International Highlights
On July 27, the European Commission (EC) confirmed that it sent a Statement of Objections (SO) to Intel alleging that Intel infringed European competition rules on the abuse of a dominant position (Article 82) with the aim of excluding its main rival, AMD, from the x86 Computer Processing Units (CPU) market. In the SO, the EC alleges that Intel engaged in three types of abuse of a dominant market position. First, Intel allegedly provided substantial rebates to various Original Equipment Manufacturers (OEMs) conditional on them obtaining all or the great majority of their CPU requirements from Intel. Secondly, Intel allegedly made payments in order to induce an OEM to either delay or cancel the launch of a product line incorporating an AMD-based CPU. Third, in the context of bids against AMD-based products for strategic customers in the server segment of the market, Intel allegedly offered CPUs on average below cost. The EC alleges that these three types of conduct were aimed at excluding AMD, Intel's main rival, from the market, and each exclusionary practice reinforced the other as part of a single, overall anti-competitive strategy. Intel has 10 weeks to reply to the SO, and will then have the right to be heard in an Oral Hearing.
On August 6, 2007, the European Commission (EC) decided to lodge an appeal before the European Court of Justice (ECJ) against the Court of First Instance's (CFI) judgment that the EC must partially compensate Schneider for certain losses that it incurred as a result of the Commission's illegal prohibition of its acquisition of Legrand. Having examined the CFI's ruling in depth, the EC considers that the judgment contains a number of errors. In particular, the EC does not agree that the breach of rights of Schneider's rights of defense constitutes a sufficiently serious breach of European Community law to give a right to damages under Article 288. Further, the EC considers that the principal damage identified by the CFI, that is, the reduced sale price that Schneider had to agree with Wendel/KKR in order to defer the sale while Schneider was waiting for the outcome of appeal and the resumed merger control procedure, is not directly imputable to any unlawful conduct by the EC. Indeed, the EC argues that Schneider, itself, imposed a deadline for its own re-examination of its acquisition of Legrand, selling Legrand to Wendel/KKR before the EC had reached its conclusion on the acquisition's compatibility with the EC's Merger Regulation. The EC, therefore, claims that the CFI erred in considering that the reduction in price was directly imputable to the EC's illegality, and so could be recovered.
On August 2, EC announced that it sent a Statement of Objections to a number of companies alleging their participation in an illegal cartel in the sodium chlorate sector, in violation of Article 81 of the European Community Treaty and Article 53 of the EEA Agreement (MEMO//07/319). Sodium chlorate is mainly used as a bleaching agent in the pulp and paper industry. T he companies will now have an opportunity to respond to the allegations, and evidence set out in the Statement of Objections. They will have access to the EC's file, and may request an oral hearing.
On August 2, the Australian Competition and Consumer Commission (ACCC) instituted legal proceedings against Netti Atom Pty Ltd alleging the company engaged in resale price maintenance in relation to the range of Scott branded bicycles which Netti Atom imports, and distributes to retailers throughout Australia. The ACCC alleges that Netti Atom contravened section 48 of the Trade Practices Act 1974 by attempting to induce retailers to whom it supplies Scott bikes not to advertise the bikes on their websites below the recommended retail price specified by Netti Atom. The ACCC also instituted proceedings against Mr. Paul Feltis, Netti Atom's national sales and purchasing manager and part-owner. The ACCC alleges that Mr. Feltis was knowingly concerned in the alleged contraventions by Netti Atom. This is the first matter instituted by the ACCC in the Federal Court's new "Fast Track List" which aims to streamline court procedures, thereby reducing the time and cost of litigation.
On July 30, the EC initiated formal anti-trust proceedings against the German energy company, E.ON, and the French gas company, Gaz de France, for an alleged breach of the European Community Treaty's rules on restrictive business practices (Article 81). The case arises out of the inspection carried out in 2006 on E.ON and Gaz de France premises in Germany, and France. The EC proceedings are focusing on an alleged agreement or concerted practice between E.ON and Gaz de France to keep out of each other's home market, even after the liberalization of the European gas markets.
