Competition: General Court dismisses appeals by Mitsubishi and Toshiba against re-imposition of fines for gas insulated switchgear cartel

On 19 January 2016, the General Court ("GC") dismissed appeals by Mitsubishi Electric Corp. ("Mitsubishi") and Toshiba Corp. ("Toshiba") (together "the Applicants") against the Commission decision to re-impose fines for their participation in the gas insulated switchgear ("GIS") cartel, following annulment of its original decision. In January 2007, the Commission imposed fines totaling EUR 750.71 million on 20 European and Japanese companies for their participation in a cartel on the market for GIS. Mitsubishi and Toshiba were fined EUR 113.92 million and EUR 86.25 million respectively, and EUR 4.65 million jointly and severally. In 2011, the GC annulled the fines imposed on Mitsubishi and Toshiba because the Commission had breached the principle of equal treatment in calculating the fines. Nevertheless, the findings of the infringement were upheld. In 2012, the Commission reviewed the fines imposed on Mitsubishi and Toshiba, reducing them to EUR 74.82 million and EUR 56.79 million, respectively, and EUR 4.65 million jointly and severally. In November 2012, the Applicants challenged the Commission's 2012 decision before the GC.

In its ruling, the GC found that the Commission did not breach the Applicants' rights of defense, nor did it fail to state reasons or breach the principles of equal treatment or proportionality in its recalculation of the fines. The GC stated that because the Applicants had not recorded any relevant turnover in 2003, the Commission was correct to rely on the sales made by their joint venture company in that year to calculate the starting point of the fines. According to the GC, the Commission had also not erred in allocating this starting point between the parent companies by reference to their sales in the relevant market in the last year prior to establishing the joint venture, to reflect their respective capacity to contribute to the infringement. The GC also held that the Applicants had contributed to the overall functioning of the cartel, despite not being actively involved in one aspect of the cartel, namely allocation of market shares in the European Economic Area ("EEA"). The Applicants had committed not to enter the EEA market and their participation in the cartel therefore consisted of a failure to act. This failure to act was a prerequisite to the allocation of market shares in the EEA by the European producers and was a necessary contribution to the overall cartel. The GC ruled that the role of the Applicants in the infringement was comparable to that of the European companies and, therefore, the Commission did not infringe the principle of equal treatment in setting the fines. Accordingly, the GC dismissed the Applicants' appeals in their entirety. Source: Case T-409/12 – Mitsubishi Electric Corp. v Commission and Case T-404/12 – Toshiba Corp. v Commission, 19 January 2016

Competition: LG Electronics challenges General Court judgment on cathode ray tubes cartel

On 18 January 2016, details were published of an appeal by LG Electronics, Inc. ("LG") against a General Court ("GC") judgment that dismissed LG's action to challenge the Commission's cathode ray tubes cartel decision. In December 2012, the Commission imposed fines totaling EUR 1.47 billion on eight companies for their participation in one or both of two separate worldwide cartels. The cartels operated between 1996 and 2006 on the market for color display tubes for computer monitors ("CDTs") and the market for color picture tubes for television sets ("CRTs"). Initially, LG took part in both infringements directly, as well as through its subsidiaries. Later LG participated through a joint venture LG Philips Display ("LPD") formed together with Philips. LG sought to challenge the Commission's decision, but in September 2015 the GC dismissed LG's appeal in its entirety.

