EU & Competition Law Update - January 2016

European Union

Smartphone chip manufacturer accused of an abuse of dominance
On the 8th December 2015, Qualcomm, the world’s largest supplier of smartphone chipsets, was publicly accused by the European Commission of abusing its dominant position in the markets for 3G and 4G baseband chipsets. This move by the Commission is significant as it follows a well established formula of the EU Commission taking on high profile cases against major global technology firms and follows the opening of an investigation into Qualcomm in July this year. This has again sparked accusations that the Commission is targeting US firms in preference to their EU rivals.

The Commission announced that it sent Qualcomm statements of objections on two separate alleged abuses of dominance.

The first ground was the accusation that Qualcomm in 2011 had entered into an anti-competitive exclusivity agreement with one of the world’s largest smartphone and tablet manufacturers. The alleged terms of the agreement are that the said manufacturer would only use Qualcomm chipsets, and in return for this exclusivity, Qualcomm would pay the manufacturer for the privilege. The Commission believes this agreement is still in force. Such behaviour would not be anti-competitive for a non-dominant firm but as Qualcomm is dominant, if proved, this behaviour may amount to a breach of Article 102 of the TFEU, the prohibition against the abuse of dominance. This is because the exclusivity with the major manufacturer would harm competition by foreclosing a major market to competitors.

The second alleged breach of Article 102 is that between 2009 and 2011, Qualcomm forced its rival Icera out of the market by selling its own chipsets below cost. It is alleged that it was done at a time Icera was posing a threat to Qualcomm and that the pricing below cost was a targeted action to force Icera out of the market.

Qualcomm has 3 months to respond to the exclusivity payment allegation and 4 months to respond to the accusation of predatory pricing. If found liable by the Commission or if Qualcomm admits guilt, this could be the start of lengthy private litigation by some of the world’s largest technology companies who may feel they have been disadvantaged by the alleged behaviour.


Repeat Fine for Overcharging Business Clients
On 30 November 2015, the French Competition Authority (“FCA”) fined, yet again, the telecommunications company SFR, jointly with one of its subsidiaries, SRR, for having abused its dominant position in the overseas departments of La Réunion and Mayotte. SFR is one of the three major players in the French telecommunications field.

For the FCA, this is the end of a long prosecution journey. Initially alerted by SFR’s competitors Orange and Outremer Telecom, the FCA had imposed emergency measures on 17 September 2009 enjoining SFR to re-establish competition in those overseas regions. Following these measures, the FCA split the case on the merits against SFR into two: the first dealing with the practices in the residential market and the second with those in the business sector. On 13 June 2014, the FCA handed down a 46 million euro fine against SFR for having abused its dominant position in the residential market. We commented on the sanction applied to SFR for its price differentiation scheme in our July 2014 EU & Competition Bulletin.

As far as the business market was concerned, SFR has now also been found to have  implemented an excessive price differentiation between calls within its network (“on net calls”) and calls to competitors’ networks (“off net calls”). The FCA found that off net calls were sometimes charged 10 times more than their actual cost for SFR.

The FCA explained once more that pricing differentiation can in theory be perfectly acceptable, even for a company in a dominant position on a relevant market such as SFR, which at the time had a 60% market share in La Réunion and 80% in Mayotte. However it quoted from its 2009 injunction decision against SFR to clarify that such differentiations must be “objectively justified, particularly by differences in costs of the services” which was not the case here.

The FCA held that because of SFR’s pricing differentiation scheme, small and medium businesses (“SMEs”) had a very strong incentive to subscribe to SFR, which had the largest number of customers in both territories, enhancing what the FCA dubs a “club effect”. The damage to the economy was therefore particularly strong since almost all SMEs were affected. Moreover, the FCA concluded that the image of SFR’s competitors was damaged by making their offer seem more costly, and that it was nearly impossible for new market entrants to emerge in this context.

SFR was thus fined 10.7 million euros on 30 November 2015, taking into account both the seriousness of the damages but also a 10% reduction of the theoretical fine since SFR did not contest the reality of the facts.


German Federal Cartel Authority prohibits the “best price” clauses of
In December 2015 the Bundeskartellamt (German Federal Cartel Authority) decided to prohibit Deutschland GmbH from applying its “best price” clauses and ordered the hotel booking portal to delete the clauses from its contracts and general terms and conditions by 31 January 2016.