On July 27, 2007, the EC announced that it sent a statement of objections to a number of companies, including importers, alleging their participation in an illegal cartel for the sale of bananas, in violation of Article 81 of the European Community Treaty, and Article 53 of the EEA Agreement . The companies will now have an opportunity to respond to the allegations, and evidence set out in the statement of objections. They will have access to the Commission's file, and may request an oral hearing.
On July 31, New Zealand's Commerce Commission signed a cooperation agreement with the Australian Competition and Consumer Commission that will make it easier for the two commissions to coordinate activities. Both commissions are responsible for enforcing competition and consumer law, and for market regulation. The new Cooperation Agreement between the ACCC, and the Commerce Commission, was signed by Commerce Commission Chair, Ms Paula Rebstock, and ACCC Chairman, Mr. Graeme Samuel, at the Commerce Commission's Wellington office. The new agreement replaces a 1994 Memorandum of Understanding between the Commerce Commission and the ACCC's predecessor, the Trade Practices Commission. Ms Rebstock said the agreement is a major advance in the already strong relationship enjoyed by the two Commissions: "This agreement reflects the closer relationship that has developed between the two Commissions over the years and will provide a sound basis for working closely together in the future. Given the emergence of global cartels and global mergers, trans-Tasman cooperation is becoming increasingly important." In 2006, the two Commissions signed up to a trans-Tasman merger protocol to facilitate decisions on mergers and acquisitions.
On July 19, 2007, the Court of First announced that judgment is due to be handed down in the Microsoft appeal (Case T-201/04) on September 17. Microsoft is seeking the annulment of the EC's March 2004 decision, which found that Microsoft had infringed Article 82 by abusing its dominant position in the market for PC operating systems by refusing to supply certain "interoperability information" to its competitors in the work group server operating systems market, and by bundling Windows Media Player with the Windows operating system. In the alternative, Microsoft is seeking a substantial reduction in the €497 million fine imposed by the EC, although the penalty payments imposed by the EC for non-compliance with the "interoperability remedy" are the subject of a separate appeal.
On July 26, the ACCC imposed penalties of more than AUS$9.1 million on 11 companies and 18 individuals for a series of alleged bid-rigging, and price fixing cartels in commercial air conditioning after Federal Court action. In particular, the ACCC alleged that the companies tendering for commercial air conditioning and mechanical services projects in Western Australia agreed on which company would submit the lowest price for particular jobs, and therefore be likely to win the tender. ACCC Chairman, Mr. Graeme Samuel, said, "The court's decision marks its strong disapproval of such widespread and long running collusive practices within the mechanical services industry in Western Australia. It is a clear message that anyone involved in a cartel will be liable for a substantial pecuniary penalty".
On July 26, the French antitrust agency fined five suppliers of high-tension approximately $27 million for allegedly bid-rigging conduct with respect to two tenders held by Electricité de France for underground electricity networks. The French authorities stated that they was particularly concerned by alleged information exchanges, and related anticompetitive conduct prior to an tender held by electronic auction. The companies concerned received a 10% reduction in their fines because they did not contest the findings, represented that they would not appeal the ruling, and agreed to ensure that their staff received antitrust training.
On July 11, in the first case involving an award of damages from the European Commission (the “Commission”) to a party to merger proceedings, the European Court of First Instance (the “CFI”) ordered the Commission to pay damages to Schneider Electric SA (“Schneider”) for violating its rights of defense, in basing its decision to block Schneider’s acquisition of Legrand SA (“Legrand”) on an objection that was not contained in its statement of objections, and appeared for the first time in its prohibition decision. Schneider made a formal notification to the Commission of its proposed acquisition of Legrand on February 16, 2001. Following completion of Schneider’s acquisition of Legrand in August 2001, the Commission published its decision prohibiting the merger on October 10, 2001, and then issued a second decision on ordering Schneider to divest itself of Legrand. Schneider brought an action for annulment of each of these two decisions but prepared for the likelihood of having to divest Legrand by entering into a contract for the sale of Legrand to the consortium Wendel/KKR. The CFI annulled both Commission decisions in October 2002. The CFI held that by advancing an objection to the merger for the first time in the decision itself rather than in its statement of objections, the Commission had failed to have regard to Schneider’s rights of defense and had therefore acted illegally. Following the annulment of its decisions, the Commission reopened its investigation into the merger. However, due to the Commission’s persistent doubts as to whether Schneider’s proposed undertakings would be adequate to protect against a substantial lessening of competition, Schneider decided to abandon the merger and execute the contract with Wendel/KKR Schneider, and then brought an action for damages against the Commission before the CFI, in relation to loss suffered as a result of the Commission’s decision to block the merger, which had been found to be illegal by the CFI.
