June 2021 Competition Currents | United Kingdom and European Union
Cartel Cases: Appeal Increases Settlement Penalty
In the UK, it is possible to settle a price fixing investigation and obtain a reduction in cartel penalty that reflects the administrative savings that settlement provides to the Competition and Markets Authority. In a recent case, a UK producer of electric drum kits settled a CMA investigation by admitting to resale price maintenance, accepting liability for a penalty of just over £4 million, which included a 20% settlement discount and agreeing not to appeal. After the CMA issued its formal decision in the case, however, the producer appealed to the Competition Appeal Tribunal (CAT) to reduce the penalty, on the basis that it had been wrongly calculated. In its judgment, the CAT decided that it would calculate the amount of penalty without the 20% discount, on the basis that the producer had breached the terms of the settlement. It then dismissed the producer’s appeal and increased the amount of the penalty by the amount of the settlement discount, to just over £5 million.
Mergers – The UK Share of Supply Test
The UK merger regime applies to transactions that increase to 25% or more the merged firm’s share of the supply of any product or service of any description in the UK or part of the UK. The CMA’s application of this “share of supply” test was challenged by Sabre in an appeal to the CAT against the CMA’s decision to assert jurisdiction over Sabre’s proposed acquisition of Farelogix on the basis that this test was satisfied. The CMA went on to block the acquisition.
The CAT rejected Sabre’s challenge and upheld the CMA’s finding that the share of supply test was met. The judgment is important, as it endorses the CMA’s flexible use of the test, which has come under some criticism recently. In particular, the CAT confirmed that the CMA has wide discretion as to the criteria it applies in determining the description of the services used as a basis for calculating the 25% share. It found that the CMA’s choice of description in this case was not too wide and was reasonable, as it took account of the underlying statutory purpose of the test, which is to identify mergers that do not meet the alternative turnover test but that give rise to sufficient prospect of a competition concern arising from an overlap in relevant commercial activity. In addition, the CAT found that the UK aspect of the test was satisfied where a UK customer could receive a merging party’s services indirectly, so it was not necessary for Farelogix to supply its services directly to a UK customer. Finally, the CAT decided that the CMA took a reasonable approach to calculating the 25% share of supply.
The General Court Upholds Ryanair’s Appeals and Annuls Two Commission’s Decisions Authorizing State Support to TAP and KLM
On May 19, 2021, the General Court (GC) annulled two of the Commission’s positive decisions, both authorizing State aid granted to airlines to remedy the adverse effects of the COVID-19 pandemic. In more detail, the judgments at issue concern, respectively: (i) a state guarantee and state loan, with a total budget of € 3.4 billion, granted by Netherlands to KLM, a subsidiary of the Air France-KLM holding company (KLM judgment) and (ii) a loan, for a maximum budget of € 1.2 billion, granted by Portugal to TAP (TAP judgment).
In the KLM judgment, the GC found that the contested Commission’s decision failed to explain why a previous state aid granted by France to Air France – an affiliate of KLM – had no influence on the assessment as to the compatibility with the internal market of the aid to KLM. Particularly, in the GC’s view, the challenged decision did not contain details as regards the functional, economic, and organic links between Air France and KLM, although it is apparent that the same holding company is involved in the administration of the envisaged aid for both beneficiaries.
In the TAP judgment, the Court annulled the contested decision on the grounds that the Commission failed to analyze whether the conditions required by Article 22 of the Guidelines on aids to undertakings in difficulty were met, namely whether: (i) the beneficiary belonged to a group; (ii) assuming the beneficiary was part of a group, that its difficulties were intrinsic and were not the result of an arbitrary allocation of costs to the benefit of its shareholders or other subsidiaries; (iii) said difficulties were too severe to be dealt with by the recipient’s shareholders. Interestingly, in both cases, the Court decided to suspend the effects of the annulment, including recovery of the aid, pending the issuance of a new decision by the Commission. Indeed, the Court found that the immediate calling into question of the receipt of the funds envisaged by the aid would have harmful consequences for the economy and air transport connectivity for both Netherlands and Portugal, having regard to an economic and social context which had already been impacted by the pandemic.
The EC Approves Spanish Fund to Support Undertakings Experiencing Difficulties Due to COVID-19 Pandemic
According to a March 23, 2021 press release, the Commission approved modification of three Spanish schemes designed to provide economic support during the COVID-19 pandemic. In July 2020, Spain advised the Commission of its plan to establish a fund, with a budget of EUR 10 billion, to support strategic Spanish undertakings which are experiencing temporary difficulties due to the impact of the COVID-19 pandemic. The support fund is provided for various recapitalization measures; to be eligible, companies have to meet the following conditions: (i) being non-financial entities; (ii) being established in Spain; (iii) having their principal places of business in Spain; and (iv) being considered systemic or strategic for the Spanish economy.
The Commission initially approved the scheme, declaring the notified scheme compatible with the internal market pursuant to Article 107(3)(b) TFEU. The Commission’s decision was subsequently challenged by Ryanair though an action for annulment. Four key points summarize the GC decision to not upholding Ryanair’s pleas.
First, the GC reviewed the decision in the light of the principle of discrimination. In the GC’s view, the scheme’s objective satisfied the conditions laid down in Article 107(3)(b) and the restriction provided was both appropriate and necessary in order to achieve the scope of remedying the serious disturbance in the Spanish economy. The measure was also proportionate, as Spain can legitimately rely on the eligibly criteria designed to identify undertakings systematically or strategically important for its economy.
Second, the GC assessed the Commission’s decision in the light of the freedom to provide services and freedom of establishment, considering that the former does not apply to the field of transport, which is governed by a special regime.
Third, regarding the alleged infringement of the obligation to balance beneficial and negative effects on trading conditions, the GC affirmed that such a balancing exercise is not required by Article 103(3)(b) TFEU.
Finally, concerning the allegedly incorrect classification of the measure at issue as an “aid scheme”, the GG affirmed that the provisions of Spanish law constitute the legal basis of the measure at issue.
Gatekeepers Should Face Private Enforcement, Extra Merger Rules, Say Germany, France, and the Netherlands.
German Minister Peter Altmaier (Economy and Energy), French Minister Bruno Le Maire (Economy and Finance) and State Secretary Cédric O (Digitalisation) and Dutch State Secretary Mona Keijzer (Economic Affairs and Climate Change) published a joint proposal, where they advocate that all mergers and takeovers by large digital platforms with a gatekeeper position should be assessed by an EU regulator. This proposal is meant to supplement the Digital Markets Acts (DMA), which introduces supervision and measures for digital platforms with a gatekeeper position (which are companies that entrepreneurs and consumers can hardly avoid) on a European level.
The proposal includes the possibility to intervene, in addition to the general obligations in the DMA with measures that only apply to specific gatekeepers. In order to prevent gatekeepers from continuing to acquire innovative start-ups and thereby eliminating future competitors, it is also very important that all mergers and acquisitions by gatekeepers are assessed by an EU regulator. National regulators would need to signal and support the EU activities, whereas supervision would take place at EU level, according to this proposal. The issue will be (further) discussed by the relevant EU ministers in the Competitiveness Council in Brussels on May 27, 2021.
Edoardo Gambardo, Pamela J. Marple, Yuji Ogiwara, Stephen M. Pepper, Gillian Sproul, Filip Drgas, Marta Kownacka, Pietro Missanelli, Massimiliano Pizzonia, Anna Rajcert, Jose Abel Rivera-Pedroza, Ippei Suzuki and Rebecca Tracy Rotem also contributed to this update.