UK Supreme Court Issues First Antitrust Ruling

In October 2012, the UK Supreme Court issued its first antitrust judgment, ruling that the UK statutory limitation period for bringing “follow-on” damages actions—i.e., claims based on antitrust infringement decisions—was sufficiently clear that, under the facts of the case, it did not deprive the claimants of effective redress. This ruling is significant as it is the first time the UK’s highest appeal court has examined antitrust damages claims and shows, alongside several high-profile UK Court of Appeal judgments handed down earlier this year, that the UK courts are gaining experience and confidence in dealing with complex antitrust matters. This increased competence will continue to benefit both claimants and defendants in the form of increased legal certainty in what remains a growing and developing area of EU and UK law.

BCL v. BASF centered on the compatibility of the UK limitation rules for follow-on damages actions with the European Union legal principles of effectiveness and legal certainty. The claimants, BCL Old Co. Limited and others (BCL), brought an action, in 2004, for damages against members of the vitamins cartel other than BASF, following a decision issued by the European Commission in November 2001. BCL did not sue BASF until more than six years after the decision, in March 2008, bringing its action in the UK specialist Competition Appeal Tribunal (CAT). Pursuant to the CAT’s rules, a claimant wishing to bring such an action must do so within two years from the date on which the decision of the relevant competition authority becomes final, suspended by any appeal brought against the decision. BASF had appealed the Commission’s decision, but only on the level of the fine. BCL argued that it was not clear from the limitation rules that an appeal of the fine alone did not invoke the suspension of the limitation period and that, in any event, it had not been clear at the time the appeal was brought what BASF was appealing against.

In May 2009, the UK Court of Appeal found that BCL’s claim was time-barred and could proceed, if at all, only with an extension to the limitation period granted by the CAT itself. Later that year, the CAT assumed that it did have the power to extend but declined to do so. On appeal of this decision, the Court of Appeal, however, held that the CAT had no such power to extend the statutory deadline for bringing an action before the CAT and that European Union law did not require the CAT to hold such a power.

The UK Supreme Court was asked to consider whether the statutory limitation period and its application violated the claimant’s rights under European Union law principles by rendering it “excessively difficult” for BCL to bring a claim against BASF. The Supreme Court considered that the statutory language was “plain and ordinary” and the legal position was “clear.” It found that the risks to BCL of not bringing a claim against BASF in January 2004 were or should have been evident and the Supreme Court found no evidence that the reason BCL had not brought its claim earlier was actually due to any legal uncertainty. In any event, the Supreme Court held, even if the legal position had not been clear, the only remedy for BCL would have been to bring an action against the UK government. Any uncertainty would not have permitted an action for damages to be brought against BASF at this stage.

The ruling clarifies the CAT limitation period:  An appeal of a Commission decision limited to the level of fine does not suspend the two-year period. By contrast, an appeal on the substance of the infringement, by any addressee of the decision—even if not a defendant in the damages claim—does suspend the limitation period.

The UK Supreme Court and recent Court of Appeal judgments have a number of practical implications for both claimants and defendants in UK private damages actions. First, a claimant will need to review the details of all appeals of any relevant infringement decision to determine whether it is the infringement itself that is the subject of the appeal or merely the level of fine. An appeal of the level of fine will not suspend the CAT limitation period. For potential defendants who did not appeal the Commission’s decision, for example because they were one of the immunity or leniency applicants, this may mean a number of years of uncertainty where they have no influence over the outcome of any appeal. Conversely, a claimant will not be able to proceed with an action before the CAT until the outcome of any appeal brought on the substance of the infringement by one of the decision addressees, even if the claimant did not intend to sue that particular defendant. This may significantly delay any recovery by the claimant through an action brought before the CAT. Instead, a claimant may decide to bring a damages action before the UK High Court, which also has jurisdiction to hear follow-on damages actions, and where a claim is more likely to proceed pending appeals of the underlying infringement decision.

