Antitrust in focus - May 2021

Charles Pommiès, counsel based in Brussels, is our editor this month (learn more about Charles in our Q&A feature at the end of our newsletter). He has selected:

General

• EU moves forward with foreign subsidies regime
• European Commission drives home risks of procedural merger control breaches with fine on Sigma-Aldrich
• New Spanish law allows for more effective antitrust enforcement
• German court allows lump-sum damages clauses in private follow-on actions
• Court confirms long reach of UK merger control jurisdiction

Consumer & Retail

• Belgian Antitrust Authority accepts divestment commitment to end purchasing alliance investigation

Digital & TMT

• Environmental sustainability concerns feed into Italian decision to sanction Google for Android Auto infringement
• Germany’s Supreme Court rules that Booking.com’s narrow most favoured nation clauses are anti-competitive
• Virgin Media and O2 merger receives unconditional UK Phase 2 clearance

Life Sciences

• Biologics ‒ what to expect in terms of antitrust scrutiny
• Multilateral task force seeks input on approach to pharma mergers

Post

• UK Court of Appeal rules that “as efficient competitor test” is not determinative, dismissing Royal Mail’s abuse of dominance appeal

General

EU moves forward with foreign subsidies regime

The European Commission (EC) has published a draft Regulation aimed at remedying distortions in the EU single market caused by companies receiving subsidies from non-EU entities.

There are three key features to the proposed new regime:

1. A mandatory suspensory filing obligation for certain mergers backed by foreign subsidies – distinct from any filings required under EU merger control/foreign investment control rules.
2. A requirement to notify foreign financial contributions when participating in public procurement tenders over a certain value (with the EC able, in both scenarios 1 and 2, to require notification in situations where it suspects foreign subsidies may have been granted in the previous three years).
3. A wide EC investigative power – with no time limits – regarding any suspected distortion of the single market by foreign subsidies.

Remedial measures, potentially extending to a requirement to sell assets, grant access to infrastructure or license on FRAND terms, could be imposed where the EC finds a foreign subsidy to be distortive.

Growing support in the EU for a more robust approach to alleged subsidies indicates that the draft Regulation is likely to be passed into law. The EC is reportedly hopeful of this being a speedy process.

Our alert, Foreign subsidies under the EU microscope, sets the draft Regulation in context, explains when a subsidy granted by a non-EU entity is likely to be considered distortive and discusses in more detail the three subsidy control mechanisms.

European Commission drives home risks of procedural merger control breaches with fine on Sigma-Aldrich

Our Global trends in merger control enforcement report found antitrust authorities worldwide continuing their strict enforcement of breaches of procedural merger control rules in 2020.

This month, the European Commission (EC) reinforced that message with a EUR7.5million fine on Sigma-Aldrich. The EC claims the chemicals company provided incorrect or misleading information during the EC’s 2015 investigation of its acquisition by Merck. The transaction was approved subject to the divestiture of certain Sigma-Aldrich assets. But the EC later found out that Sigma-Aldrich had failed to disclose an innovation project that was clearly and closely linked to the divested business. The omission occurred three times: in remedy submissions and in replies to two specific information requests. And the EC found indications that the breach by the company was intended to avoid the project being included in the divestment package.

Together with the EC’s 2019 EUR52m fine on General Electric and its 2017 EUR110m fine on Facebook, this case tells us that, to ensure the effective operation of the merger control system, the EC is willing to impose stiff sanctions where merging parties provide inaccurate information. In particular, companies can expect higher fines where the breach relates to research and development projects “which are by nature secret and for which only the parties have access to relevant information”.

New Spanish law allows for more effective antitrust enforcement

A new Omnibus law has come into force in Spain that transposes several EU directives into the Spanish legal system. Most notable among them is the ECN+ Directive, which is intended to provide EU national competition authorities ‒ in the case of Spain, the National Competition and Markets Commission (CNMC) and the Spanish regional authorities ‒ with the ability to apply the antitrust rules more effectively.

Our alert on the new legislation summarises the most relevant amendments, including a substantial strengthening of the CNMC’s investigative powers, a potential increase in fines for certain substantive and procedural infringements and changes to the leniency programme. Most significantly on procedure, the amendments include the introduction of a method for the CNMC to prioritise complaints. The alert also goes on to detail anticipated further far-reaching changes to both the Spanish merger control regime and sanctioning proceedings.

German court allows lump-sum damages clauses in private follow-on actions

A lump-sum damages clause, which can be used in supplier terms and conditions, stipulates that, in the event that the supplier infringes antitrust law, it should pay damages to the customer amounting to a certain percentage of the purchase price of the goods ordered, unless a different amount of harm is proven.

