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The Extent to Which the US and the EU assert Jurisdiction over Mergers Involving ‘Foreign’ Companies

Merger control is an important element of the regulation of competition and market structures, and mergers of transnational companies are often reviewed by multiple authorities as a result of globalisation.

In this article, Patricia Einfeldt considers the extent to which the United States and the European Union assert jurisdiction ofver mergers inovling 'foreign' companies.

Merger control is an important element regulating competition and market structures as mergers can significantly impact actual and future market dynamics.[1] In an ever more global and interdependent world, mergers of transnational companies are often reviewed by multiple competition authorities. Thus, the United States (US) and the European Union (EU) have increasingly dealt with cases where a merger and/or its effects occur outside their respective territories. However, the justification of such interventions and the extent to which extraterritorial jurisdiction can be asserted in merger control is highly debated in international jurisprudence. Disputes between merger control regimes, such as the US and EU, have arisen, because of both alleged national sovereignty infringements and the uncertainty created for global companies.

            This paper discusses central cases in which the US and the EU have asserted jurisdiction over mergers involving companies outside their territories, focussing on prescriptive jurisdiction, but also touching on enforcement jurisdiction. The first part of the paper outlines the US approach to extraterritoriality under the effects doctrine and some challenges faced by this approach. In the second part, the EU’s implementation-theory approach and some difficulties with extraterritoriality under the European Merger Regulation (EUMR) are considered. Both current regimes are deemed insufficient in their own way and the necessity urged that states cooperate in line with mutual recognition and comity.

Before moving on, it is important to briefly outline extraterritorial jurisdiction. In international law a distinction is usually made between prescriptive jurisdiction –a state’s power to regulate conduct – and enforcement jurisdiction – the state’s power to take action in the event of a conduct.[2] Clearly, “the jurisdiction of the nation within its own territory is necessarily exclusive and absolute.”[3] But law does not stop at national borders, so a concept is needed for acts of extraterritorial origin. The International Court of Justice first recognized such a concept in the Lotus case (1927), deciding that international law permits a state to assert jurisdiction outside its territory for harms occurring inside its territory.[4] Lotus was the beginning of a legal controversy over extraterritorial rules in competition law and merger control.

In the US, three major laws regulate extraterritorial competition law and, specifically, merger control: the Sherman Act (SA, 1890), the Clayton Act (1914) and the Federal Trade Commission Act (1914).[5] These acts and general US law empower the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ), as competition authorities, to deal with mergers.[6]

2.1   The Clayton Act – Turnover-Based Extraterritoriality

In general, §§1, 2 of the SA apply to merger transactions and antitrust conduct, with jurisdiction over cases involving trade or commerce “with foreign nations.” Since 1950, however, §7 of the CA, has gradually superseded the SA for merger cases.[7]

The CA applies to any merger or acquisition of stock or assets “where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition.”[8] §7 is silent about extraterritorial reach, but §7a, amended by the Hart-Scott-Rodino Antitrust Improvements Act (1976), requires all persons anticipating mergers, “which meet or exceed the jurisdictional thresholds in the Act, to file notification with the Commission.” These thresholds are based on the worldwide turnover of the merging companies and are revised and adjusted each year. Turnover thresholds have the advantage of clarity and simplicity, giving companies certainty about when to notify US authorities about their potential jurisdiction. Furthermore, adjusting the thresholds yearly allows flexible reactions to inflation levels and US dollar exchange rates. However, thresholds may be an inadequate tool to distinguish cases that substantially affect the US market from those which meet the thresholds yet are not greatly relevant to the market.

To make such distinctions, it is necessary to refer to the SA for cases involving foreign companies under the competition rules. The Agencies “apply the same principles regarding their foreign commerce jurisdiction to Clayton Section 7 cases as […] in Sherman Act cases,”[9] so extraterritorial jurisdiction over mergers is determined by the same rules and limits as under the SA.

