Commissions adopts new framework for assessment of horizontal agreements
On 14 December 2010, the European Commission adopted new Horizontal Guidelines, which provide guidance on the assessment of the compatibility with Article 101 TFEU of horizontal cooperation agreements. The revised Guidelines substitute the existing rules, which have been in place for nearly ten years.
General remarks
The new Horizontal Guidelines form part of a broader legislative package which updates the Commission's approach towards the application of Article 101 TFEU to cooperation between competitors. The adoption of the Horizontal Guidelines, a draft of which was previously put out to public consultation, was accompanied by the enactment of two new Block Exemption Regulations (BERs) dealing with specialisation agreements and R&D agreements respectively. The new BERs will replace the existing BERs dealing with specialisation agreements and R&D agreements as of 1 January 2011.
Overall, the modifications introduced in the new Horizontal Guidelines aim at clarifying rather than fundamentally changing the existing regime. It is noteworthy that the content of the new Guidelines has grown considerably compared to the previous version, as a completely new section dealing with exchanges of information has been introduced and other parts concerning specific types of cooperation (e.g., standardisation agreements) provide for a more detailed analysis. The new Guidelines are of particular importance for various types of business activity, as certain types of horizontal cooperation between competitors may bring considerable benefits; at the same time, cooperation between competitors may entail serious risks of infringing antitrust rules.
Specific noteworthy points are summarised below.
A new framework
The first significant change introduced in the recently adopted Guidelines is a new framework for analysis of horizontal agreements, which differs substantially from the approach adopted in the previous Guidelines. The framework of the former Guidelines differentiated between three categories of horizontal agreements: those which do not constitute a restriction of competition within the meaning of Article 101(1) TFEU, those which would almost always fall under that provision, and finally those agreements that may fall within the ambit of Article 101(1) TFEU. However, the new Guidelines no longer apply that distinction. Instead, the new Guidelines follow the wording of Article 101 TFEU, in that they analyze horizontal agreements depending on whether they restrict competition by object or by effect.
This change is likely to have several important implications for the process of self-assessment. First, in contrast to the previous Guidelines, the new Guidelines do not state clearly that Article 101(1) TFEU would not apply to cooperation between non-competitors. Therefore, the revised rules seem to withdraw the benefit of a "safe harbour" which reassured cooperating non-competing businesses of the compatibility of their actions with EU competition law. Second, the distinction between practices restricting competition by object and by effect is still not clear, despite recent developments in the case law on that matter. In particular, it appears that the "object box", which encompasses the most serious restrictions which are by their nature harmful of competition, has not yet been closed. This follows especially from the recent GlaxoSmithKline case, in which the European Court of Justice ("ECJ") and the General Court presented widely varying views on this fundamental issue. By refocusing the framework of analysis on this distinction, the new Guidelines may make self-assess a more uncertain process for business.
Exchange of information
Another of the major developments in the new Guidelines is a new section devoted entirely to the assessment of the exchange of information between businesses. By devoting a separate part of the Guidelines to the exchange of information, the Commission has affirmed its importance as a stand-alone practice which may, in some cases, improve efficient cooperation and thus requires more comprehensive assessment. The Commission's guidance incorporates the recent case law of the ECJ which held in T-Mobile Netherlands that even a single exchange of information between competitors may constitute a restriction of competition by object, while confirming at the same time its potentially pro-competitive effects.
