CMA final report in legal services market study

The Competition and Markets Authority has published its final report in its market study into the supply of legal services in England and Wales. The CMA finds that competition in the supply of legal services is not working well, concluding that information issues inhibit the ability of consumers and small business to make informed choices about price, quality and service.

The CMA has undertaken a wide review of the current regulatory regime for legal services.  The legislative framework for the regulation of legal services in England and Wales is set out in the Legal Services Act 2007 (LSA).  Under the LSA, only individuals and businesses authorised by an "Approved Regulator" (AR) or those exempt from the requirement to be authorised are entitled to provide reserved legal activities.  The six reserved legal activities are: the exercise of a right of audience, the conduct of litigation, reserved instrument activities, probate activities, notarial activities and the administration of oaths. The CMA finds that the current system is not sufficiently flexible to apply proportionate risk-based regulation and recommends that the Ministry of Justice reviews the current legal framework to make it more flexible.

The CMA makes a number of recommendations to the ARs urging them to improve the transparency of price and service information to enable buyers of legal services to make comparisons. 

The CMA has also found certain issues relating to unauthorised providers.  Providers that are not authorised and regulated under any legal sector or other specific legislation can provide legal services as a significant focus of their work.  Unregulated legal services providers operate outside the areas of reserved legal activities under the LSA for example, in will writing and estate administration, family, intellectual property, and employment law.  The CMA has recommended that the Ministry of Justice examine whether to extend protection afforded under existing redress schemes to clients using unauthorised providers.

Legal Services Market Study Final Report, 15 December 2016

European Commission fines battery cartel EUR166 million

The European Commission has fined Sony, Panasonic, and Sanyo a total of EUR166 million for colluding to increase their prices and exchanging commercially sensitive information on future bids in the rechargeable lithium-ion battery market. 

Rechargeable lithium-ion batteries are used in portable devices including virtually all laptops and mobile phones. The Commission found that the cartel affected prices in Europe, although most of the illegal activity took place in Asia.

Samsung was fined EUR58 million but obtained complete immunity as the leniency applicant.  Panasonic, having bought Sanyo in 2012, is liable for both its own fine of EUR40million and Sanyo’s EUR97 million fine.  Sony is accountable for a EUR30million fine. 

All parties received a 10 per cent reduction in their fines under the settlement procedure. The case is the 22nd cartel investigation to date that has been subject to the Commission’s settlement procedure, first introduced in May 2010. 

The US Department of Justice fined Sanyo USD10.7million in 2012 for a cartel involving lithium-ion batteries.

The decision brings the total tally of fines imposed by the Commission so far in 2016 to EUR3.7 billion (in large part due to the EUR2.93 billion penalty imposed in the trucks cartel).

Source: Commission press release IP/16/4356

European Commission clears Microsoft-LinkedIn merger and dismisses data concerns

European Commission clears Microsoft-LinkedIn merger and dismisses data concerns

The European Commission has given its conditional approval to Microsoft’s acquisition of LinkedIn at Phase I. It has largely rejected big data competition concerns raised by competitor, Salesforce.

The Commission’s clearance is subject to commitments by Microsoft not to compel computer manufacturers that use the Microsoft operating system to pre-install a LinkedIn application. Microsoft also commits to allow consumers to remove such an application if computer manufacturers install it and to continue offering LinkedIn’s competitors the option to purchase interoperability functions with Microsoft Office on a non-discriminatory basis.

LinkedIn’s main competitors in the EU include Viadeo, XING and GoldenLine which are professional networking sites in, respectively, France, Germany and Poland.

LinkedIn currently does not have an add-in for Microsoft’s Windows 10.

The Commission dismissed concerns that the combination would distort competition in online advertising and in the market for customer relationship management.  The Commission considered whether Microsoft would be in a position to foreclose competitors by refusing them access to LinkedIn’s user database but concluded that this was not essential to compete on the market. In this market, the main competitors are Salesforce, Oracle and SAP.

The Commission has shown that it will not necessarily rush to a negative conclusion where a company that has market power acquires another business, if it is satisfied that the transaction does not harm competition.

Commission press release: Microsoft / LinkedIn (COMP/M M.8124) Commission press release IP/16/4284

CMA announces first disqualification of director for price fixing

The Competition and Markets Authority has announced a disqualification of a company director found to have infringed competition law. This is the first time that the CMA has used its powers under the Company Directors Disqualification Act to disqualify a director of a company that infringed competition law.

In August 2016 the CMA found that Trod had infringed competition law by agreeing with a competing online seller that the parties would not undercut each others’ prices for posts and other goods sold on Amazon’s websites.  The CMA fined Trod £163,371.

The CMA considers that Daniel Aston the managing director of Trod contributed to the breach of competition law which makes him unfit to be a company director.  As such, the CMA has exercised its powers to seek a disqualification undertaking from him not to act as a director of any UK company for five years.

