November 2005Presentation to Pegasus Corp. 0 GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | Section of...

November 2005 Presentation to Pegasus Corp.1GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM

Section of Antitrust LawCorporate Counseling CommitteeAntitrust Update

December 11, 2006

©2006, Greenberg Traurig, LLP. Attorneys at Law. All rights reserved.

December 2006 Antitrust Update ABA Section of Antitrust Law Corporate Counseling Committee | 2

December 2006 Antitrust Update

U.S. Supreme Court Update

Allan Van Fleet - Greenberg Traurig, Houston

U.S. Merger Enforcement Update

Shirley Z. Johnson – Greenberg Traurig, D.C.

Far East Antitrust Update

James I. Serota – Greenberg Traurig, New York

E.C. Article 82 Discussion Paper

Howard Cartlidge – Olswang, London

E.U. State Aid Update

Claudio Biscaretti di Ruffio – Studio Santa Maria, Milan

Eduardo Gambero – Studio Santa Maria, Milan

Maia Reni – Studio Santa Maria, Milan


U.S. Supreme Court Update

Allan Van Fleet

Houston, Texas


Twombly v. Bell Atlantic Corp.

Four ILECs (“Baby Bells”) accused of conspiring not to compete in each other’s geographic market or let CLECs compete in the markets

D.Ct. (G. Lynch, J.) dismisses, holds mere parallel conduct plus conspiracy label insufficient under Section 1

S.Ct. has required “plus factors” for proof of conspiracy

Neat territories the product of past regulation

2d Cir. reverses

“Plus factors” needed for summary judgment, not notice pleading

S.Ct. grants certiorari


Bell Atlantic Corp. v. Twombly

AMERICAN BAR ASSOCIATION

ADOPTED BY THE HOUSE OF DELEGATES

August 7-8, 2006

RECOMMENDATION

RESOLVED, that the American Bar Association urges that Fed. R. Civ. P. 12(b)(6) be interpreted to require that a complaint alleging a conspiracy in violation of Section 1 of the Sherman Act must allege facts constituting more than mere parallel conduct and ordinary business behavior.


Twombly v. Bell Atlantic Corp. Oral Argument November 27, 2006

Questioning very active – all but Thomas participated

All looking to articulate a fair standard in view of substantive antitrust law and liberal federal notice pleading

Breyer

If mere parallel conduct sufficed, or conduct allegedly inconsistent with independent economic self-interest, it would lead to a “major restructuring of the economy”

AAG Barnett argued “the facts [alleged] need to demonstrate some reasonably founded expectation that there is an unlawful agreement within the meaning of Section 1”

Breyer looking to improve standard in his Dura opinion



Souter

Pleading must reach the level of plausibility; this one does not

Roberts

Companies get proposals for business all the time, can’t do all of them – even those in economic self-interest

Alito

Questions similar to Roberts’s and Scalia’s



Stevens

How are allegations here any different from those in “dozens of antitrust complaints that no more specific”?

Ginsberg

Agrees but concerned about filing a complaint based on “suspicion” to get access to defendants’ documents

Scalia

Concerned about “how many buildings would have to be rented” to store all the documents

Best articulated the concern over the discovery burden following denial of a motion to dismiss an antitrust complaint


Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co.

Jury finds W bought saw logs "purchased more logs than it needed [and] paid a higher price for logs than necessary, in order to prevent the plaintiffs from obtaining the logs they need at a fair price”; $80 million damages

9th Cir. Affirms

W suffered no losses in sales of finished lumber

9th Cir. declines to apply Brooke Group predatory pricing standards

S.Ct. grants certiorari

DOJ amicus brief derides 9th Cir.’s “subjective and standardless test"


Weyerhaeuser v. Ross-Simmons Oral Argument November 28, 2006

Questioning directed to whether Brooke Group standard should apply to alleged “predatory buying”

Roberts

Higher standard applied to run predatory pricing because low prices benefit consumers in the short run; does not appear to be such a benefit in this case

Scalia

Paying more for logs to assure an adequate supply may make perfect business sense

Souter

Doesn’t seem to be so here, given evidence of short supply


Weyerhaeuser v. Ross-Simmons Oral Argument November 28, 2006

Breyer

Higher prices are certainly good for the woodsmen

Issue is to determine whether people are “hogging goods unnecessarily for bad purposes” or “storing up nuts for winter for good purposes”

Test should be whether they expect in the long run to make money – that’s recoupment, an old test


Leegin Creative Leather Products v. PSKS, Inc.

