13 predictions for 2013

In 2012, EU Competition Commissioner Joaquín Almunia made it crystal clear that there could be no excuse for competition law infringement, despite the ongoing financial crisis and difficult political, economic and commercial challenges facing businesses worldwide. The European Commission (Commission) will continue to enforce the competition rules and pursue both EU and other foreign infringers vigorously. The EU Member State national competition authorities (NCAs) appear to have adopted an equally firm approach.

What are the key things to look out for in 2013…? We have identified 13 trends:

Undoubtedly, 2013 will be yet another dynamic year for competition law with EU Competition Commissioner Almunia continuing his robust enforcement of the competition rules.

1  More coordinated cartel investigations, higher fines and an increased use of criminal sanctions

There has been a continued eagerness and determination by the European Commission (Commission) and national competition authorities (NCAs) to detect, prevent and punish cartel activity, with the level of total fines imposed on cartelists in 2013 likely to surpass the peak of 2007 (€3.34 billion).

In 2012, the detection, prevention and prosecution of cartel activity continued to be at the top of the Commission's agenda. Despite 2012 looking like the year for record low fines, in December the Commission imposed the largest ever fine on a single cartel – €1.47 billion in the Cathode Ray Tubes cartel – bringing the Commission's total to approximately €1.875 billion, significantly higher compared to 2011 (€614 million). The Commission continued to work on a number of major cases, initiating numerous cartel investigations across different sectors (e.g. supply of computer CD and DVD drives; retail food packaging; lead recycling, plastic pipes and fittings) and conducting dawn raids in the majority of these cases, often with the help of NCAs and other jurisdictions worldwide.

2012 also saw a number of trends:

• the Commission granting an increasing number of fine reductions to companies because of their inability to pay larger fines, including in the Window Mountings case, where one of the cartelists received a 45% reduction in its fine to reflect financial hardship;
• the continued use of the settlement procedure with the Commission agreeing the sixth settlement cartel case ever in the Water Management Products cartel;
• an increased criminalisation of cartel offences and also a desire by NCAs to use tools other than criminal fines and jail sentences to deter and punish individual cartel activity, such as director disqualifications;
• certain NCAs offered to reward businesses for having in place effective competition compliance programmes through fine reduction. The Commission on the other hand continued to refuse to consider competition compliance programmes as either an aggravating or mitigating factor in fine reduction;
• a revision of the European Competition Network's (ECN) Model Leniency Programme to help simplify procedures for multiple leniency applications across Europe;
• additional investigative tools (including wiretapping and undercover agents to bust cartels);
• a continued trend by the Commission to pursue "obstruction type" procedural infringements during dawn raid inspections. The Commission fined energy companies for failing to block email accounts and divert incoming emails. The European Courts clearly warned companies not to break seals during dawn raids;
• a continuing Commission policy to hold responsible not only the entity who has committed the infringement but also the parent company (and even top group holding company), which can significantly increase the level of the fine ultimately imposed on the organisation. Where a parent company holds 100% (or marginally less), the presumption of decisive influence over its subsidiary applies;
• confirmation that unlawful conduct of an autonomous joint venture can be imputed to its parent companies if they can direct the conduct of the joint venture to the extent that the two must be regarded as one economic unit; and
• a greater cooperation and coordination among authorities leading to a more aggressive cartel enforcement policy not only in Europe but globally. There were also an increasing number of relatively young regimes such as South Korea, Brazil, India and China appearing as rigorous enforcers of competition laws.

The year ahead

The message is clear for 2013 – more than ever before – competition authorities worldwide, including the Commission and NCAs, are eager and determined to prosecute and fine cartelists.

• Fines: Fines in 2013 may well reach even higher levels similar to the eye-watering hefty fines imposed during EU Competition Commissioner Kroes' era. This is particularly likely given the ongoing cases against Auto Parts (where the US competition authorities have already imposed criminal fines of US$790 million) and the investigation against a number of financial institutions for the manipulation of LIBOR, EURIBOR and TIBOR benchmark rates (where again US financial regulators have already imposed staggering fines in excess of US$1 billion). The Commission is also keen to achieve fast results in cartel cases and EU Competition Commissioner Almunia has recently indicated that the Commission is likely to settle around half of its cartel investigations in 2013 in order to offer companies a quicker resolution.
• Compliance: Companies should ensure that they have effective competition compliance policies and processes in place, implement thorough and robust compliance training and carry out regular audits of business units to prevent, detect and address any anticompetitive behaviour sooner rather than later.
• Multi-jurisdictional investigations: Companies increasingly need to think strategically if they are under investigation by more than one jurisdiction. They need to consider having a coordinated approach as to where leniency applications may be necessary and what order to file such applications. Likewise companies need to assess the impact of local privilege and whether they are prepared at all to waive legal privilege in order to cooperate with regulators. Data protection, disclosure and follow-on damages actions risks are also important factors.
• Criminal investigations: Employees (and companies) should expect to see more active criminal enforcement and sanctions against individuals found to be in breach of the competition rules. In the UK, the government is in the process of removing the "dishonesty" requirement from the cartel offence and the Office of Fair Trading has made it clear that it means business and intends to bring at least two to three enforcement cases a year. Companies need to ensure employees are up-to-date on their competition compliance training and remind employees that breach of the rules can result in serious consequences such as prison sentences, criminal fines, director disqualifications, extradition and even termination of employment.
• Parent company liability: It is becoming increasingly important for companies to make sure that they have sufficient and effective processes in place to prevent competition infringements within the group in order to minimise the risk of parent companies being held liable for the actions of their subsidiaries (if found to infringe the competition rules). Likewise, buyers should carry out thorough due diligence exercises to ensure that they are not acquiring any unknown competition law liabilities.

