Check Those Merger Control Obligations; Marine Harvest Fined for Gun-Jumping
On 23 July 2014, the European Commission (EC) imposed a fine of €20 million on salmon farmer and processor Marine Harvest ASA for acquiring its rival Morpol ASA, both of Norway, without having received prior clearance under the EU Merger Regulation.
Marine Harvest had acquired only a 48.5% stake in Morpol. Nevertheless, based on established precedent, the EC considered that under EU merger control law this de facto gave rise to sole control over Morpol since, following the transaction, Marine Harvest enjoyed a stable majority at the shareholders’ meetings.
Most merger control regimes around the world include a similar requirement for prior clearance. Further, EU merger control is far from unique in catching minority acquisitions. This case therefore serves as another reminder that companies must carefully investigate their merger control obligations worldwide before entering into a joint venture, merger or acquisition of shares or assets. This includes situations in which the acquisition is of only a minority interest.
Second Patent Settlement Fine in the EU
The EC constantly flags the pharmaceutical sector as being high on its competition law target list. The EC wants to ensure that EU consumers benefit from generic pharmaceutical products entering the market and it is particularly focused on activities which restrict this. Other sectors should take heed, since the EC’s analysis of such activities has general application.
In its latest pharmaceutical case, on 9 July 2014 the EC imposed fines totalling €427.7 million on Servier and five producers of generic medicines for concluding a series of deals all aimed at protecting Servier’s perindopril product from price competition by generics in the EU. This followed the expiry of Servier’s principal patent for the perindopril molecule in 2003. Certain secondary patents had remained in force.
The particular actions condemned by the EC were a technology acquisition by Servier (designed to stop access by generic competitors to non-patented alternatives to the secondary patents) and a series of patent settlements with these generic rivals, which followed challenges to the secondary patents. Under these settlements, the generic companies agreed to abstain from competing in exchange for payments from Servier.
The EC sees such patent settlements as being a type of cartel. Making this point, the EC indicated that one of the generic companies acknowledged that it was being “bought out of perindopril”. In addition, according to the EC, Servier offered one of the generic companies a licence for seven national markets; in return, the generic company agreed to “sacrifice” all other EU markets and stop efforts to launch its perindopril there.
Although this was a pharmaceutical sector case, similar issues would apply in any other sector. Companies are of course able to apply for patents, to enforce them, to transfer technologies and to settle litigation. However, competition law concerns may arise where such tools are misused. The EC stated that “engaging in an exclusionary strategy to foreclose important competing technologies and buying [a] close competitor … is blatantly abusive.”
Compliance Warning; Commission’s Wide Dawn Raid Powers Confirmed
The EU’s highest court (the Court of Justice (ECJ)) has confirmed the EC’s wide competition law dawn raid powers. Similar principles will generally apply to raids by national competition authorities in the EU. Companies need to be aware of these powers and to train staff appropriately since significant fines can be imposed for failure to cooperate with dawn raids.
In a judgment of 25 June 2014, the ECJ confirmed that, when undertaking a dawn raid, the EC is obliged to indicate as precisely as possible the evidence sought and the matters to which the investigation relates. However, it is not required to define precisely the relevant market, to set out the exact legal nature of the presumed infringements or to indicate the period during which those infringements were committed.
This is justified by the fact that, since dawn raids take place at the beginning of an investigation, the EC by definition lacks precise information allowing it to make a specific legal assessment of the potential competition law infringement. It must first verify the accuracy of its suspicions and the scope of the incidents which have taken place. The aim of the inspection is specifically to gather evidence relating to a suspected infringement.
European Court Confirms Treatment of Margin Squeeze by Dominant Companies
The ECJ confirmed on 10 July 2014 the method established by the EC in a July 2007 decision for analyzing margin squeeze. Margin squeeze can arise when the price charged for an upstream input by a dominant company that is also active downstream using that input does not allow its downstream competitors sufficient scope to run a profitable business.
The case concerned Spanish incumbent telecoms operator Telefónica. The court confirmed that the EC had correctly demonstrated the existence of a margin squeeze with potential anticompetitive effects. In particular, the conduct of Telefónica was likely to reinforce the barriers for entry or expansion of competitors in the retail broadband market in Spain, which was downstream of certain markets in which the company was dominant. The court also confirmed the position that national legislation concerning telecommunications does not release dominant firms from their obligation to respect EU competition law.
The case is important for dominant companies that supply competitors downstream and for these competitors when dealing with such dominant companies, whatever the sector.
Additional European competition law news coverage can be found in our news section.