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David Henry is a practising UK barrister, whose practice focuses on European competition law, including merger control, cartels and abuse of dominance, and the interaction between antitrust and intellectual property. He represents companies and trade associations in the aluminium, air transport, car parts, chemicals, electronics, medical devices, pharmaceuticals, power generation, food retailing and financial services and payment systems sectors. He also advises clients in proceedings before the European courts and national competition authorities. David also has considerable experience in export control matters, dispute resolution and white-collar crime. Read David Henry's full bio.

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

Read the full report here.

 

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

United States: January – June Update

The Federal Trade Commission (FTC) and US Department of Justice (DOJ) have been actively challenging mergers and acquisitions in the first half of 2016. In some instances, the parties abandoned their deal once the FTC or DOJ issued a complaint, in others, the parties entered into consent agreements with the agencies. In matters where a divestiture is an acceptable remedy, the FTC and DOJ have required robust divestitures with financially and competitively viable buyers. There is increasing pressure for broad divestitures and for upfront buyers in industries where the agencies do not have ample experience and where there may not be multiple competitive buyers willing to acquire the assets.

In merger challenges, the agencies have been successful in obtaining preliminary injunctions in Washington, DC, but have been less successful outside of their home court. The agencies have successfully argued price discrimination markets, where sales of products to a narrow group of customers were the market, and courts are accepting the agencies’ narrow market definition. We also see a trend in challenges due to innovation, where the merging parties are the market leaders in new developments and research and development in particular areas. Investigations continue to take many months, with many approaching or exceeding a year.

EU: January – June Update

In the EU, there has been a noticeable increase in the number of notified transactions to the European Commission (from 277 notifications in 2013 to 337 in 2015). Most of these transactions have been cleared by the EU regulator in Phase I without any commitments. However, there have still been a number of antitrust interventions requiring the merging parties to offer, often far-reaching, remedies. One industry has recently seen a particularly high ratio of antitrust intervention is the telecoms sector. For example, in the merger between the mobile operators Telenor and TeliaSonera, the parties abandoned the transaction due to European Commission opposition to the transaction. The European Commission publicly announced that the transaction would not have been cleared, and that the remedies offered by the companies were not convincing. A prohibition decision was also issued, despite the offered remedies, in the failed combination of Telefónica UK’s “O2” and Hutchison 3G UK’s “Three”. This transaction involved the longest merger control review by the European Commission to end up in a prohibition decision (243 calendar days, compared to the average of 157 calendar days to block a deal).

With regard to current trends in merger control remedies at the level of the European Commission, there continues to be a strong preference for structural remedies. Approximately 70 percent of merger remedy decisions between 2011 and 2015 involved divestitures. The European Commission prefers structural remedies because they entail a lasting structural change and there is no need for long-term monitoring.

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McDermott has published an EU Competition Annual Review for 2015. This 87 page booklet will help General Counsel and their teams focus on the most essential EU competition updates for 2015. Beyond being used to understand recent developments, this booklet is a great reference when dealing with complex issues of EU competition law.

Read the full Annual Review here.

On 1 October 2015 the UK Consumer Rights Act 2015 (CRA 2015) entered into force, bringing with it a raft of changes pertaining to consumer protection law and competition law litigation. These changes were discussed in an article featured in our most recent issue of our flagship publication, International News: Focus on Tax (Issue 3 2015).

The CRA 2015 sets the scene for the future proliferation of competition damages actions in the United Kingdom and consolidates the country’s reputation as one of the most advanced competition regimes in Europe.

The new rules introduce a series of significant changes to facilitate claims, including the establishment of a fast-track procedure for simple claims, the introduction of a collective settlement regime, and an extension of the limitation period for actions before the Competition Appeal Tribunal (CAT), the United Kingdom’s specialist competition law tribunal.

Arguably the most controversial and high-profile measure is the introduction of collective proceedings before the CAT which, subject to the CAT’s discretion, can be brought on an opt-in or opt-out basis for both follow-on and stand-alone claims.

The CAT will certify claims that are eligible for inclusion in collective proceedings. In this regard the following three conditions must be met. There must be an identifiable class; the claim must raise common issues; and it must be suitable for collective proceedings, taking into account, inter alia, whether or not collective proceedings are an appropriate means for the fair and efficient resolution of the common issues, the costs and benefits of the collective proceedings, and the size and nature of the class.

