ABA Section of Antitrust Law International Committee July ... · International Committee │ ABA Section of Antitrust Law July 2013 │ Vol. 2 AMERICAN BAR ASSOCIATION 3 What In The

AMERICAN BAR ASSOCIATION

ABA Section of Antitrust Law │ International Committee July 2013 | Vol. 2

COPYRIGHT NOTICE © Copyright 2013 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. To request permission, contact the ABA’s Department of Copyrights and Contracts via www.americanbar.org/utility/reprint.

JOIN THE INTERNATIONAL COMMITTEE If you'd like to join the International C o m m i t t e e , p l e a s e v i s i t : http://apps.americanbar.org/dch/committee.cfm?com=AT311000.

The International Antitrust Bulletin is published four times a year by the American Bar Association Section of Antitrust Law International Committee. The views ex-pressed in the International Antitrust Bulletin are the au-thors’ only and not necessarily those of the American Bar Association, the Section of Antitrust Law or the Interna-tional Committee. If you wish to comment on the contents of the International Antitrust Bulletin, please write to the American Bar Association, Section of Antitrust Law, 321 North Clark Street, Chicago, IL 60654-7598. Editor-in-Chief John Taladay [email protected] Assistant Editor Jane Antonio [email protected] International Committee Leadership Committee Chair Fiona Schaeffer Committee Vice-Chairs Dara Diomande-Pincas Matthew Hall Amadeu Ribeiro Sheridan Scott John Taladay Susanne Wachsstock

Follow us on:

CONTRIBUTE TO THE INTERNATIONAL ANTITRUST BULLETIN We are accepting articles for our next edition. Articles can cover any topic in the international antitrust area and should be approximately 800-1,200 words. If you have a topic idea, please contact our Editor-in-Chief, John Taladay at [email protected].

IN THIS ISSUE NEW FEATURE: What In The World Did I Miss? A summary of the world’s major competition law developments in the past quarter.

Africa......................................................................................................................................................2

Asia .........................................................................................................................................................2

Australasia .............................................................................................................................................3

Europe ...................................................................................................................................................4

North America......................................................................................................................................5

South America ......................................................................................................................................5

North America Hot Documents and Antitrust Enforcement: How to Avoid Digging Your ...........................6 Own Grave Timothy Hirsch & Irina C. Rodríguez

At Risk Up North?: The Pharmaceutical Industry May be Facing Increased .........................8 Antitrust Scrutiny in Canada Davit Akman & John Norman

Essential Questions About Standard-Essential Patents in the U.S. and EU............................10 M. Brinkley Tappan & Koren W. Wong-Ervin

South America Ecuador’s Initial Phases of Competition Law Implementation .................................................14 Luis Marín Tobar

Asia The Apple Case and the Paradoxical Assessment of Tying Agreements in India...................16 Kalyani Singh

Meet the Authors ........................................................................................................ 18

International Committee │ ABA Section of Antitrust Law July 2013 │ Vol. 2

AMERICAN BAR ASSOCIATION 2

Class actions lawsuits could be in the offing, even though India’s Competition Act, 2002 has re-portedly allowed class action lawsuits from day one. (June 13, 2013, Lawyer Monthly) www.lawyer-monthly.com/news/Class-action-lawsuits-could-take-off-in-India-after-tribunal-rulings

With all the new antitrust enforcement agencies in Asia vying to flex their muscles in the world of antitrust enforcement, the Competition Commission of India investigates a Chinese com-pany. This is the first time a Chinese company is being investigated for an alleged violation of In-dian competition law. (May 8, 2013, Global Cement) www.globalcement.com/news/item/1640-indian-competition-commission-targets-chinese-whr-vendor

In a fierce battle for supremacy that does not pale in comparison with the dispute between Net-scape and Microsoft over Internet browsers, or more recently, the disputes among Google, Micro-soft, Apple, Samsung and many others over standard-essential patents and associated FRAND obligations, China’s Internet powerhouses Qihoo 360 and Tencent offer a tale of lesser known, but certainly no less entertaining, rivalry. In the process, the dispute is reportedly helping China’s

judicial system become more transparent and effective at resolving complex legal and technical issues. (April 12, 2013, Bridge IP Law Commentary) www.chinaiplawyer.com/analysis-anti-monopoly-dispute-filed-qihoo-tencent-iii/

Being the number one Internet search engine apparently does not come cheap when one considers all those antitrust investigations to respond to and lawsuits to defend. In Korea, NHN is the number one search engine with its Naver search-engine product. No stranger to the KFTC, NHN is reportedly on the KFTC’s radar screen again in Korea. (May 16, 2013, ZDNet) www.zdnet.com/south-korea-internet-giant-nhn-under-antitrust-probe-7000015472/

It is not just the number one search engine that is being investigated in Korea for possible anticompetitive or unfair practices. The KFTC’s new Chairman made it clear that the KFTC will vigorously challenge unfair business practices, especially those allegedly practiced or abused by large Korean conglomerates. (June 7, 2013, GlobalPost) www.globalpost.com/dispatch/news/yonhap-news-agency/130607/anti-trust-watchdog-vows-root-out-unfair-biz-practices

What In The World Did I Miss? A summary of the world’s major competition law developments in the past quarter.

The South African Competition Act was amended so as to provide the Competition Commission with broad powers to conduct market investigations – to commence with an investigation into the market for private healthcare. www.compcom.co.za/assets/Healthcare-Inquiry/Terms-of-Reference.pdf

The South African Constitutional Court will soon hand down its decision on whether opt-in class action suits are available for civil damages in cartel cases in South African law. www.constitutionalcourt.org.za/uhtbin/cgisirsi/x/0/0/5?searchdata1=CCT131/12

The government in Mozambique promulgated competition legislation due to come into force on July 10, 2013. www.vda.pt/xms/files/Newsletters/en/Flash_VdAtlas_Mozambique_-_Competition___EU_-_Competition_Law_in_Mozambique_-_Law_no._10_2013_-23.04.13-_.pdf

The COMESA Competition Commission published draft guidelines in respect of Mergers; Hori-zontal and Vertical Restraints; Public Interest considerations; and Market definitions applicable to Member States. www.comesacompetition.org/latest

The Botswana Competition Commission published guidelines on the calculation and imposition of fines for competition law infringe-ments. http://competitionauthority.co.bw.cws11.my-hosting-panel.com/images/stories/PDF/Documents/Guidelines%20on%20the%20imposition%20of%20fines.pdf

Africa Compiled by: John Oxenham, Nortons Inc., South Africa

Asia Compiled by: Cecil Chung, Yulchon LLC, Korea



What In The World Did I Miss?

