Canon jumps the gun, European Commission delivers a blow
On 27 June 2019, the European Commission ("EC") fined Canon €28 million for gun-jumping in its acquisition of Toshiba Medical Systems Corporation ("TMSC"), namely implementing the transaction prior to notification and approval under EU merger control (see the EC press release here). Canon had used a warehousing structure involving two steps which, in the first instance, enabled a special-purpose vehicle to acquire 95% the share capital of TMSC for a nominal sum on an interim basis, with Canon acquiring the remaining 5% for the actual purchase price of the entire share capital, €5.28 billion. As a second step, once EC approval was obtained, Canon acquired 100% of TMSC by exercising the options and converting them into voting shares.
According to the EC, both steps formed a single notifiable merger due to the functional link with control. This analysis seems aligned with the criteria for illegal “partial implementation” of a transaction set out by the European Court of Justice's ruling in the EY/KPMG Denmark case, in which the Court of Justice ruled that whilst purely preparatory acts do not result in a change of control, measures that present a "direct functional link" to the implementation, i.e., measures necessary to achieve a change of control, are subject to standstill obligations (see our article on the EY/KPMG Denmark case here). In line with this case law, the EC's press release explicitly states that the first step in the Canon case had enabled Canon to obtain control over TMSC, therefore partially implementing the transaction and breaching the standstill obligation.
Since the adoption of the Commission’s 2008 Consolidated Jurisdictional Notice (see here) there has been a significant shift in the EC’s treatment of warehousing structures. In that Notice, the EC clearly took the position that two step warehousing structures (where an interim buyer acquires shares on behalf of the ultimate buyer without prior approval) would normally be considered “gun-jumping”. Gun-jumping can expose companies to high penalties: in 2018 Altice was fined €124.5 million.
ACCC secures victory against vendor selling fake Indigenous artworks
In June 2019, Australia's competition regulator, the Australian Competition and Consumer Commission ("ACCC") secured a significant legal victory in the Federal Court against Birubi Art ("Birubi"), a wholesaler of Australian souvenir and Australiana products based in Queensland, for making false or misleading representations in relation to products, including boomerangs, bullroarers, didgeridoos and message stones, that it claimed were hand painted by Australian Aboriginal persons. These products were in fact painted in Indonesia. The Federal Court ordered Birubi to pay $2.3 million in damages for engaging in these contraventions of the Australian Consumer Law.
The case highlights the ACCC's willingness to take action against companies seeking to undermine the integrity of, and opportunities for participation in, key industries, including the Indigenous Australian art industry. It also highlights the Federal Court's approach to the imposition of penalties in such cases, including its consideration of, not only the economic harms, but also the social and cultural harms which may result from the commission of such conduct in these important cultural industries.
Dawn of a new era in the Belgian pharma market?
The Belgian Competition Authority ("BCA") fined the national Order of Pharmacists EUR 1 million on 28 May 2019, for the use of anticompetitive practices aimed at excluding the Medi-Market Group, an association of (para)pharmacies, from the market for pharmacy services. Previously, the market had been highly regulated, with limited possibilities of price competition between traditional pharmacists. However, the entry of new players, such as the Medi-Market Group, is generally considered to be instrumental for competition in the sector to take off.
The BCA has now ruled that the Order of Pharmacists had tried to undermine the Medi-Market Group for the sole purpose of excluding them (and similar innovative business models) from the market. In addition, the BCA considered that such measures are part of an anticompetitive strategy to the detriment of general welfare, and to consumers in particular.
The overall strategy is reflected in a series of actions identified by the BCA, including filing cases before disciplinary councils, filing for interim injunctions and cease and desist orders at court, and disseminating misleading information to the public about the Medi-Market Group. While each separate action of the Order of Pharmacists is not in itself anticompetitive, the BCA is of the view that together they form part of a package of measures which implemented an overall anticompetitive strategy, and that the strategy amounts to a "by object" infringement of competition law. The Order of Pharmacists has already announced its intention to appeal the BCA decision. The outcome of this appeal will have an impact on whether innovative competition can develop in the pharmacy services market.
Fishing expeditions during dawn raids may be legal
AV Media ("AV Media"), a company suspected of bid-rigging, challenged the lawfulness of the dawn raid conducted at its premises. In the cited judgment, the scope of investigative powers of the Office for the Protection of Competition ("OPC") was scrutinised.
