Guidance on Use of Non-competes in Joint Ventures
On 18 June 2012, the European Commission (EC) provided guidance on how it treats non-compete covenants entered into in the context of a joint venture (JV). JV arrangements between Areva and Siemens concerning nuclear technologies had included non-compete obligations on the parents that would apply for up to 11 years after the end of the JV. Following an investigation, the EC found that one element of this, a restriction on Siemens from competing on markets on which the joint venture had acted only as re-seller of Siemens’ products, could not be justified post-termination. For markets on which the JV had sold its own products, the EC found that the non-compete clause was acceptable, but only for three years post-termination. The same applied to related confidentiality clauses insofar as they had the same effects as the non-competes. The case was closed after Areva and Siemens agreed to change the arrangements to reflect these concerns.
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.
Guidance on Operation of Selective Distribution Systems
On 14 June 2012, the EU’s highest court (the Court of Justice [ECJ]) handed down a judgment which considered the operation of selection criteria in selective distribution systems. There are two basic types of selective distribution systems: quantitative, in which, in order to select distributors, the supplier uses criteria which directly limit their number; and qualitative, in which the supplier uses purely qualitative criteria for the selection of distributors. The judgment concerned quantitative selection only and in particular the question of the definition of “specified criteria”. The case related to motor vehicles (to which a special regime applies), but the same phrase is used in the general vertical restraints block exemption regulation (VRBER) to define when a selective distribution agreement can fall within the VRBER. The VRBER provides for an automatic exemption from EU competition law for certain vertical agreements, including distribution agreements, outside the motor vehicle sector.
The ECJ held that this phrase simply refers to criteria whose precise content can be verified. It is not necessary for the criteria to be objectively justified and applied in a uniform and non-differentiated manner or for the criteria to be published. This issue had been uncertain and the judgment means that, where the other conditions of the VRBER are satisfied, suppliers have significant flexibility in choosing how to operate a quantitative selective distribution system in the EU.
European Commission Investigates Discriminatory Pricing
The EC announced on 13 June 2012 that it is investigating the German railway incumbent Deutsche Bahn group for alleged discriminatory pricing, which could amount to an abuse of the company’s dominant position and therefore be illegal. The case is relevant to companies with significant market positions in the EU and companies competing with or buying from such companies.
One of the companies within the Deutsche Bahn group is the only supplier of traction current on the German market. Traction current is a particular type of electricity needed to move electric locomotives and trains on the railway network. The allegation is that this group company, through its discount structure, discriminated against competitors of the railway operating business of Deutsche Bahn group by requiring them to pay higher prices. This could ultimately lead to a requirement that the group changes its practices and a fine could be imposed.
Additional EU/UK competition law news coverage can be found in our news section.