In a plaintiff-friendly judgment, the German Federal Supreme Court has ruled that such clauses are valid. And while the disputed clause before the court related to lump-sum damages of only 5%, the court indicated that it would permit lump-sum clauses of up to 15%.

However, the court clarified that the defendant must have the opportunity to prove that the actual loss suffered is lower than the lump-sum stipulated, or even that no damage resulted at all.

Our alert on the court’s decision sets out its reasoning as well as a number of takeaways, including for private antitrust damages actions where no lump-sum clause has been agreed and cases brought in other EU Member States.

Court confirms long reach of UK merger control jurisdiction

Sabre Corporation has lost an appeal to the UK Competition Appeal Tribunal (CAT) against the Competition and Markets Authority’s decision last year to prohibit its proposed acquisition of Farelogix Inc. Sabre’s appeal focused on the authority’s application of the “share of supply” test. This gives the authority jurisdiction if a transaction results in a share of the supply or acquisition of goods or services "of any description" in the United Kingdom of at least 25% (or further increases a share above this level). It requires there to be an increment resulting from the transaction where one party already has a share of supply of 25% (which Sabre did in this case). The authority has considerable leeway in determining the description of goods or services by reference to which the test is applied and can pick whatever measurement criterion it deems appropriate. In this case, the relevant description of services chosen by the authority when reaching its decision was "the supply of IT solutions to airlines for the purpose of airlines providing travel services information to travel agents to enable travel agents to make bookings". While Sabre offered these IT solutions in the UK, Farelogix had no direct UK airline customers. Instead, the authority deemed it to supply in the UK due to an arrangement allowing British Airways to use certain services provided by Farelogix to American Airlines. Although Farelogix did not receive any revenue under that arrangement, the authority concluded that the value which Farelogix received in the arrangement (and an unused right to receive payment from British Airways) meant that an increment arose from the transaction.

Sabre raised four grounds of appeal, all of which were related to the authority’s handling of the share of supply test. The CAT dismissed all four grounds, finding that the authority's application of the share of supply test is a matter for its judgment and discretion and will be reviewed in accordance with standard UK public law principles (ie the CAT will determine whether a decision was irrational, rather than whether it was the "right" decision). On that basis, the CAT: (i) endorsed the authority’s approach to setting a description of goods and services for the share of supply test, (ii) endorsed the finding that Farelogix supplies in the UK, (iii) held that the authority's approach to identifying an increment was not irrational and that the increment did not need to be framed in terms of a specific numerical value, and (iv) found that the authority’s exclusion of certain third parties from its calculations was not irrational (despite holding some concerns regarding aspects of the authority's reasoning).

We have previously reported that the authority’s approach in this case is indicative of a recent expansive approach to establishing jurisdiction. This judgment will likely encourage the authority to continue its assertive approach in this regard. Please see our alert for more information about the appeal and the implications of the judgment for global transactions.

Consumer & Retail

Belgian Antitrust Authority accepts divestment commitment to end purchasing alliance investigation

Since May 2019 the Belgian Antitrust Authority has been investigating a 2018 agreement between Carrefour Belgium and Provera to jointly purchase branded products and some store-specific products. The probe was initiated with dawn raids. Carrefour Belgium was found to negotiate purchasing conditions with some 140 suppliers on behalf of both companies. Consequently the authority raised concerns that the alliance could infringe EU competition law. In particular, the authority pointed to the risk of anti-competitive information exchange and the companies aligning their commercial strategies.

To address the authority’s concerns and avoid an infringement decision, both companies have agreed to a package of remedies to be in place for five years:

1. Carrefour Belgium will transfer its purchasing department to a separate legal entity, its subsidiary Interdis;
2. Information flow will be limited to that which is essential to the alliance;
3. Joint negotiations with suppliers will be restricted to agreeing the discount that the companies will receive on goods; and
4. Provera, which is a purchasing unit for a number of smaller retailers, and Carrefour Belgium will independently determine their own commercial strategies.

The Belgian authority is not alone in investigating buying alliances in the EU. Last year the French Competition Authority wrapped up two cases with commitments: joint purchasing alliances for retailers’ own-brand products between Tesco and Carrefour and between Casino, Auchan, Metro and Schiever where commitments reduced the scope of the retailers’ cooperation. Notably, the commitments excluded certain families of agricultural products and products from struggling sectors, as the manufacturers of these retailers’ own-brand products (mainly SMEs and very small businesses) are more vulnerable to price and volume decreases, in sectors where profitability for manufacturers is low. In addition, the European Commission is currently looking at whether two French groups of retailers, Casino and Intermarché, have anti-competitively coordinated their development of shop networks and their pricing policy towards consumers.

