The European Commission issues Statement of Objections against Brussels Airlines and TAP Portugal over “anticompetitive” codesharing arrangements

CMA continues crackdown against price fixing online

Drug Company, Sanofi, faces substantial fine for disparaging competitors

No One Stop Shop for Leniency! Landmark Decision clarifies need to file for leniency at both an EU and national level

Italian Postal Service ordered to provide services on non-discriminatory terms to competitors as a Service of General Economic Interest

German Federal Supreme Court rules on burden of proof in private competition law action

CMA announces market study into Digital Comparison Tools

French Competition Authority sends unprecedented warning against gun jumping

The European Commission issues Statement of Objections against Brussels Airlines and TAP Portugal over “anticompetitive” codesharing arrangements

The European Commission have expressed concern over the possible anti-competitive effect of a codeshare cooperation established by Brussels Airlines (soon to be wholly owned subsidiary of Lufthansa) and TAP Portugal in 2009 on passengers services between Brussels and Lisbon.

On 27 October 2016, the Commission  informed the two airlines that their cooperation restricted competition in breach of EU antitrust rules. The EU Competition Directorate (DG Comp) stated in a Statement of Objections that the cooperation between the Belgian and Portuguese national companies would restrict competition and harm passengers interests in breach of the European rules.

Code-share agreements come in different shapes and sizes. Code sharing is often used by partners as part of a global alliance. When the code-sharing involves airlines companies which are not both present on a given route, it allows them to expand their network coverage and improve connections for passengers; such complementary codeshare is beneficial to consumers and does not raise competition concerns.

However, when airlines sell seats on the other party’s flights on the same route, this can reduce competition and lead to higher prices and a lower quality of service for consumers.

The Commission’s focus in the Statement of Objections relates to "the first three years of the agreement". Under the agreement, the two Star Alliance members granted each other the right to sell an unlimited number of seats of almost all categories (Business, Economy) on their mutual flights between Brussels Zaventem airport and Lisbon-Humberto Delgado. Before the agreement, Brussels Airlines and TAP Portugal competed on this route "and were, in fact, the only two airlines flying this route" (the low cost Ryanair has since joined).

At this stage of the investigation (which was first opened in 2011), the Commission is concerned that the two companies have pursued an anti-competitive strategy on this route: 

• firstly, by discussing a capacity reduction (number of seats) and an alignment of their pricing policy on the route;
• secondly, by granting each other the unlimited right to sell seats on their flights on the route (on which they were previously in competition); and
• thirdly, by implementing these agreements by actually reducing capacity, fully aligning their tariff structures and the price of their tickets on the route.

According to the Commission this combination of practices clearly infringed Article 101 of the Treaty on the Functioning of the EU which prohibits anticompetitive agreements between undertakings. They eliminated competition on prices and capacity between the two airlines on the Brussels-Lisbon route and led to higher prices and reduced choice for consumers.

The issue of a Statement of Objections does not prejudge the outcome of the Commission’s investigation; and the two companies as subjects of the investigation have the right of reply to the Commission’s allegations.

CMA continues crackdown against price fixing online

On the 7th November 2016, the UK Competition and Markets Authority (CMA) launched a campaign to remind online sellers that agreeing and discussing price level with competitors is illegal and can result in serious penalties. In the context of Black Friday, Christmas and the January sales promotions, this was a salutary lesson. The CMA has warned online sellers against price fixing after finding evidence of collusion by sellers using internet marketplaces.

On 12th August 2016, the CMA held that two online sellers of posters and frames, Trod Ltd and GB eye Ltd, both broke competition law. Trod Ltd had admitted agreeing with GB eye Ltd (trading as ‘GB Posters’) that they would not undercut each other’s prices for posters and frames sold on the Amazon’s UK marketplace. The CMA’s decision imposed a fine on Trod of £163,371 for its participation in the cartel. GB eye received immunity, having reported the cartel to the CMA and co-operated with the investigation.

Following this recent decision, the CMA has written to several online companies who it suspects may be denying customers the best available deals by discussing with competitors or agreeing not to undercut them. Even if online markets are considered to be a valuable tool for consumers leading to the most effective competition, it can become an obstacle if suppliers seek to restrict competition between shoppers. The CMA has also warned software providers that they too risk falling foul of competition law if they help their clients use software to facilitate illegal price-fixing agreements. To ensure that the message was understood, the CMA has produced information for online sellers including written a guidance which explains what constitute price-fixing and what they can do in order to avoid it. The guidance can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/565424/60ss-price-fixing-guidance-for-online-sellers.pdf

Therefore, if you are an online seller, bear in mind that you should not :

- agree with your competitors what prices you will charge, or that you won’t undercut each other on price.

