Chapter 12. Application of Merger Laws to Multinational Transactions

• Pages: 389-427

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CHAPTER 12

APPLICATION OF MERGER LAWS TO

MULTINATIONAL TRANSACTIONS

Multinational transactions may implicate the merger control laws

and premerger notification systems of numerous countries, and the

number of states with such notification and enforcement regimes has

increased in recent years to over sixty.1 Enforcement cooperation, both

formal and informal, among national competition authorities is also on

the rise.2 In the United States, the same substantive standards that apply

to 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 what are likely to be rare instances, foreign firms

may be able to raise the defenses of foreign sovereign immunity, act of

state, or foreign sovereign compulsion.

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

bounds of merger challenges under the Clayton Act and the FTC Act.4

1.See generally THE GLOBAL MERGER NOTIFICATION HANDBOOK (Howard

Adler, Jr. et al. eds., 2001).

2.See R. Hewitt Pate, Ass’t. Att’y Gen., Antitrist Div., U.S. Dept. of

Justice, The DOJ International Antitrust Program – Maintaining

Momentum (Feb. 6, 2003), at

www.usdoj.gov/atr/public/speeches/200736.htm; John J. Parisi, Counsel

for European Union Affairs, International Antitrust Div., FTC,

Enforcement Cooperation Among Antitrust Authorities, § III.b (May 19,

1999 updated Oct. 2000), at

www.ftc.gov/speeches/other/ibc99059911update.htm; see generally part

D of this Chapter.

3.See FTC Staff Report, Anticipating the 21st Century: Competition Policy

in the New High-Tech, Global Marketplace, 70 Antitrust & Trade Reg.

Rep. (BNA) No. 1765, at S-47-S-53 (June 6, 1996).

4.But see Hartford Fire Ins. Co. v. California, 509 U.S. 764, 812-15 (1993)

390 MERGERS AND ACQUISITIONS

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

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.

(Scalia, J., dissenting) (distinguishing subject matter jurisdiction under 28

U.S.C. § 1331 from congressional intent to reach foreign conduct in

enacting the Sherman Act).

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., 213 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 determined wholly by the law of the country

where the act is done”).

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 consequences 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 U.S. Supreme Court.

Id. at 421. See also Matsushita Elec. Indus. 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 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, Inc. v. Congoleum Corp., 595 F.2d 1287 (3d Cir.

1979).

9.See Southeastern Hose, Inc. v. Imperial-Eastman Corp., 1973-1 Trade

Cas. (CCH) ¶ 74,479 (N.D. Ga. 1973).

10.See Spears Free Clinic & Hosp. for Poor Children v. Cleere, 197 F.2d 125

(10th Cir. 1952).

Multinational Transactions 391

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 version

of the effects test13 and establishes a general framework for Sherman Act

enforcement actions when foreign trade is involved.14 The FTAIA is

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

OPERATIONS (1977) [hereinafter 1977 INTERNATIONAL GUIDELINES],

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

Department of Justice replaced the 1977 International Guidelines with

the 1988 International Guidelines. See U.S. DEP’T OF JUSTICE,

ANTITRUST ENFORCEMENT GUIDELINES FOR INTERNATIONAL

OPERATIONS (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. See U.S.

DEP’T OF JUSTICE & FEDERAL TRADE COMM’N, ANTITRUST

ENFORCEMENT GUIDELINES FOR INTERNATIONAL OPERATIONS (1995)

§ 3.11 [hereinafter 1995 INTERNATIONAL GUIDELINES], reprinted in 4

Trade Reg. Rep. (CCH) ¶ 13,107 and in Appendix J.

12.15 U.S.C. § 6(a). This section provides 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 exp ort commerce with foreign nations, of

a person engaged in such trade or commerce in the United States; and

(2) such effect gives rise to a claim under the provisions of this

Act, other than this section.

If this Act applies to such conduct only because of the operation

of paragraph (1)(B), then this Act shall apply to such conduct only

for injury to export business in the United States.

13.Cf. Hartford Fire Ins. Co v. California, 509 U.S. 764, 796 n.23 (1993)

(stating that it is unclear whether the FTAIA’s “direct, substantial, and

reasonably foreseeable” standard amends existing law or merely codifies

it).

14.Although the FTAIA formula focuses on whether activity is import trade

or nonimport commerce, recent case law suggests that it is sometimes

difficult to determine whether challenged conduct fits into the FTAIA’s

specified categories. There is particular uncertainty about whether the

FTAIA permits foreign plaintiffs to bring antitrust claims against