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Banking on an unfair return
Hungary's Competition Office (GVH) is investigating whether several banks illegally colluded on the household mortgages market. GVH started the procedures against OTP Bank, Erste Bank Hungary, MKB Bank, Raiffeisen Bank, CIB Bank, Unicredit Bank Hungary and Fundamenta-Lakaskassza with unannounced investigations at the banks' headquarters.
Proceedings were initiated after GVH found that a number of big Hungarian lenders raised interest rates on home mortgages by 50bp-200bp or introduced new products with higher rates in the period after 22 September 2011, which suggested to them a coordinated action.
It has become clear that when, last year, the European Commission (EC) raided a number of companies in the industrial sector (including Caterpillar, MAN and General Electric) in relation to alleged collusion on the industrial piston engine market, it was investigating both the merger and alleged anti-competitive behaviour. A raid seeking evidence to both a merger and antitrust allegations is highly unusual, if not unique. Companies notifying mergers should bear in mind that antitrust infringements often come to light in this context and should make sure their house is in order before embarking on transactions that are likely to attract scrutiny.
Time for changes to the OFT?
The OFT is facing further embarrassment after fines it imposed on several tobacco manufacturers and sellers have been quashed by the Competition Appeal Tribunal (CAT). The appeal against the fines was successful after the CAT ruled that the OFT's decision to refine its case removed the anti-competitive agreements which were the subject of the original decision. The CAT then held that the OFT could not produce any evidence to establish that the remaining restraints identified in the refined case were anti-competitive. This follows a series of cases in 2011 where OFT investigations faced mounting criticism; several parties to the construction investigation had their fines considerably reduced and criminal cartel cases against four former and current British Airways executives were dropped due to problems with evidence. While the OFT has stated that this recent decision will not dissuade it from considering difficult or highly complex cases, its role is currently under scrutiny by the UK Government. The OFT may seek to enter a period of reflection to address the weaknesses exposed by the CAT. In addition, the Government is considering proposals to merge the OFT with the Competition Commission and to remove the dishonesty element from the cartel offence (which has been a significant obstacle to conviction). The Government is expected to publish its response to its consultation on these proposals early this year.
A tale of two regulators
The European Commission (EC) has formally opened an investigation into a selling model used by e-book publishers and distributors. The decision formally to open an investigation follows dawn raids at the offices of several major book publishers in March 2011. Publishers named as being involved in the potentially anti-competitive behaviour are Hachette Livre, Harper Collins, Simon & Schuster, Penguin and Macmillan.
The EC will investigate whether, with the assistance of Apple, the publishers entered into illegal agreements to effectively raise the prices of e-books in Europe. It is also going to examine the terms and character of the agency agreements between e-book retailers and publishers. Under the agency model, publishers set the prices retailers can charge for books. Book sellers (like Apple's iBookstore) are agents of the publisher, and, as a result, have to stick to the publisher's prices. If a publisher decides a book should cost £9.99, then all retailers under that agency deal have to charge £9.99. The EC's concern is that when Apple entered into various agency-based deals with many major publishers at the same time, it had a negative impact on competition between online booksellers forcing the prices up. Previously, publishers would have sold e-books wholesale to retailers in the same way as they sold printed books, recommending a retail price but leaving booksellers to make the ultimate decision, ensuring competition and driving down prices.
The EC will need to examine this new agency model to determine whether it is subject to competition law. A reseller will be regarded as a true agent only if they bear no or only insignificant financial or commercial risk in relation to the sale of the books. In that case, the principal and agent are regarded as the same entity and there is therefore no 'agreement between undertakings' as set out in Article 101. However, if the agreements are not classed as true agency agreements, there is a risk that the agreement between Apple and the publishers on the pricing of e-books could amount to resale price maintenance in breach of competition law. This was the case in the UK up to 1997 when the Net Book Agreement was abolished.Following the EC's announcement, the OFT has now closed its own investigation into anticompetitive practices in the e-books sector. There was some criticism that separate investigations by the two regulators would imply that they do not take a unified approach towards the sector. In response to this, the OFT has stated that the EC is 'well placed' to reach a 'comprehensive resolution' to the situation. The OFT has not ruled out re-starting its investigation should there be an impact on UK consumers.
