On June 28, 2016, the EU's second-highest court (the General Court, or GC) confirmed a European Commission (EC) decision to impose fines for an illegal non - compete provision agreed between PT (formerly Portugal Telecom) and Telefónica (see here). This arose out of the July 2010 acquisition by Telefónica of the Brazilian mobile operator Vivo, which was then jointly owned by Telefónica and PT. The companies inserted a clause in the contract providing that they would not compete with each other in Spain and Portugal as from the end of September 2010. The EC imposed fines of €67 million on Telefónica and €12 million on PT. The GC turned down several imaginative arguments by the parties, finding that: PT had failed to demonstrate that the provision was incidental to the option of purchasing its shares held by Telefónica (an option initially provided for and later eliminated from the agreement) and to the resignation of the members of its management board appointed by the Spanish company (a resignation provided for in the final version of the agreement).There was nothing to indicate that the clause contained a self-assessment obligation (an argument based on the use of the introductory wording, "to the extent permitted by law") on which the entry into force of the noncompetition obligation depended. (PT submitted that the clause contained two separate obligations — a main self-assessment obligation and a secondary noncompetition obligation — the second becoming binding only if its lawfulness was established during the exercise of the first. There was no evidence that the clause was imposed by the Portuguese government or that it was in any event necessary for it to refrain from blocking the agreement relating to the Vivo operation. There was no reason why a clause providing for noncompetition on the Iberian market might be considered objectively essential for a transaction relating to the takeover of shares in a Brazilian operator. The GC held that the very existence of the clause was a strong indication of potential competition between PT and Telefónica on the unrelated Iberian market. The EC had therefore been correct to find that it amounted to a bald marketsharing agreement which justified significant fines.
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