EU/Competition – Legal Update
Status as of: 2 December 2022
By decision of 29 November 2002, the Commission imposed cartel fines totalling EUR 157 million on various purchasers of styrene (phenylethylene) pursuant to Article 23 (2) of Regulation 1/2003. The cartel was uncovered through a bonus application by INEOS, which was therefore able to avoid a fine. The fines imposed on the other participants, most of whom had also filed bonus applications after the corresponding dawn raids, ranged from a solid EUR 17.2 million to around EUR 43 million, depending on the duration of their participation and the extent of their cartel-related purchases. All participants benefited from a 10% reduction in their fines due to their acknowledgement of the cartel violations and recourse to the settlement procedure (see COM Notice on the settlement procedure). The decision was based on the fact that 6 buyers of styrene, a basic material for the production of plastics, latex, etc., had been trying to depress the purchase price of styrene for a good 6 years by exchanging competition-relevant information and coordinating their negotiating strategies. As always, the fining bonus granted does not exempt the cartel members from cartel damage claims, as e.g. raised by styrene sellers.
In private enforcement of cartel damages claims, there is generally an asymmetry of information between the parties, which renders the enforcement of such claims fairly difficult. This disadvantage may, however, be counteracted by the plaintiff's right to demand the disclosure of such documents and information which are within the control of the defendant or a third party within the meaning of the “Directive 2014/104 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and ofthe EU” (the Directive was implemented in Germany with the 9th GWB Amendment). The European Court of Justice (ECJ) has now further specified the requirements of this right to disclosure under Art. 5 of the above-mentioned Directive.
By judgment of 10 November 2022 in Case C-163/21 (PACCAR), issued as a preliminary ruling on a referral from the Commercial Court No. 7 of Barcelona, the ECJ defined the meaning of disclosure of “relevant evidence”. The question arose in the context of proceedings in which truck purchasers had sued various truck manufacturers who, pursuant to a Commission decision of 19 July 2016 (AT.39824 - LKW), had committed a long-standing cartel infringement via price-fixing. The plaintiffs requested, inter alia, the disclosure of documents they needed to prove their case; the defendants refused to hand over documents they did not yet have, but would have had to produce first, which in their view would have been disproportionate and not covered by the above-mentioned directive.
The ECJ now found that the disclosure of "relevant evidence" also refers to documents that must first be newly created by the defendant in the sense that the defendant "compiles or classifies information, knowledge or data within its control". The national court, when hearing such a disclosure request, must however take into account the legitimate interests and fundamental rights of the defendant in such a way that the disclosure of the evidence must be "relevant, proportionate and necessary"; furthermore, the plaintiff must sufficiently specify his request for disclosure with regard to the (categories of) evidence requested and their relevance to the claim and the proof and not merely engage in "information fishing".
According to the ECJ, the term "relevant evidence" within the meaning of the above-mentioned Directive includes all types of evidence admissible before the pertinent national court (including documents and other objects, regardless of the storage medium). Even if the wording of Art. 5 of the Directive only refers to existing evidence, the ECJ derived from the context, recitals, and objectives of the Directive that the term "evidence" also includes any evidence that has yet to be produced by the defendant with reasonable effort. The above-mentioned Directive was adopted because public sanctions against anti-competitive behaviour were insufficient so that the private enforcement of claims against cartel participants had to be facilitated.
The Commission's common practice of declaring measures compatible with the internal market under Article 107(3)(c) TFEU without first conclusively establishing whether or not any State aid exists in the first place exceeds the Commission's powers and infringes EU law, as now held by the European General Court (EGC).
Background: In May 2020, the Commission declared a non-notified compensation payment for a Dutch coal-fired power plant of EUR 52.5 million compatible with the internal market. In its decision, however, the Commission had not decided whether the measure constituted State aid in the first place. The Netherlands challenged this decision, claiming, inter alia, that the Commission lacked the power to declare a measure compatible with the internal market without first classifying it as State aid and that it therefore also infringed legal certainty. The Commission, on the other hand, stated that it was not obliged under EU law to decide explicitly on a measure´s classification as State aid under Article 107(1) TFEU.
