EU/Competition – Legal Update
Status as of: 4 October 2022
Acquisitions subject to notification can still be prohibited retrospectively, even if they have already been completed. This was recently decided by the Commission in a case in which the obligation to notify was unclear for a long time. The case concerned the merger of Illumina and GRAIL, which was implemented by the parties involved despite the Commission’s ongoing proceedings (Link).
Illumina made public the completion of the GRAIL acquisition on 18 August 2021, thus at a time when the Commission's in-depth investigation was still ongoing. The in-depth investigation was initiated after a referral request was granted and a subsequent notification of the project in summer 2021.
The Commission now decided that the transaction would restrict innovation in the emerging market for blood-based cancer screening tests: According to the Commission, only Illumina offers viable technologies for the development and processing of these tests, with GRAIL being also a market participant. The remedies offered by Illumina were not sufficient to address the Commission's concerns. Since the acquisition has already been completed, the Commission now has the possibility under Article 8(4) of the EU Merger Regulation (ECMR) to impose appropriate measures such as demanding the reversal of the merger. In addition, it may order interim measures in this matter pursuant to Article 8(5)(a) of the ECMR, as it did in October 2021.
As recently as July 2022, the European Court of Justice (ECJ) ruled on the Commission's jurisdiction to examine the merger: According to the ECJ, the Commission was indeed authorized to examine the transaction in response to referral requests from Member States pursuant to Article 22 of the ECMR, even though the turnover thresholds of the ECMR had not been reached and the concentration needed not to be notified in the Member State submitting the request (we reported Link).
As for the proceedings regarding the violation of the standstill obligation, a decision is still pending. The Commission had initiated proceedings in August 2021 to investigate whether Illumina had infringed that obligation. So far, the Commission has sent a Statement of Objections to Illumina following the ECJ's ruling taking the preliminary view that the completion of the acquisition violated the standstill obligation. Such an infringement can result in fines for the companies involved of up to 10% of their respective annual worldwide turnover.
In September 2022, the Commission approved a second hydrogen IPCEI (Important Project of Common European Interest) (link). Hydrogen shall not only support the EU’s goal of becoming the first climate-neutral continent by 2050 but shall also support the expansion and diversification of energy sources, thereby reducing dependence on Russian gas.
The so-called “IPCEI-Hy2Use”, jointly prepared by 13 Member States, comprises 35 projects from 29 companies, including small and medium-sized enterprises (SMEs). Like the first “IPCEI Hy2Tech” already approved in July 2022 (we reported link), the second hydrogen IPCEI also deals with the hydrogen value chain. While the “IPCEI Hy2Tech” projects focus on end-users in the mobility sector, the “IPCEI Hy2Use” includes projects for the construction of hydrogen-related infrastructure and the development of innovative and sustainable technologies for the integration of hydrogen into the industrial processes of various sectors, including the hard-to-abate ones.
Germany was not among the 13 Member States that had notified this second IPCEI. Germany had originally selected some German projects in an open tender to include them in the hydrogen IPCEI which was recently approved. However, at least one aid measure in favour of the German company BASF SE as well as one aid measure in favour of Salzgitter Flachstahl GmbH seemed more suitable for assessment under the “Guidelines on State Aid for Climate, Environmental and Energy Protection” (CEEAG). Accordingly, on 3 October 2022, the Commission announced that it had approved a German measure (volume: EUR 134m) in favour of BASF SE to advance the decarbonization of its production processes and the production of renewable hydrogen (link); on 4 October 2022, the Commission also made public that it had approved another State aid measure in the amount of EUR 1b supporting Salzgitter Flachstahl GmbH in decarbonizing its steel production by using hydrogen (link).
On 27 September 2022, the Commission announced that it had assessed and approved three German measures to support the production of renewable electricity under EU state aid rules and, specifially, under the CEEAG against the background of the Green Deal (link).
Complementing the so-called “Renewable Energy Sources Act” (EEG 2021), the three measures had been notified by Germany as part of the so-called “EEG 2021 support scheme” (link) which had been approved to a large extent by the Commission in April 2021. The measures shall contribute to reduce greenhouse gas emissions and support both Germany's environmental targets and the EU's strategic Green Deal objectives.
One of the measures includes the conversion of the so-called market premium – a premium that renewable electricity producers receive in addition to the market price for generated electricity. The fixed market premium which could lead to overcompensation is replaced by a sliding premium that is based on the development of market prices, thus limiting the risk of overcompensation. In addition, financial incentives will be offered for consumers to invest in photovoltaic systems on private residential roofs that also feed electricity into the grid. Finally, the Commission cleared the way for another tender for ground-based and rooftop solar photovoltaic systems – albeit under a modified mechanism that is expected to improve the competitiveness of the bids.
After the German Federal Cartel Office (FCO; Bundeskartellamt) had issued provisional measures against Lufthansa in February 2022 following a complaint by Condor (we reported link), the competition authority now issued a ban in the main proceedings, prohibiting Lufthansa for the time being from terminating the long-standing cooperation agreement with Condor (link). The ban confirms the FCO’s preliminary assessment, thus classifying Lufthansa as dominant on the relevant market, with Condor having no other options or alternatives, and therefore being entitled under cartel law to request continuation of the agreement. Even more, the FCO demanded changes to the agreement because the previous terms entailed further restrictions of competition. The FCO’s decision is subject to a so-called reservation of rights of appeal, i.e., the agreement will be re-examined upon request in light of possible changes in market and competition conditions.
