Introduction

In our blog of 26 May 2023, we discussed some developments in the field of railway law. The focus was in particular on the then upcoming concession for the Dutch Main Railway network (in Dutch: Hoofdrailnet, “HRN concession”) in light of the 4^th European Railway Package. The HRN concession for the period 2025 to 2033 has now been directly awarded to the Dutch Railways (in Dutch: Nederlandse Spoorwegen, “NS”) on 21 December 2023. In this blog, we will discuss the background and relevant legal framework of the unconditional direct award of the HRN concession. In doing so, we will also examine the European Commission’s (“Commission”) objections to the procedure by which the concession was awarded. Finally, we highlight several other recent developments regarding Dutch and European railway regulation.

4^th Railway Package and the HRN concession

Central to assessing the legality of the HRN concession, and the award to NS, is the 4^th Railway Package. This package consists of European law aimed at liberalising European passenger railway transport and is divided into two pillars. The technical pillar deals with the safety and interoperability of the European railway system. The market pillar deals with opening up the railway market. This pillar includes the SERA Directive (Single European Railway Area) and the PSO Regulation (Public Service Obligation), most of this legislation is implemented in the Netherlands in the Passenger Transport Act 2000 (Wp2000) and the Railway Act.

Prior to the entry into force of the 4^th Railway Package, the Dutch railway network was divided into two tiers: one central and multiple (smaller) decentralised concessions. The HRN concession is the primary concession. All rail lines and services not covered by the central HRN concession are granted as decentralised concessions to (alternative) transport operators. Currently, several railway companies operate on decentralised concessions including Arriva, Connexxion, Syntus/Keolis, Qbuzz, Abellio and Eurobahn. Apart from small overlaps between the concessions, the concessionaires have an exclusive right over the relevant rail lines and services. Whereas decentralised concessions are publicly tendered, thus allowing for competition between railway companies, the HRN concession has, to date, always been awarded directly and privately to NS.

Figure 1: railway companies & concessions on the Dutch railway network

The 4^th Railway Package brought change to this system. In principle, the entire railway network should be served by normal market conditions on the basis of open access. Infrastructure managers (ProRail in the Netherlands) must grant all railway companies access to their railway networks (Article 13 SERA Directive). This ensures maximum competition between railway operators. Nonetheless, the 4^th Railway Package foresees that not all railway services benefit from unbridled competition. This is particularly the case where certain services are unprofitable and, therefore, provide an insufficient impetus for railway companies to operate those services. To ensure that these services, although perhaps commercially uninteresting for the operator but important for passengers, are also provided for, a Member State can designate them as a public service obligation.

Article 2(e) of the PSO Regulation explains that a ‘public service obligation’ is an obligation imposed on an operator by the relevant competent authority to provide railway services that it would not provide under normal circumstances (i.e. without compensation). A public service obligation can be granted under Article 1 Wp2000 and Article 3 PSO Regulation as an exclusive right, for example in the form of a concession. However, to promote competition even in the case of public service obligations, Article 5(6) PSO Regulation stipulates that their direct award was only possible before 24 December 2023. Public service contracts must in principle be awarded through a public tender procedure after 24 December 2024. Only under strict conditions is the direct award of a concession still allowed after that date (see articles 8 paragraph 2 sub iii and 5 paragraph 4a PSO Regulation). The HRN concession for the period 2025-2033 was awarded directly to NS on 21 December 2023 (on the basis of Article 19a and 19b Wp2000).

Infringement procedure European Commission

On 14 July 2023, the Commission sent a letter of formal notice to the Dutch government explaining that it considers the proposed HRN concession to be unlawful. The Ministry of Infrastructure and Water Management (“Ministry”) had previously received a formal warning from the Commission in relation to the HRN concession. This second letter constituted the initiation of an infringement procedure. The opening of the infringement proceedings by the Commission did not go unnoticed in Dutch politics and led to several questions from the House of Representatives. In response, the Ministry reiterated several times, such as in a letter to the House of Representatives, that it was sticking to its plan to directly award the concession to NS. Following the direct award of the HRN concession to NS on 21 December 2023, the Commission sent a supplementary letter of formal notice to the Dutch government on 13 March 2024.

In its letters of formal notice, the Commission identifies two concerns based on which it opposes the direct award. First, the Commission criticises the fact that the Ministry has already awarded the HRN concession 2025-2033 a year before its commencement, on 21 December 2023. The reason for this was that directly awarding the HRN concession would no longer be possible after 24 December 2023 without justification under strict conditions. However, the Commission sees no objective justification for this long period of time between the date of award and the date of commencement of the concession, and even considers it a circumvention of the obligation to initiate a public tender procedure.

The Commission’s second objection concerns the scope of the HRN concession. The Commission questions whether (parts of) the HRN concession actually qualify as a public service obligation. As explained above, the award of a public service contract requires the existence of a public service obligation within the meaning of Article 2(e) PSO Regulation, and must thus be limited to services that are not commercially beneficial to the concessionaire. According to the Commission, the Ministry should have conducted a market analysis to test whether parts of the HRN concession could be operated under normal commercial conditions and on the basis of open access. The fact that NS pays a tariff for the concession suggests, according to the Commission, that parts of it could be fulfilled under regular market conditions.

Interestingly, in doing so, the Commission seems to break with the ruling of the Trade and Industry Appeals Tribunal (“CBb”) of 9 February 2017. In that case, the CBb ruled that the HRN concession 2015-2025 as a whole constituted a public service obligation. The fact that part of that concession, specifically the HSL-South (high-speed rail line), could be profitable did not alter that. In the CBb’s view, Article 2(e) of the PSO Regulation does not prevent a concession from being “a mix of profitable and loss-making lines”. By contrast, in the Commission’s view, the Ministry is required to examine whether parts of that “mix” could be operated as an open access service.

