IICJ conference 24 March 2015 Recent Developments and Practical Guidance for In-house Counsel

Transcription

1 New York Washington DC London Paris Frankfurt Hong Kong Shanghai IICJ conference 24 March 2015 Recent Developments and Practical Guidance for In-house Counsel Dr. Tobias Caspary (Partner, Fried Frank) Maurice de Valois Turk (Director, Regulatory Economics, Liberty Global) Attorney Advertising. Prior results do not guarantee a similar outcome.

2 Agenda 1. Introduction 2. Cartels a) Personal Liability b) Dawn Raids & Procedural Developments c) Umbrella Pricing - Kone Judgment d) The Cartel Facilitator & Private Equity Investor Cases e) Private Damage Claims 3. Dominance a) Rebates (Object vs. Effect) Intel Judgment b) Margin Squeeze Telefónica Judgment 4. Merger Control a) Mergers on the rise? b) CMA Happy First Birthday c) Commission: Recent Telecoms Mergers d) Investors Beware: Document Production 2

3 Introduction Law and Economy in Competition Law Role of a competition lawyer: To represent clients vis-à-vis competition authorities and to advise on competition compliance Legal perspective influenced by procedural boundaries and letters of the law Even though competition law is probably the most economic of all areas of law, lawyers still trained to assess case on a legal basis Role of a competition economist: Co-advisory role alongside lawyers in complex competition law cases increasing importance with increasing economisation of competition law Similar advisory role as lawyers but practical issues (not protected by privilege) In-house competition economist: more and more frequently Economists are able to detach themselves from the letters of the law and to analyse the economic effects of a competition law problem on the market, based on models and numbers thus lend credibility to legal arguments 3

4 But let s not overplay the distinction; lawyers make for very good economists Source: The Economist (2008) Source: The Economist (2013) 4

5 New Sheriffs in Town Initial Observations Year 1 of CMA From 1 April 2014, Competition and Market Authority (CMA) took over many of the functions of the Competition Commission (CC) and the Office of Fair Trading (OFT) The new EU Commission New EU Commission inaugurated on 1 November 2014 Juncker has designed new scheme with interlocking Commissioners Competition Commissioner Vestager reporting to Vice-President Jyrki Katainen Explicit focus on role of competition to generate employment and economic growth No apparent rush to deal with key legacy cases such as Google and Gazprom Margrethe Vestager, EU Competition Commissioner: We should never underestimate the benefit of deterrence. It is very important to keep fines at a level where they are not just another line in the spreadsheet. (October 2014) 5

6 Introduction Update on cartel enforcement Cartel enforcement remains top priority EU fines remain among the highest worldwide 2014: Fines of 1.7bn Fines imposed (not adjusted for Court judgments) Highest fines in 2014 for Automotive bearings cartel ( 950m), fourth highest ever imposed in EU Individual fines for Schaeffler ( 370m) 2014 was the eighth highest ever EU fine per individual company Source: European Commission 6

7 Cartels Personal Liability UK (alleged breach of fiduciary duties owed to employer): Safeway vs. Twigger (December 2010): Court of Appeal held that companies which have been fined by the OFT/CMA for breach of competition law cannot seek to recover that fine from its directors or employees 7

8 Cartels Personal Liability Germany (alleged personal involvement in bid-rigging & responsibility for compliance): ThyssenKrupp v Uwe Sehlbach (January 2015): German court dismissed a claim seeking redress for fines imposed by the FCO, because the fines cannot be recovered from an individual; Sehlbach was alleged to be responsible, inter alia, for the company s compliance function; he is also subject to an ongoing criminal investigation for bid-rigging Judgment on recovery of damages brought by Deutsche Bahn paid to a customer harmed by the cartel was stayed, pending the outcome of the criminal investigation 8

9 Cartels Personal Liability Germany (liability for compliance shortcomings): December 2013: German court ordered former management board member Neubürger to pay Siemens 15m in damages Siemens had operated a system of black accounts to bribe foreign government officials, then recovered resulting SEC fines from several former management board members in out-of-court settlements Court of Appeals Munich: Management board members must act with the care of a diligent and conscientious manager; a management board member may not order actions in violation of the law Compliance system must be established which is suitable to discover developments which put the company at risk, which include violations of the law Compliance system must take into account the company s size, the type of business pursued, the internal organisation, the geographic scope, and suspected transgressions in the past 9

