As a result of the digitization of the economy, companies are more often using algorithms to solve a variety of issues. The application of artificial intelligence (“AI“) has made these algorithms more sophisticated. The growing influence of algorithms is accompanied by legal issues, such as potential competition law infringements through price algorithms. In recent years, competition authorities have been actively looking into scenarios in which algorithms are used to engage in anti-competitive practices. This blog focuses on algorithmic collision in digital markets.

What are (price) algorithms?

An algorithm is a finite set of unambiguous instructions to be followed in a computation, thereby systematically converting input into output. Algorithms have been used for centuries and are in itself not new. However, the advent of AI, Big Data, Data Analytics and The Internet of Things (“IoT”) casts algorithms in a new light. For more information on IoT, we recommend our earlier blog. Due to these technologies, present-day algorithms are often more complex than their predecessors.

Many companies use algorithms for price-setting. They generally use dynamic or personalised pricing-methods. Dynamic pricing determines the price based on fluctuations in supply and demand. This is fundamentally different from pricing algorithms using personalised data, where the price is determined per individual consumer and depends on the consumer’s personal characteristics. Depending on the intelligence of the price algorithm, pricing is based on historical data or real time data. Unlike algorithms using historical data, algorithms using real-time data can quickly respond to changes in markets and thus determine prices accurately.

Competition authorities’ growing interest in algorithms and AI

Algorithms are clearly on the political agenda. This is evident from the Rutte IV Coalition Agreement, presented on December 15 2021, which announces the introduction of an algorithm supervisor. This supervisory role has been assigned to the Dutch Data Protection of Authority (“DPA“). The DPA will mainly monitor algorithmic applications for transparency, arbitrariness and discrimination. The use of algorithmic applications also affects competition. In 2020, the Netherlands Authority for Consumers and Markets (the “ACM”) published  Guidelines on the Protection of Online Consumer, followed by a Position Paper: Oversight on Algorithms, in which the ACM clarifies its position concerning the monitoring of algorithms. Last month, Martijn Snoep, chairman of the ACM, stated at a Blockchain event that algorithmic collusion is currently the biggest concern for the ACM. Especially because algorithmic collusion is extremely difficult to detect. During his speech, he indicated that the ACM is lagging behind developments. However, in order to change this, the ACM has set up a special technology-focused department. Competition authorities in other countries also focus on the growing influence of (price) algorithms on competition. For example, in January 2021, the UK Competition and Markets Authority published a market study that examined the extent to which algorithms are anti-competitive and harmful to consumers. The Norwegian Competition Authority also published a market study of a similar scope last year.

At European level, the European Commission (the “Commission“) is also examining the compatibility of algorithmic applications with European competition law. Earlier this month, the Commission published a draft Horizontal Block Exemption Regulation (“HBER“) and accompanying Guidelines on Horizontal Agreements (“Horizontal Guidelines“). The reason for these drafts is the expiration of the current HBER and Guidelines, later this year. An evaluation of the current Horizontal Guidelines showed that there is lack of clarity regarding the use of price algorithms. The draft Horizontal Guidelines show that the Commission has somewhat taken this criticism to heart. For example, the draft Horizontal Guidelines make a distinction between algorithmic collusion and collusion by code. The latter refers to intentional coordination between competitors, by means of a common algorithm. This is typical cartel behaviour and constitutes a restriction of competition by object. Algorithmic collusion, on the other hand, may be unintentional. The draft Horizontal Guidelines further note that for algorithmic collusion to take place, a number of structural market conditions are required. For instance, the presence of homogeneous products/services. The draft Horizontal Guidelines further state that the introduction of a price rule in a shared algorithmic instrument is likely to fall under the cartel prohibition. It is not required that such pricing is explicitly agreed upon.

In addition to the draft Horizontal Guidelines, in April 2021 the Commission proposed a Regulation laying down harmonised rules on artificial intelligence and amending certain sections of European Union law (“AI Regulation“). According to this proposal, each Member State must appoint a national supervisory authority to monitor the application and implementation of the AI Regulation. If the designated supervisory authority encounters competition law issues, it must inform the national competition authority. In addition, the Commission proposed a Digital Markets Act (“DMA“) and a Digital Services Act (“DSA“). We have previously devoted a blog to the DMA. Since then, the DMA has undergone several changes. On 24 March 2022, the European Parliament and the Council agreed on the content of the DMA. The text will soon be technically finalised. After that, formal adoption by the Council and the European Parliament is required. For a complete overview of the current status of the DMA, consult this webpage of the European Parliament.

All these proposals show a clear trend that the Commission wants to regulate the use of algorithms and AI in digital markets.

Algorithmic collusion in digital markets

From a competition law perspective, collusion by price algorithms may cause infringements of Article 101 of the Treaty on the Functioning of the European Union (“TFEU“) and Article 6 of the Dutch Competition Act (“Mw“). According to competition authorities and literature on the matter, two main types of collusion can be distinguished: explicit collusion and tacit collusion. In the case of explicit collusion, a price algorithm is used to implement and/or monitor an already existing cartel agreement. This offers a significant advantage to the cartelists as it stabilises the cartel agreement and reduces the likelihood of deviations. In the case of tacit collusion, coordination is not explicitly agreed between the undertakings concerned. Three different variations of tacit collusion can be identified:

• In a hub-and-spoke scenario, tacit collusion arises when rival companies – also known as spokes – choose not to develop their own price algorithm, but to use a third-party algorithm. If competing companies purchase a price algorithm from the same supplier – a so-called hub – the hub may have an incentive to raise prices above the competitive level. In that case, the hub facilitates a cartel between the spokes through a price algorithm. This form of tacit collusion is also explicitly mentioned in the draft Horizontal Guidelines.
• A predictable agent is a price algorithm that reacts in a predictable way to external factors. The algorithm is instructed to monitor market prices, to follow price leadership and to punish deviations from tacit cooperation. These instructions may lead to coordinated pricing. This is particularly likely if the price algorithm is programmed to set prices in a simple, transparent and predictable manner.
• An autonomous machine algorithm aims to develop an optimal strategy. Subsequently, it receives certain input, such as the instruction to maximise profit. Next, the algorithm learns how it can best achieve that goal. The possibility arises that an algorithm gradually learns that collusion with algorithms of competitors is the optimal strategy for achieving profit maximisation. As a result, without human intervention, collusion can occur between the algorithms of competing companies.

Assessment of algorithmic collusion under the cartel prohibition

The detection and assessment of algorithmic collusion constitutes a major challenge for competition authorities. For that reason, there have been only a few algorithmic collusion cases. A well-known case is the Eturas case, in which an operator of an online booking platform for travel agents had sent – via the platform’s mailbox – a message to travel agents, informing them that the discounts for products sold via the platform were capped. Subsequently, the platform operator implemented the change in the platform’s system. The Court of Justice of the European Union (the “ECJ“) examined whether the travel agents were liable. According to the ECJ, no participation in the alignment could be established as long as it was not proven that the travel agents were aware of the changes in the platform’s system. This shows that the ECJ applies the elements for a concerted practice in a flexible manner. The bar for coordination is set relatively low, as the travel agents would have been guilty of coordination if they had read the message and/or had been aware of the change in the system. In which case, the travel agents should have publicly distanced themselves from the message. It is therefore clear that companies – in this case the travel agents – can coordinate with each other without knowing it, because the coordination takes place via a platform. The Eturas case has also been included in the draft Horizontal Guidelines.

Another case in which algorithms facilitated a cartel agreement concerns the 2018 Consumer Electronics case, in which the Commission imposed fines on electronics manufacturers Philips, Pioneer, Asus, Denon and Marantz. They were fined for restricting retailers from independently setting sales prices, thereby keeping sales prices high. The electronics manufacturers did this by using price algorithms to monitor sales prices and put pressure on retailers to align their prices with those of competitors. This form of algorithmic price coordination was proved by the physical evidence, which mainly consisted of written communications from the electronics manufacturers to retailers, informing them of the policy and the consequences if they did not comply.

The benefits of price algorithms

Price algorithms also have advantages. They enable companies to respond faster and better to changes in markets, allowing for a better match between supply and demand. In addition, price algorithms may lead to a significant reduction in production and transaction costs. Because price algorithms can generate efficiency gains, an exemption from the cartel prohibition may be desirable in such cases. For example, in the Webtaxi case, an exemption was granted by the Luxembourg Competition Authority, because the joint use of a price algorithm by competing taxi companies led to greater cost efficiency and more favourable prices for consumers.

Future regulation of digital markets

Currently, competition authorities are working on various legislative proposals concerning the regulation of digital markets. The Commission has already made proposals for new Horizontal Guidelines, the AI regulation, the DMA, and it is likely that it will not stop there. Also on a national level, the ACM focusses on the supervision of the use of algorithms and AI in digital markets. As Martijn Snoep, chairman of the ACM, recently pointed out, algorithmic collusion is currently the biggest concern for the ACM. Especially since detecting algorithmic collusion is extremely difficult. To solve this, competition authorities are employing more programmers and data experts. This shows that future enforcement in respect of algorithmic collusion is to be expected.

Bas Braeken and Jade Versteeg

Competition authorities are becoming more and more active in the food and agricultural sector. New exemptions for the application of competition law are introduced, and the agricultural sector is given more opportunities to cooperate. Especially in the context of sustainability, coordination between farmers is ever more allowed. In addition, there are initiatives to strengthen the position of farmers in the supply chain by limiting the buying power of strong market players, such as supermarkets. On 1 November 2021, the Dutch Unfair Commercial Practices in Agriculture and Food Supply Chain Act (“UCPAA“) entered into force, and established a new Disputes Committee that has become active on 1 January 2022. In this contribution, we provide a current overview of the application of competition law in the agricultural sector and discuss some recent developments.

Competition law in the agricultural sector

In light of the EU’s Common Agricultural Policy (“CAP“), Article 42 of the Treaty on the Functioning of the European Union (“TFEU“) provides that the competition law provisions apply to the production of and trade in agricultural products (defined in Annex 1 to the TFEU) only to the extent determined by the European legislator through specific legislation. In that regard, the legislator should take into account the objectives of the CAP, such as increasing agricultural productivity, stabilising markets, ensuring a fair standard of living for agricultural communities as well as assuring supplies and ensuring reasonable prices for the consumer.

The Dutch Competition Act (“DCA“) does not yet provide any explicit exemption for the agricultural sector. In 2021, a Proposal has nevertheless been submitted to include such an exemption in the new proposed Article 11a DCA.

The CMO Regulation

The application of the competition law rules in the agricultural sector is laid down in Regulation 1308/2013 (the “CMO Regulation“). It is directly applicable in the Dutch legal system. The CMO Regulation is a long and product-specific document; specific rules can be found on the import of hops, the production and distribution of wine and sugar, and it provides specific rules for producer organisations in the fruit and vegetables sector.

Based on Article 206 of the CMO Regulation, the cartel prohibition (101 TFEU), the prohibition of abuse of a dominant position (102 TFEU) and the state aid rules (106 TFEU) generally apply to the production of or trade in agricultural products. The CMO Regulation nevertheless introduces some specific exemptions for (national support measures and) the application of the cartel prohibition in light of the CAP and with regard to producer organisations.

The exemptions of the CMO Regulation have been further expanded with the entry into force of Regulation 2021/2117. Since December 2021, certain conduct aimed at achieving sustainability objectives can also be exempted from the cartel prohibition. The new Regulation also provides that for neither of these exemptions, prior approval of the European Commission (“Commission“) is required. Subject to the conditions set out below, these practices automatically fall outside the scope of Article 101(1) TFEU. If they wish to do so, farmers may nevertheless request an opinion from the Commission concerning the compatibility of their conduct with the competition law rules.

