Mediating disputes in regulated sectors

http://kluwermediationblog.com/2017/05/08/from-regulation-to-resolution-mediating-disputes-in-regulated-sectors/

Court of Justice dismisses appeal in bananas cartel

The European Court of Justice has dismissed the appeal brought by banana importer Pacific Fruit group against a General Court judgment of 2015.

In October 2011 the European Commission imposed a fine of EUR 8,919,000 on Pacific Fruit for its participation with Chiquita in a price fixing cartel for bananas in Greece, Italy and Portugal.

As part of its investigation, the Commission received copy documents from the Italian finance police. The Court has confirmed that the documents could be used as evidence in proving the competition law infringement.  The Court ruled that documents transferred by the national authorities are admissible in competition law proceedings provided that their transfer has not been ruled unlawful under national law.  The Court concluded that the rules on cooperation between authorities in the European Competition Network do not prevent the Commission from using information transferred by the national authorities merely on account of the fact that the documents have been obtained for other purposes.

The Court upheld the General Court’s judgment in its entirety in finding that the infringement could be characterised as restrictive of competition by object without the need to prove effects and it found that the General Court had not erred in its review of the fine.

Case C-469/15 P - FSL Holdings and Others v European Commission, judgment of 27 April 2017. 

National security: Public interest intervention notice in digital radio merger

UK Business Secretary Greg Clark has issued a public interest intervention notice relating to China-headquartered Hytera’s proposed acquisition of digital radio manufacturer Sepura.  This is the first public interest intervention on national security grounds in over a decade and the sixth time the government has issued an intervention notice on national security grounds to the CMA or its predecessors.

Under section 58(1) of the Enterprise Act 2002, "the interests of national security" is a specified ground for the Secretary of State to intervene in a merger.  Once an intervention notice has been issued, the CMA must report to the Secretary of State. The CMA has 15 working days, until midnight on Thursday 4 May 2017, to complete and submit its report to the Secretary of State.  The CMA reports on the competition issues and whether, if it were not a public interest case, it would refer it to Phase 2 or accept undertakings in lieu of a reference. The CMA may also give its views and recommendations on the public interest consideration. 

The Secretary of State may make a reference for a Phase 2 investigation by the CMA if he believes that the merger may be expected to operate against the public interest as a result of either both the public interest consideration and a substantial lessening of competition, or solely on the basis of the public interest consideration.  In exercising his discretion as to whether to make a reference or not, the Secretary of State is required to accept the CMA’s findings on competition issues (section 46(2), Enterprise Act) but not on any views expressed about the public interest consideration.

In the past, defence mergers including General Dynamics/ Alvis, Finmeccanica/ AgustaWestland, Finmeccanica/ BAE Systems, Lockheed Martin/ Insys and General Electric/ Smiths Aerospace were the subject of interventions on national security grounds. Those transactions were ultimately cleared by the Office of Fair Trading after the parties offered remedies.

Proposed acquisition of Sepura plc by Hytera Communications Corporation Ltd: public interest intervention, BEIS intervention 10 April 2017

Deutsche Bahn faces limitation block in MasterCard Interchange litigation

The Court of Appeal has ruled that Deutsche Bahn cannot backdate a claim to benefit from an earlier limitation period when attaching a new claim to its ongoing damages action against MasterCard.

CPR Part 17.4(2) provides that, if a party applies to amend a statement of case and a period of limitation has expired, the court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.

The original claim alleges that MasterCard’s EEA and domestic multilateral interchange fees infringe competition law, relying on the European Commission’s 2007 infringement decision against MasterCard.  The new claim maintains that MasterCard’s central acquiring rule itself infringes competition law.

The Court of Appeal concluded that the High Court was incorrect to find that the requirements of CPR Part 17.4(2) were satisfied.  The differences in the counterfactual to be applied indicated that the new claim did not arise out of the same facts or substantially the same facts as those in issue in the original claim.

These proceedings are separate from a damages action brought in December 2015 in the CAT by Deutsche Bahn and others against MasterCard. The CAT action has been stayed until 14 days after the final outcome of the preliminary issue hearing listed to be heard on 8 to 19 May 2017 in the High Court.

MasterCard Inc & Others v Deutsche Bahn AG & Others [2017] EWCA Civ 272

Advocate General: Unfair prices can only exist in regulated markets?

