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European Advocate General opines that the reversal of the EU merger approval of the music units of Sony Corporation and Bertelsmann AG should be upheld; ECJ will likely adopt the opinion
The following opinion of the Advocate General of the European Court of Justice (ECJ) analyzes in detail the ECJ’s case law in the area of competition and merger control. In particular, it reviews the extent of the investigation and reasoning that is required of the EU Commission when it authorizes a concentration between companies.
The Advocate General of the ECJ, Juliane Kokott, has issued her opinion in the case of Bertelsmann and Sony Corporation of America v. Impala. In the fall of 2003, Bertelsmann and Sony agreed to integrate their global businesses for recorded music, on line music and music publishing, creating the company Sony BMG. The EU Commission approved this proposed concentration through a decision on July 19, 2004 (see 2005 Official Journal (L 62) 30).
The Independent Music Publishers and Labels Association (Impala) of Belgium petitioned the European Court of First Instance to invalidate the Commission decision. See Case T 464/04, Impala v. Commission [2006] ECR II 2289. The Court did in fact do so. The Commission thereupon conducted a new merger control procedure, meanwhile Bertelsmann and Sony appealed to the ECJ. The gist of their argument is that the Court of First Instance applied excessive legal requirements. On October 3, 2007, the Commission again declared the concentration compatible with the common market.
The legal basis for this kind of review is the so called Merger Regulation, Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings, as amended. Pursuant to Article 2 of the Merger Regulation, the Commission must approve proposed mergers as to their compatibility with the common market. In general, a concentration that does not create or strengthen a company’s dominant position which would impede effective competition is approvable.
Here, the Advocate General notes that the issue of a dominant position applies not to the two individual companies, but the collective market dominance of both companies combined.
For this determination, the EU applies a two part merger control procedure. First, the Commission conducts a preliminary examination of the proposed examination. If this preliminary examination raises serious doubts about the compatibility with the common market, the Commission continues to the second part, which is a formal procedure pursuant to Article 6 of the Regulation. The Commission did in fact conduct a formal review. Eventually, with the above mentioned Decision of July 19, 2004, the Commission declared the proposed concentration compatible with the common market. Impala successfully challenged that decision before the Court of First Instance.
The ECJ held a hearing on this matter on November 6, 2007. In her opinion, the Advocate General addresses the appellants’ arguments, among them:
(1) Standard of proof for clearance of concentrations. The appellants claim that the Court of First Instance erroneously applied an excessively high standard of proof for Commission merger clearance decisions. There should be a general presumption that concentrations are compatible with the common market.
The Advocate General disagrees. The Merger Regulation is not based on a general presumption in favor of compatibility of concentrations with the common market. In each case the Commission must make an express finding as to whether the concentration in question is compatible or incompatible with the common market. The participating companies are expressly prohibited from putting their concentration into effect before the decision is made. See Article 7(1) and (5) of the Merger Regulation. (Paragraph 219).
There are only two exceptional situations when a concentration may be presumed to be compatible with the common market: First, when the Commission fails to timely decide the case and, second, when the evidence is so unclear that it is not possible to make a reliable prognosis as to the effect on the common market. (Paragraphs 222 and 223).
(2) The Court’s power to analyze the facts and evidence. The appellants argue that the Court of First Instance exceeded the scope of judicial review by failing to respect the Commission’s discretion in these matters.
Also here the Advocate General disagrees. The Commission’s margin of discretion does not preclude Community Courts from analyzing the facts and the evidence. Quite the opposite, courts must conduct their own assessment of the matter, otherwise they cannot ascertain whether the Commission has acted within the limits of its discretion. (Paragraphs 239 and 240).
The Advocate General now proposes that the ECJ decide to
(1) dismiss the appeal; and
(2) Bertelsmann AG and Sony Corporation of America each bear their own costs.
Observers expect the ECJ to follow the Advocate General’s opinion and issue a final decision in early 2008.
Citation: Advocate General’s Opinion 13 December 2007, Bertelsmann and Sony Corporation of America v. Impala, Case C 413/06 P, Document 62006C0413, available at the website “eur lex.europa.eu.”
Filed in: 2007 International Law Update, Issue12
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In suit against General Motors of Canada, by auto chassis upgrader who sold its products in United States, Manitoba Court of Appeal found no violation of Canadian competition laws since Plaintiff’s receivership came about in large part due to strengthening of Canadian versus U.S. dollar
Conversions by Vantasy Ltd. and Vantasy Ltd. (Plaintiffs) were doing business for several decades as upgraders of incomplete van chassis. It consisted of outfitting them with installations such as custom painting, sound systems, special seating arrangements and upholstery, and wall and storage units.
Its operations were originally located in Selkirk, Manitoba from 1978 until the fall of 1987, when it moved to Winnipeg. Plaintiff Michael Hoffer wholly owned Vantasy Ltd. which in turn owned Conversions. He was the operating mind of both corporate Plaintiffs.
Plaintiffs obtained chassis on consignment from General Motors of Canada Ltd. (Defendant), a wholly-owned subsidiary of General Motors Corp. with its headquarters in Detroit. It made GM cars for sale in Canada and the U.S. Starting in 1983, U.S. sales became a significant part of Plaintiffs’ operations.
In 1986, Defendant put into effect a marketing incentive program under which it would not charge for an air conditioning option on certain van chassis. The contents of three agreements between Plaintiffs and Defendant were virtually the same. They made it clear that Defendant had no duty to supply chassis to Plaintiffs and that either party could call off the agreement at any time.
In 1987, Plaintiffs’ incentive was worth $950 per chassis. That policy, however, was not extended for chassis to be exported to the U.S. with U.S. specifications. It is this policy that forms the genesis of this lawsuit. Another key factor in making a profit by Plaintiffs was the exchange rate differential between a stronger U.S. dollar and a weaker Canadian dollar. If the Canadian dollar strengthened, as it did, this substantially reduced Plaintiffs’ profit margin.
After suffering business reverses, its bankers put Plaintiffs into receivership. It then sued Defendant in the Manitoba courts for damages based on alleged unlawful interference with Plaintiffs’ economic interests and negligent misrepresentation. According to its complaint, the no-charge air policy contravened the price discrimination provisions of the Canadian competition law.
The first instance court, however, dismissed the suit. Plaintiffs appealed on the basis that the trial judge had applied the wrong test in finding that Defendant was not liable.
The Manitoba Court of Appeal dismisses. The Court points out that unlawful interference with economic interests is a developing tort, thus accompanied by a number of uncertainties at its margins. It is generally accepted that there are four elements which a plaintiff has to prove: (1) that the defendant had an intention to injure the plaintiff; (2) that the plaintiff suffered economic loss or a related injury; (3) that the means employed by the defendant was unlawful. and (4) that the wrongful conduct caused actual damage to the plaintiff.
The key ingredient is that there must be an illegal act. Even under a generous definition of “illegal or unlawful act,” Plaintiffs have not shown that such an act existed or that the trial judge should have so found.
“The free air policy that [Defendant] initiated was not, in and of itself, an unlawful or illegal act nor was it a policy directed against the [Plaintiffs]. It was a policy established to enhance the marketability of its product and, I would expect, would be an added bonus to the appellants and other converters in enhancing their Canadian sales.”
