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In private antitrust action against two leading auction houses, Second Circuit holds that Foreign Trade Antitrust Improvements Act of 1982 did not overrule prior circuit law on applicability of Sherman Act to antitrust violations committed abroad
Plaintiffs filed a class action against Christie International Plc (Christie’s), a United Kingdom corporation, and Sotheby’s Holdings, Inc. (Sotheby) a Michigan corporation, along with many of their local subsidiaries, directors and officers. These two companies are the world’s first and second largest auctioneers of fine art, antiques, collectibles, and other items, together controlling 97% of the market. Christie’s and Sotheby’s hold auctions at various sites around the world, including London and New York City.
The complaint charges that the defendants agreed to fix the prices which they charged their clients for their auctioneering services. (The defendants have already settled with a class of plaintiffs who bought or sold goods in domestic U.S. auctions.) The present litigation continues with a plaintiff class that claims injury from having to pay inflated commissions to defendants in buying or selling at their foreign auctions.
The foreign class plaintiffs filed their Consolidated Amended Complaint on October 30, 2000. There are eight foreign class plaintiffs, four from the United States and four from foreign nations. They sued under sections 4 and 16 of the Clayton Act, 15 U.S.C. Sections 15, 26, alleging that the defendants violated sections 1 and 3 of the Sherman Act, 15 U.S.C. Sections 1, 3, by agreeing to fix their buyer’s premiums and seller’s commissions. They seek damages and injunctive relief.
The District Court dismissed plaintiffs’ case for lack of subject matter jurisdiction. It read current law as allowing suit only [1] where the alleged misconduct had direct substantial and reasonably foreseeable effects in the U. S. and [2] where the domestic effects that gave rise to jurisdiction also caused the plaintiffs’ alleged injuries.
The U.S. Court of Appeals for the Second Circuit rules that defendants’ reading of the FTAIA does not square with the unambiguous text of the statute; it does not change the National Bank of Canada rule. The Court concludes that the defendants’ alleged conduct qualifies under either prong of its test.
Before 1982, the law of the Second Circuit was that an antitrust action in federal court based on conduct directed at foreign markets had to have the “effect of” injuries to U. S. commerce that reflects the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. See National Bank of Canada v. Interbank Card Assoc., 666 F.2d 6, 8 (2d Cir.1981). In 1982, Congress, as an amendment to the Sherman Act, passed the Foreign Trade Antitrust Improvements Act of 1982, Pub. L. 97 290, 96 Stat. 1246 (codified at 15 U.S.C. Section 6a) (the FTAIA). The defendants here argued that the Act exempts their alleged conduct from antitrust scrutiny. On the other side, plaintiffs contended (1) that the FTAIA is inapplicable to this case and (2) that, if applicable, it would not bar their suit against defendants. The effect of the FTAIA on prior circuit law is a matter of first impression for the Court.
The Court affirms the district court’s ruling that the FTAIA applies to the defendants’ alleged conduct. On the other hand, the plaintiffs’ complaint does depict conduct that has the requisite “effect” on domestic commerce under the FTAIA to be regulated by the Sherman Act. Hence the Court vacates the district court’s judgment granting the defendants’ motion to dismiss and remands the case for further proceedings consistent with its opinion.
Assuming the truth of plaintiff’s allegations, as did the lower court, the following is background to the suit. At their auctions, in return for the auctioneer’s services, the buyer of an auctioned item pays the auctioneer a “buyer’s premium,” while the seller pays the auctioneer a “seller’s commission.” Defendants calculate the fees as a percentage of the purchase price of the auctioned item.
From late 1992 until at least February 2000, Christie’s and Sotheby’s allegedly had an ongoing agreement to set the buyer’s premiums they charged at identical levels. In November 1992, Sotheby’s declared that it would raise its buyer’s premiums from 10% to 15% for the first $50,000.00 of the purchase price. The following month, Christie’s announced the same increase in its buyer’s premiums. In addition, the defendants allegedly agreed not only to keep these premiums in effect but also to set their seller’s commissions at the same levels. In early 1995, both companies stopped negotiating over lowering seller’s commissions and put into effect a fixed schedule of non-negotiable seller’s commissions ranging between 2% and 10%.
