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Competition Law Newsletter

Competition Law Newsletter

Competition Law Newsletter

01.07.2015 EU law

1. Information seized during dawn raids must relate to subject-matter of the inspection decision
2. The Court of Justice confirmed that merely responding to a simple request for information does not merit a reduction of the fine
3. General Court reduced Pacific Fruit's fine for "single, repeated infringement"
4. District Court ordered Alstom to pay more than EUR 14 million in damages for selling overcharged gas-insulated switchgear
5. EU Commission's Skyteam decision confirms room for Efficiency Defense
6. ACM found that Dutch Railways NS put rival undertaking at a disadvantage in regional tender proces
7. Belgian and German settlement decisions highlight "hub-and-spoke" and retail price maintenance practices

1. Information seized during dawn raids must relate to subject-matter of the inspection decision

 

On 18 June 2015, the Court of Justice rendered its judgment on appeal in Deutsche Bahn. The Court of Justice partly set aside the judgment of the General Court ("GC"). Contrary to the GC, the Court of Justice determined that the Commission unlawfully seized documents unrelated to the subject-matter of the inspection.

In 2011, the Commission adopted three decisions, each ordering an inspection of the premises of Deutsche Bahn ("DB") and several of its subsidiaries. During the first inspection, the Commission discovered documents possibly indicating anti-competitive behaviour by DB subsidiary DUSS that was not covered by the subject-matter of the inspection decision.

Although unrelated to the subject-matter of the inspection, the Commission seized these documents. It argued that this was not prohibited, since the documents were discovered fortuitously. The Commission thereby referred to the exception allowed by the Court of Justice in Dow Benelux v Commission (C-85/87). Subsequently, the Commission adopted the second and third inspection decision, predominantly based on the out of scope documents seized in the course of the first inspection.

DB brought actions against the Commission before the GC for the annulment of the three inspection decisions. It contended, among others, that its right to the inviolability of private premises was infringed. The GC rejected the argument and concluded that all safeguards protecting this right were met [see our October 2013 newsletter article].

DB further argued that its defence rights were violated as the Commission deliberately sought information concerning DUSS as opposed to discovering it fortuitously. This was substantiated by the fact that the Commission apprised its officials of suspicions regarding DUSS before the first inspection. The GC rejected this argument and stated that it regarded this information as general background information provided for valid reasons.

On appeal, the Court of Justice followed the latter argument made by DB and annulled the second and third inspection decision. It stated that the first inspection was vitiated by irregularity since the Commission officials, being previously in possession of information unrelated to the subject-matter of that inspection, proceeded to seize documents falling outside the scope of the inspection. No further action or consequences are expected to follow from the Court of Justice judgment as the Commission did not further pursue the allegation of infringements that were the subject matter of the inspection decisions annulled by the Court of Justice.

Recent judgments in Belgium and Spain showed that the annulment of inspection decisions may have far-reaching consequences. In the latter instance, ferry operator Transmediterránea saw its EUR 48.2 million fine imposed by the Spanish competition commission overturned due to a lack of evidence after exclusion of unlawfully seized documents.

2. The Court of Justice confirmed that merely responding to a simple request for information does not merit a reduction of the fine

On 24 June 2015, the Court of Justice handed down its appeal judgment in Del Monte (Joined Cases C-293/13 P C-294/13 P Fresh Del Monte Produce v Commission and Commission v Fresh del Monte Produce). Del Monte had been found jointly and severally liable with its joint venture, Weichert, for its participation in the bananas cartel. The Court of Justice dismissed all of the appeal grounds of Del Monte. However, it accepted the Commission's arguments and reversed the General Court's ("GC") finding that the information provided by Del Monte, in response to a request for information, merited a reduction of the fine.

The GC reduced Del Monte's fine given that it found that Weichert had cooperated in the provision of information during the administrative procedure. The Commission had issued under Article 18(2) Regulation 1/2003, a simple request for information to Weichert, which detailed the information to be provided and the timeline. Weichert responded to the request although a simple request under Article 18(2), as opposed to the request for information by decision under Article 18(3), does not place a legal obligation to provide information. 

On appeal, the Commission argued that a reduction of the fine may be granted when the undertaking has cooperated beyond its legal obligations. The Commission thus argued that information provided in response to a request under Article 18(2) does not demonstrate "true voluntary cooperation", worthy of a fine reduction.