During the dawn raid, the Office investigated business records and secured evidence of the suspected unlawful behaviour. AV Media, however, challenged the scope of the investigation on the basis that keywords used for the searches of electronic documents were too general (e.g. "agreements") and the dawn raid constituted a so called "fishing expedition". The Supreme Administrative Court ("Court") held that the OPC did not exceed the scope of investigation for which there was sufficient supporting evidence to suspect the existence of breach. The relevant searches were limited to a certain period and the findings of these searches, with the exception of one document, revealed only documents related to the investigated public procurement. Accordingly, the Court held that the scope of the investigation was not disproportionate and the complainant's right to respect its private and family life were not breached.
Secondly, AV Media argued that the Office failed to record details of the investigation in the protocol in sufficient form and that not disclosing all keywords searched constituted a breach of OPC's legal obligation. Although the Court confirmed the existence of such obligation, it nevertheless held, that AV Media failed to show that this administrative defect of the protocol had any negative impact on the complainant's rights.
The relevant judgment is available in Czech here.
Danish company fined for gun-jumping
On 26 June 2019, the Danish Competition and Consumer Authority ("CCA") announced that the Danish oil and petrol service station company Circle K Denmark A/S accepted to pay a fine of DKK 6.000.000 (EUR 800.000) for failure to notify an acquisition as required under the merger control rules in the Danish Competition Act, an infringement also known as gun-jumping.
In 2016, Circle K Denmark A/S acquired 72 service stations operating under the Shell trademark from 12 individual lessees. However, the acquisitions were not included in the earlier approval by the European Commission of Circle K Denmark A/S' acquisition of parts of Danish Shell's activities. Consequently, neither the European Commission nor the CCA were notified about the acquisitions.
The reasoning behind the fine takes the gravity and the duration of the infringement as well as the turnover of the company into account. In this respect, it should be stressed that Circle K Denmark A/S proactively contacted the CCA which was seen as a mitigating factor when determining the amount of the fine. Following that contact, Circle K Denmark A/S notified the CCA and the acquisitions were approved in October 2018.
The full fine notice can be accessed in Danish here.
Amendments to the Finnish Competition Act
The key amendments concern inspections carried out by the Finnish Competition and Consumer Authority ("FCCA") and the merger control procedure. The inspection provisions were amended to allow the FCCA to conduct searches within temporary copies of inspection data at its own premises instead of the inspected company’s premises. The amendments also widen the possibilities of information exchange between certain national authorities. The FCCA is entitled to receive information e.g. from the tax authority if the information is needed for investigating a suspected restriction of competition or a merger. Also the investigation periods for merger control were amended. The time limits for merger control procedures were amended to be measured in working days instead of months which was previously the case. The amended deadlines are 23 working days for a phase I decision and 69 working days for a phase II decision. The amendments entered into force on 17 June 2019.
The link to the press release of the Ministry of Economic Affairs and Employment is available here.
Court of Auditors urges for a more efficient competition policy
On 4 June 2019, as part of its evaluation missions, the French Court of Auditors published an opinion on the French competition policy. Characterized by a dual organization based on the French Competition Authority ("FCA") and the French General Directorate for Competition Policy, Consumer Affairs and Fraud Control ("DGCCRF"), the French competition policy is reported to broadly meet its objectives.
However, the Court of Auditors noted a number of deficiencies including overly long processing times despite a moderate volume of activity between 2010 and 2017 (e.g. 5 years for an FCA’s decision to be issued on anti-competitive practices). From the Court of Auditors’ perspective, this administrative slowness is due to insufficient management of the investigation services and creates unbearable uncertainty for businesses.
The Court of Auditors thus recommends the implementation of (i) clear and ambitious objectives in terms of processing time and number of cases handled, (ii) a major restructuring of the DGCCRF local network and (iii) a closer cooperation between the FCA and the DGCCRF. While such praiseworthy recommendations were overall well-received by the French Ministry of Economy and Finance in its response to this opinion, it remains to be seen how such opinion will impact the ongoing investigations and whether more drastic measures will be taken.
