EC Adopts Revised Regime for Technology Transfer Agreements

On March 21, 2014, the European Commission adopted a new package of rules for the assessment of technology transfer agreements (TTAs) under EU competition law. The package consists of: (1) an updated Block Exemption Regulation for TTAs (TTBER) substituting the previous TTBER adopted in 2004; and (2) new guidelines to reflect the changes in the TTBER, the most recent case law and developments on the assessment of TTAs that fall outside the TTBER. The main changes focus on the scope of the TTBER, patent pools, termination clauses, exclusive grant-back obligations and settlements.

TTAs are licensing agreements where the licensor authorizes one or more licensee(s) to exploit its patents, know-how, utility models, design rights and software copyrights for the production of goods and services. Read More

EU Advocate General Confirms Availability of “Umbrella Claims” Against Cartel Members

In her recent opinion to the Court of Justice of the European Union (CoJ), Advocate General Juliane Kokott stated that loss resulting from “umbrella pricing” is recoverable from cartel members. Umbrella pricing is when a company that is not a member of a cartel raises its prices by more than the amount that would be expected under normal competitive conditions, as a result of the cartel. The opinion, from Jan. 30, 2014, follows a reference to the CoJ by an Austrian court hearing a damages action brought against providers of services for escalators and lifts (see COMP/38.823).

AG Kokott considered that loss resulting from umbrella pricing is not unforeseeable by the cartel members, and that the reparation of that loss is consistent with the objectives of Article 101 of Treaty on the Functioning of the European Union (TFEU). It would, she suggested, run counter to the practical effectiveness of EU competition rules for national civil law to exclude compensation for such loss. Read More

Court of Justice Clarifies Status of Monopolistic Royalty-Collecting Societies Under EU Law

The Court of Justice of the European Union (CoJ) has held that collecting societies with exclusive rights to gather royalties for protected works do not contravene Article 56 (which establishes the freedom to provide services across the EU) of the Treaty on the Functioning of the European Union (TFEU). The CoJ found, however, that if the collecting society imposes fees that are appreciably higher than those charged in other Member States, or that are excessive in relation to the economic value of the service provided, this could be indicative of an abuse of a dominant position contrary to Article 102 of the TFEU.

The CoJ held that the territorial monopoly on gathering royalties might constitute an illegal restriction, but that this is justified because it meets a public interest pursued by EU law (i.e., the effective management of intellectual property rights) and does not go beyond what is necessary to achieve the public interest. It was not shown that another equally efficient but less restrictive method would allow the same level of copyright monitoring and protection as the current, territory-based system of copyright supervision.

The CoJ’s judgment, of Feb. 27, 2014, is available here.

Court of Justice Overturns General Court on Access to Commission’s Files by Potential Damages Claimants

The Court of Justice of the European Union (CoJ) ruled on Feb. 27, 2014 that the European Commission was entitled to refuse Energie Baden-Wurttemberg AG (EnBW) full access to the Commission’s file relating to the gas insulated switchgear cartel.

In January 2007, the Commission fined 11 companies for participating in a collusive tendering cartel in the gas insulated switchgear market. EnBW, an energy distribution company, requested global access to the Commission’s cartel file under EU Regulation 1049/2001 (the Regulation), which grants rights of public access to documents held by EU institutions. The Commission rejected EnBW’s request for access. In doing so, it relied on certain exceptions in the Regulation, namely that granting access to the documents would jeopardize the protection of inspections and investigations and of sensitive commercial interests of the parties to the proceedings. Moreover, the Commission found that there was no overriding public interest in granting access to the requested documents. EnBW appealed to the General Court, which annulled the decision on the ground that the Commission had erred in refusing EnBW’s request without carrying out specific analysis of each document in its file. Read More

EC Opens Investigation of Specialty Paper Companies for Providing Misleading Data in Merger Review

On Feb. 25, 2014, the European Commission announced it is investigating the alleged provision of misleading market data by the parties to the Ahlstrom-Munksjö merger.

