Enforcement Cooperation

Lex Mundi

Atlanta, GA

Date:
By: 
Debra A. Valentine, Former General Counsel

* Just as business activity has globalized, antitrust enforcement has globalized as well. Indeed, about half of the Commission's full merger investigations -- that small but important subset of filings that go to a second request -- have an international component. That international aspect could be a foreign-based party, essential information located abroad, or a foreign asset that is critical to an effective remedy, but it is increasingly there.

* Whereas 10 years ago, only about 20 countries had competition laws, today over 80 do.

Not surprisingly, communications and cooperation among those agencies are correspondingly growing in quantity and deepening in quality. Not a day goes by when we are not in contact with some foreign competition authority.

* Inevitably, countries' competition laws differ somewhat - and some may include goals such as the promotion of national champions or employment stability that are not classic antitrust interests and may in fact be antithetical to competition goals. But the similarities between our laws far outweigh the differences. While the growing similarity of our economic analyses is primarily responsible for our increasingly similar enforcement approaches, there is no doubt that increased cooperation is diminishing our differences as well.

* The fact that cooperation among antitrust officials emerged in the late 1960s largely as a way to avoid or manage conflicts over the extraterritorial application of the US laws now strikes us as an odd historic relic. We have long left those conflicts behind. Other countries fully realize that activities occurring outside their territories can have effects on their markets and their consumers.

And we all recognize that cooperation among antitrust officials improves the enforcement of competition laws and helps to maintain competitive markets in all our countries.

* So how do we cooperate? The oldest instrument of cooperation is an OECD recommendation, adopted in 1967, and modified most recently in 1995. Although it is more of a commitment than a binding legal obligation, it is important for at least two reasons. First, its minimum commitments provide the basis for all subsequent bilateral agreements. Second, it loosely binds not just two countries but all 29 OECD countries in a cooperative endeavor.

* The US has entered into five bilateral cooperation agreements that reflect the spirit of this OECD Recommendation: with Germany (1976), Australia (1982), Canada (1984 and 1995), the EC (1991), and Israel (1999). All of these are what I will call first generation agreements, and I will later contrast them with a more robust information sharing agreement that the US and Australia recently entered into. The five agreements all share certain basic obligations.

* First, notification. Each party must notify the other about enforcement activities that affect the other's important interests. Thus, the FTC would notify a bilateral partner or OECD country when we are investigating activities that are: (1) relevant to the enforcement activities of that country; (2) involve anticompetitive activities carried out in large part in the other's territory; (3) involve a merger in which a party is incorporated or organized under the laws of the other country; (4) involve conduct that the other country required, encouraged, or approved; or (5) involve remedies that would require or prohibit conduct in the other's territory.

* Second, enforcement cooperation. Parties to these agreements recognize their common interest in cooperating (1) to detect anticompetitive activities; (2) to enforce their competition laws and (3) to share information, to the extent legally possible and compatible with each country's interests.

* Third, coordination. The parties commit to consider coordinating their enforcement activities when they both are investigating activities involving related matters. In deciding whether to coordinate investigations, the competition officials consider various factors - such as each country's ability to obtain needed information, to secure effective relief, to reduce costs by coordinating, and to achieve its enforcement objectives.

* Fourth, avoidance of conflicts. Each party commits to give careful consideration to the other's important interests and to minimize any adverse effects that its enforcement activities might have on the other's important interests.

* Fifth, consultations. These agreements give each party the right to request consultations to resolve mutual or unilateral concerns about any matter relating to the cooperation agreement. Most also commit to periodic meetings, but one can imagine that becoming impracticable as the web of bilateral agreements grows.

* Sixth, confidentiality. The parties commit to maintain the confidentiality of any information that they communicate in confidence. In addition, no one is required to communicate information when domestic law prohibits doing so or if doing so is incompatible with that country's important interests.

* Seventh, the EC/US, Canada/US and Israel/US agreements all have positive comity provisions. Positive comity allows one country's competition officials to request the other country's authorities to investigate suspected anticompetitive activities occurring in whole or in part in the latter's territory. Such requests may take place when certain conditions are met: the requesting country must believe that its interests are adversely affected and that the activities occurring abroad are illegal under the laws of the country whose help is being requested. The beauty of these arrangements is that, when more than one country has authority to investigate, a positive comity referral puts the officials who are closest to the conduct of concern in charge of getting evidence and remedying any anticompetitive conduct. Positive comity referrals are thus efficient, eliminate duplicative efforts, and decrease concerns about extraterritorial enforcement.

*Before I talk about how cooperation works in fact under these agreements, let me briefly address a more intensive type of cooperation agreement that we hope to see more of in the future.

Greg will be talking to you about the sharing of information under Mutual Legal Assistance Treaties, or MLATS, which apply to criminal antitrust investigations. To permit a similar type of sharing in civil cases - which is what antitrust cases often are - Congress gave the FTC and Justice Department authority in 1994 to enter into bilateral antitrust mutual assistance agreements.

* Under these agreements, US antitrust authorities can share confidential antitrust evidence already in their possession with foreign antitrust authorities; they also can use their investigative powers, such as subpoenas, to gather antitrust evidence for use by foreign antitrust authorities. But two rather strict conditions must be met in order to enter into such agreements: (1) the other party must have competition laws that are roughly similar to ours; and (2) it also must have confidentiality laws that protect information in ways comparable to the protection our laws offer. What this guarantees is mutuality of assistance and proper handling of confidential business information. What it means in practice is that these arrangements will develop only slowly among the most sophisticated antitrust enforcers.

* So how does cooperation under our "first level" group of bilateral agreements - and the OECD Recommendation - work in daily practice? I will focus largely on mergers with cross-border effects.

