Annual Competition Law Update 2013

Transcription

1 Annual Competition Law Update 2013

2 The Spread of Antitrust:

3 The Spread of Antitrust:

4 The Spread of Antitrust: Present 4

5 Annual Competition Law Update 2013 Cartel Update EU/CH Peter Reinert (Zurich) Joost Haans (Brussels)

6 Cartels Hot Topics Cascading investigations a big theme for 2012 / 2013 Update on EU Commission decisions Update on EU Court cases A big year ahead for the settlement procedure? Personal sanctions increasingly common at national level 6

7 Cascading investigations [change title in View/Header and Footer] 7 European Competition Law Update 2012 Brussels Thursday, 24 May

8 What is meant by cascading investigations? Trend for one investigation to promptly trigger other investigations into: the same product in different regions different products in same region and in other regions other potential violations (e.g. anti-bribery/antitrust/tax) different products but the same/similar price setting mechanism A global/national trend: e.g. autoparts, LIBOR etc Follow-on litigation: claims by victims of the cartel - in a number of regions 8

9 Example - Autoparts Cartel Investigations Product Auto Occupant Safety Systems Auto Lights, Aftermarket Auto Bearings Auto Refrigerants Auto Thermal Systems Auto Small Electric Motor Components Auto Wiring Harnesses Auto Fuel Senders Auto Instrument Panel Clusters Auto parts, New Auto Lights Authority US, EU US, Canada Japan, EU, US EU US, EU Japan US, Japan, Canada, EU, Australia US, EU, Japan US, EU, Japan Japan 9

10 Example LIBOR Investigations Spring 2010: UK Financial Services Authority (FSA) opens investigation July 2011: Japan Financial Supervisory Agency (FSA) opens investigation into setting of yen rates in London and TIBOR manipulation Aug 2007: New York Federal Reserve starts receiving evidence that LIBOR is being fixed at artificially low levels Dec 2012: Hong Kong Monetary Authority opens investigation in relation to HIBOR May 2008: US Commodity Futures Trading Commission (CFTC) opens investigation April 2011: US Department of Justice (DoJ) opens investigation Oct 2011: EU Commission raids banks' offices in London and France as part of suspected cartel inquiry in derivatives sector linked to EURIBOR Feb 2012: Swiss Competition authority opens investigation Feb 2013: EU Commission expands investigation to Swiss franc based rates 10

11 What Triggers This? Globalisation as markets tend towards being global and international cooperation between agencies Repeat infringements by diversified companies Amnesty plus - strategy to attract leniency applications by encouraging firms already convicted in one market to report collusive agreements in other markets Cartels as a reaction to another cartel, e.g. supplier cartel as a reaction to a buyer cartel Cartels as a product of a particular price setting mechanism (eg. benchmarking) More private damages actions: following agency encouragement development of active plaintiff bar 11

12 Update from the EU Commission

13 Cartel Decisions Gas Insulated Switchgear (June 2012) Commission re-imposes fines on Mitsubishi Electric and Toshiba ( 74m and 56m respectively) following annulment by General Court. Water Management Products (June 2012) 13.6m, settlement case (6 th ). TV and computer monitor tubes (Dec 2012) 1,470.5m, two decisions for two separate cartels. Telefonica/Portugal Telecom (Jan 2013) 79m, market sharing agreement. 13

14 Other Decisions Commitments Art. 9 Reg. 1/2003: Decision formalising the commitments offered by the companies intended to address the competition concerns identified by the Commission. Decision is silent on whether there was or still is a breach of the EU competition rules => substitute for a prohibition decision and not for an exemption decision. Commitments can be either behavioural or structural and may be limited in time. Recent cases: Areva & Siemens: Commission accepts commitment to reduce post-term non-compete to 3 years and JV products only E-books: publishers offered commitments to remedy competition concerns about agency agreements and agreements with MFN clauses 14

15 On-going investigations Visa multilateral interchange fees Smart card chips Cement and related products Underwater cables North Sea shrimps Czech electricity and lignite sector Monitoring of pharmaceutical settlement agreements Automotive electric components Polyurethane Foam Paper envelopes Truck sector Lufthansa and Turkish Airlines Brussels Airlines and TAP Air Portugal Baltic rail freight Deutsche Bahn Cephalon and Teva Credit Default Swaps Container shipping lines Piston engines Seatbelts, airbags Luxury watch manufacturers Natural gas Johnson & Johnson and Novartis Honeywell and DuPont Euro interest rate derivatives Bearings for automotive and industrial use Air France/KLM, Alitalia and Delta Electricity power exchanges Servier and generic companies 15

16 Investigations opened during the past 12 months Car air conditioning Plastic pipes and pipe fittings Computer CD and DVD drives Maritime transport services Lead recycling sector Retail food packaging Oil and biofuels MasterCard payment card inter-bank fees White sugar Rail freight central and south-eastern Europe 16

17 Update from the Swiss Competition Commission

18 On-going cartel investigations Door products Bathroom fittings Construction GR Construction SG Libor Tunnel cleaning Air Cargo 18

19 Cartel Decisions Road Construction Zurich (April 2013) CHF 500k. Freight Forwarding (December 2012) CHF 6.2 m, settlement case. 19