Jury finds Leegin violated Sec. 1 by entering agreements with retailers to fix minimum resale price of leather products

5th Cir. Affirms

Notes “we remain bound” to per se rule in Dr. Miles (S.Ct. 1911)

S.Ct. grants Leegin’s application to stay mandate

Leegin’s cert. petition nearly certain to be granted

Provides opportunity for Court to overrule or limit Dr. Miles

ABA Antitrust Section preparing resolution for ABA


Leegin v. PSKS Certiorari granted December 7, 2006

Arguments for Rule of Reason treatment

All other vertical restraints are judged under Rule of Reason-See Texaco v. Dagher (2006)

State Oil v. Khan (1997) – overrules per se illegality of maximum resale price maintenance

Near consensus of economists is RPM should be treated as other vertical restraints

Compare impact of tight territorial restrictions

Arguments for per se or quick look treatment

Unlike other vertical restraints, minimum RPM always results in higher prices for consumers


Billing v. Credit Suisse First Boston Ltd.

D.Ct. dismisses complaint against investment banks underwriting initial public offerings

Alleged collusive “tie-in” and “laddering” practices that inflated the price of securities after the IPOs and underwriter compensation

D.Ct. holds implied immunity protects conduct from antitrust scrutiny -Certain conduct permitted by SEC rules-Other conduct immune in light of SEC’s “broad general authority to regulate IPO allocation and underwriter commission practices


Billing v. Credit Suisse First Boston Ltd.

2d Circuit vacates and remands

Alleged “tie-in” and “laddering” practices are unlawful manipulation under SEC rules; thus “the heart of the alleged anticompetitive behavior finds no shelter in the securities laws

No SEC “pervasive regulation” required implied immunity under the antitrust laws

Only NASD conduct specifically permitted was immune

No “potential for irreconcilable mandates” – no party suggests SEC power to force tie-in conspiracies

SEC-permitted conduct in complaint to be dealt with as an “evidentiary issue”


Billings v. Credit Suisse First Boston Certiorari granted December 7, 2006

SEC and DOJ initially clash

SEC and DOJ join in Solicitor General’s brief urging Court to grant certiorari to clarify implied immunity standard

Argues neither the district court or court of appeals got it right

Court of appeals wrong not to uphold dismissal of collaborative conduct that is permitted under securities laws or “inextricably intertwined with such permitted activities”

District court’s “sweeping immunity” fails to give adequate effect to the antitrust laws

Courts require specific pleading of anticompetitive acts not approved by SEC or “cannot be separated” from them


M&A Update

Shirley Z. Johnson

Washington, D.C.


M&A Update

DOJ Merger Enforcement

Entercom/CBS (Oct. 31, 2006)-Acquisition of 15 radio stations-DOJ suspended investigation in return for divestiture of 3 radio stations

-DOJ reserved right to resume probe if divestiture is not completed in 3 months

Chicago Mercantile Exchange/Chicago Board of Trade (Dec. 2006)-Combination to handle $4 trillion of derivatives trade

-Second request issued


M&A Update

FTC Merger Enforcement

Chevron/USA Petroleum (Nov. 17, 2006) -Proposed acquiring 112 gas stations in CA-Abandoned in the midst of FTC probe

Linde/BOC-Final Decision and Order (Sep. 5, 2006)

– Divest atmospheric gases assets, bulk

refined helium assets, and escrow

transfills-Application for approval to divest “atmospheric gases” assets to Airgas, Inc. (Dec. 1, 2006)


M&A Update

Changes in Second Request – DOJ

Cost to Comply with Second Request-From $3 to $25 million-Electronic documents increase cost

Goal: Fewer Second Requests

But More Intensive Scrutiny in First 30 days

Fewer Businesspersons’ Files to Search – 30 to 35-But in return for 2 month pretrial discovery before preliminary injunction hearing

4 Cases Litigated out of 250 recent DOJ Second Requests


M&A Update

HSR Transactions

From FY 1996 (October 1 to September 30) to FY 2005

FY 2006 – no official numbers out; but in excess of 1875 HSR transactions filed

0

1,000

2,000

3,000

4,000

5,000

Transactions 3,087 3,702 4,728 4,642 4,926 2,376 1,187 1,014 1,454 1,695 1,875

ET 2,044 2,513 4,323 4,110 4,324 2,063 1,042 700 1,241 1,385

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


M&A Update

HSR “Second Requests”

From FY 1996 (October 1 to September 30) to FY 2005

0

50

100

150

Total 99 122 125 111 98 70 49 35 35 50

FTC 36 45 46 45 43 27 27 15 20 25

DOJ 63 77 79 68 55 43 22 20 15 25

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005


M&A Update

Emergence of Private Equity FundsLong Gone Are the Days of Claim: “But We Are Just Financial Investors!”

