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Competition Law Newsletter

Competition Law Newsletter

Competition Law Newsletter

01.07.2012 NL law

1.  European Court of Justice rules on distribution system for sale of new cars which limits number of distributors 
 
On 14 June 2012 the European Court of Justice ("ECJ") ruled (Case C-158/11) that a distribution system for the sale of new motor vehicles prohibiting resale to unauthorised distributors that is based on criteria that limit the number of distributors, may be classified as a (permitted) "quantitative selective distribution system" within the meaning of Regulation No 1400/2002, the motor vehicle block exemption (the "Regulation").

Prior to 2004 the French car dealer Auto 24 SARL ("Auto 24") had been the exclusive distributor of new cars imported by Jaguar Land Rover France SAS ("JLR"). Upon termination of the dealership agreement, Auto 24 requested JLR to be appointed as an authorised distributor. JLR however rejected this request because of restrictions as to the number of distributors ("numerus clausus").

Auto 24 did not agree with JLR's refusal and the matter ultimately ended up at the ECJ who was requested to provide guidance on how the concept of "specified criteria" in art. 1(1)(f) of the Regulation should be interpreted in situations involving quantitative selective distribution systems. Article 1(1)(f) of the Regulation defines a selective distribution system as a system "where the supplier undertakes to sell the contract goods or services (…) only to distributors or repairers selected on the basis of specified criteria".

The ECJ decided that the concept of "specified criteria" must be read as meaning that it requires a quantitative selective distribution system to be based on criteria which are objectively justified and applied in a uniform and non-differentiated manner in respect of all parties that apply to be appointed as an authorised dealer.

The ECJ also considered that it is required that the content of the "specified criteria" is verifiable. It is however not necessary that to this end the selection criteria are published. Furthermore, the ECJ held that the concept of "quantitative selective distribution system" does not entail that the selection criteria are applied in a uniform and non-differentiated manner for all parties that apply for an authorised dealership. Such requirement only applies in situations involving qualitative selective distribution systems.

In view of the judgment of the ECJ it appears unlikely that Auto 24 will be successful in its proceedings against the refusal to be appointed as an authorised dealer. 

2.  General Court upholds Commission Decision in E.ON Ruhrgas and GDF Suez market-division case and determines the appropriate level of the fine itself 
 
On 29 June 2012 the General Court essentially upheld the European Commission's ("Commission") decision against E.ON Ruhrgas and GDF Suez for agreeing not to compete in each other's jurisdiction (Case T-370/09). The General Court found that the Commission has not provided sufficient proof of the infringement for a period of the alleged market-sharing arrangement. The General Court therefore upheld the core of the decision but annulled part.

As a consequence the General Court adjusted the fines. The Commission had formerly set the fine at €553 million (for each company). The General Court observes that if it would follow the Commission's fining approach, the amount of the fines, adjusted for the faults the Court found in the original decision, would amount to €267 million (for each company). The General Court finds such a reduction of the fine (of more than 50%) not proportionate to the corrections it made (the adjusted duration of the infringement was still around 80% of the duration the Commission based its fine on). The Court then noted that it is not bound by the Commission's methodology and thus determined the appropriate fine to be €320 million (for each company). The judgment provides another illustration of a trend in which the General Court makes use of the "full jurisdiction" that it has to establish appropriate fines, irrespective of the level of fine established by the Commission. 

3.  General Court agrees with the tough stance of the Commission for non-compliance with imposed obligations, even when scope for interpretation is left 
 
By judgment of 27 June 2012 (Case T-167/08) the General Court upheld the European Commission's ("Commission") decision in which it imposed a periodic penalty payment on Microsoft for not complying with an order to disclose interoperability information. The General Court however reduced the periodic penalty payment from €899 million to €860 million. This judgment confirms the Commission's ability to impose periodic penalty payments in the event of non-compliance with remedies imposed by the Commission. This even goes for situations involving obligations that give ample scope for discussions on how to interpret them, such as the obligation to charge "reasonable rates".

