Competition Law Newsletter
Welcome to the Q1 2021 edition of our Competition Law Newsletter. A quarterly update covering key developments in UK and EU competition law.
UK Competition Law Developments
CMA starts 2021 off with a merger bang
The Competition and Markets Authority ("CMA") started 2021 in the same aggressive enforcement vein as it operated in throughout 2020. In January 2021 the CMA issued a prohibition decision ordering two of the UK's largest motor part suppliers to unwind their completed tie-up. In the same month, the CMA's rejection of a remedy package and referral to a Phase 2 investigation for a chemical deal affirmed the CMA's practice of flexibly applying the share of supply test for jurisdictional purposes with the deal ultimately abandoned. In February it was only the CMA's acceptance of an extensive remedy package that paved the way for clearance for the tieup of two main providers of secondary ticketing platforms in the UK.
Of critical importance for acquisitive parties are the compelling lessons that these cases offer on: the significance of internal documents in a merger review and the weight the CMA will place on these; the intense scrutiny the CMA may impose on transactions involving companies largely active at different levels of the supply chain and on merchant versus internal markets; as well as the high thresholds the CMA will demand parties meet to resolve competition concerns and only by way of `clear-cut' remedies.
TVS Europe Distribution Limited / 3G Truck & Trailer Parts Limited (January 2021)
On 1 April 2020 the CMA launched its merger inquiry into the completed acquisition by TVS Europe Distribution Limited ("TVS") of 3G Truck and Trailer Parts Ltd ("3G") (the transaction having completed in February 2020). As is usual practice for the CMA in completed transactions it investigates, on 10 February 2020 the CMA issued an initial enforcement order ("IEO") on the parties compelling them not to integrate their businesses until the CMA had
completed its investigation. Interestingly and an increasingly common approach also in completed mergers - the CMA imposed the IEO ahead of formally launching its Phase 1 merger inquiry.
The CMA's investigation focused on the relationship between Universal Components UK Ltd ("Universal") which is owned by TVS - and 3G. Universal sold a range of commercial vehicle and trailer ("CVT") parts, which included original equipment supplier parts and private label parts; and 3G also specialised in the procurement and supply of CVT parts in the independent aftermarket for services and repair centres. The CMA considered that both companies were two of the UK's leading suppliers of CVT parts to garages and repairers.
On 12 June 2020 the CMA referred the case for a Phase 2 investigation and on 12 January 2021 the CMA blocked the deal concluding that the only effective way to address the loss of competition from the merger was to require TVS to sell 3G to an approved buyer.
In reaching its decision the CMA determined that Universal and 3G were two of the leading suppliers of CVT parts to businesses across the UK and that the merger would likely result in a significant loss of competition, leading to distributors, garages and repairers facing less product choice, poorer service (e.g. longer delivery times) and higher prices. Specifically, the CMA found:
a narrow market definition and assessed the competitive effects of the transaction on the market for the, `wide range wholesale supply of CVT parts to motor factors in the independent aftermarket in the UK' where it found that the merger would combine two of the three largest suppliers in the UK and give the merged company a significantly larger market share than any of its competitors;
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that the companies' internal documents revealed that the businesses monitored each other closely when deciding their strategies and setting their respective prices;
considerable evidence that Universal's decision to buy 3G was in part motivated by the desire to remove one of its main competitors from the market with Universal's internal documents revealing the objective was to `acquire our closest competitor';
compelling evidence from the internal documents that the transaction would result in limiting price competition ultimately to the detriment of customers with Universal noting the merger would, `remove' 3G as a `price constraint' thereby allowing Universal to `increase its margins through higher prices and lower rebates'; and
that it was appropriate to place not insignificant reliance on extensive feedback it received from customers and competitors alike having received over 80 responses to third party questionnaires and conducted calls with 21 third parties during its investigation.
For its part, the merging parties had argued for a partial divestiture, including existing stock or warehouses. However, the CMA concluded that a full divestiture was required and was the only way to sufficiently address the competition concerns. Additionally, TVS had also urged the CMA to accept behavioural commitments but the CMA considered that TVS had failed to provide a full description of how such a remedy would work.
production of titanium feedstocks,1 specifically chloride slag, used in the production of TiO2 pigment.2
On 4 January 2021 the CMA determined that the proposed transaction would result, or, could be expected to result in a substantial lessening of competition ("SLC") in the UK, giving rise to both horizontal and vertical effects. On this basis, the CMA would refer the transaction to a Phase 2 investigation. Specifically, the CMA concluded that the proposed transaction gave rise to an SLC as a result of:
(a) Horizontal unilateral effects in the supply of chloride slag globally (excluding China) including supply in the UK; and
(b) Vertical effects between that market and the downstream supply of TiO2 pigment for mass applications in Europe (including supply in the UK).
Tronox Holdings plc / TiZir Titanium & Iron A.S. (January 2021)
The CMA launched its merger inquiry into Tronox Holdings plc's ("Tronox") proposed USD $300 million acquisition of TiZir Titanium & Iron A.S. ("TTI") on 4 November 2020. The CMA subsequently imposed an IEO on the parties in December 2020.
Both Tronox and TTI are involved in the supply of materials used in the production of titanium dioxide, a white powder found in every-day items such as paint, sunscreen, paper and plastics. However, whereas Tronox is one of the main producers of titanium dioxide ("TiO2") pigment, TTI is one of the two main global suppliers of chloride slag which is used to make TiO2 pigment. Ultimately, the CMA determined that the parties overlapped in the
The CMA determined the following with respect to its assessment of both horizontal and vertical competitive effects arising from the deal.
(i) Horizontal unilateral effects in the supply of chloride sag
Absent the transaction the parties would not compete in the supply of chloride slag on the merchant market because Tronox's strategy from 2021 was to cease to be active in the merchant supply of chloride feedstocks globally. In addition, Tronox's strategy post-deal was to use all of TTI's production of chloride slag
1 Titanium feedstocks are titanium rich minerals extracted from mineral sands and are used as inputs in the production of TiO2. 2 TiO2 pigment can be produced by either a chloride or a sulphatebased production process. Chloride slag is one of the main titanium
feedstocks used in the chloride-based production process, alongside natural rutile, synthetic rutile, leucoxene, upgraded slag (UGS) and chloride ilmenite (chloride feedstocks).
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internally for Tronox's production of TiO2 pigment;3
Nonetheless, by eliminating the constraint that TTI exerted on other suppliers of chloride slag and the removal of TTI's supply from the merchant market, this would result in a significant degree of concentration in the merchant supply of chloride slag globally (excluding China) including in the UK, leaving Rio Tinto with a near monopoly position (and TTI having been the only other significant supplier); and
The removal of TTI from the merchant market could enable Rio Tinto profitably to restrict volumes of chloride slag it supplied to the market and/or raise prices.
(ii) Vertical effects arising through foreclosure of Tronox's rivals in the downstream supply of TiO2 pigment for mass applications
Tronox may have both the ability and incentive to foreclose rival TiO2 pigment producers in the downstream supply of TiO2 pigment for mass applications in Europe (including supply in the UK);
In relation to ability and further to the CMA's assessment of horizontal effects, the removal of TTI from the merchant market may enable Rio Tinto to restrict chloride slag supply and/or raise prices. The CMA found that chloride slag is an important input in the production of TiO2 pigment, and that customers have limited ability to switch away from chloride slag to other chloride feedstocks;
In relation to incentive, Tronox had a clear publicly stated business strategy to remove TTI's capacity from the upstream merchant market for chloride slag; and
A substantial proportion of the TiO2 pigment market for mass applications in Europe (including supply in the UK) may be affected by any input foreclosure and foreclosure could lead to an increase in the price of TiO2 pigment here.
Tronox subsequently offered a series of behavioural undertakings to the CMA in a bid to address its competition concerns. Broadly, the undertakings involved Tronox committing to offer to sell a minimum annual volume of chloride sag to independent third party customers for a specified period via supply contracts with these customers and
relevant shortfalls would be dealt with by auction sales.
On 18 January 2021 following an assessment of the undertakings offered by Tronox, the CMA considered that the undertakings were not a `clear-cut solution' to its competition concerns. Nor would they effectively remedy the CMA's concerns and the CMA also had material doubts over the implementation of the remedy (including that the proposed undertaking would create ongoing monitoring and enforcement risks for its duration). On this basis, it would proceed with its referral to a Phase 2 investigation.
