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Recent Judgments Illustrate How the European Commission Can Correct Its Errors Post-Annulment

by McDermott Will & Emery | Feb 22, 2016 | Cartel Enforcement, EC Developments, Mergers & Acquisitions

As a general proposition, when the validity of a European Commission antitrust decision is challenged before the General Court of the European Union (GCEU), the procedure is one of judicial review, not a retrial on the merits (although the GCEU does have special jurisdiction to increase or reduce the amount of any fine). Thus there are only three possible outcomes: annulment of the Commission’s decision; variation in the amount of any fine, upwards or downwards; or rejection of the challenge altogether.

In the case of annulment, Article 266 of the Treaty on the Functioning of the European Union requires that the Commission “take the necessary measures to comply with the judgment” of the GCEU. Provided that the limitation period has not expired, the Commission may take a new decision on the case, taking care to avoid the illegalities identified by the GCEU in respect of the first decision. The new decision can be different from the first decision, as illustrated by the recent judgments in Mitsubishi Electric and Toshiba, but it can also be substantially the same, as illustrated by the recent judgment in Éditions Odile Jacob.

The Mitsubishi Electric and Toshiba cases arose out of the gas insulated switchgear cartel. Mitsubishi Electric and Toshiba were fined for their participation in the cartel. The companies challenged the Commission’s decision imposing the fines, and the GCEU annulled the fines imposed individually on Mitsubishi Electric and Toshiba on the ground that the Commission had infringed the principle of equal treatment by choosing, when calculating the fine, a reference year for Mitsubishi Electric and Toshiba which was different from that chosen for the European participants in the infringement.

Following the annulment, the Commission addressed a letter of facts to Mitsubishi Electric and Toshiba informing them of its intention to adopt a new decision remedying the unequal treatment criticised by the GCEU. Mitsubishi Electric and Toshiba submitted comments on the Commission’s letter of facts and had meetings with the Commission team responsible for the case. Subsequently the Commission adopted a new decision imposing lower individual fines on Mitsubishi Electric and Toshiba than in the first decision.

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EU Court of Justice Reduces Cartel Fine: General Court of the EU Exceeded its Jurisdiction

by Antoine De Rohan Chabot | Feb 15, 2016 | Cartel Enforcement, EC Developments

The Court of Justice of the European Union (Court),the EU’s highest court, recently issued a judgment in case C-603/13 P, Galp Energía España SA and others v Commission, reducing the fine imposed on certain companies that were found to have engaged in cartel behaviour. This decision overturned a decision of the General Court of the European Union (GCEU), and is notable because the Court found that the GCEU had exceeded its jurisdiction in the case by considering facts that had not been previously introduced. .

By way of background, in October 2007, the European Commission (Commission) fined several companies for their participation in the bitumen cartel, including Energía España, SA, Petróleos de Portugal (Petrogal), SA and Galp Energia, SGPS, SA (Appellants). Among the infringing conduct, the Commission identified a monitoring system of the cartel and its compensation mechanism. When determining the fines, the Commission reduced the fine imposed on Appellants by 10% in light of their limited involvement in the infringement.

In response, Appellants challenged the Commission’s decision before the GCEU. The GCEU annulled the Commission’s decision as it applied to Appellants, because the Commission failed to establish that Appellants participated in both the monitoring system and the compensation mechanism. However, and critically, based on grounds and evidence that had not been included in the contested decision or on the appeal, the GCEU concluded on its own initiative that Appellants were aware of both the monitoring system and compensation mechanism. Consequently, even though the Commission failed to prove Appellants’ actual involvement in this conduct, the GCEU nevertheless held that the appellant companies could still be held liable because of their alleged awareness. Based on these findings, the GCEU decided to reduce the fine imposed on Appellants by an additional 4%.

Appellants challenged the GCEU’s ruling before the Court. Appellants claimed, among other things, that the GCEU exceeded its jurisdiction because it considered evidence, and substituted grounds for the decision, that had not been introduced in the Commission’s underlying proceedings. The Court agreed, finding that the GCEU exceeded its jurisdiction. The Court found that GCEU concluded that the Commission failed to establish that Appellants participated in the monitoring system and compensation mechanism of the cartel. Yet, the GCEU, based on arguments and facts not considered in the Commission’s proceedings or addressed in the GCEU appeal, continued to find that Appellants were aware of the infringing conduct and could still be held liable for the infringement. Therefore, the Court concluded that the GCEU exceeded its authority by ruling on its own initiative, based on arguments and evidence not before it, that Appellants were liable based on different grounds than those used by the Commission in the contested decision or on the appeal.

The Court’s ruling further clarifies that the GCEU had unlimited jurisdiction in this case to review the matter brought before it i.e. the fine imposed by the Commission. But, this did not give the GCEU the authority to alter the basis for the contested decision. In other words, the Court [...]