Narrow Price Parity Clauses ruled to be valid
On 4 June 2019, the Higher Regional Court of Düsseldorf ruled that price parity clauses which prohibit hotel operators to offer lower room prices on their homepages compared to the prices offered on the booking platform are valid – overruling the decision of the German Federal Cartel Office ("FCO") of 22 December 2015
In the past, price parity clauses between hotel platforms and hotel operators were considered inadmissible under German competition law to the extent that hotel operators in general were obliged to offer best prices on the booking platform, thereby, in particular, restricting them to offer better prices to other competing booking platforms (Higher Regional Court of Düsseldorf, decision of 09.01.2015, see the press release available in German).
However, in the court’s view narrow price parity clauses which merely prohibit hotel operators from offering better prices on their own websites are not a restraint of competition. The court takes into consideration the practice that hotel booking platforms attract guests using it as a mere price comparison rather than a booking tool and then finalizing the booking process through the hotel’s own website (free riding). The court held that a respective price parity clause was necessary when it comes to safeguarding a fair exchange of services between hotel operators and booking platforms. This view was based on the results of an inquiry among hotel operators and customers initiated by the court in the course of the proceedings.
Thus, the court is of the opinion that price parity clauses should be considered as ancillary restraints to the platform agreement which are therefore outside of the scope of competition law prohibitions. The booking portal shall have the possibility to prevent a hotel provider from “rerouting” customers to its own website on which they book hotel rooms directly circumventing the platform’s commission (although these customers were initially interested in such hotel by using the services of the booking platform). The court characterized such conduct as disloyal vis-à-vis the booking platform partner in view of their contractual relationship. Andreas Mundt, president of the FCO, expressed his disappointment with regard to the aforementioned decision outlining Booking.com’s market share of nearly 60% and the fact that hotel operators are getting more and more dependent of booking platforms. The FCO is going to assess whether to contest the decision.
The decision has not been published but the press release is available in German.
Definition and proof of ‘dual pricing’ – Kúria annuls GVH decision
The Hungarian Supreme Court ("Kúria") annulled on 10 April 2019 a decision of the Hungarian Competition Authority ("GVH") which had imposed a € 321,000 fine on Alcon Hungária Kft. and Alcon Services AG Hungarian branch (jointly, the "Alcon Companies") for having applied a discount scheme leading to dual pricing on the contact lenses market.
In its decision, the GVH had alleged that the Alcon Companies had restricted competition with their new discount scheme as (i) the obtained e-mail correspondence suggested that the aim of this scheme was to raise the prices of online contact lenses retailers and (ii) this scheme differentiated between online and physical sales outlets so online retailers had to enter into a contract with an optician in order to benefit from fitting discounts (because of the preconditions of receiving such discounts). According to the GVH, this had led to dual pricing and had put the online retailers to such a disadvantage that had effectively driven them out of the market. The Alcon Companies appealed the GVH’s decision and after a series of court challenges, the case reached the Kúria.
The Kúria concluded in its judgement that the GVH failed to sufficiently explore and state the facts of the case and therefore annulled the GVH’s decision (as well as the court judgement approving it) and ordered the GVH to start again its investigation so it will have to:
(i) define ‘dual pricing’ which was the central concept of the case (in the absence of a statutory definition); (ii) describe the legal grounds and qualities according to which a new discount scheme restricts competition even though the discounts were never available prior to the introduction of the new discount scheme; (iii) gather market data and perform the relevant analysis to substantiate dual pricing (instead of merely stating that the restrictive nature is “self-evident” from the structure of the discount scheme); and (iv) elaborate the motives of the Alcon Companies to drive online retailers out of business.
The judgement of the Kúria as second instance appellate court can be found here and the annulled decision of the GVH here (however, the annulled judgement of the Metropolitan Court as first instance administrative and labour court is not available online). Both links are in Hungarian.
Sky/R2 merger authorized with measures
On 20th May 2019, the Italian Competition Authority (the "AGCM") cleared the merger between Sky Italia S.r.l.’s ("SKY") and R2 S.r.l. ("R2"), a company formerly owned by Mediaset Premium S.p.A. ("MP") and providing technical and administrative platform services for broadcasting by means of Digital Terrestrial Television. The decision cleared the notified transaction, albeit imposing remedies on SKY.
