Antitrust in focus - April 2021

Allen & Overy LLP
Contact

Allen & Overy LLP

This newsletter is a summary of the antitrust developments we think are most interesting to your business.

Emre Önal, counsel based in Istanbul (Gedik & Eraksoy), is our editor this month. Learn more about Emre in our new Q&A feature at the end of our newsletter. He has selected:

General

  • Turkish Competition Authority is more active than ever
  • European Commission targeting “killer acquisitions” through its Member State merger referrals system
  • US Supreme Court strikes down key Federal Trade Commission enforcement tool
  • European Court opinion suggests subsidiaries could be liable for parent company antitrust infringements
  • Stricter information requirements for foreign investors under the EU FDI Regulation

Consumer & Retail

  • Roland’s unsuccessful appeal against level of RPM fine results in UK court revoking its settlement discount

Digital & TMT

  • Record Chinese antitrust fine on Alibaba sheds light on future enforcement in the online sector
  • UK Digital Markets Unit begins ‘shadow’ work ‒ first up, relationships between platforms and content providers
  • European Court of Justice's Sloval Telekom abuse of dominance ruling clarifies scope of refusal to supply analysis
  • European Commission issues Statement of Objections against Apple in music streaming investigation

Life Sciences

  • European top court provides guidance on patent settlements and competition law

General

Turkish Competition Authority is more active than ever

Unlike a number of its counterparts around the world, the Turkish Competition Authority (TCA) has taken a very pro-active enforcement approach since the beginning of the Covid-19 pandemic to ensure that no one takes advantage of this unprecedented period. As such, in 2020, the TCA concluded 65 antitrust investigations and initiated 29 new investigations. These numbers represent a significant increase in comparison with 2019 and 2018, when only 15 and 23 investigations were initiated respectively. This trend is expected to continue in 2021: there were 44 investigations in the pipeline as of December 2020. In terms of administrative fines for antitrust breaches, the TCA levied a total of TRY1.96 billion (approx. USD241 million) in 2020 whereas this number was only TRY237m (approx. USD29m) in 2019. Again, this trend looks set to continue as the total fines imposed by the TCA to date in 2021 has almost reached TRY1bn. It appears from a breakdown of the fines over the last five years that three sectors are under the spotlight: chemical/engineering, IT and digital platforms, and food.

The TCA’s recent stance on the merger control front has been similar to that for antitrust investigations. In 2020, the merger control statistics showed an upward trend, with 219 new transactions cleared. These cases were mostly dominated by mergers in the chemical/engineering and automotive/logistics sectors, with 39 and 28 new applications respectively. However, the most interesting development in the TCA’s recent merger control practice was, without doubt, the prohibition of a port merger between Terminal Investment Limited Sàrl (acquirer) and Marport (target). The TCA concluded that the proposed transaction would give rise to a significant decrease in competition on the market for port management services, especially in relation to container handling services in the Marmara region. This decision marks the TCA’s third prohibition in the port sector – a record number for a specific sector, considering that the TCA has made only (at most) a dozen prohibition decisions to date.

The first quarter of 2021 was no different to 2020 and maybe even busier, with a number of large investigations, sector inquiries, and significant behavioural and merger control decisions. Highlights so far include:

  • a record fine amounting to TRY480m (approx. USD59m) imposed on Unilever for: (i) the abuse of its dominant position in the ice cream market by way of various types of discounts or similar advantages to the sales points; and (ii) its anti-competitive vertical arrangement imposing an indirect non-compete obligation on Getir, one of Turkey’s biggest online grocery platforms, which was specifically prohibited by the TCA.
  • an infringement decision against Novartis Turkey and Roche Turkey regarding practices aimed at maintaining widespread use of the drug Lucentis over the comparatively cheaper Altuzan (the Turkish version of the drug Avastin), resulting in administrative fines, respectively, of TRY165,464,716.48 (approx. USD20.3m) and TRY112,972,552.65 (approx. USD13.9m).
  • the initiation of an investigation against five household electronics companies regarding alleged restrictions on the internet sales of their retailers.
  • the initiation of an investigation against 32 companies from different sectors (mostly engaged in e-commerce or internet sales) regarding alleged gentlemen agreements in the employment market (ie no-poaching agreements), which is obviously a very novel and controversial area in the competition law field.
  • the release of a preliminary report on the sector inquiry concerning the retail level of the FMCG sector, which is currently under close scrutiny by the TCA through a nation-wide ongoing cartel investigation involving all grocery chains and their major suppliers in the food, household cleaning products and cosmetics sectors.
  • the initiation of a Phase II investigation regarding the acquisition of sole control of Aon by Willis Towers Watson.

