Cooperation, Comity, and Competition Policy

One might wonder why the Supreme Court did not rule against this egregious conduct that clearly violated the Sherman Act. At that point in time, however, it seems that the Supreme Court was concerned that applying its own standards on other foreign states would interfere with the sovereignty of other nations. For another jurisdiction, if it should happen to lay hold of the actor, to treat him according to its own notions rather than those of the place where he did the acts, not only would be unjust, but would be an interference with the authority of another sovereign, contrary to the comity of nations, which the other state concerned justly might resent.

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The Second Circuit was sitting as the court of last resort for the Supreme Court, which had lacked a quorum. Alcoa , Wall St. Blog May 8, , http: In Alcoa , Aluminum Co. Citing to American Banana , he recognized that the scope of U. However, he held that U. The intended effects test was that the Sherman Act applied to conduct outside the United States by foreign persons if 1 the person intended to affect U. The threshold to satisfy this intended effects test was not very high, especially for the prohibited effects requirement.

When discussing the actual effects of the prohibited conduct, Judge Learned Hand held that the burden was met even without proof that prices were affected. This substantial change in law was not completely independent of the socio-political circumstances at that time. In the presidential campaign debates between Roosevelt, Wilson, and Taft, the threat of trusts which are combinations of competitors to create monopoly power was one of the leading issues. Two years later, the Clayton Act was passed to further enforce actions against anticompetitive conduct.

Shortly after this groundbreaking statute, World War I broke out, providing the Wilson administration with a prime opportunity for antitrust enforcement. Fisher, Antitrust During National Emergencies: I , 40 Mich.

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During the war, German agents attempted to disrupt the export of U. With the Sherman Act in hand, the Wilson administration thwarted such efforts by prosecuting the agents under Section One of the Sherman Act. Antitrust enforcement against U. Instead of imposing more stringent enforcement pursuant to earlier efforts by the legislature, the government not only decided to relax its antitrust enforcement but also encouraged U. The Attorney General at the time, Thomas Watt Gregory, went as far as consulting with Chief Justice White to suspend major antitrust cases until the end of the war.

Alcoa emerged as a major antitrust case during robust anti-cartel enforcement by the government, when it was more than certain that the allies would win World War II. With the imminent victory of the war and the supremacy of U. Judicial Imperialism Post Empagran v. In the context of this rationale, Alcoa did not seem like a farfetched leap from American Banana. Thus, the intended effects test came to be nationally accepted, and the Department of Justice not only continued but also strengthened its extraterritorial application of the Sherman Act. Antitrust Law and its Adoption in Korea , 7 Sing.

Such aggressive extraterritorial application of antitrust laws led to significant foreign backlash, which is further discussed in Part II. Following much critique and opposition due to the obscurity of the intended effects test and the overreach of extraterritorial jurisdiction, the U. One notable judicial decision was Timberlane Lumber Co. In Timberlane , the defendants were sued for conspiring to prevent the plaintiff from milling lumber in Honduras to export to the United States. The court recognized that many nations resented and protested the assertion of U.

Guidelines for Global Antitrust: The Three Cs – Cooperation, Comity, and Constraints

It provided a tripartite test asking the following questions:. While the first two questions are a repetition of the Alcoa intended effects test , the third question considers the doctrine of international comity to limit the extraterritorial reach of U. The Ninth Circuit listed the following factors to weigh when answering this question:. Not all courts agreed, however. The United States Court of Appeals for the District Court of Columbia criticized the Timberlane balancing test, holding that courts were not equipped to weigh foreign policy considerations.

Sabena, Belgian World Airlines, F.

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Unlike Timberlane , Congressional efforts to balance the overreaching effects of the intended effects test were beneficial only to U. Swaine, Cooperation, Comity, and Competition Policy: During the passage of this law, two types of entities voiced their concerns about the developing U. In other words, they wanted to legitimately organize collusive export ventures that did not harm U. At the same time, foreign governments and foreign traders voiced their concerns about judicial overreach by subjecting foreign businesses and their conduct outside the United States under their jurisdiction.

