Efficient enforcement with a tough edge
Enforcement priorities
Policy developments
Merger control
Efficient enforcement with a tough edge
At the outset of 2012, the first two years of EU Competition Commissioner Joaquin Almunia's mandate were described as an era of "quiet but efficient" enforcement. Settlements designed to achieve pragmatic market outcomes – as opposed to big fines designed to attract front-page headlines – were symbolic of this approach. As the year progressed, the commissioner showed signs of becoming increasingly comfortable with his role and willing to tackle some difficult and sometimes highly political issues.
The commission is poised to take a stand on a number of issues that are also a focus of the US antitrust authorities. In many instances, there is broad transatlantic agreement on the way forward, but Almunia has made it clear that he will not hesitate to take a different path from his US counterparts if market circumstances in Europe require him to do so.
On both sides of the Atlantic, the agencies are acting against patent settlement agreements in the pharmaceuticals sector and 'hold-up' issues in relation to standards-essential patents in the high-technology sector. Likewise, they are both maintaining that they will crack down on cartels. However, Almunia is taking a tougher approach in seeking a remedies package to allay concerns about Google's search results, despite the US Federal Trade Commission (FTC) closing its file on the matter on the basis of 'light' commitments not to misappropriate third-party content.
The commission is also increasingly willing to take a tough line on markets that are important for Europe's competitiveness (eg, energy). The 2012 decision to open proceedings against Gazprom for alleged abuse of dominance (restricting cross-border gas supplies, restricting diversification of supply and imposing unfair prices) has triggered a considerable political backlash and was a courageous move in geopolitical terms.
The commission has also stood its ground on a number of controversial mergers and has not hesitated to impose far-reaching remedies or prohibit deals outright where no suitable remedies were forthcoming.
For the remainder of 2013, the same commitment to efficient enforcement is expected, but equally a commission – and a commissioner – prepared to tackle the tough cases.
Enforcement priorities
Cartel enforcement - business as usual
In 2012 the commission handed out a total of nearly €1.9 billion in cartel fines against 37 undertakings (an average fine of over €51 million per undertaking). This represents an increase of more than 200% on fines imposed in the previous year. The €1.4 billion fine imposed on seven television and monitor-tube manufacturers should be sufficient to dispel any latent suspicion that Almunia would not be tough in sanctioning cartels.
Over a dozen separate investigations in the automotive parts sector, as well as probes into alleged collusion over the setting of various interbank lending rate benchmarks (Libor, Euribor and Tibor) continue into 2013; some (but not all) of these cases are expected to reach the decision stage in 2013. Even though only one out of the five cartel decisions adopted in 2012 was the result of a settlement, the commissioner has indicated that he expects half of the decisions taken in 2013 to be under the settlement procedure. This is in no small part due to the need to allocate the commission's limited resources to clear a significant backlog.
Protecting innovation in the high-technology sector
The high-technology sector will inevitably continue to be the subject of intense scrutiny during 2013, as the commission seeks to intervene in fast-moving markets in order to protect competition without harming innovation. The commission's ongoing investigation into whether Google is abusing a dominant position in relation to the way that it presents search results continues, and is expected to result in a commitments decision in 2013. Almunia has already stated publicly that he fears Google has acted unlawfully and that he will not be swayed by the FTC's January 4 2013 decision that essentially found no antitrust violation in the way in which Google presents its search results. That said, devising an appropriate remedy that satisfies both the commission and the plethora of complainants, while proving commercially and technically palatable to Google, may continue to prove tricky.
Another area of focus has been the manner in which holders of standards-essential patents (SEPs) - patents necessary to implement a standard with which all manufacturers must comply - exercise these rights as against potential licensees. The commission's main concern is that the right to seek an injunction leads to the possibility of a SEP holder either using the threat of an injunction to 'hold up' the industry or demanding unfair terms from potential licensees. In December 2012 the commission sent a statement of objections believed to express these concerns to Samsung and is investigating a similar case against Motorola Mobility (now owned by Google). In the United States, the FTC has already accepted commitments from Google and Motorola Mobility not to seek injunctions in respect of SEPs without going through a mandatory period of negotiation and arbitration. While the commission may consider this to be a useful template for a settlement decision in its investigation, a similar settlement looks unlikely in relation to Samsung, which has pledged to defend itself. This means that in all likelihood, any attempt by the commission to develop a new category of 'abusive conduct' in this area will face early judicial scrutiny.
The commission is also likely to issue its first fine for failure to comply with commitments previously given to the commission under Article 9 of Regulation 1/2003. Microsoft is reported to have failed to implement the promised 'browser ballot' screen in one version of its Windows 7 operating system. This remedy was agreed in 2009 to allay concerns that Microsoft had unlawfully tied supplies of Windows with its internet browser, Internet Explorer.
