international competition compliance: global pitfalls and

Innovations & Strategies for Troubled Times

INTERNATIONAL COMPETITION COMPLIANCE:

GLOBAL PITFALLS AND BEST PRACTICES

April 29, 2009

Washington, D.C.

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International Competition Compliance: Global Pitfalls and Best Practices

Introducing Our Panel:

George Addy, Davies Ward Phillips & Vineberg, Toronto, Canada

David Braun, Drinker Biddle & Reath, Chicago, Illinois, U.S.A.

Marcelo Calliari, TozziniFreire, São Paulo, Brazil

Ri Bong Han, Bae Kim & Lee, Seoul, Korea

Harald Kahlenberg, CMS Hasche Sigle, Stuttgart, Germany, and Brussels, Belgium (Moderator)

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What We’ll Cover:

Why are international competition compliance programs important?

Recent practice of competition authorities in Canada, U.S.A., Brazil, Korea, of the European Commission and in Germany (fines, "dawn raids", etc.)

Important issues of international competition compliance (compliance officer; commitment of senior management; compliance network members; checklists, guidelines and instructions; diagnostics / antitrust due diligence)

Global pitfalls and best practices

Your questions


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Recent Practice of CompetitionAuthorities in:

Canada

U.S.A.

Brazil

Korea

European Commission

Germany


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Recent Practice of Competition Authority in Canada (1):

Largest Fines:

• For one cartel: CAD 95 million (bulk vitamins)

• On one company: CAD 48 million (F. Hoffman-LaRoche)

• On one individual: CAD 250,000 (bulk vitamins)

Longest Prison Sentences:

• Following extradition to US for trial: 23 years and 4 months (for conspiracy, mail fraud and wire fraud tied to deceptive telemarketing)

• In Canada: 12 months (driving school; retail gasoline)


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Competition Act amendments – increased risk to parties

• New per se cartel offence (beginning in March 2010)

• Maximum cartel penalties increased to 14 years imprisonment and fines ofCAD 25 million (up from 5 years and CAD 10 million)

• Introduction of “AMPs” for abuse of dominance – maximum CAD 10 million for first offence (CAD 15 million for subsequent offences)

• Increased penalties for obstruction and failure to comply with a search warrant or production order

• Increased penalties for misleading advertising (14 years imprisonment, up from 5 years)

• Bid-rigging offence expanded to include agreements to withdraw bids


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Competition Act amendments – increased pricing flexibility

• Price discrimination and predatory pricing provisions repealed

• Price maintenance offence de-criminalized

Competition Bureau bulletins and guidelines recently released

• Bulletin on corporate compliance programs

• Draft bulletin on trade associations

• Draft bulletin on sentencing and leniency in cartel cases

• Draft updated enforcement guidelines on the abuse of dominance provisions


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Recent Practice of Competition Authorities in the U.S.A. (1):

Urgent Need for Compliance Program

Criminalization/Jail Time

• Corporations: USD 100 million per offense

• Individuals: USD 1 million per offense. Up to 10 years in jail.

Private Treble (3x actual) Damages Action

• Juries

• Class Actions

U.S. Department of Justice Leniency Program


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Case Results:


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Recent Practice of Competition Authority in Brazil (1):

Full priority to antitrust investigations in the last 5 years

Adoption of leniency / leniency-plus programs

Progressive increase in fines (legal limits of 1% - 30% of turnover)

Launching of criminal prosecutions (cooperation with prosecutors)

Increased cooperation with authorities from other countries

Extensive use of search warrants

Public campaigns / authority hotline


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Recent Practice of Competition Authority in Brazil (2):

Specific developments

• Investigation of most international cartels with effects in Brazil

• 93 search warrants (“dawn raids”) executed in 2008

• Over 100 individuals currently facing criminal prosecution

• Imposition of prison terms (up to the 5-year limit)

• Fines raised to 15% - 20% of turnover (+ USD 80 million / 1 million)

• Simultaneous dawn raids with US DOJ / EC

• Coordinated leniency and investigations with other countries


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Recent Practice of Competition Authority in Korea (1):

Increased Fine Amount

• Maximum amount was increased in 2005 from 5% to 10% of the relevant sales during the violation period.

