Our point of view

Competition & Procurement Newsletter

10 October 2013
COMPETITION

EU - The European Commission adopts a new proposal to facilitate antitrust damages actions

In June 2013, the European Commission adopted a proposal for a legislative package in order to facilitate private antitrust damages actions for breaches of the EU rules prohibiting anti-competitive agreements and abuses of dominant position laid down in Articles 101 and 102 of the Treaty on the Functioning of the European Union, comprising (i) a Directive on private antitrust damages actions, (ii) a Recommendation on collective redress and (iii) Guidance on the quantification of damages. The Commission’s proposal aims to remove practical obstacles for injured parties of antitrust infringements to seek compensation and contain specific measures to improve the national legal frameworks governing actions for damages.

Directive on private antitrust damages actions

The proposed Directive intends to ensure that anyone who has suffered harm caused by an infringement of EU or national competition law is able to claim full compensation and includes the following measures:

Both national and EU infringement decisions will constitute evidence of infringement

It is proposed that an infringement decision of any national competition authority will constitute full proof before civil courts as to the factual circumstances in the same way as a Commission decision.

National courts may order disclosure of evidence

National courts should be able to order the defendant or a third party to disclose evidence on request of the claimant, provided that such orders are proportionate and confidential information is duly protected. In principle, all documents should be available for disclosure, including pre-existing documents. However, to ensure the efficacy of the Commission’s leniency programme and those of national authorities, national courts should never order disclosure of corporate statements submitted under the leniency programme, as well as submissions in the context of a settlement procedure. Other documents such as exchanges between the competition authority and the parties should only become available after the authority’s decision, to minimise disruption to the investigation process.

Limitation period of at least five years

It is proposed that an injured party of antitrust infringements should have a period of at least five years within which to bring a claim for damages. The limitation period must not begin to run before an injured party can reasonably be expected to have knowledge of (i) the practice constituting the infringement; (ii) the qualification of such practice as an infringement of EU or national competition law; (iii) the fact that the infringement caused harm to the injured party; and (iv) the identity of the infringer who caused such harm. This period is suspended if any competition authority initiates proceedings in respect of that infringement, for the duration of the proceedings or for at least one year after the authority’s infringement decision has become final or the proceedings have otherwise been terminated.

Joint and several liability – protection of immunity applicants

Undertakings that have infringed competition law through joint behaviour are jointly and severally liable for damage caused by the infringement, i.e. each of the infringing undertakings is bound to compensate for harm in full, and the injured party may require full compensation from any of them until the injured party has been fully compensated. However, an undertaking that has been granted immunity from fines under a leniency programme is only liable to pay damages to their own direct and indirect customers, and they should be excluded from joint and several liability unless injured parties are unable to obtain full compensation from other undertakings.

Passing-on defence is recognized

Defendants should be permitted to argue that the claimant passed all or part of the overcharge resulting from the infringement (e.g. price increase) on to the next level of the supply chain. The burden of proof that the overcharge was passed on shall rest with the defendant. The proposal allows infringers to invoke the passing-on defence and establishes rebuttable presumption that indirect purchasers suffered a part of the price increase, thereby facilitating the claims of these indirect purchasers. The injured parties from different levels of the supply chain will be entitled to claim compensation for loss, both loss of profit, as well as the actual loss that was not passed on, related to the same competition law infringement.

Rebuttable presumption of harm

In the case of a cartel infringement, courts should apply an automatic presumption that the claimant has suffered harm. The burden of proof is on the defendant to show otherwise.

The proposed Directive will now be considered by the European Parliament and the European Council according to the ordinary legislative procedure. If the Directive is adopted, Member States will have two years to implement the provisions into their national legal systems.

Recommendation on collective redress

The Commission has also issued a draft Recommendation on collective redress which aims to ensure a coherent approach for collective redress in the EU. Collective redress is an important tool to obtain compensation in cases where the harm caused by a competition infringement is spread among a large number of injured parties, such as consumers and small- and medium-sized enterprises (SMEs). The Recommendation provides guiding principles that should be observed when providing for collective redress mechanisms. The Recommendation covers infringements of not only competition law but also other areas where EU law infringements may cause mass harm, such as environmental law and consumer protection. Member States will have two years to implement the principles set out in the Recommendation, after which the Commission will evaluate the effectiveness of its non-binding approach.

