On 6 September 2023, the European Commission (“Commission”) designated Alphabet, Amazon, Apple, Meta, Microsoft, and ByteDance (the parent company of TikTok) as gatekeepers under the Digital Markets Act (“DMA”). The DMA imposes additional obligations on online platforms that enjoy significant economic power and act as an important gateway for business users to reach end users (see also our earlier blog on the DMA). The substantive obligations of the DMA will enter into force in March 2024, subjecting the undertakings designated as ‘gatekeepers’ to a stricter regulatory regime.

In the meantime, Apple, Meta, and ByteDance have already appealed their designation decisions to the General Court of the European Union (“General Court”), and the Commission is conducting market investigations into possible additional designations. ByteDance has also filed an application for the suspension of its designation with the President of the General Court. In this blog, we discuss the scope and obligations of the DMA through seven questions and answers. We also cover recent developments regarding the designations, enforcement issues, and the role of third parties.

1. What is the DMA?
2. To whom does the DMA apply?
3. Which undertakings have been designated as gatekeepers so far?
4. What obligations does the DMA impose on gatekeepers?
5. When does the obligation to inform the Commission about concentrations apply?
6. How is the DMA enforced?
7. Does the DMA facilitate private damages claims?

1. What is the DMA?

The DMA is an EU regulation that seeks to safeguard competition on digital markets by ensuring that digital markets remain ‘fair’ and ‘contestable’. The previous years, several online platforms have become so sizeable and powerful that new entrants face significant challenges when competing with these incumbents. Moreover, large online platforms typically possess such a vast and all-encompassing ecosystem that provides them with a significant advantage in reaching end users and enables them to effectively exclude other market participants. Furthermore, the vast amounts of data the gatekeepers generate further reinforce the competitive advantage gatekeepers typically enjoy over their competitors. As a result of the foregoing, innovation and quality in digital markets are diminished as existing competitors are unable to keep up, and new entrants are discouraged from entering the market.

The use of Articles 101 and/or 102 TFEU has not always proven to be effective in tackling these structural issues. Although both the Commission and national competition authorities (“NCAs”) have pursued several investigations in digital markets in recent years (for the Commission, think about the Amazon Buy Box and three investigations into Google), these investigations are often complex and time-consuming. The Commission’s investigations into Apple Pay and Apple’s App Store (music services), launched in 2020, are for example still ongoing. Ex post enforcement action based on Articles 101 and/or 102 TFEU may thus – in the view of the European legislator – in some cases come too late to repair the harm to the competitive playfield. The DMA seeks to close this enforcement gap by providing an ex ante regulatory framework for large online platforms (see also our earlier blog on this subject).

2. To whom does the DMA apply?

The DMA applies to gatekeepers. A gatekeeper provides one or more so-called core platform services (“CPSs”) The DMA distinguishes the following CPSs:

A CPS provider qualifies as a gatekeeper if a number of qualitative requirements are met. A gatekeeper is not necessarily dominant within the meaning of EU competition law. Instead, an undertaking is qualified as a gatekeeper if it (i) has a significant impact on the internal market, (ii) it provides a CPS which is an important gateway for business users to reach end users, and (iii) has or is expected to have an entrenched and durable position. An undertaking is subsequently presumed to satisfy the abovementioned requirements if it meets the following quantitative criteria:

If an undertaking meets the quantitative criteria, it is obliged to notify the Commission within two months after those thresholds are met. Upon notification, undertakings that qualify as gatekeepers can try to rebut this presumption. So far, Alphabet, Microsoft, and Samsung have successfully argued that they should not be designated as gatekeepers as regards their Gmail, Outlook, and Samsung Internet Browser, despite meeting the DMA’s quantitative thresholds. The Commission conceded to the objections and refrained from designating Alphabet, Microsoft and Samsung as gatekeepers with respect to these services.

