Joint Comments of the American Bar Association s Sections of Antitrust and International Law on the Chilean Fiscalía Nacional Económica s Draft Guidelines on Jurisdiction in Respect of Concentrations and Draft Guidelines on Merger Remedies May 24, 2017 The views expressed herein are presented jointly on behalf of the Sections. They have not been approved by the House of Delegates or the Board of Governors of the American Bar Association and, accordingly, should not be construed as representing the policy of the American Bar Association. I. Introduction The Sections of Antitrust and International Law (together, the Sections ) of the American Bar Association welcome the opportunity to respond to the request of the Chilean Fiscalía Nacional Económica ( FNE ) for comments on the draft FNE Guidelines on Jurisdiction (the Jurisdiction Guidelines ) and the draft Guidelines on Remedies (the Remedies Guidelines, collectively the Guidelines ). 1 1 The comments are based on the English translations of the Guidelines provided by the FNE.
The Sections have substantial familiarity with the approaches to merger and acquisition jurisdiction 2 and merger remedies 3 adopted by U.S. and other enforcement agencies and international best practices 4, as well as the practical implications of these approaches. 5 The Sections commend the FNE for enhancing transparency by developing the Guidelines to describe the process and analytical framework used to assess when it will review a concentration and to 2 The Sections have most recently considered various jurisdictional issues in connection with the European Union Merger Regulation. See Joint Comments of the American Bar Association s Section of Antitrust Law and Section of International Law on the European Commission s Evaluation of Procedural and Jurisdictional Aspects of EU Merger Control (January 12, 2017), available at http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/at_comments_salsil_20170113.authc heckdam.pdf. 3 The Sections have previously considered a range of issues arising in the context of merger remedies, most recently in connection with comments to the German Bundeskartellamt s Guidance on Remedies in Merger Control. See Joint Comments of the American Bar Association Sections of Antitrust Law and International Law on the Bundeskartellamt s Public Consultation Version of Guidance on Remedies in Merger Control (December 2, 2016), available at http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/at_comments_salsil_bunde_2016120 2.authcheckdam.pdf; See also inter alia, Joint Comments of the American Bar Association Section of Antitrust Law and Section of International Law on the Draft Merger Review Process Guidelines of the Australian Competition and Consumer Commission (August 6, 2013), available at http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/at_comments_salsil_accc.authcheckd am.pdf; Joint Comments of the American Bar Association's Sections of Antitrust Law and International Law on the New Zealand Commerce Commission s December 2009 Draft Mergers and Acquisitions Divestment Remedies Guidelines (February 11, 2010), available at http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/comments_new_zealand_commerce. authcheckdam.pdf; Comments of the American Bar Association s Section of Antitrust Law and Section of International Law on the Competition Bureau (Canada) Draft Information Bulletin on Merger Remedies in Canada (February 24, 2006), available at http://www.abanet.org/antitrust/at-comments/2006/03-06/mergerremedies-canada.shtml. 4 The Sections endorse the best practices of the International Competition Network ( ICN ) Merger Working Group, Merger Remedies Guide (2016), available at http://www.fne.gob.cl/wpcontent/uploads/2017/04/gu%c3%ada_remedios_icn.pdf; ICN Merger Working Group, Remedies Recommended Practices (2017) available at https://icn2017.concorrencia.pt/downloads/materials/mwg-remedies-rps.pdf; ICN Merger Working Group, Revised Recommended Practices for Merger Notification Procedures (2017) available at https://icn2017.concorrencia.pt/downloads/materials/mwg-rp-notification-definitions-nexusand-thresholds.pdf; ICN Merger Working Group, Revised Recommended Practices for Merger Notification Procedures (2002) available at http://www.internationalcompetitionnetwork.org/uploads/library/doc588.pdf. 5 The positions expressed in those comments substantially inform the comments expressed here. Although the Sections comments are informed by U.S. law and practice, the Sections views may differ in some respects from U.S. enforcement practice. The Sections also recognize that the Chilean Competition Act, Law Decree 211, issued in 1973, and other aspects of the competition law framework and institutional design in Chile differ from those in the United States and that some differences in approach to jurisdiction and remedies may be appropriate having regard to such differences. 2
