Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Friday, October 14, 2011

Hunger, Aid, WTO Law and International Competition Law – The Missing Links in the World Trading System

Posted by D. Daniel Sokol

Talia Einhorn, Tel Aviv University - Faculty of Management, Ariel University Center Department of Economics and Business Management has written Hunger, Aid, WTO Law and International Competition Law – The Missing Links in the World Trading System.

ABSTRACT: The right to food has been recognized in Art. 25(1), Universal Declaration of Human Rights, 1948, and further elaborated in Art. 11(1), International Covenant on Economic, Social and Cultural Rights, 1966 (ICESCR).1 Art. 11(2), ICESCR, refers also to the right to be free from hunger, which is the only right referred to as a 'fundamental' right.

And, yet, according to the most recent estimate of the United Nations Food and Agriculture Organizations (FAO), made public in October 2009, ca. 1.02 billion people are undernourished worldwide, a sizable increase from the FAO‟s 2006 estimate of 854 million people.2 642 million of them live in Asia and the Pacific, and 265 million – in Sub-Saharan Africa. Hungry people can hardly survive. They are poorly equipped to make a living in the 21st Century. Illiteracy is high. Healthcare is scarce or nonexistent. Life expectancy is short.

It is a shame for the world to have such a large number of hungry people among us. It is submitted that this deplorable situation is by no means a hopeless one with only a bleak future ahead. The countries in which the poorest people live are not all poor. Some are even rich with minerals and natural resources. Some other countries have good quality farmland which is much greater than the area actually farmed. There is an enormous unexploited potential to grow food. Yet, the exploitation of this vast potential requires a change of approach.

Instead of focusing on how to increase international aid, which has so far failed to alleviate the plight, the effort has to be made to create and maintain a market order in which people will have the opportunity to thrive on their own. To that end, there is need for a world trading system which is guided by abstract rules of just conduct, such as the two general principles of WTO/GATT law, namely the Most Favored Nation ('NFN') Treatment and National Treatment ('NT'). As will be shown, not all rules of the WTO/GATT law operate indiscriminately. A good number of them have been heavily influenced by interest groups in developed countries, which have made them result-oriented and tilted the playing field in their favor, imposing heavy burdens not only on the general public in their own countries, but also, and especially, on people in developing countries (DCs) and least developed countries (LDCs) whose livelihood has been reduced to barely subsistence level. These deficiencies must be corrected, but that would not suffice. The abstract rules of just conduct need to be complemented by rules of competition law. 'Competition is not merely the only method which we know for utilizing the knowledge and skills that other people may possess, but it is also the method by which we all have been led to acquire much of the knowledge and skills we do possess'. The importance of competition is not due to the fact that people act rationally, but just the other way around: it forces people to act rationally. If not hindered, it provides them with the signals that they should follow in deciding what they could best produce at prices which buyers will find attractive. By acting as a discovery procedure, it encourages innovation, entrepreneurship and development of talents and skills.

This contribution seeks to explore the link between world hunger and the deficiencies in the world trading system. Accordingly, this paper will address the causes for hunger; the failure of international aid to alleviate hunger; the deficiencies of the world trading system in addressing this situation; Market-Distorting Behavior of Multinational Enterprises ('MNEs'); the need for international competition law rules; and, finally, conclusions.

October 14, 2011 | Permalink | Comments (0) | TrackBack (0)

Bundles in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines

Posted by D. Daniel Sokol

Kevin W. Caves, Navigant Economics and Hal J. Singer, Navigant Economics LLC explore Bundles in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines.

