The Future of New Zealand Competition Law

Present blog is the gist of speech of Craig Fross released from Ministry of Commerce of New Zealand.

"Thank you for the introduction and for inviting me to speak today. Based on the calibre of presenters and the agenda for the next two days, this year's conference will no doubt provide some challenging and stimulating discussion around competition law, policy and regulation in New Zealand.

I would like to start by explaining the government's key policy objectives, because these drive the reforms.  At the broadest level, the government has four key policy objectives for the next three years."

These are:

 •responsibly managing the Government's finances;

 •building a more competitive and productive economy;

 •delivering better public services; and

 •supporting the rebuild of Christchurch.

For New Zealand to realise its potential, it's essential that we build a more competitive and productive economy.  Effective competition spurs innovation, which in turn underpins the productivity of individual firms and the public sector.

Competition law promotes a competitive culture in New Zealand, it is an important tool because it applies to all sectors, except those specifically exempt.

The Commerce Act is designed to incentivise competitive behaviour through prohibiting anti-competitive practices. Clear and robust legislation is an important part of the regime but it alone cannot achieve the Government's objectives.

I'd like to spend a moment commenting on the other institutions that have an important role to play: the Commerce Commission, the courts, commentators and you - the people that advise business.

The Commerce Commission helps build a more competitive and productive economy through administering and enforcing the law.

Over the past year the Commission has honed its focus on lifting voluntary compliance by placing greater emphasis on helping businesses understand what they need to do to comply with the law.

 To do this, the Commission has focused on education initiatives and improving the quality of engagement with stakeholders. The work done to raise awareness in the construction sector is a great example of using softer methods to promote compliance with the Act, and it is my understanding that this has been very successful.

Advisors also play a significant role in ensuring that the competition regime operates as intended.

The Commerce Act does not set out prescriptive rules.

It is principle-based.

This means it is essential that advisors understand the purpose of the Act.

This enables advisors to provide savvy advice, which in turn will facilitate pro-competitive business transactions.

Courts also play an important role.  High quality judicial precedent plays an integral part in building a more productive and competitive economy.

To the extent that cases come before the Courts, the Commission and advisors also have a role in influencing how the judiciary understands the purpose and structure of the legislation.

We cannot forget about the commentators. We need them.

Their critiques of decisions contribute to the quality of debate and ultimately improve the quality of decision-making.

Commentators generate discussion. This has to be a good thing. Academics and advisors can also play a role in holding the courts and the Commission to account.  This contributes to quality debate on policy and legislative issues.

Similarly forums such as this conference allow a detailed discussion of  developments in competition law and policy increase the capability of all institutions.

This makes it a real privilege for me to talk today because as Minister of Commerce I see my role as supporting the network of people and institutions that will help build a more competitive and productive economy.

This brings me to the final feature of our competition regime that is integral to the promotion of a competitive culture in New Zealand: the legislation.

As you will be aware, there are currently two bills before Parliament designed to improve the operation and enforcement of competition law in New Zealand. These are the Commerce Commission (International Co-operation and Fees) Bill, and the Commerce (Cartels and Other Matters) Amendment Bill.

The Cartels Bill in particular is a significant piece of law reform as the competition provisions of the Commerce Act have not been subject to any substantial amendment since 2001.

I know many of you here today have participated in the policy development of these Bills, and I commend those of you who have done so.

I would like to spend a few moments talking about how the Cartels Bill furthers the Government's policy objectives and key issues that were considered as part of the policy process.

The Cartels Bill is about enabling business.

It does a lot more than just criminalise hard-core cartel conduct.

It enbables business to entire into pro-competitive, innovative and efficient collaborative activity.

This Bill will:

 • Clarify the scope of the prohibition.

 •Introduce a collaborative activity exemption

 •Introduce a clearance regime so that businesses can test with the Commission to find out whether their proposed collaborative activity gets the green light.

The initial stages of the policy process focused on whether or not to criminalise hard-core cartel conduct….so it is understandable that when people think about the Bill, they focus on criminal sanctions.

BUT, this Bill does so much more.