The Court first notes that the antitrust laws seek to foster competition in the U.S. markets, even in situations where foreign markets are also involved. “There is a distinction between anticompetitive conduct directed at foreign markets that only affects the competitiveness of foreign markets and anticompetitive conduct directed at foreign markets that directly affects the competitiveness of domestic markets. The antitrust laws apply to the latter sort of conduct and not the former. Our markets benefit when antitrust suits stop or deter any conduct that reduces competition in our markets regardless of where it occurs and whether it is also directed at foreign markets. On the other hand, our markets do not benefit when antitrust suits stop or deter anticompetitive conduct directed at foreign markets without an effect on our markets. …”
“Ever since Judge Learned Hand’s seminal opinion in United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir.1945) (‘Alcoa‘), it has been clear that the focus in determining whether the antitrust laws govern conduct is the conduct’s effect on the domestic market rather than the situs of the conduct itself.” [393] Believing that an unqualified “effects” test is too broad, the Second Circuit has demanded proof of negative or injurious effects on a U.S. market.
In the first place, the Court rejects plaintiffs’ contentions that the U.S. situs of several meetings to discuss the price fixing agreement itself makes the FTAIA inapplicable here. It also turns aside plaintiffs’ claim that the case involves “import trade or commerce” which lies outside the purview of the FTAIA. Whether objects bought or sold at the auctions came from abroad into the U.S. does not change the picture. The complaint clearly focuses on the conspiracy to fix prices. Therefore the FTAIA does apply to plaintiffs’ charges.
Defendants read the FTAIA as providing a remedy only for domestic injury caused by anticompetitive conduct directed at foreign markets. The Court disagrees. “By proposing that the FTAIA contains a broader plaintiff’s injury requirement than can be supported by its text, the defendants assume that the FTAIA, which is an amendment to the Sherman Act, [Cite] determines which plaintiffs have the right to bring a private cause of action for antitrust injury caused by conduct directed at foreign markets. In doing so, they conflate the FTAIA with the Clayton Act, which is the statute that determines whether a plaintiff may bring a private cause of action for a violation of the antitrust laws based on its actual or threatened injury.” [397]
“Generally, in the antitrust context, the issue of whether a plaintiff has suffered an injury is only relevant to the Clayton Act. The Sherman Act primarily deals with defendants. It defines substantive standards that prohibit certain forms of anticompetitive conduct by defendants. The Clayton Act deals with plaintiffs. It sets forth the requirement that a plaintiff must suffer an injury or be threatened with an injury caused by a Sherman Act violation in order to bring suit. The conduct and injury requirements of the Sherman and Clayton Acts operate independently. The existence of a Sherman Act violation does not depend on whether anyone has actually suffered an injury. Conduct may violate the Sherman Act but not be actionable under section 4 of the Clayton Act because it did not cause injury.” [397-98]
“The FTAIA exempts certain forms of anticompetitive conduct directed at foreign markets from antitrust scrutiny. The text of the FTAIA clearly reveals that its focus is not on the plaintiff’s injury but on the defendant’s conduct, which is regulated by the Sherman Act. The FTAIA does not regulate which plaintiffs can bring suit under the Clayton Act, and it would be inappropriate to import the element of injury from the Clayton Act and graft it onto the FTAIA.” [398]
“The district court interpreted the word ‘conduct’ to mean ‘[t]he precise acts that caused injury,’ which in this case was ‘the imposition of charges for auction services at levels determined or affected by the illicit agreement.’ [Cite] But as discussed earlier, ‘conduct’ only refers to acts that are illegal under the Sherman Act. The illegal act in this case was not the imposition of high prices but the formation of the agreement to fix prices. Under the Sherman Act, such a horizontal price agreement is in itself illegal regardless of its effect or purpose.” [398-99]
The Court rejects the notion that the FTAIA changed circuit law. “We do not agree that subsection 2 of the FTAIA changed the National Bank of Canada test to require that the ‘effect’ on domestic commerce be the basis for the alleged injury suffered by a plaintiff. … As we established earlier, a violation of the Sherman Act is not predicated on the existence of an injury to a plaintiff. In fact, the only civil action that can be brought directly under the Sherman Act is one by the federal government to enforce or prevent a substantive violation of the Sherman Act pursuant to 15 U.S.C. Section 4. Such an action can be brought regardless of whether the violation has caused injury to a plaintiff.” [399-400]
Its interpretation of the FTAIA is now applied by the Court to plaintiffs’ complaint. “If it is true, as the plaintiffs allege, that the domestic price fixing agreement could only have succeeded with the foreign price fixing agreement, then the foreign agreement certainly had an anticompetitive effect on the domestic market. The relevant ‘conduct’ in this case can be described in two ways that correspond to the two prongs of the National Bank of Canada test, both of which meet the requirements of the FTAIA. The ‘conduct’ could be an agreement to fix prices in both foreign and domestic auction markets. Such acts have an effect on domestic commerce because they include conduct directed at a domestic market. The plaintiffs allege that this ‘conduct’ actually reduced competitiveness in the domestic auction market. The domestic effect of the conduct clearly violates the Sherman Act.”