In October 2012, Ahlstrom and Munksjö notified the EC that the label and processing businesses of Ahlstrom Corporation and Munksjö AB were to be transferred to a new company, later named Munksjö Oyj. The Commission’s review of the proposed transaction found that the parties were the only manufacturers of heavyweight abrasive paper backings in the European Economic Area (EEA), and that their combined share of the global market was over 80 percent. In its decision of May 2013 (which will not be affected by the current proceedings), the Commission approved the transaction subject to the divestment of Ahlstrom’s abrasive paper business. Read More

France Adopts New Consumers’ Rights Law

On Feb. 13, 2014, the French National Assembly adopted the so-called “loi Hamon,” an Act of Parliament related to consumers’ rights and, supplier-distributor relations. Following the French Constitutional Council Decision confirming the act on March 13, 2014, it was published in the Official Journal of the French Republic on March 18, 2014.

France was one of the last major countries in Europe not to have a collective redress system, although it was discussed for several years by different French governments. The new law allows consumers who suffered similarly or identically from a professional’s breach of its legal or contractual obligations, to introduce an action against the professional. The class action may only take place in the case of a sale of goods, a provision of services, or a breach of any competition law provisions (abuse of dominant position or a cartel established by a competition authority), as only compensation for pecuniary losses may be claimed (no punitive damages). Only a few consumer associations are authorized to bring an action on behalf of consumers. Read More

Competition Commission Formally Clears Two Mergers in Concentrated Markets

In March 2014, following its provisional findings in the previous month, the UK Competition Commission (UKCC) formally cleared two mergers that resulted in the reduction of competitors in the relevant markets from four to three and three to two respectively.

The completed joint venture between Tradebe Environmental Services Limited (Tradebe) and SITA UK Limited (Sita), and the anticipated acquisition by Telefonaktiebolaget LM Ericsson (Ericsson) of Creative Broadcast Services Holdings (2) Limited (Creative), were referred to the UKCC by the UK Office of Fair Trading (OFT) in late 2013. The OFT considered that the transactions raised realistic prospects of a substantial lessening of competition: (1) in the case of the Ericsson acquisition, in the market for the provision of complex, highly reactive outsourced linear playout services; and (2), in the case of the Tradebe/Sita joint venture, in relation to the collection, processing and disposal of healthcare risk waste for “large quantity generator” customers in the Birmingham and Gloucester areas. Read More

Office of Fair Trading Accepts Binding Commitments From Booking.com, Expedia and IHG

The UK Office of Fair Trading (OFT) has accepted binding commitments from Booking.com B.V., Expedia, Inc. and InterContinental Hotels Group plc, which address concerns that restrictions on discounting a hotel’s room-only accommodation rate may limit competition between online travel agents (OTAs) and between OTAs and hotels, and may create barriers to entry into the market for new OTAs.

The OFT launched a formal investigation in September 2010 following the receipt of information suggesting that vertical arrangements between OTAs and hotels could be in breach of UK and EU competition law.

To address the OFT’s concerns, Booking.com, Expedia and IHG agreed to ensure that their existing and future commercial arrangements allow OTAs and hotels to offer reductions on headline room-only rates, so long as customers sign up to the membership scheme of an OTA or hotel and make one undiscounted booking with the OTA or hotel in question prior to becoming eligible for such a reduction.

The OFT believes the commitments will allow greater competition on price between OTAs and between OTAs and hotels and will allow new OTAs to enter the market.

The OFT’s press release of Jan. 31, 2014 is available here.

Commission Fines Johnson & Johnson and Novartis €16 Million for Reverse Payment Regarding Generic Painkiller

On Dec. 10, 2013, the European Commission announced fines of €10.8 million ($14.7 million) imposed on Johnson & Johnson (J&J) and €5.5 million ($7.5 million) on Novartis for colluding to postpone the entry of a generic version of fentanyl (a drug used to provide pain relief) into the Dutch market. Postponed entry was achieved through a so-called “co-promotion agreement” between the Janssen-Cilag (J-C), the Dutch subsidiary of J&J, and Sandoz, the Dutch subsidiary of Novartis.

Under this arrangement, Sandoz delayed a generic launch in exchange for financial incentives from J-C. These inducements exceeded the profits Sandoz predicted it could make from selling the generic version of the drug. The agreement began in July 2005 and lasted for around 17 months until December 2006, at which point it was terminated due to the imminent launch of a generic version by a third party. The Commission opened the investigation on its own initiative in October 2011, and found that the agreement kept the price of fentanyl in the Netherlands needlessly high, resulting in unnecessary costs to the Dutch healthcare system, patients and taxpayers.