10 Cartels Dawn Raids & Procedural Developments Deutsche Bahn dawn raid: 2011: Deutsche Bahn ( DB ) attacked two Commission dawn raid decisions September 2013: General Court rejected DB s action February 2015: Advocate General Nils Wahl Agrees that no court warrant is required for a dawn raid Recommends to annul both the first and second dawn raid decision; Commission was wrong to brief first dawn raid team on suspicions of an illegal second conduct fishing expedition ; Commission s instructions to look out for second illegal conduct was illegal; Commission had circumvented dawn raid rules deliberately or through negligence 10

11 Cartels Dawn Raids & Procedural Developments March 2014: Cement makers appealed Commission s order to produce economic data related to an investigation into price fixing within two weeks General Court dismissed appeal of request being disproportionate, but accepted that 2 week time limit was too short to comply appeals to Court of Justice pending November 2014: General Court upheld fine of 2.5m imposed on Czech company EPH in 2012 for obstructing Commission dawn raid EPH had changed password of one account enabling account holder to access it during dawn raid; second account was diverted so that incoming s were sent to a different server 11

12 Umbrella Pricing - Kone Judgment Case C-557/12 Kone AG and others v ÖBB- Infrastruktur AG June 2014: ECJ ruled on cartelists liability for umbrella pricing Damages for umbrella pricing ECJ held: It must be possible to claim damages against cartel members for the effects of umbrella pricing There must be a causal relationship between that harm and the anticompetitive agreement 12

13 The Cartel Facilitator & Private Equity Investor Cases The Cartel Facilitation Case Yen interest rate derivatives ICAP (Case no ) February 2015: Commission imposed fine of 15m on broker ICAP for facilitating Yen interest rate derivatives cartel Previously, the General Court held that Article 101 TFEU does apply to actions of those who facilitate cartels, rather than participate in them (T-99/04 - Treuhand AG) Commissioner Vestager: decision sends a strong signal that assisting companies in their cartel activities has severe consequences The Private Equity Investor Case Power cables Prysmian (Case no ) April 2014: Commission fined 26 entities for involvement in a cartel in the power cables sector a financial investor had purchased a share in one of the cartelists, Prysmian The financial investor allegedly had decisive influence over the entity s management decisions Commission made clear it will not distinguish between a traditional holding company and a financial investor Former Commissioner Almunia: investment companies should take a careful look at the compliance cultures of companies they invest in 13

14 Cartels Private Damage Claims Impact of EU Directive 2014/104: Background Between : approx. 25% of Europe s competition infringement decisions led to damages actions, most of which involved large corporations in the UK, Germany, and France Directive 2014/104 was published in OJEU on 5 December 2014 member states must implement it by December 2016 It seeks to (i) remove barriers to effective compensation, (ii) optimise the interaction between public and private enforcement, and (iii) standardise effective compensation throughout the EU Most important provisions Right to full compensation Disclosure of evidence Binding effect on national decisions Joint & several liability Indirect purchasers and passing-on of overcharges Presumption and estimation of harm 14

15 Cartels UK Consumer Rights Bill Royal Assent expected by end of March Key amendments to the UK's private enforcement regime Introduction of opt-out collective actions before the Competition Appeal Tribunal ("CAT") Establishment of voluntary redress schemes, to be managed by the CMA Increased jurisdiction of the CAT with respect to damages actions for infringements of competition law 15

16 Abuse of Dominance Intel Case (Object vs. Effect) How to navigate key judgments related to cartels and abuse of dominance On 12 June 2014, the General Court dismissed the appeal by Intel Corp against the European Commission's 2009 decision fining Intel for breach of Article 102 TFEU Highest individual fine ever of 1.06 billion Briefly, the General Court found that rebates conditional on the customer purchasing "all or most" of its purchases of the relevant product from the dominant firm is a per se infringement ( naked restriction ) Commission undertook extensive investigation into scope of effect of infringements, but argued these were not necessary Cartels / price fixing Information sharing Rebates Intel (GC, 2014) Pricing structure Cartes Bancaires (CJEU, 2014) Discount systems Post Danmark (CJEU, 2012) Margin squeeze Telefonica (CJEU, 2014) Merger control Object Effect 16