            The wording of the SA (‘foreign nations’) implies it is intended to regulate conduct outside US territory, but US Courts must interpret the provision’s extent in each case. In early applications of the SA, the Court took the moderate approach that almost universally an act “must be determined wholly by the law of the country where the act is done.”[10]

2.2   The Effects Doctrine

The Courts changed this moderate viewpoint after the Second World War (WWII), first in Alcoa (1945).[11] The Court found it “settled law […] that any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders.”[12] This opinion established the “effects doctrine” which set conditions for asserting jurisdiction where agreements between companies, “though made abroad”, are unlawful “if they were intended to affect imports and did affect them.”[13]

            Soon it became clear that US Courts could assert jurisdiction to an excessive extent. Critics argued the effects doctrine extended territoriality beyond the limits defined in Lotus and was therefore no longer permissible under international law.[14] Furthermore, several countries strongly criticised the approach as infringing their sovereignty, and the US as leveraging its dominance after WWII to impose US antitrust laws and other political and ideological opinions on other countries.[15] However, the US was the only country with established competition law and the effects doctrine was a catalyst for competition law and market stabilization in the shuttered post-WWII European economy.[16] Yet the effects doctrine has been very controversial and there is a powerful requirement to make the effects doctrine more appropriate for other countries.

2.3   A Jurisdictional Rule of Reason?

The reactions to US extraterritorial assertions of jurisdiction encouraged US Courts and legislators to limit the broad approach of Alcoa. In Timberlane (1976),[17] the Court of Appeals added a balancing test to the application of jurisdiction. The Court held the Alcoa-test “incomplete because it fails to consider other nations’ interests”.[18] The new approach tried to avoid legal and political conflicts. It gave the courts discretion to deny jurisdiction for comity reasons. However, the approach’s guidance on how to apply and weigh this discretion was unstructured.[19] Furthermore, the approach risked instrumentalising judges as tools in highly political decisions in the international arena.[20] Therefore, neither the US Court of Appeals for the District of Columbia nor the Seventh Circuit accepted this approach, questioning its validity.[21]

The 1982 Foreign Trade Antitrust Improvement Act (FTAIA), attempted clarification. The FTAIA provides that the US has jurisdiction where a conduct has “direct, substantial and reasonably foreseeable” effects on US export commerce. Thus, the provision does not extend to imports, so the rules for export commerce cannot be transferred. However, some arguments hold that the FTAIA provisions must be read in light of the intention of the US Congress to widen US jurisdiction and the effects doctrine to encompass foreign cases affecting US commerce in general.[22] Furthermore, the FTAIA’s wording does not entail that comity should be taken into account by the effects doctrine.

Yet it is unclear if this omission implies that comity must not be taken into account. The US Restatement (Third, 1987) apparently reasserted the relevance of comity, re-specifying the factors set out in Timberlane and including inter alia that jurisdiction should not be asserted where foreign interests outweigh US interests.[23]

Thus, courts, legislators and scholars alike were confused about the actual application of and the factors for exercising and evaluating extraterritorial jurisdiction. A subsequent decision, Hartford Fire (1993), largely eliminated the balancing condition again, returning the effects doctrine to its Alcoa roots. [24] Then, about ten years later, US Courts were even about to widen extraterritorial jurisdiction to allow foreigners to sue in US Courts for harm suffered in a foreign country. However, the US Supreme Court took an unequivocal stand against this, concluding that the FTAIA and prescriptive comity preclude foreign plaintiffs from bringing suit in US courts under the SA where the harm stems from foreign effects only. The effects doctrine is clearly efficient in asserting jurisdiction over foreign companies in the maximal number of cases. However, in the words of the Supreme Court:[25]

Congress might have hoped that America’s antitrust laws […] would commend themselves to other nations […]. But, if America’s antitrust policies could not win their own way in the international marketplace for such ideas, Congress, we must assume, would not have tried to impose them, in an act of legal imperialism, through legislative fiat.

Unfortunately, such is the unclarity here, that the Supreme Court is forced to “assume”.

