On 21 March 2016, the Commission published the latest version (Issue 1/2016) of its Competition Merger Brief ("Merger Brief"). The Merger Briefs are written by the staff of the Directorate-General ("DG") Competition and provide a background to policy discussions and analysis of important recent merger cases. Consequently, in the first 2016 issue, the staff of DG Competition analyzes four important recent merger cases and ex post analyses two mobile telecom mergers from 2006 and 2007.
The first article analyses the conditional approval of the acquisition of Alstom by General Electric, which raised concerns in relation to the supply of Heavy Duty Gas Turbines, which are expected to play an important role in the coming decades in the European energy mix. The second article concerns the unconditional approval of the acquisition of Dresser-Rand by Siemens, where the transaction reduced the number of suppliers from three to two for rotating equipment in the oil and gas industry. According to the Commission's investigation, the parties rarely competed against each other, as their activities were largely complementary. The third article analyses the acquisition of Hospira Inc. by Pfizer Inc., which was the first case ever to assess biosimilar drugs in detail. The Commission found the original patented biological pharmaceuticals and their clinically equivalent biosimilars to be part of the same market, and that the merger might have led the merged entity to abandon one of the parties' biosimilar products. The remedy addressed this concern by preserving future innovation by providing for the full divestment of Pfizer's infliximab biosimilar drug, which is currently under development. The fourth article analyses the acquisition of Freescale by NXP, both global semiconductor manufacturers, which was approved subject to the divestment of NXP’s radio frequency power business. The Commission co-operated closely with the US Federal Trade Commission and other competition authorities to ensure a consistent outcome, including in terms of remedies. In addition, it is stated in the Merger Brief that discussing early clear-cut structural remedies helps to obtain quick Phase I clearances. Finally, the Merger Brief contains an article on an ex post analysis of two mobile telecom mergers, T-Mobile/tele.ring in Austria and T-Mobile/Orange in the Netherlands. The results of the Commission's ex post study suggest that the T-Mobile/Orange merger in the Netherlands in 2007 was associated with price increases, whereas the remedied T-Mobile/tele.ring merger in Austria in 2006 did not result in increased prices. Source: Commission Competition Merger Brief, Issue 1/2016
On 21 March 2016, details were published in the Official Journal of the European Union ("OJ") of an appeal brought by 1&1 Telecom GmbH ("1&1 Telecom") before the General Court ("GC") against the Commission's decision implementing a so-called non-MNO remedy as a condition to the acquisition of E-Plus Mobilfunk GmbH & Co.KG ("E-Plus") by Telefónica Deutschland Holding AG ("Telefónica"). In July 2014, the Commission conditionally approved the acquisition of E-Plus by Telefónica after an in-depth review and the companies' remedies offer. It found that the transaction, as initially notified, would have reduced competition in the German mobile telecommunications market, thereby removing two competitors who are important competitive forces.
In order to address the Commission's concerns, Telefónica agreed to sell up to 30% of the merged entity's network capacity to one or more mobile virtual network operators ("MVNOs") in Germany for fixed amounts. It also committed to divest radio wave spectrum and certain assets either to a new mobile network operator ("MNO") or subsequently to the MVNOs who have taken up the network capacity under the first part of the commitments. Finally, under a so-called non-MNO remedy ("Non-MNO Remedy") Telefónica offered to extend its existing wholesale agreements with all MVNOs and service providers procuring 2G, 3G or 4G products from Telefónica and E-Plus, and to offer wholesale 4G services to all interested parties in the future. The Non-MNO Remedy required Telefónica to send a self-commitment letter to all existing MVNOs and service providers which have an agreement with Telefónica or E-Plus for 2G, 3G or 4G network access, waiving its ordinary termination rights set out in such agreements until a specific date. On 19 November 2015, the Commission declared Telefónica's self-commitment letter to be in line with the final commitments and EU law.
1&1 Telecom, which has already appealed against the Commission's clearance decision, has now brought an action before the GC seeking to annul the Commission's November 2015 decision approving Telefónica's self-commitment letter. The company claims that the GC should order the Commission to ask Telefónica to issue a new self-commitment letter that is strictly limited to the obligations required from it in the Commission's clearance decision. To support its action, 1&1 Telecom claims that the Commission committed manifest errors of law because the EU Treaties, the EU Merger Regulation and the Commission's clearance decision did not leave any room for certain clauses included in the self-commitment letter. Furthermore, 1&1 Telecom asserts that the Commission misused its powers by taking into account considerations unrelated to competition, in breach of the EU Treaties, the EU Merger Regulation and the Commission's clearance decision. Sources: Case T-43/16 1&1 Telecom v Commission, OJ 2016, C 106/44 and Case M.7018 – Telefónica Deutschland/E-Plus
On 18 March 2016, the Commission published an issues paper presenting the initial findings from its e-commerce sector inquiry on the prevalence of so-called geo-blocking across the EU ("Issues Paper"). Geo-blocking refers to commercial practices that prevent customers from accessing and purchasing consumer goods and digital content services online based on their location in a Member State different from that of the supplier. Geo-blocking is usually based on unilateral business decisions not to sell cross-border or contractual obligations that do not allow a supplier to sell cross-border to customers outside of an allocated territory. The information on geo-blocking was gathered as part of the Commission's ongoing antitrust sector inquiry into the e-commerce sector, launched in May 2015.
