1. General Court upholds Commission decision prohibiting Mastercard's multilateral interchange fees
The EU General Court confirmed the Commission's Decision that Mastercard's so-called multilateral fallback interchange fees ("MIF" or "interchange fees") are not compatible with the EU cartel prohibition in Article 101 TFEU (See General Court judgment in Case T-111/08).
The judgment constitutes a new chapter (after the Visa decision in Case COMP/29.373) in the appraisal of MIF's under the European competition rules. The judgment further clarifies three topics which are relevant beyond the specific context of this case. These relate to (i) the assessment of "ancillary restraints" in the context of the cartel prohibition, (ii) the application of Article 101(3) TFEU and (iii) the concept of a "decision of an association of undertakings" within the meaning of Article 101(1) TFEU.
In its decision of 19 December 2007 the Commission assessed the so-called "four-party bank card system" of MasterCard. In this system one institution issues the bank card to the consumer and another financial institution offers "acquiring services" to merchants (i.e. services enabling the merchant to accept the cards as a means of settling transactions). The interchange fees concern the payment of a sum by the acquiring institution to the issuing bank for each payment card transaction.
The Commission had decided that a particular category of interchange fees used in MasterCard's system, the intra-EEA fallback interchange fees, in effect operated as a minimum price for the merchant service charges ("MSC"). These charges have to be paid by participating merchants to their acquiring bank for accepting payment cards. The relation between the MIF and the MSC is illustrated below (graph taken from EU Commission Decision).
According to the Commission the MIF at issue qualified as a decision of an association of undertakings (i.e. the banks) which restricts price competition between card-acquiring banks as a consequence of which MSC-levels were inflated. Moreover, the MIF was found to set a floor under the MSC. In its decision the Commission ordered MasterCard to abandon the MIF or to face periodic penalty payments.
MIF not an ancillary restraint
MasterCard, supported by various banks, appealed the Commission's decision. It argued, first, that the MIF had to be considered as objectively necessary (or as an ancillary restraint) for the operation of the MasterCard system. According to MasterCard, the alleged restrictive element - i.e. the MIF - was necessary for the implementation of the payment system. The Commission considered in this respect that the payment system "could also function without the MIF" and that this was in itself sufficient to conclude that the MIF was not objectively necessary for the operation of the system. Although the test applied by the Commission appeared stricter than the test that follows from the well-known "Métropole case" (Case T-112/99), the General Court rejected Mastercard's claim that the Commission had applied an erroneous legal criterion to assess whether the MIF qualified as ancillary restraint. Mastercard next argued that even if the Commission's test was correct, it still reached the wrong conclusion. This was also rejected by the court. The court agreed with the Commission that a less restrictive alternative – i.e. a rule imposing a prohibition on ex post pricing on the banks in the absence of a bilateral agreement – would have been sufficient for the MasterCard system to function.
Criteria exception to the cartel prohibition (Article 101(3) TFEU) not fulfilled
MasterCard further claimed that the MasterCard system, including the MIF, satisfied the conditions of Article 101(3) TFEU. The court first clarified that the assessment under the first condition of Article 101(3) TFEU – i.e. the element of "technical and economic progress" – must focus on the MIF specifically and not on potential benefits resulting from the MasterCard system as a whole.
Mastercard's regulations still decisions of association of undertakings (also after IPO)
MasterCard also disputed that the Commission could qualify the MIF as a decision of an association of undertakings. It referred to the fact that, after MasterCard went public and was no longer controlled by the participating banks, the relevant undertakings (i.e. the banks) were no longer able to control the MasterCard payment organisation. The General Court did not agree. It ruled that the relevant test is whether MasterCard is an "institutionalized form of co-ordination" between banks. That was the case. The General Court pointed to (i) the fact that the banks had maintained their significant decision-making power within the MasterCard organisation and (ii) the commonality of interests between the banks and MasterCard (i.e. its shareholders).
Further appeal to ECJ announced
MasterCard has announced that it will appeal the judgment to the Court of Justice. More clarity on the exact test applicable to ancillary restraints as well as the concept of a decision of undertakings may therefore be expected. That will be valuable for businesses, in particular those participating in a form of cooperation with competitors.
2. General Court annuls Commission’s refusal to grant access to documents in switchgear cartel case: Court strengthens position of parties seeking access
The General Court ruled that the Commission Decision refusing to grant "EnBW" access to documents is invalid (judgment of the General Court of 22 May 2012 in Case T-344/08). The judgment relates to a request by EnBW Energie Baden-Wurttemberg ("EnBW") to obtain access to the Commission file in the "switchgear" cartel case under the Transparency Regulation (Regulation 1049/2001). The judgment confirms that as a general rule the Commission has to carry out an individual and concrete assessment of the documents that a company has sought access to and that the Commission can only in exceptional circumstances can the Commission refuse to grant access.
