Stretching the limits: parental liability in respect of a joint venture
In two judgments (Dow & DuPont) handed down on 2 February 2012 in the chloroprene rubber cartel case, the EU General Court upheld the European Commission's practice of holding two joint venture partners jointly and severally liable for a cartel infringement committed by their joint venture.
In December 2007, the Commission imposed fines totalling 2478 million Euros on a cartel which included, among others, DuPont Dow Elastomers ("DDE"). During part of the period under investigation, DDE was a full-function joint venture between DuPont and Dow Chemicals. (The creation of DDE by DuPont and Dow Chemicals was notified to and cleared by the Commission in 1996, which implies a finding by the Commission that DDE performed on a lasting basis all functions of an independent undertaking: Case IV/M.663 - DuPont/Dow.)
Traditionally, the Commission has followed a practice whereby, when identifying the companies which can be fined for an infringement of the competition rules committed by a company within a group, it picks not only the subsidiary directly responsible for the infringement, but also one or more parent companies. This practice is not based on the idea that the parent company is itself responsible for the infringement, but on the fact that the EU competition law prohibitions are addressed at "undertakings", a concept which is defined as any economic unit which sells goods or services on a market. When it is controlled centrally, a group is such an economic unit, and an infringement committed by a group company is committed, in terms of competition law, by the undertaking, i.e. the group. When fining, the Commission must proceed to attribute the behaviour of that group to one or more legal persons and usually picks both the subsidiary concerned and one or more parent companies.
This Commission practice has been accepted by the EU courts. In its recent judgment in the Akzo case, the EU Court of Justice ("ECJ") confirmed that where a company holds, directly or indirectly, 100% of the shares of another company, there is a rebuttable presumption of parental liability. In its recent judgment in the Legris case, the ECJ extended this rebuttable presumption to 99.99% shareholding.
In the chloroprene rubber cartel case, the Commission took this approach one step further by extending parental liability to the two parents of a 50/50 joint venture, in this case Dow and DuPont. Both companies contested the Commission's decision, arguing that a single full-function joint venture cannot simultaneously be part of two distinct undertakings. The General Court, however, sided with the Commission. It held that even if a company is a full-function joint venture, it can also still constitute a single undertaking with one parent company on the one hand and its other parent company on the other hand.
This approach, which is at odds with the customary idea that a full-function joint venture itself constitutes a distinct undertaking, is sure to be tested before the ECJ: DuPont has already filed an appeal.
The next step in the Pfleiderer-case: German court rules on access to leniency documents
In the notorious Pfleiderer saga, the Bonn Local Court (Amtsgericht Bonn) handed down a judgment on 18 January 2012, refusing to disclose leniency applications to damage claimants. Such applications are made by cartel members in order to receive immunity from fines in return for admission of participation in the cartel and cooperation with the investigation.
The Bonn Local Court decided to protect the confidentiality of information supplied by the leniency applicants rather than to reveal it to damage claimants. This judgment is the first concrete application of the landmark judgment of the EU Court of Justice ("ECJ"), in the same case, on the right of access of damage claimants to leniency applications.
In 2008, the Bundeskartellamt, the German competition authority, fined three European manufacturers of raw materials for laminate flooring for a violation of the cartel prohibition. In the wake of that decision, Pfleiderer, a purchaser of these raw materials, submitted an application to the Bundeskartellamt, seeking access to all the material in the file, including the leniency applications, with a view to preparing a civil action for damages. The Bundeskartellamt denied the application.
Subsequently, Pleiderer took the case to the Bonn Local Court, which referred the question of whether damage claimants should be granted access to leniency applications to the ECJ for a preliminary judgment. The ECJ held that EU competition law does not preclude a person who has been adversely affected by a cartel from being granted access to leniency applications from cartel members, but that it is for the national courts to determine, on the basis of their national law and on a case-by-case basis, the conditions under which access must be permitted or refused. In making this determination, the national court must weigh the interests of damage claimants in such access against the interest of ensuring the efficacy of leniency programmes established for the purpose of detecting, punishing and ultimately deterring cartels.
After having considered the legal and practical implications of Pfleiderer's application, the Bonn Local Court has now ruled that the effective application of leniency programmes should prevail over the interests of damage claimants. It therefore dismissed Pfleiderer's request for access to the leniency applications.
Meanwhile, in a similar case, the English High Court, in a judgment of 4 April 2012, granted partial disclosure of leniency applications to damage claimants. The High Court considered that some of the leniency documents must be disclosed, as they could be of sufficient relevance to the damage claimants. Other leniency documents were considered not to be sufficiently relevant for the claimants and disclosure was therefore not required. With regard to this latter category, the High Court held that the interest of protecting the information in order to make for an effective leniency policy outweighed the interest of providing disclosure to assist the damage claimants.