Disqualification is a serious tool in the CMA’s armoury to deal with competition law breaches and five years is a considerable period. It is not the longest period of ban and the CMA could have sought a ban of up to 15 years. What is more interesting perhaps is the question about whether the sanction was proportionate in this case and whether the case will set a precedent for similar enforcement action against individuals in the future.

Source: CMA press release 1 December 2016

Ofcom seeks European Commission approval for BT/ Openreach separation

Ofcom has announced that it will notify the European Commission of proposals to partially separate BT Group from Openreach, its internet infrastructure subsidiary.  But it stops short of the full structural separation that is being urged by BT’s competitors and consumers.

National regulatory authorities including Ofcom must conduct a national and European consultation on their proposed regulatory measures.  European Commission directorate general for communications DG Connect can recommend that they amend or even withdraw the planned measures.

Ofcom believes that an overhaul of the relationship between BT Group and Openreach would bring greater regulatory certainty and that once it is independent from BT, Openreach would be better placed to invest in its broadband network.

Ofcom’s July statement had said that Openreach would become a separate company from BT with an independent board. Ofcom’s latest statement maintains its position that a full structural separation could entail materially greater costs and risks than a partial one and could affect BT’s pension scheme.

The proposals have not been well received by BT’s rivals who are continuing to press for a full structural separation.  It may be asked how the current proposals would bring about a change in BT’s behaviour in a manner that enables other entities to set up their own networks.  Inspiration might alternatively be drawn from other jurisdictions where the focus has been on incentivising other operators to invest in their own new fibre networks such as by allowing them access to the incumbent’s infrastructure on regulated terms. 

Source: https://www.ofcom.org.uk/consultations-and-statements/category-1/strengthening-openreachs-independence

FCA has competition concerns in asset management

The FCA has published its interim report in its asset management market study.

The FCA says that the study raises a number of concerns about whether the asset management sector is driving value for investors as there is limited price competition for actively managed funds. 

The FCA has proposed a package of remedies that would increase transparency and help investors identify the best funds and prices. Most of the remedies relate to governance and price transparency and if implemented would entail changes in the way that asset management firms market and sell their products.

The FCA has also proposed making what would be its first ever market investigation reference to the Competition and Markets Authority over what it views as competition concerns in a relatively concentrated investment consultancy market. 

The FCA is consulting on both its proposed remedies and its provisional decision to refer investment consultancy services to the CMA.

The FCA asks for comments to be sent to assetmanagementmarketstudy@fca.org.uk by 20 February 2017. It intends to publish a final report and remedies in 2017.

Source:  https://www.fca.org.uk/publications/market-studies/asset-management-market-study

Court of Appeal dismisses competition defence in Premier League case

The Court of Appeal has dismissed an appeal against a judgment in favour of the Football Association Premier League (FAPL) relating to the commercial use of foreign bought domestic decoder cards.

The defendant in this case was a pub landlord who used a decoder card which he had bought from a Danish reseller which was a licensed FAPL broadcaster for domestic purposes.  As a result, the reseller’s customers were not authorised to use the cards for commercial purposes such as a broadcast from a public house in the case of the defendant.

The Court of Appeal held that the restriction on the use of the cards for domestic or commercial purposes did not amount to an infringement of competition law.  The Court of Appeal also rejected the claim that the restriction on the use of the cards for domestic purposes was caused by territorial restrictions on the use of the cards.

The defendant relied on EU case law that had held that national legislation which prohibited the importation of foreign decoding devices was a restriction on the freedom to provide services under Article 56 of the TFEU (joined cases C-403/08 and C-429/08 Football Association Premier League Ltd and others v QC Leisure and others; Murphy v Media Protection Services Ltd).  However, the Court of Appeal held that the right on which FAPL relied in this case – the delimitation on the use of the cards for domestic purposes – was not of itself a restriction on competition between Member States.

The Court of Appeal also dismissed the argument that the defendant should be ordered to pay the difference between the commercial and domestic licensing rates as this would amount to a retrospective licence of the copyright works.

The Football Association Premier League Ltd v Luxton [2016] EWCA Civ 1097 (09 November 2016)

Ofgem accepts commitments from SSE

Ofgem has accepted binding commitments from energy supplier SSE to address concerns that it may have abused its dominant position in the electricity connections market. 

The commitments conclude a two year investigation where Ofgem provisionally noted that SSE was likely to hold a dominant position in the markets for non-contestable connection services for connections to its own networks.  Ofgem had concerns that by providing connections to independent network operators or independent connections providers on terms that were different to those that it offered to its own subsidiaries it would place those rivals at a competitive disadvantage.

SSE has committed to an overhaul of its pricing policies and internal restructuring to reduce the risks of anti-competitive conduct in the future. It will also conduct regular compliance reviews which will be externally audited.

