Breakfast Seminar: Brexit and EU competition law; a road map for UK counsel
Retailers – Can you be liable for cartel behaviour for using pricing software and algorithms?
French Courts chastise accountants and uphold dual penalty regime for corporations and non-corporations
Snitches get……massive cash rewards
The Italian Competition Authority investigates bid rigging in public and higher education sectors
Temperature rises in FCO investigation into heating suppliers
No smoke without fire? - Investigation into helicopter and forest firefighting services
Breakfast Seminar: Brexit and EU competition law; a road map for UK counsel
The Brexit referendum result in June last year created many uncertainties for the British economy and continues to do so.
In this Breakfast Seminar, Robert Bell will focus his remarks on what he sees will be the likely UK merger control landscape post-Brexit and will in particular cover:
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Will companies be faced by increased regulatory scrutiny for their deals post-Brexit?
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What change in EU and UK merger legislation are we likely to see?
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How is the UK competition regulator likely to handle its increased workload?
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What strategies should companies adopt to expedite deal clearance in a post-Brexit world?
The Breakfast Seminar will be held on Wednesday, 10 May 2017 at Citco (UK) Limited, 7 Albemarle Street, London W1S 4HQ.
To register, please contact Paul Brown: pabrown@citco.com.
Retailers – Can you be liable for cartel behaviour for using pricing software and algorithms?
A key issue regulators are grappling with is what antitrust liability can attach to retailers who use price matching software or other algorithms to match competitors’ online prices?
In a speech made on 16 March 2017, the EU’s Commissioner for Competition, Margrethe Vestager, confronted the growing issue of the use of price matching software (PMS) and algorithms. The Commissioner singled out automated systems that monitor and even adjust prices automatically across the internet as a main area of concern for the EU Commission.
The EU Commission recently conducted an inquiry into e-commerce called the “Digital Single Market Initiative” in which it identified this trend. The inquiry found that two thirds of retailers now track their competitors’ prices using automated systems. The central concern is that the transparency of prices online is actually making it easier for companies to monitor prices and collude, with the aide of automated software. In addition, there is a further enforcement problem.
EU competition law can be used to discipline such behaviour if there is some form of agreement or collusion between two or more competitors to fix or align their respective prices on the market. That is clearly cartel behaviour. However, possible scenarios suggest themselves where companies make use of PMS to match or align their prices with competitors without any form of contact with each other, let alone any evidence of collusion between two parties.
Under EU antitrust laws, regulators can only act if there is some evidence of an agreement between the parties or some form of collusion. If the use of PMS is truly unilateral and the company is not in a dominant position, are the authorities therefore powerless to act?
This issue has come up in two recent cases. We previously commented on the UK’s enforcement action against online poster retailers for price fixing over online marketplaces in this post: http://eu-competitionlaw.com/cma-continues-crackdown-against-price-fixing-online/.
On 2 February 2017, the EU Commission opened its own initiative investigations against Denon/Marantz and a leading electrical manufacturer, alleging that they breached competition rules by restricting the ability of online retailers to set their own prices for hi-fi products. It is understood that the effect of these suspected price restrictions may have been aggravated due to the use of pricing software that automatically adapts retail prices to those of leading competitors.
In both of these cases there appears to be some element of human interaction and crucially, an agreement between the participating undertakings, so even if they were using automatic software, the intent to collude on pricing was originally a human decision.
In her speech, the Commissioner commented that PMS can not only monitor and even adjust prices automatically across the internet, but it can also be used to ensure that if a distributor started advertising below recommended retail price, the supplier would be alerted, who could then put pressure on the distributor to conform. Whilst minimum advertised price policies such as this could be legal in the US and other parts of the world, in the EU these are regarded as resale price maintenance and are serious infringements of EU competition law, carrying the sanction of heavy fines and possible subsequent actions for damages.
Having discussed this issue with competition regulators, we take the view that the EU would currently have difficulty bringing a case based solely on a purely software driven choice to price fix, due to the absence of an agreement between two parties. New legislation to cover the use of automatic pricing software is likely to be high on the Commission’s wish list. This would bring their approach in line with their reaction to other e-commerce abuses such as geo-blocking. In the latter case, draft EU legislation is currently being debated to combat unilateral geo-blocking practices carried out by suppliers and retailers.
In light of the Commissioner’s speech and the recent EU cases on PMS, we would advise all companies using such software to seek specialist advice about its use so as to avoid any allegations of unlawful pricing behaviour.
