The Antitrust Hotch Potch

Bank Mergers in Economies Facing Sovereign Debt Crises - NBG/ Eurobank

Over the past year, merger activity in the Greek banking sector picked up significantly.  The Greek Competition Authority approved concentrations such as Piraeus/ ATE, Alpha/ Emporiki, and Piraeus/ Geniki.  Most recently, a merger between the largest Greek bank, NBG, and the third largest Greek bank, Eurobank, was also cleared, after the companies offered to divest Eurobank’s stake in Cardlink.  Cardlink was a joint venture with the participation of Eurobank and Alpha (the second largest bank) and it handled credit card transactions between banks and merchants, supplying electronic bank card terminals to the latter.  The divestment of Eurobank’s stake in Cardlink opens the door for Cardlink’s competitors to service NBG/ Eurobank after the merger. It also removes concerns about possible collusion between the merged entity and Alpha to coordinate behaviour in the merchant acquiring market.  

Following the clearance, NBG and Eurobank began integrating their operations.  The NBG/ Eurobank merger was expected to bring economies of scale of EUR 630 million by 2015, without creating abuse of dominance issues.  Overall, the raft of banking consolidation in Greece was celebrated as a positive development.  It was seen as a process, at the end of which “three large strong banks and a few smaller banks will remain”, according to the Head of the Bank of Greece. 

Until last week.  At that point, concerns were voiced for the first time that the NBG/ Eurobank merger would form a bank too big relative to Greece’s GDP, possibly leading to Cyprus-like problems.  Taking into account these concerns, Greece decided to suspend the merger.  Now, NBG and Eurobank will be recapitalised (separately) by the state bank support fund (HFSF), unless they manage to prove that they can raise 10% of the needed capital from the private sector.  Both NBG and Eurobank stated that this might not be possible. So, if recapitalisation takes place with 100% HFSF capital, it is the state bank support fund that will control the two banks in the future and thus, re-assess and decide again whether the merger should go forward. 

The bottom-line is that in economies facing sovereign debt crises, the clearance of the NCA is not sufficient and a merger can still have many more adventures after that.  As the Commission’s spokesperson put it last Friday, one might have to go beyond the application of the “mainstream” merger rules.  Έπεται συνέχεια...

Christos

Antitrust Compliance Programmes & Optimal Antitrust Enforcement: A Reply to Wouter Wils

Here is the abstract of my new paper:

In the inaugural issue of the Journal of Antitrust Enforcement, Mr. Wils published an article discussing the relationship between compliance programmes and competition law enforcement in the EU. This paper questions some aspects of Mr. Wils’ analysis of compliance programmes, as well as some of its policy prescriptions. The core theme of Mr. Wils’ article is that there are sound policy reasons why the European Commission and the US Department of Justice Antitrust Division do not, and should not, grant a reduction in the amount of fines imposed on companies that have a pre-existing compliance programme. The present paper disagrees with this view and explains why compliance programmes should be rewarded by competition authorities.

Damien

Easter Wishes and Egg Cartels

The Antitrust Hotch Potch team wishes to all happy Easter holidays!

And if anyone has withdrawal syndromes over the next few days, we suggest three interesting egg cartel cases in Latvia, Hungary, and Bulgaria, to continue our tradition of seasonal competition reading, which we launched last Christmas… 

 

CJEU Ruling Overturns General Court on France Télécom State Aid

On 19 March 2013, the CJEU handed in its judgment in a State aid case involving France Télécom (“FT”).  The facts of the case are as follows.  FT, which was State-owned by 56.45% of its share capital, found itself in a dire financial situation in 2001-2002.  On 12 July 2002, the French Minister of Economic Affairs mentioned in an interview that “…were France Telecom to encounter difficulties, we would take the appropriate measures…”.  Subsequently, on 4 December 2002, the French State announced that it proposed to FT a loan of EUR 9 billion.  The final offer for this loan was made on 20 December 2002.  FT did not accept this offer.