- or discuss your pricing intentions or strategies with competitors.

Drug Company, Sanofi, faces substantial fine for disparaging competitors

On 18 October 2016, the French Cour de Cassation (“Supreme Court”) rejected the attempt by Sanofi, a leading French drug manufacturer, to overturn a ruling of the Paris Court of Appeal which had upheld the decision of the French Competition Authority (“FCA”) to fine it 40.6 M€ for having abused its dominant position with respect to the market for clopidogrel, a blood-thinning molecule used to prevent complications arising from cardio-vascular incidents.

Until 15 July 2008, when its patent expired, Sanofi enjoyed a legal monopoly for the production and sale of Plavix, a medicine composed of clopidogrel as its main active ingredient. Upon expiration of its patent, this medicine, one of the largest selling drugs in the world, suddenly faced competition by several generic drugs sold at significantly lower prices.

In the context of this challenging competitive environment, the FCA found that medical sales representatives of Sanofi had disparaged the generic versions of Plavix, by sowing doubts in the mind of health professionals over the equivalence of the drugs. In France doctors have the option of forcing pharmacists not to sell the generic version of a medicine to a patient by specifying on their prescriptions that the original medicine is “not substitutable”. The FCA’s investigation showed a much larger number of occurrences of such non-substitutable prescriptions in the areas where Sanofi had focused its communication efforts.

Before the Cour de cassation, Sanofi argued that the practice could not have amounted to disparagement, since there were in fact objective differences between the different generics and its original medicine. However, the judges noted that the French Agency for the Safety of Health Products had determined that in spite of certain differences, the medicines were in fact “bioequivalent”. Therefore inducing doctors, who tend to be risk-averse, to believe that the differences could lead to higher risks of death constituted indeed a disparaging practice.

The Cour de cassation also dismissed Sanofi’s argument that the FCA wrongly calculated the duration of the practice. A turnover of one year was taken into account in order to calculate the penalty, whereas the practice had been carried out only for five months. Nevertheless, the French Supreme court judges approved the decision to take into account the one year duration, since the impact of the practice had outlasted the duration of its implementation.

This decision is another illustration of the actions taken by competition authorities to punish illegal actions by pharmaceutical companies, such as “pay for delay” contracts or disparagement practices, which hinder the penetration of cheaper generic drugs on the market.

No One Stop Shop for Leniency! Landmark Decision clarifies need to file for leniency at both an EU and national level

On 20 October 2016, The Italian State Council, on a reference back from the Court of Justice of the European Union (CJEU), finally clarified certain aspects of the workings of national Italian leniency regime. The State Council’s decision concludes that leniency applications submitted to the European Commission must be regarded as completely separate and independent from ones filed before a national Authority. Leniency applications submitted before a national authority should not have any effect on the one filed before the European Commission and vice versa. The Italian State Council also pointed out that companies engaged in a cartel must bear in mind that there is no one stop shop for leniency. Those companies have to examine which jurisdiction is affected and submit as many leniency applications as there are Member States involved.

In 2007 and 2008 DHL Express (Italy) and DHL Global Forwarding (Italy), Agility Logistic and Schenker Italiana, submitted separate applications for leniency to the EU Commission and to the Autorità Garante della Concorrenza e del Mercato (Authority responsible for competition compliance and enforcement of markets rules in Italy “AGCM”) . They alleged that EU competition law had been infringed in the international freight forwarding sector. On 15 June 2011, the AGCM found that several undertakings including DHL, Schenker and Agility, had participated in a cartel in the international road freight forwarding sector affecting operations to and from Italy.

Under the national leniency program, the AGCM decided to fine DHL Express and Agility for their participation in the cartel, and to not fine Schenker. The AGCM considered that Schenker was the first company to have submitted its application for immunity from fines in Italy. Under those circumstances, the Italian State Council upheld this decision.

As a result of this sanction, DHL challenged the Italian State Council’s decision alleging that the AGCM had erred in finding that it had not made the first leniency application in Italy and that it was therefore not entitled to immunity from fines. According to DHL, the AGCM should have taken into account the leniency application submitted to the Commission on 5 June 2007 prior to the application made by Schenker to the AGCM on 12 December 2007 in Italy.

