2019 summer review of European competition law developments
Posted by Chantal Lavoie on 1 September 2019
If you’ve been out and about on holidays this summer, here’s a summary below of some European competition law developments you might have missed. This review covers the period from 1 July to 31 August 2019 in relation to both European Commission decisions/investigations and judgments of the Court of Justice of the European Union. Reference is also made to a few developments in EU Member States of particular interest. Worth highlighting are the Commission’s decision in the long-awaited Qualcomm predatory pricing investigation, the opening of an investigation into Amazon’s use of marketplace merchant data. Also of interest is the Dusseldorf court’s judgment suspending the German Federal Cartel Office’s decision against Facebook.
Part I – European Commission developments
5.07.2019 Connect Airways’ acquisition of Flybe approved with conditions under EU merger control rules
The transaction consisted in a joint acquisition by the consortium founders of Connect Airways, namely Virgin Atlantic, Stobart Aviation and Cyrus. The Commission was concerned that the acquisition would create “quasi-monopolies” on the Birmingham-Amsterdam route and the Birmingham-Paris route as a result of (i)Air France-KLM acquiring indirect control over Flybe (given that it holds joint control over Virgin Atlantic since February 2019); and (ii) both Amsterdam Schiphol and Paris CDG being “very congested airports”.
The remedies offered by Connect Airways consisted in releasing 5 daily slot pairs and 3 daily slot pairs on each of the Birmingham-Amsterdam route and the Birmingham-Paris route to interested competing airlines.
Interestingly the Commission granted a derogation from the suspension obligation pending merger review to allow Connect Airways to acquire the shares in Flybe prior to the Commission’s merger clearance decision. As appears from the press release, the exercise of voting rights was subject to strict conditions during this derogation period.
9.07.2019 Sanrio fined €6.2 million for preventing cross-border sales of licensed merchandise within the EEA
Two years after opening its investigation, the European Commission imposed a fine on Sanrio’s licensing practices which were found in breach of EU competition rules. Sanrio’s licensing agreements with traders were entered into on a non-exclusive basis but prohibited out-of-territory sales. Sanrio also put in place measures to ensure compliance. Sanrio’s practices were found to prevent cross-border sells in the EU and to result in a partitioning of the Single Market. The restrictions applied for 11 years to both brick-and-mortar and online sales.
The Commission calculated the fine of €6.2 million on the value of sales relating to the infringement. Sanrio obtained a 40% reduction on its fine for cooperation under the Commission’s cooperation framework applicable to antitrust (non-cartel) procedures. A fact sheet on the cooperation framework was published by the Commission in December 2018 in the context of the Guess decision.
Sanrio’s practices were found to breach Article 101 TFEU. This decision brings to a close two of the three investigations opened by the Commission in 2017 into cross-border and online sales restrictions imposed on traders in distribution and licensing agreements (Sanrio; Nike; Universal Studios still ongoing). The Commission imposed a fine of €12.5 million on Nike in March 2019 for preventing cross-border EEA sales by its traders of licensed merchandise.
The Sanrio decision highlights the continued focus of the Commission on cross-border sales restrictions in vertical agreements as part of its enforcement actions resulting from its e-commerce inquiry. In the meantime and as part of the Commission’s public consultation of the Vertical Block Exemption Regulation (expiring in May 2022), some contributors have been asking for more clarity and an exemption of, or at least a relaxation of rules applicable to, certain hardcore restrictions such as online sales restrictions and territorial restrictions.
10.07.2019 The European Commission conditionally clears GlaxoSmithKline’s acquisition of Pfizer's Consumer Health Business.
The Commission’s merger control review focused on the market for topical pain management where the parties’ activities overlap and where products were found to be broadly substitutable. The Commission was concerned that the acquisition would result in price increases in several EEA countries.
The remedy consisted in divesting globally Pfizer’s topical pain management business carried out under the brand ThermaCare. The divestment extends to products under development, although it is not clear from the press release how far this requirement applies. The Commission must approve the purchaser before the transaction can close (up-front buyer remedy).