The Court of Justice followed the reasoning of the Advocate General's Opinion, that a reduction of a fine under the 2002 Leniency Notice is justified only when an undertaking provides information to the Commission "without being asked to do so." Based on settled case law, the information provided "must not only facilitate the Commission's task of establishing the existence of the infringement but also reveal a genuine spirit of cooperation."

The Court of Justice held that because Weichert merely replied to a simple request for information, it did not provide the information without having been requested to do so. Therefore, the Court of Justice found that the GC erred in law and reversed the GC reduction of the fine in relation to both Del Monte and Weichert.

This judgment shows that undertakings interested in cooperating with the Commission in the administrative procedure by providing information voluntarily in order to get a reduction of the fine, would be best advised to do so before an Article 18(2) or (3) request is issued. 
 
3. General Court reduced Pacific Fruit's fine for "single, repeated infringement"

On 16 June 2015, the General Court ("GC") reduced a fine on Pacific Fruit in a case concerning alleged collusion with Chiquita on banana prices in Southern Europe. The reduction was granted because the company's participation in the cartel had been interrupted. Also noteworthy is that the GC confirmed the admissibility of evidence obtained from a national tax authority.

The GC annulled the finding of the Commission that Pacific Fruit and Chiquita discussed banana prices on a continuous basis between 28 July 2004 and 8 April 2005. The GC considered that in order to prove the continuous nature of an infringement, the Commission must adduce factual evidence sufficiently proximate in time for it to be reasonably accepted that the infringement continued uninterruptedly between two specific dates. The period that can be considered "sufficiently proximate" depends on the market context. The GC noted that pricing cycles can be particularly relevant. In this case, a period of five months without evidence for the continuation of the infringement was not considered sufficiently proximate, considering that price negotiations in the banana business occur on a weekly basis. Although Chiquita confirmed the continuous nature in its leniency statement, this was not considered sufficient since, if disputed, such statement needed to be supported by other evidence, which was lacking. 

The GC qualified the infringement as "single and repeated" – as opposed to the "single and continuous infringement" – given that it consisted of the same undertakings, persons and geographical scope and the infringement had the same objective before and after the interruption. On this basis, the Commission may impose a fine in respect of the whole of the infringement but it may not do so for the period during which the infringement was interrupted. The more limited duration of the infringement led to a reduction of the fine from EUR 8.92 million to EUR 6.69 million.   

With regard to the use by the Commission of documents provided by the Italian tax authority, the GC confirmed that the lawfulness of such transfer is governed by national law. As the evidence in this case was not declared unlawful by a national court, it was admissible. The GC rejected Pacific Fruit's argument that it was unable to rely on the Italian procedural safeguards as they were not informed of the transfer of those documents.
 
4. District Court ordered Alstom to pay more than EUR 14 million in damages for selling overcharged gas-insulated switchgear

On 10 June 2015, the District Court Gelderland rendered a judgment in a dispute between TenneT and Alstom. In 2007, the European Commission found Alstom had infringed Article 101(1) TFEU by colluding with several other producers of gas-insulated switchgear ("GIS"). TenneT claimed that as a result of this infringement it paid an overcharge of EUR 14.1 million for a GIS-installation it bought from Alstom. The District Court agreed with TenneT and awarded the entire amount of damages claimed. The judgment is noteworthy for a number of reasons. First of all, it is the first time a Dutch court awarded damages in a "follow-on case". Moreover, the judgment shows that Dutch courts take varying approaches to the concept of "passing-on" under Dutch law.

In general, the concept of passing-on refers to the situation where a direct purchaser was able to raise the downstream prices to its customers and thus "pass-on" some or the entire alleged overcharge to the next party in the distribution chain. As a result, the direct purchaser suffers no or reduced damage, while the indirect purchaser suffers the entire damage, or a part thereof. The Court of Appeals Arnhem-Leeuwarden ruled in a related case (now under appeal) between TenneT and ABB that in such circumstances, the amount of damages awarded to the direct purchaser should be reduced with the damage passed on to the indirect purchaser.

Referring to the Court of Appeal's judgment in TenneT/ABB, the District Court Gelderland decided that Alstom could invoke the passing-on defence. However, the District Court also considered that under Dutch law, the ability to pass-on overcharges should be regarded as a "collateral benefit" arising from the same event as the damage. The Dutch Civil Code provides that collateral benefits can only be deduced from the amount of damages awarded "to the extent that is reasonable".

