EU & Competition Law Update – June 2017

Hope for a Cleaner Brexit After ECJ Ruling

Selective Distribution Still (Sometimes) Alive and Well in France

Federal Public Procurement Tribunal Rejects AGES

The Italian Competition Authority Suspects an Agreement Between the Italian Banking Association and Italian Banks

The Competition and Markets Authority Bids Against Auction House Services Provider

Hope for a Cleaner Brexit After ECJ Ruling

In a ruling which is likely to have positive implications for a possible Brexit deal, the European Court of Justice (ECJ) on 16 May 2017 opened up the ability of the EU institutions to negotiate free trade agreements without the approval of individual Member State legislatures.

The case, which involved a Singapore-EU trade deal agreed some years ago but not yet ratified, is being seen as a blueprint for a way to get a future Brexit deal through the EU without the threat of a rogue national Parliament blocking the deal.

The ECJ ruling involved a power struggle between the EU Institutions of the EU Commission and EU Parliament on the one hand and the Member States (as represented in the Council of the European Union) on the other. The Council was arguing that the EU could not conclude the Singapore agreement without reference to the Member States because certain parts of the agreement fall within a competence shared between the EU and the Member States or within the exclusive competence of the Member States.

On 16 May 2017 the ECJ ruled that the trade agreement would need the support of both the individual Member States and the EU itself because it contained provisions relating to areas where competence was shared with Member States, those areas being non-direct foreign investment and the regime governing dispute settlement between investors and Member States.

The above ruling sets out a demarcation of the rights and competences of the EU and those of the Member States. As a corollary therefore, the ruling is seen as a precedent which would allow the EU alone to negotiate and approve a foreign trade deals as long as it does not include Member State competencies.

The whole Brexit process is haunted by the way an aggrieved national Parliament could hold the trading block and the UK to ransom over a future trade deal. This happened recently with the EU's agreement with Canada when a Belgium regional Parliament did precisely that. Therefore, this development is being seized upon as a possible way to get a more limited Brexit agreement through the EU, avoiding such a situation.

As well as trade/tariff issues, the other areas of EU-only competence mentioned by the ECJ included substantial areas such as provisions concerning IP, provisions targeting anti-competitive activity and access to the EU market for goods and services.

However, others argue that a Brexit agreement done in stages (to stop it being held hostage by aggrieved national parliaments) is not likely to find favour. An agreement to address the issues thrown up by many decades of integration will probably require a wide-ranging agreement which will inevitably involve the support and votes of the Member States.

Robert Bell, Head of EU & Competition Law at international law firm Bryan Cave, commented: "depending upon how the Brexit agreement is eventually structured, this Court ruling could have a beneficial effect on the approval of a future trade deal between the UK and the EU".

Nevertheless, a note of caution serves to dampen down such optimism: given that the UK has been a member of the Community for nearly 45 years the issues which need to be addressed in any future UK/EU deal place it in a league of their own.

The ECJ press release can be found here.

Selective Distribution Still (Sometimes) Alive and Well in France

On March 14, 2017, the Paris Court of Appeals heavily sanctioned internet marketplace Brandalley for having sold on its website perfumes whose brands belong to French cosmetics leader L'Oréal, despite Brandalley not being an authorized distributor.

This decision may come as a surprise as the same Court had just last year ruled in favor of internet marketplaces, including Brandalley, in cases where cosmetics owners Coty and Caudalie were found to have been unable to demonstrate the legality of their selective distribution networks (see our previous May and September 2016 Bulletins: "Internet marketplaces trump selective distribution contracts" and "Paris Court of Appeals pokes another hole in luxury selective distribution network").

However, the Paris Court of Appeals in L'Oréal used the same reasoning as before, but this time the selective distribution network was found to have met all the requirements to be considered lawful under EU Regulation 330/2010 on vertical agreements. According to well-established case law, it is for the supplier of the selective distribution network to prove its lawfulness. In this case, L'Oréal adduced all its French selective distribution contracts in evidence and was found to have proved that:

  1. Its perfume market share was less than 30%, based on studies carried out by NPD, an institute which the Court characterized as an authority recognized in the past by the French Competition Authority and the European Commission.
  2. The disputed provisions contained in its selective distribution agreements did not constitute "hard-core" restrictions on competition.

The Court found that the clauses which prevented the authorized distributors from selling the products to a distributor, intermediary, wholesaler or retailer within the EEA and EFTA which did not belong to the selective distribution network were valid as they constitute the very essence of a selective distribution network.

Brandalley also disputed a provision that prevented authorized distributors from actively marketing new products which had not yet been launched in France for the year following their launch in another Member State. According to the Court, this did not constitute a prohibited restriction either as it was justified expressly in the agreements by the necessity not to jeopardize the launch of a product in the event of staggered launches, the purpose of which was to test the product for a limited period of time in a particular area.

  1. Brandalley's allegations that L'Oréal’s selective network was not "water-tight", based on the facts that L’Oréal did not produce its distribution contracts with parties in other EU Member States and did not explain how it policed unsold stock remaining in the hands of former distributors, did not convince the Court that such network was not “water-tight”.

Thus, as Brandalley did not demonstrate that the L'Oréal products it proposed for sale on its website were obtained through the L'Oréal selective distribution network, Brandalley was found to have violated Article L. 442-6 of the French Commercial Code which, inter alia, holds liable a party who participates in the breach of the prohibition for distributors bound by a selective distribution agreement to sell outside the network.

