European Union: Brussels Update - EU & Competition (January 2009)

Last Updated: 8 January 2009
Article by Cyrus Mehta and Rachel Bickler

UK COMPETITION

New OFT Guidance On Leniency

The OFT has published guidance on how it will handle applications for leniency and no-action for businesses and individuals who come forward with information regarding competition law infringements. The OFT's leniency programme offers reduced fines and immunity from criminal prosecutions for whistle-blowers. The new Guide provides: more detail on what is required from the leniency applicant in order to benefit from the programme; transparency on the levels of reductions in fines that can be applied; and at what stage in proceedings individuals will be told whether or not they are at risk of a criminal prosecution.

CAT Dismisses Appeal Of LloydsTSB/HBOS Merger

On 31 October 2008, the Secretary of State (SoS) used the newly created public interest grounds of "financial stability" to clear the proposed merger between LloydsTSB Group plc and HBOS plc, despite competition concerns raised by the Office of Fair Trading. The Merger Action Group (MAG), a group of 6 businessmen with 630 "supporters", appealed this decision to the Competition Appeal Tribunal (CAT). MAG claimed that the merger should have been referred to the Competition Commission and that the SoS had acted unreasonably. On 10 December 2008, following a two-day hearing, the CAT ruled that MAG was entitled to bring such a case but dismissed the case on its merits. MAG has indicated it will not bring a further appeal.

New Merger Remedy Guidelines

The Competition Commission (CC) has published new Merger Remedy Guidelines, providing information on its assessment of possible solutions to mergers that raise competition concerns. The new Guidelines were published on 26 November 2008 following a consultation and will apply to all merger cases where a remedies notice has not yet been issued. The Guidelines provide much greater detail on a number of different types of available remedies, including behavioural and divestment undertakings.

OFT Decides Not To Investigate Derivatives Clearing Market

The Office of Fair Trading (OFT) has announced that it will not investigate the market for clearing of derivatives. Despite the turmoil in the banking world, the OFT concluded that it did not need to take its own action in light of the regulatory initiatives by the EU and the US, as well as significant evidence of intervention from the industry itself and users of clearing services. The OFT has stated that it will continue to monitor the developments in the clearing market closely.

Project Kangaroo On-Line Video Library Raises Competition Concerns

The Competition Commission (CC) has published its provisional findings on a proposed joint venture, "Project Kangaroo", between BBC Worldwide Limited (BBC), Channel Four Television Corporation (C4) and ITV plc. Project Kangaroo is designed to be an on-line video-on-demand content (VOD) service, providing internet users with access to the catalogue of BBC, ITV and C4 productions. The CC has provisionally found that the joint venture is likely to result in a substantial lessening of competition in the supply of UK TV VOD at both the wholesale and retail levels. The CC has opened a consultation into these provisional findings and any potential remedies.

EU COMPETITION

Unannounced Inspections At Pharmaceutical Companies

The European Commission (Commission) confirmed that on 24 November 2008, it conducted unannounced inspections at the premises of a number of pharmaceutical companies in several Member States. The inspections are a preliminary stage of the Commission's investigations into potential anti-competitive practices in breach of Articles 81 and/or 82 of the EC Treaty. The duration of the investigation will depend on the complexity of the case and the co-operation of those involved. French drugmaker, Servier, and Israel's generics-drugs giant, Teva Pharmaceutical Industries Ltd both confirmed to the press that they have been subject to the Commission's raids. The Commission has indicated that this investigation is not related to its earlier inspections in January 2008 and is not part of its broader pharmaceutical sector inquiry.

Interim Report On Pharmaceuticals Inquiry

On 28 November 2008, the European Commission (Commission) presented the interim results of its pharmaceutical sector inquiry launched in January 2008. The Commission's initial findings are that the market is ineffective. Among the practices the Commission has highlighted are: the use by originating companies of multiple patent applications for the same medicine (patent clusters); initiation of disputes and litigation; and patent settlement agreements. The Commission estimates that between 2000 and 2007, these practices would have cost Member State's health insurance systems around €3bn due to the maintenance of higher prices. Although the Commission has signalled concerns that these practices cause delay to market entry for cheaper generic drugs, this initial report does not make any concrete findings on whether any of the tactics breach EU competition law. The Commission has asked for comments on its findings.

Consultation Into Assessment Of Horizontal Co-Operation Agreements

The European Commission (Commission) has launched a public consultation on the current rules applicable to restrictions in horizontal co-operation agreements (i.e. agreements between competitors). The instruments open for consultation are the research & development block exemption regulation, the specialisation block exemption (both of which are due to expire at the end of 2010) and the Commission's Guidelines on application of Article 81 to horizontal agreements. The Commission has invited stakeholders to submit their comments by 30 January 2009.

Joint Venture Approved In Mobile Telecommunications Sector

On 26 November 2008, the European Commission (Commission) approved the creation of a joint venture between EMP (the wireless platform business of Ericsson) and ST-NXP (the wireless semiconductors business of STMicroelectronics). The joint venture is intended to supply wireless platforms for mobile handsets and semiconductors for mobile telecommunications. The Commission did not find any serious competition overlaps in relation to the market for wireless platforms. Although the parties are active on vertically-related markets and the joint venture would create an integrated platform supplier, the Commission's investigation found that it was unlikely to result in a restriction of sales. The Commission therefore concluded that the proposed joint venture would not significantly impede effective competition.

