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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) *Not admitted in D.C.; practicing under supervision of principals of the firm. © 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.

September 26, 2018 |
Lexology Navigator – Cartels

​San Francisco partners Rachel Brass and Trey Nicoud and Washington, D.C. partner Cynthia Richman contributed to the USA section of “Lexology Navigator – Cartels,” [PDF] published by Lexology on September 26, 2018.

September 25, 2018 |
Merger Control: ‘Around the World in 80 Days: Management of the Merger Review Process of Global Deals’

Brussels partner Peter Alexiadis and associate Elsa Sependa are the authors of “Merger Control: ‘Around the World in 80 Days: Management of the Merger Review Process of Global Deals’” [PDF] originally published in Business Law International, Vol19 No3, September 2018, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.  

September 6, 2018 |
Cartels in the utility sectors: An overview of EU and national case law

Brussels partner Peter Alexiadis is the author of “Cartels in the utility sectors: An overview of EU and national case law” [PDF] published in e-Competitions Special Issue Utilities & Cartels, Art. N44484 on September 6, 2018.

July 12, 2018 |
The Politics of Brexit for those Outside the UK

Click for PDF Following the widely reported Cabinet meeting at Chequers, the Prime Minister’s country residence, on Friday 6 June 2018, the UK Government has now published its “White Paper” setting out its negotiating position with the EU.  A copy of the White Paper can be found here. The long-delayed White Paper centres around a free trade area for goods, based on a common rulebook.  The ancillary customs arrangement plan, in which the UK would collects tariffs on behalf of the EU, would then “enable the UK to control its own tariffs for trade with the rest of the world”.  However, the Government’s previous “mutual recognition plan” for financial services has been abandoned; instead the White Paper proposes a looser partnership under the framework of the EU’s existing equivalence regime. The responses to the White Paper encapsulate the difficulties of this process.  Eurosceptics remain unhappy that the Government’s position is far too close to a “Soft Brexit” and have threatened to rebel against the proposed customs scheme; Remainers are upset that services (which represent 79% of the UK’s GDP) are excluded. The full detail of the 98-page White Paper is less important at this stage than the negotiating dynamics.  Assuming both the UK and the EU want a deal, which is likely to be the case, M&A practitioners will be familiar with the concept that the stronger party, here the EU, will want to push the weaker party, the UK, as close to the edge as possible without tipping them over.  In that sense the UK has, perhaps inadvertently, somewhat strengthened its negotiating position – albeit in a fragile way. The rules of the UK political game In the UK the principle of separation of powers is strong as far as the independence of the judiciary is concerned.  In January 2017 the UK Supreme Court decided that the Prime Minister could not trigger the Brexit process without the authority of an express Act of Parliament. However, unlike the United States and other presidential systems, there is virtually no separation of powers between legislature and executive.  Government ministers are always also members of Parliament (both upper and lower houses).  The government of the day is dependent on maintaining the confidence of the House of Commons – and will normally be drawn from the political party with the largest number of seats in the House of Commons.  The Prime Minister will be the person who is the leader of that party. The governing Conservative Party today holds the largest number of seats in the House of Commons, but does not have an overall majority.  The Conservative Government is reliant on a “confidence and supply” agreement with the Northern Ireland Democratic Unionist Party (“DUP”) to give it a working majority. Maintaining an open land border between Northern Ireland and the Republic of Ireland is crucial to maintaining the Good Friday Agreement – which underpins the Irish peace process.  Maintaining an open border between Northern Ireland and the rest of the UK is of fundamental importance to the unionist parties in Northern Ireland – not least the DUP.  Thus, the management of the flow of goods and people across the Irish land border, and between Northern Ireland and the UK, have become critical issues in the Brexit debate and negotiations.  The White Paper’s proposed free trade area for goods would avoid friction at the border. Parliament will have a vote on the final Brexit deal, but if the Government loses that vote then it will almost certainly fall and a General Election will follow – more on this below. In addition, if the Prime Minister does not continue to have the support of her party, she would cease to be leader and be replaced.  Providing the Conservative Party continued to maintain its effective majority in the House of Commons, there would not necessarily be a general election on a change in prime minister (as happened when Margaret Thatcher was replaced by John Major in 1990) The position of the UK Government The UK Cabinet had four prominent campaigners for Brexit: David Davis (Secretary for Exiting the EU), Boris Johnson (Foreign Secretary), Michael Gove (Environment and Agriculture Secretary) and Liam Fox (Secretary for International Trade).  David Davis and Boris Johnson have both resigned in protest after the Chequers meeting but, so far, Michael Gove and Liam Fox have stayed in the Cabinet.  To that extent, at least for the moment, the Brexit camp has been split and although the Leave activists are unhappy, they are now weaker and more divided for the reasons described below. The Prime Minister can face a personal vote of confidence if 48 Conservative MPs demand such a vote.  However, she can only be removed if at least 159 of the 316 Conservative MPs then vote against her.  It is currently unlikely that this will happen (although the balance may well change once Brexit has happened – and in the lead up to a general election).  Although more than 48 Conservative MPs would in principle be willing to call a vote of confidence, it is believed that they would not win the subsequent vote to remove her.  If by chance that did happen, then Conservative MPs would select two of their members, who would be put to a vote of Conservative activists.  It is likely that at least one of them would be a strong Leaver, and would win the activists’ vote. The position in Parliament The current view on the maths is as follows: The Conservatives and DUP have 326 MPs out of a total of 650.  It is thought that somewhere between 60 and 80 Conservative MPs might vote against a “Soft Brexit” as currently proposed – and one has to assume it will become softer as negotiations with the EU continue.  The opposition Labour party is equally split.  The Labour leadership of Jeremy Corbyn and John McDonnell are likely to vote against any Brexit deal in order to bring the Government down, irrespective of whether that would lead to the UK crashing out of the EU with no deal.  However it is thought that sufficient opposition MPs would side with the Government in order to vote a “Soft Brexit” through the House of Commons. Once the final position is resolved, whether a “Soft Brexit” or no deal, it is likely that there will be a leadership challenge against Mrs May from within the Conservative Party. The position of the EU So far the EU have been relatively restrained in their public comments, on the basis that they have been waiting to see the detail of the White Paper. The EU has stated on many occasions that the UK cannot “pick and choose” between those parts of the EU Single Market that it likes, and those it does not.  For this reason, the proposals in the White Paper (which do not embrace all of the requirements of the Single Market), are unlikely to be welcomed by the EU.  It is highly likely that the EU will push back on the UK position to some degree, but it is a dangerous game for all sides to risk a “no deal” outcome.  Absent agreement on an extension the UK will leave the EU at 11 pm on 29 March 2019, but any deal will need to be agreed by late autumn 2018 so national parliaments in the EU and UK have time to vote on it. Finally Whatever happens with the EU the further political risk is the possibility that the Conservatives will be punished in any future General Election – allowing the left wing Jeremy Corbyn into power. It is very hard to quantify this risk.  In a recent poll Jeremy Corbyn edged slightly ahead of Theresa May as a preferred Prime Minister, although “Don’t Knows” had a clear majority. 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, 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.

