News Antitrust The Commission and the German Federal Cartel Office welcome the agreement between Amazon/Audible and Apple to remove exclusivity obligations in the supply and distribution of audiobooks The European Commission and the German Federal Cartel Office have welcomed the agreement to end all exclusivity obligations in the audiobook supply and distribution concluded between Amazon’s subsidiary Audible − the world’s largest seller and producer of downloadable audiobooks and other spoken-word content− and Apple. The exclusivity obligations, which will be removed as a result of the agreement, required Apple to source exclusively from Audible and prevented the latter from supplying music to digital platforms other than Apple’s iTunes store. Audible and Apple’s iTunes store are the two largest distributors of downloadable audiobooks to consumers worldwide. For its part, Apple’s iTunes store provides customers with the possibility to purchase and download digital content, including audiobooks. Therefore, the agreement will most likely improve competition in the EU market of downloadable audiobook distribution. In practical terms, the agreement will allow (i) Audible to supply its downloadable audiobooks to third party platforms, (ii) Apple to source audiobooks from alternative suppliers, and (iii) publishers and content aggregators to conclude distribution agreements directly with Apple. The agreement follows the contacts held by the Commission and the German Federal Cartel Office with the companies, which took place as a result of two complaints filed by the German Publishers and Booksellers Association before both Competition Authorities. Such complaint objected to various practices used by Audible, including its exclusive supply of audiobooks to Apple’s iTunes Store. State Aid The Commission refers Spain to the Court of Justice of the EU for failing to recover incompatible state aid for the digitalization of its television network In October 2014 and June 2013, the Commission adopted two decisions finding that State aid granted by Spain to finance the transition from analogue to digital terrestrial television (DTT) in remote areas of Castilla-La Mancha and the rest of Spain was incompatible with EU State aid rules. EU law requires that such public financing is accessible for all transmission platforms, including terrestrial, satellite, cable or the internet, on a non-discriminatory basis. However, only terrestrial digital technology benefitted from the controversial funds which discriminated between different terrestrial operators, resulting in a selective advantage for some operators over their competitors. The characteristics of the scheme may have deprived consumers of more choice and lower prices. As a consequence, the Commission ordered the recovery of the subsidies. So far, the Spanish authorities have only recovered approximately 2% of the estimated amount under the first decision and nothing under the second one. In addition, they continue to pay for the operation and maintenance of parts of the DTT network, in breach of the decisions. As a result of the delay in implementing the decisions, the distortion of competition in the relevant market continues. Therefore, the Commission has decided to refer Spain to the Court of Justice of the EU pursuant to Article 108(2) of the Treaty on the Functioning of the European Union. Brussels GA&P | January 2017 3 Internal Market The Commission presents the new Services Package On 10 January 2017, the Commission presented the new Services Package as part of the roadmap contained in the Single Market Strategy. The goal of the proposed measures is to render administrative formalities easier for services providers while helping Member States to identify burdensome or outdated requirements on professionals operating domestically or across the borders. In order to achieve this, the Commission has not proposed amending the existing EU legislation concerning services but focusing on its implementation given that evidence shows that a full implementation of the current EU rules on services would provide a significant boost to the EU economy. This package encompasses four initiatives: First, the Commission has proposed a new European Services e-card. This is a simplified electronic procedure that will facilitate the fulfilment of the administrative formalities required to provide services abroad. The system will allow services providers to liaise with a single interlocutor in their home country and in their own language. Such interlocutor would then validate the necessary data and transmit it to the host Member State. Two important aspects will remain unaffected: (i) the Member States’ current power to apply domestic regulatory requirements and to decide whether applicants can provide services in its territory; and (ii) employer obligations and/or workers’ rights. Second, the Commission has proposed to streamline and clarify how Member States should undertake a comprehensive and transparent proportionality test before adopting or