Competition & Procurement Newsletter 2/2014
Finland - Criminalization of participation in cartels investigated
The current Finnish Government has announced its intention to make the penalties for breaching competition law more severe, including the possibility of criminalizing involvement by individuals in cartels.
On 28 May 2014, the Finnish Competition and Consumer Authority (“FCCA”) and the Ministry of Employment and the Economy (“MEE”) presented two expert reports at a stakeholder seminar on the extension of personal criminal liability. The reports recommend criminalizing individual involvement in cartel activity. But they also highlight certain issues that need further investigation, such as risks to the effectiveness of the Finnish leniency regime. The two intermediary reports will be followed by a final report on the matter, after hearing stakeholders. The Ministry of Justice is responsible for further measures, such as drafting a potential bill.
The authors of the reports and representatives of the FCCA and the MEE spoke at the seminar. A representative from the Director’s institute of Finland (a professional organization for directors of company boards), a judge from the District Court of Helsinki and a Director from the FCCA took part in a panel discussion.
Currently, cartel involvement is not a criminal offence in Finland. The reports, recognising the effectiveness of the current leniency regime as a tool for discovering cartels, highlight the concern that the introduction of criminal sanctions for involvement in cartels might make potential informants more reluctant to make use of the leniency regime, unless they are guaranteed immunity from prosecution.
The scope of the leniency regime would thus need to be broadened to include some kind of criminal immunity (beyond the administrative leniency regime). However, this raises questions as to how such a system would be implemented and as to its compatibility with fundamental principles of Finnish criminal law.
In this regard, department head Mr. Pekka Timonen from the MEE commented on the reports. He recognised the justification, from a competition law enforcement point of view, for criminalization of individual cartel involvement, but also recognised that criminalization cannot be implemented without endangering the efficiency of the leniency system. The MEE will ask the Ministry of Justice to estimate whether it is feasible to safeguard the functionality of the leniency system and the scope of the business prohibition when preparing the next Government Programme.
Finland - High activity level in private enforcement
As we noted in a previous newsletter, 2013 was an active year for private enforcement in Finland.
There were also significant developments in the first part of this year. The recent developments in the raw wood, asphalt, hydrogen peroxide and automotive spare parts damages cases are summarized below. The decisions rendered so far have not yet brought legal certainty as to how competition law related civil claims will be decided in Finland.
Raw wood case
In its decision of 3 December 2009, the Market Court fined Stora Enso and Metsäliitto for their participation in information exchange in the Finnish raw wood procurement market between 1 January 1997 and 30 April 2004. UPM had informed the Finnish Competition Authority of the anti-competitive behaviour in May 2004, and had thereafter received full leniency.
There are more than 700 separate pending damages cases, with plaintiffs including (i) The Finnish Forest Administration, (ii) municipalities and parishes, and (iii) private forest owners.
In March 2014, the Helsinki District Court dismissed as sample cases the claims of 13 private plaintiffs out of a group of 656 individuals and companies, on the basis that the claims were time barred. According to the District Court’s judgments, all limitation periods had started to run at the latest in May 2004.
The plaintiffs have appealed the decisions. At this time, it is not yet known how the Court of Appeal will handle the appeals.
In its judgments of 28 November 2013, the Helsinki District Court ruled on follow-on claims for damages brought by the State of Finland and 40 municipalities. The Court dismissed the claim of the Finnish State in its entirety but awarded damages to a number of municipalities.
All respondents and the State and 24 municipalities as claimants have appealed the judgments of the District Court. The Court of Appeal has preliminarily indicated that it will arrange a main hearing between March and November 2015.
Hydrogen peroxide case
In 2011, CDC filed an action against Kemira before the Helsinki District Court for alleged damages. The claims were based on the European Commission’s decision in the hydrogen peroxide cartel case. Two Finnish pulp and paper companies had sold their rights in respect of damages claims to CDC.
During 2013, the District Court rendered an interim judgment concerning certain preliminary questions as well as two judgments related to production of documents.
On 19 May 2014, Kemira announced that it had reached a settlement with CDC, under which CDC would withdraw its claims before the District Court and Kemira pay CDC EUR 18.5 million and legal costs. According to Kemira’s release, the settlement also contains significant limitations of Kemira’s liabilities regarding the still pending legal actions filed by CDC in Germany in 2009 and in the Netherlands in 2011.
Automotive spare parts case
The Supreme Administrative Court rendered its decision in a long-pending case concerning automotive spare part in May 2012. It fined four companies for concerted practices against the resale chain Osaset. One further company had received full leniency.