Increasing Number of Deals by PE Funds – Including Recent Mega Deals-HCA Inc. (hospital) – $21.3B-Clear Channel Communications (radio) – $18.7B-Freescale Semiconductor, Inc. (semiconductor) – $17.7B

-Kinder Morgan (pipeline) – $14.6B-Univision Communications, Inc. (broadcasting) – $12.1B

DOJ’s Reported Inquiry into PE Funds’ “Collusive” Business Practice


Far East Antitrust Update

James I. Serota

New York, New York


China based Antitrust Litigation

AML is widely expected but the official enforcement mechanism is uncertain

Private litigation in U.S.-expect arbitration before CIETAC

Chinese companies are comfortable with CIETAC



Private plaintiffs are reluctant to sue Chinese suppliers- “fear of retaliation”

New technique- the “Assigned Dummy” as Plaintiff



2 Current cases

Vitamin C Antitrust Litigation

Motions to Dismiss, Motion to Compel to Arbitration now pending in EDNY

3 cases have been served, 6 cases unserved

Magnesite Antitrust Litigation in District of New Jersey filed 9/7/05, 1 party served, 16 unserved


Japanese Litigation Developments

Reinforcement of the

Antimonopoly Act of Japan

BACKGROUND

The Antimonopoly Act of Japan was amended and became effective on January 4, 2006.

Amendment motivated by repetitive, and a perceived increase of, bid-rigging by major Japanese enterprises.

Former system too weak to force such enterprises to refrain from committing monopolistic acts.

The goal of the amendment was to construct a new system and reinforce the old, to motivate such enterprises to cease entering into, or continuing, improper conduct.


Main Features of the recent Amendment of the Antimonopoly Act of Japan((Fair Trade Commission of Japan, “www.jftc.go.jp/e-page/policyupdates/mainfeatureoftheamendedAMA.html).

1. Increase of surcharge rate

Manufacturers: Large-sized enterprises: 6% -> 10%

Small and Medium-sized enterprises (SMEs): 3% -> 4%

Wholesalers: Large-sized enterprises: 1% -> 2%

SMEs: 1% (no change)

Retailers: Large-sized enterprises: 2% -> 3%

SMEs: 1% -> 2%



2. Introduction of Leniency program

1st applicant before initiation of investigation = total immunity

2nd applicant before initiation of investigation = 50% deducted

3rd applicant before initiation of investigation = 30% deducted

An applicant after initiation of investigation = 30% deducted

Note: the total number of enterprises that may be applied to the leniency program is no more than 3.



3. Compulsory Measures for Criminal Investigation

The Act introduced compulsory measures for criminal investigations to be brought by the JFCT in the event that the JFTC or other public official learns of possible criminal activity.

Penalties against corporations that are in contravention of elimination orders were strengthened.

Penalties against interference with inspection or investigation were strengthened, and double punishment for corporations was introduced.

The Tokyo High Court no longer has exclusive jurisdiction over a criminal case arising under the Act. District Courts now have jurisdiction over such cases.


Additional Factors

1. Amendment of the Commercial CodeUnder the new Commercial Code, directors have higher duty of care than before.Directors should apply for the leniency program when they become aware of the companies’ anticompetitive acts. If a decision not to apply cause injury to the company, Directors could be liable for breach of their duty of care.Therefore, directors have an increased duty to consider application for the leniency program.


Additional Factors

2. Whistleblower Protection LawBefore the law became effective, most information was provided anonymously.The new law encourages informants to disclose their identity and provide information to JFTC by increasing protection of informants from employer discrimination.If informant provides information to employer, (before providing information to JFTC), employer has increased duty to consider leniency application and may not discriminate against informant. JFTC, by increasing ability of informant to communicate, makes it easier to obtain additional information of violations of the Act.


Additional Factors

3. Amendment of the “Official Bid-Rigging Preventing Act” (Pending in current General Assembly)This Amendment is designed to discourage public officers from leading or being involved in any bid-rigging by providing for criminal sanctions and/or penalties similar to those previously reserved for individuals or enterprises found.


And, more…

1. International Presence

JFTC is trying to raise its presence on the international stage.

Until about 10 years ago, Japanese government had put the priority almost only on government level forums.

As a result, Japanese public officers and antitrust lawyers missed many non-governmental forums, including these held by the ABA, for example.

This created misunderstanding about Japanese Government’s and Antitrust lawyers’ quality and stance toward antitrust related issues.

In recent years, JFTC has been sending very high status persons to not only government level but also private level opportunities. For example, ABA International Cartel Workshops, ABA Antitrust Committee, ABA Antitrust Forum, Fordham University International symposium, etc.

Also, high status officers, including the Chairman of the JFTC, are willing to meet “influential” foreign antitrust lawyers who want to visit the JFTC.


And, more . . .

2. Be More Assertive.

JFTC has been getting more aggressive in the courts.

Originally, JFTC hesitated to appeal judicial decisions.

However, by recognizing that Japanese traditional modesty and reticence is not a virtue in the courts, they are changing their stance to be more assertive.


Australian Antitrust Developments

Recent amendments to the primary Australian antitrust statute, the Trade Practices Act 1974 (Cth) (“TPA”), are expected to come into force on January 1, 2007.