The Commission's e-commerce sector inquiry initially suggested that geo-blocking is widespread across the EU. According to the Issues Paper, 38% of retailers selling consumer goods replied that they geo-block customers in other Member States. For these products, geo-blocking results mostly from unilateral business decisions, such as a refusal to deliver abroad or to accept foreign payment methods. Some retailers also re-route customers to the company's or other supplier's website targeted at another Member State or use website access blocks. Furthermore, 12% of retailers reported contractual restrictions to sell cross-border in at least one product category they offer. Regarding online digital content, the e-commerce sector inquiry initially revealed that there are significant differences between different digital content categories and Member States as regards the prevalence of geo-blocking. The majority, namely 68% of the responding content providers, indicated that they geo-block users located in other Member States based on the users' internet protocol address. Furthermore, as many as 59% of the responding content providers indicated that their suppliers contractually require them to geo-block. According to the Issues Paper, these agreements may restrict competition, but their compatibility with Article 101 of the Treaty on the Functioning of the European Union ("TFEU") should be assessed on a case-by-case basis.
The initial findings of the e-commerce sector inquiry do not prejudge the finding of antitrust concerns or the opening of antitrust cases. The Commission will present a more detailed analysis of all findings from the e-commerce sector inquiry in a full preliminary report that will be published for public consultation in mid-2016. The final report is scheduled to be published during the first quarter of 2017. Sources: Commission Press Release 18/03/2016, Commission Factsheet 18/03/2016 and Commission Issues Paper presenting initial findings of the e-commerce sector inquiry conducted by the Directorate General for Competition
On 17 March 2016, Advocate General ("AG") Wathelet gave an opinion on questions referred to the Court of Justice of the European Union ("CJEU") by the Paris Court of Appeal on whether a license agreement requiring the licensee to pay royalties on the basis of a revoked patent infringes Article 101 of the Treaty on the Functioning of the European Union ("TFEU"). The request for a preliminary ruling stemmed from an appeal by Genentech Inc. ("Genentech") against the award of the International Court of Arbitration of the International Chamber of Commerce ("ICC") that ordered Genentech to pay royalties retroactively for the use of a human cytomegalovirus enhancer patented by Hoechst AG ("Hoechst") and its parent company Sanofi-Aventis Deutschland GmbH in its products. In 1992, Genentech and Hoechst signed a license agreement that related to a number of patents, one of which was subsequently revoked in 1999.
In the arbitration proceedings, Genentech claimed that the obligation to pay royalties for the revoked patent breached EU competition law because it put the company at a competitive disadvantage on the basis that its competitors could utilize the patented technology for free. Subsequently, Genentech brought an action before the Paris Court of Appeal seeking to annul the ICC's award on these grounds. The Paris Court of Appeal stayed the proceedings and requested the CJEU to clarify in a preliminary ruling whether Article 101 TFEU precludes a license agreement that requires the licensee to pay royalties for the use of the rights attached to the licensed patent, even if the patent has been revoked and has not been infringed.
In his opinion, AG Wathelet first noted that the purpose of Article 101 TFEU is not to regulate commercial relationships between companies, but to prevent agreements that have the object or effect of restricting competition and affecting trade between Member States. AG Wathelet continued by noting that, according to the established case law, a license agreement may infringe Article 101 TFEU where the licensee cannot terminate the agreement by giving reasonable notice or where the agreement restricts the licensee's freedom of action after termination. However, AG Wathelet found that Genentech was not subject to such restrictions in the case at hand. First, Genentech's obligation to pay royalties existed only while the license agreement was valid and the company was free to terminate the agreement on very short notice. Secondly, Genentech's freedom of action was not restricted after such termination and the company was not prevented from challenging the validity or the infringement of the patent at issue. Therefore, the company would be in exactly the same position as its competitors as soon as it terminated the license agreement. AG Wathelet also took into account that the commercial purpose of the license agreement was to enable Genetech to use the technology at issue while averting patent litigation. Therefore, the obligation to pay royalties was a consideration for this greater certainty and not a supplementary obligation having no connection to the license agreement. Accordingly, AG Wathelet concluded that Article 101 TFEU does not preclude a license agreement that obligates the licensee to pay royalties for the sole use of the rights attached to the licensed patent even if the patent is revoked or has not been infringed, provided that the commercial purpose of the agreement is to enable the licensee to use the technology at issue while averting patent litigation and the licensee may terminate the agreement by giving reasonable notice. Source: Opinion of Advocate General in case C-567/14 Genentech Inc. v Hoechst GmbH, formerly Hoechst AG, Sanofi-Aventis Deutschland GmbH, 17 March 2016
On 16 March 2016, the Commission confirmed that its officials, accompanied by their counterparts from the relevant national competition authorities, carried out unannounced inspections on 15 March 2016 at the premises of several companies active in the kraft paper and industrial paper sacks sector. The inspections took place in several Member States.
