European Competition Law Newsletter – October 2019

October 1, 2019

Table of Contents


Brexit is (or may be) Coming!

More than three years after the EU referendum in the UK (in which 37 percent of the electorate at the time voted “Leave”), it is still unclear whether the UK will leave the EU on 31 October 2019 (the current “Brexit Day”).

That remains the default legal position, but the UK Parliament has also passed a law designed to stop a “no-deal” Brexit on 31 October. Under that law, if an exit deal (as opposed to a long-term trading arrangement) is not agreed to between the UK and EU by 19 October, and Parliament does not vote in favour of leaving with no deal, then the UK Prime Minister will be legally obliged to ask the EU for a further delay to Brexit. It would then be up to the other 27 EU countries to decide whether to grant that further extension and on what terms.

If a no-deal Brexit takes place on 31 October, there will be implications for competition law enforcement and practice in the UK, but there are much bigger issues for companies trading in or into the UK. These include the impact on supply chains, personnel, data transfer and contracts, just to name a few.

If not in place already, contingency plans should urgently be considered. For many companies, establishing a new presence in one of the remaining EU countries, for example Belgium, is a sensible option.

Exchange of Competitively Sensitive Information May Infringe Competition Law

On 20 September 2019, the UK Competition and Markets Authority (CMA) announced that pharmaceutical suppliers King Pharmaceuticals and Alissa Healthcare Research had admitted breaking competition law by exchanging information in order to keep prices up.

There appears to be no allegation that the companies actually agreed on prices. Instead, they simply exchanged commercially sensitive information, including information about prices, volumes and entry plans for the drug Nortriptyline between 2015 and 2017.

The exchange of strategic and competitively sensitive information, such as this, between competitors is extremely dangerous and has often been seen (and fined) as a cartel under EU and UK competition law. In addition to a likely fine, the companies will now almost certainly receive follow-on civil claims for damages from customers in the UK (in particular, the UK National Health Service).

Compliance programmes and training for EU and UK competition law should cover and emphasise the dangers of exchange of competitively sensitive information between competitors, even if that exchange has no impact on the market.

Companies Admit to Illegal Customer Sharing Arrangement Carried Out Via Email

The UK communications regulator (Ofcom) announced on 19 September 2019 that Royal Mail and The SaleGroup had both admitted to participation in a customer sharing arrangement.

The SaleGroup, trading as Despatch Bay, is an online reseller of parcel delivery services, including for Royal Mail. It arranges deliveries for small and medium-sized business customers by sourcing multiple parcel operators, rather than carrying out deliveries itself. The company also offers its customers a single point of contact for administrative services such as billing and invoicing.

The two companies implemented, monitored and enforced an agreement to share at least 90 customers between 2013 and 2018. Enforcement took place through regular email correspondence, with one company usually asking the other to withdraw a quote provided to certain customers. Some of these offers had undercut the price a customer was paying at the time. Therefore, when the quotes were withdrawn, the customers were prevented from paying lower prices for the same parcel delivery services.

The SaleGroup also shared its customer list with Royal Mail, with the aim of making sure each company could avoid offering services to the other’s customers.

Royal Mail blew the whistle on the arrangement (and therefore escaped a fine). It’s not known how the behaviour was uncovered, but an internal audit could well have done so, particularly given the (somewhat surprising) use of email to enforce the arrangement. Even if this was the case, the bald nature of the arrangement is notable and both companies will no doubt be reconsidering the effectiveness of their competition law compliance programmes.

The SaleGroup accepted a fine of £40,000, which was described by Ofcom as “significant” given the small size of the company. This shows that regulators can and do take fining decisions against even very small companies, not least as a deterrent and to create precedents.

Procedural Rules Matter: Another Fine for Infringing Hold Separate Obligations

Competition regulators worldwide react very badly to infringements of rules governing their investigations and the scope of their jurisdiction. Companies should take great care to ensure strict compliance to these rules and that jurisdictional claims are respected, not least in the merger control area.

The UK operates a voluntary merger control regime under which transactions may be completed without clearance having been obtained. However, where the CMA has put in place hold separate obligations on a company, the position becomes very similar to standard compulsory filing and suspension regimes, under which “gun-jumping” (closing or partially closing before clearance) often gives rise to fines.

An example of this came on 24 September 2019, when PayPal was fined £250,000 for a single violation of hold separate obligations imposed by the CMA in relation to the company’s completed acquisition of iZettle.

PayPal had sought and obtained a derogation allowing it to engage in international integration activities that included conducting cross-selling pilot campaigns involving its non-UK businesses. The derogation was subject to the requirement that any international activities did not affect the UK and were confined to non-UK jurisdictions.

The CMA found that PayPal had not adequately complied with this limitation. It conducted cross-selling pilot campaigns (intended to target customers in France and Germany) that led to it contacting potential UK customers. This was a concern even though the numbers were limited. The CMA found that 76 potential UK customers, 16 of which had an online and offline presence in the UK, were contacted as part of the campaigns (albeit there was a risk that significantly more potential UK customers were contacted given the total number of customers contacted).

Although the mere fact of the procedural breach was a concern, the CMA explained that these activities could have impacted the ongoing competitiveness of the businesses should the transaction not have proceeded (as a result of a negative finding by the CMA following its merger inquiry).

European Commission Wins and Loses But Will Continue to Review Tax Planning Measures Under EU State Aid Law

EU state aid law governs the ability of EU member states to provide grants and other monetary advantages to companies within their jurisdiction. In principle, although subject to many exceptions, any aid which a private investor would not have provided is illegal.

The scope of this law often surprises companies, particularly so when it comes to tax. In a number of recent cases, the European Commission has found that tax arrangements agreed to between EU member states and multinational companies were illegal under EU sstate aid law, meaning that the companies were required to pay back underpaid tax plus interest.

On 24 September 2019, the EU General Court (the EU’s second highest court) ruled on two of the most high profile of these cases (see the various judgments: T-755/15, T-759/15, T-750/15 and T-636/16). The court upheld the Commission's 2015 decision finding that Luxembourg granted illegal selective tax advantages to Fiat. However, the court annulled the Commission's 2015 decision finding that the tax rulings granted by the Netherlands to Starbucks were not in line with EU state aid rules. These cases concerned particular issues about selectivity of tax measures (a requirement of EU state aid law to apply) and whether transactions between group companies give rise to an advantage under EU state aid rules based on the so-called “arm's length principle.”

In response, the Commission confirmed that it will continue to look at aggressive tax planning measures under EU state aid rules to assess if they result in illegal state aid. Companies need to be aware of the potential application of EU state aid rules to their tax arrangements, as well as to other advantages granted by EU member states in whatever form.

The onus is on the recipient to make sure that the rules have been complied with, so that it does not face the risk of repayment plus interest.

Additional European competition law news coverage can be found in our news section.

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