The Transparency Regulation grants natural or legal persons a right of access to documents of the institutions of the European Union (such as the Commission). The right is subject to some exceptions. These exceptions relate inter alia to the need to protect the purpose of inspections (dawn raids), investigations and audits (Article 4(2) of the Transparency Regulation) as well as the need to protect the institution's decision-making process (Article (4(3) of the Transparency Regulation). The exceptions themselves can again be subject to an overriding public interest in disclosure.
EnBW is an energy-distribution company allegedly affected by the so-called gas insulated switchgear cartel. EnBW requested the Commission to have full access to a large number of documents related to this cartel.
In its decision of 16 June 2008, the Commission classified the requested documents into five categories, i.e. the Commission's statement of objections, the requests for information (as well as the parties' replies to those documents), inspection documents, leniency materials and internal documents. It subsequently decided that each of the categories was covered by the exceptions and there was no overriding public interest in granting access. This decision was appealed by EnBW.
The General Court in its judgment first looked into whether the Commission had established to the required legal standard whether the Commission was right in invoking circumstances that dismiss it from having to examine whether each individual document met the exceptions of the Transparency Regulation.
Although the court acknowledged in the case law that there are exceptions to the obligation to carry out an individual and concrete examination of the documents, the General Court concluded that these exceptions did not apply in the underlying case. The General Court considered that the Commission was solely entitled to carry out an examination by category in relation to the documents classified as inspection documents. Although this finding in itself would arguably be sufficient for an annulment, the court then went on and examined whether the Commission was on the basis of the exceptions of the Transparency Regulation entitled to refuse access not only to the inspection documents but also to the other documents.
First of all, in relation to the possibility to refuse access when disclosure would undermine the purpose of the investigations (Article 4(2) of the Transparency Regulation), the General Court confirmed that the aim of this exception is to protect the purpose of the investigations and not the investigations as such. The court considers that in competition cases the purpose of the investigation is to determine whether an infringement has taken place and to punish the responsible companies. As a result, the investigation in a case should be considered closed when the final decision is adopted regardless of whether there are proceedings pending against such decision.
Secondly, with regard to the protection of the commercial interest of the undertakings concerned, the court considered that most of the documents in the file dated well over five years earlier. More importantly, the court clarified that the interest of a company that has participated in a cartel in avoiding damages actions cannot be regarded as a commercial interest and does not constitute an interest deserving of protection.
Finally, the court rejected the Commission's broad interpretation of the documents whose disclosure would undermine its decision-making process. In the court's view, this will only be the case for those documents containing opinions for internal use as part of the deliberations and preliminary consultations within the institution concerned and it rejected the Commission's attempt to equate this concept to all documents drawn up by an institution for internal use.
3. NMa and District Court Rotterdam approve acquisitions by KPN in fiber market segments. But NMa-shift towards assessment on basis of local networks likely to raise future challenges for incumbent telecoms operator
In its decision of 13 April 2012 (Case 7325) the NMa cleared the acquisition by which the Dutch incumbent telecoms operator KPN gained full control over three units of the Reggefiber Group: Lijbrandt, Glashart Media and Reggefiber Wholesale. All these units have activities in the fiber market (segments). KPN already exercised joint control over Lijbrandt. In view hereof, the NMa concluded that the transition from joint control to full control over Lijbrandt would have little effect on the market's structure. The NMa found no competition problems with respect to the acquisition of Reggefiber Wholesale (which offers low-quality wholesale broadband access only in those areas where KPN is unable to do so for technical reasons) and Glashart (a provider that bundles and relays broadcast signals).
The NMa's decision not to oppose the acquisition whereby KPN would have sole control over Lijbrandt only just preceded three rulings by the District Court Rotterdam with respect to appeals against the NMa's original decision to conditionally clear KPN's acquisition of joint control over Reggefiber. This decision dates back from 19 December 2008 (Case 6397). Reggefiber is a joint venture that engages in the roll-out of fiber networks for the Dutch consumer market (so-called Fiber to the Home networks). The clearance decision was subject to guarantees by KPN and Reggefiber that other telecom operators would have access to the network of the Reggefiber on non-discriminatory terms and against monthly rental tariffs ranging between €14.50 and € 17.50 per connection, depending on the geographical area, and annually corrected for inflation.
The 2008 conditional clearance decision was subject to several appeals to the District Court Rotterdam. Several competitors and wholesale-customers of KPN argued before the court that, amongst others, the NMa underestimated the effects of the transaction for the competition between networks. In its interlocutory judgment of 18 November 2010 (LJN: BO4372) the District Court ruled that the NMa did not sufficiently investigate the effects of the transaction on competition parameters unrelated to the price (e.g. quality, choice, speed of roll out of fiber networks, etc.). The District Court however did not annul the decision but invited the NMa to extend the reasoning of its decision. In its final judgments of 26 April 2012 (LJN: BW4162) and 10 May 2012 (LJN: BW5475 and LJN: BW5478) the District Court Rotterdam had to rule whether the appeals were still founded in view of the NMa's supplementary reasoning.