“Alternatively, the ‘conduct’ could be described as an agreement to fix prices in a foreign auction market that made possible an agreement to fix prices in the domestic auction market. The ‘effect’ of the foreign agreements, the negotiation of explicit domestic price fixing agreements that clearly violate section 1 of the Sherman Act, ‘gives rise to a claim’ under the Act. Therefore, the FTAIA does not shield the defendants’ conduct from scrutiny under the antitrust laws.” [401]
Arguably, the Court notes, effective enforcement of our antitrust laws might be adequate if only the plaintiffs injured by the domestic anticompetitive effects were able to sue. Nevertheless, the Court tends to think otherwise. “When a foreign scheme magnifies the effect of the domestic scheme, and plaintiffs affected only by the foreign scheme have no remedy under our laws, the perpetrator of the scheme may have a greater incentive to pursue both the foreign scheme and the domestic scheme rather than the domestic scheme alone. Our markets suffer when the foreign scheme is not deterred because the domestic scheme may have a greater chance of success when it is supplemented by the foreign scheme. Our markets can benefit from the additional deterrence of conduct affecting foreign markets.” [403] In the end the Court decides only that the Sherman Act does apply to the alleged conduct forming the basis of plaintiffs’ lawsuit.
Citation: Kruman v. Christie’s International Plc, 284 F.3d 384 (2nd Cir. 2002).
Filed in: 2002 International Law Update, Issue 5
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In international airline antitrust dispute concerning U.S. routes, Second Circuit finds that Virgin Atlantic failed to show that British Airways’ incentive agreements with corporate clients and travel agencies were anti-competitive
On October 21, 1993, Virgin Atlantic Airways Limited (Virgin) brought antitrust actions against British Airways (BA), alleging that BA’s incentive agreements and ticket bundling constituted predatory business practices, and breached Sections 1 and 2 of the Sherman Act. Virgin produced an expert witness who testified that the net effect of these practices was to postpone Virgin’s initiation of flights to San Francisco, Washington, DC, Chicago, Los Angeles, and New York. The New York federal court gave summary judgment to BA. Virgin appeals, claiming that the district court misunderstood the economic analysis of its key expert and applied the wrong legal standards.
The U.S. Court of Appeals for the Second Circuit affirms. Virgin had alleged the incentive agreements used by BA whereby travel agents and corporate customers receive commissions or discounts once they have reached a sales threshold, unreasonably restrained trade and offended against Section 1 of the Sherman Act. To substantiate this Sherman Act claim, Virgin had to show (1) that there was some form of concerted action between at least two legally distinct economic entities; and (2) that such conduct impeded trade either per se or under the “rule of reason.”
The Court finds, first, that Virgin did not produce adequate direct or circumstantial evidence tending toward proof that BA was party “to a common scheme designed to achieve an unlawful objective.” Furthermore, the incentive partners had not agreed to do anything in exchange for the benefits they were receiving. i.e., there were no minimum requirements or purchases, and buyers could choose whichever flight they found most suitable.
Second, the Court concludes that Virgin failed to show that BA’s practices were illegal per se. Without being able to claim reduced output and elevated pricing, a plaintiff cannot substantiate an allegation of an adverse effect on competition as a whole in the pertinent market. Moreover, Virgin never put forth an alternative means by which BA could have achieved its goals without hampering competition. Lastly, BA came up with a pro-competitive rationale for its actions, contending that rewarding its most loyal customers fosters competition within the market.
Third, the Court disagrees with Virgin’s allegation that BA’s bundling of ticket sales amounted to a predatory business practice. Virgin’s expert witness testified that the losses incurred by BA through the selling of tickets below cost was an attempt to lure customers from other airlines to BA and that it made up the losses by raising prices on connecting flights. Virgin alleged that such attempts to monopolize the market violated Section 2 of the Sherman Act.
The Court found that Virgin again failed to show it had adequate evidence (1) that BA was taking part in predatory or anti-competitive conduct, (2) that BA intended to monopolize the market, and (3) that BA could probably achieve monopoly power. A company is not guilty of predatory conduct merely by excluding its competitors from the market by utilizing competitive advantages legitimately at its disposal.
A monopolist “presumably always charges the highest available price to maximize its profits without attracting competitors to enter the market.” Virgin had no proof that BA was unreasonably elevating prices for tickets on other routes specifically to compensate for losses incurred by slashing transatlantic air fares. The Court notes that “predatory” pricing can lower aggregate prices within a market, and therefore can benefit customers.
