a selection of recent developments in eu

MARIO SIRAGUSA

A SELECTION OF RECENT DEVELOPMENTS IN EU COMPETITION LAW

giuffrè editore - 2010 Estratto dal volume:

CONCORRENZA E MERCATO 2010 Rivista annuale di concorrenza

A SELECTION OF RECENT DEVELOPMENTS IN EU COMPETITION LAW di MARIO SIRAGUSA (*)

Abstract This article offers an overview of the main developments occurred in EC competition Law from November 2008 until December 2009 at level of the Commission and the Community Courts, through a selection of relevant cases in relation to the application of articles 101 (1) and 102 (2) of the Treaty on the Functioning of the European Union (“TFEU”), the European merger control, the application of state aid rules and procedural issues.

SUMMARY: 1. Article 101 TFEU. — 1.1. Horizontal Agreements. — 1.1.1. Court of Justice of the European Union (“CJEU)” Judgments. — 1.1.1.1. Agreements such as the BIDS agreements are anticompetitive by their very object. — 1.1.1.2. CJEU upholds Commission Decision on Sodium gluconate cartel. — 1.1.1.3. The CJEU clarifies certain aspects about the identification of concerted practices. — 1.1.1.4. CJEU annuls Commission decision on carbonless paper for breach of defence’s rights. — 1.1.1.5. CJEU upholds Commission decision on Austrian Banks cartel. — 1.1.1.6. CJEU reduces fine imposed on Archer Daniels for participating to a cartel in the market for citric acid as it was not the leader of the agreement. — 1.1.2. General Court of the European Union (“GC”) Judgments. — 1.1.2.1. GC upholds Commission decision in the Soda Ash case. — 1.1.3. Commission. — 1.1.3.1. Commission decision renders legally binding commitments on ship classification. — 1.2. Vertical Restraints. — 1.2.1. CJEU Judgments. — 1.2.1.1. Court of Justice confirms that GlaxoSmithKline’ s dual pricing scheme restricts competition and invites the Commission to reconsider the request for an exemption. — 1.2.2. GC Judgments. — 1.2.2.1. GC largely upholds the European Commission’s decision on measures taken to restrict parallel exports. — 2. Article 102 TFEU. — 2.1. CJEU Judgments. — 2.1.1. CJEU analyzes abusive character of a model for collecting royalties for the broadcast of copyrighted musical works such as the one applied in Sweden. — 2.1.2. CJEU confirms Commission decision regarding Wanadoo on the basis that there is no need to demonstrate that the dominant undertaking had a realistic chance of recouping the losses incurred during the period of predation. — 2.1.3. CJEU confirms Commission decision that DSD has abused its dominant position by charging excessive prices. — 2.2. GC judgments. — 2.2.1. The GC upholds Commission Decision condemning Clearstream for refusal to supply and price discrimination. — 2.2.2. See para 1.1.2.1., Case T-57/01 Solvay v Commission, Judgment of December 17, 2009. — 2.3. Commission. — 2.3.1. Guidance on the Commission’s Enforcement Priorities in Applying Article 102 TFEU to Abusive Exclusionary Conduct by Dominant Undertakings. — 2.3.1.1. Summary. — 2.3.1.2. Analysis. — A. Dominance. — B. Anticompetitive Foreclosure. — C. Equally Efficient

(*) Partner, Cleary Gottlieb Steen & Hamilton LLP. (1) New Article 101 of the Treaty on the Functioning of the European Union, formerly article 81 of the Treaty establishing the European Community. (2) New Article 102 of the Treaty on the Functioning of the European Union, formerly article 82 of the Treaty establishing the European Community.

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RASSEGNA DEGLI ORIENTAMENTI

Competitor Test. — D. Defenses. — E. Specific Forms of Abuse. — 1. Exclusive Dealing. — a. Exclusive Purchasing. — b. Conditional Rebates. — c. Efficiencies. — 2. Tying Bundling. — a. Distinct Products. — b. Anticompetitive Foreclosure. — c. Multi-product Rebates and the Equally Efficient Competitor Test. — d. Efficiencies. — 3. Predation. — a. Sacrifice. — b. Anticompetitive Foreclosure and the Equally Efficient Competitor Test. — c. Efficiencies. — 4. Refusal to Supply and Margin Squeezes. — a. Objective Necessity. — b. Elimination of Effective Competition — c. Consumer Harm. — d. Efficiencies. — 2.3.1.3. Conclusion. — 2.3.2. E.ON. — 2.3.3. RWE. — 2.3.4. Rambus. — 2.3.5. Intel. — 2.3.6. Commission rejects EFIM complaint against manufacturers of inkjet printers and printer suppliers. — 2.3.7. Commission renders legally binding Microsoft commitments. — 3. Mergers. — 3.1. CJEU judgments — 3.1.1. CJEU holds that was no causal link between the Commission’s illegal decision prohibiting Schneider’s acquisition of Legrand and ordering Legrand’s divestiture and the loss incurred by Schneider as a result of this forced divestiture. — 3.2. GC Judgments. — 3.2.1. GC upholds Commission request for information to Omya during merger review proceeding. — 3.2.2. GC defines the starting date for the calculation of the time limit to lodge an appeal against a Commission decision for non-addressees of it. — 3.3. Commission. — 3.3.1. Commission Report on the Functioning of the EC Merger Regulation. — 3.2.2. New Commission Notice on Remedies. — 3.3.3. Article 14 Decision. — 3.3.3.1. Electrabel Fined E20 Million For Failing to Notify a Transaction. — 3.3.4. First-Phase Decisions without Undertakings. — 3.3.4.1. Commission cleared Deutsche Telekom/OTE merger. — 3.3.4.2. Commission cleared Toshiba acquisition of Fujitsu HDD Business. — 3.3.4.3. Commission cleared Sony acquiring Seiko Epson’s small and medium-sized business. — 3.3.4.4. Commission cleared Merck/Shering-Plough merger without conditions. — 3.3.4.5. Commission cleared acquisition by PepsiCo of Pepsi Americas The PepsiCo bottling Group. — 3.3.5. First-phase decisions with Undertakings. — 3.3.5.1. Commission cleared Ciba acquisition by BASF subject to conditions. — 3.3.5.2. Commission clears Pfizer/Wyeth merger subject to conditions. — 3.3.5.3. Commission cleared Panasonic acquisition of Sanyo subject to conditions. — 3.3.6. Second-phase decisions without Undertakings. — 3.3.6.1. Commission cleared Martinair acquisition by KLM. — 3.3.7. Second-phase decisions with Undertakings. — 3.3.7.1. Commission cleared Friesland Foods/ Campina merger subject to conditions. — 3.3.7.2. Commission cleared Lufthansa/SN Airholding merger subject to conditions. — 4. State Aid. — 4.1. CJEU Judgments. — 4.1.1. Only aid that is declared incompatible with the common market must be recovered. — 4.1.2. CJEU overturns GC decision on the retroactive application of Regulation 70/2001 on the application of State aid rules to small and medium-sized enterprises. — 4.2. GC Judgments. — 4.2.1. GC overturns Commission decision on TV2. — 4.2.2. GC overturns Commission decision on state aid granted to Ryanair. — 4.2.3. GC overturns Commission state aid decision on Belgian Poste. — 4.2.4. GC overturns Commission state aid decision on Tirrenia group. — 4.2.5. GC upholds Commission state aid decision on Television française. — 4.2.6. GC upholds Commission decision on state aid granted to Stockholm Visitors Board. — 4.2.7. GC overturns Commission decision on Polish steel producer Huta Czestochowa S.A. — 4.2.8. GC overturns Commission decision on Electricité de France. — 4.3. Commission. — 4.3.1. Commission’s Communication on the Application of State Aid Rules to Public Service Broadcasting. — 5. Policy and Procedure. — 5.1. CJEU Judgments. — 5.1.1. Qualification as undertaking, under competition law rules, of organizations entrusted with state prerogatives and missions of public policy. — 5.1.2. CJEU clarifies the application of Article 15(3) of EC Regulation 1/2003. — 5.1.2.1. Liability of the parent company. CJEU upholds Commission decision on Akzo responsibility, as parent company, in the Choline Chloride cartel. — 5.1.3. CJEU upholds GC Judgment reaffirming Commission’s margin of discretion in determining the appropriate level of fines to be imposed on undertakings for an infringement of the competition rules. — 5.2. Commission. — 5.2.1. The Commission inspects the private residence of an individual suspected of coordinating a cartel. — 5.2.2. Commission decision clarifying its margin of discretion in opening proceeding following the presentation of a complaint by a private party. — 5.2.3. Commission Report on the Functioning of Regulation 1/2003. — 5.2.4. The Commission’s Final Report in the Pharmaceutical Sector Inquiry (Case No COMP/D2/39.515). — 5.3. ECN. — 5.3.1. ECN Model Leniency Programme. - Report on Assessment of the State of Convergence. — 5.4. Ombudsman. — 5.4.1. The European Ombudsman decision in the Intel complaint. — 6. Work in progress.


1. 1.1.

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Article 101 TFEU. Horizontal Agreements.

1.1.1. Court of Justice of the European Union (“CJEU)” (3) Judgments. 1.1.1.1. Agreements such as the BIDS agreements are anticompetitive by their very object. On November 20, 2008, the European Court of Justice held that agreements made by the Irish Beef Industry Development Society (“BIDS”) to reduce overcapacity in the beef processing industry had the object of restricting competition in violation of Article 101(1) TFEU (4) A 1998 study had concluded that it was necessary to reduce the number of beef processors in Ireland and recommended that the remaining undertakings (“the stayers”) should compensate the undertakings forced to withdraw (“the goers”). A task force set up by the Ministry for Agriculture in 1999 seconded these recommendations. In 2002 the beef processors formed the BIDS with the purpose of implementing these recommendations by reducing processing capacity in Ireland by 25% in one year. The stayers would pay BIDS a levy of EUR 2 per head of cattle up to their traditional cattle kill volume and EUR 11 for each head in excess to compensate the goers. The goers were to undertake to decommission their processing plants and to respect a two-year non compete clause. They would further undertake not to use land associated with the decommissioned plants for the purposes of beef processing for a period of five years and to sell the equipment used for primary beef processing to beef processors in Ireland only for use as back-up equipment or spare parts. The Irish Competition Authority opposed the BIDS agreements and applied to the Irish High Court for a declaration that they infringed Article 101 EC. The application was rejected by the High Court and the Irish Competition Authority appealed to the Supreme Court of Ireland. The Supreme Court of Ireland decided to stay the proceeding and refer to Court of Justice of the European Union for preliminary ruling. The Court recalled that determining whether an agreement falls within the scope of Article 101(1) TFEU does not require the taking into account of its actual effects once it appears that its object is to prevent, restrict or distort competition within the common market. This examination must be made in the light of the agreement’s content and economic context having regard to the wording of its provisions and to its intended objectives. Even supposing that the parties to an agreement acted without any subjective intention of restricting competition, the fact that they did so with the object of remedying the effects of a crisis in their sector is irrelevant for the purposes of applying Article 101(1) TFEU. It is only in connection with Article 101(3) TFEU that matters such as those relied upon by BIDS may be taken into consideration. The Court moreover held that the BIDS agreements were intended essentially to enable several undertakings to implement a common policy, which had the object of encouraging some of them to withdraw from the market and of consequently reducing the overcapacity, which affected their profitability by preventing them from achieving economies of scale. That type of arrangement conflicts patently with the concept inherent in the TFEU provisions relating to competition, according to which each economic operator must determine independently the policy which it intends to adopt. The Court noted that, without such arrangements, the member of the BIDS would have had no

(3) Formerly European Court of Justice. (4) Case C-209/07 The Competition Authority v Beef Industry Development Society and others, Judgment of November 20, 2008.

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means of improving their profitability other than by intensifying their commercial rivalry or resorting to concentrations. With the BIDS agreements it would be possible for them to avoid such a process and to share a large part of the costs involved in increasing the degree of market concentration particularly as a result of the levy of EUR 2 per head processed by each of the stayers. The Court added that the means put in place to attain the objective of the BIDS agreements included restrictions whose object was anticompetitive. The levy of EUR 11 constituted an obstacle to the natural development of market shares as regards some of the stayers who, because of the dissuasive nature of that levy, would have been deterred from exceeding their usual volume of production. In relation to the restrictions imposed on the goers as regards the disposal and use of their processing plants, the Court found that they sought to avoid the possible use of those plants by new operators entering the market in order to compete with the stayers. The Court observed that the fact that those restrictions, as well as the non-competition clause imposed on the goers, were limited in time did not call into question the finding as to the anti-competitive nature of the BIDS agreements. The Court concluded that the reply to the question referred must be that an agreement with features such as the BIDS agreements has as its object the prevention, restriction or distortion of competition within the meaning of Article 101(1) TFEU. 1.1.1.2. CJEU upholds Commission Decision on Sodium gluconate cartel. On March 19, 2009 (5) the Court of Justice of the European Union dismissed the appeal by Archer Daniel Midland Company (“ADM”) against the General Court’s judgment of September 27, 2008 (6), rejecting ADM’s appeal against the Commission’s decision of October 2, 2001 fining it for participating in a worldwide Sodium Gluconate Cartel between May 1988 and June 1995 (7). In its first ground of appeal, ADM claimed that the General Court had committed an error of law in failing to require the European Commission to justify its imposition, by a retroactive application of the 1998 fining Guidelines, of a higher fine than had previously been imposed under the Commission’s fining guidelines. In dismissing ADM’s claim, the Court noted that the Commission may decide at any time, whether by means of individual decisions or fining guidelines, to raise the level of the fines by reference to that applied in the past, and agreed with the General Court that the Commission had satisfied the criteria of Musique Diffusion Française and others v. Commission (8), which require that the Commission assess the gravity of an infringement for the purpose of fixing the amount of the fine in light of the particular circumstances of the case and of the context in which the infringement occurred, while also ensuring that the fine serves as a suitable deterrent. With regard to the calculation of the fine, ADM further complained that the General Court had failed to require the Commission to consider the limited turnover that ADM received from sales of the relevant product. The Court explained that turnover was just one of a number of relevant factors, including the conduct of each of the undertakings, the role played by each in the establishment of the cartel, the profit they were able to derive from it, their size, the value of the goods concerned, and the threat that infringements of that type pose to the objectives of

(5) Case C-209/07 The Competition Authority v Beef Industry Development Society and others, Judgment of November 20, 2008. (6) Case T-329/01, Archer Daniels Midland v. Commission, of September 27, 2006. (7) Case T-329/01, Archer Daniels Midland v. Commission, of September 27, 2006. (8) Joined Cases 100/80 to 103/80, Musique diffusion française and Others v. Commission, Judgment of June 7, 1983.


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the Community. EC law does not provide a general principle by which a fine must be proportionate to an undertaking’s turnover from sales of the product in respect of which the infringement was committed. The Court rejected ADM’s claim that the General Court had failed to examine whether the Commission had improperly defined the relevant market when assessing the impact of the cartel, holding that General Court had examined the Commission’s market definition and the underlying reasoning, and had adequately stated its reasons for supporting the Commission’s approach. The Court further rejected ADM’s claim that the General Court had reversed the burden of proof by requiring ADM to demonstrate the infringement’s lack of effect if examined in the context of ADM’s wider market definition. The Court confirmed the General Court’s view that ADM had failed to prove its assertion that the European Commission’s market definition was too narrow, adding it had no jurisdiction to reconsider evidence examined (and rejected) by the General Court since ADM had never claimed that the General Court had distorted any of its evidence. For its third ground of appeal, ADM alleged that the General Court had misinterpreted ADM’s departure from the cartel by incorrectly applying the rule of public distancing. The Court observed that, when assessing whether an undertaking has sought to distance itself from a cartel, intention is determined by reference to the understanding of the other participants. The burden of proof sits with the appellant. While the Court considered ADM had proved it left the cartel on October 4, 1994, it found that ADM had not demonstrated that the other participants understood its conduct to mean that it was withdrawing from the cartel. In particular, the Court accepted the findings of the General Court that there was sufficient evidence to support the European Commission’s finding that ADM did not end its participation, within the meaning of the public-distancing test, on the date claimed. ADM claimed finally that the General Court had misinterpreted the 1998 Guidelines by not requiring the European Commission to grant ADM the benefit of attenuating circumstances for terminating its infringing conduct. The Court dismissed this ground on the basis that it would encourage parties to continue their secret agreement for as long as possible, with the expectation that they could expect a reduction in their fine if their conduct were exposed. The Court held that this would deprive fines of their deterrent effect. 1.1.1.3. The CJEU clarifies certain aspects about the identification of concerted practices. On June 4, 2009, the Court of Justice of the European Union ruled on the criteria for establishing whether a concerted practice has an anti-competitive object, the applicable standard of proof where a national court applies Article 101(1) and the required causal link, if any, between a concerted practice and market conduct where the concerted practice is an isolated event (9). These questions arose in the context of a decision by the Dutch competition authority finding 5 mobile communications operators in the Netherlands liable for an infringement of Article 6(1) of the Dutch Mededingingswet (“Mw”). According to the decision, the undertakings had, by means of information exchanged during a meeting held on June 13, 2001, concluded an agreement or entered into a concerted practice relating to mobile telephone subscriptions. Following the successful appeal of this decision by T-Mobile, KPN and Orange, the competition authority withdrew its allegation that the undertakings had

(9) Case C-8/08, T-Mobile Netherlands and Others, Judgment of June 4, 2009.

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concluded an agreement. It nonetheless maintained its allegation that the undertakings had taken part to an anti-competitive concerted practice under Article 101(1) TFEU and Article 6(1) Mw. T-Mobile, KPN, Orange, Vodafone and Telfort appealed this decision to the Rechtbank te Rotterdam (“Rechtbank”), which, in its judgment of July 13, 2006, annulled the original appealed decision and ordered the competition authority to adopt a new decision. T-mobile, KPN, Orange and the competition authority appealed the Rechtbank’s decision to the College van Beroep voor het dedrijfsleven (Administrative Court for Trade and Industry, Netherlands (“Administrative Court”)), which stayed proceedings and referred the issue to the Court of Justice of the European Union for a preliminary ruling. The Court held that a concerted practice has an anti-competitive object for the purposes of Article 101(1) TFEU if it is capable, having regard to the specific legal and economic context, of resulting in the prevention, restriction or distortion of competition within the common market. In the context of an information exchange between competitors, this will be the case where the exchange of information is capable of removing uncertainties between participants as regards the timing, extent and details of the future conduct of the undertakings concerned. However, the Court held that a direct link between the concerted practice and the end price paid by consumers is not necessary, as the aim of Article 101 TFEU is to protect not only the immediate interests of individual competitors or consumers but also to protect the structure of the market and thus competition. The Court left the question of whether the information exchange at issue in the present case constituted a concerted practice with an anti-competitive object, and left this to be determined by the referring court. The Court next considered whether national courts are required to apply the presumption, established in the consistent case law of the Community Courts, that undertakings participating in a concerted practice with an anti-competitive object that remain active on the market are presumed to take account of the information exchanged with their competitors. The Court concluded that this presumption is intrinsic to the concept of concerted practice in Article 101(1) TFEU and therefore should be applied by national courts. Absent evidence to rebut that presumption, which it is for the undertakings participating in the practice to adduce, national courts should presume that undertakings remaining active on the market did take account of information exchanged with their competitors. The Court further confirmed that this causal presumption should be applied even if the concerted action is the result of a meeting held by the participating undertakings on a single occasion. In particular, the Court noted that the number of meetings held between the participating undertakings is less important than whether they afforded them the opportunity to take account of the information exchanged so as to substitute practical cooperation between themselves for the uncertainty and risks of competition. Where it can be established that undertakings successfully concerted with one another and remained active on the market, the Court held that these undertakings may justifiably be called upon to adduce evidence that that concerted action did not have any effect on their conduct on the market in question. The Court’s ruling is thus significant in suggesting that even a single instance of unlawful information exchange creates a presumption of ongoing effects, shifting the burden to defendants to show absence of ongoing effects or public distancing. 1.1.1.4. CJEU annuls Commission decision on carbonless paper for breach of defence’s rights On September 3, 2009, the Court of Justice of the European Union annulled the Commission’s decision fining Bolloré EUR 22.68 million for its participation in a cartel in the


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carbonless paper sector (10). The Court upheld the judgment of the General Court that the Commission had breached Bolloré’s rights of defence in failing to indicate, in the statement of objections, that it intended to hold Bolloré liable for the infringement on account of its responsibility as the parent company owning all the shares in Copiograph, which participated directly in the cartel. Bolloré appealed the Commission’s decision on the ground that its rights of defence had been breached, since it had been unable to foresee from the wording of the statement of objections that the Commission intended to hold Bolloré liable for the cartel conduct of its wholly owned subsidiary. Bolloré claimed that it was, as a result, unable to defend itself against this aspect of the Commission’s objections during the administrative proceedings. The Court agreed with the General Court’s finding that the Commission had breached Bolloré’s rights of defence. The Court recalled that a statement of objections constitutes the procedural safeguard that ensures observance of the principle of the right of defense thes, it must set forth clearly all the essential facts on which the Commission is relying at that stage in proceedings, including specifying the legal persons on whom it intends to impose a fine. The statement of objections should also indicate the capacity in which an undertaking is called upon to answer the allegations. The Court found that the Commission had failed to indicate in the statement of objections that it intended to hold Bolloré liable for the cartel conduct of its subsidiary Copiograph. However, following the Advocate General’s opinion in this case, the Court rejected the General Court’s conclusion that this error of law could not justify the annulment of the contested decision. The Court held that, as the Commission’s decision held Bolloré liable on the basis of its capacity as Copiograph’s parent as well as its direct involvement in the cartel conduct, it could not be precluded that the Commission’s decision may have been based on conduct in respect of which Bolloré had been unable to defend itself. It therefore upheld Bolloré’s appeal, set aside the General Court’s judgment, and annulled the Commission’s decision so far as it concerned Bolloré. 1.1.1.5. CJEU upholds Commission decision on Austrian Banks cartel. On September 24, 2009, the Court of Justice of the European Union handed down its judgment in the Austrian Banks (Lombard Club) cartel appeal (11). In 2002, the Commission fined eight Austrian banks for fixing fees and rates of interest on a range of deposit and lending services. Seven of the eight banks brought appeals before the General Court, which rejected all but that of Österreichische Postsparkasse AG (“OPA”). The General Court reduced OPA’s fine because the European Commission had determined the starting point for the fine using documents on which it was not entitled to rely. Erste bank der österreichischen Sparkassen AG (“Erste”), Raiffeisen Zentralbank Österreich (“RZO”), Bank Austria Creditanstalt AG (“BAC”) and Österreichische Volksbanken-AG (“OVA”) subsequently brought appeals before the Court of Justice of the European Union, all of which were rejected by the Court as either inadmissible or unfounded. Each of the four appellants raised pleas regarding the European Commission’s assessment of the concept of effect on trade. First, RZO and OVA claimed that the General Court had erred in finding that the cartel arrangements were capable of affecting trade between Member States without proving their partitioning effect. In rejecting the claim, the Court recalled its case law that application of an agreement in just one Member State cannot exclude the possibility of an effect on trade between Member States

(10) Joined Cases C-322/07 P, C-327/07 P and C-338/07 P, Papierfabrik August Koehler AG, Bolloré SA and Distribuidora Vizcaína de Papeles SL v. Commission, Judgment of September 3, 2009. (11) Joined Cases C-125/07 P, C-133/07 P, C-135/07 P and C-137/05 P, Erste Bank der österreichischen Sparkassen and Others v. Commission, Judgment of September 24, 2009.

