ABA Section of Antitrust Law International Committee January 2015 2014, Vol. 4

The International Antitrust Bulletin is pub-lished four times a year by the American Bar Association Section of Antitrust Law Interna-tional Committee. The views expressed in the International Antitrust Bulletin are the au-thors’ only and not necessarily those of the American Bar Association, the Section of Antitrust Law or the International Committee. If you wish to comment on the contents of the International Antitrust Bulletin, please write to the American Bar Association, Sec-tion of Antitrust Law, 321 North Clark Street, Chicago, IL 60654-7598.

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IN THIS ISSUE

What In The World Did I Miss? A summary of the world’s major competition law developments in the past quarter.

Africa .................................................................................................................................................... 2 Asia ........................................................................................................................................................ 3 Australasia ............................................................................................................................................ 4 Europe .................................................................................................................................................. 6 North America .................................................................................................................................... 7 South America ..................................................................................................................................... 8

Asia

Automobile Manufacturers Fined for Restricting Access to Replacement Parts ..................... 9 K K Sharma

Are Commitments the New Form of Settlement for the Indian Competition Authority? .. 11 Suhail Nathani & Gauri Chhabra

New Malaysian Guidelines on Financial Penalties and Leniency: Some Clarity, ................... 13 Some Concerns. . .

Andre Gan, Lydia Kong & Grant Murray

Europe

The EUMR White Paper: Reassessment of the Targeted Transparency System ................... 15 Thu Hoang

Exchange of Confidential Information among Competition Authorities ............................... 17 Becomes a Reality for the First Time in Europe with the Entry into Force of the Competition Cooperation Agreement between the European Union and Switzerland

Dominique Guex

North America

International Suppliers and Retailers Get Two Lumps of Canadian Competition ................ 19 Law Coal for the Holidays

Davit Akman, François Baril, Corry Lomer, Kelley McKinnon & Mark Nicholson

South America

Brazilian Merger Control: Recent Changes .................................................................................. 21 José C. Berardo, Bruno B. Becker & Vitor J.M. Barbosa

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Krisztian Katona kkatona@ftc.gov Assistant Editor Jane Antonio jane.antonio@bakerbotts.com International Committee Leadership

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Botswana

The Botswana Competition Authority has intervened in two markets in order to address alleged refusals to deal or supply to customers in Botswana. In both cases the suppliers were based in South Africa, one with an agent in Botswana and the other a distributor that refused to deal with or supply a local customer. The alleged refusal to deal involves a local enterprise in the business of physiotherapy and massage that utilizes Ceragem technology. www.competitionauthority.co.bw/sites/default/files/Botswana%20Competition%20Bulletin%20Issue%205%20Volume%202.pdf

November 12, 2014 — In the Botswana Competition Authority’s largest bid-rigging case, the Competition Authority alleges that two Gaborone-based companies colluded on a P114 million (approximately USD 1.9million) tender to supply primary schools nationally with sugar beans from China. Creative Business Solutions (trading as Bread and Butter Foods) and the Rabbit Group have been charged with market division and bid rigging in relation to supplying beans to

primary schools, on the basis that, although the two bids were submitted by two different companies, the supply was a collaborative effort between the two respondents. www.sundaystandard.info/article.php?NewsID=21514&GroupID=1

COMESA

October 31, 2014 — COMESA published its Merger Assessment Guidelines, which confirm the COMESA Commission’s approach in respect of the scope of the Regulations is limited to mergers which have an appreciable effect on trade between Member States and which restrict competition in the Common Market. www.comesa.int/attachments/article/1364/141031_Merger%20Assessment%20for%20Publication.pdf and http://africanantitrust.com/2014/11/01/new-merger-guidelines-fail-to-adjust-flawed-notification-threshold/

Malawi

November 19, 2014 — The Malawi Competition and Fair Trading Commission is closely monitoring the sugar industry for possible abuses of market power after receiving complaints of high sugar prices by Illovo Sugar (Malawi) Limited. http://mwnation.com/malawi-competition-commission-watching-sugar-industry/

South Africa

November 12, 2014 — The Competition Commission referred a complaint against WBHO Construction (Pty) Ltd, Group Five Con-struction Ltd, Aveng (Africa) Ltd, Murray & Roberts Limited, Stefanutti Stocks Holdings Limited and Basil Read (Pty) Ltd to the Competition Tribunal, seeking the maximum fine of 10% of turnover from the respondents for alleged contraventions of the Com-petition Act which were not settled as part of the fast-track settlement process in 2013. Although Aveng and Murray & Roberts were cited as respondents, Aveng has settled with the Commission and Murray & Roberts was granted conditional immunity. www.compcom.co.za/wp-content/uploads/2014/11/Stadia-Referral-Part1-12Nov14.pdf and www.compcom.co.za/media-advisory-13-november-2014-2010-fifa-world-cup-stadia-referral/

December 4, 2014 — Ending off a year of numerous dawn raids, the Competition Commission announced that it had conducted its third search and seizure / dawn raid operation this year, and this dawn raid was conducted at the offices of InvestChem (Pty) Ltd and Akulu Marchon (Pty) Ltd (which is one of the businesses of AECI Chemicals) in Johannesburg. The firms manufacture and supply a range of surfactant products. Surfactants may act as detergents, wetting agents, emulsifiers, foaming agents, dishwashing liquids, soaps, car cleaning products and dispersants. www.compcom.co.za/wp-content/uploads/2014/09/Competition-Commission-raids-Investchem-and-Akulu-Marchon-offices.pdf

December 10, 2014 — The Competition Commission has published Draft Guidelines for the Determination of Administrative Penal-ties for Prohibited Practices for comment, which set out a proposed methodology which the Commission will (consistently) follow when concluding consent agreements, settlement agreements and when recommending an administrative penalty in a complaint refer-ral before the Competition Tribunal. www.compcom.co.za/wp-content/uploads/2014/09/Guidelines-for-the-determination-of-Administrative-Penalties-for-prohibited-practices.pdf

Africa ....................................................................................................................................................................................................... John Oxenham Nortons Inc., South Africa

John Oxenham is a Co-Founder and Director of Nortons Inc. in Sandton.

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China

China Assures Nationality-Blind Antitrust Enforcement, October 7, 2014 — Clearly mindful of recent criticisms and concerns from some quarters (including the EU Chamber of Commerce in China) that China uses its antitrust regime as an industrial policy tool and to assuage foreign inves-tors, China’s Ambassador to the United Kingdom assured that China enforces its antitrust law equally vigorously against everybody and foreign companies need not fear discriminatorily harsher antitrust treatment. The ambassador also reportedly resorted to statistics to buttress his case – only 10% of the NDRC’s (National Development and Reform Commission in China) investiga-tions involved foreign companies. Of course, there are no statistics about the number of foreign companies in China that were paid a visit by the NDRC or SAIC (State Administration for Indus-try and Commerce) in recent years. Chinese Government Press Release, translated into English by PaRR availa-ble at http://app.parr-global.com/intelligence/view/1170384

Korea

KFTC Announces Amended IP Guidelines. . . on Christmas Eve, December 24, 2014 — The Korea Fair Trade Commission (KFTC) was busy on Christmas Eve, issuing a press release on its amended IP Guidelines. They do not contain anything particularly sensa-tional or controversial. However, the KFTC did reaffirm or clarify through the amended IP Guidelines a few concepts, such as the observation that IP rights in and of themselves do not amount to market power. Regarding NPEs (non-practicing entities), the IP Guidelines offer guidance on when an NPE’s conduct might raise antitrust concerns. Last but not least, regarding standard essential patents (SEP), they offer clarifications on when SEP holders may run afoul of antitrust rules in Korea. They also explicitly discuss when SEP holders’ seeking injunctions may or may not raise significant antitrust issues. http://eng.ftc.go.kr/bbs.do?command=getList&type_cd=52&pageId=0305

India

It’s All About Collection That Counts, Even For (or Especially For) Antitrust Enforcement Agencies, November 20, 2014 — The Chairman of the Competition Commission of India (CCI) reportedly explained that the CCI managed to collect less than 10% of the fines it imposed on various violators, all due to stays by the courts including the Competition Appellate Tribunal and the Delhi High Court. One could wonder whether CCI was over-zealous in bringing cases in the first place or whether the Indian judiciary is overly generous and pro-accused. It would be also interesting to see the final tally after all available appeals have been exhausted and mat-ters finally adjudicated. www.livemint.com/Politics/hBj3ys7T2spmbkViUhkc2J/CCI-has-recovered-less-than-10-of-penalties-imposed-by-it.html

Japan

Japan Studies Antitrust Investigation Procedures But Stops Short of Adopting Certain Defense Rights, December 24, 2014 — The Advisory Panel on Administrative Investigation Procedures under the Anti-Monopoly Act in Japan has issued its report. Many West-ern legal concepts and principles are still new in Japan (and also in Korea and many other parts of the world) especially when it comes to the accused’s procedural rights. For example, the Panel promises to study the concept of attorney-client privilege and how it, or probably a variation thereof, might be adopted in Japan. For now, however, the Panel concludes that “it is not appropriate to intro-duce attorney-client privilege at the present stage, because the grounds and scope of the privilege are not clear and it could not dispel concerns that the fact-finding ability of the JFTC would be impeded as a result of introducing such privilege.” www8.cao.go.jp/chosei/dokkin/finalreport/brief-english.pdf

Asia .................................................................................................................................................................................................................... Cecil Chung Yulchon LLC, Korea

Cecil Chung is Senior Foreign Counsel and Vice Chair of the Antitrust Group & Head of Interna-tional Antitrust in the Seoul office of Yulchon LLC.