In response and on the same day that the CMA rejected Tronox's proposed remedies, Tronox announced that it would abandon the proposed transaction. Tronox's Chief Executive said in a statement that his company had abandoned the tieup with TTI because its purchase agreement would expire before the CMA could finish its Phase 2 review within its 24-week statutory time limit. Yet another blow to Tronox is the $18 million break-up fee it will be required pay to TTI's seller, Eramet, for terminating the agreement.
For businesses looking to make strategic acquisitions or disposals across supply chains and looking at vertical integration where they are not direct competitors to those targets (or, parties do not consider themselves to be), the case highlights a few key issues to keep in mind:
(a) The CMA will continue to apply the share of supply ("SOS") test for jurisdictional purposes flexibly where it seeks to investigate a transaction and where necessary, will not hesitate to aggregate intra-group and third party sales for these purposes. By way of illustration, the parties submitted that the CMA did not have jurisdiction to review the deal as the parties' activities did not overlap in the UK so the SOS test was not met. Specifically, Tronox did not sell chloride feedstock (or other feedstock) in the UK to third parties and Tronox's internal supply of chloride feedstock in the UK should not be aggregated with TTI's merchant supply for the purposes of the SOS test. However, the CMA disagreed and determined the merger was not purely vertical as the parties were both engaged in the supply of chloride feedstock in the UK and that the group of goods to which the jurisdictional test is applied can include aggregated intra-group and third-party sales even if these may be treated differently in the substantive assessment;
3 The CMA therefore considered whether the deal may give rise to horizontal unilateral effects in the supply of chloride slag globally
(excluding China) including in the UK by eliminating the constraint that TTI exerted on other suppliers of chloride slag.
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(b) In rejecting Tronox's proposed remedies, the CMA reaffirmed its requirement for remedies to be `clear-cut' and straightforward and that the remedy will need to be able to be effectively implemented. The case is a reminder that complex remedies (i.e. behavioural remedies) are more likely to be acceptable at a Phase 2 investigation where the CMA has had an opportunity to gain a deeper understanding of the relevant market; and
(c) While it is true that the CMA has intervened in vertical mergers before with some being blocked and abandoned, this case is a first of its kind. Specifically, this is the first merger involving vertical effects that the CMA referred to a Phase 2 probe that would have involved the `insourcing' of input materials for an acquirer's exclusive internal use and consumption, resulting in only one remaining input supplier for all third parties that competed with the acquirer.
PUG LLC (Viagogo) / StubHub (February 2021) PUG LLC's4 ("Viagogo") USD $4 billion acquisition of rival ticketing business, StubHub5 has been rescued by the CMA's acceptance of a partial yet extensive and complex divestment remedy. On 14 April 2020 the CMA launched its merger inquiry into the completed acquisition of StubHub by Viagogo with the latter having acquired StubHub from eBay Inc in February 2020. Viagogo and StubHub are two of the main providers of secondary ticketing platforms across the UK (these platforms enable customers to resell and buy tickets for live events and permit tickets to be resold). StubHub's ticketing business also operates in a number of other territories including, North America and several countries in Europe, and South America and Asia.
Unsurprisingly, given the CMA's practice to impose IEOs as a matter of course on completed transactions, the CMA imposed such an order on the parties on 7 February 2020. Again, the CMA imposed the IEO ahead of formally launching its Phase 1 inquiry a route the CMA increasingly seems to be going down for completed deals.
On 25 June 2020 the CMA referred the transaction for a Phase 2 investigation and following its investigation concluded that the transaction would lead to a SLC in the secondary ticketing market in the UK. In particular, the CMA determined that:
the transaction could lead to customers who use secondary ticketing platforms facing higher fees or poorer service in the future;
Viagogo and StubHub were respectively the number one and two players in the UK's secondary ticketing market and would together hold a 90% share of the UK secondary ticketing market post-transaction. The merging parties' rivals Twickets and TicketSwap would have a combined share of less than 5%; and
Viagogo and StubHub `compete closely' for ticket resellers and buyers and have `no significant competitors'. Further, other distribution channels, including classified ad sites like Gumtree, social media and the primary ticketing market could not act as a suitable competitive constraint on the merging parties.
Absent the merger, the CMA considered that Viagogo and StubHub would continue to compete with others to a substantial degree, and this was notwithstanding COVID19 would significantly impact the live events industry. The parties would still remain important competitors once the industry recovered.
In October 2020 the CMA warned it may have to block the deal over concerns that a partial divestiture would fail to fully address its competition concerns. However, three weeks later, Viagogo offered to divest all of StubHub's ticketing business outside North America.
On 2 February 2021 the CMA announced that it had accepted Viagogo's proposed partial divestiture remedy. Evidence showed that the sale of StubHub's international business (i.e. sale in the UK, EU, South America and Asia) would effectively resolve the CMA's concerns and on this basis the CMA indicated it would issue a clearance decision. Importantly, the extensive and complex nature of the remedy is
4 A subsidiary of Pugnacious Endeavors, Inc. 5 Comprising, StubHub, Inc., StubHub (UK) Limited, StubHub
Europe S..r.l., StubHub India Private Limited, StubHub
International Limited, StubHub Taiwan Co., Ltd., StubHub GmbH, and Todoentradas, S.L.
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worth considering. Specifically, in determining the `key conditions' of Viagogo's sale of StubHub (which would include CMA purchaser approval) the CMA approved the remedy on the following terms:
(a) The remedy involved a package of international divestments (i.e. StubHub's businesses outside of North America as above) and which would, once divested, be owned and run by a separate company with `no input from Viagogo';
(b) The CMA would also permit the incoming purchaser to gain access to StubHub's brand. Specifically, the CMA would permit the purchaser to use StubHub's brand for the next 10 years, whereas Viagogo had originally proposed that neither it nor StubhHub's purchaser be permitted to use StubHub's UK brand for one year and following this the purchaser could then use the brand for three years; and
(c) The CMA rejected Viagogo's offer for the purchaser to share tech platforms with StubHub's North American business, instead giving the buyer full autonomy over StubHub's international platforms.
On 22 March 2021 the CMA gave notice of its proposal to accept Viagogo's final undertakings to sell off StubHub's international business and has now ordered Viagogo to draw up a shortlist of potential purchasers for its approval.
Notwithstanding this broad remedy package a spokesperson for Viagogo commented that it is `pleased to have found a remedy that is acceptable to the CMA that will allow everyone involved to move forward with clarity and certainty'.
On 24 March 2021, the CMA indicated that it intended to block the tie-up between equity crowdfunding platforms Crowdcube and Seedrs, after its fast-tracked in-depth review found that the merger would hold over 90% of the UK market. The CMA has opened a public consultation on its provisional findings until 7 April 2021. It must publish its final report and issue a decision whether or not to block the deal by 23 June 2021. If blocked, this would be the CMA's second prohibition of 2021.
UK sees the launch of another antitrust collective action On 18 January 2021, it was announced that a claim worth 600 million had been filed against BT Group plc ("BT") at the Competition Appeal Tribunal ("CAT") in relation to excessive prices charged by BT vis--vis its customers for landline telephone services. The claim has been brought by Justin Le Patourel, a telecoms consultant and former Office of Communications ("Ofcom") employee, on behalf of an estimated 2.3 million UK consumers.6
The claim stems from an Ofcom investigation into the market for standalone landline telephone services ("Investigation") in October 2017. In the Investigation, Ofcom concluded that the market for fixed-line telecommunications in the UK had changed greatly between December 2009 and June 2017 ("relevant period"), where a rise in the use of socalled "bundled" service packages7 had seen an increase in quality, choice and associated benefits for consumers like price competition. However, the Investigation also found that those consumers who had remained on "voice only" packages8 had not benefitted from this increase in quality or, saliently, the associated price competition. On the contrary, landline telephone rental prices were found to have increased between 23% and 47% during the relevant period at the same time that the wholesale cost of providing these services fell by about 27% in real terms.9 This upwards trend in rental prices in this context was driven by the fact that "voice only" customers tended to be older customers (40% were found to be at least 75 years old) who did not shop around and switch providers readily.10 Indeed, a review of the market found that 77% of "voice only"
6 See the Summary of the Application filed with the CAT, available at: Justin Le Patourel v BT Group PLC - Summary of Application | 26 Jan 2021 (catribunal.org.uk) 7 A "bundled" service contract refers to a telephone and broadband contract sold to a consumer as a package deal. 8 "Voice only" customers purchase only a telephone service contract and nothing else.
