European Competition Law Newsletter – September 2020

September 3, 2020

Table of Contents

  • EU, UK Competition, State Aid and Public Procurement Law During COVID-19
  • Online Retailer Brings Private Damages Claim in the UK for Resale Price Maintenance
  • UK Customer Obtains Injunction Against Royal Mail Based on Abuse of Dominance
  • Director Disqualifications in the UK Show Personal Risk From Competition Law Infringements
  • Essential Reading: UK Supreme Court Considers Worldwide SEP and FRAND Issues

EU, UK Competition, State Aid and Public Procurement Law During COVID-19

While not the most important concern, it should be appreciated that antitrust/competition law, plus the state aid and public procurement rules, continue to apply in the EU and UK during the crisis. So far as the UK is concerned, it is subject to EU law until 31 December 2020 while the post-Brexit transition period is running. In any event, the UK has its own national competition law, which remains in force.

McGuireWoods has distributed seven client alerts on these topics:

  • EU, UK Governments and Antitrust Regulators Permit Limited Competitor Cooperation Due to COVID-19
  • EU, UK Antitrust Regulators Monitor Price Increases Resulting From COVID-19 Demand
  • Don’t Overlook EU, UK Antitrust Issues With Vertical Arrangements During the COVID-19 Pandemic
  • Government Funding or State Aid in the EU, UK During the COVID-19 Pandemic
  • UK Guidance on Application of Competition Law to Business Cooperation in Response to COVID-19
  • New EU Guidance: Applying Competition Law to Business Cooperation During COVID-19
  • EU, UK Guidance on Public Procurement Rules During COVID-19

The most recent major COVID-19-related developments in the UK and EU are as follows:

  • The European Commission continued to approve under the state aid rules a range of EU member state and UK measures providing funding and other support to businesses.
  • The UK Institute for Public Policy Research, a think tank, published a paper exploring the short- and long-term consequences of the coronavirus pandemic for markets and competition. It discusses how competition policy can contribute to a robust and sustainable post-crisis recovery.
  • Following the expiry of a UK competition law exclusion order relating to dairy produce, three orders remain in place. Those orders concern the supply of groceries and the provision of certain ferry services as well as health services in England and Wales. To qualify for exclusion from competition law, an agreement between companies which falls within the relevant order must be notified to the Secretary of State. The orders require the Secretary of State to maintain and publish a register of notified agreements.

Please contact McGuireWoods’ COVID-19 Response Team if you would like to discuss these topics or any other legal issues arising out of COVID-19 in the EU, UK or United States.

Online Retailer Brings Private Damages Claim in the UK for Resale Price Maintenance

In a highly unusual case, UK online footwear retailer Rest & Play Footwear brought a claim for damages in the Competition Appeal Tribunal (CAT) against its supplier George Rye & Sons for alleged resale price maintenance (RPM). The case is unusual due to its subject matter — RPM is not often the subject of private litigation — and because Rest & Play has, as part of its claim, admitted that it engaged in illegal RPM activity with George Rye.

Rest & Play claims that, for a period of nearly four years, George Rye instructed Rest & Play not to resell “Grisport” branded footwear at a price that was more than £10 less than the recommended retail price set by George Rye. The price restriction allegedly was repeated by George Rye verbally and in writing throughout the period and was monitored and enforced by it in a number of ways. These included asking Rest & Play to increase the price of the footwear to comply with the restriction and, in the event that Rest & Play did not comply, the refusal by George Rye to supply further stock.

Rest & Play claims that, as a result, it complied with or acquiesced in the implementation of the price restriction, which established an illegal RPM agreement between the two companies. This resulted in loss to Rest & Play.

Rest & Play has applied for the case to be dealt with on the “fast track.” That route is designed to enable small companies to bring claims efficiently and cheaply before the CAT, which is a specialised competition law court in the UK.

UK Customer Obtains Injunction Against Royal Mail Based on Abuse of Dominance

Preventx Limited, a customer of Royal Mail (RM), the UK postal services incumbent, obtained an interim injunction restraining RM from refusing to continue to provide certain services to Preventx. The injunction was based on RM’s actions satisfying the relevant test; there is a “serious question to be tried” so far as concerns a breach of competition law, and the balance of convenience lies in favour of granting the injunction.

The “balance of convenience” requires an analysis of whether, should it ultimately prevail at the final hearing of the claim, either party would or would not be adequately compensated by a payment of damages from the other. From the claimant’s point of view, the basic position is that if, without interim relief, it would be adequately compensated in damages should it finally succeed, then no interim injunction should normally be granted.

