Be Careful with (Unjustifiable) Non-Competes
On 23 January 2013, the European Commission (EC) fined telecoms operators Telefónica and Portugal Telecom EUR67 million and EUR12 million, respectively, for entering into a non-compete arrangement with each other. The case provides a stark reminder that non-compete agreements must be justified and, if they are not, they may be seen and fined as cartels.
The non-compete arrangement was entered into in the context of the July 2010 acquisition by Telefónica of the Brazilian mobile operator Vivo, which until then had been jointly owned by Telefónica and Portugal Telecom. However, the arrangement had no relationship with that transaction, since it provided that from the end of September 2010 the two companies would not compete with each other in Spain and Portugal. The arrangement was terminated in early February 2011 after the EC had opened an investigation into it.
The EC, in announcing the fine, commented that “non-compete agreements are one of the most serious violations of EU competition rules, as they potentially result in higher prices and less choice for consumers”. The level of the fines, for a four-month agreement, reflected this.
Competition Law and Agriculture/Food?
As part of the reform discussions concerning the EU’s Common Agricultural Policy (CAP), some members of the European Parliament (EP) have suggested an exemption from competition law for farm production. The members of the European Competition Network (ECN), a grouping of national competition authorities in the EU plus the EC, have expressed concerns about this and on 15 January 2013 published a joint resolution on the issue. This strongly expresses their view that competition law should apply in full in all sectors in the EU, including food and agriculture.
The resolution points out that competition law does not ban all types of cooperation between competitors. It goes on to encourage farmers to form co-operatives to counter large buyers (supermarkets etc.) in the EU, stating, “Where appropriate, farmers should be encouraged to form entities or organisations to create efficiencies in order to respond to market challenges in a pro-competitive way.” Although aimed at the politically sensitive farming sector, this general principle applies to suppliers throughout the food chain.
Commission Concerned with SEP Injunctions
On 21 December 2012, the EC indicated that its preliminary view is that Samsung has abused a dominant position by seeking injunctions against Apple in various EU countries on the basis of its 3G mobile phone standard-essential patents (SEPs). While recourse to injunctions is a perfectly legal remedy for patent infringements, such conduct may, in the EC’s view, be considered abusive where SEPs are concerned and the potential licensee is willing to negotiate a licence on fair, reasonable and non-discriminatory (so-called FRAND) terms.
The EC’s concern is that, since injunctions generally involve a prohibition of the product infringing the patent being sold, recourse to an injunction in this situation (where there is a willing licensee) risks excluding products from the market without justification and may distort licensing negotiations unduly in the SEP-holder’s favour. The EC is careful to point out, however, that it does not question the availability of injunctive relief for SEP holders outside the specific circumstances present in this case (such as where a third party is unwilling to take a licence, an “unwilling licensee”).
This case is highly important in the context of the application of abuse of dominance rules in the EU to licensing conduct and litigation strategy concerning SEPs generally (not just where smartphones are concerned). There is to date no precedent (and limited guidance) and, if a decision is ultimately taken, the case will therefore be the first to establish when injunctions in SEP-related patent litigation are allowed under EU and national competition law. Any company involved in licensing SEPs in any sector in the EU should watch it carefully.
Additional EU/UK competition law news coverage can be found in our news section.