This summary was compiled by RIETI Editorial staff.

Damien Geradin

Increasingly, nations have antitrust rules, and the process of globalization has some significant implications with regards to antitrust law. It is having a significant impact on global companies. Enforcement agencies are getting tougher on certain practices. While United States antitrust law and the European Commission competition law tend to converge when it comes to substantive rules, there are very significant differences regarding the enforcement of these rules.

U.S. antitrust law is enforced approximately 90% through actions, and perhaps 10% through Federal Trade Commission (FTC) and Department of Justice (DOJ) proceedings. This 10%, for the most part, concerns the enforcement of laws on mergers and cartels. In the European Union, about 90% of the enforcement is done through public intervention by the Directorate General for Competition (DG Competition) or the national competition authorities. This situation is evolving rapidly. One area where we may get progressively closer to the U.S. regards criminal enforcement. Most enforcement is done by public agencies, which can only impose fines. Already in the United Kingdom and Ireland, individuals can be subject to criminal investigation and criminal penalties. Public agencies would like to stimulate private enforcement for damages. In Europe, various policy papers have been developed to examine the extent to which one could stimulate private actions. Already there are several countries where these actions are taking place. While enforcement structures are different, within the next 10 years there will probably be an evolution in the EU toward more private litigation.

Regarding Section 1 of Article 81 of the Treaty Establishing the European Community ("the Treaty"), which deals with restrictive practices, the focus is on the more common and more problematic horizontal agreements. In these legal systems one must draw a distinction between agreements which are per se illegal. Besides this are a number of agreements that hold both anti- and pro-competitive features. These agreements typically will be examined under a rule of reason, or in the European system the so-called Article 81(3) of the Treaty, which seeks to balance the pro- and the anti-competitive effects of a practice to determine whether the practice should be admitted. Agreements that may restrict competition but also provide benefits are various forms of joint ventures, research and development corporation agreements, standardization corporation agreements, etc.

Cartels are subject to per se prohibition in both the U.S. and the EU. Competition law is taking an increasingly severe approach to cartels. In the U.S., criminal prosecution is becoming tougher on not only U.S. executives, but also foreign executives. The U.S. DOJ is increasingly active in seeking extradition of foreign executives. Also, an active leniency program in the U.S. has generated a lot of applications.

In the EU there has been a significant increase in the amount of fines. There have recently been new guidelines put into effect for calculation of fines. Following the logic of these guidelines, in the near future fines could be as much as 3–4 billion euros. The leniency program in Europe has been so successful that it has created problems for itself. Able to process perhaps eight cases a year, with about 100 cases pending before DG Competition, there is already a backlog of cartel cases. The tougher fines imposed by DG Competition could put the leniency program into jeopardy. Facing a fine of 1–2 billion euros may make some businesses reluctant to go to the European Commission. More significant with cartels is the risk that the company may be subject to follow-on actions before national courts. In the U.S., once caught in a cartel, one may be subject to class action suits; Europe may move in that direction.

Regarding abuse of dominance, while there are differences between the two legal regimes, these differences may be more apparent than real. The two bodies of law may resemble each other much more than we initially thought.

"Abuse of dominance" laws in the U.S. and in the EU have some basic commonalities. To fall under Section 2 of the Sherman Act or Article 82 of the Treaty, firms need to have a degree of market power. The problem comes when there is abuse of market power. In the U.S., Section 2 provides for monopolization as an offense. In the EU, until one has market power, unilateral conduct cannot be a violation of Article 82. In the EU, the market share required by courts for an abuse of dominance lawsuit to be successful is 40%, while in the United States it is 70%.

Monopolization cases are used to catch firms with lower market power or lower market shares. Anti-competitive behavior of firms holding a 40% market share can be caught under both U.S. and Antitrust laws. Another difference that appeared quite significant is that while U.S. law concerned only exclusionary abuses, EU law, on top of exclusionary abuses, includes exploitative abuses. With exploitative abuses, the objective is not to exclude the competitor, but is rather to abuse the customers, typically in the form of excessive pricing.

The first step in cases of abuse of a dominant position is to identify market power. This requires defining the market. The test that is used to define the market is the test of the hypothetical monopolist. Defining dominance, market shares are used as a proxy. Recently, it has been made clear that other factors that may be more significant in defining dominance than market share are: whether or not there are buyers to entry; whether the dominant firm holds essential facilities; whether it has intellectual property rights; whether it has large financial resources; or if the market share has been evolving over time.

