EU/UK Competition Law Newsletter - March 2011

March 1, 2011

EC Provides Reminder that Merger Remedies Must Work

The European Commission (EC) prohibited the proposed merger between Aegean Airlines and Olympic Air on Jan. 26, 2011 – the EC’s first complete prohibition of a merger since 2007. The decision was made on the basis that the transaction would have resulted in a quasi-monopoly, with the combined company accounting for 90% of the Greek domestic air transport market. The proposed remedies, including slot releases, put forward by the companies to deal with this concern were deemed unacceptable. Greek airports do not suffer from congestion, and the remedies would overall be unlikely to entice a credible new player into the market. This is a reminder that, as is clearly set out in the EC’s 2008 guidelines on remedies, a remedy of this nature must be “likely [to] lead to the entry of new competitors in the market” (emphasis added).

EC Consults on Collective Redress, Says No to “Class Actions” in EU

The EC has been working for several years on developing EU standards for collective redress in the consumer protection and competition law fields. "Collective redress" in this context refers to any mechanism used by or on behalf of a group of private litigants to stop the continuation of illegal behaviour (such as a breach of competition law) or to obtain compensation for it (damages). The latest step is a consultation paper, published Feb. 4, 2011, with a deadline for responses of April 30, 2011. The overall aim of the consultation is to identify common legal principles to underpin collective actions across the EU, which might then form the basis of EU-wide legislation on the issue. However, any such legislation remains some way off (if it ever appears). The consultation will inevitably produce widely differing responses, and before any legislative proposal appears, there will be a public hearing and a communication setting out the results of the consultation. Nevertheless, it is clear that the EC remains firmly opposed to U.S.-style class actions.

ECJ Considers How Illegal Agreement between Supplier and Distributor Can be Established

A Feb. 10, 2011 judgment by the EU’s highest court, the European Court of Justice (ECJ), provided a reminder of the importance of considering a supplier/distributor relationship in the round. The case concerned Nintendo’s system of exclusive distribution territories based on countries in the EU, and in particular, the relationship between one distributor and Nintendo. The ECJ considered correspondence between the two and the surrounding circumstances (not just the distribution agreement), and concluded there had been an agreement between them to limit all sales by the distributor to customers outside its territory – a serious breach of EU competition law. The fact that the distributor had in practice exported products to customers outside its territory, in breach of the agreement with Nintendo, did not preclude the existence of such an agreement.

ECJ Provides Important Guidance on Margin Squeeze Analysis in EU

On Feb. 17, 2011, in a case involving Swedish telecoms company TeliaSonera, the ECJ considered how to analyse margin squeeze in the EU. The ECJ held, consistent with previous case law, that an illegal margin squeeze may arise where a vertically integrated undertaking, holding a dominant position on an upstream market which supplies a downstream market, adopts prices which result in the spread between the prices applied on the upstream market and those in the downstream market not being sufficient to cover the costs which it incurs in order to supply the downstream market.

However, for an infringement of competition law to arise as a result of a margin squeeze, there must be an anti-competitive effect, at least potentially, on the downstream market, and there must be no economic justification for the practice. The court also set out a number of irrelevant factors, including whether the undertaking has a regulatory obligation to supply the upstream product or service. This detailed review by the ECJ provides the most recent guidance on this difficult issue under EU competition law.

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

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