EU/Competition – Legal Update
Status: 7 March 2022
The legal limits to co-operations between (potential) competitors are regularly associated with uncertainties for companies. A case report in German published by the German Federal Cartel Office (FCO; Bundeskartellamt) in mid-February summarises the FCO’s current practice in this area. In the case at hand, the FCO closed its investigation and allowed the KHG GmbH & Co KG to join the so-called Möbeleinkaufskooperation Bedarfsgüter Großhandelsgesellschaft für Wohnung GmbH (Begros), a furniture purchasing cooperation, after the parties involved extensively modified their plans (cf. press release of 20 January 2022).
In the case report (available in German only), the FCO commented on the requirements for purchasing co-operations between competitors in general, each of which can have restrictive effects on competition on both the affected procurement and sales markets. The FCO again emphasised the necessity of taking into account the concrete market conditions at least if and to the extent the cumulative market share of all cooperating competitors on the relevant market exceeds 15 %, which threshold is also laid down in the EU Guidelines for the assessment of horizontal cooperation agreements: In order to determine any restraints of competition, all market-relevant circumstances must be examined. According to the FCO, the parties involved and their relationship to one another, their position on the market as well as the structure of the market in question and the number of co-operations on it are of particular importance. In addition, when assessing a co-operation, the FCO will further take into account the market power of the relevant counterparty, the amount, type and manner of procurement and the effects of existing own brands of the cooperation.
For companies dependant on other companies that allegedly behave abusively, it is all too often questionable whether submitting a complaint to the competition authorities will be useful and whether, in particular, it may yield a sufficiently speedy result; for the companies affected by the proceedings, the question is whether and, if so, when measures by the competition authorities may be expected.
Through a press release published on 8 February 2022, the FCO demonstrated that in specific cases it is quite prepared to intervene within even short periods of time by means of preliminary assessments, warnings, and interim measures (at least temporarily). Thus, the involvement of the FCO in such cases has gained in importance for affected companies.
In the press release, the FCO announced that, following a preliminary assessment, it had issued a formal warning to Lufthansa AG in an abuse of dominance procedure. The proceedings focus on whether Lufthansa abusively terminated an agreement with Condor on feeder flights for long-haul passengers. As the FCO, according to its investigation to date, holds Lufthansa to be dominant on the relevant market and does not see any alternative options for Condor, the FCO provisionally affirmed an antitrust claim of Condor against Lufthansa for continuation of the terminated contract.
The FCO, which was called in by Condor in January 2021, had also initiated a proceeding to impose interim measures pursuant to Section 32a (1) of the German Act against Restraints of Competition (ARC) due to booking refusals which Lufthansa had threatened and already started. Given that Lufthansa had suspended the intended termination of the feeder agreement with Condor, the reason for issuing the injunction had ceased to exist, so that the FCO moved on to the main proceedings.
The warning now is an intermediate step in the antitrust proceeding, which enables the FCO to grant a legal hearing and an offer of commitment before issuing a possible cease and desist order. In the wake of the 10th ARC amendment, the previously very strict requirements for interim measures were expanded: Intervention is no longer limited to urgent cases and imminent irreparable damage but also extends to cases where there is an overwhelming likelihood of an infringement of competition law as such (the latter being a new statutory reason for issuing interim measures).
Agreements and concerted practices in the context of public tender proceedings are associated with a particular risk for companies: they do not only violate the ban on cartels, hence risking substantive administrative fines, but they are considered a felony and thus subject to criminal fines or even imprisonment in Germany (Section 298 of the German Criminal Code). Any review and monitoring in this regard is therefore of particular importance in the context of competition compliance measures if participation in public tenders is part of the company's practice.
The fact that such cartel law infringements are particularly risky was again underlined by the FCO in a press release published on 10 February 2022. In that press release, the FCO announced that it had imposed antitrust sanctions on a highly organised quota cartel: The FCO imposed fines of EUR 7.3 million on the only two manufacturers (Maurer SE and Mageba GmbH) of modular expansion joints for bridges in the important area of public infrastructure. The companies had, for example, controlled compliance with their quotas set for market sharing and agreed on a uniform price calculation formula.