June 7, 2018 |
Immunity, Sanctions & Settlements 2018 – Spain

Brussels associate Pablo Figueroa is the author of “Immunity, Sanctions & Settlements 2018 – Spain” [PDF] originally published on June 7, 2018 by Global Competition Review Know-How.

July 9, 2018 |
Who’s Who Legal Recognizes 24 Gibson Dunn Attorneys

24 Gibson Dunn attorneys were recognized by Who’s Who Legal in their respective fields. In Who’s Who Legal Competition 2018, 20 attorneys were recognized for their work. The list includes Brussels attorneys Peter Alexiadis, Attila Borsos, Jens-Olrik Murach, Elsa Sependa and David Wood; Dallas partners Sean Royall and Robert Walters; Hong Kong partner Sébastien J Evrard; London partner Ali Nikpay; Los Angeles partner Daniel Swanson; New York partner Eric Stock; San Francisco partners Rachel Brass, Trey Nicoud and Gary Spratling; and Washington, D.C. partners Jarrett Arp, Adam Di Vincenzo, Scott Hammond, Joseph Kattan, Richard Parker and Cynthia Richman. In the 2018 Who’s Who Legal M&A and Governance guide, four partners were recognized: Century City partner Jonathan Layne, New York partner Dennis Friedman and Washington, D.C. partners Howard Adler and John Olson. The guides were published on July 9, 2018 and June 8, 2018.

July 5, 2018 |
Supreme Court Finds Failure to Prove a Sherman Act Section 1 Violation in Credit Card Market