The second element is to establish that there has been an abuse of the power. The key issue that has to be determined is whether conduct by a dominant firm is competition on merit, and therefore justified, or abusive, and therefore anti-competitive.

Both the EU and the U.S. tried to come up with tests to distinguish anti-competitive single conduct from pro-competitive conduct, including consumer welfare, limiting production, profit sacrifice, and equally-efficient competitor tests. These tests may be inappropriate as "profit sacrifice" and "equally-efficient competitor" tests have strict limitations.

There is a growing degree of commonality between EU and U.S. antitrust law, but there are differences in the philosophical orientation of the two regimes. U.S. courts traditionally have given great importance to dynamic efficiency and the importance of protecting firms' incentives to invest. European courts and agencies have given more importance to static efficiency or short-term competition. In the EU, the tendency was to analyze things in a very legalistic, formalistic way, looking at the nature of a practice rather than the effects. Now DG Competition is quickly moving toward an economically focused approach where the effects are taken into consideration.

Regarding mergers, a problem for large corporation is that when acquiring other businesses, they have to engage in multi-jurisdictional filings. This is the costly but unavoidable consequence of having an ever-increasing number of jurisdictions with competition laws. Still, most of the battles will take place between the EU and the U.S.

Following a series of defeats of DG Competition at the EU Court of Justice, European authorities have become more careful and much more pragmatic. The losses at the European Court prompted the creation of the office of Chief Competition Economist, which was seen as necessary to improve the economic analysis of the merger decisions.

Regarding substantive tests, the EU is becoming more like the U.S. In the new merger control regulation, the EC decided to adopt the U.S. test: whether or not a merger is likely to substantially lessen competition. In the past, the EU test was whether or not a merger would create or strengthen a dominant position. This test did not permit DG Competition to control unilateral effects. Though the procedures are different, the two largest jurisdictions are now applying the same legal test.

For the past 50 years, efforts have been made to develop international competition rules. These efforts have failed, and it is not expected that global competition rules will develop in the near future. There is, however, a growing convergence between antitrust regimes, as most agencies now speak the common language of economics. Convergence will be further advanced by initiatives such as the International Competition Network (ICN). Many nations with competition rules have also concluded cooperation agreements to facilitate enforcement activities. Economics is taken into consideration as much as the legal aspects, and there is now a greater convergence of international scholars, which affects the way rules are developed and implemented.

Einer R. Elhauge

Worldwide, there are many active antitrust enforcers to whom a firm is subject to regulation if it operates on a global market. While the world will not adopt formal, shared antitrust laws, we are in global regime. Firms that operate internationally are subject to regulation by a diverse set of national regulators.

One concern is discriminatory bias: nations simply discriminating in favor of their exporting producers, and against the consumers from other nations. Both sides explicitly exclude export cartels from the application of their antitrust laws, though they are subject to the harshest penalties for a cartel that affects domestic consumers. Looking at it collectively, it is not discriminatory. While the U.S. is not regulating its export cartels, they are subject to regulation in any jurisdiction that represents the consumers. If there is access to the evidence, and if judgments are enforceable in the other nation, the other nation can act to protect their consumers.

As an overall system, it allows a choice of regulatory system. The system allocates adjudication and effective enforcement to whichever nation is most motivated to protect its consumers. If the nation with jurisdiction over the exporters insists that it should do the adjudication, there can be a conflict of interest. This depends on the ability to share evidence and to enforce judgment. Though there has been no real movement toward uniform, substantive global antitrust rules, we are seeing a lot of cooperation between regimes, through the sharing of evidence and forcing judgments elsewhere. This is important, as without legal options and cooperation, the system will not work.

Another question raised by this global set of antitrust rules is what to do about the fact that we have many importing nations that may all want to take an active role, and the problem is that when you have many independent decision-makers, all trying to make tradeoffs between not over-deterring desirable conduct and under-deterring undesirable conduct, that the most aggressive regulator wins. It could be that the nation that blocks a merger is the most decisive nation. One solution could be divestiture, but in a "global nation," divestiture does not work. We will need a system to decide which nation will take the lead, so that there will not be a situation of global over-enforcement resulting from multiple independent decision-makers. We are groping toward that in negotiations, as groups tend to elect a leader; usually the country whose markets are most affected by the merger. We may need a formal system, perhaps a worldwide committee that allocates jurisdiction in these kinds of cases. Generally, the system can work effectively without going to a global antitrust court, but in order to do so regulators may have to collaborate with one another, rather than compete.

