322 Search Results

February 11, 2019 |
Antitrust in China – 2018 Year in Review

Click for PDF 2018 marked the tenth anniversary of the Anti-Monopoly Law (“AML”). The main highlight of the year is the major re-organisation of China’s antitrust enforcement agencies. China merged its three antitrust regulators into a single entity, which now oversees all mergers, pricing and non-pricing issues. This move brought to an end China’s unique tripartite system, which had been criticized for its fragmented enforcement and arbitrary assignment of duties. The integration of China’s antitrust enforcement agencies is expected to result in a better allocation of resources and more consistent decision-making in the long term, which in turn, should increase the level of enforcement and transparency. This client alert highlights the most significant developments from 2018 and what to expect for 2019. 1.    Legislative/Regulatory Developments Establishment of the State Administration for Market Regulation. On March 21, 2018, China merged its existing three antitrust regulators into a single entity called the State Administration for Market Regulation (“SAMR”). The SAMR is directly supervised by the State Council of China and officially began its operations in April 2018. In addition to overseeing food and drug administration, intellectual property and product quality, the SAMR undertakes all the antitrust responsibilities previously held by the National Development and Reform Commission (“NDRC”), the Ministry of Commerce (“MOFCOM”) and the State Administration for Industry and Commerce (“SAIC”). The re-organisation of China’s antitrust regulators forms part of the Chinese State Council’s Institutional Reform Plan as well as President Xi Jinping’s wider policy goals, which include strengthening the government’s market supervision capability. The SAMR consists of 27 “bureaus”, two of which now oversee antitrust enforcement. The Anti-monopoly Bureau is responsible for (1) carrying out antitrust investigations and taking enforcement actions against violations of the AML, including monopoly agreements, abuse of dominance and abuse of administrative power; (2) conducting merger review; (3) drafting and implementing anti-monopoly rules and guidelines; (4) ensuring fair competition review mechanisms; and (5) providing guidance to Chinese enterprises on responding to and coping with antitrust investigations and competition litigation in foreign jurisdictions. The Price Supervision and Anti-Unfair Competition Bureau is in charge of enforcing the Anti-unfair Competition Law and Price Law, which previously fell under the ambit of the NDRC and the SAIC. In particular, the Price Supervision and Anti-Unfair Competition Bureau is responsible for (1) formulating guidelines and regulations on price supervision and anti-unfair competition; (2) supervising the prices of goods and services; (3) carrying out investigations and enforcement actions against unfair pricing and unfair competition; and (4) regulating direct selling enterprises and agents and cracking down on pyramid schemes. Throughout 2018, the SAMR has been reforming and consolidating local Administration for Market Regulation (“AMR”) offices at a provincial level and is expected to release further details regarding the integration of local enforcement teams in 2019. New Merger Control Guidelines. On September 29, 2018, the SAMR issued a new set of merger control guidelines, which replaced the guidelines previously issued by MOFCOM. These guidelines include: (1) Guiding Opinions on the Notification of the Concentration of Undertakings; (2) Guiding Opinions on Documents and Materials Required for the Notification of Undertakings; (3) Working Guidance for Anti-monopoly Review on Concentration of Undertakings; (4) Explanation on the Implementation of the Notification Form for Anti-Monopoly Review of Concentration of Undertakings; (5) Guiding Opinions on the Notification of Concentration of Undertakings Subject to Simplified Procedure; and (6) Guiding Opinions on Regulating the Titles of Cases on the Notification of Concentrations of Undertakings. The updated guidelines contain minor changes to the guidelines previously issued by MOFCOM. Antitrust Guidelines on the Abuse of Intellectual Property Rights. On November 19, 2018, the SAMR adopted the “Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights”. The guidelines were jointly produced by China’s three antitrust enforcement agencies and the State Intellectual Property Office, before they were merged into the SAMR. As explained in our Antitrust in China – 2017 Year in Review[1], the guidelines (1) introduce a case-specific analytical framework to determine whether an undertaking’s exercise of its IP rights is anti-competitive;  (2) address the definition of the relevant market and provide that, in some cases, it may be appropriate to consider the relevant technology market (as opposed to the relevant product market); and (3) introduce a safe harbour provision in respect of certain agreements that would otherwise fall foul of the AML. The guidelines will be formally issued and promulgated in 2019. Other Antitrust Guidelines. In addition to the Antitrust Guidelines on the Abuse of Intellectual Property Rights, the SAMR approved three other Antitrust Guidelines, namely: (1) Antitrust Guidelines for the Automotive Sector; (2) Guidelines regarding Exemption of Monopoly Agreements; and (3) Guidelines regarding Leniency Application for Horizontal Monopoly Agreements. Along with the Antitrust Guidelines on the Abuse of Intellectual Property Rights, these three guidelines will come into force during the course of 2019. According to Director General (“DG”) Wu Zhenguo, these guidelines have been drafted “in an effort to share [the SAMR’s] law enforcement ideas and experience with business operators, stabilize their expectations, and improve the transparency of law enforcement.”[2] Potential Amendments to the AML. In 2017, China’s antitrust enforcement agencies and legislators commenced their work to revise the AML. A draft revision of the AML was prepared in 2018, but it is unclear when the first draft will be released for consultation and come into force. If implemented, these revisions would constitute the first amendments to the AML in its ten-year life. According to DG Wu Zhenguo, the SAMR will focus on improving the existing legal provisions in the AML “so they may be adapted to the development and changes of both the national and global economic environments.”[3] Expected revisions include an increase in the financial penalty for failure to notify (currently capped at RMB 500,000) and an elucidation of Article 14 in relation to retail price maintenance. Integration of the NDRC and SAIC’s Provisions. The SAMR plans to streamline its substantive rules and procedural requirements in the areas of monopoly agreements, abuse of market dominance and administrative monopolies by integrating the regulations issued by the SAIC and NDRC in these areas. The SAMR plans to integrate the “Provisions Against Price Fixing” of the NDRC with the “Provisions for the Industry and Commerce Administrations on the Prohibition of Monopoly Agreements” and the “Provisions for the Industry and Commerce Administrations on the Prohibition of Abuse of Dominant Market Position” of the SAIC. It will also integrate the “Provisions on the Administrative Procedures for Law Enforcement Against Price Fixing” of the NDRC with the “Provisions for the Administrative Departments for Industry and Commerce to Investigate and Handle Monopoly Agreements and Abuse of Dominant Market Position” of the SAIC. 2.    Merger Control In 2018, the SAMR (and its predecessor MOFCOM) reviewed a total of 441 concentrations, which represents a 36% increase from 2017.[4] As of October 2018, the SAMR (and its predecessor MOFCOM) received a total of 2,420 notifications since the promulgation of the AML, amongst which 2,380 were approved unconditionally, 2 were prohibited and 38 were approved subject to remedies.[5] As part of its reorganisation mandate, the SAMR sought to make the merger review process more efficient. The SAMR now has three dedicated Merger Control Divisions, which are divided according to industries. As of Q4 2018, the SAMR took an average of 15.6 days to review and approve a filing after it is formally submitted under the simplified procedure.[6] In addition, the SAMR now aims to reduce the length of merger reviews by issuing requests for information within 5 days of receiving the parties’ filing.[7] Published Decisions. Only those SAMR decisions prohibiting a transaction, or imposing or removing remedies are published. In 2018, the SAMR (and its predecessor MOFCOM) imposed remedies in a number of high-profile cases. It required structural remedies in all conditionally approved cases in 2018, save for Essilor/Luxotica, in which it required only behavioural remedies. On March 13, 2018, Bayer secured MOFCOM’s conditional approval for its proposed acquisition of Monsanto, a US agrochemical and agricultural biotechnology corporation. MOFCOM required Bayer to (1) divest a number of its businesses and assets globally, including its vegetable and seeds business; and (2) grant “fair, reasonable and non-discriminatory access” to the merged entity’s digital agricultural platforms in China for five years after the merged entity’s entry to the Chinese market. The ongoing Sino-US trade war had consequences for US companies seeking merger clearance in China. On July 25, 2018, US chip maker Qualcomm announced that it would cease its proposed 44 billion US dollar takeover of NXP Semiconductor (“NXP”) after it failed to secure the SAMR’s approval by the deadline set out in the transaction documents. Chinese stakeholders voiced their concerns regarding Qualcomm’s expansion into strategic sectors, such as mobile payments, and commentators noted that the decision was likely influenced by the Chinese government’s mandate to ensure that domestic companies have access to key inputs, including intellectual property rights. Since the deal was announced in October 2016, the deadline for closing had been extended numerous times and Qualcomm had obtained approval from all jurisdictions save for China. As a result, Qualcomm paid NXP a termination fee of 2 billion US dollars. Qualcomm’s Chief Executive Officer Steve Mollenkopf stated, “there were probably bigger forces at play here than just us.”[8] On July 26, 2018, the SAMR conditionally approved the merger between Essilor, a French lens manufacturer and Luxottica, an Italian eyewear manufacturer. Pursuant to the conditions imposed by the SAMR, the merged entity must not sell eyewear products at below cost prices without a justified reason; refrain from engaging in tie-in sales or imposing exclusivity requirements on retailers; and ensure the availability of all products and services to customers in China on a fair basis. On September 30, 2018, the SAMR conditionally approved the merger between Linde, a German chemicals company and Praxair, an American industrial gases company. The SAMR imposed six conditions, which included the following: (1) the parties must divest helium assets with an annual production volume of 90 million cubic feet; (2) Linde must divest its stakes in four joint ventures in Guangdong province; and (3) the parties must provide a timely and stable supply of certain gas products to Chinese customers at reasonable prices and volumes. On November 23, 2018, the SAMR conditionally approved industrial equipment manufacturer United Technologies Corporation’s takeover of Rockwell Collins, a manufacturer of aircraft parts. The SAMR required United Technologies Corporation to divest its research projects on oxygen systems, which could be in direct competition with an existing product of Rockwell Collins. This is not the first time that the Chinese regulator required parties to divest a business line or an R&D project to address its concerns that the merged entity would have a reduced incentive to innovate. As reported in our Antitrust in China – 2017 Year in Review[9], in Becton Dickinson/C.R. Bard, MOFCOM required Becton Dickinson to divest its soft core needle biopsy device business, as this could be in direct competition with an existing product of C.R. Bard. Enforcement of Conditions. On January 31, 2018, MOFCOM fined Thermo Fisher Scientific for its failure to comply with a condition imposed on its 2014 acquisition of Life Technologies. By decreasing the discounts given to Chinese distributors, the merged entity breached MOFCOM’s conditions that it must reduce the catalogue prices of certain products sold in China by 1% each year and maintain the discounts given to Chinese dealers. MOFCOM issued a relatively low fine of RMB 150,000, in light of the compensation that the merged entity provided to the affected dealers in China and the lack of consumer harm. In other cases, the SAMR and its predecessor MOFCOM lifted the conditions that MOFCOM had imposed in previous transactions. On February 1, 2018, MOFCOM decided to waive the conditions that it imposed on the establishment of a joint venture between Henkel and Tiande Chemical; these conditions included the supply of ethyl cyanoacetate products on fair and reasonable terms and a prohibition on excessive pricing and information exchange between the JV and Henkel.  On February 9, 2018, MOFCOM announced that it would lift the conditions that it imposed in 2013 on the merger between Taiwanese semiconductor companies MediaTek and MStar Semiconductor. The conditions included the maintenance of MStar Taiwan as an independent entity and a prohibition on cooperation between MStar Taiwan and MediaTek without MOFCOM’s prior consent. On August 22, 2018, the SAMR announced that it would lift the conditions imposed on a joint venture involving the Shenhua Group in 2011. The condition required the JV not to limit the supply or raise the prices of its coal-water slurry gasification technology. Enforcement Against Non-Notified Transactions. In 2018, MOFCOM published penalty decisions for failure to notify reportable transactions in a record number of 15 cases.[10] In one case, MOFCOM fined Shandong Sun Holding RMB 300,000 on February 6, 2018, for its failure to notify its acquisition of control in three different target companies. Shandong Sun Holding had initially submitted a filing to MOFCOM in 2015, which was rejected on the basis of incomplete documentation, and submitted another filing in 2016, only after it had completed the acquisitions. On April 26, 2018, the SAMR fined Yunnan Metropolitan Real Estate Development RMB 150,000 for failing to notify its acquisition of stakes in 8 companies, whose aggregate turnover exceeded the thresholds for mandatory notification. In another case, the SAMR fined Dutch paper pulp producer Paper Excellence BV RMB 300,000 on July 30, 2018 for its failure to notify the acquisition of Eldorado Brasil Celulose. The transaction was structured in three steps; the SAMR began its investigation into the transaction in March 2018,  after the parties had carried out the first two steps of the transaction. 3.    Non-Merger Enforcement The SAMR (and its predecessors) initiated 32 investigations involving monopoly agreements and abuse of dominance in 2018.[11] Despite the announcement of the consolidation of the three agencies in March 2018, local Development and Reform Commission (“DRC”) and Administration for Industry and Commerce offices continued to be in operation and conduct enforcement actions. This may change in 2019 as the SAMR issued a notice on December 28, 2018 to authorize provincial AMRs to carry out antitrust enforcement work at the local level.[12] Pharmaceuticals, utilities and transportation were the main industries subject to heightened scrutiny in 2018. Some of the most notable decisions include the NDRC’s decision in January 2018 to impose a total fine of RMB 84.06 million on two Petro China entities for engaging in minimum price-setting in the resale of natural gas;[13] the SAMR’s decision in June 2018 to impose a total fine of RMB 12.86 million on four Shenzhen tugboat companies for price-fixing;[14] and the SAMR’s decision on an investigation initiated in July 2018 to impose a total fine of RMB 12.43 million on two domestic pharmaceutical firms for selling active pharmaceutical ingredients at excessively high prices and for refusal to deal.[15] The fine imposed in each case amounted to 3% to 8% of the undertaking’s relevant annual sales revenue. More significantly, 2018 saw the first published decision since the enactment of the AML where individuals were fined for obstructing an antitrust investigation.[16] On August 22, 2018, the Guangdong DRC fined the legal representative and general manager of a local automobile sales and services company a total of RMB 20,000 for refusing to cooperate with an investigation conducted by the Guangdong DRC. The two executives violated Article 42 of the AML, which provides that individuals under investigation should cooperate with antitrust agencies, by unplugging the USB flash disk from which the officials were retrieving evidence, instructing employees to shut down their computers while the officials were carrying out the investigation, refusing to comply with an order to provide documents (claiming that such documents contained trade secrets) and challenging the authority of the officials. Even though the two executives later apologized and provided the requested documents to the Guangdong DRC, the legal representative was fined RMB 12,000 and the general manager was fined RMB 8,000. While antitrust enforcement agencies focused on the domestic market in 2018 and that there were fewer high-profile investigations involving multinational corporations compared to previous years, the SAMR launched an investigation into three major suppliers of dynamic random access memory and conducted several dawn raids at the offices of these memory chip makers in May 2018.[17] The investigation will likely continue through 2019. 4.    Civil Litigation In 2018, Chinese courts handed down milestone judgments in cases concerning abuse of dominance and resale price maintenance in vertical agreements, which provided more clarity on the interpretation and application of the AML. Abuse of Dominance. Two of the cases involved Tencent, the Chinese tech giant, as the defendant. Tencent’s victory in both cases highlights the difficulty in establishing dominant position in the digital market in China. In the first instance case brought by Shenzhen Micro Source Code Software Development Co., Ltd. (“Micro Source”), a Chinese software company, Micro Source argued that Tencent’s blocking of Micro Source’s WeChat Official Account constituted a refusal to deal and that Tencent engaged in discriminatory practice because other similar official accounts had not been blocked.[18] The WeChat Official Account platform is one of the features offered by WeChat, a Chinese multi-purpose messaging, social media and mobile payment application developed by Tencent. It allows businesses to conduct marketing and promotional activities on WeChat. The Shenzhen Intermediate People’s Court rejected Micro Source’s definition of the relevant market as the mobile instant messaging and social media platform in Mainland China. The court held that the starting point in defining the relevant market in anti-monopoly cases is to identify the goods or services to which the disputed conduct relates, and then carry out a substitutability analysis on those goods or services. While the dispute arose on the WeChat platform, the disputed conduct pointed specifically to the WeChat Official Account services, which the court considered to be a value-added feature separate from WeChat’s basic mobile instant messaging and social media services. As such, the court defined the relevant market as the market for providing marketing and promotional services through the internet in Mainland China. The court further held that the data submitted by Micro Source on WeChat’s average monthly and daily active users did not establish Tencent’s market dominance because first, the data did not relate to the relevant market defined by the court and second, the average number of active users on the platform could not reliably reflect the platform’s market share or power because internet users frequently signed up for multiple competing platforms. Finally, the court found that Micro Source did not adduce any evidence to support its allegation that Tencent engaged in discriminatory practice. In regard to Micro Source’s allegation on refusal to deal, the court noted that a plaintiff must show that the refusal to deal had either the purpose or effect of excluding or restricting competition, an evidential burden that Micro Source failed to discharge. In a separate action, Tencent was sued by Xu Shuqing, an individual, who alleged that WeChat’s refusal to accept a set of emoji created by Xu amounted to abuse of dominance.[19] In dismissing Xu’s appeal, the Supreme People’s Court rejected his definition of the relevant market as the WeChat emoji open platform and his argument that there was no substitution for such platform. Instead, the court defined the relevant market as the internet emoji service market and found that there were other channels for Xu to distribute his set of emoji. While Xu adduced evidence of WeChat’s market share on the WeChat emoji open platform to support his allegation that Tencent held a dominant position, the evidence did not relate to the relevant market defined by the court. The court further cautioned against placing too much emphasis on market share when determining an undertaking’s market position in the highly volatile and dynamic market for internet companies. Finally, the court held that Tencent’s refusal to deal did not have the purpose or effect of excluding or restricting competition because the refusal was justified by Xu’s violation of WeChat’s review policy, which the court determined as reasonable, and that Xu could have revised his design and resubmitted a set of compliant emoji to compete with other applicants. Resale Price Maintenance in Vertical Agreements. While the NDRC (now integrated into the SAMR) utilized an “illegal per se” approach in handling cases involving resale price maintenance, Chinese courts have adopted a more moderate “rule of reason” approach in civil cases, as demonstrated by the Guangdong High People’s Court’s judgment on the Dongguan Gree air conditioner case. Dongguan Yushi Xinqing Geli Trading Co. Ltd. (“Yushi”) and Dongguan Heshi Electronics Co. Ltd. (“Heshi”) are the distributor and supplier of the Gree air conditioners in Dongguan, a city in Guangdong province. The two companies entered into an agreement with Dongguan Hengli Guochang Electronics Store (“Guochang”), a retailer, to sell Gree air conditioners. The agreement contained a clause setting out the minimum resale price of Gree products. In violation of the clause, Guochang sold one of the Gree models below the price agreed between the parties, and Yushi and Heshi demanded Guochang to pay a penalty for the breach. Guochang sued Yushi and Heshi, arguing that the minimum resale price clause amounted to resale price maintenance and constituted a vertical monopoly agreement, which is prohibited by Article 14 of the AML. The Guangdong High People’s Court identified three factors for consideration when analysing resale price maintenance in a vertical agreement: (1) whether competition in the relevant market was sufficient at the material time; (2) the market position of the product in question at the material time; and (3) the purpose and effect of the resale price maintenance policy, including a weighing of pro-competitive and anti-competitive effects. The court confirmed that, unlike cases involving horizontal agreements, plaintiffs in vertical agreement cases bear the burden of establishing the illegality of the resale price maintenance arrangement. Nevertheless, the court also acknowledged that as public interests are at stake in vertical monopoly cases, courts may actively seek and obtain evidence on a case-by-case basis. While finding that the three companies entered into and implemented a resale price maintenance arrangement, the court held that the arrangement did not constitute a monopoly agreement. Even though Gree’s market share amounted to 30% to 40% of the domestic air conditioner market in Mainland China, the court found that Gree did not hold a dominant position and that there was no evidence to show that the purpose or effect of the arrangement was to exclude or restrict competition. In particular, the court acknowledged the potential pro-competitive effects of a resale price maintenance arrangement (for example, maintaining the price of a product at a reasonable level may facilitate market entry for new companies and brands), and held that the relevant market was sufficiently competitive because there was generally low brand loyalty in the relevant market and that undertakings competed on many parameters that were equally, if not more, important than pricing, such as the quality of the product and after-sale service.    [1]   Gibson, Dunn & Crutcher, “Antitrust in China – 2017 Year in Review” (released on March 28, 2018), available at: https://www.gibsondunn.com/antitrust-in-china-2017-year-in-review/.    [2]   Antitrust Source, “Interview with Wu Zhenguo, Director General of China’s State Administration for Market Regulation (SAMR)” (released in December 2018), available at: https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/2018-2019/atsource-december2018/dec18_wu_intrvw_12_17f.pdf.    [3]   Ibid.    [4]   Yicai, “SAMR’s Annual Report Card: It Takes Only 8.5 Days to Form a Company; Approval Rate for New Drugs Accelerated with 48 New Drugs Approved in a Year” (市场监管总局一年成绩单:企业开办需仅8.5天,新药上市加快一年批48个) (released on December 27, 2018), available at: https://www.yicai.com/news/100087903.html.    [5]   See Footnote 2.    [6]   PaRR, “PaRR Analytics: SARM Simple Case Review Averages 15.6 Days in 4Q18” (released on January 18, 2019), available at: https://app.parr-global.com/intelligence/view/prime-2770624.    [7]   SAMR, “SAMR: Increased Efficiency for Review of Business Operator Concentration Cases” (国家市场监管总局:提高经营者集中案件的审查效率) (released on November 16, 2018), available at: http://samr.saic.gov.cn/xw/yw/xwfb/201811/t20181116_277087.html.    [8]   Bloomberg, “Qualcomm Scraps NXP Deal Amid U.S.-China Trade Tensions” (released on July 26, 2018), available at: https://www.bloomberg.com/news/articles/2018-07-26/qualcomm-to-scrap-nxp-deal-as-deadline-passes-for-china-approval.    [9]   See Footnote 1. [10]   SAMR, “Zhang Mao: Protect Fair Competition and Facilitate the Healthy Growth of Socialist Market Economy” (张茅:保护公平竞争 促进社会主义市场经济健康发展) (released on August 1, 2018), available at: http://samr.saic.gov.cn/xw/yw/zj/201808/t20180801_275354.html. [11]   China Market Regulation News, “The Strengthening of Anti-Monopoly Enforcement” (反垄断执法不断增强) (released on January 9, 2019), available at: http://www.cicn.com.cn/2019-01/09/cms114231article.shtml. [12]   SAMR, “Notice from the SAMR on the Delegation of Authority on Anti-Monopoly Enforcement” (市场监管总局关于反垄断执法授权的通知) (released on January 3, 2019), available at: http://samr.saic.gov.cn/xw/yw/wjfb/201901/t20190103_279720.html. The notice sets out the types of cases involving monopoly agreements and abuse of dominance that the SAMR will either handle directly or authorize provincial AMRs to handle: (1) cases involving autonomous regions, municipalities or more than one provinces; (2) cases involving the abuse of administrative power by a provincial government; (3) more complex cases or cases that will have a significant impact on the national level; and (4) other cases that the SAMR deemed necessary to handle directly. Provincial AMRs are authorized to directly handle other cases involving monopoly agreements and abuse of dominance that take place within the relevant administrative area. [13]   SAMR, “SAMR Published Administrative Penalty Decisions Against Two Natural Gas Companies” (市场监管总局发布对两家天然气公司的行政处罚决定书) (released on July 27, 2018), available at: http://samr.saic.gov.cn/gg/201807/t20180727_275281.html. [14]   SAMR, “SAMR Published Administrative Penalty Decisions Against Four Shenzhen Tugboat Companies” (市场监管总局发布对深圳4家拖轮公司的行政处罚决定书) (released on June 25, 2018), available at: http://samr.saic.gov.cn/gg/201806/t20180625_274741.html. [15]   SAMR, “SAMR Imposed a Fine of RMB 12.43 million Against Drug Companies Specializing in Chlorpheniramine Maleate for Monopoly Behavior” (市场监管总局对扑尔敏原料药企业实施垄断行为依法处罚1243万元) (released on January 2, 2019), available at: http://samr.saic.gov.cn/xw/yw/xwfb/201901/t20190102_279577.html. [16]   Guangdong Provincial DRC, “Guangdong Provincial DRC Administrative Penalty Decision No. 7 of 2018” (广东省发展和改革委员会行政处罚决定书 粤发改价监处〔2018〕7号) (released on August 31, 2018), available at: http://www.gddrc.gov.cn/zwgk/zdlyxxgkzl/jgzf/pgpt/201809/t20180903_478125.shtml; “Guangdong Provincial DRC Administrative Penalty Decision No. 8 of 2018” (广东省发展和改革委员会行政处罚决定书 粤发改价监处〔2018〕8号) (released on August 31, 2018), available at: http://www.gddrc.gov.cn/zwgk/zdlyxxgkzl/jgzf/pgpt/201809/t20180903_478124.shtml. [17]   SCMP, “US Memory Chip Maker Micron Says Chinese Officials Visited its Offices ‘Seeking Information’ in Possible New Trade War Front” (released on June 2, 2018), available at: https://www.scmp.com/business/companies/article/2148937/memory-chip-maker-micron-says-chinese-regulatory-authorities. [18]   Legal Weekly, “Court Held that Tencent’s Blocking of Account Did Not Amount to Monopoly” (法院判决腾讯封号不构成垄断) (released on September 19, 2018), available at:  http://www.legalweekly.cn/article_show.jsp?f_article_id=17080. [19]   China Intellectual Property Lawyers Net, “Civil Case Judgment on the Appeal of Tencent Being Sued for Abuse of Market Dominance” (腾讯被诉滥用市场支配地位再审民事裁定书) (released on December 17, 2018), available at: http://www.ciplawyer.cn/html/cpwxfbz/20181217/140845.html?prid=170. The following Gibson Dunn lawyers assisted in the preparation of this client update: Sébastien Evrard, Emily Seo and Bonnie Tong. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following lawyers in the firm’s Hong Kong office: Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Emily Seo (+852 2214 3725, eseo@gibsondunn.com) Bonnie Tong (+852 2214 3762, btong@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 7, 2019 |
Nine Gibson Dunn partners recognized by Who’s Who Legal Thought Leaders Competition

