Europe

After Almost Two Decades the EU Commission Finally Revived Interim Measures

On June 26, 2019, the EU Commission opened a formal investigation into U.S. chipmaker Broadcom’s alleged abuse of dominance. In a rather unexpected move, the EU Commission informed the company, on the same day, of its intention to impose interim measures, a long-forgotten tool.

Broadcom, which is a major supplier of components for TV and modem chipsets, is being suspected of having put in place contractual restrictions to exclude its competitors from the market.

Hearings were held in late August.

On October 16, 2019, the EU Commission, likely unconvinced by Broadcom’s arguments, ordered Broadcom to unilaterally cease applying exclusivity clauses contained in its agreements with six manufacturers of TV set-top boxes and modems, withhold commercial advantages granted to some of its customers, and refrain from agreeing to the same provisions or like provisions for the time being.

The investigation on the merits is still ongoing.

Commenting on the October decision, Commissioner Vestager justified the recourse to interim measures, which had not been used for almost two decades, by saying that DG COMP had “strong indications” of Broadcom having engaged in exclusive or quasi-exclusive dealings with key customers and that “in the absence of intervention, Broadcom’s behavior [was] likely to create serious and irreversible harm to competition.

In her official statement about the Broadcom case, Commissioner Vestager made it clear that it would not remain a one-off case and that she was “committed to making the best possible use of this important tool,” whose advantages (efficiency, quickness) seemed to have been “re-discovered” on this occasion.

So, why such a change?

Interim measures, a tool long neglected by the EU Commission

The EU Commission’s power to impose interim measures was first recognized by the EU judge in 1980 in the Camera Care case. In this case, the judge ruled that the EU Commission had the power “to take interim measures which are indispensable for the effective exercise of its functions and, in particular, for ensuring the effectiveness of any decisions requiring undertakings to bring to an end infringements which it has found to exist.

The conditions to impose such interim measures were further clarified by subsequent caselaw.

Regulation 1/2003 later codified them as follows: “In cases of urgency due to the risk of serious and irreparable harm to competition, the Commission, acting on its own initiative may by decision, on the basis of a prima facie finding of infringement, order interim measures” (Article 8).

This codification, which could have been viewed as an opportunity to develop the use of this tool, has, instead, discouraged the EU Commission from doing so.

The conditions set forth in Article 8 of Regulation 1/2003 were indeed perceived as significantly harder to fulfill than the caselaw conditions until then applicable. The risk of a false positive (or Type 1 errors) was another reason for the EU Commission’s reluctance to use interim measures.

Thus, while decisions imposing such measures were already rare, there have simply been none since the entry into force of Regulation 1/2003.

The Commission is regularly asked to revisit its overly cautious approach to interim measures to no avail – until the Broadcom case.

Interim measures is a tool already used with some success by EU national competition authorities and is intended to be further developed at a national level

The EU Commission’s status quo contrasted with the dynamism of certain EU Member States’ competition authorities.

With an impressive track record of 27 cases of interim measures imposed between 2002 and 2019, the French Competition Authority (“FrCA”) has been by far one of the most active. While the greater use of interim measures by the FrCA may be explained by a lower burden of proof (condition of “likelihood of competition infringement” for the FrCA versusprima facie finding of infringement” for the EU Commission; condition of “serious and immediate harm” construed broadly for the FrCA versus serious and irreparable damage to competition as a whole for the EU Commission), it is also the result of a greater interventionism.

The fact that certain national competition authorities, like the FrCA, have used interim measures for years, with some success (including in the high-tech industry), has necessarily inspired the EU Commission.

It may also well be that, with the upcoming implementation of the ECN+ Directive that requires all Member States to enable their competition authorities to resort to interim measures, the EU Commission felt increased pressure to lead by example.

Dusted off tools for new challenges

The development of fast-moving markets and the hot debate as to whether the traditional tools of antitrust law are sufficient to tackle the issues posed by some big tech companies also explain the timely resurgence of interim measures.

While, around the world, legislators, academics, practitioners and competition authorities themselves continue to devise the best possible answer(s), competition authorities must find solutions to address everyday concerns voiced by consumers, clients and competitors confronted with potentially unlawful conduct adopted by big tech companies.

Dusting off some tools from the existing toolbox clearly forms part of the solution. It has been the case with the notion of exploitative abuse, voluntarily left aside from the Commission’s enforcement priorities back in 2009, and now revived.

It may now be the case with interim measures.

Conclusion

The EU Commission’s change of approach to interim measures is good news: certain circumstances do require prompt action to preserve competition on the markets and avoid irreversible harm to consumers, something which can only be achieved by interim measures given the long duration of the investigation on the merits.

