The Internet has given rise to information-based businesses that create value by accumulating pools of data captured from many sources. Indeed, the collection and analysis of vast amounts of consumer data has become the engine driving significant innovation on the Internet. From search to social networks to shopping to gaming, the use of consumer-generated data is increasingly the way to monetize web services. Internet companies amass vast amounts of new data by the second. These data are then used by them, and others, to generate advertising revenue and to develop new products.
For many companies, products derived from raw data will drive innovation. For example, access to personal data will help firms better understand consumers and how to meet their needs. Retailers maintain extensive data on their customers (tied either to a customer loyalty card, name, or physical or email address). Using demographic information and purchasing history, companies can determine—through the power of data analytics—shopping habits and can then develop targeted advertising. For example, companies can now use predictive analytics to identify potentially pregnant women. They then can use targeted advertising to suggest a new product purchase—baby products—when that customer orders cleaning supplies or groceries.1
As Internet firms grow ever larger and their stores of data grow exponentially, questions regarding the control of, and access to, these data have emerged. Firms seeking to gain or ensure continued access to these data have asserted antitrust theories as a basis for doing so, although no European court has yet to accept any such claim. In reality, such claims have been raised principally as a counterattack when firms with some degree of market power have sued third parties for violating terms of service and copyright by accessing data in an unauthorized manner. These types of counterclaims raise numerous questions—the most obvious of which is, who owns the data anyway?
On April 25, 2013, in Microsoft Corp. v. Motorola, Inc., Case No. C10-1823 (W.D. Wash.), U.S. District Judge James Robart issued the first-ever detailed determination by a U.S. district court of a “reasonable and non-discriminatory” (RAND) royalty rate for standards-essential patents (SEPs), which have been the subject of antitrust scrutiny by enforcement agencies examining mobile device markets. The ruling establishes a comprehensive legal framework for resolving disputes over RAND royalty rates for SEPs, and likely will prove influential in future disputes. The outcome resulted in, according to Microsoft’s public announcement, $1.8 million in royalties as opposed to the $4 billion sought by Motorola.
Judge Robart’s opinion focuses on how to modify the conventional damages analysis set forth in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), to account for:
- The importance of the SEPs to the standard at issue (separately from the value associated with incorporation of the patented technology into the standard);
- The importance of the standard and the SEPs to the licensee’s products;
- Licenses for other RAND-committed patents; and
- The number of other patents covering the standard and products incorporating it (what is known as “royalty stacking”).
Implicit in Judge Robart’s opinion is that SEPs raise important public-interest and policy considerations that remove them from the “one-on-one” negotiating context applicable to conventional breach of contract damages analysis. A fuller analysis of the opinion, its importance to future cases, and the specific modifications to the Georgia-Pacific factors is available here.
On April 22, 2013, the U.S. District Court for the District of Columbia approved Anheuser-Busch’s and Grupo Modelo’s settlement with the U.S. Department of Justice, resolving the Department’s antitrust lawsuit that threatened to prohibit Anheuser-Busch’s multibillion-dollar acquisition of its competitor, Grupo Modelo. The Justice Department filed its lawsuit in January, claiming that the $20.1 billion acquisition would give Anheuser-Busch control of nearly 50 percent of the U.S. beer market, lessen competition and result in higher beer prices for consumers. The settlement requires Anheuser-Busch and Modelo to divest Modelo’s entire U.S. business to Constellation Brands, Inc., one of the country’s largest wine producers.
Specifically, the divestiture will include the Piedras Negras brewery, Modelo’s newest and most technologically advanced brewery, as well as perpetual and exclusive licenses to Modelo brand beers for distribution and sale in the United States. The divestiture will also include Modelo’s current interest in Crown Imports LLC, a joint venture established by Modelo and premium wine company Constellation Brands to import, market, and sell certain Modelo beers in the United States, as well as other assets, rights, and interests necessary to ensure that Constellation will be able to compete in the U.S. beer market using Modelo brand beers, independent of any relationship to Anheuser-Busch and Modelo. Constellation is paying roughly $4.75 billion for the Modelo assets—$2.9 billion for the control of the beer brands in the United States and $1.85 billion for the full control of Crown.
As a result of the deal, Anheuser-Busch will complete its acquisition of Modelo in June 2013, and Constellation will be left with full and permanent rights to make and sell Corona, Corona Light, Modelo Especial, Pacifico, and six other beer brands in the United States. A copy of stipulation and order can be found here.
