A Student’s Guide to Antitrust (Competition) Law
1. What is Antitrust?
Antitrust is the set of rules and regulations that governments use to maintain and promote competition in the market.
This includes rules against price-fixing between competitors, competitor companies merging to become monopolies, "dominant" companies (such as Google or Amazon) abusing their market power, and even rules against European Member States giving large free cash grants to particular companies or industries.
2. What is it like to be an Antitrust lawyer?
At Shearman, we represent companies who become embroiled in a range of Antitrust disputes. This could include, for example, a company undergoing a large merger where the merger is being investigated as potentially lessening competition; a third party who wants to complain about a merger, on the basis that it will lessen competition; a company who is suspected of being involved in a price-fixing cartel; or finally, a company who is being offered a large cash grant from a European Member State and wants to know if this is in breach of competition rules.
To practice Antitrust, you need to be able to quickly and accurately apply the law to often complex and disputed sets of facts.
Practicing Antitrust law is particularly unique in requiring detailed knowledge of your client's product market. There is no limit to the markets that can be subject to Antitrust scrutiny: they can range from household consumer items (bottles of water, biscuits) to industrial markets (oil and gas, telecoms), technology and media, and of course financial services.
You can expect to become a subject matter expert on a range of unexpected and quirky markets!
Antitrust is a politically charged practice area, and can frequently be read about in the press.
Recently, the 'FANG' (Facebook, Amazon, Netflix and Google) companies have come under scrutiny, culminating in several multi-billion dollar fines being levied on Google for abuse of its dominant position. You can read our analysis of these complex cases here. An interest in politics and economics, and how these impact the regulation of companies, is an asset in being an Antitrust lawyer.
3. Types of Antitrust
Anticompetitive Agreements: when people think of Antitrust law, they often think of price-fixing cartels. Whilst price-fixing is certainly a "classic" anticompetitive agreement, there are a wide range of agreements, arrangements and concerted practices which may prevent, restrict or distort competition, and which affect or may affect trade within the market. These may be horizontal agreements (between competitors) or vertical agreements (between players up and down the supply chain).
When an agreement is exposed, a client could be subject to not only large fines from the relevant authority, but also follow-on litigation in national courts and a raft of bad publicity.
We advise on a wide range of situations in the context of anticompetitive agreements, including not only alleged participants but also whistle-blowers and claimants in the following-on litigation.
Unilateral Conduct: some companies are so powerful in their market that their behaviour alone, without any sort of agreement with a competitor, may constitute a breach of antitrust law: for example, acting to foreclose the market to competitors, to the ultimate detriment of consumer welfare. A common example of exclusionary behaviour is 'predatory pricing', where a dominant company deliberately makes its products very cheap to try and undermine competitors. Abuse of Dominance under EU law has been in the media spotlight, with recent fines on Google for 'tying' its Google Search app and Chrome browsers as conditions for manufacturers using its Google Play app store.
Merger Control: if two companies merge to hold a significant portion of the market, there is a risk that this could lessen competition and result in higher prices, reduced choice and less innovation for customers.
At Shearman, we frequently advise on companies undergoing M&A who may have to notify their transaction to the relevant antitrust authorities. Whilst often the transaction goes ahead without incident, sometimes there is sufficient antitrust concern that an antitrust authority (for example, the European Commission) may launch a full investigation, with the threat of blocking the deal outright. It then becomes our job to get the transaction over the line as quickly as possible, and with as few "remedies" or divestitures as possible. These mergers are often headline, market-defining deals, and by the end of an investigation you will know the entities' businesses inside out.
State Aid: the European Union has special rules that govern to what extent a Member State can give financial support to companies. The concern is that giving an advantage to one company over its competitors may affect competition and trade between EU countries; any such support must be justified by reasons of general economic development and some limited exceptions.
State Aid comes up in various situations; in the wake of the Financial Crisis, there were several State Aid situations where EU Member States wished to provide aid to struggling banks; more recently, Shearman has assisted car manufacturer Jaguar Land Rover on a dispute over whether the aid it received to build a £1 billion manufacturing facility in Slovakia was legal.
4. Jargon Buster
Multijurisdictional Analysis (or 'Multi-J'): a risk analysis of different notification thresholds in jurisdictions around the world - often the level of the parties' revenues generated in those countries - which may be triggered in a transaction with an international dimension, and therefore may require notification of the merger in that country.
Example: if company X and company Y are merging, and (i) X + Y's worldwide turnover is greater than € 150 million and (ii) both the parties each have turnover in France that exceeds € 50 million, then the companies would have to notify in France.
This is regardless of which market X and Y operate in, whether their products overlap, or whether there is any antitrust concern. The notification regime allows governments to quickly see which transactions are potentially 'big' enough to cause any antitrust concern.