ABSTRACT: Bundling by a firm with monopoly power can be shown to reduce consumer welfare in one of two ways. First, by applying the “discount attribution standard,” bundling can be shown to exclude or impair equally efficient rivals in ancillary or “tied” markets for products that would otherwise be supplied competitively. Second, by comparing the penalty price of the monopolized or “tying” product when purchased separately with its “independent monopoly price,” bundling can be shown to reduce consumer welfare directly. This paper examines both approaches in the sale of pediatric vaccines in the United States, focusing on the market for Meningitis vaccines, which has recently seen new competition from Novartis - the first competitive rival to enter the domestic pediatric vaccine market in over a decade. Analysis of contractual terms imposed by incumbent vaccine manufacturers indicates that single-product entrants attempting to penetrate a vaccine market dominated by multi-product incumbents are placed at a significant competitive disadvantage by incumbents’ bundled-pricing schemes: Existing contractual terms impose sufficiently large non-compliance penalties such that there is no positive price at which a hypothetical rival could induce an otherwise indifferent buyer to “break the bundle.” Furthermore, an analysis of pricing benchmarks derived from cross-sectional data indicates that incumbents’ bundled discounts harm consumers by successfully leveraging market power from the tying market to the tied market. In addition, observed rival penetration rates are consistent with the hypothesis that incumbent manufacturers have induced significant foreclosure of rivals from the relevant market segments, while incumbent foreclosure shares are estimated to significantly exceed the presumptively anticompetitive threshold. Finally, we analyze the role of Physician Buying Groups (PBGs) in the U.S. pediatric vaccine market. Drawing on research on Group Purchasing Organizations in the medical supply industry, we demonstrate that the PBGs’ compensation structure distorts their incentives to secure the best prices for healthcare providers.

October 14, 2011 | Permalink | Comments (0) | TrackBack (0)

"SIR"CHES AND SEIZURES: ARE SUPPLEMENTARY INFORMATION REQUESTS UNCONSTITUTIONAL?

Posted by D. Daniel Sokol

Joshua A. Krane (Blakes) has written on "SIR"CHES AND SEIZURES: ARE SUPPLEMENTARY INFORMATION REQUESTS UNCONSTITUTIONAL?

ABSTRACT: This paper addresses a simple question: Is merger review by the Commissioner of Competition and the Competition Bureau so pressing and important that it justifies warrantless searches? In particular, the paper examines whether the legislation providing for the issuance by the Commissioner of supplemental information requests (SIRs) under s. 114(2) of the Competition Act (the “Act”)
meets the standards for a constitutional search and seizure under s. 8 of the Canadian Charter of Rights and Freedoms. For a warrantless search to be constitutionally valid, it must be authorized by law and be reasonable. Based on a review of the
constitutional law on unreasonable searches and seizures under s. 8 there are serious questions about whether the SIR process does, indeed, rise to those standards.

Download CBLJ51-2 Krane

October 14, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 13, 2011

WHAT DETERMINES BEHAVIOR SEEKING TEMPORARY ANTITRUST IMMUNITY?: DISPENSATION REQUESTS IN THE NETHERLANDS

Posted by D. Daniel Sokol

Erik Brouwer (Tilburg) and Fatih Cemil Ozbugday (Tilburg) address WHAT DETERMINES BEHAVIOR SEEKING TEMPORARY ANTITRUST IMMUNITY?: DISPENSATION REQUESTS IN THE NETHERLANDS.

ABSTRACT: This article examines the determinants of antitrust immunity seeking behavior at the industry level in the Netherlands. Our findings suggest that market structure and the level of competition are important determinants of antitrust immunity seeking behavior. There were more dispensation requests in less competitive industries. On the other hand, we could not find systematic evidence for the impact of the degree of interaction and asymmetry on antitrust immunity seeking behaviour in the Netherlands, even though we had legitimate reasons to believe that they did have an impact. Finally, we could not detect any effect of market demand growth and profitability on exemption application counts.

October 13, 2011 | Permalink | Comments (0) | TrackBack (0)

The Creation and Destruction of Price Cartels: An Evolutionary Theory

Posted by D. Daniel Sokol

William C. Bradford, United States Coast Guard Academy provides The Creation and Destruction of Price Cartels: An Evolutionary Theory.

ABSTRACT: This Article sketches the goals of antitrust law, describes the causes and effects of anticompetitive pricing generally and supracompetitive pricing specifically, explains the inability of antitrust law to suppress some instances of supracompetitive pricing, establishes the importance of trust between firms as a necessary condition for supracompetitive pricing, and illustrates how the strategic exchange of information is crucial to the creation and destruction of trust and thus to the evolution and devolution of price cartels. Part II develops a positive theory that explains and predicts the evolution and devolution of price cartels as a function of the ability of rival firms to exchange information and, in turn, to enable the generation and sustenance of trust that cooperation in supracompetitive pricing decisions will be reciprocated. Part III, followed by a Conclusion, uses game theory as a heuristic to develop and test the proffered theory, posit working hypotheses, and discusses the implications for the creation, interpretation, and adjudication of antitrust law in the context of price cartels.

October 13, 2011 | Permalink | Comments (0) | TrackBack (0)

China’s Anti-Monopoly Law: What is the Welfare Standard?