2 Greater enforcement of "information exchange" as a stand-alone violation

There is an increased targeting and penalising of exchanges of competitively sensitive information between competitors by, in particular, national competition authorities (NCAs). The treatment of information exchanges as a stand-alone violation is no longer a rarity.

Exchanges of competitively sensitive information between competitors - whether direct or indirect (e.g. via customers, suppliers or other third parties, otherwise known as "hub and spoke") - are deemed anticompetitive but they have typically gone hand-in-hand with other illegal practices such as price fixing or market/customer allocation.

Increasingly, information exchanges in Europe are being considered separate infringements equating to cartel activity with significant fines recently being imposed on companies – in particular by certain NCAs. For example, Haribo was fined €2.4 million in Germany for exchanging rebate and discount information with its main competitor Mars. Three trade associations of Winemakers were fined more than €1 million in Spain for exchanging information to fix the price of wine grapes. In the UK eight NHS Hospital Trusts were not fined but they gave voluntary assurances to the Office of Fair Trading (OFT) that they would stop exchanging commercially sensitive information relating to private patient unit prices.

Recent judgments by the European Courts and guidance by the European Commission (Commission) also indicate that a one-off exchange at a meeting may be sufficient for a violation of the competition rules, especially if it relates to future price and quantity information. Equally, the unilateral disclosure of information can be problematic. There is a presumption that by receiving unsolicited information from a competitor that the recipient firm is presumed to accept the information and to adapt its future conduct on the market unless it can clearly demonstrate that it has not relied on the data – a potentially impossible task.

The year ahead

Expect close scrutiny of the flow of information exchanges (including in the context of joint ventures between parents and the joint venture company) to continue into 2013.

Companies therefore need to be very vigilant about what information they discuss and how they react to the receipt of such information. Ultimately, competitors (including parent companies and joint ventures) are independent companies and must behave accordingly.

3 A spotlight on the online world, with a particular focus on vertical issues

There is a renewed interest by the European Commission (Commission) and national competition authorities (NCAs) on outright bans on internet sales, "best price guarantees", resale price maintenance (RPM) and most-favoured-nation clauses (MFNs) in the online world. Competition authorities worldwide have confirmed that they will consider enforcement activity whenever the opportunity arises and competition is harmed.

In 2012, there were a number of interesting and in some cases novel competition law issues that arose in relation to vertical (and horizontal) arrangements, with regulators worldwide in the online retail and distribution world.

Outright bans on internet sales

• In France, Bang & Olufsen was fined €900,000 for prohibiting distributors from selling the brand's products online. Referring to the European Court of Justice's (ECJ) preliminary reference judgment of Pierre Fabre Dermo-Cosmétique, the authority confirmed that a clause in a selective distribution contract preventing distributors from selling products online amounted to a serious restriction unless the clause could be objectively justified.
• Arguments relating to the need to provide individual advice to the customer and to ensure protection against the incorrect use of products were rejected. This was despite the fact similar arguments had previously been used successfully in other jurisdictions, demonstrating that different approaches are taken by NCAs.
• Indeed, increasingly, diverging approaches in the case law by different NCAs are making it difficult for in-house counsel to apply the competition rules.

Best price guarantees / RPM

• In the UK, the Office of Fair Trading (OFT) sent a Statement of Objections alleging that Booking.com and Expedia each entered into separate arrangements with Intercontinental Hotels Group plc, which restricted their ability to discount the price of room-only hotel accommodation.
• Information is limited, but it appears likely to be a type of RPM case whereby the large hotel chains and online travel agents have allegedly agreed not to sell rooms below a minimum rate so as to stop smaller rival websites from undercutting prices and competing. Accordingly, any "best price guarantees" are more of an illusion than a reality, with apparent price fixing making room prices the same across travel sites.
• Various other competition authorities in the EU including Austria, Germany and Switzerland have initiated similar investigations.
• In the US, there are currently over 20 class action lawsuits against online travel companies and hotels for alleged RPM.
• Although not in the context of online distribution, it is clear that NCAs are seriously enforcing the rules on RPM. In Germany in 2012, for example, fines of €8.2 million were imposed on TTS Tooltechnic Systems Deutschland for implementing an RPM system. This is the latest in a series of fining decisions for violation of the RPM rules starting in 2009 with fines against Phonak, Ciba Vision, Microsoft and Garmin.

