UK: SJ Berwin´s Community Week: A Weekly Summary Of Competition Law And Policy Developments

Last Updated: 1 June 2009
Article by SJ Berwin's EU & Competition Team

EU DEVELOPMENTS

Online Commerce Roundtable report is published

On 26 May 2009, the European Commission (the "Commission") published a report on the outcome of its cross-departmental consultation with industry members and leading consumer groups into online retailing, conducted as an Online Commerce Roundtable. It paid particular attention to the online retailing of music and the impact territorial rights have on EEA-wide music licensing.

The Roundtable, hosted by the Commission in September 2008, and followed by a second meeting in December focusing solely on online music retailing, invited consumer and industry representatives to discuss the business opportunities created by the use of the internet as a trading tool, and the various legal and practical barriers that continue to impede EU consumers from benefiting from cross-border online goods and services.

Regarding online retailing, the Commission reported that companies are wary of offering a true cross-border service due to practical or legal concerns, caused by, in particular, EU and/or national consumer protection, taxation or copyright laws and concerns over internet security. The report noted the increasing use of opportunities presented by online retailing. However, it noted that barriers remain, caused by, in particular, EU rules on selective distribution rights which can operate to prevent cross-border online sales under certain circumstances. The Commission took account of various views on the EU rules on selective distribution of goods and services and how they currently apply to online goods, which it will feed into DG Competition's review of the Vertical Agreement Block Exemption, which is due to expire on 31 May 2010.

Regarding the online retailing of music, the report noted that it is currently often limited to a customer's country of residence due to various intellectual property rights and territorial restrictions in place, particularly due to the fact that both record companies and collecting societies have in the past been unwilling to grant pan-European licences for their products. This can lead to some negative effects for consumers, such as the differences in price between various iTunes websites according to jurisdiction, and customers' inability to choose between them.

The parties agreed on the necessity of EEA-wide licensing arrangements for online music and more transparency on the ownership of individual rights in order to facilitate this. Several industry representatives set out the framework for their own voluntary reforms to achieve this goal - EMI and SACEM (the French collecting society) both offer EEA-wide licences and will continue to do so, SACEM agreed to drop the collecting agencies' usual demand for exclusive control over licensing a particular artist in a given territory, and EMI stated that it is willing to use multiple rights managers in EEA-wide licensing situations.

The study also identified other barriers to online trade, including piracy and counterfeit luxury goods, fragmented intellectual property rights and the patchwork of national consumer protection laws.

A public consultation has been launched and interested parties have been invited to submit comments on the issues raised (relating to music retailing only) by 30 June 2009, focusing on licensing solutions that would allow companies to be able to legally offer music online across Europe. The next Roundtable will look at the extent of progress achieved based on the extent to which the solutions proposed have been implemented and the voluntary undertakings of industry members.

UK DEVELOPMENTS

CAT publishes summary of BAA appeal

On 22 May 2009, the Competition Appeal Tribunal ("CAT") published a summary of BAA's application to challenge certain findings of the Competition Commission ("CC") in its final report on the market investigation into airports owned by BAA.

On 19 March 2009, the CC published its findings that BAA should be forced to sell Gatwick and Stansted airports (to separate buyers) as well as one of either Glasgow or Edinburgh in order to remedy an adverse effect on competition resulting from BAA's market power. Such divestments have been ordered to take place within two years. In light of this timetable and the current market conditions, there are understood to be concerns that the assets may have to be sold at a substantial loss. Bids for Gatwick airport, which has already been put on the market, are reported to have come in at substantially below regulated value.

BAA is seeking that all references to the required divestments be quashed from the report. The reasoning is twofold.

Firstly, BAA alleges there has been 'apparent bias' on the basis that a member of the inquiry team at the CC, has links as strategic advisor to the Greater Manchester Pension Fund - an undertaking that may be interested in acquiring the airports BAA is being forced to sell. There is no allegation of bias itself.

The second ground of challenge is that the remedies proposed are not proportionate, in particular that the CC had not, in light of the current financial and economic environment, taken into account or given any consideration to, the costs of divestiture.

This second ground draws parallels with Tesco's recent challenge to the CC's "competition test" - a proposed remedy arising out of the CC's groceries market inquiry. In that case, the CAT found that the CC's proportionality assessment was flawed and there was a gap in the costs analysis and has ordered the CC to reconsider the test.

The first case management conference in the BAA case is scheduled for 1 July 2009, with the time limit for interventions set for 12 June 2009. Current expectations are that a final judgment will be handed down around the end of the year. In the meantime, the bidding process for Gatwick is understood to be continuing with a preferred bidder likely to be named by the end of this month.