It aims to clarify the scope of the prohibition against hard-core cartels, in part by introducing the collaborative activity exemption.  The scope of the collaborative activity exemption is broad and focuses on the substance of the activity, not the form of the arrangement. As a result, it should apply to all pro-competitive collaborations.

The collaborative activity exemption has also been designed so that businesses can assess for themselves whether their proposed collaboration falls within the exemption.  The exemption sends a clear signal that the Government recognises that pro-competitive, innovative and efficiency enhancing collaborative activities are essential to New Zealand realising its productive potential.

The design of the prohibition is critical.

I don't think we would have achieved our policy objectives had we introduced criminal sanctions while retaining the current prohibition.

In considering whether to criminalise hard-core cartel conduct, my predecessor Simon Power had regard to the Legislative Advisory Committee Guidelines.

He identified three factors of particular relevance and I'd like to spend a moment discussing these.

The Guidelines suggest that regard should be had to the following questions:

 •Will the conduct in question, if permitted or allowed to continue unchecked cause substantial harm to individual or public interests?

•Is the conduct that is to be categorised as a criminal offence able to be defined with precision?

•Would public opinion support the use of the criminal law, or is the conduct in question likely to be regarded as trivial by the general public?

These questions are crucial because they focus both on the legislative design but also on the role of the various institutions in making the regime work.

During the policy process some submissions suggested that the scope of the prohibition was unclear and may prohibit pro-competitive conduct.  To some extent, some of the discomfort with criminalisation appeared to be a product of uncertainty about the current law.

Given the feedback about the current prohibition, answering the questions posed by the Guidelines becomes problematic.  Obviously if the current prohibition seems to capture or hinder pro-competitive behaviour from occurring, allowing this to continue does not cause substantial harm.

A large part of the policy process was about listening to competition law experts and business about how we could get the design of the Bill right.

The Bill specifically aims to clarify the scope of the prohibited conduct and provide safeguards - namely the collaborative activity exemption and clearance regime - to encourage businesses to continue to find ways to collaborate and innovate in a way that builds their productive and competitive capacity.

The government is not shy about the fact that people intentionally participating in hard-core cartels deserve to go to jail.

Any behaviour that distorts prices and undermines the competitiveness of New Zealand markets - is not acceptable.

People that intentionally participate in hard-core cartels deserve to be sanctioned in the same way as those that participate in tax evasion, fraud and other white collar crimes.

We know these are significant changes. To provide greater certainty, the government has invited the Commerce Commission to:

 •Develop prosecution guidelines that outline when they would take a criminal prosecution; and

 •undertake further advocacy work to promote better understanding of the prohibitions in the Commerce Act.

These reforms will also have a significant impact on the operation of the legislative regime.  Cabinet has agreed to sequence the introduction of the new regime so that the majority of the regime will come into force on the day the Act receives royal assent, but to delay the commencement of criminal sanctions. This should leave sufficient time for the regime to bed-in, alleviating some of the uncertainty.

While the amendments arose from the question of whether or not to introduce criminal sanctions for hard-core cartel conduct, the Bill does much more.

The design means that the focus should no longer be on criminal sanctions, but rather on facilitating pro-competitive collaborative activities.

The industry's focus must change.

If everyone continues to focus on criminal sanctions - we will miss a real opportunity to improve the current regime.

I anticipate that the Bill will receive its first reading soon, but the exact timing will depend on Parliamentary priorities.

The Bill will then be referred to the Commerce Select Committee for consideration. Select Committee provides an opportunity for legal practitioners to add value, both by identifying areas where the proposed regime could be improved, and highlighting the features of the regime that are an improvement on the current regime.

Constructive input into the legislative process at this stage is invaluable, and helps ensure that the regime has the robustness to stand the test of time.

Another important part of this suite of reforms is the Information Sharing Bill, which also ties into the amendments of the Cartels Bill. The ability for the Commerce Commission to share compulsorily-acquired information with equivalent overseas regulators is another lever the Government can use to deter anti-competitive behaviour, especially behaviour that takes place overseas but affect New Zealand.

