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Merger Control of International M&A

Transactions in USA, EU and Russia

A thesis submitted to the Bucerius/WHU Master of Law and Business Program in partial fulfilment

of the requirements for the award of the Master of Law and Business (“MLB”) Degree

Kamilla Shikhametova

July 25, 2014

12.851 words (excluding footnotes)

Supervisor 1: Jr. Gerald J. Daigle

Supervisor 2: Dr. Hermann Schmitt

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This paper is dedicated to my Family, Friends and Colleagues who

have a strong belief and trust in me. Thanks to your great love, sup-

port and inspiration, I have been able to accomplish my studies and

spend a year far from home as if I never left it…

You are always in my heart, in my thoughts and in my prayers.

Thank you.

Hamburg, 25 July 2014

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TABLE OF CONTENTS

1. INTRODUCTION ................................................................................................................... 4

2. TRANSACTIONS SUBJECT TO MERGER CONTROL ........................................................ 6

2.1. Characteristics of controlled agreements ........................................................................... 6

2.2. Standards of review......................................................................................................... 14

3. EXTRATERRITORIAL MERGER CONTROL .................................................................... 21

3.1. Evolution of extraterritorial application of antitrust laws ................................................. 22

3.2. Cases of extraterritorial application of merger control rules ............................................. 26

3.3. International agreements on extraterritorial application of antitrust laws ......................... 30

4. ENFORCEMENT OF MERGER CONTROL RULES ........................................................... 32

Exhibit 1 Legal sources ........................................................................................................... 37

Exhibit 2 Bibliography ............................................................................................................ 39

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1. INTRODUCTION

Companies’ activity related to mergers and acquisitions (“M&A”) is one of the major driving forc-

es of business expansion. Mergers and acquisitions are carried when companies want to penetrate

new markets, raise capital, create new supply and sales channels, strengthen their market positions

or otherwise benefit from the M&A synergies. As a result, M&A activity has direct effects on the

market — it may increase or eliminate competition, reposition market players, create dominance,

and etc.

Virtually every state has enacted laws that are aimed to protect competition in its local market —

antitrust (or competition) laws. Antitrust laws exist to ensure fair competition and prevent certain

market players from assuming too much market power so that they can trigger prices’ fluctuation

without concern of any significant reaction of the competitors. Merger control rules form part of the

antitrust laws.

Merger control rules are the primary aspect to analyse at the deal structuring stage as they deter-

mine whether the anticipated M&A transaction will be subject to or survive government antitrust

review or legal challenge. Depending on the deal characteristics, an M&A transaction may either be

subject to pre-transaction notification requirement or be illegal. In the first case scenario, antitrust

clearance (merger approval) is advisable to be a condition precedent to consummation of the trans-

action. In the second case scenario, a deal should be restructured or not proceeded with.

The aim of this research paper is to analyse and compare the merger control framework in the Unit-

ed States, the European Union and the Russian Federation. This paper has practical relevance for

antitrust and corporate lawyers advising on international M&A transactions between entities subject

to the mentioned jurisdictions. It also has a scientific relevance as it compares the oldest in the

world antitrust tradition (USA) with the antitrust systems of the world’s largest developed economy

(EU) and of an emerging market economy (Russia).

As a matter of introduction, it makes sense to make a short overview of antitrust legislation in the

analysed jurisdictions. In the United States, the benchmark for U.S. federal antitrust laws is the

Sherman Act1 which provides that “[e]very contract, combination in the form of trust or otherwise,

or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is

declared to be illegal. Every person who shall make any contract or engage in any combination or

conspiracy hereby declared to be illegal shall be deemed guilty of a felony…” and “[e]very person

who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or

1 Sherman Act of 1890, 15 U.S.C. §§ 1-7 (“Sherman Act”).

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persons, to monopolize any part of the trade or commerce among the several States, or with foreign

nations, shall be deemed guilty of a felony…”2 Federal merger control rules are consolidated in the

Clayton Act3, the FTC Act

4 and HSR Act

5. The HSR Act incorporates amendments to the Clayton

Act relating to the merger notification procedures, however, for the purpose of this paper, we will

refer to it separately and not as part of the Clayton Act.

In the European Union, along with national antitrust laws of the EU member-states, the EU Council

has passed legislation that regulates competition in the EU common market. The Treaty on the

Functioning of the European Union is the benchmark for antitrust regulation in the EU. Article 101

of the Treaty prohibits “all agreements between undertakings, decisions by associations of under-

takings and concerted practices which may affect trade between Member States and which have as

their object or effect the prevention, restriction or distortion of competition within the internal mar-

ket…” Article 102 provides that “[a]ny abuse by one or more undertakings of a dominant position

within the internal market or in a substantial part of it shall be prohibited as incompatible with the

internal market in so far as it may affect trade between Member States.” Based on these provisions,

the EU Council has elaborated merger control rules that apply at the EU common market level and

are consolidated in the ECMR.6

In the Russian Federation, the benchmark for antitrust laws is the Constitution.7 Article 34 of the

Constitution provides that any economic activity that is aimed at monopolisation or unfair competi-

tion is prohibited. Merger control rules are consolidated in the Law on Protection of Competition.8

This research paper analyses the following aspects:

1. characteristics of transactions that fall under the pre-transaction notification requirement;

2. standards of review employed by antitrust authorities determining permissibility of transactions;

3. extraterritorial application of national merger control rules; and

4. enforcement of merger control rules.

For the purpose of this research paper, we have not extended our analysis either to any special regu-

lation that may apply to certain entities (e.g., insurance companies, trusts, etc.) in certain sectors of

2 15 U.S.C. §1, 2. 3 Clayton Act of 1914, 15 U.S.C. §§ 12-27 (“Clayton Act”). 4 Federal Trade Commission Act of 1914, 15 U.S.C §§ 41-58 (“FTC Act”). 5 Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a (“HSR Act”). 6 Council Regulation (EC) No 139/2004 of 2004 on the control of concentrations between undertakings (“ECMR”). 7 Constitution of the Russian Federation of 1993. 8 Federal Law No. 135-FZ of 2006 on protection of competition (“Law on Protection of Competition”).

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economy, or to specific transactions such as, for example, those impacting national security, relat-

ing to strategic investments, etc.

This paper consists of five chapters including the introduction and conclusion chapters. In chapter 2

we discuss M&A transactions that fall under the pre-merger notification requirement and standards

of review applied to qualify whether a transaction is lawful. In chapter 3 we look at the legislative

basis for extraterritorial application of merger control rules and discuss some cases that display such

application. In chapter 4 we discuss the enforcement mechanisms employed by antitrust authorities

when they review an M&A transaction or deem it to be violating the merger control rules.

2. TRANSACTIONS SUBJECT TO MERGER CONTROL

2.1. Characteristics of controlled agreements

All of the analysed jurisdictions distinguish between (1) transactions whose legality may be ques-

tioned (those are either illegal per se or may be deemed unlawful in court), and (2) transactions that

cannot be consummated without prior notification to the antitrust authorities. While in this chapter

we will analyse transactions that are subject to pre-transaction notification requirement, chapter 2.2

will analyse the standards of review employed by antitrust laws in order to determine whether a

transaction is permissible.

International merger activity may take various legal forms, such as joint venture agreements, share

or asset purchase agreements, stock subscription, etc. Before we analyse particular features that

make certain transaction subject to merger control, it makes sense to define transactions that will

serve as a basis for our analysis. For the purpose of this research paper, we will analyse acquisitions

by one incorporated entity of stock of another incorporated entity that are not affiliated or don't be-

long to the same group through one-to-one negotiations, i.e. without a tender offer. Such acquisi-

tions may either be entered into by actual or potential competitors (horizontal mergers) or by firms

that do not compete with each other (non-horizontal mergers). The non-horizontal mergers may be

between parties that operate as supplier and customer in the same market (vertical agreements) or

between parties that operate in different markets (conglomerate agreements). In this paper we will

use the term ‘merger control’ to define the rules that regulate the acquisitions of stock.

The principal legal mechanism for deterring unscrupulous competition resulting from M&A activity

applied in all of the analysed jurisdictions is pre-transaction notification. Below we determine a list

of criteria which, if satisfied, make the anticipated transaction subject to notification to antitrust au-

thorities.

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In the United States, the pre-merger notification requirement was established by the HSR Act. The

HSR Act9 provides that an acquisition of any voting securities or assets of any other person shall be

notified to the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”), if:

(i) the acquiring person or the target is engaged in commerce or in any activity affecting

commerce; and

(ii) as a result of such acquisition, the acquiring person would hold an aggregate total amount of the

voting securities and assets of the target:

- in excess of USD 200,000,000; or

- in the amount of 50,000,000 to USD 200,000,000 provided that:

- any voting securities or assets of a person engaged in manufacturing which has annual net

sales or total assets of USD 10,000,000 or more are being acquired by any person which has

total assets or annual net sales of USD 100,000,000 or more; or

- any voting securities or assets of a person not engaged in manufacturing which has total as-

sets of USD 10,000,000 or more are being acquired by any person which has total assets or

annual net sales of USD 100,000,000 or more; or

- any voting securities or assets of a person with annual net sales or total assets of USD

100,000,000 or more are being acquired by any person with total assets or annual net sales of

USD 10,000,000 or more.

As a practical matter it is important to understand who is deemed to be an “acquiring person” for

the purpose of the HSR Act. The FTC adopted Rules, Regulations, Statements and Interpretations

under the HSR Act10

that provide interpretations of the terms used in the HSR Act and are applied

as guidance for analysing the anticipated deal in view of the HSR Act requirements. These guide-

lines may serve as a handy tool for antitrust lawyers who analyse the proposed transaction.