The Competition Commission of Singapore has imposed fines on 12 motor vehicle traders. The traders agreed they would not bid against each other at public motor vehicle auctions held by agen-cies of the government of Singapore. Instead a sole bidder would bid for the vehicles at the gov-ernment auction. After that, the 12 traders would enter into their own private auctions for the ve-hicles that were won at the public auctions. The difference in the bid price of the vehicles between the public auctions and the private auctions would be put into a common pool and shared amongst those present at the private auctions. Penalties totaling S$179,071 (approx. US $141,000) were imposed on the parties. www.comcom.govt.nz/authorisation-guidelines

In New Zealand, criminalisation of hard core cartel behaviour moves a step closer as the Com-merce Committee of the New Zealand Parliament has recommended introducing criminal sanc-tions for hard core cartel behaviour whilst proposing a range of other amendments including intro-ducing new exemptions for collaborative activities and vertical supply arrangements. www.legislation.govt.nz/bill/government/2011/0341/latest/versions.aspx

Chevron has been fined Indonesian Rupiah 2.5 billion (approx. $US 252,000 ) for bid rigging practices arising from a tender for the Chevron operated Gendalo - Gehem project in the Makassar Strait. The Commission for the Supervision of Business Competition (KPPU) had investigated discriminatory practices and alleged bid rigging activities. Only the discriminatory practices were found to have occurred. http://eng.kppu.go.id/chevron-proved-to-conduct-discriminatory-practices

On 13 June 2013 the Japan Fair Trade Commission (JFTC) issued cease and desist orders to and imposed surcharges on manufacturers of specific high fructose corn syrup and manufacturers of specific starch syrup and glucose. The JFTC found the manufacturers reached agreements between them to raise the selling price of certain products. The surcharges imposed by the JFTC were 2.5 billion Yen (approx. $25 million) based on the standard 10 per cent surcharge of the companies’ turnover on the products at issue. www.jftc.go.jp/en/pressreleases/yearly-2013/june/130613.html

The Australian Competition and Consumer Commission (ACCC) issued two significant merger decisions in June 2013. In the first, it indicated it would oppose the proposed acquisition of Rafferty's Garden by Heinz. Heinz and Rafferty's Garden are the two largest sup-pliers of wet and dry infant food in Australia. The ACCC alleged that a merged Heinz/Rafferty's Garden would have accounted for 80% of the share of sales in the wet infant food market and around 70% in infant cereals and infant snacks. The ACCC was not satisfied that the power of the major supermarket chains would constrain prices for consumers or drive innovation. transition.accc.gov.au/content/index.phtml/itemId/1116713/fromItemId/751046

On the same day the ACCC announced it would oppose the proposed acquisition by one of the major supermarket chains, Woolworths, of a supermarket site in a Sydney suburb. The ACCC found that Woolworths operates the only supermarket in that suburb and it has the next closest supermarket in a nearby suburb. According to the ACCC This new site represented the only opportunity for a competing supermarket to enter that suburb in the foreseeable future, other than an Aldi supermarket due to open in 2014. www.accc.gov.au/media-release/accc-to-oppose-woolworths-proposed-acquisition-of-glenmore-ridge-site

Australasia Compiled by: Linda Evans, Clayton Utz, Australia



The European Commission has adopted draft legislation setting out a number of measures for adoption by all EU Member States in order to promote collective redress and damages actions for infringements of EU antitrust law. The move represents the EU’s latest attempt to put in place legislative backing for group claims and damages actions against companies found to have in-fringed EU antitrust law. The draft legislation now faces potentially-lengthy discussion and scru-tiny by both the European Parliament and national governments. (June 11, 2013) http://ec.europa.eu/competition/antitrust/actionsdamages/documents.html

The European Commission launched a consultation on potential changes to how minority share-holdings are dealt with under the EU Merger Regulation. The review exercise includes analysis of the referral mechanism for transfer of merger cases between national competition authorities and the European Commission. The consultation is open until September 12, 2013. (June 20, 2013) http://ec.europa.eu/competition/consultations/2013_merger_control/index_en.html

The German authority, the Bundeskartellamt, issued new fining guidelines which include greater clarity on the criteria used to calculate penalties for “serious” cartel law violations. The new guidelines detail a renewed focus on the seri-ousness and duration of the infringement involved, as well as the size of the company involved (taking into account a company’s global turnover) in deciding what level of fine will be imposed. (June 25, 2013) www.bundeskartellamt.de/wEnglisch/News/press/2013_06_25.php

The European Commission closed a consultation on changes to the “Simplified Procedure” used for review of non-problematic merger cases. The Commission has proposed tweaks to the procedure in order to increase the number of transactions which fall into the Simpli-fied Procedure category, while also proposing various changes to the filing forms used to notify all mergers to the Commission. The re-sults of the consultation and any formal change to merger procedures will become known in Autumn 2013. (June 19, 2013) http://ec.europa.eu/competition/consultations/2013_merger_regulation/index_en.html

The European Commission imposed a fine of almost €100 million on Danish pharmaceutical company Lundbeck, finding that Lund-beck had infringed EU antitrust rules by engaging in activities designed to delay or prevent market entry by Lundbeck’s generics competi-tors. The Commission’s move against “pay-for-delay” arrangements in the pharmaceutical sector followed on from the US Supreme Court judgment in FTC v Actavis, where the standard for assessment of pay-for-delay agreements was assessed. (June 19, 2013) http://europa.eu/rapid/press-release_IP-13-563_en.htm

Lawmakers in Spain have approved the creation of a new Spanish competition authority -- the National Commission on Markets and Competition, which will combine the functions of the existing competition authority with those of sectoral regulators including telecoms, energy and transport regulatory agencies. The new merged entity is due to become operational in Autumn 2013. Commentators have noted concerns that the changes could result in potentially severe delays to the treatment of merger control cases as the agencies prepare for and implement their own merger. (July 4, 2013) www.cncompetencia.es/Inicio/Noticias/tabid/105/Default.aspx?Contentid=621001&Pag=1; kluwercompetitionlaw-blog.com/2013/07/04/important-changes-to-the-antitrust-institutional-structure-in-spain/


Europe Compiled by: David Cardwell, Baker Botts LLP, Brussels




The United States Supreme Court reaffirmed in Comcast that courts must conduct a rigorous analysis to determine whether antitrust class action plaintiffs meet the requirements for class certi-fication and that individual issues of damages may preclude class certification. (March 27, 2013) www.supremecourt.gov/opinions/12pdf/11-864_k537.pdf

The United States Department of Justice announced changes to policy on naming employees in corporate plea agreements (April 12, 2013) www.justice.gov/atr/public/press_releases/2013/295747.htm

The United States Department of Justice reached a settlement with Anheuser-Busch InBev SA/NV and Grupo Modelo S.A.B. de C.V. showing flexibility about behavioral provisions in the con-text of a structural fix (April 19, 2013) www.justice.gov/atr/cases/f296000/296044.pdf

Canada’s Competition Bureau published its Action Plan on Transparency, which aims to promote the development of a more efficient and responsive agency (May 28, 2013) www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03570.html

Reforms to Mexico’s constitution regarding competition and telecoms that grant the competition authority constitutional powers to re-move barriers to free competition and order the divestiture of assets entered into force (June 12, 2013) www.cfc.gob.mx/index.php/notas-carousel/1325-firma-pena-nieto-reforma-en-telecomunicaciones-y-competencia-economica

The United States Supreme Court held that reverse payment settlements are potentially anticompetitive under rule of reason analysis in FTC v. Actavis (June 17, 2013) www.supremecourt.gov/opinions/12pdf/12-416_m5n0.pdf

Mexico’s Federal Commission of Economic Competition submits proposed changes to Mexico's competition law to conform the law with the newly amended Constitution (June 24, 2013) www.cfc.gob.mx/images/stories/Noticias/Comunicados2013/Oficio_%20ReformaLFCE.pdf

The United States Federal Trade Commission amended the Hart Scott Rodino premerger notification rules to codify the informal “pull and refile” option and mandated automatic withdrawal of filings for deals that will not proceed (June 28, 2013) www.ftc.gov/opa/2013/06/hsr.shtm

North America Compiled by: Fiona Schaeffer, Jones Day, United States

Ecuador’s antitrust authority published regulations for the review of mergers (April 16, 2013) http://scpm.gob.ec/la-scpm-emitio-resoluciones-para-examen-de-operaciones-de-concentracion

A proposal of reform of El Salvador’s competition law has been submitted to the legislature (May 8, 2013) www.sc.gob.sv/pages.php?Id=1135; www.elsalvador.com/mwedh/nota/nota_completa.asp?idCat=47861&idArt=7874184

Chile’s Fiscalía Nacional Economica published new procedural guidelines for antitrust investiga-tions (May 15, 2013) www.fne.gob.cl/wp-content/uploads/2013/05/Instr._investigaciones_2013.pdf