The District Court considered that this was not the case. According to the court the NMa was correct in finding that quality was not perceived to be a competition problem, considering that the transaction would not have effects on the speed of the roll-out of networks. As a consequence, the District Court annulled the NMa's decision, but upheld its legal consequences.
In another decision of 13 April 2012 (Case 7326) the NMa, after conducting a preliminary investigation in the notification phase, concluded that KPN's acquisition plans of four fiber-optic providers of Reggeborgh (Edutel, XMS and Concepts ICT, KickXL) would require a merger licence. According to the NMa, the acquisition of the four fiber-optic providers could in a number of small regions restrict consumer choice for television, internet and landline telephony services. The decision is noteworthy since it confirms a shift in the assessment of telecoms transactions. Initially, the NMa assessed transactions between telecoms operators on the basis of geographic markets that were national in scope. This approach has now shifted towards an approach whereby transactions are assessed on the basis of the areas where the activities of the parties are overlapping. The local assessment of telecoms transactions has already led KPN to abort the intended acquisition of Dutch cable company CAIW (Press Release of 10 April 2012). This followed concerns of the NMa on the strong position that KPN would secure in CAIW's catchment area (Case 7204).
This new approach of the NMa raises the question of whether the NMa would be able to block transactions that would arguably lead to competition problems in some very small areas in the Netherlands but that would only have a negligible effect on a national market.
4. Publication of merger control decision in Seagate/Samsung: Commission strictly applies first come, first served rule
On 10 May 2012, the European Commission published the non-confidential version of its decision (Case COMP/M.6214) to approve the acquisition by Seagate Technology of the hard disk drive ("HDD") business of Samsung Electronics (the "Seagate/Samsung transaction"). This decision, which was adopted following a phase II investigation, is noteworthy since the intended acquisition was notified to the Commission one day before Western Digital notified its intended acquisition of the HDD and Solid State Drives ("SSD") businesses of Hitachi Global Storage Technologies (Case COMP/M.6203), the "WD/Hitachi transaction"). The Commission opened a phase II investigation into the WD/Hitachi transaction and applied a "priority" rule ("first come, first served") based on the date of the notification.
In the Seagate/Samsung decision, the European Commission found that in the main markets affected by the transaction, the desktop market and the mobile market, there would remain three respectively four strong suppliers. Consequently, customers would continue to have the possibility to effectively multisource from several HDD suppliers. The Commission also found that the notified transaction was not likely to give rise to coordinated and non-coordinated effects that would significantly impede effective competition. Nor would it have an adverse impact on the suppliers of the merging entities. Accordingly, the Commission approved the notified acquisition.
By applying the priority rule the Commission assessed the Seagate/Samsung transaction in light of the competitive situation and in the absence of the WD/Hitachi transaction, which was notified one day later. At the same time, the WD/Hitachi transaction was assessed while taking the new competitive situation, after the Seagate/Samsung transaction, into account. The Commission justified its decision by noting that it is neither necessary nor appropriate to take into account future changes to the market conditions resulting from subsequently notified transactions that require approval from the Commission. This principle is applicable even when the latter transaction was notified only one day after the former transaction. The Commission argued that the priority principle, based on the date of notification, is the only one that ensures sufficient legal certainty, transparency and objectivity and respects the other provisions and aims of the EU Merger Regulation. Furthermore, the date of notification is the only basis for applying the priority principle as it is a clear and objective criterion. The Commission considers other criteria, such as the date that a binding agreement is signed or the moment that a proposed transaction is made public, as irrelevant and very difficult to apply in an objective and transparent manner because these could also lead to uncertainty and arbitrary results.
Following the application of the priority rule, Western Digital lodged an appeal before the General Court to challenge the Commission's application of the rule (Case T-452/11). Western Digital claims in those proceedings that the priority rule chosen by the Commission has no basis in EU law and that the decision violates the general principles of fairness and good administration.
5. Cross-border follow-on claims in antitrust litigation: English Courts confirm possibility of forumshopping
On 16 May 2011 the Queen's Bench Division of the Commercial Court in London ruled that it has jurisdiction to hear a claim lodged by Ryanair against the UK entity ExxonMobil Aviation International Ltd and two of its Italian Esso subsidiaries based inter alia on a statutory breach in relation to an antitrust infringement committed by Esso in Italy.
In 2006, the Italian Competition Authority found that Esso Italy participated in a jet fuel price fixing cartel in Italy and imposed a fine of € 66 million. Ryanair alleges that it suffered loss – since it purchased fuel from Esso at Italian airports in the period of 1999-2006. Ryanair now claims at least €9 million in compensation. It lodged its claim in late 2010 before the London Commercial Court.
