#17315 - Extraterritoriality - Competition Law

Extraterritoriality

EXTRATERRITORIALITY

An infringement of competition law may have consequences within territory X even though the conduct that caused those consequences occurred, and may have even been completed, in territory Y.

To protect domestic markets, X’s competition agency may extend their jurisdiction beyond the boundaries of X and apply national laws to activities that may have been cleared by Y.

Traditional ‘territoriality’ principle – X has power to make laws to affect conduct within territory X or to regulate conduct completed within territory X. Extraterritoriality departs from this.

The extension of the territoriality principle relies on one of two concepts:

1. Effects doctrine;

• Extends jurisdiction where transaction has an effect within given territory.

• Favoured notably in USA.

2. Implementation doctrine.

• More restrictive, requiring ‘implementation’ within given territory as a condition for extraterritorial application of national laws.

1 – Grounds for extension of territoriality principle

1.1 – Single economic entity

Single economic entity doctrine states that parent companies and subsidiaries form a single economic entity – where a parent company or subsidiary are based in EU, EU competition law has jurisdiction.

• ICI Dyestuffs [1972]: Fact that a subsidiary has a separate legal personality is insufficient to exclude possibility of imputing its conduct to the parent company.

• This is particularly the case where subsidiary does not decide independently on its own conduct on the market – carries out instructions given to it by parent company.

• Formal separation of companies, resulting from separate legal personality, does not outweigh unity of their conduct on the market for purposes of applying competition rules.

NOTE: This is the most straightforward doctrine to establish EC jurisdiction – requires a parent company or subsidiary to be based in EU.

1.2 – Implementation doctrine

Jurisdiction under EU law exists over firms based outside it if they implement anticompetitive conduct within the EU, even if it was agreed on outside the EU (Wood-pulp II [1993]).

• Producers established in countries outside EU (e.g. USA/Canada) engage in competition within the internal market where they:

1. Sell directly to customers established in EU; and

2. Engage in price competition to win orders from those customers.

• If competition rules to depend on place of formation, would be too easy to evade. Implementation thus decisive factor.

So, where if D had no recourse to parent companies or subsidiaries based in EU, it does not matter if they implement the agreement within the internal market. Focus is not on the formation of the agreement, but its implementation.

Mere fact that X did not sell the product to EU purchasers does not preclude implementation – abuse of dominant position, for example, can be the grant of financial incentives (as it was in Intel (GC)).

NOTE:

Say X and Y, both based in the USA but with global operations (i.e. they sell within the internal market) both have their prices set at 100. They then agree that they shall not increase or decrease their prices in the EU beyond the range 90-110, but do not actually change their prices (their current price is in the middle of the range). Have they implemented their agreement within the EU yet given nothing has changed in actual pricing terms from prior to the agreement being formed?

Admittedly, the above is quite academic, given the “qualified effect” condition would likely be met because there is an “immediate, substantial and foreseeable” effect insofar as prices are barely going to be changed heading into the future.

It is likely that the threshold would be very low once a price fixing agreement starts to be discussed – EC would probably take not changing prices as implementation of the agreement itself.

1.3 – Qualified effects doctrine

Application of EUMR (and EU competition law more broadly) justified under public international law where it is foreseeable that proposed concentration will have an immediate, substantial and foreseeable effect in the EU (Gencor [1999]).

Gencor [1999] appeared to endorse the effects doctrine; ECJ’s endorsement was later confirmed in the Intel judgements in General Court and ECJ.

• Intel (GC): Implementation doctrine and qualified effects doctrine are alternative benchmarks for establishing extraterritorial application of EU competition rules.

• Implementation:

• Held in Wood-pulp II [1993] that necessary to distinguish formation or agreement from implementation thereof.

• Qualified effects of the practices in the EU:

• Gencor [1999]: Require an immediate, substantial and foreseeable effect in EU.

• EC does not have to establish actual effects to justify its jurisdiction.

• EC cannot be expected to adopt a passive position where there is a threat to effective competition in the internal market – may intervene where threat:

1. Did not materialise; or

2. Has not yet materialised.

• Intel (ECJ): Confirmed Intel (GC) – both tests can be used to establish jurisdiction of EC under public international law to punish conduct adopted outside EU.

• Both tests pursue the same objective – ‘preventing conduct which, while not adopted in the EU, has anticompetitive effects liable to have an impact on the EU market’.

• When establishing jurisdiction, appropriate to account for X’s overall strategy and consider its conduct as a whole in order to assess substantial nature of its effects on the market of EU and EEA.

NOTE:

• The implementation doctrine and qualified effects doctrine are very close to each other – main situation to distinguish them would be boycotting sales within Europe. Is it implementation if X is not selling there?

• Qualified effects doctrine does add to implementation doctrine, though, in relation to globally-focused agreements formed and implemented outside EU.

• After Intel, ECJ would likely run through the qualified effects doctrine – mention both in a PQ for ‘brownie points’.

2 – Political issues with extraterritoriality

Political tensions can be caused by long-arm jurisdiction.

• Boeing: Neither Boeing nor McDonnell Douglas had any facilities or assets in EU, however worldwide turnover met thresholds in Article 1 EUMR – transaction under EC’s jurisdiction – open to EC to block it.

• Tension in USA in particular – critics suggested that EC’s concerns were based on protectionist interest in protecting Airbus, rejecting EC’s assertions that its findings were based strictly on EU law.

• Clinton threatened to take matter to WTO if transaction blocked by EC.

• General Electric/Honeywell: EC prohibited GE’s proposed 42 billion USD takeover of H, asserting that merger would have reduced competition in aerospace industry.

• US Department of Justice had earlier that year passed the merger, requiring minimal deposits.

• DOJ determined it would have been procompetitive and beneficial to customers – would offer better products and services at lower prices than either GE or H could do individually.

• Critics claimed it was driven by non-competitive considerations; Commissioner Mario Monti rebuked this, saying ‘this is a matter of law and economics, not politics’.

3 – Legal Context: Multitude of Competition Goals

Competition law is about more than promoting consumer welfare; in many cases it is used as a vehicle for promoting social policy, advancing wider interests.

• Prime goal of competition law tends to be promoting consumer welfare, however it is only one of the goals; the others feed into one another, having an emphasis on consumer welfare.

• Other goals include:

• Fairness;

• We see this everywhere in the Treaties – means we care about the distribution of wealth in Europe.

• You won’t find fairness playing such a role in many other jurisdictions; fairness not a benchmark in itself but it colours other goals.

• Market integration;

• Plurality and economic freedom;

• Effective competition structure;

• NOTE: If we...