The European competition authority is challenging U.S. high-tech companies’ business practices, including some already approved by the anti-trust regulators in Washington.
A leading American anti-trust attorney probes the divergences between U.S. and EU legal philosophies and explains why the EU approach seems to be gaining ground as a global model. Can the outlook for trans-atlantic convergence improve?
More than 30 years ago, I gave a talk to a trade association in Washington on antitrust and the extraterritorial reach of U.S. courts. American courts were riding high, and numerous foreign governments were in open rebellion against what they called “judicial imperialism,” as notably demonstrated by the broad reach of U.S. assertions of jurisdiction over defendants in antitrust cases where foreign conduct was deemed actionable by virtue of its impact on U.S. commerce. Foreign legislatures enacted “claw-back” and other legislation designed to mitigate the effects on their corporate citizenry of treble damages imposed by United States courts and to put some categories of documents held in their territory off-limits to U.S. discovery. In my talk then, I wondered aloud about the American response if someday 100 other countries claimed the same right to regulate our big companies, rummage around in their papers and even defenestrate major American industrial corporations at the center of our economy. That day has come. The shoe is on the other foot and it pinches.True, competition regimes with strong outreach have not yet proliferated to more than a few nations, but at least one major “rival” has emerged: the competition regulatory regime of the European Union. Recent antitrust rulings from the European Commission (EC) against U.S. corporate conduct have caused protests and grumbles in business and political circles in Washington. Two questions come to mind: First, how close actually are the two regimes philosophies on antitrust and are there pragmatic ways to bring both sides of the Atlantic closer. Second, how are the two regimes succeeding in “exporting” their different approaches to other parts of the world (think China and India) that are looking for models and precedents in creating antitrust jurisprudence of their own? Will global commerce increasingly be conducted under rules largely derived from U.S. antitrust principles and philosophy or rooted instead in the EU’s approach to competition? Clearly, competition regimes directly affect business, and are becoming much more complicated for the growing number of companies that operate multi-nationally – and the competition regimes themselves spread to some degree as a function of worldwide national or regional demand and thus succeed, or fare less well, as a regulatory “export” about the competition rules of the road.
The rise of transatlantic rivalry is marked by an expanding record of actions directed at major American companies by the EU’s antitrust arm – the EC and its Directorate General, Competition [DG Comp]. This reality recently prompted a bipartisan group of 22 Congressmen to write to the senior U.S. authorities in this field: the Assistant Attorney General, Antitrust Division (DOJ), and the Chairman of the Federal Trade Commission (FTC). In letters dated September 18, 2009, the Congressmen voiced their concern about “developments in international competition policy, how the EC is shaping the global competitive environment, and the impact these developments are having on American companies.”
They pointed specifically to recent or ongoing proceedings targeting Google, IBM, Intel, Microsoft and Qualcomm, and concluded with a call to arms.
“With so many of the world's successful technology companies based in the United States and very few located in the European Union or elsewhere, the Administration should be an advocate of the ‘American way’ [of antitrust] both at home and in foreign jurisdictions. Otherwise, [the EC’s] DG Comp will become the de facto super regulator in competition markets, and its approach in managing competition will shape commerce worldwide. Indeed, DG Comp already is spending millions of euro exporting its competition policy to emerging markets like China.”
The Congressional letter reflects legislators’ concerns about a changing global legal environment in which U.S. interests are not given as much respect as in the past. Without intending to extol either the U.S. or the European approach, it is worth reviewing the state of play and ask what, if anything, the United States might wish to change in its antitrust policies if it wants them to gain wider global acceptance as the global competition “gold standard” in this domain. Today, more than 90 countries (including most recently the People's Republic of China) have an operating competition law, often administered through general or sectoral regulatory agencies. In point of fact, while most of these regimes provide only limited practical recourse to an established independent judicial system for companies subjected to their decisions and order, they nonetheless can regulate a wide range of international activities that affect commerce within their jurisdictional borders. They can review and prohibit mergers, regulate “abuses” by dominant firms and punish violators, dictate the terms of lawful and unlawful distribution practices and otherwise insert themselves into the means and methods of competition and the conduct of competitors. As a result, many major American companies (and British, Chinese and other multinational firms) are subjected to an array of often-differing competition rules and regulations: what is legal in one country can be dangerously (and expensively) unlawful in others. To cite a single example, cartels were legal until recently in most countries while in the United States they have been outlawed for decades, and executives have been jailed when convicted of being “cartel members.” Similarly, U.S. antitrust law accepts as legal many acts and practices that are not lawful under one or another foreign jurisdiction. It is an understatement that such contradictory conditions can be stultifying and so it should come as no surprise that, amid such contradictions in law, practice, history and custom, competition law can create international tension.