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The EU Court of Justice Brings to an End Odile Jacob’s Fight Against Lagardère’s Purchase of Vivendi Universal Publishing

by Emily Townsend | Jan 29, 2016 | EC Developments, French Developments, Mergers & Acquisitions

By its judgment of 28 January 2016 (C-514/14 P, Editions Odile Jacob SAS v Commission), the European Court of Justice (Court) upheld the General Court of the European Union’s (GCEU) ruling with respect to each of the grounds raised by Editions Odile Jacob (Odile Jacob) thereby dismissing Odile Jacob’s appeal.

The case concerned the sale, in 2002, of Vivendi Universal’s subsidiary Vivendi Universal Publishing (VUP) to the Lagardère Group (Lagardère).

The European Commission (Commission) authorized the concentration in 2004, subject to undertakings by Lagardère. Specifically, Lagardère undertook to divest a significant amount of VUP assets. Lagardère thus approached several undertakings potentially interested in purchasing those assets. Odile Jacob was one of the undertakings that expressed an interest in the acquisition of the divested assets. However, Lagardère accepted the purchase offer made by Wendel Investissement (Wendel) whom the Commission approved as a suitable purchaser. Odile Jacob challenged the Commission’s decision authorizing the concentration and the decision approving Wendel as a suitable purchaser. In 2010, the GCEU confirmed the decision authorizing the concentration but annulled the decision approving Wendel as a suitable purchaser on the ground that it had been adopted on the basis of a report drawn up by a trustee that was not deemed independent. This judgment was upheld by the Court in 2012.

Following the GCEU’s judgment, Lagardère made a further request to the Commission for the approval of Wendel by proposing a new trustee who was subsequently approved by the Commission, in 2011, with effect from 2004. Odile Jacob brought another action for annulment of this approval decision which was dismissed by the GCEU by judgment of 5 September 2014 (T-471/11).

In its judgment of 28 January 2016, the Court upheld the September 2014 judgment of the GCEU.

First, the Court considered that the GCEU correctly ruled that, in order to give full effect to the judgments of 2010, the Commission was only required to approve a new trustee responsible for drawing up a new report evaluating Wendel’s candidature and to assess this candidature on the basis of this new report. In this respect, the Court found that the Commission neither had to revoke the decision authorizing the concentration nor to repeat the whole procedure from the date on which Lagardère appointed the first trustee.

Second, the Court ruled that the GCEU had not erred in law by declaring that the 2011 Commission decision, which approved again Wendel as an acquirer of VUP’s assets, could be retroactive. Indeed, the Court found that the Commission could adopt retroactive decisions where this is required by the intended aim and where the principle of protection of the legitimate expectations of the parties is properly observed. Here, the Court confirmed that these conditions had been met in the case: the new retroactive approval decision was intended inter alia to fill the legal vacuum created by the annulment of the first approval decision. In that regard, the Court found that Odile Jacob failed to demonstrate that there were no grounds that could justify [...]

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General Court of the EU Upholds Cartel Fines of €131 Million Imposed on Toshiba and Mitsubishi Electric, Dismisses Arguments Based on Principle of Equal Treatment

by Louise Aberg | Jan 27, 2016 | Cartel Enforcement, EC Developments, EU Developments

By two judgments of January 19, 2015 (Case T-404/12 Toshiba v. Commission and Case T-409/12 Mitsubishi Electric v. Commission), the General Court of the European Union (GCEU) upheld the fines of €131 million imposed by the European Commission (EC) on Toshiba and Mitsubishi for their participation in a cartel on the market for gas insulated switchgear (GIS), dismissing a line of reasoning essentially based on the principle of equal treatment.

The cartel, involving 20 European and Japanese undertakings, consisted in an agreement between competitors with the objective of coordinating the commercial activity worldwide of the members. The cartel members developed a quota system aimed at determining the market shares to allocate between them. In parallel, the cartelists reached an unwritten understanding, according to which GIS projects in the European market and Japanese market were reserved to European members and Japanese members of the cartel, respectively.

In its 2007 decision, the EC found a single and continuous infringement of competition law on the GIS product market between 1988 and 2004 and imposed fines on Toshiba and Mitsubishi, inter alios, of €86.25 million and €113.92 million, respectively. It also found the two Japanese undertakings jointly and severally liable for up to €4.65 million. Both companies challenged the EC decision, which led to two judgments of the GCEU (Case T-113/07 Toshiba v. Commission and Case T-133/07 Mitsubishi Electric v. Commission), subsequently upheld by the Court of Justice of the European Union (CJEU) (Case C-498/11 P Toshiba v. Commission and Case C-489/11 P Mitsubishi Electric v. Commission). The GCEU annulled the fines imposed on the two Japanese undertakings, finding that the Commission had infringed the principle of equal treatment in calculating their fines. The reference year used to calculate the fines for the applicants was indeed different from that chosen for the European participants in the infringement.

