Foreign Aid for Antitrust Litigants: Impact of the Intel Decision By Richard Liebeskind, Bryan Dunlap and William DeVinney

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1 Foreign Aid for Antitrust Litigants: Impact of the Intel Decision By Richard Liebeskind, Bryan Dunlap and William DeVinney U.S. courts are known around the world for allowing ample pre-trial discovery. But can a U.S. court order a U.S. company to produce documents for use in a foreign antitrust investigation, even though that discovery would not be available abroad? The Supreme Court answered this question yes in a recent antitrust opinions, which could have future implications for M&A transactions. The Intel Decision The Court ruled, in Intel Corp. v. Advanced Micro Devices, 1 that U.S. district courts have discretion to order discovery for use in a foreign antitrust investigation instigated by a competitor or other interested party even if the discovery would not be available in the foreign forum and even if is not sought by the investigating entity. Although the case arose from a European antitrust investigation, its effect is likely to be felt in foreign litigations, investigations and administrative proceedings in other areas of the law. At issue was the scope of 28 U.S.C ( the Statute ), which authorizes a U.S. district court, at the request of a foreign or international tribunal or upon the application of any interested person, to order discovery for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The Court interpreted that statute to confer broad authority to order discovery in aid of a wide variety of foreign proceedings. The Court emphasized, however, that district courts may deny such discovery requests as unwarranted. The Dispute Intel arose from a complaint that Advanced Micro Devices ( AMD ) made to the Directorate-General for Competition ( DG-COMP ) of the Commission of the European Communities ( Commission ). AMD claimed that Intel, its main competitor, violated European antitrust law by abusing its dominant market position. 2 DG-COMP undertook a preliminary investigation and requested information and documents from Intel. AMD requested that DG-COMP also ask for documents that Intel had produced in the United States in a private antitrust litigation in Alabama. DG-COMP declined. 1 2 Intel, 124 S. Ct (June 21, 2004). DG-COMP, either acting on its own or in response to a complaint, can initiate a preliminary investigation to determine whether a company has violated the antitrust laws and has the authority to seek information from the accused company and to penalize the company for refusing to provide such information. If DG-COMP undertakes an investigation in response to a complaint, DG-COMP may also provide the complainant the opportunity to support its allegations. If DG-COMP determines that there is sufficient evidence, it recommends that the Commission initiate a complaint. The Commissioner of DG-COMP ( Commissioner ) makes the preliminary determination as to whether a violation has occurred and, if so, it serves a Statement of Objections on the target, to which the target may submit written and oral comments. After reviewing the responses, the Commissioner drafts a preliminary decision, which is then reviewed further within the Commission. The Commissioner may then adopt that decision as a final decision, which becomes enforceable within the European Union. The Commissioner s final decision is subject to review by the Court of First Instance and the European Court of Justice.

2 Despite DG-COMP s evident lack of interest, AMD filed an action in the Northern District of California under the Statute seeking an order to produce the documents. The district court denied AMD s request, observing that the European investigation was still in its initial stages and that the Commission acted more as an administrative agency than a foreign tribunal in that it did not separate the functions of investigation, prosecution, and decision-making. Since the European investigation did not amount to a proceeding in a foreign or international tribunal, the court concluded that it lacked statutory authority to order production. Although the [Intel] case arose from a European antitrust investigation, its effect is likely to be felt in foreign litigations, investigations and administrative proceedings in other areas of the law. The Ninth Circuit reversed, finding that DG-COMP s investigation satisfied the statutory criterion because it was at a minimum, one leading to quasi-judicial proceedings. The Ninth Circuit also decided an issue that had been a subject of conflict among the circuits, finding it irrelevant that AMD was not entitled to obtain the requested documents in the DG-COMP investigation. The Ninth Circuit ordered the district court to consider the merits of AMD s discovery request on remand. Intel petitioned for Supreme Court review, arguing that the Ninth Circuit s ruling would expose U.S. individuals and corporations to countless pre-litigation discovery requests stemming from foreign administrative proceedings, including literally thousands of competition law matters reviewed each year by foreign antitrust agencies. 3 After granting certiorari, the Court held that: AMD was an interested person under the Statute; the investigation was a proceeding in a foreign tribunal for purposes of the Statute; the proceeding need not be imminent to entitle the interested party to discovery, only within reasonable contemplation; and the Statute imposed no threshold requirement that the discovery sought be available in the foreign proceeding. 4 Interested Person Requirement The Court rejected Intel s argument that, to be an interested person, AMD would need to be a litigant or a foreign sovereign, rather than a mere complainant. The Court noted that although AMD was not a party to the European investigation, it had certain rights for example, to submit evidence and to appeal to the European Court of First Instance if the Commission discontinued the investigation or dismissed the complaint. The Court found that, since AMD 3 4 Petition for Writ of Certiorari, 2002 WL , at *6 (Nov. 15, 2002). Justice Ginsburg wrote for the six-judge majority. Justice Scalia concurred in the judgment. Justice Breyer dissented. Justice O Connor did not participate.