As outlined in previous editions of this Newsletter, the UK regime is currently undergoing significant reform with the planned merger of the Office of Fair Trading and the Competition Commission due to take place as early as spring 2014. The procedure for bringing antitrust damages actions is also currently under review by the UK government with a proposal to expand the CAT’s jurisdiction to hear damages claims that do not arise from a decision by a competition authority (also known as “standalone” claims). The full text of the Supreme Court’s judgment is available here.

SCOTUS Grants Review on Enforceability of Arbitration Provisions in the Context of Class Actions Asserting Federal Claims

The U.S. Supreme Court has agreed to review the enforceability of an arbitration agreement containing a class action waiver in which merchants assert federal antitrust claims against American Express. The case, American Express v. Italian Colors Restaurant, No. 12-133, dates back to 2003 when merchants sued American Express, alleging that the company tied acceptance of its new commodity credit cards to acceptance of its established, higher-end business and charge cards. American Express has tried for years to compel arbitration of claims asserted by merchants whose contracts contain arbitration clauses. The district court entered such an order and the merchants appealed. The 2nd U.S. Circuit Court of Appeals held that the arbitration provision could not be enforced because it would be financially impossible for merchants to bring their claims as individuals, which would prevent them from vindicating their federal statutory rights. The Supreme Court will consider whether the Federal Arbitration Act permits courts to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. This gives the Court an opportunity to clarify its ruling in AT&T Mobility v. Concepcion, in which it upheld AT&T’s right to compel consumers to submit to arbitration even though, under California common law, consumer class action waivers were considered unconscionable.

3rd Circuit Holds That Litigating for 10 Months Waives Arbitration Rights

In November 2012, the 3rd U.S. Circuit Court of Appeals reversed a district court’s order compelling a plaintiff to arbitrate its claims because the defendant participated in the litigation for 10 months before bringing a motion to compel arbitration. The case is In re Pharmacy Benefit Managers Antitrust Litigation, MDL No. 1782. The defendant, AdvancePCS, is a prescription benefits manager that entered into agreements that included arbitration provisions with retail pharmacies. The plaintiff retail pharmacies asserted Section 1 claims against AdvancePCS, alleging, among other things, that AdvancePCS had conspired with its plan sponsors to reduce the contractual amount it pays to plaintiffs below the levels that would prevail in a competitive marketplace. AdvancePCS aggressively litigated the case without mentioning arbitration, including filing a motion to dismiss, a motion for reconsideration and motion to certify for interlocutory appeal, and an answer. Ten months after the complaint was filed, AdvancePCS filed a motion to compel arbitration, which the district court granted. The 3rd Circuit applied its six-factor test under Hoxworth v. Blinder Robinson & Co., 980 F.2d 912 (3d Cir. 1992), and held that Advance PCS had waived its right to compel arbitration. The opinion is available here.

3rd Circuit Holds That Long-Term Supply Agreements Based on Market Share Rebates or Discounts Are Subject to Rule of Reason, Not Above-Cost Pricing Test

The 3rd U.S. Circuit Court of Appeals recently held, in ZF Meritor, LLC v. Eaton Corp., No. 11-3301 (3d Cir. Sept. 28, 2012), that long-term supply agreements predicated upon market share rebates or discounts should be evaluated under the Rule of Reason, rather than under the Brooke Group above-cost pricing test. As such, they can be exclusionary even if all of a defendant’s prices are above cost.

The defendant, Eaton, a monopolist in the heavy-duty truck transmissions market, had entered into long-term supply agreements with all of the customers (OEMs) in the market. The agreements conditioned rebates on the purchase of a specified percentage of the OEMs’ requirements from Eaton. The rebates did not reduce Eaton’s prices below cost, and Eaton argued that, under a price-cost screen, it therefore did not violate the antitrust laws.

