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Antitrust in focus - February 2020

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Mansfield Philip
Philip Mansfield

Partner Global Co-Head Antitrust

London

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28 February 2020

This newsletter is our take on the antitrust developments we think are most interesting to your business. Philip Mansfield, partner based in London, is our editor this month.

General

Consumer & Retail

Digital/TMT

Life Sciences

General

A&O reports on 2019 global cartel enforcement and delves into hot topics for 2020

Antitrust authorities around the world continued to focus on tackling national and international cartels in 2019, with many jurisdictions showing an appreciable upturn in the level of fines compared to those imposed in 2018. Our latest report shows that the European Commission once again topped the global leader board, with fines totalling USD1.6bn (up by 74% from 2018). The U.S., Japan, Germany, Italy and France also saw significant increases in the level of fines imposed in 2018, while a number of authorities with a reputation for aggressive enforcement, including South Korea and Brazil, saw a marked drop in their fine totals.

We also discuss several major questions which sit behind the numbers, the answers to which may impact international cartel enforcement in the future:

  • Will the ever-increasing spread of private damages actions, including a wave of claimant actions in Europe following on from the Commission’s Trucks and Forex decisions, ultimately make leniency an unattractive proposition?
  • Does the broad use of settlement agreements, and the lower fines they deliver, reduce the need for an ex ante leniency strategy?
  • Will there be a political will to focus in the future more on domestic cartels rather than international cartels?

Irrespective of the answer to these questions, the report notes that one thing is clear: the digital economy will continue to dominate the global antitrust debate. Regulatory scrutiny of the use of artificial intelligence and algorithms in business practices is expected to increase, while antitrust authorities continue to consider whether reform of existing laws is necessary to deal with the challenging issues raised by increasing digitalisation. There are also indications that authorities will be emboldened to investigate novel innovation-based theories of harm, taking their lead from the Commission’s investigation into alleged collusion between German car manufacturers to restrict competition in emissions technology. Compliance efforts of companies will, of course, need to adapt and keep pace with these developments, as the focus of authorities increasingly extends beyond traditional ‘high risk’ areas of their business. 

We will be presenting the findings of this report (together with our forthcoming Global trends in merger control enforcement report) in a seminar in London on 1 April 2020. If you would like to attend, please register here from 1 March 2020.

China’s antitrust law under review – increased clarity, but more uncertainty

As previously reported, China is currently consulting on proposed amendments to its 2008 Anti-Monopoly Law. Most of the proposals crystallise the current practices of the Chinese antitrust authority or address some of the frequently aired concerns. However, some of the proposals would create substantial uncertainty, increasing the need for careful compliance with the law by companies operating in China in all industries. Please see our alert for more information on how the proposals could impact merger control reviews and antitrust enforcement.

Navigating antitrust rules in a post-Brexit world – what is in store?

On 31 January 2020, more than three years after the EU Referendum, the UK left the EU. It is now in a transition period until 31 December 2020, unless this is extended. In terms of the application of EU and UK antitrust rules, for the time being it is business as usual – during the transition period the UK will be treated as an EU Member State. After the transition period ends, however, the landscape will look quite different. While the detail may depend on the exact nature of any future trade agreement, and there are particular provisions for “live” cases at the point that the transition period ends, the basic position is clear: the CMA will be able to review transactions and market conduct in parallel with the European Commission. There may also be a brand new UK State aid regime. Our alert gives more detail on what Brexit means for antitrust enforcement and policy, and how this is likely to impact business.

CMA to produce novel report on the state of competition in the UK 

In what appears to be a world first, the UK government has commissioned the UK Competition and Markets Authority (CMA) to prepare and publish a regular report on the state of competition across the UK economy. Prompted by some evidence of a decline in intensity of competition in the country and a desire to improve the UK’s productivity performance, it has asked the CMA to look at ways to measure and monitor competition and to then analyse and comment on the implications of its findings. The CMA will produce its first report this summer. 

