1. Court of Justice upheld umbrella claims in certain circumstances
On 5 June 2014, the Court of Justice rendered a landmark judgment in the case of Kone and Others (C-557/12). In its judgment, the Court held that victims of 'umbrella pricing' (alleged higher prices charged by non-cartel members as a result of the cartel) under certain circumstances can obtain compensation from members of the cartel. The judgment is in line with Advocate-General Kokott's opinion of 30 January 2014 (See our newsletter article). However, the Court applies a slightly different reasoning to reach that conclusion.
In the main proceedings before the Austrian court, ÖBB-Infrastructure claimed compensation from inter alia Kone for the effects of umbrella pricing on the Austrian elevator and escalator market. ÖBB-Infrastructure pointed out that as a result of the cartel, elevators and escalators producers not party to it were able to set their prices higher than under competitive conditions. The Austrian Supreme Court considered that umbrella claims do not meet the causality link and relationship of unlawfulness criteria required under Austrian civil law. However, the Supreme Court questioned whether this denial of the right to compensation was compatible with EU law, in particular with the principle of effectiveness. Therefore, it made a reference to the Court of Justice for a preliminary ruling on the question of whether under EU law (Article 101 TFEU) the loss resulting from the effect of umbrella pricing may give rise to compensation.
Contrary to the opinion of Kokott, the Court considered that it is for the domestic legal system of the Member States to lay down the detailed rules governing the application of the concept of the 'causal link', provided that the principles of equivalence and effectiveness are observed. The Court decided that the victims of umbrella pricing may request compensation from members of the cartel for loss suffered as a result of their actions, even though there are no contractual links between them. To determine whether compensation should be awarded, the national courts should consider whether the cartel at issue was, in the circumstances of the case and the specific aspects of the relevant market, liable for the effect of umbrella pricing applied by third parties acting independently and whether those circumstances and aspects could not have been ignored by the members of the cartel.
Furthermore, the Court considered that umbrella claims do not constitute punitive damages since in cases of non-contractual liability the amount of the damages that can be claimed does not depend on the profit achieved by the person whose misconduct caused the loss.
The Court therefore concluded that Article 101 TFEU precludes the interpretation and application of domestic legislation which categorically excludes, for legal reasons, any civil liability of members of a cartel for a loss resulting from the effects of umbrella pricing.
2. The Intel judgment: existing "form-based" case law prevails in test-case for conditional rebates
No "paradigm shift"
On 12 June 2014, the General Court ("GC") rendered its judgment in the Intel case (T-286/09). Many observers had awaited a paradigm shift in the assessment of rebates by dominant firms under Article 102 TFEU. This expectation was grounded in the adoption of the 2009 Commission Guidance Paper on enforcement priorities in applying Article 102 TFEU describing a shift in focus on the part of the Commission towards the effects of certain conduct rather than the mere form of the practice (or the predefined category in which the conduct falls).
The Commission fined Intel over 1 billion euro's for applying abusive rebates. The Commission applied an "effects-based" analysis of Intel's conduct in addition to relying on existing EU case law reflecting an unfavorable and form-based stance particularly towards rebates conditioned upon the purchaser obtaining all or most of its requirements from the dominant firm ("exclusivity" rebates).
The big question was whether the GC would seize the opportunity to also adopt a more effects-based approach in the judicial review of exclusivity rebates thereby departing from, or at least nuancing, existing case law that condemns those rebates effectively on a per se basis (see further below).
The GC, ruling on the matter in extended composition, does no such thing. In essence, the judgment relies on the existing case law and rejects the notion that the Commission should prove anti-competitive effects resulting from Intel's use of the exclusivity rebates.
The judgment did not bring any simplification of the complex landscape governing compliance questions surrounding such rebates: the Commission may very well prioritize on the basis of the effects of certain behavior but the GC continues to deny that the (absence of such) effects affects the legality of the rebate scheme.
The decision describes two types of conduct by chipmaker Intel vis-à-vis its trading partners, namely conditional rebates and ‘naked restrictions’. This article focuses on the former category.
According to the contested decision, Intel awarded four Original Equipment Manufacturers ("OEMs"), namely Dell, Lenovo, HP and NEC, rebates which were conditioned on these OEMs purchasing all or almost all of their requirements for specific computer chips from Intel. Similarly, Intel awarded payments to MSH, which were conditioned on MSH selling exclusively computers containing Intel’s chips.