“Furthermore, the actions of GM were entirely consistent with the provision of the consignment agreement that was in force and regulated the relationship of the [Plaintiffs] and [Defendant]. If one looks closely at the content of the most recent consignment agreement, one can readily conclude that it provides certain distinct advantages and benefits in favour of [Defendant] that one might describe as one-sided but that is neither here nor there as the [Plaintiffs] voluntarily entered into that agreement as well as prior ones. As the old chestnut states: ‘business is business.’”[¶¶ 32-33]
The Court then takes up the issue of negligent misrepresentation by a Mr. Cornhill and finds no merit in Plaintiffs’ claim of error. “The law requires that a misrepresentation must pertain to an existing fact and not a future promise. The Cornhill Statement was a future promise as to pricing and was not a representation of an existing fact.”
“One must consider the alleged misrepresentation in the context of what it was replying to and the starting point to that analysis is Hoffer’s letter of February 26, 1987, to Gerein. The letter in question does not in any of its six pages deal with the question of no charge air policy. The letter deals primarily, and in a very general way, with the question of importing product to the U.S. and to what the writer claimed to be ‘a rising tide’ of negativity on the part of General Motors with respect to exports to the United States of van conversions produced in Canada, on General Motors vans supplied under the ‘Consignment program.’”
“Again, a letter from Cornhill dated March 25, 1987, deals with the requirement of value added to conversions destined for the U.S., a policy with which the appellants agreed as evidenced by the transcript of another recorded telephone conversation between Hoffer and another GM employee, Dan McColl, dated March 10, 1987.”
“Based on the evidence, the concern that the [Plaintiffs] primarily wished addressed in the early part of 1987 was the guarantee that they could continue exporting their product to the U.S. That was confirmed by more than one GM employee. There is however no evidence of a telephone conversation, written undertaking or otherwise, that could lead the [Plaintiffs] to the understanding that [Defendant's] free air policy would apply to U.S. exports. The evidence is in fact to the contrary.” [¶¶ 47-50].
“The concern that the [Plaintiffs] raised with the employees of [Defendant] through the early months of 1987 was that their U.S. sales not be curtailed or shut down in answer to the grey market problem. The assurances they received were that such a situation would not occur. It did not. The representations made to the [Plaintiffs] if they were made, were not untrue, inaccurate or misleading if considered reasonably in the context of the ongoing developments between the parties.” [¶ 52].
“There are many reasons why the [Plaintiffs] ran into financial difficulties and those reasons are set out in the judge’s decision [below]. Tortuous [sic] conduct on the part of the [Defendant] is not one of those reasons. The [Plaintiffs], as far as their U.S. market was concerned, were in a changing and fluid market over which they had little control. It eventually led to their financial predicament.”[¶ 55].
Citation: Conversions by Vantasy Ltd. v. General Motors of Canada Ltd., 2006 M.B.C.A. 69, [2006] 8 W.W.R. 413, 40 C.C.L.T. (3d) 28; 2006 CarswellMan 194.
Filed in: 2006 International Law Update, Issue11
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In Article 234 reference from Belgian court of suit by one supermarket against another over its allegedly faulty comparison advertising, European Court of Justice rules that EU law does not ban such advertising as long as it can be verified by customers who wish to examine claims
Lidl Belgium GmbH & Co KG (Lidl) and Etablissementen Franz Colruyt (Colruyt) operate supermarkets in Belgium. In January 2004, Colruyt sent a mass mailing to consumers which stated that “we have calculated that a family spending EUR 100 each week in Colruyt stores: – saved between EUR 366 and EUR 1129 by shopping at Colruyt’s rather than at any other supermarket (such as Carrefour, Cora, Delhaize, etc.); – and saved between EUR 155 and EUR 293 by shopping at Colruyt’s instead of a hard discounter or wholesaler (Aldi, Lidl, Makro).”
In addition, Colruyt’s checkout receipts transmit substantially the same claims. Both the letter and the checkout receipts refer to Colruyt’s Internet website, where the price comparisons are explained in more detail. Furthermore, Colruyt attaches a red label “BASIC” to certain products, claiming that these products are sold at the lowest prices in Belgium.
Lidl filed suit in the Brussels Commercial Court (BCC) to enjoin Colruyt’s from comparing its product pricing to Lidl. Lidl’s action was based on Article 23a of the Belgian Law of 14 July 1991 on commercial practices and consumer information and protection as amended by the Law of 25 May 1999. Article 23a transposed Article 3a of the Directive on Misleading and Comparative Advertising (84/450/EEC, 1984 O.J. (L 250) 17, as amended) (Directive) into Belgian law.
The BCC stayed its proceedings and referred the matter to the ECJ pursuant to Article 234 of the Treaty for a preliminary legal ruling on the interpretation of both of the above Directives and also the related Directive 2005/29/EC dealing with unfair business-to-consumer commercial practices, i.e. the Unfair Commercial Practices Directive (2005 O.J. (L 149) 22).
Article 2(2a) of the [1984] Directive defines “comparative advertising” as “any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor.” Article 3a(1) permits comparative advertising if “(a) it is not misleading …; (b) it compares goods or services meeting the same needs or intended for the same purpose; (c) it objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price; …”
The ECJ addresses the following two methods of comparative advertising. First, Colruyt compares its prices for a selection of products to competitors’ prices for the same (brand name) or comparable (unbranded or the chain’s own brand) products, and infers the amounts that consumer may save by shopping at Colruyt. The price comparisons are determined monthly and annually. Second, Colruyt claims that all of its products with a red label “BASIC” are sold at the lowest price in Belgium. This includes brand name products and Colruyt’s own brand name products.
The ECJ points out that sound comparative advertising may help customers to understand the merits of comparable products, and thus can stimulate competition that benefits consumers. Thus, such advertising is presumed to be beneficial.
In general, the Directive does not preclude comparative advertising that relates selections of basic consumables to a competitor’s comparable products. The advertiser must make additional information available for consumers who wish to examine and verify the claims.
“… [I]n so far as the selections of products of two competitors to which the comparison relates each consist of products which, when viewed individually, satisfy the requirement of comparability laid down by Article 3a(1)(b) of the Directive, a matter which is for the referring court to establish, such selections can themselves be regarded as meeting that requirement.”
“That may be so, in particular, in the case of selections composed of comparable products sold by two competing chains of stores where it is asserted that the products comprising the advertiser’s selection have the common feature of being cheaper than the comparable products comprising his competitor’s. Such pairs of comparable products do not cease to meet the same needs, or to be intended for the same purpose, simply because they are compared collectively from the point of view of that common comparative feature.”
“The requirement laid down by Article 3a(1)(b) of the Directive may also be satisfied when a comparison is made of the general price level of all the comparable basic consumables sold by two competing chains of stores with a view to inferring therefrom the amount liable to be saved by consumers who make their purchases of such goods from one rather than the other of those chains.”
“In such a situation, both the pairs of comparable products sold by those competing chains and the whole formed by those comparable products when they are acquired together in the context of the purchase of basic consumables are capable of satisfying the condition that they meet the same needs or are intended for the same purpose.”[¶¶ 36-38].
Thus, comparative advertising is permissible if it relates collectively to selections of basic consumables sold by two competing chains of stores in so far as those selections each consist of individual products which, when viewed in pairs, are comparable.