Brazil’s CADE signed the first two agreements contemplating remedies in merger review pro-ceedings under the new antitrust law (May 23, 2013) http://cade.gov.br/Default.aspx?c074829769be55de2b18283a0e37

Colombia was officially invited by the OECD to initiate the process to become a member of the organization (May 30, 2013) www.sic.gov.co/es/web/guest/colombia-invitada-oficialmente-por-la-ocde-a-iniciar-el-proceso-de-

adhesion

South America Compiled by: Amadeu Ribeiro, Mattos Filho, Brazil



Hot Documents and Antitrust Enforcement: How to Avoid Digging Your Own Grave Timothy Hirsch & Irina C. Rodríguez Axinn, Veltrop & Harkrider LLP, United States

R ecent merger enforcement actions such as the agency actions against H&R Block’s acquisition of

small rival TaxAct, product rating firm Bazaarvoice’s consummated acquisition of competitor PowerReviews and Anheuser-Busch InBev’s proposed acquisition of Grupo Modelo, demonstrate, yet again, the importance of constant internal vigilance in connection with the creation of corporate documents. Both the Federal Trade Com-mission (“FTC”) and the Antitrust Division of the De-partment of Justice (“DOJ”) have increasingly relied on so-called “hot documents” as the plainest and most direct evidence of potential anticompetitive effects in horizontal merger cases. To underscore the point, the recently re-leased FTC Horizontal Merger Investigation Data report1 shows that in the fifteen years 1996-2011, the FTC brought enforcement actions in 90 percent of the cases where “hot” documents were identified. Indeed, between 2007 and 2011 alone, all FTC horizontal merger investiga-tions where hot documents were identified led to enforce-ment action.

Companies should therefore anticipate vigorous agency action when potentially damaging documents come to light and, accordingly, take the appropriate steps not just during the merger planning stages, but at all times to prevent the creation of documents that will reduce the future strategic options available to the company.

A Brief History of Hot Documents in Agency Complaints

In 2007, the FTC began an investigation into Whole Foods’ proposed acquisition of Wild Oats.2 Following its initial investigation, the FTC filed a complaint to enjoin the acquisition, alleging that it would substantially lessen competition for premium natural and organic supermar-kets in 21 markets. The complaint heavily relied on hot documents to demonstrate close competition:

• By buying [Wild Oats] we will . . . avoid nasty price wars . . . which will harm [Whole Foods’] gross margins and profitability.

• By buying [Wild Oats] . . . we eliminate forever the possibility of Kroger, Super Value, or Safeway us-ing their brand equity to launch a competing na-tional natural/organic food chain rival to us. . . .

• [Wild Oats] may not be able to defeat us but they can still hurt us . . .

• [Wild Oats] is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get into this space. Eliminating them means eliminating this threat forever, or almost forever.

The way the Whole Foods cases was presented to the court was, in hindsight, the beginning of a significant trend in the way the agencies have chosen to think about investigations and subsequent challenges.

Agencies Will Use Hot Documents to Challenge Non-HSR Reportable Transactions

Recent history shows that neither consummated transactions nor transactions of relatively low value will escape agency scrutiny. For example, earlier this year, the DOJ challenged Bazaarvoice’s completed acquisition of competitor PowerReviews, Inc. Because the transaction was not HSR reportable under the size-of-person test, the parties closed the transaction without pre-merger review.

The DOJ’s complaint alleged that the transaction sub-stantially lessened competition in the “ratings and reviews platform industry” in the United States, with the effect of raising prices and reducing innovation.3 In making its case, the DOJ relied on very explicit statements from Ba-zaarvoice’s co-founder, who, when outlining the benefits of acquiring rival PowerReviews, stated that the acquisi-tion would “[e]liminat[e] Bazaarvoice’s primary competi-tor” and provide “relief from []price erosion.” He also discussed the absence of competitive alternatives for cus-tomers, concluding that Bazaarvoice would “retain an extremely high percentage of [Power Reviews] custom-ers,” because available alternatives for disgruntled custom-ers were “scarce” and “low-quality.” These statements were echoed by Bazaarvoice’s CEO who wrote in an email that the acquisition of PowerReviews was an oppor-tunity to

“take out Bazaarvoice’s only competitor, who . . . suppressed Bazaarvoice price points by as much as 15%. . . .” and would “eliminate Bazaarvoice’s primary competitor” and “reduce comparative pricing pressure.”

The case is scheduled for trial in September 2013.



Managing Document Creation is a Serious Is-sue

Managing document creation is becoming more and more critical in the M&A process, and, of course, is perti-nent to the broader area of corporate antitrust compliance generally. As the agencies continue to rely on internal documents to develop the very theory of their cases, com-panies should consider the risk associated with a failure to monitor documents they create.

Management, especially in sales and marketing, as well as in the C-Suite, should be mindful that all manner of communications – e-mails, but also social media, instant messages, and even digital voice mails – can and often do end up in front of agency staff or opposing counsel. A single employee’s casual remark or characterization of rivals can have a material impact on the perception that agencies or courts may come to have about the function-ing of a market.

Effective management requires that regular measures are taken within the company to ensure that communica-tions accurately reflect the company’s view of the compe-tition and the markets it operates in and that wrong-headed or ill-thought out communications are avoided by those who are in a position to speak in some way for the company. This should not be just a one-off “pre-deal” issue, but a “life of the company” habit. Indeed, legacy acquisitions can have effects long after they are com-pleted, as their documents and history become part of the new structure. In those cases, although prevention cannot cure the damage done, information is key, and advanced knowledge of discoverable harmful documents can assist management and antitrust counsel to formulate strategies for avoiding or dealing with potential legal problems.

Some Basic Approaches to Avoiding or Mini-mizing the Problem

When a transaction is investigated, internal corporate documents are collected from across multiple echelons of a business, including those generated by employees that have no decision-making authority. These documents will normally be taken by agency reviewers at face value.

There are, however, ways to minimize the creation of bad documents, and to limit their potential for expensive and extensive damage.

Corporate Best Practices

• Antitrust Best Practices Training. Particularly for acquisi-tive companies, annual antitrust compliance or best practices training for employees may help eliminate various traps on the road to compliance. A discussion led by antitrust counsel about the nuances of antitrust and recent developments could help alleviate antitrust risk down the line not only on the civil side but also on the criminal side of antitrust.

• Antitrust Audits. These can be brief or extensive. An audit can reach broadly and deeply into a company, or survey just a small but crucial slice, perhaps key officers from the C-Suite plus others on sale or marketing, where important documents are most likely to be found.

Pre-Deal Routines

• Retain Antitrust Counsel Early in the Process. The impor-tance of antitrust counsel involvement in the early stages of planning a merger cannot be overstated. Many employees are unaware of the far-reaching impli-cations a single e-mail can have on the life of a deal. Bringing in antitrust counsel to explain the impact these documents can have to the various departments early on can only help to diminish the creation of bad docu-ments.

• Obtain Sample Communications from Executive Files. Com-panies should provide antitrust counsel with a discrete sample of internal data (e.g., e-mails, strategic plans) that reflect how employees view the target for a pre-liminary assessment of the transaction. These are pre-cisely the types of documents the agencies will review eventually. While cost concerns are always valid, where hundreds of millions, if not billions, of dollars are at stake, early intervention by antitrust counsel can only add value.

1 Fed. Trade Comm’n Horizontal Merger Investigation Data:

Fiscal Years 1996-2011, available at www.ftc.gov/os/2013/01/130104 horizontalmergerreport.pdf.

2 FTC v. Whole Foods Market, Inc., No. 07-1021 (D.D.C. June 6, 2007), available at www.ftc.gov/os/caselist/0710114/070605com plaint.pdf.

