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Restrictions on Resellers’ Use of Third-Party Internet Platforms
On 26 July 2017, Advocate General (AG) Nils Wahl of the European Court of Justice (ECJ) handed down his
opinion in the seminal Coty case concerning restrictions on the use by resellers of third-party Internet platforms. This opinion should interest any company selling via distributors or acting as a distributor in the EU.
The case, a reference from a German court, concerns whether a supplier of luxury goods (here, luxury cosmetics) operating a selective distribution system may prohibit its authorised retailers from selling its products in a discernible manner on third-party platforms such as Amazon or eBay. The AG, advising the ECJ (which is not bound to follow the opinion), said that in principle and under certain conditions, such a prohibition, which seeks to preserve the luxury image of the products concerned, is not anti-competitive for the purposes of EU competition law.
The conditions that would deem a prohibition not anti-competitive are that the clause: (1) is applied dependent on the nature of the product, (2) is determined in a uniform fashion and applied without distinction and (3) does not go beyond what is necessary. These issues would be decided by the local German court that asked the ECJ to opine.
The AG also considered whether an agreement that included a restriction found to be anti-competitive could still qualify for the EU’s “block exemption” for vertical agreements. This issue is of most general interest, including outside the selective distribution context, since the vast majority of vertical (particularly distribution) agreements in the EU are analysed under the block exemption.
The AG said, in his view, the restriction on using platforms in a discernible manner would not disapply the block exemption from agreements including such a clause. Assuming that the ECJ follows this view, the AG’s opinion provides much-needed certainty in this area.
Merger Control: Don’t Jump the Gun but Do Provide Correct Information
On 6 July 2017, the European Commission provided a reminder to take merger control procedural rules seriously. The Commission announced three separate investigations, all related to alleged breaches of the EU merger procedural rules, but the same principles apply in the very large number of jurisdictions worldwide which have their own similar rules. Most countries impose fines for breach of the rules.
Two of the Commission’s investigations relate to the alleged provision of incorrect or misleading information. In one of these, the Commission alleges that General Electric (GE) provided incorrect or misleading information during the Commission's investigation of GE's planned acquisition of LM Wind. Specifically, GE allegedly failed to provide information to the Commission concerning its research and development activities in onshore and offshore wind turbines and the development of a specific product. The missing information allegedly had consequences not only for the Commission's assessment of GE's acquisition of LM Wind but also for the assessment of Siemens' acquisition of Gamesa.
The third case the Commission is investigating relates to alleged “gun-jumping” by the purchaser of a business. The allegation is that Canon Inc. implemented its acquisition of Toshiba Medical Systems Corporation before notifying it to, and also before obtaining approval from, the Commission.
The Commission alleges that Canon used a so-called "warehousing" two-step transaction structure involving an interim buyer, which essentially allowed it to acquire Toshiba Medical Systems prior to obtaining the relevant merger approvals. As a first step, the interim buyer acquired 95 percent of the share capital of Toshiba Medical Systems for €800 (voting shares), while Canon paid €5.28 billion for both the remaining 5 percent (non-voting shares) and share options over the interim buyer's stake.
The Commission alleges that under this first step, Canon paid the full price for and effectively acquired the target. This was therefore gun-jumping. The fact that Canon exercised the share options only following the Commission’s approval of the merger, so that only at that point did Canon legally acquire 100 percent of Toshiba Medical Systems, is seen as irrelevant.
Another EU Pharma Pay-for-Delay Case
The European Commission is investigating another pay-for-delay patent settlement in the pharmaceutical industry for an alleged breach of EU competition law. The case, announced on 17 July 2017, concerns an agreement between Teva and Cephalon relating to sleep disorder drug modafinil.
Cephalon owned the patents for the drug and its manufacture. After certain Cephalon patents on the modafinil compound expired in the European Economic Area (EEA), Teva entered the UK market for a short period of time with a cheaper generic product.
Following a lawsuit concerning an alleged infringement of Cephalon's process patents on modafinil, the companies settled their litigation in the UK and the U.S. with a worldwide agreement. As part of this agreement, Teva undertook not to sell its generic modafinil products in the EEA until October 2012. In exchange, Teva received a substantial transfer of value from Cephalon through a series of cash payments and various other agreements.
The case therefore appears to include each of the pay-for-delay patent settlement agreement elements identified in previous pharmaceutical cases as problematic: the litigation between the parties related to process patents following the expiry of compound patents; a "substantial transfer of value" from the originator to the generic company; the transfer serving as a "significant inducement" for the generic to delay its own entry; and the competitor relationship of the parties (since the generic company had already entered the UK market with its product).
This remains a difficult area on which to advise, and there is no clear counseling standard, but some general principles do provide a possible path through the maze. For further coverage of this issue, see our recent article.
Another UK Case on Online Selling Restrictions
The UK Competition and Markets Authority (CMA) recently investigated a number of online selling practices. In its most recent decision, the CMA closed a case concerning the use of live online bidding platforms, after accepting commitments from a provider of these services, ATG Media, to change its behaviour. This case should interest any user or provider of similar services in other industries.
ATG Media is the largest provider of live online bidding platforms in the UK, including “The Saleroom” — an arts and antiques platform. Auction houses use these platforms to facilitate online live bidding without bidders having to attend in person.
The CMA launched an investigation into three of ATG Media’s practices that CMA considered potentially anti-competitive because they prevented or discouraged customers from using rival platforms:
- obtaining exclusive deals with auction houses, so they do not use other providers;
- preventing auction houses from getting cheaper online bidding rates with other platforms for their bidders — through contract clauses known as most-favoured nation (MFN) or price parity clauses; and
- preventing auction houses from promoting or advertising rival live online bidding platforms in competition with ATG Media.
Without admitting any infringement of competition law, ATG Media gave legally binding promises to the CMA to discontinue these practices for a period of five years. The CMA therefore closed its investigation.
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