Nine Gibson Dunn partners were recognized by Who’s Who Legal Thought Leaders – Competition 2019. Brussels partners Peter Alexiadis and David Wood; London partner Ali Nikpay; Los Angeles partner Daniel Swanson; San Francisco partners Trey Nicoud and Gary Spratling; and Washington, D.C. partners D. Jarrett Arp, Scott Hammond and Richard Parker were recognized. The list was published in February 2019.

January 29, 2019 |
Europe’s Highest Court Finds in Favor of UPS in Merger Review Appeal

Click for PDF On 16 January 2019, the European Union’s highest court, the Court of Justice, upheld the claim of United Parcel Service, Inc. (“UPS”) that the European Commission (“Commission”) had breached its rights of defense. It had breached those rights when it had declared that UPS’s proposed merger in 2012 with TNT Express NV (“TNT”) was incompatible with the internal market because it would lead to significant impediment of competition in up to 15 Member States of the European Economic Area.[1]  The Court of Justice thus upheld a Judgment of the General Court taken in 2017.[2] Both UPS and TNT are leading providers of international express delivery of small parcels. The violation of the UPS’s rights of defense occurred when the Commission failed to provide UPS with the opportunity to comment upon a revised econometric model which served as the Commission’s basis for prohibiting the proposed merger because of the supposed risk that prices would rise post-merger.  In the circumstances of the case, that failure on the part of the Commission was sufficiently important to justify the conclusion that the Commission Decision adopted on 13 January 2013[3] should be annulled.  The Court of Justice’s Judgment is of high importance to merger practitioners both because of the confirmation of the procedural standard which the Commission needs to satisfy in its merger reviews, but also because of the possible ramifications which the Judgment might have on the procedures to be followed in future merger proceedings. 1.   Background In upholding UPS’s action for annulment of the Commission’s Decision nearly four (4) years after the filing of the appeal against the Commission’s veto Decision in the proposed UPS/TNT merger, the General Court in Luxembourg ruled that the Commission had breached UPS’s rights of defense by relying on a modified version of its initial econometric analysis without having shared that version with the merging parties before the Decision to block the merger was adopted. The Commission appealed against the General Court’s Judgment on three separate grounds, the first two of which related to an infringement of the rights of defense (and the consequences arising therefrom) and the third ground consisting of an alleged infringement of the obligation on the Commission to state reasons for its adopted Decisions. 2.   Infringement of the rights of defense The cornerstone of the Commission’s challenge to the General Court Ruling lay in its denial that it was under an obligation to communicate the final econometric analysis to the merging parties before adopting its final decision. In support of its position, the Commission expressed its view that, after a Statement of Objections (“SO”) has been issued to the notifying parties, it is not obliged to disclose any interim or preliminary conclusions until the time of the adoption of its Decision, as its conclusions in the intervening period between a SO and the Decision might be subject to modification or change.[4]  To this end, argued the Commission, the only findings that are challengeable are those that are contained in the final adopted Decision, even if one assumes that the Commission cannot rely on grounds of which the notifying parties are unaware.[5]  Moreover, the Commission argued that the General Court had erred in implying that the Commission was under an obligation to disclose all of its internal views prior to the adoption of a Decision, as the right of access to the file does not extend to internal documents.[6]  Finally, the Commission contended that, even if UPS’s rights of defense had been infringed, this could not lead to an annulment of the Commission’s Decision because – at least with respect to some of the markets – an impediment to competition had already been found based on factors other than the economic analysis.[7] The Court of Justice commenced its Ruling with an affirmation that the right of defense is a general principle of EU law that must be observed.  With respect to merger control review, the application of that general principle requires, among other things, that the Commission provide written notice to the notifying parties of the Commission’s objections, and that this notice be accompanied by an appropriate period in which the notifying parties can address those objections in writing.[8]  What this means in practice is that the notifying parties must be put in a position in which they can make known their views on the accuracy and relevance of all the factors upon which the Commission intends to base its Decision.  To the extent that the Commission seeks to justify its position by reference to an econometric model, it follows that the parties must be able to submit their observations on that particular econometric model. In the view of the Court, the fact that an SO only sets forth the Commission’s provisional conclusions, which may legitimately be modified in light of observations received and evidence collected, does not entitle the Commission to amend its econometric model upon which its objections are based without having first communicated those amendments to the notifying parties.[9] In light of the importance attributed by the Commission to econometric models in assessing the effects of a merger, the Commission’s failure to disclose such information ran counter to the policy priority accorded to transparency in the merger review process.  Such a practice would have the effect of undermining any effective judicial review of Commission Decisions by the Courts.[10]  As such, the Court of Justice concluded that the General Court had not erred in law in holding that the Commission Decision should be annulled as a consequence of the infringement of UPS’s rights of defense.[11] 3.   The obligation on the General Court to state reasons Finally, the Commission sought that the General Court’s Ruling be overturned because the General Court had failed, in its view, to acknowledge formally a number of arguments raised by the Commission when responding to certain questions raised by the General Court at the hearing in Luxembourg.  In the circumstances, argued the Commission, the General Court should be held to have failed to examine and address the arguments raised by the Commission.[12] The Court of Justice rejected the Commission’s arguments on this point, holding that the General Court had addressed the points put forward by the Commission, even if it had only done so implicitly.[13] In particular, the Commission criticized the General Court for having failed to take formal note of an argument according to which the use in the econometric model of a continuous variable for the prediction stage was warranted and followed from UPS’s methodology on estimation rate.  The Court recalled that the General Court had noted that the Commission relied on a discrete variable at the estimation stage and on a continuous variable at the prediction stage, holding that although the use of a discrete variable had been discussed repeatedly during the administrative procedure, it did not appear from the file that it had also been the case with regard to the use of different variables at the different stages of the econometric analysis.[14]  For those reasons, the Court considered that the General Court had justified in law its Ruling and had implicitly rejected the Commission’s arguments that UPS had “intuitively” been able to identify the amendments to the econometric model.[15] Lastly, the Commission also claimed that UPS’s plea that its rights of defense had been infringed should have been dismissed by the General Court, because the finding of a significant impediment to effective competition on the respective Danish and Dutch markets had not been based exclusively on the results of the econometric model.  In these circumstances, the Commission claimed that it was contradictory for the General Court to annul its Decision on the basis of an infringement of the rights of defense while at the same time concluding that the revised econometric model was capable of overriding the qualitative information taken into account by the Commission (given that it could not have reduced  the number of Member States in which the merger would have given rise to a significant impediment to effective competition).[16] This argument was dismissed by the Court of Justice, which considered that the premise on which the argument was based was incorrect. The Court concluded that the Commission had wrongly assumed that the infringement of the rights of defense would only lead to the annulment of the Decision if, in the absence of the procedural irregularity, the Decision would have been different in content. Indeed, the Court considered that an infringement of the rights of defense should be able to lead to the annulment of a Commission Decision provided that – in the absence of such infringement – there was “even a slight chance” that the merging parties would have been better able to defend themselves.[17] 4.   Potential impact of the Judgment The Court of Justice’s Ruling in the UPS Case has a number of important implications on EU merger practice. (i) This Ruling constitutes an emphatic application of the doctrine of “equality of arms” as an integral part of the rights of defense, insofar as it emphasizes the notifying parties must have access to the documentation that makes up the case against them.  Moreover, the Court of Justice also found fault with such an act of non-disclosure by the Commission because it would risk the effectiveness of review by the Courts.  To the extent that the Commission bases its objections to a merger on certain facts, these must be disclosed to the notifying parties to afford them the opportunity of defending themselves during the review period, rather than consigning their objections to an appeal process after their merger has been shelved.  In the circumstances of the case, the evidence contained in the final version of the econometric model relied upon by the Commission was clearly material to its substantive review, and therefore should have been made available by the Commission. Hairs may no doubt be split in the future about which acts of Commission non-disclosure might be actionable, but the Court was clear that there was little doubt that the notifying parties’ defense during the merger review was seriously hampered by the Commission’s act of non-disclosure. (ii) The Court elevates the rights of the defense to a higher standard than has been acknowledged in previous case-law, insofar as the Court did not consider it necessary to engage in an enquiry into whether the Commission’s act of non-disclosure amounted to an error whose magnitude was likely to change the nature of its final conclusions (i.e., a “manifest error”).[18]   The Court reference to “even a slight chance” appears to constitute an important erosion of the Commission’s otherwise wide discretion in interpreting economic evidence, as it will now be aware that its discretion will need to exercised alongside a full disclosure of the underlying supporting evidence.  It will only be in unusual circumstances that the Commission will be able to assert with confidence that an act of non-disclosure would not have been capable of affecting its substantive conclusions. The particular fact pattern in the UPS Case has probably played a very material role in the Court of Justice’s Ruling, suggesting that no hair-splitting was necessary. For example, the econometric model was revised after exchanges that had been made in the course of the Oral Hearing held in the latter stages of the Commission’s review. Moreover, UPS had contended that those changes, rather than being an appropriate response to what had been argued at the Oral Hearing, were changed unilaterally by the Commission in ways which were arguably inappropriate and which were unsubstantiated in the text of the Commission’s Decision, being only revealed in the course of the proceedings before the General Court. This fact pattern therefore suggests that this was a case which amounted to much more than a situation of a notifying party submitting evidence late in the review process and thereby compromising the Commission’s tight review deadlines. As a result, it was clear that the Court was concerned with the potential misuse or biased use of economic models by the Commission, having stressed that the methodological basis behind the models used “must be as objective as possible in order not to prejudge the outcome of the analysis on way or another”.[19] What remains unclear from the Ruling is whether an enquiry into whether a final Decision was affected by a Commission infringement will still be required by the Court in relation to failings of a less fundamental nature, so that the Court’s tough stance regarding the infringement of the rights of defense applies only where the nature of the infringement is sufficiently egregious, as it was in relation to the handling of key economic evidence.  What falls short of a failure to provide access to a revised econometric model is therefore likely to require clarification through subsequent case-law. (iii) In agreeing to UPS’s procedural challenge, the European Courts have opened up the possibility that the actions for damages lodged by UPS and others[20] may bear fruit.  To date, actions for damages for blocked mergers have resulted in relatively meagre damages awards by the European Courts, other than in the Schneider/Legrand Case,[21] where the Commission’s procedural infringements were wilful and serious. Given the underlying circumstances in the UPS Case, it cannot be discounted that the Court may be willing to adopt the approach to damages taken in Schneider/Legrand.  Will the Court of Justice’s uncompromising stance on the gravity of the procedural failings in the UPS Case have a similar effect in ramping up the quantum of damages to which the Commission may be subject? Practitioners will await with interest the approach of the European Courts  to the damages claims that will follow in the wake of the UPS Ruling. (iv) It seems inevitable that the Commission will react to the Court’s strong rebuke by modifying its procedures of review.  One can envisage one of two possibilities, neither of which is ideal from a practitioner’s perspective and neither of which addresses the procedural problem really at issue in the UPS Case. First, the Commission might move away from its current flexible procedure of allowing notifying parties the ability to file submissions virtually throughout the course of the review period.  Instead, notifying parties might find themselves in a position of being obliged to file certain types of economic data within specified time limits in order for them to be taken into account.  In this way, multiple modifications to economic evidence might become procedurally untenable.  The major drawback of this approach would be that the notifying parties might not be able to respond sufficiently quickly with appropriate economic evidence, especially if the Commission is exploring a novel theory of harm. Second, the Commission might open up the possibility of multiple exchanges on economic evidence, but only if the procedural quid pro quo is a relatively elastic extension of the period of review.  Sacrificing the commercial benefits of a relatively certain fixed period of review for an open-ended review period would not be seen in many quarters of the business community as desirable. One thing is clear: given the increasing importance attached by the Commission to economic evidence, the procedural aftermath of the UPS Case will be felt for some time in the ways in which such economic evidence is processed. Whether or not the approach of the European Courts signals an increased willingness of the Courts to subject the Commission’s broad discretion in examining economic evidence remains to be seen.    [1]   See ECJ’s Judgment in Case C‑265/17 P – European Commission v United Parcel Service, Inc., 16.01.2019, ECLI:EU:C:2019:23. Available at: http://curia.europa.eu/juris/document/document.jsf;jsessionid=6EDA43936703CA52E17A4149562E80E2?text=&docid=209848&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=7507536    [2]   See ECJ’s Judgment in Case T‑194/13 – United Parcel Service, Inc. v European Commission, 07.03.2017, ECLI:EU:T:2017:144. Available at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=188600&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=7508760    [3]   See the European Commission’s Decision on Case COMP/M.6570 — UPS/TNT Express, 30.01.2013. Available at: http://ec.europa.eu/competition/mergers/cases/decisions/m6570_20130130_20610_4241141_EN.pdf    [4]   An SO is a document which summarizes the Commission’s prima facie antitrust concerns regarding the merger.  While the arguments in the SO serve as the basis for the Commission’s final conclusions in support of its Decision to block the merger, the Commission is not bound to follow its views in the SO as a matter of law.  See para. 36 of the ECJ’s Ruling and para. 63 of ECJ’s Judgment in Case C‑413/06 P – Bertelsmann and Sony Corporation of America v Impala, 10.07.2008, EU:C:2008:392. Available at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=67584&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=9868410    [5]   See para. 24 of the ECJ’s Ruling.    [6]   See para. 26 of the ECJ’s Ruling.    [7]   See para. 50 of the ECJ’s Ruling.    [8]   See para. 29 of the ECJ’s Ruling.    [9]   See paras. 36 and 37 of the ECJ’s Ruling. [10]   See para. 50 of the ECJ’s Ruling. [11]   See para. 56 of the ECJ’s Ruling. [12]   See paras. 59 to 62 of the ECJ’s Ruling. [13]   See paras. 64 to 68 of the ECJ’s Ruling. [14]   See para. 66 of the ECJ’s Ruling. [15]   See paras. 65 to 67 of the ECJ’s Ruling. [16]   See para. 62 of the ECJ’s Ruling. [17]   See paras. 68 and 69 of the ECJ’s Ruling. [18]   See para. 68 of the ECJ’s Ruling. [19]   See para. 53 of the ECJ’s Ruling. [20]   According to the official notice published in the EU’s official journal, UPS brought an action against the European Commission on 29.12.2017.  The Irish airline ASL also brought an action against the European Commission on 11.09.2018.  Both notices are available at: http://res.cloudinary.com/gcr-usa/image/upload/v1519658653/EU_Journal_ks934v.pdf. and https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:62018TN0540&from=EN [21]   See ECJ’s Judgment in Case C-440/07 P – Commission v. Schneider Electric SA, 16.07.2009, ECLI:EU:C:2009:459. Available at: http://curia.europa.eu/juris/document/document.jsf?docid=72486&doclang=en The following Gibson Dunn lawyers assisted in preparing this client update: Peter Alexiadis, David Wood, and Maria Francisca Couto. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following lawyers in Brussels: Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) Jeremy Robison (+1 202-955-8518, wrobison@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Olivia Adendorff (+1 214-698-3159, oadendorff@gibsondunn.com) Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 24, 2019 |
“New Year Special”: European Commission’s DG Comp Sets Out Its Stall at the OECD’s Global Competition Forum

