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Competition Law Newsletter

Competition Law Newsletter

Competition Law Newsletter

03.08.2015

1. Court of Justice considered under which circumstances SEP owners seeking an injunction abuse their dominant position
2. General Court highlighted the importance of respecting the rights of defence in cartel cases
3. Court of Justice sanctions Commission's approach to include downstream sales in setting fines
4. General Court largely followed the Commission's position on access to documents
5. The 'principal-agent problem' revisited: undertakings may be held liable for their agent's involvement in an infringement
6. Dutch courts accepted jurisdiction on the basis of Dutch anchor defendants in two antitrust damages cases
7. Dutch Trade and Industry Appeals Tribunal ruled that the ACM can use evidence obtained through wiretaps by other government agencies
8. Brussels Court of Appeals confirmed illegality of dawn raids without prior judicial authorization or timely ex post review

1. Court of Justice considered under which circumstances SEP owners seeking an injunction abuse their dominant position
On 16 July 2015, the Court of Justice rendered its long-awaited judgment in Huawei/ZTE. In answer to several preliminary questions asked by the Landgericht Düsseldorf, the Court of Justice considered under which circumstances seeking an injunction for infringement of a "standard-essential patent" ("SEP") constitutes an abuse of a dominant position. Unfortunately, the judgment raises more questions than it answers.

As its name suggests, an SEP is a patent reading on technology that is essential to the implementation of a standard. In other words: it is impossible to implement the standard without incorporating the technology on which the SEP reads. Thus, a manufacturer wishing to produce a standard-compliant product must obtain a license to the SEP. If an industry is "locked-in" to a standard, implementers may be "held-up" by an SEP owner's refusal to license or demand for excessive royalty payments. In order to prevent hold-up from occurring, most standard setting organisations require SEP owners to agree to their SEPs on "fair, reasonable and non-discriminatory" ("FRAND") terms.

Commentators have pointed out that the hold-up problem may be worsened by SEP owners threatening to shut down the operations of an infringing company through an injunction. However, the possibility that seeking injunctive relief for infringement of an SEP may be contrary to competition law has only been recognized in the context of the "smartphone wars". The current case also relates to a dispute between major technology companies in the mobile market: Huawei Technologies and ZTE. In 2011, the former brought an action for infringement against the latter before the Landgericht Düsseldorf, seeking amongst others an injunction prohibiting the infringement of one of its SEPs. In 2013, the Landgericht Düsseldorf asked the Court of Justice whether the action brought by Huawei could be qualified as an abuse of a dominant position.

Interestingly, the European Commission did not wait for the Court of Justice's answer before intervening in similar disputes. In 2014, it adopted two decisions relating to this issue: one addressed to Motorola and one addressed to Samsung. In short, the Commission took the position that an SEP owner who has given a FRAND commitment may breach Article 102 TFEU if it seeks an injunction against "willing licensees". It follows from both Commission decisions that alleged infringers should be regarded as "willing licensees" if they agree to determination of FRAND terms by an objective third party, such as a court or arbitral tribunal.

As the Commission did in Samsung and Motorola, the Court of Justice in Huawei/ZTE considered that the exceptional circumstances of this particular case warranted deviation from its earlier case law on mandatory licensing. These special circumstances were the fact the injunction was sought for an infringement of a "patent essential to a standard established by a standardisation body" as well as the fact that Huawei had given a commitment to license on FRAND terms. In such a scenario, the Court of Justice considered that Article 102 TFEU requires an SEP owner to fulfil certain obligations before it is entitled to seek an injunction. First of all, the SEP owner should alert the alleged infringer, identify the infringed SEP and specify the way in which the infringement occurred. If the alleged infringer expresses its willingness to conclude a license on FRAND terms, the SEP owner must present "a specific, written offer for a license on such terms, specifying, in particular, the royalty and the way it is to be calculated". The SEP owner can seek an injunction if the "alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith". An injunction may furthermore be sought if an alleged infringer unwilling to accept the initial offer did not submit "promptly and in writing, a specific counter-offer that corresponds to FRAND terms".

