European Union: Cartels And Horizontal Agreements Developments In The EU In July 2016

Last Updated: 3 August 2016
Article by Steve Ross

In the following sections, we first provide a factual overview of the significant case developments at EU level, and thereafter provide detailed analysis of important substantive or procedural developments addressed in these cases.

1. Summary of Significant Case Developments

European Commission imposes record-breaking fines of € 2.9 billion against truck producers

On 19 July 2016, the Commission announced it had adopted a decision under the cartel settlement procedure fining truck producers a record breaking € 2.9 billion for their participation in a cartel on the market for medium and heavy trucks. The companies involved in the decision are MAN, Volvo/Renault, Daimler, Iveco and DAF.

According to the Commission's press release, the companies engaged in restrictive practices which involved coordinating: (i) prices at "gross list" level; (ii) the timing of the introduction of emission technologies to comply with EU emissions standards; and (iii) the passing-on to customers of the cost for the emissions technologies required to comply with EU emissions standards. These activities covered the entire EEA and lasted 14 years, from 1997 until 2011.

Under the Commission's 2006 Leniency Notice, MAN received full immunity for revealing the existence of the cartel, thereby avoiding a fine of about € 1.2 billion. Volvo/Renault, Daimler and Iveco benefited from reductions of their fines of between 10% and 40% for their cooperation under the 2006 Leniency Notice. All companies received an additional 10% fine reduction under the Settlement Notice. A sixth company, Scania, opted not to settle and the investigation continues under the standard infringement procedure for this company.

This case is particularly noteworthy as the Commission agreed, for the first time, to settle with the parties after the Statement of Objections under the standard infringement procedure had been issued.

European Commission accepts commitments by container liner shipping companies on price transparency

On 7 July 2016, the European Commission adopted a decision that renders legally binding the commitments offered by 14 container liner shipping companies. The commitments aim to increase price transparency for customers and to reduce the likelihood of coordinating prices.

The Commission had previously opened proceedings to investigate whether the companies' practice of regularly announcing on their websites or via specialised press their intentions to apply future price increases on similar routes and on similar implementation dates breached the EU antitrust rules (see VBB on Competition Law, Volume 2013, No. 11, available at www.vbb.com). The companies concerned are China Shipping, CMA CGM, Evergreen, Hamburg Süd, Hanjin, Hapag Lloyd, HMM, Maersk, MOL, MSC, NYK, OOCL UASC and ZIM.

General Court largely dismisses appeals in Marine Hose cartel case, but reduces the amount of the fine

On 14 July 2016, the General Court delivered a judgment in the Marine Hose cartel case, which had been referred back to the General Court by the Court of Justice, in relation to fines imposed by the Commission on Parker ITR and Parker-Hannifin (see VBB on Competition Law, Volume 2009, No. 1 and Volume 2014, No. 12, available at www.vbb.com ) (Case T-146/09 RENV, Parker Hannifin Manufacturing and Parker-Hannifin v Commission).

In its judgment, the General Court dismissed allegations of Commission errors in relation to the principle of economic succession, parental liability and whether ITR Rubber had a leading role in the cartel. However, the General Court annulled the decision insofar as the Commission had held Parker-Hannifin jointly and severally liable for an aggravated circumstance relating to Parker ITR's activity prior to the date of its acquisition by Parker-Hannifin in January 2002.

General Court dismisses appeals lodged by Telefónica and Portugal Telecom, but orders the Commission to recalculate the fine

On 28 June 2016, the General Court largely dismissed the appeals lodged by telecommunication companies Telefónica and Portugal Telecom, which had challenged a 2013 Commission decision in which fines of respectively € 66.9 million and € 12.3 million had been imposed for an illegal non-compete agreement (see VBB on Competition Law, Volume 2013, No. 1, available at www.vbb.com) (Case T-208/13, Portugal Telecom v Commission; Case T-2016/13, Telefónica v Commission). However, the General Court did annul the decision insofar as the Commission had not correctly determined the value of the companies' sales for the purpose of calculating the fines to be imposed.

Court of Justice dismisses appeals in Prestressing Steel cartel case

On 7 July 2016, the Court of Justice ("ECJ") dismissed the appeals lodged by steelmakers Fapricela and Westfälische Drahtindustrie against the General Court's judgment upholding the Commission's 2010 cartel decision concerning prestressing steel (see VBB on Competition Law, Volume 2016, No. 6, available at www.vbb.com) (Case C-523/15, Westfälische Drahtindustrie v Commission; Case C-510/15, Fapricela v Commission).