The acquirer is “[a]ny person which, as a result of an acquisition, will hold voting securities or as-

sets, either directly or indirectly, or through fiduciaries, agents, or other entities acting on behalf of

such person…”11

, where the “person” is “an ultimate parent entity and all entities which it controls

directly or indirectly”.12

The “ultimate parent entity” is an entity which is not controlled by any oth-

er entity, while control implies either (i) holding 50% or more of the outstanding voting securities

9 15 U.S.C. §18a(a). 10 16 C.F.R. §§ 801-803. 11 16 C.F.R. § 801.2(a). 12 16 C.F.R. § 801.1(a). The term “person” also applies to the person being acquired.

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of an issuer, or (ii) having the contractual power to designate 50% or more of the directors of the

corporation.13

This means that when determining the acquiring person one has to look at the entire

corporate structure, including all parent corporations, subsidiaries and divisions as they lead to the

acquiring person for the purpose of HSR Act. Similarly, when determining the amount of the secu-

rities held and acquired by the acquiring person, one has to compute the amount of all securities

held by the ultimate parent entity and all entities which it controls directly or indirectly. Thus, when

analysing an anticipated M&A deal, the antitrust lawyers have to closely look not only at the value

of the directly acquired, but also at how such acquisition impacts the overall shareholding of the

acquirer and the entities it controls or which control it.

Another important notion to understand is which securities are deemed “voting” for the purpose of

HSR Act. The voting securities are those that at the time of acquisition or upon conversion give

their holder a right to vote for the election of the directors.14

The amount of the voting securities

shall be determined by aggregating the amount or percentage of such securities held or acquired by

the acquiring person and each of its affiliates.15

Based on these definitions, the voting securities do

not include non-convertible preferred stock, bonds, derivatives, etc. Options and warrants, however,

are “voting securities” as they can be exchanged for securities with present voting rights.16

To be subject to the notification requirement, a transaction has to pass a commerce test, size of

transaction test and size of the parties test. The commerce test is satisfied if the “acquiring person,

or any entity included within the acquired person, is engaged in commerce or in any activity affect-

ing commerce”.17

Given that the term “person” is very vast, in case of a multinational holding or

group of companies, a scenario where the acquiring or acquired person is not engaged in U.S.

commerce is highly unlikely.

The size of transaction test is satisfied if the amount of acquired voting securities and assets exceeds

the thresholds established by the HSR Act. The commerce and size of transaction tests are sufficient

to make a transaction subject to notification requirement if the amount of acquired voting securities

and assets exceeds USD 200,000,000. However, if the amount of acquired voting securities and as-

sets exceeds USD 50,000,000 but is less than USD 200,000,000, the size of the parties test has to be

passed.

13 16 C.F.R. § 801.1(a)(3),(b). 14 15 U.S.C. § 18a(b)(3)(A). 15 15 U.S.C. § 18a(b)(3)(B). 16 16 C.F.R. § 801.1(f). 17 16 C.F.R. § 801.3.

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In order to correctly apply the size of the parties test, terms “annual net sales” and “total assets”

have to be clarified. The “annual net sales and total assets of a person shall include all net sales and

all assets held, whether foreign or domestic” that are stated on the last regularly prepared annual

statement of income and expense and balance sheet of that person.18

It is important to keep in mind

that the annual net sales and total assets of a person shall consolidate the annual net sales and total

assets of each entity included within such person.19

Before we analyse the merger control framework at the EU level, it is important to delineate the

transactions that are subject to EU merger control from those that remain in the domain of the

member state. The basis for applying ECMR is the “one-stop shop” rule which provides that “con-

centrations” that entail “significant structural changes, the impact of which on the market goes be-

yond the national borders of any one Member State” shall be reviewed exclusively at the Communi-

ty level.20

In other words, “concentrations” that have a “community dimension” shall be subject to

ECMR. In 2008, the European Commission (“Commission”), which is the competent authority for

antitrust review, passed the Consolidated Notice21

which provides guidance to interpretation of

ECMR and enables firms to establish whether their transactions may be covered by the ECMR.

ECMR defines “concentration” as a change of control on a lasting basis resulting from (1) a merger

between previously independent undertakings or (2) acquisition of control.22

Merger occurs when

several independent undertakings form a new undertaking and cease to exist as separate legal enti-

ties or if they jointly act in way that de facto creates a single economic unit (e.g., contractually

common economic management or dual listed company).23

Control is acquired when “the possibility of exercising decisive influence on an undertaking” occurs

either based on the ownership rights or right to use all or part of its assets, or under rights or con-

tracts that confer decisive influence on the composition, voting or decisions of its organs.24

Acquisi-

tion of shares, possibly combined with a shareholders' agreement, is the most common means of

acquiring control over an undertaking. In this research paper, we analyse the acquisition of stock as

a principal form of M&A activity and, therefore, whenever term “concentration” is used herein it

shall imply acquisition of control via ownership of rights to stock.

18 16 C.F.R. § 801.11(a),(c). 19 16 C.F.R. §801.11(b)(1). 20 ECMR, Recital (18). 21 Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of con-

centrations between undertakings (2008/C 95/01) (“Consolidated Notice”). 22 ECMR, Article 3(1). 23 Consolidated Notice, Sec. B.I. 24 ECMR, Article 3(2).

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Another important notion that ECMR uses is an “undertaking” which seems to be an analog of the

term “person” in the HSR Act. Undertaking is defined as “any entity carrying out activities of a

commercial or economic nature”.25

Such broad definition includes virtually any commercial entity.

An “undertaking concerned” is an undertaking participating in a concentration, i.e. a merger or an

acquisition of control.26

When acquisition of control takes place, on the acquiring side, there can be

one or more undertakings acquiring sole or joint control, and on the acquired side, there can be one

or more undertakings as a whole or parts thereof — each of these undertakings will be an undertak-

ing concerned within the meaning of ECMR.27

Under the ECMR, the control is deemed to be conferred either to the direct acquirer of stock (un-

dertaking concerned) or to the undertakings that have the power to exercise the rights deriving from

such stock.28

This implies that the parent company of the acquiring undertaking may be deemed to

be the acquirer of control. The Consolidated Notice clarifies that in a situation where the acquiring

undertaking serves merely as a special vehicle the control is acquired by the undertaking which in

reality is behind the operation and in fact enjoys the power to control the target undertaking.29

To be subject to ECMR, a concentration must have a “community dimension”. The community di-

mension is established if certain worldwide, Community-wide and member states turnover volumes

are met. In particular, if:

(1) the aggregate worldwide turnover of all parties exceeds EUR 5,000 million, and the aggregate

Community-wide turnover of each two parties exceeds EUR 250 million (unless more than two-

thirds of their Community-wide turnover is within one and same member state); or

(2) the aggregate worldwide turnover of all parties exceeds EUR 2,500 million; and in each of at

least 3 member states, the aggregate turnover exceeds EUR 100 million; and in each of the 3

member states, the aggregate turnover of each two parties exceeds EUR 25 million; and the ag-

gregate Community-wide turnover of each of at least two parties exceeds EUR 100 million (un-

less more than two-thirds of their Community-wide turnover is within one and same member

state).30

25 Protocol 22 of the EEA, Article 1. 26 Consolidated Notice, Sec. C.II.1(129). 27 Id. Sec. C.II.3(133). 28 ECMR, Article 3(3). 29 Consolidated Notice, Sec. B.II.1.1(13). 30 ECMR, Article 1(2),(3).

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The aggregate turnover comprises amounts derived from the sale of products and the provision of

services after deduction of sales rebates, VAT and other taxes in the preceding financial year.31

The

aggregate turnover shall include respective turnovers of the undertaking concerned, its subsidiaries,

its parent companies, other subsidiaries of its parent company, and any other subsidiary jointly held

by the undertaking concerned and subsidiaries of its parent company.32

As further clarified by the

Commission, in case of acquisition of sole control, the undertakings concerned are the acquiring

and the target undertakings, while in case of acquisition of stock by a group through one of its sub-

sidiaries the acquiring subsidiary shall still be the undertaking concerned, although for the purposes

of calculating the turnover, the whole group is considered to be a single economic unit33

and, there-

fore, “unfolding” of the whole corporate structure is important.

The EU approach is similar to the U.S. one as it also employs the size of the parties test; however,

unlike the U.S. system, the EU legislator doesn't look at the size of transaction but analyses the sub-

stantive outcome of the transaction, i.e. whether the control is being shifted.

In the Russian Federation, the authority competent to exert antitrust control is the Federal Antimo-

nopoly Service (“FAS”). In the merger control area, FAS reviews “economic concentrations”, i.e.

transactions that affect competition.34

M&A activity that could raise FAS interest includes transac-

tions with voting securities or rights with respect to Russian companies as well as foreign compa-

nies that supply goods to the territory of Russia in the amount more than RUB 1 billion per year

preceding the transaction.35

Thus, the law allows the FAS to exert control over acquisitions of a for-

eign company that, for example, has no legal representation in Russia but is economically strongly

connected to the Russian market. The implications of such broad rule will be discussed in chapter 3

below.

