Mark Batipps, Eboni Bledsoe, and Matt Dickert April 27, 2011

1. Mark Batipps, Eboni Bledsoe, and Matt Dickert April 27, 2011

3. Overview of Global Antitrust • A few large economies in the world are enforcing their laws on others. • Countries who enforce their laws extraterritorially: • United States • European Union (E.U.) • China • Many countries model their laws after the U.S. and the E.U., but reflect their own distinctive cultures, economic circumstances, political systems, and histories. • Over 125 countries have antitrust laws on the books today.

4. Global Antitrust Overview • Recent Antitrust law adopters • 1993 South Korea • 1999 Indonesia and Thailand • 2002 Taiwan • 2004 Vietnam • 2008 China • 2010 Malaysia • Many countries do not enforce their antitrust laws but this is slowly changing especially in Asia.

5. Current U.S. Law • Sherman Act (1890) • Section 1: Makes illegal “contracts, combinations, and conspiracies” that restrain trade. • Section 2: Makes monopolies or conspiracies to create monopolies of a market illegal. • Sherman act has two standards for a violation “per se” and “rule of reason” • Per Se violations: tying arrangements and collusive bidding. • Rule of Reason violations: Exclusive dealing arrangements, vertical price fixing • Clayton Act (1914) created to expand the powers of the Sherman Act. • Section 7: Makes illegal mergers and acquisitions which would lead to a monopoly or reduce competition. • Hart Scott Rodino Act (1976) • Requires companies to report their planned mergers and acquisitions to the Department of Justice and the Federal Trade Commission if the transaction is valued above a statutory amount. • Federal Trade Commission Act • Section 5: allows the FTC to administratively address new anti-competitive behavior that has not yet been covered by making illegal “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” • Also allows the FTC to protect consumers administratively under the Sherman and Clayton Acts.

6. Application of Legislation Application to Foreign Companies • “Effects Test”:created by the courts in United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945) • If there is an effect on U.S. commerce and it was intended then the court has jurisdiction over foreign actions. • “Foreign Trade Antitrust Improvements Act of 1982 ("FTAIA")”: For export and non-import foreign commerce the Sherman Act only applies when there is “a direct, substantial, and reasonably foreseeable effect on U.S. commerce.” • Exceptions to U.S. jurisdiction: • “foreign sovereign immunity” • “foreign sovereign compulsion” • “act of state doctrine” • “Noerr-Pennington doctrine to immunize the lobbying of foreign governments”

7. Application of Legislation • Comity: “the informal and voluntary recognition by courts of one jurisdiction of the laws and judicial decisions of another” • The Department of Justice, Federal Trade Commission, and U.S. courts recognize and apply comity when deciding antitrust jurisdiction. • Hartford Fire Insurance Co. v. California, 113 S.Ct 2891 (1993): addressed the comity issue but said there was not any conflict between the laws so there was no problem with U.S. Antitrust laws being applied. • Incorporated into bilateral agreements

8. Major Problems • Current regulations extend laws to foreign companies even if the transaction is not taking place within the regulating country’s borders. • Antitrust laws differ between nations, which makes it difficult for companies to comply and make business decisions. • Current laws allow countries to use antitrust laws as trade barriers.

9. The Main Issue • There is a lack of global agreement on what antitrust laws should cover. • Competing Interests: • Consumer Rights • Corporations need for predictability and certainty • Government’s right to sovereignty, especially weaker economies

10. Merger Law: E.U. vs U.S. • No major substantive difference between EC merger law and the U.S. • European Commission (EC) has a faster process for mergers and acquisitions than the U.S. so cases are decided quicker. • Application: • U.S. is more concerned with consumer rights • EC is focuses on the competitors and consumer rights.

11. Boeing • 1997 merger McDonnell Douglass and Boeing • Boeing sought to buyout McDonnell Douglass in a deal worth $13.7 Billion. • The deal would make the company “a major supplier of military equipment to the U.S. Department of Defense.” • European Commission (EC) threatened to block the deal. • EC concerned that the deal will reduce competition by increasing Boeing market share above 60% of the market. As well as gaining the rights to supply certain airlines exclusively. • EC demanded that Boeing make changes to the deal or it would not be approved by the EC. • U.S. authorities had not yet made their determinations on the merger when the EC made its demands. • Boeing’s response: • Boeing, citing a bilateral agreement between the U.S. and EU, argued that the U.S. FTC should take the lead on the principle of comity. • U.S. should have priority because it “involves two U.S. companies with no manufacturing presence in Europe.” • Politics • It was claimed that the EU was attempting to protect AIRBUS and the U.S. was fighting for Boeing. • WTO action was threatened by the U.S. if the merger was blocked by the EU. • Result: • Boeing settled with the EC and agreed to “give up exclusivity on long-term supply dales, and Boeing would license to its competitors…technology developed with U.S. Government funding.” • FTC approval was also given.

