Be Careful with (Unjustifiable) Non-Competes
On 23 January 2013, the European Commission (EC) fined telecoms operators
Telefónica and Portugal Telecom EUR67 million and EUR12 million, respectively,
for entering into a non-compete arrangement with each other. The case provides a
stark reminder that non-compete agreements must be justified and, if they are
not, they may be seen and fined as cartels.
The non-compete arrangement was entered into in the context of the July 2010
acquisition by Telefónica of the Brazilian mobile operator Vivo, which until
then had been jointly owned by Telefónica and Portugal Telecom. However, the
arrangement had no relationship with that transaction, since it provided that
from the end of September 2010 the two companies would not compete with each
other in Spain and Portugal. The arrangement was terminated in early February
2011 after the EC had opened an investigation into it.
The EC, in announcing the fine, commented that “non-compete agreements are
one of the most serious violations of EU competition rules, as they potentially
result in higher prices and less choice for consumers”. The level of the fines,
for a four-month agreement, reflected this.
Competition Law and Agriculture/Food?
As part of the reform discussions concerning the EU’s Common Agricultural
Policy (CAP), some members of the European Parliament (EP) have suggested an
exemption from competition law for farm production. The members of the European
Competition Network (ECN), a grouping of national competition authorities in the
EU plus the EC, have expressed concerns about this and on 15 January 2013
published a joint resolution on the issue. This strongly expresses their view
that competition law should apply in full in all sectors in the EU, including
food and agriculture.
The resolution points out that competition law does not ban all types of
cooperation between competitors. It goes on to encourage farmers to form
co-operatives to counter large buyers (supermarkets etc.) in the EU, stating,
“Where appropriate, farmers should be encouraged to form entities or
organisations to create efficiencies in order to respond to market challenges in
a pro-competitive way.” Although aimed at the politically sensitive farming
sector, this general principle applies to suppliers throughout the food chain.
Commission Concerned with SEP Injunctions
On 21 December 2012, the EC indicated that its preliminary view is that
Samsung has abused a dominant position by seeking injunctions against Apple in
various EU countries on the basis of its 3G mobile phone standard-essential
patents (SEPs). While recourse to injunctions is a perfectly legal remedy for
patent infringements, such conduct may, in the EC’s view, be considered abusive
where SEPs are concerned and the potential licensee is willing to negotiate a
licence on fair, reasonable and non-discriminatory (so-called FRAND) terms.
The EC’s concern is that, since injunctions generally involve a prohibition
of the product infringing the patent being sold, recourse to an injunction in
this situation (where there is a willing licensee) risks excluding products from
the market without justification and may distort licensing negotiations unduly
in the SEP-holder’s favour. The EC is careful to point out, however, that it
does not question the availability of injunctive relief for SEP holders outside
the specific circumstances present in this case (such as where a third party is
unwilling to take a licence, an “unwilling licensee”).
This case is highly important in the context of the application of abuse of
dominance rules in the EU to licensing conduct and litigation strategy
concerning SEPs generally (not just where smartphones are concerned). There is
to date no precedent (and limited guidance) and, if a decision is ultimately
taken, the case will therefore be the first to establish when injunctions in
SEP-related patent litigation are allowed under EU and national competition law.
Any company involved in licensing SEPs in any sector in the EU should watch it
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