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

Last Updated: 23 June 2009
Article by SJ Berwin's EU & Competition Team

EU DEVELOPMENTS

Commission market tests commitments offered by Rambus

The European Commission (the "Commission") has published a notice under Regulation 1/2003 (the "Regulation") inviting interested parties to comment on the recent commitments offered by microchip developer Rambus (the "Commitments"). The Commitments have been offered to meet the Commission's concern that Rambus may have contravened Article 82 EC.

The Commission issued a statement of objections on 12 July 2007, which focused on Rambus' licensing strategy for patents relating to "Dynamic Random Access Memory" chips (DRAMS), a type of electronic memory primarily found in computer systems. The Commission was concerned that Rambus had engaged in a strategy of "patent ambush" during the standard setting process for DRAMS enabling it to claim inflated royalties for the use of its DRAM patents.

The Commission alleged that Rambus had refrained from disclosing patents which it later claimed were relevant to the adopted standard. By way of remedy, the Commission proposed that Rambus amend its conduct and provide a license at a reasonable and non discriminatory rate.

Rambus refutes the Commission's preliminary assessment, maintaining that it does not hold a dominant position in any EU or EEA market and has not engaged in any abusive conduct. Nevertheless, in order to address the Commission's concerns Rambus has offered commitments pursuant to Article 9 of the Regulation in which it proffers two sets of license grants, one for DRAMS and one for "Memory Controllers" (an integrated circuit that is capable of controlling the DRAM device). The licence offers are to be open for a period of 5 years.

The Commitments fix maximum royalty rates and include a promise to ensure that any future rate reductions will apply to the whole market. Subject to compliance with the terms of the license, certain licensees will be granted a royalty holiday for the duration of the license. Any licence will be foreword looking only, with the result that licensees will not be exempt from any liability that may have arisen from damages or royalty obligations accrued up to the time of the license grant. Both licence grants are offered as a fixed package.

Under the Regulation, third parties have a period of one month (until 12 July 2009) to present comments on the Commitments offered. The Commission will then decide whether to accept the Commitments and make them legally binding. If accepted, the Commission will close its file without making a finding of infringement.

UK DEVELOPMENTS

OFT publishes provisional findings relating to its market study on Isle of Wight ferry services

The OFT recently published provisional findings in its market study into the market for ferry services to the Isle of Wight, concluding that the OFT was minded not to refer the market to the Competition Commission ("CC") for a market investigation reference.

The OFT initiated the market study at the end of February after the OFT received a complaint from the Isle of Wight's MP (and 8,000 petitioners). The market study focussed on (i) whether the ferry service was working well, (ii) the prospects of new entry into the market and (iii) the importance of ferry services to the island's residents.

The market is currently split between three providers of passenger only ferry services, two of which also operate car ferry services. Each of the operators owns estates in the ports they operate from. The OFT found that there is some weak inter-route competition. Furthermore, barriers to entry were high, particularly for car ferry services.

The most significant conclusion arrived at by the OFT was that the routes may not be sufficiently busy to support more than one operator. This, together with the physical barriers to entry caused by the lack of available port facilities, gave the OFT reasonable grounds for suspecting that there are features in the market that prevent, restrict or distort competition. But the OFT is minded not to refer the market to the CC for a number of reasons, including the absence of significant detrimental effects on consumers, the small size of the market and any obvious remedies would not be effective or proportionate.

The OFT has, however, called for voluntary action by ferry operators to increase transparency about their performance over time. In the meantime, the OFT's provisional decision not to refer the market to the CC is currently under consultation before a final decision is taken.

OFT publishes the results of its media merger review

This week the Office of Fair Trading (the "OFT") published its report on the review of the local and regional media merger regime (the "Report"). The Report, undertaken as part of the Government's wide-ranging Digital Britain review, is a response to the profound economic challenges facing the local and regional newspaper industry. However, the OFT concluded that no legislative changes are required as the current regime is flexible enough to deal with the current situation.

Media mergers have a slightly separate regime to mergers in other industries, although parts of the process are similar. Media mergers can qualify as a "relevant merger situation" under the Enterprise Act and, if notified to the OFT, be reviewed by the OFT for competition issues (and, if necessary, be subject to a more detailed investigation by the Competition Commission). That said, the Enterprise Act recognises the public interest element in media mergers and therefore provides for intervention by the Secretary of State for Business, Innovation and Skills (the "SoS") in relation to public interest considerations, for example, the need for accurate reporting, free expression and a plurality of opinion in newspapers.

The SoS may also intervene in media mergers that do not qualify as "relevant merger situations" where one of the following conditions are met:

  • at least one quarter of all newspapers (of the relevant description) supplied in the UK (or a substantial part of it) are supplied by one of the merging parties; or
  • at least one quarter of all broadcasting (of the relevant description), including newspapers, provided in the UK (or a substantial part of it) is provided by one of the merging parties.

Various media companies have recently vigorously lobbied the Government over concerns that the current regime hinders the industry's efforts to adjust to new situations such as increasingly accessible news, e.g. from the internet, and the economic downturn. The present set-up, they argue, lacks sufficient certainty to spur the consolidation necessary for an industry under substantial competitive pressures.