Click for PDF Reviving an old tradition of the European Commission disrupting competition lawyers’ New Year breaks with the portents of increased intervention or narrower interpretation of certain antitrust doctrines than would otherwise be expected, the Commission’s “New Year Special” came in the form of eight (8) papers which it delivered at the OECD Competition Forum held in December 2018. The contributions made by the European Commission’s DG Competition to the OECD Competition Forum provide an insight into the key positions covering its implementation policy in the immediate future in relation to a range of both substantive and procedural issues.[1] I.   Procedural Issues The Commission set forth its position in four (4) key areas of EU Competition law procedure, namely: the treatment of legally privileged information in competition proceedings; the effects of regional competition agreements; investigative powers in practice (i.e., unannounced inspections in the digital age and respect for “due process” in relation to the gathering of evidence); and investigative powers, embodied in Requests for Information. 1.   The treatment of legally privileged information in competition proceedings The Commission summarised the EU Courts’ views on Legal Professional Privilege (“LPP”) , providing insight into how it interprets the Court’s rulings in practice. As it has only been under European case-law that the concept of LPP has been recognised in the EU, it is case-law that has shaped its contours. The guiding light in the case-law is still provided by the Court of Justice’s ruling AM & S v Commission in 1982, with the Court describing the concept as an “essential corollary to the full exercise of the rights of defence“.[2] The Court identified two conditions in order for LPP to apply at the EU level, namely: (1) the communication must be made for the purpose and in the interest of the client’s defence in competition proceedings; and (2) the principle only applies to communications with independent lawyers (i.e., not in-house lawyers) that are registered with a Bar in one of the EU Member States. The protection extends to internal notes that report the content of privileged communications and documents that are exclusively drawn up for the purpose of seeking legal advice. However, the Commission notes that it will not consider communications between a company and third parties’ lawyers or (normally) other professional advisers (such as patent attorneys) to be privileged. Nor does LPP, in the Commission’s view, attach to communications between a lawyer and a firm if they are found at the premises of another firm.[3] Even more controversially, the Commission also expresses the view that LPP should also not attach to communications between lawyers, nor to attachments to privileged documents. In the Commission’s view, it is for the firm concerned to justify any claims of LPP. If such a claim is made during an on-site inspection, the Commission has the right to take a cursory look to verify the reasons being invoked to justify such a claim. In turn, the firm may refuse to grant a cursory look if this would reveal privileged content. However, if the reasons provided are insufficient, the Commission considers that it is able to take a cursory look (and even impose fines if the claim is found to be unjustified). The Commission can also resort to the “sealed envelope procedure”, which allows it to seize documents and to address claims for privilege at a later stage. The parties concerned in any dispute as to the scope of the Privilege can also involve the Hearing Officer, who acts as an independent adjudicating third party in potential disputes.[4] During inspections, the Commission can make electronic copies of documents, which allows it to exclude or hold separate privileged documents. The Commission also has the right to seize so-called “family documents” (i.e., documents belonging to the same line of communication). In the United States, LPP extends to in-house counsel. However when the Commission requests documents physically situated in the United States, it is European Union law that applies. There will be occasions where this may conflict with a US firm’s obligation not to disclose documents. It is in these cases that the Commission on occasion opts to send formal requests (instead of non-binding simple requests) to the party in question, so that US firms can comply with the obligation without waiving their protection in US legal proceedings. As the Commission is increasingly demanding the production of documents in complex merger proceedings, it is currently working on “best practice guidelines” on information requests under the EU Merger Regulation (“EUMR”). Comment: While the Commission’s contribution is couched in terms that it is merely reflecting existing case-law, practitioners will be concerned that the Commission is stretching that jurisprudence to unforeseen limits. The two Commission propositions which will cause most disquiet are that: (1) (potentially privileged) communications found at the premises of another undertaking; and that (2) communications between lawyers, fall outside LPP. With respect, the citation of the Pendropil Case in support of this proposition does not justify the Commission’s claims that LPP is lost in these two above-listed circumstances.[5] That case concerned communications between external counsel relating to the settlement of a commercial dispute, which were later obtained by the Commission pursuant to a dawn raid at the premises of one of the parties to that dispute. Because the documents in question were not generated with EU proceedings in mind, the relevance of the Pendropil Case is arguably not germane to the situations considered by the Commission. Following the instructions of their respective clients, external lawyers may exchange communications in relation to EC investigations in a number of circumstances. For example, in merger cases, data and arguments may be exchanged on a counsel-to-counsel basis for the purposes of responding to RFIs or for the preparation of notifications. Another example can be found in relation to communications for the purpose of preparing a common defence. There are legitimate public policy reasons why LPP should extend to communications between external lawyers, as well as to communications between firms and lawyers found at another firm’s premises. The public policy reasons why such communications between external lawyers should benefit from LPP include: the exercise of legitimate rights of defence; the balancing of the Commission’s ability to review evidence from more than one party, consistent with “equality of arms” doctrine; and the effective management of resources by enabling submissions to be made in an efficient manner. It is, therefore, important that the Commission’s submission not be read as calling into question the applicability of LPP to joint defence communications. The public policy mischief created by such an erosion of the traditional notion of LPP, which one can identify in the legal traditions of most EU Member States, supports the view that the Commission would be well advised to clarify its position further. 2.   Regional competition agreements The Commission sums up its experience of 14 years of cooperation with National Competition Authorities (“NCAs”) within the European Competition Network (“ECN”), the network of cooperation under the de-centralised system of enforcement of European competition law that was introduced alongside Procedural Regulation 1/2003. Moreover, the Commission explains how the soon-to-be-adopted ECN+ Directive will deepen existing cooperation and will further harmonise the institutional framework of the national competition enforcement systems and the rules on leniency programmes.[6] The new Directive will, inter alia, make it easier for applicants to obtain a leniency marker across multiple jurisdictions. The key points assessed in the paper include: Regulation 1/2003 provides that the Commission and the NCAs of the Member States should allocate cases to the NCA which is best placed to deal with the case. In cases where three or more Member States are involved, the Commission is often deemed to be best placed to hear a case. According to Regulation 1/2003, NCAs can also carry out inspections on behalf of one another, without the need for each of them to open proceedings, and subsequently to exchange information and rely upon it as evidence. Since the introduction of the ECN in May 2004, the affected Member State NCAs have informed the Commission and their fellow NCAs of decisions to open proceedings in 1031 cases. This indicates that more than 85% of all decisions adopted within the framework of public enforcement of European competition law are now being adopted by Member State NCAs. In its 2014 paper on “Ten years of cooperation within the ECN”, the Commission had singled out three issues where improvements in the current system of cooperation were necessary: (1) to guarantee the independence of NCAs, which presupposed the existence of sufficient resources; (2) to ensure that they have a set of effective investigative and decision-making powers at their disposal; and (3) that the NCAs in all Member States have powers to impose effective fines and that they have functioning leniency programmes in place. These goals will be reached by the ECN+ Directive passed in 2018, further to which the Member States will have a two-year timeframe for implementation. Upon implementation, all Member States will have a fining system according to which the NCA or a civil court can impose a fine, and also a leniency programme modelled after the “soft-law” ECN Model Leniency Programme, whereby firms can obtain reductions in fines up to full immunity in exchange for “blowing the whistle” on a cartel. The harmonisation of leniency programmes includes immunity for employees of the leniency applicant. The ECN+ Directive will also facilitate the securing of companies’ leniency markers when they consider whether to apply for leniency in multiple jurisdictions, as cases may be re-allocated to other jurisdictions after the leniency application has been made. Comment: The Commission’s contribution on regional competition agreements contains few novelties and surprises. The Commission has previously published its findings and experiences with the ECN in various papers. It has also widely promoted and thoroughly clarified its Proposal for the ECN+ Directive. It can be expected that some time will pass for the additional support directed at less active National Competition Systems, as provided in the Proposal, to bear fruit, even beyond the two-year implementation period established under the Directive. Ever since the decentralisation of competition policy enforcement brought about by Regulation 1/2003, questions have been raised about whether all Member State NCAs had sufficient resources and independence to ensure that they could exercise effective decision-making. Whilst it is hoped that the measures foreseen will effectively assist NCAs in this regard, the Commission’s goal of supporting the independence of NCAs – while no doubt well-intentioned – might flounder in light of: (1) the susceptibility of certain NCAs to political interference in certain Member States, especially smaller ones, when  prosecutions are lodged against large local vested interests; (2) the rise in consumer protection-style offences and “public interest” reviews introduced at Member State level, which are more vulnerable to political enforcement priorities; and (3) the limited financial resources available to certain NCAs to hire the right calibre of in-house attorneys and economists required in complex investigations against large incumbent operators or multinationals. In contrast, the move towards a more harmonised system of leniency programmes across different Member States will likely have a more short-term effect, and its benefits to companies will become evident more quickly. It constitutes a welcome simplification in the coordination of leniency applications where numerous EU jurisdictions are affected by the same commercial activity. 3.   Investigative powers in practice – unannounced inspections in the digital age and respect for “due process” in relation to evidence The Commission has explained its practice in relation to on-site inspections, commonly known as “dawn raids”, at a time when the bulk of a firm’s data is stored digitally. The Commission has addressed several topics, including the challenges it faces with digitally-stored data (e.g., access to data stored off-site) and its challenges in the gathering of physical documents. For example: With respect to digitally-stored data, the Commission sometimes faces problems in accessing documents that are archived or saved in back-ups; this is because the necessary hardware is no longer available. By contrast, identifying the location of servers or accessing third-party servers are issues that have not yet emerged as problematic. Accordingly, no legal challenges have been brought to date in relation to the so-called “access principle”. According to this principle, the Commission inspectors have the right to access all information that is accessible to the entity which is subject to the inspection.[7] In general, the Commission takes copies of all pieces of information that are material to the investigation. The scope of the investigation is set out in the Decision authorising the inspection, which is presented to the investigated party upon arrival at its premises. Documents to which LPP is attached cannot be taken from the premises when it is not possible to assess on-site whether these documents enjoy such privileged status. The Commission will apply its “sealed envelope procedure” in these cases.[8] The documents will then be examined at the Commission’s premises in the presence of a company representative and, possibly, be added to the file (i.e., under the process of “continued inspection”). In carrying out inspections, the Commission relies on its own internal forensic IT team. It also uses forensic software, which is used to restore deleted data. The Commission reviews digital data on a central review interaction platform, which facilitates search queries made with respect to the data set. For the conduct of the search, the Commission relies primarily on keywords. Those keywords are not shared with the firms being investigated. The Commission also examines data irrespective of the storage medium in which it is stored. This includes personal electronic devices such as phones (but only insofar as they contain data “related to the business”). As regards firms’ procedural rights, they may bring an action for annulment against the Decision which authorises the inspection. However, this action does not have a suspensory effect. Alleged infringements of procedural rights that allegedly occur during the inspection, on the other hand, can only be challenged alongside the final Decision which authorises the inspection. Where the investigation is closed without a Decision having been adopted, the investigated company can bring an extra-contractual liability claim against the Commission. Another essential procedural right relates to access to the file. After the Commission sends out a Statement of Objections, the addressee is entitled to obtain full access to the Commission’s file against it. The right to access to the file does not extend to internal documents of the Commission (this constitutes an absolute exception to the rule), nor does it necessarily relate to business secrets of other undertakings (where a balancing exercise has to be conducted against the business secret owner’s interests). Comment: With this paper, the Commission provides some useful background on the procedures it follows during on-site inspections (commonly referred to as “dawn raids”). Although this investigative tool has been in place for a while, the seizure of digital documents – which make up the largest part of business communications today – presents new challenges. This phenomenon makes it increasingly necessary to have a number of IT experts on-site. The Commission may often risk being accused of conducting so-called “fishing expeditions” in those cases where the search terms it uses are not sufficiently precise. On the other hand, as regards legal advisers who are present during the inspection, the Commission’s access to a myriad of digital documents stored in the Cloud also presents its challenges, as finding the balance between protecting a client’s rights and not obstructing the Commission’s information-gathering exercise is often difficult. 4.   Investigative powers embodied in Requests for Information There is a general trend in European competition law enforcement that requires companies to provide increasing volumes of data for the purposes of the Commission’s analysis. In its paper on its investigative powers, the Commission summarises its own best practices regarding Requests for Information (‘RFI’) as well as the relevant case-law of the European courts having an impact on this issue. These investigative powers relate both to the EU Merger Regulation and the general Procedural Regulation 1/2003, which covers behavioural issues such as cartel investigations and allegations of abusive behaviour. When investigating an alleged infringement of Article 101 and 102 TFEU, the Commission can carry out inspections, conduct interviews, and issue RFIs. In the context of merger control, the Commission can also request information through RFIs. This is an essential fact-finding tool, providing the Commission with the possibility to gather information quickly. RFIs can be addressed to the parties, as well as to third parties such as customers, competitors or trade associations. RFIs cannot be sent to persons to answer in their individual capacities. RFIs can be issued in the form of a simple request, which means that there is no legal obligation to respond.[9] However, if a company chooses to reply, it must provide correct and complete information (providing wrong or incomplete information may result in fines). Alternatively, the Commission can adopt a Decision which embodies the RFI, thereby rendering the RFI legally binding upon the addressee. In this situation, the addressee must reply. In each case, however, protection is offered to individuals against self-incrimination (but this right against self-incrimination does not extend to documents in the possession of the addressee).[10] The Commission can also impose periodic penalty payments in order to secure compliance with the request.[11] Both kinds of requests must set forth the legal basis for, and the purpose of, the request. In general, all information gathered can only be used for the purpose for which it was sought. In the case of non-compliance with an RFI (where implemented by a Decision) within the prescribed timeframe or, in the case of the provision of false or misleading information (by simple RFI as well as by Decision), the Commission may impose a fine not exceeding 1% of the total turnover of the addressee’s corporate group generated in the preceding business year.[12] Where false or misleading information has been provided as part of a Phase I clearance, the Commission can revoke that Decision. Where there has been a failure to provide requested information, it can result in a “stop the clock” situation for the proceedings until the company complies fully with the request. Comment: This paper is arguably the least contentious of the Commission’s positions, given that most of the subject-matter is well understood by firms and their legal advisors. However, the Commission’s submission, while presenting a welcome refresher on aspects of its RFI practice, does very title to explain how the Commission intends to use RFIs in the future. Over time, RFIs have developed from relatively simple requests to answer specific questions to instruments that are used to extract vast amounts of data, including entire sets of internal business communications in both cartel and merger proceedings. II.   Substantive issues When addressing key emerging issues in the substantive review, the Commission addressed four (4) key issues, namely: excessive pricing in pharmaceutical markets; personalised pricing in the digital era; the suspensory effects of merger notifications and “gun-jumping” practices; and quality considerations in the zero-price economy. 1.   Excessive pricing in pharmaceutical markets The actionability of excessive pricing allegations continues to be a controversial topic in European competition law. In its paper on the topic to the OECD, the Commission explains its powers of intervention in cases where dominant firms charge excessive prices to their customers, and considers the EU case-law on the subject and precedents developed by NCAs. In doing so, the Commission presents its views on the economic challenges presented by pharmaceutical markets. It justifies its recent investigative activity in the sector, setting out the types of economic indicators which will generally prompt the Commission to act. The key themes which emerge are as follows: Article 102(a) TFEU prohibits dominant firms from abusing their market power by “imposing unfair purchase or selling prices or other unfair trading conditions”. The Commission reiterates that because excessive prices directly harm consumers, they are a phenomenon that should be addressed by Competition Authorities. The Commission notes, however, that the charging of high prices is something that generally can be left to market forces to address, as they are often a signal for other companies to enter the market. Under EU case-law, prices are excessive when they have “no reasonable relation to the economic value of the product”. This test is fulfilled if the profit margin (difference between cost and price) is excessive. If the latter is the case, the price must also be “unfair in itself or when compared to competing products”. More recently, the Court of Justice accepted that a comparison could be made with prices of similar products or services in other Member States, insofar as the criteria for the selection are objective in character, appropriate and verifiable. If the comparison between the price of the dominant firm and the price of the compared product reflect an appreciable difference, this normally indicates an abuse of a dominant position. The dominant firm can defend itself by demonstrating that the price is not in fact unfair but actually reflects a level of innovation or supports the investment necessary to develop the product. Recent price spikes in off-patent pharmaceuticals have meant that the issue of excessive pricing has been put back on the enforcement agenda of Competition Authorities. Some of these markets’ features render them particularly susceptible to excessive pricing. One of these features is the low elasticity of demand following price rises, which means that price rises have very little effect on the amount of goods being purchased. Accordingly, firms can raise prices and do not have to fear that their products will no longer be bought. This is because neither patients taking the medication in question nor doctors prescribing it have to bear the cost of the medication. Another feature is the bargaining position of health care institutions, which is reduced because of the relatively limited choice of products and public pressure to have these products made available. The Commission also looks at the affected phases of the relevant pharmaceutical products’ lifecycle. There are, generally, three phases: the first phase requires significant R&D, which can take up to ten years and which involves considerable costs and risk; the second phase involves all regulatory approvals being obtained for the product to be sold (this is also the point at which the medication usually enjoys patent protection from generic drugs); and once the IP rights expire, the product enters into the third and final phase, the off-patent phase. It is in the off-patent phase where normally one would expect to witness generics producers entering the market. Indeed, price falls of up to 90% can be realized in this period. However, in some cases, there is no market entry from generics, and prices remain high or even rise above the previous level. It is in these latter instances where the Commission and other Competition Authorities should be prepared to investigate high prices. Between 2016 and 2018, NCAs in the UK[13], Italy[14] and Denmark[15] have held that pharmaceutical companies had charged excessive prices in particular circumstances. All of these Decisions are the subject of appeals. In 2017, the Commission opened its own investigation into the allegedly excessive pricing of live-saving cancer medicines by Aspen Pharma.[16] Comment: When the Commission comments on contentions topics such as excessive pricing, one must listen carefully – especially since the Commission opened its own case against Aspen Pharma in 2017. Yet, in its contribution to the OECD, the Commission is justifiably cautious in expressing its policy priorities. As regards the indicators which justify Competition Authorities becoming more active, the Commission sides with AG Wahl’s Opinion in the recent AKKA / LAA Case[17], where he states that only very specific market conditions justify an infringement action. In terms of the legal test to determine whether a certain pricing policy is excessive, the Commission largely reiterates its previous case-law on the matter and provides very little insight into how it envisages to interpret the legal tests proposed by the Court of Justice. It therefore remains to be seen whether, following its recent renaissance, the offence of excessive pricing will continue to stay on the enforcement agenda indefinitely. What will endure, however, is the considerable uncertainty as to whether a particular price is “excessive” within the meaning of Article 102 TFEU. Another issue which the Commission identifies is whether the current enforcement activity will continue to focus exclusively on the pharmaceutical sector, given that sector’s particular characteristics. In light of the Commission’s focus in its paper on the particular features of the markets for life-saving pharmaceuticals, it should come as no surprise that this may well be the case in practice.  It would also be unfortunate, for example, if certain over-zealous NCAs were to apply the rationale for intervention against excessive pricing in relation to luxury products, where the relationship between production cost and retail price is largely irrelevant (or even attractive) in the eyes of the consumer. 2.   Personalised pricing in the digital era The Commission has conducted a preliminary analysis of the growth in online personal pricing, which relates to the charging of individual prices based on particular customers’ willingness or ability to pay. Against the backdrop of large technology companies collecting large volumes of personal data, the paper explains the economics of personal pricing and concludes that the phenomenon is currently minimal. In its submission, the Commission also discusses which laws might apply to personal pricing, concluding as follows: In the offline world, personal pricing is a common phenomenon. In the online world, the availability of personal data now also allows the seller to draw conclusions as to a customer’s willingness to pay, and hence to price their goods and services accordingly. Personal pricing differs from dynamic pricing (which is based on the effects of supply and demand) and personalised ranking (which refers to personalised offers). Price discrimination already takes place with respect to large groups of customers (e.g., different pricing strategies in different Member States of the EU). The novelty with digital markets is that the use of personal data allows online sellers to sort customers into much smaller groups, thereby facilitating the more effective exploitation of each group’s willingness to pay. The Commission notes that three conditions must be fulfilled in order for this to be able to occur: (1) the ability to sort consumers into groups; (2) the market power of the seller (otherwise customers will turn to competitors who offer the goods at a cheaper price); and (3) customers must not be involved in the resale of products on a significant scale. While perfect personal pricing can be seen to be efficient (similar to a “perfect competition model”), it does not increase individual consumer welfare; as some customers will be paying more than they otherwise would need to pay. Consumers may then be able to spend less on other products. Also, where output is limited, sellers will typically seek to maximise their income, namely, by not selling at low prices. Finally, it is even possible that low-income customers will actually be charged more because they are higher-risk consumers. Personal pricing is, however, said to render any tendency toward (tacit) collusion (e.g., through reliance on algorithms) less likely because it generates many different prices and therefore dilutes market transparency. In its assessment of a number of studies, the Commission concluded that personal pricing is still very limited (according to one study, it was found to be prevalent in only 6% of situations). However, it is said to be more likely to prevail with regard to services such as airline and booking websites than with the sale of products such as TVs and shoes. From a competition law perspective, Article 102 TFEU could apply to provide the rationale for the abuse of market power in two ways: (1) personal pricing could constitute “discrimination”; or (2) could lead to “excessive prices”. However, it is open to question whether these theories of harm could easily be applied in the absence of particular supporting circumstances. Other areas of law possibly relevant to personal pricing include EU consumer protection law and EU data protection law. Comment: Given the prevalence of personal data, it may come as a surprise that personal pricing is a commercial practice that is not used more widely, especially given that one would expect online sellers to exploit customers’ interest in their products and services more noticeably. It is obvious, for instance, that data of the customer reviewing a product or service repeatedly online can lead to anticipated incremental price increases. However, arguably such strategy works only with products where prices fluctuate (e.g., airplane tickets, transportation apps such as Uber), as there is no fixed price that consumers can use as a benchmark for value. From a competition law point of view, personalised pricing may not constitute an area of great concern. For example, the charging of personalised prices renders collusive behaviour difficult to sustain – which is clearly pro-competitive. Similarly, establishing an abuse of market power may prove to be a difficult task. Price discrimination, namely, the sale of the same product to different buyers at different prices, only infringes competition law where that discrimination has an anti-competitive effect on competition and where the price difference is not objectively justified (e.g., by differences in costs or different patterns of demand). It needs to be considered, therefore, how far the justification of different demand patterns cannot also apply to personalised pricing. If in the medium term one reaches the conclusion that personal pricing is problematic, consideration could be given to drawing a distinction according to which the practice is permissible for non-dominant undertakings and (potentially) problematic for dominant firms. Perhaps the answer to the dilemma expressed in the relation to Article 102 TFEU lies in whether or not a dominant firm has introduced appropriate “transparency” measures in order to ensure that consumers are not misled or trapped into making irrational economic decisions because of circumstances beyond their control. Such price warnings are commonplace in sector-specific regulatory requirements. It would therefore not be stretching unduly a number  of provisions under national competition rules which already contain significant consumer protection mechanisms as the basis for intervention for personalized pricing where there is a lack of transparency of the essential terms of trade; this would seem to be a logical extension of the concept of ‘unfair’ in Article 102 TFEU. 3.   The suspensory effects of merger notifications and gun-jumping practices The recent fine of EUR 124.5 million which the Commission imposed on the merging parties in the Altice/PT Portugal merger for violating the EU merger “standstill” obligation is the latest chapter in the development of a competition law standard with which to review so-called “gun-jumping actions” (i.e., commercial actions which circumvent the suspensory effect of a pending merger clearance decision by proceeding to enact the modified merger transaction in practice).[18] In its gun-jumping paper, the Commission provides a concise overview of relevant case-law, emphasising that: To secure the effectiveness of the EU Merger Control regime and to facilitate the enforcement of a possible prohibition Decision, the EUMR  confers upon the Commission the power to impose on companies fines of up to 10% of their annual turnover when they fail to notify a transaction or to implement the transaction before the Commission has declared it to be compatible with the common market. Where an already implemented transaction is later prohibited, the Commission can order the parties to unwind the merger. In order to investigate whether there has been a violation of the requirement to notify the transaction and not to close before clearance, the Commission can issue Requests for Information and can carry out on-site inspections. The Commission sanctioned a breach of the “standstill” obligation and issued a fine of EUR 20 million in Electrabel’s acquisition of Compagnie Nationale du Rhone[19], finding that Electrabel had acquired decisive influence over the target before notification had occurred. The Commission’s Decision was upheld by both the General Court and the Court of Justice. In Marine Harvest/Morpol[20], the Commission held that, despite a minority shareholding of 48.5%, de facto control had been acquired before notification due to the acquirer’s past attendance rate at shareholders meetings. Only after Marine Harvest had made a public bid for the remaining shares did it notify the transaction, which ultimately received conditional approval. A fine of EUR 20 million was imposed, which was upheld by the General Court[21], while a further appeal to the Court of Justice is pending. In the acquisition of PT Portugal by Altice, gun-jumping resulted in a significantly higher fine of EUR 124.5 million being imposed. The contracts foresaw far-reaching veto rights for the acquirer that were in excess of those necessary to protect the value of the target business. Altice also exercised these rights, and the parties exchanged commercially sensitive information without appropriate safeguards in place (such as the establishment of a clean team). An appeal is pending before the EU Courts against the Commission’s Decision. Comment: The EC’s submission illustrates how recent practice has given weight to the “standstill” obligation in recent years. Record fines such as the one imposed on Altice have brought the obligation not to implement a merger before clearance is obtained on most firms’ radar. In addition, the case precedents bring greater legal certainty to an area that is still in its relative infancy. For example, this year’s ruling of the Court of Justice in the Ernst & Young Case made it clear that the suspension obligation is limited to actions that directly cause a change of control over the target company, whereas the Commission had consistently argued in its administrative practice in favour of a much wider understanding of the prohibition on gun-jumping.[22] The Ruling in Ernst & Young, while welcomed by practitioners, signals a sharp shift in emphasis when compared to existing Commission practice and recent national precedents. Seen in this light, it is to be hoped that the Ernst & Young Judgment is applied fully by the Commission in its administrative precedents which will follow. The Commission’s failure to accord due weight to that Judgment, while at the same time reverting to an emphasis on its prior practice, would leave some practitioners uncomfortable.[23] 4.   Quality considerations in the zero-price economy EU competition rules apply both to services for which a price is charged and to those services provided free of charge, especially those over the Internet. However, as most of the analytical frameworks traditionally used in competition analysis rely on price or output as primary competition parameters, the fact that today an increasing number of services are offered free of charge requires Competition Authorities to take due account of non-price parameters such as quality, choice, innovation and even privacy. Traditional tests therefore have to be adapted in order to reflect the realities of the “zero-price” economy. In its paper, the Commission presents its views on how the “zero-price” economy affects issues such as market definition, competitive assessment and the appraisal of defences based on efficiencies. The Commission’s key positions are as follows: A fundamental analytical element of any competitive analysis is the process of market definition, by which markets are primarily defined by the price elasticity of demand. Under this traditional analysis, one asks whether customers would switch from product A to product B in the case of a non-transitory price increase of 5-10% (small but significant non-transitory increase in price, “SSNIP”). However, given that price is not a suitable parameter for comparison in a “zero-price” economy, the Commission proposes to use a modified version of this test, which asks whether customers would switch from service A to service B in case there was a “small but significant non-transitory decrease in quality” (“SSNDQ”). This standard has already been applied in the Commission’s recent Google Android Case.[24] For the next stage of the analysis – the calculation of market shares – the Commission proposes to resort to the shares of transaction volumes or to shares measured by number of users (taking into account the existence of multi-homing and the number of dormant users). For its substantive assessment, the Commission suggests focusing on harm to quality. In the online advertising-supported sector, harm to quality does not only mean a loss of quality in the service itself but also relates to the additional costs that the consumer must bear in order to use the service; it could be the case, for example, that content becomes more difficult to access due to screen space being captured by advertising (which means that the consumer has to scroll more, to close the advertising, or to wait until reviewing the content). It may also become more difficult to distinguish between advertisements and actual “content”, as is the case with “native” advertising or the content affected by “influencers” (i.e., influential users of social media that are paid to advertise certain products to their follower base). Furthermore, some consumers may value the degree and means by which data is collected as a parameter of quality. It is therefore worth considering not only how much data firms collect but how this data is protected. Online advertising also creates costs for consumers due to increased data traffic and battery usage. It is worth remembering, however, that harm to quality can be offset or outweighed under a successful efficiency defence. The Commission has previously undertaken quality assessments in the context of “zero-price” services.[25] In all instances, it has been the reduction of consumer choice that has led the Commission to conclude that the conduct in question had an exclusionary effect, resulting in each case in less innovation and less competition in relation to quality. In the field of merger control, the Commission has already considered “zero-price” environments, most notably in Microsoft’s acquisitions of Yahoo Search Business, Skype, Nokia and LinkedIn, as well as in Facebook’s acquisition of WhatsApp.[26] In those cases, the Commission analysed possible negative effects on innovation, data protection and privacy which might stem from the notified transaction. In terms of efficiencies, the Commission found that the merging parties sometimes struggle to quantify non-price efficiencies, often relying on the achievement of economies of scale to justify their acquisitions.[27] Comment: After a number of “field tests”, such as the application of the “SSNDQ test” in cases involving tech companies, the Commission now provides a helpful if embryonic overview of its approach to the application of some of the necessary analytical steps. This is helpful for firms to better understand the Commission’s analysis and focal points of interest when investigating mergers or when conducting infringement proceedings. It remains to be seen, however, whether most of the suggestions which the Commission makes to its analytical framework will be considered appropriate by the European Courts. III.   Conclusion The Commission papers presented at the OECD’s Competition Forum are useful contributions to a number of legal topics, providing insights into the Commission’s current thinking and valuable guidance to the competition community. As regards the papers on procedural issues, three of them relate to the process of information-gathering. Due to the ever-growing amount of digital communications and collection of personal data, the need for this focus appears clear. The two papers on the Commission’s investigate powers show Competition Authorities’ growing need to have access to and be able to evaluate large amounts of data in order to fulfil their mandates. Both investigative tools, in the form of dawn raids and RFIs, have to be applied and adapted in light of the challenges posed by current technological developments. In turn, shaping the contours of LPP continues to be an extremely important issue. The answer to the question of which types of communication benefit from LPP needs to be kept under review, as the increasing amount of digitally stored communications means that there are more and more documents that may contain privileged content. The paper on EU-wide regional cooperation reminds us that infringements under EU competition rules are seldom limited to a single jurisdiction and that, therefore, a system needs to be in place that guarantees both that Competition Authorities can address anti-competitive conduct effectively and that firms are incentivized to self-report such behaviour. Two of the four substantive papers adopt a similar focus. Both the submission on personalized pricing and quality considerations in a “zero-price” economy consider topics that are driven by the collection of data on consumer behaviour, provided in return for free-of-charge online services. It is noteworthy in this regard that personalized pricing may be an issue that can be addressed more from a consumer policy and fairness perspective, rather than on the basis of competition law alone. While personalized pricing has not raised significant issues thus far, by contrast “zero-price” services already raise critical questions about fundamental competition issues such as market definition. Given the Commission’s first experience in cases concerning high-tech companies, the Commission has taken up this latter challenge to develop its thinking in a way that preserves its effectiveness in the Internet world. The contribution on price hikes in pharmaceutical markets reminds us that the issue of excessive prices will remain on the agenda, irrespective of the intrinsic difficulties in determining which prices are “unfair” or “excessive”. The paper on gun-jumping goes hand in hand with heightened interest in enforcement activities that can have huge financial repercussions on companies.    [1]   The OECD’s yearly Global Competition Forum is one of the largest conferences for and by competition officials. Over 100 Competition Authorities, international organisations and invited experts worldwide participate in the Forum each year. Participation is by invitation only and restricted to officials from Competition Authorities, government agencies and international/regional organisations.    [2]   Case 155/79 – AM & S v Commission.    [3]   The umbrella term used in EU legal parlance for any form of recognised entity with legal personality is “undertaking” (which can even be an individual).    [4]   DG Competition’s Hearing Officer, whose post was introduced to enhance impartiality and objectivity in competition proceedings, is responsible for organizing and conducting oral hearings and acting as an independent arbiter when a dispute about the effective exercise of procedural rights between parties and DG Competition arises. The Hearing Officer intervenes only when a dispute cannot be resolved by the parties and DG Competition. The Hearing Officer also decides on applications to be heard by third parties in the proceedings.    [5]   Case COMP/E-1/39.612 – Perindopril (Servier).    [6]   For the ECN+ Directive Proposal, refer to http://ec.europa.eu/competition/antitrust/nca.html.    [7]   The principle is enshrined in Article 6 of the new ECN+ Directive Proposal. The provision is intended to empower Member States’ Competition Authorities to be more effective enforcers. The Proposal aims to ensure that, when applying EU antitrust rules, all National Competition Authorities have the appropriate enforcement tools available. To that end, the Proposal provides for minimum guarantees and standards. Refer to http://ec.europa.eu/competition/antitrust/nca.html.    [8]   This consists of seizing relevant documents without inspecting them right away.    [9]   Article 11 of EUMR. [10]   Article 6 of the European Convention on Human Rights gives citizens the right to a fair trial. There is no explicit reference to self-incrimination. However, the European Court of Human Rights has interpreted this to include the right to remain silent and the privilege against self-incrimination. [11]   Article 14 of EUMR. [12]   Ibid. For example, the Commission recently fined an undertaking EUR 110 million for providing false or misleading information in a merger control procedure; see Case M.8228 – Facebook/WhatsApp. [13]   Competition and Markets Authority, Case CE/9742-13 Unfair pricing in respect of the supply of phenytoin sodium capsules in the UK (7 December 2016). [14]   Decision A480 of the Autorità Garante della Concorrenza e del Mercato of 29 September 2016 [15]   Decision of the Konkurrence- og Forbrugerstyrelsen of 31 January 2018. [16]   See press release at http://europa.eu/rapid/press-release_IP-17-1323_en.htm. [17]   Opinion in Case C-177/16. [18]   Case M.7993 – Altice/PT Portugal. [19]   Case M.4994 – Electrabel/Compagnie Nationale du Rhône. [20]   Case M.7184 – Marine Harvest/Morpol. [21]   Case C-10/18 P – Marine Harvest ASA vs the European Commission. [22]   Case C-633/16 – Ernst & Young. [23]   See Caspary, Tobias and Flandrin, Julie, Ernst & Young: First Guidance on Gun-jumping at EU Level, ECLR 9(8), 2018. [24]   Case AT.40099 – Google Android (not yet published). [25]   See abuse cases regarding Microsoft’s Media Player/Internet Explorer (Case COMP/C-3/37.792 – Microsoft) as well as Google Shopping (Case AT.39740 – Google Search [Shopping]) and Google Android. [26]   Cases M.5727 – Microsoft/Yahoo! Search Business; M.6281 – Microsoft/Skype; M.7047 – Microsoft/Nokia; M.8124 – Microsoft/LinkedIn. [27]   See Case M.5727 – Microsoft/Yahoo! Search Business. The following Gibson Dunn lawyers assisted in preparing this client update: Peter Alexiadis, David Wood, Balthasar Strunz and Christoph Raab. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following lawyers in Brussels: Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) Jeremy Robison (+1 202-955-8518, wrobison@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Olivia Adendorff (+1 214-698-3159, oadendorff@gibsondunn.com) Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 22, 2019 |
Law360 Names Gibson Dunn Among Its Competition 2018 Practice Groups of the Year