Some primary amendments are:

Increased civil penalties;

Joint venture defense to proceedings alleging price-fixing or collective boycott; and

Introduction of a voluntary formal merger clearance system.


Australia - Increased civil penalties

From January 1, 2007, the Australian antitrust regulator, the Australian Competition and Consumer Commission (“ACCC”), may seek the following civil penalties for contraventions of the TPA:The greater of:

- AUD$10 million;- 3 times the amount the contravening party gained from the contravention; or

- 10% of the Australian turnover of the company and all its related bodies corporate (if the gain from the contravention cannot be determined).

For individuals, in addition to pecuniary penalties:- Disqualification of the individual from acting as a director or otherwise managing any company in Australia.

The amendments also prohibit any company from indemnifying an individual (whether or not an employee) against the imposition of a pecuniary penalty for contravention of the antitrust provisions of the TPA or the attorney costs of defending antitrust proceedings. The remedies available in private actions include injunctive relief, damages, ancillary orders or, in relation to a merger, divestiture or other structural relief.


Australia – new joint venture defense to price-fixing or collective boycott proceedings

In price-fixing or collective boycott proceedings, the amendments introduce a new defense if the relevant conduct:

Is for the purpose of a joint-venture; and

Does not have the purpose and is not likely to have the effect of substantially lessening competition.


Australia – new voluntary merger clearance

The ACCC has historically provided an informal merger clearance system.

The amendments introduce a voluntary formal merger clearance system which affords successful applicants statutory immunity from legal action initiated by the ACCC or any private party.

Such immunity will be revoked if the clearance was granted based on false or misleading information, or the applicant fails to comply with conditions imposed on the clearance.


Australia – cartels

There are currently no criminal sanctions for cartel activities in Australia. However, the Australian Government has indicated its intention to follow the recent amendments with further reform to provide for criminal penalties for serious cartel conduct.

Consistent with that intention, the ACCC is ramping up cartel investigation (with approx. 20 cases under serious investigation at present) and, as a matter of policy, offers “whistle-blowers” immunity from prosecution, except where they are the “ringleader” of the cartel.


Australia – class actions for antitrust contraventions

Class actions, which may be brought pursuant to section 33(c) of the Federal Court of Australia Act 1976, are becoming increasingly popular as a source of remedies for consumers adversely affected by antitrust contraventions. When companies admit guilt or are successfully prosecuted, they become vulnerable to civil actions for compensation.

Australia’s first proceeding of this type, against the instigators of an international vitamin cartel, was settled in July, 2006. That case concerned three of the largest foreign producers of vitamins (Roche, BASF and Aventis), which reportedly agreed to an $30.5 million settlement. The settlement will be awarded to those who claim losses as a result of the price-fixing cartel set up by the three companies. The case has been said to herald a new era by providing an additional avenue for cartel victims to recoup their losses.


EC’s Article 82 Discussion Paper


EC’s Article 82 Discussion Paper

Howard Cartlidge

London, U.K.


What is Article 82 of the EC Treaty?

Article 82 is the principal legal instrument prohibiting certain conduct by businesses with a monopoly or market power in the EU

Article 82 applies to:-unilateral conduct by a business- if that business has a dominant position in a market in the EU or a substantial part of the EU

-where the conduct amounts to an abuse (e.g. by excluding competition or exploiting customers)

-where the conduct may affect trade between EU Member States

Breach of Article 82 may result in administrative fines (up to 10% of worldwide gross revenues), unenforceability of agreements affected by the abuse, and third party damages claims in the courts


Comparison with Sherman Act section 2

Article 82 applies only if the business has a pre-existing dominant position – does not apply to conduct aimed at acquiring a dominant position in (i.e attempting to monopolise) a market, except where this is connected to existing dominance in a related market

Dominance presumed if market share is 50% plus, can be found at market share as low as 25%

No concept of per se illegality (at least in principle)No criminal sanctions for breachCan apply to unconnected businesses that together have a collective (or joint) dominant position

Application to mergers has been effectively replaced by the EC Merger Control Regulation (Council Regulation 139/2004/EC)


Why does Article 82 need to be “modernised”?

Criticism of rigidity of application of Article 82:-prohibition applied to specified practices (e.g. rebate schemes) without due consideration of impact on competition

- lack of economic analysis

Criticism of Article 82 as protecting competitors, not consumers

Article 82 has been left behind by “modernisation” of other aspects of EU competition law in 21st century, in particular the increased emphasis on economics and market analysis

Controversial European Commission decisions e.g. Microsoft


What is the Article 82 Discussion Paper?

