European Competition Law Newsletter – May 2017

May 2, 2017

Table of Contents

  • Illegal Distribution Activities in the Spotlight Across the EU
  • European Commission Finds Innovation Concerns in M&A Deal
  • UK CMA Continues Crackdown on Cartels
  • Competition Compliance Update

Illegal Distribution Activities in the Spotlight Across the EU

Online and offline distribution issues remain a key focus of competition law regulators in the EU. This has been demonstrated yet again in recent weeks, with cases from several countries identifying a range of illegal activities.         

In a long-running case in Germany, a court confirmed the regulator’s (Bundeskartellamt) 2015 decision that a general prohibition imposed by a running shoes manufacturer on the use of online price comparison engines by its retailers is an “object” (in effect, automatic) infringement of competition law.

A new online case arose in the UK, in which the Competition and Markets Authority (CMA) is investigating whether an agreement restricted the prices at which retailers may advertise or sell medical equipment online. Both of those activities are types of resale price maintenance (RPM), which is usually illegal in the UK and the rest of the EU.

In Austria, a court fined a toolmaker for illegal resale and minimum price agreements (RPM) with its dealers, as well as for restricting cross-border sales (parallel trade) within the EU. According to the ruling, amongst other activities, the company required a retailer to confirm in writing that it would sell the tools only in Austria, and threatened to stop supplies if it did not comply.

Another case arose in Denmark, in which an optical and digital equipment manufacturer was fined for providing rebates to its retailers on condition that they sold above a minimum resale price. Retailers which sold below the price obtained no rebate and therefore made, according to the regulator, “a very low profit.” This is a textbook example of indirect RPM.

The Belgian competition authority also recently imposed a fine for RPM. The regulator found that a supplier of compressed and stabilised liquid fresh bakers’ yeast had determined its distributors’ resale prices. In practice, distributors were not allowed to deviate from the resale price, save with the permission of the supplier.

European Commission Finds Innovation Concerns in M&A Deal

The potential effect of a merger or other M&A transaction on innovation is not a new issue. However, it is highly topical and must form part of the analysis of deals in relevant industries (life sciences, agrochemicals, high technology and others).

In particular, in the EU, recent cases and discussion go beyond the traditional analysis of whether a transaction will impact potential competition (looking at innovation in terms of pipeline products) to considering a non-product-specific analysis of “innovation competition.”

A recent example of this came in the European Commission’s (EC) decision to clear, under the EU merger control rules but subject to conditions to deal with particular concerns, the merger between Dow and DuPont. One of the EC’s concerns was that the merger would have reduced future innovation in the agro-chemical industry. This was due to the fact that there are only five companies (including Dow and DuPont) that can carry out the necessary research and development from start to finish to bring new products to market on a global scale.

Also, according to the EC, both companies have a number of similar projects under way to develop new products which could ultimately compete head-to-head. The EC took the view that, after the merger, the companies would have wanted to pull the plug on some of these projects. More broadly, they would have incentives to reduce their effort to develop new products.

The parties therefore agreed to sell to a third party, as a condition of clearance, a number of new products that DuPont is developing, and its worldwide research and development organisation for pesticides.

UK CMA Continues Crackdown on Cartels

On 27 March 2017, the UK CMA took the final step in two cartel cases. The decisions illustrate some of the wide range of activities which are considered to be illegal cartel activity in the UK and the rest of the EU and can give rise to significant fines.

In the furniture parts case, the CMA issued two decisions formally finding three companies guilty of illegal cartel conduct and imposing fines totalling £2.8 million. This follows January’s announcement that Thomas Armstrong (Timber) and Hoffman Thornwood had agreed to pay fines totalling over £2.8 million after admitting market sharing, coordinating prices, bid-rigging and exchanging commercially sensitive information. Another company, BHK (UK), also confessed its involvement in cartel activity shortly after the start of the investigation, but was not fined as it was the first to come forward under the CMA’s leniency policy.

Separately, the CMA published the full text of its final decision in its case against five model agencies and their trade association, which were fined over £1.5 million. The CMA found that the agencies — FM Models, Models 1, Premier, Storm and Viva — and their trade association, the Association of Model Agents (AMA), colluded instead of competing on prices for modelling services.

The parties regularly and systematically exchanged information and discussed prices in the context of negotiations with particular customers. In some cases, the agencies agreed to fix minimum prices or agreed to a common approach to pricing. In addition, the AMA and the agencies sought to influence other AMA members by regularly issuing email circulars, known as “AMA Alerts,” urging AMA members to resist the prices offered by customers on the grounds they were too low.

The conduct occurred in the context of negotiations with a range of customers, including well-known high-street chains, online fashion retailers and consumer goods brands. These customers are no doubt now preparing follow-on private civil claims for damages.

Competition Compliance Update

Two new whistleblowing measures have raised the risk of EU regulators identifying anti-competitive behaviour. Following this, and perhaps reflecting an awareness of increased risk, Brussels-based trade association Business Europe has published competition compliance material for its members. 

On 16 March 2017, the European Commission introduced an anonymous whistleblower tool for competition law infringements. The new tool protects whistleblowers’ anonymity through a specifically designed encrypted messaging system that allows two-way communications. The service is run by a specialised external service provider that acts as an intermediary, and which relays only the content of received messages without forwarding any metadata that could be used to identify the individual providing the information.

Separately, on 20 March 2017, the CMA launched an advertising campaign aimed at encouraging individuals to blow the whistle on cartels. The campaign “Cracking down on Cartels” offers a reward of up to £100,000 as well as promising anonymity. The cash reward for individuals is not in fact new, but this is the CMA’s first such advertising campaign.

Business Europe’s documents are a guide promoting competition law compliance in the EU and a document promoting alternative dispute resolution (ADR) for antitrust damages claims.

The compliance guide consists of two parts. Part 1 outlines the key elements and principles of competition law at EU and EU member state levels. Part 2 describes how companies can implement competition law awareness in their organizations. The ADR document promotes out-of-court settlement of competition law damages claims, bearing in mind that “private actions for damages in general (and not just class/collective actions) are likely to be more frequent than has been the case until today.”

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

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