315 Search Results

September 27, 2006 |
European Court of First Instance Delivers Important Judgment in the GlaxoSmithKline Case on Glaxo’s dual pricing practice to prevent parallel trade of pharmaceuticals in the EU

On 27 September 2006, the European Court of First Instance (CFI) delivered an important judgment in the GlaxoSmithKline (“Glaxo”) Case on Glaxo’s dual pricing practice to prevent parallel trade of pharmaceuticals in the EU. This practice was declared illegal by the European Commission in 2001. Glaxo challenged the Commission’s Decision in front of the CFI (Case T-168/01). By way of introducing new General Sales Conditions for its Spanish wholesalers in 1998, Glaxo installed two price levels for sales of its pharmaceutical products in Spain: a lower price for pharmaceuticals intended to be marketed in Spain and financed by the Spanish national social security schemes, and a higher price for other sales. These other sales mainly relate to products that are later exported by the Spanish wholesalers to other Member States of the EU, where the price level for pharmaceuticals is higher than in Spain (such as in the United Kingdom) — a practice known as ‘parallel trade’. The reasoning for applying this higher price was to discourage parallel trade and to secure the profits gained by Glaxo in countries with a higher price level. The Commission found that this practice violated Art. 81 of the EC Treaty as it had as its object and effect the distortion of competition and free trade between the Member States of the EU. In its judgment, the CFI found that  The Commission’s Decision had not properly taken into account the specific nature of the pharmaceutical sector. In most EU Member States, prices are not determined by supply and demand as a result of a competitive process, but are directly fixed by the competent authorities. Therefore, the parallel trade of pharmaceuticals would not, of itself, directly contribute to lower consumer prices but would rather shift profits from producers to intermediate wholesalers. As a result, the CFI stated that Glaxo’s dual pricing approach does not have the object of restricting competition to the detriment of consumers. However, due to certain measures taken by some Member States, parallel trade may nevertheless permit a limited but notable reduction of pharmaceutical costs for consumers and for social security schemes. Glaxo could therefore not disprove that its pricing did have a restrictive effect on competition. For this reason, the dual pricing system constitutes a violation of Art. 81(1) of the EC Treaty, which would be legal only if exempted under Art. 81(3) of the EC Treaty. When assessing the availability of such exemption, the Commission had not thoroughly taken into account the possible economic advantage of Glaxo’s dual pricing system. The CFI acknowledged that Glaxo’s pricing mechanism may contribute in a considerable way to innovation, as research and development play a crucial role in today’s pharmaceutical sector. These considerations and the benefit of such pharmaceutical innovations to consumers may justify and exempt Glaxo’s pricing system. As stated by counsel at the oral hearing, this case is a “landmark case the whole industry has been waiting for”. The Advocate General’s Opinion in the Syfait case has already demonstrated a much greater willingness to take into account the specific characteristics of the pharmaceutical industry, but the CFI has now clearly acknowledged that competition in the pharmaceutical sector is distorted due to different national regulations within the EU and that the pharmaceutical industry may validly take steps to protect and secure its investment in R&D as well as to prevent profit shifts to intermediate wholesalers in which final consumers would not participate. Nevertheless, as parallel trade may contribute to a limited reduction of medical costs for consumers, pharmaceutical companies will have to adhere to such effects and ensure that any measures it takes do not affect possible reductions in the cost of pharmaceutical products for consumers. It must be noted, that the CFI’s judgment may be appealed in front of the European Court of Justice. Further, the Commission may after thorough consideration of the CFI’s judgment, find that the benefits to consumers and the contribution to innovation brought about by Glaxo’s pricing system do not justify an exemption under Art. 81(3) of the EC Treaty.   Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work or Michael Walther (+49 89 18933-180; mwalther@gibsondunn.com) in the firm’s Munich office.  © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 11, 2006 |
Japanese leniency process evolves

Brussels Associate Vassili Moussis is the author of "Japanese leniency process evolves" [PDF] in the August 30, 2006 edition of Global Competition Review. ——————————————————————————–Reprinted with permission.   www.GlobalCompetitionReview.com

August 3, 2006 |
Federal Trade Commission Unanimously Rules Against Rambus in High-Profile Monopolization Case Involving DRAM Standards

