Antitrust in focus - January 2023
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This newsletter is a summary of the antitrust developments we think are most interesting to your business. Ioannis Thanos, counsel in Hamburg, is our editor this month (learn more about Ioannis in our Q&A feature at the end of the newsletter). He has selected:
- EU Foreign Subsidies Regulation enters into force
- German Federal Court of Justice clarifies interplay between arbitration awards and antitrust rules
- ECJ provides guidance on abuse of dominance assessment of exclusivity clauses in distribution agreements
- U.S. antitrust changes include eight-fold increase in merger filing fees for largest deals
- Dawn raids conducted in various industries across Asia Pacific
- Recent Australian cartel cases show consequences for individuals can be severe
- Significant amendments to Hungarian merger control rules enter into force
- European Commission consults on Digital Markets Act implementing rules
- German FCO sends Google a statement of objections relating to its data processing terms
- European Commission fines styrene purchasing cartel
- European Commission concerns lead to four abandoned transactions in 2022
As announced in the November edition of Antitrust in focus, the EU Foreign Subsides Regulation, which will regulate subsidies granted by non-EU countries, entered into force on 12 January 2023. The majority of its provisions will apply from 12 July 2023, with the notification obligation for M&A and public tenders becoming applicable on 12 October 2023.
In our alert, you can read about the obligations the regulation will impose and its implications for businesses.
In a decision published in December 2022, the German Federal Court of Justice (FCJ) clarified that ordinary courts can fully review the compatibility of arbitration awards with antitrust rules. Previously, several appeal courts, including the appeal court in the case at hand, had found that only a very limited review of arbitral awards on the basis of antitrust rules was possible.
The underlying dispute concerned the allegedly illegal termination of a long-term lease agreement for a quarry in 2018. The German Federal Cartel Office (FCO) had previously found that the original termination of the lease, and the lessor’s attempts to persuade the leaseholder to sell the assets to a competitor operating another quarry on land owned by the leaseholder, violated the German Act against Restraints of Competition (ARC). Pursuant to the ARC, a company may not threaten to disadvantage another company in order to induce them into conduct prohibited by German or EU antitrust rules, nor compel companies to merge.
The German Code of Civil Procedure provides that an ordinary court may annul an arbitration award if it finds that the recognition or enforcement of that award will be contrary to public policy. According to FCJ case law, an arbitration award violates public policy if its recognition or enforcement leads to a result that is manifestly incompatible with basic principles of German law.
The FCJ has now confirmed that the ARC provisions prohibiting the abuse of a dominant position or superior market power and boycotting constitute fundamental rules of German antitrust law and the German legal order. It can therefore be presumed that the recognition and enforcement of an arbitration award that misapplies those rules leads to a result that is manifestly in breach of fundamental principles of German law and violates public policy.
In particular, according to the FCJ, it is necessary for courts to undertake a full review of the arbitration award. Antitrust cases usually involve complex factual and legal assessments and so limiting the review to only manifest violations would limit the ability of parties to enforce their rights. The decision effectively brings arbitration awards with an antitrust angle under the jurisdiction of German ordinary courts.
ECJ provides guidance on abuse of dominance assessment of exclusivity clauses in distribution agreements
The European Court of Justice (ECJ) has ruled on questions referred to it by an Italian court, concerning an Italian antitrust authority decision to fine Unilever EUR60 million for abuse of dominance.
The cases relates to the imposition of exclusivity clauses by independent distributors of Unilever ice creams. The ECJ’s ruling has significant implications for the future assessment of such clauses in the EU.
First, the ECJ clarified when the abusive conduct of distributors forming part of a distribution network of a producer in a dominant position may be imputed to that producer.
It ruled that the distributors’ actions must form part of a commercial policy decided unilaterally by the producer and implemented through its distributors. In this situation, the distributors will be viewed as “merely an instrument of territorial implementation” of the producer’s policy.
Second, the ECJ confirmed how antitrust authorities can find that exclusivity clauses in distribution contracts are abusive.