This decision forms part of a wider series of actions by the Commission with respect to “reverse payments” by which branded manufacturers and generic manufacturers of pharmaceuticals settle patent disputes.

Commission Accepts Commitments From Deutsche Bahn to Address Margin-Squeeze Concerns

On Dec. 18, 2013, the European Commission announced that it accepted binding commitments from Deutsche Bahn (DB) to resolve concerns that its pricing system for traction current (the electricity used to power trains) in Germany favored DB-owned entities over competitors.

The Commission formally opened its investigation in June 2012, following unannounced inspections at the premises of DB and its German subsidiaries in 2011. The Commission raised concerns that the criteria for discounts offered by DB Energie (which is Germany’s sole provider of traction current) could only be fulfilled by DB’s subsidiaries. The Commission found that the criteria may have adversely affected the profitability and competitiveness of other operators in the markets for rail freight and long distance passenger transport. Read More

DGComp’s Alexander Italianer Speaks on Commitments

On Dec. 11, 2013, in a speech delivered at the CRA Competition Conference in Brussels, Alexander Italianer, the European Commission’s Director-General for Competition, clarified the Commission’s approach in the negotiation of commitments. The speech also highlighted the benefits of the commitments procedure and explained the circumstances in which the Commission will pursue a prohibition decision.

Italianer explained that the Commission is not bound to accept commitments and commitments that are “quick, sufficient and sensible” are more likely to be acceptable. Commitments should be offered at the first opportunity, preferably before any statement of objections, should offer sound solutions that achieve “real change” in the markets, and should be easy to implement and monitor, he said. Companies should avoid offering conditional commitments. Read More

UK Chancellor Pledges to Increase Funding for Competition and Markets Authority in Autumn Statement

On Dec. 5, 2013, the Chancellor of the Exchequer delivered the UK’s annual Autumn Statement for 2013. Included in the announcement were plans to increase the funding for the new Competition and Markets Authority (CMA) for 2014-2015 and measures to address concerns over the supply of tied banking products to small and medium-sized enterprises (SMEs).

The CMA is to benefit from an additional £12 million ($19.8 million) in funding in 2014-2015, increasing its total budget to around £59.9 million ($99.2 million). These additional resources have been provided to help the CMA deal more effectively with cartels and deliver a “step change” in competition enforcement. It is hoped that this will, in turn, help to encourage increased investment, the entry of new participants to the markets, and the adoption of innovative technologies. Read More

CMA Publishes Draft Prioritisation Principles

On Jan. 22, 2014, the UK Competition and Markets Authority (CMA) published its draft Prioritisation Principles and Annual Plan for 2014/15. The documents set out the CMA’s vision and strategy for effective enforcement of competition law and other consumer protections. As expected, the CMA identifies cartel and merger control enforcement as key priorities. Perhaps less so, the Plan identifies the change in market structure resulting from an increase in online business, innovation in online and mobile technology, and emerging sectors and business models more generally, as changes in the economy that may have implications for the CMA’s priorities. Third parties have until March 5, 2014 to submit comments.

The Annual Plan is available here. The Prioritisation Principles are available here.

European Commission Advances Proposal for Acquisition of Minority Shareholdings

In June 2013, the European Commission launched a consultation on its proposed reform of the EU Merger Regulation (EUMR), which included a proposal to extend the scope of the EUMR to cover acquisitions of non-controlling shareholdings between undertakings. The consultation closed in September 2013. This article provides an overview of the Commission’s proposal and the issues raised by the consultation, and sets out next steps in the legislative process.

The Commission’s Proposal

The EUMR entitles the Commission to review, prior to completion, transactions that confer control by one undertaking over another, provided that the parties to the transaction meet certain turnover thresholds. As part of a wider revision of the EUMR, the Commission proposes extending its jurisdiction to cover acquisitions of shareholdings that fall short of conferring “control” over the target, but which give the minority shareholder the ability to exercise sufficient influence over the target to reduce the intensity with which it competes, for example, by influencing pricing decisions.