The Court of Justice furthermore clarified some of the rights and obligations resting on the alleged infringer. For one, the Court considered if the alleged infringer does not accept the SEP owner's offer while already implementing the standard, it must provide adequate security. According to the Court, parallel to the negotiations, the alleged infringer should remain free to challenge the validity of the SEP, its essential nature or its actual use.

While the judgment does shed some light on the matter, the position of SEP owners and their prospective licensees still remains largely unclear. A notable reason for this is the Court of Justice's use of many open legal norms, such as "good faith" and "recognised commercial practices in the field". It is moreover unclear whether the rules laid down by the Court of Justice also apply to owners of patents that are essential to de facto standards or patents that should be regarded as commercially rather than technically essential. Also, it would have been helpful if the Court of Justice in Huawei had at least clarified whether it agreed with the Commission's characterisation in Motorola and Samsung of a "willing licensee". Most importantly, courts, SEP owners and implementers remain in the dark as to how FRAND terms and conditions should be determined. This is unfortunate, especially considering the fact that an SEP owner retains the right to bring an injunction against a licensee who made a counter-offer which is not FRAND.

As a result, it is likely that Samsung, Motorola and Huawei will have a sequel in the near future.

2. General Court highlighted the importance of respecting the rights of defence in cartel cases

On 15 July 2015, the General Court ("GC") rendered a judgment in two applications for annulment brought by AkzoNobel in relation to the European Commission's Heat Stabilizers decision (T-47/10 AkzoNobel and Others v Commission and T-485/11 AkzoNobel and Akcros Chemicals v Commission). The judgments contain interesting points concerning limitation periods for the imposition of penalties and rights of defence.

In case T-47/10, AkzoNobel challenged the decision of the European Commission of 11 November 2009 fining several undertakings for their involvement in two infringements in the heat stabilizers sector (the "2009 Decision"). AkzoNobel's application for annulment was partially granted and the fines imposed on several legal entities of the AkzoNobel group were annulled. In addition, a 1% reduction was applied to the remainder of the fines in view of the excessive duration of the proceedings (further explained below).

The application for annulment in case T-485/11 was brought against a Commission decision of 30 June 2011 that repealed the 2009 Decision vis-à-vis Elementis, another undertaking involved in the infringements, and required AkzoNobel to pay the total amount of the fine for which it was jointly and severally liable with Elementis (the "Amending Decision"). The GC ruled that the Commission breached AkzoNobel's rights of defence and annulled the Amending Decision in its entirety.

There are three noteworthy points in the judgments concerning rights of defence and related procedural safeguards.

First, in case T-47/10, the GC clarified that the time limits provided in Article 25 Regulation 1/2003, which bar the Commission from bringing action against a party after five years from the moment it ceases its participation in the infringement, benefit and can be invoked by each legal person individually. Therefore, contrary to the Commission's position, the time limit vis-à-vis a particular legal person starts running from the moment that that legal person ends its participation in the infringement. In the present case, there were different AkzoNobel entities involved for subsequent periods of time during the total infringement period. These infringing subsidiaries were each held liable for the period of their own participation. AkzoNobel, as the ultimate parent company of the (subsequent) infringing subsidiaries, was held liable for the entire cartel period. The GC annulled the fines on two subsidiaries that ended their participation because they transferred the heat stabiliser business to another subsidiary more than five years before the Commission first took action. However, the GC ruled that the fact that a particular subsidiary thus benefits from the expiry of the limitation period does not result in the parent company's liability being called into question. In this case, another subsidiary of the AkzoNobel group continued the participation in the infringement. Therefore, AkzoNobel remained liable for the entire infringement period.

