Our point of view

Competition Newsletter 12/2011

2 December 2011

EU - Commission reforms antitrust procedures and expands role of Hearing Officer

On 17 October 2011, the European Commission (the “Commission”) adopted a package of measures which aims to increase the interaction between the Commission and the parties in antitrust proceedings as well as to strengthen the mechanism for safeguarding the parties’ procedural rights. According to the Commission, these measures will increase the transparency and fairness in competition proceedings and give the parties a clear picture of what to expect at different stages of an investigation. If dispute should arise concerning the parties’ procedural rights the matter can be referred to the hearing officer, who will have an enhanced role throughout the entirety of the proceeding.

The package includes Notice on best practices for the conduct of proceedings concerning Article 101 and 102 of the Treaty on the Functioning of the European Union (“Notice on best practice in antitrust proceedings”), Best Practices on submission of economic evidence and Terms of reference of the Hearing Officer.

As regards the Notice on best practices in antitrust proceedings this aims to clarify the Commission’s investigation process and provides for greater interaction between the Commission services and relevant parties from an early stage. The following practices have been put into place:

  • earlier opening of formal proceedings;
  • state of play meeting at key points of the proceedings;
  • publicly announcing the opening and closure of proceedings and the sending of a Statement of Objection;
  • guidance on how the commitment procedure is used in practice; and
  • enhanced access to ‘key submissions’ from complainants or third parties, such as economic studies, prior to the Statement of Objections.

Economic analysis plays a central role in antitrust enforcement. In order to streamline the submission and assessment of such evidence, the Best Practices on submission of economic evidence outlines the criteria which economic and econometric analysis should fulfil and explains how related issues should be handled.

The new Terms of Reference of the Hearing Officer strengthen the Hearing Officer’s role as the guardian of procedural rights and establish new functions in the investigation phase, such as:

  • resolving issues regarding the confidentiality of communications, such as access to the file, or the protection of business secrets, between companies and their external lawyers; and
  • intervening when a company considers that it has not been informed of its procedural status.
  • Parties will also be able to refer the matter to the Hearing Officer if they should not be compelled to reply to questions that might force them to an infringement.

Other key changes for the Hearing Officer include strengthening his or her role in the preparation and conduct of the oral hearing and reports, to enhance the effective exercise of procedural rights throughout proceedings.

peter.forsberg@hannessnellman.com; kristin.anderson@hannessnellman.com

EU - National competition authorities agree on best practices to handle cross-border mergers

On 8 November 2011, the heads of EU national competition authorities (“NCAs”) and the European Commission (“Commission”) agreed on a set of Best Practices on Cooperation between EU National Competition Authorities in Merger Review (“Best Practices”). The aim of the Best Practices is to foster cooperation and sharing of information between NCAs in the European Union, for mergers that do not qualify for review by the Commission itself but that meet the national requirements for notification in more than one Member State.

Several hundred transactions are reviewed by two or several NCAs simultaneously each year. The application of separate national rules may, in some cases, entail legal uncertainty and delay for merging parties or even result in conflicting decisions by such NCAs.

The Best Practices paper provides a non-binding reference for cooperation between such NCAs in order to facilitate informed and consistent or at least non-conflicting outcomes and to reduce the burden on merging parties and third parties by facilitating the alignment of timing and overall efficiency, transparency and effectiveness of the review procedures.

Cooperation may, for example, assist NCAs in forming a view as to whether a transaction qualifies for notification or investigation. It may also assist in assessment and analysis of (i) transactions which may affect competition in more than one Member State; (ii) remedies where the same remedy is designed to address competition issues in different Member States; or (iii) remedies which may affect the effectiveness of a different remedy in another Member State.