By judgment of 16 November 2022 (Case T-469/20 (original language)), the EGC now rebutted this view of the Commission, confirming that the Commission had exceeded its powers in following its practice. The wording of Article 107(3)(c) TFEU implies that the compatibility of national measures with the internal market can only be examined after they have been classified as State aid. Under Article 107(3) TFEU, State aid (as generally prohibited under Article 107(1) TFEU) may be declared compatible with the internal market, i.e., approved, if certain conditions are met. Moreover, according to settled case-law, once the preliminary examination procedure has been completed, the Commission is obliged, without any margin of discretion, to open the formal investigation procedure under Article 108(2) TFEU whenever (i) all the difficulties concerning the assessment of the conformity of the measure with the Treaty have not been resolved or (ii) the Commission has not been able to convince itself either that the measure does not constitute State aid or that, (iii) if it is classified as State aid, it is compatible with the Treaty. Article 4 of the State Aid Procedure Regulation (Regulation 2015/1589) contains an exhaustive list of decisions that can be taken at the end of the preliminary examination procedure; an authorisation without a prior determination that the measure actually constitutes State aid is not included in this list.
In addition, the lack of such classification as State aid also violates the principle of legal certainty. It is impossible for a Member State (the Netherlands in this case) to know its rights and obligations and to act accordingly. Firstly, there remained legal uncertainties in this case because the measure had not been notified; hence, even if the State aid is approved ex post (i.e., after having been granted), a national court must order the beneficiary to pay interest (so-called illegality interest) for the duration of the formal illegality of the aid, i.e. for as long the stand still provision under Article 108(3) TFEU was infringed by granting the aid prematurely, hence for the term between the granting and the subsequent approval of the State aid. Secondly, the lack of classification of State aid in the first place may lead to uncertainties regarding any permitted cumulation of further State aid measures.
For the present case, this meant that the approval ceased to apply once it was annulled. Moreover, insofar as the measure indeed constitutes State aid, the stand still prohibition is reinstated.
In practice, the ruling is likely to lead to more frequent openings of formal State aid investigations under Article 108 (2) TFEU. This is due to the fact that in cases of doubt about the existence of aid, the Commission must now initiate the formal investigation procedure even if the aid is indisputably approvable.
The ECJ has once again confirmed that State aid can only be deemed to exist if all five conditions of state aid set out in Article 107 (1) TFEU are cumulatively fulfilled. In addition, the ECJ pointed out that the assumption of an advantage or a 'favour' within the meaning of Article 107 (1) TFEU requires the application of the market economy operator test ('MEOT’), unless there is a (rare) exception.
By judgment of 17 November 2022 in joined Cases C-331/20 P - Volotea and C-343/20 P - easyJet, the ECJ overturned two judgments of the General Court (T-607/17 and T-8/18) and annulled the underlying Commission decision insofar as it concerned Volotea and easyJet (link). With the overturned judgements, the ECJ had dismissed actions brought by the two airlines against a Commission decision on Italian state aid to airports in Sardinia, in which the Commission had ordered the reimbursement of state funds that local Sardinian airports had received from the region and had passed on to the airlines.
The ECJ emphasises its established case law that, irrespective of the form and objective, an advantage is present in any measure which may favour undertakings compared to the situation in which they would find themselves under normal market conditions. In principle, this conclusion must be reached by applying the MEOT; in addition, the advantage must be found to be reasonable in view of the prospects of profitability and on the basis of economic interests by the Commission. Exceptions to the application of the MEOT are only possible in case of incomparability of the state's behaviour with that of private economic operators; such incomparability (e.g. because of sovereign action) must go beyond the mere exercise of sovereign powers, the ECJ stresses. The question of the applicability of the MEOT depends on the economic character of the state measure in question and not on the means used for it.