In addition to the above developments, in line with global trends, the digital sector seems to be top of the TCA’s agenda in 2021. In just four months, the TCA has:

  • initiated a sector inquiry into the online advertisement market, which is in addition to the ongoing sector inquiry into e-marketplace platforms and the ongoing sector study into digital markets in general.
  • initiated an investigation into Facebook in relation to the use of personal data through WhatsApp’s updated privacy policy, which reflects the German Bundeskartellamt’s 2016 Facebook investigation.
  • imposed an administrative fine of TRY296m (approx. USD36.4m) on Google for abuse of dominance relating to its local search service, and also required Google to stop favouring its own services in the local search service and accommodation price comparison markets.

While enforcement of the existing rules has continued unabated, there have also been a number of significant legislative developments intended to reinforce Turkey’s work to align its laws with the EU. As a first step, Turkey has amended its competition law to introduce further strengthening provisions on self-assessment of individual exemptions, a SIEC (significant impediment of effective competition) test in merger reviews, a power to examine electronic data during on-site investigations, and application of the de minimis principle, as well as settlement and commitment procedures.

European Commission targeting "killer acquisitions" through its Member State merger referral system

A European Commission (EC) evaluation has confirmed its concerns ‒ shared with a number of other antitrust authorities ‒ that a merger control enforcement gap exists for transactions that involve targets with no or limited turnover but with the potential to have a significant impact on competition.

To address the issue, the EC has opted to take advantage of its existing referrals system. New guidance now actively encourages EU Member State competition authorities to refer (under Article 22 EUMR) certain transactions that are not notifiable under their domestic rules to the EC for review (EC practice in recent years has been to encourage referrals only of transactions falling within the jurisdiction of at least one Member State). The guidance includes an illustrative list of scenarios where the EC will focus its efforts (as it will continue to exercise its discretion on which transactions to review) covering, for example, nascent competitors and innovative companies. While these are not limited to any specific economic sector, the EC does particularly call out the digital, pharmaceutical and biotechnology sectors, as well as transactions where the deal value is particularly high compared to the current turnover of the target.

The change in the EC’s practice will have a significant impact on the strategies, timing and documentation of a number of deals. It undoubtedly creates an additional layer of uncertainty for companies.

The first transaction caught by the EC’s change in approach is Illumina’s proposed acquisition of GRAIL. GRAIL is a cancer-testing start-up that has yet to make sales in the EU and so the deal does not qualify for notification at the EC level or in any EU Member State. Upon request by the EC, the French antitrust authority referred the merger to it on 9 March 2021, before the EC released its new guidance. The Highest Administrative Court in France subsequently ruled that it was not competent to hear the parties’ request for suspension of the authority’s decision. The court said that the referral cannot be severed from the EC’s analysis of the merger which then falls to the Court of Justice of the EU to review. And, with the Dutch antitrust authority (ACM) also supporting the referral, this month a Dutch court rejected the parties’ claim that the ACM is barred from referring the deal because it does not have jurisdiction to review it. Interestingly, the Dutch court considered the trigger for the start of the 15 working day deadline for a Member State to make a referral request: when the merger is “made known” to the Member State concerned. The court decided that the publication of a press release does not amount to sufficient information for the Member State to make a preliminary assessment as to whether it should refer – and so does not start the clock running. Belgium, Greece, Norway and Iceland also joined the French referral request.

On accepting the request on 20 April 2021, the EC noted that “a referral of this transaction is appropriate because GRAIL’s competitive significance is not reflected in its turnover, as notably evidenced by the USD 7.1 billion dollar deal value”. It has asked Illumina to notify the transaction, which now cannot be completed until approved by the EC. Illumina has appealed to the EU’s General Court asking for an annulment of the EC’s decision to assert jurisdiction under Article 22.

The deal is not only facing headwinds in the EU; the parties have offered to make a number of supply commitments to existing and potential new customers to address the U.S. Federal Trade Commission’s antitrust concerns after the agency challenged the takeover on 31 March 2021.

See our alert to find out more about the Article 22 referral guidance, as well as an EC consultation proposing simplification and streamlining options that could reduce the burden of EU merger control notification on merging parties.

