Our point of view

Competition & Procurement Newsletter

3 June 2013

COMPETITION

EU - The European Commission fines Microsoft EUR 561 million for breach of binding commitments

On 6 March 2013, the European Commission (Commission) imposed a EUR 561 million fine on Microsoft for failure to comply with its binding commitments to enable Windows users easily to choose their preferred web browser. This is the first time the Commission has imposed fines for failure to comply with a so-called “commitment decision”, i.e. where the Commission accepts binding commitments from companies that are suspected of having breached competition law, in order to address competition concerns, and closes the investigation without making a finding as to whether or not there has been an infringement.

On 16 December 2009, the Commission adopted a commitment decision, accepting binding commitments offered by Microsoft to meet certain competition concerns, which related to the allegedly abusive tying of Microsoft’s web browser, Internet Explorer to its PC operating system, Windows. In order to address the Commission’s concerns, Microsoft committed to display a browser choice screen to Windows users within the European Economic Area (EEA) until 2014. This would enable Windows users to choose which web browser to install from a selection of the most widely used web browsers.

However, the choice screen was not displayed on some computers. Following a number of complaints, the Commission opened an investigation in July 2012 into Microsoft’s possible breach of binding commitments. During the investigation, Microsoft acknowledged that it had failed to display the choice screen to users of Windows 7 Service Pack 1.

The Commission found that Microsoft had failed to comply with its commitments by not displaying the choice screen to users who have Internet Explorer set as the default browser. The Commission concluded that Microsoft’s failure to comply lasted for 14 months and affected approx. 15.3 million users. As a counterfactual, the Commission noted that the choice screen, when functioning, was used to download 84 million web browsers between March and November 2010. Although Microsoft argued that the failure to provide the choice screen resulted from a technical error, the Commission considered Microsoft’s breach to be a serious one. The Commission stated that, given Microsoft’s resources and know-how, Microsoft should have been able to avoid such errors and should have had better processes in place to ensure that the choice screen was correctly displayed to affected users. In setting the fine, the Commission took into account, as a mitigating circumstance, the fact that Microsoft cooperated with the Commission by providing evidence which helped the Commission to investigate the case more efficiently.

The EUR 561 million fine amounts to approx. 1 per cent of Microsoft’s worldwide turnover for its fiscal year ending 30 June 2012 and is the latest in a series of fines imposed on Microsoft by the Commission and EU courts, now totalling more than EUR 2 billion.

As stated above, a commitment decision enables the Commission to close antitrust investigations without finding an infringement, in exchange for the relevant commitments. The Commission has recently made extensive use of commitment decisions.

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

Finland - Market Court dismisses prohibition proposal concerning joint venture by two pipe producers

On 24 May 2013, the Finnish Market Court approved, subject to conditions, a joint venture between Uponor Oyj and KWH-Yhtymä Oy, which would merge the parties’ infrastructure solutions businesses into a jointly owned company. The Finnish Competition and Consumer Authority (FCCA) had on 25 February 2013 proposed that the Market Court should prohibit the joint venture as significantly impeding effective competition.

As part of the basis for its prohibition proposal, the FCCA conducted a dawn raid in the parties’ premises during the merger control review period. In the public version of its prohibition proposal, the FCCA cited several examples of materials found during the dawn raid that appeared to be inconsistent with the material submitted to the FCCA in the merger notification, leading the FCCA to doubt the accuracy of the latter.

However, the Market Court rejected the FCCA’s prohibition proposal and approved the joint venture, subject to conditions. The Market Court acknowledged that the parties’ combined market shares clearly exceeded 50 per cent in relation to several types of piping. Further, it remarked that the market shares of competitors were significantly lower and the trade flows insufficient to eliminate competition concerns brought about by the joint venture.

The Market Court nevertheless held that the anti-competitive effects of the joint venture could be remedied by conditions. It required the parties to divest several specified extrusion lines and to offer contract manufacturing of selected product ranges up to agreed volumes to other pipe manufacturers operating in the Finnish market.

The Market Court voted on the decision. A minority of the judges would have approved the joint venture without any significant conditions. Both the parties and the FCCA have announced that they will not contest the Market Court’s decision.

Katja Jaakkola, Senior Associate, Helsinki

Finland - Major retailers declared dominant by the Parliament

The Finnish Parliament has approved a Government Bill which has the effect of imposing a dominant position on two major Finnish retailers, S-group and Kesko. The new law will enter into force on 1 January 2014. It does not have retroactive effect.

According to the new Section 4a of the Competition Act, an operator in the Finnish consumer goods retail sector is deemed to hold a dominant market position if its market share exceeds 30 per cent. On current market shares, both S-group and Kesko will hold a dominant position on certain consumer retail markets, including foodstuffs. The presumption of dominance is non-rebuttable. The dominant position applies to both retail and procurement of daily consumer goods.