20 Update from the EU Court

21 Parent Liability for Fully Owned Subsidiary C-508/11P, Eni: Clear Confirmation of previous case law The conduct of a subsidiary may be imputed to the parent company (single economic unit) Where a parent company holds all or almost all of the capital in a subsidiary, there is a rebuttable presumption that it exercises a decisive influence over the conduct of its subsidiary (sufficient for Commission to prove shareholding link to establish presumption) Presumption applies also to indirect full ownership It is for the 100% controlling entity to rebut the presumption by showing that subsidiary can act with complete operational and financial autonomy (very difficult) 21

22 Parent Liability for JVs T-76/08 and T-77/08 DuPont/DOW: DuPont and Dow only had negative control over DDE, a 50/50 full function JV under EUMR. Commission held DuPont and Dow jointly and severally liable for the conduct of DDE. Court confirms that: Negative control does not exclude decisive influence The operational economic autonomy of the full function JV does not imply per se that the JV enjoys autonomy regarding the strategic decisions The fact that the parent company was unaware of the conduct of DDE is irrelevant The Court considers that as a result of the parent company s power of supervision, the parent company has a responsibility to ensure that its subsidiary complies with competition rules. 22

23 Parent Liability for JVs Learning points: Best way to avoid risk is a comprehensive and active compliance program for the entire group of affiliates even autonomous jointly controlled entities! JV agreement should stipulate ability to check periodically on compliance. 23

24 Parent Liability The Commission does not always win: Ballast Nedam, T-361/06 and Ballast Nedam Infra T-362/06 The Commission failed to specify in SO that it intended to hold a parent company liable for the behaviour of subsidiary. Annulment. FLS Plast, T-64/06 60% during one year then 100% - Commission cannot presume exercise of control for the first year. Annulment. Alliance One, C-628/10 Commission imposed upon itself a standard of proof of the actual exercise of decisive influence which was more onerous than that which, as a general rule, would have been regarded as sufficient (i.e. rebuttable presumption). The Commission must rely on the same criteria for all parent companies in the case (principle of equal treatment). Court of Justice confirms annulment of the decision by General Court. 24

25 Update from the Swiss Courts

26 Sanctions BGE 139 I 72, Publigroupe: Restriction of rights of undertakings Acceptance of criminal character of sanctions ECHR 6 Court has to decide with full cognition on facts, law and the sanction, including proportionality principle However: Court can limit its cognition where expert knowledge is required; mere plausibility check not sufficient Technical or relatively vague provisions which might be too undetermined to justify a sanction in general can be sufficiently precise in competition law cases Undertaking can notify agreement or behaviour to ComCo 26

27 Parent Liability for Fully Owned Subsidiary BGE 139 I 72, Publigroupe: Parent company fined for acts of its subsidiaries Parent company did not prove that subsidiaries are economically independent RPW 2012/2 p. 270, 379 n. 891ss. Road Construction Aargau Where a parent company holds all of the capital in a subsidiary, there is a rebuttable presumption that it exercises a decisive influence over the conduct of its subsidiary Presumption applies also to 50%-99,9% ownership if personal interdependence Failing operational activity of parent company and freedom of subsidiary in operational daily business irrelevant 27

28 Settlements Update

29 Some Important Preliminary Points July 2008 Notice and so far 6 published cases (DRAM, Animal Feed Phosphates, Detergents, CRT glass, Refrigerators,Water Management Systems) Settlements are not the same as leniency (although Commission stresses the two are related) They are the end of the Commission process, and so not an investigative shortcut They assist on the administrative fine, but no credit in civil damages cases, and may aggravate same They produce a single 10% reduction for all and so move at the slowest pace more parties, more moving parts 29

30 The Real Prize Commission insists settlements are not negotiations But note Commission has shown great flexibility and so real prize is reducing fine base Commission will have leverage where applicants have made leniency applicants: hard to deny infringement But applicants will know Commission reluctant to go hybrid or full normal process (but it has done both, and if it does will throw book at non-settlor) 30

31 The Real Prize Examine Fining Parameters Markets / products affected Duration Commission settling for shorter period? Gravity Never less than 15% Mitigation Peripheral player Cooperation outside scope of leniency in addition to leniency? Not mutually exclusive? 31

32 So should you settle? If you are an immunity or leniency applicant, yes you should (but do you make leniency application if immunity gone? What about other jurisdictions?) If you are not an immunity or leniency applicant, still a valuable process (but note Commission like applicants to have come in for leniency) BUT in all cases Remember civil damages and recidivism Effect on other procedures (e.g. Brazilian copycat actions, effect on e.g. US DoJ case) 32

33 Swiss Considerations for «Settlements» Intention to settle at beginning of investigation: 15-20% (leniency applicants) and 20-25% (other parties) (Freight Forwarding) 20% (Electronic Installations Bern) Settlement after first draft order was submitted to parties: 10% (Heating, Cooling and Sanitary Constructions) Settlement after second draft order was submitted to parties: 3% (Windows Fittings) 33

34 Individual Penalties

35 It s the National Authorities, stupid! No individual penalties at EU level 19 out of 28 EU Member States have individual sanctions for competition law violations Upward trend Denmark penalties (up to 18 months imprisonment) came into force 1 March 2013 Belgium - due to enact individual sanctions (up to 10,000 fine) as part of new competition law due to enter into force autumn 2013 Poland - considering amending competition law to permit fines on individuals up to 500,000 UK - proposing to increase penalties (to 10 years imprisonment), and remove the dishonesty requirement for successful prosecutions But Switzerland: Likely no change 35

