This newsletter is our take on the antitrust developments we think are most interesting to your business. Mark Friend, partner based in London, is our editor for this final edition of 2019. He has selected:
General
- European Commission set to update approach to market definition in light of globalisation and digitisation
- Top EU court opens up cartel compensation pay-outs to non-market participants
- UK CMA reiterates that directors should be liable if their company breaches antitrust rules
- European antitrust authorities continue to impose significant fines for procedural cartel infringements
- Brazilian gun-jumping fine rounds off another year of strict enforcement against breaches of procedural merger control rules
- Smear campaigns fall foul of antitrust rules in Colombia and Denmark
Defence
- UK Government prevents completion of defence deal while national security review is on-going
Industrial & Manufacturing
- German FCO fines steel manufacturers EUR646m for price-fixing
Post
- Postal sector in the antitrust spotlight across EU Member States
Transport
- Port sector features in antitrust, merger control, foreign investment control and state aid investigations
Other
- German FCO blocks merger of cash handling service providers
European Commission set to update approach to market definition in light of globalisation and digitisation
In recent years we have seen many antitrust authorities move away from a rigid approach to defining markets in favour of a more flexible and fluid assessment. The European Commission has bucked this trend, however, tending instead to stick to the more traditional, formal approach in both its merger and antitrust cases. In doing so the Commission follows its 1997 notice on market definition. But at over two decades old, it is unsurprising that the Commission has faced a number of calls to update this guidance. Now, right at the start of her new term as Competition Commissioner, Margrethe Vestager has acknowledged that the time has come to review the notice to ensure that the guidance it gives is accurate and up to date, and reflects developments in the Commission’s techniques for defining markets. She notes that as a result of globalisation and digitisation many geographic markets have become wider, although she cautions against adopting a general rule that all markets are now global. Instead, she says, the Commission needs “to continue to look at each market on its own merits”. She also makes clear that market definition is just a starting point – the Commission can and does look at what is happening outside the geographic market. Vestager goes on to discuss new challenges for defining product markets, in particular where consumers are using a product for free, meaning that traditional methods of using hypothetical price increases to determine the boundaries of a market do not work. Finally, she notes that big digital businesses often provide not one or two but a whole “ecosystem of services”, which may make it difficult for consumers to switch from one ecosystem to another. This again raises complexities for market definition. The Commission plans to look at all of these issues in the upcoming review.
The announcement will be music to the ears of governments in certain Member States, particularly those in France and Germany which, since the Commission’s prohibition of the Siemens/Alstom merger earlier this year, have campaigned for the Commission to take greater account of global competition, most notably from Chinese rivals. A recent report entitled “Industrial Strategy 2030” by the German economy ministry, based on a joint initiative with France and Poland, called for the Commission’s merger assessment to pay more heed to potential competition by global players from outside the EEA market, in particular from foreign state-owned or state-funded firms. The review of the notice also fits with the Commission’s broader aim of “keeping the rulebook up to date” – it is currently consulting on changes to its rules on vertical agreements and horizontal arrangements between competitors, as well as carrying out a “fitness check” on state aid rules. While we do not expect to see fundamental changes to EU antitrust rules as a result of these reviews, some fine-tuning is needed to give businesses greater guidance on how to stay on the right side of the line in a rapidly evolving age.
Top EU court opens up cartel compensation pay-outs to non-market participants
The number of damages actions brought by parties who claim they have suffered loss as a result of anti-competitive conduct has increased significantly in recent years, particularly in jurisdictions such as the UK, Germany, the Netherlands and Spain. Indeed, the European Commission has taken steps to encourage claimants to bring claims, most notably by adopting the EU Damages Directive in 2014, which aims to remove obstacles to effective compensation for individuals and businesses across all Member States. To date, many of the claims have been brought by customers of firms found to have engaged in cartels. In Austria, however, the courts have been grappling with a damages action brought by an applicant – an Austrian province – which is not a customer (direct or indirect), or even a supplier, in the market affected by a cartel.
