Sep 18, 2007

On September 17, the European Court of First Instance rendered judgment in the long-awaited and controversial Microsoft case. Cleary Gottlieb represented RealNetworks, and was co-counsel to the European Committee on Interoperable Systems (ECIS) and the Software and Information Industry Association (SIIA). The firm also advised a variety of clients in the United States and European Union interested in the implications of the case. The case involved two broad issues:

The Court upheld the European Commission's finding of illegal tying of Windows Media Player to Windows, which the Commission had found excluded competition in streaming media players and contributed to the maintenance of Microsoft's desktop software platform monopoly.

The Court also upheld the European Commission's finding of illegal refusal to supply interoperability information that third-party server manufacturers needed to enable their workgroup servers to communicate fully with Microsoft Windows clients and server networks. This resulted in monopolization of server markets, and contributed further to monopoly maintenance of the desktop software platform monopoly.

European antitrust rules, like Section 2 of the U.S. Sherman Act, forbid companies from abusing their dominant position in an industry to the detriment of consumers and the structure of competition. The Microsoft ruling represents a landmark interpretation of that ban. The decision also supports the stance of EU regulator, which has been more inclined than the U.S. Department of Justice to find aggressive behavior by dominant companies as abusive. At the same time, the analysis in the judgment is close to the rule of reason analysis applied by the DC Court of Appeals in Microsoft II.

Mar 18, 2008

Cleary Gottlieb, as a co-counsel to Deutsche Telekom, won the dismissal of €3.9 billion claims before the Commercial Court of Paris on March 18. The claims, brought in 2005 by Vivendi Universal, were related to a long-standing, multi-jurisdictional battle for the control of PTC, a leading Polish mobile telephone operator.

PTC was founded in 1995 by Deutsche Telekom and Elektrim, a Polish company. Beginning in 1999, Vivendi and Elektrim entered into a series of investment agreements. The agreement established Telco, a joint-venture controlled by Vivendi. Vivendi and Elektrim agreed that Elektrim would contribute its PTC shares to Telco. Deutsche Telekom argued that the transfer was ineffective because it was in violation of the PTC Shareholders' agreement, and commenced arbitration proceedings in Vienna.

In August 2003, while the Vienna arbitration was pending, Deutsche Telekom and Vivendi engaged in settlement discussions. In September 2004, Deutsche Telekom discontinued the settlement discussions. Two months later, the Vienna Tribunal ruled in favor of Deutsche Telekom, deciding that Elektrim's PTC shares were wrongfully transferred to Telco.

In the recent litigation before the Commercial Court of Paris, Vivendi sought more than €3.9 billion in damages on the grounds that Deutsche Telekom wrongfully terminated the settlement negotiations and that Deutsche Telekom's actions eventually resulted in the "spoliation" of Vivendi's investment in PTC.

The Court dismissed Vivendi's claims. In its decision, the Court upheld Deutsche Telekom's defense that given the context of the discussions and since the parties had agreed not to suspend the Vienna arbitration proceedings pending their settlement discussions, they remained free at any time to opt for a litigated, rather than negotiated, settlement of their dispute.

Feb 19, 2008

Cleary Gottlieb successfully represented a German investor in a test case before Germany's Federal Fiscal Court, the highest German tax court, regarding the taxation of so-called index certificates with a partial repayment guarantee (i.e., 10%). The German Federal Finance Ministry, which participated in the court proceedings, had previously issued a circular according to which even the guarantee to repay only a small part of the issue price causes all of the capital gains realized from the sale of the certificates to constitute taxable income to private investors. The Federal Fiscal Court, however, held that 90% of the gain, (i.e., the portion of the gain that can be allocated to the non-guaranteed part of the issue price), is generally exempt from German income tax. Index certificates with small capital guarantees were issued in the late 1990s to comply with stock exchange requirements at the time. The landmark decision of the Federal Fiscal Court resolves the long-term uncertainty troubling investors holding index certificates.

Jan 25, 2008

Cleary Gottlieb won in Connecticut federal court a motion to dismiss a lawsuit against Union Carbide Corporation and its pension plan on January 25. Praxair, which Union Carbide spun off in 1992, claimed that it had a right under three pension plan-related contracts with Union Carbide to insurance company demutualization proceeds received by Union Carbide from Prudential Insurance Company of America in 2002. In dismissing ERISA fiduciary duty claims against co-defendants The Dow Chemical Company and Prudential, the court ruled that the demutualization proceeds were not plan assets at the time of the spinoff because the proceeds did not exist until the actual demutualization process, and therefore, the Praxair plan participants had no rights to the proceeds.

The court dismissed all of Praxair's state law claims against Union Carbide for lack of subject matter jurisdiction.

Jul 11, 2007

Cleary Gottlieb successfully represented ALROSA Company Limited, Russia's largest diamond producer, in its challenge of a European Union decision prohibiting ALROSA from selling any of its rough diamonds to De Beers, the world's largest diamond producer. The European Union had previously prohibited all dealings between the two companies with effect from June 1, 2009, following the Commission's rejection of their five-year trading agreement, signed in 2002. At the time, the rough diamonds reserved for De Beers under the trade agreement represented roughly half of ALROSA's annual production and all of its diamond exports.