Regarding general standards, while there is much convergence between the U.S. and the EU, the U.S. has tighter standards and is less likely to recognize liability than the EU. That does not necessarily reflect different values, but may reflect the optimal tradeoff, given that the U.S. has more draconian remedies. Those remedies raise more of an over-deterrent concern. In the U.S., an antitrust judge will consider any decision with a view to who may eventually use it to seek damages, and therefore will make the decision narrower, not trusting to later discretionary judgments by a prosecutor. In the EU it makes more sense to have broader standards and to trust the disinterested commissions to rein in where it might lead to undesirable results.

On general standards, there is this choice between per se legality and rule of reason. In the U.S., a point we have tended to underestimate is per se legality for some conduct. In Japan and Canada there seem to be rules of per se legality that apply even to cartels, as long as the market shares are very small. For productive joint ventures, the EU also has block exemptions. This has been influential in the U.S. in the form of many presumptive safe harbors the regulators have adopted. Globally, this diversifies the set of regulatory options. The overarching standard should probably be consumer welfare.

The profit-sacrifice test says that it is illegal to monopolize when the defendant engages in conduct that sacrifices profits in the short run in order to exclude rivals and accrue profits in the long run. But "delayed gratification" is not necessarily wrong. If a firm sacrifices profits to invest in R&D to create an innovative new product, and its desire to do so is so that later on it will drive out all its competitors and reap enough profits to recoup the big investment, then that is desirable. It does not indicate bad behavior, and the absence of a profit sacrifice does not necessarily mean that the conduct is good.

The equally-efficient competitor test is wrong for two reasons: Firstly, for exclusionary conduct, the whole thrust of the complaint is generally that a firm excludes a rival from enough of the market so as to raise the rival's costs and make them less efficient than that firm. Citing the fact that they are less efficient as a defense is ignoring the whole anti-competitive theory that these actions are proceeding under. Secondly, if the competitor is simply inherently less efficient, that does not mean that it is not desirable to restrain market power.

I suggest this test instead. We should we focus on: "Are we increasing market power by actually improving the defendant's efficiency, or by harming the efficiency of the rival?

Hiroshi Ohashi

In recent years, increasing numbers of cross-border cartels and mergers are targeted against Japanese companies. In order to cope with international antitrust issues, cooperation and coordination regarding enforcement are desirable between the Japanese Fair Trade Commission (JFTC) and foreign competition authorities. Such coordinated activities will also help avoid redundant efforts and time spent on investigations, and help reduce paperwork required for companies. To facilitate the coordination, it is necessary for us to understand one another's situations.

The Japanese Antimonopoly Act was instituted 60 years ago during the U.S. occupation, thus many of the provisions resemble the U.S. antitrust law. The Act and associated guidelines have gone through many revisions, and are now increasingly comparable to the U.S. and EU competition policies. These include tougher sanctions, such as criminal penalty and administrative "surcharges" against price fixing and monopolization. Recently, a leniency program was introduced to combat cartels. Two months ago, new merger guidelines were published, in which the use of a Small but Significant and Non-transitory Increase in Price (SSNIP) test and the role of imports were made explicit in the consideration of market definition.

While the Japanese rules have become closer to the U.S. and EU rules, the difference is stark in their enforcement. In Japan, antitrust actions are mostly initiated by the JFTC, with no alternative comparable to the U.S. DOJ. The judicial procedure of the JFTC is as follows: the JFTC issues a "cease and desist" order if it finds that a violation has occurred. This order can be appealed by the firm bringing the case to the JFTC administrative proceedings before an administrative law judge. The judge issues an opinion, the commission reviews, and makes a decision on the validity of the order. Once the claim is found valid, the firm, if necessary, can appeal to the court.

The JFTC is allowed to bring criminal prosecutions. While private actions are possible, and some antitrust violations constitute Criminal Code offenses, these have so far played little role in enforcement. Therefore, these have collectively made the JFTC virtually a jurisdictional monopolist in terms of the enforcement of competition policy in Japan.

Today's emergence of the "flat world" (coined by Thomas Friedman) is forcing antitrust authorities to change the nature of their enforcement. In the global environment, jurisdictional monopoly and regulations that support such a monopolistic position become socially inefficient and costly to maintain. To make efficient and effective global antitrust rules, government agencies around the world must monitor one another to create a competitive environment in the area of law enforcement.