On August 2, the Federal Trade Commission issued its long-awaited ruling in the agency’s monopolization suit against Rambus Inc., a semiconductor technology firm based in Los Altos, California. In its 120-page opinion (available on the FTC Rambus Docket page), the Commission finds that Rambus violated federal antitrust laws by engaging in a “course of deceptive conduct,” which distorted the outcome of a standard-setting process (sponsored by JEDEC, a non-profit standards consortium) and thereby “contributed significantly to Rambus’s acquisition of monopoly power” over technologies used in common forms of computer memory chips, known as “DRAMs.” According to FTC Commissioner Pamela Harbour, by concealing relevant patent information from JEDEC, “Rambus was able to distort the standard-setting process and engage in anticompetitive ‘hold up’ of the computer memory industry.”  The decision marks a significant extension of antitrust law principles into the realm of standard-setting activities, and clarifies the circumstances under which deceptive acts in a standard-setting context may be deemed “exclusionary” and subject to antitrust challenge. The FTC’s decision does not resolve the remedy to be imposed against Rambus for the conduct in question, but requests further briefing on this issue from Rambus and Commission staff lawyers. The decision addresses but does not fully resolve additional allegations that Rambus wrongfully destroyed documents and other evidence to reduce legal risks facing the company. The FTC’s suit against Rambus was filed in June 2002. After a three-month trial in the summer of 2003, an FTC Administrative Law Judge issued an “Initial Decision” favoring Rambus. That decision was then appealed by Commission staff lawyers to the five-member Commission, which heard arguments on the case in the fall of 2004. The matter has been pending before the Commission since that time. The FTC’s case against Rambus is predicated on the allegation that participants in JEDEC (Rambus was a member from 1991 through 1996) were required by the organization’s rules to disclose intellectual property rights that might be relevant to standards being considered by the group. In the Commission’s complaint, Rambus was alleged to have violated such rules by concealing patent applications that it believed to cover features incorporated within JEDEC’s synchronous DRAM standards, which are today the most widely adopted memory standards in the world. After leaving the organization in 1996, Rambus allegedly continued a pattern of concealment, and chose not to make its patent claims known to the memory industry until years later, when DRAM makers were “locked in” to use of JEDEC’s memory specifications. By this time, the complaint alleged, DRAM makers were unable to alter their memory designs. Rambus therefore possessed monopoly power and the ability to extract billions of dollars in patent royalties — royalties Rambus would not have been in position to collect had it complied with JEDEC’s rules and disclosed its patent claims prior to the standards being set. The FTC’s unanimous decision concludes that these allegations were proven true by the evidence submitted at trial by the Commission’s staff. Although the Commission has yet to rule on the remedy for Rambus’s antitrust violations, it is likely that the FTC will consider imposing an injunction against Rambus, barring the company from seeking to collect royalties on DRAM memory chips made in compliance with JEDEC’s standards. Based on the proof admitted at trial, absent such a remedy, Rambus is positioned to collect potentially billions of dollars of patent royalties from makers and users of DRAMs. This decision is likely to have significant implications for standard-setting organizations and companies that participate in such organizations. Companies involved in standardization activities would be well advised to ensure that they understand and comply with rules and well-established expectations relating to disclosure of intellectual property. The FTC’s decision suggests that even if the organization’s disclosure rules contain potential ambiguities, efforts by a single company to exploit a collective standard-setting effort to secure patents over the resulting standards could give rise to antitrust liability.  Gibson Dunn partner M. Sean Royall, co-chair of the Firm’s Antitrust and Trade Regulation Practice Group, served as Deputy Director of the FTC’s Bureau of Investigation from 2001 through 2003 and personally led the team that developed and tried the Rambus case. Since leaving the Commission in October 2003, Mr. Royall has published several articles addressing issues relevant to case. M. Sean Royall, Standard Setting and Exclusionary Conduct: The Role of Antitrust in Policing Unilateral Abuses of a Standard-Setting Process [PDF], 18 ANTITRUST 44 (2004) M. Sean Royall, The Art of Destruction [PDF], THE AMERICAN LAWYER (September 2004) M. Sean Royall and Sarah Vollbrecht, Avoiding the Scarlet "S": The Modern Challenges of Document Preservation and Destruction, [PDF] THE AMERICAN LAWYER (June 2005) Articles reprinted with permission. Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work or Sean Royall (202-955-8546 in Washington, DC or 214-698-3256 in Dallas; sroyall@gibsondunn.com ). © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 25, 2006 |
Shareholder Activism and the Hart-Scott-Rodino Act Exemption for Acquisitions of Voting Securities Solely for the Purpose of Investment

