European Competition Law Newsletter – September 2013

September 2, 2013

European Commission Investigates Margin Squeeze Case

On 15 August 2013, the European Commission (EC) announced that it is consulting on proposals to end a “margin squeeze” investigation against Deutsche Bahn (DB), the German railway incumbent. A margin squeeze occurs when the prices charged by a dominant company on an upstream market in a situation in which that company or another in its group is also active in a downstream market do not allow competitors on that downstream market to trade profitably on a lasting basis.

In this case the alleged margin squeeze relates to the pricing of traction current by a DB subsidiary that is the only supplier in Germany and that is therefore dominant in that market. The EC considers that this company’s pricing may have created a margin squeeze on the downstream long-distance passenger rail transport and rail freight markets in Germany (in which its parent is active). DB has proposed a new pricing system for traction current that would apply uniformly to all railway companies in Germany for five years.

Companies that purchase from a dominant supplier and that compete with it or with one of its group companies should take note of this. A “margin squeeze” argument, backed up by a possible complaint to a regulator or court action in a national court, may be available, to force that supplier to offer better terms.

UK Office of Fair Trading Decision on Illegal Restrictions of Online Sales by Retailers

On 5 August 2013, the UK Office of Fair Trading (OFT) issued a decision finding that Roma Medical Aids Limited (Roma), a manufacturer of mobility scooters, and some of its retailers breached UK competition law by limiting online sales. UK competition law is, on the substantive side, effectively the same as EU competition law, so the principles in this case apply EU-wide.

The OFT found that Roma entered into arrangements with seven UK retailers that prevented them from selling Roma-branded mobility scooters online and from advertising their prices online. This limited consumers’ choice and obstructed their ability to compare prices and get value for money. This decision is important because it shows that the OFT, like other competition authorities throughout Europe, is keen to clamp down on restrictions on online sales. It is also important to note that the decision follows a study into the mobility aids sector in the UK carried out by the OFT in 2011. Market studies at national or EU level should be followed carefully since they can lead to material consequences for businesses affected (including but not limited to enforcement actions such as this).

The case also serves as yet another reminder that even small companies, such as those involved in this case, need to put in place and regularly update a suitable competition law compliance programme in the EU.

UK Office of Fair Trading Investigation Applies Agency Rules in the Online World

The OFT is consulting on proposals put forward by two online travel agents (OTAs) and InterContinental Hotels Group plc (IHG), which are designed to address its competition concerns in relation to the online offering of room-only hotel accommodation bookings by OTAs. The case demonstrates that agency agreements in the UK and the rest of the EU, including those that operate only for online sales, need to be established correctly in order to comply with competition law.

The OFT’s allegation in this case is that the two OTAs and IHG were parties to an agreement under which the OTAs agreed to offer hotel accommodation at a particular IHG hotel at the day-to-day room rate set by the hotel and not to offer rooms at a lower rate, for instance by funding a promotion or discount from their own margin or commission. The proposals put forward in the consultation, which was announced on 9 August 2013, would allow OTAs to provide discounts on the rate at which room-only hotel accommodation bookings are offered at IHG hotels (for example by using their commission revenue or margin).

The case follows, in the online world, established principles on the competition law treatment of the principal/agent relationship. Where a “true agent” for the purposes of competition law is being used, the principal is free to set the prices and conditions at which the agent must sell or purchase the goods or services that it is handling for the principal. However, where an agent is not a “true agent”, then any obligation preventing or restricting the agent from sharing its commission with the ultimate customer will generally give rise to an infringement of competition law and potentially a fine. The agent in this situation must be free to lower the effective price paid by the customer.

Spanish Antitrust Authority Investigates the Automotive Fuel Distribution Sector

The automotive fuel distribution sector in Spain has in recent years been the subject of several investigations by the antitrust authority (the Comisión Nacional de la Competencia (CNC)). In addition, complaints about the sector are regularly made to the CNC.

In May 2013, the CNC, expressly justifying its actions by reference to this background, started an investigation into several automotive fuel distribution businesses. This was followed, on 30 July 2013, by the opening of formal proceedings against six companies, alleging anticompetitive behaviour in the fuel supply and fuel distribution markets (including price coordination and the exchange of sensitive commercial information).

This case shows that companies need to consider the repercussions not only of an antitrust authority’s sectoral investigations but also of customer complaints, particularly in high-profile and politically sensitive markets. Business practices affected by such investigations or complaints should be checked carefully for compliance with the law, so that if an investigation is started, the company is not put at risk of sanctions.

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

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