Antitrust in focus - January 2021

Philip Mansfield, global co-head of the antitrust team, is our editor this month. He has selected:

General

• Antitrust and Brexit – where does the UK stand?
• Behavioural remedies address European Commission merger control concerns
• ECJ confirms that financial investors can be liable for antitrust infringements of portfolio firms
• European Commission seeks to support collective bargaining agreements for self-employed
• U.S. DOJ ramps up enforcement of no-poach agreements with criminal charges
• Thai competition law has unprecedented year
  
  

Consumer & Retail

• Portuguese antitrust authority issues its first hub-and-spoke cartel fine
  
  

Digital & TMT

• New German antitrust rules focussing on the digital economy come into force
• UK eyes up impact of algorithms and calls on businesses to be ready to explain how their algorithmic systems work
• The use of consortia to deliver digital innovation: key areas to consider
  
  

Industrial & Manufacturing

• Innovation commitments ease ceramic tiling deal through Spanish merger control
  
  

General

Antitrust and Brexit – where does the UK stand?

The Brexit transition period is now over. This means significant changes to the application of antitrust and merger control rules in the UK. In summary: companies active in the UK and the EU are now subject to parallel regimes, with the UK’s Competition and Markets Authority (CMA) having the ability to review (potentially identical) transactions and behaviour alongside the European Commission. 

The UK Government is also gearing up to establish a brand new UK subsidy control regime, and given that the UK more generally now has new freedom to set its own enforcement and policy agenda, there are some interesting times ahead. 

See our alert to learn more about what the end of the Brexit transition period means for merger control, antitrust investigations and enforcement and State aid/subsidies, and how this is likely to impact business. 

Behavioural remedies address European Commission merger control concerns

The European Commission (EC) has traditionally favoured structural solutions to address concerns raised by mergers on the basis that divestment offers a one-off long-term resolution and does not require medium or long-term monitoring measures. The EC is not alone in this approach, with the U.S. antitrust agencies, for example, sharing this preference for structural remedies. Nonetheless, it is clear that the EC is willing to accept behavioural commitments where appropriate, with three recent examples, each following a phase 2 investigation: 

• Google / Fitbit: The EC was concerned that the combination of the parties’ complementary activities would harm competition in several markets: advertising, access to Web Application Programming Interface (API) in the market for digital healthcare and wrist-worn wearable devices. It accepted a set of behavioural commitments that determine how Google can use the data collected for ad purposes, how interoperability between competing wearables and Android will be safeguarded and how users can continue to share health and fitness data if they wish to. The remedies will be in place for ten years, with the ads commitment extendable for a further ten years.
  
  Antitrust authorities in certain other jurisdictions, including Japan and South Africa, quickly followed suit with their clearances conditional on similar remedies. However, the Australian Competition and Consumer Commission (ACCC) rejected the behavioural undertakings Google offered since it was not convinced that long-term behavioural undertakings in such a complex and dynamic industry could be effectively monitored and enforced in Australia. With the parties subsequently completing the transaction, the ACCC has switched from carrying out a public informal review of the deal to an official investigation. In the U.S., the Department of Justice’s investigation is also ongoing.
  
  
• Fiat Chrysler Automobiles (FCA) / Peugeot S.A. (PSA): To address concerns that the merger would have harmed competition in the market for small light commercial vehicles in nine EEA Member States, the EC accepted a package of remedies aimed at enabling entry and expansion by existing and new rival automotive companies. First, an extension of a PSA-Toyota cooperation agreement by increasing available capacity for Toyota and reducing transfer prices for vehicles and associated spare parts/accessories. Second, an amendment of the “repair and maintenance” agreements in force between PSA, FCA and their repairer networks to facilitate access for competitors to those networks.

• LSEG / Refinitiv: This case involved both structural and behavioural remedies. Alongside a divestment of LSEG’s 99.9% stake in the Borsa Italiana group to address horizontal concerns in electronic trading of European Government Bonds, the EC accepted ten-year behavioural remedies to plug vertical concerns. These commitments will ensure LSEG continues to offer its dealer-to-customer over-the-counter interest-rate derivatives clearing services performed by LCH Swapclear on an open access, non-discriminatory basis. And they will ensure LSEG continues to provide access to certain data, indices and benchmarks to existing and future downstream competitors on a non-discriminatory basis and with internal information barriers in place between its businesses.

Further details about how the EC’s recent approach to behavioural remedies compares to other jurisdictions across the globe will be provided in our forthcoming Global Trends in Merger Control Enforcement report.