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since anticompetitive agreements may, by their very nature, reinforce the partitioning of national markets. As the Lombard Club effectively restricted access to the Austrian banking market, the Court upheld the General Court’s conclusion that it was capable of having an affect on inter-state trade. The Court also rejected OVA’s argument that the General Court had erred in upholding the Commission’s assessment of the effects on trade based on an examination of the overall effects of the Lombard Club, rather than assessing each of its constituent banking committees individually. The Court held that, where an agreement is held to constitute a single, continuous infringement of Article 101, it is inappropriate to sub-divide it for the purpose of analyzing its effect on trade. Finally, the Court confirmed that the European Commission need not show that the agreement actually affected trade between Member States, merely that it was capable of having that effect. Erste raised a further plea claiming that the General Court had erred in finding that the Commission was entitled to hold Erste liable for the infringement committed by GiroCredit before Erste has acquired that company from Bank of Austria Group (“BAG”). The Court held that the fact that Girocredit was controlled by BAG during the first part of the infringement did not preclude the European Commission from finding Erste liable for the entire duration of the infringement. In particular, the Court suggested that requiring the Commission to determine whether liability could be attributed to a company’s different parents would impose an excessive burden on the Commission. Finally, the Court observed that, as a fellow participant in the cartel at the time of the acquisition, Erste was fully aware of the infringement and its likely exposure to fines as beneficial owner of the company at the time of the acquisition. The Court therefore concluded that the European Commission was entitled to find Erste, as the new parent, liable for the entire duration of the infringement committed by Girocredit. The Court rejected all of the other claims made by the applicants, including that the General Court had erred in its assessment of the gravity of the infringement for the purpose of setting the basic amount of the fine, in taking into account as an attenuating circumstance the participation of public authorities in the committees, and in its assessment of the European Commission’s application of the Leniency Notice. Finally, as BAC had been given the proper opportunity to express its views on the level of its fine, the Court also rejected BAC’s claim that its rights of defence had been breached. 1.1.1.6. CJEU reduces fine imposed on Archer Daniels for participating to a cartel in the market for citric acid as it was not the leader of the agreement. On July 9, 2009, the Court of Justice of the European Union reduced the fine imposed on Archer Daniels Midland (“ADM”) for its participation in a cartel in the market for citric acid by E10.2 million. ADM was originally fined E39.6 million (12). This fine included a 35% increase to reflect the company’s role as the cartel’s ringleader. ADM appealed the European Commission’s decision before the General Court, requesting either its annulment so far as it applied to ADM, or a reduction in its fine. ADM argued that the European Commission had erred in classifying ADM as ringleader. The General Court dismissed the appeal, and ADM subsequently appealed to the Court of Justice of the European Union. The Court upheld the company’s argument that the Commission had unlawfully increased ADM’s fine on the basis of its leadership of the cartel. ADM claimed that the Commission had breached its rights of defense by failing to set out clearly all the essential facts regarding ADM’s role as ringleader

(12) Joined Cases C-125/07 P, C-133/07 P, C-135/07 P and C-137/05 P, Erste Bank der österreichischen Sparkassen and Others v. Commission, Judgment of September 24, 2009.


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in its statement of objections. The Commission merely annexed the relevant evidence, without referencing it in the main document. The Court held that the Commission need not indicate in the statement of objections that it might classify an undertaking as ringleader. However, the statement of objections must set forth clearly all the essential facts on which the Commission is relying at that stage in the procedure so as to enable the undertaking concerned to make known its views on both the alleged facts and the documents on which the Commission intends to rely. The Court held that the European Commission had not afforded ADM such an opportunity in this case, as it merely annexed the relevant documents to the statement of objections. Moreover, as the Commission did not even refer to the annexed documents in its statement of objections, ADM was not able to assess the weight that the Commission intended to give to each of the items of evidence. The Court therefore concluded that the Commission denied ADM the opportunity to fully exercise its rights of defense and that the General Court had subsequently erred in law in upholding the Commission’s classification of ADM as ringleader. In light of this conclusion, the Court also upheld ADM’s plea that, as ADM had not been lawfully classified as ringleader, the General Court could not lawfully have ruled out the possibility that ADM should have benefited from the application of Section B of the Leniency Notice. For these reasons, the Court set aside the General Court’s judgment in so far as it rejected ADM’s plea regarding the infringement of its rights of defense during the administrative procedure and the application of Section B(b) of the Leniency Notice. It also reduced the amount of the fine payable by ADM to E29.4 million. 1.1.2. General Court of the European Union (“GC”) (13) Judgments. 1.1.2.1. GC upholds Commission decision in the Soda Ash case. On December 17, 2009, the General Court handed down its judgment in appeals made by Solvay against two Commission decisions fining it for participating in a market sharing agreement and abuse of dominant position in the market for soda ash (14) The General Court reduced the fines that were imposed on Solvay. In the background to the appeals are two Commission decisions from 1990 imposing on Solvay fines of E3 million for participating in a market sharing agreement and E20 million for abusing its dominant position in the soda ash market (the “1990 Decisions”). The 1990 decisions were stroke down for procedural reasons in a two judgments the Court of First Instance that were later upheld by the CJEU. After amending the procedural irregularities the Commission re-adopted its 1990 decisions on December 13, 2000 (the “2000 Decisions”). In its judgment the General Court rejected several arguments made by Solvay as to irregularities in the administrative procedure that led to the adoption of the 2000 decisions. The General Court considered that since the Commission merely re-adopted its 1990 Decisions it was not under an obligation to send a fresh Statement of Objections, to hear the Parties again, or to consult anew the Advisory Committee. In challenging the level of fines imposed it, Solvay argued that the Commission erred in its assessment of the gravity of the infringements. The General Court clarified that since the Commission merely re-adopted its original decision the relevant Commission fines policy that applied to the 2000 decisions is the one was in effect when the first decision was adopted. The General court considered that the Commission did not err in the degree of severity it attributed to the infringements. The General Court did accept Solvay’s arguments with

(13) Formerly Court of First instance. (14) Formerly Court of First instance.

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respect to the duration of the market sharing infringement. The General Court held that the evidence adduced by the Commission did not support the finding that the infringement persisted beyond 1989. Accordingly the General Court ordered the E3 million fine to be reduced by 25%. Solvey’s further argued that the decision fining it for abuse of dominant position was based on inadmissible evidence. According to Solvay the Commission seized the evidence during its on-site inspection on Solvay’s premises. However the Commission’s decision ordering the inspection referred only to suspicions of breach of Article 101 TFEU and did not mention suspicions of breach of Article 102 TFEU. The General Court recalled that Solvay’s abused its dominant position within the framework of its contractual arrangements with its customers. These contractual arrangements were also under investigation for a suspected breach of Article 101. The Commission has therefore seized the relevant documents legally. The General Court opined that there was no prevention of using these documents as evidence once it became clear that they also revealed violations of Article 102. The General Court rejected Solvay’s challenge of the substantive conclusions of the Commission relating to abuse of its dominant position. The General Court held that the Commission was right to find an abuse dominant position in the following circumstances: • the Commission found that the price per tonne for marginal quantities of soda ash purchased by Solvay’s customers was lower than the average price paid for the quantities fixed contractually. The customers were thus incentivized to buy not only the contractual amounts from Solvay, but also any surplus requirements; • the Saint-Gobain Group was promised a 1.5% rebate on its purchases across Europe irrespective of the actual purchase made by a specific Saint-Gobain subsidiary; • the General Court recalled that exclusive supply agreements with costumers constitute an abuse of dominant position and rejected the argument that the Commission misunderstood these agreements; • different competition clauses in Solvay’s supply agreements limited the customers’ opportunity to change suppliers; • rebates and financial incentives offered by Solvay did not reflect differences in costs based on quantities supplied and were therefore discriminatory. The General Court did accept, however, Solvay’s argument that the Commission erred in increasing the fine for abuse on the basis of recidivism. The General Court explained that the Commission may increase the fine where a party has already been sanctioned for “similar infringements”. In this case the Commission took into account Solvay’s earlier participation in several cartel cases. The General Court held that these infringements are not “similar” to an abuse of dominant position. The General Court has accordingly ordered the E20 million fine to be reduced by 5%. 1.1.3. Commission. 1.1.3.1. Commission decision renders legally binding commitments on ship classification. On October 14, 2009, the European Commission adopted a decision rendering legally binding the commitments offered by International Association of Classification Societies (IACS) with respect to the market of classification services for merchant ships (15). On May 12, 2009, the Commission opened proceedings with a view to adop a decision under Chapter III of Regulation (EC) No 1/2003 and mode a preliminary assessment as referred to in Article

(15) Formerly Court of First instance.


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9(1) of Regulation (EC) No 1/2003. The assessment identified IACS’ potential failure i) to adopt objective and sufficiently-determinate membership criteria and apply the membership criteria in a non-discriminatory way, and ii) to provide an adequate system to non-IACS parties’ to participate in the elaboration of or give access to IACS’ resolutions and related technical information, including independent complaint/grievance or appeal/review mechanisms. The Commission found that the commitments IACS offered were proportional and specific enough to alleviate its concerns and declined requests by respondents/market participants for more detailed arrangements. 1.2. Vertical Restraints. 1.2.1. CJEU Judgments. 1.2.1.1. Court of Justice confirms that GlaxoSmithKline’s dual pricing scheme restricts competition and invites the Commission to reconsider the request for an exemption. On October 6, 2009, the Court of Justice of the European Union confirmed on different grounds the judgment of the General Court partially annulling the Commission’s decision that an agreement between GlaxoSmithKline and its authorized wholesalers in Spain, which imposed a dual-pricing system limiting parallel trade, infringed Article 101(1) TFEU (16). Under the agreement, pharmaceutical products sold and dispensed in Spain were priced at a lower level than the same products destined for export to other Member States. The Court of Justice also upheld the General Court’s finding that the Commission had failed to properly examine the arguments put forward by GSK when rejecting the company’s request for an individual exemption under Article 101(3) TFEU. The General Court had previously found that the Commission’s principal conclusion, that the agreement was prohibited because its object was the restriction of parallel trade, could not be upheld. The General Court instead considered that the objective of limiting parallel trade did not, in the legal and economic context of the case, by itself establish a presumption that the agreement had an anticompetitive object within the meaning of Article 101(1) TFEU. In addition, a further analysis was required in order to determine whether the agreement had as its object or effect the prevention, restriction, or distortion of competition to the detriment of the final consumer. The General Court had, however, upheld the Commission’s finding of a violation of Article 101(1) TFEU on the basis that the agreement had an anticompetitive effect. GSK and a number of its Spanish wholesalers lodged an appeal against the General Court’s finding that the dual pricing scheme had an anticompetitive effect within the scope of the prohibition laid down in Article 101(1) TFEU. The Commission also appealed the General Court’s judgment, although on the different grounds that the General Court had incorrectly interpreted and applied the term “object” in Article 101(1) TFEU by finding that the objective of limiting parallel trade did not by itself establish a presumption that the agreement had an anticompetitive object. The Court of Justice found that agreements aimed at prohibiting or limiting parallel trade are anticompetitive by object, and that no detrimental effect on end-customers need be shown to reach such a conclusion. Accordingly, the General Court had erred in law by requiring additional proof that GSK’s agreement with its Spanish wholesalers

(16) Joined Cases C-501/06, C-513/06, C-515/06 and C-519/06 GlaxoSmithKline Services v Commission and others, Judgment of October 6, 2009.

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had a detrimental effect on end-customers as a prerequisite to finding that it had an anticompetitive object. The Court of Justice concluded, however, that the General Court’s judgment need not be set aside, as the conclusion that the agreement infringed Article 101(1) TFEU was well founded on other legal grounds. The Commission and certain trade associations also challenged the General Court’s finding that the Commission had not adequately examined the arguments put forward by GSK for the purposes of meeting the requirements for the application of Article 101(3) TFEU. The Court of Justice dismissed all grounds for appeal. In particular, the Court of Justice rejected arguments that the General Court had misapplied the case law relating to the allocation of the burden of proof and standard of proof applicable under Article 101(3) TFEU. The Court of Justice confirmed that, while a undertaking that relies on Article 101(3) TFEU has to demonstrate that the conditions for obtaining an exemption are satisfied (with the burden of proof falling on the undertaking requesting an exemption), where convincing arguments and evidence are put forward by the undertaking, the Commission is obliged to respond to these with sufficiently reasoned explanations or justifications. Should the Commission fail to do so, it may be concluded that the undertaking’s burden of proof has been discharged. The Court of Justice also upheld the General Court’s finding that the Commission had failed to take into account certain arguments and evidence advanced by GSK in its request, particularly as regards the specific structural features of the pharmaceutical sector and the purported efficiency gains produced by the contested agreement. The Court of Justice therefore upheld the General Court’s finding that these omissions effectively vitiated the Commission’s examination of the company’s request for exemption under Article 101(3) TFEU. The Court of Justice therefore dismissed all of the appeals and upheld the General Court’s judgment as regards both the finding of a violation of Article 101(1) TFEU and the insufficient character of the Commission’s reasoning concerning GSK’s request for an exemption under Article 101(3) TFEU. 1.2.2. GC Judgments. 1.2.2.1. GC largely upholds the European Commission’s decision on measures taken to restrict parallel exports. On July 9, 2009, the General Court upheld the European Commission’s prohibition of measures taken by Peugeot to restrict parallel exports from the Netherlands, but reduced the E 49.5 million fine imposed on Peugeot by 10% because, in assessing the amount of the fine in light of the infringement’s effects on parallel trade, the Commission had failed to consider the role of diminishing price differentials between Member States in reducing parallel trade (17). According to the Commission, Peugeot had violated Article 101 TFEU by agreeing with the dealers of its selective network in the Netherlands on a bonus scheme that rewarded only domestic sales between January 1997 and September 2003. In addition, the Commission found that Peugeot had exerted pressure on dealers that had developed a significant export business by, for example, threatening to reduce the number of cars supplied to them. The Court rejected Peugeot’s contention that the bonus scheme had no anticompetitive object, citing settled case law that a distribution agreement has a restrictive object for the purposes of Article 101 if it clearly aims to treat export sales less favorably than national sales, thereby

(17) Case T-450/05, Peugeot SA and Peugeot Nederland NV v. Commission, Judgment of July 9, 2009.


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leading to a partitioning of the market in question. This can be achieved, not only by direct restrictions on exports, but also through indirect measures, such as the exclusion of export sales from a bonus system, as they influence the economic conditions of such transactions. The Court also rejected Peugeot’s argument that there was no agreement, citing settled case law that an apparently unilateral act can constitute an agreement for the purposes of Article 101(1), if it is an expression of the concurrence of wills of at least two parties. This may result from the clauses of the dealership agreement and from the conduct of the parties, tacit acquiescence also being potentially indicative of such concurrence. In this case, the Court found that the dealers accepted the conditions relating to their remuneration, as proposed by Peugeot in its circulars, whenever they filed a purchase order for a vehicle in accordance with the conditions set by the circulars. The Court confirmed the Commission’s classification of the infringement as “very serious” and rejected pleas from the car company concerning the regulator’s findings on the duration of the breach. However, it reduced the fine from E 49.5 million to E 44.5 million on the ground that, in assessing the gravity of the infringement, the Commission had failed to take sufficient account of declining price differentials between the Netherlands and other European countries, which caused a decline in vehicle exports.

2.

Article 102 TFEU.

2.1. CJEU Judgments. 2.1.1. CJEU analyzes abusive character of a model for collecting royalties for the broadcast of copyrighted musical works such as the one applied in Sweden. On December 11, 2008, the Court of Justice of the European Union ruled on the compliance with Article 102 EC of the Swedish Copyright Management Organisation’s (STIM) model for collecting royalties for the broadcast of copyrighted musical works, following a reference by the Swedish Market Court in the course of proceedings initiated by Kanal 5 Ltd (“Kanal 5”) and TV4 AB (“TV 4”), two commercial broadcasting companies (18). STIM collects payments from Kanal 5 and TV4 corresponding to a percentage of the revenue derived from television broadcasting (through advertisements and subscriptions). The percentage varies according to the amount of music broadcast. The public service company, Sveriges Television (“SVT”), on the other hand, pays a pre-negotiated lump sum. In the Swedish court proceedings, the Swedish court agreed with the claim of Kanal 5 and TV4 that there is an insufficient link between STIM’s service and the revenues of the broadcasting companies (which is used as the basis for the royalty calculation). Most advertising revenues are generated from prime time broadcasting, and from news and sports programmes for which the share of music is lower than average. Also, revenues may increase as a result of the development of the programme schedules and from investments in technology and customized solutions. Recognizing that STIM enjoys a de facto monopoly on the Swedish market concerning the supply of copyrighted music for television broadcasts, the Swedish court asked the Court (i) whether a remuneration model under which royalties are calculated based on the revenue of the broadcasting companies and the amount of music broadcast constitutes an abuse of dominance under Article 102 TFEU; (ii) whether the fact that another method would

(18) Case C-52/07, Kanal 5 Ltd, TV 4 AB v Föreningen Svenska Tonsättares Internationella Musikbyra˚ (STIM), Judgment of December 11, 2008.

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enable the use of the copyrighted protected works and the audience to be identified and quantified more precisely may have an effect on that classification; and (iii) whether the fact that the collecting society calculates the royalty differently depending on whether the broadcasting company is commercial or public, represent an abuse under Article 102.Regarding the first two questions, the Court found that the application of the remuneration model at issue does not in itself constitute an abuse within the meaning of Article 102 TFEU. However, compatibility with Article 102 TFEU requires that the part of the royalties that correspond to the revenue of the television channel be proportionate overall to the quantity of the copyright protected musical works actually broadcast, or likely to be broadcast. Moreover, the Court found it conceivable that, in certain circumstances, the application of a remuneration model such as the one in this case, may amount to an abuse, when another method exists which enables the use of those works and the audience to be identified and quantified more precisely, without resulting in a disproportionate increase in the costs incurred for the management of the contracts and the supervision of the use of musical works protected by copyright (19). Concerning the third question relating to discrimination, the Court instructed the Swedish court to consider (1) whether the commercial broadcasters compete on the same market as the public service company; (2) whether STIM applies dissimilar conditions to equivalent services by calculating royalties in a different manner; (3) whether the commercial broadcasters thereby are placed at a competitive disadvantage; and (4) whether such a practice may be objectively justified, in particular considering the task and method of financing of public service undertakings. According to the Court, one should take account of the fact that SVT does not dispose of advertising revenue or revenue from subscriptions, and that the royalties paid by SVT are collected without taking into account the quantity of the copyrighted music actually broadcasted. 2.1.2. CJEU confirms Commission decision regarding Wanadoo on the basis that there is no need to demonstrate that the dominant undertaking had a realistic chance of recouping the losses incurred during the period of predation. On April 2, 2009, the Court of Justice of the European Union dismissed France Telecom’s appeal against the judgment of the General Court upholding a Commission decision fining a France Telecom affiliate, Wanadoo, for predatory practices (20). In July 1999, the Commission launched a sectorial inquiry into the development of high-speed Internet access and, in particular, the provision of local loop access services and the use of residential local loops. Scrutiny of Wanadoo culminated in an investigation by the Commission into Wanadoo’ s residential pricing in France for high-speed Internet access. On July 16, 2003, the Commission fined Wanadoo E10.35 million for abusing its dominant position, contrary to Article 102 EC (21). The General Court upheld the Commission’s finding that Wanadoo had abused its dominant position on the French market for retail broadband Internet services by

(19) Contrast with the Court’s judgment in Case 359/87 Tournier, Judgment of July 13, 1989, paragraph 45, where the Court held that royalty rates corresponding to a percentage of the turnover of a discotheque could be criticized only if other methods might be capable of attaining the same legitimate aim “without thereby increasing the costs of managing contracts and monitoring the use of protected musical works”. The test is now whether alternative remuneration models would allow for a more appropriate determination of the royalties, by measuring the use of the works and the audience in a more precise manner, without resulting in a disproportionate cost increase. (20) Case C-202/07 France Télécom v. Commission, Judgment of April 2, 2009; Case T-340/03, France Télécom v. Commission, Judgment of January 30, 2007. (21) Case COMP 38.233 Wanadoo.


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charging predatory prices. In an opinion delivered on September 25, 2008, Advocate General Mazak advised that the General Court’s judgment be set aside on the grounds that proof of the possibility of recouping profits lost during the period of predation was a prerequisite for a finding of predatory pricing under Article 102 TFEU, and that the General Court be required to re-examine the facts concerning Wanadoo’ s right to align its prices with those of its competitors. The Court havever agreed with the General Court that the Commission may find pricing to be predatory without needing to demonstrate that the dominant undertaking had a realistic chance of recouping its losses incurred during the period of predation. While the Court’s judgment in Tetra Pak II (22) might be interpreted as not requiring proof of a realistic chance of recouping losses in the specific circumstances of that case, the Court confirmed that the specific circumstances in Tetra Pak II were merely that Tetra Pak’s prices were below average variable cost (“AVC”), or below average total cost (“ATC”) together with an intention to exclude competitors. The Court explained its position by reference to its consistent case law that Article 102 EC refers not only to practices that may cause damage to consumers directly, but also to those which are detrimental to them through their impact on an effective competition structure, and that an undertaking abuses its dominance where, in a market where the competition structure is already weakened by reason of that dominance, it operates a pricing policy whose sole economic objective is to eliminate competitors with a view to profiting thereafter from the reduction in the degree of competition still existing in the market. The Court added that the Commission could nevertheless take account of the possibility of recoupment as a relevant factor in assessing whether a pricing practice is abusive. For example, where the dominant firm’s prices are below AVC, the possibility of recoupment could assist in excluding economic justifications other than the elimination of a competitor. Equally, where prices are below ATC but above AVC, the possibility of recoupment might assist in establishing the existence of a plan to eliminate a competitor. Concerning the right of a dominant undertaking to align its prices with those of its competitors, the Court agreed with the General Court’s holding that such a right is not “absolute” and that, although it is not abusive in itself for a dominant undertaking to align its prices with those of its competitors, “it might become so where it is aimed not only at protecting its interests but also at strengthening and abusing its dominant position”. In particular, the Court held that the General Court had correctly found that Wanadoo could not rely on an absolute right to align its prices with those of its competitors in order to justify a conduct, like predatory pricing, that es itself abusive. 2.1.3. CJEU confirms Commission decision that DSD has abused its dominant position by charging excessive prices. On July 16, 2009, the Court of Justice of the European Union affirmed the judgment of the General Court, upholding the European Commission’s decision that Duales System Deutschland (“DSD”) had abused its dominant position on the German market for waste packaging management (23). The although Court the General Court had failed to adjudicate on the case within a reasonable time, this did not have any effect on the outcome of the case. In Germany, national legislation requires manufacturers and distributors to collect and recover the packaging waste they produce at the point of sale of the packaged goods. Manufacturers and distributors may obtain an exemption (in whole or in part) from this legal

(22) Case T-83/91, Tetra Pak v. Commission, Judgment of October 6, 1994. (23) Case C-385/07 P, Der Grüne Punkt — Duales System Deutschland GmbH, Judgment of July 16, 2009.