Preventx provides remote diagnostic testing services, partner notification and onward clinical referral services for STIs, including HIV. Service users obtain Preventx’s testing kits either by applying online or by receiving a kit in person at a doctor’s surgery or a clinic.

The issue in the case is the basis on which RM provides its service of returning the kits to Preventx from the user — its commercial returns service. Preventx has been using RM’s “Freepost” service but RM required it to change to the more expensive “Tracked” service. This raises, Preventx argued, confidentiality concerns for its customers, while RM said this is a pure commercial issue concerning what items can legally be sent through Freepost.

Preventx alleges that the relevant product market for the purpose of determination of a dominant position held by RM is the market for untracked outbound/return postal service for STI test kits and completed samples by way of nationwide letter box network (or equivalent), and that the relevant geographic market is the UK. RM is alleged to be dominant in each of those markets

RM accepted that for this purpose it may be dominant, and the judge took the view for the purposes of the interim injunction application that there are three particular aspects of RM’s conduct that could constitute an abuse. The aspects considered for this purpose show the very wide scope of what can be an abuse of dominance under EU and UK competition law.

First, the judge accepted that an unnecessary insistence that the word “Tracked” appear on the package label may well constitute an unfair contractual term and therefore an abuse. The use of the word could have a serious adverse impact on the service Preventx offers, particularly since the more vulnerable and sensitive of Preventx’s service users may as a result be unwilling to use the service. He also accepted that two further abuses could arise out of an unfair reliance by RM on a contractual term. These were the use of a pricing clause as a “coercive threat to persuade Preventx to agree” to the change to Tracked post and the threatened use of a termination right by RM in order to do the same thing.

The injunction was therefore granted, but on very specific terms reflecting the nature of the dispute (which the judge observed is a “strong candidate for mediation”). RM is restrained until the final trial of the issues from: refusing to continue to provide its Freepost service to Preventx for so long as it cannot offer its Tracked returns service without use of the word “Tracked” on the label; and refusing to process and deliver samples returned to Preventx under the “Freepost” service (although RM may impose an additional charge for such processing and delivery). In both cases, this is on the basis that Preventx will use best endeavours to introduce new packaging compliant with RM’s rules for Freepost and that RM will undertake not to require the returns label to include the sender’s name and address unless required by law.

Absent mediation going ahead, the injunction will remain in place until the final hearing of the matter, probably in 2021.

Director Disqualifications in the UK Show Personal Risk From Competition Law Infringements

The UK Competition and Markets Authority (CMA) is always eager to show that personal liability can arise out of an individual’s involvement in competition law infringements by a company.  One type of liability is director disqualification, under which an individual is barred from acting as a director of a UK company or being involved in its management.

On 2 September 2020, the CMA revealed its most recent steps to disqualify directors under these rules.   It announced that on 27 August 2020 it had issued proceedings in the High Court seeking the disqualification of Mr Pritesh Sonpal, a director of Lexon (UK).  This arose out of the CMA’s decision dated 4 March 2020 that between 2015 and 2017, Lexon, King Pharmaceuticals and Alissa Healthcare Research exchanged commercially sensitive information about prices for nortriptyline tablets, the volumes they were supplying and Alissa’s plans to enter the market.

The CMA issued these proceedings following an investigation into Mr Sonpal’s conduct in relation to these breaches of competition law. It is now for the court to decide whether to make a disqualification order against him.

Court proceedings such as this are unusual and most director disqualification cases are dealt with through legally binding voluntary undertakings being given by the individual.  On 21 August 2020, the CMA secured a disqualification undertaking from Mr Robin Davies, director of Alissa. Mr Davies has given a disqualification undertaking not to act as a director of any UK company for two years as of 24 November 2020.  A disqualification undertaking has the same legal effect as a disqualification order from a court.

Director disqualification is now regularly used by the CMA and this will continue.  The deterrent effect of potential personal liability – which can also in some cases amount to jail time, fines and disgorgement of gains – is seen as a key weapon in the fight against anticompetitive behaviour in the UK.

Essential Reading: UK Supreme Court Considers Worldwide SEP and FRAND Issues

On 26 August 2020, the UK Supreme Court (UKSC) handed down an important judgment in relation to licensing of standard essential patents (SEPs).