Price relationship agreements/MFNs

• Price relationship agreements (i.e. agreements which set prices by reference to other transactions such as sales of rivals' products, sales to other customers or sales on different platforms), including in particular MFNs, have been the subject of increased scrutiny by competition authorities, including the UK, EU and US.
• Although it has long been recognised that MFNs can have both pro and anticompetitive effects, certain factors, such as high market shares, MFNs resulting in higher prices, MFNs adopted jointly among competitors and multiple MFNs covering a substantial portion of the market, can make such clauses more susceptible to challenge.
• These characteristics were prevalent in the recent e-Books case, where the Commission accepted legally binding commitments from Apple and four international book publishers:
  • The Commission was concerned that Apple and the publishers colluded to switch on a global basis from a wholesale distribution model (where the retailer determines the price of e-books) to an agency model, which would allow the publishers to dictate prices to the retailers (i.e. RPM) and raise retail prices of e-books or at least prevent lower prices for e-books. It appeared that this was motivated by the publishers' business concerns relating to Amazon's low retail prices for e-books. 
  • The agency agreements also included a novel "retail price MFN clause". If any retailer sold an e-book at a price lower than that on Apple's iBookstore, the publishers had to match that lower price on Apple's store, further lowering revenues and making it costly for publishers to allow other retailers to sell at lower prices than Apple.
  • This meant that the incentives of the publishers were aligned and they were able to pressurize Amazon and other major e-book retailers to adopt the agency model and promise that no other retailer would sell an e-book at a lower price.
  • This restricted the ability of retailers to determine their selling prices independently and resulted in consumers being forced to pay higher prices for e-books.
  • Binding commitments from Apple and the publishers included terminating the agency agreements and a five year ban on retail price MFN clauses.

The year ahead

This renewed interest in relation to outright bans on internet sales, best price guarantees, MFNs and RPM, especially in the online environment, is expected to continue into 2013 with a decision likely being taken by the OFT in the hotel booking case. The OFT has identified trust in online markets as a primary area of focus in its 2012-2013 Annual Plan.

Although, it is possible to argue that such practices often have pro-competitive effects, companies cannot be complacent and are well advised to ensure that any existing similar practices do not raise undue competition concerns.

Similarly, companies trying to avoid competition law issues by entering into agency agreements should carefully assess whether such agency arrangements are "true agency" arrangements falling outside the domain of competition law. Competition authorities will generally treat the relationship between the principal and agent as a single economic unit and therefore not subject to the competition rules.

4 A continued scrutiny of abuse of dominance cases with more pressure to settle cases and a closer monitoring of compliance with commitments

A focus on the conduct of dominant companies across all industry sectors as well as vigorous scrutiny of a dominant company's compliance with commitments offered to the regulators is expected. Indeed, the European Commission (Commission) has made it clear that it intends to strengthen its monitoring mechanisms to ensure that the Commission's commitment regime has "real teeth".

In recent years, the Commission has adopted very few abuse of dominance infringement decisions under Article 102 of the Treaty on the Functioning of the European Union (TFEU) – the last fine being imposed on Telekmunikacja Polska in 2011 and prior to this on Intel in 2009.

That is not to say that the Commission's enforcement priorities have changed. The Commission has consistently and increasingly initiated numerous investigations into suspected breaches of the abuse of dominance rules across the energy, pharmaceutical, telecoms and high tech/IT sectors. 2013 will be no exception, with the Commission starting the year with at least ten ongoing cases.

Rather, the Commission has increasingly used the formal commitment process to settle abuse of dominance cases over the past five years. Most notably in 2012 it concluded its three-year investigation into Thomson Reuters (TR) alleged abuse of dominance in the market for consolidated real-time datafeeds.  It was agreed that TR should create a new licence allowing customers to use the RIC symbology to retrieve data sourced from TR's competitors.

The Commission also recently accepted commitments offered by Rio Tinto Alcan to modify its future technology transfer agreements to enable licensees of its smelting technology to purchase specialty cranes from any recommended supplier.

The year ahead

It will be interesting to see whether the trend of formal commitment decisions continues in 2013, especially given:

• Potential differences in approach taken by regulators worldwide investigating parallel global issues. In the ongoing Google search services case EU Competition Commissioner Almunia (Almunia) has firmly stated that Google will be forced to change its conduct or face competition law charges, whereas the US Federal Trade Commission recently decided to drop its probe. The US instead agreed with Google that it would change how it uses content from other sites and allow advertisers to switch campaigns across platforms. Almunia explained that the divergence is due to the differing legal standards for abuse of dominance and Google's stronger position in Europe. The outcome of this case will be followed with keen interest.
• Commitment processes are only effective if companies adhere to their undertakings. 2013 will indeed see whether the Commission's commitment regime has any "real teeth" following its recent issuance of a Statement of Objections against Microsoft for an alleged breach of its 2009 commitments concerning browser choice screens. What is clear, however, is that the Commission has highlighted that it will strengthen its monitoring mechanisms in all commitment cases going forward, having already imposed in recent cases the requirement of a monitoring trustee where perhaps an independent expert or arbitrator may have previously been sufficient.
• There have always been concerns regarding a lack of transparency and no real precedential value with respect to settlement decisions - albeit, there have been a number of Article 102 TFEU European Court cases in 2012 that have clarified and expanded upon the application of the competition rules. In particular, guidance has been provided in relation to rebates, selective price cutting and margin squeezing in Tomra, Post Danmark and Telia Sonera as well as the novel abuses found in the AstraZeneca case (see below).
• There have been instances where the Commission has been prepared to accept informal commitments, as it did in Boerhinger/Alimrall in 2011 and in relation to Apple's restrictions on developers of iPhone applications in September 2010.