amending national rules on professional services. Third, the Commission has offered guidance for national amendments to professions’ regulation. This initiative results from the mutual exercise undertaken by Member States between 2014 and 2016, which showed that countries such as Italy, Poland, Portugal and Spain, that have further liberalised their services markets, are now benefitting from a wider choice of services at better prices, while maintaining high standards for consumers and workers. The guidance offered by the Commission in this aspect concerns the regulation of professional services with high growth and job potential, i.e. architects, engineers, lawyers, accountants, patent agents, real estate agents and tourist guides. Finally, the Commission has proposed to improve the notification of draft national laws on services. Under EU law, it is already required that Member States notify amendments to national rules on services to the Commission. This allows both the EU institution and other Member States to raise potential concerns about possible inconsistencies with EU law. The current proposal aims to improve this mechanism in order to make it more timely, effective and transparent. Case-law & Analysis The General Court of the EU orders the EU to pay more than EUR 50,000 in damages to Gascogne as a result of the excessive length of the proceedings before the General Court (Judgment of the General Court of the EU of 10 January 2017 in in Case T-577/14 Gascogne Sack Deutschland and Gascogne v European Union) In its judgment of 10 January 2017, a chamber of the General Court of the EU ruled on the excessive length of proceedings in Cases T-72/06 and T-79/06 that took place before another chamber of the General Court of the EU. Such proceedings started as a result of the actions brought by Gascogne Sack Deutschland and Gascogne on 23 February 2006 seeking the annulment of a Commission decision concerning a fine for the companies’ participation in a cartel in the industrial plastic bags sector. The actions for annulment were dismissed by the General Court of the EU on 16 November 2011. Brussels GA&P | January 2017 4 On appeal, the Court of Justice of the EU upheld the judgments of the General Court and the fines totalling EUR13.2 million imposed on the two companies. However, the Court of Justice of the EU suggested that the companies could bring actions for damages before the General Court of the EU as a result of the excessive length of the proceedings that had taken place before the very same Court. Encouraged by this judgment, Gascogne Sack Deutschland and Gascogne resorted to the General Court of the EU claiming close to EUR 4 million in damages for material harm and non-material harm caused by the lengthy proceedings. At the outset of its judgment, the General Court of the EU emphasized that non-contractual liability of the EU can be established when three cumulative conditions are fulfilled. First, the institutions’ conduct must be unlawful. In this regard the General Court of the EU found that there had been a breach of the right to adjudication within a reasonable period established in the Charter of Fundamental Rights of the European Union (article 47, second paragraph) due to the excessive length of the proceedings. The proceedings lasted for more than 5 years and 9 months and their specific circumstances could not justify such delay. In Competition Law cases, the General Court acknowledged that the appropriate length of proceedings is a period of 15 months between the end of the written phase of the procedure and the opening of the oral phase. In the present case, a period of 46 months separated those two phases. However, the General Court of the EU noted that the existence of parallel related cases may justify an increase in the length of the proceedings, by a period of 1 month per additional related case, i.e. an increase of 11 months in this case. Therefore, a period of 26 months between the end of the written phase of the procedure and the opening of the oral one was, in its view, appropriate in order to deal with the cases at issue. Consequently, the 46 month period between both phases only showed an unjustified period of inactivity of 20 months in each of the two abovementioned cases. The second condition requires that an actual damage must have been suffered. In this respect, the General Court of the EU concluded that Gascogne suffered actual and certain material harm given the losses it suffered due to the costs that it had to pay in relation to the bank guarantee provided to the Commission. The companies also argued that they had suffered material harm resulting from the payment, for a longer period than necessary, of statutory interest on the amount of the Commission’s fine imposed and that they had been deprived of the possibility of finding an investor earlier. These arguments were nevertheless dismissed by the Court due to an alleged lack of evidence. Third, the non-contractual liability of the EU requires the existence of a causal link between