Similar to cooperations during the Covid crisis (we reported link), the FCO considers crisis-related cooperations between competitors due to be energy crisis to be cartel-free under certain circumstances. At the same time, the competition authority emphasises that exploiting the crisis to form a cartel or abuse a dominant position will be strictly prosecuted, a position in line with the “Joint Statement of the European Competition Authorities (ECN) on the War in Ukraine”. The joint statement further explains that undertakings may informally consult with the authorities if doubts remain about the legality of a cooperation after the required self-assessment has been conducted (link).
In this context, the FCO initially announced on 6 September 2022 (link) that it will not initiate proceedings to examine the planned capacity cooperation of the four German sugar producers. The FCO held that the cooperation intended to secure the processing of sugar beet in the event of a gas supply shortage is lawful due to the following reasons: The cooperation is, firstly, intended to be only one-off and temporary in the event of a gas emergency, the exchange of information between the companies will, secondly, be limited to the necessary minimum and the companies have, thirdly, made considerable efforts to avoid the problem of a gas shortage by trying to convert the sugar factories from natural gas to other fuels.
On 15 September 2022, the FCO made public that it also did not object to the agreement signed in August 2022 by the Federal Ministry of Economic Affairs and Climate Action (BMWK) on the joint set up and operation of the planned floating liquefied natural gas (LNG) terminals in Wilhelmshaven and Brunsbüttel by major German gas importers and wholesalers (Uniper, RWE and EnBW/VNG ‑ link). The FCO held that, in principle, the joint operation and exclusive access restricts competition; it found, however, that the rapid commissioning of the terminals created positive effects for consumers outweighing any competitive disadvantages. In addition, the FCO was satisfied that the agreement is limited in time and that the companies involved will market the natural gas independently while continuing to procure liquefied gas autonomously on the world market.
In its judgment of 15 September 2022, the European Court of Justice (ECJ) ruled on whether bidders who belong to the same economic unit and have mutual knowledge of the contents of their bids may both participate in a public tender. At the same time, the court provided additional guidance on optional grounds for exclusion from the procurement procedure (Case C-416/21).
The questions regarding the scope of the grounds for exclusion arose in connection with an open procurement procedure conducted by the district of Aichach-Friedberg for public bus transport services. Three bidders had participated in the proceedings: An individual as an entrepreneur, a bus transport limited liability company, whose managing director and sole shareholder was the aforementioned individual, and another company. The first-mentioned bidders had their bids submitted by the same individual, resulting in the exclusion of the bidders on the grounds of competition restriction. After an unsuccessful complaint, the bidders and the bus transport company were successful with their action for review before the competent Procurement Chamber. The District of Aichach-Friedberg appealed against this decision to Bavarian Highest Regional Court in Germany; the court referred the case to the ECJ for a preliminary ruling on the scope of application of Art. 57(4)(d) of the Public Procurement Directive (Directive 2014/24/EU), and at a possible violation of the principle of equal treatment.
Art. 57 of this Directive sets out, inter alia, optional exclusion grounds that have been implemented in German national law in Section 124 of the Act against Restraints of Competition (ARC). Para. 4 lit. d) of the Directive is similar to the wording of the ban on restrictions of competition in Article 101 TFEU; the same applies to the respective German provisions. The German court took the position that due to the so-called group privilege, the parallel bidding did not constitute a violation of Art. 101 TFEU or Section 1 ARC, raising the question whether Art. 57(4)(d) of Directive 2014/24/EU was limited to violations of Article 101 TFEU alone.
The ECJ denied this, clarifying that the Directive’s ground for exclusion covers anti-competitive agreements in a broader sense. However, exclusion is limited to cases in which several bidders can have demonstrated common intention of restricting competition.
In addition, the ECJ held that the Directive’s optional grounds for exclusion conclusively govern exclusion on the grounds of the bidder’s professional qualification, a conflict of interest or a distortion of competition resulting from the bidder’s involvement in the tender. According to the ECJ, however, the Member States may ensure compliance with the principles of equal treatment and transparency which are binding on contracting authorities in public procurement procedures. According to the ECJ, associated bidders violate the principle of equal treatment if they submit concerted or coordinated bids which may give them unjustified advantages over other bidders. If the association of the companies actually influences the respective content of the bids, it is sufficient to establish such influence. The German court will now have to examine whether the bids in question were submitted autonomous and independently or whether the principle of equal treatment was violated.
It is likely that the ECJ's broad interpretation of the exclusion ground will lead to uncertainty, as there is little guidance for assessing anti-competitive agreements beyond Article 101 TFEU. Furthermore, an exclusion of a bidder based on the application of the principle of equal treatment has no apparent legal basis in German law.
At the end of September 2022, the BMWK presented a draft bill on a (further and 11th) amendment of the German Act against Restraints of Competition (ARC) entitled “Draft Act on the Improvement of Competition Structures and the Skimming of Advantages from Competition Violations (Competition Enforcement Act)” (link – available in German only), which is primarily intended to expand the powers of the German competition authority FCO.
In particular, the BMWK proposes the following measures: Allowing unbundling orders irrespective of abuse, lowering the hurdles for profit skimming under competition law, and more effective design of sector investigations. With such an additional unbundling option, the BMWK seeks to enhance competition in entrenched markets in which no abuse of market power has been identified; all measures are intended to increase the effectiveness of competition law. In addition, it is planned to create a legal basis for the FCO to support the Commission in enforcing the Digital Markets Act.
The BMWK intends to have the amendment to the ARC passed within 2022 (link – available in German only). However, the draft bill has met considerable criticism due to the scope of the proposed powers and means. Thus, it is rather unclear whether the BMWK will be able to meet its ambitious time schedule.
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.
We would like to thank Sonja Maria Brücker for her valuable support in the compilation of this newsletter.