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Australia

November 28, 2014 — The Australian Competition and Consumer Commission (ACCC) released a report on the comparator website industry in Australia saying that while comparator websites may assist consumers in making informed purchasing decisions, poor conduct by some industry participants may undermine these benefits and mislead consumers. The ACCC will be releasing best practice guidelines to assist comparator website operators and businesses to comply with Australia's competition and consumer protection laws early next year. www.accc.gov.au/media-release/comparing-apples-with-apples-accc-report-on-the-comparator-website-industry-in-australia

December 17, 2014 — The ACCC has appealed the Federal Court’s decision to dismiss the ACCC’s pro-ceedings against Air New Zealand Ltd (Air New Zealand) and PT Garuda Indonesia Ltd (Garuda) in the air cargo proceedings. Air New Zealand and Garuda were the only remaining parties in these proceedings with all other respondent airlines having settled the proceedings. The trial judge concluded that although a num-ber of the price fixing arrangements alleged by the ACCC were established which may have had an effect on

prices in Australia, the cartel conduct did not take place in a “market in Australia” in which the airlines were competing, as was required by the Act at the time. The ACCC’s appeal is solely focused on the Court’s finding that there was no “market in Australia.” www.accc.gov.au/media-release/accc-appeals-air-cargo-cartel-decision

December 22, 2014 — The Federal Court made declarations in two proceedings instituted by the ACCC that Coles Supermarkets Australia Pty Ltd (Coles) engaged in unconscionable conduct in 2011 in its dealings with certain suppliers. The Court has also ordered Coles pay combined pecuni-ary penalties of $10 million and costs. Coles will also enter a court enforceable undertaking to the ACCC to establish a formal process to provide options for redress for over 200 suppliers referred to in the proceedings. The ACCC first instituted the proceedings in the Federal Court after an investigation it conducted into Coles' Active Retail Collaboration (ARC) program, in May 2014. www.accc.gov.au/media-release/court-finds-coles-engaged-in-unconscionable-conduct-and-orders-coles-pay-10-million-penalties

Indonesia

September 30, 2014 — The Business Competition Supervisory Commission (KPPU) reiterated its stance in opposing the floor pricing plan for airfares, saying it hampers the consumer’s right to cheap air tickets. Mohammad Reza, the KPPU’s Head for Public Relations and Cooperation, said the KPPU had long supported the idea that pricing plans should only regulate the ceiling price. Responding to the view that low airfares com-promise safety, Taufik Ahmad, the KPPU Director of Policy Review and Advocacy, said the false logic of equating cheap airfare with low-quality services needed to be altered because safety in air travel, regardless of its rates, remained the same as stipulated in Indonesia's safety precautions and regulations. www.thejakartapost.com/news/2014/09/30/kppu-opposes-floor-airfares-plan-high-price-avtur.html

October 14, 2014 — The KPPU stated that preliminary hearings have begun against six car tyre manufacturers that are members of the Indonesian Tire Producers Association (APBI) allegedly involved in cartel practices. KPPU investigators found a number of alleged violations to Law No.5/2009 on the prohibition against monopolistic practices and unfair business competition , including price fixing in an APBI meeting. It was reported that each APBI member was requested to present their company reports on production, export, raw material use and selling, during these APBI meetings. The APBI also requested its members not slash prices of their products, saying that if the market was flooded with cheap prod-ucts, prices would fall, making it difficult for members to accelerate prices in the future. http://m.thejakartapost.com/news/2014/10/14/kppu-investigates-alleged-cartelization-tire-industry.html

Malaysia

October 16, 2014 — The Malaysia Competition Commission (MyCC) has finalized and published its Guidelines on Leniency Regime and Financial Penalties. The MyCC emphasized that while the guidelines offer a framework for enterprises to understand the way the MyCC will interpret sec-tions in the Act pertaining to leniency and penalty, enterprises should also conduct self-assessments in respect of their conduct, procedures, man-agement and control to avoid serious implications arising from infringements. http://mycc.gov.my/wp-content/uploads/2014/05/News-Release-MyCC-publishes-Guidelines-on-Financial-Penalty-and-Leniency-Regime.pdf

New Zealand

November 27, 2014 — The Commerce Commission New Zealand (CCNZ) granted clearance to GlaxoSmithKline Australia Pty Ltd (GSK)to ac-quire the consumer health business of Novartis International AG (NIAG). In assessing the application for clearance, the CCNZ considered that the acquisition would result in an overlap of the parties products in a number of markets. These markets include the wholesale supply of systemic pain relief products and cold sore treatments. The CCNZ is satisfied that the acquisition will not have the effect of, or likely effect of, resulting in, the substantial lessening of competition in any of these markets. www.comcom.govt.nz/the-commission/media-centre/media-releases/detail/2014/commission-grants-clearance-to-consumer-pharmaceutical-merger

Australasia ........................................................................................................................................................................................... Linda Evans Clayton Utz, Australia

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The CCNZ has reached major settlements with financial institutions relating to the marketing, promotion and sale of interest rate swaps to rural customers. Individual settlements have been made with ANZ Bank New Zealand Limited, ASB Bank Limited, and Broadlands Finance Limited. www.comcom.govt.nz/fair-trading/fair-trading-media-releases/detail/2014/anz-to-pay-19-million-in-interest-rate-swaps-case; www.comcom.govt.nz/fair-trading/fair-trading-media-releases/detai l/2014/asb-to-pay-3.2m-in-interest-rate-swaps-case; www.comcom.govt.nz/fair-trading/fair-trading-media-releases/det ail/2014/finance-company-to-refund-customers-3.3-million

Philippines

November 28, 2014 — The Office for Competition of the Department of Justice (OFC-DOJ) announced that Assistant Secretary, Geronimo Sy, had been designated as the 2015 Convenor of the Competition Poli-cy and Law Group (CPLG) of the Asia Pacific Economic Cooperation (APEC), which the Philippines will host next year. www.doj.gov.ph/news.html?title=DOJ%20OFC%20Head%20is%202015%20APEC-CPLG%20Convenor&newsid=324#sthash.37WAQKsV.dpuf

November 3, 2014 — The OFC-DOJ announced its findings on the transport sector focused in the harbor pilots operating in the country’s ports. The purpose of the study, conducted jointly with the Philippine Ports Authority (PPA), was to assess, identify and resolve competition issues in the movement of cargo and goods, starting with the ports of entry. Among the major competition-related issues that surfaced, were the: (a) monopoli-zation of pilotage services due to exclusive privilege granted to harbor pilots association; (b) lack of transparency in harbor pilots’ transactions; and (c) non-compliance of harbor pilots with the prescribed rates and services. A key recommendation was for the liberalisation of the pilotage indus-try. The PPA General Manager, Juan C. Sta. Ana, stated “improving efficiency at each step of the supply chain of the goods that pass through our ports will benefit consumers and end-users. Reduced cost of transport will ultimately result to lower prices.” www.doj.gov.ph/news.html?title=DOJ%20completes%20Study%20on%20Harbor%20Pilots%20in%20Ports&newsid=318

Singapore

November 14, 2014 — The CCS published its grounds of decision on the proposed acquisition of JobStreet Singapore by SEEK Asia Investments Pte Ltd. CCS has found that the acquisition will substantially lessen competition in the market for online recruitment advertising services in Singa-pore. However, the CCS has granted approval of the acquisition, conditional upon the implementation of, and compliance with, the behavioural and divesture commitments offered by SEEK Ltd. and SEEK Asia Investments Pte. Ltd, and accepted by CCS after conducting market consulta-tions. www.ccs.gov.sg/media-and-publications/media-releases/ccs-publishes-reasons-for-conditionally-approving-the-proposed-acquisition-of-jobstreet-singapore-by-seek-asia-investments-pte-ltd

December 11, 2014 — The CCS has issued an Infringement Decision (ID) against 11 freight forwarders and their Singapore subsidiaries for in-fringing section 34 of the Competition Act (Cap.50B) (the Act) by collectively fixing certain fees and surcharges, and exchanging price and custom-er information in relation to the provision of air freight forwarding services for shipments from Japan to Singapore. Both the Japan and related Singapore companies were found to be jointly and severally liable for the infringement. Financial penalties have been imposed on 10 out of the 11 freight forwarding companies. One company escaped being penalised as it qualified for full immunity under CCS’s leniency programme. The finan-cial penalties amount to S$7,150,852. Mr. Toh Han Li, Chief Executive, CCS, said “Price fixing among competitors (thus forming a cartel) is con-sidered one of the most harmful types of anti-competitive conduct. It distorts the terms of trade between the cartelists and their customers, with the latter not being able to enjoy competitively determined rates. As an open economy, Singapore businesses are vulnerable to such international cartels.” www.ccs.gov.sg/media-and-publications/media-releases/ccs-fines-10-freight-forwarders-for-price-fixing

Vietnam

The Vietnam Competition Authority (VCA) is currently conducting an investigation into a major foreign direct investment (FDI) enterprise spe-cialising in film importation and distribution for alleged abuse of a dominant position in the distribution of imported motion pictures in Vietnam. This investigation marks the first time since the enactment of the Vietnam Competition Law (VCL) that the VCA has investigated the business activities of an FDI enterprise. The case is still pending a final decision from the Council.

According to the VCA there are two ongoing investigations against price-fixing cartels: (a) in the roofing panel market in North and Central Vi-etnam; and (b) the passenger hydrofoil market on the Ho Chi Minh–Vung Tau route. http://globalcompetitionreview.com/reviews/60/sections/206/chapters/2351/vietnam-overview/

Brunei, Burma (Myanmar), Cambodia, Laos

Draft competition law underway. ASEAN post-2015 Competition Action Plan was set to be finalised during the 14th The ASEAN Experts Group on Competition (AEGC) meeting in November 2014. It is yet to be published.

Australasia ........................................................................................................................................................................................... Linda Evans Clayton Utz, Australia

Linda Evans is a Partner in the Sydney office of Clayton Utz.