The Italian State Council requested a preliminary ruling from the CJEU on a point of EU law namely whether the notification to the EU commission for leniency should be taken into account when assessing which company sought leniency first in Italy.. In its judgment the CJEU stated that an application for leniency filed with the EU Commission were not binding on national competition authorities. 

The decision sets out for the first time in Italy the clear separation of national leniency programmes and those made to the EU Commission. The State Council further warns undertakings to be aware of the effects of the anti-competitive conducts in all the Member States involved and to protect their interests by making leniency applications in those jurisdictions . 

Italian Postal Service ordered to provide services on non-discriminatory terms to competitors as a Service of General Economic Interest

On 28 September 2016, the Italian Administrative Court of First Instance (the “IAC”) upheld a decision of the Autorita Garante della Concorrenza e del Mercado (“AGCM”) (the Authority responsible for competition compliance and enforcement of markets rules), which found that Poste Italiane S.p.A. violated section 8, paragraph 2-quarter of Law No. 287 of 1990 (the Competition and Fair Trading Act).

The law requires that businesses providing services of general economic interest (“SGEI”) must make available the goods and/or services related to the managed SGEI to their direct competitors, at the same terms and conditions applied to their subsidiaries or controlled companies, in order to guarantee equal business opportunity.

In particular, the IAC pointed out that Poste Italiane refused to grant to its competitors the same economic conditions which applied to its own company (Poste Mobile S.p.A.) for the use of the postal offices network (“Postal Network”) along with the supply of professional services required to distribute pre-paid telephone cards.

The IAC held that the management of a Postal Network must be considered as a SGEI, and therefore Poste Italiane could not avoid the application of the provisions set forth in the Competition and Fair Trading Act (Section 8), as the definition of SGEI is not necessarily linked to the “essential facility doctrine”, so that there is no need of the non-substitutability character of the relevant goods and/or services.    

It is likely that this decision will help provide consumers of mobiles and businesses with cost savings.

German Federal Supreme Court rules on burden of proof in private competition law action

On 12 July 2016, the German Federal Supreme Court (Bundesgerichtshof) clarified the binding effect of decisions of the Federal Cartel Office (FCO) concerning antitrust violations following private competition law actions. In the case at hand, several lottery companies decided in an anticompetitive manner not to accept stakes by commercial agents. Under German and European competition law the lottery companies’ conduct constitutes an anti-competitive agreement, an illegal call for a boycott and an abuse of a dominant position.

Generally and not only in Germany, private law enforcement is of increasing importance in combatting anti-competitive behaviour. Next to considerable fines imposed by the FCO, companies involved in a cartel are also subject to damage claims by market participants affected by that cartel.

To support this, Sec. 33 (4) of the German Act against Restraints of Competition (GWB) states that where damages are claimed for an infringement of a provision of the GWB or Articles 101, 102 of the TFEU, the Court shall be bound by a finding that an infringement has occurred, to the extent that such a finding was made in a final and non-appealable decision by the Competition Authority, the European Commission or court acting as such – in another Member State of the EU. The same applies to such findings in final and non-appealable judgments on appeals against decisions.

In his abovementioned decision, the Bundesgerichtshof clarified the positive scope of Sec. 33 (4) GWB, but also ruled on which circumstances are not subject to the binding effect of the provision and therefore subject to possible follow-on processes.

According to the decision, a finding under Sec. 33 (4) GWB binds the court of a follow-on process regarding its tenor and the principle legal and factual grounds of the conclusion. Therefore, with a regulator’s finding of infringement, it is set if and to what extent antitrust violations have taken place.

Nevertheless, also against the background of Sec. 33 (4) GWB, the court of the follow-on process is not bound regarding if, and to what amount, the cartel has caused damages and has to consider the issues itself.

Insofar the burden of proof lies with the claimant, although it is presumed that the profit achieved by the cartel is evidence of damage suffered by the victims of the behaviour. The claimant still has to present concrete facts based on which the court can determine possible damages (Sec. 287 Civil Procedural Code).

Legal practice shows that this task constitutes a major obstacle for the claimant, as individual damages caused by cartels are difficult to calculate and even more difficult to substantiate. Here lies a source of significant legal uncertainty, which frequently raises problems regarding the prospects of success of an action.