On April 12, 2013, the U.S. Department of Justice announced that it would no longer publicly name the executives excluded from immunity granted as part of cartel plea agreements. The DOJ further said that it would limit those carveouts to individuals suspected of participation in illegal price-fixing. In the past, when signing plea agreements with companies in price-fixing cases, the DOJ included the names of employees not covered by the deal in publicly filed court documents. Now, according to Antitrust Division Chief Bill Baer, the DOJ will only list such names in a separate document filed under seal. Baer further explained that the DOJ will no longer carve out employees for refusal to cooperate with the investigation, or those who are thought to have potentially important information but cannot be located, unless the DOJ has reason to believe that the individuals participated in the illegal behavior. However, Baer cautioned that despite this change, the DOJ would “still demand the full cooperation of anyone who seeks to benefit” from immunity, and would retract immunity for those who do not “fully and truthfully cooperate with division investigations.” Exclusions from immunity will still be decided on a case-by-case basis. The DOJ’s former practice of publicly naming carveouts had faced criticism in the past for singling out employees who were ultimately never charged with wrongdoing. Baer noted that “as a general rule the department does not release the names of people who are potentially culpable until they’ve … decided whether to file an indictment or an information, so that’s how we’re going to approach [carveouts] going forward.”
On May 8, 2013, the European Court of Justice (ECJ) confirmed that control of a subsidiary by a parent may be presumed solely on the basis of a 100 percent shareholding. With such control, liability for an infringement of competition law by the subsidiary may be imputed to its parent.
Eni SpA (“Eni), the large Italian oil conglomerate, brought the action in the ECJ against a decision of the European Commission (“Commission”) imposing a fine of €181.5 million on the partially state-owned company for participation in a price-fixing cartel in the synthetic rubber industry. During the relevant period, the business involved in the cartel was controlled by Eni, through a wholly-owned subsidiary known as EniChem Elastomeri. The Commission’s fine was imposed jointly and severally on Eni and the subsidiary, now known as Versalis.
In its judgment, the ECJ confirmed that where a subsidiary does not autonomously determine its own conduct but instead mostly applies its parent’s instructions, for the purposes of Article 101 of the Treaty on the Functioning of the European Union, the companies are a single economic unit and, as a result, form a single undertaking. Accordingly, the Commission may address a decision to the parent company without being required to establish the parent’s individual involvement in the infringement.
The presumption may be rebutted with proof that the subsidiary operates independently from its parent at an operational and financial level, something which Eni failed to prove on this occasion.
In May, the European Union’s General Court (“GC”) issued its judgments in an appeal brought by Parker ITR (“Parker”), Trelleborg and Manuli against a 2009 decision imposing fines on these companies for their participation in a worldwide cartel in the marine hose market.
In reducing the level of fine imposed on Parker, the GC found that the company was not liable for the cartel before January 2002 when it acquired the marine hose business from ITR. ITR (and its parent company) ceased its involvement in the cartel arrangements when the business was transferred to Parker, and the Commission’s power to fine ITR for infringements committed before January 2002 became time-barred in 2007. The Commission therefore relied on the principle of “economic continuity” to attribute liability for the infringement to Parker. This principle allows the Commission to derogate from the fundamental principle of “personal liability” of companies for antitrust infringements by attributing full liability to a company that succeeded an undertaking that committed an infringement—for example, if the original company no longer exists or where the intention of any transaction involving the original company was to circumvent antitrust laws.
In this instance, the GC rejected the Commission’s argument, finding that it could not show “economic continuity” between ITR and Parker, and annulled the decision against Parker as it related to the period before January 2002. The GC found that when the transfer of the business from ITR to Parker took effect in January 2002, the two companies shared no “structural links” (i.e., financial or personal) and further found that there was no evidence that the business was transferred to Parker to circumvent possible antitrust fines.
Finally, although finding some problems with the Commission’s assessment of the fines imposed on Trelleborg and Manuli, the GC nevertheless reconfirmed the amounts levied on them.
In a damages action brought by National Grid Electricity Transmission plc (“National Grid”), the UK High Court has ordered Alstom and Areva (“French Defendants”) to disclose documents to National Grid in the face of a French law prohibiting documents of a commercial nature from being disclosed as evidence in foreign judicial proceedings (“Blocking Law”).
In 2007, the Commission found 20 companies, including Alstom and Areva, in violation of Article 101(1) of the Treaty on the Functioning of the European Union due to their participation in an international cartel for gas-insulated switchgear.