Furthermore, Brandalley was found to have

  1. committed free-riding;
  2. harmed the brand image of the products;
  3. misled consumers by advertising price reductions whereas L'Oréal did not recommend retail prices to its distributors;
  4. committed acts of unfair competition.

The Paris Court of Appeals therefore ordered Brandalley to pay L'Oréal €500,000 in damages.

Decision: CA Paris 14 March 2017 no. 15/23991

Federal Public Procurement Tribunal Rejects AGES

The German Federal Public Procurement Tribunal recently rejected AGES Road Charging Services GmbH & Co. KG's (AGES) application for review of a decision, rendered by the Federal Ministry of Transport and Digital Infrastructure, denying its participation in the bidding procedure for Toll Collect GmbH, an operator of the German toll system for heavy goods.

Until now, shares of Toll Collect GmbH have been held by a consortium consisting of several European groups. However, the Transport Ministry intends to exercise a call-option to acquire shares held by the consortium by 1 September 2018, where shares will be awarded to the winner of the on-going invitation to tender.

AGES was not admitted to subsequent negotiations because it submitted a less than adequate reference, in comparison to other candidates, to the Transport Ministry. This reference required documentation that the candidates themselves or a third company nominated by the candidate already had experience with the productive operation of a toll system. AGES objected to the assessment conducted by the Transport Ministry and brought it before the Federal Public Procurement Tribunal at the German Federal Cartel Office (Bundeskartellamt — FCO). The FCO found no errors of law in the Transport Ministry's assessment and rejected the application for review.

According to the FCO, the fact that the contract with the current operator of the German toll system for heavy goods vehicles will expire in 2018 justified the Transport Ministry decision to make experience with the productive operation of toll systems a condition for possible candidates in order to be considered. On the basis of the criteria established by the Transport Ministry it was allowed to exclude AGES from participating in the next stage of the bidding competition. Furthermore, the FCO found no infringement on the Federation's part with respect to the award procedure and the exclusion of AGES itself.

In 2016, collected tolls for heavy goods vehicles on German highways amounted up to EUR 4.6 bn and are expected to rise, as the toll-free use of national roads will end on 30 June 2018. Analysts are of the opinion that this will further increase the already attractive revenues that operators are able to generate in the field of toll collecting. Thus, it will be interesting to see how AGES chooses to respond. AGES does reserve the right to file an immediate appeal against the decision at the Düsseldorf Higher Regional Court, if the appeal is made within two weeks.

The Italian Competition Authority Suspects an Agreement Between the Italian Banking Association and Italian Banks

On 28 April 2017 the Italian Competition Authority (the "ICA") concluded an investigation into the Italian Banking Association ("ABI") and certain other banks, including main market operators, and ascertained the execution of a confidential agreement aimed at establishing commercial strategies in relation to the new remuneration model of the "SEDA service".

This Agreement replaced the previous direct charge system of bills, named "RID". The system allows businesses and consumers to pay periodic charges (i.e. utility bills) directly through withdrawal from bank accounts. At present, the system includes a real payment method (called "SEDA DD") and an informative service addressed to and paid by billers (called "SEDA").

The ICA ascertained that, during the transition from the former RID system towards the new one, the agreement executed by ABI and the Accused Companies was an anti-competitive agreement, in contravention of Article 101 of the Treaty on the Functioning of the European Union.

However, with reference to the specific circumstances of this case, the ICA did not apply any fine on ABI and the accused companies, considering it a minor violation — also in light of the legal and economic context in which the conduct took place — and because during the investigation, the parties proposed an amendment to the system that halved the "SEDA service" total fees, providing businesses and consumers with a reduction in costs.

This decision is significant as it shows the importance the ICA places on the conduct of the parties during the investigation and its practical effect in the relevant market.

The Competition and Markets Authority Bids Against Auction House Services Provider

On 30 May 2017, the Competition and Markets Authority announced that it was consulting on proposals from an online bidding platform to change its practices, following its concerns that the platform was engaged in anti-competitive practices.

The CMA had accused ATG Media, the largest provider of live online bidding platforms in the UK, of carrying out practices which harmed its rivals in the online bidding platform market. These platforms are used by auction houses to allow people to bid online, whilst an auction is on-going.

The CMA's investigation is under both Chapters I&II of the Competition Act 1998, meaning it is scrutinizing the company both for anti-competitive agreements but also a possible abuse of dominance.

The CMA's specific concerns were that ATG Media were requiring exclusivity from its customers and was therefore preventing rivals from entering the market or competing effectively if already on it. Once an auction house was signed up, it also had a provision which stopped the auction houses' customers using a rival at lower cost, a so called most favoured nation or price parity clause. Lastly, it prevented the auction houses from advertising or promoting rival services to ATG Media.

However, rather than continue its investigation and possibly issue a fine, the CMA is consulting proposed commitments from ATG Media to address the concerns.

The last day when interested parties can comment on the proposals is 19 June 2017. A final decision from the CMA to close the investigation, re-negotiate or continue the investigation will be reached after that.

This development in the auction services market follows long-running investigations into similar price parity clauses in the hotel booking sector and the online car insurance comparison markets. The central themes in each case would be a platform in a dominant or powerful position on a market, insisting on price parity fees that were likely to raise prices for consumers. More industries and platforms will likely be investigated in the near future.

[View source.]

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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