The EU holds fundamentally, as per Article 3(f) Treaty of Rome, that competition in the common market must not be distorted, a goal reiterated in Articles 85, 86 (now Articles 101, 102 Treaty on the Functioning of the European Union). Yet, although these Articles were applied in merger cases, before the final adoption of Council Regulation 4064/89 (1989),[26] there was no EU regulation which specifically mentioned mergers. Thus, these Articles are clear that the scope of EU competition law is territorial, but are silent about possible extraterritorial jurisdiction.

3.1   The Implementation Theory

An early important EU case involving extraterritoriality of competition law was Dyestuffs (1972).[27] Here, the Advocate General urged an effects doctrine, but the Court of Justice of the European Union (CJEU) asserted jurisdiction based on territoriality. The Court argued that an EU-based subsidiary of an international company is part of a “single economic entity”; therefore, jurisdiction extends to the parent company outside EU territory. This judgement has limited application, only applying where a foreign company has an EU subsidiary and is irrelevant where there is no such subsidiary.[28] The CJEU, in specifying the extent of jurisdiction in this specific case, clearly implied general jurisdictional limits, although it did not detail all these limits. This restricted approach is clearer in Woodpulp (1988), the CJEU holding “[t]he producers […] implemented their pricing agreement within the common market,”[29] by selling at pre-agreed prices directly into the EU.

Although restricted, there are disputes among politicians and scholars alike if this approach amounts to asserting jurisdiction based on a US-style effects doctrine. At least in its wording, the CJEU eschews the effects doctrine, and only asserts jurisdiction where an extensive connection to the European territory exists, more precisely, where the conduct is implemented in the EU. In avoiding the term ‘effects doctrine’, the Court arguably sought to remain within the international law limits established in Lotus.

However, the Directorate-General for Competition of the Commission’s (Commission) in their Competition Policy Reports refers to the effects doctrine, admitting the effects doctrine “may have repercussions outside the Community”[30] but also stressing shortcomings of the implementation theory. The latter may fail, for example, where the market is affected through “non-implementation” rather than implementation: export boycotts, refusal to sell into the EU, output restriction, etc.[31] In such cases, the conduct not being directly implemented, implementation theory cannot justify asserting jurisdiction despite large impacts on the European economy. Possibly, as occurred in Woodpulp compared to Dyestuffs, the CJEU can consistently broaden their basic approach. But it is unclear if the CJEU might need to, or would be willing to, adopt the effects doctrine. Therefore, a clear and consistent approach to mergers outside the EU has become essential.

3.2   The EUMR – Turnover-Based Extraterritoriality

The EUMR (1989, amended by Council Regulation 139/2004), was intended to unambiguously delimit jurisdiction, granting the Commission power to review and approve merger cases (concentrations) with an EU dimension.[32] Art.1(2) EUMR stipulates the primary test for when a merger has an EU dimension. This test relies on turnover thresholds for the undertakings concerned, an EU dimension being stipulated as the worldwide turnover of the merging undertakings exceeding €5,000 million, if at least two of the undertakings have an aggregate community turnover of €250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate community turnover within one and the same Member State. Art.1(3) extends merger control to some cases of concentrations with lower worldwide and EU-wide turnovers. These Articles apply “whether or not the undertakings have their seat or their principal fields of activity in the [EU] provided they have substantial operations there.”[33] 
            The use of turnover thresholds seems sensible: it limits the Commission’s jurisdiction to mergers that significantly impact the EU’s internal market, decreases procedural costs, and brings clarity for foreign companies regarding notifying European competition authorities.[34] However, there are economic difficulties in using static turnover thresholds as jurisdiction indicators: First, the thresholds politically negotiated compromises between EU Member States; second, with floating exchange rates the effective thresholds applied to foreign companies will vary. Furthermore, in certain market sectors, excessive market share may never meet the predefined absolute turnover thresholds,[35] while in others, a concentration’s exceeding EU thresholds does not reflect anti-competitive practice globally, so EU regulation amounts to protectionism that causes compliance costs to companies but does not support competition.[36] Thus, turnover thresholds have the merit of clarity, but are “in some ways a blunt and even arbitrary instrument.”[37] 

            In practice, this arbitrariness has been modulated through analysis of the actual merger effects using established theories of competition law. Nevertheless, recent cases have attracted attention to the EU for allegedly overstepping international jurisdiction boundaries.