3 United States v. Bazaarvoice Inc., No. C-13-0133 JSC (N.D. Cal. filed Jan. 10, 2013), available at 2013 WL 228471.



At Risk Up North?: The Pharmaceutical Industry May be Facing Increased Antitrust Scrutiny in Canada Davit Akman & John Norman Gowling Lafleur Henderson LLP, Canada

I n comparison to the United States, there has been little antitrust enforcement activity in the Canadian pharma-

ceutical industry. However, recent developments, includ-ing a recently disclosed investigation by the Canadian Competition Bureau (Bureau) into whether a temporary disruption by an innovative pharmaceutical company of the supply of an older version of one of its drugs, for which the patent was shortly to expire, violated the abuse of dominance provision in Section 79 of the Competition Act, and recent statements by Commissioner of Competi-tion John Pecman suggest that the pharmaceutical indus-try may now be squarely on the Bureau’s enforcement agenda.

Aggressive Antitrust Enforcement in the United States

Aggressive enforcement of US federal antitrust laws in the healthcare sector has been a top priority of the Fed-eral Trade Commission (FTC) for many years. One of the highest priorities in this area has been “reverse payment” or “pay-for-delay” patent litigation settlements between innovative and generic pharmaceutical companies. The impugned settlements involve monetary payments (or other consideration) by an innovative company in return for a generic company’s agreement not to enter the mar-ket until a specified date. The FTC has argued that such settlements should be treated as presumptively anti-competitive and unlawful. In a decision issued on June 17, 2013 (FTC v. Actavis, Inc.), a thin majority of the U.S. Su-preme Court held that pay-for-delay settlements are open to challenge by the FTC under U.S. federal antitrust laws on a rule of reason standard. The court’s decision rejects a line of cases which had held that such settlements are pre-sumptively lawful.

The FTC is also focused on “product switching” or “product hopping.” As described by the FTC, “product switching” refers to strategies allegedly used by innovative drug manufacturers to switch demand in a market from a drug for which the underlying patent(s) will soon expire (e.g., by limiting supply or raising prices for the old prod-uct) to a new product which enjoys ongoing patent pro-tection. Because under U.S. substitution laws a generic drug must have the same dosage and form as the refer-ence brand product in order for pharmacists to be able to substitute it, moving demand to the new product for which there is no generic substitute may reduce demand

for the generic entrant and make generic entry in respect of the old product infeasible.

The FTC contends that “product reformulations con-stitute an unlawful means of preserving monopoly power in violation of Section 2 of the Sherman Act.” For their part, the innovative drug companies respond that “[e]very manufacturer that introduces a new drug seeks to ‘switch’ customers to the new product. This switching is called competition.”

A Different Approach in Canada – Until Now? In Canada, by contrast, there has been no similar en-

forcement activity by the Competition Bureau, and there is uncertainty as to whether the Bureau considers the Com-petition Act to be the appropriate vehicle for addressing complaints about alleged misuses of Canada’s drug patent laws.

However, on November 14, 2012, the Bureau com-menced an inquiry to determine whether Alcon Canada Inc. had engaged in conduct contrary to the abuse of dominance provisions in Sections 78 and 79 of the Compe-tition Act. Section 79(1) prohibits dominant firms in a mar-ket from engaging in a practice of “anti-competitive acts” (a non-exhaustive list of which appears in Section 78), whose purpose is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary, and that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a mar-ket.

Alcon manufactures and sells Patanol® and Pata-day®. Both are prescription allergy eye drops used to treat allergic conjunctivitis (sometimes referred to as “pink eye”). But Pataday is a “successor product” to Patanol and, “because of the higher concentration of olopatadine [in Pataday],” the new drug need only be taken once a day, rather than twice a day like Patanol.

The Bureau’s investigation is focused on whether Al-con abused a dominant position by seeking to switch the market from Patanol, whose patent term ended in No-vember 2012, to Pataday, which is protected by patent until 2022. In particular, the Bureau alleges that Alcon disrupted the supply of Patanol as of July 2012, in order to prevent Apotex Inc, which was approved to commence selling “generic Patanol” in Canada starting on November 22, 2012, from entering the market. According to the Bu-



reau, the purpose of the supply disruption was to “attempt to habituate physicians, who are accustomed to writing prescriptions for Patanol, to writing prescriptions for Pataday, a drug for which there is no current or fore-seeable generic substitute on the market.”

Alcon has countered that:

“[a] temporary cessation in the supply of a supplier’s own product to the end consumer is neither captured by section 78, nor is it analogous to any of the anti-competitive acts contained therein, as it is plainly not ‘one whose purpose is an intended negative effect on a competitor that is predatory, exclusion-ary or disciplinary’.... This is especially true in this context when the supplier is making avail-able a better product for the same price per dose.”

The Alcon case could set a precedent as the first abuse of dominance case by the Bureau in connection with alleged anti-competitive conduct in the pharmaceuti-

cal industry. Even if the inquiry does not make it that far, recent comments by Commissioner Pecman suggest that Alcon is highly unlikely to be the Bureau’s last foray into the pharmaceutical industry. In December 2012, Commis-sioner Pecman stated that the Bureau was “working to identify...sectors for focus.” In a speech two months later, he identified three sectors of interest to the Bureau, in-cluding the “health sector.” The U.S. Supreme Court’s decision in Actavis may also spur enforcement action by the Canadian Competition Bureau.

Comment The developments described above suggest that the

pharmaceutical industry may be facing increased antitrust risk in Canada. They also raise important questions about the appropriate limits of competition law and policy in the face of the careful statutory balance embodied in Canada’s patented medicines regime between the need for effective protection of innovators’ IP rights and timely entry by generic manufacturers. These developments should be closely monitored.



Essential Questions About Standard-Essential Patents in the U.S. and EU M. Brinkley Tappan Crowell & Moring LLP, United States Koren W. Wong-Ervin U.S. Federal Trade Commission, United States

I n November 2012, the ABA Section of Antitrust held a program on standard-essential patents (“SEPs”). This

article summarizes that program and provides an update on related developments in the U.S. and the EU.

The November 27, 2012 Program The panel featured Dina Kallay (then-Counsel for

Intellectual Property and International Antitrust at the FTC),* Lars Kjolbye (a partner at Covington & Burling in Brussels and former senior EC enforcer), Alvaro Ramos (the Legal Director of Cisco Systems in Brussels), and Ali Stoeppelwerth (a partner at WilmerHale). The panel was moderated by Koren Wong-Ervin.

What are SEPs?

Kallay explained that SEPs are patents that are techni-cally essential to the practice of a technology standard; a patent is essential if a standard cannot be implemented without that patent being infringed. Standards are gener-ally designed by voluntary consensus through standard-setting organizations (“SSOs”), which are private-sector organizations engaged in the development of standards. In the United States alone, there are approximately 50,000 private-sector voluntary standards, developed by more than 600 institutions.

Defining F/RAND

According to Kallay, F/RAND (i.e., “Fair, Reason-able And Non-Discriminatory”) licensing rates should be set at a level that avoids hold-up. Referring to the FTC’s 2003 report on promoting innovation, Kallay stated that F/RAND rates should be related to the ex ante value of the IP. In Kallay’s opinion, the value should be deter-mined based on a point in time before the standard was “irreversible.” In response to a question about the “non-discriminatory” aspect of F/RAND, Kallay responded that “all cash” transactions should reflect an identical roy-alty, while there could be differences where cross licenses are involved.

Injunctions and Exclusion Orders

According to Kallay, the FTC’s position is that a F/RAND commitment is a declaration of an intent to li-cense that is inconsistent with seeking an injunction. Kjolbye highlighted the significant leverage that such a remedy can bring to a negotiation, stating that injunctions and exclusion orders should be permitted only in situa-

tions where there is an unwilling licensee. Stoeppelwerth noted the difficulty in defining an “unwilling licensee.” Kjolbye suggested that alternative dispute resolution could be a useful way to make such a determination.