The Commission had initially accepted ALROSA and De Beers' joint proposal to reduce the annual volume of rough diamonds sold under the trade agreement. Following a change in the Commission's membership and a largely negative response to the Commission's market testing of the proposed settlement, the Commission decided, without explanation, to accept De Beers' unilateral commitment to cease purchasing rough diamonds from ALROSA beginning in 2009. In exchange, the Commission agreed to terminate the competition proceedings pending against De Beers and ALROSA.

The Court of First Instance, in the first case to interpret the Commission's new commitment procedure, has annulled the Commission's acceptance of De Beers' unilateral commitment. In rejecting the proposed prohibition on sales as disproportionate, the Court held that "The fact that an undertaking had proposed commitments to the Commission does not relieve it from its duty to assess whether these commitments are proportionate." The Court also ruled that ALROSA had been denied the right to know the grounds for the Commission's rejection of the parties' original joint commitments, as well as an opportunity to make known its views on the Commission's decision accepting De Beers’ unilateral commitment.

Jul 10, 2008

On July 10, 2008, the European Court of Justice set aside the judgment of the Court of First Instance concerning the formation of the SONY BMG recorded music joint venture. In 2006, the Court of First Instance had annulled the European Commission’s 2004 decision to clear the formation of SONY BMG, following an appeal by Impala, a group representing independent record companies.

In its judgment of July 10, 2008, the European Court of Justice found that in annulling the 2004 clearance decision the Court of First Instance had committed a number of errors of law. In particular, the Court of First Instance erred by (i) relying on the Commission's statement of objections for the purpose of its judicial review; (ii) applying an excessive standard to evidence submitted by the merging parties; (iii) taking into account non-disclosed confidential documents submitted by complainants; and (iv) applying an inappropriate standard of reasoning.

The judgment of the European Court of Justice is a landmark decision that clarifies several important legal questions relating to the standards that should be applied in the judicial review of merger clearance decisions. As such, it represents a significant precedent for future merger cases.

The Court of First Instance will now have to reasses Impala's appeal in the light of the judgment of the European Court of Justice. Following the Court of First Instance's 2006 ruling, the merging parties renotified their merger and, in October 2007, the European Commission confirmed its clearance under EU merger control in a second decision. An appeal against that second decision is currently also pending before the Court of First Instance.

Cleary Gottlieb represented Sony Corporation of America and SONY BMG Music Entertainment.

Nov 20, 2007

Cleary Gottlieb won the dismissal of a lawsuit against Sanofi-Aventis by Rhodia, formerly a subsidiary of a predecessor of Sanofi-Aventis, for reimbursement of costs Rhodia incurred remediating environmental damages at an elemental phosphorus production site in Montana that Rhodia acquired from Sanofi-Aventis’s predecessor in 1998.

In moving to dismiss the complaint, Sanofi-Aventis argued that Rhodia had previously released its claims for contribution under CERCLA and common law, when the parties entered into an indemnity agreement to settle Rhodia’s environmental claims against Sanofi-Aventis’s predecessor and that, in any event, any dispute about the scope of Rhodia’s release is arbitrable under the agreement’s arbitration clause. In dismissing the complaint, Chief Judge Brown of the U.S. District Court in Trenton rejected Rhodia’s argument that its claims fell outside the scope of the indemnity agreement.

The Court also granted Cleary Gottlieb’s motion on behalf of Sanofi-Aventis’s co-defendant and indemnitee Bayer CropScience, which was also in the chain of title to the Montana site, on the ground that Rhodia had effectively released its CERCLA and contribution claims when it entered into an asset contribution agreement with Bayer in 1998.

The Court deferred a ruling on Rhodia’s one remaining claim for negligence, but stayed prosecution of that claim pending the outcome of the arbitration between Rhodia and Sanofi-Aventis.

If Rhodia seeks arbitration against Sanofi-Aventis, it will reprise a prior arbitration between the parties in which Cleary Gottlieb represented Sanofi-Aventis, and in which the arbitrators rejected Rhodia’s environmental indemnification claims on the ground that they had been released.

Mar 08, 2008

Cleary Gottlieb successfully represented the Republic of Congo in an International Chamber of Commerce arbitration commenced in 2006. The ICC Arbitral Tribunal dismissed all claims on March 8.

The arbitration arose from a 2004 settlement agreement allegedly concluded by the Republic of Congo for a 1997 sale contract for 600 cars. The Republic of Congo asserted that the settlement agreement was never signed by the parties and, in any event, was not binding because Congo’s Minister of Finance did not approve it.

Jul 10, 2008

Ending more than five years of litigation, on July 10, Judge Robert Sweet of the U.S. District Court for the Southern District of New York granted summary judgment to Cleary Gottlieb’s client, Citigroup Global Markets, in Lesavoy v. Lane, et al., an action brought by a successor trustee of two trusts that allegedly suffered significant losses trading commodity options and futures through a Smith Barney brokerage account.

After the Second Circuit affirmed his dismissal of seven of the eight counts in the original Complaint and the parties conducted discovery on the remaining count of aiding and abetting a breach of fiduciary duty, Judge Sweet found no evidence of aiding and abetting and rendered judgment for Citi. Additionally, Judge Sweet agreed with Cleary Gottlieb's argument that the trust instruments' offer of "full protection" to parties who carried out the trustee's instructions entitled Citi to indemnification for its costs in defending the lawsuit and ordered the trusts' reimbursement of all attorneys' fees and expenses incurred by Citi.