9 Ofcom. Review of the market for standalone landline telephone services Statement. 26 October 2017. Para 1.4. Available at: Statement: Review of the market for standalone landline telephone services (ofcom.org.uk) 10 Ibid. para 1.11.
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customers had never switched providers or even considered doing so.
Ultimately, the Investigation found that BT directly benefitted from this lethargic market competitiveness for "voice only" customers given that BT had significant market power in the landline telecommunications market generally and a dominant position in respect of these customers specifically.11 As a result, BT submitted a voluntary proposal to Ofcom to (inter alia) effect a line rental price reduction of 7 per month and raise the price of calls by no more than the consumer price inflation ("CPI") rate each year for its "voice -only" customers. This proposal was accepted by Ofcom.
Though these price cuts were implemented, Mr Patourel alleges that BT's actions in relation to its "voice only" customers amounted to an abuse of dominance during the relevant period. Moreover, he argues that the higher costs these customers suffered during these years were not compensated or addressed at all by the price reductions BT implemented after the Investigation as they had no retrospective remediation (rather, they simply meant that the overcharge did not continue after this point). Collective Action on Land Lines ("CALL"), a campaign group founded by Mr Patourel and who are joined to the claim, are seeking an award of 500 to be paid out to each class member of the collective action.
Mr Patourel's claim has been filed on an opt-out12 basis as a collective proceedings order ("CPO"), a form of collective action akin to a class action in the US. Before the CPO can proceed, the CAT must incipiently determine that the claim is eligible to be heard at trial. In brief, the three criteria that must be met are:
1. Is the claim being brought on behalf of an identifiable class of persons?
2. Does the claim raise common issues? and
3. Is the claim suitable to be brought in collective proceedings?13
Since the right to collective redress was first introduced through the Consumer Rights Act 2015, collective actions have faced a high bar in achieving certification from the CAT. Indeed, until recently it seemed as though claims of this nature would only exceptionally pass this first hurdle. However, a watershed ruling from the Supreme Court in
December 2020 has potentially made the burden of certification more achievable. This ruling related to a CPO brought against Mastercard in relation to its multilateral interchange fee ("MIF") brought by Walter Merricks which, on its first hearing before the CAT, was refused certification to proceed to trial. The Supreme Court which effectively ruled that the CAT had conducted a "mini trial" and pre-determined the merits of the case rather than judge whether the claim was eligible to be heard at trial has now compelled the CAT to reconsider the action. Should the Mastercard CPO ultimately achieve certification, it may yet open the door for many more actions, such as Mr Patourel's claim, to similarly proceed to trial.
That said, even if the claim against BT is certified it will face tougher scrutiny and a higher challenge at the trial itself. This is because, importantly, the Investigation did not amount to an infringement decision and the claim filed by Mr Patourel is therefore not a "follow-on" claim. The effect of this is that Mr Patourel will need to first prove that BT acted in an anti-competitive manner before the issue of damages can even be arrived at. Whereas an infringement decision from, say, the CMA would be taken at trial as prima facie evidence of misconduct, the claimants will need to establish this themselves. Whilst the Investigation will be a very useful tool to achieve this, it does not guarantee it.
Nonetheless, this latest antitrust collective action highlights the increasing penalties that companies may face for engaging in any anti-competitive conduct. It is not just the risk of a (potentially substantial) fine from a competition regulator and the associated bad press, but there is clearly a growing appetite for collective redress for those affected by anti-competitive conduct. Follow-on claims have always been a risk for infringing companies, but the stakes have potentially been raised further by the increased wherewithal for class representatives (like Messrs Patourel and Merricks) to spearhead actions on behalf of vast consumer groups. Should these actions prove successful, the potential bill companies face for anti-competitive conduct may be exponentially increased.
11 Ibid. paras 1.6 and 1.12. 12 An "opt-out" collective action means that all members of a particular class of claimants are automatically involved in the claim unless they notify the class representative that they do not want to be included.
13 Rule 79(1) of the Competition Appeal Tribunal Rules 2015. Available at: The Competition Appeal Tribunal Rules 2015 (legislation.gov.uk). Note that Rule 79(a)-(f) provides a list of factors that the CAT should consider when determining whether the claim is "suitable" for collective proceedings.
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UK opens up fledgling state subsidy regime to public consultation
The Department for Business, Energy & Industrial Strategy ("BEIS") has published a consultation document ("Consultation") setting out the UK Government's current vision for a new state subsidy control regime as well as inviting comments and responses from interested parties in relation to a specific set of questions arising from the proposals.14 The Consultation was opened on 3 February 2021 and will close on 31 March 2021. Following the end of the Brexit transition period on 31 December 2020, the EU State aid rules ceased to apply in the UK. Obtaining the ability to design a comprehensive new subsidy control regime was a key pillar of the UK's trade deal negotiation objectives with the EU and, indeed, became one of the main sticking points between the two sides. Ultimately, the Trade and Cooperation Agreement ("TCA")15 agreed on Christmas Eve last year enshrined the rights for the UK to implement such a regime in one of the major perceived "wins" for the UK Government. As the Consultation makes clear, a bespoke subsidy control regime is seen as a key cornerstone of some of the UK Government's most pressing (and, perhaps, most ambitious) domestic policy agenda issues, such as "levelling up" (i.e. addressing regional imbalances in wealth distribution and business activities) and achieving net zero carbon emissions. In the immediate future, it is also
seen as a crucial factor in combating the COVID-19 pandemic.
That said, the TCA creates limitations around any state subsidy regime the UK chooses to implement, namely through a set of principles that require that any subsidies granted in the UK to (inter alia): (i) pursue a public policy objective to remedy an identified market failure or to address an equity rationale (e.g. social difficulties/distributional concerns); (ii) be proportionate, limited and necessary; and (iii) constitute an appropriate policy instrument. The purpose of the Consultation is, therefore, on the one hand to set out the UK Government's present views on how this new regime can be set up to achieve its specific goals and yet operate within the confines of the TCA and, on the other, to open these views up to public debate and input.
The scope of the proposed subsidy control regime
Whilst the definition of "subsidy" in the Consultation closely follows the EU's concept of State aid16 and the possibilities of any state subsidy regime will be fettered to a degree by the TCA, the UK Government is at pains to stress that the new regime will "reflect[s] [the UK's] strategic interests and particular national circumstances...[addressing] specific needs of the UK economy".17 The Consultation envisages two main ways the new state subsidy regime can achieve this and reflect the needs of the UK's internal market:
1. Using subsidies to "deliver better market outcomes" and specifically target areas where businesses typically "underinvest", such as research and development ("R&D"); and
2. Allowing public bodies greater flexibility in the award of subsidies, particularly devolved administrations and regional authorities.
Eager though the UK Government clearly is to use this (perceived) greater freedom for much more targeted forms of state subsidies, it also acknowledges that certain subsidies may have deleterious effects and stifle economic growth and innovation by, for instance, allowing subsidy
14 Department for Business, Energy & Industrial Strategy. Subsidy control Designing a new approach for the UK. 2 February 2021. Available at: Subsidy control: designing a new approach for the UK (publishing.service.gov.uk) 15 Trade and Ccooperation Agreement Between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part. Available at: EUUK_Trade_and_Cooperation_Agreement_24.12.2020.pdf (publishing.service.gov.uk) 16 According to the Consultation, a support measure will be classified as a "subsidy" where: (i) it constitutes a financial contribution provided by a "public authority" (including, but not
limited to, central, devolved, regional and local governments in the UK); (ii) it confers a benefit on persons supplying goods or services in the course of a business, which would not be otherwise available under commercial terms; (iii) it must be specific (i.e. it must benefit a specific enterprise(s) in a particular sector); and (iv) it has (or could have) a distortive effect on trade or investment within the UK or internationally. Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part. Para 49. Available at: EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf (publishing.service.gov.uk) 17 Ibid. Para 1.
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recipients to undercut rivals, creating artificial barriers to entry and propping up failing businesses. In order to prevent these sorts of subsidies from being granted, the Consultation proposes that public authorities must meet the terms of 7 key principles, which largely replicate and expand upon the principles set out in the TCA ("Principles").18 The Consultation states that public authorities will be under a legal obligation to follow the Principles in the award of any subsidy, though exactly how this will need to be demonstrated is as yet unclear the Consultation notes that further guidance will be issued by the UK Government on this in due course.