According to the preparatory works of the Bill, the abuse of the dominant position shall be assessed in light of article TFEU 102. However it has been widely recognized that the applicable EU case law does not cover all the practices raised as potentially abusive. The preparatory works raise as issues that may merit further analysis e.g. the payments for access to shelf space, imposing an unfair imbalance of risk and loyalty card schemes. Consequently, we anticipate that the Competition Authority will provide further guidance to market parties on its interpretation of the new law in the months to come.

We note that certain commentators have suggested that ascribing a dominant position automatically may help foreign firms investing or expanding at the expense of major Finnish firms.

Tapani Manninen, Partner, Helsinki

Finland - Recent case law on liability for competition law infringements

In the first half of 2013, the Finnish Supreme Administrative Court (SAC) and the Finnish Market Court handed down several interesting judgments clarifying various aspects of liability in competition law infringements. Such aspects include the liability of member companies of an association, the effect of sector-specific legislation on the obligation of a dominant firm to provide access to data, and whether and when bid rigging in several bidding procedures constitutes one continuing infringement or several individual infringements.

Liability of member companies of an association

In its decision of 22 January 2013, the SAC considered whether and under what circumstances the individual member companies of an association can be held separately responsible for a competition law infringement alongside the association itself.

The Market Court had previously found that the Association for Finnish Home Appliance Maintenance Services had engaged in price fixing regarding the services offered by the members of the Association between 1997 and 2003. The Market Court ruled that while the Association was responsible, there were no grounds on which to hold the members of the Association separately liable, as there was no proof that the companies engaged in an independent or separate effort to restrict competition. The Market Court based its conclusion on CJEU (Court of Justice of the European Union) case law.

Upon appeal, the SAC reversed the ruling on this point. It held that the member companies, the representatives of which had participated in the price fixing at meetings of the Association, were also responsible for the competition restriction.

As a starting point, the price fixing was viewed as an overall infringement. However, each member company was not on this basis responsible for the entire infringement, but only for the period it was shown to have participated. Because the five-year limitation period had elapsed concerning several companies, the penalty payment proposal was rejected to that extent.

The proceedings had lasted approximately seven years. Due to this delay, the SAC ex officio decreased or removed the penalty payments that would have otherwise been imposed. It finally imposed fines totalling EUR 30,000 on two member companies (in addition to the EUR 5,000 imposed on the Association by the Market Court). The Finnish Competition and Consumer Authority had originally proposed fines totalling EUR 276,240.

Effect of sector-specific legislation on the obligation of a dominant firm to provide access to data

On 31 January 2013, the SAC ruled that Suomen Numeropalvelu Oy (SNOY) had abused its dominant position in the wholesale market for telephone subscriber data by refusing to deliver such data to Eniro Finland Ab (Eniro).

SNOY maintains the only centralized national database of telephone subscriber data in Finland. SNOY and Eniro both operated in the retail market for telephone directory services, with SNOY delivering telephone subscriber data to Eniro on a contractual basis. When Eniro opened a freely accessible online service featuring an electronic telephone directory in October 2003, SNOY terminated its contract with Eniro and refused to deliver subscriber information as long as Eniro’s service required no prior registration and was free of charge.

The SAC upheld the Market Court’s finding that SNOY was dominant and that it had a legal obligation to provide access to the data in question on non-discriminatory terms.

As objective justification for its behaviour, SNOY argued that data and privacy protection legislation required Eniro to ask for the prior consent from or at the least to notify telephone subscribers of the publication of their contact information online. The SAC found that no such requirement emanated from the legislation as it stood at the time.

The SAC thus rejected SNOY’s appeal on substance. However, it noted that the procedure had lasted approximately eight years. Due to this delay, the SAC decreased the imposed penalty payment to EUR 90,000 (the Market Court had imposed a payment of EUR 100,000).

Bid rigging - one continuing or several separate infringements

The Market Court ruled on a local bidding cartel on 28 February 2013. The case involved two competitive bidding procedures, one in 2006 organized by the city of Rovaniemi concerning flats and the other in 2009 organized by the Lapland Hospital District concerning blocks of flats. In both cases, suspicions arose due to the apparent similarities in wording and pricing of some of the tenders. Moreover, two out of the three highest bidders withdrew their tenders during the negotiations. There were also connections between the owners and the board members of the bidders.

The legal concept of continuing infringement is well established in Finland. In this case, the Market Court nonetheless concluded that the activity comprised two separate infringements, as there was no evidence of the cooperation concerning the time between the bidding procedures in 2006 and 2009. The Market Court imposed penalty payments of EUR 40,000 and EUR 3,000 (the FCA had proposed payments totalling EUR 95,000 euros). The case is pending on appeal before the SAC.

Mikael Wahlbeck, Partner, Helsinki and Maija Häll, Associate, Helsinki

Sweden - Enhanced effectiveness of competition law enforcement

In April 2012, the Swedish government appointed a committee to review legislation applicable to the activities of the Swedish Competition Authority (SCA) in order to ascertain effective competition law enforcement. The results of the inquiry “Enhanced Effectiveness of Competition Law Enforcement” were presented on 8 March 2013.

