Finland: EU & Competition Law News - 17 September, 2008

Last Updated: 5 October 2008

In this issue:

  • Competition: European Court of Justice hands down a preliminary ruling stating that a pharmaceuticals company is abusing its dominant position if it refuses to meet ordinary orders by wholesalers in order to prevent parallel exports

  • Competition (Sweden): The Swedish Competition Authority presents its opinion that joint ownership of nuclear power facilities in Sweden should cease

  • Merger control: Commission approves proposed acquisition of Bertelsmann's 50 % share in Sony BMG by Sony

  • Merger control: Commission approves acquisition of Kirchner by Strabag and refers review of local asphalt market to German competition authority

  • Merger control (Sweden): The Stockholm Administrative Court of Appeal confirms Swedish Competition Authority decision denying document disclosure to Assa Abloy in the case of planned acquisition of Copiax AB

  • State aid: Commission opens in-depth inquiry into proposed € 37.5 million restructuring aid to PZL Hydral in Poland

  • State aid: European Court of Justice hands down a preliminary ruling specifying the criteria to be used in order to determine whether, in the context of state aid, a regional body is institutionally, procedurally and economically autonomous in relation to central government

  • Volvo and Renault dealers convicted of operating a cartel in Sweden

Competition: European Court of Justice hands down a preliminary ruling stating that a pharmaceuticals company is abusing its dominant position if it refuses to meet ordinary orders by wholesalers in order to prevent parallel exports

In a preliminary ruling the European Court of Justice ("ECJ") held that a company in a dominant position on the relevant market for medicinal products is abusing its dominant position if it refuses to meet ordinary orders of wholesalers in order to stop parallel exports. In the relevant case GlaxoSmithKline AEVE ("GSK AEVE"), a Greek subsidiary of GlaxoSmithKline plc ("GSK"), which imports and distributes GSK pharmaceutical products and holds the marketing authorization for certain medicines in Greece, had stopped meeting the orders of Greek wholesalers who buy the medicines in question for distribution in Greece and export to other Member States. The wholesalers brought an action claiming that GSK AEVE's sales policy breached both Greek and Community competition law, and the Athens Court of Appeal referred its questions on the compatibility of the practices in question with the community rules to the ECJ. The ECJ held that by refusing to meet the orders, GSK AEVE aims to limit parallel exports to the markets of other Member States in which the medicines in question are sold for higher prices. The ECJ noted that parallel exports of pharmaceuticals products from a lower-price Member State to higher-price Member States can benefit final consumers. The ECJ analyzed the possible effect of State regulation on the prices of medicines and held that the Community competition rules can not be interpreted in such a way that, to defend its own commercial interests, the only choice for a pharmaceuticals company in a dominant position is not to place its products on the market in a lower price Member State. Nevertheless, the ECJ held that a company in a dominant position must be able to take reasonable and proportionate steps to protect its own commercial interests. In order to evaluate whether such steps are reasonable and proportionate, the ECJ held that it is for the national court to decide whether the wholesalers' orders are ordinary in the light of the previous trading relations between themselves and the pharmaceuticals company and the size of the orders in relation to the requirements of the market in the relevant Member State. Source: European Court of Justice Press Release 16/9/2008

Competition (Sweden): The Swedish Competition Authority presents its opinion that joint ownership of nuclear power facilities in Sweden should cease

In its official letter to the Ministry of Enterprise, Energy and Communications ("Ministry"), the Swedish Competition Authority ("SCA") stated that joint ownership of nuclear power in Sweden should cease. The nuclear power facilities in Sweden are owned by the three biggest competing producers of nuclear power, Vattenfall, E.ON and Fortum, the companies that collectively produce 85 per cent of electricity in Sweden. The SCA has previously on several occasions stressed that such joint control may constitute a problem from a competition perspective. The SCA has confirmed its view in the official letter to the Ministry for the purposes of the electricity market investigation initiated by the Swedish Government. Source: The Swedish Competition Authority (www.kkv.se)16/09/2008

Merger control: Commission approves proposed acquisition of Bertelsmann's 50 % share in Sony BMG by Sony

The Commission has cleared the acquisition of the 50 % share in Sony BMG held by Bertelsmann AG ("Bertelsmann"), of Germany, by Sony Corporation of America ("Sony"), of the United States. Sony belongs to the Japanese Sony group and is active in the market for consumer electronics, in the entertainment industry, in music recording and music publishing. Sony BMG is a joint venture between Sony and Bertelsmann, active in the discovery and development of artists and in the subsequent marketing and selling of recorded music in physical and digital format. After the proposed transaction Sony will acquire the sole ownership and control of the joint venture, which will then be renamed Sony Music Entertainment Inc. The Commission examined, inter alia, whether the combination of Sony BMG's music recording activity with the music publishing activity of Sony/ATV (a joint venture between Sony and the artist Michael Jackson) could have a harmful effect on the joint licensing of publishing and recording rights towards online music retailers. The Commission also analyzed the vertical integration between Sony's activities in consumer electronics (portable music devices, mobile phones), video games and cinema, and its activities in music publishing and recording. According to the Commission, Sony's market position does not raise competition concerns as to both online music retailers and Sony's competitors for consumer electronics, video games and movies, because, inter alia, they would continue to have access to a sufficiently large portfolio of music rights from alternative suppliers. The Commission's investigation also showed that the proposed acquisition would be unlikely to induce coordinated effects between music companies. The Commission thus concluded that the proposed transaction will not create or strengthen such a dominant market position that would significantly impede effective competition in the EEA or in any substantial part thereof. Source: Commission Press Release 15/9/2008