In addition, the Consultation seeks representations as to whether a further review process should be followed by public authorities. Legislation could be passed to require a more in-depth review as to the effects on competition from the grant of "high risk" subsidies based on the value of the proposed award, the sector in which it is being given and the market share of the recipient ("Competition Impact Reviews").19 Whether the UK Government introduces this additional requirement will depend on the outcome of the Consultation.
In order to allow for public authorities to issue lowrisk and time-critical subsidies, the Consultation proposes a number of exempted categories of subsidy which can be passed without needing to consider the Principles. For instance, there is a proposal for a de minimis subsidy in line with the TCA for awards of 325,000 Special Drawing Rights ("SDR").20 Moreover, subsidies to relieve noneconomic occurrences21, subsidies for providers of services of public economic interest ("SPEI")22 and
subsidies to address national or global economic emergencies are also envisaged to be exempt.
Oversight and enforcement
One of the main omissions of the Consultation is a failure to identify the independent body responsible for the oversight of the new subsidy control regime. Under the terms of the TCA, the UK Government is required to establish one (or else vest these powers in an existing entity). The Consultation seeks submissions from interested parties as to which entity should take on this role, noting that the CMA might subsume this role or that a new body might be established (or a combination, where duties are split between multiple bodies).
The TCA also places an obligation on the UK Government to ensure that subsidies can be challenged by interested parties in the courts. As such, the Consultation further requests submissions as to whether this role should be allocated to main judicial system or to a specialist tribunal, such as the CAT.
Once the Consultation ends and the responses have been considered, the Government will ultimately bring forward primary legislation to establish a subsidy control system in domestic law. The Consultation puts forward an optimistic vision of post-Brexit subsidy control and the various achievements that can be made outside the perceived shackles of the EU's State aid rules. However, time will tell as to whether the envisaged new regime which will need to tally closely to the provisions agreed under the TCA really manages to
18 The 7 key principles are that all subsidies granted by public authorities should be: (i) provided to meet a specific public policy objective to remedy an identified market failure or to address an equity concern; (ii) proportionate and should be the minimum size necessary to achieve the stated public policy objective; (iii) designed to bring about a change in the practices of the subsidy beneficiary that would not be achieved in the absence of a subsidy and that will assist with achieving the stated public policy objective; (iv) not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy; (v) are an appropriate policy instrument to achieve the stated public policy objective and that objective cannot be achieved through other less distortive means; (vi) seek to minimise any harmful or distortive effects on competition within the UK internal market that might arise from a subsidy; and (vii) have enough positive contributions to achieving the objective and outweigh the negative effects, in particular the negative effects on domestic competition and international trade or investment. 19 Department for Business, Energy & Industrial Strategy. Subsidy control Designing a new approach for the UK. 2 February 2021.
Paras 80 83. Available at: Subsidy control: designing a new approach for the UK (publishing.service.gov.uk) 20 SDR are supplementary international reserve assets defined and maintained by the International Monetary Fund ("IMF"). They can be calculated into national currencies such as GBP. The UK Government is currently seeking views on whether for ease of compliance with the threshold, it should be fixed at an amount of pound sterling (GBP). This could give subsidy givers and recipients more certainty but some of the flexibility of using SDR would be lost as the fixed GBP amount would have to be set slightly below the equivalent SDR amount to account for current fluctuations. 21 Such as droughts, floods, severe storms, wildfires and pandemics. 22 Services of Public Economic Interest (SPEI) are public services that would not be supplied (or would not be supplied under the required conditions) without public intervention, and which are of particular importance to citizens. Examples of an SPEI include social housing or rural public transport services.
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achieve anything new under the sun as far as state subsidies are concerned.
CMA publishes guidance on its approach to breaches of final orders and undertakings
On 29 January 2021, the CMA published guidance ("Guidance")23 to companies as to the approach it will take in relation to breaches of any final undertakings24 and orders25 it may decide to accept / issue in order to remedy any anti-competitive concerns it identifies in the course of any of its investigations. These final undertakings and orders may be as a result of merger reviews, monopoly and market investigations.
As the CMA notes, undertakings and orders are the primary means by which the CMA can implement remedies to address its concerns. They are designed during the course of an investigation to remedy identified competition problems by imposing effective and proportionate obligations on addressees to be satisfied within an appropriate timeframe.26 Part and parcel of accepting undertakings or issuing final orders is a duty for the CMA to ensure, from time to time, that the concerned parties are continuing to comply with them and/or whether they remain fit for purpose. With regard to the former, parties may commit breaches of undertakings and orders:
a) Unintentionally, where parties inadvertently failed to implement a remedy properly or else did not have the sufficient resources and
expertise to ensure continued compliance with the remedy once it was implemented;
b) Negligently, where parties are unaware of the extent of the legal obligations arising out of the undertakings and orders; and
c) Deliberately, where parties intentionally act contrary to the undertakings and/or orders.27
In the Guidance, the CMA sets out how it relies on a variety of methods to detect any breaches of undertakings and orders. Aside from maintaining a team dedicated to monitoring parties' ongoing compliance, the CMA also uses monitoring trustees to monitor more complex behavioural28 orders and undertakings. Outside this continuous monitoring, the CMA has ascertained breaches of undertakings and orders by (inter alia) liaising with sector regulators and industry bodies, receiving submissions from interested third parties, consumers or whistle-blowers, and through notifications from the parties themselves as a result of their own selfassessments.29 By way of good practice, the CMA encourages all firms to report breaches of undertakings and orders as soon as they are discovered, even where the full details of the breaches are not yet available.30 This is because such early notification allows for the CMA to work with the firm concerned on actions to end the breach quickly and effectively and to understand whether specific enforcement action is necessary to end the breach.31 Equally, if a party is aware of a breach and takes unilateral action to remedy it without consulting the CMA, the action(s) may not be sufficient or else unsatisfactory to the CMA which will ultimately result in more expenses and costs incurred by both parties.32 Indeed, it is further worth noting that any information parties do submit to the CMA in relation to possible or actual breaches will be subject to the requirement in Section 117 of the Enterprise Act 2002 to provide truthful, complete and accurate
23 The Competition & Markets Authority. Merger and market remedies guidance on reporting, investigation and enforcement of potential breaches. 29 January 2021. Available at: Merger and market remedies: Guidance on reporting, investigation and enforcement of potential breaches - GOV.UK (www.gov.uk) 24 Under Sections 82 and 159 of the Enterprise Act 2002 ("EA02"), the CMA may accept undertakings from parties to satisfy it that the anti-competitive concerns it has identified will be addressed. Further, the CMA may accept undertakings in lieu ("UILs") from parties to avoid the need to make an investigation in the first place where the conditions for an investigation are met (Sections 73 and 154 of the EA02). 25 Under Sections 84 and 161 of the EA02, the CMA may impose final orders to address its concerns arising out of an investigation. 26 The Competition & Markets Authority. Merger and market remedies guidance on reporting, investigation and enforcement of potential breaches. 29 January 2021. Para 2.4. Available at: Merger and market remedies: Guidance on reporting, investigation and enforcement of potential breaches - GOV.UK (www.gov.uk) 27 Ibid. para 2.5.
28 The CMA relies on both behavioural and structural remedies and more often prefers the latter. Behavioural remedies relate to commitments to do, or refrain from doing, certain things for an ongoing period of time (e.g. 2-3 years). For instance, behavioural remedies tend to encompass commitments to maintain prices for certain goods / services at a certain level. Structural remedies, by contrast, are one-off actions such as divesting assets or portfolio companies. Structural remedies are preferred given that they can more easily be confirmed to have taken place, whereas behavioural remedies are more complex to monitor and must be monitored continuously for the period to which the remedies relate. 29 The Competition & Markets Authority. Merger and market remedies guidance on reporting, investigation and enforcement of potential breaches. 29 January 2021. Para 3.2. Available at: Merger and market remedies: Guidance on reporting, investigation and enforcement of potential breaches - GOV.UK (www.gov.uk) 30 Ibid. para 3.5. 31 Ibid. para 3.3. 32 Ibid. para 3.6.
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information failing to do this constitutes a criminal offence.