assess remedies for anticompetitive mergers. The Guidelines incorporate many elements of international best practices and offer useful guidance for parties involved in transactions in Chile. As explained more fully below, the Sections have several suggestions for the FNE as it proceeds towards finalizing the Guidelines. II. Executive Summary The Sections comments on the Jurisdiction Guidelines focus on two main areas: First, it would be helpful to practitioners if certain points in the review process could be clarified in order to have more certainty about which transactions will constitute a concentration requiring notification to the FNE. Second, additional clarity would be helpful regarding the standard applicable for determining when a concentration is sufficiently advanced for a voluntary application for review or an FNE-initiated review. The Sections comments on the Remedies Guidelines focus on five main areas: First, the Sections suggest that the principles and procedures articulated in the Guidelines should be applied flexibly to reflect the specific circumstances presented by each case. Second, the Sections suggest the Guidelines expound more fully and explicitly on what would constitute an acceptable remedy. Third, the Sections encourage the FNE to state that it will be prepared to vet multiple potential purchasers of divestiture assets in order to foster effective and competitive divestiture sales processes. Fourth, it would be helpful if the Guidelines clarified the standard of review of remedy proposals. 3
Finally, the Sections make certain suggestions regarding the discussion in the Guidelines of the FNE s review and implementation procedures. III. Jurisdiction Guidelines A. Clarity on Review Process It is important for merger parties to have guidance regarding the situations when the FNE will review their transaction and the process by which the FNE will conduct its review. The Sections therefore welcome the Jurisdiction Guidelines, which address which concentrations and other transactions will be subject to the FNE s review. As part of this explanation, the Jurisdiction Guidelines make reference to various provisions of the Competition Act. The Preamble, for example, notes that transactions that do not qualify as concentrations will be reviewed under the general provisions of the Competition Act. 6 It would be beneficial to briefly explain the differences between this review and the review outlined in the Jurisdiction Guidelines. The Jurisdiction Guidelines, citing the Competition Act, lay out a broad definition of economic agent, which includes an entity that has the capacity to develop economic activity. 7 They explain that this definition does not depend on size, ownership, nationality, or profit/income. The Sections recommend adding an explanation regarding what effect nationality and income outside Chile have on whether an entity qualifies as an economic actor within Chile for purposes of the Competition Act. The Guidelines differentiate between acquisition of entities and acquisition of assets. In discussing when acquisition of assets will give rise to a concentration, the Guidelines indicate 6 Jurisdiction Guidelines, paras. 3 and 126. 7 Jurisdiction Guidelines, para. 16. 4
that assets acquisitions will constitute a concentration when they impact competition. The parties to a transaction would have to interpret this in the abstract as the Guidelines do not provide any criteria to measure the impact in the competition. 8 This is a very uncertain standard that will be difficult for merger parties and the FNE to apply in practice. The Sections recommend that the FNE develop guidance that is more objective, such as substantially all of the assets of an operating business. 9 The Sections also urge further clarification on when multiple transactions between the same parties cumulatively will constitute a concentration. It is unclear whether the fact that multiple transactions occurred between the same parties within a two-year period triggers the finding of a concentration automatically, or whether there must be a loss through these transactions of independence of one of the parties (which the Sections believe would be an appropriate standard). There is a reference that successive transactions between the same parties make it reasonable to conclude that these multiple transactions tend toward a concentration. 10 The Sections believe this analysis likely to be more nuanced and fact-specific in practice, and it would be helpful if the Guidelines could further explain the circumstances in which successive transactions will be regarded as a concentration and when any notification obligations arise. Furthermore, the Jurisdiction Guidelines state that interrelated transactions can be treated as a single transaction provided that the final control is held by the same economic agent. 11 The 8 Jurisdiction Guidelines, paras. 100-101. 9 See, ICN Merger Working Group, Revised Recommended Practices for Merger Notification Procedures (2017) available at https://icn2017.concorrencia.pt/downloads/materials/mwg-rp-notification-definitions-nexus-and- Thresholds.pdf; ICN Merger Working Group, Revised Recommended Practices for Merger Notification Procedures (2002) available at http://www.internationalcompetitionnetwork.org/uploads/library/doc588.pdf. 10 Jurisdiction Guidelines, para. 31. 11 Jurisdiction Guidelines, para. 30. 5