Where the arguments challenging a designation fall short of outright refuting the designation, but do cast sufficient doubt, the Commission may conduct a market investigation. The Commission is currently conducting investigations in order to establish whether Microsoft Bing, Microsoft Edge, Microsoft Advertising, and Apple’s iMessage ought to be designated under the DMA. In the reverse, the Commission can also designate an undertaking as a gatekeeper on the basis of a market investigation if the undertaking does not meet the DMA’s quantitative thresholds.

A designation by the Commission is not temporally limited. The Commission can, upon request or on its own initiative, reconsider, amend, or repeal a designation if there has been a substantial change in any of the facts underlying the designation, or where it is found that the designation was founded on incomplete, incorrect, or misleading information. The Commission may later also designate new gatekeepers. There is for example already some talk about the potential designation of Booking.com in the near future. So far, Booking eluded the DMA’s quantitative thresholds – in large part due to the COVID-19 pandemic – but is already considered to be a prime candidate for a gatekeeper designation in the media.

3. Which undertakings have been designated as gatekeepers so far?

On 6 September 2023, the Commission designated six undertakings as gatekeepers in respect of twenty-two CPSs. The image below provides an overview.

Source: https://ec.europa.eu/commission/presscorner/detail/nl/qanda_20_2349

The Commission’s gatekeeper designations could be appealed until 16 November 2023. Microsoft, Amazon, and Alphabet (Google) expressed that they will not appeal their designations. Apple, ByteDance, and Meta did appeal their designation decisions. In its appeal, ByteDance essentially argues that TikTok does not enjoy an entrenched and durable position and that it does not meet both the DMA’s turnover and capitalisation thresholds (unlike all other gatekeepers so far designated). Meta specifically appealed the designation of ‘Facebook Marketplace’ and ‘Facebook Messenger’. Apple, in its turn, appealed all gatekeeper designations and also filed a complaint against the Commission’s decision to initiate a market investigation into whether Apple’s iMessage should be included in the designation decision. These appeals will probably be decided on next year.

Third parties may join the appeal proceedings before the General Court if they can establish an interest in the General Court’s decision. The ongoing proceedings will reveal whether competitors, customers or other third parties have a sufficient interest already in the stage of the gatekeeper’s designation, or whether this interest only arises in the event of a gatekeeper’s non-compliance with the DMA.

4. What obligations does the DMA impose on gatekeepers?

Articles 5, 6 and 7 of the DMA introduce a wide range of obligations for gatekeepers. Many of the obligations relate to the collection, processing, and combining of (personal) data. Without the express consent of the end user, a gatekeeper is for example prohibited to collect the personal data of end-users using services of third parties for advertising purposes. Additionally, a gatekeeper is prohibited from cross-using personal data generated by a CPS in other services provided separately by the gatekeeper and vice versa. The gatekeeper is furthermore precluded from (re)directing end-users that access a specific service of the gatekeeper into signing on to other services of the gatekeeper with the aim of combining the user’s personal data. Gatekeepers must furthermore provide end users with effective data portability.

The DMA also contains obligations to provide business users, advertisers and publishers insight into the data generated by and/or for them. The gatekeeper may not use the non-public data generated by business users in competition with these users, for example on a downstream market. With regard to advertisers and publishers, there is also an obligation to provide daily information on the ads placed upon their request, free of charge. For online search engines (i.e. for the time being only Google Search), there is an additional obligation to grant third-party search engines, upon their request, access to anonymised ranking, query, click and view data under fair, reasonable and non-discriminatory conditions (also: “FRAND”-conditions).

In addition to these rules on the processing and accessing of data, gatekeepers must abide by many different obligations that, at their core, concern the interaction between different services and the application of fair trading conditions. To this end, the DMA contains both certain do’s – for example, in the context of interoperability of certain hardware and communication services – and don’ts (think of the express prohibition of self-preferencing and the mandatory use of certain identification or (in-app) payment systems). Gatekeepers are also barred from engaging in tying and bundling practices, for example by making the use of one CPS contingent upon the registration or subscription to another. A gatekeeper should enable end users to easily install and uninstall software applications (including third-party app stores) and allow end-users to easily change the default settings. End users should not be (technically) prevented from switching to or additionally using other software applications or services, and should be able to terminate their service with the gatekeeper without undue difficulty.

