Antitrust in focus - February 2022

General

• Conditional rebates under antitrust law: EU courts’ Intel rulings confirm effects-based approach
• Antitrust authorities from the U.S., UK, Australia, New Zealand and Canada warn global supply chains against collusion
• EU proposes guidance on information exchange in dual distribution relationships

Digital & TMT

• Nvidia/ARM abandoned in face of mounting regulatory concerns

Financial Services

• Australian banking criminal cartel case collapses following withdrawal of charges

Industrial & Manufacturing

• Tyre manufacturers and trade association fined for price-fixing cartel in India

Life Sciences

• UK antitrust authority fines pharma and private equity firms for market-sharing arrangement

General

Conditional rebates under antitrust law: EU courts’ Intel rulings confirm effects-based approach

Shortly before the last edition of Antitrust in focus was published, the General Court (GC) gave its ruling in the Intel case. It overturned the part of the European Commission (EC) decision that concluded Intel restricted competition through a conditional rebates scheme and annulled the EUR1.06 billion fine in its entirety.

In our alert on the case, we comment on how the GC applied an effects-based approach in assessing the conditional rebates, how the EC fell short in its analysis and what the ruling means for dominant firms.

Antitrust authorities from the U.S., UK, Australia, New Zealand and Canada warn global supply chains against collusion

Antitrust authorities from the “Five Eyes” nations – the UK Competition and Markets Authority (CMA), the U.S. Department of Justice, the Australian Competition and Consumer Commission (ACCC), the Canadian Competition Bureau, and the New Zealand Commerce Commission – have launched a new working group and jointly warned companies involved in global supply chains against anti-competitive conduct.

The new working group is a response to recent concerns about higher prices resulting from supply chain disruption across the global economy. The authorities are afraid that some businesses could take advantage of the disruptions to engage in anti-competitive collusion such as price fixing. It appears they intend to take a tough approach: the Commissioner of the Canadian Competition Bureau notes that the agency will have “zero tolerance for any attempts to use pandemic-related supply chain disruptions as a cover for criminal collusion”.

The group intends to meet regularly, using the Five Eyes cooperation framework, to develop and share intelligence in order to detect and investigate suspected anti-competitive behaviour.

Most importantly, the initiative puts companies involved in global supply chains on notice. They must ensure that their pricing decisions, in particular price rises, are legitimate and do not result from anti-competitive collusion. Otherwise they risk a coordinated investigation across jurisdictions with the potential for significant penalties.

The joint announcements are significant in being yet another example of coordination between antitrust authorities. The CMA’s Executive Director of Enforcement notes that “[t]hese are global issues that are best addressed together”.

In the past year we have seen a growing number of international cooperation initiatives, including the multilateral task force on pharmaceutical mergers initiated by the U.S. Federal Trade Commission, and a joint statement by the CMA, ACCC and the German Federal Cartel Office on the need for tougher merger control enforcement. Most recently, antitrust authorities in several African countries set out plans to collaborate on issues in digital markets.

EU proposes guidance on information exchange in dual distribution relationships

Earlier this month, the European Commission (EC) consulted on draft guidance on information exchange in dual distribution.

A revised EU Vertical Block Exemption Regulation and updated Guidelines on Vertical Restraints are due to enter into force on 1 June 2022. The EC consulted on drafts in 2021. Following feedback and the findings of a subsequent EC-commissioned expert report, it now intends to add the new section on dual distribution to the guidelines.

The term “dual distribution” describes the scenario where a supplier sells goods or services not only at an upstream level but also downstream, competing with its independent distributors. In this type of arrangement, while information exchanges between the supplier and buyer may contribute to the pro-competitive effects of the vertical agreement, it may also raise horizontal concerns.

The headline point from the additional proposed guidance is that the Block Exemption will only apply to the exchange of information between the supplier and the buyer that is necessary to improve the production or distribution of the contract goods or services by the parties.

The proposed guidance provides a non-exhaustive list of examples of information that, if exchanged, would meet this condition. It includes: technical information on the contract goods or services, such as information relating to their registration and certification; information on the supply of the contract goods or services; aggregated information on customer purchases; and information relating to the supplier’s recommended resale prices or maximum resale prices for the contract goods or services.