Sections suggest clarifying this statement to explain how interrelated transactions that result in control by two difference economic actors are treated. B. Elements of the Review Process The Sections commend the FNE for including the investigational chart in Paragraph 11 of the Jurisdiction Guidelines. This chart sets out the steps of an FNE investigation, which is broadly similar to two stage review processes in many other jurisdictions. Similarly, the explanation of the elements of the FNE s review indicate that the FNE will use a similar analytical structure to those used in other jurisdictions: a substance review and a geographic examination of the effect in Chile. The Jurisdiction Guidelines set out a number of potential actions that may trigger a notification obligation, so long as they manifest a real and serious intention to consummate the transaction. 12 This language is appropriate to allow merger parties to bring voluntary applications to the agency for review at an early stage, which can be beneficial in certain circumstances. However, the Sections submit that the same standard should not be applied when the FNE is exercising its power to initiate reviews of transactions that are not the subject of a filing or a voluntary review. Such an approach may expose parties to a review before the transaction is negotiated. The Sections believe that mere intent to pursue a potential transaction before a definitive agreement is executed generally is too early in the process for the FNE to initiate a review of the potential transaction. 13 12 Jurisdiction Guidelines, paras. 32-34. 13 The Sections do not mean to suggest that such review would not be ripe where the parties are sufficiently sure of proceeding that they invoke the review process through making a filing. In our experience parties do not choose to file without relatively strong certainty regarding the transaction plan, which strength of certainty would not be something that FNE would be readily able to assess. 6
IV. Remedies Guidelines A. Importance of Flexibility The Remedies Guidelines recognize that the crafting of effective merger remedies is highly fact-specific 14 and the FNE s willingness to consider and assess proposals from merger parties about the scope and form of a remedy is appropriate and welcome. However, there are aspects of the Remedies Guidelines that do not appear to reflect this approach and where the Sections believe that additional flexibility would be desirable. First, the Sections believe the presumptive requirement that extremely detailed information about assets is required in every case, including the proposed divestiture of a preexisting standalone business, could result in unnecessary delays and expense. 15 The Sections therefore suggest that the FNE consider including a statement in paragraph 75(1) that, in the case of a standalone business, the level of disclosure required is lower than would arise in sales of more narrowly tailored packages of assets, because it is already apparent that the assets are sufficient to operate a standalone business. Second, when the assets do not constitute a standalone business, the FNE proposes that merger parties have an obligation to prove that the assets can be operated autonomously. 16 Although the merger parties often have good information about which assets a purchaser may need to compete effectively, in some cases the need for a particular asset will not be known until the divestiture buyer is identified because the buyer may already have some of the assets needed to operate the divested assets autonomously. In these cases, it may be appropriate to give the divestiture buyer an option to purchase or not purchase particular assets. The Sections submit 14 See, e.g., Remedies Guidelines, paras. 2-3. 15 As contemplated in Remedies Guidelines, paras. 75(1) and 45. 16 Remedies Guidelines, para. 47. 7
that it would be useful for the FNE to clarify that the requirements for an adequate package of assets in paragraph 47 should be subject to the possibility of buyers being identified after closing and to adjustment depending on the buyer. 17 Moreover, the Sections recommend that the FNE consider adopting a mechanism for granting waivers from the detail required in paragraph 75 of the Remedies Guidelines depending on the nature of the commitments offered and the purchaser. Third, flexibility is also potentially important for the consideration of modifications to remedy proposals. The Remedies Guidelines currently contemplate that any modification made by the merger parties to a proposal containing measures of mitigation will be considered a new proposal. 18 The Sections encourage the FNE to expressly indicate that proposed mitigation measures may be amended and that the FNE may accept amendments, without proceeding with a complete new round of information disclosures and market contacts. 