If the CAT decides that collective proceedings are appropriate, it then determines whether the proceedings should be “opt-in” or “opt-out”.  The CAT will take into account all the circumstances, including the estimated amount of damages that individual class members may recover, the strength of the claims, and whether it is practical for the proceedings to be brought on an opt-in or opt-out basis.

If appropriate, the CAT will also authorise an applicant to act as class representative.  The representative must not have, in relation to the common issues for the class members, a material interest that is in conflict with the interests of the class members, and must be someone who would act fairly and adequately in the interests of all class members.

In order to prevent the rise of a “litigation culture”, certain safeguards are included. For instance, the CAT may not award exemplary damages in collective actions, and contingency fees, i.e., damages-based agreements whereby the lawyers are paid a proportion of the damages obtained, are not permitted in opt-out collective actions.

There will no doubt be considerable up-front litigation surrounding the issue of class certification before the first cases get off the ground. It is likely, however, that the mere threat of class actions before the CAT will represent a powerful weapon in the hands of the claimant when negotiating a settlement.

The long-awaited ruling on the seeking of injunctions in the context of standard-essential patents encumbered by fair, reasonable, and non-discriminatory (FRAND) terms has been delivered by the Court of Justice of the European Union, in Huawei v. ZTE C 170/130. Although the judgment lays down the legal test applicable to injunctions involving standard-essential patents, and significantly clarifies the landscape that had previously been shaped by the European Commission, a number of issues remain unresolved.

Huawei Technologies entered into negotiations with ZTE Corporation over the possibility of concluding a licence agreement in relation to Huawei’s patent that is essential to the long-term evolution (commonly known as 4G) standard, on FRAND terms. Given that negotiations between the companies were unsuccessful, and because Huawei contends that ZTE continued using the standard-essential patent (SEP) without paying royalties, Huawei brought an infringement action against ZTE, seeking an injunction to stop the sale of certain ZTE products.

In adjudicating the matter, the Regional Court of Düsseldorf considered that the outcome of the litigation largely depended on whether or not the action brought by Huawei constituted an abuse of dominance. Given this consideration, and the uncertainty surrounding the topic of SEP injunctions, the Court made a reference for a preliminary ruling to the CJEU. The Court asked in what circumstances a dominant SEP holder, who has committed to grant licences to third parties on FRAND terms, can seek an injunction to stop an infringement of that SEP, or to recall products manufactured using the SEP, is to be regarded as committing an abuse contrary to Article 102 of the Treaty on the Functioning of the European Union (TFEU).

The Test for SEP Injunctions

The CJEU decided that the following conditions must be satisfied before a dominant SEP licensor can validly bring an injunction against a party infringing an SEP, without acting contrary to Article 102 TFEU.

Notification From The SEP Holder

Prior to taking any action, a SEP holder that has given an irrevocable undertaking to a standardisation body to grant a licence to third parties on FRAND terms, must alert the alleged infringer to the infringement complained about. This prior notice must designate the SEP in question, and specify the way in which it has been infringed.

“Willingness” of The Alleged Infringer

After the alleged infringer has been informed about the infringement, it must (somehow) express its willingness to conclude a licensing agreement on FRAND terms. Presumably, this willingness refers to the alleged infringer agreeing to receive a FRAND offer from the SEP holder. It would seem, therefore, that an alleged infringer who is not prepared to enter into any sort of bona fide negotiations would be presumed to be unwilling.

Unfortunately, although the CJEU refers to the concept of “willingness”, it does not address the criteria for determining the alleged infringer’s willingness. The ruling therefore does not make it entirely clear what the potential licensee should do in order to be treated as willing.

FRAND Offer

The SEP holder must present to the alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the relevant standardisation body. In particular, this written offer must specify the amount of the royalty, and the way in which that royalty is to be calculated.