Virgin’s claim of BA’s monopoly leveraging in violation of Section 2 of the Sherman Act also fails. Virgin again did not submit adequate proof to show that BA (1) possessed monopoly power in one specified market, (2) used that power to gain a competitive advantage over Virgin in another distinct market, and (3) caused injury by such anti-competitive conduct. Virgin omitted to define the flight market in which BA allegedly had tried to leverage a monopoly. Finally, the Second Circuit notes that U.S. antitrust laws, including the Sherman Act, seek to protect competition, and not individual competitors.
Citation: Virgin Atlantic Airways Ltd. v. British Airways Plc, 257 F.3d 256 (2d Cir. 2001).
Filed in: 2001 International Law Update, Issue8
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In multi-billion-dollar merger where Schneider Electric, S.A., proposed to exchange shares with Legrand, S.A., Paris Court of Appeal surprises European financial world by ruling in favor of minority preferred shareholders of Legrand who claimed that exchange ratio for Schneider shares was too heavily weighted in favor of common shareholders
Schneider Electric, S.A. made a friendly, $7,900,000,000 offer to take over Legrand, S.A. Both companies are in complementary sectors of the electric equipment manufacturing industry. In January 2001, the Conseil de Marches Financiers (CMF), the French market regulator, approved the offer. The merger would create the world’s largest maker of low-voltage electrical distribution equipment.
Led by Colette Neuville, a shareholder activist, who heads the Association de Defense des Actionnaires Minoritaires, the minority shareholders of non-voting preferred shares (ADP) in Legrand went to court. They complained that the deal would have given them only two Schneider shares for each of their shares while the Legrand common-share holders were to get 3.5 Schneider shares for each common share. In a move that surprises most financial observers, the Paris Court of Appeal, on May 3, 2001, annuls the CMF’s approval of the proposed acquisition.
The Court does not directly hold that the exchange ratio was unjust. Instead it overturns the CMF’s ruling because the agency had not explained why it believed that the offer for the ADP shares would be economically reasonable. On the other hand, it had specifically analyzed the economics underlying the offer for common shares.
The Court also notes that the CMF “should have examined the price or the terms of exchanges in the light of objective evaluation criteria usually used and the characteristics of the company under offer.” In the Court’s view, the market looks upon common and preferred stock as constituting two distinct classes of shares. It had been the CMF’s view that the discount on the preferred shares amounted to an objective long-term market factor.
If the companies wish to pursue the merger, they cannot immediately go back to the CMF to secure a more explicit analysis of the original offer. French procedures provide several other options. One would be to make a new offer and to obtain CMF’s approval of it. The companies alternatively could renew the original offer and seek a more specific ruling from the CMF. Finally, they could raise the offer for the ADP shares.
Other challenges may jeopardize the merger. In March, for example, the Directorate on Competition at the European Commission had announced that it would launch an in-depth, four-month long investigation of the massive merger to determine its compliance with European Union standards.
Citations: The Times of London, May 4, 2001, at 29 (Business), 2001 WL 4896674; The Daily Deal, May 4, 2001 (byline of John E. Morris), 2001 WL 20232959.
EXTRADITION
Canadian Supreme Court upholds stay of extradition of Canadian nationals charged with international mail fraud on U.S. residents on grounds that intimidating remarks by American federal judge and prosecutor violated Section 7 of Charter of Rights and Freedoms as well as common law doctrine of abuse of process
In July 1994, a U.S. federal grand jury indicted Harry Cobb and Allen Grossman (appellants), two Canadian citizens and residents, for engaging in a $22,000,000 mail fraud and conspiracy involving gemstones (executed from Canada but involving U. S. residents). At least 25 individuals and 8 corporations took part. Several of their alleged coconspirators had voluntarily returned to face the charges pending in the U. S. District Court for the Middle District of Pennsylvania. The United States then requested Canadian authorities to extradite Cobb and Grossman, among others.
Appellants objected to being extradited, however, on the grounds that it would violate their rights under Section 7 of the Canadian Charter of Rights and Freedoms because of intimidating statements made by the American trial judge and prosecutor. Section 7 provides that: “Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.”
At the sentencing of one of the co-conspirators, the American judge remarked that those fugitives who did not cooperate would get the “absolute maximum jail sentence.” The federal prosecutor also stated during a Canadian TV interview broadcasted just before appellants’ hearing that: “You’re going to be the boyfriend of a very bad man if you wait out your extradition.” There is no record showing that the U.S. government has repudiated these remarks.