The draft guidance also provides another list of information, exchanges of which will not benefit from the Block Exemption and which must be assessed individually to determine whether they infringe EU antitrust rules. This includes information on actual future downstream prices (with certain exceptions, eg for coordinated short-term price campaigns) and customer-specific sales data, such as non-aggregated information on the value and volume of sales per customer or information that identifies particular customers.

Finally, the draft sets out how parties to dual distribution arrangements can take steps to minimise the risk that information exchange raises horizontal concerns. It mentions data aggregation, an appropriate delay between information generation and exchange, and the use of information firewalls.

Interestingly, although not absolutely clear from the consultation, the EC appears to have abandoned its original proposal that only information exchanges in dual distribution agreements where the aggregated retail market share is below 10% would fall within the scope of the Block Exemption.

This threshold had been criticised as being extremely low and difficult to apply in practice. Its removal, together with the inclusion of clear examples of the types of information exchange which will and will not benefit from the safe harbour of the Block Exemption, will be welcomed by stakeholders.

Meanwhile, in the UK, the government is consulting on a draft vertical agreements block exemption order to replace a block exemption retained in UK law after the UK’s withdrawal from the EU. Similarly to the EU proposals, the draft order covers dual distribution. We should know more about how the UK Competition and Markets Authority is likely to approach this (and other) issues once it publishes guidelines to accompany the new order.

Digital & TMT

Nvidia/ARM abandoned in face of mounting regulatory concerns

Last month we reported on the close scrutiny of Nvidia’s acquisition of UK chip designer ARM by antitrust authorities around the world.

This month, in the context of a U.S. Federal Trade Commission (FTC) administrative challenge and in-depth reviews in the EU and the UK, Nvidia has opted to abandon the deal.

The development is significant. In the U.S., the FTC notes that it marks “the first abandonment of a litigated vertical merger in many years”.

Given the ongoing global shortage of semiconductors, any transactions in the sector ‒ whether horizontal or vertical ‒ can expect to be subject to close inspection on both antitrust and national security grounds.

In the EU, supply and technology concerns and geopolitical tensions have also led to the unveiling this month of a European Chips Act package. It sets out, amongst other things, the EU’s strategy for increasing semiconductor production. See our alert for more information.

Notably, Commissioner Vestager has confirmed that the proposed Act will have no bearing on the European Commission’s assessment of transactions in the industry under the EU merger control rules.

For more on deals frustrated due to antitrust concerns, look out for our upcoming Global trends in merger control enforcement report.

Financial Services

Australian banking criminal cartel case collapses following withdrawal of charges

In a recent decision, Australia’s Commonwealth Director of Public Prosecutions (CDPP) has withdrawn charges against Citigroup, Deutsche Bank and four senior banking executives in relation to criminal cartel allegations which arose from an AUD2.5bn institutional share placement for Australia & New Zealand Banking Group (ANZ) in 2015. This decision brings to an end one of the most high-profile criminal cartel cases in Australia.

The CDPP alleged that Citigroup, Deutsche Bank and JP Morgan (the underwriters of the share placement) entered into a secret understanding to withhold sale of some of the ANZ shares on offer, following weak initial uptake from the market.

In particular, it alleged that this understanding, being between competitors, infringed two strands of the Australian cartel provisions by: (1) preventing, restricting or limiting the supply/sale of ANZ shares and/or (2) controlling or maintaining the price of those ANZ shares sold to purchasers on securities exchanges. In relation to a separate set of meetings, the CDPP charges suggested that the three underwriters agreed to restrict trading in ANZ shares on that day so that, by the end of the trading day, they would not have reduced their respective net holdings of ANZ shares.

The investigation was primarily led by the Australian Competition and Consumer Commission (ACCC), which referred the case to the CDPP in mid-2017. In June 2018, the CDPP laid criminal cartel charges against Citigroup, Deutsche Bank and ANZ, as well as six of their executives.

JP Morgan and several of its employees were granted immunity from prosecution in return for assisting the authorities in the case. In August of last year, the CDPP abandoned charges against Citigroup’s former chair. Subsequently, charges against ANZ and its former treasurer were dropped in November, significantly narrowing the scope of the CDPP’s case.

