European Competition Law Newsletter – March 2019

March 1, 2019

Table of Contents

  • Consultation on Changes to Rules on Vertical Agreements
  • Dangers of Pure Information Exchange
  • “Tip of the Iceberg” for Digital Companies: Facebook Abused Its Dominance by Infringing EU Data Protection Law
  • European Commission Blocks Two Mergers in One Day, Creates Political Storm

Consultation on Changes to Rules on Vertical Agreements

The EU Vertical Block Exemption Regulation (VBER) is probably, in practice, the most important of the range of block exemptions which form part of EU competition law. Block exemptions provide for an automatic exemption from the law’s ban on anti-competitive arrangements, as long as the particular conditions of the individual block exemption are satisfied.

The VBER, adopted by the European Commission in 2010, applies to commonly used vertical agreements, such as distribution, franchising and supply agreements. Any agreement involving a buy/sell arrangement between non-competitors (and competitors in some cases) may be covered. The Commission has also produced a notice providing guidance on the interpretation of the VBER and on the EU competition law rules as they apply to vertical agreements which do not fall within the VBER (including “true” agency agreements).

The period of validity of the VBER finishes on 31 May 2022 and the Commission has launched a public consultation on the functioning of the VBER and the related guidance. It is considering whether to let the VBER lapse, prolong its duration or revise it, together with the guidance.

The consultation is open until 27 May 2019. The Commission has requested comments from all interested stakeholders. The consultation will no doubt elicit strong views from many quarters, not least manufacturers that wish to control distribution of their products online. Any company which uses a vertical agreement in the EU/EEA should give consideration to making a reasoned response to the consultation, since the conclusion of the consultation will shape EU competition law in this crucial area for many years post-2022.

Dangers of Pure Information Exchange

Three recent cases have shown once again the dangers which can arise when competitors exchange competitively sensitive information. This is irrespective of whether any coordinated behavior results; just the exchange itself (“pure” information exchange) may be illegal and give rise to competition law liability in the EU.

On 21 February 2019, the UK Financial Conduct Authority (FCA) announced the first formal decision under its competition enforcement powers. It found that three asset management firms had breached EU and UK competition law by sharing strategic information on a bilateral basis. Two of the firms were fined, while the third escaped a fine since it was the whistleblower in the case.

The exchange arose during one initial public offering and one placing, shortly before the share prices were set. The firms disclosed and/or accepted otherwise confidential bidding intentions, in the form of the price they were willing to pay and sometimes the volume they wished to acquire. This allowed one firm to know another’s plans during the IPO or placing process when they should have been competing for shares.

Also in the financial services sector, on 31 January 2019, the European Commission announced that it had sent a Statement of Objections (preliminary statement of case) to eight unnamed banks. The Commission alleges that the banks breached EU competition law by colluding to distort competition when acquiring and trading European government bonds. This distortion allegedly arose through the exchange of commercially sensitive information (as well as coordination on trading strategies) “mainly — but not exclusively — through online chatrooms.”

Finally, on 15 February 2019, the English Court of Appeal (CA) upheld a December 2016 fine imposed by the UK Competition and Markets Authority (CMA) for exchange of competitively sensitive information between competitors at a single meeting.

At the meeting in question, steel water tank supplier Balmoral was invited to join a long-running cartel to allocate customers and fix prices. Balmoral refused to take part in the customer allocation and price-fixing cartel, but exchanged competitively sensitive information with its competitors. The CMA secretly recorded that meeting.

The CMA finding against Balmoral was originally upheld in October 2017 by the Competition Appeal Tribunal (which the CMA welcomed) and now further upheld by the CA.

The CMA also welcomed the CA’s judgment and commented as follows:

“This important judgment from the Court of Appeal sends a clear and unequivocal message, not just in this sector but to all businesses across the UK. If companies exchange competitively-sensitive, confidential information — even at just one meeting — that is itself a breach of [EU and UK] competition law.”

The risks arising from information exchange at a single meeting are not new, but it’s unusual for such a case to reach the level of the CA.

“Tip of the Iceberg” for Digital Companies: Facebook Abused Its Dominance by Infringing EU Data Protection Law

On 7 February 2019, the German competition authority, Bundeskartellamt (BKA), announced that it had found Facebook dominant in the market for social networks in Germany and that the company had abused that dominant position. The abuse came about since, according to the BKA, Facebook violated EU data protection rules through its terms of service and the manner and extent to which it collects and uses data.