19 B. Scope of Acceptable Remedies Packages The Sections appreciate the FNE s preference for structural divestitures and that such divestitures comprise an existing standalone business. 20 However, the Sections believe that a more flexible approach would be desirable in respect of some of the specific guidance related to these principles: First, although the Guidelines expressly recognize that standalone business divestitures are not the only remedy that may eliminate competition concerns, they also indicate that other types of remedies will only be accepted exceptionally and they require the merger parties to prove that any package of assets less than a standalone business can be operated 17 See Remedies Guidelines, para. 57 ( Scenario III ). 18 Remedies Guidelines, para. 21. 19 Remedies Guidelines, paras. 25-27 and 75. 20 Remedies Guidelines, paras. 36-38 and 45. 8
autonomously. 21 The Sections are concerned that this approach may (i) not conform to the principle of proportionality referenced elsewhere in the Remedies Guidelines; 22 (ii) potentially result in economically inefficient outcomes; (iii) impose burdens or restrictions on merger parties that delay or prevent transactions that are procompetitive in other areas and for which adequate remedies short of a standalone business are feasible; and (iv) most importantly, reduce the FNE s flexibility to remedy certain types of transactions effectively. The Sections therefore urge that the FNE include alongside the statement that a divestiture of a standalone business is generally preferred, a clear indication that the FNE is open to other proposals that likely would be effective in preventing the modified concentration from being capable of substantially reducing competition. 23 Such situations may arise where, for example, there are practical difficulties with divesting a standalone business or where doing so will cause the divestiture of significant assets that do not contribute to competitive concerns. 24 Second, the Sections commend the FNE for its clear statement early in the Remedies Guidelines that it will prefer remedies that are the least burdensome. However, the Sections respectfully suggest that the alternative remedies need not be equal to be considered, since it is sufficient if they are likely to resolve the competition concerns. 25 Third, the Remedy Guidelines indicate that: [e]xceptionally, the FNE may entertain the possibility of measures of mitigations that do not involve divestitures to a 21 Remedies Guidelines, paras. 38 and 47. 22 See Remedies Guidelines, para. 14 (according to which remedies must be proportional to the detected competition concern ). 23 Remedies Guidelines, para. 8. 24 See, inter alia, Joint Comments of the American Bar Association s Section of Antitrust Law and Section of International Law on the European Commission s Draft Notice on remedies acceptable under Council Regulation (EEC) No 139/2004 and under Commission Regulation (EC) No 802/2004, available at http://ec.europa.eu/competition/mergers/legislation/files_remedies/aba_2.pdf. 25 Remedies Guidelines, para. 14. 9
suitable purchaser, in the following cases: a) The risks appear to be temporary given the characteristics of the market (for example, fast technological changes); b) There are considerable proven efficiencies, which may be lost if divestitures are made; c) The divestiture is not feasible, proportional and the prohibition is not practicable, for example, because of the transaction s global nature. 26 It appears that this provision is intended to relate to horizontal merger situations, but the Sections believe it would be desirable to make this clear. Moreover, even in the context of horizontal competition concerns, the wording of this paragraph seems unduly restrictive to the extent that it implies that the FNE will not accept non-divestiture commitments in other circumstances. For example, behavioral undertakings that modify or constrain the conduct of merged firms can be useful in addressing competitive concerns in certain situations that are not limited to vertical transactions, and are sometimes used in conjunction with, or instead of, structural remedies. Similarly, quasi-structural or semi-structural measures such as changes to contracts that exist between competitors, removal of interlocking directors, and licensing arrangements, may provide effective remedies in certain situations. 27 This concern could be resolved by indicating that the relevant list of exceptional circumstances at paragraph 38 is not exhaustive, but may include other instances where non-divestiture commitments could be acceptable. Fourth, the Remedies Guidelines indicate that less than a standalone business would be considered only where [b]y default, if there is no standalone business unit susceptible of being transferred, or if there is such a business, but the transfer of the same is not proportional to the 26 Remedies Guidelines, para. 38. 27 These possibilities are briefly alluded to in Remedies Guidelines, paras. 35 and 80-81, but further elaboration would be useful. 10