The case relates to a cartel between elevator makers. Fines were imposed in 2007 by both the European Commission and the Austrian courts. Land Oberösterreich (the province of Upper Austria) then brought an action for damages in Austria, alleging that the increased elevator prices paid by construction companies as a result of the cartel led the province to grant higher subsidies (in the form of promotional loans) to those companies than would have been the case without the cartel. In response to a question from the Austrian Supreme Court about whether such a claim was possible, the European Court of Justice (ECJ), following an opinion of the Advocate General, has ruled that the elevator makers should face the damages claim of the province. In a press release the ECJ states that “effective protection against the negative consequences of an infringement of EU competition rules would be seriously undermined if the right to compensation for losses…was restricted to suppliers and customers on the market affected by the cartel”. So in principle the claim can be brought. It is then, says the ECJ, for the national court to determine whether the claimant would have been able to use the additional loan amounts more profitably, and whether a causal connection between the loss and the cartel has been established. This is not the first time that the elevator cartel has yielded an important judgment from the ECJ on the scope of damages claims – in 2014 the ECJ ruled on another question from the Austrian courts, finding that cartel members can be liable for damages resulting from “umbrella pricing” (ie where companies who are not members of the cartel nevertheless charge higher prices as a result of the effect of the cartel on the market). Viewed together, the ECJ’s rulings broaden the potential scope of liability of cartelists. Time will now tell whether we see more of these types of claims coming through the national courts. Companies which may have committed antitrust infringements should heed the possibility when assessing the merits of reporting any wrongdoing in an application for leniency.
UK CMA reiterates that directors should be liable if their company breaches antitrust rules
In the past year we have seen the UK Competition and Markets Authority (CMA) ramp up its programme of director disqualifications, with nine of the 12 disqualifications coming during 2019. This month, the CMA has released a statement relating to the office fit-out cartel, where it fined five firms GBP7m for cover bidding and secured the disqualification of six current and former directors. The statement comes on the back of a court order that two of the individuals (who were disqualified from acting as directors for companies in the Fourfront Group for, respectively, two years and nine months, and one year and six months) can continue to act as directors and be involved in the management of Fourfront Group companies during their term of disqualification. The CMA is clear to point out that the court order was only granted because of the particular needs of the companies – the judge agreed that one individual was “essential to the culture of the organisation” and the removal of the other from office might result in closure and redundancies. The authority also notes that the judge did not take his decision lightly. The order contains strict conditions. The two directors can only act for certain companies and can only carry out specified functions. They cannot take on any other directorships. In addition, they must ensure annual antitrust compliance training for high risk employees and Fourfront must appoint a non-executive director to supervise the group’s compliance with antitrust law. The underlying director disqualifications will remain in place throughout.
Despite this ‘softening’ of the director disqualification for these two individuals, the CMA remains undeterred. It notes that “director disqualifications remain an essential measure to protect the public from directors of companies that break competition law, and send a clear message to directors of the need to ensure that their companies comply fully with competition law”. It reiterates a message we have heard a number of times in recent months: it will continue to seek further disqualifications of directors where appropriate. Watch this space.
European antitrust authorities continue to impose significant fines for procedural cartel infringements
Cartels are by their nature difficult to detect. Clear evidence of anti-competitive behaviour is not usually within the easy reach of antitrust authorities. It is therefore no surprise that they are coming down hard on companies subject to cartel investigations that destroy, withhold or otherwise dispose of evidence, whether or not the procedural violations impact the authority’s subsequent investigation and decision. We reported on developments in this area in October (and will discuss it, plus other cartel trends, in our forthcoming Global Cartel Enforcement report). Most notably, this month, the Dutch antitrust authority (ACM) has fined a for-now unnamed company EUR1.84m for obstructing an inspection. In particular, employees under investigation left WhatsApp groups and deleted online chats while the raid was on-going. Even taking into account a 20% reduction for the company’s cooperation, the level of the fine is high – it is the largest stand-alone fine ever imposed by the ACM for non-cooperation or obstruction during an investigation – sending a clear message that the ACM will not tolerate such behaviour.
Another European authority has also recently issued a significant penalty. Late last month, the Competition Council of Latvia (CC) imposed a fine of more than EUR700,000 on one of Latvia’s largest building materials traders, Depo DIY, for failing to provide complete information during a cartel investigation. In 2017 the CC found that four building materials traders (including Depo DIY) and two building materials manufacturers had coordinated and fixed prices, imposing a total fine of EUR5.8m. The authority now considers that Depo DIY’s claim during the probe that it was unable to comment on a specific email exchange, due to its age, was baseless given the company was able to provide “detailed explanations” during on-going court proceedings, several years after the authority’s request. In addition, Depo DIY had not opted to specify and supplement the explanations initially provided to the CC. The fine is substantial, and far larger than the CC’s previous fines for failing to provide information (EUR838 for failing to submit information on commitments and EUR13,175 for deleting information during a dawn raid).
