Canadian COMPETITION LAW

We are pleased to provide this global competition law update from our friends at the leading Singapore firm Rajah & Tann (Rajah & Tann).

ASIA – PACIFIC

Asia continues to be at the forefront of competition law enforcement, with competition authorities reviewing merger and co-operation applications as well as investigating into abuses of dominance and cartels. For example, the commissions in Singapore and Australia reviewed cooperation agreements between airlines. The commissions of Korea and Japan, on the other hand, have placed heavy fines for cartel activity by oil refiners and the abuse of dominance by an internet company respectively. Antitrust enforcement in Asia has been on the rise as more and more countries implement their competition laws and introduce laws for civil actions.

Cases

Cartel Participants In the Construction Industry Ordered To Pay 756 Million Yen

On 15 April 2011, the Japan Fair Trade Commission (‘JFTC’) found that 30 companies associated with the engineering works in Enzan district, and 21 companies associated with the engineering works in Isawa district, respectively, were in violation of Article 3 (Prohibition of unreasonable restraint of trade) of the Antimonopoly Act. The companies agreed to decide, between themselves, the successful bidder (called the ‘designated successful bidder’) for various construction projects. Other companies would then support the designated successful bidder by filing bids that were not competitive and unlikely to get selected, a classic approach to bid-rigging. The JFTC conducted a ‘spot investigation’ and issued cease and desist orders for this bid-rigging exercise. The JFTC also imposed a surcharge payment of 756.82 million Yen on the bid-rigging entities in total.

Manufacturers And Distributors Of Air Separation Gases Ordered To Pay 14,104,850,000 Yen

On 26 May 2011, the JFTC found that four companies (Taiyo Nippon Sanso Corporation, Air Liquide Japan Ltd, Air Water Inc and Iwatani Corporation) had engaged in price-fixing activities in violation of Article 3 (prohibition of unreasonable restraint of trade) of the Antimonopoly Act. The four companies had reached an agreement to raise the selling price of specified air separation gases, by approximately 10% from their original prices, from at least January 2008. The JFTC issued a cease and desist order and imposed a surcharge payment in the amount of 14,104,850,000 yen. It is important to note that the JFTC also imposed a 50% increase on the total fine for those companies that had previously received a surcharge payment order in the last 10 years.

DeNA Co Ltd Held To Have Abused Its Dominance

On 9 June 2011, the JFTC announced its decision that DeNA Co Ltd (‘DeNA’) violated Article 19 of the Antimonopoly Act by forcing social game developers to not contract with GREE, a competing enterprise active on the market for social gaming platforms. DeNA is also an internet company that provides various services, including social media and social gaming platforms, and regularly contracts with game developers for placing their games on mobile platforms. In the event the developers did provide games through GREE, DeNA penalised them by disconnecting the website links for their games on DeNA’s own mobile systems. The JFTC issued a cease and desist order which required DeNA to adopt a resolution at its Board of Directors level to confirm that the conduct had been brought to an end and also required it to notify GREE of the remedial measures taken. With respect to the game developers, the order requires DeNA to refrain from engaging in such conduct with respect to any other game developers.

Surcharges Of KRW 434.8 Billion Imposed Against Four Refiners For Cartel Activity On ‘Gas Stations Allocation’

On May 26, 2011, the Korea Fair Trade Commission (‘KFTC’) imposed a total surcharge of KRW 434.8 billon against four oil refiners (SK Co, GS Caltex Corp, Hundai Oilbank Corp, and S-Oil Corp) for using the so-called ‘Original Distributor Control System’. Under this market sharing arrangement, the cartel participants agreed to not compete for gas stations that distribute their products. Consequently, a refiner could not supply oil to its rivals’ distributors without the consent of the relevant rival refiner. This was done to ensure a stable market share for all players. In addition to the fine, the KFTC also referred three of the players (SK, GS Caltex and Hundai Oilbank) for prosecution for criminal enforcement.

Australia Federal Court Elaborates On Essential Facilities Doctrine

On 4 May 2011, the Federal Court of Australia denied Fortescue Metals Group access to two railway lines owned by mining giant Rio Tinto for the transport of iron ore. In applying the Trade Practices Act (‘TPA’), the court held that the test for private economic feasibility was not whether it was ‘economically efficient for society as a whole for another facility to be developed’, but whether it was ‘economically feasible for a participant in the market place to develop an alternative facility’. The court explained that the TPA was meant to strike a balance between the promotion of competition and economic efficiency, and the ‘legitimate interests’ of incumbent owners of facilities. Thus, if there is any player in the market place who may feasibly develop the alternative facility, it will be inconsequential that it is more economically efficient for society to have the incumbent’s facility declared accessible. In this case, the Court found that there was no essential facility involved and, therefore, protected the incumbent’s legitimate interests. In sum, the Court held that it would favour the development of an alternative facility.