US Supreme Court strikes down key Federal Trade Commission enforcement tool

The US Supreme Court has in AMG Capital Management v. FTC deprived the Federal Trade Commission (FTC) of the ability to pursue monetary relief directly through the federal courts, a key enforcement tool which has been deployed by the FTC for decades. The defendants had appealed the FTC’s injunction ordering them to pay USD1.27billion on grounds that the FTC Act only permits the FTC to seek non-monetary injunctions from the federal courts. The unanimous ruling was based on a textual analysis of the relevant legislation. The Supreme Court justices concluded that the FTC’s power to seek a “permanent injunction” through the federal courts does not extend to granting authority to obtain monetary relief through those courts, particularly as the FTC has explicit statutory powers to obtain monetary relief using a separate administrative procedure. In this alert we provide some further context and an assessment of the ruling’s likely implications for the FTC.

European Court opinion suggests subsidiaries could be liable for parent company antitrust infringements

In December 2019, the Provincial Court of Barcelona referred the following question to the European Court of Justice (ECJ): can the liability of a parent company for a breach of EU competition rules be extended to its subsidiaries under the “single economic unit” doctrine? The referral was made in the context of a follow-on damages claim brought in Spain by Sumal. The claim was dismissed at first instance because it was brought against Mercedes-Benz Trucks España (MBTE), whereas the European Commission’s 2016 infringement decision was addressed to the Daimler group (of which MBTE is a subsidiary).

In the Advocate General’s (AG) opinion, delivered this month, the AG concluded that the need for deterrence warrants the answer: potentially, yes. The AG based this conclusion on the “economic unit theory”, whereby both subsidiary and parent act jointly in the market notwithstanding a formal separation of their legal personalities. The AG considers that there is no logical reason not to apply the theory, widely used to establish “bottom-up” liability (whereby parent companies can be liable for the anti-competitive behaviour of subsidiaries), also in a “top-down” manner (establishing liability of subsidiaries for anti-competitive behaviour of parent companies).

However, the AG recommended that certain conditions should be met before top-down joint liability can be established. First, the parent company must have decisive influence over the subsidiary. Second, the subsidiary must operate in the same area in which the parent company’s anti-competitive conduct arose, and must have been able to give effect to the infringement through its conduct.

This opinion is not binding on the ECJ but, if followed, could potentially lead to claimants having greater choice regarding where and against which entity they bring their claim.

Stricter information requirements for foreign investors under the EU FDI Regulation

With six months’ operational experience of the EU foreign investment screening framework (EU FDI Regulation) under its belt, the European Commission (EC) has published a template notification form for Member States to use to compile information about foreign direct investments in their territory in the context of the cooperation mechanism under the EU FDI Regulation. The purpose of the form is to increase the quality of information which is shared among Member States and with the EC regarding those investments. Notably, the information requested in the template form is more comprehensive than the requirements set out in the EU FDI Regulation itself and many Member States’ current notification forms. See our alert about the additional types of information that will now need to be provided and the likely practical implications for foreign investors.

Consumer & Retail

Roland’s unsuccessful appeal against level of RPM fine results in UK court revoking its settlement discount

Roland has lost its appeal to the Competition Appeal Tribunal (CAT) regarding the level of the GBP4 million fine imposed by the UK Competition and Markets Authority (CMA) in June 2020 for its involvement in online resale price maintenance (RPM) in the sale of electronic drum kits (see our previous report on the CMA’s decision). Roland settled with the CMA, admitting the infringement and cooperating with the CMA’s investigation.

On appeal Roland argued that: (i) the CMA’s starting point for the fine overstated the seriousness of the RPM infringement and failed to take into account the very narrow coverage of RPM in the case, and (ii) the leniency discount (20% for most of the relevant period) was too low considering Roland’s early and continued cooperation.

The CAT dismissed both grounds of the appeal. It agreed that RPM is less serious than the most serious cartel infringements. However, with deterrence in mind, the CAT noted that the starting point of the fine should reflect the fact that RPM is still an inherently serious infringement that is widespread in the UK economy ‒ particularly the musical instrument sector ‒ and especially damaging for consumers when it takes place online. Regarding the leniency discount, the CAT attached weight to the CMA’s position that the input provided by Roland (after the CMA had collected evidence from other sources) had limited probative value.

Notably, the CAT went on to grant the CMA’s application to revoke Roland’s 20% settlement discount. The CMA had argued that the settlement procedure’s administrative savings could only properly be realised if the settlement would bring a final resolution to the case. Roland argued that the CMA still enjoyed the benefit of efficiencies, except in relation to the appeal, and that revoking the settlement discount would lead to the settlement procedure being used in a way that is coercive and shields the CMA from proper scrutiny. The CAT found that “there is no unfairness in holding Roland to its bargain”, which was voluntarily made. The CAT increased Roland’s fine by approximately GBP1m.