As a result of accepting these commitments Ofgem will not reach a formal view on whether or not SSE has committed an infringement of competition law.  SSE must implement the remedies by 3 May 2017, being six months from Ofgem’s acceptance of the commitments.

According to SSE, the commitments will require it to make substantial changes within its operations although they probably fall short of what competitors were hoping for. 

The commitments echo similar themes to those raised in competition investigations in the energy sector by the European Commission, where the vast majority of cases have been resolved using commitments under Article 9 of Regulation 1/2003.

CMA gives green light to railway merger with behavioural commitments

The Competition and Markets Authority has cleared the completed acquisition by Arriva of the Northern Rail franchise after a Phase 2 inquiry and conditional on the parties’ commitments to fare caps on four routes.

The CMA concluded that the acquisition gave rise to a substantial lessening of competition (SLC) on three rail flows (Leeds to Sheffield, Wakefield to Sheffield and Chester to Manchester).

The CMA had provisionally identified a further problematic overlap (Chester to Stockport) but finally ruled out competition concerns after a further investigation. This shows the scope to move the CMA away from its provisional assessment following the submission of further evidence in the course of a Phase 2 investigation.

The CMA concluded that the merger situation arising from the award of the rail franchise did not give rise to an SLC in relation to the award of rail franchises and any overlapping public transport networks and bus/ rail flows. It did not consider that the parties had sufficient incentives to raise bus fares on these flows as a result of the merger.

To address the SLC on overlapping rail flows, the CMA has decided to impose fare caps on the unregulated fares on the overlapping rail routes of Northern Franchise and Arriva rail.  Generally, commitments on conduct are more prevalent in merger cases involving transport networks than structural remedies as it can be easier to monitor such remedies in a regulated environment.

The methodology that the CMA has adopted in this case may be of interest to future bidders for rail franchises as they seek to navigate the possible competition issues.

CMA Final Report, 2 November 2016

Advocate General says no ‘super category’ of rebates in Intel chips case

Advocate General says no ‘super category’ of rebates in Intel chips case

Advocate General Wahl has handed down a masterful opinion in an appeal against the ruling of the General Court dismissing the European Commission’s fining decision of 2009 against Intel for abuse of dominance.  The Advocate General recommends that the Court of Justice should set aside the EUR1.06 billion record fine and refer the case back to the General Court.

The General Court had upheld the Commission’s decision ruling that exclusively rebates granted by a dominant company are, by their very nature, capable of restricting competition and foreclosing competitors from the market.

The Advocate General considers that the General Court erred in law by finding that exclusivity rebates constitute a unique category of rebates that do not require a consideration of all the circumstances of the case in order to establish an infringement of Article 102 TFEU.  He also considered that the General Court was wrong to find that the payments offered by Intel to Dell, HP, NEC and Lenovo in all likelihood had an anti-competitive effect. He considers that the General Court wrongly asked whether the conduct was ‘capable’ of restricting competition, when the correct test is whether there was a ‘likelihood’ of a foreclosing effect.

The Advocate General is also critical of the General Court’s application of the concept of a ‘single and continuous infringement’ in abuse cases.  The Advocate General concludes that the General Court erred in considering that because the Commission found an infringement for the period 2002-2007 it could base a finding of infringement for the period 2006-2007 on there being sufficient market coverage across the entire 2002-2007 period.

The opinion is a categorical rejection of the General Court’s analysis, although the Advocate General did recommend that the Court should reject Intel’s claim that the fine was disproportionate.  The Advocate General instead said that the General Court should assess what fine, if any, may be proportionate.

In my view, the Advocate General’s opinion is one of the most significant and well-reasoned opinion’s in EU competition law in recent years.  It is a refreshing approach to the difficult question of the compatibility of rebates with Article 102, while being firmly anchored in the case law.  Rather than giving lip service to an economic approach, he addresses relevant precedents in a sophisticated way that should not be easily dismissed.

Although Advocate General’s opinions are not binding on the Court they tend to be followed in over 90 per cent of cases.  Given the rigour of this opinion, which reviews the case law since Hoffmann-La Roche, it will be difficult for the Court to reject it in its entirety.  For now at least, it may be expected to prompt some rationalisation in the Commission’s pursuit of rebate and pricing cases.

Source: Opinion of Advocate General Wahl, 20 October 2016

Financial Conduct Authority seeks remedies in investment and corporate and banking market

Financial Conduct Authority seeks remedies in investment and corporate and banking market

The Financial Conduct Authority (FCA) has published a set of remedies following its investment and corporate banking market study.  The final report confirms the FCA’s findings that banks reduced their engagement with smaller and riskier clients, while the needs of larger customers were well served.

The final report reviewed a variety of evidence including restrictive contractual clauses, league tables, IPO allocations and fee structures and found concerns in relation to restrictive contractual provisions and league tables.

The FCA is now consulting on its proposed prohibition of future restrictive provisions which involve tying banks for the purchase of future services, as well as guidelines for the operation of league tables.