More Active Enforcement by KFTC

Amount of fines imposed by KFTC (KRW million)


Year 2003 2004 2005 2006 2007

Amount 109,838 28,758 249,326 110,548 307,043

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Criminal Prosecution Increased

Leniency Program


Year 2003 2004 2005 2006 2007

No. of criminal prosecutions 5 3 4 3 7

No. of fines imposed 11 14 23 27 24

Year 2003 2004 2005 2006 2007

No. of times leniency granted 1 2 7 7 9

Amount of fines (KRW million) 3,433 – 173,673 54,992 221,373

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Wide Range of Industries

• Government procurement (military gasoline)

• Consumer products (sugar, detergent, flour, gasoline)

• Industrial products (polypropylene, CRT glass)

• Financial services (insurance, bank fees)

• Other services (air cargo)

Increased International Cooperation

• Formal and informal information sharing with US, EU and other countries

• Examples : Air cargo transportation, LCD, CRT glass, copy paper

• KFTC established a new division to investigate international cartels


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Recent Practice of the European Commission (1):

Total amount of fines imposed (2005-2008)


Year 2005 2006 2007 2008

Amount in € million 683 1,846 3,338 2,271

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Highest fines

• for one cartel

– € 1,383,896,000 (car glass, 2008)

– € 992,312,200 (elevators and escalators, 2007)

• on one company

– € 896,000,000 (Saint Gobain, car glass, 2008)

– € 479,669,850 (Thyssen Krupp, elevators and escalators, 2007)

No prison sentences

Private damages claims upcoming


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Legal framework

• Strict guidelines on the method of setting fines imposed pursuant toArticle 23(2)(a) of Regulation No 1/2003

• Commission Notice on Immunity from fines and reduction of fines in cartel cases

Practice of the European Commission regarding compliance programs

• Not taken into account in decisions on hardcore cartels

• Some older decisions with reduced fines (1982-1992) for breaches other than hardcore-cartels


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Why establish a compliance program?

• Prevent future breaches of Articles 81 and 82 EC Treaty, especially in view of increasing fines and claims for damages

• Improve chances to obtain leniency (after internal revelation of breaches of Article 81 EC Treaty)


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Recent Practice of Competition Authorities in Germany (1):

Most recent fines:

• € 250 million for 11 liquefied gas suppliers (2007 / 2008 / 2009)

– December 2007 and February 2008: € 209 million for 9 companies

– April 2009: € 41.4 million for further 2 companies

• € 216 million for 2 advertising time-marketing companies (2007)

• € 165 million for 6 manufacturers of clay roof tiles (2008)

Highest fine for one company (since 2007): € 120 million (Pro7Sat.1)

Basically no prison sentences (exception: bid-rigging)


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Legal Framework

• Notice no. 9/2006 of the German Federal Cartel Office (FCO) on immunity from and reduction of fines in cartel cases – Leniency Program – of 7 March 2006

• Notice no. 38/2006 on the imposition of fines under Section 81 (4) sentence 2 of the German Act against Restraints of Competition (ARC) against undertakings and associations of undertakings of 15 September 2006

Practice of the FCO and state competition authorities regarding compliance programs:

• Not explicitly mentioned in those notices

• Not explicitly taken into account in decisions in the past


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Why establish a compliance program?

• Prevent future breaches of national rules, especially in view of increasing fines and claims for damages

• Improve chances to obtain leniency (after internal revelation of breaches of national rules)

• Compliance programs are taken into account in an examination of a breach of "obligatory supervision" requirements applicable to natural persons (particularly managing directors) (§ 130 GWB)


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Important Issues of InternationalCompetition Compliance:

Appreciation of different competition law systems

General issues in establishing an international compliance program

Compliance network members around the world

Checklists for compliance officers, guidelines for inspections, instructions for reception

Diagnostics / antitrust due diligence


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United States EU Criminalization / jail time Very tough on cartels Easy on “vertical restraints” (no

market integration objective) Private actions:

- Treble (3x actual) damages- Class actions- Contingency fee bar

Jury trials State attorneys-general

Heavy administrative fines Very tough on cartels Tough on “vertical restraints” (market

integration objective) Private actions:

- Damages claims upcoming in EU Member States, e. g. Germany and UK

- On EU level, no collective redress for now, but discussion concerning possibility of introducing such claims

Administrative proceedings EU Member State competition authorities

United States – EU Comparison Overview (1):

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United States EU Resale Price Maintenance- Colgate exception- “MAP” programs- U.S. Supreme Court

“Rules of Reason” - But states want to overturn

S.Ct.

Merger Control- DOJ and FTC- Attorney-General- CFIUS

Resale Price Maintenance - No exception for independent

dealers

Merger Control- DG Comp, Brussels- Member State systems- European “CFIUS”?

United States – EU Comparison Overview (2):

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General issues in establishing aninternational compliance program (1):

Goal to create structural environment for detection and prevention of, and reaction to, potentially anticompetitive practices, minimizing risks to the company as a whole

Not enough to adopt program only in some jurisdictions

• Risks can come from anywhere; trend of increasingly more active enforcement around the globe

How uniform can / should an international program be?

• Issues of cost, manageability, legal certainty, business flexibility


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Main principles and rules apply across borders, but beware of cookie-cutter solutions

National law, practices and idiosyncrasies demand local attention

Clear commitment from senior local management indispensible

• Importance of also showing support from headquarters

Hot lines: language, cultural, time zone issues


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International programs offer strategic choices

Besides common general principles, should company:

• Adopt the most stringent rules across the board? OR

• Selectively maximize the possibilities of each local rule?