Although the CJEU’s judgment does not elaborate on what is to be considered as FRAND, it states that the SEP holder may not discriminate between licensees, i.e., the licence terms must be comparable with the licensing arrangements the SEP holder has already concluded with other competitors. The CJEU therefore places the burden of knowing what is FRAND on the licensor. Regardless of whether or not the licensor is able to discharge this burden, the ruling does not help the licensee, who has no guidance on determining whether or not the licence it has been offered is actually FRAND-compliant, particularly as it doesn’t have access to the licensor’s existing agreements.

Response to FRAND Offer

The alleged infringer must respond to the FRAND offer, in accordance with recognised commercial practices in the field, and in good faith. The alleged infringer must not engage in any delaying tactics.

If the alleged infringer is deemed to be using delaying tactics once a FRAND offer has been presented by the SEP holder, e.g., if the alleged infringer causes any undue delays in the negotiations, this may point towards its “unwillingness” and prevent it from using Article 102 TFEU in a counterclaim against the SEP holder. The CJEU judgment also, however, states (albeit in rather loose terms) that the alleged infringer “cannot be criticised” for challenging the validity of the SEP and/or its essential nature. The combination of these two requirements might therefore lead to a problem if, for example, the alleged infringer accepts the FRAND offer, but does so on the condition that validity of all the relevant IP rights be confirmed before the courts.
The infringer’s response to the FRAND offer will usually be one of the following:

Acceptance of the FRAND offer, in which case the SEP holder cannot seek an injunction, but can claim damages for the unlicensed use of the SEP
Rejection of the FRAND offer, which presumably makes the alleged infringer an “unwilling” licensee and therefore enables the SEP holder to seek injunctive relief
Submission of a FRAND-compliant counter-offer, to which the SEP holder must respond before taking any further steps.

Counter-Offer

If the alleged infringer wishes to submit a counter-offer, it must do so promptly and in writing, and in compliance with FRAND terms.

This is an important requirement because, under most national systems, an offer presented in writing will be contractually enforceable by the SEP holder. This may imply that “willingness” is a behavioural condition, i.e., that mere statements by the alleged infringer do not amount to willingness, but a concrete step has to be taken before the alleged infringer can rely on an Article 102 TFEU defence.

This seems to place an even heavier burden on the alleged infringer, for whom it may potentially be a lot more difficult to determine what corresponds to FRAND terms, particularly in light of the inherent information asymmetry between the SEP holder and the potential licensee.

Rejection of The Counter-Offer

Security

According to the CJEU, if the alleged infringer has already been using the SEP without a licence, it must provide appropriate security e.g., though a bank guarantee or the placing of funds in a deposit account, from the point at which the counter-offer is rejected.

Third Party Determination

If the parties are unable to agree bilaterally on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties “may” request that the amount of the royalty be determined by an independent third party. Although reasonable at first sight, the application of this step remains rather unclear. The wording in the judgment suggests that the parties are not obliged to seek third-party determination, but that they “may” do so. It is also not clear what consequences would follow if one of the parties rejected the proposal to have a court or an arbitrator decide on the level of royalties.

Injunction

If the alleged infringer continues to use the patent in question and has not diligently responded, either by accepting the FRAND offer or by submitting a FRAND counter-offer, the SEP holder may seek an injunction stopping the infringement or seek the recall of products made using the SEP , without risking Article 102 TFEU scrutiny.

By making it a condition that the alleged infringer must still be using the patent in question for the SEP holder to seek injunctive relief, the CJEU draws a clear distinction between an injunction based on the alleged infringement of an SEP and proceedings brought with a view to obtaining the rendering of accounts or an award of damages. This means that, notwithstanding the multiple steps and requirements that have to be followed when seeking an injunction, if the SEP holder only intends to pursue an action for damages for the unlicensed use of its SEP, Article 102 TFEU cannot be invoked by the alleged infringer.

Comment

The CJEU’s judgment sets out the final, general and legally binding test applicable to injunctions based on an infringement of a FRAND-encumbered SEP sought by a dominant market player.

To a large extent, the ruling reflects the European Commission’s earlier efforts to regulate the practices in question. That said, it is difficult to say whether or not the pro-licensee safe harbour envisaged by the European Commission has been fully embraced by the CJEU in its current decision. The number of issues that remain unresolved, e.g., in relation to the existence of dominance on the part of the SEP holder, the definition of “willingness”, or the meaning of FRAND, potentially makes the legal test less useful in practice.