The FCA’s approach and findings echo those of the CMA in its recent investigation of the retail banking market, although the FCA has opted for less interventionist remedies motivated at trying to make it simpler and easier for customers to engage with financial services. 

The market study was launched in May 2015 shortly after the FCA obtained its new concurrent competition law powers which allow it to investigate possible breaches of competition law and refer markets to the CMA for a full market investigation.  When the FCA started this investigation it unleashed a huge data gathering exercise and this has not revealed major competition problems or deficiencies in the way that the wholesale markets are operating.

The deadline for comment on the consultation on restrictive clauses is 16 December 2016. It is expected that the FCA will announce rules for new contracts in early 2017.

ICE/ Trayport forced to divest

The Competition and Markets Authority (CMA) has concluded that the only effective remedy following its Phase 2 review of the completed acquisition by Intercontinental Exchange, Inc. (ICE) of Trayport, Inc. (Trayport) would be entire divestment of Trayport.  This is the first time that the CMA has ordered a divestiture in a vertical merger case.

ICE is the largest operator of exchanges and clearinghouses for the trading of European utilities derivatives.  Trayport develops software for trading energy commodity and utility derivatives.

The CMA’s final report confirms its provisional findings and concludes that the merger would lead to higher fees or less advantageous terms for traders and more limited trading opportunities than would have existed without the merger.

The CMA’s decision follows on 10 months after ICE’s purchase of Trayport for £500 million. 

UK merger control allows the CMA to retrospectively investigate a merger under the voluntary notification regime.  Where a merger is completed without the CMA’s approval the CMA can initiate an investigation into the merger for up to four months from completion or material facts of the merger coming to the attention of the CMA.  For this reason it is not uncommon for parties to a proposed merger to seek upfront clearance from the CMA.

In addition, the CMA has enhanced powers over those of its predecessor to prevent the parties from engaging in activity that would prejudice its ability to restore effective competitive in the event that it concludes that the merger may be expected to give rise to a substantial lessening of competition (SLC).  It may:

• ·         prevent the parties from taking actions which the CMA considers might pre-empt the CMA’s final decision (such as integrating the target business);
• ·         order the reversal of pre-emptive action that has already taken place (i.e. order that businesses which have already been merged be kept separate);
• ·         order the disposal of a business or part of a business if it decides that the merger would give rise to an SLC.

On 12 January 2016, the CMA announced that it had made an initial enforcement order preventing any further completion of the transaction pending its investigation.  This will remain in place until divestment to a purchaser approved by the CMA is completed.

The CMA rejected certain structural and access remedies proposed by the parties, including commitments to provide Trayport products to customers on fair, reasonable and non-discriminatory terms and to ensure operational separation between the two businesses.  The decision is of note because divestments in purely vertical concentrations are more unusual than in mergers between competitors.  It appears that the importance of Trayport’s software to exchange, broker and clearinghouse activities was a key consideration in the CMA’s analysis.

Big data in merger control

Big data in merger control

The European Commission is seeking further views on procedural and jurisdictional aspects of the EU Merger Regulation.

The Commission invites comments following its proposals set out in its 2014 White Paper, including on the operation of the simplified procedure for dealing with non-problematic cases and the case referral procedure.

It is now also seeking views on whether the current turnover-based jurisdiction tests should be revised to take account of high value transactions involving the acquisition of companies that have not yet generated substantial turnover, such as in the pharmaceutical or digital sector.

Facebook’s $19 billion acquisition of WhatsApp is often cited as an example of the limitations of EU merger control over companies which have not yet generated substantial turnover.  The transaction did not need to be notified to the Commission as the EU merger control turnover thresholds were not met, although the Commission cleared it after the parties made a voluntary notification.

Two years on from the controversial 2014 White Paper the Commission does not appear to be progressing its proposals to extend EU merger control to the acquisition of a significant but non-controlling minority interest.  But it has shifted its focus to ensure that potentially problematic cases do not escape scrutiny because the turnover of the parties is too small. 

However, questions remain about whether the Commission has demonstrated that there is a compelling case for changing the current rules.  There are challenges in framing a test that will address any jurisdictional gap and concerns of spillover. Tests based on asset values or anticipated future sales or valuations are fraught with difficulty.

The Commission seeks responses to its consultation by 13 January 2017.

Source: Commission press release IP/16/3337 and Commission Consultation on Evaluation of procedural and jurisdictional aspects of EU merger control

CMA closes competition investigation into price comparison websites

The Competition and Markets Authority has decided to close an investigation into suspected infringements of Article 101 TFEU and the Chapter I prohibition by websites that offer energy tariff comparisons in relation to paid advertising.

Ofgem was initially handling the investigation, which it transferred to the CMA in June 2016.

The CMA had decided not to pursue the investigation on account of administrative priorities. The CMA has noted that remedies imposed in the energy market investigation aim to increase the nature and extent of competition between price comparison websites in the energy sector.