Under the Law on Protection of Competition, notice of the transaction has to be provided if:

(i) the aggregate asset value of the acquiring person and its group of persons as well as of the target

and its group of persons as per the latest balance sheets exceeds RUB 7 billion, or

(ii) the aggregate returns from sale of goods for the latest calendar year of the acquiring person and

its group of persons as well as of the target and its group of persons exceeds RUB 10 billion

31 ECMR, Article 5(1). 32 ECMR, Article 5(4), Consolidated Notice, sec. C.IV.5.1(177). 33 Consolidated Notice, Sec. C.II.3(135). 34 Law on Protection of Competition, Article 4(21). 35 Law on Protection of Competition, Article 26.1(1)

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provided that the aggregate asset value of the target and its group of persons as per the latest

balance sheets exceeds RUB 250 million, or

(iii) any of the acquirer or the target (including members of the groups of persons) is included in the

FAS register of entities having a market share of more than 35% or a dominant position in cer-

tain commodity market.36

Notice has to be provided with respect to the following transactions with securities:

(a) acquisition by a person (or group of persons) of more than 25% of voting securities in a Russian

joint stock company (1/3 participation interest in a Russian limited liability company),37

provid-

ed that prior to the acquisition the acquirer (or its group) didn't hold voting securities of the tar-

get or held less than 25% (1/3) of voting securities (participation interest) thereof;

(b) acquisition by a person (or group of persons) of more than 50% of voting securities in a Russian

joint stock company (1/2 participation interest in a Russian limited liability company), provided

that prior to the acquisition the acquirer (or its group) held not less than 25% (1/3) but not more

than 50% (1/2) of voting securities (participation interest) thereof;

(c) acquisition by a person (or group of persons) of more than 75% voting securities in a Russian

joint stock company (2/3 participation interest in a Russian limited liability company), provided

that prior to the acquisition the acquirer (or its group) held not less than 50% (1/2) but not more

than 75% (2/3) of voting securities (participation interest) thereof;

(d) acquisition by a person (or group of persons) of more than 50% of voting securities (participa-

tion interest) in an entity incorporated outside the territory of Russia or of other rights that ena-

ble the acquirer to determine the terms of business of such entity or to exercise functions of its

executive body.38

Unlike the U.S. and EU legislation, the Russian legislation doesn't define the term “person” for the

purpose of the merger control. In the Russian Civil Code, a person denotes either a natural or a legal

person. The legal person is an organisation that owns property and is liable with this property, can

acquire property and non-property rights, incur liabilities and be party to court proceedings.39

36 Law on Protection of Competition, Article 28. 37 In Russian limited liability companies participation interest correlates to the voting securities in joint stock compa-

nies. While it is not deemed to be a security, it grants to its holder the same volume of ownership and voting rights that

a voting security does. 38 Law on Protection of Competition, Article 28. 39 Russian Civil Code, Part I, Article 48(1).

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Similar to the U.S. and EU approaches, Russian legislation uses the size of the parties test to deter-

mine whether a transaction is subject to merger control. When determining the aggregate asset val-

ue or returns, it also doesn't limit the analysis to the direct acquirer but looks at its group of persons

while the aggregate asset value of the seller is not taken into account. The ‘group of persons’ is an

aggregation of individuals and legal entities where one of them has control over another. The con-

trol may be established by ways of: (i) holding or exercising more than 50% of votes, or (ii) ap-

pointing or nominating the CEO or over 50% of the members of the board of directors or the man-

agement board, or (iii) an agreement or articles of association that allow a person to give mandatory

instructions to the legal entity, or (iv) having same persons serving as the members of the board of

directors or the management board in several entities (provided that such persons occupy more than

50% of the seats). Individuals may form a group of persons with an entity if they are majority

shareholders, CEOs, members of the board of directors or the management board or if they are

close relatives to such persons. It is important to note that if a person forms a group with another

person, it is automatically deemed to form a group with the members of such other person’s

group.40

Thus, such broad definition doesn't limit a group only to parent companies but extends it to

a much larger circle of persons.

Similar to U.S. and EU systems, the Russian legislation uses the size of the parties test. However,

unlike the U.S. size of transaction test and similar to the EU test of control, Russian legislation pro-

vides for thresholds that once reached are deemed to change the voting power of the shareholders

and consequently the control of an entity. We assume that the link to particular percentages is due

to the fact that Russian company law is mostly imperative and provides for the thresholds necessary

to pass any corporate decision (e.g., amendments to the charter may only be adopted if approved by

75% of voting securities). Neither a company charter nor a shareholders’ agreement may change the

thresholds required to pass a particular resolution. Following this logic, an argument may be made

that the legislation set the precise thresholds that it deems sufficient to change the control over an

entity.

To sum it up, we can see that the pre-merger notification requirements in all of the three systems

have both similarities and differences. We know from history that the EU system developed follow-

ing the U.S. tradition while the Russian system has been recently reformed to follow the

EU approach.

40 Law on Protection of Competition, Article 9.

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2.2. Standards of review

As mentioned in previous chapters, apart from transactions that may be consummated only with

prior notification, certain transactions may be deemed illegal per se or their legality may be ques-

tioned in court. In the first case, an agreement is illegal irrespective of whether it has been contested

in court or not. In the second case, an agreement may be contested as violating the antitrust law in

either a public or a private action (voidable agreement). Understanding these differences is im-

portant to ascertain whether the anticipated deal can be consummated. If the agreement is not illegal

per se, this doesn't mean that it is lawful as a matter of antitrust law. The contestable nature of void-

able transactions urges the antitrust lawyers to exercise extensive scrutiny of anticipated deals.

Above we referred to general provisions of antitrust laws that prohibit certain transactions and ac-

tions. In the USA, the Sherman Act prohibits any contract that restrains trade or commerce among

several states.41

In the EU, prohibited are agreements that may affect trade between member states

and prevent, distort or restrict competition within the internal market.42

In the Russian Federation,

the Constitution outlaws any economic activity aimed at monopolisation or unfair competition.43

These general provisions served as a basis for legislative developments and judicial interpretations

that resulted in a broad body of antitrust law; however, they are not specific enough to determine

whether a particular agreement is illegal per se or voidable. The legislation and the courts have de-

veloped certain standards of review that are employed in order to determine whether an agreement

falls into one of these two categories. This chapter discusses the various standards used in the ana-

lysed jurisdictions in their application to M&A agreements.

The substantive standards of review fall into three categories: (1) whether the merger would create

or strengthen a dominant position of one of the market players (the market dominance standard of

review); (2) whether there is a substantial lessening of competition as a result of the merger; and (3)

whether the merger has effects on the competition and raises policy concerns (public interest stand-

ard of review).44

Under a market dominance standard of review, the merger is considered in light of

whether it enables a leading firm to achieve or strengthen a dominant position in a market.45

Under

the substantial lessening of competition standard, the merger is considered in the light of whether it

41 15 U.S.C. §1. 42 Treaty on the Functioning of the European Union, Article 101. 43 Russian Constitution, Article 34. 44 Andre Fiebig, A Role for the WTO in International Merger Control (20 Nw. J. INI’LL. &Bus. 233, 252, 2000)) (as

cited by Kathryn Fugina, Merger Control Review in the United States and the European Union: Working towards Con-

flict Resolution, p. 479 (26 Nw. J. Int’l L. & Bus. 471, 2006). 45 J. William Rowley & A. Neil Campbell, Multi-Jurisdictional Merger Review - Is it Time for a Common Form Filing Treaty? (POL'Y DIRECTIONS FOR GLOBAL MERGER REV. 9, 12 (1999)).

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is likely tighten the control of a small group of players in a market or provide a single firm with

market power.46

Under the public interest standard of review, the emerged is considered in the light

of whether it is likely to have effect not only on competition, but also such other factors as em-

ployment, export promotion and international comparative advantage.47

In the United States, agreements are distinguished between those that are illegal per se and those

“found illegal after being tested against the rule of reason”.48

The agreements that are illegal per se

include price-fixing agreements, bid-rigging agreements, output or production restriction agree-

ments between competitors, agreements on market or customers allocation, tying agreements and

agreements not to deal with specific suppliers, customers or other competitors.49

The voidable

agreements are to be judged under the rule of reason which, as described by Broder, requires that

“[t]he plaintiff must demonstrate that the challenged practice actually harms competition in a ‘rele-

vant market’”.50

In the merger control context, the FTC or DOJ will have to prove that a merger

harms the market if it wants to prevent or unwind it.

Clayton Act provides that any acquisition of stock is prohibited if the effect of such acquisition, of

such stock or the use of such stock may be substantially to lessen competition, or to tend to create a

monopoly.51

The U.S. legislation uses the substantial lessening of competition test (“SLC test”) to

review mergers. In its landmark decision in Brown Shoe the Supreme Court’s gave a very clear ex-

planation of the rationale behind the SLC test: “the legislative history illuminates congressional

concern with the protection of competition, not competitors, and its desire to restrain mergers only

to the extent that such combinations may tend to lessen competition.”52

As noted by Broder, “[b]y

using the word ‘may’ in Section 7 [of the Clayton Act], Congress created an ‘incipiency’ standard.

Congress outlawed not just acquisitions that would immediately create monopoly or give the parties

market power, but those acquisitions that had the potential to do so.”53

Court practice developed

since the adoption of the Clayton Act has established a number of concepts that are relevant for de-

termination of whether the SLC test has been passed. The FTC and the DOJ passed Horizontal

46 Id. 47 Id. 48 Broder, Douglas, U.S. Antitrust Law and Enforcement: A Practice Introduction, p. 35 (Oxford University Press,

USA, 2010). 49 Id. p. 36. 50 Id. p. 51. 51 15 U.S.C. §18. 52 Brown Shoe Co. v. United States, 370 U.S. 294 (1962). 53 Broder, supra note 48, p. 112.

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Merger Guidelines and Non-Horizontal Merger Guidelines54

and Commentary on the Horizontal

Merger Guidelines55

that contain principal analytical techniques, practices, and the enforcement

policy summaries. The guidelines principally describe how FTC and DOJ analyse mergers that, in

their view, may enhance the market power of the parties and lead to substantial lessening of compe-

tition.

The Horizontal Merger Guidelines describe a five-step process to determine whether a merger is

anticompetitive: (1) market definition and concentration; (2) potential adverse competitive effects;

(3) entry analysis; (4) efficiencies; and (5) failing and exiting assets.56

For the purpose of this paper,

we will not analyse each step in detail but will give a high-level overview of items (1) and (2) as

these are the key concepts important for understanding.

The Horizontal Merger Guidelines define the relevant market as a product and geographical one.