Lessons for suppliers to schools and other public bodies
The increasing value of the market for public services has brought the sector under scrutiny from competition authorities. Not only has the OFT accepted voluntary assurances from a group of suppliers to schools about the way they compete for business from schools in England, but it has also published new guidance aimed at how public bodies compete in the market. The OFT approached members of the Pro5 group of Public Sector Buying Organisations (PSBOs) last year following a complaint which highlighted possible competition concerns about the way in which they marketed their goods and services to schools. PSBOs are combined purchasing bodies formed by some local authorities and help to provide schools with better value goods and services.
The OFT's guidance on the application of competition law to public bodies comes at a time when the line between the public and private sector is becoming more and more blurred. It clarifies the circumstances in which the activities of public bodies are deemed 'economic activities', and so subject to competition law. Public bodies should ask themselves if they are offering or supplying a good or service rather than exercising a public power; and if so, is that offer or supply of a commercial rather than exclusively 'social' nature. If both questions are answered positively, then competition issues may be raised. As public services provision is being opened up further to the private and voluntary sectors, public service providers and suppliers to the public sector will need to take more care when engaging in 'economic activities'.
A testing time for parents
Parent company liability for the anticompetitive behaviour of a subsidiary continues to be a point of contention in competition law (click here to see our previous update). Tobacco group, Alliance One, is challenging the European Commission's (EC) decision to hold it liable for its subsidiary's involvement in a Spanish raw-tobacco cartel. Alliance One is arguing before the ECJ that the EC applied different tests to each of the parent companies concerned when determining liability. It argues that in a parallel case, a parent company Universal was not held to be liable for a subsidiary's anti-competitive behaviour as the EC applied only the '100 percent presumption' and Universal did not meet the threshold. In contrast, in Alliance One's case, the EC applied the 'dual basis test' which assesses whether the parent was in a position to exercise decisive influence over its subsidiary and whether there is evidence of that influence being exercised. Alliance One argues that the use of different tests of parental liability by the EC breaches the principle of equal treatment.
Advocate General Kokott has delivered her non-binding opinion that the appeal should be dismissed. AG Kokott argued that the key question is whether the standard the EC applied to one cartel participant when determining its liability was the same standard the EC applied to the other cartel participants. She concluded that as there was legal uncertainty surrounding the 100 percent presumption at the time of the EC's decision against Alliance One, it was justified that the EC chose not to impose liability solely on the '100 percent presumption', instead applying the 'dual basis' test.
No tactics for logistics
Logistics company Schenker is appealing against the General Court's refusal to allow it to intervene in the appeals of several airlines fined for their involvement in an air cargo cartel. Schenker is pursuing damages on the basis that the cartel affected its operations. The General Court held that appeals are not intended to aid damage claims. In addition, the General Court held that Schenker had 'failed to establish the existence of a direct, existing interest in the result of the case'. Even though Schenker was arguing that it had a direct interest as a result of the cartel's damage to its business, the General Court held that this was not sufficient because damage claims can be brought 'independently of any prior decision by the [European] Commission'. The decision signifies that claimants in competition damages cases are increasingly determined to deploy novel tactics to strengthen their case.
Safe driving with the 'competition highway code'?
The European Commission has published new guidance on complying with competition law, which it refers to as 'a sort of competition highway code'. The guide, 'Compliance matters', is aimed at small and medium-sized businesses who often do not have sufficient resources for the legal advice necessary to ensure compliance. The guidance summarises the key competition rules and the penalties for failure to comply. It also offers some suggestions as to how your business can ensure compliance.