Gibson Dunn of counsel Malcolm R. Pfunder is the author of "Shareholder Activism and the Hart-Scott-Rodino Act Exemption for Acquisitions of Voting Securities Solely for the Purpose of Investment" [PDF] which appears in the Summer 2006 issue of Antitrust magazine, published by the American Bar Association. Reprinted with permission from Antitrust, Vol. 20, No. 3, Summer 2006, © 2006 by the American Bar Association.

July 11, 2006 |
To Plead or Not to Plead? Reveiwing a Decade of Criminal Antitrust Trials

Washington, D.C. partner F. Joseph Warin, David P. Burns and associate John W.F. Chesley are the authors of "To Plead or Not to Plead? Reveiwing a Decade of Criminal Antitrust Trials" [PDF] published in the July 2006 issue of ABA’s The Antitrust Source. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express or written consent of the American Bar Association.

June 28, 2006 |
European Commission Adopts New Guidelines on the Setting of Fines for Antitrust Infringements

"Don’t break the anti-trust rules; if you do, stop it as quickly as possible, and once you’ve stopped, don’t do it again."  With these words, Neelie Kroes, the European Commissioner for Competition, has announced new Guidelines on the setting of fines for infringements of the EU antitrust rules, relating to restrictions of competition and abuse of a dominant position.  The new Guidelines replace those adopted by the Commission in 1998 and will come into force as soon as published in all official EU languages. This is likely to take approximately two months. Commission fines remain subject to a limit of 10% of the firm’s overall turnover in the preceding business year. The 1998 Guidelines Although the application of the old Guidelines had repeatedly been upheld by the European Court of Justice and the European Court of First Instance, the policy on which they were based was widely criticised as being unpredictable and often unfair. For reasons which have never been made entirely clear, in 1998 the Commission suddenly abandoned its policy of setting fines by reference to a given percentage of a firm’s turnover on the market in which the infringement took place.  Instead, it adopted Guidelines which adopted a policy of classifying an infringement as being "minor", "serious" or "very serious". Indications as to the likely fine were given on the basis of this assessment, subject to adjustments to take into account the duration of the infringement as well as any mitigating or aggravating elements. The fundamental flaw in this approach was that no account was taken of either the firm’s ability to harm competition or its ability to pay. Small firms, often from small Member States, found themselves potentially liable to fines similar to those imposed on large firms.  This was patently unfair, particularly in cartel cases involving very different-sized defendants. The Commission tried to mitigate the worst effects of the 1998 Guidelines by adjusting the fines through the placing of defendants in different categories according to their size. However, the number of categories was in practice limited to four, even if the difference in size was many times greater than four-fold. The 2006 Guidelines The new Guidelines, in the words of the Commission, "refine" (some might say abandon) this approach by reverting to the pre-1998 practice of setting fines on the basis of turnover.  In practice, this means that fines will be set at up to 30% of the previous year’s sales in the affected sector for each company participating in the infringement. This amount will be multiplied by the number of years of participation in the infringement. The sales taken into account will, in principle, be limited to the EEA, although there will be an adjustment mechanism where the markets are wider in scope than the EEA. (This is no doubt intended to ensure that EU firms will not be disproportionately punished.) In addition, the Guidelines introduce a new possibility for the Commission to add to the basic fine a sum equal to 15% to 25% of the yearly relevant sales as an "entry fee" punishment. This is intended to act as an additional deterrent by raising the cost of even short-lived infringements. The amount of the fine thus calculated will then be adjusted to take into account any mitigating or aggravating elements, but in any event cannot exceed 10% of the firm’s total turnover in the preceding business year. Another new element is the widening of the scope of the notion of "recidivist" behaviour to include infringements which have been sanctioned by the national competition authorities of the EU Member States. The potential increase in fine for recidivist behaviour has been increased from 50% to 100%, again subject to the 10% limit. The Commission also reserves the right to increase the level of fines where it believes that fines calculated on the basis of a percentage of sales in a small market would not have a sufficiently deterrent effect on a firm which has very high sales on other markets. Conclusions The new Guidelines are a considerable improvement both on the 1998 Guidelines and on the pre-1998 situation. They add clarity and will reduce the number of cases in which small firms are excessively penalised. They also give the Commission ample tools to increase the level of fines on large firms. The Commission can be expected to make full use of the greater possibilities to impose high fines, particularly in cartel cases but possibly also in other cases where the Commission considers the defendant to be super-dominant or to have behaved in a particularly egregious manner.  Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or Peter Alexiadis (+32 2 554 7200; palexiadis@gibsondunn.com) or David Wood (+32 2 554 7210; dwood@gibsondunn.com) in the firm’s Brussels office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 1, 2006 |
A Hiccup for Security-Based Data Transfers to the US