To facilitate cooperation, NCAs aim to keep each other informed about key steps in their respective review procedures, such as the outcome of the first phase investigation, any intention to initiate an in-depth investigations, the outcome of such investigations and the extent to which remedies may be offered and the assessment of such remedies. Merging parties will need to give their consent for the NCAs to share confidential information.
However, cooperation is not mandatory. The NCAs may determine the extent to which the Best Practices will be adhered to from case to case. Further, in several respects, it is up to the merging parties to facilitate cooperation among the NCAs e.g. by providing timely information about the parties, the transaction, the relevant NCAs and the overall timing of the transaction at an early stage (and possibly already during pre-notification contacts with relevant NCAs) and to coordinate timing and substance of any remedy packages to relevant NCA. Thus, parties to a transaction should in advance consider the benefits of cooperation among the NCAs and whether such cooperation shall be promoted.

peter.forsberg@hannessnellman.com; liana.thorkildsen@hannessnellman.com

Finland - Competition judgments of the Finnish Supreme Administrative Court in 2011

Decision on alleged restriction of parallel imports
In May 2006, the Finnish Competition Authority (“FCA”) proposed that the Market Court should impose a penalty payment on Nikon Nordic AB (“Nikon”) for a vertical restriction whereby Nikon had allegedly refused to extend the European-wide guarantee of Nikon products to Nikon digital cameras imported into Finland by parallel importers. In December 2008, the Market Court rejected the FCA’s proposal.

The Finnish Supreme Administrative Court (“SAC”) first assessed whether or not the commitments offered by Nikon to the FCA affected the FCA’s ability to make a penalty payment proposal and found that they did not prevent the FCA from making such a proposal. The SAC then went on to address Nikon’s conduct of refusing to extend the guarantee to parallel imported Nikon cameras. Contrary to the Market Court’s ruling, the SAC found that Nikon had in fact refused to provide after-sales services for Nikon cameras imported by one parallel importer for a short period between May and July 2004.

Normally, the matter would have been returned to the Market Court for the court to decide whether the refusal of after-sales services had infringed competition rules and, if this were the case, whether a penalty payment should be imposed.

However, the SAC did not return the matter to the Market Court. It referred to Article 7 of the Finnish Competition Act in force at the time, according to which a penalty payment is imposed unless the conduct is deemed to be minor or the imposition of the penalty payment is otherwise unjustified in respect to safeguarding competition. According to the SAC, even if Nikon’s conduct infringed competition rules, it would have been deemed minor considering that the conduct had lasted for a very short time and affected only a few cameras of one parallel importer. The imposition of a fine would have also otherwise been unjustified. Consequently, the FCA’s penalty payment proposal would have been rejected even if an infringement of competition rules had been found. The SAC therefore rejected the FCA’s proposal without returning the matter to the Market Court.

Decision on alleged abuse of dominance in the broadband market
In October 2004, the FCA proposed that the Market Court should impose a penalty payment on the regional telecom operator Lännen Puhelin Ltd (“LP”) for an alleged abuse of dominance in the regional market for wholesale products related to ADSL-based Internet connections for private households. The Market Court rejected the FCA’s proposal in July 2008 and ordered the FCA to compensate the legal costs of LP in the amount of EUR 300,000.

The FCA appealed the Market Court’s decision and claimed that LP had abused its dominant position for more than three years through refusal to supply, price squeezing and discrimination. The SAC found that LP had been in a dominant position. It then assessed whether LP had any obligation to offer the wholesale product to its competitors in the first place and, from the moment it had been offered, whether it had been on abusive terms.

The SAC concluded that LP’s conduct in not offering the wholesale product to its competitors had not been abusive. Further, the court stated that LP’s subsequent introduction of a product with allegedly insufficient technical properties did not constitute an abuse, because the situation did not differ from the period when no product was offered at all. Finally, with regard to the FCA’s price squeezing allegation, the SAC concluded that, on the basis of the FCA’s calculations, it was impossible to draw any such conclusions. Consequently, the SAC rejected the FCA’s penalty payment proposal.

According to Article 74 of the Administrative Judicial Procedure Act, a party is liable to compensate the other party for his legal costs if, in particular in view of the decision in the matter, it is unreasonable that the latter should bear his own legal costs. When assessing the liability of a public authority, special account shall be taken of whether the proceedings have arisen from the error of the authority.