The CFI held that there must have been unlawful conduct on the part of the European Community institutions for the EC to incur non-contractual liability, and that the criterion was whether the institution had grave and manifest disregard for the limits of their powers of assessment. The CFI held that it is in the public’s interest that the EC institutions’ latitude and discretion (both in its policy decisions and in its interpretation and application of Community law) be protected, while ensuring that the cost of the consequences of flagrant and inexcusable failings does not fall on third parties. While the CFI agreed with the Commission’s conclusion as to dominance and elimination of competition in France, the CFI found that the Commission had rejected the parties’ proposed remedies in relation to the French market on the basis of an objection that was not contained in its statement of objections, and had therefore violated Schneider’s right of defense, and that there was no justification or explanation for denying Schneider its right to be heard in this regard.
The CFI concluded that the Commission had an obligation to compensate Schneider for the harmful consequences of denying them their right of defense. The CFI held that the Commission was liable to compensate Schneider for: (i) the expense incurred by Schneider in participating in the Commission’s investigation following the annulment of the Commission’s decision by the CFI on 22 October 2002; and (ii) the reduction in the divesture price that Schneider had to concede to Wendel/KKR in order to obtain a postponement of the divesture. However, only two thirds of the latter is payable since the CFI held that Schneider had itself contributed to its own loss in part by assuming the real risk that the merger would subsequently be declared incompatible and that the divestment of Legrand would be inevitable. Damages were not awarded for loss of profit.
On June 21, it was reported that the European Union's 50 year-old commitment to undistorted competition as one of the bloc's objectives had been removed from the new draft of the EU treaty. Where the original EU Treaty refers to an "an internal market where competition is free and undistorted, the new draft Treaty now refers to just "an internal market". The removal of the reference to "free and undistorted" competition followed pressure from the French Government. Although competition will now be mentioned in a protocol attached to the Treaty, it will no longer be held up as a specific objective or principle in the bloc’s basic legal text. Some legal experts argue the new wording will weaken the European Commission's ability to crack down on antitrust abuses and fight protectionism. But European Competition Commissioner, Neelie Kroes, insisted the change would make no difference, saying the protocol in fact reaffirmed the Commission’s duties and rights as an antitrust watchdog. She stated that, “The Commission will continue to enforce Europe’s competition rules firmly and fairly".
On July 4, the European Commission announced that its officials, accompanied by their counterparts from the relevant national competition authorities, conducted unannounced inspections at the premises of a number of manufacturers of hardware for windows and doors in a number of EU member states in order to investigate potential breaches of Article 81 of the EC Treaty. Hardware for windows and doors is the metal equipment used for the fastening, handling and locking of windows and doors, including bolts, handles, locks and hinges. The EC is investigating allegations that the companies may have infringed Article 81 of the EC Treaty. The EC has power to conduct unannounced investigations (otherwise known as "dawn raids") in relation to a suspected infringements of Articles 81 and/or 82 of the EC Treaty. It also has the power to examine books and other business records, take copies of, or extracts from, books and business records, ask for oral explanations on-the-spot and to enter any premises, land and means of transport of undertakings, including homes of directors, managers and other members of staff. Dawn raids are a first step in an EC investigation into suspected cartel activity.
On July 4, the EC fined the Spanish incumbent telecoms operator, Telefónica €151.9 million (US$207m) for "a very serious abuse of its dominant position" in the Spanish broadband market. The EC alleged that Telefónica imposed unfair prices in the form of a margin squeeze between the wholesale prices it charged to competitors and the retail prices it charged to its own customers. In so doing, the EC alleged that Telefónica had weakened its competitors, making their continued presence and growth difficult. With high wholesale costs and weakened retail competition on the broadband market, the EC calculated that Spanish consumers paid 20% more than the EU-15 average for broadband access. EC Competition Commissioner, Neelie Kroes, commented: “Spanish consumers are paying far more than the average for high-speed Internet access and many have chosen not to pay that price. The margin squeeze that Telefónica imposed on its competitors not only raised their costs, but also harmed customers significantly. When consumers and businesses are harmed in such a major market, the entire economy suffers. I will not allow dominant companies to set prices that undermine telecoms liberalization".
