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IBERIAN LAWYER

SPECIAL FOCUSS: BRUSSELS 2011 Looking behind the letter of the law

An abstract from Iberian Lawyer January / February 2011 For further information please contact maricruz.taboada@iberianlegalgroup.com

www.iberianlawyer.com

www.iberianlawyer.com

January / February 2011 • IBERIAN LAWYER •


IMES CIAL T yers N A N I w F tive La Innova LUNCH A L GA

The future is here: managing legal services within a downturn International Legal Summit 2011 Join leading lawyers from across Spain, Portugal plus around the world to discuss the increasing challenges of managing legal services during difficult economic times: • Leadership • People • Pricing and profits • Technology • Clients

The morning begins with keynote speeches and panel discussions, to be followed by the Gala Lunch and a series of interactive afternoon training workshops. Issues to be addressed include: • The Financial Crisis: What has been the impact on legal services? The international speakers include: • Richard Susskind, independent adviser to law firms and governments, a world specialist in legal technology for over 25 years and author of The End of Lawyers? Rethinking the Nature of Legal Services

• A New Landscape for Legal Services: challenges to law firms? • The Knowledge Challenge: Determining the right price for legal services?

• Peter Cornell, Managing Director, Terra Firma; former Global Managing Partner of Clifford Chance

• The New In-House lawyer Role: The clients’ revolution?

• Neville Eisenberg, Managing Partner, Berwin Leighton Paisner

• Compliance and Corporate Governance: A new world of regulation?

• Reena SenGupta, founder RSG Consulting, creator The Financial Times Innovative Lawyers Report

• Emerging markets: Iberia as a platform for investments into Africa and Latin America

Hear from ileading experts from across Spain and Portugal, the US, UK and Europe including international General Counsel and law firm leaders from: Allen & Overy, Berwin Leighton Paisner, Cleary Gottlieb Steen & Hamilton, Deutsche Bank, Eversheds, Freshfields Bruckhaus Deringer, General Electric, Santander, Simpson Thacher & Bartlett, Tyco International

FINANCIAL TIMES Innovative Lawyers GALA LUNCH

Pestana Palace Hotel, Lisbon, March 22nd 2011

• IBERIAN LAWYER • January / February 2011

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Special Focus: Brussels

Looking behind the letter of the law

Understanding the reasoning behind the application of EU competition law policy demands much more than mere legal insight Success in the European competition arena is not merely a question of knowing the law or understanding the limits of legal principles, it requires an awareness of prevailing European politics, and the nuances and interplay between national and European Commission (EC) regulatory authorities, say lawyers in Brussels. The past year has seen EC decisionmaking steadily return to normality following the tremors caused by the financial crisis of 2007-08, say experts. There is a sense that the more flexible approach evident among the EC merger control and state aid decisions taken at the height of the crisis would likely not now be repeated. The new Competition Commissioner Joaquín Almunia has also begun to make his mark and is proving to be more reflective than his predecessor, Neelie Kroes (now Digital Agenda Commissioner), and with much less concern for the media reaction to decisions. “The change of Commissioner is not responsible for any substantive changes in the way competition analysis is undertaken but an evident downside of a more considered approach is that decisionmaking does appear to be now slower than it was,” says Javier Ruiz Calzado, a partner with Latham & Watkins in Brussels.

“The policy of regular mobility of the staff applied by the EC may sometimes create the wrong incentives and complicate the handling of the most complex and difficult cases by D-G Comp,” says José Luis Buendía, a Brussels-based partner with Garrigues, who was previously with Legal Service in D-G Comp. “The EC obviously wants to challenge specific business practices but in doing so it usually faces very strong and very determined opposition.” The issue is not however the preserve of restrictive practices investigations. D-G Comp may not be adequately using the timing addressed for pre-notification discussions to the detriment of parties. Transactional lawyers report spending time in merger notification negotiations with D-G Comp (in Phase I) for them to still be referred to a full (Phase II) investigation. “It means significantly more expense, delay and legal uncertainty for the client and actually calls into question the merits of trying to engage with the Commission prenotification,” says Ramón García Gallardo, Head of EU at SJ Berwin in Brussels. But while the merger clearance process comes with an understood timetable, however long, there are no time limits in antitrust investigations. Over 90 percent Frustration are now driven by leniency applications, The pace of competition analysis say lawyers, and the onus is increasingly undertaken by the EC is an area of constant placed on the applicant to deliver the proof frustration. It is now not uncommon for to uphold their request. antitrust investigations to take years and Lawyers note that managing the final appeal decisions even longer, say information load in pan-European cartel lawyers. Last year saw the appointment of cases may be challenging, but with the a new Hearing Officer within the Director- requisite “will”, shortened time limits Generate for Competition (D-G Comp) but could be enforced. Significant was the scale who to date has had no hearings to preside of issues facing D-G Comp in regulatory, over. Apparently simple national merger merger and state aid questions at the clearances increasingly also now find their height of the crisis, say some, but decisions way before the EC. were nonetheless made in days rather than The reasons for such delay are many months. En el suplemento especial and varied but it is not merely a question “The management of cases is one of sobre el mercado jurídicoof the scale of the cases and investigations the weapons in the EC’s armoury. It can económico de Bruselas, being undertaken, experts insist. Delays decide when to open a matter, what pace los abogados afirman que are inevitable given the complexity of to take in investigations, and when to comprender las políticas EC institutions, while policy emphasis begin enforcement proceedings,” says europeas de competencia inevitably changes with each new Andrés Font Galarza, a partner with requiere mucho más que Commissioner or senior appointment. Gibson Dunn in Brussels, and former conocimiento jurídicoFormer Deputy Director General for Directorate General for Competition with técnicos: hay que ser Mergers Nadia Calviño has moved across the Commission. conscientes de los to the Commission for Internal Markets and matices políticos y de Services where she is a Deputy Director Momentum las interacciones entre la General with responsibility for financial An evident continuing trend is also Comisión Europea y las services and financial institutions. the Commission’s desire to devolve autoridades nacionales. www.iberianlawyer.com