36 Annual Competition Law Update 2013 Cartel Update EU/CH Peter Reinert (Zurich) Joost Haans (Brussels)

37 Annual Competition Law Update 2013 Verticals Update EU/CH Philippe M. Reich (Zurich) Joost Haans (Brussels)

38 Country Update on Vertical Restraint Enforcement Action Baker & McKenzie CVBA/SCRL is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm Baker & McKenzie CVBA/SCRL 38

39 Germany / Austria

40 Germany & Austria: RPM Germany: 2010 FCO guidance RPM remains a hot topic unilateral action removing non-binding character of RRP is illegal danger zones identified include supplier contacts regarding RRP following initial communication supplier s compilation of price comparison lists for resellers provision of pricing/margin calculation aids or guidance TTS Tooltechnic (Aug 2012) 8.2m fine for threat of worsening trade terms for non-compliance with RPP proof of infringement limited to dealer interviews Federal Supreme Court (Nov 2012) finds undue pressure applied by single contact commenting dealer price is not economically comprehensible 40

41 Germany & Austria: RPM Austria: new focus! Philips Austria (March 2013) fined 2.9 million for RPM operated until mid-2012 late 2012/Jan. 2013: Philips and Media Markt dawn raided on suspicion of RPM; this investigation is ongoing REWE (May 2013) fined 20.8 million for fixing end-prices and other anticompetitive agreements with suppliers Spar (Jan/Aug 2013) dawn raids on suspicion of resale price maintenance Draft guidance on vertical pricing restrictions (June 2013) based on Philips Austria and REWE and two earlier decisions (insulating materials and milk & dairy products of Jan. 2013) public consultation until 1 Aug 2013 follows the 2010 FCO Guidance; also addresses pure agency 41

42 Germany: Online Restrictions Amazon price parity clause (ongoing investigation) Investigation into the impact of price-parity clause prohibiting retailers who sell their products on Amazon Marketplace from offering them elsewhere online at lower prices allegedly restricts competition between platforms and maintains price stability Online survey of 2,400 retailers for comments (Feb 2013) Amazon agreed to remove clauses from contracts (Aug 2013) Ongoing pilot investigations of prohibition in SDS of sales through Internet platforms (Amazon, Ebay, etc.) Asics (2011): general prohibition of selling on market places (product presentation criteria, their enforcement, and selection of dealers also being reviewed) Adidas (2012): prohibition of selling on open market places FCO: Asics will clarify whether the restriction is generally permissible as part of an SDS ; decision expected by year end 42

43 France

44 France: Key Trends FCA keen to promote e-commerce and development of online sales platforms - particularly for consumer goods Study on e-commerce channel (September 2012) Focused on (i) electrical domestic appliances; (ii) personal care; and (iii) luxury cosmetics/perfumes NB: Overall approach similar to Commission vertical guidelines but some differences Pricing practices Price differentiation between brick and mortar and online sales OK but not dual pricing (for the same distributor) Online sales Prohibition of online sales Strictly prohibited (See Pierre Fabre and Bang & Olufsen) Qualitative criteria Require stricter qualitative criteria for online sales Require a brick and mortar point of sale to sell online Prohibition of listing on marketplaces Prohibited. The overall equivalent criteria must be respected OK, but greater scrutiny (stricter than EC Guidelines) OK Prohibition to use trademarks as a key word In all likelihood unjustifiable 44

45 France: Key Investigations Selective distribution and Resale Price Maintenance continue to be a major focus Bang & Olufsen (December 2012) Pet Food (March 2012) B&O fined 900,000: - De facto prohibition of online sale by selective distributors is illegal per se (restriction by object); - Dealers should be free to sell to all end users (followed Pierre Fabre case); and - Obligation to modify its selective distribution contracts Nestlé Purina Petcare France (Nestlé), Royal Canin (Mars) and Huill s Pet Nutrition (Palmolive) fined a total of 35.3 million : - Resale price fixing on wholesalers; - Territorial restrictions and naked export ban; and - Accumulation of exclusivity clauses 45

46 Central / Eastern Europe 46

47 Central & Eastern Europe: Key Focus Areas Focus at the national level: Sector inquiries in the food and retail industries Distribution agreements: Price fixing Contractual relations between suppliers and retailers 47

48 Central & Eastern Europe: a quick overview Poland: 22 ongoing investigations mainly vertical restraints Fine of 3.4m for minimum resale-price fixing for woodboard producers (2013) Akzo Nobel (and 4 DIY companies) fined 14m for RPM and hub & spoke conduct (2010) Czech Republic: Pet-food distributor fined CZK 802,000 for RPM (2013) Bosnia: Serbian beer manufacturer fined approx. 135,500 for RPM (2012) Romania: Wholesaler of fresh fruit and vegetables together with two retailers fined approx. 4m for price-fixing (2012) 48

49 United Kingdom

50 United Kingdom: Pricing Pricing practices a key focus for UK OFT Report on most-favoured nation and price parity clauses (Nov 2012) Report on the economic effects of RPM (February 2013) Increasing scrutiny on agency model IHG/Booking.com/Expedia investigation - restriction on OTAs ability to discount the price of room only accommodation OFT sent statement of objections in July 2012; draft commitments published on 9 August 2013 Proposed commitments: (1) OTAs can offer discounts/share their commission with closed membership groups (membership/loyalty schemes); (2) OTAs can publicise availability of discounts, but may be restricted from publicising the exact level of the discount to non-members Commitments have already attracted some negative comment (Skoosh original complainant) Subject to market testing deadline 13 September 2013 Genuine agency the elephant in the room?