The Commission decided that the State’s conduct breached Article 107(1).  The key in the Commission’s reasoning was that it examined (i) the statement of 12 July 2002, (ii) the public announcement of 4 December 2002, and (iii) the proposal of 20 December 2002 as an inseparable entity.  It considered that all of them together formed the measure that could be considered as State aid.  The GC disagreed and annulled the Commission’s decision.  In a 2010 judgment, it pointed out that the Commission should have examined measures (i), (ii), and (iii) separately.  Individual assessment would have shown that none of the three constitutes aid because all of them lack one of the conditions of Article 107(1):

-- The Minister’s statement (measure (i)) and the announcement of the loan (measure (ii)) provided an advantage to FT but did not involve financing through State resources;

-- The proposal of the loan (measure (iii)) involved State resources, but did not grant any advantage, because it was justified under the Market Economy Investor Principle (“MEIP”).

The GC noted that in the case at hand, the advantage was not closely linked to a corresponding charge in the State budget or to the creation, on the basis of legally binding obligations entered into by the State, of a sufficiently real economic risk to that budget.

In its recent judgment, the CJEU quashed the GC’s ruling. It recalled that consecutive interventions could be inseparable from one another, in respect of their chronology, their purpose, and the circumstances of the beneficiary undertakings (§104). Moreover, the CJEU ruled that “contrary to what the [GC] found, it is not necessary that [the] reduction [in budget], or even such a risk, should correspond or be equivalent to that advantage, or that the advantage has as its counterpoint such a reduction or such a risk, or that it is of the same nature as the commitment of State resources from which it derives”. (§§109-110).  

The CJEU’s judgment reflects the principle that, under Article 107(1), measures must be scrutinised on the basis of their effects (§102).  But it also raises interesting questions:

-- Looking at a measure “in context” and taking into account prior public statements as inseparable could distract the application of MEIP tests.  State action, even when similar to a private investor’s, often comes combined with pompous political discourse which could imply advantages even when they do not exist.  Would that put at stake the practical application of the MEIP test? 

-- By disconnecting the amount of advantage and the State resources which are used (or risk being used), difficult questions arise in relation to recovery.  If the State recovers the amount of the advantage, while the impact on State resources was much lower, does this mean in practice that the State can make money out of the whole State aid procedure?  In the case of FT the Commission did not order recovery, but it will be interesting to see how it will deal with this issue in future cases.

Christos

2012 Framework on Public Compensation for SGEIs: Application in the Postal Sector

Here is the abstract of my new paper with Christos:

The legal rules applicable to State compensation for services of general economic interest (“SGEIs”) were recently revised by the European Commission. This led to the adoption of the “2012 SGEI Package”. The most contentious document of this Package, the “2012 Framework”, sets out the conditions for the compatibility of SGEI compensation with the internal market. Against this background, the Commission has recently shown an increased interest in the application of the State aid rules to the postal sector and seems determined to continue scrutinizing the sector in the future. This paper aims to analyse the specific rules of the Framework and look closer at the way they (could) apply to the postal sector, with references to the decisional practice of the Commission.

Damien

Düsseldorf court refers five questions to the CJEU regarding standard-essential patents and Article 102 TFEU

In the context of the patent infringement lawsuit filed by Huawei against ZTE, the Düsseldorf Regional Court has made a reference for a preliminary ruling to the Court of Justice of the EuropeanUnion (CJEU) in Luxembourg.

 In this reference, the Düsseldorf court raises five questions, which relate to the applicability of Article 102 TFEU to injunctions sought in a patent court of an EU Member State in infringement actions for breaches of standard-essential patents (SEPs).

 This is an extremely important development, which will have consequences going far beyond the patent infringement action launched by Huawei against ZTE in the Düsseldorf court and the parallel proceedings in the Manheim Court. The CJEU is indeed the highest jurisdiction in the EU legal order and its interpretation of EU law, including Article 102 TFEU, is binding on all EU institutions, including DG Competition, but also on the national courts and national competition authorities of the EU Member States. In other words, the answers given by the CJEU to the questions raised by the Düsseldorf court will have far reaching implications for the investigations launched the European Commission, including the Samsung and Google investigations, but also for the numerous patent infringement cases in different Member State jurisdictions where injunctions are at stake.

 The questions (translation by courtesy of Florian Mueller) read as follows:

 1. Does an SEP owner who declared himself willing, vis-à-vis a standard-setting organization, to grant a license to all comers on FRAND terms, abuse his dominant market position if he seeks injunctive relief from a court of law against a patent infringer despite the infringer having declared himself willing to negotiate such a license

 or

 is it a requirement for the presumption of abusive conduct that the infringer has made a binding offer to the SEP owner on terms that the SEP owner cannot refuse without treating the infringer unfairly or discriminatorily and [furthermore require that] the infringer, in anticipation of the license he is seeking already complies with his contractual obligations with respect to past acts of infringement?