January / February 2011 • IBERIAN LAWYER •

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Special Focus: Brussels

There is clearly a delicate balance between putting your hands up and leaving yourself exposed to a fine, possible follow-on and private damages claims, and the resulting negative publicity and reputational risk, or simply waiting for the EC to present a solid case, which is not always the case even if others have applied for leniency. Javier Ruiz Calzado, Latham & Watkins

greater responsibility for competition issues to national authorities, and to publish deeper guidance on issues affecting the financial services sector and in relation to state aid. The Commission wants markets to be more selfregulating but this is difficult in areas where policy decisions are not explained. Lawyers continue to criticise the lack of guidance in some areas of antitrust enforcement where it is needed, and automatism in cartel cases and entirely driven by the leniency program, where proof of guilt is not always forthcoming. The result, say some, is companies adopting more prudent tactics and beginning to take a “wait and see” approach in cartel investigations. “The EC is putting too much emphasis on companies admitting their own guilt, and many often capitulate to do requests for information and end up applying for leniency when there is actually little evidence against them,” says Ruiz Calzado. Notable has been the EC’s investigation into the air freight sector where almost a dozen leniency applications were made, but few if any of the companies involved were presented with any hard evidence against them, say experts. Most of those prosecuted are also now appealing the scale of fines imposed. “There is clearly a delicate balance between putting your hands up and leaving yourself exposed to a fine, possible follow-on and private damages claims, and the resulting negative publicity and reputational risk, or simply waiting for the EC to present a solid case, which is not always the case even if others have applied for leniency,” adds Ruiz Calzado. Fines may be reduced on appeal but cartel prosecutions are rarely overturned at the European level, in contrast to experiences at the national level where decisions have been annulled. Related to admissions of guilt, antitrust damages claims are an area of emerging developments at the European level, say lawyers. The Commission has now begun a consultation process, entitled Towards a Coherent European Approach on Collective Redress. The success of such a process and the final exactment of a legal instrument however depends as much on being able to generate sufficient political momentum within the Commission as marrying different European legal traditions, suggests García Gallardo. “The draft of the guidance has clearly been delayed as a result of the issues surrounding the ratification of the Lisbon Treaty but also because of the desire of D-G Comp to get the support of two other Commissioners, for Consumer Policy and Justice, to help build a consensus around the proposals so that they carry more weight in the European Parliament.” Looking ahead at the issues that will likely inform competition law policy over the next few years requires an analysis of the kind of legacy that Almunia wishes to leave at the end of his four-year term, say some. “Neelie Kroes already set a very high standard in the area of cartels, and I think that Commissioner 3

• IBERIAN LAWYER • January / February 2011

Almunia will continue in that direction. But we are also likely to see significant developments in the state aid or monopolies arenas, or in developing remedies for collective redress,” suggests Salomé Cisnal de Ugarte, Counsel with Mayer Brown and formerly Director of European & Regulatory Affairs with Whirlpool Europe. Almunia’s economic background is significant, they say, in the way he looks at competition issues – less from a legal perspective and more from a market effect point of view. The crisis may have helped lessen national barriers in areas such as banking and financial services, but significant challenges remain including reducing the inequalities evident in the state aid sector and to take a harder line against the exemption requests of some of the largest member states. One of the final policy goals of the EC President José Manuel Barroso, now in his last term, is a desire to achieve a better balance and equal treatment between them. Playing the game The ability therefore to understand the political implications and dimension of EC regulation and rulemaking, and the public relations aspects of policy stands is therefore crucial in advising clients, but it also means that many competition issues automatically generate uncertainty. An example is the “trade-off” often seen between the Commission and national competition authorities in assigning jurisdiction to cases, say some. This is an issue that is particularly apparent in the merger arena despite the relative clarity of the rules that determine regulatory competence (see page 53, Understanding the drivers behind national and European merger referrals). “The division between European and national merger control competence is outlined for a specific purpose, but it creates legal uncertainty if national authorities request the European Commission to examine deals which do not meet the national thresholds,” says Edurne Navarro, a competition partner with Uría Menéndez in Brussels. “If the Authorities want to catch companies they should have the national merger thresholds amended. They referral system otherwise lends itself to misuse.” Such an issue is now more acute, say some, as many companies have built up cash reserves over the downturn and are ready to go on the acquisition trail. It also means that national authorities with a track record of contentious referrals may see businesses avoid otherwise attractive opportunities in their jurisdiction. The issue is indicative of the need to look behind the letter of the law, to both see and understand what is happening behind the scenes, and why particular policy decision may be taken. “Ultimately this means that despite the clarity of the competition rules, there might be other elements that need to be taken into consideration and that can influence the regulators’ decisions. You have to see the bigger picture, and factor in the possibility of extended timelines and budgets in case of referrals to the EC,” says Cisnal de Ugarte. www.iberianlawyer.com