The European Commission's guidance follows the publication of advice from the OFT in June 2011. Although reference to both guides is essential for your company, you should remember that such broad and general advice cannot fully determine your business' risk of anticompetitive behaviour. Following the guidance word-for-word will not grant you immunity from competition liability. When faced with specific competition concerns, you should seek legal advice.
Good news and bad news
A decision of the German Supreme Court (GSC) has brought the country's competition damages law into line with that of other EU Member States. The court held that indirect purchasers, who did not directly buy the cartelised product can raise an action for damages. This in itself would be welcome news to claimants. However, the GSC went on to hold that cartelists can now defend themselves using the 'passing-on defence'. This allows a cartelist to argue that claimants who were direct purchasers passed on the overcharge to their own customers, meaning the direct purchaser did not suffer any loss. This latest development now reflects the position in other Member States.
Swiss information causes a stink
The Swiss Competition Commission (COMCO) has ordered the Association of Manufacturers, Importers and Suppliers of Cosmetic and Perfumery Products and its members to stop exchanging market sensitive information such as prices, turnover, terms and conditions and advertisement costs. The COMCO investigation was opened on 1 December 2008 after one of the companies involved gave a voluntary declaration.
Although the conduct does not fall into the category of directly sanctionable conduct, under Swiss competition law, if any of the members involved contravene the ruling to cease the practice they will be liable to non-compliance penalties.
French dawn-raid challenge suffers setback
On 9 November 2010, the French Competition Authority commenced an investigation into Medtronic (a US medical manufacturer who had already been fined €1.1 million by the French antitrust regulators back in 2007) regarding alleged bid-rigging for medical devices.
In September 2011, Medtronic announced that it filed actions challenging the legitimacy of the dawn raids carried out at the start of the investigation. They argued that the data from Medtronic were seized in a way which did not comply with the French constitution. On 4 October 2011, Medtronic suffered a setback when one of its two actions (regarding the compatibility of certain laws with the constitution) was rejected in its entirety by the Court of Appeal in Paris.
In mid-November Medtronic's second action was rejected by the Paris Court of Appeal. This challenge to the procedure, namely the legitimacy of the warrant and the way the dawn raid was executed, was seen as its strongest chance of success. The rejection of the action will come as a heavy blow. Medtronic, not to be disheartened, is understood to be filing an appeal.Dawn raids are used to start a regulator's investigation and if they manage to gather useful material, it will be hard for companies to stop the momentum of the investigation. Not surprisingly, given the current economic environment, companies are increasingly challenging dawn raids in an attempt to stop investigations in their tracks.
Reckitt Benckiser Deutschland fined €24 million
Reckitt Benckiser has been fined €24 million following an investigation by the German Federal Cartel Office. Reckitt Benckiser's fine is the result of two different proceedings taken against the company; one for fixing the amount and timing of price increases and the second for illegally exchanging information with competitors.
Reckitt Benckiser was found to have fixed prices with their rivals Henkel in Germany. Henkel avoided a fine after turning whistle blower in 2010. According to reports the Reckitt Benckiser employee implicated in the matter no longer works for the consumer goods manufacturing giant. The two parties were colluding for a number of years. One example was the agreement to reduce the size of their boxes of dishwasher tablets. The indirect result was an equivalent increase in price by 13%.
Reckitt Benckiser's illegal exchange of information with competitors came to light following a tip-off from Colgate Palmolive. They join eight other companies that have already faced a combined fine of €20 million as a result of information provided by Colgate Palmolive.
Reckitt Benckiser's fine was reduced due to its cooperation with the authorities, and it has since confirmed that it considers the matter to be resolved and will not appeal.
This will be unwelcome negative press attention for Reckitt Benckiser who was fined £10.2 million by the UK's OFT for an abuse of its dominant position in relation to its production of Gaviscon in October 2010.