Ex: resale price maintenance, distribution policies (exclusivity, geographic allocation, price differentiation etc), sales promotions

Several opportunities open for exploration


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Compliance Network Members around the World (1):

Time is of essence at the initial stage of investigation. The company needs to act quickly.

We should assume that information obtained by an authority in one country will be shared with the relevant authorities in other countries.


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Compliance Network Members around the World (2):

Simultaneous dawn raids in multiple jurisdictions are increasing.

Information gathering and analysis should be conducted to cover all relevant jurisdictions.

Strategy for all relevant jurisdictions should be coordinated and consistent.


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Compliance Network Members aroundthe World (3):

Internal networks of compliance officers and reporting system should be in place and ready to react.

External advisors should be lined up and clear instructions must be given in advance.


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Checklists / Guidelines / Instructions (1):

Establishment of a "compliance structure"

To be able to react upon unannounced visits by investigating authorities, it is important to establish in advance an appropriate structure. This includes:

– Compliance officer (or other responsible) for every subsidiary of the company

– Compliance team for every subsidiary of the company

– One person responsible for the coordination of all compliance activities of the whole group

– Consistent strategy for all subsidiaries of the group (in different national legal systems), including the creation of checklists and instructions for the compliance team and the employees (e.g. receptionists)


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Checklists / Guidelines / Instructions (2):

Considering the different national laws (especially procedural rules)

• Companies with subsidiaries in different countries should consider the different national enforcement / procedural laws.

• Observation of the rules of the country in which the group has its headquarters is not sufficient.

• In view of the fact that the European Commission is frequently supported by the national competition authorities during the dawn raids, the consideration of national enforcement / procedural laws gains more and more in importance. These national authorities may have more investigative powers.


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Diagnostics / Antitrust Due Diligence (1):

Goal: identifying legal risks which exist within the company

Risks include criminal and civil liability; void contracts/contractual provisions

It doesn’t have to be costly!

Steps:

• Determine scope of review

• Identify problem areas

• Conduct review

• Undertake corrective measures


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Determining scope of review

• What is the purpose of the review?

– The result of a specific concern?

– Part of transaction-specific due diligence?

• Which business segments will be covered?

– Divided on a product and geographic level


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Identifying problem areas

• Areas with past infringements

• Major contracts with suppliers/customers (especially those with exclusivity, non-compete clauses, etc.)

• Markets where company has high market shares

• Acquisitions

– In due diligence of target, identify trade association participation, pricing strategies, etc.

– Transactions without merger control – possible ex post review?


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Conduct review

• Review agreements and practices (including trade association activities)

• Interview employees in areas of concern

• Check market shares

Corrective measures

• Revise agreements, policies and business practices

• Make merger filings

• Decide on immunity/leniency applications

Issues to be aware of – maintaining privilege


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The five most dangerous Global Pitfalls:

Companies sometimes establish an international competition compliance program but forget to enhance it later or, even worse, disregard it.

Following the competition rules of the country in which the company has its headquarter does not automatically exclude a different appreciation in other jurisdictions.

Companies should not forget to involve the senior management in the process of establishing and performing of the international competition compliance program.

In Asian countries (especially in Korea and Japan), because cooperation and coordination among competitors have been widely accepted culturally, sales people often do not come forward immediately with what they have done. This attitude makes it difficult for compliance officers or legal advisors to gather information and to analyze the legal implications.

It is a false economy to reduce budgets for competition compliance in difficult times (e.g. financial and economic crisis). However, especially in times of downturn, there is a considerable temptation to resort to unfair means to attract new or retain existing business.


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The five most important Best Practices:

It is essential not only to establish an international competition compliance program but to ensure its proper implementation, including continuous training and monitoring, and thus to improve the effectivity of the program.

In case of doubt concerning intended procedures, companies should not be afraid to seek advice from their competition lawyer.

It is important to include interviews with local employees, and sometimes trade associations as well, to identify sensitive areas like sales, distribution or promotion.

Continuing education is important. One company in Korea implemented a mandatory compliance learning program where senior level employees and officers can only start up their PC after completing a compliance e-Learning program.

An advisable strategy for an undertaking would be to invest continuously in competition compliance programs, especially in times of downturn, and not to make false economies.


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Panel Discussion & Questions


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Final Questions?

Thank you for Joining Us!


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George Addy


Ri Bong Han

W. David Braun

Marcelo Calliari

Harald Kahlenberg

T +1 416 863 5588F +1 416 863 0871E [email protected]

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T +82 2 3404 0138F +82 2 3404 7692 E [email protected]

191 North WackerDrive, Suite 3700Chicago, IL 60606-1698T +1 312 569-1109F +1 312 569-3109E [email protected]

international competition compliance: global pitfalls and

Documents

competition act amendments

diligence global pitfalls

international cartels

best practicesapril

best practices case

fines of cad

offence cad

years imprisonment