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obligation by participating in local collection schemes authorized at the level of the Länder. The exemption systems are intended to guarantee a regular collection and recovery service throughout the distributor’s sales territory, at or near the homes of final consumers. In 1993, DSD, a private company, received approval to run an exemption system in each of the individual Länder, creating a network covering the whole German territory. Manufacturers and distributors participating in DSD’s exemption system were permitted, in return for a fee, to affix DSD’s “Der Grüne Punkt” (“DGP”) logo to packaging included in the DSD system. The Commission found that DSD was dominant on the market for waste packaging management in Germany, as it was the only undertaking to operate an exemption system spanning the entire country, and collected approximately 70% of all sales packaging in Germany. The Commission noted that DSD charged a license fee for packaging carrying the DGP logo, regardless of whether or not such packaging was in fact collected via the DSD system. Imposition of the license fee deprived customers of any realistic economic possibility of contracting with a competitor to DSD. Customers wishing to switch a portion of their collection requirements to a competitor of DSD would incur significant costs as a result of the need to selectively label packages. Moreover it would be impossible, in practice, for a customer to implement a system that ensured DGP and non-DGP packaging was separated from each other, and disposed of at the appropriate collection point designated by DSD or a competitor. The Commission therefore concluded that DSD had imposed excessive prices and unfair contractual terms on undertakings using, or wishing to use, DSD’s services for only a portion of their packaging collection requirements. The Commission did not impose a fine on DSD, since existing case law provided DSD with little guidance on the compatibility of its system with competition rules. However, the Commission required DSD to modify its exemption system, eliminating the licence fee imposed on manufacturers and distributors with respect to DGP-logo packaging put into circulation in Germany that was not collected through the DSD exemption service. The General Court upheld the Commission’s decision in its entirety, noting, inter alia, that neither applicable national legislation, nor DSD’s rights as holder of the DGP logo trademark, justified the imposition of a licence fee on undertakings able to demonstrate that a quantity of their packaging bearing the DGP logo had been recovered using a competing exemption system. DSD appealed to the Court of Justice of the European Union. The Court, however, agreed with both the Commission and the General Court, declaring that that the DSD exemption system constituted an excessive pricing practice by a dominant undertaking, contrary to Article 102(a) EC. From a competition law perspective, DSD’s key grounds of appeal related to DSD’s right to grant a licence, and collect a licence fee, in respect of packaging bearing the DGP logo that was not collected through the DSD system. First, DSD argued that the General Court had contradicted itself by acknowledging DSD’s right as a trademark holder to charge a fee for the use of the DGP logo on packaging while, at the same time, holding that DSD had committed an abuse in charging the license fee for removal of packaging bearing the DGP logo. The Court rejected the argument, explaining that while DSD was entitled to charge a fee for the use of its logo, that fee should be separate from, and inferior to, the fee charged for use of DSD’s collection service. Second, DSD argued that the Commission’s decision (as confirmed by the General Court) in effect imposed an obligation on DSD to grant a licence for use of the DGP logo independently of a company’s participation in the DSD exemption system. The Court rejected this argument, noting that it was not the intention of the General Court or the Commission to impose a compulsory licence on DSD but merely to prohibit DSD from using its dominant position to exclude competing exemption systems. The Court, citing case law of the European courts establishing that an undertaking abuses its dominant position where it charges a fee that is disproportionate to the economic value of the services provided, confirmed the General


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Court’s finding that DSD had committed an abuse by requiring payment of a fee for a service that was not used. The Court confirmed that, where an abuse has been committed, the Commission has the power to require the undertaking concerned to put an end to the infringement. The Court therefore confirmed that the Commission was entitled to require DSD not to charge a license fee in respect of packaging bearing the DGP logo that had not been collected by DSD. DSD did, however, prevail on its argument that, by taking almost six years to bring a judgment in the case, the General Court had failed to dispose of the case within a reasonable time. However, the Court held that there was no evidence that this failure had affected the outcome of the dispute. The Court therefore agreed with the opinion of Advocate General Bot that, given the need to ensure compliance with EC competition law, and the fact that all the appellant’s pleas had been rejected as unfounded, the Court should not set aside the General Court’s judgment solely on the basis of this procedural irregularity. However, the Court noted that DSD could on this ground attempt to bring a claim for damages. 2.2. GC judgments. 2.2.1. The GC upholds Commission Decision condemning Clearstream for refusal to supply and price discrimination. On September 9, 2009, the General Court dismissed the appeal of Clearstream against a decision of June 2004 finding that Clearstream Banking AG (and its parent company Clearstream International SA, collectively “Clearstream”), had abused its dominant position on the market for primary clearing and settlement services, by refusing to grant a competitor, Euroclear Bank SA (“Euroclear”), access to an electronic platform for clearing and settling trades in German-registered shares, and by charging Euroclear discriminatorily high pertransaction prices for certain clearing and settlement services. Clearstream Banking AG is Germany’s only Central Securities Depository (“CSD”) (24). CSDs provide custody and administration services for securities, and (like Clearstream) may also provide clearing and settlement services. Clearing and settlement takes place after a trade in securities has been matched by a trading system, so that the seller gets paid and the buyer acquires ownership of the security traded. CSD clearing validates and matches delivery instructions; settlement involves the final payment and transfer of ownership in securities, customarily at the end of the third day following the trade. CSDs may be national or international. International CSDs (“ICSDs”) sell trades in international securities (in addition to domestic securities), relying on links with local CSDs to do so. Euroclear is an ICSD, and also acts as the national CSD in Belgium, Finland, France, Ireland, the Netherlands, Sweden and the UK. The Commission’s 2004 decision confirmed that Clearstream, as the only final custodian of German securities, held a monopoly position on the market for holding services, and subsequently also occupied a dominant position on the market for primary clearing and settlement services. The Commission held that Clearstream had abused its dominant position with respect to primary clearing and settlement services. The Commission’s investigation identified two specific abuses: Clearstream had unlawfully refused to grant Euroclear access to the part of its electronic trading platform (known as “CASCADE”) required for the entry and matching of settlement instructions for registered shares. The refusal had lasted more than two years. As

(24) Case T-301/04, Clearstream Banking AG and Clearstream International SA v. Commission, Judgment of September 9, 2009.

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the monopoly provider of primary clearing and settlement services, Clearstream was an unavoidable trading partner. Euroclear could not duplicate the services requested. Although Euroclear had been able to use the services of an intermediary to clear and settle registered share transfers, this was more costly and less efficient than receiving the services directly from the primary service provider, Clearstream. Moreover, according to the Commission, Clearstream had also price discriminated against Euroclear over a five-year period, charging a higher per transaction price to Euroclear than it charged to other CSDs and ICSDs outside Germany for clearing and settlement services. The Commission found no objective justification, e.g., as differences in the detail or content of the services or the cost of providing them, for the differences in prices charged by Clearstream to Euroclear and other CSDs or and ICSDs. The Commission held that Clearstream’s conduct had raised Euroclear’s transaction costs and impaired Euroclear’s ability to provide efficient cross-border clearing and settlement services to clients in the single market. Increased transaction costs raised would ultimately be passed on to consumers buying and selling shares. While the Commission adopted an Article 102 TFEU infringement decision against Clearstream, it did not impose a financial penalty. The Commission noted that there was no precedent in the area of clearing and settlement, and that it therefore had not been sufficiently clear to Clearstream that its behaviour might violate Article 102 TFEU. Clearstream nevertheless appealed the Commission’s decision. On September 9, 2009, the General Court dismissed Clearstream’s appeal, upholding the Commission’s decision in its entirety. The Court confirmed that Clearstream had a factual monopoly in the post-transaction processing of securities issued under German law. The Court noted that CSDs located in other Member States could only provide clearing and settlement services for securities issued in Germany to their customers if given access to Clearstream’s trading platform. The Court held that Clearstream had abused its dominant position by failing to provide Euroclear with access to the portion of the CASCADE system used for trading German registered shares. The Court noted that Clearstream usually provided the electronic link within a matter of months, as it had done for its affiliate in Luxembourg. In addition, the Court confirmed the Commission’s finding that Clearstream had charged a higher price to Euroclear than it had to national CSDs for equivalent primary clearing and settlement services. Such discriminatory pricing was without objective justification and violated Article 102 TFEU. 2.2.2. See para 1.1.2.1. 0, Case T-57/01 Solvay v Commission, Judgment of December 17, 2009. 2.3. Commission. 2.3.1. Guidance on the Commission’s Enforcement Priorities in Applying Article 102 TFEU to Abusive Exclusionary Conduct by Dominant Undertakings. On December 3, 2008, the EU Commission’s Directorate General for Competition (“DG Competition”) published its Guidance on the Commission’s Enforcement Priorities in Applying Article 102 TFEU to Abusive Exclusionary Conduct by Dominant Undertakings (the “Guidance”). The Guidance represents the culmination of years of work by DG Competition and the EU Member States’ competition authorities (the “NCAs”), publicly launched in December 2005 with the publication of DG Competition’s Discussion Paper on the application of Article 82 EC to exclusionary abuses (the “Discussion Paper”). Completion of the Guidance was delayed by the need to await the judgment of the General Court in Microsoft’s appeal of the Commission’s 2004 decision imposing fines against Microsoft for violations of Article 102 TFEU and by disagreements over controversial areas such as the


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treatment of rebates. The Guidance is also more limited than originally anticipated. Nonetheless, the Guidance represents a commendable effort to establish a coherent economics-based framework for the analysis of exclusionary conduct under Article 102 TFEU. The Guidance follows the U.S. Department of Justice’s (the “DOJ’s”) report on the assessment of single-firm conduct under Section 2 of the Sherman Act, which was not supported by the Federal Trade Commission. DG Competition stated that the Guidance is a “step towards more convergence with the approach to unilateral conduct followed by some other jurisdictions, such as the U.S.”, but noted that the DOJ’s report differs from the Guidance on a number of issues, such as the appropriate balancing of pro-and anticompetitive effects of unilateral conduct, the role of market shares in assessing dominance, and the assessment of pricing conduct. Together, however, the Guidance and the DOJ report reflect the importance antitrust enforcement agencies attach to the assessment of unilateral conduct in the wake of a series of high-profile cases, including the Microsoft, Rambus and Qualcomm sagas. 2.3.1.1. Summary. According to the Guidance, in establishing its Article 102 TFEU enforcement priorities, the Commission will apply an “economic and effects-based approach to exclusionary conduct”. The Guidance describes the Commission’s general approach to exclusionary conduct, including how the Commission will determine whether a company accused of violating Article 102 TFEU has a dominant position and how the Commission will seek to determine whether the conduct in question has or is likely to result in anticompetitive foreclosure. The Guidance discusses the application of this analysis to four categories of conduct: exclusive dealing; tying and bundling; predation; refusals to supply and margin squeezes. The Guidance is not a statement of the law, but of DG Competition’s enforcement priorities. DG Competition points out that the Guidance does not bind the European Courts. Less self-evidently, the Guidance does not bind NCAs and Member State courts, which, since Regulation 1/2003 entered into force, have the authority and the obligation to enforce Article 102 TFEU in parallel with the Commission. Nonetheless, NCAs and Member State courts can be expected to look to the Guidance to provide a framework for their analysis of alleged Article 102 TFEU violations, especially in view of DG Competition’s extensive consultations with NCAs over the past three years. As concerns its scope, it must be noted that the Guidance covers only exclusionary abuses. It does not discuss so-called “exploitative” abuses, such as excessive pricing and discriminatory conduct. The Guidance also discusses abuses only in the context of single firm conduct, missing an opportunity to clarify DG Competition’s approach to exclusionary conduct by one or more companies holding a collective dominant position. 2.3.1.2. Analysis. A.

Dominance.

The Commission confirms the well-established definition of dominance, namely the power of a dominant company to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers. The Guidance elaborates on the classic factors indicating dominance: market shares, barriers to entry and expansion by competitors, and countervailing buyer power. • Market shares. The Guidance describes market shares as a “useful first indication” of the market structure and the relative importance of market participants. The Guidance stresses that market shares must be interpreted in light of market conditions, including market

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dynamics (notably changes in shares over time in volatile or bidding markets) and the degree of product differentiation. The Guidance also confirms that a company is unlikely to be considered dominant if its market share is less than 40%. Although this level is only a “soft” safe harbor, the Guidance suggests that companies with lower shares will be found dominant only in specific cases where competitors are not in a position to constrain their conduct, for example where competitors face serious capacity limitations. • Barriers to entry and expansion. Low barriers to entry or expansion by actual or potential competitors can deter a company from raising prices if expansion or entry would be likely, timely and sufficient. Barriers to entry can include not only legal barriers, but also advantages peculiar to the dominant company, such as economies of scale and scope; “privileged” access to essential inputs, resources, or technologies; or an established distribution or sales network, even where these barriers are created by the company itself, for example through significant investments or long-term customer contracts that have appreciable foreclosure effects. • Countervailing buyer power. Countervailing buyer power may result from customers’ size or their commercial significance for the otherwise dominant company and their ability to switch quickly between competing suppliers, to promote new entry or to vertically integrate (or credibly to threaten to do so). Countervailing buyer power may deter or defeat an effort to increase prices, but buyer power will not be considered an effective constraint if it shields only a particular or limited segment of customers. B.

Anticompetitive Foreclosure.

The Commission’s Article 102 TFEU enforcement policy is intended to protect consumers by ensuring that dominant companies do not foreclose competitors in an anticompetitive way, with an adverse effect on consumer welfare in the form of higher prices, quality limitations or reductions in consumer choice. The Guidance states that DG Competition will consider not only harm to final consumers, but also harm to intermediate consumers, such as distributors and producers that use the products as an input. The Commission will normally only intervene under Article 102 TFEU where, based on “cogent and convincing evidence”, the allegedly abusive conduct is likely to lead to anticompetitive foreclosure. DG Competition will consider the following factors in its assessment: • Strength of dominant position. The stronger the dominant position, the higher the likelihood of anticompetitive foreclosure. • Market conditions. These include barriers to entry and expansion, the existence of economies of scale or scope, and network effects, which might allow a dominant undertaking to “tip” a market or to further entrench its position. • Position of competitors. A competitor with even a small market share can play a significant competitive role, for example if it is the closest competitor, if it is particularly innovative, or if it has the reputation of systematically cutting prices. • Position of customers and suppliers. The likelihood of anticompetitive foreclosure will be greater where the dominant company is able to apply the practice in question selectively. Conduct directed at customers may have a greater foreclosure effect if it targets customers who are most likely to respond to offers from alternative suppliers; who represent a means of distributing products that would be suitable for a new entrant; who may be situated in a geographic area well suited to new entry; or who may be likely to influence the behavior of other customers. Exclusive supply arrangements may have a greater foreclosure effect if targeted at suppliers who might be most likely to respond to requests by competitors of the dominant firm or who would otherwise be particularly suitable suppliers for a new entrant


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competing with the dominant company (e.g., based on location or the characteristics of the supplier’s products). • Extent of abusive conduct. The higher the proportion of total sales affected by the challenged conduct, the longer the duration, and the greater the regularity with which it is applied, the greater is the likely foreclosure effect. • Evidence. The anticompetitive foreclosure effect of challenged conduct may be evidenced by the market performance of the dominant firm, if the conduct has been in place for a sufficient period of time. Otherwise, direct evidence of the dominant firm’s strategy may help to interpret the conduct in question. C.

Equally Efficient Competitor Test.

In the case of price-based conduct (in particular, rebates, predatory pricing and margin squeezes) the Commission uses the “equally efficient competitor” test to avoid deterring conduct that would not foreclose a competitor that is as efficient as the dominant company. DG Competition will not normally challenge conduct that would not hamper competition from a hypothetical competitor whose costs — measured by AAC or LRAIC — would be equal to those of the dominant company. If the data clearly suggest that the challenged conduct has the potential to foreclose competition by equally efficient competitors, the Commission will integrate this conclusion into the general assessment of anticompetitive foreclosure, as discussed above. In a qualification likely to draw criticism, the Guidance notes that constraints exerted by less efficient competitors should also be taken into account, in particular where the dominant company’s efficiency benefits from demand-related advantages such as network and learning effects. Application of the equally efficient competitor test depends on economic data on cost and sales prices of the dominant undertaking. If no such data are available, the Commission may use cost data of competitors or other comparable reliable data. Under the Guidance, therefore, dominant companies will have a strong incentive to make their data available to the Commission to avoid the risk that the Commission will determine AAC or LRAIC based on cost data of less efficient competitors. D.

Defenses.

A major difference between Article 101 and Article 102 TFEU is the possibility in Article 101 TFEU of justifying conduct violating Article 101(1) TFEU based on the efficiency criteria set out in Article 101(3) TFEU. Although the case law of the Court of Justice allowed certain justifications for violations of Article 102 TFEU, Article 102 TFEU has no analogue to Article 101(3) TFEU. The Guidance now explicitly recognizes “efficiency” and “objective necessity” defenses for conduct that would otherwise violate Article 102 TFEU. The burden of proving both defenses falls on the dominant firm. To justify otherwise abusive conduct based on efficiencies, such as technical improvements in the quality of goods or reductions in the cost of their production or distribution, a dominant firm must show that: • The efficiencies have been or are likely to be realized as a result of the conduct; • The conduct is indispensable to the realization of these efficiencies — there must be no less anti-competitive alternatives capable of producing the same efficiencies; • The likely efficiencies outweigh any likely negative effects on competition and consumer welfare; and • The conduct does not eliminate effective competition by removing all or most sources of actual or potential competition — conduct that creates or strengthens a monopoly or near monopoly can normally not be justified by efficiencies.

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Regarding the “objective necessity” defense, the Guidance recognizes that exclusionary conduct can be justified based on external factors such as health or safety requirements related to the products in question. The Guidance notes, however, that public authorities, not private companies, are normally responsible for setting and enforcing public health and safety standards, signaling that DG Competition will look skeptically on claims that health or safety concerns justify exclusionary conduct that would otherwise violate Article 102 TFEU. Indeed, the Guidance does not discuss objective necessity as a possible defense in connection with any specific form of exclusionary conduct covered by the Guidance. Nonetheless, the Guidance identifies categories of behavior that are virtually per se abuses, in that to find a violation DG Competition will not need to conduct a detailed assessment of the conduct’s effect (e.g., a dominant company preventing its customers from testing a competitor’s products or paying a distributor or customer to delay introduction of such products) or for which no defense is likely to be accepted (e.g., as noted, predatory conduct). E.

Specific Forms of Abuse.

In addition to the general framework outlined above, the Guidance discusses DG Competition’s approach to four categories of potentially abusive conduct: exclusive dealing; tying and bundling; predation; and refusals to supply and margin squeezes. 1.

Exclusive Dealing.

The notion of exclusive dealing includes various forms of conduct designed to foreclose competitors by hindering them from selling to customers. The Guidance focuses on two categories of exclusive dealing: entering into exclusive purchasing arrangements and granting conditional rebates. The Guidance does not discuss rebates that are not conditioned on reaching certain volume targets, suggesting that only conditional rebates are considered to be a concern. a.

Exclusive Purchasing.

The simplest form of exclusive dealing is an agreement in which the buyer agrees to purchase the contract goods exclusively or to a large extent only from the dominant company. When buyers agree to exclusive purchasing arrangements, they normally negotiate a compensation for the loss of competition. The fact that individual customers negotiate lower prices under exclusive purchasing contracts does not mean, however, that such arrangements are beneficial for customers as a whole or for final consumers. DG Competition will focus on situations where consumers as a whole will not benefit from exclusive purchasing. The Guidance highlights the following factors as particularly relevant for the analysis of exclusive purchasing arrangements: • Effect on potential entrants or on rivals that cannot compete for the customer’s entire demand. Exclusive purchasing arrangements may result in anticompetitive foreclosure where important competitive constraints would otherwise be exercised by potential entrants or by competitors that are not in a position to compete for the customer’s entire demand (for example, because the dominant company is an “unavoidable trading partner” (e.g., its products are a “must stock” item) or because rivals suffer from capacity constraints); • Duration. The longer the duration of an exclusive purchasing obligation, the greater the likely foreclosure effect (although where the dominant company is an unavoidable trading


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partner, even a short-lived exclusive purchasing agreement can lead to anticompetitive foreclosure). b.

Conditional Rebates.

Conditional rebates are rebates that reward particular forms of purchasing behavior if a customer’s purchases exceed a certain threshold. Rebates applied to all purchases are known as “retroactive rebates,” while rebates applied only to purchases over the threshold are known as “incremental rebates.” DG Competition considers that, unlike predatory pricing, conditional rebates can have an anticompetitive foreclosure effect even without a profit sacrifice by the dominant company. The Guidance highlights the following factors as particularly relevant for the analysis of conditional rebates: — Effect on rivals that cannot compete for the customer’s entire demand. Where competitors are not able to compete on equal terms for the customer’s entire demand, a dominant company can use the “non-contestable” portion of the demand as leverage to decrease the price paid for the “contestable” portion. — Retroactive vs. incremental rebates. Retroactive rebates are more likely to lead to anticompetitive foreclosure. The higher the rebate as a potential of the total price and the higher the threshold the greater the foreclosure effect. — Individual vs. standardized thresholds. Individualized thresholds are more likely to lead to an anticompetitive effect than standardized thresholds, though if a standardized threshold approximates the requirements of an appreciable portion of customers, it may still result in anticompetitive foreclosure. — Equally efficient competitor test. In the conditional rebate context, DG Competition will attempt to calculate the “effective price” that a competitor would have to offer to compensate the customer for the loss of the conditional rebate if the customer switched part of its demand, known as the“relevant range,” from the dominant company to the competitor. — The effective price is not the dominant company’s average price, but the dominant company’s list price less the rebate the customer loses by switching, calculated over the relevant range. — For incremental rebates, the relevant range is normally the incremental purchases over the rebate threshold. For retroactive rebates, the Guidance says that it will be relevant to assess how much of the customer’s purchase requirements the customer can realistically be switched to a rival (the “contestable share” or “contestable portion”). The contestable portion in turn may depend, on the customer’s side, on the quantities it must in any event purchase from the dominant company (for instance, because its products are a “must stock” item) and, on the supplier’s side, on capacity constraints or, for potential entrants, on the scale at which a new entrant could realistically enter the market. — If the effective price is consistently above the dominant company’s LRAIC, the rebate will normally not lead to anticompetitive foreclosure. Where the effective price is below AAC, the rebate is capable of leading to anticompetitive foreclosure. When the effective price is between these two levels, DG Competition will look at other factors, such as whether realistic and effective counterstrategies are available to rivals. c.

Efficiencies.

Dominant companies may defend exclusionary dealing that would otherwise violate Article 102 TFEU on the grounds that they achieve cost or other advantages that are passed on to customers. Exclusive dealing arrangements are more likely to result in advantages to

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particular customers if those arrangements are necessary for the dominant company to make certain relationship-specific investments. In the rebate context, transaction-related cost advantages are more likely to be achieved with standardized volume targets, and incremental rebates are more likely to give resellers an incentive to produce and sell higher volumes of products. 2.

Tying and Bundling.

The Guidance acknowledges that tying (whether contractual or technical) and bundling (whether “pure” bundling, in which products are only sold jointly and in fixed proportions, or “mixed bundling”, also known as “multi-product rebates”) are common practices aimed at providing customers with better products in more cost-effective ways. DG Competition will normally take action only where a dominant company is dominant in one relevant market (the “tying market”), the other products involved (the “tied products”) are distinct products, and the tying practice is likely to lead to anticompetitive foreclosure. a.

Distinct Products.

Two products are considered distinct if, absent tying or bundling, a substantial number of customers would purchase the tying product without buying the tied product from the same supplier. b.

Anticompetitive Foreclosure.

The Guidance notes that the risk of anticompetitive foreclosure is greater: — Where the tying or bundling is lasting, for example through technical tying, which is costly to reverse and reduces the opportunities for resale of individual components; — Where the company in question has dominant positions in more than one product in a bundle; and — The more products are included in the bundle, particularly if the bundle is difficult for a competitor to replicate, either alone or in combination with others. c.

Multi-product Rebates and the Equally Efficient Competitor Test.

DG Competition will apply the equally efficient competitor test when evaluating the anticompetitive foreclosure effect of multi-product rebates, using the incremental price customers paid for products in the bundle. If the incremental price for each product in the bundle is above the dominant firm’s LRAIC from including the product, DG Competition will not normally intervene, since an equally efficient competitor offering only that product could in principle compete profitably. Enforcement action may be warranted if the dominant company’s incremental price from including the product is below its LRAIC, since in such a case even an equally efficient competitor could be prevented from expanding or entering the market. If competitors are or could timely offer an identical bundle, the question becomes whether the price for the entire bundle is predatory (see below). d.