National Grid is seeking damages from the cartel members in the High Court and sought disclosure of certain information to establish the amount by which the cartel had raised prices. The French Defendants argued that disclosure could lead to them being prosecuted under the Blocking Law.
The High Court found, however, that although there was a possibility the French authorities would prosecute the French Defendants for making disclosures, it was “virtually inconceivable” that the authorities would do so. In addition, the Court found that it was typical for French companies to disclose information in foreign proceedings without prosecution.
The ruling demonstrates the inclination of English judges to stand firm against efforts to raise procedural hurdles in antitrust damages litigation.
As part of an ongoing investigation into Visa Europe Limited, European Commission Vice President Joaquín Almunia recently welcomed Visa’s proposed commitments designed to assuage the Commission’s competition concerns about the company’s business, and announced that the Commission would market test some of the commitments.
The Commission’s investigation was opened in March 2008 and concerns Visa’s multi-lateral interchange fees (MIFs) for consumer debit and credit card transactions. In its Statement of Objections, the Commission made a preliminary finding that Visa’s MIFs breach Article 101(1) of the Treaty on the Functioning of the European Union by damaging competition between rival banks on the retailer’s side of the card transaction with the effect of increasing the cost of payment card acceptance for merchants, who then pass these costs on to consumers.
In response, Visa offered commitments to reduce MIFs on its debit cards to 0.2 percent of the transaction cost and to maintain measures to increase market transparency. These commitments were made binding following a consultation process.
Visa put forward further commitments in response to a supplementary Statement of Objections in which the Commission identified additional concerns about MIFs on Visa’s credit cards in 2012. Visa has proposed to reduce its credit card MIFs to 0.3 percent of the transaction value (a decrease of some 40 to 60 percent) and to reform its system to enable banks to apply a reduced cross-border MIF when competing for cross-border customers.
The Commission is shortly due to publish a notice in the EU Official Journal summarizing these additional commitments and an invitation for interested parties to offer their comments. Subject to the results of the market test, the Commission will decide whether to adopt the additional commitments as binding.
On April 16, 2013, China’s Ministry of Commerce (MOFCOM) approved Glencore’s tie-up with Xstrata with conditions. MOFCOM was the last global regulator to approve the transaction. The approval process took many months and the parties were required to re-file the case with MOFCOM in early 2013 when the initial deadline for approval was approaching with no apparent agreement on remedies. To obtain MOFCOM’s approval, Glencore agreed to divest Xstrata’s Las Bambas copper mining project in Peru and to maintain copper, zinc and lead concentrate supplies to Chinese customers for eight years from 2013. A certain proportion of the sales of copper concentrate during this period is required to be under the annual contract system, which used to define global commodities markets, rather than be based on daily spot prices which have been used more recently. Sales of zinc and lead concentrate are to be on “fair and reasonable terms.” These conditions have been imposed despite the fact that the transaction does not result in obviously high market shares or the reduction of significant competitors in the market to three or fewer, factors that would normally trigger antitrust concerns. The parties together accounted for roughly 18 percent of China’s imports of copper ore in 2011 and competitors in the market include BHP Billiton, Freeport-McMoRan Copper Gold, Anglo American, Rio Tinto and Grupo Mexico’s Southern Copper unit. The full Chinese text of the approval is available here.
On April 23, 2013, China’s Ministry of Commerce (MOFCOM) approved Japanese trading house Marubeni’s $5 billion acquisition of U.S. grain merchant Gavilon, subject to significant conditions in the Chinese soya bean market. The approval took many months to obtain and the parties were required to re-file their application for approval in early 2013 as the deadline for approval approached and no agreement on remedies had been reached. MOFCOM’s approval is subject to the condition that the two parties continue selling soya to China as separate companies with two different teams and firewalls between them blocking the exchange of market information. MOFCOM did not impose conditions in corn, wheat or any other food commodity. China is the world’s largest soya bean importer and accounts for more than 60 percent of global trade. In 2011, Marubeni was the largest soya supplier to China. Nevertheless, the parties’ combined share of the market for the supply of soya beans to China is no more than 20 percent, well below the threshold that would generally trigger antitrust concerns with other regulators. The combined entity will continue to face competition from other sophisticated international competitors including Archer Daniels Midland, Cargill, Louis Dreyfus and Bunge. The full Chinese text of the approval is available here.