EU & Competition Law Update – May 2016

The beginning of the end for national TV boundaries?

On 22 April 2016, the European Commission ("EC") invited industry comment on the commitments proposed by Paramount Pictures International Limited ("Paramount") in response to concerns raised by the EC. The EC's concerns were that many of its contractual clauses in licensing agreements with Sky UK Limited ("Sky") concerning cross-border access to pay-TV content may contravene Article 101 of the Treaty on the Functioning of the European Union ("TFEU").

The EC published a Statement of Objections on 27 July 2015 which highlights the potential for the clauses to "prohibit or limit Sky from making its retail pay-TV services available in response to unsolicited requests from consumers residing or located in the EEA but outside the United Kingdom and the Republic of Ireland, and/or require Paramount to prohibit or limit broadcasters located within the EEA but outside the United Kingdom and the Republic of Ireland from making their retail pay-TV services available in response to unsolicited requests from consumers residing or located in the United Kingdom and the Republic of Ireland".

In summary, the EC were concerned that the clauses may grant Sky "absolute territorial exclusivity" and therefore restrict cross-border competition by creating barriers on how television is bought and sold within the EU.

In response to the EC's concerns, and in an attempt to avoid penalties for violations of EU antitrust rules, Paramount has offered formal five-year binding commitments including (among other things) to refrain from entering into, renewing or extending any contractual obligations which have the effect of preventing or limiting a broadcaster from responding to unsolicited requests in the manner specified in the Objections. (Click here for a full copy of the proposed commitments.)

The EC has the power, under Article 9 of Council Regulation 1/2003, to accept the commitments after having opened up its competition concerns and Paramount's proposed commitments for third party comment for a period of one month.

This is another example of the EC's continued efforts to eliminate "geo-blocking" (geographical restrictions on access to online content) and to promote the Digital Single Market in the EU. Alongside the Paramount commitments, the EU Commission's case is continuing against 5 other major Hollywood studios, who were also addressed as part of the same July 2015 Statement of Objections that concerned Paramount. Those objections remain outstanding and no doubt the other recipients are waiting to see if the Paramount commitments will be readily accepted.

If US movie studios (and in turn producers of hit US TV shows) are forced to end territorial restrictions between EU Member States, it would represent a sea change in the market. Whether it will lead to consumers shopping across borders for their TV content remains to be seen. Whilst satellite broadcast is one issue, content is increasingly moving online, meaning cross-border purchasing is becoming easier. However, would a UK consumer really soon be purchasing their monthly TV and movie programming from Romania? There is the likelihood that language barriers will remain perhaps the biggest obstacle to consumers, even if legal barriers continue to be eroded. There is also of course the possible response from US studios who could simply license to broadcasters at a standardised cross-EU price, meaning cross-border prices will remain largely similar.

German Federal Cartel Office continues to move against online retail restrictions     

Last week, the German Federal Cartell Office ("FCO") published the written reasoning of its decision dated 27 August 2015, in which the FCO found the distribution agreements on online-marketing between Asics and its authorized retailers to be partly unlawful under Competition Law Regulations.

Affected by this decision were provisions of the distribution agreements, which prohibited authorized retailers from using price comparison engines for their online presence and from using ASICS brand names on the websites of third parties to guide customers to their own online shops (click here for the full BryanCave Competition Law blog-report). Furthermore, the FCO also found the prohibition of the use of third-party marketplaces to be anti-competitive under Art. 101 TFEU.

In its written decision, the FCO now gives a detailed reasoning on its legal opinion. Although the decision is appealed by ASICS' and therefore not final yet, it provides valuable guidelines concerning remaining options for market players to design distribution agreements in order to protect their economic interests.

Even though the legal approach of the FCO can be seen as relatively strict, the authority also recognises that market restrictions can be justified by the legitimate interests of the manufacturers of brand products. Although the respective conditions were not fulfilled in the case at hand, the FCO gives examples of what can serve as justification for market restricting distribution agreements under the Block Exemption Regulation for Vertical Agreements.

  • Trademark law aspects are generally fit to justify restrictions on the distribution of branded products. These restrictions, however, have to meet the requirements of necessity and proportionality. Therefore, a brand manufacturer for example is within his rights when setting out in the distribution agreement how the respective brand name can be used on third-party websites. A total prohibition of such use of the brand name on the other hand is deemed to be disproportionate by the FCO.
  • Distribution restrictions can be justified if they are necessary to protect the brand image. This in general allows brand manufacturers to set out specific rules regulating the distribution of the brand products by the authorized retailers. Nonetheless, in the opinion of the FCO this legitimate interest does not cover provisions which prohibit the usage of the brand name and the support of price comparing engines totally. Therefore, distribution agreements should ensure a minimum protection of the retailers' interests in order to be in accordance with the requirements of competition law.

It remains to be seen whether the Courts will follow the legal opinion of the FCO or if they will come to a different conclusion. For the time being, market players should pay close attention to the criteria established by the FCO, in order to use the scope provided by the decision and to ensure their respective distribution agreements comply with (European) Competition Law.