Although the FTAIA on its face seemed like it was limiting the extraterritorial application of antitrust laws, it was actually protecting U. In other words, U. The division between the Alcoa intended effects test and the Timberlane balancing test was soon put to an end in with Hartford Fire Insurance Co. The plaintiffs alleged that the defendants had violated Section One of the Sherman Act by agreeing to boycott general liability insurers that used nonconforming forms. The Court of Appeals reversed, concluding that the principle of international comity did not necessarily bar liability under the Sherman Act.

Thus, the court held that there was no need to apply the international comity considerations and instead reformulated the Alcoa intended effects test into a substantial effects test. Without elaborating on when a true conflict between domestic and foreign law exists, it is questionable whether the rule has any restraining effect at all. The decision in Hartford Fire not only failed to clarify the proper test in applying extraterritorial jurisdiction under U.

Under Hartford Fire , if the domestic laws of two different states apply to the same international activity, then both states may have jurisdiction. As a practical matter, of course, the stricter set of laws will always govern in situations where jurisdictions overlap.

Hartford Fire was decided subsequent to a growing extraterritorial antitrust activism during the Clinton administration. Prior to Hartford Fire , the U.

Cooperation, Comity, and Competition Policy in Singapore - Oxford Scholarship

Department of Justice DOJ had released the Guidelines, the Antitrust Enforcement Guide of International Operations, which proposed that extraterritorial jurisdiction should be applied only when foreign anticompetitive conduct affected American consumers. In addition, the DOJ added footnote to limit extraterritorial application of antitrust laws only to those situations where there was a threat to American consumers by reducing output or raising prices.

The target of this change in policy was Pilkington, a British company, which the DOJ claimed had a dominant position worldwide in the glass manufacturing industry. Although Pilkington did use restrictive licensing practices to maintain its monopolistic position, the harm was to U. The newly revised Guidelines in stated that the DOJ would assert jurisdiction both under the Hartford Fire test in cases involving import commerce and the FTAIA test for cases of export commerce or wholly foreign conduct. However, the new Guidelines seemed more aggressive, having a tone of warning rather than that of guidance.

They stated that the DOJ intended to actively pursue activities that occur abroad and adversely affect U. Rather, they stated that when the United States decides to prosecute an antitrust action, the decision represents a determination by the executive branch that the enforcement of the antitrust action outweighs any other foreign policy concerns. In addition, it is noteworthy that the Clinton Administration was the first U.

In his inaugural address, President Clinton said: Finally, in , the First Circuit upheld the conviction of two foreign defendants for price-fixing resulting from conduct wholly outside the United States. Nippon Paper Industries Co. In its opinion, the court used language from Hartford Fire to explain that it was clearly established law that conduct having a substantial effect in the United States fell within the purview of the Sherman Act. Because of the confusing language of the FTAIA, the court refused to give it any weight and struck down various arguments made by the defendant.

One of the arguments made by the defendant was the rule of lenity. The court limited the application of the rule of lenity to cases where the Court had depleted all the sources to discern Congressional intent. Thus, extraterritorial application of antitrust law was extended to criminal prosecutions under the Sherman Act, opening a new era of criminal enforcement against foreign entities.

Following the Alcoa decision, none of the nearly foreign antitrust actions brought by the DOJ had been dismissed under the intended effects test. Some of these frustrated U. However, members of the international community began changing their approach; instead of resisting, they began to formulate their own antitrust laws. Bilateral and multilateral agreements gave rise to cooperative regimes to harmonize and enforce antitrust laws. However, the effects of these regimes were limited to common interests between states. After the Seventh Circuit Court asserted jurisdiction over Australia, Canada, Great Britain, and South Africa in a uranium price-fixing case, the Westinghouse litigation, the foreign states passed blocking statutes.

The Australian government passed the Australian Foreign Antitrust Judgments Act providing that a judgment of a foreign court under antitrust law should not be satisfied if the Attorney General determined that it was inconsistent with international law or comity, or was not in the national interest.

While the United States was initially the most aggressive in expanding the reach of its antitrust laws, other nations began to reciprocate U. Extraterritorial Criminal Enforcement of U. Antitrust Laws in the Global Economy , 1 Wash. This change in attitude came with the increasingly global nature of business activity and the realization that international comity principles posed no significant obstacle to extraterritorial application of antitrust laws.

