Table of Contents
- Dangers of Cooperation or Coordination on Purchasing
- Fine for Vertical Exclusionary Arrangements
- UK Court Reduces Civil Damages Award but Confirms General Principles
- UK Court Upholds Fine for Abusive Price Discrimination
Dangers of Cooperation or Coordination on Purchasing
Two recent cases demonstrate the competition law risks which can arise when competitors cooperate or coordinate in relation to purchasing. Competition law compliance programmes must deal with this issue and ensure that the boundary between acceptable and unacceptable behaviour is understood.
On 21 November 2019, the German Federal Cartel Office (FCO) fined three car manufacturers a total of around €100 million for anti-competitive practices in the purchase of long steel products. This was a type of purchasing cartel (or coordination) between these manufacturers, which concerned surcharges on long steel products.
In response to a decision by steel manufacturers to move from uniformly calculated price surcharges to a system of individual negotiations, the car manufacturers assured each other that they would adopt the changes introduced by the steel manufacturers. This meant they would continue to adhere to the previous practice for calculating surcharges and would not negotiate individually. Price competition between the companies on these components of cars was therefore eliminated, which is cartel behaviour.
A separate European Commission investigation is considering issues arising out of a buying alliance (or cooperation) between competing retailers. The case concerns two French groups of retailers, Casino Guichard-Perrachon (Casino) and Les Mousquetaires (Intermarché).
In November 2014, the two groups set up a joint venture for the procurement of their branded products, INCA. The Commission is concerned that they have gone beyond the purpose of their alliance and engaged in anti-competitive conduct. In particular, the Commission is investigating whether Casino and Intermarché coordinated their activities on the development of their shop networks and their pricing policies toward consumers (i.e., on downstream sales activities outside the confines of the alliance).
This case illustrates that, while buying alliances between competitors may be pro-competitive since they can lead to lower prices or better-quality products or services for consumers, the parties to such arrangements must continue to act unilaterally in relation to their downstream sales activities. If not, they risk regulatory enforcement for illegal, cartel-like behaviour.
Fine for Vertical Exclusionary Arrangements
A recent Spanish case involving two television networks — Mediaset and Atresmedia — shows that it’s not only the serious (“object” or automatic) infringements of competition law in vertical agreements which can give rise to regulatory enforcement and fines. In particular, restrictions which have an exclusionary effect on competitors can also be deemed serious enough to justify a fine.
In a vertical context (distribution, industrial supply and similar arrangements), the principal object infringements liable to be fined are resale price maintenance and restrictions on the territory in which or the customers to whom a buyer may sell products or services. Mediaset and Atresmedia were, however, fined by the Spain National Commission on Markets and Competition (CNMC in Spanish) for entering into “vertical single-branding agreements that impose a minimum purchase requirement” with advertisers and media agencies.
The two networks, which together account for 85 percent of the television advertising market in Spain (over 40 percent each), were found to have engaged independently in various illegal practices:
- Charging advertisers a high minimum-investment fee, which accounted for a significant percentage of their general advertising campaign.
- Paying incentives to media agencies by way of additional premiums, conditional upon each agency reaching a certain investment volume or share of all the advertising billed on the networks.
- Bundling advertising into channel packages or modules. Each module included one of the channels with higher viewership with other, lower-rated channels.
- Using the simultaneous broadcast of advertising on the network’s various channels to coincide with the advertising on its top-rated channel (simulcast).
These provisions limited the ability of other television networks to compete in collecting advertising revenue and also on demand for audiovisual content in Spain. The difficulty in capitalising on audiences was seen as limiting the ability of third-party operators to acquire appealing audiovisual content that allowed them to improve their ratings.
Mediaset was fined €38.9 million for its infringements, while Atresmedia was fined €38.2 million.
UK Court Reduces Civil Damages Award but Confirms General Principles
On 31 October 2019, the UK Court of Appeal handed down its ruling in the appeal of the first civil cartel damages case to reach judgment in the UK.
The case arose out of the European Commission’s fining decision in the Power Cables cartel. In a follow-on civil claim, the UK High Court had awarded damages to BritNed, a customer of cartelist ABB, for “baked in inefficiencies” and “cartel savings” plus simple interest, but not in relation to an alleged direct overcharge and lost profits. A further judgment later reduced the damages figure to take account of a regulatory cap on BritNed’s earnings.
BritNed appealed in relation to the direct overcharge finding, the reduction of damages due to the operation of the regulatory cap and the dismissal of its lost-profit claim. These claims were dismissed, but ABB’s own appeal in respect of the award of damages for “cartel savings,” which it contended was in breach of basic principles of compensation, was successful. BritNed’s damages award was therefore reduced to the finding of “baked in inefficiencies,” and decreased by 10 percent due to the operation of the regulatory cap, plus simple interest.
The judgment shows that all civil competition law claims for damages will be analysed carefully on the facts, but also refers to the discretion open to a court. It refers to the “exercise of a sound imagination and the practice of the broad axe” when calculating damages available to a claimant. The assessment of damages in these cases often involves an element of estimation and assumption and the fact that it is not possible for a claimant to prove the exact sum of its loss will not be treated as a bar to recovery.
UK Court Upholds Fine for Abusive Price Discrimination
On 12 November 2019, the UK Competition Appeal Tribunal (CAT) handed down a judgment upholding a fine communications regulator Ofcom imposed on Royal Mail for abuse of its dominant position in the national UK market for bulk mail delivery.
The fine concerned the introduction by Royal Mail of differential prices for bulk mail operators for access to its final delivery service, without which they could not operate. Ofcom found that this amounted to abusive price discrimination in relation to Whistl UK Limited, a bulk mail operator which planned to set up its own final delivery service and establish an end-to-end bulk mail service in competition with Royal Mail.
The CAT upheld Ofcom’s findings on all grounds of challenge, including that when Royal Mail announced the new prices, prices had been “applied” for the purposes of analysing the behaviour under EU and UK competition law. In addition, Ofcom had not erred in concluding that transactions undertaken between Royal Mail and all of its different access customers were equivalent in all material respects, and that the price differential could not be justified.
The case shows that regulators and courts will not hesitate, where appropriate, to find an abuse of dominant position in novel, or at least unusual, circumstances. Of particular interest in this case is that the CAT upheld Ofcom’s finding that the announcement of future price changes amounted to price discrimination, even though those prices were never charged or paid. As can be expected, Royal Mail vigorously argued before the CAT that this was not a reasonable position for Ofcom to have taken.
Additional European competition law news coverage can be found in our news section.