Given your interest in EU, Competition & Regulatory law, you may find some of our other updates particularly useful. Procurement, for example, has been selected by many of our clients who have signed up to EU, Competition & Regulatory. To register for additional bulletins, guides and seminars, visit sign up.

Please feel free to forward on this bulletin to friends and colleagues who may find it of interest and wish to subscribe themselves.

Investigations

A bit of a dog's (and cat's) dinner in France
The French Competition Authority has fined three major companies in the cat and dog food sector a total of €35.32m for restricting competition through vertical agreements with their respective wholesalers. Nestlé Purina Petcare France SAS, Royal Canin SAS and Hill's Pet Nutrition SNC were found to have put pressure on their distributors to keep prices high for pet food, as well as implementing exclusive arrangements for territory, supplies and clients. The authority found that the agreements effectively fixed distributors' prices, taking over most of their commercial policies and pushing competing products off their shelves.

A menu of complaints in Belgium
The Belgian Competition Authority has also been investigating the pet food sector as part of an investigation into fast-moving-consumer-goods such as confectionary, ice cream, sauces, bouillon, and care and cosmetics. Initial concerns about information sharing between confectionary producers led to raids which revealed exchanges of commercially sensitive information on pricing intentions for a wider range of consumer goods. It is alleged that the information exchanges took place via a multi-sector trade association.

Retailers under scrutiny in Austria
In Austria, it is supermarkets, rather than producers, who are currently under scrutiny by the Austrian Competition Authority. A number of raids against supermarkets took place in February and March of this year. The competition authority is investigating whether the supermarkets implemented restrictive pricing agreements with suppliers.

German Competition Authority doesn't feel any chemistry
The German Competition Authority has fined thirteen chemical wholesalers €8.7 million for participation in a cartel for industrial chemicals. For several years, the companies agreed on prices, quotas and customer allocation in several supply areas. This decision follows fines of €15.1 million already imposed on twelve companies for similar behaviour in different regions of Germany.

Too much power for Endesa
The Spanish Competition Authority (CNC) has imposed a series of fines on Endesa Distribución Eléctrica S.A. (Endesa) for anti-competitive conduct. In February, Endesa was fined more than €8.1 million for charging customers for carrying out linking and connection work for electricity installation, even though such work must be done by the distributor at its own cost. A separate fine of almost €15 million was imposed for abuse of a dominant position on the electricity distribution market. Endesa's distribution business shared information with its electricity installation business about customers who had made electricity connection requests. Information about connection requests was not available to competitors so Endesa could effectively target customers on the related single point installation market. In April, Endesa received a further fine of almost €1 million for failing to comply with a decision requiring it to stop a similar abuse of dominance on the island of Mallorca. Finally, in June, a fine of €5.5 million was imposed for unfair consumer practices in relation to consumer electricity contracts.

Songwriters sing lamentation for copyrighted works
An alliance of composers and songwriters known as the European Composer and Songwriter Alliance (ECSA) has complained to the European Commission that the publishing agreements set by a litany of broadcasters such as BSkyB, ITV, Sky, RTL, RAI and the BBC amount to the coercive acquisition of composers' rights, in breach of competition law. ECSA, which represents over 12,000 composers and songwriters in Europe, argues that production companies coerced songwriters to sign over the copyright of their works as a pre-condition for being awarded a commission, at the risk of being blacklisted and losing future work if they refused. 

A hard stance on software?
The MathsWorks Inc, a US-based software company is being investigated by the European Commission for abuse of a dominant position by failing to provide a competitor with end-use licenses and interoperability information for its flagship products, Simulink and MATLAB. This software is used for designing and simulating control systems (such as designing anti-lock braking or cruise control systems for cars).

UK

Keeping up with the competition
The Office of Fair Trading (OFT) and Competition Commission (CC) are to be merged into a single Competition and Markets Authority (CMA). The announcement is not altogether surprising as both the OFT and CC have been in the spotlight for all the wrong reasons. The OFT's first contested criminal prosecution of BAA executives came to a disappointing and high profile end for the regulator when the trial collapsed on procedural grounds. The OFT came in for further criticism when the high fines imposed following its expensive investigation into construction companies were slashed on appeal. The CC hasn't fared much better, with concerns being raised that its market investigations are costly and disruptive to businesses yet the conclusion often reached is that the market in question is in good working order.

