Margrethe Vestager retains EU competition role, to be combined with an additional digital brief
In an unprecedented move, European Commission President-elect Ursula von der Leyen earlier this month reappointed Margrethe Vestager for a second term as Competition Commissioner. She also charged her with coordinating the Commission’s digital agenda. It will be interesting to see how she balances these priorities, and particularly whether her industrial policy objectives lead to any potential conflict with her competition duties. Read our short op-ed piece on this development as well as our guide to all the new Commissioners-designate and their dossiers. Confirmation hearings before Parliament are set to take place and it remains to be seen if the whole of the proposed new Commission will make it through to take up office on 1 November.
CEE antitrust enforcement continues with vigour, as authorities focus on bid-rigging and look to use new technology to aid detection
Our Global Cartel Enforcement Report summarised the enforcement activity of CEE antitrust authorities in 2018. In particular, we reported that bid-rigging was a key area of focus – it is clear as we reach Q4 of 2019 that this is a continuing trend. In the Czech Republic, for example, the chairman of the antitrust authority (UOHS) will continue to prioritise bid-rigging. The Polish authority (UOKiK) has several on-going bid-rigging cases, including in the road construction and waste management sectors, while the Slovak Antimonopoly Office recently opened an investigation into suspected tender coordination for the supply of agricultural machinery. Earlier this year in Hungary, the antitrust agency (GVH) imposed fines on several solar power firms for colluding on tenders in relation to a government programme and, only last week, EUR1.1m worth of fines were imposed in Romania against four road maintenance firms. More bid-rigging decisions are expected in the region going forward.
Abuse of dominance is also on the authorities’ radar. The Polish UOKiK has four on-going investigations into alleged abuses by waste management firms, and is keeping an eye out for more potential cases in that sector. And a couple of months ago in Slovakia, the Antimonopoly Office fined a rail freight transport company EUR2.99m for refusal to supply.
In Poland, we also expect to see UOKiK’s first decisions sanctioning individuals (board members and other decision-makers) for their involvement in antitrust infringements. Amendments to the Polish antitrust rules were introduced in 2016 and gave UOKiK new powers to impose administrative fines on individuals in such circumstances.
Finally, in terms of detecting potential antitrust infringements, dawn raids remain a key tool for CEE authorities. In the Czech Republic, UOHS carried out on-site inspections at the premises of 23 companies in 2018, with nearly ten so far in 2019, and more reportedly in the pipeline. The Polish UOKiK conducted nine dawn raids last year, with five in 2019 to date, involving 22 companies. These inspections serve as key sources of evidence of potential infringements. But, in common with many other regulators worldwide, the authorities are also looking to increase their use of technology to strengthen their enforcement toolkit. The Czech UOHS is reportedly working on software which would help it to detect bid-rigging. And in Poland, UOKiK is planning to launch a new IT whistleblowing system which would enable it to get in touch with informants (who would remain anonymous) to clarify the information submitted – currently, whistleblowers are able to submit information to UOKiK but the authority has no ability to respond or ask questions. So as the authorities reach the end of a number of key investigations in Q4 2019, it seems likely that their pipeline of cases will remain strong.
U.S. annual mergers report shows a fall in Second Requests, but an uptick in merger challenges and litigation
Each year the U.S. Federal Trade Commission and U.S. Department of Justice’s Antitrust Division issue an annual report giving statistics for U.S. merger control activity in the past fiscal year. The fiscal year 2018 report, published in late September, shows that while notified transactions were up by nearly 3% from the previous fiscal year, the proportion of those subject to a detailed Second Request remained small at 2.2% of cases. This is the lowest percentage in almost two decades. Significantly, however, fiscal year 2018 saw a greater proportion of Second Request cases resulting in a challenge (ie where the agency identifies antitrust concerns as a result of the deal). This was up 11% from fiscal year 2017. Similarly, there was an increase in merger litigation, with the agencies bringing actions in administrative or federal court in six cases, doubling the tally from the previous year. So far in fiscal year 2019 we have seen some fascinating cases, two of which we cover below (Novelis/Aleris and CVS/Aetna). Next year’s annual report looks set to be equally interesting. For more information on the report, please see our alert.
