This month’s editors: Maxime Vanhollebeke, Julienne Chang, Zhao Jingjing and Lydia Fung.
Below is an excerpt from our monthly Competition Report. More detailed commentary on these issues and other recent competition law developments in the Asian region is to be found in this month’s edition of our report available on a free subscription basis (see further below).
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Fines in the region exceed $1.5 billion in 2011
The total amount of fines imposed in 2011 by competition regulators in East Asia exceeds $1.5 billion. This is almost double the amount of fines imposed in 2010 and equals the record amount of fines imposed in 2009. While the number of decisions imposing fines was broadly similar in 2011 compared to 2010, there was a marked increase in the amount of pecuniary sanctions imposed by the Korea Fair Trade Commission, which alone imposed fines of almost $1.2 billion for antitrust violations in 2011.
While fines statistics are but one measure of competition law enforcement activities, they are useful to observe enforcement trends. From that perspective 2011 showed an evolution in the types of infringements sanctioned, as cartels and concerted practices made up the vast majority of cases during the year, with twice as many decisions sanctioning cartels than decisions sanctioning bid-rigging practices.
Otherwise, established trends were confirmed in 2011. Japan and Korea are among the authorities that consistently impose the highest amounts of fines, both in Asia and on a global basis. The highest fines were imposed in capital-intensive industries such as energy, chemicals, construction and financial services.
Consumer goods and services as well as food products also remained a focus of East Asian competition authorities during the year, even though total fine amounts remain lower than in other economic sectors. Authorities in the region imposed fines for antitrust violations in 21 decisions concerning a variety of consumer-facing services and staple food products. This continued focus on sectors that are particularly relevant to consumers is also apparent from the many cases and policy initiatives adopted by authorities on unfair trade practices grounds: competition authorities that can rely both on antitrust and unfair trade practices regulation will often choose the latter as the legal basis to impose substantial fines when dealing with restrictive practices in the retail sector.
The statistics used are based on public announcements made by competition authorities in East Asia during 2011. Reporting practices vary from one jurisdiction to another and the published fine amounts may not always reflect leniency and other discounts. The amount for China is an estimate as no detailed figures were published. US dollar equivalent amounts were calculated using annualised exchange rates established on 2 January 2012.
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MOFCOM conditionally approves Seagate’s acquisition of Samsung’s hard disk drive business
After an extended six-month review, the Chinese Ministry of Commerce (MOFCOM) on 12 December conditionally approved the proposed acquisition of the hard disk drive business of Samsung Electronics by Seagate Technology.
MOFCOM identified the global hard disk drive market as the relevant market, featuring high levels of concentration, considerable product homogeneity, significant price transparency, and a high level of capacity utilisation. MOFCOM found that the market comprises only five suppliers, namely, Seagate (33 per cent), Western Digital (29 per cent), Hitachi (18 per cent), Toshiba (10 per cent) and Samsung (10 per cent); the main competitive drive among them comes from the closed hard disk drive procurement bids organised by large computer manufacturers, and from the prospect to achieve greater market share and profit margins with innovative products. Otherwise, there is little competitive pressure from the customers - as the large computer manufacturers typically pass their increased costs on to the final consumers who are too dispersed to have bargaining power - nor from any potential competitors - as entry barriers (consisting of requirements of IP rights, know-how and economies of scale) to the relevant market are extremely high.
Based on the above observations, MOFCOM concluded that the proposed acquisition would result in the elimination of a key market participant, increasing the likelihood that the remaining competitors would obtain orders simultaneously and thereby reducing their incentives to compete. The increased concentration brought about by the transaction is also going to make the prediction of competitors’ behaviour and anticompetitive coordination easier than before. Noting that China is one of the largest computer consumption countries in the world, MOFCOM was concerned that Chinese consumers’ interests would be adversely affected by the proposed acquisition.
In order to address these competition concerns, MOFCOM imposed a series of behavioural conditions on Seagate. Most importantly, Seagate is required to maintain the production, R&D, sales and pricing independence of the acquired business, so that Samsung hard drives remain independent competitive products in the relevant market. MOFCOM for the first time included a review clause, allowing this condition to be lifted after one year depending on market conditions. Seagate also has to expand the acquired business’ production capacity, as well as maintain the normal scale and pace of its R&D investments - at a minimum of $800 million annually in the following three years. In terms of relations with upstream and downstream markets, Seagate is prohibited from forcing any exclusive arrangements upon its customers or TDK, its principal supplier of magnetic heads used in hard drives.
Aside from the innovative remedies it imposes, the decision presents a procedural interest as it is the first time that MOFCOM considers that its review period must be extended to the next working day when it lapses on a Saturday.
MOFCOM’s decision contrasts in several aspects with those adopted so far by other competition authorities in the same case. The most significant divergence is that the transaction was cleared unconditionally by all other authorities which have adopted a decision to date. While the full text of most foreign decisions is not yet available, it is already apparent that, contrary to MOFCOM, the European Commission considered that the transaction would not lead to an increased risk of coordination by the remaining competitors; and that the Competition Commission of Singapore considered that competitors have sufficient spare capacity to exert competitive pressure on the merged entity.
The decision is however consistent with the practice in the EU and Singapore - but apparently not in Japan and Korea - in that MOFCOM chose to ignore in its analysis the parallel transaction between Western Digital and Viviti (Hitachi’s hard disk drive business), which are the second and third largest hard drive manufacturers. Although the decision does not say, MOFCOM presumably applied the “first in, first out” approach under which a competition authority will review the concentration that was first notified to it, making abstraction of any merger subsequently notified in the same industry.