The main focus in this area has been between the U.S. and the EU. In the last decade, the U.S. competition authorities – the DOJ and the FTC – have had close but sometimes delicate relations with their counterparts in Europe. In the 1990s transatlantic cooperation was considerable, most notably in parallel investigations concerning Microsoft. But tensions erupted in 1997 when the EU tackled Boeing’s acquisition of rival aircraft-manufacturer McDonnell Douglas: The EC in Brussels seemed set to block the deal, or at least impose onerous conditions on it, but the Clinton administration brought considerable pressure to bear on the EC and the transaction was eventually cleared without conditions (although not without some bruised feelings in Brussels).
Tensions escalated in 2001 when the EC prevented the combination of General Electric and Honeywell – a transaction that already had been swiftly approved in Washington by the DOJ. When the EC decision in this affair (full disclosure prompts me to acknowledge that I was involved in this case for a complainant), was announced (on July 4, Independence Day), Washington was swept by a political firestorm: Brussels was the target of irate statements not just by the DOJ, but also by the President, the Treasury Secretary and prominent Senators and Congressmen – all attacking the regulatory ruling as “un-American,” which of course it was in the literal sense that the ruling was handed down by Europeans acting as EU officials applying European law to a transaction that they deemed liable to have anti-competitive impact in Europe. But the objections of American critics embodied a larger complaint: that the ruling seemed to contradict prevailing standards of judgment in such cases and also reflected a generalized disrespect for U.S. commercial and competition interests. In the end, the rhetoric eventually cooled, and for the last eight years the competition regimes have worked closely together – at least in their investigations of cartels and mergers. On the other hand, events have not gone so smoothly in connection with EC investigations into “dominant firm conduct” and today there are again many flavors of tension in the air, as reflected by the Congressional letter.
Going forward, the recently-appointed U.S. heads of the antitrust enforcement agencies have decidedly more aggressive enforcement goals than their immediate predecessors. In his electoral campaign, Barack Obama criticized the Bush administration’s DOJ for its light hand in enforcing antitrust laws: while it maintained vigilance about cartels, it challenged relatively few mergers and took no initiatives with respect to dominant firm behavior. The new Obama administration has promised to break with this philosophy and conduct, and the new team’s approach may bring Washington slightly closer in some substantive respects to the EU in competition matters.
The gulf in transatlantic jurisprudence is partly because antitrust practice in the U.S. has been meaningfully influenced by the “Chicago School” of economics. Since the 1980s, this school of thought (associated with Milton Friedman, Richard Posner, Bill Baxter and others) has prevailed in arguing that antitrust enforcement should rely heavily on the proposition that free markets are generally self-correcting within reasonable periods of time. The U.S. judiciary, influenced by the same economic thinking and hence inclined towards skepticism about more robust antitrust enforcement, decided against favoring broad gauged antitrust enforcement by plaintiffs, and in fact limited the rights of private plaintiffs. The results of that approach, with its dogmatic reliance on market faith, were all too visible in the economic and financial rubble in which the Obama administration took office. Clearly, markets had failed to process information efficiently or accurately, and the resulting loss of credibility for laissez-faire economics is now extending into the competition arena. As a result, the new heads of U.S. competition authorities enjoy unusually great freedom to develop investigational and enforcement policies aimed at greater regulatory intervention in markets and a more vigorous enforcement of U.S. antitrust laws.
The new juncture is marked by distinct changes that have emerged in the transatlantic context in recent years. The EC continues to embrace a more activist stance (at least in comparison with Washington) in investigating competition matters and seems to have few hesitations about delivering an “unlawful” ruling about conduct that passes unchallenged in the United States. Both Microsoft and Intel have been subjected to record fines for conduct not challenged by the DOJ or FTC: more than €497 million (about $745 million) levied on Microsoft and €1.06 billion (about $1.5 billion) on Intel. Both cases involved the same statute, Article 82 of the EC Treaty, prohibiting “any abuse…of a dominant position within the common market.” Now Article 82 is reportedly driving EC investigations of other prominent American multinational companies, notably Google, IBM and Qualcomm. The EC also has issued a “statement of objections” against the acquisition of Sun Microsystems by Oracle, which could lead to the transaction’s being blocked in the EU – and this on a merger that was quickly cleared even by the new administration’s newly aggressive DOJ.
