European Competition Law Newsletter – May 2023

May 2, 2023

Table of Contents

  • EU’s Highest Court Confirms Severance Rule in Contracts
  • UK Subsidy Advice Unit Publishes Second Report
  • UK CMA Imposes Price Cap on Motorola
  • UK Government Publishes Long-Awaited Competition and Consumer Bill
  • European Commission Updates Position on Abuse of Dominance

EU’s Highest Court Confirms Severance Rule in Contracts

Under EU competition law (Article 101 of the Treaty on the Functioning of the European Union, or TFEU), unless they can be exempted, “agreements” that infringe the law’s basic ban on anti-competitive practices are “automatically void.” Similar rules apply under national law in many jurisdictions, including the UK.

On 20 April 2023, the EU’s highest court (European Court of Justice, or ECJ), answered a question from a Spanish court on the application of this rule in practice to a contract. The ECJ confirmed in its judgment that automatic nullity applies only to those contractual provisions that are incompatible with the law (i.e., are anti-competitive and not exempted). In addition, the contract as a whole is void only if the anti-competitive parts of the contract are not severable from the contract itself. This means a contract will survive when anti-competitive (and not exempted) provisions are voided if those provisions can be severed.

The application of severance in a particular case and its consequences are not a matter for EU law but instead a question for the relevant local law (which will need to take into account the expressed governing law of the contract in question, if any).

The ECJ confirmed long-standing case law on these issues. However, the judgment is notable because of their importance in day-to-day practice. When drafting a contract that includes a potentially anti-competitive provision, usually the principal risk will be unenforceability of that provision, which may impact the contract as a whole. All parties need to consider the potential commercial impact of that, which likely will not be the same for each.

UK Subsidy Advice Unit Publishes Second Report

The UK Subsidy Advice Unit (SAU) is a new function of the UK Competition and Markets Authority (CMA) created by the UK Subsidy Control Act 2022 (SCA 2022). It forms part of the new regime governing the provision of subsidies within the UK following its exit from the EU.

As of 1 January 2021, when the Brexit transition period ended, the UK has complied with the commitments on subsidy control set out in its free trade agreements with other countries, notably the provisions of the UK-EU Trade and Cooperation Agreement and the World Trade Organization rules on subsidies, as well as the relevant provisions within the Northern Ireland Protocol (as amended by the Windsor Framework). The SAU started work on 4 January 2023 when the SCA 2022 came into force.

Part of the SAU’s role is to evaluate authorities’ assessments of the highest-value subsidies and subsidy schemes put forward for review by public authorities in national, devolved and local government in the UK. These are generally over £5 million in value, or schemes that allow subsidies of this value to be awarded. The SAU will then provide independent and nonbinding advice regarding such assessments. The SAU will not carry out subsidy reviews on its own initiative or decide whether subsidies should be awarded. The decision to award is a matter for public authorities.

The SAU’s first assessment, published 22 February 2023, concerned the Contracts for Difference for Renewables scheme, which aims to encourage low-carbon electricity generation in Great Britain. On 13 April 2023, the SAU published its second assessment. That assessment considered the proposed Energy Bills Discount Scheme for Energy and Trade Intensive Industries (EBDS-ETII), which similarly relates to the energy sector in Great Britain only. The SAU is also considering a Refugee Housing Programme Scheme referred by the Greater London Authority and an English National Opera subsidy referred by The Arts Council of England.

The reports help inform the authority’s final subsidy assessment and decision. The authority does not have to follow the SAU’s advice, but the reports are published and therefore available to third parties. For example, the report on the EBDS-ETII identifies nine ways in which the authority’s analysis could be improved, including “by providing a more detailed review of the impact of the scheme on competition and investment.” Specifically, it notes that “the methodology [used] could create a scenario where firms receiving a subsidy are competing with those that do not.” That could provide an opening to an aggrieved third party wanting to challenge the scheme once adopted or a particular discount provided under it.

UK CMA Imposes Price Cap on Motorola

On 5 April 2023, the UK CMA decided to limit how much Motorola can charge the emergency services to use its Airwave Network, a communications network. The decision followed a market investigation into the operation of the market for such networks in Great Britain.