The 3rd Circuit conceded that predatory pricing principles, including the price-cost test, would control in cases solely presenting a challenge to pricing practices. But the court rejected Eaton’s “unduly narrow” characterization of the case as a “pricing practices” case, i.e., a case in which price is the “clearly predominant mechanism of exclusion.” The court noted other forms of exclusionary behavior, including (i) Eaton’s efforts to make itself the standard offering in the OEMs’ “data books” (which provided product information to end users); (ii) the removal of competitors’ products from two data books; (iii) preferential prices for Eaton products required by the long-term agreements; and (iv) evidence that Eaton’s continued compliance with the long-term agreements was also conditioned on the market penetration targets. “Accordingly,” the 3rd Circuit concluded, “plaintiffs introduced evidence that compliance with the market penetration targets was mandatory because failing to meet such targets would jeopardize the OEMs’ relationships with the dominant manufacturer of transmissions in the market.”  The court went on to find that Eaton’s long-term contracts were, in fact, exclusionary and supported a finding of antitrust injury.

In reaching its conclusion, the 3rd Circuit rejected the argument advanced by an amicus brief that its decision in LePage’s always precludes application of a price-cost screen. The court noted that LePage’s invovled bundled product tying claims, and held: “LePage’s is inapplicable where, as here, only one product is at issue and the plaintiffs have not made any allegations of bundling or tying. The reasoning of LePage’s is limited to cases in which a single-product producer is excluded through a bundled rebate program offered by a producer of multiple products, which conditions the rebates on purchases across multiple different product lines.” The opinion is available here.

11th Circuit Affirms Dismissal of Section 1 Claims Based on Creditors’ Agreement Not to Accept Tender Offer

In October 2012, the 11th U.S. Circuit Court of Appeals, in a 5-5 en banc decision, concluded that a group of hedge funds holding approximately 70 percent of CompuCredit’s convertible senior notes did not violate antitrust laws by agreeing to reject CompuCredit’s tender offer. The case is CompuCredit Holdings Corp. v. Akanthos Capital Management, __ F.3d ___ (11th Cir. 2012). CompuCredit had offered to repurchase up to $160 million of its outstanding notes at allegedly market prices, but all of the funds declined to participate on the grounds that the redemption price was too low, and demanded that CompuCredit repurchase the notes at par. CompuCredit asserted a Sherman Act Section 1 claim, alleging that the funds had unreasonably restrained trade by boycotting its tender offer to inflate the price at which it could redeem its notes. The district court granted the funds’ motion for judgment on the pleadings, concluding that all of the cases in which CompuCredit relied involved creditors who reached agreements about whether or on what terms to extend credit in the future, rather than creditors who acted collectively to maximize their ability to collect on an existing debt. The district court further observed that the type of collective activity at issue can reduce the cost of borrowing and can benefit consumers, concluding that the Sherman Act was not implicated by the funds’ conduct as alleged in the complaint. The decision has the effect of vacating the panel opinion and affirming the district court’s ruling. The opinion is available here.

Federal Circuit Holds That Direct Purchasers Have Standing to Bring Walker Process Claims

In November 2012, the Federal Circuit held that a direct purchaser of a product is not precluded from bringing a Walker Process claim against the patentee, simply because the direct purchaser would not have standing to seek declaratory relief under the patent laws. The case is Ritz Camera & Image v. SanDisk Corp., No. 2012-1183 (Fed. Cir. Nov. 20, 2012). 

In the usual case, an alleged infringer can assert an antitrust claim alleging that the patentee obtained its patent fraudulently from the U.S. Patent and Trademark Office; this is known as a Walker Process claim. In addition to showing that the patentee procured the patent fraudulently, the alleged infringer also must show all the other elements of a monopolization claim. In Ritz Camera, Ritz filed a Walker Process claim as a direct purchaser of SanDisk products, claiming that SanDisk enforced fraudulently obtained patents against its competitors and customers, which caused direct purchasers of SanDisk products, like Ritz, to pay more than they would have paid in a competitive market. SanDisk moved to dismiss the complaint, arguing that since Ritz did not face the possibility of an infringement action, it had no standing to assert a Walker Process claim.

