European Union: Brussels Update (25 November 2008)

Last Updated: 25 November 2008
Article by Cyrus Mehta and Rachel Bickler

UK COMPETITION

Dwr Cymru Found To Have Abused A Dominant Position

The Competition Appeal Tribunal (CAT) has found that Dwr Cymru, the Welsh water and sewerage provider, has abused a dominant position in the market. Albion Water Limited (Albion) successfully appealed against a decision by the Director General of Water Services (now the Water Services Regulation Authority or "Ofwat"), which had earlier cleared the company of allegations of abuse. The CAT ruled, on 7 November 2008, that prices Dwr Cymru had quoted to Albion were both excessive and unfair, as they materially exceeded the costs attributable to the services provided. The CAT concluded that this unfair pricing policy did amount to an abuse of a dominant position.

Bookmakers Held Not To Have Colluded

On 6 November 2008, in the case of BAGS -v- AMRAC, the High Court dismissed a counter-claim by a number of British racecourses in the proceedings against a number of UK bookmakers that, among other things, they had colluded to jeopardise the entry into the market of a new horseracing picture service, Turf TV. Although the court acknowledged that there was some evidence of parallel behaviour among the bookmakers and opportunity for them to discuss their attitude to Turf TV, it concluded that there was insufficient evidence to demonstrate actual illegal collusion. This latest decision follows an earlier judgment of 8 August 2008, where the Court dismissed the claim by the bookmakers that Amrac and a number of UK racecourses had acted anti-competitively in the creation of Turf TV, to rival the incumbent betting channel SIS FACTS. Nabarro acted for one of the defendants, and a shareholder of Turf TV, in this case.

Air France/VLM Deal Approved With Divestment Of Airport Slots

The OFT has approved Air France KLM Group's (AF) acquisition of VLM Airlines N.V. (VLM). The merger had raised competition concerns on flights between London City Airport and Schipol Amsterdam Airport. As AF also owns KLM Royal Dutch Airlines, the merger would have given AF a market share of over 70% of the weekly take-off and landing slots available on this route. Following AF's offer to divest the newly acquired slots on this London-Amsterdam route, the OFT indicated that this was insufficient and that the merger would only be cleared if an immediate purchaser for the slots could be found. This was intended to ensure the purchaser of these slots would maintain competition on the route. The OFT has now approved the transfer of the slots to Eastern Airways (UK) Limited, which is a new entrant on this route. The OFT is increasingly requiring an up-front purchaser in relation to divestment remedies, as was also the case with Dunfermline's acquisition of Berkshire Regional Newspapers Limited earlier this year.

OFT Discloses Its New Prioritisation Policy

Following a lengthy consultation, the OFT has published new criteria for how it intends to prioritise its investigations. The OFT acknowledges that it has finite resources and therefore has to prioritise the most relevant cases. In order to try to ensure some fairness and transparency to this process the OFT establishes and publishes criteria on which to base its prioritisation decisions. The OFT will generally take into account and balance a number of factors (although it may take into account other relevant issues). The principal factors to be taken into account will be: the direct and indirect impact of the behaviour on consumers and the likely economic impacts on the market; the strategic importance of the case and whether the OFT is best placed to act in the circumstances; the risk of a successful outcome; and the implications of the work upon the OFT's resources. In practice, these criteria establish a hurdle that any complainant must overcome before the OFT will expend resources to investigate allegations of anti-competitive activity.

Lloyds/TSB/HBOS Approved Despite Competition Concerns

On 31 October 2008, the Secretary of State (SoS) cleared the anticipated acquisition by Lloyds TSB Group PLC (Lloyds) of HBOS plc (HBOS). Earlier, in response to the pressures of the current crisis in the financial market, a Statutory Instrument was adopted which allows the SoS to intervene and take a final decision in a merger investigation on public interest grounds to ensure the "stability of the UK financial system". The SoS has exercised his powers in this instance by issuing an intervention notice. The OFT conducted an investigation of the deal and reported to the SoS that the merger could result in a substantial lessening of competition in relation to personal current accounts, banking services for small and medium sized enterprises (particularly in Scotland) and the provision of mortgages. The parties did not offer remedies in lieu of a reference to the Competition Commission. However, the SoS in this instance concluded that the OFT's concerns regarding the potential adverse impact on competition were outweighed by the public interest in preserving the stability of the UK financial system.

EU COMPETITION

Surprise Inspections Of The Cement Industry

The European Commission (Commission) confirmed that, on 4 and 5 November 2008, it carried out surprise inspections at a number of companies active in the cement industry in several Member States. Lafarge SA, the world's largest cement maker, Heidelberg Cement AG, Holcim Ltd, Dyckerhoff AG, Ciments Français SA and Cemex SAB have indicated to the press that they were among the companies under investigation. The inspections have resulted from allegations that the companies may have engaged in illegal restrictive practices in breach of Articles 81 and/or 82 of the EC Treaty. The investigation is only at an early stage and is expected to last some time. The cement industry has been the subject of earlier Commission competition probes. Back in 1995, the Commission imposed heavy fines on cement producers and associations throughout the EU.

New Merger Remedies Notice

Under the EC Merger Regulation (139/2004), parties to a merger may offer modifications or "remedies" to the proposed transaction in order to eliminate competition concerns identified by the European Commission (Commission). In the light of recent case law and consultation, the Commission has revised its Notice on acceptable remedies and made changes to the Merger Implementation Regulation (Commission Regulation 802/2004). The new remedies notice introduces a form for submitting information on remedies, provides more stringent requirements on divestiture, details on when access remedies may be permitted and clarification on the role of the Trustee.

