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Legal Studies Research Paper Series

Arbitration of Antitrust Claims in the United States and Europe

Catherine A. Rogers Bocconi University, Institute of Comparative Law (IDC) & LSU Law Center

Niccolò Landi

Attorney, Milan Italy

Research Paper No. 07-01

This paper may be downloaded without charge at :

The Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract=

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Please do not cite or quote without permission.

1

ARBITRATION OF ANTITRUST CLAIMS

IN THE UNITED STATES AND EUROPE

Niccolò Landi† & Catherine A. Rogers‡

Introduction Nation-states have demonstrated a remarkable willingness to cede to the international

arbitration system the judicial authority to enforce their national laws. Today, consistent with this trend, most countries have relinquished antitrust claims to the jurisdiction of arbitrators. These private arbitrators may not necessarily be trained in a particular nation’s law, and they are not necessarily required to apply any particular national law that was not selected by the parties. Perhaps most significantly, unlike the national judges, any substantive errors that arbitrators may make are not generally subject to substantive appellate review.

While the expansion of arbitral competence can be seen as a global trend, it has not been

an entirely uniform trend. The United States was the first country to allow international arbitrators the power to resolve statutory claims that implicate public policy, starting with securities fraud and antitrust claims, but later extending to RICO claims, claims involving patent validity and employment discrimination. In allowing these claims to go to arbitration, the U.S. Supreme Court originally suggested that the public policy interests implicated in antitrust arbitration can be safeguarded during award review, but that dicta has proven largely illusory in practice.

Meanwhile, other countries, particularly those with a civil law tradition in Europe, have

been more circumspect and more circumscribed in allowing arbitration of antitrust claims in the first place, and more active in reviewing awards to ensure adherence with statutory objectives. While there is extensive commentary regarding the risks of allowing arbitration of mandatory claims,1 our focus in this Essay is instead on the narrower issue of the effect that different national approaches to arbitrability and award review have on competing national antitrust policies.

For many disputes, more than one antitrust regime can be applied because the

extraterritorial reach of national antitrust laws of different jurisdictions overlap in international

† LL.M. (Commercial Law—2001), University College Dublin, Ireland. Mr. Landi is an attorney

specializing in international arbitration and dispute resolution at the Santa Maria Law Firm in Milan, Italy. We would like to thank Federico Ghezzi and Marco Ventoruzzo for their thoughtful suggestions.

‡ Richard C. Cadwallader Professor of Law, Paul M. Hebert Law Center, Louisiana State University, Baton Rouge, Louisiana; Assistant Professor of Law, Università Bocconi, Milan, Italy.

1 Philip J. McConnaughay, The Risks and Virtues of Lawlessness: A "Second Look" at International

Commercial Arbitration, 93 NW. U. L. REV. 453, 462 (1999); Stephen J. Ware, Default Rules from Mandatory

Rules: Privatizing Law Through Arbitration, 83 MINN. L. REV. 703, 744-45 (1999).

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transactions.2 Our thesis is that, when faced with a conflict of laws question about the application of European versus American antitrust law, arbitrators will be inclined to systematically prefer European law since they know that failure to do so is more likely to result in an unenforceable award. The effects of this preference may not be enormous given noted convergences between U.S. and EU antitrust law, and it is likely be mollified in practice by skilled arbitrators who can often craft an award that is valid under both legal regimes. But there are some important areas in which U.S. and European antitrust laws produce different outcomes.

Empirical evidence suggests that a majority of international contracts contain arbitration

clauses. If we are correct that arbitrators will be more likely to apply European law when confronted with irreconcilable substantive differences, it is possible that European antitrust law could become the de facto law governing certain categories of international transactions that are routinely subject to international arbitration. Conversely, U.S. antitrust law may be systematically disfavored and ignored in arbitrated disputes arising out of these transactions. This Article will explore this hypothesis in three parts.3 The first Part will examine the differences between U.S. and European law regarding the arbitrability of antitrust claims and the review by national courts of awards implicating antitrust issues. The second Part will outline some of the areas of remaining conflict between U.S. and European antitrust law that are likely to arise in international commercial disputes. One particularly important area of conflict is with regard to licensing agreements involving intellectual property. Finally, in Part III, we will consider the choices arbitrators face in deciding which antitrust regime to apply and what the consequences of those choices might be.

I. Differing National Approaches to Allowing and Reviewing Arbitrated Antitrust

Claims

Today, after years of prolonged and world-wide debate, antitrust claims are widely regarded as arbitrable, meaning that arbitrators have the jurisdictional competence to adjudicate issues of antitrust. Historically, in the United States and elsewhere, courts would not enforce of contractual arbitration clauses covering antitrust disputes, even if the parties had specifically agreed to arbitrate this kind of matters.4 In this section, we review briefly the relatively recent shift toward allowing arbitration of mandatory law claims such as antitrust, and the standards by which courts of the different systems will review awards involving such claims

A. Arbitrability of Antitrust Claims

In the United States, the initial reluctance to permit arbitration of antitrust claims was most famously expressed in the Second Circuit’s decision in American Safety Equip. Corp. v. J.

2 See infra Section IIIA. 3 Ultimately, this is only a hypothesis, the accuracy of which can only be verified through empirical testing.

What we provide is an analysis of the legal preconditions that make this hypothesis plausible. 4 The doctrine in question is based on the premise that the public interest in antitrust enforcement, the

complexity of the antitrust laws, and the inadequacy of arbitral tribunals make arbitration of private antitrust claims inappropriate.

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P. Maguire & Co.5 When the U.S. Supreme Court took up the issue some years later in the seminal case Mitsubishi Motors v. Soler Chrysler-Plymouth,6 it explicitly rejected the American

Safety approach and instead affirmed that arbitrating antitrust claims would not violate the U.S. public policy.7 The Court reasoned that permitting arbitration of antitrust claims had no substantive effect, but was essentially a change in venue.8 In support of this reasoning, the Court expressed “a strong belief in the efficacy of arbitral procedures for the resolution of

international commercial disputes.” Some scholars have accepted this notion that permitting arbitration of antitrust claims represents fundamentally a shift in venue,9 while others have questioned the accuracy of this characterization.10

The Mitsubishi decision left the question open whether domestic antitrust claims could be arbitrated.11 One year later, however, the Court confirmed the rejection of the American Safety

doctrine and discarded the distinction between domestic and international transactions with respect to arbitration of §10(b) of the Securities Exchange Act of 1934, and Federal Civil

5 This theory was created in the case American Safety Equip. Corp. v. J. P. Maguire & Co., 391 F.2d 821,

825 (2d Cir. 1968). In this case, the Court of Appeal for the Second Circuit affirmed that the rights conferred by U.S. antitrust laws were ‘of a character inappropriate for enforcement by arbitration’. This view was reaffirmed in the following cases: Cobb v. Lewis, 488 F.2d 41 (5th Cir. 1974); Applied Digital Technology, Inc. v. Continental

Casualty Co., 576 F. 2d 116 (7th Cir. 1978); Helfenbein v. International Industries Inc., 438 F. 2d 1068 (8th Cir. 1971); Power Replacements, Inc. v. Air Preheater Co., 426 F. 2d 980 (9th Cir. 1970); A. & E. Plastik Pak Co. v. Monsanto Co., 396 F. 2d 710 (9th Cir. 1968); Lake Communications, Inc. v. ICC Corp. (9th Cir. 1984) 73 F.2d 1473, at p. 1479.

6 Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 105 S. Ct. 3346 (1985). For extended commentary on the Mitsubishi decision, see Landi, N., ‘Arbitrability of antitrust claims’ [2005] 9 Vindobona

Journal of International Law and Commercial Arbitration (2), at p. 314; Von Zumbusch, L., ‘Arbitrability of antitrust claims under U.S., German and EEC law: the international transaction criterion an public policy’ (1987) Texas International Law Journal, 291; Von Meheren, R. B., From Vynio’s Case to Mitsubishi: The Future of Arbitration and Public Law, 12 BROOKLYN J. INT’L L., 173 (1986); W.J. Fox, Mitsubishi v. Soler and Its Impact on

International Commercial Arbitration, ___ J. OF WORLD TRADE LAW 579 (1985); Robert, J., Une date dans

l’extension de l’arbitrage international: l’arrête Mitsubishi c. Soler, ___ REV. ARB. 173 (1986) 7 In the case at hand, the parties entered into a sales agreement containing an arbitration clause. That clause

provided for arbitration of all controversies arising out of the agreement in accordance with the rules of the Japan Commercial Arbitration Association. When disputes arose among the parties, Soler resisted the arbitration of its antitrust claims on the basis of the American Safety doctrine.

8 Specifically, the Court reasoned that “by agreeing to arbitrate a statutory claim, a party does not forgo

the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial

forum.” 9 For example, Professor James R. Atwood refers to arbitration simply as “a new avenue by which private

parties could seek to resolve international antitrust disputes under U.S. law without having to employ the heavy

machinery of the federal judiciary.” J.R. Atwood, The Arbitration of International Antitrust Disputes: A Status

Report and Suggestions, FORDHAM CORP. L. INST. 385 (1994) 10 See Stephen J. Ware, Default Rules from Mandatory Rules: Privatizing Law Through Arbitration, 83

MINN. L. REV. 703, 725 nn.101 & 103 (1999) (reasoning that the Supreme Court’s insistence that arbitration is not a waiver of substantive rights “is simply wrong”).