Separately, the CMA has launched a market study into digital comparison tools where it will be able to investigate further the nature of competition between service providers and comparison websites. 

It is not unusual for market investigations or similar inquiries by competition authorities to lead to related action under competition law.  The 2008 Groceries market investigation reference by the Competition Commission prompted or coincided with competition law interest by the OFT in certain related markets including tobacco and dairy products. 

The CMA says that it may revisit its administrative priorities for antitrust enforcement in light of the evidence obtained through its market study.  It has also encouraged businesses to contact the CMA if they consider that the practices of price comparison websites and service providers are restricting competition.

CMA statement, 6 October 2016

CMA launches market study into price comparison tools

The Competition and Markets Authority (CMA) has launched a market study into digital comparison tools (DCTs) used by consumers to compare products and services from different business.  The CMA will consider how to maximise the potential benefits of DCTs for consumers and reduce barriers to using them.

Market studies are examinations into the reasons why particular markets may not be working well taking account of regulation and other economic drivers as well as business and consumer behaviour.  Consumers’ reluctance to switching has long been a theme in the CMA’s investigations, which partly explains the focus of this study.

This is only the third time that the CMA has launched a market study since the Enterprise and Regulatory Reform Act 2013 introduced stricter procedural requirements.  The first market study (issued in April 2014) related to the supply of personal current account services and led to the retail banking market investigation.  The second (issued in January 2016) relates to the supply of legal services in England and Wales.

The CMA has invited evidence and views, including on whether it should make a market investigation reference, by 24 October 2016.  The CMA must announce within six months whether or not it is intending to make a market investigation reference and must publish its final report on the market study within 12 months.

CMA press release, Market Study Notice and Statement of Scope of Market Study, 29 September 2016

Refuge collection an essential facility, says European Commission

The European Commission has fined a waste management company EUR6 million for abuse of a dominant position in restricting competition in recycling and waste collection services after refusing access to its infrastructure.

The Commission announced in a press release on 20 September that Altstoff Recycling Austria (ARA) had prevented rivals from accessing its network which the authority considered was an essential facility.

The decision is noteworthy in a number of respects.  Firstly, although the facts of the case were confined to Austria the Commission dealt with the case itself because it was familiar with the market and competition issues.

Secondly, the classification of ARA’s infrastructure as an essential facility is based on the Commission’s conclusion that the system was not duplicable because it was not economic to set up a rival system.  The full decision when available may shed light on the Commission’s reasoning in this respect.

Thirdly, the case is not a commitments decision under Article 9 of Regulation 1/2003 which has been a popular route for the Commission to close abuse of dominance investigations without concluding that there has been an infringement.  However, it is an example of a pragmatic solution where ARA agreed to a structural remedy to divest part of its household collection infrastructure.

Finally, the Commission reduced ARA’s fine by 30 per cent due to its cooperation with the investigation and structural concession.  The fine is still sizeable for a not-for-profit company and shows that the Commission is serious about enforcing competition law in markets that are not directly consumer facing but are nevertheless important to the economy.

Commission press release IP/16/3116.

General Court upholds Thomson Reuters commitments

The General Court has rejected a challenge to commitments agreements between Thomson Reuters and the European Commission where competitor Morningstar claimed that the settlement failed adequately to address the competition issues raised by Thomson Reuters’ licensing of real-time financial information.
In 2012 the Commission accepted commitments from Thomson Reuters to remove contractual provisions which hindered the ability of its customers to switch to competitors.  This followed the Commission’s preliminary view that Thomson Reuters could be abusing a dominant position in the provision of consolidated real-time data.
Morningstar appealed the commitments decision made under Article 9 of Regulation 1/2003 which allows the Commission to accept binding commitments in order to resolve an investigation under Article 101/102 TFEU and without concluding that there has been an infringement.
Morningstar claimed that the cost of switching would be borne by customers and it was not aware of any Thomson Reuters customers switching to rivals since the commitments had been put in place.
The General Court upheld the Commission’s decision, ruling that the correct test was whether the commitments had been sufficient to address the issues that were raised in the Commission’s investigation. The fact that other commitments could have been accepted or might even have been more favourable to competition did not justify annulment of the decision. The Court agreed with the Commission that the commitments were not intended to eliminate all the costs of switching, but they did represent a genuine improvement of the situation.
The judgment is perhaps not surprising in light of the Alrosa case which clarified a number of issues relating to the Commission’s powers under Article 9 (albeit in that case a third party challenged the intrusive nature of the commitments).  The Commission is not obliged to consider and seek different solutions, provided that the commitments address the concerns identified to the undertaking in the preliminary assessment.
CaseT-76/14 Morningstar, Inc. v Commission
Case C-441/07 P Commission v Alrosa Company Limited

General Court dismisses ‘pay-for-delay’ appeals

The General Court has dismissed appeals by Lundbeck and several other producers of generic drugs against a 2013 decision of the European Commission finding that they had infringed Article 101(1) TFEU by agreeing to prevent the entry of a rival generic antidepressant.  The Court also upheld fines of around EUR150 million imposed on the companies.