Posted by D. Daniel Sokol

Pingping Shan, OnPoint Analytics, Inc., Guofu Tan, University of Southern California - Department of Economics, Simon Wilkie, University of Southern California Law School and Michael A. Williams, Competition Economics LLC ask China’s Anti-Monopoly Law: What is the Welfare Standard? This paper is worth a download.

ABSTRACT: China’s Anti-Monopoly Law (AML) sets forth the country’s antitrust enforcement policies. We investigate what welfare standard the AML seeks to maximize by examining both its stated language and, via revealed preference, the antitrust actions taken by the Anti-Monopoly Enforcement Authority.

October 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Call For Papers The Limits of Competition in Defense Acquisition Research Symposium

Posted by D. Daniel Sokol

Call For Papers The Limits of Competition in Defense Acquisition Research Symposium

DAU Campus, Fort Belvoir VA, September 18-19, 2012

Abstracts (400 words or less) due: January 30, 2012

Selection and notification in February 2012; Papers (10,000 words, APA format) due: June 29, 2012

The recent Carter initiatives on efficiency and affordability are the latest in a number of efforts to foster competition among DoD suppliers in order to hold down costs. With the supplier base shrinking, the opportunities for competition have become more challenging. The change in acquisition environment brings to the fore the question of whether competition is, in fact, an efficient means of managing costs, especially in a single buyer market (i.e., DoD) that limits the options for suppliers.

The Limits of Competition symposium is intended to address these issues by calling for thoughtful, analytical research and discussion that can assess ramifications and risks of competition in defense acquisition, and provide insights that can inform policymaking on the subject. A panel of subject matter experts was convened to develop the specific questions that can guide potential researchers.

TOPICS: The following list of research questions is provided to indicate the range of areas of interest for this symposium. Researchers may propose other topics as well.

Measuring the effects of competition
- What means are there (or can be developed) to measure the effect on defense acquisition costs of maintaining industrial base in various sectors?
- What means are there (or can be developed) of measuring the effect of utilizing defense industrial infrastructure for commercial manufacture, in particular in growth industries? In other words, can we measure the effect of using defense manufacturing to expand the buyer base?
- What means are there (or can be developed) to determine the degree of openness that exists in competitive awards?
- What is the effect on program cost, schedule and performance of awarding based on best value versus lowest- cost-technically acceptable (LCTA)?
Strategic competition
- Is there evidence that competition between system portfolios is an effective means of controlling price and costs?
- Does lack of competition automatically mean higher prices? For example, is there evidence that sole source can result in lower overall administrative costs at both the government and industry levels, to the effect of lowering total costs?
- What are long-term historical trends for competition guidance and practice in defense acquisition policies and practices?
- To what extent are contracts being awarded non-competitively by congressional mandate, for policy interest reasons?
What is the effect on contract price and performance?
- What means are there (or can be developed) to determine the degree to which competitive program costs are negatively affected by laws and regulations such as the Berry Amendment, Buy-America Acts, etc?
- The DoD should have enormous buying power and the ability to influence supplier prices. Is this the case? Examine the potential change in cost performance due to greater centralization of buying organizations or strategies.
Effects of industrial base
- What are the effects on program cost, schedule, and performance of having more or fewer competitors? What measures are there to determine these effects?
- What means are there (or can be developed) to measure the breadth and depth of the industrial base in various sectors, that goes beyond simple head-count of providers?
- Has the change in industrial base resulted in actual change in output? How is that measured?
Competitive contracting?
- Commercial industry often cultivates long-term, exclusive (non-competitive) supply chain relationships. Does this model have any application to defense acquisition? Under what conditions/circumstances?
- What is the effect on program cost performance of awards based on varying levels of competition: 1."Real" competition (two or more competitors, winner take all); 2. Split awards; 3. Sole source?
Comparative studies
- Compare the industrial policies of military acquisition in different nations and the policy impacts on acquisition outcomes.
- Compare the cost and contract performance of highly regulated public utilities with non-regulated "natural monopolies", (e.g., military satellites, warship building).
- Compare contracting/competition practices between DoD and complex, custom-built commercial products (e.g., offshore oil platforms).
- Compare program cost performance in various market sectors: highly competitive (multiple offerors), limited (two of three offerors), monopoly.
- Compare the cost and contract performance of military acquisition programs in nations having single "purple" acquisition organizations with those having service-level acquisition agencies.

