European Competition Law Newsletter – August 2023

August 1, 2023

Table of Contents

  • EU’s Highest Court Rules on Resale Price Maintenance
  • Leicester City F.C. Fined for Market Sharing and Price Fixing in the UK
  • EU Foreign Subsidies Regulation Implementation Rules
  • ECJ Confirms GDPR Infringement Can Be Relevant to a Finding of Abuse of Dominance

EU’s Highest Court Rules on Resale Price Maintenance

On 29 June 2023, the EU’s highest court, the Court of Justice of the European Union (ECJ), handed down an important judgment on the treatment under EU competition law of a supplier fixing the minimum resale prices its distributors will use (resale price maintenance or RPM).

The court held in Super Bock Bebidas that RPM is not always an “object” (i.e., automatic) restriction under EU competition law and therefore a prima facie problem requiring justification on the basis of efficiencies, which is available only in very limited circumstances. Instead, it is always necessary to carry out a full analysis to determine this, considering the content of the provision, its objectives, the economic and legal context, the nature of the goods/services, the functioning and structure of the market in question, and any pro-competitive effects that are demonstrated, relevant, intrinsic to the agreement and sufficiently significant.

Only after such review can an RPM clause be considered to present a sufficient degree of harm to competition such that it should be treated as restricting competition by “object,” meaning there is no need to examine its actual effects on competition to determine whether there is an infringement of competition law requiring justification to be legal.

Importantly, the ECJ also held that it is not relevant that RPM is classified as a “hardcore” restriction, which, when included in an agreement, disapplies the automatic exemption from EU competition law for certain vertical agreements under the 2022 EU Vertical Agreements Block Exemption Regulation.

As a result of this judgment, the European Commission’s 2022 guidance on vertical agreements (with paragraph 195 stating that the ECJ “has held on several occasions that RPM is a restriction of competition by object under EU competition law”) is already out of date on the point. The Commission’s 2014 guidance on restrictions by object (with paragraph 3.4 stating “restrictions of a buyer’s ability to determine its minimum sale price generally constitute restrictions by object”) is also out of date. The position is no longer that simple, to the benefit of companies wanting to use such a clause

Leicester City F.C. Fined for Market Sharing and Price Fixing in the UK

Leicester City Football Club, the 2015-16 Premier League champions, and JD Sports, a UK sports equipment retailer, admitted that they broke UK competition law by entering into an arrangement that limited competition in the sales of Leicester City-branded clothing, including replica kit, in the UK.

These admissions resulted in a provisional fine imposed by the UK Competition and Markets Authority under its settlement procedure of up to £880,000, reflecting a settlement discount. JD Sports reported the illegal conduct and admitted its participation in the alleged conduct by way of a leniency application. It therefore will not receive a fine, provided that it continues to co-operate and to comply with the other conditions of the CMA’s leniency policy.

The case allegedly incorporates classic illegal cartel behaviour with a number of strands. According to the CMA, the parties agreed in August 2018 that JD Sports would stop selling Leicester City-branded clothing online for the 2018/19 season. Following this, in January 2019, they agreed that JD Sports would not undercut Leicester City in terms of online sales for the 2019/20 season by applying a delivery charge to all orders of Leicester City-branded clothing — disapplying its companywide promotional offer of free online delivery for all orders over £70. Finally, by July 2020, they agreed that JD Sports would continue to apply delivery charges to online orders of Leicester City-branded clothing for the 2020/21 season. This continued until at least 26 January 2021.

The CMA has not indicated whether the parties had competition law compliance programmes in place at the time, although the fact that JD Sports blew the whistle suggests its programme may have picked up the issue. In any event, regardless of the industry, a robust programme, with monitoring and training in place, puts a company in the best place to stop such behaviour from happening in the first place and to identify it if it does occur. Identification of an issue means a company then has options to protect itself, which may not otherwise be available.