Breathing new life into old law
The United States International Trade Commission (ITC) is invoking the 1930 Tariff Act to block competition from foreign products. While other protectionist legislation from the period has long since been repealed, the Tariff Act continues to be used to block imports which infringe US registered patents or trademarks. However, a decision by the US Court of Appeals for the Federal Circuit has breathed new life into the legislation making its application wider. In this recent decision, the legislation was used to block Chinese imports which infringed the 'trade secrets' of a US company. This is an interesting conclusion to have reached as 'trade secrets' or 'business secrets' cannot be registered in the same way as a patent or trademark. Unless the case is appealed to the Supreme Court, it seems as though the 1930 Tariff Act will have the potential to capture a significant number of imported products, giving US companies significant scope to fend off foreign competitors.
US Justice Department refuses to be lenient with disclosure
The US Justice Department has warned that it will aggressively protect both its own and other jurisdictions' leniency materials from disclosure in US courts. Leniency systems in the US and EU provide immunity from fines for the first company confessing its involvement in a cartel. Such systems have come under increased threat from claimants in private damages cases who are seeking access to the materials to bolster their claim against cartelists. The EU court's decision in Pfleiderer appears to have caused further anxiety to competition authorities. In this case, it was held that discretion to disclose such materials rests with national courts who must balance the need to protect leniency systems against the rights of damages claimants. This ruling suggests that disclosure of leniency materials may become easier, undermining both the EU and US leniency systems. Traditionally, courts in the EU and US have respected one another's leniency processes. Although it is no longer clear whether such a relationship can survive the decision in Pfleiderer, the US Justice Department's announcement suggests that it is willing to put up a fight to protect its leniency process.
No safety in numbers in Israel
The Israeli Parliament has enacted a reform to the Restrictive Trade Practices Law, in an attempt to counteract the increasing strength of oligopolies. The new law enhances the power of the Israeli Antitrust Commission (IAC) by allowing it to declare that a small group of competitors who are (i) a 'concerted group' and (ii) dominate more than 50% of the market are a potential target for antitrust enforcement measures.
Although the power already existed, until now the IAC would have to prove that there was virtually no competition between the members of the oligopoly. This test proved extremely difficult to overcome in practice, rendering the law nigh redundant. Under the amended law, in order to satisfy the 'concerted group' test, the IAC will only need to show there are 'conditions supportive of limited competition' in the market and that there are conditions which they can impose that will prevent significant harm to competition, significantly increase competition or create conditions for such increased competition.
MMS is hosting a seminar organised by the Scottish Competition Law Forum on 28 February at 4.30pm. The topic is Competition Law and the Individual. It promises to be an extremely interesting event with three extremely motivating speakers.
There will be a speaker from the OFT, focusing on what companies can be doing to achieve compliance, providing tips to directors on how to bring about a compliance culture and the consequences of failure to adhere to the laws. Keith Packer will provide more of an insight into the role of a director in a multi-national company and the resultant penalties for breaching competition law. Our third speaker, Mark Furse, will discuss the topic from a law and economics perspective, focussing on the misgivings of the criminal cartel offence.
Individuals and companies alike must be aware of the potential far reaching consequences of breaching competition law. This is a key opportunity for those directors responsible for compliance and salespeople to listen to some real-life stories and to sit up and take note of the measures that need to be put in place now to prevent such grave consequences.
Philip Collins, Chairman of the OFT, will focus on what companies can do to achieve compliance, providing tips to directors on how to bring about a compliance culture and the consequences of failure to adhere to the laws. Keith Packer will provide personal insights into consequences for individuals of breaching the law. Our third speaker, Professor Mark Furse, will outline his own misgivings about the viability of the UK's criminal cartel offence.
To register for this event, please email Kyla.Brand@oft.gsi.gov.uk.
If you think your business may be affected by any of the above, or if you have any other questions, please contact:
0131 228 7121
0141 271 5730
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.