Brazilian gun-jumping fine rounds off another year of strict enforcement against breaches of procedural merger control rules
In a much anticipated decision, Brazil’s CADE Tribunal has approved a settlement agreement under which IBM and Red Hat will pay a record BRL57m (EUR12.4m) fine for gun-jumping. The Brazilian antitrust authority CADE opened the investigation after IBM completed its acquisition of Red Hat in July 2019. At the time, the transaction was still under review by CADE, but the parties announced they would temporarily carve out Brazil (which operates a suspensory merger control regime) and act as independent entities in the Brazilian market until clearance was received. The carve-out did not convince CADE, which ultimately recommended that the parties face fines for jumping the gun. In presenting the findings, the Tribunal’s Lead Commissioner has reportedly given short shrift to the parties’ claimed justifications for their actions. She says that carve-out (or hold-separate) structures cannot be used in Brazil to mitigate gun-jumping sanctions. And the fact that CADE was about to enter a period where it lacked quorum to make decisions was not a reasonable justification – the parties should have factored in such uncertainty when planning their merger filings.
The fine represents a 5% discount from the maximum possible penalty of BRL60m, accounting for the fact that the parties voluntarily filed a settlement agreement. The Lead Commissioner reportedly noted that the fine would have been much higher (she mentioned a figure of BRL1.3bn) had it not been for the BRL60m cap. It seems likely that, in the wake of this case, the Brazilian authorities will propose reforms to the rules to enable higher penalties to be imposed. Set in a wider context, the Brazilian fine rounds off yet another year of strict enforcement by antitrust authorities against breaches of procedural merger control rules, as we have previously reported. For more on this trend, watch out for our next Global trends in merger control enforcement report, due out in early 2020.
Smear campaigns fall foul of antitrust rules in Colombia and Denmark
Cases involving infringements of antitrust rules as a result of firms taking action to discredit rivals or to disseminate inaccurate information are not common. But in December, we saw decisions on exactly this point by both the Colombian authority and a Danish court, serving as a warning to firms that this type of behaviour can raise antitrust concerns. In Colombia, the SIC fined an optometrists association COP89.4bn (EUR24.1m) for anti-competitive practices. The authority alleges that the association engaged in a disinformation and smear campaign about the lawfulness of the online distribution of mass-produced contact lenses in Colombia. It also found that the association disseminated inaccurate or out-of-context information on the alleged health risks associated with contact lenses sold online, and encouraged other market players to file baseless complaints against online contact lens market places. Interestingly, the SIC also fined nine individuals COP116.7m (EUR31.4m) for facilitating the conduct.
In Denmark, a court also ruled on a smear campaign, in this case finding an abuse of dominance. Following a decision of the antitrust authority earlier this year, the court confirmed that ambulance service provider Falck should pay a DKK30m (EUR4m) fine for running a campaign to discredit a rival, BIOS. After losing a local government contract to BIOS, Falck adopted a strategy designed to create uncertainty about BIOS as a supplier, and to discourage ambulance staff from working for it. This led, said the authority in its original decision, to BIOS’s exit from the market and bankruptcy. The fine is the highest ever imposed for breach of Danish antitrust rules and marks a rare instance of a penalty being imposed for abuse of dominance.
UK Government prevents completion of defence deal while national security review is on-going
Many jurisdictions worldwide, the UK included, have been actively reviewing and amending the scope of their foreign investment control and public interest regimes. One area that has faced particular scrutiny by the UK government is national security, including defence and public security. This year the Secretary of State has issued intervention notices on public interest grounds relating to national security in three deals: Advent’s acquisition of Cobham, Connect’s acquisition of Inmarsat and, this month, Gardner Aerospace’s acquisition of Impcross. Generally such cases avoid in-depth phase 2 inquiries with the parties offering formal undertakings to address the national security concerns, including commitments designed to safeguard sensitive information and ensure security of supply.