Having been asked to reexamine its decision, the EC recalculated the fines imposed on Toshiba and Mitsubishi and fixed them at €56.79 million and €74.82 million, respectively, without changing the amount of the fine for which they were held jointly and severally liable. The two Japanese undertakings then lodged a new appeal before the GCEU seeking the annulment of the revised fines. In support of their action, the applicants alleged, inter alia, an infringement of the principle of equal treatment as regards the determination of their level of culpability as compared to the European participants in the infringement and the starting amount of the fine.

First, Toshiba and Mitsubishi argued that they were less culpable than their European counterparts because their participation had been limited to agreeing not to enter the European Economic Area (EEA) market, whereas the European undertakings had distributed the GIS projects on that same market through active collusion. In other words, they contended that their participation only consisted in a failure to act and that, consequently, they could not be held as liable as the European undertakings for the implementation of the cartel.

The GCEU reiterated its settled case-law, according to which the [...]

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The European Union’s Highest Court Rules on Standard-Essential Patents, Injunctions and Abuse of Dominance

by McDermott Will & Emery | Jul 23, 2015 | EU Developments, German Developments, IP Antitrust, Joint Ventures/Competitor Collaboration

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 [...]

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Antitrust Enforcers Discuss Recent Highlights, Ongoing Cases, Enforcement Priorities and General Trends at the 2015 ABA Section of Antitrust Law Spring Meeting

by Louise Aberg | Apr 29, 2015 | Cartel Enforcement, DOJ Developments, EC Developments, FTC Developments

The American Bar Association (ABA) Section of Antitrust Law Spring Meeting concluded earlier this month with the traditional “Enforcers’ Roundtable,” an interview with leading competition authorities about recent highlights, ongoing cases, enforcement priorities and general trends.

This year’s participants were Bill Baer, U.S. Assistant Attorney General for Antitrust; Edith Ramirez, Federal Trade Commission (FTC) Chairwoman; Kathleen Foote, Chair of the Multistate Antitrust Task Force of the National Association of Attorneys General; Margrethe Vestager, E.U. Commissioner for Competition; and Lord David Currie, Chairman of the one-year old UK Competition and Markets Authority (CMA). Below is a summary of certain highlights from the discussion.

Recent Domestic Achievements and Enforcement Priorities

Ramirez touted the FTC’s recent U.S. Supreme Court victory in North Carolina Board of Dental Examiners[1], in which the court held that a state licensing board was not entitled to state action immunity because active market participants controlled the board, and the board was not subject to active supervision by the state. Foote noted that states are currently taking steps to ensure compliance with this ruling.

Ramirez also highlighted the FTC’s current efforts to challenge the merger between the nation’s two largest food distributors, Sysco and US Foods. Foote noted that the Sysco/US Foods[2] case is a multistate effort, with 11 state attorneys general collaborating with the FTC.

Enforcement in the pharmaceutical industry, especially pertaining to reverse payment settlements, is a priority, panelists stated. Ramirez discussed the FTC’s ongoing litigation in three reverse payment settlement cases. She noted that in the aftermath of the Supreme Court’s ruling in Actavis[3], the FTC posits that non-monetary payments, such as supply agreements, could constitute reverse payments and thus be subject to antitrust scrutiny.

Foote remarked that reverse payment settlements are also a major state focus, pointing to the recent settlement between the New York Attorney General and two generic pharmaceutical companies, Ranbaxy Pharmaceuticals Inc. and Teva Pharmaceuticals USA Inc.

Global Cartel Enforcement: a Record-Breaking Year

Baer and Vestager highlighted the increasing number and severity of fines imposed on companies engaged in price-fixing, as well as prison sentences imposed on executives in the U.S. In recent years, enforcers have scrutinized conduct in a range of industries, including financial services, agriculture, ocean shipping, consumer goods and the auto parts industry.

Baer indicated that cartel enforcement accounts for more than 40 percent of the Antitrust Division’s work. Vestager noted that the European Commission (EC) rendered 10 decisions related to cartel activity in 2014, including eight settlements. She noted that settlements are part of the EC’s “toolbox,” but the EC would continue rendering infringement decisions to develop case law.

In contrast to the U.S. Department of Justice (DOJ) and the EC, Currie said that the CMA’s 2014 cartel record was not as strong as he would have liked and that the CMA received a recent budget increase in part to enhance enforcement efforts.

International Enforcement Cooperation

Each of the panelists praised the quality of international cooperation among antitrust agencies. Vestager said that 60 [...]