Additionally, the CMA states that from April it would operate a public register to detail "material" breaches of its undertakings and orders. (The question as to whether breaches are "material" will depend on a case-by-base assessment). These registers are operated for the purposes of transparency about the firms that breach the CMA's undertakings and orders as well as the frequency and nature of such breaches. Additionally, the register will provide a description of any enforcement work carried out in respect of the breach.
Finally, the CMA will have both informal and formal enforcement powers to use against companies in breach of remedies including, agreements between the CMA and the company to take relevant steps to end the breach, court orders to remedy breaches, fines, and potential imprisonment in some cases. Finally, the CMA has issued a number of updated guidance documents in recent months, importantly including its updated `Merger Assessment Guidelines' published in March this year.33 These guidelines have been revised in order to bring them up to date with current best practice (having originally been published in 2010) with markets (including digital markets) having evolved significantly since then. These guidelines will assist companies and advisers in assessing whether their transaction may give rise to any competition law concerns in the modern world.
CMA launches antitrust probe against Apple
On 4 March 2021, the CMA announced that it had launched an investigation into whether Apple, Inc. ("Apple") was abusing its dominant position in respect of the market for the distribution of software programs and applications (known as "apps") in the UK.
One of Apple's key revenue streams, on top of its design and manufacture of electronic devices, is its operation of the App Store, its digital distribution platform for the purchase and downloading of apps. App developers often have to go through the App Store in order to reach customers using Apple products such as iPhones and iPads. Given the ubiquity of Apple's electronic devices amongst consumers particularly in Europe and in the US, this therefore represents a sizeable market for app developers and one which they will strive to access.
Apple generally takes a 30% commission for every digital purchase made through the App Store.34
The CMA is concerned that Apple's position as de facto gatekeeper for the distribution of apps to iPhone and iPad customers in the UK has given it a dominant position in this market. Whilst having a dominant position is not anti-competitive in and of itself, the CMA has stated that it has received complaints from certain (unnamed) app developers that Apple abused its dominant position by imposing unfair terms and conditions. For instance, app developers have allegedly informed the CMA that, in signing up to distribute their apps through the App Store, Apple will include clauses preventing these developers from using any other platform to sell apps to iPhone and iPad customers. Additionally, developers have further alleged that Apple requires any "add-on" or upgrade features in apps to be paid for exclusively using Apple's own payment system rather than any alternative e-payment system. As such, the CMA will look to determine: (i) whether Apple really does have a dominant position in this market, and (ii) whether it abuses this position in any way, resulting in less choice, less innovation and higher prices for users of apps on iPhone and iPad devices. This investigation against Apple represents one of the CMA's initial promised campaigns against Big Tech. On 22 February 2021, Andrea Coscelli, the CMA's chief executive, publicly stated that the CMA was planning a series of antitrust investigations against the Silicon Valley titans such as Google, Facebook, Amazon and Apple. It is likely that the CMA will run such investigations out of a newly created Digital Markets Unit ("DMU"), a specialist team that will sit within the CMA and whose mandate will be to address specific competition concerns in
33 See: Updated CMA Merger Assessment Guidelines published GOV.UK (www.gov.uk)
34 See the CMA's press release at: CMA investigates Apple over suspected anti-competitive behaviour - GOV.UK (www.gov.uk)
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the digital economy. Judging from the CMA's increasingly hawkish rhetoric, more antitrust investigations against Big Tech are likely to be forthcoming.
Foreign exchange cartel pass on defence? In December 2018, claimant groups (comprised of 175 entities, the majority being investment and pension funds) brought a follow-on damages claim against Barclays, Citigroup, JP Morgan Chase, Mitsubishi UFJ Financial Group, HSBC, NatWest and UBS. In particular, the claimants sought damages for loss suffered as a result of the banks' alleged manipulation of foreign exchange rates between 2003 and 2013, which meant that the investment and pension funds were forced to pay inflated prices to buy and artificially low prices to sell in foreign exchange transactions. Importantly, in January 2020 the claimant groups brought an interim application to strike out the defendants' argument that the investment funds mitigated part of their losses by passing on their losses to others, namely the investors in the funds when they redeem or withdraw their investments ("pass on defence"), which would allow the banks to escape liability. The claimants considered that the defendants' arguments were wrong in law and had no real prospect of success. However, in a ruling on 25 February 2021, the High Court dismissed the strike out application thereby permitting the defendant banks to argue this point and proceed to trial as they had a real prospect of success.
Counsel for the defendants put forward the following two arguments: The claimants' investors suffered their own
losses when withdrawing from the claimant funds as a result of the alleged competition infringement, and were therefore entitled to seek damages directly from the banks under EU and national law. They argued that the claimant
funds had passed on their losses to the investors, and should not be allowed to recover damages on behalf of the investors. Otherwise, there would be an overlap of the loss suffered by the investment funds and the loss suffered by its investors, meaning the banks would have to pay double damages.
The court should take into account the fact that the claimant funds mitigated their alleged losses by paying less tax. Counsel for the defendants argued that the claimant funds may have paid less tax when passing on their alleged losses. Therefore, any tax savings the claimant funds made should be taken into account when calculating the damages they could recover.
Counsel for the claimants argued:
That it was not possible for the investment funds to pass on damages to its investors, stating that there was no mechanism for this under English law. Counsel for the claimants argued to the contrary that English law dictates that when banks manipulate foreign exchange rates and make it more expensive for funds to exchange currency, it is the investment fund which incurs the loss and not the investors.
The claimant's counsel also pleaded with the court to consider that it would not be right for the claimants' investors to pursue claims against the defendant cartel, stating that when a fund suffers a loss the correct claimant is the fund itself and not its investors.
The judge held:
In relation to the pass on defence, the court agreed with the defendant that each claimant fund was able to pass on their losses to their investors. This was because the majority of the claimants are trusts and, under English law, a trust beneficiary can claim their own damages when they have suffered a loss due to a breach of competition rules. The court agreed that the investors' own losses crystallised upon withdrawing their investments from the funds.
The court also agreed with the defendants' consideration of tax, stating that although the argument was "wholly unparticularised" at this stage, when it came to calculating the damages the claimants could recover, their tax savings would be taken into account.
The judge declined to rule on whether the contracts in place between the funds and its investors prevented the latter from seeking damages from a third party for its losses. The judge considered that the trial judge would be in
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a better position to evaluate and rule on the contracts in question. The claimants intend to challenge the decision before the Court of Appeal, alleging that the court "made a number of legal errors" in its judgment. Following the decision, counsel for the claimants stated: "The suggestion that individual investors have a right to claim and that the banks, who are proven cartelists, are concerned about ensuring that these individual investors can bring claims, both defies the commercial reality of how investment funds operate and the fact that the banks know that individual investors will not bring their own claims". A date for the trial has not yet been set, and the judge commented that "it is possible, perhaps likely, that my decision on at least some of these matters will lead to an appeal. For that reason my decision will delay the trial."
EU Competition Law Developments
Mondelz hit with formal antitrust probe
On 28 January 2021, the European Commission ("Commission") announced it had launched a formal antitrust investigation into Mondelz International, Inc. ("Mondelz") over concerns that the latter had restricted the cross-border competition and trade in a range of consumer markets for various food and drinks items, such as chocolate, biscuits and coffee. The investigation followed an unannounced inspection at Mondelz's premises carried out by the Commission in November 2019. According to the Commission's press release, there have long been suspicions that the price in Mondelz's goods have varied significantly across Member States.35 Citizens,
national competition authorities and even the European Parliament have voiced concerns to this effect.
Specifically, the Commission will investigate whether actions taken by Mondelz prevented the parallel trade of its items across the EU. Parallel trade36 is inextricably linked with the exhaustion of a party's intellectual property ("IP") rights. Under EU law, when a product has been put on the market in one Member State by the original producer/manufacturer there is nothing to prevent a supplier in that same Member State from selling that product into another Member State (either to a separate supplier or direct to the consumer) as the IP rights in the product are said to have been "exhausted". The result of this is that if one Member State has a higher price for a particular good, parallel importers can make a profit by buying that good in another Member State where the price is lower and then selling it into the former Member State at the higher price. Whilst this might seem exploitative, in reality parallel importing encourages a harmonisation of pricing for the same goods across the EU Member States. Member States with higher prices for the same good will see that price reduced to comparative levels across the bloc, either through conscious decision or as an inevitable consequence of supply and demand.