As it so often happens in these proceedings, the FCO positively took into account that the cartel members cooperated during the proceeding and that the proceedings could be concluded by settlement. Settlements regularly contribute to accelerating cartel proceedings, in particular in very complex antitrust offence proceedings. For rendering the investigation easier and faster, settlements are rewarded by reducing the fines to be imposed by the FCO.
At the same time, however, the FCO announced, that the prosecutor’s office was investigating the individuals responsible for the companies in the present case under criminal law and was cooperating closely with the FCO in this regard. The double risk of submission agreements had therefore (also) materialised in these proceedings.
For companies and their advisors, but also for the competition authorities themselves, the question often arises in practice as to which competition authority is competent or even best suited to rule on a particular case.
In a ruling issued on 9 February 2022, the General Court of the EU clarified that any rule of law deficiencies must be taken into account when considering the jurisdiction of a competition authority and that this issue must be examined by the European Commission (Commission) in case of doubt.
The Court therefore upheld an action brought by a Polish rail freight company which had previously been unsuccessful in a complaint brought before the Commission against PKP Cargo, a State controlled company in Poland (Case T-791/19, press release in English). The Commission had declared the Polish competition authority to be competent to examine the complaint and therefore rejected the complaint as inadmissible.
However, the Court now ruled that any deficits in the rule of law must be considered when assessing the competence of national competition authorities and that the Commission could not merely base its decision on a lack of substantiation of evidence on the part of the complainant. Rather, it is up to the Commission to carry out a concrete examination of whether the rule of law requirements are complied with. According to the court, the Commission was indeed allowed to fully apply the two-step examination in accordance with the ECJ judgment in Minister for Justice and Equality (Case C-216/18 PPU). Accordingly, the first step involves the question of whether there is a real risk of violation of the fundamental right to a fair trial due to a lack of independence of the courts of the pertinent Member State. However, in the context of the second step, namely the question whether the applicant is actually exposed to such a risk in the individual case, the Commission must sufficiently examine evidence submitted in that regard, which had not been done in the present case.
For companies threatened with the imposition of a cartel fine, the delicate question may arise of whether to reach an agreement with the relevant competition authority within the frame of a proposed settlement. This question typically arises in cases of doubt and then entails immense economic risks.
In a ruling published on 2 February 2022, the General Court once again underlined this risk for companies and the need for a careful weighing of the advantages and disadvantages of any cooperation by dismissing an action of the vehicle manufacturer Scania (Case T-799/17). Together with five other car producers, Scania allegedly agreed, inter alia, on price fixing for trucks for 14 years. After the other producers had reached a settlement with the Commission in 2016, the Commission issued a decision against Scania in 2017. Previously, Scania had rejected a settlement; subsequently, however, it lodged the now rejected complaint against that Commission decision.
In its judgement, the General Court held that the mere conduct of hybrid proceedings, i.e. a combination of ordinary administrative antitrust proceedings with settlement proceedings, did not per se violate the principles of presumption of innocence, the obligation of impartiality or the rights of defence. According to the Court, the settlement procedure provisions do not preclude the parallel conduct of ordinary proceedings, provided that the Commission takes sufficient account of the aforementioned principles during the proceedings.
State aid for one’s own company as well as the monitoring of state aid to competitors are of particular relevance – not only in times of the Covid-19 pandemic. For many years, indeed, that relevance has shown in the air transport sector, where state aid measures regularly lead to far-reaching consequences for competition and therefore often result in long-lasting disputes.
On the basis of the EU´s Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak 2020/C 91 I/01, the European Commission recently approved substantive State aid for the recapitalisation of the state-owned German airport operator Flughafen Berlin Brandenburg GmbH (FBB) (press release). On this basis, the public shareholders, Berlin, Brandenburg and the Federal Republic of Germany, are allowed to provide a capital injection of up to EUR 1.7 billion into FBB’s capital reserve.
The Commission substantiated its decision on the fact that the corona virus outbreak had led to travel restrictions, which would have represented a particular hardship for the airport operator. Previously, however, FBB had already received, inter alia, low-interest loans under the so-called federal framework regulation for aid to airports; this state support, too, could only be granted due to the relaxation of state aid law in the context of the pandemic. The Commission has attached severe conditions to the new state support in order to reduce its impact on competition.
It would, however, join a long line of so-called airport proceedings if other airport operators were to take action against this Commission’s decision – which in the present circumstances is albeit not too likely.
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.