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Antitrust lawyers are calling it the “Big Bang.” The European Union — for the first time in 14 years — has revised its rules for corporate mergers. It also has overhauled antitrust regulations in place since the 1960s governing agreements like joint operating and licensing pacts, and research and distribution partnerships. The reforms were adopted May 1 and came the same day the European Union admitted 10 new member states from Central and Eastern Europe. They could trigger a more aggressive approach to antitrust enforcement in Europe and, in turn, translate into more work for law firms doing business there. The new rules are a step toward synchronizing antitrust law in Europe and the United States. They free centralized antitrust enforcers to tackle cartels and address big-ticket mergers and give the courts of member nations new powers to apply EU-wide competition law. The reforms could also result in more litigation in those courts, say EU antitrust lawyers. “This is going to accelerate change from a regulatory system toward a more adversarial, confrontational system,” like that of the United States, says Barry Hawk, a Skadden, Arps, Slate, Meagher & Flom partner in New York and in Brussels, Belgium, who specializes in EU antitrust law. The European Union divides what is commonly referred to as antitrust in the United States into two categories: merger law and competition law, which governs nonmerger agreements and practices that could have negative impacts on competition, but are not mergers. Under the European Union’s new plan, centralized antitrust authorities at the EU’s regulatory arm, the European Commission, will cooperate with the courts of member countries and their enforcement authorities through the European Competition Network. Those courts now will have the authority to grant individual exemptions in nonmerger agreements, giving them a key role in applying a basic article of EU competition law. Prior to the reforms, the European Commission in Brussels held the exclusive power to give individual exemptions. That development could push law firms to expand capabilities throughout the entire EU bloc, says Oliver Bretz, a Clifford Chance antitrust partner in London. “We used to have one port of call. Now we potentially have 25 courts of law to deal with,” Bretz says. PREPARING FOR CHANGE Clifford Chance has 15 offices throughout the European Union and began beefing up its antitrust practice in the new Central European member states in advance of the reforms. For example, the firm sent Berndt Hess, a partner from Frankfurt, Germany, to its Warsaw, Poland, office to train Polish lawyers in the new competition regime. Some firms are taking a different tack, focusing on a central hub office, usually in Brussels or London. Trevor Soames, the head of Howrey Simon Arnold & White’s Brussels office, says the firm has hired lawyers from member states, enabling it to function in as many courts as possible. Howrey’s Brussels office includes lawyers from a dozen EU countries. Teaming with local counsel in member countries is another part of the strategy taken by Howrey, and fellow D.C. firm Wilmer Cutler Pickering. But Brussels practices will remain central, says Soames. He says that despite being touted by competition authorities as a decentralization of enforcement powers, the new antitrust system is “increasingly federal,” since each of the 25 member states are now applying competition law according to a template set in Brussels. And with a larger EU came a push to streamline antitrust regulators’ duties. European Commission authorities will no longer perform routine examinations of nonmerger agreements. Rather than seeking the commission’s clearance of potentially restrictive practices, companies now have to assess the agreements themselves. Under the prior rules, companies would voluntarily notify the commission of agreements that might have anti-competitive effects. The commission would evaluate the agreements and most frequently would issue a “comfort letter” — an informal clearance of the agreement. “Working through a pile of mostly innocuous notifications may have made sense 40 years ago. It simply does not make sense now,” said EU antitrust chief Mario Monti in a news release. The move effectively opens the door to more private litigation in member-country courts by stripping businesses of a line of defense, says John Ratliff, co-chair of Wilmer Cutler’s EU competition practice. Under the old regime, notification to the commission effectively forced the member-country court to suspend proceedings and await a ruling from Brussels. Now companies have to rely on their lawyers for assurances the agreements pass antitrust standards. “As a lawyer, you have to come up with a more firm yes or no answer,” says George Metaxas, an antitrust partner in Hogan & Hartson’s Brussels office. Even so, John Parisi, counsel for European affairs in the Federal Trade Commission’s Bureau of Competition, says there are still barriers that make private antitrust litigation in Europe less likely than in the United States. Among them are limited damages awards, the prohibition on contingent fees for lawyers, and tight restrictions on class actions — three hallmarks of private antitrust litigation in the United States. “Unless those bars are gone, it’s hard to see much more private litigation,” Parisi says. “There is more incentive to go to the commission or to member state authorities instead.” Parisi and other FTC and Department of Justice lawyers have been collaborating with attorneys from the European Commission on antitrust law reforms for more than five years. Antitrust regulators in the European Union and in the United States clashed famously in 2001, when the European Commission prohibited a merger between the General Electric Co. and Honeywell International Inc. that the Department of Justice had cleared. Earlier this year, the commission ruled that the Microsoft Corp. illegally stifled competition, levying a record $613 million fine and forcing it to disclose software secrets. The decision stood in sharp contrast to the Justice Department’s settlement with the company, which didn’t include a fine and allowed the software maker to keep its Windows software virtually unchanged. “The whole modernization [of the EU antitrust regime] creates a system of antitrust enforcement that is more similar to that in the United States,” Parisi says. “They’re moving to a system where authorities are watchful of violations of law, rather than having parties notify them.” POLITICALLY CHARGED The drift toward U.S. antitrust law is a politically charged issue in Europe, says Clifford Chance’s Bretz. “The EU hasn’t given in to the United States yet,” Bretz says, though he notes that the United Kingdom, Ireland, and the United States already use the same merger effects test. But he adds that at the practical level, there is little disagreement among EU and U.S. regulators on the need for harmonization in antitrust, particularly related to mergers between multinational companies. One move that brings antitrust enforcement in the European Union closer to that in the United States is a change to the test used to assess mergers. The new test gives authorities broader scope, allowing them to address mergers that are a “significant impediment to effective competition,” compared with the old test, which gauged whether companies were “dominant.” The new effects test is also intended to fill a gap in EU merger law, giving commission authorities power to address mergers in markets dominated by a few large suppliers. The European Commission, which has been reviewing mergers since 1990 and has jurisdiction over deals where total European revenue tops $225 million, is also faced with the task of integrating the new member states, which generally have fledgling antitrust enforcement agencies. Andreas Weitbrecht, co-chair of Latham & Watkins’ global antitrust practice and a partner in Brussels, says the 25 national enforcement agencies within the European Union vary greatly in resources and sophistication. Additionally, the courts of member countries have different procedures for dealing with antitrust matters and different sanctions for violating the law. Despite that, he says the EU reforms are likely to bring heightened attention to antitrust enforcement. “Overall, the level of enforcement will also increase,” Weitbrecht says, “becoming more aggressive under the guidance of the commission.”

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