Click for PDF On June 25, 2018, the Supreme Court of the United States assuaged the concerns of many that antitrust enforcement would hobble new and creative ways of conducting business, particularly businesses that have relied on technology to bring consumers and sellers together by offering a “platform” that creates a highly convenient way for them to interact and consummate sales. In Ohio v. American Express, the Court held that plaintiffs failed to prove a Sherman Act Section 1 violation in the credit card market because they presented evidence of alleged anticompetitive effects only on the merchant side of the relevant market. Without evidence of the impact of the challenged practices on the cardholder side of the market, the Court concluded that plaintiffs failed to carry their burden to prove anticompetitive effects. The Court’s opinion has several important elements beyond its holding that certain two-sided platform markets must be evaluated as a single relevant market: Significantly, the Supreme Court discussed a framework for analyzing alleged restraints under the rule of reason for the first time.  Both the majority and dissent adopted the parties’ agreed-upon, three-step framework for analyzing restraints under the rule of reason.  Under this framework, the plaintiff bears the initial burden of proving anticompetitive effects, which shifts the burden to the defendant to show a procompetitive justification.  If the defendant meets its burden of proving procompetitive efficiencies, then the burden shifts back to the plaintiff to show that those efficiencies could have been achieved through less restrictive means.  Notably, the Court did not mention any balancing of anticompetitive effects against procompetitive justifications. The third step in the above rule of reason framework may be the focus of scrutiny as plaintiffs look to find “less restrictive alternatives” to overcome defendants’ evidence of a procompetitive rationale for a challenged practice.  DOJ-FTC Competitor Collaboration Guidelines provide, however, that the agencies “do not search for a theoretically less restrictive alternative that is not realistic given business realities.”  Section 3.36(b). The Court also found that evidence that output of transactions in the relevant market had increased during the relevant period undercut plaintiffs’ reliance solely on evidence of price increases by Amex.  The Court’s reliance on the failure to prove output restriction reinforces the continued vitality of the Court’s prior decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993). The Court rejected the argument that market definition could be dispensed with based on evidence of purported actual anticompetitive effects in the form of merchant fee increases by Amex.  The Court in this regard distinguished horizontal restraints, which in some cases may be analyzed without “precisely defin[ing] the relevant market,” and vertical restraints, stating that vertical restraints frequently do not pose any threat to competition absent the defendant possessing market power. Therefore, it is critical to precisely define the relevant market when evaluating vertical restraints. The case arose out of a decades-old practice.  For more than fifty years, American Express Company and American Express Travel Services Company (together, “Amex”) have included “anti-steering” provisions in contracts with merchants who agree to accept American Express cards as a means of payment. These provisions prohibited merchants from trying to persuade customers to use cards other than American Express cards or imposing special conditions on customers using American Express cards. Absent the challenged provisions, merchants had a strong incentive to encourage customers to use other credit cards because other credit card providers charged merchants lower fees than Amex.  Amex uses the money received from its higher merchant fees to fund investments in its customer rewards program, which offers cardholders better rewards than those offered by rival credit card companies. The United States and several States (“plaintiffs”) sued Amex in October 2010, alleging that the anti-steering provisions violated Section 1 of the Sherman Act. The United States District Court for the Southern District of New York entered judgment for plaintiffs, finding that the provisions violated Section 1 because they caused merchants to pay higher fees by precluding merchants from encouraging cardholders to use an alternative card with a lower fee at the point of sale. The district court sided with plaintiffs in finding that the credit card market was really two separate markets: a merchant market and a cardholder market. The United States Court of Appeals for the Second Circuit reversed, holding that the district court erroneously considered only the dealings between Amex and merchants.  As a result, it failed to recognize that the credit card market was a single, “two-sided” market, not two separate markets.  Therefore, the impact of the anti-steering provisions on the cardholder side of the market had to be analyzed in order to determine if those provisions had a substantial anticompetitive effect in the relevant market.  The Supreme Court affirmed in a 5-4 decision. The majority, in an opinion authored by Justice Thomas, agreed with the Second Circuit that the credit card market should be considered as a single market because credit card providers compete to provide credit card transactions, but can create and sell those services only if both the cardholder and the merchant simultaneously choose to use the credit card network as a means of payment. The market is “two-sided” in that it involves the simultaneous provision of services to both cardholders and merchants; in any transaction, a credit card network cannot sell its payment services individually to only the cardholder or only the merchant. The majority observed that the credit card market exhibited strong “indirect” network effects because prices to cardholders affected demand by merchants and prices to merchants affected demand by cardholders.  Higher prices to cardholders would tend to decrease the number of cardholders, which would decrease the attractiveness of that card to merchants, which in turn would decrease the attractiveness of the card to cardholders.  Conversely, higher prices to merchants would decrease the number of merchants accepting the card, which would decrease the utility of the card to cardholders, decreasing the number of cardholders. In either case, the provider increasing prices faced the risk of “a feedback loop of declining demand.”  Providers therefore had to strike a balance between the prices charged on one side of the platform and the prices charged on the other side. In the credit card market, different cardholders might attribute different value to broad acceptance of their card by numerous merchants or to generosity of “cash back” or other loyalty or usage rewards. Similarly, merchants might assign different values to the level of fees by a credit card provider versus the card’s ability to present the merchant with a higher proportion of “big spenders.” Significantly for future cases, the majority observed that not every “platform” business bringing together buyers and sellers should be considered to be a single market. The majority focused on the strength of the indirect network effects—that is, the potential for increased prices on one side to reduce demand on the other side, prompting a feedback loop of declining demand.  The majority discussed a newspaper selling advertisements to advertisers as an example of a “platform” that should not be considered a single market. According to the majority, the indirect network effects operated only in one direction. Advertisers might well care if high subscription prices reduced the number of readers. But because readers are largely indifferent to the amount of advertising in a newspaper, a reduction in advertisements caused by higher advertising rates would not lead to a reduced number of readers. The Court emphasized the importance of market definition in analyzing alleged anticompetitive effects caused by vertical restraints. Unlike horizontal restraints among competitors, the majority wrote, “[v]ertical restraints often pose no risk to competition unless the entity imposing them has market power, which cannot be evaluated unless the Court first defines the relevant market.” Thus, the Court disagreed with plaintiffs’ assertion that under FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986), evidence of actual adverse effects in the form of increased merchant fees was sufficient proof.  The Court distinguished Indiana Federation of Dentists by noting that it involved a horizontal restraint, and therefore the Court concluded it did not need to precisely define the relevant market to evaluate the restraint’s competitive impact. The dissent, authored by Justice Breyer, accused the majority of “abandoning traditional market-definition approaches” by declining to define the relevant market by assessing the substitutability of other products or services for the product or service at issue. As the dissent noted, because consumers’ ability to shift to substitutes constrains the ability of a seller to raise prices, it is necessary to include reasonable substitutes within the relevant market. The dissent argued that the card providers’ services to merchants and services to cardholders were complements, not substitutes, in the sense that, like gasoline and tires for a car, both must be purchased to have value. But this analogy is inapt in at least two respects. First, there is no need for simultaneity in the purchase of gasoline and tires. Few, if any, consumers buy new tires each time they purchase gasoline. Second, the two complementary products are both purchased by the owner or operator of the vehicle. The seller of gasoline and tires does not have to purchase a service from anyone in order to sell the gasoline or tires (unless the buyer wishes to use a credit card, in which case both the buyer and the merchant must simultaneously choose to use the payment services offered by the credit card provider). This is unlike the credit card context where both the cardholder and the merchant must simultaneously choose to use the payment services offered by the credit card provider. The Court’s acceptance that some businesses operate in a single, two-sided market has implications for antitrust cases involving technology-based “platform” businesses, such as ride-sharing and short-term home rentals, that have become a substantial and growing component of the economy. The outcomes in future cases are likely to turn on the strength of the evidence showing that network effects constrain pricing decisions. Makan Delrahim, the head of the DOJ’s Antitrust Division, said this past week that he had feared the Supreme Court would cause “harm to our economy” by creating a rule for evaluating two-sided markets that would harm new “platform” business models like Uber, AirBnB and eBay. He described DOJ’s philosophy with respect to the case as “it’s one interrelated market, it’s a new business model, and you can’t stick your head in the sand and say, ‘If you’re raising the prices – whether on the consumer or driver – it can’t have an effect.’ And it could be a positive effect, because a Lyft can do the same thing and now be able to compete better with an Uber or whatever the next one would be.”  While Mr. Delrahim acknowledged that the Amex ruling likely would apply to companies like Uber and AirBnB, he does not believe Google will benefit from it, noting that consumers do not use Google Search just to see advertisements. Although the Amex decision is notable for its focus on commercial realities and acceptance of the existence of two-sided markets, there are other significant aspects of the decision.  Most notably, the Court discussed a three-step, burden-shifting framework for analyzing restraints under the rule of reason. This provides welcome guidance, as the Court had not previously discussed any framework or methodology for evaluating claims under the rule of reason.  While the framework was agreed-upon among the parties below, its adoption by the majority (and acceptance by the dissent) nevertheless provides important instruction regarding the steps to be conducted by courts in weighing rule of reason claims under either Section 1 or Section 2.  In the first step of the decision’s framework, the plaintiff bears the burden to prove anticompetitive effects in the relevant market. If the plaintiff carries that burden, in the second step the burden shifts to the defendant to demonstrate a procompetitive rationale for the challenged restraint. If the defendant makes that showing, then in the third step the burden shifts back to the plaintiff to “demonstrate that the procompetitive efficiencies could reasonably be achieved through less restrictive means.” The Court held that plaintiffs had not satisfied the first step of the rule of reason framework. As with many cases, the Court’s definition of the relevant market determined the outcome. To prove anticompetitive effects, plaintiffs relied solely on direct evidence of Amex’s increases in merchant fees during 2005-2010. However, the Court concluded that because the market was two-sided, such evidence was incomplete and did not demonstrate anticompetitive effects in the form of either higher prices for credit card transactions or a reduction in the number of such transactions. Indeed, the Court found that certain evidence in the record cut against plaintiffs’ claim that the anti-steering provisions were the cause of any increases in merchant fees by Amex—for example, rival card companies had also increased merchant fees. The Court also noted that credit card transaction output had increased substantially during the relevant period, further undermining any claim of anticompetitive effects. Quoting from Brooke Group, 509 U.S. at 237, the majority wrote that it will “not infer competitive injury from price and output data absent some evidence that tends to prove that output was restricted or prices were above a competitive level.”  The Court’s focus on output restriction under Brooke Group demonstrates that the Court’s continued insistence on the application of sound economic principles in evaluating antitrust claims. While it noted Amex’s rationale for the anti-steering provisions, the Court did not address the second or third step of the rule of reason framework given its finding that the plaintiffs had failed to satisfy the first step. The Court’s recognition in the third step that proven procompetitive efficiencies may be overcome by a showing of less restrictive means of achieving those efficiencies will likely cause private plaintiffs and enforcement agencies to increase their focus on potential alternatives. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please feel free to contact any member of the firm’s Antitrust and Competition practice group or the following authors: Trey Nicoud – San Francisco (+1 415-393-8308, tnicoud@gibsondunn.com) Rod J. Stone – Los Angeles (+1 213-229-7256, rstone@gibsondunn.com) Daniel G. Swanson – Los Angeles (+1 213-229-7430, dswanson@gibsondunn.com) Richard G. Parker – Washington, D.C. (+1 202-955-8503, rparker@gibsondunn.com) M. Sean Royall – Dallas (+1 214-698-3256, sroyall@gibsondunn.com) Chelsea G. Glover – Dallas (+1 214-698-3357, cglover@gibsondunn.com)