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Denmark

Danish Competition Authority Imposes Largest Fine Ever, November 3, 2014 — A Danish con-struction company settled a case with the Danish Competition and Consumer Authority (and Danish public prosecutor), agreeing to pay a fine of DKK 10 million (approx. US$1.6 million). This penalty, the largest ever imposed by the Danish authority, was levied against the company – Elindco – for participation in bid rigging activities in the construction industry between 2007 and 2009. A total of 28 other companies have now been charged as part of the investigation into the suspected activity and the imposition of this fine illustrates a general move by the Danish authority to bolster its cartel investigation and enforcement activities. http://en.kfst.dk/Indhold-KFST/English/Decisions/20141105-Largest-fine-ever-imposed-in-a-competition-case?tc=C4B4A4263E6147FCB14D4C1268C2E74B

European Union

European Directive on Antitrust Damages Actions Adopted, November 10, 2014 — The EU adopted a new Directive which will be enforced in all Member States within two years. The Directive is intended to make it easier for victims of antitrust infringements to claim damages. The new Directive will allow national courts to order companies to disclose evidence and sets up the opportunity of compensation for those affected by cartels; there will be a limitation period of one year for applicants to submit claims for damages, dated from the time that a decision is issued by a competition authority. http://europa.eu/rapid/press-release_IP-14-1580_en.htm

EU General Court Confirms European Commission Electronic Inspection Powers in Antitrust Investigations, November 26, 2014 — The EU Court of Justice rejected an appeal brought by EP Holdings against a European Commission finding of obstruction of a dawn raid inspection. The Commission had imposed a fine of €2.5 million on EP for failing to block a particular email account and by diverting incoming emails, during the course of an unannounced inspection. The Court found that the Commission does not need to prove that any document was removed or manipulated in The ruling was received positively by the Commission as obstructions digitally can severely damage and delay an on-going investigation. This ruling sends a clear message to all companies that any obstruc-tion can lead to fines, such as this one, of EUR 2.5 million. http://europa.eu/rapid/press-release_MEMO-14-2181_en.htm

European Commission to Exchange Evidence with Swiss Competition Authorities, December 1, 2014 — The first “second genera-tion” agreement between the European Commission and a third country, Switzerland, entered into force. The agreement means that evidence and documents obtained during an investigation in the respective authorities can be exchanged. Business secrets and person-al information are subject to strict conditions and the information can only be used for the same matter and to enforce competition laws. Other bilateral cooperation agreements (e.g. with the U.S., Canada and Japan) do not provide for the possibility of the exchange of evidence, making them “first generation” agreements. http://europa.eu/rapid/press-release_IP-14-2245_en.htm

European Commission Extends its Tax-Related State Aid Investigations, December 17, 2014 — Since June 2013 the European Com-mission has been investigating tax ruling practices under EU State aid rules; these investigations have so far covered seven EU Mem-ber States and included companies such as Apple, Starbuck, Fiat and Amazon. The Commission has now in seven member states to battle aggressive tax planning by multinational companies. These initial investigations led to the opening of four official state aid in-vestigations thus far; Apple in Ireland, Starbucks in the Netherlands, Fiat Finance & Trade in Luxembourg and Amazon in Luxem-bourg. On December 17 Commission Vestager announced the extension of those inquiries to cover all EU Member States, request-ing information on Member State tax rulings between 2010 and 2013. http://europa.eu/rapid/press-release_IP-14-2742_en.htm

Europe ................................................................................................................................................................................................... David Cardwell Baker Botts LLP, Brussels

David Cardwell is a Senior Associate in the Brus-sels office of Baker Botts L.L.P.

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Canada

December 12, 2014 –After receiving complaints about TELUS Health’s non-reportable proposed acquisition of XD Solutions, the Canadian Competition Bureau (CCB) initiated an investigation of the transaction and found that certain of XD3 Solutions’ and TELUS Health’s contractual terms limited competition by restricting a pharmacist's ability to switch software providers. To resolve the CCB’s concerns, TELUS Health has committed to amend certain of its contracting practices to make it easier for pharmacists to switch to another service provider, and ultimately ensure that new or existing pharmacy management solution providers are able to effectively compete in Que-bec. www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03863.html

Mexico

December 16, 2014 – The Instituto Federal de Telecomunicaciones (Ifetel) has approved a plan from Televisa, the world’s largest provider of Spanish-language television content, that lays out how the company will share infra-structure with competitors in order to avoid penalties tied to its share of controlling more than half the Mexican TV broadcast mar-ket. Televisa’s plan is designed to comply with a prior order to trim its market share after previously being named the sector’s domi-nant player by Ifetel earlier this year. www.reuters.com/article/2014/12/17/mexico-grupo-televi-idUSL1N0U103R20141217

United States

November 7, 2014 – After abandoning their transaction due to opposition from the U.S. Department of Justice, Antitrust Division (“DOJ”), Flakeboard and SierraPine reached a settlement with DOJ regarding allegations that the two parties had engaged in illegal premerger coordination. The parties allegedly agreed to shut down one of SierraPine’s fiberboard mills and move its customers to Flakeboard prior to consummating the proposed acquisition. DOJ alleged that this conduct a per se unlawful output reduction and customer allocation agreement that violated Section 1 of the Sherman, as well as unlawful “gun-jumping” conduct that violated the HSR Act’s prohibition on the transfer of beneficial ownership prior to the receipt of HSR clearance. www.justice.gov/atr/public/press_releases/2014/309786.pdf

December 5, 2014 - In the first class action trial on pay-for-delay issues since the Supreme Court’s Actavis decision last year, a jury in Massachusetts federal court ruled in favor of defendants AstraZeneca PLC and Ranbaxy Inc. Buyers of Nexium, a brand-name prod-uct made by AstraZeneca, had claimed that AstraZeneca’s patent settlement agreement with Ranbaxy, a generic competitor, harmed competition. Although the jury found that AstraZeneca had market power, that the settlement with Ranbaxy was “large and unjusti-fied,” and that the anticompetitive effects of the agreement outweighed any procompetitive benefits, they also concluded that Astra-Zeneca would never have granted Ranbaxy an earlier entry into the market even without the settlement payment. Thus, the jury found that the plaintiffs were not entitled to relief. www.law360.com/articles/601935/jury-hands-astrazeneca-win-in-nexium-pay-for-delay-case

North America ...................................................................................................................................................................... Jonathan Gowdy Morrison Foerster, United States

Jonathan Gowdy is a Partner in the Washington office of Morrison Foerster.

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Brazil

October 31, 2014 — CADE approved a new regulation providing guidelines on the types of “collaborative agreements” that shall be subject to mandatory pre-merger control in Brazil. The new regulation establishes that an agreement shall be considered “collaborative” in nature (and therefore subject to CADE’s prior review) if the following conditions are met: (i) the agreement has a duration of two years or more; and (ii) the agreement gives rise to horizontal overlaps be-tween the contracting parties or their groups, and the parties’ combined market share is equal to or in excess of 20%; or (iii) the agreement gives rise to a vertical link between the contracting par-ties or their groups, and at least one of them has a share of 30% or more in a vertically related rel-evant market, provided that: (a) the agreement contains a profit/loss sharing clause; or (b) exclu-sivity obligations arise from the agreement. http://cade.gov.br/Default.aspx?d96dbd4bda30c44ed866f94b183e

November 26, 2014 — CADE reduced the fines that had been imposed on ABSA, American Airlines, Alitalia and four individuals involved in the international air cargo cartel case. These companies and individuals had been fined by CADE in August 2013 for anti-trust violations. They have asked CADE to reconsider its decision, and the agency granted their request in part. http://cade.gov.br/Default.aspx?4de031f8081df33fcb79ca9bb496

December 16, 2014 — CADE issued a decision affecting how revenues of investment funds are calculated for the purposes of the merger review thresholds. In Case No. 08700.009945/2014-15 (CAX Holdings, LLC, Carlyle U.S. Equity Opportunities Fund, LP, and AXT Acquisition Holdings, Inc.), CADE applied for the first time a new regulation on investment funds enacted on October 7, 2014. According to the regulation and the decision, in order to calculate the revenue thresholds of an investment fund, one should include (i) the investors holding directly or indirectly, individually or by virtue of an agreement, 50% or more of the shares of the fund involved in the transaction; (ii) the fund involved in the transaction; and (iii) companies controlled by the fund or in which the fund has an interest (directly or indirectly) of 20% or more. The decision also expressly states that the fund manager and other funds under the same management (including their investors and portfolio companies) should be disregarded for the purpose of the revenue thresholds.

Colombia

November 21, 2014 — Colombia is discussing the enactment of an OECD-compliant anti-bribery law. The Colombian government has proposed a foreign anti-bribery bill that would make companies liable for violations, rather than just individuals, as part of its bid to join the OECD. http://latinlawyer.com/news/article/47570/colombia-proposes-oecd-compliant-anti-bribery-law/

Peru

November 25, 2014 — Peru’s antitrust authority released proposals for the improvement of competition in the country. www.indecopi.gob.pe/0/modulos/NOT/NOT_DetallarNoticia.aspx?PFL=0&NOT=938

South America ....................................................................................................................................................................... Amadeu Ribeiro Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, Brazil

Amadeu Ribeiro is a Partner in the Rio de Janeiro office of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados.

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Automobile Manufacturers Fined for Restricting Access to Replacement Parts

K K Sharma K K Sharma Law Offices, India

P rice fixing by suppliers of parts to automobile manufactur-ers has been under investigation by the United States De-

partment of Justice, the European Commission and other com-petition authorities since at least 2011. Looking at a market downstream from the parts markets that have been under inves-tigation globally, the Competition Commission of India (CCI) has found that automobile manufacturers engaged in conduct aimed at restricting the availability of automobile repair parts in India. In an August 25, 2014 order (Order),1 the CCI imposed a penalty of INR 25.44 billion (approximately US $420 million) on fourteen automobile manufacturers (OEMs) for (i) restrict-ing the sale and supply of spare parts, (ii) denying access to technological information, diagnostic tools and software re-quired for independent repair shops to service automobiles and (iii) excessive pricing for spare parts. The actions of the OEMs were held to be violative of Section 3(4) of the Competition Act, 2002 (Act), which prohibits certain vertical agreements, and Section 4 of the Act, which prohibits abuse of a dominant posi-tion. The Order affects BMW India, Ford India, General Mo-tors India, Hindustan Motors, Mercedes-Benz India, Nissan Motor India, Skoda Auto India, Tata Motors, Toyota, Honda India, and Volkswagen India. The CCI is also investigating Hyundai India, Mahindra Reva and Premier, but they are not subjects of the Order.2

The original Information (as complaints under the Act are called) was filed against Honda India, Volkswagen India and Fiat India. After concluding that the Information established a prima facie case, the CCI instructed the Director General (DG) to conduct an investigation into the matter. With the concur-rence of the CCI, the scope of investigation was enlarged by the DG to include additional manufacturers.3