In this case, the District Court ruled that it would be "unreasonable and even unjust" to take the collateral benefit obtained by TenneT as a direct purchaser into account. Therefore, the Court awarded the full amount of damages claimed, without deducting the subsequent price increase TenneT charged to its own customers. The District Court considered that the availability of the passing-on defence is intrinsically linked to the right of the indirect customers to claim damage that was passed-on to them. In the current case, the District Court considered it unlikely that TenneT's customers would come forward to claim damages from Alstom. The District Court furthermore considered it likely that the damages awarded to TenneT would also benefit its customers (i.e. Alstom's indirect customers), because TenneT would either lower its prices or pay more to its sole shareholder: the Dutch government.
     
5. EU Commission's Skyteam decision confirms room for Efficiency Defense

On 29 June 2015, the Commission published a summary of its decision to clear a joint venture between Air France/KLM, Alitalia and Delta Airlines to service passenger routes between Europe and North America, subject to commitments. The decision confirms that restrictions falling under the cartel prohibition of 101(1) TFEU may be justified if parties can substantiate efficiencies, even when it concerns agreements that are considered object restrictions.

The case dates back to June 2006, when a statement of objections was sent to all members of the Skyteam. The Commission closed this investigation in 2012 for discretionary reasons but immediately opened another investigation specifically targeted at the cooperation between Skyteam members Air France/KLM, Alitalia and Delta Airlines with regard to transatlantic routes. The Commission also investigated the airline alliances One World and Star Alliance, which led to commitment decisions in 2010 and 2013. 

In its preliminary assessment of 26 September 2014, the Commission concluded that the cooperation between Air France/KLM, Alitalia and Delta Airlines had an anti-competitive object by providing for extensive cooperation in relation to price, capacity, scheduling and quality of service, which would eliminate competition between the parties on routes from Amsterdam, Paris and Rome to New York for premium and/or non-premium passengers.

The Commission accepted commitments by the parties which were aimed at encouraging other airlines to compete on the relevant routes, most importantly by making available landing and take-off slots on the Amsterdam, Rome and New York airports. The commitments are similar to the ones offered in the context of the One World and Star Alliance investigations.

The case concerns one of the rare assessments by the Commission under Article 101(3) TFEU. In the assessment of the requirements of this article, the focus of the Commission appears to be first on the parties being able to substantiate that the efficiencies of their cooperation outweigh the restrictive effect, and second, the remaining competition from other parties. It is generally challenging to prove that efficiencies outweigh the effects of restrictions and this will usually require economic evidence. The airline alliance decisions show, however, that this can be done in specific market contexts.

6. ACM found that Dutch Railways NS put rival undertaking at a disadvantage in regional tender process

On 3 June 2015, the Netherlands Authority for Consumers and Markets ("ACM") published a decision finding that Dutch Railways NS ("NS") had infringed the Dutch Railway Act by deliberately putting its competitor Veolia at a competitive disadvantage in a tender procedure for the public-transport contract in the southern Dutch province of Limburg. The decision was instigated by a complaint filed by Veolia, a rival of NS's subsidiary Abellio in the tender procedure.

The Dutch Railway Act provides that NS, in its capacity as holder of the national concession for the main railway network (including ownership of the railway stations), has to provide railway undertakings with a reasonable offer for railway services and facilities which are essential for the use of the national railway such as the use of passenger stations. These services and facilities must be provided in a non-discriminatory manner and requests by railway undertakings may only be rejected if viable alternatives under market conditions exist.

In June 2014, the province of Limburg started a tender for the public transport for the period 2016 – 2031. Bids were submitted by NS-subsidiary Abellio, Veolia and another third party. In order to prepare a competitive bid for the tender, Veolia requested various offers from NS for the use of services and facilities it required. In its decision, the ACM concluded that NS failed to provide a reasonable offer in a non-discriminatory manner as regards a number of the services requested by Veolia, such as the use of the ticket machines, service desks and employee break rooms at the various railway stations. According to the ACM, NS failed to provide timely and complete offers to Veolia. Other parts of NS' offer were non-committal to such an extent that Veolia was unable to include them in its bid. 

In addition, the ACM found that NS unfairly treated and disadvantaged Veolia by passing on commercially sensitive information to its subsidiary Abellio. According to the ACM, this enabled Abellio to gain a strategic competitive advantage in the tender procedure.

The decision of the ACM shows that in the applicable regulatory framework intra-group sharing of information on tender participants can infringe competition rules, in this case the Dutch Railway Act. In such cases, strict Chinese walls should be maintained to prevent intra-group information streams that could harm competition.

In its decision, the ACM did not assess the potential abuse of dominance by NS. However, the ACM announced that it conducted dawn raids at NS and its subsidiary companies QBuzz/Abellio as part of an investigation into the potential abuse of dominance by NS.
 