In light of this judgment, parties should be mindful that appealing an infringement decision or the level of fine imposed risks losing any settlement discount agreed with the CMA.

Digital & TMT

Record Chinese antitrust fine on Alibaba sheds light on future enforcement in the online sector

China’s State Administration for Market Regulation (SAMR) has fined Chinese e-commerce group Alibaba a record RMB18.228bn (USD2.8bn) for preventing merchants selling products on its online platform from dealing with rival platforms. The penalty constitutes 4% of Alibaba’s entire group revenue (including revenue generated from other non-retail platform business lines) in China in 2019.

The landmark abuse of dominance decision forms part of a trend of increased scrutiny of the online sector by SAMR and other Chinese authorities, as well as a recent surge in antitrust and merger control enforcement activity (SAMR has subsequently opened an investigation into suspected exclusivity practices by takeaway delivery and lifestyle services platform Meituan; also see for example our piece on recent gun-jumping fines). The precedent set out therefore provides useful insight into the way a more assertive SAMR will apply the antitrust rules in the sector going forward. In this alert we picked out five lessons that can be learnt from the decision: (i) the relevant market is defined; (ii) multiple factors feed into establishing dominance; (iii) exclusivity by a dominant player is abusive; (iv) innovation and openness are relevant considerations; and (v) SAMR is willing to impose high fines.

UK Digital Markets Unit begins ‘shadow’ work ‒ first up, relationships between platforms and content providers

This month the Competition and Markets Authority (CMA)’s Digital Markets Unit (DMU) started work in ‘shadow’ non-statutory form. We have previously reported on the background to the creation of the new unit, as well as its proposed scope and powers. These include the introduction and enforcement of a code of conduct governing the behaviour of digital platforms designated as having “strategic market status”, as well as powers to introduce “pro-competitive interventions”.

As legislation has not yet been passed granting the DMU its full powers, in the initial stages it will have no enforcement authority. In line with its terms of reference, it will instead start preparatory work for its role, including evidence gathering, engaging stakeholders, building teams and preparing draft guidance. Notably, the unit will also work with the UK’s communications regulator Ofcom on a potential code of conduct to govern the relationships between platforms and content providers, such as news publishers.

Daniel Gordon, a senior CMA official, has confirmed that there is already an active pipeline of cases involving digital companies, in addition to the CMA’s probes into Google’s ‘Privacy Sandbox’ browser changes and Apple’s App Store (our publication last month has the details), and that the intention is for the DMU to “hit the ground running” once the relevant powers come in. The UK Government plans to consult on the design of the new pro-competitive regulatory regime for digital markets in the first half of this year and legislate to put the DMU on a statutory footing “as soon as Parliamentary time allows”. At the same time, proposals for new and revised rules for the digital sector elsewhere across the globe also gather pace, notably the EU’s Digital Markets Act (see our Global antitrust enforcement report for more details) which will be led in the European Parliament by its internal market and consumer protection committee.

European Court of Justice’s Slovak Telekom abuse of dominance ruling clarifies scope of refusal to supply analysis

Towards the end of last month, the European Court of Justice (ECJ) dismissed appeals by Slovak Telekom and its parent company Deutsche Telekom, upholding penalties of EUR38m and EUR19m respectively. They had challenged a General Court judgment that largely upheld a 2014 European Commission (EC) decision that Slovak Telekom had abused its dominant position on the Slovak market for broadband internet services in connection with the terms and conditions under which it offered unbundled access to its local loop in Slovakia.

The ECJ’s judgment is interesting for what it says the EC had to prove. The appellants argued that, when assessing whether a practice was abusive, the “indispensability” condition contained in the ECJ’s 1998 Oscar Bronner judgment should be demonstrated (ie that for potential competitors of the dominant undertaking there is no actual or potential substitute for its infrastructure). But the ECJ disagreed that this higher essential facilities threshold was relevant. It ruled that the condition only applies in a scenario where a dominant undertaking refuses to make infrastructure which it owns available to one or more competing undertakings.

In this case, access was mandated under the EU regulatory framework and so Slovak Telekom did not technically refuse unbundled access to the local loop which it owned. Instead, it imposed unfair conditions on undertakings wishing to access it. And, according to the ECJ, disputes over the terms and conditions for access do not equate to a simple refusal to allow a rival access. In short, the bar for the EC to prove abuse is lower where there is no outright refusal to supply.

