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Investigations update

Phone patents
Apple has indicated in a US court filing that the European Commission has opened an anti-trust investigation over Samsung's alleged abuse of 'essential patents'. The Commission has confirmed sending requests for information to both Samsung and Apple. The Commission has stated that the scope of the investigation is the "enforcement of standards-essential patents in the mobile telephony sector" and Commission Officials have stressed that the Commission has no interest in taking sides in private disputes between private parties. In the background to the investigation are several claims from competitors over patents relating to 'tablet' communication devices.

Car industry
The European Commission continues to look into the electronic automotive parts market and has requested information from Visteon about potentially illegal agreements for car parts. A number of other companies including Delphi, Lear, and Valeo have also been questioned. In a separate investigation, EU competition officials have also inspected the premises of several bearing makers, indicating that the automotive industry is under intense scrutiny. There are also ongoing investigations into the car parts market in the US, the Far East and Europe.

Anti-depressants
The OFT has launched a probe into potentially anti-competitive agreements for the anti-depressant drug paroxetine. GlaxoSmithKline and Generics (UK) Ltd have both been questioned in relation to the investigation. The OFT is looking at activity that happened around 6-10 years ago.

Spanish rental cars
The Spanish competition authority carried out unannounced inspections at premises of a number of car-rental companies at the end of October 2011. The authorities suspect that several companies may have been involved in various infringements. They are alleged to have fixed prices, partitioned the market and agreed on commercial conditions.

Microsoft in Spain
Following a complaint by Elegant Business, an operator of a website specialising in reselling software licences, the Spanish competition authority has opened an anti-trust investigation into Microsoft. The complaint concerns Microsoft's alleged blocking or unreasonable restriction of the sale of licences for computer software by third parties.

UK

Deal or no deal
Reports suggest that the OFT intends to require that companies wishing to merge will be forced to find buyers up front for assets that they are required to sell as a condition of merger clearance. Up to now, transactions have often been allowed to go through without buyers being found for the required disposals beforehand.

The approach has received criticism from businesses. The proposed approach could arguably further discourage transactional activity - already slowed by the economic downturn - since finding a buyer for assets that need to be divested may prove difficult. This could mean the main transaction will stall, so discouraging merger activity. In response, the OFT argues that the change is necessary due to the risk that the more difficult financial climate means that no buyers will be found.

OFT to promote competition in organic waste treatment
Following the OFT's market study into the treatment of organic waste in England and Wales, throughout which the OFT worked closely with Ofwat, the OFT has issued recommendations aimed at increasing competition and improving efficiency in the treatment of organic waste. The barriers to competition uncovered by the investigation relate to the regulation of economic, environmental and planning issues and to the "apparent corporate culture of some of the water and sewerage companies".

The main recommendations are:

• the harmonisation of environmental regimes dealing with sewage sludge and other organic waste
• possible changes to the economic regulation of water and sewerage companies.
  

The OFT also provisionally decided that there will be no market investigation reference to the Competition Commission because it is of the view that the issues identified will be best dealt with by Ofwat and the relevant government departments.

Travel money super-complaint
Consumer Focus has made a super complaint to the OFT in relation to holiday money. The concerns are over the costs involved in obtaining foreign currency and in using credit and debits cards whilst abroad. The watchdog believes that complex systems of charging together with limited or misleading information have resulted in consumers being over-charged. It is thought that consumer choice and competition may have been restricted. Phrases such as "0% commission" and "competitive exchange rates" are said to mislead consumers and discourage them from looking elsewhere.

On 20 December 2011 the OFT published its official response to the super complaint. Their analysis broadly supported Consumer Focus' concerns. While the OFT could have launched a market study or referred the market to the Competition Commission for investigation, it instead opted for securing a broad range of voluntary agreements from sector leaders. These agreements covered, amongst other things, revising advertising in light of concerns and dropping certain charges that were seen as unfair and unclear. In a statement, the OFT said that while it will continue to monitor the market, 'in light of the package of agreements secured across the travel money industry, the OFT considers that no further action is needed by the OFT at this time.'

Click here to read the full text of the OFT's response.

EU

The Court of Justice continues to blame the parents
An appeal to the Court of Justice has resulted in a €45 million fine against Elf Aquitaine (Elf) being quashed. Elf and its subsidiary, Arkema, pursued separate actions before the court regarding their joint and several liability for Arkema's involvement in a cartel on the monochloracetic acid market. Arkema argued unsuccessfully that its fine was disproportionate. Elf was more successful in its arguments concerning the contentious issue of parental liability. In finding Elf liable for Arkema's infringement, the European Commission had relied on the legal presumption that a parent company's possession of 100% shares in its subsidiary is sufficient evidence of the parent's responsibility for the behaviour of the subsidiary. However, the Court of Justice considered that in order to rely on this presumption the Commission must provide a well-reasoned response to evidence submitted by the accused parent company to rebut the presumption, but only to those arguments the Commission deems worthy of a response.

Although the case may be welcomed by parent companies in the sense that the Commission's duty to provide reasons may offer some scope to challenge a finding of parental liability, it does not overcome criticism that the AKZO ruling makes it unduly easy for the Commission to impose liability upon parent companies. Further, the Court's approach in the Elf decision suggests that the general rule in AKZO is here to stay.

ECJ takes tough line on ban of online sales
The ECJ has ruled on the question of whether a selective distribution agreement which amounted to an absolute ban on internet sales restricted competition. The case, which was referred to the ECJ from the French courts, involved Pierre Fabre Dermo Cosmetique SAS who limited distributors to selling its cosmetic products in a physical space and in the presence of a qualified pharmacist.