11 Some lower courts readily extended the Mitsubishi holding to the domestic context. See Genna v. Lady

Foot International Inc., 1986-2 Trade Cas. (CCH) 76,317 (E.D. Pa. 1986).

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Racketeer Influenced and Corrupt Organizations Act (RICO) claims.12 In another few years, the Court formally extended the reasoning of Mitsubishi to antitrust claims in purely domestic disputes,13 although several lower courts had already ventured in this direction.14

In Europe, steps to allow arbitration of antitrust claims were taken later and apparently with greater reluctance. At the EU level, the Court of Justice (ECJ) has never directly held that claims implicating EU competition law are arbitrable. The ECJ indirectly took up the question in Eco Swiss China Time Ltd. v. Benetton International NV.,15 where it suggested the possibility that disputes concerning antitrust claims may be resolved by means of arbitration. Despite the fact that the ECJ did not expressly affirm the arbitrability of competition claims, the vast majority of the commentators regard the Eco Swiss as inferring that the Court considers them as arbitrable in principle, even if EC competition law implicates public policy.16 In fact, with

12 Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987). McMahon has unequivocally

extended to domestic arbitration the arguments adopted for international arbitration. In Kowalski v. Chicago Tribune

Co., 854 F.2d 168, 173 (7th Cir. 1988), the Court of Appeals for the Seventh Circuit made clear that: ‘it seems

unlikely after McMahon that the principle of Mitsubishi can be confined to international transactions’. On the arbitrability of RICO claims, see Genesco, Inc. v. T Kakiuchi & Co., 815 F.2d 840, 853 (2d Cir. 1987); Syscomm

Int’l Corp. v. Synoptics Comms., Inc., 856 F. Supp. 135 (E.D.N.Y. 1994); Western Int’l Media Corp. v. Johnson, 754 F. Supp. 871, 873-874 (S.D. Fla. 1991). See also Matsushita Elec. Indus. Co. v. Epstein, 116 S. Ct. 873, 883 (1996), in which the Supreme Court stated: ‘As [McMahon] demonstrates, a statute conferring exclusive federal

jurisdiction for a certain class of claims does not necessarily require resolution of those claims in federal court’. 13 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). 14 GKG Caribe, Inc. v. Nokia-Mobira, Inc., 725 F.Supp. 109, 110-13 (D.P.R. 1989); Gemco Latinoamerica,

Inc. v. Seiko Time Corp., 671 F.Supp. 972, 979 (S.D.N.Y. 1987); Many other district courts have reached similar conclusions: Hough v. Merrill Lynch, 757 F.Supp. 283, 286 (S.D.N.Y.), 946 F.2d 883 (2d Cir.1991); Western

Intern. Media Corp. v. Johnson, 754 F.Supp. 871 (S.D.Fla. 1991) and Cindy’s Candle Co., Inc. v. WNS, Inc., 714 F.Supp. 973, 978-79 (N.D.Ill. 1989). See also Smokey Greenhaw Cotton Co., Inc. v. Merrill Lynch, Pierce, Fenner

and Smith, Inc., 785 F. 2d 1274, 1282 (5th Cir. 1986), where it was held that “although Mitsubishi arose in an

international antitrust dispute and its holding purports to be limited to that context, we believe that its broad

language may carry significance for domestic disputes as well.” 15 Judgment of the ECJ of 1 June 1999, Eco Swiss China Time Ltd. v. Benetton International NV., case C-

126/97, European Court Reports 1999, at p. I-3055. The summary reads as follows:

Where domestic rules of procedure require a national court to grant an application for

annulment of an arbitration award where such an application is founded on failure to observe

national rules of public policy, it must also grant such an application where it is founded on

failure to comply with the prohibition laid down in Article 85 of the Treaty (now Article 81 EC).

That provision constitutes a fundamental provision which is essential for the accomplishment of

the tasks entrusted to the Community and, in particular, for the functioning of the internal market.

Also, Community law requires that questions concerning the interpretation of the prohibition laid

down in Article 85 should be open to examination by national courts when they are asked to

determine the validity of an arbitration award and that it should be possible for those questions to

be referred, if necessary, to the Court of Justice for a preliminary ruling. 16 Luciana Laudisa, Gli arbitri e il diritto comunitario della concorrenza, __ RIV. ARB. 592 (2000) (“the

decision of the Court of Justice of the European Communities implicitly states that the EC antitrust claims are

arbitrable”). Commentators Richard C. Levin and Gregory P. Laird, ‘International Arbitration of Antitrust Claims’ (May 2003) Metropolitan Corporate Counsel, at p. 10, consider that: ‘[…] many leading commentators believe that

it is generally accepted in the case law of many Member States, and implicit in their laws on arbitration, that

arbitrators have the competence to apply EC competition law if it is relevant to the issue before them’. According to Komninos, ‘After all, EC competition law is arbitrable, although there are many public law aspects in it’

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respect to the nature of Article 81 of the EC Treaty, the Court made clear that this provision may be “regarded as a matter of public policy within the meaning of the New York Convention.”17 With respect to arbitrability, the position of the European Commission is less clear. Although it has refrained from taking any steps to encourage the arbitration of EC competition law disputes, in the past it has not excluded the possibility to arbitrate such disputes.18

In Italy, most scholars agree with the decisions of the U.S. courts and with the prevailing interpretation of Eco Swiss.19 Accordingly, Professor Luigi Radicati di Brozolo considers that these decisions establishing the arbitrability of antitrust disputes can also be applied to Italian

law. In this respect the crucial problem concerns the arbitrability of the cases governed by the

Law no. 287/1990…. The answer [to this problem] should be absolutely positive.”20 Similarly, Professor Aldo Berlinguer affirms that the opinion in favor of the arbitrability of antitrust claims “can be considered definitively imposed with respect to both international and national

arbitration.”21

In elaborating the underlying reasoning, Professor Francesca Caporale reasons that:

competition law as such cannot be excluded from the range of disputes which may

be decided by arbitral tribunals….[T]he denial of the arbitrability of antitrust

claims based on the argument of the mandatory nature of competition law is

groundless; the fact that the rules which deal with competition, in most cases, are

(Komninos, A. P., ‘Case C-126/97, Eco Swiss China Time Ltd. v. Benetton International NV., judgment of the Court of 1 June 1999’, Common Market Law Review, April 2000, at p. 469). See also Slot, P. J., ‘The enforcement of EC Competition Law in Arbitral Proceeding’ (1996) 1 L.I.E.I. 101, at p. 102; D’Alessandro, E., ‘Processo arbitrale e diritto comunitario’ (2000) Giust. civ., at p. 1903; Giardina, A., ‘Rispetto del diritto comunitario della concorrenza e regole nazionali concernenti il principio dispositivo e l’effetto di cosa giudicata dei lodi parziali non impugnati’ (1999) Riv. arb., at p. 307, who is absolutely in favour of the arbitrability of the EC competition law.

17 Eco Swiss, supra note 15, para 39. See the New York Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

18 See the Commission Decision of 12 July 1989 (89/467/EEC) relating to a proceeding pursuant to Article 85 of the EEC Treaty (IV/30.566 - UIP), Official Journal of the European Communities L 226, 3 August 1989, at p. 25. The Decision, however, is no longer in force. In UIP, a case concerning agreements concluded between three American companies for the distribution of feature films in the European Union, the European Commission expressly imposed on the parties the duty to arbitrate any dispute which could arise with an exhibitor regarding the distribution of its products in those Member States. For a complete analysis of the position of the European Commission on the arbitrability of antitrust claims under EU law, see Van Bael, I. & Bellis, J.F., Competition Law

of the European Community, 2005, The Hague, Kluwer Law International, at p. 1195. 19 See Bastianon, S., ‘Il decentramento del diritto comunitario della concorrenza e l’arbitrabilità delle

controversie antitrust’ (2004) Danno e responsabilità, at p. 353. The same Author, ‘L’arbitrabilità delle controversie antitrust tra diritto nazionale e diritto comunitario’ (1999) Foro it., at p. 472, has pointed out that ‘it is a fact that in

the practice very often arbitration has been used to decide antitrust claims, even if awards of this kind have never

been published’. See also Punzi, C., Disegno sistematico dell’arbitrato, 2000, Padua, at p. 267. 20 Radicati di Brozolo, L. G., ‘Arbitrato, diritto della concorrenza, diritto comunitario e regole di procedura

nazionali’ (1999) Riv. arb., at p. 673 (translation by N. Landi). 21 Berlinguer, A., La compromettibilità per arbitri (1999), Studio di diritto italiano e comparato, Vol. I, La

nozione di compromettibilità, Turin, at p. 86 (translation by N. Landi).