Efficiencies.

The Guidance recognizes a number of benefits that might support an efficiency defense in a tying or bundling case: — Savings in production or distribution;


— — — — 3.

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Reductions in transaction costs; Savings on packaging and distribution; Enhancing the ability to bring a new product to market through technical tying; or Savings from the production or purchase of large quantities of the tied product.

Predation.

The Guidance states that DG Competition will generally intervene in predation cases where there is evidence showing a dominant company is deliberately incurring losses or foregoing profits in the short term (referred to as “sacrifice”), so as to foreclose or be likely to foreclose one or more actual or potential competitors to strengthen or maintain its market power, thereby causing consumer harm. DG Competition may pursue predatory practices by dominant companies on secondary markets on which they are not yet dominant, especially in sectors protected by a legal monopoly. a.

Sacrifice.

Pricing below the dominant company’s AAC will in most cases be viewed as a clear indication of sacrifice. In addition to pricing below AAC, however, the concept of sacrifice involves whether the dominant company has a predatory strategy. In this regard, DG Competition may also investigate whether the alleged predatory conduct led in the short term to net revenues lower than could have been expected from reasonable alternative conduct. A predatory strategy may also be shown by direct evidence such as documents showing a detailed plan to sacrifice to exclude a rival, prevent entry or preempt the emergence of a market. b.

Anticompetitive Foreclosure and the Equally Efficient Competitor Test.

The Guidance recognizes a number of other factors relevant to the assessment of anticompetitive foreclosure. The risk of foreclosure will be greater where: — The dominant company is better informed about costs or other market conditions; — The dominant firm can distort market signals about profitability to deter entry; — The dominant firm has a reputation for predatory conduct; — The targeted competitor is dependent on external financing; or — The dominant company selectively targets specific customers with low prices. If sufficient data are available, DG Competition will apply the equally efficient competitor test to determine whether the conduct is capable of harming consumers. The Guidance notes that predatory pricing will normally be capable of foreclosing equally efficient competitors. Consumers are generally likely to be harmed if the dominant undertaking can reasonably expect its market power after the predatory conduct comes to an end to be greater than would have been the case absent the conduct; i.e., if the company is likely to be in a position to benefit from the sacrifice, either by being able to increase its prices or to prevent or delay a decline in prices. Low prices applied generally for a long period of time are unlikely to be predatory. c.

Efficiencies.

In general, predation is unlikely to create efficiencies, but the Guidance does not completely rule out the possibility that low pricing enables the dominant company to achieve economies of scale or efficiencies relating to expanding the market.

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Refusal to Supply and Margin Squeezes.

The Guidance reflects DG Competition’s cautious approach to refusal to supply cases, since any company, dominant or not, should have the right to choose its trading partners and to dispose freely of its property. An obligation to supply, even for fair remuneration, may undermine firms’ incentive to invest and innovate. Competitors may also be tempted to free ride on dominant companies’ investments instead of investing themselves. The Guidance notes that competition problems typically arise when the dominant company competes in the downstream market with the buyer whom it refuses to supply. The Guidance thus discusses refusals to supply and margin squeezes only where the dominant company is vertically integrated. The Guidance also does not discuss conduct in which supply is made conditional upon the buyer accepting limitations on its conduct (e.g., to punish customers that deal with competitors or that do not accept tying arrangements or to prevent parallel trade or maintain resale prices). The concept of refusal to supply includes refusals to supply goods or services, to license intellectual property rights, or to grant access to an essential facility or network. DG Competition will treat these practices as an enforcement priority only if the following cumulative conditions are present: the product or service is objectively necessary for the buyer to compete effectively on a downstream market; the refusal is likely to lead to the elimination of effective competition in the downstream market; and the refusal is likely to lead to consumer harm. a.

Objective Necessity.

An input will be considered objectively necessary where there is no actual or potential substitute on which competitors in the downstream market could rely so as to counter — at least in the long term — the effect of the refusal. DG Competition will assess whether competitors could effectively duplicate the input in the foreseeable future. The Guidance does not distinguish in principle between de novo refusals to supply and interruptions of existing supply relationships. However, if the dominant company was previously supplying the buyer, and the buyer made relationship-specific investments to use the subsequently refused input, DG Competition may be more likely to regard the input as indispensable. Similarly, if the dominant company has previously found supplying the buyer to be in its interest, it may be easier to conclude that supplying the input does not imply any risk that the owner will receive inadequate compensation for its original investment. It would therefore be up to the dominant company to demonstrate how circumstances have changed. Where a dominant company does not refuse to supply an input but charges a price that, compared to the price it charges on the downstream market, does not allow an equally efficient competitor to compete profitably on a lasting basis, this is called a “margin squeeze”. DG Competition will generally use the LRAIC of the downstream division of the integrated dominant company as the benchmark to determine whether the alleged margin squeeze would foreclose competition by an equally efficient competitor. b.

Elimination of Effective Competition.

The likelihood of effective competition in the downstream market being eliminated is generally greater (i) the higher the dominant company’s market share; (ii) the less capacity constrained the dominant company is relative to competitors; (iii) the closer the substitutability between the products of the dominant company and its downstream competitors; (iii) the greater the proportion of downstream competitors that are affected; and (iv) the more likely it is that demand that could be served by foreclosed competitors would be diverted to the dominant company.


c.

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Consumer Harm.

DG Competition will normally pursue a refusal to supply case only where the likely positive consequences outweigh over time the negative consequences of imposing an obligation to supply. Consumer harm may arise where the foreclosed competitors are prevented from bringing to market innovative goods or services and/or where follow-on innovation is likely to be stifled. This may be the case in particular where the foreclosed competitor does not intend to limit itself to duplicating the goods or services offered by the dominant company, but intends to produce new or improved goods or services for which there is a potential consumer demand or is likely to contribute to technical development. Consumer harm may also result where the price in the upstream input market is regulated, the price in the downstream market is not regulated and the dominant company, by excluding downstream competitors, is able to extract more profits in the unregulated downstream market than it would otherwise do. d.

Efficiencies.

The Guidance recognizes a number of arguments that might support an efficiency defense in a refusal to supply case: — The need to allow the dominant company to realize an adequate return on its investments; — The risk that the dominant company’s incentives to innovate would be negatively affected by an obligation to supply; or — The structural changes that imposing such an obligation would bring about, including follow-on innovation by competitors. As noted, however, the fact that the dominant company has previously supplied the input in question can be relevant to any efficiency defense of the refusal to supply. 2.3.1.3. Conclusion. The Guidance represents a welcome effort by DG Competition to provide guidance on the application of Article 102 TFEU to exclusionary conduct. The Guidance is more limited than originally anticipated, in that it does not cover exploitative abuses and avoids other areas in which Commission guidance would be welcome, such as exclusionary conduct by collectively dominant companies. However, the Guidance’ s silence on certain conduct — such as unconditional rebates — appears to suggest that DG Competition regards such conduct as not susceptible to violating Article 102 TFEU. DG Competition is to be commended for its effort to put its Article 102 TFEU enforcement policies on a sounder economics-based footing. Unfortunately, however, its equally efficient competitor test will be difficult if not impossible for companies and counsel to apply in determining whether proposed conduct might be found to violate Article 102 TFEU. The Guidance is clearer and more concise than the Discussion Paper, although to some extent concision has been achieved by eliminating examples that would have helped to clarify how DG Competition intends to apply its analytical framework. Beyond noting the obvious fact that the Guidance is subject to the case law of the Community Courts, DG Competition does not indicate where the approach to exclusionary abuses outlined in the Guidance differs from the past practice of the Commission and the Community Courts. As in respect of other practices addressed in the Guidance, it will be interesting to see which Article 102 TFEU cases DG Competition pursues going forward, and on what analytical and methodological basis.

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2.3.2. E.ON. On November 26, 2008, the Commission issued a decision under Article 9 of Regulation 1/2003, accepting a number of commitments offered by the German electricity company E.ON and closing its investigation of suspected abusive conduct (25). The investigation started in 2006 as a result of the Commission’s inquiry into the energy sector. In the course of its investigation, and following surprise inspections in December 2006, the Commission came to the preliminary view that E.ON might have infringed Article 102 EC in two ways. First, the Commission contended that with a view to raising prices E.ON, as a wholesaler on the electricity market, had deliberately failed to offer for sale the production of certain power plants that was available and that it would have been economically rational to sell. Moreover, the Commission had concerns that E.ON devised and implemented a strategy to deter third parties from investing in electricity generation. Second, the Commission contended that E.ON, as a transmission system operator, raised prices and thwarted competition on the electricity balancing market. Balancing energy consists of last minute electricity supply to maintain the frequency of the electrical current in the network. The Commission was concerned that E.ON favoured its own production affiliate, even if it charged higher prices, passed on the increased costs to the final customer, and prevented other power producers from selling balancing energy. The commitments offered by E.ON include: — the divestiture of about 5000 MW of generation capacity in German power plants. This corresponds to approximately 20% of E.ON’s capacity. According to the Commission, these divestitures prevent E.ON from withdrawing capacity in order to raise prices, and provide capacity to competitors and newcomers on the German market. — the divestiture of E.ON’s transmission system business, consisting of an Extra-HighVoltage line network and system operations currently run by E.ON Netz. This will remove the incentive of the operator to favour a particular supplier of balancing energy. The planned sale of E.ON’s transmission system business had a significant political impact in Germany. Large German electricity producers, supported by the German government, had so far successfully resisted the Commission’s efforts to “unbundle” the production of electricity from distribution. Finally, on a related note, on November 11, 2008, the German Supreme Court upheld the Federal Cartel Office’ s (“FCO”) decision to block the acquisition by E.ON of a minority stake in Stadtwerke Eschwege, a local German energy distributor. According to the FCO and the Supreme Court, the acquisition would increase concentration in a market dominated by RWE and E.ON, which together have stakes in more than 200 local distributors. The FCO and the Supreme Court thereby sought to avoid increased vertical integration in this sector. 2.3.3. RWE. On March 18, 2009, the European Commission adopted a decision rendering legally binding commitments entered into by RWE with respect to the German gas market. (26). On May 7, 2007, the Commission initiated Article 102 TFEU proceedings against RWE with respect to foreclosure of the German gas supply markets through the restriction of third party

(25) So-called Article 9 decisions do not contain a finding of infringement, but legally bind the addressee to the commitments offered. In this case, if E.ON were to break its commitments, the Commission could impose a fine of up to 10% of E.ON’s total turnover, without having to prove any violation of the competition rules. (26) Case COMP 39.402 RWE gas foreclosure.


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access to its gas transport network in its core area, North Rhine-Westphalia. On October 15, 2008, the Commission adopted a preliminary assessment confirming RWE’s dominance on the gas transport market(s) within its network area, and expressing concern that RWE may have abused its dominant position under Article 102 EC, notably through a refusal to supply gas transmission services to third parties and by a behaviour aiming at lowering the margins of RWE’s downstream competitors in gas supply (“margin squeeze”). Although RWE did not accept the Commission’s preliminary assessment, it nonetheless offered commitments pursuant to Article 9 of Regulation (EC) No 1/2003 to allay the Commission’s competition concerns, offering to divest its German gas transmission system business to a suitable purchaser that would not raise prima facie competition concerns. RWE also committed to supply the purchaser with auxiliary services necessary for the operation of the transmission network, such as the provision of gas flexibility services, for a limited period of up to five years following the divestment. Furthermore, for a period of up to 2 years following the divestment, RWE committed to supply specific services to the acquirer including, for example, human resources and legal services with respect to social law. The divested business will also be endowed with personnel necessary for the operation of the transmission network. The Commission finally accepted the commitments from RWE to divest its existing Western German high pressure gas transmission network, including the necessary personnel and ancillary assets and services. According to the Commission, without control of the transmission network, RWE will no longer be able to favor its own supply business. The Commission stated moreover that the divestment ensured that the purchaser of the network would have no incentives to favor its own supply business. 2.3.4. Rambus. On December 9, 2009 the European Commission has adopted a decision that renders legally binding commitments offered by Rambus Inc that in particular put a cap on its royalty rates for certain patents for “Dynamic Random Access Memory” chips (DRAMS) in order to bring to an end the Commission’s investigation into Rambus’s alleged abuse of a dominant position in the market for Dynamic Random Access Memory (“DRAM”) chips, a type of electronic memory processor that provides temporary storage of data in electronic devices. Industry standards for DRAMs were developed during the 1990s by an industry association known as the Joint Electron Device Engineering Council (“JEDEC”). JEDEC-compliant DRAMs today represent approximately 95% of the DRAMs market, and are used in almost all PCs worldwide. Rambus claims that its patents cover technologies included in these JEDEC standards and is asserting these against manufacturers of DRAMs that comply with the JEDEC standard. The complainants allege that Rambus, which participated in JEDEC between 1992-1995, intentionally failed to disclose the existence of its patents and patent applications prior to adoption of the JEDEC DRAMs standards. The Rambus case is the first time that the Commission has investigated a so-called “patent ambush” case. In parallel proceedings in the US, the Federal Trade Commission (“FTC”) found that Rambus had violated Section 2 of the Shearman Act, and imposed a remedy applying to all relevant products imported into or exported from the US. Subsequently, in April 2008, the DC Court of Appeals overturned the FTC’s orders against Rambus. In February 2009, the US Supreme Court denied the FTC’s request for certiorari of the DC Court’s decision. In its statement of objections, issued on July 30, 2007, the Commission reached the preliminary conclusion that, without the alleged patent ambush, Rambus would not have been able to impose such high royalty payments upon the JEDEC-compliant DRAMs manufacturers. The Commission considered that Rambus’s conduct risked undermining confidence in the standard-setting

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process, that was crucial in promoting technical development and innovation. Without conceding the legal and factual conclusions reached by the Commission in the statement of objections, Rambus offered commitments pursuant to Article 9 of Regulation 1/2003, intended to allay the Commission’s concerns. The proposed commitments would apply to future shipments only, and would last for a period of five years from the date of adoption of the commitment decision. 2.3.5. Intel. On September 21, 2009, the Commission published a provisional non-confidential version of its May 13, 2009 decision finding that Intel Corporation (“Intel”) abused its dominant position in the market for central processing units (“CPUs”) using the x86 architecture and fining Intel E1.06 billion (27). The Commission found that Intel’s abuses were part of a continuous strategy aimed at foreclosing competition from its only significant competitor, Advanced Micro Devices (“AMD”). The case is significant as it is the Commission’s first application of the methodology outlined in its 2009 Guidance (28) to rebate schemes and in particular of the analysis of the foreclosure effects of anti-competitive rebate schemes. Intel is the world’s largest semiconductor manufacturer and the developer of the x86 microprocessor architecture. These processors, based on Intel’s 80286 chip are the industrystandard CPU for computers designed to use the Windows and Linux operating systems. Since 2000, Intel and AMD have essentially been the only two manufacturers producing x86 CPUs. The Commission’s investigation was triggered by a complaint from AMD submitted in October 2000 and supplemented in November 2003. On July 26, 2006, the Commission issued a Statement of Objections addressing Intel’s dealings with five original equipment manufacturers (“OEMs”), fallowed by a Supplemental Statement of Objections on July 17, 2008 and the final decision on May 13, 2009. The decision held that Intel engaged in a single and continuous infringement of Article 102 EC from October 2002 until December 2007 and imposed a fine of E1.06 billion. The Commission defined the relevant market as the market for x86 CPUs and found that Intel held a dominant position, with market shares of around 80% or more in an overall x86 CPU market and 70% in the sub-markets of x86 CPUs for desktop computers, laptop computers and for server computers throughout the six-year observation period. Moreover, the Commission identified a number of barriers to entry and expansion in the relevant market relating to the nature and the size of investment required (both in terms of research and development and investment in manufacturing facilities), combined with capacity constraints and significant product differentiation, in particular through brands, combined with Intel position as “must-stock” brand that provided it with additional market power. The Commission found that Intel engaged in two types of abusive conduct: granting rebates conditioned on customers’ buying all or almost all of their needs from Intel and “naked restrictions,” outright payments to customers in exchange for not using AMD products. The Commission first analysed Intel’s conditional rebates in the traditional way. It held

(27) European Commission, COMP/37.990, Intel; http://europa.eu/rapid/ pressReleasesAction.do?reference=IP/09/745. (28) European Commission, Guidance on enforcement priorities in applying Article 102 of the TFEU, 2009/C 45/02, available at: http://ec.europa.eu/competition/antitrust/art102/guidance.pdf.


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that Intel’s conditional rebates represented an abuse of its dominant position under long-standing case law prohibiting exclusivity rebates and fidelity rebates by dominant companies (29). Although Intel did not operate an overt fidelity rebate system, the Commission found that the level of Intel’s rebates was de facto conditional upon customers purchasing all or nearly all of their x86 CPUs (at least in certain segments) from Intel and thereby restricted customers’ freedom. The Commission considered that the rebates were part of a long-term comprehensive strategy aimed at foreclosing competitors from the market. The Commission cited e-mails and other evidence referring to rebates to OEMs and Media Saturn Holding, Europe’ s largest PC retailer (“MSH”) (30), MSH is not a direct customer of Intel but purchases computers from the OEMs. MSH received marketing contributions from Intel, which were treated by the Commission as if they were rebates. as proof that these rebates were conditioned on customers’ not (or essentially not) using AMD chips. Although the Commission found that Intel’s rebates were de facto conditioned on the customers’ agreement to buy all or substantially all of their needs from Intel and that this system constituted an abuse of Intel’s dominant position under existing case law, the Commission went on to apply the methodology set out in the Guidance to evaluate the capability of Intel’s rebates to foreclose a non-dominant competitor that was as efficient as Intel. The Commission’s “as-efficient-competitor” analysis depends on the assessment of a number of elements, each of which appears difficult to establish and was apparently the object of dispute in Intel. In particular, the Commission’s approach involved the determination of (i) the amount of the rebate granted by Intel for the (near) exclusivity, (ii) the “relevant range” of the customers’ demand that AMD could realistically have supplied, and (iii) Intel’s relevant costs. Regarding (i), the Commission never determined the actual amount of the rebate. Rather, it considered that all “or at least a large part” of Intel’s rebate was granted in return for fidelity (31). This ambiguity is surprising, considering that the nature of Intel’s rebate system is the basis for the Commission’s finding of abuse. Regarding (ii), in discussing the customers’ contestable share of demand as a basis for the establishment of the relevant range for which AMD could have realistically competed, the Commission noted that Intel was an unavoidable trading partner with a “must-stock” product. The Commission observed that, “[d]ue to Intel’s strong brand and long track record, many final customers would not consider switching away from Intel-based computers, even if an AMD-based alternative were offered. The contestable part of the market is thus limited by the fact that AMD-based computers would only be the most attractive product for a sub-segment of all the OEM’s ultimate customers” (32). In addition, the Commission looked at submissions of Intel’s customers and AMD that detailed the rates at which these companies considered it was feasible to increase their supplies from AMD if they wanted to. On this basis, the Commission concluded that the contestable portion of the customers’ demand was quite low (33). Regarding (iii), the Guidance refers to two different cost measures, average avoidable cost (“AAC”, referring essentially to variable costs) and long-run average incremental cost

(29) See e.g., Case 85/76, Hoffmann-La Roche, Judgment February 13, 1979, para. 89. (30) MSH is not a direct customer of Intel but purchases computers from the OEMs. MSH received marketing contributions from Intel, which were treated by the Commission as if they were rebates. (31) E.g., at 280. (32) Para. 1010. (33) Para. 1009-1012, 1202ff., 1339ff., 1473ff., 1551ff.

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(“LRAIC”, referring essentially to average total production cost) (34). In the Decision, the Commission calculated Intel’s AAC, i.e., the cost more favorable to Intel. Based on its analysis of these factors, the Commission determined that the loss of the conditional rebate from Intel, in light of the limited contestable share of customers’ demand, would have been such that AMD would have had to offer its CPUs at a price below Intel’s costs to be able to compete. In other words, even if AMD were as efficient as Intel, it would not have been able to match Intel’s after-rebate price, because the quantities for which AMD could have competed would have been relatively small, and AMD could not have competed with Intel for those quantities without profit sacrifice. The decision shows not only that the Guidance’s “as efficient competitor” analysis is conceptually complicated, but also that it is very difficult to establish all of the facts necessary to apply that analysis. The discussion of these factors in the decision suggests that neither the dominant company itself, nor its customers and competitors, can realistically use this approach to evaluate a proposed rebate scheme in advance, since the scheme’ s legality could be determined only with confidential information of both the dominant company (its costs) and individual customers (the contestable portion of their demand), and neither the dominant company nor any customer or competitor will have access to all the required information (35). It is also to be noted that, despite of the relevance given to the as-efficient-competitor analysis (accounting for about one-third of the entire decision), the Commission never really explained the significance of this foreclosure analysis for its decision. The decision describes the foreclosure analysis only as “one possible way of examining whether exclusivity rebates are capable or likely to cause anticompetitive foreclosure”, but the Commission had already concluded that Intel’s rebates violated (Article 102 TFEU) under the established case law of the European Courts before proceeding to the foreclosure analysis. Indeed, in discussing the amount of Intel’s fine, the Commission stated that “the as efficient competitor analysis [...] is not relevant for the purpose of deciding whether the Commission should impose a fine or determining its level as it does not relate to the existence of the infringement or to the question whether it was committed intentionally or by negligence, or to its gravity” under Regulation 1/2003 or the Commission’s fining guidelines. While the Commission recognizes that the as-efficient-competitor analysis suggested in the Guidance does not (and of course cannot) replace the European Courts’ case law on exclusionary rebates, the Guidance suggests that the Commission would no longer pursue rebate cases if the test were not met, even if the rebate scheme under investigation would be abusive under established case law. This approach could lead to the counterintuitive result that the Commission would devote extensive resources to assessing whether a rebate scheme would result in foreclosure, but then drop the case even if a dominant company had committed a violation under applicable case law. In its defense, Intel claimed that its rebate scheme was required by an objective justification (meeting competition from AMD) and resulted in efficiencies (lower prices, scale economies, production efficiencies, and risk sharing and marketing efficiencies). However the

(34) The Guidance (at 43, 44) suggests that where the effective price remains above LRAIC, the rebate should normally not be considered abusive. In contrast, where the effective price was below AAC, the rebate should generally have an exclusionary effect. If the effective price is between LRAIC and AAC, all “other factors” would need to be considered. (35) See, Centre for European Policy Studies Task Force Report, Treatment of Exclusionary Abuses under Article 102 of the TFEU (2009) pp. 46-58. Temple Lang, John, Article 102 EC - The Problems and the Solution (September 3, 2009), FEEM Working Paper No. 65.2009, at 14. Commission officials have suggested that customers who agree to participate in an abusive rebate scheme may violate Article 101 EC (Article 101 TFEU).


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Commission rejected Intel’s meeting-competition defense on the ground that Intel’s individualized pricing systems conditioned on exclusivity or quasi-exclusivity were not necessary to respond to price competition, and in any case the meeting-competition argument was inconsistent with Intel’s claim that AMD’s difficulties resulted from capacity limitations and other problems of AMD itself, and not from Intel’s conduct. The Commission similarly rejected Intel’s efficiency defense, noting that Intel failed to demonstrate precise efficiencies, and in any case the Commission did not object to Intel’s rebates, which could be justifiable based on cost savings, but to Intel’s conditioning those rebates on exclusive or quasi-exclusive purchasing. Intel also argued that the fine should have been reduced because of the novelty of the as-efficient-competitor analysis. The Commission rejected this argument, noting that “any element of novelty involved in the analysis and its application could only work in Intel’s favor”. This observation suggests that the absence of foreclosure effects might be asserted as a defense, though this approach is not suggested in the Guidance and indeed Intel did not assert the absence of foreclosure as a defense under Article 102 TFEU. The Commission further found that Intel abused its dominant position by restricting the commercialization of specific AMD-based products by forcing its customers to postpone, cancel or restrict their launch in other ways. According to established case law, such “naked restrictions” of competition by a dominant company violate Article 102 TFEU. For example in Irish Sugar, the General Court concluded that a dominant undertaking agreeing with a wholesaler and a retailer to swap competing retail products for its own product constituted an abuse (36). Through those swap arrangements, the dominant firm prevented the competitor’s brand from being present on the market, since the retailers no longer had competing products. The Court found that these arrangements undermined the competition that might have been offered by the new product (37). Intel argued that the objective justifications it advanced in defense of its conditional rebates applied mutatis mutandis to the naked restrictions identified by the Commission. The Commission rejected this argument, noting that it could not discern any economic justification for such conduct. The Commission concluded that Intel’s conduct constituted “recourse to methods different from those governing normal competition” and therefore to an abuse under Article 102 TFEU. In calculating the amount of Intel’s fine, the Commission took into consideration the gravity of the infringement, its duration, and aggravating or mitigating circumstances, as well as Intel’s market share of 70% or more in the x86 CPU market during the relevant period. The volumes of such sales in the EEA were also factors in this assessment. As noted, the Commission did not consider the degree of anti-competitive foreclosure to be relevant to the calculation of Intel’s fine. Intel is the Commission’s first decision dealing with fidelity rebates since it published the Guidance and it reinforces long-standing concerns about the treatment of fidelity rebates in EU competition law, while failing to allay doubts about how the Commission’s effects-based analysis will be applied in practice. Unfortunately, however, Intel arguably combines some of the worst elements of the form-based case law of the European courts and the complexity and unworkable aspects of economic theory as set out in the Guidance. With respect to the formalistic aspects of EU law as set out in the case law of the European courts, the Commission found that Intel’s rebate scheme violated Article 102 TFEU without any analysis of whether scheme actually harmed consumers. With respect to the effects-based approach promised in the Guidance, this analysis was not relevant to the Commission’s enforcement

(36) Case T-228/97 Irish Sugar v Commission, Judgment of October 7, 1999, para. 226. (37) Ibid. para. 233.

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priorities, since the Commission made the decision to launch the Intel investigation long before publishing the Guidance, nor was it relevant to the Commission’s finding of the abuse by Intel or the amount of Intel’s fine. The Intel decision highlights the fact that the economic approach the Commission sought to bring to Article 102 TFEU enforcement through the Guidance does not sit easily with Article 102 TFEU jurisprudence. Since Intel has appealed the decision, the European Courts will have an opportunity to discuss the relevance of the Commission’s approach. Indeed, the Commission may have devoted so much time to this aspect of the case — even though it was not clearly relevant to the decision — precisely to invite the European Courts to incorporate elements of the Commission’s effects-based analysis into EU jurisprudence. 2.3.6. Commission rejects EFIM complaint against manufacturers of inkjet printers and printer suppliers. On May 20, 2009, the Commission rejected the complaint lodged by EFIM against various manufacturers of inkjet printers and printer suppliers, including Hewlett Packard, Lexmark, Epson, and Canon. EFIM alleged that these companies had infringed Articles 81 EC and 82 EC by illegally excluding inkjet cartridge manufacturers such as Pelikan from their inkjet cartridge aftermarkets. The Commission dismissed EFIM’s Article 81 EC claim as lacking sufficient supporting evidence. EFIM’s Article 82 EC claim alleged that Hewlett Packard, Lexmark, Epson and Cannon had achieved and abused their dominant positions in the printer consumables market through patenting strategies, the use of microchips and the use of recollection programs to limit the supply of empty cartridges. According to EFIM, these strategies were designed to exclude third party cartridge (re-)manufacturers from the printer manufacturers’ inkjet cartridge aftermarkets. EFIM requested that the four printer manufacturers be required to provide EFIM with information regarding the intellectual property rights protecting ink cartridges or, in the alternative, to license these intellectual property rights in order that EFIM might gain access the inkjet cartridge market. The Commission’s analysis of EFIM’s allegations recalled the principles applied in the Pelikan/Kyocera and Info-Lab Ricoh cases where it concluded that competition in the primary market constrained the conduct in the secondary market. Adopting the same analytical approach in the present case, the Commission first considered whether Hewlett Packard, Lexmark, Epson and Cannon hold dominant positions in the primary printer market. Based on market share information and evidence of the recent entry of Kodak’s “EasyShare” inkjet printers, the Commission concluded that none of the four printer manufacturers is dominant in the primary market for printers. The Commission then considered whether Hewlett Packard, Lexmark, Epson or Cannon are dominant in their respective aftermarkets for printer consumables. In particular, the Commission considered evidence produced by EFIM itself, that printer consumers make life-cycle cost comparisons based on printer manufacturers’ published price per page information. Applying the Pelican/Kyocera criteria, the Commission concluded that the primary market and brand-specific aftermarkets for printer cartridges are closely linked, suggesting that printer manufacturers cannot be considered dominant in their respective aftermarkets for branded consumables. EFIM responded that the Commission was incorrect in following the Pelikan/Kyocera approach. However, as EFIM failed to present arguments or evidence to substantiate this claim, and given the complexity of establishing a refusal to supply abuse, the Commission held that there was insufficient Community interest for conducting a further investigation of EFIM’s complaint. The Commission’s rejection of the EFIM complaint offers further comfort for the printer industry, and other industries with aftermarkets, that the Commission remains consistent in its


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analysis of market power in secondary markets. In particular, it confirms the continued relevance of the Pelikan/Kyocera criteria as a framework within which the Commission will assess the extent to which competition in the primary market constitutes and effective restraint on a relevant aftermarket. 2.3.7. Commission renders legally binding Microsoft commitments. On16 December 2009 the European Commission has adopted a decision pursuant to article 9 of Council Regulation 1/2003 that renders legally binding commitments offered by Microsoft to boost competition on the web browser market. The commitments address Commission concerns that Microsoft may have tied its web browser Internet Explorer to the Windows PC operating system in breach of EU rules on abuse of a dominant market position. Microsoft commits to offer European users of Windows choice among different web browsers and to allow computer manufacturers and users the possibility to turn Internet Explorer off. Microsoft is also publishing an undertaking whereby it commits to make far-reaching interoperability disclosure applying to Windows PC client, Windows Server, Office, Exchange and SharePoint products. The Interoperability Undertaking provides that Microsoft shall make interoperability information available (and license associated patents) for a range of server products including email and collaboration servers, Microsoft Office, and Microsoft.NET, as well as to comply with certain obligations with respect to Open Standards.

3.

Mergers.

3.1. CJEU judgments. 3.1.1. CJEU holds that there was no causal link between the Commission’s illegal decision prohibiting Schneider’s acquisition of Legrand and ordering Legrand’s divestiture and the loss incurred by Schneider as a result of this forced divestiture. In the case at stake, the Commission found that Schneider’s acquisition of Legrand was incompatible with the common market and that the proposed commitments were insufficient. By the time the decision was issued Schneider, through a public bid, acquired majority shares in Legrand. As a result, in October 2002 the Commission ordered the separation of the companies. Schneider brought an action for annulment of the divestiture decision and the Commission extended the divestiture period. In July 2002, Schneider concluded a sale agreement with Wendel-KKR to be implemented no later than December 10, 2002, allowing Schneider, in the event of the annulment of the Commission decision, to cancel the agreement by December 5, 2002, subject to a cancellation fee. In October 2002, the General Court annulled the Commission’s decision. One month later, the Commission announced a reopening of the merger control procedure and informed Schneider that the concentration was liable to undermine competition even with the new proposed commitments. On December 10, 2002, Schneider transferred its holding in Legrand to Wendel-KKR. Schneider brought an action before the General Court seeking compensation for the damage it had sustained as a result of the Commission’s illegal decision. The General Court accepted that there was a sufficiently close causal link between the unlawful act committed and two types of damages suffered by Schneider, namely i) costs incurred in participating in the resumed merger control; ii) and the reduction in the transfer price which Schneider had had to accept

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in order to secure an agreement on the date on which the disposal was to take effect. The Commission appealed this decision. On July 16, 2009, the Court ruled in favor of the Commission because the divestiture was implemented a number of months before the decision’s divestiture deadline (38). The Court accepted that Schneider was compelled, because of the existence of negative decision, to enter into the sale agreement and fix the transfer price. It also accepted that the obligation prompted Schneider to accept a lower price than it would have obtained in the absence of an illegal negative decision. However, the Court also noted that, by the time Schneider entered into the agreement, the Commission had extended the divestiture period until February 2003. It also noted that before December 10, 2002, the General Court had already annulled the Commission’s negative decision. Schneider decided not to exercise the cancellation option because of its fear that on resumption of the investigation, it would not obtain a decision upholding the compatibility of the concentration. The Court noted that the risk of incompatibility is inherent in every merger control procedure and that a divestiture risk is normally assumed by undertakings, which exercise the option to implement a concentration through a public bid before the Commission’s decision on the transaction concerned. The Court thus decided that the General Court had erred and that there was no direct causal link between the price reduction and the illegality vitiating the Commission’s negative decision. The Court found that the direct cause of the damage alleged was Schneider’s decision, which it was under no obligation to take, to allow the transfer of Legrand to take effect on December 10, 2002. Therefore, Schneider’s claim in so far as it concerned compensation for that damage was dismissed. 3.2. GC Judgment. 3.2.1. GC upholds Commission request for information to Omya during merger review proceeding. On February 4, 2009, the General Court (39) rejected Omya’ s appeal against a Commission decision requiring Omya to provide information in the context of the Commission’s review of Omya’ s acquisition of Huber (40). This ruling is of particular interest because it demonstrates the broad powers conferred upon the Commission in addressing stop-theclock information requests to companies involved in a merger review process. Omya argued that the Commission’s request for further information in March 2006 violated Article 11 of the European Community’s Merger Regulation (41) on the grounds that it was unjustified and that the Commission had sufficient information at that time to approve the transaction. Omya added that the Commission violated the principle of proportionality by reason of the late timing of March information request. In dismissing this claim, the Court ruled that the record did not support Omya’ s contention, that the Commission is entitled to request the correction of data submitted by a party if there is a risk that the data could have a significant impact on whether the transaction is declared compatible with the internal market, and that the Commission may suspend the review process until it had received the requested information. Omya also claimed that it had provided the Commission with data in response to the

(38) Case C- Case C-440/07 P, Commission v. Schneider, Judgment July 16, 2009. (39) Case T-145/06, Omya v. Commission, Judgment of February 4, 2009. (40) This transaction was cleared by the Commission subject to undertakings by Omya on July 19, 2006 (Case COMP M.3796, Omya/Huber PCC). (41) Article 11 of the Merger Regulation empowers the Commission to request parties to respond to information requests.


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Commission’s March information request, and that the Commission was aware of this fact. Although Omya had commissioned a number of reports from an economic consultant (LECG) that demonstrated (allegedly) that prior data submitted to the Commission was materially correct, and identical to the information sought by the Commission in its March request, the Court found that there were material differences between the two sets of data that could justify the Commission concluding that an additional information request was warranted. With regard to the question of whether the Commission was aware of the accuracy of the pre-March information request data, the Court ruled that the Commission could re-analyze data during the course of a merger review process, and that the record showed the Commission was justified in doing so in this case (42). Omya also argued that the Commission had infringed the principle of the need to act within a reasonable time, as the Commission was aware that there were errors in the data provided by Omya prior to the March information request. Omya alleged that the Commission’s request for additional information late in the review process was designed to provide it with more time to carry out its investigation — despite the fact that the original deadline for its approval of the transaction had lapsed. The Court held that this plea did not merit consideration because the proceedings dealt with the lawfulness of the Commission’s actions, rather than with whether the plaintiff had suffered any damages subsequent to the Commission’s decision. Omya was also unsuccessful in its contention that, by using an Article 11 information request to extend the deadline for approval of the transaction, the Commission was guilty of misusing its powers. The Court found that, in communications with Omya prior to the March information request, the Commission had in fact expressed concerns as to the accuracy of data submitted previously. Finally, the Court rejected Omya’ s claim that the Commission had breached the principle of legitimate expectation. In adopting the March information request, Omya argued that the Commission had replaced a previous communication as to the completeness of the January data. The Court ruled that this previous communication did not constitute a legal measure conferring rights upon Omya, since the Commission must at all times retain the option of requesting that incorrect information be corrected, irrespective of when it learns of the existence of inaccuracies. 3.2.2. GC defines the starting date for the calculation of the time limit to lodge an appeal against a Commission decision for non-addressees of it. On June 19, 2009, the General Court ruled on Qualcomm’s appeal against the European Commission’s conditional approval of the creation of the “Toll Collect” joint venture (the “JV”) by DaimlerChysler, Deutsche Telekom, and Cofiroute (43) clarifying the time limit that applies to appeals against a Commission decision brought by interested parties that are not addressees of the decision. Toll Collect was created pursuant to the award of a tender by the German government for the provision of toll collecting services for trucks making use of German motorways. In this case, the Commission consulted Qualcomm, as a participant in one of the product markets affected by the creation of the JV (the market for the provision of telematics services and equipment), in the context of the Commission’s market testing of a package of commitments submitted by the JV members that sought to address the

(42) It is noteworthy that in February 2008 the Commission was informed by representatives of certain Member State’ s Competition Authorities of additional competitive concerns flowing from the Omya/Huber transaction. (43) Case T-48/04, Qualcomm Wireless Business Solutions Europe BV v. Commission, Judgment of June 19, 2009.

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Commission’s concerns as to the possible anticompetitive effects of the transaction. The Commission cleared the transaction on April 30, 2003. Qualcomm received a non-confidential version of the Commission’s decision on May 23, 2003. According to the Commission, Qualcomm was legally notified of the Commission’s decision on May 23, 2003. Appeals may be lodged within 2 months and 10 days of being notified of a Commission decision. Since Qualcomm’s appeal was lodged only on February 10, 2004, the Commission requested that the Court rule Qualcomm’s appeal inadmissible. In response, Qualcomm argued that the correct starting point for calculating whether it had respected the time limits in bringing its appeal was the date of the publication of the Commission’s decision in the EU’s Official Journal on November 18, 2003. Qualcomm’s position was based on the fact that it was not an addressee of the Commission’s decision and that the receipt of a non-confidential version of the decision could not be viewed as having constituted Qualcomm’s notification of the Commission’s decision. The Court ruled for Qualcomm and held that the starting date for the calculation of the time limit to lodge an appeal of a Commission decision for non-addressees of decisions is the date of publication of the decision in the EU’s Official Journal. The Court held that to accept the Commission’s argument would be a breach of the principal of equal treatment, in that the argument put forward by the Commission would allow the Commission to “select” companies that could appeal a decision before other companies with standing to appeal. 3.3. Commission. 3.3.1. Commission Report on the Functioning of the EC Merger Regulation. On June 18, 2009, the European Commission adopted a report (the “Report”) on the functioning of Regulation No. 139/2004 (the “EC Merger Regulation”). The main conclusion of the Report is that the EC Merger Regulation contributes to more efficient merger control in the EU, but that there is also scope for further improvements. The current form of the EC Merger Regulation came into force on May 1, 2004. It divides competences between the Commission and national competition authorities based on turnover thresholds. It also contains three “corrective mechanisms” to this division of competences — the so-called “two-thirds rule”, the pre-notification referral system, and the post-notification referral system. The objective of the “two-thirds rule” is to exclude from the Commission’s jurisdiction certain cases, which contain a clear national nexus to one Member State because more than two thirds of the sales of the companies involved occur within one and the same Member State. The pre-notification referral system allows for re-allocation of jurisdiction from the Member State(s) to the Commission or vice-versa based on the parties’ request. Under the post-notification referral system, a Member State may request the Commission to assess the merger or request a transfer to its national competition authority. The purpose of the Report is to understand and assess how the jurisdictional thresholds and the corrective mechanisms have operated during the 5-year span. The Report concludes that the threshold criteria, considered in conjunction with the corrective mechanisms, operate in a satisfactory manner in allocating jurisdiction. Nevertheless, the Commission’s analysis indicates that there are still a significant number of transactions, which need to be notified in more than one Member State, requiring parallel investigations by the national competition authorities. A large majority of such cases involve markets, which are wider than a Member State’ s territory or relate to several national or narrower markets. Consequently, there are a number of transactions with significant cross-border effects that remain outside the scope of the EC Merger Regulation. Against this background, the Report concludes that there is further scope for the “one-stop-


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shop” review by the Commission. The Commission also considers that it may be the “more appropriate authority” in cases notified in at least three Member States that give rise to competition concerns because the negative consequences of parallel proceedings and the potential for a contradictory outcome are particularly important in such cases. The Report notes that, in practice, the application of the two-thirds rule has sometimes led to national competition authorities deciding on cases with potential cross-border effects. Furthermore, public interest considerations other than competition policy have been applied by national competition authorities in such cases to authorize mergers, which could have given rise to competition concerns. The Report thus concludes that the present form of the “two-thirds” rule merits further consideration. The Report notes that the Commission, the national competition authorities, and stakeholders consider these mechanisms to have considerably enhanced the efficacy and jurisdictional flexibility of merger control in the EU. The Report highlights further scope to use pre-notification referrals. The negative aspect that was noted by stakeholders was the overall timing and cumbersomeness of the referral procedure. In a number of areas, the Report thus highlights aspects which merit further discussion, but leaves open the question as to whether any amendment to the existing rules or practice is appropriate. The Report will serve as a basis for the Commission to assess, at a further stage, whether it is appropriate to take further policy initiatives. 3.3.2. New Commission Notice on Remedies. On October 22, 2008, the Commission published a new notice on remedies explaining the Commission’s approach concerning remedies proposed by companies in the framework of the EU Merger Regulation as a condition for the Commission’s authorization of notified mergers and acquisitions (44). The notice replaces the previous 2001 Notice (45), and reflects recent judgments of the European Courts, and the Commission’s own merger remedy practice, both of which have clarified the legal framework for accepting or rejecting remedies. The notice strives for greater efficiency in dealing with competition concerns and more clarity for companies in addressing such concerns. The notice introduces Form RM, which specifies the information and documents the parties must submit simultaneously with their offer of remedies, including (i) a description of the commitment; (ii) an explanation of the commitment’s suitability to remove the competition concerns; (iii) identification of any deviation from the model texts; (iv) a non-confidential summary of the nature and scope of the commitments; and (v) detailed information on the business to be divested. As regards divestitures, the notice sets out in detail the ways to identify a purchaser, by clarifying, for example, when the conclusion of a binding agreement for the sale of the divested assets will be required as a condition for authorizing the completion of the notified operation (a so-called up-front buyer remedy) or when the conclusion of such a binding agreement will be required as a condition for authorizing the notified operation (a so-called fix-it-first remedy), and stresses the need to include all the assets and personnel necessary to ensure the viability of the business divested. The notice indicates that the Commission would accept access remedies, such as giving access to infrastructure or networks, only if they are equivalent in their effectiveness and efficiency to divestitures. Given that the Commission considers that some access remedies have been of limited effectiveness in the past, this benchmark approach is

(44) Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, O.J. C 267, 22.10.2008. (45) Commission Notice on remedies acceptable under Council Regulation (EEC) No 4064/89 and under Commission Regulation (EC) No 447/98, O.J. C 68, 02.03.2001.

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intended to ensure that access remedies will be designed in a way that they will be used effectively. Concerning trustees, the notice mandates that the parties appoint a monitoring trustee to guarantee the effectiveness of their commitments. The notice distinguishes five non-exhaustive tasks of the monitoring trustee, such as, for example, overseeing the safeguards for the business to be divested in the interim period. Similarly, the task of the divestiture trustee is to make the commitments effective. According to the Commission’s experience, auditing firms are particularly well placed to fulfill the tasks of monitoring trustee, and investment banks are suitable for the position of divestiture trustee. Depending on the commitment, the monitoring and divestiture trustee may be the same person or institution. The notice also explains in greater detail than before the general principles of offer and acceptance of merger remedies, the different types of remedies, the procedure for the submission of commitments in Phase I and Phase II proceedings, respectively, and the requirements for the implementation of the commitments. The Commission also adopted amendments to the Merger Implementation Regulation in line with the notice (46). 3.3.3. Article 14 Decision. 3.3.3.1. Electrabel Fined E20 Million For Failing to Notify a Transaction. On June 10, 2009 the European Commission fined Electrabel E20 million for having implemented a concentration within the scope of the Regulation 4064/89 (the “former Merger Regulation” (47)) without first notifying the transaction to the Commission (48). This was the largest ever fined imposed by the Commission for the failure to file a notifiable transaction, as well as representing a dramatic increase in fines for this type of offense (49). On December 23, 2003 Electrabel increased its shareholding in Compagnie Nationale du Rhône (“CNR”), thereby increasing its shareholding in CNR’s capital to 49,95% and its voting rights to 47,92%. Previous to the transaction (on July 24, 2003) Electrabel had entered into a shareholding agreement with CDC, which is CNR’s second-largest shareholder (with a capital ownership of 29,43% and 29,80% of CNR’s voting rights). According to the Commission, its well-established decision-making practice clearly indicated that, through its increased shareholding of CNR, Electrabel had acquired de facto sole control of CNR, as per the terms of the former Merger Regulation. In setting the fine, the Commission held that the failure to notify a concentration was a breach of one of the “cornerstones of Community merger control” (50). The fact that the transaction did not have an anticompetitive effect was, according to the Commission, irrelevant in determining the seriousness of the infringement. According to the Commission, the failure to notify a transaction “affects the very principle of ex ante control [of notifiable transactions], which is essential if the Commission is to fulfill its mission”. However, the Commission did take into consideration the lack of anticompetitive effects associated to the transaction in determining the size of the fine. In addition, the Commission concluded that a company of the size of Electrabel, with “vast resources and significant previous experience

(46) Commission Regulation (EC) No 1033/2008 amending Regulation (EC) No 802/2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, OJ 2008 L 279. (47) Council Regulation (EEC) No 4064/89, O.J. L 395, 30.12.1989. (48) Case COMP/M.4994. (49) For example, previous to this case, the largest fine imposed by the Commission for the failure to notify a transaction was E219,000 in the A.P. Moeller case (Case IV/M.969). (50) Supra note 48, 15.