On 30 May 2006 the European Court of Justice (‘ECJ’) annulled the decisions of the European Commission and the Council that led to the transfer of personal data relating to passengers on flights to, from or across US territory to US authorities. The US authorities were provided with electronic access to the data contained in air carriers’ reservation and departure control systems, called Passenger Name Records (‘PNR’) (Joined Cases C-317/04 European Parliament v Council of the European Union and C-318/04 European Parliament v Commission of the European Communities ).  On 14 May 2004, the Commission adopted a "decision of adequacy" under Directive 95/46/EC (the Data Protection Directive), finding that the US personal data protection regime provides an adequate level of protection for PNR data transferred from the EC. On 17 May 2004, the Council adopted a decision approving the conclusion of an agreement between the EC and the US to transfer PNR data held by air carriers established in EU Member States. The agreement entered into force on 28 May 2004. The European Parliament applied to the ECJ for annulment of the decisions of the Commission and the Council, contending, in particular, that adoption of the decision on adequacy does not fall under the competence of the Commission, that the EC Treaty does not provide a legal basis for the Council decision approving the conclusion of the agreement and, in both cases, that fundamental rights were infringed by the agreement.  The ECJ annulled the decisions of both the Commission and the Council, concluding that they were founded on inappropriate legal bases.  Findings of the ECJ The ECJ concluded, first of all, that the Commission could not validly adopt the decision on adequacy because the transfer of PNR data is a "processing operation" concerning public security and criminal law. As such, it falls within the exclusive competence of EU Member States, rather than the Commission (whose remit does not include processing that is necessary for safeguarding public security or for the purposes of criminal enforcement). Although PNR is initially collected for the provision of services, the Commission’s decision, according to the ECJ, concerned data processing necessary for safeguarding public security and for the purposes of criminal enforcement. The fact that the PNR data is collected by private entities (for commercial purposes), and is transferred by such entities does not prevent that transfer from being data processing that is necessary for safeguarding public security and for the purposes of criminal enforcement. Consequently, the Court annulled the Commission’s decision on adequacy.  As to the Council’s decision to agree to conclude the agreement, the ECJ found that Article 95 EC, read in conjunction with Article 25 of Directive 95/46/EC, does not create Community competence to conclude an agreement with the United States which relates to the transfer of personal data where the data processing contemplated is excluded from the scope of the Directive. Consequently, the ECJ also annulled the Council’s decision. Effects of the ECJ Judgment Firstly, if the transatlantic data flow is not to be disrupted, the EC-US agreement on PNR transfers must be re-negotiated. The question remains whether such renegotiation will have to occur with individual Member States.  Secondly, and more broadly, the ECJ’s judgment calls into question the ability of both the Commission and the Council to agree to the transfer of personal data to the US, or any other jurisdiction without "adequate" personal data protection regimes, where the contemplated transfer concerns public security and criminal law. For example, in October 2005 a similar agreement was signed with Canada. While that agreement provides a greater level of data protection, contemplates the transfer of less data, and contemplates data transfer using a “push” system (rather than the more intrusive “pull” system in use with the US), it is also based on a Commission decision regarding adequacy. In a post-September 11 environment, public security is increasingly being used as a justification for a number of international data processing arrangements. The ECJ’s judgement is likely to have knock-on effects for similarly justified data transfer agreements in a range of sectors. Thirdly, although the ECJ annulled the decisions of the Commission and the Council on the basis that neither entity had a legal basis for their decision, and did not analyse the content of the agreement, many believe that the data transfers violated the privacy of passengers. The agreement required airlines to transfer to the US authorities 39 pieces of data on passengers flying to the US, including their names, addresses, telephone numbers and credit card numbers. This data is clearly personal data, and passengers had not consented to their transfer, nor was it necessary for the performance of a contract or on any of the other grounds set out in Directive 95/46/EC. In such circumstances, data controllers need to be aware of the circumstances in which they can transfer personal data outside the European Union. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or Michael Walther (mwalther@gibsondunn.com;+49 89 189 33-180) in Munich or Miranda Cole (mcole@gibsondunn.com; +32 2 554 7201) in Brussels.     © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 30, 2006 |
German Federal Cartel Office Announces New Leniency Program

