This newsletter is our take on the antitrust developments we think are most interesting to your business. Kees Schillemans, partner based in Amsterdam, is our editor this month. He has selected:
The European Commission (Commission)’s power to order companies suspected of engaging in anti-competitive behaviour to stop their conduct pending a final decision in an investigation – so-called ‘interim measures’ – had not been used since the IMS Health case 18 years ago. But now, in a landmark move, the Commission has imposed interim measures on Broadcom. It has concluded that, if Broadcom’s conduct (ie the application of anti-competitive exclusivity provisions in contracts with manufacturers of TV set-top boxes and modems) were allowed to continue without intervention, it could result in serious and irreparable harm to competition before the end of its full investigation into the company. Under the interim measures Broadcom must cease to apply the anti-competitive clauses and must not agree the same or similar provisions in other agreements with these customers, or engage in conduct with equivalent object or effect. It is required to comply within 30 days. Broadcom is reportedly intending to appeal the decision.
In our full summary we discuss the decision further, setting it in the wider context of calls for antitrust authorities to make greater use of interim measures, particularly in digital markets, and considering how interim measures are being used in other EU Member States.
Fines for gun-jumping and failure to file continue to make headlines across the globe as antitrust authorities take an increasingly strict approach to enforcement of breaches of procedural merger control rules. In the UK, the Competition and Markets Authority (CMA) fined PayPal GBP250,000 for failing to comply with an interim enforcement order (IEO) imposed in relation to its acquisition of iZettle. As mentioned in a previous edition of Antitrust in focus, the CMA routinely imposes IEOs in completed acquisitions to prevent further integration of the businesses pending the results of the merger review. Here, the CMA granted PayPal a derogation from the terms of the IEO to enable it to engage in integration activities outside the UK. But these activities led to contacts with a number of potential UK customers. The fine is significantly below the maximum 5% of turnover, but still amounts to the largest fine for a single IEO infringement imposed by the CMA. Also in Europe, a fine of EUR53.9m was imposed by the Slovenian Competition Protection Agency on Agrokor for failing to notify its acquisition of a drinks company. The individual responsible for the failure was fined EUR5,000, showing that penalties for these types of infringements may not only bite at the corporate level. The parties have appealed.
In China, the State Administration for Market Regulation (SAMR) has announced six new fining decisions for failure to file in the past few weeks. Each company was sanctioned between RMB300,000 (EUR38,000) and RMB400,000 (EUR52,000), with the total fine in one case (BAIC Motor/Hyundai Capital Services/Hyundai Motor Group) reaching RMB900,000 (115,000) – the highest ever imposed by SAMR or its predecessor for failure to file – split between three companies. This brings the SAMR’s tally of failure to file decisions to 13 so far in 2019, creeping close to last year’s record of 15. The Indonesian antitrust authority, KPPU, imposed three fines for late notification – under Indonesian merger rules, deals must be filed within 30 business days of closing. One of these, an IDR20.66bn (EUR1.32m) penalty on mining company PT Citra Prima Sejati for failing to notify two transactions, is a record amount, reflecting the fact that the notifications were made over five years after the deadline. Another is also a significant fine – IDR12.6bn (EUR808,000) on mall operator Matahari Pontianak. We understand that KPPU has around ten other late notification cases under investigation.
In addition, we saw progress in other gun-jumping investigations around the globe. Brazil’s antitrust authority, CADE, has recommended a fine of BRL60m (EUR13.2m) – the maximum possible – on Red Hat and IBM after they carved out Brazil and closed their deal in other jurisdictions. According to CADE, these types of hold-separate measures cannot be relied on to exempt or mitigate gun-jumping sanctions. It will be interesting to see whether the authority’s tribunal follows these recommendations. CADE has also opened two new gun-jumping probes into security company Prosegur Brasil. Elsewhere, at the end of September, the Portuguese antitrust authority sent a statement of objections to HCapital, SCA-SICAR, setting out its accusations of gun-jumping. In Slovakia, the authority opened an investigation into two unnamed firms on suspicion of failure to file. And in Serbia, the authorities started a probe into whether Fortenova Grupa made several acquisitions without obtaining merger control clearance.
