UK: SJ Berwin´s Community Week: A Weekly Summary Of Competition Law And Policy Developments Issue 433 - 24 July 2009

Last Updated: 2 August 2009
Article by SJ Berwin's EU & Competition Team

EU DEVELOPMENTS

New legal framework proposed for motor vehicle distribution and servicing agreements

The European Commission ("Commission") has set out its proposals for a new legal framework in relation to motor vehicle distribution agreements and repair and maintenance agreements. The current Block Exemption Regulation expires on 31 May 2010 and the Commission has been assessing how this has performed and whether there is a need for reform.

Block exemptions create safe harbours for categories of agreements, relieving companies from the need to individually analyse whether agreements comply with Article 81 EC. The motor vehicle sector, which includes passenger cars and commercial vehicles, has been the subject of specific block exemptions since the mid 1980s.

Overall, the Commission considers that the objectives underlying the current block exemption remain valid however a distinction should be drawn between the markets for (i) the sale of new vehicles and (ii) repair and maintenance and spare parts.

No significant competition shortcomings have been found in the market for the sale of new vehicles. To the contrary, this market is identified by structural overcapacity and falling prices. The Commission is therefore keen not to impose disproportionate regulatory constraints. In light of this, and to align its approach, the Commission proposes that motor vehicle distribution agreements should be covered by the general block exemption for vertical agreements (which is also currently under review).

The specific motor vehicle block exemption would therefore be phased out; however, in order for a smooth transition, it is proposed that the current block exemption would be extended to 31 May 2013 as regards new vehicles. Specific sectoral guidance would also be provided.

The after sales market, which accounts for some 40% of consumer expenditure on cars, was found to be less competitive largely due to its brand-specific nature. Again the Commission intends to apply the new general vertical competition rules to such agreements; however this will be in conjunction with sector specific guidelines and/or an additional more focused sectoral block exemption. Such specific provisions are considered necessary in order to address a number of problematic areas in the sector; such as ensuring that independent repairers have access to technical information and spare parts (in order to ensure that they can compete with the authorised networks). It would also tackle the misuse of warranties aimed at excluding independent repairers. This part of the new regime is proposed to apply from 31 May 2010.

Interested parties have until 25 September 2009 to submit observations.

Commission imposes €61 million fine on calcium carbide and magnesium cartel

In January 2007 the European Commission ("Commission") carried out dawn raids on the premises of a number of calcium carbide and magnesium based chemical reagent producers. The raids were prompted by a leniency application from Azko Nobel under the Commission's 2002 Leniency Notice. Calcium carbide powder and magnesium granulates are the base ingredients for a number of products used in the steel production process with sales of the products within the EEA estimated at some €175 million.

The dawn raid led to evidence of three separate cartel arrangements which involved market sharing and allocation of customers in the calcium carbide powder market, coordinated behaviour and exchange of anticompetitive information in the calcium carbide granulate market and collusion in the supply of magnesium granules, which may form a substitute for calcium carbide powder. These cartels involved closely coordinated multilateral meetings across the EEA and appeared highly organised and specific.

The Commission imposed a total fine of €61 million on nine companies: Almamet, Donau Chemie, Ecka Granulate, Holding Slovenske Elektrarne (for its former subsidiary TDR Metalurgija), Novácke chemické závody and its former parent 1.garantovaná, SKW Stahl-Metallurgie and its former parent companies Evonik Degussa and ARQUES industries.

Akzo Nobel and Evonik Degussa's fines were increased by 100% and 50% respectively to take account of previous fines for breaches of Article 81 EC - in line with the Commission's strict policy on recidivism, which is viewed as a very serious aggravating factor (Akzo Nobel has been found to have been involved in four prior cartels). Akzo Nobel however received full immunity from any fines in light of its leniency application. The most significant individual fine was the €35 million imposed on Donau Chemie.

Commission issues proposals to improve security of gas supplies

The European Commission ("Commission") has issued proposals for a new regulation to improve security of gas supplies within the framework of the internal gas market. Commission President, José Manuel Barroso noted that energy security will be one of the top priorities in the coming year. The proposed new regulation would require Member States to be fully prepared in the event of a disruption to the supply of gas through clear emergency planning. The Commission would oversee this to ensure a coordinated approach.