PAPER SUBMISSION PROCEDURE: Send abstracts via e-mail to: research@dau.mil

October 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Antitrust and Corporate Governance - Congrats to Doug Melamed

Posted by D. Daniel Sokol

As some of you may know, one of my current strands of research focuses on antitrust and corporate governance. In this vein, I am very pleased to announce that for the second year in a row Doug Melamed, the GC of Intel, has been selected as one of the 100 most important Directors and Officers in corporate America. Most of the people on the list are CEOs and Directors rather than GCs.

Doug has steered Intel through a difficult period of antitrust issues with his great intellect and strategic vision and continues to work his magic within a broader corporate context. Congrats to Doug for a well deserved award.

October 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Collective Dominance Through the Lens of Comparative Antitrust

Posted by D. Daniel Sokol

Andrey Shastitko (Bureau of Economic Analysis Foundation) discusses Collective Dominance Through the Lens of Comparative Antitrust.

ABSTRACT: A new stage in the development of the Russian antitrust policy began in 2006, due to the development and adoption of the package of laws aimed to harmonize Russian antitrust legislation with European practices. This adoption changed not only the design of the antitrust legislation, but also its role in the development of the business institutional environment in Russia. The norm of collective dominance, defined in the Part 3 of the Article 5 of the Law on Protection of Competition, became one of the most important innovations of the this Law. By the time the new Law was passed, the EU had accumulated valuable experience in the application of the concept of the collective dominance, though a special norm listing all the necessary qualifying signs of the collective dominance has never existed. This article asks: Are there grounds to believe that Russian law enforcement follows European practices by borrowing the European norm of collective dominance, and adapting it in Russia to deal with its emerging market economy?

To analyze the issue we will examine the features of the legal structure of the collective dominance concept in Russian law and identify possible options of the concept's application from the key dimensions of the antitrust policy perspective. We will also show by examples what is the specific Russian feature that takes into account the EU experience.

October 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 12, 2011

Heritage Foundation Says Stop Picking on Google

Posted by D. Daniel Sokol

James Gattusso of Heritage notes:

It is ironic that Google, which for so long helped lead the effort to regulate other Internet firms, is now defending itself against similar efforts by others. It is an inconsistency that is far too common in Washington. But that inconsistency does not justify the current attacks on Google or lessen the harm to consumers and the economy if the firm is regulated.

The message to policymakers—and to other Internet firms tempted to jump on the pro-regulatory bandwagon for competitive advantage—should be “don’t be evil” and let the marketplace work.

October 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Margin Squeeze in Mexican Mobile Telecommunications

Posted by D. Daniel Sokol

Víctor Pavón-Villamayor (Federal Telecommunications Commission, Mexico) discusses Margin Squeeze in Mexican Mobile Telecommunications.

ABSTRACT: On April 7th 2011, the Mexican Competition Commission ("CFC") imposed a historic fine against TELCEL, the largest mobile operator in Mexico and a subsidiary of the Latin American telecommunications giant America Movil. The fine was motivated by the identification of allegedly anticompetitive conduct in the market for the "termination" of mobile and fixed calls into TELCEL's mobile network during a period of time that spanned June 2006 to September 2009. In particular, the competition authority argued that TELCEL was engaging in a margin squeeze of its fixed and mobile competitors through the combination of high wholesale prices for interconnection and low retail pricing. A margin squeeze represents a violation of Article 10-XI of the Mexican Competition Law since it has the effect of raising the costs of downstream rivals and, hence, reducing their competitiveness in the industry.

The CFC's determination that TELCEL induced a margin squeeze of mobile and fixed operators has been hotly debated in Mexico for different reasons. First, the CFC´s finding led to the largest fine ever imposed in the Mexican competition regime: approximately 12,000 millions of Mexican pesos-roughly, U.S. $1,000,000,000. Second, the fine was released in the context of a polarized vote of the CFC´s Commissioners. And, third, there is a chance that the fine may be reversed as part of the administrative review process of the decision.

As of today, the discussion of this fine in national and international antitrust forums has been dominated by its political implications and, unfortunately, there has not been much analysis on the economic reasoning through which the case was constructed. This paper intends to fill this gap by providing a brief overlook of some of the economic arguments exposed in the analytical core of this antitrust case.

