April 2020 Antitrust Covid Temporary Framework. This framework set out the criteria for assessing cooperation projects aimed at addressing a shortage of supply of essential products and services during the Covid-19 outbreak. It also provided an option for the EC to issue comfort letters on related specific and well-defined cooperation projects, which it did on a couple of occasions.

Second, given the increasingly complex leniency landscape, the EC has published guidance that aims to facilitate leniency applications. In particular, the document signals the EC’s intention to discuss potential leniency applications on a “no-names” basis, without the need to disclose the sector, the parties involved or any other details identifying the potential cartel. The EC predicts that this will again assist parties involved in novel conduct.

In addition, the EC has identified “Leniency Officers” that companies or their legal representatives can contact for informal advice on leniency or for guidance on submitting a leniency application. Earlier this month the EC also upgraded its “eLeniency” online platform so that it is now a two-way tool. Parties to cartel and antitrust proceedings can opt to easily and securely access and be notified of a range of different documents and information online, avoiding the need to visit the EC’s physical premises. Such improved practical arrangements may well go some way to easing the processes involved in and increasing the attractiveness of the EU’s leniency programme.

Finally, in late September, the EC gave another example of its willingness to clarify the application of the antitrust rules in adopting Guidelines on collective agreements by solo self-employed people (Guidelines). The EC believes that the Guidelines are needed due to the fact that self-employed people are considered “undertakings”. There is a resultant risk that they might infringe antitrust prohibitions when negotiating collectively on their fees or other trading conditions.

The Guidelines clarify when certain solo self-employed people (ie those who work completely on their own and do not employ others and are in a situation comparable to workers) can collectively negotiate better working conditions without breaching EU antitrust rules. They also indicate that the EC will not enforce those rules against collective agreements made by solo self-employed people who are in a weak negotiating position.

The Guidelines form part of a number of EC measures aimed at addressing the working conditions of platform workers. However, the EC expressly notes that their scope is not limited to the digital sector, covering also solo self-employed people active in the offline economy.

Proposal for radical amendments to Germany’s antitrust rules

The German Federal Ministry of Economics and Climate Action has published a proposed 11th amendment to the German Competition Act. The reforms, expected to take effect in early 2023, seek to make several important changes to the German antitrust rules.

In particular:

• Sector inquiries: the Federal Cartel Office (FCO) will have the power to impose far-reaching remedies following the conclusion of a sector inquiry, irrespective of whether the FCO finds a breach of antitrust rules. These remedies could include both behavioural and structural measures and even, as a last resort, divestitures. The reforms will also lower the thresholds that enable the FCO to impose merger control obligations (ie a requirement to notify future concentrations) as a follow-up to a sector inquiry.
• EU Digital Markets Act (DMA) enforcement: the changes will facilitate the private enforcement of the DMA in Germany. The German provisions for private enforcement of antitrust rules will be extended to also apply to proceedings relating to the DMA. In addition, the FCO will be able to conduct investigations into whether firms designated as “gatekeepers” under the DMA (which will enter into force on 1 November 2022 – see our article below) have failed to comply with their DMA obligations.
• Skimming off profits from antitrust breaches: the FCO will more easily be able to skim off profits obtained by companies as a result of a violation of antitrust rules. Significantly, the reforms will introduce a rebuttable presumption that the anti-competitive gains amount to 1% of the sale of goods or services affected by the antitrust infringement over the entire relevant time period.

Our alert takes you through each of these key elements and comments on their likely impact.

Saudi Arabian antitrust authority indicates more proactive enforcement and heightened scrutiny

Saudi Arabia’s General Authority for Competition (GAC) has released its 2020-2021 Annual Report. The Report sets out the main competition challenges, recommendations and proposals for the years ahead. According to the Report, in 2021 the GAC focused on conducting sectoral studies, merger reviews, reviewing and developing competition policies, launching initiatives to promote effective enforcement and increasing international cooperation.

A particularly interesting point is that the GAC has nearly doubled the number of investigations carried out, with increased focus on abuse of dominance cases. With the GAC gearing up for a more proactive role, market players in Saudi Arabia should prepare for scrutiny. Our alert highlights the Report’s key takeaways.