12. Microsoft Entangled in Antitrust • Multi-jurisdictional Assessment and Lack of Uniformity Among Laws: • Microsoft vs. U.S. • Microsoft vs. Europe • The Facts: • Dominant Position in Market by Microsoft (due to control and licensing requirements of its Operating System and Web browser sales) • Victory or Anti-competition by “Bundling”? • U.S. Final Judgment 2001 • E.U. Ordering Microsoft to release version of Windows without Media Player, 2004 • Mitchell Baker (Mozilla Foundation): Self-Determination and Individual Empowerment Symbolic Act “against hierarchical power”: Bill Gates takes a pie to the face February 4, 1998, while in Brussels. Perpetrator – Noël Godin (Accomplices – French Woman and Belgian Student)

13. U.S. v Microsoft • Collection of Civil Actions: pursuant to Sherman Antitrust Act – (Civil Action No. 98 – 1232) • Violates Sherman Act (section 1 and 2) • May 18, 1998 – DOJ and 20 States take action against Microsoft (Software Monopoly) • October of 1998: DOJ sues Microsoft for forcing computer makers to include Internet Explorer as part of installation of Windows Software (separate case) • Was Microsoft allowed to “bundle” its web browser, Internet Explorer, and Microsoft Windows, the operating system? • April 3, 2000: Judge Thomas Jackson (U.S. District Court for District of Columbia) rules • September 26, 2000: D.C. Circuit Court of Appeals overturns Judge Jackson’s ruling and remand the case for reconsideration under a different Judge (Judge Colleen Kollar-Kotelly) • September 6, 2001: DOJ announces that it is no longer seeking to break up Microsoft (and seeks lesser –speedier - antitrust penalty) • November 2, 2001 – DOJ reaches agreement with Microsoft – share application programming (Preventing “Predatory Behavior”) • November 12, 2002: Final Judgments – accepts DOJ settlements • April 22, 2011: Final Joint Status Report on Microsoft Compliance with the Final Judgments

14. Microsoft v. E.U.: Use of Extraterritoriality • European Antitrust Law: • Treaty on the Functioning of the European Union • Article 101 • Article 102 • “Dominant Position”: Novell complains that Microsoft's licensing practices in 1993 • 1998 “Bundling” – Microsoft Media Player included with Windows is a problem for European Regulators (“Streaming Media Technologies”) • 2004 Commission finds Against Microsoft: Sun Microsystems had charged that Microsoft refused to share information that would allow “interoperability” between its servers and the equipment produced by the software giant; Fine of €437million ($794million) imposed • Microsoft Argues that the ruling will infringed on Intellectual Property Rights and stifle innovation • The E.U. wanted Microsoft to disclose or license its server protocols • September 17, 2007: Appeals Court dismisses Microsoft’s arguments • December 16, 2009, E.U. drops antitrust case after Microsoft agreed to offer consumers choice of rival Web browsers; (Announced by E.U. Competition Commissioner Neelie Kroes) • Beneficiaries: 100 million European users of Windows OS (“Competitive, free choice should be the norm.”) • Punishment Method – Fines seem to hit home (totaling $2.4billion) • This includes a February 28, 2008 fine of €899million for failing to comply with 2004 ruling • December 2009: Microsoft agrees to offer users a choice between a dozen different browsers

15. Google: Target of Antitrust Probes

16. Google: European Union Treaty Violation? • The case is examining whether Google violates European Union treaty Article 102, which states: Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

17. Google: The Complaints Three complaints lodged with European regulatory bodies earlier this year by: • French legal search service eJustice • British price comparison site Foundem • German shopping site Ciao (owned by Microsoft) • “Google lowered the ranking of unpaid search results for businesses that offer competing online products (vertical search) - such as price comparisons for shoppers - while positioning its own services prominently on the page.” • “It took measures that forced rivals to pay higher prices to advertise such services on the search site.” • “The company attempted to prevent its advertisers from working with competing search and advertising companies by imposing exclusivity obligations and restricting the portability of advertising-campaign data.”

18. European Commission Investigates Google

19. China and Antitrust • $9 Billion merger of Japan’s Panasonic and Sanyo companies. • Using their antitrust authority the Chinese threatened to block the merger if Panasonic did not sell off some of its key assets. The U.S. and EU also made similar requests of Panasonic. • This case shows that China’s growing economic power can be extended to its antitrust regulation and make puts it closer to US and EU in regulation.