* First, you should expect that agencies' staffs will begin talking to one another as soon as they see reports about a potential merger or alleged anticompetitive conduct in the media. It does not take a formal notification or premerger filing for the agencies to begin sorting out who has jurisdiction over a transaction. Sometimes, companies' counselors call us to provide notice that a deal is in the works, just as EC counsel have learned to avail themselves of the prenotification consultations that DG-IV offers. You should not expect that your transaction is going to slip by unnoticed; we are not that inexperienced.

* Increasingly during these initial contacts between the merging parties and agency staff, the agency will ask whether the proposed merger is being notified to other jurisdictions. If so, we encourage parties to consider two things: coordinating the timing of those different reviews and waiving confidentiality to speed the multiple agency review process and to enhance the possibility of complementary rather than inconsistent remedies.

* The next step is determining which agencies will actually review the merger. On the US side, we have a process by which DOJ or the FTC "clears" the other to investigate the matter, a process that has become highly efficient in recent years. The decisions are based primarily on relative agency expertise - which agency has investigated a particular product or industry most recently and most thoroughly? On the EC side, although DG IV has authority over large transactions and those that would be notified to 3 or more member states, it is striking how often we find ourselves cooperating with member states in significant cases that nevertheless fall below the "community dimension" thresholds in the EC Merger Control Regulation (Federal-Mogul/T&N plc; IMS-Health/PMSI).

* Interesting from the US perspective is that our merger Act's confidentiality provisions prevent disclosure of the fact that parties have made an HSR filing or the fact that we have issued a second request for additional information. Thus, we tend not to notify foreign authorities that we are looking at a matter that affects their important interests at the time of those particular events, since the notification could be construed as disclosing that event. Although our agreements often require us to notify another country no later than the second request, we tend to do so earlier, in order to improve our ability to cooperate and, where appropriate, coordinate our investigations.

* What sort of information do we end up sharing? Boiled down to the essentials, we share any information that our laws don't prevent us from sharing, and we maintain the confidentiality of any information that we receive from another authority.

* First, we share information about our respective investigational processes, such as what sort of documentary or testimonial evidence we will be seeking and from what sorts of entities, and information about our timetables and deadlines.

* Second, we share publicly available information about the relevant markets, applicable legal principles and precedents, and other factors relevant to the analysis, such as the likelihood of entry in particular types of markets and possible entry barriers.

* Third, we share how staffs are analyzing the relevant product and geographic markets, or the competitive effects or efficiencies. In doing so, we do not share confidential business information or specific pieces of evidence; that is, we do not disclose nonpublic commercial information that specific merging firms or third parties submit to us in the course of an investigation. Rather, we share what I call agency confidential information - examples of this include how we analyze product and geographic markets, based on an aggregation of evidence and relevant legal principles, and our tentative theories about competitive effects. Generally, this type of information is protected from public disclosure under the Freedom of Information Act and privileged from discovery in litigation. Sharing it with fellow enforcers can be quite helpful, however.

* Fourth, if aspects of the merger appear problematic, we exchange information on remedies, such as whether divestitures, licensing or behavioral controls will adequately address competitive concerns.

* Given the reality of this cooperation between competition agencies, I offer the following advice: You should consider the desirability of providing us voluntarily with confidential information that you have given other reviewing authorities. For example, when we know the EC is reviewing the same matter, we routinely ask parties to provide a copy of their Form CO - the merger information they have submitted to the EC. You need not provide it and we can, of course, obtain it, if necessary, in a second request. But consider the upside alterative when parties agree to provide both the US and EC authorities with information to facilitate their communications. I know of cases where this occurred, and those cases did not go to the US second request or EC second phase stage, even though I admit that it is difficult to demonstrate a direct causal relationship between the cooperative provision of information and a felicitous outcome in every case. Nonetheless, sharing significant additional information early and cooperatively assists the reviewer and sets a more positive context than would otherwise be the case if access to the information was more difficult.

* Along similar lines, when more than one antitrust authority reviews a matter, the firms involved should seriously consider granting waivers of confidentiality with respect to particular documents or information to help resolve the matter efficiently. This is particularly true once it is recognized that remedial measures are necessary in more than one jurisdiction. Rather than pitting enforcement authorities in a tug of war over some of your assets, or ending up with conflicting orders that place your firm on the horns of a compliance dilemma, try cooperating with us. You should have no illusion that you can cut a deal with one jurisdiction that limits the ability of another reviewing jurisdiction to fulfill its competition responsibilities.

* Several recent cases strikingly illustrate the benefits of cooperation. In one, the merger of the British and Swedish pharmaceutical firms, Zeneca and Astra, the parties agreed to waivers that allowed the FTC and EC staff to discuss documents relevant to a settlement proposal and to develop compatible remedies acceptable to both authorities. (On the US side, the consent required Zeneca to transfer and surrender its rights and assets, including IP and know-how, relating to a new long-acting local anesthetic that was under development, as well as to divest an investment interest in its development partner, Chiroscience.) In another, which involved Lafarge Corporation's acquisition of a cement plant and related assets of Holnam, the number one supplier of cement in the United States, the parties likewise agreed to waivers of confidentiality. Those waivers allowed Canada's Competition Bureau to review documents submitted to the FTC and thereby reduced the parties' investigational and production burdens.

* Finally, in cases where different law firms represent the same company in, for example, Brussels and Washington, the client deserves as much cooperation and coordination between its lawyers as between the reviewing authorities. We have witnessed numerous cases in which FTC staff and DG-IV staff seemed to know more about the status of each other's investigations than did the lawyers for the companies. This profits no one. You will achieve legitimate business aims most expeditiously if you facilitate cooperation among antitrust enforcers, which begins with cooperation among the various foreign and in-house counsel involved in the deal.