Law360 named Gibson Dunn one of its six Competition Practice Groups of the Year [PDF] for 2018. The practice group was recognized for scoring important wins for clients in high-stakes antitrust litigation last year. The firm’s Competition practice was profiled on January 22, 2019. Gibson Dunn’s Antitrust and Competition Practice Group serves clients in a broad array of industries globally in every significant area of antitrust and competition law, including private antitrust litigation between large companies and class action treble damages litigation; government review of mergers and acquisitions; and cartel investigations, internationally across borders and jurisdictions.

January 18, 2019 |
Gibson Dunn Ranked in Legal 500 Asia Pacific 2019

Gibson Dunn has been recognized in 12 categories in the 2019 edition of The Legal 500 Asia Pacific. The Singapore office was ranked in the following Foreign Firms categories: Banking and Finance, Corporate and M&A, Energy and Restructuring.  The Hong Kong office was ranked in the Antitrust and Competition, Corporate (including M&A), Private Equity, Projects and Energy, and Regulatory: Anti-Corruption and Compliance categories.  Additionally, the firm was ranked for its work in India, Indonesia and the Philippines.  Brad Roach was named as a Leading Lawyer in the Singapore: Energy – Foreign Firms and Indonesia: Foreign Firms categories; Kelly Austin was named as a Leading Lawyer in the Hong Kong: Regulatory: Anti-Corruption and Compliance category; Michael Nicklin was named as a Leading Lawyer in the Hong Kong: Banking & Finance category; Scott Jalowayski and Brian Schwarzwalder were named as Leading Lawyers in the Hong Kong: Private Equity category; and Troy Doyle was named as a Leading Lawyer in the Singapore: Restructuring & Insolvency – Foreign Firms category; and John Fadely and Albert Cho were named as Leading Lawyers in the Hong Kong: Investment Funds category. Youjung Byon has also been named as a Next Generation Lawyer for Hong Kong: Investment Funds.

January 13, 2019 |
Gibson Dunn Named a 2018 Law Firm of the Year

Gibson, Dunn & Crutcher LLP is pleased to announce its selection by Law360 as a Law Firm of the Year for 2018, featuring the four firms that received the most Practice Group of the Year awards in its profile, “The Firms That Dominated in 2018.” [PDF] Of the four, Gibson Dunn “led the pack with 11 winning practice areas” for “successfully securing wins in bet-the-company matters and closing high-profile, big-ticket deals for clients throughout 2018.” The awards were published on January 13, 2019. Law360 previously noted that Gibson Dunn “dominated the competition this year” for its Practice Groups of the Year, which were selected “with an eye toward landmark matters and general excellence.” Gibson Dunn is proud to have been honored in the following categories: Appellate [PDF]: Gibson Dunn’s Appellate and Constitutional Law Practice Group is one of the leading U.S. appellate practices, with broad experience in complex litigation at all levels of the state and federal court systems and an exceptionally strong and high-profile presence and record of success before the U.S. Supreme Court. Class Action [PDF]: Our Class Actions Practice Group has an unrivaled record of success in the defense of high-stakes class action lawsuits across the United States. We have successfully litigated many of the most significant class actions in recent years, amassing an impressive win record in trial and appellate courts, including before the U. S. Supreme Court, that have changed the class action landscape nationwide. Competition [PDF]: Gibson Dunn’s Antitrust and Competition Practice Group serves clients in a broad array of industries globally in every significant area of antitrust and competition law, including private antitrust litigation between large companies and class action treble damages litigation; government review of mergers and acquisitions; and cartel investigations, internationally across borders and jurisdictions. Cybersecurity & Privacy [PDF]: Our Privacy, Cybersecurity and Consumer Protection Practice Group represents clients across a wide range of industries in matters involving complex and rapidly evolving laws, regulations, and industry best practices relating to privacy, cybersecurity, and consumer protection. Our team includes the largest number of former federal cyber-crimes prosecutors of any law firm. Employment [PDF]: No firm has a more prominent position at the leading edge of labor and employment law than Gibson Dunn. With a Labor and Employment Practice Group that covers a complete range of matters, we are known for our unsurpassed ability to help the world’s preeminent companies tackle their most challenging labor and employment matters. Energy [PDF]: Across the firm’s Energy and Infrastructure, Oil and Gas, and Energy, Regulation and Litigation Practice Groups, our global energy practitioners counsel on a complex range of issues and proceedings in the transactional, regulatory, enforcement, investigatory and litigation arenas, serving clients in all energy industry segments. Environmental [PDF]: Gibson Dunn has represented clients in the environmental and mass tort area for more than 30 years, providing sophisticated counsel on the complete range of litigation matters as well as in connection with transactional concerns such as ongoing regulatory compliance, legislative activities and environmental due diligence. Real Estate [PDF]: The breadth of sophisticated matters handled by our real estate lawyers worldwide includes acquisitions and sales; joint ventures; financing; land use and development; and construction. Gibson Dunn additionally has one of the leading hotel and hospitality practices globally. Securities [PDF]: Our securities practice offers comprehensive client services including in the defense and handling of securities class action litigation, derivative litigation, M&A litigation, internal investigations, and investigations and enforcement actions by the SEC, DOJ and state attorneys general. Sports [PDF]: Gibson Dunn’s global Sports Law Practice represents a wide range of clients in matters relating to professional and amateur sports, including individual teams, sports facilities, athletic associations, athletes, financial institutions, television networks, sponsors and municipalities. Transportation [PDF]: Gibson Dunn’s experience with transportation-related entities is extensive and includes the automotive sector as well as all aspects of the airline and rail industries, freight, shipping, and maritime. We advise in a broad range of areas that include regulatory and compliance, customs and trade regulation, antitrust, litigation, corporate transactions, tax, real estate, environmental and insurance.