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mandatory in nature is not sufficient to deny the arbitrability of disputes which

have to be decided applying these rules.22

This opinion has been gradually accepted also by Italian courts. The first significant decision was rendered by the Court of Appeal of Bologna, which reversed the decision of the Tribunal of Bologna.23 The Court of Appeal recognized the validity of an arbitration clause of a contract concerning a non-competition agreement, finding that competition claims arising out of the agreement were arbitrable.24

Finally, in 1996, the Corte di Cassazione took up the issue in case no. 7733,25 where it held that controversies concerning the freedom of private enterprises, as recognized by the Italian Constitution (Article 41.1), including antitrust matters, are arbitrable in principle.26 Even if decision no. 7733 seemed to address only the issue of the applicable law before the entry into force of the Law No. 287 of 10 October 1990 (the Italian Antitrust Act), some commentators regard it as an important precedent, affirming that the approach of the Corte di Cassazione could also be applied in disputes involving the Italian Antitrust Act.27 This view was confirmed in 1999, when the Tribunal of Milan cited case no. 7733 as the leading precedent and applied the Corte di Cassazione’s reasoning.28 In particular, the Tribunal stated that:

Articles 806 and 808 [of the Italian Code of Civil Procedure] … do not

exclude the admissibility of a ritual arbitration with respect to a dispute

concerning the validity of a contract violating EC competition law.29

22 Caporale, F., ‘L’arbitrato e il diritto antitrust: verso un’estensione della competenza arbitrale’ (1993) Riv.

comm. int., at p. 727. Papa Malatesta considers as arbitrable disputes between private litigants who argue their cases based upon competition law rules; he underlines, however, that disputes between companies and the antitrust authorities applying competition law rules to reach their decisions are not arbitrable (Papa Malatesta, A., ‘Arbitrabilità delle controversie antitrust’ (2000) Dir. fall., at p. 1008).

23 Judgment of the Tribunal of Bologna of 18 July 1987 (1988) Riv. dir. int. priv. e proc., at p. 740. In this case, the Tribunal held that ‘a dispute which concerns the validity of a non competition clause is not arbitrable […] as in this ground the freedom of the parties is limited by provisions based on public policy’.

24 Judgment of the Court of Appeal of Bologna of 11 October 1990 (1993) Riv. arb., at p. 77. 25 Judgment of the Supreme Court no. 7733 of 1 August 1996 (1997) Giust. civ., at p. 1373. 26 The Corte di Cassazione’s made clear that: As far as the fundamental principles are concerned, the

freedom of private enterprise provided for by the Constitution, … which includes also the freedom of competition

among enterprises, is a right that can be waived as it is the expression of the principles of the freedom of choice and

of the exercise of economic activities of any private individual. 27 The Corte di Cassazione seemed to confirm this opinion (i.e. that Article 806 of the Italian Code of Civil

Procedure does not apply to antitrust claims) in its judgment of 17 September 1997, n. 9251, (1998) Danno e

responsabilità, at p. 375. On this point, see Tavassi, M., and Scuffi, M., Diritto processuale antitrust, 1998, Milan, at p. 227.

28 Judgment of the Tribunal of Milan of 18 March 1999 (1999) Giur. dir. ind., at p. 1025. 29 It has to be remembered that in Italy there are two types of arbitrations: the ritual and the non-ritual

arbitration. On this issue, see Consolo, C., and Marinelli, M., ‘La Cassazione e il duplice volto dell’arbitrato in Italia: l’exequatur come unico discrimine tra i due tipi di arbitrato?’ (2003) Corriere giuridico, at p. 678; Ricci, E. F., ‘La natura dell’arbitrato rituale e del relativo lodo: parlano le sezioni unite’ (2001) Riv. dir. proc., at p. 259.

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The most recent decision on this matter is the judgment of the Court of Appeal of Milan of 13 September 2002, Istituto Biochimico, which confirmed these precedents stating that the earlier scepticism about the arbitrability of antitrust claims was completely unjustified.30 The Court of Appeal stated that scholars and tribunals in Italy alike, as influenced by the American experience, now “affirm the possibility to have antitrust disputes decided by a ritual arbitration.” In defining what the term “antitrust dispute” means, the Court of Appeal made clear that this should include “any controversies arising between private parties about the validity of an

agreement pursuant to Article 81 of the Treaty or pursuant to Article 2 of the Italian Antitrust

Act.” In one final decision affirming this trend, the Court of Appeal, referring to the Corte di

Cassazione’s decision no. 7733 and to Eco Swiss, stated that “disputes involving Italian or EC

antitrust law may be decided through arbitration: and, in this respect, under Italian law, there is

no difference between national or foreign arbitrators.”

Other European countries followed similar patterns. In Switzerland, for example, the arbitrability of antitrust claims has been affirmed in 1992 by a Swiss Federal Tribunal, which stated that

[n]either Article 85 of the Treaty [now 81] nor its implementing Regulation no 17

[replaced by Regulation 1/2003 from 1 May 2004] prevent the national courts or

arbitrators to examine the validity of an agreement which concerns the settlement

of accounts between the parties with regard to the execution or non execution of

this agreement. 31

Only one year later, in France, the Paris Court of Appeal similarly found that “arbitrators may

apply EC competition law provisions and, where appropriate, draw the consequences of a

wrongful conduct.”32 Employing similar reasoning courts in Sweden in 200333 and England in

30 Istituto Biochimico Italiano v. Madaus AG, judgement of the Court of Appeal of Milan of 13 September 2002 (2003) Dir. ind., at p. 346. See Salvaneschi, L., ‘Sull’arbitrabilità delle controversie in material antitrust’ (2003) Corriere giuridico, at p. 1628 and Radicati di Brozolo, L. G., ‘Arbitrato e diritto della concorrenza: il problema risolto e le questioni aperte’ (2004) Riv. arb., at p. 9.

31 Tribunal Fédéral, April 28, 1992 [1992] A.S.A. Bull. at p. 368. The judgment has recently been reaffirmed by the same court in a decision of 13 November 1998 [1999] A.S.A. Bull. at pp. 529 and 455. See also Bernardini, P., ‘Concorrenza e arbitrato’, Riv. arb. (1997), at p. 434. The French version reads as follows: « Ni l’art.

85 du Traité ni son règlement d’application n. 17n’interdisent au juge national ou à l’arbitre saisi d’une cause

ayant pour objet le règlement de comptes qui doit intervenir entre parties en relation avec l’exécution ou

l’inexécution d’une convention d’en examiner la validité ». 32 Société Aplix v. Société Velcro, Appel Paris, 14 October 1993 [1994] Rev. Arb. 165. See also the

judgment in the Ganz case, Appel Paris, 29 March 1991 [1991] Rev. Arb. 478. The French version reads as follows:

les arbitres peuvent en conséquence appliquer les règles du droit communautaire de la

concurrence et, les cas échéant, sanctionner leur connaissance en tirant les conséquences civiles

d’un comportement qu’ils jugent illicite.

Dirland Télécom SA v. Viking Telecom AB, decision T 4366-02 of the Court of Appeal for Western Sweden of 29 December 2003. According to commentator Gordon Blanke:

It is arguable that the Court of Appeal for Western Sweden has effectively recognized the

arbitrability of EC law (including by analogy that of EC competition law more specifically) and

will continue to do so in future Swedish arbitral proceedings.

Blanke, G., Case comment on the Dirland Télécom case, [2005] E.C.L.R. issue 8, at p. 434.

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2005 have affirmed the arbitrability of antitrust claims. 34 Some ICC arbitral tribunals have reached the same conclusion, including case no. 7673/1993, where the arbitrators reasoned:

There are no reasons why an Arbitral Tribunal should not have the same

authority as ordinary courts to decide over the consequences of an alleged abuse

of a dominant position.… The tribunal is in the matter of competition law

therefore in the same position when dealing with a claim based on Article 86

[now 82] as it is when facing a claim which involves Article 85 [now 81] of the

Treaty of Rome.35

Based on these precedents, it is now generally recognized throughout Europe that EU and domestic antitrust claims are arbitrable in the same way U.S. antitrust claims are arbitrable.

B. Review of the Arbitration Award

Although current consensus is that antitrust claims are now arbitrable, arbitrators’ decisions on such claims are still subject to scrutiny by national courts, although the degree of scrutiny remains unclear and uneven. Under the New York Convention, arbitral awards involving arbitrable claims are generally reviewable only either for gross procedural violations, or if award enforcement “would be contrary to the public policy of that country.”36 Courts in both Europe and the United States have indicated that this provision could be invoked in reviewing awards involving antitrust claims, although there are important differences in nature of the inquiries proposed by each system and the apparent determination of courts in each system to conduct such inquiry.