Relevant market: the first element to be considered and defined in an Antitrust scenario to determine market shares and anti-competitive effects. Made up of (i) a product market, by categorising and grouping the product or service provided by the firms with other competitors, which are regarded as interchangeable or substitutable by the consumer or suppliers, and (ii) a geographic market, the area in which the firms concerned are involved in the supply of products and services and in which competition takes place, for example, global, national or local (cities).
DG COMP: directorate-General for Competition, the EU competition authority, the branch of the European Commission responsible for establishing and implementing the competition policy for the European Union, as investigator and decision-maker.
Form CO: the official form for standard merger notifications to DG COMP (the European Commission), for mergers with an EU dimension.
CMA: competition & Markets Authority, the UK competition authority, is a non-ministerial department which works to promote competition for the benefit of consumers by making markets work well for consumers, businesses and the economy.
Predatory Pricing: selling at a loss in order to force a competitor from the market, and then returning prices to their normal (or supra-competitive) level.
Margin Squeezing: a firm involved both upstream and downstream of the market that sets a higher wholesale price to independent downstream companies, favouring its own downstream subsidiaries, such that it forecloses the market to equally efficient operators.
5. Key concept: Market Research
Antitrust is all about ensuring there is fair competition in the market. To assess this, the antitrust authority and lawyers working on a case will need to identify the relevant market and to assess how effective competition is between the players in that market.
A typical trainee task – particularly when assessing a merger or acquisition - will be to have a first go at assessing what the "relevant market" is. This will be done through analysing European Commission precedents and case law, and general economic and product-specific research.
Once this is done, the legal analysis is applied to the client's situation. It may become clear that the client operates in such a broad market that there is unlikely to be any antitrust scrutiny. Or, conversely, it may become clear that the client and the transaction counterparty both operate in a very narrow market, and would hold significant market power after the transaction. At this point, the analysis will move forward, and the team will start formulating arguments to justify the merger and dissuade an antitrust authority from blocking the deal.
6. Key RegionsThe EU Commision, Brussels
Antitrust is truly an international area of law. Deals often involve complex multi-jurisdictional analysis as to the effect the deal will likely have on competition in markets of countries around the world.
At Shearman, we advise on aspects of UK and EU competition law, but often help coordinate matters that create antitrust concerns in other jurisdictions. For example, a global scale merger may require filings in countries such as South Africa, Japan or Australia, the content of which must be aligned with filings we draft to be made in the EU and UK.
Brussels, the home of the EU Commission, is seen as the heart of Antitrust for EU matters.
7. Headline Deal - Explained
Shearman & Sterling secured a win for Jaguar Land Rover ('JLR') over the State Aid that Jaguar Land Rover had received in respect of its manufacturing facility in Slovakia.
JLR had elected to build its latest manufacturing facility in Slovakia, of value around £1 billion. Slovakia had notified the Commission of its plans to grant EUR 125 million to JLR in support of the project. The Commission launched an in-depth investigation in May 2017 as to whether this would distort the market. If the Commission had found that Slovakia had breached State Aid rules, the EUR 125 million promised to JLR would be blocked by the Commission and would ultimately threaten the viability of the new manufacturing facility.
The Commission found that the State Aid did not fall foul of the State Aid rules. This was because firstly, the aid was necessary for JLR to invest in Slovakia over another country. In particular, at the outset of the project, JLR were considering other sites such as Mexico. A primary incentive to construct the plant in Slovakia was the availability of aid, along with other economic factors. Secondly, the aid was found to contribute to job creation, as well as economic development and overall competitiveness of an otherwise under-developed geographical area. Giving aid to a disadvantage area helped to even out the market and maintain competition, as opposed to harming it.
The investigation also examined several infrastructure measures carried out by the Slovak state around the factory, to see if these measures were exclusively 'for' JLR and therefore would constitute another batch of State Aid. Thankfully, the Commission found that these infrastructure measures would benefit a host of other companies on the site, and therefore could not give a selective advantage to JLR. If this had not been found, Slovakia would have had to account for the cost of the infrastructure projects with potentially severe financial repercussions for JLR.
8. Who are main parties and clients?
National Regulators: As a regulatory area of law, the national regulators in each jurisdiction always feature in antitrust matters. In Europe, the European Commission and within it DG COMP, the unit in charge of setting and establishing European competition law and policy is a key player. The regulators will have their team of in-house competition lawyers (at the European Commission, an allocated case team will take the lead on investigations) and will represent the interests of the European Commission.
Clients: The very nature of competition law means that clients are often large market-leading entities who are at the forefront in their respective industries hence the need to seek advice on how they compete – this means potentially acting for the biggest clients in any field. Examples include large technology companies, key players in raw material extraction, scientific research and development organisations, film production studios, and financial institutions.