June 26, 2018 |
Gibson Dunn Named Competition Team of the Year at The Lawyer Awards 2018

At its annual awards, The Lawyer named Gibson Dunn as the winner in the Competition Team of the Year category.  The firm was recognized for its work for ICOMP as a complainant in Google’s abuse of dominance case brought by the European Commission.  The Gibson Dunn team was led by Brussels partner David Wood who was assisted by associates Madeleine Healy, Pablo Figueroa and Elsa Sependa. The awards were presented on June 26, 2018.

June 25, 2018 |
Supreme Court Raises The Bar For Antitrust Plaintiffs Challenging Two-Sided Platforms

Click for PDF Ohio v. American Express Co., No. 16-1454  Decided June 25, 2018 The Supreme Court held 5-4 that plaintiffs challenging American Express (“Amex”) credit-card rules for merchants did not prove an antitrust violation because their evidence focused on only one side of the relevant market (the effect of Amex’s rules on merchants) while ignoring the other side (the effect on cardholders). Background: To compete in the market, credit-card companies need a critical mass of both consumers holding their card and merchants who are willing to accept it for payment.  Amex offers cardholder reward programs to encourage cardholders to use its cards.  To fund those programs, Amex charges merchants higher fees than other credit-card companies.  To sustain this business model, Amex’s merchant agreements contain “anti-steering” provisions that prohibit merchants from encouraging cardholders to use other, lower-fee cards at the point of sale.  The federal government and 17 states brought an antitrust suit under the Sherman Act, 15 U.S.C. § 1, arguing that these provisions unreasonably restrain trade. Issue: Whether plaintiffs could prove an antitrust violation by showing that Amex’s anti-steering provisions caused merchants to pay higher prices. “[C]ourts must include both sides of the platform—merchants and cardholders—when defining the credit-market.” Justice Thomas, writing for the 5-4 Court Court’s Holding: No; because both merchants and cardholders participate in the same “credit-card transaction market,” plaintiffs could not prove an antitrust violation based solely on evidence that Amex’s anti-steering provisions increased the price to merchants without considering the net effects on the market as a whole. What It Means: The Court explained that the credit-card industry represents what economists refer to as a “two-sided” market in which credit-card companies provide services to two different groups:  cardholders and merchants.  The Court stated that two-sided markets are often different from other markets because the value of the product to both sides of the market depends on the level of participation by those on the other side of the market. The Court held that in a two-sided market, antitrust violations often—but not always—must be analyzed by looking at the effects of a practice on the market as a whole, rather than looking at just one side of the market.  The Court thus held that plaintiffs could not prove an antitrust violation by showing that Amex’s anti-steering provisions increased the prices paid by merchants, without considering the effect of those provisions on cardholders. The Court noted that it might not be necessary to consider both sides of a two-sided market when participation on one side of the market does not significantly impact participation on the other side of the market.  The Court gave the example of the newspaper advertisement market, where readers are largely indifferent to the number of advertisements that the newspaper contains.  By contrast, the court explained that two-sided “transaction” platforms like the credit-card industry—where companies compete for transactions between merchants and cardholders—usually should be analyzed as a single market. This decision raises the threshold for antitrust plaintiffs, whether private or governmental, in challenging potentially two-sided platforms.  These platforms have recently become substantial parts of the economy. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com   Related Practice: Antitrust and Competition Scott D. Hammond +1 202.887.3684 shammond@gibsondunn.com M. Sean Royall +1 214.698.3256 sroyall@gibsondunn.com Daniel G. Swanson +1 213.229.7430 dswanson@gibsondunn.com   David Wood +32 2 554 7210 dwood@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.