1. Award Review in Europe

In Europe, the ECJ has made clear that arbitrators are required to apply the relevant provisions of Community law,37 including the EC competition rules provided in Articles 81 and 82 of the Treaty of Rome. In Eco Swiss, the ECJ explained that these provisions constitute public policy that is directly applicable in all Member States, and national courts therefore have

34 ET Plus SA v. Jean-Paul Welter & The Channel Tunnel Group Ltd [2005] EWHC 2115 (Comm.). See

Friedman, R. and Sinclair, R., ‘Staying claims’, Solicitors Journal, March 2006, available at www.solicitorsjournal.com. Specifically, the Commercial Division of the English High Court stated:

There is no realistic doubt that such competition or antitrust claims are arbitrable; the matter is whether

they come within the scope of the arbitration clause, as a matter of its true construction.” 35 ICC case n. 7673/1993, (1997) Riv. arb., at p. 431. See also the ICC cases nos. 6106 and 7097 as

mentioned by Rubino-Sammartano, M., Il diritto dell’arbitrato, 2006, Padua, Cedam, at p. 243. 36 Many scholars argue that the phrase “public policy of that country” in the New York Convention on the

Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958 encompasses international public policy. See Van den Berg, A. J., The New York Arbitration Convention, Deventer, 1984, 360. In the EU, according to the ECJ in Eco Swiss, this expression encompasses also the EC antitrust law. See Bove, M., ‘Il riconoscimento del lodo straniero tra Convenzione di New York e codice di procedura civile’, (2006) Riv. arb., at p. 30. Similarly, in Switzerland, the Tribunal Fédéral, in its judgment of 14 December 1998, affirmed that public policy « doit

s’entendre comme une notion universelle et non comme une notion purement nationale. Il vise uniquement à

sanctionner la violation des principes de droits fondamentaux et des valeurs de base ethiques, qui sont reconnues

dans tous les Etats civilisés ». See this decision in (2000) Riv. arb., at p. 141. 37 Judgment of the ECJ of 23 March 1982, Nordsee, case C-102/81, European Court Reports 1982, at p.

1095.

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an obligation to enforce them.38 Specifically, the ECJ held that national courts may need to review the arbitrators’ analysis of claims based on mandatory European Union law, and that that review “may be more or less extensive depending on the circumstances.39 The ECJ further explained that:

[a] national court to which application is made for annulment of an arbitration

award must grant that application if it considers that the award in question is in

fact contrary to Article 85 [of the EC Treaty – now Article 81], where its domestic

rules of procedure require it to grant an application for annulment founded on

failure to observe national rules of public policy.40

Importantly, while the ECJ in Eco Swiss seemed to admonish national courts to review arbitral awards implicating EU competition rules, it did not provide any meaningful guidance about how the nature and intensity of the review process should be carried out. It only affirmed that:

It is in the interest of efficient arbitration proceedings that review of arbitration

awards should be limited in scope and that annulment of or refusal to recognise

an award should be possible only in exceptional circumstances.41

The ECJ confined its analysis to a ruling that ordinary courts and tribunals must ascertain whether it is necessary for them to make a reference to the Court under Article 234 of the Treaty, in order to obtain an interpretation or assessment of the validity of provisions of Community law which they may need to apply when reviewing an arbitration award.42 The need for national court review was supported by Advocate General Saggio, who argued that “courts which may be

called upon to determine whether arbitration awards are compatible with rules of law must be

allowed to carry out an effective review of the award in question.”43

38 See Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on

competition laid down in Articles 81 and 82 of the Treaty, Official Journal L 1, 4 January 2003, 1–2. See also, judgment of the Court of 20 September 2001, case C-453/99, Courage Ltd v Bernard Crehan and Bernard Crehan v

Courage Ltd and Others, Official Journal C 317, 10 November 2001, p. 4, paras. 23-24; and Judgment of the Court of 8 June 2000 in Case C-258/98: criminal proceedings against Giovanni Carra and Others, Official Journal C 273 , 23 September 2000, p. 1, para 11.

39 Eco Swiss, supra note 15, para 32. 40 Eco Swiss, supra note 15, para 41. In his Opinion, delivered on 25 February 1999, European Court

reports 1999, at p. I-3055, the Advocate General Saggio, making reference to the Almelo case, see infra, pointed out that ‘a court of a Member State to which an appeal against an arbitration award is made pursuant to national law

must, even where it gives judgment having regard to fairness, observe the rules of Community law, in particular

those relating to competition’ (para 31 of the Opinion). See, judgment of the Court of 27 April 1994, Municipality of

Almelo and others v NV Energiebedrijf Ijsselmij, case C-393/92, European Court reports 1994, at p. I-1477, para 23. 41 Eco Swiss, supra note 15, para 48. 42 Eco Swiss, supra note 15, para 33. On the interpretation of Article 234 CE, see judgment of the Court of

23 March 1982, Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co.

KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG, case 102/81, European Court reports

1982, at p. 1095 and judgment of the Court of 27 January 2005, Guy Denuit and Betty Cordenier v Transorient -

Mosaïque Voyages and Culture SA, case C-125/04, European Court reports 2005, at p. I-923. 43 Eco Swiss, supra note 15, para 32.

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While there is apparent consensus that national courts must review arbitrator decisions, the standard of review and the level of deference those decisions are entitled to remain open questions. Additional guidance from the ECJ is clearly needed, most obviously to avert the risk that EU national courts would engage in differing standards of review in evaluating arbitral awards that implicate EC competition law. This potential for fragmentation would be contrary to the principle of legal certainty which is inherent in the EC legal order and could potentially generate unnecessary uncertainty about award enforceability in EU states.

In Italy, pursuant to Article 839(2) of the Italian Code of Civil Procedure, the President of the Court of Appeal of the territory of the party against whom the award may be enforced is the authority in charge for the recognition and enforcement of foreign awards. In performing this function, the President of the Court of Appeal can only verify the formal validity of the award without revising the substance of the decision in furtherance of the so-called “pro-enforcement

bias” of the New York Convention.44 In other words, the President of the Court of Appeal should ascertain the identity of the parties, the existence prima facie of the award and of the arbitration agreement, without examining the validity or the enforceability of the award.45 In practice, this analysis is directed to ensure that the document under scrutiny is an award duly signed by the parties, in accordance with Article I of the New York Convention.

The President of the Court of Appeal may refuse ex officio the recognition and enforcement of a foreign award only if it concerns an issue which is not arbitrable or if it is contrary to public policy. With respect to public policy, Article 839(2) of the Italian Code of Civil Procedure does not make any specific reference, as in the New York Convention, to the public policy of the country in which the recognition and enforcement is sought. Thus, it is reasonable to infer that with this different wording by the Italian Legislator is intended to make clear that the grounds for refusal may be based also on international public policy and not only on national public policy.46 This approach is consistent with the view of commentators Alan Redfern and Martin Hunter:

Courts in other countries [such as Switzerland and Germany] have also

recognized that, in applying their own public policy to Convention awards, they

should give it an international and not a domestic dimension.47

Given that, as stated by the ECJ in Eco Swiss, EC competition law is considered a matter of public policy within the meaning of the New York Convention, it follows that the President of the Court of Appeal may refuse recognition and enforcement of a foreign award when it is

44 See Nitti, D., Il riconoscimento e l’esecuzione dei lodi stranieri, CONTRATTO E IMPRESA / EUROPA, 106

(2005). 45 See the Corte di Cassazione’s judgment of 28 October 1993, no. 10704, (1995) Foro It., I, 942. 46 For a definition of International public policy under Italian law, see the judgment of the Corte di

Cassazione of 6 December 2002, no. 17349, [2003] For. Pad., 62 and the judgment of the Corte di Cassazione of 8 January 1981, no. 189, [1981] Foro. it., I, 1052. Among legal writers, see Ballarino, T., Manuale breve di diritto

internazionale privato, [2002], Padua, 80. 47 Redfern, A. and Hunter M., Law and Practice of International Commercial Arbitration, London, 2004,

458.

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contrary to EC competition law. In reaching this conclusion, the judge enjoys a wide discretion but its examination of the award cannot be considered as an exhaustive review of the substance of the case.48

By contrast, a comprehensive review over how arbitrators have applied and interpreted EC competition law becomes possible only if the decision of the President of the Court of Appeal is challenged before the Court of Appeal by one of the parties, pursuant to Article 840 of the Italian Code of Civil Procedure. In that context, the Court of Appeal will carry out an exhaustive review of the substance of the case and may use its discretion to refer a question concerning EC competition law to the ECJ for a preliminary ruling.

With regard to the discretion the national judge enjoys in deciding when an award is contrary to public policy, the Swiss Tribunal Fédéral has pointed out that the judge must examine not only the operative part of the award but also the grounds on which the decision is based. The Italian Corte di Cassazione does not share this view as it considers that only the

operative part of the award must be analyzed by the judge.49 In a similar vein, the Paris Court of Appeal on several occasions has stated that a national judge’s control has to take into consideration all the relevant facts and points of law necessary for the review of the compatibility of the award with the public policy.50

Based on these precedents, it is clear that courts in Europe will engage in a substantive control function when reviewing awards that implicate European competition law. Even though the extent of that review remains subject to question, and the nature of the review is complicated by procedural variations among the different systems, it is also clear that the review will be more rigorous than what occurs in the United States.