SKY initially notified the acquisition of R2 in November 2018. The AGCM however opened an in-depth investigation in March 2019, alleging that such acquisition may reduce competition in the market for retail Pay-TV services (in which SKY and MP were the main players) by providing an incentive for MP to exit the market, and had the same effects as an acquisition of MP as a whole by SKY.
Since the parties were not subject to a standstill obligation pursuant to Italian Antitrust Law, they completed the transaction after notification before the AGCM ended up its assessment. However, as the AGCM notified a statement of objections to the Parties, SKY withdrew the notification and R2 was returned to MP (a clause in the transaction allowed this in the event of a prohibition/conditional decision by the AGCM) and R2’s platform was therefore opened to third-party access.
In spite of this, the AGCM considered that this did not restore the situation as it was before the acquisition and that the anti-competitive effects generated in the meantime were still lasting. Therefore, although it ultimately cleared the merger, the AGCM imposed remedies on SKY for a period of three years as of notification of the decision, among which an obligation not to conclude new contracts for the acquisition of broadcasting rights and linear Pay-TV channels edited by third parties on an exclusive basis for the Internet platform in Italy.
For more information please see the Decision of the AGCM here (in Italian).
First request for an ECJ’s preliminary ruling on the stowage sector's collective agreement
Historically, stowage activities in Spain had been reserved for dockers affiliated to public companies known as "SAGEPs" so that stowage companies had to be part the of the SAGEPs' shareholding structure. However, on 11 December 2014, the European Court of Justice ("ECJ") declared this regime incompatible with the freedom of establishment (Case C-576/13).
Following this ruling, Spanish Government approved a new stowage regime in May 2017 under which stowage companies no longer needed to hold shares in the SAGEPs to operate on the market. The applicable collective bargaining agreement was therefore renegotiated and imposed on stowage companies wishing to separate from a SAGEP the obligation to hire dockers under the same conditions than the relevant SAGEP ("subrogation") and in proportion to its equity participation in such SAGEP.
Considering that this new collective agreement might restrict competition, the Spanish Competition Authority ("CNMC") opened in November 2017 disciplinary proceedings against the national association of stowage companies and six trade unions. However, without questioning the legality of these provisions the Spanish Government approved in March 2019 a royal decree which retroactively validates the "subrogations" made since 2017.
In light of the legal uncertainty surrounding this sector, the CNMC has thus decided on 12 June 2019 to submit questions to the ECJ for a preliminary ruling on the compatibility of the collective agreement and the Royal Decree with Article 101 TFEU. This is the first time the CNMC submits a preliminary ruling, although the former Spanish Tribunal for the defence of Competition had already done so in 1991 (Case C-67/91), where the ECJ confirmed its jurisdiction to make a ruling on the questions referred by a National Competition Authority.
In its previous decisions, the ECJ usually concluded that collective agreements fall outside the scope of Article 101 TFEU by virtue of their nature when seeking to improve conditions of employment. However, the CNMC argues that the prohibition shall be applicable in this case, considering that the agreement exceeds strict labour issues and leads to the harmonisation of commercial conditions.
For more information, please find the CNMC decision here (in Spanish).
Abuse of dominance: District court annuls € 41 million fine imposed on Dutch rail transport incumbent
On 27 June 2019 the District Court of Rotterdam annulled the decision of the Authority for Consumers and Markets ("ACM", the Dutch competition authority) to impose a fine of € 41 million on Dutch rail transport incumbent N.V. Nederlandse Spoorwegen ("NS") for abusing its dominant position (100%) on the Main Rail Network market ("MRN").
In its decision, the ACM held that NS adopted a predatory behaviour (loss-making bid) and a combination of exclusionary practices during the regional rail transport tender in the Dutch province of Limburg ("Limburg Tender"). According to the ACM the abusive behaviour of NS was conducted outside of the MRN where it held a dominant position (as a result of its exclusive concession for passenger transport on the MRN) but was aimed to disincentivize liberalisation of the MRN and the introduction of competition on the MRN.
