Following an anonymous complaint, the Federal Cartel Office (FCO) recently investigated a joint venture between two competitors. The joint venture was active in the production and commercialisation of coal and grill lighters, as were the two parents. Only after the joint venture had given several commitments – one of which was to cease its commercialisation activity – was the FCO satisfied that any restrictions of competition were sufficiently remedied.
Two companies active in the production and commercialisation of coal and grill lighters had set up a 50/50 joint venture that also produced coal and grill lighters. The joint venture also sold lighters on the market, both self-produced lighters and lighters which it had purchased from its parents. The two general managers of the joint venture also held positions within the parents: one general manager was simultaneously shareholder and general manager of one of the parents, and the other was a former shareholder and current employee of the other parent.
The FCO did not have to decide finally on the case since the parties agreed on commitments, but it preliminarily concluded that the joint venture facilitated market coordination between the two parents. This assessment was based on the following considerations:
- Almost all food retailers, including the major discounters, were customers of the two parents, and this alone was enough for the FCO to have competitive concerns;
- The two parents had a significant market position in the market segment where the joint venture was active, and there was only one considerably smaller competitor active in this market segment; and
- Each manager of the joint venture held a function within one of the parents.
The FCO therefore applied a presumption according to which both parents would take into account information from the joint venture when deciding on their own market conduct.
Eventually, the joint venture agreed to the following commitments in order to remedy the FCO's concerns:
- to cease completely its commercialisation activity;
- to produce only for the demand of the two parents; and
- to limit its production capacity to an annual amount of 50 million units.
These commitments limited the joint venture to a mere 'working bench' of the parents and the FCO had no competitive concerns in that regard, applying the European Commission's Horizontal Guidelines:
- The information exchange between the competitors concerned only the production costs of the joint venture. However, this information was of minor competitive value since the joint venture's production volume was relatively small in comparison to the production volume of the parents.
- There was also no risk of a collusive outcome based on a commonality of the parents' costs, since the variable costs for the production (mainly the purchase price of kerosene) was not affected by the joint venture.
- The joint venture produced only one specific type of lighter (which was based on kerosene), whereas the parents offered a whole range of different lighters, which also reduced the risk of market coordination between the parents.
The decision shows that production joint ventures between competitors are typically treated far more leniently than commercialisation agreements. In particular, the FCO explicitly stated that parents do not usually have an incentive for coordination in case of a mere production joint venture. In contrast, the FCO again applied the presumption in the case law of German courts that a commercialisation joint venture leads to market coordination between the parents if they remain active in the joint venture's markets.
The FCO did not assess competition concerns as regards the competitive relationship between each of the parents and the joint venture. In that regard, the FCO referred to a decision of the Dusseldorf Court of Appeal from 2013, where the court made clear that with view to Paragraphs 36 and 40 of the European Commission Notice on Restrictions Directly Related and Necessary to Concentrations, a joint venture cannot be held to infringe Article 101 of the Treaty on the Functioning of the European Union merely because it does not fully compete with its parents (for further details please see "Prohibition of joint venture – Dusseldorf Court of Appeal grants interim relief").
For further information on this topic please contact Christoff Soltau or Tobias Duhe at CMS Hasche Sigle by telephone (+49 40 37 63 00) or email (firstname.lastname@example.org or email@example.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
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