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of Community merger control” (51) must have known that the transaction was notifiable. As a mitigating circumstance, the Commission considered the fact that Electrabel had contacted the Commission out of its own initiative. The significant size of this fine underlines the importance of a detailed assessment on the notifiability of a contemplated transaction at a Community level. In addition, the fact that this transaction affected the European energy sector, which has recently been subject to a Sector Inquiry and the imposition of large fines for alleged violations of Article 101 TFEU, (52) may have been a factor in the size of the fine imposed on Electrabel. 3.3.4. First-Phase Decisions without Undertakings. 3.3.4.1. Commission cleared Deutsche Telekom/OTE merger. On October 2, 2008, the Commission unconditionally cleared Deutsche Telekom’s acquisition of part of the Greek government’s 28% share in Greece’ s national telecom operator, OTE (53). Prior to the merger, Deutsche Telekom held 22% of OTE. The transaction gave both Deutshce Telekom and the government control of 25% plus one of the shares and voting rights in OTE, although the specific agreements between Deutsche Telekom and the government gave Deutsche Telekom sole control over OTE within the meaning of Article 3(1)(b) of the EC Merger Regulation. The transaction raised both horizontal and vertical issues relating to the parties activities in numerous retail and wholesale telecommunication markets. However, the Commission concluded that no competitive concerns would arise following the operation. 3.3.4.2. Commission cleared Toshiba acquisition of Fujitsu HDD Business. On May 11, 2009, the European Commission cleared Toshiba’ s acquisition of Fujitsu’ s Hard Disk Drive (“HDD”) business (54). This decision is of some interest due the Commission’s discussion on the possible existence of a broad market for data storage that would include both traditional forms of HDDs as well as the more recent technology commonly known as Solid State Drives (“SSDs”). The Commission acknowledged that SSDs and other flash based memories might play a competitive constraint on HDDs, but ultimately, the Commission found that the possible demand substitution between certain types of HDDs and SSDs was in its infancy, and concluded that SSDs currently represented a neighboring market to the HDD market. However, the Commission noted that this finding was valid “for the time being”, thus appearing to suggest that, as technological advances are made, SSDs and at least some forms of HDDs will likely form part of the same antitrust market. 3.3.4.3. Commission cleared Sony acquiring Seiko Epson’s small and medium-sized business. On September 22, 2009 the European Commission cleared Sony Corporation’s acquisition of Seiko Epson’s small and medium-sized TFT LCD (Thin-Film Technology Liquid

(51) Supra note 48, 17. (52) See Commission Press Release IP/09/1099 of July 8, 2009: “Commission fines E.ON and GDF Suez E553 million each for market-sharing in French and German gas markets” (53) Case COMP/ M.5148 Deutsche Telekom/OTE. (54) Case COMP/M.5380 Toshiba/Fujitsu HDD Business.

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Crystal Display) business (55). The decision is an interesting example of the Commission examining a highly innovative and rapidly evolving product market. The Commission’s review of the parties’ relative positions in the markets with overlap found that despite having the largest share in worldwide markets for small and medium sized displays and for small and medium sized TFT LCD displays, the combined entity would still face strong competition, that switching by buyers is easy and inexpensive, that buyers are large and sophisticated, and that there are low barriers to entry for manufacturers already active in other small to medium sizes TFT LCD display applications. Having satisfied itself that these overlaps did not present competitive risks, and that certain vertical relationships created by the transaction were similarly benign, the Commission cleared the transaction. 3.3.4.4. Commission cleared Merck/Shering-Plough merger without conditions. On October 22, 2009 the European Commission cleared Merck & Co. Inc.’ s merger with Schering-Plough Corporation (56). The decision concerns one of the largest M&A transactions of 2009, in an industry that experienced significant consolidation despite an economic downturn that limited the willingness of capital markets to fund aggressive M&A. The Commission followed its existing practice of grouping drugs manufactured by the parties according to the parties’ combined market share and the incremental share gain resulting from the transaction. The Commission’s examination of the market for asthma treatments found the parties’ businesses to be generally complementary, whereas the parties’ businesses overlapped most importantly in treatments for allergic rhinitis. The Commission’s investigation found that in a number of countries, depending upon the product market definition, Shering-Plough drugs enjoyed a significant and leading share of the market while Merck sold products that enjoyed up to a 10% share by value. The Commission took note, however, of the modest increment that Merck’s products represented, and observed that if the market were assessed by volume instead of value the effect would be to reduce Merck’s share to less than 5% in all cases. The Commission also noted the lack of close competition between Merck and Shering-Plough’s respective allergic rhinitis products, considering differences in cost (Merck’s product is significantly more expensive) and approval (in most countries Merck’s product was only indicated for allergic rhinitis in asthma patients, where as Shering-Plough’s product was not similarly restricted). The Commission ultimately dismissed all concerns in the market for allergic rhinitis treatment, as well as a handful of other human health pharmaceutical markets, and cleared the transaction without objection. 3.3.4.5. Commission cleared acquisition by PepsiCo of Pepsi Americas The PepsiCo bottling Group. On October 26, 2009, the European Commission in two separate decisions unconditionally cleared the acquisition by PepsiCo of its two largest bottlers, Pepsi Americas (“PAS”) and The PepsiCo Bottling Group (“PBG”) (57). Prior to the transaction PepsiCo owned 43% of the shares of PAS, and its acquisition represented a change of control. Both the PAS and the PBG decisions give significant space to a consideration of whether the combinations would give rise to portfolio effects. In PepsiCo/PAS, despite PepsiCo’ s strength in sport

(55) Case COMP/M.5589 Sony/Seiko Epson. (56) Case COMP/M.5502 Merck/Shering-Plough. (57) Case COMP/M.5633 Pepsico/ The Pepsico Bottling Group.


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drinks and ready-to-drink teas, the Commission rejected any contention about the merger specific portfolio effects associated with controlling both products. In view of the Commission, the products marketed by PepsiCo are not “must have brands”. Such “must have” brands were defined as “a brand with strong spontaneous demand that most retailers have on their shelves.” The Commission’s decision is not clear as to whether the “must have” measure of retail success is a proxy for dominance, or whether it is a pre-condition for a finding of portfolio effects involving a retail operation. In PepsiCo/PBG, the Commission examined PepsiCo’ s ability to bundle soft drinks and snacks, where it had a material share of the market in both products. Despite the fact that PepsiCo had a material share of the domestic soft drink market in Greece, the Commission rejected concerns about bundling with snacks because PepsiCo’ s soft drink products are not “must have”. Because PepsiCo’ s inferior status in soft drinks was checked by Coca-Cola, which was found to be an effective single-product player, the Commission found that the transaction did not present a real risk of effective bundling. 3.3.5. First-phase decisions with Undertakings. 3.3.5.1. Commission cleared Ciba acquisition by BASF subject to conditions. On March 12, 2009, the European Commission cleared BASF’s acquisition of Ciba, subject to conditions (58). The Commission’s decision assessed competition in a large number of horizontal and vertical affected markets, and offers insight into the Commission’s willingness to tolerate elevated market shares in product markets with commodity properties, such as chemicals. In the chemical intermediary markets, though Ciba and the other two remaining small producers appeared to have approximately the same EEA market share, the Commission termed the transaction to be a 3-2 merger. This level of concentration in the market gave the Commission reason for serious doubts that were not allayed by the partial substitutability of other products, which the Commission found to be insufficiently significant. BASF resolved the doubts by committing to the divestiture of certain of its DMA3 assets. In paper chemicals markets, the elevated post-acquisition market share and the reaction from third parties gave the Commission cause for serious doubts, which BASF alleviated by committing to divest assets that would eliminate the overlap. In the markets for colorants, the combined market share in the market for two pigments was 40-50% and 50-60%. Despite the fact that the combined entity would face competition from at least two other significant producers in each pigment market (i.e., a 4-3 merger), the Commission’s doubts were only resolved by BASF’s commitment to divest assets that eliminated the overlap in these markets. In other pigment markets, the Commission tolerated elevated market shares of up to 50-60% due to the fact that the addition of Ciba’ s market share was incremental (less than 5%). In latex products, the transaction represented a 3-2 merger in styrene acrylic latex products for paper applications. The level of concentration in the industry had recently been altered as a consequence of the acquisition of Rohm and Haas by Dow. Post-Dow/Rohm and Haas, the combination of BASF and Ciba’ s businesses caused the Commission to have serious doubts about the compatibility of the transaction with the common market in this product market, and as a consequence, BASF had to commit to divesting Ciba’ s styrene acrylic latex business in order to eliminate the Commission’s doubts.

(58) Case COMP/M.5355 BASF/Ciba.

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3.3.5.2. Commission clears Pfizer/Wyeth merger subject to conditions. On July 17, 2009, the European Commission conditionally approved the merger between Pfizer and Wyeth (59). This case is an example of the recent consolidation in the pharmaceutical industry. The decision is also of interest insofar as it demonstrates the strict approach adopted by the Commission in terms of the type of remedies required to address its antitrust concerns in transactions affecting this industry. The proposed transaction concerned a large number of markets in the sectors of human health and an even greater number of markets regarding animal health. In the area of human health, the companies’ activities were largely complementary and the merger was found not to significantly impede effective competition in any of the markets affected by the transaction. However, in the animal health sector, the Commission identified a number of antitrust concerns that stemmed from the Parties’ high post-transaction market shares. In essence, the Commission found that the elimination of Wyeth as a competitor to Pfizer in all of these markets would result in reduced choice and higher prices for consumers. In order to address the Commission’s concerns, Pfizer proposed a series of remedies that were modified on three occasions before being deemed sufficient. These remedies related to the divestiture of specific products for each of the markets for which the Commission identified serious antitrust concerns. In addition, in the vaccines sector, a manufacturing plant was divested. Among the modifications to the original set of remedies proposed was the extension of the scope of the vaccines divested. Instead of divesting vaccines present on the national markets identified by the Commission as being adversely affected by the transaction, the Parties were obliged to divest these products on an EEA-wide basis so as to ensure the viability of the remedies in question. 3.3.5.3. Commission cleared Panasonic acquisition of Sanyo subject to conditions. On September 29, 2009, the European Commission conditionally cleared the acquisition of Sanyo by fellow Japanese conglomerate Panasonic (60). The Commission’s competitive appraisal focused on the Parties high post-transaction market shares in a number of battery markets. In order to address the Commission’s concerns regarding the markets for Lithium manganese dioxide and rechargeable coin-shaped batteries, the Parties agreed to divest a production facility that produces these types of batteries. In relation to the Commission’s concerns with respect to the NiMH battery market, the Parties agreed to divest one of their nickel-metal hydride businesses in order to prevent any increase in their post-transaction market share. 3.3.6. Second-phase decisions without Undertakings. 3.3.6.1. Commission cleared Martinair acquisition by KLM. On December 12, 2008, the European Commission unconditionally approved KLM’s acquisition of Martinair, which until then KLM owned jointly with Maersk (61). This transaction is of particular interest for two reasons. Firstly, whereas in joint to sole control transactions the Commission generally focuses on the vertical effects of the transaction as they

(59) Case COMP/M.5476 Pfizer/Wyeth. (60) Case COMP/M.5421 Panasonic/Sanyo. (61) Case COMP/M.5141 KLM/Martinair.


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usually involve companies that are vertically integrated, in this case the competitive analysis focused on the effects of the transaction on competition between the parties at a horizontal level, as KLM and Martinair competed in the same markets. Second, in approving the transaction, the Commission emphasized Martinair’s difficult financial position. In keeping with past market definitions in the airline industry, the Commission identified markets for air transport of cargo; and air transport of passengers (the latter distinguished between the market for the wholesale supply of seats to tour operators and the market for the supply of passenger services to end customers). With regard to the relevant geographic market, the Commission applied its well-established “Origin and Destination” (“O&D”) test (defining the market by reference to the points of origin and destination, e.g. London-Brussels). The Commission’s competitive analysis focused on the differing business models, and costumers, of the parties, and the fact that, absent the transaction, Martinair was likely to have to cease operations and concluded that, despite the existence of very high market shares on a number of routes (notably routes to Cancun, Havana, and the Antilles), the proposed transaction posed no threat to post-merger competition. The Commission found that competition between holiday destinations would play an important role in constraining the combined entity post-transaction. Furthermore, the Commission emphasized the existence of competitors that, in the face of a post-merger price increase by the combined entity, could respond by increasing the number of flights to destinations affected by attempted price increases. As regulatory constraints do not limit charter flights that can be offered by carriers. It is this type of service that the Commission found to provide the necessary competitive constraint on the combined entity. The fact that Martinair’s customer base consisted of price (rather than time) sensitive holiday travelers meant that a post-merger attempt by KLM to raise prices was likely to lead to consumers looking at alternative routes. Finally, with regard to the market for the wholesale supply of seats to tour operators, the Commission found that tour operators would be able to exercise some countervailing buyer power that would limit the combined entity’s attempts to increase prices post-transaction 3.3.7. Second-phase decisions with Undertakings. 3.3.7.1. Commission cleared Friesland Foods/Campina merger subject to conditions. On December 17, 2008, the Commission cleared the proposed merger between Friesland Foods and Campina, subject to conditions (62). The Commission’s in-depth investigation revealed that the concentration originally notified would have raised competition concerns across a range of dairy product markets. Friesland Foods and Campina are the two largest dairy co-operatives in the Netherlands. The Commission noted that the merger brought together the two main purchasers of milk in the Netherlands, with a combined market share of 70-80%. Despite the fact that neither Friesland Foods nor Campina supplied raw milk to third parties, the Commission concluded that the merger would indirectly foreclose competitors’ access to raw milk as the merged entity would be an unavoidable trading partner for a significant part of the demand for milk products. Concerning downstream dairy product markets, the Commission concluded that the proposed transaction would significantly impede effective competition in numerous Dutch markets, in particular because of the parties’ high combined market shares, the fact that they were considered each other’s closest competitors, and the difficulty for customers to switch to alternative suppliers. Interestingly, in defining

(62) Case COMP/M.5046 Friesland Foods/Campina.

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downstream relevant dairy product markets, the Commission distinguished between types of products, and with respect to a number of products, the Commission further delineated the relevant market based on the distribution channel (retail or out-of-home wholesale), supply channels, branded and private labels, and health and non-health products. To remedy the Commission’s concerns in the above markets, the merging parties offered to divest Friesland’s fresh dairy product business (including the transfer/licensing of brands and a manufacturing plant) and one of Campina’ s cheese plants, together with two Campina brands for long-life dairy drinks. 3.3.7.2. Commission cleared Lufthansa/SN Airholding merger subject to conditions. On June 22, 2009, the European Commission cleared the merger between Lufthansa and SN Airholding (also “Brussels Airlines”), subject to commitments (63). This transaction is an example of the recent trend of consolidation in the aviation industry (64). Lufthansa is a major European airline and provides scheduled passenger and cargo transport and related services. Lufthansa is also a member of the Star Alliance. SNAH is the holding company of Brussels Airlines, has its hub at Brussels airport, and is not a member of any airline alliance. The definition of the relevant market used the well-established criteria of the “point of origin/point of destination” (O&D) city-pair approach on one hand and the distinction between time-sensitive and non time-sensitive passengers, and ticket types providing a useful means for drawing the distinction between these types of passengers on the other. The Commission’s competitive appraisal of the transaction found that the merger would significantly impede effective competition on four routes where the existence of significant entry barriers on these routes (e.g. slot constraints and hub/base advantages) meant that entry was unlikely to take place. After the rejection of an initial set of remedies submitted in January 2009, Lufthansa submitted a more comprehensive remedy package including: a slot allocation mechanism that would allow new entrants to operate flights on each of the four routes identified by the Commission as being adversely affected by the transaction; the new entrant would also obtain grandfather rights over the slots, allowing it to use the slots for different city pairs once it had operated the relevant pair for a certain period, ancillary remedies such as prorate and code-sharing agreements, interlining and intermodal agreements and frequent flyer program access agreements. The Commission accepted that the remedies offered by the parties were sufficient as they were likely to lead to timely entry on the problematic routes by one or several airlines. Of particular note is the fact that the traditional slot allocation remedies, absent specific ancillary measures (such as those required from the Parties for the clearance of the transaction), may no longer suffice to resolve the Commission’s competitive concerns in merger cases in the aviation industry.

4.

State Aid.

Due to the very difficult financial and economic circumstances that Europe experienced in 2008, the focus of the Commission shifted from the implementation of the State Aid Action Plan to the rescue and restructuring measures aimed at tackling the financial and economic crisis. The Commission adopted in 2008 three Communications delineating the role of State

(63) Case COMP/M.5335 Lufthansa/Brussels Airlines. (64) See also Case COMP/M.5440 Lufthansa/Austrian Airlines.


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aid policy in the context of the crises and the recovery process: 1) the initial guidance on the application of State aid rules to measures taken in relation to financial institutions, which exceptionally were based on Article 107(3)(b) of the TFEU which allows for aid to remedy a serious disturbance in the economy of a Member; 2) the subsequent Communication on how Member States can recapitalize banks in the current financial crisis to ensure adequate levels of lending to the rest of the economy and stabilize financial markets, while avoiding excessive distortions of competition; and 3) the temporary framework providing Member States with additional possibilities to tackle the effects of the credit squeeze on the real economy. All measures are time-limited until the end of 2010, although the Commission, based on Member States’reports, will evaluate whether the measures should be maintained beyond 2010, depending on whether the crisis continues. 4.1. CJEU Judgments. 4.1.1. Only aid that is declared incompatible with the common market must be recovered. On December 18, 2008, the Court of Justice of the European Union in Case C-384/07 Wienstrom v. Bundesminister für Wirtschaft und Arbeit held that a Commission decision declaring state aid compatible with the common market enables the beneficiary to keep state aid received prior to such decision, even though it was given in violation of the prohibition contained in Article 108(3) TFEU on implementing aid prior to the adoption of a Commission compatibility decision. The Court explained that only aid that is declared incompatible with the common market must be recovered. This judgment follows the Court’s judgment in CELF, (65) where the Court clarified that Community law does not require Member States to recover state aid granted in violation of Article 108(3) TFEU, where the Commission later declares such aid to be compatible with the common market. 4.1.2. CJEU overturns GC decision on the retroactive application of Regulation 70/2001 on the application of State aid rules to small and medium-sized enterprises. On December 11, 2008, the Court of Justice of the European Union set aside a judgment of the General Court in which the Commission was held to have breached the principle of non-retroactivity by applying Commission Regulation 70/2001 on the application of State aid rules to small and medium-sized enterprises (66) to aid measures notified before the Regulation came into force (67). Between 1992 and 2000, the Land Saxony in Germany granted non-refundable subsidies to SMEs established in its territory, in accordance with an aid scheme that had been notified to, and authorized by, the Commission. In 2000, Germany notified to the Commission a new version of the aid scheme. Shortly thereafter, at the beginning of 2001, the Commission adopted the Regulation. After the Regulation came into force, the Commission adopted a decision stating that some parts of the amended aid scheme exceeded the scope of the Regulation and constituted unlawful aid. The Court held that the notification by a Member State of a proposed aid scheme does not require the Commission to rule on the aid scheme’ s compatibility with the common market by applying the rules in force

(65) Case C-199/06, CELF and Ministre de la Culture et de la Communication. (66) Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 107 and 108 of the TFEU to State aid to small and medium-sized enterprises, (OJ 2001 L 10/33). (67) Case C-334/07 P, Commission v. Freistaat Sachsen.

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at the date on which that notification took place. On the contrary, according to the Court, the Commission must assess the legality of the aid based on the rules in force at the time when it adopts its final decision on the compatibility of such aid with the common market. 4.2. GC Judgments. 4.2.1. GC overturns Commission decision on TV2. On October 22, 2008, GC annulled a Commission decision ordering the Danish State to seek repayment from Danish public broadcaster TV2 of approximately EUR 84.4 million plus interest of unlawfully granted State aid (68). Following complaints by commercial broadcasters, the Commission conducted an investigation into the financing of the Danish state broadcaster TV2, which was based partly on state resources and partly on advertising revenues. The Commission found that TV2 was the beneficiary of state aid, but that such aid was in principle compatible with the common market since it was aimed at covering TV2’ s cost of fulfilling its public service obligations, with the exception of an amount of EUR 84.4 million, which, according to the Commission, was unnecessary to accomplish TV2’ s public service mission and which therefore constituted unlawful State aid (69). The Court found that the Commission infringed an essential procedural requirement by not providing adequate reasons in its decision as to why, when carrying out its assessment, inter alia: (1) it did not distinguish adequately between advertising revenues and license fee revenues and, thus, de facto, considered advertising revenues as state resources; and (2) it concluded that the overcompensation that TV2 was found to have received was the result of an uncontrolled accumulation of capital, rather than the result of a build-up of reserves carried out in a transparent and carefully manner with the specific aim of guaranteeing the provision of the public service despite fluctuations in advertising revenue. 4.2.2. GC overturns Commission decision on state aid granted to Ryanair. On December 17, 2008, the General Court set aside a Commission decision ordering the recovery of illegal state aid granted by the Walloon region to Ryanair in its bid to persuade the airline to establish a base at Charleroi Airport (70). On February 12, 2004, the Commission decided that a set of agreements entered into in 2000 between Ryanair, the Charleroi Airport, and the Walloon region, providing, inter alia, for the granting to Ryanair of a 50% landing charge reduction at the Charleroi airport, constituted unlawful State aid within the meaning of Article 107 TFEU and ordered the Belgian State to recover the aid (71). The Commission took the view that the Walloon region, when granting Ryanair the above landing charges reduction, acted in its public authority capacity, and not as a private investor, and, consequently, refused to apply the “private investor principle” to assess the compatibility of such measures with State aid rules. On appeal, the Court noted that, while the Walloon region is a State authority, it could also carry out activities of an “economic nature” and assessed whether the Walloon region’s activities in relation to levying landing charges constituted economic activities. The Court held that the mere fact that an activity is carried out in the

(68) (69) (70) (71)

Joined Cases T-309/04, T-317/04, T-329/04 and T-336/04, TV2/Danmark A/S v. Commission. Commission decision C(2004) 1814, of May 19, 2004 (OJ 2006 L 85). Case T-196/04, Ryanair v. Commission. Commission decision C(2004) 516, of February 12, 2004 (OJ 2004 L 137).


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public sector does not mean that it must be categorized as the exercise of public authority powers. Equally, according to the Court, the fact that the Walloon Region has regulatory powers in relation to the fixing of airport charges does not mean that a scheme reducing those charges ought not to be examined by reference to the principle of a private investor in a market economy. Against this background, the Court concluded that the fixing of the amount of landing charges is an activity directly connected to the management of the airport infrastructure, which constitutes, by reason of its nature, its purpose, and the rules to which it is subject, an economic activity. The Commission therefore erred in law in failing to apply the private investor principle to assess the compatibility with EU state aid rules of the landing charges reduction granted to Ryanair. 4.2.3. GC overturns Commission state aid decision on Belgian Poste. On February 10, 2009, the General Court annulled a Commission decision (72), adopted following the preliminary examination procedure under Article 108(3) TFEU, that certain measures enacted by the Belgian State in favor of La Poste, the Belgian public postal undertaking, did not constitute State aid (73). La Poste is wholly owned by the Belgian State. It is responsible for Belgium’s postal service, and active also in the express parcel service market. On October 8, 2002, the Belgian Government agreed to subscribe to a capital increase in La Poste of around E300 million, and notified the proposed capital increase to the Commission pursuant to Article 108(3) TFEU. On July 22, 2003, DHL International, a subsidiary of Deutsche Post (together, the “Applicants”) active in the provision of express parcel services, requested that the Commission keep them informed on the status of the investigation with a view to their possibly taking part in the procedure. On July 23, 2003, the Commission adopted the decision, which the Applicants appealed before the General Court. On appeal, the Court held that the action was admissible because the applicants were individually and directly concerned by the decision. The Court noted that the action was aimed at safeguarding the procedural rights granted to the applicants by Article 108(2) TFEU, that the applicants could have exercised had the Commission opened a formal investigation instead of approving the notified measures in the course of the preliminary phase of the investigation. The Court also held that the applicants had a legal interest in bringing the action, to the extent that the decision’s annulment would require the Commission to initiate the formal investigation procedure, thereby permitting them to submit their observations and to influence its final outcome. On the merits, the Court upheld the applicants’ claim and annulled the decision. The Court noted that, as a general matter, the Commission is obliged to open a formal investigation procedure if it “experiences serious difficulties in establishing whether or not aid is compatible with the common market.” According to the Court, the existence of such “serious difficulties” can be inferred, inter alia, from the circumstances and the length of the preliminary examination procedure, as well as from the content of the decision. In the case at hand, the Court found that the following circumstances constituted evidence of the existence of such “serious difficulties”: the fact that (1) the preliminary examination procedure lasted more than 7 months; (2) that during this period, three meetings took place between the Commission and the Belgian authorities, to whom the Commission

(72) Commission decision C(2003) 2508 final, of July 23, 2003. (73) Case T-388/03, Deutsche Post AG and DHL International v. Commission, Judgment of February 10, 2009.