CMA Chairman Lord Tyrie has been reported as stating that the CMA will develop, collect and assess quantitative and qualitative indicators on the experience of consumers as well as on the state of competition. The government’s suggested relevant metrics are: concentration, mark-ups, profitability, productivity and measures of consumers’ living standards, including indicators of consumer trust, confidence and satisfaction. The CMA also will annually opine on how specific sectors or local or regional markets are functioning, in addition to the economy at large, shedding a light on parts of the economy at risk of CMA enforcement and markets work and assisting the government with policymaking that promotes competition. There is no doubt that this novel task will further raise the prominence of the UK authority on the world stage as it adapts to life outside of the EU, a direction it is clearly keen to follow.

Consumer & Retail

European Commission imposes more fines for geo-blocking and online sales restrictions – this time on NBCUniversal and Meliá

Clamping down on firms that impose restrictions on how traders can on-sell products across Europe is an enforcement priority for the European Commission. Latest in the firing line is NBCUniversal, which has been fined EUR14.3m in relation to non-exclusive licensing agreements for the sale of film merchandise products such as mugs, clothes and toys. The Commission found that through these agreements NBCUniversal restricted traders from selling beyond allocated territories, customers and customer groups. It also limited online sales. Clauses included outright prohibitions as well as obligations to pay revenues generated from prohibited sales to NBCUniversal. Traders were required to pass these restrictions on to their customers, and NBCUniversal put in place measures to ensure compliance, such as carrying out audits and terminating contracts if deviations were detected. In return for cooperating with the Commission, NBCUniversal secured a 30% reduction in its fine.

This is the Commission’s third decision relating to sales restrictions on licensed products. Last year, Nike was sanctioned EUR12.5m and Sanrio faced fines of EUR6.2m. And in 2018 the Commission fined Guess EUR40m for blocking cross-border sales by authorised retailers. All four cases stemmed from the Commission’s e-commerce sector inquiry – investigations launched on the back of this have now yielded over EUR180m in fines. A further case this month, triggered by consumer complaints, warns against discriminating between consumers on the basis of their place of residence or nationality – the Commission has fined hotel group Meliá EUR6.7m for clauses in its tour operator contract standard terms and conditions that prevented the tour operators from freely offering hotel accommodation across Europe and from responding to direct requests from consumers who were residents outside of specified countries. Consumers had access to different offers and different prices based on their nationality. Competition Commissioner Vestager has taken a firm stance in relation to these cases: “[s]uch sales restrictions undermine the very foundations of the EU single market and cannot be tolerated”. It is likely that the Commission will use the experience gained in these probes to feed into its review of the Vertical Agreement Block Exemption Regulation and guidelines. Finally, confectionary company Mondelez has recently announced that in November 2019 the Commission opened an investigation into the firm’s alleged breach of EU antitrust rules through practices restricting cross-border trade – the Commission’s work in this area is clearly not over.

Digital/TMT

European Commission sets out its antitrust projects for a digital world

The European Commission has unveiled its much-anticipated European digital strategy, setting out a host of ideas and actions for a digital transformation that works best for (a greener and more sustainable) Europe and its citizens. It includes work in the antitrust arena, encompassing an evaluation and review of the fitness of EU competition rules for the digital age as well as antitrust remedies. 

Some of these projects are already under way:

  • On the Commission’s reviews of the rules governing vertical and horizontal agreements, it notes that key issues in the digital space are data access, pooling and sharing, and the balance between online and offline commerce. According to A European strategy for data, in the exercise of its merger control powers, the Commission will look closely at the possible effects on competition of large-scale data accumulation through acquisitions and at the utility of data-access or data-sharing remedies to resolve any concerns.
  • On the review of the market definition notice, the Commission confirms that it will take account of new digital business models, such as “free” services that users access while providing their data, and their implications for competitive constraints.
  • On the “fitness” check of the various state aid guidelines, the Commission notes that it will assess whether an update to the 2014 Important Projects of Common European Interest (IPCEI) Communication is needed to further clarify the conditions under which major Member State-led projects in key strategic sectors for the digital and green future of Europe can proceed effectively.

