EU/UK Competition Law Newsletter – May 2011

May 2, 2011

EC Cartel Fine Provides Warning on Dangers of Trade Associations

The European Commission (EC) fined Procter & Gamble and Unilever a total of EUR315.2 million for operating a cartel together with Henkel in the market for household laundry powder detergents in eight EU countries on April 13, 2011. Henkel obtained full immunity from a fine for revealing the cartel to the EC. The EC used its settlement procedure for the third time, and based on this, P&G and Unilever received 10% fine reductions.

The EC described the cartel as starting when the companies implemented an initiative through their trade association to improve the environmental performance of detergent products. However, this led to wider arrangements aimed at price coordination and stabilizing market positions. The case provides another clear warning of the dangers inherent in trade association activities. Due to these risks, companies are increasingly banning or restricting attendance at trade associations. At the very least, competition law compliance programmes must carefully consider the issues raised by trade associations, and staff who attend meetings must be trained appropriately.

UK Regulator Provides Guidance on Competition Law Treatment of Land Agreements

UK law was changed so that its competition law applies to land agreements as it does to other types of agreements on April 6, 2011. Reflecting this change, on March 24, 2011, the UK Office of Fair Trading (OFT) published guidance on the application of competition law to such agreements.

The guideline sets out that: there is no presumption that a land agreement will infringe competition law, and the OFT expects that only a small minority will do so; restrictions on the use of land may potentially infringe competition law where this protects a business from competition, or prevents its competitors from entering a market; and generally, the OFT is unlikely to take further action in cases where none of the parties to an agreement has more than a 30% share of the market in which the land is being used. The principles set out in the guidance will also be of interest to any company or adviser considering similar agreements in other EU countries or under EU competition law.

EU General Court Confirms State Aid Treatment of Airport Infrastructure Funding

The EU’s General Court (its second highest court) ruled that the construction of airport infrastructure is an economic activity on March 23, 2011. Therefore, public funding of infrastructure necessary for the operation of an airport alleviates the costs that the airport operator would normally have to bear and constitutes State aid. State aid which is paid and which would not have been provided by an investor operating under normal market conditions or which cannot otherwise be exempted under one of the special provisions in the Treaty on the Functioning of the European Union, must be repaid with interest by the beneficiary.

The EC welcomed this decision, stating that “the ruling of the General Court is important . . . for [all EU] Member States and . . . European airports.” The ruling is consistent with the EC’s approach as laid down in its 2005 guidelines on the financing of airports, and as applied in a number of decisions since 2001.

EU General Court Provides Important Judgment on Agreements which Prevent Potential Competition

The EU General Court decided on April 14, 2011, that Visa had infringed EU rules on restrictive business practices by refusing to admit, for six and a half years, Morgan Stanley Bank as a member to its payment card network without objective justification. The General Court also upheld the EUR10.2 million fine imposed on Visa.

The court held that an assessment of the conditions of competition in a given market has to be based not only on the existing competition between undertakings already present in the market in question, but also on potential competition from new entrants. The court took the view that it is correct to consider whether the entry of a new player (here Morgan Stanley Bank) would have created scope for further competition in the market in question. The essential factor on which the assessment of a potential competitor must be based is its ability to enter the market.

In the specific circumstances of this case, the judgment confirms that an association of banks cannot unjustifiably exclude another bank which could potentially bring further competition on the market. However, the principles apply to any other scenario in which entry to a market may be foreclosed by agreement.

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

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