The CCI found that the product market could be viewed as comprising a Primary Market and a Secondary Market. The Primary Market is the manufacture and sale of cars in India. The Secondary Market consists of products and services com-plementary to and following on from a consumer’s ownership of the primary product.4 The CCI characterized the latter as the aftermarket, which it defined as “a special kind of antitrust mar-ket consisting of unique replacement parts, post warranty ser-vice or other ‘consumables’ specific to some primary product. The term, therefore, refers to markets for complementary goods and services such as maintenance, upgrades, and replacement parts that may be needed after the consumer has purchased a durable good.”5

The CCI rejected the argument of the OEMs that the rele-vant market is a “unified systems market” consisting of the sale of cars in India.6 Even though the CCI has used a uniform sys-tems market approach in the majority of cases to date, it con-

cluded that it should not be applied here. The CCI reasoned that (a) customers of a durable product like an automobile do not engage in whole-life costing and (b) reputational effects do not deter OEMs from setting supra-competitive prices for after-market goods and services.7

The CCI justified a narrow definition for aftermarket prod-ucts by quoting from ¶ 56 of the European Commission’s Notice on the definition of relevant market:

A narrow definition of market for secondary products, for instance, spare parts, may result when compatibility with the primary product is important. Problems of finding compatible secondary products together with the existence of high prices and a long lifetime of the primary products may render relative price increases of secondary products profitable.8

The CCI found that consumers are unable to switch to spare parts manufactured by other OEMs due to compatibility issues and that the high cost of an automobile deters them from switching to a competing primary product.9 The consumer is locked in to the primary product, and this lock-in effect allows the OEM to monopolize the corresponding aftermarket, thus incentivizing it to exploit its customers in the aftermarket. The CCI pointed to the U.S. Supreme Court’s decision in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992), and the EC’s decision in PO Video Games, PO Nintendo Distribution, Omega-Nintendo, 2003 O.J. (L 255) 33, in justifying its finding that each OEM has a dominant position in the aftermarket for products and services related to the automobiles it manufac-tures.10 It noted that each OEM “has entered into a network of contracts, pursuant to which, they have become the sole suppli-er of their own brand of spare parts and diagnostic tools in the aftermarket . . .[and have thereby] effectively shielded them-selves from any competition.”11 The CCI cited the decision of the European Court of Justice (ECJ) in Hugin v. Commission, 1978 E.C.R. 1869, for similar analysis. There, the ECJ affirmed a finding that Hugin, a maker of cash registers, had achieved dominance in the relevant aftermarket through vertical integra-tion of subsidiaries and distributors and had thereby sheltered itself from any effective competition for service and mainte-nance of its cash registers.12

The CCI found that each OEM had, through a network of contracts, restricted the supply of genuine spare parts for its own automobiles. It found that OEMs had restricted their re-spective local original equipment suppliers (OESs) from selling spare parts directly into the aftermarket; that dealers were re-stricted from selling spare parts and diagnostic tools over the counter; and that dealers were required to source all of their

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spare parts solely from OEMs.13 The CCI thus held that each OEM has 100 percent market share of the spare parts and re-pair services aftermarket for its own brand of cars. Consumers must use spare parts compatible with their own brand of cars and cannot substitute such parts with those sourced from other OEMs.14 Facing no competitive constraints in the aftermarket, each OEM has a dominant position in the aftermarket for spare parts and related maintenance and repair services for its own automobiles.

The CCI held that the OEMs had abused their dominant positions (1) to deny market access to OESs15 and to independ-ent service providers,16 (2) to impose unfair prices in the sale of spare parts17 and (3) to leverage their monopoly over the sale of spare parts to exclude competition from independent repairers in the service and repair market.18 It can be expected that the Order will be appealed by the OEMs, and its actual impact on the economy and the Indian automobile market remains to be seen. If it is ultimately affirmed, it could have significant im-pact, since automobile manufacturers typically make up for thin margins on the sale a new automobile by means of significant mark-ups on the sale of spare parts and after-sale service. Loss

of dominance in the aftermarket – as the Order would facilitate – could threaten this business model.

1 In re Kataria, Case No. 03/2011 (CCI Aug. 25, 2014), available at www.cci.gov.in/May2011/OrderOfCommission/27/032011.pdf (hereinafter “Order”).

2 Order ¶ 3.8. 3 Order ¶ 3.3. 4 Order ¶ 20.5.2. 5 Order ¶ 20.5.5. 6 Order ¶¶ 20.5.26, 20.5.54. 7 Order ¶ 20.5.9. 8 Order ¶ 20.5.19. 9 Order ¶¶ 20.5.39-41. 10 Order ¶¶ 20.5.29, 20.5.40. 11 Order ¶ 20.5.64. 12 Id. 13 Id. 14 Order ¶ 20.5.65. 15 Order¶ 20.5.76. 16 Order ¶¶ 20.5.82-85. 17 Order ¶¶ 20.5.86-99. 18 Order ¶ 20.5.103.

K K Sharma is Chairman of K K Sharma Law Offices in New Delhi, India.

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Are Commitments the New Form of Settlement for the Indian Competition Authority?

Suhail A. Nathani & Gauri Chhabra Economic Laws Practice (ELP), India

Introduction

The merger control regime in India came into force on June 1, 2011, after which any acquisition of control, shares, voting rights or assets or any merger or amalgamation (Combination) exceeding prescribed asset and turnover thresholds must be reported to the Competition Commission of India (CCI) under the Competition Act, 2002 (Act).1 The CCI has the power to determine whether a Combination causes or is likely to cause an appreciable adverse effect on competition in India and, accord-ingly, can (i) approve the Combination, (ii) prohibit it from tak-ing effect or (iii) propose modifications to it.

If the CCI is of the opinion that anticompetitive effects could be minimized by appropriate modifications, it may seek structural or behavioral commitments from the parties, which are generally binding offers by the parties in exchange for an approval. The CCI, in a number of recent decisions, has im-posed behavioral commitments as a condition for approval of transactions. We review the most important of these below.

Commitments in the Pharmaceutical Sector

The pharmaceutical industry in India has witnessed consoli-dation in the recent past,2 with domestic firms taken over by global pharmaceutical companies. There has been concern ex-pressed that acquisitions of generic manufacturers by global pharmaceutical companies whose patents were expiring could lead to reduced competition and to reduced affordability of es-sential drugs. It was recommended by some that all Combina-tions in the pharmaceutical sector be compulsorily reportable to the CCI.3

Although no special regulation relating to the pharmaceuti-cal sector has been issued, the CCI has addressed industry con-cerns by carefully reviewing notifiable Combinations. While the CCI has approved most Combinations within the initial thirty-day review period, issues posed by noncompetition clauses have required specific attention by the CCI. Noncompetition clauses form part of most of the M&A transactions in India, and they are appropriate to the extent that they are directly related to, and necessary for implementation of a merger. A noncompeti-tion clause may be needed to enable the buyer to obtain full value for its investment, including the value of tangible and non-tangible assets (such as know-how and goodwill).

The CCI has reviewed approximately fifteen notifications in the pharmaceutical sector,4 and the Combinations have involved financial investments or constituted strategic acquisitions. While financial investments have been readily approved, given their limited adverse effect on competition, strategic acquisitions

have been closely analyzed, leading to imposition of behavioral commitments.

The Orchid/Hospira deal5 was the first strategic acquisition considered by the CCI involving horizontal overlaps. The mer-ger notification related to the acquisition of the Betaculum ac-tive pharmaceutical ingredient business of Orchid Chemicals and Pharmaceuticals Ltd. by Hospira Inc. The acquisition in-cluded within its scope a noncompetition clause which provided that Orchid and its promoter could not undertake certain busi-ness activities for a period of eight years and five years, respec-tively. The clause also restricted research, development and test-ing of beta-lactum antibiotic products for injectable formula-tions. To address the CCI’s concerns, the parties offered to modify the noncompetition obligation by limiting its duration to four years in the domestic market and by excluding research and development of new molecules.6

Subsequently, the CCI reduced the duration of the non-competition obligation in the Mylan/Agila Specialties deal from six years to four years and excluded the manufacture and devel-opment of new molecules from the scope of the obligation. Similarly, it limited the duration of the noncompetition obliga-tion from five years to four years in the Torrent Pharmaceuti-cals/Elder deal.

Interestingly, the CCI has so far sought behavioral commit-ments in relation to noncompetition obligations only in the pharmaceutical sector. The foregoing two orders7 of the CCI, despite relating to parties with primary operations outside India, evidence the CCI’s caution in reviewing Combinations in the pharmaceutical sector.8

Other Sectors

In addition to the pharmaceutical sector, the CCI sought behavioral commitments in the GSPC Distribution/Gujarat Gas9 deal and, most recently, in relation to a joint venture be-tween Mumbai International Airport Private Limited (MIAL) and certain public sector oil companies (Oil PSU’s).10 The CCI sought commitments from the parties in the Gujarat Gas deal11 that (a) the enterprise would comply with applicable sectoral regulations12 and that (b) the acquiring company would review customer contracts of the target company, Gujarat Gas Compa-ny Ltd., to ensure compliance with the regulations and would submit a report to that effect to the CCI within six months of closing of the transaction.

The joint venture created in the MIAL deal was formed to construct and manage an integrated fuel farm facility at the Mumbai Airport.13 The CCI was concerned with the fact that the Oil PSU’s would be integrating their fuelling infrastructure

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to receive and store air turbine fuel and then to deliver it to air-craft. The CCI recognized that the integration could potentially obstruct new entrants into the market, and it approved the Combination only after securing voluntary commitments from the parties. The Oil PSU’s offered to amend the Shareholders Agreement and delete the following clauses which, in the view of the CCI, could lead to concentration of economic power in the hands of the Oil PSU’s:14

Restriction on the ability of the Oil PSU’s to transfer shares for a period of 5 years;

The obligation of the Oil PSU’s to together hold a mini-mum 51% of the shares at all times; and

A right of first refusal for, and prior written consent of, non-selling shareholders before any shares may be sold to a competitor.

The parties also voluntarily offered to establish a Joint Co-ordination Committee, implement monitoring mechanisms, publish on their website extensive details relating to the fuel farm facility15 and operate in compliance with all provisions of the competition law.

Conclusion

Seeking commitments from parties to a transaction is a form of regulation in use by competition authorities throughout the world, and the CCI is open to approving Combinations in return for behavioral commitments. The CCI has recently for the first time obtained structural commitments in return for clearance of a complex transaction,16 and this development may be addressed in a subsequent article.