7. Belgian and German settlement decisions highlight "hub-and-spoke" and retail price maintenance practices

The Belgian and German competition authorities handed down settlement decisions for hub-and-spoke and retail price maintenance practices. These settlements signify the end of long-running cases in Belgium and Germany on market behavior and communications between suppliers and retailers. Discussions between retailers and suppliers on issues such as wholesale price, recommended retail prices and effects on margins are inherent in the relationship. However, these settlement decisions highlight that there are competition law limits to such discussions.

Belgium

On 22 June 2015, the Prosecution service of the Belgian Competition Authority adopted its first settlement decision. In that decision, fines amounting to EUR 174 million were imposed upon 11 suppliers and 7 retailers for their participation in a "hub-and-spoke" cartel in the drugstore, perfumery and hygiene sector between 2002 and 2007 on the Belgian territory.

Following from a leniency application lodged by Colgate-Palmolive in 2006, inspections were conducted in April 2007. Subsequently, two other suppliers submitted leniency applications. The investigation revealed that the suppliers had acted as intermediaries and facilitators of coordination of behavior at the retail level. Either on their own motion or at the request of a retailer, suppliers transmitted information to retailers in order to try to arrange a coordinated increase of the retail prices. The decision mentions that these practices had varying degrees of success, with some retail chains not applying them at all or for short periods only. The limited success of the cartel was a mitigating circumstance in the fine calculation although the question of whether there were any effects on competition was left open since the case was brought as an object infringement.

The Prosecution service considered the conduct to be a horizontal infringement and granted full or partial immunity from fines to three suppliers.

Germany

On 18 June 2015, the German Competition Authority ("BkA") announced in a press release that it concluded its "vertical case" proceedings against manufacturers and retailers in the food sector for illegal retail price maintenance. The fines imposed to date, approximately EUR 152 million, have been the product of settlement agreements between the BkA and the parties concerned. Like in the Belgian case discussed above, the BkA granted total and partial immunity from fines in cases presenting vertical aspects.

The BkA found that the contracting parties would threaten, exert pressure or offer monetary incentives to retailers in order to impose and maintain retail prices. In addition, the BkA found that manufacturers would moderate the coordination of retail prices. Noteworthy, according to the press release, is the role that retailers played in urging manufacturers to persuade other retailers to observe the retail price level. The President of the BkA clarified that only those practices "which constitute a clear restraint of competition and an explicit violation of competition law" were punished. That statement appears to suggest that the BkA left alone discussions between suppliers and retailers concerning recommended or desired retail prices absent clear horizontal elements. There are three case summaries that provide insight into some of the behavior that rose to the level of infringement in these sectors.

Regarding the coffee sector, the investigation led the BkA to uncover a price maintenance agreement between retailers and Melitta Europe GmbH. The infringement involved Melitta setting the retail price recommendation for a calendar week. Melitta then required explicit commitments from retailers to raise the sales prices to the level of the Melitta recommended price. There were one-time payments and financial remuneration offered as incentive. At the same time, the threat of no remuneration or compensation for advertisement was also an incentive for compliance. The parties also exchanged information on expected and actual price increases of other retailers.

Regarding the food production, distribution and retail industry, the BkA uncovered vertical agreements to fix prices for the Ritter chocolate tablets and Haribo candy. For Ritter GmbH chocolate tablets, retailers agreed with the manufacturer to maintain fixed retail prices. To ensure compliance, the manufacturer offered financial compensation, discounts on purchase prices, rebates and a delay on an increase in the purchase price. 

Moreover, regarding fruit gums and liquorish, Haribo GmbH systematically monitored the retail prices to influence and ensure compliance with minimum selling prices. The infringement involved Haribo exerting pressure on Aldi to raise the retail price. Upon receiving confirmation from Aldi of the price raise Haribo informed other retailers which subsequently raised their prices. Haribo also actively monitored adherence to the recommended retail price level. Haribo used verbal arguments to discourage retailers from offering lower prices, citing the collective good of the participating entities and the brand as paramount. These arguments were largely successful. However, when they failed, Haribo threatened not to supply and sometimes actually refrained from supplying its products to retailers. There were also financial incentives to dissuade retailers from offering lower prices.

Both the Belgian and German Competition Authorities focused on situations in which there are clear horizontal elements at the retail level. The settlement decisions in both jurisdictions thus highlight the "no-go" areas in the communications between suppliers and retailers.

 

Team

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