European Commission Launches Inquiry into Antitrust Law Compliance of
Online Selling Practices
Following a preliminary announcement in March, on 6 May 2015, the European
Commission (EC) launched an antitrust inquiry into the e-commerce sector in the
EU. The inquiry will focus on potential barriers erected by companies to
cross-border online trade in goods and services where e-commerce is most
widespread. This will cover sectors such as electronics, clothing and shoes, as
well as digital content.
Knowledge gained through the sector inquiry will be used to enforce antitrust
law in the e-commerce sector and also, the EC indicates, to facilitate
consideration of various legislative initiatives which it plans to launch to
boost the EU’s Digital Single Market.
This latter point is particularly important; the inquiry will impact future
legislation. All companies involved in this area should therefore follow and
consider participating in the inquiry. Indeed, they may have to. The EC will now
send requests for information to a range of stakeholders throughout the EU.
Under EU antitrust rules, the EC can require companies and trade associations to
supply information, documents or statements as part of a sector inquiry.
The inquiry will not be quick, however. The EC expects to publish a
preliminary report for consultation in mid-2016. The final report is expected in
the first quarter of 2017.
How to Acquire Assets Without Obtaining a State Aid Liability
A purchaser of assets from a company which has received illegal aid from an
EU Member State may be liable to repay that aid with interest. This clearly
could be a significant issue for the purchaser due to the impact on the
valuation of the assets.
A recent case decided by the EC provides an example of how properly to
structure an acquisition of assets so as to avoid such a concern. On 7 May 2015,
the EC decided that aid granted by Portugal to shipyard operator Estaleiros
Navais de Viana do Castelo, S.A. (ENVC) was not compatible with EU State aid
rules. This aid included a capital increase, several loans granted to cover
operating costs and comfort letters and guarantees to underwrite financing
agreements between ENVC and commercial banks.
The issue of liability for repayment was thus examined. ENVC is currently in
the process of being wound up and part of its assets had been acquired by a
third party, WestSea. Since WestSea acquired only part of the assets and
acquired them at market conditions following an open and competitive tender, the
EC concluded that WestSea is not the economic successor of ENVC (there being no
“economic continuity” between ENVC and WestSea). The obligation to repay the
incompatible aid therefore remained with ENVC and was not passed on to WestSea.
WestSea, having obtained this “no continuity” decision from the EC, is free
of the risk of repayment. However, similar buyers have got this wrong, and it
pays to be careful in these situations. This is particularly the case since aid
can arise in any form, the basic test being whether an advantage has been
obtained which would not have been obtained under normal market conditions.
What is a “Business” for the Purposes of Merger Control?
On 15 May 2015, the English Court of Appeal found in the Eurotunnel
case by a 2:1 majority that the UK Competition and Markets Authority (CMA) had
taken an “irrationally wrong” decision when analysing whether a collection of
assets amounted to all or part of a business for the purposes of UK merger
control. Since no business, or part of it, had been transferred, UK merger
control did not apply to the acquisition in question.
It is generally assumed that UK merger control (as with other regimes around
the world) has a very wide scope of application, going well beyond a simple
acquisition of a business via a share sale, to encompass a wide range of “asset”
purchases (as well as minority stakes in businesses, joint ventures and the
like). This remains the case, but Eurotunnel shows that at the margin,
arguments can be made on the issue of whether a business (or part of it) has
been acquired and this issue should not be overlooked.
As with all such situations, the case is fact-dependent, involving a business
(ferry operator SeaFrance) which had gone into liquidation and whose employees
had been made redundant. Before the Court of Appeal, the key issue was whether
those employees, when rehired by the purchaser of SeaFrance’s other assets
(Eurotunnel), could properly be characterised as having transferred to the
purchaser several months after they had been made redundant and SeaFrance had
The Court of Appeal’s majority view is perhaps best described in the
following caustic passage from Sir Colin Rimer’s analysis:
... If one were to explain the facts to the ubiquitous reasonable
man and ask him whether the employees either transferred, or “effectively”
transferred, from SeaFrance to the [purchaser], or so transferred “in effect”
or as a matter of reality, I would expect him to respond testily with a robust
negative…He would say that the simple reason for their re-employment … was
referable to the combination of [the purchaser]'s successful bid [for the
assets] and the various incentives provided by [a statutory job saving plan]
for the re-employment of SeaFrance's ex-employees. He would be right. He might
wonder why he was being asked such a peculiar question.
There was therefore no business transfer and the CMA’s decision that there
had been, as well as being “irrationally wrong”, was “materially flawed” and set
aside. The CMA has stated that it will seek permission to appeal this judgment
(which appeal would be heard by the UK Supreme Court).
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