Different competition agencies apply different legal standards, procedures and approaches to identifying and redressing perceived antitrust violations. One inescapable consequence of the global proliferation of competition regimes is a much greater risk of conflict, which can take various forms and which are particularly high when an agency applies an “effects” doctrine that allows for the imposition of remedies that necessarily have an effect beyond that jurisdiction’s own borders.
This article, available here, identifies a deficit in the international coordination mechanisms that are available, and proposes an expanded use of traditional comity to ensure that international competition law enforcement produces benefits for consumers while minimising unnecessary and inappropriate interference with the legitimate interests of foreign jurisdictions.
Section I looks at how the difference in the substantive standards applied by different jurisdictions can be a source of potential international conflict.
A key source of tension in international competition law enforcement emanates from differences in the substantive standards applied by different jurisdictions. The authors use as examples the US and the EU, which, despite large areas of agreement, diverge in some important matters such as the evaluation of a dominant or monopolistic position. Under the decisional practice of the United States, with its history of a diversity of competitors and ease of entry in most sectors, there is a presumption of lack of dominance below 50% market share, with courts being unlikely to view a firm with a market share below 70% as a monopolist. Under guidance issued by the European Commission, however—with an eye on Europe’s history of state-sponsored monopolies and higher regulatory barriers for entrants—there is a presumption of dominance for firms with market shares greater than 40%.
This stark difference creates the potential for the European Commission to enforce and impose remedies against companies for a range of conducts that U.S. competition laws view as harmless or even pro-competitive. Furthermore, differences are not limited to instances where different standards of dominance apply. Instead, the US approaches matters such as exclusive purchasing agreements, excessive pricing, minimum resale price maintenance, “margin squeeze” and the “portfolio effects” doctrine in merger cases differently from Europe. These significant substantive differences remain despite an enormous effort by the two jurisdictions to foster cooperation, avoid conflicts, and increase convergence in their substantive rules.
To appreciate fully the risks of international conflict, one must consider the substantive differences between jurisdictions and multiply them by the more than 130 competition law enforcement agencies that are currently active. In an ever-globalizing economy in which most businesses have some transactions or operations that cross borders, enforcement actions that have purely territorial effects may become the exception rather than the rule.
Section II looks at efforts to limit conflicts in enforcement practice.
The authors begin by discussing the role of international organisations that work to promote cooperation and convergence among competition agencies. This includes a rather glowing description of the OECD and the ICN which modesty prevents me from reproducing here – but I would point out that both authors are regular participants in OECD events. In any event, the authors recognise that neither the OECD nor the ICN are able to facilitate case-specific cooperation, or address conflicts or tensions that may arise in specific enforcement situations.
Thus far, agencies have focused mainly on bilateral cooperation as a means of avoiding outright conflicts. Bilateral cooperation agreements, which permit agency-to-agency communication and cooperation, are typically designed to facilitate coordination where both agencies are actively engaged in a common enforcement initiative, such as the review of a merger notified in both jurisdictions or a coordinated investigation of an international cartel.
While there are significant efforts aimed at substantive and procedural convergence of competition law and practice, there are relatively few checks and balances on the extraterritorial effects of enforcement. Neither multilateral nor bilateral agreements are well suited to address situations in which one agency is undertaking an enforcement action that would conflict directly with the interests of a foreign sovereign. This conflict could arise either from a conflicting action taken by the foreign state, or from the foreign state’s decision that the relevant facts do not make out a violation of that state’s substantive competition law standards. Multilateral efforts fail in this regard because the guidance they provide is typically general in nature and these organizations do not seek to address case-specific issues. Bilateral initiatives fail because they are limited in scope and number.
Instead, a principle of general applicability—comity—needs to apply. Without comity as an effective tool to avoid tensions, divergent remedies by different competition agencies are likely to lead to poor enforcement outcomes.
Section III explains the role of comity under US antitrust law.
The presence of more than 130 antitrust regimes around the world, the increasing globalisation of business and the absence of an overriding antitrust regime to adjudicate conflicts between sovereign nations all increase the probabilities of a clash of jurisdictions. This risk is compounded by the effects doctrine, which necessarily entails a competition agency looking at conduct beyond its own borders. In the US, the effects’ doctrine has prevailed since the 1945 Alcoa decision. Alcoa held that the Sherman Act reached agreements entered into and consummated outside the United States by foreign companies “if they were intended to affect [U.S.] imports and did affect them.”