Licensors and potential licensees are therefore still advised to take caution when structuring transactions involving SEPs.

Mafalda de Oliveira Dias and Michal Kocon, Trainee solicitors also contributed to this article.

On 9 July 2015, the Court of Justice of the European Union (CJEU) issued its judgment in InnoLux Corp. v Commission C-231/14P, confirming the existence of a new concept in cartel fining: “direct European Economic Area [EEA] sales through transformed products”. This new concept can be used by the European Commission to calculate fines of an amount higher than a restrictive reading of its Fining Guidelines might suggest.

Background

The judgment arose out of the liquid crystal display (LCD) cartel case, which involved several LCD producers in Asia. The European Commission determined that the cartel participants had three channels of sale into the EEA:

Direct EEA sales, i.e., LCD panels for IT or television applications directly sold to another undertaking in the EEA.

Direct EEA sales through transformed products, i.e., LCD panels incorporated intra-group into a final IT or television product and subsequently sold to another undertaking in the EEA.
Indirect Sales, i.e., LCD panels sold by one of the cartel participants to another undertaking outside the EEA, which would then incorporate the panels into final IT or television products and sell them in the EEA.

The Commission took the view that inclusion of the third channel was not necessary for the purposes of imposing a fine to achieve a sufficient level of deterrence, but did take account of the first two channels. InnoLux challenged the inclusion of the second channel, and the General Court of the European Union rejected the challenge.

The CJEU’s Judgment

The CJEU upheld the decisions of the EU General Court and the Commission, notwithstanding the opinion of the Advocate-General to the contrary.

The CJEU referred first to the established case law, according to which the amount of the fine imposed on an undertaking must reflect “the economic significance of the infringement and the relative size of the undertakings’ contribution to it”.

Next, the CJEU observed that, applying this principle, the existing case law (Guardian Industries C-580/12P 12 November 2014) concludes that sales of the product concerned to a related party in the EEA should be taken into account in the same way as sales direct to unrelated parties.

The CJEU then took an innovative step. It extended the approach in Guardian Industries as follows. When sales of a cartelised product are made to a related party outside the EEA, and the product is incorporated into a downstream product that is sold to independent third parties inside the EEA, the sales of the downstream product into the EEA can be taken into account in determining the amount of the fine. The value to be taken into account is not the full value of the downstream product, but the proportion of that value that corresponds to the value of the cartelised product that was incorporated into the downstream product.

The CJEU emphasised that this case was not about whether or not the Commission had jurisdiction. The Commission’s jurisdiction was not in dispute because the cartel participants, including Innolux, made some sales of LCDs direct to independent third parties in the EEA.

Practical Consequences

The case shows that the CJEU is prepared to give a wide interpretation to the expression in the Commission’s Fining Guidelines: “the value of the undertaking’s sales of goods or services to which the infringement directly or indirectly … relates … within the EEA”. This enlargement of the Commission’s fining powers should be highlighted in all competition compliance programmes.

The European Union’s court of first instance, the General Court, has confirmed the Commission’s decision in Intel and upheld a record fine of €1.06 billion. In so doing, it condemned a number of Intel’s business practices, including loyalty rebates. The General Court’s approach suggests that it views exclusionary business practices by a company in a position of dominance as anti-competitive by their very nature. On this basis, it is likely that the courts will continue to assess allegations of antitrust infringements by dominant companies without taking into account their effects on the market, and might condemn conduct that may not, in fact, be harmful.

Read the full article.

On 21 March 2014, the European Commission (Commission) adopted a revised set of rules for the assessment of technology transfer agreements by the Commission and national competition authorities. The new Technology Transfer Block Exemption Regulation and accompanying Technology Transfer Guidelines will enter into force on 1 May 2014. The revised regime provides clearer and, arguably much needed, guidance on licensing agreements. This enhanced clarity should make it easier for businesses to assess whether or not their licensing and other collaborative practices aimed at the transfer of technology are in compliance with EU competition law.

Click here to read the full article.

