European Competition Law Newsletter – April 2016

April 1, 2016

The Intersection of Big Data and Competition Law; Finally a Case in the EU

Any company active in the EU whose business is impacted by “big data” should be following the competition law issues in this area. This is so whether the company has such a collection of data or relies on or competes with a third party which does.  Companies in the latter two categories in particular should be aware that they might be able to use competition law as a “sword” to gain a commercial advantage or at least to protect their positions.

Legal theories are still being developed, but the first EU case in this area, against Facebook, shows that there will be many possible avenues to explore.  This case was opened by the German antitrust regulator, the Bundeskartellamt (BKA).

The BKA, which applies EU and German competition law, announced its investigation on March 2, 2016, via a press release (see here).  The BKA is investigating suspicions that, due to its terms and conditions (Ts & Cs) relating to users’ data, Facebook has abused its (possibly) dominant position in the market for social networks.

An initial question is whether Facebook is indeed dominant in that market and the company will argue that it faces a range of competitors.  Assuming dominance is nevertheless established, the BKA will be investigating links between this dominance and alleged violations of German data protection rules.

Specifically, the BKA explains that, in order to access Facebook, users must first agree to the company’s collection and use of their data by accepting its Ts & Cs. It is (according to the BKA) difficult for users to understand and assess the scope of the agreement they accept. There is “considerable doubt” that this opacity is acceptable under applicable national data protection law.

The use of illegal Ts & Cs can constitute an abuse of a dominant position if the use is the result of that position.  There must be a close link between the market power and the infringement and, in addition to the issue of dominance, that is likely to be the focus of the BKA’s investigation.

First UK Competition Law Class Action Launched

Showing the continuing development of private competition litigation in the UK, the first consumer class action has been launched under new rules introduced in October 2015.  This follows two recent “fast-track” business-to-business claims in the UK, also under those new rules.  Companies active in the UK must consider competition litigation as a potential route to protect their interests.

In the class action case, the National Pensioners Convention (NPC) is claiming on behalf of people who allegedly paid too much for mobility scooters from manufacturer Pride Mobility Products Ltd (Pride).  That company was found to have banned retailers from advertising online prices below its recommended retail price (RRP).  This was seen as a form of illegal resale price maintenance by the UK Office of Fair Trading (OFT) in a decision announced in 2014 (the OFT is the predecessor to the current UK competition regulator, the Competition and Markets Authority, or CMA).

In October 2015, the UK Consumer Rights Act brought in an opt-out class action regime to make it easier for consumers to claim compensation for breaches of competition law.  A class action is a legal claim brought by one representative whose duty is to act fairly and adequately in the interests of all consumers affected by a company’s wrongdoing.

The NPC claims that up to 34,000 Pride customers, who bought scooters between 2010 and 2012, may each be entitled to around a £200 refund, or even more in specific cases. The potential claim has been valued at up to a total of £7.7 million, including interest.

A collective settlement of the claim may be reached.  If not, the NPC will need first to obtain permission from the UK Competition Appeal Tribunal (CAT) to bring the class action.

If permission is given, then all members of the class of affected consumers will be automatically covered by the claim. If the class action is successful, then the CAT can award a lump sum as compensation for all class members to share.

Class members would then need to come forward to claim their compensation, which may be determined in accordance with a formula.

Compliance Warning: UK Cover Pricing Cartel Fine and Individual Pleads Guilty 

Two recent UK CMA cases provide a compliance warning about the dangers of cartel participation in the UK (or EU as a whole), of whatever form this takes.  These dangers apply to both companies and individuals and show the need for competition law compliance training and programmes to be in place.

On 21 March 2016, the CMA imposed fines on three businesses for participation in a cartel relating to the supply of cylindrical galvanised steel tanks in the UK (see here).