Second, the GC ruled that the Commission breached the principle of equal treatment by granting a reduction of 1% in the amount of the fines due to the length of the administrative procedure to all other addressees of the 2009 Decision except for AkzoNobel. The Commission held that the long duration of the proceedings followed from the judicial proceedings initiated by AkzoNobel in relation to whether certain documents seized by the Commission were protected by legal professional privilege. The Court concluded that "irrespective of whether other undertakings would be deterred from exercising their rights to bring judicial proceedings" the Commission's position was incompatible with the principle of effective judicial protection. The Court of Justice thus found that the Commission violated the principle of equal treatment by granting a reduction of the fine to all undertakings except to AkzoNobel "solely on account of the Akzo judicial proceedings". Therefore, the Court of Justice reduced the amount of the fines imposed on AkzoNobel by 1%.

Third, in case T-485/11, the GC found that the Commission breached AkzoNobel's rights of defence by not affording it sufficient time to respond to the Amending Decision and defend its position. The Court noted that the Commission only afforded AkzoNobel a total of seven working days to respond after it announced its intention of amending the 2009 Decision. Such short periods are not compatible with respect for the rights of the defence. The Court annulled the Amending Decision as it considered that AkzoNobel would have been better able to defend itself without that procedural irregularity.

3. Court of Justice sanctions Commission's approach to include downstream sales in setting fines

On 9 July 2015, the Court of Justice handed down its judgment in the case InnoLux Corp v Commission in the Liquid Cristal Display ("LCD") case (C-231/14 P). The Court decided that when internal sales of cartelised goods are made outside the EEA, the Commission can take into account sales of downstream products containing the cartelised goods within the EEA, in setting the fines.

Under the Commission's 2006 Fining Guidelines, penalties are based on an undertaking's sales to which an infringement directly or indirectly relates in the relevant geographic area within the EEA. In the LCD case, which concerned a worldwide cartel infringement on the market for LCD panels, InnoLux had sold the cartelised product outside the EEA to its vertically integrated subsidiary. This subsidiary had subsequently incorporated the LCD panels in finished products and sold these products on the (non-cartelised) downstream market within the EEA. The question before the Court of Justice was whether InnoLux's downstream sales were indirectly related to the infringement, thus permitting the Commission to take into account a portion of those EEA sales in the calculation of the fine.

The Court of Justice established that InnoLux's downstream sales were not made on the product market concerned by the infringement but on the downstream market for finished products. Nevertheless, the Court followed the Commission's view that the sales to third parties on the downstream market within the EEA "up to the proportion of that value which corresponded to the value of the cartelised LCD panels that were incorporated into the finished products" could be taken into account.

The Court decided that not including those sales in the fine calculation would artificially minimize the economic significance of the infringement committed by an undertaking and grant an unjustified advantage to vertically-integrated companies like InnoLux, which incorporate cartelised goods into a finished product outside the EEA. The Court considered that vertically-integrated undertakings could benefit from horizontal price-fixing on an upstream market either by price increases on an upstream level or cost advantages on a downstream level.

The Court of Justice also dismissed InnoLux's argument that the upstream sales of the cartelised products outside of the EEA may be subject to penalties by other jurisdictions, and thus taking into account the sales of these same products downstream would lead to double punishment. The Court reiterated that none of the principles of law, including ne bis in idem, places an obligation on the Commission to take into account proceedings and penalties to which undertakings will be subjected in non-member States.

The judgment makes it clear that the Commission is allowed to interpret the concept of sales "directly or indirectly related to an infringement" broadly and may take into account sales on a downstream market that is itself not cartelised. In this way, sales outside the EEA can be pulled into the geographic scope of the Commission for the purpose of setting the fines.

4. General Court largely followed the Commission's position on access to documents

On 15 July 2015, the General Court ("GC") handed down its judgments on the appeals by Pilkington and AGC Glass. EU judges rejected the Parties' appeals against the Commission's release of more information from a 2008 decision for an infringement in the car glass market. A week earlier, on 7 July 2015, the GC largely confirmed that the Commission could refuse Axa, a claimant in follow on damages litigation, access to additional information from the Commission's car glass file.

