Competition Currents | April 2022 | Italy, European Union, Greater China, Japan
A. Italian Competition Authority (ICA)
1. ICA sends requests for information about fuel price increases.
On March 18, 2022, following the increase in petrol and diesel prices recorded in recent days as well as numerous complaints received, the Italian Competition Authority (ICA) notified detailed requests for information to major oil companies. The purpose of the request is to verify the reasons for these increases and, if necessary, assess the need for possible intervention limited only to the possible violation of the rules on abuse of dominant position or agreements restricting competition.
This is not the first time ICA launched such an investigation concerning a general increase in prices. As was the case during the first months of the pandemic, ICA, within the scope of its responsibilities, monitors price increases due to crises and to verify that these phenomena do not stem from anti-competitive conduct.
2. ICA fines Iliad for unfair commercial practices.
On March 29, 2022, ICA closed an investigation against Iliad Italia S.r.l., imposing a fine of €1,200,000 on the company for the omission and/or misleading wording of essential information on mobile telephone offers, including services with 5G technology, and for the misleading wording of a promotional message relating to one of these offers.
In particular, ICA argued that Iliad advertised a number of mobile telephone offers, emphasizing their compatibility with the latest 5G technology but omitting or providing unclear information on the essential conditions for taking advantage of this technology. These communications were, therefore, not adequate to make the consumer understand that in order to take advantage of the 5G network included in the offers Iliad promoted, it was necessary to be under the geographical coverage of the operator’s 5G network and that it was essential to own a device enabled to this specific network.
In addition, ICA argued that Iliad used the claim “100 gigs, unlimited minutes and sms in Italy and Europe” in a text message sent to its former customers to promote the “Flash 100 5G” offer. ICA considered this message likely to mislead the consumer, since the consumer could believe the 100 GB included in the offer were all usable for traffic in Europe, while in reality, in case of connection from other European countries, the traffic included in the offer was only 6 GB.
3. ICA fines Sky Italia for unfair commercial practices.
On March 11, 2022, ICA closed an investigation of Sky Italia S.r.l., fining the company €1 million for disseminating misleading information on the awarding of soccer rights to Serie A championship.
ICA argued that Sky Italia, in spring 2021, provided misleading information regarding the awarding of Serie A rights, suggesting that its subscribers could continue to enjoy content relating to the Serie A championship as they had during the previous season. Sky Italia knew it could not offer the Sky Calcio package in its previous format. Despite this, the company provided its customers with information that did not allow them to understand the actual content of the offer relating to the Sky Calcio package for the 2021/2022 season.
Customers who had already subscribed to the company’s services, and in particular to the football package, were therefore inclined to keep their existing package, with the expectation of being able to take advantage of the discounts promised for the summer months but also, subsequently, to be able to withdraw without penalty.
A. European Commission (EC)
1. European Commission adopts Temporary Crisis Framework for State aid to support economy given Russia’s invasion of Ukraine.
On March 23, 2022, the EC adopted a new State aid Temporary Crisis Framework (TCF) to support the economy in the context of Russia’s invasion of Ukraine, based on Article 107(3)(b) of the TFEU, which will be in place until Dec. 31, 2022.
The TCF provides for three types of aid: (i) limited amounts of aid; (ii) liquidity support in form of State guarantees and subsidized loans; and (iii) aid to compensate for high energy prices.
With the first category of aid, EU Member States will be able to set up schemes to grant up to €35,000 for companies affected by the crisis active in the agriculture, fisheries, and aquaculture sectors and up to €400,000 per company affected by the crisis active in all other sectors.
With the second category of aid, EU Member States will be able to provide (i) subsidized state guarantees to ensure banks keep providing loans to all companies affected by the current crisis; and (ii) public and private loans with subsidized interest rates.
With the last category of aid, EU Member States will be able to partially compensate companies, in particular intensive energy users, for additional costs due to exceptional gas and electricity price increases. This support can be granted in any form, including direct grants. The overall aid per beneficiary cannot exceed 30% of the eligible costs, up to a maximum of €2 million at any given point. When the company incurs operating losses, further aid may be necessary to ensure the continuation of economic activity. To that end, Member States may grant aid exceeding these ceilings, up to €25 million for energy-intensive users, and up to €50 million for companies active in specific sectors.
2. Commission carries out unannounced inspections in automotive sector.
On March 15, 2022, the EC conducted unannounced inspections at the premises of companies and associations active in the automotive sector in several EU Member States. In parallel, the EC sent out formal requests for information to several companies active in the automotive sector.