European Commission State aid decisions on tax rulings get careful scrutiny by General Court
Over the past five years the European Commission has been investigating a number of tax rulings granted by Member States. Its aim is to assess whether these rulings give a selective advantage to specific companies which could distort competition in the EU’s Single Market, in breach of EU State aid rules. Two of the first decisions were reached in October 2015 – the Commission found that Luxembourg and the Netherlands had granted illegal State aid to Fiat and Starbucks, respectively. According to the Commission, in each case the tax ruling issued to the companies by the national tax authority had artificially lowered the tax paid by the company. The Commission ordered the recovery of EUR20m to EUR30m in unpaid taxes from each company. The Commission’s decisions were appealed by the Member States and firms in question. Now, in judgments handed down this month, the General Court has confirmed that the Commission was entitled to review the tax rulings for compatibility with EU State aid rules. It also confirmed the Commission’s approach to assessing whether a measure is selective, and its use of the so-called “arm’s length principle” to assess whether transactions between intra-group companies give rise to an advantage under State aid rules. But while it upheld the Commission’s finding of illegal State aid in the Fiat case, it annulled the decision in Starbucks, concluding that the Commission was ultimately unable to show that the tax ruling resulted in an advantage in favour of the company.
Competition Commissioner Margrethe Vestager has welcomed the judgments as giving “important guidance on the application of EU State aid rules in the area of taxation”. So far, the Commission has concluded eight investigations concerning tax rulings, with appeals pending in a number of those cases. It also has several more on-going probes. Amongst these are the in-depth investigations to assess tax rulings granted by Belgium to 39 multinational companies, announced earlier this month following a February General Court ruling which annulled the Commission’s original decision on the basis that the Commission had failed to establish that the rulings formed part of an overall Belgian aid scheme. We can therefore expect more to come in terms of both decisions and court judgments. Indeed, Vestager notes that the “Commission will continue to look at aggressive tax planning measures under EU State aid rules to assess if they result in illegal State aid”, which will take place in parallel with “efforts to make legislative changes and change corporate philosophies”.
Consumer & Retail
ACCC steps in to oppose unnotified chilled ready meals transaction
TEarlier this month the Australian Competition & Consumer Commission (ACCC) decided to oppose B&J City Kitchen’s acquisition of Jewel Fine Foods. The parties are the two largest manufacturers of chilled ready meals in Australia and the ACCC found that rival manufacturers have not supplied similar volumes. It concluded that the merger would therefore concentrate most of the manufacturing capacity of chilled ready meals in one business.
As B&J City Kitchen had not initially sought ACCC clearance for the transaction, the case serves as a reminder of the dangers of not notifying potentially problematic deals in jurisdictions where filing is voluntary. In announcing its findings, ACCC Chair Rod Sims warned company executives that not seeking clearance from the ACCC for deals between competitors “risks court action from the ACCC seeking injunctions to prevent completion of the transaction, as well as divestment and penalties”. In this case the target is in voluntary administration for insolvency and Mr Sims noted that administrators also have a responsibility to ensure that potential buyers notify the ACCC at the earliest opportunity where relevant. Antitrust authorities in most mature voluntary merger control regimes have teams tracking merger activity for potential review. In Australia, while statistics are not published, there are many reviews every year initiated by the ACCC and at least two notable prior examples of interventions after the event. Looking beyond Australia, in the UK the Competition and Markets Authority (CMA)’s mergers intelligence function reviewed over 600 transactions during its 2018/19 financial year. The CMA then launched 14 phase 1 investigations, finding antitrust concerns in three cases. Only last month, for example, following an in-depth probe, the CMA required Tobii to divest the whole of a business it had acquired in October 2018, but had not notified. And the Canadian Competition Bureau has recently expanded the role of an internal unit to include a broader focus on active intelligence gathering on non-notifiable merger transactions that may raise antitrust concerns.
German expert report sets out vision for an EU framework for the digital economy
Whether and how antitrust rules should be adapted for the digital age is, as mentioned in previous editions of Antitrust in focus, one of the hottest debates of 2019 when it comes to antitrust policy and enforcement. So far this year we have seen expert reports on the topic being published across the globe, including the EU, UK, U.S. and Australia. This month it’s the turn of Germany, with the release of the final report by the Commission of Experts on Competition Law 4.0, a group set up by minister for economic affairs Peter Altmaier. The report presents a proposed new framework of EU antitrust rules for the digital economy. Interestingly, the proposals are not limited to antitrust rules and policy, but also include an integrated approach to related regulatory areas.
The report identifies four main goals for improving competition in the digital economy: (1) improving the power of consumers to dispose of their own data, (2) introducing clear rules of conduct for dominant platforms, (3) enhancing legal certainty for cooperation, and (4) strengthening “institutional linkage” between antitrust law and other digital regulation.