The disputes stem from a 2008 Commission decision fining several manufacturers a total of EUR 1.3 billion for their participation in an illegal market sharing cartel in the car glass sector. According to the decision, the companies illegally discussed and coordinated prices, shared markets and allocated customers. In February 2010, the Commission published a "provisional", non-confidential version of the document. One year later, the EU regulator decided to release a more detailed version of the decision. After the Hearing Officer rejected the companies' arguments against the publication, they appealed to the GC.

The GC dismissed arguments by Pilkington that the publication of a fuller version of the decision would be in violation of the principles of legitimate expectations and equal treatment. The GC considered that the Commission is entitled "to adjust its approach as to the publication of its decisions to the needs of its competition policy". Pilkington's confidentiality claims were also rejected because the information was historical, already known to third parties, or related to the essence of the infringement. The GC only agreed with Pilkington to the extent that the Hearing Officer should not deviate from the Commission's decision to accept confidentiality, as the Hearing Officer had done regarding one of the recitals.

The GC dismissed AGC's action in its entirety for similar reasons. In addition, the GC considered that the leniency rules do not prevent the Commission from publishing, after the administrative procedure has ended, the information relating to the description of the infringement. Consequently, these rules do not give rise to legitimate expectations that the information would not be disclosed.

In the 7 July 2015 case, Axa was seeking access to additional information from the Commission's file, which it wanted to use in civil damages proceedings against the car glass producers. The GC decided that the Commission was justified in denying Axa access to a large collection of documents, consisting of the full Commission file, on the basis of general presumptions of confidentiality. However, insofar as Axa specifically requested access to the index of the case file, the Commission insufficiently substantiated its decision to only provide partial access. The GC considered that the Commission could not have based its decision on general considerations relating to the protection of leniency material, but should have balanced the interests of Axa to obtain access with the interest of the Commission to protect its leniency policy.

The cases largely confirm the Commission's approach to access to documents, which are partly laid down in its recent Guidance on the publication of antitrust decisions. However, this long battle may not be over, as the judgment can be challenged before the Court of Justice.

5. The 'principal-agent problem' revisited: undertakings may be held liable for their agent's involvement in an infringement

On 15 July 2015, the General Court ("GC") significantly reduced the fine imposed on voestalpine AG and voestalpine Wire Rod Austria GmbH ("voestalpine") from EUR 22 million to EUR 7.5 million for their involvement in an infringement on the market for pre-stressing steel (T-418/10). In essence, the judgment finds that the Commission failed to establish voestalpine's involvement in the infringement outside of Italy. The GC, however, upheld the Commission decision insofar as voestalpine was held liable for its agent's unlawful behaviour while acting within the geographical scope of its agency agreement.

In its amended decision of 4 April 2011, the Commission fined 17 pre-stressing steel producers approximately EUR 270 million for their alleged involvement in a pan-European cartel that lasted nearly two decades (between 1984 and 2002). According to the decision, the companies fixed prices and quotas, allocated clients and exchanged commercially sensitive information in breach of Article 101 TFEU.

voestalpine appealed the Commission decision by arguing, in particular, that in the absence of any direct evidence of its involvement, it should not be held liable for its Italian agent's participation in the infringement. Furthermore, voestalpine argued that it could not be held liable for the agent's behaviour as the agent also represented its competitor CB Trafilati Acciai SpA at the alleged cartel meetings.

The GC dismissed this plea by holding that even where no formal parent/subsidiary relationship exists, agents or other undertakings may still fall under the definition of a "single economic unit" for the purposes of establishing liability under Article 101 TFEU. This was held to be the case with respect to voestalpine's agent because (i) voestalpine carried most of the economic risk associated with its Italian agent's activities, and (ii) the agent was not able to operate independently from its principal. The fact that the agent also represented another participant in the alleged infringement does not lead to a different conclusion, as an agent can form one economic unit with two principals at the same time.

