The 13 July 2016 saw the Competition and Markets Authority (CMA) announce that it had sent a questionnaire to a large sample of hotels throughout the UK. As part of a joint monitoring project with the European Commission, this project has also been launched by several competition agencies in the EU. The purpose of the project is to study how changes to hotel room pricing policies and a variety of other investigations have affected the online hotel booking sector.
In July 2015, online travel agents Expedia and Booking.com adjusted their terms and conditions to remove certain price parity (also known as most-favoured nation requirements) which prevented some hotels from offering cheaper room rates on competing online travel agents websites than what was currently being offered on Expedia and Booking.com.
The questionnaires that have been distributed, use a common approach across ten countries in to perform an assessment on how that change in the terms and conditions set out by these companies, together with other recent developments including a number of inquiries across Europe, have affected the market.
In September last year, the CMA made an announcement of its decision to end its investigations into pricing restrictions in hotel online booking due to administrative priority, but claimed it would not halt the monitoring of pricing practises of online travel agents. However, similar investigations were launched by numerous competition authorities in relation to Booking.com’s and/or Expedia’s price parity restrictions. This was seen in April 2015 when the French, Italian and Swedish competition authorities accepted commitments offered by Booking.com to adjust their price, availability and booking conditions with respect to other online travel agencies and certain other sales channels.
Other hotels within the UK who have not been directly contacted by the CMA are more than welcome to participate in the questionnaire. The deadline for this submission is the 8 August 2016, where the work on this project is expected to be completed by the end of the year, when it will finally conclude if the CMA and other agencies need to take further action.
The Senior Director for CMA, Ann Pope stated:
“Consumer benefit from lower prices and better service in a truly competitive market in which hotels and online travel agents compete for their business.
The CMA is aware of concerns raised by a number of hotels about how this market is operating. This project is part of the CMA’s ongoing commitment to watch this market closely in order to ensure that consumers are benefitting from effective competition and we welcome responses to this survey, so that we can see how the market is developing in the light of recent changed”.
On 18 July 2016, Germany moved another step closer to enshrining a right for distributors in selective distribution systems to sell over online marketplaces. This is not sudden move by the German courts, in fact we have reported similar stories in May 2014 and September 2014.
The current matter is a request from a German Court for a preliminary ruling by the European Court of Justice ("ECJ"). The court asked several questions relating to the interpretation of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) and its compatibility with bans on online marketplace sales. These questions were:
The prevailing view in the German case law is that an absolute ban on the use of these marketplaces has as its object the restriction of competition. Instead, if suppliers wished to prevent such sales, they would have to prove that the online marketplace did not meet the quality standards asked of other retailers in the selective distribution system.
Whilst the position in Germany is defendable, it almost directly contradicts EU law in the form of paragraph 54 of the Vertical Restraints Guidelines (OJ 2010 C130/1) which had been used for years (and still is throughout the EU) as a basis for legitimate bans on online marketplaces. Paragraph 54 states:
“where the distributor’s website is hosted by a third party platform, the supplier may require that customers do not visit the distributor’s website through a site carrying the name or logo of the third party platform”
So whilst luxury retailers in Germany may be emailing their lawyers each time one of these cases goes public, where does the German position leave the rest of the EU? Is this the end of high priced luxury retailing as intense online price competition pulls prices sharply down? Will £1000 handbags suddenly be found for £500 after a quick internet search? Will this author soon be sashaying around, draped in the finest designer clothes, bought at a snip online?
The answer to these questions is of course no. Retailers have many tools at their disposal to ensure goods are only sold through outlets which match their image and at prices online with their expectations. Some methods rely on other provisions in EU legislation, even in Germany there is the concession that some bans and stipulations by retailers are proportionate to maintain brand image. Other methods to protect image are simply commercial such as retailers selling to their distributors at a higher price, helping insure in turn that the distributor doesn’t make sweeping price cuts to the end user.
What is more likely in the long term is that perhaps the German judgments will cause a trickle-down effect throughout the EU, as retailers start adjusting their distribution agreements to ‘justify’ any ban on online marketplace sales. Indeed many would be well placed to start this process now, before the German position becomes the general ECJ position.
At the time of writing, the ECJ has not replied to the German court’s questions.
Case C-230/16 – Coty Germany GmbH v Parfümerie Akzente GmbH (OJ 2016 C 260/21).
On 23 June 2016, the Italian Competition Authority (the “ICA”) opened an in-depth investigation into Busitalia Veneto S.p.A., APS Holding S.p.A. and Busitalia Sita Nord S.r.l (the “Accused Companies”), three Italian companies providing services in the public transport sector.