BNP Paribas To Acquire Parts Of Fortis Holding Subject To Conditions

On 3 December 2008, the European Commission (Commission) cleared the acquisition of Fortis Bank Belgium, Fortis Banque Luxembourg and Fortis Insurance Belgium by BNP Paribas (BNPP). The proposed acquisition is subject to BNPP's commitment to sell off BNP Paribas Personal Finance Belgium SA/NV (PFB), in order to address concerns over customer choice for credit cards. In the absence of that divestment, the merged entity would become by far the largest player in the field of credit cards in Belgium. This acquisition follows the Commission's approval of the support package granted between 29 September 2008 and 5 October 2008 by Belgium, Luxembourg and the Netherlands to Fortis Bank and Fortis Bank Luxembourg. The Commission commented that it anticipated that the acquisition by BNPP was likely to assist Fortis Bank return to long-term viability.

German Electricity Market Reopened

Following an investigation into allegations of abuse of a dominant position, the European Commission (Commission) accepted a number of remedies offered by the German energy group E.ON. The Commission's investigation disclosed concerns that E.ON may have devised and implemented a strategy to deter third parties from investing in electricity generation and favoured its own production affiliate in the provision of balancing services while at the same time passing the resulting costs on to final consumers. Following market testing on the effectiveness of the offered remedies, the Commission has accepted E.ON's proposal to sell off 5,000 megawatts of electricity generation capacity to competitors together with its entire extra-high voltage network. This divestment means more than 20% of Germany's generation capacity will be available to competitors and newcomers. The objective of this proposal is that increased competition may assist in reducing prices.

INTERNAL MARKET

Road And Rail Public Service Obligation Regulation

A new Regulation has been adopted (1370/2007) which sets out the conditions under which Member States should impose public service obligations on public transport operators and regulates compensation for provision of public services. It also requires that contracts to third parties to provide transport services should be awarded by means of a competitive tender (other than bus and tram services that are already covered by similar obligations under the public procurement and utilities contracts rules). Specific rules apply where local authorities choose to provide local transport services themselves or to an entity under their own control. The new Regulation also establishes a limit for the duration of public service transport contracts.

PROCUREMENT

Contract For Power Station In Cyprus Referred To ECJ

The European Commission is taking an infringement action regarding alleged failures by the Electricity Authority of Cyprus to comply with the correct procedures for the procurement of the Vasilikos Power Station. The alleged procedural errors include: failure to apply the provisions of the invitation to tender in a uniform way; rejection of a bidder on the basis of undisclosed criteria; and failure to provide adequate reasons for rejection in a timely manner.

Challenge To Spanish Law On Modification Of Contracts After Award

Spain's new public procurement law 2007 is under scrutiny by the European Commission (Commission) on the basis that it contains provisions that allow for key terms of public contracts to be modified without the need for this to be clearly provided for in the contract documents. According to the Commission, these provisions are inconsistent with EC law requirements to ensure that public procurements are fair, non-discriminatory and transparent.

Action Over German Waste Disposal Contract

Infringement proceedings have commenced before the European Court of Justice over a public service contract for the disposal of biodegradable waste in Germany. The City of Bonn has a long-term partnership arrangement with a private company. This is a reciprocal arrangement under which the municipality disposes of household waste collected by the private partner in its incineration facility while the private partner treats the municipality's bio-waste in its private-sector composting plants. Following a complaint from a rival waste disposal provider and the failure to achieve a negotiated settlement involving early termination of the contract, the European Commission opened infringement proceedings claiming that the contract should have gone out to competitive tender.

STATE AID

Consultation On Best Practices Code For State Aid Procedure

On 11 December 2008, the European Commission (Commission) has published for consultation, its draft Best Practice Code (Code) for the conduct of State aid procedure. The aim is to improve the effectiveness, transparency, timing and predictability of procedures. Among the proposals are: provisions for enhanced pre-notification contact; a simplified procedure for straightforward cases; and agreed planning timetables with Member States for complex ones. Of particular interest to businesses are the proposals to make summaries of notifications available on the Commission's website and a more predictable and transparent system for dealing with complaints. The Commission is also in the process of setting up an Economic Crisis Team to provide swift review of State aid measures intended to deal with the crisis in the economy. The Commission has sent a strong political message to Member States indicating that for the Code to work effectively, it would require their co-operation.

Guidance On Bank Recapitalisation During The Financial Crisis

The European Commission published a Communication on 8 December 2008, which contains detailed guidance on how Member States can recapitalise banks during the current financial crisis, while at the same time avoiding excessive distortion of competition. The aim is to address concerns that measures taken to support financial institutions during the crisis will be used to support lending to the real economy and will not be utilised by banks to aggressively compete with rivals in the market which operate without Government support.

State Aid To Postbus Compatible With "Altmark" Test

The European Commission (Commission) has decided that compensation paid to the bus company Postbus under contract for transport services in the district of Lienz in Austria, does contain elements of State aid. However, following an investigation, the Commission has decided that the compensation is fair compensation for the public service obligations that it performs and is compatible with the ECJ's guidance in the Altmark Judgment (C-280/00). In that case the ECJ established a four-limb test for deciding when compensation paid for public service is deemed not to constitute State aid. In the meantime, the European Parliament and Council have recently adopted a new Regulation (1370/2007 on public passenger transport that elaborates on the applicable rules (see article above)).

In-Depth Investigation Into Aid To Dell

An in-depth investigation has been opened into proposed investment aid worth €52.7m for Dell Products Poland (DPP) to build a new plant for the production of desktops, notebooks and servers. DPP is a Polish subsidiary of the US computer corporation, Dell Inc. The proposed plant is to be established in Łódź, which is designated as an EU regional disadvantaged area. The project is expected to create up to 3,000 jobs in the area. However, the European Commission (Commission) wants to take a closer look at the scheme to verify whether the regional guidelines have been respected and whether the aid provides an incentive to the company to make the investment or whether it might have occurred otherwise. For the moment, the Commission has indicated it has not formed a definitive view on the issue.

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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