risks detected by the FNE. 28 While a divestiture of all of the assets of a business may be necessary for an effective remedy in some cases, it is often the case that the buyer of a divested business will neither require nor want all of the assets used in connection with that business pre-transaction. For example, a buyer might have its own warehouse capable of efficiently handling distribution of divested products and/or its own sales force and be in a position to compete effectively in a business where it is already present (realizing economies of scale) or in an adjacent market (realizing economies of scope). The divestment of less than a full standalone business may be particularly appropriate where the merger party uses assets to manufacture multiple products, some of which are outside the relevant product market of competitive concern. In some situations, moreover, the buyer need not own the assets because it can efficiently purchase from third parties the services those assets provide (e.g., contract manufacturing). Therefore, the Sections recommend that paragraph 46 be modified to indicate that the divestiture proposals may include packages of assets that are sufficient to allow a divestiture buyer to compete effectively, particularly where such a buyer can be identified prior to closing of the transaction. 29 Fifth, where intangible assets or intellectual property such as patents are needed by both the divested business and the retained business, the divested business might be adequately protected with a non-exclusive license rather than an outright transfer of the asset. For example, a chemical company might have process patents that are used in the production of various 28 Remedies Guidelines, para. 46 states that: By default, if there is no standalone business unit susceptible of being transferred, or if here is such a business, but the transfer of the same is not proportional to the risks detected by the FNE, the parties may offer to the FNE a divestiture package including all of the assets necessary for the purchaser to effectively and permanently compete with the concentrated economic agents. 29 See Scenarios I and II in Remedies Guidelines, para. 57. 11
chemical products. It might be disproportionate to require the company to divest itself entirely of those process patents, and thereby jeopardize the efficiency with which it can produce its retained products, simply because it is divesting a single product or a portion of the products that is produced using the process patent. In addition, the merged company may achieve synergies through utilization of this intellectual property in the merged company. The references in the Remedies Guidelines to licensing of trademarks or patents as potential semi-structural measures are extremely brief. 30 The Sections submit that it would be useful to discuss the possibility of licensing, rather than divesting IP, and of licensing back of divested IP rights, particularly where the merger parties will utilize the IP in products other than those that are the reason for the divestiture. Sixth, the Remedies Guidelines contain only a brief reference to transitory migration measures. 31 The Sections believe it would be useful to address the issue of shared assets and personnel necessary to the viability and competitiveness of the remedies package in a flexible manner that avoids disproportionate disruption of the businesses being retained by the merger parties. For example, a quality control laboratory of one of the merger parties might test many products, only one of which is to be divested. An appropriate service agreement, requiring the merged entity to provide testing services until the divested business is able to make alternative arrangements, can provide sufficient transitory support for the divestiture buyer. Seventh, the Remedies Guidelines state that to ensure the efficacy of the measure, the FNE will deem indispensable a commitment not to rehire the staff of the divestiture package considered as essential in the brief of measures, and not to directly or indirectly repurchase the 30 Remedies Guidelines, paras. 35 and 81. 31 Remedies Guidelines, para. 87 (final sentence). 12
transferred assets within a specific timeframe. 32 The Sections encourage the FNE to clarify that such clauses should, in accordance with the principles applied by other competition agencies such as the European Commission, 33 be of limited duration, perhaps one or two years, rather than a lasting restriction on the ability of the parties to solicit key employees. After a transition period, the merged entity should be free to compete vigorously in all aspects with the divested business, just as it would with other competitors. C. Permissible Purchasers In the purchaser approval process discussion, 34 the Sections recommend that the FNE indicate that it would be willing to pre-approve multiple identified potential purchasers before a final agreement is reached with any one of them. This facilitates a timely and competitive divestiture process, which will be beneficial for competition, the parties, and the FNE. D. Standard of Review The Sections appreciate the FNE s explanation that [a]s a general rule, the remedy that will best mitigate the risks posed by a horizontal concentration is the sale of all the assets, tangible or intangible, needed for the purchaser to effectively compete with the concentrated economic agents. 