The CDPP has now withdrawn the remaining charges against Citigroup, Deutsche Bank and their executives, stating that “there were no longer reasonable prospects of conviction”.

The proceedings had been criticised, including by a Federal Court of Australia judge presiding over them, as being long and drawn out. The judge noted, back in November, that it was “an entirely unsatisfactory state of affairs” that the indictment was still insufficiently particularised over three years after the first charges were made and only six months before the trial was due to commence. These issues may well have contributed to the withdrawal of the charges. However, the CDPP has not specified the ultimate reasons behind its decision.

The result is clearly a welcome one for the banks and individuals charged, and for the industry more widely. It does, however, leave some uncertainty as to whether this type of conduct may give rise to antitrust issues, and whether the ACCC will refer similar criminal cases to the CDPP, in future. In the meantime, outgoing ACCC Chair Rod Sims commented that “[the ACCC] respect[s] the independent decision of the CDPP, and with them will consider what lessons can be learnt from this matter”.

Sims will be replaced by incoming ACCC Chair Gina Cass-Gottlieb in March. The detection, deterrence and prosecution of cartels is likely to remain an ACCC priority under her leadership.

Industrial & Manufacturing

Tyre manufacturers and trade association fined for price-fixing cartel in India

The recent publication of a decision by the Competition Commission of India (CCI) highlights the importance of having robust safeguards in place to minimise the risk of anti-competitive conduct via trade associations. The CCI imposed INR18.72bn (over EUR200m) fines on five Indian tyre manufacturers and trade association the Automotive Tyre Manufacturers Association (ATMA) for participating in a price-fixing cartel. Certain individuals of the tyre companies and ATMA were also found liable and fined 5% of their average income over a three-year period.

The CCI concluded that the tyre manufacturers acted through ATMA to increase the prices of cross-ply and bias tyre variants sold in the replacement market and to limit and control their production and supply. They had exchanged price-sensitive data through ATMA’s platform and had taken collective decisions on tyre prices.

The CCI also found that ATMA had collected and compiled company- and market-related data on production, domestic sales and the export of tyres on a real-time basis, which made the coordination easier.

In addition to the fines, the CCI directed ATMA to “disengage and disassociate itself” from collecting wholesale and retail prices from its member companies.

The CCI order was actually dated back in 2018. It has now been released after the Supreme Court in India and the Madras High Court earlier this year dismissed pleas filed by two tyre manufacturers challenging the validity of the antitrust inquiry and the fine imposed.

The case confirms the continued enforcement focus of the CCI on the activities of trade associations. In January, it reprimanded the National Egg Coordination Committee, an association of Indian poultry farmers, for fixing the price of eggs (although it did not impose a fine). In November last year, the CCI fined a number of paper manufacturers and trade association Indian Agro & Recycled Paper Association for participating in a price-fixing cartel. Similar to the tyre case, the association provided a platform to discuss prices and coordinate increases.

Participation in trade associations is a legitimate and beneficial way for companies to discuss generic industry issues. However, they should be mindful of the potential antitrust risks, particularly when attending trade association meetings. Companies should avoid exchanging competitively sensitive information and should never discuss or agree pricing plans or commercial strategies. Before submitting data or information to a trade association, they should check that any resulting reports or output will be sufficiently aggregated.

Life Sciences

UK antitrust authority fines pharma and private equity firms for market-sharing arrangement

Private equity firms may be held jointly liable for the anti-competitive conduct of their portfolio companies. In the UK, this has been most apparent in the pharma sector.

This month, the UK Competition and Markets Authority (CMA) fined several firms a total of over GBP35m for an illegal arrangement in the supply of prescription-only anti-nausea drug prochlorperazine. For just over a year of the alleged five-year market-sharing arrangement, a PE firm indirectly owned one of the pharma distributors involved. As a consequence, it is jointly and severally liable for a GBP6.7m penalty.

Under the arrangement, Alliance Pharmaceuticals appointed Focus to distribute prochlorperazine tablets to the NHS. Lexon and Medreich were paid a share of the profits that Focus earned selling the tablets. In return, they agreed not to compete in the supply of the tablets in the UK, even though they had previously taken steps to launch their own jointly-developed version of the drug and Medreich obtained a licence to supply it.