The three cases appealed to the UKSC — all addressed in the one judgment — concerned a number of patents, which had been declared essential to the practice of numerous telecommunications standards (hence, are SEPs). The holders of those patents had commenced proceedings against the other parties to the cases for infringing those patents. The holders are under an obligation to make available such SEPs on fair, reasonable and non-discriminatory (FRAND) terms.

In one of the cases, Unwired v. Huawei, two of Unwired’s patents were found to be valid and essential to the standards, and Unwired obtained an injunction in a first instance court against Huawei for the latter’s infringement of the SEPs. Huawei appealed to the UK Court of Appeal; its appeal was dismissed, and it therefore appealed to the UKSC.

The proceedings in the other two cases, Huawei v. Conversant and ZTE v. Conversant, were brought after the first judgment was handed down in Unwired v. Huawei. The defendants in those two cases challenged the jurisdiction of the English court to hear the cases. That was dismissed by the original first instance court and the Court of Appeal, and Huawei and ZTE therefore appealed to the UKSC.

The three cases at the UKSC raised four main questions. First, does the English court have the power or jurisdiction, or is it a proper exercise of any such power or jurisdiction without the parties’ agreement: to grant an injunction restraining infringement of a UK SEP unless the defendant enters into a global licence under a multinational patent portfolio; to determine the rates/terms for such a licence; and to declare that such rates/terms are FRAND? The UKSC held that the answer to this is “yes.” The English courts have jurisdiction and may properly exercise these powers. Questions as to the validity and infringement of a national patent fall to be determined by the courts of the state which has granted the patent. However, the contractual arrangements the European Telecommunications Standards Institute (ETSI) has created under its IPR Policy give the English courts jurisdiction to determine the terms of a license of a portfolio of patents which includes foreign patents.

Secondly, the UKSC considered, if the answer to (i) is indeed “yes,” whether England is the proper forum for such a claim in the circumstances of the two Conversant proceedings. Huawei and ZTE argued that the Chinese courts would be a more suitable forum for determining their dispute with Conversant. However, the UKSC held that this argument must fail because the Chinese courts do not currently have the jurisdiction needed to determine the terms of a global FRAND licence, at least, without all parties’ agreement that they should do so. In contrast, the UKSC held the English court has jurisdiction to do this.

Thirdly, the UKSC considered what is the meaning and effect of the non-discrimination component of the FRAND undertaking, and if it means that materially the same licence terms as offered to Samsung in another situation must be offered to Huawei in the circumstances of the Unwired case. The UKSC held that Unwired had not breached the non-discrimination limb of the FRAND undertaking. ETSI’s IPR Policy requires SEP owners, like Unwired, to make licenses available “on fair, reasonable and non-discriminatory … terms and conditions.” The holding noted that this is a single, composite obligation, not three distinct obligations that the licence terms should be fair, and separately, reasonable, and separately, non-discriminatory. The UKSC held the “non-discriminatory” part of the undertaking indicates that, to qualify as FRAND, a single royalty price list should be available to all market participants. According to the court, this must be based on the market value of the patent portfolio, without adjustment for the characteristics of individual licensees. However, the court held there is no requirement for SEP owners to grant licences on terms equivalent to the most favourable licence terms to all similarly situated licensees. Indeed, ETSI previously rejected proposals to include a “most favourable licence” term of this kind in the FRAND undertaking.

Finally, the UKSC considered whether the European Court of Justice’s (ECJ) seminal judgment in Huawei v ZTE means that an SEP owner is entitled to seek an injunction restraining infringement of those SEPs in circumstances such as those of the Unwired case. Huawei argued that Unwired’s claim for an injunction should be regarded as an abuse of its dominant position, contrary to EU competition law. This is because Unwired has failed to comply with the guidance given by the ECJ in Huawei v ZTE, since it did not make a FRAND licence offer before issuing proceedings for injunctive relief. The UKSC confirmed that bringing an action for a prohibitory injunction without notice or prior consultation with the alleged infringer will give rise to an abuse. However, the nature of the notice or consultation required will depend on the circumstances of the case: the court held there is no mandatory requirement to follow the protocol set out in Huawei v ZTE. On the facts, what mattered to the UKSC was that Unwired had shown itself to be willing to grant a licence to Huawei on whatever terms the court decided were FRAND. Unwired therefore had not behaved abusively.

All of these issues, and a separate discussion of the appropriate remedies available to Unwired and Conversant against Huawei, can be important in the context of SEP and FRAND licensing issues. The UKSC judgment — at some 60 pages — is long and dense but worth a detailed read.

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

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