The EC is concerned that several companies and associations violated EU antitrust rules prohibiting cartels and restrictive business practices. The Commission officials were accompanied by their counterparts from the relevant national competition authorities. The respective authorities conducted the inspections in coordination with the UK Competition and Markets Authority.
The inspections and requests for information concern possible collusion in relation to the collection, treatment, and recovery of end-of-life cars and vans, which are considered waste.
B. EU Courts
1. Double jeopardy test for EU competition rules.
The European Court of Justice (ECJ) ruled March 22 that the double jeopardy test for EU competition rules is the same as for all other areas of law. The same person or company cannot be penalized for the same set of material facts twice. The ECJ, in ruling on two antitrust cases, decided that a court cannot penalize a prosecuted person with a sanction where another court has already issued a decision on the same facts. The court also states that there can be an exemption to this rule if there is a legitimate objective of general interest to the EU that could be achieved with said judgment. In the first judgment, which concerned a sugar cartel, Austrian courts were tasked with deciding whether another Member State had already penalized the prosecuted company. In the second case, involving Belgian parties, the court ruled that the company who infringed competition laws could be penalized twice.
C. European Policy Developments
1. EC and UK Competition and Markets Authority investigates vehicle recycling market.
On March 16, the EC and UK’s Competition and Markets Authority (CMA) launched parallel investigations into the vehicle recycling market. This investigation was initiated after Mercedes-Benz, as leniency applicant, informed the authorities, and the authorities investigated certain companies and associations. The respective organizations have confirmed these investigations relate to arrangements for the recycling of end-of-life vehicles, which are old or written-off cars and vans. The investigations and dawn raids were based on concerns that certain companies and associations were not complying with applicable competition laws regarding the market for the “collection, treatment and recovery of end-of-life cars and vans which are considered waste.”
2. Gazprom under EU investigation relating to alleged anti-competitive behavior.
Following Russia’s attack on Ukraine, Russian state-owned gas provider Gazprom is reportedly under priority EC investigation for prohibited anti-competitive behavior. Gazprom is accused of tampering with the EU gas markets. Several companies, which include Ukrainian companies, state that Gazprom is using its dominant position to restrict gas access to Eastern Europe markets. There are also allegations of Gazprom entirely blocking other gas companies from accessing the Eastern European market.
In parallel, the EC is aiming to reduce the impact of the EU’s reliance on Russian gas by providing guidance to states regarding caps on retail energy prices to stem the harm to competition resulting from the invasion. Existing EU energy law helps with this by allowing Member States to set retail energy prices under extraordinary circumstances. It also tries to set out a plan to reduce the amount of gas the EU imports from Russia. This includes diversification of the supply and looking at other, more sustainable options to substitute gas imports.
3. The EC updates the Horizontal Block Exemptions Regulations (HBER).
To further cooperation between Member States and to generate substantial economic and sustainability benefits, on March 10 the EC released draft updates to the HBER and its related guidance in connection with sustainability. Article 101(3) TFEU’s four conditions must be met to benefit from the exemption, with one condition being that the consumer must realize a certain amount of benefit from the agreement.
4. European Competition Network (ECN) publishes joint statement with EC about Ukraine war.
The ECN has joined the EC in its statement condemning the Russian military’s action following Russia’s invasion of Ukraine. In its March 22 statement, the ECN announced that it supports Ukraine and is fully aware of the social and economic impact of this war for Ukraine and the entire EU/EEA. The ECN understands that this extraordinary situation may lead to companies taking steps to minimize market disruptions, which might result in agreements to ensure the sale, purchase, and honest distribution of scarce goods or to mitigate the impacts caused by following EU sanctions. The ECN will not actively oppose strictly necessary and temporary measures to achieve these goals. The ECN recognizes that competition remains important, and the war should not be an opportunity to undermine an equal playing field between competitors. ECN will not allow any artificial surges of prices or reduced production because of cartels or the abuse of power.
5. EU reaches agreement on Digital Markets Act (DMA).
On March 24, a landmark agreement was reached between the European Parliament and the Member States on the DMA. With this agreement, the DMA aims to comprehensively regulate the gatekeeping power of the largest digital companies. It is anticipated that the finalized text will be voted upon in September and would become applicable at the beginning of 2023. The new rules will complement competition law at the EU and national level. Together with the Digital Services Act, the DMA is part of reform that aims to ensure a safe and accountable online environment.