According to the court, authorities must establish, on the basis of tangible evidence, that the clauses are capable of restricting competition. They must conduct that analysis in light of all the relevant factual circumstances. However, the ECJ reiterated that authorities do not necessarily need to show that the exclusivity provisions have an actual anti-competitive effect.
The antitrust authorities’ analysis must also take into account any evidence produced by the dominant company. The ECJ held that where a dominant firm submits economic analysis as evidence of the inability of the conduct to produce restrictive effects, eg a study which shows it is not capable of excluding an “as efficient competitor” (AEC), authorities are obliged to examine those submissions and assess the probative value of the results. They cannot exclude the relevance of the studies without giving clear reasons.
Finally, the ECJ ruled that antitrust authorities are not obliged to use the AEC test in order to find that a practice is abusive. It acknowledged that such a test may not always be appropriate and it is only one of a number of methods for assessing whether conduct is capable of producing exclusionary effects.
In short, the ECJ has extended the reasoning set out in its landmark 2017 Intel judgment ‒ relating to the analysis of rebates ‒ to exclusivity clauses. This is welcome news for dominant companies facing probes over exclusivity provisions in the EU. They will take heart from the fact that any economic evidence they put forward must be fully assessed by the antitrust authorities. From the authorities’ perspective, the ruling confirms they have a degree of discretion over which economic test they can use when assessing potential abuse.
At the end of December 2022, a spending bill was signed into law that includes a number of antitrust provisions. Most significantly, the legislation:
- Boosts the resources allocated to the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division by an additional USD50m and USD30m respectively in the new fiscal year.
- Substantially increases the premerger filing fees for deals valued at or above USD1 billion. In particular, deals valued at USD5bn or more will pay a USD2.25m filing fee, which amounts to an eight-fold increase over the largest currently applicable fee.
- Requires merging parties to disclose in detail in a Hart-Scott-Rodino Act filing the involvement of certain foreign entities ‒ including those controlled by the governments of China, Russia, Iran and North Korea ‒ in the transaction or its funding.
- Gives state antitrust enforcers additional powers to choose the venue in which to pursue antitrust actions.
Our alert provides more detail on the implications of these changes.
In terms of timing, the new filing fees will take effect from 27 February 2023. We expect the other elements of the bill to come into force over the course of this year.
Also effective from 27 February are updated thresholds for premerger notifications. These are revised annually based on the change in gross national product. The FTC has also set the 2023 thresholds that trigger prohibitions on certain interlocking directorates. You can read about these developments in this alert.
During the course of 2022, we saw an increase in the number of dawn raids being conducted by antitrust authorities across the globe as the impact of the Covid-19 pandemic subsided and the authorities returned to ‘business as usual’. We reported on the trend in our April 2022 edition of Antitrust in focus.
In the last couple of months, the surge in inspections has been most notable in the Asia Pacific region where dawn raids have taken place in a wide array of sectors. For example, raids have been reported in:
- Japan, in relation to alleged (i) rigging of tenders for 2020 Tokyo Olympics and Paralympics test events, (ii) tying of the use of a disinfectant to endoscope sterilisers, and (iii) rigging bids for a city‑run school lunch program.
- India, in relation to alleged (i) price-fixing in the steel industry and (ii) antitrust concerns in the cement sector.
- Hong Kong, in relation to suspected anti-competitive practices, including price-fixing, output limitation and group boycott, by fish wholesalers.
This development is in line with the uptick in raids in Europe, where a shift to home and hybrid working has also opened up the possibility of inspections at domestic premises.
For more commentary on these trends, look out for our upcoming Global antitrust enforcement report.
Enforcement action against cartel conduct in Australia can take the form of either civil proceedings or criminal prosecution. Under both routes, individuals as well as companies can face severe consequences. Two recent cases show the Australian Competition and Consumer Commission (ACCC)’s continued appetite to investigate and pursue suspected cartel conduct, including more recently sanctions against individuals.
In late November 2022, the Federal Court sentenced pharmaceutical firm Alkaloids of Australia and its former export manager for a range of cartel conduct. This included price fixing, bid rigging, output restriction and market allocation in relation to the supply of an active pharmaceutical ingredient used in anti-spasmodic medications.