The Court concluded that the Commission had correctly found that Lundbeck and the generic producers were potential competitors at the time that the agreements were entered into.

The Court also upheld the Commission’s findings that patent settlements and commitments by the generic producers not to introduce generic rivals to citalopram in 2002 in return for tens of millions of euros represented restrictions of competition by object. 

The Court found that Lundbeck had not demonstrated that the restrictions were objectively necessary to protect its intellectual property rights. The Court also rejected arguments related to Article 101(3) and the scope of patent protection.

The judgment sits uneasily with the Commission’s 2013 decision where it acknowledged that not all so-called reverse-payment settlements are problematic.  The judgment seems to imply that as soon as there is a value transfer there is a restriction by object.  The Court concluded that the Commission satisfied the test in Cartes Bancaires for determining when there is a restriction by object by looking at the economic and legal context of the arrangements. However, it did not say that the case law required an assessment of the type of agreements in a specific sector.  It is expected that the judgments will be appealed.

Judgments of 8 September 2016:

Case T-472/13 – Lundbeck v Commission.

Case T-471/13 – Xelia Pharmaceuticals and Alpharma v Commission

Case T-460/13 - Sun Pharmaceutical Industries and Ranbaxy (UK) v Commission

Case T-467/13 - Arrow Group and Arrow Generics v Commission

Case T-469/13 – Generics (UK) v Commission

Case T-470/13 – Merck v Commission

CMA publishes final report on Private Healthcare Remittal

The Competition and Markets Authority (CMA) has confirmed its provisional decision in its remittal investigation not to require HCA International to divest one of its hospitals.  The decision comes four years after the Competition Commission started a market investigation into private healthcare in April 2012, which reported in April 2014.
In its Private Healthcare Market Investigation final report the CMA required HCA to sell 1 or 2 of its hospitals in London.  Following an appeal to the Competition Appeal Tribunal (CAT), the CMA acknowledged errors in its analysis and asked the CAT to remit parts of the findings affected by the errors back to the CMA.  The CMA has now decided that extra remedies beyond those imposed in its 2014 Private Healthcare Market Investigation Order including a divestiture of hospitals by HCA in London’s private healthcare market would not be proportionate.
The 2014 Order includes measures that (i) enable the CMA to review transactions between NHS Trusts and private hospital operators to operate private patient units based on a competition test; (ii) prohibit and restrict certain clinician incentives; and (iii) require the collection and publication of information on the performance of private healthcare facilities and consultants and on consultants' fees.
However, this may not be quite the end of the CMA’s investigation into the sector.  On 25 July 2016 the Court of Appeal gave its judgment rejecting a challenge by the Federation of Independent Practitioners Organisations (FIPO) against certain aspects of the CMA’s final report.  The Court necessarily based its judgment on the facts and evidence available to the CMA at the time of its final report. The fee information remedy requiring the publication of consultants’ fees has been suspended during the FIPO appeal.  Even though the appeal has been unsuccessful the CMA will need to be satisfied that implementation of the fee information remedy is appropriate in the present economic circumstances.


CMA press release, 5 September 2016
https://www.gov.uk/government/news/cma-publishes-final-report-on-private-healthcare-remittal

European Commission orders Ireland to recover up to EUR13 billion in taxes from Apple

European Commission orders Ireland to recover up to EUR13 billion in taxes from Apple

The European Commission has decided that Ireland granted Apple illegal State aid in the form of a selective tax advantage of up to EUR13 billion.

The Commission has found that two tax rulings given by Ireland that endorsed the transfer of profits within Apple’s group substantially reduced the amount of tax that Apple paid in Ireland and amounted to State aid.

The Commission maintains that the tax arrangements conferred a selective advantage on Apple allowing it to pay substantially less tax than other companies in Ireland.  According to the Commission’s 30 August announcement the arrangements allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003 and 0.005% in 2014.

The decision concludes an investigation by the Commission going back to at least 2014.  The decision follows similar rulings in cases involving Fiat Chrysler and Starbucks last year where the Commission ordered the Netherlands and Luxembourg to recover EUR20 million and EUR30 million in unpaid tax from the companies.

The recovery order in the Apple case exceeds the record order of EUR1.37 billion in a state aid case against EDF.  It is the largest sanction to date in the Commission’s competition law enforcement.

Ireland is ordered to calculate the unpaid tax that is due to it according to the Commission’s decision.  However, this assessment will not be straightforward as the Commission says that Ireland may decide that less than EUR13 billion is due to it if it is satisfied that Apple should have paid tax in other countries.

While the application of state aid rules to tax cases is not new the application of the concept of selectivity has given rise to complex issues in state aid cases involving fiscal element. 

