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More antitrust.
The Commission has released its Annual report on competition policy for 2007. You can find it here.
The Annual report is an immensely valuable resource and it goes through all the salient (and some not so exciting) developments during the year.
The more detailed Commission staff working paper also rewards reading.
Hat tip to the Antitrust and Competition Policy Blog.
The Commission has published a new regulation - Regulation 622/2008 - that amends Regulation 773/2004 on the conduct of proceedings by the Commission pursuant to Articles 81 and 82 EC to introduce a "settlement procedure" in cartel cases.
The idea is to induce those subject to an investigation for Article 81 EC violations to settle cases quickly with a 10% reduction of the fine. Sounds like a good idea as it obviates the need to go through the whole procedure if the undertaking investigated is prepared to accept the Commission's findings.
At first glance, though, it looks like a half hearted attempt and not much of an inducement. First, the Commission determines whether it wants to settle, not the undertakings investigated. Second, the settlement discussions take place with a Commission service (the Directorate General for Competition) and the Commission itself is not bound by them. Consequently, even if the discussions have been successfully completed with the service, the Commission can reject the acceptance of the settlement offer made to the undertaking. That looks like a potentially huge waste of time and corporate resources. Third, the reduction in fine is only 10%. Fourth, it looks like an "all or nothing" type of admission only.
A Commission "Notice" has been published that explains the system in more detail.
Here's the press release describing the new system very briefly and here's a set of handy "frequently asked questions".
The new procedure came into force on July 1st, 2008.
Regulation 1/2003 has conscripted national competition authorities and national courts to apply EU antitrust law. The consequence is that national courts can experiment a little.
The Paris Court of Appeal - one of Europe's most respected jurisdictions - recently handed down a judgment on April 8th 2008 that quashed a finding of the French Competition Council that GlaxoSmithKline had engaged in predatory behavior.
What happened was this. Glaxo faced increasing competition from Flavelab, a generic drug producer, for the cefuroxime sodium market and so lowered the price of its drug Zinnat(r). Glaxo won many calls for tender to supply hospitals and once Flavelab was pushed out of the market, it raised its prices.
The Competition Council took a decision imposing a fine on Glaxo for predatory behavior and abusing its dominant position. It found that Glaxo's strategy put Flavelab out of the market and deterred other producers of cefuroxime sodium from developing other Glaxo generic drugs, such as acyclovir, an antiviral injection sold to hospitals under the brand name Zovirax(r), Glaxo's leading product. Interestingly, it relied on the judgment of the Court of Justice in Case C-62/86 Akzo.
The Paris Court of Appeal quashed the decision of the Competition Council. It distinguished the Akzo case and held that although Glaxo was dominant on one market (for injectable acyclovir) it was not dominant on the market in which behaved in an allegedly predatory manner (the cefuroxime sodium market). It also found that Glaxo's behavior had no effect: there was no link between predation in the non-dominant market and behavior deterring entry into its dominant market.
If this sort of thing happens again, the EU Commission will likely lose its intellectual leadership in this field.
As you probably know, it is almost impossible to get damages for breach of the antitrust rules in Europe. Instead, if you are a corporation, you go crying to the government for some state handout or protective regulation. For some time, the Commission has been looking into ways to improve the ways in which the tort system works in the member States.
The idea of the White Paper is to set out a certain number of policy choices so that they may be examined and discussed before an actual proposal is made. It deals with such matters as standing, discovery, costs, quantum of damages, limitation periods and such like. The White Paper itself is superficial and probably not very constructive.
Nevertheless, it invites comments, to be submitted to the Commission by July 15th, 2008.
Much more detailed and helpful is the Staff Working Paper which should be read also. Why the Commission wants to make life difficult by splitting the two documents is a mystery.
Also worth reading is the Impact Assessment Report. Here's an executive summary of the Impact Assessment Report.
The Commission prepared this brief press release, a series of "frequently asked questions" and a dumbed down "Citizen's Summary" (are we really held in such low esteem ?).
The White Paper draws on this study that had been prepared for the Commission and follows on from the 2005 Green Paper.
A "white paper" is a document "containing proposals for Community action in a specific area. In some cases they follow a Green Paper published to launch a consultation process at European level. When a White Paper is favourably received by the Council, it can lead to an action programme for the Union in the area concerned."
UPDATE: For a quick and interesting early comment on this White Paper, read this by Assimakis Komninos of White and Case.
In his order, handed down in Case T-411/07 R Aer Lingus v. Commission, the President of the Court of First Instance dismissed an action by Aer Lingus to order the Commission to order Ryanair not to exercise its voting rights pertaining to the minority stake it holds in the capital of Aer Lingus.
