International Issues And The Globalisation Of Comp Law Notes

International Issues and the Globalisation of Comp law

• US uses effects doctrine to assert jurisdiction

• EU prefers “implementation” doctrine

• Under principles of comity, a state may recognise the interests of another state when applying its competition law

  Intro

• World is becoming increasingly globalised

  • Recent example of problems arising in multijurisdictional issues:

  • General Electric/ Honeywell

    • EC Commission decided to block merger between 2 US companies notwithstanding that it had been cleared by US authorities

  • EC also threatened (although didn’t eventually) block McDonnell Douglas and Boeing merger

• Microsoft case brought before the EC Commission in 2004 illustrates both the fact that EC will assert jurisdiction over any company operating within its territory, and that the criteria on which it does so are not necessarily the same as those in other jurisdictions

  • But US complained nonetheless: “rules for uprooting state monopolies are hardly suited for companies that have grown up through their own efforts”

    Problems with disparities between systems of enforcement

• Represent a cost to companies that operate in more than one state

• They may lead to the erection of secondary import barriers by states that are prima facie committed to free trade and the principles of the WTO

• There can be conflicts of jurisdictions – leading to conflicting actions, or to companies avoiding jurisdiction altogether

  EC’s response

• Has engaged in bilateral agreements with the US, Canada and Japan

• Multilateral agreements with the EEA

• Engaged in discussions via the WTO, OECD and UNCTAD

  Public Enforcement

• In most jurisdictions, pub authorities tend to handle enforcement

  • Such authorities can act together, i.e. by deciding that just one should investigate, or by sharing information

  • But sometimes they may not wish to cooperate, i.e. where a “national champion” is at risk of investigation

• E.g. the Webb-Pomerene Export Trade Act 1918: allows US companies to implement export cartels provided “such association, agreement or act is not in restraint of trade within the US”

• But:

  • Problems where company headquarters are in state other than that in which infringements are taking place

  • Company based entirely in one state engages in behaviour condemned in another

    • I.e. GE/Honeywell

      Effects Doctrine, Implementation and the Economic entity doctrine

• Effects doctrine is controversial:

  • It allows a state to assume jurisdiction where an act that is committed in another state, by citizens or companies of other states, has effects in the former

    • This was accepted by the PCIJ in the Lotus case

• The US has applied this doctrine since US v Aluminium Co of America 1945

• There are some restrictions:

  • Act of state – usually immune: general PIL principle that host state cannot review acts undertaken by sovereign state;

    • Note that this does not apply for EC situations (cf Art 10)

  • Foreign govt compulsion – i.e. American Banana Co v United Fruit Co

  • Principle of comity

    Impact in EC

• Key case is Re Wood Pulp Cartel (A Ahlstrom Oy)

  • 36 of the 41 producers investigated were based in the US, Canada, Finland or Sweden

  • But the Commission rejected the defence that the Webb-Pomerene Act provided a defence from the POV of EC law

    • It did not compel the companies to act in this way

• The Commission argued for an effects based doctrine of juris

  • The UK resisted this on the grounds that the agreements in question had taken place within the EC so there was no need for the doctrine to be applied

• Court held:

  • “Infringement of art 81 consists of conduct made up of two elements:

    • Formation of the agreement, decision or concerted practice

    • The implementation thereof

  • The decisive factor is the place where it is implemented”

  • It is immaterial whether the producers in this case had recourse to subsidiaries, agents, branches etc within the community in order to make their contacts with purchasers

• Whish: in referring to the “implementation” of the agreement rather than the “effects” of the agreement, the court may have been doing little more than applying an “effects” doctrine in language that would be acceptable to the UK

  • But there is some uncertainty

    • There might be a distinction between where foreign companies actively solicit sales from the EC as opposed to passively responding to orders

    • Another example may be where there is a new product which has never been sold/produced in the EC, and the producers choose to restrict sales

• Next main case = Gencor/Lonhro merger case

  • Commission blocked a merger between the SA interests of the two companies

  • CFI confirmed that jurisdiction of the Merger regulation does not exclude concentrations which, while relating to “activities outside the community, have the effect of creating or strengthening a dominant position as a result of which competition in the Common Market is significantly impeded”

• Court further held:

  • “according to Wood Pulp, the criterion as to the implementation of an agreement is satisfied by mere sale within the Community, irrespective of the location of the sources of supply and the production plant”

• This introduced a two-stage process into the extraterritorial operation of the ECMR:

  • First question is whether there is territorial jurisdiction

    • Answered by Wood Pulp test

  • Second stage is that once juris is established, the substantive teats set out in the ECMR should be applied to block a merger (where appropriate)

• But on this latter point, the CFI held that:

  • “the application of the regulation is justified under PIL when it is foreseeable that a proposed concentration will have an immediate and substantial effect in the community”

    The UK’s position in the 60s

• Contended that the test of juris should be whether the foreign company “carries on business” or “resides” within the territorial jurisdiction

  • Known as the “economic entity” doctrine

• But the UK has now changed position

  • The Competition Act 1998 is supposed to be an inflexible...

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