The contested decision concludes that the conditional rebates granted by Intel were fidelity rebates constituting abusive conduct in violation of Article 102 TFEU.
The contested decision also conducts an economic analysis of the capability of the rebates to foreclose a hypothetical competitor as efficient as Intel (as-efficient-competitor test; ‘the AEC test’), albeit not dominant. More precisely, the test establishes at what price a competitor as efficient as Intel would have had to offer CPUs in order to compensate an OEM for the loss of an Intel rebate. The same kind of analysis was conducted for the Intel payments to MSH.
The evidence gathered by the Commission led it to the conclusion that Intel’s conditional rebates and payments induced the loyalty of the key OEMs and of MSH. The effects of these practices were complementary, in that they significantly diminished competitors’ ability to compete on the merits.
The GC judgment
The GC commences its assessment by recalling established case law noting that where it concerns the potential abusive nature of a rebate grant, a distinction should be drawn between three categories of rebates:
First, quantity rebate systems linked solely to the volume of purchases made from an undertaking occupying a dominant position are generally considered not to have the foreclosure effect prohibited by Article 102 TFEU. If increasing the quantity supplied results in lower costs for the supplier, the latter is entitled to pass on that reduction to the customer in the form of a more favourable price. Quantity rebates are therefore deemed to reflect gains in efficiency and economies of scale made by the undertaking in a dominant position (see Case T‑203/01 Michelin v Commission (‘Michelin II’), paragraph 58 and the case-law cited).
Second, there are rebates which are conditional on the customer obtaining all or most of its requirements from the undertaking in a dominant position. Such exclusivity rebates are considered by the Court of Justice to violate Article 102 TFEU because they are not based — save in exceptional circumstances — on an economic transaction which justifies this burden or benefit but are designed to remove or restrict the purchaser’s freedom to choose his sources of supply and to deny other producers access to the market. According to the Court of Justice such rebates are designed, through the grant of a financial advantage, to prevent customers from obtaining their supplies from competing producers (Hoffmann-La Roche, paragraph 90, and Case T‑155/06 Tomra, paragraph 210).
Third, there are other rebate systems where the grant of a financial incentive is not directly linked to a condition of exclusive or quasi-exclusive supply from the undertaking in a dominant position but where the mechanism for granting the rebate may also have a fidelity-building effect. That category of rebates includes inter alia rebate systems depending on the attainment of individual sales objectives which do not constitute exclusivity rebates, since those systems do not contain any obligation to obtain all or a given proportion of supplies from the dominant undertaking.
Arguably the key issue in the judgment is the GC's response to Intel's argument that also in relation to exclusivity rebates (2nd category above) establishing a (potential) foreclosure effect would be required for a finding that Article 102 TFEU has been violated.
The GC's answer, however, is in the negative:
"It follows from Hoffmann-La Roche, paragraph 71 above (paragraphs 89 and 90), that that type of rebate constitutes an abuse of a dominant position if there is no objective justification for granting it. The Court of Justice did not require proof of a capacity to restrict competition depending on the circumstances of the case."
The GC recalls that only in relation to rebates categorized in the 3rd category (above) that it is necessary to consider "all the circumstances [of a case], particularly the criteria and rules governing the grant of the rebate, and to investigate whether, in providing an advantage not based on any economic service justifying it, that rebate tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market [...] ".
This continues to render exclusivity rebates pretty much per se illegal for companies with a dominant position, with the caveat that in exceptional circumstances an objective justification for the rebate scheme (i.e. efficiencies benefitting consumers) may outweigh the foreclosure concerns found to be inherent in these rebates. The judgment does not offer any guidance on the exact scope of such potential justification now that "the applicant has put forward no argument in that regard" (paragraph 94).
Following the implications of the selected approach, the GC notes that there is also no need to examine whether the rebates could have been matched by a hypothetical competitor "as efficient" as the dominant firm (en passant the GC also rejects this test for rebates of the 3rd category above which were not at issue in this case; see paragraph 146).
Finally, Intel's arguments related to the Commission's Guidance Paper are rejected by the Court: as the Intel case pre-dates the entry into force of this Paper it can have no relevance in this case.
Dominant firms or firms that operate under a presumption of dominance would be wise to avoid rebate schemes that run the risk of being qualified as such.
This outcome already is the subject of criticism (as the form-based approach has been for a long time also prior to this case) as it bans rebate schemes that may on balance be beneficial to consumers and may chill legitimate business behavior. Other voices refer to the positive effects of legal clarity ("exclusivity rebates are a no-go"), as well as the so far unexplored possibility to adduce efficiencies as part of the objective justification-route.