The goals are supplemented by 22 specific recommendations. These include:
- a regulation for dominant platforms, which should ban platforms from favouring their own products/services and ensure portability of user data in real-time and in a format which is interoperable
- a voluntary notification regime at EU level allowing companies to seek an opinion from the European Commission on forms of cooperation (e.g. data pooling or data sharing) that raise novel legal issues and concern products/services of substantial economic importance
- updated or new guidance to clarify issues of market definition and the assessment of market power in digital markets
- an EU digital markets board to coordinate policies across different areas of the European Commission
- guidance on assessing the takeover by dominant digital companies of start-ups, although the report falls short of suggesting any major overhaul of the EU merger regime to deal with ‘killer acquisitions’
We expect that the report will be read with interest by the European Commission. A number of the recommendations tie in with those set out in the EU’s own expert report earlier this year. And certain proposals, such as those suggesting more regulation in the digital sector, chime with remarks made recently by Margrethe Vestager who, as noted earlier in this edition of Antitrust in focus, is set to take on a second term as EU Competition Commissioner combined with a role tasking her with coordinating the EU’s digital agenda. From a German perspective, the report may well feed into wider reforms – the modernisation of the German Act on Restraints of Competition via a draft digital competition act – which is expected to be published in the coming weeks.
European Commission conditionally clears E.ON’s acquisition of Innogy following lengthy review period
E.ON and RWE are engaged in a complex asset swap. A final piece of the merger control jigsaw has now fallen into place with the European Commission clearing, after a phase 2 review, E.ON’s acquisition of Innogy’s distribution and consumer solutions business as well as certain of its electricity generation assets. E.ON has been forced to address a number of antitrust concerns. As part of the commitments, described by the company as “tolerable”, E.ON will divest most of its customers supplied with heating electricity in Germany, discontinue the operation of 34 electric charging stations located on German motorways, divest its business in the retail supply of electricity to unregulated customers in Hungary and divest Innogy’s entire business in the retail supply of electricity and gas in the Czech Republic. It has successfully reassured the Commission, however, that competition in the retail supply of electricity in Germany and Slovakia will not be adversely affected by the transaction.
The wide product and geographic breadth of the review has had an inevitable impact on its timeline. Notified on 31 January, the case has taken 154 working days to reach a conclusion, including 129 working days in phase 2. The in-depth review included a 20-day extension to consider remedies and two separate suspension periods of 14 and six working days. Suspensions are in fact triggered in the majority of phase II EU reviews these days (most recently, this week in PKN Orlen/Grupa Lotos), often pushing the investigation beyond its statutory 125 working day deadline. This is a trend which we expect to continue. Also worth mentioning is the reaction of third parties to the clearance. The deal has faced opposition from the start, particularly from certain German rivals concerned that the transaction would create a dominant player in the German market. The Commission faced heavy lobbying to force the parties to strengthen their remedy offer, and some competitors (for example Mainova and LichtBlick) believe the final decision falls short of addressing the competitive concerns. An appeal could be on the cards.The AdC’s decision is significant for two reasons. First, the penalty is four times the amount of the AdC’s previous highest fine, also in the financial sector (imposed just last month on five insurance companies for market allocation). Second, the decision has been a long time coming; its investigation was opened in 2012 following a leniency application and a statement of objections was issued to the banks back in 2015. It has, however, been forced to contend with numerous appeals on procedural points. At one point, in an unprecedented move, a court suspended its probe for around a year. And the case looks set to continue – many of the banks are now expected to appeal the fining decision.
Portugal’s antitrust authority fines banks EUR225m for information exchange
Portugal’s antitrust authority (AdC) has imposed a record EUR225m cartel fine on 14 banks for exchanging sensitive commercial data on their offers of credit products in retail banking, including mortgages, for more than ten years. The AdC concluded that the detailed, precise and timely information exchanged reduced banks’ incentives to make better offers and eliminated competition. Notably the banks’ behaviour is described as a ‘concerted practice’.
The AdC’s decision is significant for two reasons. First, the penalty is four times the amount of the AdC’s previous highest fine, also in the financial sector (imposed just last month on five insurance companies for market allocation). Second, the decision has been a long time coming; its investigation was opened in 2012 following a leniency application and a statement of objections was issued to the banks back in 2015. It has, however, been forced to contend with numerous appeals on procedural points. At one point, in an unprecedented move, a court suspended its probe for around a year. And the case looks set to continue – many of the banks are now expected to appeal the fining decision.
