Suppose that you are the CEO of a multinational corporation based in the United States, and you learn that your two largest competitors have announced plans to merge. You are concerned about the combined market power of your two rivals, but you realize that antitrust regulators in the United States have been approving ever larger mergers, even between directly competing companies. What might be your best hope of thwarting this combination?
Try contacting the European Union. Assuming that your competitors do sufficient business in the EU’s 25 member nations, EU antitrust regulators in recent years have been far more receptive to concerns about large mergers or anti-competitive conduct.
Major firms such as General Electric Co. and Microsoft Corp. have learned this lesson the hard way. The proposed merger of General Electric and Honeywell International Inc., two companies based in the United States, was blocked by the European Union in 2001 even though U.S. antitrust regulators had already approved the deal. Jack Welch, then CEO of General Electric, said, “The European regulators’ demands exceeded anything I or our European advisers imagined and differed sharply from antitrust counterparts in the U.S. and Canada.”
More recently, the EU in 2004 fined Microsoft about $600 million for anti-competitive conduct and ordered changes in its Windows operating system. The judge’s refusal to delay the sanctions while the case is on appeal marked the first time that antitrust officials had actually forced Microsoft to alter the contents of its products. It is interesting that Microsoft’s conduct in the continuing EU case is similar to the business practices that prompted the U.S. government’s antitrust suit against the company in the 1990s. Yet the U.S. case was eventually settled on terms perceived to be rather favorable to Microsoft.
In fact, antitrust enforcement recently has been one of the most significant differences in business law between the U.S. and the EU. While U.S. antitrust laws are in some respects more powerful than EU laws have been, enforcement has been far more vigorous in the EU than in the U.S. for at least the past five years. However, that gap in both laws and enforcement could be closing due to major developments in EU antitrust law in 2004.
A New Competition Commissioner
The most obvious change in EU antitrust law came in the position of Competition Commissioner, the chief antitrust enforcer in the EU. Mario Monti, an Italian economist and academic, held the post from 1999 until November 2004. Called “Super Mario” by some, Monti developed a reputation as a tough enforcer of antitrust law and a feared regulator by the business world.
In addition to his rulings in the GE and Microsoft cases, Monti gained further notoriety for his use of “dawn raids” surprise searches of business offices in the EU to look for evidence of anti-competitive behavior. Since the EU claims antitrust authority if the activities of a company, regardless of nationality, have a substantial and intended effect within the EU, Monti’s power was a major concern to multinational corporations.
The Competition Commissioner is appointed by the European Commission president, who is the chief administrative official of the EU. When Jose Manuel Barroso, the former prime minister of Portugal, began a five-year term as the new European Commission president in 2004, he selected businesswoman Neelie Kroes from the Netherlands to succeed Monti as Competition Commissioner. In contrast to Monti, the concerns about Kroes were that her extensive business experience made her too close to the corporate world. At various times, she had served on the boards of more than 25 companies.
The business world was especially encouraged by Kroes’ selection as Competition Commissioner. Yet Kroes’ first major decisions in her new job must have caused some of her business supporters to wonder just how friendly she will be. She began her term by blocking a merger of Portuguese and Italian energy companies the first time that the EU had officially blocked a merger in three years. At the same time, she announced a decision to fine three chemical companies for colluding on prices of animal feed vitamins, noting that such cartels would be a priority of her administration.
U.S. and EU Antitrust Laws
The inevitable comparisons of Kroes and Monti as competition commissioners will be skewed to some extent by changes in antitrust law that took effect only a few months before Monti left office. As in the United States, EU antitrust law addresses two main topics competition in general and mergers. (The recent rejection of the EU’s proposed new constitution by French and Dutch voters will not have a direct effect on current antitrust law in the EU.)
Article 81 of the European Community Treaty prohibiting cartels and other “concerted practices” that distort competition is roughly comparable to Section 1 of the Sherman Act (the principal U.S. antitrust law), which outlaws concerted action to restrain trade. In general, “concerted action” for a Section 1 violation means that at least two companies must be involved in restraining trade, as opposed to unilateral action by one business. Price-fixing or bid-rigging are prime examples of illegal concerted action.