A copy of the speech in full can be found by following this link: https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/bundeskartellamt-18th-conference-competition-berlin-16-march-2017_en
French Courts chastise accountants and uphold dual penalty regime for corporations and non-corporations
French competition law applies to any entity having an “economic activity”, which therefore is not limited to corporations and includes entities such as trade unions, professional orders, and associations.
Pursuant to Article L464-2 of the French Commercial Code, the French Competition Authority (the “FCA”) may impose different penalty amounts for anti-competitive practices depending whether the entity in breach is a corporate entity or not:
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For corporations, the maximum level of penalties is equal to 10% of the corporation’s net annual global turnover (the highest figure since the financial year preceding the breach is taken into account); and
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For non-corporations, the maximum level of penalties is 3 million euros.
By decision of 7 January 2016, the French Constitutional Court validated this dual sanction regime. Further to this decision, the French Supreme Court issued a ruling on 8 February 2017 whereby it elaborated on the rationale and criteria to apply such differentiated penalty regime.
In the case concerned, the FCA had imposed sanctions on an association created by the French professional order of accountants for abuse of a dominant position by implementing measures to discourage competing online tax and accounting declaration sites. The association in question which was ordered to pay a penalty of 1.17 million euros – amounting to 17% of its turnover - challenged the application of the 3 million-euro ceiling on the following grounds:
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Considering that the penalty was issued for abuse of a dominant position, which legal basis refers to “corporations or a group of corporations”, the association argued that it ought to be considered a corporation for the purposes of the penalty, and therefore the 10% turnover limit should have applied rather than the 3 million-euro ceiling;
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The association argued that the 3 million-euro ceiling is applicable only to those non-corporate entities which do not realize a turnover; and
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The association argued that the penalty is unfair as it contravenes the principles according to which penalties must be proportional and non-discriminatory.
The French Supreme Court rejected the above arguments and ruled that French lawmakers introduced a dual penalty regime to take into account the differing economic capabilities between for-profit corporate entities and non-corporate entities. Accordingly, the French Supreme Court validated the FCA’s decision to apply the 3 million-euro ceiling to the association, without regard to whether the association made a turnover or not.
Of particular interest is the fact that the French Supreme Court – despite having noted differing economic capabilities between corporations and non-corporations – did not pay greater attention to the fact that the penalty imposed on the association was indeed disproportionately higher than that which a corporate entity could have been ordered to pay.
Snitches get……massive cash rewards
On 20 March 2017, the UK Competition and Markets Authority (CMA) announced a campaign to encourage whistle-blowers to come forward and expose cartels. The campaign is going to target social media and key websites. It is part of the CMA’s renewed focus on enforcement and comes as the CMA attempts to educate the general public of the harm of cartels.
Most strikingly, the campaign also acknowledges that the CMA is willing to give cash rewards of up to £100,000 to people who come forward with information exposing cartels. However, rather counter-intuitively, the campaign immediately caveats this promise with the ominous statement that the cash reward would only be available “in exceptional circumstances” and [if the whistle-blower] “are not directly involved.” Often the people best placed to expose a cartel are one of the guilty parties but you can see the public policy’s aim of not wanting to be seen to reward cartel members for their crimes.
Cartel members who have seen the light are however reminded through the campaign that the CMA operates a policy of leniency for the first cartel member to expose wrongdoing, a separate policy to the cash rewards for whistle-blowers, which is instead focused on individuals and information rather than liability.
Those considering coming clean or perhaps looking forward to their cash rewards, would do well to first read the CMA’s 6 page cartel reward policy, which can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/299411/Informant_rewards_policy.pdf.
It details how although the CMA will not pay out until after an investigation has concluded (presumably to factor the cash reward into the cartel fines), it can give potential whistle-blowers a “broad range” of what that financial reward will be. It also details, perhaps tantalisingly, how the CMA will consider possible cash rewards for whistle-blowers who were directly involved in the wrongdoing, but were “relatively peripheral”.
What is clear is that the UK is still unwilling to replicate the highly lucrative US Securities and Exchange Commission programme. Through this programme, some whistle-blowers have been rewarded many millions of dollars. This is because they are entitled to between a 10-30% share of the regulatory fine. Whilst controversial in rewarding former cartel members, the success of the system has been directly evidenced by the SEC themselves in the number of successful prosecutions and information they received after its inception.