In its decision of 27 February 2008 (Case Comp/C-3/37.792) the Commission established the definitive periodic penalty payment at €899 million (the "Decision"). According to the Commission, Microsoft had from 21 June 2006 to 21 October 2007 not complied with an obligation imposed on it in its earlier decision of 24 March 2004 (the "2004 Decision", Case Comp/C-3/37.792). The 2004 Decision required Microsoft to grant access to, and authorise the use of interoperability information on reasonable and non-discriminatory terms and rates. The underpinning rationale for this obligation on Microsoft was the Commission's desire to introduce more competition with respect to server operating system products. In its Decision the Commission found that the interoperability information provided by Microsoft lacked innovation and that in view hereof the remuneration rates charged by Microsoft were unreasonable. As a consequence the Commission decided that Microsoft had violated the 2004 Decision and had forfeited period penalty payments amounting to €899 million. Microsoft appealed against this Decision.

In its judgment of 27 June 2012, the Court upheld the Decision, ruling that the Commission was entitled to impose the periodic penalty payment on Microsoft. The Court rejected Microsoft's view that the Commission was required to specify the level of reasonable rates prior to imposing a penalty. In addition, the Court considered that the Commission did not err in its assessment of the reasonableness of the remuneration rates by reference to the innovative character of the relevant technologies.

The Court however agreed with Microsoft that a letter from the Commission to Microsoft of 1 June 2005 led Microsoft to believe that it could continue to restrict the distribution of products developed by its competitors on the basis of non-patented and non-inventive interoperability information, until the delivery of the General Court's judgment on Microsoft's appeal against the 2004 Decision, i.e. until 17 September 2007 (Case T-201/04).

The Court observed that the letter of 1 June 2005 should be taken into account in the determination of the periodic penalty payments. In view hereof the Court reduced the periodic penalty payment to €860 million.

The judgment clarifies that undertakings that have been imposed obligations on need not only comply with the letter of the obligations but also need to act in spirit with the obligations. 
 
4.  No safe haven for cartels: Commission fines a national cartel in water management products 
 
The European Commission ("Commission") imposed fines of in total €13.6 million on three companies for operating a cartel in the water management production sector (expansion vessels and other equipment to manage water streams). The alleged cartel essentially covered only the German market. It existed only of the exchange of commercially sensitive information on a bilateral basis. The exchange of commercially sensitive information took place in a period of less than two years. The EU Commissioner for competition law, Mr. Almunia, emphasized that "whatever the scope or duration" of an infringement, there is no safe haven for cartel behaviour.

The fact that the Commission dealt with this case is in any case interesting because the alleged three party cartel covered the territory of only one Member State (Germany). Since the case was initiated on the basis of a leniency application, it may be inferred that the leniency applicant originally came to the Commission with the suggestion of a broader cartel. The ultimate decision notes that the exchange of commercially sensitive information between two of the three participants covered thirteen EU Member States other than Germany during a brief period (three months). 
 
5.  Commission will re-impose fines if General Court annuls its decisions on procedural grounds: new fines for Mitsubishi and Toshiba in gas insulated switchgear cartel case and appeal Bolloré against re-adopted decision dismissed 
 
On 27 June 2012 the European Commission ("Commission") issued a statement announcing that it had re-imposed fines on Mitsubishi and Toshiba for their roles in the GIS cartel after the General Court quashed the original fining decision vis-à-vis these parties in July 2011 (Cases T-113/07 and T-133/07).

The General Court found in relation to the initial fines that the Commission had breached the principle of equal treatment. When calculating cartel fines, the Commission - on the basis of its
fining guidelines - determines the value of sales in order to establish the starting amount of the fine. It does this in relation to a so-called 'reference year'. In the initial decision the Commission had used a different reference year for Mitsubishi and Toshiba as it used for the other cartel participants.

The Commission defended this approach by referring to the fact that Mitsubishi and Toshiba had participated in the cartel through a joint venture for part of the duration of their participation. And that circumstance, according to the Commission, rendered it undesirable to use the same reference year for the companies tied up in the joint venture as it used for the other participants, since such approach would not express the fact that those companies had significantly diverging market shares. Therefore, for Mitsubishi and Toshiba, the Commission took a reference year prior to the establishment of the joint venture.