The case is important because it goes to the heart of a debate on whether the Commission has the power, under Regulation 139/2004 - the infamous merger regulation - to regulate minority shareholdings.
The story goes like this. The Irish government privatized Aer Lingus in 2006 and shortly after Ryanair acquired a 19.16% stake in it. Ryanair launched a hostile public bid in October 2006 for the entire share capital of Aer Lingus and notified the Commission of the proposed acquisition in accordance with Regulation 139/2004. During the bid period Ryanair acquired further shares.
On June 27th 2007 the Commission adopted a decision prohibiting the proposed take-over by declaring it incompatible with the common market. Ryanair commenced an action to annul that decision in Case T-342/07 that is currently pending. Following that decision Ryanair acquired further shares, bringing its total holding to 29.4%.Aer Lingus asked the Commission to order Ryanair to divest itself of its shareholding in Aer Lingus. The Commission refused in a decision of October 2007, stating that it was not within its power under Article 8 of Regulation 139/2004 to order such a divestiture where the intended acquisition had not been implemented and where Ryanair had only a minority shareholding which did not permit it to exercise de jure or de facto control over Aer Lingus.
Aer Lingus then lodged an action for annulment against that decision before the Court of First Instance and at the same time filed a request for interim measures, requesting, in essence, that Ryanair be ordered to refrain from exercising its voting rights in Aer Lingus pending the outcome of the case.
What is fairly remarkable about the order is that the President rejects it the request on the ground, amongst others, that Aer Lingus had failed to establish a prima facie case. Usually, the President, when dealing with interim measures, leaves the issue of the prima facie case to one side and examines the other conditions that must be complied with to obtain interim relief. That way, the Court hearing the main action remains entirely free to rule on the merits. But not in this case because the President considered that Aer Lingus' case was entirely devoid of merit. The President held that the Commission only has powers under Regulation 139/2004 when a change of control has been carried into effect. Consequently, the Commission has no powers - at least under Regulation 139/2004 - to act in relation to minority shareholdings which do not result in a change in control of the target company.
If that were not enough, the President also found that Aer Lingus has totally failed to produce adequate evidence that interim measures are required to avoid serious and irreparable harm. He found that the assertions put forward by Aer Lingus that Ryanair can use its shareholding to cause serious and irreparable harm to Aer Lingus are largely hypothetical and unsubstantiated statements which do not satisfy the condition of foreseeability of harm with the required degree of probability.
One little odd twist is that the President rejected the plea of the Commission that interim measures orders cannot be addressed to parties that are not the main parties in the proceedings. He found that in this case, Ryanair had intervened in the proceedings and therefore could be heard.
The way the order is set out, Aer Lingus' main case on the merits looks doomed to fail.
The Decision, adopted pursuant to Article 24(2) of Regulation 1/2003, finds that, prior to 22 October 2007, Microsoft had charged unreasonable prices for access to interface documentation for work group servers. The 2004 Decision, which was upheld in September 2007 by the Court of First Instance in Case T-201/04 as we noted here, found that Microsoft had abused its dominant position under Article 82 EC, and required Microsoft to disclose interface documentation which would allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers at a reasonable price.
Here's the Commission's press release.
Under Regulation 1/2003, officials of the Commission can carry out inspections at the premises of undertakings. Such an inspection was carried out in May 2006 to investigate anticompetitive practices on the German electricity market. The Commission inspectors entered the premises of E.ON and sealed a room overnight to make sure that no documents would be removed during their absence. The next morning the seal showed signs that it had been interfered with.
E.ON denied breaking the seal and claimed the Commission inspectors had the only key to the room in question. They omitted to tell about the 20 other keys distributed to their employees. E.ON also claimed that the seal had malfunctioned.
The Commission carried out tests of the seal with an independent expert and with its manufacturer who both concluded unequivocally that E.ON had interfered with it.
Consequently, the Commission was empowered under Article 23 §1 e) to impose a fine of up to 1% of company turnover. It decided to impose a fine of €38,000,000 (US$ 56,222,913.74) in this case taking account of the circumstances surrounding it.
The decision is not available yet but here's the press release.
E.ON continues to deny that it interfered with the seal and tried to impede the investigation.
You can see pictures of the type of seal used by the Commission here.
According to Article 25 §1 b) of Regulation 1/2003, infringements of Articles 81 and 82 EC are time-barred after five years. The Commission therefore tries to circumvent that limitation period by contending that past conduct is part of "a single and continuous" infringement which is not time-barred.