As can be seen from contrasting this US position with the new CMA campaign, the UK/CMA still has some way to go before it is truly comfortable with rewarding cartel members and whistle-blowers.
The Italian Competition Authority investigates bid rigging in public and higher education sectors
On 21 March 2017 the Italian Competition Authority (the “ICA”) opened an in-depth investigation into several companies (namely, CNS – Consorzio Nazionale Servizi Società Cooperativa, Dussman Service S.r.l., Engie Service S.p.A., ManitalIdea S.p.A., Manutencoop Facility Man-agement S.p.A., Romeo Gestioni S.p.A. and STI S.p.A., hereinafter the “Accused Companies”) all operating in the facility management sector.
The investigation started in order to examine a confidential agreement (the “Agreement”) among the Accused Companies. The ICA alleges that the Agreement was designed to restrict competition through the co-ordination of participations in the tender procedure (the “Tender”) held by Consip (a State owned company) for facility management services of public buildings, universities and state research institutions.
In particular, after having examined the strategies used in the tender procedure of 2014, the ICA found that there would be a lack of competition among the participants in the Tender. Indeed, allegedly the most competitive bids never overlapped. In light of that, and considering the strong corporate links between the Accused Companies, the ICA inferred the anti-competitive coordination.
Therefore, the ICA alleged that the Agreement would amount to an anti-competitive agreement, in contravention of Article 101 of the Treaty on the Functioning of the European Union. However, the alleged wrongdoing has yet to be proven at this stage and the investigation continues.
Temperature rises in FCO investigation into heating suppliers
In February 2017, the German Federal Cartel Office (Bundeskartellamt, FCO) issued commitment decisions, binding several district heating suppliers mainly operating in western and northern Germany. The district heating suppliers undertook the obligation to reimburse their customers in the total amount of approx. 55 million euros, as the Bundeskartellamt raised suspicions of abusive price fixing between the companies in recent years.
The FCO initiated the inquiry into the district heating sector in 2009, as the unique specifics of the district heating market may result in limited competition and eventually in excessive pricing due to potential dominant positions occupied by district heating suppliers. District heating networks work as closed circuit systems, thus hindering entrance of other suppliers into the established system or transmission into other regions. As a consequence, customers have only little chance to change their supplier in favor of a more cost-friendly competitor, even more so as switching to another form of heating altogether proves to be cost intensive as well.
Based on the findings of the FCO, antitrust proceedings against numerous district heating suppliers were initiated in 2013, focusing on such excessive pricing.
Although some of the allegations regarding what originally seemed to be excessive pricing turned out to be unsubstantiated, many suppliers agreed to compensate their customers, either by way of direct reimbursement or by way of price reductions for future supplies. In cases where the heating suppliers were no longer active in the respective region and supply was laid into the hands of local suppliers, the latter will receive the reimbursements themselves and pass them on accordingly.
Although abusive pricing in the energy sector is a difficult point to prove, the case shows that the FCO is willing to go to great lengths in order to protect customers from anti-competitive behavior. At the same time, the procedures serve as an example that the offer of reimbursement commitments can be an advisable way to avoid costly long term antitrust procedures with the FCO and German antitrust jurisdiction.
No smoke without fire? - Investigation into helicopter and forest firefighting services
On 14 March 2017 the Italian Competition Authority (the “ICA”) opened an in-depth investigation into several companies (namely, Babcock Mission Critical Services Italia S.p.A., Airgreen S.r.l., Elifriulia S.r.l., Star Work Sky S.a.s. and Associazione Elicotteristica Italiana, hereinafter the “Accused Companies”) all operating in the helicopter and forest firefighting services sector.
The investigation started in order to assess whether the Accused Companies executed a confidential agreement (the “Agreement”) aimed at restricting competition by influencing in an anti-competitive way the participation in public tender procedures (the “Tenders”) for the assignment of the aforementioned services supply.
In particular, the ICA alleges that the Accused Companies repeatedly participated in Tenders in the relevant sector with the same commercial strategy. This behaviour led to a lack of bids overlapping bids and a restriction of price competition. Further, the ICA held that the Accused Companies behaved in a way to share job orders among them, neutralizing the competitive mechanism typical of public tender procedures.
In light of the above, the ICA alleged that the Agreement would amount to an anti-competitive agreement, in contravention of Article 101 of the Treaty on the Functioning of the European Union. The investigation is ongoing.
[View source.]