51 United Kingdom: Hub & Spoke Hub & spoke remains a key feature of enforcement action: Numerous investigations have proved challenging for the OFT: Dairy and Tobacco investigations (scope of infringements reduced and/or certain infringements struck down by CAT/UK Courts) Groceries investigation (closed pre-statement of objections) Toys and Sports Kits investigation still provide governing principles for infringements (Relatively) stringent test requiring an understanding on the part of the spoke that the hub will pass the information to the other spoke

52 Switzerland

53 Switzerland: Selective Distribution (I) High Price Island revisited Loopholes in the closed system? EU/EEA + Switzerland = ok? Yes and No 53

54 Switzerland: Selective Distribution (II) Sourcing: cross supplies from any authorized dealer anywhere (cf. art. 5 para 4 CA / art. 12 para. 2 lit. d VN) Authorized dealer = selective, exclusive or open distribution How to control? Sales: possible to limit to EU / EEA but also to Switzerland? (no market effects) 54

55 Verticals Cases since Sep. 1, 2012 (I) Altimum: resale price maintenance fine CHF French books wholesalers (10): prevention of parallel imports in exclusive distribution agreements, market foreclosure fine CHF 16.5 m Steinway & Sons (dawn raid): market foreclosure / price fixing, prevention / restriction of parallel / direct imports? 55

56 Verticals Cases since Sep. 1, 2012 (II) Online hotel booking platforms (Booking.com, Expedia, HRS): best price guarantees, room availabilities; market abuse / foreclosure? VW Group (VW, Audi, Skoda, Seat): price fixing (rebates and discounts)? (whistleblower: Amag) Musik Olar (dawn raid): resale price maintenance, pressure / direct influence on prices / rebates? 56

57 Other Developments Still pending before Administrative Tribunal Gaba Nikon BMW Draft bill (revision CA): Partial (per se?) hard-core vertical restraints Art. 7a 57

58 Annual Competition Law Update 2013 Verticals Update EU/CH Philippe M. Reich (Zurich) Joost Haans (Brussels)

59 Annual Competition Law Update 2013 Dominance Issues EU/CH Peter Reinert (Zurich) Alexandros Stratakis (London)

60 Agenda 102: A Quick Recap Enforcement at the Commission level Major Judgments by the European Courts

61 102: A quick recap

62 Art. 102 TFEU: A Quick Recap Dominance Market shares >40% possible, >50% presumed; over time Competitors size; necessity of product or service offered by DomCo; barriers for new entrants; countervailing buyer power Dynamic v. static analysis Abuse Exclusionary Foreclosure of competitors (e.g. predatory pricing, loyalty rebates, refusal to supply) Exploitative Exploiting customers (e.g. excessive pricing, discrimination); not fashionable Need for more economic approach? Clear cut rules (form) v. actual consumer harm (effect) Commission Enforcement Guidance (Feb 2009) - prosecutorial discretion, not law. Is it safe to rely on them?

63 Enforcement at the Commission level (1) No major decisions over the past year However many cases in the pipeline concerning a wide variety of alleged abuses and demonstrating the Commission s focus in this area of law see eg Slovak Telecom; Les Laboratoires Servier; Google; Deutsche Bahn; CEZ; ARA; Samsung; MathWorks; Motorola Mobility; Gazprom; Bulgaria Energy Holding; Romanian Power Exchange; AB Lietuvis geležinkelai; and Internet connectivity cases 63

64 Enforcement at the Commission level (2) Is the list of abuses under Article 102 expanding? Remember Astra Zeneca Note Samsung and Motorola Mobility where the Commission argues that under certain circumstances the holder of a standard essential patent can abuse its dominant position by seeking injuctive relief against undertakings that it feels are infringing its patents. The CJEU faces the same question after a request for a preliminary ruling from a German Court See Case C-170/13 Huawei v ZTE 64

65 Important Judgments by the European Courts (1) GC in Spain v Commission and Telefonica v Commission. Judgments essentially upholding recently established case law on margin squeeze. CJEU in Tomra: Unfortunate pre-intel type formalistic analysis Court fails to address inconsistent dicta (Norge Post and Enforcement Guidance) is capability of foreclosing/altering the incentives of the customers enough? Should compete for the entire market and, thus, 40% of the market foreclosed is enough (!); No De minimis threshold? Application of as efficient competitor test not necessary as case predates 2009 Guidance GC Decision in Intel is eagerly awaited 65

66 Important Judgments by the European Courts (2) CJEU in Post Danmark: Positive development in the area of price-discrimination Confirmation that in pricing abuses the as efficient competitor test has been adopted Useful definition of competition on the merits CJEU in Astra Zeneca CJEU upheld GC judgment Misleading public regulators can be an abuse But how far reaching is this case? Can even honest mistakes, if objectively judged misleading and not promptly corrected, be penalised? Paras provide some comfort but not clear beyond doubt 66