Retailers’ buying alliances can, however, be pro-competitive. The creation of purchasing power can result in lower prices or better quality products or services for consumers. But, to remain on the right side of the line, it is clear that alliances should implement antitrust safeguards including mechanisms to prevent anti-competitive information exchanges and collusion.

Digital & TMT

Environmental sustainability concerns feed into Italian decision to sanction Google for Android Auto infringement

The Italian Antitrust Authority has fined Google EUR102 million for abusing its dominant position by refusing to permit an app onto its Android Auto interface. The authority concluded that, through the Android operating system and the Google Play app store, Google holds a dominant position allowing it to control app developers’ access to end users. According to the authority, Google has then been abusing that dominant position, for over two years, by preventing Enel X Italia from developing an Android Auto-compatible version of its JuicePass app.

JuicePass provides a range of services relating to the recharging of electric vehicles including locating and reserving places at charging stations. Being interoperable with Android Auto would have allowed JuicePass to be used on vehicle dashboard entertainment units while driving. In comparison, Google favoured its Google Maps app, which offers a rival electric vehicle charging service via Android Auto. At present the Google Maps app has a more limited offering for electric vehicle recharging but could in future be improved to include the additional functionalities of the JuicePass app. According to the authority, Google’s refusal is not justified by safety considerations. In addition, the authority considers that, in view of the financial resources available, Google should have made the necessary investments to allow JuicePass to be published on Android Auto.

In a message increasingly voiced by antitrust authorities across the EU, it is clear that a green agenda influenced the authority’s case. A detailed cease and desist order seeks to ensure that Google’s conduct does not negatively impact the uptake of electric vehicles, the use of ‘clean’ energy and the transition to more environmentally sustainable transport. Google will now have to ensure that it makes Android Auto interoperable tools for the programming of apps available to all app developers. And it will have to cooperate with the independent expert appointed to monitor implementation.

Germany’s Supreme Court rules that Booking.com’s narrow most favoured nation clauses are anti-competitive

Germany’s Supreme Court, the Federal Court of Justice, has ruled that Booking.com’s narrow most favoured nation (MFN) clauses breach competition law. These clauses prevent hoteliers from advertising the same rooms at lower prices on their own websites than on Booking.com’s platform.

The Supreme Court’s ruling follows an investigation by the German competition authority, the Bundeskartellamt, which in 2015 banned Booking.com from using narrow MFN clauses. The German authority considered that the clauses infringe hoteliers’ freedom to set their own prices and hinder entry into the hotel booking platform market.

The German authority’s decision was overturned at first instance in 2019, with the Düsseldorf Higher Regional Court finding that the clause does not restrict competition within Art. 101(1) TFEU as it constitutes an ancillary restraint. The first instance court considered that the clause ensured a fair and balanced exchange of services between Booking.com and hoteliers as it prevented ‘free-riding’. This could theoretically occur when hoteliers use the free features of Booking.com’s platform (including translation and advertisement) to direct customers to their own hotel, while at the same time setting the booking price at a higher level on the platform compared to their own website in order to incentivise customers to book directly.

On appeal, the Supreme Court found that narrow MFN clauses are not objectively necessary for the contract to operate effectively, ie they are not ancillary restraints. The Supreme Court based this conclusion on, among other things, the fact that Booking.com has been able to further expand its market position in Germany post-2015 despite the authority’s prohibition of the MFN clauses. Since Booking.com’s market share exceeded 30%, it could not benefit from exemption under the Vertical Block Exemption Regulation (VBER). Accordingly, the Supreme Court turned to Art. 101(3) TFEU and assessed whether any pro-competitive benefits from the clauses outweigh their anti-competitive effects. The Supreme Court recognised that booking platforms can provide efficiency benefits for both hoteliers, by increasing their customer reach, and customers, by increasing price transparency through search and comparison functions. The Supreme Court concluded, however, that the competition restrictions which arise from preventing hoteliers from reducing prices through their own website are not indispensable to achieve these benefits. It did not find any indications that the free-riding problem impedes the efficient offering of the platform.

The president of the German authority, Andreas Mundt, has welcomed the ruling, stating that it enables the authority to undertake a more nuanced assessment of MFN clauses, taking into account the specific circumstances in each case such as the sector in question and the market position of the platform.