35 The Sections believe, however, that a useful clarification would be to recognize expressly that the goal of a merger remedy is to prevent the merger from substantially reducing competition. Thus, merger parties need not make the divestiture buyer more competitive than would have been likely on a standalone basis absent the merger. Such clarification would ensure that the merger parties do not have to meet the additional burden of 32 Remedies Guidelines, para. 87. 33 Commission Notice on restrictions directly related and necessary to concentrations (2005/C 56/03), http://eurlex.europa.eu/legal-content/en/all/?uri=celex:52005xc0305(02), at para. 20. 34 Remedies Guidelines, paras. 50-59. 35 Remedies Guidelines, para. 40. 13
improving the competitiveness or viability of the divested business above and beyond its position at the time of divestiture. The Sections respectfully urge the FNE to reconsider the current wording of the Remedies Guidelines in relation to the obligations of the parties offering remedies. Pursuant to the second sentence of paragraph 8, an offer of remedies implies a commitment to achieve a specific result, namely, the elimination of any detected competition problems, and not an obligation to deploy the parties best efforts. 36 Making such a commitment in a contractual document will not be feasible in relation to many competition concerns that are not under the parties control (e.g., coordinated effects or closeness of competition between non-merging parties). Moreover, competition concerns arise as a result of market structures (this being the underlying assumption of merger control), much of which is not under the parties control. According to the ICN s Merger Remedies Guide, inherent in accepting any remedy is a degree of risk to the competition authority s goal of maintaining or restoring competition. 37 The Sections commend the FNE for its confirmation that [t]he measures of mitigation can be offered by the parties at any time during the procedure and prior to expiration of the deadlines established for Phase II. 38 This flexibility benefits merger parties and the FNE by allowing Phase I clearance when there are competitive issues with a transaction that can be addressed at an early stage. However, the standard for considering remedies in Phase I appears to be unduly cautious: [a]lthough the measures can be offering during any stage of the investigation, those offered during Phase I can only be accepted when the risks are easily 36 Remedies Guidelines, para. 8. 37 International Competition Network, ICN Merger Working Group, Merger Remedies Guide (2016), available at http://www.fne.gob.cl/wp-content/uploads/2017/04/gu%c3%ada_remedios_icn.pdf. 38 Merger Remedies Guidelines, para. 17. 14
identifiable and can be remediated without difficulty. 39 The Sections believe that it would be appropriate to reformulate this standard to require that the remedy proposals be sufficiently broad and clear to allow the FNE to be confident that the potential competition concerns raised by the transaction will be adequately addressed. E. Implementation and Review Provisions The Sections commend the FNE for providing details regarding remedy implementation issues, and offer a few suggestions for further improving these processes. First, The Remedies Guidelines expressly address the issue of confidentiality in the context of the divestiture process, balancing the desirability of transparency in the merger review process, including divestiture processes, with the need to ensure that certain aspects of consent agreements (and other negotiated settlements) remain confidential. Paragraphs 25 and 26 raise concerns, however, to the extent the disclosure of confidential information is deemed necessary for full third party assessment (so-called market testing ) of the commitments. The Sections believe that the FNE might thus want to include an express reference to without disclosing information declared confidential pursuant to paragraph 19 above. Although market testing promotes transparency of the merger review process, which, according to the ICN should improve the overall robustness of the outcome, 40 the FNE should carefully assess the need to disclose the information to avoid the disclosure and testing process to be used by competitors or prospective purchasers for their own tactical advantage. For instance, although the disclosure of the divestiture period typically should not, in itself, permit third parties to undermine the process, the disclosure of unusually short (3-6 months) divestiture periods, as well as other components of 39 Remedies Guidelines, para. 22. 40 Merger Remedies Review Project: Report for the Fourth ICN annual conference (Bonn, June 2005), at 5, available at http://www.internationalcompetitionnetwork.org/icn_remedies)_studyfinal5-10.pdf. 15