January 15, 2019 |
Ninth Circuit Judges Call for En Banc Review of the Federal Trade Commission’s Authority to Obtain Monetary Relief

Click for PDF With increasing regularity, the Federal Trade Commission (“FTC”) is seeking and obtaining large monetary remedies as “equitable monetary relief” pursuant to Section 13(b) of the FTC Act.  Indeed, FTC settlements and judgments exceeding $100 million, and even $1 billion, are becoming commonplace. The Supreme Court, however, has never held that Section 13(b) of the FTC Act empowers the FTC to obtain monetary relief.  Although multiple federal circuit courts have held that Section 13(b) provides the agency with this power, several weeks ago two Ninth Circuit judges issued a concurrence in FTC v. AMG Capital Management, LLC et al. calling for the full Ninth Circuit to reconsider this issue en banc in light of the Supreme Court’s 2017 decision in Kokesh v. SEC. Gibson Dunn partners Sean Royall, Blaine Evanson, and Rich Cunningham, and associate Brandon J. Stoker recently published an article discussing the AMG Capital Management concurrence in the Washington Legal Foundation’s The Legal Pulse blog.  The article describes the concurrence and how it fits into the broader legal landscape around this issue, which is clearly poised for further attention from the federal appellate courts, including the Supreme Court. Ninth Circuit Judges Call for En Banc Review of the Federal Trade Commission’s Authority to Obtain Monetary Relief (click on link) © 2019, Washington Legal Foundation, The Legal Pulse, January 15, 2019. Reprinted with permission. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the authors of this Client Alert, the Gibson Dunn lawyer with whom you usually work, or one of the leaders and members of the firm’s Antitrust and Competition or Privacy, Cybersecurity and Consumer Protection practice groups: Washington, D.C. Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Howard S. Hogan (+1 202-887-3640, hhogan@gibsondunn.com) Joseph Kattan P.C. (+1 202-955-8239, jkattan@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) Jeremy Robison (+1 202-955-8518, wrobison@gibsondunn.com) New York Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) Eric D. Vandevelde (+1 213-229-7186, evandevelde@gibsondunn.com) Orange County Blaine H. Evanson (+1 949-451-3805, bevanson@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Dallas M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Olivia Adendorff (+1 214-698-3159, oadendorff@gibsondunn.com) Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 11, 2019 |
2018 Year-End German Law Update