Such comparative advertising, however, can be misleading when an advertiser claims that its price level is generally lower based on a sample of products and the advertisement: (a) fails to reveal that the comparison relates only to a sample of products and not [to] all of the advertiser’s products; (b) fails to give the details of the comparison or the source of the information, or (c) contains a collective reference to a range of amounts that consumers may save by buying from the advertiser without specifying individually the general level of prices charged by each of the competitors.
Thus, an advertiser must be able to check the factual accuracy of the comparisons. The Directive does not require, however, that such proof be made available to all interested parties before the advertisement appears. Here, it is for the Belgian court to determine whether the advertisements at issue meet the requirements outlined by the ECJ.
Citation: Case C-356/04, Lidl Belgium GmbH & Co KG v. Etablissementen Franz Colruyt NV (European Court of Justice, 19 September 2006). The judgment is available on the website curia.europa.eu.
Filed in: 2006 International Law Update, Issue10
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On appeal from fines imposed for engaging in worldwide cartel in graphite electrodes in violation of EC competition laws, European Court of Justice holds, inter alia, that principle of non bis in idem does not require EC tribunals to factor into their fines those imposed by non-member states for same anticompetitive conduct within their territories
This appeal to the European Court of Justice (ECJ) concerns the propriety of fines imposed upon various makers of graphite electrodes in the world market for running a cartel in this product in violation of the European Community laws and regulations dealing with competition.
On appeal from an adverse ruling by the Court of First Instance (CFI) in reviewing a Decision of the EC Commission, the main appellant is Showa Denko KK (SDK), established in Tokyo (Japan), other parties to the proceedings below were, inter alios, GrafTech International Ltd., (formerly UCAR International Inc.), a Delaware corporation, and the Carbide/Graphite Group Inc., incorporated in Pennsylvania.
Steel companies use graphite electrodes mainly to make steel in electric arc furnaces. Graphite is a crystalline form of carbon. Electric arc furnace steelmaking is basically a recycling process; it converts scrap steel into new steel; it differs from the traditional blast furnace plus oxygen process of producing steel from iron ore. A typical arc furnace uses nine electrodes, joined in columns of three, to melt scrap steel. So intense is the melting process, that it uses up an electrode in about eight hours. There are no product substitutes for graphite electrodes in this process.
About 85% of the demand for graphite electrodes depends on the quantity of steel produced in electric arc furnaces. In 1998, for example, world crude steel production was 900 million short tons, of which 315 million short tons (or about 35%) came out of electric arc furnaces.
During the 1980s, technological improvements brought about a substantial drop in the consumption of electrodes per ton of steel produced. This decline caused the restructuring of the world electrodes industry, and the closing of a number of factories.
In 2001, nine Western producers supplied the European market with graphite electrodes. On June 5, 1997, the EC Commission officials, relying on Article 14(3) of Council Regulation No 17, carried out simultaneous and unannounced investigations at the premises of certain graphite electrode producers. On the same date, Federal Bureau of Investigation (FBI) agents executed judicial search warrants at the U.S. premises of a number of producers.
These investigations led the U.S. to bring criminal proceedings for conspiracy against SDK and others. All the accused pleaded guilty to the charges and agreed to pay fines; for SDK, the fine amounted to $32.5 million. A class of carbon electrodes buyers filed civil actions in the U.S. courts against SDK claiming treble damages. In June 1998, steel buyers filed civil proceedings in Canada against SDK based on conspiracy allegations.
The EC Commission sent a statement of objections to the companies concerned in January 2000. The administrative procedure culminated in the adoption, on July 18, 2001, of the contested Decision. It found that the applicant undertakings are involved, on a worldwide scale, in price fixing and also in sharing the national and regional markets in electrodes according to the “home producer” principle. SDK, for instance, was responsible for Japan and for certain sectors of the Far East. Applicants then went to the CFI which ruled against them.
On further appeal, SDK argued to the ECJ that the CFI had committed legal error when it ruled that the Commission (1) could rely upon worldwide turnover to calculate the basic fine and the deterrence multiplier and, (2) did not have to take into account the fact that criminal proceedings in the United States, Canada and Japan had already imposed fines on it for the same behavior.
According to the appellant, if worldwide turnover was relevant for deterrence, the Commission and the CFI had erred in declining to take into account the fines which appellant has to pay in non-member states in setting the amount of the additional EC fine necessary to achieve adequate deterrence.
Since deterrence turns on the worldwide cost of the illegal conduct, SDK contended, it should take into account not only the fines imposed in the European Economic Area (EEA), but also fines imposed by non-member states. Otherwise, the CFI would be double-counting fines and that makes the worldwide fines disproportionate to any reasonable deterrent effect. Appellant also relied on the time-honored principle of non bis in idem.
The ECJ disagrees with SDK’s contentions. “It should be noted, first of all, that the principle of non bis in idem, also enshrined in Article 4 of Protocol No 7 to the European Convention for the Protection of Human Rights and Fundamental Freedoms,[E.T.S. 117] (ECPHR) constitutes a fundamental principle of Community law the observance of which is guaranteed by the judicature.” [Cites]. [¶ 50]
Article 4 provides in relevant part as follows: “Right not to be tried or punished twice. No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State….. No derogation from this Article shall be made under Article 15 of the [ECPHR].”
“With regard to examining the substance of the plea regarding infringement of that principle, it should also be noted, … that the Court of Justice has not yet decided the question whether the Commission is required to set off a penalty imposed by the authorities of a non-member State where the facts with which the Commission and those authorities charge an undertaking are the same, but it has made the identical nature of the facts alleged by the Commission and the authorities of a non-member State a precondition of doing so.”
“As regards the scope of application of the principle of non bis in idem in situations in which the authorities of a non-member State have taken action pursuant to their power to impose penalties in the field of competition law applicable in that State, it should be borne in mind that the context of the cartel at issue is an international one, characterised in particular by actions of legal systems of non-member States [taken] within their respective territories.”
“In that regard, the exercise of powers by the authorities of those States responsible for protecting free competition under their territorial jurisdiction meets requirements specific to those States. The elements forming the basis of other States’ legal systems in the field of competition not only include specific aims and objectives but also result in the adoption of specific substantive rules and a wide variety of legal consequences, whether administrative, criminal or civil, when the authorities of those States have established that there have been infringements of the applicable competition rules.”
“On the other hand, the legal situation is completely different where an undertaking is caught exclusively – in competition matters – by the application of Community law and the law of one or more Member States on competition, that is to say, where a cartel is confined exclusively to the territorial scope of application of the legal system of the European Community.”
“It follows that, when the Commission imposes sanctions on the unlawful conduct of an undertaking, even conduct originating in an international cartel, it seeks to safeguard the free competition within the common market which constitutes a fundamental objective of the Community under Article 3(1)(g) EC. On account of the specific nature of the legal interests protected at Community level, the Commission’s assessments pursuant to its relevant powers may diverge considerably from those by authorities of non-member States.”
“Accordingly, the [CFI] was fully entitled to hold … that the principle of non bis in idem does not apply to situations in which the legal systems and competition authorities of non-member States intervene within their own jurisdiction. Moreover, the [CFI] was also fully entitled to hold that there is no other principle of law obliging the Commission to take account of proceedings and penalties to which the appellant has been subject in non-member States.”