Market definition helps specify the line of commerce and section of the country in which the com-

petitive concern arises and allows identification of market participants and measure market shares

and market concentration.57

The Horizontal Merger Guidelines use a modified version of the fa-

mous Supreme Court’s Brown Shoe58

approach to market definition: they look at substitutability

and cross-elasticity of demand to determine the products market and at the shipping costs, normal

shipping distance and the like to determine the geographic reach of the market.59

In order to evalu-

ate whether groups of products are sufficiently broad to constitute a relevant market, the antitrust

authorities use the hypothetical monopolist test which requires “that a product market contain

enough substitute products so that it could be subject to post-merger exercise of market power sig-

nificantly exceeding that existing absent the merger”.60

The arena of competition affected by the

merger may be geographically bounded if geography limits some customers’ willingness or ability

to substitute the products, or some suppliers’ willingness or ability to serve the customers.61

The merger may have either unilateral or coordinated anticompetitive effects. Unilateral effects is a

term used by the Horizontal Merger Guidelines to describe the possible increase in the ability of a

54 Horizontal Merger Guidelines of 2010 and Non-Horizontal Merger Guidelines of 1984. Available at:

http://www.justice.gov/atr/public/guidelines/hmg-2010.html and http://www.justice.gov/atr/public/guidelines/2614.htm. 55 Commentary on the Horizontal Merger Guidelines. Available at

http://www.ftc.gov/os/2006/03/CommentaryontheHorizontalMergerGuidelinesMarch2006.pdf. 56 Commentary on the Horizontal Merger Guidelines, p. 2. 57 Horizontal Merger Guidelines, sec. 4. 58 Brown Shoe Co. v. United States, spar note 52. 59 Broder, supra note 48, p. 116. 60 Horizontal Merger Guidelines, sec. 4.1. 61 Id. sec. 4.2.

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merged firm to raise prices on its own.62

The elimination of competition as a result of a merger may

alone constitute a substantial lessening of competition even though it is most apparent in a merger

to monopoly in a relevant market (but by no means is limited to that case).63

Judge Walker de-

scribed unilateral effect as a result of “the tendency of a horizontal merger to lead to higher prices

simply by virtue of the fact that the merger will eliminate direct competition between the two merg-

ing firms, even if all other firms in the market continue to compete independently”.64

A merger may diminish competition by enabling or encouraging post-merger coordinated interac-

tion among firms (e.g., explicit negotiation (and parallel accommodating conduct) of a common un-

derstanding of to compete or refrain from competing) in the relevant market that harms customers

and is profitable for each of the firms.65

The Non-Horizontal Merger Guidelines are of less relevance as by definition non-horizontal mer-

gers involve firms that do not operate in the same market and are less likely than horizontal mergers

to create competitive problems. The guidelines state that the indirect adverse effects on competition

created by certain non-horizontal mergers can be enough to case concerns. For instance, such mer-

ger may have conglomerate effect when the same seller offers a range of different products in bulk

at lower prices than the competitors.

In the EU, the ECMR was revised in 2004 and currently outlaws mergers that would “significantly

impede effective competition in the common market or in a substantial part of it, in particular as a

result of the creation or strengthening of a dominant position”.66

The significant impediment of ef-

fective competition test (“SIEC test”) replaced the prior dominance test and is almost the same as

the SLT test in the United States. Before we analyse the new review standard in detail, it makes

sense to give a brief history of why the EU legislation moved from the dominance test to the SIEC

test. Before the revision of ECMR in 2004, many competition economists were convinced that the

dominance test didn't allow the Commission to act against concentrations which might damage con-

sumer welfare by facilitating increases in prices but without creating a single dominant firm or col-

lective dominance.67

It was becoming clear that the applicable dominance test should be changed as

it didn't give due account for cases of anticompetitive behaviour that didn’t create dominance. An-

other reason for adoption of the new test was the intent to promote a single world-wide standard and

62 Broder, supra note 48, p. 118. 63 Horizontal Merger Guidelines, sec. 6. 64 United States v. Oracle Corp., 331 F.Supp.2d 2004. 65 Horizontal Merger Guidelines, sec. 7. 66 ECMR, Article 2(3). 67 C.J. Cook, C.S. Kerse, EC Merger Control, sec. 7-004 (Sweet & Maxwell, 2005).

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ensure that any cross-border anticompetitive mergers will not escape justice.68

Thus, the EU legisla-

ture decided to move to SIEC test.

The rationale behind the SIEC test is found in Recital (25) of the ECMR which states that “under

certain circumstances, concentrations involving the elimination of important competitive constraints

that the merging parties had exerted upon each other, as well as a reduction of competitive pressure

on the remaining competitors, may, even in the absence of a likelihood of coordination between the

members of the oligopoly, result in a significant impediment to effective competition”. Thus, the

legislation acknowledged that a merger may have anticompetitive effect even though it doesn't lead

to creation of dominance: “[t]he notion of ‘significant impediment to effective competition’ …

should be interpreted as extending, beyond the concept of dominance, only to the anti-competitive

effects of a concentration resulting from the non-coordinated behaviour of undertakings which

would not have a dominant position on the market concerned.”69

The trace of the dominance test is

still found in Recital (26) of ECMR which states that “[a] significant impediment to effective com-

petition generally results from the creation or strengthening of a dominant position.”

In 2004, the Commission adopted Guidelines on the Assessment of Horizontal Mergers under the

Council Regulation on the Control of Concentrations between Undertakings70

(“EU Horizontal

Mergers Guidelines”) to explain how to interpret and apply the SIEC test to assess concentrations

between actual or potential competitors.

Even though the ECMR established the SIEC test, the notion of “dominance” is still strong in the

EU merger review system: “[t]he creation or the strengthening of a dominant position is a primary

form of such competitive harm [significant impediment to effective competition]”.71

The EU Hori-

zontal Mergers Guidelines define dominance as “a situation where one or more undertakings wield

economic power which would enable them to prevent effective competition from being maintained

in the relevant market by giving them the opportunity to act to a considerable extent independently

of their competitors, their customers and, ultimately, of consumers”.72

Thus, it may be concluded

that the EU legislation developed the standard of review by recognizing the non-coordinated effects

of the merger while still giving due account for the dominance test.

The EU Horizontal Mergers Guidelines provide for 2-step analysis of a merger: (1) definition of the

recant market within which to assess an outcome of the merger, and (2) competitive assessment.

68 Id. 69 ECMR, Recital (25). 70 Available at http://ec.europa.eu/competition/mergers/legislation/notices_on_substance.html. 71 EU Horizontal Mergers Guidelines, para. 2. 72 Id.

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The tools to define the relevant market are given in the Commission Notice on the Definition of

Relevant Market for the Purposes of Community Competition Law.73

Similar to U.S. system, the

relevant market is established by combination of the product and geographic markets. Relevant

product market comprises all products and/or services that are regarded as interchangeable or sub-

stitutable by the consumer due to their characteristics, price and intended use.74

Relevant geograph-

ic market is the area in which the supply and demand of products or services is carried, where the

conditions of competition are homogeneous and which can be distinguished from neighbouring are-

as by differing conditions of competition.75

Anti-competitive effects of horizontal mergers may be traced in either (1) elimination of important

competitive constraints on one or more firms that will consequently have increased market power

without coordinated behaviour (non-coordinated effects), or (2) change in the nature of competition

is a way that firms that previously were not coordinating their behaviour, are now significantly

more likely to coordinate and raise prices or otherwise harm effective competition (coordinated ef-

fects).76

In 2008, the Commission adopted Guidelines on the Assessment of Non-Horizontal Mergers under

the Council Regulation on the Control of Concentrations between Undertakings.77

The general

guidance given in the EU Horizontal Mergers Guidelines is also relevant in the context of non-

horizontal mergers.78

The non-horizontal mergers are generally less likely to significantly impede

effective competition than horizontal mergers as they do not lead to the loss of direct competition

and create efficiencies as the products of the merging companies complement each other.79

In Russia, the Law on Protection of Competition generally outlaws (1) anticompetitive actions of a

dominant player that may result in impediments to, restriction or elimination of competition or in-

fringement of other persons’ interests (abuse of dominant position), (2) anticompetitive agreements

and (3) anticompetitive concerted practices. The anticompetitive actions include, inter alia, price

manipulation, tying agreements, creation of discriminatory condition, etc.80

Anticompetitive agree-

ments include cartels, vertical agreement that establish re-sale price or lead to refusal to deal, and

73 Available at http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31997Y1209(01). 74 Commission Notice on the Definition of Relevant Market for the Purposes of Community Competition Law, para. 7. 75 Id. para. 8. 76 EU Horizontal Mergers Guidelines, para. 22. 77 Available at: http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52008XC1018(03). 78 EU Non-Horizontal Mergers Guidelines, para. 6. 79 Id., paras. 11-13. 80 Law on Protection of Competition, Article 10.

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any other agreements that restrict competition (e.g., tying agreements, sale on condition, etc.).81

An-

ticompetitive concerted practices are, inter alia, price-fixing, bid-rigging, production restriction,

etc.82

Cartels are illegal per se, the anticompetitive effect of other agreements has to be proved by the

FAS. The primary anticompetitive effect that the FAS will look at is whether there has been re-

striction of competition. Article 4 of the Law on Protection of Competition lists the following cir-

cumstances that may evidence restriction of competition by market players: reduction of the number

of market players that are not parties of the same group; price increase or decrease not related to

change in general product sale terms; refusal of market players that are not parties of the same

group to act independently; determination of general product sale terms by players that are not par-

ties of the same group; or other circumstances that enable market player(s) to unilaterally determine

the general product sale terms. Most of these effects have to do with creation or strengthening of the

dominant position.83

A merger may be deemed illegal if it leads to creation or strengthening of a dominant position in the

relevant market or otherwise leads to restriction of competition in the relevant market.84

This im-

plies that the Russian legislation uses the market dominance test to review mergers.

In order to determine the market share of a potentially dominant player, the relevant market has to

be defined. In 2010, the FAS issued Guidelines on Analysis of Market Competition which provide

for the procedure of determining the product and geography of the relevant market.85

The product

market consists of the products that are substitutable and the geographic market is the area within

which it is economically rational for the consumer to purchase products.86

Like EU and U.S. anti-

trust authorities, the FAS uses the hypothetical monopolist test to determine the market’s borders.