Discussion Paper (72 pages) issued by Commission Directorate General for Competition on 19 December 2005

Discussion Paper covers only “exclusionary abuses” (and some general principles); “exploitative and discriminatory practices” are intended to be the subject of separate consultation

Discussion Paper has the appearance of draft guidelines, but not yet certain it will be converted into formal guidelines

In any event it is not legally binding, but indicative of the Commission’s likely approach (persuasive value only in court)

Consultation closed 31 March 2006, public hearing June 2006

Next steps due to be announced “in early 2007”


What are the key issues dealt with in the Discussion Paper?

Definition of market and dominanceFramework for analysis of abuseCategories of exclusionary conductAbuse of collective dominancePossible defencesSpecific types of exclusionary abuses

-Predatory pricing-Single branding and rebates-Tying and bundling-Refusal to supply

Aftermarkets


General issues in analysis of exclusionary abuses

Essential objective of Article 82 is “the protection of competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources”

Concern is to avoid consumer harm: “it is competition, and not competitors as such, that is to be protected”; “central concern…foreclosure that hinders competition and thereby harms consumers”

Price and non-price based exclusionary conduct: pricing conduct assumed to be abusive only if it would exclude a hypothetical “as efficient” competitor

Horizontal and vertical foreclosure: latter (e.g. refusal to supply and margin squeeze) generally only a concern if dominant business is active in both upstream and downstream markets


Possible defences: objective necessity and “meeting competition”

Objective necessity:- limited justification for otherwise abusive conduct- examples: safety or health related to dangerous nature of the product

- conduct must be indispensable

Meeting competition:- applicable only to pricing abuses- applicable only in individual dominance cases- test is that conduct must be necessary to minimise the short run losses resulting directly from competitors’ actions

- conduct must not have the “objective aim” of foreclosing competitors

- conduct must be proportionate: suitable way to meet competition (e.g not involve extra investments in capacity); indispensable; proportionate response to competitors’ actions


Possible defences: efficiency

Applies to conduct that satisfies four conditions (based on exemption criteria for anti-competitive agreements) that indicate “the net effect of such conduct is to promote the very essence of the competitive process”

Condition (i): efficiencies are likely to be realised as a result of the conduct

Condition (ii): conduct is indispensable to the efficiencies

Condition (iii): efficiencies benefit consumers (pass-on of benefit must at least compensate for negative impact)

Condition (iv): competition not eliminated in respect of a substantial part of the products (highly unlikely to be satisfied if business has a near-monopoly i.e 75% plus market share)


Refusal to supply as an abuse

Starting point: businesses “are generally entitled to determine whom to supply and to decide not to continue to supply certain trading partners”

Refusal to supply can be an aspect of other abuses e.g. punishing customers for dealing with competitors

Termination of an existing supply relationship: presumed efficient to supply because supplied in the past, so often an abuse (but terminating one customer in itself not likely to be abuse); objective justification or efficiency defence may apply

Refusal to start supplying an input: abuse if input is indispensable, refusal likely to have a negative effect on competition, and not objectively justified; if refusal to license IP, also need to show that refusal prevents production of new products for which there is potential consumer demand

Refusal to supply information needed for interoperability: special case of abuse where this allows a business to extend its dominance from one market to another, even if prohibition requires mandatory disclosure of trade secrets


Conclusions

Discussion Paper represents a significant advance in Commission’s thinking on Article 82

Welcome focus on consumer welfare as the primary objective

However, Commission constrained by European Court case law and its own inability to acknowledge flaws in its past decisional practice

Analysis of individual abuses does not always live up to the principles declared at the start of the paper

Commission retains significant flexibility to intervene


Annex: Text of Article 82

Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

limiting production, markets or technical development to the prejudice of consumers;

applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.


E.U. State Aid Update

Claudio Biscaretti di Ruffìa

Edoardo Gambaro

Maia Reni

Milan, Italy


State Aid: Art. 87 EC

“Any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be deemed incompatible with the common market” (Art. 87(1) EC Treaty).

no definition of “State Aid” in the EC Treaty (evolving concept)

intentionally unspecific provision

broadest possible application of the prohibition

prohibition not restricted to direct subsidies alone

examples of State aids: lower-rate loans, State guarantees for borrowings, subsidised export credit, extended terms of payment, payment by the State of payroll or social security charges, publicly-owned real property sold below its value, tax relief or exemption or exceptional extensions of tax payment terms, parafiscal levies etc.


Art. 87 EC: Requirements

Art. 87(1) EC contains a list of requirements which must all be met.

The intervention must:

be imputable to the State or carried out through State resources;

give a gratuitous advantage to the recipient, not obtained in normal market conditions;

be of a “selective” character, i.e. intended to favour just certain undertakings or certain business sectors;

have an impact on trade between Member States; and

distort competition in the common market.


State Aid Action Plan (SAAP)

The State Aid Action Plan (SAAP) presented by the Commission in June 2005 launches a comprehensive reform of State aid policy that will cover a five-year period (2005-2009).