Exemptions from the cartel prohibition

The current, consolidated CMO Regulation exempts the following conduct from the application of the cartel prohibition:

• Agreements, decisions and concerted practices necessary for the attainment of the CAP objectives, provided that they do not exclude competition and do not impose an obligation to charge identical prices;
• Agreements, decisions and concerted practices of farmers, (associations of) farmers’ associations and recognised (associations of) producer organisations, which concern the production or sale of agricultural products or the use of joint facilities for the storage, treatment or processing of agricultural products, provided that such conduct does not exclude competition, jeopardise the CAP objectives and does not entail an obligation to charge identical prices;
• Agreements, decisions and concerted practices of recognised interbranch associations that are necessary in order to meet a recognised objective in the interest of members and consumers (specified under Article 157(b)(c)), provided that they do not or cannot distort the market, distort or eliminate competition (in whole or in part), create discrimination or involve the fixing of prices or quotas;
• Agreements, decisions and concerted practices of producers of agricultural products (or between such producers and operators at other levels of the production chain (i.e.: both horizontal and vertical)) that relate to the production of or trade in agricultural products and that are indispensable to apply a sustainability standard, including environmental objectives, the production of agricultural products and animal welfare.

Price-fixing and producer organisations

In the Endive-judgment of 2017, the connection between the first two exemptions and the possibility of mutual price-fixing was further clarified. The Court of Justice of the European Union (the “Court“) held that internal agreements and conduct of recognised producer organisations (“PO“) and associations of producer organisations (“APO“) may fall outside the scope of the cartel prohibition when they are (strictly) necessary to carry out the tasks legally assigned to them (including the CMO Regulation). Therefore, agreements on quantities to be marketed and the sharing of other strategic information might be necessary in light of the objectives of the CMO Regulation, such as stabilising producer prices and ensuring a fair standard of living. The Court did not consider it necessary to collectively set a minimum selling prices within a PO or APO, where producers subsequently sold their own products on an individual basis.

Although the Court emphasises that the CAP – and the specific objectives of POs and APOs arising therefrom – generally take precedence over European competition law, the mutual, collective fixing of prices is considered as a serious restriction of competition which, in turn, must take precedence over the (European) agricultural policy.

Sustainability

In this context, it is rather remarkable that the new sustainability exemption does not make an explicit reservation as regards the fixing of prices. This raises the question whether price-fixing strategies for the attainment of sustainability objectives could be exempted. In its Agro-Nutri Monitor 2021, the Dutch Authority for Consumers and Markets (“ACM“) notes that sustainability is often hindered by, amongst other things, the high costs of sustainable production and conversion costs for farmers. Higher (fixed) prices could therefore potentially promote sustainability. A legislative proposal to exempt certain sustainability initiatives is also currently pending in the Netherlands.

Earlier this year, the German competition authority, the Bundeskartellamt (“Bka“), approved two initiatives based on the new exemption. The Bka stated that it had no objections to food retailers setting common standards for wages in the banana sector, and encourages “Initiative Tierwohl”, in which four major German supermarkets (EDEKA, REWE, Aldi and the Schwarz-group, including Lidl) negotiate with livestock owners and slaughterhouses to introduce a certain animal welfare premium for poultry meat and pork.

However, at the end of January this year, the Bka also held that an envisaged system of surcharges in the dairy sector cannot be exempted and should in fact be considered anti-competitive. In order to ensure a higher (read: break-even) level of income for raw milk producers (livestock farmers), representatives of German milk producers intended to introduce a standard surcharge on the purchase price for ‘raw milk’. This surcharge would in practice be passed on through the supply chain, down to the milk shelf. The Bka recognises that this serves a legitimate (sustainability) objective, but states that the initiative in fact introduces a mandatory minimum price/surcharge in the supply chain, which ultimately leads to a higher price for consumers. Although sustainability initiatives – which sometimes can include agreements on (components of) costs/prices – are generally encouraged, the Bka draws the line where such agreements (can) disadvantage the eventual consumer.

In the coming years, the limits for this new sustainability exemption as envisaged by the European legislator will be further clarified. The Commission aims to publish its guidance on the application of the new Article 210a by the end of 2023.

Strengthening the bargaining power of farmers

In addition to (new) initiatives to exempt the conduct of producers of agricultural products from the cartel prohibition, competition authorities closely inspect the conduct of strong, incumbent market players such as supermarkets. The fact that farmers often face sizable and concentrated market players – on whom they are to a large extent economically dependent –makes it liable for abuse or other unfair behaviour to occur. From 2019 onwards, the ACM is investigating some particular agreements between “large traders” on the purchase price for farmers. In addition, at the end of 2021, the ACM started a new (international) investigation in the food processing sector, regarding (presumably) prohibited agreements on product distribution and purchase prices, to the detriment of farmers and growers.

Unfair commercial practices agricultural and food supply chain

On the basis of European Directive 2019/663, the Dutch UCPAA has entered into force on 1 November 2021. It prohibits large market players from implementing unfair commercial practices towards farmers, growers and fishermen in order to strengthen their (bargaining) position in the supply chain.

The UCPAA applies to conduct of buyers of agricultural and food products (as listed in Annex 1 to the TFEU) towards their suppliers (including APOs and POs). The rules only apply when the supplier is relatively small in relation to its buyer:

Article 2 of the UCPAA introduces a black list of behaviour that automatically leads to unlawful conduct by the buyer towards its supplier. It includes following conduct of the buyer:

• Payments later than 30 days after delivery for perishable products and 60 days for non-perishable products;
• Late cancellations for perishable products (in any case, less than 30 days);
• Changing terms unilaterally;
• Requesting payments not related to the sale of the products;
• Requesting payments for spoilage and loss of the products after delivery, not due to negligence or default of the supplier;
• Refusing written contracts despite the supplier’s request;
• Unlawfully obtaining/using/disclosing the supplier’s trade secrets;
• (Threatening) retaliation;
• Requesting compensation from the supplier for investigating customer complaints when they are not attributable to negligence or omission on the part of the supplier.

Article 3 of the UCPAA additionally provides a grey list. The conduct on the grey list is presumed unlawful unless it has been previously, clearly and unambiguously agreed upon in writing between the supplier and the buyer. Such conduct includes:

• Returning unsold products to or having them removed by the supplier without payment;
• Requesting fees for:
• the storage of products;
• the incorporation of products into the assortment of the buyer;
• the promotion, marketing, advertising or display of products in shops;
• non-specified discounts on the products from promotional campaigns.

The ACM is assigned to supervise compliance with these rules. It is competent to impose a fine of up to 900.000 euros or, if more, 10% of the offender’s turnover. In addition, the Minister has appointed a specific Disputes Committee to settle disputes arising from this new legislative framework. As of 1 January 1 2022, the Dispute Committee has been instated and farmers can file a complaint (possibly anonymously) for a small amount of 250 euros.

Conclusion

The relationship between competition law and agriculture is still in development. Topics such as sustainability and climate change remain high on both the European and Dutch political agenda in 2022. As a result, competition law will occasionally have to make way for the preservation of the agricultural sector. The question remains, however, where these boundaries exactly lie and whether, and if so when, cooperation may in fact lead to higher prices. In the coming years, there will likely be more balance in the positions of suppliers/producers (farmers) and their buyers (e.g. supermarkets) as well.

Bas Braeken and Demi van den Berg

The Covid-19 crisis has seriously affected the aviation sector. The sudden decrease in (commercial) air traffic has forced airlines, airports and governments to rapidly make new policy. Besides their remedial effect, these changes have also had an impact on competition in the aviation market. This blog outlines the most important recent developments in competition law in the aviation sector.

Slots

The possession of slots is one of the main indicators of an airline’s market position. The landing and take-off capacity of an airport is generally scarce, and the demand for certain slots is highly time-dependent. The allocation of slots is therefore strictly regulated according to the rules of the International Air Transport Association (“IATA“). IATA member airports are further bound by the Worldwide Airport Slot Guidelines (“WASG“). Within the European Union, Regulation 95/93 (“Slot Regulation“) is also in force, which ensures that the allocation of slots does not distort competition. This legislation is complemented by Regulation 1008/2008 (“Operating Regulation”), which deals with the operation of air services in general and formulates requirements for the fair distribution of air traffic.

The Slot Regulation has been amended several times as a result of the Covid-19 crisis. Regulation 2020/459 amends the “80% rule”, which requires that airlines use at least 80% of the slots that have been allocated to them. Under current circumstances, airlines cannot meet this “use-it-or-lose-it” requirement without resorting to inefficient and polluting “ghost flights”. Therefore, slot utilisation rates have been changed to 50% for the winter service period of 2021/2022.

The Slot Regulation requires that Member States designate an independent administrative body responsible for slot allocation. In the Netherlands, this is the Airport Coordination Netherlands (“ACNL“), which publishes new rules every three years. In the proposal for the new rules, which would come into effect in the summer of 2022, ACNL controversially included the so-called Policy Rule Additional Allocation Criteria (“Policy Rule“), which allows ACNL to allocate slots based on preferred destination lists created by airports. In response, IATA sought an injunction against ACNL in respect of the Policy Rule, arguing that the Operating Regulation requires consent from the European Commission for such traffic allocation schemes. The District Court of North Holland has decided this case in favour of IATA, with KLM, Transavia and TUI as joint parties.

 State aid

 Article 107(1) TFEU states as a general rule that State aid which distorts or threatens to distort competition is incompatible with the internal market. The European Commission has considered that the economic impact of the Covid-19 crisis is so serious and widespread that certain State aid measures should be considered (temporarily) compatible with the internal market on the basis of some exceptions listed in Article 107 TFEU. To this end, the Commission has created the State Aid Temporary Framework (“Temporary Framework“), which has since been further developed. The Temporary Framework states that a State aid measure aimed at remedying the consequences of the Covid-19 crisis may be simultaneously considered as:

• A measure to make good the damage caused by natural disasters or other exceptional occurrences within the meaning of Section 107(2b);
• A measure to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State within the meaning of Article 107(3b); and
• A measure designed to facilitate the development of certain economic activities or of certain economic areas within the meaning of Article 107(3)(c).

Under the Temporary Framework, a variety of State aid measures have been approved, including for some airlines. In July this year, the Commission approved an aid package of more than €525 million to airline Condor, in response to the exceptional circumstances created by the Covid-19 crisis. Approval was also given for aid to Air Nostrum in Spain, Air Belgium in Belgium and SATA Air Açores and Azores Airlines in Portugal. The Commission also approved aid packages to airports in Italy, Greece, Ireland, Slovakia and Scotland.

The large amount of State aid granted under the Temporary Framework is a sensitive issue for competitors in the aviation market. Ryanair has attempted, with varying degrees of success, to have a number of the Commission’s approval decisions overturned by the General Court. In the first two cases, Ryanair argued that State aid discriminates (within the meaning of Article 18 TFEU) against foreign competitors in favour of national airlines. The General Court has not accepted this argument and ruled that, since travel restrictions imposed by national authorities hit domestic airlines the hardest, selective State aid to domestic airlines is a legitimate remedy.

Ryanair also argued that State aid to individual carriers is not an appropriate measure if more than one carrier has suffered damage. In a second round of decisions, the General Court has ruled that (economic) recovery (from a natural disaster) does not have to include all affected undertakings, and that therefore aid to an individual undertaking can be an appropriate measure to meet the exemptions under Article 107(2b) TFEU and Article 107(3b) TFEU.

Later complaints by Ryanair have been more successful. In a final series of judgments, the General Court annulled three state aid approval decisions by the Commission, citing an insufficient examination of the corporate background of the aided airlines. For example, the General Court reversed the authorisation of Dutch aid to KLM because KLM belongs to the same group as Air France, which has profited from state aid in a different country. Because double aid to a single group of undertakings has the potential to distort competition even further, the General Court has ordered the Commission to reassess these specific applications for state aid.

