European Competition Law Newsletter – July 2020

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Table of Contents

  • EU, UK Competition, State Aid and Public Procurement Law During the COVID-19 Pandemic
  • European Commission Investigates Apple Pay and Apple App Store
  • EU White Paper on Foreign Subsidies Seeks to Fill Regulatory Gap
  • Further UK Fines and Monitoring for Online Resale Price Maintenance
EU, UK Competition, State Aid and Public Procurement Law During COVID-19 Pandemic

While not the most important concern, it should be appreciated that European Union and national antitrust/competition law, plus the state aid and public procurement rules, continue to apply in the EU and UK during the crisis. So far as the UK is concerned, it is subject to EU law until at least 31 December 2020 while the post-Brexit transition period is running. In any event, the UK has its own national competition law, which remains in force.

McGuireWoods has distributed seven client alerts on these topics:

The most recent major COVID-19-related developments in the UK and EU are:

  • The European Commission continued to approve under the state aid rules a range of EU member state and UK measures providing funding and other support to businesses.
  • The Commission adopted a third amendment to extend the scope of the State aid Temporary Framework, first adopted on 19 March 2020 to support the economy in the context of the coronavirus outbreak. The Temporary Framework was first amended on 3 April 2020 to increase possibilities for public support to research, testing and production of products relevant to fight coronavirus, to protect jobs and to further support the economy. On 8 May 2020, the Commission adopted a second amendment extending the scope of the Temporary Framework to recapitalisation and subordinated debt measures. The third amendment enables EU member states further to support micro, small and start-up companies and introduces conditions that provide incentives for private investors to participate alongside the state in recapitalisations. It also clarifies that aid should not be conditioned on the relocation of the production activity or of another activity of the beneficiary from another country within the European Economic Area (EEA) to the territory of the member state granting the aid, since such a condition would be particularly harmful for the EU/EEA internal market.
  • The German competition regulator (Bundeskartellamt) approved under the general antitrust rules a competitor cooperation arrangement setting out framework conditions for restarting automotive production and a model for restructuring suppliers. The Bundeskartellamt required various measures to ensure compliance with competition law requirements. This arrangement could serve as a useful model in a range of other industries.
  • The UK competitor regulator (Competition and Markets Authority (CMA)) launched its first excessive pricing (price gouging) investigations arising out of the pandemic. These concern four pharmacies and convenience stores — presumably operating in narrow local geographic markets — suspected of charging excessive and unfair prices for hand sanitiser products.
  • Separately, the CMA and the General Pharmaceutical Council (GPhC) published a joint letter to pharmacy owners and superintendent pharmacists on pricing during the COVID-19 pandemic. This followed the receipt of “reports alleging that a small minority of pharmacies are seeking to benefit from the coronavirus pandemic by charging unjustifiably high prices for essential productsincluding hand sanitiser, face masks and paracetamol.” In the letter, the CMA refers to its investigations into the four pharmacies and convenience stores and encourages all pharmacies to ensure that their prices for essential products do not include higher than usual mark-ups, when compared to their pre-coronavirus mark-ups for those products and their mark-ups more generally. The GPhC comments that any pharmacy or pharmacy owner found to have breached competition (or consumer protection) law risks facing action by the GPhC for damaging public confidence.
  • The UK CMA performed a dramatic U-turn from its original view and decided that food delivery company Deliveroo would not — in the absence of a 16 percent investment from Amazon — go out of business due to the pandemic. The “failing firm” defence would therefore not apply to Amazon’s investment, but it could still be cleared under the UK merger control rules since it does not raise substantive competition law concerns.
  • The UK CMA is facing an appeal of its decision to block an acquisition in the sportswear retailing sector. The CMA blocked JD Sports’ acquisition of competitor Footasylum on the basis that it would leave shoppers with fewer discounts or lower quality customer service. The CMA accepted that COVID-19 had led to retailers facing uncertain and challenging trading conditions but concluded that the effects of the crisis would not change the competitive dynamics in a way that diminished the substantial lessening of competition arising out of the transaction. Amongst other grounds, JD Sports has appealed on the basis that the CMA erred by not taking into account (in the counterfactual) the effect of COVID-19 on Footasylum and in finding that COVID-19 would not materially affect Footasylum’s competitive constraint on JD Sports.
  • The UK government — in an apparent emergency move — announced on a Sunday that it was adding a ground under which it can intervene in mergers and other transactions on the basis of the public interest. This is "the need to maintain in the United Kingdom the capability to combat, and to mitigate the effects of, public health emergencies." The government considers that this change is necessary to ensure it has the powers to preserve critical UK public health and crisis mitigation capabilities, including those needed to fight, and to mitigate the effects of, the pandemic. It’s unclear whether the urgency was due to an impending unannounced transaction targeting a UK company in this sector. The government has published guidance on this new ground.

Please contact McGuireWoods’ COVID-19 Response Team if you would like to discuss these topics or any other legal issues arising out of COVID-19 in the EU, UK or U.S.

European Commission Investigates Apple Pay and Apple App Store

Continuing its run of cases concerning large technology companies, on 16 June 2020 the European Commission announced two investigations into Apple concerning its activities in the European Economic Area (EEA). One concerns the mobile payment solution Apple Pay and the other concerns the Apple App Store.