Interestingly, the GC annulled the Commission decision insofar as it fined voestalpine for its agent's participation in cartel meetings outside of Italy. voestalpine successfully argued that the geographic scope of its agency agreement was limited to sales within Italy, and therefore its liability could not extend beyond the scope of its agent's mandate. Consequently, the GC reduced the amount of the fine imposed on voestalpine by EUR 14.5 million.

The judgment makes it clear that companies may be held responsible for the behaviour of their agents, even in the absence of knowledge of their agent's anticompetitive behaviour.

6. Dutch courts accepted jurisdiction on the basis of Dutch anchor defendants in two antitrust damages cases

On 21 and 22 July 2015 respectively, two Dutch courts assumed jurisdiction in antitrust damages cases on the basis of Dutch “anchor defendants”. The courts rejected arguments in relation to an alleged lack of a close connection between claims, the abuse of civil procedural rules and forum clauses.

The first case, before the District Court of Amsterdam, concerned alleged infringements on the market for air cargo services. The claims were instituted by KLM, Martinair and Air France, who filed for a declaratory judgment that they were not liable to pay damages to DB Schenker. DB Schenker argued, inter alia, that the Brussels I regulation on international jurisdiction would not apply to declaratory judgments. Furthermore, DB Schenker argued that KLM, Martinair and Air France artificially created the forum by involving an Amsterdam subsidiary that had nothing to do with air cargo and that the claims against certain non-Dutch DB Schenker entities were not closely connected with the claims against the Dutch DB Schenker entities due to a difference in applicable law.

The District Court rejected DB Schenker's arguments and considered that on the basis of the Folien Fischer judgment of the Court of Justice (Case C-133/11), the Brussels I regulation also applies to declaratory judgments. The Court considered that it had international jurisdiction, as it was undisputed that at least two DB Schenker entities that were active on the market for air cargo were established in the Netherlands. The fact that these two entities were established in the district of the Rotterdam Court (and not within the district of the Amsterdam Court), is not relevant for the question of international jurisdiction. The similarity between the claims warranted that they be handled together, and the applicability of different national law systems is not relevant in this respect.

In the same decision, the Court allowed KLM, Martinair and Air France to involve German claim vehicle Barnsdale in the proceedings. The Court considered this useful because DB Schenker stated to have assigned its claims to Barnsdale, which had instituted claims against other airlines in Germany. In the German proceedings, Barnsdale had also claimed compensation for damages from other airlines on the basis of joint and several liability that would have resulted from the purchase of air cargo services from KLM, Martinair and Air France.

In the second case, the Amsterdam Court of Appeal upheld a judgment of a lower court that a parent company can serve as an anchor defendant [see our July 2014 newsletter]. The case concerned claim vehicle CDC's suits against addressees of a European Commission decision in which an infringement was established on the market for sodium chlorate. According to CDC, the courts of the Netherlands have jurisdiction over the case because the claim was filed against the Dutch anchor defendant AkzoNobel together with the other (non-Dutch) addressees. Kemira opposed this.

The Court of Appeal rejected Kemira's argument that the claims against AkzoNobel were not closely connected with the claims against the other defendants because in the decision AkzoNobel was only held liable as a parent company (and not as a direct participant in the infringement). The Court also rejected the application of forum clauses in contracts between Kemira and its customers (CDC's assignors). Pointing to the recent case of the European Court of Justice in CDC/AkzoNobel [see our June 2015 newsletter], the Court of Appeal considered that forum clauses only referring to contractual disputes do not encompass tort claims based on alleged competition law infringements. This would be different, however, if the forum clauses referred to disputes relating to competition law infringements.

The cases once again confirm that Dutch courts consider themselves competent to rule on damage claims against all defendants if there is at least one Dutch "anchor defendant" and the claims against the non-Dutch defendants are closely connected with those against the Dutch “anchor(s)”.