The new Guidelines list among the benefits of exchange of information inter alia the possibility to alleviate information asymmetries thereby allowing for a better allocation of production, performance benchmarking leading to better quality of products and services, as well as improved information for consumers. On the other hand, the Commission confirms that it will scrutinise with particular attention the exchange of sensitive market data among competitors, as this is likely to allow alignment of their competitive behaviour on the market. In this respect, the Commission concludes that "information exchanges between competitors of individualised data regarding intended future prices should [...] be considered a restriction of competition by object". The position taken by the Commission can be regarded as rather strict, especially in the light of the EU case law, which requires that in the finding of a restriction by object the economic and legal context should be taken into consideration; this is an element that is absent in the Commission's statement. By contrast, according to the Guidelines, the potentially anticompetitive effects of information exchange should be evaluated on the basis of certain factors, including price, output, product quality and variety or innovation. Interestingly, the wording of the Guidelines seems to suggest that evaluation of these factors would be necessary solely in the case of an "effects" analysis, whereas it would not be required in the case of an "object" analysis. With respect to the analysis of effects, the Commission provides guidance as to the significance of factors such as the market structure and the nature of data to assess whether the exchange will lead to antitrust problems. As regards the nature of the information exchanged, the new Guidelines list several factors which should be analyzed in the assessment of the potential anti-competitive effects of an exchange of information under Article 101(1) TFEU as well as potential benefits that it can produce under Article 101(3) TFEU. These include the strategic content of the data, its market coverage, its degree of individualisation, its age and accessibility for the public, and the frequency of the exchanges.
Production, Purchase and Commercialisation Agreements
The new Guidelines, similarly to the previous version, provide guidance on the assessment of certain specific common types of horizontal cooperation, namely joint production and commercialisation agreements as well as arrangements on joint purchasing. The Commission acknowledges that, in respect of these types of cooperation, competition concerns are likely to arise only where the parties enjoy some degree of market power. Consequently, the guidelines provide safe harbours for parties whose joint market share on the relevant markets does not exceed 15% (in the case of joint production and commercialisation agreements) or 20% (in the case of joint production agreements) and provided other conditions are met.
Moreover, as mentioned above, in the case of specialisation agreements, the Commission has adopted as new Specialisation BER, which will become applicable as of 1 January 2011, and replaces the previous BER. The Specialisation BER provides for an exemption under Article 101(3) TFEU for specialisation agreements where the parties' shares do not exceed 20% of the relevant markets and provided other conditions are met.
The Commission expresses in the Guidelines its concerns related to the possibility for the parties to horizontal cooperation agreements to engage in a collusive behaviour. Therefore, the Commission may consider certain arrangements to restrict competition "by object" if, in its view, the cooperation constitutes de facto a disguised form of a cartel. Consequently, the Commission declares in rather broad terms that agreements concerning volumes of output and pricing policy are most likely to have the object of restricting competition. Reciprocal agreements, requiring commitments of both parties to the agreement, will be of particular concern to the Commission. Nonetheless, the Commission recognises that certain arrangements requiring one party to cease the production of the output may be covered by the new Specialisation BER and the revised Guidelines. On the other hand, the Commission considers that anticompetitive effects may follow inter alia from a creation of commonality of costs or an exchange of information, in particular in relation to arrangements on commercialisation as well as on production. In the latter case, in order to find that a given agreement leads to anti-competitive effects, the Commission explains that it will normally build a counterfactual demonstrating the condition of the market in the absence of the cooperation in question.
R&D and Standardisation Agreements
The new Guidelines and accompanying BERs also involve significant changes in respect of R&D agreements and standardisation agreements. These issues are elaborated in more detail in the IP section of the current newsletter.
Application of Guidelines at different stages of cooperation
It is very common that horizontal cooperation takes place at different levels of the value chain and combines various types of arrangements concerning R&D, production and distribution. Therefore, the new Guidelines, just like their predecessors, provide for a specific conflict rule, indicating which provisions are applicable in a situation where the cooperation involves operations covered by different chapters of the Guidelines. In this respect, the revised rules reaffirm the position under the previous Guidelines, so that an agreement should be assessed in accordance with the rules applicable to the operation that constitutes the "centre of gravity" of the cooperation. According to the "centre of gravity" test, the parties have to apply the rules relevant for the arrangement that is indispensable for carrying out the cooperation. However, it is not always clear which stage of cooperation was regarded by the parties as essential, which has entailed in the past certain difficulties in applying the test in practice. Interestingly, the Commission has ultimately abandoned the test which it initially suggested to incorporate in the new Guidelines. According to that approach, which was proposed in the draft put out to public consultation, it was to be "the most upstream indispensable building block" of the horizontal cooperation that was meant to determine which chapter of the guidelines would serve as a starting point for the assessment of the entire agreement. Despite the apparently complicated wording of the test, its practical application might have proved more functional than the existing one.