Click for PDF Looking back at the past year’s cacophony of voices in a world trying to negotiate a new balance of powers, it appeared that Germany was disturbingly silent, on both the global and European stage. Instead of helping shape the new global agenda that is in the making, German politics focused on sorting out the vacuum created by a Federal election result which left no clear winner other than a newly formed right wing nationalist populist party mostly comprised of so called Wutbürger (the new prong for “citizens in anger”) that managed to attract 12.6 % of the vote to become the third strongest party in the German Federal Parliament. The relaunching of the Grand-Coalition in March after months of agonizing coalition talks was followed by a bumpy start leading into another session of federal state elections in Bavaria and Hesse that created more distraction. When normal business was finally resumed in November, a year had passed by with few meaningful initiatives formed or significant business accomplished. In short, while the world was spinning, Germany allowed itself a year’s time-out from international affairs. The result is reflected in this year’s update, where the most meaningful legal developments were either triggered by European initiatives, such as the General Data Protection Regulation (“GDPR”) (see below section 4.1) or the New Transparency Rules for Listed German Companies (see below section 1.2), or as a result of landmark rulings of German or international higher and supreme courts (see below Corporate M&A sections 1.1 and 1.4; Tax – sections 2.1 and 2.2 and Labor and Employment – section 4.2). In fairness, shortly before the winter break at least a few other legal statutes have been rushed through parliament that are also covered by this update. Of the changes that are likely to have the most profound impact on the corporate world, as well as on the individual lives of the currently more than 500 million inhabitants of the EU-28, the GDPR, in our view, walks away with the first prize. The GDPR has created a unified legal system with bold concepts and strong mechanisms to protect individual rights to one’s personal data, combined with hefty fines in case of the violation of its rules. As such, the GDPR stands out as a glowing example for the EU’s aspiration to protect the civic rights of its citizens, but also has the potential to create a major exposure for EU-based companies processing and handling data globally, as well as for non EU-based companies doing business in Europe. On a more strategic scale, the GDPR also creates a challenge for Europe in the global race for supremacy in a AI-driven world fueled by unrestricted access to data – the gold of the digital age. The German government could not resist infection with the virus called protectionism, this time around coming in the form of greater scrutiny imposed on foreign direct investments into German companies being considered as “strategic” or “sensitive” (see below section 1.3 – Germany Tightens Rules on Foreign Takeovers Even Further). Protecting sensitive industries from “unwanted” foreign investors, at first glance, sounds like a laudable cause. However, for a country like Germany that derives most of its wealth and success from exporting its ideas, products and services, a more liberal approach to foreign investments would seem to be more appropriate, and it remains to be seen how the new rules will be enforced in practice going forward. The remarkable success of the German economy over the last twenty five years had its foundation in the abandoning of protectionism, the creation of an almost global market place for German products, and an increasing global adoption of the rule of law. All these building blocks of the recent German economic success have been under severe attack in the last year. This is definitely not the time for Germany to let another year go by idly. We use this opportunity to thank you for your trust and confidence in our ability to support you in your most complicated and important business decisions and to help you form your views and strategies to deal with sophisticated German legal issues. Without our daily interaction with your real-world questions and tasks, our expertise would be missing the focus and color to draw an accurate picture of the multifaceted world we are living in. In this respect, we thank you for making us better lawyers – every day. ________________________ TABLE OF CONTENTS 1.      Corporate, M&A 2.      Tax 3.      Financing and Restructuring 4.      Labor and Employment 5.      Real Estate 6.      Compliance 7.      Antitrust and Merger Control 8.      Litigation 9.      IP & Technology 10.    International Trade, Sanctions and Export Controls ________________________ 1.       Corporate, M&A 1.1       Further Development regarding D&O Liability of the Supervisory Board in a German Stock Corporation In its famous “ARAG/Garmenbeck”-decision in 1997, the German Federal Supreme Court (Bundesgerichtshof – BGH) first established the obligation of the supervisory board of a German Stock Corporation (Aktiengesellschaft) to pursue the company’s D&O liability claims in the name of the company against its own management board after having examined the existence and enforceability of such claims. Given the very limited discretion the court has granted to the supervisory board not to bring such a claim and the supervisory board’s own liability arising from inactivity, the number of claims brought by companies against their (former) management board members has risen significantly since this decision. In its recent decision dated September 18, 2018, the BGH ruled on the related follow-up question about when the statute of limitations should start to run with respect to compensation claims brought by the company against a supervisory board member who has failed to pursue the company’s D&O liability claims against the board of management within the statutory limitation period. The BGH clarified that the statute of limitation applicable to the company’s compensation claims against the inactive supervisory board member (namely ten years in case of a publicly listed company, otherwise five years) should not begin to run until the company’s compensation claims against the management board member have become time-barred themselves. With that decision, the court adopts the view that in cases of inactivity, the period of limitations should not start to run until the last chance for the filing of an underlying claim has passed. In addition, the BGH in its decision confirmed the supervisory board’s obligation to also pursue the company’s claims against the board of management in cases where the management board member’s misconduct is linked to the supervisory board’s own misconduct (e.g. through a violation of supervisory duties). Even in cases where the pursuit of claims against the board of management would force the supervisory board to disclose its own misconduct, such “self-incrimination” does not release the supervisory board from its duty to pursue the claims given the preponderance of the company’s interests in an effective supervisory board, the court reasoned. In practice, the recent decision will result in a significant extension of the D&O liability of supervisory board members. Against that backdrop, supervisory board members are well advised to examine the existence of the company’s compensation claims against the board of management in a timely fashion and to pursue the filing of such claims, if any, as soon as possible. If the board of management’s misconduct is linked to parallel misconduct of the supervisory board itself, the relevant supervisory board member – if not exceptionally released from pursuing such claim and depending on the relevant facts and circumstances – often finds her- or himself in a conflict of interest arising from such self-incrimination in connection with the pursuit of the claims. In such a situation, the supervisory board member might consider resigning from office in order to avoid a conflict of interest arising from such self-incrimination in connection with the pursuit of the claims. Back to Top 1.2       Upcoming New Transparency Rules for Listed German Companies as well as Institutional Investors, Asset Managers and Proxy Advisors In mid-October 2018, the German Federal Ministry of Justice finally presented the long-awaited draft for an act implementing the revised European Shareholders’ Rights Directive (Directive (EU) 2017/828). The Directive aims to encourage long-term shareholder engagement by facilitating the communication between shareholders and companies, in particular across borders, and will need to be implemented into German law by June 10, 2019 at the latest. The new rules primarily target listed German companies and provide some major changes with respect to the “say on pay” provisions, as well as additional approval and disclosure requirements for related party transactions, the transmission of information between a stock corporation and its shareholders and additional transparency and reporting requirements for institutional investors, asset managers and proxy advisors. “Say on pay” on directors’ remuneration: remuneration policy and remuneration report Under the current law, the shareholders determine the remuneration of the supervisory board members at a shareholder meeting, whereas the remuneration of the management board members is decided by the supervisory board. The law only provides for the possibility of an additional shareholder vote on the management board members’ remuneration if such vote is put on the agenda by the management and supervisory boards in their sole discretion. Even then, such vote has no legal effects whatsoever (“voluntary say on pay”). In the future, shareholders of German listed companies will have two options. First, the supervisory board will have to prepare a detailed remuneration policy for the management board, which must be submitted to the shareholders if there are major changes to the remuneration, and in any event at least once every four years (“mandatory say on pay”). That said, the result of the vote on the policy will continue to remain only advisory. However, if the supervisory board adopts a remuneration policy that has been rejected by the shareholders, it will then be required to submit a reviewed (not necessarily revised) remuneration policy to the shareholders at the next shareholders’ meeting. With respect to the remuneration of supervisory board members, the new rules require a shareholders vote at least once every four years. Second, at the annual shareholders’ meeting the shareholders will vote ex post on the remuneration report (which is also reviewed by the statutory auditor) which contains the remuneration granted to the present and former members of the management board and the supervisory board in the past financial year. Again, the shareholders’ vote, however, will only be advisory. Both the remuneration report including the audit report, as well as the remuneration policy will have to be made public on the company’s website for at least ten years. Related party transactions German stock corporation law already provides for various safeguard mechanisms to protect minority shareholders in cases of transactions with major shareholders or other related parties (e.g. the capital maintenance rules and the laws relating to groups of companies). In the future, in the case of listed companies, these mechanisms will be supplemented by a detailed set of approval and transparency requirements for transactions between the company and related parties. Material transactions exceeding certain thresholds will require prior supervisory board approval. A rejection by the supervisory board can be overcome by shareholder vote. Furthermore, a listed company must publicly disclose any such material related party transaction, without undue delay over media providing for a Europe-wide distribution. Identification of shareholders and facilitation of the exercise of shareholders’ rights Listed companies will have the right to request information on the identity of their shareholders, including the name and both a postal and electronic address, from depositary banks, thus allowing for a direct communication line, also with respect to bearer shares (“know-your-shareholder”). Furthermore, depositary banks and other intermediaries will be required to pass on important information from the company to the shareholders and vice versa, e.g. with respect to voting in shareholders’ meetings and the exercise of subscription rights. Where there is more than one intermediary in a chain, the intermediaries are required to pass on the respective information within the chain. In addition, companies will be required to confirm the votes cast at the request of the shareholders thus enabling them to be certain that their votes have been effectively cast, including in particular across borders. Transparency requirements for institutional investors, asset managers and proxy advisors German domestic institutional investors and asset managers with Germany as their home member state (as defined in the applicable sector-specific EU law) will be required (i) to disclose their engagement policy, including how they monitor, influence and communicate with the investee companies, exercise shareholders’ rights and manage actual and potential conflicts of interests, and (ii) to report annually on the implementation of their engagement policy and disclose how they have cast their votes in the general meetings of material investee companies. Institutional investors will further have to disclose (iii) consistency between the key elements of their investment strategy with the profile and duration of their liabilities and how they contribute to the medium to long-term performance of their assets, and, (iv) if asset managers are involved, to disclose the main aspects of their arrangement with the asset manager. The new disclosure and reporting requirements, however, only apply on a “comply or explain” basis. Thus, investors and asset managers may choose not to make the above disclosures, provided they give an explanation as to why this is the case. Proxy advisors will have to publicly disclose on an annual basis (i) whether and how they have applied their code of conduct based again on the “comply or explain” principle, and (ii) information on the essential features, methodologies and models they apply, their main information sources, the qualification of their staff, their voting policies for the different markets they operate in, their interaction with the companies and the stakeholders as well as how they manage conflicts of interests. These rules, however, do not apply to proxy advisors operating from a non-EEA state with no establishment in Germany. The present legislative draft is still under discussion and it is to be expected that there will still be some changes with respect to details before the act becomes effective in mid-2019. Due to transitional provisions, the new rules on “say on pay” will have no effect for the majority of listed companies in this year’s meeting season. Whether the new rules will actually promote a long-term engagement of shareholders and have the desired effect on the directors’ remuneration of listed companies will have to be seen. In any event, both listed companies as well as the other addressees of the new transparency rules should make sure that they are prepared for the new reporting and disclosure requirements. Back to Top 1.3       Germany Tightens Rules on Foreign Takeovers Even Further After the German government had imposed stricter rules on foreign direct investment in 2017 (see 2017 Year-End German Law Update under 1.5), it has now even further tightened its rules with respect to takeovers of German companies by foreign investors. The latest amendment of the rules under the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, “AWV“) enacted in 2018 was triggered, among other things, by the German government’s first-ever veto in August 2018 regarding the proposed acquisition of Leifeld Metal Spinning, a German manufacturer of metal forming machines used in the automotive, aerospace and nuclear industries, by Yantai Taihai Corporation, a privately-owned industry group from China, on the grounds of national security. Ultimately, Yantai withdrew its bid shortly after the German government had signaled that it would block the takeover. On December 29, 2018, the latest amendment of the Foreign Trade and Payments Ordinance came into force. The new rules provide for greater scrutiny of foreign direct investments by lowering the threshold for review of takeovers of German companies by foreign investors from the acquisition of 25% of the voting rights down to 10% in circumstances where the target operates a critical infrastructure or in sensitive security areas (defense and IT security industry). In addition, the amendment also expands the scope of the Foreign Trade and Payments Ordinance to also apply to certain media companies that contribute to shaping the public opinion by way of broadcasting, teleservices or printed materials and stand out due to their special relevance and broad impact. While the lowering of the review threshold as such will lead to an expansion of the existing reporting requirements, the broader scope is also aimed at preventing German mass media from being manipulated with disinformation by foreign investors or governments. There are no specific guidelines published by the German government as it wants the relevant parties to contact, and enter into a dialog with, the authorities about these matters. While the German government used to be rather liberal when it came to foreign investments in the past, the recent veto in the case of Leifeld as well as the new rules show that in certain circumstances, it will become more cumbersome for dealmakers to get a deal done. Finally, it is likely that the rules on foreign investment control will be tightened even further going forward in light of the contemplated EU legislative framework for screening foreign direct investment on a pan-European level. Back to Top 1.4       US Landmark Decision on MAE Clauses – Consequences for German M&A Deals Fresenius wrote legal history in the US with potential consequences also for German M&A deals in which “material adverse effect” (MAE) clauses are used. In December 2018, for the first time ever, the Supreme Court of Delaware allowed a purchaser to invoke the occurrence of an MAE and to terminate the affected merger agreement. The agreement included an MAE clause, which allocated certain business risks concerning the target (Akorn) for the time period between signing and closing to Akorn. Against the resistance of Akorn, Fresenius terminated the merger agreement based on the alleged MAE, arguing that the target’s EBITDA declined by 86%. The decision includes a very detailed analysis of an MAE clause by the Delaware courts and reaffirms that under Delaware law there is a very high bar to establishing an MAE. Such bar is based both on quantitative and qualitative parameters. The effects of any material adverse event need to be substantial as well as lasting. In most German deals, the parties agree to arbitrate. For this reason, there have been no German court rulings published on MAE clauses so far. Hence, all parties to an M&A deal face uncertainty about how German courts or arbitration tribunals would define “materiality” in the context of an MAE clause. In potential M&A litigation, sellers may use this ruling to support the argument that the bar for the exercise of the MAE right is in fact very high in line with the Delaware standard. It remains to be seen whether German judges will adopt the Delaware decision to interpret MAE clauses in German deals. Purchasers, who seek more certainty, may consider defining materiality in the MAE clause more concretely (e.g., by reference to the estimated impact of the event on the EBITDA of the company or any other financial parameter). Back to Top 1.5       Equivalence of Swiss Notarizations? The question whether the notarization of various German corporate matters may only be validly performed by German notaries or whether some or all of these measures may also be notarized validly by Swiss notaries has long since been the topic of legal debate. Since the last major reform of the German Limited Liability Companies Act (Gesetz betreffend Gesellschaften mit beschränkter Haftung – GmbHG) in 2008 the number of Swiss notarizations of German corporate measures has significantly decreased. A number of the newly introduced changes and provisions seemed to cast doubt on the equivalence and capacity of Swiss notaries to validly perform the duties of a German notary public who are not legally bound by the mandatory, non-negotiable German fee regime on notarial fees. As a consequence and a matter of prudence, German companies mostly stopped using Swiss notaries despite the potential for freely negotiated fee arrangements and the resulting significant costs savings in particular in high value matters. However, since 2008 there has been an increasing number of test cases that reach the higher German courts in which the permissibility of a Swiss notarization is the decisive issue. While the German Federal Supreme Court (Bundesgerichtshof – BGH) still has not had the opportunity to decide this question, in 2018 two such cases were decided by the Kammergericht (Higher District Court) in Berlin. In those cases, the court held that both the incorporation of a German limited liability company in the Swiss Canton of Berne (KG Berlin, 22 W 25/16 – January 24, 2018 = ZIP 2018, 323) and the notarization of a merger between two German GmbHs before a notary in the Swiss Canton of Basle (KG Berlin, 22 W 2/18 – July 26, 2018 = ZIP 2018, 1878) were valid notarizations under German law, because Swiss notaries were deemed to be generally equivalent to the qualifications and professional standards of German-based notaries. The reasons given in these decisions are reminiscent of the case law that existed prior to the 2008 corporate law reform and can be interpreted as indicative of a certain tendency by the courts to look favorably on Swiss notarizations as an alternative to German-based notarizations. Having said that and absent a determinative decision by the BGH, using German-based notaries remains the cautious default approach for German companies to take. This is definitely the case in any context where financing banks are involved (e.g. either where share pledges as loan security are concerned or in an acquisition financing context of GmbH share sales and transfers). On the other hand, in regions where such court precedents exist, the use of Swiss notaries for straightforward intercompany share transfers, mergers or conversions might be considered as an alternative on a case by case basis. Back to Top 1.6       Re-Enactment of the DCGK: Focus on Relevance, Function, Management Board’s Remuneration and Independence of Supervisory Board Members Sixteen years after it has first been enacted, the German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK), which contains standards for good and responsible governance for German listed companies, is facing a major makeover. In November 2018, the competent German government commission published a first draft for a radically revised DCGK. While vast parts of the proposed changes are merely editorial and technical in nature, the draft contains a number of new recommendations, in particular with respect to the topics of management remuneration and independence of supervisory board members. With respect to the latter, the draft now provides a catalogue of criteria that shall act as guidance for the supervisory board as to when a shareholder representative shall no longer be regarded as independent. Furthermore, the draft also provides for more detailed specifications aiming for an increased transparency of the supervisory board’s work, including the recommendation to individually disclose the members’ attendance of meetings, and further tightens the recommendations regarding the maximum number of simultaneous mandates for supervisory board members. Moreover, in addition to the previous concept of “comply or explain”, the draft DCGK introduces a new “apply and explain” concept, recommending that listed companies also explain how they apply certain fundamental principles set forth in the DCGK as a new third category in addition to the previous two categories of recommendations and suggestions. The draft DCGK is currently under consultation and the interested public is invited to comment upon the proposed amendments until the end of January 2019. Since some of the proposed amendments provide for a rather fundamentally new approach to the current regime and would introduce additional administrative burdens, it remains to be seen whether all of the proposed amendments will actually come into force. According to the current plan, following a final consultancy of the Government Commission, the revised version of the DCGK shall be submitted for publication in April 2019 and would take effect shortly thereafter. Back to Top 2.         Tax On November 23, 2018, the German Federal Council (Bundesrat) approved the German Tax Reform Act 2018 (Jahressteuergesetz 2018, the “Act”), which had passed the German Federal Parliament (Bundestag) on November 8, 2018. Highlights of the Act are (i) the exemption of restructuring gains from German income tax, (ii) the partial abolition of and a restructuring exemption from the loss forfeiture rules in share transactions and (iii) the extension of the scope of taxation for non-German real estate investors investing in Germany. 2.1       Exemption of Restructuring Gains The Act puts an end to a long period of uncertainty – which has significantly impaired restructuring efforts – with respect to the tax implications resulting from debt waivers in restructuring scenarios (please see in this regard our 2017 Year-End German Law Update under 3.2). Under German tax law, the waiver of worthless creditor claims creates a balance sheet profit for the debtor in the amount of the nominal value of the payable. Such balance sheet profit is taxable and would – without any tax privileges for such profit – often outweigh the restructuring effect of the waiver. The Act now reinstates the tax exemption of debt waivers with retroactive effect for debt waivers after February 8, 2017; upon application debt waivers prior to February 8, 2017 can also be covered. Prior to this legislative change, a tax exemption of restructuring gains was based on a restructuring decree of the Federal Ministry of Finance, which has been applied by the tax authorities since 2003. In 2016, the German Federal Fiscal Court (Bundesfinanzgerichtshof) held that the restructuring decree by the Federal Ministry of Finance violates constitutional law since a tax exemption must be legislated by statute and cannot be based on an administrative decree. Legislation was then on hold pending confirmation from the EU Commission that a legislative tax exemption does not constitute illegal state aid under EU law. The EU Commission finally gave such confirmation by way of a comfort letter in August 2018. The Act is largely based on the conditions imposed by a restructuring decree issued by the Federal Ministry of Finance on the tax exemption of a restructuring gain. Under the Act, gains at the level of the debtor resulting from a full or partial debt relief are exempt from German income tax if the relief is granted to recapitalize and restructure an ailing business. The tax exemption only applies if at the time of the debt waiver (i) the business is in need of restructuring and (ii) capable of being restructured, (iii) the waiver results in a going-concern of the restructured business and (iv) the creditor waives the debt with the intention to restructure the business. The rules apply to German corporate income and trade tax and benefit individuals, partnerships and corporations alike. Any gains from the relief must first be reduced by all existing loss-offsetting potentials before the taxpayer can benefit from tax exemptions on restructuring measures. Back to Top 2.2       Partial Abolition of Loss Forfeiture Rules/Restructuring Exception Under the current Loss Forfeiture Rules, losses of a German corporation will be forfeited on a pro rata basis if within a period of five years more than 25% but not more than 50% of the shares in the German loss-making corporation are transferred (directly or indirectly) to a new shareholder or group of shareholders with aligned interests. If more than 50% are transferred, losses will be forfeited in total. There are exceptions to this rule for certain intragroup restructurings, built-in gains and business continuations, especially in the venture capital industry. On March 29, 2017, the German Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) ruled that the pro rata forfeiture of losses (a share transfer of more than 25% but not more than 50%) is incompatible with the constitution. The court has asked the German legislator to amend the Loss Forfeiture Rules retroactively for the period from January 1, 2008 until December 31, 2015 to bring them in line with the constitution. Somewhat surprisingly, the legislator has now decided to fully cancel the pro rata forfeiture of losses with retroactive effect and with no reference to a specific tax period. Currently pending before the German Federal Constitutional Court is the question whether the full forfeiture of losses is constitutional. A decision by the Federal Constitutional Court is expected for early 2019, which may then result in another legislative amendment of the Loss Forfeiture Rules. The Act has also reinstated a restructuring exception from the forfeiture rules – if the share transfer occurs in order to restructure the business of an ailing corporation. Similar to the exemption of restructuring gains, this legislation was on hold until the ECJ’s decision (European Court of Justice) on June 28, 2018 that the restructuring exception does not violate EU law. Existing losses will not cease to exist following a share transfer if the restructuring measures are appropriate to avoid or eliminate the illiquidity or the over-indebtedness of the corporation and to maintain its basic operational structure. The restructuring exception applies to share transfers after December 31, 2007. Back to Top 2.3       Investments in German Real Estate by Non-German Investors So far, capital gains from the disposal of shares in a non-German corporation holding German real estate were not subject to German tax. In a typical structure, in which German real estate is held via a Luxembourg or Dutch entity, a value appreciation in the asset could be realized by a share deal of the holding company without triggering German income taxes. Under the Act, the sale of shares in a non-German corporation is now taxable if, at some point within a period of one year prior to the sale of shares, 50 percent of the book value of the assets of the company consisted of German real estate and the seller held at least 1 percent of the shares within the last five years prior to the sale. The Act is now in line with many double tax treaties concluded by Germany, which allow Germany to tax capital gains in these cases. The new law applies for share transfers after December 31, 2018. Capital gains are only subject to German tax to the extent the value has been increased after December 31, 2018. Until 2018, a change in the value of assets and liabilities, which are economically connected to German real estate, was not subject to German tax. Therefore, for example, profits from a waiver of debt that was used to finance German real estate was not taxable in Germany whereas the interest paid on the debt was deductible for German tax purposes. That law has now changed and allows Germany to tax such profit from a debt waiver if the loan was used to finance German real estate. However, only the change in value that occurred after December 31, 2018 is taxable. Back to Top 3.         Financing and Restructuring – Test for Liquidity Status Tightened On December 19, 2017, the German Federal Supreme Court (Bundesgerichtshof – BGH) handed down an important ruling which clarifies the debt and payable items that should be taken into account when determining the “liquidity” status of companies. According to the Court, the liquidity test now requires managing directors and (executive) board members to determine whether a liquidity gap exceeding 10% can be overcome by incoming liquidity within a period of three weeks taking into account all payables which will become due in those three weeks. Prior to the ruling, managing directors had often argued successfully that only those payables that were due at the time when the test is applied needed be taken into account while expected incoming payments within a three week term could be considered. This mismatch in favor of the managing directors has now been rectified by the Court to the disadvantage of the managing directors. If, for example, on June 1 the company liquidity status shows due payables amounting to EUR 100 and plausible incoming receivables in the three weeks thereafter amounting to EUR 101, no illiquidity existed under the old test. Under the new test confirmed by the Court, payables of EUR 50 becoming due in the three week period now also have to be taken into account and the company would be considered illiquid. For companies and their managing directors following a cautious approach, the implications of this ruling are minor. Going forward, however, even those willing to take higher risks will need to follow the court determined principles. Otherwise, delayed insolvency filings could ensue. This not only involves a managing directors and executive board members’ personal liability for payments made on behalf of the company while illiquid but also potential criminal liability for a delayed insolvency filing. Managing directors are thus well advised to properly undertake and also document the required test in order to avoid liability issues. Back to Top 4.         Labor and Employment 4.1       GDPR Has Tightened Workplace Privacy Rules The EU General Data Protection Regulation (“GDPR”) started to apply on May 25, 2018. It has introduced a number of stricter rules for EU countries with regard to data protection which also apply to employee personal data and employment relationships. In addition to higher sanctions, the regulation provides for extensive information, notification, deletion, and documentation obligations. While many of these data privacy rules had already been part of the previous German workplace privacy regime under the German Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG), the latter has also been amended and provides for specific rules applicable to employee data protection in Germany (e.g. in the context of internal investigations or with respect to employee co-determination). However, the most salient novelty is the enormous increase in potential sanctions under the GDPR. Fines for GDPR violations can reach up to the higher of EUR 20 million or 4% of the group’s worldwide turnover. Against this backdrop, employers are well-advised to handle employee personnel data particularly careful. This is also particularly noteworthy as the employer is under an obligation to prove compliance with the GDPR – which may result in a reversal of the burden of proof e.g. in employment-related litigation matters involving alleged GDPR violations. Back to Top 4.2       Job Adverts with Third Gender Following a landmark decision by the German Federal Constitutional Court in 2017, employers are gradually inserting a third gender into their job advertisements. The Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) decided on October 10, 2017 that citizens who do not identify as either male or female were to be registered as “diverse” in the birth register (1 BvR 2019/16). As a consequence of this court decision, many employers in Germany have broadened gender notations in job advertisements from previously “m/f” to “m/f/d”. While there is no compelling legal obligation to do so, employers tend to signal their open-mindedness by this step, but also mitigate the potential risk of liability for a discrimination claim. Currently, such liability risk does not appear alarming due to the relative rarity of persons identifying as neither male nor female and the lack of a statutory stipulation for such adverts. However, employers might be well-advised to follow this trend, particularly after Parliament confirmed the existence of a third gender option in birth registers in mid-December. Back to Top 4.3       Can Disclosure Obligation Reduce Gender Pay-Gap? In an attempt to weed out gender pay gaps, the German lawmaker has introduced the so-called Compensation Transparency Act in 2017. It obliges employers, inter alia, to disclose the median compensation of comparable colleagues of the opposite gender with comparable jobs within the company. The purpose is to give a potential claimant (usually a female employee) an impression of how much her comparable male colleagues earn in order for her to consider further steps, e.g. a claim for more money. However, the new law is widely perceived as pointless. First, the law itself and its processes are unduly complex. Second, even after making use of the law, the respective employee would still have to sue the company separately in order to achieve an increase in her compensation, bearing the burden of proof that the opposite-gender employee with higher compensation is comparable to her. Against this background, the law has hardly been used in practice and will likely have only minimal impact. Back to Top 4.4       Employers to Contribute 15% to Deferred Compensation Schemes In order to promote company pension schemes, employers are now obliged to financially support deferred compensation arrangements. So far, employer contributions to any company pension scheme had been voluntary. In the case of deferred compensation schemes, companies save money as a result of less social security charges. The flipside of this saving was a financial detriment to the employee’s statutory pension, as the latter depends on the salary actually paid to the employee (which is reduced as a result of the deferred compensation). To compensate the employee for this gap, the employer is now obliged to contribute up to 15% of the respective deferred compensation. The actual impact of this new rule should be limited, as many employers already actively support deferred compensation schemes. As such, the new obligatory contribution can be set off against existing employer contributions to the same pension scheme. Back to Top 5.         Real Estate – Notarization Requirement for Amendments to Real Estate Purchase Agreements Purchase agreements concerning German real estate require notarization in order to be effective. This notarization requirement relates not only to the purchase agreement as such but to all closely related (side) agreements. The transfer of title to the purchaser additionally requires an agreement in rem between the seller and the purchaser on the transfer (conveyance) and the subsequent registration of the transfer in the land register. To avoid additional notarial fees, parties usually include the conveyance in the notarial real estate purchase agreement. Amendment agreements to real estate purchase agreements are quite common (e.g., the parties subsequently agree on a purchase price adjustment or the purchaser has special requests in a real estate development scenario). Various Higher District Courts (Oberlandesgerichte), together with the prevailing opinion in literature, have held in the past that any amendments to real estate purchase agreements also require notarization unless such an amendment is designed to remove unforeseeable difficulties with the implementation of the agreement without significantly changing the parties’ mutual obligations. Any amendment agreement that does not meet the notarization requirement may render the entire purchase agreement (and not only the amendment agreement) null and void. With its decision on September 14, 2018, the German Federal Supreme Court (Bundesgerichtshof – BGH) added another exception to the notarization requirement and ruled that notarization of an amendment agreement is not required once the conveyance has become binding and the amendment does not change the existing real estate transfer obligations or create new ones. A conveyance becomes binding once it has been validly notarized. Before this new decision of the BGH, amendments to real estate purchase agreements were often notarized for the sake of precaution because it was difficult to determine whether the conditions for an exemption from the notarization requirement had been met. This new decision of the BGH gives the parties clear guidance as to when amendments to real estate purchase agreements require notarization. It should, however, be borne in mind that notarization is still required if the amendment provides for new transfer obligations concerning the real property or the conveyance has not become effective yet (e.g., because third party approval is still outstanding). Back to Top 6.         Compliance 6.1       Government Plans to Introduce Corporate Criminal Liability and Internal Investigations Act Plans of the Federal Government to introduce a new statute concerning corporate criminal liability and internal investigations are taking shape. Although a draft bill had already been announced for the end of 2018, pressure to respond to recent corporate scandals seems to be rising. With regard to the role and protection of work product generated during internal investigations, the highly disputed decisions of the Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) in June 2018 (BVerfG, 2 BvR 1405/17, 2 BvR 1780/17 – June 27, 2018) (see 2017 Year-End German Law Update under 7.3) call for clearer statutory rules concerning the search of law firm premises and the seizure of documents collected in the course of an internal investigation. In its dismissal of complaints brought by Volkswagen and its lawyers from Jones Day, the Federal Constitutional Court made remarkable obiter dicta statements in which it emphasized the following: (1) the legal privilege enjoyed for the communication between the individual defendant (Beschuldigter) and its criminal defense counsel is limited to their communication only; (2) being considered a foreign corporate body, the court denied Jones Day standing in the proceedings, because the German constitution only grants rights to corporate bodies domiciled in Germany; and (3) a search of the offices of a law firm does not affect individual constitutional rights of the lawyers practicing in that office, because the office does not belong to the lawyers’ personal sphere, but only to their law firm. The decision and the additional exposure caused by it by making attorney work product created in the course of an internal investigation accessible was a major blow to German corporations’ efforts to foster internal investigations as a means to efficiently and effectively investigate serious compliance concerns. Because it does not appear likely that an entirely new statute concerning corporate criminal liability will materialize in the near future, the legal press expects the Federal Ministry of Justice to consider an approach in which the statutes dealing with questions around internal investigations and the protection of work product created in the course thereof will be clarified separately. In the meantime, the following measures are recommended to maximize the legal privilege for defense counsel (Verteidigerprivileg): (1) Establish clear instructions to an individual criminal defense lawyer setting forth the scope and purpose of the defense; (2) mark work product and communications that have been created in the course of the defense clearly as confidential correspondence with defense counsel (“Vertrauliche Verteidigerkorrespondenz”); and (3) clearly separate such correspondence from other correspondence with the same client in matters that are not clearly attributable to the criminal defense mandate. While none of these measures will guarantee that state prosecutors and courts will abstain from a search and seizure of such material, at least there are good and valid arguments to defend the legal privilege in any appeals process. However, with the guidance provided to courts by the recent constitutional decision, until new statutory provisions provide for clearer guidance, companies can expect this to become an up-hill battle. Back to Top 6.2       Update on the European Public Prosecutor’s Office and Proposed Cross-Border Electronic Evidence Rules Recently the European Union has started tightening its cooperation in the field of criminal procedure, which was previously viewed as a matter of national law under the sovereignty of the 28 EU member states. Two recent developments stand out that illustrate that remarkable new trend: (1) The introduction of the European Public Prosecutor’s Office (“EPPO”) that was given jurisdiction to conduct EU-wide investigations for certain matters independent of the prosecution of these matters under the national laws of the member states, and (2) the proposed EU-wide framework for cross-border access to electronically stored data (“e-evidence”) which has recently been introduced to the European Parliament. As reported previously (see 2017 Year-End German Law Update under 7.4), the European Prosecutor’s Office’s task is to independently investigate and prosecute severe crimes against the EU’s financial interests such as fraud against the EU budget or crimes related to EU subsidies. Corporations receiving funds from the EU may therefore be the first to be scrutinized by this new EU body. In 2018 two additional EU member states, the Netherlands and Malta, decided to join this initiative, extending the number of participating member states to 22. The EPPO will presumably begin its work by the end of 2020, because the start date may not be earlier than three years after the regulation’s entry into force. As a further measure to leverage multi-jurisdictional enforcement activities, in April 2018 the European Commission proposed a directive and a regulation that will significantly facilitate expedited cross-border access to e-evidence such as texts, emails or messaging apps by enforcement agencies and judicial authorities. The proposed framework would allow national enforcement authorities in accordance with their domestic procedure to request e-evidence directly from a service provider located in the jurisdiction of another EU member state. That other state’s authorities would not have the right to object to or to review the decision to search and seize the e-evidence sought by the national enforcement authority of the requesting EU member state. Companies refusing delivery risk a fine of up to 2% of their worldwide annual turnover. In addition, providers from a third country which operate in the EU are obliged to appoint a legal representative in the EU. The proposal has reached a majority vote in the Council of the EU and will now be negotiated in the European Parliament. Further controversial discussions between the European Parliament and the Commission took place on December 10, 2018. The Council of the EU aims at reaching an agreement between the three institutions by the end of term of the European Parliament in May 2019. Back to Top 7.         Antitrust and Merger Control 7.1       Antitrust and Merger Control Overview 2018 In 2018, Germany celebrated the 60th anniversary of both the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen -GWB) as well as the German federal cartel office (Bundeskartellamt) which were both established in 1958 and have since played a leading role in competition enforcement worldwide. The celebrations notwithstanding, the German antitrust watchdog has had a very active year in substantially all of its areas of competence. On the enforcement side, the Bundeskartellamt concluded a number of important cartel investigations. According to its annual review, the Bundeskartellamt carried out dawn raids at 51 companies and imposed fines totaling EUR 376 million against 22 companies or associations and 20 individuals from various industries including the steel, potato manufacturing, newspapers and rolled asphalt industries. Leniency applications remained an important source for the Bundeskartellamt‘s antitrust enforcement activities with a total of 21 leniency applications received in 2018 filling the pipeline for the next few months and years. On the merger control side, the Bundeskartellamt reviewed approximately 1,300 merger cases in 2018 – only 1% of which (i.e. 13 merger filings) required an in-depth phase 2 review. No mergers were prohibited but in one case only conditional clearance was granted and three filings were withdrawn in phase 2. In addition, the Bundeskartellamt had its first full year of additional responsibilities in the area of consumer protection, concluded a sector inquiry into internet comparison portals, and started a sector inquiry into the online marketing business as well as a joint project with the French competition authority CNIL regarding algorithms in the digital economy and their competitive effects. Back to Top 7.2       Cartel Damages Over the past few years, antitrust damages law has advanced in Germany and the European Union. One major legislative development was the EU Directive on actions for damages for infringements of competition law, which was implemented in Germany as part of the 9th amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen -GWB). In addition, there has also been some noteworthy case law concerning antitrust damages. To begin with, the German Federal Supreme Court (Bundesgerichtshof, BGH) strengthened the position of plaintiffs suing for antitrust damages in its decision Grauzementkartell II in 2018. The decision brought to an end an ongoing dispute between several Higher District Courts and District Courts, which had disagreed over whether a recently added provision of the GWB that suspends the statute of limitations in cases where antitrust authorities initiate investigations would also apply to claims that arose before the amendment entered into force (July 1, 2015). The Federal Supreme Court affirmed the suspension of the statute of limitations, basing its ruling on a well-established principle of German law regarding the intertemporal application of statutes of limitation. The decision concerns numerous antitrust damage suits, including several pending cases concerning trucks, rails tracks, and sugar cartels. Furthermore, recent case law shows that European domestic courts interpret arbitration agreements very broadly and also enforce them in cases involving antitrust damages. In 2017, the England and Wales High Court and the District Court Dortmund (Landgericht Dortmund) were presented with two antitrust disputes where the parties had agreed on an arbitration clause. Both courts denied jurisdiction because the antitrust damage claims were also covered by the arbitration agreements. They argued that the parties could have asserted claims for contractual damages instead, which would have been covered by the arbitration agreement. In the courts’ view, it would be unreasonable, however, if the choice between asserting a contractual or an antitrust claim would give the parties the opportunity to influence the jurisdiction of a court. As a consequence, the use of arbitration clauses (in particular if inconsistently used by suppliers or purchasers) may add significant complexity to antitrust damages litigation going forward. Thus, companies are well advised to examine their international supply agreements to determine whether included arbitration agreements will also apply to disputes about antitrust damages. Back to Top 7.3       Appeals against Fines Risky? In German antitrust proceedings, there is increasing pressure for enterprises to settle. Earlier this year, Radeberger, a producer of lager beer, withdrew its appeal against a significant fine of EUR 338 million, which the Bundeskartellamt had imposed on the company for its alleged participation in the so-called “beer cartel”. With this dramatic step, Radeberger paid heed to a worrisome development in German competition law. Repeatedly, enterprises have seen their cartel fines increased by staggering amounts on appeal (despite such appeals sometimes succeeding on some substantive legal issues). The reason for these “appeals for the worse” – as seen in the liquefied gas cartel (increase of fine from EUR 180 million to EUR 244 million), the sweets cartel (average increase of approx. 50%) and the wallpaper cartel (average increase of approx. 35%) – is the different approach taken by the Bundeskartellamt and the courts to calculating fines. As courts are not bound by the administrative practice of the Bundeskartellamt, many practitioners are calling for the legislator to step in and address the issue. Back to Top 7.4       Luxury Products on Amazon – The Coty Case In July 2018, the Frankfurt Higher District Court (Oberlandesgericht Frankfurt) delivered its judgement in the case Coty / Parfümerie Akzente, ruling that Coty, a luxury perfume producer, did not violate competition rules by imposing an obligation on its selected distributors to not sell on third-party platforms such as Amazon. The judgment followed an earlier decision of the Court of Justice of the European Union (ECJ) of December 2017, by which the ECJ had replied to the Frankfurt court’s referral. The ECJ had held that a vertical distribution agreement (such as the one in place between Coty and its distributor Parfümerie Akzente) did not as such violate Art. 101 of the Treaty on the Functioning of the European Union (TFEU) as long as the so-called Metro criteria were fulfilled. These criteria stipulate that distributors must be chosen on the basis of objective and qualitative criteria that are applied in a non-discriminatory fashion; that the characteristics of the product necessitate the use of a selective distribution network in order to preserve their quality; and, finally, that the criteria laid down do not go beyond what is necessary. Regarding the platform ban in question, the ECJ held that it was not disproportionate. Based on the ECJ’s interpretation of the law, the Frankfurt Higher District Court confirmed that the character of certain products may indeed necessitate a selective distribution system in order to preserve their prestigious reputation, which allowed consumers to distinguish them from similar goods, and that gaps in a selective distribution system (e.g. when products are sold by non-selected distributors) did not per se make the distribution system discriminatory. The Higher District Court also concluded that the platform ban in question was proportional. However, interestingly, it did not do so based on its own reasoning but based on the fact that the ECJ’s detailed analysis did not leave any scope for its own interpretation and, hence, precluded the Higher District Court from applying its own reasoning. Pointing to the European Commission’s E-Commerce Sector Inquiry, according to which sales platforms play a more important role in Germany than in other EU Member States, the Higher District Court, in fact, voiced doubts whether Coty’s sales ban could not have been imposed in a less interfering manner. Back to Top 8.         Litigation 8.1       The New German “Class Action” On November 1, 2018, a long anticipated amendment to the German Code of Civil Procedure (Zivilprozessordnung, ZPO) entered into force, introducing a new procedural remedy for consumers to enforce their rights in German courts: a collective action for declaratory relief. Although sometimes referred to as the new German “class action,” this new German action reveals distinct differences to the U.S.-American remedy. Foremost, the right to bring the collective action is limited to consumer protection organizations or other “qualified institutions” (qualifizierte Einrichtung) who can only represent “consumers” within the meaning of the German Code of Civil Procedure. In addition, affected consumers are not automatically included in the action as part of a class but must actively opt-in by registering their claims in a “claim index” (Klageregister). Furthermore, the collective action for declaratory relief does not grant any monetary relief to the plaintiffs which means that each consumer still has to enforce its claim in an individual suit to receive compensation from the defendant. Despite these differences, the essential and comparable element of the new legal remedy is its binding effect. Any other court which has to decide an individual dispute between the defendant and a registered consumer that is based on the same facts as the collective action is bound by the declaratory decision of the initial court. At the same time, any settlement reached by the parties has a binding effect on all registered consumers who did not decide to specifically opt-out. As a result, companies must be aware of the increased litigation risks arising from the introduction of the new collective action for declaratory relief. Even though its reach is not as extensive as the American class action, consumer protection organizations have already filed two proceedings against companies from the automotive and financial industry since the amendment has entered into force in November 2018, and will most likely continue to make comprehensive use of the new remedy in the future. Back to Top 8.2       The New 2018 DIS Arbitration Rules On March 1, 2018, the new 2018 DIS Arbitration Rules of the German Arbitration Institute (DIS) entered into force. The update aims to make Germany more attractive as a place for arbitration by adjusting the rules to international standards, promoting efficiency and thereby ensuring higher quality for arbitration proceedings. The majority of the updated provisions and rules are designed to accelerate the proceedings and thereby make arbitration more attractive and cost-effective for the parties. There are several new rules on time limitations and measures to enhance procedural efficiency, i.e. the possibility of expedited proceedings or the introduction of case management conferences. Furthermore, the rules now also allow for consolidation of several arbitrations and cover multi-party and multi-contract arbitration. Another major change is the introduction of the DIS Arbitration Council which, similar to the Arbitration Council of the ICC (International Chamber of Commerce), may decide upon challenges of an arbitrator and review arbitral awards for formal defects. This amendment shows that the influence of DIS on their arbitration proceedings has grown significantly. All in all, the modernized 2018 DIS Arbitration Rules resolve the deficiencies of their predecessor and strengthen the position of the German Institution of Arbitration among competing arbitration institutions. Back to Top 9.         IP & Technology – Draft Bill of German Trade Secret Act The EU Trade Secrets Directive (2016/943/EU) on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure has already been in effect since July 5, 2016. Even though it was supposed to be implemented into national law by June 9, 2018 to harmonize the protection of trade secrets in the EU, the German legislator has so far only prepared and published a draft of the proposed German Trade Secret Act. Arguably, the most important change in the draft bill to the existing rules on trade secrets in Germany will be a new and EU-wide definition of trade secrets. This proposed definition requires the holder of a trade secret to take reasonable measures to keep a trade secret confidential in order to benefit from its protection – e.g. by implementing technical, contractual and organizational measures that ensure secrecy. This requirement goes beyond the current standard pursuant to which a manifest interest in keeping an information secret may be sufficient. Furthermore, the draft bill provides for additional protection of trade secrets in litigation matters. Last but not least, the draft bill also provides for increased protection of whistleblowers by reducing the barriers for the disclosure of trade secrets in the public interest and to the media. As a consequence, companies would be advised to review their internal procedures and policies regarding the protection of trade secrets at this stage, and may want to adapt their existing whistleblowing and compliance-management-systems as appropriate. Back to Top 10.       International Trade, Sanctions and Export Controls – The Conflict between Complying with the Re-Imposed U.S. Iran Sanctions and the EU Blocking Statute On May 8, 2018, President Donald Trump announced his decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) and re-impose U.S. nuclear-related sanctions. Under the JCPOA, General License H had permitted U.S.-owned or -controlled non-U.S. entities to engage in business with Iran. But with the end of the wind-down periods provided for in President Trump’s decision on November 5, 2018, such non-U.S. entities are now no longer broadly permitted to provide goods, services, or financing to Iranian counterparties, not even under agreements executed before the U.S. withdrawal from the JCPOA. In response to the May 8, 2018 decision, the EU amended the EU Blocking Statute on August 6, 2018. The effect of the amended EU Blocking Statute is to prohibit compliance by so-called EU operators with the re-imposed U.S. sanctions on Iran. Comparable and more generally drafted anti-blocking statutes had already existed in the EU and several of its member states which prohibited EU domiciled companies to commit to compliance with foreign boycott regulations. These competing obligations under EU and U.S. laws are a concern for U.S. companies that own or seek to acquire German companies that have a history of engagement with Iran – as well as for the German company itself and its management and the employees. But what does the EU prohibition against compliance with the re-imposed U.S. sanctions on Iran mean in practice? Most importantly, it must be noted that the EU Blocking Statute does not oblige EU operators to start or continue Iran related business. If, for example, an EU operator voluntarily decides, e.g. due to lack of profitability, to cease business operations in Iran and not to demonstrate compliance with the U.S. sanctions, the EU Blocking Statute does not apply. Obviously, such voluntary decision must be properly documented. Procedural aspects also remain challenging for companies: In the event a Germany subsidiary of a U.S. company were to decide to start or continue business with Iran, it would usually be required to reach out to the U.S. authorities to request a specific license for a particular transaction with Iran. Before doing so, however, EU operators must first contact the EU Commission directly (not the EU member state authorities) to request authorization to apply for such a U.S. special license. Likewise, if a Germany subsidiary were to decide not to start or to cease business with Iran for the sole reason of being compliant with the re-imposed U.S. Iran sanctions, it would have to apply for an exception from the EU Blocking Statute and would have to provide sufficient evidence that non-compliance would cause serious damage to at least one protected interest. The hurdles for an exception are high and difficult to predict. The EU Commission will e.g. consider, “(…) whether the applicant would face significant economic losses, which could for example threaten its viability or pose a serious risk of bankruptcy, or the security of supply of strategic goods or services within or to the Union or a Member State and the impact of any shortage or disruption therein.” As such, any company caught up in this conflict of interests between the re-imposed U.S. sanctions and the EU Blocking Statute should be aware of a heightened risk of litigation. Third parties, such as Iranian counterparties, might successfully sue for breach of contract with the support of the EU Blocking Regulation in cases of non-performance of contracts as a result of the re-imposed U.S. nuclear sanctions. Finally, EU operators are required to inform the EU Commission within 30 days from the date on which information is obtained that the economic and/or financial interests of the EU operator are affected, directly or indirectly, by the re-imposed U.S. Iran sanctions. If the EU operator is a legal person, this obligation is incumbent on its directors, managers and other persons with management responsibilities of such legal person. Back to Top The following Gibson Dunn lawyers assisted in preparing this client update:  Birgit Friedl, Marcus Geiss, Silke Beiter, Lutz Englisch, Daniel Gebauer, Kai Gesing, Maximilian Hoffmann, Philipp Mangini-Guidano, Jens-Olrik Murach, Markus Nauheim, Dirk Oberbracht, Richard Roeder, Martin Schmid, Annekatrin Schmoll, Jan Schubert, Benno Schwarz, Balthasar Strunz, Michael Walther, Finn Zeidler, Mark Zimmer, Stefanie Zirkel and Caroline Ziser Smith. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. The two German offices of Gibson Dunn in Munich and Frankfurt bring together lawyers with extensive knowledge of corporate, tax, labor, real estate, antitrust, intellectual property law and extensive compliance / white collar crime experience. The German offices are comprised of seasoned lawyers with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world. Our German lawyers work closely with the firm’s practice groups in other jurisdictions to provide cutting-edge legal advice and guidance in the most complex transactions and legal matters. For further information, please contact the Gibson Dunn lawyer with whom you work or any of the following members of the German offices: General Corporate, Corporate Transactions and Capital Markets Lutz Englisch (+49 89 189 33 150), lenglisch@gibsondunn.com) Markus Nauheim (+49 89 189 33 122, mnauheim@gibsondunn.com) Ferdinand Fromholzer (+49 89 189 33 121, ffromholzer@gibsondunn.com) Dirk Oberbracht (+49 69 247 411 510, doberbracht@gibsondunn.com) Wilhelm Reinhardt (+49 69 247 411 520, wreinhardt@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Silke Beiter (+49 89 189 33 121, sbeiter@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Annekatrin Pelster (+49 69 247 411 521, apelster@gibsondunn.com Finance, Restructuring and Insolvency Sebastian Schoon (+49 89 189 33 160, sschoon@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Alexander Klein (+49 69 247 411 518, aklein@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Tax Hans Martin Schmid (+49 89 189 33 110, mschmid@gibsondunn.com) Labor Law Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Real Estate Peter Decker (+49 89 189 33 115, pdecker@gibsondunn.com) Daniel Gebauer (+49 89 189 33 115, dgebauer@gibsondunn.com) Technology Transactions / Intellectual Property / Data Privacy Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Corporate Compliance / White Collar Matters Benno Schwarz (+49 89 189 33 110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com) Antitrust Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Litigation Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) International Trade, Sanctions and Export Control Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Richard Roeder (+49 89 189 33 218, rroeder@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 21, 2018 |
Landmark Judgments by General Court of the European Union Declare State Aid for Two Infrastructure Projects Illegal