The panel discussed the FTC’s recent consent decree in In the Matter of Robert Bosch GmbH’s. In an unprece-dented decision, the FTC required Bosch to agree to li-cense its SEPs to competitors on F/RAND terms and to abandon its claims for injunctive relief as part of a merger settlement.1 The settlement was approved by a 3-2 vote by the FTC Commission, with Commissioners J. Thomas Rosch and Maureen Ohlhausen opposing the portions of the consent relating to SEPs. According to Kallay, Bosch should not be read to mean that a patent holder is always violating Section 5 of the FTC Act when it seeks an in-junction on a SEP; she said that there are “more bases you need to hit” to rise to the level of a violation. Kallay did, however, say that where a patent holder cannot pur-sue an injunction, the FTC views a suit for willful in-fringement (with treble damages) as a robust remedy.

In response to a question regarding whether the No-err-Pennington doctrine protects a SEP holder who seeks an injunction or an exclusion order, Kallay observed that the FTC’s position is that it does not. Instead, according to the FTC, a party who makes a F/RAND commitment has waived its right to engage in this type of “petitioning.”

“Commercially Essential” Patents

The panel members agreed that “hold up” with com-mercially essential patents may constitute a more signifi-cant problem in Europe where “exploitative” conduct can give rise to a violation. In the U.S., the lack of support for the essential facilities doctrine likely means that a re-fusal to license commercially essential intellectual property will not constitute a violation.

The agencies have since confirmed that the antitrust analysis for commercially essential patents is different than for SEPs. For example, on December 5, 2012, then-DOJ Deputy Assistant Attorney General for Economic Analysis Fiona Scott-Morton explained that “the differ-ence that causes F/RAND encumbered SEPs to be of concern to competition authorities including the [DOJ]” is the presence of a collective decision by competitors.2 In this regard, Dr. Scott-Morton noted that unlike SEPs, “commercially essential” patents are not imbued with market power that stems from a collective decision by



competitors. Rather, the power of a commercially essen-tial patent springs only from a single innovation deployed unilaterally by its owner.3 She went on to explain that imposing restraints on the exploitation of a commercially essential patent would be antithetical to the goal of the antitrust laws.

Transfer of F/RAND-Encumbered SEPs

The panelists generally agreed that F/RAND com-mitments should transfer with SEPs. Kallay said that this is the FTC’s view as well, as exemplified in the N-Data consent decree.4 When asked about transfers to patent-assertion entities (“PAEs), Stoeppelwerth said that it is important to look at the incentives of the original owner, and the potentially different incentives of the acquirer. Ramos added that the essential question is whether the purpose of the acquisition is to harm rivals. Where a PAE has relationships with companies that practice a pat-ent, this is a factor that has to be evaluated. The panelists seemed to reach a consensus that there is so far no certain mechanism for evaluating the competitive impact of transfers of large intellectual property portfolios. When a transaction is reportable under the Hart-Scott-Rodino Act, the agencies will, of course, review it. When a trans-action is not reportable, however, the panel seemed to agree that agencies in both the U.S. and EU are more likely to take a “wait and see” approach.

The Role of Standard-Setting Organizations

Kallay noted that the FTC has taken no official posi-tion on how SSOs should govern. The DOJ has, how-ever, offered numerous suggestions for SSOs. For exam-ple, in remarks prepared for the ITU-T Patent Roundtable in October 2012, Deputy Assistant Attorney General Re-nata B. Hesse set forth the following suggestions for SSOs:

• “Establish procedures that seek to identify, in ad-vance, proposed technology that involve patents that the patent holder has not agreed to license on F/RAND terms, and consciously determine whether that technology should be included in the standard”;

• “Make it clear that licensing commitments made to the standards body are intended to bind both the current patent holder and subsequent purchas-ers, and that such commitments extend to all im-plementers of the standard,” whether or not they are members of the SSO;

• Require licensors to offer “licensees the option to license [SEPs] on a cash-only basis and prohibit the mandatory cross-licensing of patents that are not essential to the standard or a related family of stan-

dards, while permitting voluntary cross-licensing of all patents”;

• “[L]imit a patent holder’s right to seek an injunction to situations where the standards implementer is unwilling to have a neutral third-party determine the appropriate F/RAND terms or is unwilling to accept the F/RAND terms approved by such a third-party”;

• Take steps to lower the transaction costs of deter-mining F/RAND terms, including “exploring set-ting guidelines for what constitutes a F/RAND rate or devising arbitration requirements”; and

• “Consider ways to increase certainty that patent holders believe that disclosed patents are essential to the standard after it is set.”5

Hesse also encouraged firms to “seize the opportunity to eliminate some of the ambiguity that requires difficult ex post deciphering of the scope of a F/RAND commit-ment.”6 Similarly, in March 2013, DG Competition Chief Economist Kai-Uwe Kühn, Fiona Scott-Morton and Chief FTC Economist Howard Shelanski wrote a paper contending that “SSOs can substantially reduce the prob-lem of hold-up and litigation . . . by reforming their IPR policies.”7

Recent Developments Since the November 2012 program, there have been a

number of important developments related to SEPs.

EC Statement of Objections to Samsung on Po-tential Misuse of Mobile Phone SEPs

In December 2012, the EC sent a Statement of Ob-jections to Samsung Electronics Co., Ltd., informing Sam-sung of its preliminary view that Samsung’s seeking in-junctions against Apple in various Member States on the basis of its mobile phone SEPs amounts to an abuse of a dominant position prohibited by EU antitrust rules.8 The EC Press Release states that, “[w]hile recourse to injunc-tions is a possible remedy for patent infringements, such conduct may be abusive where SEPs are concerned and the potential licensee is willing to negotiate a license” on F/RAND terms.9

In the Matter of Motorola Mobility LLC and Google Inc.

On January 3, 2013 the FTC voted 4-1 to accept a consent agreement package designed to prevent Google from using injunctions on F/RAND-encumbered SEPs against willing licensees.10 Under the Proposed Order, prior to seeking injunctive relief, Google and Motorola must:



• at least six months prior to pursuing injunctive re-lief, make a binding written offer to license that contains a full description of all material commer-cial terms proposed;

• at least 60 days prior to pursuing injunctive relief, make a binding written offer to use binding arbitra-tion to establish a licensing agreement; and

• negotiate with the potential licensee for at least 6 months.

Furthermore, if a potential licensee seeks judicial re-lief for a F/RAND determination, Google must not seek an injunction during the pendency of the proceeding, in-cluding appeals. All licensees, whether they choose arbi-tration or litigation, must commit to honoring the inde-pendently determined royalty rate. Google may condition the offer to license on reciprocity (i.e., conditioning an offer to license on receiving a cross-license to the licen-see’s F/RAND-encumbered SEPs to the same standard), but may not require the potential licensee to license any patent claim not essential to a standard practiced by the potential licensee or to license any other patents or intel-lectual property.

The proposed order includes the following excep-tions, permitting Google and Motorola to seek injunctive relief for alleged infringement of a F/RAND-encumbered SEP against a potential licensee who:

• is outside the jurisdiction of the U.S. District Courts;

• has stated in writing or sworn testimony that it will not license the SEP on any terms;

• refuses to enter a license agreement covering the SEP on terms that have been set in the final ruling of a court or through binding arbitration;

• fails to provide the written confirmation as re-quested by Google in a F/RAND Terms Letter (a binding irrevocable commitment to cross-license F/RAND Patents on F/RAND terms) within thirty days of receiving the letter; or

• is seeking injunctive relief against Google based on infringement of the potential licensee’s F/RAND-encumbered SEP.