October 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Australia's Proposed Information Disclosure Information Legislation: International Worst Practice

Posted by D. Daniel Sokol

Caron Beaton-Wells & Brent Fisse (Univ. of Melbourne Law School) explain Australia's Proposed Information Disclosure Information Legislation: International Worst Practice.

ABSTRACT: Regulating information disclosure and exchange by competitors is widely seen as one of the most challenging aspects of competition law. The economic theory is complex and, as highlighted by a recent OECD Policy Roundtable, legislators continue to search for satisfactory legal approaches. The Australian government has proposed amendments to the Competition and Consumer Act 2010 (Cth) ("CCA") that aim to regulate information disclosure. The amendments have passed the House of Representatives and are likely to pass the Senate soon. If enacted, the proposal could be said to represent international worst practice. The genesis of the proposal is outlined below. Each of the major flaws in the proposal is then canvassed. They are: the piecemeal sector-specific coverage of the new scheme; the ill conceived and overreaching nature of the prohibitions; and the inadequacy and unworkability of the exceptions.

October 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Reminder: Call for Papers: 2nd Next Generation of Antitrust Scholarship Conference at NYU - Co-sponsored by NYU School of Law and the American Bar Association - Section of Antitrust Law

Posted by D. Daniel Sokol

Call for Papers

2nd Next Generation of Antitrust Scholarship Conference
NYU School of Law
January 20, 2012
Co-sponsored by NYU School of Law and the American Bar Association - Section of Antitrust Law

Conference Co-organizers

Harry First - NYU School of Law
Edward Cavanagh - St. John's University School of Law
D. Daniel Sokol - University of Florida Law Levin College of Law

This is the second  "Next Generation of Antitrust Scholarship Conference" (the first was held in January 2010).  The purpose of this day-long conference is to provide an opportunity for antitrust/competition law professors  who began their full time professorial career in or after 2002 to present their latest research.  Senior antitrust scholars and practitioners in the field will comment on the papers.

Submissions are open to professors around the world.  Papers will be accepted based upon the highest scores given by peer reviewers to the 1,000-2,000 word abstract or full article submitted. There will be a preference given for works in draft form but forthcoming and recently published (2011) papers will be accepted.  Speakers who are accepted by an abstract must have a completed draft of the paper ready two weeks before the conference.  Unfortunately, the conference organizers will be unable to pay for any expenses for speakers or discussants.  Refreshments at the conference, however, will be provided.  Please send abstracts of papers or completed drafts to nyuantitrustconference2012@gmail.com.  Please email any questions about the conference to nyuantitrustconference2012@gmail.com.

The deadline for submissions is October 15, 2011.  Participants will be notified by November 15, 2011.

October 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Network Neutrality: A Competition Angle

Posted by D. Daniel Sokol

Frank Maier-Rigaud (OECD) has written on Network Neutrality: A Competition Angle.

ABSTRACT: Overall, the regulatory and competition issues surrounding the question of internet traffic prioritization are far from solved and the debate is far from being over. A division of labor between appropriate ex ante (mainly access) regulation that generates and fosters functioning broadband competition-possibly also regulating traffic-shaping methods not aimed at addressing congestion issues-and effective ex ante merger enforcement combined with ex post competition law enforcement focusing on abuses of market power may be the right mix capable of addressing potential consumer harm in broadband internet use.

October 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition

Posted by D. Daniel Sokol

F. Scott Kieff, George Washington University - Law School discusses Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition.

ABSTRACT: Commentators have poured forth a loud and sustained outcry over the past few years that sees property rule treatment of intellectual property (IP) as a cause of excessive transaction costs, thickets, anticommons, hold-ups, hold-outs, and trolls, which unduly tax and retard innovation, competition, and economic growth. The popular response has been to seek a legislative shift towards some limited use of weaker, liability rule treatment, usually portrayed as “just enough” to facilitate transactions in those special cases where the bargaining problems are at their worst and where escape hatches are most needed. This essay is designed to make two contributions. First, it shows how a set of changes in case law over just the past few years have hugely re-shaped the patent system from having several major, and helpful, liability-rule-pressure-release-valves, into a system that is fast becoming almost devoid of significant property rule characteristics, at least for those small entities that would most need property rule protection. The essay then explores some harmful effects of this shift, focusing on the ways liability rule treatment can seriously impede the beneficial deal-making mechanisms that facilitate innovation and competition. The basic intuition behind this bad effect of liability rules is that they seriously frustrate the ability for a market-challenging patentee to attract and hold the constructive attention of a potential contracting party (especially one that is a larger more established party) while preserving the option to terminate the negotiations in favor of striking a deal with a different party. At the same time, liability rules can have an additional bad effect of helping existing competitors to coordinate with each other over ways to keep out new entrants. The essay is designed to contribute to the literature on IP in particular, as well as the broader literatures on property and coordination, by first showing how a seemingly disconnected set of changes to the legal rules impacting a particular legal regime like the patent system can have unintended and sweeping harmful consequences, and then by exploring why within the more middle range of the spectrum between the two poles of property rules and liability rules, a general shift towards the property side may be preferred by those seeking an increase in access and competition.