Industrial & Manufacturing
DOJ challenges Novelis’s acquisition of Aleris with unprecedented use of arbitration to determine market definition
The U.S. Department of Justice (DOJ) has sued to block Novelis’s proposed acquisition of rival aluminium sheet supplier Aleris (a deal also currently being reviewed, in phase 2, by the European Commission). In a first since it received the powers over 20 years ago, the DOJ has agreed with the parties to refer the disputed issue of product market definition to binding arbitration. While the DOJ considers that the relevant market is for the sale of aluminium automotive body sheet to North American customers – with the transaction combining two of only four North American producers and, critically, eliminating a new and aggressive competitor – the parties argue for a wider product market, including competition from steel automotive body sheet.
The DOJ considers that arbitration would be appropriate in this case to resolve the matter “efficiently and effectively, saving taxpayer resources”. Unlike litigated mergers, the arbitration hearings will not be public, and the arbitrator is tasked with issuing a decision within only 14 days of the end of the hearings. If the DOJ’s view on market definition prevails, it would file a proposed final judgment requiring Novelis to divest certain assets to preserve competition. If the parties prevail, the DOJ has agreed to dismiss the complaint. Interestingly, the parties are required to continue discussions with a potential buyer, meaning that a settlement may yet be agreed with the DOJ in advance of the hearings, at which point the arbitration will be dropped. Taking another unusual turn, the parties and the DOJ have agreed that, if the arbitration is still pending by 20 December 2019, they would negotiate a hold separate order which would allow the parties to close the transaction as long as they held the divested assets separate. We will follow the progress of this test case, and in particular whether, as predicted by DOJ antitrust chief Makan Delrahim, it proves to be “a model for future enforcement actions”, especially for cases turning on a single key issue.
Construction industry under the spotlight with antitrust enforcement across the globe
The construction industry has long been on the radar of antitrust authorities and enforcement, particularly against bid-rigging cartels, is certainly not new in the sector. But this month we have noticed a particularly large number of fines and other enforcement action, especially in the road construction and maintenance sector, from all corners of the globe. Penalties of CHF11m (EUR10m) were imposed in Switzerland against road construction firms for two bid-rigging cartels, wrapping up a wider probe into the country’s construction sector. We saw EUR1.1m worth of fines imposed in Romania against four road maintenance firms for bid-rigging, as well as a Russian fine on a road repairs provider, also for colluding on tenders. A construction company in South Africa reached a settlement with the antitrust authority over alleged bid-rigging for a road construction tender. And in Indonesia the antitrust regulator KPPU has been particularly busy, imposing over EUR2m in fines on 16 construction firms in six separate big-rigging investigations (hospitals, airport roads, road construction, road maintenance, more road construction and more road maintenance). In fact, KPPU has reportedly proposed increasing its headcount of officials in anticipation of even more investigations, related to the relocation of Indonesia’s capital.
Elsewhere, enforcement action was either started or on-going probes were progressed. The Colombian antitrust authority charged eight companies and eight individuals with rigging over 100 tenders relating to the facilities of state-run entities. In Latvia, the country’s largest construction companies were dawn raided – the competition authority suspects bid-rigging for buildings tenders over several years. The COMESA Competition Commission is reportedly in the initial stages of investigating construction companies for potential antitrust breaches. And in Turkey, the authority announced it will shortly hold a hearing in an investigation into suspected price fixing by cement companies. Antitrust scrutiny of the construction industry is showing no signs of abating. For firms in this sector, having robust antitrust compliance programmes, with a particular focus on the tender process, is a key way to mitigate risk.
U.S. judge approves DOJ settlement with CVS and Aetna after unprecedented court review
Early this month a federal judge gave effect to a settlement the U.S. Department of Justice (DOJ) had reached with CVS and Aetna to address antitrust concerns with their merger. He concluded that the settlement, requiring the parties to divest Aetna’s Medicare Part D prescription drug plan business for individuals to WellCare Health Plans, was in the public interest.
The case stands out procedurally. Generally, federal courts will just ‘rubber-stamp’ DOJ merger clearance settlements under the authority of the Tunney Act. No judge has ever rejected one. Here, however, the judge controversially ordered an evidentiary proceeding after the civil antitrust lawsuit and proposed settlement was filed last October. Critics of the transaction, completed in November 2018, argued additional theories of harm. The judge proceeded to review in unprecedented detail the allegations and evidence, including those from outside interest groups, and to listen to live witness testimony on the proposed remedy. Throughout the proceedings, the judge demonstrated open hostility toward the DOJ attorneys. It is possible that, going forward, federal judges will feel emboldened to undertake a thorough review of the evidence in settled merger cases, going beyond claims brought by the DOJ, especially where deals involve particularly large companies and consumer-sensitive sectors. Any change in approach will inevitably impact deal timelines.