Worldwide: EU & Competition Round-Up (December 2008)

Last Updated: 2 December 2008
Article by Cyrus Mehta and Rachel Bickler


OFT Clears Stella Artois/Budweiser Merger

After a lengthy investigation, the Office of Fair Trading (OFT) gave its approval to the acquisition by InBev (Belgium) of the US's largest brewer, Anheuser-Busch. The deal is one of the largest cash acquisitions in corporate history and secures InBev's position as global leader in the beer market. The OFT's initial investigation disclosed that InBev's ownership of the Stella Artois and Beck brands made it the leading supplier of premium lager in the UK. The acquisition of the Budweiser brand would further increase its market share. The investigation indicates that the deal was unlikely to raise competition concerns in the off-trade market (i.e. retail sales through shops, supermarkets and specialist outlets) where the barriers to market for rival brands are low. The OFT took a closer look however at the impact on the on-trade channel (i.e. pub, bar and restaurants), where the parties represent over 50% of sales of premium lager. Nevertheless, it was apparent that the majority of the UK's on-trade market comprises sales of draught beer where the parties do not have overlapping interests since Budweiser is sold only in bottles. Although InBev and Anheuser-Busch do compete for sales of bottle beer and "fridge shelf space" in the on-trade market, the OFT concluded Budweiser and Beck's are not considered close substitutes by consumers.

Follow-On Damages Claim In Coal Haulage Market

On 17 November 2008, the Competition Appeal Tribunal (CAT) confirmed that Enron Coal (Enron), a company in liquidation since 2002, is seeking damages from English, Welsh and Scottish Railway Limited (EWS). This claim follows from the 2006 decision by the Office of Rail Regulation that EWS had abused its dominant position in the market for coal haulage by rail, in breach of both national competition law and Article 82 of the EC Treaty. EWS was found to have formed exclusive agreements with industrial coal users from 1996 until 2005, and engaged in predatory pricing for 18 months from July 2002. Accordingly, EWS was fined £4m. Enron are now seeking damages in the CAT for the loss suffered by EWS imposing additional costs in relation to coal haulage, and preventing Enron from obtaining new business or extending business. Enron is seeking damages and lost profit, restitutionary damages, an account of profits, interest, costs and further relief.

Cardiff Bus Guilty Of Predatory Pricing

The Office of Fair Trading (OFT) has found that Cardiff Bus, a bus service operated by Cardiff Council, abused its dominant position by charging below cost prices. In 2004, Cardiff Bus introduced a low-cost bus service to compete with a "no frills" service offered by 2 Travel, a new-entrant to the market. When 2 Travel had gone out of business in 2005, Cardiff Bus removed its low-cost service altogether. On 18 November 2008, the OFT found that Cardiff Bus had been the only significant provider of bus services in the area and the dominant player in the market. By dropping its prices to a loss making level in order to evict the new competitor from the market, Cardiff Bus had abused its dominant position. Under the Competition Act 1998, there is limited immunity from fines for such abuse where the market effected or the turnover of the undertaking concerned is not substantial, although the OFT does have discretion to waive the immunity and impose fines where appropriate. In this instance the OFT held that the conduct was of minor significance and decided not to fine Cardiff Bus. Nevertheless, third parties that have suffered a loss as a result of Cardiff Bus's anti-competitive conduct may still bring a claim for damages. Interestingly, this is the first finding of an abuse of dominance by the OFT since 2003.

Marine Hose Directors Receive Reduction In Prison Sentences

The UK Court of Appeal (CoA) has reduced the prison sentences of three directors imprisoned earlier this year in the first successful prosecutions for cartel offences under the Enterprise Act 2002. The three directors, who had been arrested by the Department of Justice in the USA, negotiated a plea bargain that would allow them to be returned to the UK provided they pleaded guilty to participating in the marine hose cartel. A director of PW Consulting and two directors of Dunlop Oil & Marine were sentenced to 36, 36 and 30 months in prison by the Crown Court in June 2008. On 14 November 2008, the CoA reduced these prison terms. The CoA explained that it would have reduced the sentences still further to take into account the directors' co-operation in the investigation and their loss of livelihood, however it had been constrained by the sentences imposed by the USA officials as a result of the plea bargains. The Directors concerned will now serve between 20-30 months.

British Airways Executives In Magistrates' Court

Four executives of British Airways appeared in court on 12 November 2008 on charges of colluding with Virgin Atlantic to fix the prices of passenger fuel surcharges on long-haul flights. The executives are charged with the cartel offence under the Enterprise Act 2002. If they are found guilty of the offence they could face a maximum of five years in prison, disqualification from acting as a director and personal fines. The executives were not required to enter a plea at this stage but the case has been transferred to Southwark Crown Court for a trial by jury. British Airways and Virgin Atlantic have already agreed a settlement in the USA, and offered to pay damages to any customers who purchased flights between July 2004 and April 2006.


