European Competition Law Newsletter – November 2014

November 3, 2014

Cooperation with a Competitor Can Be Risky

The European Commission recently provided a reminder that cooperation agreements with competitors must be analysed carefully for compliance with competition law in the EU. The closer the arrangements are to the customer, the more significant the concerns will be.

The case, originally opened in December 2011 following a complaint, relates to agreements between Honeywell and DuPont concerning production arrangements and the development of production processes for a new refrigerant (R-1234yf) for use in car air-conditioning systems. R-1234yf is currently the only commercially available refrigerant which complies with EU environmental standards for air conditioning systems in motor vehicles. Honeywell and DuPont are the only two suppliers of the refrigerant to car manufacturers.

The EC announced on 21 October 2014 that it is concerned that the arrangements may have hindered competition on the market for R-1234yf, in particular by limiting the availability of the product on the market and also by limiting its technical development. Original concerns that Honeywell may have engaged in deceptive conduct during the evaluation of 1234yf (a type of “patent ambush”) have been dropped.

A key issue in the case, already raised by the parties, will be whether the EC’s allegations conflict with its own guidelines and case precedent concerning horizontal cooperation between competitors, particularly given the environmental aspects.

Compliance Warning: Parent and Subsidiary Fined Heavily for Refusal to Supply, Margin Squeeze and Recidivism

On 15 October 2014, the EC announced that it had fined Slovak Telekom 39 million euros for abusing a dominant position in the Slovak broadband market. Deutsche Telekom, although not directly involved, was held jointly and severally liable for the abuse on the basis that it controlled the company through its 51 percent shareholding and majority on the board.

Slovak Telekom, the incumbent telecom operator in Slovakia, had refused to supply unbundled access to its local loops to competitors under fair conditions. It also had imposed a margin squeeze on alternative operators which made it impossible for them to use its local loops to offer retail broadband services in competition with Slovak Telekom without incurring a loss. The local loop is the metallic cable that connects a customer’s premises with the local telephone exchange.

To add insult to injury, Deutsche Telekom was fined an additional 31 million euros, since back in 2003, it (not Slovak Telekom) had been fined for the same type of abuse of dominance. This was despite the fact that the previous abuse had taken place in the German market.

This case shows once again how essential it is that suitable competition compliance programmes are in place in the EU and that these adequately cover all subsidiaries. Parent companies are liable for the behavior of their subsidiaries, and this can give rise to additional fines for recidivism, even where the parent was not actively involved in the infringement.

The case also shows that any company relying on a dominant competitor for supplies or access may be able to use refusal-to-supply or margin-squeeze arguments to improve its competitive position in the EU.

State Aid and Tax: What is Going On?

There has been a lot of media attention recently on the EC’s investigation into tax arrangements in certain EU jurisdictions. These include Ireland, the Netherlands, Luxembourg and Gibraltar. But what exactly is the issue?

State aid is aid from a government body which a private sector entity would not have provided, or would have provided on different terms. It is in principle banned in the EU, although there are numerous exceptions.

State aid is normally visualised as being a grant or a subsidy, but it can take many forms, including alleged “sweetheart” tax deals. The recent high-profile EC announcements concern these types of arrangements − deals between individual companies and national tax authorities where, in the EC’s words, the beneficiaries “can put enticing investments and job opportunities on the negotiating table” which “smaller companies” cannot match.

The EC has made it clear that it is not trying to harmonise tax policy across the EU by the back door. EU countries remain free to set their own policies; the EC is simply trying to ensure that, when implementing these, national authorities do not grant selective advantages to a few companies at the expense of all the others present in the same jurisdiction. Big must be treated in the same way as small.

Regardless, what is clear is that companies concerned about favourable tax treatment of competitors will receive a sympathetic ear at the EC. Complaints can be made and ultimately the beneficiaries of illegal aid via tax breaks may have to pay back the advantage received, plus interest. Clearly these sums can be very large. There is a lot at stake.

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

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