European Competition Law Newsletter – July 2017

July 3, 2017

Table of Contents

  • More EU Investigations Into Licensing and Distribution Practices
  • UK Regulator Imposes Fine for Online Resale Price Maintenance
  • European Commission v. Google: The First Round
  • UK’s Fast-Track Private Competition Litigation Protects Small Company

More EU Investigations Into Licensing and Distribution Practices

During June 2017, the European Commission launched yet more competition law investigations into licensing and distribution practices in the EU. The four new investigations complement its e-commerce sector inquiry and other pending investigations into suspected anti-competitive practices in e-commerce.

On 14 June 2017, the Commission announced three separate investigations into Nike, Sanrio and Universal Studios. Among other brands, sports apparel manufacturer Nike is the licensor of rights for Fútbol Club Barcelona’s merchandise, Sanrio is the licensor of rights for Hello Kitty and Universal Studios is the licensor of rights for “Minions” and “Despicable Me.”

The Commission will investigate whether the three companies, in their role as licensors of rights for merchandising products, may have breached EU competition rules by restricting their licensees’ ability to sell licensed merchandise cross-border and online.

On 6 June 2017, the Commission announced a similar investigation into clothing manufacturer and retailer Guess. Guess designs, distributes and licenses clothing and accessories.

The Commission will investigate information indicating that Guess’ distribution agreements may restrict authorised retailers from selling online to consumers or to retailers in other EU member states. They may also restrict wholesalers from selling to retailers in other member states.

These new cases show the Commission’s continuing focus on online and offline distribution and related practices which may be illegal under EU competition law. Any company trading in the EU needs to be aware of the rules and have an appropriate compliance programme in place.

UK Regulator Imposes Fine for Online Resale Price Maintenance

On 20 June 2017, the UK Competition and Markets Authority (CMA) fined a light fitting supplier £2.7 million for requiring retailers to use a minimum price when selling their products online (resale price maintenance or RPM).

The supplier set a maximum discount off the recommended resale price (RRP) that resellers were allowed to offer. It used an internet licence agreement (ILA) as a way of enforcing the policy — resellers understood that an unwritten condition of the ILA was agreeing to the pricing restriction.

Whilst it is generally lawful for a supplier to recommend retail prices for resellers, in this case the supplier threatened resellers with penalties for not pricing at or above its specified price. Such threats included suspending resellers’ accounts or revoking the ILA and the ability to use official images online.

Continuing its policy of raising awareness of competition law issues, while announcing this decision the CMA also re-issued its compliance materials concerning RPM. These include an open letter on RPM, a film on RPM and case studies that explain how other businesses have ended up breaking the law.

The same rules on RPM apply EU-wide, and companies trading anywhere in the EU need to be aware of them.

European Commission v. Google: The First Round

On 27 June 2017, the European Commission fined Google €2.42 billion for abusing its dominant position in general internet search in the European Economic Area (EEA). The abusive conduct identified by the Commission was the giving of an advantage to another Google product, its comparison shopping service Google Shopping.

Google was found to be dominant in general internet search markets throughout the EEA, i.e., in all 31 EEA countries (the 28 EU countries plus Norway, Iceland and Liechtenstein). This was based on the fact that Google’s search engine has held very high market shares in all EEA countries, exceeding 90 percent in most, and has done so consistently since at least 2008. There are also high barriers to entry in these markets, in part because of network effects.

Market dominance itself is not illegal under EU competition law. However, a dominant company has a special responsibility not to abuse its powerful market position by restricting competition, either in the market where it is dominant or in separate markets.

The Commission found that Google abused its position by giving prominent placement in its search results only to its own comparison shopping service, whilst demoting rival services. It therefore stifled competition on the merits in comparison shopping markets (which are separate to general internet search).

This is the first of potentially several more decisions concerning Google’s practices in the EU/EEA. The Commission has already come to the preliminary conclusion that Google has abused a dominant position in two other cases, which are still being investigated.  One concerns the Android operating system and the other concerns Google product AdSense. The Commission also continues to examine Google’s treatment in its search results of other specialised Google search services.

Not many companies have the market reach or position of Google. Nevertheless, the June 2017 decision and the other cases are of relevance to any company which competes with a Google product (such as other specialised search services) or relies on Google to reach its own customers. Competition law can be used to protect a company from the actions of dominant rivals or providers, and the law can be enforced either directly in court or via a complaint to a competition law regulator in the EU.

UK’s Fast-Track Private Competition Litigation Protects Small Company

The UK’s specialist competition law court, the Competition Appeal Tribunal (CAT), handed down its first judgment under the fast-track procedure. This procedure is aimed at assisting small and medium-sized companies (SMEs) to enforce their rights under EU and UK competition law. 

In addition to quick treatment by the CAT, a particular feature of the procedure is that the amount of recoverable legal and other costs (for either party under the standard “loser pays” rule) is capped at a level determined by the CAT.

The claimant in this case, Socrates, is an SME that provides online training. The defendant, the Law Society, is the professional body for solicitors in England and Wales. The Conveyancing Quality Scheme (CQS) is a scheme operated by the Law Society which provides a form of accreditation for firms of solicitors engaged in residential conveyancing.

For several years, the CQS has incorporated an element of mandatory training, including training in mortgage fraud and anti-money laundering (AML). Socrates is a provider of training courses in AML for lawyers. By its claim, Socrates contended that the requirement under the terms of the CQS that members of the scheme must obtain certain training courses exclusively from the Law Society is an abuse of a dominant position and/or an anti-competitive agreement and therefore illegal under UK competition law.

The CAT agreed and held that the Law Society had breached UK competition law (for part of the period covered by the claim). The issue of the damages to be awarded will be considered at a later date.

UK companies face a range of abuses by dominant companies, large as well as small. The fast-track regime before the CAT provides an avenue to protect a company against this behaviour, as well as the effect of anti-competitive agreements more generally.

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

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Matthew Hall