On the other hand, the decision of the Bundesgerichtshof allows defendants to provide counterevidence concerning the alleged damages and therefore enables them to at least diminish the amount of possible compensation. In the case at hand, the Bundesgerichtshof found that the Higher Regional Court of Düsseldorf had insufficiently taken into account the duration of the underlying antitrust violation, the generally declining revenues in the market through the duration and special market conditions in the lottery market at that time, which means that even without the cartel agreement the lottery companies would not have entered into business relations with the suing lottery agents.

CMA announces market study into Digital Comparison Tools

On 29 September 2016, the Competition and Markets Authority “CMA” announced that price comparison websites will be the subject of a market study. The CMA will investigate public awareness of how the digital comparison tools (DCTs), which allow consumers to compare prices and quality of goods and services, earn their money and whether they actually benefit consumers.

This market study will cover websites or smartphone apps that are used by UK consumers to compare products and to facilitate a switch between suppliers. Private motor insurance, energy and banking are among the twelves sectors which will be analyzed by the CMA. All sectors that have help in increasing competition and in giving consumers better choice and access on the market. DCTs play an increasingly important role to make available to consumers all the information and tools they need to engage the market rules and encourage suppliers to improve services, choices and reduce prices.

CMA acting chief executive Andrea Coscelli said: "Digital comparison tools have played a big part in changing markets for the better, bringing new ways of doing things and forcing businesses to up their game. Consumers have benefited as choice and access to goods and services have grown.”

In order to understand why certain tools are more successful in some sectors than others, the study will explore how to improve the potential benefits of those tools for consumers and the concerns over whether sites promote certain deals higher than others in their search rankings, restricting competition.

Under the Market regime, the CMA has a wide range of power of investigation which do not need any infringement to be launch. Both consumers and competition issues can be examined in Phase 1 of the market study.

To this end, 4 main themes will be addressed:

1. what are the expectations of consumers from DCTs and how they use them/their experience
2. the impact of DCTs on competition between suppliers listed
3. how effectively DCTs compete with each other
4. the effectiveness of existing regulatory approaches to DCTs

Market studies aim to be ensure that markets works well and there are a wide range of possible outcomes. The CMA have to publish its report within the year (28 September 2017), and must declare within 6 months if it plans to refer the market for a more in depth investigation (Phase 2) explaining its findings and the proposed actions to take.

French Competition Authority sends unprecedented warning against gun jumping

On 8 November 2016, the French Competition Authority (“FCA”), setting a new precedent, handed down an 80 million euro fine against the Altice Group, a major actor in the telecommunications market, for having “jumped the gun” by acting in concert with target companies while merger control proceedings were still ongoing. 

In order for an ex-ante control to be effective, the parties in play must wait until the FCA has decided whether to approve of the transaction. That includes not only suspending the progress of the projected transaction, but the parties must continue to behave as regular competitors.

Here, the controlled operation consisted of a two-step “merger”: Altice had notified the FCA in 2014 of its proposed takeover of the SFR group, followed by that of the OTL group. Both operations were approved within the same year, and Altice proceeded to acquire the two groups thereafter.

After conducting its investigation, which included dawn raids and seizures of material in all three companies, the FCA fined Altice for going forward with the operations prior to receiving its formal approval. The FCA found that Altice and SFR had already started behaving, while the proceedings were still ongoing, as though their rapprochement had taken place.

To prove such anticompetitive behaviour, the FCA relied on circumstantial evidence which pointed towards the fact that Altice had exerted a determining influence on the companies it looked to absorb. The FCA identified three main types of behaviour which supported their charge of gun-jumping: 

• Altice intervened in the operational management of the target companies: it played a decisive role in some of the strategic decisions, such as the choice to end a promotional offer that originally was supposed to last longer, as well as management changes.
• The economic ties between Altice and the target companies were strengthening before the FCA gave its formal approval,  such as through the implementation of a common business strategy and the development of new offers on the market – requiring months and months of preparation – only a few weeks after the FCA approved the mergers.
• Certain confidential and strategic information was exchanged between Altice and the target companies.

Based on these elements, the FCA concluded that there was indeed gun-jumping, even though the acquisitions themselves, strictly speaking, took place after the FCA gave its formal approval.

The FCA justified the 80 million euro fine by the gravity, scale, and duration of the pre-approval behaviour, which had a substantial impact on competition.

Altice did not contest having engaged in these practices.

With this decision, the FCA has emphasized the need to wait until the formal outcome of the merger control proceedings before companies looking to merge with, or to take over others, may engage in concerted anti-competitive behaviour with their targets.

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