Both the Cartels Bill and the Information-Sharing Bill represent significant reforms for New Zealand competition law, and go directly towards achieving the Government's policy objective of building a more competitive and productive economy.

As I have mentioned, this does not mean that competition law acts within a vacuum. The Commission, the Courts, commentators and advisors have a vital role to play in ensuring the workability of the law.  In this context I urge you to consider the Cartels Bill and the policy intent behind it, and encourage you to participate in the Select Committee process by identifying features of the Bill that represent an improvement, and where the Bill could be enhanced.

Again, thank you for providing me with opportunity to address you today, and I wish you all the best for the rest of the conference.

Indian Competition Regulator Eases Rules for Group Restructuring

Competition Commissions of India (CCI), anti trust watchdog of India has amended regulations of transaction of business related to combinations under The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2012.

In a move that will assist corporate houses undertaking group restructuring, the Competition Commission of India (CCI) has notified that the merger of wholly owned subsidiaries with the parent holding company will no longer require the approval of the antitrust body.

Alongside this, CCI has also increased the threshold limit on the acquisition of shares that require prior approval to 25% from 15%, in sync with the takeover code of the Securities and Exchange Board of India. 

The antitrust regulator has also significantly increased the filing fees for companies that are obliged to inform it of mergers and acquisitions (M&A) activity by law. While the filing fee for form I has been increased to Rs10 lakh from Rs50,000, the fee for form II has been increased to Rs40 lakh from Rs10 lakh. While form I is for initial scrutiny, form II requires greater detail in terms of reporting the transaction to CCI and is filed when there’s likely to be a greater anti-competitive effect in the market. 

The notification also said that in the case of buy-back of shares, where there is no acquisition of control, companies do not need to seek CCI approval. Currently, only bonus, stock split and subscription of rights issues, where there is no acquisition of control, are outside CCI’s purview. 

From 1 June 2011, all high-value deals came under the CCI scanner. The new regime came into effect with the notification of sections 5 and 6 of the Competition Commission Act, 2002. According to the provisions of the Act, companies with a turnover of more than Rs1,500 crore will have to approach CCI for approval before merging with another firm. Further, only those proposals would need CCI’s nod where the companies have combined assets of Rs1,000 crore or more, or a combined turnover of Rs3,000 crore or more, as per the Act. CCI has, since June last year, approved 23 merger proposals.

Global Antitrust Enforcement in M&A Transactions

Global M&A, Skadden's 2012 Insights, January 2012 has posted present Article.

United States 

In 2011, we saw a resurgence in antitrust challenges to mergers by the U.S. Department of Justice’s Antitrust Division (Antitrust Division) and the Federal Trade Commission (FTC). The Antitrust Division sought to enjoin transactions such as Verifone’s proposed acquisition of Hypercom (parties agreed to divestiture to settle litigation), Nasdaq OMX and the IntercontinentalExchange’s proposed acquisition of NYSE Euronext (parties abandoned the transaction), H&R Block’s proposed acquisition of TaxACT (Antitrust Division prevailed after full trial on the merits), and AT&T’s proposed (and later abandoned) acquisition of T-Mobile. Similarly, the FTC litigated and lost a federal court challenge to Labcorp’s consummated acquisition of Westcliff and lost its appeal in the Ovation Pharmaceuticals matter, where the FTC also litigated and lost a federal court challenge to a consummated acquisition.

From a practitioner’s perspective, industry structure remains a critical starting point for merger analysis. Each of these challenges involved markets that the antitrust agencies alleged were highly concentrated, and descriptions in the merging parties’ business and strategic planning documents frequently were cited as evidence supporting the agencies’ views of market structure. In addition, the antitrust agencies (especially the Antitrust Division) have shown a willingness to “fast track” problematic transactions for litigation without the need for a prolonged review. For example, in the NYSE matter, the parties announced the proposed merger on April 1, 2011, and the Antitrust Division announced its intention to enjoin the transaction only six weeks later and without the voluminous documents and data required by the Second Request process. Finally, the health care industry continues to be a primary focus for the FTC, with all health care mergers — including those for which Hart-Scott-Rodino (HSR) filings are not required — typically receiving heightened antitrust scrutiny. We expect these trends to continue, irrespective of the outcome of the 2012 election.

