EU Competition Newsletter – October 2016

'Great Repeal Bill' more likely to be 'Great Preservation Bill'

Software Company Accused of Abuse in its Management of Italian Civil Courts Procedures

Femme Fatale? - The French Competition Authority Fines Modelling Agencies

Germany to Introduce Wider Merger Control Regime to Catch Tech Start-Ups

Not as Smart as You Might Think? - Italian Competition Authority Accepts Commitments from Smart Meter Company to Close Investigation

'Great Repeal Bill' more likely to be 'Great Preservation Bill'

After what seemed like an eternity, but in reality has only been a few months, the Prime Minister announced on 2 October 2016 that Article 50 of the Treaty of the European Union would be triggered in March 2017, starting a two year countdown to the UK leaving the EU. Alongside what has become the world's most famous procedural announcement, the Prime Minister laid out her Government's first stab at legislative direction, but stating that there would be a 'Great Repeal Bill' ("GRB"), to be formally laid out next year. 

The GRB would repeal the European Communities Act 1972, the UK law that implemented the EU Treaties into UK law and the precedence of European Court of Justice decisions over those of the domestic court system. This Bill/Act would have effect upon the formal exit of the UK, or immediately after. The generally accepted position is that the GRB will simply state that all past EU legislation incorporated into UK law by virtue of the 1972 Act is confirmed as fully enforceable and valid UK legislation going forward.

In the years following Brexit the UK Government would then consider what areas it wished to amend or repeal. This approach will ensure legal continuity and avoid any legal black-spots. It remains to be seen in a closer review of the draft bill when it is published whether this general catch all approach would be subject to any specific exceptions. 

However, the controversial aspect of the proposed GRB is the anticipated power it will give to Ministers to repeal legislation after Brexit without being subject to proper Parliamentary scrutiny. These powers are often referred to as "Henry VIII's powers" as this approach was famously used in this country in the 16th Century when the monarch dissolved the Monasteries and large swathes of English law.

The announcement by the Prime Minister has already been scrutinised by lawyers and constitutional experts to ascertain what it really means. The prevailing view is that this was mainly a political announcement to set the stage for a 'hard Brexit' (taking the UK outside the EU single market) and the supremacy of Parliament and the UK court system in the decades to come. It has bought certainty in one way in indicating that the simplest mechanics of leaving the EU will be managed through a single piece of legislation. It has also bought certainty in that it ends the question of what Parliamentary scrutiny will exist over the referendum vote and Brexit generally. Political commentators in the UK are already guessing the GRB will be able to be passed with a majority through Parliament, ending the so called constitutional crisis that some guessed (or hoped) would follow the referendum.

What it of course misses is the detail, in that the UK, through negotiations and whatever demands reality imposes, will end up with a mix of new legislative areas where no EU law applies, and others where EU law will continue to apply entirely thanks to the GRB. That is why the GRB is already mockingly becoming known in legal circles as the Great Preservation Bill. Many appreciate the scale of the legal task facing Government and the smart money is currently on most EU laws remaining the same thanks to transitional provisions in the GRB. This also takes into account the reality that not all EU laws are hated or broken and that many benefit UK consumers and businesses alike.

For example, the Prime Minister has already announced that EU employment protections would remain for UK workers (an announcement no doubt met with groans by business lobbyists who would have gladly seen the back of the Working Time Directive and provision on compensation when terminating agents).

What is clear and undisputed is that the legislative burden on the UK is huge. The new legal landscape is unlikely to be formed properly until after March 2019 when the UK has formally withdrawn from the EU. This is because the terms of exit will not likely be decided till something close to the last minute when the pressure of the deadline bears down on the EU Member States, the UK and the EU Commission; moving targets are hard to hit.

The GRB will be introduced in the Queen's Speech (the announcement of the following year's legislative programme) in May 2017. A draft bill will be seen some time after that. No doubt it will be one of the most widely scrutinised pieces of UK legislation ever.

Software Company Accused of Abuse in its Management of Italian Civil Courts Procedures

On 11 May 2016, the Italian Competition Authority (the "ICA") opened an in-depth investigation into Net Service S.p.A. (the "Accused Company"), an Italian company, providing basic computer systems for creating and managing the technological infrastructures underlying the Italian Online Civil Procedure for legal actions (the “OCP”). 

The ICA has alleged that the conduct of the Accused Company could amount to an abuse of dominance in contravention of Article 102 of the Treaty on the Functioning of the European Union ("TFEU").

In particular, the ICA is concerned that the Accused Company, which has a dominant market position, is abusing using its dominant position in the downstream market for the production and distribution of application software connected to the OCP.

The ICA alleges that the Accused Company could be communicating non-complete and delayed technical information to its competitors on the abovementioned downstream market, so that the other companies are not able to implement and place on the market their new products before those manufactured by the Accused Company. 

The alleged wrongdoing has yet to be proven at this stage and the investigation continues. However, the ICA has opined that such conduct, if proven, would amount to an infringement of Article 102 TFEU on the grounds that: (i) it would adversely affect trade within the EU and (ii) the Accused Company has achieved the dominant position on the upstream market not for its own ability but because of licenses granted by the State. 