Guidance on the quantification of damages

The Commission has also issued a non-binding Communication and Practical Guide on quantifying harm in private actions damages. The Guide explains the practical features of various methods and techniques available to quantify antitrust harm.

The Commission’s proposals constitute an important step towards a more effective private enforcement of the EU competition rules. If the proposals will be adopted, it could help level the playing field for anyone doing business in the EU.

Peter Forsberg, Partner, Stockholm and Liana Thorkildsen, Senior Associate, Stockholm

EU - The European Commission increasingly relies on UPP-method in its merger analysis

On 24 July, the European Commission published a non-confidential version of its decision in the Hutchison 3G Austria /Orange Austria case, clearing the acquisition by Hutchison 3G Austria Holdings GmbH (H3G) of sole control over Orange Austria Telecommunications GmbH (Orange). The transaction was cleared subject to commitments following the Commission’s in-depth investigation (Phase II investigation). This is the first time the Commission has explicitly applied an Upward Pricing Pressure (UPP)-analysis in its merger control assessment. The case is particularly notable as the combined marked share of the parties was less than 25%.

The case concerned the Austrian mobile telecommunications market. Prior to the concentration, there were four mobile network operators (MNO) active on the market. H3G and Orange were the two smallest ones (the market share of each of H3G and Orange was estimated to amount to 10-20% , with the combined market share of less than 25%). The Commission found that H3G -was an important competitive force in the Austrian mobile telephony market with a greater influence on competition than its market share would suggest. In particular, as a result of H3G’s aggressive pricing policy the prices in the market in Austria were very low compared to other Member States. The Commission stated that the merger would eliminate two relatively small MNOs which were winning a disproportionately large share of new customers, and the merged entity would have less incentive to compete aggressively. In its assessment, the Commission relied heavily on customer switching data. According to the Commission, the fact that about one-third of Oranges’ subscription customers would primarily switch to H3G confirms the significant competitive constraint imposed by H3G on Orange and similarly by Orange on H3G.

The application in this case of the UPP-method marks a shift away from concentrating the competition analysis on market definition and market shares and towards an assessment of the degree of rivalry between the companies, including identifying the closeness of competitors.

There has been a clear trend towards increased use of economic theory and quantitative methods in merger case analysis in a number of jurisdictions. In Sweden, the UPP test has explicitly been applied by the Swedish Competition Authority in a number of recent cases, in the Office Depot/Svanströms (2011), Arla/Milko (2011), Cloetta/Leaf (2012) and Eniro 118 118/Teleinfo (118 800) (2012) cases.

Peter Forsberg, Partner, Stockholm and Liana Thorkildsen, Senior Associate, Stockholm

Finland - A new supervisory powers to the Finnish Competition and Consumer Authority

As of 1 September 2013, the Finnish Competition and Consumer Authority (FCCA) has been granted a new supervisory power to investigate and intervene in competitive neutrality issues arising from the business activities of municipalities, joint municipal authorities, the Finnish state or the legal entities controlled by them. The supervisory powers given to the FCCA are extensive, covering all kinds of competition restrictions.

Alongside the reform of the Finnish Local Government Act, the amendment of the Finnish Competition Act aims to level the competitive playing field between private and public market participants.

The FCCA may start investigations on its own initiative or following a third party complaint. The primary tool provided to the FCCA is negotiation. Secondarily, the FCCA may impose obligations on economic activities that distort competition and ultimately, if necessary, ban such activities. In order for the FCCA to intervene, the public entity must actually be or be capable of distorting effective competition or preventing the emergence or development of competition on the market to a significant degree.

Furthermore, the FCCA is tasked with ensuring that a municipality applies market-based pricing in the exceptional situations where the economic activities of municipalities do not need to be corporatized under the Local Government Act.