SAAP was launched as a response to a series of challenges:

the re-launched so-called Lisbon Strategy (European Council which took place in Lisbon in spring 2005) for growth and jobs: this requires a re-direction of State aid towards less and better targeted aid;

enlargement: more countries (ten new MS from 2004 and two new MS from January 2007) lead to more State aid cases and to a need for the Commission to better prioritize resources;

increasing complexity in the State aid rules, as well as insufficient transparency and inadequate enforcement.


SAAP’s Key Priorities

There are 4 guiding principles underpinning SAAP:

less and better targeted State aid;

a refined economic approach;

more effective procedures, including better enforcement, higher predictability and enhanced transparency;

a shared responsibility between the Commission and MS.


SAAP: “less and better targeted State aid”

The goal is to concentrate aid where it adds greater value.

Obviously, the objective of “less and better targeted aid” is clearly the responsibility of Member States, while the Commission has only a supporting role in the re-direction of State aid. However, through better rules and scrutiny, the Commission tries to contribute to the EU objective. In particular:

focusing on regional aid for regions most in need;

authorising aid measures that better tackle the market failures;

supporting aid in favour of SMEs, research and development, innovation and risk capital and

fostering high-quality public services, modern transport and energy infrastructures.

General tendency (according to the last scoreboards): (i) progress in re-directing aid towards horizontal objectives and (ii) decrease of State aid amounts, albeit limited.


SAAP: “a more refined economic approach”

At present, unlike Articles 81 and 82 EC investigations, economic analysis in State aid Commission decisions is almost absent. Up to now, European Courts have systematically upheld State aid decisions in which the Commission failed to state reasons as regards several aspects (i.e., requirements of distortion of competition and effect on trade, application of the private investor principle).

“Economic and legal analyses are used to fulfil the Commission’s obligations under the Treaty, in some cases to determine when a measure is state aid […] and in particular to determine when state aid can be declared compatible with the Treaty. In assessing whether an aid measure can be deemed compatible with the common market, the Commission balances the positive impact of the aid measure (reaching an objective of common interest) against its potentially negative side effects (distortions of trade and competition)” (SAAP, para. 19)


SAAP: “a more refined economic approach”

However, there are some positive indications:

first examples of “refined economic approach” can be found in recent rules issued by the Commission: (i) Guidelines on State Aid to promote Risk Capital in SMEs (August 2006) and (ii) Framework on R&D and Innovation (November 2006);

a partial revirement of the current case law was made by the Court of First Instance in two 2006 cases (T-34/02, Le Levant and T-304/04 & 316/04, Italy and Wam SpA v. Commission). In both cases, the Court annulled the Commission decision for lack of reasoning with regard to distortion of competition and effect on trade. It is worth noting, however, that the Court stated: “it is not on the Commission to proceed to an economic analysis” (Italy and Wam SpA, para. 64).


SAAP: “more effective procedures”

“The Commission will examine all possible actions to lower administrative costs and improve the procedural rules with a particular aim to reduce the time period for treatment of cases in which the Commission has opened procedure; to provide a clear incentive to comply with the obligation to notify aid measures and to achieve an enhanced efficiency, monitoring and enforcement. In this context, the Commission intends to present a consultation document in 2007 which will be discussed with Member States, and could lead to a proposal for amendment of Council Regulation (EC) No 659/1999 (procedural Regulation)” (SAAP, para. 57).

More specifically,

“better enforcement”: the Commission is consistently pursuing Member States who fail to comply with recovery orders and has brought a number of MS to Court;

“increasing effectiveness trough partnership”: the Commission has recently launched a network of State aid contact points;

“extension of the scope of block exemptions”;

“a reduction in the number of aid measures to be notified”, in particular those which are not problematic for competition or trade


Proposal for amendment of Reg. 659/99

Consultation in 2007;

Vague proposals (save time and increase transparency, ensure timely notification, achieve greater efficiency);

Current situation not satisfactory: the procedure involves only the MS who granted the aid;

Proposals

Notification stage:

- a priori control by independent national bodies (prevention, filter);

- immediate publication of the notified measure on the OJ;

- involving beneficiaries to get information.

Preliminary examination – Art. 88(3) EC:

- involvement of third parties (complainant, beneficiaries, competitors);

- additional investigative powers for the Commission (powers of inspection also regarding beneficiaries, market enquiries, request for information to third parties);

- access to Commission’s file (beneficiaries, complainants, competitors);

- contradiction to some extent.


Proposal for amendment of Reg. 659/99

Formal procedure – Art. 88 (2) EC:

- change notice into a Statement of Objections (like 81&82 cases);

- oral hearing as in merger/antitrust cases;

- strict deadlines.