The message to merging parties is therefore clear: the risks of failing to file or closing a deal before merger control clearance is obtained can be high. The same may be true for attempts to close around jurisdictions still under review. While we expect no let-up in this trend of enforcement, some antitrust authorities are providing more guidance to parties on what is expected. We have previously reported that the CMA published updated guidelines in the summer. CADE, too, published a new resolution on gun-jumping in July, setting out how fines will be calculated. And at EU level, this month we saw the Advocate General give his opinion in the Marine Harvest appeal, recommending that the European Court of Justice (ECJ) halve to EUR10m the fine imposed by the European Commission on Marine Harvest for gun-jumping and failure to file. The ECJ’s ruling will likely provide an important precedent for parties notifying public bids/series of transactions under the EU merger rules.
After a period of quiet, the UK Government confirmed its intention to strengthen its powers to review and intervene in deals to protect national security. Fairly detailed proposals for new legislation giving the Government far-reaching national security investment powers were set out in a White Paper back in July 2018 (see our full summary). The Government has now picked its plans up again. In the Queen’s Speech the Government in outline repeats its intention:
to introduce – an apparently still voluntary – notification system to allow companies to flag transactions with potential security concerns, “while ensuring the UK remains a global champion of free trade and investment”
for the “economy-wide” regime to apply to all sectors and all businesses, regardless of their size, and to assets as well as businesses
to put in place a “quick, efficient” screening regime following which the Government will be able to impose conditions on or prohibit a deal (as well as impose sanctions on companies for non-compliance with the regime), and
to construct a safeguarding mechanism to allow parties to appeal where necessary.
The timeline for any new legislation is not clear, especially given that the current Government does not have a majority to pass bills in Parliament. But the proposal suggests that Prime Minister Boris Johnson will make updating and reinforcing the UK’s existing national security screening regime a priority should he win any election later this year. As the Queen’s Speech is at pains to point out, the UK is certainly not alone in this mission, with a number of other countries around the world (including Australia, the U.S., Germany and Japan) also updating their national security screening mechanisms.
Most antitrust authorities have the power to conduct inspections at the premises of companies under investigation, and in some instances at the private property of those companies’ employees. These powers are usually backed up with sanctions for non-compliance. This month, for the first time, Australia’s Commonwealth Director of Public Prosecutions (CDPP) charged an individual – a former general manager of sales and marketing at BlueScope – with two counts of inciting the obstruction of a Commonwealth official in relation to an Australian Competition & Consumer Commission (ACCC) investigation into an alleged flat steel cartel. Further information on the exact nature of the alleged obstruction will become available when the court hears the case in November. The stakes are high: the criminal charge carries a maximum penalty of two years’ imprisonment per offence. Separately, in August the ACCC brought civil cartel proceedings against both BlueScope and its former general manager before the Federal Court.
Just days before the Australian development, the Lithuanian antitrust authority went a step further, issuing a fine of over EUR1m for obstruction, in this case against companies (Būsto aplinka and Mano Būsto priežiūra). During the course of a December 2017 inspection into suspected bid-rigging, employees had denied officials access to emails for more than two hours and a manager had used a software programme to permanently delete files and documents. The authority noted that the loss of stored data was irrecoverable and might have been the cause of it ultimately terminating its investigation on the basis of a lack of direct evidence of an infringement. 2019 has seen a couple of other high-profile obstruction cases: in March the UK’s Competition and Market Authority imposed its first ever dawn raid fine, sanctioning guitar supplier Fender Europe GBP25,000 for concealing relevant notebooks; and in May the French antitrust authority fined Akka Technologies EUR900,000 for employees blocking receipt of emails by one of their colleagues and breaching a seal. The latter conduct is generally seen as a particularly egregious form of obstruction: in 2008 the European Commission fined E.ON EUR38m for breaking a seal affixed to an office door overnight between inspection days.
Clearly it is in the interests of both companies and employees to know how to act in the event of an inspection to avoid serious sanctions. This is particularly the case as we see authorities take a more aggressive approach, demanding speedy access to documents and employees, and as electronic searching methods continue to evolve. Preparation – including practical training, a dawn raid manual providing key instructions and legal contacts and an established IT procedure – is vital.
At the end of September a Supreme Court of Canada (SCC) judgment in Pioneer Corp. v Godfrey addressed several procedural questions in relation to antitrust class actions. Most importantly, the SCC’s decision clarified for those potentially involved in claims in Canada: (i) what is required to prove commonality of injury at certification – loss-related questions need only be sufficiently credible or plausible, in effect a low bar; (ii) whether limitation periods are subject to discovery – yes; and (iii) whether umbrella damages are available – yes, although they may be difficult to prove.