The Gardner/Impcross case has, however, taken a novel course. On the same day as she issued a public intervention notice, the Secretary of State, for the first time, also made an order to prevent the parties taking any action that might prejudice an in-depth review by the UK Competition and Markets Authority (CMA). The comprehensive order prevents completion of the anticipated merger and the transfer of material or information between the parties, requires the businesses to be kept separate, imposes obligations in relation to the carrying on of the Impcross business and the safeguarding of assets, imposes reporting obligations on the parties and allows the Secretary of State to give directions to ensure compliance with the order. While various parties subject to public interest interventions have faced similar restrictions, which could comprise a ban on completing their deal (including Gardner in relation to its acquisition of Northern Aerospace in 2018), these orders have been imposed by the CMA, rather than the Secretary of State. And they have not been issued in every case. A further interesting point is that, presumably due to timing constraints, the order came into force before it could be laid before Parliament – the Secretary of State notes it will be laid before the new Parliament when assembled. For now, it is unclear whether the case signals a new approach for the UK government to step in routinely to halt mergers under public interest review, or whether the order is a one-off. We may get some further clarity if and when we hear more about the UK government’s plans (as we reported in October) to update the rules applying to transactions which may raise national security issues.
German FCO fines steel manufacturers EUR646m for price-fixing
In the November edition of Antitrust in focus we commented on the decision by the German Federal Cartel Office (FCO) to fine car manufacturers for anti-competitive steel purchases. This month, the FCO has taken further action in the steel sector, fining steel manufacturers for collusion. The fines total EUR646m, and are imposed on three firms as well as three individuals. A fourth company escaped a penalty as it was the first to cooperate with the authority. The FCO alleges that the firms exchanged information on and agreed certain pricing supplements and surcharges for quarto plates in Germany over a 14-year period. Quarto plates are hot rolled flat steel products with a number of uses, including bridge building, building construction, shipbuilding and general mechanical engineering. According to the FCO’s allegations, the mutual understanding and aim of the firms involved was that only the basic price of quarto plates would be individually negotiated with customers – the price supplements and surcharges, alleged the FCO, were coordinated between the firms or calculated according to uniform models. The companies admitted to the infringement and agreed to settle with the FCO. The FCO took this into account when calculating the fines.
The decisions wrap up another of the FCO’s steel investigations, although they can be appealed. As previously reported, the FCO has other on-going proceedings in the sector, including into stainless and speciality steel products.
Postal sector in the antitrust spotlight across EU Member States
We reported in our October edition of Antitrust in focus that the Dutch government had approved a merger between postal operators on public interest grounds despite a prohibition decision of the antitrust authority. Since then, we have seen the postal sector continue to come under scrutiny by antitrust authorities in various jurisdictions.
In the UK, the Competition Appeal Tribunal (CAT) upheld Ofcom’s GBP50m fine in 2018 on Royal Mail for abuse of dominance. The CAT agreed that Royal Mail’s plans for price increases for wholesale customers discriminated against rival postal operator Whistl. Even though the proposals were ultimately withdrawn and never implemented, the CAT found that Royal Mail had taken a “formal, definitive and public step” necessary for the changes, and that it intended to, and did, cause customers to amend their activities as a result. Royal Mail has announced it is appealing the judgment. In the meantime, Ofcom announced it is pursuing another antitrust probe, this time looking at suspected anti-competitive arrangements (resale price maintenance and online sales restrictions) in the parcel delivery and pick-up sector. This is hot on the heels of a settlement reached in September with Royal Mail and SaleGroup. In that case, the companies admitted to a customer sharing agreement under which neither would offer parcel delivery services to the other’s business customers. Royal Mail escaped a penalty as it was the first to report the infringement. SaleGroup accepted a GBP40,000 fine.
Elsewhere, the German monopolies commission has published its latest sector report on postal markets. It found that there is still no effective competition in the domestic letter market and none at all in the cross-border letter market. To address the first issue, the commission proposes reforms to the German Postal Act, aimed at strengthening the control of potential abuses of dominance and creating a more level playing field for competition between postal service providers overall – a goal that is shared by the Minister for Economics who has already published a basic outline of a postal bill. In particular, the commission suggests giving private parties the right to initiate an investigation by the regulatory agency, improving the ex-ante regulation of postal fees, raising fines for antitrust infringements to mirror the fine level under general antitrust law (10% of global turnover), extending the catalogue of prohibited abusive behaviour to include deficient services, adding a presumption for finding a cost-price squeeze, entrusting private parties with the right to bring private damages claims, and giving the regulator the power to confiscate the profits of abusive conduct. To address the second issue, it proposes that the European Commission review the international cooperation agreements between national postal organisations. Finally, in Spain, the antitrust authority (CNMC) has opened a probe into state-owned postal company Sociedad Estatel Correos y Telégrafos (Correos). The CNMC notes that in its role as postal regulator – where one of its responsibilities is to issue decisions on price reviews – it has observed high discounts being granted to large customers using traditional bulk letter mail services. It is therefore looking into whether Correos, the largest provider of traditional postal services, abused a dominant position by granting such discounts, which the CNMC suspects may have had an exclusionary effect on the market.