3. Award Review in the U.S.

In holding that antitrust claims were arbitrable, the Supreme Court presumed that American courts could ensure that U.S. public policy interests were protected by taking a “Second Look” at the award enforcement stage. Specifically, the Court reasoned: “Having permitted the arbitration to go forward, the national courts of the United States will have the opportunity at the award-enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed.”51 Such a review would entail a termination of whether U.S. antitrust claims were “not adjudicated properly or fairly by private international arbitrators.”52 While this may have been the same reasoning that induced European courts to permit arbitration of competition claims and that inspires their review of resulting

48 Tribunal Fédéral, judgment of 5 November 1991, (1993) ASA Bull., 9. See also the judgment of the

Milan Corte d’Appello of 21 December 2001, (2001) Giur. Dir. Int., 1067; and the judgment of the Genoa Corte d’Appello of 3 February 1990, (1990) Foro pad., 179.

49 See, ex multis, Corte di Cassazione, judgment of 8 April 2004, no. 6947. 50 See, ex plurimis, the Paris Court of Appeal’s judgment of 30 September 1993, European Gas Tubina,

(1994) Rev. Arb., 359). 51 Mitsubishi, 473 U.S. at 638. 52 See id.

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awards, in the U.S., substantive award review has never materialized. As many scholars argue, the Second Look doctrine is “[t]he Court’s ‘second look’ has not yet occurred.”53 In interpreting and applying Mitsubishi, however, courts have been generally willing to defer antitrust decisionmaking to arbitrators, but have also set some limits. For example, in Simula v. Autoliv,54 the Ninth Circuit court of appeal recognized that even if international arbitrators do not apply U.S. law, foreign law was an acceptable substitute for U.S. antitrust law unless “the law of the transferee court is so deficient that the plaintiffs would be deprived of any

reasonable recourse.” This and other cases make clear that in permitting arbitration of antitrust claims, U.S. courts were not simply entrusting enforcement of U.S. antitrust law to arbitrators, but permitting arbitral adjudication of U.S. antitrust law to remain virtually free from any substantive review.55 II. The Convergence of Global Antitrust Law and Remaining Divergences

As numerous scholars and regulators have observed, interaction and cooperation between

the United States and the European Union have produced a high level of convergence between their respective antitrust regimes.56 Important differences remain, however, including several that can be implicated in arbitration proceedings. In this section, we outline some of the primary substantive differences that have been identified, as well as some procedural and policy differences that may suggest additional potential for divergence in individual cases.

A. Vertical Restrictions

Remaining substantive differences between EU and U.S. regulation are most evident and

most problematic in the context of vertical restraints.57 In the United States, since the seminal

53 Susan L. Karamanian, The Road to the Tribunal an d Beyond: International Commercial Arbitration

and United States Courts, 34 GEO. WASH. INT'L L. REV. 17 (referring to the “elusive ‘Second Look’” doctrine that “courts have yet to engage in”); Travis Newport, Tortious Interference with International Contracts, 9 Current Int'l Trade L. J. 80, 84 (2000) ("As of yet, the Supreme Court's second look has not materialized.").

54 175 F.3d 716 (9th Cir. 1999). 55 Some courts have held that class action waivers in arbitration clauses are not enforceable because they

would prevent plaintiffs from vindicating their statutory antitrust rights. See Martba Kristian v. COMCAST Corp., 446 F.3d 25 (1st Cir. 2006). Since consumer class actions are not yet implicated in the international context, these cases are not considered in this article.

56 See Federico Ghezzi, Verso un diritto antitrust comune? Il processo di convergenza delle discipline statunitense e comunitaria in materia di intese, REVISTA DELLA SOCIETÀ 499-595 (2002). Sarah M. Biggers et al., Intellectual Property and Antitrust: A Comparison of Evolution in the European Union and United States, 22 HASTINGS INT'L & COMP. L. REV. 209, 215 (1999) (observing the “unprecedented level of international cooperation between enforcement agencies, particularly those in the EU and the United States” such that “there currently exists a greater degree of convergence … than ever before”); Margaret Bloom, The U.S. And EU Move Towards Substantial

Antitrust Convergence On Consumer Welfare Based Enforcement, 19-SUM ANTITRUST 18 (2005) (“Despite different histories, cultures, legal systems, and statutes, and notwithstanding occasional differences, the United States and Europe have largely converged toward consumer welfare based antitrust enforcement.”).

57 William M. Hannay, Necessity of an Antitrust Compliance Program, CORP. COMPL. SERIES: ANTITRUST § 1:48 (2005) (“One of the most problematic differences between the two competition regimes for U.S.

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case of Continental T.V. v. GTE Sylvania,58 non-price vertical restrictions are evaluated according to the rule of reason, with the net effect that only agreements that are likely to have “genuine adverse effects on competition” are prohibited. The Court moved from passive tolerance of such agreements to active endorsement of them only a few years later in Monsanto

Co. v. Spray-Right Service Co.,59 where it stated that manufacturers have “a right to deal, or refuse to deal, with whomever [they] like[] as long as [they] do so independently.”60 Under these precedents, restraints are prohibited only if they are “likely to harm interbrand competition” and the resulting harm “outweighs any procompetitive benefits.”61 To evaluate the harm to competition, courts examine various factors, including “the defendant’s market share and entry barriers, and the likelihood that rivals can find alternative means to reach the downstream market.”62 In Europe, similar vertical agreements are regarded with considerably more skepticism. This difference would not be obvious from a review of the relevant texts of the two systems, which seem facially similar. Under Article 81(1) of the Treaty of Rome, if an agreement is determined to have as its “object or effect, the prevention, restriction or distortion of competition within the common market,” a firm can still avoid running afoul of the law by showing under Article 81(3) that the agreement delivers, and is indispensable for delivering, efficiency gains, a fair share of which are passed on to consumers and which do not eliminate competition.63 While this approach appears to be a similar to the U.S. test regarding the competitive effects of an agreement, in practice, many scholars have argued that the tests instead differed significantly. According to EU Economist Vincent Verouden, in practice the Commission historically has “tended to equate a ‘restriction of competition’ with a restriction on the economic freedom of the companies concluding the agreement or of third parties.”64 With the EU Guidelines and Block Exemption for Vertical Restraints, these differences and EU analysis of vertical restrains is considered much closer to the U.S. economics-based rule of reason.65 Notwithstanding these developments, however, “European competition law… still condemns many more vertical manufacturers wishing to market their products in Europe is the EU's approach to vertical territorial restraints[, which] are judged more strictly in the EU because of their tendency to impede community-wide market integration.”).

58 433 U.S. 36 (1977). 59 465 U.S. 752 (1984). 60 See id. at 706-61. 61 James C. Cooper, et al., A Comparative Study of Untied States and European Union Approaches to

Vertical Policy, 13 GEO. MASON L. REV. 289, 295 (2005). 62 Id. at 296. 63 Bloom, note 56. 64 See Vincent Verouden, Vertical Agreements and Article 81(1) EC: The Evolving Role of Economic

Analysis, 71 ANTITRUST L.J. 525, 528 (2003) (arguing that “it appears that the Courts do not see the role of economic analysis as balancing the pro- and anticompetitive effects of the agreement to determine the net effect on competition, but rather as verifying the existence of possible anticompetitive effects”). Even if his position is as an economist for the EU, Mr. Verouden’s analysis is proffered as his own opinion.

65 Bloom, supra note 56, at 19 (“The more economics-and-effects-based approach was first reflected in the EU Guidelines and Block Exemption for Vertical Restraints.”).

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agreements than does US antitrust law.”66

To the extent discrepancies remain in treatment of vertical agreements, those discrepancies are more pronounced when they involve dominant firms. In the United States, vertical restrains are only prohibited if there is a proven link between “the monopolists’ actions and its market power.”67 Even in that situation, a monopolist can escape antitrust liability by demonstrating that its actions have a pro-competitive benefit for consumers. As a result of these precedents, exclusive dealing agreements are “ubiquitous” in the U.S. economy.68 In Europe, by contrast, the BER introduced a market share threshold of 30 percent, below which agreements are generally deemed legal. While this has been hailed as a welcome development in the move toward convergence, it has also highlighted that agreements implicating market shares above 30 percent are treated quite differently in the two systems. In addition, the regulation for the BER explicitly excludes dominant firms from exemption under Article 81(3). As a result, Article 81 appears to prohibit dominant firms from entering into vertical agreements that restrict the behavior of the contracting parties and Article 82 acts as a further specific deterrent to dominant firms. All together, for dominant firms and “for agreements with a market share over 30 percent, there is a perception that the risk of finding illegality is greater in the European Union than in the United States.”69

B. Licensing Agreements and Vertical Competition

The remaining differences regarding vertical restraints are even more pronounced in the context of intellectual property licensing agreements. In the U.S., licensing arrangements can raise antitrust concerns if they harm competition that would have occurred in their absence. The type of competitive harm the U.S Guidelines are trying to protect against is, for example, an exclusive dealing requirement in a license that eliminates competition between substitute technologies or forecloses markets.70 While the EU Regulation and Guidelines similarly address competition that would have occurred in the absence of the license, they also pertain to intra-technology competition, meaning the potentially anti-competitive effects of the license itself. European competition rules reach issues of intra-technology competition by distinguishing between reciprocal and non-reciprocal licensing by competitors, with an underlying assumption that reciprocal agreements are more likely to harm competition that would have occurred in the absence of the license. In addition, U.S. and EU approaches to exclusivity provisions in licensing arrangements may differ in that EU regulations require an “objective justification” if the agreement surpasses

66 See Cooper, supra note 61, at 289. 67 See Cooper, supra note 61, at 297. 68 See id.

69 Bloom, supra note 56, at 19 70 Richard J. Gilbert, Converging Doctrines? U.S. and EU Antitrust Policy for the Licensing of Intellectual

Property, 19-FALL ANTITRUST 51, 52 (2004).