May 25, 2018 |
Gibson Dunn Receives Chambers USA Excellence Award

At its annual USA Excellence Awards, Chambers and Partners named Gibson Dunn the winner in the Corporate Crime & Government Investigations category. The awards “reflect notable achievements over the past 12 months, including outstanding work, impressive strategic growth and excellence in client service.” This year the firm was also shortlisted in nine other categories: Antitrust, Energy/Projects: Oil & Gas, Energy/Projects: Power (including Renewables), Intellectual Property (including Patent, Copyright & Trademark), Labor & Employment, Real Estate, Securities and Financial Services Regulation and Tax team categories. Debra Wong Yang was also shortlisted in the individual category of Litigation: White Collar Crime & Government Investigations. The awards were presented on May 24, 2018.  

May 1, 2018 |
Information Exchange 2018 – European Union

Brussels partner David Wood and associate Madeleine Healy are the authors of “Information Exchange 2018 – European Union,” [PDF] published in Global Competition Review. This is an extract from GCR’s Information Exchange Know-how, first published in May 2018. The whole publication is available at https://globalcompetitionreview.com/know-how/topics/1000332/information-exchange

April 6, 2018 |
Are Disgorgement’s Days Numbered? Kokesh v. SEC May Foreshadow Curtailment of the FTC’s Authority to Obtain Monetary Relief

Dallas partner M. Sean Royall, Denver partner Richard Cunningham and Dallas associate Ashley Rogers are the authors of “Are Disgorgement’s Days Numbered? Kokesh v. SEC May Foreshadow Curtailment of the FTC’s Authority to Obtain Monetary Relief,” [PDF] published in the American Bar Association’s Antitrust Magazine in Spring 2018.

December 1, 2017 |
Examining actions for damages claims based on the state aid rules – Part 1, 2 & 3

Brussels partner David Wood and of counsel Lena Sandberg are the co-authors of “Examining actions for damages claims based on the state aid rules – Part 1,2 & 3,” originally published as a three-part series in Competition Law Insight, Volume 16 Issues 10-12 (October, November and December 2017) © Informa UK 2017. For more information visit https://www.competitionlawinsight.com/.

April 1, 2018 |
The Düsseldorf Court of Appeals confirms a decision of the Bundeskartellamt against all prohibitions or restrictions imposed in relation to online sales made by traditional distributors (ASICS)

Brussels partners Peter Alexiadis, Jens-Olrik Murach and associate Balthasar Strunz are the co-authors of “The Düsseldorf Court of Appeals confirms a decision of the Bundeskartellamt against all prohibitions or restrictions imposed in relation to online sales made by traditional distributors (ASICS)” [PDF] published in e-Competition Bulletin April 2017, Art. N86551.

March 28, 2018 |
EU competition law and selective distribution

Brussels partner David Wood contributed to the “EU competition law and selective distribution” [PDF] piece published by LexisPSL.  