Atoy brought a claim against the five companies in question alleging that the aim of the competition restriction had been to persuade Osaset to abandon its cooperation agreement with Atoy. The total principal amount of the claim was approximately EUR 56.5 million.
The Helsinki District Court dismissed the claim in its entirety on 31 March 2014. According to the Court’s decision, there was no causality between the competition restriction and the damage allegedly suffered by Atoy. The claimant was ordered to compensate the respondents’ legal fees to a total amount exceeding EUR 2 million.
Sweden - The Swedish Competition Authority goes to court to block the real estate deal
On 17 June, the Swedish Competition Authority (“SCA”) applied to the Stockholm District Court to block Swedbank Franchise AB’s (“Swedbank”) acquisition of Svensk Fastighetsförmedling (“SF”). According to the SCA, the deal would significantly impede competition on a large number of local markets.
Swedbank, a full-service bank, is also active as a real estate agent through its subsidiary, Swedbank Fastighetsbyrå AB, which is the largest estate agent chain in Sweden with a national market share of approx. 20%. SF is the second-largest estate agent chain in Sweden with a national market share of approx. 15%. In addition, each of the companies owns 25% of the shares in the property website Hemnet, which is one of the largest real estate websites on the Swedish market (for agents and prospective property buyers alike).
The SCA’s investigation revealed a number of potential horizontal and vertical competition concerns. The authority identified the horizontal overlaps on the real estate market, where the parties’ combined market shares would be around 40% on a national market but could be over 50% on a large number of local markets (depending on the source, the parties’ combined market share would exceed 50% in some 65 or 83 possible narrower local markets). As regards vertical concerns, the SCA identified concerns in relation to Swedbank’s increased influence over Hemnet, i.e. that competing real estate agents would be foreclosed or discriminated against in relation to Hemnet.
The case is notable as Swedbank acquired SF in December last year. On 20 February, the SCA, however, imposed a standstill obligation, subject to a fine for non-compliance of SEK 20 million, on Swedbank not to exercise any decisive influence over SF. This is the first time the SCA has used its powers to impose such a standstill obligation.
The case is also notable because the acquisition was not subject to a mandatory notification requirement to the SCA.
It is only compulsory to notify a transaction to the SCA if both of the following thresholds are met: (i) the combined aggregate turnover in Sweden of all the undertakings concerned in the preceding fiscal year exceeds SEK 1 billion (approx. €116 million) (“combined turnover threshold”) and (ii) each of at least two of the undertakings concerned have a turnover exceeding SEK 200 million in Sweden (approx. €23 million) (“individual turnover threshold”). However, if only the combined turnover threshold is met (but not the individual turnover threshold), the SCA may order the submission of a notification if there are particular reasons. The parties may also voluntarily submit a notification.
In this case, only the combined turnover threshold was met, but the parties submitted a voluntary notification due to significant media attention once the deal was announced. But the deal had already been implemented, i.e. Swedbank had already taken over shares in SF when the notification was submitted to the SCA. Thus the only way that the SCA could prevent Swedbank from further implementation in relation to SF, and particularly in relation to Hemnet, was to issue a standstill obligation on Swedbank, prohibiting Swedbank from acting in its capacity as owner of SF, and primarily from exercising its influence over Hemnet.
The case suggests that the SCA is making greater use of its powers in order to block transactions with potential competition concerns even though they do not meet the mandatory merger notification requirements. This is the second time within the last year where the SCA has applied to the Stockholm District Court to prohibit a transaction that did not meet the mandatory merger notification requirements.
Peter Forsberg, Partner, Stockholm
Liana Thorkildsen, Senior Associate, Stockholm
Sweden - No distortion of competition where competitors have been able to enter the market?
In an April judgment (case number T 16810-12) the Stockholm District Court denied the Swedish Competition Authority’s (“SCA”) application for an injunction which would have prohibited a municipal company from offering gym and spa services to the public in competition with private companies. The application was tried under the rules in the Swedish Competition Act which allow the SCA to request that the Stockholm District Court prohibits public authorities and companies from applying anti-competitive practices when undertaking sales activities.
The court found that the gym and spa services exceeded the company’s competence, as delineated by the rules on municipal competence, and that the fact that the company was a municipal company gave it competitive advantages compared to private companies offering gym and/or spa services.
However, the court also found that the company’s offering of gym and spa did not distort or impede competition, as evidenced by the fact that private competitors had been able to enter the local market for gym and spa services. For this reason, the court denied the SCA’s request. The court’s interpretation of the rules on anti-competitive sales behavior surprised many observers, and the SCA has appealed the judgment to the Swedish Market Court which is the final court in these matters.