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prescribed market share thresholds.71 While EU regulations suggest that intervention in such agreements will be “only in exceptional circumstances,” it remains uncertain what showing must be made to satisfy the “objective justification” requirement.72 In light of these differences, most scholars conclude that EU competition law “is still likely to subject a greater number of [licensing] agreements to condemnation than would US antitrust law.”73

C. Policy and Methodological Difference

Ultimately, the substantive differences are not surprising because, as commentators have noted, “[c]ompetition law represents an area of extreme sensitivity to national regulatory goals, market power, and political strategy.” The differences in policy between the U.S. and the EU have been extensively discussed by scholars, but in sum, it is fair to say that in the EU “competition policy … ensur[es] that private companies do not erect private barriers to trade” 74 while “U. S. antitrust law, in contrast, tends to elevate consumer welfare as the ultimate goal of competition regulation.”75

EU market integration concerns are so strong, some commentators “even speak about a ‘quasi droit acquis’ or ‘inalienable right’ of consumers or their agents to purchase wherever they want in the European Union.”76 The policies underlying U.S. and EU approaches help explain some of the remaining differences and perhaps suggest that complete convergence may not be either a proximate or an absolute possibility. One area where convergence seems particularly improbable is with regard to territorial restrictions in vertical agreements, which are generally permitted in the U.S., but are treated as essentially per se

violations under the EU’s new BER.77 Because it illustrates such a stark remaining divergence, it provides a useful example for illustrating the conflict of laws issues. Other remaining differences are more nuanced because they result from the different methodologies used in applying the respective laws. Thus, even though in recent years European courts have moved beyond a historical focus on the restrictive elements of agreements and have more actively sought to evaluate the actual or potential economic analysis under a rule-of-reason style analysis, according to some commentators, they still do not “engage in a full competition-

71 Makan Delrahim, The Long and Winding Road: Convergence in the Application of Antitrust to

Intellectual Property, 13 GEO. MASON L. REV. 259, 266-67 (2005). 72 See id.

73 Id. at 299. 74 Charles W. Smitherman III, The Future Of Global Competition Governance: Lessons from the

Transatlantic, 19 AM. U. INT'L L. REV. 769 (2004). 75 Charles W. Smitherman III, The Future Of Global Competition Governance: Lessons from the

Transatlantic, 19 AM. U. INT'L L. REV. 769 (2004). 76 Verouden, supra note 64, at 530. 77 Cooper, supra note 61, at 299 (“[T]he BER explicitly spells out several categories of so-called ‘hard

core’ distribution restrictions that essentially are per se illegal, including indirect minimum resale price maintenance, some territorial and customer restrictions, restrictions to sell only to end-users imposed on retailers in a selective distribution system, restrictions on cross supplies within a selective distribution system, and restrictions on component suppliers to sell the components they produce to independent repairers or service providers.”)

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based analysis that assesses an agreement’s net impact on competition and prices.”78 Critics argue that the EU relies on an “incomplete analysis of competition in the sense that, when examining whether or not an agreement restricts competition, the Court does not consider the economic context in order to determine the net effect on competition, but rather considers it only to verify the existence of possible anticompetitive effects.”79 This may well be because EU competition includes among its policy objectives goals that are beyond such economic analysis.

D. Structural Differences

In addition to the substantive differences described above, there are important methodological, procedural and remedial differences between U.S. and EU antitrust law. One of the most obvious differences is that enforcement in the United States is effectuated predominantly though private lawsuits. Private litigation, through the so-called on the so-called “private attorney general,” plays a fundamental role in enforcement of U.S. antitrust laws, accounting for an estimated eighty-five percent of all enforcement.80 The “private attorney general” defies a single definition,81 but it is generally used to refer to when litigation seeks to obtain not only compensation for an alleged wrong, but also to vindicate important public interests.82 To that end, since its inception U.S. antitrust law has provided for a private cause of action and, later, for structural incentives for private individuals to invoke them, such as punitive damages and fee-shifting provisions to reward successful plaintiffs.83 Legislative efforts to encourage private prosecution of public interests are aided by several background procedural features of the U.S. judicial system. Plaintiffs can aggregate their claims in class actions, be represented by attorneys in a contingency fee arrangement, argue their cases to presumably sympathetic juries and pursue broad-based discovery, without which many antitrust claims would not be viable. In Europe, by contrast, enforcement has focused on pubic enforcement by the European Commission. Recently, however, there has been a decided shift in Brussels to “supplement the

78 Verouden, supra note 64, at 564 79 See id at 563-64 80 See Hannah L. Buxbaum, The Private Attorney General in a Global Age: Public Interests in Private

International Antitrust Litigation, 26 YALE J. INT’L L. 219 (2001) (estimating that 85% of all antitrust enforcement is through private litigation and arbitration).

81 See Bryant Garth, Ilene H. Nagel& S. Jay Plager, The Institution of the Private Attorney General:

Perspectives from an Empirical Study of Class Action Litigation, 61 S. Cal. L. Rev. 353 (1988); Jeremy A. Rabkin, The Secret Life of the Private Attorney General, 61 LAW & CONTEMP. PROBS. 194-95 (1998); William B. Rubenstein, On What a “Private Attorney General” Is—And Why It Matters, 57 VAND. L. REV. 2129 (2004).

82 Buxbaum, supra note 80, at 222. 83 See id. at 223. In the United States, unlike most other countries, the general rule is that each party pays

their own legal costs, unless Congress expressly provides otherwise. Alyeska Pipeline Service Co. v. The Wilderness

Society, 421 U.S. 95 (1975). Fee-shifting provisions in private attorney general contexts also differ from the so-called “loser pays” rule that prevails in Europe because they are one-sided—only a successful plaintiff can recover fees.

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European Union’s enforcement tool kit” with private enforcement actions.84 To that end, the European Union introduced several reforms, which came into effect 1 May 2004, to promote private litigation in Member States’ courts.85 Even with these reforms, however, private litigation is unlikely to rise to the same level it occupies in the U.S. because of the absence of or limitations on procedural incentives. There are no class actions, and the innovative new representative actions that have been introduced in the UK and Germany they remain underutilized. Moreover, punitive damages are not available, contingency fees are generally prohibited and a plaintiff who loses will have to pay not only its own attorneys’ fees, but also those of the prevailing company. Meanwhile the risk of losing is greater because the rules are newer and less certain, even under 234 of the Treaty, national courts can refer questions to the Court in order to obtain an interpretation or assessment of the validity of provisions of Community law.86 Probabilities for success may also be reduced by the more limited availability of procedures for gathering relevant proofs. For example, whistleblower reports to the European Commission, a potentially valuable source of information about alleged abuses, can be made orally specifically for the purpose of avoiding their discovery in private antitrust proceedings.87 For all these reasons, after an extensive research, the Commission recently concluded that “the picture that emerges from the present study on damages actions for breach of competition law in the enlarged EU is on of astonishing diversity and total underdevelopment.”88 For as significant as these structural differences are in the context of national courts, some aspects matter less in the international arbitration context. The structural differences described above are most pronounced in the context of consumer-initiated antitrust class actions. Even in the U.S., the prospect of such an antitrust class action arbitration is still new and relatively uncertain. Moreover, they are even more unlikely to exceed the domestic context, in large part because so-called “shrink-wrap” arbitration clauses are not permitted in Europe.89 As a result, class actions and contingency fees matter less because they are most often employed in cases involving consumers. The types of antitrust claims in international arbitration are more likely to be those that involve challenges to specific agreements, such as distribution or licensing

84 Johan Ysewyn, Private Enforcement of Competition Law in the EU: Trials and Tribulations, 19 SPG

INT’L L. PRACTICUM 14 (2006). 85 See id. 86 Eco Swiss, supra note 15, para 33. See, judgment of the Court of 23 March 1982, Nordsee Deutsche

Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG and Reederei Friedrich Busse

Hochseefischerei Nordstern AG & Co. KG, case 102/81, European Court reports 1982, at p. 1095 and judgment of the Court of 27 January 2005, Guy Denuit and Betty Cordenier v Transorient - Mosaïque Voyages and Culture SA, case C-125/04, European Court reports 2005, at p. I-923.

87 See id.

88 executive summary entitled "Study on the conditions of claims for damages in case of infringement of EC competition rules," prepared by D. Waelbroeck, D. Slater & G. Even-Shoshan, and accessible through the Web site icon labeled “Comparative report” found at http:// europa.eu.int/comm/competition/antitrust/others/private_enforcement/index_ en.html (quoted in Ysewyn, supra note 84, at n.33).