In its proposal, the Commission refers to such transactions as the acquisition of “structural links,” reasoning that some problematic structural links may not be detected and sanctioned under Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU)—which prohibit, respectively, anticompetitive agreements between undertakings and the abuse of a dominant position. In its discussion of the effects of such structural links, the Commission refers at length to Ryanair/Aer Lingus, where the Commission’s repeated prohibitions against Ryanair’s acquisition of full control of Aer Lingus did not prevent Ryanair from holding a 29.8 percent “non-controlling” stake in Aer Lingus, Ryanair’s only competitor on certain routes. The rights attached to Ryanair’s stake, although falling short of conferring “control,” allowed Ryanair to block certain strategic decisions in the shareholders meeting of Aer Lingus, which allegedly weakened Aer Lingus’s ability to compete with Ryanair. Read More

Commission Clarifies Policy on the Suspensory Effect of the EU Merger Regulation

The European Commission recently published a decision that describes when it allows mergers to be completed prior to EU Merger Regulation (EUMR) clearance being granted, particularly where continued suspension of the deal poses a risk of the target failing to secure continued business. The decision relates to the purchase by Orica of certain assets of competitor Dyno-Nobel, which was permitted by the Commission despite numerous competition concerns relating to the parties’ respective European subsidiaries. The consent was granted subject to the requirement that Orica ringfence the European parts of the target business to prevent any information being passed between those entities and Dyno-Nobel’s non-European businesses, which were not subject to the merger review.

The EUMR empowers the Commission to grant derogations from the suspensory effect in exceptional circumstances. Any decision to waive the suspensory effect must take into account the impact of the suspension on the concerned undertakings and third parties, and the threat to competition posed by the proposed concentration.

In this case, Dyno-Nobel was being managed by its parent company, “New Dyno,” which was responsible for supplying Dyno-Nobel’s customers until the acquisition was complete. New Dyno also had made known its intention to re-enter the markets of Dyno-Nobel, as a competitor, to the extent of approaching Dyno-Nobel’s existing joint venture partners with a view to taking over the contracts, and had approached and recruited key members of Dyno-Nobel’s staff. Furthermore, Orica was in discussions with certain joint venture partners of Dyno-Nobel to acquire their stakes in these ventures. Orica argued that it would be at a disadvantage in these negotiations if the transaction were suspended because it would lack proper knowledge of Dyno-Nobel’s business.

The Commission agreed with these submissions, finding that Orica had legitimate concerns over a potential loss of business to New Dyno. Despite the fact that Orica entered into the transaction knowing the risks involved and could have entered into a non-compete obligation, it was able to show specific and exceptional harmful effects that went beyond the normal effects of a suspension. On that basis, Orica was allowed to complete its acquisition of Dyno-Nobel assets prior to EUMR clearance.

The decision is available here.

Commission Again Authorizes Acquisition on “Failing Firm” Grounds

On Oct. 9, 2013, following a Phase II investigation, the European Commission cleared, under the EU Merger Regulation, the acquisition of Olympic Air by Aegean Airlines under the “failing firm” defense, whereby the Commission may approve a merger if deterioration in the competitive market structure would result even if the merger did not occur, through the forced exit of a market operator. Clearance was granted despite the fact that the merger was found to create a quasi-monopoly on five Greek domestic routes from Athens, and that new entry in the near future was unlikely.

A previous attempt to conclude the same merger was prohibited by the Commission in 2011 on similar grounds: the merger would have created a quasi-monopoly on nine domestic routes from Athens. At that time, the Commission rejected the arguments put forward that Olympic was a “failing firm.” However, in its re-examination of the case, the Commission found that, although Aegean continues to be Olympic’s closest competitor and the transaction may raise prices and decrease the quality of service on several domestic Greek routes, other relevant factors such as the condition of the Greek economy and the financial situations of the parties had changed since the 2011 prohibition.

In particular, the Commission was satisfied that, unlike in 2011, Olympic should be regarded as a “failing firm,” which would likely exit the market absent the merger. The Commission considered that there was no other credible purchaser or less anticompetitive solution. In 2011, the Commission did not find convincing evidence that Olympic was severely underperforming against its business plan and budget, and that its sole shareholder was considering withdrawing financial support (which it subsequently did). In its recent decision, the Commission found Olympic’s financial situation has worsened substantially since 2011. A detailed analysis of Olympic’s business outlook showed that the company was unlikely to become profitable in the future under any business plan. Its main shareholder’s decision to discontinue its support of Olympic was deemed convincing by the Commission this time.