Click for PDF In September and December 2018, Gibson Dunn attorneys won three cases before the General Court of the European Union (cases T-630/15, Scandlines Danmark and Scandlines Deutschland v Commission and T-631/15, Stena Line Scandinavia v Commission of 13 December 2018; and Case T-68/15 HH Ferries and others v Commission of 19 September 2018). In the first two of those judgments, handed down on 13 December 2018, Gibson Dunn represented the ferry lines Scandlines and Stena Line Scandinavia. In both cases, the General Court annulled a European Commission decision of 15 July 2015 authorising State aid for a major infrastructure project, the Fehmarn fixed link, worth 7.4 billion EUR consisting of a 12-mile coast-to-coast underwater tunnel between Denmark and Germany for road and rail traffic. With these two landmark judgments, the General Court declared that the financial support granted by Denmark in the form of State guarantees and State loans to the Fehmarn fixed link is illegal, effectively bringing the construction works of that infrastructure project to a halt.  The cases attracted several third-party interveners.  The Danish State  intervened in order to support the European Commission, while the Swedish Shipping Association and NABU (a major German environmental organization) intervened to support Scandlines. These two judgments followed an earlier Gibson Dunn victory before the General Court on 19 September 2018 in which the General Court annulled the European Commission’s decision authorising State aid for another significant infrastructure project, the Øresund fixed link.  In this case, Gibson Dunn represented the competing ferry line HH Ferries.  The Øresund fixed link consists of a 10 mile long bridge and an underwater tunnel between Denmark and Sweden, worth 3 billion EUR (Case T-68/15 HH Ferries and others v Commission).  Both the Danish and Swedish States intervened in the case to support the European Commission. These three judgments are the latest in a list of prominent judgments of EU Courts setting out the compliance requirements for infrastructure projects within the EU. Specifically, the General Court makes clear that State aid to any major infrastructure project must be limited in time and amount. For example, the European Commission argued in the Fehmarn fixed link cases that the State guarantees and loans were limited to a 55-year period after the opening of the fixed link. However, the General Court found that this period did not provide a precise indication of the exact duration and end date of the State guarantees and State loans. In fact, the General Court concluded that this ’55-year’ period was, in itself, extremely long and indeterminate and relates, in any case, only to the availability of the State guarantees and State loans, without fixing a time limit of each State guarantee and State loan. The judgments also clarify that the State aid for such infrastructure projects may not include any ‘operating aid’, that is support for operating costs, such as costs for electricity, water, and labour etc. which are costs that a company would normally have to bear in its day-to-day management or ordinary activities.  In this context the General Court also ruled that loans taken out for refinancing investment costs constitute a form of prohibited operating aid, something that will have a major impact on the financing model underlying both infrastructure projects. Finally, the General Court also held that the European Commission had erred by not requiring the Danish authorities to disclose to the European Commission the conditions for triggering the benefit of the guarantees. In this regard, the European Commission admitted that it did not know the conditions on which the guarantees would be triggered at the time when it approved the State aid. As a result of the judgments, the European Commission may not authorise State aid to support the financial model underlying both the Fehmarn and Øresund fixed links.  In addition, the annulment has the immediate effect of making any further State aid to the projects illegal.  The European Commission is now tasked with determining whether it is feasible to issue a new authorisation of the State aid for these projects whilst complying with the strict limitations laid down by the General Court.  As mentioned above, the effect of this is that the construction of the Fehmarn fixed link project will therefore most likely be ceased at least for the foreseeable future.  The banks financing the Øresund fixed link may also withdraw their loans, thereby rendering the overall commercial operation of the fixed link non sustainable – unless prices for crossing the fixed link are significantly raised, something which the ferry lines would welcome. The following Gibson Dunn lawyers assisted in preparing this client update: Lena Sandberg, Peter Alexiadis, and Yannis Ioannidis. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following lawyers in Brussels: Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) Please also feel free to contact any of the practice group leaders and members: Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 20, 2018 |
Rachel Brass and Scott Edelman Named Litigators of the Week

The Am Law Litigation Daily named San Francisco partner Rachel Brass and Century City partner Scott Edelman as “Litigators of the Week” [PDF] for successfully defending Ottogi Company, Ltd. and Ottogi America, Inc. against a $500 million price-fixing class action. After a five-week trial, a jury in the Northern District of California took just three hours to find for the defense across the board. The profile was published on December 20, 2018. Gibson Dunn’s worldwide Antitrust and Competition Practice Group numbers over 150 lawyers located throughout the United States, Europe and Asia.  Our antitrust team includes former high-ranking officials from the U.S. Department of Justice (DOJ), the U.S. Federal Trade Commission (FTC), the U.S. Solicitor General’s Office and the European Commission, as well as Fellows of the American College of Trial Lawyers.  The practice group is seamlessly integrated with Gibson Dunn’s powerhouse class action and appellate litigation teams to enable the firm to handle any crisis, as well as a matter from inception all the way through the U.S. Supreme Court.

December 20, 2018 |
Gibson Dunn Ranked in the Legal 500 Deutschland 2019

The Legal 500 Deutschland 2019 ranked Gibson Dunn in four practice areas and named Frankfurt partner Dirk Oberbracht as Leading Lawyer in Private Equity. The firm was recognized in the following categories: Antitrust, Compliance, Compliance: Internal Investigations, and Private Equity: Transactions. Oberbracht is a leading Private Equity and M&A lawyer. He advises private equity investors, corporate clients, families and management teams. He has extensive expertise in cross-border and domestic deals, including carve-outs, joint ventures, minority investments, corporate restructurings and management equity programs.

December 13, 2018 |
The European Union’s General Court Rules (yet again!) That Margin Squeezes Are Problematic under EU Competition Rules

Click for PDF In two separate but related appeals, the General Court of the European Union has today confirmed that the practice of margin squeezing by a dominant firm can constitute abusive behaviour, contrary to the terms of Article 102 TFEU.[1]  In parallel, the General Court ruled that the Commission was entitled to apply the doctrine of parental responsibility when also extending its fine beyond the immediate perpetrator – Slovak Telekom – to its ultimate parent company, Deutsche Telekom  (“DT”).  The latter company was not merely liable by reason of its corporate relationship with Slovak Telekom, but because it knowingly allowed the margin squeezing practice to take place despite full knowledge of its obligations in this regard as a result of previous Commission interventions.[2]  However, the General Court annulled those parts of the Commission Decision which erred in its calculation of the exclusionary effects of the practice, and in terms of the degree to which a  parent should be responsible for the culpability of its subsidiary in an Article 102 TFEU context. Both appeals relate to the Commission’s Decision of 15 October 2014 in Case AT. 39523, in which the Commission fined Slovak Telekom and its German parent, DT, for the refusal by the former to grant access to competitors to its fixed broadband network and for engaging in a margin squeeze when access was ultimately granted.  In that Decision, both parties were jointly fined €38.8 million (just over $44 million) while DT was fined on additional  €31 million around (around $35 million), given the fact that DT had been found guilty of similar conduct on the German broadband access market in 2003.[3]  This additional fine was prompted by the Commission’s desire to deter “repeat offending” by DT in conducting margin squeezes. A margin squeeze is a competition law offence which is based on the unfairness of the spread between a dominant firm’s wholesale access prices charged to tis competitors and its retail prices.  It is the narrowness in the spread between wholesale and retail price that threatens to foreclose the operations of equally efficient competitors.  The margin squeeze offence has no equivalent under US antitrust law, which prefers to consider the competition law implications of margin squeezes to be actionable only in one of two extreme scenarios – either a refusal to deal situation or in the case of predatory (i.e., below cost) pricing – but a practice which is not actionable in its own right. 1.      The Appeals In the appeal raised by Slovak Telekom, the General Court was asked to address a number of key aspects of the Commission’s Decision, including:  whether the Commission was correct in taking the view that it was not necessary to demonstrate the essential nature of the infrastructure when considering the legality of the refusal to supply under the Bronner[4] case-law;  the types of factors which the Commission can take into account when determining the extent of Slovak Telekom’s margin and the implications of the methodology chosen in determining the duration of the infringement;  the attribution of parental responsibility on DT; and  the gravity of the fine. In addition, DT argued that the Commission had erred:  by violating the presumption of innocence when attributing the infringement to DT, as Slovak Telekom did not form part of a single economic entity with DT, given that DT had neither exercised decisive influence over Slovak Telekom nor was it aware that Slovak Telekom was engaging in questionable competitive conduct; and  to the extent it had treated DT and Slovak Telekom as a single entity, by imposing an additional fine on DT. 2.      The Judgments The General Court largely upheld the Commission’s Decision regarding the finding that Slovak Telekom and DT had abused a dominant position.  However, due to certain errors in the Commission’s analysis, the Court lowered the fine imposed on Slovak Telekom by a small amount (i.e., from 38, 838, 000 to 38, 061, 963 Euros for joint liability for the infringement), but reduced the additional fine on DT to a significant degree (i.e., from 31,070,000 to 19,030, 981).  The key rulings of the General Court were as follows: In determining the anti-competitive effects of a margin squeeze allegation, the Commission was not under a legal obligation to demonstrate that access to Slovak Telekom’s local loop was “indispensable” in antitrust terms.  Indeed, to the extent that Slovak Telekom was already mandated under regulatory provisions to provide access, the usual antitrust enquiry as to whether or not a dominant firm should only be obliged to deal with competitors where its wholesale access input is indispensable (i.e., tantamount to an “essential facility”) was rendered moot. However, when the Commission estimated the duration period of the infringement, it erred in not taking due account of the fact that, over a period of four months in 2005, a positive margin existed between Slovak Telekom’s wholesale and retail prices.  In these circumstances, the Commission was subject to a specific obligation to demonstrate that the contested margin squeeze actually led to exclusionary effects in the market.  It was the Commission’s failure to investigate whether or not competitive harm had occurred during this period which justified the small reduction in the fine. When determining the extent to which DT might be held responsible for the actions of its Slovak subsidiary, it will only be appropriate for this derivative responsibility to result in a larger fine on the parent than the subsidiary if factors are shown to exist which relate to the activities of the alleged infringing party.  Taking into account repeat offences may indeed be such a material consideration.  By contrast, it will be inappropriate to impose a higher fine on the parent simply because of its larger revenue base, since revenues do not constitute a particular factor that is attributable to market behaviour.  Hence, according to the Court, the facts of this case were such that the decision to impose an additional fine solely on the basis of a large revenue base lacked an objective justification, and was contrary to the understanding that liability should be associated with the particular actions of the relevant undertaking.  In the circumstances, a significant reduction in the fine on DT was appropriate. 3.      Conclusions The Judgments confirm the validity of the margin squeeze offence under EU Competition rules.  In this respect, the Judgment has elements of “Groundhog Day”.  Critically, however, the landmark Judgment of the Court of Justice in TeliaSonera[5] has been applied in a review of the Commission Decision.  In practice, it enforces the Commission’s enforcement hand in prosecuting cases in regulated sectors where the theory of harm is related in some way to the decision of the dominant firm to deny access or to render its terms so unattractive as to implicitly deny access.  Without having to prove that the dominant firm benefited from its operation of an essential facility, the Commission can move forward to the critical issue of potential foreclosure.  One also needs to ask the question whether, even in those industries where the decision of firms to provide access as part of their business model is not mandated by regulation (such as many online platforms), a similar short-cut to a foreclosure analysis is acceptable.  Where the access seeker has developed a relationship of dependence om the access provider, it may be difficult to draw bright lines as to why this behaviour should not be treated on equal footing as with that which is subject to sector- specific regulation. Of some comfort to dominant firms will be the fact that the Court has undertaken to subject to serious scrutiny any Commission allegations that a margin squeeze will be likely to result in the foreclosure of competitors.  By subjecting the Commission’s time-line for the offence to a rigorous analysis, hope for the meaningful endorsement of the “effects-based” theory anti-competitive harm under Article 102 TFEU seems to be fulfilled. Finally, the Court has laid down an important marker for the use of the recidivism doctrine as the basis for increasing administrative fines in the context of Article 102 TFEU actions.  While the Court has insisted that the actual role of the parent will be a highly relevant factor in attributing an additional degree of responsibility for an infringement on a parent company, it has made it clear that repeat offending (even if in another EU Member State) is a highly relevant factor.    [1]   Case T-827/14 Deutsche Telekom v Commission EU:T:2018:930, and Case T-851/14 Slovak Telekom v Commission EU:T:2018:929.    [2]   Refer to Case C-280/08P Deutsche Telekom AV. Commission EU:C:2010:603. See also case C-295/12 Telefonica –Telefonica de España  EU:C:2014:2062.    [3]   Case COMP 7-451 Deutsche Telekom AG.    [4]   See case C-7/97, Bronner [1998] EU:C:1998:569.    [5]   Case C-52/09 Konkurrensverket v TeliaSonera Sverige AB EU:C:2011:83. The following Gibson Dunn lawyers assisted in preparing this client update: Peter Alexiadis, David Wood and Eleni Petropoulaki. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following lawyers in Brussels: Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) Please also feel free to contact any of the practice group leaders and members: Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 29, 2018 |
Gibson Dunn Ranked in 2019 Chambers Asia Pacific

Gibson Dunn earned 12 firm rankings and 21 individual rankings in the 2019 edition of Chambers Asia-Pacific. The firm was recognized in the Asia-Pacific Region-wide category for Investment Funds: Private Equity as well as the following International Firms categories: China Banking & Finance: Leveraged & Acquisition Finance; China Competition/Antitrust; China Corporate Investigations/Anti-Corruption; China Corporate/M&A: Highly Regarded; China Investment Funds: Private Equity; China Private Equity: Buyouts & Venture Capital Investment; India Corporate/M&A; Indonesia Corporate & Finance; Philippines Projects, Infrastructure & Energy; Singapore Corporate/M&A; and Singapore Energy & Natural Resources. The following lawyers were ranked individually in their respective categories: Kelly Austin – China Corporate Investigations/Anti-Corruption Albert Cho – China Investment Funds Troy Doyle – Singapore Restructuring/Insolvency Sébastien Evrard – China Competition/Antitrust John Fadely – China Investment Funds Scott Jalowayski – China Private Equity: Buyouts & Venture Capital Investment Michael Nicklin –  China Banking & Finance: Leveraged & Acquisition Finance Jai Pathak – India Corporate/M&A, and Singapore Corporate/M&A Brad Roach – Indonesia Projects & Energy, Singapore Energy & Natural Resources, and Singapore Energy & Natural Resources: Oil & Gas Saptak Santra – Singapore Energy & Natural Resources Brian Schwarzwalder – China Private Equity: Buyouts & Venture Capital Patricia Tan Openshaw – China Projects & Infrastructure, and Philippines Projects, Infrastructure & Energy Jamie Thomas – India Banking & Finance, Indonesia Banking & Finance, and Singapore Banking & Finance Graham Winter – China Corporate/M&A: Hong Kong-based Yi Zhang – China Corporate/M&A: Hong Kong-based The rankings were published on November 29, 2018.