Furthermore, specific guidance is provided in respect of information exchanges within a broader framework of specific cooperation agreements. This is mainly due to the fact that many specific types of horizontal cooperation require certain degree of information sharing in order to be successfully implemented. In this respect, the guidelines repeatedly stipulate that "any negative effects arising from the exchange of information will not be assessed separately but in the light of the overall effects of the agreement". It follows that wherever information exchange occurs within the context of broader cooperation, such as joint production or commercialisation of a product (or both), it will be the chapter concerning these specific arrangements that will be relevant for the assessment of the exchange of information.
Application of competition rules to relations between joint ventures and parent companies
In the draft of the new Guidelines put out to public consultation, the Commission proposed including guidance that "[a]s a joint venture forms part of one undertaking with each of the parent companies that jointly exercise decisive influence and effective control over it, Article 101 does not apply between the parents and such a joint venture...". Interestingly, however, this passage has been deleted from the version of the Guidelines finally adopted by the Commission. The most probable cause for the Commission's change of mind were numerous concerns received from interested parties during the public consultation (in particular, the practical implications of the proposed wording were insufficiently explained).
Commission fines LCD panel producers € 649 million for price-fixing and information-sharing cartel
On 8 December 2010, the European Commission adopted a decision fining six manufacturers of liquid crystal display ("LCD") panels a total of € 648,925,000 for price-fixing practices and illegal exchange of information. According to the Commission's press release, the cartel members were Korean producers Samsung Electronics and LG Displays and Taiwanese producers AU Optronics, Chimei InnoLux Corporation, Chunghwa Picture Tubes and HannStar Display Corporation. LCD panels are used in the manufacture of electronic products such as flat screen televisions, computer monitors, and electronic notebooks.
The Commission found that the six producers had operated a cartel between October 2001 and February 2006 during which they agreed on prices, including price ranges and minimum prices, and exchanged information on future production planning, capacity utilisation and trading conditions. According to the Commission, members of the cartel met monthly in hotels in Taiwan with a total of around 60 such meetings being held during the course of the cartel.
As regards the setting of fines, Samsung received full immunity under the Commission's leniency programme for blowing the whistle on the cartel. The Commission also reduced the fines of LG Display by 50%, AU Optronics by 20% and Chunghwa Picture Tubes by 5% for their cooperation with the Commission's investigation. LG Display additionally acquired partial immunity for its participation in the cartel in 2006, as it was the first company to prove the continuing existence of the cartel after 2005. Ultimately, Chimei was fined € 300 million, LG Display € 215 million, AU Optronics € 116.8 million, Chunghwa € 9.025 million and HannStar € 8.1 million. Two of the companies asked for a fine reduction on the basis of inability to pay, but the Commission rejected both claims.
French pharmaceutical association fined for breach of antitrust rules on French market for clinical laboratory testing services
On 8 December 2010, the European Commission announced its decision to fine the Ordre national des pharmaciens ("ONP") and its governing bodies € 5 million for a violation of Article 101(1) TFEU. The ONP is a professional body to which the French government has delegated the responsibility of ensuring that pharmacists in France comply with their professional duties. It has the power to impose binding decisions on its members.
The Commission found that the ONP had imposed measures on its members aimed at setting minimum prices in the form of maximum discounts in the French market for clinical laboratory tests. The ONP's decisions were also found to have aimed at hindering the development of other groups of laboratories on this market. As a result of these practices, the Commission stated in its press release announcing the decision that, during the period under investigation, the prices of these clinical laboratory testing services were often up to two or three times higher in France than in other EU Member States.
A complaint was originally lodged October 2007 by Labco, a medical-diagnostics company operating in several European countries, who believed it was being denied access to the French market for clinical laboratory testing services due to the conduct of the ONP. The European Commission carried out dawn raids in November 2008, the legality of which were unsuccessfully challenged by the ONP and another undertaking, Biocaps, before the EU's General Court. The main argument made was that the ONP was not a legal entity, but on 26 October 2010 the General Court upheld the legality of the Commission's dawn raids without addressing this point conclusively.
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