Furthermore, the gatekeeper should not prevent business users from offering the same products or services to end users through their own direct sales channel and/or third-party services at prices or conditions that are different from those offered through the online intermediation services of the gatekeeper. More generally, the gatekeeper should not prevent business users and end users from going around the gatekeeper and contracting with other parties (e.g. also indirectly by denying access to certain content or features upon doing so). Specifically with regard to app stores, online search engines and online social networking services, the DMA includes the obligation to apply general FRAND access conditions for business users, which should also contain an alternative dispute settlement mechanism.

Finally, to encourage effective enforcement, the DMA explicitly prescribes that the gatekeeper may not restrict or prevent business users and end users from reporting breaches of the DMA or other EU law rules to a competent authority. A full overview of the obligations the DMA imposes can be found in Articles 5 – 7 of the DMA. The designated gatekeepers must bring their operations into compliance with the DMA by March 2024. Gatekeepers must also submit a compliance report to the Commission and establish an independent compliance function.

5. When does the obligation to inform the Commission about concentrations apply?

Another unique feature of the DMA that has so far received rather little attention is the obligation for gatekeepers to inform the Commission of any proposed concentration in the digital sector, regardless of whether the proposed concentration must be notified to the Commission under the EU Merger Regulation (“EUMR”) or to a national competition authority. This duty to inform reflects the increasing emphasis of the Commission on preventing so-called killer acquisitions. It complements the Commission’s use of Article 22 EUMR to examine mergers that do not meet EU and/or national merger thresholds (read more here), and the CJEU’s recent Towercast-judgment, where the CJEU ruled that certain non-notifiable mergers may qualify as an abuse of dominance under Article 102 TFEU.

As the DMA merely introduces a duty to inform the Commission, it does not provide the Commission with additional powers to investigate these concentrations, and hence, to potentially veto them. Upon ‘notification’, the gatekeeper is required to provide a description of the concentration and the activities of the undertakings involved, as well as the annual EU turnover, the value and rationale of the transaction, the number of annual active users and the number of monthly end users. This will allow the Commission to monitor whether new CPSs need to be designated. The DMA also explicitly states that this information could potentially be used for a subsequent Article 22-referral.

6. How is the DMA enforced?

The primary responsibility for enforcement of the DMA lies with the Commission. In addition to the market investigation mentioned above, the DMA provides the Commission with various investigative powers, such as the possibility to request information and conduct inspections (similar to those under Regulation 1/2003). In doing so, the Commission can also impose interim measures. In case of an infringement of the DMA, the Commission, after issuing its preliminary findings, can impose substantial fines and periodic penalty payments, as well as behavioural remedies. These fines can amount to 10% of an undertaking’s annual turnover and may be doubled to up to 20% for repeat offenders. In case of systemic non-compliance (more than three infringement decisions in eight years), the Commission may also impose structural measures (including, for example, a temporary ban on new acquisitions), following a market investigation.

NCAs only play a supporting role in the enforcement of the DMA by monitoring compliance. In the Netherlands, the Digital Markets Regulation Implementation Act (“Implementation Act”) designates the Dutch Competition Authority (Autoriteit Consument en Markt, “ACM”) as the competent national authority responsible for overseeing compliance with the DMA. The ACM possesses various supervisory powers and may initiate investigations into possible breaches of the DMA on its own initiative. Yet ultimately, the ACM reports back to the Commission, and only the Commission can initiate enforcement proceedings under the DMA.