Even at this early stage, considerations of comity were recognised because comity offers a framework to resolve competing sovereign interests. Traditional (or negative) comity requires courts and enforcers to consider the foreign interests at play in a given antitrust case and, possibly, forgo enforcement out of regard for those interests. A way through the tension between the effects’ test and comity was via the development of a jurisdictional rule of reasonableness that weighed domestic versus foreign interests when deciding whether a court should exercise jurisdiction – the so-called Timberlane balancing test.
Further, in 1982 the US Congress passed the Foreign Trade Antitrust Improvements Act (FTAIA) in an effort to clarify when U.S. antitrust law applies to international conduct. The FTAIA established a two-part test for applying U.S. antitrust law extraterritorially. First, a court must consider whether the conduct has a direct, substantial, and reasonably foreseeable effect on U.S. commerce. Second, the court must determine whether the conduct gives rise to a claim under the Sherman Act. After passage of the FTAIA, the role of the balancing test was unclear. Hartford Fire appeared to resolve the matter by narrowing the application of international comity considerations and broadening the application of the qualified effects test: the Court held that comity considerations do not bar Sherman Act claims against foreign defendants when the foreign conduct produces a substantial effect in the United States. At the same time, the Court in Hartford Fire did not completely foreclose application of comity principles in antitrust. Indeed, the F. Hoffmann-La Roche Ltd. v. Empagran S.A. case saw a shift back toward international comity principles.
Although more robust forms of comity considerations have been slow to gain purchase, approaches that avoid direct conflict, such as recognition of the foreign sovereign compulsion defence, are still applied rigorously by U.S. courts.
Section IV elaborates on how comity avoids conflicts in practice.
In short, comity reduces the likelihood that one country will enforce its laws in a manner that greatly disrupts (whether intentionally or not) another country’s economy. Where there is a direct conflict of laws, comity has an important role to play in respecting the policy decisions reflected in the laws, actions, and pronouncements of other jurisdictions. It is equally important that antitrust enforcers apply comity out of respect for the interests of foreign governments by declining to enforce competition laws, and avoiding the application of remedies beyond the borders of an agency’s own jurisdiction, when a foreign jurisdiction affirmatively has chosen a less restrictive application of its competition laws.
Without this recognition of comity by competition authorities, the international competition community faces the potential for a “most restrictive means” approach to competition law enforcement, with those jurisdictions having the lowest tolerance dictating the outcome for other jurisdictions globally. This type of approach would allow a single jurisdiction to act as the ‘global competition police’ according to whatever competition standard it enforces. This creates the potential, and indeed the incentive, for jurisdictions to use competition law enforcement as an aggressive tool of industrial policy – and here the authors criticise Korea’s decision in the Qualcomm case, while endorsing the more restrained remedies adopted in the investigation of the same conduct by China.
This paper provides a good overview of the challenges of coordinating antitrust enforcement across the world, and of how comity considerations guide US attempts to avoid conflicts. At the same time, the position adopted in the paper could also be said to amount to arguing that the US’ hands-off approach to certain forms of competition enforcement (namely regarding the licensing of SEPs, as advocated by the same authors here and here) should be respected by other jurisdictions regardless of the scope of their own competition regime. The paper could also be said to be indirectly aimed at the remedies that the Korean competition authority imposed on Broadcomm. I think that would be unfair – Judge Ginsburg has long argued for comity and restraint in the enforcement of US competition law outside its borders.
On the other hand, I also think that, while comity is valuable, arguments based on the practice of US courts is unlikely to have purchase elsewhere, particularly when there are suspicions regarding the manipulation of this doctrine to promote US interests – as is expressed in the article below. After all, even European countries such as France still have on their books blocking statutes originally enacted to limit the impact of US antitrust investigations, and the EU has recently activated its own blocking statute to address US measures (outside the scope of antitrust law). Further, comity does not obviate the need for the development of more sophisticated mechanisms to manage potential conflicts between competition enforcement regimes, which I think is an under-theorised topic.