EU/UK Competition Law Newsletter - May 2012

May 1, 2012

Compliance Warning: Handle IT Issues Carefully During a Dawn Raid

On 28 March 2012 the European Commission (EC) imposed another fine for obstruction of one of its “inspections” (dawn raids). This was the first fine for obstructing the EC’s access to emails during a dawn raid. The fine, set at EUR2.5 million, concerned a raid that took place in 2009 at the premises of an energy company in the Czech Republic. At the start of the raid, the EC blocked access to email accounts of certain key personnel by setting new passwords known only to the EC staff. However, on the second day of the raid, the staff found that the password for one account had been modified in order to allow the account holder to have access. Further, on the third day of the raid, the staff discovered that one of the employees had requested the company’s IT department to divert all emails arriving in certain blocked accounts away from those accounts to a server. The case provides a reminder that IT issues must be carefully handled during a raid and that compliance training needs to cover this issue in detail. The EC takes obstruction issues very seriously indeed and is concerned about the ability of companies rapidly to modify or delete information stored in IT systems.

European Court Confirms Treatment of Margin Squeeze by Dominant Companies

The General Court of the European Union (GC), the EU’s second highest court, confirmed on 29 March 2012 the method established by the EC for analyzing margin squeeze. Margin squeeze can arise when the price charged for an upstream input by a dominant company that is also active downstream using that input does not allow its downstream competitors sufficient scope to run a profitable business. The case concerned Spanish incumbent telecoms operator Telefónica. The court rejected an argument that the EC should have carried out a margin squeeze test based on a mix of wholesale products available to downstream competitors. This would have amounted to holding that competitors could have compensated for the losses incurred because of the margin squeeze by the income resulting from the use, in certain more profitable geographical zones, of services not subject to a margin squeeze. The court also confirmed the position that national legislation concerning telecommunications does not release dominant firms from their obligation to respect EU competition law. The case is important for dominant companies that supply competitors downstream and for these competitors when dealing with such dominant companies.

UK Office of Fair Trading Imposes Large Information Exchange Fine and Provides Compliance Reminder

The UK Office of Fair Trading's (OFT) long-running case concerning the pricing of passenger fuel surcharges ended on 19 April 2012 with a fine of GBP58.5 million on British Airways. Whistle-blower Virgin Atlantic Airways received full immunity and thus no fine. The OFT found that on at least six occasions the two companies had discussed and/or informed each other about proposed changes to the level of the surcharges, rather than setting levels independently. The OFT commented that the decision "sends out a strong message that coordinating pricing through the exchange of confidential information between competitors is unlawful," thereby reinforcing the dangers of information exchange between competitors (even unilateral and even one-off) under UK and EU competition law. The OFT also took the opportunity to reinforce its compliance message by stating, "The size of the fine underlines that it is important for companies to take steps to ensure that they have an effective compliance culture." The OFT is prepared to allow 10 percent fine reductions for companies that can show that they had in place an adequate competition law compliance programme.

European Court Confirms Treatment of E xclusivity Agreements, Discount Schemes, and Retroactive Rebates by Dominant Companies

On 19 April 2012 the Court of Justice of the European Union, the EU’s highest court, handed down a judgment concerning abuse of dominance by reverse vending machine manufacturer Tomra. The court, upholding a decision of the European Commission and a GC judgment upholding that decision, confirmed that in order for there to be an abuse of dominance, it is enough that the practice in question tends to restrict competition or is capable of having that effect. It is not necessary for a practice to have an actual effect on competition. Certain exclusivity agreements, discount schemes and retroactive rebates entered into by Tomra with various supermarket chain customers in the EU were abusive, and justified the EUR24 million fine imposed by the EC. The case is important for dominant companies that enter into these types of arrangements and for the companies that deal with them.

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

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