European Union competition regulators have formally blocked a proposed merger between United Parcel Service Inc. (UPS) and its Dutch competitor TNT Express NV based on potential adverse effects on competition in 15 EU countries.

The express delivery companies had already announced they were abandoning the 5.2 billion euro ($6.99 billion) deal after being informed by the European Commission that it was working on a decision to block the merger.

The Commission found that only four companies in Europe have the required international air and ground transport network necessary to provide reliable overnight and express delivery service: UPS, FedEx, DHL and TNT Express. According to the Commission’s findings on the original merger offer, shipping costs would have increased for consumers in 29 European countries.

The Commission gave UPS time to correct the anticompetitive effects of the merger by finding a buyer to purchase and maintain TNT’s operations in 17 countries where the acquisition would have most severely restricted competition.

As part of a proposed solution, UPS would have provided a potential buyer with air support declaring in a press release, “customers and consumers will benefit from a broader portfolio of services and better global access, along with lower supply-chain costs overall.”  

After on-going negotiations failed, however, Commissioner Joaquin Almunia announced that UPS’s proposed corrections did not go far enough.  “We still had serious doubts on whether the buyer that UPS was working with – the French group La Poste/DPD – would have the ability and incentive to become a strong player in express deliveries,” Almunia said.

“In the absence of suitable remedies to the competition concerns we identified, I had no other choice but to propose to the college of commissioners to issue a negative decision,” Almunia said.

This is only the third merger out of nearly 800 reviewed since Almunia began his term in 2010 that have been prohibited.

One year ago, believing it would have deterred investment at an already rocky time, Almunia blocked a merger between the New York Stock Exchange and Germany’s stock market Deutsche Boerse.  Prior to that, the Commission blocked the merger of two Greek airlines based on the effects on local competition.

The European Court of Justice is being urged to get stricter with parents of misbehaving subsidiaries in an appeal that highlights the controversial issue of to what extent parent companies should be held liable for illegal cartel activities committed by their wholly-owned subsidiaries.

Juliane Kokott, the German Advocate General at the Court of Justice of the European Union, has submitted a brief to the European Court of Justice siding with the European Commission’s appeal of the judgment of the European General Court in European Commission v. Stichting Administratiekantoor Portielje and Gosselin Group NV.  Kokott submitted the brief under the Court of Justice’s practice of accepting analysis from one of eight impartial advocate generals appointed by EU member states for precedent setting cases.

The Commission is appealing the General Court’s ruling that Stichting Administratiekantoor Portielje  (“Portielje”) could not be held liable for the cartel activities of its subsidiary Gosselin Group NV (“Gosselin”) because the parent company neither participated in the economic activity at issue nor was involved in the management of the subsidiary.

The Commission had previously found that from 1984 to 2003 Gosselin and nine other Belgian companies had illegally utilized a cartel to fix prices and share the market for international moving services.  After the Commission held that Portielje, as the parent company of Gosselin, was liable for the illegal cartel activities of its subsidiary, Portielje successfully appealed that ruling to the General Court.

The Commission is now appealing the General Court’s annulment of the Commission’s decision holding Portielje liable for the illegal cartel activities of its subsidiary.  The Commission is arguing that responsibility under antitrust law depends entirely on whether the parent company and the subsidiary together form an undertaking within the meaning of European competition law and on whether that economic unit can be accused of participating in the cartel.

In siding with the Commission’s appeal, Kokott argues that the General Court misapplied the rebuttable presumption that a parent that owns virtually all the shares of a subsidiary exercises control of that subsidiary.  “Since the parent company’s 100% (or almost 100%) shareholding in its subsidiary prima facie allows the conclusion that decisive influence is actually being exercised, it is for the parent company to rebut precisely that conclusion, adducing cogent evidence to the contrary,” Kokott stated.

Despite formal autonomy, Portielje owns 99 percent of Gosselin shares, and three members of Portielje’s board of directors also serve in the same capacity for Gosselin.

Kokott criticized the General Court for relying too heavily on Gosselin’s “company law,” under which Gosselin makes business decisions independently of its parent company, Portielje.

“It would, however, have been of decisive importance, leaving aside all the formal deliberations on company law, to examine the actual effects of the personal links between Portielje and Gosselin on everyday business,” Kokott wrote.

Kokott’s brief claims that the General Court also misinterpreted what constitutes an “entity” under competition law.  Kokott argues that although Portielje did not participate in commercial activity, the company had a stake in the cartel’s economic goals.

 “All such parent companies have an eminently economic interest in the specific activities of their respective subsidiaries on the market.  To make a distinction between them in terms of responsibility under antitrust law would be contrary to the principle of equal treatment,” Kokott concluded.

The Advocate General recommends using internal memos and witness statements rather than the reliance on company law to help determine responsibility for antitrust violations in the future.

The European General Court has ruled that the European Commission overstepped its authority by conducting a broad reaching competition investigation in electric cable markets that amounted to a “fishing expedition.”

The General Court annulled much of a European Commission decision that ordered an inspection of Nexans SA and its wholly-owned subsidiary Nexans France SAS – two French companies active in the electric cable sector.

According to the Judgment of the General Court, the Commission began collecting evidence in January 2009 to determine whether or not Paris-based Nexans SA and its subsidiary acted in concert with other companies to control what the Commission broadly defined as “the supply of electric cables and material associated with such supply.”