Mika Pohjonen, Specialist Partner, Helsinki and Anna-Liisa Saukkonen, Senior Associate, Helsinki

Sweden - Assa Abloy abandons acquisition of Prokey

On 19 September 2013, Assa Sverige AB decided to abandon its planned acquisition of Prokey AB after the Swedish Competition Authority (SCA) filed a suit to block the acquisition.

On 12 July 2013, the SCA applied to the Stockholm District Court (District Court) to block Assa Sverige’s acquisition of Prokey. Assa Sverige is part of the international Assa Abloy group (Assa Abloy) that is active in the field of security products and door solutions. Prokey is a wholesaler of security products to locksmiths. According to the SCA, the proposed acquisition would significantly impede effective competition in the wholesale market for security products for locksmiths in Sweden.

The SCA’s in-depth investigation revealed that, if the acquisition of Prokey would materialise, Assa Abloy would hold a monopoly position in the wholesale market for security products for locksmiths in Sweden. Assa Abloy is active on the wholesale market for security products in Sweden through its wholly-owned subsidiary Copiax AB, which already holds a dominant position on such relevant market (Copiax’ market share is estimated at approx. 80-90%). The SCA found that Copiax and Prokey are each other’s closest competitors. In the event of a merger, locksmiths would have only one remaining wholesaler. According to the SCA, the merged entity would have both the power and incentive to raise prices. Further, Assa Abloy would have power and incentives to offer less favourable conditions for competing manufacturers which sell their products through Copiax and Prokey.

In its plea to the District Court, Assa Abloy claimed that the SCA’s action to block the acquisition should be dismissed because of procedural hindrance as the SCA had not included the sellers of Prokey in the proceedings. The District Court tried the question of procedural hindrance separately and found that there were no grounds to dismiss the SCA’s action, because the seller is not considered as an undertaking concerned under Swedish merger control law and, hence, is not a party in cases where the SCA seeks a prohibition of the concentration.

Assa Abloy’s acquisition of Prokey was not subject to a mandatory notification requirement to the SCA but rather the SCA requested Assa Abloy to submit the notification. According to the Swedish Competition Act, a concentration is subject to mandatory notification if both the combined aggregate turnover in Sweden of all the undertakings concerned exceeds SEK 1 billion (approx. EUR 114.9 million) and at least two of the undertakings concerned have an individual turnover in Sweden exceeding SEK 200 million (approx. EUR 23 million). Prokey did not meet the individual turnover threshold. However, the SCA has the power to order the submission of a notification of the concentrations where only the combined turnover threshold is met (but not the individual turnover threshold) if there are particular reasons.

Peter Forsberg, Partner, Stockholm and Liana Thorkildsen, Senior Associate, Stockholm

Sweden - The Swedish Competition Authority initiates proceedings against companies within care and treatment business in alleged bidding cartel

On 28 August 2013, the Swedish Competition Authority (SCA) submitted a summons application with the Stockholm District Court (District Court) against three companies active within the care and treatment sector (Aleris Diagnostik AB, Capio S:t Görans Sjukhus AB and Hjärtkärlgruppen i Sverige AB) for participation in an alleged bidding cartel, in breach of the Swedish Competition Act. The SCA is seeking fines of approx. SEK 30 million.

The SCA claims that the companies participated in a cartel in conjunction with the Stockholm County Council’s procurement of the services within clinical physiology and clinical neurophysiology in 2008. It is alleged that, prior to bid submission, the companies agreed that, regardless of who won the contract, they would share the contracted tasks between them (known as volume sharing). In addition, the companies allegedly revealed to each other and agreed upon which tender items each would bid for (prohibited information exchange). The companies are alleged to have shared the market in accordance with these agreements since 2010. The SCA claims that the companies had extensive contacts with each other, both oral meetings and written emails, where they, at least bilaterally, discussed cooperation.

Such type of cooperation, i.e. market sharing and exchange of commercially sensitive information between competitors is prohibited and constitutes a serious infringement of competition rules. The SCA states that the companies’ behaviour is contrary to the fundamental concept of competition, namely that companies should each act independently and determine their own business strategies.