Others will be launched this year:

  • A sector inquiry with a strong focus on the new and emerging markets shaping the EU economy and society – details on scope and timing are sparse at this stage.
  • An exploration, by Q4 2020, of ex ante regulation to ensure markets “remain fair and contestable for innovators, businesses, and new market entrants” to address the Commission’s perception of large online platforms “as private gatekeepers to markets, customers and information” – an idea promoted by the Dutch, German, French, Polish and Italian governments, these rules would potentially give regulators powers to pre-emptively challenge or block behaviour that could be anti-competitive without having to carry out a lengthy antitrust investigation.
  • A proposal for an Industrial Strategy Package putting forward a range of actions to facilitate the transformation towards clean, circular, digital and globally competitive EU industries.
  • A Communication on Business Taxation for the 21st Century “to address the tax challenges arising from the digitalisation of the economy”. 

The Commission expects its antitrust review to be on-going through to 2023 – other work streams may surface along the way. And of course market players will continue to have an eye on the numerous other studies and proposals proliferating around the globe. Most recently, in the U.S. the FTC has issued orders requiring technology firms to provide wide-ranging information about prior unreported acquisitions that fell below U.S. merger control filing thresholds “to evaluate whether the federal agencies are getting adequate notice of transactions that might harm competition”.

U.S. federal court clears T-Mobile/Sprint on efficiency and weakened competitor grounds

A rare state-led merger challenge has been thwarted by a New York federal court. The case relates to T-Mobile’s proposed acquisition of Sprint. The merger of the third- and fourth-largest U.S. mobile network operators raised antitrust concerns but in July last year the U.S. Department of Justice (DOJ) and Federal Communications Commission (FCC), subsequently joined by the attorneys general for five states, sought to resolve them through a court-approved settlement. Under the proposed settlement, approval of which is pending in the U.S. District Court for the District of Columbia, the merging parties must divest a substantial package of assets including Sprint’s prepaid business, significant spectrum assets, 20,000 cell sites and hundreds of retail locations to Dish Network. In addition, T-Mobile must provide Dish with robust access to the T-Mobile network for a period of seven years while Dish transitions the business and builds out its own 5G network. Unconvinced by the effectiveness of commitments to address potential consumer harm, an unprecedented coalition that at one point included 18 state attorneys general, led by New York and California, filed a lawsuit in the federal court to block the merger. 

Overall the federal judge has concluded it unlikely that the merger would produce anti-competitive effects. He noted that, while the court is not bound by regulators’ decisions, it does treat their views and actions as “persuasive and helpful evidence” in analysing the competitive effect of the merger. The remedy and establishment of Dish as a new market entrant was therefore a key reason for the court approving the merger. However, the court was also persuaded by a few more unusual arguments raised at trial, in large part resulting from the dynamic, rapidly changing nature of the mobile wireless industry. First, the merging parties demonstrated substantial efficiencies, substantiated by T-Mobile’s analogous merger with MetroPCS in 2013. Second, the court was convinced by Sprint’s weakened competitive condition, concluding that only the merger would resolve its financial difficulties and poor network quality. Finally, the judge found the company executives’ witness testimony at trial was credible and considered it unlikely that T-Mobile would abandon its maverick competitive strategy and reputation post-merger.

The DOJ has welcomed the ruling and in particular the judge’s endorsement of its settlement. DOJ Assistant Attorney General Makan Delrahim’s message is clear: “should a minority group of states, or even one, be able to undo the nationwide relief secured by the federal government, it would wreak havoc on parties’ ability to merge, on the government’s ability to settle cases, and cause real uncertainty in the market for pro-competitive mergers and acquisitions.” The State Attorney General of New York has indicated that New York will not appeal. It remains to be seen if the other attorneys general challenging the deal will choose to do so. More broadly, it will be interesting to see if there are further instances of enforcement action by state attorneys general against mergers (in line with a revival of such intervention in other areas of antitrust, eg an on-going probe of tech companies), or whether the federal court’s decision acts as a deterrent. T-Mobile and Sprint have announced that they are working toward completing their merger and aim to close the transaction as soon as 1 April 2020.