The district court rejected SanDisk’s argument and the Federal Circuit agreed, holding that “Ritz’s status as a direct purchaser gives it standing to pursue its Walker Process claim even if it could not have sought a declaratory judgment of patent invalidity or unenforceability.” In sum, the ruling allows direct purchasers to assert Walker Process claims even if they are not sued, or threatened with suit, in an infringement action. The decision, coupled with similar decisions, presents risks for patent holders seeking to enforce patents, and enables purchasers of the products to seek antitrust damages for overcharges they may have paid. The Federal Circuit’s decision relied in part on the 2nd U.S. Circuit Court of Appeals’s decision, In re DDVAP Direct Purchaser Antitrust Litigation, 585 F.3d 677, 689-92 (2d Cir. 2009), in which the court held that direct purchasers have standing to pursue Walker Process claims despite the fact that, as purchasers, they could not directly challenge the patent’s validity. In November 2012, the district court ruled that indirect purchasers also have standing to pursue Walker Process claims, and further ruled that those claims were not pre-empted by federal law. The decision is available here.

Reform of the Criminal Cartel Offense in the UK

The UK Parliament is considering legislation aimed at increasing prosecutions under the cartel offense. The Enterprise and Regulatory Reform Bill redefines the criminal cartel offense by removing the current requirement to prove that the defendant acted “dishonestly.” As the bill has progressed through Parliament, safeguards have been added, including two new defenses. It will be a defense if a person can show that: (i) at the time of making the cartel arrangements, he did not intend to conceal their nature from customers or the UK regulator; and/or (ii) before making the agreement, he took reasonable steps to ensure the nature of the arrangements would be disclosed to professional legal advisers for the purpose of obtaining advice. In addition, a person will not have committed the cartel offense if customers are given relevant information about the arrangements before they enter into supply agreements; where bid-rigging arrangements are disclosed to the person requesting bids at or before the time a bid is made; or where relevant information about the arrangements are published before they are implemented. Moreover, the UK competition regulator will be obliged to consult and publish guidance on the principles that will be used when deciding whether to prosecute. The bill was approved by the House of Commons on Oct. 17, 2012, and is now being debated in Parliament’s upper chamber, the House of Lords. Other changes to be implemented by the bill include the consolidation of the UK’s two competition authorities, the Office of Fair Trading and the Competition Commission.

European Commission Signs Antitrust Cooperation Agreement with China

On Sept. 20, 2012, the European Commission (Commission) entered into a Memorandum of Understanding to strengthen its cooperation with the Chinese antitrust authorities. The signatories to the agreement are the Competition Directorate-General of the Commission (DGCOMP); China’s National Development and Reform Commission (NDRC), which deals with price-related infringements; and the State Administration of Industry and Commerce (SAIC), which deals with non-price-related infringements. China’s Ministry of Commerce (MOFCOM), which is responsible for merger control, is not party to the agreement. An existing Competition Policy Dialogue, which was signed in 2004, will continue to be the basis for cooperation between the Commission and MOFCOM in relation to mergers. The new Memorandum of Understanding covers all other areas of competition under China’s Anti-Monopoly Law. It creates a framework for China and the Commission to exchange views on legislative developments, their experiences of enforcement and technical cooperation. The agreement also allows for the exchange of non-confidential information where China and the Commission are pursuing the same or related matters, but confidential information will continue to be protected. The Memorandum of Understanding demonstrates China’s commitment to developing its antitrust enforcement practice following the enactment of its Anti-Monopoly Law in 2007.

