European Union: EU & Competition Newsletter (September 2008)

Last Updated: 22 October 2008
Article by Rachel Bickler and Cyrus Mehta

UK COMPETITION

BAA May Be Forced To Sell Three UK Airports

The Competition Commission (CC) has identified a number of competition problems at BAA's airports that have resulted in adverse consequences for passengers and airlines, in its provisional findings in "the supply of airport services by BAA in the UK" investigation. The CC concluded that competition had been restricted as a result of BAA's common ownership of a number of UK airports. The CC rejected BAA's claim that there was no scope for competition with the existing capacity restraints, and, in contrast, found that the lack of competition would result in the current capacity restraints persisting. The CC will now consult on its proposed remedy of requiring BAA to sell two of its three London airports, and also either Edinburgh or Glasgow airport. The CC anticipates publishing its final decision early in 2009.

"Piggy-Back" Damages Claim Against EWS Railways

Back in December 2006, the Office of Rail Regulation (ORR), which has concurrent powers with the OFT to apply competition law, found that English Welsh & Scottish Railway Limited (EWS) had breached competition law. In its decision the ORR found that EWS had abused a dominant position in the market in various ways, including predatory pricing aimed at excluding Freightliner Limited and Freightliner Heavy Haul Limited (Freightliner) from the market for coal haulage by rail. Freightliner now claims that EWS's illegal conduct placed it at a competitive disadvantage and reduced its market share. Consequently, Freightliner has launched a "piggy-back" claim for damages to the Competition Appeal Tribunal under section 47A of the Competition Act 1998 based on the ORR's findings in 2006.

NCC'S New Role As Super "Super-Complainant"

The National Consumer Council (NCC) has been established as a new entity that will carry out the functions previously carried out by the old National Consumer Council, the Gas and Electricity Consumer Council and the Consumer Council for Postal Services. Consequently, the NCC has been designated as a super-complainant under the Enterprise Act 2002. Super-complainants have the power to make complaints on behalf of consumers directly to the UK competition authorities, by way of a procedure set out in the Enterprise Act 2002.

ACS To Intervene In Tesco's Groceries Market Report Appeal

Following the Competition Commission's (CC) final report into the supply of groceries in the UK, Tesco launched an appeal to the Competition Appeal Tribunal (CAT). The appeal challenged the CC's recommendation to introduce a 'competition test' when assessing planning applications for grocery stores. Applications for intervention in the case had to be made to the CAT by 23 July 2008 and the CAT granted applications from Waitrose, Marks and Spencer, and Asda. The Association of Convenience Stores (ACS) made a late submission but the CAT has used its discretion (albeit reluctantly) to allow the intervention. It did so on the basis that ACS had sufficient interest to intervene, if it had been excluded the CAT would not have heard the views of the stores and it was conscious that the CC had outlined the substantial role played by the ACS in the market investigation.

EU COMPETITION

Refusal To Meet Ordinary Orders May Amount To An Abuse

On 16 September 2008, the European Court of Justice gave a ruling (in joined cases C-468/06 – C-478/06) on questions referred by a Greek court, concerning whether the failure of a company to meet the orders of a wholesaler may amount to an abuse of a dominant position. The background to the case is that in November 2000 GlaxoSmithKline AEVE (GSK), the Greek subsidiary of the UK pharmaceutical group, stopped supplying orders from Greek wholesalers who bought medicines intended for distribution in Greece and exporting them to other countries. The wholesalers brought an action claiming that GSK's sale policy was an abuse of its dominant position in that GSK was seeking to limit parallel exports. The ECJ held that parallel sales of medicinal products from a Member State with relatively low prices are of more than minimal benefit to consumers. It went on to consider whether the existence of State regulation of medicine prices could justify a restriction. It concluded that price regulation did not preclude the competition rules from complying. However, the Court acknowledged that those rules should not be interpreted in a manner that left a company unable to take reasonable and proportional steps to protect its legitimate commercial interests. It is therefore entitled to ascertain whether the orders of the wholesalers are out of the ordinary and would lead to a shortage of medicine in the local market. The ECJ therefore left it to the national court to determine whether in practice the orders placed by the wholesalers were ordinary in light of the previous business relationship between the parties. It concluded that if a dominant company refuses to meet ordinary orders in order to prevent parallel exports then this would be an abuse in breach of Article 82 EC Treaty.

MyTravel Fails To Obtain Damages Against The European Commission

The Court of First Instance (CFI) has rejected MyTravel's claim (in case T-212/03) for damages brought against the European Commission (Commission). MyTravel (formerly Airtours) was seeking damages for losses suffered as a result of the Commission's prohibition of the Airtours/First Choice merger. In 2002, following an appeal by Airtours (Case T342/99), the CFI annulled the Commission's decision. Following that appeal, Airtours brought the claim seeking compensation for the losses suffered as a result of the Commission's original decision blocking the merger. In order for the Commission to incur non-contractual liability, Airtours had to demonstrate that: the Commission's actions had been unlawful; actual damage must have been suffered; and there was a causal link between the conduct and that damage. Although the CFI had been critical of the Commission's assessment, it did not consider that the Commission had manifestly and gravely disregarded the limits of its discretion bearing in mind the complexity of the merger and the time constraints imposed on the Commission by the Merger Regulation.