Special Focus: Brussels

Understanding the drivers behind national and European merger referrals

Parties to a merger need to be aware that a transaction thought to require only national clearance may still end up before the European competition authorities At a time when the completion of merger “Despite the relative simplicity of the transactions is already a challenge, tests for an Article 22 referral other factors companies need to be aware of the may also be at play behind the scenes. It can possibility that deals without an apparent clearly be helpful to understand in advance Community dimension may still require the general policy of the relevant national analysis by the European Commission authority to cross-border acquisitions and (EC), which brings the potential for added the regularity of communication with the delay, uncertainty and expense, says authorities in Brussels.” Salomé Cisnal de Ugarte, Counsel with When it comes to mergers that affect Mayer Brown in Brussels and Adjunct three or more member states, the referral Professor at IE Law School in Madrid. criteria – under Article 4(5) – might be “We see a growing trend for referrals by more certain but requires even more careful national competition authorities, including planning, says Cisnal de Ugarte. by the CNC in Spain, of referring clearance “This process is intended to offer the decisions to Brussels where there is the option of a ‘one-stop shop’ merger clearance perception of a cross-border effect even – the parties may themselves ask the though the merger does not meet European national authority to refer the transaction merger thresholds, or to the EC, which even infringe domestic analyses the case We have experienced situations limits.” on behalf of all the where merger deadlines have been The competition Member States Authority of a member substantially affected because of a affected, avoiding state may refer a the need for jurisdictional change even at a relatively separate studies at merger under Articles 9 and 22 of the EU Treaty late stage of a transaction. the national level.” – previously known as This is a “prethe “Dutch Clause” as Dutch competition notification” requirement but such a process law originally never had a domestic merger can prove positive both in terms of the time clearance procedure. it takes for approval and the costs involved. To date there have been over 90 merger “The challenge is advocating to the EC that referral requests. These have been made the matter requires pan-European clearance even where Community thresholds have rather than analysis at the national level. not been met but the national competition And there is always the prospect that a authority nonetheless believes the merger national Authority may object to a referral may affect trade between EU member which would effectively veto Brussels’ states, and threaten to significantly affect involvement.” competition within the referral authority’s In recent years, she has had experiences own territory. where two out of three member states “In practice the referral criteria are a approved a referral but which was then relatively easy test to meet as any merger rejected by the third. “The difficulty is not in that relates to the cross-border supply knowing what legal principles or thresholds of goods or services may potentially may apply to a particular acquisition affect member states’ trade. And to meet strategy but what the prevailing sentiment the second limb of the test, the national is among the regulators and the degree of authority only has to provide prima facie comfort and interaction between them.” evidence which also offers considerable The challenge for companies is therefore room for interpretation,” says Cisnal de to manage legal uncertainties and Ugarte. “unplanned for” delays in acquisitions, A national authority must make a concludes Cisnal de Ugarte. referral request within 15 days of receiving “We have experienced situations where the merger notification, she says. The merger deadlines have been substantially immediate practical impact of this is the affected because of a jurisdictional suspension of national merger clearance change even at a relatively late stage of deadlines. The EC may additionally seek a transaction. A merger that had been the opinion of other relevant competition expected to take only a few months took authorities, meaning further delay before over a year to complete – it meant legal, even deciding on entering a full (Phase II) financial and commercial uncertainty for all investigation. the parties involved.”

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Salomé Cisnal de Ugarte

Si en estas épocas ya es difícil llegar a acordar una fusión, las empresas además tienen que ser conscientes de la posibilidad de que las concentraciones sin aparente dimensión comunitaria requieran el examen de la Comisión Europea. Ello implica aún más retrasos, incertidumbre y costes, explica Salomé Cisnal de Ugarte, Abogada de Mayer Brown en Bruselas.

January / February 2011 • IBERIAN LAWYER •

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IBERIAN LAWYER

An abstract from Iberian Lawyer January / February 2011 For further information please contact maricruz.taboada@iberianlegalgroup.com

www.iberianlawyer.com

• IBERIAN LAWYER • January / February 2011

www.iberianlawyer.com


Brussels e-report 2011