In this particular case, the Commission tried to claim that a global cartel between North American and EU producers of choline chloride which lasted from October 1992 to April 1994 and which would have been time-barred was part of a single and continuous cartel between the EU producers alone in the EEA market from March 1994 to September 1998 and which was thus not time-barred. That permitted the Commission to increase the duration of the infringement by two years and thus to increase the amount of the fines imposed in its decision.
The Court of First Instance found that the Commission was wrong in this instance and the global cartel was separate from the EEA one and in reality time-barred.
The judgment of the Court of First Instance goes into a fairly long general expose of what is "a single and continuous infringement". It's not always easy to follow and the English is sometimes obscure. Nevertheless, it is the single best attempt so far by the EC courts to sort out the concept.
The Court explains that the concept of a single infringement can be applied either to the legal characterization of the anti-competitive conduct (see Case C-49/92 P Commission v. Anic Partecipazioni, paragraphs 112 to 114) or to the personal nature of the liability for the infringement. In the former case, the infringement remains the one and the same even if it undergoes some slight mutations over time. The latter case is not well explained but seems to mean the case of an undertaking knowingly participating at some stage and in some capacity or other in an infringement committed by others, thus contributing to the realization of an overall plan. In that case, the participating undertaking is liable to be punished for the whole infringement, rather like a person who aids and abets the commission of a criminal act by others (see Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P Aalborg Portland and others v. Commission, paragraph 258).
The Court held that the existence of a common objective consisting in distorting the normal development of prices provides a ground for characterizing the different agreements and concerted practices as the constituent elements of a single infringement. The decisive question is whether those different agreements etc were complementary in nature.
But the Court introduces an important qualification. It finds that a single objective cannot be determined by a general reference to the generic distortion of competition on the market since, explains the Court, "an impact on competition... constitutes a consubstantial element of any conduct covered by Article 81 §1 EC". It is necessary to examine any circumstance capable of establishing or refuting that link such as the period of application, the content and the objective of the different agreements and concerted practices in issue.
Returning to the particular facts of this case, the Court of First Instance held that the global cartel involved the sharing of markets between the North American and EU undertakings while the later EEA wide cartel involved the EU producers only who shared customers between themselves. Thus, the Court found that the two cartels were not part of a single infringement and did not share a common objective.
That is the first time the Court of First Instance has exercised its unlimited jurisdiction in that way.
The Commission adopted a decision on December 9th, 2004 imposing a fine of €34.97 million (US $ 52,016,089.11) on BASF for participating in a cartel prohibited by Article 81 EC relating to choline chloride. BASF brought an action to annul the decision before the Court of First Instance on a number of grounds, including one relating to the manner in which the Commission had calculated the fine imposed on it.
Even though BASF was successful in one respect which need not detain us now - but we'll deal with that aspect of the case in a separate post - the Court of First Instance recalculated the quantum of the fine and actually increased it to €35.024 million (US$ 52,096,411.35).
The Court of First Instance recalled that Article 31 of Regulation 1/2003 conferred unlimited jurisdiction on it to substitute its own appraisal of the penalty imposed by the Commission and to cancel, reduce or increase it where the question of the amount is before it. (see Case C-3/06 Groupe Danone v. Commission, paragraphs 61 and 62). In this case, BASF clearly requested the Court of examine the quantum of the fine with the consequence that it could exercise its unlimited jurisdiction in respect to the amount.
The Court of First Instance also recalled that the 1998 Commission Guidelines on the method of setting fines are without prejudice to the assessment by the EC Courts when they exercise that unlimited jurisdiction (see Joined Cases T-49/02 to T-51/02 Brasserie nationale and others v. Commission, paragraph 169).
In this particular case, the Court of First Instance held that the Commission was wrong to take into account an infringement which had already ceased its effects, was time barred and thus had to be disregarded. That aspect will the be subject of the separate post. As a consequence, BASF was not entitled to any reduction for its coöperation with the Commission under 1996 Commission Notice on the non-imposition or reduction of fines in cartel cases in respect of the infringement that had to be disregarded. That accounts for the increase in fine.
Let's hope that the lawyers for BASF warned their clients of the risk of an increase in the fine and are well covered by their insurance.
You can find the new guidelines here.
The new guidelines provide examples of the kind of vertical and conglomerate mergers that may significantly impede effective competition in the markets concerned. Thus, they outline the circumstances under which a vertical merger could be likely to result in competing companies being denied access to an important supplier or facing increased prices for their inputs and thus ultimately lead to higher prices for consumers. They also indicate levels of market share and concentration below which the Commission is unlikely to identify competition concerns (so-called "safe harbors").
These new guidelines complement the existing ones on "horizontal" mergers, that is mergers between competitors.