ECJ confirms that financial investors can be liable for antitrust infringements of portfolio firms

The EU’s top court has confirmed that financial investors, including private equity businesses, can be held liable for competition law infringements committed by one of their portfolio companies. In 2014, the European Commission (EC) fined Prysmian EUR104.6m for its role in the high voltage power cable cartel. The EC found that a private equity investor, which for a four year period during the time of the cartel held an indirect interest in Prysmian through a fund and other intermediate companies, was jointly and severally liable for EUR37.3m. 
The investor appealed, claiming it was a pure financial investor and not a parent company, and therefore should not be held liable for Prysmian’s conduct. The General Court disagreed, confirming the EC’s decision. The European Court of Justice (ECJ) has now dismissed the investor’s appeal to it and upheld the General Court’s ruling.

There are two key takeaways from the ECJ’s judgment. First, it confirmed that the presumption that a parent exercises decisive influence over its subsidiary (meaning that it can be held liable for that subsidiary’s conduct) can be applied not only where the parent holds all (or virtually all) of the capital of the subsidiary, but also where it holds all of the voting rights associated with a subsidiary’s shares. It therefore did not matter that the investor’s stake in Prysmian during the relevant period fell to around 91% and then approximately 84% – the presumption could still be applied because the investor retained 100% of the voting rights throughout. The ECJ also upheld the General Court’s findings that the investor had not succeeded in rebutting that presumption.

The second key part of the ruling relates to the period following an IPO, when the investor’s stake was reduced further to less than 50%. The EC found (and the General Court agreed) that the investor continued to exercise decisive influence over Prysmian and therefore remained responsible for its conduct. This was based on a number of factors, including that the investor had the power to appoint various members of the Prysmian board, to propose the revocation of directors, and had links with at least 50% of the board. The investor argued that the General Court was wrong to find that it had the required level of board representation to influence Prysmian’s market conduct.

The ECJ again sided with the General Court. In particular, the ECJ confirmed that personal links between companies could be relevant when establishing whether the parent is able to exercise decisive influence over a subsidiary. So can a situation where a board member is connected to another firm by means of “previous advisory services” or “consultancy agreements”. And it held that the General Court was right in its assessment of these links and other factors when upholding the EC’s decision in this case. 

This is an important judgment for financial investors. It sets a high bar 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. It now remains to be seen whether the ruling will give the EC renewed confidence to bring more financial investors into the scope of its fining decisions.

European Commission seeks to support collective bargaining agreements for self-employed

A year ago the OECD published a report noting that a growing number of self-employed individuals suffer from a position of unbalanced negotiation power vis-à-vis certain firms and buyers of labour with monopsony power, leading them to be price-takers and to have little say over their working conditions. Collective bargaining by these individuals could improve their position, but such cooperation between the self-employed (unlike between employers and their employees) risks breaching EU rules on anti-competitive agreements. 

To address this problem, the European Commission (EC) has now started an initiative ‒ commencing with an inception impact assessment ‒ to provide legal certainty about the application of EU antitrust rules to collective bargaining by the self-employed. 

It is seeking feedback on the potential categories of worker that may fall within the scope of the initiative. There are four policy options under consideration:

• Option 1: all solo self-employed (ie self-employed workers who do not employ anyone else) providing their own labour through digital platforms.
• Option 2: all solo self-employed providing their own labour through digital platforms or to professional customers of a certain minimum size (ie broader than option 1, to also include traditional professions in the ‘off-line’ economy).
• Option 3: all solo self-employed providing their own labour through digital platforms or to professional customers of any size, except regulated (and liberal) professions.
• Option 4: all solo self-employed providing their own labour through digital platforms or to professional customers of any size.

Importantly, the initiative does not cover all conduct. The EC has proposed that collective negotiations/agreements concerning trading conditions (such as prices charged) relating to private consumers and unilateral price fixing would remain in the scope of the antitrust rules. 

The EC’s initial consultation is open until 3 February 2021. A more detailed consultation will be launched in the first half of the year, with a view to adopting a Regulation or Communication in the second quarter of 2022. 

U.S. DOJ ramps up enforcement of no-poach agreements with criminal charges 

This month has seen the U.S. Department of Justice’s (DOJ) first publicly filed criminal antitrust case targeting agreements between competitors to not solicit or hire each other’s employees. A Texas federal court jury has returned a two-count indictment charging a subsidiary of UnitedHealth Group, Surgical Care Affiliates (SCA), for separately agreeing not to solicit senior-level employees with two unnamed rival healthcare companies. 

The DOJ and U.S. Federal Trade Commission have previously dealt with such cases as civil matters despite having the option of bringing criminal prosecutions against both individuals and companies (which could result in criminal fines and jail time) and even though they stated, in 2016 guidance, that they intended to criminally investigate such conduct. 