20. Bilateral Agreements • U.S. - E.U. 1991,1998: Antitrust Cooperation (Sir Leon Brittan) • Transatlantic Cooperation: U.S.-E.C. Merger Working Group • U.S. – Canada Cooperation Agreement (1995): • Fulton-Rogers Understanding of (1959): Communications Channels • First antitrust notification and consultation prototype • U.S.-Canada Mutual Legal Assistance Agreement (MLAT) 1990: Criminal law Enforcement/Sharing of Information • U.S. – Japan (2000) • U.S. – Mexico (2000) • U.S. – Chile (2011) • Unique Relationship that dates back to the end of WWII • U.S. – Australia Cooperation Agreement (1982) • U.S. – Australian Mutual Antitrust Enforcement Assistance Agreement (1999) • U.S. – Germany Cooperation Agreement (1976) • U.S. – Russia (2009) • U.S. – Israel Cooperation Agreement (1999) • U.S. – Brazil Cooperation Agreement (1999)

21. Problems with Bilateral Agreements • Countries face differences in terms of national standards, in terms of regulating antitrust: • GE-Honeywell merger highlights difference in Antitrust Standards – (E.U. economic concept of “bundling” threatened competition) • There remain risks in generalizing too readily in so complex an environment when it comes to global Antitrust legislation. • “Soft Agreements” – Executive agreements • Bilateral Agreements have developed along unique paths; Each party still has its own laws, procedures, priorities, and legal cultures.

22. Organization for Economic Cooperation & Development (OECD) • Competition Assessment Toolkit • general methodology for identifying unnecessary regulatory restraints and developing alternative, less restrictive policies that still achieve government objectives. • A Competition Checklist asks a series of questions to screen for laws and regulations that have the potential to unnecessarily restrain competition. • focuses limited government resources on the areas where competition assessment is most needed. • OECD Journal of Competition Law and Policy • First published in 1999, the journal draws on the work of the OECD Committee on Competition Law and Policy. • Provides “insight into the thinking of competition law enforcers while focusing on the practical application of competition law and policy.” • No enforcement mechanism and only includes a few countries

23. International Competition Network (ICN) • The ICN is an organization which works with “non-governmental advisors” and government antitrust agencies “to improve and advocate for sound competition policy and its enforcement across the global antitrust community.” • Includes developed and developing countries • Helps countries who have no antitrust laws to set them up. • Is focused on projects which deal with antitrust issues. • There are several working groups which cover different antitrust areas. • “96% of competition agencies surveyed make use of ICN work products and materials.”

24. WTO: Timeline

25. WTO • Positions on Antitrust at the WTO • EU is for an Antitrust regime at the WTO. • U.S. has traditionally opposed an antitrust regime at the WTO due to fears of corporations but in light of the emerging markets such as China the U.S. has changed it policy. • Developing countries generally oppose antitrust at the WTO level because: • They don’t have resources, expertise, or money to administer competition policy • Many developing countries wish to allow uncompetitive actions in their borders to help their developing industries.

26. WTO • Criticism of Antitrust at the WTO • Few countries have experience with antitrust enforcement in the international arena. • Too many different antitrust laws • What if there is a conflict? • Difficult to combine differing laws into a single policy. • Infringes on sovereignty

27. Proposals • Create: “TheAgreement on Transnational Antitrust Policy (TRAP)” • This agreement would be incorporated into the WTO family of Agreements. • It would utilize the same Dispute Resolution mechanism currently in place. • Current trends in Antitrust enforcement across national borders indicate that the passage of this universal standard might be more feasible than past attempts, such as ITO and DOHA, as previously mentioned. • Developing a universal system of rules for antitrust can be facilitated by the fact that there are numerous countries that have laws already modeled on E.U.-U.S. competition laws.

28. Questions • Which country (after China) will begin extending their antitrust laws extraterritorially? Why? • How would you convince countries to agree to the TRAP?

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30. References Melnitzer, Julius. “Antitrust Laws Gain Momentum In Asia Pacific.” Inside Counsel 1 Dec. 2010: n. pag. Factiva. Web. 19 Apr. 2011.O'Brien, Kevin. "Europe Drops Microsoft Antitrust Case." The New York Times 16 December 2009: B2. Organization for Economic Cooperation & Development. "Competition Assessment Toolkit." Organisation for Economic Cooperation & Development. 15 April 2011 http://www.oecd.org/document/48/0,3746,en_2649_37463_42454576_1_1_1_37463,00.html. Robertson, Jack. “WTO not cut out to be antitrust watchdog.” Electronic Buyers' News 18 May 1998: 10. Factiva. Web. 19 Apr. 2011. Spurbeck, Jared. "'Don't Be Evil:' A Google Antitrust Timeline." Yahoo! News 1 April 2011. Steinhauser, Gabrielle and Michael Liedtke. "Microsoft Throws Weight Behind Google Antitrust Probe." The Huffington Post 31 March 2011. Sullivan, E. Thomas. Understanding Antitrust and Its Economic Implications. 4th ed. Newark, N.J: LexisNexis, 2003. Print. Torres, Amelia. “EU antitrust authority earns its spurs..” Reuters News 16 July 1998: n. pag. Factiva. Web. 19 Apr. 2011. Tucker, Sundeep. “The People’s Choice.” Financial Times, November 30, 2009. Web. April 12, 2011. United States. Department of Justice. Federal Trade Commission. Antitrust Enforcement Guidelines for International Operations. Department of Justice, April 1995. Web. April 20, 2011. United States. Department of Justice. Improving Bilateral Antitrust Cooperation. The Center for Global Partnership, Japan Foundation., June 23, 2000. Web. April 23, 2011.