Although the U.S. had admittedly put forth the necessary prima facie case, the extradition judge declined to order the appellants committed and stayed the proceedings based on the American comments. Represented by Canadian officials, the United States’ request then went to the Ontario Court of Appeal. That Court set aside the stay and sent the matter back to the extradition judge, holding that the lower court should not pre-empt the discretion given to the Minister of Justice as to whether or not to surrender a fugitive pursuant to the United States — Canadian Treaty on Extradition (as amended 1974) [27 U.S.T. 983; T.I.A.S. 8237.]
The Minister, however, has delayed his decision in the matter until completion of any further appeal. The Canadian Supreme Court allows the appeal.
The Court first points out that the Canadian Charter of Rights and Freedoms controls the application of the extradition treaty, the conduct of the hearing, as well as the exercise of executive discretion as to surrender of a fugitive. The extradition judge has to make sure that he or she conducts the hearing itself pursuant to the principles of fundamental justice. Within the limited scope of the issues at an extradition hearing, the 1992 amendments to Canada’s Extradition Act empower the extradition judge to grant Charter remedies if there is a breach thereof, including a stay of the proceedings.
Section 7 applies whenever a judicial official faces an issue of liberty and security interests. While not a trial on the merits, a committal hearing has to comply with the principles of procedural fairness that control all Canadian judicial proceedings. Where a fugitive claims that the Requesting State will not give him or her a fair trial, the Minister must consider and resolve this claim. The extradition judge, however, must take into account any conduct by the Requesting State or by its representatives, agents or officials that intrudes or tries to intrude into the conduct of Canadian judicial proceedings.
The common law doctrine of abuse of process also shields litigants by recognizing an inherent judicial discretion to prevent unfair or abusive proceedings. Both U.S. statements amounted to an effort to affect Canadian judicial proceedings by unduly pressuring the appellants to stop resisting extradition. It is immaterial whether the attempts did or did not work. That the Minister might later have been able to remedy the situation does not take away the courts’ power or duty to maintain the integrity of their own process.
“By placing undue pressure on Canadian citizens to forego due legal process in Canada, the foreign State has disentitled itself from pursuing its recourse before the courts and attempting to show why extradition should legally proceed. The intimidation bore directly upon the very proceedings before the extradition judge, thus engaging the appellants’ right to fundamental justice at common law, under the doctrine of abuse of process, and as also reflected in s. 7 of the Charter. The extradition judge did not need to await a ministerial decision in the circumstances, as the breach of the principles of fundamental justice was directly and inextricably tied to the committal hearing.” [42]
Citation: United States v. Cobb, 2001 S.C.C. 19 (Sup. Ct. Can. April 5).
Filed in: 2001 International Law Update, Issue5
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As result of Sherman Act investigations of international vitamin cartel, Antitrust Division, U.S. Department of Justice announces plea agreements by German and Swiss executives of BASF and Hoffman-LaRoche that involve prison sentences and substantial fines
On April 6, 2000, the U.S. Department of Justice (DOJ) filed four separate criminal cases in a Dallas federal court charging defendants with conspiring between 1990 and 1999 to fix, raise and maintain prices and to allocate the sales volumes of vitamins sold in the U.S. and elsewhere. The conspiracy affected the vitamins most often used as nutritional supplements or to enrich human food and animal feeds. The four defendants included two Swiss nationals, Andreas Hauri and Dieter Suter, and two German citizens, Reinhard Steinmetz and Hugo Strotmann. These four have agreed to submit to the jurisdiction of the Dallas court.
The indictment charges one or more of the executives with conspiring among themselves and with unnamed co-conspirators to engage in the following four types of illegal activities at various times during the 1990s. First, they agreed to fix and increase prices on vitamins A, B2, B5, C, E, and beta carotene as well as on vitamin premixes for food enrichment. Second, they contracted to allocate among themselves the volumes of sales and market shares of these products. Third, they conspired to divide contracts to supply vitamin premixes to U.S. customers and to rig the bids for those contracts. Finally, defendants took part in conferences and discussions aimed at overseeing and enforcing the price and market share arrangements. According to the DOJ, these executives were key actors in setting up and continuing the most far-reaching cartel it has ever prosecuted.
“Steinmetz was President of BASF’s Fine Chemicals Division at the beginning of the conspiracy in January 1990 and remained involved in the conspiracy until his departure from the company in March 1996. Suter succeeded Steinmetz as President of the Fine Chemicals Division and continued BASF’s participation in the vitamin conspiracy until February 1999. Strotmann joined the ongoing conspiracy in January 1995 in his capacity as BASF’s Group Vice President responsible for marketing vitamins for the Fine Chemicals Division. His participation continued until February 1999. Hauri, Hoffman-LaRoche’s Director of Worldwide Marketing in the Fine Chemical and Vitamin Division, was involved in the vitamin cartel from its inception in January 1990 until February 1999.”