March 28, 2018 |
Antitrust in China – 2017 Year in Review

Click for PDF China’s antitrust regulators had a noteworthy year of enforcement of the Anti-Monopoly Law (“AML“) in 2017. Although there were fewer high-profile, record-breaking cases, 2017 saw China’s antitrust regulators expand their scope of enforcement in both merger and non-merger cases and expend significant effort into producing new legislation and guidelines. This client alert highlights the most significant developments from 2017 and what to expect for 2018. 2018 marks the tenth anniversary of the AML and is expected to be another active and notable year for the continued development of antitrust enforcement in China.  Notably, the Chinese State Council announced on March 13, 2018 that it would seek to merge the three existing antitrust regulators into a centralized agency, called the “National Markets Supervision Management Bureau”.  This merger is likely to lead to a better allocation of resources among the agencies, which should increase the level of enforcement. 1.    Legislative/Regulatory Developments Amendments to the Anti-Unfair Competition Law (“AUCL”). On January 1, 2018 amendments to the AUCL came into force.   The amendments streamline China’s antitrust legislation, so that abuse of dominant position, abuse of administrative power by government agencies and bid-rigging are no longer within the scope of the AUCL and are exclusively dealt with under the AML. The provisions establishing a new prohibition on abuses of a relatively superior position, which had been included in earlier consultation drafts, were not included in the final version. NDRC Guidelines on Pricing Behaviours of Trade Associations. On July 20, 2017 the NDRC issued guidelines with the aim of preventing trade associations from distorting competition.[1]  The guidelines address price-related behaviours of trade associations which are at risk of infringing the Price Law or violating the price fixing provisions of the AML.    The guidelines specifically deal with the release of price information and set out factors that are relevant for considering whether this has breached the Price Law or the AML. Revised Draft Measures on the Review of Concentrations of Business Operators. On September 8, 2017, MOFCOM released second draft amendments to its merger review measures for public consultation.[2] These consolidate the existing implementing rules relating to the merger control provisions of the AML. A first draft had been published in July 2017. The second draft amendments contain significant changes in relation to the meaning of control, the treatment of interrelated transactions, the calculation of turnover and the treatment of concentrations which are below the turnover thresholds. The second draft amendments clarify that, when analysing control, the ability to influence decisions relating to budget, strategy and appointments of senior management should be taken into account. Interrelated transactions through which one undertaking obtains control over another will be considered as one concentration.  Turnover calculations will be required to reflect the entities that the undertaking controls at the time of filing, which may lead to a need for amendments to audited financial statements. Lastly, and perhaps most notably, the draft amendments set out a procedure for MOFCOM to review transactions that fall below the thresholds.  It is unclear when the final guidelines will be released and come into force. Potential Amendments to the AML. In 2017, China’s antitrust enforcement agencies and legislators commenced its work to revise the AML. This will result in the first revisions to the AML in its ten-year life.  At this stage, it is unclear when an initial draft will be released for consultation. Second Draft Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights (Draft for Comments). On March 23, 2017, the Anti-Monopoly Commission of the State Council published the second draft of the “Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights” for public comment.[3] The draft guidelines have been jointly produced by China’s three antitrust enforcement agencies and the State Intellectual Property Office. The draft guidelines introduce a case-specific analytical framework to determine whether an undertaking’s exercise of its IP rights is anti-competitive. They 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).  They also address specific areas of anti-competitive conduct under the AML and introduce a safe harbour provision in respect of certain agreements that would otherwise fall foul of the AML. The application of the AML to intellectual property rights has been a contentious issue ever since the law first came into force. These draft guidelines do not resolve all potential issues; in particular, they lack a definition of “intellectual property right” and do not provide hypothetical examples which would assist in the NDRC’s application of the analytic framework. Planned merger of the antitrust regulators and the establishment of the new agency. On March 13, 2018, the Chinese State Council announced that as part of a wider restructuring of its government agencies, it will consolidate its three competition agencies – NDRC, SAIC and MOFCOM – into a single, centralized regulator. Called the “National Markets Supervision Management Bureau”, the centralized authority “will undertake unified antitrust enforcement and standardize and safeguard market order” by overseeing mergers, pricing and non-pricing issues.[4] This move will bring to an end the eight year-old tripartite system, which had been criticized for its fragmented enforcement and arbitrary assignment of duties. On March 20, 2018, the National Markets Supervision Management Bureau has been formally established. Zhang Mao will be the head and the deputy party secretary of the new agency.[5] 2.    Merger Control MOFCOM received 400 merger filings in 2017. 30% of the cases were considered as “non-simple cases” and foreign-related M&A cases accounted for about 70% of the total in 2017.[6] MOFCOM has improved its efficiency in 2017. As compared to 2016, MOFCOM’s average official launch time after accepting merger reviews has reduced by 19% to 28 days, and the length of merger reviews by an average of 6.9% to 39 days.[7] Approximately 97% of all “simplified procedure” cases that were filed were concluded during the preliminary review stage.[8] In addition, during the course of 2017, MOFCOM removed remedies in 11 transactions out of a total of 34 cases where it has granted conditional approvals since 2008.[9] The remaining 23 deals remain subject to MOFCOM’s remedies and supervision. Published Decisions. Only those MOFCOM decisions prohibiting a transaction, or imposing or removing remedies are published. While MOFCOM did not prohibit any transaction in 2017, it imposed remedies in seven cases, representing a significant increase from two conditional clearances in 2016.[10] On April 29, 2017, MOFCOM conditionally approved the Dow/DuPont merger, by ordering the divestiture of certain assets and business units of DuPont and Dow. MOFCOM further ordered that, within five years after the completion of the proposed merger, Dow and DuPont must: (1) supply Chinese companies with certain active pharmaceutical ingredients (“API“s) and rice herbicide preparations on a non-exclusive basis and at reasonable prices; (2) for plant hopper control, supply Chinese companies with sulfoxaflor and sulfoxaflor-only solutions available for sale in China on a non-exclusive basis and at reasonable prices; and (3) refrain from requiring Chinese distributors to sell certain APIs and existing preparations for Dow’s sulfoxaflor and rice herbicides in China on an exclusive basis.[11] On August 22, 2017, MOFCOM imposed conditions on the Broadcom/Brocade merger clearance, namely: (i) the establishment of a fire wall to protect confidential information on third-party fibre channel adapter products and switch products; (ii) interoperability between Broadcom’s switch products and third-party adapters; (iii) the continued usage of existing terms for Broadcom’s switch products; and (iv) a commitment not engage in tying or bundling. In early November 2017, MOFCOM conditionally approved two transactions, namely: the proposed merger between Agrium and Potash Corporation, and the proposed acquisition of Hamburg Süd by Maersk Line[12]. In the former, MOFCOM required the merged entity to: (i) ensure the Canadian Potash Export Corporation’s (“Canpotex“) stable and reliable supply of potash fertilizer to China on competitive terms; (ii) promote Canpotex’s supply of potash fertilizer to China, with an export volume equivalent to or higher than the average in the last five years, and subject to negotiated terms and conditions; and (iii) maintain its current sales practices.[13] In the latter case, MOFCOM’s approval was subject to Maersk Line’s commitment not to extend a vessel sharing agreement on the Far East Asia – West Coast of South America trade route, to which Hamburg Süd was a party. Maersk Line also committed to terminate Hamburg Süd’s membership of a vessel sharing agreement on the Far East Asia – East Coast of South America trade route as early as possible under the contract terms. On November 24, 2017, MOFCOM conditionally approved ASE’s proposed acquisition of Siliconware. Despite the parties’ market shares in China not exceeding 30%, the decision imposed a two-year “hold-separate” condition, under which the two companies must remain independent of each other for 24 months, by keeping their financial, HR, pricing, sales, production capacity and procurement matters separate.[14] Furthermore, under the conditions, the holding company must exercise limited shareholders’ rights during this period. In addition, the parties must provide semi-conductor packaging and testing services to clients in a non-discriminatory way and set the prices and transaction conditions in a reasonable manner. Lastly, both parties must not restrict customers’ selection of, or transition to, other providers and submit a biannual report to MOFCOM regarding their compliance with the hold-separate condition. Lastly, on December 28, 2017, MOFCOM conditionally cleared Becton Dickinson’s acquisition of CR Bard, under the condition that the parties divest Becton Dickinson’s soft tissue core needle biopsy device business and research assets. Enforcement Against Non-Notified Transactions. In 2017, MOFCOM published penalty decisions for failure to notify reportable transactions in more than 17 cases. In one of these cases, OCI was fined RMB150,000 (approximately $23,749) for failing to notify MOFCOM of a three-step acquisition prior to taking the first step. OCI had notified MOFCOM only before taking the second step of its acquisition. Similarly, Meinian Onehealth was fined RMB300,000 (approximately $47,499) for failing to notify MOFCOM until the final stage of the acquisition.