ACCC Revokes CBH’s Exclusive Dealing Notification

On 29 June 2011, the Australian Competition and Consumer Commission (‘ACCC’) issued a notice revoking Co-operative Bulk Handling Limited’s (CBH’s) exclusive dealing notification. CBH’s notified conduct allowed it to be the monopoly supplier of transport services for moving grain from up-country storage facilities to ports in Western Australia. CBH was leveraging its substantial market power in up-country storage to insulate itself from any competition in the supply of grain transport services. The ACCC notification permitted CBH to, so far, require Western Australian grain growers and marketers who use its ‘up-country’ storage facilities to also use its transport services to deliver grain to port for export. The revocation, which will take effect from 1 May 2012, will allow sufficient time for CBH and other industry participants to benefit from the upcoming competition in grain transport services and to adjust and put appropriate systems and processes in place.

Wool Scouring Companies’ Merger Authorised, But Stayed Pending Challenge

On 9 June 2011, the NZ Commerce Commission authorised an application by Cavalier Wool Holdings Limited (‘Cavalier Wool’) to acquire all of the wool scouring assets of New Zealand Wool Services International Limited (‘WSI’). As Cavalier Wool and WSI were the only remaining operators supplying wool scouring services in New Zealand, the purchase and rationalisation would leave Cavalier Wool as the nation’s sole wool scourer. The Commission determined that although the merger would substantially lessen competition, it would result in a benefit to the public. The benefits considered by the Commission included the reductions in production cost resulting from the merger. However, a major carpet-maker, Godfrey Hirst, has challenged the merger on grounds that the merger would remove a strong competitor from the market and that neither existing nor potential competitors would sufficiently constrain the merged entity. The challenge will be heard in the High Court of New Zealand on 22 August 2011. The sale of WSI to Cavalier Wool has been stayed temporarily pending outcome to the challenge.

Alliance Agreement Between Singapore Airlines Limited And Virgin Airlines Pty Ltd Notified To The Competition Commission Of Singapore

On 22 June 2011, Singapore Airlines Limited (‘SIA’) and Virgin Australia Airlines Pty Ltd (‘Virgin Australia’) applied to the Competition Commission of Singapore for a decision to clear their Proposed Alliance (‘PA’). Under this PA, SIA and Virgin Australia will codeshare international and domestic flights, provide frequent-flyer and lounge benefits to each other’s customers, conduct joint sales, marketing and distribution and co-ordinate flight schedules between Singapore and Australia. SIA and Virgin Australia have argued that the PA does not breach the Competition Act as it will increase competition for air passenger services from Singapore and various Australian, Pacific and trans-Tasman destinations. The proposed alliance is intended to be implemented in 2011, and its purpose is to ensure mutual benefit to the parties involved, as well as to benefit passengers. It should be noted that an application for this Proposed Alliance Agreement has also been filed in Australia and is awaiting decision from both regulators

Competition Commission Of India (‘CCI’) Fines The National Stock Exchange Rs 555 Million For Abusing Its Dominance

On 23 June 2011, the CCI handed down a 170 page decision that imposed a record fine of Rupees 555 million on India’s National Stock Exchange. This is the first decision by the CCI that relates to abuse of dominance. According to the CCI decision, NSE had abused its dominant position in various ways including predatory pricing and exclusionary conduct. The crux of the decision was based on the cross subsidisation of the NSE’s currency derivatives segment by revenues generated in other segments where NSE enjoyed virtual monopoly. NSE was found to have engaged in a ‘zero price policy’ for its currency derivatives segment, making it nearly impossible for smaller newer entrants to effectively compete. As part of the cease and desist order, NSE is required to stop this conduct immediately and to maintain separate accounts for each segment to avoid similar cross-subsidisation in the future. The monetary penalty imposed (Rupees 555 million) was 5% of the total turnover of NSE, averaged over the last three years, and was not limited to the turnover in the relevant market.

Legislation / Regulation

Recent Draft Regulation For Civil Antitrust Cases By China’s Supreme People’s Court (‘SPC’)

On 25 April 2011, the SPC issued draft regulations titled ‘Relevant Issues Concerning the Application of Law in the Trial of Civil Monopoly Dispute Cases’ (‘Draft Regulation’) to deal with civil actions for breaches of the Anti-Monopoly Law (‘AML’). The Draft Regulation provides that the SPC shall designate various Intermediate People’s Courts, which are located in provincial capitals and other designated cities, as having first instance jurisdiction for civil anti-monopoly disputes. The Draft Regulations consider all civil disputes, including counterclaims, which rely upon the AML, as civil anti-monopoly disputes. Under these Draft Regulations the plaintiff need not wait for a formal finding of violation of the AML before initiating a civil claim and may file his civil claim with the People’s Court as soon as the cause of action arose. The Draft Regulation also provides guidance on collection of evidence and the burden of proof that will apply in such civil actions.

