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)