A few days ago, the German Federal Cartel Office ("FCO") published on its website an informal notice in which it detailed its willingness and ability to accept anonymous whistleblower information under its new Leniency Program. This notice provides a "manual" for anonymous whistleblowers, primarily setting out the minimum requirements for anonymous information. The notice comes shortly after the FCO published its new Leniency Program which replaces the previous regulation from 2000.  Since 2000, the FCO has operated a Leniency Program which was first applied to a cartel in the paper industry in 2002. While the old regime lagged somewhat behind the EC Commission’s Leniency Program (e.g., full immunity for the first whistleblower was at the FCO’s discretion), the German legislator expressly authorized the FCO last year to issue a new program with which Germany will be catching up with European standards.  The new Leniency Program contains the following novel features: The first whistleblower to come forward and cooperate with the FCO – enabling the FCO to obtain a search warrant on the other cartel members – can automatically rely on obtaining immunity from fines (this is assured to him in writing); Even after a dawn raid has been conducted, a cartel member can still obtain full immunity from fines, provided he is the first to cooperate with the FCO and he submits evidence to prove an offence; The other cartel members who have lost the race for the first place (i.e., the second or third whistleblowers) can have their fines reduced by up to 50 percent (again, the time of the announcement of intent to cooperate is decisive for the level of reduction of the fines);  As a new rule in the race for first place, the FCO will apply a so-called "marker system"; whoever would like to cooperate with the FCO can place a "marker" (even verbally) by providing a necessary minimum of information about the cartel. The marker assures the applicant his status as first applicant if he provides necessary additional information within a maximum period of eight weeks.  The launch of the new Leniency Program is only the latest step in a range of innovations in the FCO’s vigorously intensified fight against cartels. After having formed a special unit for the combat against cartels (especially equipped for rapid dawn raids, e.g., with IT specialists, etc.), a drastic increase of the maximum fines for cartel participants (up to 10 percent of the worldwide annual turnover) and the facilitation of private antitrust enforcement, the brand-new Leniency Program and the newly introduced possibility of anonymous hints is expected to uncover a large number of hitherto "safe" cartels. Taken together, these innovations will have dramatic effects on antitrust enforcement and private antitrust litigation in Germany and throughout Europe.  Consequently, the FCO President Dr Böge stated: “In the last few years, the Leniency Program has become an important instrument in the fight against illegal agreements between competitors about prices, sales quotas and market sharing. With the new version, we intend to build on the experience we have gained in the last few years and make the Leniency Program even more effective.” English language copies of the FCO’s Notice on the new Leniency Program can be downloaded from the FCO’s website at http://www.bundeskartellamt.de/wEnglisch/download/pdf/06_Bonusregelung_e.pdf.  Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or Michael Walther, Partner - +49-89-18933-180; mwalther@gibsondunn.comUlrich Baumgartner, Associate - +49-89-18933-180;  ubaumgartner@gibsondunn.com © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 14, 2006 |
Article 82 and Cost Allocation

Brussels Partner David Wood and legal intern Simona Seikyte are the authors of “Article 82 and Cost Allocation ” [PDF] published in the March 14, 2006 issue of Competition Law Insight. Reprinted with permission.

March 2, 2006 |
U.S. Supreme Court Issues Landmark Ruling Abrogating Its Decades-Old Presumption that Antitrust Market Power Arises From the Mere Ownership of IP Rights

In a landmark decision handed down by the U.S. Supreme Court on March 1, 2006, the Court unanimously abrogated its decades-old presumption, articulated most prominently in United States v. Loew’s, Inc., 371 U.S. 38 (1962), that market power arises from the mere ownership of intellectual property rights.  See also International Salt Co. v. United States, 332 U.S. 392 (1947).  In an opinion authored by Justice Stevens, a unanimous Court broadly held that “in all [antitrust] cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product,” Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. __ (Mar. 1, 2006), No. 04-1329, slip op. at 16. The Court reasoned that the market power presumption announced in Loew’s and International Salt finds no support in modern economic theory or antitrust enforcement policy, does not accord with the Court’s modern tying jurisprudence, and lacks support in the Court’s earlier patent cases.  Beginning by noting that “this Court’s strong disapproval of tying arrangements has substantially diminished” “[o]ver the years,” the Court specifically noted that “[t]he assumption that ‘[t]ying arrangements serve hardly any purpose beyond the suppression of competition,’” “has not been endorsed in any opinion” of the Court since it was “rejected in” United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610 (1977) (Fortner II).  Slip op. at 5-6.  The Court then quoted approvingly from Justice O’Connor’s concurrence in the judgment in Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2 (1984), in which Justice O’Connor and three other Justices questioned the continued viability, as a matter of antitrust law, of the Loew’s presumption, which had originated in the Court’s early patent-misuse cases. After analyzing the historical underpinnings of the Loew’s/International Salt presumption in the Court’s earlier precedents, the Court cited Congress’s 1988 amendment of the Patent Code, which eliminated “the patent-equals-market-power presumption” “in the patent misuse context,” as a reason to reexamine the continued viability of the Loew’s/International Salt presumption as a matter of antitrust law.  Slip op. at 12.  Relying on its more recent, post-Fortner II tying cases, “the vast majority of academic literature on the subject,” and modern economic theory and antitrust enforcement policy, the Court abrogated the Loew’s/International Salt presumption, and “conclude[d] that tying arrangements involving patented products should be evaluated under the standards applied in cases like Fortner II and Jefferson Parish rather than under the per se rule applied in Morton Salt [Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942)] and Loew’s.”  Slip op. at 13-16 (citing, inter alia, William J. Baumol & Daniel G. Swanson, The New Economy and Ubiquitous Competitive Price Discrimination: Identifying Defensible Criteria of Market Power, 70 Antitrust L.J. 661, 666 (2003)).  Under such standards, any conclusion that a tying arrangement is unlawful “must be supported by proof of power in the relevant market rather than by a mere presumption thereof.”  Slip op. at 13. The Court’s holding should be read to extend to copyrights as well – an extension that Gibson Dunn had urged in an amicus brief it filed on behalf of the Motion Picture Association of America, the Association of American Publishers, the Business Software Alliance, the Entertainment Software Association, the Independent Film & Television Alliance, the National Football League, and the Recording Industry Association of America.  