Airport fees Schiphol

In The Netherlands, the Aviation Act specifies that the operator of an airport must review the rates and conditions for the use of its facilities every three years. On 8 July this year, the Netherlands Authority for Consumers and Markets (“ACM“) approved the allocation system of Royal Schiphol Group (“Schiphol“) applicable for the period 2022-2024. In the decision the ACM discusses the material changes in the new system. These are largely related to the Covid-19 crisis and the associated reorganisation project Project Reset. The main change concerns the use of multipliers in the allocation of costs. Schiphol is legally allowed to attribute differences between its budget and the realisation thereof to airport users such as airlines. For example, if more passengers use the airport than predicted, leading to higher cleaning costs, Schiphol will pass on (part of) these increased costs to the airlines that transported the passengers. The multiplier determines the size of the attributed sum; if the cleaning costs are 5% higher and Schiphol charges 5% more as a result, the multiplier is 1.

The Covid-19 crisis has led to dramatic differences (70% in 2020) between the budget and the realisation of passenger numbers at Schiphol and, as a result, also to a substantial increase in the amounts charged to users of its facilities. Under the approved allocation system, airport charges for airlines will increase by 37% over three years. Airlines and affiliated interest groups have objected to Schiphol’s plans and announced that they will take legal action against the increase in airport charges. They argue that Schiphol is abusing its position of economic power on the market for airport operation-related activities.

Conclusion

The Covid-19 crisis has forced air carriers, airports and governments to take rigorous measures to keep the sector efficient and competitive. These measures have affected competition on the aviation market, as shown by the number of cases that have accumulated in a short period of time. Changes in the use of slots and the granting of state aid are just a few of the large-scale changes brought about by the Covid-19 crisis, on which case law is yet to shed light. Criticism of the increase in airport charges by Schiphol as a result of the new allocation system will in all likelihood lead to new cases in the future.

Questions about this subject? Please contact bureau Brandeis, Bas Braeken and Jade Versteeg

Due to Covid-19 restrictions, the Netherlands Authority for Consumers and Markets Consumer and Market Authority (“ACM“) has not carried out unannounced inspections (also called ‘Dawn Raids’) for a while. Given that most restrictions have been phased out, the ACM has announced that it will start again to conduct Dawn Raids in the near future.

In the Netherlands both the ACM and the European Commission (“Commission“) are allowed to carry out Dawn Raids for alleged infringements of competition law. These authorities are competent to use this power when there is a concrete indication of anti-competitive agreements or behaviour. Such indications may arise from (anonymous) tips from competitors and (former) employees, and as a result of an official investigation or a market study (see for example our blog about the Commission’s market study into the Internet of Things).

If the ACM knocks on your company’s door in order to execute a Dawn Raid, the ACM’s inspection will proceed (roughly) along the following lines:

• Entry and opening interview
• Analogue research
• Digital research
• Interview and/or administrative interview

This blog discusses what can be expected and indicates the limits of the investigative powers of the ACM.

Entry and opening interview

During a Dawn Raid, pursuant to article 5:15 of the Dutch General Administrative Law Act (“Awb“) (in Dutch: Algemene Wet Bestuursrecht), officials of the ACM are authorized to enter business premises and open vehicles without prior announcement. They may also enter private homes under article 50 of the Dutch Competition Act (“Mw“) (in Dutch: Mededingingswet). Please note that in order to enter a private residence they need prior authorisation from the supervisory judge.

At the beginning of the Dawn Raid the ACM will ask for a specific person or a person with a specific job description. They will conduct an opening interview with this person. The ACM will usually also ask for an IT person to join the opening interview to map out the IT infrastructure.

During the opening interview the ACM will identify itself on the basis of article 5:12 of the Awb and hand over the search warrant which describes the purpose and object of the Dawn Raid. The ACM must point out to the company that it has a right to legal assistance and will often be willing to wait for a maximum of half an hour for their arrival.

The ACM will clearly state, at the start of a Dawn Raid, that employees must cooperate with the investigation on the basis of article 5:20 of the Awb and that they may not destroy evidence. The duty to cooperate means that employees must not obstruct the ACM and must provide access when so requested. A fine of EUR 900,000 (also for natural persons) or 1% of the group turnover may be imposed for non-cooperation pursuant to article 12m of the ACM’s Establishment Act. In the event of a difference of opinion about the scope of the duty to cooperate, it is advisable to cooperate under protest and to have a note made in the report. This avoids the risk of a fine but gives the company the opportunity for judicial review (e.g. interim injunction proceedings or an appeal against a sanction decision).

Relevance of search warrant

The search warrant determines the limits of the ACM’s investigative powers. Under article 5:17 of the Awb the ACM may request access to all files that fall within the scope of the warrant. The ACM is not allowed to view or copy any files that fall outside the scope of the search warrant. Such files may include e-mails and other correspondence, WhatsApp messages, agendas, memos, minutes of meetings, photographic material, expense claims, and travel tickets. Contact with lawyers – ‘privileged’ communication – is excluded and may not be viewed or copied.

The search warrant that the ACM is obliged to provide must state the purpose and object of the investigation at the time of the Dawn Raid. However, pursuant to the Nexans judgment of June 2014 of the Court of Justice of the European Union (“ECJ“), the statement of purpose and object does not have to contain, and certainly not in the initial phase, a precise definition of the market concerned or a precise legal qualification of the alleged illegal acts. A judgment of the district court of The Hague in preliminary relief proceedings of October 2018 also shows that the ACM has a certain amount of discretion for the formulation of its purpose. What is important is that the definition of the purpose allows the company to determine the scope of its duty to cooperate and its rights of defence.

The question whether something falls within or outside the scope of the investigation task often leads to considerable discussions between the (lawyers of the) company and the ACM, as was the case in a recent dispute at the District Court of The Hague of June 2021. A number of companies brought preliminary relief proceedings because the ACM had considerably expanded the scope of its investigation in response to information found during a Dawn Raid. Initially, the assignment focused on procurement. However, during the Dawn Raid officials also copied files relating to other departments. When the officials at the ACM’s offices took a quick look at these files they came to the conclusion that not only the purchasing department but also the sales department had probably violated competition law. The ACM extended its investigation on the basis of this information.

The central question was whether the ACM was allowed to use this information that it acquired during a Dawn Raid to expand the scope of its investigation. The District Court ruled that on the basis of the Deutsche Bahn judgment of the ECJ, competition authorities are allowed to briefly inspect information in order to verify whether it falls within the scope of the investigation. The competition authority does not have a duty to ignore information that it happened to become aware of during this brief inspection. Accordingly, the District Court of The Hague ruled that the ACM was allowed to use the information that it acquired during its Dawn Raid even though the information clearly fell outside of the scope of the search warrant.

Analogue research

Officials can and may request access to physical files located in locked rooms, cabinets or drawers. In principle, employees must grant access to physical files as long as the ACM acts within the limits of scope of the search warrant.

The limits of the power to conduct analogue investigations were discussed in the so-called wastebasket case. The case concerned officials of the Dutch Financial Markets Authority (“AFM“), who like the ACM are allowed to conduct Dawn Raids. During a Dawn Raid the AFM had independently and randomly taken files from cabinets, opened drawers and searched through wastebaskets and paper bins. According to the Trade and Industry Appeals Tribunal (“CBb“) these actions were unlawful.

The CBb considered the actions of the officials of the AFM unlawful because they qualified as “fishing”. Officials of the AFM and ACM are not allowed to do this; they may only “look around” and subsequently must request access to documents. If, after requesting access, a discussion arises about the relevance of certain files, the officials may only inspect them briefly for verification purposes. Ultimately the CBb’s ruling on the unlawfulness in the wastebasket case made very little difference in practice; the fine imposed on the AFM was upheld because sufficient lawful evidence had been found. In general the case law on this topic shows that claimants are seldom able to prove that officials are guilty of “searching”.

Digital research

In contemporary practice most of the investigation during a Dawn Raid will be focused on digital files. The ACM is authorised to copy digital files from mobile phones, laptops, PCs and other data carriers. In order to manage digital investigations the ACM has published a Digital Working Method in 2014. This describes how the ACM proceeds when collecting and processing digital data taken during a Dawn Raid. In its Working Method, the ACM deviates from the Commission’s practice.

Mobile phones

Pursuant to article 5:17 of the Awb the ACM is permitted to inspect mobile phones if it has sufficient indications that the mobile phone is used for business purposes. The inspection of mobile phones will often take place on site in the presence of the employee that owns or usually uses the phone. The ACM must be able to establish briefly whether, for example, WhatsApp messages are business-related. On the basis of the proportionality requirement, the ACM should stop inspection if the chat is (partly) private. Any disagreement will be referred to the ACM’s confidentiality officer. The limits of the ACM’s authority with respect to the safeguarding and investigation of mobile data regularly leads to legal disputes.

In an anonymised summary proceeding of November 2017, a company argued that the ACM was not allowed to inspect mobile data, because it also included private data of the employee. However, the District Court of The Hague found that the phone contained a lot of relevant data and the ACM could not separate business and private data on the spot. The ACM was therefore allowed to copy all data including any private data. The District Court more over ruled that the ACM had provided sufficient safeguards in order to prevent it from obtaining access to private data in its Digital Working Method.

Deleting data from mobile phones after the ACM has pointed out to the company its duty to cooperate can lead to substantial fines. Recently, the ACM imposed a fine of EUR 1.84 million for deleting WhatsApp chats during a Dawn Raid.

Other digital files

During a Dawn Raid the ACM may seize many digital files for further investigation. These are often millions of individual files such as e-mails, minutes and contracts which the ACM can take with it by making integral copies of (several) complete computers. The files taken by the ACM are referred to as the ‘Safeguarded Dataset’.

Subsequently, the ACM will use search terms to filter out irrelevant documents from the Safeguarded Dataset to arrive at an ‘Within the scope Dataset’. An anonymised judgment of March 2019 of the Court of Appeal of The Hague shows that the ACM has discretion when it comes to choosing the search terms it uses in order to filter its datasets. Pursuant to article 1 of the Digital Working Method files may be considered within the scope of an investigation if the nature or content of the data can reasonably be deemed to fall within the purpose and object of the investigation. The search questions must therefore be sufficiently specific to be able to state that the hits are reasonably within the purpose and object of the investigation.

Finally, a specially designated official will filter out of the ‘Within the Scope Dataset’ all privileged files and private communications to create the ‘Investigation Dataset’. The investigating officials of the ACM then use this dataset to build a file against the company in question. In a judgement of September 2020 the interim relief judge of the Rotterdam District Court ruled that a company is entitled to inspect the Investigation Dataset that the ACM has compiled.

Interrogation or administrative interview – right to remain silent

Pursuant to article 5:16 of the Awb, the ACM also has the power to obtain information from employees in the course of an investigation. The duty of cooperation requires employees to answer questions unless they themselves are personally suspected of violating competition law. Before an interrogation begins, the interviewing official must inform the employee of his or her right to remain silent. If the employee is a suspect he or she is no longer obliged to answer questions with which he or she could (possibly) incriminate him or herself or the company (pursuant to article 5:10 of the Awb).

Seal

Dawn Raids often last longer than one day. To prevent evidence from being tampered with during the night officials of the ACM will seal rooms or closets as they see fit. Sealing can also be a solution to a discussion about the relevance or privileged status of certain material. That way a discussion can be postponed to be conducted in the presence of a lawyer.

The ACM can impose a very high penalty if a seal is broken almost regardless of whether the company can do anything about it. Therefore the risk of a seal being broken rests almost entirely with the company in question. The exception that confirms the rule in this respect is the National Association of General Practitioners case. In this case, the National Association of General Practitioners (“LHV“) was fined €51,000 for breach of seal. LHV shared its office with several companies and had taken precautions in order to prevent a seal from being broken. Nonetheless a night time security guard broke the seal during his normal rounds. The CBb annulled the fine imposed on LHV because it had taken all necessary precautions and did not directly employ the guard who had broken the seal.

After the Dawn Raid

Towards the end of the dawn raid, the ACM and/or the Commission will draw up an inventory of all the (digital) documents they have taken or copied. Companies are advised to draw up an inventory themselves in which they can compare to the inventory of the investigators and on which they can record any particularities that occurred during the Dawn Raid.