Looking forward, however, the message seems clear enough – the Commission is eager to resolve investigations quickly (not only abuse of dominance but cartel infringements). Its main tool to achieve this is currently the commitment process, such that dominant companies found to infringe the rules are likely to come under increasing pressure to settle.

5 More merger notifications and also a possible simplification of the merger control regime and/or a closing of the "enforcement gap" at the EU level

It is expected to be another busy year for the European Commission (Commission) in terms of merger control, with the number of merger filings notified anticipated to steadily increase. The Commission will also likely continue its rigorous and economic-based review, especially of difficult cases, with larger teams and more advanced econometric modelling. A non-legislative initiative is planned to simplify the current merger control regime. 2013 may well also see the EU regime close the "enforcement gap" in relation to the Commission's review of acquisitions of non-controlling minority stakes.

2012 was a busy year for merger control. Although the number of transactions notified to the Commission in 2012 (283) was lower than in 2011 (309), the number received was more than in 2009 (259) and 2010 (274) – albeit still significantly lower than the peak of 2007 (402 notifications).

Many of the transactions notified also raised serious competition concerns. The Commission initiated ten Phase II investigations in 2012 compared to eight in 2011 and four in 2010. This recent increase in Phase II investigations may well be as a result of the Commission requesting larger remedies packages during Phase I or because parties are raising more complex and rigorous economic-based assessments which require the longer time frame afforded by Phase II. Out of the ten Phase II investigations initiated, one was cleared unconditionally and six cleared subject to conditions. The remaining Phase II cases are under review.

There was also one prohibition decision, with the Commission blocking the proposed merger between Deutsche Börse and NYSE Euronext in February 2012. Previously, the Commission had prohibited the proposed transaction between Aegean Airlines and Olympic Air in 2011 and prior to that in 2007 it blocked Ryanair and Aer Lingus. The parties involved in the latter two blocked transactions have re-negotiated new transactions, which are currently under review by the Commission.

Pre-notification referrals in 2012 also continued to be more common than post-notification referrals, raising concerns in the legal community that the referral system can be cumbersome and unnecessarily lengthen the time of merger review investigations.

2012 saw a number of other noteworthy trends:

• The European Court of Justice (ECJ) sent out a strong message to companies that the Commission applies a zero tolerance policy to firms who fail to identify transactions, which require merger control notification and to observe mandatory waiting periods prior to completion (i.e. the suspensory obligation). The ECJ dismissed Electrabel's appeal of a Commission decision to fine Electrabel €20 million for acquiring control over CNR without prior approval under the EU merger rules. This was despite the fact that the Commission itself had identified that the failure was unintentional and there had been no competition harm.
• Also, interestingly in 2012, the Commission published over 15 derogation decisions in relation to when the Commission will be prepared to derogate from the suspensory obligation in merger cases. Very few derogation decisions had previously been published, but these decisions now provide companies with greater clarity and certainty as to when and how the Commission will grant derogations.
• The ECJ ruled in the Odile Jacob SAS/Agrofert cases that general transparency rules on access to documents of EU institutions do not require the latter to disclose documents generated in the context of merger proceedings as this may undermine both the commercial interests of the firms involved and objectives of the investigation. Exceptions relating to commercial interests may even apply for a period of 30 years or more. Third parties would have to show an overriding public interest sufficient to justify disclosure.
• There have been an increasing number of challenges to merger cases before the European Courts. Of particular interest is Western Digital's appeal against the Commission's conditional clearance of its merger with Hitachi, on the grounds that the so-called "priority rule" was applied incorrectly. Under the priority rule, the Commission analyses the first merger notified as if the subsequent merger did not exist, whereas the second merger is reviewed as if the first merger is implemented. Western Digital filed its notification just a day after Seagate had notified the Commission of its intention to acquire Samsung's hard-disk drive business. Consequently, Western Digital's transactions was analysed within the framework of a more concentrated market, with the Commission deeming it appropriate to impose commitments. Western Digital has also claimed that its pre-notification talks with the Commission were launched before those relating to the Seagate/Samsung merger.
• There has been a growing reliance by competition agencies on internal documents reminding companies to be careful when drafting documents so as to avoid power words (e.g. "dominant", "the leading player"); defining markets and setting out market shares; using words that suggest there are significant barriers to entry or expansion, or language that suggests there is an anticompetitive intent or effect to eliminate competition on the market.
• There was an increase in the number of bilateral and multilateral arrangements, such as the bilateral cooperation between the EU and China and the European Competition Network establishing best practice for cooperation.