The area of “single firm conduct” presents an important practical divergence in antitrust practice between the U.S. and the EU. In their founding philosophies, the two sides start from similar-sounding positions. Article 82, banning “abuse of dominance,” sounds roughly analogous to the Sherman Act’s Section 2, which prohibits “monopolization, attempts to monopolize and conspiracies to monopolize.” In practice, the two concepts work quite differently. As implemented, Article 82 is considerably broader in scale and scope, reaching conduct that Section 2 has never reached (and Section 2 itself is narrowing as a result of Supreme Court rulings in recent years).
The U.S. approach affords corporate entities much more scope before they are considered “dominant” or “monopolists.” In the U.S., there is a general presumption that a company must have a share greater than 60 percent of a relevant market before it can be considered a “monopolist,” while in Europe a firm need only obtain a 40 percent market share to be deemed “dominant” and its conduct subjected to heightened scrutiny. Major differences in actual practice are illustrated by these examples. 1) In the U.S., even a monopolist can charge a price as high as it likes without violating federal antitrust law; in contrast, in Europe unreasonably high pricing by a dominant firm can be unlawful. 2) A monopolist is almost never required to have involuntary dealings with rivals, or even customers; in Europe, a dominant
In the U.S., individual wrongdoers are often imprisoned as well as fined personally
firm, even when dominance is gained as a result of holding a patent, may be required to deal with rivals and thereby assist them in a variety of circumstances. 3) Under U.S. law, a monopolist may give “loyalty” discounts or rebates to customers with little likelihood of becoming liable; in Europe, a dominant firm runs a significant risk of liability under Article 82 for giving such discounts or rebates. 4) Low prices by a monopolist firm are almost never unlawful under federal antitrust law; in Europe, low prices charged by a dominant firm, even where above marginal cost and hence profitable, can be found to amount to an abuse of dominance and hence violate Article 82. 5) A monopolist may do many other things to exploit his monopoly, including leveraging it into complementary or adjacent markets; in Europe, these things can lead to Article 82 liability.
In addition to these divergences, there are also substantial differences in the regimes’ approach to state action and state support of “national champions” or other domestic companies. In the U.S. actions taken by state-owned monopolies, or by private companies under the active supervision of states and acting at the direction of state law, generally are not violative of any federal antitrust law. In Europe, state support of private companies is often considered part of the problem. Indeed, more than one third of the budget of DG Comp is dedicated to investigating and correcting unlawful “State Aids.” EU member states that subsidize national champions (through tax incentives or other means) are often called before the EC (together with the subsidized entities) and fines or other remedial steps can be, and often are, imposed. This reflects a deep and broad European concern for avoiding competitive distortions between and among member states as part of the pursuit of a true single market throughout the EU.
Cartels provide another ambivalent example of transatlantic resemblances and divergences. The Sherman Act (Section 1) prohibits price-fixing, bid-rigging and other cartel activity in terms that are similar in clarity and scope to those set out in Article 81 of the EC
Treaty. Yet while the prohibitions are substantially the same, the EU and nearly all of the member states’ national laws do not deem price-fixing or bid-rigging to be criminal in nature. So companies found by the EC to have engaged in price-fixing are heavily fined, but the individuals who implemented the price-fixing schemes are neither fined nor imprisoned: in fact, they are rarely exposed to disciplinary action by their employers. (This is true even though the individuals involved may have been rogue employees acting without their employers’ knowledge and for private gain.) In contrast, in the U.S., individual wrongdoers are often imprisoned as well as fined personally; the guilty company itself may also be fined by the DOJ – and then suffer class-action litigation in U.S. federal courts that can involve enormous treble civil damages. This U.S. situation has no analog in Europe.
Ironically, while European countries do not normally fine or imprison individual actors, they do frequently allow their citizens to be extradited to the United States when a European price-fixing conspiracy has had an impact in the United States. This form of rendition allows the U.S. to become Europe's jailer, typically for senior officers of a company found to have been ringleaders in a price-fixing conspiracy. So far, only England and Ireland have started taking punitive action against their citizens convicted of such offences; this has not yet become a wider trend.
The differences do not stop there. In the U.S., individual States (and even private entities) have largely the same rights to enforce civil federal antitrust law as the DOJ and FTC. When federal antitrust authorities “clear” a merger, it does not affect the right of any of the 50 States, or of any private party, to go to court themselves to challenge the same transaction. (One such case went to the Supreme Court, which upheld the State’s ability to do so.)