[15] MOFCOM concluded that the various stages of the transaction were mutually dependent and served the same purpose, namely transferring control of Ciming  to Meinian Onehealth. 3.    Non-Merger Enforcement Until the three enforcement agencies are merged into a National Markets Supervision Management Bureau, both NDRC and SAIC enforce the nonmerger provisions of the AML. Due to the NDRC’s fine of RMB6.088 billion (approximately $963.9 million) on Qualcomm (which was the largest fine imposed on a single company in China), 2015 saw a record-setting level of penalties at a total of RMB7 billion (approximately $1.1 billion) imposed by the NDRC. 3.1    NDRC Enforcement Decisions In 2017, the fines imposed by the NDRC amounted to a total of approximately RMB466 million (approximately $73.8 million).[16] The NDRC continued its aggressive enforcement against the pharmaceutical sector during the course of 2017. In February 2017, the Shandong Provincial Price Bureau imposed a fine of RMB120,000 (approximately $18,999) on Weifang Longshunhe Pharmaceuticals Co., Ltd. (“Longshunhe“) for obstructing its on-site investigation into purported anti-competitive pricing activities.[17] This decision represents the first time that the NDRC has imposed a fine for such conduct. The alleged practices occurred while officials gathered evidence on the premises of Longshunhe on August 10, 2016. It has been reported that while officials tried to gather USBs as evidence, an employee of Longshunhe threw them outside of the premises and a number of other employees interfered with the officials’ efforts to retrieve the USBs.[18] 3.2    SAIC Enforcement Decisions In 2017,  the State Administration for Industry and Commerce (“SAIC“) commenced 18 new investigation.[19] The SAIC announced thirteen antitrust penalty decisions totaling approximately RMB49 million (approximately $7.8 million), involving both anti-competitive agreements and abuse of dominance cases.[20] Although the fines imposed by the SAIC in 2017 fall short of the record RMB720 million (approximately $114 million) of penalties it imposed in 2016, which included sanctions for the leading Swedish food processing and packaging solutions company, Tetra Pak, they are noticeably higher than the fines of RMB7.05 million (approximately $1.1 million) in 2015, and RMB14.5 million (approximately $2.3 million) in 2014.[21] Since 2008, SAIC has investigated a total of 86 cases, including 54 monopolistic agreements and 43 abuse of dominance cases. The most significant enforcement action related to Wuhan Xinxing Jingying Pharmaceuticals Co., Ltd. (“Wuhan Xinxing“). The Hubei Administration for Industry and Commerce (the “Hubei AIC“) imposed a fine of RMB372,321 (approximately $56,053) on the pharmaceutical company for imposing unreasonable conditions and abusing its market dominance. The Hubei AIC determined that Wuhan Xinxing had a dominant position in the Chinese markets for the sale of methyl salicylate API. The Hubei AIC concluded that Wuhan Xinxing abused its dominant position by: (i) distorting the competitive order in the relevant markets for methyl salicylate API and final products; (ii) imposing burdensome requirements on manufacturers of final products (such as the provision of production records, payment of deposits and appointment of Wuhan Xinxing as the exclusive distributor); and (iii) harming consumers’ interests, namely through a price increase from RMB 20,000 (approximately $3,167)/tonne to RMB 60,000 – 150,000 (approximately $9,500 – $23,750)/tonne, which was passed on to end customers.[22] The decision demonstrates the effects-based approach of the Hubei AIC: the authority carefully assessed the effect of the alleged anti-competitive practices before determining that they constituted an abuse of dominance. 4.    Civil Litigation 2017 saw the Guangdong High People’s Court hand down a landmark judgment which upheld the lower court’s decision in favour of Shenzhen Tsinghua Sware Software Hi-tech Co., Ltd. (“Sware“).[23] This represented one of China’s first cases where a private plaintiff has successfully challenged the anti-competitive behavior of a government entity by relying on the AML’s administrative monopoly provisions. Sware brought a case against the Guangdong Education Department, arguing that the authority had abused its administrative power to eliminate or restrict competition in 2014 by appointing one of Sware’s competitors, Glodon Software Company Limited, as the exclusive software provider to manage all of the Guangdong province’s project cost management competitions. The Guangdong High People’s Court rejected the Guangdong Education Department’s argument that the relevant conduct could not be challenged by private parties as well as its arguments based on public interest. The Court found that the Guangdong Education Department had in fact breached the AML by eliminating and restricting competition.    [1]   Guidelines on Pricing Behaviours of Trade Associations (《行业协会价格行为指南》) (released July 20, 2017), available at http://www.ndrc.gov.cn/zcfb/zcfbgg/201707/W020170725555925290946.pdf.    [2]   Notice of MOFCOM to Solicit Public Comments on the “Measures on the Review of Concentrations of Business Operators (Revised Draft for Comments)” (商务部关于《经营者集中审查办法(修订草案征求意见稿)》公开征求意见的通知) (released September 8, 2017), available at  http://tfs.mofcom.gov.cn/article/as/201709/20170902640565.shtml.    [3]   Guidelines on Prohibition of Abuses of Intellectual Property Rights (Draft for Comments) For Public Comment (公开征求《关于滥用知识产权的反垄断指南(征求意见稿)》的意见) (released March 23, 2017), available at http://fldj.mofcom.gov.cn/article/zcfb/201703/20170302539418.shtml.    [4]   Central Commission for Discipline Inspection, “Statement on the Institutional Reform Plan of the State Council – The First Session of the 13th National People’s Congress of the People’s Republic of China on March 13, 2018” (关于国务院机构改革方案的说明 — 2018年3月13日在第十三届全国人民代表大会第一次会议上) (released March 14, 2018), available at: http://www.ccdi.gov.cn/toutiao/201803/t20180314_166243.html.    [5]   Xinhua, “Establishment of the National Markets Supervision Management Bureau – Zhang Mao as the Head, and Bi Jingquan as Deputy Head” (国家市场监督管理总局成立 张茅任局长毕井泉任副局长) (released March 23, 2018), available at: http://www.xinhuanet.com/politics/2018-03/23/c_1122578408.htm.    [6]   MOFCOM press release, “Year- End Overview IX for Commerce Work in 2017 – Implement New Development Concept and Do a Good Job of Anti-monopoly Work in New Era” (January 10, 2018), available at http://english.mofcom.gov.cn/article/newsrelease/significantnews/201801/20180102701041.shtml.    [7]   MLex, “China’s MOFCOM lifts remedies in 11 transactions, 23 still under supervision, official says” (released December 15, 2017), available at http://www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=946260&siteid=192&rdir=1.    [8]   Ibid.    [9]   Ibid. [10]   See footnote 4. [11]   MOFCOM 2017, No. 25 Announcement – Announcement of the Anti-monopoly Review Decision concerning Conditional Approval of Proposed Merger between the Dow Chemical Company and E.I. Du Pont Nemours and Company (released May 3, 2017), available at: http://english.mofcom.gov.cn/article/policyrelease/announcement/201705/20170502577349.shtml. [12]   MOFCOM 2017, No. 77 Announcement – Announcement of the Anti-Monopoly Review Decision concerning Conditional Approval of the Acquisition of Equity of Hamburg Südamerikanische Dampfschifffahrts –Gesellschaft KG by Maersk Line A/S (released November 9, 2017), available at: http://english.mofcom.gov.cn/article/policyrelease/buwei/201711/20171102672906.shtml. [13]   MOFCOM 2017, No. 75 Announcement – Announcement of the Anti-Monopoly Review Decision concerning Conditional Approval of Proposed Merger between Agrium and Potash Corporation (released November 7, 2017), available at: http://english.mofcom.gov.cn/article/policyrelease/announcement/201711/20171102672899.shtml. [14]   MOFCOM 2017, No. 81 Announcement – Announcement of the Anti-Monopoly Review Decision concerning Conditional Approval of Undertakings in the Case of Acquisition of Equity Interests of Siliconware Precision Industries Co., Ltd by Advanced Semiconductor Engineering, Inc. (released November 26, 2017), available at: http://english.mofcom.gov.cn/article/policyrelease/buwei/201711/20171102677556.shtml; also see our article, “MOFCOM Clears Semiconductor Merger with a Two-Year “Hold-Separate” Condition”  (released December 8, 2017), available at: https://www.gibsondunn.com/mofcom-clears-semiconductor-merger-with-a-two-year-hold-separate-condition/. [15]   MOFCOM 2017, No. 206 – Decision of Administrative Penalty: Meinian Onehealth Healthcare (Group) Co., Ltd., Failing to Notify of their Concentration (May 11, 2017), available at: http://fldj.mofcom.gov.cn/article/ztxx/201705/20170502573416.shtml. [16]   MLex, “China’s antitrust agencies bid farewell to slow 2017 as new year of expanded enforcement beckons” (released December 26, 2017), available at https://mlexmarketinsight.com/insights-center/editors-picks/antitrust/asia/chinas-antitrust-agencies-bid-farewell-to-slow-2017-as-new-year-of-expanded-enforcement-beckons. [17]   NDRC, Shandong Provincial Price Bureau Fines Longshunhe RMB120,000 for Obstruction of Antitrust Investigation, available at: http://www.ndrc.gov.cn/gzdt/201702/t20170213_837623.html. [18]   Ibid. [19]   PaRR, “SAIC investigates 18 antitrust cases in 2017 – China Competition Policy & Law Conference” (released January 11, 2018), available at https://app.parr-global.com/intelligence/view/prime-2566745. [20]   See footnote 14. [21]   Ibid. [22]   SAIC 2017, No. 4 Announcement – Antitrust Enforcement Announcement on the Case concerning the Abuse of Dominance Position in the Market by Xinxing Jingying Pharmaceutical Limited Company (竞争执法公告2017年4号 武汉新兴精英医药有限公司滥用市场支配地位案) (released March 9, 2017), available at: http://www.saic.gov.cn/fldyfbzdjz/jzzfgg/201703/t20170309_232297.html. [23]   Guangdong High People’s Court, Civil Administrative Appeal Judgment – Guangdong Education Department and Glodon Software Company Limited (广东省教育厅、广联达软件股份有限公司民政行政管理(民政)二审行政判决书) (released October 23, 2017). The following Gibson Dunn lawyers assisted in the preparation of this client update:  Sébastien Evrard, Rebecca Sambrook, Emily Seo and Kobe Chow. 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) Rebecca Sambrook (+852 2214 3729, rsambrook@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.

