EU & Competition law update
Given the seriousness of infringements of EU or UK Competition Law, one would not expect so many businesses, particularly prominent ones, to fall foul of the law.
After all, no PLC (or SME) wants to face a fine that could remove 10% of its global revenues from the company coffers. Many have invested in expensive and sophisticated compliance programs so again, you would expect very few outfits to infringe the law. And yet, this is not the case, as these recent developments show…
E- for Enforcement
E-commerce is a longstanding focus of the EU Commission, given the growing importance it puts on trade generally. It has announced three on-going investigations in this area:
- Competition law generally prohibits “geo-blocking”, the practice of suppliers preventing on-line sales of goods and services in certain member states. The Commission is currently investigating whether bilateral agreements concluded between Valve Corporation, owner of the Steam game distribution platform, and five PC video game publishers restrict the sales of PC video games to customers within certain identified member states.
- In the second investigation, the Commission is examining agreements regarding hotel accommodation concluded between the largest European tour operators and a large hotel chain. The parties are alleged to have discriminated between customers based on their country of residence, effectively keeping end user prices higher in some countries than others, in violation of competition law.
- A third inquiry asks whether four consumer electronic products manufacturers have prevented their online re-sellers from setting their own prices. If proven, this would be a serious breach of Article 101(1) of the EU Treaty, which prohibits resale price maintenance (RPM) by suppliers. RPM infringements are in fact a common risk for parties to supply, distribution, resale and franchise arrangements and vigilance is needed to avoid them. The law allows certain price controls but not others and specialist advice should be sought. In the UK, the Competition and Markets Authority (CMA) has indicated it will come down hard on this practice in on-line markets. It is currently investigating a group of companies in the UK lighting sector in relation to suspected RPM practices.
Fully-charged: Battery makers face powers of EU enforcement
On 9 February 2017, the EU Commission published a summary of its December 2016 decision to impose aggregate fines of €165,841,000 on Sony, Panasonic and Sanyo for participating in a cartel for rechargeable lithium-ion batteries. Fines were reduced as the parties settled the case with the Commission.
The Commission’s investigation discovered that the four companies had:
- agreed on temporary price increases in 2004 and 2007 triggered by a temporary increase in the price of cobalt, a raw material used in the production of lithium-ion batteries and
- exchanged commercially sensitive information such as supply and demand forecasts, price forecasts or intentions concerning particular competitive bids organised by specific manufactures of products such as phones, laptops or power tools.
Interestingly, nearly all contacts between the parties occurred outside Europe. Legally, however, the parties were subject to the jurisdiction of EU Competition Law as their conduct had an impact on European markets.
Damages Directive and collective actions: where there’s a cartel, there’s a claim
On 14 March 2017, the UK passed regulations implementing the EU’s Antitrust Damages Directive through regulations before parliament. These regulations aim to make it (even) easier to bring competition law claims by laying down comprehensive rules on matters such as the calculation of damages and the passing on defence (i.e. can you claim compensation for a cartel overcharge if you passed it on to your customers?).
A whole new ‘class’ of exposure – reformed collective competition actions system tested in major consumer claims
The last two years have seen a growth in “collective actions” by classes of claimants. These actions were made easier by the Consumer Rights Act 2015, which introduced an “opt out” approach to collective actions brought on behalf of an entire class of claimant - every person falling within that class will be deemed to have asked for the damages payable to reimburse their losses to be paid over regardless of whether they have actually come forward to confirm their intention to claim them. This reverses the previous so-called ‘opt-in’ system, requiring active participation by class members.
This reform, which promised to increase exposure of defendants in collective proceedings, is clearly having an effect. In one case before the CAT, MasterCard is facing an action worth billions by a representative claimant (Walter Hugh Merrick) on behalf of, potentially, more than 46 million UK consumers alleged to have overpaid for fees on credit card transactions. A similar collective action is being pursued against Pride mobility scooters on behalf of the General Secretary of the National Pensioners Convention (“NPC”), an umbrella organisation representing around 1.2 million individual members.
Directors and direct involvement
Competition Law violations endanger not only the companies concerned, but also the individuals that manage those companies. Corporate officers with direct involvement in infringements can face disqualification for up to 15 years. The CMA applied this power recently against a director of online retailer Trod Limited, who was personally implicated in price fixing on Amazon with another seller. Trod, which is a SME, received a fine of around £163,000 while the director faces a debarment from acting as a director or fulfilling any similar management role.
Key lessons from this Quarter’s update
This quarter’s update gives us the following take-away points:
- Ensure that online sales arrangements are free from anti-competitive clauses, such restrictions on resale prices, geo-blocking or different terms depending on customers’ nationalities. This applies not only to the sale of goods but also services such as on-line computer games
- Competition laws have extraterritorial effect. That means that even where anti-competitive conduct is agreed outside of a particular jurisdiction (such as the EU), it may still fall to be examined (or fined) under the rules of that jurisdiction if it has an effect there
- Not that it is not only fines that companies need to be wary of, but the possibility of lawsuits seeking compensation for anti-competitive behaviour (and director disqualification) – the potential exposure and liability in connection with these lawsuits is now potentially many times greater under the reformed ‘collective actions’ regime
- Aside from training for staff, have in place a sensible document retention policy to assist the company in defending its position if it is ever sued under competition legislation and
- Remember that small companies (such as Trod) are equally vulnerable to enforcement actions as large ones (such as Panasonic). Furthermore, it is not only companies, but also their officers and managers who are at risk of civil and criminal liability. It pays to ensure officers are properly trained on their responsibilities and risks and lead by example to the rest of the firm. One needs to realise also that competition law problems can generate conflicts of interests between directors and the companies they manage.
This article was written by Paul Henty and Rory Ashmore. For more information please contact Paul Henty on +4402074276506 or at email@example.com
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