Digital & TMT

EU sets timeline for application of Digital Markets Act as authorities cement international cooperation on antitrust issues in digital sector

Our July 2022 edition of Antitrust in focus covered the adoption of the EU Digital Markets Act (DMA). This month, the DMA was published in the EU Official Journal. It will enter into force on 1 November 2022 and become applicable from 2 May 2023, with some exceptions which will apply from 1 November 2022 (eg provisions concerning European Commission (EC) powers to adopt delegated acts) and from 25 June 2023 (provisions concerning representative actions brought against infringements by gatekeepers and concerning the reporting of breaches and protection of reporting persons).

Once the DMA becomes applicable, any company that meets the quantitative thresholds for identifying a presumed gatekeeper will have two months to notify the EC about meeting the thresholds. The EC will then have 45 working days to adopt a decision designating that company as a “gatekeeper”. The DMA will impose significant obligations on gatekeepers, including a prohibition on self-preferencing, restrictions on the combination and use of personal data, and obligations to enable data portability and interoperability in certain circumstances.

You can read about the key aspects of the new regime in our alert or watch our insightful webinar collaborations with the Berkeley Center for Law & Technology: An introduction to the Digital Markets Act and A deeper dive into the Digital Markets Act.

We expect EU Member States as well as the EC to take action ahead of the DMA’s enforcement. In Germany, for example, the Economy Ministry has started seeking input from stakeholders regarding any potentially adverse practices of large digital platforms that could be prohibited under the new rules. Feedback will be collected up to 13 November. As mentioned above, Germany is also empowering the German antitrust agency to assist the EC in enforcing the DMA and to enable private parties to enforce the DMA through the courts under an 11th amendment to the German Competition Act, slated to enter into force in early 2023.

Competition in digital markets remains an enforcement priority at a global level too. This month, the antitrust heads of the EC, the U.S. Department of Justice and the U.S. Federal Trade Commission met for the second EU-US Joint Technology Competition Policy Dialogue (an initiative launched in December 2021) to discuss the progress made on their cooperation efforts to ensure and promote fair competition in the digital sector. The meeting focused on:

• the importance of forward-looking analysis in the field of technology to identify future key markets and issues that may arise in the digital sector
• the adoption of effective remedies in digital cases
• the need to keep merger regulations fit for purpose in a digitalised economy.

October has also seen the publication of an updated Compendium of approaches to improving competition in digital markets developed by G7 and guest antitrust authorities. The new edition highlights the fact that authorities face similar challenges and concerns with respect to competition in digital markets and have similar approaches to addressing them.

A number of contributing countries have already introduced various legislative reforms and strengthened their capability to tackle antitrust issues in digital markets. Australia, for example, is expected to release its report in relation to its latest digital platform inquiry very shortly – we will cover the report’s key findings in the November edition of Antitrust in focus. The Compendium underlines the importance of collaboration between antitrust agencies, as well as other regulators and governments, in addressing the challenges.

EU Court telecoms opinion seeks to clarify standard of proof for merger control prohibitions

In 2020, the General Court (GC) annulled the European Commission (EC)’s 2016 prohibition of CK Hutchison’s proposed acquisition of Telefónica UK. The merger would have combined two of the UK’s four mobile network operators ‒ Three, owned by CK Hutchison, and O2, owned by Telefónica UK. The GC’s judgment has made it harder for the EC to block transactions that do not create or strengthen a “dominant” player, both in the telecom sector and more widely. Our alert considered whether it amounted to a reset for EU merger control.

However, an Advocate General opinion in the EC’s appeal of the GC’s judgment published last week threatens a reversal of that situation. Agreeing with the EC’s arguments, the Advocate General has recommended that the European Court of Justice (ECJ) set aside the lower court’s judgment and direct it to provide a fresh ruling.

Significantly, Advocate General Kokott criticises the GC's restrictive interpretation of the concept of a “significant impediment to effective competition” (an SIEC – the core legal test in EU merger control) in cases involving unilateral effects. She considers that the scope of the EC’s review and standard of proof for assessing an SIEC should not vary according to the type of concentration. In particular, she does not consider there to be any justification for a higher test than the “balance of probabilities” or “plausibility”, rejecting the GC's view that a “strong probability” must be shown in certain cases. She also criticises the GC's approach to efficiencies (which had suggested a greater role for these in helping to clear transactions).

Look out for our alert considering the opinion further. While non-binding, if substantially followed by the ECJ, consolidation in telecoms markets, and more broadly in other concentrated markets, may become more challenging.

