European Competition Law Newsletter – January 2015

January 2, 2015

Compliance Warning; Your Company Will Be Fined if You Obstruct a Dawn Raid

On 26 November 2014, the EU General Court (GC) (the EU’s second-highest court) upheld a EUR2.5 million fine imposed by the European Commission (EC) for obstructing an EC dawn raid. The case shows the crucial importance of properly training staff, including IT staff, in advance so they know what to do if a dawn raid happens.

The case concerned Czech companies Energetický a průmyslový holding (EPH) and its subsidiary EP Investment Advisors (EPIA), which had been fined in 2012 for failing to block an email account and diverting incoming emails during a dawn raid in 2009. The GC confirmed that the EC was right to consider both of these incidents serious breaches of EPH and EPIA’s obligation to cooperate with the EC during the raid. In line with previous case law, the GC held that the incidents constituted an obstruction in themselves; the EC did not need to show that any document was actually removed or manipulated.

The judgment sends a clear message to companies that any steps that undermine the integrity and effectiveness of EC dawn raids, including tampering with data stored electronically, are illegal and will be sanctioned. The position is similar in the case of raids by EU Member State competition authorities, and companies of all sizes with EU operations should take note.

This is not the first time the EC has fined a company for obstructing a dawn raid. In 2008, the EC fined German energy company E.ON EUR38 million for the breach of a seal during an inspection. The EC’s decision was confirmed by the GC in 2010 and subsequently by the EU Court of Justice (ECJ) in 2012.

European Commission Publishes Latest Pharma Patent Settlement Survey, but Legal Position Still Unclear

The EC’s latest report on pharmaceutical patent settlement agreements in the EEA (the EU plus three other countries), covering 2013, was published on 5 December 2014. The EC started these reports after its 2009 competition inquiry into the pharmaceutical sector, which identified settlements that limit generic entry and provide at the same time for a value transfer from the originator to the generic company as potentially raising competition concerns.

The headline finding in the report is that, as with previous years, the vast majority of pharmaceutical settlement agreements (some 92 percent) are prima facie unproblematic in competition law terms. The EC says this shows the industry’s increased awareness of potentially problematic practices. This may or may not be the case, but in any event this area of law remains unclear despite these reports and two recent EC decisions concerning this issue.

In its June 2013 Lundbeck decision, the EC imposed a fine of EUR93.8 million on Danish pharmaceutical company Lundbeck and fines totalling EUR52.2 million on several producers of generic medicines for agreeing to delay the market entry of cheaper generic versions of citalopram, a blockbuster antidepressant. In July 2014 the EC imposed fines totalling EUR427.7 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.

Both of those cases have been appealed to the GC, and the correct legal position will not be known until the court opines. Meanwhile, legal uncertainty limits the appetite of originators and generics to negotiate patent settlement agreements and indeed probably reduces the likelihood that generic suppliers will challenge patents in the first place (which could in turn skew the findings of the EC’s monitoring reports going forward).

Although these cases and studies come from the pharmaceutical sector, 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 in relation to the Servier case that “engaging in an exclusionary strategy to foreclose important competing technologies and buying [a] close competitor … is blatantly abusive.”

Lessons From the Latest European Commission Cartel Case

The latest EC cartel fining decision, handed down on 11 December 2014 and relating to envelope producers, contains several lessons for companies active in the EU. Not the least of these is that, as promised, under new Competition Commissioner Vestager, the EC’s competition directorate will continue to prioritise its fight against cartels in the EU.

An interesting particular point from the case is that there was no whistleblower. Instead, the EC started on its own initiative the investigation that led to the fines. The EC is keen to undertake such investigations to demonstrate to cartelists that there are a number of ways in which cartels can be identified and to destabilize them further.

Further, the case shows that in an acquisition a company takes on any cartel liability of the target. One of the cartelists had gone into liquidation after the cartel had ended and some of its entities/assets were purchased by a competitor. That competitor, also a cartelist in its own right, thereby gained liability for the activities of the liquidated business, and its total fine was increased as a result.

The risk of cartel fines remains very high in the EU, both at the EC and national levels. Companies should make sure that suitable compliance programmes are in place, that training is carried out and, ideally, that internal audits are undertaken.

The Risks of Trade Association Membership

Trade associations continue to be a good source of cases for competition regulators in the EU. It is essential that companies which are members understand how competition law applies to trade associations and to their participation in them. Where a trade association is involved, depending on exactly how any anti-competitive arrangements were organized, fines can be imposed on the association, its members or both.

A recent case from the UK provides a good example of the risks. On 10 December 2014, the UK Competition and Markets Authority (CMA) issued a statement of objections (preliminary statement of case) to an association of estate and lettings agents, some of its members and a newspaper publisher. The statement of objections alleges that these entities breached competition law by agreeing to prevent estate and lettings agents from advertising their fees or discounts in the local property newspaper. As part of this, it is alleged that the membership rules of the association themselves breached competition law.

The CMA may ultimately find no competition law infringement in that case, but it shows the risks of involvement. It is also notable that back in 2008 the predecessor to the CMA had sent a warning letter to the trade association in question to alert it that its rules of membership might infringe competition law. The current investigation was then started in 2013 following a complaint by a third party. Although no allegations have yet been proven, it appears that the trade association and its members may not have properly taken heed of this warning.

Another Consequence of Infringing Competition Law; Exclusion From Public Tenders

Many companies rely wholly or partly on revenue from public bodies. A recent case emphasises that participation in public tenders can be put at risk by a competition law infringement. This is the case even where the EU public procurement directives do not apply.

This was the finding of the ECJ on 18 December 2014 in a case concerning whether a tenderer could be validly excluded from a public tender process in Hungary on the basis that it had breached national competition law. The breach, concerning vertical restrictions, had been identified by the Hungarian competition authority and upheld by a Hungarian court.

The ECJ took the view that it is permissible for national legislation to exclude the participation in a tendering procedure of an entity in this scenario, even where the general EU public procurement rules do not apply. This is fully in line with general EU law principles.

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

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