Merger control: Commission approves acquisition of Kirchner by Strabag and refers review of local asphalt market to German competition authority

The Commission has cleared the proposed acquisition of Kirchner Holding GmbH ("Kirchner"), of Germany, by Strabag SE ("Strabag"), of Austria. Kirchner is a construction company active mainly in central and eastern Germany, but also in other parts of Germany as well as in Austria and Poland. Its activities include, in particular, road construction, structural engineering and production and processing of raw material such as asphalt mix and broken natural stone for construction. Strabag is a global provider of construction services and building materials. The Commission concluded that the proposed acquisition will not create or strengthen such a dominant market position that would significantly impede effective competition in the EEA or in any substantial part thereof. At the same time, the Commission decided to refer the assessment of the impact of the acquisition on the Erfurt regional asphalt market to Germany's Federal Cartel Office (Bundeskartellamt) due to its application for partial referral of the case. According to the Federal Cartel Office, the proposed transaction could raise competition concerns as it could create a dominant market position in the referenced market. Source: Commission Press Release 16/9/2008

Merger control (Sweden): The Stockholm Administrative Court of Appeal confirms Swedish Competition Authority decision denying document disclosure to Assa Abloy in the case of planned acquisition of Copiax AB

In its decision the Stockholm Administrative Court of Appeal ("ACA") confirmed the Swedish Competition Authority ("SCA") decision denying document disclosure to Assa Abloy in a case regarding the planned acquisition of Copiax AB. The SCA carried out an in-depth investigation into the proposed acquisition of Copiax AB by Assa Abloy and filed a summons application with the Stockholm District Court seeking an order to block the acquisition, as it would have an anti-competitive effect according to the SCA. Assa Abloy has requested that the SCA provide the names of the companies that provided information to the SCA during the in-depth investigation and also specify which of the companies provided written and which oral information in order to be able to respond to the information during the proceeding before the Stockholm District Court. The ACA found that it is of particular importance to keep the information confidential, as the SCA provided the summary of such information, and considering the content of the information, the position of the companies that provided the information on the relevant market and the public interest in the case. Therefore, the ACA ruled that Assa Abloy's right of access to file was not violated. Source: The Stockholm Administrative Court of Appeal (www.dom.se)09/09/2008

State aid: Commission opens in-depth inquiry into proposed € 37.5 million restructuring aid to PZL Hydral in Poland

The Commission has opened an in-depth investigation to establish whether € 37.5 million in aid, which Poland intends to grant for the restructuring of PZL Hydral, complies with the EU Guidelines on state aid for rescuing and restructuring firms in difficulty. PZL Hydral produces industrial hydraulic and electronics hydromechanics fuel-regulating systems for aviation engines. The company is in difficulties as a result of declining demand for its products, inappropriate investments and the depreciation of the US dollar. The Commission doubts whether the company qualifies for new restructuring aid, as it seems that it has received state support in the past. The Commission must verify that the announced restructuring plan is sufficient to restore the company's long-term viability. The Commission must also ascertain that the public funding does not exceed the amount strictly necessary to execute the restructuring plan and ensure that the aid would not create an undue distortion of competition within the EU. Source: Commission Press Release 10/9/2008

State aid: European Court of Justice hands down a preliminary ruling specifying the criteria to be used in order to determine whether, in the context of state aid, a regional body is institutionally, procedurally and economically autonomous in relation to central government

The Spanish Supreme Court of Justice of the Autonomous Community of the Basque Country asked the European Court of Justice ("ECJ") for a preliminary ruling on whether the tax measures of Basque foral authorities should be considered as selective measures conferring an advantage on certain undertakings or on the production of certain goods and therefore to be State aid incompatible with the Common Market solely because they do not apply to the whole territory of the Member State concerned. The ECJ declared that in order to decide whether laws adopted by an infra-State body constitute selective State aid, it is necessary to establish if the authority in question has sufficient institutional, procedural and economic autonomy for a law, adopted within the scope of the authority's powers, to be considered generally applicable within that body and non-selective. The ECJ held that it is for the national court to determine whether the relevant authorities in question have such autonomy. The ECJ specified the criteria in all three categories of autonomy mentioned above. The Court found that in this case the relevant authorities fulfill the institutional autonomy criterion, since they have a political and administrative status distinct from that of central government. As to procedural autonomy, the Court emphasizes that this criterion is satisfied provided that the relevant authority's decision is adopted without a possibility for the central government to directly intervene as regards its content. With regard to the economic autonomy criterion, the financial consequences of a reduction of the national tax rate for companies in the region must not be covered by aid or subsidies from other regions or the central government. The ECJ could not exclude the possibility that a decision to reduce tax adopted by the infra-State body may result in larger financial transfers in its favor because of the calculation methods used to determine the amounts to be transferred. The Court thus held that the national court shall examine whether the tax measures in question may result in hidden compensation, inter alia, in sectors such as social security or the guarantee of minimum public services by the Spanish State. Source: Court of First Instance Press Release 11/9/2008