Under the clauses hotels were obliged to always offer their lowest room prices, maximum room capacity and best booking and cancellation conditions available on all online and offline booking channels (so called ‘wide’ best price clause). During the proceedings against the company had offered to introduce a modified 'best price' clause. Under this new clause allows the hotels to offer their rooms cheaper on other hotel booking portals but still prescribes that the prices which they offer on their own hotel websites may not be lower than on Booking's hotel portal (these are known as ‘narrow’ best price clause). The Bundeskartellamt ruled now that both types of clauses are inconsistent with German competition law.

Andreas Mundt, President of the Bundeskartellamt stated:  "These so-called narrow best price clauses also restrict both competition between the existing portals and competition between the hotels themselves. Firstly they infringe the hotels' freedom to set prices on their own online sales channels. There is little incentive for a hotel to reduce its prices on a hotel booking portal if at the same time it has to display higher prices for its own online sales. Secondly, it still makes the market entry of new platform providers considerably difficult. The 'best price' clauses barely provide an incentive for the hotels to offer their rooms on a new portal cheaper if they cannot implement these price reductions on their own websites as well. There is no apparent benefit for the consumer." can still appeal against the Bundeskartellamt's decision to the Düsseldorf Higher Regional Court and apply for interim relief against the immediate enforceability of the order.


Coming unstuck - Italian Competition Authority opens investigation into four leading cement companies
On 18th November 2015 the Italian Competition Authority (the “ICA”) opened an in-depth investigation into four Italian companies (the “Accused Companies”) operating in the market for the production and sale of cement. The companies have been accused of an alleged infringement of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”); the prohibition of anti-competitive agreements or concerted practices.

This is part of the ICA recent focus on cartel activity.  The investigation stemmed from a complaint filed in June by a company operating in the production and sale of concrete in the Italian Region of Piedmont.

Concrete is produced by using cement together with other ingredients and the complainant alleged that the Accused Companies had reached an anti-competitive agreement on the sale price of cement.  In particular, the complainant pointed out that the Accused Companies sent letters to it (and other customers), communicating the identical increase in price for the supply of cement as of the same date (15th June 2015). 

The ICA found that the simultaneous communications forwarded to all the customers of the Accused Companies -- entailing the identical increase in price in the same period -- may be considered as strong evidence of a coordinated strategy aimed at controlling the prices applied in the relevant downstream market (the concrete sector).

The ICA argued that the alleged anti-competitive strategy of the Accused Companies may also be demonstrated by the absence of an objective reason for such behaviour.

Therefore, the ICA held that the Accused Companies’ conduct could not be the result of true competition and independent commercial policies. Indeed, through this strategy the Accused Companies would sustain far lower costs which they would have borne by competing among them.

However, the alleged wrongdoing is not proven at this stage and the investigation continues.


Special Delivery! - French Competition Authority imposes heavy fines to package delivery companies
By decision dated 15 December 2015, the French Competition Authority (“FCA”) fined a group of package delivery companies EUR 670.9 Million for price-fixing.  The twenty companies concerned were found to have implemented a price-fixing agreement during a period from 2004 to 2010.

This anti-competitive practice aimed notably at coordinating price hikes in a concerted effort to distort and hinder competition.  For instance, in the course of their negotiations for the year 2006-2007, most participants in the price fixing scheme initially envisaged a price increase of about 5%, which eventually reached 7% after the participants had met. 

Typically, price fixing participants would secretly meet in discreet locations in order to exchange information.  What is most unusual in this instance is that the meetings took place during apparently routine workgroup sessions in the premises of the package delivery service trade union, which therefore played an active role in the running of the scheme when in fact it was among its professional duties to act as a competition watchdog.  The FCA therefore also issued a fine against the trade union.

The dismantlement of the cartel by the FCA was yet again the result of the leniency program, set out in the French Commercial Code, pursuant to which partial or total immunity may be granted to a company which comes forward to report an anti-competitive practice in which it took part.  The information given voluntarily by the whistleblowing companies is therefore exchanged for reduced fines.  In this particular instance, the anti-competitive practice was reported by two participant companies before the FCA even suspected any wrongdoing, which enabled both companies to avoid heavier fines.  However, the total immunity which could have been granted to the company which first reported the violations (Deutsche Bahn) was declined by the FCA due to failure by Deutsche Bahn to fully disclose all the meetings it attended.