Other proposals:

- expansion of the scope of the recovery injunction;

- introduction of a written procedure for the Advisory Committee on state aid;

- clarify recovery decisions (amount, identification of beneficiaries, method of reimbursement);

- pursuing the so-called Deggendorf jurisprudence, whereby a MS cannot grant new aid to a company, unless it has recovered from this company all remaining illegal and incompatible aid.


SAAP: Reforms delivered so far

June 2005: publication of SAAP;

July 2005: Decision and Guidelines of Services of General Economic Interest (SGEI);

September 2005: Commission proposal to authorise aid to innovation;

October 2005: adoption of new Regional Aid Guidelines (published in March 2006);

December 2005: publication of new rules on short term credit insurance;

August 2006: adoption of new Risk Capital Guidelines for SMEs;

September 2006: Commission proposal for a Regulation on de minimis aid to be formally adopted in December 2006, at a level of 200,000 euros over a 3 year period;

October 2006: publication of a Commission staff paper in order to be able to extend the scope of the Council’s enabling Regulation 448/98: this text could be approved in 2007. Meanwhile, the Commission is working on a draft new General Block Exemption;

November 2006: publication of the new Framework on R&D and Innovation.


SAAP: Reforms to be delivered within 2007/2008

The Commission is willing to reform:

-Procedural Regulation 659/99;-Notice on cooperation between national courts and the Commission;

-Rescue and restructuring;-State guarantees;-Existing aid.


State Aid and Agriculture

State aids rules in the agricultural sector are in a process of reform, too. The Commission intends to adopt before the end of 2006:

• new Community guidelines for State aid in the agriculture and forestry sector 2007-2013 and

• a Commission Regulation on State aid to small and medium-sized enterprises active in the production of agricultural products and amending Regulation (EC) 70/2001.

The future Regulation shall only apply to aid to agricultural holdings (farmers), but not to processing and marketing of agricultural products any more. Support to companies active in the processing and marketing shall in the future be subject to the general rules for enterprises.

The main objectives of the Regulation are:

• quicker crisis support for farmers;

• simplified administration of agricultural state aids and

• better risk management.


Shirley Z. Johnson

Shirley Johnson is the National Chair of Greenberg Traurig's Antitrust & Trade Regulation Practice. She is a seasoned legal professional with more than 30 years of antitrust experience. Ms. Johnson counsels clients on all antitrust issues and defends them before the Federal Trade Commission, the Antitrust Division, United States Department of Justice, and State Attorneys general.

As chair of Greenberg Traurig's Antitrust Practice, she supervises about 150 matters a year and has been involved in more than 750 antitrust matters during the last five years. Ms. Johnson has in-depth experience in the full spectrum of antitrust services, from preventive counseling, to advice on complex issues, to defense of "bet the company" issues.

She defends mergers and acquisitions the government investigates; defends business practices the government challenges; counsels clients on proposed and current activities; assists companies whose marketing materials the Federal Trade Commission alleges contain misrepresentations or violate specific FTC trade regulation rules; and litigates.

Ms. Johnson's significant experience includes positions with the Antitrust Division of the Department of Justice and the United States Senate Judiciary Committee's Antitrust Subcommittee.

Areas of Experience

Antitrust

Trade regulation

Hart-Scott-Rodino

Litigation

ShareholderNational Chair, Antitrust and Trade Regulation Practice; Retail [email protected]

Greenberg Traurig, LLP800 Connecticut Avenue, N.W.Suite 500Washington, DC 20006Phone: (202) 331-3160Fax: (202) 331-3101


James I. Serota

James I. Serota is the Chair of the Antitrust Litigation Practice Group and concentrates his practice on antitrust and business litigation. He is currently representing one of China's largest pharmaceutical companies, a state owned enterprise, in a series of multidistrict class actions in the United States alleging price fixing of Vitamin C. He recently successfully defended nine automobile dealers in a price-fixing class-action and a newspaper publisher in a claim for monopolization. Jamie has successfully prosecuted treble damage antitrust claims and defended civil and criminal antitrust litigation and investigations including mergers in a wide variety of industries. He also has substantial experience with computer software and regulated industries and has prosecuted and defended claims by a distributor against a software developer for improper termination, disputes between a software developer and its customers, and disputes between a software developer and distributors over royalties.

For over fifteen years, Jamie has advised industries that are evolving from regulation to competition, including electric utilities and telecommunications carriers. He has provided antitrust guidance to electric generator companies, marketers, traders, investor owned utilities, a public power authority, an electric power trade association, and the U.S. Congress.