The 'Uberisation' of french taxis?    

French Taxi drivers have been complaining that private chauffeured car services (known as VTCs in France) such as Uber have hit their business unfairly since their launch.

In October 2014, French lawmakers introduced a law (dubbed "Loi Thévenoud") largely in favour of taxis.

Acknowledging that the right to accept customers without prior reservation is exclusively limited to licensed taxi drivers, the Thévenoud law banned VTCs from using GPS technology to display the locations of cars to potential customers and required that VTCs return to their place of dispatch between fares if they are not booked by a client for a ride.

It follows that it is impossible to hail a VTC. Moreover, the Thévenoud law instituted an electronic service called "" for those taxi drivers wishing to display their real-time location to potential customers. This publicly-funded service may be accessed by customers through a number of approved mobile applications.

The Decree (décret n°2016-335) setting out the rules according to which this service may operate was published on 21 March 2016. The French Competition Authority, which was consulted prior to the publication of the decree, issued a favorable opinion with a few stipulations, the most important of which are listed below:

  • the area of GPS localisation must be limited;
  • the service must identify all those taxis drivers that registered to join the service, without the possibility to exclude some taxi companies (the only filters available to customers must relate to options such as the number of passengers, available payment options, baby seat options, etc.);
  • taxi drivers must be prohibited from declining to take a passenger on board;
  • taxis drivers must be barred from charging customers until they are physically picked up.

The overarching idea is for this electronic service to be a close reflection of physical hailing. The introduction of this new service — soon to be available throughout France — is an unprecedented effort to fend off the competition brought about by VTCs by providing taxi drivers popular modern electronic tools similar to those used by VTCs. Customers using this new service will even be able to rate their taxi drivers!

Internet marketplaces trump selective distribution contracts    

Since the landmark ruling of the ECJ in the Pierre Fabre case (C.439/09 October 13, 2011), imposing a blanket prohibition on selling via internet in a selective distribution network constitutes a prohibited restriction of competition.

A recent French decision of the Paris Court of Appeal dated February 2nd 2016 (n°15/01542) has likely broadened the scope of this restriction.

In November 2014, the Caudalie cosmetics company applied for an injunction against the "" marketplace platform to compel it to cease selling Caudalie personal care and beauty products via their on-line website. This was on the grounds that was not an approved distributor of Caudalie and that those pharmacies which were approved Caudalie distributors were authorized to sell on-line only via their own internet sites, as opposed to via an on-line marketplace. The injunction sought was granted by the Paris Commercial Court in December 2014, which considered that the activity of was in violation of the selective distribution system of Caudalie and thus was "manifestly illicit".

The online pharmacist marketplace lodged an appeal, citing inter alia the pronouncements of the French Competition Authority in the Samsung and Adidas cases (see our previous December 2015 Bulletin: "Sporting goods company bends the knee on marketplace distribution") as well as the recent case law of the German Competition Authority, in favor of on-line marketplaces.

Given the current trend to liberalize online marketplace distribution, the Court of Appeal concluded that the Paris Commercial Court was wrong to have issued the injunction on the grounds that's activities were "manifestly illicit", notwithstanding the fact that the online marketplace operated in violation of the terms of Caudalie's selective distribution contracts. Thus, even though the Court of Appeal was not ruling on the merits of the underlying case, it recognized implicitly the evolving jurisprudence whereby a blanket prohibition of internet marketplace sales may well be considered an illegal hardcore restraint of trade.

The Court's reasoning clearly goes further in the direction of limiting the possibility for suppliers using selective distribution networks to impose an outright ban on marketplace retailers carrying their products.

New notification thresholds for Italian mergers and acquisitions     

Section 16 (1) of Law No. 287 of 1990 provides for a prior notification system of all mergers and acquisitions to realize in Italy which fall within certain thresholds.

To help determine whether transactions must be notified, the Italian Competition Authority ("ICA") annually publishes new merger control thresholds.

Therefore, this year, as of 14th March 2016, a concentration shall be notified to the ICA whether it meets the new cumulative conditions below:

  1. The aggregate turnover in Italy of all undertakings involved exceeds €495 million instead of €492 million,
  2. The aggregate domestic turnover of the target undertaking is above €50 million instead of €49.

In our view, as pointed out in our previous articles the thresholds increase follows the rationale underpinning an earlier reform, effective from 1st January 2013, which made the thresholds cumulative rather than alternative.

This in order to reduce the number of merger notifications in Italy. The aim was to allow the ICA to focus only on merger cases which are more likely to reduce competition on the market at issue.

Unsanitary — Punishment for sanitary sector companies for illegal price fixing     

The German Federal Cartel Office (Bundeskartellamt/FCO) has imposed fines totaling amount of EUR 21.3 million against nine cartel companies in the air conditioning, heating and sanitary sector, due to restrictive agreements.

The companies that were part of the "Mittelstandskreis Nordrhein-Westfalen", a circle of small and medium enterprises, were accused of "fixing" the calculations of their gross price lists and their sale prices. The investigation on the matter ran for several years.