November 21, 2018 |
Three Gibson Dunn partners recognized by Who’s Who Legal

Three Gibson Dunn partners were recognized by Who’s Who Legal Thought Leaders: Global Elite 2019 in their respective practice areas. Brussels partner Peter Alexiadis and Washington, D.C. partner Richard Parker were recognized in Competition, and Washington, D.C.  F. Joseph Warin was recognized in Business Crime Defence – Corporates and in Investigations. The list was published in November 2018.

November 6, 2018 |
Assistant Attorney General Makan Delrahim and FTC Chairman Joe Simons Testify on Antitrust Enforcement Before Senate Subcommittee on Antitrust

Click for PDF On October 3, 2018, Assistant Attorney General Makan Delrahim, head of the Justice Department’s Antitrust Division, and Federal Trade Commission Chairman Joseph Simons testified before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.  The key themes of their testimony are summarized below. Focus on Technology and “Dominant Online Platforms” Chairman Simons stated that the Commission looks for markets characterized by significant market power.  Dominant online platforms are prime examples.  Chairman Simons described enforcement in this area as a Commission priority.  AAG Delrahim seconded Simons’ views and described internal meetings with Division personnel, up to and including Attorney General Sessions, to discuss how the Division should apply antitrust law in this area. AAG Delrahim stated that he views search engine protocols that favor one company over another as a source of potential collusion and disclosed that there is a pending criminal investigation in this arena.  Chairman Simons stated that such conduct was not necessarily “per se legal,” and noted that the Commission investigated this issue in recent years and closed its investigation without further action. Senator Richard Blumenthal raised data privacy as a concern.  AAG Delrahim testified that he viewed online platforms’ use of personal data as an antitrust issue, both in terms of the platform’s position as a monopoly seller of this information as well as a monopsony buyer.  He also expressed concern that personal information could be used by dominant platforms to stymie entry or growth by a competitor.  Chairman Simons described data privacy as an aspect of product quality, a factor that is a traditional consideration by the Commission in its merger review process. Standard-Essential Patent Licensing Patent licensing emerged as a subject of disagreement between the Division and the Commission.  AAG Delrahim suggested that Division resources should be focused on exercise of monopsony power by patent implementers against patent holders, warning that misapplication of antitrust laws to protect implementers could lead to reduced incentives to innovate.  In contrast, Chairman Simons viewed patent hold-up by implementers as well as patent hold-out—the practice of routinely ignoring patent holders’ rights—as equal sources of concern and adding that the Commission should not “discriminate” against either. Employee “No-Poach” Agreements AAG Delrahim stated that the Division is actively searching for, and investigating suspected agreements between competitors not to solicit or hire each other’s employees, commonly referred to as “no-poach” agreements.  AAG Delrahim disclosed that the Division has deployed software that canvasses documents produced during merger investigations to uncover evidence of potential employee no-poach agreements.  He stated that there were several investigations in this area, some of which are criminal. Reverse Payment/Pay-For-Delay Litigation Chairman Simons testified that the Commission would continue aggressively investigating and challenging “pay for delay”—settlements between brand drug manufacturers and generic drug makers in which the generic drug maker delays the introduction of a competing generic drug in exchange for value.  He also stated that the Commission would also look closely at pay-for-delay deals in the biosimilar sector. Sham Patent Infringement Litigation in the Pharmaceutical Sector Chairman Simons indicated that the Commission would continue to investigate “sham litigation” brought by brand drug makers against potential generic competitors designed to forestall generic entry.  He cited the Commission’s recent win in FTC v. AbbVie as the first example that this conduct violates Section 2 of the Sherman Act. FTC Act Section 5 Enforcement Chairman Simons testified about the Commission’s Section 5 activity.  Section 5 prohibits, in broad terms, “unfair methods of competition.”  The scope of “unfair competition” has never been precisely defined, though Commissioner Rohit Chopra suggested in a public comment on September 6, 2018 that the Commission should consider rulemaking in this area.  Chairman Simons was skeptical of this approach, noting that the Commission’s efforts are largely focused on enforcement of the Clayton and Sherman Acts.  He expressed a preference for courts and adjudicatory proceedings to provide clarity on this issue. Commitment to Faster Merger Reviews AAG Delrahim also indicated that the Division would try to resolve most merger investigations within 30 days and the rest within six months.  He cited the Division’s investigation of the Disney-Fox merger as an example of the six-month deadline being attainable in a complex matter.  He stressed however, that prompt cooperation by the parties was essential to helping the Division meet these goals. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the authors: Adam Di Vincenzo – Washington, D.C. (+1 202-887-3704, adivincenzo@gibsondunn.com) Richard G. Parker – Washington, D.C. (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman – Washington, D.C. (+1 202-955-8234, crichman@gibsondunn.com) Chris Wilson – Washington, D.C. (+1 202-955-8520, cwilson@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 1, 2018 |
U.S. News – Best Lawyers® Awards Gibson Dunn 132 Top-Tier Rankings

U.S. News – Best Lawyers® awarded Gibson Dunn Tier 1 rankings in 132 practice area categories in its 2019 “Best Law Firms” [PDF] survey. Overall, the firm earned 169 rankings in nine metropolitan areas and nationally. Additionally, Gibson Dunn was recognized as “Law Firm of the Year” for Litigation – Antitrust and Litigation – Securities. Firms are recognized for “professional excellence with persistently impressive ratings from clients and peers.” The recognition was announced on November 1, 2018.

October 24, 2018 |
Lessons from FTC’s Loss in, and Subsequent Abandonment of, DirecTV Advertising Case

The Federal Trade Commission (“FTC”) is increasingly focusing on the advertising, data privacy/security, and e-commerce processes of prominent companies marketing legitimate, valuable products and services, as compared to the types of fraudsters and shams that have been a central focus of FTC attention in the past. The FTC’s recently concluded action against DirecTV is emblematic of this trend. In FTC v. DirecTV, the FTC alleged that DirecTV’s marketing failed to adequately disclose that (a) the introductory discounted price lasted only twelve months while subscribers were bound to a 24-month commitment; (b) subscribers who cancelled early would be charged a cancellation fee; and (c) subscribers would automatically incur monthly charges if they did not cancel a premium channel package after a free three-month promotional period. On August 16, 2017, after hearing the FTC’s case-in-chief, Judge Gilliam of the U.S. District Court for the Northern District of California granted judgment for DirecTV on the majority of these claims. And earlier this week, the FTC agreed to voluntarily dismiss the remainder of its case with prejudice. Gibson Dunn partners Sean Royall and Rich Cunningham and associates Brett Rosenthal and Emily Riff recently published an article titled Lessons from FTC’s Loss in, and Subsequent Abandonment of, DirecTV Advertising Case in the Washington Legal Foundation’s The Legal Pulse blog. The article describes the case, the FTC’s evidence, and key takeaways for companies crafting advertising and marketing disclosures. Lessons from FTC’s Loss in, and Subsequent Abandonment of, DirecTV Advertising Case © 2018, Washington Legal Foundation, The Legal Pulse, October 23, 2018. Reprinted with permission. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the authors of this Client Alert, the Gibson Dunn lawyer with whom you usually work, or one of the leaders and members of the firm’s Antitrust and Competition or Privacy, Cybersecurity and Consumer Protection practice groups: Washington, D.C. Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Howard S. Hogan (+1 202-887-3640, hhogan@gibsondunn.com) Joseph Kattan P.C. (+1 202-955-8239, jkattan@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) New York Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) Eric D. Vandevelde (+1 213-229-7186, evandevelde@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Dallas M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 10, 2018 |
Why We Think the UK Is Heading for a “Soft Brexit”

Click for PDF Our discussions with politicians, civil servants, journalists and other commentators lead us to believe that the most likely outcome of the Brexit negotiations is that a deal will be agreed at the “softer” end of the spectrum, that the Conservative Government will survive and that Theresa May will remain as Prime Minister at least until a Brexit deal is agreed (although perhaps not thereafter).  There is certainly a risk of a chaotic or “hard” Brexit.  On the EU side, September’s summit in Salzburg demonstrated the possibility of unexpected outcomes.  And in the UK, the splits in the ruling Conservative Party and the support it relies upon from the DUP (the Northern Irish party that supports the Government) could in theory result in the ousting of Prime Minister May, which would likely lead to an extension of the Brexit deadline of 29 March 2019.  However, for the reasons set out below we believe a hard or chaotic Brexit is now less likely than more likely. Some background to the negotiations can be found here.  It should be noted that any legally binding deal will be limited to the terms of the UK’s departure from the EU (“the Withdrawal Agreement”) and will not cover the future trading relationship.  But there will be a political statement of intent on the future trading relationship (“the Future Framework”) that will then be subject to further detailed negotiation. There is a European Council meeting on 17/18 October although it is not expected that a final agreement will be reached by then.  However, the current expectation is that a special meeting of the European Council will take place in November (probably over a weekend) to finalise both the Withdrawal Agreement and the Future Framework. Whatever deal Theresa May finally agrees with the EU needs to be approved by the UK Parliament.  A debate and vote will likely take place within two or three weeks of a deal being agreed – so late November or early December.  If Parliament rejects the deal the perceived wisdom is that the ensuing political crisis could only be resolved either by another referendum or a general election. However: the strongest Brexiteers do not want to risk a second referendum in case they lose; the ruling Conservative Party do not want to risk a general election which may result in it losing power and Jeremy Corbyn becoming Prime Minister; and Parliament is unlikely to allow the UK to leave without a deal. As a result we believe that Prime Minister May has more flexibility to compromise with the EU than the political noise would suggest and that, however much they dislike the eventual deal, ardent Brexiteers will likely support it in Parliament.  This is because it will mean the UK has formally left the EU and the Brexiteers live to fight another day. The UK’s current proposal (the so-called “Chequers Proposal”) is likely to be diluted further in favour of the EU, but as long as the final deal results in a formal departure of the UK from the EU in March 2019, we believe Parliament is more likely than not to support it, however unsatisfactory it is to the Brexiteers. The key battleground is whether the UK should remain in a Customs Union beyond a long stop date for a transitional period.  The UK Government proposes a free trade agreement in goods but not services, with restrictions on free movement and the ability for the UK to strike its own free trade deals.  This has been rejected by the EU on the grounds that it seeks to separate services from goods which is inconsistent with the single market and breaches one of the fundamental EU principles of free movement of people.  The Chequers Proposal is unlikely to survive in its current form but the EU has acknowledged that it creates the basis for the start of a negotiation. There has also been discussion of a “Canada style” free-trade agreement, which is supported by the ardent Brexiteers but rejected by the UK Government because it would require checks on goods travelling across borders.  This would create a “hard border” in Northern Ireland which breaches the Good Friday Agreement and would not be accepted by any of the major UK political parties or the EU.  The consequential friction at the borders is also unattractive to businesses that operate on a “just in time” basis – particularly the car manufacturers.  The EU has suggested there could instead be regulatory alignment between Northern Ireland and the EU, but this has been accepted as unworkable because it would create a split within the UK and is unacceptable to the DUP, the Northern Ireland party whose support of the Conservatives in Parliament is critical to their survival.  This is the area of greatest risk but it remains the case that a “no deal” scenario would guarantee a hard border in Ireland. If no deal is reached by 21 January 2019 the Prime Minister is required to make a statement to MPs.  The Government would then have 14 days to decide how to proceed, and the House of Commons would be given the opportunity to vote on these alternate plans.  Although any motion to reject the Government’s proposal would not be legally binding, it would very likely catalyse the opposition and lead to an early general election or a second referendum.  In any of those circumstances, the EU has already signalled that it would be prepared to grant an extension to the Article 50 period. This client alert was prepared by London partners Charlie Geffen and Nicholas Aleksander and of counsel Anne MacPherson. We have a working group in London (led by Nicholas Aleksander, Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) addressing Brexit related issues.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below. Ali Nikpay – Antitrust ANikpay@gibsondunn.com Tel: 020 7071 4273 Charlie Geffen – Corporate CGeffen@gibsondunn.com Tel: 020 7071 4225 Nicholas Aleksander – Tax NAleksander@gibsondunn.com Tel: 020 7071 4232 Philip Rocher – Litigation PRocher@gibsondunn.com Tel: 020 7071 4202 Jeffrey M. Trinklein – Tax JTrinklein@gibsondunn.com Tel: 020 7071 4224 Patrick Doris – Litigation; Data Protection PDoris@gibsondunn.com Tel:  020 7071 4276 Alan Samson – Real Estate ASamson@gibsondunn.com Tel:  020 7071 4222 Penny Madden QC – Arbitration PMadden@gibsondunn.com Tel:  020 7071 4226 Selina Sagayam – Corporate SSagayam@gibsondunn.com Tel:  020 7071 4263 Thomas M. Budd – Finance TBudd@gibsondunn.com Tel:  020 7071 4234 James A. Cox – Employment; Data Protection JCox@gibsondunn.com Tel: 020 7071 4250 Gregory A. Campbell – Restructuring GCampbell@gibsondunn.com Tel:  020 7071 4236 © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 1, 2018 |
DOJ Antitrust Head Signals Move to Shorter, Less Burdensome Merger Review

Click for PDF On September 25, 2018, in a speech at the 2018 Georgetown Law Global Antitrust Enforcement Symposium, Assistant Attorney General Makan Delrahim, head of the Justice Department’s Antitrust Division (“DOJ”), announced his intention to significantly reduce the time needed to review proposed mergers and to reduce the burden in responding to a Request for Additional Information and Documentary Material (“Second Request”) regarding proposed transactions.  The proposed changes raise substantial procedural considerations for clients contemplating transactions posing complex antitrust issues that are reviewed by DOJ, although it remains to be seen whether and to what extent the new policies will be implemented. Transactions such as mergers and joint ventures that meet thresholds set out in the Hart-Scott-Rodino Act, 15 U.S.C. § 18a, and related regulations (“HSR”) must file with the FTC’s Premerger Notification Office and go through an initial 30-day waiting period to give the FTC and DOJ time to make an initial evaluation of the transaction’s potential effect on competition.  During this waiting period, either agency may issue a Second Request, a subpoena that seeks a substantial volume of documents and data regarding potential markets that may be affected by the proposed transaction.  Following substantial compliance with a Second Request, the reviewing agency has another 30 days to make an enforcement decision, a second waiting period that is sometimes extended by a “timing agreement” with the parties for another 30 to 60 days. Six-month Timeframe for Merger Review.  Delrahim announced that DOJ would aim to resolve most merger investigations within six months of the parties’ HSR filing.  Citing a source claiming that “significant merger reviews” in 2017 took an average of 10.8 months to complete, up 65% from just over 7 months in 2011, Delrahim acknowledged that increasingly lengthy merger investigations were “a problem” and that a change was needed to “modernize” the merger review process.  Delrahim’s stated goal to keep most merger investigations under six months was conditioned on companies’ “expeditious cooperat[ion]” throughout the process in the form of prompt production of relevant documents and data.  Delrahim noted that not every merger could be completed in this time frame, as some will have thorny issues that will take longer than six months to resolve.  Delrahim’s willingness implement a specific “benchmark” with regard to DOJ’s merger review timeline will come as a welcome retreat from the trend of longer and more burdensome merger investigations.  However, it remains to be seen whether a six-month deadline will be implemented in practice, particularly in mergers involving complex global markets, which are often subject to coordinated investigations by the DOJ and other competition authorities around the world, each with different timelines and procedures. Second Request Avoidance.  Delrahim signaled that DOJ would take a harder look at whether merger investigations can be closed without the need for a Second Request.  A Second Request for information can extend the deadline for a merger to close by six months or more, and DOJ staff sometimes requests that parties “pull and refile”—that is, withdraw and resubmit their HSR  filings to provide the agency 30 additional days to resolve potential issues.  Delrahim’s guidance suggests that DOJ staff may use this avenue more frequently going forward if it can avoid the need for a Second Request. Faster Decision-Making.  Delrahim promised faster decision-making once parties have complied with the Second Request, indicating that DOJ “will make a decision in no longer than 60 days—sooner, if possible . . .”  The HSR Act permits filing parties to consummate their merger as early as 30 days after certifying substantial compliance with a Second Request.  In practice, however, DOJ would frequently require that parties enter into “timing agreements” that extend the deadline by 30 to 60 days or more.  This change will also shorten the time needed to complete a merger review and render an enforcement decision, but in practice DOJ may be reluctant to shorten this waiting period where litigation is a possibility. Fewer Custodians and Depositions.  Delrahim issued crisper guidelines regarding the appropriate number of custodians and depositions needed to do a fulsome merger review.  Regarding custodians, Delrahim stated that “as a general matter we will assume that 20 custodians per party will be sufficient unless the Deputy AAG in charge of the investigation explicitly authorizes more.”  Regarding depositions, Delrahim said that “we generally will not seek more than 12 depositions unless the deputy in charge of the investigation authorizes a greater number.”  This is a welcome reduction in the number of custodians, given that a similar reform in 2006 imposed a much higher limit of 30 custodians.  This change may further reduce the expense and time needed to comply with a Second Request.  Delrahim’s proposed limits, however, were conditioned on earlier production of documents and data, less “gamesmanship” on privilege logs, and a longer post-complaint discovery period should the investigation result in litigation.  As a result, it is unclear whether this commitment will result in a lighter compliance burden for merging parties. Stricter Third Party CID Enforcement.  Delrahim sought to reinvigorate fulsome compliance with Civil Investigative Demands, noting that the Division would “not hesitate to bring CID enforcement actions in federal court to ensure timely and complete compliance.”  This suggests third parties in receipt of CIDs may encounter less flexibility on the part of DOJ Staff to modifications that substantially narrow the scope of the CID or extend the deadline to respond.  Nevertheless, the DOJ Staff relies heavily on third party cooperation in merger investigations, and should remain willing to limit the scope of CIDs in cases where doing so will speed up compliance. Withdrawal of 2011 Policy Guide to Merger Remedies.  Delrahim announced the withdrawal of the 2011 Policy Guide to Merger Remedies and restored the effectiveness of the 2004 Policy Guide until new guidance could be issued.  Merger remedies have been an area of particular focus for Delrahim, who in November of 2017 stated a preference for structural remedies—remedies requiring divestiture of business units—over  behavioral ones requiring changes to a company’s conduct.  The reversion to the 2004 Policy Guide seems to codify Delrahim’s preference for structural relief, as the 2011 Guide had signaled greater willingness to accept conduct remedies of the sort seen in the consent decrees entered in the Comcast/NBCU and Ticketmaster/LiveNation mergers, for example. Earlier Front Office Engagement.  Delrahim offered parties the opportunity to meet with Front Office staff earlier in the merger review process, indicating that these personnel would “be open to an initial, introductory meeting.”  This suggests parties will be given a greater opportunity to dialogue with Antitrust Division decision-makers much earlier in the investigative process.  Delrahim’s guidance responds to private sector complaints about the merger review and may portend meaningful changes in the merger investigation process, at least at the DOJ.  This is not the first and is unlikely to be the last attempt to reform the Second Request process or reduce the burden on merging parties.  Prior initiatives have largely failed to achieve their core goal of reducing the time to clearance, although some (such as the 2006 reform) have reduced the cost of compliance. If the announced changes are fully implemented, companies may look forward to meaningfully shorter merger investigations.  Transactions subject to Second Requests should have lower burdens of compliance in the form of fewer depositions and custodians.  Finally, parties can look forward to greater and earlier engagement with Front Office leadership before critical junctures in merger investigations are reached. Delrahim’s announcement contrasts notably with recent pronouncements by the FTC.  Under Chairman Joseph Simons, who took the reins of the agency on May 1, 2018, the agency recently revised its Model Timing Agreement to formalize adding time to merger reviews.  Specifically, the model agreement links parties’ opportunity to present advocacy to FTC senior leadership to agreeing to provide additional time post-compliance—60 to 90 days—for FTC staff to review submitted Second Request materials.  While the revision is generally consistent with current practice, at minimum, it reflects continued use of an elongated merger review period, and therefore suggests that the FTC may be diverging from DOJ with respect to the desire to shorten and streamline the full-phase merger review process. A copy of the Assistant Attorney General’s remarks can be found at: https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-2018-global-antitrust. A copy of the FTC’s Revised Model Timing Agreement can be found at: https://www.ftc.gov/news-events/blogs/competition-matters/2018/08/timing-everything-model-timing-agreement. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the authors: Daniel G. Swanson – Los Angeles (+1 213-229-7430, dswanson@gibsondunn.com) Cynthia Richman – Washington, D.C. (+1 202-955-8234, crichman@gibsondunn.com) Adam Di Vincenzo – Washington, D.C. (+1 202-887-3704, adivincenzo@gibsondunn.com) Richard H. Cunningham – Denver, CO (+1 303-298-5752, rhcunningham@gibsondunn.com) Brian K. Ryoo – Washington, D.C. (+1 202-887-3746, bryoo@gibsondunn.com) Chris Wilson – Washington, D.C. (+1 202-955-8520, cwilson@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com)> London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.