However, the Nexans companies argued that the Commission did not have enough evidence to cast such a wide net because first the investigators asked only to speak with employees working on high voltage underwater cables.

Moreover, a February 2009 press release  also announced that the Commission was investigating companies making “high voltage undersea cables” rather than companies making electric cables in general terms. 

The Court’s opinion noted that before beginning the Nexans investigation, the Commission had previously concluded low, medium, and high voltage cables warranted separate product markets.

“A distinction between low and medium voltage on the one hand and the higher voltage ranges high and extra-high voltage on the other hand is required due to the different competitive conditions governing the supply and demand of these products,” the Commission stated in a July 2000 merger decision.

Finding the scope of the investigation far broader than the grounds justifying the investigation, the Court overturned any part of the Nexans investigation that did not specifically pertain to high voltage underwater and underground electric cables.

Despite keeping a significant part of the investigation intact, the Court’s opinion warns the Commission to be more careful to respect individual rights in future investigations.

“Although the Commission is not required to communicate to the recipient of an inspection decision all the information at its disposal concerning the presumed infringements, or to make a precise legal analysis of those infringements, it must none the less clearly indicate the presumed facts which it intends to investigate,” the Judgment stated.

The expansion of international cooperation in antitrust enforcement in recent years is likely to continue and benefit both businesses and consumers, according to a top U.S. antitrust enforcer.

Joseph Wayland, Acting Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, surveyed the benefits of international cooperation among antitrust authorities in a recent speech at the International Bar Association’s Annual Competition Conference in Florence, Italy.

According to Wayland, international cooperation helps to achieve three principal purposes of antitrust enforcement – increasing the understanding of the competitive process, the effectiveness of competition enforcement, and the efficiency of global enforcement in order to facilitate and promote economic activity to the benefit of consumers.

Wayland suggested that greater coordination of antitrust enforcement at the international level would help companies understand competition rulings and lessen the chances of companies facing unfair penalties in multiple jurisdictions.

“Our goal as antitrust authorities should be to avoid, as much as possible in a multi-authority world, imposing inconsistent, conflicting, or inefficient rules on businesses, either generally or in individual cases,” Wayland said.

Wayland argued that increased cooperation was leading to more effective enforcement.  With greater globalization, it is necessary for competition regulators to learn how competition works in markets that are no longer just local in scope.

Wayland gave several examples of international cooperation in investigating and prosecuting cartels that operate across national borders.  In the Auto Parts investigation, the Antitrust Division worked with its enforcement counterparts in Japan, the European Union, Canada and other antitrust agencies around the world.  The Antitrust Division has already obtained criminal fines of nearly $800 million as a result of that investigation.

The Antitrust Division has also worked closely with the European Commission on civil enforcement matters, such as the e-books matter, which led to the Division filing a lawsuit – U.S. v. Apple, Inc. – against Apple and five of the largest book publishers in the U.S., alleging that they had conspired to increase the prices of e-books.  While three of the publishers settled, the Antitrust Division is continuing to litigate against Apple and the other two publishers.

Finally, Wayland discussed how international antitrust cooperation can increase economic activity that benefits consumers.   He noted that recent international coordination among competition authorities has helped consumers, who largely bear the costs of cartels and monopolies.

For example, the Antitrust Division, the European Commission and the Canadian Competition Bureau coordinated their enforcement activities in reviewing the United Technologies/Goodrich transaction – the largest merger in the history of the aircraft industry – which enabled the antitrust enforcers to agree on what conditions needed to be met for the merging parties to address the competitive concerns that were raised both in the U.S. and internationally.

To make compliance easier, all three agencies approved the merger on the same day and coordinated the conditions imposed on the merger for approval.

The Office of Fair Trading (the “OFT”) – the United Kingdom’s consumer and competition authority – has announced new guidelines for setting penalties for violations of British competition laws.

The most drastic change contained in the new guidelines increases the maximum starting point for calculating a penalty from 10 to 30 percent of a company’s relevant turnover.

The OFT indicated that it is increasing the maximum penalty because it will improve the ability of the OFT to set penalties which better reflect the gravity of different types of infringements.  The OFT noted that increased penalties could be imposed “in particular for the most serious breaches of competition law, such as hardcore cartel activity and serious abuses of a dominant position.”  The revision of the guidelines also serves the purpose of bringing the “OFT in line with the approach of the European Commission and many European competition authorities.”

In addition to the increased penalties, the new guidelines also clarify the steps used to judge the severity of an antitrust violation.

For example, leniency programs and settlement agreements will now be taken into consideration when issuing fines in order to impose lesser penalties on companies that come forward to admit wrongdoings. 

The previous guidelines had been in place since 2004.  The revised guidelines “reflect our experience in applying the guidance in a series of cases, as well as recent court judgments,” according to Jackie Holland, Senior Director of the OFT Policy Group.

According to a 2010 study by the American Antitrust Institute, revising penalty guidelines to be more specific can help deter antitrust violations.  The study indicated that from 1990 to 2008 the European Commission’s fines minimally deterred antitrust violations because vague guidelines failed to accurately assess the amount of harm a company’s actions caused, and the most harmful violations were not fined severely enough.