EU Competition Newsletter - May 2017

EU Concerns Remain on Hotel Prices and Commission Rates

Engie Fined As It Was Hitting the Gas to Dominate the Energy Supply Market

The Italian Competition Authority Opens In-depth Investigation Into the Copyright Brokerage Sector  

Considering a Retail Merger?

Italian Publishing Merger Conditionally Cleared by Regulator

EU Concerns Remain on Hotel Prices and Commission Rates

We have followed over the last years Europe grappling with the issue of most favoured nation clauses and hotel booking. Our last update regarded a joint monitoring project between the CMA and the European Commission, designed to monitor hotel prices and commission rates, following a series of interventions by the regulators.

On 6 April 2017, the European Commission declared that it had ended this stage of the monitoring and published its results. The Commission (and the 10 national competition authorities which helped co-ordinate the data for the report) found that broadly speaking, there was a lot of apathy from hotels in comparing commission rates for online travel agents ("OTA's") and that price was not the dominant factor in using an OTA. In fact the Commission found that visibility and how high the hotel appeared in rankings was more of a priority for hotels than commission rates.

With regard to room prices, the report found more positive news following the Commission's actions. Here the headline change was that the switch from wide to narrow parity clauses by and Expedia led to an increase in room price differentiation between OTA's by hotels, in eight of the ten participating Member States.

For now, the Commission has decided to keep the sector under review, to better assess the effect of their measures over the longer term. To coincide with this announcement by the EU Commission, the UK Competition and Markets Authority announced that it would no longer assess the UK hotel booking market for competition law breaches as a matter of administrative priority, but would continue to assist the wider EU review.

Hotel booking and hotel pricing are complex sectors with likely many sub-markets within them. For instance, it is hard to imagine pricey and exclusive central city hotels being subject to the same market considerations as 3 star beach-side holiday resorts. The former would likely be filled with corporate customers and others for whom price would not be a significant factor in purchase, the latter could be extremely price sensitive and more dependent on amenities such as being all-inclusive or the state of the swimming pool. It is perhaps not surprising that the Commission's recent interventions have not led to an all-out race to the bottom on pricing, both for room rates and OTA commission rates.

The full report from the EU can be found here.

Engie Fined As It Was Hitting the Gas to Dominate the Energy Supply Market

On 21 March 2017, the French Competition Authority ("FCA") fined French gas and electricity giant Engie (formerly called Gaz de France) 100 million euros for having abused its dominant position from July 2004 until November 2014 by using its historical customer data and commercial infrastructure derived from its former legal monopoly status as gas provider, in order to sell new gas and electricity supply contracts, post-deregulation, to private individuals and small businesses.

  • State of the gas and electricity markets
    Gas and electricity supply used to be State monopolies, until the adoption of EU directives in the late 1990s which opened those markets to competition, effective in the 2000s. In France, the gas market was opened progressively, first to certain industrial sites, then to consumers in July 2007. On the French gas supply market, Engie holds to this day a very significant 79% market share for private individuals and 63% for small business customers, which establishes its dominant position.
  • Engie's abuse of its dominant position
    The FCA found that Engie abused its dominant position by using its historical customer data in order to sell its new gas contracts to its former customers who had changed supplier following the opening of the gas supply market to competition. Similarly, Engie was found to have used this historical data to enter the electricity market and sell its electricity supply contracts to new customers. This was found to result in a distortion of competition because as the former State monopoly for gas supply, Engie had a comprehensive data file that comprises the contact details of almost all French gas consumers, with which the new entrants on the de-regulated gas market could not compete. Indeed, prior to the present decision, the FCA had ordered Engie, as a conservatory measure, to grant other gas suppliers access to its customers' contact details and to information relative to their gas consumption (FCA decision no. 14-MC-02 of 9 September 2014, confirmed by the Paris Court of Appeals on 31 October 2014). Despite having complied with this conservatory measure, Engie was sanctioned by the FCA in the present decision for the abuse of its dominant position from July 2004 until November 2014.

Furthermore, Engie sold its market-price gas and electricity contracts using the same business infrastructure it had developed as a State monopoly (such as trademarks, sales teams, website, general terms etc.), thus, according to the FCA, further distorting competition.

Finally, Engie claimed post-deregulation that it had a better security of gas supply than other suppliers, which was found to be misleading for consumers as all gas suppliers have in fact the same supply obligations and may be equally impacted in the event of a significant gas shortage at the national level.