October 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 11, 2011

Ecuador Introduces a Competition Law

Posted by D. Daniel Sokol

Ecuador has introduced a competition law. Given how many sectors of the economy remain under state ownership, I am not sure the focus will be. Ideally, it might include anti-cartel and bidd rigging.

October 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Design and Implementation of Screens and Their Use by Defendants

Posted by D. Daniel Sokol

Rosa Abrantes-Metz (AFE Consultants) addresses Design and Implementation of Screens and Their Use by Defendants. For those who think that screens can be used only by agencies, this paper is very interesting for showing its role to defend firms.

ABSTRACT: Over the last few years, economic analysis in general, and empirical screens in particular, have become increasingly important in cases of conspiracies and manipulations, a trend detailed for example in Abrantes-Metz & Bajari (2009, 2010), Hüschelrath (2010), and Laitenberger & Hüschelrath (2011). Competition authorities and other agencies worldwide have begun using screens to detect possible market conspiracies and manipulations, and defendants and plaintiffs have begun adopting them as well. Screens use commonly available data such as prices, costs, market shares, bids, transaction quotes, spreads, volumes, and other data to identify patterns that are anomalous or highly improbable. A survey of screening methodologies and their multiple applications can be found in Abrantes-Metz & Bajari (2009, 2010) and Harrington (2008). The use of these methods in conspiracy cases is detailed in the 2010 volume Proof of Conspiracy under Antitrust Federal Laws, by the American Bar Association.

Screens' increased popularity and use on both sides of litigation have enhanced the debate on detection tools, their relative advantages and disadvantages, and the realized experience of those who have adopted them. Motivated by this debate, I propose in this article to achieve a two-fold objective. First, I will address some of the main criticisms commonly made against empirical screens and elaborate on the key features of design and implementation needed for a successful screen. Second, I will demonstrate the development and implementation of a screen on behalf of defendants in a case of an alleged conspiracy and manipulation in commodities markets. As the use of these approaches by defendants is as important as their use by competition authorities and plaintiffs, I take this opportunity to show how screens can be successfully developed and applied on that side of a case.

October 11, 2011 | Permalink | Comments (0) | TrackBack (0)

The Sherman Act's Extra-Territorial Reach: Unresolved Questions Raised by United States v. AU Optronics Corp.

Posted by D. Daniel Sokol

Mark S. Popofsky & Anthony Biagioli (Ropes & Gray) address The Sherman Act's Extra-Territorial Reach: Unresolved Questions Raised by United States v. AU Optronics Corp.

ABSTRACT: Over the last decade, the Department of Justice's ("DOJ's") vigorous criminal antitrust enforcement-driven by amnesty for the first self-reporting company-has led numerous companies and executives to plead guilty. Indeed, over the last decade, no corporate defendant (and only a few individuals) has taken the government to trial in an international criminal antitrust cartel case. Notably, however, one company-AU Optronics, a Taiwanese display maker ("AUO")-and a number of its executives have elected to fight a cartel prosecution. United States v. AU Optronics Corp.-scheduled to go to trial in the fall of 2011 in federal court in San Francisco-presents a rare opportunity to litigate unresolved issues respecting the antitrust laws' applicability to international cartels in the criminal context.

One set of issues involves the territorial reach of the Sherman Act in a criminal setting-in particular, whether a U.S. court has jurisdiction when the government prosecutes "mixed" conduct (part foreign, part domestic) by companies or individuals. This, in turn, raises questions about what the government may need to charge and prove: What must the government specify in an indictment respecting the impact of conduct on U.S. commerce? Is the Sherman Act's territorial reach "jurisdictional" in the sense that only the judge, and not the jury, must assess whether conduct falls within the statute's scope? Must the government charge and prove "intent" to affect U.S. commerce when, in a "domestic" cartel case, no such showing is required?

