Antitrust in focus - May 2019
31 May 2019
- Procedural fairness in focus as ICN framework secures wide support
- UK steps up deterrence through director disqualification
- Hong Kong Competition Tribunal cartel rulings give guidance for future cases
- Australian ACCC opposes telecoms consolidation
- U.S. judge finds Qualcomm’s licensing practices breach antitrust laws
- U.S. Supreme Court green lights app purchasers’ antitrust suit against Apple
- European Commission fines banks over a billion euros for forex cartels
- European Commission examines data pooling
Procedural fairness and due process are critical to effective antitrust enforcement – they ensure that antitrust laws are consistently applied, and that firms and individuals know the case against them, have an opportunity to be heard, and can appeal adverse decisions. They also confer legitimacy on antitrust authorities. The International Competition Network (ICN), a network of national and international antitrust authorities, has approved a framework on procedures designed to promote procedural fairness and due process in antitrust law and enforcement. The framework is open to all antitrust authorities, whether members of the ICN or not. So far 62 antitrust authorities have agreed to participate, including from the U.S., EU (both the European Commission and national authorities), Brazil, Canada, Chile, and Singapore. More are expected to join in the coming months. In signing up, authorities commit to certain basic principles, including on non-discrimination, transparency and predictability, process and timing, confidentiality, rights of defence, and independent review. The framework is non-binding, but the ICN has put in place mechanisms to try to ensure compliance, such as reports on implementation and regular meetings.
The framework stems from an initiative originally started by the U.S. Department of Justice in 2018. It builds on a significant body of previous work by the ICN and other international antitrust/industry organisations and is a clear sign that the global antitrust community is committed to achieving more consistent standards of procedural fairness and due process in antitrust proceedings. It remains to be seen, however, how quickly any changes to the processes in particular jurisdictions will take place in practice. For the time being, all eyes are on China’s State Administration for Market Regulation, one of the key authorities which we understand is yet to sign up.
A growing number of competition authorities across the globe target their competition enforcement at individuals as well as companies. In the UK, the Competition and Markets Authority (CMA) has in the space of a couple of weeks secured the disqualification of six individuals from acting as directors for their participation in cartel conduct – two former directors of construction company CPM Group Ltd, a former director of an estate agency and three former directors of office fit-out companies. The disqualification lengths are attention-grabbing: spanning from two to seven and a half years, and averaging four years and five months. Notably, one office fit-out individual had his immunity from disqualification withdrawn because he did not submit to a voluntary interview with the CMA. He has been disqualified for 5 years.
These cases are clear evidence that the CMA is significantly ramping up its use of director disqualification provisions. The total number of disqualifications secured since December 2016 (when the CMA took the policy decision to actively use the power) is now nine. The CMA published updated guidance on its powers in February. And a number of investigations are ongoing. Going forward we expect the CMA to continue to seek disqualification of directors, sending a strong compliance message to the sectors involved, and beyond.
The case law of mature antitrust regimes invariably influences the establishment and development of new regimes. Hong Kong’s Competition Ordinance legislation came into effect in December 2015. The Competition Tribunal has now handed down its first two judgments, finding four IT companies and 10 interior decorating firms guilty of cartel conduct. The rulings provide greater legal certainty. First, the judge closely followed EU and UK precedent, for example the EU’s interpretation of anti-competitive agreements and by-object infringements. This means that companies can safely rely on the rich source of EU and UK case law in future investigations to predict how the antitrust rules will be enforced. Second, the judge decided that a criminal standard of proof – proof beyond reasonable doubt – applied. Assuming that this is not appealed, this will impact how the Competition Commission chooses its future cases and how it conducts its investigations; cases involving complex behaviour will be harder to prove. Third, the judge found one IT firm not guilty on the basis of a “rogue employee” defence – the person that participated in the cartel was a junior employee who acted beyond the scope of his employment. This is a welcome potential avenue for companies to escape liability.
A further court hearing will determine what sanctions should be imposed in each case. The infringement decisions and any fines serve as a warning to businesses – especially in the IT and construction sectors – that the Hong Kong antitrust regime is up and running. The Competition Commission has welcomed the judgments, noting that it is open to complaints from members of the public as well as leniency applications.
Matthew Gearing QC, of A&O, acted as solicitor-advocate in relation to the IT case.
Hot on the heels of last month’s statement of objections over alleged geo-blocking in the video games sector the European Commission has taken further enforcement action in relation to cross-border sales restrictions. It has fined AB InBev EUR200m for abusing a dominant position on the Belgian beer market by limiting cheaper imports of its Jupiler beer from the Netherlands. The Commission found that the drinks company engaged in a strategy designed to maintain higher beer prices in Belgium, by:
- changing the packaging of some products (eg by removing the French language version of mandatory information from the label) to make them harder to sell in Belgium
- limiting the volumes of Jupiler beer supplied to a Dutch wholesaler
- refusing to sell key products to a retailer unless the retailer agreed to limited imports from the Netherlands
- making customer promotions offered to a retailer in the Netherlands conditional on the retailer not offering the same promotions in Belgium.