Once the relevant market has been determined, the FAS looks at the merging companies’ market

shares in order to analyse if the merger may potentially create dominance.

Dominance is established if a market player has the share in the relevant market of:

1) over 50%, unless as a result of investigation it is determined that such share is not enough to

establish dominance in a particular market; or

81 Id. Article 11. 82 Id. Article 11.1. 83 I. Artemyev, D. Aleshin, E. Borzilo et. al. Competition Law of Russia, p. 90 (Vishaya Shkola Ekonomiki, 2012).

Artemyev is the head of the FAS. 84 Law on Protection of Competition, Article 33(2)(5). 85 FAS Order No. 220 of 28 April 2010. 86 Artemyev et. al. supra note 83, p. 96.

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2) less than 50%, but as a result of investigation it is determined that such share is enough to estab-

lish dominance (e.g., if it is relatively stable, is large as compared to the competitors, etc.).87

A

market share of less than 35% generally may not be deemed dominant.88

Collective dominance is established if the following conditions are present:

1) aggregate market share of three largest market players is over 50% or the aggregate market

share of five largest market players is more than 70%, and

2) their market shares have been relatively stable for a long time and new competitors have prob-

lems entering the market, and

3) the product sold by such market players isn't substitutable, its price isn’t elastic and information

on the price and sale terms is public.89

If a potential merger leads to creation by a company or a group of persons dominance in the rele-

vant market, the FAS will not grant the pre-merger approval as such merger will restrict competi-

tion in the relevant market. Alternatively, if no dominance is created, the FAS may find that the

merged company may restrict competition in some other way described above. The FAS officials

note that the guidelines do not fully correspond to the merger review practice of the FAS and it is

expected that they will be amended soon to interpret the term “strengthening of dominant position”

and specify the factors which evidence that the merger has restricted competition.90

3. EXTRATERRITORIAL MERGER CONTROL

The unique feature of antitrust laws is that they may be applied extraterritorially, i.e. to foreign enti-

ties and their transactions. One may argue that there could be no solid argument for such expansion

as legal enforcement has to do with national sovereignty and is within the realm of each particular

state. However, there have been many cases where the antitrust laws were given extraterritorial ap-

plication. In this chapter we discuss the legislation and the landmark cases that served as basis for

such application as well as look at international agreements that provide guidance on facilitation of

extraterritorial application of antitrust laws.

87 Law on Protection of Competition, Article 5(1). 88 Id. Article 5(2). 89 Id. Article 5(3). 90 Artemyev, supra note 83, p. 127.

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3.1. Evolution of extraterritorial application of antitrust laws

In the United States, the antitrust laws are applied to foreign business combinations based on the

“effects test”.91

The ruling precedent allowing for extraterritorial application of the Sherman Act is

United States v. Alcoa where the court state that “it is settled law … that any state may impose lia-

bilities, even upon persons not within its allegiance, for conduct outside its borders that has conse-

quences within its borders which the state reprehends; and these liabilities other states will ordinari-

ly recognize”.92

In that case, the court ruled that the U.S. had jurisdiction and could apply its anti-

trust laws where wholly foreign conduct had an intended effect in the U.S.93

One may conclude that

such broad application of the effects test may lead to almost unlimited application of U.S. laws to

almost any transaction. Later court practice limited the application of the effects test in Timberlane

Lumber Co. v. Bank of America where the court held that U.S. jurisdiction would be granted only if

the intended effect on U.S. commerce was of substantial magnitude, or as a matter of international

comity.94

In other words, the U.S. court’s task is to ensure balance between the interest of the Unit-

ed States and of a foreign country and only allow extraterritorial application if the effects on U.S.

market are substantial enough. Following the Timberlane case, the Sherman Act and the FTC Acct

were amended to provide that in order to extend U.S. antitrust law enforcement, the challenged

conduct must have a “direct, substantial, and reasonably foreseeable” effect on U.S. domestic com-

merce or on U.S. persons engaged in export trade or export commerce.95

The Clayton Act explicitly

prohibits any direct or indirect acquisitions of stock by any person engaged in commerce or any ac-

tivity affecting commerce if the potential anticompetitive effects are “in any section of the [United

States]”.96

Such broad definition covers transactions by firms outside the U.S. provided that they

affect U.S. commerce.97

In the EU, the ECMR applies to any “undertakings effecting the concentration” irrespective of

whether they “have their seat or their principal fields of activity in the Community, provided they

have substantial operations there”.98

Thus, the ECMR doesn't limit the scope of persons subject to

91 Kenneth J. Hamner, The globalisation of law: international merger control and competition law in the United States,

the European Union, Latin America and China, p. 390 (J. TRANSNAT'L L. & POL’Y, vol. 11:2, 2002). 92 United States v. Aluminum Co. of America et al., 148 F.2d 416, 443-444 (2nd Circuit, 1945). 93 Joseph P. Griffin, Extraterritoriality in U.S. and E.U. Antitrust Enforcement, p. 363 (67 ANTITRUST L.J. 159 (1999)). 94 David Snyder, Mergers and Acquisitions in the European Community and the United States: A Movement Toward a

Uniform Enforcement Body, 29 LAW & POL’Y INT’L BUS. 115, 123 (1997); (as cite in Kenneth, supra note 91). 95 15 U.S.C. § 6a, §45(a)(3). 96 15 U.S.C. §18. 97 Griffin, supra note 93, p. 368. 98 ECMR, Recital (10).

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its application by undertakings that are incorporated in the EU although it is silent on the issue of

whether the Commission has extraterritorial jurisdiction.99

Similar to the U.S. courts, the European Court of Justice (“ECJ”) adopted its approach to extraterri-

torial enforcement of antitrust laws. In the Wood Pulp100

decision, the ECJ applied a “modified ef-

fects test” to extend E.U. jurisdiction over a number of foreign firms, including eleven U.S. compa-

nies, who “colluded to establish higher prices on wood pulp”101

and were alleged to have restrained

trade within the EU common market. A number of the defendants had no subsidiaries or branches

within the EU and they argued that the ECJ lacked jurisdiction over them.102

The ECJ held that ju-

risdiction under EU law existed over firms outside the EU that were selling products to EU pur-

chasers.103

This ruling is similar to the United States v. Aluminum Co. of America, as it extended the

EU jurisdiction over parties based on the effects of their actions rather than on their location or na-

tionality. However, it was an antitrust case and not a merger control one; therefore, a question is

whether the “modified effects test” may be applied to concentrations with community dimension.

Relying on the Wood Pulp case, some Commission officials stated that: “[t]he Regulation therefore

gives the Commission jurisdiction to prohibit concentrations in situations in which they are con-

cluded in third countries but create or strengthen a dominant position within the Community. In

TetraPak/Alfa-Laval (M37) for example, the Commission opened proceedings but subsequently ap-

proved the takeover by a Swiss company of a Swedish undertaking. There is no doubt that if a dom-

inant position was found in the Community the Commission would have prohibited the concentra-

tion.”104

In chapter 3.2 we will look at some more precedents where EU merger control rules were

applied extraterritorially.

In Russia, the Law on Protection of Competition applies to agreements arrived at outside the territo-

ry of Russia by and between Russian and/or foreign entities as well as to their actions provided that

such agreements or actions affect competition in the territory of Russia.105

Such rule is very broad

and implies that any transaction between foreign entities and in relation to foreign stock may be

subject to Russian antitrust law. So far there has been no remarkable court ruling that would clarify

how extraterritorial enforcement of the Law on Protection of Competition should work. In any case,

99 Griffin, supra note 93, p. 360. 100 Case 89/85, Åhlströhm v. Commission, 1988 E.C.R. 5194 (1988). 101 Snyder, p. 120 (as cited by Kenneth supra note 91), Kenneth, supra note 91, p. 394. 102 Griffin, supra note 93, p. 355. 103 Id. 104 Christopher Jones and Enrique Gonzalez-Diaz, The EEC Merger Regulation 90 (1992) (as cited by Griffin, supra

note 93, p. 361). 105 Law on Protection of Competition, Article 3(2).

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given that the rule of precedent officially has no authority in Russia (although in practice the lower

courts usually follow the rulings of the supreme courts) it is hard to predict how a court will apply

competition laws to a foreign-to-foreign transaction. As of 2007, the FAS in cooperation with for-

eign antitrust authorities has not revealed any anticompetitive practices by foreign entities; the only

way the Russian antitrust laws find their territorial application has been the merger control.106

As mentioned in chapter 2.1 above, acquisition by a person (or group of persons) of more than 50%

of voting securities (participation interest) in an entity incorporated outside the territory of Russia

and having strong economic connection with Russian market, are to be consummated with pre-

merger notification of the FAS.107

Based on Article 3(2) of the law, the scope of transactions that

may be questioned if the FAS finds out that they have not been notified under the pre-merger notifi-

cation requirement includes transactions by and between foreign entities. Despite the clear-cut

wordings of the law, some practitioners note that in the absence of judicial practice that would clari-

fy its application to foreign-to-foreign acquisitions, at least two practical problems exist:108

(a) how to qualify acquisitions by foreign companies of the stock in foreign parent companies for

the purpose of merger control. Should the Law on Protection of Competition apply to such indi-

rect acquisition of control in a Russian entity (or entity operating in Russia), and, if yes, to

which extent? It is often the case that there are several ownership layers between the foreign

parent and the subsidiary and the foreign parent’s shareholding may diminish as result of chain

of ownership so that the established thresholds would not be met.109

Based on some court rul-

ings and unofficial clarifications of the FAS, it may be concluded that the FAS would be inter-

ested in any transaction with foreign parent’s securities; and

(b) how to determine whether such foreign transactions with foreign stock lead to restriction of

competition. It is not clear how a foreign shareholder of a foreign company may impact compe-

tition in the relevant market. The FAS position is that in any case of a foreign transaction, such

transaction should be notified to the FAS so that it could analyse if potential anticompetitive ef-

fect takes place.