67 Art. 7 Swiss Cartel Act: A Quick Recap Dominance Market shares market share of 50% critical threshold above which dominance generally exists (SIX, DCC) Competitors size; necessity of product or service offered by DomCo; barriers for new entrants; countervailing buyer power Transparency and stability of market; symmetry of interests, products, costs Abuse Foreclosure Exploitation Significant restriction of competition not required if exclusionary or exploitative effect given (SIX, DCC) 67

68 New Developments in Switzerland (1) Very active ComCo Swisscom broadband internet (July 2013) foreclosing discrimination? Swiss Post s Price Systems for Business Customers (July 2013) foreclosing competitors and discriminating customers? Live Sport Broadcasting in Pay-TV (April 2013) refusal to supply? Commercialisation of Drug Information (December 2012) forcing customers to maintain contractual relationship? Hotel Online Booking (December 2012) abuse of collective dominance? BGE 139 I 72 Publigroupe Art. 7 para. 1 Cartel Act sufficiently clear to trigger sanctions? Dominance (and market definition) sufficiently clear; no strict proof Abuse: question left open but likely accepted (possibility to notify) 68

69 New Developments in Switzerland (2) Revision of Swiss Cartel Act Art. 7 para. 2 lit. c Setting of unfair prices shall be prohibited rather than imposition of unfair prices Art. 7a Abuse of dominant position in case of refusal to supply Swiss customer in an OECD country with goods or services at the prices and conditions applicable there provided that - these goods or services are offered in Switzerland in comparable form; - company publicly announces sales price abroad or customer is dependent on goods or services due to its customers expectation or a previous purchase decision; - customers cannot procure goods and services at comparable conditions in Switzerland Abuse of dominant position if company takes measures to prevent third parties from making passive sales of goods and services that are also offered in Switzerland Economic efficiency as justification; in particular necessity of price differentiation to penetrate new export markets 69

70 Annual Competition Law Update 2013 Dominance Issues EU/CH Peter Reinert (Zurich) Alexandros Stratakis (London)

71 Online Compliance Training Authored by Baker & McKenzie attorneys and contributing firms 6 industries / 15 key languages + Interactive exercises and quiz for effective learning Cartels and Dealing with Competitors Overview of competition law Cartels & restrictive agreements Price fixing, customer sharing Trade Association meetings, practical tips Distribution, Market Power & Investigations Dealing with customers Regulation of substantial market power Pointers for drafting documents & communication Investigations 71

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73 Annual Competition Law Update 2013 JVs and Mergers EU/CH Philippe M. Reich (Zurich) Alexandros Stratakis (London)

74 EU Merger Control Statistics and the 4 Merger Control Myths

75 Overview of Commission merger cases over time - notifications

76 Overview of Commission merger cases over time - clearances Year Jul 2013* Notifications Remedies (Phase I) Remedies (Phase II) Cleared (Phase II) Prohibited *Statistics published by the European Commission on its official website ( as of 31 July

77 1. They don t know my business Dictating to the Commission is unlikely to be helpful UPS/TNT Express (COMP/M.6570) Commission s price concentration analysis predicted price rises in 29 countries and higher prices than UPS model Key focus is on likelihood of price rises see Ryanair/Aer Lingus (blocked), Outokumpu/Inoxum (conditional clearance), Hutchison 3G Austria/Orange Austria (conditional clearance) Closeness of competition (UTC/Goodrich; Deutsche Börse/NYSE Euronext ) and barriers to entry (Hutchison 3G Austria/Orange Austria) remain important 77

78 2. Efficiencies make you weak Deutsche Börse/NYSE Euronext (COMP/M.6166) Commission recognised benefits from collateral savings but, savings likely achievable without the merger and not sufficient to outweigh harm to consumers DB s appeal alleges assessment is incorrect, unsupported by evidence and breaches right to be heard UPS/TNT Express Commission recognised savings in air network costs but they would not outweigh likely price increases Chief Economist: some countries dropped from SO due to efficiencies but arguments raised too late in proceedings to have a significant impact 78

79 3. Remedies what remedies? Remedies must be credible and address all concerns Deutsche Börse/NYSE Euronext the remedies offered fell far short of resolving the concerns (Almunia) remedies were insufficient in scope, difficult to implement, unlikely to be effective Ryanair/Aer Lingus (COMP/M.6663) proposed purchaser had insufficient experience/finances merged entity remained dominant Ryanair: unprecedented and revolutionary remedies package UP/TNT Express upfront purchaser remedy would be necessary to satisfy Commission doubts about effectiveness 79

80 4. It s all politics anyway Commission does not want its independence to be called into question wary of decisions being appealed Chief Economist: political lobbying may make prohibition decision almost more likely: GE/Honeywell (COMP/M.2220) and Deutsche Börse/NYSE Euronext Ryanair press release: this prohibition is a political decision to pander to the vested interests of the Irish Government and is not one that is based on a fair and reasonable application of EU competition rules or precedent airline merger approvals in Europe 80

81 Notable cases in the EU courts Western Digital/Hitachi (Case No. COMP/M.6203) Western Digital/Hitachi s appeal to the General Court as to whether the priority rule is unlawful was discontinued uncertain whether EU will continue to apply the priority rule EC v Editions Odile Jacob SAS (Case C-404/10) and EC v Agrofert Holding AS (Case C-477/10) Court of Justice clarified relationship between secrecy rules in EUMR and disclosure obligations in Reg. 1049/2001 general presumption that disclosure undermines investigatory activities and notifying parties commercial interests 81