BHP Billiton/Rio Tinto Merger Decision Put Back

On 2 September 2008, the European Commission (Commission) temporarily stopped its review into BHP Billiton's takeover of Rio Tinto. Both are British-Australian dual-listed mining companies. The Commission took this step after the parties failed to comply with a request for information on 13 August 2008. The Commission is currently conducting an in-depth investigation into the proposed merger. Its initial investigation highlighted the fact that the combined group would hold a significant share in the market for iron ore, metallurgical coal and uranium. The Commission is also looking at the implications in relation to the aluminum market for use in a whole range of industrial applications. At this stage the parties have an opportunity to allay these concerns. However, in view of the fact that the Commission has "stopped-the-clock" pending a response, the investigation will only proceed once the information the Commission has requested is received. This decision, therefore, can have implications for the timing of the deal.

Proposed Merger Between Kenwood And JVC Approved

Following an investigation, the European Commission (Commission) approved the proposed merger of Kenwood and JVC on 20 August 2008. Although both parties produce electronic equipment, the Commission found only limited areas of overlap in their respective product ranges. Kenwood mainly produces car electronics, home electronics and communication equipment, whereas JVC's activities encompass research and development of electronic products as well as audiovisual and computer products. The Commission concluded that there were no competition concerns arising from the transaction.

Bosch And Samsung In Battery Systems Joint Venture

A planned joint venture between Robert Bosch GmbH (Bosch) and Samsung SDI Co Limited (Samsung), to manufacture battery systems for electric and hybrid electric vehicles, was approved by the European Commission on 18 August 2008. Bosch is a Germany-based provider of technical products in the automotive sector, while Samsung, based in South Korea, develops, produces and sells electronics equipment. Neither party has previously operated in this market sector and the new joint venture will enter the market to meet demand for these products in the automotive sector. A number of other companies are also entering the market and therefore the deal is likely to provide additional competition in this market.

Transmission Systems Operators' Joint Venture Approved

The European Commission has approved a joint venture by three transmission systems operators and two energy exchanges. Energinet.dk (Denmark), E.ON Netz (Germany) and Vattenfall Europe Transmission GmbH (Germany) are the transmission systems operators and Nord Pool Spot AS (Norway) and European Energy Exchange AG (Germany) are the energy exchanges. The aim of the new venture, known as the European Market Coupling Company, is to provide congestion management services for cross border electricity transmission systems and to provide a platform for secondary trading of transmission rights and to increase the cross-border flow of electricity. There were few existing overlapping activities between the parties and therefore the deal was unlikely to give rise to competition concerns.

In-Depth Investigation Into KLM'S Proposed Takeover Of Martinair

On 8 September 2008, the European Commission (Commission) opened an in-depth investigation into the planned acquisition of Martinair by KLM. Both companies operate out of the Netherlands and the Commission has raised concerns that the deal may substantially reduce competition on a number of long haul destinations out of Amsterdam Airport. KLM proposed remedies on 18 August 2008 but the Commission was not satisfied that these initial proposals were clear enough to resolve the problem. The Commission has until 21 January 2009 to take a final decision.

PROCUREMENT

Greek Company Appeals Against Contract Rejection By EU Institutions

On 10 September 2008, the Court of First Instance (CFI) gave its rulings on several claims taken by Evropaiki Dinamiki (European Dynamics) against the tender procedures in a procurement procedure organised by the European Court of Justice (ECJ) and two tenders for the European Commission (Commission) for information technology services. In the case of the contract with the ECJ, the CFI concluded that the ECJ had failed to inform European Dynamics of the real reasons its bid had been rejected and had therefore failed to comply with the obligation of transparency. In the case concerning a contract to provide services to Commission's Directorate-General for Fisheries, the CFI concurred with European Dynamic's claim that the Commission had not provided adequate reasons for rejecting its bid. However, European Dynamics was unsuccessful in its claim against the European Commission with regard to the assessment of its bid for a contract to provide maintenance and support for DG Agriculture's information technology systems.

STATE AID

Investigation Into The Funding Of Danish Railways

On 10 September 2008, the European Commission opened an in-depth investigation into two public service contracts between the Danish Transport Ministry and the rail company Dansk Statsbaner (DSB). The contracts cover passenger rail services for 2000-2004 and 2005-2014. The aim of the investigation is to determine whether the amounts paid by the government were limited to covering the costs of meeting the contract obligations. The obligations include the terms of the destinations served, the frequency of the services and the quality of the rail services. If DSB has been over-compensated, this will constitute State aid, which may have to be recovered if it cannot be otherwise justified within the State aid rules.

European Commission Questions Restructuring Aid In Poland

An in-depth investigation has begun by the European Commission (Commission) to determine whether the €37.5m aid, that Poland intends to grant for the restructuring of PZL Hydral, complies with the EU Guidelines on State aid for rescuing and restructuring firms in financial difficulty. PZL Hydral produces industrial hydraulic and electronics hydromechanics fuel-regulating systems for aviation regimes. The Commission is examining not only whether the public funding complies with the Guidelines but also whether PZL Hydral is eligible for aid at all in view of the fact that the company has previously received state support.

Further Aid For Motorway Service Approved

The European Commission (Commission) approved further financial assistance from France and Italy for the experimental rolling motorway service between Lyon and Turin. In the rolling motorway system, lorries are loaded onto shuttle trains which carry them over long distances thereby reducing road congestion. In December 2003, the Commission approved aid of up to €23.5m to be given by each country for the project. This approval has been extended to allow each Member State to inject a further €22m in the period 2007- 2009. The Commission considers the aid compatible with competition rules since it is limited to the experimental phase. The system is designed to contribute to the objectives of the EU's sustainable transport policy.

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