On May 8, 2013, the European Court of Justice (ECJ) confirmed that control of a subsidiary by a parent may be presumed solely on the basis of a 100 percent shareholding, imputing liability for an infringement of competition law by the subsidiary to its parent.
Eni SpA, the Italian oil super major, brought the action in the ECJ against a decision of the European Commission imposing a fine of €181.5 million on the partially state-owned company for participation in a price fixing cartel in the synthetic rubber industry. During the relevant period, the business involved in the cartel was controlled by Eni, through a wholly owned subsidiary known as EniChem Elastomeri. The Commission’s fine was imposed jointly and severally on Eni and the subsidiary, now known as Versalis.
In its judgment, the ECJ confirmed that where a subsidiary does not autonomously determine its own conduct but instead mostly applies its parent’s instructions, for the purposes of Article 101 of the Treaty on the Functioning of the European Union, the companies are a single economic unit and, as a result, form a single undertaking. Accordingly, the Commission may address a decision to the parent company without being required to establish its individual involvement in the infringement.
The presumption may be rebutted with proof that the subsidiary operates independently from its parent at an operational and financial level, something which Eni failed to prove on this occasion.
As part of an ongoing investigation into Visa Europe Limited, European Commission Vice President Joaquín Almunia welcomed Visa’s recently proposed commitments designed to assuage the Commission’s competition worries about the company’s business.
The Commission’s investigation was opened in March 2008 and concerns Visa’s multi-lateral interchange fees (MIFs) for consumer debit and credit card transactions. In its Statement of Objections, the Commission made a preliminary finding that Visa’s MIFs breach Article 101(1) of the Treaty on the Functioning of the European Union by damaging competition between rival banks on the retailer’s side of the card transaction with the effect of increasing the cost of payment card acceptance for merchants, who then pass these costs on to consumers.
In response, Visa offered commitments to reduce MIFs on its debit cards to 0.2 percent of the transaction cost and to maintain measures to increase market transparency. These commitments were made binding following a consultation process.
Further commitments have been put forward from Visa in response to a supplementary Statement of Objections in which the Commission identified additional concerns about MIFs on Visa’s credit cards in 2012. Visa proposes to reduce its credit card MIFs to 0.3 percent of the transaction value (a decrease of some 40 to 60 percent) and to reform its system to enable banks to apply a reduced cross-border MIF when competing for cross-border customers.
The Commission is due to publish a market test notice in the EU Official Journal shortly summarizing these additional commitments and an invitation for interested parties to offer their comments. Subject to the results of the market test, the Commission will decide whether to adopt the commitments to make them binding.
In May, the European Union’s General Court (“GC”) issued its judgments in an appeal brought by Parker ITR (“Parker”), Trelleborg and Manuli against a European Commission decision of 2009 imposing fines on these companies for their participation in a worldwide cartel in the marine hose market.
In reducing the level of fine imposed on Parker, the GC found that the company was not liable for the cartel before January 2002 when it acquired the marine hose business from ITR. ITR (and its parent company) ceased its involvement in the cartel arrangements when the business was transferred to Parker, and the Commission’s power to fine ITR for infringements committed before January 2002 became time-barred in 2007. The Commission therefore had to rely on the principle of “economic continuity” to attribute liability for the infringement to Parker. This principle allows the Commission to derogate from the fundamental principle of “personal liability” of companies for antitrust infringements by attributing full liability to a company that succeeded an undertaking that committed an infringement—for example, if the original company no longer exists or where the intention of any transaction involving the original company was to circumvent antitrust laws.
In this instance, the GC rejected the Commission’s argument, finding that it could not show “economic continuity” between ITR and Parker, and annulled the decision against Parker as it related to the period before January 2002. The GC found that when the transfer of the business from ITR to Parker took effect in January 2002, the two companies shared no “structural links” (i.e. financial or personal links) and further found that there was no evidence that the business was transferred to Parker to circumvent possible antitrust fines.
Finally, although finding some problems with the Commission’s assessment of the fines imposed on Trelleborg and Manuli, the GC nevertheless reconfirmed the amounts levied on them.
The UK High Court has ordered Alstom and Areva (“French Defendants”)—in a damages action by National Grid Electricity Transmission plc (“National Grid”)— to disclose documents to National Grid, in the face of a French law prohibiting documents of a commercial nature from being disclosed as evidence in foreign judicial proceedings (“Blocking Law”).