On May 20, 1999, the Hoffmann-LaRoche company had pled guilty to the same criminal conspiracy and the court had sentenced it to pay a record $500,000,000 fine. That same day, Dr. Kuno Sommer, a Swiss citizen and another Hoffmann-LaRoche executive, pled guilty to taking part in the vitamin cartel and lying to DOJ investigators in 1997 by way of an attempted coverup. The court sentenced him in July 1999 to serve four months in prison and to pay a $100,000 fine. In October 1999, a federal court sentenced Dr. Roland Broennimann of Switzerland to five months in prison and a fine of $150,000 on his plea of guilty to cartel involvement. As the third Hoffmann-LaRoche executive charged with taking part in the vitamin cartel, defendant Hauri has agreed to serve four months in prison and to pay a $350,000 fine.
On September 17, 1999, BASF had pleaded guilty to taking part in the vitamin conspiracy and the judge had sentenced it to pay a criminal fine of $225,000,000. The three BASF executives have also entered guilty pleas in the instant case. Steinmetz has consented to serve a prison term of three and one-half months and to pay a fine of $125,000. Suter and Strotmann have each agreed to accept three months of imprisonment and the payment of a $75,000 fine.
The DOJ’s criminal investigations into the $5,000,000,000 vitamin industry worldwide have also led to convictions of Canadian and Japanese firms. There have also been convictions against American executives some of whom are either in federal prison or anticipating potential jail sentences along with heavy fines.
Citation: U.S. Department of Justice, Antitrust Division, Press Release, April 6, 2000; Testimony of Joel I. Klein, Assistant Attorney General, Antitrust Division, before House Judiciary Committee, April 11, 2000, 2000 WL 19302622.
Filed in: 2000 International Law Update, Issue 4
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German State Supreme Court in Stuttgart holds that attorneys’ use of “vanity” telephone numbers is anticompetitive and misleading because it distinguishes an attorney through advertising “hype” rather than by professional achievements
Three lawyers of a Geislingen law firm filed a suit that challenged the issuance of “vanity” telephone numbers that refer to “lawyer” or “law firm,” such as the telephone number 0800-RECHTSANWALT (Editorial Note: The U.S. analogue would be “1-800-LAWYER”). Plaintiffs alleged that this kind of telephone number causes or promotes anticompetitive behavior on the part of lawyers. The Ulm district court enjoined lawyers’ use of such telephone numbers. Defendants appealed to the State Supreme Court in Stuttgart.
This Court has held that attorney advertising with a vanity telephone number breaches Section 43 b of the Federal Regulation of Attorneys (Bundesrechtsanwaltsordnung, BRAO). The Court affirms in this case also, holding that the lower courts correctly barred defendant from offering or actually assigning such telephone numbers to lawyers. Section 43 b of the BRAO restricts lawyer advertising to general and rational statements that do not specifically solicit a client.
A vanity number, however, does not impart factual information about lawyerly achievements or activities, but simply amounts to a marketing gimmick to distinguish the advertiser. These numbers resemble an advertisement in the Yellow Pages containing exaggerated claims of success or skill; it lures clients to a lawyer by improper marketing.
Although viewing the direct solicitation of clients as anticompetitive, German ethical rules do allow for mass mailings that provide general information about the lawyer or the law firm. Whether certain advertising constitutes impermissibly specific solicitation depends on the impression received by the public.
Citation: Oberlandesgericht Stuttgart, Urteil vom 22. Oktober 1999, 2 U 52/99 – 0800-RECHTSANWALT.
Filed in: 2000 International Law Update, Issue 4
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Detailed treaty between United States and Japan on mutual cooperation in the enforcement of their respective competition laws, regulations and policies has entered into force
On October 7, 1999, an Agreement between the Government of the United States and the Government of Japan Concerning Cooperation on Anticompetitive Activities entered into force. Both Japan and the United States realistically admit that, from time to time, differences may come up over whether and how to enforce their antitrust laws. The parties declare the importance of antitrust enforcement to their respective economies and affirm their commitment to carefully consider each other’s important interests in applying their competition laws.
For purposes of this Treaty, Article I defines the “competition authorities” as including the U.S. Department of Justice and the Federal Trade Commission and the Japan Fair Trade Commission. On the U.S. side, the “competition laws” refer to the Sherman and Clayton Acts, the Wilson Tariff Act and the Federal Trade Commission Act and their implementing regulations. For Japan, it includes the Antimonopoly Law of April 1947 and its corresponding regulations.