Suspending the time periods in merger investigations

The inquiry proposes to introduce new rules empowering the SCA to suspend the time limits in merger investigations (similar to the Commission's powers under Article 10.4 of the Merger Regulation) both during the initial investigation (Phase I) and during the in-depth investigation (Phase II).

The SCA is responsible for examining notified merger concentrations in order to prevent concentrations that risk impeding effective competition. Merger control investigations must be made within statutory time limits. In order to conduct investigations, the SCA depends to some extent on the undertakings to provide information. If the undertakings do not respond promptly and diligently to requests, the SCA can run short of time. In European merger control proceedings, the Commission can suspend examination periods in cases where undertakings fail to provide requested information (i.e. “stop the clock” until such information is provided).

Given that economic analysis plays an increasing role in merger investigations and that the SCA must obtain extensive information from the parties to underpin its analysis, the inquiry concludes that empowering the SCA to stop the clock in its merger investigations if the parties fail to submit requested information would lead to more effective investigations.

Marker system in leniency programme

The inquiry proposes to introduce a “marker” system under the Swedish leniency programme, i.e. a possibility for undertakings applying for leniency to first provide a limited amount of information to secure a marker, which guarantees the undertaking's place in the queue for leniency for a given period of time during which the undertaking can collect sufficient information to meet the requirements for leniency.

The leniency programme can result in full immunity from fines for the first undertaking to reveal participation in anti-competitive cooperation. As a rule, only one of the undertakings can obtain leniency. The current legislation does not permit the SCA to grant a marker and, therefore, an undertaking applying for leniency must provide sufficient information to meet all the requirements directly when applying for leniency.

SCA’s working procedure in connection to unannounced inspections

Finally, the inquiry examined the SCA's working procedures when reviewing digitally stored material belonging to a company that is subject to an unannounced inspection. Current legislation does not explicitly empower the SCA to carry out indexing and searching of digital material outside the company’s premises, i.e. at the SCA’s premises. The inquiry notes that volumes of digital information are increasing and it can often take several weeks to review, so the inquiry concludes that allowing the SCA to carry out indexing and searching of digital material on the authority’s premises will contribute to more effective investigations.

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

PROCUREMENT

Finland - Two proposals to level the playing field between public and private economic operators through competitive neutrality policy

Two legislative proposals aim to level the playing field in Finland between public entities engaged in business activities, vis-à-vis their private sector competitors.

In April 2013, a Government Bill (32/2013) was issued to the effect that the Finnish Municipalities Act be reformed so as to accommodate the EU state aid regime. The reform concerns municipalities' commercial activities, including the functioning of so-called municipal enterprises, which are particularly active in the fields of energy, port operations, catering services, and property maintenance and cleaning. Such commercial activities must in future be conducted in corporate form. More precisely, the Government Bill proposes that as a main rule activities of municipalities in competitive markets shall be conducted through a limited liability company, co-operative, association, or foundation.

The proposed reform has been necessitated by the EU state aid rules. Finnish municipal enterprises benefit from lighter taxes than private corporations and are immune from bankruptcy. In the last 5 years, the European Commission has issued several state aid decisions concerning Finland to the effect that immunity from bankruptcy and lighter taxation amount to unlawful state aid.

The proposed reform has raised considerable public debate in Finland. Despite its importance to the proposed reform, the duty to transform municipal commercial activities into corporate form is subject to several exceptions. These exceptions have been criticized by the Finnish business community, which sees them as watering down the proposed reform.

In addition to the reform of the Municipalities Act, measures are being proposed to enhance the powers and responsibilities of the Finnish Competition and Consumer Authority (FCCA). Reform to the Competition Act will grant the FCCA powers to investigate and supervise competitive neutrality both at its own initiative and on the basis of external requests to act.

The proposal envisages that the FCCA will intervene where the economic activities of municipalities, joint municipal authorities, or the state distort or inhibit healthy and robust competition in the market. It will also intervene if such activities conflict with the Municipalities Act, which requires alignment of the pricing of public economic activities with market prices. Primarily the FCCA should strive for a negotiated solution. If the negotiations prove unsuccessful, the FCCA would have powers to oblige municipalities, joint authorities, or the state to discontinue improper activities or, alternatively, to impose conditions on the activities that will equalize market conditions.

The FCCA will not have powers, however, to intervene where the activities have been undertaken in order to fulfill legal obligations or where an intervention would prevent the public authorities from undertaking tasks that are crucial for public safety or public welfare.

The term “activities that distort competition” means all modes of operation that result in non-equal competition between public and private sector actors. This may include benefits relating to financing that a public sector actor receives or cross-subsidies between commercial and public activities. In addition, competitive neutrality may be jeopardized if municipal or governmental authorities have access to public infrastructure, public information, or support services at non-market prices in connection with their commercial activities.

Mika Pohjonen, Specialist Partner, Helsinki and Toni Malminen, Senior Associate, Helsinki