For the time being, it is unknown how the Ministry responded to the second letter of formal notice, for which the deadline to respond has now expired, and if so, whether this was enough for the Commission to refrain from further pursuing the infringement procedure. If the Commission is not satisfied with the response, it may choose to send a reasoned opinion. If the Dutch government then fails to comply with the Commission’s requirements within a specified period, the Commission may refer the case to the Court of Justice of the European Union (“CJEU”). Several scenarios are conceivable should the CJEU rule in favour of the Commission. In the most drastic scenario, the HRN concession will have to be awarded through a public tender procedure after all. It is also possible that the Dutch government will have to decentralise parts of the current concession. In both cases, alternative railway operators will have the opportunity to compete for services currently provided by NS.

Scope of the HRN concession and open access services

In addition to the Commission’s objections, the scope of the HRN concession also came under scrutiny at the national level. The scope of the HRN concession is of particular importance in the context of the old Dutch system of concessions for railway operators wishing to offer train services on the Dutch railway network alongside NS. Against that background, at the time of our previous blog, it was not yet established whether the Groningen-Zwolle and Leeuwarden-Zwolle sprinter routes would become part of the 2025-2033 HRN concession. Besides NS, Arriva was also interested in running train services on those routes. In the end, the Ministry chose not to decentralise these services. State Secretary Heijnen considered that these routes are of great importance to regional travellers and that they should be protected against austerity or discontinuation of train services by commercial parties as a result of disappointing revenues. Although these routes will continue to fall under the HRN concession for the time being, the Ministry may decide halfway through the course of the HRN concession, during the mid-term review, to still decentralise these services.

The 4^th Railway Package allows for a railway operator to offer train services even without a concession, and even if a concession has already been granted to another undertaking for the same route. It follows from Article 11(2) SERA Directive that the right to open access may only be limited if new (open access) services threaten the economic equilibrium of a concession. In the Netherlands, this threat primarily concerns the HRN concession, but also all decentralised concessions. Upon notification of a new service based on open access, the grantor (the Ministry), the concessionaire (NS) or the infrastructure manager (ProRail) may ask the ACM to carry out an objective analysis to examine whether the economic equilibrium of the relevant public service contract is disrupted (Article 10 Implementing Regulation 2018/1795).

In 2023 and 2024, a relatively large number of transport operators indicated their intention to use the Dutch railway network on an open access basis, especially for long-distance services within the Netherlands and internationally. For instance, Arriva has notified 26 new domestic train services and an international service between Groningen and Paris. Qbuzz has also notified new (international) train services, for example between Amsterdam and Berlin. In addition to these transport operators already operating in the Netherlands, Flixtrain has notified a new service between Rotterdam and Oberhausen, and new entrants Heuro and Flywise plan to offer international train services.

In response to each of these notifications, the Ministry and NS requested the ACM to conduct an economic equilibrium test (“EET”). The ACM declared those requests inadmissible in all cases. The ACM’s position is that it can only conduct an EET in respect of an existing public service contract (section 19a(2) Wp200), while the HRN concession 2025-2033 had not yet been granted at the time of the notifications. As an exception to that rule, the ACM can conduct an EET when a competitive tender procedure is initiated (Article 5(2) Implementing Regulation 2018/1795). However, as no competitive tender procedure has been carried out for the award of the upcoming HRN concession, this exception is not applicable. Without an EET, the ACM cannot prohibit the train services of alternative operators.

Competition in the European railway market

The 4^th Railway Package is (also) stimulating increased competition on railway networks throughout the rest of Europe. Thanks to liberalisation of the European railway network, previously nationalised, incumbent railway operators are facing increasing competition from alternative operators on an open access basis.

Most developments are taking place in the area of European high-speed routes. The increase in competition among high-speed train service providers is partly driven by a growing desire among consumers to travel more environmentally conscious. Train travel is more likely to be seen as an alternative to low-cost flights than it was 20 years ago. In response, national railway operators Renfe (Spain), Trenitalia (Italy) and SNCF (France) are expanding their open-access high-speed services to neighbouring countries. In addition, several new high-speed service providers have become operational on the basis of open access, such as Nuovo Trasporto Viaggiatori in Italy and Iryo in Spain. To date, Eurostar has had a monopoly on the high-speed route connecting the UK to continental Europe via the Channel Tunnel, but this may change in the future. Several established railway operators as well as start-ups Evolyn and Dutch firm Heuro have announced plans to offer services between London, Amsterdam and Paris.

In contrast to the trend of international expansion by French, Spanish and Italian national railway operators, NS and Deutsche Bahn (“DB”) have in fact divested their foreign operations in recent years. DB received Commission approval for the sale of Arriva to I Squared Capital on 5 January 2024. In the Netherlands, the Ministry of Finance publicly announced on 23 April 2024 that NS will sell its subsidiary Abellio Germany to BeNEX. The primary consideration is that Abellio Germany plays no role in cross-border railway transport or international services between the Netherlands and Germany. For this reason, the subsidiary provides insufficient added value for Dutch travellers. Combined with the fact that Abellio Germany is loss-making, the Ministry of Finance, in its capacity as shareholder, approved the sale.

Are your business operations affected by developments regarding the HRN concession? Are you coming into contact with the ACM in a regulatory matter or dispute? Or are you curious about the impact of new regulations? If so, contact one of our specialists.

Bas Braeken – Jade Versteeg – Joost van Belois

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).

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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