A. Munich Re Fined for Failure to Notify of a 2019 Acquisition of a Partial Stake in Covanta Europe
On Feb. 14, 2022, the State Administration for Market Regulation (SAMR) published its decision imposing administrative fine against Munich Reinsurance Group (Munich Re) for, without notifying SAMR, acquiring a 15% stake in Covanta Europe Assets Limited (Covanta Europe), an energy operator running a waste-to-energy facility in Dublin. It is an exceptional case of SAMR investigating and penalizing an offshore transaction when the target of acquisition has no identifiable China operation.
Before the acquisition occurred in 2019, SAMR found that DIF Infrastructure V Cooperatief U.A. (DIF) held a 40% interest in Covanta Europe, with Green Investment Group Limited (GIG), and Covanta Holding Corporation (Covanta Holding) holding the remaining interests Munich Re entered into a share transfer agreement with DIF, acquiring 15% equity interest of DIF’s interest in the target. The same decision passed the European Commission’s review in September 2019.
In the published decision, SAMR cited the 2018 global and China turnovers of each of Munich Re, Covanta Europe, and GIG, and found the transaction fell within the definition of a reportable transaction because the global and Chinese turnovers of Munich Re and GIG in 2018 had reached the thresholds. As background, a concentration would be reportable under China’s Anti-Monopoly Law (AML) if, among other things, at least two business operators concerned have China-originating turnovers in the previous year each exceeding RMB400 million (approximately US$62.5 million). Notably, SAMR cited China turnovers of Covanta Europe, but the exact number was omitted for confidentiality purposes. Therefore, whether Covanta Europe had a meaningful China operation at the time of the transaction was not known.
SAMR further found that, by acquiring a 15% equity interest in Covanta Europe, Munich Re gained joint control over the target with all existing shareholders, and despite no found competition concerns, the failure to notify SAMR in advance of the transaction constituted a violation of the AML. SAMR thus fined Munich Re RMB300,000 (approximately US$46,000)..
B. Swiss Pharma’s China Subsidiary Fined for Resale Price Maintenance
On Feb. 28, 2022, the Beijing Municipal Administration for Market Regulation (Beijing AMR) published a penalty decision, finding that Geistlich Trading (Beijing) Co. Ltd. (Geistlich Beijing), a wholly owned subsidiary of the Swiss-based Geistlich, breached China’s AML by illegally fixing the resale price of Geistlich’s dentistry-related products. China’s AML prohibits resale price fixing, a category of vertical monopoly agreements.
According to Beijing AMR, Geistlich Beijing imported the products from Geistlich and sold most of them to hospitals in China through distributors at multiple levels. Beijing AMR found that Geistlich Beijing reached resale price fixing agreements with its distributors through written contract and policy, holding conferences and online and verbal communications with distributors.
In particular, Beijing AMR found that Geistlich Beijing included a provision in its distribution agreement from 2008 to 2018 prohibiting the distributors from selling the products at a price lower than the recommended resale prices Geistlich Beijing set, and circulated written policy requiring Geistlich Beijing to approve in advance all online retail prices. Geistlich Beijing was found to have implemented a loyalty program awarding distributors who had complied with the resale price policy, and to have monitored the implementation through means including visiting end-users. In 2017 and 2018, certain distributors were found to have been disciplined by Geistlich Beijing for violating the resale price policy, and their purchase price from Geistlich Beijing was increased as a result.
Geistlich Beijing argued that the resale price was not effectively implemented, citing examples of resale prices which were actually lower than its recommended price. Beijing AMR rejected this argument on the grounds that the price deviations were too infrequent to countervail the persistent price-fixing practice described above.
Beijing AMR also found that Geistlich Beijing’s practice had an anti-competitive effect, including reduced market competition and impaired consumer interest, noting that the end price sold to hospitals was maintained at a high level during the past five to 10 years, and no price reduction was ever made during said period.
As a result, Beijing AMR fined Geistlich Beijing 3% of Geistlich’s total 2020 revenue in China, which amounts to RMB 9.12 million (approximately USD1.43 million).
C. Supreme People’s Court Finds Patent Settlement Arrangement Between Competitors to be an Illegal Cartel
The Supreme People’s Court of China (SPC) in a recent appellate review rendered a patent settlement agreement between two competitors invalid, as it constituted an illegal cartel.
