5 REASONS WHY ANTITRUST CLAIMS ARE ILLUSTRATIVE OF THE ADVANTAGES OF RESOLVING INTERNATIONAL COMMERCIAL DISPUTES IN ARBITRATION

Increasingly and often unexpectedly for the parties involved, the resolution of international commercial disputes turns on antitrust/competition law claims or defenses. Dealing with these types of claims or defenses not only requires specialized expertise and skill from the decision makers and party representatives, but also a flexible procedural setting which allows the introduction and best possible scrutiny of very particular and often highly technical (expert) evidence.

Arbitration provides an ideal framework for the resolution of international commercial disputes which may involve antitrust/competition law claims or defenses. International commercial disputes involving antitrust/competition law claims and defenses are perfect examples to illustrate key differences between arbitration and other contentious dispute resolution methods and to showcase unique features and advantages of arbitration.

This article is a summary of the introduction to my lecture on “Resolving Complex Antitrust/Competition Law Claims in Arbitration” which I held at the beginning of April 2018 in the LL.M. Program on International Commercial Arbitration of the Law School of the University of Stockholm, Sweden.

Introduction

Some things cannot be explained. They must be experienced. And then: How certain things are perceived when experienced clearly depends on the spectator.

What is typically described as an advantage of arbitration, such as the ability of the parties to determine the place, rules and the language of the arbitration, their say in the selection of the arbitrator(s), the flexibility and confidentiality of the proceedings as well as their finality (i.e. the very limited legal remedies against an arbitral award) is in reality just a bunch of empty words to the uninitiated whereas for the experienced professional nothing of this is a truism.

As a matter of fact, what is generally perceived as an advantage may not necessarely be one in a specific case. Specific national court rules may for example provide for the very same feature as arbitration or what is in general considered as an advantage of arbitration may even be detrimental in a specific context. In very specialized matters it may for example prove to be very hard to find independent suitable arbitrators with the necessary amount of experience whereas some jurisdictions provide specialized courts with independent judges for exactly these types of cases.

In reality, the potential advantages of arbitration as a method of resolving disputes in comparison to alternatives, like state court litigation, can only be explained and assessed in the context of a specific case or a specific class of cases. Commercial disputes involving antitrust/competition law claims are perfectly suited for this purpose. Here are five reasons why:

Reason No. 1: Antitrust/competition law shapes commercial transactions

Reason No. 2: Antitrust/competition laws are ubiquitous

Reason No. 3: Resolving disputes involving antitrust/competition law is highly technical

Reason No. 4: Assessing antitrust/competition law implications is very case specific

Reason No. 5: The determination of relevant facts often involves highly confidential information

Why these five reasons are strong indicators that arbitration provides an ideal framework to resolve international commercial disputes involving antitrust/competition law claims or defenses and that, as a consequence, this class of cases is illustrative of why key features of arbitration can be so advantageous compared to other contentious dispute resolution methods is the subject matter of this article.

Traditional issues addressed in the context of resolving antitrust/competition law claims in arbitraton, such as the arbitrability of antitrust/competition law, the obligation of arbitrators to apply antitrust/competition law ex officio and the legal consequences of their failure to do so, are not (at least not primarily) addressed here.

Reason No. 1: Antitrust/competition law shapes commercial transactions

Antitrust/competition law is aimed at preventing distortion of competition on markets. This is, in essence, accomplished by prohibiting:

1. anticompetitive agreements and concerted practices;
2. abuses of dominant market positions; and
3. concentrations (e.g. through mergers) which result in or strengthen a dominant market position.

Whereas the first two prohibitions are assessed ex post, the third one (merger control) is assessed by competition authorities, like the European Commission in the EU and the Department of Justice (DOJ) in the US, in advance as a pre-condition for the actual implementation of an intended concentration.

Violations of any of these prohibitions not only have public law consequences like the imposition of fines, but also civil law implications, such as (i) voidness of anticompetitive agreements, (ii) claims for adjustment of anticompetitive commercial and legal contract terms and (iii) claims for damages. The voidness of anticompetitive contract clauses may render the entire agreement null and void under the law governing it.

In the context of (international) arbitration, the prohibition of anticompetitive agreements and the prohibition of abuses of dominant market positions are of practical importance.

Most frequently antitrust/competition law claims occur in the form of a defense that a specific contractual obligation on which one of the parties relies (e.g. an exclusivity stipulation in a licensing agreement) is null and void due to an asserted violation of the prohibition of anticompetitive agreements. In case EU competition law applies, this defense is commonly referred to as Euro Defence.

Claims for adjustment of certain contract provisions (mostly price conditions) based on an asserted violation of the prohibition of an abuse of a dominant position are increasingly sought to be enforced in arbitration by parties to commercial agreements with dominant undertakings. In such cases, the non-dominant party claims that the affected (commercial) contract term(s) would look differently (i.e. more beneficial) if its dominant counter party would not have been in a position to impose these terms upon it as a consequence of the absence of alternatives. In case a dominant position and an abuse can be established in an arbitration, it is an arbitral tribunal’s task to adjust the affected (commercial) contract terms to what they would be expected to be under conditions of competition (i.e. without the abuse of a dominant position). A daring task in practice which relies on economic modeling.