The wide gap between what the Commission claims should be seen as problematic rebates in its 102 Guidance Paper and the form-based approach of the EU Courts has not been reconciled.
3. Court of Justice confirmed 'voluntary and unsolicited' disclosure of leniency application without informing the Commission as a breach of duty to cooperate
On 12 June 2014, the Court of Justice handed down its judgment in the case Deltafina v Commission (C-578/11 P). The Court of Justice upheld the General Court's ("GC") findings regarding liability and the removal of immunity for Deltafina's participation in the Italian raw tobacco cartel.
In March 2002, the Commission informed Deltafina that it would grant immunity at the end of the administrative procedure if it met the conditions set out in the 2002 Leniency Notice. The Commission further informed Deltafina that the fact of the immunity application should be kept confidential given that other inspections could not yet take place until the following month. According to Deltafina, in a subsequent meeting it was released from this duty given that it had to disclose its cooperation with the Commission at an upcoming meeting with the National Association of Italian Tobacco Producers. Deltafina proceeded to disclose this to other undertakings which, on the same day of such disclosure, proceeded to file separate leniency applications before the Commission carried out inspections. The Commission contended that Deltafina did not fulfill its duty to "cooperate fully on a continuous basis and expeditiously" because of this disclosure and its failure to inform the Commission of it.
The Commission took the approach that "voluntary and unsolicited disclosure is sufficient to show breach of an obligation to cooperate" unless it is established that such a disclosure had been "expressly authorized" in advance. The GC held that the Commission could not have given Deltafina prior authorization since Deltafina had not notified the Commission in advance its intentions. The GC confirmed Deltafina's breach of the obligation to cooperate and the Court of Justice did not find error in this assessment.
The Court of Justice also confirmed that the obligation to cooperate fully includes an obligation to provide full information on all the facts, which in this case would have included the fact of the disclosure.
4. Parent company can serve as anchor defendant in the Netherlands
On 4 June 2014, the Amsterdam District Court declared itself competent to rule on antitrust damages claims brought by claim vehicle CDC against various producers of sodium chlorate. If upheld on appeal, it is likely that the Netherlands will become an even more attractive forum for claimants than it already is.
Following a Commission decision finding an infringement in the EEA market for sodium chlorate (the "SC Decision"), CDC purchased the alleged damages claims of several purchasers of sodium chlorate. It subsequently sued a number of the addressees of the SC Decision, i.e. Arkema (based in France) Eka (based in Sweden), Kemira (based in Finland), and Akzo Nobel (based in the Netherlands). In preliminary proceedings, the defendants disputed, amongst others, the Amsterdam District Court's jurisdiction.
First and foremost, Arkema, Eka and Kemira argued that the Court could not base its jurisdiction on Article 6(1) of the Brussels I Regulation because the connection with the case against anchor defendant Akzo Nobel is not sufficiently close. In this context, they emphasized that the Commission had not addressed the SC Decision to Akzo Nobel on the basis of its own conduct but merely on the basis of the "presumption of decisive influence". This presumption allows the Commission to fine a parent company for an infringement committed by its 100% subsidiary. The Amsterdam District Court, however, disagreed. While the Court acknowledged that Akzo Nobel's position as a parent company might differ from the position of the other defendants, for purposes of jurisdiction it sufficed that CDC alleged that Akzo Nobel was guilty of the same conduct as the other defendants. Furthermore, the Court considered that a risk of irreconcilable judgments would arise if different courts would rule over the claims against Akzo Nobel and the other defendants.
In the alternative, the defendants relied on arbitration clauses and choice-of-forum clauses in the supply agreements between Arkema, Eka and Kemira and their customers (CDC's assignors). The Court also rejected this line of argument, holding that the wording of these clauses was not sufficiently broad to encompass damage claims based on competition law infringements.
In Dutch civil procedure, the default rule is that decisions of this nature cannot be appealed until the court has issued its final decision on the merits. However, in view of the parties' interests in the outcome of the case, the Amsterdam District Court has granted the parties permission to file an interim appeal against its decision. If an appeal is filed, the Amsterdam Court of Appeal will likely have the benefit of being able to consider the implications of the decision of the Court of Justice in case C-352/13. In that case, a Dortmund regional court has asked preliminary questions on the application of both Article 6(1) Brussels I Regulation and arbitration clauses in antitrust damage cases. The Advocate General's opinion on these preliminary questions is expected on 23 October 2014.