many consent agreements, may have harmful implications for the efficacy and fairness of the divestiture process. Second, because the crown jewel provisions specified in paragraph 49 can similarly raise certain gaming concerns, the Sections believe they should be required by the FNE only in extraordinary circumstances. The implementation of such provisions could even compromise the achievement of some of the synergies from the transaction, possibly with no corresponding benefit to competition. Potential acquirers of the divested assets have an incentive to attempt to extract crown jewels from the merger parties, knowing that they are subject to short time periods to effectuate their divestiture. The FNE should seek to avoid situations that allow third parties to manipulate the process and impose unwarranted disadvantages and costs on the merger parties. At a minimum, the existence of crown jewel provisions should remain confidential, as provided by paragraph 49 of the Remedies Guidelines. However, the FNE might want to expressly indicate at the end of this paragraph that the confidentiality will last until such time that a crown jewel provision is triggered. Third, the Sections believe that it is not necessary or desirable for a monitoring trustee to be appointed as a routine requirement for divestiture commitments. Admittedly, pursuant to paragraphs 73 and 75 of the Remedies Guidelines, the appointment of a trustee is not mandatory for cases requiring divestitures. However, the Sections would welcome the inclusion of an express reference to a case-by-case assessment of the need for a monitoring trustee. The appointment of a monitoring trustee involves considerable costs and burdens on the parties as well as the FNE. While a monitoring trustee may be appropriate in carve-out situations, the divestiture of a standalone business or the exit from a joint venture can be fairly straightforward. The Sections urge the FNE to consider in each individual case whether such a trustee is really 16
necessary, or causes only additional costs for the merging parties without adding much value for them or the FNE. This is particularly the case in situations where a clearly defined business is to be sold and the FNE or the buyer can easily confirm that what is sold is the full and viable business that was to be sold under the commitments. Further, the Remedies Guidelines foresee a number of other safeguards, such as the appointment of a hold-separate manager, regular reporting requirements, incentive systems such as upfront -buyer and crown-jewel provisions, and the appointment of a divestiture trustee during the second divestiture period. The Sections expect that the FNE would assess in each case whether a monitoring trustee or any of these other safeguards is in fact warranted. Fourth, the FNE may wish to consider providing additional detail as regards the tasks it expects the monitoring trustee to perform. 41 For instance, it appears unnecessary for the monitoring trustee to attend every meeting with potential buyers or to review every draft of the sales and purchase agreement. Certain types of remuneration schemes (such as hourly rates without caps, which some other competition agencies such as the European Commission use) provide an incentive for monitoring trustees to adopt the broadest possible interpretation of their mandates. Given the monitoring trustee s important advisory role to the FNE, the merging parties are typically reluctant to complain to the FNE about situations of overreaching. The Sections submit that some ex ante guidance by the FNE would help avoid potential excessive time spent by monitoring trustees. Fifth, the Sections respectfully suggest that the Remedies Guidelines would benefit from an expanded discussion of the respective roles of (i) dispute resolution / arbitration proceedings; and (ii) international cooperation. As indicated by the OECD Secretariat: 41 See Remedies Guidelines, paras. 73-74 and 88-93. 17
Mergers are increasingly multinational and more countries have developed sophisticated merger control regimes. As a result, communication and co-ordination between competition authorities are paramount to ensuring each authority s general goal of promoting fair competition in its territory. One reason why such co-operation is imperative is that one authority s remedy may have extraterritorial effects on other jurisdictions, which could render one remedy ineffective or exacerbate anti-competitive conditions in another jurisdiction. Apart from the obvious ease on administrative costs for the authorities and the parties, co-operation also benefits customers and local markets. 42 V. Conclusion The Sections appreciate the opportunity to submit these comments and hope that they are helpful to the FNE as it finalizes the Guidelines. We would be pleased to respond to any questions the FNE may have and to provide any further assistance that may be appropriate. 42 OECD, Policy Roundtables, Remedies in Merger Cases, 2011, available at: http://www.oecd.org/daf/competition/remediesinmergercases2011.pdf, at para. 13. 18