Court of Appeal reverses CAT decision on whether damages action is time-barred

On 22 May 2009 the Court of Appeal (the "Court") held that the damages claim brought by BCL Old Co. Limited ("BCL") and others against BASF was time-barred, reversing a decision of the Competition Appeal Tribunal (the "CAT"). The Court's judgment provides clarification of the statutory provisions relating to the still relatively infrequently used right to bring follow-on damages actions under section 47A of the Competition Act 1998 (the "Act").

This dispute derives from a November 2001 European Commission (the "Commission") infringement decision that BASF had participated in a price-fixing cartel in relation to the sale of vitamins for use in animal feedstuffs. In March 2008, BCL claimed that as an indirect purchaser of vitamins it had suffered loss resulting from the cartel. In defence, BASF contended that BCL's claim was time-barred.

The Court had to decide the relevant date by which BCL could have claimed for damages without permission from the CAT based on the Act and the CAT rules (the "Rules"). Rule 31 sets a two year deadline for the automatic right to bring damages actions from the "relevant date". The relevant date is determined with reference to either the latest date BASF could have appealed against a decision made by the Commission or the determination of such an appeal. Critically in this case, BASF had appealed against the penalty but not against the finding of infringement.

Dismissing BASF's argument that the right under section 47A was only intended to apply to decisions on infringements, the CAT had found that the relevant 'decision' was that of the Court of First Instance to reduce BASF's penalty on 15 March 2006. The CAT reasoned that as there was a risk that a decision in relation to the gravity of a penalty would be relevant to a defendant's liability in damages, section 47A applies equally to both decisions on infringements and decisions on penalties. Consequently, the CAT concluded that BCL's claim was not time-barred.

The Court however disagreed with the CAT's analysis for the following reasons in particular:

  • There is only a remote possibility that an infringement decision would be called into question on the basis of a challenge to the penalty - in the absence of a challenge to the infringement decision itself.
  • The wider statutory context of the Act demonstrates a clear distinction between a decision that a relevant prohibition has been infringed and a decision to impose a penalty.
  • European case law indicates a distinction between infringement decisions and penalty decisions - i.e. the Commission is entitled to make a finding of infringement even if it does not impose a fine.

On this basis, the Court found the relevant decision to be the Commission's infringement decision of November 2001 - and that the deadline for bringing the action was not extended by the appeal on the amount of penalty. Consequently, BCL's claim was time-barred. That said, the Court also noted that the use of Rule 19 (2) (i), which enables the CAT to delay the relevant date, means that failure to apply within a two year time limit laid down by rule 31 is not necessarily fatal to bringing a claim within section 47A.

Pharmaceutical companies not fined despite implementing price increase agreements through cooperation

In late 2008, the pharmaceutical company Grünenthal GmbH ("Grünenthal") applied for immunity at the German Federal Cartel Office ("BKartA"). Grünenthal provided to the BKartA information concerning an agreement with fellow pharmaceutical company Infectopharm GmbH ("Infectopharm") to raise prices and helped to establish the facts of the case through extensive cooperation. Through the information gathered, the BKartA was able to terminate the conduct between Grünenthal and Infectopharm, two producers of colistin antibiotics, and to enforce a price reduction for the respective drugs. Furthermore, the health insurance funds that had bought the products at the inflated price and provided those products to their members are to be reimbursed by both Grünenthal and Infectopharm for the extra costs they have incurred through the pricing agreements between the parties.

Due to Grünenthal's immunity application and due to its extensive cooperation, the BKartA refrained from imposing a fine on Grünenthal.

The BKartA also refrained from imposing a fine on Infectopharm due to the minor financial significance of the pricing agreement, Infectopharm's low market share and the company's voluntary agreement to settle the loss caused by its pricing agreement with Grünenthal

German Federal Supreme Court allows use of "Competition Law Defence" in patent infringement proceedings

The German Federal Supreme Court (the "Court") handed down a judgment on 6 May 2009 in which it has allowed the use of a "competition law defence" or a "compulsory licence defence" in patent infringement proceedings. The Court held that defendants who are being sued for the unlicensed use of a necessary industry standard patent can, after they have fulfilled certain criteria, use the competition law defence, preventing the plaintiff from bringing a claim against them for patent infringement. As the Court has used Article 82 of the EC Treaty in its reasoning, this judgment is likely to receive attention Europe-wide. Unfortunately, this summary is based on the press release and excerpts of the judgment, as the full transcript of the judgment is not yet available.

