Cartel Facilitation is as Bad as Cartel Participation

A company that helps with or facilitates a cartel is at just as much risk of sanctions and penalties as are the actual cartelists. This was confirmed by the EU’s highest court (the European Court of Justice (ECJ)) on 22 October 2015 in a case involving AC Treuhand, which upheld a 2009 fining decision by the European Commission (EC).

The judgment was the first time the ECJ has ruled on the so-called "facilitation" of cartels – such as the organisation of a cartel by a consultancy firm. The ruling is important for two main reasons.

First, the ECJ confirmed that the service agreement between AC Treuhand and suppliers of heat stabilisers (the actual cartelists) constituted an illegal agreement under EU competition rules. The court held that the effectiveness of Article 101 Treaty on the Functioning of the European Union (TFEU), which prohibits anti-competitive business practices, would be endangered if facilitators, such as AC Treuhand, could escape liability.

Second, the ECJ confirmed that the EC was entitled to fix the fine as a lump sum instead of using value of sales as a basis for setting the fine (the normal methodology for cartelists). AC Treuhand, as a consultancy firm, was not active on the markets in question (for tin stabilisers and ESBO/esters), and therefore did not have any sales in those markets.

AC Treuhand was considered by the EC in its original decision to have played an essential role in the cartel infringements and was remunerated by suppliers inter alia for organising regular cartel meetings at its Zurich premises. It attended and actively participated in the meetings, collected and supplied sales data to the participants, monitored the implementation of the agreements, offered to act as a moderator in case of disagreements between them and encouraged them to find compromises.

In a separate development, the UK Competition and Markets Authority (CMA) took the opportunity afforded by this judgment, as well as its recent decision in relation to a property sales and lettings cartel (which included a facilitator), specifically to remind companies of the risk for facilitators. It recommended that: “Firms that are approached to facilitate or give effect to anti-competitive arrangements should assess whether they are complying with competition law.”

The case also underlines that any company, even a pure consultancy, should have a suitable competition compliance programme in place. In addition, although unsaid by the CMA, it’s clear that facilitators can protect themselves through whistleblowing, just like any other cartelist.

European Commission Strikes Against Tax Avoidance

On 21 October 2015, the EC used EU State aid law to find against tax rulings implemented in favour of Fiat and Starbucks by Luxembourg and the Netherlands, respectively.

The EC concluded that Luxembourg had granted selective tax advantages to Fiat's financing company, and the Netherlands to Starbucks' coffee-roasting company. In both cases, a tax ruling issued by the respective national tax authority artificially lowered the tax paid by the company, according to the EC.

The EC was at pains to point out that tax rulings as such are perfectly legal (these are comfort letters issued by tax authorities to give companies clarity on how their corporate taxes will be calculated or on the use of special tax provisions). However, the two tax rulings under investigation endorsed, in the EC’s view, artificial and complex methods to establish taxable profits for the companies. The EC indicated that they did not reflect economic reality or market conditions.

According to the EC, this was done, in particular, by setting prices for goods and services sold between companies of the Fiat and Starbucks groups (so-called "transfer prices") that did not correspond to market conditions. As a result, said the EC, most of the profits of Starbucks' coffee-roasting company were shifted abroad, where they were also not taxed, and Fiat's financing company only paid taxes on underestimated profits.

The EC took the view that that this is illegal under EU state aid rules: Tax rulings cannot use methodologies to establish transfer prices with no economic justification and which unduly shift profits to reduce the taxes paid by the company. This is considered by the EC to give that company an unfair competitive advantage over other companies (typically SMEs) that are taxed on their actual profits because they pay market prices for the goods and services they use.

The EC has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively. The amounts to recover are, according to the EC, €20 million - €30 million for both companies. Further, neither can continue to benefit from the advantageous tax treatment granted by these tax rulings.

The EC’s legal analysis is complex and these cases will without doubt be appealed. The companies and the governments will no doubt argue that in fact proper, internationally accepted methodologies had been used. Further, they might argue that the proper comparison is not with SMEs but with other similar multinational companies. Multinationals are different since they can, by definition, organise their affairs to take advantage of the various jurisdictions in which they operate.