The SCA requests the District Court to order Aleris to pay approx. SEK 26.7 million, Capio approx. SEK 1.2 million and Hjärtkärlgruppen approx SEK 1.7 million in fines.

Peter Forsberg, Partner, Stockholm and Liana Thorkildsen, Senior Associate, Stockholm

PROCUREMENT

EU - New EU procurement directive to enter into force early 2014

In July 2013, the EU Committee of the Permanent Representatives (Coreper) approved the compromise text on the public procurement reform package negotiated by the European Council and the European Parliament, and the proposal was formally endorsed by the Internal Market Committee of the European Parliament in September 2013. The new directive on public procurement is expected to enter into force in the beginning of 2014.

The reform package consists of three legislative proposals; (i) a directive on public procurement, (ii) a directive on procurement by entities operating in the water, energy, transport and postal services sectors and (iii) a directive on the award of concession contracts. They form part of the Single Market Act I, a series of measures aiming at enhancing the efficiency of internal markets. After entry into force, the member states will have two years to adapt their legislation to comply with the directives.

The new procurement directive aims to simplify the procurement rules and make them more flexible, facilitating the participation of small and medium-sized enterprises (SME’s) and promoting innovation. The new directive also clarifies some basic concepts of procurement law to ensure legal certainty and to incorporate established caselaw of the Court of Justice of the European Union (CJEU).

This article sheds light on four important amendments to the current procurement directive, concerning contracts between entities within the public sector, innovation partnerships, division of the procurement into lots, and modification of contracts during their term.

Contracts between entities within the public sector

The current procurement directive does not contain provisions on public contracts between contracting authorities. As a general rule, a contracting authority is not allowed to procure goods or services from another contracting authority without opening the contract for competition, subject to exceptions formulated in the case law of the CJEU. These exceptions will be codified into the new directive.

The new directive therefore permits a contracting authority to award a contract without competitive procedure to a legal person over which it exercises control similar to that over its own departments. This is subject to requirements that the legal entity offers less than 20 per cent of its products or services on the open market and that there is no direct private capital participation in the controlled legal person.

The new directive gives greater flexibility than the current rules concerning in-house entities, because CJEU case law permits an in-house entity to sell no more than 10 per cent of its products or services on the open market.

Similar exceptions apply when a controlled legal person (being a contracting authority) procures products or services from its controlling contracting authority or from another legal person controlled by the same contracting authority, or where several contacting authorities procure products or services from a legal person over which they exercise joint control.

Moreover, contracting authorities may elect to provide public services jointly by way of cooperation. The new directive does not apply to contracts between contracting authorities where the contract establishes or implements a cooperation between contracting authorities with the aim of ensuring the provision of public services they must perform and achieving objectives they have in common. The implementation of the cooperation is to be governed solely by considerations relating to the public interest, and the participants are to perform on the open market less than 20 per cent of the activities concerned by the cooperation.

Innovation partnerships

The new directive provides for a new procurement procedure called innovation partnerships. Innovation partnerships allow a contracting authority to propose the development of a new innovative product, service or innovative works that are not already available in the markets. This is then procured through a competitive procedure with negotiation and the contract is awarded on the basis of the award criterion of the most economically advantageous tender.

In selecting candidates, contracting authorities must apply criteria concerning the candidates’ capacity in the field of research and development and the capacity of developing and implementing innovative solutions.

The procedure allows contracting authorities to establish a long-term innovation partnership for the development and subsequent purchase of a new product, service or works, provided that these can be delivered to agreed performance levels and costs, without the need for a separate procurement procedure for the purchase.

The contracting authority may set up the innovation partnership with one or several partners conducting separate research and development activities. The partnership is structured in successive phases and intermediate targets are set to be attained by the partners. Based on the targets, the contracting authority may decide after each phase to terminate the innovation partnership or, in the case of several partners, to reduce the number of partners by terminating individual contracts.