The plaintiff will need to be dominant on the market in question and have abused its dominant position by refusing to conclude a patent licensing agreement with the defendant on fair, reasonable and non-discriminatory (FRAND) terms. The defendant will have to show that it has applied for a licence on (at least) objectively reasonable terms (based on common practice in the relevant industry or market intelligence) and the request was denied by the plaintiff.

According to the judgment, the defendant can rely on the "competition law defence" if the defendant behaves like a "true licensee" when using the unlicensed patent in question. As a "true licensee" the defendant needs to pay to the plaintiff, or at least deposit in a separate account, the licence fees which the plaintiff would have been entitled to under FRAND licensing terms. If these conditions have been fulfilled, the plaintiff will be barred from bringing a patent infringement action against the defendant.

In this case, Koninklijke Philips Electronics N.V. ("Philips") owned the patents in question, which were required industry patents for the production of CDRs and CDRWs (the "Orange Book Standards"). The defendant had used the essential patents without the required licence. As the only owner of these patents, Philips is dominant on the market for the supply of the patents. Despite it having been shown that Philips had abused its dominant position, the Court did not allow the defendant to rely on the competition law defence in the present case. The defendant had not set aside the monies it would have owed Philips under a licence agreement on FRAND terms and had therefore not acted as a "true licensee". Therefore, the defendant was ordered to cease using the patents, destroy the relevant products and pay damages for the infringement.

ITALIAN DEVELOPMENTS Alitalia saga: Italian regional court declares pre-merger control waiver for crisis buyouts potentially unconstitutional

On 20 May 2009 the Italian Administrative Court of First Instance ("TAR Lazio"), suspended the pending appeals against the decision of the Italian Competition Authority ("ICA") which conditionally authorised the CAI-Alitalia-AirOne merger in order to refer a question of constitutionality to the Italian Constitutional Court.

On 3 December 2008, the ICA authorised the acquisition by the consortium CAI of certain assets of the most important Italian flying carriers Alitalia and AirOne, under the terms of Decree 134/2008 (so called "Alitalia Decree") which under Art. 1 para. 10 introduced urgent measures precluding the ICA from blocking mergers between large companies carrying out services of general economic interest and deemed to be in "crisis", if such mergers occur between the entry in force of the Alitalia Decree and June 2009 (see issue 402 of Community Week).

Meridiana and Eurofly, both competitors of Alitalia and AirOne, and Federconsumatori, an association representing consumers' interest, filed appeals before the TAR Lazio in an attempt to annul the ICA decision.

Among the numerous violations alleged by the claimants, Tar Lazio found that two articles of the Italian Constitutional Court may have been violated by the Alitalia Decree, namely Art. 3, which guarantees the right of equal treatment, and Art. 41, which guarantees the freedom of economic activities.

In its suspension order, TAR Lazio stated that it is likely that Art. 1 para. 10 of the Alitalia Decree discriminated against competitors by reserving a privileged treatment to Alitalia and AirOne, whose merger has been implemented without any pre-merger control by ICA as to any potential creation or strengthening of a dominant position. In addition, according to TAR Lazio, such discrimination was not reasoned or based on an other constitutional rights, thus resulting in a potential violation of Art. 3 and 41 of the Italian Constitutional Court.

It should be noted that, if the Constitutional Court resolve that Art. 1 para. 10 of the Alitalia Decree effectively violated the Constitutional articles cited above, such provision of the Alitalia Decree would be declared unconstitutional and annulled; as a consequence the ICA's decision, adopted on the basis on such unconstitutional law would be affected and, for this reason, the TAR Lazio deemed it necessary to suspend the pending appeals in order await the outcome of the Constitutional Court's judgment.

OTHER DEVELOPMENTS

Jersey issues its first abuse of dominance finding

On the 20th May the Jersey Competition and Regulatory Authority ("JCRA") issued its first ever abuse of dominance decision, fining the Government's Transport and Technical Services department ("TSS") £15,000 for abuse of its dominance in the sewerage services market.

TSS owns the only facility for the disposal of sewerage in septic and tight tanks on the island and was found to have behaved anti-competitively in issuing licenses for the use of this facility to private sewerage companies. The JCRA states that TSS prohibited companies from disposing of waste at the facility, restricting consumer choice for this service and resulting in consumers paying higher prices.

Although the fine is relatively small, its significance arises out of the fact that it represents a commitment from the competition authority to penalise not only private companies but also state entities for breaches of competition law.

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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