The year ahead

2013 is likely to see a steady flow of merger notifications to the Commission with a possible increase in merger filings compared to 2012 and a continued increase in Phase II investigations, with decisions expected in the first half of 2013 in the ongoing Phase II merger cases which include Syniverse/Mach, Ryanair/Aer Lingus III and Munksjo/Ahlstrom.

A non-legislative initiative is planned for 2013 to simplify the current EU merger control regime to make it as "business friendly" as possible and "minimise the burden" for companies. The Commission is considering ways to streamline the simplified procedure, allow for a quicker review of a larger proportion of non-problematic merger cases as well as a review of the current pre-notification practices to shorten the notification process.

Furthermore, since March 2011, the Commission has undergone a review of non-controlling minority stake acquisitions to determine whether there is an enforcement gap under the EU merger rules, and if so, whether any changes to the rules are necessary. Unlike the Commission, certain EU countries such as the UK, Austria and Germany, have the power to investigate such smaller acquisitions despite the fact such acquisitions are increasingly prevalent and can potentially give rise to anticompetitive effects. 2013 may well see the EU regime close the gap.

6 An increase in private enforcement actions in the EU with the UK continuing to be the most attractive forum for such damages claims

A hike in private enforcement actions is expected, with the UK continuing to be seen as the most attractive forum for such litigation. Further European Commission (Commission) policy developments on competition damages and collective redress schemes to ensure third parties can effectively claim damages for breach of the competition rules is also anticipated.

The Commission has long recognised that there needs to be a strong and effective system of not only public but also private enforcement. Although EU-wide legislation has been slow to remove any obstacles to injured parties who are seeking damages. The Commission has indicated in its 2012 Work Programme that it is pressing on with legislation to introduce "collective redress" through representative actions (i.e. class actions). The aim will be to ensure the European approach is coherent and consistent on this matter.

There has also been a significant increase in the number of private damages actions brought at the national Member State level over the last five years and a further hike in damages actions is expected in Europe. This is especially likely given the significant number of recent high profile cartel and abuse of dominance cases, which make certain firms highly susceptible to damages claims from competitors and other third parties.

Furthermore, in light of the fact that the European Court of Justice (ECJ) confirmed in 2012 in a landmark decision that the Commission had standing to bring damages claims against the Elevators cartel. This is likely to only further encourage future private enforcement. Increasingly, companies facing potential damages actions will need to carefully ensure that they have a cohesive litigation and competition strategy in place to deal with such claims across jurisdictions.

The UK, in particular, is generally viewed as the most favourable jurisdiction for bringing such actions (in part, due to the wide disclosure rules). Two recent cases in 2012 illustrated the selling points of the English system.

In KME Yorkshire v Toshiba Carrier, the English courts ruled that stand-alone "follow-on" damages actions against non-UK defendants can be "anchored" before the English courts by alleging that a UK subsidiary which is not a party to the prior infringement decision (i.e. not an addressee of the relevant decision) implemented and/or knowingly participated in the cartel. This is likely to attract more damages actions relating to international cartels to the UK.

The UK's Competition Appeal Tribunal also awarded damages in a follow-on claim for the first time in the Cardiff Bus case in the amount of £34,000 for loss of profits and £60,000 of exemplary damages. Although the level of the award was modest, the award of exemplary damages is noteworthy. It indicates that such damages will be awarded in addition to compensatory damages to punish defendants, especially when the defendant was or should have been aware that its conduct was illegal.

Another interesting development in 2012 has involved the balance between effective damages actions and the protection of leniency regimes.

On the one hand, leniency applicants will often have to provide significant incriminating information to a competition authority in order to benefit from immunity or a reduction of their fine. On the other hand, damages claimants will want disclosure of such materials to help bring their damages claim, especially if the claim is brought before an infringement decision is published. Disclosure of a leniency applicant's materials can, as a result, seriously undermine the leniency process.

Diverging approaches to the treatment of disclosure of leniency materials have already been evident following the ECJ's judgment in Pfleiderer, which held that the ability of a private claimant to access leniency applications should be judged on a case-by-case basis by national courts. In 2012, the local court in Bonn in the Pfleiderer case came down on the side of protecting leniency information whereas an English court in the National Grid damages case ordered the disclosure of selected leniency materials, raising the issue of inconsistency across the EU.

The year ahead

An increase in private enforcement actions is expected, with the UK continuing to likely be the most attractive forum for such litigation.

Developments are expected in 2013 in relation to the Commission's framework on "collective address", but it is not yet clear whether it will take the form of legislative or non-legislative action.

The Commission has also indicated that legislation will be necessary to address the conflict between private enforcement actions and the protection of leniency regimes, with a legislative proposal expected in the first quarter of 2013.

7 A continued close scrutiny of the financial services and payment markets

A relentless scrutiny of the financial services and payment markets is expected. In particular, potentially significant fines are likely to be imposed on financial institutions suspected of manipulating reference benchmarks – LIBOR, EURIBOR and TIBOR. Potential enforcement action is also expected in the investigation into the credit default swaps (CDS) market, where banks are suspected of foreclosing the CDS markets to trading exchanges is anticipated.