The ACM’s supervisory powers end where the Commission’s investigation begins. It might nevertheless be difficult to establish clear boundaries as these supervisory and investigative powers could overlap. In its recent advice on the Implementation Act, the Dutch Council of State already indicated that the powers of the Commission, the ACM, and the Dutch Data Protection Authority’s (Autoriteit Persoonsgegevens, “AP”) potentially overlap with one another (for example regarding the enforcement of the Platform-to-Business Regulation and the Data Protection Regulation). Also, many obligations from the DMA bear close similarities to (or even: mirror) previous cases that were addressed under ‘regular’ competition law (think of the specific ban on self-preferencing in the DMA following the Google Shopping case). At the same time, the DMA prevents national authorities from taking decisions contrary to a decision adopted by the Commission on the basis of the DMA. In light of these ambiguities, the Dutch Council of State has advised the (Dutch) legislator to complement the explanatory memorandum of the Implementation Act on these points.

Public enforcement of the DMA may also be initiated on the basis of complaints and signals from third parties, including competitors, business users, and end users. Under Article 27 of the DMA, third parties may directly report possible breaches of the DMA to both the competent national authorities and the Commission. The DMA also encourages whistleblowers to report infringements by gatekeepers to the competent authorities. The Commission stresses that whistleblowers can play a crucial role in the enforcement of the DMA as they alert the competent authorities of potential infringements. To encourage employees to ‘blow the whistle’, the Commission has asserted that whistleblowers need to be protected from retaliation. Consequently, the EU Whistleblower Directive is also applicable to the DMA.

7. Does the DMA facilitate private damages claims?

As of now, still little is known about private enforcement of the DMA. On the basis of Article 288 TFEU, all EU Regulations, hence including the DMA, enjoy direct effect throughout the Member States. Individuals can invoke the rights enshrined in an regulation in civil proceedings where the rights granted to the individual are sufficiently clear, precise, and relevant to the individual’s situation. Given that most obligations in the DMA are formulated in a rather specific and precise fashion, it can be assumed that such is the case (also confirmed by the Commission), although Article 6 of the DMA contains obligations that may “be further specified”.

If a third party suffers damages as a result of a gatekeeper’s infringement of the DMA, it may initiate civil proceedings before a national court. Article 39 of the DMA provides for cooperation between the national competition authorities and the Commission in the national application of the DMA. A national court may request the Commission to provide information and issue guidance when applying the DMA in national proceedings. The Commission can also intervene on its own initiative if the coherent application of the DMA so requires. Additionally, Member States must forward to the Commission a copy of any written judgment of national courts deciding on the application of the DMA.

Throughout the legislative process, it has been stressed that the DMA is not a competition law instrument. Also considering the legal basis of the DMA, the procedural guarantees and (material) presumptions that Regulation 1/2003 and the Cartel Damages Directive provide, are inapplicable. The DMA therefore explicitly stipulates that national courts shall not give a decision which runs counter to a decision adopted by the Commission under the DMA. It can thus be inferred that the unlawful conduct (as one of the elements for establishing a tort action under the Dutch Civil Code) is irrefutably established before a national court after a DMA- infringement decision by the Commission (just as it is on the basis of Article 16 of Regulation 1/2003). This will facilitate a follow-on damages claim following a non-compliance decision based on the DMA.

Conclusion

After many years of negotiations, the practical entry into force of the DMA is nearly in sight. Six undertakings have so far been designated as gatekeepers and the first legal proceedings challenging these designations are already pending before the General Court. In the meantime, the Commission is conducting market investigations to determine whether other services provided by these gatekeepers should be designated under the DMA. Given the thin dividing line between the DMA on the one hand and European and national competition rules on the other, national authorities will need to consider how to most effectively shape cooperation among themselves and with the Commission. Third parties such as the gatekeepers’ competitors and customers may also want to prepare for the new rules that are set to apply to their competitors/business partners in March 2024. During the legislative process of the DMA, the legislator strengthened their role in the enforcement of the DMA by providing for an explicit complaint option as well as by implementing several additional rules on how the DMA is to be applied in national civil proceedings. Third parties are therefore expected to play a crucial role in overseeing the enforcement of the DMA.

More questions about the DMA? Please contact one of our competition law specialists.

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

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.