Australian Federal Court rejects ACCC concerns over telecoms merger, deepening the divide between the two organisations

In a blow to the Australian Competition & Consumer Commission’s (ACCC) efforts to tackle what it considers to be an excessively concentrated telecoms sector, the Australian Federal Court has allowed a proposed merger between TPG Telecom and Vodafone Hutchison Australia. As we reported in May last year, the ACCC opposed the deal based on a loss of potential future competition. It concluded that, absent the merger, there is a real chance that TPG, primarily a fixed broadband service provider, would roll out its own 5G mobile network and become an innovative and independent fourth supplier. Pointing to TPG’s track record of disrupting the telecoms sector, AUD1.26bn spent on the spectrum needed to build a mobile network, its large customer base, well established brands and its capability and commercial incentive to resolve technical challenges as well as industry trends, the ACCC believed that it would offer cheaper mobile plans with large data allowances, competing vigorously against the incumbents Telstra, Optus and Vodafone, which together have a near-90% share of the mobile services market.

On appeal by the parties, the Federal Court has firmly dismissed the ACCC’s assessment and its distrust of company executives’ statements. The judge stated that it would actually be a “rational and business-like solution” for TPG and Vodafone to merge and become an enhanced, stronger competitive force against industry leaders Telstra and Optus. He found the TPG executive chairman’s January 2019 announcement to not proceed with a network roll-out credible. An unrepentant ACCC “is carefully considering the judgment” (which follows a May 2019 Federal Court defeat in the rail freight sector, against which it has appealed). An appeal to a full bench of the court would likely delay the merger by at least a further six months. ACCC Chair Rod Sims has said that “Australian consumers have lost a once-in-a generation opportunity for stronger competition and cheaper mobile telecommunications services”.

German authority approves digital agricultural platform launch

This month Germany’s Federal Cartel Office (FCO) raised no objection to the launch of ‘Unamera’, an online agricultural products trading platform that will be used by both producers (farmers and processors) and agricultural trading companies to trade in grain and oil seeds. The antitrust authority was consulted by the parties because, while online platforms can offer an efficient means of trading, this platform raised issues due to its control by shareholders who are market operators and the potential for artificial market transparency. The FCO ensures that such platforms do not facilitate price coordination, do not discriminate between users and do not create unnecessary market transparency. Attention is given to operational, technical and informational separation from its shareholders, the creation of information barriers between the platform users and the aggregation of published market data.

Information on the parameters of this case is at present sketchy. However, it is possible to draw out some guidance for the design and structure of other platforms. The FCO clarifies that – in line with prior practice – the publication of market statistics must be restricted to an aggregated average price, based on prices submitted by at least five independent companies. In relation to the making of trades, market participants will have to register on the platform as suppliers and customers with a user login. And the name of the contracting partner will only be disclosed at the final stage, just before a transaction is concluded. Finally, anti-competitive information exchange will be avoided through organisational, technical and informational separation and, for the shareholder-operators, a formal surrender of German corporate law-based rights to information regarding the platform’s operations. 