Commission Imposes Record Fines On Cartel Participants

On 12 November 2008, the European Commission (Commission) imposed fines in excess of €1.3bn on Asahi (Japan), Pilkington (UK), Saint-Gobain (France) and Soliver (Belgium), for their participation in a car glass cartel. During 1998-2003, the companies held regular discussions involving the allocation of tenders for supplies of glass for car manufacture. During the discussions the companies exchanged commercially lucrative and confidential information. Not only did the Commission impose the largest fine to date for a single cartel, but they also imposed the largest cartel fine for a single company. Saint-Gobain's fine was increased by 60% to €896m, due to its prior involvement in two glass cartels (one in 1984 and another in 1988). Pilkington was fined €370m and Soliver just over €4m. Asahi received a 50% reduction in its fine to reflect its co-operation with the Commission during the investigations. On 17 November 2008, it was reported that the companies intend to appeal the Commission's decision.

Surprise Inspections In The Biomedical Analysis Market

On 12 and 13 November 2008, the European Commission (Commission) carried out unannounced inspections at the premises of a business association and enterprise, both active in the biomedical analysis market in France. The inspections, which follow a complaint from clinical laboratory Labco, are a preliminary stage of the Commission's investigations into possible illegal restrictive practices in breach of Articles 81 and/or 82 of the EC Treaty. According to French newspaper Les Echos, the premises of the Order des pharmaciens (France's National Order of Pharmacists) have been subject to a number of searches. The duration of the investigation is dependant on the complexity of the case and the co-operation of those involved.

Application Of Competition Law To Compulsory Insurance Scheme

Advocate General Mazák (the AG) has given his Opinion on whether a body providing insurance against accidents at work and occupational diseases is an "undertaking" for the purposes of EC competition law. Case C-350/07 came before the European Court of Justice (ECJ) on a preliminary reference from a court in Saxony (Germany). The background to the case is that the insurance body concerned, MMB provided statutory occupational accident insurance company to a private company, Kattner. In November 2004, Kattner decided to cancel its affiliation with MMB on the basis that it had decided to obtain private insurance. MMB advised Kattner it could not opt out of the affiliation. Kattner appealed the decision claiming that compulsory affiliation breaches EC competition law. One issue referred to the ECJ was whether MMB is an "undertaking" under Articles 81 & 82 EC. In his Opinion the AG's took the view that a body operating a social security scheme based on the principle of solidarity would not be an "undertaking" where certain elements of the scheme are subject to State supervision. The AG also took the view that the compulsory affiliation of certain employers to insurance associations operating such social security schemes did not breach the EC Treaty rules on free movement of services.

ECJ Rules On Agreement To Reduce Capacity

The European Court of Justice (ECJ) has given its ruling on the question of whether an agreement between Irish beef processors to reduce processing capacity may amount to a restrictive practice in breach of Article 81(1) EC. Case C-209/07 came before the ECJ on a preliminary ruling from the Irish Supreme Court. The background was that, following concerns in 2002 about overcapacity in the Irish beef market, the 10 largest processors formed the Beef Industry Development Society (BIDS). BIDS formed a rationalisation plan to reduce capacity by 25%. Under the plan, BIDS would offer a standard contract to processors exiting the market to whom a compensation payment was made from a fund created by a levy on members of BIDS remaining in business. The Irish Competition Authority challenged the scheme on the basis that it breached Article 81(1) EC and the issue eventually went before the Irish Supreme Court. The ECJ concluded that the standard form agreement to reduce capacity would fall within the scope of Article 81(1) EC as it involves co-ordination of behaviour on the market and limits independent action. The ECJ did not rule out that the crisis in the sector may be relevant for consideration of whether the Agreement might benefit from exemption under Article 81(3) EC, but this did not affect the analysis of whether it fell within the scope of Article 81(1) EC.

Advocate General Recommends Reduction Of Fines In Citric Acid Cartel

n 6 November 2008, Advocate General Mengozzi (the AG) gave his Opinion on an appeal brought before the European Court of Justice (ECJ) by Archer Daniels Midland Co (ADM). In 2001, the European Commission (Commission) fined ADM and four other companies a total of €135.2m for their participation in an illegal price-fixing cartel in the citric acid sector. The Commission found that between March 1991 and May 1995, the companies met regularly and allocated specific sales quotas, fixed target prices, exchanged customer information and eliminated price discounts. Furthermore, the companies took concerted action to prevent imports from China. The Court of First Instance (CFI) dismissed ADM's appeal against its fine of €36.7m in 2006. ADM lodged an appeal with the ECJ citing errors in the CFI's judgment, in particular in relation to ADM's role as a ringleader in the cartel and its assessment of the impact of the cartel on the market. The AG recommends ADM's fine to be reduced to €29.4m on the basis that insufficient evidence had been produced to demonstrate that ADM was the ringleader. The AG also raised concerns regarding the level of factual information set out in the statement of objections. He highlighted that the right of defence requires a sufficient level of information to enable the accused to be aware of the case against it. However, in other respects, the AG recommends upholding the Commission's decision and dismissing much of the rest of the appeal, in particular with regard to the impact of the cartel on the market.