The European Commission (Commission) has issued a package of measures (the Reform Package), the rationale for which is to simplify and streamline EU merger control. The Reform Package does this by extending “simplified” treatment to more transactions, reducing the information that parties to a notifiable transaction have to submit and streamlining the pre-notification process. The reforms take effect on 1 January 2014.


The overall objective of the Reform Package is to make EU merger procedures simpler and more business friendly. But it may actually introduce additional work for some types of transactions, for instance by introducing new categories of information that parties to a notifiable transaction must be prepared to supply.

The Reform Package

The Reform Package is comprised of a revised Merger Implementing Regulation, a Notice on Simplified Procedures and revised notification forms, namely a revised Form CO, a revised Short Form CO and a revised Form RS.

The main features of the Reform Package are as follows.

Extension of the Simplified Procedure

At present, transactions that do not present competition concerns are eligible for simplified treatment. Parties to these transactions are entitled to use the Short Form CO, which requires less information and generally requires less time because a market investigation is not necessary.

The Reform Package expands the simplified procedure to apply it to more transactions. Specifically:

  • In markets in which two merging companies compete (horizontal overlap), the simplified procedure applies to mergers below a 20 per cent combined market share, instead of 15 per cent currently.
  • In mergers where one of the companies sells an input to a market where the other company is active (vertically-related markets), the simplified procedure applies to mergers below a 30 per cent combined market share, instead of 25 per cent currently.
  • Provided that the increase in market shares is small, i.e., a Herfindahl–Hirschman Index increase of 150 or less, the simplified procedure applies where the parties’ combined market shares are between 20 per cent and 50 per cent.

The Commission estimates that, under the Reform Procedure, between 60 and 70 per cent of notifiable transactions will be eligible for simplified treatment, representing a 10 per cent increase over current levels.

Information Requirements

The Reform Package introduces several changes in respect of the provision of information in connection with EU merger procedures. Some of these changes will reduce the overall amount of information that parties to notifiable transactions will have to provide to the Commission.

  • More transactions eligible for simplified treatment. As the Reform Package makes more transactions eligible for simplified treatment, it follows that parties to those transactions will need to provide less information in connection with their merger procedure.
  • Waivers for certain information. The Reform Package envisages that parties using either the Form CO or the Short Form CO will also need to provide less information, but this will largely remain within the discretion of the Commission case team reviewing the transaction. Specifically, under the Revised Package, parties will have greater likelihood of being relieved from providing certain required information.
  • Change to the Definition of an “Affected Market.” For non-simplified cases, the Reform Package increases the threshold of what constitutes an “affected market”. At present, parties to a transaction must provide extensive information concerning all affected markets. The Reform Package has raised the thresholds for what constitute affected markets from 15 per cent to 20 per cent (in relation to horizontal markets) and 25 per cent to 30 per cent in relation to vertical markets. A logical corollary is that less market information will need to be provided because fewer markets will be examined by the Commission. In practice, therefore, the workload required from the parties will be lightened.

These changes will reduce the overall information requirements, although the Commission’s case team retains significant discretion to determine which information requirements can be dispensed with in practice.

The Commission has, however, also introduced new categories of information that will need to be provided.

  • Increased requirements for transactions under the simplified procedure. Where the parties’ activities overlap in the European Economic Area (EEA), or where there is a vertical relationship between them, the parties will have to submit presentations that analyse the transaction that were prepared by or for, or received by, members of the board of management, board of directors, supervisory board, any person exercising similar functions or the shareholders’ meeting.
  • Increased requirements for transactions under the full procedure. Parties will have to provide the board documents described above and substantial additional information, including analyses, reports and other documents from the prior two years that analyses the transaction or alternative transactions.

The Commission has indicated that parties may ask the Commission case team to dispense with some of these requests. The Commission has also noted that it only wishes to review those documents that analyse the transaction in relation to alternative acquisitions. Nevertheless, the new scope of documents to be provided is clearly very broad.

Joint Ventures Active Outside the EEA

The Reform Package substantially streamlines the Commission’s approach to joint venture transactions that have no connection with the EEA.

The current jurisdictional thresholds of the EU Merger Regulation as applied to joint ventures has resulted in a large number of joint ventures that have no connection to the EEA being subject to merger control in the EU solely as a result of their parents’ EEA revenue.