These recent judgments show that whether leniency documents will be disclosed to damage claimants depends on a case-by-case analysis of the interests involved, without there being a bright-line criterion allowing for a predictable outcome. The European Commission believes that this uncertainty may negatively influence the decision of a cartel member to apply for leniency and, hence, the effectiveness of its leniency programme. It has therefore indicated that a European legislative framework could be required to remove this uncertainty. In other words: new legislation is on its way...
No fine for the seller in case of gun jumping
In a judgment of 24 February 2012, the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven "CBb") has shed new light on the responsibility for notifying a concentration. The CBb has decided that, under the Dutch merger control rules, the filing obligation in respect of the acquisition of sole control is a responsibility of the purchaser alone and not of the seller, and that, hence, a seller cannot be fined for gun jumping. This is a new twist for the Dutch Competition Authority (Nederlandse Mededingingsautoriteit , "NMa"), which, since its creation in 1998, has consistently fined both selling and purchasing parties involved in gun jumping cases.
In this specific case, the NMa argued that it is neither logical nor desirable to only fine one party in a transaction that involves two parties. The CBb, however, upheld the judgement in first instance of the Rotterdam District Court and chose to follow EU competition law, where the filing obligation is a responsibility of the purchasing party only.
This judgment is not likely to have negative consequences for the effectiveness of the enforcement of the Dutch merger control regime, because the purchaser remains fully exposed to fines.
Unfortunately, appeals against old fines imposed on sellers are time-barred.
Dutch Competition Authority adopts prioritisation policy
Every year, the Dutch Competition Authority (Nederlandse Mededingingsautoriteit, "NMa") receives more complaints and reports of possible infringements than it can investigate. The NMa determines which of these complaints and reports will be reviewed based on a prioritisation policy. On 14 February, the NMa published a new document setting out said policy. These new policy guidelines are brought in line with the latest case-law.
The following criteria are applied when determining whether a complaint or report should be followed up:
- what is the economic importance of the relevant market?
- are consumers affected, directly or indirectly, by the possible infringement?
- how serious is the possible infringement?
- will enforcement action by the NMa be efficient and effective?
The NMa used to justify the rejection of a complaint by simply stating that the investigation did not fall within the scope of its prioritisation policy. That will no longer be enough: the Trade and Industry Appeals Tribunal has ruled that a more substantial and informative response is required. For each specific complaint that is rejected, the NMa must explain why, given the nature of the alleged infringement and in light of its prioritisation policy, further investigation is not justified. The Tribunal held that, in light of the NMa's role as the Dutch competition regulator, a simple rejection is insufficient.
National Association of General Practitioners fined by the NMa
The Dutch Competition Authority (Nederlandse Mededingingsautoriteit, "NMa") has fined the National Association of General Practitioners ("NAGP") for EUR 7,719,000 for making improper recommendations to its members regarding the policy they should apply in relation to new general practitioners ("GPs") setting up or joining a practice in their territory.
The NAGP, whose members comprise 95% of the GPs in the Netherlands, advised GPs to retain control over (1) the number of new GPs practicing in their territory and over (2) the selection of the GP entering the territory. In that way, they could ensure a sufficient supply of patients for each of them and determine the identity of their new colleagues. It also enabled them to keep out newcomers with undesired, competition-distorting plans. In practice, this control was possible because of the dependence of newcomer GPs on the established GPs in connection with, among other things, locum tenens arrangements aimed at ensuing emergency access to a GP at all times.
The NMa considered the NAGP's recommendations to constitute a serious infringement of the cartel prohibition. The NAGP has announced that it disagrees with the NMa's conclusions and that it intends to challenge the fine.
The fine is entirely in line with the NMa's policy of closely monitoring the newly liberalised health care sector. This development may take some getting used to by GPs, who are now treated as fully-fledged businesses for the purposes of competition law. That means that they are also subject to sanctions for violating the cartel prohibition. In that respect, the fine will serve as a powerful wake-up call.
NMa guidance on filing obligations for cooperation contracts
The obligation to get prior approval from the Dutch Competition Authority (Nederlandse Mededingingsautoriteit, "NMa") for certain acquisitions also apply to close cooperations between undertakings which entail, in practice, the acquisition of control by one undertaking over another. The NMa recently illustrated such a case in a guidance letter. It is therefore wise to check whether close cooperation agreements with suppliers or distributors give rise to a notification obligation.
