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Cartel Update
Cycle shops ramp up prices
The South African Competition Commission ("SACC") has launched an investigation into an alleged cartel amongst bicycle retailers.  The SACC obtained minutes from a meeting of local bicycle retailers, posted on a forum of a cycling website, in which they agreed to a coordinated increase in retail prices of bicycles and bicycle accessories in order to increase their profit margins.  The bicycle retailers also aimed to involve wholesalers by encouraging the bicycle wholesalers to provide the new suggested retail price to the local bicycle shops and to advertise this price increase to the public.

The SACC has expressed disbelief: "That these retailers believed they could act together to increase prices with impunity is shocking."

The parties did however note in their minutes that seeking some legal advice would perhaps be a good idea.  Perhaps such advice would have been useful before advertising their illegal price-fixing activity on the internet.

Click here to read the Commission press release 

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Global probe into refrigerator compressors
Antitrust authorities across the world launched coordinated investigations into a suspected cartel in the refrigerator's compressor industry and liquid pump sector.  Dawn raids were carried out across the EU, in the US and in Brazil.  It is further evidence of the strong links being forged between national competition authorities. The compressors market has apparently been struggling in Europe and the US.  However, difficult market conditions, whilst often producing cartels, provide no defence to such behaviour.

Purchasers of refrigerator compressors in the US have been quick to react, with 10 antitrust suits lodged already.  Household names such as Whirlpool and Panasonic are amongst those targeted.  More claims are sure to follow across the globe.

Click here to view the Commission press release
Click here to view the CNC press release

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Hunger strike against cartel
A Greek businessman has been on hunger strike since 13 February in protest against the handling of a cartel complaint launched by his steel products distribution company against Greek steel producers.  The protester alleges that the Greek competition commission is protecting the cartel by failing to launch an investigation into the anti-competitive behaviour.

In better news for the Greek competition authority, it has fined Nestlé Hellas around €30m for three infringements of national and EU competition law concerning Nescafe instant coffee. Nestlé had entered into exclusive supply agreements with supermarket chains, imposed illegal loyalty schemes blocking parallel trade. Nestle face daily fines of up to €20,000 if the infringements are not brought to an end.

Food was also on the mind of the Italian competition authority this month - it fined 26 pasta-makers, and their two national trade associations, a total of €12m euros for price-fixing on the national market for dry wheat pasta.
    
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Air cargo firms in it for the long haul
The global investigation into price fixing in the air cargo industry continues.  In the US, three air cargo carriers, IAN Cargo SA, Aerolinhas Brasileiras SA and EL AL Israel Airlines have agreed to plead guilty and pay a fine totalling $124.7 million.  The Australian competition authority has raised proceedings against Air France, KLM, Martinair and Cargolux, having already pursued Qantas Airways Limited and British Airways.

Click here to read our report on this cartel in the
   November update

In a related sector, India has ordered an inquiry into the "sudden" hike in air fares and withdrawal of promotional fares. The airlines are for the moment denying any illegal conduct.

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Stiff penalties for Viagra?
The pricing practices of drug companies producing erectile dysfunction medication (including Viagra, Cialis and Levitra) have been found to infringe Swiss competition law.  Their distribution agreements contained a price recommendation list to which distributors agreed to adhere to.  Prices are likely to have been kept up artificially as a result!  A decision on penalties is expected soon.

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Dutch raids in construction sector
Competition authorities continue to send the message to construction companies that the tough economic conditions provide no excuse for engaging in anti-competitive conduct.  The Netherlands Competition Authority (NMa) recently carried out a large and unannounced operation to investigate several construction companies in the southern Dutch province of Limburg. The NMa suspects price-fixing agreements, agreements on dividing the market and coordinated boycotts.

This follows investigations in the same sector in other jurisdictions. For previous examples:

Click here to view the articles on 'Public Authority
  settles private damages claim in Norwegian
  construction cartel case' and 'Construction: cartel
  probes in recruitment and cement markets' from the
  October 2008 edition
 
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EC
Buying alliances in the food sector
The European Commission is maintaining its focus on the food sector, this time on the increasing number of buying alliances in Europe.  The Commission acknowledges that these joint purchasing agreements between small and medium-sized retailers and wholesalers are important to the market to counterbalance the market power of the large food industry multinationals (such as the large supermarkets).  However, the Commission has growing concerns that these 'buying alliances' may foreclose markets by preventing access to the market for competitors and may facilitate collusive behaviour on the downstream markets.  The Commission will therefore focus its attention on identifying any competitive effects of these 'buying alliances' in the food sector.

There are always dangers when working jointly with your competitors (whether in relation to purchasing, selling, manufacturing or R&D), with information exchange and price-fixing key concerns.  If the buying alliances merely serve as a tool to engage in a disguised cartel, enforcement action can be expected.