Division of contracts into lots

With the aim of adapting public procurement to the needs of SME’s and to enhance competition, contracting authorities are encouraged to divide large contracts into smaller lots. According to the new directive, the contracting authority has a duty to consider the appropriateness of dividing contracts into lots. Where the contracting authority decides that division into lots is not appropriate, it must provide an indication of the main reasons for its decision and include these in the procurement documents.

Furthermore, member states are free to go further in their efforts to facilitate the involvement of SME’s in the public procurement market. According to the new directive, member states may also render it obligatory to award contracts in separate lots, under conditions specified in their national legislation.

Modification of contracts during their term

The current procurement directive does not provide for criteria under which the terms and conditions of a public contract may be amended during its performance. The new procurement directive clarifies the conditions under which modifications require a new procurement procedure, taking into account the case-law of the CJEU.

According to the new procurement directive, substantial modifications require organising a new procurement procedure. A modification is considered substantial where it renders the contract materially different in character from the one initially concluded. This is the case where a modification introduces new conditions which would have allowed for the admission of new candidates or for the acceptance of a different offer or would have attracted additional participants. Moreover, a modification is substantial if it changes the economic balance of the contract in favour of the contractor, considerably extends the scope of the contract, or when a new contractor replaces the original contractor.

On the other hand, minor changes of the contract should be possible without the need to organise a new procurement procedure. To ensure legal certainty, the new directive provides for “de minimis” thresholds, below which a new competitive bidding is not necessary. According to the new procurement directive, contracts may be modified where the value of the modification is below the thresholds for the application of the directive and below 10 per cent of the initial contract value for service and supply contracts and below 15 per cent for works contracts.

Non-substantial modifications above the thresholds are also possible to the extent they comply with conditions laid down in the directive. This is the case, for instance, where the modifications have been provided for in the initial procurement documents in clear review clauses or options. It is also acceptable where additional works, services or supplies have become necessary and the contractor cannot be changed due to economic or technical reasons, and changing contractor would cause significant inconvenience or substantial costs. Modifications are also acceptable where necessary due to unforeseeable circumstances and where they do not alter the overall nature of the contract. In the two latter situations, the increase in price is limited to 50 per cent of the value of the original contract.

In addition to the amendments described above, the new procurement directive introduces a number of amendments that aim to simplify the procedures and alleviate the administrative burden for contracting authorities and economic operators.

Mika Pohjonen, Specialist Partner, Helsinki and Anna-Liisa Saukkonen, Senior Associate, Helsinki

Sweden - Supreme Court awards legal costs of judicial review process as damages to tenderer

In a long-awaited judgment this summer, the Swedish Supreme Court ruled that a tenderer may be entitled to reimbursement, by way of damages, for costs that the tenderer has incurred in relation to the judicial review of a public procurement.

In Sweden, judicial reviews of public procurements are handled as administrative cases, where neither party is entitled to reimbursement for its costs, regardless of the outcome of the case. On the other hand, tenderers who are damaged by a contracting entity’s violation of the public procurement rules are entitled to damages.

In a judicial review of a procurement of transportation services, the Swedish National Police Board was found to have violated the applicable public procurement legislation and ordered to rectify these violations. The National Police Board then chose to terminate the procurement. Thereafter, the tenderer who had initiated the review proceedings sued the National Police Board, demanding reimbursement for its costs for the judicial review proceedings.

The District Court found in favour of the National Police Board, but the Court of Appeal awarded the claimant damages. The Supreme Court granted leave to appeal. In its judgment, the Supreme Court stated that if tenderers cannot receive reimbursement for their litigation costs after a successful judicial review, this might deter tenderers from applying for review of public procurements. The Supreme Court therefore held that a tenderer’s litigation costs for a successful judicial review may entitle the tenderer to damages, since these damages are closely related to the violation of the public procurement rules.

While the extent of the Supreme Court’s ruling remains to be seen, it is at the very least clear that tenderers who succeed in a judicial review of a public procurement may, under some circumstances, be entitled to reimbursement for attorney’s fees and other litigation costs. Only time, and future case law, will tell what those circumstances are.

Joakim Lavér, Partner, Stockholm and Erik Gadman, Associate, Stockholm