Commission Approves Acquisition Of ILOG By IBM

On 10 November 2008, the European Commission (Commission) cleared the acquisition of ILOG S.A., a French company active in the development of computer software, by US company International Business Machines Corporation (IBM). IBM is a worldwide company active in the development, production and marketing of various IT solutions. Following an investigation, the Commission confirmed that although there were some horizontal overlaps in the parties respective activities with regard to the application development and deployment of software and supply chain management applications, these overlaps were limited and the merged company would continue to face strong competition. Furthermore, the vertical and conglomerate links between ILOG and IBM would not impede competition, as the merged company would not have the ability to restrict access to ILOG's products.


ECJ Ruling In Coditel Case

On 13 November 2008, the European Court of Justice (ECJ) gave its ruling in the Coditel case (C-324/07) following a preliminary reference from a Belgian court. The Coditel case concerned the award of a services concession for television cable network services by a local authority to an inter-municipal co-operative society. Unlike public contracts, service concessions fall outside the scope of the Public Procurement Directive (2004/18/EC), however a challenge was taken on the question of whether the EC rules on free movement and the general principles of European law required the contract to go out to an open tender. The central issue was whether the contract could be treated as an "in house" arrangement not requiring an open tender, in accordance with the test the ECJ has established under earlier case law (notably the Teckal case C-107/98). Under this test, it had to be demonstrated that the level of control exercised by the local authorities over the concessionaire was equivalent to that which it exercised over its own departments and whether the concessionaire would carry out the essential part of its activities with the controlling authority or authorities. In this instance, it was clear that the second limb of the test was met so the real issue was one of "control". The ECJ held that where a number of public authorities own a concessionaire to whom they entrust the performance of a public service task, the control that they exercise over that entity may be exercised jointly. Having considered the facts of the case, the Court concluded that the level of control required was met in this instance.

Italian Tramway Contract Constitutes "Works Contract"

In 2002 the Municipality of L'Aquila in Italy launched a tender procedure for the design realisation and management of a tramway. The intention being that the Municipality would award a works concession. However, having received no bids, the Municipality awarded the contract to the construction group CGRT. Under the contract between the Municipality and CGRT, the tramway concessionaire that would eventually run the tramway would enter into a service agreement with the Municipality and also pay CGRT a periodic payment for the right to exploit the tramway. Following complaints, the Commission took an action before the European Court of Justice (ECJ) over the question of whether the contract between the Municipality and CGRT was wrongly categorised as a public works concession and should have been treated as a public works contract under the procurement rules. On 13 November 2008, the ECJ held (in Case C-437/07) that, since CGRT did not assume any of the risks associated with the exploitation of the tramway, the contract constituted a "public works contract". Consequently, the contract should have been tendered in accordance with the procurement rules and the "public financing" procedure the Municipality had used did not fulfil its obligations under those rules.


France Ordered To Recover Illegal Tax Aid

The French Government has failed to convince the European Court of Justice (ECJ) that it was unable to recover illegal aid provided under a tax exemption scheme. In 2003, the European Commission (Commission) decided that a provision in the French General Tax Code, which provided a two year exemption from corporation tax for companies acquiring firms in difficulty was incompatible with the rules on State aid under the EC Treaty. The Commission's decision required the French Government to identify the principal companies benefiting from the scheme and to seek recovery of the aid. Although the principal beneficiaries were identified, by 2006 no recovery orders were issued and the Commission initiated an infringement action before the ECJ. On 13 November 2008 (in Case C-214/07), the ECJ confirmed the Commission's decision and rejected France's defence that it was not possible to obtain recovery. The ECJ pointed out that the Commission had not complained that France had not sought recovery from beneficiaries that had ceased trading but only with regard to companies that were still trading.

Recapitalisation Of ING Approved

The Commission has approved an emergency recapitalisation scheme for the Dutch financial group, ING in recognition of the fact that loss of confidence in the institution would have had a serious impact on the Dutch economy. The Dutch authorities now have six months to submit a restructuring plan that will ensure the Group's long-term viability.

Rescue Aid For Italian Regional Air Carrier

Alpi Eagles SpA, a regional air carrier based in the Veneto region of Italy will be granted a €17m loan to recommence flight operations following approval by the European Commission of a notified rescue scheme. The aid will not only help secure jobs for the 150 staff working for the company but also maintain transport links for the region. However, rescue aid is only a temporary solution. Within six months the company will either have to be restructured, liquidated or be able to operate without the benefit of a publicly guaranteed loan.

Commission Seeks Penalties Against Greece Over Aid For Airline

After years of wrangling over State aid to Olympic Airways, the European Commission (Commission) has taken Greece to court again to force recovery of the aid. On 12 May 2005, the European Court of Justice (ECJ), in Case C-415/03, confirmed that certain aid provided to the airline was unlawful and should be recovered. The Commission alleges that this aid was never recovered and launched a further action before the ECJ to enforce the earlier Judgment. On 12 November 2008, there was a hearing before the ECJ (Case C-369/07) at which the Commission argued that the ECJ should impose a daily penalty for every day that Greece has failed to comply with the ECJ's 2005 Judgment. The Greek authorities claim that the aid has been fully recovered and that further action is unnecessary. This case is the first time that an action has been taken under Article 228 of the EC Treaty to impose penalties on a Member State for failure to comply with competition or State aid rules. A ruling on the case is expected next year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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