French appeal court radically cuts antitrust fines imposed for alleged anti-competitive distribution of Apple products

The Paris Court of Appeal has partially overturned the French antitrust authority’s record EUR1.2 billion fine imposed on Apple and two of its authorised wholesalers. In March 2020, the authority found product and customer allocation, resale price maintenance and, more unusually, abuse of economic dependency. See our alert on the 2020 decision.

Significantly, together with a ruling on a challenge to a cartel decision in the stewed fruits sector on the same day, the judgment calls into question the proportionality of the authority’s approach to calculating fines.

Watch out for our alert on the key elements of the court's judgment.

Life Sciences

European Commission alleges abuse of dominance through misuse of patent procedures and a disparagement strategy

The European Commission (EC) has sent a statement of objections to Teva alleging that the company engaged in practices aimed at delaying the market entry and uptake of generic drugs that compete with Teva’s originator multiple sclerosis drug Copaxone (containing the active pharmaceutical ingredient glatiramer acetate). The EC preliminarily found that Teva had abused its dominant position by:

• misusing patent procedures ‒ Teva artificially extended the basic patent protection for glatiramer acetate by filing and withdrawing secondary patent applications
• implementing a systematic disparagement campaign ‒ Teva targeted healthcare professionals, casting doubts about the safety and efficacy of a competing generic drug.

An alert providing an overview of the case, together with its implications, will shortly be added to our Life Sciences Hub.

A&O Antitrust team in publication

Recent publications/initiatives by members of our global team include:

• Kristina Nordlander (partner, London and Brussels) and Daren Orzechowski (partner, Silicon Valley) continue a conversation with Thomas Kramler (European Commission): A deeper dive into the Digital Markets Act – A candid conversation with Thomas Kramler from the European Commission, in collaboration with the Berkeley Center for Law & Technology.
• Antonio Martínez (partner, Madrid) and Anabel Blasco (associate, Madrid): contributors to Anuario de Derecho de la Competencia 2022, Thomson Reuters Civitas/Aranzadi, September 2022.

About your editor 

Lisa is a counsel in our global antitrust team, based in Sydney. Her practice focus is on providing commercial advice to help clients navigate complex merger control transactions and business-critical regulatory investigations in Australia and across the APAC region. She has extensive experience in providing specialist advice on a range of business structures and transactions, including M&A, joint ventures and other collaborative arrangements. She advises clients on all types of engagement with antitrust regulators, from merger review to market studies and enforcement action.

Lisa’s expertise stretches across a variety of industries, with a particular focus on digital platforms (including acting on the Australian Competition and Consumer Commission’s five-year Digital Platform Services Inquiry), energy and resources and financial services.

Lisa obtained her LLB BA from the University of New South Wales. Her past experience includes serving as an associate to a judge in the Federal Court of Australia. On the pro bono side, Lisa advises and represents refugees and asylum seekers on behalf of the Refugee Advice and Casework Service, an independent body which provides access to legal support for people seeking asylum in Australia

Spotlight on Lisa

A typical working day in Sydney involves… a flat white and avocado toast of course, a ferry to work, interesting matters with a friendly and fabulous team, and in summer if I’m lucky, a ride down to Bondi for a swim with the kids.

If I hadn’t become an antitrust lawyer, I would most probably be … a famous actor – see below.

The best career advice I’ve been given is… you can have it all, just not all at once.

The most interesting matter I’ve worked on is… early in my career, when I was a judge’s associate, we heard a defamation claim brought by the international fashion house of Versace against a Sydney private investigator who’d made claims in his “memoirs” about the late Gianni Versace. Santo Versace was in the courtroom, Donatella Versace gave evidence via video link. There was a handwriting expert and a media scrum. Even my parents came to watch.

For me, being a good lawyer/advisor means… delivering exceptional service to my clients. Being a trusted colleague.

Something I’d like to do but haven’t yet done is… finish writing my second book.

My ideal weekend in two sentences… A holiday house by the beach with friends. Good food and wine.

My typical weekend in two sentences… Driving children to places. Taking short breaks between driving children to places.

Something that might surprise you about me is… I starred alongside Taika Waititi in Arthur Miller’s The Crucible. (It was a school play but very well reviewed… by my parents.)

My top tip for visitors to Sydney is… spend time at a beautiful harbour swimming spot, like Parsley Bay or Nielson Park.