Checklist in case of Dawn Raid

• Appoint a Dawn Raid specialist within your company, and make sure they have the contact details of a trusted competition lawyer in advance.
• Please also read our preparatory documents (in Dutch) for a Dawn Raid, including:
  • separate instructions for receptionist,
  • separate instructions for staff who accompany ACM personnel during Dawn Raids, and
  • a detailed legal framework for Dawn Raids of the ACM.
• Create a ‘legal privilege’ folder where all (e-mail) correspondence with lawyers is stored.
• In the event of a Dawn Raid, send the ACM to an empty conference room.
• Formally object to the Dawn Raid without breaching your duty to cooperate and ask for proof of your objection.
• Make copies of all documents copied by the ACM during the Dawn Raid.
• Always make a note of whether, when and who is considered personally suspect by the ACM. The ACM will not directly state that an employee is a suspect so this must be derived from the fact that an employee is informed of his or her right to remain silent.
• Take a picture of any seal and hire a security guard to protect the seal.
• When the ACM is leaving, ask for a copy of their inventory.

Is the ACM currently performing a Dawn Raid at your premises? Would you like more information about the do’s and don’ts during a Dawn Raid? Or are you interested in a compliance training course in which employees are prepared for a Dawn Raid? The Dawn Raid team at Bureau Brandeis has extensive experience with raids of the ACM. Please feel free to contact Bas Braeken, Jade Versteeg, Lara Elzas, Timo Hieselaar, Demi van den Berg and/or Berend Verweij.

On 7 October 2021 the Grand Chamber of the Court of Justice of the EU ( “ECJ”) handed down a landmark judgment for the victims of antitrust infringements in Case C-882/19 Sumal. In essence,  it held for the first time that victims of a cartel infringement may, under certain circumstances, bring an action for damages against the subsidiary of a parent company which was found guilty of that infringement. This ruling has numerous practical implications for antitrust victims, notably in terms of choosing the legal entities against which they may bring a private damages claim and the jurisdiction(s) before which they may bring their claims. In so doing, the ECJ also appears to nuance the well-established “economic unit” doctrine.

In this blog, we briefly (i) sum up the background to the dispute, (ii) recall the questions asked to the ECJ and the Opinion of its Advocate General Pitruzzella, (iii) examine and clarify the answer and the reasoning of the ECJ, (iii) and formulate some observations about the solutions adopted by the ECJ.

Background to the dispute

The case referred to the ECJ is one of the many referrals sent by the Courts to the ECJ in the aftermath of the 2016 decision of the European Commission imposing fines on the European truck manufacturers for their participation in a cartel (“cartel decision”).

In casu, the claimant, a Spanish company seated in Barcelona had acquired between 1997 and 1999 two Daimler trucks from a dealership in Spain under a leasing contract.

To obtain compensation for the trucks it had purchased at cartelised prices, it brought a damages action before the Barcelona Commercial Court against the Spanish subsidiary of Daimler AG. While Daimler AG is one of the addressees of the European Commission’s cartel decision, its Spanish subsidiary was not.

On 23 January 2019, the Barcelona Commercial Court dismissed the action brought against the Spanish subsidiary, reasoning that it could not be sued since the cartel decision was only addressed to its parent company.

The Claimant appealed this ruling before the Barcelona Court of Appeal, which asked the ECJ for a preliminary ruling.

The Question asked to the ECJ and the AG’s Opinion

In essence, the referring court asks the ECJ whether the victim of an anti-competitive practice by an undertaking may bring an action for damages, without distinction, either against a parent company which has been punished by the Commission for that practice in a decision or against a subsidiary of that company which is not referred to in that decision, where those companies together constitute a single economic unit (para. 31).  While the question whether a parent company may be held liable for the behaviour of its subsidiary (‘upward liability’) has been answered by the ECJ both in the public (Akzo) and private antitrust (Skanska) contexts, it is the first time that the ECJ addresses the question whether a subsidiary may be held liable for the behaviour of its parent company in the context of a damages action (‘downward liability’).

In its Opinion delivered on 15 April 2021 (Opinion)Advocate General (AG) Pitruzzella proposes to give a positive answer to the question asked to the ECJ.

After quoting the case law regarding the concepts of “undertaking” and “economic unity” which, according to the AG, allow a parent company to be held liable for the anti-competitive behaviour of its subsidiary when the parent company “exercises a decisive influence on the commercial policy of its subsidiary”, AG Pitruzzella considers that, for the subsidiary to be held liable for its parent’s behaviour, the subsidiary must have taken part in the economic activity of the parent company that has materially committed the infringement (para.56 and 57 Opinion).

This leads the AG to consider that the criteria to hold the parent company liable for its subsidiary’s anti-competitive behaviour are different from those required to hold the subsidiary liable for the parent’s anticompetitive behaviour (para. 59 Opinion).AG Pitruzzella concludes therefore that a subsidiary may be held liable for its parent’s behavior if two requirements are met:

(i) They formed an ‘economic unit’ as established by their economic, organizational and economic links;

(ii) The subsidiary has contributed substantially to the realization of the objective pursued by the parent company and in the materialization of the effects of the infringement (for example, because the subsidiary sells the goods that are the subject of the cartel) (para. 53 Opinion).

The ECJ’s ruling

In its ruling, the ECJ agrees with the AG’s Opinion that a subsidiary might be held liable for the damage resulting from anti-competitive conduct of its parent company under certain circumstances but adopts a different reasoning from the AG.

As a first step of its reasoning, the ECJ relies notably on Skanska to insist on the right of antitrust victims to obtain redress against the “undertakings” which participate in anti-competitive behaviours (paras. 31 to 36), as well as the fact that the concept of “undertaking” has a similar scope in the context of private and public competition enforcement (para. 37).

As a second step, the ECJ details the concept of “undertaking” as defined in its well settled case law and its consequences on liability, i.e., the possibility of holding the parent company liable for the anti-competitive behaviour of its subsidiary when they form an “economic unit”. As the ECJ notes it, pursuant to the well-known Akzo judgment, such an economic unit exists when the subsidiary does not determine independently its own conduct on the market, but essentially carries out the instructions given to it by the parent company, having regard especially to the economic, organisational and legal links between those two legal entities (paras. 38 to 43).

As a third step, the ECJ appears to apply a new and nuanced approach to the existing functional concept of “undertaking”. It first finds (in para. 45) that there are groups of companies of the “conglomerate” type which are active in several unrelated economic fields. As a consequence of this finding, it considers (in para. 46) that an action for damages cannot automatically be brought against any subsidiary of the parent company referred to in a Commission decision. According to the ECJ (still in para. 46), this is because “the concept of an ‘undertaking” used in Article 101 TFEU is a functional concept, in that the economic unit of which it is constituted must be identified having regard to the subject matter of the agreement at issue”. The ECJ then explains (in para. 47) that, if the “undertaking” was not identified having regard to the agreement at issue, a subsidiary within a group of companies of the conglomerate type “could be held liable for infringements committed in the context of economic activities entirely unconnected to its own activity and in which they were in no way involved, even indirectly”.

The ECJ finds, as a consequence, that establishing that a subsidiary and the parent company which participated in the anti-competitive behaviour constitute an “undertaking” requires to prove, on the one hand, “the economic, organizational and legal links” between them, and, on the other hand, the “existence of a specific link between the economic activity of that subsidiary and the subject matter of the infringement for which the parent company was held to be responsible” (para.51).

Applying this rule to the circumstances of the case, the ECJ rules (in para. 52) that the victim should in principle establish that the anticompetitive agreement concluded by the parent company, for which it has been punished, concerns the same products as those marketed by the subsidiary. In so doing, the victim shows that it is precisely the economic unit of which the subsidiary, together with its parent company, forms part that constitutes the undertaking which actually committed the infringement found earlier by the Commission pursuant to Article 101(1) TFEU, in accordance with the functional interpretation of the concept of ‘undertaking’ (para.52).

The ECJ goes on (in para. 53 et seq.) to address the rights of defence for a subsidiary which is faced with an action for damages. The ECJ distinguishes two situations. In cases where no prior Commission decision has been adopted against the parent company, the ECJ states (in para. 54) that the subsidiary is entitled to dispute both that it belongs to the same undertaking as its parent company and to rebut its liability for the alleged damage (para. 53 and 59). By contrast, in cases where the Commission adopted a prior decision against the parent company, this decision is also final vis-à-vis the subsidiary which may dispute before the national courts that it belongs to the same undertaking as the parent company, but which may not dispute the existence of an infringement if it is found to be part of the same “economic unit” (paras. 52 to 55). This is because the undertaking has had opportunity to challenge the finding of an infringement in the administrative procedure.

The ECJ observes (in paras. 62 and 63) that the Commission is free to impose a fine on any legal entity of an undertaking which has taken part in an infringement of Article 101 TFEU. The Commission’s choice of a parent company as an addressee of its decision, does not preclude the national courts from finding that any of its subsidiaries being part of the same undertaking are also liable for the same infringement.

Finally, the ECJ finds that in the case at hand, the claimant could have brought an action before the Spanish Courts against both the parent company and the subsidiary if the conditions the ECJ set out in its ruling were met. Relying on its Tibor Trans judgment, it rules that where the market affected by the anticompetitive conduct is in the Member State on whose territory the alleged damage is said to have occurred, it is to be held that that Member State must be regarded as the place where the damage occurred for the purposes of applying Article 7(2) of Regulation No 1215/2012.

In light of those considerations, the ECJ finds (in paras. 68 et seq.) that – to ensure the full effectiveness of European Union Law – Article 101 TFEU must be interpreted as precluding national legislation which provides for the possibility of imputing a liability for the conduct of one company to another only if that second company controls the first company.

Some observations

Firstly, the Sumal judgment sheds (long awaited) light on the matter of downward liability, and more generally, whether a broad interpretation of the concept of “undertaking” in private enforcement as formulated in the Skanska judgment, is justified. While some argued that Skanska should be interpreted restrictively as applying only to a situation of economic continuity, others argued that it referred to a complete concurrence between public and private enforcement. The Sumal ruling brings the desired clarification on this matter. In the Sumal ruling – which will constitute for sure an important precedent as it was adopted by the Grand Chamber – the ECJ makes explicit that the concept of “undertaking” is of paramount importance, also in the context of private actions for damages. Although with a small nuance in the form of the substantive requirement that the entities which constitute an economic unit are active on the same market, it is the concept of “undertaking” that determines which entities can be held liable for damages resulting from anti-competitive behaviour of that undertaking, irrespective of which exact entity was fined by the Commission.

The ECJ appears to apply a less strict test to establish downward liability than AG Pitruzzella suggested in his Opinion. Whereas the AG explicitly formulated additional requirements on top of the existence of an economic unit, the ECJ incorporates all relevant criteria for the determination of civil liability within the concept of “undertaking”.

The distinction between upward and downward liability which AG Pitruzzella had identified becomes therefore less clear. While in practice, it will likely be easier for a victim to prove the existence of an economic unit and involvement in the same market in the context of upward liability, the legal requirements are in principle similar for upward and downward liability.

Secondly, the Sumal judgment may also be a first insofar as the influence of damages proceedings will also be felt in administrative proceedings. In a brief paragraph (para. 47), the ECJ appears to narrow down the classical concept of an “economic entity” which has been developed over decades. For the first time, the ECJ considers that one parent undertaking can be part of several economic entities. According to the ECJ, this approach stems of the idea that it would be illogical for a subsidiary to be held liable for damages caused by activities that are completely unrelated to its own activities. While this solution seems fair and logic, the practical consequences of this revolutionary approach of the concept of economic entity, merit further exploration and research.

Moreover, since the ECJ reiterates in this ruling its position in its Skanska judgment that the concept of “undertaking” in the context of public and private competition enforcement cannot be different, it  may be interpreted as an indication that the ECJ is likely to also confirm the solution adopted by the General Court in Biogaran. In that case, the General Court considered that the Commission could impose fines on the subsidiary which could be held liable for the infringement of its parent company when it somehow took part in this infringement by, for instance, selling some of the products.