Selective distribution systems are considered to be restrictions of competition by object unless the resellers are chosen on the basis of uniform objective criteria and the characteristics of the product in question necessitate use of a selective distribution system in order to preserve the product's quality and ensure its proper use. Any restriction must pursue legitimate aims in a proportionate manner. In this case, the need to provide individual advice to the customer and to ensure his protection against the incorrect use of products involved (non-prescription medicines and contact lenses) could not justify a ban on internet sales. The Court accepted the Commission's arguments that any negative effects of the products would only become apparent on use rather than purchase of the products. Furthermore, should any problems arise, the patient could consult a doctor, as opposed to a pharmacist who is not qualified to make a diagnosis.

The ECJ also considered whether the agreement would benefit either from the Vertical Restraints Block Exemption, or from an individual exception. The Vertical Restraints Block Exemption, which sets outs the circumstances in which agreements between competitors at different levels of the supply chain will be presumed not to be a restriction of competition, was not available because the ECJ considered that the ban on internet sales was a "hardcore" restriction (restricting competition by its object alone).

Even where the restriction is "hardcore" and the block exemption does not apply, the ECJ did say that it may be possible that the agreement could qualify for an individual exemption under Article 101(3) of the Treaty on the Functioning of the European Union. An agreement will qualify for an exemption under Article 101(3) only if it contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit; and does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; or afford such undertakings the possibility of eliminating competition in a substantial part of the products in question. This is a question for the national court and the ECJ considered that it did not have sufficient information before it to provide any guidance.

Although companies selling products or technical goods requiring onsite explanation and guidance may think they have strong arguments for enforcing bricks and mortar sales only, it seems that it will be very difficult to convince the competition authorities that these restrictions are justified.

No cooperation, no leniency
The General Court has upheld substantial fines imposed by the European Commission on members of a cartel on the Italian raw tobacco market. The companies fined included Deltafina, which had been fined €30 million notwithstanding that it had sought and been granted immunity under the Commission's leniency programme.

This was the first time that the Commission had withdrawn provisional immunity from a leniency applicant, highlighting that if you want to reap the benefits of a leniency application you must comply with the Commission's demands. A condition of immunity was that Deltafina must keep its leniency application confidential. Deltafina failed to comply with this condition, arguing that it was impossible for it to keep its leniency application a secret from its competitors and that disclosure would have no negative impact on the Commission's investigation. The Commission refused to accept these arguments; Deltafina had not fully cooperated with the Commission and so lost its conditional immunity.

Other jurisdictions

Cartel behaviour to be criminalised in NZ
In October a bill was introduced into the New Zealand Parliament which, if passed as it stands, will criminalise cartel conduct and introduce penalties for individuals, including jail time. The Commerce (Cartels and Other Matters) Amendment Bill also makes price-fixing, output restriction, bid-rigging and partitioning of markets illegal regardless of the effect the behaviour has on the relevant market. The next step for the bill following the first reading before Parliament will be reference to a select committee for further scrutiny.

Price-fixing of life insurance in Korea
Fines have been imposed by the Korea Fair Trade Commission on 16 life insurance companies in Korea. The companies were found to have fixed interest rates and the amount of expectation interest which the companies use to calculate premiums, raising the premiums charged to customers and reducing the payments made to customers. The companies involved include Samsung, Korea Life, Kyobo, Heungkuk, Cheil (predecessor of Allianz) and Donga.

Mastercard under the global microscope
Many authorities and competition enforcers across the world are scrutinising Mastercard. A recent publication by the SEC in the US has outlined various ongoing investigations and pending decisions in several jurisdictions throughout the world. The SEC also details regulations and policies that may be implemented which will significantly affect the operations of Mastercard, particularly in relation to interchange fees. The report highlights that interchange fees seem to under a global review and are likely to be subject to increasingly strict regulation throughout the world. The US report also notes that the results could lead to several private damages actions being filed against Mastercard.

US Department Of Justice turns anti-trust spotlight on derivatives
A financial derivative agreement between Morgan Stanley and the largest supplier of electricity generating capacity in New York has led to anti-trust enforcement action by the Department of Justice. Morgan Stanley has agreed to give up allegedly illegal profits of $4.8 million said to have been gained from an arrangement with Keyspan Corporation. The arrangement involved a complex financial derivative which allegedly enabled Keyspan to avoid competition with its largest competitor, Astoria, thereby restraining competition and allegedly leading to higher electricity prices for consumers. The derivative put in place a price range for generating capacity. Where this range was exceeded or where the price was set lower than the range Morgan Stanley would pay Keyspan. It appears that Morgan Stanley may also have entered into a derivative agreement with Astoria which acted to offset the arrangement with KeySpan.

The DOJ argued that the derivative agreement led to anti-competitive behaviour on the part of Keyspan as prices were kept artificially high by withholding generating capacity. As Keyspan was gaining income from its own sales and from the derivative agreement with Morgan Stanley it did not have to worry about losing business to Astoria. The DOJ said that Morgan Stanley had knowledge of the effects that the agreement would have on the market and that it was effectively withholding output from the market.

Over the last few months, there have been a number of signals that competition regulators on both sides of the Atlantic are putting the financial services industry under increasing scrutiny. Our August 2011 Update commented on the Commission's decision to bring formal charges against Goldman Sachs in relation to its investment in the power cables market. Reports indicate that the European Commission is also likely to block the proposed merger of Deutsche Börse and NSYE because it would give the combined exchange a dominant position in European exchange-traded derivatives markets

Contact us

If you think your business may be affected by any of the above, or if you have any other questions, please contact:

Catriona Munro
Partner
0131 228 7121
catriona.munro@mms.co.uk

Michael Dean
Partner
0141 271 5730
michael.dean@mms.co.uk

This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.