17 Margin Squeeze in Telecoms (Telefónica Judgment) Background Former Spanish state monopoly found to have abused dominant position on wholesale broadband markets (national and regional) by imposing margin squeeze between prices for retail broadband access and prices for wholesale broadband access 2007: Commission fined Telefónica 152 m 2012: General Court dismissed action brought against Commission in its entirety, Telefónica lodged appeal July 2014: ECJ (Case C 295/12 P): Dismissed all of Telefónica s pleas Principle of effective judicial protection requires the General Court to only respond to the pleas in law raised and to carry out a review of both the law and the facts, but not to review the entire contested decision Margin squeeze possible in EU, even where (i) wholesale product is not indispensible for retail product and (ii) undertaking not obliged by sectoral rules to place wholesale product on the market in the first place Margin squeeze Benchmark for Commission to assess margin squeeze cases generally: long-run average incremental cost ( LRAIC ) of an equally efficient competitor LRAIC models often used in Telecommunications regulation 17

18 Mergers on the rise? Unconditional approval Approval with commitments Source: European Commission 18

19 CMA Happy First Birthday First anniversary of UK s new watchdog Since CMA stepped into work on 1 April 2014, CMA reviewed 66 mergers (as of 31 January 2015) Out of these, the CMA found a significant lessening of competition (prerequisite for Phase II investigation) in 7 cases 5 cases referred into Phase II / in 2 cases, undertakings in lieu of a reference were accepted (all referrals were recent December 2014 onwards) Merger intelligence unit reviewed 500 cases CMA strongly recommends pre-notification discussions usual length of pre-notification: 25 working days (20 working days in 30% of the cases) CMA aims at clearing non-issue cases in less than the statutory 40 working day deadline CMA is planning new de minimis guidance 19

20 Commission: Recent Telecoms Mergers Since 2014, out of the Commission s six conditional Phase II clearance decisions, four concerned telecoms (Hutchison 3G UK/Telefónica Ireland; Liberty Global/Ziggo; Telefónica Deutschland/E-Plus; De Vijver Media/Liberty Global) General trend towards more consolidation Series of 4:3 mergers in national mobile telecoms markets (most prominent pending transaction: Hutchison/O2 in the UK) Mergers across different media channels fixed line/mobile/cable/broadband Commission investigates cases in detail in Phase II, but has so far also shown flexibility to clear all cases conditionally no prohibition to date opposition from national regulators (e.g., FCO against clearance in Telefónica Deutschland/E-Plus) Commission s theory of harm: not classic single firm dominance, but GAP cases Commission relies on mixed bag of different theories of harm, in particular: maverick and closeness of competition Policy initiatives to relax merger control rules for telecoms mergers Body of European Regulators for Electronic Communications (BEREC) is considering characterisation of telecoms markets as oligopolistic for future case review 20

21 Commission: Recent Telecoms Mergers Implications for Other Industries On the benefits of mergers Recent set of mobile cases featured a number of arguments around why merger should be approved despite possible price increases Market exit / Failing firm defence Innovation and investment Commission continues to appear critical and focused on price effects Vestager in FT: I have one interest and that is to make sure that European consumers can enjoy relatively innovative markets at affordable prices On remedies String of mobile cases with remedies promoting MVNO entry telecoms like airlines is sector where divestiture of part of business is not feasible Ongoing debate on the back of conditional approval in Austrian mobile cases whether merger led to higher prices Spectrum auction netting EUR 1 billion was completed around same time MVNOs entry takes months 21

22 Investors Beware: Document Production Practical guidance for practitioners EU merger control proceedings: Section 5.4 of Form CO: (i) board minutes; (ii) transaction-related documents; (iii) analyses, reports, studies, surveys and any comparable documents from the last two years for the purpose of assessing any of the affected markets with respect to market shares, competitive conditions, competitors (actual and potential) and/or potential for sales growth or expansion into other product or geographic markets. Commission increasingly takes review of these documents very seriously and repeatedly asks for complete submission or even more categories of documents (including s) if required Commission relies heavily on internal documents as evidence for finding competition concerns straight from the horse s mouth Therefore significant importance for undertakings to take document production rules seriously need for internal training to sensitise employees for which documents to create and what to say/not to say in such documents 22

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