Last year we also saw the first substantial revisions to the HSR premerger filing form in nearly a decade. The most significant of the revisions eliminate or reduce, generally, the information and documents to be provided, but also require new, detailed information about (i) ex-U.S. manufacturing operations and (ii) “associates” of the acquiring filing person and their holdings, as well as the production of a new category of documents, called “4(d) documents,” that include synergies and efficiencies analyses. The new rules remain subject to ongoing clarification, and we will continue to alert clients when the premerger office provides guidance as to the scope and interpretation of the rules. In practice, the new HSR rules have had limited impact on filing parties, except for those with international manufacturing operations, which must now itemize their overseas products and related U.S. revenues, and private equity firms or master limited partnership buyers, which must now account for associates’ holdings.

Finally, the Antitrust Division issued a revised Policy Guide to Merger Remedies (Remedies Guidelines) earlier this year. The new Remedies Guidelines restate much of the Antitrust Division’s precedents for devising, implementing and enforcing remedy provisions and consent decrees in the merger context. Released in part to highlight the Antitrust Division’s approach to vertical transactions, which received significant attention following Comcast’s acquisition of NBC Universal and Ticketmaster’s merger with Live Nation, the Remedies Guidelines do not reflect a sharp change in the Antitrust Division’s policies. Rather, they highlight the greater flexibility and willingness on the part of the Antitrust Division to accept conduct, as opposed to structural, remedies, particularly in connection with vertical mergers.

European Union

There have been no significant changes in terms of merger enforcement in the EU in 2011, which is now a “well-oiled machine” in Commissioner Joaquín Almunia’s own words. Indeed, March 2011 marked two decades of enforcement of the EU Merger Regulation (EUMR), during which the European Commission (EC) reviewed 4,500 mergers and approved approximately 90 percent of them unconditionally.

Despite the fact that merger notifications increased slightly compared to 2010, last year was characterized by the deepening of the sovereign debt crisis and resulting recession in many EU countries. However, the crisis has not resulted in more lenient merger enforcement by the EC. This is evidenced by the prohibition of the Olympic Air/Aegean Airlines merger (M.5830) on the grounds that it would eliminate competition in many domestic air transport routes in Greece, the EU country at the epicenter of the EU financial crisis. As Commissioner Almunia has stated, the EC views effective merger control as a requirement for Europe to compete effectively in a globalized world economy, especially in times of recession.

In 2010, there was a lot of debate about whether the Upward Pricing Pressure (UPP) test introduced by the U.S. Horizontal Merger Guidelines would dispense with the need to define markets in the EU. The EC’s practice since then shows that market definition will remain the starting point for merger analysis in the EU, and that UPP, along with other econometric tools, will complement rather than replace market definition. The Unilever/Sara Lee Body Care decision (M.5658) is an illustration of this approach. In that case, the EC defined markets and subsequently, through the use of econometric models and other evidence, concluded that the merger would result in a price increase because some of the brands involved were close competitors. As a result, the EC required the divestiture of one of the brands in order to clear the merger. This approach is consistent with the U.S. approach, where industry structure remains a critical starting point for merger analysis.

On the remedies front, the EC has developed its practice of accepting nonstructural remedies to address foreclosure and interoperability concerns in nonhorizontal merger cases, even in Phase I, without a protracted Phase II investigation. In Intel/McAfee (M.5984), the EC had concerns that Intel, after its acquisition of McAfee, would foreclose security solutions and CPU/chipset competitors through technical tying and/or degradation or refusal of interoperability, given Intel’s position in CPUs/chipsets. To address these concerns, the EC accepted essentially interoperability commitments by Intel (i) to provide access to all necessary interoperability information for Intel’s CPUs/chipsets, (ii) not to impede the operation of competing security solutions from running on Intel CPUs and chipsets, and (iii) to avoid hampering the operation of McAfee’s security solutions when running on PCs containing CPUs or chipsets sold by Intel’s competitors.

