Brexit may well be around the corner, but antitrust enforcement is still alive and well on the other side of the Channel. On November 2, 2018, the Competition and Markets Authority (CMA), the UK national competition authority, announced that it had provisionally found that ComparetheMarket, a home insurance price comparison site, may have infringed both UK and EU competition law by inserting wide most favored nation clauses (Wide MFN) in its contracts with home insurers.

Want to learn more? Check out our briefing here.

 

With Halloween around the corner, the French Competition Authority (FCA) is revisiting chainsaw massacre: on October 24, 2018, it adopted a decision imposing a 7 million euros fine on chainsaw manufacturer Stihl for imposing a de facto ban on online sales to its distributors (see press release here). Even more importantly, contrasting with previous French cases, the Stihl decision also clears a platform ban that the manufacturer imposed on its distributors, thus extending the reach of the Coty judgment well beyond the luxury world.

Want to learn more? Check our briefing here.

The Competition Law Journal published on 1 October 2018 an article by Yves Botteman and Daniel Barrio Barrio on the Coty case. The article examines the European Court of Justice’s judgment in Coty and its implications for distribution arrangements, as regards both the application of Article 101 TFEU and the Vertical Restraints Block Exemption Regulation to selective distribution arrangements and restrictions on internet sales via third-party platforms.

It also considers the European Commission’s response to the Coty judgment (including its application to non-luxury goods) and the approach taken by national courts and competition authorities.

The online version of the article is available here.

Steptoe contributed to the second edition of David Ashton’s book on Competition Damages Actions. The book provides a comprehensive review of the EU damages directive (Directive 2014/104/EU) and its implementation across the EU. This edition also features insights in over 10 countries across Europe. Steptoe attorneys Jean-Nicolas Maillard and Camille Keres contributed by providing an overview of recent antitrust damages development in France. Find out more about the book.

In a July 27 article, Global Competition Review covered Steptoe’s representation of Coveto in the French Competition Authority’s distribution of veterinary products cartel case. The outcome of the case led to the French Competition Authority imposing fines totaling €16 million on wholesale distributors of veterinary medicinal products in France for cartel practices (see the French Competition Authority’s press release). It is the 10th settlement case in France and the first one in 2018. Steptoe partner Jean-Nicolas Maillard and associate Camille Keres handled the matter.

Read more at Global Competition Review (subscription required).

Introduction

 On 25 July 2018, Advocate General (AG) Kokott issued a non-binding Opinion in case C-265/17 P, Commission v United Parcel Service, advising the Court of Justice of the EU (CJEU) to dismiss the Commission’s appeal against the judgement of the General Court (GC) that annulled the Commission’s decision to block the proposed acquisition of TNT by UPS.

UPS notified the proposed acquisition of TNT for approximately EUR 5 billion on 15 June 2012. More than six months later, on 30 January 2013 the Commission blocked the proposed merger based on concerns that it would lead to a significant impediment of effective competition (SIEC) on the market for international intra-EEA express deliveries for small packages in 15 Member States.

On 7 March 2017 the GC issued a favourable judgement for UPS (case T-194/13, United Parcel Service v Commission). The Court found that the Commission breached UPS’s rights of defence by relying on the latest version of an economic analysis which was not shared with the merging parties before the merger was blocked. The Commission appealed the GC’s judgement on 16 May 2017.

In the meantime, TNT was acquired by FedEx for EUR 4 billion, in January 2016, in a deal that received unconditional approval by the Commission. While UPS may have lost the chance to consolidate its express deliveries business with TNT, AG Kokott’s favourable Opinion will arguably boosts UPS’s chances to win an action for damages for EUR 1.7 billion against the Commission filed by UPS in February 2018 (case T-834/17, United Parcel Service v Commission).

AG Kokott’s Opinion, which is largely in line with the GC’s judgment, provides an important reminder – especially to the Commission – that the rights of defence should be upheld without excuses, including in merger control proceedings.

The Heart of the Debate: The Rights of Defence in Merger Control Proceedings

In her Opinion, AG Kokott notes that at the heart of the dispute between UPS and the Commission lies the question of whether the Commission was allowed to make material changes to its economic analysis (a so-called ‘price concentration model’) during the on-going administrative merger review procedure without informing UPS. More broadly, AG Kokott tries to clarify the scope of protection of the merging parties’ rights of defence in merger control proceedings.