The ICA with the assistance of the Italian Financial Police allege that the conduct of the Accused Companies amounts 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 stated that the Accused Companies, which enjoy a dominant market position, delayed the forwarding of data and information needed by the competent Governmental Authority (“Ente di Governo del Bacino di Trasporto Pubblico Locale di Padova”) to make public calls for tenders; the same services carried out by the Accused Companies.
Further, the ICA decided to issue an interim measure, ordering the Accused Companies to immediately provide the mentioned data and information to the competent Authority in order to permit the Authority to assign the services by tenders in the meantime.
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 it would adversely affect trade within the EU.
On July 12th 2016, the Higher Regional Court of Düsseldorf by way of temporary injunction suspended the Ministerial Authorisation for the takeover of Kaiser’s Tengelmann by EDEKA, and thereby stopped the merger-proceedings between the two supermarket chains.
EDEKA, Germany’s biggest food retailing company since 2006, received a severe blow in its latest attempt to acquire its competitor Kaiser’s Tengelmann. The previous attempt in 2015 saw the German Federal Cartel Office (FCO, Bundeskartellamt) ban the takeover after it had come to the conclusion that the takeover would create a dominant position for EDEKA in certain market segments.
Although the monopoly commission of the German government argued in favour of the decision of the FCO, in March 2016 German Minister for Economic Affairs Sigmar Gabriel overruled the decision under Sec. 42 German Competition Act by ways of Ministerial Authorisation. This sporadically used instrument (only 9 Ministerial Authorizations were granted since 1973), enabled the minister to allow the amalgamation of the two companies subject to conditions. The result of the conditions imposed on the takeover would secure 16,000 jobs at Kaiser’s Tengelmann and therefore the market-concentration was justified by an overriding public interest.
With its ruling, the Higher Regional Court of Düsseldorf found the Ministerial Authorisation to be unlawful in several ways.
The Court argued that Minister Gabriel was not allowed to grant the authorisation due to his behavior during the takeover-negotiations which gave rise to a suspicion of bias and a lack of neutrality. In the decisive period of the negotiations, Minister Gabriel had taken part in two conversations with the CEO of EDEKA and a co-owner of Kaiser’s Tengelmann. Neither of the contents of these meetings were put on record, nor were the other parties to the proceeding, such as the EDEKA-competitor REWE, included in the negotiations. The Court argued that the procedure was therefore not fair, transparent or objective approval.
Furthermore, the Minister Gabriel’s projections regarding the preservation of 16,000 jobs appear to be built on an insufficient factual basis. The Court found it was doubtful whether the ancillary provisions to the Ministerial Authorisation were fit to preserve the jobs at Kaiser’s Tengelmann to the notified amount and duration. However, the considerations of Minister Gabriel did not sufficiently take into account how far the ancillary provisions regarding the employment situation at Kaiser’s Tengelmann would be compensated by staff reductions at EDEKA as acquiring entity. Without such considerations, the decision did not take into account all relevant aspects and therefore did not meet the legal requirements of German Competition Law. Finally, as a result of Art. 9 of the German Constitution (Grundgesetz), the preservation of the worker’s collective rights did not constitute an overriding public interest.
The ruling of the Higher Regional Court not only means a major setback for the efforts of EDEKA to aquire Kaiser’s Tengelmann, it also has a profound impact on the political reputation of the Minister of Economic Affairs. It is unsurprising that EDEKA, as well as Minister Gabriel, have decided to appeal the Court’s decision.
Authors: Kathie Claret and Raphael Roditi
On 6 June 2016, the French broadcasting company TDF was fined 20.6 million euros by the French Competition Authority (“FCA”) for two abuses of a dominant position.
This is not the first time the FCA has censured TDF’s anticompetitive conduct: in 1999, and again in 2015 (see our article “Towering Abuse”), the firm was handed a fine for exclusionary conduct. Once again, the FCA tried to make sure TDF understood the gravity of its actions: the amount of the fine was increased by 20% to sanction the reiteration of the unlawful behaviour. An appeal before the Paris Court of Appeals has since been lodged, as in 2015.
This particular case harks back to 2009: TDF, although no longer a state-owned company since 2004, still held a dominant position on the Hertzian broadcasting market, and had a very good reputation with local authorities. When digital terrestrial television (“DTT”) was introduced in France in 2009, this was a unique opportunity for its competitors to finally gain some of the new market shares. Howver, TDF set up two anticompetitive mechanisms which made sure they did not.