The case is interesting for a number of reasons. First, it shows the Commission’s continued appetite for vigorous enforcement of territorial restrictions. Second, the probe was started by the Commission on its own initiative following monitoring of the market, a clear reminder that many antitrust authorities actively look for potential antitrust infringements, and do not rely solely on whistleblowers or complainants. Third, the Commission is clear that even though it analysed this case as an abuse of dominance, conduct to limit imports within the EU may also amount to a breach of the prohibition against anti-competitive agreements, regardless of whether a supplier is dominant. And finally, the decision is another example of a settlement outside the cartel context – in return for acknowledging the facts and the infringement, and proposing a remedy (to provide mandatory information in both French and Dutch on packaging for the next five years), AB InBev received a 15% reduction in fine. This follows similar fine reductions in the ARA, consumer electronics, and Guess cases, and shows the Commission’s willingness to reward cooperation which facilitates more streamlined investigations (see our Global Cartel Enforcement Report for more information on this trend).
Antitrust authorities worldwide have intervened in mergers between mobile service providers, triggering debate over whether there is an ideal number of players for a competitive and well-functioning market. The merger between TPG Telecom and Vodafone Hutchison Australia is the latest deal to face opposition on antitrust grounds. The Australian Competition & Consumer Commission (ACCC) decision centres on the loss of potential future competition. The Australian mobile services market is concentrated, with three mobile network operators – Telstra, Optus and Vodafone – having over 87% share. The ACCC has concluded that absent the merger there is a real chance that TPG, primarily a fixed broadband service provider, would roll out its own mobile network and become an innovative and independent fourth supplier. Pointing to TPG’s track record of disrupting the telecoms sector and its capability and commercial incentive to resolve technical challenges as well as industry trends, the ACCC anticipates that it would offer cheaper mobile plans with large data allowances, competing vigorously against the incumbents.
The head of the ACCC has reportedly denied that its opposition to the merger is a sign that the authority is becoming more interventionist. Both Vodafone and TPG plan to appeal the ACCC’s decision to the Federal Court; they have extended the merger deadline to 31 August 2020. The ACCC’s decision also made headlines for a different reason – it accidentally appeared on the ACCC’s mergers webpage before the market had closed for the day and ahead of the ACCC’s planned announcement. The ACCC’s investigation into the disclosure found that it was caused by a flaw in its website content management system, which has since been rectified.
The intersection between antitrust rules and intellectual property has long been a hotly debated topic. In the U.S., the Federal Trade Commission (FTC) has scored a win after a district judge found Qualcomm’s licensing practices are in breach of antitrust laws and amount to an unreasonable restraint of trade. The judge agreed with the FTC that Qualcomm held a monopoly position in the market for certain modem chips. She went on to rule that a range of licensing practices employed by the company caused anti-competitive harm, including its “no license, no chips” policy of supplying modem chips only on condition that mobile manufacturers agree to its license terms, charging unreasonably high royalty rates for standard essential patents (SEPs), and exclusive chip supply agreements. A permanent injunction was warranted, said the judge, and she recommended a number of remedies to address the concern that Qualcomm may repeat the infringements. Among these are a prohibition on Qualcomm making the supply of modem chips conditional on entering a license, a requirement to grant SEP licenses on fair, reasonable and non-discriminatory (FRAND) terms, a bar on Qualcomm entering exclusive chip supply agreements, and a requirement for the company to submit to FTC monitoring for seven years.
Qualcomm has requested a stay of the ruling and intends to appeal. Interestingly, FTC Commissioner Christine Wilson (speaking in a personal capacity) has published an op-ed in the Wall Street Journal criticising the judge’s decision and proposed remedies and urging higher courts to reconsider the judge’s conclusions. The ruling comes only a month after Qualcomm and Apple settled their high-profile dispute involving similar allegations. Other antitrust authorities and courts around the globe have also either looked, or are looking, at Qualcomm’s practices. In the U.S., at least, and depending on the outcome of any appeal, the case may act as a prompt for other SEP holders to review their own licensing models.
There is currently much debate over whether antitrust law has a role to play in regulating big tech, and whether long-standing antitrust rules are fit to deal with our modern economy. Complaints particularly centre on platforms’ ability to favour their own products over those of rivals. In the U.S. the Supreme Court – in a 5-4 split opinion, the majority comprising Trump appointee Brett Kavanaugh and the four liberal judges – has allowed a monopolisation action against Apple to proceed. A class of iPhone owners alleges Apple used its monopoly power over the retail apps market to charge anti-competitive prices, by imposing a 30% fee on all purchases through its App Store. The iPhone users claim that in a competitive environment with other retailers they would have been able to choose between buying apps from Apple and less expensive alternatives. The progress of their case turned on the interpretation of a 1977 Illinois Brick Supreme Court precedent that prevented indirect purchasers from pursuing damages against a producer or manufacturer of goods under the federal Sherman Act. After years of litigation, the Supreme Court has ruled in their favour – a majority finding that the iPhone users are direct purchasers with standing to sue as they technically buy apps from Apple’s App Store rather than app developers.
