Global Antitrust & Trade Regulation Update - October 2008

UNITED STATES

DOJ Extends Review Of InBev's Planned Takeover Of

Anheuser-Busch

Global beer conglomerate InBev, S.A. has announced that it

received a request for additional information, or "Second

Request," from the United States Department of Justice (DOJ)

relating to its planned acquisition of Anheuser-Busch, Inc. InBev,

which had recently gained Anheuser-Busch's approval of its

US$52 billion bid for the company, has pledged to cooperate fully

with the DOJ's review. Despite the Second Request, InBev

expects to close the transaction before year's end.

Combined, InBev and Anheuser-Busch would be the world's

single largest brewer ahead of SABMiller plc. In the United States,

Anheuser-Busch controls approximately 50 percent of the beer

market, through its Budweiser and Bud Light brands. Direct

competition between the brewers is limited as InBev mostly markets

more expensive imported beers such as Stella Artois and Beck's.

The companies hope that the combination will improve marketing of

both InBev's brands in the United States and

Anheuser-Busch's brands abroad, and create other cost-saving

synergies. Such synergies are likely to be important to the DOJ,

which cited cost-saving efficiencies in approving the joint venture

between the US operations of SABMiller and Molson Coors Brewing

Company in June of this year.

Even if cleared by the DOJ, the combination of InBev and

Anheuser-Busch faces additional hurdles. Anheuser-Busch

shareholders have yet to approve the transaction, which will yield

them US$70 per share of stock. The company has called a special

shareholders meeting for this purpose to be held on November 12. In

addition, a group of US beer drinkers filed a lawsuit in September

in US District Court in St. Louis, Missouri seeking to enjoin the

transaction as anticompetitive. Anheuser-Busch responded in public

statements that the lawsuit lacks merit and the company will

vigorously defend the transaction. Finally, InBev recently

announced that it postponed a rights issue valued at US$9.8 billion

it had hoped to use to finance the acquisition.

DOJ Issues Report On Single-Firm Conduct

In September the DOJ issued a report about the intersection of

the competition laws and unilateral conduct, entitled

"Competition and Monopoly: Single-Firm Conduct Under Section 2

of the Sherman Act." The report is directed at consumers,

businesses and policy makers, and is the culmination of a year-long

series of public hearings launched in June 2006 to examine issues

that arise in the context of Section 2 enforcement. Section 2 makes

it unlawful for a firm to acquire or maintain monopoly power

through improper means, as opposed to superior innovation or

business acumen.

Among the topics discussed in the report are:

The role of market share in determining monopoly power;

The tests employed to determine whether conduct is unlawful

including effects-balancing, profit-sacrifice, economic rationale

and equally efficient competitor tests;

Predatory pricing and bidding;

Tying and bundling arrangements;

Refusals to deal with competitors; and

Exclusive dealing arrangements.

The report can be downloaded from the DOJ's website.

Although the Federal Trade Commission (FTC) participated in the

hearings about single-firm conduct, it did not participate in

issuing the report with the DOJ. Reaction to the report from the

FTC has been mixed. Commissioners Harbour, Leibowitz and Rosch

issued a joint statement that characterizes the report as "a

blueprint for radically weakened enforcement of Section 2 of the

Sherman Act." The commissioners went on to criticize the

report for relying too heavily on economic theory and statements by

the one-sided constituency at the hearings, and for endorsing

more-demanding standards for Section 2 enforcement than imposed

under the current case law. Chairman Kovacic issued a separate,

less-critical statement concerning the report. The chairman's

statement praised the efforts of those contributing to the hearings

and to the report, but called for a deeper examination of the

intellectual roots of Section 2 and modern enforcement trends.

Chip Maker Sues High-Def Audio CODEC Developer Over Blu-ray

Disc Technology

On October 8, 2008 integrated circuits manufacturer Zoran

Corporation filed a lawsuit in the US District Court for the

Northern District of California against DTS, Inc., the company that

licenses the audio encoding/decoding (or CODEC) algorithm used by

Blu-ray disc devices. Zoran had alleged that DTS failed to license

the algorithm under fair, reasonable and nondiscriminatory (FRAND)

terms, as required under the company's agreement with the

Blu-ray Disc Association. According to the terms of the agreement,

DTS pledged to license the algorithm on FRAND terms, in exchange

for the Association adopting DTS' patented CODEC as the

industrywide standard for Blu-ray high-definition audio

technology.

Zoran alleged in its complaint that DTS abused its monopoly in

the market for Blu-ray disc technology by demanding large, upfront

royalty payments as a condition to negotiating license agreements

with chip manufacturers. Zoran further alleged that DTS had

prevented Zoran's entry into the Blu-ray device market by

threatening device manufacturers with lawsuits should they use

parts from a nonqualified supplier like Zoran. According to Zoran

DTS' action had restrained competition among Blu-ray devices

and chip makers, and prevented Zoran from entering the market for

Blu-ray hardware. The complaint seeks monetary damages, preliminary

and permanent injunctive relief, and a judgment declaring DTS'

patents...