17.07.2019 Amazon under the EU spotlight for its use of sensitive data from independent retailers selling on its marketplace
The European Commission has formally launched an investigation into whether Amazon’s collection of data regarding its online marketplace could breach EU competition law rules. The European Commission has been looking into this matter to gather preliminary information for several months now (presumably since September 2018).
Amazon’s marketplace provides a forum for independent retailers to sell their products directly to consumers. The European Commission is concerned that some of the data collected and used by Amazon could be competitively sensitive information, particularly in the light of Amazon’s dual role as provider of a marketplace and as retailer selling its own products on its website in competition with marketplace sellers. Broadly speaking the concern is that Amazon could be using the data to undercut its competitors to the detriment of online consumers.
The Commission has indicated that its investigation is being carried out under both Article 101 TFEU and 102 TFEU.
The European Commission has highlighted that it is placing priority on this investigation. With a new Commission to be appointed as of 1 November 2019, it will be interesting to see whether Commissioner Vestager is aiming to finalise the investigation by end October 2019.
It is worth noting that, on the same day, the German Federal Cartel Office and the Austrian Competition Authority closed their respective investigations into Amazon in relation to related issues after the latter agreed to amend its terms of service with merchants.
18.07.2019 Commission fines Qualcomm €242 million for predatory pricing
In a long-awaited decision, the European Commission announced on 18 July 2019 that it had adopted an infringement decision against Qualcomm for predatory pricing. This is the second of two cases which the European Commission had opened against Qualcomm on 16 July 2015. The other case led in 2018 to the imposition of a fine of €997 million on Qualcomm for shutting out competitors in the LTE baseband chipsets (4th generation standard) market by means of exclusivity payments to its key customer, Apple.
The Commission’s decision against Qualcomm imposes a fines of €242 million for predatory pricing in relation to the market for 3G baseband chipsets (3rd generation standard). Qualcomm was found to have engaged in predatory pricing by selling below cost to two important customers with the intention of eliminating its main competitor, Incera, from a specific segment of the market. The two customers were considered as essential for Incera to succeed in the market. The practice lasted for two years from 2009 until 2011. In 2011, Incera was sold to Nvidia and Nvidia exited the market in 2015. It appears from the press release, that the Commission relied on both a qualitative price-cost test and qualitative data showing the anti-competitive rationale for Qualcomm’s behaviour.
Once available, the decision will be very valuable to practitioners and businesses to provide guidance on the Commission’s current approach to predatory pricing. In particular, it is unclear from the press release which cost base the Commission used as a benchmark to establish whether the pricing was anti-competitive. Given the high investments needed to develop chipsets and Commissioner Vestager’s statement that Qualcomm’s pricing was not sufficient to cover ‘for developing and producing these chipsets’, the benchmark used might have been long-run average incremental cost (LRAIC). This test would be in line with Court of Justice’s 2012 preliminary ruling in Post Denmark. It is also likely that the Commission found on the basis of the price cost test that Qualcomm’s pricing covered average variable costs but not LRAIC. This would explain why the Commission insisted on evidence showing an intent to eliminate a rival.
It will also be interesting to read the decision as regards the analysis used for showing evidence of predatory pricing. A few thoughts: (i) was an ‘as efficient competitor’ test used? Did the fact that Incera was a small start-up with possibly more limited infrastructure/investment capability weigh in on the analysis? On the other hand, competition law is not there to protect smaller, less efficient rivals, (ii) the infringement lasted for only two years: can a conclusive price-cost analysis be carried out over such a short period in an industry with significant development costs spread out over several years (iii) what relevant market was used for assessing effects? The scope of the infringement appeared to be very (too?) narrow and to be limited to three chipsets only, sold below cost to Huawei and ZTE (two strategic customers) in the limited market segment offering advanced data rate performance.
This is the first decision of the European Commission on predatory pricing since the Wanadoo decision in 2003 relating to the French broadband market. Predatory pricing cases are typically complex and difficult to prove. This case shows that the Commission remains committed to bringing on predatory pricing cases. However the complexity of these cases is such that it can take many years before a decision can be adopted. In this instance, the affected party, Incera, lodge its complaint in 2009 and by the time the Commission opened proceedings in 2015, Incera had been sold and existed the market. And the case is not over as Qualcomm has indicated it will appeal the decision to the General Court.