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New EU Competition Commissioner Magrethe Vestager to Take Office in November, Pending Approval

by McDermott Will & Emery and Jacques Buhart | Sep 11, 2014 | EC Developments

In an announcement made on 10 September 2014, the President-elect of the next European Commission, Jean-Claude Juncker from Luxemburg, unveiled his team and announced that Magrethe Vestager from Denmark will replace Joaquin Almunia as the EU Commissioner for Competition. Ms Vestager is to take office in November, subject to confirmation by the European Parliament.

The new Commissioner and her agenda will have a significant impact on business in the European Union in the upcoming years. The EU Commissioner for Competition is one of the most powerful figures in Europe because this role has the ability to review deals, impose fines for cartel behaviour or abuse of dominance (monopolisation) and order the recovery of illegal subsidies.

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CJEU Rules Maximum Cartel Fine Applies Only to Infringing Subsidiary Turnover and Reduces Fine by €17 Million

by McDermott Will & Emery | Sep 10, 2014 | EC Developments

On 4 September 2014, the Court of Justice of the European Union (CJEU) confirmed that the maximum fine of 10 per cent of turnover imposed on the infringing subsidiary of a non-infringing parent company should be calculated on the basis of the turnover of that subsidiary, and not the parent company, if and to the extent that the infringement occurred during the period prior to the acquisition of the subsidiary by the parent company.

In 2007, the European Commission issued a decision fining the participants in a cartel operating on the market for zips and other fasteners.

Stocko Fasteners participated in the cartel as an independent company from 1991 until 1997, when it was acquired by the YKK Group and renamed YKK Stocko Fasteners. It continued to participate in the cartel until 2001. YKK Stocko Fasteners was fined €19.25 million for its participation in the cartel from 1991 to 1997, calculated on the basis of the YKK Group’s turnover. The YKK Group companies (including YKK Stocko Fasteners) were fined €49 million jointly and severally for the period 1997 to 2001.

These fines were upheld by the EU General Court and the YKK Group appealed to the CJEU, inter alia, against the fine imposed on YKK Stocko Fasteners. The YKK Group argued that the limit on fines of 10 per cent of total turnover prescribed by Article 23(2) of Regulation (EC) No 1/2003 should have been applied only to YKK Stocko Fasteners’ turnover and not to the turnover of the whole YKK Group. The fine of €19.25 million imposed on YKK Stocko Fasteners amounted to significantly more than 10 per cent of that company’s total turnover in 2006, the business year preceding the imposition of the fine.

The CJEU’s Ruling

The CJEU observed that Article 23(2) of Regulation (EC) No 1/2003 provides that “For each undertaking… participating in the infringement, the fine shall not exceed 10 per cent of its total turnover in the preceding business year” (authors’ emphasis). Stocko Fasteners was a separate undertaking until its acquisition by the YKK Group in 1997, so the CJEU found the Commission was wrong to treat YKK Stocko Fasteners and the rest of the YKK Group as a single undertaking for the purposes of the 10 per cent limit. In fact, if YKK Stocko Fasteners did not pay the €19.25 million fine, the Commission could not enforce payment by the rest of the YKK Group.
The CJEU consequently decided to set aside the General Court’s judgment and annul the Commission’s decision, and reduced the fine imposed on YKK Stocko Fasteners to €2.79 million. This figure corresponded with 10 per cent of its turnover as a YKK subsidiary in 2006, the year preceding the imposition of the fine, less an allowance for leniency.

Comment

Over recent years, the way fines against cartels are calculated and attributed has become ever more hotly debated. In most cases, the central issue has been the attribution of the fine to parent companies for infringements by their subsidiaries, or to shareholding partners for [...]

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European Commission Uses EU State Aid Rules Against Aggressive Tax Planning by Multinational Companies

by Irina Denisova | Jun 11, 2014 | EC Developments

by Martina Maier and Philipp Werner (with contribution from Katharina Dietz)

The European Commission (Commission) took the first concrete action towards using EU State aid rules against aggressive tax planning by multinational companies by opening formal investigations against Ireland (Apple), Luxembourg (Fiat Finance and Trade) and the Netherlands (Starbucks). The Commission has concerns that these companies may have benefited from a selective advantage in the form of tax rulings by tax authorities that confer on them a preferential calculation of the taxable basis. The Commission has already announced that it investigates further cases of alleged State aid in the form of tax rulings in at least six EU Member States (including France and the UK) in the upcoming months.

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EU’s Top Court Rules Cartel Victims Can Claim Damages From Cartelists Despite No Contractual Link

by Irina Denisova | Jun 10, 2014 | Cartel Enforcement, EC Developments

by Martina Maier, Philipp Werner and David Henry

In a landmark ruling, the EU’s top court, the European Court of Justice (ECJ) in Kone and Others C-557/12 of 5 June 2014, has held that, where a cartel causes competing companies to increase their prices, the members of the cartel may be held liable for losses incurred by victims of those price increases.

Please click here to read the full article.

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