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sent three requests for information; and (3) the decision included an insufficient examination of the relevant measures under EC State aid rules. 4.2.4. GC overturns Commission state aid decision on Tirrenia group. On March 4, 2009, the General Court set aside a Commission decision ordering the recovery of illegal State aid granted by Italy to the Tirrenia Group on the ground of a lack of sufficient reasoning (74). In 1999, the Commission initiated an in-depth investigation procedure under Article 108(2) TFEU in respect of alleged unauthorized State aid in the form of subsidies granted by Italy to companies operating domestic ferry services between mainland Italy and its large and small islands. On March 16, 2004, the Commission authorized most of the subsidies granted as lawful compensation for providing a public service, but found that the aid granted to Adriatica, a company of the Tirrenia group, constituted unlawful State aid within the meaning of Article 107 TFEU and ordered its recovery. On appeal, the Court annulled the Commission’s decision to the extent that it qualified the measures as new aid holding, inter alia, that the decision was vitiated by a lack of reasoning because it did not provide any explanation for the Commission’s rejection of the applicants’ argument that the key aspects of the aid scheme at stake, and its funding, had been established by laws adopted already in 1936 and 1953 and, thus, constituted existing aid. 4.2.5. GC upholds Commission state aid decision on Television française. On March 11, 2009, the General Court dismissed an appeal by Television francaise 1 SA (“TF1”) against a Commission decision of April 20, 2005, finding that the French audiovisual license system was compatible with EC State aid rules (75). On March 10, 1993, the Commission received a complaint from TF1 that repayment of the audiovisual license fee by the French State to the public French television channels France 2 and France 3 constituted State aid. As the French audiovisual license system pre-existed the Treaty of Rome, it was treated as “existing aid” and the Commission took no enforcement action. The Commission, nonetheless, investigated TF1’ s allegations and issued a recommendation to the French State indicating how the license system ought to be changed to ensure its compatibility with EC law. The French State committed to amend the system accordingly and, on April 20, 2005, the Commission adopted a decision finding that the commitments offered by the French State were in line with its recommendations. TF1 challenged the Commission decision before the Court on the principle ground that the Commission committed an error of law by finding that the French audiovisual license system, as amended, constituted State aid compatible with the common market despite the fact that not all the conditions set out by the Altmark case law were met (76). The Court clarified that the classification of a measure as State aid within the meaning of Article 107(1) TFEU must be distinguished from the assessment of the compatibility of a measure with the common market. The Court held that the Commission correctly found that the French audiovisual license system constituted State aid because it did not meet all the conditions set out by the Altmark case. The Court also concluded that such a system, as amended to take into account the Commission’s recommendations, was in itself correct, and compatible with the common market.

(74) Joined Cases T-265/04, T-292/04 and T-504/04, Tirrenia di Navigazione and Others v. Commission, Judgment of March 4, 2009. (75) Case T-354/05, TFI v. Commission, Judgment of March 11, 2009. (76) Case C-280/00, Altmark Trans and Regierungspräsidium Magdeburg, Judgment of July 24, 2003.


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4.2.6. GC upholds Commission decision on state aid granted to Stockholm Visitors Board. On June 9, 2009, the General Court dismissed an action brought by the Swedish tourism company Nya Destination Stockholm Hotell & Teaterpaket AB (“NDSHT”) seeking the annulment of a Commission decision not to investigate a complaint against alleged State aid granted to the Stockholm Visitors Board (“SVB”), a company owned by the City of Stockholm and responsible for the promotion of the Stockholm region (77). The Commission concluded that the measures in question did not constitute unlawful aid, but existing aid, and that there were no grounds to institute proceedings under Article 108(1) TFEU (which obliges the Commission to keep existing aid schemes under review and to propose appropriate measures to the Member States when required). The Court held that the appeal was inadmissible because the Commission’s letters informing the complainant of its decision not to pursue the complaint did not represent actionable measures for the purposes of Article 230 of the TFEU. The Court explained that, with respect to existing aid, the initiative to propose to a Member State to review any such aid lies with the Commission alone. The Court also noted that the applicable procedure as regards existing aid, set out in Articles 17 to 19 of Regulation 659/1999, does not contemplate the possibility of a decision addressed to the Member State concerned being adopted by the Commission at the end of the preliminary examination stage. The Court further noted that, if, following an initial assessment, the Commission finds that the complaint relates not to unlawful aid, but to existing aid, it cannot do more than inform the applicant, pursuant to the second sentence of Article 20(2) of Regulation 659/1999, that there are insufficient grounds for taking a view on the case. The Court concluded that, to the extent it does not constitute a decision on the compatibility of the measures at stake with the EC State aid rules and it does not have any impact on the applicants’ legal position, any such informal communication does not constitute an actionable measure. The applicant’s action was therefore found inadmissible. 4.2.7. GC overturns Commission decision on Polish steel producer Huta Czestochowa S.A. On July 1, 2009, the General Court partially set aside a Commission decision ordering the recovery of restructuring aid granted by Poland to steel producer Huta Czestochowa S.A. (“HCz”) before Poland’s accession to the European Union (78). In 2005, the Commission initiated an in-depth investigation to determine whether certain State aid involved in the restructuring of HCz was compatible with the terms set out in Protocol 8 of the Polish Accession Treaty. The Commission concluded that the State aid granted to HCz was only in part compatible with the common market and ordered Poland to recover unlawfully granted aid for an amount of around E4 million from HCz’s successor companies. On appeal before the General Court, one of HCz’s successor companies, Operator ARP — to which all of HCz’s assets not linked to production had been transferred — claimed that the Commission exceeded the limits of its discretion in finding that Operator ARP was to be considered as a “beneficiary” of the unlawful aid in question. The Court emphasized that, in order not to render the provisions of a recovery order inoperative, the term ‘beneficiary’ within the meaning of Article 14(1) of Regulation 659/1999 did not encompass solely the original beneficiary of State aid, but also any undertaking to which assets had been transferred. However, according to the Court, to justify the widening of the group of entities required to

(77) Case T-152/06, NDSHT Nya Destination Stockholm Hotell & Teaterpaket AB v. Commission, Judgment of June 9, 2009. (78) Case T-291/06, Operator ARP v. Commission, Judgment of July 1, 2009.

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repay an unlawfully granted State aid to the acquirers of the assets formerly belonging to the original beneficiary of the aid, the Commission is required to demonstrate either that the transfer of assets led to a risk of circumvention of the recovery order, or that the person or entity acquiring the assets retained the actual benefit of the competitive advantage deriving from the receipt of the unlawful aid. In the present case, the Court ruled that, on the date on which the Commission decision was adopted, a transfer of assets to Operator ARP had not yet taken place. Since the legality of a contested measure in an action of annulment has to be assessed on the basis of the elements of fact and of law existing at the time when the measure is adopted, the Court held that the Commission had erred to include unconditionally the applicant in the group of entities required to repay the aid. The Court further pointed out that, as claimed by Operator ARP, the value of the debt transferred to the appellant significantly exceeded the market value of the assets transfered to it. As a consequence, according to the Court, the Commission could not legitimately claim, without further explanation, that there was a risk of circumvention of the unlawful State aid recovery order and/or that the appellant, which was not active in the steel sector, and whose main activity was that of a buyer-back of debts and assets of undertakings in difficulty, would actually benefit from a competitive advantage as a result of the unlawfully granted State aid. The Court therefore concluded that the Commission was wrong to include Operator ARP in a group of entities jointly and separately liable to repay the aid in question and annulled the Commission decision to the extent that it concerned the applicant. 4.2.8. GC overturns Commission decision on Electricité de France. On December 15, 2009, the General Court annulled a Commission decision declaring that certain measures implemented by the French State in favor of Electricité de France (“EDF”) constituted State aid incompatible with the common market (79). In October 2002 the Commission initiated an in-depth investigation under Article 108(2) TFEU to determine whether the tax-free reclassification of unused provisions created for the renewal of the French electricity transmission network as capital in EDF’s balance sheet — which resulted in a E 888.89 million tax advantage for EDF — amounted to illegal State aid. In December 2003, the Commission adopted the contested decision, which concluded that the tax advantage granted to EDF by the French State, EDF’s sole shareholder at the relevant time, constituted State aid incompatible with the common market and ordered the French State to take the necessary steps to recover the illegal aid from EDF. On appeal, EDF, supported by the French State, submitted, inter alia, that the measure in question constituted a lawful capital injection by the French State in its quality of EDF’s sole shareholder in an amount equivalent to the tax exemption. The General Court recalled the well-established case law of the European Courts according to which any capital placed directly or indirectly at the disposal of an undertaking by the State ought to be assessed according to the so-called market economy investor principle. The General Court also pointed out that, in the present case, the private investor test consisted in establishing whether the public intervention in the capital of EDF had an economic objective that might also be pursued by a private investor and was thus undertaken by the State in its role as an economic operator, in the same way as a private operator, or whether, on the other hand, it was justified by the pursuit of a public interest objective and must be regarded as action taken by the State in the exercise of its authority as a State. The General Court further noted that, in order to determine whether measures taken

(79) Case T-156/06, Électricité de France (EDF) v. Commission, Judgment of December 15, 2009.


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by the State represented the exercise of State authority or whether they were the consequence of obligations that the State must assume as shareholder, it is important to look not at the form of those measures, but at their nature, and that the fact that the State has access to financial resources accrued through the exercise of State authority is not in itself a sufficient justification for regarding the State’ s actions as attributable to the exercise of State authority. In the circumstances of the present case, in which the French State was both the fiscal creditor of a public undertaking and its sole shareholder, the General Court held that the restructuring of EDF’s balance sheet and the capital injection it received had to be analyzed as a whole and that the fact that the capital derived in part from a fiscal debt did not preclude the measure from being examined in the light of the private investor test. The General Court therefore concluded that, by refusing to examine the contested measures in their context and to apply the private investor test, the Commission erred in law and annulled the Commission decision. 4.3. Commission. 4.3.1. Commission’s Communication on the Application of State Aid Rules to Public Service Broadcasting. In recent years audivisional markets have undergone important changes, which have led to the ongoing development and diversification of the broadcasting offer. On July 2, 2009, the Commission adopted a new Communication in order to address the application of State Aid Rules, which went beyond broadcasting activities in the traditional sense (the “Communication”) (80). The Communication, which replaces the 2001 Broadcasting Communication, (81) puts an increased focus on accountability and effective control at the national level, including a transparent evaluation of the overall impact of publicly funded new media services. The key substantive changes introduced by the Communication can be summarized as follows: The ex ante assessment of the compatibility of significant new services launched by public service broadcasters with Article 106(2) TFEU has to be conducted by the Member States, by balancing the market impact of such new services with their public service value. According to the Communication, Member States are entitled to use State aid to provide audiovisual services over new technology-neutral distribution platforms for the fulfilment of their public service obligations, as long as they do not entail a disproportionate effect on the market. The Communication clarifies that the inclusion of pay services in the public service remit does not automatically mean that these services are not part of the public service obligation. The Commission considers pay-per-view services compatible with EC State aid rules, as long as the pay element of these services does not compromise the distinctive character of the public service in terms of serving the social, democratic, and cultural needs of the society, which distinguishes public services from purely economic activities. Member States are free to choose the means of financing public service broadcasting. As a general rule, the amount of public compensation must not exceed the net costs of the public service mission. While the Commission allows public service broadcasters to retain yearly overcompensation above the net costs of the public service to the extent that such a measure

(80) Communication broadcasting [2009] OJ C (81) Communication broadcasting [2001] OJ C

from the Commission on the application of State aid rules to public service 257/01. from the Commission on the application of State aid rules to public service 320.

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is necessary to finance their public service obligations, an amount in excess of 10% of the annual budgeted expenses of the public service mission will only be allowed in duly justified cases. The appropriate financial control mechanisms to ensure that there is no overcompensation must be provided by the Member States.

5.

Policy and Procedure.

5.1. CJEU Judgments. 5.1.1. Qualification as undertaking, under competition law rules, of organizations entrusted with state prerogatives and missions of public policy. On March 26, 2009, the Court of Justice of the European Union (82) dismissed SELEX’s appeal while modifying some grounds of the General Court’s judgment of 12 December 2006 (83). The issue was whether an international organization entrusted with state prerogatives and missions of public policy can be considered an undertaking under the Community competition rules. Eurocontrol is an international organization active in the fields of air navigation and air traffic management (“ATM”). In October 1997, SELEX, a company active in the area of air traffic management systems, filed a complaint with the Commission alleging that Eurocontrol had violated Article 102 EC by abusing its dominant position. On February 12, 2004, the Commission rejected the complaint, concluding that none of Eurocontrol’s activities could be regarded as economic activities, and that Eurocontrol could not, therefore, be deemed an ‘undertaking’ capable of infringing Article 102 EC. SELEX appealed the Commission’s decision. On December 12, 2006, the General Court held that the Commission had incorrectly found that Eurocontrol did not qualify as an undertaking under Article 102 EC with respect to any of its activities. The Court analyzed each of the activities, concluding that Eurocontrol’s activities relating to standardization and R&D were of a non-economic nature, but that its provision of advice and technical assistance to national administrations was an economic activity. Despite the fact that this assistance might serve the public interest, the Court held that the relationship with the maintenance of safety in the field of air navigation was indirect. Moreover, the Court pointed out that private undertakings could also offer this service. The Court of Justice of the European Union found that Eurocontrol’s advice to national administrations with respect to ATM systems was not an economic activity. The Court relied on the Convention on the Safety of Air Navigation (the “Convention”), and concluded that this activity was not economic because it was linked closely to the goal of assuring the technical harmonization in air traffic and the safety of air navigation. The Court added that the fact that this activity was optional did not change its non-economic nature. The Court also held that the preparation and adoption of technical standards was inseparable from Eurocontrol’s exercise of its public authority. The Convention entrusted both tasks to Eurocontrol, which, the Court found, were linked directly to the objective of achieving harmonization and integration and a uniform ATM system. With respect to Eurocontrol’s acquisition of prototypes, the Court stated that the General Court was correct to rely on

(82) Case C-113/07 P, Selex Sistemi Integrati v. Commission and Eurocontrol, Judgment of March 26, 2009. (83) Case T-155/04, Selex Sistemi Integrati v. Commission, Judgment of December 12, 2006.


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FENIN v. Commission (84) to hold that the nature of a purchasing activity must be determined according to whether the subsequent use of the purchased goods amounts to an economic activity. The Court thus agreed with the General Court that the fact that technical standardization is not an economic activity means that the acquisition of prototypes in connection with that standardization is not an economic activity either. 5.1.2. CJEU clarifies the application of Article 15(3) of EC Regulation 1/2003. On June 11, 2009, the Court of Justice of the European Union ruled (85) that Article 15(3) of EC Regulation 1/2003 permits the European Commission to submit written observations to the court of a Member State in the context of litigation concerning the tax deductibility of a fine imposed by the European Commission for an infringement of Article 101 TFEU. Article 15(3) provides that “[…] where the coherent application of Article 101 or Article 102 of the Treaty so requires, the Commission, acting on its own initiative, may submit written observations to courts of the Member States […]”. The Court reasoned that the outcome of a dispute regarding the tax deductibility of a fine imposed by the Commission is part of the coherent application of Articles 101 or 102 EC. The Commission’s ability to impose effective penalties cannot be dissociated from the principle of prohibition of anti-competitive practices, and the ability to tax deduct fines would risk impairing the effectiveness of penalties imposed by the Commission, since it would allow the companies concerned to offset the burden of that fine with a reduction of the tax burden. The Court thus concluded that the Commission may submit on its own initiative written observations to a national court of a Member State in proceedings concerning the deductibility from taxable profits of the amount of a fine imposed by the Commission for an infringement of Articles 101 and 102 EC. 5.1.2.1. Liability of the parent company. CJEU upholds Commission decision on Akzo responsibility, as parent company, in the Choline Chloride cartel. On September 10, 2009, the Court of Justice of the European Union dismissed Akzo’s appeal (86) against the General Court’s judgment upholding the Commission’s decision fining Akzo for the participation of its subsidiaries in the Choline Chloride cartel (87). In holding Akzo jointly and severally liable for the conduct of its subsidiaries (notwithstanding that it had not itself participated in the cartel), the Commission applied the rebuttable presumption that, as the direct or indirect holder of all the shares in these subsidiaries, Akzo and its subsidiaries constituted a single economic unit, and that Akzo was able to, and did, exert decisive influence over their commercial policy. The General Court found that it is sufficient for the Commission to show that the entire capital of a subsidiary is held by the parent company in order to conclude that the parent company exercises decisive influence. In its appeal, Akzo claimed that it had rebutted the presumption of decisive influence and that joint and several liability had been wrongly imputed to it, because the Commission had failed to provide evidence other than Akzo’s 100% shareholding in its subsidiaries. Akzo also claimed that the General Court had committed an error of law in defining the Commission’s burden of proof with respect to the decisive influence of parent companies over wholly-owned subsidiaries. Relying on the

(84) (85) (86) (87)

Case T-319/99, FENIN v. Commission, Judgment of March 4, 2003. Case C-429/07, X BV, Judgment of June 11, 2009. Case C-97/08 P, Akzo Nobel NV and Others v. Commission, Judgment of September 10, 2009. Case COMP/E-237.533 Choline Cholride.

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General Court’s judgment in Stora, (88) Akzo claimed that, where the parent adduces some evidence to rebut the presumption of decisive influence, the Commission must then show more than a 100% shareholding in order to prove that the parent did, in fact, exercise real commercial influence. Akzo noted that, in Stora, the General Court also referred to a number of other indicia, such as the fact that its was not disputed that the parent company exercised influence over the commercial policy of its subsidiary and the fact that the parent and its subsidiaries were jointly represented during the proceedings. The Court dismissed Akzo’ s claim, specifying that the General Court in Stora referred to “other indicia” for the sole purpose of identifying all the elements on which it had based its reasoning. Contrary to Akzo’ s claim, this was not intended to require proof of other circumstances indicating the actual exercise of influence by the parent company. As a result, the Court held that the Commission is not required to provide any evidence of any indicia other than the 100% shareholding, unless the parent company adduces sufficient evidence to show that its subsidiary acted independently on the market. 5.1.3. CJEU upholds GC Judgment reaffirming Commission’s margin of discretion in determining the appropriate level of fines to be imposed on undertakings for an infringement of competition rules. On November 12, 2009 (89), the Court of Justice of the European Union rejected appeals by Le Carbone Lorraine (“LCL”) and SGL Carbon AG (“SGL”) against the level of the fines imposed by the European Commission and confirmed by the GC for their participation in a cartel for electrical and mechanical carbon and graphite products (90). In 2003 the Commission found that SGL and LCL had, along with four other companies, participated in a single and continuous infringement of Article 101(1) TFEU in the market for electrical and mechanical carbon and graphite products. The infringement, which lasted from October 1988 to December 1999, consisted of fixing sales prices and other trading conditions, sharing markets, and engaging in coordinated actions against non-participating competitors. LCL and SGL were fined E43.1 million and E23.6 million respectively. In upholding the fines on appeal, the General Court reaffirmed the Commission’s margin of discretion in assessing the appropriate level of fines in cartel cases and confirmed that Commmission does not need to demonstrate the precise effects of cartel conduct to establish that a cartel did, in fact, affect trade between Member States. In its appeal to the CJEU, LCL claimed that the General Court infringed the principle that companies should be fined only for acts that they have committed. In particular, LCL claimed that, as the Commission had not considered the conduct of each company individually, it had failed to take into account that LCL was not active in the market for carbon blocks and plates when assessing the gravity of LCL’s infringement. In rejecting LCL’s claim, the Court of Justice confirmed the General Court’s finding that the Commission is not obliged to examine the conduct of each individual cartel participant in assessing the effects of an infringement, but need only consider the overall impact of that infringement as a whole in that context. The company’s individual role in the infringement need only be considered in the application of aggravating or attenuating circumstances. LCL also claimed

(88) Case C-286/98 P Stora Kopparbergs Bergslags v Commission Judgment of November 16, 2000. (89) Case C-554/08, Le Carbone-Lorraine SA v. Commission and Case C-564/08, SGL Carbon AG v. Commission, Judgment of November 12, 2009. (90) Case T-68/04, SGL Carbon v. Commission, Case T-69/04 Schunk and Schunk KohlenstoffTechnik v. Commission and Case T-73/04 Le Carbone-Lorraine v. Commission, Judgments of October 8, 2008.


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that General Court had misconstrued the Commission’s decision as taking into account the concrete effect of the cartel when classifying the infringement as “very serious”. According to LCL, the Commission had considered only the nature and geographic scope of the infringement in making its assessment. The Court rejected the claim. Not only had the General Court expressly examined sections of the decision in which the Commission had considered the concrete impact of the cartel but the Court of Justice also noted that the anti-competitive effects of an infringement are, in any event, not in themselves a relevant factor for determining the appropriate level of fines under the 1998 fining guidelines. Finally with regard to the basic amount of the fine, SGL claimed that the Commission had breached the principles of proportionality and equal treatment in classifying the cartel participants into categories based on market share increments of 10% that did not take account of the notable differences in their actual size. The ECJ also rejected this claim and upheld the General Court’s conclusion that this was not an unreasonable way of taking the relative importance of the undertakings into account. In particular, the ECJ noted that the General Court had conducted a detailed analysis of the composition of each category of undertakings before concluding that the limits of each category, as well as the corresponding amounts of the base fine, were coherent and objectively justified. LCL further alleged that the General Court had infringed the principle of equal treatment by refusing to grant LCL an additional reduction under the leniency notice, despite the fact that such a reduction had been granted to two competing companies. In particular, LCL claimed that the General Court failed to take sufficient account of LCL’s close and constant co-operation with the Commission. On the latter point, the Court noted that LCL had itself acknowledged that its cooperation was less valuable than that provided by other companies and that LCL had, moreover, destroyed a number of documents regarding the period after 1999. The Court further noted that it does not, in any event, have jurisdiction to reassess the General Court’s analysis of factual matters of this kind. Finally, the Court confirmed that the General Court was correct in approving the different reductions applied to LCL and the other companies given the evident minor importance of LCL’s cooperation to the Commission’s investigation. Finally, the Court of Justice dismissed LCL’s claim that the General Court had breached the principles of proportionality and equal treatment by refusing to grant LCL a reduction in its fine on grounds of serious financial difficulties, as it had SGL. These appeals follow a growing trend in recent years for cartel cases to be appealed to the GC on the basis of the level of fines rather than the finding of the substantive infringement. The judgments are unlikely to change the Commission’s willingness to impose substantial fines for participation in hard-core cartels, since they merely confirm the Commission’s broad margin of discretion in assessing the appropriate level of fines to be imposed in such cases. 5.2. Commission. 5.2.1. The Commission inspects the private residence of an individual suspected of coordinating a cartel. On January 28, 2009, the Commission fined five companies for their participation in a cartel for marine hoses from 1986 to 2007 (91). The European Commission launched its investigation following an immunity application by Yokohama. In addition to surprise inspections of the cartel participants’ business premises, for the first time the Commission also

(91) Case COMP/39406 Marine Hoses.