While the OFT acknowledged these concerns, it recommended that no legislative change is required. The OFT considers that the present case by case approach to media mergers is capable of adjusting to the emerging market dynamics.

Going forward, the OFT made three recommendations: (1) the OFT should make better use of Ofcom's expertise in media mergers; (2) the impact of local authority publications on private local and regional media should be reviewed further by the National Audit Office; and (3) the Government should clarify the scope of the public interest provisions.

FRENCH DEVELOPMENTS

European Commission issues opinion on the opening of the online gambling and games of chance market to competition

In France, online gambling and games of chance are currently subject to a State monopoly. On 5 March 2009, the French Minister of Budget presented to the public a bill (the "Bill") on the opening of the online gambling and games of chance market to competition (See Community Week issue 415). The Bill has been submitted, on 25 March 2009, to the French National Assembly and is currently under review by the Finance Commission of the said Assembly.

The French Government forwarded the Bill to the European Commission (the "Commission") which notified the French Government on 8 June 2009 with a detailed opinion, raising objections about the compatibility of several aspects of the Bill with the principle of freedom to provide services within the EU.

The Commission noted four particular aspects which it considers do not comply with this principle:

  • the automatic granting of a licence in France, even to online gambling and games of chance actors (operators) legally operating in another Member State;
  • the obligation for an operator to be established in the European Economic Area and have a fiscal representative in France;
  • the taxation imposed on the amount wagered and the limit on the maximum proportion of bets paid back to the players per category;
  • the property right provided to the sporting event organisers for their events (names, calendars, data or results) which the actors would have to purchase to be able to use these events.

The French Government has to take into account the Commission's opinion in reviewing the Bill which will be adopted after 8 July 2009. The French Government also has to communicate the definitive text of the Bill to the Commission.

French Competition Authority fines nineteen removal firms for sharing the market for military removals in the French North-East region

On 12 June 2009, the French Competition Authority (the "Authority") fined nineteen removal firms for having issued falsified estimates in order to share the market for military removals in the French North-East region.

Military removals are subject to specific rules in France. In the case where military personnel are transferred, the costs are paid by the French public military administration. The transferred solider has to look for removal firms and asks for estimates, from 2 to 3 competitor firms, which he submits to the administration.

In the French North-East region, nineteen removal firms took advantage of the captive military customers and produced falsified estimates in order to avoid being in competition. Essentially, those firms were proposing estimates with intentionally higher figures to enable one of them, (offering the lower estimate), to win the removal.

The Authority, under the request of the French Minister of the Economy to investigate the removal firms' practices, considered that the firms were artificially sharing customers and preventing prices being set according to the free market play.

Additionally, the removal firms knew that those practices were unlawful since similar practices have already been punished by the French Competition Council (the former French competition authority) four times from 1999 to 2007. The Authority punished the firms with a total fine of €600,000. Three of them obtained a reduction of 17 % of the sanction since they did not contest the allegations and made commitments to improve the transparency of the estimates.

OTHER DEVELOPMENTS

Australia introduces new civil and criminal cartel offences under updated law

On the 16 June, legislation that introduces criminal cartel offences for the first time into the Australian cartel regime was passed by the House of Representatives - see Trade and Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (the "Cartel Act"). The Cartel Act will come into effect 28 days following the receipt of Royal Assent.

Two new criminal cartel offences will mean that a person or corporation will be found guilty of such an offence if they make or give effect to a contract, arrangement or understanding containing a cartel provision where they understand or have knowledge or belief that it contains a cartel provision. The Cartel Act also introduces two new civil offences which reflect the criminal offence without the need for the 'fault' or 'knowledge' element.

The Cartel Act introduces the following sanctions for criminal cartel conduct:

  • Individuals face a maximum jail term of ten years and a fine of up to A$222,000 for each offence;
  • Corporations face fines up to the greater of A$10 million, three times the value of the benefit attributable to the cartel as a whole, or 10% of the annual group Australian sales turnover.

The Cartel Act will also allow other jurisdictions with criminal sanctions for cartel activity and an extradition treaty, to extradite individuals from Australia to face criminal proceedings. Similarly, Australians involved in international cartels will be potentially liable to extradition by overseas authorities to the appropriate jurisdiction.

The Cartel Act also contains parallel sanctions for civil cartel offences. These carry the following penalties:

  • A fine of up to A$500,000 for individuals;
  • A fine of up to the greater of A$10 million, three times the value of the benefit that has been gained by one or more persons who are reasonably accountable for the act or omission or, where this value is difficult to determine, 10% of the annual group Australian sales turnover.

The legislation will also establish a closer link with regards to cartel activity, between the Australian Competition and Consumer Commission (ACCC) and Commonwealth Department of Public Prosecutions (CDPP) which will be tasked with running the criminal prosecutions. The Federal Court of Australia will also be given extended powers to hear criminal cartel matters and conduct jury trials. The 'Cartel Act' further introduces a joint venture defence which includes joint venturers who have not entered a contract but had 'intended' and 'reasonably believed' they had done so at the time they entered the arrangement.

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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