When calculating the EUR 670.9 Million fine it issued, the FCA took into account the duration of the practices, their seriousness and the harm caused to the overall economy (the FCA considered package delivery services a key sector of the economy, amounting to about EUR 8.5 billion a year in turnover during the period under scrutiny) and in particular to those clients who are small and medium-sized enterprises, which, due to their inability to negotiate prices with package delivery companies, suffered most from the price hikes.  The FCA nevertheless took into consideration that six participant companies are undergoing financial difficulties and, accordingly, reduced the amount of theoretical fines for these companies by more than 90%.


The Italian Competition Authority opens an in-depth investigation in the smart metering sector
On 2nd December 2015, the Italian Competition Authority (the “ICA”) opened an in-depth investigation into Enel Distribuzione S.p.A. (also referred as “Enel” or the “Accused Company”) for alleged infringements of Article 102 Treaty on the Functioning of the European Union (“TFEU”), the prohibition against the abuse of dominance.

Enel is one of the companies of the state-owned Enel Group, operating in the market for the distribution of electrical energy in all the Italian territory.

The investigation started after a complaint filed with the ICA by the Italian company AEM Acotel Engineering and Manufacturing S.p.A. (also referred as “Acotel”), which reported that Enel would implement measures aimed at hindering Acotel’s commercial activity in the market of smart metering services.

Smart metering services measure the consumption of energy, giving more information than traditional devices, and transmitting data using an electronic means of communication.

Enel provides smart metering services too and is one of the most important competitors of Acotel in the relevant market. Further, Enel manufactures and distributes the electrical energy meters to monitor the consumption of electrical energy. 

The ICA feared that Enel could implement obstacles in order to drive Acotel out of the smart metering services market. 

First, the ICA’s investigation found that Enel could remove the Acotel electronic system from its electrical energy meters without a reasonable justification; secondly Enel would impede the physical access of Acotel’s devices to its energy meters and finally Enel would deny access to the technical information needed in certain circumstances for Acotel’s devices to work properly.

The ICA stressed that the Accused Company -- holding an alleged dominant position in the market of the distribution of the electrical energy (upstream market) -- may increase its economic power also on the related market of smart metering services through such conduct.    

Therefore, the ICA feared that Enel would abuse its dominant position by making it difficult for Acotel to operate into the downstream market of smart metering services, violating Article 102 of the TFEU.
At the time of writing the accusations mentioned above are unfounded and the investigation continues.

United Kingdom

CMA criticises TFL’s proposed new regulations for private hire vehicle companies
Earlier this month, the UK’s competition watchdog, the Competitions and Markets Authority (“CMA“), criticised Transport for London’s (“TFL“) proposed new rules for private hire vehicle companies, which would impose significant restrictions and burdens on companies such as Uber.

Since March 2015, TFL has been conducting a wide-ranging review into private hire vehicle regulations and entering into consultations. In its September 2015 Consultation paper, TFL lay down twenty-five suggested measures which seek to reform the rules concerning private hire operators, private hire drivers, private hire insurance, and private hire licensing. The paper comes largely in response to lobbying from more traditional minicab service operators, such as black cab drivers, who have continuously asserted that a lack of regulation is harmful to their business.

However, there is widespread concern that TFL’s suggestions would adversely affect consumers, business, and competition whilst also being contrary to public interest generally. Alex Chisholm (Chief Executive of the CMA) wrote in the Financial Times earlier this month that the proposals would “artificially restrict competition, curbing developments that benefit the paying passenger”. He opined that “new companies in every market will stand or fall on their ability to meet consumer demand – and those that succeed will, in turn, eventually be challenged by new business models. This is how innovation leads to progress. We do not serve the interests of the public or the wider economy if we slam on the brakes.”

Uber has managed to rally huge support with over 205,000 people signing an online petition opposing the plans. Some of the most highly criticized requirements are that:

  1. customers must wait a minimum of five minutes to be picked up;
  2. operators must not show vehicles available for booking on a map;
  3. operators must specify a fixed fare at the commencement of a journey;
  4. operators must input a fixed destination at the time the booking is made;
  5. operators must offer a facility for pre-booking a ride up to a week in advance;
  6. operators must provide a telephone line for passengers to access at all times;
  7. drivers must pass a geographical skills based assessment;
  8. drivers may only work for one operator at a time; and
  9. there must be controls imposed on ride sharing.

Uber has reacted by further widening its accessibility and availability to Londoners. Specifically; it has since introduced an ‘UberPool’ service which allows customers to split a journey with a co-rider for a cost reduced by 25%, and it has also created a “Ride Request” button which developers may add to their iOS or Android apps. Evidently, Uber is refusing to allow the proposed regulations to hinder its developing business model.

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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