According to the ECJ, the court had wrongly assumed that the MEOT was not applicable in view of the pursuit of regional policy objectives and indirect action via private entrepreneurs (airport operators). The ECJ points out that the Court committed an error of law by not verifying whether the Commission had complied with its duty to examine. In addition, the court ruled contradictorily, namely on the one hand declaring the MEOT inapplicable, but on the other hand (wrongly) finding that Volotea and easyJet had received an advantage; because the contractual payment which the airlines received for marketing and advertising services was not compensation for services to meet real needs of the region, especially since the contracts had not been awarded on the basis of a tender procedure.
On 22 November 2022, the Commission approved (link) amendments to two existing German schemes to support businesses as a result of the Russian war against Ukraine, based on the "Temporary Crisis Framework" adopted in March 2022 and amended in July and October 2022 (we reported: link, link, link). The amended regulations are those approved by the Commission on 19 April 2022 (we reported: link) and 4 May 2022 (we reported: link), both of which were already modified in August 2022.
In addition to increasing the overall budget by up to EUR 45 billion due to an increase in the aid ceiling of small grants, Germany wants, for example, to extend the period for granting aid until 31 December 2023; it also wants to introduce the possibility of converting debt instruments such as loans and guarantees into other forms of aid, such as direct grants, and to pass on small grants via an energy supplier. With regard to the guarantee scheme, State aid should be able to cover bank guarantees in exceptional cases and large companies may be able to obtain guarantees within 12 months of the granting of the aid.
In order to ensure sufficient gas supply to the German economy, the Commission approves German aid of EUR 225.6 million, permitting the State to take over all shares of Securing Energy for Europe GmbH ("SEFE", formerly Gazprom Germania GmbH) from its Russian parent Gazprom Export LLC (link).
With shares of 14% in the German gas supply market and 28% in German gas storage capacity, SEFE is an energy company of systemic importance for the German market. The Commission notes that the measure is in line with Article 107(3)(b) TFEU, according to which serious disturbances in the economy of a Member State may be remedied by taking necessary, appropriate and proportionate measures. In addition, the Commission is also following the principles of the ‘Temporary Crisis Framework’, according to which companies that are severely affected by the current crisis can receive solvency aid in case that private support is not sufficient. Furthermore, the aid also fulfils the conditions of the 'Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty'. Germany had also undertaken to notify the Commission of a long-term viability assessment of SEFE required under these guidelines. Germany had also committed to notify a long-term viability assessment of SEFE to the Commission, as required by these guidelines.
Following the invasion of Ukraine and the subsequent interruption of gas supplies, SEFE had suffered significant losses, which is why it had already been placed under the trusteeship of the German Federal Network Agency (Bundesnetzagentur) in April 2022 for the purpose of ensuring security of supply following an attempted share transfer and liquidation by its Russian shareholders. In June 2022, the state had also supported today's SEFE with a KfW loan worth billions of EUR.
On 9 November 2022, the Commission proposed a new temporary emergency regulation to help accelerate the use of renewable energy sources (Link). This is not only to support the goals of the Green Deal, but also the goal of being able to free oneself from Russian manipulation.
Work to accelerate the energy transition and energy efficiency is already ongoing under the REPowerEU plan; however, the energy crisis has only continued to worsen since then. In this context, at the end of October 2022, the European Council called for a rapid simplification of permission procedures to complement earlier emergency measures to address the situation in the energy markets. This applies for one year and covers the time needed in all Member States for the adoption and implementation of the Renewable Energy Directive (RED II) currently being discussed by the EU co-legislators. The proposal refers to specific technologies and project types (such as solar energy, repowering of renewable power plants and heat pumps) where the environmental impact is lowest and the potential for fast utilisation is highest. Renewable energy plants are proposed to be of overriding public interest. New permitting procedures could thus benefit from a simplified assessment with immediate effect with regard to certain exemptions provided for in EU environmental law. At the same time, the scope of certain provisions of the EU Birds and Habitats Directives is to be specified in order to remove bottlenecks in the permitting process.
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.