Thirdly, the main practical consequences of the Sumal judgment in relation to bringing an action against subsidiaries of the parent company to which the Commission decision is addressed may be viewed as two-fold. On the one hand, as far as claimants are concerned, it strengthens their access to justice. First, they can sue subsidiaries which are not addressees of the Commission decision under the aforementioned conditions. Second, as pointed out by the AG in his Opinion in particular, it allows claimants to bring actions before the courts in their home jurisdiction rather than before the courts in foreign jurisdictions (both inside or outside the EU) with which they may be less familiar. This prevents possible higher litigation costs, more complex service and enforcement, as well as risks of restructuring or transfers of assets. It also allows claimants to bring actions in more claimant friendly jurisdictions than their home jurisdiction. On the other hand, as far as competition law infringers are concerned, it clearly increases their risks of being sued by claimants which otherwise might not have brought an action against them.

Conclusion

In short, like all the recent rulings adopted by the ECJ over the past few years, the Sumal judgment will certainly be welcomed by the victims of antitrust infringements in so far as it contributes to increasing their access to justice. The question remains, however, to what extent this approach will also be applied to sister companies. In our view it is likely and consistent with the new approach of the concept of an economic unity, as introduced by the ECJ in Sumal, that if a sister company is active on a market related to the one that is the object of a cartel decision and if it is part of the same economic unit as the addressee of the decision, this company could be sued for damages arising of the cartel prohibition as well.

Marc Barennes   Bas Braeken   Jade Versteeg

This is the first Competition Flashback by bureau Brandeis, featuring a selection of some of the key competition law developments of the past quarter (see the original version here).

If you would like to receive the next Competition Flashback by e-mail you can subscribe to our mailing list here.

Overview Q2 2021

• Notarial deed paper cartel; fine reduced from €2 million to €10,000
• CJEU Recyclex: antitrust immunity only in the case of an extended infringement
• Fine of €40 million for Dutch railway company NS struck down by Court
• Private equity firm can recover cartel fine for incorrect information during due diligence
• State Aid to KLM and Condor called into question as a result of inadequate reasoning
• New ACM merger decision Sanoma/Iddink on the way after appeal by Noordhoff
• Preliminary findings in the truck cartel damages case: claimants may go ahead
• European Commission takes on Apple after Spotify complaint

ACM publishes notarial deed paper cartel four years later; fine reduced from €2 million to €10,000

ACM, press release of 1 July 2021 | Rotterdam District Court, judgment of 11 May 2021

Almost four years after the first fine decision, a long-running cartel case has been made public with the publication of a news release and a number of decisions by the Dutch Competition Authority (“ACM”). At the same time, the Rotterdam District Court also published two judgments in this cartel case (Rotterdam District Court judgments of 6 December 2018 and 11 May 2021, as published on 30 June and 1 July 2021).

At the centre of this case were (alleged) price and market sharing agreements on the market for notarial deed paper. This case revolved around agreements between one producer (of which the subsidiary that implemented the cartel agreements was separated from the parent company during the infringement period) and two distributors. All three parties supplied notary’s offices with notarial deed paper.

For the agreements concerning these sales the ACM imposed a fine of almost €2.8 million on the producer in a decision dated 17 February 2017 (whereby the parent company was held jointly and severally liable for the entire sum and the subsidiary for €2.06 million). One natural person, the de facto manager of the producer, was (initially) fined €200,000 (reduced to €80,000 after an objection). One distributor was fined €3,000 and the third distributor received full immunity from fines under the 2006 Notice on immunity from fines and reduction of fines in cartel cases (“Leniency Notice“).

Initially, the interim relief judge of the Rotterdam District Court suspended the decision of the ACM to publish the fine decision (judgment not yet published). The interim relief judge considered that the contentious agreements were vertical in nature and not horizontal. The Rotterdam District Court saw this differently and ruled that Article 2 (4) (a) of the Block Exemption for Vertical Agreements is not applicable. Based on this provision, agreements between competing companies (i.e. agreements of a horizontal nature) can also fall under the Block Exemption if there is a “non-reciprocal vertical agreement”, whereby the supplier is both a manufacturer and a distributor and the buyer is only a distributor. According to the Court, however, the agreements are (purely) horizontal in nature.

The Court also considered that in the case of object restrictions, no analysis of the counterfactual is required. The counterfactual refers to the market situation as it would have been without the alleged agreements. The producer had argued that without the distribution agreements it had entered into there would have been no competition at all. Indeed, until recently, the market for notarial deed paper was strictly regulated on the basis of rules of the Royal Dutch Association of Civil-law Notaries.

The District Court did not follow this line of reasoning. The Court, however, did rule that the ACM had set the gravity factor too high and lowered it from 2.75 to 1, and set the fine for the producer at €1 million and for the de facto manager at €60,000. A previously published judgment by the Trade and Industry Appeals Tribunal (“CBb“) shows that the producer’s fine was eventually reduced to €10,000. The difficult financial situation in which the company found itself as a result of the Covid 19 crisis was partly the basis for this reduction.

CJEU Recyclex: (partial) immunity from cartel infringement only if the scope of the infringement is extended

Court of Justice, judgment of 3 June 2021

On 3 June 2021, the Court of Justice (“CJEU”) delivered a judgment on the interpretation and application of the conditions set out in the third paragraph of point 26 of the Leniency Notice.

Recyclex had relied on the third paragraph of point 26 of the Leniency Notice when it provided the European Commission (“Commission“) with information about a particular meeting within the Car battery recycling cartel in which it participated. Recyclex submits that the Commission would have been unable to provide sufficient evidence of this particular meeting and therefore claims to be entitled to partial immunity. In this respect, according to Recyclex, it is irrelevant that the Commission was already aware of the fact that the meeting had taken place.

The CJEU does not share this view and holds that undertakings concerned can claim partial immunity only if they provide the Commission with evidence which “complement or supplement those of which the Commission is already aware and which alter the material or temporal scope of the infringement, as found by the Commission.”

Therefore, in order to successfully claim (partial) immunity on the basis of the third paragraph of point 26 of the Leniency Notice a cartel participant must provide the Commission with information on new facts which alter the original scope of the infringement.

Fine for Dutch railway company NS struck down by Court because dominance was not proven

CBb, judgment of 1 June 2021

In its judgment of 1 June, the CBb struck down a fine of more than €40 million that the ACM had imposed on Dutch railway company NS. The ACM had adopted this fine in a decision of 22 May 2017 alleging that NS had abused its dominant economic position.

According to the ACM, NS used its economic dominance on the main rail network (“HRN“) of the Netherlands to hinder its competitors Arriva and Veolia in the province Limburg. Specifically, in 2016 NS had submitted what the ACM considered to be a loss-making bid in the tender for a 15-year public transport concession in Limburg.

The Rotterdam District Court ruled in its judgment of 27 June 2019 that the ACM had not convincingly proven that NS actually had a dominant economic position. In addition, according to the District Court, the link between NS’ position on the HRN and the concession in Limburg was uncertain after 2024 (the concession for the HRN expires in 2024).

The CBb largely confirmed the ruling of the Rotterdam District Court. The ACM did not prove that NS has a position of economic dominance. According to the CBb, there is (potential) competition as the barriers for entering the HRN market is not too high. The fine of more than €40 million that the ACM had imposed on NS has therefore been permanently struck down.

Private equity can recover cartel fine in case of incorrect information during due diligence

Rotterdam District Court, judgment of 26 May 2021

Between November 2004 and July 2011 private equity firm Bencis held 92% of the shares in flour producer Meneba (now acquired by Dossche Mills). During this period Meneba was fined by the ACM for its participation in the flour cartel. This decision was confirmed by the ACM after administrative objection, by the Rotterdam District Court on appeal and by the CBb on further appeal.

Almost four years after the first decision and under the influence of European developments, the ACM (also) imposed a cartel fine of over €1,2 million on Bencis because of Meneba’s participation in the flour cartel. The basis of Bencis’ liability was that it had decisive influence on Meneba due to their close economic, organisational and legal ties. Therefore, according to the ACM, the infringement could also be attributed to Bencis.

Bencis is later seeking to recover this fine from Meneba in a case heard by the Rotterdam District Court. To this end, Bencis primarily argued that only Meneba factually participated in the cartel agreements. In its judgement of 26 may the Rotterdam District Court did not uphold Bencis’ claim. It considered that there is no room for recourse on the basis of a joint obligation (Article 6:10 Dutch Civil Code (“BW”)) since Bencis and Meneba were not fined jointly and severally. It also considered that there is no room for a claim based on tort (Article 6:162 BW). The tort claim failed on the basis of the relativity requirement, since the right to compensation for cartel violations does not extend to the protection of other cartel participants (see Courage/Crehan).

However, the judgement of the Rotterdam District Court is unlikely to be the end of this matter. At the hearing, Bencis argued that Meneba, within the context of a due diligence investigation prior to the acquisition of the shares by Bencis, had allegedly stated that no infringements, including infringements of competition law, had taken place. If Bencis succeeds in proving this with documents, this could, according to the Court, constitute an unlawful act by Meneba towards Bencis.

State aid to KLM and Condor called into question as a result of inadequate reasoning

General Court, judgments of 19 May 2021 and 9 June 2021

On 19 May 2021, the General Court in Luxembourg held that the Commission wrongly approved the €3.4 billion state aid granted to KLM on the basis of Article 107(3)(b) TFEU. This article provides for the possibility to grant aid to remedy a serious disturbance in the economy of a Member State, such as caused by the COVID-19 crisis. In its decision, the Commission did not provide sufficient reasoning by failing to adequately take into account the fact that KLM and Air France, both part of the same group, have been the recipient of two aid measures.

In its decision the Commission states that the Dutch authorities ‘confirmed’ that the financing granted to KLM would not be used by Air France. However, in the General Court’s view, the Commission failed to provide sufficient reasons as to how this would be guaranteed. In that regard, the relationship between KLM and Air France within the group – and the aid granted to them – was not sufficiently taken into account. Although the decision has been annulled, the aid granted does not have to be recovered immediately. KLM may keep the aid at least until the Commission has adopted a new decision.

The decision in which the Commission approved the German aid to airline Condor was also annulled by the General Court on the ground that it contained insufficient reasoning. The aid, based on Article 107(2)(b) TFEU, was intended to compensate Condor for the damage caused directly by the COVID-19 pandemic.

However, the German authorities included approx. €17 million in additional costs in the aid for Condor, because the latter was under an insolvency procedure following the liquidation of its parent company (Thomas Cook). This procedure started well before the outbreak of the COVID-19 pandemic, though. The Commission did not explain how (the costs surrounding) the failed sale of Condor in the insolvency procedure were related to the COVID-19 pandemic.

In this case, too, the aid granted will not be recovered immediately. In order to avoid direct damage to the German economy, Condor is allowed to keep the amount until the Commission has taken a new decision.

New ACM merger decision in Sanoma/Iddink coming after successful appeal by Noordhoff

ACM, announcement of 17 May 2021

On 28 August 2019, the ACM decided that Sanoma Learning (publisher of Malmberg schoolbooks) may acquire Iddink Group, distributor of educational material, conditional upon commitments. Iddink Group owns Magister, an electronic learning management system that many secondary schools in the Netherlands use. The commitments ensure that competitors have equal access to Magister and data from Magister after the merger. In addition, the merging parties must guarantee that no commercially sensitive information from competing publishers will be shared with Malmberg via Iddink.

Noordhoff, a competitor of Malmberg, did not agree with the ACM and appealed the decision. In its ruling of 4 March 2021, the Rotterdam District Court annulled the ACM’s decision.

According to the Court, the ACM had not sufficiently substantiated that post-merger Sanoma/Iddink has no possibility to foreclose competitors by means of bundling and that therefore no conglomerate effects existed. The ACM has announced that it will take a new decision and has also appealed against the District Court’s ruling.

