European Competition Law Newsletter – May 2024

May 1, 2024

Table of Contents

Not A Good Idea: UK CMA Investigates National Nail Tech Price Increase Day

In an effort to “help nail pros grow and scale,” The Nail Tech Org (TNTO), a UK-based online nail community, set 8 April 2024 as National Nail Tech Price Increase Day in the UK. The initiative suggested that nail technicians should each increase their prices on that day.

In support of this, TNTO created a pricing course for its members, including an income and pricing calculator, and a client communication kit to help share messages about price changes with clients. Several individual salons were reported as supporting the initiative, a nail polish brand did so in a social media post and a hashtag was created. The idea was also supported in the industry’s trade press.

Individual nail technicians and salons are competitors (at least within their local areas) and therefore should set their prices and price increases independently. A price increase campaign organised by a trade association or similar body is very likely to give rise to an infringement of UK competition law as a type of cartel, involving the body and individual competitors.

The UK Competition and Markets Authority (CMA) was quick to react, issuing on 8 April an open letter to nail technicians referring to recent press reports about the initiative and reminding them of their obligations to comply with UK competition law. It pointed out that “ … businesses must set their prices independently and … competitors should not discuss or coordinate among themselves the timing or amount of any price increases (whether directly or through a trade body or other membership organisation).” The CMA did not launch a formal investigation, apparently taking the view that the warning letter was sufficient and the issue was not a priority.

Although the CMA did not take matters further in this case, it shows that the CMA does actively monitor for potential anti-competitive activity and considers no industry too small or local to be of relevance. Another example of this is the CMA’s investigations into alleged excessive and unfair prices charged by four pharmacies and convenience stores for hand sanitiser products during the COVID-19 pandemic. In those cases, four formal investigations were launched but then closed.

European Commission Further Ramps Up Foreign Subsidies Regulation Enforcement

Under the EU Foreign Subsidies Regulation (FSR), the European Commission has the power to investigate financial contributions granted by non-EU 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.

The obligation to notify certain large M&A transactions to the Commission for clearance under the FSR has applied since 12 October 2023. There is a similar notification obligation for certain large public procurements and the Commission can also launch its own initiative (ex officio) investigations into any other market situation.

The Commission has been enforcing the FSR actively. It launched its first in-depth investigation, into a public procurement procedure, on 16 February 2024. The investigation followed a notification submitted by CRRC Qingdao Sifang Locomotive Co., Ltd. (CRRC Loco), a subsidiary of Chinese state-owned train manufacturer CRRC Corporation. It concerned a procedure run by Bulgaria’s Ministry of Transport and Communications relating to the provision of several electric “push-pull” trains, as well as related maintenance and staff training services. CRRC Loco subsequently pulled out of the tender.

Following this, on 3 April 2024, the Commission opened two in-depth investigations, both following notifications of public procurement procedures. These concern tenders by two Chinese companies for the the design, construction and operation of a photovoltaic park in Romania. Justifying this, EU Competition Commissioner Margrethe Vestager commented in a 9 April 2024 speech: “We saw the playbook for how China came to dominate the solar panel industry [including] granting massive subsidies for domestic suppliers … Our economies cannot absorb this. It is not only dangerous for our competitiveness. It also jeopardises our economic security. We have seen how one-sided dependencies can be used against us. And this is why Europe, just as the U.S., is reacting.” 

The China Chamber of Commerce to the EU (CCCEU), upon the publication by the Commission of the invitation to comment on these probes, took the opportunity to criticize them and the FSR in general. The CCCEU identified three “major reasons” for its “grave concerns”:

  • “The overly broad and non-exhaustive definition of ‘foreign financial contributions’ in the FSR.”
  • “The Commission’s … scrutiny of the possible impact of subsidies received by Chinese parent companies that were passed through onto their European entities.”
  • “A significant lack of transparency.”

In the same 9 April speech, Commissioner Vestager announced the Commission’s first ex officio investigation. That investigation is into Chinese companies supplying wind turbines for wind parks in a number of EU countries and was justified on the same basis. It is not clear whether the investigation focusses on tender procedures or market conduct.

Most recently, the Commission carried out its first dawn raids under the FSR. Chinese security scanner company Nuctech was visited in the Netherlands and Poland as part of an apparent ex officio investigation. The company has reportedly been accused of undercutting competitors in tenders as a result of Chinese subsidies. The raids prompted the CCCEU to comment that this “…manifested [a] clear intention to weaponize the [FSR] tool to suppress lawfully operating Chinese companies in Europe.” It also observed that “over the last two months, the EU has initiated four investigations under the [FSR], all aimed at Chinese firms,” and that “[the CCCEU] and its members are profoundly shocked and dissatisfied.”

The Commission is making good use of its new powers to review subsidies granted by non-EU countries and is backing this up with strong language. However, the cases are rapidly becoming very controversial in China, which is the only country whose companies have so far been investigated.

EU Disparagement Investigation Nears a Conclusion

The European Commission has since 20 June 2022 been running an investigation to assess whether Vifor Pharma has broken EU competition law by illegally disparaging a competitor on the market for intravenous iron treatment. The allegation was that Vifor is dominant in such medicines and may have been disparaging Monofer (manufactured by Pharmacosmos) by spreading misleading information regarding its safety through a communication campaign, primarily targeting healthcare professionals. Both companies are originators of their drugs (neither is a generic).

This is the Commission’s second investigation into potential abuses relating to exclusionary disparagement of competing products in the pharmaceutical industry. In October 2022, the Commission sent a statement of objections to Teva over alleged misuse of the patent system and disparagement of a competing multiple sclerosis medicine with a view to hinder its market entry and uptake. There is, however, not yet any EU precedent.

Other competition law regulators have also investigated similar conduct under abuse of dominance rules. The CMA has announced a parallel investigation into Vifor.

Vifor is now trying to settle this Commission case. On 19 April 2024, the Commission requested comments on commitments offered by the company. To address the Commission’s competition concerns, Vifor has offered the following:

  • To launch a comprehensive and multi-channel communication campaign to rectify and undo the effects of the potentially misleading messages previously disseminated by Vifor regarding the safety of Monofer.
  • For a period of 10 years and across the entire European Economic Area, not to engage in external promotional and medical communications, in writing or orally, about Monofer’s safety profile using information that is neither based on its formal summary of product characteristics nor derived from randomised, controlled clinical head-to-head trials.
  • To implement a number of measures and safeguards to ensure compliance.

These commitments are likely to be adopted by the Commission after the conclusion of its consultation. The wide scope of these show what dominant companies may have to do in order to avoid a fine in the event of an investigation into spreading misleading information about a competitor.

More Home Searches Likely in the UK

On 22 April 2024, the CMA won a case at the High Court concerning its ability to carry out dawn raids under UK competition law at domestic premises. The judgment was welcomed by the CMA. It will give the CMA more flexibility to use its dawn raid powers in competition law investigations in the UK and likely lead to more raids of private homes.

The background to the judgment is an October 2023 application by the CMA to the UK Competition Appeal Tribunal (CAT) for warrants to search business and domestic premises as part of its investigation into suspected anti-competitive conduct regarding the supply of chemical admixtures for use in the construction industry. The CMA then conducted raids to gather evidence as part of its investigation.

The CMA has the power under the UK Competition Act 1998 to seek search warrants from the CAT, in support of its investigations under the act. The test provides that the CAT may grant a search warrant if it is satisfied that there are reasonable grounds to suspect that there are documents on the premises that the CMA could require the production of by notice (under the act) but if the documents were required to be produced, they would not be produced but would be concealed, removed, tampered with or destroyed.”

While the CAT granted warrants authorising the CMA to search three business premises in England and Scotland, it refused the warrant regarding the domestic property. The CAT said it was necessary for the CMA to identify specific evidence demonstrating that an occupier of the property had a “propensity” to destroy physical or electronic documents held on his/her property — as his/her suspected involvement in a secret cartel was not enough.

The High Court agreed with the CMA that the CAT had made an error in its application of the law — namely, that it was incorrect to state that specific evidence of a “propensity” to destroy electronic or physical documents was always required for a domestic search warrant, and that the CAT’s judgment should not therefore be followed in future cases.

The CMA’s chief executive commented, “With the increase in remote-working — and electronic communication — it’s essential that we are able to search domestic premises to secure evidence of potential breaches of competition law where appropriate to do so.”

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

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