In 2012, the EU has continued to actively pursue its goal of a fair, stable, open, transparent, efficient and competitive environment for financial services and payment markets.

This was clearly illustrated by its prohibition of the proposed merger between Deutsche Börse and NYSE Euronext (now on appeal) having identified significant competition concerns - in particular, in relation to European exchange-traded derivatives. This was despite the Department of Justice having cleared the transaction in the US.

The General Court also confirmed the European Commission's (Commission) decision prohibiting multilateral interchange fees applied by Mastercard, agreeing that such charges can have restrictive effects. The Commission has continued to investigate VISA in relation to similar concerns regarding its unfair credit card charges and the European Payment Council for a possible exclusion of non-bank providers from e-payment services. In particular, the Commission has focused on inefficient payment systems and the introduction of secure and innovative card, internet and mobile payments to ensure the growth of e-commerce and the smooth functioning of the internal market. It launched a consultation on a Green Paper to help identify the right way to improve market integration.

The year ahead

The financial services and payment services sector will undoubtedly continue to attract scrutiny from the Commission in 2013 – in particular, in the form of the ongoing investigations into the CDS markets where 16 investment banks are alleged to have foreclosed trading exchanges (the linked investigation into preferential tariffs granted by ICE Clear Europe has been put on hold for the time being, but remains under close watch); and the manipulation of the LIBOR, EURIBOR and TIBOR benchmark rates. These are top priority cases for the coming year.

Action at a national Member State level is also very likely - with Hungary already having initiated an investigation against Mastercard over abuse of dominance concerns linked to domestic fees in the payments sector.

8 A renewed focus on energy liberalisation and active pursuit of abuses of dominance in the sector

There are likely to be continued attempts to introduce more competition into the energy markets and to support the European Commission's (Commission) objective of a Single Energy Market, by the opening of more formal abuse of dominance proceedings against electricity and gas incumbents at both the Commission and national competition authority (NCA) level.

In the energy markets, the EU continues to focus on introducing more competition, keeping prices low, ensuring security of supply, and, in particular, the establishment of an EU-wide Single Energy Market by 2014.

To this end in 2012, the Commission has conducted numerous abuse of dominance investigations under Article 102 of the Treaty on the Functioning of the European Union (TFEU) in the natural gas and electricity sectors against incumbent providers. Most notably, the Commission is investigating Gazprom for hindering the free flow of gas across Member States, preventing diversification of gas supply and imposing unfair prices on customers by linking oil and gas prices.

The Commission also opened investigations against Bulgarian Energy Holding for potential foreclosure of the Bulgarian wholesale electricity market and obstacles to cross-border trade as well as OPCOM/Transelectrica in Romania for discriminating against companies on the basis of nationality or place of establishment.

2012 also saw the Commission conduct dawn raids at the offices of Europe's largest electricity exchanges, Nord Pool and Epex, suspected of illegal geographic market sharing.

The year ahead

In 2013, the energy sector will certainly continue to be a major focal point, having already attracted a great deal of political attention.

In particular, the Commission starts the year with approximately eight ongoing abuse of dominance investigations in the energy sector and has made clear that it expects decisions shortly in many of these cases, such as the proceedings against CEZ (where the Commission has recently market tested structural remedies offered by CEZ to prevent foreclosure of the Czech electricity market following allegations of hoarding capacity in the transmission network).

Similar action in the energy sector is anticipated at the national level, with the UK already investigating claims that energy firms have manipulated the wholesale gas sector by distorting reported benchmark prices and Greece suspecting that the country's incumbent gas distributor may be restricting its competitors' access to the network.

9 Increased enforcement activity in the pharmaceutical sector, especially vis-à-vis tactics delaying entry of generic products

A marked increase in enforcement activity in the pharmaceutical sector worldwide (including the EU) combatting practices that slow or prevent the entrance of generic drugs into existing markets is anticipated – in particular, in relation to "reverse payment" or "pay for delay" arrangements.

In the pharmaceuticals industry, the major competition law development in 2012 was the European Court of Justice's (ECJ) judgment in AstraZeneca (AZ) which confirmed the General Court's finding that AZ had abused its dominant position on the market for proton pump inhibitors. AZ had made misleading representations to certain patent offices to obtain post-patent protection for its drug Losec, and withdrawn marketing authorisations for Losec in certain Member States to block or delay the entry of generic competitors as well as to prevent parallel imports.

This was the first case in which these two novel abuses were held to infringe Article 102 of the Treaty on the Functioning of the European Union (TFEU) and the first time the ECJ ruled on an abuse of dominance case in the pharmaceutical sector.

Aside from the AZ decision, 2012 was a relatively quiet year for the sector, with no other major decisions, legislation or judgments. Rather, a number of cases were dropped or closed by the European Commission (Commission), including AstraZeneca/Nycomed and GSK/Seroxat.

The year ahead

In 2013, there will most likely be an uptake in enforcement activity, especially in relation to combatting practices that slow or prevent the entrance of generic drugs into existing markets, i.e. "reverse payment" settlements or "pay for delay" clauses. This is a top priority focus for the Commission, which has four ongoing cases against Lundbeck, Servier, Cephalon/Teva and Johnson & Johnson/Novartis.