Claims for damages as a consequence of a breach of competition law are not yet commonly enforced in arbitration. One of the reasons is that the largest volume of damages claims arise in so-called follow-on actions (i.e. law suits for the enforcement of damage claims following a finding of a violation of antitrust/competition law by competition authorities) for which more often than not no arbitration agreement exists. However, for the reasons set out in this article, arbitration would also provide the perfect procedural framework for the resolution of follow-on (damages) claimsand there are validated techniques by means of which such claims could be resolved in arbitration (e.g. by acceptance of a so-called open offer to arbitrate by the potential claimants). Even collective arbitrations (i.e. the equivalent of class actions) would be available.

Antitrust/competition law claims may arise under any commercial agreement. In the context of international arbitration, disputes relating to agency, distribution, joint selling or purchasing, JV, licensing, long-term energy supply, technology transfer, M&A and R&D agreements often give raise to antitrust/competition law claims and defenses.

In addition to the substantive issues outlined above, antitrust/competition law may also be of relevance procedurally, namely in the context of document production requests. In case competitors are adverse parties in an arbitration, the exchange of so-called strategic information (e.g. pricing information or information concerning marketing strategies) may qualify as inadmissible anti-compeititive agreement. A party relying on antitrust/competition law in order to object to the production of documents requested by the other party must, however, prove that producing certain information would in fact amount to an unlawful information exchange which will in the great majority of cases be impossible. More often than not the antitrust/competition law objection is used recklessly in the context of document production.

Reason No. 2: The ubiquity of antitrust/competition laws

More than 120 countries have adopted antitrust/competition laws today.

Although the procedural and substantive legal standards have not converged, antitrust/competition laws around the globe regulate in essence the same types of agreements and behavior and determine the admissibility and validity of the most important types of commercial agreements.

In addition, antitrust/competition law applies irrespective of and in addition to the law governing a specific agreement. The application of antitrust/competition law is widely subject to the so-called effects doctrine. This means that the antitrust/competiton law of the jurisdiction(s) in which the anticompetitive effects of the agreement concerned may take effect. If therefore an anticompetitive territorial or customer protection clause in a tehnology licensing agreement conluded in Asia and governed by some Asian law has potential or actual anticompetitive effects in Europe, European competition law(s) may render the anticompetitive clause and potentially the entire agreement null and void. A legal risk which is often not seen by the parties to such agreements and their lawyers.

As a consequence, antitrust/competition law claims may arise under any commercial agreement irrespetive of the actual law governing it.

Reason No. 3: Resolving disputes involving antitrust/competition law issues is highly technical

The prohibitions of anticompetitive agreements and of abusive unilateral behavior of dominant undertakings appear to be straight forward. In practice, however, their application is very technical and complex.

The main reason therefore is what is referred to in Europe as the “economic approach” to the application of antitrust/competiton law. In essence, it means that in order to determine a violation the actual effects of an agreement or of the behavior of a dominant undertaking must be determined. Doing so requires extensive market analysis, including the definition of the relevant geografic and product market, as well as economic modelling.

Equally, the quantification of damages suffered as a consequence of a violation of antitrust/competition law requires economic expertise.

Economic expert reports and testimony are in general an absolute necessity in cases invloving a (potential) violation of antitrust and competition law. There are only very few violations (in the EU so-called “restrctions by object”) which can be determined without economic analysis assessing the effects of a specific agreement on competion or a (pontential) abuse by a dominant undertaking. Contrary to what the name would suggest, the intentions of the parties is irrelevant in determing as to whether or not a resticition is one by object. Instead, restictions by object are such where, based on general economic experience, anticompetitive effects can be presumed. Horizontal price fixing (i.e. price cartels between competitors) are an example for such a restriction.

Economic expert evidence is however not the only expert evidence which may have to be presented and assessed in arbitrations involving antitrust/competition law. For example, in cases arsing under licensing or other technology transfer agreements, technical expert evidence may be required to assess technical aspects which may be relevent in determining a breach of antitrust/competition law. An example may be the technical determination as to whether or not a licensee benefiting from exclusivity to further develop the licensed technology is actually really further developing this technology or, instead, just holds on to the exclusivity to keep this technology off the market. The later obviously may have anticompetitive effects.

Assessing expert evidence presented in cases the outcome of which turns on issues of antitrust/competition law requires not only familiarity with economic theory and its application, but also an afinity to numbers and data analysis. Without the respective know-how, skills and experience, decision makers (judges or arbitrators) will find it considerably difficult if not impossible to assess the accuracy of expert evidence let alone conflicting expert evidence.

