Short Reads

Court of Justice dismisses appeal by Telefónica on non-compete clause in telecoms transaction

Court of Justice dismisses appeal by Telefónica on non-compete clause

Court of Justice dismisses appeal by Telefónica on non-compete clause in telecoms transaction

02.01.2018 EU law

On 13 December 2017, the Court of Justice dismissed the appeal brought by Telefónica against a judgment of the General Court (GC) regarding a non-compete agreement [see our July 2016 Newsletter]. The judgment confirms the finding of the GC that the non-compete clause agreed upon between Telefónica and Portugal Telecom (PT) amounted to a market sharing agreement with the object of restricting competition.

In 2010, Telefónica and PT concluded a share purchase agreement by which Telefónica acquired sole control over the Brazilian telecom company Vivo. Telefónica and PT had previously jointly held the shares of Vivo. That agreement included a non-compete clause prohibiting the companies from conducting business in the telecommunications sector that "can be deemed to be in competition with the other in the Iberian market", excluding economic activities already performed by the companies. The clause also contained the wording "to the extent permitted by law".

In 2013, the Commission found that the non-compete clause amounted to a market sharing agreement with the object of restricting competition and fined Telefónica and PT EUR 67 million and EUR 12 million respectively. The GC upheld this finding, but found that the Commission erred in calculating the fine.

Telefónica appealed this judgment and argued, among other things, that its right of defence had been breached and that the GC erred in law in finding that the non-compete clause amounted to a by object infringement. The Court firstly established that the GC had in fact examined the evidence brought forward by Telefónica and its right of defence had not been breached. As to classifying the non-compete clause as an by object infringement, the Court acknowledged that it is well established that market sharing agreements constitute a particularly serious breach of competition law. This finding was not affected by the fact that the clause contained the wording "to the extent permitted by law".

Telefónica also argued that the GC's assessment of the circumstances surrounding the adoption of the non-compete clause should have been called into question. The Court, however, held that these claims were based on a misreading of the judgment under appeal. The GC did not find that the clause was not essential for PT because it did not qualify as an ancillary restriction under competition law. It simply found that Telefónica had not submitted any evidence to demonstrate the essential character of the non-compete clause.

The judgment confirms that the non-compete clause entered into by the parties qualified as an by object infringement. Non-compete clauses agreed upon in the context of a transaction could qualify as ancillary restraints only if they are essential for the implementation of that transaction.

This article was published in the Competition Law Newsletter of January 2018. Other articles in this newsletter:

1. Court of Justice: Suppliers of luxury goods may prohibit their authorised distributors from selling on third party internet platforms
2. Court of The Hague confirms that the ACM can copy mobile phones during an inspection

Related news

24.09.2020 BE law
Stibbe hosts a webinar on dawn raids organised by IBJ/IJE

Seminar - On 24 September 2020, several Stibbe lawyers ​​​​​explain the rights and obligations of companies when confronted with announced or unannounced raids. What do to when, for example, tax authorities, the competition authorities, police services or a bailiff are at your doorstep?

Read more

03.09.2020 NL law
Home, but not alone: Commission may complete dawn raids from home

Short Reads - The European Court of Justice (ECJ) has rejected Nexans’ appeal in the power cables cartel case. The Commission started the dawn raid at Nexans’ premises, but due to lack of time finished the raid at the Commission’s premises in Brussels. The ECJ found that the Commission can copy data and assess its relevance to the investigation at its own premises, while safeguarding companies’ rights of defence.

Read more

03.09.2020 NL law
COVID-19 impacts level and payment of antitrust fines

Short Reads - As well as granting companies leeway on certain COVID-19 initiated collaborations (see our May 2020 newsletter), the coronavirus outbreak has also led competition authorities to take a more lenient stance towards fine calculations and payments. The European Commission has extended the due date for fine payments by an additional three months in response to potential short-term liquidity issues brought about by the pandemic. Similar reasons led the Dutch Trade and Industry Appeal Tribunal to reduce a EUR 1 million cartel fine to just EUR 10,000.

Read more

03.09.2020 NL law
The ACM’s Green Deal: achieving sustainability via competition law?

Short Reads - The ACM has issued draft guidelines on the application of competition law to sustainability agreements. Companies entering into agreements that restrict competition but contribute to governmental sustainability objectives – i.e. lower CO2 emissions – may expect more room for collaboration. The proposed framework would allow these types of agreements if their anti-competitive effects are outweighed by their environmental benefits to society as a whole (rather than to in-market consumers only, as under the existing framework).

Read more

02.07.2020 NL law
European Commission to pull the strings of foreign subsidies

Short Reads - The European Commission is adding powers to its toolbox to ensure a level playing field between European and foreign(-backed) companies active on the EU market. On top of merger control and Foreign Direct Investment screening obligations, companies may also need to account for future rules allowing scrutiny of subsidies granted by non-EU governments if those subsidies might distort the EU Single Market.

Read more