To answer these fundamental questions, AG Kokott addresses the following issues:

  1. Do the rights of defence apply to econometric models in merger control proceedings?; if so
  2. What are the requirements that arise from the rights of defence; and lastly
  3. What are the effects of an infringement of the rights of defence?

Continue Reading AG Kokott on UPS/TNT: A ‘Textbook Example’ of How to Breach the Rights of Defence in Merger Control Proceedings

Today, in four separate decisions, the European Commission (EC) fined consumer electronics manufacturers Asus, Denon & Marantz, Philips and Pioneer €111 million for imposing fixed or minimum resale prices on their online retailers, as well as limiting the ability of retailers to sell cross-border (see press release here).

The topic of vertical restraints is admittedly not new – quite the opposite, in fact. However, today’s decisions are highly relevant for businesses engaging into e-commerce, as they are the first ones to take stock of the EC’s findings in the recent e-commerce sector inquiry, in particular as far as pricing algorithms and monitoring softwares are concerned.

Background

Today’s announcement comes on the heels of the final report of the EC e-commerce sector inquiry, which the EC released in May 2017. The report flags a tendency for manufacturers to seek greater control over their online distribution networks, which in turn results in a number of antitrust issues in the online space, including:

  • The widespread use of pricing restrictions (resale price maintenance, or RPM), which affects 42% of the respondents to the inquiry. According to the EC, the online space is prone to such restrictions, due to the increased price transparency online as well as the use of pricing software that allow for the automatic adjustment of prices, based on the observed prices of competitors;
  • Geographic restrictions to sell, also known as geoblocking. According to the final report of the EC, such restrictions affect 11% of the respondents to the consumer goods section of the inquiry. They may be caught by Article 101 TFEU when adopted as part of an agreement between supplier and retailer – not when adopted unilaterally by the latter.

As a follow-up to the inquiry, the EC immediately announced the launch of several investigations into suspected anti-competitive vertical restraints in e-commerce in three sectors: consumer electronics (concluded today), video games and hotels (which are both ongoing).

First Glimpse Into RPM in the Digital Age

While the non-confidential version of the consumer electronics decisions will not be published before a few more weeks, if not months, the EC press release already provides useful practical guidance on RPM in the online space.

The RPM practices themselves took a fairly traditional form. Online retailers who would not follow the prices imposed by the manufacturers would face threats or sanctions, e.g. blocking of supplies. In addition, Pioneer backed its RPM policy with a limitation of cross-border sales in order to sustain different resale prices in different Member States.

More importantly, the effect of these RPM practices was amplified and maximized by the use of online tools:

  • Sophisticated monitoring tools allowed manufacturers to track deviations from the imposed price and to intervene swiftly in case of price decrease;
  • Since most online retailers use pricing algorithms that automatically adjust retail prices to those of competitors, the RPM practices impacted not only the distributors of the infringing parties, but the overall industry, thus leading to higher prices for consumers.

As a result of the above findings, the EC imposed significant fines: €63.5 million to Asus, € 7.7 million to Denon & Maratz, €29.8 million to Philips and €10.1 million to Pioneer. Interestingly, these fines include reductions for ‘providing evidence with significant added value and by expressly acknowledging the facts and the infringement’ ranging from 40 to 50%.  While the press release makes no reference to them, this language echoes that of the leniency and settlement procedures – which are strictly limited to cartels. To the best of our knowledge, it is the first time that the EC makes implicit use of these rules in the context of a vertical restraints.

More to Come

For the past decade, the EC largely left the enforcement of RPM in the hands of national competition authorities. These days are now over: more decisions are coming, and the EC is sending a clear signal that the risk of fine is more serious now than ever.

For businesses operating online, today’s decisions are a useful reminder that they should be extra careful when engaging with their online distributors. In this regard, while the use of pricing algorithms and monitoring softwares is lawful under EU competition law, they should never become instruments that support a RPM policy – a message that may be worth (re) conveying to your commercial teams.

 

In an unanimous decision, the Supreme Court has gutted the Second Circuit’s rule on deference to a foreign government’s interpretations of its law, holding that a federal court determining foreign law under Federal Rule of Civil Procedure 44.1 should accord “respectful consideration” to a foreign government’s submission, but a court “is not bound to accord conclusive effect” to these statements.