5. No strict liability for breach of Competition Authority seal in the Netherlands
On 3 June 2014, the Dutch Trade and Industry Appeals Tribunal ("CBb") annulled a judgment of the District Court of Rotterdam (the "Court") concerning a fine that the predecessor of the Netherlands Authority for Consumers and Markets ("ACM") had imposed on the Dutch Association of General Practitioners ("LHV") for the breach of a seal during a dawn raid at the LHV's premises. The ACM had sealed a room in the LHV's offices. At night, a security guard had opened the door to the room, thereby breaching the seal. The ACM imposed a EUR 51,000 fine on the LHV for the breach of the seal. On appeal the Court confirmed the liability of the LHV for the breach of the seal but reduced the fining amount to EUR 23,000.
Both the LHV and the ACM appealed the Court's judgment before the CBb. Both sides disagreed whether the LHV could be qualified as the actual perpetrator and whether the actions of the security guard could be imputed on the LHV. The ACM put forward that there is strict liability for the undertaking whose premises are sealed. That is, they are liable for a breach of that seal, regardless of who actually breached it. The CBb found that Article 70b of the Dutch Competition Act ("DCA") – which empowers the ACM to impose fines for a breach of seal – is only aimed at penalizing actual perpetrators and does not impose strict liability on the undertaking whose premises are sealed.
However, the actions of the actual perpetrator may be attributed to that undertaking on the basis of the doctrine of vicarious liability. The CBb held that in order to establish vicarious liability on an undertaking, the act should have taken place within the scope of the undertaking. Whether an act took place within the scope of the undertaking depends on the circumstances of the case, including the nature of the act. Furthermore, the following non-exhaustive criteria should be taken into account:
- whether the actual perpetrator was employed or hired by the undertaking;
- whether the act took place within the ordinary course of business of the undertaking; and
- whether the undertaking could have been reasonably expected to foresee the actions of the actual perpetrator and took sufficient precautions to prevent the act from happening.
The CBb found that the LHV was not directly in contact with the seal breaching security guard and took all reasonable precautions to prevent the seal from being breached. Therefore, the LHV could not be held vicariously liable for the actions of the security guard.
From this case it can be deducted that unlike Dutch criminal law and EU competition law, Dutch competition law does not impose strict liability for a breach of seal on an undertaking whose premises are sealed. Instead the undertaking's liability can only be established where the undertaking qualifies as an actual perpetrator or where the conditions for vicarious liability are fulfilled.
6. Pepper cartel case referred back to the ACM
On 12 June 2014, the Rotterdam District Court (the "Court") rendered its interlocutory decision in the pepper cartel case. The Court held, amongst others, that the Authority for Consumers and Markets ("ACM") erred in basing the economic unity of undertakings on personal ties only. Furthermore, the Court stated that the ACM did not properly underpin the calculation of the imposed fines.
In its decision, the Court pointed out that the ACM based the existence of an economic entity on the fact that personal ties existed between several legal entities. The Court noted that the ACM only took the relevant persons or, as the case may be, legal persons into account. According to the Court, however, the ACM reports, on which the fining decision is based, must also mention the capacity of the persons and/or legal persons in the relevant undertaking in relation to facts that are held against them. However, in its fining decision the ACM addressed the legal persons on which a fine was imposed in a different capacity than in the underlying reports. The Court concluded that by doing so the ACM breached the parties' defence rights.
Regardless of the fact that the fining decision could not be upheld in this respect, the Court stated that the ACM did not forfeit its power to fine the legal persons mentioned in its reports. The principle of ne bis in idem could not prevent this. However, the Court emphasized that the ACM's report must provide a solid basis with regard to the acts and the attribution thereof to the relevant parties. If the reports provide such solid basis, fines can still be imposed.
The Court also determined that the ACM did not properly calculate the relevant turnover of some appellants. According to the appellants' annual accounts, the relevant turnover should have been lower. As the property rights of the peppers were transferred directly from the grower to the buyer, the turnover generated by the auctioning of peppers could not be attributed to the appellants, which functioned as commission merchants. The Court stated that the ACM failed to properly substantiate the calculation of the relevant turnover. In addition, the Court held that the ACM did not provide a solid basis for its decision to deviate from its regular fining policy.
The Court decided to refer the fining decisions back to the ACM to issue a ruling consistent with the above.