The continuing liberalization of trade also encouraged the increasing number of competition statutes among various states. In particular, the EU began not only tolerating but also increasingly applying extraterritorial jurisdiction. Although the European Court of Justice ECJ never explicitly affirmed the effects doctrine, it developed doctrines that emulated the tests formulated by U. The Economic Entity Doctrine was used to assert jurisdiction over non-EU parent undertakings by attributing liability to them for the illegal price-fixing by their subsidiaries in the EU.

The ECJ looked at the extent to which a non-EU parent undertaking controls its subsidiaries located in the EU to determine if a single economic entity was formed. Because the court regarded the non-EU parent and its EU subsidiaries as a single economic entity, the non-EU undertaking fell within the scope of the EU competition law. The EU also developed the Implementation Doctrine, which is based on the territoriality principle. Implementing EU Competition Rules: It allows the competition authorities of EU member states to enforce competition rules previously applied by the European Commission.

Other states, such as Australia and South Korea, adopted similar approaches to extraterritorial application of antitrust laws. The EU is the leading entity in aggressive investigation of cartel activity. Early 1, 3 Feb. In , the Korean Fair Trade Commission KFTC made its first decision to apply extraterritorial jurisdiction in a case concerning international cartels. For the first time, it also imposed prison terms on individuals for cartel offenses in In other states, such as Brazil, the jail sentence for anticompetitive behavior has been increasing, with sentences sometimes exceeding ten years.

Along with an increasing application of extraterritorial jurisdiction of anti-competition laws, various states began cooperating and building global antitrust regimes. This movement began after World War II, when states attempted to achieve harmonization through multilateral agreements and international organizations. In , the Havana Charter and the International Trade Organization began contemplating adding provisions for the regulation of business practices. In the early s, the United Nations U.

Economic and Social Council continued discussions on formulating an international agreement on business practices as well. However, these international endeavors were rejected by the United States. The formation of the World Trade Organization WTO in the s reignited efforts to harmonize antitrust laws and enforcement. Daniel Sokol et al. This time, leaders of the European Commission tried to incorporate competition law into the WTO regime, but failed due to opposition from both developing countries and the United States.

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Following years of failed negotiations, the WTO decided not to hold discussions on competition law. However, the stalemate for international cooperation was broken with the strong support of U. One of the main features of the ICN is that participation is voluntary. Gal, Antitrust in a Globalized Economy: Although almost all of the competition authorities in the world are represented in the ICN, Id. ICN initiatives and cooperation will only be effective when the case involves jurisdictions without contradictory interests.

The voluntary nature of the ICN and the bilateral agreements discussed below are all efforts initiated by states with power to coordinate a more effective competition law enforcement regime according to the standards of each respective state. The United States continued to build an international community that would help support its competition law initiatives by entering into bilateral and regional agreements with other nations, rather than using international organizations as a forum for discussion.

Initially, the United States was not receptive to cooperation with other states, Swaine, supra note 68, at Mutual legal assistance treaties MLATs are other important tools of cooperation. MLATs are bilateral agreements, which provide that each party will use its own criminal investigative resources to obtain information for an investigation being conducted by the other party. Treaties and Agreements , U. There have also been cooperative efforts on a regional level. These agreements have gone beyond written form into action.

Some of these coordinated efforts include cooperative dawn raids and the execution of search warrants in multiple jurisdictions. Nonetheless, these agreements did not play a major role in harmonizing antitrust policies, but instead acted mostly as non-binding agreements.

And even those agreements that were binding only had some rudimentary coverage of competition policy matters. In both cases, the European Commission blocked the mergers between two U. While both governments gave evidence supporting their decisions, the conflicting decisions did not merely come from differing policies in antitrust laws. Stock, Explaining the Differing U. Avoiding Another Near-Miss , 20 U. Trade Commission July 1, , https: It also found that McDonnell Douglas would no longer constitute a meaningful competitive force, and that there was no other economically plausible strategy that it could follow.

The brief concluded that after a lengthy and detailed investigation, the FTC found that McDonnell Douglas was no longer in a position to significantly influence the competitive dynamics of the commercial aircraft market. On the other hand, the European Commission EC did not view the merger so benignly and objected to it in May On July 4, , a fifteen-member advisory panel unanimously recommended that the EC block the merger. It believed that the merger would give Boeing an increased advantage in negotiating with customers for exclusive supply arrangements and enhanced access to government-funded research and development.