“[Moreover] there is no principle of public international law that prevents the public authorities, including the courts, of different States from trying and convicting the same natural or legal person on the basis of the same facts as those for which that person has already been tried in another State. In addition, there is no public international law convention under which the Commission could be obliged, upon setting a fine under Article 15(2) of Regulation No 17, to take account of fines imposed by the authorities of non-member States pursuant to their competition law powers.”
“It should be added that the agreements between the European Communities and the Government of the United States of America of 23 September 1991 and 4 June 1998 on the application of positive comity principles in the enforcement of their competition laws [see 1998 International Law Update 62] are confined to practical procedural questions like the exchange of information and cooperation between competition authorities and are not in the least related to the offsetting or taking into account of penalties imposed by one of the parties to those agreements.”
“Finally, as regards failure by the [CFI] to have regard to the principles of proportionality and equity, pleaded in the alternative by the appellant, it should be observed that any consideration concerning the existence of fines imposed by the authorities of a non-member State can be taken into account only under the Commission’s discretion in setting fines for infringements of Community competition law. Accordingly, although it cannot be ruled out that the Commission may take into account fines imposed previously by the authorities of non-member States, it cannot be required to do so.” [¶¶ 51-60]
Citation: Showa Denko KK v. EC Commission, [2006] ECR 00; Case C-289/04 P (Eur. Ct. Just.[2d Ch.] June 29, 2006).
Filed in: 2006 International Law Update, Issue9
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On application of Australian Competition and Consumer Commission, federal court agreed that Commission had shown that U.S. subsidiary in Commonwealth had engaged in resale price maintenance on its skin care products and imposed monetary sanctions
Dermalogica PTY (respondent) is a wholesaler of skin care products. It is the Australian subsidiary of a United States corporation of similar name and markets the parent company’s products to retailers across Australia. As of the hearing date, over 700 retailers within Australia were acting as outlets for Dermalogica products.
Two of these retailers were doing business as “Fatal Attraction” and “Café Beauty Advanced Anti-Aging (Café Beauty).” Both are beauty shops offering a range of personal services to customers. The former is located in Melbourne, the latter in Sydney. Both of them were operating a website on which they offered respondent’s products for retail sale at discounted prices. Respondent looks upon its products as “premium” brands.
Suzette Cassie is the General Manager of Dermalogica in Australia; she is the sole resident director of the company, and a company secretary. In her view, the company prices its products towards the higher end of the market. It is a “professional product” that professional beauty salons use and sell. One cannot buy them in supermarkets or other retail stores.
This upscale image of its products is a main element of respondent’s marketing strategy. Respondent also has a system of recommended retail prices and it makes those recommended prices known to retailers on order forms and price lists that respondent sends out from time to time.
Respondent’s U.S. parent runs a website jointly with its Australian management. It provides the public and professional stockists with data about respondent’s products. It includes guidelines for stockists for retailing respondent’s products via the internet. Specifically, there are guidelines for the use of respondent’s name, logos and other images, plus declarations of respondent’s views about the retail pricing of its internet products.
Both Café Beauty and Fatal Attraction offered respondent’s products for sale on their websites at prices lower than respondent’s recommended retail price. It was respondent’s reaction to the salons’ discounting that gave rise to charges before the Australian Competition and Consumer Commission (ACCC or applicant) that respondent has transgressed the Trade Practices Act 1974 (Cth) (the TPA).
The TPA defines resale price maintenance (RPM) as follows: “(a) the supplier making it known to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price less than a price specified by the supplier; (b) the supplier inducing, or attempting to induce, a second person not to sell, at a price less than a price specified by the supplier, goods supplied to the second person by the supplier or by a third person who, directly or indirectly, has obtained the goods from the supplier; … (f) the supplier using, in relation to any goods supplied, or that may be supplied, by the supplier to a second person, a statement of a price that is likely to be understood by that person as the price below which the goods are not to be sold.”
Respondent admitted that it took part in conduct that amounted to RPM under Section 96(3)(b) and (f) of the Act but it contested that its behavior came within Section 96(3)(a). The ACCC charged, however, that respondent let it be known to Fatal Attraction and Café Beauty that it would no longer furnish its products to them unless the salons agreed not to sell Dermalogica products at discounted prices. The respondent failed to substantially contest the applicant’s factual case at the hearing. Respondent denied that Ms. Mayne had threatened that respondent would withhold the supply of products if Fatal Attraction did not agree to sell at specified prices.
There was a printout from respondent’s U.S. parent company’s website called “Dermalogica website registration guidelines and policies” (the web policies). It featured, inter alia, the following relevant statements, “Deviating from current Suggested Retail Prices is strongly discouraged, … A violation of this policy can result in account termination and legal action. … Violating any of these provisions will result in retraction of web approval and/or account termination.”
Respondent made much of the fact that its parent corporation in the USA owned the website. It contended that the statements of policy were those of the parent corporation, that respondent’s Australian management did not adopt them on its own initiative and that respondent was not responsible for creating the website.
In any event, the applicant found that the facts showed that respondent’s various Australian representatives were consistently referring to the website as setting forth its own policies. They did so in such a way as to suggest that they adopted these policies as their own and voluntarily acted upon them.
The ACCC alleged that respondent’s conduct breached Section 48 of the TPA in that its conduct amounted to resale price maintenance under Section 96(3) of the Act. The ACCC asked the court to impose pecuniary penalties and injunctive relief as provided for by the TPA. The Australian Federal Court imposed a monetary sanction but decided not to issue an injunction.
For conduct to constitute resale price maintenance under Section 96(3)(a), the ACCC has to show, on the balance of probabilities that respondent made it known to each of the salons that it would not supply its products unless the salons agreed to stop discounting the prices of respondent’s products on their websites. It is clear that respondent did ask the salons not to discount and that they posited that the likely result of the discounting was that Dermalogica could cease supply.
The specific question here, of course, is whether the evidence suggests that respondent made it known that it would stop supplying the salons. In the Court’s view, a broader question is: what is the necessary degree of certainty that must be apparent to the second person in relation to the withholding of supply consequential on the second person’s failure to agree to maintain the supplier’s specified resale price? The Court agrees with the ACCC’ s positions and imposed a monetary penalty upon respondent in the amount of $250,000.
“I am satisfied that Dermalogica ‘strongly discouraged’ each of Fatal Attraction and Café Beauty from offering discounts on the recommended resale prices of Dermalogica products and that this discouragement was given force by the threat of withholding supply of goods. I am further satisfied that Dermalogica communicated that discouragement to Fatal Attraction with the requisite degree of certainty. That is, I consider that the communication indicated that it was likely that supply of goods was seriously threatened if the salon did not comply with Dermalogica’s wishes. In the case of Café Beauty, [one of respondent's reps] was prepared to allow Mr Sleiman to sell at 10% less than the recommended retail price but at no lower price.” [¶ 53]
The TPA’s monetary penalty exists as an inducement to avoid interfering with price competition without being oppressive. Some of the factors the ACCC has to take into account in fashioning a penalty include: the nature and extent of the contravening conduct, the amount of loss or damage caused, any profit gleaned from the contravening conduct, the circumstances in which the conduct took place, the contravening company’s market share or market power, and the deliberateness of the conduct.
“Having regard to all of the above issues, with particular reference to the rash and ignorant nature of the conduct of Dermalogica and its agents between July and September 2002, and to the principle of deterrence, I consider the appropriate penalty to be, in relation to each of the two breaches of Section 48, $125,000. Were it not for Dermalogica’s cooperation with the commission the penalties would have been considerably higher. The total penalty thereby imposed on Dermalogica is $ 250,000.” [¶ 104]
The Court then takes up the ACCC’s request for injunctive relief. “Section 80 confers a broad power upon the court to grant an injunction ‘in such terms as the Court determines to be appropriate’. By reason of subsections (4) and (5), the court is empowered to grant an injunction even in the absence of factors that would, in the case of equitable injunctions, be considered necessary for the exercise of power.”
“However, the power is limited in that the injunction must be in terms that the court considers to be appropriate, which has been interpreted as requiring a connection between the contravening conduct and the future conduct that is prohibited by the injunction. The rationale for this is that where an injunction is made in terms that are too broad, the party enjoined by the injunction should not carry the burden of making an application to limit its scope. [Cite].” [¶ 107]
“Thus, the terms of the injunction will not be ‘appropriate’ if, on its face, it operates upon a range of conduct some of which does, but some of which does not, have the relationship required by Section 80 with contravention of the Act. The injunction should not prohibit conduct falling outside the boundaries drawn by Section 80. [Cite]. The same limitation applies to mandatory injunctive relief. It is, in my view, no support for the grant of an injunction which, from the outset, has an operation outside the boundaries of Section 80, to say that it is open for the party enjoined to apply under Section 80(3) to vary the injunction so as to bring its operation wholly within proper limits. The party in question should not be placed under any such obligation in the first place.”
“A relevant factor to consider in determining whether to grant an injunction pursuant to Section 80 of the Trade Practices Act is whether the existing sanctions for the conduct to be the subject of the injunction, found in the Trade Practices Act itself, require to be supplemented by the availability of the range of sanctions applicable to contempt of court. The purpose of granting an injunction to restrain conduct already prohibited by legislation can only be to add to whatever consequences the legislation attaches to that conduct the additional consequences of a possible finding of contempt of court by failure to comply with an injunction. In each case, it is a question whether the conduct concerned warrants the application of those more stringent consequences.” [¶ 109]
“I do not consider that the circumstances of this case call for the grant of an injunction in addition to the pecuniary penalty I have imposed. I think it unlikely that Dermalogica will engage in any further proscribed acts of resale price maintenance. I think the pecuniary penalty I have imposed will be adequate to serve the specific deterrent purpose (the general deterrent purpose is not significantly furthered by grant of an injunction). Nor, bearing in mind the evidence of Dermalogica’s size and market power already discussed, do I think it likely that any substantial damage will occur to Dermalogica’s stockists or to the consumer public were Dermalogica to engage in such conduct.” [¶ 111]
Citation: Australian Competition and Consumer Commission v. Dermalogica Pty., Ltd., 2005 FCA 152, 215 A.L.R. 482 (Aust. Fed. Ct. 2005).
Filed in: 2005 International Law Update, Issue 12
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In class action suit by vitamin buyers against vitamin distributors, U.S. Supreme Court holds that Sherman Act does not reach foreign antitrust activity occurring within and outside United States that causes injury to foreign customer where that injury is independent of any injury to domestic customer
The Foreign Trade Antitrust Improvement Act of 1982 (FTAIA) [15 U.S.C. Section 6a, a 1982 amendment to the Sherman Act] excludes from the reach of the Sherman Act anticompetitive conduct that merely causes injury abroad. The statute initially creates a blanket provision stating that the Sherman Act “shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations.” 15 U.S.C. Section 6a. It provides for exceptions, however, to the general rule where that conduct significantly harms imports, domestic commerce, or American exporters.
The foreign buyers of vitamins and related products brought this action against several U.S. and foreign companies which were distributing those vitamin products internationally and which were allegedly conspiring to control prices for these products. See 2003 International Law Update 20. The district court dismissed the foreign plaintiffs for lack of subject matter jurisdiction under FTAIA since their alleged injuries lacked a connection to U.S. commerce.
On appeal, the U.S. Court of Appeals for the District of Columbia Circuit reversed. It held that where the anticompetitive conduct does the requisite harm to U. S. commerce, FTAIA does permit suits by foreign plaintiffs who are injured solely by that conduct’s effect on foreign commerce.
Because of a split among the Circuits in this area, the Supreme Court granted certiorari on two questions. “First, does that conduct fall within the FTAIA’s general rule excluding the Sherman Act’s application? That is to say, does the price-fixing activity constitute ‘conduct involving trade or commerce … with foreign nations’? We conclude it does.”
“Second, we ask whether the conduct nonetheless falls within a domestic-injury exception to the general rule, an exception that applies (and makes the Sherman Act nonetheless applicable) where the conduct (1) has a ‘direct, substantial, and reasonably foreseeable effect’ on domestic commerce, and (2) ‘such effect gives rise to a [Sherman Act] claim.’ Sections 6a(1)(A). We conclude that the exception does not apply where a plaintiff’s claim rests solely on the independent foreign harm.” [Slip op. 6-7]
The Petitioners (the original defendants) argued that the FTAIA does not apply. The relevant language of the FTAIA reads, “Sections 1 to 7 of this title [the Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations.” 15 U.S.C. Section 6a. According to the Petitioners, this language implies that the FTAIA only applies to conduct involving export trade or commerce because this is the only other type of commerce that can occur “with foreign nations” other than import trade or commerce, which the statute specifically exempts.
The Court rejects this argument based in part on the legislative history of the FTAIA. “… [T]he FTAIA originated in a bill that initially referred only to ‘export trade or export commerce.’ H. R. 5235, 97th Cong., 1st Sess., Section 1 (1981). But the House Judiciary Committee subsequently changed that language to ‘trade or commerce (other than import trade or import commerce).’ 15 U.S.C. Section 6a. And it did so deliberately to include commerce that did not involve American exports but which was wholly foreign.” [Slip op. 13].
After rejecting Petitioners’ threshold argument, the Court set out to resolve the issue based on the exception to the FTAIA on which it granted certiorari. It finds the Petitioners’ argument unpersuasive and that the FTAIA exception does not apply (and thus the Sherman Act does not apply) for two main reasons.
First, prescriptive comity dictates that courts construe unclear statutes to avoid unreasonable interference with the sovereign authority of other nations. This rule of construction reflects principles of customary international law, which Congress ordinarily seeks to follow.
In enacting the FTAIA, Congress intended to protect against domestic injury regardless of the situs of the anticompetitive activity. It is unreasonable, however, to validate a cause of action based on the current scenario; protecting foreign plaintiffs against an injury they do not share with domestic plaintiffs would interfere with the foreign state’s sovereignty where the U.S. has little or no legal interest. In the absence of clear Congressional intent to the contrary, the Court reasons that the FTAIA exception does not apply to the current case.
The Court then rejects Respondents’ two counter arguments to its comity analysis. First, the Respondents argued that applying the exception to this case would not unduly interfere with foreign sovereign power because foreign countries have similar antitrust laws. Citing amicus briefs from Germany and Japan to the contrary, however, the Court points to the many differing foreign laws. Second, the Respondents maintained that comity does not require an across-the- board rejection of this type of case, but rather it encourages a case-by-case analysis. On the contrary, the Court finds this approach too costly and time-consuming.
To reinforce its holding, the Court examines the legislative history of the FTAIA. “[T]he language and history suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act’s scope as applied to foreign commerce.” [Slip op. 24]. After distinguishing prior cases, the Court can find “no pre-1982 case [that] provides significant authority for application of the Sherman Act in the circumstances we here assume.” [Slip op. 30].
The Court leaves open the possibility that a valid cause of action under the Sherman Act might arise if the Respondents could show that a foreign injury depends on the domestic injury. The Court, however, leaves this determination to the lower court.
Citation: F. Hoffmann-La Roche Ltd. v. Empagran S.A., 124 S. Ct. 2350 (U.S. 2004).
Filed in: 2004 International Law Update, Issue6
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In context of alleged global anticompetitive conduct in marketing chemicals used for pharmaceuticals, majority of Seventh Circuit holds as matter of first impression that FTAIA provisions pertain only to subject matter jurisdiction and do not create additional element of Sherman Act claim
United Phosphorus and Shroff’s United Chemicals (plaintiffs) are Indian chemical manufacturers. J.C. Miller & Associates, Inc., is an Illinois company which was involved in a joint venture with the plaintiffs. This action originated in trade-secret litigation in the early 1990s when Indian companies tried to acquire the technology for making chemicals needed for a tuberculosis drug. The court dismissed the prior case when then-plaintiff (and now defendant) Angus Chemical Company, a Delaware corporation, balked at a discovery order that required it to reveal the details of its manufacturing technology.
The plaintiffs then sued Angus Chemical Company and two related companies (jointly “Angus”) in 1994, claiming that Angus strove to, and did in fact, monopolize the market for certain chemicals, in violation of Section 2 of the Sherman Act. The complaint also claimed that Angus’ prior lawsuit was one of those anticompetitive activities. At issue here is the anti-tubercular drug, Ethambutol. It is vital to India because it is reputedly the country with the largest number of tuberculosis cases. One of Ethambutol’s ingredients is the chemical 2-Amino-1 Butanol (AB). To make AB requires 1-Nitro-Propane (1) (“1-NP”).
One of the defendants, Lupin Laboratories, Ltd. (an Indian company), buys AB from one of the other defendants, Angus Chemie GmbH. It is the German subsidiary of Angus Chemical Company, and currently the world’s only maker of AB. Angus Chemical Company produces 1-NP in Louisiana and is the only company manufacturing this chemical.
Early on, Angus moved to dismiss. It argued that the court lacked subject matter jurisdiction under Section 6a of the Foreign Trade Antitrust Improvements Act (FTAIA) [15 U.S.C. Section 6a] (a 1982 amendment to the Sherman Act). As relevant here, this provision limits the Sherman Act to foreign commercial conduct with a “direct, substantial, and reasonably foreseeable effect” on domestic U.S. commerce. In 2000, Angus renewed its motion to dismiss, and the Magistrate Judge granted it. Plaintiffs appealed.
After reargument en banc, the U.S. Court of Appeals for the Seventh Circuit affirms in a 5 to 4 split. The majority looks upon the jurisdictional issue as two-pronged: (1) whether subject matter jurisdiction is present, and, if so, (2) whether the district court should exercise it.
“… [T]he legislative history shows that jurisdiction stripping is what Congress had in mind in enacting FTAIA. The statute was enacted against a backdrop of almost 60 years of precedent which characterized the application of the Sherman Act to the conduct of foreign markets as a matter of subject matter jurisdiction. We must presume that Congress expects statutes to be read to conform with Supreme Court precedent. …”
“Also …, the courts of appeals had applied the pre-FTAIA effects test as a limit on subject matter jurisdiction. … Nothing in FTAIA hints that Congress intended to dramatically change this approach. On the contrary, the House Report says that satisfying FTAIA would be ‘the predicate for antitrust jurisdiction.’ It also says, ‘this bill only establishes the standards necessary for assertion of United States Antitrust jurisdiction. The substantive antitrust issues on the merits of the plaintiffs’ claim would remain unchanged.’ H.R. Rep. No. 97-686 at 11 (1982). Perhaps that is why after FTAIA courts have continued to treat the issue as one of subject matter jurisdiction.” [Slip op. 24-25]
Moreover, policy factors support the jurisdictional characterization. The extraterritorial reach of the American antitrust laws may affect U.S. relations with foreign governments, so that U.S. courts should employ it with care. Furthermore, treating Section 6a of the FTAIA as jurisdictional often allows a district court to resolve the issue early in the litigation.
Then the Court explains why it agrees with the lower court on this record. “…. [T]here was virtually no evidence that the plaintiffs would have made any sales in the United States. They set out to produce a tuberculosis drug for India. … The Lederle division of American Home Products was at the relevant time the only company in the world that had FDA approval to sell Ethambutol in the United States …”
“In fact, it appears that the very small amount of AB sold in the United States was used as an ingredient in a product for making rocket motors, not drugs. 3M used a very small amount for this purpose, purchasing less than 0.4 percent of the world’s AB production – or $25,000 in total volume. …” [Slip op. 27]
The district court found that plaintiffs had no actual plans to sell AB in the U.S. and that there would have been no significant AB sales opportunities in the U.S. In fact, the plaintiffs had not identified any potential AB buyer in the U.S. Thus, the district court properly dismissed the action for lack of jurisdiction.
The dissenters argue that there are at least four compelling reasons why this Court should not read the FTAIA as dealing with subject matter jurisdiction, and that suggest an “element” approach. First, The language of the statute supports the position that this is a substantive element of the claim, especially when it is contrasted to true jurisdiction-stripping statutes.
Second, the “subject matter jurisdiction” characterization does not square with Supreme Court precedent and with the law of this court. Third, the procedural consequences of such a reading would adversely affect antitrust enforcement. Finally, this jurisdictional approach fails to take into account the long history of applying U.S. antitrust laws to anticompetitive conduct abroad.
Therefore the FTAIA adds an element to the antitrust claim for cases that involve trade or commerce with foreign nations. To hold that it robs the federal courts of subject matter jurisdiction would leave the federal courts impotent to address the merits of many important cases.
Citation: United Phosphorus, Ltd. v. Angus Chemical Co., 2003 WL 910592 (7th Cir. Mar. 10, 2003).
Filed in: 2003 International Law Update, Issue3
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In patent infringement suit by Intel against Taiwanese maker of computer CPUs and chipsets, English Court of Appeal (Civil Division) holds that lower court had erred in granting summary judgment to Intel on defendant’s claims that Intel’s licensing agreements were violating competition provisions of EC Treaty
Intel Corporation of Delaware turns out central processing units (CPU’s) with familiar brand names such as “Pentium” and “Celeron.” It also makes chipsets. Both are used in personal computers (PCS). Intel and Via (a Taiwanese corporation) are competing in the world-wide market but Intel holds the clearly dominant position.
It designs, produces and sells about 80% of the x86 CPUs on the world market. Until recently, its chipsets accounted for about 100% of the global market. As of 2000, however, the latter figure went down to about 75% and Via took over about 19% of the market share. To function in a PC, the chipsets, the CPUs and the Windows software must be able to respond to what is called “the x86 instruction set.”
In November 1998, Via entered into a Chipset Licensing Agreement with Intel (“the CLA”). It laid out the terms on which Via could use Intel’s patents in the design and manufacture of its own chipsets for use with the Celeron and Pentium II CPUs made by Intel.