Likewise, the UK and Spain are also looking closely into similar type arrangements involving GSK/Generics and Pfizer, respectively. This European scrutiny follows recent enforcement activity in the US where the legality of these arrangements is hotly disputed. The US Supreme Court has recently indicated it is prepared to rule on the legality of such arrangements given the diverging views taken by the Circuit Courts.

10 Regulators worldwide, including in the EU, are increasingly saying "no" to "patent wars" and "patent trolls" in high technology markets

A continued fight against "patent wars" and "patent trolls" in the high technology sector is expected, ensuring standard essential patents (SEPs) are not used abusively by dominant firms and interoperability is in place. Regulators worldwide are increasingly fearless to take on the challenge of protecting competition and intellectual property rights in high technology markets. Likewise a review and consultation of the Technology Transfer Block Exemption (TTBE) is expected.

In 2012, vigilant enforcement of the competition laws in high technology industries has been one of the top priorities of the European Commission (Commission) given the importance of dynamic efficiency, economic growth and consumer welfare. The Google, Apple and Microsoft investigations (previously discussed in this briefing) are only a few of the Commission's focal investigations in the technology sector.

Increasingly, at the forefront of the Commission's concerns has been interoperability where devices are expected to work and communicate together.

The Commission is currently investigating The Mathworks, which is allegedly abusing its dominant position by refusing to provide competitors with end licenses and interoperability information, distorting competition in the market for the design of commercial control systems. This is the first time that the Commission has looked at interoperability since its 2004 Microsoft decision (albeit interoperability and open access type remedies have recently been considered in the Intel/McAfee and Cisco/Tandberg merger cases and is an issue raised by Cisco and Messagent on appeal in the Microsoft/Skype merger).

In addition, the Commission is paying particular attention to the misuse of patents – especially in the context of the so-called "smartphone wars".

Patents become a particularly significant concern when they are part of a standard (i.e. SEPs) and where the dominant SEP holder demands terms not consistent with its promise to licence the SEPs on fair, reasonable and non-discriminatory terms (FRAND) and couples this with a threat of an injunction. Such conduct can undermine competition and innovation. 2012 saw the Commission issue a Statement of Objections against Samsung and the launch of an investigation against Motorola Mobility on suspicion of similar practices.

In 2012, there were also complaints brought by Huwai against Interdigital and by Google against Nokia and Microsoft's use of a so-called "patent troll" company to start legal patent challenges on their behalf. The concern is that "patent trolls" derive revenue through litigating for patent infringement of others or buy up patents (principally from other firms which go bankrupt) to derive a portion of revenue from the licensing of patents, which they do not exploit commercially to produce goods or services. Companies that wish to use patents for their proper purpose are therefore prevented from doing so, restricting competition and innovation.

The year ahead

2013 should witness interesting developments in these interoperability, SEP and patent troll cases – especially the Samsung SEP case given that Samsung dropped all its SEP injunctions against Apple but the Commission decided in any event to continue to proceed against Samsung.

The Commission is clearly seeking to establish Samsung as a precedent case in 2013, which contrasts with the recent US Federal Trade Commission (FTC) investigation into Google's search services. The FTC agreed to drop the case provided Google would change its conduct, including agreeing to stop seeking injunctions against companies who wish to license its SEPs on FRAND terms and resolve such future disputes through arbitration.

2013 will also give rise to a public consultation on a draft amended TTBE with final texts scheduled for adoption in 2014 when the current block exemption is due to expire. It is expected the Commission will replace the TTBE in substantially similar form to the present one with some incremental changes and clarifications around market definition, market share calculations and the definition of competitors, all of which, to date, have been difficult concepts to apply.

11 No slowing down of the vigorous enforcement of the competition rules in the food & drink sector

The food & drink sector is a top priority focus for the European Commission (Commission) and national competition authorities (NCAs). The message is loud and clear - compliance is not optional - with the NCAs, in particular, taking relentless action against cartel and other anticompetitive activity.

Over the last year, the food & drink sector – at all levels of the supply chain – has been increasingly closely scrutinised by both the Commission and NCAs spurred by the concern of consumer harm as a result of increasing food prices and other unfair trading practices.

In January 2012, the Commission set up an internal "Task Force" to oversee the food industry and in December 2012 it announced that it would set up a study to assess whether innovation and choice are being hampered through concentration in retail food markets and the use of own-brand products (Study). It investigated a large merger in the sugar sector, conditionally clearing the acquisition of control by Südzucker (Europe's largest sugar producer) of EDF&MAN (the second largest sugar trader worldwide) in Phase II.

At a national level, where most of the enforcement and fining action has to date taken place, a recent European Competition Network Study identified that NCAs had together over the last eight years carried out over 1,300 merger cases and 180 competition law investigations (half of which were cartels mostly in food processing and manufacturing).

The year ahead

The EU-wide focus on the food & drink industry is set to continue in 2013.

