EU/Competition – Legal Update
Status: 7 June 2022
Violations of the merger control regime can be very expensive for the undertakings involved. In order to avoid risks, it is absolutely necessary to consider the requirements of merger control and related procedures comprehensively and at an early stage.
This was most recently confirmed again by the European General Court (EGC) in its judgment of 18 May 2022 in the case T-609/19. The Court dismissed an action for annulment brought by Canon Inc. against the Commission's decision of 27 June 2019 by which the Commission had imposed an EUR 28 million fine on Canon for so-called "gun jumping". "Gun jumping" is the violation of the sanctioned prohibition under merger control law to implement mergers subject to notification and clearance before they have been cleared by the competition authorities.
The decision relates to Canon's acquisition of the Japanese company Toshiba Medical Systems Corporation (TMSC) in 2016. The acquisition was completed in two steps by means of a special purpose vehicle (MS Holding), whereby the first step was carried out prior to the Commission’s clearance with the aim of being able to pay the selling parent company of TMSC the agreed purchase price even before clearance. Therefore, in order to secure Canon as the final acquirer, the procedure of "warehousing" was chosen; "warehousing" means that the target company is acquired by an independent intermediary and held by him until the final closing date. In the case at hand, the court confirmed that this was a violation of both the obligation to notify and the prohibition of implementation.
With respect to the necessary distinction between merely preparatory measures on the one hand and implementing measures on the other, the decision clarifies that preparatory measures can also constitute prohibited "gun jumping" in case they contribute to a permanent change of control over the target company – even if only as a partial implementation. According to the EGC, this can also be the case before the control of the target company is acquired. Thus, according to the court, the implementation prohibition does not only apply to the acquisition of partial control, but already when one of the parties obtains the possibility to exercise a certain influence over the target company. A separation into formally distinct individual transactions shall be irrelevant if these separate acts have a uniform character.
Canon still has the possibility to have the ruling reviewed by the Court of Justice of the European Union (ECJ) on appeal.
► Antitrust: “Catena-X“ is enabled to start as part of the “Gaia-X” project
The German Federal Cartel Office (FCO) has paved the way for the first stage of the development of a competitive data infrastructure for the automotive industry.
"Catena-X" as a part of the large-scale project "Gaia-X" may start, the German competition authority announced on 24 May 2022 (cf. press release).
The aim of the project launched by the Federal Ministry for Economic Affairs and Energy in 2019 is to create a competitive data infrastructure in Europe by developing interfaces and standards as well as linking different cross-industry cloud services to reduce dependence on IT providers from the USA and China. The project hereby involves 80 companies, mainly from the German automotive and IT sectors, that intend to closely network and exchange data along the entire automotive value chain. The previous so-called stand-alone solutions, i.e., closed data platforms to which suppliers have to adapt, are to become a thing of the past with the implementation of "Gaia-X".
The FCO has raised no objections to "Catena-X" as the first component of "Gaia-X" and the associated cooperation in research and development as well as the establishment of uniform standards. The FCO did not identify any indication for a noticeable reduction of innovation competition - which would be necessary for the assumption of an antitrust violation of a research and development cooperation. In this context, the FCO pointed out the interoperable design of the standards to be developed. This would enable companies in the automotive industry to continue to use and develop their own cloud and software solutions.
In addition, once again the FCO took the opportunity to emphasise the antitrust principles it also applied in the examination of "Catena-X”, namely the requirement that (i) the exchange of competitively sensitive information must be limited to what is necessary for the cooperation, that (ii) standards must be developed in an open procedure, transparently and without discrimination, and that (iii) the development cooperation planned within the project must not lead to competitive distortion, in particular not to market foreclosure.
Furthermore, the FCO emphasised that the current decision has no influence on the other project components of the "Gaia-X" cooperation. The progress of these other projects will continue to be under observation of the FCO and will be assessed in the case of sufficient substantiation.
Nearly every company enters into distribution agreements. Therefore, it is indispensable to align those with applicable antitrust regulations and to adjust them if necessary.
On 1 June 2022, the new Block Exemption Regulation for Vertical Agreements and Concerted Practices (Regulation 2022/720 - VBER) entered into force and now provides updated specifications for distribution and other vertical agreements. The VBER are the outcome of a lengthy revision and consultation process and were published together with the new Vertical Guidelines and the Commission’s related press release on 10 May 2022. They do not only provide guidance for companies, but the VBER is even directly applicable law and also decisive in the scope of application of the German Act against Restraints of Competition (ARC).
The VBER provides a so-called safe harbour for certain agreements between companies operating at different levels of the production or distribution chain, i.e., an exemption from the ban on cartels in the sense of a protected area. The changes that are most important compared to the previous Regulation from 2010 concern dual distribution, the so-called hardcore restrictions and internet distribution, especially online platforms. In particular, the Commission's goal was to simplify the application of the rules and to facilitate the compatibility of supply and distribution agreements with the competition rules considering the changing trade towards e-commerce.
Regarding hardcore restrictions, both limitations and extensions can be found. Hardcore restrictions within the meaning of the VBER are those provisions in distribution agreements that are not exempted from the prohibition of cartels by the VBER but may require an individual exception assessment under Article 101(3) TFEU. A limitation of the protected area now arises namely in relation to certain aspects of dual distribution and to certain types of parity obligations. An extension of the safe harbour, on the other hand, applies to certain restrictions on a buyer's ability to actively target individual customers (active sales) and to certain practices of online selling, namely the ability to charge a customer different wholesale prices for the same products sold online and offline and the selective criteria that may be applied in doing so.
Distribution agreements that were already in force on 31 May 2022 still enjoy protection for one year and thus remain exempted under the “old” conditions. However, they must be adapted to the VBER by 31 May 2023 (at the latest).
