On 10 May 2017, the European Commission published its final report on the e-commerce sector inquiry. The report is divided into two sections, covering e-commerce issues in relation to consumer goods and digital content. It also identifies business practices that might restrict competition and limit consumer choice. It would be advisable for e-commerce businesses to review their commercial practices and revise them as necessary in light of the Commission’s stated aim of targeting e-commerce business practices that may negatively impact the functioning of the Digital Single Market.
Wilko van Weert focuses his practice on EU competition law. He has provided first-class advocacy to corporate clients involved in high-profile international cartel investigations. He has delivered convincing cartel defense analysis and persuasive and vigorous representation of clients' interests before the European Union's enforcement agencies and judiciary. Read Wilko van Weert's full bio.
On 8 September 2016, the General Court of the European Union upheld the European Commission’s decision in which the antitrust regulator imposed fines of approximately EUR 150 million on Lundbeck and a number of generic companies for entering into reverse settlement agreements which delayed the entry of cheaper generic versions of a blockbuster antidepressant.
The Commission had first hinted that patent settlement agreements causing delayed generic entry might be problematic in its 2009 report on the Pharmaceutical Sector Inquiry. Continue Reading EU Court Confirms European Commission’s Decision on Pay-for-Delay Agreements
On 5 May 2016, the Polish Office of Competition and Consumer Protection (UOKiK) published a position paper in which it expressed its opinion on Uber’s operations on the Polish market for transportation services.
UOKiK has been monitoring and analysing the effects of the emergence of such online platforms on the Polish market and concluded that Uber (i) encourages competition, (ii) is beneficial to consumers and (iii) provides for innovative solutions.
On 20 April 2016, the European Commission (Commission) cleared, under its merger control rules, the acquisition of Equens and PaySquare by Worldline subject to, amongst others, a commitment to license technology to any customer interested, at Fair, Reasonable and Non-Discriminatory (FRAND) conditions.
Worldline is a French provider of payment services and terminals, financial processing and software licensing and e-transactions services. Equens offers a number of services across the value chain of both payments processing and cards processing services. Its fully-owned subsidiary, PaySquare, provides merchant acquiring services. This transaction combines two large payment systems operators, active across the full value chain in both payment processing and card processing services.
The EU antitrust regulator was concerned that the acquisition would have raised certain issues with respect to, in particular, merchant acquiring services in Germany. The Commission’s market investigation revealed that Worldline’s Poseidon software and modules are used by the majority of German network service providers (including PaySquare), there are no other readily available alternatives to Poseidon and post-transaction, Worldline would have the ability and the incentives to favour its new subsidiary PaySquare, in terms of price and quality, over other network service providers relying on Poseidon.
In order to address the Commission’s concerns, the companies offered a commitment to grant licenses for the Poseidon software on FRAND terms during a period of 10 years. Specifically, this commitment consists of the following elements:
- The granting of a license for Poseidon and its modules to third-party network service providers under FRAND terms and capping of the maintenance fees
- A monitoring mechanism to ensure compliance with FRAND terms by a licensing trustee and by a group composed of network service providers
- Giving access to the Poseidon source code under certain conditions
- Transferring the governance of the ZVT protocol, on which most German point of sale terminals run, to an independent not for profit industry organisation
The Commission’s decision to accept this commitment is interesting for a number reasons; the Commission generally has a strong preference for structural rather than behavioural undertakings, FRAND obligations are typically applicable to technologies that are standardised, and this case presents the first time that a commitment to licence on FRAND terms has been used as a remedy under the EU Merger Regulation.
On 23 March 2016, the Netherlands Authority for Consumers and Markets (ACM) announced that it had fined four cold-storage firms for having put in place anticompetitive arrangements while in extended merger talks with one another. (case number: 13.0698.31|15.0710.31|15.0327.31|15.0328.31). In addition, ACM fined five individuals for their personal involvement in these anticompetitive arrangements. The case at hand serves as a reminder that gun jumping, which is seen as an infringement of the merger control rules, is not the only antitrust risk associated with an M&A transaction.
While in discussions about a possible merger between them, the cold-storage firms frequently exchanged commercially sensitive information such as the price for food storage, current utilization rates of their storage facilities and whether or not they were looking for work. This information exchange, which took place between 2006 and 2009, sometimes resulted in price fixing, customer allocation or bid rigging. Continue Reading Dutch Competition Authority Fines Cold-Storage Companies for Exchange of Information in the Context of Merger Talks
On 18 March, the European Commission (Commission) published its initial findings on geo-blocking in the framework of its ongoing antitrust sector inquiry into e-commerce.
The findings are based on responses to questionnaires sent to more than 1400 retailers and digital content providers from all 28 EU Member States in 2015.
The questionnaires focused on geo-blocking practices in the sales of goods (clothing, shoes and accessories, consumer electronics, household appliances, computer games and software, toys and childcare articles, books, media carriers, cosmetic and healthcare products, sports, outdoor, house and garden equipment), and in the provision of digital content services (films, sports, TV programmes, music).
The findings suggest that geo-blocking is a widespread practice. Where the sale of tangible goods is concerned, in most cases the decision to have geo-blocking in place is made unilaterally by the retailer. In only 12 percent of the cases, retailers were forced by contract to put restrictions in place on cross-border sales.
On the other hand, geo-blocking in digital content is for the most part a contractual requirement imposed by suppliers (for 59 percent of the respondents).
The data on geo-blocking now published by the Commission seem to strengthen the Commission’s suspicions that geo-blocking practices are widespread and may significantly impact intra-EU cross-border trade. The Commission said that geo-blocking may be in breach of competition law, particularly when it results from agreements between businesses or if practised by a dominant market player.
However, the Commission also recognized that retailers and service providers may have valid reasons to put geo-blocking in place to restrict cross-border sales. In light of this, the Commission may decide to address the conditions under which geo-blocking is justified in further legislation or guidance to businesses first, rather than take immediate enforcement measures on the back of the sector inquiry.
Any ensuing enforcement action would have to take place on a case-by-case basis, separately from the overall sector inquiry.
It is expected that the Commission will present its final report on the present inquiry by the middle of 2016.
On 15 March 2016, the Japan Fair Trade Commission (JFTC) and the European Commission (Commission) announced their intention to upgrade the current antitrust co-operation agreement between Japan and the European Union. The upgrade will have a number of practical and legal implications for companies involved in international antitrust investigations or considering making leniency applications.
The review is understood to focus primarily on the facilitation of exchanges of information and evidence between the JFTC and the Commission. If the negotiations prove successful, it would be the second time that each of the agencies has entered into a “second generation” co-operation agreement. The JFTC entered into a second generation co-operation agreement with the Australian Competition and Consumer Commission in April 2015 and a second generation agreement between the European Union and the Swiss Confederation was signed in May 2013.
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.
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.
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
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.
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.
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.