The European gas market is fed by a relatively small number of pipelines and production fields and most Member States are connected to the same basic supply network. On this basis, a problem in one part of the EU may spread very quickly to other parts. It is hoped that the new regulation will alleviate this problem by making it easier for energy companies to plan ahead, leading to more investment in, for example, new cross-border interconnections, import corridors and gas storage.

The proposals respond to a specific request from the European Council, the European Parliament and the Energy Council which asked the EU Energy Commissioner, Andris Piebalgs, to prepare new legislation to improve the EU emergency response framework for gas. With more than 25% of energy supply in the EU coming from gas and over 60% of all gas used in the EU being imported, legislation to deal with threats to gas supplies is considered a priority. The gas dispute between Russia and Ukraine in January 2009 also confirmed many of the weaknesses of the existing legislation.

Gas companies would continue to have the main responsibility for keeping gas flowing to customers, with public authorities only intervening as a last resort (particularly where companies are unable to deal with issues on their own). The proposals should also assist in avoiding the risk of unilateral measures by one Member State jeopardising the supply of gas in other territories.

The Energy Commissioner has encouraged the European Council and Parliament to adopt the proposals as swiftly as possible.

UK DEVELOPMENTS

OFT publishes GlaxoSmithKline/Pfizer HIV collaboration decision

Following its decision not to refer the anticipated joint venture between GlaxoSmithKline plc ("Glaxo") and Pfizer Inc ("Pfizer") to the Competition Commission on 9 July 2009, the OFT has published the full text of its decision.

The proposed transaction will see Glaxo and Pfizer pool the entirety of their businesses for HIV treatment into a joint venture company ("JV") (with Glaxo having a controlling interest and Pfizer a material influence). The JV will focus solely on the research, development and commercialisation of HIV treatments - giving it a share of supply of between 20% and 30% by value in the HIV market, and triggering review under the Enterprise Act.

In assessing the proposed merger, the OFT considered the appropriate frame of reference: it considered fragmenting the market for those HIV drugs that were already marketed and those that were still in the pipeline, but, as the deal raised no serious competition concerns either way, the OFT did not conclude on this point.

Adopting its previous approach to pharmaceutical products, the OFT found that any market for pipeline HIV products could be at least EEA-wide in scope, but that the market for marketed products would be national, given the wide differences in relation to regulatory frameworks, pricing mechanisms, purchasing policies and marketing strategies across Member States.

The OFT concluded that any overlap between the parties, regardless of how the market was defined, was too small to raise any competition concerns, and the presence of strong competitors in both the marketed and pipeline markets would be a sufficient restraint on the JV. The OFT also considered that the JV would not be able (and would not have the incentive) to foreclose its rivals by, for example, bundling their products, as few HIV patients take a combination of drugs produced by the parties.

Finally, the OFT considered the likelihood of tacit or explicit collusion in the market. Given the transaction's impact on the overall market structure is very small, and taking into account features of the pharmaceutical industry, such as that manufacturers are awarded statutory monopolies for being the first to develop an innovative drug, the OFT considered that it was inherently difficult for parties to align their behaviour and incentives to those of their rivals. Accordingly, the merger was cleared.

The parties state that the joint venture is to have a degree of independence form its parents and it is hoped will accelerate drug development for the treatment of HIV. It remains to be seen whether ultimately the JV will become fully independent and whether this type of relatively innovative, focussed collaboration will be followed by others in this or in other sectors. The approval comes as Glaxo announced a waiver of certain patent restrictions to allow generic drug manufacturers to copy its HIV treatments for sale in the world's poorest countries.

GERMAN DEVELOPMENTS

Duales System Deutschland appeal dismissed by ECJ

Recently the ECJ confirmed the decision of the European Commission ("Commission") of 20 April 2001 finding that Duales System Deutschland GmbH ("DSD"), the creator of the "Green Dot" (Der Grüne Punkt) trade mark, had restricted competition by abusing its dominant position in the market for organising the collection and recycling of sales packaging in Germany before 2001. DSD, which still enjoys a dominant position in the market, appealed the Commission's decision to the CFI. The CFI, in its judgment of 24 May 2007, rejected this appeal and confirmed the Commission's reasoning (see Community Week Issue 325).