Although Illinois Tool Works on its facts dealt only with patents, the Court broadly “h[e]ld that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product.”  Slip op. at 16 (emphasis added).  This holding flows directly from the fact that the validity of the presumption in copyright tying cases rests on the validity of the presumption in patent tying cases.  See United States v. Loew’s, Inc., 371 U.S. 38, 46 (1962) (noting in copyright tying case that the presumption of market power “grew out of a long line of patent cases”).  As counsel for the United States acknowledged during oral argument in Illinois Tool Works, “a holding that there is no [market power] presumption in the patent context would eviscerate the underlying rationale for Loew’s,” “which was a copyright case.”  Oral Argt Tr. at 22.  Aside from its broad holding that the plaintiff must prove that the defendant has market power in “all cases,” the Court cited with approval the statement by the Department of Justice and the Federal Trade Commission in their antitrust enforcement guidelines that the agencies “’will not presume that a patent, copyright, or trade secret necessarily confers market power upon its owner.’”  Slip op. at 16 (emphasis added) (quoting U.S. Dept. of Justice and FTC, Antitrust Guidelines for the Licensing of Intellectual Property § 2.2 (Apr. 6, 1995)).  Further, in stating that the “conclusion” that a tying arrangement is unlawful “must be supported by proof of power in the relevant market rather than by a mere presumption thereof,” the Court placed great reliance on the “vast majority of academic literature on the subject,” including literature recognizing the absence of any economic basis for inferring market power from mere copyright ownership.  Slip op. at 13-14, n.4. The Court’s unanimous decision in Illinois Tool Works has enormous significance for successful individual and corporate holders of copyrights, patents, and other intellectual property rights, who are now less likely to be confronted with antitrust suits as a result of their use of package marketing arrangements that make economic sense and are procompetitive. Gibson, Dunn & Crutcher’s lawyers are available to discuss questions regarding these issues.  For further information, please contact the attorney with whom you work or: Daniel G. Swanson, (213-229-7430; dswanson@gibsondunn.com), orJulian W. Poon (213-229-7758; jpoon@gibsondunn.com). Gibson, Dunn & Crutcher is also uniquely positioned to bring to bear its considerable appellate expertise and its expertise in antitrust and intellectual property law, in representing corporations, other entities, and individuals confronted with these and other related issues.  For further information, please contact:  Antitrust and Trade Regulation co-chairs,Robert Cooper, (213-229-7179, rcooper@gibsondunn.com),Michael Denger, (202-955-8526, mdenger@gibsondunn.com),M. Sean Royall, (214-698-3256, sroyall@gibsondunn.com),Gary Spratling, (415-393-8222, gspratling@gibsondunn.com ),Peter Sullivan, (213-229-7165, psullivan@gibsondunn.com), orDaniel G. Swanson, (213-229-7430;dswanson@gibsondunn.com); Appellate and Constitutional Law co-chairs,Theodore Boutrous, (213) 229-7804, tboutrous@gibsondunn.com),Miguel Estrada, (202-955-8257, mestrada@gibsondunn.com),Daniel Kolkey, (415-393-8240, dkolkey@gibsondunn.com), orTheodore Olson, (202-955-8668, tolson@gibsondunn.com); or Intellectual Property co-chairs,Wayne Barsky, (310-557-8183, wbarsky@gibsondunn.com),Glenn Beaton, (303-298-5773, gbeaton@gibsondunn.com),Josh Krevitt, (212-351-2490, jkrevitt@gibsondunn.com), orDenis Salmon, (650-849-5301, dsalmon@gibsondunn.com). © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 1, 2006 |
Hart-Scott-Rodino Treatment of Corporate Officer Stock Acquisitions Solely for Investment – A Commentary