At the same time, the practitioners note that in case of non-notification of the foreign-to-foreign

transaction, there will likely not be any significant unfavourable consequences as FAS doesn't have

106 Sushkevich, Application of the legislation on protection of competition to foreign persons and entities

(Sovremennaya konkurentsiya, 2007/5(5)), 107 Law on Protection of Competition, Article 28. 108 Eugeniya Borzilo, Andrei Neminuschiy, Antimonopoly control over transactions: have the rules changed?

(Aktsionerniy vestnik, No. 6 (75) 2010). 109 Id.

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enough technical ability to fine a foreign entity or challenge its transaction.110

In 2012, the FAS is-

sued a Report on the Competition in Russia111

which stated among other things that the ‘parame-

ters’ of transactions on acquisition of securities of foreign entities (subject to FAS review) are yet to

be determined. This may imply that in 2012 the FAS did not yet have a position or experience on

extraterritorial application of merger control rules to foreign transactions. To the best of our

knowledge, more recent reports on competition do not discuss this issue.

Based on the above we see that each of the United States, EU and Russia have legal basis (either

legislative or judicial) for applying their antitrust laws to foreign entities and foreign transactions.

The practical problem that may arise is how to implement the cross-border enforcement from or-

ganisational point of view and how to deal with its consequences. The line between justifiable and

unjustifiable enforcement of antitrust laws extraterritorially can be very fine and the arguments

brought for and against such enforcement may be equally solid. The issue is even more aggravated

in view of the fact that it interferes with national sovereignty of a foreign state. In such circum-

stances the question is how to resolve potential misalignment between the anticompetitive assess-

ment given by various enforcement authorities and ensure predictability of the transaction’s future

for the parties. From companies’ perspective, the cost of having a deal blocked or suspended due to

antitrust violations or clearance in either jurisdiction is always time and money. Legal obscurity

may increase overall transaction costs and expose the parties to significant financial risk as they

may not be fully sure if they could be subject to additional scrutiny beyond their national jurisdic-

tion. Therefore, as a practical matter, it makes sense to secure against such risk and question the an-

titrust authorities in multiple jurisdictions the legality of the anticipated transaction beforehand. To

ensure that, one has to carry a detailed analysis of the acquirer’s and target’s groups and their activi-

ty in various countries.

From the antitrust authorities perspective, the possibility of ‘second eye’ control may potentially

undermine the trust in the mechanisms used for assessment of the anticompetitive effect of a trans-

action and even spark political controversy. For example, in GE/Honeywell case the DOJ had to

publish the reasons why it decided not to litigate a matter although it doesn’t usually do that. This

was partly due to the criticism that it’s investigation lacked necessary diligence when compared to

the Commission's extensive investigation and subsequent lengthy written decision.112

While history

knows cases where the EU/U.S. cooperation in the extraterritorial extension of antitrust laws was

110 Id. 111 Available at http://fas.gov.ru/about/list-of-reports/list-of-reports_30065.html. 112 Stefan Schmitz, The European Commission's Decision in GE/Honeywell and the Question of the Goals of Antitrust Law, p. 566 (23 J. Int'l L. 539, 2002).

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successful and didn't lead to any controversies (e.g., in the Wood Pulp case U.S. and EU authorities

were very cooperative), this is not always the case.

3.2. Cases of extraterritorial application of merger control rules

In recent history, there have been two cases that serve as best examples of EU/U.S. controversy on

an international scale with regard to application of merger control rules. These cases are the Boe-

ing/McDonnell Douglas and General Electric/Honeywell. It should be noted that both cases took

place before the shift of the EU from the dominance test to the SIEC test and, therefore, do not

serve as examples of differing standards of review in EU and U.S., but rather as precedents of extra-

territorial enforcement of antitrust laws.

Boeing is a U.S. corporation whose shares are publicly traded. Boeing operates in two principal ar-

eas: commercial aircraft, and defence and space. McDonnell Douglas was a U.S. corporation whose

shares were publicly traded. It operated in four principal areas: military aircraft; missiles, space and

electronic systems; commercial aircraft; and financial services.113

On 14 December 1996, Boeing

and McDonnell Douglas entered into an agreement by which the latter would become a wholly-

owned subsidiary of Boeing.114

In 1997, the companies notified the Commission of a proposed merger that would eliminate one of

the three remaining competitors in the market for large commercial jet aircraft.115

The Commission

concluded that the proposed concentration falls within the scope of the ECMR and raised serious

doubts as to its compatibility with the common market, and initiated proceedings pursuant to Article

6(1)(c) of the ECMR.116

It approved the concentration after Boeing agreed to a number of signifi-

cant undertakings, in particular, to maintain McDonnell Douglas as an independent company for a

period of 10 years; to provide customer support for McDonnell Douglas aircraft at the same level as

for the Boeing aircraft as well as not to enter into additional exclusive agreements and not to exer-

cise its exclusive rights under the existing agreements with American airlines.117

In finding grounds

for extending the antitrust law enforcement, the Commission defined the relevant market for the

purposes of this case not as the EU common market but as the world market of which the EU mar-

ket is an integral part.118

113 Boeing/McDonnell Douglas, Case No IV/M.877, C(97) 2598 (1997). 114 Id. 115 Stefan Schmitz, However Dare They - European Merger Control and the European Commission's Blocking of the

General Electric/Honeywell Merger, p. 360 (23 J. Int'l L. 325, 2002). 116 Boeing/McDonnell Douglas, supra note 113. 117 Schmitz, supra note 115, p. 361. 118 Boeing/McDonnell Douglas, supra note 113.

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Boeing/McDonnell Douglas was a good example of what the outcome of the difference in the

standards of review and assessments mechanisms employed by EU and U.S. may be. As noted by

Stock, “[i]t has been demonstrated that historically differing legal philosophies regarding the pur-

poses of merger control, combined with contrasting economic assumptions about the global

marketplace, resulted inevitably in the U.S. and EU antitrust authorities profoundly disagreeing on

whether to permit the merger of Boeing and McDonnell-Douglas”.119

This case showed the diverg-

ing positions of the antitrust authorities on which standard of review to apply: (1) to concentrate the

analysis on how the merger impacts market efficiency and whether the anticompetitive effects out-

weigh the pro-competitive ones (SLC test), or (2) to review the impact it has on the market reposi-

tioning of the players (market dominance test).

The FTC approved the merger as it believed that McDonnell Douglas was not capable of exercising

any influence on the market.120

The FTC viewed the commercial aircraft market as having only two

significant competitors (Boeing in the U.S. and Airbus in the E.U.) and the transaction as an acqui-

sition by one of the competitors of a declining firm (McDonnell Douglas).121

In the opinion of FTC,

the merger would raise efficiencies in the commercial aircraft and defence industries, and prevent

significant losses and layoffs in McDonnell Douglas.122

The Commission, on the opposite, concentrated on the merger’s effects on the market position of

Boeing which would be strengthened in case the merger occurs. Having acquired McDonnell

Douglas, Boeing would get access to its fleet and within its existing exclusive deals with some U.S.

airlines, it could offer them McDonnell Douglas aircrafts as well as spare parts and support service

for older aircraft. The Commission concluded that the combination of a broader product range, fi-

nancial resources, and higher capacity Boeing would gain as a result of the merger, its ability to in-

duce airlines to enter into exclusive deals would significantly increase Boeing's market position

while Airbus, the only remaining competitor, would not be able to offer such exclusive deals.123

By

acquiring McDonnell Douglas, Boeing would also increase its customer base and gain access to

eighty-five airlines that did not yet operate Boeing aircraft, but either exclusively McDonnell Doug-

las aircraft or a combination of McDonnell Douglas and Airbus aircraft.124

As a result, Boeing

119 Eric J. Stock, Explaining the Differing U.S. and EU Positions on the Boeing/McDonnell-Douglas Merger: Avoiding

Another Near-Miss , p. 906 (20 J. Int'l L. 825). 120 Schmitz, supra note 115, p. 361. 121 Stock, supra note 119. 122 Id. 123 Schmitz, supra note 115, p. 361. 124 Id.

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would gain financial resources, new technical skills, and unearned market share and increase its

dominance in the commercial aircraft market.125

The key clash of views point was that FTC concentrated on the market-wide effects of the merger

and disregarded the benefits that Boeing would gain and which could turn its market position into a

dominant one while the Commission concentrated on the market-dominance effect of the merger

and disregarded the economic and welfare outcome of the deal for the market. This case is a good

example of how merger clearance in one state may not be sufficient to proceed with an M&A deal

until approval in another state whose market may potentially be affected is received.

In mid-2000, U.S. giants General Electric (GE) and Honeywell started negotiations over a possible

merger whereby the latter would become a subsidiary of the former. In October 2000, the merger

agreement was signed. The parties notified the DOJ of the proposed merger in October 2000 and

DOJ issued its approval in May 2001; the Commission was notified in February 2001 and initiated

investigation in March 2001. In July 2001 the Commission declared the proposed merger incompat-

ible with the common market.126

GE manufactures, sells and services jet engines and offers financing to aircraft purchasers; it is the

world's largest producer of large and small jet engines for commercial and military aircraft. It’s

main competitors are Pratt & Whitney and Rolls-Royce. Honeywell is a leading producer of aero-

space products and competes in this market with BF Goodrich, United Technologies Corporation,

and Rockwell Collins. GE and Honeywell have virtually no overlapping product lines; however, if

they merged, they would be able to offer its customers a full range of products.127

The DOJ approved the merger upon completion of divestiture by Honeywell of its helicopter engine

business and authorisation of a new third-party service provider for its engines and auxiliary power

units.128

In the point of view of DOJ, without the divestiture, the U.S. military would likely face

higher prices, lower quality, and reduced innovation in the design, development, and production of

the next generation of advanced U.S. military helicopter engines. This approach demonstrated the

intent of U.S. antitrust laws to protect the consumer.129

125 Stock, supra note 119, p. 907. 126 Commission Decision 2004/134/EC of 3 July 2001 Declaring a Concentration to be Incompatible with the Common

Market and the EEA Agreement Case COMP/M.2220, 2004 O.J. (L048). 127 Sarah Holloway, International Merger Control: Globalisation or Global Failure? p. 365 (Denv. J. Int’L & Pol’Y,

Vol. 34:3, 2006). 128 Id. p. 366. 129 Id.