There are a number of conflictual situations that the Treaty deals with. For example, one party’s antitrust enforcement might involve a national or corporation of the other country. Moreover, it might pertain to anticompetitive activities (other than mergers or acquisitions) substantially carried out on the other party’s territory.
The Treaty will also apply if one or more entities taking part in a merger or acquisition or a company controlling one or more parties to the transaction is a domestic company of the other party. Another instance is where the relief sought demands or bars conduct in the other party’s territory. Finally, the Treaty will govern where the other party has required, encouraged or approved the conduct being investigated.
Since mutual notification that one of the above situations exist is key, the Treaty sets time limits for providing notice. The Treaty also requires each party to keep the other up to date on amendments to its competition statutes, as well as to the guidelines, regulations or policy statements relating to these statutes.
Under Article III, each party’s competition authority is to help the other party’s international enforcement efforts to the extent feasible and domestically lawful. This may include supplying information as to each one’s enforcement directed at behavior that might adversely affect competition in the other party as well as relevant data asked for by the other party.
The Treaty sets out criteria in Article IV for deciding whether the parties can, and should, coordinate their antitrust efforts. These elements include cost-effectiveness, the relative abilities of the parties to obtain the needed information and the potential benefits of correlating relief. If one party believes that anticompetitive activity within the other party is adversely affecting the first party’s economy, the former may, in appropriate cases, request the other under Article V to initiate anticompetitive measures. Each requested party agrees to give due consideration to these petitions and to keep the requesting party informed of any action taken.
The Treaty suggests a number of factors that each party should take into account where the enforcement activities of one party are likely to impair the other’s important interests. In addition to assessing the relative impact of the activities on each other, Article VI mentions the presence or absence of the accused’s intention to have an impact on the markets of the enforcing state, the degree to which the unlawful activities substantially lessen competition in each country’s markets and the degree of harmony or dissonance between the enforcing measures and the laws or policies of the other country. Other Article VI factors include the possibility that both parties will make conflicting demands on the suspected entities or individuals, the location of relevant assets and suspects, and the impact of the enforcement activities of one party on sanctions sought by the other.
In general, this Treaty is without prejudice to using other bilateral or multilateral agreements involving Japan and the U.S. and is not intended to derogate from the requirements of domestic law or international agreements. Article XI (4) also provides that “Nothing in this Agreement shall be construed to prejudice the policy or legal position of either Party regarding any issue related to jurisdiction.”
Citation: State Dept. No. 99 137, 1999 WL 1083830 (Treaty).
Filed in: 2000 International Law Update, Issue 2
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United States and Israel sign antitrust cooperation agreement designed to reduce conflicts in transnational enforcement
On March 15, 1999, U.S. Attorney General, Janet Reno, and the Israeli Ministry of Trade and Industry, Natan Sharansky, signed an Antitrust Cooperation Agreement. It is entitled “The Agreement between the Government of the United States of America and the Government of the State of Israel Regarding Application of Their Competition Laws.”
The Agreement will better enable their respective antitrust agencies to cooperate in investigating anti-competitive activities that may take place partially in Israel and partially in the U.S. The agreement also provides that each party will keep the other apprised of their enforcement activities to avoid conflicts and duplications of effort.
In particular, the parties have adopted the principle of “positive comity.” Thus, if a person in party A’s territory commits acts that have an anti-competitive effect in party B’s territory, party A will work with party B to investigate those acts.
The Agreement protects the confidentiality of data that the parties will exchange. Nevertheless, there is no duty to share statutorily-protected information.
The agencies in charge of the day-to-day application of the Agreement are, for the U.S., the U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice, Antitrust Division, and for Israel, the Antitrust Authority. To be effective, the Israeli Cabinet must approve the arrangement.
[The U.S. is Israel's largest trade partner. The U.S. already has similar agreements in place with Australia, Canada, the EU, and Germany.]
Citation: March 15, 1999 press releases from U.S. Department of Justice, U.S. Federal Trade Commission and from Reuters press report.
Filed in: 1999 International Law Update, Issue 4
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Japan amends Anti-monopoly Act to require reports to Japan Fair Trade Commission of large mergers and stock purchases by foreign companies that may affect Japanese markets
Effective January 1, 1999, Japan has amended its Antimonopoly Act, establishing a Mergers & Acquisitions notification system even for companies outside Japan. Under the Amendment, the parties must report mergers between foreign companies to the Japan Fair Trade Commission (JFTC) if one company has more than 10 billion Yen in sales in Japan and the other company has more than 1 billion Yen in sales in Japan. Companies have to file this notice 30 days before the proposed transaction.