In light of the above, the possibility to select the decision maker(s) in arbitration may be a real advantage of arbitration compared to litigation as the parties have the opportunity to appoint arbitrators with the necessary skills and experience. There are however jurisdcitions in which antitrust/competition law cases are heard by specialized judges in which case the selection of arbitrators by the parties may no longer be an apparant advantage of arbitration. As a matter of fact, specialized courts may even be preferrable. This is due to the fact that abritrators who are specialized in resolving antitrust/competition law disputes are scarce. To this day, antitrust/competition lawyers are not much exposed to litigation and arbitration and, as a consequence, often lack the skills and experience necessary to adjudicating cases as an arbitrator. On the other hand, litigation and arbitration experts often lack the necessary exposure to antitrust/competition law cases. This can however be expected to change gradually with the number of litigations and arbitrations relating to violations of antitrust/competition law, in particular follow-on actions, steadily increasing.

The flexibility of arbitration proceedings can be a real advantage in the context of introducing and assessing expert evidence. It is common in arbitration that each party presents its own (private) experts rather than the tribunal appointing an expert as it would be the case in state court litigation in many jurisdictions, in particular civil law jurisdictions.

Moreover, there are many common practices applied in arbitration to assess (private) expert evidence introduced by the parties, such as the tribunal ordering the experts to produce a joint report indetifying the issues on which they agree and those on which they don’t agree, in the latter case specifying and, if possible, agreeing on the reasons for their disagreement. This is often followed by a practice referred to as “hot tubing” in which the experts testify orally only on issues on which they do not agree defending their respective positions.

Compared to the practice of having only one court appointed expert opining on controversial expert issues and limiting the parties to comment to the expert report(s) of the court appointed expert and only having the opportunity to orally examine her/him, the extensive opportunities to introduce and scrutinze expert evidence in arbitration provides a much better framework to to find the right asnwers to expert issues.

But again, the advantages of introducing and scrutnizing expert evidence in arbitration outlined above are not obvious to all. US litigation, for example, provides more extensive opportunities to introduce and scrutinize expert evidence which are comparable to those commonly used in arbitration.

Reason No. 4: The evaluation of antitrust/competition law issues is very case specific

It comes with the effects based approach for the establishment of a violation of antitrust/competition law that the resolution of a particular case involving antitrust/competition is very case specific.

Under many jurisdictions, e.g. EU competition law, reliance of facts determined in other cases is inadmissible. Thus, the relevant facts (e.g. the what is the relevant market and market structure, which position do the parties to the proceedings have on the market, does the agreement or behavior concerned have anti-competitive effects?) must be proven and, as a consequence, established by the competent authority, court or arbitral tribunal anew. Only in follow-on actions, claims for damages may be based on the findings of violations of antitrust/competition law of another competition authority.

The case specificity of disputes the outcome of which depends on the resolution of issues of antitrust/competition law is one more reason emphasizing the advantages of arbitration over litigation in general which are set out above.

Reason No. 5: The necessity to determine relevant facts on the basis of highly confidential information

Antitrust/competition law is linked to the strategic (competitive) behavior of undertakings and consequently linked to confidential business secrets (such as pricing and marketing strategies). Moreover, as set out in more detail above, antitrust/competition law applies and thereby affects the majority of commercial and corporate agreements and transactions which are relevant today. The content of such transactions (e.g. of a technology transfer agreement) are mostly highly confidential.

As opposed to court proceedings, arbitration proceedings (including oral hearings) are not open to the public. In addition, the parties may either as part of the arbitration agreement or in the agreement of the specific procedural rules applicable to an arbitration agree on extensive confidentiality (e.g. that no written submissions made in the arbitration and/or evidence, such as expert reports/testimony, may be used outside the context of the actual arbitration). The confidentiality obligation may even be extended to the outcome of the arbitration, including the actual award.

The extended possibilities to keep business secrets as well as the actual proceedings and their outcome confidential is in particular in matters involving antitrust/competition law a major advantage of arbitration over litigation which by default are public.

Concluding remarks

For the reasons set out above, arbitration provides an ideal framework to resolve private (commercial and corporate) disputes the outcome of which is determined by the resolution of antitrust/competition law. Typical examples of such disputes are disputes arising under agent/distribution agreements, long-term sales and purchase agreements (e.g. long-term energy supply agreements), technology transfer/licensing agreements and M&A disputes with post non-compete obligations.

The possibility to appoint arbitrators who are familiar with antitrust/competition law and its practical application in a contentious context, the flexibility to introduce and scrutinize (expert) evidence as well as the extensive opportunities to protect business secrets as well as to keep the actual proceedings and their outcome confidential are key obvious advantages of arbitration to resolve cases involving antitrust/competition law in arbitration.

In considering the impact violations of antitrust/competition law may have on (the validity) of (international) commercial and corporate transactions as well as the advantages arbitration provides for the resolution of private disputes the outcome of which may essentially turn on antitrust/competition issues, arbitration should be the dispute resolution mechanism of choice for such disputes.

With the increasing number of antitrust/competition law issues being submitted to arbitration, a new generation of arbitrators and party representatives with the necessary skills and experience is emerging. This will contribute significantly to the efficiency and effectiveness of arbitration in this domain.

For the same reasons, private antitrust/competition law disputes are perfect illustrations for cases which – at least in an international context – are best resolved in arbitration. They provide for great case studies showcasing key features of arbitration filling abstract concepts with life.