Seven months later, Intel said it was ending the CLA, alleging that Via had been violating its terms. Intel sued Via in the U.S., Singapore and England but the parties settled the cases in June 2000 and referred some issues to an arbitrator. The latter decided that Via had not breached the CLA but that Intel had.
Next Via complained to the EC Commission in September 2000 that Intel was refusing to license its patents so that Via could, for instance, make chipsets compatible with Intel’s new Pentium 4 technology.
A few months later, Intel presented Via with a revised “Asymmetric” CLA. Via objected that it only covered chipsets compatible with the Pentium 4 CPUs but not with later series. On the other hand, it required Via to license all of its chipset and CPU technology to Intel.
In September 2001, Intel filed the two present actions against Via in the English Patents Court (“the Chipset Action” and “the CPU Action”). Intel claimed that Via had been infringing five of Intel’s patents. The two patents in suit in the Chipset Action relate to the protocols which enable the CPU to communicate with the chipset in a way each will understand. The three patents at issue in the CPU Action involve the conventions or protocols that enable the CPU to interact with the operating software, in most cases, a version of Windows.
Via denied the validity of each of the patents relied on and denied that it had infringed any valid claim in any of them. By way of affirmative defense, Via invoked Articles 81 and 82 EC (formerly EC Treaty, Articles 85 and 86) along with the conforming provisions of the English Competition Act of 1998.
The defenses averred first, that Intel’s lawsuit itself abused the dominant position it held with respect to its intellectual property (IP) rights. Second, Via complained that Intel’s unwillingness to issue it a broader license also misused its powerful position in the market by forcing consumers and users to resort to Intel’s new and more costly technology rather than to Via and other less pricey competitors.
The trial judge gave summary judgment to Intel on the competition issues. On its appeal to the Court of Appeal (Civil Division), Via made three basic arguments. First, it maintained that the dominant owner of an IP right has a legal duty under Article 82 EC to refrain from exercising that right so as to keep potential competitors out of the market or from a substantial segment thereof.
Secondly, Via urged that no owner of an IP right can lawfully license it in terms (1) that are wider than needed to show the extent it has given up its exclusive right or (2) that tend to distort competition. Finally, Via insisted that it could properly defend an infringement suit by showing that the suit itself would enable the IP owner to act contrary to Articles 81 and/or 82.
The Court of Appeal rules against Intel and allows Via’s appeal. It points out that, to violate Article 82 EC, a dominant party need not go so far as to keep a new product completely out of the market. Otherwise, the dominant manufacturer could sidestep Article 82 simply by licensing to a lackluster rival. In the Court’s view, defendant’s allegations in both actions might be enough to show Intel’s abuse of its commanding position.
“…[I]t is arguable that the range of exceptional circumstances which may give rise to the abuse by the owner of an intellectual property right of his dominant position contrary to Article 82 can extend to the facts pleaded by Via in both the Chipset Action and the CPU Action. Whether or not they do will depend on the findings of fact made at the trial.”
“In a case such as this such findings are an essential preliminary to any reference [to the European Court of Justice] under Article 234 EC Treaty [formerly Article 177]. In those circumstances I consider that the defence Via seeks to advance under this head has a more than fanciful prospect of success. Further it is one which, in my view, should be disposed of at a trial. Accordingly I would … allow the appeal on this ground in both the Chipset Action and the CPU Action.” [¶ 51]
Breaches of Article 81 EC, on the other hand, can come about if a license was part of an effort to control the commercial market by regulating not only what products the licensed technology could turn out but also the licensee’s use of it after manufacture.
Moreover, an anti-competitive clause is no more defensible simply because it is part of an IP licensing agreement. It has to stand on its own two feet when it comes to an Article 81 analysis. In the Court’s view, Via had a chance to succeed in proving that the licensing deals that Intel had offered it would have been at odds with Article 81.
Finally, defendant arguably had a defense under Article 82 EC if Intel’s willingness to license its patents would be only on terms that violated Article 81 EC. “[Defendant's defensive pleading lists] in detail the anti competitive effects on which Via relies.”
“They include the allegations that the Asymmetric Licence would, if agreed to, ‘reduce or cancel the incentive for Via to continue investing in research and development and that would distort competition by stifling invention’ in relation to both chipsets and CPUs. … Via asserts that it would be at risk of being driven from both the x86 CPU market and the x86 compatible chipset market, thereby affecting the structure of competition in the market.”
“No doubt, in one sense, these assertions are formulaic but it does not follow that they are on that account defective. Given that they are alleging a future hypothetical state of affairs, they cannot be as specific as a pleading of past or present fact. … For my part I do not consider that the pleading in relation to the Asymmetric Licence is so defective as to warrant summary judgment on that issue being given against Via.” [¶¶ 59-60]
On the Article 81 issue, the Court explains its ruling. “Ultimately I am unpersuaded that the position is so clear as to justify granting Intel summary judgment on this issue.”
“First, the appeal to common sense can be made in every case of a threat to enter into an illegal agreement. In such a case it can be said that there is no occasion for the intervention of the court because the contract, if made, will be unlawful. In many cases that may be true but it will not be true in all cases. Particular circumstances, such as the potential effect on third parties, may well justify the intervention of the court.”
“Second, in this case, … there is also the defence under Article 82. If the willingness to grant licences, but only on terms which involve breaches of Article 81, is part of the abusive conduct of which complaint is made then I see no reason why those facts may not be relied on both for the purposes of the defence under Article 82 and as a free standing defence under Article 81. Third, … at least arguably there is a defence under Article 81 even if there is none under Article 82.”
“Fourth, even if the case under Article 81 is insufficient to found a defence to liability, it may yet constitute a defence to the remedies of injunction, delivery up and an account of profits. The conduct of Intel will have demonstrated that it does not seek to prevent the use of its invention; rather it seeks to exploit it by licensing others to make chipsets compatible with its own technology.”
“If some of the terms of that licence are invalid then the proper remedy may be thought to be to make Via pay proper compensation as opposed to preventing it from using the technology on a normal commercial basis. For all these reasons I would also grant permission to appeal and allow it so that the Article 81 defences may be reinstated.” [¶¶ 87-88]
Citation: Intel Corp (a company incorporated in the state of Delaware USA) v Via Technologies Inc and others, Court of Appeal (Civil Division) [2002] EWCA Civ 1905, [2002] All ER (D) 346 (Dec), 20 December 2002.
Filed in: 2003 International Law Update, Issue 2
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In private antitrust dispute over international vitamin sales, District of Columbia Circuit holds that where defendant’s anti-competitive conduct causes requisite harm to United States commerce, FTAIA permits suits by foreign plaintiffs who are injured solely by that conduct’s effect on foreign commerce.
The Foreign Trade Antitrust Improvements Act (FTAIA) (see 15 U.S.C. Section 6(a)) provides that the Sherman Act shall not apply to conduct involving trade or commerce with foreign nations unless (1) such conduct has a “direct, substantial, and reasonably foreseeable effect” on trade and commerce in the U.S., and (2) such effect gives rise to a claim under the Sherman Act.