One effect of this decentralized and potentially chaotic U.S. situation is that it effectively undercuts the credibility of complaints by U.S. officials about inconsistencies in other countries’ enforcement of antitrust provisions. Europe has a contrary (and sensible) approach: if a transaction is approved by the EC, individual (sovereign) member states are precluded from challenging (or even reviewing) it. This feature gives appeal to the European model as more sensible than the “American way” as the choice for countries contemplating the adoption of an antitrust regime.
In contrast, the U.S. concept of “pre-merger notification” has exported well. This American innovation, requiring detailed reporting to the government about a deal before it closes, became law as the Hart-Scott-Rodino (HSR) legislation, and in the U.S., it uses procedures unique to the U.S. judicial and multiple-enforcement systems. Elsewhere, with local adaptations, the essence of the U.S. approach – requiring a “pre-closing notice” that allows time for the appropriate governmental to undertake investigation if it seems warranted – has been adopted by nearly all other countries that have antitrust and competition systems. While notable inconsistencies in outcomes occasionally occur (GE/Honeywell is the most dramatic example), this area seems to demonstrate a degree of success in convergence that goes as far as can be expected.
Some U.S. rules reflecting American exceptionalism are deemed inappropriate by virtually every foreign government
The prospects for Washington to persuade others to follow American leadership are further impeded by the fact that the U.S. authorities do not speak with one voice on important matters of antitrust and competition. In the U.S., civil enforcement of the Sherman Act, the cornerstone of U.S. antitrust law, is entrusted to two entirely separate federal agencies: the FTC and DOJ. They have in the recent past opposed each other in public, in court and in other ways on important policy issues, and this fissure has recently affected the interpretation of core statutes and principles defining the basic purpose of U.S. competition policy and doctrine. The potential for, and the reality of, this sort of intra-administration policy squabble damages U.S. credibility in international debates about competition regimes. In contrast, the EC is the single voice of competition policy for the EU (normally including each of the 27 member states). This gives the EC heft and credibility that the fractured US competition authorities cannot muster.
Greater coherence may emerge in Washington with the new teams installed by the Obama administration, but other important transatlantic differences – some substantive and some procedural – work to the detriment of U.S. credibility in the worldwide “marketplace” for competition ideas. With its own history and customs, the U.S. has adopted some measures that reflect American exceptionalism and are therefore regarded as inappropriate by virtually every foreign government. One such special feature of U.S. competition law is the availability of private “treble damage” actions in U.S. civil suits initiated by victims of antitrust violations. In practice, this provision for high damages is often conjoined with U.S. courts’ willingness to certify class actions (in which many victims’ cases are combined in a single lawsuit) and also with American jurisprudence applying a “no contribution rule” in antitrust cases. (In U.S. courts, a plaintiff can single out a tiny company to be liable for an entire multi-billion dollar antitrust action, and the designated defendant is prohibited from getting “contribution” from much larger defendants, who may be equally or more “guilty.”) This “no contribution” rule, which applies in antitrust law but almost nowhere else, is a bête noire of corporate America, and regarded by virtually every foreign competition authority as part of the American “litigation excess.”
And while the EC is encouraging member states to provide for private antitrust litigation and collective actions as methods of decentralizing and broadening the enforcement of Articles 81 and 82, steps in this direction almost invariably come with statements to the effect that “of course we do not want to replicate the excesses of the American legal system.” These “excesses” also include the procedures for expansive legal discovery that are deeply embedded in U.S. federal and State civil procedural rules – the likes of which are unheard-of anywhere in Europe. The result has been to distance American judicial philosophy and practice from the prevailing trends in the rest of the world.
The idea persists that the American legal system has a partner in its parent, the English legal system. Indeed the United States developed most of its early practices and procedures from English precedents, but the two systems, both as applied in antitrust and elsewhere, broke apart long ago. The “excesses” as described by critics are not an “Anglo-Saxon” phenomenon: almost all the “excesses” are uniquely American additions. For example, “discovery” exists in Britain, but not in the unbridled form that is so familiar to American judges and lawyers. In other significant respects, the American approach has been radically detached from English roots. Even the American Founding Fathers’ provision for defendants’ right to trial by jury – derived from English law and then set out in the Seventh Amendment to the U.S. Constitution – was long ago abandoned by Britain and the Commonwealth. Other changes have come from the U.S. judiciary (via the Federal Rules of Civil Procedure and its enormous discovery burdens) and from Congress (which legislated to institute treble damages, class actions and the rejection of contribution among defendants in antitrust cases). Against this contemporary background, other EU states, which have no indigenous tradition comparable to a common law system, have scant interest in changing their code-based legal systems, notably on the question of whether to indulge private plaintiffs seeking to pursue an enhanced antitrust remedy.