Q: How can we introduce competition, not only in business activities, but also regarding enforcement issues? How can we implement the necessary law enforcement?

Einer R. Elhauge:
We are already in this global regime, and it may simply require a network and agreement of cooperation among the nations. We could formalize it into some more general treaties. I would think that in total there is more and more trust in convergence, which probably, if limited to assuring exchange of evidence and forcing judgments, might make sense. The next step would be to pick particular areas of antitrust law that are uncontroversial. All nations seem equally opposed to cartels, so it is not clear that we could not have some uniform rule about cartels. That might help solve the problem of some global under-enforcement, especially of cartels that harm developing nations, which tend not to have active antitrust agencies, and maybe also solve the problem of leniency programs. Firms are sometimes reluctant to take advantage of a leniency program because it subjects them to cartel enforcement elsewhere; there could perhaps be more coordination on that. It will build in stages. There is the question of whether we want to be at a global level for all rules. It may be that different nations want a slightly different set of antitrust rules, and that the benefits may not exceed the cost of deviating somewhat from individual national preferences. More overriding now is the question of timing. The EU has pressed more for global antitrust rules, and the U.S. has been more reluctant. In the U.S., it is less thinking that this will never make sense, it is more about convergence now and a willingness to wait, as it will be easier to negotiate "to our benefit" when everything is more converged.

Damien Geradin:
What is worrying for global corporations these days is that there are so many rules, and that what may be legal in one jurisdiction may be illegal in another. Also, they will face agencies that proceed in very difficult ways, sometimes influenced by cultural differences. Convergence of rules over transparency and minimal procedural rules might be beneficial and necessary.

Q: China, as a nation, also operates as a business. How do you suggest dealing with this difficult situation?

Einer R. Elhauge:
This is a serious problem. Nations tend to protect their own exporter businesses. As other nations also have interests to protect their own business interests, the solution is to have those other nations act. This will be the decisive step. The nations that take action are the nations whose decisions matter. In this regard, China is going to have to be willing to cooperate regarding the sharing of information and the enforcement of judgments against Chinese firms.

Damien Geradin:
The solution will come with economic development. As China becomes a global actor and finds it necessary to protect their intellectual property rights, they will need mutual cooperation with other nations to protect themselves from potential anticompetitive behavior of businesses in other countries.

Q: Regarding convergence of competition laws, when you talk about the general test for judgment in competition law, is there any convergence between the EU and the U.S.?

Einer R. Elhauge:
This concerns total welfare versus consumer welfare. The answer that the U.S. and the EU have given so far is that consumer welfare is the standard.

Q: Are there any joint efforts made by the courts of the nations or by antitrust judges? Are there any efforts to set up international tribunal courts for international cases?

Damien Geradin:
In the EU, judges are increasingly collaborating, having meetings, sharing thoughts and ideas over the way they implement antitrust rules. There is training going on for upgrading the knowledge of these judges.

Einer R. Elhauge:
We do see some interchange between U.S. judges and European judges, especially on constitutional law. The bigger body of knowledge is probably the international body of scholarship. The scholars' exchange is what is taught in law school, and that is taken from the law schools to the judges and justices.

Q: Talking about formalizing the rules in a general treaty; can this be interpreted as the existence of an international private law, a general set of rules on how to solve these issues? Or is it also more substantial?

Einer R. Elhauge:
The first step would be to have more cooperation rules, nation to nation. In a decade it may proceed to more systematic rules of exchange of evidence and allocation of lead jurisdictions in cases affecting global markets. If it turns out that this is not satisfactory, we may have to move to more substantive antitrust rules, along the lines of the General Agreement on Tariffs and Trade (GATT).

Q: To what extent can evidence presented by the JFTC in a Japanese court be used in the U.S. or in the EU? Can evidence brought together by an ex-plaintiff in a Japanese court be used in the U.S. or the EU?

Einer R. Elhauge:
This is increasingly important. In the U.S., at the discretion of the judge, under Section 1782, information can be requested for use in courts in other countries.

Damien Geradin:
In the EU it depends on several things, including whether information is confidential. One advantage of the U.S. litigation system is that there are extensive discovery rules. Basically, if you make a claim that a competitor has violated competition law, you can request all sorts of documents, including e-mails, correspondence, and account books, whereas it is very difficult to obtain this in other jurisdictions, like in the EU.