International Antitrust Law European Court to Super Mario: Game Over The Transatlantic Antitrust Divide And The Changing Nature Of Europe s Competition Law

• Author: Joshua P. Dupuy
• Position: JD Candidate
• Pages: 05

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Joshua Dupuy is a JD candidate at American University Washington College of Law, where he is a member of the Administrative Law Review. Mr. Dupuy has an undergraduate degree in International Affairs and German from the American University and a Certificat de Langue Francaise from La Sorbonne in Paris, France. Mr. Dupuy is a former Senate aide and is currently employed as a public policy analyst.

FROM 1989 UNTIL 2001, the European Union (EU) body responsible for reviewing merger proposals, known as the Competition Commission (Commission), ¹ operated with little or no challenges to its dominance and enjoyed over a decade of unparalleled authority deciding antitrust cases. In fact, the EU's Competition Commissioner, Mario Monti, has for years been referred to as "Super Mario" due to his vast power and influence over businesses operating in Europe. However, the Commission has recently suffered a number of defeats at the hands of the Court of First Instance (CFI),² and now faces widespread calls to reform its system of reviewing anticompetitive practices and merger applications. With recent decisions from the CFI challenging the Commission's reasoning in antitrust cases,³ the landscape of the European antitrust world is changing, and fundamental questions about the nature of EU competition law are emerging.

Two recent antitrust cases that highlight this trend are Schneider Electric SA v. Commission and Tetra Laval BV v. Commission. In both cases, the CFI overturned the Commission's rulings, suggesting that the Commission's decisions are no longer beyond reproach, and that the traditional legal principles underlying antitrust review in the EU have evolved. The Schneider and Tetra decisions - and the policies they reflect - may also influence the outcome of two pending high-profile cases: General Electric's (GE) appeal following the unsuccessful Honeywell merger in 2001, and Microsoft's ongoing battle with the Commission over anti-competitive practices by the technology giant. As a result, attorneys on both sides of the Atlantic are keenly interested in how the CFI will rule on GE's appeal, whether Microsoft will follow in GE's footsteps and bring a case before the CFI, and what these decisions will mean for the future of transatlantic antitrust law.

Comparing the American and European Antitrust Systems

THE EUROPEAN AND AMERICAN antitrust systems are considered the two leading models of antitrust law in the world.⁴ In theory, both U.S. and EU antitrust laws are designed to prevent unfair monopolies while preserving the free market, but in practice their systems are strikingly different. In the United States, there are two primary antitrust laws that govern activities in the marketplace, the Sherman Act and the Clayton Act.⁵ Each of these laws is enforceable through the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC).⁶ The Sherman Act bans contracts or conspiracies in restraint of trade⁷ and prohibits monopolization or attempted monopolization.⁸ The Clayton Act generally prohibits price discrimination, mergers, and interlocking directorates, where the effect may be a substantial lessening of competition.⁹ Most antitrust experts now agree that in addition to preserving efficiency and competition, promoting consumer welfare is now at the core of U.S. antitrust policy.¹⁰

In contrast, the European system, which is governed by Articles 81 and 82 of the Treaty Establishing a European Community, ¹¹ accounts for more policy considerations when dealing with antitrust and other economic matters. For example, the European system is designed "to promote throughout the Community a harmonious, balanced and sustainable development ofPage 20economic activities, a high level of employment and social protection, sustainable and non-inflationary growth, a high degree of protection and improvement of the quality of the environment, the raising of the standard of living, and quality of life, and economic and social cohesion and solidarity among Member States."¹² Thus, the primary difference between the two systems can be summed up as follows: In the United States, the main focus of antitrust law is protecting the consumer; in Europe, it is preserving competition.

This distinction is reflected in the systems' differing standards of review. In the United States, the DOJ and FTC use what is known as the Substantial Lessening of Competition Test. While this test may appear similar to the European approach, it also places a great deal of emphasis on whether or not a merger will benefit consumers.¹³ For instance, if the ruling agency in the United States determines that there will not be a substantial lessening on competition within a sector, the merger will be approved. However, if the reviewing agency determines that competition will decrease, but consumers will still benefit, most often in the form of lower prices, the consumer benefit may offset the decrease in competition, and the proposed merger may still go forward even though it could result in a company gaining a dominant position in a particular market. On the other hand, the EU Dominance Test, viewed by many as a more stringent test, focuses "on whether the combined company will have an excessive market share" without considering whether the greater market share would benefit consumers.¹⁴ In effect, the EU places less emphasis on protecting the consumer and more on market dominance.

But things in the EU appear to be changing. Commissioner Monti recently conceded, for example, that while he intends to continue using the Dominance Test, he will "listen when merging suppliers argue that buyers still can negotiate favorable purchasing terms; carefully consider whether newcomers still can enter a market, even when that market is consolidating; and pay attention if merging companies say heightened efficiencies will enable them to offer lower prices."¹⁵ This concession, and the CFI's continuing scrutiny over the Commission's approach to antitrust regulation, has set the stage for the core questions implicated in the Schneider and Legrand cases, and the pending GE and Microsoft matters: Do the recent reversals by the CFI signal a fundamental shift from the EU's historical focus on market competition to consumer protection? If so, what are the implications for the future of transatlantic antitrust law?

Changing Times: The CFI's Decisions in Schneider and Tetra

Schneider Electric Sa V Commission

In October 2002, just four months after the Commission received its first reversal in twelve years (in a case involving travel companies First Choice and Airtours), the CFI dealt Commissioner Monti's antitrust team another embarrassing defeat by rejecting the Commission's veto of a $7.1 billion merger between Schneider Electric and rival Legrand. The attempted merger between the two French electrical companies would have created the world's largest manufacturer of low-voltage electrical equipment. According to Simon Baxter, an antitrust lawyer with Clifford Chance commenting on the impact of the decision, "one annulment could be seen as an aberration, but with the similarities between the two rulings, this is a bit of a blow for the Commission."¹⁶

The Commission contended that the merger would impact all materials used for the control of electric circuits and have a negative impact on producers of distribution panels, cable supports, and power switches.¹⁷ The CFI, in response, issued a verdict laced with thinly veiled attacks on the Commission's economic analysis used in the merger review process. The CFI criticized the Commission for both economic and procedural errors that prevented the merger between Schneider and Legrand. In its statement, the court said the Commission committed "obvious errors, omissions, and contradictions" in its reasoning.¹⁸

The CFI based its decision on two distinct factors. First, the CFI challenged the Commission's economic analysis in denying the merger because its analysis was "only in relation to French sectoral markets."¹⁹ Since the mandate of...