DSD appealed the CFI's decision based on the following reasons, all of which were all dismissed by the ECJ:

  • DSD argued that the CFI's findings relating to its abuse under Article 82 were vitiated by error of law or fact. The ECJ rejected this argument and confirmed that DSD abused its dominant position by requiring its customers to pay a licence fee for all packages designated with the Green Dot logo irrespective of whether the customers fulfilled their obligations under the German Packaging Ordinance through DSD or through competing systems. The ECJ also confirmed that the Commission had the power to order DSD to bring the infringement to an end and to order DSD to stop charging a licence fee for quantities of packaging put into circulation in Germany carrying the DGP logo for which the exemption service is not used and for which the obligations imposed by the German Packaging Ordinance have demonstrably been fulfilled in another way.
  • DSD stated that the CFI had infringed trade mark law by finding that the Green Dot logo could not be granted exclusivity. DSD argued that the Green Dot logo should only be used for packages that were disposed of by DSD. The ECJ rejected this arguing that the use of the Green dot logo by manufactures and distributors whose packaging is not taken back by DSD is attributable to DSD. DSD itself set up a system which requires that the DGP logo be affixed to all packaging even where some of the packaging is not recovered by the DSD system.
  • DSD contended that the CFI had breached the principle of proportionality. They argued that the CFI and the Commission had interfered disproportionally with its rights as they prevented DSD from requiring its customers to affix the Green Dot to packaging even when it is not processed by the DSD system. This notice effectively neutralised the distinctive effect of that logo. The ECJ rejected this argument as it is not possible to determine in advance what route will be taken by an item of packaging. It is therefore not possible, at the time at which a product bearing the packaging is packaged or sold, to distinguish products bearing the DGP logo and actually processed by the DSD system and those which bear the same logo but which will be processed by another system.
  • DSD asserted that the CFI had failed to hear the case within a reasonable period of time as the proceedings before the CFI lasted for nearly six years. The ECJ agreed that the length of the case could not be justified by any particular circumstances but refused to set aside the judgment on that basis. The ECJ argued that the length of the proceedings had no effect on the outcome of the dispute. In addition, it highlighted the importance of the Community competition law. An appellant could not be allowed to reopen the question of the existence of an infringement, on the sole ground that there was a failure to adjudicate within a reasonable time, where all of its pleas directed against the findings made by the CFI concerning that infringement and the administrative procedure relating to it had been rejected as unfounded. The failure on the part of the CFI to adjudicate within a reasonable time could only give rise to a claim for damages brought against the Community.
  • DSD considered that the CFI had infringed its duty to state reasons and had distorted evidence. The ECJ rejected these arguments.

SJ Berwin LLP advised two German waste management companies (Landbell AG and BellandVision GmbH) in these proceedings and in the proceedings before the Commission.

ITALIAN DEVELOPMENTS

Class action law approved in Italy

On 9 July 2009 the Italian Parliament approved a law (legislative decree S1995B, the "Law") which introduces a damages compensation class action for consumers and final users who are victim to unfair trade practices or anticompetitive conduct.

Only eleven Tribunals will constitute competent courts for the purposes of the action. While the action will become enforceable before such competent courts from January 2010, under the Law, damages may be claimed in respect of infringements following the measure's publication in the Official Gazette in early August 2009. Some scholars have questioned the legality of the Law due to its retroactive powers. The legislator may amend the Law to clarify this issue.

The action, structured as an "opt-in" action, can be brought individually by any consumer, user, member of a class, through an appointed consumers' association or committee. At the first hearing, the court will decide on the admissibility of the action. The action may be declared inadmissible in four cases: (i) conflict of interest; (ii) action manifestly not grounded on points of law; (iii) the court not deeming sufficient homogeneity between the individual rights of the members of the class adhering to the class action; and (iv) the court not deeming the plaintiff able to properly represent the interests of the class' members.

Before declaring the action admissible, the court may decide to suspend the proceeding where a case on the same facts relevant to the decision is pending a proceeding before the Italian Competition Authority or is pending the relevant appeal before the competent administrative courts. If the action is declared admissible, it is required to be properly published in order to allow the opt-in procedure. The maximum term for the opt-in procedure is 120 days. Members of the class adhering to the class action expressly waive the right to bring any similar individual action against the same defendant. Equally, no other class action against the same defendant and on the same facts is allowed once the first class action brought is declared admissible.

At the end of the proceeding, the judge exercises discretion as to whether to award the damages compensation due to all the members of the class action, according to a provision of the Italian civil code which provides for this possibility in cases where the exact amount of damages cannot be proven. Alternatively the judge may establish a common criterion of liquidation of the damages due.

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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