DOJ and USPTO Joint Policy Statement on Remedies for F/RAND-Encumbered SEPs

On January 8, 2013, the DOJ and the USPTO issued a joint policy statement on the availability of injunctive relief for F/RAND-encumbered SEPs in judicial proceed-ings under section 337 of the Tariff Act of 1930.11 The statement contends that, “[i]n some circumstances, the

remedy of an injunction or exclusion order may be incon-sistent with the public interest. This concern is particu-larly acute in cases where an exclusion order based on a F/RAND-encumbered patent appears to be incompatible with the terms of a patent holder’s existing F/RAND li-censing commitment to an SDO [standard setting organi-zation].12

The DOJ and USPTO urged the International Trade Commission (“USITC”) to consider whether a patent holder has acknowledged voluntarily through a commit-ment to license its patents on F/RAND terms that money damages, rather than injunctive or exclusionary relief, is the appropriate remedy for infringement.13 The statement further recommends that “it may be appropriate for the USITC, as it has done for other reasons in the past, to delay the effective date of an exclusion order for a limited period of time to provide parties the opportunity to con-clude a F/RAND license.”14 Importantly, the Statement submits that an exclusion order may be an appropriate remedy in some circumstances, “such as where the puta-tive licensee is unable or refuses to take a F/RAND li-cense and is acting outside the scope of the patent holder’s commitment to license on F/RAND terms.”15

Microsoft Corp. v. Motorola, Inc.

On April 19, 2013, U.S. District Court Judge James Robart became the first U.S. judge to determine a RAND royalty rate and range for SEPs in a dispute between Mi-crosoft Corp. and Motorola, Inc. The court adopted a modified-version of the Georgia-Pacific factors to recreate a hypothetical negotiation between the parties. The court determined that “the parties in a hypothetical negotiation would set RAND royalty rates by looking at the impor-tance of the SEPs to the standard and the importance of the standard and the SEPs to the products at issue.”16 The court further stated that “a proper methodology for deter-mining a RAND-royalty should address the risk of roy-alty-stacking by considering the aggregate royalties that would apply if other SEP holders made royalty demands of the implementer.”17 Furthermore, “a RAND commit-ment should be interpreted to limit a patent holder to a reasonable royalty on the economic value of its patented technology itself, apart from the value associated with incorporation of the patented technology into the stan-dard.”18 Lastly, the court held that, “[d]espite concerns with using a pool rate as the de facto RAND royalty rate, the court concludes that under certain circumstances, pat-ent pools can serve as indicators of a royalty rate that falls within the range of royalties consistent with the RAND commitment.”19

Motorola contended that it was entitled to a royalty rate of 2.25% of the net selling price of Microsoft’s Win-



dows and Xbox products for both its H.264 and 802.11 SEP portfolios. Microsoft contended that the MPEG LA H.264 patent pool was the best indicator of a RAND roy-alty rate for Motorola’s H.264 SEPs. The court con-cluded that certainof Motorola’s patents contributed little to the standards and played only minor importance in the overall functionality of Microsoft’s Xbox. Although the court agreed “as a general matter that patent pools tend to produce lower rates than those that could be achieved through bilateral negotiation,” the court nevertheless found that “the MPEG LA H.264 patent pool is an indi-cator of a RAND royalty rate” for Motorola’s SEPs.20 Taking all of these factors into account, the court settled on a RAND rate of 0.555 cents per unit for Motorola’s H.264 SEPs, and 3.471 cents per unit for Motorola’s 802.11 SEPs.

Conclusion The DOJ, FTC, and EC are active in the area of SEPs

and have expressed the intention to remain that way. In addition to monitoring the agencies, practitioners should pay close attention to SEP-related litigation both in the U.S. and abroad, as court decisions are also likely to have an important impact on policy in this area.

* Ms. Kallay was speaking on her own behalf, not for the FTC or

any commissioner. 1 FTC Decision and Order (Nov. 26, 2012), available at

www.ftc.gov/os/caselist/1210081/121126boschdo.pdf. 2 Scott-Morton Speech, The Role of Standards in the Current Patent

Wars, at 6 (Dec. 5, 2012), available at www.justice.gov/atr/public/speeches/289708.pdf.

3 Id. at 5-6. 4 Decision and Order, In the Matter of Negotiated Data Solutions

LLC (Sept. 22, 2008), available at www.ftc.gov/os/caselist/0510094/080923ndsdo.pdf.

5 Renata B. Hesse, Six “Small” Proposals for SSOs Before Lunch, Remarks as Prepared for the ITU-T Patent Roundtable, at 9-10 (Oct. 10, 2012), available at arti-cles.law360.s3.amazonaws.com/0385000/385506/ITU%20- %20Six%20Small%20Proposals%20for %20SSOs%20Before%20Lunch.pdf.

6 Id. at 11. Another example is a recent speech by former Acting Assistant Attorney General Joseph Wayland, Antitrust Policy in the Infor-mation Age: Protecting Innovation and Competition (Sept. 21, 2012), available at www.justice.gov/atr/public/speeches/287215.pdf.

7 Kai-Uwe Kühn, Fiona Scott Morton, and Howard Shelanski, Standard Setting Organizations Can Help Solve the Standard Essential Patent Licensing Problem, CPI (March 2013), at 1, available at www.competitionpolicyinternational.com/assets/Free/ScottMortonetalMar-13Special.pdf.

8 EC Press Release, Antitrust: Commission sends Statement of Objec-tions to Samsung on potential misuse of mobile phone standard-essential patents (Dec. 21, 2012), available at europa.eu/rapid/press-release_IP-12-1448_en.htm.

9 Id. 10 FTC Decision and Order, available at www.ftc.gov/os/

caselist/1210120/130103googlemotorolado.pdf. 11 DOJ-USPTO, Policy Statement on Remedies for Standard-Essential

Patents Subject to Voluntary F/RAND Commitments (Jan. 8, 2013), available at www.justice.gov/atr/public/guidelines/290994.pdf.

12 Id. at 6. 13 Id. at 9. 14 Id. at 10. 15 Id. at 7. 16 Findings of Fact and Conclusions of Law at 7. 17 Id. at 25. 18 Id. at 25-26. 19 Id. at 164. 20 Id. at 160, 164.



Ecuador’s Initial Phases of Competition Law Implementation Luis Marín Tobar Perez Bustamante & Ponce, Ecuador

U ntil recently, Ecuador remained among the few countries in Latin America that had not adopted

domestic competition legislation. Prior to the enactment of its first domestic competition legislation, an Andean Community statute was enforced in Ecuador between 2009 and 2012 by an undersecretariat of competition and consumer defense within a ministry of the Ecuadorean government. During this period of marked procedural and substantive ambiguity, only two cases led to the imposi-tion of fines on operators: one concerned a multinational pharmaceutical for sham litigation of its patents, and the other concerned bid-rigging in the government’s system of public procurement for hardware provision services. The aggregate of the fines in these cases did not exceed US $1,000,000 because of the limited investigative, en-forcement and fining capacity of the former authority.

The incumbent Ecuadorean competition authority–the Superintendency for Market Power Control–was cre-ated through the Organic Law for Regulation and Control of Market Power (hereinafter “The Law”) in October 2011; its implementing regulation was enacted in May 2012 and its Superintendent, Mr. Pedro Paez, was ap-pointed in September 2012.

The Superintendent began by structuring the agency through four deputy superintendencies: the first for inves-tigation of the abuse of market power and restrictive agreements and practices; the second for investigation of unfair practices; the third for concentration control; and the fourth for competition advocacy. These deputy super-intendencies perform their duties, and in cases where a formal procedure is initiated, provide their recommenda-tions to a first instance resolution commission, composed of three commissioners.