In its orders, the ECJ rejected Fapricela's pleas as manifestly inadmissible, as the company had failed to clearly explain the errors of law the General Court allegedly had made in relation to the substantive infringement and the amount of the fine imposed. The ECJ also dismissed Westfälische Drahtindustrie's appeal by ruling that the General Court had not exceeded the bounds of its unlimited jurisdiction when it set the level of the fine imposed.

2. Analysis of Important Substantive and Procedural Developments

Price Signalling: Does the Commission's position in the Liner Shipping case deviate from existing case law?

While public price announcements are common commercial practice in many markets, such announcements may be challenged as illegal price signalling if they have the object or effect of restricting competition among suppliers. The question remains, however, whether such announcements are unilateral actions or concerted practices, as only concerted practices are subject to Article 101 TFEU.

According to the press release which the European Commission published in the Liner Shipping case, the Commission considers that these public price announcements may constitute concerted practices allowing the companies to coordinate their behaviour by enabling them to "test" whether they could implement a price increase reasonably without incurring the risk of losing customers. Further, the Commission considers that the public price announcements made by the liner shipping companies had little value for consumers as these price announcements did not indicate the fixed final price for the services concerned, but only the amount of the increase. To alleviate the Commission's concerns, the container liner shipping companies offered the following commitments:

  • the parties will stop publishing and communicating price announcements, i.e., changes to prices expressed solely as the amount or percentage of the increase;
  • for customers to be able to understand and rely on price announcements, the price figures that the carriers announce will benefit from further transparency and include at least the five main elements of the total price (i.e., base rate, bunker charges, security charges, terminal handling charges and peak season charges if applicable);
  • any future announcements will be binding on the carriers as maximum prices for the announced period of validity (but carriers will remain free to offer prices below these ceilings); and
  • price announcements will not be made more than 31 days before their entry into force, which is usually when customers start booking in significant volumes.

The Commission accepted these commitments, which were made legally binding. The commitments apply for a period of three years starting from 7 December 2016.

The Commission's approach is noteworthy mainly because it may deviate from the reasoning espoused by the Court of Justice of the European Union ("ECJ") in the Wood Pulp judgment (Case C-85/89, Ahlström osakeyhtiö and others v. Commission). In that case, the Commission had levied fines on several wood pulp producers for engaging in concerted practices by announcing prices publicly on a quarterly basis to customers in the European Union. However, on appeal, the ECJ found that the system of quarterly price announcements did not, of itself, breach EU competition rules nor did it constitute evidence of collusion.

Portugal Telecom and Telefónica cases – Non-compete clauses: General Court endorses strict approach to ancillary restraints

Non-compete clauses are standard practice in the context of the acquisition of a business to protect a purchaser's investment. They guarantee the transfer to the purchaser of the full value of the assets transferred by, for instance, preventing the seller from opening a new business servicing the customers that were transferred to the purchaser. Under certain conditions, non-compete clauses do not fall within the scope of Article 101 TFEU if they are directly related, necessary and proportionate to the implementation of the acquisition. If these conditions are met, the non-compete clause is in principle cleared as part of the merger process.

In their appeals, Portugal Telecom and Telefónica argued that the Commission had erred in considering that the non-complete clause in the share-purchase agreement, by which Telefónica had acquired from Portugal Telecom the exclusive control of Vivo, one of the main mobile telecom operators in Brazil, amounted to a market-sharing agreement with the object of restricting competition. Pursuant to this non-compete clause, Portugal Telecom and Telefónica undertook to refrain "to the extent permitted by law" from competing with each other on the "Iberian market" (i.e., on each other's respective home markets, Portugal and Spain) for a period of 15 months.

Portugal Telecom and Telefónica claimed that, in the absence of a detailed market investigation, the Commission could not validly conclude that the parties were competitors and that the non-compete clause had restricted competition. The General Court ("GC") dismissed this argument, holding that the very existence of the non-compete clause was a strong indication of potential competition between the parties. Moreover, the restriction consisted of a market-sharing agreement, had a wide scope and took place in a liberalised economic context.