This judgment constitutes a further step in the development of antitrust damage claim cases, as jurisdiction has been assumed in another country than where the underlying competition law infringement was fined by the national competition authority. Until now, the majority of follow-on actions based on national competition authority decisions was litigated in the same country as where the infringement has been fined by the competition authority. The ruling furthermore shows the willingness of English courts to accept jurisdiction in antitrust damage claim cases, as has been demonstrated in the past in the Cooper Tire judgment. In that case, the English High Court ruled that claimants could lodge their antitrust damage claims in England through subsidiaries not being the addressees of an infringement decision by the European Commission.
ExxonMobil has challenged the ruling of the Commercial Court in London. The hearing in this appeal is scheduled for October of this year.
6. Dutch Court confirms pragmatic approach: incorrect addressing in NMa report and primary decision not necessarily violation of rights of defense
On 24 April 2012 the Industry and Trade Appeals Tribunal (College van Beroep voor het bedrijfsleven, "CBb") ruled that the fact that the report of the NMa and its primary decision were incorrectly addressed did not constitute a violation of the company's rights of defence (LJN: BW4991). This case is an example of the tendency towards a less formal assessment in administrative proceedings.
NMa erroneously addressed one of its reports and initial decisions in the well-known Dutch construction fraud to the company Aannemings- en Transportbedrijf M.J. Oomen B.V. In its decision after administrative objections (beslissing op bezwaar) the NMa corrected this into Aannemingsmaatschappij M.J. Oomen B.V. ("Oomen"). Oomen argued in appeal before the District Court of Rotterdam that the NMa could not adopt a fining decision against it. To this end Oomen argued that the NMa had never issued a report against Oomen, but only against the entity Aannemings- en Transportbedrijf M.J. Oomen B.V.
The District Court ruled that the NMa's decision after administrative objections should be considered to be a primary decision and accordingly gave the NMa the opportunity to issue a new decision after the administrative objections. The NMa subsequently confirmed its primary decision, which was then appealed to the Industry and Trade Appeals Tribunal.
The CBb ruled that the relevant criterion is whether Oomen was harmed by the incorrect name in the report and the primary decision, more specifically whether its rights of defence were violated. The CBb considered, that in the underlying case Oomen had realised that the report was addressed to it, and not to the entity Aannemings- en Transportbedrijf M.J. Oomen B.V. Therefore, the CBb ruled that the rights of defence of Oomen were not violated. In addition, the CBb reduced, on the basis of standing case-law, the fine by €25,000 for the exceeding of a reasonable duration of the proceedings.
7. European Commission outlines first plans to modernise EU state aid control regime: Member States likely to play a more important role in state aid control measures
On 8 May 2012 the Commission issued a communication on the modernisation of the EU state aid regime (the "Communication"). The Communication is the first high-level step of an overarching plan to modernise the EU state aid regime as a whole.
According to the Commission, the modernisation of the EU state aid regime is needed to strengthen the quality of the Commission's scrutiny and to shape state aid control into a tool to promote a "sound use of public resources for growth-oriented policies" as well as to limit "competition distortions". In the Communication, the Commission notes that the current complexity of both the substantive as well as the procedural aspects of the state aid regime, constitute challenges to the control on illegal state aid.
The Communication sets out in general terms which modernisation measures may be adopted in the upcoming years. The essence of the Commission's plans in this respect is its intent to focus its ex ante control on state aid cases that have the largest impact on the internal market (for example rescue and restructuring aid). Additionally, Members States are likely to have a greater role in the control on state aid, especially with regard to ex ante compliance in the field of de minimis measures and block-exemptions. The Commission however stated that it reserves the right to check all state aid measures ex post.
The Commission indicates in the Communication that the modernised package on state aid will contain the following elements:
- A set of common principles on the compatibility assessment of all state aid measures. This set will possibly include a definition and assessment of market failures, incentive effects and negative effects.
- The revision of state aid guidelines to ensure consistency with the common principles. This revision will first focus on the guidelines on Regional, Research & Development, Environmental, Risk capital and Broadband aid.
- The General Block Exemption Regulation will be revised, extended and simplified.
- The de minimis threshold will be revised.
- A clarification of the notion of state aid and its key concepts.
- An amendment of the Enabling Regulation in order to exempt more measures from the ex ante notification obligation. At the same time, ex post monitoring of state aid measures will also be strengthened.
- An amendment of the Procedural Regulation to prioritise complaints and to enable the Commission to obtain more information from market participants in order to deliver decisions faster.
The Commission plans to submit proposals for the Procedural and Enabling Regulations in the autumn of 2012. The other elements of the new package will be adopted in the subsequent period. By the end of 2013 the Commission aims to have revised and streamlined all of its main acts and guidelines.
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