With a new merger control regime in place, several multijurisdictional filings have now been received by Ec-uador as a jurisdiction where mandatory filing is required. Prior approval is required when either of two thresholds are met: a) when the combined amount of business in Ecuador of the participants to the transaction in the prior financial year of operation exceeds an amount defined by the Regulating Board (which to date has not yet been fixed); and b) when the transaction will lead to obtaining or increasing the market share of the acquiring entity in more than 30% of the relevant market.

The authority has started inquiries in the flour, bank-ing, telecommunications, and insurance markets, and has given significant importance to what seems to be a sector-wide inquiry of broad scope into the pharmaceutical sec-tor. Representatives of the key players1 in the Ecuadorean market have been called for interviews, including import-ers, producers, local distributors and public authorities, including the Ecuadorean Ministry of Public Health, and the authority in charge of the public procurement system.

It is noteworthy to observe that according to the text of the Law, the conduct of a local subsidiary is attribut-able to itself and the controlling parent company when the conduct of the first has been determined by the sec-ond. Fines can therefore be imposed on the local subsidi-ary, and consider the parent company as a party to the local infringement, thus including the parent company’s turnover in the calculation of fines, unless it can be dem-onstrated that the economic behavior was not determined by it. In all practical terms, this creates a positive obliga-tion on the infringing party, which has the effect of re-verting the burden of proof. Fines on infringers may range from 8-12% of the previous year’s gross revenues depending on the gravity of the infringement. Personal fines of up to US $150,000 can be imposed on the legal representatives or members of the board of directors who intervened in the conduct or decision.

The authority has been determined to legitimize its authority through intense transparency of its work, and diffusion of its activities through its website2 and its Twit-ter account.3 Information on its website may seem exces-sive, considering that certain sections grant public users access to information relating to, amongst others: admin-istrative, legal, financial, operative, labor, and institutional planning matters, including the full directory of the au-thority with names and ranks, alongside a financial remu-neration report detailing the amounts earned by each rank within the authority. Also surprising is the level of detail of the expenses and mobilization reports of officials (which should soon become unsustainable when “dawn raids” in cartel investigations and general investigative procedures commence).

The political atmosphere and general economic cli-mate in Ecuador is important to take into account to an-ticipate the scope, reach and power this authority will ex-



ert in the Ecuadorean market. A territory which has al-ready been determined to be heavily concentrated by the authority’s “Preliminary Diagnostic of the state of competition in Ecuador,”4 and the government’s open speech in support of competition regulation and the authority’s intervention, will most likely lead to intense enforcement.

The Ecuadorean President, Rafael Correa, a US-educated economist, was negatively referred to by the Economist as “The man with the mighty microphone” in a Feb-ruary 9, 20135 column, in which it described his admini-stration as one where “government revenues have almost tripled since 2006, with oil accounting for about half of the rise. Opportu-nistically, Mr Correa scrapped previous fiscal rules that required part of windfall revenues to be saved, and defaulted on $3.2 billion in foreign bonds.” A few days later, and after his reelection for a third term in office, the Financial Times6 looked with skepticism on Ecuador’s default on foreign bonds, the country’s decision to renegotiate foreign oil compa-nies’ contracts, and the country’s reliance on loans from China in exchange for oil barrels. The Guardian7 had nev-ertheless expressed a position of admiration for the ad-ministration as one where “Unemployment fell to 4.1% by the end of last year – a record low for at least 25 years. Poverty has fallen by 27% since 2006. Public spending on education has more than doubled, in real (inflation-adjusted) terms. Increased healthcare spending has expanded access to medical care, and other social spending has also increased substantially, including a vast expansion of government-subsidised housing credit.” This same publication considered the financial reforms by the country as possi-bly “the most comprehensive financial reform of any country in the 21st century” where “the government took control over the central bank, and forced it to bring back about $2bn of reserves held abroad. This was used by the public banks to make loans for infra-structure, housing, agriculture and other domestic investment. It put taxes on money leaving the country, and required banks to keep

60% of their liquid assets inside the country. It pushed real interest rates down, while bank taxes were increased. The government rene-gotiated agreements with foreign oil companies when prices rose.” The divided opinions evidence the different passions the country’s policies and actions trigger abroad, but it is im-portant to observe that the 2013 investment climate state-ment for Ecuador8 published annually by the U.S. Depart-ment of State maintains important observations with re-gards to foreign investment in Ecuador, and interestingly mentions the restriction created by transitory provisions of the Law with regards to investors possessing more than a 6% interest in a media company from investing in any other business sector. By July 2012, all media companies were obligated to divest their non-media assets in compli-ance with the law.

1 Amongst others: Pfizer Cia. Ltda,, Novartis Ecuador S.A., Roche

Ecuador S.A., Grunenthal Ecuatoriana Cia. Ltda, GlaxoSmithKline, Prophar S.A., Leterago, JRC Pharma, Roddome Pharmaceutical S.A., Italchem Ecuador S.A., Kronos Laboratorios C.A., Quimica Ariston Ecuador C.A., and local distributors Quifatex, Ferbovasa and Difare. Information publicly available at www.scpm.gob.ec.

2 www.scpm.gob.ec. 3 @CCiudadania2012. 4 scpm.gob.ec/indicadores-de-diagnostico-sectorial-de-la-

competencia/. 5 “The man with the mighty microphone” – The Economist –

February 9, 2013 www.economist.com/news/americas/21571426-hav ing-mixed-good-bad-and-ugly-during-six-years-power-rafael-correa-heading.

6 “Correa claims another term in Ecuador” – Financial Times - February 18, 2013 www.ft.com/cms/s/0/4d78016c-7910-11e2-b4df-00144feabdc0.html#axzz2SDecZ56F.

7 “Why Ecuador loves Rafael Correa”- The Guardian UK - Febru-ary 15, 2013 www.guardian.co.uk/commentisfree/2013/feb/15/rafael-correa-ecuador-elections.

8 “2013 investment Climate statement – Ecuador,” US Depart-ment of State: www.state.gov/e/eb/rls/othr/ics/2013/ 204634.htm.



The Apple Case and the Paradoxical Assessment of Tying Agreements in India Kalyani Singh* Luthra & Luthra Law Offices, India

I n March 2013, the Competition Commission of India (CCI) dismissed a claim against Apple Inc. (Apple) for

allegedly violating key provisions of the Competition Act, 2002 (Competition Act). The CCI scrutinized the distribu-tion agreements between Apple and local Mobile Net-work Operators (MNO’s) for sale and distribution of iPhones in India.1

The agreement in question gave rights to two leading MNOs in India to sell iPhones in the country. The iPhones sold through these MNOs were locked-in with their respective networks. Notwithstanding the pervasive nature of such agreements in other countries,2 the CCI observed that the iPhones sold through this arrangement warranted an examination under the Competition Act.3

While deliberating the facts of the case at hand, an alternative source of purchase for consumers was ac-knowledged. The CCI indicated that Authorized Premium Resellers also sold iPhones in the market. Nevertheless, the CCI concluded that consumers interested in buying an iPhone were tied to cellular services provided only by ei-ther of the two MNOs. The CCI held this lock-in agree-ment to be “contractual tying” and scrutinized the same as a tie-in agreement.4

This article attempts to outline the underlying princi-ples observed by the CCI to assess the concept of tie-in arrangements.

An Unconventional Definition of a Tie-In Ar-rangement

Internationally, tying has been defined as the purchase of one good (the tying good) that is made conditional on the purchase of another good (the tied good).5 CCI’s un-derstanding, with respect to the definition of tying agree-ments, seems to converge with this transatlantic concept.6

However, the agreements in question, as demon-strated by the facts, would make for a rather unconven-tional form of tying as compared to the international stan-dard. In this case, not only was the tied product (cellular services) not provided by the supplier of the tying product (iPhones), there were two suppliers for the tied product.