Gibson Dunn of counsel Malcolm R. Pfunder is the author of "Hart-Scott-Rodino Treatment of Corporate Officer Stock Acquisitions Solely for Investment – A Commentary," published in the January 2006 issue of The Antitrust Source, a publication of the ABA Antitrust Section. Reprinted with permission from The Antitrust Source, January 2006, a publication of the ABA Section of Antitrust Law.

January 17, 2006 |
Leniency for Japan

Brussels Associate Vassili Moussis is co-author of "Leniency for Japan" [PDF] in the December 2005/January 2006 edition of Global Competition Review. Reprinted with permission.   www.GlobalCompetitionReview.com

December 19, 2005 |
Be Careful What You Ask For: Unintended Consequences and Unfinished Business Under the Class Action Fairness Act

Partner Jarrett Arp is the author of "Be Careful What You Ask For: Unintended Consequences and Unfinished Business Under the Class Action Fairness Act," published in the Fall 2005 issue of Antitrust magazine, a publication of the ABA Section of Antitrust Law. Reprinted with permission, Antitrust magazine, © 2005 American Bar Association.

December 14, 2005 |
The European Court of First Instance Upholds the European Commission’s GE/Honeywell Merger Prohibition

On 14 December 2005 the European Court of First Instance (the "CFI") delivered its long awaited judgments in the appeals against the GE/Honeywell decision (cases T-209/01 and T-210/01). The CFI upheld the GE/Honeywell merger prohibition decision of the European Commission (the "Commission"), concluding that the proposed merger would have created or strengthened dominant positions as a result of which effective competition would have been significantly impeded on three markets. According to the CFI, the horizontal effects of the proposed merger were sufficient to establish that the Commission merger prohibition was well-founded. However, the CFI further stated that the Commission made manifest errors of assessment with regard to the effects of the merger on particular markets, especially in its analysis of conglomerate effects resulting from the concentration. Background On 22 October 2000 General Electric and Honeywell announced their plans to merge. After the US DoJ informally indicated to the parties that it would allow the merger to proceed subject to remedies, the parties filed their merger notification with the Commission. Judging that the proposed commitments offered by the parties were insufficient, the Commission blocked the merger. As the parties were prohibited to put the merger into effect in the EU, GE and Honeywell had to abandon the deal. However, they appealed the prohibition decision of the Commission before the CFI. The judgments Findings of the Commission that were upheld by the CFI The CFI upheld the Commission’s findings that the merger would have significantly impeded competition on three relevant markets: (i) the market for jet engines for large regional aircraft; (ii) the market for engines for corporate jet aircraft; and (iii) the market for small marine gas turbines. The CFI concluded that in the first market a monopoly with harmful effects on competition in the EU would have been created. In the second and third markets the parties would have become dominant. With regard to other aspects of the case, the CFI held, first, that the Commission could conclude, without making a manifest error of assessment, that GE held a dominant position, prior to the merger, on the market for jet engines for large commercial aircraft. The CFI found, inter alia, that the Commission could legitimately consider GE to have used the commercial strength of subsidiaries within its group, in particular the aircraft leasing company GECAS, to win contracts which it might well not have won without their involvement. Aspects of the Commission’s decision that were considered as constituting manifest errors of assessment The part of the Commission’s decision relating to the vertical overlap between Honeywell’s engine starters and GE’s engines was considered to be unfounded. More specifically, the CFI held that the Commission failed to take into account the deterrent effect of Article 82 EC, despite its relevance, and that the Commission’s analysis was, as a result, vitiated by a manifest error of assessment. The Commission did not establish to a sufficient degree of probability that the merged entity would have used GE‘s financial and commercial strength to extend to Honeywell’s markets (avionics and non-avionics products) thereby creating dominant positions on the various avionics and non-avionics markets concerned. The Commission also failed to establish to a sufficient degree of probability that the merged entity would have bundled sales of GE’s engines with Honeywell’s avionics and non-avionics products thereby failing to demonstrate that dominant positions would have been created or strengthened for it on the different markets concerned. Importance of the judgments The Honeywell v Commission and GE v Commission judgments are important for the following reasons: First, the case in question was the only merger between two US undertakings ever blocked by the Commission, while it was cleared by the US DoJ and other authorities worldwide. The EU and the US competition authorities have constantly claimed their relationship to be very cooperative and policies to be convergent, yet GE/Honeywell showed an obvious lack of efficient cooperation and rather diverging antitrust enforcement policies. The competition authorities have already learned the lesson and talks on a "second generation" agreement on closer cooperation between them have been re-launched. Second, many commentators expected that the CFI would overturn the Commission decision and continue the practice established in the Airtours/First Choice, MCI WorldCom/Sprint, Schneider/Legrand and Tetra Laval/Sidel cases, where flaws in the Commission’s reasoning and serious procedural errors led to the annulment of the merger prohibition decisions. However, in GE/Honeywell the CFI did not concentrate on procedural errors, but rather analyzed the Commission’s substantive arguments. Finally, in its judgments the CFI provided some very important insights on certain substantive issues, such as the economic theory of "conglomerate effects". This theory has already been used in the Tetra Laval/Sidel case, where the CFI overturned the Commission’s decision to prohibit the proposed merger on the basis that the Commission failed to prove that a merged entity would not only have the ability to harm competition, but that it would actually act anti-competitively. In GE/Honeywell once again the theory of "conglomerate effects" formed the basis of the Commission’s decision. However, in this case it was not necessary to prove the existence of conglomerate effects, sincethe merger’s horizontal effects were sufficient to establish that the concentration was incompatible with the common market.   Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or contact: Peter Alexiadis – Brussels: +32 2 554 7210; palexiadis@gibsondunn.comDavid Wood – Brussels: +32 2 554 7210; dwood@gibsondunn.comJames Ashe-Taylor – London: +44 20 7071 4221; jashetaylor@gibsondunn.com © 2005 Gibson, Dunn & Crutcher LLP

November 15, 2005 |
Regulation and competition in the media sector

Brussels Partner David Wood is the author of “Regulation and competition in the media sector” [PDF] published in the November 15th issue of Competition Law Insight. This article first appeared in the 15th November 2005 issue of Competition Law Insight and has been reproduced with the permission of the publishers, Informa Law, 30-32 Mortimer Street, London, W1W 7RE, UK. www.informalaw.com. For further information about Competition Law Insight please contact Justine Boucher at justine.boucher@informa.com.