The Reform Package therefore introduces a “super-simplified” notification for joint ventures active entirely outside the EEA. For these transactions, parties only need to describe the transaction, their business activities and sufficient revenue information to establish jurisdiction.

Pre-Notification Contacts

Pre-notification contacts are a necessary part of EU merger procedures, but the European Commission has faced criticism over the length of these procedures.

The Reform Package partly addresses this problem, mainly through the expanded use of the simplified procedure. By enabling more parties to be able to use the simplified procedure, it reduces the information that needs to be provided to the Commission when compared with a full procedure. Since less information is required, the Reform Package is expected to lead to shorter pre-notification contacts for these cases.

Parties to transactions benefiting from the simplified procedure may also be able to file without any pre-notification discussions where their activities do not horizontally overlap and they have no vertical relationship. There does however, remain a risk in this situation that notification could be considered incomplete. This could act as a disincentive to notify without engaging in even brief pre-notification discussions.

Comment

The Reform Package will clearly enable more transactions to benefit from the simplified procedure, which should reduce the burdens on companies in relation to transactions notifiable in the European Union. The creation of a super-simplified procedure for transactions involving joint ventures having no link to the EEA is particularly welcome.

With that said, the overall reduction in burden may be offset by the potentially significant increase in the information that parties to transactions under both the simplified procedure and the full procedures are expected to provide. This may be mitigated if information requirements will be increasingly waived, but this remains subject to the discretion of the Commission case team and therefore introduces some uncertainty into the process.

The extent to which pre-notification contacts will be streamlined is also unclear, since this is primarily linked to the greater use of the simplified procedure. Parties to transactions that are eligible for notification with no pre-notification contacts at all may not choose to take advantage of this option as they will continue to run the risk that the Commission case team will require more information to confirm that the transaction actually qualifies for simplified treatment. In this case, the Commission case team could simply issue a determination that the notification is “incomplete”, which would essentially start the process over again.

On 26 November 2013, the European Union’s top court, the European Court of Justice, gave a seminal ruling establishing the principle that a claim for damages for losses incurred as a result of excessively long judicial review proceedings before the General Court must be brought in a separate action before the General Court itself.


Introduction

On 26 November 2013, the European Union’s top court, the European Court of Justice (ECJ), gave a seminal ruling establishing the principle that a claim for damages for losses incurred as a result of excessively long judicial review proceedings before the European Union’s court of first instance (the General Court) must be brought in a separate action before the General Court itself. Allowing the General Court to decide on whether it acted too dilatorily, may raise eyebrows in practitioner circles and amongst potential damages claimants alike.

The ECJ decided to distance itself from the stance it had taken in a previous judgment, Baustahlgewebe v Commission (Case C-185/95 P), where it took it upon itself to simply reduce the fine to reflect the excessive length of proceedings before the lower instance court. The ECJ’s 26 November ruling instead implies that parties seeking compensation for losses incurred as a result of excessively long proceedings will have to invest more money and time in preparing a separate action before the General Court.

Background

In 2005, the European Commission (Commission) levied fines exceeding €290 million on 16 firms for operating a cartel in the industrial bags sector (Industrial Bags Case COMP/38354). The majority of the addressees of the Commission decision lodged an appeal before the General Court seeking to have the Commission’s decision annulled or to have their respective fines annulled or reduced. Nearly six years later, in judgments handed down on 16 November 2011, the General Court ruled on the actions, dismissing those brought by Kendrion NV (Case T-54/06), Groupe Gascogne SA (Case T-72/06) and Sachsa Verpackung GmbH (now Gascogne Sack Deutschland GmbH) (Case T-79/06).

The General Court took five years and nine months to decide to uphold the Commission’s findings, considerably longer than the average 24.8 months currently required for the General Court to examine and rule on a Commission decision. In Case T-54/06, during the course of the proceedings, Kendrion NV raised the slow nature of the General Court’s proceedings before the General Court itself. The General Court stated simply “The legality of [the] decision may be considered only in the light of the facts and circumstances at the disposal of the Commission at the date of the adoption”. The General Court therefore rejected as ineffective the ground of appeal which alleged that the Court had failed to observe the principle that it must adjudicate within a reasonable time, on the ground that only the legality of the decision fell within its review jurisdiction.