Alkaloids was fined nearly AUD2m (EUR1.3m). The former manager was sentenced to two years and eight months in prison, but will serve his sentence as an “intensive corrections order”, including 400 hours of community service. He was also disqualified from managing a corporation for a period of five years and fined AUD50,000.
The ACCC notes that this is the longest sentence of imprisonment imposed on an individual under the criminal cartel rules so far. However, the first individuals sentenced for cartel conduct were only convicted in June 2022 in connection with the payment remittance business, Vina Money.
Just two weeks after the judgment in Alkaloids, in civil cartel proceedings brought by the ACCC, the Federal Court found that BlueScope Steel Limited and an individual had engaged in cartel conduct in relation to steel products.
In particular, the Court found that BlueScope and its former general manager of sales and marketing attempted to induce eight steel distributors in Australia (plus an overseas manufacturer) to enter into agreements that would fix and/or raise the level of pricing for flat steel products supplied in Australia.
A hearing on penalties will take place in April 2023. The ACCC is seeking fines for both BlueScope and the former manager. It is also pursuing an order to disqualify the individual from managing corporations for a set period to be determined by the Court.
Significantly, this case also serves as a warning that the ACCC is willing to bring enforcement action against attempted ‒ albeit unsuccessful ‒ cartel conduct. The Court did not consider it a defence that the steel distributors had not agreed to BlueScope’s proposal and had not considered the proposal commercially feasible. The ACCC notes that the decision has the potential to “strengthen its position in future cases of attempted cartel conduct”.
Further enforcement action against individuals and their firms was initiated towards the end of 2022. The ACCC filed civil cartel proceedings against an oil and gas services company, Qteq, and its executive chair for allegedly attempting to induce rivals to enter into cartel arrangements. Criminal charges were also lodged against waste management company Aussie Skips and its chief executive over an alleged price-fixing agreement.
We expect that cartel enforcement will continue to be a major priority for the ACCC, including taking action against individuals. The recent increase to the maximum penalty for an individual from AUD500,000 to AUD2.5m from 10 November 2022 only serves to raise the stakes for individuals involved in cartel conduct.
On 1 January 2023, a number of changes to the Hungarian merger control rules took effect, including important amendments to the jurisdictional thresholds. In good news for merging parties, the majority of the new rules are intended to reduce red tape and to increase flexibility. Our alert tells you what you need to know.
In December 2022, the European Commission (EC) consulted on the draft implementing regulation of the Digital Markets Act (DMA). The DMA entered into force on 1 November 2022 and will apply from 2 May 2023. It sets out wide-ranging obligations for large online platforms designated by the EC as “gatekeepers”. The draft implementing regulation lays down rules concerning the procedural aspects of the DMA, including:
- notification forms and content requirements
- the opening of proceedings under the DMA
- exercising the right to be heard (access to file, disclosure of information etc)
- time limits
Find out more about the DMA and the draft implementing regulation in our alert.
Late last year, the German Federal Cartel Office (FCO) shared with Google its preliminary view that Google’s data processing conditions are likely to fall foul of section 19a (2) of the German Act against Restraints of Competition.
Under this provision, the FCO can determine that an undertaking active on platform and network markets has paramount significance for competition across markets. Once designated, the addressee can be prohibited from engaging in certain types of behaviour set out in the provision. The FCO had already determined in December 2021 that Google is of paramount significance for competition across markets.
According to the FCO, Google collects, combines and processes a variety of internet users’ data, both from its own services such as Search, Maps and YouTube, and also from third party websites and apps that use so-called Google background services. Google then uses the data, eg for online advertising or for training and improvement of its services.
The FCO has provisionally concluded that users do not have sufficient choice as to whether and to what extent they agree to this data processing across services. The FCO argues that users should be able to limit data processing to the specific service used and differentiate between the purposes for which the data are processed. The FCO also considers that the choices offered must not be devised in a way that induces users to consent to data processing across services.