On July 5, the new Spanish Competition Act was approved, and published in the Official Journal of the Government of Spain. The new framework will become effective in September, and will replace the Competition Act of 1989. The main legal changes include the emerging of the two administrative authorities, the Servicio and Tribunal de Defensa de la Competencia, into one authority called the Comisión de la Competencia. Other changes include: giving the commercial civil courts the power to directly decide about antitrust damages, the replacement of the current authorization system for vertical restraints with self evaluation by businesses, and a lenieincy program for cartel cases.
On June 29, the Australian Competition and Consumer Commission announced that it had instituted legal proceedings in the Federal Court, Melbourne, against TEAC Australia Pty Ltd, alleging the company engaged in resale price maintenance in relation to a range of TEAC branded electronic goods including televisions, digital set-top boxes and portable music devices. The ACCC is alleging that TEAC contravened section 48 of the Trade Practices Act 1974 by attempting to induce and inducing a certain retailer not to advertise certain TEAC products below the 'go price' specified by TEAC. The ACCC has also instituted proceedings against the an employee who was the National Sales Manager of TEAC. The ACCC alleges that the employee was knowingly concerned in the alleged contraventions by TEAC. The ACCC is seeking, inter alia, for declarations that TEAC contravened section 48 of the Act, injunctions restraining TEAC and the sales manager from engaging in similar conduct in the future, and also demanding pecuniary penalties against TEAC.
On June 27, the EC prohibited, on the basis of the EU Merger Regulation, the proposed takeover by Ryanair of Aer Lingus. The acquisition would have combined the two leading airlines operating from Ireland which "currently compete vigorously against each other". The Commission held that the merger would have harmed consumers by removing this competition and creating a monopoly or a dominant position on 35 routes operated by both parties. The EC alleges that this would have reduced choice and, most likely, led to higher prices for more than 14 million EU passengers using these routes to and from Ireland each year. The EC stated that its investigation and market test of remedies offered by Ryanair demonstrated that the remedies were inadequate to remove the competition concerns. In particular, the EC held that the limited number of airport "slots" offered was not likely to lead to competition sufficient to replace the competitive pressure currently exercised by each airline on the other. EC Competition Commissioner, Ms Neelie Kroes, said “Our decision to prohibit this merger was essential to safeguard Irish consumers, who depend heavily on air transport, and other EU consumers. Monopolies are bad for consumers because they reduce choice, lower quality and give rise to higher prices. Low-cost carriers like Ryanair are no exception to this rule. Unfortunately, the remedies proposed by Ryanair were not sufficient to remove the competition concerns."
On June 26, the French antitrust agency, the Conseil de la Concurrence, announced that it was fining the two largest French companies in the corporate clothing rental and laundry services sector, Elis and Initial BTB, for alleged price-fixing behavior, and implementing a system of customer sharing. The Conseil de la Concurrence alleged that the two companies, "implemented a non-aggression pact for exclusive customers (exchange of information prior to call for tenders and setting-up of cover offers so as to limit the risk of supplier switches) and a price coordination pact for 'shared customers'". However, the companies received significant reductions in fines for their cooperation in the investigation, and for implementing an innovative "whistle blowing" system within the industry in order to prevent future infringements.
On June 22, the UK's Department of Health and Goldshield Group Plc, Goldshield Pharmaceuticals Ltd and Forley Generics Limited ("Goldshield") jointly announced settlement of the claims brought against Goldshield for an alleged anti-competitive cartel conduct in connection with the supply to the National Health Service ("NHS") of generic drugs. Under the terms of the settlement, Goldshield have agreed, on a full and final basis and without admission of liability, to pay the NHS the sum of £4 million (US$8 million), and to provide co-operation in connection with the continuing civil claims regarding the alleged price-fixing arrangements.
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