EU & Competition Law Update – October 2017

by Bryan Cave

When is a private company considered a public body and subject to the EU procurement rules?

Passive Websites Potentially Liable if Accessible

German Federal Cartel Office gains new role in consumer protection

The Italian Competition Authority Opens In-depth Investigation into the Television Broadcasting Rights of Football Matches

UK Competition Authority Warns Creative Sector about Price Fixing and Information Sharing 

When is a private company considered a public body and subject to the EU procurement rules?

A recent European Court of Justice (“ECJ”) case has thrown up a novel legal issue which will be of interest to all public authorities which have established private companies. 

The case itself is a judgement of 5 October 2017, following a request for a preliminary ruling from a regional court in Lithuania to the ECJ. The question submitted was essentially should a private company established by the Lithuanian state railway company, which independently carried out business in the private sector (in this case that business being providing rolling stock repair services to the state railway company) be considered a contracting authority. 

The ECJ was also asked this question on the basis that less than 10% of the revenue from the subsidiary came from its services to the state railway? The question for the court was whether under Article 1(9) of Directive 2004/18, the subsidiary was a contracting authority, within the meaning of the Directive, in both these scenarios.

The ECJ considered the proper question for itself in light of the Directive was whether the subsidiary constituted a "body established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character”, as specified by Article 1(9) of Directive 2004/18. 

After examination, the ECJ considered that the subsidiary may well be a contracting authority, though the facts in this case were for the referring Lithuanian court to decide. The basis of its reasoning was that the evidence suggested that its service to the state railway was the main reason the subsidiary had been created, even though revenues now came primarily from other sources. Therefore its founding aim had not been the accruement of profits but rather the provision of a service to the state railway, another contracting authority. Therefore the second question as to the 90%/10% split of profits was irrelevant in consideration of whether the company was a public body or not, the only important consideration was the intention at foundation of the subsidiary.

Contracting authorities should bear this case in mind when forming subsidiaries, particularly if they do not wish for them to se subject to the EU rules governing contracting authorities such as for procurement. They should be particularly careful as to the aims of the subsidiaries. If the subsidiary in question was formed purely for purposes of independent profit and to compete on the open market, and then perhaps later won business from the contracting authority through competitive bidding, the answer from the ECJ may well have been different. 

LitSpecMet UAB v Vilniaus Iokomotyvu remonto depas UAB and another [2017] EUECJ C-567/15 (5 October 2017).

Passive Websites Potentially Liable if Accessible

[co-author: Emmanuelle Mercier]

On 5 July 5 2017, the French Supreme Court drew the consequences from the decision of the ECJ rendered on 21 December 2016 relating to the jurisdiction of a Member State to rule on the infringement by websites operated in other Member States of a prohibition on resale outside a selective distribution network.

The ECJ’s decision followed a request from the French Supreme Court for a preliminary ruling in the case involving Concurrence, a French retailer of consumer electronics products based in Paris which had entered into a selective distribution agreement with Samsung for the distribution of Samsung’s high-end range called “Elites” (see our EU Competition Newsletter of February 2017. Despite the prohibition in the distribution agreement to sell the Elites products online, Concurrence put them on sale on its website. As a result, Samsung terminated the selective distribution agreement for infringement of the prohibition on resale outside the selective distribution network.

In return, Concurrence challenged the validity of that prohibition and sued Samsung before the Commercial Courts in summary proceedings, joining in such proceedings Amazon, a company incorporated under the laws of Luxemburg, which sold the Elites products on its French, German, English, Spanish and Italian websites despite the same contractual prohibition to do so. Concurrence argued that it could lose profit due to the offers made by Amazon on its various websites, all of which were accessible from France, thus diverting customers away from Concurrence.

In the first instance judgement and on appeal, the French Courts ruled that they did not have jurisdiction to rule regarding the Amazon websites operated outside of France as such sites did not specifically target French consumers. Concurrence then lodged an appeal to the French Supreme Court, which referred the question to the ECJ.

