Court of Justice confirms that restrictions by ‘object’ in property lease should be interpreted narrowly

The Court of Justice has ruled that a non-compete restriction in a commercial property lease should not be construed as a restriction by ‘object’ under Article 101(1) TFEU.

The judgment concerns a request for a preliminary ruling from a Latvian court relating to the right of an anchor tenant to exclude competitors from adjacent units in a shopping centre. 

The Court confirmed that the concept of ‘by object’ restrictions “can be applied only to certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects”.

The Court was swayed by recent case law, in particular in Carte Bancaires (Case C-67/13, Groupement des cartes bancaires v European Commission) where it criticised the approach of the General Court in concluding that the ‘object’ category should not be construed narrowly.

The Court took note of the vertical relationship between the shopping centre and the anchor tenant and considered that the case was not one which could be characterised as ‘by its nature’ an object restriction. 

The referring court also asked what factors should be taken into account when determining the actual or potential effect on competition where a provision is not boxed as restrictive by object.  The Court indicated that relevant factors may include: the relevant retail market and size of the catchment area covered by the agreements; the level of real, concrete possibilities for a new competitor to establish itself elsewhere in the relevant catchment area, for example in other shopping centres, or outside the shopping centre area; the number and size of the operators on the relevant market in the catchment area and levels of concentration; the nature of customer habits and loyalty to existing brands; the degree of any other economic, administrative and regulatory barriers to entry; the nature and duration of the restriction; and the existence of any other agreements which may create a cumulative effect on competition.

The judgment will be welcome news to those who want to see a narrowing of the concept of restrictions by object. 

Beyond the direct relevance of the case to commercial property agreements, the ruling appears to send a wider policy message. In Cartes Banacaires the Court of Justice castigated the General Court for rejecting a narrow construction of restrictions by object.  In the Latvian ruling the Court appears to have shifted the emphasis a tad to say that the object category must be interpreted restrictively.  If the Court’s approach is applied more generally and outside the property sector it could see a stemming of the tide of more recent cases which have enlarged the category of infringements by object, including in relation to information exchange and online selling.

Case C-345/14, SIA Maxima Latvija v Konkurences padome

India imposes fines in airfreight sector

India’s Competition Commission (CCI) has issued its first penalties for competition law infringements in the air cargo market.  It has fined three Indian airlines – Jet Airways, IndiGo and Spice Jet - a total of 2.6 billion Indian rupees (approximately EUR 36.5 million) for collusion over fuel surcharges.

The airfreight sector has been the subject of competition law investigations globally which have been followed by a succession of private damages claims.  In 2010 the European Commission fined eleven carriers a total EUR 799 million for fixing the price of air cargo surcharges on international flights.  Antitrust authorities in the USA, Canada, Brazil and Australia (amongst others) have also launched antitrust investigations into the sector and imposed penalties.

The fines imposed by the CCI amounted to approximately 1 per cent of the companies’ turnover.  An enterprise found to have engaged in cartel activities may be fined the greater of three times the profit or ten per cent of turnover for each year of the cartel.  The CCI explained that it took into account the precarious financial situation of the airlines in setting the level of the fine.  This approach is in marked contrast to the approach of the European Commission in the air cargo cartel case where it rejected claims from a number of airlines that the fine should be reduced on account of their inability to pay.

A noteworthy feature of the Indian case is that the CCI based its findings on circumstantial (indirect) evidence.  The CCI concluded that the ‘only plausible reason’ for the close to simultaneous increase in the fuel surcharge prices of the three airlines was collusion amongst them.  The CCI remarked that it was ‘strange’ that the airlines admitted to their participation in discussions over rates yet produced no minutes or notes of the meetings.

The CCI’s conclusion is troubling since it appears to reverse the burden of proof requiring the airlines to displace the inference of a cartel in the face of price parallelism.  Competition authorities around the world may need to rely on indirect evidence to prove the existence or effect of a cartel but such evidence must be evaluated carefully because it can be ambiguous. Of the two types of circumstantial evidence (communication evidence and economic evidence) communication evidence (e.g. records of meetings, telephone exchanges, travel to a common destination) is the more persuasive but it must be viewed holistically and consistently with other evidence.

There was no leniency applicant in this case.  It is a remarkable fact that despite six years of implementation of the behavioural rules of the Indian Competition Act 2002 there is no reported case of leniency granted.

It will be interesting to see how the case is viewed by the Indian Competition Appellate Tribunal which it is hoped will clarify the burden and standard of proof in cartel cases based on indirect evidence.

CMA provisional findings and possible remedies in private healthcare market investigation (II)

The Competition and Markets Authority has released its provisional findings on its re-examination of the private healthcare market.

The Competition Commission started the original investigation in April 2012 and in April 2014 the then newly established CMA ordered HCA International to divest hospitals in central London to address what the CMA found to be adverse effects on competition in the private healthcare market.  HCA then successfully appealed the CMA’s decision before the Competition Appeal Tribunal (CAT) and in November 2014 the CAT remitted certain issues back to the CMA to consider afresh.

The CMA has adopted most of the findings in its original final report and provisionally concluded that its revised Insured Price Analysis indicates that HCA charged higher prices than its nearest competitor.  However, the CMA is not in a position to conclude on the size of the difference.  It has also provisionally concluded that there is no basis to change its original finding of an adverse effect on competition in relation to self-pay patients in London.

However, the CMA is consulting on a wider category of remedies beyond pure divestment.  The remedies being consulted on include (i) divestment by HCA of up to two hospitals (ii) a requirement on HCA to give competitors access to its facilities and (iii) restrictions on HCA’s expansion in central London.  The CMA has rejected other remedies including a light touch price control and restrictions in the way that HCA contracts with insurers.

The CMA has invited comments on its provisional findings by 3 December 2015.  A key test of the revised remedies will be how attractive they are to HCA and competitors and how capable they are of implementation.

The CMA is due to publish its final report on the remittal in March 2016.  Yet that is unlikely to bring closure to the CMA’s wider probe of the private healthcare sector.  In particular, its fee information remedy requiring publication of consultants’ fees remains in abeyance following an appeal by the Federation of Independent Practitioner Organisations (FIPO), currently before the Court of Appeal.  Whatever the outcome of that appeal the CMA will need to consider whether its remedies remain fit for purpose in light of changed circumstances in the market that it and its predecessor have examined in a procedure that began over three years ago.

CMA news release

Notice of provisional findings

Provisional Findings Report

Notice of possible remedies

CMA case page