However, parallel importing is often something of an anathema to businesses who see their potential profits eroded by such practices. In the extreme, parties might take active steps to prevent their suppliers in different Member States who distribute their goods to the end-customer from selling their goods into other Member States by imposing territorial supply constraints. Such restrictions can amount to a breach of both Article 101 (prohibition on anti-competitive agreements) and Article 102 (prohibition on the abuse of dominance) of the Treaty on the Functioning of the European Union ("TFEU"), depending on the circumstances.
In the course of the investigation, the Commission will look to determine whether Mondelz has done any or all of the following:
limited the sales territories within the EU that its suppliers could sell its products;
curtailed parallel trade through agreements that raised prices or limited volumes specifically for customers that traded the products across Member States' borders;
entered into agreements with suppliers whereby the latter agreed not to engage in parallel trade;
35 The Commission's press release can be viewed at: Antitrust: 36 Also known as parallel imports. Commission opens formal investigation: Mondelz (europa.eu)
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created artificial barriers to cross-border trade in goods by, for instance, restricting the number of languages used on packaging (making it unlikely or illegal for those products to be imported into the relevant Member States); and
refused to supply certain traders who were known to engage in parallel imports in order to restrict the level of imports into certain markets.37
Fears have often been raised in the past by consumer groups that multinational companies with significant market presence are the most prone to seeking to limit retailers and suppliers from engaging in parallel trade. In June 2019, the Commission issued a high profile fine of 200 million against Anheuser-Busch InBev NV/SA ("AB InBev") for restricting the cross-border sales of its beer products in the EU.38 AB InBev is the largest beer brewer in the world and this was one of the first parallel importing cases that saw fines issued under both Article 101 and 102 of the TFEU. However, companies of any size can be found liable for limiting (or attempting to limit) parallel importing and the case against a Mondelz is a reminder that companies should be very careful in the wording they include in their commercial supply agreements into the EU. Any attempt (explicit or otherwise) to limit parallel importing could lead to potentially severe consequences.
Commission's approval of Google-Fitbit intensifies the debate over Big Tech
Google LLC's ("Google") cleared acquisition of the fitness tracker company Fitbit, Inc. ("Fitbit") in the EU has caused some concern among EU legislators and, indeed, other competition regulators. The Commission announced its approval of the US$2.1 billion transaction on 17 December 2020 after a sixmonth in-depth review.39
During its investigation, the Commission had raised concerns that the transaction would have detrimentally affected competition in a number of different markets, namely: (i) advertising; (ii) access to Web Application Programming Interface ("API")40 in the market for digital healthcare; and (iii) wristworn wearable (smart) devices.41 The Commission also received submissions from industry stakeholders who argued that Google had already secured a significant presence in the digital healthcare sector
(which would lead to a competitive advantage by bolstering this with Fitbit's own healthcare data) and that there would be serious concerns over the security of Fitbit's users' data post-merger from a GDPR standpoint. As to these particular concerns, the Commission noted that its investigation did not corroborate them.
Nonetheless, the Commission's approval of the deal was contingent on a number of proposed remedies from Google: 1. Advertising: To alleviate concerns that Google's
access to Fitbit's databases would allow the former to bolster its targeted (i.e. personalised) advertising to the detriment of its competitors and advertisers themselves (who would face higher prices), Google committed: a. Not to use the health and wellness data
from Fitbit for the purposes of Google Ads, including for search advertising, display advertising and advertising intermediation products; b. To maintain a technical separation of the Fitbit's user data by storing in a separate "data silo"; and c. To ensure that all users in the European Economic Area ("EEA") will be given a choice to grant or deny the use of their health and wellness data in other Google services (such as Google Search, Google Maps and YouTube). 2. Web APIs: A number of Google's competitors have access to Fitbit's user data through a Web API. To address concerns that Google might
37 The Commission's press release can be viewed at: Antitrust: Commission opens formal investigation: Mondelz (europa.eu) 38 See the Commission's press release at: Antitrust: AB InBev fined 200 409 000 for beer restrictions (europa.eu) 39 Though Google completed the acquisition in November 2019, it did not formally file with the Commission until 15 June 2020.
40 An API is a software intermediary that allows two different applications to communicate with each other. 41 See the Commission's press release at: Mergers: Commission clears acquisition of Fitbit by Google (europa.eu)
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restrict competitors' access to this data postmerger, Google committed to maintain this access without any charge (though subject to user consent).
3. Wrist-worn wearable (smart) devices: In response to the Commission's concerns that Google could undercut competing manufacturers of wrist-worn wearable devices, Google made the following commitments (inter alia):
a. To continue licensing free of charge all APIs needed to interoperate with an Android smartphone;
b. To grant original equipment manufacturers ("OEMs") access to all Android APIs that it will also grant to Android smartphone app developers; and
c. Not to circumvent the foregoing commitments by such actions as tying apps in the Google Play Store specifically for use only on Fitbit devices.
Whilst the Commission was content that such behavioural remedies would be sufficient to address the anti-competitive concerns it had identified, there has been something of a backlash from a number of key stakeholders and regulatory bodies. On 4 February 2021, it was reported that members of the European Parliament had specifically called upon the Commission to effectively concede the approval had been made in error and without due consideration of the impact of issues such as data consolidation. Moreover, Andrea Coscelli, Chief Executive of the CMA, has publicly questioned the behavioural remedies offered by Google, stating he was "sceptical" as to whether they would be sufficient.42 This public statement from the CMA comes as it gears up to launch its Digital Markets Unit in April this year in a bid to tackle the anti-competitive threats posed by Big Tech.
The Commission too is signalling its intent to clamp down on the likes of Google, Facebook and others through its proposed Digital Services Act and Digital Markets Act (see story below). Given this context, it is perhaps surprising that the CMA did not seek to use the Google-Fitbit merger as an early opportunity to assert its authority against Silicon Valley. Time will tell whether this merger clearance was based on
sound decision making or whether, like Facebook / Instagram and Facebook / WhatsApp, the outcome of the merger will bring an array of anti-competitive concerns and a retrospective desire to learn from another (possibly) erroneous decision.
Stark warning to investment firms as Goldman Sachs' liability for cables cartel upheld
The European Court of Justice ("CJEU") issued a judgment on 29 January 2021 confirming that The Goldman Sachs Group, Inc. ("Goldman Sachs") was liable for the conduct of its portfolio companies in the submarine power cables cartel.43 The judgment is a sobering warning to investment and private equity funds of the risks in acquiring shares in portfolio companies and emphasising the importance of antitrust due diligence. The principle of caveat emptor is more salient to these forms of investment than perhaps any other.
Background and the power cables cartel
On 2 April 2014, the Commission issued fines totalling 301,639,000 against 11 producers44 of underground and submarine high voltage power cables ("Decision").45 The cartel was a global one encompassing six European, three Japanese and two Korean power cables producers and involved the participants: (i) carving out geographic markets by agreeing between themselves to stay out of their respective territories; (ii) allocating projects according to their geographic territories and customer bases; and (iii) fixing and colluding on prices via illegal information sharing in relation to specific project bids.
One of the cartelists involved was Prysmian SpA. Between 29 July 2005 and 28 January 2009, Goldman Sachs was determined by the Commission to be the (indirect) parent company46 of Prysmian SpA and of its subsidiary company Prysmian Cavi e Sistemi Energia Srl (together, "Prysmian"). Goldman Sachs initially held 100% of the shares in Prysmian which gradually decreased to 91.1% and then 84.4% before Prysmian floated its shares on the Milan Stock Exchange in an initial public offering ("IPO") on 3 May 2007. The Commission found Goldman Sachs exercised a "decisive influence" over Prysmian both before and after the latter's IPO,
42 See Andrea Coscelli's interview with The Financial Times on 22 February 2021 at: UK competition watchdog warns Big Tech of coming antitrust probes | Financial Times (ft.com) 43 Judgment of the European Court of Justice, 26 January 2021, Case C-595/18 P. Available at: https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:62018CJ0595&from=EN 44 Though 11 different producers were fined, 26 undertakings in
total were the addressees of the Commission's decision taking into
account subsidiaries and parent companies in the same company groups. 45 The European Commission. Case AT.39610 Power Cables. 2 April 2014. Available at: https://ec.europa.eu/competition/antitrust/cases/dec_docs/39 610/39610_9899_5.pdf 46 Goldman Sachs held the investment through one of its funds called GS Capital Partners V Funds.