Under the cartel arrangements, Franklin Hodge Industries Ltd, Galglass Ltd and Kondea Water Supplies Ltd agreed with each other, and with CST Industries (UK) Ltd, to share the market among them, fix prices and rig bids between 2005 and 2012.  As part of the cartel, if a customer had been allocated to a particular company, that company would quote a lower price for the job, with the other cartel members quoting higher prices, so as to give the appearance of competition where in fact there was none (known as “cover pricing”).

CST Industries blew the whistle and therefore received no fine (showing the benefit, perhaps, of an internal compliance programme identifying anti-competitive conduct).  The other companies which were fined benefitted from a 20 percent settlement discount (for cooperation) and/or a leniency discount (for being the second whistleblower in line).

The case also shows that parent companies will be fined for cartel infringements by their subsidiaries (since the parents of Franklin Hodge Industries and Galglass were fined along with those subsidiaries), and that successor companies may be fined for infringements by the companies whose activities they have taken over (Kondea Water Supplies is in liquidation and its successor company has agreed to pay its fine).

In an unrelated case, on 21 March 2016, the CMA announced that is has obtained another guilty plea from an individual under the criminal cartel offence (see here).

Mr Barry Cooper, the individual in question, had been charged with dishonestly agreeing with others to divide supply, fix prices and divide customers between 2006 and 2013 in respect of the supply in the UK of precast concrete drainage products.   

Under section 188 of the UK Enterprise Act 2002, it is a criminal offence for individuals dishonestly to agree to make or implement, or to cause to be made or implemented, arrangements which constitute certain types of cartel activity, namely price-fixing, limiting or preventing supply or production, market-sharing and bid-rigging. An individual convicted of the cartel offence may be sentenced to up to five years’ imprisonment and/or a fine (no maximum) or both.  Following a change in the law, for conduct after 1 April 2014, it is no longer necessary for the CMA to prove individuals acted dishonestly to commit the cartel offence.

Geo-Blocking in the EU

The European Commission (EC) has published its initial findings on the prevalence of geo-blocking, which prevents consumers from purchasing consumer goods and accessing digital content online in the EU (see here).  These are the initial findings from its ongoing e-commerce sector inquiry.

The sector inquiry has found that 38 percent of the responding retailers selling consumer goods, such as clothes, shoes, sports articles and consumer electronics online use geo-blocking. For these products, geo-blocking mainly takes the form of a refusal to deliver abroad. Refusals to accept foreign payment methods, and, to a lesser extent, re-routing and website access blocks are also used. While a majority of such geo-blocking results from unilateral business decisions of retailers, 12 percent of retailers report contractual restrictions on selling cross-border for at least one product category they offer.

As regards online digital content, the majority (68 percent) of providers replied to the EC saying that they geo-block users located in other EU Member States. This is mainly done on the basis of the user’s internet protocol (IP) address that identifies and gives the location of a computer/smartphone. Fifty-nine percent of the responding content providers indicated that they are contractually required by suppliers to geo-block. There are significant differences as regards the prevalence of geo-blocking among different digital content categories and EU Member States.

The practical point for companies is that they need to know the rules on restriction of cross-border trade in the EU.  In this regard, the EC makes the point that, in some cases, geo-blocking appears to be linked to agreements between suppliers and distributors. Such agreements may restrict competition in breach of EU competition rules. This, however, needs to be assessed on a case-by-case basis.

In contrast, if geo-blocking is based on a unilateral business decision by a company not to sell abroad, such behaviour by a non-dominant company falls outside the scope of EU competition law.  There are a number of reasons for retailers and service providers not to sell cross-border and the freedom to choose one’s trading partner remains the basic principle.

That’s not to say rules won’t be introduced.  The EC also said that it is a key priority to address unjustified barriers to cross-border e-commerce with legislative actions as part of its Digital Single Market Strategy and it will come forward with further legislative proposals in May 2016. The common objective of competition enforcement and the EC’s legislative initiatives is to create an area where EU citizens and businesses can seamlessly access and exercise online activities, irrespective of their place of residence. 

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

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