3.3   Asserting Jurisdiction in Recent Cases

Gencor/Lonhro was one of the first cases involving a transaction outside EU territory that the Commission blocked. On appeal, the General Court (GC) invoked the implementation theory after Woodpulp, stating, “the criterion as to the implementation of an agreement is satisfied by mere sale within the Union.”[38] Therefore, implementation theory does not, as intended, modulate the EUMR thresholds; rather, the thresholds are used to justify a broad application of jurisdiction,[39] contravening South African sovereignty, where the case had first been cleared. Thus, the GC’s decision can be interpreted in different ways: The judgement can be seen as moving towards the effects doctrine, because the Court used similar wording to US cases, stating that the“[a]pplication of the Regulation is justified under public international law when it is foreseeable that a proposed concentration will have an immediate and substantial effect.”[40] But it can also be argued that this entirely sales-based approach is even broader because it also applies where the parties sell products into EU territory but with no “effect” there.[41] To date, the CJEU has made no judgement on the GC’s interpretation here. Thus, it is an open question if the CJEU might reverse the GC’s findings or, more likely, also broaden the approach.

            The extent of jurisdiction becomes more complicated when different political and economic interests are involved, generating conflicts, as in Boeing/McDonnell Douglas.[42] Here, the Commission blocked a merger of two American undertakings. In response, US politicians and critics claimed that the EU should not use merger control to protect EU companies from global competitors. This case shows how the EU puts evaluating potentially negative consequences for consumers and competitors ahead of evaluating efficiencies, as is stressed in the US.[43] The consequence is differing substantive tests, with potentially different outcomes in a given case. The EU’s main challenge in asserting jurisdiction is to use appropriate discretion given comity obligations.[44] Nevertheless, cooperation between the States and companies involved in Boeing/McDonnell Douglas finally cleared the merger while avoiding larger political tensions. However, a few years later, similar US–EU conflict could not be circumvented when the Commission blocked the biggest merger in US corporate history in GE/Honeywell (DATE).[45] This case demonstrated the urgency of a global competition policy to deal with increasing transnational business.[46]

Both the US and EU increasingly assert jurisdiction over mergers involving ‘foreign’ companies. Since Alcoa, the US asserts jurisdiction over foreign companies in the broadest possible way, if mergers involve activities affecting US commerce in any way. This approach was strongly criticised so US Courts established a jurisdictional rule of reason. Thus, US Courts first broadly assert jurisdiction but then impose limits to respect international comity. In contrast, the EU’s starting point is the territoriality principle, the most limited way of asserting jurisdiction. To date, the EU has broadened that approach, from the implementation theory of Woodpulp to the sales-based thresholds of Gencor/Lonrho. Therefore, the US and EU approaches are coming together and their outcomes are not dissimilar.

            However, asserting extraterritorial jurisdiction can have significant consequences. Both the US and EU assert extraterritorial jurisdiction and such ‘interventions’ are internationally accepted, so it is a reality that merging international companies must comply with and notify various merger regimes. Indeed, more merger regimes are asserting jurisdiction – increasing cost and time demands on companies. A further complication is that different jurisdictions may view the same merger very differently, as in Boeing/McDonnell Douglas and GE/Honeywell. This is especially the case if different political interests influence the merger assessment. Therefore, companies face great uncertainty when pursuing mergers.

Clearly, overlapping jurisdictions, low cooperation and political influences (even power games), produce inconsistent application of legal standards in the developing global market. Therefore, global merger networks and standardised procedures for jurisdiction assertion and substantive assessment are necessary. Moreover, comity and mutual recognition agreements must be improved, but, above all, adhered to. Nevertheless, although “enforcement authorities will rely upon international comity or prosecutorial discretion to minimize friction in routine cases, some degree of conflict will be unavoidable.”[47]


[1] A.Jones/B.Sufrin, EU Competition Law 5th edn. (Oxford, 2014), 1129.

[2] Ibid, 1258.

[3] Schooner Exchange. v. McFaddon (1812), 11 U.S. 116,136.