The EU also has a counterpart to the Sherman Act’s Section 2, which prohibits the willful acquisition or maintenance of monopoly power. Article 82 of the EC Treaty states: “Any abuse by one or more undertakings of a dominant position within the common market…shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.” Microsoft was found to be an antitrust violator in the EU under Article 82’s “abuse of dominant position” provision, both for restricting the interoperability of competitors’ server software with the Windows operating system and for bundling the Windows media player with the operating system.
Companies found to be antitrust violators are subject to heavy monetary penalties in the EU. Fines may be as large as 10 percent of a company’s worldwide annual revenue for intentional or negligent violations. However, unlike the United States, the EU provides no criminal penalties for individuals who violate antitrust law.
Despite the general similarity of EU Articles 81 and 82 to U.S. law, their applications to the business world have not been as comparable. It is often said that U.S. antitrust law is aimed more at promoting competition, while EU law is more concerned with protecting competitors. While this assertion is probably a good starting point for explaining the differences, some might call it an oversimplification of fairly complicated issues.
New EU Regulations
The European Union has adopted two major new regulations on antitrust. Both took effect on May 1, 2004—the day that the EU added ten new members to expand to 25 member nations. The first regulation, dealing primarily with competition rules, includes a number of provisions that considerably strengthen the power of the Competition Commission.
For example, the new regulation allows EU officials to go even farther than the “dawn raids” or surprise inspections already permitted at business facilities in the EU. Now, the Commission’s investigative powers allow searches of personal homes and cars of directors or employees of a company under investigation, as well as business offices.
There are some mild limits on these home searches, since the regulation requires “reasonable suspicion” that records relating to an investigation are being kept there and that they “may be relevant to prove a serious violation of Article 81 or Article 82.” Furthermore, while the Competition Commissioner alone can approve searches of business facilities, these home searches require prior approval from the courts of the nation where the home is located.
The most complicated aspect of the new competition regulation deals with the division of power between the Competition Commission at the EU central office in Brussels and the competition authorities in the 25 member nations. The new rule empowers the various nations’ competition authorities and courts to enforce EU competition law within each nation, thus permitting the Brussels central office to focus on larger and more serious cases.
Since the member nations and courts are expected to apply EU-wide law in most circumstances, this further federalizes antitrust law in the EU. However, having 25 different competing authorities and courts applying EU law could result in inconsistent application from nation to nation and thus create greater legal uncertainty for businesses.
Monti, the former Competition Commissioner, saw this decentralization effort as a possible first step toward private antitrust suits in the EU (suits brought by competitors or consumers of companies engaged in anti-competitive conduct). He estimated that private litigation, rather than government action, is responsible for 90 percent of U.S. antitrust enforcement. Expanding the availability of private antitrust suits to the EU would be a great concern to companies doing business there.
The second important antitrust regulation, which deals with mergers, also took effect on May 1, 2004. The EU has authority over any proposed merger, regardless of the nationality of the companies involved, if the transaction meets two revenue thresholds if the combined companies would exceed 5 billion euros in annual revenue worldwide, and if at least two of the merging companies would each have annual revenue exceeding 250 million euros inside the EU. (Based on the euro-dollar exchange rate in early summer 2005, that would mean roughly $6 billion in worldwide revenue and $300 million in EU revenue.)
Prior to 2004, the EU merger test involved the question of whether the combining companies would create or strengthen a dominant player (usually meaning the firm with the largest market share) in a particular market, based on the “abuse of dominant position” concept from Article 82 of the EC Treaty.
The new regulation revises the merger test, allowing the EU to block mergers that “significantly impede effective competition.” This new standard is intended to empower the EU to block more mergers, such as those involving an oligopolistic market even if the merged company would not be truly dominant or necessarily even much larger than the remaining competitors.
This revision brings the EU test closer to the U.S. standard for mergers set by the Clayton Act, which prohibits mergers when the effect “may be substantially to lessen competition, or to tend to create a monopoly.” However, an important difference remains in that U.S. antitrust authorities must go to federal court to request an injunction to block a proposed merger. In contrast, the EU’s Competition Commissioner can block a merger without prior court involvement.
The EU merger reform package also includes new Horizontal Merger Guidelines providing detailed guidance on how the Competition Commission will evaluate proposed mergers between current or potential competitors. These guidelines represent yet another step toward greater conformity with U.S. antitrust law, which has similar guidelines. Of course, the practical impact of the EU’s revised merger regulation will not be known with certainty until it has been used in a number of cases.