Interim position truck cartel damages case: green light for the time being

Amsterdam District Court, judgment of 12 May 2021

On 12 May 2021, the Amsterdam District Court rendered an interlocutory judgment in the damages claim proceedings instituted by, among others, CDC against participants in the Truck Cartel. This judgment is limited to (i) an assessment of the scope of the Commission’s penalty decision, and (ii) the truck manufacturers’ defence that the exchange of information did not have a price-increasing effect and that the infringement therefore did not result in any damage.

With regard to the first point, the Court finds that it is bound by (the operative part of) the Commission’s decision regarding (the temporal and geographical scope of) the infringing behaviour as well as the persons liable for it. However, this does not exclude plaintiffs from providing further factual interpretation of the infringing behaviour.

With regard to the second point, the Court considered that the truck manufacturers must demonstrate that it is generally impossible that the infringement could have resulted in damage. Based on the expert reports, the Court finds that this has not been established. It is therefore up to the plaintiffs – for the remainder of the proceedings – to make it plausible that they have possibly suffered damage as a result of the unlawful actions of the truck manufacturers. This is needed to meet the threshold for referral to the damages assessment procedure.

Commission takes on Apple after Spotify complaint – national authorities follow

European Commission, press release of 30 April 2021

In March 2019 Spotify lodged a complaint with the Commission accusing Apple of distorting competition on the market for music streaming services offered through the App Store. Spotify claims that Apple is abusing its full control over the iOS mobile operating system and the App Store to impose unfair terms on competitors, such as Spotify, and to favour its own music streaming service Apple Music.

On 16 June 2020, the Commission launched an investigation into Apple’s policies on the App Store. In its press release of 30 April 2021, the Commission stated that in the Statement of Objections it had reached the preliminary view that Apple was abusing its dominant position. The Commission accuses Apple of forcing competing music streaming services to use the App Store’s ‘in-app’ purchase mechanism and charging a 30% commission in return.

In addition, the Commission’s objections relate to so-called ‘anti-steering provisions’ that restrict app developers in their ability to inform customers of alternative purchasing options. National authorities such as the ACM and the British CMA have also started investigations into these practices by Apple.

For all your questions regarding (EU) competition law, bureau Brandeis would be happy to assist you. You can reach us via the links below.

Bas Braeken, Jade Versteeg, Lara Elzas, Timo Hieselaar en Berend Verweij

The rise of Tech Giants such as Google, Amazon, Facebook, Apple and Microsoft (“Big Tech”) and their integration into people’s lives has been interesting on many levels. Particularly in the context of fair and contestable digital markets, it raises many questions. The most pressing of these is whether ex-post enforcement of EU competition law is effective enough to keep up with rapidly evolving (digital) markets and Big Tech companies.

To expand its enforcement toolkit, the European Commission (“Commission”) published a proposal for a Digital Markets Act (“DMA”) in December 2020. Its overall objective is to complement antitrust intervention in digital markets with ex-ante regulation in the form of a set of obligations that platforms identified as “gatekeepers” should abide by.

This blog covers recent developments in the fight against Big Tech, followed by a more detailed analysis of the DMA and its implications for gatekeepers.

Ex-post enforcement of Big Tech companies

The fight against anti-competitive behaviour by Big Tech companies has kept both the Commission and national competition authorities (“NCAs”) quite busy over the last years.

Although the Commission was initially relatively passive towards Big Tech, its Google Android decision from 2018 seems to have been an important starting point for (EU) competition law enforcement towards Big Tech. In this case, the Commission concluded that Google had abused its dominant position by tying the Google Search app to the Android appstore. Not only did the Commission impose a massive fine on Google of €4.3 billion (the highest fine ever imposed), it also established guidelines for assessing dominance in the mobile ecosystem.

Margrethe Verstager, European Commissioner for Competition, indicated that it became her mission to counter the rise of increasingly powerful digital platforms. Subsequently, it did not take long for the Commission to launch two formal investigations into Amazon.

The first investigation concerned Amazon’s use of marketplace seller data. In the Commission’s assessment, by using such non-public data, Amazon is able to avoid the normal risks of retail competition and to leverage its dominance on the market. The second antitrust probe assesses Amazon’s practices regarding its “Buy Box” and “Prime” label, which enables it to favour its own retail offers and offers of marketplace sellers that use Amazon’s logistics and delivery services over the ones of third-party sellers. When digital platform providers play a dual role – in which they act both as platform provider for business users and as retailer in competition with business users – they are incentivised to engage in self-preferencing.

In June 2020, after Spotify filed a complaint, the Commission launched a formal antitrust investigation into Apple’s rules for app developers on the distribution of apps via the App Store. On 30 April 2021, the Commission published its preliminary finding that Apple was indeed abusing its dominant position by requiring app developers to use Apple’s own in-app purchase system.

The Commission also launched a parallel investigation into Apple Pay, Apple’s mobile payment app. The Commission has expressed concerns that Apple’s terms related to the integration of Apple Pay for purchases of goods and services may distort competition and reduce choice and innovation, because no other payment solution than Apple Pay can access the payment chip technology embedded on iOS mobile devices for payments.

Lastly, Epic Games, the creator of the global hit game Fortnite, has officially filed a complaint with the Commission earlier this year. Epic Games accuses Apple of foreclosing the market for app distribution as well as the market for iOS in-app payment processing, allowing Apple to charge a higher commission. Previously, Epic Games has initiated proceedings against Apple in the US, Australia and the UK.

Also on the national level digital platforms have been subject to numerous competition law investigations. The Bundeskartellamt (“BKartA”) has been very active in this regard. In 2015, for instance, the BKartA issued a decision in which it prohibited Booking.com from continuing to apply its ‘best price’ clauses (for further information on APPAs and MFNs and the BKartA’s decision see our previous blog “On APPAs, MFNs and a tenacious German competition authority”).

Another significant case brought forward by the BKartA, regarding Facebook, dates back to 2019. In this decision, the German competition authority concluded that Facebook abused its dominant position in the social networking market by excessively collecting and combining user data without the consent of its users.

In April 2021, the BKartA has received an antitrust complaint about Apple from nine associations representing German media, Internet and advertising industries. They claim that the iPhone maker is abusing its dominant position with its recently introduced App Tracking Transparency program. This feature on iOS requires apps to ask users for permission to collect their data. However, the complainants submit that Apple itself can still collect significant amounts of user data.

In addition, the Netherlands Authority for Consumers & Markets (“ACM”) has conducted an in-depth market study into the mobile app store market and its implications for competition. This study shows that the lack of realistic alternatives to Apple’s App Store and Google’s Play Store puts them in a position – at least in theory – to set unfair conditions. The ACM is now investigating specifically whether Apple is abusing its dominant position through its App Store by imposing certain conditions on app providers that do not compete with Apple’s apps.

Need for ex-ante intervention?

Competition authorities in the EU thus appear to be willing to act against distortions of competition caused by Big Tech. However, given the (legal and factual) complexity and length of investigations, it often takes a long time before a sanction can be imposed. By then, the (perceived) damage has often already been done. The question therefore arises whether these measures can restore competition in a timely and effective manner. In light of ‘prevention is better than curing’, the DMA was proposed in December 2020. With this Act, the Commission aims to prevent the manifestation of anti-competitive effects in the digital market.

Definition of “Gatekeepers”

The DMA is focused at gatekeeper platforms. A gatekeeper is a provider of a core platform service with a significant impact on the internal market, including, among others, online intermediation services (e.g. app stores, Amazon), online search services (e.g. Google), online social networking services (e.g. Facebook), video-sharing platform services (e.g. TikTok), number-independent interpersonal communication services (e.g. WhatsApp), operating systems (iOS, Android, Microsoft).

The DMA only applies to gatekeepers that meet the following thresholds:

• An annual EEA turnover equal or above €6.5 billion in the last three financial years or an average market capitalisation that amounted to at least €65 billion in the last financial year.
• To serve as an important gateway for business users to reach their respective end users the core platform service must have more than 45 million monthly active end users in the EU and more than 10 000 yearly active business users in the EU over the course of the last financial year.

A platform has to notify the Commission if it meets these thresholds and therefore potentially constitutes a gatekeeper (duty to notify). The Commission reserves the right to proactively designate a core platform provider as a gatekeeper when they meet the thresholds, even – or especially – in cases where it did not receive a formal notification.

Obligations for gatekeepers

Once a core platform provider qualifies as a gatekeeper (whether or not designated as such by the Commission), it has to comply with certain obligations as set out in Articles 5 and 6 of the DMA. Some of these obligations relate to (similar) conduct that has given rise to many Big Tech competition cases in recent years. The DMA also includes a provision that creates the power for the Commission to update the list of obligations as a result of market investigations (Article 10 DMA). This makes the DMA flexible in its application and suitable to account for the highly dynamic and innovation driven markets.

Some of the proposed obligations concern:

• Third-party personal data: Gatekeepers must refrain from combining personal data sourced from their own services with personal data from other services offered by the gatekeeper or third-party services without the consent of the user pursuant to the GDPR (Art. 5(a) DMA). The Bundeskartellamt reached the same conclusion in 2019 in its case against Facebook.
• MFN/parity clauses: Gatekeepers must allow business users to offer the same products or services to end users through third-party online platforms under different terms and conditions than those of the gatekeeper’s platform (Section 5(b) DMA). The cases of Amazon e-books and Booking.com involved this type of conduct.
• Anti-steering prohibition: Gatekeepers must allow business users to promote their products in apps purchased through the platform’s core service, such as Apple’s App Store (Article 5(c) DMA). Business users will thus be able to conclude contracts with their end-users outside the core platform. This will, for example, allow Epic Games to offer and sell their in-app products through their own channel, rather than exclusively through Apple’s in-app purchase system.
• Opening of the operating systems to third-parties: Gatekeepers must allow third-party apps and app stores within the operating system of the device (i.e. iOS and Android). Such practices also lie at the heart of the Commission’s Apple App Store case. This obligation will have far-reaching implication for Apple’s App Store and Google’s Play Store. At the same time, the DMA acknowledges that the gatekeepers can take proportionate measures to ensure that third-party software applications do not endanger the integrity of the operating system provided by the gatekeeper.
• Bundling prohibition: Gatekeepers are no longer allowed to bundle several of their core platform services, such as Google did with the pre-installation of Google Chrome on Android devices (Art. 5(f) DMA).
• Non-public data: Gatekeepers have to refrain from using, in competition with business users, any data not publicly available, which is generated through activities by those business users (Art. 6(a) DMA). Such practices are currently under investigation with regard to the Amazon Marketplace.
• Self-preferencing: Gatekeepers will have to refrain from treating their own services or products more favourably than those of third parties (Art. 6(d) DMA). The ongoing investigation of Amazon’s “’Buy Box” option is an example of this.

If gatekeepers fail to comply with these obligations, the Commission may impose fines of up to 10% of the gatekeeper’s worldwide annual turnover. It may also impose periodic penalty payments of 5% of the gatekeeper’s average daily turnover. Finally, the Commission has the power to take structural and behavioural measures when, following a market investigation, it finds that a gatekeeper is systematically violating its obligations under the DMA. An example of a structural remedy is the mandatory divestiture of (part of) a business.

Powers for national competition authorities

In principle, the enforcement of the DMA will lie with the Commission. However, the presidents of the NCAs in the EU have stated in their view that they should be given a complementary enforcement role under the DMA. They argue that their knowledge and expertise will make the DMA’s enforcement more effective and faster. Whether the NCAs will eventually be assigned a role in the enforcement of the DMA is unclear at this time.

Conclusion

Once in place, the DMA will embody the shift from ex-post enforcement to an ex-ante regulatory approach. In doing so, the Commission aims to improve competition in the Big Tech landscape. This could have a significant impact on the operations of gatekeepers within the EU.

However, the DMA is currently only a legislative proposal. Given the scope and expected impact of the DMA, it will be subject to much debate. Thus, it is still uncertain what the DMA will ultimately look like upon its enactment.

For further questions, you may contact Bas Braeken, Jade Versteeg, or Timo Hieselaar.

