EU/UK Competition Law Newsletter – April 2012

April 2, 2012

UK Lowers the Bar for Personal Criminal Convictions

On 15 March 2012 the UK Government finally published its plans to amend the UK competition law regime. The most significant substantive change is the removal of the requirement to show “dishonesty” when the government brings a prosecution against an individual for the “cartel offence”. This offence covers involvement by an individual acting for a business in certain types of cartel-type agreements such as price fixing. The change is expressly intended to make it easier to convict individuals for this offence. There will be a new defence; the offence will not be made out if the “parties” have agreed to publish details of the arrangements before they are implemented. However, the government itself admits that in practice this defence is likely to be used very rarely (if at all). It makes the unsurprising point that only a very small number of cartel agreements may be defensible (for their overall public benefits) and therefore suitable for publication in this way. Regardless, the changes re-emphasise the need for suitable competition law compliance programmes to be in place in the UK.

European Commission Moves in Favour of Software Interoperability

Demonstrating that its bruising battles with Microsoft have not deterred it from taking on IT companies, on 1 March 2012 the European Commission (EC) opened an investigation against U.S. software company The MathWorks (TMW). The EC is investigating whether the company has refused to provide downstream competitors with end-user software licences and accompanying interoperability information for two of its products which are used for the design of commercial control systems. The concern is that it has thereby prevented the competitors from achieving interoperability with these products. This could be an abuse of TMW’s dominance in relation to the market for the design of commercial control systems.

Separately, on 22 March 2012, the EC launched a public consultation on the issue of hardware and software interoperability (when not covered by standards) generally. This may result in legislation on the issue. This development and the TMW case (plus an ongoing investigation against Google, to name just one other example) demonstrate the EC is still focusing hard on the technology sector. The potential for EC involvement can be a useful weapon for companies in their dealings with third parties.

ECJ Rules on Targeted Below Cost Pricing by a Dominant Company

On 27 March 2012 the Court of Justice of the European Union (ECJ) (the EU’s highest court) handed down an important confirmatory judgment on the issue of when below cost pricing by a dominant company is abusive and therefore illegal. The case is relevant to companies with significant market positions in the EU and companies competing with or buying from such companies. Essentially following existing case law and guidance, the ECJ distinguished average total costs (ATC) attributed to the activity concerned and average incremental costs (AIC) pertaining to that activity. It then held it is not abusive for a dominant company to charge prices to certain major customers of a competitor which are lower than the relevant ATC, but higher than AIC. In order for such an activity to be abusive, it is first necessary to find that the activity produces actual or likely exclusionary effects which impact that competitor, to the detriment of competition and therefore consumers’ interests. However, even if this is the case, the behaviour will not be abusive if the dominant company can show either that its conduct was objectively necessary or that the exclusionary effect was counterbalanced or outweighed by efficiency gains that benefit consumers.

Guidance on Use of Non-competes in Joint Ventures

On 14 March 2012 the EC invited comments on a proposal by Siemens and Areva to settle an investigation against those companies. In doing so, the EC has provided guidance on how it treats non-compete covenants entered into in the context of a joint venture (JV). When the companies created their JV, which related to a number of nuclear technology markets, they agreed that the parents would not compete with it anywhere in the world for its lifetime and for eight to 11 years afterwards, depending on the product or service involved. The EC took the view that those periods might be excessive. The companies have therefore suggested that the periods are reduced to three years post-termination in relation to the JV’s core products and services and zero years post-termination in relation to its non-core products and services. The acceptable period for a JV non-compete (as with all similar clauses) is dependent on the facts of the case, but this investigation nevertheless provides useful guidance as to the EC’s thinking on this issue.

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

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