[4] S.S. Lotus (1927), P.C.I.J. (ser. A) No. 10 (Sept. 7) 25,32.

[5] DOJ, Antitrust Laws and You (2015), <> (accessed 15/11/2015).

[6] DOJ/FTC, Antitrust Enforcement Guidelines for International Operations (1995), 2.3 <> (accessed 15/11/2015).

[7] ABA, Mergers and Acquisitions 2nd edn. (2004), 2-3.

[8] DOJ/FTC, Antitrust Enforcement Guidelines, 2.2.

[9] DOJ/FTC, Antitrust Enforcement Guidelines, 3.14.

[10] American Banana v. United Fruit (1909), 213 US 347,356.

[11] United States v. Aluminium Co. of America (Alcoa, 1945) 148 F.2d 416.

[12] Ibid, 443.

[13] Ibid, 443-4.

[14] David J. Gerber, Global Competition: Law, Markets, and Globalization (Oxford 2010), 64.

[15] Ibid, 62.

[16] Ibid, 65.

[17] Timberlane Lumber v. Bank of America (1976), 549 F.2d 597.

[18].Ibid, 611-2.

[19] Joseph P. Griffin, EC and U.S. Extraterritoriality: Activism and Cooperation (1993), Fordham I.L.J, Vol. 17/2, 363-4.

[20] Gerber, Global Competition, 71.

[21] Griffin, EC and U.S. Extraterritoriality, 363.

[22] Roger O. Alford, The Extraterritorial Application of Antitrust Laws: The United States and European Community Approaches, Scholarly Works, Paper 410 (1992), 19 <> (accessed 15/11/2015).

[23] §403(2), Restatement (Third) of Foreign Relations Law of the US (1987).

[24] Hartford Fire Ins. v. California (1993), 509 US 764,796.

[25] F. Hoffmann La Roche v. Empagran (2004), 542 U.S. 155,167.

[26] Council Regulation (EEC) No 4064/89, OJ L 395, 30.12.1989.

[27] Case 48/69, ICI v. Commission (Dyestuffs, 1972), ECR 619.

[28] Alford, The Extraterritorial Application of Antitrust Laws, 19.

[29] C-89,104,114,116,117,125-9/85, A. Ahlström Osakeyhtiö and others v. Commission (Woodpulp, 1988), [ECR] 5193.

[30] European Commission, 11th Report on Competition Policy, 35, <> (accessed 15/11/2015).

[31] Alford, The Extraterritorial Application of Antitrust Laws, 35.

[32] Martin Broberg, The concept of control in the Merger regulation, E.C.L.R 2004, 741.

[33] Recital 10, Council Regulation (EC) No 139/2004, OJ L 24, 29.01.2004.

[34] Ariel Ezrachi, Legislative Comment: Limitations on the extraterritorial reach of the European Merger Regulation, E.C.L.R 2001, 141-2.

[35] Broberg, Improving the EU Merger Regulation’s Delimitation of Jurisdiction: Re-defining the Notion of Union Dimension, J.E.C.L&P, 2014, Vol. 5/5, 263.

[36] Ezrachi, Legislative Comment, 139.

[37] European Commission, Press Release 22/10/2015, <> (accessed 15/10/2015).

[38] See 29, Woodpulp, 87.

[39] Ezrachi, Legislative Comment, 138.

[40] See 29, Woodpulp, 90.

[41] Broberg, Broberg on the European Commission’s Jurisdiction to Scrutinise Mergers, 4th edn.(2013), 246.

[42] Case M.877, Boeing/McDonnell Douglas (1997), OJ L336/16.

[43] Antonio F. Bavasso, Boeing/McDonnell Douglas: did the Commission fly too high? E.C.L.R. 1998, 244.

[44] Ibid, 247.

[45] Case COMP/M.2220, GE/Honeywell (2001).

[46] Jones/Sufrin, EU Competition Law, 1286.

[47] Griffin, Extraterritoriality in U.S. and EU Antitrust Enforcement (1999), 67 Antitrust L.J 159,199.

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