In the EU and its Member States, the competition authorities must give prior approval for mergers and acquisitions meeting certain turnover or market share thresholds. This requirement applies, inter alia, to transactions where one undertaking acquires control over another undertaking. In general, control is acquired through a share or assets transaction involving a buyer and a target. Sole control over a company may also, however, be acquired if one company becomes heavily dependent on the behaviour of another, which may be the case under close cooperation arrangements.
Unfortunately, there is no hard and fast rule dividing those forms of cooperation giving rise to a notification obligation and those that do not. In its recent guidance letter, the NMa took the view that a supplier had acquired control over a manufacturer in light of the following elements, which had existed since 2004:
- the manufacturer exclusively buys from and sells to the supplier;
- the supplier is the most important credit provider of the manufacturer;
- the manufacturer rents important machinery from the supplier; and
- the supplier plans the manufacturer's production process.
Similar cooperation agreements should therefore be assessed in light of notification obligations.
Incidentally, the NMa's conclusion was very favourable for the supplier: since it had already acquired control over the producer in 2004, it could, on the one hand, buy the producer's assets without prior approval at the end of 2011, while, on the other hand, the violation of the 2004 filing obligations had already become barred...
Civil damage suit against air freight cartel: a long and winding road
On 7 March 2012, the Amsterdam District Court decided to suspend the civil proceedings relating to a claim for damages resulting from the air freight cartel.
In November 2010, the European Commission imposed fines amounting to EUR 800 million on various parties, including Air France, KLM and Martinair, for infringements of the EU competition rules in the area of air freight. Approximately 140 claimants subsequently sued these three airlines for damages.
All three airlines challenged the Commission's fining decisions in appeal proceedings before the EU General Court. In those proceedings, the General Court must, among other things, establish the facts on which the fines were based: what exactly did the airlines do and when and where did they do it?
According to the Amsterdam District Court, it is necessary to await the outcome of those factual determinations in order to proceed in the civil case. Without knowing the answers to these questions, it is impossible to assess the airlines' exact liability to the claimants. The fact that Air France/KLM had submitted a leniency request to the Commission, thereby acknowledging its participation in the cartel, did not affect this conclusion, because it is also a matter of what and when that participation actually took place.
The EU appeal process in cartel cases (including a further appeal to the EU Court of Justice) can easily extend over more than five years. The claimants will therefore have to bide their time.
Belgian Competition Authority adopts new Fining Guidelines
The Belgian Competition Authority (Raad voor de Mededinging) ("BCA") has adopted new guidelines explaining its method for calculating fines for infringements of Belgian and EU competition law. The guidelines build on the BCA's practices in this regard since the entry into force of the current Belgian Competition Act in 2006. When drafting the guidelines, the BCA also took into consideration the developments at EU level, in particular the European Commission's fining policy.
Belgian law imposes a maximum level for fines, i.e. 10% of an undertaking's turnover. Below that limit, however, the BCA has a margin of discretion. The guidelines set out the general principles which the authority must apply when implementing its fining policy and calculating fines in specific individual cases. The basic amount of a fine is determined by the turnover relating to the infringement. That basic amount is then adjusted in accordance with the infringement's gravity and duration. In addition to these general factors, the specific individual circumstances may be taken into account in every case. These circumstances can be mitigating or aggravating in nature (e.g. was the undertaking's role in the cartel clearly passive? is the undertaking a repeat offender?).
Notably, the guidelines authorise the BCA to take into account initiatives taken by undertakings to avoid anticompetitive behaviour or to eliminate or limit its anticompetitive effects. This significantly increases the importance of competition law compliance trainings.
Belgacom fined for incomplete notification of acquisition
The Belgian Competition Authority (Raad voor de Mededinging) ("BCA") has imposed a fine of EUR 75,000 on Belgian telecom operator Belgacom for providing incomplete information when notifying its acquisition of the retail telecom chain The Phone House last fall.
More specifically, when providing information on the number of new clients for post-paid mobile telephony in The Phone House's stores, Belgacom omitted to include clients transferring from prepaid to post-paid. Although Belgacom corrected the error and adjusted the figures, the BCA still imposed a fine, ruling that Belgacom had impeded the efficient course of the proceedings.
Although the BCA can impose a fine of up to 1% of the annual turnover of the undertaking concerned for providing incomplete information, it decided to impose on Belgacom a more moderate fine. The authority took into consideration the limited consequences of the infringement and the fact that the error was clearly a mistake. Nevertheless, this precedent shows that even an unintentional error may lead to a fine.
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.