European Union: Your Counter-Party Might Not Agree With Your Generosity - Voluntary Commitments By Dominant Companies

Last Updated: 6 July 2010

Article by Kiran S. Desai , Gillian Sproul , Jens Peter Schmidt , Nathalie Jalabert-Doury and Margarita Peristeraki

Originally published 1 July 2010

Keywords: competition, Alrosa ruling, EU Treaty, abuse of a dominant position, voluntary commitments,

Parties volunteering commitments to remedy competition concerns to avoid an infringement decision by the European Commission's competition department (the "DG COMP"), consciously accept that the concessions they make may go beyond what the DG COMP would have imposed on them in the event of an infringement decision. This is a key outcome from the Court of Justice (the "ECJ"), in its ruling of 29 June 2010, Commission v. Alrosa, Case C-441/07P. The Alrosa ruling also serves to remind parties to contracts, where one of them is dominant, that they should foresee the possibility of needing to amend the contract absent the justification of an infringement decision.

Background

In March 2002, De Beers and Alrosa, respectively the first and second largest suppliers of rough diamonds in the world, notified their supply agreement to the DG COMP, with a view to obtaining negative clearance or exemption, pursuant to a procedure available to contractual parties prior to 2004. The DG COMP initiated proceedings against both parties on the basis that their agreement was capable of being anti-competitive (Article 101 TFEU) and it launched separate proceedings against De Beers alone, as it considered that the agreement would constitute an abuse of its dominant position on the relevant market (Article 102 TFEU).

Whilst both De Beers and Alrosa argued against the DG COMP's preliminary assessment of infringement, both parties also volunteered commitments or remedies (the "Joint Commitments") to put an end to the matter. Importantly, acceptance by the DG COMP of such commitments would result in those commitments being binding on the parties, but in the context of a no infringement decision, and would lead to an early termination of the proceedings (a "Commitments Decision"). The DG COMP concluded that those commitments were not sufficient to address its competition concerns. Separately, the DG COMP also received proposed commitments from De Beers in relation to the preliminary consideration against it, concerning the abuse of a dominant position (the "Unilateral Commitments"). Although Alrosa was invited to submit comments as an interested third party, it was not granted the extended rights of "an undertaking concerned" in the Article 102 proceedings and as such, was not invited to offer commitments together with De Beers, nor to give its consent to the Unilateral Commitments. The DG COMP accepted the Unilateral Commitments and terminated the proceedings in relation to both Articles 101 and 102.

In essence, the Unilateral Commitments required De Beers to end its purchases of rough diamonds from Alrosa from 2009. The Joint Commitments had only committed the parties to a reduction of purchases by De Beers from Alrosa.

Alrosa, by an action lodged before the General Court ("GC", formerly, the Court of First Instance) sought the annulment of the DG COMP Commitments Decision. Alrosa claims included that the Unilateral Commitments were excessive in nature and so violated the principle of proportionality and the freedom of contract. The GC initially upheld the action and annulled the DG COMP decision. Now, on appeal lodged by the DG COMP, the ECJ sets aside the GC judgment and dismisses Alrosa's action.

The ECJ Ruling

The ECJ held that when parties volunteer commitments they consciously accept that the concessions they make may go beyond what the DG COMP could itself impose, if it adopted an infringement decision. Moreover, the principle of proportionality requires the DG COMP merely to ascertain that the commitments in question address its concerns. It is not necessary to compare the volunteered commitments to remedies that would have been imposed following an infringement decision.

The ECJ also held that the GC encroached on the discretion enjoyed by the DG COMP in relation to complex economic circumstances, since, instead of reviewing the lawfulness of the DG COMP's assessment, it substituted its own assessment of the proposed commitments for that of the DG COMP.

Practical Consideration

Parties can, and often do, include provisions in their contracts that require negotiation between them to effect the minimum changes necessary to deal with any provisions found to be unlawful, for example, as a result of a DG COMP's decision that the agreement is anticompetitive.

When the DG COMP opens proceedings, there can be enormous pressures on a company to volunteer commitments, even though it is not convinced of the DG COMP's case, in exchange for a swift termination of the proceedings and the avoidance of a prejudicial finding. In relation to Article 102, it is particularly important for a company to avoid a finding that it holds a dominant position.

As it emerges from the Alrosa ruling, in a Commitment Decision, the difference between volunteered and minimum required changes can be material.

It is a clear tenet of contract law that subject to an express term, an agreement cannot be unilaterally amended. Consequently, De Beers' commitments might terminate the DG COMP proceedings, but do not address the issue of whether, under the terms of the contract with Alrosa, it was at liberty to offer commitments of such extent.

The Alrosa ruling serves to remind parties to contracts where one party is dominant, that they should foresee the possibility of needing to amend the contract, absent an infringement decision, as a result of volunteered commitments. Contracts can be drafted to take account of such a possibility. Absent such foresight, a company in a dominant position could find itself in the difficult position of wanting to volunteer commitments to avoid an infringement decision, but being bound to consider the contractual rights of the other party, rendering the commitments discussions more complicated. If the counter-party considers the dominant company has been over generous in the commitments volunteered and accepted by the DG COMP, the counter-party might sue under the contract for unlawful breach, and may also seek to appeal the DG COMP's Commitments Decision.

Learn more about our Antitrust & Competition practice.

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Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Copyright 2010. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.

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