Antitrust authorities target telecoms operators for abuse of dominance

As an industry with incumbent players and licensed monopolists, the telecoms sector has long been a target for antitrust enforcement. This month has seen two authorities fine operators for abuse of dominance. First, Romania’s Competition Council fined Netcity Telecom approx. EUR460,000 for abusing its monopoly position as concessionaire of the Netcity underground broadband infrastructure in Bucharest. Abusive behaviour included charging fares dependent on the length of network loop used, forcing operators to sign up to minimum length contracts for infrastructure support, prohibiting rival providers from installing any lines other than optic fibre and imposing its pre-equipped Netcity tubing on consumers. The company won a 15% reduction in its fine for accepting liability. The president of the Competition Council pointed out that the case serves as a warning to similar projects being undertaken in cities across the country – that a monopolist should behave fairly towards its partners and create clear, transparent, non-discriminatory and reasonable procedures to access its network. Given the authority also found that Bucharest’s former mayor and city council had violated antitrust law by failing to take necessary steps to regulate conditions of access to the Netcity infrastructure, city governments and individual stakeholders should also take heed.

The second case takes us to Morocco where the telecommunications regulator (ANRT) fined Maroc Telecom, the country’s largest operator, around EUR340m for preventing and delaying rivals’ access to unbundling on the company’s network and fixed-line market. ANRT noted that, as Maroc Telecom is one of only three operators in the fixed-line market, competitors rely on access to its infrastructure to gain a sufficient customer base. Its conduct therefore raised barriers to entry and slowed new entry. As well as imposing a fine that comes close to the statutory maximum of 10% of the company’s worldwide turnover, ANRT outlined obligations on Maroc Telecom’s future conduct towards other market players. The complainant and Morocco’s third-largest telecoms company, Inwi, has subsequently withdrawn its damages claim.

Life Sciences

EU’s top court clarifies when a patent settlement agreement can infringe EU antitrust rules

The European Court of Justice (ECJ) has for the first time ruled on the issue of settlement agreements involving a value transfer (monetary or otherwise) between the holder of a pharmaceutical patent and generic drug manufacturers – so-called ‘pay-for-delay’ agreements. We have published an alert which details how, in responding to questions referred to it by a UK court, the ECJ has clarified the criteria governing when entry into this type of agreement can breach EU antitrust rules either on the basis that it amounts to an anti-competitive agreement (in so doing, setting the bar high for pharmaceutical companies to show that it is not anti-competitive by nature) or constitutes an abuse of dominance by the manufacturer of the originator medicine. 

A&O antitrust team in publication

We are delighted to announce that three articles by members of our global antitrust team have been shortlisted for the Concurrences Antitrust Writing Awards 2020:

Benjamin Geisel (Associate, Brussels) and Hugh Hollman (Antitrust Legal Counsel for Saudi Arabian Oil Company): Six easy steps to better merger control reviews: recommendations for competition agencies across the globe, theantitrustsource, December 2019

John Roberti (Partner, Washington, D.C.), Providence Napoleon (Associate, Washington, D.C.) and Eun Joo Hwang (Associate, New York): The death of Antitrust leniency?: Reviving a key self-reporting and prosecutorial mechanism, Washington Legal Foundation. Critical Legal Issues, Working Paper Series, Number 214, October 2019

John Roberti (Partner, Washington, D.C.), Francesca Miotto (Counsel, Brussels) and Jana Steenholdt (Associate, Washington, D.C.): An examination of global class action regimes after Godfrey, October 2019

About your editor - Philip Mansfield

Philip is a senior partner in our global antitrust team, who splits his time between the London and Brussels offices. Philip regularly obtains approval for clients on complex mergers and joint venture arrangements, particularly in the high-tech sector, and was a winner of the Global Competition Review Matter of the Year award in both 2011 and 2012 for merger-related cases. He also has an extensive cartel and behavioural practice. He has advised on numerous high-profile cartel and behavioural investigations at both EU and UK level, including the first European Commission (EC) settlement case and the first investigation brought by the UK Financial Conduct Authority using its competition powers. In 2016, Philip won Global Competition Review Behavioural Matter of the Year for the firm’s role on the EC’s credit default swaps investigation.  He also represents clients in cartel-related litigation, advising on defences to follow-on damages actions before the courts and he has an established track record of successfully raising and defending behavioural complaints before the EC and UK authorities.

 

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