Notably, the DOJ states that these are the agency’s “first charges in this ongoing investigation into employee allocation agreements”. Indeed, there may well be additional cases in the pipeline, as finding a “no poach” case has been a DOJ priority for several years. It will be interesting to see whether these types of cases will remain a high priority as the DOJ leadership changes with the installation of a new administration in January. But, for now, the significance of the DOJ’s continued commitment to criminally prosecute ‘naked’ collusion in the U.S.’s labour markets ‒ whether to fix wages or to agree no-poach arrangements ‒ will not be lost on corporates’ compliance teams across all industries.

Thai competition law has unprecedented year 

2020 was a ground-breaking year for Thai competition law. We saw a surge of interest in merger control enforcement, much of which centred on the CP Group/Tesco Lotus transaction – a landmark case cleared with behavioural remedies (Allen & Overy acted as co-counsel to Tesco). On top of this, the authority has continued its focus on industry-specific unfair practices and we saw amendments to the dominance thresholds. 

See our alert for more on these developments, as well as what to look out for in 2021. 

Consumer & Retail

Portuguese antitrust authority issues its first hub-and-spoke cartel fine

In two December 2020 cartel decisions, the Portuguese antitrust authority (AdC) imposed a total fine of around EUR304m on six large supermarket chains and two drinks suppliers (Sociedade Central de Cervejas and Primedrinks) for fixing the retail prices for the suppliers’ products. It found that the rival supermarket ‘spokes’ aligned their sales prices to the public, through their use of and communications with a common ‘hub’ supplier ‒ raising prices gradually and progressively ‒ without the need for direct contact between them. The authority claims that emails calling for the destruction of evidence revealed the companies’ awareness of the illegality of their actions. And it states that the companies monitored the concerted price with threats, retaliations and conditional discounts addressed to those that resisted or deviated from the alignment. 

Notably, individuals involved in the cartel have also been penalised: the AdC fined not only a business unit director of one of the retailers (Modelo Continente) but also a board member of one of the suppliers for their part in the arrangement. 

The decision is significant. First, the total fines are the highest the AdC has ever imposed for any antitrust infringement and two of the retailers’ individual sanctions top those previously imposed on a single company. Second, the decision is a ‘hub-and-spoke’ first for the AdC and potentially the start of a string of further such fines in the retail sector. After carrying out unannounced inspections at the premises of 44 entities in 2017, the authority has now progressed to issuing seven statements of objections for hub-and-spoke practices involving the supply of spirits and other drinks, packaged bread and cakes and personal care, beauty and cosmetic products. 

The AdC’s enforcement zeal stands out: given the difficulties involved in proving anti-competitive intention and knowledge as well as the flow of commercially sensitive information, hub-and-spoke cases are relatively rare. There are some other recent examples, however. As we reported in our September 2020 edition of Antitrust in focus, the Dutch competition authority concluded its first case last year with record fines on four cigarette manufacturers for sharing pack price lists through wholesalers.

Digital & TMT 

New German antitrust rules focussing on the digital economy come into force

This month a new piece of legislation entered into force in Germany. It makes a number of significant amendments to the country’s antitrust law, most notably in the field of digital markets. First and foremost, a new instrument for regulating abuse of market power below the level of market dominance will allow the German Federal Cartel Office (FCO) to react more quickly to an alleged build-up of market power in the digital sector. In addition, data access regulations aim to promote innovation and keep markets open. 

But the new law also impacts other aspects of antitrust enforcement which will be felt in and beyond the digital economy. The legislation lowers the requirements for the FCO to make interim measures. It raises the potential fines the FCO may impose for procedural breaches, such as delays in the submission of requested information and obstructing an investigation. It smooths the path to follow-on damages actions through the transposition of the ECN+ Directive. And, in merger control, amongst other things it raises the previously very low domestic turnover thresholds, with the anticipated result that the FCO’s caseload will be reduced by over 20%.

Our alert takes you through the key new features and our thoughts on their impact in practice.

UK eyes up impact of algorithms and calls on businesses to be ready to explain how their algorithmic systems work

To date, there are few examples of antitrust authorities taking enforcement action in relation to conduct involving algorithms. In particular, we have seen mixed signals from authorities on whether any such action should focus only on the use of algorithms to facilitate a ‘traditional’ antitrust infringement between market players, such as price fixing or resale price maintenance (see, eg, the Trod/GB eye online posters decision in the UK), or whether it should go further – to challenge potentially anti-competitive interaction between algorithms without human direction.