EU Foreign Subsidies Regulation Implementation Rules

As reported in McGuireWoods’ July 2023 European Competition Law Newsletter, the EU’s controversial Foreign Subsidies Regulation (EU FSR) is now a live part of the regulatory landscape in the EU. This places a significant new compliance burden on companies engaged in certain transactions and procurement procedures and there is also a risk of an own-initiative investigation by the European Commission.

Under the EU FSR, the European Commission will have the power to investigate financial contributions granted by non-EU (i.e., “foreign” and therefore including, inter alia, the UK and United States) governments to companies active in the EU. If the Commission finds that such financial contributions constitute distortive subsidies, it can impose measures to redress their distortive effects. Transactions above relevant thresholds will need to be notified to the Commission for review, as will bids in certain public procurement procedures.

The European Commission has now adopted the rules for implementing the EU FSR, which are contained in the Implementing Regulation (EU) 2023/1441. This includes procedural aspects of the implementation and contains the notification forms for informing the Commission about relevant transactions and public procurement procedures.

Companies need to keep track on a rolling basis of “foreign financial contributions” in order to determine, when engaged in certain transactions or public procurement procedures, whether the notification requirement applies. For qualifying transactions, the Implementing Regulation has been limited in its scope since the first draft, but companies will still have a significant reporting burden:

  • For foreign financial contributions the EU FSR considers the most likely to distort the internal market (such as those granted to ailing companies, those directly facilitating a transaction or unlimited guarantees), detailed information on all financial contributions of an individual amount of at least €1 million, granted to the parties to the transaction over the past three years.
  • For all other foreign financial contributions, an overview of financial contributions granted to the notifying party/ies over the past three years, of an individual amount of a least €1 million and in relation only to those countries that have granted to the parties to the transaction at least €45 million over the three years before the concentration, subject to a number of exceptions.

The definition of “foreign financial contribution” under the EU FSR is very wide. For example, the commercial sale of goods and service to a foreign public body gives rise to a “financial contribution” and is therefore relevant for determining whether the notification thresholds are met. This is a different issue from whether such financial contribution has to be reported in any required notification (but the financial contribution still has to be identified on a groupwide basis in the first place in order to determine whether the notification thresholds are met). In many cases, this will not be an easy task and companies would be well-advised to begin preparations.

ECJ Confirms GDPR Infringement Can Be Relevant to a Finding of Abuse of Dominance

On 4 July 2023, the ECJ ruled in a high-profile case concerning Meta’s collection and use of its users’ data. The case originated from a decision of the German competition regulator, the Bundeskartellamt (BKA), which found in 2019 that the company had abused its dominant position in the market for social networks (its well-known Facebook platform).

The BKA found that using and actually implementing the company’s data policy included in its general terms, which allowed it to collect user and device-related data from sources outside of the platform and to merge it with data collected on the platform, constituted an abuse of a dominant position on the social network market in the form of exploitative business terms. It based its decision on the fact that, since that processing was not consistent with the EU General Data Protection Regulation (GDPR), it constituted an abuse of the company’s dominant position on the German market for online social networks. The BKA prohibited the data processing policy the company was found to have imposed on its users and ordered the termination of this conduct.

This was the first time that an EU competition regulator had found that user terms and conditions that infringed the GDPR also amounted to an abuse of a dominant position.

The BKA decision gave rise to appeals in Germany, and ultimately the ECJ was asked to rule on particular aspects of it. The ECJ upheld the BKA’s stance, finding that “excluding the rules on the protection of personal data from the legal framework to be taken into consideration by the competition authorities when examining an abuse of a dominant position would disregard the reality of this economic development and would be liable to undermine the effectiveness of competition law within the European Union.” The judgment therefore confirms that, where relevant, regulators can and should consider the collection and merging of data and data protection rules, as part of abuse-of-dominance proceedings. This is likely to lead to more investigations of relevant operators active in the EU.

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

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