Merger Regulation Under Review

On 28 October 2008, the European Commission (Commission) announced a review of provisions of the EC Merger Regulation (139/2004). The consultation specifically relates to the jurisdictional thresholds for the Commission's review of mergers and the provisions for pre-notification referrals. The Commission has invited comment from businesses, trade associations and consumer interest groups by 1 December 2008. Following public consultation, the Commission will prepare a report to the Council of Ministers by July 2009. Whether that report will suggest changes to the current regime will depend on the results of the public debate.

Commission Approves Ricoh's Proposed Acquisition Of IKON

On 24 October 2008, the European Commission (Commission) concluded that the proposed acquisition of IKON by Ricoh did not raise any competition concerns. IKON, a public company listed on the New York stock exchange, is a wholesale distributor of document management systems, including office automation equipment. Ricoh is a publicly-owned company active in the manufacturing and distribution of office automation equipment. The Commission's examination of the proposed merger found two areas of concern. These were, firstly, the impact of an overlap in the market for wholesale distribution of office equipment and, secondly, with respect to the vertically-affected market for the manufacturing of black and white photocopiers. However, it concluded that the overlaps were limited and the combined firm would continue to face several strong competitors. Further, customers would continue to have access to a number of alternative sources.

Galp's Acquisition Of ExxonMobil's Iberian Subsidiaries To Go Ahead

On 31 October 2008, the European Commission (Commission) approved the proposed acquisition of Esso Portuguesa, Esso Española and a part of ExxonMobil Petroleum & Chemical (three subsidiary businesses of the ExxonMobil Corporation of the US) by Galp Energia of Portugal. The Commission raised concerns that the proposed acquisition could give rise to competition concerns in a number of product markets in Portugal where Galp already held significant market shares. To resolve these issues, Galp offered to divest a sea terminal serving as a LPG bottling plant, a storage facility for liquid fuels and LPG, a blending plant for lubricants and certain Esso shareholdings in airport joint ventures and other assets for into-plane operations in Portuguese airports. These divestment commitments have resolved the competition concerns identified.

Commission Approves Merger In The Paper Industry

A proposed acquisition of M-real's Graphic Paper Business (M-real) by Sappi was approved by the European Commission (Commission) on 31 October 2008. M-real is a Finnish paper manufacturer producing graphic fine paper in Austria, Finland, Germany and Switzerland. Sappi is a South-African paper supplier with production facilities in Austria, Germany, The Netherlands and the United Kingdom. The main overlap between the two companies is in the production of wood-free coated paper where Sappi is currently the market leader and M-real is the third largest player. However, following a market investigation, the Commission concluded that customers would continue to have access to a number of significant alternative suppliers and thus the merger would not have an adverse effect on competition.

Merger In The Life Science Industry Cleared

Invitrogen, a US company providing products to be used in life science research by academic institutions and commercial organisations, is to acquire Applied BioSystems following merger clearance by the European Commission (Commission) on 12 November 2008. Formerly known as Applera, Applied BioSystems is also active in the life science industry, however, in general the two companies offer complementary rather than competing products. The one area of overlap which did come under scrutiny by the Commission was in relation to products known as "reagents" used to amplify or copy a segment of DNA or RNA for the purpose of, for instance, genetic research. The Commission's investigation concluded that there were alternative suppliers of the relevant reagents and that researchers using particular instruments or equipment are not dependent on using reagents supplied by a single manufacturer.

PROCUREMENT

Survey On Electronic Procurement

An action plan for introducing electronic procurement was introduced by the European Commission (Commission) in late 2004 with the aim of reducing procurement costs and increasing access to public contracts. The Commission is now carrying out a survey to try to measure how effective this strategy has been and whether further changes are necessary. Interested parties may participate in the survey by responding to the Commission by 18 December 2008.

Postal Services To Be Covered By The Utilities Directive

From 1 January 2009, all contracts relating to postal services will fall within the scope of the Utilities Regulations 2006 rather than under the Public Contracts Regulations 2006, in accordance with draft amendments published by the UK Government. The Statutory Instrument introducing the changes is expected to be adopted later this year.

STATE AID

Capital Injection For Commerzbank Under Scrutiny

The German Government's decision to provide a capital injection of €8.2bn to support Commerzbank is now under review by the European Commission (Commission). The German authorities have indicated that they believe that the assistance provided is consistent with the State aid package for German financial institutions recently approved by the Commission. The Commission for its part has raised concerns that some of the conditions for assistance may not have been met and have asked for more detailed information to verify the position.

Commission Proposes New Rules For Funding Public Broadcasting

On 4 November 2008, the European Commission (Commission) published a draft Communication setting out the basis upon which it would assess public funding for broadcasting. It is estimated that the public service broadcasters derive over €22bn a year from licence fees and/or grants. The past few years have witnessed a number of complaints by private broadcasters regarding the impact on competition of this aid. The new rules represent the Commission's reflections on some of the issues raised, particularly on issues such as overcompensation and cross subsidisation of commercial activity and supervision of public service activities. Also under discussion is the question of assistance to meet the challenges of a rapidly changing media environment. Stakeholders and Member State Governments have until 15 January 2009 to comment on the proposals.

Recovery Of Aid From Polish Shipyards

Poland's shipbuilding industry suffered a major blow on 6 November 2008 when the European Commission (Commission) took a decision requiring the liquidation of Gdynia and Szczecin shipyards and the sale of their assets. The two shipyards have suffered financial difficulties since the 1990s and have received various forms of Government support over the years. Despite restructuring plans, the shipyards were still not commercially viable and the Commission took a decision not to permit the grant of further aid to prop up the failing companies. The decision is likely to be controversial, coming at a time when the Commission has approved aid for failing banks and in the light of approvals of aid over the past few years to shipyards elsewhere in Europe. The Commission claims that it applies the same rules across the board but that in the case of the Polish shipyards there was insufficient evidence that further restructuring would work.

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