  • Market aggravating circumstances
    Engie's abuse of its dominant position was found aggravated by the fact that consumers were considered to have a very low level of market knowledge, especially regarding the opening of the gas and electricity markets to competition. Statistics were used to show that almost 50% of French consumers did not know that they may change gas supplier. Therefore, Engie was found to have had a significant advantage on the market as the incumbent operator compared to new market entrants.
  • Engie's defense before the FCA
    Notwithstanding that Engie did not deny the allegations and had requested lenient treatment from the FCA, Engie has now appealed the FCA's 100-million euro fine before the Paris Court of Appeals.

FCA decision no. 17-D-06

The Italian Competition Authority Opens In-depth Investigation Into the Copyright Brokerage Sector

On 5 April 2017 the Italian Competition Authority (the "ICA") opened an in-depth investigation into the Italian Association of Authors and Publishers (in Italian language "Società Italiana Autori ed Editori" hereinafter "SIAE"), operating in the copyright protection and copyright brokerage sector.

The investigation started after several complaints from other companies offering alternative services to SIAE. The behaviour under investigation involved the Italian association of live music events (named "ASSOMUSICA") adopting guidelines asking new operators not to execute license agreements or pay fees to any of SIAE's competitors.

The ICA examined whether the conduct of SIAE reduced or excluded competition by impeding new operators from entering the relevant market and breaching editors' and authors' freedom to choose other copyright brokerage companies for the supply of the same services.

In light of the above, the ICA alleged that the aforementioned behaviors would amount to an anticompetitive agreement, in contravention of Article 101 of the Treaty on the Functioning of the European Union.

Further, the ICA's officers made dawn raids at the SIAE and ASSOMUSICA's headquarters with the help of the Antitrust Special Unit of the Italian Fiscal Police. However, the alleged wrongdoing has yet to be proven at this stage and the investigation continues.

Considering a Retail Merger?

The UK Competition and Markets Authority ("CMA") has published new commentary to inform companies on how it assesses retail mergers. The commentary should be read by any retailer considering merging with a competitor in the UK.

On 10 April 2017, the CMA published new commentary on how they will assess retail mergers. The commentary is an update to a 2011 publication by the then Office of Fair Trading. The CMA felt that it had assessed a lot of retail mergers over the last 6 years and was now in a position to update its guidance for companies and their advisers.

The interest to retailers will be for anyone considering a merger in the UK, especially to a close competitor. The CMA has developed its thinking, particularly with regard to the relationship between online and bricks and mortar sales. We believe there are three main takeaways from the updated commentary:

  1. Locality and catchment area: When assessing competition for bricks and mortar stores, the CMA starts with the performance against competing stores in the local area. The catchment area will be where the shop derives 80% of its sales from and the CMA can use the store's own data to assess the location of the store's customers, such as using loyalty cards and delivery records. Catchment areas may also vary depending on a stores size and between urban and rural areas. One size does not fit all.
  2. Claims as to online competition: The CMA has specifically singled out claims of online compe-tition as needing scrutiny. This could occur for example where two close bricks and mortar com-petitors are merging, but insist any price rises will be tempered by online sales. The CMA will closely scrutinise these claims, likely based on evidence. This is clearly an argument they have heard too many times and hold little credence in it until proved.
  3. Internal documents and data: As can be seen from the above, the CMA can request internal documents and data to help build their picture of the genuine competitive environment. Therefore, audit your own documents and data and be consistent with your arguments to the regulator. For example, it's no use arguing that your number one competitor is online competition when your own management presentations and data point solely to local bricks and mortar competitors. Le-gal advisors and economists can do a lot of this competitive audit work at the outset of a merger or even in its negotiation, placing your anticipated merger in the best position come time to submit your regulatory documents.

The commentary can be found here.

Italian Publishing Merger Conditionally Cleared by Regulator

On 1 March 2017 the Italian Competition Authority (the "ICA") conditionally cleared the merger between two Italian leading companies (namely, Italiana Editrice S.p.A. and Gruppo Editoriale L'Espresso S.p.A., hereinafter the "Companies") both operating in the publishing industry sector.

In particular, the ICA ordered the acquiring party (Gruppo Editoriale L’Espresso S.p.A.) to assign to an indpendent third party the local advertising sales market in relation to Genoa’s and Turin’s editions of the daily newspaper "La Repubblica".

Indeed, after having analyzed data referring to the overall functioning of the markets affected by the merger, the ICA found that it would set a monopoly in local advertising sales markets in the provinces of Genoa and Turin. In such analysis, the ICA also considered the presence of other different competitors beside the Companies, their features, the market power of the local advertisers and the Companies’ price trends for running advertisement.

The ICA finally stated that the merger, upon the execution of the above conditions, could not create or strengthen a dominant position capable of reducing competition in the publishing industry sector and advertising sales markets.

This decision shows the growing trend of the ICA in adopting conditions for mergers and seeking divestments.

[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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