Within 30 days, parties also have to report certain stock acquisitions by foreign companies to the JFTC. This provision applies when a company with total assets of more than 2 billion Yen (and the related parent and subsidiary companies have joint assets of more than 10 billion Yen) buys (1) stocks of a Japanese company with total assets of more than 1 billion Yen, or (2) shares of a foreign company with sales in Japan of more than 1 billion Yen. In either case, the Act demands a report if the ratio of the stocks that the acquiring company holds compared to the total outstanding stocks of the acquired company exceeds 10%, 25%, or 50%.
Also companies must notify the JFTC about major business or assets acquisitions under certain conditions.
In a related development, the JFTC has issued its interim report on the Introduction of Injunctive Relief through Civil Litigation. It endorses a civil remedy system to Antimonopoly Act violations, such as (a) injunctive relief and (b) damage actions.
Citation: The Notification System Concerning M&As by Companies outside Japan (December 21, 1998), as well as the Interim Report on the Introduction of Injunctive Relief through Civil Litigation (December 22, 1998) are available in English on the website of the Japan Fair Trade Commission at www.jftc.admix.go.jp.
Filed in: 1999 International Law Update, Issue 3
By admin
U.S. Federal Trade Commission issues rules that increase foreign governments’ access to confidential business records in antitrust investigations pursuant to mutual assistance agreements
The U.S. Federal Trade Commission (FTC) has amended its Rules of Practice as to confidentiality protections for materials that the FTC obtains during business practice investigations. One goal is to conform FTC rules to the International Antitrust Enforcement Assistance Act (IAEAA) [15 U.S.C. 6201], which provides mutual enforcement assistance to other countries.
[Under the IAEAA, the FTC and the U.S. Department of Justice may enter into mutual assistance agreements with foreign antitrust authorities to provide reciprocal assistance in antitrust investigations. U.S. authorities may collect information on behalf of foreign antitrust enforcers and may provide information already in their regulatory files.]
In particular, the FTC has amended Rule 4.10(d) of its Rules of Practice [16 C.F.R. 4.10(d)]. This deals with materials that the FTC obtains based on compulsory process in a law enforcement investigation as well as with data designated “confidential” and submitted voluntarily. The amended Rule generally allows disclosure of this information only to FTC officers, employees, contractors or consultants.
The Commission also revised Rule 4.10(e). As amended, it bars disclosure of materials marked “confidential” unless the FTC (1) determines that they are neither trade secrets nor confidential, commercial information, and (2) provides 10 days’ pre-disclosure notice to the submitter.
The rule amendments went into effect on July 17, 1998.
Citation: 63 Federal Register 38472 (July 17, 1998). [The first proposed Agreement on Mutual Antitrust Enforcement Assistance is with Austra¬lia, see 62 Federal Register 20022 (April 24, 1997).]
Filed in: 1998 International Law Update, Issue 8
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German High Court reverses its own jurisprudence to permit comparative advertising
In a special preliminary statement issued on May 22, 1998, the German High Court (Bundesgerichtshof, BGH) announced, based on two not-yet-published decisions (Docket numbers I ZR 211/95 of February 5, 1998, and I ZR 2/96 of April 23, 1998), that it has reversed its previous jurisprudence and found “comparative advertising” compatible with German competition law.
German courts have held for decades that comparisons in advertising (“our product is better than our competitor’s product because …”) were improper and violated Article 1 of the Law Against Improper Competition [UWG]. The BGH Chamber in charge of competition law, the I. Zivilsenat, relied upon EU competition rules [EC Directive 97/55/EC of October 6, 1997].
Comparative advertising is permissible if (a) the comparison is not misleading, (b) the ad compares only verifiable and typical characteristics, and (c) the advertisement does not impugn other competitors. Even though EU Directive 97/55/EC will not enter into force until April of the year 2000, the BGH decided in advance to adapt its jurisprudence accordingly.
[EU Directive 97/55/EC amends Directive 84/450/EEC concerning misleading advertising to include comparative advertising. It came out in the 1997 O.J. of the European Communities (L 290) 18, October 23, 1997.]
Citation: Bundesgerichtshof Pressemitteilung [German BGH press release] Number 39/98 (May 22, 1998), available on the www at www.j¬ura.uni-sb.de; also reported in German newspa¬per Sueddeutsche Zeitung, May 23, 1998.
Filed in: 1998 International Law Update, Issue 6
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