The EU’s new antitrust rules clearly have resulted in some convergence between EU and U.S. law, especially with regard to mergers. In addition, the EU and the U.S. have taken steps to coordinate merger reviews in an effort to avoid embarrassing disagreements as in the GE-Honeywell case.
What remains less certain is whether a similar narrowing of the gap in the different governments’ approaches to enforcing the law has occurred. While U.S. antitrust enforcement is likely to remain generally consistent during the second term of President Bush, a new European Commission president and competition commissioner are still unknown entities regarding antitrust law. Despite the reasonable expectation that they will have a less aggressive enforcement policy than did the prior EU administration, the initial decisions of Commissioner Kroes have raised some questions about those predictions.
In short, while there has been some convergence in antitrust law, the practical effect is still unclear. That means that companies doing business in both the U.S. and the EU must continue to pay close attention to antitrust issues in both jurisdictions and that they might still face the prospect of conflicting outcomes. In other words, if a company is unhappy that U.S. antitrust regulators will not stop the firm’s rivals from merging, there is still a chance that the company can get a different answer from the EU.
 William Drozdiak, European Union Kills GE Deal, Wash. Post, July 4, 2001, at A1.
 Andrew Ross Sorkin, A Trustbuster’s Song Is Ending. But a Coda Is Possible, N.Y. Times, May 30, 2004, at C3.
 The fine imposed by the EU was 497 million euros.
 Jonathan Krim, E.U. Orders Microsoft To Modify Windows, Wash. Post, Dec. 23, 2004, at A1.
 Philip Shishkin, European Regulators Spark Controversy with ‘Dawn Raids,’ Wall St. J., Mar. 1, 2002, at A1.
 Bloomberg News, Europe Picks Dutch Official to Enforce Antitrust Law, N.Y. Times, Aug. 13, 2004, at W1.
 Raphael Minder & Peter Wise, Commissioner warns: I’m no pussycat, Fin. Times (London), Dec. 10, 2004, at 30.
 Paul Meller, Stern Stance for Europe’s New Antitrust Chief, N.Y. Times, Dec. 10, 2004, at W1.
 Treaty Establishing the European Community (consolidated text), Official Journal C 325 of 24 December 2002, at 64, available at http://europa.ue.int/comm/competition/legislation/treaties/ec/art 81_en.html.
 Section 1 of the Sherman Act states: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. …” 15 U.S.C. § 1 (2004).
 Section 2 of the Sherman Act states: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony …” 15 U.S.C. § 2 (2004).
 European Community Treaty, supra note 9, at 65, available at http://europa.ue.int/comm/competition/legislation/treaties/ec/art 82_en.html.
 James Kanter, Don Clark & John R. Wilke, EU Imposes Sanctions on Microsoft, Wall St. J., Mar. 25, 2004, at A2.
 Council Regulation 1/2003 on The Implementation of the Rules on Competition Laid Down in Articles 81 and 82 of the Treaty, art. 23, 2003 O.J. (L 1) 1, 17.
 Helen Disney, A more subtle anti-trust regime for Europe, Fin. Times (London), Oct. 13, 2004, at 21.
 Council Regulation 1/2003, supra note 14, art. 21, at 15.
 Id. art. 5-6, at 8.
 Brandon Mitchener, EU Antitrust Regulators Gain More Enforcement Muscle, Wall St. J., Apr. 29, 2004, at C1.
 Council Regulation 139/2004 on The Control of Concentrations Between Undertakings (the EC Merger Regulation), art. 1, 2004 O.J. (L 24) 1, 6.
 Id., art. 2, at 7.
 New Merger Regulation frequently asked questions, EUROPA Press Releases, available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=MEMO/04/9&format=HTML&aged=0&language=EN&guiLanguage=en.(no longer accessible)
 Section 7 of the Clayton Act states: “No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital … of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18 (2004).
 Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations Between Undertakings, 2004 O.J. (C 31) 5.
 U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, available at http://www.justice.gov/atr/public/guidelines/horiz_book/hmg1.html. In fact, both the EU and U.S. merger guidelines make use of the Herfindahl-Hirschman Index (HHI), which addresses the level of concentrations allowed in a particular industry.
 See endnote 1.