In 2007, the Commission found 20 companies, including Alstom and Areva, in violation of Article 101(1) of the Treaty on the Functioning of the European Union due to their participation in an international cartel for gas-insulated switchgear.
National Grid is seeking damages from the cartel members in the High Court and sought disclosure of certain information to establish the amount by which the cartel had raised prices. The French Defendants argued that disclosure could lead to them being prosecuted under the Blocking Law.
The High Court found, however, that although there was a possibility the French authorities would prosecute the French Defendants for disclosing the documents, it was, in truth, “virtually inconceivable” that the authorities would do so. In addition, the Court found that it was typical for French companies to disclose information in foreign proceedings without prosecution.
The ruling demonstrates the inclination of English judges to stand firm against efforts to raise procedural hurdles in antitrust damages litigation.
The UK High Court has refused an application by MasterCard to stay claims brought by retailers in relation to the European Commission infringement decision relating to MasterCard’s anti-competitive interchange fees. Because MasterCard is seeking an annulment of the Commission’s decision at the European Court of Justice (“CJ”), it applied to the High Court for the claims to be stayed until the ECJ reaches its verdict.
MasterCard’s case was that there was such a close relationship between the claims that the ECJ verdict would decide them all, making a stay of all proceedings necessary to avoid the wasted time and expense of pleading a defense and preparing a case management conference.
The High Court found that it was common ground that the claims should not be determined before the ECJ had ruled. However, it also ruled that the claims should proceed to a case management conference and the service of a defense. The reasoning was that because of the overriding objective to deal with a claim justly and because it was likely that the claims would survive an annulment of the Commission’s infringement decision by the ECJ, the expense incurred by MasterCard in filing a defense would not be wasted in any event. The verdict reinforces previous decisions suggesting defendants should deliver a defense and make progress to a certain extent, rather than just seek or enjoy a stay of proceedings.
The European Commission recently blocked two proposed mergers—UPS’s takeover of TNT and Ryanair’s takeover of Aer Lingus—despite offers by both sets of parties to make divestments.
The UPS takeover attempt of Dutch delivery group TNT was blocked by the EC over concerns that it would substantially decrease competition in the express-package market by reducing the number of competing businesses from three to two in 15 European countries. The EC found that FedEx, the smallest of the “integrated” express delivery companies in Europe, did not exercise a sufficient constraint on the merging entities to be considered a viable competitor, leaving only DHL, UPS and TNT as relevant market operators. The EC relied on economic analyses (including those provided by the parties) demonstrating that the proposed deal would likely result in price increases that would not be adequately offset by the claimed gains in efficiencies. In an effort to address the concerns the EC raised, UPS offered to sell TNT assets in the 15 countries identified, but it could not persuade the EC that any purchaser would offer a sufficient competitive constraint on the merged entity or, in fact, that a purchaser could be found and confirmed before the regulatory deadline.
The EC also blocked Ryanair’s latest takeover attempt of Aer Lingus. The EC was concerned the merger would harm consumers by reducing choice and leading to increased air fares, notwithstanding proposals from Ryanair designed to allay those worries. This is the second time that budget airline Ryanair’s bid for the Irish national flag carrier Aer Lingus has been frustrated by competition authorities, and is the first time the EC has blocked a proposed merger twice. The EC found that Ryanair and Aer Lingus currently compete on 46 routes to and from Ireland. On 28 of these routes, a post-takeover Ryanair would have enjoyed an outright monopoly, and on the 18 remaining routes it would have had “very high market shares.” Ryanair’s proposals, which included the divestiture of 43 of Aer Lingus’s routes to UK regional airline Flybe and further divestiture of take-off and landing slots to IAG, the owner of British Airways, failed to convince the EC to alter its stance.
Following the EC’s decision, the UK’s Competition Commission will re-open its investigation into whether Ryanair should be forced to sell its existing minority stake in Aer Lingus. The UK competition authorities are concerned that as Aer Lingus’s largest shareholder, Ryanair has a “material influence” over its competitor that may restrict competition. The investigation was suspended pending the EC’s investigation into the proposed takeover.
