Application of Merger Laws to Multinational Transactions

• Pages: 423-474

CHAPTER XIII

APPLICATION OF MERGER LAWS TO

MULTINATIONAL TRANSACTIONS

Multinational transactions may implicate the merger control laws and

premerger notification systems of many countries. The number of

jurisdictions with such notification and enforcement regimes has

continued to increase in recent years to more than ninety.1 Other

jurisdictions have developed merger control regimes that differ in many

respects from the U.S. model, including in the types of transactions

subject to merger control, the definition of a change in control, the

thresholds for triggering a notification requirement, definition of

corporate group, notifying parties, calculation of sales, timing of

notification and review, and information that must be provided in the

notification. Enforcement cooperation and convergence among national

competition authorities, both formal and informal, are also a key focus of

the relevant authorities.2 In the United States, the same substantive

standards for assessing the competitive effects of transactions between

U.S. firms also apply to transactions involving non-U.S. firms, provided

that the requisite effect on U.S. commerce is present.3 Mergers and

acquisitions involving foreign firms, however, can raise special issues of

jurisdiction, international comity, and enforcement policy. In addition, in

rare instances, foreign firms may be able to raise the defenses of foreign

sovereign immunity, act of state, or foreign sovereign compulsion.

1. International Competition Network (ICN) Be st Practice: Soft Law,

Concrete Results, C PI Antitrust Chr onicle (July 2011 ), available at

http://www.ftc.gov/system/files/attachments/key-speeches-presentat ions/

1107cpicoppola.pdf.

2. See ICN MERGER WORKING GROUP—LONG TER M PLANNING, 2011-2016,

available at http://www.internationalcompetitionnetwork.org/uploads/

library/doc754.pdf.

3. See U.S. DEP’T OF JUST ICE & FED. TRADE COMM’N, ANTITRUST

ENFORCEMENT GUIDELINES FOR INTERNATIONAL OPER ATIONS (1995)

[hereinafter 1995 INTERNATIONAL GUIDELINES ] § 2, reprinted in 4 T rade

Reg. Rep. (CCH) ¶ 13,107 (“Once jurisdictional req uirements, comity,

and doctrines of foreign governmental involvement have been consid ered

and satisfied, the same substantive rules apply to all cases.”).

423

424 Mergers and Acquisitions

A. Jurisdictional Issues Raised by Transactions Involving Non-U.S.

Firms

Courts and federal enforcement agencies have applied the

jurisdictional limits of the Sherman Act in interpreting the jurisdictional

scope of merger challenges under the Clayton Act and the Federal Trade

Commission (FTC) Act.4

1. Sherman Act

The Sherman Act by its express terms prohibits agreements in

restraint of trade “with foreign nations.”5 Originally, the Sherman Act

was held to apply solely to transactions occurring on U.S. soil.6 In 1945,

however, this narrow view was rejected in favor of a much broader

effects test that extends Sherman Act coverage to any anticompetitive

foreign conduct that is intended to affect and does affect U.S. commerce,

regardless of where that conduct occurs.7 Courts continued to refine the

4. But see Hartford Fire Insurance Co. v. California, 509 U.S. 764, 812-15

(1993) (Scalia, J., dissenting) (distinguishing subject-matter jurisdiction

under 28U.S.C. § 1331 from congressional intent to reach foreign

conduct in enacting t he Sherman Act) and discussion infra on the recent

trend for courts to hold that the Foreign Trade Antitrust Impro vements

Act of 1982 does not affect subject-matter jurisdiction.

5. Section 1 prohibits agreements “in restraint of trade or commerce among

the several States, or with foreign nations.” 15 U.S.C. §1. Section 2

prohibits actual or attempted monopolization of commerce “among the

several States, or with foreign nations.” 15 U.S.C. §2.

6. See American Banana Co. v. United Fruit Co., 21 3 U.S. 347, 356 (1909)

(“[T]he general and almost universal rule is that the character of an act as

lawful or unlawful must be determi ned wholly by the la w of the country

where the act is done.” (citations omitted)).

7. See United States v. Aluminum Co. of Am., 148 F.2d 416, 443 (2d Cir.

1945) (Hand, J.) (“[I]t is settled law . . . that any state may impose

liabilities, even upon persons not within its allegiance, for conduct

outside its borders that has conse quences within its borders which the

state reprehends . . . .”). The Second Circuit acted as the court of last

resort, having had the case certified to it for decision by the Supreme

Court. Id. at 421. See also Matsushita Electric Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574, 582 n.6 (1986); Continental Ore Co. v. Union

Carbide & Carbon Corp., 370 U.S. 690, 704 (1962) (“A conspiracy to

monopolize or restrain the domestic or foreign commerce of the United

Multinational Transactions 425

effects test over the next several decades, clarifying the magnitude and

type of effect on U.S. commerce required to justify the extraterritorial

application of U.S. antitrust law. Most courts required the effect to be

“substantial,”8 some required the effect to be “foreseeable,”9 and others

required it to be “direct.”10 The Antitrust Division of the U.S.

Department of Justice (DOJ or the Division) adopted an enforcement

policy requiring the effect on U.S. commerce to be both “substantial and

foreseeable.”11

Congress amended the Sherman Act by enacting the Foreign Trade

Antitrust Improvements Act of 1982 (FTAIA),12 which codifies a

States is not outside the reach of the Sherman Act just because part of the

conduct complained of occurs in foreign countries.”).

8. See Mannington Mills v. Congoleum Corp., 595 F.2d 1287, 1292 (3d Cir.

1979).

9. See National Bank of Canada v. Interbank Card Ass’n, 666 F.2d 6, 9 (2d

Cir. 1981).

10. See Spears Free Clinic & Hosp. for Poor Children v. Cleere, 197 F.2d

125, 126 (10th Cir. 1952).

11. See U.S. DEP’T OF JUSTICE, ANTITR UST GUIDE FOR INTERNATIONAL

OPERATIONS (1977) [hereinafter 1977 INTERNATIONAL GUIDELINES],

reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,110, at 20,645. The DOJ

replaced the 1977 INTERNATIONAL GUIDELINES wit h the 1988

INTERNATIONAL GUIDE LINES. See U.S. DEP’T OF JUS TICE , ANTITRUST

ENFORCEMENT GUIDELINES FOR INTERNATIONAL OPER ATIONS (1988)

[hereinafter 1988 INTERNATIONAL GUIDELINES ], reprinted in 4 Trade

Reg. Rep. (CCH) ¶ 13,109. These were in turn replaced with the jointly

issued 1995 INTERNATIONAL GUIDELINES, supra note 3.

12. 15 U.S.C. §6a. This section provid es that the Sherman Act:

[S]hall not apply to conduct involving trade or commerce (other

than import trade or import commerce) with foreign nations

unless—

(1) such conduct has a direct, substantial, and reasonably

foreseeable effect—

(A) on trade or commerce which is not trade or commerce with

foreign nations, or on import trade or import commerce with

foreign nations; or

(B) on export trade or export commerce with foreign nations, of

a person engaged in such trade or commerce in the United

States; and

(2) such effect give s rise to a claim under the provisions of [the

Sherman Act], other t han this section.