Articles

Competition Law Newsletter

Competition Law Newsletter

Competition Law Newsletter

01.02.2013

1.  European Court of Justice holds that the General Court did not rule ultra petita in Tomkins 
 
On 22 January 2013, the European Court of Justice ("ECJ") handed down its judgment in the case of the Commission v Tomkins (Case C-286/11).

In September 2006, Tomkins and its wholly-owned subsidiary Pegler were fined for an infringement of Article 101(1) TFEU. Both companies appealed against the fining decision. In relation to Pegler's appeal (Case T-386/06), the General Court found that the Commission had erred in relation to the duration of Pegler's participation in the cartel. Therefore, the General Court partially annulled the Commission's decision and reduced the fine imposed on Pegler.

Tomkins challenged the duration of Pegler's participation in the infringement before the General Court (Case T-382/06). However, Tomkins' pleas in relation to the duration of the infringement of Pegler were not entirely consistent with the arguments put forward by Pegler. In fact, the appeal by Tomkins appeared more limited in scope than Pegler's appeal. The General Court held in its judgment that Tomkins "(…) was held liable for the infringement only as parent company by virtue of Pegler's participation in the cartel. Therefore, the applicant's liability cannot exceed that of Pegler". As a result of the Commission's imputation of liability Tomkins had the benefit of the partial annulment of the contested decision vis-à-vis Pegler. Furthermore, the General Court ruled that in actions for annulment brought separately by a parent company and by its subsidiary, it is not ruling ultra petita if it takes account of the outcome of the action brought by the subsidiary (Pegler), if the form of order sought in that action has the same object as that in the action brought by the parent company (Tomkins).

Advocate General Mengozzi concluded in his opinion that the General Court erred in law in finding that the forms of order of Pegler and Tomkins in their appeals had the "same object". However, the ECJ did not follow the AG's opinion and held that in a situation in which the liability of the parent company is wholly derived from that of its subsidiary, and in which both of those companies have brought actions seeking a reduction of the fine, the notion of the "same object" does not require that the scope of the applications of those companies must be identical. The Court held that where the parent company and its subsidiary have brought parallel actions having the same object, the General Court was entitled, without ruling ultra petita, to take account of the action brought by Pegler. 
 
2.  Dutch administrative court rules that provision of a Bachelor programme by an institute for distance learning does not qualify as an economic activity 
 
On 30 January 2013, the Administrative Jurisdiction Division of the Dutch Council of State (Afdeling Bestuursrechtspraak Raad van State, "ABRvS") handed down an interesting judgment (LJN: BY9933) in which it answered the question whether an education by the Open Universiteit Nederland ("OUN") could be considered as an economic activity.

OUN is an independent institute for distance learning at university level. It had obtained permission from the Minister of Education, Culture and Science to provide a Bachelor programme in Dutch Law. The companies LOI and NTI, both providing a similar programme, objected to the decision by which the Minister granted this permission. The Minister rejected this objection and the matter ended up in court.

LOI and NTI argued that the decision to grant permission amounted to unlawful state aid. To this end, the parties relied on the Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest, the "Communication 2012" (OJ 2012 C 8/02). More specifically, LOI and NTI claimed that the Bachelor programme provided by OUN qualifies as an economic activity due to the existence of competing private organisations.

The ABRvS turned to the European Commission for advice on this matter. It is noteworthy that in its advice the Commission shifted its focus to the Communication 2012 in which it set out that "[in] certain Member States public institutions can also offer educational services which, due to their nature, financing structure and the existence of competing private organisations, are to be regarded as economic". The Commission went on to consider that the Bachelor programme appears not to qualify as an economic activity, in as far the Dutch State by funding the Bachelor programme from the public purse, was fulfilling its duties towards its own population in the social, cultural and educational fields. In this respect, the Commission referred to the case law relating to the freedom of services.

This was sufficient for the ABRvS to conclude that the Dutch State, by funding the Bachelor programme, was fulfilling its duties towards its own population and that the programme could not be regarded as an economic activity.

Last year, the Dutch competition authority NMa announced that it had closed its investigation into two Dutch universities who allegedly had concerted on their tuition fees. That case concerned the tuition fees for students who already successfully completed an academic degree and wished to enrol in a second academic programme. The universities were free to determine the amount of these tuition fees. Pending the investigation, the universities committed to refrain from coordinating the tuition fees for such second academic programmes. This led the NMa to terminate its investigation.