Areas of Experience

Antitrust trade regulation

Business litigation

Complex and multi-district litigation

International arbitration

Energy

Telecommunications

Regulatory investigations

ShareholderAntitrust and Trade Regulation; Technology, Media & Telecommunications; Litigation; Energy & Natural Resources; Automotive [email protected]

Greenberg Traurig, LLPMetLife Building200 Park AvenueNew York, NY 10166Phone: (212) 801-9200Fax: (212) 801-6400


G. Allan Van Fleet

Allan comes to Greenberg Traurig after 28 years at Vinson & Elkins, where he chaired the firm's antitrust practice group. His practice areas include antitrust litigation and counseling, complex commercial and technical litigation, international litigation and arbitration, and legal ethics.

He is recognized nationally and internationally in the Best Lawyers in America; Euromoney's Guide to the World's Leading Competition and Antitrust Lawyers and The International Who's Who of Competition Lawyers. Chambers and Partners' Chambers USA: America's Leading Lawyers for Business singled Allan out as a "thoughtful and knowledgeable commercial litigation attorney" and "top flight counselor."

PLC Which Lawyer? recognizes Allan not only as a leading competition lawyer, but also among the top 25 "highly recommended" litigators in Texas.

Texas Monthly magazine dubs Allan a "Texas Super Lawyer" in Antitrust Litigation, among the top 10 lawyers in Texas.

H Texas magazine lists Allan among Houston's top lawyers in commercial litigation and antitrust.

Allan has represented large and small companies in a variety of industries, including computers and components, telecommunications, biotechnology, health care, foods and beverages, energy, oilfield services, pipelines, railroads, airlines, steel, glassmaking, concrete and cement, accounting, financial services, insurance, legal services, and entertainment. He has tried cases for plaintiffs and defendants across the country and internationally. His antitrust practice includes, in addition to litigation, developing compliance programs; providing advice on transactions; structuring mergers and acquisitions; and representing clients before federal, state, and international agencies.

Areas of Experience

Antitrust and Trade Regulation

International Litigation and Arbitration

Intellectual Property and Technology Litigation

Shareholder

Antitrust & Trade Regulation

Litigation

International Litigation and Arbitration

Intellectual Property Litigation

[email protected]

Greenberg Traurig, 1000 Louisiana StreetSuite 1800Houston, TX 77002Phone: (713) 374-3555Fax: (713) 374-3505


Howard Cartlidge

Howard is head of Olswang's EU & Competition Group.

He specialises in all aspects of EU and UK competition and regulatory law, including complaints to and investigations by the European Commission, Office of Fair Trading and sector regulators; inquiries into mergers and joint ventures; and competition law aspects of commercial agreements and intellectual property licences.

Howard is particularly experienced in dealing with EU and competition law issues arising in the media, sports, telecommunications, and technology sectors, as well as in network industries generally.

Howard Cartlidge

Partner

[email protected]

020 7067 3146


Edoardo Gambaro

Practice Areas:

Competition and Antitrust Law; European Community Law; Telecommunications.

Education:

J.D., University of Milan, 1998; LL.M., European Law, College of Europe, Bruges, 2000; admitted to the Bar, Italy, 2002.

Experience:

Edoardo Gambaro joined the firm in 2002. He is involved in the assistance of major clients and institutions before the European Commission, the Court of First Instance and the European Court of Justice in several proceedings related to EC Law, Antitrust Law and State Aid. He is also involved in a number of cases before the Italian Competition Authority.

Publications:

Edoardo Gambaro is the author of publications on Common Market Law Review and European State Aid Law Quarterly.

Professional Affiliations and Membership:

Milan Bar Association.

Languages:

Italian, English, French and Spanish

Edoardo Gambaro

Email [email protected]

Phone +39-02 771971

Fax +39-02-794675

Born Milan, Italy, 1974.


Claudio Biscaretti di Ruffia

Practice Areas:

Competition and Antitrust Law; European Community Law; Conflict of Laws; International Trade Law; Litigation and Arbitration; Corporate; Real Estate.

Education:

J.D., University of Milan, summa cum laude, 1974; admitted to the Bar, Italy, 1979. Associated Professor of EC Law at the University of Milan, Bicocca, 1996-present; Previously Professor at the School of Business and Administration of Bocconi University, Milan, 1993-1997; School of Law of the University of Pavia, 1986-1996.

Experience:

Professor Biscaretti joined the firm in 1979. He represents major clients and institutions before the European Commission, European Court of First Instance and European Court of Justice in proceedings related to Competition Antitrust, State Aid, International Trade Law.

Publications:

Prof. Biscaretti is the author of books and publications, including The Common Organization of the Agricultural Market of the European Community and the World Trade Organization: some Legal Considerations with Specific reference to he Rice Market, in Dir. comm. int., 2000.

Languages:

Italian, English and French.

Claudio Biscarettidi Ruffa

Email [email protected]

Phone +39-02 771971

Fax +39-02-77197260

Born Milan, Italy, 1950.

November 2005Presentation to Pegasus Corp. 0 GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | Section of...

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Transcript of November 2005Presentation to Pegasus Corp. 0 GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | Section of...