Despite the mature state of EUMR enforcement on the substantive front, there are still procedural issues that could affect both the timing and substance of merger review under the EUMR.

The EC’s assessment of two parallel mergers in the hard disk drive (HDD) sector raised questions about the EC’s “priority rule,” a practice that it developed for parallel merger investigations. The mergers in question were Western Digital/Hitachi (M.6203) and Seagate Technology/Samsung Electronics (M.6214) (the WD merger and Seagate merger, respectively). The WD merger was announced on March 7, 2011, while the Seagate merger was announced on April 19, 2011. However, the Seagate merger was formally notified one day before the WD merger. As a result of the priority rule, which is based on a “first-come, first-served” approach, the EC assessed the Seagate merger as if the WD merger had not yet occurred, while the WD merger was assessed as if the subsequent Seagate merger already had occurred and Seagate/Samsung were a single entity. The strict application of the priority rule had a concrete impact, given that the WD merger was no longer assessed as a “4 to 3” deal, but instead as a “3 to 2” deal in certain HDD markets, and led to the imposition of remedies for the WD merger. In contrast, the Seagate/Samsung deal was assessed as a “4 to 3” deal and cleared unconditionally. The priority rule is under appeal before the European General Court by Western Digital, but in its current state, it complicates the antitrust risk assessment in M&A transactions that occur in oligopolistic markets with high barriers to entry.

Another procedural issue relates to transactions that do not automatically trigger the EUMR thresholds. Three of the nine Phase II decisions this year involved cases that did not trigger the EUMR thresholds but which were referred to the EC under Article 22 of the EUMR. Two of these decisions either resulted in significant commitments (Sygenta/Monstanto Sunflower Seed, M.5675) or were abandoned (SC Johnson/Sara Lee Household Insect Control Business, M.5669). The increased tendency of national competition authorities in the EU to refer cases to the EC, including authorities that did not originally have jurisdiction to review the deal, is a key parameter that could affect both the timing and substantive assessment of strategic M&A.

China, Brazil and India

China. 2011 was the third full year of enforcement by China’s Ministry of Commerce (MOFCOM) of the Chinese Antimonopoly Law (AML). MOFCOM has continued to vigorously enforce the AML and establish its presence as one of the “gateway” competition authorities for global M&A transactions.

MOFCOM has increased its clout by taking enforcement action for the first time against a transaction involving a Chinese State Owned Enterprise (SOE). On November 10, 2011, MOFCOM imposed remedies for the establishment of a joint venture between General Electric and Shenhua (a Chinese mining/energy SOE), to license coal-water slurry gasification technology to industrial and power projects in China. MOFCOM cleared the joint venture subject to commitments by Shenhua not to compel licensees of competing gasification technologies to use GE/Shenhua’s technology.

On August 29, 2011, MOFCOM adopted Provisional Rules for Assessing the Competitive Effects of Undertakings, which lays out basic principles for MOFCOM substantive merger review that reflect MOFCOM’s experience so far.

However, despite the progress made on the substantive front, the MOFCOM merger review process remains very lengthy, even for transactions raising insignificant merits issues. The vast majority of the notified transactions in 2011 led to Phase II investigations because of the lengthy decision-making process, which involves interagency consultations with many other Chinese government agencies.

Brazil. The new Brazilian Competition Law (Law No. 12529) was adopted on November 30, 2011, and will enter into force on May 28, 2012. The new law will include, among other things, a bar on closing that will prevent the parties from closing a transaction before a clearance is issued. This will be a major change compared to the current system, which does not have an automatic bar on closing, and would put Brazil on the map as one of the key jurisdictions that could affect the timing of global M&A deals.

India. The Competition Bill of 2007, which amends the Competition Act, 2002, introduced a mandatory preclosing filing system that also applies to M&A transactions that do not involve Indian companies. The new regime entered into effect as of June 1, 2011. However, the number of Indian merger notifications triggered from global M&A transactions under the new regime is less significant than originally anticipated, due to a transitory de minimis exception that exempts transactions where the target company has Indian turnover or assets below certain thresholds.