Articles

Competition Law Newsletter

Competition Law Newsletter

Competition Law Newsletter

02.12.2013

1.  The Court of Justice confirms that undertakings can bring an action for damages if the EU Courts fail to adjudicate within a reasonable time 
 
On 26 November 2013, the Court of Justice ruled in Kendrion v Commission (C-50/12 P), Gascogne Sack Deutschland GmbH v Commission (C-40/12 P) and Groupe Gascogne SA v Commission (C-58/12 P). These cases concerned a cartel in the industrial bags market, where the Commission fined 16 firms a total of EUR 290.71 million.

On 26 November 2013, the Court of Justice ruled in Kendrion v Commission Gascogne Sack Deutschland GmbH v Commission  and Groupe Gascogne SA v Commission These cases concerned a cartel in the industrial bags market, where the Commission fined 16 firms a total of EUR 290.71 million.

In its appeal before the Court of Justice, the appellants sought to have the judgment of the General Court ("GC") set aside or, in the alternative, a reduction of the fine due to the excessive length of the GC's procedure. As regards the setting aside of the judgment, the Court of Justice concluded that, in line with existing case law, the judgment could not be set aside as the appellants did not provide any evidence that the failure to adjudicate within a reasonable time could have affected the outcome of the dispute.

As regards the reduction of the fine, the Court of Justice referred to two cases. In the first case, Baustahlgewebe v Commission (C-185/95), the Court of Justice granted the reduction of the fine for reasons of economy of procedure and in order to ensure an immediate and effective remedy regarding a procedural irregularity. In the second case, Der Grüne Punkt – Duales System Deutschland v Commission (C-385/07), the Court of Justice held that the failure to adjudicate within a reasonable time can give rise to a claim for damages.

Although noting that the present cases and Baustahlgewebe v Commission were analogous, the Court of Justice ruled in line with Der Grüne Punkt – Duales System Deutschland v Commission. The Court of Justice stated that a claim for damages constitutes an effective remedy, since such a claim can cover all the situations where a reasonable period of time has been exceeded in proceedings. Although the Court of Justice stated that the General Court had failed to adjudicate within a reasonable time, it dismissed the appellants' pleas to reduce the fine imposed, given that a claim for compensation must be brought before the General Court itself.

With this judgment the Court of Justice explicitly criticizes the General Court and offers undertakings a remedy to claim compensation if EU court's fail to adjudicate within a reasonable time. However, it should be noted that it can be a difficult task to prove an undertaking was harmed as a result of the failure to adjudicate within a reasonable time, besides the fact that the damages might be relatively small.

2.  The Court of Justice rules that the Commission's formal decision to investigate a state aid infringement has legal effect on Member States’ national courts 
 
On 21 November 2013 the Court of Justice ruled on a set of preliminary questions which were referred to it by the Oberlandes Gericht Koblenz ("German Appeals Court"). The questions related to the effects of a decision of the European Commission to open a formal state aid investigation on national court proceedings for the recovery or suspension of the aid.

The main proceedings before the German Appeals Court concerned a dispute between Lufthansa and the German Federal State. Lufthansa claimed that its competitor Ryanair had received and continued to receive benefits from Germany through various schedules and agreements with partially government-owned Frankfurt Hahn airport. According to Lufthansa, these benefits amounted to state aid within the meaning of Article 107(1) TFEU, which were not notified to the Commission in violation of Article 108(3) TFEU. Lufthansa sought an order for recovery of the alleged state aid and an order preventing future aid from being granted to Ryanair.

During the main proceedings, the Commission decided to initiate a formal investigation procedure into the alleged state aid under Article 108(2) TFEU. In its decision, the Commission preliminarily concluded that the benefits granted to Ryanair constituted state aid within the meaning of Article 107(1) TFEU and that it did not see any grounds for finding that the state aid was granted in conformity with the private investor principle.

The German Appeals Court doubted whether the measures constituted state aid and asked the Commission whether it was required to conduct its own assessment of the measures at hand. The Commission stated that when it adopts an uncontested decision to initiate a formal investigation under Article 108(2) TFEU, national courts hearing an application for injunction and recovery of payments already made, can rely on the findings of the Commission.