On the basis of the above, the SAC stated that the FCA had been justified in making the penalty payment proposal in the circumstances of the case. However, considering inter alia that the proposal was rejected in its entirety, the SAC found it unreasonable that LP should bear its costs in full. LP had requested the SAC to order the FCA to compensate it for legal costs arising not only from the process before the Market Court but also from the preceding investigatory phase when the matter was pending before the FCA. The SAC ruled that legal costs related to the investigatory period were not recoverable and ordered the FCA to pay EUR 100,000 of LP’s legal costs.

mikael.wahlbeck@hannessnellman.com; katja.jaakkola@hannessnellman.com

Finland - A Landmark Finnish Merger Control Decision

For the first time, the Finnish Market Court, a specialist tribunal vested with jurisdiction in competition law matters, has issued a decision concerning a prohibition proposal by the Finnish Competition Authority (“FCA”). The FCA had proposed that an acquisition by NCC Roads Ltd (“NCC”) of the asphalt business of Destia Ltd (“Destia”) should be prohibited. The court rejected the FCA’s proposal and approved the transaction, subject to certain conditions, on 2 November 2011.

NCC notified the transaction to the FCA on 5 April 2011. After the phase-1 investigation, the FCA concluded that the transaction may raise competitive issues regarding the production and supply of asphalt mass in the Helsinki Metropolitan area. It therefore opened a phase-2 investigation in May. After the phase-2 investigation, because the FCA and NCC could not agree on the undertakings required from NCC in order to clear the transaction, the FCA proposed in August that the transaction should be prohibited. The FCA based its proposal on an allegation that, following the transaction, NCC and its competitor, Lemminkäinen, would have a collective dominant position in the relevant market.

The Market Court began reviewing the FCA’s proposal in August. According to Finnish law, the Market Court must, in a prohibition proposal matter, issue a decision within three months from the date of the proposal. NCC and Destia opposed the proposal and argued e.g. that the FCA’s market definition was not correct, that the conditions for collective dominance were not met either under Finnish competition legislation and previous case law or under EU law, and that, even if they had been met, the proposed remedies should have been deemed sufficient in light of previous case law.
The Market Court agreed with the FCA that the transaction would give rise to collective dominance in production and supply of asphalt mass in the Helsinki Metropolitan area. The court held, however, that the transaction may be brought to completion, subject to appropriate undertakings. The court stipulated somewhat more stringent conditions, with regard to leasing out of an asphalt mass production site to a competitor, than had been proposed by NCC. NCC was also required to sell asphalt at market price to competitors.

tapani.manninen@hannessnellman.com; toni.malminen@hannessnellman.com

Sweden - The Competition Authority approves failing firm dairy merger

The Swedish Competition Authority (the “SCA”) has cleared the merger between Arla Foods amba (“Arla Foods”) and Milko Ekonomisk förening (“Milko”), the largest and third largest dairy associations in Sweden.

The approval is conditional upon Arla Foods selling Milko’s biggest dairy plant in Grådö and five of its trademarks. In its assessment the SCA took into account the fact that Milko is in a very difficult financial situation and is at risk of bankruptcy under the “failing firm” doctrine.

The SCA stated that an unconditional clearance would have led to a considerable limitation of competition in respect of milk, yoghurt and several other dairy products to the detriment of consumers in large parts of Sweden. However, considering Milko’s difficult financial position, it was appropriate for the SCA to consider whether the “failing firm” conditions might be met.

The failing firm doctrine allows the SCA to clear a concentration which otherwise would be prohibited under certain conditions. The basic rationale behind the failing firm doctrine is that the deterioration of competition in the relevant market would arise irrespective of the concentration (as a result of the target company leaving the market due to its financial difficulties) and is therefore not caused by it. In order for the failing firm doctrine to apply, the following conditions must be met: (i) the allegedly failing firm would in the near future be forced out of the relevant market due to its financial difficulties if not taken over by another undertaking; (ii) there is no less anti-competitive purchaser; and (iii) in the absence of the concentration, the assets of the failing firm would inevitably exit the market.

The SCA found that the first condition was met as Milko was in a very difficult financial situation and at clear risk of bankruptcy (its current business being financed through a credit line which the bank in principle was unwilling to extend) if not taken over by another undertaking. As to the second condition, the SCA stated that it is likely that Arla Foods would be the only purchaser of Milko it its entirety. However, the third condition was only partially met as third parties had demonstrated an interest to acquire Milko’s biggest plant and some of its trademarks.

Following an overall assessment, the SCA concluded that the deterioration of competition in the relevant market would not necessarily arise in the absence of the concentration, as parts of Milko’s assets, following a bankruptcy might be purchased by third parties in the absence of the concentration. However, having considered the remedies offered by Arla Foods (to divest Milko’s biggest plant and the relevant trademarks) the SCA cleared the transaction.