 2. In the event that a presumption of abuse of a dominant market position may already result from the infringer's willingness to negotiate:

 Does Art. 102 TFEU involve specific requirements for said willingness to negotiate in substantive and/or chronological terms? Can such a presumption be based merely on the infringer's (oral) declaration in broad and general terms of his willingness to enter into negotiations or does such a presumption require that the infringer has indeed entered into negotiations, such as by, for example, communicating terms and conditions under which he is prepared to conclude a license agreement?

 3. In the event that the [infringer's] submission of a binding offer to conclude a license agreement is a requirement for an abuse of a dominant market position:

 Does Art. 102 TFEU involve specific substantive and/or chronological requirements with respect to such an offer? Does the offer have to set forth all of the commercial terms that in accordance with relevant industry practice are usually set forth in such license agreements? Can the offer be conditioned upon actual use and/or validity of the SEP-in-suit?

 4. In the event that the infringer's [precontractual] fulfillment of obligations arising from the requested license is a requirement for an abuse of a dominant market position:

 Does Art. 102 TFEU involve particular requirements with respect to such acts of fulfillment? Is the infringer required, in particular, to make disclosures relating to past acts of infringement and/or to pay [precontractual] royalties? Can an obligation to pay [precontractual] royalties also be fulfilled by giving security?

 5. Do the requirements for the presumption of abuse of a dominant market position by an SEP holder also apply to other remedies for patent infringement (disclosures relating to past infringement, recall [of infringing products from distribution channels], damages)?

 These questions cover the key issues that have been at stake in the disputes opposing Apple/Microsoft and Google, and Apple and Samsung, and are thus likely to impact the investigations currently carried out by the Commission.

 While nothing should in principle prevent the Commission to continue its investigations (a hearing will for instance take place in the Samsung case in the beginning of May), it seems highly unlikely that the Commission would adopt a decision in this case before the ruling of the Court of Justice of the EU.

 As such rulings take on average 16 months to delivered (sometimes more when cases raise complex issues like this one), the Commission will not be in a position to adopt a decision in the Samsung case before the end of Commissioner Almunia's mandate. A settlement would also seem odd in the current context.

Damien

The German Federal Constitutional Court and EU (Competition) Law Basics

According to a list of pending cases that was published last week, the German Federal  Constitutional Court (Bundesverfassungsgericht or BVerfG) will be considering a constitutional complaint filed by ThyssenKrupp.  The complaint alleges that the Commission’s decision fining ThyssenKrupp EUR 3.2 million in 2006 and the EU Court judgments which upheld this decision breached fundamental human rights and fundamental constitutional principles of the German Constitution (Grundgesetz).  

The case could open a new front in the battle for respect of fundamental human rights in EU competition procedures.  In Solange II (1984), the BVerfG acknowledged that the EU had implemented adequate provisions for the protection of fundamental human rights and as long as these were effectively applied, in particular by the EU Courts, no review of the acts of EU institutions could take place.  Put simply, this means that when (and if) it examines ThyssenKrupp’s complaint, the BVerfG will have to decide whether fundamental human rights are effectively respected in EU competition proceedings and whether the CJEU sufficiently protects them.  Such an assessment would definitely make for an interesting read in the aftermath of the ECtHR judgment in Menarini.  Especially in the case at hand, where Advocate General Bot had found that the Commission decision breached fundamental principles (a.o., personal liability in §169 and action within reasonable time, §207) but he was not followed by the CJEU.

ThyssenKrupp’s complaint could of course also revive the 40-year old dialogue between the BVerfG and the EU Courts, concerning the principle of supremacy of EU law.  If the entire EU legal order is a new and independent legal order as the EU Courts pronounced in seminal judgments, then how can its acts be under review by national courts (even constitutional)?  And conversely, if the Member States remain sovereign and “masters of the treaties”, how can they allow their constitutional identity to be eroded by the acts of another legal order?  Before deciding on the fate of ThyssenKrupp’s complaint and potentially addressing the supremacy questions, the BVerfG will have to consider carefully its relationship with the EU Courts and the significant political implications of its judgment.   