1 Combinations are subject to regulation under section 6 of the Act. The text of the Act is available at www.cci.gov.in/images/media/competi tion_act/act2002.pdf?phpMyAdmin=QuqXb-8V2yTtoq617iR6-k2VA8d.

2 For example, Matrix Laboratories was acquired by U.S.-based Mylan, Inc. in August 2006. Dabur Pharma was acquired by Singapore-based Frese-nius Kabi in April 2008. Ranbaxy Labs. Ltd. was acquired by Japan-based Daiichi Sankyo in July 2009. Shantha Biotech was acquired by France-based Sanofi Aventis in July 2009, and Piramal Healthcare was acquired by U.S.-based Abbott Laboratories in May 2010.

3 See, e.g., Stronger pharma merger control depends on CCI performance, INT’L FINANCIAL L. REV. (Aug. 1, 2012), available at www.iflr.com/Article/307 2059/Stronger-pharma-merger-control-depends-on-CCI-performance.html.

4 Mitsui/Arch (C-2012/08/73); Orchid/Hospira (C-2012/09/79); Or-chid Research/Orchid Chemicals (C-2012/02/31); Mylan/Unichem Labora-tories (C-2013/04/119); Mylan/Agila Specialties (C-2013/04/116); Mylan/Unichem Laboratories (C-2013/04/119); KKR/Gland Pharma (C-2013/12/145); Torrent Pharmaceuticals/Elder Pharmaceuticals (C-2014/01/148); General Electric/Thermo Fisher (C-2014/01/150); Glenmark Generics/Glenmark Access (C-2014/02/156); Bluewater Investment/Laurus Labs (C-2014/05/179); Beckman Coulter/Siemens (C-2014/08/201); Dunearn Investments/Intas Pharmaceuticals (C-2014/06/184); Meiji Seika Pharma Co., Ltd/ Medreich (C-2014/07/189); and Sanofi-Synthelabo/Apollo Sugar (C-2014/07/194).

5 Orchid/Hospira (C-2012/09/79). 6 Although it approved the Orchid/Hospira deal, the CCI held that

“non-compete obligations, if deemed necessary to be incorporated, should be reasonable particularly in respect of (a) duration over which such restraint is enforceable; and (b) the business activities, geographical areas and person(s) subject to such restraint, so as to ensure that such obligations do not result in an appreciable adverse effect on competition.”

7 Orchid/Hospira and Mylan/Agila Specialties. 8 Pursuant to concerns highlighted by the CCI, the Cabinet approved

the proposal of the Ministry of Commerce and Industry that existing policy on foreign direct investment in the pharmaceuticals sector would continue with the condition that non-compete clauses would not be allowed except in spe-cial circumstances with approval of the Foreign Investment Promotion Board. See Ministry of Commerce & Industry, Dep’t of Industrial Policy & Promo-tion, Press Note No. 1 (2014 Series) (Jan. 8, 2014), available at www.dipp.nic.in/English/acts_rules/Press_Notes/pn1_2014.pdf. According to the 2014 Foreign Direct Investment Policy, noncompetition clauses in the pharmaceuticals sector will not be allowed without the approval of the For-eign Investment Promotion Board except in special circumstances, and the Government may impose conditions at the time of grant of approval. See Min-istry of Commerce & Industry, Dep’t of Industrial Policy & Promotion, Con-solidated FDI Policy,¶ 6.2.18.3 (April 17, 2014), available at www.dipp.nic.in/English/Policies/FDI_Circular_2014.pdf.

9 C-2012/11/88. 10 C-2014/04/164. The companies were Indian Oil Corporation Lim-

ited, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Cor-poration Limited.

11 The transaction related to the acquisition of 65.12% of the total issued equity share capital of Gujarat Gas Company Limited by GSPC Distribution Networks Limited.

12 The Petroleum and Natural Gas Regulatory Board Act. 13 C-2014/04/164. 14 The offer was made subject to approval by the board of directors

within 3 months from the date of the CCI order containing the commitment. 15 This would include information relating to access procedures, eligibil-

ity criteria or rates charges, for example. 16 The CCI approved the proposed merger of two pharmaceutical firms

on December 5, 2014 on condition that the parties divest products relating to certain specific markets. See Press Release, CCI approves the proposed mer-ger between Sun Pharma and Ranbaxy subject to modification (Dec. 8, 2014), available at www.cci.gov.in/May2011/PressRelease/prs.pdf.

Suhail Nathani is a Partner in the Mumbai office of Economic Laws Practice (ELP).

Gauri Chhabra is a Senior Associate in the Mum-bai office of Economic Laws Practice (ELP).

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New Malaysian Guidelines on Financial Penalties and Leniency: Some Clarity, Some Concerns. . .

Andre Gan and Lydia Kong & Grant Murray Wong & Partners, Malaysia Baker & McKenzie, United Kingdom

T he Malaysian Competition Commission (MyCC) recently published Guidelines on Financial Penalties1 and Guide-

lines on Leniency.2

Guidelines on Financial Penalties

Under the Malysian Competition Act, the MyCC can im-pose a financial penalty of up to ten percent of the worldwide turnover of the enterprise that infringes any of the prohibitions, over the period during which the infringement occurred.

The Guidelines on Financial Penalties state that factors that may be taken into consideration in a specific case include the gravity, duration, and impact of the infringement; turnover of the market involved; degree of fault, whether negligent or inten-tional; role of the enterprise in the infringement; recidivism, existence of a compliance program, and the level of financial penalties imposed in similar cases.

The Guidelines recognize that there can be aggravating as well as mitigating factors that may have an impact on the finan-cial penalty imposed.

Aggravating Factors

The role of the enterprise as an instigator or leader or having engaged in coercive behavior with others;

obstruction of, or lack of co-operation in, the investiga-tion;

the enterprise has a record of committing similar in-fringements or other infringements of the prohibitions;

continuance of the infringement after the start of an investigation; and

involvement of board members or senior management in the infringement.

Mitigating Factors

Low degree of fault;

relatively minor role in the infringement, especially if involvement is secured by threats or coercion;

co-operation by the enterprise in the investigation;

existence of a corporate compliance programme that is appropriate having regard to the nature and size of the business of the enterprise; and

any compensation made to victims of the infringe-ments.

Comments on the Guidelines on Financial Penalties

The Guidelines on Financial Penalties list many factors that the MyCC can take into account when deciding on the appro-

priate level of a penalty. However, they stop short of indicating how much weight would attach to any of the listed factors. For example, the Guidelines do not explain in real terms how the “seriousness” of a violation would impact on the calculation of the penalty, nor the extent to which a mitigating factor, such as the existence of a compliance programme, might reduce the fine, e.g., in percentage terms. The result is that the MyCC re-tains full discretion to set a penalty at any level below the ten percent statutory cap.

However, there are a number of tangible outcomes for companies.

First, if they have not done so already, it would be prudent for companies to develop competition compliance programs that are tailored to their size and sector. This is because, provid-ed the compliance program is “appropriate having regard to the nature and the size of the business of the enterprise,” the MyCC will treat the program as a mitigating factor.

It is commendable that the Guidelines treat the existence of a compliance program as a mitigating factor. Malaysia joins the ranks of Australia, Canada, Chile, India, Israel, Singapore and the UK in being more willing to consider discretionary reduc-tions in financial penalties in so far as a compliance program evidences a genuine compliance culture.

In contrast, certain antitrust authorities around the world, such as the U.S. Department of Justice and the European Com-mission have refused to consider a company’s existing competi-tion compliance program as a mitigating factor when deciding on penalties.

Secondly, the fact that Board involvement will result in a higher fine underscores the need for competition law training to be rolled out throughout the company, including to senior exec-utives and the Board. Training must not be confined to, for example, the sales function of the business.

Guidelines on Leniency

The Malaysian Competition Act provides for the implemen-tation of a leniency regime whereby the enterprise may obtain immunity or a reduction of up to 100 percent of any financial penalties, which would have otherwise been imposed, if it ad-mits to an infringement of the prohibition against horizontal agreements with an anti-competitive object, i.e., a cartel. In exer-cising its discretion to grant leniency, the MyCC may take into consideration any circumstances including the fact that the en-terprise was the first to come forward about an infringement, the stage of the investigation, the information or co-operation to be provided, and information already in possession of the MyCC.

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The Guidelines on Leniency add some clarity to the lenien-cy regime and the related procedures. The Guidelines state that it is the MyCC’s policy to grant a 100 percent reduction in the financial penalties that would otherwise be imposed on the first successful leniency applicant that has admitted its involvement in a cartel and the applicant offers to provide information or other forms of co-operation about the same cartel about which the MyCC has no knowledge. Nevertheless, it appears that the 100 percent reduction in financial penalties would not be availa-ble to the enterprise that initiates the cartel or has taken steps to coerce another enterprise to take part in the cartel activity.

Any person wishing to apply for leniency can inquire about the availability of leniency and request for a “marker” through initiating contact with the appointed Leniency Officer to estab-lish priority over other potential applications.

A marker is only valid for thirty days from the date it is granted, during which time the applicant should complete its leniency application in accordance with the Guidelines on Leni-ency, or risk losing its priority position. The MyCC has the dis-cretion to extend the thirty-day deadline if there are valid grounds for doing so.

Comments on the Guidelines on Leniency

There are a number of positive aspects to the Guidelines. For example, the MyCC has taken great care to ensure there is a clear contact point for leniency applications and has tried to spell out in sufficient detail what an applicant will need to pro-vide to obtain leniency.

The availability of a thirty day marker to obtain this infor-mation is also a helpful feature – and in line with international

best practice. Ideally, the MyCC would allow companies to check whether immunity is available on an anonymous basis before applying for a marker.

Less positive is the fact that leniency applications may need to be made in writing and signed by an authorised senior officer of the company. Potential applicants will also be watching closely to see whether, in situations where a successful applicant avoids financial penalties, the MyCC nonetheless exercises its discretion to impose other remedial relief. This could reduce the attractiveness of self-reporting.

Similarly, it remains to be seen how generous, or demand-ing, the MyCC will be with respect to companies that apply for leniency even though they are not first-in. It will be important for the MyCC to obtain evidence from those subsequent appli-cants, e.g., in order to corroborate the account of the immunity applicant. Those companies will need sufficient encouragement to come forward when they know that full immunity is not available.