E-commerce in the spotlight
Last year saw increased scrutiny of suppliers' online distribution arrangements, particularly from national competition authorities. There is a risk that this trend may lead to additional layers of complexity – if not divergence – in terms of how the EU competition guidelines on internet sales in the vertical restraints guidelines are to be interpreted. The French Competition Authority concluded a sector inquiry into online shopping, as well as a separate investigation (and a fine of almost €1 million) against Bang & Olufsen for prohibiting its distributors from selling via the Internet. A similar fine imposed on cosmetics firm Pierre Fabre was upheld by the Paris Court of Appeals on February 1 2013 following a reference to the European Court of Justice (ECJ). Competition authorities in the United Kingdom, Germany and Switzerland continued to investigate alleged resale price maintenance in relation to online hotel room bookings. At EU level, the commission concluded a settlement in the e-books case, whereby publishers were forced to terminate allegedly problematic 'agency' agreements so as to permit the discounting of e-books by their resellers.
The message across Europe is that regulators will continue to apply competition law vigorously in order to ensure that consumers receive the best deals online. Compliance with EU law in this area should remain at the top of businesses' agenda.
Copyright under attack
Since the early days of the common market, EU competition and free movement law has had to grapple with the conflict between cross-border trade and national IP rights. Historically, a distinction has been drawn between the distribution of tangible copies of IP-protected works (eg, books, CDs and DVDs) and communications via intangible means (eg, broadcasts). Last year saw an activist ECJ further restrict the scope of performance copyright on competition/free movement grounds. In FA Premier League,(1) the ECJ distinguished 20 years of prior case law to find that absolute territorial protection in relation to the cross-border supply of satellite decoder cards contravened Article 101 of the Treaty on the Functioning of the European Union. In Usedsoft(2) the same court considered that an online download of software, which involved the transfer of ownership of a copy, triggered exhaustion, with the effect that the copyright holder could not prohibit resale. The outcome of the much-delayed CISAC case before the General Court is expected later in 2013, in which hearings were held in 2012.
This case addresses the patchwork of collecting societies in Europe that – according to the commission – have acted anti-competitively in not allowing a one-stop-shop licensing service for pan-European online music services. These developments can be expected to have significant ramifications on the way that content is licensed in Europe in the coming years and, in particular, could force radical changes to the business model of collecting societies.
Pharmaceutical industry remains under scrutiny
Pay for delay
Since the sector inquiry in 2009, the commission has been monitoring patent settlement agreements in the pharmaceutical sector, born out of concerns that such agreements are being used to delay generic entry and artificially prolong the patent holder's monopoly (so-called 'pay for delay' or 'reverse payment agreements'). This year will likely see the commission formally sanction such agreements in cases opened against Servier (perindopril) and Lundbeck (citalopram). Statements of objections in both cases were issued in July 2012 and hearings are expected shortly. The commission is also investigating agreements between Cephalon and Teva (modafinil) and Johnson & Johnson and Novartis (fentanyl). A statement of objections in the fentanyl case, which is understood to relate to a co-promotion/joint marketing agreement rather than a patent settlement, was issued on January 31 2013. The FTC is vociferously opposed to these types of agreement but, after losing a series of cases in the US courts, it has finally used a recent circuit split to petition the US Supreme Court to adjudicate on the matter.(3) It remains to be seen whether the European Commission will take a formal view before the pronouncements of the US Supreme Court, which will hear the case in 2013, and whether, ultimately, the approach will be aligned.
Regulatory abuse
On December 6 2012 the ECJ handed down its long-awaited ruling in AstraZeneca.(4) The commission had previously found AstraZeneca to have abused its dominant position by making misleading statements to a number of national European patent offices in order to prolong the protection that it received via supplementary protection certificates. The ECJ has gone some way towards resolving the uncertainties created by the General Court's decision by giving explicit comfort in relation to day-to-day patenting activities. No company will face antitrust liability for ordinary fallibility or because the subject matter of a patent is later found not to meet the patentability criteria. The standard established is high – needing a persistent course of misleading conduct. That said, the lack of a bright-line test for what is 'misleading' in the court's reasoning means that companies in this sector should remain vigilant in their dealings with patent authorities and other regulators. The judgment clears the way for the commission to continue to prosecute cases of alleged misleading conduct before the patent office. A reprise of AstraZeneca is expected to feature in the Servier case, both in the commission's proceedings and in the ongoing UK civil litigation in which multiple UK health authorities are suing Servier for damages.
An economic approach to Article 102: will the courts join in?
Last year saw the first signs of willingness on the part of the EU courts to embrace economics in abuse of dominance cases, two years on from the commission's publication of its enforcement guidelines. The old case law of the ECJ has been criticised for its tendency to indulge in broad-brush condemnations of common businesses practices (eg, loyalty rebates) and, in so doing, generate considerable legal uncertainty for firms with strong market shares.
The April 2012 ECJ judgment in Tomra(5) was unpromising (the ECJ found a rebate scheme per se abusive without applying the commission's guidelines as to whether the level of rebate, applied to the contestable portion of the market, was sufficient to foreclose as efficient rivals). However, later cases provide more hope that the ECJ will follow a more economics-based approach. In Post Danmark,(6) the ECJfr found that selective price cutting by a dominant undertaking that targeted rivals' customers, but which fell short of predation (pricing below cost), did not automatically infringe Article 102 of the Treaty on the Functioning of the European Union. It is possible that 2013 will see further strides by the court in this area: there is an outside chance that the General Court may hand down its judgment in the Intel rebates case,(7) in which the commission imposed a breathtaking €1.06 billion fine in 2009. Although it seems likely that the commission's findings will be broadly upheld, the court's treatment of the commission's economic analysis will be a useful pointer for the future.