89 Under the EU’s Unfair Terms Directive, arbitration clauses are generally prohibited in consumer contracts unless they have been individually negotiated. See Council Directive 93/13/EEC, Unfair Terms in Consumer Contracts, 1993 O.J. (L 95) 29.

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agreements, where the two parties are relatively well-matched sophisticated companies capable of financing litigation regarding their agreement. As a result, for all the differences, the remaining divergences that matter most in international arbitration are the substantive differences in treatment of vertical restraints and licensing agreements, and potentially the treble damages remedy that is available under U.S. antitrust law. These divergences can raise difficult choice of law problems that arbitrators will be forced to resolve.

III. Applicable Law and Arbitrator Choices

Given the differences, the outcome of an individual case may depend on whether an arbitral tribunal applies U.S. or EU antitrust law. In this Part, we consider the various factors arbitrators must consider in determining which law to apply.

A. Extraterritoriality and National Courts

Both the United States and the EU “vigorously” enforce their antitrust laws outside their territorial boundaries.90 Courts in these systems have announced substantially similar tests for when their respective antitrust laws extend to overseas conduct,91 and they have also similarly curtailed the role of comity in curbing judicial findings of extraterritorial jurisdiction.92 The result is that, “the United States and European Union effectively have concurrent antitrust jurisdiction over global markets.”93 Despite the co-extensive assertion of antitrust jurisdiction by the U.S. and European Union, when the national courts of either system are seized with a case involving global markets,

90 See Joseph P. Griffin, Extraterritoriality in U.S. and EU Antitrust Enforcement, 67 ANTITRUST L.J. 159,

159 (1999). 91 In the United States, antitrust law can be applied extraterritorially whenever the activity in question is

intended and does cause a “substantial effect” in the United States. In the EU, there is some debate about the degree to which the articulated standard of “implementation" is the same as the U.S. effects test. While some commentators have suggested that “implementation” suggests a requirement suggests to me that implementing conduct perhaps has to be direct, substantial, and foreseeable for jurisdiction to be engaged.

92 While this analysis would otherwise be tempered by comity-based interest balancing, in Harford Fire

Insurance Co. v. California, 509 U.S. 764 (1993), the Supreme Court limited any comity-based analysis to those exceptionally narrow situations in which there is a “true conflict” such that “compliance with United States law would constitute a violation of another country’s law.” See id. at 798-99 (Souter, J.) & 819 (Scalia, J., dissenting) (citations omitted). In the EU, Community competition rules apply whenever an “appreciable” anticompetitive effect, whether direct or indirect, is felt within the Common Market. See Griffin, supra note 90, at 173 (citing Société Technique Minière v. Maschinenbau Ulm GmbH, Case 56/65, 1966 E.C.R. 235, 248, 5 C.M.L.R. 357, 375 (1966); Cooperatieve Stremsel-en Kleurselfabriek v. Commission, Case 61/80, 1981 E.C.R. 851, 867; Völk v. Vervaecke, Case 5/69, 1969 E.C.R. 295, 302, [1969] C.M.L.R. 273, 282 (1969), Common Mkt. Rep. (CCH) ¶ 8074). The European Court of Justice appears to have adopted the Commission’s position that comity is not a legal prerequisite to the exercise of jurisdiction, but only a consideration within prosecutorial discretion. See Griffin, supra note 90, at 177.

93 Einer Elhauge, Why Above-Cost Price Cuts To Drive Out Entrants Are Not Predatory - And The

Implications For Defining Costs And Market Power, 112 YALE L.J. 681 (2003). As Professor Elhauge reasons, “[i]f U.S. antitrust law does not prohibit above-cost predatory pricing and EU law does, then on global markets it is the European doctrine that trumps.” Id. at 697-98.

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they inevitably apply their own system’s laws. This decision does not simply reflect a callous disregard of the interests of a foreign system, but a general reluctance of the national courts of one system to apply the public law of a foreign system.94 The effect of the doctrine is that national courts do not engage in conflict of laws analysis for these public claims,95 but instead evaluate only whether the extraterritoriality reach of their law extends to the relevant conduct. The interests of foreign nations are given some consideration in this process, but under U.S. law only when there is a direct conflict with U.S. law. In the EU, the Commission may still consider U.S. law in exercising its prosecutorial discretion, but courts later in the process generally don’t. To the extent that foreign interests are considered to be significant, they would most likely result in a U.S. court abstaining, or in the Commission refraining from prosecuting under EU law.

In addition to structural avoidance of foreign antitrust law, some European countries have also thrown up intentional impediments to U.S. exercise of extraterritorial jurisdiction in U.S. courts. Offended by aggressive assertions of its extraterritorial reach, and further incensed by the extensive discovery and punitive damages in U.S. antitrust actions, several European countries have passed “Blocking Statutes.”96 These statutes prohibit, under the threat of civil or criminal sanctions, cooperation with U.S. authorities or with U.S. courts. Thus, while aggressive assertions of extraterritorial jurisdiction necessarily implies that more than one antitrust regime will apply to most international transactions, judicial implementation necessarily involves an intentional discounting (or even blocking) of related assertions by other countries.

B. Conflict of Laws and Arbitration

Arbitrating international antitrust claims resolves some of the problems inherent in

national court adjudication, but it also presents unique challenges for arbitrators that national courts don’t face. Because jurisdiction in arbitration is consensual and the arbitrator is a private individual, antitrust claims in that context do not implicate issues of comity or provoke the insults to sovereignty that have inspired blocking statutes.97 Replacing these problems, however, are difficult and complex conflict of laws questions about what antitrust regime should be applied.

A conventional assumption may be that the parties’ choice of law determines which

94 Philip J McConnaughy, Reviving the “Public Law Taboo” in International Conflict of Laws, 35 STAN J

INT'L L 255 (1999); William S Dodge, Extraterritoraility and Conflict-of-Laws Theory: An Argument for Judicial

Unilateralism, 39 HARV INT'L L.J. 101 (____). 95 Horatia Muir Watt, Choice of Law in Integrated and Interconnected Markets: A Matter of Political

Economy, vol 7.3 ELECTRONIC JOURNAL OF COMPARATIVE LAW, (September 2003), <http://www.ejcl.org/ejcl/73/art73-4.html>

96 Griffin, supra note 90, at 160-61 (“Aggressive assertions of U.S. antitrust jurisdiction in the 1950s, ' 60s, and '70s led to a considerable backlash from foreign governments, which took the form of the enactment of "blocking" statutes, diplomatic protests, and counter actions by foreign courts.”) (footnotes omitted).

97 In permitting arbitration of antitrust claims, the U.S. Supreme Court specifically identified that arbitration is neutral and that arbitrators “owe[] no prior allegiance to the legal norms of particular states not beholden to any nation's laws.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 636 (1985).

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antitrust regime applies to a particular transaction.98 Indeed, there is some risk that “departure from the parties’ choice of law will increase the risk of award vacatur at the situs on the basis of excess of arbitral authority.”99 But the nature of mandatory law claims, meaning claims involving laws that are non-derrogable and implicate national public policy, are not regarded by national system as subject to choice of law agreements.100 This was certainly the implication of the Supreme Court’s analysis in Mitsubishi, where the Court implicitly assumed that the choice of Swiss law did not preclude the arbitrators from applying U.S. antitrust law. As a result, the current consensus is that arbitrators are not only able to choose between application of U.S. and EU law, but they must choose between them. Notwithstanding the mandatory nature of antitrust laws and the ability of arbitrators to choose between the competing systems, many scholars argue that arbitrators are unlikely to apply any antitrust law whatsoever. Advocates of this view contend that arbitration is a form of dispute resolution that is not designed or suited to vindicating mandatory public law claims,101 and arbitrators have a systemic incentive to not apply mandatory laws, such as antitrust rules.102 In permitting arbitration of antitrust claims, the U.S. and EU have rejected the former argument, often times concluding expressly that specialized arbitrators may be in a better position to analyze the technical and economic claims than courts. The threat of heightened substantive review of awards seems to acknowledge the potential relevance of the latter concern. The argument that arbitrators have a structural disincentive to apply antitrust law has been most forcefully advanced by Law-and-Economics scholars who reason that parties agree to arbitrate for the specific purpose of avoiding mandatory national laws and that, for this reason,

98 See, e.g., Mohammad Reza Baniassadi, Do Mandatory Rules of Public Law Limit Choice of Law in

International Commercial Arbitration, 10 INT’L TAX & BUS. Law 59, 74-75 (1992) (noting that “parties specifically exclude the application of mandatory rules of public law of the place of performance of the contract by an exclusive choice of law clause”).

99 William W. Park, The Specificity of International Arbitration: The Case for FAA Reform, 36 VAND. J. TRANSNAT'L L. 1241 (2003).