The (European) supervision of concentrations is in full development. Most notably, the European Commission (“Commission”) has been cracking down on violations of the Merger Regulation in recent years.

If concentrations meet certain turnover thresholds, the companies involved have a notification obligation (Article 4 Merger Regulation). The companies involved may then not implement the concentration until the competent authority has approved the concentration. This is the standstill obligation (Article 7 Merger Regulation).

There is strict enforcement of violations of the notification and standstill obligation – so-called ‘gun-jumping’. It is therefore important to know what is and what is not permitted under competition law in the case of (the preparation of) a concentration. This blog provides an overview of recent legal developments and clarifies what merging parties can do prior to the approval of a transaction to avoid gun-jumping.

Unexpected decisive control?

If a company intends to acquire decisive control of another company, the acquiring party must notify this, provided that the turnover thresholds are met. However, it is not always clear when decisive control exists. For example, in 2012, Norwegian fish farmer Marine Harvest (now Mowi) acquired 48.5% of the shares in its competitor Morpol. This was notified to the Commission with a notice that the voting rights would not be exercised by Marine Harvest until approval was granted by the Commission. Prior to the notification, Marine Harvest made a public offer for the remaining shares in Morpol. This transaction was notified to the Commission, which subsequently found that the notification and standstill obligations had been violated because Marine Harvest had already acquired de facto decisive control in the acquisition of 48.5% of the shares in Morpol. The Commission reached this conclusion by checking the usual attendance of shareholders at previous shareholder meetings. On that basis, the Commission found that Marine Harvest, with 48.5%, constituted a majority among shareholders and could therefore exercise decisive control.

Marine Harvest was subsequently fined €10 million for violating the notification obligation and another €10 million for violating the standstill obligation. Although these appear to be two sides of the same coin, they are two distinguishable obligations for which the Commission can impose separate fines. Thus, there is no violation of the ne bis in idem principle. The Court of Justice of the European Union (“CJEU”) upheld the fines, ruling that in this case it did not matter that Marine Harvest had not exercised the voting rights because de facto sole decisive control had already been acquired prior to the public offer.

Decisive control or customary protection rights?

In February 2015, the telecom company Altice notified a proposed acquisition of PT Portugal, which received conditional approval from the Commission in April 2015. However, it later turned out that Altice could already exercise decisive influence before the acquisition was approved. In fact, the acquisition agreement already gave the telecom company veto rights over the appointment of senior management, pricing policy and several important contracts.

While the acquiring company may protect the value of the (shares in the) target company, it may not exercise decisive control beyond the ordinary course of business before the concentration approval is granted. Factors that are relevant in assessing whether there is a normal course of business are (i) the degree of involvement of the acquiring party in the day-to-day operation of the business, (ii) the nature of the measures in the agreement in favour of the acquiring company, and (iii) the monetary thresholds for exercising a veto with respect to the value of the target or purchase price. When these thresholds are very low, the exercise of decisive control is more likely to occur.

In this case, Altice already exercised decisive control prior to the notification through its involvement in PT Portugal’s negotiation strategy and choice of suppliers and certain TV channels. On that basis, in April 2018 the Commission imposed a fine of €124.5 million on Altice for gun-jumping, whereof €62.25 million for violating the notification obligation of Article 4 Merger Regulation and €62.25 million for violating the standstill obligation of Article 7 Merger Regulation.

On 8 November 2016, Altice was again fined €80 million for gun-jumping, this time by the French competition authority. In 2014, Altice notified the proposed acquisition of two telecom companies, SFR and OTL, by its subsidiary Numericable. The French competition authority had launched an investigation into gun-jumping, which revealed that Altice already had access to strategic information from and could exercise decisive influence over both companies before the concentration was approved. Altice had thus already acquired decisive control prior to any approval of the concentration, thereby engaging in gun-jumping.

Inseparable step for transaction does not necessarily lead to decisive control

An example of a situation where no decisive control was acquired by the purchasing company concerned the proposed concentration of KPMG Denmark and EY. The consultancy firms entered into a merger agreement on 18 November 2013. Since the Danish branch of KMPG still had a cooperation agreement with the KPMG group, this agreement was terminated on the very same day. The Danish competition authority approved the concentration at the end of May 2014, but stated (in December 2014) that unconditionally and irrevocably terminating the cooperation agreement with the KPMG Group before the concentration was approved could be regarded as an act in breach of the standstill obligation. The CJEU disagreed, concluding that the termination of the cooperation agreement does not lead to a change in decisive control of KPMG Denmark, even if this termination is inextricably linked to the concentration and may constitute a preparatory or side transaction of this concentration. According to the CJEU, transactions that do not lead to a change in decisive control do not fall within Article 7 Merger Regulation.

Transactions consisting of multiple steps

The Commission decision on Canon‘s acquisition of Toshiba Medical Systems Corporation (“TMSC”) shows that the notification and standstill obligation also applies to so-called ‘special purpose vehicles’. Canon intended to acquire TMSC by means of a ‘warehouse construction’. A special purpose vehicle was established which acquired 95% of the shares in TMSC for €800. Canon then acquired 5% of the shares for €5.28 billion and obtained a stock option on the remaining shares. The proposed acquisition was then notified to the Commission on 12 August 2016. After the Commission’s approval, the remaining 95% of the shares were acquired. The Commission launched an investigation into this construction in July 2017. It concluded that a transaction in which an interim buyer – the special purpose vehicle – acquires decisive control until the company will be sold to the ultimate seller, can be seen as the first step of the (final) transaction. After all, the preparatory step as such contributed to Canon’s acquisition of decisive control over TMSC, so that prior to this first step, notification was already required. As this was not done, the Commission imposed a fine of €28 million on Canon.

Another type of two-stage rocket was used by the French company Veolia. Veolia, active in the water, waste treatment and energy sectors, wanted to acquire decisive control of Suez through two steps. First, it obtained 29.9% of the shares in Suez from energy company ENGIE on 6 October 2020. The second step involved making a public offer for the remaining shares in Suez. Suez believed that these two steps should be considered as one transaction and that therefore Veolia should have notified the transaction before acquiring the shares. The Commission agreed that this was one transaction and that the two steps were interdependent; the public offer would never have happened without the previous acquisition of ENGIE shares. However, the Commission argued that both steps fell within the exception Article 7(2) Merger Regulation.

Article 7(2) Merger Regulation provides an exception to this standstill obligation for two types of transactions: a public bid and a series of share transactions where decisive control is acquired from multiple selling parties. However, the concentration must then be notified directly to the Commission and the acquirer may not exercise the voting rights. The Commission considered that the exception of Article 7(2) Merger Regulation regarding the public bid was also applicable to the first step of the concentration – the acquisition of 29.9% of the shares in Suez.

The Commission’s decision is in line with the General Court’s judgment in Marine Harvest. Indeed, the General Court concluded that it is possible for the acquisition of a minority stake, not yet acquiring decisive control of the target company, followed by a public takeover bid, to form part of one concentration falling within the scope of Article 7(2) Merger Regulation.

The difference between Marine Harvest and Veolia/Suez is that in the first situation, de facto decisive control was already obtained at the first step, namely through the acquisition of 48.5% of the shares in Morpol. This was not the case with Veolia with a 29.9% stake. Therefore, the standstill obligation is only violated if the first step already leads to an acquisition of decisive control. Although Suez has filed an appeal against the Commission’s decision, it does not appear to be going forward now that Veolia and Suez have reached a merger agreement on 12 April.

Lessons for the future

The aforementioned case law shows that the following points are important in the preparation of mergers:

• De facto acquisition of decisive control also triggers a notification and standstill obligation.
• This also applies to special purpose vehicles that acquire (temporary) decisive control.
• Always notify preparatory steps to a concentration if they as such contribute to the change of decisive control.
• Do not exercise decisive control prior to the approval of a concentration, insofar it is not necessary to protect the value of the target company.
• Decisive control may not relate to the day-to-day operations.
• In the case of a pre-closing veto right, the monetary threshold for exercising it must not be too low with respect to the transaction values.

Clean Teams

In addition to the notification and standstill obligation for concentrations, the cartel prohibition also still applies in full. In particular, the exchange of competitively sensitive information plays a role in the preparation of mergers. In that context, it is advisable under certain circumstances to set up Clean Teams in order to limit the risk of violating the cartel prohibition. Clean Teams are particularly advisable in transactions between two competitors.

• The exchange of information should not lead to the situation where the commercial market behaviour of parties could be influenced.
• Assemble the Clean Team, if possible, from a closed group of individuals who are not (as of that moment) involved (anymore) in the day-to-day operations of the parties.
  • For example, independent consultants or specially appointed employees.
• Treat information within the Clean Team as strictly confidential.
  • Establish (internal) protocols regarding what information is accessible and to whom.
• Seek legal advice when in doubt.
• Have individuals on the Clean Team sign a confidentiality agreement and monitor its compliance.

Finally, it is worth noting that the Commission has introduced a new policy expanding its supervisory role with respect to concentrations. In this regard, please read our blog on Article 22 Merger Regulation.

For all your questions regarding merger control, bureau Brandeis is happy to help. You can reach us through the links below.

Bas Braeken, Jade Versteeg and Timo Hieselaar

What to do when a dominant competitor takes over a promising start-up

Until recently, competitors and customers were left empty-handed in the case of a so-called ‘killer acquisition’. These are takeovers where a large, established company takes over a smaller, innovative and start-up competitor with the aim or effect of stifling innovation and/or eliminating potential competition. The reason for this was that many of these acquisitions do not have to be notified to a competition authority because the turnover thresholds are not met. Killer acquisitions could therefore not be assessed by the national competition authority or the European Commission. This has now changed.

On 26 March 2021, the Commission published new guidance on the application of the referral mechanism of Article 22 of the European Merger Regulation (“EU Regulation”). In addition to concentrations which are subject to notification to the national authorities, Article 22 of the EU Regulation also allows concentrations which are not subject to notification to be referred to the Commission for assessment.

The Commission is particularly interested in referrals of concentrations where the turnover of the parties does not accurately reflect their current or future potential. In practice, this will especially concern mergers involving new competitors and innovative companies. This will occur, inter alia, in digital, pharmaceutical, biotechnology and certain industrial sectors. The new policy is expected to have less impact on acquisitions in more traditional markets.

Background

On 26 March 2021, the Commission announced a major reform of the EU regulation. One of these major changes is a new policy on the application of Article 22 of the EU Regulation.

Old and new policy Article 22 EU Regulation

Article 22 of the EU Regulation allows one or more national competition authorities to refer a concentration to the Commission for examination when it may significantly affect competition in the internal market. The article dates back to 1989 when many Member States did not yet have a national merger control regime and therefore still had the possibility to have potentially anti-competitive concentrations examined by the Commission. Article 22 is also called the ‘Dutch clause‘ because it was introduced at the request of the Netherlands, which did not have merger control at that time. The article explicitly refers to concentrations that do not require notification. However, after almost all Member States had introduced a merger control regime, the importance of Article 22 significantly declined. It was even the Commission’s policy to discourage referrals of non-notifiable concentrations on the grounds that the concentrations would generally not significantly affect competition in the internal market.

The Commission’s new policy constitutes a major shift in the application of Article 22 of the EU regulation. The Commission now encourages Member States to refer certain concentrations to the Commission, even in cases where the referring Member State does not have jurisdiction to assess the concentration under the turnover thresholds. The Commission is free to decide whether to accept a referral request.

The new policy did not just come out of thin air. There had been a desire for some time by competition authorities to be able to assess killer acquisitions. The discussion was sparked in 2014 by Facebook’s acquisition of Whatsapp. The acquisition was not subject to notification in many member states because of Whatsapp’s low turnover. However, the acquisition was ultimately assessed by the European Commission because the acquisition was notifiable in three member states and was therefore qualified for a referral under Article 4(5) of the EU Regulation. The Commission approved the merger. This case was one of the reasons for Germany and Austria to adopt new laws introducing an additional notification threshold based on the value of the transaction. The Dutch Consumer and Market Authority (“ACM”), the Luxembourg Conseil de la Conucurrence and the Belgian Competition Authority (“BMA”) wrote a Benelux memorandum on the supervision of competition in the digital sector. This memorandum argued for a change in the notification thresholds, for example by introducing an additional threshold based on market power and/or the value of the transaction.

