European Competition Law Newsletter – November 2013

November 5, 2013

European Commission Approves Rescue Merger to Save Olympic Air

After an in-depth investigation, on 9 October 2013 the European Commission (EC) approved the takeover of Olympic Air by Aegean Airlines. The deal was first notified in 2011, when the EC prohibited it, due to serious competition concerns raised at the time. According to the EC, new market circumstances coupled with Olympic’s continuing financial difficulties would have led to the exit of Olympic from the market in any case, even absent the merger with Aegean. On all the (seven) routes on which Olympic and Aegean were the only carriers, in the near future Aegean would have become the only player anyway. The (re)notified deal, therefore, wouldn’t cause any harm to competition which wouldn’t have occurred anyway.

The EC based its assessment on the fact that Olympic has never been profitable and was unlikely to become profitable under any business plan. Moreover, its assets and operations were significantly smaller than in 2011. Finally, the EC’s market test (questions to third parties) showed that there was no other less anticompetitive merger possible as the entry of other airlines was very unlikely on any of the problematic routes. Antitrust authorities will have to monitor closely the merged entity’s behaviour in the future, given that the it might try to exploit its monopoly on the problematic routes.

The EC’s decision is one of the very few “rescue mergers” approved based on the so-called “failing firm defense”. This has no doubt caught the attention of other undertakings in financial difficulties (and their potential acquirers). For example, in the aviation sector potential buyers have now an interesting precedent to refer to if the financial situation of the Italian flag carrier Alitalia further deteriorates.

Parental Liability Confirmed for JV Partners

On 26 September 2013, the European Court of Justice (ECJ) dismissed the appeals by E. I. du Pont de Nemours and Company and The Dow Chemical Company and confirmed their liability for the involvement of their 50:50 JV in the chloroprene rubber cartel. The ECJ found that parent companies can be held liable when, on the basis of factual evidence and having regard to economic, organizational and legal links between the parents and the JV, the parent companies can be found to have exercised decisive influence over the JV.

The ECJ’s judgements are interesting in a number of respects. First of all, they confirm that parent companies can be held liable for the actions of their JV even if they are not involved in the JV’s day-to-day management (provided that the EC proves that the parent did exercise decisive influence over the JV). This is a strong message to companies operating in the EU to ensure that competition compliance programmes are set up and implemented with regard to both subsidiaries and JVs. Furthermore, the ECJ made clear that the fact that the JV is full-function (an independent entity) from a merger control perspective does not mean that it is independent from its parent when it comes to antitrust infringements. Finally, notwithstanding that the parents and the JV are deemed to be a single economic unit for the purpose of establishing the parents’ liability for the JV’s behaviour, the ECJ clarified that they remain separate entities for antitrust purposes and they will still have to self-assess the competition law compliance of the agreements amongst them.

State Aid for Energy and Environment: Shaping EU Policy

In the framework of a wider review of its State aid policy (see European Competition Newsletter of August 2013 for more information), the EC will soon launch a second public consultation on draft Guidelines on State aid for energy and environment. Earlier this year, the EC sought stakeholders’ views on its review of the current guidelines on State aid for environmental protection. In particular, the EC proposed that the new guidelines (which would be applicable from 2014 until 2020) (i) harmonise and simplify the rules for aid to energy and environmental projects, (ii) include public financing of energy infrastructure, (iii) address system stability and generation adequacy and (iv) facilitate support to low-carbon energy sources. The EC also stressed that the technology neutrality principle should be the starting point for the development of the new guidelines. This opened the debate on whether the new guidelines should also cover State support to nuclear energy projects.

Until now, the EC has acknowledged that the new guidelines will aim at encouraging State aid for generation adequacy (to encourage more efficient renewables), cross-border energy infrastructure and energy efficiency. It remains to be seen whether the new guidelines will also provide general EU-wide criteria under which support to nuclear will be deemed compatible with EU law or whether nuclear will be kept out of the guidelines (and therefore State aid for nuclear projects would have to be assessed on a case-by-case basis under general rules). The forthcoming second round of consultation will give interested parties the possibility to influence the decision-making and shape the new policy framework.

OFT Targets Mobility Scooter Producer for Online Sales Restrictions

On 24 September 2013, the UK Office of Fair Trading (OFT) issued a Statement of Objections (SO) alleging that Pride Mobility Products Limited (Pride) and eight of its online retailers agreed to prevent the retailers from advertising online prices below Pride’s recommended retail prices. The agreements or concerted practices allegedly took place between 2010 and 2012 and relate to seven scooter models manufactured by Pride. The OFT’s decision to issue the SO follows a 2011 market study on the mobility aids sector which identified some concerns, e.g. the lack of display of actual prices or price ranges to allow consumers to find competitive quotes. At this stage, the OFT believes that online retailers have been restricted from advertising their discounts online, thereby preventing consumers from finding out about lower prices and making it more difficult for innovative and more efficient retailers to win new customers.

This case shows that resale price maintenance (RPM) practices, regardless of how “indirectly” they are implemented (in this case, for example, retail prices were not directly fixed, but a limitation on the advertising of promotional prices was imposed), remain a clear focus of antitrust enforcers in the EU. Furthermore, regulators are increasingly looking into online sales agreements, given how important online sales and Internet distribution are for both suppliers and consumers.

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

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