However, the District Court first ruled in its judgment that the ACM has not conclusively proven that NS holds a dominant position on the market for passenger transport on the MRN (even though NS holds the MRN-concession). According to the court, ACM did not thoroughly investigate and establish whether under the terms of the MRN concession, NS can actually determine its market behaviour independently of end users and the State as its customer. Despite the lack of competition on the MRN, the court considered that ACM should have investigated whether the negotiations with the State on the concession terms and the uncertainty about extension of the concession serve as countervailing power for independent market behaviour by NS. This finding was already sufficient basis for the District Court to annul the ACM fine, but the court additionally considered that the causal link between the behaviour of NS in the Limburg Tender and potential abuse of a dominant position on the MRN market, including the effects on that MRN market, were not sufficiently established.
This judgment shows yet again that the burden of proof for the ACM in establishing an abuse of dominance infringement is high and Dutch courts do not shy away for critically scrutinizing competition law fining decisions. The ACM has not yet indicated whether it intends to appeal the judgment of the District Court, but we will keep you updated on relevant developments in the next editions of our newsletter. Please find the judgment of the District Court here (in Dutch only) and an informal translation of the judgement here.
The CMA publishes its Digital Markets Strategy
In the context of increasing enforcement in the digital sector, the CMA published its Digital Markets Strategy ("DMS") in July 2019. It aims to ensure a level playing field where all businesses can compete on the merits of their offering. The DMS sets out strategic aims supported by the following seven priority areas of focus.
- Consumer and antitrust enforcement as well as merger assessment: Many of the tools currently available to the CMA were built for the analogue age and would benefit from a digital age upgrade to future-proof their effectiveness. Nonetheless, the CMA will use it existing powers to the fullest extent possible.
- The work of the DATA unit: The newly established Data, Technology and Analytics ("DATA") unit supports the CMA with technical understanding of working with data and algorithms. The unit's data engineers and data scientists support case teams across the CMA and also conducts research and policy work.
- Market study on online platforms and digital advertising: The CMA has launched a market study into online platforms and digital advertising, which should ensure that any future regulation is based on a good understanding of advertising funded platform business models.
- Review its mergers approach to digital markets: The CMA continues to develop its approach on how best to assess digital merger cases. A particular area which is being considered is whether there is a need for closer scrutiny for acquisitions by particularly powerful companies. This has recently been exemplified by the CMA considering the concept of "killer acquisitions" as a theory of harm in the PayPal /iZettle merger.
- Policy work to consider a possible digital markets unit: The creation of a digital markets unit was recommended by the Furman Report and has now been accepted by Government.
- Proposals to reform the CMA's enforcement tools: In February 2019, the CMA Chairman wrote to the Secretary of State for Business Energy and Industrial Strategy with a range of proposals aimed at upgrading the CMA's tools, for example sharpening up its interim measures regime to enable swifter action where detriment develops fast. These proposals are currently under the consideration of Government.
- International cooperation: Due to digital markets' international reach, it is essential for competition authorities to work in synergy and learn from one another. The CMA will capitalise on the synergies between its work on digital markets and that undertaken by its counterparts around the world.
Head of Competition Practice in Italy presents his new book "The European Electronic Communications Code: 5G, Fiber, Competition and Rights of Consumers"
Our Head of Competition & EU practice in Italy, Federico Marini-Balestra, was invited to present at the Chamber of Deputies in Rome his new book: "The European Electronic Communications Code. 5G, Fiber, Competition and Rights of Consumers" (Il codice europeo delle comunicazioni elettroniche. 5G, Fibra, Concorrenza e Diritti degli Utenti), co-authored with Prof. Fulvio Sarzana di S.Ippolito.
The presentation consisted of two panels which were attended by institutional members of Government, Parliament and independent authorities (such as the General-Director at the Italian Antitrust Authority), eminent scholars in the field, as well as top managers of TLC operators, such as general counsel of Telecom Italia, and the heads of regulatory affairs at Fastweb, Open Fiber, Wind-Tre, and Iliad.
Drawing from Federico's volume and from the Directive (EU) 2018/1972 of the European Parliament and of the Council of 11 December 2018 establishing the European Electronic Communications Code, the speakers explored the most critical aspects of the current and prospective system of electronic communication in Italy. The debate covered many of its aspects by touching its focal points, such as the development of 5G technology, internet of things, digital common market, cybersecurity, competition and consumer rights issues in the field, both from a regulatory and business oriented point of view.
The presentation gave a great opportunity for regulators and industry representatives to meet and exchange views on how to move forward with the development of the field, both from a technical and legislative perspective.