Test case: Illumina-Grail

Shortly after the Commission’s communication on the reforms of the EU merger control regime, it became known that the acquisition of Grail by Illumina was a test case for the application of the Commission’s new policy. For the first time since 1999, an Article 22 request was made without any of the expanding Member States having jurisdiction to assess the merger.

Illumina is one of the largest players in the world in the field of gene sequencing. Grail is a young company developing a blood test to detect about 50 types of cancer at an early stage by DNA sequencing. The company has no turnover in the EU, which means that, in principle, the concentration does not need to be notified to the Commission or the national authorities of the EU Member States. However, the acquisition had to be notified to the US Federal Trade Commission and is under attack there.

In February, the Commission expressed concerns about the potentially anti-competitive effects of the proposed merger in the field of cancer tests and encouraged national competition authorities to file a referral request in line with the new policy. The French Autorité de la concurrence has responded to the call and the ACM, BMA, and Greece Competition Commission supported the request. The acquisition was not subject to notification in any of those Member States. The Commission has accepted the request and will assess the proposed acquisition.

The referral request has caused quite a stir. Illumina brought lawsuits against the request in the Netherlands and France, but lost both cases. The case will undoubtedly be contested before the Court of Justice of the European Union. The new policy leads to much legal uncertainty in mergers and acquisitions in which a dominant competitor takes over a promising start-up. It is therefore important to take this into account during the (contract)negotiations of the acquisition. For example, when drafting the suspensive conditions in the contract, one should take into account the possibility of a referral to the Commission, even if the competition authorities in the Member States concerned do not have the power to assess the concentration themselves. On the other hand, the new policy also provides more opportunities for third-party stakeholders, such as competitors and purchasers, to complain.

What to do in case of a killer acquisition

Is a dominant competitor or supplier of yours taking over a promising start-up? Then take the following actions.

1. Consider whether the turnover of the start-up gives an accurate view of its current or future potential. It may be that a start-up has little or no turnover yet, but is of great importance to the competition in the market or will become so in the near future. This can, among others, occur in the following situations:
   • the target is an important innovator or conducts potentially important research
   • the target is an important (potential) competitor
   • the target has access to important assets (such as raw materials, infrastructure, data or intellectual property rights)

2. Contact as soon as possible the ACM and/or other Member States where the dominant competitor is active. The competition authority has a period of 15 working days to refer a concentration to the European Commission after the transaction has been ‘made known to the Member State concerned’. The period only begins to run when sufficient information is provided tot he Member State to make a preliminary assessment as to whether the criteria of Article 22 of the EU Regulation are met. Member States seem to have a fairly wide discretion in determining when the deadline starts running.

3. Explain why the concentration affects trade between Member States. This is, for instance, the case if the dominant competitor is active in several Member States and/or (potential) customers are located in different Member States.

4. Explain also why there is a real risk that the concentration will significantly impede competition within the territory of the Member State(s) concerned. A real risk exists where, as a result of the acquisition:
   • an important (potential) competitor is eliminated;
   • there is a merger between two important innovative companies;
   • competitors have fewer incentives or opportunities to compete because, among other things, market entry or expansion becomes difficult or even impossible;
   • there is an incentive or possibility for a strong market position in one market to be leveraged into another market through tying, bundling or other exclusionary practices.

5. Contact the Commission. The Commission may encourage Member States to refer the acquisition.

Bas Braeken, Lara Elzas and Jade Versteeg

In almost every supply chain, agreements are concluded between suppliers and buyers to make the cooperation more efficient. Although vertical agreements are in many cases exempted by the Vertical Block Exemption Regulation (“VBER”) from the cartel prohibition under Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) and Article 6 of the Dutch Competition Act (“Mw”), not every restriction is permitted. After all, the VBER does not apply to a number of hardcore restrictions of competition, or where market shares exceed 30%. The distinction between permitted and prohibited restrictions is not always clear to companies. This is evident, for example, from a survey conducted by the Benelux Secretariat in which at least 89% of the companies questioned indicated that they had been confronted with prohibited territorial restrictions. This blog provides an overview of enforcement and case law from 2019 and 2020, and discusses the most recent developments.

Enforcement by ACM

In September 2020, the Authority for Consumers and Markets (“ACM”) announced that it had completed its investigation into drug manufacturer AbbVie. From the end of 2018, AbbVie offered significant discounts to hospitals for the rheumatology drug Humira. The patent on the active substance in Humira expired in October 2018, allowing other manufacturers to market a generic product. To prevent its market position from declining as a result thereof, Abbvie gave discounts to hospitals if they purchased Humira for all their patients. ACM considered that AbbVie thereby factually imposed an exclusive purchasing obligation on hospitals which limited competition for new products. AbbVie agreed not to include exclusive purchasing clauses in its agreements with hospitals anymore.

Case law on vertical agreements

In March 2019, the Court of Appeal of Arnhem-Leeuwarden ruled on the legality of an exit scheme of Avebe. The articles of association of Avebe, a cooperative of farmers, stipulated that if members wished to transfer the shares to Avebe upon termination of their membership, they had to pay an amount of €681 per share to the cooperative. Six arable farmers did not agree with this withdrawal arrangement. The Court of Appeal agreed with the lower court and ruled that although the exit scheme was a restriction of competition, the scheme did not divide the market or impose price restrictions or other hardcore restrictions and was therefore allowed.

At the end of 2019, the Amsterdam Court of Appeal ruled in an (as yet unpublished) interlocutory judgment in the case between Prijsvrij and Corendon that the termination of an agreement can be an instrument to achieve resale price maintenance. Customers could book trips of Corendon through Prijsvrij, which used discounts on its website on trips of Corendon. The tour operator did not want Prijsvrij to apply such discounts and eventually terminated the agency agreement. Prijsvrij held that this termination should be regarded as a form of prohibited resale price maintenance. The Court of Appeal agreed and considered it proven (for the moment) that the termination of the agreement with Prijsvrij was particularly caused by the discounts offered by Prijsvrij to consumers.*

On 12 June 2020, Advocate General Drijber concluded – with reference to the appeal in cassation against a judgment of the Court of Appeal of The Hague – that a settlement agreement regarding a patent did not violate competition law. Jet Set and Brielle Industrie Services (“BIS“) in this case, both active in the field of cleaning techniques for oil tanks, had reached a settlement which, according to BIS, included a non-compete and non-challenge clause. BIS considered this to be a licence agreement with hardcore restrictions within the meaning of the Technology Transfer Block Exemption Regulation (“TTBER“). However, Advocate General Drijber concluded that it was neither a licence agreement nor a non-compete clause. A prohibition to use Jet Set’s technology follows directly from the patent on that technology. There was therefore no need to review the TTBER or Article 6(3) Mw. Although a non-challenge clause does not generally fall under the TTBER, there was no such clause in this case either. BIS had in fact (successfully) contested the patent. The Supreme Court did not reach a substantive judgment.

A case that did involve vertical licensing agreements concerned a dispute between Dromenjager, the company behind the well-known Woezel & Pip children’s figures, and toy manufacturer International Bon Ton Toys (“IBTT“). IBTT produces and sells toys for which it is allowed to use the Woezel & Pip (figurative) trademark. The licence agreement included a provision requiring approval from Dromenjager for sales by the licensees to a certain number of retailers, including Kruidvat. IBTT wanted to sell its remaining stock of Woezel & Pip products to Kruidvat and complained that the required approval was contrary to competition law. The President of the court reached the provisional conclusion that the approval provision in the licence agreement is a hardcore restriction of competition law. The judgment in summary proceedings has been appealed.**

Vertical agreements also often play an important role in the pharmaceutical market. In its judgment of 8 June 2020, the district court of Midden-Nederland ruled that health insurer Zilveren Kruis was allowed to use a ‘discount policy’ to encourage hospitals to purchase medicines from a manufacturer that was cheaper for Zilveren Kruis. Together with other health insurers, Zilveren Kruis entered into an agreement with Janssen-Cilag, the producer of a medicine for leukaemia (named Imbruvica). On the basis of this agreement, Janssen-Cilag supplied Imbruvica to the hospitals, after which the health insurers received discounts (based on subsequent calculation). Zilveren Kruis applied a mark-up of 49% if hospitals purchased Imbruvica from suppliers other than Janssen-Cilag. Eureco-Pharma, a competitor of Janssen-Cilag, argued that Zilveren Kruis was channelling the Imbruvica offer to Janssen-Cilag through its discount policy. The judge, however, concluded that Zilveren Kruis’ policy is aimed at always paying the lowest price. A competitive company is able to pursue this aim. Moreover, Eureco-Pharma was able to conclude a similar agreement with Zilveren Kruis. Therefore, there was no prohibited vertical restraint.

Finally, at the end of 2020, the Amsterdam District Court ruled that Trek Benelux – supplier of fast, lightweight bicycles – had to continue an agreement with its distributor. Trek Benelux terminated the agreement when the distributor applied a discount on top of the recommended retail price. According to Trek Benelux, such discounts harmed its brand image. The agreement also included an obligation to deliver assembled bicycles to customers. The distributor argued that the recommended retail price is in fact a minimum price and that the obligation to deliver assembled bicycles limits its passive (online) sales. The judge in preliminary relief proceedings ruled in line with the VBER that forcing distributors to adhere to the recommended retail price constitutes a hardcore restriction of competition law. Moreover, no justification had been put forward by Trek Benelux. Therefore, the agreement had to be continued. Trek Benelux was, however, able to demonstrate that the obligation to deliver assembled bicycles was necessary to protect the quality of the bicycles, which requires accurate assembly and adjustment. This provision was not contrary to competition law.

Evaluation of the VBER

The current Regulation, which has been in force since 2010, expires on 31 May 2022. The European Commission (“Commission“) intends to amend the Regulation. In this context, the Commission conducted a review, the findings of which were published on 8 September 2020.

The review shows that the VBER, albeit still relevant, is no longer adequate for application to online sales. After all, the retail sector has changed tremendously in recent years, particularly as a result of digitalisation and the subsequent increase in e-commerce (e-tailing). Entirely new types of restrictions on online sales have been imposed on buyers the past few years, such as a ban on the use of Google AdWords by Guess or the (re)sale of products on online marketplaces by Coty. The Commission has also imposed fines on, amongst others, Asus, Philips and Pioneer for imposing resale price maintenance on their online retailers. The interpretation of the rules on online sales restrictions varies widely in Europe. The new VBER will have to provide clarification. According to the Commission, there is still too much uncertainty about the use and lawfulness of ‘across-platforms parity agreements‘ (APPAs) as well. For the background and recent developments regarding APPAs, please read our earlier blog.

In addition, the collection and use of data has become crucial to the business operations of (online) companies in recent years. In this context, the Commission has also launched an investigation into Amazon. The American company is said to use data of sellers on Amazon – which it obtained in its capacity as a platform – to benefit its sales channel on the same platform. For this ‘self-preferencing’, the Commission previously imposed a fine of more than €2.4 billion on Google, which put its own services above those of competitors in Google’s search results.

Conclusion

Vertical agreements can often benefit from the exemption from the cartel prohibition, but not every restriction can be imposed. Dutch and European case law over the past two years confirms this. It is therefore essential to know what may and may not be included in a vertical relationship. It is, in this regard, of great importance what the new VBER will entail, especially with regard to online sales. However, the clarifications that the Commission seems to have in mind will only apply after May 2022. In any case, both civil and administrative enforcement of competition law in respect of vertical relationships has increased dramatically in recent years. It is likely that this trend will continue in the coming years.

* Bas Braeken and Jade Versteeg assist Prijsvrij in these proceedings.

** Bas Braeken and Timo Hieselaar have (first) become involved on appeal as Dromenjager’s lawyers.