The Airwave Network provides a dedicated mobile network that the police, fire, ambulance and other emergency services use to communicate securely. It was originally commissioned by the UK Home Office through an open procurement exercise in 2000. The original contract, which was due to end in late 2019 or early 2020, was to build and operate the Airwave Network. The network was expected to be shut down and replaced by a new secure communications solution using a commercial 4G mobile network, the Emergency Services Network (ESN), when the contract ended.

However, the new ESN network is not ready for switchover as planned and the emergency services continue to rely on the Airwave Network, which is a monopoly provider of those communications services. The price set under the original agreement included the capital costs of building the network. The CMA found that by the time the period covered by the original agreement ended, that cost should have been recouped, and the price should have fallen substantially at that point. According to the CMA, this did not happen and prices remained at substantially the same level.

The CMA, under its market investigation as opposed to its general competition law powers, found that Motorola can charge the Home Office prices well above competitive levels, resulting in higher costs ultimately paid by taxpayers. It therefore decided to impose a price cap at a level that would apply in a well-functioning, competitive market. There will be a review in 2026, but the cap has been set to apply to the end of 2029.

This is a dramatic example of the use of the CMA’s wide-ranging remedy powers under the market investigation regime in the UK. Motorola immediately announced that it will appeal, stating that “the CMA’s egregious overreach cannot be justified on competitive, economic or legal grounds.” Motorola pointed out that the contract in question was mutually agreed, duly executed and is still in effect. It also had been reviewed by the CMA when Motorola acquired Airwave.

The market investigation regime provides a slow process — the consultation on opening the investigation started in July 2021. However, the Motorola investigation shows that it can be a strong weapon for the CMA alongside its more traditional competition law powers.

UK Government Publishes Long-Awaited Competition and Consumer Bill

On 25 April 2023, the UK government published the Digital Markets, Competition and Consumers (DMCC) Bill, marking the start of its progress through the legislative process. The DMCC Bill was first proposed in July 2021 and, if ultimately passed, would become an important law providing the UK CMA with significant new powers.

The DMCC Bill has three areas of focus: consumer protection, digital markets, and general competition law and merger control. In relation to consumer protection, the CMA will be able to decide when consumer law has been broken, rather than having to take each case to court. It also will be able to fine businesses that do break the law up to 10% of their global turnover. This aligns its consumer law enforcement powers with its existing competition law enforcement powers.

The most high-profile changes are in the area of control of digital firms, although they will apply only to the most important of those. The bill provides for a new, targeted regime, overseen by the Digital Markets Unit in the CMA. It will set rules that prevent digital firms with strategic market status (SMS) from engaging in certain activities deemed inappropriate. SMS means a firm has substantial and entrenched market power in at least one digital activity, providing it with a strategic position. A threshold will apply, meaning that only firms with a global turnover above £25 billion, or UK turnover above £1 billion, will be in scope.

Of greatest significance for most competition law practicioners and companies active in the UK are the changes to the general competition law enforcement and merger control regime. The CMA will gain strengthened investigative and enforcement powers and there will be updated merger control jurisdictional thresholds and also fining thresholds.

European Commission Updates Position on Abuse of Dominance

On 27 March 2023, the European Commission announced its first major policy initiative in the area of EU abuse of dominance rules since 2008.

EU competition law includes a provision (Article 102 of the TFEU) that, in common with similar national law in many jurisdictions including the UK, bans the abuse of a dominant position. Article 102 is one of the few areas of European competition law where no guidelines clarify its application, although there is a 2008 guidance document on the Commission’s enforcement priorities concerning exclusionary abuses.

The new initiative is intended to lead to the adoption of Commission guidelines on exclusionary abuses of dominance. In parallel to a call for evidence seeking feedback on the proposed guidelines, the Commission published a communication(and annex) amending its 2008 guidance.

The Commission also published a policy brief titled “A dynamic and workable effects-based approach to Article 102 TFEU”that further explains the background to the launch of the guidelines initiative as well as the changes to the 2008 guidance.

Additional EU and UK competition law news coverage can be found in McGuireWoods’ news section.

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