18.07.2019 The European Commission clears with conditions Vodafone’s acquisition of Liberty Global’s cable business in Czechia, Germany, Hungary and Romania
With this acquisition, Vodafone will become Europe’s biggest provider of converged telecoms services and extend further its scope to Eastern Europe. The decision is an important win for Vodafone which reinforces its cross-border presence in Europe and its presence on the German market.
The European Commission’s in depth merger control investigation focused on concerns in Germany, namely that (i) the competitive constraint which both parties exerted in Germany in the market for the retail supply of fixed broadband services would be eliminated and (ii) the merged entity’s increased market power in the German market for the wholesale supply of signal for the transmission of TV channels would negatively impact broadcasters’ position and ability to innovate.
Vodafone agreed to offer an extensive remedy package to address these concerns. Remedies offered included providing Telefonica with access to the merged entity’s cable network in Germany (thereby offering an alternative to the constraint exercised by Vodafone) and the possibility to offer TV services. Vodafone also offered behavioural commitments to counterbalance the market power of the merged entity with respect to the broadcasters. This consisted in agreeing (i) not to prevent broadcasters that are carried on the merger entity’s TV platform from also distributing its content via an-over-the-top service; (ii) to continue to carry the signal of free-to-air broadcasters and (iii) not to increase feed-in fees paid by free-to-air broadcasters for the transmission of their linear TV channels.
25.07.2019 European Commission closes obstruction proceedings against Slovak rail company ZSSK
In an interesting development, the European Commission has decided to close its investigation into Slovak rail company ZSSK for allegedly obstructing an inspection conducted in June 2016. The European Commission adopted a statement of objections in September 2018 stating that ZSSK was suspected of (i) having given incorrect information on the location of a laptop of an employee and (ii) deleting data from a laptop as a result of its re-installation, thereby leading to an irrecoverable loss of data. The inspection was carried out in the context of an investigation into suspected anti-competitive agreements entered into by ZSSK.
The last European Commission decision imposing a fine for obstructing an inspection dates back to 2012 and were imposed on Czech energy companies Energetický a průmyslový and EP Investment Advisors for IT obstructions.
The European Commission has opened recently a number of cases on grounds of procedural irregularities, mostly in the area of merger control. As a result, fines have been imposed this year on General Electric for providing incorrect information (acquisition of LM Wind) and on Canon for gun jumping (acquisition of Toshiba Medical Systems Corporation); investigations remain ongoing in relation to Telefonica for an alleged breach of merger commitments (E-Plus acquisition) and Merck and Sigma-Aldrich for allegedly providing incorrect or misleading information (acquisition of Sigma-Aldrich).
29.07.2019 European Commission publishes draft communication to assist national courts in dealing with requests to disclose confidential information in proceedings for the private enforcement of EU competition law
The aim of the draft communication is to provide guidance to national courts in dealing with confidential information in the context of private enforcement of EU competition law rules. In particular the guidance should be useful to assist national courts in handling requests for disclosure of evidence containing confidential information as part of damages actions.
Interested parties are invited to comment on the draft until 18 October 2019.
The draft communication can be found here:
7.08.2019 European Commission sends statement of objections in relation to network sharing agreements in Czechia of O2 CZ, CETIN and T-Mobile CZ
The European Commission has expressed concerns that the network sharing agreements between the two largest operators in Czechia restrict competition and reduce innovation by removing incentives for the parties to improve their networks and services. In addition, the European Commission is not convinced that the agreements lead to any efficiencies. The agreements have been in place since 2011 and have extended in scope. The agreements now cover all mobile technologies (2G;3G and 4G) for the whole of Czechia except for Prague and Brno, thus impacting 80% of subscribers.
Network sharing is not uncommon in Europe. However, concerns in this case are based in particular on the fact that the Czech market has only three mobile network operators (O2 CZ, T-Mobile CZ and Vodafone), with the sharing parties servicing approximately three quarters of subscribers and the fact that the network sharing agreements have been expanding considerably in scope.