PE firms have been caught up in other CMA pharma investigations: hydrocortisone tablets and liothyronine tablets. Last July they were found liable for the excessive and unfair pricing and/or market-sharing conduct of firms that they previously owned, for the period of their ownership.

It is likely that antitrust authorities worldwide will take a similar approach to past and present PE firm owners in other sectors too. In January 2021, the European Court of Justice upheld the European Commission’s decision to find a PE firm liable for Prysmian’s involvement in a power cables cartel. Our article on the ruling highlights the high bar it sets for investors to show that they do not exercise decisive influence over ‒ and therefore should not be held liable for the antitrust infringements of ‒ their portfolio companies.

PE firms should take steps to manage their antitrust risk. This would include putting in place effective compliance programs for all their portfolio companies as well as reviewing and monitoring the implementation of compliance policies and systems. Audits pre- and post-acquisition would also help to identify potential issues and the need for mitigation strategies.

About your editor 

Kristina is a partner in our global antitrust team, based in London and Brussels. She has a broad EU antitrust, litigation and regulatory practice, with a particular focus on Big Tech and life sciences. She has worked in New York and Brussels as well as London, and has over 23 years of experience of using her advocacy skills to represent a broad range of U.S. and other international clients on antitrust investigations, challenges and complaints before the European Commission and on high-profile proceedings before the EU courts in Luxembourg. She also has extensive expertise in EU state aid law, particularly in relation to corporate tax measures.

Kristina was actively involved in the European Commission’s e-commerce sector inquiry and advises numerous online marketplaces and technology platforms on digital and fintech regulation and EU antitrust matters. She has acted for clients in many of the recent and ongoing antitrust investigations relating to app stores, online marketplace restrictions, and self-preferencing practices. She also advises clients on the business impact of key EU legislative developments in the sector, such as the Digital Markets Act.

Kristina is an acknowledged thought leader in the antitrust field and regularly writes and speaks on antitrust issues, with a forthcoming speaking engagement at GCR’s annual TMT conference on 15 March. She is a trustee of the Academy of European Law, a member of the IBA Antitrust Committee, and is on the editorial board of various antitrust and specialist regulatory publications, including Global Competition Review. In 2008, she founded the Women’s Competition Network, an international professional discussion and networking forum for senior competition law and policy professionals, with a membership of over 2,000 women. Kristina is qualified in New York, Brussels and Sweden.

Spotlight on Kristina

A typical working day involves…. too many extra shot cappuccinos while doing emails and calls, sun and a run in the park, challenging discussions with wonderful colleagues and hopefully solving a problem or two for busy clients keeping them out of trouble!

If I hadn’t become an antitrust lawyer, I would be…. still working in human rights on war crimes cases… or maybe quitting the law to run a contemporary art gallery.

The best career advice I’ve been given is…. you are nothing without your team – being able to delegate to smart and competent associates is the key to success – a friend and mentor once said “I only spend time doing things that only I can do”.

The most interesting case I’ve worked on is …. I am fortunate because there are many. An early highlight was the Akzo case on in-house counsel privilege – I was part of the team representing the in-house lawyer association ECLA and the hearing in the Grand Chamber of the Court of Justice was attended by U.S. Supreme Court Justices Roberts, Ginsburg and Breyer.

For me, being a good lawyer/advisor means…. listening to the client and finding solutions using many tools. In high-profile antitrust cases the law is only part of the puzzle – getting a good result will often depend on understanding the regulator, policy and enforcement trends and a robust economic analysis.

Something I’d like to do but haven’t yet done is…. parachute jumping.

My ideal weekend in two sentences…. some nature, some physical exercise, and fun times with my friends and teenage daughters. And a romantic dinner out.

My typical weekend in two sentences…. some nature, some physical exercise, and fun times with my friends and teenage daughters. And a romantic… take-out.

Something that might surprise you about me is…. as a teenager I grew up in Louisville, Kentucky.

My top tip for visitors to Brussels (now that travel restrictions appear to be easing) is…. have a ‘moelleux au chocolat’ for dessert, stroll through the Sablon, and visit the Comic Strip museum.