On 12 March 2021 the Eastern High Court found that HMN Naturgas I/S, two subcontractors and an industry association had illegally coordinated prices for the service of natural gas-fired boilers. The decision upholds the Maritime and Commercial High Court's 2019 judgment (for further details please see "Maritime and Commercial Court finds HMN and competitors guilty of illegal price coordination agreement").
HMN Naturgas is Denmark's largest gas company, supplying gas to about a quarter-of-a-million households and companies. Its activities include conducting service checks on natural gas-fired boilers in private households.
HMN Naturgas does not perform service checks on its own; instead, it relies on subcontractors (so called 'service partners'). Typically, these service partners would also independently offer service checks to customers. Therefore, HMN Naturgas's service partners are its competitors on the market for the service maintenance of gas boilers.
Service checks on gas boilers are most often sold through a maintenance subscription. In addition to a maintenance subscription fee, the price of a service check also comprises the costs of replacing defective spare parts. HMN Naturgas is the primary supplier of spare parts to all of its service partners.
After receiving numerous complaints from customers about excessive prices and the frequency of replacement for spare parts in certain areas of Denmark, HMN Naturgas reached an agreement with two service partners and an industry organisation, imposing a maximum profit margin of 25% on spare parts.
To offset the decreased revenue from the replacement of spare parts, the parties agreed on changes to the pricing model for HMN Naturgas's maintenance subscriptions, effectively increasing the subscription fee. This in turn allowed HMN Naturgas's service partners to increase their own subscription fees without the fear of losing customers.
In its 2016 decision, the Competition Council found that the agreement constituted an illegal coordination of prices between competitors with the object of infringing competition. The decision was subsequently upheld by the Competition Appeals Tribunal in 2017 and the Maritime and Commercial High Court in 2019. Only HMN Naturgas appealed the case to the Danish courts.
In line with previous decisions, the Eastern High Court found that the agreement constituted illegal price fixing. As both HMN Naturgas and its service partners provided maintenance subscriptions for gas boilers to end customers, the agreement was viewed as a horizontal relationship.
The Eastern High Court found that HMN Naturgas had successfully demonstrated that the cap on profit margins for spare parts had led to yearly net savings for HMN Naturgas's customers of approximately Dkr9 million.
On this basis and with reference to the European Court of Justice's (ECJ's) judgments in Budapest Bank (C-228/18) and Generics (C-307/18), HMN Naturgas argued that the agreement could not be classified as a 'by object' infringement without further examination, since the agreement was plausibly pro-competitive. The Eastern High Court used this as an opportunity to clarify how the notion of 'by object' infringement is to be interpreted in light of these recent judgments.
In line with longstanding practice from the ECJ, the Eastern High Court initially affirmed that in order to determine whether an agreement reveals a sufficient degree of harm to competition to be considered a restriction of competition 'by object', regard must be given to the content of its provisions, its objectives and the economic and legal context of which it forms a part. Budapest Bank and Generics do not change this. They also do not change the fact that EU competition law does not recognise a 'rule of reason' whereby a court is required to balance an agreement's pro and anti-competitive effects. As such, an agreement may be regarded as having a restrictive object even if it does not have the restriction of competition as its sole aim but also pursues other legitimate (main) objectives.
However, the judgments emphasise the need to conduct a thorough analysis of the agreement's provisions, objectives and economic and legal context in order to demonstrate its anti-competitive object. The notion of 'by object' infringement is to be interpreted narrowly and is fit only for agreements that based on past experience can be considered harmful to competition. In the absence of such past experience, a more in-depth assessment of the agreement, its context and its plausible effects must be carried out.
Applying these guidelines to the present case, the Eastern High Court found that in its initial decision the Competition Council had conducted a sufficient analysis of all relevant factors and adequately addressed all counterarguments raised by HMN Naturgas. Thus, the court agreed that the arrangement constituted illegal price fixing between competitors.
The fact that the agreement had led to savings relating to the replacement of spare parts for HMN Naturgas's customers did not, according to the court, prevent the agreement from being classified as a 'by object' infringement. The court supplemented this finding by stating that HMN Naturgas had in any instance failed to demonstrate that the agreement was objectively necessary to pursue any valid pro-competitive objectives.
The matter has been referred to the public prosecutor for serious economic and international crime, who must now decide whether to initiate criminal proceedings.
The judgment follows a long string of case law from both the Danish and European courts on the interpretation of the notion of infringement 'by object'. Similar to its predecessors, the judgment leaves a fair degree of practical uncertainty.
It is clear that an analysis of the relevant economic and legal context forms part of the assessment of an agreement's potentially anti-competitive objective. It is also explicitly stated that plausible (pro-competitive) effects can be considered as part of the context analysis.
What remains unclear is how far the authorities need to go when analysing the economic and legal context (ie, how to delineate the context analysis from a fully fledged effects analysis). A related question is to what extent pro-competitive elements of an agreement must be considered under the 'by object' analysis under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) as opposed to as part of an efficiency defence under Article 101(3) of the TFEU.
The judgment seems to endorse an approach that where an agreement prescribes conduct of an obvious and serious anti-competitive nature (in this case, horizontal price fixing), it may rightfully be labelled as an infringement 'by object', even if it also demonstrably realises significant pro-competitive benefits.