7.08.2019 Commission opens phase II investigation into the acquisition of Lotos by PKN Orlen
The acquisition concerns the market for the supply of fuels and related markets in Poland and neighbouring countries. PKN Orlen and Lotos are large Polish integrated oil and gas companies who own the only two existing refineries in Poland. They are also active in several Central and Eastern European Countries and in the Baltic states.
During its phase II investigation, the European Commission will be assessing in particular the effects of the acquisition on (i) the wholesale supply of fuels where the merger entity will become market leader in several countries (and in some cases the only supplier); (ii) the retail supply of fuels where Lotus is currently the largest player in Poland); (iii) by-products such as bitumen and lubricants; (iv) the provision of mandatory storage services; and (v) the ability and incentive of the merged entity to stop supplying rival downstream customers.
A decision is expected by 22.01.2020, following the extension of the deadline by 20 working days.
Part II - EU national developments of interest
26.08.2019 Facebook wins court appeal suspending Germany’s FCO decision against Facebook
The Dusseldorf Higher Regional Court granted Facebook its request for a temporary injunction, thereby suspending the Federal Cartel Office’s decision prohibiting Facebook from combining data it collects and uses from other sources. The court found that there were serious doubts regarding the legality of the FCO’s decision. In particular, the court expressed doubts that the collection and use of data from other sources led to the exploitation of Facebook users.
The judgment is a major blow for the FCO as its decision is now temporarily set aside. The president of the FCO has already indicated that the FCO will appeal the judgment to the Federal Court of Justice. However it is likely to take several years before court proceedings are exhausted. In the meantime the decision is suspended.
The FCO initiated its investigation in 2016 into Facebook’s data collection and processing rules. It culminated in February 2019 in a decision prohibiting Facebook from combining user data from different sources. The FCO concluded as a result of its investigation that Facebook (i) is in a dominant position in the German market for social networks; and (ii) Facebook abused its dominant position as a result of its data collection/use practices, notably forcing users to agree to Facebook’s collection, use and merging of non-Facebook data (i.e. collected from third party sources such as WhatsApp and Instagram) to their Facebook account.
The decision was viewed as an innovative attempt at relying on the theory of ‘exploitative abuse’ under competition law rules to address concerns arising from large tech companies’ ability to amass and use significant amounts of data to the detriment of consumers. The order itself was compared to a form of separation or unbundling of Facebook’s internal data collection and use. However concerns had also been voiced that the FCO had stretched the limits of competition law to address data privacy issues.
14.08.2019 Aspen offers to pay £8 million to NHS as part of a settlement package to address the UK CMA’s competition concerns
The proposed settlement could be a significant win for the UK CMA which had launched its investigation in 2017. The case concerned the drug fludrocortisone used to treat mainly adrenal insufficiency known as Addison’s Disease. Aspen was suspected of having entered into agreements with 2 competitors to pay them to stay out to the market for the supply of fludrocortisone. Aspen was therefore left as the only supplier of this drug and therefore able to set prices without being challenged by competitors.
Aspen offered to put an end to the investigation, in particular by (i) admitting to taking part in an anti-competitive agreement; (ii) offering to pay £8 million to the NHS which paid for the drug prescribed to patients; (iii) committing to having at least 2 suppliers of this drug in the future; and (iv) accepting to may a maximum fine of £2.1 million if the CMA concludes that UK competition law rules were breached.
The settlement package includes novel and pragmatic proposals to put an end to the CMA’s investigation and in the process, address Aspen’s follow-on damages claims concerns. In particular the offer to pay NHS £8 million is a form of out-of-court settlement in advance of any such proceedings being launched to pre-empt any damages claims by NHS likely to flow from an eventual infringement decision by the UK CMA. It is also noteworthy that the package also anticipates the CMA’s fining decision by setting out a maximum fine which Aspen is committed to paying in case of an infringement finding.
Interested parties have until 2 September 2019 to comment on the proposed settlement package offered by Aspen.
29.08.2019 Dutch competition authority adopts access to data remedy
The Dutch Competition Authority has cleared in phase II Sanoma’s acquisition of Iddink subject to commitments, including an access to data remedy.
