European Competition Law Newsletter – December 2018

by McGuireWoods LLP
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Table of Contents

  • EU Kicks Off Review of Critical Rules on Vertical Agreements
  • EU Introduces FDI Screening
  • Online Most-Favoured Nation Clauses Investigated Again
  • EU Investigates Restrictions on Cross-Border Sales in Pay TV

EU Kicks Off Review of Critical Rules on Vertical Agreements  

The EU’s 2010 “block exemption” for vertical agreements is probably the most commonly used piece of EU competition legislation in day-to-day practice. As long as its criteria are met, the block exemption provides for an automatic exemption from the EU competition rules (and in practice, EU member state rules as well) for a range of the most common commercial agreements. It covers agreements under which goods and/or services are resold or are used as input by the buyer to produce its own goods or services, therefore including in particular distribution, franchising, supply and purchase agreements.

The current block exemption expires 31 May 2022 and, in preparation for this, the European Commission has started a review of its operation. The review will allow the Commission to determine whether the block exemption should simply lapse or instead be extended in its current or a revised form. 

There will be a particular focus on the increased importance of online sales and the emergence of new market players such as online platforms, with the analysis in this regard building on the Commission’s recent e-commerce sector inquiry and various EU court judgments.

Any company with business operations in the EU — particularly including suppliers of goods and services, distributors/retailers of goods and services and platforms/intermediaries active in e-commerce — should take a very close interest in this review and consider submitting comments directly or via trade associations. Whatever is decided, the outcome of the review will impact commercial activity in relation to these types of “vertical agreements” for many years after 2022.

The Commission has invited feedback on its initial roadmap for the review by 6 December 2018 and proposes to launch a 12-week public consultation in the first quarter of 2019, which will be accessible via “Have your say.”

EU Introduces FDI Screening 

On 20 November 2018, a new foreign direct investment (FDI) screening framework for the EU was provisionally agreed. The proposal — agreed between the European Parliament, the Council of the EU and the European Commission — must now be formalized before it comes into force. The framework will operate alongside the standard merger control rules at EU and EU member state level.

The European Commission proposed the framework in September 2017 due to concerns about acquisitions by foreign investors of strategic firms whose activities are critical for the security and public order of the EU and its member states. The screening criteria will therefore consider effects on critical infrastructure, security of supply of critical inputs, access to or the ability to control sensitive information and the effects on critical technologies. Control of a foreign investor by the government of a third country, including through significant funding, is relevant but not necessary for the rules to apply.       

The principal features of the new framework for FDI will be the following:

  • A new cooperation mechanism will enable member states and the Commission to exchange information and raise specific concerns.
  • The Commission will be able to issue opinions in cases concerning several EU member states, or when an investment could affect a project or programme of interest to the whole EU, such as Horizon 2020 or Galileo.
  • It encourages international cooperation on investment screening policies, including sharing experience, best practices and information regarding investment trends.
  • It reaffirms that national security interests are the responsibility of member states; it will not affect the member states' ability to maintain their existing review mechanisms, to adopt new ones or to remain without such national mechanisms. (Currently, 14 member states have such mechanisms in place.)
  • Each member state will still be able to decide whether a specific operation should be allowed in its territory.
  • It takes into account the need to operate under short business-friendly deadlines and on the basis of strong confidentiality requirements.

These new EU rules apply to FDI from any non-EU/EEA country, therefore including the UK (after any transitional period following Brexit day in March 2019) and the U.S. 

With this framework, the EU joins many of its key international partners which have screening mechanisms to address the possible risks of FDI. These include Australia, Canada, China, India, Japan and the U.S. As with investments into those countries (and others with similar rules), third-party investors considering an acquisition or investment in the EU will need to be cognisant of the new rules and consider whether lobbying or similar activities are necessary from the outset or even before a transaction is announced.

Online Most-Favoured Nation Clauses Investigated Again

On 2 November 2018, the UK Competition and Markets Authority (CMA) announced its provisional finding that clauses in many contracts between home insurance website ComparetheMarket and home insurers break EU and UK competition law and could lead to higher premiums.

The case is yet another which considers so-called “most-favoured nation” (MFN) clauses in the context of online sales. In this example, the CMA has investigated clauses used by the comparison site in its contracts that stop home insurers from quoting lower prices on rival sites and other channels. These clauses prevent rival comparison sites and other channels from trying to win home insurance customers by offering cheaper prices than ComparetheMarket. It also means, according to the CMA, that home insurance companies are more likely to pay higher commission rates to comparison sites with the extra costs potentially passed on to customers.

Any company using or subject to MFN clauses, whether selling online or offline, should consider the potential competition law issues which arise. A competition law infringement is most likely where these clauses are common in an industry or where the company imposing the clause has market power.  

EU Investigates Restrictions on Cross-Border Sales in Pay TV   

The basic EU competition law ban on restricting cross-border sales within the EU applies irrespective of the industry. This covers (subject to limited exceptions) both “active” and “passive” cross-border sales bans. The latter in particular are seen as egregious violations and often give rise to regulatory fines if discovered.

The European Commission continues to be active in enforcing these rules across a range of industries, as most recently demonstrated by its proposal to accept commitments from Disney in order to close an investigation in the pay-TV sector.

This is part of a wider investigation by the Commission in relation to contractual clauses in certain bilateral agreements between six major film studios, including Disney, and the pay-TV broadcaster Sky UK. Under these agreements, the studios license to Sky UK their output of films over a certain period of time for pay TV. According to the Commission, the clauses appear to prevent Sky UK from allowing EU consumers outside the UK and Ireland to access pay-TV services available in the UK and Ireland.

Some agreements also contain clauses requiring the studios to ensure that, in their licensing agreements with broadcasters other than Sky UK, these broadcasters are prevented from making their pay-TV services available in the UK and Ireland.

Specifically, the Commission has taken the preliminary view that these clauses restrict broadcasters' ability to accept unsolicited requests from consumers located outside the licenced territory (considered "passive sales") and, as a result, may eliminate cross-border competition between pay-TV broadcasters and partition the EU's single market across national borders.

To close the case, Disney has decided to offer commitments to address the Commission's competition concerns. These commitments are similar to those offered by Paramount in April 2016, which were accepted and made legally binding in July 2016.

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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