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Bigger Is Better. . .Or Maybe Not: The Siemens/Alstom Railway Merger

The European Commission recently reaffirmed that industrial policy objectives have no role to play when it comes to applying the EU merger control rules. Despite unusually intense industrial and political pressure to get the Siemens/Alstom railway merger done, Competition Commissioner Vestager has forcefully reiterated that the substantive test under the EU Merger Regulation remains exclusively competition based.

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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 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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A New Concept in Cartel Fining: “Direct EEA Sales Through Transformed Products”

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 [...]

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New EU Consumer Contracts Legislation Comes Into Force on 13 June 2014: E-Commerce Businesses Should Review Terms and Conditions of Sale Now

by Rohan Massey, Lionel Lesur, Veronica Pinotti, Vincent Schröder

All e-commerce businesses active in the European Economic Area (EEA) should review their current processes, policies, terms and documentation and implement any changes before 13 June 2014 to ensure they are compliant with the new national laws of the EU Member States implementing EU Directive No 2011/83/EU on consumer rights. In those Member States that fail to implement the Directive into their national laws, the provisions of the Directive will directly apply.

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European Commission Simplifies Aspects of EU Merger Control

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 [...]

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