The Commission concluded that absent the merger Aegean would become the only significant domestic provider of airline services in Greece and would capture Olympic’s current market share. As such, any harm to competition would not be caused by the merger in itself.

This is the second merger case in a row that the Commission has authorized in Phase II based on a “failing firm” defense. The first (an acquisition by Nynas of certain of Shell’s refinery assets) was reported in our previous newsletter here. The Commission’s press release regarding the Aegean/Olympic approval is available here.

UK Competition Commission Publishes Proposals to Increase Competition in UK Audit Market

On Oct. 16, 2013, the UK Competition Commission (CC) published proposals to facilitate greater competition in the UK audit market. This follows the initial findings of the CC, published in February 2013, that identified factors which it believes restrict the UK audit market.

The CC found that companies were discouraged from switching auditors for various reasons, including the difficulty in comparing auditors, the tendency for companies to favor continuation with the same provider, and because switching auditors can prove expensive. It also found that auditors other than the “Big Four” found it difficult to secure business from larger companies because they lack the same reputation and experience. The report noted that auditors have a propensity to focus on management, rather than shareholder interests. This can have potentially damaging consequences for shareholders; for example, auditors may be discouraged from disclosing sensitive information to shareholders because of management obstruction.

In response to these issues, the CC proposed a raft of remedies to try to promote company bargaining power and competition between audit firms. Under the proposals, FTSE 350 companies would have to put their statutory audit engagement out to tender at least every 10 years. Failure to comply would be met with an obligation for the audit committee to explain in which financial year such a tender will be held and why this is in the best interest of shareholders. Additionally, the Financial Reporting Council’s (FRC) Audit Quality Review team would review every audit engagement in the FTSE 350 every five years. The findings then would be presented to the company’s shareholders by the audit committee. Other proposals included a ban on clauses in loan agreements that limit a company’s choice of auditor to one of the “Big Four” (though objective specifying criteria would be permitted); a compulsory vote at a company’s annual general meeting to confirm whether or not the audit committee reports in the annual accounts are satisfactory; and measures to strengthen the audit committee and reduce the influence of management in certain audit-related matters. The report also suggests that the FRC’s articles of association be amended to include an object of having due regard to competition.

The CC plans to draw up an order for those measures that it can require and make recommendations for those it cannot. It anticipates that these will be implemented in the final quarter of 2014. The CC notes that the proposals may be affected by the implementation of proposed EU legislation on audit market reform, which includes a Directive to amend the current EU law on statutory audits of annual accounts and consolidated accounts, and a Regulation on the quality of audits of public interest entities. These are scheduled to be discussed, with a view to adopting a first reading position, at the February 2014 plenary session of the European Parliament.

The CC report is available here.

EU Legislation on Copyright for the “Digital Age” Faces Uncertainty

On Oct. 25, 2013, the European Council held a summit to discuss European Union policy developments including the creation of an effective “Digital Single Market” designed to overcome fragmentation of digital services along national lines. It concluded that provision of digital services and content across the single market requires the establishment of an updated copyright regime for the “digital age,” targeting a completion date for its review of the current EU copyright framework of spring 2014. However, contrary to general expectations, there is an apparent lack of appetite for legislative reform.

The position of the European Council was confirmed by the Commission on Nov. 13, 2013, in the closing event of the “Licences for Europe” stakeholders’ dialogue, an initiative launched by the Commission last year. The initiative gathered creators, Internet service providers, broadcasters and users’ organizations of copyright-protected works in order to find practical solutions to content-licensing models to fit online distribution, and to discuss a possible overhaul of the current legislation regulating copyright in the “information society.” The year-long discussions have covered four areas: cross-border access and portability of online content services; user-generated content and micro-licensing; online availability of European films; and the licensing required for text- and data mining, which relates to the process of extracting information through automated scanning of text or datasets, used widely for scientific research.

