Competition News November 2017

by Dentons
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Dentons

On October 18, 2017, the French Competition Authority penalized the three main producers of PVC and linoleum floor covering and their professional trade union (SFEC) with up to €302 million for the organization of a cartel whose severity, duration and degree of sophistication are remarkable. From a procedural perspective this decision is also significant, because it is the first settlement decision taken as part of a cartel since the entry into force of this procedure.

A particularly harmful cartel: The French Competition Authority recognized several anti-competitive practices between the three manufacturers relating to many aspects of the trade policy, including pricing. During secret meetings, the competitors discussed minimum price increases per floor covering category as well as dates for when such increases would take place. For 23 years, and through the use of dedicated telephone lines, these secret meetings also included the exchange of very sensitive and varied information (including exchanges on the salaries and bonuses of their employees). With the help of their professional trade union, these companies also signed a non-competition agreement according to which they were entitled to communicate the individual environmental performance of their products only through the use of collective records established by the trade union. A lot of sensitive trade information was also exchanged through the trade union.

Issues related to the settlement procedure: Given that the sanctions were imposed following the settlement procedure, the French Competition Authority is exempt from justifying these sanctions in light of the methodology defined in its Sanctions press release. The lack of transparency of the sanctions in this matter is strengthened by the presence of two leniency applications submitted after inspections and of seizures, of which the Authority gives no information (not even concerning the rank of the applicants) aside from the fact that the companies benefitted from “substantial” sanction reductions. Despite the accumulation of the transaction and leniency procedure, the sanctions seem nonetheless high: One of them represented half the company’s annual sales in France. The effective benefit of leniency applications after a seizure is therefore questionable. Furthermore, more transparency on the way in which a sanction is calculated and on the amount of the reduction actually obtained would be desirable in order to help companies wondering about effecting a compromise as well as to appreciate the profit more easily.

Finally, this decision was the opportunity for the French Competition Authority to announce the withdrawal, in particular in terms of cartel cases, of compliance programs as a factor for penalty reduction when the parties choose to effect a compromise, therefore bringing it in line with the practice of the European Commission. As such, the implementation of a compliance program becomes a prerequisite for the French Competition Authority, in particular when it concerns large companies. Could we go as far as to think that the absence of a compliance program could incite the Competition Authority to increase the penalty in the future?

The General Court of the European Union confirms the validity of the selective repair systems of Swiss watch manufacturers

On October 23, the General Court of the European Union confirmed the decision of the European Commission which considered that the selective repair systems of Swiss watch manufacturers complied with competition law. The European Confederation of Watch and Clock Repairers' Association (CEAHR) filed a complaint with the Commission against several Swiss watch manufacturers because the latter refused to continue to provide independent repairers (therefore outside the selective repair network) with replacement parts. The CEAHR put in question the legality of these selective repair systems both with regard to the rules of anticompetitive agreements and concerning the abuse of a dominant power position stemming from the refusal to provide parts to uncertified repairers. To justify the legality of these selective repair systems with regard to the rules of anticompetitive agreements, the Court took action by analogy with selective distribution systems. While the prestigious image of the products is not sufficient as such to justify the need for a selective distribution, such a need can be explained by the objective to maintain the quality of the products and their proper use and takes into account the complexity, high quality and counterfeiting risk of these products. It is therefore possible for the manufacturers to refuse to supply repairers outside the network with replacement pieces as long as the selection criteria of the repairers wishing to join the selective repair system be objective, non-discriminatory and proportionate.

Secondly, the Court confirmed that the abuse of a dominant position stemming from a refusal to supply cannot result from the sole alleged absence of objective justification of this refusal but necessarily implies the assessment of a risk that the competition on the market be eliminated. Furthermore, the Court supports the Commission in considering that the validity of a selective system could be an indication of the low probability that all competition be eliminated. Lastly, the Court supports the factual analysis of the competitive position of the market according to which all actual competition was not eliminated in the case at hand: The repairers could carry out services for several brands, and the selective repair systems were open to new authorized repairers, as the Commission was able to note with the arrival of independent repairers in these networks during the investigation.

The General Court of the European Union confirms the €20 million sanction against Marine Harvest for gun jumping

On 26 October 2017, the General Court of the European Union confirmed the Commission’s decision to fine Marine Harvest for having taken control of a company before receiving authorization thereto. Marine Harvest acquired a 48.5% holding in Morpol but only notified its takeover when it launched the takeover bid on the remaining shares.

The Court confirmed that the purchase of 48.5% of the shares in Morpol led to an actual exclusive control by its competitor. Given the attendance rate of the shareholders to the previous meetings and the scattering of the rest of Morpol’s share capital, the Court noted that the transferor of the controlling stake systematically represented a majority of the votes at general meetings.

By acquiring the same rights and therefore the same possibility to exert a determining influence on Morpol, Marine Harvest thus acquired the exclusive control of its competitor in 2012. Regardless of whether the latter did not exercise its voting rights before the Commission’s authorization, no statutory provision prevented it from doing so.

The Court also did not lower the amount of the sanction: The Commission was right to conclude that Marine Harvest had been negligent given that it is a large European company up to date with merger control procedures and which could have consulted the Commission before purchasing the block of shares. Companies acquiring minority controlling shares have been warned…

 

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.

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