82 Telefónica/Portugal Telecom a non ancillary restraint Insertion of a non-compete clause in an agreement to dissolve a Brasilian joint venture but not to compete in Spain and Portugal Commission imposed fines of ~ 67 million on Telefónica and ~ 12 million on Portugal Telecom (being lenient!) On appeal Cases T-208/13 Portugal Telecom v Commission and T-216/13 Telefónica v Commission 82

83 Switzerland

84 Merger cases Julius Baer / Merrill Lynch Sarasin / Safra Tamedia / Ringier / jobs.ch / Jobup Fines Swica: CHF for not reporting takeover of ProVag 84

85 Full function JV: Level of dependance from parents Ancillary restraints: To be specified in merger filing Non compete: 2/3 years Sourcing / supply: 5 years 85

86 Merger control reform Introduction of SIEC test Cf. EU / Germany? 86

87 Annual Competition Law Update 2013 JVs and Mergers EU/CH Philippe M. Reich (Zurich) Alexandros Stratakis (London)

88 Wettbewerbskommission WEKO Commission de la concurence COMCO Commissione della concorrenza COMCO Swiss Competition Commission COMCO Bilateral Agreement CH-EU - Fundamental Considerations Prof. Dr. Patrik Ducrey Deputy Director, Secretariat COMCO patrik.ducrey@weko.admin.ch

89 Overview Update on the progress of the cooperation Current problems of procedures concerning international cartels Negotiations regarding the cooperation agreement with the EU preliminary discussions negotiation mandate status of negotiation content of negotiation Bilateral Agreement CH-EU Patrik Ducrey 89

90 Cooperation: Update (1) Switzerland is not member of EU/EEA, thus the Swiss Cartel Act is applied alongside with the EU Cartel Law: International cartels with competition constraints in the EU and Switzerland Mergers have to be notified in Brussels and in Berne No general cooperation agreement, which regulates coordination and cooperation Bilateral Agreement CH-EU Patrik Ducrey 90

91 Cooperation: Update (2) Exchange between Swiss & EU authorities is, in principle, possible with a waiver Especially for parallel merger procedures Does not include the exchange of documents Participation in the ECN Subgroup Banking & Payments Switzerland, having an observer status, is invited to ECA meetings Exchange within international bodies such as OECD and ICN Bilateral Agreement CH-EU Patrik Ducrey 91

92 International Cartels Coordination of leniency notifications /dawn raids is possible based on a waiver letter No exchange of documents/information from the proceedings Case water management Case window mountings Case LIBOR No coordination of the proceedings with regards to investigation of the facts, closure Bilateral Agreement CH-EU Patrik Ducrey 92

93 Agreement CH-EU (I) What happened so far: Preliminary exploratory talks between the then president and the EU 2006/2007 Fact finding report in December 2008 Reasons for an agreement CH-EU Possible contents (incl. exchange of confidential information) Talks at level Federal Council/EU-Commission Further exploratory talks at expert level in 2009 Bilateral Agreement CH-EU Patrik Ducrey 93

94 Agreement CH-EU (II) Negotiating mandate of the Federal Council dating from August 2010 at the completion of a bilateral agreement More efficient enforcement of the Cartel Act Exchange of confidential information Principles of the exchange of information Speciality (only in concrete procedures) Double incrimination Respecting the rights of parties according to the Administrative Procedure Act Bilateral Agreement CH-EU Patrik Ducrey 94

95 Agreement CH-EU (III) Entered into negotiations on 25 March 2011; 11 meetings and telephone conferences until the end of 2011 Agreement is negotiated, has been ^signed 17 May 2013 Next steps: Ratification proceedings in CH/EU Will be discussed in National Council (Nationalrat) 25 September 2013 Bilateral Agreement CH-EU Patrik Ducrey 95

96 Agreement CH-EU (IV) Main content of the agreement: Purpose/definitions (Art. I/II) Reciprocal notifications (Art. III) Coordination of enforcement activities (Art. IV) Negative/Positive comity (Art. V/VI) Exchange of information (Art. VII) With consent of the parties involved in the proceedings Without consent upon request (contents defined) Use of information exchanged (Art. VIII-X) Consultation/communications (Art. XI/XII) Bilateral Agreement CH-EU Patrik Ducrey 96

97 Exchange of information (Art. VII) Authorities may discuss any information May transmit information with consent of undertaking which provided information In absence of consent, may transmit information Upon request and investigating same/related conduct Content according to VII (4) b Requested authority shall determine which information Neither authority is required to transmit information No transmission of information If obtained under leniency or settlement procedures (unless consent in writing) If using would be prohibited under procedural rights/guarantees Bilateral Agreement CH-EU Patrik Ducrey 97

98 Use and protection (Art. VIII/IX) Use of informations obtained Only for the purpose of enforcing competition law Art. 7: only with regard to same /related conduct Art. 7 IV: only for purpose defined in request No use to impose sanctions on natural persons Protection of information Information shall be kept confidential No disclosure to third parties and authorities; exceptions Court order for inspection Disclosure to undertakings against whom the information may be used Disclosure to courts in appeal procedures Disclosure when indispensible for exercise of rights of defence Information of national authorities and ESA (Art. X) Bilateral Agreement CH-EU Patrik Ducrey 98