Whilst not unheard of, antitrust theory suggests that if the tying and the tied products are not provided by the same supplier, there must be some sort of economic inter-est for the supplier of the tying product, in the sale of the

tied product, to make the agreement fall under the pur-view of antitrust laws.7

Additionally, the presence of two suppliers for the tied product, especially when the tied product is a comple-mentary product for the tying product (as in this case), would dilute the extent of coercion exerted on consum-ers–a sacrosanct condition for a tie-in arrangement.8

As opposed to the traditional per se approach adopted in jurisdictions like the U.S. and EC, the CCI adopts a rule of reason approach. This assessment methodology adopted by the CCI could be the reason for a rather leni-ent application of the definition of tying arrangements.

CCI’s Paradoxical Assessment Tying arrangements have been, and still remain, an

anathema of sorts for antitrust authorities. Transitioning from an attitude of outright hostility towards these agree-ments to a justified acceptance, legal analysis for tying agreements has witnessed a paradigm shift across jurisdic-tions.9

One reason for this is perhaps the ubiquitous nature of tie-in arrangements. As pointed out by Robert H. Bork:

“Every person who sells anything imposes a tying ar-rangement. This is true because every product or service could be broken down into smaller components capable of being sold separately, and every seller refuses at some point to break the product down any further.”10

While the traditional antitrust jurisprudence ignored this ubiquity, the modern day approach seems to accept this feature of tying agreements. As observed by the U.S. Supreme Court in Jefferson Parish: “[e]very refusal to sell two products separately cannot be said to re-strain competition.”11

The CCI seems to acknowledge and accept this aspect of tying agreements.12 The regulator pointed out that the conditions necessary for anti-competitive tying are:

• Presence of two separate products. • Sufficient economic power with respect to the ty-

ing product. • The arrangement must affect a “not insubstantial”

amount of commerce.13

This rule for analysis is similar to the standard pro-pounded by the U.S. Supreme Court14 and also observed in the EC.15



What is perhaps odd is that the Apple agreements were scrutinized despite a lack of market power.16 One fact that has been reaffirmed through the assessment of similar agreements in experienced jurisdictions, like the U.S. and EC, is that sufficient market power, for the sup-plier of the tying product, is a necessary but not sufficient condition for an illegal tying agreement.17 Even under the rule of reason, market power has been an essential re-quirement for tying arrangements to come under the pur-view of antitrust laws.18

Another relevant question the CCI’s scrutiny poses is what would happen when the aforementioned conditions are met, particularly if the sufficient market power would amount to dominance in the market?

Indian competition law jurisprudence seems to emu-late the traditional EC approach. The issue of tying under EC law has been addressed largely in the context of the control of unilateral behavior of dominant firms.19 The Indian case laws suggest a form-based approach in cases relating to abuse of dominance where there is no need to establish an adverse effect on competition.20

Unlike the new modified per se rule expounded by the U.S. Supreme Court,21 or the effects based analysis under-taken by the EC,22 the CCI has not recognized the exis-tence of objective justifications as a defense. When seen in this light, coupled with the doctrinal approach that the CCI seems to adopt (particularly in abuse of dominance cases), tying agreements involving a dominant firm will most likely be assessed under the per se approach. In such cases, the agreements would in all probability be consid-ered as lacking any redeeming qualities, thereby running afoul of the Competition Act.

The Present Jurisprudence Could Have Seri-ous Implications on the Free Market Concept

The present analytical framework laid down by the CCI (which in turn is likely to reflect in its enforcement priorities) resonates with an understanding that is reflec-tive of the traditional per se approach towards tying agree-ments. Given the ubiquitous nature of such arrangements, and the efficiencies such arrangements would ordinarily have, the present standard is likely to be a source of much heartburn in the future.

There is plenty of literature that has emphasized the necessity to take a contextual application as opposed to the doctrinal approach that the CCI seems to have

adopted. One major reason for this is that form-based enforcement, particularly in agreements as ubiquitous as these, is likely to result in Type I errors leading to false positives.23

An enforcement policy necessitating a firm with mar-ket power to always sell nuts and bolts separately, albeit easier to implement, would kill a large number of effi-ciency-enhancing practices with no anticompetitive effects to catch just a small number of anticompetitive effects.24

With international jurisprudence evolving towards the “less is more” belief, having enforcement priorities as the ones indicated by the CCI is likely to be cause of diver-gence in the area of competition law.

* The views expressed in this article are exclusively those of the

author and do not necessarily reflect those of Luthra & Luthra Law Offices, its partners, or clients.

1 Sonam Sharma v. Apple Inc. & Ors. Case No. 24/2011. 2 Id. ¶ 56. 3 Id. ¶ 32. 4 Id. ¶ 70. 5 Christian Ahlborn, D. Bailey and H. Crossley, An Antitrust

Analysis of Tying: Position Paper, at 167, GCLC Research papers on Article 82 EC (2005).

6 Apple Inc., supra, note 1, ¶ 66, 22. 7 ABA Section of Antirust Law, Antitrust Law Developments

173 (7th ed. 2012). 8 Ahlborn, supra, note 5. 9 Id. 10 Robert H. Bork, The Antitrust Paradox 378-79 (1978). 11 Jefferson Parish Hospital Dist. No. 2 et al. v. Hyde, 466 U.S. 2, 21

n.34 (1984). 12 Apple Inc., supra, note 1 ¶ 69. 13 Id. ¶ 70. 14 Northern Pacific Railway Co. et al. v. United States, 356 U.S. 1

(1958). 15 DG Competition discussion paper on the application of Article

82 of the Treaty to exclusionary abuses ¶ 182, 55 (2005). 16 Apple Inc., supra, note 1 ¶ 62 and ¶ 74. 17 Christian Ahlborn; David S Evans; A Jorge Padilla, The anti-

trust economics of tying: a farewell to per se illegality, 287, Antitrust Bulletin (2004).

18 Illinois Tool Works Inc., et al. v. Independent Ink, Inc. 547 U.S. 28 and EC Guidelines on Vertical Restraints, ¶218 (2010/C 130/01).

19 The concept of sufficient market power in the U.S. equates to the concept of dominance in the EC. See, Ahlborn, supra, note 5 at 198.

20 MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd., Case No. 13/2009, ¶ 25.1, 161.

21 Jefferson Parish, supra, note 9. 22 Discussion Paper, supra, note 15 ¶ 183 at 55. 23 Ahlborn, supra, note 17 at 297. 24 Id. at 340.



Meet the Authors

Cecil Chung is Senior Foreign Counsel in the Seoul office of Yulchon LLP.

Koren W. Wong-Ervin is a Consultant in the Office of International Affairs at the U.S. Federal Trade Commission in Wash-ington.

Linda Evans is a Partner in the Sydney office of Clayton Utz.

Davit Akman is a Partner in the Toronto office of Gowling Lafleur Henderson LLP.

Timothy Hirsch is an Associate in the New York office of Axinn, Veltrop & Harkrider LLP.

David Cardwell is a Senior Associate in the Brussels office of Baker Botts L.L.P.

John Norman is a Partner in the Ottawa office of Gowling Lafleur Henderson LLP.

Luis Marín Tobar is a Junior Associate in the Quito office of Perez Bustamante & Ponce.

John Oxenham is a Co-Founder and Di-rector of Nortons Inc. in Sandton.

Amadeu Ribeiro is a Partner in the Rio de Janeiro office of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados.

Irina C. Rodríguez is an Associate in the New York office of Axinn, Veltrop & Harkrider LLP.

Fiona Schaeffer is a Partner in the New York office of Jones Day.

Kalyani Singh is an Associate in the New Delhi office of Luthra & Luthra Law Of-fices.

M. Brinkley Tappan is Counsel in the Washington office of Crowell & Moring LLP.