The decision was awaited as it was the first time that the ECJ had to rule on an action brought for an injunction to stop an illegal behaviour, rather than on the indemnification of a damage that had already occurred.

The ECJ reminded that when the place where the damage occurred and the place of the event giving rise to it differ, the defendant may be sued, at the option of the plaintiff, in the courts of either of those places.

Then, the ECJ reminded that the likelihood of a damage occurring in a particular Member State is subject to the condition that the right whose infringement is alleged is protected in that Member State. The ECJ pointed out that this was the case in France where Article L. 442-6 I) 6° of the French Commercial Code holds liable the party involved in the infringement of the prohibition on resale outside a selective distribution network.

Therefore, the ECJ acknowledged the jurisdiction of the French Courts in this matter under Article 5.3 of the EU Regulation.

Thus, the French Supreme Court followed the ECJ’s rationale and ruled that the fact that the websites on which the offers for the products covered by the selective distribution appear are operated from Member States other than the State of the court seized is irrelevant, as long as the events which occurred in those Member States resulted in or may result in the alleged damage in the jurisdiction, i.e. in this case, the reduction in the volume of Concurrence’s sales resulting from Amazon’s sales made in breach of the conditions of the selective network.

The Supreme Court therefore remanded the case to the Paris Court of Appeal, composed of different magistrates, to rule on the injunction relief sought by Concurrence against the German, UK, Spanish and Italian sites.

Decision: French Supreme Court Commercial Section, July 5, 2017, decision no. 14-16737

German Federal Cartel Office gains new role in consumer protection

Effective 8 June 2017, the 9th Amendment to the German Act against Restraints of Competition delegated more competences and ways to investigate to the Bundeskartellamt (German Federal Cartel Office - FCO) with respect to consumer protection, affecting especially retail businesses and digital markets.

Since its founding in 1958, the FCO was called upon when talking mergers, cartels or competition regulation in general. Although its decisions could be challenged in court, it was the first arbiter to approve or prohibit mergers or certain conduct and to issue fines or regulatory requirements in the German market.

From now on, the FCO can also initiate sector inquiries upon reasonable suspicion with regards to serious or persistent violations of German consumer protection acts, such as the Act against Unfair Competition or the rules on general terms and conditions.

Such sector inquiries are not supposed to target a certain company in particular but to extensively inspect the conditions of a specific market. Henceforth, sector inquiries can be initiated provided that there is reason to suspect severe consumer law infringements affecting a large number of consumers. In the past, sector inquiries have proven to be an effective tool to detect unfair market restrictions in several sectors such as the petrol station market, the dairy industry and others. Now, this tool is meant to be put to use also in the field of consumer protection.

Although the FCO is not entitled to prosecute consumer law infringements by particular companies and impose respective fines, the sector inquiry is more than just the toothless tiger it may seem at first glance. The FCO has pledged that it will closely work with private consumer protection organisations, which are an important pillar of consumer law enforcement in Germany and every year bring a profound number of consumer law cases to German courts and initiate even more out-of-court proceedings to resolve consumer law violations. It is to be expected that consumer protection organisations will gladly use the expertise of the FCO in order to intensify the enforcement of compensation claims and injunctive reliefs against commercial goods and service providers.

As a result of the new competences of the FCO, retailers and online businesses should keep a closer eye on their compliance with German and EU consumer law. Our multilingual team of highly qualified lawyers brings a broad expertise in the field of competition & consumer law compliance and is able to provide seamless European-wide legal advice coupled with a local knowledge of markets and corporate cultures.

The Italian Competition Authority Opens In-depth Investigation into the Television Broadcasting Rights of Football Matches

The Italian Competition Authority (“ICA”) opened an in-depth investigation into the companies MP Silva S.r.l., IMG Media UK Limited and B4 Italia S.r.l. (respectively “MP Silva”, “IMG” and “B4” and, jointly, the “Accused Companies”), operating in the television broadcasting rights of football matches.