The European courts will eventually have to decide whether the Commission has blurred the distinction between the advantage and the selectivity assessment in determining that the arrangements amount to state aid.

There are two concepts which should not be confused. First, is there an advantage? This involves a comparison between the beneficiary’s position with or without the contested measure.  Second, if there is an advantage is it selective?  This involves a comparison between the beneficiary’s position with the contested measure and the position of other taxpayers in a comparable legal and factual position.  Therefore the test is only: Does the measure treat certain undertakings differently by comparison to others who in view of the objective of the measure in question are in a comparable legal and factual situation?

It may be questioned that these recent state aid cases involving individual tax measures represent a legally flawed approach in that inferring selectivity from advantage shifts the burden of proof to the Member States. What is the counterfactual? National rules? The ordinary tax system? What about countervailing effects such as the effect of double tax treaties and the fact that the State benefits from investments?

Among the issues that will be tested will be the question of the appropriate reference framework and the role of discretion by the Member State authorities in formulating their tax policy.

Another issue is whether Apple is entitled to rely on the principle of legitimate expectations since the Commission had not taken action against the measures for two decades.

The rulings will undoubtedly make multinational companies think twice about how they approach the creation of their tax structures.  While the Commission recognises the legitimacy of tax rulings and the freedom for Member States to decide on their tax regimes, companies should be mindful of the state aid risks of relying on those rulings going forward.

Given the significant financial consequences of state aid enforcement, it will be prudent for companies to test the legality of individual rulings they have received or will be applying for.

Since the obligation to notify and seek approval for state aid is on the Member State this places private parties in a difficult position.  The recipient of the aid, rather than the public authority is at risk of having to repay any unlawful aid.  In principle, this includes the situation where aid is granted without having been notified even if it is later deemed compatible with the EU internal market.  As a result a private party should push for proper evaluation of any state aid elements in the proposed measures and, where appropriate, notification of state aid. 

Commission press release IP/16/2923 and Commission STATEMENT/16/2926.

CAT stays Deutsche Bahn damages claim against MasterCard

The Competition Appeal Tribunal (CAT) has put on hold a damages claim brought by companies within the Deutsche Bahn, Inditex, ASOS, Metro, AE and Hertz groups against MasterCard.

The CAT has stayed the claim until 14 days following the outcome of the preliminary issue hearing listed to be heard on 8 to19 May 2017 in the High Court in two parallel actions against MasterCard: Deutsche Bahn & ors v MasterCard Inc. & ors (Claim No. HC-2012-000196) and Enterprise Rent-A-Car v MasterCard Inc. & ors (Claim No. HC-2014-000636).

The preliminary issues relate to choice of law and limitation.  MasterCard maintains that if foreign law applies to certain elements of Deutsche Bahn’s claim, the associated foreign law limitation period has expired.  Deutsche Bahn brought a damages claim in the High Court in 2012 which followed a December 2007 European Commission infringement decision against MasterCard in relation to its cross-border multilateral interchange fees (MIF). The Commission found that MasterCard had infringed Article 101 TFEU in that the MIF 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 challenging a General Court judgment that upheld the Commission's 2007 decision.  In October 2015 Deutsche Bahn brought a parallel claim in the CAT.

In July 2016 the CAT ruled that if a damages claim is governed by foreign substantive law, the associated foreign law limitation period applies.  This judgment has reduced the benefit of Deutsche bringing the parallel claim in the CAT as some of its claim will be time-barred should it continue in the CAT.

Case No: 1240/5/7/15, CAT order of 22 August 2016

LCD follow-on claim fights on – with territorial limitations

LCD follow-on claim fights on – with territorial limitations

The High Court has refused to dismiss a follow-on claim by monitor manufacturer Iiyama against members of the liquid crystal display (LCD) cartel but has not allowed it to claim that sales that occurred outside the EU infringed EU competition law.

The Court found that in relation to the supply chains between the parties the cartel was implemented outside the EU so fell outside the territorial scope of Article 101. The Court did observe, however, that the European Commission had found that the cartel was implemented in the EU so that there was a breach of Article 101. The question for the Court was whether the claimants could establish that they had suffered harm due to the implementation of the cartel in the EU.  It found that the claimants had pleaded an arguable case on this point, although there was not much evidence which specifically supported the plea and no doubt LG and Samsung would closely scrutinise it.

The Court also held that the claimants had an arguable case against the UK subsidiaries of one of the South Korean defendants even though they were not addressees of the European Commission’s decision.

It seems then that the focus of Iiyama’s claims was on their indirect purchases, where a supply chain could be traced back to the overcharges of the cartel members that were implemented in the EU. (UK) Ltd & Ors v Samsung Electronics Co Ltd & Ors [2016] EWHC 1980 (Ch)

Ofcom recommends part separation of Openreach and BT

Ofcom has issued a progress report recommending a partial separation of BT Group from its internet infrastructure business, Openreach.  But this measure is short of the full unbundling that BT’s competitors have been pushing for.