The apparent ability for the MyCC to disclose a leniency application to a competition authority in another country, with-out the consent from the applicant or even its knowledge, may also mean that companies will be more reluctant to self-report in Malaysia – at least until they have made leniency applications elsewhere.

1 http://mycc.gov.my/wp-content/uploads/2014/05/Guidelines-on-

Financial-Penalties.pdf. 2 http://mycc.gov.my/wp-content/uploads/2014/05/Guidelines-on-

Leniency-Regime.pdf.

Andre Gan is Partner and Head of Competition at Wong and Partners, member firm of Baker & McKenzie International.

Lydia Kong is an Associate at Wong and Partners, member firm of Baker & McKenzie International.

Grant Murray is Director of Knowledge Manage-ment for Baker & McKenzie’s Global Antitrust & Competition Group.

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The EUMR White Paper: Reassessment of the Targeted Transparency System

Thu Hoang JD Candidate, The George Washington University, United States

T he European Commission has proposed a White Paper1 to, in part, amend the EU merger control regime to deal with

anticompetitive non-controlling minority acquisitions, i.e., “structural links”, which are not covered under the current EU Merger Regulation (“EUMR”).2

The Targeted Transparency System

The Commission proposed to implement the amendment by the targeted transparency system (“TTS”), rejecting the tar-geted notification (“TNS”) and targeted self-assessment systems (“SAS”). Under TTS, an undertaking is required to submit an information notice when it proposes a minority acquisition that qualifies as a “competitively significant link,” defined as an ac-quisition of minority shareholding in a competitor or a vertically related company.3 The shareholding threshold and triggering factors such as de facto veto rights, Board seats, or access to competitive information, remain to be determined.4 The infor-mation to be included in the notice is limited to information relating to the parties, their turnover, a description of the trans-action, levels of shareholding before and after the transaction, rights attached to the minority shareholding, and some limited market share information.5 The parties are subject to a waiting period of 15 workings days, during which member states con-sider whether to request a referral.6 The full stand-still obliga-tion pending a clearance of the acquisition by the Commission in the normal notification process does not apply in TTS. The Commission would determine whether to investigate the trans-action, whether consummated or not, and would retain its nor-mal powers during such investigation, e.g., a hold-separate or-der.7

Assessment Criteria

The objectives of the amendment are: to “capture the po-tentially anticompetitive acquisitions of non-controlling minori-ty shareholdings”; “avoid any unnecessary and disproportionate administrative burden on companies, the Commission and [national competition authorities]”; and “fit with the merger control regimes currently in place at both the EU and national level.”8 TTS is assessed against these as well as the general goal of legal certainty.9

Assessment

The Commission’s assessment of TTS against the stated goals and factors is questionable. First, it assessed TTS as hav-ing a “very positive impact” on preventing competitive harm, which is the same level of assessment made for TNS.10 Howev-er, because TTS does not entail a stand-still obligation like TNS does, transactions may be consummated and anti-competitive structural harm brought about before the Commission can make

a determination. Hence, TTS’s ability to prevent anticompetitive harm is similar to TNS’s only if non-controlling minority share-holding can easily be divested post-consummation. However, if this is the case then the reason to use TTS to require ex ante submission of an information notice as opposed to the less bur-densome SAS would disappear as well.

Secondly, absent specifically defined thresholds and trigger-ing factors, it remains to be seen how much administrative bur-den will be placed on undertakings under TTS. However, it can be predicted that such a burden will be significant. The Com-mission assessed the burden to be in the same range as SAS’s because the information required to be submitted is necessary to self-assess the transaction under SAS anyway.11 Ignoring the additional requirement of submitting the information notice for the moment, this assessment failed to consider the impact the waiting period has on all the transactions caught. The Commis-sion reasoned that this period would reduce costs where the acquisition does raise competitive concerns,12 but this argument is unpersuasive. Because there is no stand-still obligation, the parties may consummate the transaction before the Commis-sion may decide to proceed with an investigation, and might still need to divest post-consummation should the transaction be found anticompetitive.

Thirdly, the Commission assessed TTS as partially con-sistent with the current merger control regime at the EU level and fully consistent with the regimes at the national level.13 However, because the amendment will create a parallel system with procedures and thresholds completely different from the current EUMR, it is in effect a replacement of the “change of control” notion in the EUMR with a broader concept. For member states with regime already covering structural links, namely Germany, Austria, and the UK, adoption of TTS at the EU level would make the EU merger control regime incon-sistent with those national regimes, contrary to what the Com-mission argues. Because Germany and Austria adopt TNS with a mandatory stand-still obligation, the Commission’s proposed TTS is significantly more lenient than these countries’ regimes. This creates a paradox in which transactions with a Community dimension, and thus likely to have greater anticompetitive ef-fect, are treated more leniently under the EUMR than transactions without a Community dimension, which can only be dealt with under national regimes.

Fourthly, the Commission incorrectly assessed TTS as hav-ing the same positive effect on legal certainty as do TNS and SAS. TTS cannot guarantee that the transaction is determined unproblematic before its consummation because of the absence of a stand-still obligation and so affords less legal certainty than TNS. Although SAS inherently offers less legal certainty, this

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issue is not as problematic in SAS as in TTS. The undertakings voluntarily notifying under SAS are likely to anticipate possible interruption or divestiture post-consummation, so the lack of legal certainty does not place a burden on these undertakings. On the other hand, those choosing not to notify under SAS have already internalized the risk of uncertainty in the transac-tion, so not requiring them to notify or submit an information notice would alleviate the burden that would otherwise be placed on involuntary undertakings under TTS.

Finally, the Commission also assessed the frameworks for public enforcement cost. It is recognized that TTS enables the Commission to become alert to potentially problematic transac-tions pre-consummation, and so imposes less enforcement cost on authorities than SAS does. The next question to be debated at the European Parliament and Council, therefore, is whether satisfying this criterion is enough to justify the adoption of TTS.

Conclusion

The overall assessment clearly suggests that the answer to the question above is no. Furthermore, the cost of implement-ing TTS also depends on the support of member states, because the amendment must be adopted by the European Parliament and Council. This is problematic because Germany has a clear preference for TNS with a stand-still obligation, and has indicat-ed that it would not accept the proposed TTS.14 Austria also explicitly prefers TNS,15 while the UK favors SAS.16 Only Ire-land has supported TTS so far,17 and it is expected that the de-bate at the Council will be heated, especially with insistence on Germany’s part on a stand-still obligation and actual review of the proposed transactions. If more member states, like Germa-ny, adopt a hard stance against TTS, the amendment may not pass at all.

1 Eur. Comm’n, DG Competition, White Paper on Towards More Effective EU Merger Control, COM(2014) 449 final (July 9, 2014), available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0449& from=EN.

2 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, 2004 O.J. (L 24) 1-22.

3 Supra note 1, ¶ 49. 4 Id. 5 Id. 6 Id., ¶¶ 49-50. 7 Id., ¶¶ 51-52. 8 Id., ¶ 42. 9 Eur. Comm’n, DG Competition, Commission Staff Working Document

Impact Assessment Accompanying the document White Paper Towards More Effective EU merger control, SWD(2014) 217 final, ¶ 3.4.1 (July 9, 2014), available at http://ec.europa.eu/competition/consultations/2014_merger_control/impact_as sessment_en.pdf.

10 Id. ¶ 3.4.2. 11 Id. ¶ 3.4.2.3. 12 Supra note 3, ¶ 66. 13 Supra note 11. 14 Bundeskartellamt, Written Statement of the Federal Ministry of Economics and

Technology and the Bundeskartellamt (German Competition Authority) on the Consulta-tion Paper published by DG Competition on possible improvements to some aspects of the EC Merger Regulation (Sep. 17, 2013), available at http://ec.europa.eu/competi tion/consultations/2013_merger_control/bundeskartellamt_en.pdf.

15 Letter from Dr. Theodor Thanner, Austrian Federal Competition Authority, to the Eur. Comm’n, DG Competition, regarding Public consulta-tion: Towards more effective EU merger control (Sep. 26, 2013), available at http://ec.europa.eu/competition/consultations/2013_merger_control/austri an_bundeswettbewerbsbehoerde_en.pdf.

16 United Kingdom Office of Fair Trading & United Kingdom Competi-tion Comm’n, UK competition authorities’ response to DG Comp’s Consulta-tion on Reform of the EUMR (Sep. 20, 2013), available at http://ec.europa.eu/competition/consultations/2013_merger_control/oft_and_cc_en.pdf.

17 Irish Competition Authority, Submission to European Commission Public Consultation: Towards more effect EU merger control (Sep. 20, 2013), available at http://ec.europa.eu/competition/consultations/2013_merger_con trol/irish_competition_authority_en.pdf.

Thu Hoang is a Juris Doctorate candidate at The George Washington University Law School in Washington, DC.

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Exchange of Confidential Information Among Competition Authorities Becomes a Reality for the First Time in Europe with the Entry into Force of the Competition Cooperation Agreement between the European Union and Switzerland

Dominique Guex Bourgeois Avocats, Switzerland

Background

On December 1, 2014, a bilateral competition cooperation agreement negotiated between Switzerland and the European Union in 2012, entered into force.1 The Agreement sets forth the framework for cooperation between the Directorate-General for Competition (DG COMP) and the Swiss Competi-tion Commission (COMCO). Despite the small size of the Swiss market and the relatively limited role played by Swiss competition authorities on the global stage of antitrust enforce-ment, the signing of this Agreement drew some attention from antitrust practitioners worldwide. Indeed, the Agreement is the first so-called “second generation” cooperation agreement (i.e., allowing for the exchange, without the consent of the parties, of confidential information gathered by the agencies of both juris-dictions in the course of their investigations) to be enacted in Europe. In the context of the LIBOR and EURIBOR investiga-tions carried out by antitrust authorities in the EU and Switzer-land, which also involve Swiss banks, some expect that the Agreement will speed up these investigations by facilitating ac-cess to evidence held by each authority. However, the possible exchange of confidential information also triggered some criti-cism, especially in the absence in the Agreement of an effective legal remedy in the event confidential information is used out-side of the scope of the Agreement. As discussed below, the Swiss Parliament addressed some of these concerns by amend-ing the Cartel Act to provide additional safeguards.