Given the importance of these services, the cases will be of great interest to a large number of actual and potential competitors of Apple, as well as customers and suppliers. Assuming the Commission eventually reaches an infringement decision in one or both of them — and there is no guarantee of that — there will be significant private antitrust litigation against Apple as a result.

Apple Pay is Apple's proprietary mobile payment solution on iPhones and iPads, used to enable payments in merchant apps and websites as well as in physical stores. The Commission has concerns that Apple's terms, conditions, and other measures related to the integration of Apple Pay for the purchase of goods and services on merchant apps and websites on iOS/iPadOS devices may distort competition and reduce choice and innovation. In addition, Apple Pay is the only mobile payment solution that may access the NFC “tap and go” technology embedded on iOS mobile devices for payments in stores. The investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices.

iPhone and iPad users can only download native (nonweb-based) apps via the App Store. The App Store investigation will consider in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices:

  • The mandatory use of Apple's own proprietary in-app purchase system (IAP) for the distribution of paid digital content. Apple charges app developers a 30 percent commission on all subscription fees through IAP.
  • Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps. While Apple allows users to consume content such as music, e-books and audiobooks purchased elsewhere (e.g., on the website of the app developer) also in the app, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper.

The Commission will investigate the possible impact of these practices in particular on competition in music streaming and e-books/audiobooks. However, the principles would apply more widely to other services in a similar position.

EU White Paper on Foreign Subsidies Seeks to Fill Regulatory Gap

On 17 June 2020, the European Commission adopted a white paper dealing with the distortive effects caused by foreign (i.e., non-EU) subsidies on companies active in the EU single market.

The white paper refers to a growing number of instances in which foreign subsidies have facilitated the acquisition of EU companies or distorted the investment decisions, market operations or pricing policies of their beneficiaries, or distorted bidding in public procurement, to the detriment of nonsubsidised companies. The existing EU trade defence rules relate only to exports of goods from third countries and thus do not address all distortions caused by foreign subsidies granted by non-EU countries. There is therefore, according to the Commission, a “regulatory gap.”

China is usually assumed to be the target of these types of measures, but the white paper applies generally. The proposed rules will apply equally to subsidies granted by all non-EU countries and will not be discriminatory toward any country. They could therefore impact companies and groups based in the U.S., Russia, Middle Eastern countries and the UK.

The white paper suggests three options (modules) aimed at addressing the distortive effects caused by foreign subsidies (i) in the EU single market generally (module 1), (ii) in acquisitions of EU companies (module 2) and (iii) during EU public procurement procedures (module 3). These modules may be complementary, rather than alternatives. The white paper also sets out a general approach to foreign subsidies in the context of EU funding.

The proposals raise numerous dificulties, but there is high-level political support for the principles; in March 2019 EU member state governments tasked the Commission with identifying new tools to address the distortive effects of foreign subsidies on the single market. The white paper is also consistent — in terms of its focus on foreign companies and the need to protect local companies — with the increasing prevalence and scope of foreign direct investment controls in the EU and elsewhere.

Further UK Fines and Monitoring for Online Resale Price Maintenance

The CMA has a focus on enforcement against restrictions imposed on online resellers and in particular online resale price maintenance (RPM). The musical instruments sector has recently been the subject of five separate CMA investigations concerning this issue, and the principles used in those cases apply equally to other industries.

In its two most recent decisions — announced on 29 June 2020 — the CMA has imposed fines on Roland and Korg for online RPM. These companies manufacture, among other products, electronic drum kits and hi-tech music equipment and synthesizers. Separately, a retailer of musical instruments, GAK, has admitted to engaging in RPM with Yamaha and agreed to pay a maximum fine of more than a quarter-million pounds to settle the case. These cases follow fines recently imposed on two other leading suppliers in the sector, Casio and Fender, for the same activities.

The investigation into GAK is particularly interesting since it is the first time the CMA has taken enforcement action against a retailer in an RPM case. The amount of the fine on GAK was increased by 15 percent after it emerged the activity appeared to have continued after GAK received an advisory letter from the CMA, making it aware that there was evidence suggesting it might be engaging in RPM.

The CMA has also taken measures designed to force home the need for companies to put in place suitable compliance measures in this industry and generally:

  • The CMA has launched its own in-house price monitoring tool aimed at deterring companies from entering into agreements restricting online discounting. The new software will allow the CMA to automatically monitor price levels amongst musical instrument retailers, enhancing its market intelligence and benefiting consumers in the long term. The CMA intends that this tool will be used to monitor suspicious pricing activity in other sectors in the future.
  • The CMA has issued an open letter to the musical instrument industry highlighting the illegal activity it has uncovered and urging compliance with the law.
  • The CMA has written to almost 70 manufacturers and retailers across the sector, warning them about their conduct. These warning letters make the recipients aware that the CMA suspects their online pricing arrangements may have been illegal and that they need to take swift action to ensure they comply with the law or risk an investigation and fines. As in the case of GAK, any such fines imposed are likely to be increased if a business fails to take adequate action after a CMA warning.
  • The CMA has published a short summary of what retailers generally need to know about RPM agreements and how to comply with competition law.
  • The CMA has published lessons from its investigation into Fender's use of illegal RPM.
  • The CMA has published lessons from its investigation into Casio's use of illegal RPM.

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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