First, the firm adopted a disparaging conduct, and used its good relations with local authorities to dissuade them from allowing competitors to set up their own pylon sites to broadcast. In order to do so, they alleged the existence of a radio disturbance risk, should more pylons be built. The mayors, to ensure that their constituents remained able to watch TV, preferred to follow TDF’s instructions, even though the firm no longer had the authority to give any.
The second practice sanctioned by the FCA resulted from the loyalty rebates offered to channel providers (grouped into multiplexes), to reward their choosing TDF as a broadcasting service supplier. The rebates increased with the number of locations within the same zone, and encouraged channel providers to prefer TDF over the other suppliers, thus evicting the latter from the market.
The FCA rejected, in particular, the following defense of TDF: in an effort to lower the amount of the fine, the firm claimed to be a single-product company, as it specialised in the broadcasting sector only. To that, the FCA replied that the concept of “single-product company” could not be applied in such a broad manner, to do so would defeat its purpose, which the FCA reminded is to make sure that when the usual method places the amount of the fine too close to that of the revenue of the firm, that amount can be lowered so as not to push the company toward bankruptcy. This method should therefore not be used to apply to the type of activity a firm specialises in, but rather be considered as a tool to adapt the amount of the fine when it is disproportionate.
It should also be noted that the context of the repeated anticompetitive practices was highlighted as an aggravating factor by the FCA. Indeed, the consequences of the disparaging practices and to a lesser extent of the rebates, were all the more dire as they impeded competitors from entering the market at a time when the introduction of the DTT could have been a springboard for their development. The amount of the fine, more than 20 million euros, attests to that.
As mentioned in our previous articles, on 8 June 2016, the Italian Competition Authority (the “ICA”) closed an investigation into sixteen companies (the “Companies”), and their Association (“Associazione Italiana Distribuzione Automatica”), providing vending services for alleged infringements of Article 101 TFEU, the prohibition of anti-competitive agreements.
The investigation stemmed from an anonymous complainant referring to two telephone conversations. The conversations allegedly showed the existence of an agreement among the Companies under which the clients “belonging” to one Company cannot receive services or products by another Company.
The ICA held that the Companies tried to avoid entering into competition with each other and found that the Companies had decided to illegally assign customers amongst them. Through this strategy, the Companies caused damage to customers, such as the complainant, in terms of far lower costs which they would have borne by competing.
Further, the ICA found that the alleged anti-competitive agreement can also affect the intra-Community market as the agreement included the most important Italian undertakings active in the vending services-- which is an important part of the European Union market.
In light of the above, the ICA fined the Companies along with their Association € 100,750,030 collectively.
The Bundeskartellamt has ruled that the restrictions within the online banking guidelines of the German Banking Industry Committee (Deutsche Kreditwirtschaft) are illegal. The online banking conditions have been declared as violating both German and European competition law, as they inhibit competition between the various providers of payment services found on the internet.
For years, the German Banking Industry Committee and its affiliated associations (National Association of German Cooperative Banks, German Savings Bank Association and the Association of German Banks) have used the same General Terms and Conditions that have been decided by the members of the Committee, while their use is recommended by the banking associations to be used by their members.
These rules include “Special Conditions for Online Banking” that have been found by the Bundeskartellamt’s investigation to restrict the online banking customers’ ability to use non-bank payment services. The principal problem with the German Banking Industry Committee’s rules are that consumers are unable to use their PINs (personal identification numbers) and TANs (transactional authentication numbers) in non-bank payment systems, therefore prohibiting third party access. The authority declared that the wider use of PINs and TANs would not compromise the banking industry’s security in online banking and their current rules prevent the wider use of non-bank competitors.
These rules have significantly prevented the ability of consumers to use innovative and non-bank payment solutions instead of those that are provided by the banks themselves. The payment solutions have responded to the need to provide lower-priced and faster alternatives to pre-existing payment services that are already established in the market.
Despite declaring the online banking rules illegal, the Bundeskartellamt have limited their intervention to just the ruling and, at the request of the associations involved, have suspended the imposing of its declaration. This means that the relevant parties are not subjected to an immediate enforcement of the decision and tight deadlines, however their actions are clearly limited under competition law and therefore they must comply.
Rules for the providers of non-bank payment solutions are currently going through a process of European legislation reform. The European Payment Services Directive (PSD), incorporating the sector of online payments, was amended in 2015 and is due to be incorporated into national law in 2018. Its implementation will provide a standard legal framework as well as standard technical regulation standards on which to judge the performance of online payment solutions.