The approach taken in Germany contrasts with that taken elsewhere in Europe. In 2015, competition authorities in France, Italy and Sweden accepted commitments from Booking.com which prevent it from using ‘wide’ MFN clauses (restricting hoteliers from advertising lower pricing on competing hotel booking platforms), but allowing them to continue using narrow MFN clauses. The German ruling has therefore increased fragmentation in approach in the sector. The German ruling would, however, only impact larger platform operators, which cannot benefit from exemption under the VBER. Our article on the evaluation of the EU antitrust rules on vertical agreements considers how the treatment of MFN clauses under the VBER and its related guidelines might potentially be revised following the European Commission’s recent consultation.

Virgin Media and O2 merger receives unconditional UK Phase 2 clearance

The UK Competition and Markets Authority has given its final approval for the GBP31.4 billion joint venture between Liberty Global and Telefónica to merge Virgin Media and O2. The authority used the fast track procedure to refer the deal for an in-depth Phase 2 review in December 2020 in order to investigate vertical concerns related to the supply of wholesale services. The authority assessed whether the merged entity could potentially raise prices, reduce quality or withdraw the supply of: (i) wholesale leased lines to mobile network operators (MNOs); and (ii) wholesale mobile services to mobile virtual network operators (MVNOs). The authority ultimately concluded that the merged entity would lack the ability and incentive to engage in total or partial foreclosure strategies because:

• The cost of leased lines is a small portion of rival MNOs’ overall costs. This makes it unlikely that any price rises would be passed on to the end customer through increased retail prices.
• There are several other important players offering leased-line services who would continue to apply competitive pressure. This includes, in particular, BT Openreach, which has a greater geographical scope than the merging parties.
• The market for wholesale mobile services likewise would have sufficient strong competitors post-transaction.

In a joint statement, Liberty Global and Telefónica thanked the authority for its thorough and efficient review. Now that the final regulatory approval has been obtained, the deal is expected to close by 1 June 2021. The deal combines the UK’s second-largest broadband network with the largest mobile network to create a business serving 46 million video, broadband and mobile subscribers. Allen & Overy acted for Liberty Global on the deal.

Life Sciences

Biologics ‒ what to expect in terms of antitrust scrutiny

As the biologics industry develops, antitrust issues are coming more to the fore. And crucial differences between small molecule generics and biosimilars are likely to impact what we see in terms of competition scrutiny.

Our blog post on the collision of biologics explores how various originator company tools, as described by the European Commission in its 2009 pharmaceutical sector inquiry report, may apply to biosimilars and how they might be viewed by antitrust enforcers. We take a look at patent thickets, pay-for-delay/reverse payments, disparagement and product hopping.

Multilateral task force seeks input on approach to pharma mergers

Launched in March, a multilateral working group comprising the antitrust authorities of the U.S., Canada, UK and EU is seeking public comment on how to update the analysis of pharmaceutical mergers.

We reported on the establishment of the working group. And, in a follow-up alert on the consultation, we have now detailed the issues the task force wants to hear about, setting the request in the context of current U.S. political developments. Public consultation is open until 25 June 2021, with the task force particularly interested in input from health policy experts, economists, lawyers, scientists, health care practitioners, academics, and consumers.

Post

UK Court of Appeal rules that “as efficient competitor test” is not determinative, dismissing Royal Mail’s abuse of dominance appeal

Royal Mail has lost its appeal in the UK Court of Appeal against the Competition Appeal Tribunal decision to uphold the UK communications regulator Ofcom’s 2018 infringement decision. Ofcom fined Royal Mail GBP50 million for abuse of dominance through discriminatory pricing in relation to planned price increases for wholesale customers including rival bulk mail delivery operator Whistl. Our December 2019 publication provides further information on the outcome of Royal Mail’s first instance appeal to the Tribunal.

Royal Mail’s latest appeal was centred on Ofcom’s treatment of the “as efficient competitor” (AEC) test. This test is intended to measure the effects of an alleged abuse of dominance by reference to a notional competitor which is as efficient as the dominant undertaking, and thus has the same costs. Royal Mail advanced analysis applying an AEC test during Ofcom’s investigation to argue that an AEC could still operate in the bulk mail delivery market at profit with the proposed price hike and that, therefore, its notification of planned differentiated pricing was not abusive. Ofcom’s infringement decision rejected Royal Mail’s AEC test evidence. It found that Royal Mail’s analysis did not reflect economic reality and was unconvincing given the other available evidence of abuse. On appeal, Royal Mail argued that the AEC test could only be disregarded when it is “practically impossible” that an AEC could emerge.