Welcoming the finding, the European Data Protection Regulator (EDPR) commented, “This case is the tip of the iceberg — all companies in the digital information ecosystem that rely on tracking, profiling and targeting should be on notice.”

The data collection at issue did not relate to data arising from use of Facebook’s own service, but the collection of user data from third-party sources, including Facebook-owned services such as Instagram or WhatsApp and third-party websites which include interfaces such as the Facebook “like” or “share” buttons.

Where such visible interfaces are embedded in websites and apps, the data flow to Facebook starts when these are called up or installed. It is not even necessary, the BKA found, to scroll over or click on a “like” button. Calling up a website with an embedded “like” button will start the data flow. The BKA also found that, even if no Facebook symbol is visible to users of a website, user data will flow from many websites to Facebook. This happens, for example, if the website operator uses the Facebook analytics service in the background to carry out user analyses.

Facebook’s violation of the EU data protection rules through its collection of data on this scale without effective justification or informed voluntary consent (which violation was established by the BKA following discussions with “leading” EU data protection authorities) gave rise to an exploitative abuse of Facebook’s dominant position. This was to the detriment of both the consumers who use Facebook and its competitors (which are not able to amass such a “treasure trove” of data).

Facebook was not fined but has agreed to change its practices so far as concerns private users in Germany. Facebook-owned services like WhatsApp and Instagram can continue to collect data. However, assigning the data to Facebook user accounts will only be possible subject to the users’ voluntary consent. Collecting data from third-party websites and assigning them to a Facebook user account will likewise be possible only if users give their voluntary consent.

Beyond the digital companies themselves, the case is of interest to their actual and potential competitors, since it shows these companies another route to challenge a dominant provider’s business practices. The EDPR recognised this issue, also commenting, “Fundamental rights are at particular risk where companies become so powerful that they can determine their own means and purposes of data processing with little or no regard to … alternative approaches from would-be competitors.”

European Commission Blocks Two Mergers in One Day, Creates Political Storm

On 6 February 2019, the European Commission blocked two mergers, only the eighth and ninth such cases out of the more than 3,000 transactions reviewed during the last 10 years under the EU Merger Regulation. One transaction went largely unnoticed by politicians, but the other produced a political storm and subsequent proposals from the French and German governments to reform some aspects of EU competition law, in particular, merger control.

Companies doing cross-border transactions, particularly but certainly not only in sensitive sectors, should be aware of these political trends. Similar issues arise around the world and many countries have or are introducing or expanding legislation relating to the control of foreign direct investment (FDI) or the public interest aspect of transactions.

The two transactions were, respectively, Wieland’s takeover of Aurubis’ rolled copper products business and Siemens’ (Germany) takeover of Alstom’s (France) rail transport business. In both cases, the companies offered remedies to try to obtain approval, but the Commission judged neither offer sufficient to allay its competition concerns and therefore to allow approval on the basis of the remedy.

The proposed rail transport transaction produced significant supportive comment from politicians during the process. This was largely along the lines that large EU-based companies must be allowed to consolidate (and produce “European Champions”) so as to compete against others on the world stage, not least since other countries do not “play fair.”

Competition Commissioner Margrethe Vestager, in announcing the block of the transactions, took on these points. She pointed out that, due to the size of the EU Single Market, companies can grow very large (even in world terms) just within the confines of the EU. Further, policymakers are not standing still in striving to support EU industry with various industrial policies. Examples include Horizon Europe (the EU research and innovation funding programme) and efforts to complete the Digital Single Market.

Commissioner Vestager also referred to various EU efforts to ensure a level playing field for EU business, including seeking to strengthen the World Trade Organization rules on subsidies, the new EU FDI screening framework and the European Commission’s proposal to ensure equal access and reciprocity in public procurement.

None of this was enough for the French and German governments, which days later published a “Manifesto for a European industrial policy for the 21st Century.” This includes various proposed changes to the EU merger control rules, including allowing politicians in the Council of the European Union to override the fact- and evidence-based Commission merger control decisions in certain cases. It will be some time before these proposals come to pass (if they ever do) but the sentiments, and political intervention of this nature, are not uncommon around the world. The possibility of non-competition and political factors becoming relevant needs to form part of deal planning and analysis alongside standard fact- and evidence- (competition-) based factors.

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

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