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exercised its powers under Article 21 of Council Regulation No. 1/2003 to inspect the private residence of an individual suspected of coordinating the cartel. The cartel arrangements, which covered the entire EEA, included agreements on prices, quotas and sales conditions as well as a system of penalties in case of deviation. Within this framework, cartel members fixed prices according to reference price lists and allocated customers, either by allowing the cartel coordinator to allocate specific customers to individual cartel members or by reserving certain geographic markets as home markets for specific cartel members. The Commission imposed fines on five of the six undertakings found to have participated in the cartel. The immunity applicant, Yokohama, received 100% immunity. Two other undertakings, Bridgestone and Parker, saw their fines increased by 30% to reflect their leadership role in the cartel. The Commission granted Manuli a 30% reduction in fine for cooperation under the Leniency notice. While Manuli had provided the Commission with documents that were helpful in proving the existence of a cartel, the Commission did not consider they qualified Manuli for a greater reduction in the fine as, at the time of Manuli’s leniency application, the Commission already had a substantial number of documents in its possession with which it could prove the main elements of the cartel. 5.2.2. Commission decision clarifying its margin of discretion in opening proceeding following the presentation of a complaint by a private party. On October 12, 2009 the Commission published its rejection decision concerning an alleged violation of antitrust rules by the World Anti-Doping Agency (“WAA”), the ATP Tour Inc (92) and the International Council of Arbitration for Sport (“ICAS”). The Commission recalled the settled case-law of the Court stating that the Commission is not bound either to give a decision on the existence of the alleged infringement nor to conduct an investigation (93). Moreover, the Commission has discretion on the differing degrees of priority it intends to give to the complaints brought before it. The Commission is entitled to reject a complaint when it considers that the case does not display a sufficient Community interest to justify further investigation. The assessment of the Community interest is necessarily founded on an examination of the particular circumstances of each case, subject to review by the Court. That means, in particular, that it must take into account the duration and extent of the infringements complained of and their effect on the competition situation in the Community. The Commission should in particular balance the significance of the alleged infringement as regards the functioning of the common market, the probability of establishing the existence of the infringement and the scope of the investigation required in order to fulfill, under the best possible conditions, its task of ensuring that Articles 101 and 102 TFEU are complied with. The Commission, after examining the complaint lodged by a tennis player in the case at stake, has concluded that there is no sufficient Community interest as to open formal proceedings. Anti-doping rules, such as those adopted by WAA, implemented by ATP and supervised by ICAS, even if they were to be regarded as decision of an association of undertakings limiting the appellants’ freedom of action, do not constitute a restriction of competition, within the meaning of Article 101 TFEU since they are justified by a legitimate objective. In fact, such a limitation is inherent in the organisation and proper conduct of

(92) Case COMP/39471, Certain joueur de tennis professionnel /Agence mondiale antidopage, ATP Tour Inc. et Fondation Conseil international de l’arbitrage en matière de sport. (93) Case T-24/90, Automec/Commission, Judgment of 18 September 1992.


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competitive sport and its very purpose is to ensure healthy rivalry between athletes, provided that the restrictions imposed by those rules are limited to what is necessary to ensure the proper conduct of competitive sport. The anti-dipong rules in question are, according to the Commission, necessary and proportionate to the aim pursued and thus a violation of article 101 TFEU is very unlikely. Moreover, as far as article 102 TFEU is concerned, the Commission considers that the conducts pointed out in the complaint are very unlikely to be considered as abuse of dominant position. In any event, the anti-doping rules as well as their implementation, are not such as to significantly impair trade between Member States. Thus the Commission considered that, given the complexity of the required investigation it would be disproportionate to open a investigation considering the limited likelihood of establishing an antitrust infringement and, in any event, its minor impact on the common market. 5.2.3. Commission Report on the Functioning of Regulation 1/2003. The Commission has published a report on the functioning of Regulation 1/2003 five years after it was implemented on May 1, 2004 (94). Regulation 1/2003 introduced a comprehensive reform of the procedures for the enforcement of Articles 101 and 102 EC. The report concludes that the Regulation has significantly improved the Commission’s enforcement of EC competition law. The report notes that the change from the notification system, under which companies submitted agreements to the Commission for approval under the antitrust rules, to the direct application of Article 101(3) TFEU by national courts and authorities has been remarkably smooth in practice. This has, moreover, enabled the Commission to be more pro-active in both implementing an effects-based approach to antitrust work and policy outside the field of cartels and in increasing the number of enforcement decisions adopted within the area of cartels. While the Commission still offers individual companies guidance where required, it increasingly offers more general guidance that is useful to numerous undertakings and enforcers. The Commission has been proactive in using its new enforcement powers under Regulation 1/2003. Sector enquiries have become one of the Commission’s key investigative tools; it has regularly employed its rights to seal and question during inspections of business premises; and it has conducted inspections of non-business premises on two occasions. The Commission has also made use of its powers to make commitments offered by undertakings binding and enforceable and to impose sanctions for non-compliance with obligations imposed in the context of investigations. The report identifies a number of areas in which the Regulation has led to improved coherence in the application of the EC competition rules. Article 3 of the Regulation, for example, requires national competition authorities and courts to apply Articles 101 TFEU and 102 TFEU to all conduct capable of affecting trade between Member States. This has contributed positively to the creation of a single legal standard across the EU, although the report notes that this is true in the assessment of agreements and concerted practices more than in the context of unilateral conduct, where stricter national rules may still be applied. The introduction of the European Competition Network (“ECN”) has resulted in both improved consistency and coherence in the application of the EC competition rules and greater overall levels of enforcement. According to the report, arrangements introduced by the Regulation, including work-sharing arrangements and fact-finding cooperation mechanisms, have worked well despite some

(94) Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 101 and 102 of the Treaty (OJ 2003 L1/1).

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limitations caused by differences between national procedures. The ECN has furthermore proven itself to be a successful forum for policy discussions. This has led to substantial, voluntary convergence of Member States’ competition laws, although the report also highlights a number of areas, including fines, criminal sanctions and standards of proof, where divergence between Member States’ enforcement systems persists. The Commission also reports that stakeholders have pointed to what they perceive as uneven enforcement of the EC competition rules by national courts. Stakeholders have called on the Commission to make greater use of the tools, such as the power to make observations as amicus curiae under Article 15, that is has at its disposal to promote greater coherence going forward. The report also notes that there is a perception that the legal framework surrounding the Commission’s cooperation with third country authorities could be clarified and reinforced. In particular, the Commission could further enhance existing levels of protection against disclosure, both in the context of private litigation in third jurisdictions and in cases where information is exchanged with third country authorities. Finally, the Commission identifies a number of areas that merit further evaluation, including penalties for providing misleading or false replies during the course of interviews carried out as part of Commission inspections; the use of the power to request national competition authorities to carry out inspections on the Commission’s behalf; the use of information to impose custodial sentences where that information is received from a jurisdiction where no such sanctions exist; and the need to promote, and ensure convergence of, Member State leniency programs. The report concludes that Regulation 1/2003 has, overall, significantly improved the Commission’s enforcement of Articles 101 and 102 TFEU. 5.2.4. The Commission’s Final Report in the Pharmaceutical Sector Inquiry (Case No COMP/D2/39.515). On July 8, 2009, the Commission released its Final Report on its inquiry into competition in the EU pharmaceutical sector (95). The Final Report brought to an end an 18 months long inquiry that was launched on January 15, 2008 (96) in response to indications that might have suggested that competition in that sector is restricted or distorted: fewer new pharmaceutical products are being brought to the market and the entry of generic products seems to be delayed. The inquiry begun with unannounced inspections at a range of pharmaceutical companies and continued with a long series of detailed questionnaires that were sent from March to September 2008 to pharmaceutical companies, public authorities and other stakeholders. On November 30, 2008 the Commission publish its Preliminary Report that was followed by public consultation and further questionnaires that were sent to stake holders. Shortly before the publication of the Final Report, an investigation was opened against Servier and several generic companies for abuse of dominant position and restrictive agreements (97). Another spin-off of the inquiry was the dawn raids conducted on the premises of Sanofi-Aventis, Sandoz (the generic arm of Novartis) and Teva on October 6, 2009. The pharmaceutical industry thus presents a clear enforcement priority for the Commission; in the words of competition commissioner Neelie Kroes: “the inquiry has told us what is wrong with

(95) Available on http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html. (96) Commission Decision of 15 January 2008 initiating an inquiry into the pharmaceutical sector pursuant to Article 17 of Council Regulation (EC) No 1/2003 (Case No COMP/D2/39.514) available at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/decision-en.pdf. (97) See press release on http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/ 322& format=HTML&aged=0&language.


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the sector, and now it is time to act. When it comes to generic entry, every week and month of delay costs money to patients and taxpayers. We will not hesitate to apply the antitrust rules where such delays result from anticompetitive practices. The first antitrust investigations are already under way, and regulatory adjustments are expected to follow dealing with a range of problems in the sector” (98). Similarly to the Preliminary Report, the Final Report is mainly concerned with competition between originator and generic companies. It identifies a number of practices (referred to collectively as “the tool-box”) that originator companies may use in order to try to restrict the access of generic companies to the market: — Filing numerous patent applications across the EU in relation to a single medicine (“patent clustering”). The Preliminary Report suggested that originator companies try to inhibit competition by registering patents of dubious quality, referring to some of them as “secondary patents” and “defensive patents”. In its Final Report the Commission made few statements to correct the impression left by the Preliminary Report. Thus the Commission explained that the use of concepts such as “secondary patents” and “defensive patents” should not be understood to reflect an idea of lower quality or value of these patents but rather tries to capture a classification made in the industry for this type of patents from a commercial perspective. The Final Report concedes that patent applications must be evaluated on the basis of “statutory patentability requirements” rather than on the “underlying intentions” of a particular patenting strategy. The Final report seems to have also accepted the premises that if indeed it is felt that patents of lower quality are being registered, it is primarily the responsibility of the patent authorities to improve the procedures for examining patent applications rather than a misconduct on the part of the applicants. Nevertheless, the Final Report seems to target patent strategies as an enforcement priority stating that “strategies that mainly focus on excluding competitors without pursuing innovative efforts and/or the refusal to grant a license on unused patents will remain under scrutiny in particular in situations where innovation was effectively blocked”. In the Preliminary Report it was argued that originator companies apply for divisional patents as an instrument to prevent or delay generic entry. The Final Report did not suggest that filing for divisional patents may be in violation of EU competition law and seemed to be content that the solution for the prevention of abuse should lie with the patent authorities. — Engaging in high volumes of disputes and litigation with generic companies. In the Preliminary Report it was suggested that originators use patent litigation or the threat of litigation as a deterrent for generic entry. Although the Final Report did reiterate this allegation, it did not conclude that violation of EU competition law may ensue. — Concluding settlement agreements with generics that may delay generic entry to the market. The main brunt of the Final Report was directed against settlement agreements. The Commission has declared that it would focus on monitoring and pursuing settlement agreements that “limit generic entry and include value transfer from an originator company to a generic company”. The main concern of the Commission was reverse payment settlements in patent cases whereby an originator pays a generic company in return for the generic company agreeing not to enter a market. However, the Final Report does not identify the specific conditions under which such agreements could be qualified as unlawful. The Report states that that the Commission is “not in the position to make any policy recommendations whether and if so which settlements should be regulated”, due to the Commission’s lack of experience with such settlements.

( 98 ) See press release http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/ 1098&format=HTML &aged=0&language=EN&guiLanguage=en.

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— Intervening in national procedures for the approval of generic medicines. The Preliminary Report suggested that some originator companies intervene in marketing authorization and reimbursement procedures as a deliberate strategy to delay generic entry. The Final report has accepted the arguments made by some originator companies in relation to the importance of the interventions of originator companies in relation to safety and quality concern stating that “marketing authorization bodies might not be able simply to disregard information submitted by third parties during the marketing authorization procedure”. Furthermore, the Final Report admitted that the legal responsibility lies with the authorities not to accept arguments of patent linkage by stating that the Commission will enforce these rules on marketing authorization bodies. Nevertheless, the Final Report suggested that interventions before marketing authorization bodies may constitute a breach competition rules and invited applicants in marketing authorization procedure to complain in cases where clear indications exist that a submission by a stakeholder intervening before a marketing authorization body was primarily made to delay the market entry of the applicant. — Launching “second-generation” medicines. In its review of follow-on products the Preliminary Report stated that “the circumstances typically associated with the introduction of follow-on products to the market suggests that the latter often form part of originators companies’ broader life cycle strategy attempting to delay or prevent generic erosion”. The Final Report acknowledged the importance of incremental development and stated that it does not “question the appropriateness of follow-on products themselves”. However, the Final Report goes on to say that “circumstances associated with the introduction of follow-on products to the market suggest that originator companies may sometimes use different means in an endeavour to prevent the follow-on products being confronted with competition”. The Final Report remain obscure on the exact character of such “circumstances” noting only that “it is not the purpose of this sector inquiry to provide guidance as to the compatibility of certain practices with EC competition law. The Commission will further investigate whether individual company behaviour may have fallen foul of the competition rules”. — A significant development in the position of the Commission, which was advised by the submissions of different stakeholders, was the greater importance placed on the role played by the regulatory and legal proceedings that apply to the pharmaceutical industry in the timing of generic entry: — The Commission reaffirmed the urgent need for the establishment of a unified Community patent and patent litigation system. — The Commission has welcomed the stricter procedural rules and shorter time limits set by the European Patent Office. — The Commission stated that it will focus on the full implementation and effective enforcement of the regulatory framework for marketing authorizations and price and reimbursements. — The Commissions invited Member States to reform their price and reimbursement procedures so as to grant reimbursement status to generics automatically when an originator product already enjoys this status. 5.3. ECN. 5.3.1. ECN Model Leniency Programme - Report on Assessment of the State of Convergence. The European Competition Network (ECN) published a report reviewing the state of convergence of the 25 Member States which currently have a leniency programs with regard to the provisions of the ECN in relation to the Model Leniency Programme (MLP) launched


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in 2006 as of December 31st, 2008, and for some countries as of October 1, 2009. The Model Leniency Programme (MLP), established by ECN on September 29, 2006, provides a soft harmonization basis of certain substantive and procedural requirements that ECN members’ leniency programs should contain. The Report finds a rapid convergence, with some exceptions or deviations. Currently European Commission and 25 Member States, five of which are in the process of revising their programs, operate leniency programs; Slovenia is in the process of introducing such a program, and Malta does not currently have one. MLP concerns only secret cartels and corporate leniency. Overall, most leniency programs in the ECN cover secret cartels, while 15 Member States extend their respective leniency systems to a wider scope of infringements and individual leniency. MPL provides exclusions from immunity only for coercers of cartels, but several national programs exclude more applicants (i.e., initiators (Czech Republic, Latvia, Slovakia, Poland, Ireland, Romania) and leaders of cartels (Lithuania, Ireland, Romania)). In contrast, Finland and Italy still offer immunity to coercers. Consistent with MLP, the majority of leniency programs contain certain evidential threshold and substantive conditions for finding immunity (applicant having ended cartel involvement; applicant cooperating genuinely, fully and continuously; applicant not having destroyed or disclosed to third parties evidence.) The Report notes some particularities in Romania, Germany, U.K., Lithuania, France as to the obligation to end cartel involvement, and some deviations by Ireland, Germany, Portugal, Romania, Lithuania, Greece, Poland as to requirement not to destroy or disclose evidence. MLP provides that in lieu of immunity a reduction of fines can be granted, as long as it does not exceed 50% of the imposed fine. More than half of the national programs provide for such a maximum cap, while some countries foresee a higher reduction (Portugal, Italy, Lithuania, UK, Ireland). According to MLP, the reduction should only be available if the evidence provided by the applicant is of significant added value, a provision that most national programs have adopted (with deviations by Latvia, Luxembourg, Poland, Estonia, Ireland). Concerning procedural issues and consistent with MLP, most programs provide for an explicit application for leniency and a decision by the respective competition authority in writing. Twenty programs provide for marker systems, according to which a marker protects the applicant’s place in the queue for a given period while the applicant gathers the necessary information to qualify for immunity. MLP had introduced a uniform summary application system to national competition authorities in instances where the Commission is “particularly well placed” to deal with the case, in order to obviate the burden of multiple applications to Member States’ competition authorities. The Report finds that summary applications alongside an application with the Commission are available in 23 Member States (with the exception of Cyprus, Malta, Slovenia, and Estonia). 5.4. Ombudsman. 5.4.1. The European Ombudsman decision in the Intel complaint. On July 14, 2009, the European Ombudsman handed down a decision in a complaint made by Intel in the context of the Commission’s investigation into alleged abuse by Intel of its dominant position in the market for certain processing units. Intel argued that the Commission infringed both the principle of good administration and Intel’s rights of the defense in two accounts: — The Commission failed to take minutes of a meeting with representative of Dell. Based on Dell’s testimony before the American Federal Trade Commission, Intel argued that there was a reason to believe that Dell’s representatives informed the Commission of exculpatory facts in relation to Intel.

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— In addition, the Commission encouraged Dell and AMD (the complainant in the case) to enter into an information exchange agreement which had the effect of allowing AMD to circumvent the rules which limit the right of a complainant to have access to the Commission’s investigation file. According to Intel the information that Dell provided to the Commission and subsequently shared with AMD was confidential to Intel. The Ombudsman recalled that the power of the Commission to interview the representative of Dell on the subject matter of the investigation derived from Article 19 of Regulation 1/2003 (power to take statements). The exercise of the power under Article 19 is governed by the procedures laid down in Article 3 of Regulation 773/2003. The Ombudsman considered that Article 3 does not impose an obligation on the Commission to take minutes of Article 19 interviews. Nevertheless, the Ombudsman opined that the concept of maladministration is broader than the concept of legality; the administration must always have good and legitimate reasons for choosing one course of action over the other. According to the Ombudsman the principle of good administration obliges the Commission to make proper record of an interview dealing with the subject matter of an investigation. The Ombudsman was willing to concede that in exceptional situations the Commission might not be under such obligation, for example when the information provided to the Commission in the interview was already in its possession or when the information did not in fact relate to the subject-matter of the investigation. In such cases the Commission would still be under an obligation to make a record explaining why complete minutes were not taken. In conclusion, the Ombudsman found that by failing to take adequate minutes of its meeting with Dell the Commission infringed the principle of good administration. The Ombudsman then moved to examine whether the Commission’s omission breached the rights of the defense of Intel. The Ombudsman noted that a party that alleges that exculpatory evidence has been withheld from it must provide specific arguments as regards the existence of the exculpatory evidence that was provided to the Commission. The Ombudsman has carefully examined the agenda of the meeting with Dell and a written follow-up to the meeting prepared by Dell and concluded that it cannot be excluded that the meeting concerned evidence of a nature that was potentially exculpatory of Intel. However, in the Ombudsman’s opinion establishing that the rights of defense were infringed would require a careful analysis of the entire file, carried out in conjunction with a careful analysis of the Statement of Objections and, eventually, the decision. Such a review of the file would seek to establish, inter alia, if there was any information, elsewhere in the file, which would clarify the precise content of the meeting with Dell. In the present inquiry, the Ombudsman has not reviewed the entire file or the Statement of Objections issued and thus could not have excluded that other documents may exist in the Commission’s case file, which would be relevant to the analysis. The Ombudsman could not therefore conclude that the Commission has breached the rights of the defense of Intel. With respect to the information sharing agreement between MSD and Dell, the Ombudsman considered that while divulging business secrets to a third party is a breach of the right to confidentiality, it is not necessarily a breach of the rights of defense. According to the Ombudsman it followed that even if the Commission indeed encouraged MSD to provide Dell with information that Intel considered to be confidential, it did not amount in any event to an infringement of the rights of defense of Intel. Furthermore, the Ombudsman was of the opinion that by the mere fact that a complainant transmitted information to the Commission in the context of an investigation, the Commission does not have the duty nor indeed the power to prevent the complainant from sharing this information with a third party, even if it is confidential to the investigated party.


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However, the Ombudsman did consider that as a matter of good administration the Commission should not request, encourage, or facilitate a third party to take measures which would (even potentially) have infringed the rights of another third party to protect its confidential information. Furthermore, if the Commission intentionally disclosed to a complainant or requested a third party to disclose to a complainant confidential information, to which that complainant would otherwise not have access, this might also call into question the overall impartiality of the Commission in the context of the investigation. In the present case the Ombudsman was not convinced that the evidence advanced by Intel proved that the Commission indeed encouraged AMD and Dell to sign an information sharing agreement and decided to reject this limb of the complaint. This is the second complaint in which the Ombudsman conducts an inquiry into questions of access to the Commission’s file that are within the purview of the Hearing Office of DG Competition. In the first decision the Ombudsman rejected the Commission’s argument denying the Ombudsman’s jurisdiction to review the actions of the Hearing Office. The Ombudsman noted that Article 195 EC (now Article 228 TFEU) limits the jurisdiction of the Ombudsman only in relation to the EU courts. However, the Ombudsman clarified that his review does not duplicate the work of the Hearing Office but rather ensures that it observers the limits of it terms of reference. This statement remains somewhat at odds with the actual investigation conducted by the Ombudsman in these complaints. It seems that the Ombudsman did not shy from substantive legal questions relating to the right of access to the Commission’s file.

6.

Work in progress.

In October 2009 the Commission has sent a Statement of Objections to British Airways, American Airlines and Iberia, members of the oneworld airline alliance, objecting to the coordination of the parties’commercial, operational and marketing activities in relation to passenger traffic on transatlantic routes (principally routes between the EU and North America). In November 2009 the Commission confirmed that it has sent a Statement of Objections to Standard & Poor’s, a division of McGraw-Hill Companies of the United States. The Commission is concerned that S&P is abusing its dominant position by requiring, as the sole-appointed National Numbering Agency (NNA) for U.S. securities, financial institutions and information service providers (ISPs), to pay licensing fees for the use of International Securities Identification Numbers (ISINs) in their own databases. In December 2009 the European Commission has sent a Statement of Objections to a number of companies active in the import and marketing of bananas, concerning their alleged participation in a cartel in violation of the rules of Article 101 TFEU. The Commission has also started a consultation on its proposal for a revised Block Exemption Regulation and Guidelines on motor vehicle sales and repair agreements following the expiry of the current Block Exemption Regulation in May 2010. Interested parties may send their comments to the Commission by February 10, 2010 In January 2010 E.ON has offered antitrust commitments in an investigation concerning an alleged abuse of dominant position for the refusal to supply long-term bookings on E.ON’s gas transmission system. E.ON has offered to release allocable entry capacities and to further reduce its overall share in the bookings of allocable entry capacity in the relevant gas market area.

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In the meanture the European Commission has opened a formal antitrust investigation concerning the “Baltic Max Feeder” scheme over a potential breach of Article 101 TFEU, because the scheme, whereby European ship owners collectively agree to cover the costs of removing feeder vessels from service, may be aimed at reducing capacity and therefore at pushing up charter rates for such vessels. The Commission has also addressed requests for information to certain pharmaceutical companies asking them to submit copies of their patent settlement agreements. The requests cover patent settlement agreements concluded between originator and generic pharmaceutical companies in the period from 1 July 2008 to 31 December 2009 and relating to the EU/EEA. The Commission is in particular looking at patent settlements where an originator company pays off a generic competitor in return for delayed market entry of a generic drug. This monitoring exercise has been launched in the light of the risk highlighted in the pharmaceutical sector Inquiry (published in July) that certain types of patent settlements may have negative effects on European consumers by depriving them of a broader choice of medicines at lower prices. Finally, DG Competition has published detailed explanations concerning how antitrust procedures work in practice with the aim of further enhancing the transparency and the predictability of Commission antitrust proceedings. The explanations are outlined in three documents, namely Best Practices for antitrust proceedings, Best Practices for the submission of economic evidence (both in antitrust and merger proceedings) and Guidance on the role of the Hearing Officers in the context of antitrust proceedings. Stakeholders can submit comments on the documents within 8 weeks from January 6, 2010.

a selection of recent developments in eu

a selection of recent developments in eu

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