Civil society groups of users have strongly argued for a revision to aging EU copyright law to bring it up to date with evolving digital technology, particularly with a view to finding EU-wide solutions to cross-border licensing of online content. However, divisions among stakeholders on how best to regulate issues such as data mining, and on the overall scope of any new law, have drawn the discussion back to non-legislative solutions based on industry-led commitments relating to new forms of short-term licensing of digital content. This is an outcome that satisfied many right-holders, but left users’ organizations frustrated. The Commission’s findings, due in spring 2014, likely will restart the discussion and decide whether to cast a legislative proposal.

The conclusions of the European Council are available here, and those of Licences for Europe can be found here.

French Competition Authority Takes Action in Online Horse Race Betting

Following a complaint lodged by Betclic Everest Group with the French Competition Authority (FCA), the dominant betting provider, Pari Mutuel Urbain (PMU), proposed commitments on Oct. 30, 2013, to separate horse racing bets registered in physical outlets (bar-tobacco shops, newspaper stands, etc.) from those registered in its online horse race betting channel (Pmu.fr).

Since 1930, certain French companies have held a legal monopoly on managing horse races and bets placed on them. They manage this monopoly through an Economic Interest Grouping, the PMU. Since 2010, the French online gambling and betting sector, including online horse race betting, opened to competition and PMU has faced competition from eight operators, including Betclic. Despite market liberalization, PMU has been able to retain its dominant position in the online horse race betting market, with an 86 percent market share in 2012. In horse race betting in physical outlets, PMU maintains a monopoly.

Betclic’s complaint focused on PMU’s pooling into a single pot all bets recorded online and bets made in its physical network. According to Betclic, by so doing, PMU increases the attractiveness of its online horse race betting offer, threatening the existence of its online competitors.

This practice enables Pmu.fr to increase the pot for each bet. Bets collected at PMU’s physical outlets amount to €8,4 billion ($11.4 billion) while those collected at the web site amount to no more than €972 million ($1.3 billion). The pooling allows PMU to offer customers more attractive winnings, more stable odds, and more bets.

According to the FCA, the advantages Pmu.fr obtains from this practice do not represent competition on the merits; instead, the practice involves taking advantage, in a market open to competition, of a legal monopoly. In response to these concerns, PMU offered, over a period of 24 months and for each of the bets in question offered on Pmu.fr, to separate its betting pots recorded online from those recorded in outlets. Moreover, PMU offered to separate its marketing and commercial teams and its databases. Finally, it offered not to use its physical outlets network to promote its online activities.

In order to confirm the effectiveness of these commitments, the FCA has submitted the proposal to a market test. Further information on the investigation is available here.

UK Competition Authority Requires Ryanair to Cut Stake in Aer Lingus

The UK Competition Commission (CC) has ordered Ryanair to cut its holding in rival Irish carrier Aer Lingus from 29.8 percent to 5 percent. Following an in-depth investigation, the CC found that Ryanair’s minority shareholding had led or may be expected to lead to a substantial lessening of competition between the airlines on routes between Great Britain and Ireland. The CC held that Aer Lingus’s commercial policy and strategy was likely to be affected by Ryanair’s minority shareholding, in particular because it was likely to impede or prevent Aer Lingus from being acquired by, or combining with, another airline. In addition, Ryanair potentially could block special resolutions, which likely would restrict Aer Lingus’s ability to issue shares, raise capital and limit its ability to manage effectively its portfolio of Heathrow slots. Finally, the CC felt that Ryanair’s current stake also increased the likelihood of the airline mounting further bids for Aer Lingus, causing disruption to Aer Lingus’s ability to implement its commercial strategy.

Despite proposing a series of remedies in an attempt to address the CC’s concerns, Ryanair failed to convince the UK authority that any remedies would cater for all eventualities in such a volatile industry. The CC concluded, therefore, that the only effective and proportionate remedy to address its concerns was the reduction of Ryanair’s stake to 5 percent, facilitated by the appointment of a Divestiture Trustee. Although welcomed by Aer Lingus, Ryanair has confirmed that it will appeal the CC’s findings.

The CC’s decision is the latest in a series of rulings by UK and European authorities against Ryanair. The airline has launched three failed bids for Aer Lingus in the past eight years, two of which have been blocked by the European Commission. As previously reported, the most recent of these occurred in February 2013 when the Commission found that allowing the takeover would create a monopoly on over 46 highly competitive air routes between the UK and Ireland and would increase fares for passengers. Ryanair’s appeal of this decision is ongoing.