Foreign buyers of vitamins and related products (plaintiffs) who bought those products outside the U.S., brought an action against several U.S. and foreign companies which distribute these vitamin products internationally (defendants). The suit rested on Section 1 of the Sherman Act [15 U.S.C. Section 1], Sections 4 and 16 of the Clayton Act [15 U.S.C. Section 15 and 25], the antitrust laws of foreign nations, and international law. Plaintiffs alleged that the defendants had conspired world-wide to control vitamin prices in the U.S. market and elsewhere between January 1, 1988, and February 1999.
The defendants moved to dismiss for lack of subject matter jurisdiction under the FTAIA, contending that the alleged injuries lacked any connection to U.S. commerce. The district court granted the motion, and this appeal followed. The U.S. Court of Appeals for the District of Columbia Circuit reverses.
The Court first notes that the Fifth Circuit took a “restrictive view” [of the FTAIA] in Den Norske Stats Oljeselskap As v. Heeremac Vof, 241 F.3d 420 (5th Cir. 2001). There it held that the U.S. effects themselves must give rise to the plaintiff’s claim; it is not enough for a plaintiff to show that the U.S. effects injured other persons.
In contrast, the Second Circuit adopted a “less restrictive view” in Kruman v. Christie’s Int’l PLC, 284 F.3d 384 (2d Cir. 2002), ruling that, once there is a jurisdictional nexus, the FTAIA does not limit the types of plaintiffs who may seek antitrust relief.
The instant Court first defines the precise jurisdictional issue: whether the “gives rise to a claim” requirement of Section 6(a)(2) of the FTAIA authorizes subject matter jurisdiction where the defendant’s conduct affects both domestic and foreign commerce, but the plaintiff’s claim arises only from the conduct’s foreign effect.
“We hold that where the anticompetitive conduct has the requisite harm on United States commerce, FTAIA permits suits by foreign plaintiffs who are injured solely by that conduct’s effect on foreign commerce. The anticompetitive conduct itself must violate the Sherman Act and the conduct’s harmful effect on United States commerce must give rise to ‘a claim’ by someone, even if not the foreign plaintiff who is before the court.”
“Although the language of Section 6a(2) does not plainly resolve this case, we believe that our holding regarding the jurisdictional reach of FTAIA is faithful to the language of the statute. We reach this conclusion not only by virtue of our literal reading of the statute, but also in light of the statute’s legislative history and underlying policies of deterrence emanating from the Supreme Court’s decision in Pfizer, Inc. v. Government of India, 434 U.S. 308 (1978).” [Slip op. 6-7]
The Circuit Court concludes that the foreign plaintiffs have adequately alleged that the U.S. effects of defendants’ cartel gave rise to antitrust claims by parties injured in the U.S. from transactions occurring in the U.S. Thus, subject matter jurisdiction is proper.
[Editors' Note: A news article in "Business Wire” provides an interesting reading of the decision. "The major international vitamin producers (Hoffman-LaRoche (now Aventis), BASF and Rhone-Poulenc) already have settled claims involving U.S. vitamin purchasers several years ago for over $1 billion ... What this means is that companies who engaged in anticompetitive conduct and thought that they would only be exposed in the United States to liability for the effects of their actions in the U.S. must now realize that they are exposed to liability for the effects of their conduct worldwide.'”]
Citation: Empagran S.A. v. F. Hoffman-LaRoche, Ltd., 315 F.3d 338 (D.C. Cir. 2003); Business Wire of January 17, 2003, “Cohen, Milstein, Hausfeld & Toll Announces Federal Court Expansion of Vitamin Price-fixing Case.”
Filed in: 2003 International Law Update, Issue 2
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In matter of first impression, Ninth Circuit rejects claim that material normally producible under 28 U.S.C. Section 1782 in U.S. for use by complainant in antitrust proceeding before EU Commission must also be discoverable under EC procedures
Advanced Micro Devices, Inc. (AMD), a manufacturer of microprocessors, filed a complaint with the European Commission, Directorate-General for Competition. It charged that Intel Corporation has been abusing its dominant market position in violation of Article 82 of the EC Treaty (abuse of dominant position in common market). To support its complaint, AMD filed a petition under Section 1782 in a California district court, seeking the production of documents and transcripts from a proceeding in another district court. Intel objected, arguing that the matter before the EC Commission is not a “proceeding in a foreign or international tribunal” within the meaning of Section 1782.
The district court disallowed the discovery, and AMD appealed. As a matter of first impression, the U.S. Court of Appeals for the Ninth Circuit reverses and remands. The Court addresses (1) whether the proceeding for which discovery is sought is taking place in a “foreign or international tribunal”, and (2) if so, whether Section 1782 requires a preliminary showing that the information sought would be discoverable or admissible in that proceeding.
Here, the Competition Directorate of the EC Commission conducts the investigation. Upon receipt of a complaint, the Directorate conducts a preliminary, nonadversarial investigation. The Director may seek information from the alleged infringer and may search the alleged infringer’s business premises. At the end of the investigation, the Directorate decides whether to pursue the complaint further. If the Directorate concludes that infringement may have occurred, it will hold a hearing. Thereafter, the Directorate will make a recommendation on how to proceed. If it decides to dismiss the matter, the complainant may appeal to the EC Court of First Instance. If it decides to proceed, the EC Advisory Committee will issue an opinion which may become enforceable within the EC if adopted by the Commission. While the EC Commission is an administrative body, the investigations it conducts constitute quasi-judicial or judicial proceedings.
The language of Section 1782 is broad and inclusive and does not distinguish between civil and criminal proceedings. Ninth Circuit cases have read Section 1782 broadly to include “bodies of quasi-judicial or administrative nature” as well as preliminary investigations leading to judicial proceedings.
“Intel argues that the process for which AMD seeks discovery is purely administrative in nature, and, at least with respect to a recommendation to proceed to a complaint, preliminary to a non-judicial proceeding. In the past, we have rejected applications for discovery where the ‘proceeding’ was a commission of inquiry authorized to investigate, report and make recommendations to a non-judicial body. [Cit.] But the Directorate makes its recommendations to the EC [European Commission] – a body authorized to enforce to enforce the EC Treaty with written, binding decisions, enforceable through fines and penalties. EC decisions are appealable to the Court of First Instance and then to the Court of Justice. Thus, the proceeding for which discovery is sought is, at minimum, one leading to quasi-judicial proceedings.” [Slip op. 8] Therefore, an EC proceeding qualifies as a “proceeding before a tribunal” within the meaning of 28 U.S.C. Section 1782.
The Court next turns to the discoverability or admissibility question. The First and Eleventh Circuits have held such a threshold applicable, but the Second and Third Circuits have declined to so hold. Staking out a middle ground, the Fourth and Fifth Circuits impose the showing upon requests from private parties but not upon those from the foreign or international tribunal itself.
The Ninth Circuit has already spurned a requirement that the evidence produced under Section 1782 has to be admissible in the foreign tribunal. In the instant case, the Court also rejects such a threshold requirement as to discoverability. It finds no statutory language on point, and nowhere does the legislative history mention it. Had Congress intended to demand a “discoverability” threshold, it could easily have done so. Finally, liberal production of evidence is consistent with the aims of Section 1782. By unilaterally providing broad assistance to tribunals and parties in foreign and international proceedings, Congress hoped to encourage foreign countries to provide reciprocal assistance to our courts.
Citation: Advanced Micro Devices, Inc. v. Intel Corp., 2002 WL 1225129, No. 02-15070 (9th Cir. June 6, 2002).
Filed in: 2002 International Law Update, Issue 6
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