An interesting aspect of the case is that the district court held that the company’s offering of gym and spa services was incompatible with the rules on municipal competence. However, in this context it should be noted that it is the administrative courts, and not the civil courts, which are the final interpreters of the rules on municipal competency.
Erik Gadman, Associate, Stockholm
Finland - The customer choice model of reform for the Finnish social welfare and healthcare sector complies with EU law
Finland is currently reforming its social welfare and healthcare sector. The country will be divided into five social welfare and healthcare areas, in order to separate purchaser from provider. Service provision can be organized according to one of several different models. In this newsletter, one specific model of provision will be presented, a model that complies with the new EU directives on procurement.
The working groups preparing the social welfare and healthcare reform, (“the SWHC-reform”) were tasked with presenting a model for the five SWHC-areas. These administrative areas are responsible for organizing all social welfare and healthcare services in a manner that enables the integration of primary care, specialized care and social welfare services.
In the model presented here, customer choice, with respect to service provider, is realized as broadly as possible. Private and not-for-profit operators will gradually be able to participate in the provision of social welfare and healthcare services. The inhabitants of an SWHC-area may freely choose their service provider from a selection of pre-approved providers. The money follows the customer. If the customer is not satisfied with, for instance, the healthcare station chosen, he or she can simply choose to go to another.
The SWHC-area is ultimately responsible for the organization of services. For the services included in the scope of customer choice, this role consists of financing services, certifying and monitoring providers, regulating the market and monitoring compliance with applicable rules.
From a procurement law point of view, the open model proposed here poses no legal problems. It is stated in the new EU directive on public procurement (2014/24/EU) that public authorities remain free to provide, for instance, social welfare services in a way that does not entail the conclusion of public contracts, for example through the mere financing of these services or by granting licences or authorisations to all economic operators meeting the conditions established beforehand by the contracting authority, without any limits or quotas, provided that such a system ensures sufficient advertising and complies with the principles of transparency and non-discrimination.
In the new EU directive on service concessions (2014/23/EU) arrangements entitling all operators fulfilling certain conditions to perform a given task, without any selectivity, such as customer choice and service voucher systems, should not qualify as concessions, including those based on legal agreements between the public authority and the economic operators. Such systems are typically based on a decision by a public authority defining the transparent and non-discriminatory conditions on the continuous access of economic operators to the provision of specific services, such as social services, allowing customers to choose between such operators.
Clearly, the new EU directives on procurement allow for the open model of service provision, in which the money follows the customer and the customer has freedom to choose. EU law does not require competitive procurement for this type of service provision, so long as it meets the aforementioned criteria set up by the EU procurement directives.
The open model of service provision can be realized in such a way that any service provider, public private or not-for-profit, that meets the criteria set up by the SWHC-area, is granted access to the system of approved service providers. These criteria can be related to both the status of the service provider (for instance, meeting obligations set up by public authorities), quality of the service, accessibility and the price.
Services that are not suitable for customer choice, such as foster care for children, can be procured competitively, in accordance with public procurement legislation.
Sweden - New higher thresholds for direct awards
The Swedish Government has in a report for comments to the Council on Legislation proposed new higher thresholds for direct award of contracts. A direct award is a procedure without special requirements for tenders.
The Swedish Government proposes permitting contracting authorities to carry out a direct award of a contract that is subject to the Swedish Public Procurement Act (2007:1091) (“LOU”) if the contract value amounts to no more than 28 per cent of the threshold for products and services that applies to all contracting authorities except central government authorities. For procurement procedures subject to the Swedish Act on Procurement within the Water, Energy, Transport and Postal Services Sectors (2007:1092) (“LUF”) and the Swedish Act on defence and sensitive security procurement (2011:1029) (“LUFS”), the Swedish Government has proposed that direct awards will be permitted if the contract value amounts to nor more than 26 per cent of the applicable threshold for products and services.
Presently the threshold for direct awards that are governed by LOU is SEK 270 964 and for direct awards subject to LUF or LUFS the threshold is SEK 541 928. After the new rules has entered into force the new thresholds for direct awards will be SEK 505 800 in LOU and SEK 939 342 in LUF and LUFS.
Further, the Swedish Government proposes that a contracting authority or entity that carries out a direct award procedure shall, in writing, note the reason and other issues that may be relevant for its decision to carry out a direct award if the value of the awarded contract exceeds SEK 100 000. Moreover it will be mandatory for a contracting authority and entity to adopt guidelines regarding its use of direct awards.
The new rules on direct awards are expected to enter into force July 1, 2014.
Joakim Lavér, Partner, Stockholm