Ofcom began its review of digital connection capacity in March last year.  Early in 2016 it said that Openreach should be more independent from BT so as to deliver necessary investment in high-speed broadband infrastructure over the next decade.

Ofcom is seeking to open up Openreach’s ducts and poles to allow competitors to connect their own systems.

Current regulations require Openreach to allow access to all customers on non-discriminatory terms.  Ofcom believes that BT still has the ability and incentive to make investment decisions that favour its own retail operations, rather than the network as a whole.

Under the proposal Openreach would be a separate company with its own board but the size of its budget would ultimately be controlled by BT.

This semi-separation might be seen as a cautious move by Ofcom.  A full divestment would take time and create potential for market disruption.  But the proposed approach will leave many disappointed by leaving investment decisions in the hands of BT, albeit, such decisions would need to be made in the interests of all Openreach customers.  If Ofcom is not satisfied that it can hold BT accountable under the new model or roll-out, speeds and service fall short of expectations, a full separation might need to be considered.

Ofcom press release and progress update: supporting investment in ultrafast broadband networks, 26 July 2016

Google faces new and renewed EU antitrust objections

The European Commission has sent two further Statements of Objections to Google. In a supplementary Statement of Objections, the Commission has supported its preliminary conclusion that Google has abused its dominant position by systematically favouring its comparison shopping service in its search result pages.

In a separate set of objections, the Commission has set out its preliminary view that Google has abused its dominant position by artificially restricting the possibility of third party websites to display search advertisements from Google's competitors.

EU Commissioner Vestager has stated that Google has developed “incredible and innovative products” but that this does not give it the right to deny others the opportunity to innovate and compete. 

In the shopping comparison search case the Commission has rejected Google’s argument that websites such as Amazon and eBay compete with Google’s shopping service and it views these players more as customers than competitors.  Commissioner Vestager maintains that even if the Commission accepted Google’s market definition, its practices would still have restricted competition.

In the new advertising objections the Commission claims that Google has an 80 per cent share of the EEA search advertising market through its AdSense platform.  The Commission is concerned that Google has restricted how third parties obtain and use advertising from its competitors through a range of practices: requiring third parties not to source search ads from Google's competitors; requiring third parties to take a minimum number of search ads from Google and reserve the most prominent space on their search results pages to Google search ads; and requiring third parties to obtain Google's approval before making any change to the display of competing search ads.

The Commission has not provided a timeline for conclusion of these cases.

Scene set for UK’s largest opt-out collective action

MasterCard faces a £19 billion action for damages on behalf of consumers who were overcharged as a result of its interchange fees on payment transactions.  Press reports suggest that a claim is about to be brought by Quinn Emanuel in the Competition Appeal Tribunal which would be the second opt-out collective action to be brought under the UK’s new competition law damages regime introduced with effect from 1 October 2015.

The proceedings have a long administrative history dating back at least to the December 2007 European Commission infringement decision against MasterCard in relation to its cross-border multilateral interchange fees (MIF).  The Commission found that MasterCard had infringed Article 101 TFEU in that the MIF 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 original decision.

Assuming that the CAT grants a collective proceedings order, the case would test the boundaries of the new regime. The affected class is potentially extensive comprising all consumers and, conceivably, not only MasterCard holders who paid increased prices for their goods and services as a result of the practices.  This is also an indirect purchaser action for a huge sum of money. 

On paper, it appears to be just the type of case that the new regime was expected to encourage.  However, it can be expected that the case will be fiercely contested as the administrative proceedings have been.  While the trial is not expected to begin until 2018, potential claimants and class representatives in other cases will be watching developments closely.

First collective action launched in the CAT

The Competition Appeal Tribunal has published a notice of application to commence collective proceedings under the amended section 47B of the Competition Act 1998.  If the CAT decides to make a collective proceedings order (CPO) the case will be the first opt-out class action following the Consumer Rights Act reforms.  The proposed action combines follow-on damages actions relating to the 2014 mobility scooters decision of the Office of Fair Trading. 

The application is brought by the proposed class representative (Ms Dorothy Gibson), the General Secretary of the National Pensioners Convention that represents around 1000 UK pensioners’ organisations.  The relief sought is damages to be assessed on an aggregate basis.  The application states that the action should proceed on an opt-out basis as it would be highly impractical for it to proceed on an opt-in basis in view of the vulnerability of the members and the sums at stake.

The CAT may only make a CPO if it considers that the person who bought the proceedings is a person who the CAT could authorise to act as the representative and if the CAT considers that the claims raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings.

The procedural rules governing collective proceedings are set out in Rules 73-98 of the CAT Rules, with guidance in Section 6 of the 2015 Guide to Proceedings.

Case 1257/7/7/16 - Dorothy Gibson v Pride Mobility Products Limited