Policy developments
Technology transfer
In Spring 2013 the commission will likely publish draft revisions to the technology transfer block exemption and guidelines governing patent and know-how licences. With a general consensus among stakeholders that this regime works well, it will be interesting to see whether the commission resists the temptation to toughen up the rules. Possible candidates for stricter rules include the treatment of 'grant back' clauses relating to licensees' improvements, as well as – potentially – patent settlement agreements and fair, reasonable and non-discriminatory licensing commitments. New texts are set to be adopted by May 1 2014.
Collective redress and access to evidence
After years of delay, the commission is expected to publish legislative proposals on both collective redress and access to evidence (in particular, leniency statements) in follow-on damages cases. This is in part to resolve the uncertainty left in the wake of the court's judgment in Pfleiderer,(8) which effectively left it to national courts to balance the interests of private damages claimants on the one hand and protection of leniency programmes on the other in determining the extent to which evidence should be disclosed. Unsurprisingly, this has led to differing approaches across the European Union – in particular, in France, Germany and the United Kingdom. It will be interesting to see how the commission approaches this balancing exercise. Even if draft legislation is introduced, it will take around two years to take effect. Meanwhile, access to the commission's file remains a thorny issue, with a number of pending appeals currently before the Luxembourg courts which can be expected to reach judgment in 2013.
Merger control
A tougher approach
The commission received 283 notifications in 2012, down from 309 in 2011. Of these, 254 were cleared in Phase I (9 with commitments, 170 under the simplified procedure). Of the eight Phase II in-depth investigations concluded in 2012, one was cleared unconditionally,(9) six was cleared with commitments and one was prohibited.(10) This is striking compared with the previous year, when the commission issued three unconditional Phase II clearances. Moreover, Almunia has shown himself willing to hold out for remedies to ensure the maintenance of competitive markets. As is illustrated by the UPS/TNT merger, prohibited on January 30 2013, he is willing to block a transaction where the remedies offered fail to resolve competition concerns clearly. The message is that merging parties in concentrated industries should place as much attention upfront on remedy-design and strategy as on their substantive arguments and efficiency claims. Of the three remaining Phase II investigations, only Ryanair/Aer Lingus III looks likely to be resolved before May 2013. In that case – a repeat of the deal which the commission originally prohibited in 2007 – Ryanair will struggle to convince the commission that its complex web of upfront slot divestments to Flybe and other carriers across a large number of overlap routes will constrain it effectively post-merger. Another prohibition remains on the cards. Notable again is the emphasis placed on careful remedy design in these substantively difficult cases.
Procedural reform
This year will see the commission take further steps to 'fine tune and improve' its merger review procedure, and to simplify procedures, in particular with respect to mergers which clearly pose no problems to competition. This is welcome since the average pre-notification period runs to 10 weeks, taking into account the vast majority of notified deals that have no impact on competition. It is also possible that the commission may look at streamlining the referrals procedure, which is the mechanism by which cases are transferred from the commission to a national competition authority or vice versa. Neither of these proposed consultations is likely to result in a sea change in EU merger control, but they represent useful opportunities for stakeholders to push for a more efficient approach, hopefully resulting in faster clearance decisions, greater legal certainty and lower legal bills. The commission formally launched the Merger Simplification Project on February 5 2013. A public consultation is likely to follow in the spring.
Mind the gap
The commission is exploring whether its inability to assess minority shareholdings under the EU Merger Regulation represents a material enforcement gap. These concerns stem from the early salvos in the 2009 Ryanair/Aer Lingus saga, where the General Court found that the commission lacked the competence to review Ryanair's acquisition of a 29% stake in Aer Lingus. Draft proposals in this area are expected for consultation in 2013. Since the overwhelming majority of minority acquisitions do not raise issues, the introduction of some appropriate 'filter' is likely. Issues include whether any minority notification regime will be mandatory or voluntary and the nature of the threshold (eg, a hard percentage of voting rights or a more qualitative threshold, such as the UK's 'material influence'). Any remedial action taken to address this perceived enforcement gap will be proportionate to the economic harm potentially caused by such shareholdings and may follow national authorities' trends where enforcement action tends to be limited in number but targeted at economically significant transactions. The commission is also examining the possibility of ex-post control, giving it the power to power to examine, on an ad hoc basis, acquisitions of such shareholdings. Equally mooted is the possibility of guidance on their treatment of such shareholdings under EU competition law similar to those in the United States.
For further information on this topic please contact Tom Jenkins, Bill Batchelor or Fiona Carlin at Baker & McKenzie by telephone (+32 2 639 36 11 ), fax (+32 2 639 36 99 ) or email ([email protected], [email protected] or [email protected] ).
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Endnotes
(1) Cases C-403/08 and C-429/08.
(3) FTC v Watson Pharmaceuticals.
