European Competition Law Newsletter – June 2015

June 1, 2015

European Commission Launches Inquiry into Antitrust Law Compliance of Online Selling Practices

Following a preliminary announcement in March, on 6 May 2015, the European Commission (EC) launched an antitrust inquiry into the e-commerce sector in the EU. The inquiry will focus on potential barriers erected by companies to cross-border online trade in goods and services where e-commerce is most widespread. This will cover sectors such as electronics, clothing and shoes, as well as digital content.

Knowledge gained through the sector inquiry will be used to enforce antitrust law in the e-commerce sector and also, the EC indicates, to facilitate consideration of various legislative initiatives which it plans to launch to boost the EU’s Digital Single Market.

This latter point is particularly important; the inquiry will impact future legislation. All companies involved in this area should therefore follow and consider participating in the inquiry. Indeed, they may have to. The EC will now send requests for information to a range of stakeholders throughout the EU. Under EU antitrust rules, the EC can require companies and trade associations to supply information, documents or statements as part of a sector inquiry.

The inquiry will not be quick, however. The EC expects to publish a preliminary report for consultation in mid-2016. The final report is expected in the first quarter of 2017.

How to Acquire Assets Without Obtaining a State Aid Liability

A purchaser of assets from a company which has received illegal aid from an EU Member State may be liable to repay that aid with interest. This clearly could be a significant issue for the purchaser due to the impact on the valuation of the assets.

A recent case decided by the EC provides an example of how properly to structure an acquisition of assets so as to avoid such a concern. On 7 May 2015, the EC decided that aid granted by Portugal to shipyard operator Estaleiros Navais de Viana do Castelo, S.A. (ENVC) was not compatible with EU State aid rules. This aid included a capital increase, several loans granted to cover operating costs and comfort letters and guarantees to underwrite financing agreements between ENVC and commercial banks.

The issue of liability for repayment was thus examined. ENVC is currently in the process of being wound up and part of its assets had been acquired by a third party, WestSea. Since WestSea acquired only part of the assets and acquired them at market conditions following an open and competitive tender, the EC concluded that WestSea is not the economic successor of ENVC (there being no “economic continuity” between ENVC and WestSea). The obligation to repay the incompatible aid therefore remained with ENVC and was not passed on to WestSea.

WestSea, having obtained this “no continuity” decision from the EC, is free of the risk of repayment. However, similar buyers have got this wrong, and it pays to be careful in these situations. This is particularly the case since aid can arise in any form, the basic test being whether an advantage has been obtained which would not have been obtained under normal market conditions.

What is a “Business” for the Purposes of Merger Control?

On 15 May 2015, the English Court of Appeal found in the Eurotunnel case by a 2:1 majority that the UK Competition and Markets Authority (CMA) had taken an “irrationally wrong” decision when analysing whether a collection of assets amounted to all or part of a business for the purposes of UK merger control. Since no business, or part of it, had been transferred, UK merger control did not apply to the acquisition in question.

It is generally assumed that UK merger control (as with other regimes around the world) has a very wide scope of application, going well beyond a simple acquisition of a business via a share sale, to encompass a wide range of “asset” purchases (as well as minority stakes in businesses, joint ventures and the like). This remains the case, but Eurotunnel shows that at the margin, arguments can be made on the issue of whether a business (or part of it) has been acquired and this issue should not be overlooked.

As with all such situations, the case is fact-dependent, involving a business (ferry operator SeaFrance) which had gone into liquidation and whose employees had been made redundant. Before the Court of Appeal, the key issue was whether those employees, when rehired by the purchaser of SeaFrance’s other assets (Eurotunnel), could properly be characterised as having transferred to the purchaser several months after they had been made redundant and SeaFrance had stopped trading.

The Court of Appeal’s majority view is perhaps best described in the following caustic passage from Sir Colin Rimer’s analysis:

… If one were to explain the facts to the ubiquitous reasonable man and ask him whether the employees either transferred, or “effectively” transferred, from SeaFrance to the [purchaser], or so transferred “in effect” or as a matter of reality, I would expect him to respond testily with a robust negative…He would say that the simple reason for their re-employment … was referable to the combination of [the purchaser]’s successful bid [for the assets] and the various incentives provided by [a statutory job saving plan] for the re-employment of SeaFrance’s ex-employees. He would be right. He might wonder why he was being asked such a peculiar question.

There was therefore no business transfer and the CMA’s decision that there had been, as well as being “irrationally wrong”, was “materially flawed” and set aside. The CMA has stated that it will seek permission to appeal this judgment (which appeal would be heard by the UK Supreme Court).

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