the conduct and the claimed damage. This condition was found to be met by the General Court due to the fact that, if the proceedings in Cases T-72/06 and T-79/06 had not lasted more than the reasonable period for adjudication, Gascogne would not have had to pay bank guarantee costs during the period corresponding to that excess. As for non-material harm, the General Court acknowledged that Gascogne Sack Deutschland and Gascogne suffered this type of harm due to the excessive length of the proceedings. Precisely, the Court considered that the situation of uncertainty, which went beyond the degree of uncertainty usually caused by litigation, had had an impact on the decisions and on the management of those companies. Based on the fulfilment of the abovementioned three conditions, the General Court of the EU decided to award Gascogne damages amounting to EUR 47,064.339 as compensation for the material harm (i.e. the payment of additional bank guarantee costs) and EUR 5,000 as compensation for the non-material harm. Finally, the General Court of the EU held that the damages must be increased by compensatory interest, from 4 August 2014 until 10 January 2017 (that is, from the date the action for damages was brought before the General Court of the EU to the date of the delivery of the judgment), at the annual rate of inflation reported by Eurostat for the period concerned in France (where Gascogne is established). Additionally, late payment interest must be added to both the damages of EUR 47,064.33 and EUR 5,000 awarded to each of the two companies, from the delivery of the judgment, until the damages are paid in full, at the rate set by the European Central Bank for its main refinancing operations, increased by two percentage points. Brussels GA&P | January 2017 5 For further information please visit our website at www.gomezacebo-pombo.com or send us an e-mail to: email@example.com. Barcelona | Bilbao | Madrid | Valencia | Vigo | Brussels | Lisbon | London | New York Although, at first glance, this precedent may appear encouraging for other companies that are experiencing lengthy judicial proceedings, the reality is that the compensation ordered by the General Court of the EU remains clearly insufficient to justify time and costs incurred by the companies. It should be noted that the material harm claimed by Gascogne derived from real costs incurred which were, prima facie, adequately documented by the companies - (i) EUR 1,193,467 for the payment of additional legal interests on the amount of the fine imposed by the Commission beyond the reasonable delay and (ii) EUR 187,571 for the bank guarantee payments beyond the reasonable delay. Furthermore, Gascogne claimed (i) the lost profit or losses suffered due to the situation of uncertainty −such as being deprived from the possibility of finding an investor earlier−, which it estimated in EUR 2,000,000; and, (ii) EUR 500,000 for non-material damages for the reputation of the company, the uncertainty that affected the planning of the decisions, the problems concerning the management of the companies and the anxiety and inconveniences suffered by the management board of the company and employees. The General Court acknowledged the existence of actual and certain harm, however, it only awarded EUR 47,064.339 compensation for material harm resulting from part of the payments for the bank guarantee, which is an insignificant amount as compared to the amount of actual costs incurred by Gascogne. At the same time, while the General Court acknowledged that Gascogne suffered non-material harm due to the effects of uncertainty of the case on the management of the company, it only ordered the EU to pay compensation totalling EUR 5,000 for each of the companies, which compared to the claim brought by Gascogne also represents a minimal amount, that would most likely not cover the moral damage claimed. Interestingly, there are, at least, four other cases currently pending in which damages are sought on the basis of lengthy proceedings. Currently at GA&P GA&P Competition Law department in Barcelona hosts the conference: “Sanctions against managers, compliance and claims for damages: what happened in 2016 and what should we expect of 2017?” On 8 February 2017, our Barcelona office will host a conference on “Sanctions against managers, compliance and claims for damages: what happened in 2016 and what should we expect of 2017?”. The speakers will be Iñigo Igartua Arregui (Partner and Head of our Competition Law Department) and Andrea Díez de Uré (Lawyer in our Competition Law Department). 2016 has been an interesting year full of developments in the field of Competition Law. The intense activity of the Spanish Competition Authority and Courts in the field of Competition Law has resulted in important developments of practical relevance, which will be reviewed by our speakers on the basis of real cases. The session should be of special interest for in-house lawyers and managers in charge of defining the competitive business strategy of the company.