This renewed interest for interim measures should not however make the EU Commission forget too quickly what it has long feared, namely Type 1 errors. Interim measures are prone to these errors which are very costly for the companies concerned and the economy in general. They can discourage companies from innovating and have the power to adversely affect public opinion for years to the detriment of the investigated companies even if the companies are cleared at the end of the day.

We can, of course, count on companies facing such measures to remind the EU Commission of these limits, as necessary.

In any event, to know whether this tool has definitively found its place in the EU Commission’s arsenal, one will have to wait for the EU judge’s reaction either in the Broadcom case, if Broadcom appeals the October decision (which seems highly likely), or in the following case of appeal against interim measures. If the EU Judge sets the bar too high in terms of the standard of proof required from the EU Commission, it will probably consign interim measures to oblivion. If the EU Judge is less demanding, it will open a rift that the EU Commission is sure to rush into.

EU State Aid Tax Ruling Cases: Not Yet the End of It?

More than a couple of years ago, a lot of fuss was made around the first string of State Aid tax rulings cases of the European Commission (Starbucks, Fiat, Apple, the Belgian scheme relating to the excess profit of multinational companies). Everyone has indeed heard about the massive amounts of State Aid, sometimes wrongly qualified by journalists as “fines”, that the European Commission ordered various EU Member States to recover from companies having benefitted of reportedly special and preferential tax treatment (e.g., up to €13 billion from Apple in the Irish tax ruling case).

At the time, some pretended that the approach taken by the European Commission was totally unheard of and that it was just another way for the European Commission to harass large U.S. companies.

They were not quite right.

The approach taken by the European Commission undoubtedly hinges on old precedents and on the European Commission guidance on the application of the State Aid rules to measures relating to direct business taxation (1998). What seems true however is that the European Commission, experiencing political pressure from the European Parliament in the aftermath of LuxLeaks, may have sometimes acted in haste at the cost of a lack of robustness of the underlying legal reasoning. The first setback suffered by the European Commission before the EU judge (annulment of the decision against the Belgian scheme relating to the excess profit of multinational companies) or the early closure by the European Commission (without any in-depth investigation) of the case against the Luxembourg tax ruling in favor of McDonald’s, tend to illustrate this point. But these findings do not equally apply to all tax ruling cases (about ten cases). It goes without saying that not all the tax rulings cases will come to a happy ending for beneficiaries. The case against Gibraltar which decided not to appeal the European Commission’s decision ordering recovery of €100 million of unpaid taxes from multinational companies is a good counter-example.

To see the bright side, the refined analytical grid which will soon emerge from those cases will at least help the EU Member States and (actual or potential) beneficiaries of tax rulings within the EU to better assess their own risks.

Why is it important to keep an eye on these developments?

  • There may still be a few more State Aid cases to come regarding tax rulings. Since the beginning of 2019, no less than two new investigations have been launched by the European Commission (Nike, Huhtamäki). They signal that some rulings are still under review;
  • The financial stakes may be high;
  • The time limitation period for the European Commission to order recovery of the aid is 10 years; and
  • Should the aid be deemed unlawful and incompatible, State Aid recipients bear in fine the risk of recovery.

That said, it remains difficult to predict what the next cases will be. Part of the answer probably lies with the statements of Commission’s officials who suggested that the European Commission would prioritize what it would perceive as the most caricatural cases.

It would however be surprising if this was to remain at the heart of the European Commission’s State Aid priorities once it has exhausted its current stock of rulings (those made known in the context of LuxLeaks, Panama Papers or Paradise Papers or those requested from the EU Member States in the years 2013-2014). With the State Aid cases that prompted changes of practices from EU Member States and the new legislative safeguards (e.g., EU Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market to be transposed by EU Member States this year), one may indeed reasonably think that the State Aid tax rulings subject will gradually lose its topicality…at least until the next tax scandal.

EU Held Liable To Pay Damages As a Result of the “Excessive” Length of Judicial Proceedings for an Appeal Against a Cartel Decision

The possibility for a claim to be brought against the European Union (the “EU”) as a result of “damage” caused by its institutions is enshrined in Article 340 of the Treaty on the Functioning of the European Union (“TFEU”).  In a General Court judgment of 10 January 2017, Case T-577/14 Gascogne Sack Deutschland and Gascogne v European Union (EU:T:2017:1), the appellants successfully brought a claim for material and non-material harm suffered as a result of the “excessive” length of the judicial proceedings in the context of an appeal against a European Commission (“Commission”) decision of 30 November 2005.

The timing of the process was as follows. On 23 February 2006, two entities from the Gascogne group filed appeals before the General Court against the Commission decision of 30 November 2005 finding the existence of a cartel in the plastic industrial bags sector in a number of Member States. The written procedure of the General Court proceedings in each of these cases ended in February 2007 and the oral procedure began in December 2010. The appeal was not dismissed by the General Court until 16 November 2011.  READ MORE