For Slovak Telekom, this was the second ECJ ruling against it within a month. In February, the ECJ concluded that the company could be sanctioned for abuse of dominance on certain Slovakian telecoms markets by the Slovak authorities despite being penalised by the EC as the proceedings relate to different types of telecoms services.

European Commission issues Statement of Objections against Apple in music streaming investigation

The European Commission (EC) has issued a Statement of Objections against Apple in its investigation into the terms and conditions which govern the use of the App Store by music streaming apps. The EC has preliminarily raised concerns regarding two rules which are imposed on music streaming app developers: (i) the mandatory use of Apple’s in-app purchase system and (ii) restrictions against app developers informing users of alternative purchase possibilities outside of the app. The EC’s preliminary view is that these rules raise costs for music streaming app developers which compete against Apple Music, and that these higher costs are passed onto consumers who purchase in-app music subscriptions on iOS devices. The investigation was opened in June 2020 following a complaint from Spotify. Please see the following statement from the EC for more information about the Statement of Objections. The EC is separately investigating Apple in relation to Apple Pay.

Life Sciences

Europe’s top court provides guidance on patent settlements and competition law

Last month, we reported briefly on the European Court of Justice (ECJ) upholding the fines imposed by the European Commission (EC) on Lundbeck and generic manufacturers for agreeing to delay the entry of a generic antidepressant.

The ECJ’s judgment refines its framework for assessing pay-for-delay cases. In particular, it clarifies the legal tests for establishing: (i) whether companies are potential competitors, meaning that the settlement agreement must be assessed under competition law; and (ii) when a settlement agreement constitutes a restriction of competition “by object”, meaning that actual anti-competitive effects do not need to be proved. It sets a high bar for pharmaceutical companies to show that pay-for-delay agreements do not fall under competition law, but also makes clear that not all pay-for-delay settlements are anti-competitive by object.

The judgment also introduces a new duty of care for undertakings to preserve evidence where they are active in a sector undergoing a sector inquiry. This aspect of the ruling has a broad significance beyond the pharmaceutical sector and, given the number of antitrust inquiries launched around the world, will be especially relevant to technology companies.

You can now read our more detailed commentary on the Lundbeck judgment, including its practical implications, here.

You can also find out more about the EC’s novel abuse of dominance allegations against Teva (also reported on last month) ‒ patent procedure misuse and exclusionary disparagement of rival products ‒ in this commentary. The article takes a closer look at the EC’s allegations, supplements publicly available facts on the case, explains the context of the probe and provides some key takeaways.

A&O antitrust team in publication

Recent publications by members of our global team include:

Spotlight on Emre

A typical working day in Istanbul involves… a cross-continental journey (when I don’t work from home) because I live in the Asian side and our office is located in the European side.

If I hadn’t become an antitrust lawyer, I would be… an astronaut! I used to say I would be either an antitrust lawyer or an astronaut, when I was six years old. I am sticking to my previous statement for the sake of consistency.

The best career advice I’ve been given is… from a (senior) colleague who told me to always keep human relations as my top priority.

The most interesting case I’ve worked on is… a cartel and a merger control (Phase II) case that ran in parallel and involved the same parties (because the parties decided to merge during a cartel investigation!).

For me, being a good lawyer/advisor means… having in-depth and up-to-date technical knowledge on your area of expertise and the ability to adapt yourself to the needs of the client and its business - there is no one-size-fits-all approach, you need to be pragmatic and flexible.

Something I’d like to do but haven’t yet done is… bungee-jumping.

My ideal weekend in two sentences… go somewhere near to Istanbul with my wife and daughter for winter camping or swimming (depending on the season, obviously).

My typical weekend in two sentences… continue to work, take care of the household stuff, play Sylvanians or Barbie with my six-year-old daughter, have a movie night with my wife (which is definitely a luxury when you have a six-year-old and a busy work life).

Something that might surprise you about me is… I don’t have long hair and beard as in my photo anymore!

My top tip for visitors to Istanbul (when we can travel again) is… to visit not only the popular touristic places but also the old neighbourhoods (such as Fatih/Beyazıt, Nişantaşı/Bağdat, Kadıköy/Moda) where you will be amazed to experience different cultures in such short distances as well as their impact on daily life.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen & Overy LLP | Attorney Advertising

Written by:

Allen & Overy LLP
Contact
more
less

Allen & Overy LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.