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specifically from 29 July 2005 (the first time it acquired shares) until 28 January 2009 (the date Prysmian's involvement in the power cables cartel ended) ("Infringement Period"). Under EU competition law, a parent company may be held jointly and severally liable for the anti-competitive conduct of one or more of its subsidiaries where the former is deemed to hold "decisive influence" over the latter. As such, Goldman Sachs was liable for 37,303,000 of the 104,613,000 levied on Prysmian by the Commission.
Goldman Sachs made an initial appeal to the EU's General Court to annul the Commission's Decision insofar as it applied to Goldman Sachs and/or reduce the fine imposed. The General Court rejected both grounds of appeal on 12 July 2018.47 The General Court confirmed that, whilst investments made for purely financial purposes will not be within the scope of joint and several liability for subsidiary misconduct, Goldman Sachs had failed to evidence the fact that its investment in Prysmian was in fact purely financial. On the contrary, as Goldman Sachs held all voting rights in Prysmian for the whole of the Infringement Period, the General Court held that it could be presumed to determine Prysmian's economic and commercial strategy. Goldman Sachs appealed again to the CJEU. The CJEU's ruling and implications for parent companies The CJEU upheld the General Court's ruling and confirmed that Goldman Sachs' "decisive influence" could indeed be presumed from holding all the voting rights in Prysmian, even after the IPO where Goldman Sachs' shareholding was materially reduced. Such a position can be said to be analogous to holding all the shares in a subsidiary directly as a
parent company. Throughout the Infringement Period, Goldman Sachs retained, for example, the ability to call shareholders' meetings and propose the removal of directors from Prysmian's board. Moreover, such evidence that Goldman Sachs advanced to purportedly demonstrate Prysmian's independence was insufficient, for instance by claiming that some of Prysmian's directors were far removed from Goldman Sachs. Sufficient ties can be established by both formal and informal connections, such as "personal links between the legal entities comprising such an economic unit".48
The CJEU's ruling will doubtless spook some investors, such as investment firms and PE funds, who have taken stakes in various portfolio companies but do not get involved in day-to-day management. The judgment against Goldman Sachs illustrates the high bar that will need to be met to prove that the conduct of a subsidiary is sufficiently removed from the direction (and, indeed, knowledge) of the company exercising voting rights and holding at least a majority of the shares in order to avoid joint and several liability. It is worth remembering that fines for anti-competitive conduct can be as high as 10% of an entity's global turnover when this fine is applied to a large investment firm like Goldman Sachs as opposed to just the relevant subsidiary, the fine amount will risk becoming significantly higher.
The case underlines the importance of conducting thorough anti-trust due diligence before acquiring companies to rule out any potential "inherited" misconduct. Saliently, whilst in the EU penalties will be limited to damages, in the UK there are additionally potential criminal sanctions for the directors of these companies at both the parent and subsidiary levels.
A cautionary tale to investment firms to remember that caveat emptor always applies.
Commission proposes ambitious legislation to rein in the tech giants
In December 2020, the Commission published proposals for a two-pronged legislative assault on the market power of tech behemoths like Facebook and Google in the form of the Digital Services Act
47 Case T-419/14. Available at: http://curia.europa.eu/juris/document/document.jsf?text=&docid= 203985&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&par t=1&cid=13302395
48 Judgment of the European Court of Justice, 26 January 2021, Case C-595/18 P. Para 93. Available at: https://eurlex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:62018CJ0595&from=EN
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("DSA")49 and the Digital Markets Act ("DMA"). 50 Put simply, these new proposals have been advanced due to concerns that the Commission's existing competition law toolkit is inadequate as far as Big Tech is concerned. According to a Commission press release, the DSA and DMA have two overarching goals:
1. To create a safer digital space in which the fundamental rights of all users of digital services are protected; and
2. To establish a level playing field to foster innovation, growth and competitiveness, both in the European Single Market and globally.51
Concern has long been growing in the EU and, indeed, across much of the rest of the world in relation to the ever-increasing dominance that tech firms hold over various markets and fundamental elements of consumers' lives. These proposals from the Commission represent the most radical overhaul of the laws governing online conduct in the EU for over 20 years.52 The DSA and DMA serve different functions but both look to implement a stringent new regime for digital companies operating in the EU.
The Digital Services Act
The DSA looks, in short, to impose more obligations on so-called "online intermediaries" vis--vis the content they host on their platforms. This, particularly, has been the subject of fiery debate across the world should companies like Facebook be liable for the content hosted on their platforms? The contention over the Section 230 law in the U.S. demonstrates the wide spectrum of views over the issue. Saliently, the DSA maintains the general immunity for these platforms for content they merely host or transfer. However, the DSA proposes a raft of new, more stringent obligations, including:
increased transparency requirements on the algorithms used for display and targeted advertising purposes;
compulsory data-sharing obligations to the Commission and Member State authorities;
requirements to clamp down on the risk of illegal and/or counterfeit products being traded over platforms; and
obligations to include mechanisms for users to report and contest content, as well as setting up dispute resolution mechanisms for affected users.
As noted, the scope of the DSA will apply to "online intermediaries" which encompasses: (i) intermediary services offering network infrastructure (e.g. internet access providers, domain name registrars); (ii) hosting services (e.g. cloud and webhosting services); and (iii) online platforms which form the link between businesses and consumers (e.g. online marketplaces, app stores etc.). There are also additional rules for "very large online platforms" which reach (i.e. are used by) 10% or more of the EU's population.
The Digital Markets Act Working in parallel with the DSA, the DMA looks to impose new regulatory obligations on so-called "gatekeeper" platforms. In essence, a platform acts as a digital "gatekeeper" where companies or consumers have little or no alternative but to go through those platforms in order to access certain markets. The proposed definition of "gatekeeper" specifically targets large, entrenched entities who (inter alia) have a "significant impact on the internal market" and "[enjoy] an entrenched and durable
49 The European Commission. Proposal for a Regulation of the European Parliament and of the Council on a Single Market for Digital Services (Digital Services Act) and amending Directive 2000/31/EC. Published on 15 December 2020. Available at: https://ec.europa.eu/digital-single-market/en/news/proposalregulation-european-parliament-and-council-single-market-digitalservices-digital 50 The European Commission. Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act). Published 15 December 2020. Available at:
https://ec.europa.eu/info/sites/info/files/proposal-regulationsingle-market-digital-services-digital-services-act_en.pdf 51 The press release can be accessed at: The Digital Services Act package | Shaping Europe's digital future (europa.eu) 52 Until now, the regulation of digital services has largely been conducted under the e-Commerce Directive, which has been in force since 2000. See Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce). Available at: https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32000L0031&from=EN
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position" in the market.53 This criterion can be met as a result of: (i) a rebuttable presumption54 in relation to entities with 6.5 billion worth of EEA turnover and at least 45 million monthly active endusers across the bloc;55 or (ii) a qualitative assessment undertaken by the Commission.56
The DMA represents the sharp end of the Commission's proposed stick with which to take on the digital giants. Once a particular platform has been designated as a "gatekeeper", it will be subject to a range of ongoing obligations to define and limit its conduct, including:
allowing third parties to inter-operate with the gatekeeper's own services in certain specific situations;
allowing its business users to access the data that they generate in their use of the gatekeeper's platform;
not to treat services and products offered by the gatekeeper itself more favourably in ranking than similar services or products offered by third parties on the gatekeeper's platform;
not to prevent consumers from linking up to businesses outside their platforms; and
not to prevent users from un-installing any preinstalled software or app if they wish to do so.
In one of the most extreme measures, the Commission has also put forward a proposed requirement for any digital "gatekeeper" to notify the former as to any planned merger with, or acquisition of, another digital services provider regardless of whether the notification thresholds are met. This will allow the Commission to carefully monitor the market activities of Big Tech and be forewarned in respect of any transactions that could carry risks (such as "killer acquisitions").