99 Agreement CH-EU (V) Restrictions Does not regulate the cooperation with the competition agencies of the EU Member States No mutual legal assistance treaty i.e. no investigations carried out for the other competition agency No harmonisation of the substantive law i.e. no acquis communautaire No common institutions Bilateral Agreement CH-EU Patrik Ducrey 99

100 Buffet lunch 100

101 Annual Competition Law Update 2013 Demystifying Dominance and Rebates Alexandros Stratakis (London) 2013 Baker & McKenzie Global Services (UK) Ltd

102 Discussion on a (simplistic) case study Not the easiest area of competition law journey to effects base analysis almost complete? informed by economics and very fact specific always a matter of degree frustration for lawyers and business Goal for today: informed risk assessment asking the relevant questions some thoughts on assessing the risk 2013 Baker & McKenzie Global Services (UK) Ltd

103 Facts You are in-house counsel of United Bananas Importer and distributor across the EU and Russia Large company; healthy profits Strong brand Well established; leader in quite a few EU countries Discounts are provided to customers from time to time Current share for sale of bananas in Slovakia: 62% Slovak business would like to introduce substantial rebates and make price cuts to important customers ; all to compete with regional distributor 2013 Baker & McKenzie Global Services (UK) Ltd 103

104 Advice from Slovak Counsel 1. Undertakings with a market share exceeding 50% are presumed dominant 2. Dominant firms cannot engage in rebates, esp. with the purpose of combating their competitors 3. Dominant firms cannot discriminate between their customers without an objective justification 4. United Bananas enjoys a dominant position in Slovakia and, thus, the proposed plans should be binned Do you challenge this advice? 2013 Baker & McKenzie Global Services (UK) Ltd 104

105 Market definition: relevance? Why every competition law decision starts with market definition? Product market definition: bananas or fresh fruit? green or yellow? size? shape? wholesale or retail? supply-side substitution? Geographic market definition: Bratislava? Slovakia? Eastern Europe (including Russia)? EU? 2013 Baker & McKenzie Global Services (UK) Ltd 105

106 Product dimension - applying the test Where do you start? What is the benchmark price? Cellophane fallacy and reverse Cellophane fallacy There is a separate market for bananas since there is a group of consumers (very young and very old) who cannot switch away to other fruit Correct? Toothless fallacy 2013 Baker & McKenzie Global Services (UK) Ltd 106

107 Geographic dimension applying the test Where do you start? You also know that: local infrastructure necessary shipment and transport cost medium all bananas are imported into Slovakia Relevance of the above? Impossible to reach a firm conclusion Any suggestions? 2013 Baker & McKenzie Global Services (UK) Ltd 107

108 Which statements are correct? Physical characteristics within the same market must be similar Different price levels implies separate markets Lack of imports implies separate markets The behaviour of average consumer matters Both demand-side and supply-side substitutability are necessary If many customers switch from product A to new product B, A and B are in the same market X X X X X X 2013 Baker & McKenzie Global Services (UK) Ltd 108

109 Market shares - useful? Volume, value and/or other measure? Time: How many years : ? what if volatile? what if persistently high? other have low shares? direction? high barriers to expansion (and entry)? What if products are differentiated? location/outlet? characteristics? brand? different quality? 2013 Baker & McKenzie Global Services (UK) Ltd 109

110 Importance of other competitors? Comparison with other competitors; helpful? market share movement popularity; must stock all negotiate hard with customers Behaviour of United Bananas; relevant? monitoring competitors expensive advertising campaigns matching prices losing shelf-space healthy profits (esp. in Slovakia) 2013 Baker & McKenzie Global Services (UK) Ltd 110

111 When profitable to enter? If entry is profitable at current price, barriers to entry are low. Correct? Sunk costs: building up a brand/advertising? warehouses? fleet of trucks? Governmental: quotas? other regulatory costs? Access to input: available suppliers? know-how? finance? Access to customers: locked-in distributors and/or retailers switching costs economies of scale Exclusionary behaviour of the DomCo? 2013 Baker & McKenzie Global Services (UK) Ltd 111

112 Relevance of bargaining strength? Main clients are big supermarkets. They can take care of themselves. So no issue. Correct? 2013 Baker & McKenzie Global Services (UK) Ltd 112

113 Back to our case study - Rebates (1) Business is proposing the following: REBATE 1: for all the bananas you buy, 30% off How do you propose to assess this: 1. looks aggressive? 2. will our customers be tempted to buy from us? 3. will our customers be obliged to buy from us? 4. can our competitors match it; below their cost? 5. is it below our cost (and how do we define cost )? 2013 Baker & McKenzie Global Services (UK) Ltd 113

114 Rebates are great! No? No dominance; no problem! If dominance, authorities become suspicious: DomCo can charge higher prices Thus, not normal for DomCo to engage in price-cutting Something more sinister is going on Sacrificing profits plan to drive competitors out of the market Predatory pricing/dumping Rebate schemes are even worse; induce loyalty (and are cheaper to implement) No competition on the merits intervention needed 2013 Baker & McKenzie Global Services (UK) Ltd 114

115 As efficient competitor test (1) Using DomCo s data; what if you are a complainant? ATC or LRAIC AAC or AVC If DomCo s price below (DomCo s) cost, strong indication of foreclosure 2013 Baker & McKenzie Global Services (UK) Ltd 115