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JFTC approves two parallel mergers in hard disk drive industry
On 28 December, the Japan Fair Trade Commission (JFTC) issued a press release announcing that it had cleared Seagate’s proposed acquisition of Samsung’s hard disk drive business on 24 November, and that it had decided not to oppose Western Digital’s acquisition of Viviti (Hitachi’s hard disk drive business) on 15 December.
The transactions were notified on 19 May and 10 June respectively. In both cases the JFTC decided to open a second-phase review. As was the case in its decision concerning the merger between Nippon Steel and Sumitomo Metal Industries, the JFTC considered that the second-phase review period did not start running until the date on which the parties submitted all additional information required by the authority.
In contrast with MOFCOM’s approach to market definition in the same case, the JFTC considered that there were different markets according to the physical size of the drives (3.5 and 2.5 inches respectively) and according to the degree of importance of the drives to the equipment in which they are installed (“business critical”, “mission critical” and other general use in personal computers and consumer electronics). This approach appears closer to that adopted by competition authorities in the European Union, Korea and Singapore in this case. Accordingly, the following four relevant global markets were identified:
- 3.5 inch drives used in personal computers and consumer electronics;
- “business critical” 3.5 inch drives;
- 2.5 inch drives used in personal computers and consumer electronics; and
- “mission critical” 2.5 inch drives.
The JFTC chose to review the cumulative effects of both transactions in parallel. On the first two markets, the proposed transactions would lead to a duopoly and high HHI market concentration levels of 5,000 and 5,200 points respectively, with a market share split between the parties of 50 per cent each on the first market and of 60/40 per cent on the second market. On the two 2.5 inch drive markets, three competitors would remain post-transaction, but the levels of concentration as measured by the HHI index would also far exceed the 1,500 points safe harbour for horizontal mergers set out in the JFTC’s Guidelines on the Application of the Antimonopoly Act to Business Combinations.
The JFTC decided not to oppose either transaction, in view of Western Digital’s commitment to the European Commission last month to divest its essential production assets for the manufacture of 3.5 inch drives. The JFTC found that this divestiture would also adequately address competition concerns it had identified.
In addition to the above “OEM markets”, i.e. markets for the supply to original equipment manufacturers, the JFTC also found that the proposed transactions would have no adverse effects on markets for external hard disk drives, where the parties’ respective market shares are very modest.
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KFTC approves two parallel mergers in hard disk drive industry
In a press release dated 26 December, the Korea Fair Trade Commission (KFTC) announced that it had conditionally approved Western Digital’s acquisition of Hitachi’s hard disk drive business on 21 December. In line with the European Commission’s decision of 23 November, the KFTC found that the proposed merger would possibly create anticompetitive unilateral and coordinated effects in the global markets for 3.5 inch desktop drives and for 3.5 inch consumer electronics drives. To clear the transaction, the KFTC imposed remedial conditions similar to those imposed by the European Commission, namely, Western Digital shall divest its assets essential to the manufacture of 3.5 inch hard disk drives.
In the same press release, the KFTC explains that it had also reviewed the parallel acquisition of Samsung’s hard disk drive business by Seagate. The KFTC found that this second transaction would not substantially harm competition and accordingly approved it unconditionally on 30 November.
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CCS approves Seagate’s acquisition of Samsung’s hard disk drive business
On 2 December, the Competition Commission of Singapore (CCS) announced that it had approved on 29 November the proposed acquisition by Seagate Technology of the hard disk drive business of Samsung Electronics, after a Phase 2 review which lasted for three months. The transaction was notified to the CCS on 25 May 2011.
Both Seagate and Samsung are active worldwide in the design, manufacture and marketing of hard disk drives for use in desktop, mobile and consumer electronics segments. While the full text of the decision has not yet been published, according to the press release the CCS concluded that the transaction would not give rise to a substantial lessening of competition in Singapore. The authority found that customers exercise strong countervailing buyer power as they can switch easily among competing hard disk drive suppliers and that there is spare capacity in the market, which would allow Samsung’s and Seagate’s competitors to expand production.
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Table of contents of the full report
|Table of contents of our December 2011 report (Issue 37)|
|China MOFCOM finalises interim measures on the failure to notify mergers|
China MOFCOM updates merger control statistics
China Seagate/Samsung merger
China Court rejects claims against Dongfeng Nissan
Hong Kong COMPAG annual report
Indonesia Energy sector investigation
Japan JFTC rejects appeals in optical fibre cable case
Japan LPG instrument manufacturers cartel
Japan Niigata taxi cartel
|Japan Nippon Steel/Sumitomo Metal merger|
Japan JFTC approves two parallel mergers in hard disk drive industry
Japan Private damages settlement
Korea KFTC revises guidelines for M&A review
Korea CRT Glass cartel
Korea LPG cartel
Korea KFTC approves two parallel mergers in hard disk drive industry
Korea SK Telecom/Hynix cleared
Singapore Seagate/Samsung cleared
Taiwan Leniency regime introduced
Taiwan TFTC issues compliance guidelines
Taiwan Milk powder traders investigated
|Read the full report - Please register if you are interested in subscribing to our monthly East Asia competition reports (free subscription).|
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