The block exemption regulations that concern horizontal agreements, namely those for research and development as well as for specialisation agreements, and the associated horizontal guidelines are currently being revised as well (more information here). The revised horizontal Regulations and Guidelines, however, are not expected to enter into force before 2023.
Support for companies in the event of negative impacts in relation to the Russian invasion of Ukraine is a major concern of the German Federal Government. The Commission has now given green light for the German so-called umbrella scheme (cf. press release).
The Commission's decision (SA.102631) approving this framework scheme notified by Germany was made on 4 May 2022 on the basis of the EU's Temporary Crisis Framework. The decision was therefore issued only a short time after the EU competition authority had approved the German aid scheme to support companies in all sectors of the economy (except finance) in the light of the Russian invasion of Ukraine on 19 April 2022 (see our coverage: link).
With the umbrella scheme (volume approximately EUR 11b), Germany intends to mitigate the economic consequences of the Russian invasion for the German economy by providing sufficient liquidity while maintaining fair conditions of competition in the internal market. The scheme, which is to be administered by federal, regional, and local German authorities, offers the possibility of granting aid in the form of guarantees on loans for 90% of the loan amount (or rather 35% where losses are first attributed to the State and only then to the credit institutions) and subsidised loans to cover investment and/or working capital requirements to enterprises from all sectors of the economy except credit and financial institutions. In both cases, the amount of the loan per beneficiary shall in principle not exceed either (i) 15% of the beneficiary's total average annual turnover over a predefined period; or (ii) 50% of the energy costs incurred during a predefined period of 12 months. Deveations from this rule are only permissible in duly justified and exceptional cases to cover liquidity needs for specific periods.
After two years of the Covid pandemic, the EU's new Temporary Framework and the Member States' regulations based on it are intended to ease the burden of war. Meanwhile, the Commission announced on 12 May 2022 that the Temporary Covid 19 Framework, adopted on 19 March 2020 and last amended on 18 November 2021, will not be renewed again, meaning that most of the instruments based on this framework will expire at the end of June 2022.
Even though actions brought by natural persons in state aid proceedings are rarely successful, the EGC in Luxembourg recently upheld such a claim. This may give a boost to this category of plaintiffs even in state aid cases.
In its ruling of 27 April 2022 (T-392/20), the EGC partially annulled a Commission decision following a complaint by a natural person due to remaining factual doubts that required further clarification and deficiencies in the reasoning. While the factual justification follows the general case law practice, the fact that a natural person succeeds with their request in Luxembourg is remarkable, even when considering that the plaintiff has been entrepreneurially active.
The court proceedings were based on a complaint by the later plaintiff, a self-employed Slovenian pharmacist. In the preliminary investigation procedure, i.e., without opening a formal investigation procedure, the Commission had concluded that the four measures in favour of Lekarna Ljubljana, a public pharmacy in Slovenia, complained of by the later applicant, did not constitute state aid incompatible with the common market. At the same time, the Commission rejected several allegations that had been made in the process.
Without explicitly challenging the standing of a natural person to bring an action, the EGC annulled the Commission's decision on one of the four measures under review in relation to the assets entrusted to Lekarna Ljubljana for management.
Companies increasingly need to be prepared for the prosecution of abuse of market power in antitrust law, also with regard to data protection law aspects and those of unfair competition.
This is underpinned by the ECJ’s judgment in the Case C-377/20 (ENEL u.a. vs. Autorità Garante della Concorrenza e del Mercato u.a.) issued on 12 May 2022. In its decision, the ECJ provided further guidance regarding the burden of proof, material prerequisites and attribution in relation to the existence of an abuse of a dominant market position.
The case concerns the behaviour of various companies of the ENEL group. ENEL is the former monopolistic electricity provider in Italy. In the course of the liberalisation of the electricity market, ENEL's subsidiary SEN asked its customers for consent to pass on customer data to its sister company EE for advertising purposes. "Separately", SEN also asked for consent to pass on customer data to other competitors for advertising purposes. 70% of the customers who responded to these requests agreed to have their data shared with EE itself, while only 30% agreed to sharing their data with EE's competitors. The Italian competition authority considered the separate consent to be an abuse of SEN's (undisputed) dominant position, resulting in court proceedings in Italy.
The ECJ now stated that throughout the period of market liberalisation, a formerly monopolistic undertaking must refrain from using resources which it has because of its former monopoly, and which are therefore not available to its competitors. Such means include customer records, the ECJ ruled. Therefore, SEN, as a subsidiary of ENEL, would have been obliged to obtain the consent of its customers in a non-discriminatory manner to receive offers from companies not belonging to the ENEL group. SEN should therefore have ensured that, when obtaining such consents, there was no distortion such as a significant shortening of customer lists intended for sale to EE's competitors.
On 1 June 2022, the duty for contracting authorities to consult the competition register established at the FCO as well as various rights to information came into force.
The FCO explicitly pointed this out (once again) in its press release of 1 June 2022. In detail, the following now applies:
From an estimated contract value of EUR 30,000 net, contracting authorities are obliged to consult the competition register in procurement procedures. For sector contracting authorities and concession grantors, the obligation applies where the relevant EU thresholds are met and, thus, EU procurement law is applicable.
Regarding the rights to information, companies and natural persons may now obtain information on the content of the competition register concerning themselves (self-disclosure) upon request.
Upon request and with the consent of the company concerned, bodies that maintain an official register pursuant to Article 64 of the EU Public Procurement Directive (Directive 2014/24/EU) for the purposes of prequalification may also receive information on the content of the competition register concerning that company.
The Chatham Partners’ EU/COMP-team is specialized in complex issues in the areas of EU and German competition, State aid and public procurement law and has extensive practical experiences in these fields.