Almunia Announces Commission Competition Policy for 2013

In a speech published Oct. 8, 2012, European Commission Vice President Joaquín Almunia presented the Commission’s competition policy work program for 2013 and 2014. These include reform of state aid rules, with the aims of supporting growth, streamlining the decision-making process and prioritizing cases that have a “significant impact” on the internal market. Almunia also confirmed that the Commission has not abandoned its initiative in the field of antitrust damages actions. Plans for legislation in this area were announced in the Commission’s competition work program for 2012, and were intended to be implemented during the course of this year. The objectives are to ensure effective damages actions before national courts for breaches of EU antitrust rules and to clarify the relationship between private actions and public enforcement, especially regarding the protection of leniency programs. Almunia confirmed in his speech that, despite the delays, he remains committed to proposing measures in this area. The full text of the speech may be found here.

China’s NDRC Uses Leniency Program to Uncover and Punish Members of Cartel

In what appears to be part of a continuing crackdown on price-fixing cartels, members of a cartel based in China’s southern Guangdong province have been fined more than RMB 750,000 ($120,000) in a recent action by the National Development and Reform Commission (NDRC). The cartel was found to have engaged in price-fixing activities that caused the price of sea sand, a valuable mineral used in construction and for land reclamation, to triple in a short period of time. Beginning in November 2010, the members of the cartel, more than 20 companies, organized a series of four secret meetings to coordinate the price of sea sand, according to the NDRC. In addition, to ensure implementation of the agreed prices, they established a mechanism to monitor compliance and punished those companies who broke the agreement or who refused to participate. The increase in the price of sea sand affected the price of concrete and consequently the cost of several ongoing construction projects, including the Hong Kong-Zhuhai-Macau Bridge, and attracted the attention of the government of Guangdong province, the NDRC said. The investigation revealed that the companies involved were fully aware that they were breaking the law and took steps to conceal their actions. As the authorities initially encountered difficulties in investigating the cartel, they targeted six core members and used the leniency program to obtain essential evidence, including the names of the participants and text messages between them. Fines were imposed on three of the cartel participants, two of whom were identified as organizers of the cartel and the third, who was identified as the primary beneficiary of the cartel. One of the two organizing companies had its fine reduced by 50 percent for voluntarily providing important evidence to the authorities under the leniency program. The other two companies each received the maximum fine permitted under the Anti-Monopoly Law of 10 percent of sales revenue for the preceding year. Other participants received a warning but no monetary penalty. The press release from the NDRC in Chinese can be found here.

China’s MOFCOM Releases List of Unconditionally Approved Notifications of Concentrations

On Nov. 16, 2012, China’s Ministry of Commerce (MOFCOM) released the latest data on unconditionally approved notifications of concentrations. The list includes the total number of transactions that have been unconditionally approved, the name of each transaction and the undertakings concerned. China’s Anti-Monopoly Law only requires MOFCOM to disclose decisions to prohibit or to attach conditions to a transaction. However, according to an earlier press release, MOFCOM will begin to disclose information relating to unconditionally approved transactions on a quarterly basis in a further step towards increasing the transparency of the merger control process. The list of unconditionally cleared cases is available in Chinese here.

Malaysia Competition Commission Issues First “Proposed Decision” Against Price-Fixing

The Malaysia Competition Commission (MyCC) has taken a soft approach in its first enforcement action relating to the laws against anti-competitive behavior. It has issued what it has termed a “proposed decision” against the Cameron Highlands Floriculturist Association (CHFA) for breaching the provisions of the 2010 Competition Act, which prohibit horizontal price-fixing. In its statement issued Oct. 24, 2012, MyCC said CHFA, whose president had publicly announced that the association’s members had agreed to increase flower prices by 10 percent, should stop fixing the price of flowers and provide an undertaking that its members will refrain from any anticompetitive practices. MyCC has asked CHFA to issue a public statement on its remedial actions in the mainstream newspapers. In response to criticism that the approach taken was insufficient, MyCC’s chief executive officer explained that as it was the first year of enforcement the authority’s approach to enforcement would be one of advocacy to ensure compliance and, where infringements were found, the authorities would impose remedial measures instead of fines. The press release from the MyCC can be found here.