Some commentators had anticipated that the Court might use the case as an opportunity to formally revisit Illinois Brick. However it did not, and it will be interesting to see how these issues are dealt with in any future actions. For the parties, the proceedings are by no means over – the next step for the consumers is to argue the merits of their case.
Further to the investigations into forex trading by U.S. and UK regulators in recent years, the European Commission has now fined five banks EUR1.07bn for taking part in cartels relating to the spot foreign exchange market for 11 currencies. UBS escaped a fine by blowing the whistle in exchange for immunity. Nearly all of the other banks received reductions in fines for cooperating with the Commission under the leniency procedure. Discounts of 10% were also awarded for settlement, with the banks acknowledging their participation in the infringement.
The decisions again highlight the possibility for firms to face liability, including significant fines, for the actions of just one, or a few, employees. Companies which do not already have in place a robust antitrust compliance programme should see this case as a reminder of the importance of regularly training staff on how to stay on the right side of the line.
The last couple of years have seen an increased focus on data in competition enforcement cases worldwide. And now the risk of antitrust action against “data pools” has been thrown into the spotlight – the European Commission has opened a formal investigation into an Irish insurance database administered by industry association Insurance Ireland. The Commission is clear that data pooling arrangements can often be pro-competitive, directly benefiting consumers by enabling effective competition in the market. Access to the data pool could, for example, enable new entry and increase consumers’ choice of services and suppliers. It could also mean that providers are put in a position to offer better prices and services. However, the Commission flags two situations where data pooling systems may lead to restrictions on competition: where the conditions of access to and participation in a data pool mean certain market operators are placed at a competitive disadvantage; and where the data pooling arrangement enables market operators to become aware of the strategies of their competitors. In this case, the Commission appears to be looking only at the former, ie whether the conditions imposed on companies wishing to participate and access the database placed them at a competitive disadvantage on the Irish motor insurance market in comparison to companies already with access.
In focusing on access conditions rather than the actual sharing of data, the probe stands out from previous investigations into allegedly anti-competitive information exchange. It comes in the wake of an EU expert report on competition policy in the digital era (see the last edition of Antitrust in focus for a summary), which calls for an assessment of data pooling and its pro- and anti-competitive aspects in order to provide more guidance. The Commission’s conclusions in this case could well feed into the redrafting of its guidelines on horizontal cooperation agreements, the review of which is imminent. It is also worth noting that the Irish competition authority is investigating the motor insurance sector in Ireland. Its probe, launched in 2016, covers potential price signalling by motor insurance firms and brokers, and is reportedly reaching “latter stages”.
The German Federal Cartel Office (FCO) has blocked the acquisition of MBO Group by Heidelberger Druckmaschinen. After an in-depth investigation it found that Heidelberger was the market leader in the European market for sheet folding machines (used in the printing industry), and that MBO was its main rival in this market. According to the FCO, the merger would have resulted in joint market shares of well over 50 per cent, in a market which is already concentrated with high barriers to entry.
The FCO’s record of merger control intervention has been strong in recent years. During 2017 and 2018 eight deals were frustrated by the FCO’s antitrust concerns – one was prohibited and the remaining seven were abandoned by the parties. In addition to Heidelberger/MBO, so far in 2019 the authority has blocked a metal parts joint venture between Miba and Zollern (currently being considered by the German economy minister after a request by the parties to override the prohibition on public interest grounds) and has just announced its intention to prohibit the Remondis/DSD packaging recycling merger. Three further transactions have been abandoned. As things currently stand, the FCO looks set for a bumper year of merger control enforcement.
U.S. authorities have the power to investigate mergers that fall below Hart-Scott-Rodino (HSR) Act notification thresholds, either pre- or post-closing, in cases that potentially raise significant competition issues. The latest example is a consummated merger of two prosthetics manufacturers: Otto Bock’s acquisition of FIH Group Holdings (the owner of Freedom Innovation). The transaction, which was not HSR reportable, closed in September 2017. However, an administrative law judge has upheld the Federal Trade Commission (FTC)’s administrative complaint, agreeing with the FTC’s view that the acquisition will significantly increase concentration in the relevant microprocessor prosthetic knees market, eliminate head-to-head competition between the two companies, remove a significant and disruptive competitor and entrench Otto Block’s position as the dominant supplier. The judge’s initial decision requires Otto Bock to divest Freedom Innovations’ assets, at no minimum price, to a FTC-approved buyer. Otto Bock is also required to hold the assets separately, provide transitional services to the buyer and give the buyer the opportunity to recruit and employ all Freedom Innovation employees. The FTC can appoint a monitor and a divestiture trustee to ensure Otto Bock’s compliance. Otto Bock has filed its intention to appeal the initial decision to the FTC’s five commissioners and so, for now, the judge’s decision is not final.
The case is not an isolated one – the U.S. agencies routinely intervene in deals which do not meet the notification thresholds. In the past two years they have challenged three such cases, two of which resulted in remedies. And this is not a power that is unique to the U.S. In recent years we have seen increasing instances of transactions being “called in” by antitrust authorities in the absence of a filing obligation, including in Brazil, Canada and Ireland.