The ICA found that the alleged anti-competitive behaviour lasted at least six years from 2009 to 2015 and consisted of sharing profits deriving from the assignment of foreign television broadcasting rights of football matches after winning tenders held from time to time by Lega Professionisti Serie A (“Lega”). Indeed, the Accused Companies would agree upon the bids and determine a geographic division referring to the distribution of such broadcasting rights.

The alleged collusion among the Accused Companies would be aimed at altering Lega’s tender results in order to share profits stemming from the sale of them in other countries and decide the geographical areas of distribution.

In light of the above, the ICA alleges that the aforementioned conduct would amount to an infringement of Section 101 of the Treaty on the Functioning of the European Union. However, the alleged anti-competitive behaviour has yet to be proven at this stage and the investigation continues.

UK Competition Authority Warns Creative Sector about Price Fixing and Information Sharing

On 12th September 2017 the UK Competition Authority, the Competition and Markets Authority ("CMA") sent an open letter to businesses in the creative industries sector warning them about price fixing and information sharing emphasising that this type of illegal behaviour will not be tolerated.

The CMA's experience derived from a recent cartel case and research into the creative sector. This showed that while the creative sector is an important and rapidly growing part of the UK economy estimated to be worth some £84.1 billion, many businesses in that sector have a particularly low understanding of competition law. Over 50% of creative firms surveyed by the CMA stated that they didn't know competition law well, if at all. This puts them at risk of not recognising if they or third parties with whom they have dealings with are breaking the law.

Warning Letters

The CMA has developed a practice of sending warning and advisory letters to businesses when it is concerned that their business practices could be harming competition in their market sector and to encourage them to comply with the law.

The regulator usually becomes aware of offending business practices through market intelligence sources or through past cases in a particular industry or complaints by third parties or application for leniency by others engaged in cartel type behaviour. The CMA hopes that by sending out these letters recipients will be spurred into carrying out a self-assessment of their business practices to ensure they are in compliance with their legal duties.

As companies will know, the consequences of infringing competition law can be serious and far-reaching:

  • businesses can be fined up to 10% of their annual turnover
  • company directors can be disqualified from managing a company for up to 15 years
  • people involved in cartels can face up to 5 years in prison

The CMA has decided that now is an appropriate time to issue these letters in advance of London Fashion Week.

The text of the letter highlights a recent case where five model agencies and their trade association were fined over £1.5 million for colluding with each other about the levels of prices they charged for modelling services rather than actively competing. The CMA found that the model agencies regularly and systematically exchanged confidential and commercially sensitive information and discussed prices in the context of negotiations with particular customers. In some cases, they agreed to fix minimum prices or agreed a common approach to pricing.

In the letter the CMA expressly refers to an email that was uncovered during the case. The email to a prospective member describes how the trade association could be used as "a good source for sharing information between members; problem clients, usage of models' images on social media etc..." In reality the purpose of the trade association was to share confidential and commercially sensitive information to get members to agree minimum prices and to resist prices offered by customers which they regarded as too low.

Competition Compliance Should be a Priority

The CMA is particularly concerned about the low level of competition law awareness in the creative sector and it hopes its warning letter will be taken seriously by the industry to address its competition concerns.

In announcing the publication of the CMA’s warning letter, Stephen Blake, Senior Director, Cartels and Criminal Group at the CMA stated: 

"The creative industries are incredibly important to the UK economy. We have some of the best creative talent in the world, and we recognise the valuable contribution these individuals make. Because of this, it's also vital that businesses in the creative sector know that certain behaviour is illegal under UK competition law. The consequences can be serious. As we approach London Fashion Week when the spotlight is on the fashion industry, we are publishing an open letter urging businesses to be clear on the boundaries of the law. We know the majority want to do the right thing and there are some clear steps they can take to help ensure they do so."

In light of this development it is important that all companies in the creative sector take notice of the CMA's warning and ensure they have an adequate competition law compliance programme and training in place. One consequence of the CMA’s warning letters is that if a company does not take action as a result of the CMA's warning and they are later found out to have infringed competition law they are likely to be treated more harshly.

[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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