Any business that is present or trading in the European Union (EU) needs to be aware of EU competition law. Readers will no doubt have heard of the large fines for cartels that are handed out by the European Commission (the EU’s civil service, responsible for EU-wide enforcement of competition law), most recently the total EUR161 million (currently around US$214 million) imposed on four producers of refrigeration compressors for operating, in breach of EU competition law, a cartel in the EU.
Similar fines are regularly imposed by national regulators in the EU for infringements of national and/or EU competition law. There are close similarities between EU competition and U.S. antitrust law, but also some important differences.
Cartels the highest risk area
EU competition law is not only about cartels, but, as in other jurisdictions, this is the highest risk area and therefore would normally be the focus for a good corporate compliance program. A recent case highlights that responsibility for cartels can arise even out of the activities of partly owned subsidiaries.
On February 2, 2012, the General Court of the EU (its second highest court) confirmed that two parent companies in a 50/50 joint venture (JV) can be held liable and therefore fined for cartel activity carried out by the JV in the EU. The judgment relies on the long-established principle under EU competition law that when a parent holds “decisive influence” over a subsidiary, then the parent and the subsidiary are considered to be one entity and the parent will be jointly and severally liable for the activities of the subsidiary. Decisive influence is presumed where the shareholding is at or near 100%.
In this case the court made its finding despite the fact that the JV was “full-function” for the purposes of merger control (so treated as an autonomous economic entity for that purpose) and that control by the parents was only negative. The judgment serves as a reminder that, in assessing competition law risk in the EU and implementing a compliance program, companies cannot ignore their partly owned subsidiaries.
Information exchange is dangerous too
Another area of risk is “information exchange.” Competing companies need to be aware that any exchange of commercially sensitive information that may impact business in the EU is dangerous and may be treated as, in effect, a cartel. This is the case even if the “exchange” was unilateral or took place once (such as in a single meeting).
There are numerous examples of EU-level as well as national fines for information exchange. In 2008, the EC fined banana importers a total of EUR60 million (currently around US$80 million) for engaging in “bilateral pre-pricing communications during which they discussed banana price setting factors . . . and discussed or disclosed price trends and/or indications of quotation prices for the up-coming week.”
Compliance programs need to cover the various ways in which information exchange can be set up, which could include indirect exchange between competitors through a supplier or a customer.
Parallel trade issues
EU competition law is in part used to reinforce and develop the EU’s single market. Accordingly, agreed restrictions on trade between EU member states are seen as serious infringements of competition law in the EU and fines are regularly imposed for this. Essentially, any limitation on the ability of a purchaser to supply cross-border needs to be very carefully considered and a compliance program must monitor whether such restrictions are being imposed in practice, even if not expressly in agreements.
This issue extends to Internet sales. On October 13, 2011, the Court of Justice of the EU (the EU’s highest court) said that an absolute ban on Internet sales by a distributor will usually be an automatic infringement of EU competition law. There may be cases in which such a restriction is permitted, but the products in the case (cosmetics) did not justify such a limitation.
Resale price maintenance
Along with restrictions on parallel trade, resale price maintenance (RPM) agreed between supplier and buyer is seen as the most serious infringement of EU competition law as it applies to vertical buy/sell relationships. Again, a compliance program must monitor whether any vertical trading relationship is giving rise to a risk of RPM.
In general, maximum prices are permitted under EU competition law, as are recommended resale prices. However, the line between a recommendation and illegal RPM is fine. RPM can be achieved through indirect means, and EC guidance is that this includes, amongst many other things, threats, penalties, delay or suspension of deliveries, or contract terminations in relation to observance of a given price level.
A key difference between EU and U.S. law in this area is that the “Colgate” presumption familiar under U.S. antitrust law doesn’t work in the EU. Under this presumption a manufacturer can announce a price and then terminate any distributor who does not comply (without any discussion). Under EU competition law, although there must be an “agreement” for the law to apply, there is a strong risk that in such a situation any distributor that agrees to the price and is therefore not terminated sets up an agreement with its supplier.
The EC supports compliance programs
On November 23, 2011, the EC produced guidance on EU competition law compliance, following the trend set by national regulators in the EU. The guidance specifically makes the points that ignorance of the law is no defense and that “being small is no excuse for not complying with the applicable EU or national competition rules”.
The EC makes it clear that it supports compliance programs, tailored to the business in question. As with other regulators in the EU, the EC suggests a proactive risk-based approach, including risk identification, assessment, mitigation and review, backed by “unequivocal senior management support.”
In a departure from the approach in some EU countries, the guidance also confirms that, although all compliance efforts are welcomed, the existence of a compliance program will not be used as a mitigating factor justifying the reduction of any fine imposed for an infringement of competition law. This is because the purpose of a compliance program is to avoid an infringement in the first place.
On the other hand, the existence of a program will not be considered as an aggravating circumstance justifying an increase in a fine should there be an infringement. This is because “if the programme has failed . . . the sanction will come in the form of the fine imposed.” Therefore, as the EC points out, “a credible competition compliance programme can only deliver benefits to a company.”
This is a brief summary of key EU competition law issues. The “Colgate” example shows that it is not possible simply to assume that EU competition law operates in the same way as does U.S. antitrust law.
Another area of difference often comes up; the U.S. Robinson-Patman Act essentially requires sellers to sell to everyone at the same price and requires buyers with the requisite knowledge to buy from a particular seller at the same price as everyone else. In the EU, these types of rules only apply to dominant companies (unless, say, the companies involved are engaged in restricting parallel trade through this mechanism).
The message is that EU competition law needs to be taken seriously, and an appropriate compliance regime put in place, but such a regime needs to take into account the peculiarities of EU law.
About the Author
Matthew Hall is partner at McGuireWoods LLP. He focuses his practice on all aspects of EU and UK competition law. He has substantial experience with merger control, State aid, cartels and issues arising out of trading agreements and practices, such as abuse of dominance, distribution and agreements between competitors.
He advises main parties and third-party complainants, and he has regular dealings with the European Commission, UK Competition Commission, UK Office of Fair Trading, and other government bodies and regulators. He also has extensive experience of EU and UK public procurement law, acting for a very wide range of purchasers and providers.
Matthew Hall is partner at McGuireWoods LLP. He focuses his practice on all aspects of EU and UK competition law. He has substantial experience with merger control, State aid, cartels and issues arising out of trading agreements and practices, such as abuse of dominance, distribution and agreements between competitors. He advises main parties and third-party complainants, and he has regular dealings with the European Commission, UK Competition Commission, UK Office of Fair Trading, and other government bodies and regulators. He also has extensive experience of EU and UK public procurement law, acting for a very wide range of purchasers and providers.