Although the defendants in United States v. AU Optronics Corp. raised these (and other) issues in moving to dismiss the government's indictment, the court (to date) has decided only a few. In denying defendants' motions to dismiss, the court held that a fairly attenuated alleged connection with the United States could establish the Sherman Act's applicability. The court also rejected defendants' arguments that, under United States v. U.S. Gypsum Co., international antitrust offenses require "intent" to restrain trade that is not required for a domestic offense. Notably, however, the court left unresolved-potentially to be confronted in a later stage of the proceeding-numerous issues, including (i) which jurisdictional test applies; (ii) whether the Sherman Act's territorial reach must be decided by judge (by a preponderance of the evidence) or jury (beyond a reasonable doubt); and (iii) whether and for what purpose must the government prove intent. Accordingly, thus far, United States v. AU Optronics Corp. may raise more questions than it answers.

October 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Introduction of Leniency Programs for Cartel Participants: The Russian Case

Posted by D. Daniel Sokol

Andrey Shastitko (Bureau of Economic Analysis) & Svetlana Avdasheva (National Research Univ., Higher School of Economics)have posted Introduction of Leniency Programs for Cartel Participants: The Russian Case.

ABSTRACT: Collusion of market participants is one of the most dangerous forms of restriction of competition, adversely affecting incentives and, as a consequence, allocation and production efficiencies. According to some estimates, the average price rise under price-fixing is 10 percent ; several studies give even higher estimates. For example, according to Connor & Bolotova, the median cartel overcharge over the competitive price is 25 percent, and for an international cartel-32 percent. A similar premium set by a cartel operating on the domestic market is 18 percent. In their heyday cartels set bonuses twice the median value. Authors of a study covering about 395 cases of cartelization in the period from the 18th to the early 21st century, report an average price bonus of 19 percent, and a median of 16 percent.

It is no accident that a price-fixing agreement qualifies as one of the most serious violations of antitrust laws and is prohibited per se. One of the important prerequisites for a price-fixing agreement is trust among the parties; that is why trust-busting is not a bad thing in this case. Leniency programs are a way to destroy and prevent cartel agreements through the trust-busting among their participants-existing or potential. Similar programs exist in many countries. The Russian practice of introducing a leniency program is of interest because it reflects experiences of other countries as well as the mistakes made while designing the program. Evaluating the program is complicated by the fact that, in Russia, its introduction coincided with the fundamental restructuring of antitrust legislation, substantial tightening of penalties for the violations, and emergence of new norms. In this article we examine the history of changes to the norms governing the exemption from liability for participating in cartel agreements (Section 2) and the characteristics of competition policy in Russia, which objectively hinder the effectiveness of the program (Section 3).

October 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Fear of the Chinese or Business as Usual at the European Commission? EU Merger Regulations and the Assessment of Transactions Involving Chinese State-owned Enterprises

Posted by D. Daniel Sokol

Kiran Desai & Manu Mohan (Mayer Brown) ask Fear of the Chinese or Business as Usual at the European Commission? EU Merger Regulations and the Assessment of Transactions Involving Chinese State-owned Enterprises.

ABSTRACT: In the first half of 2011 the European Commission ("Commission") published three decisions involving State-owned enterprises ("SOE") that are Chinese. The Commission stated that it had examined both whether the decision-making power lay with the controlling entity above them and to what extent they competed with other public companies. Joaquín Almunia, European Commissioner for Competition, has stressed that this type of examination was not undertaken because the enterprises were foreign or because there was a prejudice against State control but because it was a relevant aspect to the assessment of effects on competition.

This is the first time such an assessment has been undertaken by the Commission to a concentration involving Chinese SOEs. This article examines the law relating to assessments of transactions involving SOEs.

The article also deals with issues that will have to be dealt with in the future, and raises the concern that a lack of clarity about the entities whose turnover should be taken into account for the purposes of determination of a notification could: (a) lead to a risk of non-notification of combinations involving SOEs and resultant fines; (b) raise questions about the validity of transactions involving SOEs that were not notified in the past on the assumption that the jurisdictional thresholds were not met; and (c) complicate the substantive analysis on possible coordination between the undertakings directly involved in the combination and other SOEs.

October 11, 2011 | Permalink | Comments (0) | TrackBack (0)