The Commission has concerns that the inspected companies may have violated Article 101 of the Treaty of the Functioning of the European Union ("TFEU") that prohibits anticompetitive practices between undertakings, such as price fixing and customer allocation. Unannounced inspections are a preliminary step in cartel investigations. However, the fact that the Commission carries out inspections does not mean that the companies are guilty of anti-competitive behavior, nor does it prejudge the outcome of the investigation. Source: Commission Press Release 16/03/2016
On 23 March 2016, the Commission announced that it has subject to conditions approved the proposed acquisition of Shell's subsidiary Dansk Fuels, by Alimentation Couche-Tard ("ACT") of Canada, which operates in Denmark under the Statoil brand via its subsidiary Statoil Fuel and Retail ("SFR"). ACT is a leader in the convenience store sector and has a global network of convenience stores and service stations, whereas SFR undertakes three categories of activities in Denmark: retail sale of motor fuels, commercial or wholesale of motor fuels and convenience retail sale of daily consumer goods and lubricants. Dansk Fuels comprises Shell's retail and non-retail sale of motor fuels and aviation fuels business in Denmark.
The Commission's investigation focused on the Danish retail petrol station market and the wholesale markets of various refined oil products, since both Danske Fuels and SFR are active on these markets. The Commission's competition concerns related mainly to the fact that the transaction would combine the fuel businesses of number 1 and 2 on the Danish wholesale markets and number 1 and 3 on the Danish petrol station market, and that the remaining players would be unable to exercise a sufficient competitive constraint on the merged entity for the purposes of avoiding price increases. The Commission was also concerned that the merged entity would have the ability and the incentive to foreclose competing resellers or retailers from the markets for various refined oil products, due to its high market share on the upstream markets and its ability to achieve higher margins on the downstream markets.
In order to address the Commission's competition concerns, SFR offered a comprehensive remedies package including, inter alia, a divestment of a nationwide network of 205 Shell and SFR fuel stations. The Commission found that the commitments address its competition concerns, as the divestiture will create a national player, which is capable of replacing the lost competitive constraint resulting from the transaction both at the national level and at the local level. Consequently, the Commission approved the transaction, as modified by the commitments. Source: Commission Press Release 23/03/2016
On 17 March 2016, the Swedish Competition Authority ("SCA") filed two requests before the Administrative Court in Karlstad ("AC") to impose fines of SEK 190,000 in total on Hällefors municipality ("Hällefors") for violations of the laws on public procurement.
In 2015, Hällefors purchased carpentry and paintwork services for the renovation of a property for a contract value of almost SEK 2.5 million. The property is situated in a nature reserve owned by Hällefors and the renovations took place in connection with the production of the TV show "Sommar med Ernst." The SCA claims that Hällefors purchased the services without subjecting them to a competitive tendering procedure as required under the public procurement laws. The value of the contracts exceeded the thresholds for when a tendering procedure is required and no exemption applied that would permit a direct award.
The review of illegal direct awards of public contracts are prioritized by the SCA in the context of the enforcement of the public procurement rules. According to Dan Sjöblom, Director General of the SCA, if a procurement is left unadvertised, there is no guarantee that a contracting authority will secure the best possible deal, since other potential suppliers are unable to submit a bid. Moreover, contracting authorities must adhere to the rules not only when they carry out their own planned purchases but also when suppliers contact the authorities to sell their own products or services, as in this case a TV production, Dan Sjöblom points out. Sources: Swedish Competition Authority Press Release 17/03/2016 (in Swedish), Competition Authority Decision 17/03/2016 (carpentry) (in Swedish) and Swedish Competition Authority Decision (paintwork) (in Swedish)
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 Jarden by Newell Rubbermaid
- Commission approves acquisition of Engineering Ingegneria Informatica by Apax Partners and Neuberger Berman
- Commission approves acquisition of Pioneer US by Warburg Pincus, General Atlantic and Unicredit
- Commission approves acquisition of Guadarranque by Indorama
- Commission approves acquisition of KraussMaffei by ChemChina