The case is Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., which began as a multi-district class action alleging price fixing claims vitamin C exports sold to U.S. companies. Initially, plaintiffs won at a jury trial after the district court refused to credit the Chinese government’s statements that it compelled the defendants to fix the price and limit the supply of vitamin C. Then, the Second Circuit reversed, holding that the district court was  “bound to defer” to the Chinese government’s interpretation of its laws when the latter “directly participates” in U.S. proceedings through a “sworn evidentiary proffer regarding the construction and the effect of its laws and regulations,” as long as it is reasonable under the circumstances presented.

As previewed in our earlier analysis, this case has important repercussions for any business involved in cross-border transactions. We explore these further below in light of the Supreme Court opinion.

First, businesses whose operations span jurisdictions with potentially divergent legal regimes will need to continue to assess the conflict of law that may arise. The Supreme Court’s opinion makes it evident that “the appropriate weight in each case will depend upon the circumstances” when a federal court must make a decision about a foreign state’s view of its own laws. In practical terms, this may mean that businesses who want to engage in a certain type of conduct may want to analyze in detail any statements made by a foreign government that might be related to the contemplated behavior. As the Supreme Court acknowledges, “no single formula or rule will fit all cases in which a foreign government describes its own law.” An analysis would need to be undertaken of many factors, including each statement’s “clarity, thoroughness, and support; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity of official offering the statement; and the statement’s consistency with the foreign government’s past positions.”

Second, our earlier analysis posited that a Supreme Court ruling which limits the deference afforded to a foreign government’s interpretation may in fact incentivize regulators to cooperate with each other early on in the course of an investigation or enforcement to avoid any potential conflict. The Supreme Court has done just that with its rejection of the Second Circuit’s “highly deferential” rule. And, somewhat presciently, it appears that Makan Delrahim, the Assistant Attorney General for the Antitrust Division, has begun to already make strides in bringing further convergence to the processes of antitrust enforcement. Recently, Delrahim announced a partnership between the United States and other leading antitrust agencies to finalize and join a Multilateral Framework on Procedures in Competition Law Investigation and Enforcement (“MFP”). The MFP will seek “meaningful compliance among competition agencies” on advancing competition through compliance mechanisms. Delrahim discussed the compliance mechanisms not as “establishing a formal and binding dispute settlement mechanism” but ensuring “sufficient incentives to comply with the common commitments.” If the MFP goes forward, it remains  an interesting question as to the degree of deference accorded to statements of MFP enforcers under the Supreme Court’s more flexible rule.

Finally, the Supreme Court’s opinion is a validation of the past and current administration’s approach under the Antitrust Guidelines for International Enforcement and Cooperation (2017). As the Guidelines and the Supreme Court amicus brief by the U.S. government assert, the weight accorded to the views of a foreign government depends on the circumstances. What this means for businesses evaluating agency enforcement likelihood is that the Guidelines will likely continue to be leaned on by this current administration.

Join Steptoe’s EU Competition team for a webinar on May 31, covering the opportunities and antitrust risks associated with bypassing distributors to sell directly to customers in Europe. In particular, we will discuss the growing trend of going “direct”, how to identify the related antitrust risks, and how to strike the right balance between direct and indirect channels. Participation is free of charge.

Date: May 31, 2018

Time: 4:00 p.m. – 5:00 p.m. CET
(Click here for the time in your area)

Click here to register.

If you are unable to participate in the live webinar but would like to receive a link to the recording, please let us know by requesting here.

Featured Speakers:

On February 16, 2018, the UK Court of Appeal adopted its much awaited ruling in the iiyama case. Taking stock of the Court of Justice (CoJ) ruling in Intel last year, the Court of Appeal allows plaintiffs in civil cartel damages actions to advance claims based on overcharges incurred by their supply chain operations outside of the European Union (EU), provided that such overcharges ultimately hit their finished goods sales within the EU.

This is perhaps an inevitable proposition, which will probably send shock waves way beyond the Channel. While this judgment does not bind the European Courts, this UK precedent will inspire other national courts across the EU. In addition, following Intel, the European Commission (EC) is most likely emboldened to prosecute non-EU based cartels affecting upstream activities with an indirect effect on sales of finished goods in the EU.

Read more here.