Background
Previous sector inquiries
Need for food sector inquiry
Comment
The European Commission's competition department (DG COMP) has the power to investigate an industry or sector. In such inquiry, the DG COMP can request and demand information from market participants. It can even undertake dawn raids, as it did in the pharmaceutical sector inquiry. Recent action by the DG COMP raises the question of whether it is likely to initiate a food sector inquiry.
The DG COMP may undertake a sectoral inquiry if it concludes that "rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market" (per Article 17(1) of EU Regulation 1/2003). This may be more broadly expressed as a concern that market failure exists in the sector.
Since the creation of implementing powers for the DG COMP in 1965, there have been eight sector inquiries, in relation to:
- beer distribution;
- business insurance;
- energy;
- margarine;
- new media;
- pharmaceuticals;
- retail banking; and
- telecommunications.
Most of these sector inquiries resulted in either or both legislation being adopted by the European Union and competition cases being brought by the DG COMP against particular companies. For example, in relation to the most recent sectoral inquiry, which concerned the pharmaceutical sector, the DG COMP found that commercial strategies by originator companies to prolong the commercial life of their medicines under exclusive terms and delay generic medicines' entry on the market (most notably by patent litigation and agreements) affected competition between originator companies, as well as competition between originator and generic companies.
Subsequent actions by the DG COMP were three competition cases for the delay of generic entry against, respectively, Servier, Lundbeck and Cehphalon in each case in relation to a particular medicine. Additionally, a competition case was brought against Servier for providing misleading or incorrect information during the sector inquiry. Further, the DG COMP imposed a monitoring exercise on market participants engaged in patent settlements. Finally, in 2011 the European Union proposed legislation to implement enhanced cooperation in the area of the creation of unitary patent protection.
So might the DG COMP have concerns that market failures exist in the food sector?
In January 2012 the DG COMP established, for a two-year period, a taskforce to look into the food sector. This is the second such taskforce. An initial Taskforce on the Food Supply Chain was established in May 2008 and ended in October 2009, having issued four staff papers on competition and the food sector. The head of the DG COMP, Commissioner Joaquín Almunia, announced at a conference in March 2012 that while a sectoral inquiry is a possibility, he nevertheless saw no reason for it. Speaking to journalists after the conference, he stated that:
"maybe we will need one day to launch a sectoral enquiry in this sector, but so far what we need to know is what is going on and if we should act at the EU level because the [national authorities] are not able to tackle the problems."
On May 24 2012 the European Competition Network (ECN) – an organisation which is composed of representatives of the national competition authorities of each EU member state – published a report on competition law enforcement and market monitoring activities by the European competition authorities in the food sector. The ECN report identifies that during the eight years ending 2011, the ECN members have together conducted 180 antitrust investigations, 50 of which were cartel cases and 60 of which are ongoing. That represents an average of over one case each month during this period, or one cartel every three months. It is perhaps unsurprising that the ECN report identifies the food sector as a high priority. While the ECN members also conducted over 100 sector inquiries under their domestic laws and other monitoring actions, the question that commentators are asking is whether the ECN report will encourage the DG COMP to launch its own sector inquiry.
Does the ECN report suggest that the national competition authorities are able to tackle the problems? The ECN report, which is drafted by the national competition authorities and thus might be biased on the subject, states in relation to the inter-relationship of jurisdiction between the national competition authorities and the DG COMP that:
"the competition conditions on many food markets are not sufficiently homogenous across the EU from a competition law point of view to conclude in general terms that a relevant market is EU-wide. In certain markets, notably retail, the scope of the relevant markets is often even smaller than national."
The strong implication from this statement is that the national competition authorities are more than capable of handling problems that arise. Indeed, as the ECN report states:
"both the geographic scope and the specific structural features [that] many food markets often bring with them [mean] that [national competition authorities] are well placed to apply EU competition law, as this Report extensively demonstrates. The strong enforcement record by the [national competition authorities] has as a consequence that the number of cases pursued by the Commission on these markets is proportionally less than in other sectors. In total, the Commission has pursued six major cases since 2004, namely in the markets for beer, bananas and soft drinks."
There is arguably at least one further area where the DG COMP might play a useful role: in relation to thought leadership on particular substantive issues. For example, it is clear from the ECN report that most antitrust cases occurred in relation to multi-product retail (eg, supermarkets) and that a material proportion (over 50%) of such cases involved various forms of alleged abuse of dominance. An issue that the DG COMP might be best placed to consider through a sector inquiry is the validity of allegations that the largest retailers, which operate pan-European and even global supply operations, exercise buying power to the detriment of the food sector and, ultimately, consumers as a whole. Initiating an inquiry focused on purchasing power presents many challenges and may be a subject that is in itself attractive to the DG COMP.
The DG COMP taskforce will need to consider the ECN report and the extent – if any – to which there are problems that the national competition authorities are unable to address properly. That will likely mean no decision or action until at least September. In the meantime, the DG COMP will continue to play an active role in the food sector in relation to reviewing large acquisitions under the EU Merger Regulation, such as the acquisition of ED & F MAN (the world's second largest sugar trader) by Südzucker, Europe's largest sugar producer. The DG COMP cleared the acquisition on May 16 2012, after a Phase II investigation, on condition that ED & F sells its biggest and most modern refinery in Italy. As Commissioner Almunia stated in a speech where he raised the decision and the importance of the ECN report:
"Sugar markets are already fairly concentrated and are characterised by high prices and scarcity across the EU. Our decision will maintain the present level of competition in the Italian market, where our concerns were concentrated."
The DG COMP's insights into the food sector through its control of large acquisitions will undoubtedly be important, but perhaps beyond substance there are also some policy goals that the DG COMP would like to achieve in terms of how it promotes its role and thus, ultimately, how inclined it is to initiate a sector inquiry. As Commissioner Almunia stated in a speech at a conference on June 8 2012:
"The main goals of our competition enforcement are better understood when we deal with products and services that people buy and use every day, such as food; and citizens are worried about how food prices evolve."
For further information on this topic please contact Kiran Desai at Mayer Brown International LLP by telephone (+32 2 502 5517), fax (+32 2 502 5421) or email (kdesai@mayerbrown.com).
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