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Besides, the DOJ and the Commission defined the relevant product market differently. The DOJ

identified two key markets that would be affected by the merger: the market for military helicopter

engines and the market for providing heavy maintenance, repair, and overhaul services for aircraft

engines and auxiliary power units while the Commission identified the key markets as avionics and

jet aircraft engines.130

The Commission concluded that GE had market share of 60-70% in the large commercial aircraft

engines market and after the merger with Honeywell it would effectively form a monopoly.131

In

the corporate aircraft engines market GE and Honeywell were competing with Pratt & Whitney and

Rolls-Royce: the GE’s position was weak but Honeywell’s position was strong and as a result of the

merger, the combined market share of the new company would have been 50-60%.132

In addition,

Honeywell possessed a dominant position in avionics, non-avionics, and engine controls, thus the

merged entity would maintain dominant positions across these markets.133

The Commission also identified conglomerate effects of the merger. The new company that would

become a dominant player was supposed to benefit from bundling — a business arrangement

whereby a number of products are combined in a package and sold for a single price, encouraging

the “one-stop shop”.134

The merged company would be able to drive out competition as a result of

forcing the consumer to purchase several products from GE in order to get the one product that they

want at a lower price than the price of the GE’s competitors. Thus, the effect of bundling would be

price reduction. While the U.S. and EU authorities agreed that the merger would lead to price re-

duction, they came to different conclusions as to its anticompetitive effects. The DOJ recognised

the effects of price reductions as pro-competitive as they would be favourable to consumers and en-

courage competition; while the Commission deemed that the merged company would be likely to

exploit the customers in the medium term by increasing the prices by the time the competitors had

been forced out of the market.135

In the end, the proposed merger was dissolved because of the ina-

bility of the U.S. and Commission to reconcile their different approaches to merger regulation.136

The Boeing/McDonnell Douglas and General Electric/Honeywell have shown how the differences

in the merger review techniques may affect the future of an international merger. In the first case

130 Schmitz, supra note 112, p. 567. 131 Id. p. 571. 132 Id. 133 Holloway, supra note 127, p. 367. 134 Id. 135 Id. p. 368 136 Id.

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the consummation of the merger was protracted which apparently cost the parties both time and

money. In the second case the parties couldn’t proceed with the deal.

3.3. International agreements on extraterritorial application of antitrust laws

The effectiveness of extraterritorial application of antitrust laws depends on the cooperation be-

tween the state whose market is allegedly suffering the effects of an anticompetitive agreement or

action and the state where such anticompetitive agreement is executed or anticompetitive action

takes place. In order to ensure effective cooperation between such states in 1970th OECD started a

process of fostering execution of bilateral agreements on cooperation in antitrust enforcement.

In 1991, the Agreement between the Government of the United States of America and the Commis-

sion of the European Communities regarding the application of their competition laws was signed.

Its purpose is “to promote cooperation and coordination and lessen the possibility or impact of dif-

ferences between the Parties in the application of their competition laws”.137

The Agreement is in-

tended to encourage cooperation between competition authorities, providing for the exchange of

information on practices likely to have an impact on European and American markets. The follow-

ing tools are envisaged by the Agreement:138

(a) notification of cases being handled by the antitrust authorities of one party, to the extent that

these cases concern the important interests of the other party, and exchange of information on

general matters relating to the implementation of antitrust laws;

(b) cooperation and coordination of the actions of EU and U.S. antitrust authorities;

(c) a "traditional comity" principle by virtue of which each state undertakes to take into account the

important interests of the other state when it takes measures to enforce its antitrust laws;

(d) a "positive comity" procedure by virtue of which either state can request the other state to take,

on the basis of the latter's legislation, appropriate measures regarding anticompetitive activities

occurring on its territory which adversely affect important interests of the requesting state. The

positive comity allows a possible case to be dealt with by the best-placed agency, both in terms

of fact-finding and the possible imposition of penalties.

The FAS is a party to a number of memoranda of understanding with foreign antitrust authorities. In

2009, the FAS and the FTC and DOJ signed a Memorandum of Understanding on Antimonopoly

137 Agreement between the Government of the United States of America and the Commission of the European

Communities, Article 1. 138 Id., Articles 2-6.

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Cooperation139

whose purpose is to promote greater cooperation and strengthen the relationships

between the antitrust authorities through technical cooperation and regular communication and ex-

change of information of significant competition policy and enforcement developments.

In 2011, the FAS signed a Memorandum of Understanding on Cooperation with the Commission

Directorate for Competition140

whose purpose is to promote development and strengthen coopera-

tion in the area of competition policy, legislation and enforcement. Most importantly, the memo-

randum enables either side to request the other one to initiate enforcement activities if it believes

that anti-competitive actions are carried on the territory of such other state (positive comity). Initia-

tion of enforcement proceedings, however, shall be at the discretion of the requested side only. At

the same time, both sides undertake to minimise potentially adverse effects of their enforcement

activities on each other’s interests in application of their respective antitrust laws.

In 2000, Russia signed an Agreement with CIS countries on coordination of antimonopoly policy.

Along with the standard provision on the exchange of information, the Agreement provides for a

procedure whereby antitrust authorities of one state may request the antitrust authorities of a foreign

state to consider a potentially anticompetitive case based on the latter’s antitrust laws (positive

comity). In 2011, Russia became party to the Agreement on uniform principles and rules of

competition within the Common Economic Space of Russia, Kazakhstan and Belarus which

provides for the uniform principles of antitrust policy and uniform rules of competition.

The OECD is the most active international organisation that affects competition policies. In 1995, it

issued Revised Recommendation of the Council Concerning Cooperation Between Member Coun-

tries on Anticompetitive Practices Affecting International Trade that seeks to increase cooperation

among states in the area of antitrust enforcement. The mechanism used for this purpose is "notifica-

tion, exchange of information and co-ordination of action" processes among member that ensure

that all members are aware when their interests might be affected by the antitrust policies of another

member.141

In order to render organisational help, OECD has the Competition Law and Policy

Committee which acts as a forum for exchanges of views, consultations and conciliation on matters

related to anticompetitive practices affecting international trade.142

139 Available at http://www.ftc.gov/sites/default/files/attachments/international-antitrust-and-consumer-protection-

cooperation-agreements/091110usrussiamou.pdf. 140 Available at http://ec.europa.eu/competition/international/bilateral/mou_russia_en.pdf. 141 Recommendation of OECD, sec. I.A.1. 142 Id., preamble.

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4. ENFORCEMENT OF MERGER CONTROL RULES

In this chapter we analyse the merger control rules enforcement mechanisms. In particular, we will

look at the powers that the antitrust authorities have with regard to the M&A transactions that were

consummated without their prior sign-off.

In the United States, the pre-merger notification is filed both with FTC and the Antitrust Division of

DOJ, although only one of these authorities will review it. The HSR Act provides that the merger

cannot be consummated until the waiting period of 30 days starting the filing date expires. The

waiting period may be either extended or terminated at the discretion of the FTC or DOJ.143

In case the FTC deems that the merger agreement violates the Clayton Act144

or the FTC Act145

it

may file a motion for a preliminary injunction against consummation of acquisition pendente lite.146

In addition, any person, officer, director, or partner thereof, who fails to comply with any provision

of the HSR Act may be held liable for a civil penalty of not more than $10,000 for each day during

which such person is in violation of the act, or, if any person, officer, director, partner, agent, or

employee fails substantially to comply with the notification procedure, the U.S. district court may

order compliance, extend the waiting period or grant other equitable relief at its discretion.147

Failure to comply with the HSR Act requirement may result in the agencies seeking to unwind a

transaction that has been consummated prior to the expiry or early termination of the applicable

waiting period. Whenever the FTC or DOJ have reason to believe that any person is violating or has

violated the HSR Act, it may serve a complaint upon such person with the Attorney General, if the

latter finds sufficient proof of the violation, it may issue an order requiring such person to cease and

desist from such violation, and divest itself of the stock, or other share capital.148

In the EU, the pre-merger notification shall be filed with the Commission. The ECMR provides for

two-stage review of the merger. At the first stage the Commission examines the notification and

decides on whether it falls within its jurisdiction and not the jurisdiction of any member state. If it

does, the Commission analyses if the concentration notified raises serious doubts as to its compati-

bility with the common market. Should the Commission find that there are no serious doubts, it

won’t oppose the concentration and shall declare it compatible with the common market. Other-

wise, it should take a decision on initiating the proceedings. The decision at this stage has to be tak-

143 15 U.S.C. § 18a(b). 144 15 U.S.C. § 18. 145 15 U.S.C. § 45. 146 15 U.S.C. § 18a(f). 147 15 U.S.C. § 18a(g). 148 15 U.S.C. §21(b).