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EC criticised for lack of transparency
The European Commission has been reprimanded by the Ombudsman for failing to consider fully a request for access to information on a cartel investigation file, made under the EU's transparency rules. The information was sought to support a private damages claim against an unidentified cartel.  The Commission refused access, arguing it would jeopardise its ability to re-examine the case if the ECJ annulled the Commission's first decision.  The Ombudsman acknowledged disclosure would damage the commercial interests of third parties, but concluded the Commission had failed to balance this with the public interest.  The Ombudsman's decision is non-binding and is unlikely to change the Commission's approach. 

The Commission is looking to entrench its position by proposing amendments to the transparency rules. These will make it almost impossible for third parties to access the Commission's file for the purposes of damages actions.  The Commission's rationale appears to be the protection of its leniency programme, although this does not sit comfortably with its championing of private enforcement. Negotiations are sure to be heated and will no doubt be affected by the outcome of a number of cases due to be heard by the CFI on access to the competition case file.

Click here to read the decision of the 
  European Ombudsman

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Commission to focus on economic recovery
The European Commission has recently published its Annual Policy Strategy, which lays the foundations for establishing a policy agenda for 2010.    It identifies objectives in four broad areas: economic and social recovery, climate change and sustainable Europe, putting the citizen first and Europe as a world partner. 

One of the main priorities in 2010 will be to manage the impact of the current financial crisis, via a European Economic Recovery Plan.  The Commission's State aid, merger control and competition work (particularly in network industries, such as energy, ICT, transport, post and financial services) is placed firmly at the forefront of the strategy for economic recovery.  The policy also suggests that competition sector inquiries and new in-depth market monitoring exercises will help to identify inefficient markets and sectors.  In addition, consistency needs to be ensured at European level when dealing with the rescue and restructuring or companies adversely affected by the economic crisis.

Since there will be a new Commission in office in 2010, it will be for it to review the policy priorities at the start of its mandate. 

Click here to Read the Commission's Annual Policy
  Strategy for 2009

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UK
Tesco forces remedies rethink
The Competition Appeal Tribunal ('CAT') has upheld an appeal by Tesco plc against measures proposed by the CC as a result of its investigation into the groceries sector.  The CC proposed to introduce a competition test as part of the planning regime, to be applied when assessing planning applications for the construction or expansion of large grocery stores.  Tesco challenged the lawfulness of the CC decision to recommend such a test on the ground that the CC failed to take account of relevant considerations.  The CAT held that the CC failed properly to take into account that the competition test might have detrimental effects on competition and consumers by preventing an incumbent retailer from expanding to meet demand and making developments which would enhance the welfare of customers.  Further, in assessing whether the competition test was a proportionate remedy, the CC failed to assess the effectiveness of such a test.  Although this judgment does not rule out the introduction of the competition test, it is nevertheless a victory for Tesco, as the CC will now need to reassess the justification for the proposed test. 

This is the first challenge to a decision of the CC following a market investigation, and given Tesco's success may encourage similar challenges.  It might, for instance, boost the prospect of challenge to the imminent final report of the BAA market investigation.

Click here to Read the CAT Judgement

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Norris resumes battle to avoid extradition
Retired businessman Ian Norris recently began yet another battle to avoid extradition to the US, where he faces trial on charges of obstructing justice.

After years of wrangling through the English legal system, in 2008 the House of Lords blocked his removal to the US to face charges that alleged he was involved in a price fixing cartel.

Despite this, Mr Norris is still at risk, as reported in the Competition & EU update in March last year House of Lords ruling puts Norris extradition on hold. In relation to the secondary offence of obstruction of the US cartel investigation, the District Court ruled that there was no legal obstacle to extradition and referred the case to the Home Secretary, Jacqui Smith, who ordered Mr Norris's extradition last September.

The former CEO has appealed both these decisions in the High Court, arguing the obstruction case was secondary to the price fixing allegation and extradition would be disproportionate.   He also argued that extradition would interfere with his human rights, as well as those of his wife. 
If convicted, Mr Norris could face a stiff sentence as US laws would allow the courts to take into account the price fixing allegations. In the event of a finding against him, the former CEO could still face extradition and up to 5 years in a US jail.

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Mergers
New market definition for pharma products
Recent investigations into mergers in the pharma sector suggests that the European Commission has altered the way in which it defines the product markets for pharmaceutical products.  Traditionally, the Commission defined the market according to the category of Anatomical Therapeutical Chemical ('ATC') into which the pharmaceutical product falls.  In practice, this meant that the Commission generally looked at the intended use of the pharmaceutical in defining the relevant product market.  However, the Commission's new approach focuses on the molecular base of the pharmaceuticals, concluding that drugs based on the same 'molecule' are each other's closest competitors.  In practice this will mean much narrower product market definitions, potentially resulting in higher market shares being held for certain products.  This could pose significant problems for potential mergers or joint ventures between drug companies, as the high market shares for overlapping products in this narrow product market, could prove to be a deal-breaker for the Commission.  Such narrow product markets and high market shares could also attract new responsibilities for the 'dominant' companies, as they must ensure their behaviour does not restrict competition.