Against this backdrop, the FCO intends to require Google to change its data processing terms and associated practices. However, Google may avoid any change to its data processing terms if it can show that there is an objective justification for them.
Significantly, and as the FCO itself notes, this German proceeding exceeds the future requirements of the European Digital Markets Act (DMA) given that the DMA will apply data processing obligations only to so‑called core platform services. With the DMA to be enforced exclusively by the European Commission, we expect certain national authorities to take similar independent action in the digital sphere. Further information on the scope and implementation of the DMA is set out in the article above.
In late November, the European Commission (EC) had concluded that six companies had colluded in the styrene monomer merchant market, fining them a total of EUR157m. All six settled, acknowledging their participation and liability.
According to the EC, variously between 2012 and 2018, the companies coordinated their price negotiation strategies prior to and during their bilateral negotiations with styrene sellers on an industry reference price for the product. The EC found that, at the same time, the companies exchanged price-related (ie sensitive commercial) information. The reference price was widely used and often formed part of the pricing formula in styrene supply agreements. The companies’ aim was to influence the negotiations so that they could buy styrene at a lower price.
The case serves as another reminder that antitrust authorities will enforce against collusion in a purchasing market that seeks to lower the price of input products. We reported on EC and French enforcement of purchasing cartels in our July 2020 edition of Antitrust in focus. In fact, Ineos has noted that the EC’s investigation of another chemical-purchasing cartel (in which it was not involved) prompted the company to review its purchasing processes group-wide. That exercise flagged the purchasing practices within the styrene monomer industry. It resulted in Ineos reporting its findings to the EC and ultimately winning full immunity from fines.
Kronospan has decided to abandon its planned acquisition of the Polish subsidiary of Pfleiderer. This follows concerns raised by the European Commission (EC) during its phase 2 merger control investigation and the failure by the parties to submit suitable remedies.
Kronospan and Pfleiderer are suppliers of wood-based panels used for the manufacture of furniture in Europe. The EC opened a phase 2 review into the transaction in April, citing both horizontal and vertical concerns.
According to Executive Vice President Margrethe Vestager, the EC’s in-depth investigation showed that the transaction would limit competition by creating a dominant player for the supply of various types of particleboards around the parties’ production plants in Poland and the Baltics. This would result in higher prices, reduced quality or less choice for customers. While Kronospan offered commitments, Vestager notes they were insufficient to address the EC’s concerns, meaning that it could not clear the transaction.
The Kronospan/Pfleiderer deal marks the fourth transaction abandoned in 2022 due to EC antitrust concerns. The EC formally blocked two other deals. This is twice the number of deals frustrated at EU-level in 2021.
Watch out for more commentary on transactions frustrated by antitrust authorities across the globe in our upcoming Global trends in merger control enforcement report.
In early January, the Federal Trade Commission (FTC) proposed a rule that would prohibit employers from imposing non-compete restrictions on their employees and require employers to rescind any existing non-compete agreements. The proposal envisages only one exception, namely the sale or disposal of a substantial (ie at least 25%) ownership interest in a business.
The FTC seeks to back up this major shift in its enforcement approach with statistics, arguing that non-compete provisions restrict worker mobility, suppress workers’ wages and depress innovation.
However, the proposed ban has met with criticism from Commissioner Wilson, the lone dissenting vote on the FTC, as well as from business groups and other stakeholders. In Commissioner Wilson’s view, the proposed rules constitute a radical and unjustified departure from the FTC’s current practice of subjecting non-compete clauses to a fact-intensive inquiry.
The proposed rule is now out for initial public comment for a period of 60 days. The FTC is in listening mode and may well alter the substance of the rule in response to comments.
Our alert describes in more detail the FTC’s proposed rule and rationale, the criticism levelled at it and our expectations on process, timing and legal challenge.