The CMA will have more extensive powers than its predecessors. In terms of market investigations, the CMA will be able to investigate across markets in the hope that this will reveal anticompetitive practices that previously went unnoticed. The Government seems to have responded to the criticism that previous market investigations have been costly to businesses and the tax payer, with the period for completing an investigation being shortened from 2 years to 18 months. For mergers, the significant change is that the CMA may pause or even reverse steps taken by a company towards implementing a merger. However, the fact that the system of voluntary notification of mergers is to remain in force will be welcome news for businesses. There is more good news for small businesses, with the promise of an exemption from merger notifications altogether.

Perhaps the most far reaching change is to the cartel offence. To date an individual could face prison time where he engaged in serious anticompetitive behaviour and acted dishonesty. Perhaps as a result of the OFT's poor track record for criminal prosecutions, the dishonesty element of the cartel offence is to be removed and replaced by an exclusion for cartel arrangements where the parties have agreed to publish details of those arrangements before they are implemented. This is likely to make it easier for individuals to be convicted of the offence and brings the cartel offence closer in line with the civil offence faced by companies. It is unclear how this change will play out in practice but one thing is clear: the rules and risks are changing and you must prepare your business and employees. Our advice is to dust off your compliance procedure and make sure it is fit for purpose.

When silence is not golden
The English High Court has held that a 'no contract' clause in a confidentiality agreement was in breach of competition law. In February 1999, purchasing intermediary CMP and printing, photocopying and scanning hardware manufacturer Ricoh entered into a confidentiality agreement intended to protect CMP's relationship with its clients so that it would not be cut out of the relationship by Ricoh dealing with them directly. The agreement governed the use of confidential information by Ricoh relating to CMP's clients.

The Court noted that, on any objective interpretation, the clause went further than needed for the purpose of protecting confidential information. In its range and scope it was a naked restriction on over 150 Ricoh companies dealing with or seeking to deal with a client of CMP so long as Ricoh held any of a wide category of confidential information. The Court confirmed that where a clause in an agreement is found to be void by EU law, it is for English contract law to determine whether the remainder of that agreement can remain in force. It found that the no-contact clause could be severed from the rest of the agreement as it was separate and distinct from the remaining provisions of the agreement.

Click here for the Court's judgement.

EU

Did the Commission give its damages action a lift?
The number of competition damages cases is growing year by year, and now it seems that even the European Commission is getting in on the action. In 2007, the EC sanctioned several manufacturers for their involvement in a lift cartel. The Commission itself has gone on to bring a private damages action in the Belgian courts against the cartelists on the grounds that several EU buildings had installed the over-priced lifts. In response to this, the cartelists claimed that the Commission has an "inequality of arms" against the defendants, as the EC has access to information which would not ordinarily be available to claimants. The defendants also questioned the impartiality of the Commission in carrying out the investigation now that its private interest in the case has come to light.

The legality of the Commission's damages claim is now being disputed before at the Court of Justice of the European Union. The Court is considering the Commission's role in the investigation and also whether it has the authority to act for the other EU institutions without prior authorisation. It seems likely that the Commission will be permitted to pursue its claim.

Failure to co-operate can be costly
Czech firm Energetický a prumyslový (EPH) has been fined €2.5 million by the European Commission for obstructing officials during a dawn raid. EPH allegedly failed to comply with a request to block e-mail accounts of all key persons whilst the inspection was undertaken. In addition, e-mails to at least one e-mail account were diverted away from the blocked account to a computer server. These actions constituted a breach of obligations to co-operate with Commission officials during inspections and to give access to all relevant documents. EPH is appealing the Commission's decision.

This case serves as a stark reminder that Commission investigators have a wide variety of powers during dawn raids. It also emphasises the need to prepare effective IT measures in order to maintain co-operation and compliance during an investigation, while avoiding any behaviour that may be perceived as obstructive.

Click here for the European Commission's Press Release.

Technology advances competition complaints
Over the past year there has been a marked upsurge in antitrust complaints by major technology companies. There have been a number of high profile cases.

• Motorola Mobility
  Microsoft complained to the European Commission about Motorola Mobility's handling of fair-use standards essential patents. Motorola Mobility is accused of violating fair and reasonable use policies through inflated sales pricing and unfair licensing terms for standard essential patents in the mobile communications industry.

  Google (whose purchase of Motorola Mobility for $12.5 billion was recently approved by Chinese, American and European authorities) and Motorola Mobility hit back at Microsoft claiming that the software giant manipulates the regulatory process to attack its competitors. Google claims that Microsoft uses patent troll companies set up for the exclusive purpose of aggressively enforcing patents that it allegedly has no intention of developing, manufacturing or marketing, in order opportunistically to target potential patent infringers. Google suggested that Microsoft is to blame for the onset of the patent wars, and pointed to its $2 billion in antitrust fines in Europe over the last decade.