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Project Kangaroo told to hop it
The Competition Commission ('CC') has decided to block the proposed Video on Demand joint venture ('VOD') between the BBC, ITV and Channel 4.  The proposed joint venture would have provided a 'one stop shop' for UK TV VOD.  It would have allowed viewers to access catch-up programmes as well as archive content.  The CC's provisional findings concluded that the proposed joint venture was likely to result in a substantial loss of competition in the supply of UK TV VOD content at the wholesale and retail levels.  Despite a number of possible remedies proposed to address the substantial loss of competition, the CC concluded that the proposed VOD joint venture must be blocked to protect competition on this developing market.  The CC concluded that the joint venture would allow it to control most of the content for UK TV VOD, which would allow it to restrict access to the content by competing VOD providers.

This is a rare case of the CC being unable to negotiate suitable remedies with the merging parties to address the loss of competition, to enable the agreement to proceed.  The CC considered that any customer benefits that the joint venture might bring could be equally achieved through projects less damaging to competition. Such alternative projects are more likely to develop as a result of the prohibition of the joint venture.

Click here to read the final report of the
  Competition Commission

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Ignore merger control at your own risk
Failing to consider merger control when acquiring shares or assets has never been more risky.  There has been a marked increase in enforcement action against completed mergers which should have been notified and so-called "gun-jumping" prior to obtaining clearance.

In Germany, Frankfurt publishing house DuV was fined €4.13m for concluding its purchase of another publisher, Frankfurter Stadtanzeiger GmbH, without notifying the  transaction. While in Norway, RS Platou received a fine of €17,000 for completing its acquisition of Glitnir Securities before the transaction was formally approved. The Greek Competition Authority has fined Cypriot maritime shipping firm Sea Star Capital more than €3.7m for its failure to notify the acquisition of a stake in rival firm Anek.

Moreover, in addition to the fine, Greek commission has started an investigation into possible anti-competitive effects of the acquisition.  Agusta and CAE could also face a fine from the European Commission if it turns out that their recently notified Rotorsim joint venture was implemented without the regulator's prior approval. 

It is therefore vital to seek early advice on merger control when making an acquisition.  Even the acquisition of minority shareholdings or certain assets can trigger the rules.

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State Aid
Commission responds to credit crunch
The Commission has adopted a "Temporary Framework for state aid measures to support access to finance in the current financial and economic crisis".  For a limited period, it will consider certain categories of state aid as justified to remedy difficulties in the economy.
So far, the UK has had three schemes authorised under the new Framework:-

• The grant of aid of up to EUR 500,000 per undertaking for
  companies facing a sudden shortage or unavailability of
  credit as a result of the current financial crisis.

• The grant of subsidised loan guarantees on working
   capital or investment loans.  Such guarantees can be for
   a maximum of 10 years.  Specific rules are set out to
   calculate the minimum premium payable.

• The third measure relates to interest rate subsidies for 
  green products.  The investment must relate to products
  that will meet or surpass future environmental Community
  product standards. 

However, there will be no blank cheque for companies seeking aid.  The European Commission is keen to ensure that the State aid rules are not sidelined in the current economic crisis.    The Commission will be keeping a close eye on measures taken by national Governments and will take action where necessary to ensure that the aid is properly focused, complies with the existing rules and does not encourage national protectionism.

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MMS News
New Guide on Private Antitrust Litigation
The latest in a MMS series of Guides gives an introduction into Private Antitrust Litigation in the UK.  It sets out in a user-friendly way the context of such actions, highlighting particular issues in civil court actions based on competition law.  This is a fast-growing area of litigation, presenting both risks and opportunities to a wide variety of businesses.
If you would like to receive a free copy of the Guide, please email Catriona Munro: catriona.munro@mms.co.uk.

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Online Compliance
We are currently developing a training programme which will allow employees to be trained online on the basics of competition law. The programme will provide a cost effective way of providing training and reducing competition law risks.  Should you be interested in this product, or if you would like any further information about this, please contact Catriona Munro at catriona.munro@mms.co.uk or on 0141 303 2385.

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Contact Us
If you think your business may be affected by any of the above, or if you have any other questions, please contact:

Michael Dean
Partner
0141 303 2415
michael.dean@mms.co.uk

Catriona Munro
Partner
0141 303 2385
Catriona.Munro@mms.co.uk

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