LG has now appealed to the Court of Justice of the European Union ("CJEU") to set aside the GC's judgment. To support its action LG claims, inter alia, that the GC violated LG's rights of defense by upholding the Commission's decision to keep LPD outside the administrative proceedings as a defendant. LG also asserts the Commission did not address the statement of objections to LPD. Furthermore, according to LG, the GC also violated Article 101 of the Treaty on the Functioning of the European Union ("TFEU"), Article 23(2) of Regulation 1/2003, and, alternatively, also the principle of personal liability, in including direct EEA sales through so-called transformed products in the calculation of LG's fine. Transformed products are CRTs and CDTs that are incorporated within the same group into finished products, such as televisions and computer monitors, and are subsequently sold to customers in the EEA. Finally, LG submits that the GC violated the principle of equal treatment by applying a different methodology to take into account direct EEA sales through transformed products in the calculation of LG's fines than it did in the calculation of Samsung SDI's fines. Source: Case C-588/15 P – LG Electronics, Inc v European Commission, OJ 2016, C16/23

Competition: Silver Plastic challenges Commission decision on retail food packaging cartels

On 18 January 2016, details were published of an action by Silver Plastics GmbH & Co. KG ("Silver Plastics") and Johannes Reifenhäuser Holding GmbH & Co. KG ("Johannes Reifenhäuser") (together "the Applicants") challenging the Commission decision on the retail food packaging cartels. In June 2015, the Commission announced that it had fined eight manufacturers and two distributors of retail food packaging trays a total of EUR 115.8 million for their participation in at least one of five separate cartels. According to the Commission, the companies fixed prices and allocated customers of polystyrene foam or polypropylene rigid trays, in breach of Article 101 of the Treaty on the Functioning of the European Union ("TFEU"). Silver Plastics was fined EUR 21.2 million divided between the cartel in North West Europe ("NEW") (EUR 20.3 million) and the cartel in France (EUR 0.9 million).

On 11 September 2015, the Applicants applied to the General Court (“GC”) seeking primarily to annul the Commission decision. In the alternative, the Applicants seek reduction of the fine imposed jointly and severally on them. The Applicants rely on several pleas in law: First, the Commission incorrectly characterized the practices employed by Silver Plastics in North-West Europe as hardcore price agreements in the form of a single continuous infringement concerning the production and sales of polypropylene and polystyrene trays for the food industry. In addition, the Applicants allege that the Commission erred in not reducing their fine, despite the fact that the conditions for such a reduction were satisfied. Further, according to the Applicants, the Commission incorrectly assumed that the Applicants formed a single economic entity. Source: Case T-582/15 – Silver Plastics and Johannes Reifenhäuser v Commission, OJ C 16/40, 18 January 2016 and Commission Press Release 24/06/2015

Competition: Commission publishes report on economic impact of competition enforcement on functioning of EU energy markets

On 15 January 2016, the Commission published a report on how enforcing competition policies affects the functioning of EU energy markets ("the Report"). The Report examines whether EU competition policy enforcement has led to stronger competition in European gas and electricity markets and hence to lower prices, higher investment and improved productivity.

Firstly, the Report reviews policy and academic papers on competition issues in energy markets and the impact of competition policy enforcement and regulation on the functioning of these markets. One of the main findings is that there is hardly any empirical literature on the effects of competition policy enforcement in energy markets. In addition, the Report includes a descriptive analysis of the functioning of the European gas and electricity markets. According to the main observations, the overall European gas and electricity markets remain highly concentrated, although there are significant differences at a national level. Particularly high levels of market concentration can be observed in small countries such as Bulgaria, Cyprus, Estonia and Malta. Further, the Report presents the results of a broad econometric analysis. This analysis was carried out to empirically examine the impact of EU-, as well as national, competition policy enforcement on the intensity of competition in energy markets. This was measured by the elasticity of relative profits with respect to relative costs ("Boone indicator") and productivity dispersion.

In addition, the Report examines the impact of EU and national competition policy enforcement on medium- and long-term outcomes, such as investment and productivity. The analysis shows that EU merger control lowers both Boone indicators and productivity dispersion, thereby indicating that national energy sectors became more competitive after these interventions. Moreover, EU merger control is significantly related to better market outcomes, i.e., higher investment and higher total factor productivity. Finally, the Report includes two case studies that analyze the impact of specific decisions on relevant product and geographic markets using econometric approaches. The first case study analyzes the impact of the Commission’s 2008 investigation of E.ON for its alleged abuse of dominant position in the German wholesale electricity market. The second case study examines the price effects of the Gaz de France (GDF)-Suez merger, approved by the Commission in November 2006.