Unfair or excessive pricing is one of the most vexed questions under EU competition law.  Advocate General Wahl (the “AG”) of the European Court of Justice has suggested that excessive pricing should be considered unlawful only in regulated markets and only prices that are “persistently” and “significantly” supra-competitive should be caught by the prohibition of abuse of a dominant position.

The AG’s opinion was given in the context of a referral to the Court of Justice from the Supreme Court of Latvia which is ruling over an appeal by collecting society AKKA/LAA against a penalty imposed by the Latvian Competition Council in respect of their setting of allegedly abusive fees.  The fees charged were 50% to 100% higher than the EU average and the competition authority said that the society had failed to provide an objective justification.

The AG said that only “important deviations” should be considered abusive for the purposes of Article 102 TFEU.    He also pointed to a dearth of EU case law on the issue of unfair pricing and said that interventions by competition authorities against excessive prices should focus on cases where the actions by the sector regulators had failed to correct the abuses.

The call for caution in the AG’s opinion is in my view a sensible approach and regulators should be reluctant to rush to a conclusion that allegedly high prices are unlawful where this finding does not accord with recognised economic thinking, such as for example in industries that are characterised by economies of scale or which are capital-intensive.  In other cases, comparisons with other markets might be useful benchmarks but regulators should consider whether such comparisons are properly made.

Case C-177/16 - Biedrība ‘Autortiesību un komunicēšanās konsultāciju aģentūra – Latvijas Autoru apvienība’ v Konkurences padome, Advocate General's opinion of 6 April 2017

Tesco-Booker

The proposed merger between Tesco and Booker is expected to deliver cost savings of £200 million a year and has been described as a “game changer” by at least one retail analyst.  In the last few days, the merger has not escaped speculation that divestiture remedies might be needed to placate competition concerns.

The parties have claimed that the transaction will enhance the merged entity’s buyer power which should mean cheaper prices for Booker’s retail customers including Premier, Budgens, Londis and Family Shopper.  The transaction has met with opposition by independent retailers and the wholesale sector, based on concerns around foreclosure because they will get less favourable deals than the merged group.  Tesco shareholders have also raised objections believing that the deal is a distraction from key business turnaround.

Competition concerns arising in mergers in the grocery sector are typically dealt with through divestitures of overlapping stores to reduce concentration in local markets affected by the merger.  However, because Booker operates a franchise business model so will not be adding any new ‘stores’ as such to an existing portfolio, disposals would most obviously have to come from the Tesco estate.  How Tesco Express sits within the merged group and its complementarity with Booker’s symbol fascias will no doubt be revealed as the detail of the merged group’s plans comes to light. 

The Competition and Markets Authority (CMA) is likely to focus its competition scrutiny on the extent to which Booker has pricing influence over the stores in its network which would require it to look through the franchise model.

The parties aim to complete the merger by the end of 2017 or early 2018.  A full Phase 2 investigation by the CMA could add a further 6-8 months to the overall review timetable

Commission blocks proposed merger between Deutsche Börse and London Stock Exchange

The European Commission has prohibited outright the proposed merger between Deutsche Börse (DB) and London Stock Exchange (LSE).  The proposed tie-up would have combined the German, UK and Italian exchanges, and several of the largest European clearing houses.  It would have created the largest European exchange operator by some margin.

In the Phase I investigation, the Commission identified competition concerns in several markets, including clearing, derivatives, repurchasing agreements, German stocks, and exchange traded products.

In the Phase II investigation, the parties offered to sell French clearing house LCH.Clearnet to Euronext.  However, this was not sufficient to placate the Commission’s concerns and it instead said that LSE should sell fixed income trading platform MTS. The parties refused and instead offered behavioural remedies.

This is the third attempt by both companies to create a combination of this type since 2000.  In 2012 the Commission blocked a merger between NYSE Euronext and Deutsche Börse because it would create a near-monopoly in European financial derivatives worldwide.

The latest attempt is another where acceptable remedies could not be found but raises a question about the timetabling of commitments as well as their substantive scope.  Vestager said that the remedies package was put forward with very little time for market testing.  Inevitably, behavioural elements will require more detailed probing over more clear-cut structural solutions.  It remains to be seen whether the deal could have been salvaged with more time for review of remedies.

Deutsche Borse/ London Stock Exchange Group (M.7995) Commission press release IP/17/789