On Feb. 20, 2013, the European Commission published for consultation a draft of a new technology transfer block exemption regulation (TTBER) and accompanying guidelines. The TTBER provides an exemption for some technology transfer agreements that otherwise could fall under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) on the basis that many of these agreements are likely to be pro-competitive.
The draft does not fundamentally revise the previous block exemption but makes three significant proposed adjustments. The first is a change to the definition of technology transfer agreements to expressly include agreements containing provisions relating to the purchase of products, or the assignment of other IP rights provided that they are “directly and exclusively” related to the production of the contract products. The second is that the market share threshold for agreements between non-competitors be reduced to 20 percent, where the licensee owns technology that it only uses for in-house production but which is substitutable for the licensed technology. Third, the EC proposes to revise TTBER so that exclusive grant-backs and clauses allowing the licensor to terminate the agreement if the licensee challenges the validity of the licensed technology will fall outside of the block exemption. The guidance on technology pools, in particular licensing arrangements between members, and the application of competition rules to settlement agreements has also been revised. The consultation on the draft block exemption and guidelines is open until May 15, 2013. The draft TTBER is available here.
The UK Government has published its response to its 2012 consultation on private damages in competition law. The government claims to have received a favorable response to its suggested reforms and has confirmed that it will seek to legislate to bring about substantial modification in the area of private damages. Its general aim is to make it easier for groups of consumers and businesses to challenge and recover damages from anticompetitive activity. One major reform area is to transform the Competition Appeal Tribunal (CAT) into the main UK competition court. It will have a new “fast track” to deal quickly and inexpensively with simple competition claims and will be able to grant injunctions. Additionally, the government intends for the CAT to hear stand-alone cases and for other national courts to be able to transfer competition-based claims to it.
Despite receiving fierce criticism during the consultation, an opt-out collective action regime is also proposed. This will allow consumers and businesses to bring collective actions for damages. As many responses to the consultation raised concerns that this could lead to frivolous claims, the proposals include safeguards—such as strict judicial certification and a ban on lawyer contingency fees—aimed at limiting actions to “meritorious” claims. The majority of the proposed reforms will be subject to changes in primary legislation, although the Government has not yet indicated a possible timetable for these. The Government’s response is available here.
The General Court of the European Union has granted an interim injunction preventing the European Commission from revealing confidential information about participants in a cartel. The judgment relates to the intended re-publication by the EC of its 2008 car glass cartel decision with previously redacted confidential information on sales, prices and customers now to be disclosed.
The EC first published a non-confidential version of its decision in 2010 and in 2011 announced its intention to publish a further non-confidential version revealing previously confidential information. Pilkington Glass Ltd, an addressee of the EC‘s infringement decision, challenged the EC claiming that the disclosure may seriously and irreparably harm fundamental rights by revealing business secrets and identifying individuals involved in the cartel. Following rejection of its arguments by the Hearing Officer, Pilkington appealed the decision before the General Court in October 2012 and applied to have publication of the confidential information suspended in the interim.
The court partially upheld the interim application and ordered that while the main appeal is pending, information that could identify individual customers (e.g., names or product descriptions) and also details about Pilkington’s pricing calculations must not be published by the EC. Information revealing the individual participants in the cartel is not subject to the order. The court is still to come to a decision on the main appeal. Should the EC be allowed to re-publish decisions showing confidential information, it will potentially provide ammunition for claimants bringing private damages actions on the back of the EC’s infringement decision.
On Jan. 23, 2013, the European Commission imposed fines of €79 million ($105 million) on Telefónica and Portugal Telecom for agreeing not to compete with one another in the Iberian telecom markets, in breach of Article 101 of the Treaty on the Functioning of the European Union. In July 2010, Telefónica acquired sole control over the Brazilian mobile operator, Vivo, which had previously been jointly owned by the two companies. As part of the transaction, the Spanish and Portuguese telecom incumbents entered into an agreement not to compete with one another in Spain and Portugal. The parties terminated the non-compete agreement in early February 2011 after the Commission opened antitrust proceedings. Although the Commission, in setting the level of fines, took into account the short duration of the agreement and the fact that the parties had not kept the agreement secret, the level of the fines imposed clearly reflects the gravity of the infringement. The Commission previously stated that “non-compete clauses are one of the most serious violations of fair and healthy competition.” Telefónica has indicated that it will appeal the Commission’s decision. The Commission’s press release can be found here.