The overall conclusions from the Report indicate that the structure of the European gas and electricity markets has fundamentally changed during the last two decades. Nevertheless, the Report indicates that gas and electricity markets across Europe continue to exhibit certain characteristics that are potentially harmful to competition. Source: Commission Report "The economic impact of enforcement of competition policies on the functioning of EU energy markets"

Merger control: Commission conditionally approves Ball's acquisition of Rexam

On 15 January 2016, the Commission approved the acquisition of a can supplier, Rexam PLC ("Rexam"),by the rival Ball Corporation ("Ball"), subject to conditions. Rexam and Ball are the first and second largest suppliers of beverage cans for soft drinks, beer and energy drink manufacturers in the European Economic Area ("EEA") and also the two market leaders worldwide. Beverage cans are manufactured out of two separate metal parts, a can body and a lid (or can end) and are used to hold liquids such as carbonated soft drinks, alcoholic beverages, fruit juice and energy drinks. The companies also supply aluminum bottles.

The Commission focused its investigation in the beverage can markets. It had concerns that the transaction, as initially notified, would have eliminated an important competitor and reduced the choice of suitable suppliers in already concentrated markets, thereby leading to price increases. In particular, the transaction would have significantly reduced competition for customers with filling locations in Benelux, Central Europe, France, the Iberian Peninsula, Italy, North-East Europe, the Nordic countries, South-East Europe, and the UK and Ireland. According to the Commission, the remaining players in Europe, such as Can-Pack and Crown, would not have been able to exert a sufficient competitive constraint on the merged entity following the transaction. The Commission's investigation also revealed that the beverage can industry is characterized by high barriers to entry, which means that manufacturers need to have a certain scale and geographic spread in order to compete effectively for the largest volumes and provide the wide variety of can sizes and shapes required by customers in the EEA.

In order to address the Commission's concerns, Ball offered to divest ten can body plants and two can end plants located in the EEA, which have a total manufacturing capacity of over 18 billion cans in the EEA. The divestiture business consists of most of Ball’s metal beverage packaging activities in Europe, and two of Rexam's can body plants. In addition, the divestiture business also includes Ball's business and their technical center, which provides support functions. The Commission concluded that the commitments were sufficient to ensure that an important alternative supplier will remain in the market. Furthermore, according to the Commission, the divestiture business will be able to compete effectively and immediately after its acquisition by a suitable purchaser in order to replicate the competitive pressure exercised by Ball and Rexam on each other. Therefore, the Commission concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. The Commission cooperated closely with the US Federal Trade Commission and CADE in Brazil, which were also examining the transaction in their jurisdictions. Source: Commission Press Release 15/01/2016

Merger control: Commission opens in-depth investigation into Halliburton's acquisition of oilfield service provider Baker Hughes

On 12 January 2016, the Commission announced that it will initiate an in-depth investigation into whether the proposed acquisition of oilfield service supplier Baker Hughes Inc. ("Baker Hughes") by rival Halliburton Co ("Halliburton") would harm competition. Halliburton and Baker Hughes supply a broad range of tools and services for drilling and evaluation, as well as completion and production of oil and gas wells. Both of these business areas include a wide range of specific product and service lines.

The Commission's preliminary investigation indicated serious potential competition concerns in more than 30 product and service lines, both offshore and onshore. In particular, the investigation revealed that Halliburton and Baker Hughes seem to be close competitors, both in terms of tenders and innovation. Oilfield service markets are characterized by high technological and financial barriers to entry, which has led to a market with only four globally active competitors with extensive portfolios. Barriers to entry are particularly high for so-called integrated services that run across many product and service lines and represent a significant competitive advantage for cost-saving reasons. In order to be able to compete in tenders for integrated services, a new supplier needs to enter or expand into a large number of product and service lines. The Commission's investigation indicated that the proposed transaction would reduce the number of integrated service providers from three to two and could thereby lead to less choice and potentially higher prices for consumers. Furthermore, the Commission has concerns that the proposed transaction could also reduce incentives to innovate because Halliburton and Baker Hughes currently compete fiercely with each other in product development.

