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