Not satisfied with this response, Kedrion NV, along with Groupe Gascogne SA and Gascogne Sack Deutschland GmbH complained to the ECJ that the General Court had taken far too long to deal with the proceedings. As a result, the companies claimed, the ECJ should set aside the judgment or at least annul/reduce the fine. The companies complained, inter alia, that the General Court had not acted promptly enough in examining the Commission’s decision. The parties argued that their fundamental rights had been breached and that the excessive length of proceedings had led to financial loss.

The ECJ Judgment

On 26 November 2013, the ECJ handed down judgments in Cases C-40/12 P, C-50/12 P and Case C-58/12. The ECJ broadly agreed that the General Court had taken far too long to adjudicate the parties’ appeals. In setting out its decision, the ECJ made the following points:

  • A failure to adjudicate within a reasonable time must, as a procedural irregularity constituting a breach of a fundamental right, give rise to an entitlement of the party concerned to an effective remedy granting appropriate relief.
  • Where the excessive length of the proceedings does not prejudice the outcome of proceedings, failure to deliver judgment within a reasonable time cannot lead to the setting aside of the judgment under appeal.
  • Failure to adjudicate within a reasonable timeframe when examining a legal action brought against a Commission decision imposing a fine on a company for infringing EU competition law cannot lead to the annulment, in whole or in part, of the fine imposed by that decision.
  • A claim for compensation for the damage caused by the failure of the General Court to adjudicate within a reasonable timeframe may not be made directly to the ECJ. It must be brought before the General Court itself (sitting in a different composition from that which heard the dispute giving rise to the procedure being criticised) which must assess the actual existence of the harm and the causal link between the excessive length of proceedings and the harm.
  • As regards the criteria for assessing whether or not the General Court has acted within a reasonable timeframe, factors such as, but not limited to, the complexity of the case and the conduct of the parties should be considered.
  • The General Court must take into consideration the general principles applicable in the legal systems of the Member States for actions based on similar breaches. In that context, the General Court must, in particular, ascertain whether or not it is possible to identify, in addition to any material loss, any other type of harm sustained by the party affected by the excessive period, which should, where appropriate be compensated.

Applying these factors, the ECJ held that five years and nine months was excessive for the proceedings before the General Court. The ECJ observed that this time reflected long periods of inactivity by the Court. The length of proceedings could not be justified by any of the circumstances underpinning the appeals such as the complexity of the dispute, the conduct of the parties or supervening procedural matters.

As such, the ECJ ruled that that the proceedings before the General Court breached the second paragraph of Article 47 of the Charter of Fundamental Rights of the European Union: “[E]veryone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law”. As such, the claimants are permitted to bring a damages claim before the General Court, seeking compensation for losses incurred. The ECJ did not, however, take any action with respect to the merits of the parties’ appeals, which sought to overturn the General Court’s ruling.

Comments

The judgments handed down by the ECJ warrant a number of comments. The ECJ’s ruling that the General Court acted too dilatorily in the current set of proceedings is clearly positive, in view of the nearly six years of delay to resolve them. On the other hand, the ECJ’s ruling implies that the parties will obtain no immediate relief. Rather, to recover the losses incurred as a result of the delay, they will need to invest more resources in preparing a separate action before the General Court, with no guarantee as to the timeframe in which the General Court will resolve the proceedings.

Furthermore, issues of impartiality arise given that it will be the General Court itself that decides whether or not it failed to deal with proceedings within a reasonable time. The risk of institutional bias may, however, be mitigated by the fact that the action for damages must be assessed by a fresh panel of judges and there is much truth in the aphorism “Not only must justice be done, it must also be seen to be done.”

There is certainly scope for arguing that the ECJ should have perhaps considered Baustahlgewebe more carefully. In Baustahlgewebe, the ECJ itself reduced the fine by ECU 50,000 for reasons of procedural economy and to ensure that the claimant was granted an immediate and effective remedy. Certainly, such an act would lead to greater administrative efficiency.

It will be interesting to see whether or not the parties decide to lodge new proceedings before the General Court and, if they do, how quickly the General Court will resolve the claims.