The judgment of the ABRvS reconfirms that the question whether universities act as an undertaking in the sense of competition law can only be answered on the basis of a careful assessment of the specific context within which the programme is offered. 
 
3.  Publication of non-confidential version of commitments in the Universal Music / EMI merger: Universal disposes of "Most Favoured Nation" clauses in its contracts 
 
On 11 January 2013, the European Commission published the non-confidential version of the commitments in the Universal Music Group / EMI merger. The case is noteworthy since the merger would bring together two of the four "major" record companies, with only three remaining. Furthermore, Universal agreed not to use the "Most Favoured Nation" clauses in its favour in any new or renegotiated contract for ten years.

Universal Music is part of the international media group Vivendi and is the largest music recording company in the world. EMI belongs to the top four companies in the recorded music business. On 17 February 2012, Universal notified the Commission of its intention to acquire the recorded business of EMI. On 23 March 2012, the Commission decided to open a Phase II investigation. In its Phase II investigation the Commission focussed on the markets for the wholesale of digital music where record companies license their music to digital retailers such as Apple, Amazon, Spotify and mobile network operators such as Vodafone.

The Commission found that the merger would likely result in increased licensing costs, particularly for smaller platforms that offer innovative ways for customers to buy and listen to digital music. The Commission was especially concerned that innovative digital platforms could be hampered in their ability to expand or launch new music offerings. This would ultimately lead to reduced consumer's choice for digital music, as well as cultural diversity in the European Economic Area ("EEA").

To address the Commission's competition concerns, Universal offered to divest significant assets. The divesture package includes, among others, EMI Recording Limited which features famous artists such as Coldplay, David Guetta and Pink Floyd. Furthermore, Universal agreed to divest EMI's 50 percent stake in the popular "Now! That's What I Call Music" compilation and to continue licensing its repertoire for that compilation over the next ten years. Universal also committed to not including the "Most Favoured Nation" clauses in its favour in any new or renegotiated contract with digital customers in the EEA for ten years. Such clauses oblige digital customers to extend any favourable term granted to Universal's competitors to Universal. As a result, competitors will be able to negotiate more freely with digital customers. The Commission believes that this commitment will help to reduce licensing costs.

As part of the remedies package, Universal has committed to sell the assets to purchasers that are either already active as a record company or have a proven track record in the music industry, which would exclude private equity and other bidders. 
 
4.  Dutch competition authority prohibits in rare decision merger between baking companies and dismisses divestment remedies as it is not convinced of lasting competitive force of potential buyers 
 
In its decision of 14 December 2012 (Case 7321), the Dutch competition authority ("NMa") concluded that the proposed acquisition of A.A. ter Beek (known from its flagship brand Bolletje) by Continental Bakeries, would result in high market shares for the parties and leave only one credible alternative competitor. Dismissing the proposed remedies, the NMa refused to grant a licence for the merger as it would significantly impede competition. The NMa's decision is remarkable since it is one of the very few instances where it has blocked a merger, notwithstanding the proposed remedies.

In its decision, the NMa first of all concluded that the acquisition would create a large rusk producer with a market share of 70-80%. Furthermore, after the proposed acquisition, retailers would be dependent on two instead of three producers for their tenders of private label rusk. The NMa subsequently assessed whether there would remain sufficient competitive pressure to discipline the parties concerned.

To this end, the NMa assessed whether it was likely for new rusk producers to enter the Dutch rusk market. It concluded that because the rusk market is stable in size and given the fact that there is overcapacity, investments in new production capacity by current rusk producers and new entrants were deemed both risky and unlikely. In addition, it was found that there was insufficient competitive pressure from other rusk producers as well as limited countervailing buying power.

On the basis of the above the NMa concluded that the transaction would result in a significant impediment of effective competition on the rusk production market. To address the NMa's concerns, the parties offered to divest one of the rusk production lines. However, the NMa dismissed the parties' proposal, by holding that the buyers of the production line would need to have the opportunity as well as the incentive to actually remain active on the concerned market. According to the NMa, it was insufficiently certain that the potential buyers would actually make the required investments. And in the event that they would do so, it would be possible to recoup these investments within a period of one year. Afterwards, the production of rusk by the new producer would not be guaranteed, as the costs of exiting the market were deemed low.

The decision of the NMa seems to be in line with its policy, as set out in the Remedy Guidelines, that the buyer of the divested business must have the incentive to compete in a lasting manner. Unfortunately, it does not follow from the public version of the decision why the buyers that were proposed by the merging parties failed to meet this condition.

Team

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