Policies Concerning Procedures Of Review Of Business Combination

In response to the need for greater swiftness and transparency in the review of business combination procedures, the JFTC has introduced the Policies Concerning Procedures of Review of Business Combination (‘the Policies’). These Policies came into effect on 1 July 2011 and require a corporation, which plans to engage in a business combination, to consult with the JFTC prior to notification. Second, the Policies also provide detailed procedures that need to be undertaken once the combination has been notified. One of the changes is that merging parties are prohibited from implementing their merger until the expiration of a 30-days waiting period from date of notification. These new Policies only apply to combinations notified after they come into force. Any consultations requested from the JFTC before these new Policies come into force will continue to be reviewed under the old policies.

Australian Price Signalling Bill Passed

On 7 July 2011, following amendments brought about by negotiation with the opposition party, the Competition and Consumer Amendment Bill (No. 1) 2011 (‘Bill’) was passed by the House of Representatives. It will now be reviewed by the Australian Senate before it can be implemented. The Bill amends the Competition and Consumer Act 2010 (‘CC Act’) and addresses anti-competitive price signalling and information disclosures. The Bill, as it now stands, prohibits disclosure of pricing information between competitors regardless of whether such disclosures are made in private or in public. It also prohibits disclosures of non-price information if they are made to substantially lessening competition. Though the Bill currently only applies to the Banking Sector, its scope may be expanded to other industries in the future.

EUROPE

Heavy fines continued to be imposed in various cartel cases whilst a number of raids have been carried out by the European Commission (‘EC’). Interesting decisions have been published by the EC which deal with interference with EC investigations by breaking seals on premises. The EC has also found undertakings guilty of abuses of dominance in the telecommunications sector, while the General Court of the European Union reduced the fine placed in a cartel matter based on the principle of equal treatment in one case and by taking into account the recent sale of business in another.

Cases

EU General Court Holds That Parent Companies May Be Held Liable For Actions Of Their Subsidiaries

On 7 June 2011, the General Court of the European Union held that there is a presumption that a wholly-owned subsidiary does not decide independently regarding its conduct in the market. It went further to state that, according to settled case-law, the EC may impose a fine on the parent company, without its being required to establish the individual involvement of the parent company in the infringement. This presumption can be rebutted if the parent company can show that the relevant subsidiary conducted itself independently on the market during the period of the infringement. The General Court also held that the same presumption applies when a parent company holds almost all of the capital of its subsidiary. The General Court, however, did reduce the penalties imposed on Arkema France and its subsidiaries, which the EC had increased by 200% for an adequate deterrence effect. The reduction in the fine was based on the fact that Arkema and its subsidiaries were no longer controlled by Total and Elf Aquitaine as from 18 May 2006, when Arkema was floated on the stock exchange, that is, a few days before the Commission adopted its decision. The fine was lowered because  the objective of deterrence can be legitimately attained only by reference to the situation of the undertaking on the day the fine is imposed.

Water Management Companies Fined €8 Million For Breaching Inspection Seal

In May 2011, two French water management companies, Suez Environment and its subsidiary Lyonnaise des Eaux (‘LDE’), were fined €8 Million by the EC for the breach of a seal affixed by the EC during an inspection at LDE’s premises for anti-competitive conduct. Seals (plastic film adhesives) are used during inspections of company premises to ensure that the company does not remove or destroy evidence when the inspection team is absent. As inspections are a key tool for gathering evidence in competition investigations, a breach of a seal is serious infringement of competition laws. The EC, however, did take into account the immediate and constructive cooperation of Suez Environment and LDE whereby they provided more information than they were obligated to. The investigation into suspected anticompetitive practices in the water and waste markets is still ongoing.

Polish Telecoms Operator Fined More Than €124 Million For Abuse Of Dominance

On 22 June 2011, the EC fined the Polish telecoms operator Telekomunikacja Polska S.A. (‘TP’) for abusing its dominant position in the Polish telecommunications market. In Poland, Internet operators who want to provide retail broadband Internet access to end-users will usually use TP’s access network, since building an alternative access network is not economically viable. Thus, the operators require certain wholesale broadband access products, which are provided exclusively by TP. The EC found that TP had obstructed the entry of new operators into Polish broadband markets by, inter alia, proposing unreasonable conditions, delaying negotiations, unjustifiably rejecting orders and refusing to provide accurate information to the potential operators. This impeded competition and amounted to an abuse of dominance by TP. The EC ordered TP to cease and desist its anti-competitive conduct, and imposed a fine of €124 million on TP.

