PRACTICAL COMPETITION COMPLIANCE

1. Presented at The London Shipping Law Centre by Marjorie Holmes 29 May 2007 PRACTICAL COMPETITION COMPLIANCE

2. Compliance with Competition Laws (1) • Around 110 jurisdictions with competition/anti-trust laws • General rules – • no price fixing • no market sharing • no capacity management • no abuse of a dominant position • Exceptions different, e.g. : US – 60/65% of market share generally not viewed as sufficient for dominance – Europe can be as low as 39%; at national member state level as low as 30%: e.g. Austria – significant market power is enough in Germany to require non-discrimination between users. [Scandlines/Deutsche Bahn –Putgarden]. Individual and block exemptions vary. } hardcore

3. Compliance with Competition Laws (2) • Starting point is an audit • Record of Restrictive Activities/Agreements (e.g. consortia, pool or trade association membership, as well as distribution agreements) • Identify the relevant jurisdictions • Self Assessments • Compliance Manual • Regular training, monitoring and auditing Safetrac

4. Regulation/Compliance • US Sarbanes-Oxley –CEO & CFO must sign Certificate of Proper Internal Controls • Japan – Corporate Law 2006 (Legally requires companies’ effective internal controls) • UK • Turnbull Combined Rules on Corporate Governance do not require compliance with the Code – they require companies to state whether they have complied with the Code provisions and to explain and justify any non-compliance

5. Revaluation/Compliance Survey carried out by Japanese Competition Authorities January 2006 • 86% of companies listed on the Japan Stock Exchange had a manual • 77% have installed a help line • 72 % have established a compliance committee Of this • 50% established after 2003 • 81% the help line had never been used • 38% only top management took responsibility • 7% conducted internal audit in response to revision of the Antimonopoly Act

6. Compliance/Self Assessments • Required Council Regulation 1/2003 – From May 2004 • 10% turnover fine [Reputation e.g British Airways shares fell 5.50 points on ftse [OFT/DOJ] • Criminal sanctions (UK and other jurisdictions) • Damages claim from Third Parties • Enforcement of Arrangements/Agreements • Arriva PLC/First Group PLC CA 98/9/2002 10% reduction on fine

7. How do you make your agreement EC compliant? • Is it a restrictive Agreement? – 81(1)/Chapter 1 applies • Block exemptions – Individual exemptions • Since 1 May 2004, notifications of agreements to the Commission for clearance abolished • Self- assessment means applying to your agreement the four exemption criteria in Article 81(3) as interpreted by EC case law • Detailed economic assessment of impact of agreements on the relevant market – market definition is key

8. Self Assessment What do you need to show? • promotion of technical/economic progress (e.g. agreement achieves economies of scale leading to better and more efficient services) • agreement gives shippers a “fair share” of the benefits (e.g. lower prices) • no restriction on the parties that are not “indispensable” (e.g. reasonable notice periods, no oppressive exit penalties for withdrawing from the agreement) • no elimination of effective competition in the market

9. Self Assessment / cont’d … Where to start? Looking at Commission exemptions given pre modernisation in various sectors, but particularly in shipping • 12 consortia exemptions 823/00 (as amended 611/05) • 4056 exemptions • Failed applications • Informal discussions

10. Self Assessment / cont’d … Courts decisions commenting on 81(3) Assessments • GSK v Commission re dual pricing with Spanish purchases • Ramsey pricing • Parallel trading • CFI agreed with GSK that Commission rejection without proper review of the effects was incorrect

11. Self Assessment / cont’d … • Horizontal Guidelines (2001/C3/02) (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32001Y0106(01):EN:HTML ) • Vertical Guidelines (2000/C291/1) (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2000/c_291/c_29120001013en00010044.pdf) • Commission Guidelines 81(3) (2004/C101) (http://europa.eu/scadplus/leg/en/lvb/l26114.htm ) • Notification Questionnaire • 13 Questions • Key issues are • What is the market? Supply/Demand • What are the benefits? • What do your customers say about you? • Review your Self-Assessment annually

12. Self Assessment – Market Share How do you calculate market share? a) Geographical Scope – World, Europe to Far Eastern; Country by Country or local (e.g: 30 miles radius for ready to use Ready Cement) b) Product ) – demand side or Services ) – supply side

13. Compliance Manual • a brief overview of the relevant competition rules; • a statement endorsed by the Board/Management of the business, that the company aims to comply with the relevant competition rules; • a bullet point list of ‘dos’ and ‘don’ts’; • a clear statement that it will be a disciplinary matter if any employee breaches the compliance requirements; • tie participation in competition compliance programme in with annual objectives and appraisal; • details of the compliance officer or person to whom all queries on competition issues can be referred;

14. Compliance Manual / cont’d … • details of any training or seminars organised by the company for it staff, including employees and/or agents; • advice on what to do if the company receives an unsolicited approach from competitors who wish to discuss matters relating to prices and the relevant market; and • guidance on how to deal with dawn raids.

15. Investigatory powers – European Commission • Requests for information – significant fines for not answering or providing misleading information can be up to 1% of turnover When a company is subject to a dawn raid by the Commission, the investigators have the following specific powers: • Ask any representative or member of staff for explanations of facts relating to the subject matter and purpose of investigation • Use reasonable force

16. Arrival of Investigators • First task will be to investigate the investigators’ mandate • Will enable lawyers to advise on precise scope of investigators’ powers • E.g. only warrant permits the Commission to use reasonable force • Seeking a delay of the investigation pending arrival of company’s lawyers

17. Golden Rules (1) • Each investigator must be shadowed by an appropriately briefed person • Do not volunteer information or documents unless necessary to clarify a response • Inspectors can only examine documents relevant to matters under investigation • Do not lie or deliberately mislead officials

18. Golden Rules (2) • Do not tamper with, hide or destroy documents or records, including e-mails • Inspectors not permitted to examine legally privileged documents (extent of what is legally privileged will depend on type of investigation) • Detailed records should be kept of all documents copied or taken by inspectors • Write down every question asked and every answer given • If uncertain of an answer, do not hazard a guess but promise to find out and provide answer later

19. Safetrac On-line Compliance system launched by Minter Ellison, Australian lawyers in 1999 – provides courses and test which is monitored Customers include Air New Zealand, AMP, Quantas Reed Smith Richards Butler provides the UK/European Competition Compliance content

21. Conclusion • With approximately 110 jurisdictions with Competition Rules in place, Competition Compliance requirements here to stay • Part of overall Corporate Social Responsibility • 10% reduction in fine just for having some compliance in place (Arriva) • Commercial advantages to being compliant • MHolmes@reedsmith.com