Femme Fatale? - The French Competition Authority Fines Modelling Agencies

On 29 September 2016, the French Competition Authority (“FCA”), issued a fine condemning a price-fixing scheme in the French modelling industry.

This anti-competitive practice was aimed at coordinating prices throughout the modelling industry though the main professional modelling union, SYNAM. Through SYNAM, the agencies distributed pricing schedules which were then applied by virtually all the French modelling agencies.

From 2000 to 2010, the annual pricing schedules were drawn up and distributed every January to union members shortly after the annual sector negotiations on the model’s minimum wages. The FCA found that the exact nature of the pricing schedules, whether “official” or not, was kept ambiguous. Also, the pricing schedules covered not only the model’s minimum wages, but also established the total price that clients were invoiced for modelling services, including the agency's margin. The prices as a result could go as high as three times the model’s minimum wage. The prices were thus maintained at an artificially high level, at the expense of the modelling agencies’ clients.

Moreover, the FCA found that 37 modelling agencies in 2009 and 2010 had participated in meetings during which they decided on an increase of those prices set out in the SYNAM pricing schedules and agreed not to use pricing schedules other than the SYNAM schedules. The pricing schedules were then used as a reference for negotiations with clients. In some instances, such as during the Paris Fashion Weeks, there was no negotiation whatsoever: the prices were imposed on the modelling agencies’ clients.

Accordingly, the FCA issued a fine against those modelling agencies for distorting the basis for commercial negotiations with their clients and for participating in competition violations at the expense of their clients.

The FCA issued a total of € 2,381,000 in penalties to the SYNAM and the 37 modelling agencies.

The FCA nevertheless took into consideration that 3 participant modelling agencies, which did not challenge the facts, are undergoing financial difficulties and, accordingly, reduced the amount of theoretical fines for these agencies by 10%.

Germany to Introduce Wider Merger Control Regime to Catch Tech Start-Ups

On 28 September 2016, the German government proposed legislation to amend the Act Against Restraints of Competition (GWB) for the ninth time. Presuming that it will pass the further steps required, the proposed amendment is going to expand the merger control for mergers and acquisitions of start-ups, particularly of internet companies. In the future, the turnover of the merged or acquired companies is no longer the only relevant aspect. As well as turnover, the size of the transaction is to determine whether the merger control thresholds are triggered. If the purchase price is to be 400m Euros or higher, the transaction or merger is going to be examined by the German Cartel Office.

This is particularly important for cases in which young start-ups are the target of other companies. These start-ups often do not generate the turnover required to trigger merger control but are already valued highly by investors and other companies. Consequently, the German Cartel Office has not been able to control mergers of such start-ups in the past — even if the acquiring company was a leader in the relevant market. For example, when Facebook bought the instant-messaging-service WhatsApp the Cartel Office was not able to control the merger for potential damaging effects to the market. This is what the German Government intends to prevent in the future by adding the new provision to the Act Against Restraints of Competition. As a consequence, mergers and acquisitions of start-ups might become more difficult. Similar reforms are also being considered by the European Commission in its recently announced review of the EU Merger Regulation.

New provisions on civil proceedings to claim damages caused by cartels

Additionally, the proposed amendment is also going to implement the EU Directive 2014/104 which is essentially simplifying procedures for consumers as well as other companies who have suffered damages caused by a cartel to receive compensation. 

Corporate group liability

A third major change to the Act Against Restraints of Competition is the introduction of a corporate group liability. In the past, corporate groups have been able to avoid fines by intelligently restructuring their companies. However, the now proposed amendment makes parent companies liable for fines imposed by the Cartel Office if they had formed a business entity ("wirtschaftliche Einheit") with its subsidiaries at the time of the offence. Consequently, even if only one of its subsidiaries has been involved in a cartel, the parent company is very likely to be held liable for any fines if it had owned 100 percent of the shares or formed a joint venture. 

Not as Smart as You Might Think? - Italian Competition Authority Accepts Commitments from Smart Meter Company to Close Investigation

On 6 September 2016, the Italian Competition Authority (the “ICA”) accepted the commitments made by the Italian company Enel Distribuzione S.p.A. (“Enel”) and closed the in-depth investigation in the smart metering sector started last December, as previously reported in our newsletter.

Enel is one of the companies of the state-owned Enel Group and operates both in the market for the distribution of electrical energy and in the market for smart metering services.

The ICA alleged that Enel implemented a conduct aimed at hindering competitors commercial activity in the market for smart metering services, infringing Article 102 Treaty on the Functioning of the European Union (“TFEU”), the prohibition against the abuse of dominance.

Enel proposed commitments in order to remove the anti-competitive issues raised by the ICA, which may be summarised as follows:

Enel would not remove competitors' electronic systems from its electrical energy meters without reasonable justification;

Enel would provide competitors with adequate interface information allowing competitors devices to work properly; and

Enel would also permit the remote monitoring of energy consumption, in cases where measuring meters were not physically accessible by competitors.

The ICA found such commitments were sufficient to render the market of smart metering services perfectly viable and closed the investigation. 

It is likely that this decision will help provide consumers and businesses with cost savings.

[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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