March 1, 2018 |
Co-operating with the Authorities: The US Perspective

Washington, D.C. partner F. Joseph Warin, San Francisco partner Winston Chan, Washington, D.C. associate Pedro Soto and San Francisco associate Kevin Yeh are the authors of “Co-operating with the Authorities: The US Perspective,” [PDF] published in Global Investigations Review’s Practitioner’s Guide to Global Investigations in March 2018.  

February 1, 2018 |
Who’s Who Recognizes Six Gibson Dunn Partners as Thought Leaders in Competition

Who’s Who Legal has recognized six Gibson Dunn partners in its inaugural edition of Thought Leaders – Competition 2018.  Brussels partners Peter Alexiadis and David Wood, London partner Ali Nikpay, Los Angeles partner Daniel Swanson, San Francisco partner Gary Spratling, and Washington, D.C. partner Scott Hammond were selected due to their “experience advising on some of the world’s most significant and cutting-edge legal matters” and “their ability to innovate, inspire, and go above and beyond to deliver for their clients.”  The guide was published February 2018.

February 3, 2018 |
Mixed Messages in the “By Object” vs “By Effects” Saga: The Enigma of Lundbeck

Brussels partner Peter Alexiadis and associate Pablo Figueroa are the authors of “Mixed Messages in the ‘By Object’ vs ‘By Effects’ Saga: The Enigma of Lundbeck” [PDF] originally published on February 3, 2018 by Competition Policy International.