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en within 25 working days at most.149

At the second stage in the course of investigation proceeding

the Commission examines if the concentration is compatible with the common market and issues a

decision on its compatibility or incompatibility. Any of the two decisions shall be taken within not

more than 90 working days of the date when the proceedings were initiated.150

Both periods may be

extended at the discretion of the Commission. The decisions on compatibility may contain condi-

tions and obligations imposed on the undertakings concerned in order to ensure that the concentra-

tion is compatible with the common market.151

The notified transaction cannot be consummated before the Commission passes a decision on its

compatibility with the common market.152

This is the key difference from the U.S. system: unlike

the U.S., the notification under the ECMR has a suspensory effect meaning that a merger cannot be

implemented until the clearance has been obtained. The validity of any such implemented transac-

tion will depended on the decisions on its (in)compatibility taken by the Commission.153

If a trans-

action is consummated without prior notification and the Commission finds that it is incompatible

with the common market, it may require the undertakings concerned to dissolve the concentration,

in particular through the disposal of all the shares acquired.154

Besides, the Commission may im-

pose fines on the undertakings concerned (not exceeding 10% of their aggregate turnover) if they

(1) fail to notify a concentration prior to its implementation, (2) implement a concentration in

breach of notification requirement, (3) implement a concentration declared incompatible with the

common market, or (4) fail to comply with a condition or an obligation imposed by the Commis-

sion.155

In Russia, upon filing a pre-merger notification with FAS, the latter has to analyse the effects of the

transaction on the competition and issue its approval within 30 calendar days (unless it deems that a

longer period up to 2 months is necessary for the analysis or further disclosure of documents or in-

formation).156

Upon consideration of the deal terms, the FAS may either issue its approval or, in

the event of a possible impact on competition, the FAS may also delay its clearance and request the

parties to carry certain activities (e.g., restructuring) upon completion of which it will issue its ap-

149 ECMR, Article 6(1), 10(1). 150 ECMR, Article 8(1), 10(3). 151 ECMR, Article 8(2). 152 ECMR, Article 7(1). 153 ECMR, Article 7(4). 154 ECMR, Article 8(4). 155 ECMR, Article 14. 156 Law on Protection of Competition, Article 33(1).

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proval.157

If the merger is consummated without FAS approval, the FAS may claim its invalidity

and unwinding in court provided that it is able to prove that the merger leads to creation or

strengthening of a dominant position or otherwise restricts competition.158

If the acquiring person

fails to file a pre-merger notification, the FAS may impose administrative fine on it and its execu-

tives in the amount of up to RUB 500,000.159

As we can see, the most severe consequence of non-compliance with the pre-remerged notification

requirement is unwinding of the M&A transaction. Besides, any of the competent antitrust authority

may suspend a transaction for the investigation period. Finally, the parties and their executives may

be subject to fines under certain circumstances.

5. CONCLUSION

In this paper we have analysed the merger control frameworks of the United States, the European

Union and the Russian Federation. We have reviewed the instances when international acquisitions

of securities require pre-merger notification, analysed the substantive review tests employed by an-

titrust authorities, looked at the legal basis for extraterritorial enforcement of merger control rules

and their application in real life cases, analysed the enforcement mechanisms employed by antitrust

authorities in cases of merger rules violation. This research has shown the importance of knowing

the differences in the merger review approaches across several states as an international transaction

may be either blocked or suspended by foreign antitrust authorities which deem it anticompetitive.

Having done the research and the analysis, we noted that all of the three jurisdictions have a number

of similarities which largely result from the tendency of unification of merger control rules world-

wide. The similarities may be traced in the following instances:

(1) persons subject to merger control typically include commercially active entities. In the U.S. the

acquiring person or the target have to be engaged in commerce or in any activity affecting

commerce; in the EU, the undertaking concerned has to be carrying out activities of a commer-

cial or economic nature; in Russia, an acquiring person is either an individual or a legal entity

that owns property and may acquire property rights;

(2) size of the parties test. All of the three jurisdictions look at the size of the parties meaning either

their annual net sales and total assets (U.S.), the turnover (EU), or the asset value or returns

(Russia). When calculating the size of the parties, all of the three jurisdictions look not only at

157 Law on Protection of Competition, Article 33(1)(1,3). 158 Law on Protection of Competition, Article 34(2). 159 Russian Administrative Offences Code, Article 19.8.

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the size of the direct acquirer, but also at the size of its parent and subsidiary companies (group

of persons);

(3) acquiring person. In the U.S. and the EU, the acquiring person is deemed to be the (ultimate)

parent company that controls the direct acquirer (ultimate parent entity or the undertaking hav-

ing the power to exercise rights deriving from the stock). In Russia, there is no such provision;

however, the Law on protection of Competition recognises acquisitions of securities by a group

of persons (controlling and controlled by each other);

(4) relevant market definition. All of the three jurisdictions define the relevant market as product

market (interchangeable or substitutable products) and geographic market (area within which it

is economically rational to supply or purchase products).

At the same time, we have revealed a number of differences in the substantive review tests. In par-

ticular, EU and U.S. use the SIEC and SLC test respectively, both of which analyse the effects of a

merger on competition without linkage to a creation or strengthening of the dominance position.

Russia, on the opposite, uses the dominance test that sees the anticompetitive effects of the merger

primarily in creation or strengthening of a dominant position. This may be explained by historical

development and economic environment. The EU system historically developed largely following

the U.S. tradition and EU member states have close and long-lasting economic relations with the

United States. Russia, after the dissolution of the Soviet Union, faced a necessity of developing

from scratch an antitrust system that would be adequate to the emerging market economy. Given

that its economic relations with Europe are closer than with the U.S. due to its geographic accessi-

bility, the Russian legislation decided to follow the EU tradition which until recently also used the

dominance test. The logic of the antitrust laws reforms in the recent years shows that the Russian

legislature looks at the EU experience as a paradigm for its legislative activity in the antitrust field.

In the area of extraterritorial enforcement, we have revealed that each jurisdiction has either legisla-

tive basis or judicial precedents that justify extraterritorial enforcement of its antitrust laws. As a

practical matter, such enforcement may cause a number of problems. First, it may be hard to justify

the expansion of national laws of one state to a foreign-to-foreign transaction as the issue has to do

with national sovereignty and may spark political controversy between the enforcing state and the

state where enforcement is sought. Second, in case the antitrust review approaches differ, this may

question the creditability of either of them when compared to the other. Third, the necessity to

‘clear’ a transaction in several jurisdictions may be time and money consuming. In order to address

the first two issues, the international community has adopted a number of agreements and memo-

randa of understanding that are aimed to facilitate the cross-state enforcement though such mecha-

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nisms as positive comity and exchange of information. As regards the last issue, the necessity of

multi-jurisdictional clearance still exists.

Practical advice that may be derived from this research paper for the lawyers is to pay significant

attention to the analysis of the acquirer and target group companies and their respective presence in

various markets as well as to consult antitrust authorities that review those markets before the deal

is signed. As regards scientific conclusion, given that antitrust laws have a strong economic compo-

nent and have to be responsive to the country’s economy and market, we argue that the substantive

review tests employed in the analysed jurisdictions meet the requirements of each of the national

economies and markets. In the EU and U.S., the market economy is well-developed and the compe-

tition exists not only among large corporations but also among a variety of smaller corporations and

small and medium enterprises (SMEs). This is an indicator of a developed economy which ensures

‘diversity’ in the competition. In Russia, on the opposite, competition is limited to large corpora-

tions that control most of the market while the space for smaller ones and SMEs is almost negligi-

ble: unless a company is big enough and well financed, it has little chances to successfully compete.

Besides, some market segments are occupied by state owned or state affiliated companies which

drive out competition there. Thus, we claim that the approaches to reviewing M&A deals (which

create new market players) differ as a result of the differing market realities. In the EU and the U.S.

the legislation has to protect competition as such without linkage to whether dominance is created

or not (the competition exists at a ‘lower’ level), while in Russia the aim of the laws is to deter crea-

tion of dominance which is seen as the most conceivable way of distorting competition.

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Exhibit 1 Legal sources

Statutes

1. Clayton Act of 1914, 15 U.S.C. §§ 12-27

2. Constitution of the Russian Federation of 1993

3. Council Regulation (EC) No 139/2004 of 2004 on the control of concentrations between

undertakings

4. Federal Trade Commission Act of 1914, 15 U.S.C §§ 41-58

5. Federal Law No. 135-FZ of 2006 on Protection of Competition

6. Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a

7. Sherman Act of 1890, 15 U.S.C. §§ 1-7

8. Treaty on the Functioning of the European Union of 2007 (replaced the Treaty establishing

the European Economic Community of 1957)

9. Russian Civil Code, Part I of 1994

10. Russian Administrative Offences Code of 2001

Agreements, MoUs, Recommendations

11. Agreement between the Government of the United States of America and the Commission

of the European Communities regarding the application of their competition laws

12. OECD Revised Recommendation of the Council Concerning Cooperation Between Member

Countries on Anticompetitive Practices Affecting International Trade of 1995

13. Memorandum of Understanding on Cooperation between the FAS and the Commission Di-

rectorate for Competition of 2011

14. Memorandum of Understanding on Antimonopoly Cooperation between the FAS and the

FTC and the DOJ of 2009

15. Agreement of CIS countries on coordination of antimonopoly policy of 2000

16. Agreement on uniform principles and rules of competition within the Common Economic

Space of Russia, Kazakhstan and Belarus of 2011

Cases

17. Brown Shoe Co. v. United States

38 of 39

18. United States v. Oracle Corp.

19. United States v. Aluminum Co. of America et al.

20. Case 89/85, Åhlströhm v. Commission

21. Boeing/McDonnell Douglas, Case No IV/M.877

22. GE/Honeywell, Case COMP/M.2220

Notes, guidelines

23. Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No

139/2004 on the control of concentrations between undertakings (2008/C 95/01)

24. Commission Notice on the Definition of Relevant Market for the Purposes of Community

Competition Law,

25. EU Horizontal Merger Guidelines of 2004

26. EU Non-Horizontal Merger Guidelines of 2008

27. FAS Guidelines on Analysis of Market Competition of 2010

28. US Horizontal Merger Guidelines of 2010

29. US Non-Horizontal Merger Guidelines of 1984

30. US Commentary on Horizontal Merger Guidelines

39 of 39

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2. J. William Rowley & A. Neil Campbell, Multi-JurisdictionalMerger Review - Is it Time for a

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(1999))

3. Broder, Douglas, U.S. Antitrust Law and Enforcement: A Practice Introduction, p. 35 (Oxford

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