The Commission now has 90 working days, until 26 May 2016, to investigate the proposed transaction and determine whether its concerns are confirmed. In its assessment, the Commission will focus on the potential reduction of choice on the market, the development of customer prices, and the impact to offshore competition, in particular. The Commission will also look into the incentives to innovate. The Commission will cooperate closely with several national competition authorities, including the US Department of Justice. Source: Commission Press Release 12/01/2016

Public procurement: Court of Justice of the European Union rules on tender specification requiring tenderers to enter into cooperation or partnership agreements with undertakings whose services are required for completion of the contract

On 14 January 2016, the Court of Justice of the European Union ("CJEU") handed down its preliminary ruling on a reference from the Latvian Supreme Court on the question of whether Articles 47 and 48 of Directive 2004/18 preclude tender specifications that require tenderers to enter into legal agreements with entities they rely on to perform their contracts. The request for a preliminary ruling stemmed from the proceedings between Ostas celtnieks SIA ("Ostas celtnieks"), Talsu novada pašvaldība ("the municipality of Talsi") and Iepirkumu uzraudzības birojs ("the Office for the Supervision of Public Contracts").

In November 2011, the municipality of Talsi launched a procedure for the award of a public works contract for the improvement of the road infrastructure in the city of Talsi. It stipulated in the tender specifications that, in the event that the contract was awarded to a tenderer that relied on the capacities of other contractors for its performance of the contract, the tenderer had to enter into cooperation agreements or partnership agreements with those contractors before the contract could be awarded. A tenderer, Ostas celtnieks, challenged this specification before the Office for the Supervision of Public Contracts. The Office for the Supervision of Public Contracts rejected the complaint, after which the case went to the local administrative tribunal and finally to the Latvian Supreme Court. In May 2014, the Latvian Supreme Court stayed the proceedings and asked the CJEU to rule on whether Articles 47 and 48 of Directive 2004/18 preclude tender specifications that require tenderers to enter into legal agreements with entities they rely on to perform a contract.

In its ruling, the CJEU firstly stated that Articles 47(2) and 48(3) of Directive 2004/18 recognize the right of every economic operator to rely upon the capacities of other entities, regardless of the nature of the links it has with them, provided that it proves to the contracting authority that it will have the necessary resources to perform the contract. According to the CJEU, such an interpretation is consistent with the aim of the widest possible opening-up of public contracts to competition. Further, the CJEU stated that the tenderer is free to choose the legal nature of the links it intends to establish with the other entities that it may rely on to perform a particular contract and the evidence it provides of those links. Accordingly, the CJEU concluded that Articles 47(2) and 48(3) of Directive 2004/18 must be interpreted as meaning that they preclude a contracting authority, in the tender specifications relating to the award of a public contract, from imposing the obligation, before the contract is awarded, that a tenderer must conclude a cooperation agreement to form a partnership with the entities it intends to rely on.Source:Case C-234/14 – Ostas celtnieks SIA v Talsu novada pašvaldība, Iepirkumu uzraudzības birojs, 14 January 2016

In addition, kindly note the following merger control decisions by the Commission which are published on the website of the Commission’s Directorate-General for Competition:

  • Commission approves acquisition of Navitaire by Amadeus
  • Commission approves acquisition of Axa Portugal by ageas SA/NV of Belgium
  • Commission approves acquisition of Euro Garages by TDR Capital
  • Commission approves acquisition of JVC by Freudenberg and Toray