116 As efficient competitor test (2) Exclusionary detailed plan How is it determined: impression given internally? impression given to competitors? impression given to customers? what will authorities do to uncover the detailed plan? 2013 Baker & McKenzie Global Services (UK) Ltd 116

117 Back to our case study Rebates (2) REBATE 2: Supermarkets: another 5% off any different than REBATE 1? any other concerns? 2013 Baker & McKenzie Global Services (UK) Ltd 117

118 Back to our case study - Rebates (3) REBATE 3: level increases in line with the volume of the customer s order (e.g. 5% rebate on the first 1t, a 10% rebate on 1.001t to 10t, and a 20% rebate on units t to 50t). Any different than REBATE 1? 2013 Baker & McKenzie Global Services (UK) Ltd 118

119 Back to our case study - Rebates (4) REBATE 4: 20% rebate on all bananas if your order exceeds 20t per year, paid at the end of each year and Great news ( for you) Competitors crop fails Competitors only have supplies to serve 40% of the market Any different than REBATE 1 and/or REBATE 3? 2013 Baker & McKenzie Global Services (UK) Ltd 119

120 Predation analysis with a twist A conditional rebate allows a dominant undertaking to use the non contestable portion of the demand of each customer as leverage to decrease the price to be paid for the contestable portion of demand (Enforcement Guidance para. 39). Conditional rebate? Contestable v. non contestable? Leveraging? 2013 Baker & McKenzie Global Services (UK) Ltd 120

121 Contestable share? Contestable share: how much of a customer's purchase requirements can realistically be switched to a competitor. When would you expect a small contestable share? Any quick ways of estimating contestable share? 2013 Baker & McKenzie Global Services (UK) Ltd 121

122 Effective Price 100% Cost Demand 2013 Baker & McKenzie Global Services (UK) Ltd %

123 Effective Price 100% Uncontestable Share Cost Contestable Share 2013 Baker & McKenzie Global Services (UK) Ltd %

124 Effective Price 100% 80% Cost 60% Demand 2013 Baker & McKenzie Global Services (UK) Ltd %

125 Effective Price Leveraging effect of the rebate 100% 80% Cost 60% Demand 2013 Baker & McKenzie Global Services (UK) Ltd %

126 Effective Price 100% Uncontestable Share Cost Contestable Share 2013 Baker & McKenzie Global Services (UK) Ltd %

127 Effective Price 100% 80% Cost Demand 80% 2013 Baker & McKenzie Global Services (UK) Ltd %

128 Effective Price Leveraging effect of the rebate 100% 80% Cost Demand 80% 2013 Baker & McKenzie Global Services (UK) Ltd %

129 Is this the end of the analysis? What about % of the market affected? 10-15%? 40%? %? 3 clients viewed as the best in the marketplace? 2013 Baker & McKenzie Global Services (UK) Ltd 129

130 Finding Dominance: Building Blocks Defining the relevant market very helpful, if done accurately consider more than one plausible definitions Existing competition importance of market shares (?) strength of remaining competitors Potential competition (barriers to entry) level of sunk costs access to input access to customers is entry possible only at a large scale? Countervailing buyer power do customers have sufficient choice? 2013 Baker & McKenzie Global Services (UK) Ltd 130

131 Rebates: 4 questions for your checklist 1. What % market affected? If (very) low, unlikely to be a concern 2. Is it a winner takes all market? Small competitors can bid for an entire customers needs If so, only need check whether overall price positive margin Care is needed when obligatory trading partner / non contestable market 3. How aggressive is the rebate scheme? Check aggressiveness (incremental rollback exclusivity) If aggressive scheme, check maths can small competitor match? Consider converting to less aggressive scheme 4. Reality check: are there counter-indicators of exclusion? E.g. aggressive entry and expansion by competitors, no sign of them being unable to bid for contracts 2013 Baker & McKenzie Global Services (UK) Ltd

132 How aggressive is the scheme? Exclusivity : E.g. 10% rebate if you buy only from us Stretch : E.g. 10% rebate if you buy 20% more than prior year Tailored : E.g. 10% rebate if you buy at least 10m (We know 10m is a high percentage or all of customer s needs) Rollback aka Retroactive : E.g. 10% rebate paid if you buy 100 on all 100 units Incremental : E.g. 10% rebate paid on units bought above 100 (on units 101, 102, 103 etc) Standard : E.g. 10% rebate on all units bought REBATE SCHEME Aggressive Gentle 2013 Baker & McKenzie Global Services (UK) Ltd 132

133 Identify the Product and Geographic Market Concerned No Are you dominant? Is Effective Price Below Cost? Yes Is the Rebate Retroactive? No Yes Yes Determine Contestable Share Calculate Effective Rebate Calculate Effective Price Calculate Cost Rebate Tool B&M Rebates tool covers core elements of assessment under EU Enforcement Guidelines Enables lawyers to estimate relevant costs based on client s accounting data Result: Easy-to-use assessment of legality of rebate model Rebate OK No Check with Legal Department 2013 Baker & McKenzie Global Services (UK) Ltd 133

134 Annual Competition Law Update 2013 Demystifying Dominance and Rebates Alexandros Stratakis (London) 2013 Baker & McKenzie Global Services (UK) Ltd

135 For your attention and have a safe trip home 135