Exchange of Confidential Information

The Agreement enables DG COMP and COMCO to ex-change confidential information obtained during investigations without prior waivers from the parties,2 which can allow both authorities to carry out their competitive assessments or to co-ordinate dawn raids. Such exchange of confidential information is, however, subject to certain safeguards.3 More importantly, the Agreement gives the right to the agencies to exchange confi-dential information, not the obligation. Hence, it remains up to each agency to decide whether it will share confidential infor-mation with its counterpart in a particular case.4 Equally im-portant is the fact that DG COMP and COMCO will not be allowed to share information obtained under their respective leniency or settlement procedures or information that is pro-tected by their respective procedural rights (such as the right against self-incrimination) and legal privileges.5 Notwithstand-ing these safeguards, the Agreement allows for a certain number of exceptions to the rather strict framework it provides for the subsequent use of the transmitted information. Most important-ly, the Agreement authorizes DG COMP to disclose infor-mation obtained from COMCO to competition authorities of the EU member states within the framework of the European

Competition Network (ECN).6 This might entail a risk of non-conforming downstream use of the exchanged information, by or in the member states.

Additional Safeguards

Some in Switzerland have criticized the absence in the Agreement of any right for the concerned undertakings to chal-lenge a decision of COMCO to transmit information to DG COMP. Without going as far as providing for a right to appeal such decision, the Swiss Parliament nevertheless amended the Cartel Act by introducing two additional safeguards:7 (i) before sharing any confidential information with a foreign competition authority, COMCO has to inform the concerned undertakings and give them the opportunity to express any particular con-cerns they might have;8 and (ii) confidential information can be shared only if it will not be used in a civil or criminal investiga-tion.9

The consultation of the concerned undertakings prior to any exchange of information will allow them to draw the atten-tion of COMCO to any risk of non-conforming downstream use given the context of the investigation, the type of business concerned, the nature of the confidential information at stake, or special circumstances in any member state. However, it re-mains to be seen how COMCO will handle objections raised by companies. Further, despite the silence of the Agreement on this point, courts will have to decide whether they will allow an undertaking that identified potential risks of misuse of confi-dential information to lodge an appeal against a decision of COMCO that nevertheless shared confidential information with DG COMP. As far as the exclusion of any use in civil or crimi-nal investigations is concerned, this sounds more like an empty promise, as COMCO will have no control over who – e.g., com-petitors, victims, etc. – will have access to the file at the EU level or at the member state level, depending on the applicable procedures.

Conclusion

When dealing with competition authorities, companies car-rying out business in both the EU and Switzerland will now have to take into consideration the fact that competition author-ities in these jurisdictions will be able to share evidence across borders. Although parties will have the opportunity, at least on the Swiss side, to try to convince the authority that the confi-dential information is at risk of being misused if shared, the ex-tent of their rights is uncertain and courts will have to decide whether they can appeal the authority’s decision to transmit information. Meanwhile, the risk that confidential information might end up being used somewhere in a civil or criminal inves-tigation cannot be excluded. Moreover, other practical issues

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remain open, such as the protection of confidential information obtained under a settlement, as this can be initiated at various points in the course of an investigation (which raises the ques-tion of the starting point of the protection and of the use of confidential information already exchanged).

1 Agreement between the European Union and the Swiss Confederation concerning

cooperation on the application of their competition laws (Agreement), available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22014A1203(01)&from=EN. For a more detailed analysis of the Agreement, see also the previous contribution of the author in the International Antitrust Bulletin, December 2012, Vol. 4.

2 Art. 7(4) of the Agreement.

3 Id., Art. 7(4)-(7). 4 Moreover, the exchange will be possible only if the two agencies are

investigating the same or related conduct or transaction. 5 Further, the information obtained will have to be used for the sole

purpose of enforcing that party’s competition laws by its competition authori-ty with regard to the same or related conduct or transaction and in accordance with the purpose defined in the request. In addition, transmitted information may not be used to impose sanctions on natural persons. Finally, the recipient of the information will have to guarantee its confidential treatment according to its respective legislation. See Arts. 8 and 9(1) of the Agreement.

6 See Arts. 11 and 14 of Council Regulation (EC) No 1/2003 and Art. 19 of Council Regulation (EC) No 139/2004.

7 Art. 42b Cartel Act. 8 Art. 42b § 3 Cartel Act. 9 Art. 42b § 2 lit. d Cartel Act.

Dominique Guex is an Associate in the Lausanne office of Bourgeois Avocats.

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International Suppliers and Retailers Get Two Lumps of Canadian Compe-tition Law Coal for the Holidays

Davit Akman, François Baril, Corry Lomer, Kelley McKinnon & Mark Nicholson Gowling Lafleur Henderson LLP, Canada

Introduction

On December 9, 2014 Industry Minister James Moore in-troduced Bill C-49, An Act to amend the Competition Act. Dubbed the Price Transparency Act, the Bill sets out proposed amendments to Canada’s Competition Act aimed at “geographic price discrimination.” The Bill follows the Canadi-an government’s announcement in last February’s budget that it would be introducing measures to prohibit “unjustified” gaps between Canadian and American prices for the same consumer goods.

If enacted, the proposed amendments to the Competition Act would result in two unwelcome changes for international suppliers and retailers. First, the amendments authorize the Commissioner of Competition, the head of the Canadian Com-petition Bureau, to investigate, and name in a public report, in-ternational suppliers and retailers that sell products in Canada at higher prices than in the U.S. where the price difference is “unjustified.” The price gap investigations (which the Bureau will be under political and public pressure to undertake) prom-ise to be costly and disruptive, and a negative report could prove to be damaging to the goodwill of suppliers and retailers. Second, and of potentially greater concern, Bill C-49 purports to significantly expand the coercive investigative tools at the Com-missioner's disposal, not only in respect of allegedly "unjustified" geographic pricing differences but in respect of alleged contraventions of any of the substantive enforcement provisions of the Competition Act.

Suppliers and Retailers to be Investigated, Named and Shamed

The proposed amendments would significantly expand the Competition Bureau’s mandate and responsibilities. The Bu-reau's mandate and focus historically have been driven by eco-nomic theory, at the heart of which lies the concept of a rele-vant market.1 Indeed, in recent hearings before a Canadian Sen-ate Committee studying the potential reasons for price discrep-ancies for certain goods between Canada and the U.S., Bureau officials testified that “the Competition Bureau is not a price regulator and that Canadian businesses are free to set their own prices at whatever levels the market will bear, provided that these high prices are not the result of anti-competitive conduct such as price-fixing or abuse of a dominant position.” The clear implication of this view, therefore, is that prices in each separate geographic market should find their own levels and that a price gap could very well result as a consequence. In contrast to and despite the Bureau's views on the issue, Bill C-49 squarely puts an element of price “regulation” on the Bureau’s agenda.

The proposed amendments authorize the Commissioner to commence an inquiry (and, as discussed below, to obtain orders for oral examination, production and/or written returns, known as Section 11 orders) where he or she has reason to believe that the price of a product (or class of products) is higher in Canada than the price of the same or similar product (or class of prod-ucts) in the U.S. They also require the Commissioner to prepare a public report setting out the findings and conclusions of that investigation.

No penalties or remedies are available should a Bureau in-vestigation uncover “unjustified” price differences. Other than reporting on its findings, the Bureau will have no new enforce-ment powers to address geographic price discrimination. The new regime appears to assume that the named supplier/retailer will respond to the negative publicity sparked by the Commis-sioner’s report and eliminate the “unjustified” price differences.

New (Extraterritorial) Investigative Powers

Under the Competition Act, the Commissioner has signifi-cant investigative tools to carry out inquiries when he or she has reason to believe that a person has contravened the Act. They include court orders under Section 11 of the Competition Act compelling a party under investigation (or any other person who the Commissioner believes has or is likely to have information relevant to the investigation) to be examined under oath by the Commissioner, to respond to written questions under oath and/or to produce documents.

Under the current Section 11(2), if the Commissioner ob-tains an order for the production of documents against a corpo-ration inside Canada, he or she may also obtain an order com-pelling that company to produce documents held by a foreign affiliate (commonly, the parent corporation). This provision is controversial in light of the risk it creates that Canadian compa-nies and their officers, directors and agents face potential crimi-nal liability if foreign documents are not produced, even if com-pliance by the foreign affiliate is outside their control.

The Price Transparency Act promises to stoke this contro-versy by expanding the scope of Section 11(2). The amended provision would authorize the Commissioner to seek orders compelling Canadian companies to produce not only foreign documents but also sworn answers to questions posed by the Commissioner seeking information in the power, possession and control of foreign affiliates.2

Additionally, to further assist the Commissioner in investi-gating foreign corporations for alleged breaches of the Compe-tition Act, the proposed amendments to Section 11 also purport to enable the Commissioner to seek extraterritorial orders

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against persons outside of Canada compelling them to produce documents, provide written answers under oath and attend ex-aminations under oath, as well as to deliver documents and in-formation in the possession of any of their affiliates (also out-side of Canada).

It bears emphasizing that the expanded powers under Sec-tion 11 are not confined to investigations of “unjustified” price gaps but would, at least on their face, be available to the Com-missioner in respect of investigations of alleged contraventions of any of the substantive provisions of the Competition Act, including criminal investigations under the hard-core cartel pro-vision in Section 45.3

Potential Implications

The proposed approach to “unjustified” price differences is more limited than many had feared when the Canadian govern-ment first announced its intention to introduce legislation “prohibit[ing] unjustified cross-border price discrimination.” At the time, there was concern that the promised prohibition would be accompanied by fines. The Price Transparency Act should nonetheless be of significant concern to international suppliers and retailers, particularly in light of the absence of any guidance in Bill C-49 as to the circumstances in which higher Canadian prices might be found by the Commissioner to be “unjustified” or otherwise problematic. As discussed, that con-cern is heightened by the Bureau's significant new investigative tools under Bill C-49.

The Bureau has made it clear that it does not have re-sources to pursue every instance of geographic price discrimina-tion. It is reasonable to expect that the Bureau will be strategic in its approach and will target a few high-profile sellers in indus-tries that are characterized by high consumer awareness.