Volvo and Renault dealers convicted of operating a cartel in Sweden

INTRODUCTION

Eight car dealers selling Volvo and Renault cars in southern Sweden have been found guilty by the Market Court, the last instance of appeal in competition cases, of unlawful price collusion and market sharing contrary to Article 6 of the Swedish Competition Act and Article 81 of the EC Treaty (Case nr. 2008:12; can be found at www.marknadsdomstolen.se). All the dealers were convicted, and six of the eight companies will be required to pay the fines called for by the Competition Authority. In total, the companies have been ordered to pay fines of over SEK 21 million for their participation in the cartel. The ruling is an important success for the Swedish Competition Authority who has been rather unsuccessful in winning cartel cases in Swedish Courts.

BACKGROUND

The cartel was revealed by accident. An e-mail that was intended for rival dealers, but went astray led to the cartel being exposed. Shortly thereafter, the Competition Authority conducted dawn raids to various companies and the subsequent investigation resulted in legal proceedings being instigated by the Competition Authority. The City Court found that the dealers were not guilty on the grounds that (i) the price collusion had as its main object to co-ordinate the car dealers in relation to the manufacturer (general agent) who exercised a severe control over the dealers, (ii) that the co-operation had been intra-brand, and (iii) that the dealers had limited market power on the relevant markets. The Competition Authority appealed to the Market Court, which has now ruled in favor of the Competition Authority.

JUDGEMENT

The Market Court found that the car dealers had agreed on prices and rebates in relation to end customers and that this could restrict intra-brand competition. The car dealers were also found to have reached agreements about market sharing regarding sales of new Volvo and Renault cars. The co-ordination could not be excused despite the fact that the dealers needed to co-ordinate in relation to the manufacturer. Further, the written evidence supported the alleged infringements by giving the impression that the co-operation had the object to raise consumer prices and restrict rebates. The horizontal collusion of fixed prices and market sharing is to its nature restrictive of competition, and combined with the car dealers' strong market power on the relevant market, the Market Court concluded that it was not necessary to prove effect since a clear object to distort competition was proved. Finally, the horizontal co-operation was considered to have an effect on trade between member states as the collusion had occurred within a substantial part of Sweden, the car dealers had significant market power, and the relevant products had been sold across several member states. Thus, the collusion was considered in breach of Article 6 of the Swedish Competition Act as well as Article 81 of the EC Treaty.

FINES

The case has been time consuming for the Competition Authority and supported by a considerable amount of evidence, not necessarily in relation to the significance of the infringement. However, the case as such is important as it opens the door for higher fines being imposed by the Market Court in the future. In its decision, the Market Court emphasizes the gravity of the infringement, and that it should result in sanctions refraining from further infringements as well as being deterrent. The Market Court stresses the fact that it cannot impose fines exceeding the amount claimed by the Competition Authority. Therefore, the Market Court imposed fines on the involved companies mainly in accordance with the initial claim. However, the fine for one of the companies was reduced significantly, the reason being that the fine should be based on the turnover on the relevant market. It is also noteworthy, that the litigation costs were much higher than the imposed fines. In any event, the Competition Authority is content with the outcome of the case stating that:

"At the Competition Authority, we're very satisfied with the ruling. All the dealers were convicted. Six of the eight companies will now be required to pay the fines we called for. Our aim is to keep fines as heavy as possible, since they are supposed to deter others."

FINAL REMARKS

The case provides a clear indication by the Market Court that it would like to see much higher fines in future cartel cases, a view expressly shared by the Competition Authority. The case is also interesting in the light of the new Competition Act that take effect on 1 November 2008 and a possible tougher enforcement policy. The ruling also makes it clear that price collusion and market sharing between retail companies is not allowed, even when they sell the same brands.

In addition, kindly note the following merger control decisions by the Commission which are published on the website of the Commission's Directorate-General for Competition:

  • Commission clears proposed joint venture between Sodexo and Sofinco

  • Commission clears proposed acquisition of Fording Canadian Coal Trust by Teck Cominco

  • Commission clears proposed acquisition of Intergen by GMR Malta and OTPPB

  • Commission clears proposed acquisition of SAV Germany by Indaver and NEIF

  • Commission clears proposed joint venture between Mitsui and Bamesa Celik

  • Commission clears proposed acquisition of Laupheim by Diehl and Thales

  • Commission clears proposed acquisition of Alliance & Leicester by Banco Santander

  • Commission clears proposed acquisition of EPCOS by TDK

  • Commission clears proposed acquisition of joint control over Italian energy supplier Enia Energia by Centrex, ZMB and Enia S.p.A.

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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