Iddink is a distributor of educational materials which owns an education platform called Magister used by over half of the secondary schools in the Netherlands. Sanoma is a learning and media company which owns Malmberg, a publisher of digital educational materials. The access to data remedy seeks to ensure that competitors of Malmberg will be able to offer educational materials via Magister. As a result the merged entity will be required to grant access to Magister and its data to these competitors under the same conditions as to Malmberg. Sanoma will also be required to put in place Chinese walls to prevent Malmberg from getting access to commercially sensitive information of competing publishers. The press release does not indicate how data protection issues under GDPR, which may arise from the obligation to grant access to such data, will be addressed. It is unclear also whether any monitoring of this remedy will be put in place.
Part III – Judgments of the Court of Justice of the European Union
10.07.2019 Court of Justice upholds General Court judgment in ICAP
The Court of Justice upheld the General Court’s judgment annulling the Commission’s fining decision on ICAP. ICAP had been fined for facilitating a cartel but the General Court had annulled the fine on the ground that the Commission had insufficiently reasoned its fining methodology for the fine imposed on ICAP.
The Court of Justice highlighted the following factors as relevant to its finding: (i) the Commission departed from the fining methodology set out in the 2006 Guidelines because ICAP had no turnover on the market where the cartel operated; (ii) in such a case and referring to the Court’s judgment in UPS, the alternative fining methodology must be disclosed to protect the rights of defence and ensure the ‘fairness, impartiality and quality’ of the Commission’s decisions; (iii) the reasoning provided by the Commission was insufficient for ICAP to understand the justification for the fine imposed and for the court to verify the justification; and (iv) the Commission was required to expose its reasoning in the formal decision and it was insufficient to have had informal discussions with ICAP in relation to its fining methodology or to have provided such information during the court proceedings.
The judgment of the Court of Justice follows the opinion of AG Tranchev which had suggested upholding the General Court’s judgment. For further information on the opinion and the General Court judgment, please see earlier posts here and here.
11.07.2019 General Court upholds one appeal and rejects three other appeals in relation to the retail food packaging cartel decision
The General Court delivered four judgments in appeals seeking annulment or reduction of fines imposed on applicants in the Commission’s retail food packaging decision. The judgments concern the Commission’s decision adopted in 2015 in relation to five different infringements and resulting in fines imposed on eight manufacturers and two distributors.
In CCPL’s appeal, the General Court found that the European Commission failed to sufficiently state the reasons for reducing the amount of the fine for inability to pay. As a result, the fines imposed in the Commission’s decision on entities in the CCPL group were annulled.
In three other judgments, the General Court rejected all grounds of appeal.
12.07.2019 General Court upholds the Commission’s decision in relation to the optical disk drives (ODD) cartel decision
In five judgments rendered on 12 July 2019, the General Court rejected all pleas to annul or reduce the Commission’s fines imposed on applicants in the ODD cartel. The European Commission had imposed in 2015 fines totalling €116 million in relation to anti-competitive coordination of procurement tenders relating to optical disk drives.
The judgments are of interest as they consider several procedural grounds for appeal (excessive duration of investigation; failure to state reasons; incorrect calculation of fine) and substantive arguments for appeal (existence of an agreement or concerted practice; awareness of cartel and of other entities’ participation in cartel; existence of single and continuous infringement).
In relation to Quanta Storage’s application and Toshiba’s application, the General Court rejected the applicant’s argument that the Commission lacked jurisdiction to apply article 101 TFEU to an entity located outside the European Union. The General Court concluded that, since ODDs were sold in the EEA, the Commission had jurisdiction to adopt the decision, notwithstanding that the sources of supply were outside the European Union. All other procedural pleas (including the obligation to state reasons, breach of the rights of defence and right to good administration) and other substantive pleas (including absence of proof of single and continuous infringement; calculation of fine) were rejected.
Conversely, the General Court also rejected a counter plea from the European Commission in the Quanta Storage appeal to increase the amount of the fine on the ground that an estimate provided by the applicant to calculate the fine may have been factually incorrect. The General Court concluded that the doubt should benefit the applicant.