Use of Rebates by Dominant Companies

On 6 October 2015, in the Post Danmark II case, the ECJ handed down a very important judgment concerning the use of rebates by dominant companies in the EU. This will be of interest to companies with significant market positions in the EU and to purchasers from and competitors of such companies.

The ECJ identified three types of rebates for the purposes of EU competition law:

  • Quantity rebates linked solely to the volume of purchases from the manufacturer concerned (incremental volume-based schemes). These are usually legal.
  • Loyalty rebates, which by offering customers financial advantages tend to prevent them from obtaining all or most of their requirements from competing manufacturers. These are illegal as an abuse of a dominant position.
  • Other types of rebates (“third category”) which cannot be regarded as a simple quantity rebate linked solely to the volume of purchases (e.g., because the rebates at issue are not granted in respect of each individual order, thus corresponding to the cost savings made by the supplier) and are not loyalty rebates since they are not coupled with an obligation for, or promise by, purchasers to obtain all or a given proportion of their supplies from the dominant supplier.

This is a helpful bird’s-eye summary, but as usual, the devil is in the detail. A third-category rebate in particular must, according to the ECJ, be considered in the round in order to determine whether it is legal or an illegal abuse of a dominant position. It is necessary to consider all the circumstances, particularly the criteria and rules governing the grant of the rebate, the extent of the dominant position of the undertaking concerned and the particular conditions of competition prevailing on the relevant market. The fact that the rebate scheme covers the majority of customers on the market may constitute a useful indication as to the extent of that practice and its impact on the market, which may bear out the likelihood of an anti-competitive exclusionary effect.

The ECJ looked at the “as-efficient-competitor” test previously used by the EC and EU courts. This requires an examination of whether the pricing practices of a dominant undertaking would be likely to drive an equally efficient competitor from the market. It has been applied by the EU courts to abuses including selective price cuts, predatory pricing and margin squeezes. The court, however, found in Post Danmark II that it is not necessary to show that the test is failed in order to reach a finding that a rebate scheme is abusive.

Importantly, the ECJ also considered the threshold which must be reached for a rebate scheme to become abusive. It must be “probable” that there is an anti-competitive effect, but there is no need to show that the effect is “of a serious or appreciable nature”.

Finally, the ECJ provided a reminder that a dominant undertaking may demonstrate that the exclusionary effect arising from its conduct may be counterbalanced, or outweighed, by advantages in terms of efficiency which also benefit the consumer (this would be an “objective justification”). It will continue to be difficult to use this, but it needs to be considered as part of any analysis of rebates or potential abuses of dominance generally.

EU Inquiries into E-Commerce

The EC is currently carrying out several inquiries into various e-commerce issues, from a competition law, and more general single EU market, point of view.

The EC is investigating geo-blocking and related issues in a competition sector inquiry on the application of competition law to e-commerce. In launching this inquiry, the EC indicated that there are indications that businesses establish barriers to cross-border online trade in the EU, with a view to fragmenting the EU's single market along national borders and preventing competition. Some of these barriers can be addressed by competition law, especially when they include contractual restrictions in distribution agreements that prevent retailers from selling goods or services purchased online to customers located in another EU country.

Separately, in September 2015 the EC announced two general single market consultations: one on geo-blocking and the other on platforms, online intermediaries, data, cloud computing and the collaborative economy.

The first consultation will help the EC prepare legislative proposals in the first half of 2016 to end what it considers to be unjustified geo-blocking. Information from the second consultation will form part of the EC’s examination of the issues around platforms, and will feed into a comprehensive assessment on the role of platforms and intermediaries planned for the first part of 2016. Information gathered through questions on data and cloud in digital ecosystems will feed into the EC's 2016 initiative to tackle restrictions to the free movement of data within the EU and help the EC formulate its European Cloud initiative.

Finally, concerning the collaborative economy, the consultation seeks views on the role of platforms in the collaborative economy and their impact on rights and liabilities, existing suppliers, innovation and consumer choice. The EC is exploring this as part of its Digital Single Market Strategy and also more widely in the context of its Internal Market Strategy for Goods and Services, due in autumn 2015.