The Court of Appeal disagreed with Royal Mail. It found that there is no obligation on a competition authority to carry out an AEC test before concluding that a pricing practice is an abuse, and that the test would not be relevant in every case. In addition, the AEC test is only “one tool among others” and does not need to be treated by regulators or courts as “highly relevant”, let alone determinative. The court therefore confirmed that Ofcom had given adequate consideration to the AEC test despite the fact that it was ultimately disregarded.

Overall, the court’s ruling gives UK competition regulators a greater degree of flexibility to weigh up a number of case-specific factors in the round when determining whether pricing conduct is anti-competitive. And the ruling was, of course, welcomed by Ofcom. The regulator currently has one open competition investigation: in October 2020 it issued a statement of objections alleging Motorola and Sepura exchanged competitively sensitive information relating to future pricing intentions in connection with a procurement exercise run by the Police ICT Company.

Other antitrust investigations in the postal sector continue across Europe. Spain’s antitrust authority is looking into whether state-owned postal firm Correos abused a dominant position in the retail market of traditional bulk letter mail services by granting exclusionary discounts to large customers. It imposed interim measures in June 2020 ordering Correos to refrain from offering unit prices on better terms than the maximum discounts in the current rebate model operating in the company for large retail customers. In October 2020, Correos’ request to the authority to lift the interim measures was rejected.

Most recently, this month the Slovak Republic antitrust authority opened a probe into the possible abuse of a dominant position in bulk mail delivery. Following a complaint by a competitor, Slovenská pošta, the state-owned incumbent postal operator, is being investigated for potentially applying unjustified differences in discounts for individual customers in delivering bulk letter consignments.

A&O antitrust team in publication

Recent publications by members of our global team include:

• Yvo de Vries (partner, Amsterdam): co-editor of EU State Aids, 6th Edition, Sweet & Maxwell, April 2021; Mark Friend (partner, London) and Christopher Best (senior associate, London) contributed to the chapters on state guarantees and aviation respectively.
• René Galle (counsel, Hamburg) and Jonas Labinsky (associate, Hamburg): Aktuelle Entwicklungen in der Fusionskontrolle - ein Überblick über die weltweite Behördenpraxis des Jahres 2020, M&A Review, 30 April 2021.
• David Weaver (senior associate, London): Nascent Competition and Killer Acquisitions in the UK ‒ All About the Potential, ABA The Threshold, Volume XXI, Number 2, Spring 2021.
• Francesca Miotto (counsel, Brussels) and Nele De Backer (associate, Brussels): Analytical framework under Article 101 of the TFEU: guidance arising from recent 'pay-for-delay' CJEU proceedings, Practical Law, 27 May 2021, reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com.

Spotlight on Charles

A typical working day in Brussels involves….

starting your day with Asia and ending it with the U.S. (Brussels being one of the global hubs for antitrust, and in a central time zone).

If I hadn’t become an antitrust lawyer, I would be….

a sailor. As French poet Charles Baudelaire said: "Homme libre, toujours tu chériras la mer!" (Free man, you will always cherish the sea!). Instead, I navigate the global regulatory landscape. Less poetic but rough seas and strong winds nonetheless!

The best career advice I’ve been given is….

be curious. And you, what's the best career advice you've received?

The most interesting case I’ve worked on is….

a merger case in the satellite industry. Close to a full year of hard work educating the European Commission on satellite prime contracting, the difference between platforms and payloads, the European Space Agency's 'juste retour' rule, etc. Working very closely with a team of senior execs with 30+ years of experience in aerospace engineering. And the CEO telling me at the closing dinner: "Thanks! At first I thought going through this EC merger control process would be a gigantic waste of time and money. But you forced us to look at our business in a way we usually don't – and I actually learned a lot about the industry".

For me, being a good lawyer/advisor means….

unpacking what's often perceived as a regulatory blackbox by clients and devising with them the best strategies to manage the complexity of parallel reviews or investigations by multiple regulators in different environments.

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

climb Mount Fuji.

My ideal weekend in two sentences….

A combination of moving, amusing, and enlightening experiences. Often the result of curiosity and serendipity.

My typical weekend in two sentences….

Swimming, dining, and reading.

Something that might surprise you about me is….

I used to play in the national squad of a team sport. (nothing to be particularly proud of, though: Luxembourg's U-18 rugby team struggled to get 15 players on the field at the time….).

My top tip for visitors to Brussels (when we can travel again) is….

visit the Atomium. This is not the most surprising suggestion as it is on the well-trodden tourist route in Brussels. Yet after all these years, I'm still struggling to find the word that best describes the Atomium.