7. Dutch Trade and Industry Appeals Tribunal ruled that the ACM can use evidence obtained through wiretaps by other government agencies

On 9 July 2015, the Dutch Trade and Industry Appeals Tribunal ("CBb") ruled that the ACM can rely on evidence obtained through wiretaps by other governmental authorities. In its judgment, the CBb annulled two judgments of the District Court of Rotterdam ("District Court") of 13 June and 11 July 2013. The District Court had ruled that the Netherlands Authority for Consumers and Markets ("ACM") was not allowed to use evidence obtained by another governmental authority through wiretaps, unless it received adequately substantiated prior written authorisation of the Public Prosecutor that can be checked and assessed by a court [see our August 2013 newsletter]. The CBb referred the cases back to the District Court for a substantive assessment of the imposed fines.

The first CBb judgment relates to an ACM investigation into alleged customer allocation agreements among waste collectors in the port of Rotterdam. The second judgment relates to an ACM investigation into alleged tendering agreements between construction companies in the Dutch province of Limburg. In both cases, the ACM received its principal evidence from criminal investigations conducted by governmental agencies that fall under the authority of the Public Prosecution Service and have the power to use wiretaps.

The ACM itself does not have the power to use wiretaps. This judgment shows that other authorities which have this power may transfer evidence obtained through wiretaps to the ACM, provided that the evidence has been obtained legitimately by the former authority and the transfer is necessary to preserve a compelling public interest. According to the CBb, cartel prevention qualifies as such a public interest. The CBb reversed the District Court's judgment and ruled that the applicable legal provisions do not require the Public Prosecutor to substantiate why he approves the transfer of the evidence. The CBb acknowledged that a written substantiation of the approval facilitates easier ex-post judicial review but it is not mandatory. This is even the case where, as in the current two cases, the transferring authority's investigation was unrelated to competition rules.

The judgment broadens the evidence gathering tools of the ACM and other administrative enforcement agencies. Government agencies in the Netherlands are allowed to easily exchange evidence with each other. This judgment clarifies that this is also the case even if that evidence is obtained using powers that the receiving authority lacks. As soon as a competition law infringement is suspected, evidence obtained in an unrelated investigation can be transferred to the ACM.

8. Brussels Court of Appeals confirmed illegality of dawn raids without prior judicial authorization or timely ex post review

On 9 July 2015, the Brussels Court of Appeals ("Court of Appeals") rendered its second judgment concerning the legality of the dawn raids carried out by the Belgian Competition Authority. This time, the dawn raids occurred in the sector of port cargo handling (Case 2014/MR/1 – PSA Antwerp v BMA) [not yet published]. The dawn raids were declared illegal as they infringed Article 15 of the Belgian Constitution. According to the Court of Appeals, the dawn raid warrant was subject to neither prior judicial authorization nor timely ex post review. The Court, therefore, confirmed its earlier decision in TUI of 18 February 2015 [see our February 2015 newsletter].

On 15 June 2006, the Belgian Competition Authority carried out dawn raids at the premises of a number of associations of undertakings. An appeal was lodged with the Brussels Court of Appeals on March 2014, upon receipt by the parties of a statement of objections. The Court of Appeals, quoting the Belgian Constitutional Court, ruled that the procedural safeguards in place at the time of the dawn raids were insufficient to meet the requirements of Article 15 of the Constitution which concerns the right to respect for a person’s home.

The appellants had claimed that a violation of Article 15 of the Constitution should render the investigation illegal and the statement of objections null and void. The Court of Appeals instead stated that each piece of evidence gathered directly or indirectly from the illegal dawn raid must be excluded from the investigatory file and the procedural file, as well as removed from the statement of objections. The Court of Appeals also clarified that, contrary to what the Authority alleged, not only should explicit references to the illegally obtained evidence be deleted from the statement of objections, but the conclusions drawn on the basis of these documents as well.

Following this decision, it is expected that the paragraphs based on the illegally obtained evidence will be removed from the statement of objections. The Belgian Competition Authority will then have to determine whether the revised statement of objections is still actionable, based on other information obtained during the investigation such as leniency applications. If so, a new statement of objections will be sent to the parties. In any case, the Belgian Competition Authority is expected to bring this case before the Supreme Court.

Team

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