3 possessed a reasonable interest in obtaining [judicial] assistance, it qualified as an interested person under the Statute. 5 Proceeding in a Foreign or International Tribunal Intel argued that AMD s complaint was still at the investigative stage and that, since neither DG-COMP nor the Commission has a tribunal s traditional proof-taking function, there was no proceeding before any foreign tribunal. 6 The Court disagreed, finding that the investigation (and any subsequent activity before the Commission, which would act as the initial decision-maker of first instance) amounted to a proceeding before a foreign tribunal. 7 Recognizing the breadth of its reading of the Statute, the Court stressed that district courts also have broad discretion to deny the discovery sought. The Court explained that a district court is authorized to order discovery pursuant to the Statute in quasi-judicial proceedings as well as traditional judicial proceedings. Here, therefore, even though the investigation was still at a preliminary stage, the Statute was satisfied because it was within reasonable contemplation that the investigation would eventually result in a dispositive decision by the Commission subject to review by European courts. 8 Discoverability in Foreign Proceeding The Supreme Court resolved a conflict among appellate courts over whether, to qualify under the Statute, the material sought must be discoverable abroad by the interested person or the foreign tribunal. The First, Fifth and Eleventh Circuits had all held that the material must be available under foreign law. The Second, Third and Ninth Circuits had taken the opposite view. In years to come, Intel may impact international M&A practice at both pre- and post-closing stages. The Supreme Court agreed with the latter position, finding nothing in the text of the statute or the legislative history to suggest that Congress intended to limit district courts authority to order discovery in that fashion. District courts may order discovery under the Statute even if it would not be available in the country where the proceeding is pending, the Court ruled Intel, 124 S. Ct. at The Court rejected the Second Circuit s view that the Statute requires that the proceedings before the foreign tribunal are either in progress or imminent very likely to occur and very soon to occur. Eurompema, S.A. v. Esmerian, Inc., 154 F.3d 24, 29 (2d Cir. 1998). Intel, 124 S. Ct. at Id. 124 S. Ct. at Id. 124 S. Ct. at 2481; In his concurring opinion, Justice Scalia stated that he would have reached the same result by reading the statute in accord with the customary deference to the application of foreign countries laws within their own territories. The lone dissenter, Justice Breyer, maintained that the Court should have limited the scope of the Statute to avoid the expense, delay, and threats thereof associated with discovery and discovery-related proceedings. Justice Breyer would have disallowed discovery requests under the Statute in any situation where both i) a private person seeking discovery would not be entitled to that discovery under foreign law, and ii) the

4 Discretion Vested in District Courts Recognizing the breadth of its reading of the Statute, the Court stressed that district courts also have broad discretion to deny the discovery sought. The Court directed the district court in this case to consider the nature of the tribunal, the character of the proceedings abroad, and the receptivity of the foreign government to the district court s assistance. The Court also recommended that the district court scrutinize the request itself to determine if its scope is appropriate or if, rather, it is an attempt to circumvent foreign proof-gathering restrictions. 10 Courts have been quick to apply the learning of Intel. For example, the Second Circuit recently affirmed a district court s denial of German petitioners request for discovery materials in aid of German judicial proceedings in Schmitz v. Bernstein Liebhard & Lifshitz LLP. 11 Deutsche Telekom AG ( DT ) was subject to several lawsuits in Germany, a class action in the U.S., and a criminal investigation by the Bonn Public Prosecutor. Twenty-eight of the plaintiffs in the German suits petitioned the Southern District of New York, where the class action was pending, for access to the discovery materials exchanged pursuant to a protective order. The Bonn Prosecutor, who possessed the same documents but refused to produce them to the 28 German plaintiffs, opposed the motion claiming production would jeopardize German sovereign rights. The Second Circuit, relying on Intel, affirmed the district court s denial based on the concerns of the Bonn Prosecutor. Schmitz could be viewed as a victory in fending off a request under the Statute. But, after incurring the time and expense of a year and a half of litigation before a district court and an appellate court, it may not feel much like a victory at all. Although Intel gave some guidance on how to exercise discretion under the Statute, district courts will likely be grappling with this issue for quite some time before a consistent practice develops. In years to come, Intel may impact international M&A practice at both pre- and postclosing stages. Before closing, while a transaction is being scrutinized by antitrust or other regulatory agencies abroad, opponents who are permitted to intervene in those investigations may seek U.S. discovery under the Statute to help convince the foreign agencies to prohibit the deal. Because it takes time to obtain a discovery order and additional time to take the discovery, however, the practical effect of such tactical blocking is likely to be limited. Post-closing, the opponent s strategic goal would be to convince a foreign court or regulator to order the transaction to be rescinded or substantially changed. At either stage, regardless of the merits, there is reason to fear that, given Intel s permissive definition of interested party and foreign proceeding, discovery applications under the Statute may be used to drive up a rival s costs and apply pressure to force a settlement. In Intel, the European Commission s amicus brief argued that companies would be less likely to participate in its antitrust leniency program if their submissions to the Commission discovery would not be available under domestic law in analogous circumstances. Justice Breyer felt that both circumstances were present in Intel. 10 Id. 124 S. Ct. at Schmitz, 376 F.3d 79 (2d Cir. July 20, 2004).

5 could be discoverable in the United States pursuant to the Statute. The U.S. Government did not support the Commission s argument. Instead, the Solicitor General argued that the Court should interpret the Statute expansively, despite the Commission s enforcement concerns, and leave it to the district courts whether or not to grant discovery requests on a case-by-case basis. Conclusion It will probably take some time before courts and litigants work their way through the implications of Intel. Although Intel gave some guidance on how to exercise discretion under the Statute, district courts will likely be grappling with this issue for quite some time before a consistent practice develops. It remains to be seen how broadly district courts will choose to exercise their discretion in future applications for discovery under the Statute. And it remains to be seen how popular such applications will become as a litigant s tactical weapon in foreign disputes. In the short run, at least, Intel has opened the door to a new area of motion practice. It seems likely to engender a number of significant, costly discovery orders, until the courts set out reasonable guidelines for applying the Statute. Richard Liebeskind (rliebeskind@pillsburywinthrop.com) is a partner, and Bryan Dunlap (bdunlap@pillsburywinthrop.com) and William DeVinney (wdevinney@pillsburywinthrop.com) are senior associates with Pillsbury Winthrop LLP. Pillsbury Winthrop represents Intel on various matters unrelated to the AMD litigation.