These issues are, however, on the authorities’ radar – a joint study prepared by the French and German antitrust authorities, for example, was published in late 2019 (see our Antitrust in focus commentary). Most recently, the UK’s Competition and Markets Authority (CMA) has published a research paper on how the use of algorithms potentially harms competition and consumers.

The paper builds on a more limited study into pricing algorithms published by the CMA in 2018, which concluded that algorithms can be used to help implement illegal price fixing and, under certain circumstances, could encourage the formation of cartels. The 2021 publication focusses on the harms that national antitrust or consumer authorities may be best placed to address ‒ personalisation, discrimination, self-preferencing, and collusion including possible hub and spoke, for example ‒ and techniques to investigate those harms.

At the same time, the CMA launched an “Analysing Algorithms Programme” under which it will work with a number of other regulators (including the Information Commissioner’s Office, the Financial Conduct Authority and Ofcom) to identify problem markets and firms, set standards and determine how algorithms should be audited. And it hopes that a call for information, open until 16 March 2021, will provide evidence of deliberate or unintended algorithmic misuse.

Intelligence gathered will inform the CMA’s future digital markets work, including the operation of the forthcoming Digital Markets Unit and the proposed new regulatory regime that the unit will oversee (see our November 2020 alert). Formal antitrust and consumer investigations, market studies and/or market investigations are mooted. Any subsequent remedies would be context-specific but could include the disclosure of information on algorithmic systems to consumers, audits, the submission of compliance reports and enforced changes to the design and operation of algorithmic systems.

For now, the CMA encourages transparency. Pointing to ICO guidance, it suggests that, in preparation for potential regulatory intervention, companies should keep records explaining how their algorithmic systems work (however complex or AI-reliant) and be ready to be held responsible for the outcomes of their algorithms, especially if they result in anti-competitive or unethical outcomes.

The use of consortia to deliver digital innovation: key areas to consider

There are clear benefits to organisations collaborating to push innovation or build new business models. However, realising these benefits while also mitigating any possible risks requires careful thought right from the initial planning stage. See our article on some of the key areas to consider, including how to avoid anti-competitive information exchange and a reminder of the impact that any merger control filings may have on the transaction timetable. 

Industrial & Manufacturing 

Innovation commitments ease ceramic tiling deal through Spanish merger control

Late December saw Pigments Spain win approval for its acquisition of Ferro’s tile coating business from both the Portuguese and Spanish antitrust authorities. However, clearance came at a price.

First, the Portuguese antitrust authority (AdC) raised concerns that the merger would lead to a deterioration in price, quality or variety of essential inputs to the ceramic floor and tile industry in Portugal. In response, Pigments agreed to divest assets acquired in Portugal to a third party.

Second, the Spanish antitrust authority (CNMC) raised objections to the deal. It found that Pigments would become the market leader in the ceramic tile sector in Spain with market shares close to 50% in the frits, enamels and digital inks markets. It also discovered that innovation is key to the sector, with companies increasingly competing on innovation rather than price. And the combination of two large suppliers, the CNMC says, threatens future innovation, since it is the larger suppliers that innovate more and the parties are two of the largest actors in terms of R&D. A fairly novel solution was struck. Pigments will report to the CNMC on the status and progress of its existing R&D projects every six months. In addition, Pigments will not be able to discontinue or consolidate any R&D project, nor reduce the annual budget assigned to an R&D project by more than a certain amount, without prior CNMC consent. Although the CNMC has shown in the past its willingness to accept behavioural remedies, the package accepted in this case is innovative since it exclusively relates to R&D activities. 

The case also highlights how authorities investigating the same transaction can differ in their approach to remedies. The CNMC and AdC usually cooperate closely. But here, while the CNMC opted to accept a more innovative remedy package based on behavioural remedies, the AdC seems to have taken the more traditional approach of focussing on structural solutions.

A&O antitrust team in publication

Recent publications by members of our global team include:

• Antonio Martinez (Partner, Madrid): Chapters on the sanctioning regime of the Spanish Competition Act, Comentario a la Ley de defensa de la competencia y a los preceptos sobre la organización y procedimientos de la Ley de creación de la Comisión Nacional de los Mercados y la Competencia, 6th edition, Thomson Reuters, December 2020
• Heiner Mecklenburg (Senior Associate, Hamburg): Rückkehr des Warehousing?, Wirtschaft und Wettbewerb, 22.01.2021, WUW1356217
• Nele De Backer (Associate, Brussels), Amelie Legein (Associate, Brussels), Eliana Paredis (Associate, Brussels): Belgium/Commentary – Competition Law in Western Europe and the USA, Kluwer Law International, Supplement No. 436, December 2020, pp. B.C - I - B.C – 34