Heated negotiations and political debates ensued, and President Clinton threatened the EU, stating that the United States would impose trade sanctions if it decided to block the merger. Fortunately, the EC decided to approve the merger following several concessions made by Boeing during settlement, which required Boeing to significantly change the future operation of the company to avoid sanctions and litigation.

However, others, namely U. Fox, Mergers in Global Markets: Among other things, the EC raised concerns of bundling, Id. Assistant Attorney General in charge of the Antitrust Division issued a press release stating that bundling was an efficiency-promoting activity that would lower the prices of the products and benefit consumers.

However, the EC argued that prices would be lowered only in the short-term and eventually rise thereafter. Behind the scenes of these inter-governmental exchanges, Rolls Royce and United Technologies were involved in a ferocious lobby against the merger, once again showing the influence of state or regional economic interest in major antitrust decisions. Although globalization of business has significantly changed, the fundamental political paradigm of international politics has not changed since the Treaty of Westphalia in , in which states act as individual entities acting in their own interests.

Cerny, Globalization and Other Stories: Thus, international cooperation cannot be an effective restraint on extraterritorial application of antitrust laws.

Cooperation through bilateral and multilateral agreements is usually voluntary, Frederic Jenny, International Cooperation on Competition: Myth, Reality, and Perspective , Antitrust Bull. First, each country chooses the countries it wants to cooperate with. Second, the agreements generally give each party the right to decide whether it will cooperate on a case-by-case basis.

However, small economies, including developing states, feel the biggest and most negative impact as a result of cooperation motivated by economic state interest; these states have less interest in applying antitrust laws domestically and extraterritorially and lack the power and ability to enforce such antitrust laws.

Small economies are also disadvantaged in that they do not have the proper resources to be a credible threat to international cartels in enforcing antitrust laws. According to a study conducted by Abel Mateus, many countries around the world, including developed countries, did not provide enough resources for the respective National Competition Authorities NCA for effective competition law enforcement. This means that competition law enforcement may impose heavy costs on the country, while the loss may be minimal to a given business.

Small economies with limited ability and resources to govern conduct of foreign firms usually only have the power to deny access to domestic markets. With this in mind, large foreign importers often explicitly or implicitly threaten to exit the small economy when the small economy attempts to impose limitations upon them under anti-competition laws.

Gal conducted an empirical study that supports the view that smaller and developing countries lack the power and incentives to enforce competition laws. According to the study, sixty-nine percent of small and developing jurisdictions did not bring any monopolization charges against foreign firms. Nineteen percent brought only three or fewer suits, and only eleven percent brought more than three cases of monopolization charges against foreign firms in the course of five years.

The major outlier among smaller and developing countries was Zambia. However, the Zambian government brought such actions to receive concessions in order to reduce prices or change trading conditions.

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Microsoft refused to enter into agreements with Israel despite the fact that it entered into similar agreements with the EU. The weak enforcement regimes of smaller economies as well as their lack of motivation to enforce competition law may make them a likely target for international cartels. The threat of competition law enforcement on large firms is not limited to international cartels. Many developing countries have an economy based on a small group of elites.

Origins of International Competition Cooperation

This book illustrates how domestic competition law policies intersect with the realities of international business. It offers a discussion of what might be done to improve the way in which cross-border business is handled by competition policy. The first part of the book provides country reports written by local experts explaining the extraterritorial reach of national laws. Each country report summarizes existing domestic law and examines the conditions under which each country applies its substantive competition laws to conduct that takes place abroad.

These chapters also address the questio These chapters also address the question of comity, meaning the circumstances in which a country would decline to exercise jurisdiction on the grounds that another state is the more appropriate jurisdiction. Finally, the extent of cooperation between the local government and other states is examined. In conducting cross-border business activity, these reports provide a sense of the multiple jurisdictions that a business must consider within the scope of how laws from various states interact and overlap.

The countries covered include: The second part of the book offers several proposals for effectively managing these overlapping competition policy regimes. Don't have an account? Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use for details see www. University Press Scholarship Online. Publications Pages Publications Pages. Search my Subject Specializations: