Ofcom issues objections to Royal Mail for competition law breach

Ofcom alleges that Royal Mail has abused its dominant position in breach of Chapter II of the Competition Act 1998 and the equivalent EU competition law prohibition in Article 102 of the Treaty on the Functioning of the EU.  The crux of Ofcom’s concern is that Royal Mail has engaged in conduct that amounts to unlawful price discrimination against competitor postal operators.

Ofcom’s investigation focuses on allegations that the changes to Royal Mail’s wholesale prices for bulk mail delivery services, which were announced in January 2014, suspended in March 2014 and finally withdrawn in March this year amounted to differential pricing.  This meant, in effect, that higher prices would be charged to those customers that competed with Royal Mail in delivery than those that did not.

Ofcom is concerned that the access pricing regime operated by Royal Mail would disincentivise new entry into the delivery market, and increase barriers to expansion for postal operators seeking to compete with Royal Mail in that market.  Ofcom believes that the practices lead to a distortion of competition against the interests of consumers.

Discriminatory treatment of customers is a specific category of abuse under competition law.  Price discrimination consists of charging different prices to customers in the same position without justification, or charging uniform prices to customers whose circumstances are different.  However this does not necessarily imply a one-size-fits-all approach.

Royal Mail has an opportunity to make representations to Ofcom in response to the Statement of Objections.  It would be open to it to establish that the differential pricing is objectively justified in the sense that there is a legitimate and not anti-competitive basis for the differential pricing as between the different categories of operator.  It is fair to say that the debate among economists as to the circumstances in which the practice of discrimination by a dominant firm is anti-competitive and harmful to consumers is far from settled.

If Royal Mail is found to have infringed competition law it is potentially subject to penalties of up to 10 per cent of its turnover.  However, this case is unusual in that the allegedly unlawful practices have not apparently been implemented and it remains to be seen whether that will be a mitigating factor.

If the outcome of Ofcom’s investigation is that Royal Mail is found to have infringed competition law this could support a follow-on action by a competitor or ultimate consumer harmed by the breach, based on that decision.  The attraction of a follow-on action is that the claimant may rely on the fact of the decision against Royal Mail as evidence of an infringement of competition law. However, this is not the end of the issue as proving causation and quantifying loss can still be challenging for a claimant.  In contrast, in a standalone action the claimant must first prove the existence of the competition law violation, through legal argument and evidence which means that such an action is likely to be more complex and expensive. 

European Commission Statement of Objections in pay-TV investigation

The European Commission has issued a statement of objections to Sky UK and six major US film studies (Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros).  The Commission has formed a preliminary view that a licensing agreement between Sky UK and the studios restricts the ability of Sky to sell its pay-TV services  to customers outside the UK and Ireland.

The announcement is the latest development in an investigation which began in 2012 and where in 2014 the Commission disclosed its targets.  The addition of Disney as a target of investigation is a new development.

The Commission has concerns that provisions that require Sky to block access to the studios’ films on a territory basis so that the content is available only in the UK and Ireland effectively grant absolute territorial exclusivity.  According to the Commission, this practice – known as ‘geo blocking’ - eliminates cross-border competition between pay-TV providers in Europea.  Sky and the studios now have to respond to the statement of objections and put forward their case as to why they consider that the practices do not violate Article 101 TFEU. 

The Commission’s pay-TV investigation comes in the wake of the ruling by the Court of Justice in Joined Cases C-403/08 and C-4429/08, Football Association Premier League Ltd (FAPL) v QC Leisure, Murphy v Media Protection Services Ltd [2012] 1 CMLR.  The proceedings concerned attempts by FAPL to enforce its exclusive licensing of satellite TV rights for the Premier League through the criminal and civil law.  The English domestic case involved the now infamous Mrs Murphy who faced criminal prosecution for allegedly illicitly obtaining satellite decoders to show Greek satellite broadcasts of Premier League matches.  The High Court referred certain questions of EU law to the Court of Justice.  The Court of Justice ruled that the EU rules on free movement contained in Article 56 TFEU precluded national legislation that made it unlawful to import and sell foreign decoding devices.   The restriction could not be justified by the objective of protecting IP rights.  It further ruled that the grant of exclusive satellite broadcasting licences for the territory of a member state or states and which required the licensee not to supply decoding cards to enable viewing outside the territory restricted competition within Article 101(1) TFEU.  Mrs Murphy’s appeal against criminal conviction was allowed. 

The Commission has linked its current pay-TV investigation to the FAPL case.  However, the Commission’s investigation appears to be rather more specific in focusing on absolute territorial protection in the licensing of films in the pay-TV sector and whether such clauses infringe competition law.  However, owners and licensees of other premium content such as music and sports will be watching developments for potential read-across to or differentiation from their situation. 

In a parallel development the Commission has recently opened a sector inquiry into e-commerce which is aimed at improving access to digital goods and services across the EU.  The Commission is meanwhile pledging a reform of the EU copyright rules to seek to ensure that consumers who buy content in one EU country are able to access it elsewhere in the EU.  The Commission finds that currently some media providers are not able to provide cross-border access due to copyright agreements. 

Case COMP/40023: Cross-border access to pay TV content; Commission press release IP/15/5432:  http://europa.eu/rapid/press-release_IP-15-5432_en.htm

Standard Essential Patents and the Willing Licensee

 The Court of Justice has confirmed that Standard Essential Patent (SEP) holders cannot seek injunctions against the unlicensed use of their IPR, unless they have first offered a licence on fair, reasonable and non-discriminatory (FRAND) terms to a party that is willing to conclude a licence. 

In recent years and months the European Commission has continued to focus its antitrust interest on the so-called ‘patent wars’ between the mobile device companies.  These cases involve allegations that there is an abuse of dominance where (a) a dominant company seeks injunctive relief alleging infringement of its SEP; (b) in circumstances where the other party is willing to enter negotiations as to licensing on FRAND terms; and (c) which FRAND licensing the SEP owner had committed to respect. 

The judgment confirms the opinion of advocate general Wathelet that SEP owners must offer a licence of patents on FRAND terms before they are entitled to seek an injunction if the putative licensee is willing to enter into a licence. 

The court has gone some way to set out what SEP owners must do to avoid an abuse of dominance. They must inform the infringer of the prohibited use of the patent and, if the infringer expresses their willingness to conclude a licence, they must present an offer that complies with FRAND terms and set out specific royalty levels. If the infringer rejects the offer it must provide a counter-offer and, if it declines to do so, the SEP owner would be entitled to seek an injunction without that amounting to an abuse of dominance. 

The court said that the infringer must respond “diligently” to the offer.  Although the court did not give much guidance on what that means in practice, it seems that the infringer cannot play fast and loose in responding just to buy more time. Ultimately, it will be a test of good faith as to whether a licensee is a willing licensee. 

The judgment adds to the developing case law in this area but disappointingly it does not take further the question of whether and in what circumstances holding a SEP amounts to a dominant position.  That threshold issue will no doubt be a veritable source of future litigation. 

The judgment broadly follows the advocate general’s opinion but does deviate in an important respect.  The advocate general’s view was that a FRAND offer should be made whether or not the infringer has indicated that it is willing to enter into FRAND terms.  The court has not gone that far and said that the written offer should be made only where the infringer has expressed a willingness to enter FRAND terms.  This may not make much difference in practice since a court would want to be persuaded that the licensee was genuinely “willing” but it does rather shift the onus to the putative licensee to make clear that it is willing to enter a licence.

Source: Case C-170/13 - Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH (ECLI:EU:C:2015:477), judgment of 16 July 2015

European Commission issues new objections to MasterCard

The European Commission has issued a new statement of objections to MasterCard for alleged infringements of Article 101 TFEU relating to its cross-border and inter-regional interchange fees.  The Commission alleges that MasterCard is restricting competition among banks by preventing them from offering lower fees to retailers based in another EEA member state where the fees are higher. 

The Commission has also raised concerns about the MasterCard ‘inter-regional’ interchange fees for transactions made in the EEA by individuals whose cards were not issued in the EEA claiming that these were up to five times higher than on cards that were issued in Europe.  

The announcement represents the latest of a series of legal battles between MasterCard and the EU competition authorities.  EU and national competition authorities have maintained their scrutiny of the level of interchange fees imposed in four-party credit systems.  This is a long running debate where initial competition concerns have arisen due to the ‘multi-lateral’ nature of setting interchange fees among competing banks.   

On 19 December 2007 the Commission issued an infringement decision against MasterCard in relation to its cross-border multilateral interchange fees.  The Commission found that MasterCard had infringed Article 101 TFEU in that the arrangements restricted competition between acquiring banks and increased the costs of accepting cards without leading to efficiencies within the meaning of Article 101(3) TFEU.  On 11 September 2014, the Court of Justice dismissed the appeal and cross-appeals challenging a General Court judgment that upheld the Commission’s 2007 decision.

 

In a separate investigation on 26 February 2014 the Commission announced that it had decided, under Article 9 of Regulation 1/2003, to make legally binding the commitments offered by Visa Europe to address concerns about its inter-bank fees.  

These investigations at EU level must also be seen in the context of the investigations of the OFT concerning UK domestic point-of-sale transactions using MasterCard Card and Visa cards.  On 4 November 2014, the CMA announced that it had decided that at this time it will not progress its investigations into Visa and MasterCard interchange fees.

The caps on interchange fees for cards issued and used in the EU (0.2% for debit cards and 0.3% for credit cards) as accepted by MasterCard and Visa as a result of this enforcement action are now established in Regulation 2015/751 on interchange fees for card-based payment transactions.  The regulation establishes uniform technical and business requirements for payment card transactions within the EU where both the payer’s and the payee’s service provider are established in the EU.  Inter-regional interchange fees are not however covered by Regulation 2015/751.   Without considering the merits of imposing industry-wide regulation, the change in approach is significant as it amounts in effect to the imposition of industry-wide rules based on the outcome of specific investigations. 

Case 40049: MasterCard II; Commission press release IP/15/5323 (9 July)

Changes to Indian merger control

The Competition Commission of India (CCI) has introduced changes to Indian merger control with effect from 1 July 2015.  The changes are brought into force through amendments to the Competition Commission of India (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011 (Combination Regulations), published on the CCI’s website on 6 July 2015. 

The main changes are the following:

·        A revised Short Form Notice which now requires more information to be supplied.

·        An extended period for review at Phase 1.  The CCI will have 30 working days to arrive at a prima facie opinion which can be extended by a further 15 working days if third party views are sought, resulting in a period of 45 working days for the CCI to arrive at a prima facie opinion at Phase 1.

·        A limitation on the trigger events for a notification.  The CCI has previously fined Tesco for failing to notify within 30 days of its application to the Foreign Investment Promotion Board.  In light of criticism of its practice the CCI has sought to narrow down the trigger events. The CCI has removed the obligation to notify based on communication of an ‘intention to acquire’ to the Central or State Government.  However, communication of such an intention to an Indian statutory authority such as the Reserve Bank of India would still appear to be a trigger event for a notification to the CCI. 

·        A provision enabling the CCI to invalidate a merger filing as incomplete after notification and at any time up to the end of the 210 day statutory review period.

·        A relaxation in the divestiture process meaning that sale to a buyer approved by the CCI will not require additional merger clearance in India by the CCI.

The amendments are rather a hotch-potch of changes.  While some are beneficial (e.g. the relaxation in the divestiture process) others create further uncertainty and increase the information and procedural burdens on parties to transactions which require merger filings in India.

Indian merger control came into effect in June 2011 and since then the Combinations Regulations are amended on an annual basis.  The aim is to address industry concerns and improve the merger control regime in light of experience.  This means that parties whose transactions may need to be filed in India need to keep abreast of the changes as the regime is subject to amendment on a more frequent basis than most international counterparts. 

Suzanne Rab is the author of “Indian Competition Law, an International Perspective” (first published by Wolters Kluwer, May 2012; with a supplement of cartel regulation published in January 2013). The book is  the first-of-its-kind international comparative analysis of the Competition Act 2002 published contemporaneously with the coming into force of Indian competition law and merger control.  Suzanne is also co-author of "Media Ownership and Control: Law, Economics and Policy in an Indian and International Context" (Hart Studies in Competition Law, 2014).