Notably, just a day before the announcement of the proposal, the FTC for the first time sued to halt unlawful non-compete restrictions. It took legal action against three companies and two individual owners, ordering them to remove non-compete restrictions imposed on thousands of workers. The restrictions prevented workers ‒ including security guards, engineers and glass production workers ‒ from seeking or accepting work with another employer or operating a competing business after they left the companies. Deputy Director of the FTC’s Bureau of Competition, Rahul Rao, warned that “[t]he FTC will continue to investigate, and where appropriate challenge, noncompete restrictions and other restrictive contractual terms that harm workers and competition”.
The FTC’s proposed rule and recent enforcement action is a significant development in U.S. regulators’ targeting of employment agreements containing non-compete obligations. The move falls firmly within the FTC’s renewed efforts to combat unfair methods of competition under Section 5 of the Federal Trade Commission Act, including in labour markets.
A&O Antitrust team in publication
Recent publications/initiatives by members of our global team include:
- Julia Molestina (senior associate, Hamburg): European Commission investigation into Teva’s potential abuse of dominance – misuse of patent procedures and disparagement, Kluwer Competition Law Blog (re-posted from Allen & Overy Life Sciences Hub), 20 December 2022
- Enrique Ferrer (senior associate, Madrid): La aplicación del Derecho de la Competencia al ámbito de las relaciones laborales (Application of Competition Law to labour relations), Revista Comunicaciones No 97, January 2023
Our article The Middle East and North Africa Competition Authorities launch the Arab Competition Network has been shortlisted for this year’s Antitrust Writing Awards. Find out more here.
Ioannis is a counsel in our global antitrust team, based in Hamburg. He advises on EU, German and Greek competition law. His areas of expertise include international, EU and German merger control, cartel proceedings before the European Commission and the Bundeskartellamt, antitrust compliance and distribution law. Ioannis specialises in advising on complex cross-border matters, and regularly handles the merger control and antitrust aspects of international M&A transactions for major corporate and PE clients.
Ioannis is qualified to practise in Germany and Greece. He has studied law at the University of Athens, has a Master’s in European Studies from Tübingen University and a PhD in Antitrust Law from Hamburg University.
A typical working day in Hamburg involves… cycling to and arriving late at the office, enjoying throughout the day three to four espressos from the award-winning office espresso machine, working, catching up with colleagues, leaving late.
If I hadn’t become an antitrust lawyer, I would most probably be… a historian or an archaeologist, either in Greece or in Central America. While in law school, history of law was only a compromise…
The best career advice I’ve been given is… leave no stone unturned (given on my very first day of work as a lawyer by a senior colleague).
The most interesting matter I’ve worked on is… the one yet to come! It is really difficult to single a case out, since each one so far had its own particularities, as well as smaller or bigger challenges. If I had to pick one, I would go for the defence of a steel maker in cartel proceedings before the Bundeskartellamt that were closed without any fine or settlement for the client.
For me, being a good lawyer/advisor means… being truly interested in the client’s issue, asking the right questions, drawing accurate conclusions and communicating them in a simple and comprehensible way.
Something I’d like to do but haven’t yet done is… go to a live Mike Oldfield concert, visit Sicily and Easter Island, learn Arabic – the list could go on and on…
My ideal weekend in two sentences… strolling around the harbourside promenade of Aegina island town, tasting fresh fish in a seaside tavern, visiting art exhibitions, hiking and enjoying the view over the sea and the neighbouring islands.
My typical weekend in two sentences… Saturdays: Getting up early, taking my son to his swimming lesson, running errands; Sundays: Getting up early, spending time with my family, meeting friends, preparing for the week. Think that about covers it.
Something that might surprise you about me is… I really love travelling by ferry (in the distant past, I even made it from Hamburg to London taking the train(s) to Calais, then the ferry to Dover, as one of three foot passengers, and then another train to Victoria Station). My motto: it’s the journey that matters!
My top tip for visitors to Hamburg is… to walk through the Speicherstadt and Hafencity, an area that epitomises Hamburg’s recent history and the importance of maritime trade for the city. Until 1880, it was a densely populated residential area, then was redeveloped as a warehouse district as part of the harbour’s custom-free zone and subsequently, with the advent of containerisation in the shipping industry, redeveloped anew to become one of the most modern residential areas of the town.