 

Christos

Competition Law and Personal Data: Preliminary Thoughts on a Complex Issue

Here is the abstract and link to the paper I have co-authored with my colleague Monika Kuschewsky.

With the advent of the Internet, and the development of new business models, companies increasingly hold large amounts of personal data about their employees and their customers. While there is a plethora of literature on the data privacy challenges created by the Internet and these new business models, this paper explores the limits placed by EU competition law on the acquisition and processing of personal data. There is a dearth of literature, and no real precedent, addressing this question. Hence, this paper is a first attempt to address the interface between personal data and competition law. We hope that it will trigger further analysis and debate on what will increasingly become an important policy question.

It is common knowledge that a fast growing number of companies, such as, for instance, telecommunications operators, banks, credit card companies, large retailers, Internet service providers, search engine providers, and social networks, collect large amounts of personal data. Other companies specialise in the processing and selling of these data. 

In particular, personal data are at the core of the Internet. Companies, such as Google or Facebook, have developed services and business models whose success heavily rely on the acquisition and treatment of personal data. Such data allow these companies to improve the quality of their services and make them more attractive to users. They also enable them to monetise their services through targeted (also referred to as “behavioural”) advertising. The volume, but also the quality of the personal data acquired is thus key competitive differentiators in the Internet economy. Online service users certainly benefit from the ability of their providers to use personal data they may have acquired in terms of better services (more relevant search results, etc.) and more targeted advertising. The acquisition of large volumes of data by “first mover” providers may, however, raise barriers to entry and thus deprive users from the benefits of competition. There is also a risk that online service providers may seek to prevent other companies from acquiring the data they need to compete, hence perpetuating their lead.

Against this background, this paper is divided into four sections. Section II further elaborates on the critical importance of the acquisition of personal data for most key Internet players (which are referred to hereafter as “online service providers”). Section III analyses the extent to which certain practices aiming at collecting data or at depriving access to such data to competitors can be anticompetitive and constitute a breach of EU competition rules. It also analyses whether EU competition law could be used to force dominant companies to share their data with competitors so as to stimulate competition on one or several markets. Finally, Section IV concludes.

Damien

Is it illegal to exclude illegal firms?

In a recent judgment (Case C-68/12 Protimonopolný úrad Slovenskej republiky v Slovenská sporitel’ňa a.s.), the Court of Justice held that the fact that the undertaking that is being affected by an anticompetitive agreement might be operating illegally on the market is irrelevant for the application of Article 101 TFEU.

The Slovak competition authority had imposed a fine on three banks that had decided, by common agreement,  to terminate in a coordinated manner the contracts they had concluded with Akcenta, a non-bank financial institution that was providing competing services. The case eventually made it to the Slovak Supreme Court which referred questions to the Court of Justice for a preliminary ruling.

In essence, the Supreme Court asked the Court of Justice to determine the legal relevance for the assessment under Article 101(1) and 101(3) TFEU of the fact that the competitor that was adversely affected by the agreement was allegedly operating  illegally on the relevant market when the agreement was concluded.

The Court of Justice found that the alleged illegality of Akcenta’s situation was irrelevant for the assessment under Article 101(1) TFEU because “it is apparent from the order of reference that the agreement entered into by the banks concerned specifically had as its object the restriction of competition and that none of the banks had challenged the legality of Akcenta’s business before they were investigated in the case giving rise to the main proceedings.” (para. 19) The Court added that “it is for public authorities and not private undertakings or associations of undertakings to ensure compliance with statutory requirements.” (para. 20) 

On the possible application of Article 101(3) TFEU, the Court held that the conditions described in that article, and in particular, the third condition, whereby an agreement must not impose on the undertakings concerned restrictions which are not indispensable, were not met in the present case.  The Court found that “[e]ven if, as stated by the parties to that agreement, the purpose was to force Akcenta to comply with Slovak law, it was for those parties […] to lodge a complaint with the competent authorities in that respect and not to take it upon themselves to eliminate the competing undertaking from the market.” (para. 35)

This judgment is somewhat disappointing, as the exclusion of an undertaking operating illegally on a market would not seem to have any effect on competition. The Court conveniently ignored this issue by stating that the agreement restricted competition “by object”.  It remains to be seen whether the Court will adopt a similar judgment in cases involving a restriction by effect or an abuse of a dominant position.

