EU/UK Competition Law Newsletter - November 2011

November 1, 2011

Court Confirms Absolute Ban on Cross-Border Sales in the EU Is Not Permitted

On Oct. 4, 2011, the EU's highest court (European Court of Justice (ECJ)) gave a judgment concerning the broadcasting of English Premier League football which provides a useful reminder of the position under EU competition law of restrictions on cross-border sales. The ECJ said that, although exclusive country-by-country satellite broadcast licenses for the Premiership are in principle permitted, an obligation requiring the broadcasters to prevent their satellite decoder cards from being used outside the licensed territory infringes EU competition law since it eliminates all competition between broadcasters in relation to the broadcasting of the matches. The judgment is limited to its facts, but is nevertheless consistent with the position applying in other situations under EU competition law. Thus, bans on cross-border sales in distribution agreements, for example, are not permitted, although so-called “active” sales restrictions are allowed in some cases. Active sales restrictions are presumably also allowed in the case of satellite decoder cards and, in addition, it should still be possible to license particular language versions of a transmission, thereby limiting the potential for cross-border competition that way.

Distributors Can't Be Stopped from Selling Online in EU

On Oct. 13, 2011, the ECJ said that an absolute ban on Internet sales by a distributor will usually be an automatic infringement of EU competition law. There may be cases in which such a restriction is permitted, but the products in this case (cosmetics manufactured by Pierre-Fabre) did not justify such a limitation. Pierre-Fabre's agreements were selective distribution agreements, under which distributors are chosen based on specific criteria. However, the same principle would apply to such a restriction included in other types of "vertical" (supplier/purchaser) agreements, in particular exclusive distribution agreements. This finding, consistent with the European Commission's (EC) view, means a distribution or other agreement containing such a clause will not satisfy the Vertical Restraints Block Exemption. This EU legislation automatically exempts certain vertical agreements which may otherwise be seen as anti-competitive (due to the inclusion of clauses such as exclusivity provisions) from the ban on anti-competitive agreements contained in EU competition law.

Are Human Rights Challenges in the EU Over?

The interface between human rights law and competition law has become increasingly high profile in the EU in recent years. One aspect of this is the compliance of competition procedures and penalties in the EU with human rights law, with it being argued that the entire single regulator system used at EU level and in most EU member states breaches the right to a fair trial. A Sept. 27, 2011, judgment of the European Court of Human Rights concerning an Italian competition law investigation is being trumpeted as an end to this debate for now. A senior official at the EC has stated, “this case confirms that an administrative system where an agency imposes sanctions but where these are subject to full review by an independent court should comply with [human] rights law”. This may be the case, but human rights arguments still abound in the competition law field, not least in relation to self-incrimination issues, practice at dawn raids and investigations into personal criminal offences.

EC Injects Further Transparency into Its Proceedings, but More Is to Come

Partly driven by the human rights debate, the EC has since 2010 sought to be more open as to its conduct of competition law investigations into anti-competitive agreements, including cartels, and abuse of dominance. Following drafts published in Jan. 2010, on Oct. 17, 2011, the EC published a package of materials “aimed at increasing interaction with parties in [competition law] proceedings and strengthening the mechanisms for safeguarding parties’ procedural rights”. These include in particular a note on “best practices” (procedure) and a revised mandate for the hearing officer (an EC official charged with overseeing the procedural rules). Of more interest, however, will be the publication, also promised by the EC under pressure from the European Ombudsman, of a public version of the EC’s legendary internal procedural manual, detailing how it goes about investigations. The EC has been implacably opposed to the publication of this document, but has now had to give way.

Additional EU/UK competition law news coverage can be found in our news section.

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