In 2015, to settle a patent dispute, Wuhan Taipu, a manufacturer of no-load tap changers (NLTC), and the patent holder entered into an agreement with Shanghai Huaming, a manufacturer of both NLTC and on-load tap changers (OLTC), that allegedly infringed Wuhan Taipu’s patent. In the settlement agreement, Shanghai Huaming promised that, in the Chinese market, it would focus on manufacturing a particular model of NLTC, and refrain from manufacturing other models, and in non-China markets, it would distribute only Wuhan Taipu’s NLTC products but not other tap changers. Shanghai Huaming further agreed to engage Wuhan Taipu to manufacture main components of such other models at a predetermined price. Liquidated damages equaling 300% of the total invoiced value under the settlement agreement were agreed upon in case Shanghai Huaming breached any of the said covenants.
In 2020, Shanghai Huaming brought a case against Wuhan Taipu, challenging the enforceability of the settlement agreement under China’s AML. The local court rejected the case, finding the agreement enforceable given that, among other reasons, “the said covenants aimed to prevent future patent infringement (by Shanghai Huaming)”. Shanghai Huaming petitioned for appellate review by SPC.
In its decision, SPC opined that the two companies are competitors in the NLTC market, and further held the said covenants constituted an illegal cartel. Specifically, SPC held that Shanghai Huaming’s covenant not to manufacture other models of NLTC in the Chinese market and not to distribute other products in non-China markets amounted to illegal divisions of the sales market. It also held that the same covenant constituted illegal restriction on sales volume, as it effectively locked Shanghai Huaming’s output. In addition, Shanghai Huaming’s agreement to engage Wuhan Taipu to manufacture main components of such other models at a pre-agreed price was found to be “very likely” to result in a fixation of sales price—as SPC opined, once the supplier of such main components and the supply price were predetermined, the final sales price was largely fixed. All such behavior, including division of sales market, restriction on sales volume, and price fixing, are specified categories of cartel acts under AML, all considered to be anti-competitive and thus illegal.
Notably, SPC went on to refute the lower court’s reasoning, indicating that Wuhan Taipu’s patent related to a modification to NLTC only, not an essential patent covering all models of NLTC. By entering into the settlement agreement, the parties classified NLTC into different models. These different classifications bore no relation to the patent at issue and exceeded the scope of the patent. Consequently, the agreement was held to be an abusive use of Wuhan Taipu’s patent right, which cannot be used to justify the cartel acts.
Citing that the prohibition against cartel acts under AML is of a mandatory nature, SPC reversed the lower court’s decision and held that the settlement agreement was invalid in its entirety.
A. Japan Fair Trade Commission (JFTC) orders JPY 1.7 billion surcharge payment against 24 companies in bid-rigging matter.
As discussed in the December 2021 Competition Currents, the JFTC investigated suspected violations of the Anti-Monopoly Act (unreasonable restraint of trade, bid-rigging) in prints and/or deliveries of notices regarding the Japanese national pension system. The JFTC concluded that the companies involved determined who would be awarded the contract and made it possible for the prospective contractor to be awarded the contract. Based on the foregoing, on March 3, 2022, the JFTC officially issued a surcharge payment order of JPY 1.7 billion against 24 companies and a cease and desist order against 25 companies.
B. JFTC issues cease and desist orders and JPY 14.8 million surcharge payment orders.
JFTC issued cease and desist orders and surcharge payment orders against participants in biddings for specific electronic security services ordered by the public offices in Gunma Prefecture. JFTC found the participants substantially restrained competition in the field by, in concert with one another, designating prospective bidders and cooperation by persons other than the prospective bidder to enable the prospective bidder to receive the order. Four companies were subject to the surcharge payment order in the total amount of JPY 14.8 million. JFTC found a total of seven companies violated the Act, but one of the seven companies stopped and reported the violation in advance through the leniency system, thereby avoiding administrative penalties.
Additional authors who contributed to this article: Yuji Ogiwara, Stephen M. Pepper, Yuqing (Philip) Ruan, Gillian Sproul, Hans Urlus, Dawn Zhang, Robert Hardy, Alan W. Hersh, Filip Drgas, Pietro Missanelli, Anna Rajchert, Mari Arakawa, Anna Bryńska, John Gao, Marta Kownacka, Jose Abel Rivera-Pedroza, Chazz Sutherland, Ippei Suzuki, Rebecca Tracy Rotem, Becky L. Caruso, Emily Willis Collins.