Port sector features in antitrust, merger control, foreign investment control and state aid investigations
We have seen a wave of cases involving ports and marine services over the last couple of months. Most recently, the Australian Competition & Consumer Commission (ACCC) instituted Federal Court proceedings against TasPorts. The company owns all but one port in northern Tasmania and the ACCC is alleging that it tried to prevent a new entrant, Engage Marine, from competing effectively with its marine pilotage and towage businesses with the intention and effect of substantially lessening competition. Specifically, the ACCC claims that TasPorts failed to provide long-term berths for Engage Marine’s tug boats, refused to place Engage Marine on the shipping schedule, failed to provide pilot training to Engage Marine employees and demanded a new fee from Engage Marine’s sole customer. It is the ACCC’s first case under Australia’s amended misuse of market power provision. And it follows a conditional merger control clearance in the sector last month – the ACCC decided not to oppose ANZ Terminals’ acquisition of rival port-side bulk liquid storage service provider GrainCorp given ANZ Terminals’ undertaking to divest a South Australian facility, and the exclusion of a bulk liquid facility from the transaction. The deal is still subject to Australian foreign investment approval. Last month also saw the ACCC apply to the Federal Court for a review of the Australian Competition Tribunal’s October decision on Glencore’s terms of access to shipping channel and related services for exporting coal from the Port of Newcastle. The ACCC’s appeal is to focus on the Tribunal’s treatment of user funding at the port. And the ACCC has highlighted access to ports as a concern for grain exporters in its latest bulk grain ports monitoring report.
Across the Pacific in Mexico, the competition authority (COFECE) is also concerned about a lack of new entry, in this instance in port manoeuvring services (including cargo loading, storage and delivery markets), and how this might be impacting the agri-food and oil industries. After finding potential competition issues in a number of ports across Mexico (exclusive agreements, the direct allocation of contracts without a competitive award process, bidding process delays and a lack of tariff regulation), COFECE has suggested several amendments to the country’s port law, including to ensure contracts between port operators and service providers are granted through COFECE-approved tender processes.
Over in Africa, the French competition authority has carried out unannounced inspections at the premises of companies on the island of Mayotte suspected of having engaged in possible anti-competitive practices in the port service activities sector. In Turkey, the acquisition of a Turkish port management business by a container terminal operator has been pushed into an in-depth merger control review. Finally, in Europe, the state aid rules have touched ports. Reflecting its resolve to ensure a level playing field across the EU and the cross-border nature of the ports sector, the European Commission has opened an in-depth investigation to assess whether tax exemptions granted to ports under Italian law are in line with EU state aid rules. And it has closed proceedings concerning Spain, but only after the country committed to abolish a tax exemption benefitting Spanish ports from 2020.
German FCO blocks merger of cash handling service providers
This month the German Federal Cartel Office (FCO) has blocked Loomis’ acquisition of Germany’s second-largest cash handling service provider, Ziemann. Loomis is fairly new to the German cash handling services market, but is already a leading provider in the west and north of Germany following its 2018 acquisition of Kötter’s cash handling services division, and the target is active in the north, west and south of the country as well as Berlin. Many regional markets are already very concentrated and the FCO estimates that, together with market leader Prosegur, the merging parties have a market share of approx. 80% in Cologne, Bochum, Bielefeld/Münster, Bremen and Koblenz. The FCO is concerned that the provision of cash for businesses and banks in particular would suffer from a further reduction in the number of key competitors from three to two, with consumers ultimately bearing the brunt of higher costs and poorer service provision.
The parties did not give up on their deal without a fight. After the FCO published its July statement of objections they offered commitments, including the sale of customer contracts and relevant infrastructure in the regional markets affected. However, in rejecting the proposal, the FCO took on board market tests which showed that the few customers willing to switch providers would only move across to Prosegur, an outcome that would create an equally problematic competitive outcome. Whilst we do see antitrust authorities accept the divestment of customer contracts as a condition to clearing a merger, this case highlights that they will weigh up the likelihood of customers being unwilling to switch as well as the value of additional assets and transitional obligations offered in the divestment package before granting approval. On a different note, the case brings the FCO’s merger prohibition tally for the year to four, a significant uptick when compared with previous years; more on this in our next Global trends in merger control enforcement report, due out in early 2020.