Numerous NCAs, including Austria, Belgium, France, Greece, Hungary, Spain and the UK, are actively pursuing investigations against companies in the industry for alleged breaches of the competition rules. For example investigations have been or are currently underway in numerous sectors across the EU such as flour, milk, beef and poultry, fishing and wine.

The Commission is also currently investigating companies which supply packaging of meat, cheese and other produce for alleged cartel activity, which may result in significant fines.

A final report is also expected in relation to the Commission's Study and any results from the Task Force may well lead to further EU-wide actions.

The food sector is clearly a high priority for competition authorities and the message is clear from regulators – compliance is not optional. There seem to be no indications that rigorous enforcement of the competition rules in this sector will slow down.

12 A continued close monitoring of the transport sector as well as a possible lapse of the Maritime Transport Guidelines

The transport sector is likely to continue to be the subject of focus for the European Commission (Commission) and national competition authorities (NCAs), in particular, with the wave of aviation mergers and new aviation State Aid Guidelines, the ongoing abuse of dominance cases in the rail sector and the review of the Maritime Transport Guidelines.

The Commission has continued to closely monitor the transport industry, in particular, the aviation, maritime and rail sectors.

Aviation

• 2012 witnessed several high-profile airline mergers and/or proposed mergers, including the conditional approval of the acquisition of BMI by IAG (currently being challenged by Virgin Atlantic) and the conditional approval of United Technology's bid for aviation equipment rival Goodrich (which is one of the largest transactions in the aerospace industry in years).
• This wave of merger reviews in the airlines industry is set to continue into 2013.
• The Commission recently opened a Phase II review in relation to Ryanair's renewed bid for Air Lingus (revealing concerns that the merger could create a total monopoly on certain routes from Irish airports) and is also currently reviewing the previously blocked merger between Aegean Airlines and Olympic Air following referrals by Greece and Cyprus.
• Alliance and code-sharing agreements have also continued to feature highly on the Commission's agenda and further developments are expected in 2013 in relation to the Commission's investigations of Star Alliance and SkyTeam with commitments currently being market tested in the case of Star Alliance.

Maritime

• In the shipping world, although 2012 saw the Commission close its investigation into P&I clubs after finding no evidence that contractual relationships between the specialist marine insurance groups and their members were anticompetitive, the Commission displayed a more aggressive stance. Together with several of the world's top competition law enforcers, it launched targeted investigations of international maritime transport services companies over suspicions of colluding to fix prices and allocate customers.
• At a national level, the European shipping market has also been a focus, with Spain fining various maritime transport services providers for cartel activity. This enforcement trend is unlikely to change in 2013.
• Policy developments are also anticipated with the Commission's review of the Maritime Transport Guidelines due to expire in September 2013. The Commission's current proposal is to allow the guidelines to lapse rather than extending or overhauling them.

Rail

• The Commission has continued its long-standing objective of opening competition in the rail markets, adopting in 2012 a new recast rail directive, which establishes a single European railway area. The first effects are likely to be felt in 2013.
• 2013 will also see details emerge of a 2012 Commission report assessing the development of the European rail market, which may lead to further legislative proposals and enforcement of the competition rules. The Commission is expected to present by the end of January 2013 new legislation to liberalise rail transport.
• In fact, enforcement actions are likely to continue both at the Commission and NCA level.
• The Commission is currently investigating Deutsche Bahn over abuse of dominance concerns relating to its unfair pricing system for traction current in Germany and recently NCAs have not been shy to take action where necessary. The French regulators imposed a significant fine on SNCF of €60.9 million for restricting access to the freight transport market and the German authorities imposed a hefty fine on Thyssen Krupp of €103 million for involvement in a price-fixing cartel in the steel and rail equipment sector (currently being sued for damages by Deutsche Bahn). The Spanish competition authorities also recently opened a rail sector inquiry in 2012.

13  Reform of the State Aid rules

A significant overhaul and far reaching modernisation of the State Aid rules and guidelines is anticipated to make the regime simpler, stronger and more effective during difficult fiscal times.

2012 saw the start of a major and far-reaching overhaul of the State Aid rules across the board by the European Commission (Commission) – otherwise known as the State Aid Modernisation (SAM) initiative. The package includes many policy reforms and aims to make State Aid control simpler, stronger and smarter to help EU governments boost growth in times of great fiscal difficulty.

In 2012, public consultations were concluded on the General Block Exemption Regulation (which provides for a de minimis exemption from the State Aid rules), the Procedural Regulation and the Enabling Regulation. The Commission continued its review of compatibility criteria, especially, in the following State Aid guidelines: (i) research & development; (ii) regional aid; (iii) environment; (iv) industrial rescue and restructuring; and (v) aviation. The Commission also continued to control State Aid for various sectors, including, in particular, banks (e.g. Landesbanken, Nord LB, BayernLB, UNNIM, Dexia Group) and airlines (e.g. Malev Hungarian Airways, Czech Airlines) in distress.

The year ahead

In 2013, the Commission is expected to continue to be busy solving many State Aid cases – it already has over 60 such cases in the pipeline.

Implementation of the various regulations consulted upon in 2012 is also expected as well as the gradual introduction of the main elements of SAM and final revisions to the main guidelines by the end of 2013.