Consequently, most suppliers/retailers will not face an in-quiry into their cross-border pricing practices. However, a large number of suppliers/retailers in high-profile industries face the risk that they (and/or their industry) will draw the “short straw” and will be forced to “justify” their pricing practices. The un-lucky few will likely be subject to a costly, time-consuming pro-cess. Businesses with cross-border sales should evaluate their pricing practices in light of these risks.

1 A relevant market has both a product dimension and a geographic

dimension. When two geographic areas are in separate markets, prices in those areas move independently.

2 The Bureau has also widened the definition of affiliates to ensure that it captures all possible forms of business arrangements between related enti-ties. It remains to be seen what practical impact this expended definition might have.

3 It remains an open question whether, as a matter of constitutional law, Section 11 orders can properly be used by the Commissioner in furtherance of criminal investigations.

Davit Akman is a Partner in the Toronto office of Gowling Lafleur Henderson LLP.

François Baril is a Partner in the Ottawa office of Gowling Lafleur Henderson LLP.

Corry Lomer is an Associate in the Toronto office of Gowling Lafleur Henderson LLP.

Kelley McKinnon is a Partner in the Toronto office of Gowling Lafleur Henderson LLP.

Mark Nicholson is a Partner in the Toronto of-fice of Gowling Lafleur Henderson LLP.

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Brazilian Merger Control: Recent Changes

José C. M. Berardo, Bruno B. Becker & Vitor J. M. Barbosa Barbosa, Müssnich & Aragão Advogados – BM&A, Brazil

S ince the current competition law (Law no. 12,529/2011) came into force in 2012, the Brazilian antitrust authority

(CADE, in its Portuguese acronym) has put effort into clarify-ing substantive and procedural matters involving the enforce-ment of merger control rules. Amendments to the merger con-trol regulations enacted by the CADE in October 2014 are an additional step towards clearer and more predictable rules, fol-lowing the experience the authority has been gathering with the review of more than 800 cases and with commentary from the public.1

The most relevant parts of the amendments cover the iden-tification of reportable transactions deemed to be “associative agreements,” the slight, but important, change in the reportabil-ity of minority acquisitions of shareholdings by controlling shareholders, and the calculation of turnover in transactions involving “investment funds.” Other changes relate to proce-dural matters, such as cases eligible for fast-track review and exceptions to the bar on closing rule.

Especially with respect to the authority’s commendable ini-tiative to regulate “associative agreements,” future develop-ments in the case law can be expected to shed light on the prop-er interpretation of the regulation, which some may deem to be over-inclusive, extending the reach of the CADE’s merger con-trol powers to agreements that, in other jurisdictions, would not be subject to prior antitrust scrutiny.

Reportability of Associative Agreements

According to Article 90, IV of the competition law, “associative agreements” are subject to merger control review if the relevant jurisdictional thresholds are met2 and if the transac-tion has at least potential effects in Brazil. The imprecise defini-tion of “associative,” however, has led to uncertainty and, con-sequently, to the notification of several types of agreements that traditionally would not be subject to merger review elsewhere, e.g., distribution, supply, code sharing, partnership, services, out-sourcing and licensing agreements.3

In order to address this uncertainty, on October 29, 2014, CADE issued Resolution No. 10/2014, which defines the con-cept of “associative agreements” and thus tries to clarify which types of agreements will be treated as concentrations subject to the authority’s prior approval.4

According to the new regulation, which entered into force on January 4, 2015, an agreement will be deemed “associative” if its duration is greater than two years and if it involves either vertical or horizontal cooperation or a risk-sharing provision which leads to mutual dependence among the parties. The au-thority further clarifies that vertical or horizontal cooperation or

risk-sharing provisions are presumed to exist whenever (a) the parties to the agreement are horizontally related “in the object of the agreement” and the sum of their market shares in the affected relevant market is higher than 20% or (b) the parties are vertically related “in the object of the agreement,” their mar-ket shares in either vertically related relevant market is higher than 30%, and there are either profit-sharing rules among them or exclusivity clauses.

The regulation implies, for instance, that exclusive distribu-tion agreements longer than two years must be submitted for CADE’s review if the market share threshold is met; the same would be true for exclusive licensing agreements satisfying the market share and duration tests. If this reading of the regula-tion is correct, it would bring within CADE’s merger review authority a large number of agreements previously not subject to review. It remains to be seen whether the authority purpose-fully adopted the vague wording of Resolution No. 10 or if its broad sweep is an unintended consequence of CADE’s other-wise salutary effort to achieve transparency in drafting regula-tions.

Review of the Turnover Threshold Involving Investment Funds

Through Resolution No. 9/2014, adopted on October 1, 2014, the authority has reviewed its understanding and nar-rowed down the concept of “economic group” for purposes of the calculation of turnover in transactions involving “investment funds.”

The rules depart from the previous over-inclusive defini-tion. In the case of “investment funds,” an economic group shall comprise (a) the group of each investor holding more than 50% of the quotas of the investment fund involved in the trans-action, either individually or through any kind of agreement, and (b) any companies controlled by the fund involved in the transaction or in which this specific fund holds an interest great-er than 20%.

As a result of this change, the funds managed by the same manager (gestor), the manager itself, and the group of any inves-tor holding at least 20% of the quotas of any other fund man-aged by the same manager (gestor) are excluded from the defini-tion of “economic group” for purposes of calculating turnover thresholds. It is important to highlight, however, that this change applies only for calculation of turnover thresholds. Dis-closure rules remain unchanged, which means that, as far as the substantive assessment is concerned, the authority is still inter-ested in having a full view of the relationships involved in the transaction. The concept of what is an “investment fund” re-mains open to debate.

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Open-Market Stock Acquisitions and Acquisitions of Convertible Debt Securities

In line with some recent precedents,5 Resolution No. 8/2014 clarifies that acquisitions carried out in the stock market do not depend on CADE’s prior approval, although the acquir-er is prohibited from exercising voting rights until the authori-ty’s final decision is issued. This is similar to the rule applicable to public tender offers.

Resolution No. 9/2014, in turn, clarifies the reportability of debt securities convertible into shares, e.g., debentures. Now, CADE must be immediately notified of an acquisition of debt securities convertible into shares if – considering that the con-verted bonds would be framed into the minority shareholding acquisition thresholds provided in the Resolution no. 2/2012 and amended by Resolution No. 9/2014 – the acquired bonds grant the holder veto rights or the right to appoint members of the board. This change eliminates questions surrounding the need to report such types of transactions and allows the author-ity to have a better view of the transactions. In the past, the lack of clear rules regarding debt securities transactions allowed for the non-reporting of certain transactions.

Review of Fast-Track Criteria and Acquisition of Control Transactions

The authority used Resolution No. 9/2014 to review crite-ria adopted for the definition of acquisitions of control, adding the concept of joint or sole control. Under the new rules, deals that entail acquisition of sole or joint control are expressly re-portable. In contrast, minority acquisitions by the sole controller no longer need to be reported, regardless of the interest ac-quired. Likewise, filing is not required if the purchaser becomes the “single largest shareholder.”

This change reflects CADE’s position in recent decisions6 and draws near to the European approach. The new rule does not, however, provide any details or guidelines on the concept of control. This omission is particularly important because the authority has recently also issued decisions7 in which it explicitly refused to apply the “relevant influence” approach it followed un-der the former law for review of certain deals.

Finally, fast-track procedure will now also apply for transac-tions that result in minimal market share increases (variation in

HHI of less than 200 points), if the resulting market share does not exceed 50%. For cases involving vertical relationships, the maximum market share has been raised from 20% to 30%.

Conclusions

Although the changes adopted by CADE leave some issues open to discussion, they are welcome initiatives that should im-prove predictability in the merger control process in Brazil. The remaining open issues are likely, in turn, to be clarified over time through CADE decisions.

1 For comments of the American Bar Association on the new merger

control regulations, see www.americanbar.org/content/dam/aba/adminis trative/antitrust_law/at_comments_2014amendbrazil_en.authcheckdam.pdf.

2 The jurisdictional thresholds are set forth as a two-prong test on the basis of the turnover (revenues) of the groups involved in the transaction or agreement. A transaction is reportable if (a) at least one of the economic groups involved in the transaction had gross turnover (revenues) in the latest financial statements (balance sheet), or a volume of business, in Brazil, in the calendar year before the transaction, greater than BRL 750 million; and (b) another economic group involved in the transaction had gross turnover (revenues) in the latest financial statements (balance sheet), or a volume of business, in Brazil, in the calendar year before the transaction, greater than BRL 75 million.

3 See, e.g., Merger Cases Nos. 08700.009224/2012-43 and 08700.010193/2012-73 (distribution), 08700.009276/2013-09 (supply), 08700.010858/2012-49 and 08700.006488/2013-26 (code sharing), 08700.008736/2012-92 (partnership), 08700.001895/2013-47 (services), 08700.011078/2012-16 (outsourcing) 08700.004957/2013- 72 (licensing), available at www.cade.gov.br (in Portuguese).

4 The resolution is available in Portuguese at www.cade.gov.br/Impressao.aspx?182bfb0de43ace54a693a4b186cc.

5 See, e.g., Merger Case No. 08700.003843/2014-96 (Companhia Brasilei-ra de Cartuchos and Forjas Taurus), decided in June 2014, available at www.cade.gov.br (in Portuguese).

6 See, e.g., Merger Case No. 08700.006057/2014-40 (Bunge & JB Bioen-ergy), available at www.cade.gov.br (in Portuguese) (in which CADE deter-mined that the right to appoint one board member out of five and the grant of veto rights over commercially relevant issues, such as the business plan, would be considered joint control).

7 See Merger Cases Nos. 08700.007119/2012-70 (BNDES Participações and Prática Participações), decided in September 2012, and 08700.001423/2014-75 (Freelane and Serviços e Tecnologia de Pagamentos), decided in February 2014, available at www.cade.gov.br (in Portuguese).

José C. Berardo is a Partner in the São Paulo of-fice of Barbosa, Müssnich & Aragão Advogados.

Bruno B. Becker is a Associate in the São Paulo office of Barbosa, Müssnich & Aragão Advogados.

Vitor J.M. Barbosa is a Stagiaire in the São Paulo office of Barbosa, Müssnich & Aragão Advogados.