In this article we compare the approach currently taken by the courts in Canada, the U.S. and the UK to each of these issues. We also describe how the EU Member States and in particular the UK have looked to Canada for precedent on how to develop their new and/or maturing private damages systems and collective action regimes.
The European Commission has found that Bonduelle, Coroos and Groupe CECAB participated for more than 13 years in a cartel for the supply of certain types of canned vegetables to retailers and/or food service companies in the EEA. They set prices, agreed on market shares and volume quotas, allocated customers and markets, coordinated their replies to tenders, and exchanged commercially sensitive information. The Commission imposed a total of EUR31.6m in fines. Some takeaways:
The Commission continues to prioritise the enforcement of anti-competitive behaviour in the canned vegetables market, after its 2014 and 2016 fines in the canned mushrooms sector. Commissioner Margrethe Vestager notes that “European consumers should have access to food at affordable prices. Competition enables that.”
The Commission is still prepared to proceed with hybrid settlement cases despite the procedural complications this entails. Bonduelle, Coroos and Groupe CECAB acknowledged their participation in and liability for the cartel, resulting in the Commission applying 10% fine reductions in this settlement. However, the Commission is continuing its investigation into a fourth company under the standard cartel procedure.
Applying for leniency can pay dividends. Bonduelle received full immunity for revealing the existence of the cartel, successfully avoiding a fine of around EUR250m. Coroos and Groupe CECAB benefited from reductions for cooperation of 15% and 30% respectively.
The Commission will grant – albeit exceptionally – fine reductions on the basis of an inability to pay. While few details are currently available (the Commission has not specified which company won the discount or the level of reduction), it is clear that the Commission will carry out a very thorough assessment of any claim of inability to pay. The Commission examined the company’s financial statements for recent years, projections for the current and coming years, ratios measuring the financial strength, profitability, solvency, liquidity, and relations with outside financial partners and with shareholders.
The total Commission fines for cartel infringements is nearing EUR1.5bn this year, largely as a result of its foreign exchange spot trading and car safety equipment cases. Plenty of other cartel cases remain open, including in the food industry. Notably, the Commission carried out unannounced inspections in the farmed Atlantic salmon sector in February.
For the first time, on behalf of the Minister, the Secretary of State for Economic Affairs and Climate Policy in the Netherlands has used its power to permit a merger on public interest grounds after a prohibition decision of the Netherlands Authority for Consumers and Markets (ACM). The ACM had denied a licence for PostNL’s acquisition of rival postal operator Sandd in early September, concerned that the price of the merged company’s services might rise for both businesses and customers. But, following a special request by PostNL, by the end of September the Secretary of State had granted the deal a conditional licence, finding that a broader consideration of social interests – “to ensure that mail delivery remains affordable, available and reliable in a sharply declining market” – outweighed any restriction of competition. Referring to the ACM’s antitrust concerns and recommendations, the Secretary of State requires PostNL to comply with conditions that restrict price increases and guarantee other postal companies’ access to its network for a transitional period. PostNL has also made promises as to the employment of Sandd mail deliverers and other employees which need to be adhered to according to the approval decision.
The minister’s power to override the ACM’s antitrust objections to a deal on public interest grounds has been available since 1998. Has this case finally set a precedent for future transactions? Or will it remain an exception, tied to the specific nature of the postal markets involved? While the ACM’s chairman has maintained that it made the right decision on PostNL/Sandd from an antitrust perspective, he reportedly does not exclude more government decisions to follow. However, the circumstances of the PostNL request are so unique, that one cannot expect many similarly successful requests in the future.
Allen & Overy advised PostNL in relation to this transaction.
The Philippine Competition Commission (PCC) has been stepping up enforcement activity during 2019. This month it concluded the first ever abuse of dominance case to go through full enforcement proceedings. The PCC reached a settlement with housing developer 8990 Holdings and subsidiary Urban Deca Homes over charges that Urban Deca forced tenants to exclusively use its in-house internet service provider. The firms must pay a fine of PHP27.11m (EUR480,000) and have agreed to stop the exclusive deal at the property in question, as well as at eight other projects across the country. The fine was reduced by 25% under the settlement agreement.