Although the General Court indicated that it supported the rationale behind the Commission's approach - i.e. to have the fines reflect the actual market position of the joint venture's parents - it did not agree with the Commission's methodology to accomplish this by using diverging reference years as this violated the principle of equal treatment. Accordingly, the General Court proceeded to annul the fines.

The Commission has now re-imposed fines - albeit lower ones - taking into account the guidance of the General Court. According to the Commission, the new decision ensures that companies which have infringed EU competition law do not escape sanctions due to procedural shortcomings.

This proclamation was confirmed by the General Court judgment of 27 June 2012 in Bolloré (Case T-372/10). The Commission's original decision in that case had also been annulled because of procedural errors (in this case relating to the "statement of objections"). The Commission then readopted the decision against Bolloré in 2010. Bollloré appealed against that new decision on the basis of various procedural grounds. However, the General Court dismissed all of the appeals. 

6.  Commission decides on scope and extent of non-compete obligations after joint venture break-up 
 
On 18 June 2012, the European Commission ("Commission") announced its decision ("Decision") to make legally binding the commitments offered by Siemens AG ("Siemens") and Areva SA ("Areva"), to reduce the product scope and duration of a non-compete obligation in the market for nuclear technologies. The Decision demonstrates that a three year non-compete obligation in relation to a joint venture's core business (i.e. nuclear services) may be acceptable under EU competition law rules. However, a non-compete obligation in relation to the non-core business of the joint venture, which continues after the termination of the joint venture, violates EU competition law. The same principles apply to confidentiality obligations.

In 2001, Siemens and the legal predecessor of Areva established the joint venture Areva NP SAS ("Areva NP") in which they combined their activities in relation to nuclear power plants. The joint venture's shareholders agreement included a non-compete obligation and a confidentiality clause which covered the lifetime of the agreement and were to continue for eight to eleven years after the termination of the joint venture.

In 2009, Siemens announced its intention to leave the joint venture. Areva subsequently acquired sole control of Areva NP. In December 2011 the Commission adopted a preliminary assessment in which it set out its view that the post joint venture non-compete obligation and confidentiality clause may violate EU competition law due to their excessive product scope and duration. According to the Commission, these clauses prevented competition by Siemens on the markets of the joint venture's core business (nuclear products and services) to the extent that the clauses exceeded a duration of three years. In addition, the Commission argued that the clauses prevented competition by Siemens on markets where Areva NP was not active with its own products and on markets where Areva NP accepted sales by Siemens during the lifetime of the joint venture.

In response, the parties offered commitments to reduce the duration of the non-compete obligation and confidentiality clause to a period of three years. With respect to the non-core products the parties offered to release the non-compete obligations in their entirety. As from 16 October 2012 Siemens will remain bound by a non-disclosure obligation to third parties in relation to Areva NP's corporate constitution and administration documents and by a non-use and non-disclosure obligation in relation to Areva's confidential written technical information. 
 
7.  Conditional clearance of airline merger: Commission once again acknowledges importance of counterfactual analysis in merger control cases 
 
On 7 June 2012 the European Commission ("Commission") published its first phase decision approving the acquisition of British Midlands Limited ("bmi") by the International Consolidated Airlines Group ("IAG") (Case Comp/M.6447, the "Decision"). The transaction is subject to commitments by IAG. The Decision is interesting since it provides a reminder that the turnover of a non-controlled entity may be taken into account when assessing Commission jurisdiction. Furthermore, the Decision offers a useful example of the application of the so-called counterfactual in merger control.

The calculation of the turnover

For the purposes of determining jurisdiction over the transaction, the Commission reviewed the corporate structure of the acquiring undertaking. IAG is the holding company of both British Airways and Iberia Líneas Aéreas de España S.A. ("Iberia"). IAG owns less than 50% of the shares of British Airways while the majority of the shares is owned by a "UK Trustee". However, IAG's shares amount to almost 90% of the nominal share capital. With reference to Article 5(4)(b)(i) of the Merger Regulation the Commission decides that the turnover of British Airways should be taken into account for the purpose of the calculation of turnover of IAG. After also adding Iberia's turnover - over which IAG did exercise
control - the Commission concluded it had jurisdiction to assess the concentration.