Otherwise, the case appears to be in line with the principles developed in cases such as Wouters and Meca Medina where the Court found that restrictions of competition which are inherent to the pursuit of a legitimate objective do not infringe Article 101(1) TFEU.  In the present case, ensuring compliance with statutory requirements does not seem to be a legitimate objective, or at least the competition restrictions do not seem to be inherent to the pursuit of this objective because the banks could have challenged the legality of Akcenta before the relevant authorities.

The judgment also echoes the General Court’s findings in Hilti where, in reply to the argument that the anticompetitive conduct was justified by safety considerations, it found that:  “there are laws in the United Kingdom attaching penalties to the sale of dangerous products and to the use of misleading claims as to the characteristics of any product. There are also authorities vested with powers to enforce those laws. In those circumstancesit is clearly not the task of an undertaking in a dominant position to take steps on its own initiative to eliminate products which, rightly or wrongly, it regards as dangerous or at least as inferior in quality to its own products.” (para. 118).

John

Third Time’s the Charm?: UPS/ TNT Prohibited

After Olympic/Aegean and Deutsche Börse/NYSE, yesterday's decision on UPS/TNT Express is the third merger prohibition since 2010, when J. Almunia became the Commissioner for Competition.

The EC’s competition concerns focused on the market for express deliveries, which take place on the next day.  Undertakings in this market segment (a.k.a., “integrators”) use sophisticated processes and adequate infrastructure, such as fleets of trucks and air transport network.  Today, there are only four integrators in Europe: UPS, TNT, Deutsche Post/DHL, and FedEx.  The EC considers that national postal operators, delivery companies, and freight forwarders cannot compete in this market, because they rely heavily on road rather than air transport. 

Thus, according to the EC, the EUR 5.2 bn worth deal is a “four to three” concentration.  This would facilitate price increases or quality decreases in the express delivery market, especially given the high barriers to entry involved.  But the EC’s concerns were not only about the number of competitors in the market but also about their characteristics: TNT, which would be eliminated, is seen as a maverick always providing low-price alternatives. On the other hand, FedEx, which would remain, only has a limited intra-European network in some Member States.  

UPS argued that these negative effects are outweighed by the significant efficiencies created by the merger, such as network efficiencies to which the postal industry is naturally prone.  UPS argued that bringing together its own and TNT’s  networks would generate savings to be passed on to the consumer.  The EC insisted that, in at least 15 Member States, serious competition concerns would remain despite the efficiencies because in these countries FedEx was particularly weak and the transaction could create a duopoly.

To dispel these concerns, UPS proposed remedies.  It offered to divest all TNT’s subsidiaries in the 15 Member States (plus Spain and Portugal under additional conditions).  If the purchaser is not an
integrator and had no aircraft capacity, UPS also proposed to give access to its air network at a “competitive rate” for 5 years.  Against this background, UPS has been negotiating over the past months with the French group La Poste/ DPD. 

The EC remained dubious about the effectiveness of this remedies package.  To limit the uncertainty, the EC proposed to UPS/ TNT an “upfront buyer” solution, whereby UPS would commit today to sign a binding agreement with a suitable buyer, say, DPD.  The EC would then clear the deal within the deadline, and UPS would be given additional time to negotiate with DPD and sign the deal.  UPS was not happy with that scenario, presumably because this would give huge leverage power to DPD in the negotiations following the clearance.  Lacking such an “upfront buyer” commitment, the EC ended up prohibiting the merger.

What is interesting is that although UPS rejected the “upfront buyer” solution, it was willing to negotiate and sign the agreement prior to the adoption of an EC decision (“fix it first” solution).  To help out with “fix it first”, the EC could extend the 5 February deadline and agree to take its decision a bit later, e.g., by relying on Article 10(3) EUMR.  But apparently, the EC was not prepared to do so.  And this begs the question: why not? Does this mean that a strong remedy package combined with a “fix it first” solution could not do the trick for the EC?  Did the EC effectively decide that “upfront buyer” is necessarily better than “fix it first”, when e.g., the DoJ takes a more careful position?  Or none of this is true, and the EC had fundamental doubts about the remedies package itself, as alluded to in the Press Release?

When published, the EC Decision might give replies to those questions and help understand the full consequences of the case.  To be continued…

Christos