  In February this year, EU antitrust chief Joaquin Almunía warned that the misuse of patents raised concerns and threatened to act against Motorola Mobility as well as Google should their actions restrict growth in the industry generally. Almunía argued that "competition policy must intervene to prevent patents that are essential for a standard [being] used strategically to block competitors."
  
  

• Google+
  Google is also the subject of a range of complaints relating to its search engine protocols and social networking service, Google+. Preliminary investigations began in 2010 following complaints lodged by companies including Microsoft, which prompted the European Commission to open a full investigation into Google's search engine protocols. In February 2011 Google faced a fresh complaint from e.Justice, who alleged that the search giant had delisted the legal search engine effectively blocking it from Google's search result pages. The Commission grappled with the issue of Google's dominance of the internet, and whether Google was the "gatekeeper" of the internet. In October 2011 it was disclosed that three more online companies, Elfvoetbal.nl, Hot-Map.com, VfT, and NNTP.it, had lodged complaints against Google alleging that its dominance was pushing them out of their respective markets.

  Similarly, French shopping service Twenga filed a complaint with the Commission in January 2012 alleging that Google manipulated its search engine results to give preference to its own shopping services. Twenga broadened the scope of the Commission's investigations by challenging Google in respect of the close integration of its social networking service, Google+, and its search engine results. In March 2012, the Commission dismissed the allegations against Google+, stating that the issues are more related to privacy than competition law, and so not directly linked with the over-arching antitrust investigation.

  Competing internet companies have kept up the pressure, forming Fairsearch.org in late March 2012. This coalition includes the European arms of notable companies such as TripAdvisor, Expedia and Microsoft and will act as a lobby group against Google in Europe.

  In May, the European Commission offered Google the chance to settle the investigation by offering remedies to address various concerns. Google has indicated that it may be interested in settlement.
  
  

• Oracle
  The European Commission's settlement offer was made shortly after a California jury decided Google had not infringed Oracle's Java programming patents through its Android operating system. This is a serious setback for Oracle, who is facing a third antitrust front following a complaint by Hewlett-Packard (HP) to European Commission, asserting that Oracle obtained advanced knowledge of a proposed phasing-out of Intel's Itanium processor range. This would have afforded Oracle a significant edge in curbing losses, securing customers, and preparing for the next generation processor as a result. HP alleges that Oracle's strategy is aimed at pushing them out of the lucrative server market. The EC complaint mirrors others already lodged with national regulators in Spain and France. It may fall to Oracle to persuade the EC to take up the case and open a formal investigation, so as to avoid fighting the allegations in two other jurisdictions that may have fewer precedents to draw on.

  These cases highlight the growing trend toward technology licensing investigations by the European Commission. Regulators are keen to preserve fair-use terms in licensing patents and foster growth in the communications industry. National and European authorities are showing an increasing desire to punish companies that use patent licensing and data integration as tools to attack competitors and stifle competition.

Other jurisdictions

Not the lease bit concerned? Think again!
Australia has followed the UK in applying competition law to property agreements. The Competition and Consumer Act 2010 applies to the supply of tenancy and tenancy services by landlords to tenants. It prevents landlords and their competitors from comparing the prices they will charge to potential tenants and also regulates the restrictions which a landlord can impose upon the tenant's use of premises. For example, a condition that premises cannot be used as a supermarket on the grounds that this use would compete with the landlord's nearby grocery store is likely to be anti-competitive. The potential consequence of breach for companies is a fine of up to $10 million AUD, three times the benefit gained from the breach, or 10 percent of the annual turnover of the business (whichever is greatest). For individuals the consequence is a fine of up to $500,000 AUD, a ban from managing a company or a prison sentence.

In the UK land agreements became subject to competition law in April 2011. UK businesses should therefore be just as wary of competition law as their Australian counterparts when it comes to land transactions.

Ireland's regime gets tough
New legislation is being introduced in Ireland this year that will increase the maximum sentences for individuals found guilty for competition offences, such as price fixing. The maximum sentence available will increase from five to ten years imprisonment. Ireland was required to toughen its competition enforcement regime by the team overseeing the country's EU/IMF financial bailout. Although the maximum sentence available is likely to increase, it is of note that the first (suspended) custodial sentence for price-fixing was imposed in May this year. The individual concerned received a two year suspended sentence and was fined €30,000.  Harsher sentencing powers may have little effect if judges are rarely willing to impose custodial sentences. Yet with the risk of 10 years in prison, the stakes will be higher for individuals flouting competition rules. Ultimately, this is not a risk worth taking and so businesses should protect themselves and their employees by having a sound competition compliance program in place.

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.