EU General Court Annuls Fines Imposed On Mitsubishi And Toshiba For Gas Insulated Switchgear Market

In January 2007, the EC imposed fines amounting to more than €750 million on European and Japanese companies, including Mitsubishi and Toshiba, for their participation in a cartel for gas insulated switchgear (an important component in electric substations). The EC found that the companies had entered into an unwritten understanding to develop a quota system and geographically divide markets. On 12 July 2011, the General Court upheld the finding that there was a cartel, but found that the EC had contravened the principle of equal treatment by using different reference years for the turnovers of the European companies and Toshiba/Mitsubishi. As such, it annulled the fines for Toshiba and Mitsubishi. The General Court also reduced the fine imposed on Fuji Group from €2.4 to €2.2 million, to take into account the fact that they had cooperated in the investigations.

AMERICAS

Antitrust enforcement in the US primarily involved merger control with some cartel investigations. Notably, antitrust enforcement continued at the federal level as well as the state level and by the Department of Justice as well as the Department of Transportation.

Cases

JPMorgan And UBS AG Chase Settles With US Department Of Justice (‘DOJ’) In Bid-Rigging For Municipal Investment Contracts

On 6 July 2011 and 4 May 2011 respectively, JPMorgan Chase and UBS AG reached a settlement with the US DOJ and other regulatory agencies in relation to anti-competitive conduct by their former employees. JPMorgan Chase and UBS AG admitted that their employees had entered into illegal agreements to rig bids on municipal investment contracts (used to invest the proceeds of public bonds). This amounted to a violation of the Sherman Act. Under the settlement, JPMorgan Chase and UBS AG are to pay US$ 228 million and US$ 160 respectively in penalties, restitution to victims, and disgorgement of profits to various state and federal agencies. As part of the settlement, JPMorgan Chase and UBS AG also agreed to cooperate and assist the DOJ in its investigations or any court proceedings for a two-year period.

Texas Doctors’ Association Agrees To Stop Fixing Prices Its Members Charge Insurers

In May 2011, Southwest Health Alliances, an association representing 900 physicians from Texas, agreed to the Federal Trade Commission’s (‘FTC’) proposed order prohibiting it from entering a price-fixing agreement to jointly negotiate the prices the doctors would charge insurance providers. According to the FTC, the agreements restrained competition by increasing prices for doctors’ services. While collective negotiation and agreements may have efficiency justifications via integration of the doctors’ medical practices, Southwest Health had not taken such steps. The proposed order also prohibits Southwest Health from facilitating the exchange of information between doctors from different practices concerning insurance terms, and provides for the FTC’s monitoring for compliance with its terms.

Air Transportation Company Pleads Guilty To Price-Fixing On Air Cargo Shipments And Pay US$13.2 Million

On 27 May 2011, EVA Airways Corporation (‘EVA’) agreed to plead guilty and pay US$13.2 million as criminal fine in a price-fixing conspiracy in the air cargo industry. EVA was charged with conspiring with other airlines to fix cargo base rates (fees for international air shipments) that were being monitored and enforced in accordance with the airlines’ arrangement. Under the plea agreement, EVA will pay the fine and also cooperate with the DOJ investigations. The plea agreement will become final once it is approved by the court. This decision is part of the ongoing investigation into the price fixing cartel in the aviation industry where a total of 22 airlines and 21 executives have been charged so far.

Restrictions On Microsoft Expired

On 12 May 2011, the Microsoft final judgment (handed down in 2002), which prevented Microsoft from engaging in exclusionary behaviour and other illegal practices, has expired. The judgment, inter alia, prohibited Microsoft from tying its middleware software to its Windows Operating System and obliged Microsoft to provide interoperability information to third parties. The original judgment was placed on Microsoft to eliminate its illegal practices and to allow competitors in the middleware market to develop their business. The original judgment also helped develop new products and services including, amongst others, cloud computing services, mobile applications and other software than can effectively compete against Microsoft Windows. Although the current judgement has expired, Microsoft could become the target of another investigation and judgement if its practices continue to impede competition in the various software markets that it is active in.

Verifone-Hypercom Merger Abandoned After DOJ Opposition

In November 2010, VeriFone had agreed to purchase Hypercom. Both companies are providers of POS (Point-of-Sale) terminals. In an attempt to resolve the anti-trust issues arising from the merger, Hypercom agreed to divest its US business to Igenico SA, another provider of POS terminals. The US DOJ moved to block both transactions by filing an antitrust suit in the Washington District Court, on the grounds that it would lead to a substantial lessening of competition. This was because VeriFone, Hypercom and Igenico were the only significant players in the US in relation to POS terminals. Subsequently, on May 20 2011, VeriFone, Hypercom and Igenico abandoned their plans to go through with the merger.

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