As a majority of the share capital does not lead to control in the absence of a majority of voting rights (European Commission Consolidated Jurisdictional Notice paragraph 56), this case offers an example of turnover attribution (i.e. to IAG) of an entity it does not control.

Counterfactual

The Commission found that the transaction, as initially notified, would lead to high market shares and even monopolies on a number of domestic, European and international routes out of London Heathrow airport. Furthermore, the Commission was concerned whether there was a risk of IAG preventing passengers from connecting on long-haul flights operated by competing airlines out of London Heathrow.

Lufthansa, bmi's parent company, argued that in the absence of the transaction bmi would become insolvent and exit all markets, i.e. it referred to the so-called "failing firm defence". The Commission rejected this argument by pointing out that bmi was a fully owned subsidiary of Lufthansa and therefore not a failing firm, but rather a failing division. Furthermore, the Commission looked into the consequences of insolvency, more specifically into the airport slots of bmi at London Heathrow. In case of insolvency, a significant proportion of bmi's slots at London Heathrow are likely to be reallocated to other carriers than IAG. This outcome would be different from the post-transaction scenario where IAG would indirectly control all these slots. The Commission therefore argued that the assets of bmi, in the form of airport slots, would not exit the market while this is a prerequisite for a successful failing firm defence.

While not accepting the failing firm defence, the Commission did consider that the effects of the transaction should be assessed vis-à-vis a situation in which bmi would become insolvent (the "counterfactual"). In most cases the counterfactual situation is the situation at the time of the transaction. In some cases, however, the Commission takes into account future changes to the market insofar as they can be reasonably predicted. In the underlying case the parties convincingly argued that a stand-alone continuation of bmi was not an option and that insolvency would be the situation in the absence of a merger.

The Commission subsequently considered that in case of insolvency of bmi, British Airways would acquire around 40-50% of bmi's slot portfolio. Compared to this counterfactual, British Airways as a result of the transaction would obtain only 3% more slots at London Heathrow than in a situation without the acquisition of British Midlands. Furthermore, the Commission took into account that British Airways offered to release a number of slots. According to the Commission, the anti-competitive effects of the transaction were therefore limited.

Finally the Commission cleared the acquisition conditionally upon the release of fourteen daily slot pairs at London Heathrow in order to facilitate new entry. Moreover, IAG committed to entering into special agreements with the purpose of feeding the long-haul flights of competing airlines out of London Heathrow.

Competitor Virgin has announced that it will appeal against the Decision. 
 
8.  Governmental bodies acting as undertakings: a level playing field as of 1 July 2012? 
 
On 1 July 2012 the Public Enterprises Act ("PEA”) as well as an accompanying governmental decree entered into force and are now part of the Dutch Competition Act (“DCA”). The PEA's aim is the creation of a level playing field between governmental bodies acting as undertakings on the one hand and private parties on the other hand. To this end the PEA introduces several provisions addressed to administrative bodies. Although the PEA is a first step to the creation of a level playing field it remains to be seen - in view of the large number of exceptions - if the PEA will be effective in realising its goal.

The PEA provides for four material obligations for administrative bodies.

First of all, administrative bodies engaged in economic activities must charge at least the integral costs of their services or goods (art. 25i of the DCA). The governmental decree sets out in more detail how integral costs can be calculated and which accountancy rules should be adhered to.

Second, resonating the EU law provisions on state aid, administrative bodies should refrain from granting an advantage to a public enterprise that is not granted to private undertakings if the latter undertakings compete with the public enterprises (art. 25j of the DCA). A public enterprise is defined as (i) an undertaking having legal personality under civil law, in which at least one public legal entity is capable of determining the commercial policy, or (ii) a partnership in which a public legal entity participates.

Third, an administrative body should provide access to information it has obtained through the exercise of its public authority if it intends to use that information for economic activities not relating to its public authority (art. 25k of the DCA).