Subsequently, the German Appeals Court referred a number of preliminary questions to the Court of Justice. In particular, it asked whether, where the Commission has initiated a formal investigation procedure under Article 108(2) TFEU, a national court hearing an application for injunction and recovery of payments is bound by that Commission decision.

In its judgment, the Court of Justice stated that national courts and the Commission have complementary roles in implementing the system of state aid control. Whilst assessment of the compatibility of aid measures falls within the exclusive competence of the Commission, subject to review by the EU Courts, it is for the national courts to safeguard, until the final decision of the Commission, the rights of individuals faced with a possible breach by state authorities of the prohibition laid down by Article 108(3) TFEU.

Thusly, the Court of Justice stated that although the Commission's findings in its decision to initiate a formal investigation are preliminary, they do not lack legal effects. Therefore, national courts should respect the Commission's findings in that decision. If the national court has questions regarding the findings of the Commission, it may pose those questions to the Commission or refer preliminary questions to the Court of Justice. Only when the Commission has not initiated a formal investigation, may the national courts individually assess whether the measures at hand constitute state aid within the meaning of Article 107(1) TFEU.

Where the Commission did initiate a formal investigation on state aid, national courts are required to adopt all the necessary measures with a view to drawing the appropriate conclusions from an infringement. This judgment may translate into a more expedited procedure for those seeking injunctive relief and recovery of payments in national courts. At the same time, companies faced with a Commission decision to open a formal investigation under Article 108(2) TFEU, may now consider it necessary in many cases to appeal against that preliminary decision already.
 
3.  The Court of Justice rules that the duty of sincere cooperation precludes a municipality from relying on a contractual tariff clause against a telecommunications operator 
 
On 7 November 2013, the Court of Justice handed down its judgment in UPC Nederland BV v. Gemeente Hilversum (C-518/11). The case concerned a reference for a preliminary ruling brought before the Court of Justice by the Amsterdam Court of Appeal ("ACA"). The questions regarded whether under EU law a municipality could intervene in a telecommunications operator’s freedom to fix tariffs by relying on a tariff clause from a previous sale agreement.

Before 1996, the municipality of Hilversum ("Municipality") had entrusted the cable television network activities on its territory to its own cable operator. In 1996 it sold its operator to UPC's predecessor due to the liberalization of the EU telecommunications sector through the 'New Regulatory Framework' ("NRF"). The Municipality reserved to itself powers with regard to the pricing of the basic cable package offered through a tariff clause in the purchase agreement, which allowed for only limited annual adjustments. In 2005, UPC initiated legal proceedings about this tariff clause, claiming that it was incompatible with EU law. On appeal, the ACA asked the Court of Justice several preliminary questions, most notably: (i) whether the Municipality still had the power under the NRF to intervene in the fixing of tariffs in order to protect the public interest, and (ii) whether the duty of sincere cooperation precluded the Municipality from applying the clause.

As regards the first question, the Court of Justice pointed out that the NRF established National Regulatory Authorities ("NRAs") responsible for regulatory intervention. In the Netherlands, this task was given to the (former) Independent Post and Telecommunications Authority. Since the Municipality is not a NRA, the Court of Justice concluded that it does not have the power to intervene directly in retails tariffs in respect of services falling under the NRF. On the second question, the Court of Justice ruled that the duty of sincere cooperation indeed precluded the Municipality from relying on the tariff clause. The Court of Justice argued that in accordance with this duty, the Municipality should have ensured that the regime established by the NRF was effective and should have avoided taking any measures contrary to it. By insisting on the continuous application of the tariff clause and thus restricting UPC's ability to set tariffs, the Municipality contributed to an infringement of the NRF rules.

The Court of Justice ruling demonstrates how EU law can preclude a public authority from invoking a private undertaking's contractual obligation to guarantee a particular public interest. It could potentially have far-reaching implications for both public authorities and private operators: the former may have to find new ways of guaranteeing their public interests when dealing with private parties, whereas the latter are possibly no longer bound by certain contractual obligations towards public authorities. Although this ruling specifically concerns the telecommunications market, its implications could potentially also be felt in other markets that have been subject to the combination of privatization and sector regulation at the EU level.

Team

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