There are burgeoning concerns in Brussels that the Commission's existing powers against the likes of Google, Amazon, Facebook and Apple are insufficient to address their market dominance. The DSA and DMA are therefore intended to empower the Commission to limit (and even prevent altogether) certain activities that have long been felt to be causing harm to the internal market. Indeed, the DSA and DMA will serve an ex ante function in that they will specifically address concerns through
legislative changes rather than laboriously identifying them as a result of a long merger or market investigations. The Commission's powers of enforcement under these new pieces of legislation are also significant. In addition to conducting dawn raids and issuing substantial information requests, the Commission can issue fines of up to 6% and 10% of an entity's turnover under the DSA and DMA respectively. Tech companies will now be gearing up for this fresh assault as they fight wars on increasing multiple fronts with regulators across the EU, UK and the US. The proposals will now be subject to the EU's legislative process, which is likely to be lengthy and involves scrutiny by the European Parliament and the Council of the EU. These institutions must agree the text of the regulations with the Commission before they are adopted, which may take a number of years and lead to amendments to the draft legislation.
Commission fines Valve and 5 gaming publishers for geo-blocking agreements
Valve, owner of one of the world's largest gaming video platforms, and five gaming publishers (Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax) have been fined 7.8 million by the Commission for preventing European consumers from purchasing video games in particular Member States. The case serves as a reminder that the Commission will not tolerate agreements between companies restricting cross-border sales. These proceedings against Valve and the five gaming publishers were opened on 2 February 2017 and concluded on 20 January 2021. The case resulted
53 Article 3(1) of the DMA. 54 If the rebuttable presumption applies, the burden of proof will be on each individual company to demonstrate why the obligations under the DMA should not apply to it.
55 Importantly, these two thresholds (and others under the DMA) are intended to be flexible and can be amended over time to keep pace with evolving technologies and markets. 56 For its qualitative assessments, the burden of proof will be on the Commission.
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from the Commission's investigation into the European e-commerce sector in 2017. The sector inquiry revealed that almost 60% of digital content providers who participated in the inquiry had contractual geo-blocking agreements in place, which prompted the Commission to assess whether such agreements between suppliers and distributors were restricting competition in breach of EU antitrust rules (of which many were).
Valve had entered into bilateral agreements with the five video game publishers based in France, Germany, Japan and America, which prevented cross-border sales of video games according to the location of users in the EEA. The bilateral agreements, which were in place between 2010 and 2015, prevented the activation of almost 100 video games in certain countries in the EEA.
Valve's video game streaming and downloading platform, Steam, allows users to play games by either: (i) buying games directly from Steam, or (ii) using an activation key if the game has been bought from a third party distributor. The Commission investigation concerned the latter, as Valve and the five video game publishers had agreed to sell Steam activation keys with territorial restrictions to their distributors in the EEA.
The Commission found that:
Valve and the video game publishers chose the countries in which the Steam activation keys could be activated;
the video game publishers granted Valve a nonexclusive licence to sell some of their products across the EEA in return for using Valve's geoblocked Steam activation keys for the activation of their video games;
the video game publishers then provided the geo-blocked Steam activation keys to their distributors to sell to consumers across the EEA;
as a result, users who purchased a geo-blocked Steam activation key from distributors in Czech Republic, Poland, Hungary, Romania, Slovakia, Estonia, Latvia and Lithuania (as had been agreed between Value and the video game publishers) and were not located in those countries, were not able to activate the affected video games on Steam; and
by agreeing to geo-block certain video games based on geographical location, Valve and the
five video game publishers had partitioned the EEA market in breach of EU antitrust rules. As part of this investigation, the Commission also discovered that between 2007 and 2018 four of the video game publishers57 also entered into separate agreements with their distributors to restrict the cross-border sales of certain video games. All five publishers admitted to the infringements and received respective fines ranging from 340,000 to 2.8 million58, which had been reduced by around 10-15% for each publisher for cooperating with the Commission's investigation. Conversely, Valve refused to cooperate and was ordered to pay a fine of 1.6 million. Margrethe Vestager, the Commission's Competition Commissioner, announced the sanctions and commented that geo-blocking practices "deprive European consumers of the benefits of the EU Digital Single Market and of the opportunity to shop around for the most suitable offer in the EU". The Commission has rigorously enforced sanctions against cross-border sales restrictions in other recent cases, fining companies such as Sanrio, Nike, Guess and NBC Universal for similar practices. The Commission is currently investigating Mondelz for also allegedly restricting cross-border sales of its products (see news item above).
Commission investigates potential misuse of patent procedures
In the EU's first formal abuse of dominance probe relating to the potential misuse of patent procedures and exclusionary disparagement of competing products in the pharmaceutical industry, Israeli company Teva Pharmaceuticals ("Teva"), is suspected of unlawfully delaying the entry of medicines competing with its multiple sclerosis drug,
57 Bandai Namco, Focus Home, Koch Media and ZeniMax
58 Focus Media received the highest fine of 2.8 million; ZeniMax was fined 1.6 million; Koch Media was fined 977,000; Capcom was fined 396,000 and Bandai Namco was fined 340,000.
COMPETITION LAW NEWSLETTER Q1 2021
Copaxone, through patent litigation. If proven, Teva's behaviour may amount to an abuse of dominant position in a rare Commission investigation which serves as a caution to companies to ensure that their intellectual property strategies do not amount to breaches of the competition rules.
Teva is a global leader in the pharmaceutical industry which specialises in the development, production and marketing of generic drugs and speciality pharmaceuticals. The Commission began investigating the pharmaceutical company in October 2019 undertaking raids at Teva's subsidiaries in the EEA and carrying out inspections at the company's Brussels premises.
On 4 March 2021, the Commission announced that it was opening a formal probe to determine whether Teva had:
i. Abused its dominance by repeatedly filing and withdrawing divisional patent applications59 relating to Copaxone, the company's best-selling drug; and
ii. Used a marketing campaign to discourage healthcare professionals from using its competitors' products containing `glatiramer acetate' (the active ingredient in its competing Copaxone product).
The Commission's probe arose from concerns that:
Following the expiration of Teva's basic patent for glatiramer acetate in 2015, Teva artificially extended the market exclusivity of Copaxone by strategically filing and withdrawing divisional patent applications;
Teva's generics competitors who wished to enter the market would be obliged to file a new legal challenge each time the company filed a new divisional patent. Teva could withdraw the divisional patent in question and file a new application, meaning the generics competitor would need to recommence their legal challenge each time;
The effect of Teva filing numerous divisional patent applications was multiplying the barriers
to enter the market for its generics competitors, given that there would be several patents all deriving from the original `parent' patent; and
Teva's marketing campaign (aimed at healthcare institutions and professionals) created a "false perception" of health risks associated with its competitor's alternatives to Copaxone (despite public health authorities having approved their use).The Commission has informed Teva and other Member State competition authorities that it has opened proceedings. However, there is no further detail on the timetable of the investigation at this stage. Teva is cooperating with the Commission's probe, but the company opposes the accusations that it used abusive or anti-competitive practices in relation to Copaxone.
EU Competition Commissioner Margrethe Vestager stated that preserving competition in the market for drugs aimed at aiding multiple sclerosis patients is "paramount". Vestager emphasised that the "most important message" the Commission has for pharmaceutical companies is to "play by the book, and we will make sure they are faced with fair competition".
This is not the first time Teva has been investigated for anti-competitive behaviour. In November 2020 the Commission investigated and subsequently fined the company 30.5 million after finding that it had agreed to delay the entry of a cheaper generic narcolepsy medicine in return for commercial sideagreements and cash payments from its rival Cephalon (which owned the branded version of the medicine). In 2005, the Commission also fined AstraZeneca 60 million for misuse of the patent system, having determined that AstraZeneca had misled patent offices to extend its patent for its stomach ulcer drug Losec (once the world's bestselling medicine) by changing the drug from capsule to tablet form to renew the patent.
59 Divisional patent applications contain matter from a previously filed application (known as the `parent' application). Multiple divisional patents can derive from the parent application, and further divisional patents can then derive from each of the previous divisional patents. This results in a large group of connected
patents, often with overlapping inventions. This means that a competitor wishing to enter the market could be faced with the barrier of numerous patents that their product could be capable of infringing.
COMPETITION LAW NEWSLETTER Q1 2021
Marta Isabel Garcia
T: +44 20 7809 2141 E: [email protected]
Anna Victoria Delahey
T: +44 20 7809 2013 E: [email protected]
T: +44 20 7809 2033 E: [email protected]
T: +44 20 7809 2365 E: [email protected]
T: +44 20 7081 4165 E: [email protected]
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