Finally, administrative bodies, when exercising their powers for an economic activity, should apply so-called Chinese Walls so as to prevent those persons involved in the economic activity and the exercise of the competence, from also exercising the powers of the administrative body in respect to the economic activity (art. 25l of the DCA).

The PEA provides for several exceptions that may undermine the effectiveness of the proposed measures. For instance, the PEA is not applicable to certain educational institutions, broadcasting organisations, administrative bodies within the meaning of art. 1:1(b) of the General Administrative Law Act (so-called ‘B-bestuursorganen') and some special administrative bodies such as the Dutch Bar Association. Furthermore, the PEA does not govern all commercial activities of public enterprises. For instance, economic activities relating to a public general interest ("SGEI") are excluded from the PEA. This exception may prove problematic since administrative bodies enjoy a wide discretion in assessing whether a certain economic activity qualifies as a SGEI.

Although the PEA has already entered into force, the PEA will not bring about immediate changes since there is a transitional period of two years, with the exception of the obligation to apply Chinese Walls within administrative bodies for which the transitional period only amounts to one year.

The Dutch Competition Authority ("NMa") is entrusted with the enforcement of the relevant provisions. To this end the NMa may request information from the relevant bodies. However, it cannot impose fines on public enterprises and/or other governmental bodies. The NMa may nonetheless declare that a governmental body has committed an infringement of the PEA and the NMa may also impose periodic penalty payments to stop infringements. 
 
9.  Principle of equal treatment forces Dutch Competition Authority to significantly reduce fines in construction fraud cartel 
 
In its recently published decisions of 7 May 2012 (Ballast Nedam, Ooms Avenhorn en Vermeer) the Dutch Competition Authority ("NMa") amended its original fining decisions, addressed to three of the participants in the so-called "North Holland Eight cartel" ("NH8 cartel"). In the new decisions, the NMa has now reduced the fines by 69% to 90%. The NMa had to amend the original decisions as a consequence of the judgments of the Industry and Trade Appeals Tribunal (College van Beroep voor het bedrijfsleven, CBb) of 14 March 2012 (LJN: BV9439, LJN: BV9426).

In the NH8 cartel eight construction firms participated in a bid-rigging scheme concerning fifteen tenders for large infrastructure projects in the province of North Holland. By the time the NMa had completed the investigations and decided to impose fines on the participants in the NH8 cartel, a large-scale construction fraud (including the formation of cartels) in the Netherlands came to light which the NMa started to investigate.

In response to this event the NMa launched a specific leniency program. The NMa adopted accompanying fining guidelines, which in general lead to significantly lower fines than the fines imposed under the general fining guidelines.This follows from the fact that the "fine base" in the specific fining guidelines is lower than the base fine in the general guidelines (which is 10% of the turnover of the undertaking that committed the infringement).

In the NH8 cartel case the NMa decided to apply the general fining guidelines rather than the specific fining guidelines. This is at odds with the so-called C6 and WO6 cartel cases, in which the NMa had also started its investigations before the specific leniency program was launched, but nevertheless applied the specific fining guidelines. The CBb ruled that the NMa in doing so violated the principle of equal treatment. Furthermore, the CBb considered that the infringements committed by the C6 and WO6 participants were in essence comparable to the infringement committed by the NH8 participants. As a result, the CBb found that the application of different fining policies with regard to the NH8 cartel on the one hand, and the C6 and WO6 cartels on the other hand, could not be justified. In its decisions of 7 May 2012 the NMa applied in line with the judgment of the CBb the specific fining guidelines to the three NH8 participants that appealed the fining decisions. This led the NMa to significantly reduce the original fines. 
 
10.  Dutch Competition Authority fines vegetable producers for classic cartel behaviour 
 
On 5 June 2012 the Dutch Competition Authority ("NMa") imposed fines in total of €23 million on companies active in the vegetable sector. According to the press release, the NMa found two cartels, one in the pepper growing sector and another in the pearl onion sector, in the period 2006-2009. The NMa found that cooperatives in these sectors were involved in classic cartel behaviour, including establishing minimum sales prices, dividing customers and limiting production.

Team

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