European Competition Law Newsletter – July 2016

July 12, 2016

Table of Contents

  • Brexit and Competition Law
  • Yet Another UK Case on Online Sales Restrictions
  • Rapid Development of Private Competition Law Claims in the UK Shows the Possibilities
  • Be Careful With Noncompetes in M&A Transactions
  • The Dangers of Trade Association Membership

Brexit and Competition Law

Competition law in the UK will be impacted by Brexit.  There are steps which we recommend companies take now.  Please see here for our separate legal alert describing these steps.   

Yet Another UK Case on Online Sales Restrictions

Another UK case has demonstrated that any form of resale price maintenance (RPM) in relation to online sales will be treated just as harshly as RPM through physical sales.

On 9 June 2016, the UK Competition and Markets Authority (CMA) announced that it had issued a statement of objections (preliminary statement of concerns) to Ping Europe Limited alleging that Ping has breached UK and EU competition law by operating an online sales ban.  This allegedly prevents retailers selling Ping golf clubs online (see here).

If ultimately proven, this would be somewhat remarkable since it’s clear that a total ban on marketing via the internet is considered a hard-core/automatic restriction of competition under EU and UK competition law.  There has even been a previous, recent case in the UK (Roma, see here).     

This case follows other recent online sales cases in the UK.  On 24 May 2016, the CMA announced that a commercial refrigerator supplier had agreed to pay a fine for infringing EU and UK competition law by imposing IMAP (internet minimum advertised price) restrictions.  It had also threatened its dealers with sanctions if they advertised below that minimum price (see here). These are well-established illegal vertical restrictions amounting in effect to RPM.

Previously (26 April 2016), the CMA announced that a bathroom fittings supplier had agreed to pay a fine for online RPM (see here).  In that case, Ultra Finishing Limited had tried to dress up RPM as recommended resale prices (RRPs) to its retailers.  RRPs are legal, but cannot cross the line into RPM.

Ultra had crossed the line in relation to online sales by its retailers because it threatened them with penalties for not pricing at or above the “recommended” price, including:

  • charging them higher prices for products;
  • withdrawing their rights to use Ultra’s images online; and
  • ceasing supply.

These cases again show that companies of any size in the EU need suitable competition law compliance programmes and training covering, amongst other things, online selling.  The activities that are the subject of these cases are well-established competition law infringements and companies will not escape just because online selling was involved or because they are small.

Rapid Development of Private Competition Law Claims in the UK Shows the Possibilities

Two recent cases show that private competition law enforcement through the courts continues to develop rapidly in the UK.  In one case, an interim injunction was obtained to stop an alleged infringement of competition law.  In the other, an opt-out class action for damages has been instigated following a competition law infringement decision by the UK regulator.  Companies trading in the UK should be alive to the possibilities and dangers.

UKRS Training Limited, a small company providing training courses for railway workers, has used new rules introduced in 2015 to apply to the UK Competition Appeal Tribunal (CAT) for an interim injunction to stop NSAR Limited from suspending UKRS’s Rail Training Accreditation Scheme (RTAS) accreditation (see here).  UKRS claims that RTAS accreditation is required by any training provider which provides training to people wishing to work on rail infrastructure in the UK.

The case was registered at the CAT on 24 June and initially heard by the court very soon afterward; 28 June. At that initial hearing, NSAR agreed to postpone the period of UKRS’s suspension until at least the date of the detailed hearing to follow.  That is set for 21 July.  UKRS therefore obtained what it sought and the new procedure before the CAT, designed to assist SMEs in enforcing competition law, has been shown to work.

The second case of note has been mooted for some time, but is highly significant since it’s the first opt-out competition law class-action case in the UK.  This shows the potential additional dangers now arising in the UK for competition law infringements, even for companies which sell only to consumers.

On 21 June 2016, the CAT published the formal notice applying to start this case (see here).  The case arises from a decision of the UK Office of Fair Trading (OFT) of 27 March 2014 (the CMA’s predecessor) which found that Pride Mobility Products and eight retailers had infringed UK competition law by entering into agreements and concerted practices aimed at prohibiting the online advertising of prices for certain models of Pride mobility scooters below Pride’s recommended retail prices (i.e., RPM).

Be Careful With Noncompetes in M&A Transactions

One of the competition law issues which arise in M&A transactions concerns the use of noncompete provisions.  Properly drafted, these are acceptable under competition law.  However, issues can arise and fines may be imposed if they exceed what is reasonable.

On 28 June 2016, the EU’s second-highest court (the General Court, or GC) confirmed a European Commission (EC) decision to impose fines for an illegal noncompete provision agreed between PT (formerly Portugal Telecom) and Telefónica (see here).  This arose out of the July 2010 acquisition by Telefónica of the Brazilian mobile operator Vivo, which was then jointly owned by Telefónica and PT.  The companies inserted a clause in the contract providing that they would not compete with each other in Spain and Portugal as from the end of September 2010.  The EC imposed fines of €67 million on Telefónica and €12 million on PT.

The GC turned down several imaginative arguments by the parties, finding that:

  • PT had failed to demonstrate that the provision was incidental to the option of purchasing its shares held by Telefónica (an option initially provided for and later eliminated from the agreement) and to the resignation of the members of its management board appointed by the Spanish company (a resignation provided for in the final version of the agreement).
  • There was nothing to indicate that the clause contained a self-assessment obligation (an argument based on the use of the introductory wording, “to the extent permitted by law”) on which the entry into force of the noncompetition obligation depended. (PT submitted that the clause contained two separate obligations — a main self-assessment obligation and a secondary noncompetition obligation — the second becoming binding only if its lawfulness was established during the exercise of the first.)
  • There was no evidence that the clause was imposed by the Portuguese government or that it was in any event necessary for it to refrain from blocking the agreement relating to the Vivo operation.
  • There was no reason why a clause providing for noncompetition on the Iberian market might be considered objectively essential for a transaction relating to the takeover of shares in a Brazilian operator.

The GC held that the very existence of the clause was a strong indication of potential competition between PT and Telefónica on the unrelated Iberian market.  The EC had therefore been correct to find that it amounted to a bald market-sharing agreement which justified significant fines.

The Dangers of Trade Association Membership  

Membership of and attendance at trade associations is dangerous from the competition law point of view.  They are a regulatory focus area and it’s essential to provide suitable training for all personnel involved and to monitor the activities of any association of which a company is a member.

The UK CMA’s focus on trade associations was highlighted in its 27 June 2016 comments on the UK government’s consultation on refining the UK competition regime.  The CMA commented that the conduct of trade associations has been an issue in recent CMA competition law cases (see here and here). It also pointed out that such associations may have limited resources, but may have members with substantial turnover.  Therefore, to effectively deter anti-competitive conduct, it is important that the levels of fine that can be imposed and recovered where trade associations break the law take account of this.

It is notable that the EC already has these powers when it enforces EU competition law anywhere in the EU.  Indeed, a recent EC consultation on empowering National Competition Authorities such as the CMA to enforce competition law effectively noted this as one of the areas where convergence across the EU could strengthen effective enforcement.

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