The GC also dismissed the argument that the non-compete clause was necessary to implement the main transaction. It noted that the geographical field of application of the non-compete clause (the Iberian market) was different from that of the Vivo transaction (Brazil). Moreover, many of the parties' pleas were rejected as unsubstantiated, including, for instance, Telefónica's allegation that the clause was imposed by the Portuguese Government or, in any event, necessary for the Portuguese Government to refrain from blocking the deal.

Furthermore, the GC disagreed with the parties that it would follow from the words "to the extent permitted by law" that the non-compete clause would only enter into force subject to its lawfulness being confirmed in the context of a prior self-assessment obligation. The GC ruled that there was nothing to indicate that the clause contained such a prior self-assessment obligation or that the parties considered the clause to be ineffective.

The GC's ruling confirms that non-compete clauses in the context of concentrations require careful review. In order to qualify as an ancillary restraint, they must be strictly necessary to the implementation of the transaction. And even if non-compete clauses are necessary, they still may not be permissible if the parties to the transaction are competitors or potential competitors. Moreover, as the proceedings were initiated by the Commission, it is clear that the Commission is determined to enforce competition law in this area.

Portugal Telecom and Telefónica cases – The Commission has to precisely determine the conduct to which the infringement directly or indirectly relates for the purpose of calculating the fine

Under the Fining Guidelines, the Commission takes as a starting point for setting the fine the value of the undertaking's sales of goods and services to which the infringement directly or indirectly relates in the relevant geographic area within the EEA. This starting point is intended to reflect the economic significance of the infringement and the size of the undertaking's contribution to it.

In Telefónica and Portugal Telecom, the Commission found that the parties concluded an unlawful agreement not to compete and to share the Spanish and Portuguese electronic communications markets between them. In determining the starting point for setting the fine, the Commission took into consideration Telefónica's and Portugal Telecom's value of sales in their respective markets (i.e., Spain and Portugal) during the last full business year of their participation in the infringement (with the exception of global telecommunications services and wholesale international services).

Telefónica and Portugal Telecom both challenged the Commission's fining methodology on the grounds that certain sales should have been excluded. The General Court agreed. Specifically, the General Court considered that when the Commission opts to calculate the fine on the basis of sales which directly or indirectly relate to the infringement, it must define the infringement in a precise manner. This means that the Commission has to determine the services where the parties were and were not potential competitors in Spain or Portugal (i.e., services not directly or indirectly related to the infringement). On this basis, the General Court annulled the Commission's decision insofar as it found that any services provided in Spain or Portugal by the parties (with the exception of global telecommunications services and wholesale international services) directly or indirectly related to the infringement without any further factual or legal analysis.

Because the General Court considered that it did not have sufficient information to re-calculate the amount of the fine, it referred the case back to the Commission.

Marine Hose cartel – Principle of personal liability in relation to aggravating circumstances and successor liability

Under settled case law, a subsidiary and its parent company may be regarded as forming a single economic unit for the purpose of EU competition law. In such case, the Commission may be entitled to hold the parent company jointly and severally liable for the unlawful conduct of its subsidiary and, as a consequence, for the payment of the amount of the fine imposed on the subsidiary.

In the Parker Hannifin judgment, Parker-Hannifin challenged the Commission's decision for holding it jointly and severally liable for an aggravated circumstance relating to Parker ITR's activity before it was acquired by Parker-Hannifin which had resulted in a 30% increase in the fine. The General Court agreed. It ruled that a parent company cannot be held liable for aggravated circumstances of a subsidiary's conduct prior to the date of its acquisition. To do so, constitutes a breach of the principle of personal responsibility.

That finding impacted the maximum amount of the fine that could be imposed on Parker ITR. The reason for this is as follows. Under the Fining Guidelines, the final amount of the fine must not exceed 10% of the total turnover of the undertaking participating in the infringement. In its judgment, the General Court found that the Commission had not calculated the fine for which only Parker ITR could be held liable (i.e., the fine imposed for the conduct during the pre-acquisition period) solely on the basis of Parker ITR's turnover, but also on the basis of Parker-Hannifin's turnover. The inclusion of Parker-Hannifin's turnover in the calculation of the fine therefore increased the maximum cap of the fine, in breach of the Fining Guidelines.

In light of the foregoing, the General Court exercised its powers of unlimited jurisdiction to reduce the amount of the fine imposed on Parker ITR from € 25.6 million to € 19.9 million, € 6.4 million of which Parker Hannifin is held jointly and severally liable (reduced from € 8.3 million).

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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