The PCC is a relatively new antitrust authority, established in 2016 following the adoption of new antitrust rules in 2015. Since its inception it has not been shy of grabbing headlines, particularly in the merger control arena where, for example, it accepted conditions in relation to Grab’s acquisition of Uber’s Southeast Asia assets in summer 2018, following this with fines on the companies for breaches of procedural merger rules. It seems that its antitrust enforcement work is likely to follow suit – according to the PCC’s Chairman, the Urban Deca case “shows that the PCC is serious about addressing anticompetitive practices that have long been considered par for the course in different industries”. With a new leniency regime now in place and powers to conduct dawn raids on the horizon, we expect to see the PCC continue to ramp up its enforcement action against cartels and abuse of dominance in the coming year.
Antitrust authorities continue to weigh in on the debate over the challenges raised by the digital economy on antitrust policy and enforcement. The latest contribution is a joint memorandum by the Belgian, Dutch and Luxembourg authorities. The memorandum draws from previous studies in the area (including the EU expert report, UK Furman and Lear reports, and the U.S. Stigler study) and addresses three particular issues. First, and most controversially, is a recommendation that the European Commission and national antitrust authorities have the power to impose remedies on dominant companies without having to prove a breach of the antitrust rules. The idea is to introduce a mechanism to prevent antitrust problems, rather than relying on enforcement after the event which, the memorandum notes “can be too slow in digital and other fast-moving markets”. The remedies would be behavioural, such as platform access, data portability, data-sharing and non-discriminatory ranking. And no fines would be imposed. This is a bold proposal, and would mark a significant shift in enforcement policy if implemented. The memorandum notes that the tool would resemble the powers of the UK Competition and Markets Authority (CMA) to impose remedies following a market investigation and the ability of national telecom regulators to impose remedies on firms with significant market power. But the proposal in fact falls short of these powers, particularly those of the CMA which include an ability to require structural remedies. It will be very interesting to see how much support this suggestion receives.
Second, the memorandum looks at mergers. It calls for the European Commission to carry out an economic study on merger control in the digital sector, reviewing past merger decisions relating to acquisitions by platforms in the last decade, as well as analysing deals which did not fall within the scope of merger rules. It suggests that the study should also discuss options for addressing any alleged under-enforcement of digital mergers. This is not a new proposal – the UK, for example, has already carried out such a study (the Lear report, referred to above). EU Competition Commissioner Margrethe Vestager recently made clear that a priority for her second term in office would be to examine whether current EU merger rules sufficiently catch “all important deals” which can harm competition. It remains to be seen, however, whether the type of economic study proposed by the memorandum would form part of this analysis.
Finally, the memorandum recommends that antitrust authorities (primarily the European Commission) issue more guidance for digital and other fast-moving markets. This would take the form of guidance papers on specific issues, as well as case-by-case guidance letters that could ultimately trigger the resolution of issues through an informal, fast track commitment procedure. This proposal fits with a number of other reports into the digital sector, many of which (including last month’s German expert report, featured in the previous edition of Antitrust in focus) have called for antitrust authorities to provide greater clarity, and therefore certainty, to digital companies.
In last month’s Antitrust in focus we reported that the U.S. Department of Justice had challenged Novelis’ proposed acquisition of rival aluminium sheet supplier Aleris, agreeing for the first time to use arbitration to settle disputes over market definition. While those proceedings (as well as an in-depth review in China) continue, the European Commission has given its conditional approval to the deal. Following a phase 2 investigation the Commission concluded that, as a result of high combined market shares and only a limited number of smaller remaining rivals with limited spare capacity, the transaction would have resulted in higher prices for European customers of aluminium automotive body sheets. To address these concerns, the parties offered to divest Aleris’ entire aluminium automotive body sheet business in Europe, including its plant in Duffel, Belgium.
Novelis/Aleris is the fifth in-depth EU investigation this year to end in a conditional clearance. And it is the fourth to be subject to structural remedies. According to reports, the parties had pushed back initially on a divestment remedy, instead offering to make a USD92m investment in the Duffel plant in order to increase capacity. This was rejected by the Commission (which traditionally favours structural over behavioural merger commitments), leading the parties to propose the divestment. The Commission notes that the sale of the Duffel plant removes the entire overlap in the area of concern. But not only that – the Commission states that “in order to preserve its viability, the Duffel plant’s divestiture will also include other products currently manufactured at that plant”. The case therefore serves as a reminder that first, the Commission remains keen on structural remedies to address horizontal concerns and second, in order to be accepted as viable for potential purchasers, any divestment package may need to reach beyond the problematic area(s) of overlap between the parties.