Many traits of American “exceptionalism” stem from the nation’s history. The thrust of American antitrust philosophy was formatively shaped in the late 19th century under the impact of the abuses of the “robber barons” and the strong populism that developed as a backlash to them. Those roots run deep and have become entwined with other Americanism particularisms that generally have no counterpart elsewhere. (A good example of this is a general American acceptance of an activist judiciary to create more and more remedies for actual or perceived wrongs for which the Congress has not provided guidance.) European competition law has much shallower roots. The Treaty of Rome establishing the common market dates from 1957, and the EC merger regulation only came into existence in 1992. So European competition policy did not seriously begin until the 1970s, and many aspects of it are only in their third decade of development or less.
The fundamental thrust of the EU’s pursuit of ever-closer union has centered on instituting a single market that eliminates tariff and non-tariff barriers and other trade distortions within the European competition market. This vision included breaking down the historic role of national monopolies and national companies supported by state aid and in general bringing about a more competitive environment for industries within the EU. In other words, competition law in Europe does not share the populist strands that have animated American antitrust.
Nor was Europe ever intellectually captured by “free-marketeers” sharing the Chicago school of economics philosophy that for the last three decades have so influenced American antitrust policy with a bias in favor of self-regulating markets and against regulation, including in its antitrust dimension. European competition policy, in contrast, has largely been guided by a bias in favor of regulation and by skepticism about the benefits of untrammeled free markets. This attitude is unsurprising in countries where “social democracy” is not the dirty word it is among many Americans but instead represents a proud form of government produced by parliamentary democracy.
It seems clear that U.S. antitrust law and European competition law are largely congruent in their core prohibitions and many of their aspirations. But they are markedly different in their ancillary procedures and their driving animus. As a result, major practical difficulties will confront any effort by Washington to respond to Congressional and other voices urging the “export of the American way” in antitrust and competition law, policy and procedure.
Some tentative conclusions seem to emerge from recent developments. For one thing, legal systems in Europe tend to be structurally unable to handle the sorts of government or private challenges to antitrust conduct (whether mergers, monopoly or cartels) to which the U.S. system has become accustomed. As a result, administrative regulation of antitrust conduct has extra appeal as an effective tool in Europe. This difference – ironically – gives grounds for celebration on both sides of the Atlantic: Europeans do not always want to achieve the goals that Americans embrace, and Americans would be dissatisfied with some of the weaknesses they perceive in the European set-up.
Secondly, while it is true that the U.S. view that economic analysis is central in the application of antitrust and competition law is gaining increasing acceptance, at least in Europe if not yet in Asia or South America, this acceptance has its oddities often beset with contradictions. The election-to-election malleability of the U.S. view of “correct” economics makes it difficult for other nations to follow it as stable or abiding doctrine. The complexities of this issue go beyond the evolution of party platforms: after all, many foreign antitrust and competition regimes are currently applying the very principles that were deemed acceptable in the United States just a couple of decades ago and only recently fell into American disfavor.
Although the indicators do not all point in the same direction, it does seem that matters have taken a turn. After a period of dominant U.S. influence in shaping new antitrust regimes around the world, the competition may largely be over for what a global competition regime should look like: the EU model has mostly prevailed. True, the U.S. approach has been widely emulated in its substantive approach to merger review, and that is no small thing. But more generally, the “American way” of handling competition conflicts seems likely to be essentially confined to the domestic American scene – perhaps respected elsewhere but not embraced.
concerns about the American system. The Sherman Act (and its judicially created rules of implementation) are a century old and the entire structure contains flaws that contribute to a lack of “exportability” in antitrust policy and procedure. To change that, considerable procedural and structural adjustments would be needed. Such changes could risk denaturing the American formula. But the process might be managed successfully in a way that balances scope for major initiative in global markets and the need for curbs to protect them against abuse. A workable compromise along these lines might be easier to sell overseas as a competitive competition model – assuming, of course, that such an outcome is seen as a desirable end.
John DeQ. Briggs is Co-chair of the Antitrust and Competition practice of Axinn, Veltrop & Harkrider LLP and Managing Partner of the firm’s Washington office. He is a former Chairman of the American Bar Association’s Section of Antitrust Law and has written extensively on international competition law