According to the FCO, the respective companies met four times a year in order to discuss gross prices, purchasing conditions, discounts and other current developments in the sector. According to the FCO, the companies involved had aligned their prices on the basis of the information exchanged. The competition between the companies has been significantly impaired, which resulted in generally higher prices for craftsmen and consumers.

The companies tried to defend by claiming that the respective meetings and price aligning effects of the information exchange between the companies were known and accepted by the cartel-authorities since the 1970s. However, this was justified historically by the fact that at that time small and medium enterprises did not have the technical means to issue their own price calculations for a large number of products. Now, this technical justification was no longer accepted by the FCO, as under the developments of computing, smaller companies can process large numbers of price and product data for low cost.

The FCO took into consideration the fact that the companies are in competition with much larger market participants and chose to mitigate the fine. In addition, all of the companies had cooperated with the investigation of the cartel by the FCO so that all procedures were eventually terminated by mutual agreement.

The Italian Competition Authority imposes a €66 million fine into the selling of “Serie A” Football

As previously mentioned in our articles, on 13th May 2015, the Italian Competition Authority (the "ICA"), opened an in-depth investigation into the market for media rights to the Italian Premier League “Serie A”, for infringements of Article 101 TFEU, the prohibition of anti-competitive agreements.

The Italian entities involved into the investigation are: The association “Lega Nazionale Professionisti di Serie A” ("Lega") and the companies Infront Italy S.r.l. ("Infront"), Sky Italia S.r.l. ("Sky") and Reti Televisive Italiane S.p.A. ("RTI") along with its controlled company Mediaset Premium S.p.A. (the "Companies").

The background of the case is as follows:

The Lega — which is the association representing the football clubs participating to the “Serie A” — is entrusted by the Italian law with the task of the joint selling of the commercial rights of the “Serie A”.

The joint selling is advised by Infront and must be made through public tenders where different packages of rights are sold. In such a case the Lega and Infront set up three packages of rights ("A", "B", "D",). According to the outcome of the tender, Sky made the best offers for packages "A" and "B" while for package "D" there were no valid offers.

In this case, given the not valid offer for package D, the Lega had to start another tender, invalidating the awarding of packages "A" and "B".

In light of that, the media rights to the “Serie A” were awarded through an agreement among the abovementioned entities (included the Lega and Infront), according to which Sky would obtain the packages "A" and "D" while RTI the package "B" (the "Agreement").

On 20th April 2016, The ICA concluded its investigation and found the eventual Agreement and the disbanding of the tender process to be anti-competitive since it was a simple "snapshot" of the situation existing before the tender, impeding other competitors from entering the market of “Serie A” media rights and the other connected markets (pay-tv and commercials).

Therefore, the ICA held that the conduct raised serious issues regarding its compatibility with Article 101 TFEU and fined the Companies cumulatively €66 million.

Fast track competition procedure claims another scalp 

This case, being already the third since the new CAT Rules came into force on the 1 October 2015, is evidence that the new fast track procedure has been successful in encouraging claims against anti-competitive behaviour and providing smaller businesses with cheaper and quicker opportunities for access to justice.

On 12 April 2016, the UK Competition Appeal Tribunal ("CAT") listed a third case under its "fast-track" competition litigation procedure. As we previously reported, the procedure was designed to provide primarily small and medium sized enterprises with fast and effective relief from competition law infringements, and was introduced by Section 81 and Schedule 8 of the Consumer Rights Act 2015 (click here for the previous update).

The claim, filed on 4 April 2016, concerns the provision of online anti-money laundering ("AML") training for law firms, as well as additional online training which helps property lawyers to avoid mortgage fraud and other financial crime. These training services are offered by both the Claimant (Socrates Training Limited) and the Defendant (The Law Society of England and Wales).

The Defendant is the UK's independent professional body for solicitors and provides a variety of accreditation schemes which are recognised throughout England and Wales as a mark of expertise in specific areas of law. According to the details of the claim, the Defendant now requires that firms wishing to maintain their Conveyancing Quality Scheme (CQS) accreditation, must now purchase both types of above mentioned training directly from the Defendant.

The Claimant, a smaller online training provider, has now brought a claim for damages under section 47A of the Competition Act 1998 on the basis that the Law Society's requirement is anti-competitive and forecloses the Claimant from the market. Specifically, according to the Notice of Claim, "the Claimant alleges that the Defendant is dominant in the market for the provision of quality certification/accreditation services to conveyancing firms, and that the Defendant's insistence that firms must buy their AML, mortgage fraud or other financial crime training from itself rather than from the Claimant or any other provider, is an abuse of its dominant position, restricting competition in the downstream market for the provision of AML and financial crime training and causing loss to the Claimant."

Among other remedies, the Claimant is seeking damages in addition to an injunction restraining the Defendant from continuing to abuse its dominant position.

Judgment is expected in the case within six months unless the parties elect to settle the matter beforehand.

[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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