With respect to the divestment of the plant, there could be some uncertainties as to its actual execution. The successful operation of the plant requires access to raw milk which typically is not transported longer distances. The SCA acknowledged that it could be difficult for a new operator of the plant to get access to raw milk (around 90% of Milko’s dairy farmers had already demonstrated their commitment to Arla Foods by applying for membership). However, the SCA concluded that this would likely also be the case if Milko went into bankruptcy (as many farmers would still be likely to turn to Arla Foods) and thus decided not to impose any supply obligation on Arla Foods in this regard. Under the remedy conditions, unless Arla Foods is able to sell the plant to a new operator under a given time, a trustee will be assigned the task but not below a price equalling Arla Food’s estimated scrap value of the plant. If the trustee is unsuccessful, Arla Foods shall, nevertheless, be deemed to have fulfilled the remedy.

peter.forsberg@hannessnellman.com; kristin.anderson@hannessnellman.com

Russia - Amendments to Antitrust Legislation: “Third Antitrust Package”

The State Duma of the Russian Federation has adopted the “third antitrust package” of amendments in its third reading. The main changes which will be introduced to antitrust legislation are the following.

  1. Cartels and “vertical” agreements. The list of agreements that can be treated as cartels is reduced to five, while the list of agreements which may be declared illicit if real or potential adverse effect on competition is proved has been expanded, in particular, to include the following agreements: (i) including unprofitable conditions in an agreement as well as conditions which do not relate to the subject of the agreement, (ii) different pricing conditions without due rationale, (iii) preventing market access to other businesses.
  2. Concerted Practices. The definition of illicit concerted practices is corrected: only those practices which were preceded by public announcement of one of the participants shall be declared illegal. A standard minimum commodity market share which must be held by businesses participating in concerted practices will also be introduced.
  3. Agreements between members of the same group. Prohibitions of restrictive agreements will not apply to agreements entered into by members of one group if the parties to the agreement are under single control (one party controls the other or both/all parties are controlled by the same legal entity or individual).
  4. Merger control rules for non-Russian companies. The law will state that operations of foreign targets also fall within the scope of merger control. New criteria were introduced: such antimonopoly clearance is required in case the foreign target supplied goods to the Russian market in an amount exceeding RUB 1 billion (currently approx. €24,750,000 / US$35,900,000) during the calendar year preceding the date of the transaction.
  5. General merger control rules. The thresholds for merger control are increased: the aggregated value of assets of businesses increased from RUB 3 billion to 7 billion, and the aggregated sales revenue of such businesses increased from RUB 6 billion to 10 billion.
  6. Official Warnings. Antitrust authorities will be entitled to send ‘official warnings’ to the officials of businesses which publicly declare their intent to act in an “anti-competitive” manner on a commodity market, if such behaviour may lead to a violation of antitrust law.
  7. Criminal liability. Concerted practices (in the absence of an agreement) have been de-penalized. Criminal liability will only be applied to cartels.
  8. Administrative liability. Significant changes have been made concerning administrative liability set forth in the Code of Administrative Offenses of the Russian Federation for antitrust violations.
    • Fixed fines are introduced for the abuse of a dominant position which does not result in restraint of competition. Other abuses will trigger turnover penalties;
    • Late submission of information requested by FAS will be penalized separately (in addition to the previously introduced fine for delay to submit);
    • There are new ‘mitigating’ and ‘aggravating’ circumstances to be considered when reviewing administrative cases on competition. In particular, the bill considers performance of an order before the end of proceedings, acknowledgement in writing of a breach and termination of an offense, and assisting antitrust authorities during investigations all to be ‘mitigating’ circumstances: each such circumstance lowers the amount of an administrative fine by one quarter of the minimum amount of such an administrative fine. The length of time an offence has been ongoing, the level of damages suffered, and repeat offenses are, first and foremost, all considered to be ‘aggravating’ circumstances.
  9. Public register of offenders. The FAS will maintain a publicly available register of entities and individuals which have been held liable for administrative violations.

We expect the law to be finally adopted by the end of this year.

eugenia.borzilo@hannessnellman.com; yulia.borisova@hannessnellman.com