100 Ludwig Von Zumbusch, Arbitrability of Antitrust Claims Under U.S., German and EEC Law: The

“International Transaction” Criterion and Public Policy, ___ TEXAS INT’T L.J. 291, 321 (1987) (arguing that these laws cannot be contracted around or waived because “the scope of their application is determined by the laws themselves”

101 See John R. Allison, Arbitration Agreements and Antitrust Claims: The Need for Enhanced

Accommodations of Conflicting Public Policies, 64 N.C. L. REV. 219, 224 (1986). This argument has also been advanced by some commentators, who point out that expert arbitrators may be substantively superior to lay juries. See Dora Marta Gruner, Accounting for the Public Interest in International Arbitration: The Need for Procedural

and Structural Reform, 41 COLUM. J. TRANSNAT’L L. 923, 944 (2003). Still there remain detractors who contend that arbitation downplays public interests because

102 Philip J. McConnaughay, The Risks and Virtues of Lawlessness: A “Second Look” at International

Commercial Arbitration, 93 NW. U. L. REV. 453 (1999) (arguing that international arbitral awards “are far less likely than public judicial decisions to effectuate the purposes of the mandatory laws”); Buxbaum, supra note 80, at 245 (“The goal of arbitrators is to resolve the dispute presented in a manner responsive to the interests of the parties. Unlike judges, arbitrators need not, and generally should not, consider broader public interests as well.”). But see

Leo Kanowitz, Alternative Dispute Resolution and the Public Interest: The Arbitration Experience, 38 HASTINGS

L.J. 239, 256 (1987) (“Despite its perceived shortcomings, arbitration is capable of serving many important interests, both public and private.”).

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arbitrators have incentives to disregard national law so that they are more likely to be selected by parties.103 Both of the underlying assumptions that drive this hypothesis are subject to serious doubt. On the other hand, instead of seeking to develop reputations for refusing to apply mandatory national laws, arbitrators seem intent on building reputations for adhering to it.104 On the other hand, within the arbitration community, it is well accepted that arbitrators are required to apply the mandatory rules of the law selected by the parties and there is no evidence to suggest that they routinely fail to and, to protect the integrity of their own work product, arbitrators can and often do apply “foreign mandatory law.”105

Foreign mandatory law is applied through a range of what might be considered specialized arbitral conflict-of-law rules. The most common justification employed is that its application is necessary if failure to do so could interfere with the enforceability of the final award.106 There are also other, less widely accepted theories under which international arbitrators have supplemented or disregarded parties’ choice of law, most notably when foreign mandatory law would have affected performance of the contract had the parties had not contracted around it. According to most arbitration experts, in addition to accommodating national mandatory rules, “[t]here is no doubt that arbitrators are entitled to disregard the provisions of governing law chosen by the parties where they consider provisions to be contrary to international public policy.” 107 This exception is usually reserved to issues like bribery and money laundering, but with the globalization of antitrust norms, they may rise to that level as well.108 This view is actually supported by the language of the European Court of Justice in the Eco Swiss case, which framed its holding as a matter of international public policy, not simply EU public policy. Scholars have argued that the courts’ holdings in the Mitsubishi case and

103 Andrew T. Guzman, Arbitrator Liability: Reconciling Arbitration and Mandatory Rules, 49 DUKE L.J.

1279, 1292 (2000). 104 Eric A. Posner, Arbitration and the Harmonization of International Commercial Law: A Defense of

Mitsubishi, 39 VA. J. INT’L L. 647, 668 (1999) ("The evidence suggests that international arbitrators are deeply concerned about their reputation for respecting mandatory rules.").

105 See Daniel Hochstrasser, Choice of Law and “Foreign” Mandatory Rules in International Arbitration, 11 J. INT’L ARB. 57, 81 (1994). “Foreign mandatory law” refers to mandatory law of a jurisdiction other than that selected by the parties.

106 Homayoon Arfazadeh, In the Shadow of the Unruly Horse: International Arbitration and the Public

Policy Exception, 13 AM. REV. INT’L ARB. 43 (“In practice… international arbitrators often feel constrained to apply the domestic public policy rule of the country whose courts can effectively review, quash and vacate the final award under the ‘second look’ doctrine, regardless of its ‘application worthiness.’”); Yves Derains, Public Policy and the

Law Applicable to the Dispute in International Arbitration, in COMPARATIVE ARBITRATION PRACTICE AND PUBLIC

OF POLICY IN ARBITRATION (Pieter Sanders, ed., 1987) (suggesting that arbitrators must keep an eye toward the mandatory law of the like enforcement jurisdiction or jurisdictions to ensure that their award is enforceable); William W. Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International

Arbitration, 63 TUL. L. REV. 647, 649 (1989) (same). 107 See FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL COMMERCIAL ARBITRATION ¶ 1533, p. 860

(Emmanuel Gaillard & John Savage, eds. 1999). 108 Jan Dalhuisen, The Arbitrability of Competition Issues, 11 ARB. INT'L 151 (1995) (“It may also in other

instances and it would appear that there are also mandatory transnational competition rules operating that may void contracts directly in that order.”).

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Société Labinal v. Sociétés Mors et Westland Aerospace (the French case regarding arbitrability of EU competition law), similarly treat competition as international public policy.109

Recognizing the ability of arbitrators to venture outside of the parties’ choice of law to

apply foreign antitrust law does not determine, however, which legal regime they should apply when both U.S. and EU antitrust law purport to apply. Consider the simple example of a California manufacturer granted to a Spanish importer and exclusive distributorship that permitted resale in Spain and Portugal, but not to exports to Italy or France.110 If in defending against a claim of breach, the Spanish importer alleged that the agreement involved an impermissible restraint of competition, and counter-claimed with an affirmative antitrust claim, it is an open question what law the arbitrators would apply. If the parties had selected California law to govern their agreement, the arbitrators would be bound to apply California contract law, but they would not necessarily be bound to apply U.S. antitrust law. While parties are free to contract around national private laws, such as contract and tort, according to national law, they are not similarly free to contract around national mandatory laws. Both U.S. and European antitrust law purport to apply to this transaction, but recall that vertical restraints involving territorial restrictions are generally permitted under U.S. antitrust law, but treated virtually as a per se violation under EU law. The outcome of the case will depend on which law the arbitrator applies.

As noted above, to ensure enforceability, the arbitrator may attempt to choose the law of

the place where enforcement is likely, but this strategy does not provide an easy solution. It is not simply a matter of deciding where the award would be enforced, because where the award would be enforced would likely depend on which party wins, which in turn depends on which law is applied. The award would likely be enforced in the United States if the U.S. party lost, which would be the likely result if European law were to apply so that there the antitrust violation provides a defense against the breach of contract. As described above, American courts would most likely enforce the award despite application of European law. On the other hand, an award in favor of the California party would only occur if American antitrust law were applied, and in that case the award would more likely be enforced in Europe, where the Spanish party has assets. As this example illustrates, is not always an easy or straightforward proposition for an arbitrator, particularly at the beginning of the proceedings, Moreover, the question of where the award is likely to be enforced may be tied up with the question of which law is applied.

In this and other similar scenarios, instead of working backward from an analysis of

where the award is likely to be enforced, and arbitrator might simply systematically prefer European antitrust law and apply it across the board. The result might be that in those types of agreements involving the areas of continued substantive divergence between the systems, European antitrust law may become the de facto the governing law. Moreover, to the extent that

109 Thomas E. Carbonneau, Cartesian Logic and Frontier Politics: French and American Concepts of

Aribtrability, 2 TUL. J. INT’L & COMP. L. 193 (1994) (”Given the breadth of the holdings, international public policy includes not only competition law, but also every other type of economic regulation including tax, currency, and customs.”).

110 This hypothetical is borrowed from Andreas Lowenfeld’s thoughtful piece Lowenfeld, Transatlantic

Business Transactions: Some Questions for the Lawyers, 26 HOUST. J. INT’L L. 251 (2004).

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such defenses are regularly accompanied by affirmative claims, international arbitration may be a context in which private European antitrust claims experience a genuine vitality that so far has not been realized in the national courts of Europe. IV. Conclusion

Permitting arbitration of antitrust claims on the basis that potential errors or omissions can be caught during award enforcement is an imperfect solution. On the one hand, the ability to review is couched in terms of “public policy,” but it unclear at what level public policy will be violated by an award that vitiates from some hypothetical optimal result that may have been attained through judicial adjudication. U.S. courts originally framed the issue as whether U.S. antitrust law was “fairly and properly” applied, but in practice there has been no such inquiry and some courts have suggested that the only requirement is that the plaintiff have “reasonable recourse.” European courts shown greater determination in actually engaging in a substantive review of awards, but this approach comes with its own problems. Most concretely, the ability of national courts to safeguard public policy in enforcement proceedings depends entirely on where award enforcement is sought.111 If the arbitration does not occur in Europe and enforcement proceedings are elsewhere, European courts will not have this opportunity. However, whenever enforcement is even possible, arbitrators will have an incentive to apply EU competition law instead of U.S. law to avoid the prospect of an unenforceable award.

111 Park, supra note 99 (“In an international context, assets outside the United States may be available to

enforce awards, obviating any need for the assistance of American courts.”)

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