European Competition Law Newsletter – February 2017

February 1, 2017

Table of Contents

  • You Call It a JV, I Call It a Cartel
  • Manufacturer Drops Ban on Distributors’ Use of Price Comparison Tools
  • European Court Confirms Parental Liability for Behaviour of JV
  • European Commission Forces Changes to “Most-Favoured-Nation” Provisions

You Call It a JV, I Call It a Cartel

On 20 January 2017, the UK Competition and Markets Authority (CMA) announced that it has provisionally concluded that two suppliers of cleanroom laundry services in the UK have broken competition law through a market-sharing agreement implemented as part of a joint venture. This shows that the substance of an arrangement, not what it is called or purports to be, is important. Illegal cooperation is not acceptable under competition law just because it is carried out through a “joint venture.”

Cleanroom laundry services are supplied to customers with operations in sterile environments, including pharmaceutical manufacturers, National Health Service (NHS) pharmacies and manufacturers of semiconductors, micro-electronics, medical devices and precision engineering. Such customers wear specialist garments which need to be laundered in a way that prevents particulates contaminating their working environment.

The parties had been trading in the UK under the “Micronclean” name since the 1980s, by virtue of a longstanding joint venture. The market-sharing arrangement alleged by the CMA arose from trademark licence agreements which operated from 30 May 2012 until they were terminated (when the related joint venture was disbanded) on 3 February 2016. 

This therefore appears to be a case of the parties’ cooperation through a joint venture allegedly extending beyond acceptable cooperation (e.g., on “back-office” arrangements) to customer-facing elements. When a cooperative arrangement between competitors is established, competition law issues are more likely to arise if the arrangement operates close to customers.

Manufacturer Drops Ban on Distributors’ Use of Price Comparison Tools

The law applying to restrictions on distributors’ use of the Internet for EU sales continues to evolve. Many issues are unclear and undecided, but in the meantime, distributors can point to various cases supporting limits on manufacturers’ attempts to restrict their behaviour.

One of these undecided issues is the extent to which distributors can be banned from using online price comparison tools. The CMA recently investigated this issue and announced on 24 January 2017 that vehicle manufacturer BMW agreed to drop such restrictions which it had imposed on its UK dealers.

This arose out of a complaint by UK new car portal, carwow. It told the CMA that BMW UK was stopping its dealers from listing BMW and MINI cars on the portal. Following engagement with the CMA, BMW UK informed the CMA of its decision to change its policy in order to allow its dealers to work with carwow and similar internet-based new car portals.

These general principles can be applied to any other industry in the UK and also apply EU-wide.

European Court Confirms Parental Liability for Behaviour of JV

The EU’s highest court (European Court of Justice or ECJ) recently confirmed that the parents of a joint venture may be held liable under EU competition law for anti-competitive activities of that joint venture. Depending on all the control rights available to the parent, this is the case even where it holds a minority shareholding.

The case concerned Toshiba’s participation in a joint venture relating to its cathode ray tubes (CRT) business. The joint venture was found by the European Commission (EC) to have participated in a cartel. Despite holding only 35.5 percent of the shares, Toshiba was fined by the EC as a parent. This had been appealed to the EU courts.

Toshiba had a right of veto over the joint venture’s business plan for the entire duration of its existence. The ECJ found that the holding of such a right was in itself sufficient to conclude that Toshiba had exercised “decisive influence” over that undertaking together with the other parent. Toshiba could therefore be held liable for its activities. It was not necessary to determine whether Toshiba had actually influenced the joint venture’s operational management. Furthermore, the mere fact that Toshiba never exercised its right of veto did not allow for the conclusion that it did not exercise decisive influence over the joint venture’s conduct.

The ECJ also confirmed that the possibility for Toshiba to prohibit its subsidiary (the joint venture) from making decisions involving outlays which appear relatively modest in the light of that subsidiary’s capital constitutes an indication of the capacity to exercise decisive influence over that subsidiary. Also, Toshiba’s appointment of one of the two directors entitled to represent the joint venture (namely, the vice president of that undertaking) was an indication of Toshiba’s capacity to exercise decisive influence over its conduct.

European Commission Forces Changes to “Most-Favoured-Nation” Provisions

On 24 January 2017, the EC announced that it is inviting comments on commitments offered by Amazon to address competition concerns relating to parity clauses in contracts with publishers. The EC is concerned that these clauses may breach EU competition law rules and result in reduced competition among e-book distributors, and less consumer choice.

The clauses, sometimes referred to as “most-favoured-nation” or “MFN” clauses, require publishers to inform Amazon about more favourable or alternative terms offered to Amazon’s competitors and/or offer Amazon terms and conditions similar to those offered to its competitors. This requirement includes forcing publishers to also offer to Amazon any new alternative business models, such as using different distribution methods or release dates, or making available a particular catalogue of e-books.

In the EC’s view, these clauses may make it harder for other e-book retailers to compete with Amazon by developing new and innovative products and services. Such clauses may also limit competition between different e-book distributors and reduce choice for consumers. To address the EC’s concerns, Amazon has offered various commitments as to its behaviour.

The case seems to be based on an allegedly dominant position held by Amazon in relevant markets (presumably including at least e-book retailing), but the case will be relevant to many other businesses which deal with Amazon and also to similar commercial relationships not involving Amazon.

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

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