ALI-ABA Course of Study Product Distribution and Marketing March 18-20, 2009 Charleston, South Carolina. International Enforcement of Vertical Issues

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1 37 ALI-ABA Course of Study Product Distribution and Marketing March 18-0, 009 Charleston, South Carolina International Enforcement of Vertical Issues By Terry Calvani Freshfields Bruckhaus Deringer LLP Washington, D.C. Marie-Claire Strawbridge Freshfields Bruckhaus Deringer London, England

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3 39 ALI-ABA 008 Distribution Programme December 1, 007 INTERNATIONAL ENFORCEMENT OF VERTICAL ISSUES Terry Calvani Freshfields Bruckhaus Deringer LLP, Washington Formerly Commissioner, United States Federal Trade Commission Member & Director of Criminal Cartel Division, An túdarás Iomaíochta With Marie-Claire Strawbridge Freshfields Bruckhaus Deringer, London I. CAUTION: International antitrust counseling with reference to vertical restraints presents a challenge for American lawyers! 1 A. Generally. 1. There is much similarity between European and American antitrust. The American and EU laws on cartels and mergers are very similar. Both the EU and the U.S. proscribe "hard core" cartels. The same could be said to varying degrees about the cartel laws throughout Europe. The same is true of merger law. For example, the Irish Merger Guidelines are nearly identical to the American Guidelines! Therefore, American lawyers find themselves on familiar turf when confronting the cartel and merger laws of the EU and its Member States.. Vertical restraints (and unilateral conduct in Europe), which is the focus of this conference, are different. Be forewarned! Since market power is generally required in order to state a vertical restraint case in both America and the EU, developments in the law of unilateral abuse are very relevant to any discussion of vertical restraints. In last year's Outline, I said that the issue of unilateral conduct would be the big issue of 007. Much progress was made by 1 With more than 100 competition regimes now in place around the world, it is beyond the reach of this outline to summarize the entire landscape. Most, although not all, closely resemble either those of North America or Europe. Accordingly, this outline focuses on the United States and the European Union. There are differences. Most involve process and procedure. But there are differences in substance as well. The Enterprise Act of the United Kingdom, for example, incorporates a dishonesty standard as a part of the Office of Fair Trading and Serious Fraud Office case-in-chief. Nevertheless, an American lawyer would find European cartel law very similar to that of the U.S. It would take little work to get-up-to-speed. For a comparison of the American and Irish cartel experience, see Calvani, Enforcement of Cartel Law in Ireland, 003 Pro. Fordham Corporate Law Inst. 1 (Hawk ed. 004). International Enforcement of Vertical Issues

4 330 various authorities but we are no further forward in terms of concrete reform. The European Commission consulted on the reform of Article 8, holding various seminars and conferences and seeking comments on a draft discussion paper; the U.S. Federal Trade Commission and the Antitrust Division of the Department of Justice held a series of hearings on Section of the Sherman Act and the International Competition Network (the organization of most of the world's competition enforcement agencies) formed a Working Party to study the issue. Thus far nothing has come from any of these efforts. In Europe, this work is ongoing and practitioners and commentators alike eagerly await the publication of draft guidelines for further consultation by the European Commission, likely to happen in the next year, although the Commission has made no commitments. Moreover, with the recent endorsement by the CFI of the Commission s hard line in the Microsoft case, this issue is more than ever a hot topic. B. Warning to "In House Counsel." 1. In September the Court of First Instance ("CFI") reaffirmed the Commission's view that "in-house" lawyers communications are not protected by the legal professional privilege ("LPP") in Akzo Nobel v. Commission. 3 Relying on European Court of Justice ("ECJ") opinion in AM&S, 4 the CFI held that only communications with an external lawyer entitled to practice in one of the EU Member States are protected by the LPP.. This means a. In Europe, communications between a lawyer and its client where the former is bound to the latter by a relationship of employment.i.e., as "in house" counsel, are not protected. b. In order to secure LLP protection, the communication must be between an external lawyer licensed to practice within the Union and the client. Therefore, all protected communication must be through retained legal advisors. c. Furthermore, it is important to note that compliance audit reports prepared by either in-house lawyers or lawyers not 3 4 Joined Cases T-15/03 & T-53/03. Case 155/79 AM&S Europe Limited v Commission of the European Communities, [198] ECR 1575; CMLR 64

5 331 authorized to practice within the Union are not protected by the LLP. II. Jurisdiction under the Treaty. A. Generally: Federal states, like the United States, sometimes have both national and state (or provincial) competition laws. When doing business in Europe, one needs to be mindful of both the law of the European Union and that of the Member States. We focus on the former in this presentation, in part, because we cannot treat the laws of all twenty-seven Member States. See Appendix I for a discussion of differences between the laws of some Member States. B. Jurisdiction under the Treaty is limited to conduct capable of affecting trade between Member States. 1. Articles 81 and 8 generally apply if the restraint may impact trade between Member States.. If it does not, then national law applies. 3. Like application of the Commerce Clause of the U.S. Constitution, the line is heavily blurred in favor of the federal government. a. Like the U.S., both the Commission and the courts have adopted a very liberal interpretation of the inter-state trade clause, thereby enlarging the scope of Articles 81 and 8. 5 b. Be careful reading EU cases on this point; a little knowledge can be dangerous. See for example: (i) The 1966 decision in Société Technique Minière v. Maschinenbau Ulm suggests a more stringent, less liberal test: it must be possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or of fact that the agreement in question may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States. 6 This language is found in repeated decisions. (ii) But, more recent cases have held that if it is foreseeable that the restraint might affect trade this is 5 6 R. Whish, Competition Law 137 (5 th ed. 003) [hereinafter cited Whish ]. Case 56/65 [1966] ECR 35, [1966] CMLR 357 [emphasis added]. 3